e424b3
The
information contained in this prospectus supplement is not
complete and may be changed. This prospectus supplement and the
accompanying base prospectus are not an offer to sell these
securities and are not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
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Filed Pursuant to
Rule 424(b)(3)
Registration
No. 333-155761
Subject
to Completion, dated March 31, 2011
PROSPECTUS
SUPPLEMENT
(To
Prospectus dated October 13, 2009)
5,000,000 Shares
Winthrop
Realty Trust
Common
Shares of Beneficial Interest
This is an offering
of 5,000,000 common shares of beneficial interest, par value
$1.00 per share, of Winthrop Realty Trust.
Our common shares
trade on the New York Stock Exchange, which we refer to as the
NYSE, under the symbol FUR. The last reported
trading price of our common shares on March 30, 2011 was
$12.10.
The underwriters
have agreed to allocate for sale in the offering, at the same
price as will be initially offered by the underwriters to
others, 200,000 common shares to members of our senior
management, trustees and FUR Investors LLC and its affiliates.
FUR Investors LLC is an entity that currently holds 12.0% of our
outstanding shares and whose membership, in part, consists of
our executive officers. FUR Investors LLC has agreed that it or
its affiliates will purchase such shares.
Investing in our
common shares involves risks. See Risk Factors
beginning on
page S-8
of this prospectus supplement and in our Annual Report on
Form 10-K
for the year ended December 31, 2010, filed with the
Securities and Exchange Commission.
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Per
Share
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Total
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Price to the public
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$
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$
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Underwriting discounts and commissions*
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$
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$
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Proceeds to Winthrop Realty Trust (before expenses)
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$
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$
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*
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We will not pay any
underwriting fees with respect to any common shares sold in the
offering to members of our senior management, trustees, or FUR
Investors LLC and its affiliates.
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We have granted the
underwriters the option to purchase up to an additional 750,000
common shares on the same terms and conditions set forth above
if the underwriters sell more than 5,000,000 common shares in
this offering.
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
supplement. Any representation to the contrary is a criminal
offense.
Barclays Capital, on
behalf of the underwriters, expects to deliver the shares on or
about April , 2011.
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Barclays
Capital |
KeyBanc Capital Markets |
Prospectus
Supplement dated April , 2011.
TABLE OF
CONTENTS
Prospectus
Supplement
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Page
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S-3
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S-3
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S-3
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S-4
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S-5
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S-7
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S-8
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S-10
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S-11
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S-11
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S-21
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S-25
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S-25
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Prospectus
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Page
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CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS
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iii
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ABOUT THIS PROSPECTUS
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1
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OUR COMPANY
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1
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RISK FACTORS
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1
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DESCRIPTION OF OUR COMMON SHARES
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12
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General
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12
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Shareholder Liability
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12
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Voting Rights
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12
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Transfer Agent and Registrar
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13
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Restriction on Size of Holdings
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13
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Trustee Liability and Indemnification
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13
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DESCRIPTION OF OUR PREFERRED SHARES
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13
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General
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14
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Terms
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14
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Rank
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14
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Dividends
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15
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Redemption
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15
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Liquidation Preference
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15
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Voting Rights
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15
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Conversion Rights
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15
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Restrictions on Ownership
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16
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Transfer Agent
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16
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Terms of Our
Series B-1
Preferred Shares
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16
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DESCRIPTION OF RIGHTS
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20
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General
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20
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Terms
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20
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DESCRIPTION OF OUR DEBT SECURITIES
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21
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General
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21
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Terms
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22
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s-i
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Page
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Denomination, Interest, Registration and Transfer
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24
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Merger, Consolidation or Sale of Assets
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24
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Certain Covenants
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25
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Events of Default, Notice and Waiver
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25
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Modification of the Indenture
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27
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Subordination
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28
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Discharge, Defeasance and Covenant Defeasance
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29
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Conversion Rights
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31
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Payment
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31
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Global Securities
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31
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FEDERAL INCOME TAX CONSIDERATIONS
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31
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General
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32
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Requirements for Qualification
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33
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Taxation of Holders of Common or Preferred Shares U.S.
Shareholders
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37
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Non-U.S.
Shareholders
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39
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Other Tax Consequences
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41
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Taxation of Holders of Fixed Rate Debt Securities
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41
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U.S. Holders
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41
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Non-U.S.
Holders
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42
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USE OF PROCEEDS
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43
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PLAN OF DISTRIBUTION
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43
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To Underwriters
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44
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Through Agents and Dealers
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44
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Delayed Delivery Contracts
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44
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General Information
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44
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RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO
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COMBINED FIXED CHARGES AND PREFERRED SHARE DIVIDENDS
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45
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EXPERTS
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46
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LEGAL MATTERS
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46
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WHERE YOU CAN FIND MORE INFORMATION
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46
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
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47
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You should rely only on the information contained or
incorporated by reference in this prospectus supplement and the
accompanying base prospectus. We have not authorized anyone to
provide you with additional or different information from that
contained or incorporated by reference in this prospectus
supplement and the accompanying base prospectus. The information
contained in this prospectus supplement and the accompanying
base prospectus is accurate only as of the date on the front
cover of this prospectus supplement and any information we have
incorporated by reference is accurate only as of the date of the
document incorporated by reference, regardless of the time of
delivery of this prospectus supplement or any exercise of the
rights.
s-ii
ABOUT
THIS PROSPECTUS SUPPLEMENT
Unless the context otherwise requires, references in this
prospectus supplement and the accompanying base prospectus to
we, us, or Company refer to
Winthrop Realty Trust and its subsidiaries.
This document is in two parts. The first part is this prospectus
supplement, which describes the terms of the offering and also
adds to and updates information contained in the accompanying
base prospectus. The second part is the accompanying base
prospectus, which provides more general information. To the
extent there is a conflict between the information contained in
this prospectus supplement, on the one hand, and the information
contained in the accompanying base prospectus, on the other
hand, you should rely on the information in this prospectus
supplement. It is also important for you to read and consider
all information contained in this prospectus supplement and the
accompanying base prospectus, including the documents we have
referred you to in the section entitled Where You Can Find
More Information below in this prospectus supplement. The
information incorporated by reference is considered part of this
prospectus supplement.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission, which we refer to as the
SEC, allows us to incorporate by reference the
information we file with them, which means that we can disclose
important information to you by referring you to those
documents. The information incorporated by reference is
considered to be part of this prospectus supplement, and
information that we file later with the SEC will automatically
update and supersede this information. We incorporate by
reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, which
is commonly referred to as the Exchange Act:
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Annual Report on
Form 10-K
for the year ended December 31, 2010;
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Current Reports on
Form 8-K
filed on March 31, 2011 (solely with respect to Item 8.01)
and March 4, 2011 (solely with respect to Items 1.01,
2.03, and 8.01); and
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Our Definitive Proxy Statement on Schedule 14A dated
March 31, 2011.
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You may request a copy of these filings, at no cost, by writing
or telephoning us at the following address:
Beverly Bergman
Director of Investor Relations
Winthrop Realty Trust
7 Bulfinch Place, Suite 500
Boston, MA 02114
(617) 570-4614
You should rely only on the information or representations
provided in or incorporated by reference into this prospectus
supplement and the accompanying base prospectus. We have not
authorized anyone else to provide you with different
information. You should not assume that the information in this
prospectus supplement, the accompanying base prospectus or any
supplement hereto or thereto is accurate as of any date other
than the date on the front of those documents.
WHERE YOU
CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Exchange
Act, which requires us to file reports and other information
with the SEC. You can inspect and copy reports, proxy statements
and other information filed by us at the Public Reference Room
maintained by the SEC at 100 F Street, N.E.,
Washington, D.C. 20549.
You can obtain information on the operation of the Public
Reference Room by calling the SEC at
1-800-SEC-0330.
You can obtain copies of this material by mail from the Public
Reference Room of the SEC at 1580, 100 F Street, N.E.,
Washington, D.C. 20549, at prescribed rates. You can also
obtain such reports, proxy statements and other information from
the web site that the SEC maintains at
http://www.sec.gov.
S-3
Reports, proxy statements and other information concerning us
may also be obtained electronically at our website,
http://www.winthropreit.com,
and through a variety of databases, including, among others, the
SECs Electronic Data Gathering and Retrieval (EDGAR)
program, Knight-Ridder Information Inc., Federal Filing/Dow
Jones and Lexis/Nexis. None of the information on those websites
that is not otherwise expressly set forth in or incorporated by
reference in this prospectus supplement is a part of this
prospectus supplement.
CAUTIONARY
STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS
Any statements included in this prospectus supplement or the
accompanying base prospectus, including any statements in the
documents that are incorporated by reference herein or therein
that are not strictly historical are forward-looking statements
within the meaning of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Any such
forward-looking statements contained or incorporated by
reference herein should not be relied upon as predictions of
future events. Certain forward-looking statements can be
identified by the use of forward-looking terminology such as
believes, expects, may,
will, should, seeks,
approximately, intends,
plans, pro forma, estimates
or anticipates or the negative thereof or other
variations thereof or comparable terminology, or by discussions
of strategy, plans, intentions or anticipated or projected
events, results or conditions. Such forward-looking statements
are dependent on assumptions, data or methods that may be
incorrect or imprecise and they may be incapable of being
realized. Such forward-looking statements include statements
with respect to:
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the declaration or payment of distributions by us;
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the ownership, management and operation of properties;
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potential acquisitions or dispositions of our properties, assets
or other businesses;
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our policies regarding investments, acquisitions, dispositions,
financings and other matters;
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our qualification as a real estate investment trust under the
Internal Revenue Code of 1986, as amended, which we refer to as
the Code;
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the real estate industry and real estate markets in general;
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the availability of debt and equity financing;
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interest rates;
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general economic conditions;
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supply of real estate investment opportunities and demand;
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trends affecting us or our assets;
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the effect of acquisitions or dispositions on capitalization and
financial flexibility;
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the anticipated performance of our assets and of acquired
properties and businesses, including, without limitation,
statements regarding anticipated revenues, cash flows, funds
from operations, earnings before interest, depreciation and
amortization, property net operating income, operating or profit
margins and sensitivity to economic downturns or anticipated
growth or improvements in any of the foregoing; and
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our ability, and that of our or assets and acquired properties
and businesses to grow.
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You are cautioned that, while forward-looking statements reflect
our good faith beliefs, they are not guarantees of future
performance and they involve known and unknown risks and
uncertainties. Actual results may differ materially from those
in the forward-looking statements as a result of various
factors. The information contained or incorporated by reference
in this prospectus supplement, including, without limitation,
the information set forth in Risk Factors in our Annual Report
on
Form 10-K
for the year ended December 31, 2010, which we refer to as
the 2010
10-K, that
are incorporated by reference in this prospectus supplement,
identifies important factors that could cause such differences.
We undertake no obligation to publicly release the results of
any revisions to these forward-looking statements that may
reflect any future events or circumstances, except as required
by applicable law, rules or regulations.
S-4
PROSPECTUS
SUPPLEMENT SUMMARY
This summary highlights selected information from this
prospectus supplement. The following summary information is
qualified in its entirety by the information contained elsewhere
or incorporated by reference in this prospectus supplement and
the accompanying base prospectus. This summary does not contain
all of the information that you should consider prior to making
your investment decision. You should read the following summary
in conjunction with the more detailed information contained
elsewhere in this prospectus supplement and the accompanying
base prospectus, and the financial statements and other
information incorporated by reference in this prospectus
supplement and the accompanying base prospectus before making an
investment decision. Unless the context otherwise requires,
references to we, us, our or
the Company refer to Winthrop Realty Trust and its
subsidiaries.
Our
Company
We are a real estate investment trust, commonly referred to as a
REIT, formed under the laws of the State of Ohio. Our operations
are managed by FUR Advisors LLC. Our common shares are traded on
the NYSE under the symbol FUR. We conduct our
business through WRT Realty L.P., a Delaware limited partnership
which we refer to as the operating partnership. We are the sole
general partner of, and own all of the limited partnership
interests in, the operating partnership. Our operating
partnership structure, commonly referred to as an umbrella
partnership real estate investment trust, provides us with
additional flexibility when acquiring properties for cash
and/or by
issuing to sellers, as a form of consideration, limited
partnership interests in our operating partnership thereby
enabling us to structure transactions which may defer tax gains
for a seller while preserving our available cash for other
purposes.
We are engaged in the business of owning and managing real
property and real estate related assets. Our business objective
is to maximize long-term shareholder value through a total
return value approach to real estate investing. As a result of
our emphasis on total return, while we seek to achieve a stable,
predictable dividend for our shareholders, we do not select or
manage our investments for short-term dividend growth, but
rather towards achieving overall superior total return. Our
approach focuses on opportunistic investments and provides us
with both the ability to capitalize on evolving market
conditions and the flexibility to pursue diverse opportunities.
We believe this approach will ultimately result in long term
increased share value.
We operate in three strategic business segments: (i) the
ownership of investment properties, including properties in
joint ventures, which we refer to as operating properties;
(ii) the origination and acquisition of senior loans,
mezzanine loans and debt securities secured directly or
indirectly by commercial and multi-family real property, which
we refer to as loan assets; and (iii) the ownership of
equity and debt securities in other REITs, which we refer to as
REIT securities.
As a diversified REIT, we seek to focus our investing in those
segments we believe will generate the greatest overall return to
us given market conditions at the time. Based on market
conditions in 2010, we focused our investment activity in our
loan asset segment. We seek to enter into ventures with third
parties who have a presence, experience and expertise in
specific geographic areas
and/or
specific asset types. Further, with respect to ventures that we
manage, we seek to enhance our total return with asset
management and other fees, and promoted economic interests and
appreciation. We currently expect to concentrate our investment
activities in assets that we believe are higher quality office,
retail and multi-family properties, along with high-end
hospitality assets as we expect these asset types will be the
first to recover. We generally do not pursue those investments
in which there is a significant component of raw land,
development risk, specialty real estate or condominiums, unless
the condominium project can be converted to a conventional
multi-family property.
Our
Company Information
Our executive offices are located at 7 Bulfinch Place,
Suite 500, Boston, Massachusetts
02114-9507
and Two Jericho Plaza, Jericho, New York 11753. Our telephone
numbers are
(617) 570-4614
and
(516) 822-0022
and our website is located at
http:/www.winthropreit.com. None of the
information on our website that is not otherwise expressly set
forth in or incorporated by reference in this prospectus
supplement is a part of this prospectus supplement.
S-5
Recent
Developments
Asset
Acquisitions and Pay-offs
Loan Repayment. On March 31, 2011, our
Metropolitan Tower B Note and rake bond receivable was satisfied
at par. As a result, we will receive approximately
$23.75 million on account of our original aggregate
$11.75 million investment.
Favorable Concord Ruling. As a result of the
recent favorable Delaware Supreme Court ruling on March 3,
2011 regarding the cancellation of notes issued by Concord Real
Estate CDO
2006-1 Ltd.
(the CDO), an entity in which we indirectly hold a
one-third interest, the CDO trustee will shortly begin to
release funds previously held in escrow resulting in our initial
receipt of approximately $2.0 million on account of loans
made by us to Concord Debt Funding Trust (Concord)
in the aggregate amount of approximately $4,245,000. This
initial receipt of funds relates to escrowed funds for the
period from February 2010 through June 2010. The CDOs
collateral manager and the trustee are currently in the process
of reconciling the distributions due to Concord for the period
from July 2010 through March 2011.
Loan Acquisition. On March 22, 2011, our
50-50 joint venture with Retail Opportunity Investments Corp.
(Nasdaq:ROIC) completed the previously reported acquisition at
par of two non-performing first mortgage loans with a total
outstanding balance of $35.6 million secured by two grocery
anchored retail centers located in Riverside County, California.
Upon acquisition, the joint venture immediately commenced
foreclosure on the underlying properties.
Other
Recent Developments
CDO Management Contracts. On March 23,
2011, a venture in which we hold a 50% interest entered into a
contract to acquire the collateral management agreements with
respect to three real estate CDOs that hold approximately
$1.8 billion in loans and loan securities. The acquisition
of the collateral management agreements is subject to the
satisfaction of certain conditions precedent, including required
third party consents.
Sourcing Agreement for Tenant-in Common
Opportunities. We have entered into an agreement
with Axxcess Capital Ventures, LLC (Axxcess), an
advisory firm focused on the
tenant-in-common
industry, pursuant to which Axxcess will source opportunities
for us to acquire
tenant-in-common
sponsors and properties.
Acquisition
Pipeline
We have a network of long-standing relationships with real
estate professionals, individual and institutional real estate
owners and national and regional lenders. We believe our network
of relationships provides us access to an ongoing pipeline of
attractive acquisition opportunities. We are currently in
discussions regarding a number of acquisition opportunities that
have come to our attention through our network of relationships.
In addition, now that we have entered into the agreement with
Axxcess we anticipate that the number of opportunities for us to
acquire the management or ownership of portfolios of properties
held in multi-owner structures will increase.
As of March 30, 2011, we were tracking and evaluating
acquisition opportunities that include eight loan asset
opportunities with respect to loans with a face amount of
approximately $166.0 million and two preferred equity
investments in the amount of $23 million. Although we are
continuing to engage in discussions and preliminary negotiations
with sellers and have commenced the process of conducting
diligence on some of these assets or have submitted non-binding
indications of interest, we have not agreed upon terms relating
to, or entered into binding commitments with respect to, any of
these potential acquisition opportunities. As such, there can be
no assurance that we will complete any of the potential
acquisitions we are currently evaluating.
S-6
THE
OFFERING
The following is a brief summary of certain terms of this
offering. For a more complete description of our common shares,
see Description of Our Common Shares in the
accompanying base prospectus.
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Issuer |
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Winthrop Realty Trust |
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Common shares offered by us |
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5,000,000 shares |
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Common shares outstanding immediately after this offering |
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32,088,347 shares |
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Use of Proceeds |
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We intend to use the net proceeds of this offering for the
acquisition of additional investments and general corporate
purposes. |
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New York Stock Exchange Listing |
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Our common shares trade on the NYSE under the symbol
FUR. The last reported trading price on
March 30, 2011 was $12.10. |
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Transfer Agent |
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Computershare Trust Company, N.A. |
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Restriction on Ownership |
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Our bylaws provide that no person or group of affiliated persons
may own, directly or indirectly, more than 9.8% of our common
shares. Our board of trustees may, in its discretion, exempt a
person from these ownership limits under certain circumstances.
Unless the board waives the restrictions or approves a bylaw
amendment, common shares owned by a person or group of persons
in excess of 9.8% of our outstanding common shares are not
entitled to any voting rights; are not considered outstanding
for quorum or voting purposes; and are not entitled to
dividends, interest or any other distributions with respect to
the securities. |
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Risk Factors |
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See Risk Factors beginning on
page S-8
of this prospectus supplement and in the 2010
10-K filed
with the SEC for a discussion of factors that you should
carefully consider before deciding to invest in our common
shares. |
The number of common shares outstanding immediately after the
offering is based on 27,088,347 shares outstanding as of
March 30, 2011, which does not include 946,666 common
shares issuable upon conversion of our
Series B-1
Cumulative Convertible Redeemable Preferred Shares of Beneficial
Interest, 257,142 common shares issuable upon conversion of our
Series C Cumulative Convertible Redeemable Preferred Shares
of Beneficial Interest and 20,000 shares issuable upon
exercise of outstanding options. Except as otherwise stated, the
information in this prospectus supplement does not take into
account the exercise of the underwriters option to
purchase additional shares in the event the underwriters sell
more than 5,000,000 shares.
S-7
RISK
FACTORS
Investing in our common shares involves risks that could
affect us and our business as well as the real estate industry
generally. Before purchasing our common shares, you should
carefully consider the Risk Factors discussed below
in this prospectus supplement and in our 2010
10-K. Those
Risk Factors update and replace the Risk Factors identified in
the accompanying base prospectus under the caption Risk
Factors. Each of the risks described could result in a
decrease in the value of our common shares and your investment
therein. Much of the business information as well as the
financial and operational data contained in our risk factors is
updated in our periodic reports, certain of which are also
incorporated by reference into this prospectus supplement.
Although we have tried to discuss key factors, please be aware
that other risks may prove to be important in the future. New
risks may emerge at any time and we cannot predict such risks or
estimate the extent to which they may affect our financial
performance.
This
offering will be highly dilutive, and there may be future
dilution of our common shares.
This offering will have a highly dilutive effect on our expected
earnings per share for the year ending December 31, 2011,
as we have 27,088,347 common shares outstanding as of
March 30, 2011. Additionally, subject to the
90-day
lock-up
period restrictions described in Underwriting, and
certain restrictions on the issuance of securities with rights
senior to our existing
Series B-1
Cumulative Convertible Redeemable Preferred Shares (which we
refer to as our Series B Shares) and Series C
Cumulative Convertible Redeemable Preferred Shares (which we
refer to as our Series C Shares), we are not restricted
from issuing in the future additional common shares or preferred
shares, including any securities that are convertible into or
exchangeable for, or that represent the right to receive, common
shares or preferred shares or any substantially similar
securities. The market price of our common shares could decline
as a result of sales of a large number of our common shares in
the market after this offering or the perception that such sales
could occur. In addition, this offering will result in a
downward adjustment to the conversion price of our Series B
Shares and Series C Shares, which would result in
additional dilution upon a conversion of any such preferred
shares.
We may
change the dividend policy for our common shares in the
future.
We paid aggregate annual dividends of $0.65 per share for the
2010 taxable year and have declared a dividend of $.1625 per
share for the first quarter of the 2011 taxable year. However,
the decision to declare and pay dividends on our common shares
in the future, as well as the timing, amount and composition of
any such future dividends, will be at the sole discretion of our
Board of Trustees in light of conditions then existing,
including our earnings, financial condition, capital
requirements, debt maturities, the availability of debt and
equity capital, applicable REIT and legal restrictions and the
general overall economic conditions and other factors. The
actual dividend payable will be determined by our Board of
Trustees based upon the circumstances at the time of declaration
and the actual dividend payable may vary from such expected
amounts. Any change in our dividend policy could have a material
adverse effect on the market price of our common shares.
The
trading price of our common shares has been, and may continue to
be, subject to significant fluctuations.
From January 1, 2011 through March 30, 2011, the
closing sale price of our common shares on the New York Stock
Exchange has ranged from $11.42 to $13.15 per share. The market
price of our common shares may fluctuate in response to
company-specific and securities market events and developments
including those described in this Risk Factors
section and otherwise described in or incorporated by reference
in this prospectus supplement and the accompanying base
prospectus. In addition, the amount of our indebtedness may
impact investor demand for our common shares, which could have a
material effect on the market price of our common shares.
Failure
to renew expiring leases could adversely affect our financial
condition.
We are subject to the risk that, upon expiration, leases may not
be renewed, the space may not be relet or the terms of renewal
or reletting, including the cost of any required renovations,
may be less favorable than the prior or current lease terms.
This risk is substantial with respect to our net leased
properties as single tenants lease 100% of
S-8
each property. As of March 1, 2011, thirteen of our
properties, containing an aggregate of approximately
1,707,000 square feet of space are net leased to eight
different tenants. Leases accounting for approximately 5% of the
aggregate annualized base rents from our operating properties
for 2010, representing approximately 5% of the net rentable
square feet at the properties, are scheduled to expire in 2011.
The lease at our Churchill, Pennsylvania property, which
accounted for approximately $3,100,000 in annual rental revenue
in 2010, expired December 31, 2010. Other leases grant
tenants early termination rights upon payment of a termination
penalty. Lease expirations will require us to locate new tenants
and negotiate replacement leases with them. The costs for tenant
improvements, tenant concessions and leasing commissions with
respect to new leases are traditionally greater than costs
relating to renewal leases. If we are unable to promptly relet
or renew leases for all or a substantial portion of the space
subject to expiring leases, or if the rental rates upon such
renewal or reletting are significantly lower than expected, our
revenue and net income could be adversely affected.
S-9
CAPITALIZATION
The following table shows our capitalization as of
December 31, 2010 on (i) a historical basis and
(ii) as adjusted to reflect net proceeds from the sale by
us of 5,000,000 shares of common stock in this offering, at
an assumed sale price of $12.10 per share (the closing price of
our common shares on the New York Stock Exchange on
March 30, 2011) (assuming no exercise of the
underwriters overallotment option), after deducting the
underwriters fees and our estimated offering expenditures.
You should read this table in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations in our 2010
10-K and our
audited financial statements and related notes for the year
ended December 31, 2010 included therein.
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December 31, 2010
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Historical
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as Reported
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Adjusted(1)
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(in thousands, except par
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value and share information)
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DEBT
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Mortgage loans payable
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$
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230,443
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$
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230,443
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Series B-1
Cumulative Convertible Redeemable Preferred shares, $25 per
share liquidation preference; 852,000 shares authorized and
outstanding
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21,300
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21,300
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Revolving line of credit
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25,450
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25,450
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Total Debt
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277,193
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277,193
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NON-CONTROLLING REDEEMABLE PREFERRED INTEREST
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Series C Cumulative Convertible Redeemable Preferred
Shares, $25 per share liquidation preference;
144,000 shares authorized and outstanding
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3,221
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3,221
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Total non-controlling redeemable preferred interest
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3,221
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3,221
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EQUITY
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Winthrop Realty Trust Shareholders Equity:
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Common Shares, $1 par, unlimited shares authorized;
27,030,186 shares issued at December 31, 2010;
32,030,186 shares assuming offering of
5,000,000 shares(2)
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27,030
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32,030
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Additional paid-in capital
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569,586
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622,032
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Accumulated distributions in excess of net income
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(300,782
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)
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(300,782
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)
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Accumulated other comprehensive loss
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(63
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)
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(63
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)
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Total Winthrop Realty Trust Shareholders Equity
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295,771
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353,217
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Non-controlling interests
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14,076
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14,076
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Total Equity
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309,847
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367,293
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Total Capitalization
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$
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590,261
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$
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647,707
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(1) |
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Based upon estimated net proceeds of $57,446,000 from the sale
of 5,000,000 common shares in this offering (assuming (i)
200,000 shares are acquired by members of senior
management, trustees or FUR Investors LLC or its affiliates
(with respect to which we pay no underwriting fees) and
(ii) no exercise of the underwriters over-allotment
option), after deducting assumed underwriting discounts and
commission and our estimated expenses. |
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(2) |
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Exclusive of 58,161 common shares issued on January 15,
2011 pursuant to our Dividend Reinvestment Plan. |
S-10
USE OF
PROCEEDS
We intend to contribute to our operating partnership the net
proceeds from the sale of our common shares in this offering,
expected to be approximately $57,446,000 (approximately
$66,067,250 if the underwriters exercise their over-allotment
option in full) after deducting the underwriting discount and
estimated expenses and assuming a public offering price of
$12.10, the last sale price of our common shares on the New York
Stock Exchange on March 30, 2011. Our operating partnership
intends to use the net proceeds for the acquisition of
additional investments and general corporate purposes.
FEDERAL
INCOME TAX CONSIDERATIONS
The following discussion summarizes the material United States
federal income tax consequences of the purchase, ownership and
disposition of our common shares by persons who hold the
securities as capital assets (within the meaning of
section 1221 of the Internal Revenue Code of 1986, as
amended (the Code)). This discussion updates and
replaces the discussion identified in the accompanying base
prospectus under the caption Federal Income Tax
Considerations. It does not purport to address the
federal income tax consequences applicable to all categories of
shareholders, including shareholders subject to special
treatment under federal income tax laws, such as insurance
companies, regulated investment companies, tax-exempt
organizations (except as discussed under
Taxation of Holders of Common
Shares Tax-Exempt Shareholders) or dealers
in securities. Except as discussed under
Taxation of Holders of Common
Shares
Non-U.S. Shareholders,
this summary does not address the federal income tax
consequences applicable to persons who are not
U.S. Shareholders (as defined herein).
This summary is based on current provisions of the Code, the
Treasury regulations promulgated thereunder and judicial and
administrative authorities. All these authorities are subject to
change, and any change may be effective retroactively. This
summary is not tax advice, and is not intended as a substitute
for careful tax planning. WE RECOMMEND THAT OUR INVESTORS
CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES OF INVESTING IN OUR
SECURITIES IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.
General
In the opinion of Katten Muchin Rosenman LLP, which we refer to
as Katten Muchin, commencing with our taxable year ended
December 31, 2004, we have been organized and operated in
conformity with the requirements for qualification and taxation
as a REIT under the Code, and our current and proposed method of
operation, as described in this prospectus and as represented by
us, will enable us to continue to meet the requirements for
qualification and taxation as a REIT. Katten Muchins
opinion is not binding on the Internal Revenue Service, which we
refer to as the IRS, or the courts. It is based on various
assumptions relating to our organization and operation,
including that we have operated and will continue to operate in
the manner described in our organizational documents and this
prospectus, and representations made by us concerning certain
factual matters related to our organization and manner of
operation. Our qualification and taxation as a REIT depends upon
our ability to meet on a continuous basis, through actual annual
operating results, (i) income and asset composition tests,
(ii) specified distribution levels, (iii) diversity of
beneficial ownership, and (iv) various other qualification
tests (discussed below) imposed by the Code. Katten Muchin has
not reviewed and will not monitor our ongoing compliance with
these tests, and expresses no opinion concerning whether we
actually have satisfied or will satisfy these tests on a
continuous basis. No assurance can be given that we actually
have satisfied or will satisfy such tests on a continuous basis.
Our failure to qualify as a REIT in prior years could adversely
affect Katten Muchins opinion and our eligibility for REIT
status for our taxable year ended December 31, 2004 and
subsequent years. (See Failure to
Qualify, below.)
The following is a general summary of the material Code
provisions that govern the federal income tax treatment of a
REIT and its shareholders. These provisions are technical and
complex.
In general, if we qualify as a REIT, we will not be subject to
federal corporate income taxes on the net income that we
distribute currently to our shareholders. This treatment
substantially eliminates the double taxation
S-11
(taxation at both the corporation and shareholder levels) that
generally results from an investment in stock of a C
corporation (that is, a corporation generally subject to the
full corporate-level tax). We will, however, still be subject to
federal income and excise tax in certain circumstances,
including the following:
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we will be taxed at regular corporate rates on any undistributed
REIT taxable income, including undistributed net
capital gains;
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we may be subject to the alternative minimum tax on
our undistributed items of tax preference;
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if we have (i) net income from the sale or other
disposition of foreclosure property that we hold primarily for
sale to customers in the ordinary course of business or
(ii) other non-qualifying income from foreclosure property,
then we will be subject to tax on that income at the highest
corporate rate. In general, foreclosure property is
any property we acquire by foreclosure (or otherwise) on default
of a lease of such property or a loan secured by such property
which we properly elect to treat as foreclosure property;
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if we have net income from prohibited transactions, such income
will be subject to a 100% tax. In general, prohibited
transactions are sales or other dispositions of property
(other than foreclosure property) that we hold primarily for
sale to customers in the ordinary course of business;
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if we derive excess inclusion income from an
interest in certain mortgage loan securitization structures
(i.e., a taxable mortgage pool or a residual
interest in a real estate mortgage investment conduit, or
REMIC), then we will be subject to tax at the
highest regular corporate tax rate to the extent that such
income is allocable to specified types of shareholders known as
disqualified organizations (generally, tax-exempt
entities, such as government pension plans, that are not subject
to unrelated business income tax). See
Taxable Mortgage Pools and Excess
Inclusion Income below.
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if we fail to satisfy either the 75% gross income test or the
95% gross income test (discussed below), but preserve our
qualification as a REIT by satisfying certain other
requirements, then we will be subject to a 100% tax on the
product of (a) the greater of the amount by which we fail
the 75% gross income test or the 95% gross income test,
multiplied by (b) a fraction intended to reflect our
profitability;
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if we fail to distribute for each calendar year at least the sum
of (i) 85% of our REIT ordinary income, (ii) 95% of
our REIT capital gain net income, and (iii) any
undistributed taxable income from prior years, then we will be
subject to a non-deductible 4% excise tax on the excess of the
required distributions over our actual distributions;
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if we acquire any asset from a C corporation in a
transaction in which the basis of the asset in our hands is
determined by reference to the basis of the asset (or any other
property) in the hands of the C corporation, and if we recognize
gain on the disposition of such asset during the applicable
recognition period (generally, 10 years)
beginning on the date we acquire the asset, then the
assets built-in gain (the excess of the
assets fair market value at the time we acquired it over
the assets adjusted basis at that time) will be subject to
tax at the highest regular corporate rate;
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we may elect to retain and pay income tax on some or all of our
long-term capital gain, as described below;
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if it is determined that amounts of certain income and expense
were not allocated between us and a taxable REIT subsidiary (as
defined below) on the basis of arms length dealing, or to
the extent we charge a taxable REIT subsidiary interest in
excess of a commercially reasonable rate, then we will be
subject to a tax equal to 100% of those amounts; and
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we may be required to pay monetary penalties if we fail to
satisfy certain requirements for REIT qualification, as the
price for maintaining our REIT status.
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Requirements
for Qualification
The Code defines a REIT as a corporation, trust or association:
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that is managed by one or more trustees or directors;
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S-12
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the beneficial ownership of which is evidenced by transferable
shares or by transferable certificates of beneficial interest;
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that would be taxable as a domestic corporation but for
Sections 856 through 859 of the Code;
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that is neither a financial institution nor an insurance company
subject to certain provisions of the Code;
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the beneficial ownership of which is held by 100 or more persons;
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no more than 50% in value of the outstanding stock of which is
owned, directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities) during the last
half of each taxable year;
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that meets certain other tests, described below, regarding the
composition of its income and assets; and
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whose taxable year is the calendar year.
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The first four requirements must be satisfied during the entire
taxable year, and the fifth must be satisfied during at least
335 days of a taxable year of 12 months (or during a
proportionate part of a taxable year of less than
12 months). We will be treated as satisfying the sixth
requirement for any taxable year for which we comply with the
regulatory requirements to request information from our
shareholders regarding their actual ownership of our shares and
we do not know, or exercising reasonable due diligence would not
have known, that we failed to satisfy such condition.
We intend to comply with Treasury regulations requiring us to
ascertain the actual ownership of our outstanding shares.
(Failure to do so will subject us to a fine.) In addition,
certain restrictions on the transfer of our shares, imposed by
our Declaration of Trust, are meant to help us continue to
satisfy the fifth and sixth requirements for qualification
described above.
Finally, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. Our taxable year is the
calendar year.
Income Tests. To remain qualified as a REIT,
we must satisfy two gross income tests in each taxable year.
First, at least 75% of our gross income (excluding gross income
from prohibited transactions) must come from real
estate sources, such as rents from real property (as defined
below), dividends and gain from the sale or disposition of
shares in other REITs, interest on obligations secured by real
property, and earnings from certain temporary investments.
Second, at least 95% of our gross income (excluding gross income
from prohibited transactions) must come from real
estate sources and from dividends, interest and gain from the
sale or disposition of stock or securities (or from any
combination of the foregoing).
Rents received by a REIT (which include charges for services
customarily furnished or rendered in connection with real
property and rent attributable to personal property leased in
connection with real property) will generally qualify as
rents from real property, subject to certain
restrictions, including:
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the amount of rent must not be based, in whole or in part, on
the income or profits of any person (with an exception for rents
based on fixed percentages of the tenants gross receipts
or sales);
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except for certain qualified lodging and healthcare facilities
leased to a taxable REIT subsidiary (described below), the REIT
(or a direct or indirect owner of 10% or more of the REIT) may
not own (directly or constructively) 10% or more of the tenant
(a Related Party Tenant);
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the amount of rent attributable to personal property leased in
connection with a lease of real property may not exceed 15% of
the total rent received under the lease; and
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the REIT generally may not operate or manage the property or
furnish or render services to the tenants except through
(i) a taxable REIT subsidiary (described below) or
(2) an independent contractor that satisfies
certain stock ownership restrictions, that is adequately
compensated and from whom the REIT derives no income. We are not
required to use a taxable REIT subsidiary or independent
contractor to the extent that any service we provide is
usually or customarily rendered in connection with
the rental of space for occupancy only and is not considered
rendered to the tenants.
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S-13
If, for any taxable year, we fail to satisfy the 75% gross
income test, the 95% gross income test, or both, we may
nevertheless preserve our REIT status if we satisfy certain
relief provisions under the Code. In general, relief will be
available if (i) our failure to meet one or both of the
gross income tests is due to reasonable cause rather than
willful neglect and (ii) we attach a schedule to our
federal corporate income tax return indicating the nature and
amount of our non-qualifying income. However, it is impossible
to state whether in all circumstances we would be entitled to
the benefit of the relief provisions. As discussed above under
General, even if we qualify for
relief, a tax would be imposed with respect to the amount by
which we fail the 75% gross income test or the 95% gross income
test.
Asset Tests. To maintain our qualification as
a REIT we must also satisfy, at the close of each quarter of
each taxable year, the following tests relating to the nature of
our assets:
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at least 75% of the value of our total assets must be
represented by real estate assets, including (a) interests
in real property and interests in obligations secured (or
deemed, for these purposes, to be secured) by real property,
(b) our proportionate share (determined in accordance with
our capital interest) of real estate assets held by the
operating partnership and any other partnership in which we are
a partner, (c) stock or debt instruments held for not more
than one year purchased with the proceeds of a stock offering or
long-term (that is, at least five-years) public debt offering,
(d) stock in other REITs and (e) cash, cash items and
federal government securities;
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no more than 25% (20% for taxable years ending on or before
July 30, 2008) of the value of our total assets may be
securities of one or more taxable REIT subsidiaries (described
below); and
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except for (a) securities in the 75% asset class,
(b) securities in a taxable REIT subsidiary or qualified
REIT subsidiary (defined below), and (c) certain
partnership interests and debt obligations: (i) the value
of any one issuers securities we own may not exceed 5% of
the value of our total assets; (ii) we may not own more
than 10% of any one issuers outstanding voting securities;
and (iii) we may not own more than 10% of the total value
of any one issuers outstanding securities. However, if
(i) the value of the assets causing us to violate the 5% or
10% tests does not exceed the lesser of (A) 1% of the value
of our assets at the end of the quarter in which the violation
occurs, or (B) $10,000,000, and (ii) we cure the
violation by disposing of such assets within 6 months after
the end of the quarter in which we identify the failure, then we
will not lose our REIT status.
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We currently hold assets (or provide services to tenants)
through one or more taxable REIT subsidiaries. To treat a
subsidiary as a taxable REIT subsidiary, we and the subsidiary
must make a joint election by filing a Form 8875 with the
IRS. A taxable REIT subsidiary pays tax at regular corporate
rates on its earnings, but such earnings may include types of
income that might jeopardize our REIT status if earned by us
directly. To prevent the shifting of income and expenses between
us and a taxable REIT subsidiary, the Code imposes on us a tax
equal to 100% of certain items of income and expense that are
not allocated between us and the taxable REIT subsidiary at
arms length. The 100% tax is also imposed to the extent we
charge a taxable REIT subsidiary interest in excess of a
commercially reasonable rate.
We may also hold assets through one or more corporate
subsidiaries that satisfy the requirements to be treated as
qualified REIT subsidiaries. A qualified REIT
subsidiary is disregarded for federal income tax purposes, which
means, among other things, that for purposes of applying the
gross income and assets tests, all assets, liabilities and items
of income, deduction and credit of the subsidiary will be
treated as ours. A subsidiary is a qualified REIT subsidiary if
we own all the stock of the subsidiary (and no election is made
to treat the subsidiary as a taxable REIT subsidiary). We may
also hold assets through other entities that may be disregarded
for federal income tax purposes, such as one or more limited
liability companies in which we are the only member.
If a REIT is a partner in a partnership, Treasury regulations
provide that the REIT will be deemed to own its proportionate
share (based on its share of partnership capital) of the assets
of the partnership and will be deemed to earn its proportionate
share of the income of the partnership. The character of the
assets and gross income of the partnership will retain the same
character in the hands of the REIT for purposes of the REIT
requirements, including satisfying the gross income tests and
the asset tests. Thus, our proportionate share (based on our
share of partnership capital) of the assets, liabilities and
items of income of any partnership in which we are a partner,
including the
S-14
operating partnership, will be treated as our assets,
liabilities and items of income for purposes of applying the
requirements described in this section. Actions taken by
partnerships in which we own an interest, either directly or
through one or more tiers of partnerships or qualified REIT
subsidiaries, can affect our ability to satisfy the REIT income
and assets tests and the determination of whether we have net
income from prohibited transactions (described above).
If we satisfy the asset tests at the close of any quarter, we
will not lose our REIT status if we fail to satisfy the asset
tests at the end of a later quarter solely because of changes in
asset values. If our failure to satisfy the asset tests results,
either in whole or in part, from an acquisition of securities or
other property during a quarter, the failure can be cured by
disposing of sufficient non-qualifying assets within
30 days after the close of that quarter. We intend to
maintain adequate records of the value of our assets to ensure
compliance with the asset tests and to take such other action
within 30 days after the close of any quarter as may be
required to cure any noncompliance. In some instances, however,
we may be compelled to dispose of assets that we would prefer to
retain.
If we were to fail to satisfy the asset tests at the end of any
quarter and the relief provisions discussed earlier do not
apply, then we will still maintain our REIT status provided
(i) our failure to satisfy the relevant asset test was due
to reasonable cause and was not due to willful neglect,
(ii) we file a schedule with the IRS describing the assets
causing the violation, (iii) we cure the violation by
disposing of the assets within 6 months after the end of
the quarter in which we identify the failure, and (iv) we
pay a penalty tax of the greater of (A) $50,000 or
(B) the product derived by multiplying the highest federal
corporate income tax rate by the net income generated by the
non-qualifying assets during the period of the failure.
Annual Distribution Requirements. To qualify
as a REIT, we must also distribute to our shareholders,
dividends (other than capital gain dividends) in an amount at
least equal to (i) the sum of (A) 90% of our
REIT taxable income (computed without regard to the
dividends paid deduction and our net capital gain)
plus (B) 90% of our after-tax net income (if any) from
foreclosure property, minus (ii) the sum of certain items
of excess non-cash income (including, among other
things, cancellation of indebtedness income and original issue
discount). In general, the distributions must be paid during the
taxable year to which they relate. We may also satisfy the
distribution requirements with respect to a particular year
provided we (1) declare a sufficient dividend before timely
filing our tax return for that year and (2) pay the
dividend within the
12-month
period following the close of the year and on or before the date
of the first regular dividend payment after such declaration.
To the extent we fail to distribute 100% of our net capital
gain, or we distribute at least 90% but less than 100% of our
REIT taxable income (as adjusted), we will be
subject to tax at regular corporate rates on the undistributed
amounts. Furthermore, if we fail to distribute during each
calendar year at least the sum of (i) 85% of our REIT
ordinary income for such year, (ii) 95% of our REIT capital
gain income for such year and (iii) any undistributed
taxable income from prior periods, we will be subject to a
non-deductible 4% excise tax on the excess of such amounts over
the amounts actually distributed.
As of December 31, 2010, we had net operating loss
carryforwards that may be available to reduce the amounts that
we are required to distribute in order to maintain our REIT
status and avoid entity-level taxes. Our ability to utilize
these carryforwards is subject to an annual limitation (pursuant
to the provisions of Section 382 of the Code). Any
adjustments made to the amount of our taxable income in prior
years or a determination that we did not qualify as a REIT in
one or more years in which we generated the losses being carried
forward could reduce or otherwise affect the amount of our loss
carryforwards or our ability to deduct them from our REIT
taxable income.
Dividends declared by us in October, November or December of any
calendar year and payable to shareholders of record on a
specified date in such month, are generally treated as paid by
us and as received by our shareholders on the last day of the
calendar year (including for excise tax purposes), provided we
actually pay the dividends no later than in January of the
following calendar year.
It is possible that from time to time, we may not have
sufficient cash or other liquid assets to meet the 90%
distribution requirement. The shortfall may, for example, be due
to differences between the time we actually receive income or
pay an expense, and the time we must include the income or may
deduct the expense for purposes of calculating our REIT taxable
income. As a further example, the shortfall may be due to an
excess of non-deductible cash outlays such as principal payments
on debt and capital expenditures, over non-cash deductions such
as
S-15
depreciation. In such instances, we may arrange for short-term
or long-term borrowings so that we can pay the required
dividends and meet the 90% distribution requirement.
We intend to make timely distributions sufficient to meet the
annual distribution requirements. Under certain circumstances,
we may pay dividends to our shareholders consisting partly of
common shares. Also, if we fail to meet the distribution
requirement for a taxable year, we may correct the situation by
paying deficiency dividends to our shareholders in a
later year. By paying the deficiency dividend, we may increase
our dividends paid deduction for the earlier year, thereby
reducing our REIT taxable income for the earlier year. However,
if we pay a deficiency dividend, we will have to pay to the IRS
interest based on the amount of any deduction taken for such
dividend.
Failure to Qualify. Beginning with our 2005
taxable year, if we would otherwise fail to qualify as a REIT
because of a violation of one of the requirements described
above (other than an asset or income test violation for which
one of the relief provisions described earlier is available),
then our qualification as a REIT will not be terminated if the
violation is due to reasonable cause and not willful neglect and
we pay a penalty tax of $50,000 for each violation.
If we fail to qualify for taxation as REIT in any taxable year
and the relief provisions do not apply, we will be subject to
tax (including any applicable alternative minimum tax) on our
taxable income at regular corporate rates. Distributions to
shareholders in any year in which we do not qualify will not be
deductible by us, nor will they be required to be made. Unless
we are entitled to relief under specific statutory provisions,
we also will be disqualified from taxation as a REIT for the
four taxable years following the year during which our
qualification was lost. It is not possible to state whether in
all circumstances we would be entitled to such statutory relief.
Accordingly, our failure to qualify as a REIT for a prior
taxable year could adversely affect our qualification as a REIT
for the current or subsequent taxable years, even if we
otherwise satisfy the REIT requirements for the current or
subsequent taxable years.
For any year in which we fail to qualify as a REIT, any
distributions that we make generally will be taxable to our
shareholders as ordinary income to the extent of our current or
accumulated earnings and profits. Subject to certain limitations
in the Code, corporate shareholders receiving such distributions
may be eligible to claim the dividends received deduction, and
such distributions made to non-corporate shareholders may
qualify for preferential rates of taxation (if any) then in
effect.
Taxable Mortgage Pools and Excess Inclusion
Income. An entity, or a portion of an entity, may
be classified as a taxable mortgage pool (TMP) under
the Code if (1) substantially all of its assets consist of
debt obligations or interests in debt obligations, (2) more
than 50% of those debt obligations are real estate mortgages or
interests in real estate mortgages as of specified testing
dates, (3) the entity has issued debt obligations
(liabilities) that have two or more maturities, and (4) the
payments required to be made by the entity on its debt
obligations (liabilities) bear a relationship to the
payments to be received by the entity on the debt obligations
that it holds as assets. We have made and in the future expect
to make investments or enter into financing and securitization
arrangements that may give rise to our owning a direct or
indirect interest in a TMP, with the consequences described
below.
A TMP ordinarily is treated as a taxable corporation for
U.S. federal income tax purposes. However, the portion of a
REITs assets that are considered to be held in an entity
or other arrangement classified as a TMP are not subject to
corporate income tax, and the TMP classification does not
directly affect the tax status of the REIT, if the REIT owns
100% of the TMP. Instead, a portion of the REITs income
from the TMP arrangement, which might be non-cash accrued
income, may be excess inclusion income. Excess
inclusion income must be allocated among the REITs
shareholders in proportion to the dividends paid to them. A
shareholders share of excess inclusion income (i) may
not be offset by any net operating losses otherwise available to
the shareholder, (ii) is subject to tax as unrelated
business taxable income in the hands of most types of
shareholders that are otherwise generally exempt from
U.S. federal income tax, and (iii) is subject to a
U.S. federal withholding tax of 30% without reduction for
any otherwise applicable income tax treaty, to the extent
allocable to most types of foreign shareholders. See
Taxation of Shareholders
Non-U.S. Shareholders
below. To the extent that our excess inclusion income is
allocated to a tax-exempt shareholder that is not subject to
unrelated business income tax (such as government entities) or
to certain foreign shareholders, we will be subject to tax on
this income at the highest applicable corporate tax rate
(currently 35%).
S-16
Taxation
of Shareholders
U.S.
Shareholders
As used in this section, the term
U.S. Shareholder means a holder of common
shares who, for United States federal income tax purposes, is:
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a citizen or resident of the United States;
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a domestic corporation (or other entity treated as a corporation
for federal income tax purposes);
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an estate whose income is subject to United States federal
income taxation regardless of its source; or
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a trust if a United States court can exercise primary
supervision over the trusts administration and one or more
United States persons have authority to control all substantial
decisions of the trust, or if the trust has a valid election in
effect to be treated as a United States person.
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Dividends. As long as we qualify as a REIT,
distributions that are made to our taxable
U.S. Shareholders out of current or accumulated earnings
and profits (and are not designated as capital gain dividends)
will be taken into account by them as ordinary income. Such
distributions will be ineligible for the corporate dividends
received deduction, and except in circumstances that we do not
expect to arise, also will not qualify for the lower rate
currently applicable to qualifying dividends paid to
non-corporate shareholders. Distributions that are designated as
capital gain dividends will be taxed as long-term capital gains
(to the extent they do not exceed our actual net capital gain
for the taxable year) without regard to the period for which a
U.S. Shareholder has held our common shares. Thus, with
certain limitations, capital gain dividends received by a
U.S. Shareholder who is an individual may be eligible for
preferential rates of taxation. However, U.S. Shareholders
that are corporations may be required to treat up to 20% of
certain capital gain dividends as ordinary income. We may elect
to pay dividends partly in our shares of beneficial interest, in
which event a U.S. Shareholder generally will be taxable on
the value of our shares received as a dividend.
We may elect not to distribute part or all of our net long-term
capital gain, and pay corporate tax on the undistributed amount.
In that case, a U.S. Shareholder will (i) include in
its income, as long-term capital gain, its proportionate share
of the undistributed gain, and (ii) claim, as a refundable
tax credit, its proportionate share of the taxes paid. In
addition, a U.S. Shareholder will be entitled to increase
its tax basis in our common shares by an amount equal to its
share of the undistributed gain reduced by its share of the
corporate taxes paid by us on the undistributed gain. As
discussed earlier (see Requirements for
Qualification Annual Distribution
Requirements), we may pay certain dividends in January
that will be taxable to shareholders as if paid in the
immediately preceding calendar year.
Distributions in excess of our current and accumulated earnings
and profits will be treated as a non-taxable return of capital
to a U.S. Shareholder to the extent that they do not exceed
the adjusted basis of the shareholders common shares as to
which the distributions were made, and will reduce the adjusted
basis of the shareholders common shares. To the extent
these distributions exceed the shareholders adjusted basis
in its common shares, the distributions will be included in the
shareholders income as long-term capital gain (or
short-term capital gain if the common shares have been held for
one year or less).
Shareholders may not claim our net operating losses or net
capital losses (if any) on their individual income tax returns.
Distributions with respect to, and gain from the disposition of,
common shares will be treated as portfolio income
and, therefore, U.S. Shareholders that are subject to the
passive activity loss limitations will be unable to claim
passive activity losses against such income.
Sale of Shares. When a U.S. Shareholder
sells or otherwise disposes of common shares, the shareholder
will recognize capital gain or capital loss for federal income
tax purposes in an amount equal to the difference between
(a) the amount of cash and the fair market value of any
property received on the sale or other disposition, and
(b) the shareholders adjusted tax basis in the
shares. The gain or loss will be long-term gain or loss if the
U.S. Shareholder has held the common shares for more than
one year. Long-term capital gain of a non-corporate
U.S. Shareholder is generally taxed at preferential rates.
In general, any loss recognized by a U.S. Shareholder on a
disposition of common shares that the shareholder has held for
six months or less, after applying certain holding period rules,
will
S-17
be treated as a long-term capital loss to the extent the
shareholder received distributions from us that were treated as
long-term capital gains. Capital losses generally are deductible
only to the extent of a U.S. Shareholders capital
gains.
Backup Withholding. We will report to our
U.S. Shareholders and the IRS, the amount of dividends paid
during each calendar year and the amount of tax withheld, if
any, with respect thereto. A U.S. Shareholder may be
subject to backup withholding tax (currently at a rate of 28%)
with respect to dividends paid unless the shareholder
(i) is a corporation or comes within certain other exempt
categories and, if required, demonstrates this fact, or
(ii) provides a taxpayer identification number and
certifies as to no loss of exemption, and otherwise complies
with the applicable requirements of the backup withholding
rules. An individual U.S. Shareholder may satisfy these
requirements by providing us with a properly completed and
signed IRS
Form W-9.
Individual U.S. Shareholders who do not provide us with
their correct taxpayer identification numbers may be subject to
penalties imposed by the IRS. Any amount withheld will be
creditable against the U.S. Shareholders income tax
liability. We may also be required to withhold a portion of
capital gain distributions made by us to any
U.S. Shareholders who fail to certify their non-foreign
status.
Tax-Exempt Shareholders. The IRS has ruled
that amounts distributed as dividends by a qualified REIT
generally do not constitute unrelated business taxable income
(UBTI) if received by a tax-exempt entity. Based on
that ruling, dividend income from our shares generally will not
be UBTI to a tax-exempt U.S. Shareholder, provided that the
shareholder has not held its common shares as debt
financed property within the meaning of the Code.
Similarly, income from selling our common shares generally will
not constitute UBTI to a tax-exempt U.S. Shareholder unless
the shareholder has held its common shares as debt
financed property.
Notwithstanding the above paragraph, tax-exempt
U.S. Shareholders will be required to treat as UBTI any
dividends paid by us that are allocable to our excess inclusion
income, if any. (See Taxable Mortgage Pools
and Excess Inclusion Income above.) Also, if we are a
pension-held REIT, then any qualified pension trust
that holds more than 10% of our common shares will have to treat
dividends paid by us as UBTI in the same proportion that our
gross income would be UBTI. A qualified pension trust is any
trust described in section 401(a) of the Code that is
exempt from tax under section 501(a) of the Code. In
general, we will be treated as a pension-held REIT
only if both (a) we are predominantly owned by qualified
pension trusts (that is, at least one qualified pension trust
holds more than 25% of our shares, or one or more qualified
pension trusts, each of which owns more than 10% of our shares,
hold in the aggregate more than 50% of our shares) and
(b) we would not qualify as a REIT if we had to treat our
common shares owned by a qualified pension trust as owned by an
individual (instead of treating such stock as owned
by the qualified pension trusts multiple beneficiaries).
As a result of certain limitations on the transfer and ownership
of our shares contained in the Declaration of Trust, we do not
expect to be classified as a pension-held REIT.
Tax-exempt stockholders that are social clubs, voluntary
employee benefit associations, supplemental unemployment benefit
trusts and qualified group legal services plans exempt from
federal income taxation under
sections 501(c)(7),(c)(9),(c)(17) and (c)(20),
respectively, of the Code, are subject to different UBTI rules,
which generally will require them to characterize our
distributions as UBTI.
Non-U.S.
Shareholders
The rules governing the U.S. federal income taxation of
shareholders (which we call
non-U.S. Shareholders)
who or which are not subject to U.S. federal income
taxation, are complex, and no attempt will be made herein to
provide more than a limited summary of those rules. The
discussion below assumes that the
non-U.S. Shareholders
investment in common shares is not effectively connected with a
trade or business conducted in the United States by the
non-U.S. Shareholder,
or, if a tax treaty applies to the
non-U.S. Shareholder,
that its investment in common shares is not attributable to a
United States permanent establishment maintained by the
non-U.S. Shareholder.
WE RECOMMEND THAT
NON-U.S. SHAREHOLDERS
CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE THE IMPACT OF
FEDERAL, STATE, LOCAL AND FOREIGN INCOME TAX LAWS AND REPORTING
REQUIREMENTS WITH REGARD TO AN INVESTMENT IN OUR SHARES.
Ordinary Dividends. Distributions, other than
capital gain dividends and distributions that are treated as
attributable to gain from sales or exchanges by us of
U.S. real property interests (discussed below), will be
treated as
S-18
ordinary dividends to the extent that they are made out of our
current or accumulated earnings and profits. Such dividends paid
to
non-U.S. Shareholders
will ordinarily be subject to a U.S. federal withholding
tax of 30% of the gross amount of the distribution. Except for
dividends paid by us that are allocable to our excess inclusion
income, if any (see Taxable Mortgage Pools
and Excess Inclusion Income above), the 30%
withholding rate may be reduced under an applicable tax treaty.
We expect to withhold U.S. income tax at the rate of 30% on
the gross amount of any ordinary dividends paid to a
non-U.S. Shareholder
unless we receive the requisite proof that (i) a lower
treaty rate applies or (ii) the income is effectively
connected income. A
non-U.S. Shareholder
claiming the benefit of a tax treaty may need to satisfy
certification and other requirements, such as providing an IRS
Form W-8BEN.
A
non-U.S. Shareholder
who wishes to claim that distributions are effectively connected
with a United States trade or business may need to satisfy
certification and other requirements, such as providing IRS
Form W-8ECI.
Other requirements, such as providing an IRS
Form W-8IMY,
may apply to a
non-U.S. Shareholder
that is a financial intermediary or a foreign partnership.
Distributions in excess of our current and accumulated earnings
and profits that are not treated as attributable to the gain
from a disposition of U.S. real property will be treated as
a non-taxable return of capital to a
Non-U.S. Shareholder
up to the amount of the
non-U.S. Shareholders
adjusted basis in its common shares. To the extent that such
distributions exceed the adjusted basis of a
non-U.S. Shareholders
common shares, they will give rise to a U.S. tax liability
only if the
non-U.S. Shareholder
otherwise would be subject to tax on any gain from the sale or
disposition of its common shares, as described below. If it
cannot be determined at the time a distribution is made whether
the distribution will exceed our current and accumulated
earnings and profits, then the distribution will be subject to
withholding at the rate applicable to ordinary dividends.
(Otherwise, the distribution in excess of our current and
accumulated earnings and profits will be subject to withholding
at a 10% rate.) However, the
non-U.S. Shareholder
may seek a refund of these amounts from the IRS if it is
subsequently determined that the distribution did, in fact,
exceed our current and accumulated earnings and profits.
Capital Gain Dividends. Under the Foreign
Investment in Real Property Tax Act of 1980
(FIRPTA), gain from the sale or exchange of United
States real property interests generally is taxable to
non-U.S. persons
as if such gain were effectively connected with a
U.S. trade or business. However, capital gain dividends and
dividends treated as attributable to the gain from a disposition
of U.S. real property (collectively, FIRPTA
dividends) paid by us to a
non-U.S. Shareholder
with respect to our common shares generally will not be subject
to FIRPTA if the
non-U.S. Shareholder
has not owned more than 5% of our common shares at any time
during the taxable year in which the dividend is received.
Instead, such capital gain dividends will be treated the same as
ordinary dividends, and therefore will be subject to a
U.S. federal withholding tax of 30% unless reduced under an
income tax treaty.
Non-U.S. Shareholders
that do not qualify for this exception will be taxed on our
capital gain distributions at the same capital gain rates
applicable to U.S. Shareholders (subject to any applicable
alternative minimum tax and special alternative minimum tax in
the case of nonresident alien individuals), and we will be
required to withhold U.S. tax equal to 35% from such
distributions. The 35% tax withheld may be claimed by a
non-U.S. Shareholder
as a credit against its reported U.S. federal income tax
liability. In addition to regular U.S. income tax,
corporate
non-U.S. Shareholders
that do not qualify for the FIRPTA exception may be subject to a
30% branch profits tax on FIRPTA dividends unless the
shareholder is entitled to treaty relief or other exemption.
Sales of Shares. Gain recognized by a
non-U.S. Shareholder
upon a sale or exchange of our common shares generally will not
be taxed under FIRPTA provided the
non-U.S. Shareholder
has not owned more than 5% of our common shares during a
designated testing period, or if we are a domestically
controlled REIT. In general, we will qualify as a
domestically controlled REIT if at all times during a designated
testing period less than 50% in value of our shares are held
(directly or indirectly) by foreign persons. Gain not subject to
FIRPTA nevertheless will be subject to a 30% U.S. tax if
the
non-U.S. Shareholder
is an alien individual who is present in the United States for
183 days or more during the taxable year, and certain other
requirements are met.
We believe that we currently are a domestically controlled REIT.
Although we anticipate that we will continue to qualify as a
domestically controlled REIT, because our common shares are
publicly traded, no assurance can be given that we will continue
to qualify. If we were not a domestically controlled REIT, then
a
non-U.S. Shareholders
sale of common shares generally would be subject to tax under
FIRPTA unless the
non-U.S. Shareholder
has not owned more than 5% of our common shares during a
designated testing period. If gain on the sale of common shares
is subject to tax under FIRPTA, then a
Non-U.S. Shareholder
will be subject to income tax (but will not also be
S-19
subject to a branch profits tax) as described above under
Taxation of Shareholders
Non-U.S. Shareholders
Capital Gain Dividends, and the
purchaser of such common shares will be required to withhold 10%
of the gross purchase price.
Federal Estate Taxes. In general, if an
individual who is not a citizen or resident (as defined in the
Code) of the United States owns (or is treated as owning) common
shares at the date of death, the common shares will be included
in the individuals estate for United States federal estate
tax purposes, unless an applicable estate tax treaty provides
otherwise.
Backup Withholding and Information
Reporting. Generally, we must report annually to
the IRS the amount of dividends paid to a
non-U.S. Shareholder,
such Shareholders name and address, and the amount of tax
withheld, if any. Dividends or proceeds from the disposition of
common shares that are paid to a
non-U.S. Shareholder
may be subject to information reporting and backup withholding
unless such Shareholder establishes an exemption, for example,
by properly certifying its
non-United
States status on an IRS
Form W-8BEN
or another appropriate version of IRS
Form W-8.
Notwithstanding the foregoing, backup withholding and
information reporting may apply if either we or our paying agent
has actual knowledge, or reason to know, that a
non-U.S. Shareholder
is a United States person.
A
non-U.S. Shareholder
generally may obtain a refund of any amounts withheld under the
backup withholding rules that exceed its income tax liability by
filing a refund claim with the IRS.
Recent Legislation. Recently enacted
legislation will require, after December 31, 2012, certain
increased certification requirements and information reporting
related to U.S. accounts or U.S. ownership of our
shares through certain foreign financial institutions and other
non-U.S. entities.
In the event of noncompliance with the revised requirements,
withholding at a rate of 30% on dividends in respect of, and
gross proceeds from the sale of, our common shares held by or
through such foreign entities would be imposed.
Non-U.S. persons
that are otherwise eligible for an exemption from, or a
reduction of, U.S. withholding tax with respect to such
dividends and sale proceeds would be required to seek a refund
from the Internal Revenue Service to obtain the benefit of such
exemption or reduction. Prospective investors should consult
with their tax advisors regarding the possible implications of
these rules on their investment in our common stock.
Other Tax
Consequences
We and our shareholders may be subject to state or local
taxation in various state and local jurisdictions, including
those in which we or they transact business or reside. State and
local tax laws may not conform to the federal income tax
consequences discussed above. Consequently, prospective
shareholders should consult their own tax advisors regarding the
effect of state and local tax laws on an investment in our
shares.
S-20
UNDERWRITING
Barclays Capital Inc. is acting as the representative of the
underwriters and each of Barclays Capital Inc. and KeyBanc
Capital Markets Inc. is acting as joint book-runner of this
offering. Under the terms of an underwriting agreement, which we
will file as an exhibit to a Current Report on
Form 8-K
and incorporate by reference in this prospectus supplement and
the accompanying base prospectus, we have agreed to sell each of
the underwriters, and each of the underwriters named below has
severally agreed to purchase from us, the respective number of
common shares being offered pursuant to this prospectus
supplement and the accompanying base prospectus, if any are
purchased, other than those covered by the underwriters
option, as described below, shown opposite its name below. The
underwriters have agreed to allocate for sale in this offering,
at the same price as will be initially offered by the
underwriters to others, 200,000 common shares to members of our
senior management, trustees and FUR Investors LLC and its
affiliates. FUR Investors LLC is an entity that currently holds
12.0% of our outstanding shares and whose membership, in part,
consists of our executive officers. FUR Investors LLC has agreed
that it or its affiliates will purchase such shares.
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Underwriters
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Number of Shares
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Barclays Capital Inc.
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KeyBanc Capital Markets Inc.
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Total
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5,000,000
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The underwriting agreement provides that the underwriters
obligation to purchase common shares depends on the satisfaction
of the conditions contained in the underwriting agreement
including:
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the representations and warranties made by us to the
underwriters are true;
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there is no material change in our business or in the financial
markets; and
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we deliver customary closing documents to the underwriters.
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Commissions
and Expenses
The following table summarizes the underwriting discounts and
commissions we will pay to the underwriters. These amounts are
shown assuming both no exercise and full exercise of the
underwriters option to purchase additional shares. The
underwriting fee is the difference between the initial price to
the public and the amount the underwriters pay to us for the
shares. We will not pay any underwriting fees with respect to
any common shares sold in the offering to members of our senior
management, our trustees, or FUR Investors LLC or its
affiliates. Such purchasers will acquire their common shares at
the same price as will be initially offered by the underwriters
to others.
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No Exercise
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Full Exercise
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Per share
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Total*
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Such totals will be reduced with respect to any common shares
purchased by members of our senior management, our trustees, or
FUR Investors LLC or its affiliates for which we will not pay
any underwriting fees. |
The representative of the underwriters has advised us that the
underwriters propose to offer the common shares directly to the
public at the public offering price on the cover of this
prospectus supplement and to selected dealers, which may include
the underwriters, at such offering price less a selling
concession not in excess of $ per
share. After the offering, the representative may change the
offering price and other selling terms. Sales of shares made
outside of the United States may be made by affiliates of the
underwriters.
The expenses of the offering that are payable by us are
estimated to be $150,000 (excluding underwriting discounts and
commissions).
Option to
Purchase Additional Shares
We have granted the underwriters an option exercisable for
30 days after the date of this prospectus supplement, to
purchase, from time to time, in whole or in part, up to an
aggregate of 750,000 shares at the
S-21
public offering price less underwriting discounts and
commissions. This option may be exercised if the underwriters
sell more than 5,000,000 shares in connection with this
offering. To the extent that this option is exercised, each
underwriter will be obligated, subject to certain conditions, to
purchase its pro rata portion of these additional shares based
on the underwriters percentage underwriting commitment in
the offering as indicated in the table at the beginning of this
Underwriting Section. The price per share paid by the
underwriters for any common shares purchased pursuant to the
over-allotment option will be reduced by an amount per share
equal to any dividends or distributions declared by us and
payable on the common shares initially purchased by the
underwriters in this offering but not payable on common shares
purchased by the underwriters pursuant to the over-allotment
option.
Lock-Up
Agreements
We and all of our directors and executive officers and FUR
Investors LLC, a significant shareholder, have agreed that,
subject to certain exceptions, without the prior written consent
of Barclays Capital Inc., we and they will not directly or
indirectly (1) offer for sale, sell, pledge, or otherwise
dispose of (or enter into any transaction or device that is
designed to, or could be expected to, result in the disposition
by any person at any time in the future of) any common shares
(including, without limitation, common shares that may be deemed
to be beneficially owned by us or them in accordance with the
rules and regulations of the Securities and Exchange Commission
and common shares that may be issued upon exercise of any
options or warrants) or securities convertible into or
exercisable or exchangeable for common shares, (2) enter
into any swap or other derivatives transaction that transfers to
another, in whole or in part, any of the economic consequences
of ownership of the common shares, (3) make any demand for
or exercise any right or file or cause to be filed a
registration statement, including any amendments thereto, with
respect to the registration of any common shares or securities
convertible, exercisable or exchangeable into common shares or
any of our other securities, or (4) publicly disclose the
intention to do any of the foregoing for a period of
90 days after the date of this prospectus supplement.
The 90-day
restricted period described in the preceding paragraph will be
extended if:
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during the last 17 days of the
90-day
restricted period we issue an earnings release or material news
or a material event relating to us occurs; or
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prior to the expiration of the
90-day
restricted period, we announce that we will release earnings
results during the
16-day
period beginning on the last day of the
90-day
period;
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in which case the restrictions described in the preceding
paragraph will continue to apply until the expiration of the
18-day
period beginning on the issuance of the earnings release or the
announcement of the material news or material event, unless such
extension is waived in writing by Barclays Capital Inc.
Barclays Capital Inc., in its sole discretion, may release the
common shares and other securities subject to the
lock-up
agreements described above in whole or in part at any time with
or without notice. When determining whether or not to release
common shares and other securities from
lock-up
agreements, Barclays Capital Inc. will consider, among other
factors, the holders reasons for requesting the release,
the number of common shares and other securities for which the
release is being requested and market conditions at the time.
Indemnification
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act, and
to contribute to payments that the underwriters may be required
to make for these liabilities.
Stabilization
and Short Positions
The representative may engage in stabilizing transactions, short
sales and purchases to cover positions created by short sales,
for the purpose of pegging, fixing or maintaining the price of
the common shares, in accordance with Regulation M under
the Securities Exchange Act of 1934:
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Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a
specified maximum.
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S-22
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A short position involves a sale by the underwriters of shares
in excess of the number of shares the underwriters are obligated
to purchase in the offering, which creates the syndicate short
position. This short position may be either a covered short
position or a naked short position. In a covered short position,
the number of shares involved in the sales made by the
underwriters in excess of the number of shares they are
obligated to purchase is not greater than the number of shares
that they may purchase by exercising its option to purchase
additional shares. In a naked short position, the number of
shares involved is greater than the number of shares in their
option to purchase additional shares. The underwriters may close
out any short position by either exercising their option to
purchase additional shares
and/or
purchasing shares in the open market. In determining the source
of shares to close out the short position, the underwriters will
consider, among other things, the price of shares available for
purchase in the open market as compared to the price at which
they may purchase shares through their option to purchase
additional shares. A naked short position is more likely to be
created if the underwriters are concerned that there could be
downward pressure on the price of the shares in the open market
after pricing that could adversely affect investors who purchase
in the offering.
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The underwriters may also make purchases of our common shares in
the open market after the distribution has been completed in
order to cover short positions.
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These stabilizing transactions may have the effect of raising or
maintaining the market price of our common shares or preventing
or retarding a decline in the market price of the common shares.
As a result, the price of the common shares may be higher than
the price that might otherwise exist in the open market. These
transactions may be effected on The New York Stock Exchange or
otherwise and, if commenced, may be discontinued at any time.
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 our
common shares. In addition, neither we nor the underwriters make
representation that the representative will engage in these
stabilizing transactions or that any transaction, once
commenced, will not be discontinued without notice.
Electronic
Distribution
A prospectus in electronic format may be made available on the
internet sites or through other online services maintained by
one or more of the underwriters
and/or any
selling group members participating in this offering, or by
their affiliates. In those cases, prospective investors may view
offering terms online and, depending upon the particular
underwriter or particular selling group member, prospective
investors may be allowed to place orders online. The
underwriters may agree with us to allocate a specific number of
shares for sale to online brokerage account holders. Any such
allocation for online distributions will be made by the
representative on the same basis as other allocations.
Other than the prospectus supplement and the accompanying base
prospectus in electronic format, the information on any
underwriters or any selling group members website
and any information contained in any other website maintained by
an underwriter or selling group member is not part of the
prospectus supplement and the accompanying base prospectus or
the registration statement of which this prospectus supplement
and the accompanying base prospectus forms a part, has not been
approved
and/or
endorsed by us or any underwriter or any selling group member in
its capacity as underwriter or selling group member and should
not be relied upon by investors.
Stamp
Taxes
If you purchase common shares offered in this prospectus
supplement and the accompanying base prospectus, you may be
required to pay stamp taxes and other charges under the laws and
practices of the country of purchase, in addition to the
offering price listed on the cover page of this prospectus
supplement and the accompanying base prospectus.
S-23
Selling
Restrictions
Public
Offer Selling Restrictions Under the Prospectus
Directive
In relation to each member state of the European Economic Area
that has implemented the Prospectus Directive (each, a relevant
member state), with effect from and including the date on which
the Prospectus Directive is implemented in that relevant member
state (the relevant implementation date), an offer of securities
described in this prospectus supplement and the accompanying
base prospectus may not be made to the public in that relevant
member state other than:
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to any legal entity that is authorized or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
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to any legal entity that has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than 43,000,000 and
(3) an annual net turnover of more than 50,000,000,
as shown in its last annual or consolidated accounts;
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to fewer than 100 natural or legal persons (other than qualified
investors as defined in the Prospectus Directive) subject to
obtaining the prior consent of the representative; or
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in any other circumstances that do not require the publication
of a prospectus pursuant to Article 3 of the Prospectus
Directive,
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provided that no such offer of securities shall require us or
any underwriter to publish a prospectus pursuant to
Article 3 of the Prospectus Directive.
For purposes of this provision, the expression an offer of
securities to the public in any relevant member state
means the communication in any form and by any means of
sufficient information on the terms of the offer and the
securities to be offered so as to enable an investor to decide
to purchase or subscribe the securities, as the expression may
be varied in that member state by any measure implementing the
Prospectus Directive in that member state, and the expression
Prospectus Directive means Directive 2003/71/EC and
includes any relevant implementing measure in each relevant
member state.
We have not authorized and do not authorize the making of any
offer of securities through any financial intermediary on their
behalf, other than offers made by the underwriters with a view
to the final placement of the securities as contemplated in this
prospectus supplement and the accompanying base prospectus.
Accordingly, no purchaser of the securities, other than the
underwriters, is authorized to make any further offer of the
securities on behalf of us, or the underwriters.
Selling
Restrictions Addressing Additional United Kingdom Securities
Laws
This prospectus supplement and the accompanying base prospectus
are only being distributed to, and is only directed at, persons
in the United Kingdom that are qualified investors within the
meaning of Article 2(1)(e) of the Prospectus Directive
(Qualified Investors) that are also
(i) investment professionals falling within
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 (the Order) or
(ii) high net worth entities, and other persons to whom it
may lawfully be communicated, falling within
Article 49(2)(a) to (d) of the Order (all such persons
together being referred to as relevant persons).
This prospectus supplement and the accompanying base prospectus
and their contents are confidential and should not be
distributed, published or reproduced (in whole or in part) or
disclosed by recipients to any other persons in the United
Kingdom. Any person in the United Kingdom that is not a relevant
persons should not act or rely on this document or any of its
contents.
Relationships
The underwriters and their related entities have engaged, and
may in the future engage, in investment banking transactions
with us in the ordinary course of their business. They have
received, and expect to receive, customary compensation and
expense reimbursement for these investment banking transactions.
In addition, KeyBank National Association, an affiliate of
KeyBanc Capital Markets, is the lender under our revolving
credit facility.
S-24
EXPERTS
The financial statements and managements assessment of the
effectiveness of internal control over financial reporting
(which is included in Managements Report on Internal
Control over Financial Reporting) incorporated in this
Prospectus Supplement by reference to the Annual report on
Form 10-K
for the year ended December 31, 2010 have been so
incorporated in reliance on the report of PricewaterhouseCoopers
LLP, an independent registered public accounting firm, given on
the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Lex-Win Concord LLC as
of December 31, 2009 and for the years ended
December 31, 2009 and 2008 included as exhibit 99.1 of
Winthrop Realty Trusts 2010 Annual Report on
Form 10-K
incorporated by reference in this Prospectus Supplement have
been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, given on the authority of said firm as experts
in auditing and accounting.
LEGAL
MATTERS
Certain legal matters, including the legality of the securities
offered hereby, have been passed upon by Hahn Loeser &
Parks LLP. Certain tax matters have been passed upon by Katten
Muchin Rosenman LLP. Certain legal matters in connection with
this offering have been passed upon for the underwriters by
Paul, Hastings, Janofsky & Walker LLP.
S-25
PROSPECTUS
Winthrop
Realty Trust
$450,000,000
of
Common Shares Of Beneficial Interest
Preferred Shares Of Beneficial Interest
Rights
Debt Securities
We are Winthrop
Realty Trust, a real estate investment trust formed under the
laws of the State of Ohio. Our operations are managed by our
external advisor, FUR Advisors LLC.
This prospectus
relates to the public offer and sale by us of one or more series
of:
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common shares of
beneficial interest, par value $1 per share;
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preferred shares of
beneficial interest;
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rights to purchase
common shares of beneficial interest; and/or
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senior or
subordinated debt securities.
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The preferred shares
may be convertible into common shares or into preferred shares
of another series and the debt securities may be exchangeable
for common or preferred shares. The aggregate public offering
price of the common shares, preferred shares, rights and debt
securities covered by this prospectus, which we refer to
collectively as the securities, will not exceed $450,000,000.
The securities may be offered, separately or together, in
separate classes or series, in amounts, at prices and on terms
to be determined at the time of the offering and set forth in
one or more supplements to this prospectus.
This prospectus
describes some of the general terms that may apply to these
securities and the general manner in which they may be offered.
The specific terms of any securities to be offered and the
specific manner in which they may be offered will be set forth
in the applicable prospectus supplement. The applicable
prospectus supplement will also contain information, where
appropriate, about the risk factors and federal income tax
considerations relating to, and any listing on a securities
exchange of, the securities covered by that prospectus
supplement.
We may offer the
securities directly to investors, through agents designated by
us from time to time, or to or through underwriters or dealers.
If any agents or underwriters are involved in the sale of any of
the securities, their names, and any applicable purchase price,
fee, commission or discount arrangement between or among them
will be set forth or will be calculable from the information set
forth in the applicable prospectus supplement. No securities may
be sold without delivery of a prospectus supplement describing
the method and terms of the offering of those securities.
Our common shares
are traded on the New York Stock Exchange, which we refer to as
the NYSE, under the symbol FUR.
Information
contained in this prospectus with respect to our common shares
has been adjusted to give effect to the
one-for-five
reverse split of our common shares that took effect after the
close of trading on the NYSE on November 28, 2008.
See Risk
Factors beginning on page 2 for certain factors
relevant to an investment in the securities.
Neither the
Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or
passed upon the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.
The date of this
Prospectus is October 13, 2009.
TABLE OF
CONTENTS
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ii
CAUTIONARY
STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS
Any statements included in this prospectus, including any
statements in the document that are incorporated by reference
herein that are not strictly historical are forward-looking
statements within the meaning of the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Any such
forward-looking statements contained or incorporated by
reference herein should not be relied upon as predictions of
future events. Certain such forward-looking statements can be
identified by the use of forward-looking terminology such as
believes, expects, may,
will, should, seeks,
approximately, intends,
plans, pro forma, estimates
or anticipates or the negative thereof or other
variations thereof or comparable terminology, or by discussions
of strategy, plans, intentions or anticipated or projected
events, results or conditions. Such forward-looking statements
are dependent on assumptions, data or methods that may be
incorrect or imprecise and they may be incapable of being
realized. Such forward-looking statements include statements
with respect to:
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the declaration or payment of distributions by us;
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the ownership, management and operation of properties;
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potential acquisitions or dispositions of our properties, assets
or other businesses;
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our policies regarding investments, acquisitions, dispositions,
financings and other matters;
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our qualification as a real estate investment trust under the
Internal Revenue Code of 1986, as amended, which we refer to as
the Code;
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the real estate industry and real estate markets in general;
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the availability of debt and equity financing;
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interest rates;
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general economic conditions;
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supply of real estate investment opportunities and demand;
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trends affecting us or our assets;
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the effect of acquisitions or dispositions on capitalization and
financial flexibility;
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the anticipated performance of our assets and of acquired
properties and businesses, including, without limitation,
statements regarding anticipated revenues, cash flows, funds
from operations, earnings before interest, depreciation and
amortization, property net operating income, operating or profit
margins and sensitivity to economic downturns or anticipated
growth or improvements in any of the foregoing; and
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our ability, and that of our assets and acquired properties and
businesses to grow.
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You are cautioned that, while forward-looking statements reflect
our good faith beliefs, they are not guarantees of future
performance and they involve known and unknown risks and
uncertainties. Actual results may differ materially from those
in the forward-looking statements as a result of various
factors. The information contained or incorporated by reference
in this prospectus and any amendment hereof, including, without
limitation, the information set forth in RISK
FACTORS below or in any risk factors in documents that
are incorporated by reference in this prospectus, identifies
important factors that could cause such differences. We
undertake no obligation to publicly release the results of any
revisions to these forward-looking statements that may reflect
any future events or circumstances.
iii
ABOUT
THIS PROSPECTUS
This prospectus is part of a registration statement that we
filed with the Securities and Exchange Commission, which we
refer to as the SEC, using a shelf registration
process. You should read this prospectus and the applicable
prospectus supplement together with the additional information
described under the heading WHERE YOU CAN FIND MORE
INFORMATION in this prospectus. The registration
statement that contains this prospectus and the exhibits to that
registration statement contain additional important information
about us and the securities offered under this prospectus.
Specifically, we have filed certain legal documents that control
the terms of the securities offered by this prospectus as
exhibits to the registration statement. We will file certain
other legal documents that control the terms of the securities
offered by this prospectus as exhibits to reports we file with
the SEC. That registration statement and the other reports can
be read at the SEC website or at the SEC offices mentioned under
the heading WHERE YOU CAN FIND MORE
INFORMATION. All references to the trust,
we, our and us in this
prospectus mean Winthrop Realty Trust and all entities owned or
controlled by us except where it is made clear that the term
means only the parent company. The term you refers
to a prospective investor.
OUR
COMPANY
We are a real estate investment trust, commonly referred to as a
REIT, formed under the laws of the State of Ohio. Our operations
are managed by FUR Advisors LLC, who we refer to as FUR Advisor
or our advisor. Our common shares are traded on the NYSE under
the symbol FUR. We conduct our business through WRT
Realty L.P., a Delaware limited partnership which we refer to as
the operating partnership. We are the sole general partner of,
and own all of the limited partnership interests in, the
operating partnership. Our operating partnership structure,
commonly referred to as an umbrella partnership real estate
investment trust or UPREIT structure, provides us
with additional flexibility when acquiring properties for cash
and/or by
issuing to sellers, as a form of consideration, limited
partnership interests in our operating partnership. Although we
have not yet issued any limited partnership interests in
connection with the acquisition of an asset, we believe that
this structure facilitates our ability to acquire portfolio and
individual properties by enabling us to structure transactions
which may defer tax gains for a seller while preserving our
available cash for other purposes.
We are engaged in the business of owning real property and real
estate related assets which we categorize into three operating
segments: (i) the ownership of investment properties which
we refer to as operating properties; (ii) the origination
and acquisition of loans and debt securities secured directly or
indirectly by commercial and multi-family real property, which
we refer to as loan assets and loan securities, including
collateral mortgage-backed securities, which we refer to as
CMBS, and collateral debt obligations, which we refer to as
CDOs; and (iii) the ownership of equity and debt
securities in other REITs, which we refer to as REIT securities.
As of June 30, 2009, we held interests in properties
containing approximately 9.5 million square feet of
rentable space, owned either directly by us or through joint
ventures. We also held loan assets and loan securities totaling
$106,167,000, which consists primarily of our investment in the
Marc Realty portfolio. In addition, we held REIT securities
valued at $53,967,000 and cash and cash equivalents of
approximately $20,469,000. As of June 30, 2009, we had
written down our investment in Lex-Win Concord LLC, which we
refer to as Concord, to zero for financial statement purposes
but we, together with our partners, have not ceased to work
towards some equity recovery.
Our executive offices are located at 7 Bulfinch Place,
Suite 500, Boston, Massachusetts
02114-9507
and Two Jericho Plaza, Jericho, New York 11753. Our telephone
numbers are
(617) 570-4614
and
(516) 822-0022
and our website is located at http:/www.winthropreit.com.
None of the information on our website that is not otherwise
expressly set forth in or incorporated by reference in this
prospectus is a part of this prospectus.
RISK
FACTORS
We, our assets and the entities in which we invest are subject
to a number of risks customary for REITs, property owners, loan
originators and holders and equity investors as well as a number
of risks involved in our investment policy that not all REITs
may have. Material factors that may adversely affect our
business operations and financial conditions are summarized
below. As used in this Risk Factors section and except as
expressly provided otherwise, references to the terms
we, our or us include both
the trust and its ventures, including Concord.
1
We may
not be able to invest our cash reserves in suitable
investments.
As of June 30, 2009, we had approximately $20,469,000 of
cash and cash equivalents available for investment. Our ability
to generate increased revenues is dependent upon our ability to
grow our asset base by investing these funds, as well as
additional funds which we may raise or borrow, in real estate
related assets that will ultimately generate favorable returns.
We are
subject to significant competition and we may not compete
successfully.
We have significant competition with respect to our acquisition
of operating properties and our acquisition and origination of
loan assets with many other companies, including other REITs,
insurance companies, commercial banks, private investment funds,
hedge funds, specialty finance companies and other investors
some of which may have a lower cost of funds and access to
funding sources that are not available to us.
Investing
through ventures presents additional risks.
Our investments in ventures present additional risks such as our
having differing objectives than our partners from time to time
or the entities in which we invest or our becoming involved in
disputes or possibly competing with those persons in investments
unrelated to our joint venture. In addition, we rely on the
internal controls and financial reporting controls of these
entities and their failure to comply with applicable standards
may adversely affect us.
Investing
in private companies involves specific risks.
We have held and may acquire additional ownership interests in
private companies not subject to the reporting requirements of
the SEC. Investments in private businesses involve a higher
degree of business and financial risk, which can result in
substantial losses and accordingly should be considered
speculative. There is generally no publicly available
information about these private companies, and we will rely
significantly on the due diligence of our advisor to obtain
information in connection with our investment decisions.
Many of
our investments are illiquid, and we may not be able to adjust
our portfolio in response to changes in economic and other
conditions, which may result in losses to us.
Many of our investments are relatively illiquid and, therefore,
our ability to sell properties and purchase other properties,
loan assets, loan securities and debt promptly in response to a
change in economic or other conditions may be limited. The
requirements of the Code with regard to REITs also may limit our
ability to sell investments. These considerations could make it
difficult for us to dispose of properties, even if a disposition
were in the best interest of our shareholders. As a result, our
ability to adjust our portfolio in response to changes in
economic and other conditions may be relatively limited, which
may result in losses to us.
We
leverage our portfolio, which may adversely affect our return on
our investments and may reduce cash available for
distribution.
We seek to leverage our portfolio through borrowings. Our return
on investments and cash available for distribution to holders of
our preferred and common shares may be reduced to the extent
that changes in market conditions make new borrowings or
refinancing of existing debt difficult or even impossible or
cause the cost of our financings to increase relative to the
income that can be derived from the assets. Our debt service
payments reduce the cash available for distributions to holders
of preferred and common shares. We may not be able to meet our
debt service obligations and, to the extent that we cannot, we
risk the loss of some or all of our assets to foreclosure or
forced sale to satisfy our debt obligations. A decrease in the
value of the assets may lead to a requirement that we repay
certain credit facilities. We may not have the funds available,
or be able to arrange for refinancings, to satisfy such
repayments.
2
We may
change our investment and operational policies.
We may change our investment and operating strategy either
voluntarily or as result of the severe downturn in the economy,
including our policies with respect to investments,
acquisitions, growth, operations, indebtedness, capitalization
and distributions, at any time without the consent of our
shareholders, which could result in our making investments that
are different from, and possibly riskier than, our current
investments. A change in our investment strategy may increase
our exposure to interest rate risk, default risk and real estate
market fluctuations, all of which could adversely affect our
share price and our ability to make distributions.
Interest
rate fluctuations may reduce our investment return.
Certain of our loan obligations or loan assets have floating
interest rates. In such cases, an increase in interest rates
would increase our loan obligations while a decrease in interest
rates would decrease the interest received on our loan assets.
Where possible we seek to mitigate these risks by acquiring
interest rate cap agreements, rate collars and other similar
protections. To the extent we have not mitigated these risks or
our actions are ineffective, a fluctuation in interest rates
could negatively impact our cash flow due to an increase in loan
obligations or a decrease in interest received on our loan
assets.
We engage
in hedging transactions that may limit gains or result in
losses.
We have and may continue to use hedging instruments in our risk
management strategy to limit the effects of changes in interest
rates on our operations. A hedge may not be effective in
eliminating all of the risks inherent in any particular
position. Further, we have and could continue to recognize
losses on a hedge position which reduces the cash available for
distribution. In addition, we run the risk of default by a
counterparty to a hedging arrangement
We must
manage our investments in a manner that allows us to rely on an
exemption from registration under The Investment Company Act in
order to avoid the consequences of regulation under that
Act.
We intend to operate so that we are exempt from registration as
an investment company under the Investment Company Act of 1940,
as amended. Therefore, the assets that we may invest in, or
acquire, are limited by the provisions of the Investment Company
Act and the rules and regulations promulgated thereunder. If we
are required to make investments in order to be exempt from
registration, such investments may not represent an optimum use
of our capital when compared to other available investments.
We may
not be able to obtain capital to make investments.
As a REIT, we are dependent primarily on external financing to
fund the growth of our business because one of the requirements
for a REIT is that it distribute at least 90% of its net taxable
income, excluding net capital gains, to its shareholders.
Accordingly, to the extent we are unable to obtain debt or
equity financing it will likely have a material adverse affect
on our financial condition and results of operations, our stock
price and our ability to pay dividends to our shareholders.
We have
significant distribution obligations to holders of our
Series B-1
preferred shares.
The provisions of our
Series B-1
preferred shares currently require us to make annual
distributions presently aggregating approximately $2,268,500
before any distributions may be made on our common shares.
Our ratio
of total debt to total entity value may increase.
If our ratio of total debt to total entity value (total market
equity value of our common and preferred shares plus debt)
increases, it may increase the risk of default on our loan-debt
obligations and limit our ability to obtain additional equity or
debt financing, either of which would adversely affect our
financial condition and results of operations.
3
Covenants
in our debt instruments could adversely affect our financial
condition and our ability to make future investments.
The mortgages on our properties contain customary covenants such
as those that limit our ability, without the prior consent of
the lender, to further mortgage the applicable property. Our
credit facilities contain, and other loans that we may obtain in
the future contain, customary restrictions, requirements and
other limitations on our ability to incur indebtedness. These
restrictions can include, among other things, a limitation on
our ability to incur debt based upon the level of our ratio of
total debt to total assets, our ratio of secured debt to total
assets, our ratio of EBITDA to interest expense and fixed
charges, and a requirement for us to maintain a certain level of
unencumbered assets to unsecured debt. Our ability to borrow
under our credit facility with KeyBank, National Association is
subject to compliance with certain other covenants including the
absence of factors both within and outside of our control which
would cause a material adverse change in the loan syndication,
financial or capital market conditions. In addition, failure to
comply with our covenants could cause a default under the
applicable debt instrument, and we may then be required to repay
such debt with funds from other sources which may not be
available to us, or be available only on unattractive terms.
Concord is subject to similar risks with respect to its credit
facilities as well as the additional risks discussed below.
Future
issuances and sales of equity or debt interests pursuant to an
outstanding registration statement may affect the market price
of our common shares.
The actual issuance of additional common or preferred shares or
the sale of debt securities by us may decrease the market price
of our common shares.
If we
issue preferred equity or debt we may be exposed to additional
restrictive covenants and limitations on our operating
flexibility, which could adversely affect our ability to pay
dividends.
If we decide to issue preferred equity or debt in the future, it
is likely that they will be governed by an indenture or other
instrument containing covenants that may restrict our operating
flexibility.
Additional
issuances of common shares may negatively impact our dividend
rate payable on our common shares.
In paying dividends on our common shares we endeavor to have our
dividends track cash flow from operations, both recurring and
nonrecurring. Accordingly, as we issue additional common shares,
the per share dividend will likely decrease until such time as
we can deploy the proceeds from such issuance of common shares
in investments which increase our recurring and nonrecurring
cash flow.
Our due
diligence may not reveal all of the liabilities associated with
a proposed investment and may not reveal other
weaknesses.
There can be no assurance that due diligence by our advisor in
connection with a new investment will uncover all relevant facts
which could adversely affect the value of the investment or that
the investment will be successful.
We may
fail to remain qualified as a REIT, which would reduce the cash
available for distribution to our shareholders.
Qualification as a REIT for federal income tax purposes is
governed by highly technical and complex provisions of the Code
for which there are only limited judicial or administrative
interpretations. Our qualification as a REIT also depends on
various facts and circumstances that are not entirely within our
control. In addition, legislation, new regulations,
administrative interpretations or court decisions might change
the tax laws with respect to the requirements for qualification
as a REIT or the federal income tax consequences of
qualification as a REIT.
If, with respect to any taxable year, we were to fail to
maintain our qualification as a REIT, we would not be able to
deduct distributions to our shareholders in computing our
taxable income and would have to pay federal corporate income
tax (including any applicable alternative minimum tax) on our
taxable income. If we had to pay federal income tax, the amount
of money available to distribute to our shareholders would be
reduced for the year or years involved. In addition, we would be
disqualified from treatment as a REIT for the four taxable years
following the year during which qualification was lost and thus
our cash available for distribution to our shareholders would be
reduced in each of those years, unless we were entitled to
relief under relevant statutory provisions.
4
Although we currently intend to operate in a manner designed to
allow us to continue to qualify as a REIT, future economic,
market, legal, tax or other considerations might cause us to
revoke the REIT election. In that event, we and our shareholders
would no longer be entitled to the federal income tax benefits
applicable to a REIT.
In order
to maintain our status as a REIT, we may be forced to borrow
funds or sell assets during unfavorable market
conditions.
As a REIT, we must distribute at least 90% of our annual REIT
taxable income, subject to certain adjustments, to our
shareholders. To the extent that we satisfy the REIT
distribution requirement but distribute less than 100% of our
taxable income, we will be subject to federal corporate income
tax on our undistributed taxable income. In addition, we will be
subject to a 4% nondeductible excise tax if the actual amount
that we pay to our shareholders in a calendar year is less than
a minimum amount specified under federal tax laws.
From time to time, we may have taxable income greater than our
cash flow available for distribution to our shareholders (for
example, due to substantial non-deductible cash outlays, such as
capital expenditures or principal payments on debt). If we did
not have other funds available in these situations, we could be
required to borrow funds, sell investments at disadvantageous
prices or find alternative sources of funds to make
distributions sufficient to enable us to pay out enough of our
taxable income to satisfy the REIT distribution requirement and
to avoid income and excise taxes in a particular year. These
alternatives could increase our operating costs and diminish our
rate of growth.
Factors
that may cause us to lose our New York Stock Exchange
listing.
We might lose our listing on the NYSE depending on a number of
factors, including failure to qualify as a REIT, or our not
meeting the NYSEs requirements, including those relating
to the number of shareholders, the price of our common shares
and the amount and composition of our assets.
Ownership
limitations in our bylaws may adversely affect the market price
of our common shares.
Our bylaws contain an ownership limitation that is designed to
prohibit any transfer that would result in our being
closely-held within the meaning of
Section 856(h) of the Code. This ownership limitation,
which may be waived by our Board of Trustees, generally
prohibits ownership, directly or indirectly, by any single
shareholder of more than 9.8% of our common shares. Our Board of
Trustees has waived this ownership limitation on a number of
occasions. Unless the Board of Trustees waives the restrictions
or approves a bylaw amendment, common shares owned by a person
or group of persons in excess of 9.8% of our outstanding common
shares are not entitled to any voting rights, are not considered
outstanding for quorum or voting purposes, and are not entitled
to dividends, interest or any other distributions with respect
to the common shares. The ownership limit may have the effect of
inhibiting or impeding a change of control or a tender offer for
our common shares.
Any one
of a prolonged economic slowdown, a lengthy or severe recession
or continued instability in the credit market could harm our
operations and viability.
A prolonged economic slowdown, a lengthy or severe recession and
the continued instability in the credit market has and will
affect our operations and viability in a number of ways
including:
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Depressed prices for our assets;
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Decreases in interest income received or increases in interest
expenses paid;
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Fewer potential purchasers for our assets;
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Increased risk of default on loan assets and loan securities;
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Inability to obtain new or replacement financing;
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Inability to sell additional debt or equity securities; and
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Increased likelihood of margin calls on Concords
repurchase facilities.
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5
Risks
incidental to the ownership and operation of real estate
assets.
The value of an investment in us depends upon our financial
performance and the value of our operating properties, both
those presently held as well as future investments, which are
subject to the risks normally associated with the ownership,
operation and disposal of real estate properties and real estate
related assets, including:
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adverse changes in general and local economic conditions which
affect the demand for real estate assets;
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competition from other properties;
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changes in interest rates and the availability of financing;
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the cyclical nature of the real estate industry and possible
oversupply of, or reduced demand for, space in the markets in
which our properties are located;
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the attractiveness of our properties to tenants and purchasers;
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how well we manage our properties;
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changes in market rental rates and our ability to rent space on
favorable terms;
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the financial condition of our tenants and borrowers including
bankruptcy or insolvency of tenants and borrowers;
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the need to periodically renovate, repair and re-lease space and
the costs thereof;
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increases in maintenance, insurance and operating costs;
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civil unrest, armed conflict or acts of terrorism against the
United States; and
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earthquakes floods and other natural disasters or acts of God
that may result in uninsured losses.
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In addition, applicable federal, state and local regulations,
zoning and tax laws and potential liability under environmental
and other laws may affect real estate values. Further,
throughout the period that we own real property, regardless of
whether or not a property is producing any income, we must make
significant expenditures, including those for property taxes,
maintenance, insurance and related charges and debt service. The
risks associated with real estate investments may adversely
affect our operating results and financial position, and
therefore the funds available for distribution to you as
dividends.
Failure
to renew expiring leases could adversely affect our financial
condition.
We are subject to the risk that, upon expiration, leases may not
be renewed, the space may not be relet, or the terms of renewal
or reletting, including the cost of any required renovations,
may be less favorable than the current lease terms. This risk is
substantial with respect to our net leased properties as single
tenants lease 100% of each property. Nineteen of our properties,
containing an aggregate of approximately 2,896,000 square
feet of space are net leased to seven different tenants. Leases
accounting for approximately 16% of the aggregate annualized
base rents from our operating properties for 2008, representing
approximately 14% of the net rentable square feet at the
properties, are scheduled to expire in 2009. Other leases grant
tenants early termination rights upon payment of a termination
penalty. Lease expirations will require us to locate new tenants
and negotiate replacement leases with new tenants. The costs for
tenant improvements, tenant concessions and leasing commissions,
with respect to new leases, are traditionally greater than costs
relating to renewal leases. If we are unable to promptly relet
or renew leases for all or a substantial portion of the space
subject to expiring leases, or if the rental rates upon such
renewal or reletting are significantly lower than expected, our
revenue and net income could be adversely affected.
6
We are
subject to risks associated with the financial condition of our
tenants.
The current credit and capital market crisis and economic
slowdown will likely have a negative impact on our tenants due
to a downturn in their business. This negative impact could
result in the tenants inability to make rental payments
when due. In addition, a tenant may seek the protection of
bankruptcy, insolvency or similar laws, which could result in
the rejection and termination of such tenants lease and
cause a reduction in our cash flow. If this were to occur at a
net lease property, the entire property would become vacant.
We cannot evict a tenant solely because of its filing for
bankruptcy. A bankruptcy court, however, may authorize a tenant
to reject and terminate its lease. In such a case, our claim
against the tenant for past due rent and unpaid future rent
would be subject to a statutory cap that might be substantially
less than the remaining rent owed under the lease. In any event,
it is unlikely that a bankrupt tenant will pay in full the
amount it owes us under a lease. The loss of rental payments
from tenants could adversely affect our cash flows and operating
results.
The loss
of a major tenant could adversely affect our financial
condition.
We are and expect that we will continue to be subject to a
degree of tenant concentration at certain of our operating
properties and the properties securing our loan assets and loan
securities. In the event that a tenant occupying a significant
portion of one or more of our properties or whose rental income
represents a significant portion of the rental revenue at such
property or properties were to experience financial weakness,
default on its lease, elect not to renew its lease or file
bankruptcy it would negatively impact our operations and cash
flows. Similarly, if a tenant occupying a significant portion of
one or more of the properties securing our loan assets or loan
securities or whose rental income represents a significant
portion of the rental revenue at such property or properties
experiences financial weakness, defaults on its lease, elects
not to renew its lease or files for bankruptcy, it would
negatively impact our operations and cash flows.
We may be
unable to refinance our existing debt or preferred share
financings or obtain favorable refinancing terms.
We are subject to the normal risks associated with debt and
preferred share financings, including the risk that our cash
flow will be insufficient to meet required payments of principal
and interest on debt and distributions and redemption payments
to holders of preferred shares and the risk that indebtedness on
our properties, or unsecured indebtedness, will not be able to
be renewed, repaid or refinanced when due, or that the terms of
any renewal or refinancing will not be as favorable as the terms
of such indebtedness. This risk is exacerbated by the recent
capital market crisis which has resulted in tightened lending
requirements for real estate related assets and in some cases
the inability to refinance real estate indebtedness. If we were
unable to refinance indebtedness or preferred share financings
on acceptable terms, or at all, we might be forced to dispose of
one or more of our properties on disadvantageous terms, which
might result in losses to us, which could have a material
adverse affect on us and our ability to pay distributions to our
holders of preferred shares and common shares. Furthermore, if a
property is mortgaged or a loan pledged to secure payment of
indebtedness and we are unable to meet the debt payments, the
lender could foreclose upon the property or the loan, appoint a
receiver or obtain an assignment of rents and leases or pursue
other remedies, all with a consequent loss of revenues and asset
value to us. Foreclosures could also create taxable income
without accompanying cash proceeds, thereby hindering our
ability to meet the REIT distribution requirements.
With respect to upcoming maturities, none of our loans are
scheduled to mature in 2009, inclusive of extension rights. As
of June 30, 2009 there are $2,871,000 of scheduled
principal payments on mortgage loans remaining in 2009. The
remaining balance of approximately $223,784,000 is scheduled to
be paid down or mature in 2010 or later.
7
Some of
our potential losses may not be covered by insurance.
We will use our discretion in determining amounts, coverage
limits and deductibility provisions of insurance, with a view to
maintaining appropriate insurance coverage on our investments at
a reasonable cost and on suitable terms. This may result in
insurance coverage that, in the event of a substantial loss,
would not be sufficient to pay the full current market value or
current replacement cost of the lost investment and also may
result in certain losses being totally uninsured. Inflation,
changes in building codes, zoning or other land use ordinances,
environmental considerations, lender imposed restrictions and
other factors also might make it not feasible to use insurance
proceeds to replace the property after such property has been
damaged or destroyed. Under such circumstances, the insurance
proceeds, if any, received by us might not be adequate to
restore our economic position with respect to such property.
With respect to our net leased properties, under the lease
agreements for such properties, the tenant is required to
adequately insure the property, but their failure or inability
to have adequate coverage might adversely affect our economic
position with respect to such property.
Compliance
with the Americans with Disabilities Act and fire, safety and
other regulations may require us to make unanticipated
expenditures that adversely affect our ability to pay
dividends.
All of our properties are required to comply with the Americans
with Disabilities Act, which we refer to as the ADA. The ADA has
separate compliance requirements for public
accommodations and commercial facilities, but
generally requires that buildings be made accessible to people
with disabilities. Although we believe that our properties are
in compliance with the ADA, it is possible that we may incur
additional expenditures which, if substantial, could adversely
affect our results of operations, our financial condition and
our ability to pay dividends.
In addition, we are required to operate our properties in
compliance with fire and safety regulations, building codes and
other land use regulations, as they may be adopted by local,
state and federal governmental agencies and bodies and become
applicable to our properties. We may be required to make
substantial capital expenditures to comply with those
requirements and these expenditures could have an adverse affect
on our ability to pay dividends.
We may
incur costs to comply with environmental laws.
The obligation to pay for the cost of complying with existing
environmental laws, ordinances and regulations, as well as the
cost of complying with future legislation, may adversely affect
our operating costs. Under various federal, state and local
environmental laws, ordinances and regulations, a current or
previous owner or operator of real property may be liable for
the costs of removal or remediation of hazardous or toxic
substances on or under the property. Environmental laws often
impose liability whether or not the owner or operator knew of,
or was responsible for, the presence of such hazardous or toxic
substances and whether or not such substances originated from
the property. In addition, the presence of hazardous or toxic
substances, or the failure to remediate such property properly,
may adversely affect our ability to borrow by using such
property as collateral. We maintain insurance related to
potential environmental issues on our currently
non-net
leased properties which may not be adequate to cover all
possible contingencies.
The loans
we invest in are subject to delinquency, foreclosure and
loss.
Our commercial real estate loan assets and loan securities are
directly and indirectly secured by income producing property.
These loans are subject to risks of delinquency and foreclosure
as well as risk associated with the capital markets. The ability
of a borrower to repay a loan secured by an income producing
property typically is dependent primarily upon the successful
operation of such property rather than upon the existence of
independent income or assets of the borrower. If a borrower were
to default on a loan, it is possible that we would not recover
the full value of the loan.
The
subordinate loan assets we invest in may be subject to risks
relating to the structure and terms of the transactions, and
there may not be sufficient funds or assets remaining to satisfy
our subordinate notes, which may result in losses to
us.
We invest in loan assets that are subordinate in payment and
collateral to more senior loans. If a borrower defaults or
declares bankruptcy, after the more senior obligations are
satisfied, there may not be sufficient funds or assets remaining
to satisfy our subordinate notes. Because each transaction is
privately negotiated, subordinate loan assets can vary in their
structural characteristics and lender rights, including our
rights to control the default or bankruptcy process. The
subordinate loan assets that we invest in may not give us the
right to demand foreclosure as a subordinate debtholder.
Furthermore, the presence of intercreditor agreements may limit
our ability to amend the loan documents, assign the loans,
accept prepayments, exercise remedies and control decisions made
in bankruptcy proceedings relating to borrowers. Bankruptcy and
borrower litigation can significantly increase the time needed
for us to acquire possession of underlying collateral in the
event of a default, during which time the collateral may decline
in value. In addition, there are significant costs and delays
associated with the foreclosure process.
8
We invest
in subordinate mortgage-backed securities which are subject to a
greater risk of loss than senior securities. We may hold the
most junior class of mortgage-backed securities which are
subject to the first risk of loss if any losses are realized on
the underlying mortgage loans.
We invest in a variety of subordinate loan securities, and
sometimes hold a first loss subordinate holder
position. The ability of a borrower to make payments on the loan
underlying these securities is dependent primarily upon the
successful operation of the property rather than upon the
existence of independent income or assets of the borrower since
the underlying loans are generally non-recourse in nature. In
the event of default and the exhaustion of any equity support,
reserve funds, letters of credit and any classes of securities
junior to those in which we invest, we will not be able to
recover all of our investment in the securities purchased.
The
widening of credit spreads has had and will continue to have a
negative impact on the value of Concords assets.
The fair value of Concords loan assets and loan securities
is dependent upon the yield demanded on these assets by the
market based on the underlying credit. A large supply of these
loan assets and loan securities combined with reduced demand
will generally cause the market to require a higher yield on
these loan assets and loan securities, resulting in a higher, or
wider, spread over the benchmark rate of such loan
assets and loan securities. Under these conditions such as those
that we are currently experiencing, the value of loan assets and
loan securities in Concords portfolio has and will
decline. Such changes in the market value of Concords
portfolio has and will adversely affect Concords net
equity through their impact on unrealized gains or losses on
available-for-sale
loan assets and loan securities, and therefore Concords
cash flow since Concord would be unable to realize gains through
sale of such loan assets and loan securities. Also, they have
and could continue to adversely affect Concords ability to
borrow and access capital.
Concord prices its assets based on its assumptions about future
credit spreads for financing of those assets. Concord has
obtained in the past longer term financing for its assets using
structured financing techniques, such as Concord Real Estate CDO
2006-1,
Ltd., which we refer to as CDO-1. Such issuances entail interest
rates set at a spread over a certain benchmark, such as the
yield on United States Treasury obligations, swaps or LIBOR. If
the spread that investors are paying on structured finance
vehicles over the benchmark widens and the rates Concord charges
on its securitized assets are not increased accordingly, this
may reduce Concords income or cause losses.
The
deterioration of the credit markets has had an adverse impact on
the ability of borrowers to obtain replacement
financing.
The deterioration of credit markets has made it extremely
difficult for borrowers to obtain mortgage financing. The
inability of borrowers to obtain replacement financing has led
and will likely continue to lead to more loan defaults thereby
resulting in expensive and time consuming foreclosure actions
and/or
negotiated extensions to existing loans beyond their current
expirations on terms which may not be as favorable to us as the
existing loans.
The
repurchase agreements that Concord uses to finance its
investments may require it to provide additional
collateral.
If the market value of the loan assets and loan securities
pledged or sold by Concord to counterparties decline in value,
which decline is determined, in most cases, by the repurchase
counterparties, Concord may be required by the repurchase
counterparties to provide additional collateral or pay down a
portion of the funds advanced. Posting additional collateral to
support its repurchase facilities will reduce Concords
return on assets and liquidity as well as limit its ability to
leverage its assets. If Concord cannot post additional
collateral, Concord will be required to satisfy the margin calls
in cash. Accordingly, if Concord is required to use its cash, or
if it does not have sufficient cash, to meet such requirements,
absent additional capital from us
and/or
others, it will result in a rapid deterioration of
Concords financial condition and solvency as well as the
loss of assets to the repurchase counterparties, thereby
adversely affecting the trusts investment in Concord. In
this regard, Concord is required to reduce the outstanding
balance under its repurchase agreement with Column Financial,
Inc. which had an outstanding balance of approximately
$79,313,000 as of September 30, 2009, to $60,000,000 by
December 31, 2009. It is expected this reduction will be
satisfied, if at all, from sales of certain assets pledged under
the repurchase agreement.
9
The
credit and capital market deterioration has significantly
strained Concords liquidity.
The inability of Concord to obtain replacement financing coupled
with pending maturities and margin calls on its repurchase
obligations has significantly strained Concords liquidity
as cash from operations is required to be used primarily to
satisfy repayments under repurchase agreements and margin calls.
Until there is a recovery in the credit and capital markets and
depending on the timing and extent of margin calls and loan
defaults, Concord will likely have to utilize its cash flow to
meet regular debt service payments as well as margin calls on
its repurchase facilities and preferred distribution payments.
In addition, if alternative financing is not available or the
level of defaults on Concords loan assets and loan
securities increases, Concord may not have sufficient liquidity
to satisfy its debt obligations which may require Concord to
liquidate assets at unfavorable pricing, and thereby adversely
affect the recovery of the trusts investment in Concord.
We may
not recover any of our equity investment in Concord.
For the quarter ended June 30, 2009, Concord was in default
under several of its credit facilities and, as of June 30,
2009, we wrote down our investment in Concord to zero. While the
writedown of our investment in Concord to zero for financial
statement purposes should not convey to investors that we and
our partners have ceased to work towards equity recovery, there
can be no assurance that we will recover any of our investment
in Concord.
In addition, as of August 26, 2009, Concords
independent registered public accounting firm reissued its audit
report, dated March 1, 2009, relating to Concords
financial statements at December 31, 2008 to raise
substantial doubt as to Concords ability to continue as a
going concern because Concord had suffered losses from
operations and was in violation of certain debt covenants, as a
result of certain events that occurred subsequent to the date of
their original report.
Credit
ratings assigned to Concords investments are subject to
ongoing evaluations and we cannot be sure that the ratings
currently assigned to Concords investments will not be
downgraded.
Some of Concords investments are rated by the major rating
agencies. The credit ratings on these investments are subject to
ongoing evaluation by credit rating agencies. If rating agencies
assign a lower rating or reduce, or indicate that they may
reduce, their ratings of Concords investments, the market
value of those investments could significantly decline, which
could have an adverse affect on Concords financial
condition by causing additional margin calls and making it more
difficult to replace assets in CDO-1.
The
coverage tests in Concords CDO-1 may have a negative
impact on Concords operating results and cash
flows.
CDO-1 contains coverage tests, including over-collateralization
tests, which are used primarily to determine whether and to what
extent principal and interest proceeds on the underlying
collateral debt securities and other assets may be used to pay
principal and interest on the subordinate classes of bonds in
CDO-1. In the event the coverage tests are not met,
distributions otherwise payable to Concord may be re-directed to
pay principal on the highest bond classes. Therefore,
Concords failure to satisfy the coverage tests could
adversely affect Concords operating results and cash flows.
Certain coverage tests which may be applicable to Concords
interest in CDO-1 (based on delinquency levels or other
criteria) may also restrict Concords ability to receive
net income from assets pledged to secure CDO- 1. If
Concords assets fail to perform in accordance with their
terms, Concords over-collateralization or other credit
enhancement expense associated with CDO-1 will increase.
10
Our
investments in REIT securities are subject to specific risks
relating to the particular REIT issuer of the securities and to
the general risks of investing in equity interests of
REITs.
Our investments in REIT securities involve special risks. These
risks include many, if not all, of the foregoing risks which
apply to an investment in us, including: (i) risks
generally incident to interests in real property;
(ii) risks associated with the failure to maintain REIT
qualification; and (iii) risks that may be presented by the
type and use of a particular commercial property.
Ability
of our advisor to operate properties directly affects our
financial condition.
Other than for severe economic conditions or natural forces
which may be unanticipated or uncontrollable, the ultimate value
of our assets and the results of our operations will depend on
the ability of our advisor to operate and manage our assets in a
manner sufficient to maintain or increase revenues and control
our operating and other expenses in order to generate sufficient
revenues to pay amounts due on our indebtedness and to pay
dividends to our shareholders.
We are
dependent on our advisor and the loss of our advisors key
personnel could harm our operations and adversely affect the
value of our shares.
We have no paid employees. Our officers are employees of our
advisor. We have no separate facilities and are completely
reliant on our advisor, which has significant discretion as to
the implementation of our investment and operating strategies.
We are subject to the risk that our advisor will terminate its
advisory agreement and that no suitable replacement will be
found to manage us. Furthermore, we are dependent on the
efforts, diligence, skill, network of business contacts and
close supervision of all aspects of our business by our advisor
and, in particular, Michael Ashner, chairman of our Board of
Trustees and our chief executive officer, Carolyn Tiffany, our
president, and Peter Braverman, our executive vice chairman, as
well as our other executive officers. While we believe that we
could find replacements for these key personnel, the loss of
their services could harm our operations and adversely affect
the value of our shares.
The
incentive fee payable to our advisor may be
substantial.
Pursuant to the terms of the advisory agreement, our advisor is
entitled to receive an incentive fee equal to 20% of any amounts
available for distribution in excess of a threshold amount. The
incentive fee is only payable at such time, if at all,
(i) when holders of our common shares receive aggregate
distributions above a threshold amount (effectively a return of
capital plus 7% per annum) or (ii) upon termination of the
advisory agreement, if the value of our assets exceed the
threshold amount based on then current market values and
appraisals. That is, the incentive fee is not payable annually
but only at such time, if at all, as shareholders have received
the threshold amount or, if the advisory agreement is
terminated, if the assets of the trust exceed the threshold
amount. At June 30, 2009 the threshold amount was
approximately $353,417,000, which was equivalent to $20.21 for
each of our common shares on a fully diluted basis. At such time
as shareholders equity in our financial statements exceeds
the threshold amount, we will record a liability equal to
approximately 20% of the difference between shareholders
equity and the threshold amount in accordance with GAAP.
Termination
of the Advisory Agreement may be costly.
Termination of the advisory agreement either by us or our
advisor may be costly. Upon termination of the advisory
agreement, our advisor is entitled to a termination fee equal to
the incentive fee based on an appraised valuation of our assets
assuming we were then liquidated. The amount payable on
termination of the advisory agreement could be substantial which
may have a negative effect on the price of our shares.
11
DESCRIPTION
OF OUR COMMON SHARES
The following summary of the material terms and provisions of
our common shares does not purport to be complete and is subject
to the detailed provisions of our declaration of trust and our
bylaws, each of which is incorporated by reference into this
prospectus. You should carefully read each of these documents in
order to fully understand the terms and provisions of our common
shares. For information on incorporation by reference, and how
to obtain copies of these documents, see the sections entitled
WHERE YOU CAN FIND MORE INFORMATION and
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE.
General
We are authorized to issue an unlimited number of common shares.
As of October 5, 2009 there were 15,861,231 common shares
outstanding. All our common shares are entitled to participate
equally in any distributions thereon declared by us. Subject to
the provisions of our bylaws regarding excess securities and the
provisions of our preferred shares described below, each
outstanding common share entitles the holder to one vote on all
matters voted on by shareholders. Shareholders have no
preemptive rights. The outstanding common shares are fully paid
and non-assessable and have equal liquidation rights. The common
shares are fully transferable except that their issuance and
transfer may be regulated or restricted by us in order to assure
our qualification for taxation as a REIT. See
Restriction on Size of Holdings
. The common shares are not redeemable at our
option or at the option of any shareholder. Our board of
trustees is generally authorized without shareholder approval to
borrow money and issue obligations and equity securities which
may or may not be convertible into common shares and warrants,
rights or options to purchase common shares; and to issue other
securities of any class or classes which may or may not have
preferences or restrictions not applicable to our common shares.
The issuance of additional common shares or such conversion
rights, warrants or options may have the effect of diluting the
interest of shareholders. Annual meetings of the shareholders
are held during May at such time and place as the trustees may
from time to time determine. Special meetings may be called at
any time and place when ordered by a majority of the trustees,
the chairman of our board of trustees, our chief executive
officer or our president or upon written request of the holders
of not less than 25% of the outstanding common shares.
Shareholder
Liability
Our declaration of trust provides that no shareholder shall be
personally liable in connection with our property or affairs,
and that all persons shall look solely to our property for
satisfaction of claims of any nature arising in connection with
our affairs.
Under present Ohio law, no personal liability will attach to our
shareholders, but with respect to tort claims, contract claims
where liability of shareholders is not expressly negated, claims
for taxes and certain statutory liabilities, our shareholders
may in some jurisdictions other than the State of Ohio be held
personally liable to the extent that such claims are not
satisfied by us, in which event the shareholders would, in the
absence of negligence or misconduct on their part, be entitled
to reimbursement from our general assets. We carry comprehensive
general liability insurance in a form typically available in the
marketplace which our trustees consider adequate. To the extent
our assets and insurance would be insufficient to reimburse a
shareholder who has been required to pay a claim against us, the
shareholder would suffer a loss. The statements in this
paragraph and the previous paragraph also apply to holders of
our preferred shares of beneficial interest, although any
possible liability of such holders would be further reduced by
the greater limitations on their voting power.
Voting
Rights
Subject to the provisions of our bylaws regarding restrictions
on transfer and ownership of common stock, you will have one
vote per share on all matters submitted to a vote of
shareholders. Shareholders are currently granted the right by a
majority vote or a supermajority vote, as the case may be,
(i) to elect trustees, (ii) to approve or disapprove
certain transfers of our assets or mergers involving us,
(iii) to approve or disapprove amendments to our
declaration of trust, (iv) when removal is proposed by all
other trustees, to approve removal of any trustee, (v) to
waive the ownership limit (see Restriction on Size of
Holdings, below) if greater than a majority but less
than 70% of the trustees approve such waiver and (vi) to
approve our incurrence of indebtedness in excess of 83.33% of
the value of our assets. Trustees are required to receive the
vote of shareholders holding at least a majority of the
outstanding shares entitled to vote. We have no fixed duration
and will continue indefinitely, unless terminated as provided in
our declaration of trust.
12
As described below under DESCRIPTION OF OUR PREFERRED
SHARES, the holders of our preferred shares have
voting rights on various matters. These include the right of
holders of our
Series B-1 Shares
to elect one trustee and an additional right to elect one-third
of the trustees if we fail to comply with specific provisions of
the certificate of designations for the
Series B-1
Preferred Shares. We are also required to obtain the approval of
preferred shareholders if we seek to take specific actions that
are also described below.
Transfer
Agent and Registrar
The transfer agent and registrar for our common shares is
Computershare.
Restriction
on Size of Holdings
Our bylaws restrict beneficial or constructive ownership of our
outstanding capital stock by a single person, or persons acting
as a group, to 9.8% of our common shares, which limitation
assumes that all securities convertible into our common shares
owned by such person or group of persons have been converted.
The purpose of these provisions is to protect and preserve our
REIT status. For us to qualify as a REIT under the Code, not
more than 50% in value of our outstanding capital stock may be
owned by five or fewer individuals (as defined in the Code) at
any time during the last half of our taxable year. The provision
permits five persons each to acquire up to a maximum of 9.8% of
our common shares, or an aggregate of 49% of the outstanding
common shares, and thus, assists our trustees in protecting and
preserving REIT status for tax purposes.
Unless the board waives the restrictions or approves a bylaw
amendment, common shares owned by a person or group of persons
in excess of 9.8% of our outstanding common shares are not
entitled to any voting rights; are not considered outstanding
for quorum or voting purposes; and are not be entitled to
dividends, interest or any other distributions with respect to
the securities. Waivers or bylaw amendments have been granted or
approved for (i) FUR Investors LLC which can hold up to 33%
or our common and preferred shares, and (ii) certain of the
holders of our
Series B-1
Preferred Shares. In each case we conditioned the waivers and
amendments on compliance with additional requirements designed
to preserve our REIT status.
Our declaration of trust provides that the share ownership limit
contained in the bylaws may be amended from time to time with
the approval of either (i) 70% of the trustees then in
office or (ii) a majority of the trustees then in office
and the approval of at least 70% of the holders of our
outstanding common shares.
Trustee
Liability and Indemnification
Our declaration of trust provides that our trustees will not be
individually liable for any obligation or liability incurred by
or on our behalf or by trustees for our benefit and on our
behalf. Subject to the specific conditions contained therein,
our declaration of trust also obligates us to indemnify our
trustees for, and pay or reimburse them for expenses incurred
related to, claims and liabilities which they may become subject
to by reason of having served as a trustee.
DESCRIPTION
OF OUR PREFERRED SHARES
The following summary of the material terms and provisions of
our preferred shares does not purport to be complete and is
subject to the detailed provisions of our declaration of trust,
including any applicable articles supplementary, amendment or
annex to our declaration of trust designating the terms of a
series of preferred shares, and our bylaws, each of which is
incorporated by reference into this prospectus. You should
carefully read each of these documents in order to fully
understand the terms and provisions of our preferred shares. For
information on incorporation by reference, and how to obtain
copies of these documents, see the sections entitled
WHERE YOU CAN FIND MORE INFORMATION and
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE.
13
General
Subject to limitations as may be prescribed by Ohio law and our
bylaws and declaration of trust, our Board of Trustees is
authorized to issue without the approval of our shareholders,
preferred shares in series and to establish from time to time
the number of preferred shares to be included in such series and
to fix the designation and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to
distributions, qualifications and terms and conditions of
redemption of the shares of each such series. We currently have
outstanding
Series B-1
Cumulative Convertible Redeemable Preferred Shares of beneficial
interest, $1.00 par value, which we refer to as the
Series B-1
Preferred Shares. For more information on the terms of our
Series B-1
Preferred Shares, please see Terms of Our
Series B-1
Preferred Shares below.
The preferred shares offered hereby will, when issued against
payment therefor, be fully paid and nonassessable and will not
be subject to preemptive rights. Our Board of Trustees could
authorize the issuance of preferred shares with terms and
conditions that could have the effect of discouraging a takeover
or other transaction that holders of common shares might believe
to be in their best interests or in which holders of common
shares might receive a premium for their common shares over the
then-current market price of their shares.
Terms
Reference is made to the applicable prospectus supplement
relating to the preferred shares offered thereby for specific
terms, including:
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(1)
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the title and stated value of the preferred shares;
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(2)
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the number of preferred shares offered, the liquidation
preference per share and the offering price of the preferred
shares;
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(3)
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the dividend rate(s), period(s), and/or payment date(s) or
method(s) of calculation thereof applicable to the preferred
shares;
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(4)
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the date from which dividends on the preferred shares shall
accumulate, if applicable;
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(5)
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the provisions for a sinking fund, if any, for the preferred
shares;
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(6)
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the provisions for redemption, if applicable, of the preferred
shares;
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(7)
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any listing of the preferred shares on any securities exchange;
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(8)
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the terms and conditions, if applicable, upon which the
preferred shares will be convertible into common shares,
including the conversion price, or manner of calculation thereof;
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(9)
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a discussion of federal income tax considerations applicable to
the preferred shares;
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(10)
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the relative ranking and preferences of the preferred shares as
to dividend rights and rights upon our liquidation, dissolution
or
winding-up
of our affairs;
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(11)
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any limitations on issuance of any series of preferred shares
ranking senior to or on a parity with the preferred shares as to
dividend rights and rights upon our liquidation, dissolution or
winding-up
of our affairs;
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(12)
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any limitations on direct or beneficial ownership of our
securities and restrictions on transfer of our securities, in
each case as may be appropriate to preserve our status as a
REIT; and
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(13)
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any other specific terms, preferences, rights, limitations or
restrictions of the preferred shares.
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Rank
Unless otherwise specified in the applicable prospectus
supplement, the preferred shares rank, with respect to dividend
rights and rights upon our liquidation, dissolution or
winding-up,
and allocation of our earnings and losses: (i) senior to
all classes or series of our common shares, and to all equity
securities ranking junior to the preferred shares; (ii) on
a parity with all equity securities issued by us the terms of
which specifically provide that such equity securities rank on a
parity with the preferred shares; and (iii) junior to all
equity securities issued by us the terms of which specifically
provide that such equity securities rank senior to the preferred
shares. As used in this prospectus, the term equity
securities does not include convertible debt securities.
14
Dividends
Subject to any preferential rights of any outstanding securities
or series of securities, the holders of preferred shares will be
entitled to receive dividends, when, as and if declared by our
Board of Trustees, out of assets legally available for payment.
Dividends will be paid at such rates and on such dates as will
be set forth in the applicable prospectus supplement. Dividends
will be payable to the holders of record of preferred shares as
they appear on our share transfer books on the applicable record
dates fixed by our Board of Trustees. Dividends on any series of
our preferred shares may be cumulative or non-cumulative, as
provided in the applicable prospectus supplement.
Redemption
If so provided in the applicable prospectus supplement, the
preferred shares offered thereby will be subject to mandatory
redemption or redemption at our option, as a whole or in part,
in each case upon the terms, at the times and at the redemption
prices set forth in such prospectus supplement.
Liquidation
Preference
Upon any voluntary or involuntary liquidation, dissolution or
winding-up
of our affairs, and before any distribution or payment shall be
made to the holders of any common shares or any other class or
series of shares ranking junior to our preferred shares, the
holders of our preferred shares shall be entitled to receive,
after payment or provision for payment of our debts and other
liabilities, out of our assets legally available for
distribution to shareholders, liquidating distributions in the
amount of the liquidation preference per share, if any, set
forth in the applicable prospectus supplement, plus an amount
equal to all dividends accrued and unpaid thereon, which shall
not include any accumulation in respect of unpaid noncumulative
dividends for prior dividend periods. After payment of the full
amount of the liquidating distributions to which they are
entitled, the holders of preferred shares will have no right or
claim to any of our remaining assets. In the event that, upon
any such voluntary or involuntary liquidation, dissolution or
winding-up
of our affairs, the legally available assets are insufficient to
pay the amount of the liquidating distributions on all of our
outstanding preferred shares and the corresponding amounts
payable on all of our other outstanding equity securities
ranking on a parity with the preferred shares in the
distribution of assets upon our liquidation, dissolution or
winding-up
of our affairs, then the holders of our preferred shares and the
holders of such other outstanding equity securities shall share
ratably in any such distribution of assets in proportion to the
full liquidating distributions to which they would otherwise be
respectively entitled.
If liquidating distributions are made in full to all holders of
our preferred shares, our remaining assets will be distributed
among the holders of any other classes or series of equity
securities ranking junior to the preferred shares in the
distribution of assets upon our liquidation, dissolution or
winding-up
of our affairs, according to their respective rights and
preferences and in each case according to their respective
number of shares.
If we consolidate or merge with or into, or sell, lease or
convey all or substantially all of our property or business to,
any corporation, trust or other entity, such transaction shall
not be deemed to constitute a liquidation, dissolution or
winding-up
of our affairs.
Voting
Rights
Unless otherwise from time to time required by law, or as
otherwise indicated in the applicable prospectus supplement,
holders of our preferred shares will not have any voting rights.
Conversion
Rights
The terms and conditions, if any, upon which our preferred
shares are convertible into common shares will be set forth in
the applicable prospectus supplement. Such terms will include
the number of common shares into which the preferred shares are
convertible, the conversion price, or manner of calculation
thereof, the conversion period, provisions as to whether
conversion will be at the option of the holders of the preferred
shares or at our option, the events requiring an adjustment of
the conversion price and provisions affecting conversion in the
event of the redemption of such preferred shares.
15
Restrictions
on Ownership
For us to qualify as a REIT under the Code, not more than 50% in
value of our outstanding capital shares may be owned, directly
or indirectly, by five or fewer individuals, as defined in the
Code, during the last half of a taxable year. To assist us in
meeting this requirement, we may take certain actions to limit
the beneficial ownership, directly or indirectly, by a single
person of our outstanding equity securities, including any
series of our preferred shares. Therefore, the applicable
amendment or annex to our declaration of trust designating the
terms of a series of preferred shares may contain provisions
restricting the ownership and transfer of such preferred shares.
The applicable prospectus supplement will specify any additional
ownership limitation relating to the preferred shares being
offered thereby. See Terms of Our
Series B-1
Preferred Stock Restrictions on Ownership
.
Transfer
Agent
The transfer agent and registrar for our
Series B-1
Preferred Shares is National City Bank. The transfer agent and
registrar for our other series of preferred shares will be set
forth in the applicable prospectus supplement.
Terms of
Our
Series B-1
Preferred Shares
General
In February and June 2005 we issued a total of 4,000,000 of our
Series B-1
Preferred Shares and there are currently outstanding 1,396,000
Series B-1
Preferred Shares. The
Series B-1
Preferred Shares are not listed for trading on any securities
exchange or national quotation market. The following description
sets forth certain general terms and provisions of the
Series B-1
Preferred Shares. The statements below describing the
Series B-1
Preferred Shares do not purport to be complete and are in all
respects subject to, and qualified in their entirety by
reference to, the respective terms and provisions of the
certificate of designations authorizing the
Series B-1
Preferred Shares, our declaration of trust and our bylaws. Each
Series B-1
Preferred Share has a $25.00 liquidation preference.
Rank
Our
Series B-1
Preferred Shares are senior to our common shares and other
equity securities as to the payment of dividends and
distributions of assets on liquidation, dissolution or winding
up. We refer below to all shares ranking on a parity with our
Series B-1
Preferred Shares as parity shares and all shares ranking junior
to our
Series B-1
Preferred Shares as junior shares.
Distributions
Holders of our
Series B-1
Preferred Shares are entitled to receive, when, as and if
declared by our Board of Trustees, out of funds legally
available for the payment of distributions, cumulative
preferential cash distributions in an amount per share equal to
the greater of $1.625 per share per annum which is equivalent to
6.5% of the liquidation preference per annum, or the cash
distributions on our common shares into which a
Series B-1
Preferred Share is convertible.
If we fail to redeem
Series B-1
Preferred Shares as described under Redemption
below, then dividends will thereafter accrue on
Series B-1
Preferred Shares at a rate 250 basis points higher than the
distribution rate described above. Once we are again in
compliance with our applicable obligations, the dividend rate
will revert back to the rate described above.
Distributions on our
Series B-1
Preferred Shares accrue whether or not we have earnings, whether
or not there are funds legally available for the payment of
distributions and whether or not distributions are declared.
Accrued but unpaid distributions on our
Series B-1
Preferred Shares do not bear interest. Holders of the
Series B-1
Preferred Shares are not entitled to any distributions in excess
of full cumulative distributions as described above.
16
Unless full cumulative distributions on our
Series B-1
Preferred Shares have been declared and paid or declared and an
amount set apart for payment for all past distribution periods
and the then current distribution period, no distributions,
other than in common shares or other junior shares, will be
declared or paid or set aside for payment upon the common shares
or any other junior shares, nor will any common shares or any
other junior shares be redeemed, purchased or otherwise acquired
for any consideration, or any money paid for a sinking fund for
the redemption of any such shares.
When distributions are not paid in full or set apart for payment
on the
Series B-1
Preferred Shares and any parity shares, all distributions
declared on
Series B-1
Preferred Shares and any parity shares will be declared ratably
in proportion to the respective amounts of dividends accumulated
and unpaid on the
Series B-1
Preferred Shares and unaccumulated and unpaid on such parity
shares.
Liquidation
Rights
Upon any voluntary or involuntary liquidation, dissolution or
winding up of our affairs, the holders of
Series B-1
Preferred Shares will be entitled to receive their liquidation
preference before any distribution or payment is made to the
holders of any junior shares. The liquidation preference is
$25.00 per share, plus an amount equal to all accrued and unpaid
distributions. After payment of the liquidation preference, the
holders of
Series B-1
Preferred Shares will have no right to any of our remaining
assets.
If liquidating distributions have been made in full to all
holders of
Series B-1
Preferred Shares and all other parity shares, our remaining
assets will be distributed among the holders of any other
classes of junior shares, according to their respective rights
and preferences and in each case according to their respective
number of shares. For such purposes, our consolidation or merger
with or into any other entity, the sale, lease or conveyance of
all or substantially all of our property or business or a
statutory share exchange will not be deemed to constitute our
liquidation, dissolution or winding up.
Redemption
All
Series B-1
Preferred Shares that are outstanding on February 28, 2012
will be redeemed for their liquidation preference of $25.00 per
share, plus all accrued and unpaid distributions.
In the event of a compliance failure, which we
define below, each holder of
Series B-1
Preferred Shares will have the right to require us to redeem all
or any portion of their
Series B-1
Preferred Shares at a price per share equal to 125% of the
liquidation preference of such
Series B-1
Preferred Shares:
The occurrence of any of the following events will be considered
a compliance failure:
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(1)
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the sale, lease or conveyance to a third party of substantially
all our assets, our consolidation or merger with or into another
entity if the holders of our voting securities do not hold a
majority of the voting securities of the surviving entity or if
Michael Ashner, our chief executive officer, does not continue
to serve as chief executive officer or of the surviving entity,
or the sale in a single transaction or series of related
transactions of a majority of our issued and outstanding common
shares;
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(2)
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the departure or termination, whether voluntarily or
involuntarily, of Michael Ashner, other than in the event of his
death or disability, or a breach by Mr. Ashner of his
services agreement with us;
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(3)
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any delay in the audit of our consolidated annual financial
statements for a given fiscal year for more than 180 calendar
days after the end of such fiscal year;
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(4)
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our failure to file reports or forms required under the
Sarbanes-Oxley Act of 2002; and
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(5)
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our failure to quality as a REIT or the delisting or our common
shares by the NYSE.
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We refer to the events described above in clause (1) as a
change of control. If a change of control takes
place within 12 months after the death or disability of
Michael Ashner, then each holder of
Series B-1
Preferred Shares will also have the right to require us to
redeem their
Series B-1
Preferred Shares at 100% or their liquidation preference.
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Voting
Rights
Except as indicated below, or except as otherwise from time to
time required by applicable law, the holders of
Series B-1
Preferred Shares have no voting rights.
So long as at least 1,000,000 of the
Series B-1
Preferred Shares are outstanding, the holders of
Series B-1
Preferred Shares will be entitled to elect one trustee to serve
on the Board of Trustees. Any trustee proposed to be elected by
the holders of
Series B-1
Preferred Shares must meet the requirements of the NYSE for
independent directors.
Upon the occurrence of a governance default, which
we define below, our Board of Trustees will be increased and the
holders of
Series B-1
Preferred Shares, voting as a class, will be entitled to elect
additional trustees, such that the number of trustees elected by
the holders of
Series B-1
Preferred Shares upon the occurrence of a governance default
will equal one-third of the total number of trustees. The
additional trustees elected upon a governance default will serve
for so long as the governance default continues. A
governance default will have occurred if (i) we
fail to declare and pay dividends on the
Series B-1
Preferred Shares following payment of dividends on common
shares, (ii) we default on our obligations under certain
agreements we entered into with the original holders of
Series B-1
Preferred Shares (see Agreements with Initial Holders
of
Series B-1
Preferred Shares below), (iii) we fail to effect
any required redemption of our
Series B-1
Preferred Shares (see Redemption, above) or
(iv) the aggregate fair market value of our common shares
falls below $71,200,000.
The approval of two-thirds of the outstanding
Series B-1
Preferred Shares, voting as a single class, is required in order
to:
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amend our declaration of trust, bylaws or the
Series B-1
Preferred Shares certificate of designations to adversely affect
the rights, preferences or voting power of the holders of the
Series B-1
Preferred Shares;
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enter into a share exchange that affects the
Series B-1
Preferred Shares, permit us to consolidate with or merge into
another entity, or permit another entity to consolidate with or
merge into us, unless in each such case each
Series B-1
Preferred Share remains outstanding without any adverse change
to its terms and rights or is converted into or exchanged for
convertible preferred stock of the surviving entity having
preferences, conversion and other rights, voting powers,
restrictions, limitations as to distributions, qualifications
and terms or conditions of redemption identical to that of a
Series B-1
Preferred Share except for changes that do not adversely affect
the holders of the
Series B-1
Preferred Shares;
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authorize, reclassify, create or increase the authorized amount
of any class of shares of beneficial interest having rights
senior to or pari passu with the
Series B-1
Preferred Shares as to distributions or in the distribution of
assets. However, we may create additional classes of shares
ranking junior to the
Series B-1
Preferred Shares as to distributions or in the distribution of
assets, increase the authorized number of junior shares and
issue additional series of junior shares without the consent of
any holder of
Series B-1
Preferred Shares;
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take any action that would substantially alter our
business; or
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redeem or purchase common shares, parity shares or junior shares
other than certain purchases of
Series B-1
Preferred Shares or purchases of common shares in any dividend
period at an aggregate purchase price, which when added to the
distributions paid on our common shares for such dividend
period, does not exceed the sum of the amount paid to purchase
common shares and the amount paid as distributions on the common
shares for the immediately preceding dividend period. Any
purchase of
Series B-1
Preferred Shares must be made in an offer to all holders of
those shares if the purchase is made at a time when the share
issuable on conversion of those shares have not been registered
under the Securities Act of 1933.
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In the event of a change of control referred to above under
Redemption or in the event of a
vote of holders of common shares on a matter that relates to the
potential dilution of the
Series B-1
Preferred Shares, or in the event that we propose to issue
common shares and a vote of the holders of common shares is
required under applicable law to effect such issuance, the
Series B-1
Preferred Shares will have the right to vote with the common
shares as a class on all matters on which a vote of common
shares is taken, with each holder of
Series B-1
Preferred Shares entitled to one vote for every common share
issuable upon conversion of such holders
Series B-1
Preferred Shares.
Conversion
Rights
Our
Series B-1
Preferred Shares are convertible, in whole or in part, at any
time, unless previously redeemed, at the option of the holders,
into common shares at a conversion price of $22.50 per common
share which means that 1.111 common shares would be issuable for
each
Series B-1
Preferred Share. This conversion price is subject to adjustment
as described below. See Conversion Price
Adjustments. The right to convert
Series B-1
Preferred Shares called for redemption will terminate at the
close of business on the redemption date for such
Series B-1
Preferred Shares.
Conversion
Price Adjustments
The conversion price is subject to adjustment upon certain
events, including:
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distributions payable in common shares;
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the issuance to all holders of common shares of certain rights,
options or warrants entitling them to subscribe for or purchase
common shares at a price per share less than the fair market
value per common share which, as defined, includes an adjustment
for underwriting commissions avoided in rights offerings to
shareholders;
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subdivisions, combinations and reclassifications of common
shares;
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distributions to all holders of common shares of any of our
capital stock, other than common shares, evidences of our
indebtedness or assets, including securities, but excluding cash
dividends required in order to satisfy distribution requirements
to maintain our status as a REIT under Section 856 of the
Code, and those rights, warrants and distributions referred to
above;
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payment in respect of a tender or exchange offer made by us or
any subsidiary of ours for common shares if the cash and value
of any other consideration included in such payment per common
share as determined by our Board of Trustees exceeds the current
market price per common share on the trading day next succeeding
the last date tenders or exchanges may be made pursuant to such
tender or exchange offer; and
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below market issuances of common shares or securities
convertible into common shares other than pursuant to certain
firm commitment underwritten public offerings.
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However, no adjustment to the conversion price will be made on
account of (i) issuances of common shares pursuant to
dividend reinvestment plans, (ii) issuances of common
shares upon exercise of stock options granted under certain
equity compensation plans, (iii) issuances of common shares
as consideration for our acquisition of real property, real
estate related assets or a business, (iv) issuances of
common shares in redemption of units in our operating
partnership, (v) issuances of common shares upon exercise
of convertible securities that were outstanding on the date the
Series B-1
Preferred Shares were issued, or (vi) issuances of common
shares upon conversion of
Series B-1
Preferred Shares.
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Mandatory
Conversion
We can require holders of
Series B-1
Preferred Shares to convert their
Series B-1
Preferred Shares into common shares if (i) the market price
for common shares for any consecutive 20
trading-day
period beginning with the date we mail the mandatory conversion
notice and ending on the 25th trading day following our
mailing of the mandatory conversion notice equals or exceeds
125% of the conversion price and (ii) there exists at such
time a currently effective registration statement covering the
resale of common shares issuable upon conversion of
Series B-1
Preferred Shares.
Restrictions
on Ownership
The certificate of designations contains certain provisions
restricting the amount of our equity securities that any holder
of
Series B-1
Preferred Shares can own in the aggregate and restricting
certain transfers of our equity securities by holders of
Series B-1
Preferred Shares. The purpose of these provisions is to protect
and preserve our REIT status.
In addition, with limited exceptions, no person or persons
acting as a group may beneficially own more than 9.8% of our
common shares, which limitation is applied by assuming that all
convertible securities, such as the
Series B-1
Preferred Shares, owned by such person or group of persons have
been converted.
Agreements
with Initial Holders of
Series B-1
Preferred Shares
At the time of our initial issuance of
Series B-1
Preferred Shares we entered into an Investor Rights Agreement
and a Registration Rights Agreement with the initial investors
in
Series B-1
Preferred Shares. The Investor Rights Agreement grants the
investors preemptive rights with respect to future issuances of
our securities, a co-investment right enabling them to
participate in certain future investments we make, tag-along
rights, drag-along rights in the event of a sale of
substantially all of our securities and certain other rights.
The Registration Rights Agreement required us to register the
resale of the common shares issuable upon conversion of the
Series B-1
Preferred Shares on or before February 28, 2007 (which we
have done pursuant to separate registration statements) and
permits the investors to participate in certain of our
registered offerings.
DESCRIPTION
OF RIGHTS
We may issue subscription rights to our shareholders for the
purchase of our common shares. When we issue subscription
rights, we will describe the specific terms of the rights in the
applicable supplement to this prospectus. The rights
certificates relating to each series of subscription rights will
be filed with the SEC and incorporated by reference as an
exhibit to the registration statement of which this prospectus
is a part.
General
Each right will entitle the holder of rights to purchase our
common shares at the exercise price provided in the applicable
prospectus supplement. Rights may be exercised at any time up to
the close of business on the expiration date for the right
provided in the applicable prospectus supplement. After the
close of business on the expiration date, all unexercised rights
will be void.
Holders may exercise rights as provided in the applicable
prospectus supplement. If less than all of the rights issued in
any rights offering are exercised, we may offer any unsubscribed
securities directly to persons other than shareholders, to or
through agents, underwriters or dealers or through a combination
of such methods, including pursuant to standby underwriting
arrangements, as described in the applicable prospectus
supplement.
Terms
The applicable prospectus supplement will describe the terms of
the subscription rights to be issued, including the following,
where applicable:
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the date for determining the shareholders entitled to the rights
distribution;
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the aggregate number of our common shares purchasable upon
exercise of the rights;
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the aggregate number of rights issued;
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the subscription price;
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the commencement date and the expiration date of the offering
period of the rights and the terms under which the offering
period may be extended by us;
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the date, if any, on and after which the rights will be
separately transferable;
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how holders of rights may subscribe to purchase our common
shares;
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a discussion of any material United States federal income tax
considerations applicable to an investment in the
rights; and
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any other terms of the rights, including terms, procedures and
limitations relating to the distribution, exchange and exercise
of the rights.
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DESCRIPTION
OF OUR DEBT SECURITIES
We will issue our debt securities under one or more separate
indentures between us and a trustee that we will name in the
applicable supplement to this prospectus. A form of the
indenture is attached as an exhibit to the registration
statement of which this prospectus is a part. Following its
execution, the indenture will be filed with the SEC and
incorporated by reference in the registration statement of which
this prospectus is a part.
The following summary describes certain material terms and
provisions of the indenture and our debt securities. This
summary is not complete and is subject to, and is qualified in
its entirety by reference to, the provisions of the indenture.
When we offer to sell a particular series of debt securities, we
will describe the specific terms of the series in the applicable
supplement to this prospectus. You should read the indenture for
more details regarding the provisions we describe below and for
other provisions that may be important to you. For information
on incorporation by reference, and how to obtain a copy of the
indenture, see the sections entitled WHERE YOU CAN FIND
MORE INFORMATION and INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE.
General
The debt securities will be our direct obligations and may be
secured or unsecured and may be either senior debt securities,
which we refer to as senior securities or
subordinated debt securities, which we refer to as
subordinated securities. The debt securities will be
issued under one or more indentures in the form of indenture
filed as an exhibit to the Registration Statement of which this
prospectus is a part. As provided in the form of indenture, the
specific terms of any debt security issued pursuant to an
indenture will be set forth in one or more supplemental
indentures, each dated as of a date of or prior to the issuance
of the debt securities to which it relates. Senior securities
and subordinated securities may be issued pursuant to separate
indentures, in each case between us and a trustee, which may be
the same trustee, subject to such amendments or supplements as
may be adopted from time to time. We refer to these indentures
as senior indentures and subordinated
indentures, respectively, and to any such trustee, an
indenture trustee. The senior indenture and the
subordinated indenture, as amended or supplemented from time to
time, are sometimes hereinafter referred to collectively as the
indentures. The indentures will be subject to and
governed by the Trust Indenture Act of 1939, as amended.
The statements made under this heading relating to the debt
securities and the indentures are summaries of the provisions
thereof, do not purport to be complete and are qualified in
their entirety by reference to the indentures and such debt
securities.
Capitalized terms used herein and not defined shall have the
meanings assigned to them in the applicable indenture.
21
Terms
The indebtedness represented by the senior securities will rank
equally with all of our other unsecured and unsubordinated
indebtedness. The indebtedness represented by subordinated
securities will be subordinated in right of payment to the prior
payment in full of our senior debt as described under
Subordination. The particular
terms of the debt securities offered by a prospectus supplement
will be described in the applicable prospectus supplement, along
with any applicable federal income tax considerations unique to
such debt securities. Accordingly, for a description of the
terms of any series of debt securities, reference must be made
to both the prospectus supplement relating thereto and the
description of the debt securities set forth in this prospectus.
Except as set forth in any prospectus supplement, the debt
securities may be issued without limits as to aggregate
principal amount, in one or more series, in each case as
established by us from time to time or as set forth in the
applicable indenture or in one or more supplemental indentures.
All debt securities of one series need not be issued at the same
time and, unless otherwise provided, a series may be reopened,
without the consent of the holders of the debt securities of
such series, for issuance of additional debt securities of such
series.
The form of indenture provides that we may, but need not,
designate more than one indenture trustee thereunder, each with
respect to one or more series of debt securities. Any indenture
trustee under an indenture may resign or be removed with respect
to one or more series of debt securities and a successor
indenture trustee may be appointed to act with respect to such
series. If two or more persons are acting as indenture trustee
with respect to different series of debt securities, each such
indenture trustee will be an indenture trustee of a trust under
the applicable indenture separate and apart from the trust
administered by any other indenture trustee, and, except as
otherwise indicated herein, any action described herein to be
taken by each indenture trustee may be taken by each such
indenture trustee with respect to, and only with respect to, the
one or more series of debt securities for which it is indenture
trustee under the applicable indenture.
The following summaries set forth certain general terms and
provisions of the indentures and the debt securities. The
prospectus supplement relating to the series of debt securities
being offered will contain further terms of such debt
securities, including the following specific terms:
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(1)
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The title of such debt securities and whether such debt
securities are secured or unsecured or senior securities or
subordinated securities;
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(2)
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The aggregate principal amount of such debt securities and any
limit on such aggregate principal amount;
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(3)
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The price, expressed as a percentage of the principal amount
thereof, at which such debt securities will be issued and, if
other than the principal amount thereof, the portion of the
principal amount thereof payable upon declaration of the
maturity thereof, or, if applicable, the portion of the
principal amount of such debt securities that is convertible
into common shares or preferred shares, or the method by which
any such portion shall be determined;
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(4)
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If convertible, the terms on which such debt securities are
convertible, including the initial conversion price or rate and
the conversion period and any applicable limitations on the
ownership or transferability of the common shares or preferred
shares receivable on conversion;
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(5)
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The date or dates, or the method for determining such date or
dates, on which the principal of such debt securities will be
payable;
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(6)
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The rate or rates, which may be fixed or variable, or the method
by which such rate or rates shall be determined, at which such
debt securities will bear interest, if any;
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(7)
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The date or dates, or the method for determining such date or
dates, from which any such interest will accrue, the dates on
which any such interest will be payable, the record dates for
such interest payment dates, or the method by which such dates
shall be determined, the persons to whom such interest shall be
payable, and the basis upon which interest shall be calculated
if other than that of a
360-day year
of twelve
30-day
months;
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(8)
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The place or places where the principal of (and premium, if any)
and interest, if any, on such debt securities will be payable,
where such debt securities may be surrendered for conversion or
registration of transfer or exchange and where notices or
demands to us with respect to such debt securities and the
applicable indenture may be served;
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(9)
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The period or periods, if any, within which, the price or prices
at which and the other terms and conditions upon which such debt
securities may, pursuant to any optional or mandatory redemption
provisions, be redeemed, as a whole or in part, at our option;
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(10)
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Our obligation, if any, to redeem, repay or purchase such debt
securities pursuant to any sinking fund or analogous provision
or at the option of a holder thereof, and the period or periods
within which, the price or prices at which and the other terms
and conditions upon which such debt securities will be redeemed,
repaid or purchased, as a whole or in part, pursuant to such
obligation;
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(11)
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If other than U.S. dollars, the currency or currencies in which
such debt securities are denominated and payable, which may be a
foreign currency or units of two or more foreign currencies or a
composite currency or currencies, and the terms and conditions
relating thereto;
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(12)
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Whether the amount of payments of principal of (and premium, if
any) or interest, if any, on such debt securities may be
determined with reference to an index, formula or other method
(which index, formula or method may, but need not, be based on a
currency, currencies, currency unit or units, or composite
currency or currencies) and the manner in which such amounts
shall be determined;
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(13)
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Whether such debt securities will be issued in certificated or
book-entry form and, if so, the identity of the depository for
such debt securities;
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(14)
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Whether such debt securities will be in registered or bearer
form or both and, if in registered form, the denominations
thereof if other than $1,000 and any integral multiple thereof
and, if in bearer form, the denominations thereof and terms and
conditions relating thereto;
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(15)
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The applicability, if any, of the defeasance and covenant
defeasance provisions described herein or set forth in the
applicable indenture, or any modification thereof;
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(16)
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Whether and under what circumstances we will pay any additional
amounts on such debt securities in respect of any tax,
assessment or governmental charge and, if so, whether we will
have the option to redeem such debt securities in lieu of making
such payment;
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(17)
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Any deletions from, modifications of or additions to the events
of default to our covenants, to the extent different from those
described herein or set forth in the applicable indenture with
respect to such debt securities, and any change in the right of
any trustee or any of the holders to declare the principal
amount of any of such debt securities due and payable;
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(18)
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The provisions, if any, relating to the security provided for
such debt securities; and
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(19)
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Any other terms of such debt securities not inconsistent with
the provisions of the applicable indenture.
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If so provided in the applicable prospectus supplement, the debt
securities may be issued at a discount below their principal
amount and provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the
maturity thereof. We refer to such securities as original
issue discount securities. In such cases, any special
U.S. federal income tax, accounting and other
considerations applicable to original issue discount securities
will be described in the applicable prospectus supplement.
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Except as may be set forth in any prospectus supplement, neither
the debt securities nor the indenture will contain any
provisions that would limit our ability to incur indebtedness or
that would afford holders of debt securities protection in the
event of a highly leveraged or similar transaction involving us
or in the event of a change of control, regardless of whether
such indebtedness, transaction or change of control is initiated
or supported by us, any affiliate of ours or any other party.
However, certain restrictions on ownership and transfers of our
common shares and preferred shares are designed to preserve our
status as a REIT and, therefore, may act to prevent or hinder a
change of control. See, the RISK FACTOR entitled
Ownership Limitations in Our Bylaws May Adversely
Affect the Market Price of Our Common Shares,
DESCRIPTION OF OUR COMMON SHARES
Restriction on Size of Holdings, and TERMS OF
OUR PREFERRED SHARES Restrictions on
Ownership, for more information. Reference is made to
the applicable prospectus supplement for information with
respect to any deletions from, modifications of, or additions
to, the events of default or covenants that are described below,
including any addition of a covenant or other provision
providing event risk or similar protection.
Denomination,
Interest, Registration and Transfer
Unless otherwise described in the applicable prospectus
supplement, the debt securities of any series will be issuable
in denominations of $1,000 and integral multiples thereof.
Unless otherwise specified in the applicable prospectus
supplement, the principal of (and applicable premium, if any)
and interest on any series of debt securities will be payable at
the corporate trust office of the applicable indenture trustee,
the address of which will be stated in the applicable prospectus
supplement; provided, however, that, at our option, payment of
interest may be made by check mailed to the address of the
person entitled thereto as it appears in the applicable register
for such debt securities or by wire transfer of funds to such
person at an account maintained within the United States.
Subject to certain limitations imposed upon debt securities
issued in book-entry form, the debt securities of any series
will be exchangeable for any authorized denomination of other
debt securities of the same series and of a like aggregate
principal amount and tenor upon surrender of such debt
securities at the corporate trust office of the applicable
indenture trustee or at the office of any transfer agent
designated by us for such purpose. In addition, subject to
certain limitations imposed upon debt securities issued in
book-entry form, the debt securities of any series may be
surrendered for conversion or registration of transfer or
exchange thereof at the corporate trust office of the applicable
indenture trustee or at the office of any transfer agent
designated by us for such purpose. Every debt security
surrendered for conversion, registration of transfer or exchange
must be duly endorsed or accompanied by a written instrument of
transfer, and the person requesting such action must provide
evidence of title and identity satisfactory to the applicable
indenture trustee or transfer agent. No service charge will be
made for any registration of transfer or exchange of any debt
securities, but we may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection
therewith. If the applicable prospectus supplement refers to any
transfer agent (in addition to the applicable indenture trustee)
initially designated by us with respect to any series of debt
securities, we may at any time rescind the designation of any
such transfer agent or approve a change in the location through
which any such transfer agent acts, except that we will be
required to maintain a transfer agent in each place of payment
for such series. We may at any time designate additional
transfer agents with respect to any series of debt securities.
Neither we nor any indenture trustee will be required
(i) to issue, register the transfer of or exchange debt
securities of any series during a period beginning at the
opening of business 15 days before the day of mailing of a
notice of redemption of any debt securities that may be selected
for redemption and ending at the close of business on the day of
such mailing; (ii) to register the transfer of or exchange
any debt security, or portion thereof, so selected for
redemption, in whole or in part, except the unredeemed portion
of any debt security being redeemed in part; or (iii) to
issue, register the transfer of or exchange any debt security
that has been surrendered for repayment at the option of the
holder, except the portion, if any, of such debt security not to
be so repaid.
Merger,
Consolidation or Sale of Assets
The indentures will provide that we may, without the consent of
the holders of any outstanding debt securities, consolidate
with, or sell, lease or convey all or substantially all of its
assets to, or merge with or into, any other entity provided that
(a) either we shall be the continuing entity, or the
successor entity (if other than us) formed by or resulting from
any such consolidation or merger or which shall have received
the transfer of such assets, is organized under the laws of any
domestic jurisdiction and assumes our obligations to pay
principal of (and premium, if any) and interest on all of the
debt securities and the due and punctual performance and
observance of all of the covenants and conditions contained in
each Indenture; (b) immediately after giving effect to such
transaction and treating any indebtedness that becomes an
obligation of ours or any subsidiary as a result thereof as
having been incurred by us or such subsidiary at the time of
such transaction, no event of default under the indentures, and
no event which, after notice or the lapse of time, or both,
would become such an event of default, shall have occurred and
be continuing; and (c) an officers certificate and
legal opinion covering such conditions shall be delivered to
each indenture trustee.
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Certain
Covenants
Existence. Except as permitted under
Merger, Consolidation or Sale of
Assets, the indentures will require us to do or cause
to be done all things necessary to preserve and keep in full
force and effect our corporate existence, rights (by declaration
of trust, by-laws and statute) and franchises; provided,
however, that we will not be required to preserve any right or
franchise if our Board of Trustees determines that the
preservation thereof is no longer desirable in the conduct of
our business by appropriate proceedings.
Maintenance of Properties. The indentures will
require us to cause all of our material properties used or
useful in the conduct of its business or the business of any
subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and
will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in
our judgment may be necessary so that the business carried on in
connection therewith may be properly and advantageously
conducted at all times; provided, however, that we and our
subsidiaries will not be prevented from selling or otherwise
disposing of our properties for value in the ordinary course of
business.
Insurance. The indentures will require us to
cause each of our insurable properties to be insured against
loss or damage with insurers of recognized responsibility and,
if described in the applicable prospectus supplement, having a
specified rating from a recognized insurance rating service, in
such amounts and covering all such risks as shall be customary
in the industry in accordance with prevailing market conditions
and availability.
Payment of Taxes and Other Claims. The
indentures will require us to pay or discharge or cause to be
paid or discharged, before the same shall become delinquent,
(i) all taxes, assessments and governmental charges levied
or imposed upon us or any subsidiary or upon our income, profits
or property or that of any subsidiary and (ii) all lawful
claims for labor, materials and supplies which, if unpaid, might
by law become a lien upon our property; provided, however, that
we will not be required to pay or discharge or cause to be paid
or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good
faith.
Provision of Financial Information. Whether or
not we are subject to Section 13 or 15(d) of the Securities
Exchange Act of 1934, the indentures will require us, within
15 days of each of the respective dates by which we would
have been required to file annual reports, quarterly reports and
other documents with the Commission if we were so subject,
(i) to file with the applicable indenture trustee copies of
the annual reports, quarterly reports and other documents that
we would have been required to file with the Commission pursuant
to Section 13 or 15(d) of the Exchange Act of 1934 if we
were subject to such Sections and (ii) to supply, promptly
upon written request and payment of the reasonable cost of
duplication and delivery, copies of such documents to any
prospective holder.
Additional Covenants. Any of our additional
covenants with respect to any series of debt securities will be
set forth in the prospectus supplement relating thereto.
Events of
Default, Notice and Waiver
Unless otherwise provided in the applicable prospectus
supplement, each indenture will provide that the following
events are Events of Default with respect to any
series of debt securities issued thereunder (i) default for
30 days in the payment of any installment of interest on
any debt security of such series; (ii) default in the
payment of principal of (or premium, if any, on) any debt
security of such series at its maturity; (iii) default in
making any sinking fund payment as required for any debt
security of such series; (iv) default in the performance or
breach of any other covenant or warranty of ours contained in
the indenture (other than a covenant added to the indenture
solely for the benefit of a series of debt securities issued
thereunder other than such series), continued for 60 days
after written notice as provided in the applicable indenture;
(v) a default under any bond, debenture, note or other
evidence of indebtedness for money borrowed by us or any of our
subsidiaries (including obligations under leases required to be
capitalized on the balance sheet of the lessee under generally
accepted accounting principles but not including any
indebtedness or obligations for which recourse is limited to
property purchased) in an aggregate principal amount in excess
of $30,000,000 or under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured
or evidenced any indebtedness for money borrowed by us or any of
our subsidiaries (including such leases, but not including such
indebtedness or obligations for which recourse is limited to
property purchased) in an aggregate principal amount in excess
of $30,000,000, whether such indebtedness exists on the date of
such indenture or shall thereafter be created, with such
obligations being accelerated and not rescinded or annulled;
(vi) certain events of bankruptcy, insolvency or
reorganization, or court appointment of a receiver, liquidator
or trustee and (vii) any other event of default provided
with respect to a particular series of debt securities.
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If an event of default under any indenture with respect to debt
securities of any series at the time outstanding occurs and is
continuing, then in every such case the applicable indenture
trustee or the holders of not less than 25% in principal amount
of the debt securities of that series will have the right to
declare the principal amount (or, if the debt securities of that
series are original issue discount securities or indexed
securities, such portion of the principal amount as may be
specified in the terms thereof) of all the debt securities of
that series to be due and payable immediately by written notice
thereof to us (and to the applicable indenture trustee if given
by the holders). However, at any time after such a declaration
of acceleration with respect to debt securities of such series
(or of all debt securities then outstanding under any indenture,
as the case may be) has been made, but before a judgment or
decree for payment of the money due has been obtained by the
applicable indenture trustee, the holders of not less than a
majority in principal amount of outstanding debt securities of
such series (or of all debt securities then outstanding under
the applicable indenture, as the case may be) may rescind and
annul such declaration and its consequences if (i) we shall
have deposited with the applicable indenture trustee all
required payments of the principal of (and premium, if any) and
interest on the debt securities of such series (or of all debt
securities than outstanding under the applicable indenture, as
the case may be), plus certain fees, expenses, disbursements and
advances of the applicable indenture trustee and (ii) all
events of default, other than the non-payment of accelerated
principal (or specified portion thereof), with respect to debt
securities of such series (or of all debt securities then
outstanding under the applicable indenture, as the case may be)
have been cured or waived as provided in such indenture. The
indentures will also provide that the holders of not less than a
majority in principal amount of the outstanding debt securities
of any series (or of all debt securities then outstanding under
the applicable indenture, as the case may be) may waive any past
default with respect to such series and its consequences, except
a default (x) in the payment of the principal of (or
premium, if any) or interest on any debt security of such series
or (y) in respect of a covenant or provision contained in
the applicable indenture that cannot be modified or amended
without the consent of the holder of each outstanding debt
security affected thereby.
The indentures will require each indenture trustee to give
notice to the holders of debt securities within 90 days of
a default under the applicable indenture unless such default
shall have been cured or waived; provided, however, that the
indenture trustee may withhold notice to the holders of any
series of debt securities of any default with respect to such
series (except a default in the payment of the principal of (or
premium, if any) or interest on any debt security of such series
or in the payment of any sinking fund installment in respect to
any debt security of such series) if specified responsible
officers of such indenture trustee consider such withholding to
be in the interest of such holders.
The indentures will provide that no holder of debt securities of
any series may institute any proceeding, judicial or otherwise,
with respect to such indenture or for any remedy thereunder,
except in the case of failure of the applicable indenture
trustee, for 60 days, to act after it has received a
written request to institute proceedings in respect of an event
of default from the holders of not less than 25% in principal
amount of the outstanding debt securities of such series, as
well as an offer of indemnity reasonably satisfactory to it.
This provision will not prevent, however, any holder of debt
securities from instituting suit for the enforcement of payment
of the principal of (and premium, if any) and interest on such
debt securities at the respective due dates thereof.
The indentures will provide that, subject to provisions in each
indenture relating to its duties in case of default, an
indenture trustee will be under no obligation to exercise any of
its rights or powers under an indenture at the request or
direction of any holders of any series of debt securities then
outstanding under such indenture, unless such holders shall have
offered to the indenture trustee thereunder reasonable security
or indemnity. The holders of not less than a majority in
principal amount of the outstanding debt securities of any
series (or of all debt securities then outstanding under an
indenture, as the case may be) shall have the right to direct
the time, method and place of conducting any proceeding for any
remedy available to the applicable indenture trustee, or of
exercising any trust or power conferred upon such indenture
trustee. However, an indenture trustee may refuse to follow any
direction which is in conflict with any law or the applicable
indenture, which may involve such indenture trustee in personal
liability or which may be unduly prejudicial to the holders of
debt securities of such series not joining therein.
26
Within 120 days after the close of each fiscal year, we
will be required to deliver to each indenture trustee a
certificate, signed by one of several specified officers of
ours, stating whether or not such officer has knowledge of any
default under the applicable indenture and, if so, specifying
each such default and the nature and status thereof.
Modification
of the Indenture
Modifications and amendments of an indenture will be permitted
to be made only with the consent of the holders of not less than
a majority in principal amount of all outstanding debt
securities issued under such indenture affected by such
modification or amendment; provided, however, that no such
modification or amendment may, without the consent of the holder
of each such debt security affected thereby, (i) change the
stated maturity of the principal of, or any installment of
interest (or premium, if any) on, any such debt security;
(ii) reduce the principal amount of, or the rate or amount
of interest on, or any premium payable on redemption of, any
such debt security, or reduce the amount of principal of an
original issue discount security that would be due and payable
upon declaration of acceleration of the maturity thereof or
would be provable in bankruptcy, or adversely affect any right
of repayment of the holder of any such debt security;
(iii) change the place of payment, or the coin or currency,
for payment of principal of, premium, if any, or interest on any
such debt security; (iv) impair the right to institute suit
for the enforcement of any payment on or with respect to any
such debt security; (v) reduce the above-stated percentage
of outstanding debt securities of any series necessary to modify
or amend the applicable indenture, to waive compliance with
certain provisions thereof or certain defaults and consequences
thereunder or to reduce the quorum or voting requirements set
forth in the applicable indenture; or (vi) modify any of
the foregoing provisions or any of the provisions relating to
the waiver of certain past defaults or certain covenants, except
to increase the required percentage to effect such action or to
provide that certain other provisions may not be modified or
waived without the consent of the holder of such debt security.
The holders of a majority in aggregate principal amount of the
outstanding debt securities of each series may, on behalf of all
holders of debt securities of that series, waive, insofar as
that series is concerned, our compliance with certain
restrictive covenants of the applicable indenture.
Modifications and amendments of an indenture will be permitted
to be made by us and the respective indenture trustee thereunder
without the consent of any holder of debt securities for any of
the following purposes: (i) to evidence the succession of
another person to us as obligor under such indenture;
(ii) to add to our covenants for the benefit of the holders
of all or any series of debt securities or to surrender any
right or power conferred upon us in such indenture;
(iii) to add events of default for the benefit of the
holders of all or any series of debt securities; (iv) to
add or change any provisions of an indenture to facilitate the
issuance of, or to liberalize certain terms of, debt securities
in bearer form, or to permit or facilitate the issuance of debt
securities in uncertificated form; provided that such action
shall not adversely affect the interest of the holders of the
debt securities of any series in any material respect;
(v) to change or eliminate any provisions of an indenture;
provided that any such change or elimination shall be effective
only when there are no debt securities outstanding of any series
created prior thereto which are entitled to the benefit of such
provision; (vi) to secure the debt securities;
(vii) to establish the form or terms of debt securities of
any series, including the provisions and procedures, if
applicable, for the conversion of such debt securities into
common shares or preferred shares; (viii) to provide for
the acceptance of appointment by a successor indenture trustee
or facilitate the administration of the trusts under an
indenture by more than one indenture trustee; (ix) to cure
any ambiguity, defect or inconsistency in an indenture; provided
that such action shall not adversely affect the interests of
holders of debt securities of any series issued under such
indenture; or (x) to supplement any of the provisions of an
indenture to the extent necessary to permit or facilitate
defeasance and discharge of any series of such debt securities;
provided that such action shall not adversely affect the
interests of the holders of the outstanding debt securities of
any series.
The indentures will provide that, in determining whether the
holders of the requisite principal amount of outstanding debt
securities of a series have given any request, demand,
authorization, direction, notice, consent or waiver thereunder
or whether a quorum is present at a meeting of holders of debt
securities, (i) the principal amount of an original issue
discount security that shall be deemed to be outstanding shall
be the amount of the principal thereof that would be due and
payable as of the date of such determination upon declaration of
acceleration of the maturity thereof (ii) the principal
amount of any debt security denominated in a foreign currency
that shall be deemed outstanding shall be the U.S. dollar
equivalent, determined on the issue date for such debt security,
of the principal amount (or, in the case of an original issue
discount security, the U.S. dollar equivalent on the issue
date of such debt securities of the amount determined as
provided in (i) above), (iii) the principal amount of
an indexed security that shall be deemed outstanding shall be
the principal face amount of such indexed security at original
issuance, unless otherwise provided with respect to such indexed
security pursuant to such indenture, and (iv) debt
securities owned by us or any other obligor upon the debt
securities or an affiliate of ours or of such other obligor
shall be disregarded.
27
The indentures will contain provisions for convening meetings of
the holders of debt securities of a series issued thereunder. A
meeting may be called at any time by the applicable indenture
trustee, and also, upon our request or the request of holders of
at least 25% in principal amount of the outstanding debt
securities of such series, in any such case upon notice given as
provided in such indenture. Except for any consent that must be
given by the holder of each debt security affected by certain
modifications and amendments of an indenture, any resolution
presented at a meeting or adjourned meeting duly reconvened at
which a quorum is present may be adopted by the affirmative vote
of the holders of a majority in principal amount of the
outstanding debt securities of that series; provided, however,
that, except as referred to above, any resolution with respect
to any request, demand, authorization, direction, notice,
consent, waiver or other action that may be made, given or taken
by the holders of a specified percentage, which is less than a
majority, in principal amount of the outstanding debt securities
of a series may be adopted at a meeting or adjourned meeting
duly reconvened at which a quorum is present by the affirmative
vote of the holders of such specified percentage in principal
amount of the outstanding debt securities of that series. Any
resolution passed or decision taken at any meeting of holders of
debt securities of any series duly held in accordance with an
indenture will be binding on all holders of debt securities of
that series. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be persons
holding or representing a majority in principal amount of the
outstanding debt securities of a series; provided, however, that
if any action is to be taken at such meeting with respect to a
consent or waiver which may be given by the holders of not less
than a specified percentage in principal amount of the
outstanding debt securities of a series, the persons holding or
representing such specified percentage in principal amount of
the outstanding debt securities of such series will constitute a
quorum.
Notwithstanding the foregoing provisions, the indentures will
provide that if any action is to be taken at a meeting of
holders of debt securities of any series with respect to any
request, demand, authorization, direction, notice, consent,
waiver and other action that such indenture expressly provides
may be made, given or taken by the holders of a specified
percentage in principal amount of all outstanding debt
securities affected thereby, or of the holders of such series
and one or more additional series: (i) there shall be no
minimum quorum requirement for such meeting, and (ii) the
principal amount of the outstanding debt securities of such
series that vote in favor of such request, demand,
authorization, direction, notice, consent, waiver or other
action shall be taken into account in determining whether such
request, demand, authorization, direction, notice, consent,
waiver or other action has been made, given or taken under such
indenture.
Subordination
Unless otherwise provided in the applicable prospectus
supplement, subordinated securities will be subject to the
following subordination provisions.
Upon any distribution to our creditors in a liquidation,
dissolution or reorganization, the payment of the principal of
and interest on any subordinated securities will be subordinated
to the extent provided in the applicable indenture in right of
payment to the prior payment in full of all senior debt (as
defined below), but our obligation to make payments of the
principal of and interest on such subordinated securities will
not otherwise be affected. No payment of principal or interest
will be permitted to be made on subordinated securities at any
time if a default on senior debt exists that permits the holders
of such senior debt to accelerate its maturity and the default
is the subject of judicial proceedings or we receive notice of
the default. After all senior debt is paid in full and until the
subordinated securities are paid in full, holders will be
subrogated to the rights of holders of senior debt to the extent
that distributions otherwise payable to holders have been
applied to the payment of senior debt. The subordinated
indenture will not restrict the amount of our senior
indebtedness. As a result of these subordination provisions in
the event of a distribution of assets upon insolvency, holders
of subordinated indebtedness may recover less, ratably, than our
senior creditors.
28
Senior debt will be defined in the applicable
indenture as the principal of and interest on, or substantially
similar payments to be made by us in respect of, the following,
whether outstanding at the date of execution of the applicable
indenture or thereafter incurred, created or assumed:
(i) our indebtedness for money borrowed or represented by
purchase-money obligations, (ii) our indebtedness evidenced
by notes, debentures, or bonds, or other securities issued under
the provisions of an indenture, fiscal agency agreement or other
agreement, (iii) our obligations as lessee under leases of
property either made as part of any sale and leaseback
transaction to which we are a party or otherwise,
(iv) indebtedness of partnerships and joint ventures which
is included in our consolidated financial statements,
(v) indebtedness obligations and liabilities of others in
respect of which we are liable contingently or otherwise to pay
or advance money or property or as guarantor, endorser or
otherwise or which we have agreed to purchase or otherwise
acquire, and (vi) any binding commitment of the real estate
investment, in each case other than (a) any such
indebtedness, obligation or liability referred to in the
preceding clause as to which, in the instrument creating or
evidencing the same pursuant to which the same is outstanding,
it is provided that such indebtedness, obligation or liability
is not superior in right of payment to the subordinated
securities or ranks pari passu with the subordinated
securities, (b) any such indebtedness obligation or
liability which is subordinated to our indebtedness to
substantially the same extent as or to a greater extent than the
subordinated securities are subordinated, and (c) the
subordinated securities. There will not be any restriction in
any indenture relating to subordinated securities upon the
creation of additional senior debt.
If this prospectus is being delivered in connection with a
series of subordinated securities, the accompanying prospectus
supplement or the information incorporated herein by reference
will set forth the approximate amount of senior debt outstanding
as of the end of our most recent fiscal quarter.
Discharge,
Defeasance and Covenant Defeasance
Unless otherwise indicated in the applicable prospectus
supplement, we will be permitted, at our option, to discharge
certain obligations to holders of any series of debt securities
issued under any indenture that have not already been delivered
to the applicable indenture trustee for cancellation and that
either have become due and payable or will become due and
payable within one year (or scheduled for redemption within one
year) by irrevocably depositing with the applicable indenture
trustee, in trust, funds in such currency or currencies,
currency unit or units or composite currency or currencies in
which such debt securities are payable in an amount sufficient
to pay the entire indebtedness on such debt securities with
respect to principal (and premium, if any) and interest to the
date of such deposit (if such debt securities have become due
and payable) or to the stated maturity or redemption date, as
the case may be.
The indentures will provide that, unless otherwise indicated in
the applicable prospectus supplement, we may elect either
(i) to defease and be discharged from any and all
obligations (except for the obligation to pay additional
amounts, if any, upon the occurrence of certain events of tax
assessment or governmental charge with respect to payments on
such debt securities and the obligations to register the
transfer or exchange of such debt securities, to replace
temporary or mutilated, destroyed, lost or stolen debt
securities, to maintain an office or agency in respect of such
debt securities, to hold moneys for payment in trust and, with
respect to subordinated debt securities which are convertible or
exchangeable, the right to convert or exchange) with respect to
such debt securities (defeasance) or (ii) to be
released from our obligations with respect to such debt
securities under the applicable indenture (being the
restrictions described under Certain
Covenants) or, if provided in the applicable
prospectus supplement, our obligations with respect to any other
covenant, and any omission to comply with such obligations shall
not constitute an event of default with respect to such debt
securities (covenant defeasance), in either case
upon the irrevocable deposit by us with the applicable indenture
trustee, in trust, of an amount in such currency or currencies,
currency unit or units or composite currency or currencies in
which such debt securities are payable at stated maturity, or
Government Obligations (as defined below), or both, applicable
to such debt securities, which through the scheduled payment of
principal and interest in accordance with their terms will
provide money in an amount sufficient to pay the principal of
(and premium, if any) and interest on such debt securities, and
any mandatory sinking fund or analogous payments thereon, on the
scheduled due dates therefor.
29
Such a trust will only be permitted to be established if, among
other things, we have delivered to the applicable indenture
trustee an opinion of counsel (as specified in the applicable
indenture) to the effect that the holders of such debt
securities will not recognize income, gain or loss for
U.S. federal income tax purposes as a result of such
defeasance or covenant defeasance and will be subject to
U.S. federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
defeasance or covenant defeasance had not occurred, and such
opinion of counsel, in the case of defeasance, will be required
to refer to and be based upon a ruling received from or
published by the Internal Revenue Service or a change in
applicable United States federal income tax law occurring after
the date of the indenture. In the event of such defeasance, the
holders of such debt securities would thereafter be able to look
only to such trust fund for payment of principal (and premium,
if any) and interest.
Government Obligations means securities that are
(i) direct obligations of the United States of America or
the government which issued the foreign currency in which the
debt securities of a particular series are payable, for the
payment of which its full faith and credit is pledged, or
(ii) obligations of a person controlled or supervised by
and acting as an agency or instrumentality of the United States
of America or such government which issued the foreign currency
in which the debt securities of such series are payable, the
payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America or such
other government, which, in either case, are not callable or
redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company
as custodian with respect to any such Government Obligation or a
specific payment of interest on or principal of any such
Government Obligation held by such custodian for the account of
the holder of a depository receipt; provided that (except as
required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in
respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced
by such depository receipt.
Unless otherwise provided in the applicable prospectus
supplement, if after we have deposited funds
and/or
Government Obligations to effect defeasance or covenant
defeasance with respect to debt securities of any series,
(i) the holder of a debt security of such series is
entitled to, and does, elect pursuant to the applicable
indenture or the terms of such debt security to receive payment
in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such debt
security, or (ii) a conversion event (as defined below)
occurs in respect of the currency, currency unit or composite
currency in which such deposit has been made, the indebtedness
represented by such debt security will be deemed to have been,
and will be, fully discharged and satisfied through the payment
of the principal of (and premium, if any) and interest on such
debt security as they become due out of the proceeds yielded by
converting the amount so deposited in respect of such debt
security into the currency, currency unit or composite currency
in which such debt security becomes payable as a result of such
election or such cessation of usage based on the applicable
market exchange rate. Conversion Event means the
cessation of use of (a) a currency, currency unit or
composite currency both by the government of the country which
issued such currency and for the settlement of transactions by a
central bank or other public institutions of or within the
international banking community, (b) the ECU both within
the European Monetary System and for the settlement of
transactions by public institutions of or within the European
Communities, or (c) any currency unit or composite currency
other than the ECU for the purposes for which it was
established. Unless otherwise provided in the applicable
prospectus supplement, all payments of principal of (and
premium, if any) and interest on any debt security that is
payable in a foreign currency that ceases to be used by its
government of issuance shall be made in U.S. dollars.
If we effect covenant defeasance with respect to any debt
securities and such debt securities are declared due and payable
because of the occurrence of any event of default other than the
event of default described in clause (iv) under
Events of Default, Notice and
Waiver with respect to specified sections of an
indenture (which sections would no longer be applicable to such
debt securities) or described in clause (vii) under
Events of Default, Notice and
Waiver with respect to any other covenant as to which
there has been covenant defeasance, the amount in such currency,
currency unit or composite currency in which such debt
securities are payable, and Government Obligations on deposit
with the applicable indenture trustee, will be sufficient to pay
amounts due on such debt securities at the time of their stated
maturity but may not be sufficient to pay amounts due on such
debt securities at the time of the acceleration resulting from
such event of default. However, we would remain liable to make
payment of such amounts due at the time of acceleration.
30
The applicable prospectus supplement may further describe the
provisions, if any, permitting such defeasance or covenant
defeasance, including any modifications to the provisions
described above, with respect to the debt securities of or
within a particular series.
Conversion
Rights
The terms and conditions, if any, upon which the debt securities
are convertible into common shares or preferred shares will be
set forth in the applicable prospectus supplement relating
thereto. Such terms will include whether such debt securities
are convertible into common shares or preferred shares, the
conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be
at the option of the holders or at our option, the events
requiring an adjustment of the conversion price and provisions
affecting conversion in the event of the redemption of such debt
securities and any restrictions on conversion, including
restrictions directed at maintaining our REIT status.
Payment
Unless otherwise specified in the applicable prospectus
supplement, the principal of (and applicable premium, if any)
and interest on any series of debt securities will be payable at
the corporate trust office of the indenture trustee, the address
of which will be stated in the applicable prospectus supplement;
provided that, at our option, payment of interest may be made by
check mailed to the address of the person entitled thereto as it
appears in the applicable register for such debt securities or
by wire transfer of funds to such person at an account
maintained within the United States.
All moneys paid by us to a paying agent or an indenture trustee
for the payment of the principal of or any premium or interest
on any debt security which remain unclaimed at the end of one
year after such principal, premium or interest has become due
and payable will be repaid to us and the holder of such debt
security thereafter may look only to us for payment thereof.
Global
Securities
The debt securities of a series may be issued in whole or in
part in the form of one or more global securities that will be
deposited with, or on behalf of, a depositary identified in the
applicable prospectus supplement relating to such series. Global
securities may be issued in either registered or bearer form and
in either temporary or permanent form. The specific terms of the
depositary arrangement with respect to a series of debt
securities will be described in the applicable prospectus
supplement relating to such series.
FEDERAL
INCOME TAX CONSIDERATIONS
The following discussion summarizes the material United States
federal income tax consequences of the purchase, ownership and
disposition of our common shares, preferred shares and fixed
rate debt securities (that are not original issue discount or
zero coupon debt securities) by persons who hold the securities
as capital assets (within the meaning of section 1221 of
the Code). It does not purport to address the federal income tax
consequences applicable to all categories of holders, including
holders subject to special treatment under federal income tax
laws, such as insurance companies, regulated investment
companies, tax-exempt organizations (except as discussed under
Taxation of Holders of Common or Preferred
Shares Tax-Exempt Shareholders) or dealers
in securities. Except as discussed under
Taxation of Holders of Common or Preferred
Shares
Non-U.S. Shareholders
and Taxation of Holders of Fixed Rate Debt
Securities
Non-U.S. Holders,
respectively, this summary does not address persons who are not
U.S. Shareholders or U.S. Holders, respectively (each
as defined herein).
This summary is based on current provisions of the Code, the
Treasury regulations promulgated thereunder and judicial and
administrative authorities. All these authorities are subject to
change, and any change may be effective retroactively. This
summary is not tax advice, and is not intended as a substitute
for careful tax planning. WE RECOMMEND THAT OUR INVESTORS
CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, STATE,
LOCAL OR FOREIGN TAX CONSEQUENCES OF INVESTING IN OUR SECURITIES
IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.
31
General
In the opinion of Katten Muchin Rosenman LLP (Katten
Muchin), commencing with our taxable year ended
December 31, 2004, we have been organized and operated in
conformity with the requirements for qualification and taxation
as a REIT under the Code, and our current and proposed method of
operation, as described in this prospectus and as represented by
us, will enable us to continue to meet the requirements for
qualification and taxation as a REIT. Katten Muchins
opinion is not binding on the Internal Revenue Service
(IRS) or the courts. It is based on various
assumptions relating to our organization and operation,
including that we have operated and will continue to operate in
the manner described in our organizational documents and this
prospectus, and representations made by us concerning certain
factual matters related to our organization and manner of
operation. Our qualification and taxation as a REIT depends upon
our ability to meet on a continuous basis, through actual annual
operating results, (i) income and asset composition tests,
(ii) specified distribution levels, (iii) diversity of
beneficial ownership, and (iv) various other qualification
tests (discussed below) imposed by the Code. Katten Muchin has
not reviewed and will not monitor our ongoing compliance with
these tests, and expresses no opinion concerning whether we
actually have satisfied or will satisfy these tests on a
continuous basis. No assurance can be given that we actually
have satisfied or will satisfy such tests on a continuous basis.
Our failure to qualify as a REIT in prior years could adversely
affect Katten Muchins opinion and our eligibility for REIT
status for our taxable year ended December 31, 2004 and
subsequent years. (See Failure to
Qualify, below.)
The following is a general summary of the material Code
provisions that govern the federal income tax treatment of a
REIT and its shareholders. These provisions are technical and
complex.
In general, if we qualify as a REIT, we will not be subject to
federal corporate income taxes on the net income that we
distribute currently to our shareholders. This treatment
substantially eliminates the double taxation
(taxation at both the corporation and shareholder levels) that
generally results from an investment in stock of a C
corporation (that is, a corporation generally subject to the
full corporate-level tax). We will, however, still be subject to
federal income and excise tax in certain circumstances,
including the following:
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we will be taxed at regular corporate rates on any undistributed
REIT taxable income, including undistributed net
capital gains;
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we may be subject to the alternative minimum tax on
our undistributed items of tax preference;
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if we have (i) net income from the sale or other
disposition of foreclosure property that we hold primarily for
sale to customers in the ordinary course of business or
(ii) other non-qualifying income from foreclosure property,
then we will be subject to tax on that income at the highest
corporate rate. In general, foreclosure property is
any property we acquire by foreclosure (or otherwise) on default
of a lease of such property or a loan secured by such property;
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if we have net income from prohibited transactions, such income
will be subject to a 100% tax. In general, prohibited
transactions are sales or other dispositions of property
(other than foreclosure property) that we hold primarily for
sale to customers in the ordinary course of business;
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if we derive excess inclusion income from an
interest in certain mortgage loan securitization structures
(i.e., a taxable mortgage pool or a residual
interest in a real estate mortgage investment conduit, or
REMIC), then we will be subject to tax at the
highest regular corporate tax rate to the extent that such
income is allocable to specified types of shareholders known as
disqualified organizations (generally, tax-exempt
entities, such as government pension plans, that are not subject
to unrelated business income tax). See
Taxable Mortgage Pools and Excess
Inclusion Income below.
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if we fail to satisfy either the 75% gross income test or the
95% gross income test (discussed below), but preserve our
qualification as a REIT by satisfying certain other
requirements, then we will be subject to a 100% tax on the
product of (a) the greater of the amount by which we fail
the 75% gross income test or the 95% gross income test,
multiplied by (b) a fraction intended to reflect our
profitability;
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if we fail to distribute for each calendar year at least the sum
of (i) 85% of our REIT ordinary income, (ii) 95% of
our REIT capital gain net income, and (iii) any
undistributed taxable income from prior years, then we will be
subject to a 4% excise tax on the excess of the required
distributions over the actual distributions;
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if we acquire any asset from a C corporation in a
transaction in which the basis of the asset in our hands is
determined by reference to the basis of the asset (or any other
property) in the hands of the C corporation, and if we recognize
gain on the disposition of such asset during the ten-year period
beginning on the date we acquire the asset, then the
assets built-in gain (the excess of the
assets fair market value at the time we acquired it over
the assets adjusted basis at that time) will be subject to
tax at the highest regular corporate rate;
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we may elect to retain and pay income tax on some or all of our
long-term capital gain, as described below;
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if it is determined that amounts of certain income and expense
were not allocated between us and a taxable REIT subsidiary (as
defined below) on the basis of arms length dealing, or to
the extent we charge a taxable REIT subsidiary interest in
excess of a commercially reasonable rate, then we will be
subject to a tax equal to 100% of those amounts; and
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we may be required to pay monetary penalties if we fail to
satisfy certain requirements for REIT qualification as the price
for maintaining our REIT status.
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Requirements
for Qualification
The Code defines a REIT as a corporation, trust, or association:
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that is managed by one or more trustees or directors;
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the beneficial ownership of which is evidenced by transferable
shares or by transferable certificates of beneficial interest;
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that would be taxable as a domestic corporation, but for
Sections 856 through 859 of the Code;
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that is neither a financial institution nor an insurance company
subject to certain provisions of the Code;
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the beneficial ownership of which is held by 100 or more persons;
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no more than 50% in value of the outstanding stock of which is
owned, directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities) during the last
half of each taxable year;
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that meets certain other tests, described below, regarding the
composition of its income and assets; and
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whose taxable year is the calendar year.
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The first four requirements must be satisfied during the entire
taxable year, and the fifth must be satisfied during at least
335 days of a taxable year of 12 months (or during a
proportionate part of a taxable year of less than
12 months). We will be treated as satisfying the sixth
requirement for any taxable year for which we comply with the
regulatory requirements to request information from our
shareholders regarding their actual ownership of our shares and
we do not know, or exercising reasonable due diligence would not
have known, that we failed to satisfy such condition.
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We intend to comply with Treasury regulations requiring us to
ascertain the actual ownership of our outstanding shares.
(Failure to do so will subject us to a fine.) In addition,
certain restrictions on the transfer of our shares, imposed by
our Declaration of Trust, are meant to help us continue to
satisfy the fifth and sixth requirements for qualification
described above.
Finally, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. Our taxable year is the
calendar year.
Income Tests. To remain qualified as a REIT,
we must satisfy two gross income tests in each taxable year.
First, at least 75% of our gross income (excluding gross income
from prohibited transactions) must come from real
estate sources such as rents from real property (as defined
below), dividends and gain from the sale or disposition of
shares in other REITs, interest on obligations secured by real
property, and earnings from certain temporary investments.
Second, at least 95% of our gross income (excluding gross income
from prohibited transactions) must come from real
estate sources and from dividends, interest and gain from the
sale or disposition of stock or securities (or from any
combination of the foregoing).
Rents received by a REIT (which include charges for services
customarily furnished or rendered in connection with real
property and rent attributable to personal property leased in
connection with real property) will generally qualify as
rents from real property, subject to certain
restrictions, including:
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the amount of rent must not be based, in whole or in part, on
the income or profits of any person (with an exception for rents
based on fixed percentages of the tenants gross receipts
or sales);
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except for certain qualified lodging and healthcare facilities
leased to a taxable REIT subsidiary (described below), the REIT
(or a direct or indirect owner of 10% or more of the REIT) may
not own (directly or constructively) 10% or more of the tenant
(a Related Party Tenant);
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the amount of rent attributable to personal property leased in
connection with a lease of real property may not exceed 15% of
the total rent received under the lease; and
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the REIT generally may not operate or manage the property or
furnish or render services to the tenants except through
(i) a taxable REIT subsidiary (described below) or
(2) an independent contractor that satisfies
certain stock ownership restrictions, that is adequately
compensated and from whom the REIT derives no income. We are not
required to use a taxable REIT subsidiary or independent
contractor to the extent that any service we provide is
usually or customarily rendered in connection with
the rental of space for occupancy only and is not considered
rendered to the tenants.
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If, for any taxable year, we fail to satisfy the 75% gross
income test, the 95% gross income test, or both, we may
nevertheless preserve our REIT status if we satisfy certain
relief provisions under the Code. In general, relief will be
available if (i) our failure to meet one or both of the
gross income tests is due to reasonable cause rather than
willful neglect and (ii) we attach a schedule to our
federal corporate income tax return indicating the nature and
amount of our non-qualifying income. However, it is impossible
to state whether in all circumstances we would be entitled to
the benefit of the relief provisions. As discussed above under
General , even if we qualify for
relief, a tax would be imposed with respect to the amount by
which we fail the 75% gross income test or the 95% gross income
test.
Asset Tests. To maintain our qualification as
a REIT we must also satisfy, at the close of each quarter of
each taxable year, the following tests relating to the nature of
our assets:
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at least 75% of the value of our total assets must be
represented by real estate assets, including (a) interests
in real property and interests in obligations secured (or
deemed, for these purposes, to be secured) by real property,
(b) our proportionate share (determined in accordance with
our capital interest) of real estate assets held by the
operating partnership and any other partnership in which we are
a partner, (c) stock or debt instruments held for not more
than one year purchased with the proceeds of a stock offering or
long-term (that is, at least five-years) public debt offering,
(d) stock in other REITs and (e) cash, cash items and
federal government securities;
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no more than 25% (20% for taxable years beginning before
August 1, 2008) of the value of our total assets may
be securities of one or more taxable REIT subsidiaries
(described below); and
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except for (a) securities in the 75% asset class,
(b) securities in a taxable REIT subsidiary or qualified
REIT subsidiary (defined below), and (c) certain
partnership interests and debt obligations: (i) the value
of any one issuers securities we own may not exceed 5% of
the value of our total assets; (ii) we may not own more
than 10% of any one issuers outstanding voting securities;
and (iii) we may not own more than 10% of the total value
of any one issuers outstanding securities. However, if
(i) the value of the assets causing us to violate the 5% or
10% tests does not exceed the lesser of (A) 1% of the value
of our assets at the end of the quarter in which the violation
occurs, or (B) $10,000,000, and (ii) we cure the
violation by disposing of such assets within 6 months after
the end of the quarter in which we identify the failure, then we
will not lose our REIT status.
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We currently hold assets (or provide services to tenants)
through one or more taxable REIT subsidiaries. To treat a
subsidiary as a taxable REIT subsidiary, we and the subsidiary
must make a joint election by filing a Form 8875 with the
IRS. A taxable REIT subsidiary pays tax at regular corporate
rates on its earnings, but such earnings may include types of
income that might jeopardize our REIT status if earned by us
directly. To prevent the shifting of income and expenses between
us and a taxable REIT subsidiary, the Code imposes on us a tax
equal to 100% of certain items of income and expense that are
not allocated between us and the taxable REIT subsidiary at
arms length. The 100% tax is also imposed to the extent we
charge a taxable REIT subsidiary interest in excess of a
commercially reasonable rate.
We may also hold assets through one or more corporate
subsidiaries that satisfy the requirements to be treated as
qualified REIT subsidiaries. A qualified REIT
subsidiary is disregarded for federal income tax purposes, which
means, among other things, that for purposes of applying the
gross income and assets tests, all assets, liabilities and items
of income, deduction and credit of the subsidiary will be
treated as ours. A subsidiary is a qualified REIT subsidiary if
we own all the stock of the subsidiary (and no election is made
to treat the subsidiary as a taxable REIT subsidiary). We may
also hold assets through other entities that may be disregarded
for federal income tax purposes, such as one or more limited
liability companies in which we are the only member.
If a REIT is a partner in a partnership, Treasury regulations
provide that the REIT will be deemed to own its proportionate
share (based on its share of partnership capital) of the assets
of the partnership and will be deemed to earn its proportionate
share of the income of the partnership. The character of the
assets and gross income of the partnership will retain the same
character in the hands of the REIT for purposes of the REIT
requirements, including satisfying the gross income tests and
the asset tests. Thus, our proportionate share (based on our
share of partnership capital) of the assets, liabilities and
items of income of any partnership in which we are a partner,
including the operating partnership, will be treated as our
assets, liabilities and items of income for purposes of applying
the requirements described in this section. Actions taken by
partnerships in which we own an interest, either directly or
through one or more tiers of partnerships or qualified REIT
subsidiaries, can affect our ability to satisfy the REIT income
and assets tests and the determination of whether we have net
income from prohibited transactions (described above).
If we satisfy the asset tests at the close of any quarter, we
will not lose our REIT status if we fail to satisfy the asset
tests at the end of a later quarter solely because of changes in
asset values. If our failure to satisfy the asset tests results,
either in whole or in part, from an acquisition of securities or
other property during a quarter, the failure can be cured by
disposing of sufficient non-qualifying assets within
30 days after the close of that quarter. We intend to
maintain adequate records of the value of our assets to ensure
compliance with the asset tests and to take such other action
within 30 days after the close of any quarter as may be
required to cure any noncompliance. In some instances, however,
we may be compelled to dispose of assets that we would prefer to
retain.
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If we were to fail to satisfy the asset tests at the end of any
quarter and the relief provisions discussed earlier do not
apply, then we will still maintain our REIT status provided
(i) our failure to satisfy the relevant asset test was due
to reasonable cause and was not due to willful neglect,
(ii) we file a schedule with the IRS describing the assets
causing the violation, (iii) we cure the violation by
disposing of the assets within 6 months after the end of
the quarter in which we identify the failure, and (iv) we
pay a penalty tax of the greater of (A) $50,000 or
(B) the product derived by multiplying the highest federal
corporate income tax rate by the net income generated by the
non-qualifying assets during the period of the failure.
Annual Distribution Requirements. To qualify
as a REIT, we must also distribute to our shareholders,
dividends (other than capital gain dividends) in an amount at
least equal to (i) the sum of (A) 90% of our
REIT taxable income (computed without regard to the
dividends paid deduction and our net capital gain)
plus (B) 90% of our after-tax net income (if any) from
foreclosure property, minus (ii) the sum of certain items
of non-cash income (including, among other things, cancellation
of indebtedness income and original issue discount). In general,
the distributions must be paid during the taxable year to which
they relate. We may also satisfy the distribution requirements
with respect to a particular year provided we (1) declare a
sufficient dividend before timely filing our tax return for that
year and (2) pay the dividend within the
12-month
period following the close of the year, and on or before the
date of the first regular dividend payment after such
declaration.
To the extent we fail to distribute 100% of our net capital
gain, or we distribute at least 90% but less than 100% of our
REIT taxable income (as adjusted), we will be
subject to tax at regular corporate rates on the undistributed
amounts. Furthermore, if we fail to distribute during each
calendar year at least the sum of (i) 85% of our REIT
ordinary income for such year, (ii) 95% of our REIT capital
gain income for such year and (iii) any undistributed
taxable income from prior periods, we will be subject to a 4%
excise tax on the excess of such amounts over the amounts
actually distributed.
As of December 31, 2008, we had approximately
$22 million of net operating loss carryforwards (expiring
from 2021 through 2023)] that may be available to reduce the
amounts that we are required to distribute in order to maintain
our REIT status and avoid entity-level taxes. Our ability to
utilize these carryforwards is subject to an annual limitation
(pursuant to the provisions of Section 382 of the Code)
that we have currently estimated at $6.9 million. Any
adjustments made to the amount of our taxable income in prior
years or a determination that we did not qualify as a REIT in
one or more years in which we generated the losses being carried
forward could reduce or otherwise affect the amount of our loss
carryforwards or our ability to deduct them from our REIT
taxable income.
Dividends declared by us in October, November or December of any
calendar year and payable to shareholders of record on a
specified date in such month, are treated as paid by us and as
received by our shareholders on the last day of the calendar
year (including for excise tax purposes), provided we actually
pay the dividends no later than in January of the following
calendar year.
We intend to make timely distributions sufficient to meet the
annual distribution requirements. It is possible that from time
to time, we may not have sufficient cash or other liquid assets
to meet the 90% distribution requirement. The shortfall may, for
example, be due to differences between the time we actually
receive income or pay an expense, and the time we must include
the income or may deduct the expense for purposes of calculating
our REIT taxable income. As a further example, the shortfall may
be due to an excess of non-deductible cash outlays such as
principal payments on debt and capital expenditures, over
non-cash deductions such as depreciation. In such instances, we
may arrange for short-term or long-term borrowings so that we
can pay the required dividends and meet the 90% distribution
requirement.
Under certain circumstances, if we fail to meet the distribution
requirement for a taxable year, we may correct the situation by
paying deficiency dividends to our shareholders in a
later year. By paying the deficiency dividend, we may increase
our dividends paid deduction for the earlier year, thereby
reducing our REIT taxable income for the earlier year. However,
if we pay a deficiency dividend, we will have to pay to the IRS
interest based on the amount and timing of any deduction taken
for such dividend.
Failure to Qualify. Beginning with our 2005
taxable year, if we would otherwise fail to qualify as a REIT
because of a violation of one of the requirements described
above (other than an asset or income test violation for which
one of the relief provisions described earlier is available),
then our qualification as a REIT will not be terminated if the
violation is due to reasonable cause and not willful neglect and
we pay a penalty tax of $50,000 for each violation.
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If we fail to qualify for taxation as REIT in any taxable year
and the relief provisions do not apply, we will be subject to
tax (including any applicable alternative minimum tax) on our
taxable income at regular corporate rates. Distributions to
shareholders in any year in which we do not qualify will not be
deductible by us, nor will they be required to be made. Unless
we are entitled to relief under specific statutory provisions,
we also will be disqualified from taxation as a REIT for the
four taxable years following the year during which our
qualification was lost. It is not possible to state whether in
all circumstances we would be entitled to such statutory relief.
Accordingly, our failure to qualify as a REIT for a prior
taxable year could adversely affect our qualification as a REIT
for the current or subsequent taxable years, even if we
otherwise satisfy the REIT requirements for the current or
subsequent taxable years.
For any year in which we fail to qualify as a REIT, any
distributions that we make generally will be taxable to our
shareholders as ordinary income to the extent of our current or
accumulated earnings and profits. Subject to certain limitations
in the Code, corporate shareholders receiving such distributions
may be eligible to claim the dividends received deduction, and
such distributions made to non-corporate shareholders may
qualify for preferential rates of taxation.
Taxable Mortgage Pools and Excess Inclusion
Income. An entity, or a portion of an entity, may
be classified as a taxable mortgage pool (TMP) under
the Internal Revenue Code if (1) substantially all of its
assets consist of debt obligations or interests in debt
obligations, (2) more than 50% of those debt obligations
are real estate mortgages or interests in real estate mortgages
as of specified testing dates, (3) the entity has issued
debt obligations (liabilities) that have two or more maturities,
and (4) the payments required to be made by the entity on
its debt obligations (liabilities) bear a
relationship to the payments to be received by the entity
on the debt obligations that it holds as assets. We have made
and in the future expect to make investments or enter into
financing and securitization arrangements that may give rise to
our owning a direct or indirect interest in a TMP, with the
consequences described below.
A TMP ordinarily is treated as a taxable corporation for
U.S. federal income tax purposes. However, a REIT, a
portion of a REIT, or a disregarded subsidiary of a REIT that is
a TMP, is not treated as a corporation that is subject to
corporate income tax, and the TMP classification does not
directly affect the tax status of the REIT. Instead, a portion
of the REITs income from the TMP arrangement, which might
be non-cash accrued income, may be excess inclusion
income. Excess inclusion income must be allocated among
the REITs shareholders in proportion to the dividends paid
to them. A shareholders share of excess inclusion income
(i) may not be offset by any net operating losses otherwise
available to the shareholder, (ii) is subject to tax as
unrelated business taxable income in the hands of most types of
shareholders that are otherwise generally exempt from
U.S. federal income tax, and (iii) is subject to a
U.S. federal withholding tax of 30% without reduction for
any otherwise applicable income tax treaty, to the extent
allocable to most types of foreign shareholders. See
Taxation of Holders of Common or Preferred
Shares
Non-U.S. Shareholders
below. To the extent that excess inclusion income is allocated
from a TMP to a tax-exempt shareholder that is not subject to
unrelated business income tax (such as government entities) or
to certain foreign shareholders, the REIT is subject to tax on
this income at the highest applicable corporate tax rate
(currently 35%).
Taxation
of Holders of Common or Preferred Shares
U.S.
Shareholders
As used in this section, the term
U.S. Shareholder means a holder of common
shares or preferred shares who, for United States federal income
tax purposes, is:
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a citizen or resident of the United States;
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a domestic corporation;
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an estate whose income is subject to United States federal
income taxation regardless of its source; or
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a trust if a United States court can exercise primary
supervision over the trusts administration and one or more
United States persons have authority to control all substantial
decisions of the trust.
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Dividends. As long as we qualify as a REIT,
distributions that are made to our taxable
U.S. Shareholders out of current or accumulated earnings
and profits (and are not designated as capital gain dividends)
will be taken into account by them as ordinary income. Such
distributions will be ineligible for the corporate dividends
received deduction, and except in circumstances that we do not
expect to arise, also will not qualify for the lower rate
applicable to qualifying dividends paid to non-corporate
shareholders. Distributions that are designated as capital gain
dividends will be taxed as long-term capital gains (to the
extent they do not exceed our actual net capital gain for the
taxable year) without regard to the period for which a
U.S. Shareholder has held our shares. Thus, with certain
limitations, capital gain dividends received by a
U.S. Shareholder who is an individual may be eligible for
preferential rates of taxation. However, U.S. Shareholders
that are corporations may be required to treat up to 20% of
certain capital gain dividends as ordinary income. We may elect
to pay dividends partly in shares of our common stock, in which
event a U.S. Shareholder generally will be taxable on the
value of our shares received as a dividend.
We may elect not to distribute part or all of our net long-term
capital gain, and pay corporate tax on the undistributed amount.
In that case, a U.S. Shareholder will (i) include in
its income, as long-term capital gain, its proportionate share
of the undistributed gain, and (ii) claim, as a refundable
tax credit, its proportionate share of the taxes paid. In
addition, a U.S. Shareholder will be entitled to increase
its tax basis in our shares by an amount equal to its share of
the undistributed gain reduced by its share of the corporate
taxes paid by us on the undistributed gain. As discussed earlier
(see Requirements for Qualification Annual
Distribution Requirements), we may pay certain
dividends in January that will be taxable to shareholders as if
paid in the immediately preceding calendar year.
Distributions in excess of our current and accumulated earnings
and profits will be treated as a non-taxable return of capital
to a U.S. Shareholder to the extent that they do not exceed
the adjusted basis of the shareholders shares as to which
the distributions were made, and will reduce the adjusted basis
of the shareholders shares. To the extent these
distributions exceed the shareholders adjusted basis in
its shares, the distributions will be included in the
shareholders income as long-term capital gain (or
short-term capital gain if the shares have been held for one
year or less).
Earnings and profits are allocated to distributions with respect
to preferred stock before they are allocated to distributions
with respect to common stock. Therefore, depending on our
earnings and profits, distributions with respect to our
preferred shares (as compared to distributions with respect to
our common shares) are more likely to be treated as dividends
than as a return of capital or a distribution in excess of basis.
Shareholders may not claim our net operating losses or net
capital losses (if any) on their individual income tax returns.
Distributions with respect to, and gain from the disposition of,
our shares will be treated as portfolio income and,
therefore, U.S. Shareholders that are subject to the
passive activity loss limitations will be unable to claim
passive activity losses against such income.
Sale of Shares. When a U.S. Shareholder
sells or otherwise disposes of our shares, the shareholder will
recognize capital gain or capital loss for federal income tax
purposes in an amount equal to the difference between
(a) the amount of cash and the fair market value of any
property received on the sale or other disposition, and
(b) the shareholders adjusted tax basis in the shares
for tax purposes. The gain or loss will be long-term gain or
loss if the U.S. Shareholder has held the shares for more
than one year. Long-term capital gain of a non-corporate
U.S. Shareholder is generally taxed at preferential rates.
In general, any loss recognized by a U.S. Shareholder on a
disposition of shares that the shareholder has held for six
months or less, after applying certain holding period rules,
will be treated as a long-term capital loss, to the extent the
shareholder received distributions from us that were treated as
long-term capital gains. Capital losses generally are deductible
only to the extent of a U.S. Shareholders capital
gain.
Backup Withholding. We will report to our
U.S. Shareholders and the IRS the amount of dividends paid
during each calendar year and the amount of tax withheld, if
any, with respect thereto. A U.S. Shareholder may be
subject to backup withholding tax (currently at a rate of 28%)
with respect to dividends paid unless the shareholder
(i) is a corporation or comes within certain other exempt
categories and, if required, demonstrates this fact, or
(ii) provides a taxpayer identification number and
certifies as to no loss of exemption, and otherwise complies
with the applicable requirements of the backup withholding
rules. An individual U.S. Shareholder may satisfy these
requirements by providing us with a properly completed and
signed IRS
Form W-9.
Individual U.S. Shareholders who do not provide us with
their correct taxpayer identification numbers may be subject to
penalties imposed by the IRS. Any amount withheld will be
creditable against the U.S. Shareholders income tax
liability.
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Tax-Exempt Shareholders. The IRS has ruled
that amounts distributed as dividends by a qualified REIT
generally do not constitute unrelated business taxable income
(UBTI) if received by a tax-exempt entity. Based on
that ruling, dividend income from our shares generally will not
be UBTI to a tax-exempt U.S. Shareholder, provided that the
shareholder has not held its shares as debt financed
property within the meaning of the Code. Similarly, income
from selling our shares generally will not constitute UBTI to a
tax-exempt U.S. Shareholder unless the shareholder has held
its shares as debt financed property.
Notwithstanding the above paragraph, tax-exempt
U.S. Shareholders will be required to treat as UBTI any
dividends paid by us that are allocable to our excess inclusion
income, if any. (See Taxable Mortgage Pools and Excess
Inclusion Income above.) Also, if we are a
pension-held REIT, then any qualified pension trust
that holds more than 10% of our stock will have to treat
dividends paid by us as UBTI in the same proportion that our
gross income would be UBTI. A qualified pension trust is any
trust described in section 401(a) of the Code that is
exempt from tax under section 501(a) of the Code. In
general, we will be treated as a pension-held REIT
only if both (a) we are predominantly owned by qualified
pension trusts (that is, at least one qualified pension trust
holds more than 25% of our shares, or one or more qualified
pension trusts, each of which owns more than 10% of our shares,
hold in the aggregate more than 50% of our shares) and
(b) we would not qualify as a REIT if we had to treat our
stock owned by a qualified pension trust as owned by an
individual (instead of treating such stock as owned
by the qualified pension trusts multiple beneficiaries).
As a result of certain limitations on the transfer and ownership
of shares contained in the Declaration of Trust, we do not
expect to be classified as a pension-held REIT.
Tax-exempt stockholders that are social clubs, voluntary
employee benefit associations, supplemental unemployment benefit
trusts and qualified group legal services plans exempt from
federal income taxation under
sections 501(c)(7),(c)(9),(c)(17) and (c)(20),
respectively, of the Code, are subject to different UBTI rules,
which generally will require them to characterize our
distributions as UBTI.
Non-U.S.
Shareholders
The rules governing the U.S. federal income taxation of
shareholders (which we call
non-U.S. Shareholders)
who or which are not subject to U.S. federal income
taxation, are complex, and no attempt will be made herein to
provide more than a limited summary of those rules. The
discussion below assumes that the
non-U.S. Shareholders
investment in our shares is not effectively connected with a
trade or business conducted in the United States by the
non-U.S. Shareholder,
or, if a tax treaty applies to the
non-U.S. Shareholder,
that its investment in our shares is not attributable to a
United States permanent establishment maintained by the
non-U.S. Shareholder.
WE RECOMMEND THAT
NON-U.S. SHAREHOLDERS
CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE THE IMPACT OF
FEDERAL, STATE, LOCAL AND FOREIGN INCOME TAX LAWS AND REPORTING
REQUIREMENTS WITH REGARD TO AN INVESTMENT IN OUR SHARES.
Ordinary Dividends. Distributions, other than
capital gain dividends and distributions that are treated as
attributable to gain from sales or exchanges by us of
U.S. real property interests (discussed below), will be
treated as ordinary dividends to the extent that they are made
out of our current or accumulated earnings and profits. Such
dividends paid to
non-U.S. Shareholders
will ordinarily be subject to a U.S. federal withholding
tax of 30% of the gross amount of the distribution, unless an
applicable tax treaty reduces that tax rate. We expect to
withhold U.S. income tax at the rate of 30% on the gross
amount of any ordinary dividends paid to a
non-U.S. Shareholder,
unless we receive the requisite proof that (i) a lower
treaty rate applies or (ii) the income is effectively
connected income. A
non-U.S. Shareholder
claiming the benefit of a tax treaty may need to satisfy
certification and other requirements, such as providing an IRS
Form W-8BEN.
A
non-U.S. Shareholder
who wishes to claim that distributions are effectively connected
with a United States trade or business may need to satisfy
certification and other requirements, such as providing IRS
Form W-8ECI.
Other requirements, such as providing an IRS
Form W-8IMY,
may apply to a
non-U.S. Shareholder
that is a financial intermediary or a foreign partnership.
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Distributions in excess of our current and accumulated earnings
and profits that are not treated as attributable to the gain
from a disposition of U.S. real property will be treated as
a non-taxable return of capital to a
Non-U.S. Shareholder
up to the amount of the
non-U.S. Shareholders
adjusted basis in its shares. To the extent that such
distributions exceed the adjusted basis of a
non-U.S. Shareholders
shares, they will give rise to a U.S. tax liability only if
the
non-U.S. Shareholder
otherwise would be subject to tax on any gain from the sale or
disposition of its shares, as described below. If it cannot be
determined at the time a distribution is made whether the
distribution will exceed our current and accumulated earnings
and profits, then the distribution will be subject to
withholding at the rate applicable to ordinary dividends.
However, the
non-U.S. Shareholder
may seek a refund of these amounts from the IRS if it is
subsequently determined that the distribution did, in fact,
exceed our current and accumulated earnings and profits.
Capital Gain Dividends. Under the Foreign
Investment in Real Property Tax Act of 1980
(FIRPTA), gain from the sale or exchange of United
States real property interests generally is taxable to
non-U.S. persons
as if such gain were effectively connected with a
U.S. trade or business. However, capital gain dividends and
dividends treated as attributable to the gain from a disposition
of U.S. real property (collectively, FIRPTA
dividends) paid by us to a
non-U.S. Shareholder
with respect to a class of our stock that is regularly traded on
an established securities market generally will not be subject
to FIRPTA if the
non-U.S. Shareholder
has not owned more than 5% of that class of stock at any time
during the taxable year in which the dividend is received.
Instead, such capital gain dividends will be treated the same as
ordinary dividends, and therefore will be subject to a
U.S. federal withholding tax of 30% unless reduced under an
income tax treaty.
Non-U.S. Shareholders
that do not qualify for this exception will be taxed on our
capital gain distributions at the same capital gain rates
applicable to U.S. Shareholders (subject to any applicable
alternative minimum tax and special alternative minimum tax in
the case of nonresident alien individuals), and we will be
required to withhold U.S. tax equal to 35% from such
distributions. The 35% tax withheld may be claimed by a
non-U.S. Shareholder
as a credit against its reported U.S. federal income tax
liability. In addition to regular U.S. income tax,
corporate
non-U.S. Shareholders
that do not qualify for the FIRPTA exception may be subject to a
30% branch profits tax on FIRPTA dividends unless the
shareholder is entitled to treaty relief or other exemption.
Sales of Shares. Gain recognized by a
non-U.S. Shareholder
upon a sale or exchange of our shares generally will not be
taxed under FIRPTA provided we are a domestically
controlled REIT. In general, we will qualify as a
domestically controlled REIT if at all times during a designated
testing period less than 50% in value of our shares are held
(directly or indirectly) by foreign persons. We currently are a
domestically controlled REIT. Gain not subject to FIRPTA
nevertheless will be subject to a 30% U.S. tax if the
non-U.S. Shareholder
is an alien individual who is present in the United States for
183 days or more during the taxable year, and certain other
requirements are met.
Although we anticipate that we continue to qualify as a
domestically controlled REIT, because our shares will be
publicly traded, no assurance can be given that we will continue
to qualify. If we were not a domestically controlled REIT, then
a
non-U.S. Shareholders
sale of the shares generally would not be subject to tax under
FIRPTA if (a) the
non-U.S. Shareholders
shares of a class are regularly traded on an established
securities market (such as the New York Stock Exchange) and
(ii) the
non-U.S. Shareholder
has not owned more than 5% of the applicable class of our shares
during a designated testing period. If gain on the sale of
shares is subject to tax under FIRPTA, then a
Non-U.S. Shareholder
will be subject to income tax (but will not also be subject to a
branch profits tax) as described above under
Taxation of Holders of Common or Preferred
Shares
Non-U.S. Shareholders
Capital Gain Dividends, and the
purchaser of such shares will be required to withhold 10% of the
gross purchase price.
Federal Estate Taxes. In general, if an
individual who is not a citizen or resident (as defined in the
Code) of the United States owns (or is treated as owning) our
stock at the date of death, our stock will be included in the
individuals estate for United States federal estate tax
purposes, unless an applicable estate tax treaty provides
otherwise.
Backup Withholding and Information
Reporting. Generally, we must report annually to
the IRS the amount of dividends paid to a
non-U.S. Shareholder,
such Shareholders name and address, and the amount of tax
withheld, if any. Payments of dividends or of proceeds from the
disposition of stock made to a
non-U.S. Shareholder
may be subject to information reporting and backup withholding
unless such Shareholder establishes an exemption, for example,
by properly certifying its
non-United
States status on an IRS
Form W-8BEN
or another appropriate version of IRS
Form W-8.
Notwithstanding the foregoing, backup withholding and
information reporting may apply if either we or our paying agent
has actual knowledge, or reason to know, that a
non-U.S. Shareholder
is a United States person.
40
A
non-U.S. Shareholder
generally may obtain a refund of any amounts withheld under the
backup withholding rules that exceed its income tax liability by
filing a refund claim with the IRS.
Other Tax
Consequences
We and our shareholders may be subject to state or local
taxation in various state and local jurisdictions, including
those in which we or they transact business or reside. State and
local tax laws may not conform to the federal income tax
consequences discussed above. Consequently, prospective
shareholders should consult their own tax advisors regarding the
effect of state and local tax laws on an investment in our
shares.
Taxation
of Holders of Fixed Rate Debt Securities
This section applies to holders of our fixed rate debt
securities that are not original issue discount or zero coupon
debt securities and are acquired in the initial offering at the
offering price. Fixed rate debt securities purchased at a price
other than the offering price may be subject to bond premium or
market discount rules that are not discussed below.
The tax consequences of owning any securities that are floating
rate or contingent interest debt securities, zero coupon debt
securities, original issue debt securities or indexed debt
securities that we offer will be discussed in the applicable
prospectus supplement.
U.S.
Holders
As used herein, a U.S. Holder is a beneficial
owner of our fixed rate debt security (which we call a
note) that comes within any of the categories of the
definition of a U.S. Shareholder (see
Taxation of Holders of Common or Preferred
Shares U.S. Shareholders
above).
Interest Income. Payments of interest on our
notes generally will be taxable to a U.S. Holder as
ordinary interest income at the time such payments are accrued
or are received (in accordance with the holders regular
method of U.S. income tax accounting).
Sale of Notes. A U.S. Holder will
generally recognize taxable gain or loss equal to the difference
(if any) between the amount realized on the sale, exchange or
other taxable disposition of our note (other than amounts
attributable to accrued interest not already taken into income,
which will be taxed as ordinary income) and the holders
adjusted tax basis in the note. A U.S. Holders
adjusted tax basis in a note generally will be the initial
purchase price paid therefor. Gain or loss recognized on the
sale of a note should be long-term capital gain or loss provided
the U.S. Holders holding period for the note exceeds
one year. Such gain may qualify for taxation at preferential
rates in the case of a non-corporate U.S. Holder. The
deduction of capital losses is subject to limitations, including
that capital losses generally cannot be applied to offset
ordinary income for U.S. federal income tax purposes.
Backup Withholding and Information
Reporting. A U.S. Holder will generally be
subject to information reporting and may be subject, under
certain circumstances, to backup withholding with respect to
payments of interest on, or the gross proceeds from disposition
of, our note. We will be required to withhold backup withholding
tax (currently at a rate of 28%) if a U.S. Holder:
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fails to furnish its social security or other taxpayer
identification number (TIN) within a reasonable time
after a request therefor;
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furnishes an incorrect TIN;
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fails to report interest or dividends properly; or
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fails under certain circumstances to provide a certified
statement, signed under penalty of perjury, that the TIN
provided is the correct number and that the holder is not
subject to backup withholding.
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41
Backup withholding is not an additional tax. Any amount withheld
from a payment to a U.S. Holder under the backup
withholding rules is allowable as a credit against the
holders U.S. federal income tax liability, provided
that the required information is furnished to the IRS. Certain
persons are generally exempt from information reporting and
backup withholding, including corporations and tax-exempt
organizations. U.S. Holders should consult their tax
advisors as to their qualification for exemption from backup
withholding and the procedure for obtaining such exemption.
Non-U.S.
Holders
As used herein, a
non-U.S. Holder
is a beneficial owner of our note that comes within any of the
categories of the definition of a
non-U.S. Shareholder
(see Taxation of Holders of Common or
Preferred Shares
Non-U.S. Shareholders
above). The discussion below assumes that the
non-U.S. Holders
investment in our notes is not effectively connected with a
trade or business conducted in the United States by the
non-U.S. Holder,
or, if a tax treaty applies to the
non-U.S. Holder,
that its investment in our notes is not attributable to a United
States permanent establishment maintained by the
non-U.S. Holder.
Interest Income. Generally, interest paid on
our notes to a
non-U.S. Holder
will not be subject to U.S. federal withholding tax if the
interest qualifies as portfolio interest. Interest
paid on our note to a
non-U.S. Holder
will qualify as portfolio interest so long as the
non-U.S. Holder:
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does not directly or indirectly, actually or constructively, own
10% or more of the total combined voting power of our voting
stock, and is not a controlled foreign corporation
with respect to which we are a related person within
the meaning of Section 864(d)(4) of the Code;
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is not a bank whose receipt of interest on the notes is
described in Section 881(c)(3)(A) of the Code; and
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certifies under penalties of perjury that it is not a
U.S. person (such certification may be made on an IRS
Form W-8BEN
or suitable substitute form) and such certificate provides the
holders name and address, or a financial institution
holding the note on behalf of the
non-U.S. Holder
certifies, under penalties of perjury, that it has received such
a certification from the
non-U.S. Holder
and furnishes a copy thereof.
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The gross amount of interest payments to a
non-U.S. Holder,
including amounts paid on a sale of our notes that are
attributable to accrued and unpaid interest, that do not qualify
for the portfolio interest exception will be subject to
U.S. withholding tax at the rate of 30% unless a
U.S. income tax treaty applies to reduce or eliminate
withholding. To claim the benefit of a tax treaty, the
non-U.S. Holder
must provide a properly completed and signed IRS
Form W-8BEN
prior to our payment of interest. This form must be periodically
updated. A
non-U.S. Holder
that is claiming the benefits of a tax treaty may be required to
obtain a U.S. TIN and provide certain documentary evidence
issued by foreign governmental authorities to prove residence in
the foreign country.
Sale of Notes. Subject to the discussion below
concerning backup withholding, gain (if any) realized by a
non-U.S. Holder
on the sale, exchange or other taxable disposition of our note
generally will not be subject to U.S. federal income or
withholding tax unless, subject to certain exceptions, the
holder is an individual who is present in the United States for
183 days or more (and certain other requirements are met)
in the taxable year of the disposition.
U.S. Federal Estate Tax. If a
non-U.S. Holder
is an individual and is not a resident of the United States (as
specifically defined for U.S. federal estate tax purposes)
at the time of death, our notes will generally not be subject to
the U.S. federal estate tax unless at the time of the
holders death the holder owns, directly or indirectly,
actually or constructively, 10% or more of the total combined
voting power of our stock
Information Reporting and Backup
Withholding. Generally, we must report annually
to the IRS and to a
non-U.S. Holder,
any interest payments that we make to the holder and the tax (if
any) withheld from such payments. Copies of these information
returns may also be made available under the provisions of a
specific treaty or agreement to the tax authorities of the
country in which the
non-U.S. Holder
resides.
42
Information reporting will apply to proceeds of a sale of our
notes within the United States or conducted through certain
financial intermediaries unless the
non-U.S. Holder
provides the statement described under
Taxation of Holders of Fixed Rate Debt
Securities
Non-U.S. Holders
Interest Income above (and the payor
does not have actual knowledge or reason to know that the holder
is a U.S. person as defined under the Code) or the
non-U.S. Holder
otherwise establishes an exemption.
Backup withholding will not apply to payments on our notes or to
proceeds from a sale or disposition of our notes if a
non-U.S. Holder
makes the certification described under
Taxation of Holders of Fixed Rate Debt
Securities
Non-U.S. Holders
Interest Income above (and the
payor does not have actual knowledge or reason to know that the
holder is a U.S. person as defined under the Code) or the
holder otherwise establishes an exemption. Any amounts withheld
under the backup withholding rules from a payment to a
non-U.S. Holder
will be allowed as a refund or a credit against the
holders U.S. federal income tax liability, provided
that the required information is furnished to the IRS. A
non-U.S. Holder
generally may obtain a refund of any amounts withheld under the
backup withholding rules that exceed its U.S. income tax
liability by filing a refund claim with the IRS.
USE OF
PROCEEDS
Unless otherwise described in the applicable prospectus
supplement, we intend to use the net proceeds from any sale of
the securities by us for general corporate purposes, which may
include the acquisition of additional investments, the repayment
of outstanding indebtedness or the improvement of certain
properties already in our portfolio.
PLAN OF
DISTRIBUTION
We may sell the securities from time to time in one or more
transactions:
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to purchasers directly;
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to underwriters for public offering and sale by them;
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in at the market offerings to or through a market
maker or into an existing trading market, or a securities
exchange or otherwise;
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on The New York Stock Exchange or in any other securities market
on which our common shares are then listed or traded;
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in the
over-the-counter
market;
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in negotiated transactions;
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through agents;
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through dealers; or
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through a combination of any of the foregoing methods of sale.
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We may distribute the securities from time to time in one or
more transactions at:
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a fixed price or prices, which may be changed;
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market prices prevailing at the time of sale;
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prices related to such prevailing market prices; or
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negotiated prices.
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We may sell the securities directly to institutional investors
or others. A prospectus supplement will describe the terms of
any sale of the securities we are offering hereunder.
43
To
Underwriters
The applicable prospectus supplement will name any underwriter
involved in a sale of the securities. Underwriters may offer and
sell common stock at a fixed price or prices, which may be
changed, or from time to time at market prices or at negotiated
prices. Underwriters may be deemed to have received compensation
from us from sales of the securities in the form of underwriting
discounts or commissions and may also receive commissions from
purchasers of the securities for whom they may act as agent.
Underwriters may sell the securities to or through dealers, and
such dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters
and/or
commissions (which may be changed from time to time) from the
purchasers for whom they may act as agent.
Unless otherwise provided in a prospectus supplement, the
obligations of any underwriters to purchase the securities will
be subject to certain conditions, and the underwriters will be
obligated to purchase all of the securities if any are
purchased, which is known as a firm commitment offering.
Through
Agents and Dealers
We will name any agent involved in a sale of the securities, as
well as any commissions payable by us to such agent, in a
prospectus supplement to the extent required. Unless we indicate
differently in the prospectus supplement, any such agent will be
acting on a reasonable efforts basis for the period of its
appointment.
If we utilize a dealer in the sale of the securities, we will
sell our common shares to the dealer, as principal. The dealer
may then resell the securities to the public at varying prices
to be determined by the dealer at the time of resale.
Delayed
Delivery Contracts
If we so specify in the applicable prospectus supplement, we
will authorize underwriters, dealers, and agents to solicit
offers by certain institutions to purchase the securities
pursuant to contracts providing for payment and delivery on
future dates. Such contracts will be subject to only those
conditions set forth in the applicable prospectus supplement.
The underwriters, dealers, and agents will not be responsible
for the validity or performance of the contracts. We will set
forth in the prospectus supplement relating to the contracts the
price to be paid for the securities, the commissions payable for
solicitation of the contracts and the date in the future for
delivery of the securities.
General
Information
Underwriters, dealers, and agents participating in a sale of the
securities may be deemed to be underwriters as defined in the
Securities Act of 1933, as amended, or Securities Act, and any
discounts and commissions received by them and any profit
realized by them on resale of the securities may be deemed to be
underwriting discounts and commissions under the Securities Act.
We may have agreements with underwriters, dealers, and agents to
indemnify them against certain civil liabilities, including
liabilities under the Securities Act, and to reimburse them for
certain expenses.
Underwriters or agents and their associates may be customers of,
engage in transactions with, or perform services for us or our
affiliates in the ordinary course of business.
We may indemnify underwriters, dealers, or agents who
participate in the distribution of securities against certain
liabilities, including liabilities under the Securities Act, and
may agree to contribute to payments that these underwriters,
dealers, or agents may be required to make.
Some of the securities offered under this prospectus may be a
new issue of securities with no established trading market. Any
underwriters that purchase securities from us may make a market
in these securities. The underwriters will not be obligated,
however, to make a market and may discontinue market-making at
any time without notice to holders of the securities. We cannot
assure you that there will be liquidity in the trading market
for any securities of any series.
Our common shares are listed and traded on the New York Stock
Exchange.
44
RATIOS OF
EARNINGS TO FIXED CHARGES AND
EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DIVIDENDS
The following table sets forth our historical ratios of earnings
to fixed charges and earnings to combined fixed charges and
preferred share dividends for the periods indicated. To the
extent the ratio indicates less than
one-to-one
coverage, the dollar amount of the deficiency is also listed.
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Six Months
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Ended
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June 30,
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Year Ended December 31,
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2009
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2008
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2007
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2006
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2005
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2004
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Ratio of Earnings to Fixed Charges
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2.42
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1.63
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1.02
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2.45
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2.07
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1.72
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Deficiency (in 000s)
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$
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$
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$
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$
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$
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$
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Ratio of Earnings to Combined Fixed Charges and Preferred Share
Dividends
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2.42
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1.63
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1.02
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2.45
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1.88
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Deficiency (in 000s)
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$
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$
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$
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$
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$
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$
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(120
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The ratios of earnings to fixed charges were computed by
dividing earnings by fixed charges. The ratios of earnings to
combined fixed charges and preferred share dividends were
computed by dividing earnings by the sum of fixed charges and
preferred share dividends. For these purposes, earnings consist
of pre-tax income from continued operations plus fixed charges
(excluding capitalized interest). Fixed charges consist of
interest expense (including capitalized interest) and the
amortization of debt issuance costs.
45
EXPERTS
The financial statements as of December 31, 2006 and for
the year then ended before the effects of the adjustments to
retrospectively apply the change in accounting resulting from
the adoption of Statement of Financial Accounting Standards
No. 160 (SFAS 160),
Non-controlling Interests in Consolidated Financial
Statements, an amendment to ARB 51 as described in
Note 2 and the adjustments to the 2006 earnings per share
to retrospectively apply the effect of the reverse stock split
of the Companys Common Shares of Beneficial Interest, (not
separately included or incorporated by reference in the
Prospectus) have been audited by Deloitte & Touche
LLP, an independent registered public accounting firm. The
adjustments to those financial statements to retrospectively
apply the change in accounting principle resulting from the
adoption of SFAS 160 as described in Note 2 and the
adjustments to the 2006 earnings per share to retrospectively
apply the effect of the reverse stock split of the
Companys Common Shares of Beneficial Interest have been
audited by PricewaterhouseCoopers LLP, an independent registered
public accounting firm. The consolidated financial statements as
of December 31, 2006 and for the year then ended
incorporated in this prospectus by reference to the Current
Report on
Form 8-K
dated August 27, 2009, have been so incorporated in
reliance on the reports of (i) Deloitte & Touche
LLP solely with respect to those financial statements before the
effects of the adjustments to retrospectively apply the change
in accounting resulting from the adoption of SFAS 160 as
described in Note 2 and the adjustments to the 2006
earnings per share to retrospectively apply the effect of the
reverse stock split of the Companys Common Shares of
Beneficial Interest and (ii) PricewaterhouseCoopers LLP
solely with respect to the adjustments to those financial
statements to retrospectively apply the change in accounting
resulting from the adoption of SFAS 160 as described in
Note 2 and the adjustments to the 2006 earnings per share
to retrospectively apply the effect of the reverse stock split
of the Companys Common Shares of Beneficial Interest,
given on the authority of such firms as experts in auditing and
accounting.
The financial statements as of December 31, 2008 and 2007
and for the years ended December 31, 2008 and 2007
incorporated in this Prospectus by reference to Winthrop Realty
Trusts Current Report on
Form 8-K
dated August 27, 2009 and the financial statement schedule
and managements assessment of the effectiveness of
internal control over financial reporting (which is included in
Managements Report on Internal Control over Financial
Reporting) incorporated in this Prospectus by reference to the
Annual Report on
Form 10-K
of Winthrop Realty Trust as of December 31, 2008 and 2007
and for the years ended December 31, 2008 and 2007 have
been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, given on the authority of said firm as experts
in auditing and accounting.
The financial statements of Lex-Win Concord LLC incorporated in
this Prospectus by reference to Winthrop Realty Trusts
Current Report on
Form 8-K
dated August 27, 2009 have been so incorporated in reliance
on the report of PricewaterhouseCoopers LLP, an independent
registered public accounting firm, given on the authority of
said firm as experts in auditing and accounting.
On November 1, 2008, our auditors, Tauber &
Balser, P.C., combined with, and changed their name to,
Habif, Arogeti & Wynne, LLP. The financial statements
of the Chicago Properties (our Marc Realty joint venture) as of
and for the year ended December 31, 2007 incorporated in
this prospectus by reference to Winthrop Realty Trusts
Annual Report on
Form 10-K
for the year ended December 31, 2008 have been so
incorporated in reliance on the report of Tauber &
Balser, P.C., an independent registered public accounting
firm, given on the authority of said firm as experts in auditing
and accounting.
LEGAL
MATTERS
Certain legal matters, including the legality of the securities
offered hereby, have been passed upon by Hahn Loeser &
Parks LLP. Certain tax matters have been passed upon by Katten
Muchin Rosenman LLP.
WHERE YOU
CAN FIND MORE INFORMATION
We are subject to the informational requirements of the
Securities Exchange Act of 1934 which requires us to file
reports and other information with the Securities and Exchange
Commission. You can inspect and copy reports, proxy statements
and other information filed by us at the Public Reference Room
maintained by the SEC at 100 F Street, N.E.,
Washington, D.C. 20549.
46
You can obtain information on the operation of the Public
Reference Room by calling the SEC at
1-800-SEC-0330.
You can obtain copies of this material by mail from the Public
Reference Room of the SEC at 1580, 100 F Street, N.E.,
Washington, D.C. 20549, at prescribed rates. You can also
obtain such reports, proxy statements and other information from
the web site that the SEC maintains at
http://www.sec.gov.
Reports, proxy statements and other information concerning us
may also be obtained electronically at our website,
http://www.winthropreit.com,
and through a variety of databases, including, among others, the
SECs Electronic Data Gathering and Retrieval
(EDGAR) program, Knight-Ridder Information
Inc., Federal Filing/Dow Jones and Lexis/Nexis.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference the
information we file with them, which means that we can disclose
important information to you by referring you to those
documents. The information incorporated by reference is
considered to be part of this prospectus, and information that
we file later with the SEC will automatically update and
supersede this information. We incorporate by reference the
following documents:
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Annual Report on
Form 10-K
for the year ended December 31, 2008 (with respect to
Items 6, 7, 7A and 8, as amended by the Current Report on
Form 8-K
filed on August 28, 2009);
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Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2009;
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Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2009;
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Current Reports on
Form 8-K
filed on September 25, 2009, August 28, 2009,
August 7, 2009 (solely with respect to Item 8.01),
July 15, 2009, June 4, 2009, May 8, 2009 (solely
with respect to Item 8.01), April 21, 2009,
March 6, 2009 (solely with respect to Items 1.01 and
8.01), February 13, 2009, and January 8, 2009; and
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Our Definitive Proxy Statement on Schedule 14A dated
April 21, 2009.
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All documents filed by us with the SEC pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended, which is commonly referred to
as the Exchange Act, after the date of this prospectus and prior
to the termination of the offering of all securities under this
prospectus will also be deemed to be incorporated by reference
into this prospectus and to be a part hereof.
You may request a copy of these filings, at no cost, by writing
or telephoning us at the following address:
Beverly
Bergman, Director of Investor Relations
Winthrop Realty Trust
7 Bulfinch Place, Suite 500
Boston, MA 02114
(617) 570-4614
This prospectus is part of a registration statement we filed
with the SEC. You should rely only on the information or
representations provided in or incorporated by reference into
this prospectus. We have not authorized anyone else to provide
you with different information. 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.
No dealer, salesperson or any other person has been authorized
to give any information or to make any representations other
than those contained in or incorporated by reference in this
prospectus in connection with the offer made by this prospectus,
and, if given or made, such information or representations must
not be relied upon as having been authorized by us. This
prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy any security other than the
securities offered hereby, nor does it constitute an offer to
sell or a solicitation of any offer to buy any of the shares
offered by anyone in any jurisdiction in which such offer or
solicitation is not authorized, or in which the person making
such offer or solicitation is not qualified to do so, or to any
person to whom it is unlawful to make such offer or solicitation.
Neither the delivery of this prospectus nor any sale made
hereunder shall, under any circumstances, create any implication
that the information contained herein is correct as of any time
subsequent to the date hereof.
The date of this prospectus is October 13, 2009.
47
5,000,000 Shares
Winthrop
Realty Trust
Common
Shares of Beneficial Interest
Prospectus
Supplement
March 31,
2011
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