-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Iy2fPHqtEyPba4j1ZUd6RG9swsQf56V+buEfYO5ljw8S7HRKGnOqIQP6p7Dstrvm TD5qICdpH8FYE+ZRK6dP0w== 0000890613-95-000017.txt : 19950608 0000890613-95-000017.hdr.sgml : 19950608 ACCESSION NUMBER: 0000890613-95-000017 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19941031 FILED AS OF DATE: 19950127 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HRE PROPERTIES CENTRAL INDEX KEY: 0000048896 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 042458042 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06309 FILM NUMBER: 95503558 BUSINESS ADDRESS: STREET 1: 530 5TH AVE CITY: NEW YORK STATE: NY ZIP: 10036 BUSINESS PHONE: 2126424800 MAIL ADDRESS: STREET 1: 530 5TH AVE CITY: NEW YORK STATE: NY ZIP: 10036 FORMER COMPANY: FORMER CONFORMED NAME: HUBBARD REAL ESTATE INVESTMENTS DATE OF NAME CHANGE: 19860120 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended October 31, 1994 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from _____ to _____ Commission File No. 1-6309 HRE PROPERTIES (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-245-8042 ------------------------------- --------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 530 FIFTH AVENUE NEW YORK, NEW YORK 10036 ------------------------------- --------------------- (Address of principal (Zip code) executive offices) Registrant's telephone number, including area code: (212) 642-4800 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered - -------------------------- ----------------------------- Common Shares, without par value New York Stock Exchange Preferred Share Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] State the aggregate market value of the voting stock held by non-affiliates of the Registrant ($50,974,477.00 as of January 12, 1995). Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: 5,341,696 Common Shares, without par value, as of January 12, 1995. DOCUMENTS INCORPORATED BY REFERENCE Proxy Statement for Annual Meeting of Shareholders to be held on March 15, 1995 (certain parts as indicated herein) (Part III). PART I Item I. Business. General Development HRE Properties (the "Trust") was organized on July 7, 1969 as an unincorporated business trust under the laws of the Commonwealth of Massachusetts pursuant to a Declaration of Trust dated July 7, 1969, as amended. The Trust's headquarters are located in New York, New York. The Trust has qualified and has elected to be taxed as a real estate investment trust under Sections 856-858 of the Internal Revenue Code of 1986, as amended (the "Code"). Pursuant to such provisions of the Code, a trust which distributes at least 95% of its real estate investment trust taxable income to its shareholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders. The Trust intends to continue to qualify as a real estate investment trust for federal income tax purposes. Description of Business The Trust's sole business is the ownership of real estate investments which consist principally of equity investments in income-producing properties, with primary emphasis on properties in the eastern part of the United States. The Trust owns and manages a portfolio of retail properties, office buildings, and industrial properties. The Trust also seeks to identify desirable properties for acquisitions which it makes in the normal course of business. In addition, the Trust regularly reviews its portfolio and from time to time considers and makes the sale of certain properties. At October 31, 1994, the Trust owned or had an equity interest in twenty-three properties comprised of shopping centers, single tenant retail stores, office buildings and service and distribution facilities located in fifteen states throughout the United States, containing a total of 3,353,000 square feet of gross leasable space. In the five year period ended October 31, 1994, the Trust acquired six real estate properties totalling 504,000 square feet of gross leasable space at an aggregate purchase price of $47.4 million. The properties were acquired with the proceeds of $27.2 million of non-recourse first mortgage loan financings and available cash. During such period, the Trust also spent nearly $12.1 million to expand, renovate, improve and lease its other properties. Such activities were funded primarily from cash and cash equivalents. During this same period, the Trust sold four net leased properties totalling 282,000 square feet of gross leasable space for proceeds totalling $11.6 million. At October 31, 1994, of the twenty-three properties in the Trust's portfolio, ten were retail properties (including six shopping centers), containing in the aggregate 1,385,000 square feet of gross leasable space. The Trust's retail properties collectively had approximately 138 tenants providing a wide range of retail products and services. Major tenants include supermarkets, national discount department stores and a movie theater. At October 31, 1994, the Trust's overall occupancy rate in its retail properties was 89%. In January, 1995 , the Trust acquired a 193,000 square foot shopping center located in Danbury, Connecticut at a purchase price of $19.25 million. The acquisition was funded with a $11.25 million first mortgage and cash. The property contains 20 tenants. Five properties in the Trust's portfolio are office buildings, totalling approximately 421,000 square feet of gross leasable space. The office properties collectively have more than 50 tenants which offer a wide range of services and include insurance companies, a major engineering firm and government agencies. At October 31, 1994, the Trust's overall occupancy rate in its office properties was 89%. The Trust also held one participating mortgage note in the amount of $4,836,000, secured by an office building containing 62,000 square feet of gross leasable space. In December 1994, this mortgage note was sold for net proceeds of $3,750,000. The mortgage note was written down to its net realizable value in fiscal 1994. In fiscal 1993, the Trust disposed of three office properties which were owned by joint ventures in which the Trust held a 50% or more interest. The three office properties totalled 525,000 square feet and had an aggregate book value net of related liabilities of approximately $8.4 million. Two of the properties were foreclosed upon by the respective mortgage lenders after the joint ventures elected not to make required debt service payments. The Trust sold its 50% interest in the third joint venture owning an office building in Santa Ana, California for $250,000. For additional information, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations". Eight properties in the Trust's portfolio are service and distribution facilities totalling 1,547,000 square feet of gross leasable space, consisting of six automobile and truck parts distribution warehouses leased to Chrysler Corporation, one truck sales and service center and one automobile tire distribution facility. The service and distribution facilities are net leased under long-term lease arrangements whereby the tenant pays all taxes, insurance, maintenance and other operating costs of the property during the term of the lease. Rents paid by Chrysler Corporation to the Trust exceeded 10% of the Trust's gross rental revenues in fiscal 1994. (See Recent Developments below regarding contract for sale of certain of the properties leased to Chrysler Corporation). At October 31, 1994, the Trust also owned a portfolio of mortgage notes receivable consisting of fixed rate mortgages aggregating $4,013,000 (excluding the participating mortgage described above). The fixed rate mortgages are secured by retail properties sold by the Trust in prior years. Property Management The Trust actively manages and supervises the operations and leasing at six of its retail property and two office locations. Eleven of the Trust's properties are net leased to single tenants under long-term lease arrangements, in which case, management is provided by the tenants. The Trust's remaining properties are managed by independent third party management firms retained by the Trust. The Trust closely supervises the management firms it engages to manage its properties. Recent Developments During fiscal 1994, the Trust acquired two properties at an aggregate purchase price of $25.8 million. The Trust also spent $1.8 million for leasing costs and capital improvements to properties it already owns. Substantially all such capital improvements were incurred in connection with the Trust's office and retail leasing activities. The Trust expects to spend similar amounts in fiscal 1995 for leasing costs and capital improvements at its properties. During the 1994 fiscal year, the Trust leased over 145,000 square feet of gross leasable space, compared to 130,000 square feet in the prior year. The square footage leased in fiscal 1994 comprised 8% of the total gross leasable space of the Trust's retail and office building properties. In November 1994, the Trust entered into a contract to sell, to a single purchaser, four of its service and distribution facilities totalling 626,000 square feet of gross leasable space and net leased to the Chrysler Corporation. The aggregate sale price is approximately $13.5 million. The Trust has also entered into a contract to sell its retail property located in Manassas, Virginia at a sale price of $7.5 million. The property is net leased to a single tenant occupying 106,000 square feet of gross leasable space. The transactions are expected to close in fiscal 1995. The Trust intends to continue to invest substantially all of its assets in income producing real estate, with a primary emphasis on shopping centers, although the Trust will retain the flexibility to invest in other types of real property. While the Trust is not limited to any geographical location, the Trust's current strategy is to invest in properties located in the Northeastern United States. The Trust also intends to sell certain of its real estate assets such as its mortgage notes receivable and certain of its office and industrial properties. Competition The real estate investment business is highly competitive. The Trust competes for real estate investments with investors of all types, including domestic and foreign corporations, financial institutions, other real estate investment trusts and individuals. In addition, the Trust's properties are subject to local competitors from the surrounding areas. The Trust's office buildings compete for tenants principally with office buildings throughout the respective areas in which they are located. In most areas where the Trust's office buildings are located, competition for tenants is intense. Leasing space to prospective tenants is generally determined on the basis of, among other things, rental rates, location, physical quality of the property and availability of space. The shopping centers compete for tenants with other regional, community or neighborhood shopping centers in the respective areas where Trust retail properties are located. Since the Trust's industrial properties are all net leased under long-term lease arrangements which are not due to expire in the near future, the Trust does not currently face any competitive pressures with respect to such properties. Employees The Trust has 16 employees, eight of whom oversee the management of the Trust's real estate portfolio, analyze potential acquisition properties and determine which properties, if any, to sell. The Trust's remaining employees serve in various professional, executive and administrative capacities. Item II. Properties. Retail Properties The following table sets forth information concerning each retail property in which the Trust owned an equity interest at October 31, 1994. All retail properties are 100% owned in fee by the Trust.
Gross Leasable Year Year Square Number Location Completed Acquired Feet Acres of Tenants Occupancy Principal Tenant - ---------------- --------- -------- -------- ------ --------- --------- ---------------------- Mesa, Arizona 1971 1971 92,000 7.6 1 100% Mervyn's (Dayton Hudson) Tempe, Arizona 1970 1970 86,000 8.6 1 100% Mervyn's (Dayton Hudson) Meriden, Connecticut 1989 1993 296,000 29.2 18 92% Bradlee's Clearwater, Florida 1983 1985 231,000 21.5 39 80% Albertson's Springfield, Massachusetts 1970 1970 284,000 26.0 14 74% Caldor Newington, New Hampshire 1975 1979 102,000 14.3 10 100% Sears Roebuck Home Life Store Wayne, New Jersey 1959 1992 99,000 9.0 31 85% Great Atlantic & Pacific Tea Co. Farmingdale, New York 1981 1993 70,000 5.6 11 95% King Kullen Somers, New York 1989 1992 19,000 4.9 12 100% Putnam County Savings Bank Manassas, Virginia 1971 1972 106,000 14.1 1 100% The Hecht Company (May Department Stores)
Office Properties The following table sets forth information concerning each office property in which the Trust owned an equity interest at October 31, 1994. Except as otherwise noted, office properties are 100% owned in fee by the Trust.
Rentable Year Year Square Number Location Completed Acquired Feet Acres of Tenants Occupancy Principal Tenant - -------- --------- -------- ------ ----- ---------- --------- ------------------ Denver, Colorado 1983 1983 122,000 9.1 10 90%* Kemper Insurance Company Greenwich, Connecticut 1983 1993 10,000 .2 3 100% Multivision Cable TV Greenwich, Connecticut 1983 1994 9,700 .2 4 100% Prescott Investors, Inc. Southfield, Michigan12 1973 1983 183,000 7.8 4 100% Giffels Associates Houston, Texas 1972 1975 96,000 3.1 32 93% Houston Title Company - -------- 1 The Trust owns an 85% partnership interest in this property. * Includes tenant occupying 30,400 square feet of space who took occupancy on December 1, 1994
Distribution and Service Properties The following table sets forth information concerning each distribution and service property in which the Trust owned an equity interest at October 31, 1994. Distribution and service properties are 100% owned in fee by the Trust.
Rentable Year Year Square Number Location Completed Acquired Feet Acres of Tenants Occupancy Tenant - -------- --------- -------- ------ ----- ---------- --------- ------ Dallas, Texas 1970 1970 253,000 14.5 1 100% Chrysler Corporation Denver, Colorado 1970 1970 127,000 11.2 1 100% Chrysler Corporation Memphis, Tennessee 1970 1970 175,000 13.7 1 100% Chrysler Corporation Orlando, Florida 1970 1970 175,000 23.8 1 100% Chrysler Corporation Beaverton, Oregon 1970 1970 149,000 11.4 1 100% Chrysler Corporation St. Louis, Missouri 1970 1970 163,000 16.0 1 100% Chrysler Corporation Syracuse, New York 1973 1973 29,000 10.0 1 100% Navistar International Albany, Georgia 1972 1972 476,000 51.3 1 100% Firestone
Item III. Legal Proceedings. No legal proceedings are required to be reported under this Item. Item IV. Submission of Matters to a Vote of Security Holders. No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year ended October 31, 1994. Item Pursuant to Instruction 3 of Item 401 (b) of Regulation S-K: Executive Officers of the Trust. For information regarding Executive Officers of the Trust -- See Item X. PART II Item V. Market for the Registrant's Common Equity and Related Stockholder Matters. (a) Price Range of Common Shares The Common Shares of the Trust are traded on the New York Stock Exchange under the symbol "HRE". The following table sets forth the high and low closing sales prices for the Trust's Common Shares during the fiscal years ended October 31, 1994 and October 31, 1993, as reported on the New York Stock Exchange:
Fiscal Year Fiscal Year Ended Ended October 31, 1994 October 31, 1993 ---------------- ---------------- High Low High Low Fourth Quarter $15-1/2 - 13-7/8 $15-7/8 - $14-1/4 Third Quarter 16-1/4 - 13-3/4 15-5/8 - 13-3/4 Second Quarter 16 - 13-1/2 16-3/8 - 12-1/4 First Quarter 15-5/8 - 14-1/8 12-3/8 - 11-1/8
(b) Approximate Number of Equity Security Holders At December 31, 1994, there were 3,135 shareholders of record of the Trust's Common Shares. (c) Dividends Declared on Common Shares and Tax Status The following table sets forth the dividends declared per Common Share and tax status for Federal income tax purposes of the dividends paid during the fiscal years ended October 31, 1994 and October 31, 1993:
Portion of Dividend Designated as: Fiscal Year Ended Gross Dividend Income Non-Taxable October 31, 1994: Paid Per Share Distribution Distribution - -------------------- ---------------- --------------- --------------- Fourth Quarter $ .28 $ .14 $ .14 Third Quarter $ .28 $ .14 $ .14 Second Quarter $ .27 $ .14 $ .13 First Quarter $ .27 $ .13 $ .14 ----- ----- ----- $1.10 $ .55 $ .55 ===== ===== =====
Portion of Dividend Designated as: Fiscal Year Ended Gross Dividend Income Capital Gain Non-Taxable October 31, 1993: Paid Per Share Distribution Distribution Distribution ---------------- --------------- ---------------- ------------- Fourth Quarter $ .27 $ .02 $ .20 $ .05 Third Quarter $ .27 $ .03 $ .20 $ .04 Second Quarter $ .27 $ .03 $ .19 $ .05 First Quarter $ .27 $ .03 $ .19 $ .05 ----- ----- ----- ----- $1.08 $ .11 $ .78 $ .19 ===== ===== ===== =====
The Trust made distributions to shareholders aggregating $1.10 per Common Share during the fiscal year ended October 31, 1994. The Trust has paid quarterly dividends on its Common Shares since it commenced operations as a real estate investment trust in 1969. Although the Trust intends to continue to declare quarterly dividends on its Common Shares, no assurances can be made as to the amounts of any future dividends. The declaration of any future dividends by the Trust is within the discretion of the Board of Trustees, and will be dependent upon, among other things, the earnings, financial condition and capital requirements of the Trust, as well as any other factors deemed relevant by the Board of Trustees. Two principal factors in determining the amounts of dividends are (i) the requirement of the Code that a real estate investment trust distribute to shareholders at least 95% of its real estate investment trust taxable income, and (ii) the amount of the Trust's funds from operations. The Trust has a Dividend Reinvestment and Share Purchase Plan which allows shareholders to acquire additional shares by automatically reinvesting dividends. Shares are acquired pursuant to the Plan at a price equal to the higher of 95% of the market price of such shares on the dividend payment date or 100% of the average of the daily high and low sales prices for the five trading days ending on the day of purchase without payment of any brokerage commission or service charge. Approximately 14% of the Trust's eligible shareholders currently participate in the Plan. Item IV. Selected Financial Data. (In thousands, except per share data)
Year Ended October 31, 1994 1993 1992 1991 1990 ------- ------- ------- ------- ------- Total Assets $142,559 $119,330 $137,855 $130,727 $135,342 Mortgage Notes and Other Long-term Obligations $ 46,386 $ 24,227 $ 31,226 $ 20,534 $ 20,711 Revenues $ 18,969 $ 16,162 $ 16,942 $ 17,136 $ 17,902 Operating Income (Loss) $ 1,262 $(7,293) $ 1,588 $ 892 $ 2,247 Gains on Sales of Properties $ 82 $ 2,330 $ -- $ 2,205 $ 1,622 Net Income (Loss) $ 1,344 $(4,963) $ 1,588 $ 3,097 $ 3,869 Funds From Operations* $ 7,950 $ 7,036 $ 6,902 $ 7,841 $ 8,998 Per Share Data: Net Income (Loss) $ .26 $(.94) $.30 $.58 $.70 Cash Dividends $1.10 $1.08 $1.16 $1.40 $1.60
*Defined as net income, before gains on sales of properties and non-recurring items, adjusted for noncash charges and credits, recoveries of investment in properties owned subject to financing leases and cash distributions received from investments in unconsolidated joint ventures. Item VII. Managment's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources The Trust meets its liquidity requirements primarily by generating funds from the operations of its properties, sale of real estate investments and collection of principal and interest on its mortgage notes receivable. Payments of expenses related to real estate operations, capital improvement programs, debt service, management and professional fees, and dividend requirements place demands on the Trust's liquidity. The Trust believes that the financial resources currently available to it are sufficient to meet all of its known obligations and commitments and to make additional real estate investments when appropriate opportunities arise. At October 31, 1994, the Trust had $8.7 million in cash and cash equivalents. The Trust also has available $17 million in unsecured lines of credit, (including an increase of $2 million in one such line of credit subsequent to year end) with two major commercial banks. Long-term debt consisted of eight mortgage notes payable totalling $46.4 million, of which $411,000 in principal payments are due in fiscal 1995. Current liabilities, including current installments of principal payments of mortgage notes payable, and short-term borrowings under the credit lines, were approximately $6.4 million. The credit lines are available to finance the acquisition, management or development of commercial real estate and a portion of such credit lines is available for working capital purposes. The credit lines expire at various periods in 1995 and outstanding borrowings, if any, may be repaid from proceeds of additional debt financings or sales of properties. The Trust may also request that the time for repayment be extended by the banks. It is the Trust's intent to renew these credit lines as they expire in 1995. During fiscal 1994, the Trust obtained proceeds of $22.5 million from first mortgage loan financings. The loans are collateralized by three of the Trust's properties having a net carrying value of $34.9 million at October 31, 1994. The mortgage loans bear interest at fixed rates that range from 7.5% to 9.75% and mature in five to seven years. In fiscal 1994, the Trust sold its distribution property located in Memphis, Tennessee, for $450,000, all cash. The Trust realized a gain on the sale of property of $82,000. In December 1994, the Trust also sold a participating mortgage note receivable with a face amount of $4,836,000. The mortgage note receivable was written down to its net realizable value of $3,750,000 in the 1994 consolidated statement of income and sold at such amount. The Trust has entered into contracts to sell four of its distribution and service properties to a single purchaser for an aggregate sale price of $13.5 million. The Trust has also contracted to sell a 106,000 square foot retail property for $7.5 million. The transactions are expected to close in fiscal 1995. The proceeds from such sales may be used to make additional real estate investments and/or reduce outstanding mortgage loan indebtedness or meet dividend distribution requirements. The Trust acquired two properties in fiscal 1994 at a total cost of $25.8 million. Funds for the acquisitions were provided principally from first mortgage note proceeds of $15 million and available cash, including $5 million drawn from a credit line. The Trust expects to make additional real estate investments periodically. The funds for such investments may come from existing liquid assets, line of credit arrangements, proceeds from property sales, financing of acquired or existing properties or the sale of mortgage notes receivable. Subsequent to fiscal 1994, the Trust contracted to acquire a 193,000 square foot shopping center in Danbury, Connecticut. The property will be acquired at a purchase price of $19.25 million and funded through a first mortgage loan of $11.25 million and available cash. The first mortgage will bear interest at 9.5% per annum and mature in five years. The acquisition is scheduled to be completed in the first quarter of fiscal 1995. The Trust also invests in its existing properties and, during fiscal 1994, spent approximately $1.8 million on its properties for capital improvement and leasing costs. The Trust expects to invest similar amounts in the next fiscal year. Results of Operations The Trust defines "funds from operations" as net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) on sales of properties, adjusted for noncash charges and credits, recoveries of investment in properties owned subject to financing leases, and cash distributions received from unconsolidated joint ventures. The Trust believes the level of funds from operations to be an appropriate supplemental financial measure of its operating performance. In fiscal 1994, funds from operations increased 13% to $7,950,000 from $7,036,000 in the year ago period. The improvement is primarily the result of the positive effect of the Trust's new retail property investments in fiscal 1994 and late 1993. Fiscal 1994 vs. Fiscal 1993 Revenues Total revenues were $18,969,000 in fiscal 1994 compared to $16,162,000 in 1993 and $16,942,000 in 1992. Rental income in fiscal 1994, including the income portion of rental received in respect of direct finance leases, comprised 94% of total revenues. Rental income from retail properties increased 53% to $11.5 million from $7.5 million in fiscal 1993. Retail property acquired in fiscal 1994 and late 1993 produced additional rents of $3.9 million in fiscal 1994. The Trust's overall retail property occupancy levels were generally unchanged from last year. Gross rents from office property investments decreased nearly 20% to $4.9 million in fiscal 1994 compared to $6.1 million a year ago, reflecting the disposition in fiscal 1993 of the Trust's former office building investment in Portland, Oregon and lower occupancy during the year at the Trust's Denver, Colorado office building. The Trust recently signed leases totalling 62,000 square feet of leasable space at the Denver property and the building is currently 95% occupied. Expenses Total expenses were $17,727,000 in fiscal 1994, compared to $23,470,000 in fiscal 1993. Included in expenses in fiscal 1994 and 1993 are write-downs in the carrying values of investments of $1,086,000 and $8,285,000, respectively.(see discussion below.) The largest expense category is operating expenses of the Trust's real estate operating properties. Operating expenses totalled $7,205,000 in fiscal 1994, compared to $6,311,000 in 1993. Expenses were generally unchanged for properties owned during both 1994 and 1993. Operating expenses for the Trust's new retail properties added expenses of $1,231,000 in fiscal 1994. The prior year's expenses included $548,000 for operating expenses of the Trust's office building property in Portland, Oregon that was disposed of during fiscal 1993. Interest expense rose $1,281,000 in fiscal 1994 due to the addition of three new mortgage notes payable aggregating $22.5 million. The mortgage notes bear interest at annual rates ranging from 7.5% to 9.75%. In fiscal 1993, the Trust satisfied in foreclosure a 10 3/4% mortgage loan with an outstanding principal balance of $13.5 million. General and administrative expenses decreased in fiscal 1994 as a result of the Trust's decision to redeploy certain of its available staff resources from administrative and asset management functions to direct property management activities at certain of its retail properties. The properties were managed previously by third-party management firms under fee arrangements. The decrease in consulting fee expense resulted from the termination in fiscal 1993 of a consulting arrangement with a trustee. Fiscal 1993 vs. Fiscal 1992 Revenues Operating lease income was lower in fiscal 1993 compared to the prior year primarily as a result of the disposition in that year of the Trust's office building investment in Portland, Oregon. The Trust discontinued recording the revenues and expenses of the property after a receiver was appointed for the property in connection with a foreclosure proceeding. Rents from other office building investments reflected lower occupancy especially at the trust's office building in Denver, Colorado where a tenant occupying 34,000 square feet of space failed to renew its lease upon expiration. Revenues from retail properties increased by approximately 14.7% reflecting income earned from recent shopping centers acquisitions by the Trust and improved occupancy at the Trust's Newington, New Hampshire property. Interest income decreased principally from lower rates of return on short-term investments and lower levels of cash and cash equivalents available for short-term investment. Interest earned from a loan to an unconsolidated joint venture decreased when the loan in the principal amount of $800,000 became non-performing and was subsequently written off during the year. Expenses Real estate operating expenses include the effect of the additional expenses of shopping centers acquired by the Trust and the discontinued recording of expenses of the Portland office building earlier in the year. The increase in net interest expense resulted from the addition of two mortgage notes payable totaling $11.65 million at an average annual interest rate of 9.36% and the satisfaction in foreclosure of a nonrecourse mortgage loan with an outstanding balance of $13.5 million. In light of continued adverse office market conditions including excess supply of available space, weak tenant demand and declining rents, the Trust determined in fiscal 1993 that the additional funds required to meet capital and debt service obligations was not justified by the near-term prospects for two of its office building investments which were encumbered with mortgage notes payable totalling $19.1 million. The Trust commenced discussions with the lenders to the properties, seeking among other things, modifications to the mortgage notes payable to more closely reflect the then current market conditions. The office buildings were owned by joint ventures in which the Trust held a 50% or greater interest. The joint ventures elected not to make debt service payments on its mortgage loan obligations and as a result, the mortgagees filed actions seeking foreclosures of the properties. Subsequently, the mortgagees obtained foreclosure judgments and the properties were sold. As a result of these developments, the Trust recorded charges of $2.6 million in fiscal 1993 to reflect one of the property's carrying value at its estimated fair value and $800,000 to write off the Trust's net investment in a second mortgage loan to the other joint venture. For similar reasons discussed above, the Trust also reached an agreement in principle to sell its 50% interest in a third unconsolidated joint venture to its partner for $250,000. The joint venture owned an office building located in Santa Ana, California. In this connection, the Trust recorded a charge of $4.9 million to reflect its investment in the unconsolidated joint venture at net realizable value. The Trust recorded a gain on sale of properties of $2.3 million or $.44 per share in connection with a sale of the Trust's 62,000 square foot retail property located in Los Angeles, California. Item VIII. Financial Statements and Supplementary Data. The consolidated financial statements required by this Item, together with the report of the Trust's independent public accountants thereon and the supplementary financial information required by this Item are included under Item 14 of this Annual Report. Item IX. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. No information is required to be reported under this Item. PART III Item X. Directors and Executive Officers of the Registrant. The Trust has filed with the Securities and Exchange Commission its definitive Proxy Statement for its Annual Meeting of Shareholders to be held on March 15, 1995. The additional information required by this Item is included under the caption "Election of Trustees" of such Proxy Statement and is incorporated herein by reference. Executive Officers of the Registrant. The following sets forth certain information regarding the executive officers of the Trust:
Name Age Offices Held ---- ---- ------------- Charles J. Urstadt 66 Chairman; President and Chief Executive Officer (since September 1989) James R. Moore 46 Senior Vice President and Chief Financial Officer (since September 1989); Secretary (since April 1987) and Treasurer (since December 1987); Vice President-Finance and Administration (April 1987 to September 1989); prior to April 1987, Senior Manager, Ernst & Young Raymond P. Argila 46 Senior Vice President and Chief Legal Officer (since June 1990); formerly Senior Counsel, Cushman & Wakefield, Inc., September 1987 to May 1990 and associated with Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson & Casey from March to June 1987; Vice President and Chief Legal Officer, Pearce, Urstadt, Mayer & Greer Realty Corp. from January 1984 to March 1987 Bryant Young 46 Senior Vice President-Asset Management (since December, 1992); Vice President (June 1986 to December 1992); Assistant Vice President (February 1986 to June 1986); Associate, Merrill Lynch Hubbard Co. (May 1985 to January, 1986)
Officers of the Trust are elected annually by the Trustees. Mr. Urstadt has been the Chairman of the Trustees since 1986, and a Trustee since 1975. Mr. Urstadt also serves as the President of Urstadt Property Company, Inc. (formerly Pearce, Urstadt, Mayer & Greer Inc.) and has served in such capacity for more than five years. Item XI. Executive Compensation. The Trust has filed with the Securities and Exchange Commission its definitive Proxy Statement for its Annual Meeting of Shareholders to be held on March 15, 1995. The information required by this Item is included under the caption "Compensation and Transactions with Management and Others" of such Proxy Statement and is incorporated herein by reference. Item XII. Security Ownership of Certain Beneficial Owners and Management. The Trust has filed with the Securities and Exchange Commission its definitive Proxy Statement for its Annual Meeting of Shareholders to be held on March 15, 1995. The information required by this Item is included under the caption "Security Ownership of Certain Beneficial Owners and Management" of such Proxy Statement and is incorporated herein by reference. Item XIII. Certain Relationships and Related Transactions. The Trust has filed with the Securities and Exchange Commission its definitive Proxy Statement for its Annual Meeting of Shareholders to be held on March 15, 1995. The information required by this Item is included under the caption "Compensation and Transactions with Management and Others" of such Proxy Statement and is incorporated herein by reference. PART IV Item XIV. Exhibits, Financial Statement Schedules and Reports on Form 8-K. A. Financial Statements and Financial Statement Schedules 1. Financial Statements -- The consolidated financial statements listed in the accompanying index to financial statements on Page 18 are filed as part of this Annual Report. 2. Financial Statement Schedules -- The financial statement schedules required by this Item are filed with this report and are listed in the accompanying index to financial statements on Page 18. All other financial statement schedules are inapplicable. B. Reports on Form 8-K No reports on Form 8-K were filed by the Registrant during the last quarter of the fiscal year ended October 31, 1994. C. Exhibits. Listed below are all Exhibits filed as part of this report. Certain Exhibits are incorporated by reference from documents previously filed by the Trust with the Securities and Exchange Commission pursuant to Rule 12b-32 under the Securities Exchange Act of 1934, as amended. Exhibit (3) Articles of Incorporation and By-laws. 3.1 Fourth Amended and Restated Declaration of Trust of the Trust, as amended, to date. 3.2 By-laws of the Trust, as amended (incorporated by reference to Exhibit 4.2 of the Registrant's Registration Statement on Form S-8 (No. 33-41408)). (4) Instruments Defining the Rights of Security Holders, Including Indentures: 4.1 Common Shares: See Exhibit 3.1 hereto. 4.2 Preferred Shares: See Exhibit 3.1 hereto. 4.3 Preferred Share Purchase Rights: See Exhibits 3.1 and 10.3 hereto. (10) Material Contracts. 10.1 Form of Indemnification Agreement entered into between the Registrant and each of its Trustees and for future use with Trustees and officers of the Trust (incorporated herein by reference to Exhibit 10.1 of the Registrant's Annual Report on Form 10-K for the year ended October 31, 1989).* 10.2 Amended and Restated Change of Control Agreement between the Registrant and James R. Moore dated November 15, 1990 (incorporated herein by reference to Exhibit 10.3 of the Registrant's Annual Report on Form 10-K for the year ended October 31, 1990).* 10.3 Rights Agreement between the Trust and The First National Bank of Boston, as Rights Agent, dated as of October 28, 1988 (incorporated herein by reference to Exhibit 1 of the Registrant's Current Report on Form 8-K dated October 28, 1988). 10.4 Change of Control Agreement dated as of June 12, 1990 between the Registrant and Raymond P. Argila (incorporated herein by reference to Exhibit 10.7 of the Registrant's Annual Report on Form 10-K for the year ended October 31, 1990).* 10.4.1 Agreement dated December 19, 1991 between the Registrant and Raymond P. Argila amending the Change of Control Agreement dated as of June 12, 1990 between the Registrant and Raymond P. Argila (incorporated herein by reference to Exhibit 10.6.1 of the Registrant's Annual Report on Form 10-K for the year ended October 31, 1991).* 10.5 Change of Control Agreement dated as of December 20, 1990 between the Registrant and Charles J. Urstadt (incorporated herein by reference to Exhibit 10.8 of the Registrant's Annual Report on Form 10-K for the year ended October 31, 1990).* 10.6 Amended and Restated HRE Properties Stock Option Plan (incorporated herein by reference to Exhibit 10.8 of the Registrant's Annual Report on Form 10-K for the year ended October 31, 1991).* 10.6.1 Amendments to HRE Properties Stock Option Plan dated June 9, 1993.* 10.7 Purchase and Sale Agreement between the Registrant and Aetna Life Insurance Company dated December 22, 1993, relating to the Registrant's acquisition of Townline Center Shopping Center, Meriden, Connecticut. 10.8 Second Purchase and Sale Agreement dated January 6, 1995 between the Registrant and Aetna Life Insurance Company relating to the Registrant's acquisition of Danbury Square Mall, Danbury, Connecticut (incorporated herein by reference to Exhibit 1 of the Registrant's Current Report on Form 8-K dated January 6, 1995). (21) Subsidiaries. 21.1 List of Trust's subsidiaries (incorporated by reference to Exhibit 22.1 of the Registrant's Annual Report on Form 10-K for the year ended October 31, 1988). (23) Consents of Experts and Counsel. 23.1 The consent of Arthur Andersen LLP to the incorporation by reference of their reports included or incorporated by reference herein and in the Registrant's Registration Statements on Form S-3 (No. 33-57119), Form S-8 (No.2-93146) and Form S-8 (No. 33- 41408) is filed herewith as part of this report. (27) Financial Data Schedule. 27.1 Financial Data Schedule *Management contract, compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K pursuant to Item 14(c). HRE PROPERTIES Item 14a.INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Page Consolidated Balance Sheets at October 31, 1994 and 1993 20 Consolidated Statements of Income for each of the three years ended October 31, 1994 21 Consolidated Statements of Cash Flows for each of the three years ended October 31, 1994 22 Consolidated Statements of Shareholders' Equity for each of the three years ended October 31, 1994 23 Notes to Consolidated Financial Statements 24-30 Report of Independent Public Accountants 30 Schedule II Amounts Receivable from Related Parties and Underwriters, Promoters and Employees Other Than Related Parties - For the three years ended October 31, 1994 31 IX Short-Term Borrowings - For the three years ended October 31, 1994 32 X Supplementary Income Statement Information - For the three years ended October 31, 1994 33 XI Real Estate and Accumulated Depreciation - October 31, 1994 34-37 XII Mortgage Loans on Real Estate - October 31, 1994 38-39
CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
October 31, ----------------- ASSETS 1994 1993 ---- ---- Real Estate Investments: Properties owned-- at cost, net of accumulated depreciation and recoveries $ 120,631 $ 99,279 Investments in and loans to unconsolidated joint ventures -- 250 Mortgage notes receivable 7,763 8,917 ------- -------- 128,394 108,446 Cash and cash equivalents 8,738 7,061 Interest and rent receivable 2,343 1,304 Deferred charges, net of accumulated amortization 2,108 1,796 Other assets 976 723 -------- -------- $142,559 $119,330 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Mortgage notes payable and bank loan $ 51,386 $ 24,227 Accounts payable and accrued expenses 1,024 847 Deferred trustees' fees 521 602 Other liabilities 1,147 958 --------- --------- 54,078 26,634 Shareholders' Equity: Preferred shares, without par value; 2,000,000 shares authorized; none issued -- -Common shares, without par value; unlimited shares authorized; 5,520,044 and 5,498,454 issued in 1994 and 1993, respectively 123,507 123,205 Less 178,348 common shares held in treasury, at cost (2,861) (2,861) Distributions in excess of accumulated net income (32,165) (27,648) -------- -------- 88,481 92,696 $142,559 $119,330 ======== ========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data)
Year Ended October 31, 1994 1993 1992 ------- ------- ------- Revenues: Operating leases $16,498 $13,763 $14,477 Financing leases 1,392 1,520 1,638 Interest 1,079 1,122 1,232 Interest from and equity in losses of unconsolidated joint ventures -- (243) (405) ------ ------ ------ 18,969 16,162 16,942 ------ ------ ------ Operating Expenses: Real estate operations 7,205 6,311 6,426 Interest 3,775 2,494 2,318 Depreciation and amortization 4,075 4,363 4,481 General and administrative expenses 1,423 1,723 1,885 Trustees' fees and expenses 163 149 131 Consulting fee -- 145 138 Write-down in carrying value of investments 1,086 8,285 -- ------ ------ ------ 17,727 23,470 15,379 ------ ------ ------ Operating Income(Loss) before Minority Interests 1,242 (7,308) 1,563 Minority Interests in Results of Consolidated Joint Ventures 20 15 25 ------ ------ ----- Operating Income(Loss) 1,262 (7,293) 1,588 Gains on Sales of Properties 82 2,330 --- ------ ------ ------ Net Income(Loss) $ 1,344 $(4,963) $1,588 ======= ======== ====== Net Income(Loss) Per Common Share: Operating income(loss) $ .24 $ (1.38) $ .30 Gains on sales of properties .02 .44 - ------ ------- ------ Net Income(Loss) $ .26 $ (.94) $ .30 ====== ======= ====== Weighted Average Number of Common Shares Outstanding 5,330 5,296 5,285 ====== ===== =======
The accompanying notes to consolidated financial statements are an integral part of these statements. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Year Ended October 31, 1994 1993 1992 ---- ---- ---- Operating Activities: Net income(loss) $ 1,344 $ (4,963) $ 1,588 Adjustments to reconcile net income(loss) to net cash provided by operating activities: Depreciation and amortization 4,151 4,448 4,568 Recovery of investment in properties owned subject to financing leases 1,471 1,342 1,225 Equity in losses of unconsolidated joint venture -- 269 506 Minority interests in results of consolidated joint ventures (20) (15) (25) Gains on sales of properties (82) (2,330) -- Write-down in carrying value of investments 1,086 8,285 -- ------- ------ ------ 7,950 7,036 7,862 Changes in operating assets and liabilities: (Increase) decrease in interest and rent receivable (1039) (286) 142 Increase (decrease) in accounts payable and accrued expenses 97 (463) 114 (Increase) decrease in other assets and other liabilities, net (619) 253 (236) ------- ------ ------ Net Cash Provided by Operating Activities 6,389 6,540 7,882 ------- ------ ------ Investing Activities: Acquisition of properties owned (25,816) (6,197) (15,881) Improvements to existing properties owned and deferred charges (1,764) (1,521) (1,564) Investments in and loans to unconsolidated joint ventures -- (100) (1,624) Proceeds from sales of properties and investment in unconsolidated joint venture and contract deposit 1,204 3,231 -- Payments received on mortgage notes receivable 68 61 53 Miscellaneous (4) 66 (204) ------- ------- ------ Net Cash Used in Investing Activities (26,312) (4,460) (19,220) ------- ------- ------ Financing Activities: Proceeds from mortgage notes and bank loan 27,500 6,600 11,650 Dividends paid (5,861) (5,718) (6,129) Proceeds from sales of additional common shares 302 459 245 Payments on mortgage notes and other (341) (818) (199) ------- ------- ------- Net Cash Provided by Financing Activities 21,600 523 5,567 ------- ------- ------ Net Increase (Decrease) In Cash and Cash Equivalents 1,677 2,603 (5,771) Cash and Cash Equivalents at Beginning of Year 7,061 4,458 10,229 ------- ------- ------- Cash and Cash Equivalents at End of Year $ 8,738 $ 7,061 $ 4,458 ======= ======== =======
The accompanying notes to consolidated financial statements are an integral part of these statements. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands, except shares and per share data)
Common Shares (Distributions Treasury In Excess of Outstanding Issued Shares, Accumulated Number Amount at Cost Net Income) Total ----------- ------ --------- ------------ -------- Balances-- October 31, 1991 5,276,569 $122,345 $(2,705) $(12,426) $107,214 Net income -- -- -- 1,588 1,588 Cash dividends declared ($1.16 per share) -- -- -- (6,129) (6,129) Sale of additional common shares under dividend reinvestment plan 19,540 245 -- -- 245 --------- -------- -------- --------- -------- Balances-- October 31, 1992 5,296,109 122,590 (2,705) (16,967) 102,918 Net (loss) -- -- -- (4,963) (4,963) Cash dividends declared ($1.08 per share) -- -- -- (5,718) (5,718) Sale of additional common shares under dividend reinvestment plan 32,247 459 -- -- 459 Common shares acquired in cancellation of stock option loan (8,250) 156 (156) -- -- --------- -------- -------- --------- ------- Balances-- October 31, 1993 5,320,106 123,205 (2,861) (27,648) 92,696 Net Income -- -- -- 1,344 1,344 Cash dividends declared ($1.10 per share) -- -- -- (5,861) (5,861) Sale of additional common shares under dividend reinvestment plan 18,048 261 -- -- 261 Common shares issued upon exercise of stock options 3,542 41 -- -- 41 ------- -------- -------- --------- -------- Balances-- October 31, 1994 5,341,696 $123,507 $(2,861) $(32,165) $88,481 ========= ======== ======== ========= =======
The accompanying notes to consolidated financial statements are an integral part of these statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of HRE Properties (the Trust), its wholly-owned subsidiary, and certain joint ventures where the Trust has the ability to control the affairs of the venture. All significant intercompany transactions and balances have been eliminated in consolidation. Accounting for Leases The Trust accounts for its leases of real property in accordance with the provisions of Financial Accounting Standards Statement No. 13, "Accounting for Leases," as amended. This Statement sets forth specific criteria for determining whether a lease should be accounted for as an operating lease or a direct financing lease. In general, the financing lease method applies where property is under long-term lease to a creditworthy tenant and the present value of the minimum required lease payments at the inception of a lease is at least 90% of the market value of the property leased. Other leases are accounted for as operating leases. Federal Income Taxes The Trust believes it qualifies and intends to continue to qualify as a real estate investment trust under the Internal Revenue Code. The Trust has distributed all of its taxable income for the fiscal years through 1994. Accordingly, no provision has been made for Federal income taxes in the accompanying consolidated financial statements. Taxable income of the Trust prior to the dividends paid deduction for the years ended October 31, 1994, 1993 and 1992 was approximately $2,200,000, $3,900,000 and $2,000,000, respectively. The difference between net income for financial reporting purposes and taxable income results from, among other things, different methods of accounting for leases, depreciable lives related to the properties owned and accounting differences related to the Trust's investments in joint ventures. At October 31, 1994, the Trust had available capital loss carryovers of approximately $5,000,000 which expire in 1999. Depreciation and Amortization The Trust uses the straight-line method for depreciation and amortization. Acquisition costs and general improvement costs are depreciated over the estimated useful lives of the properties, which range from 30 to 45 years. Furniture and equipment are depreciated over their estimated useful lives, which range from 3 to 20 years. Tenant improvements, deferred leasing costs and leasehold improvements are amortized over the life of the related leases. All other deferred charges are amortized over the terms of the agreements to which they relate. Capitalization The Trust capitalizes all direct costs relating to the acquisition of real estate investments and costs relating to improvements to properties. The Trust also capitalizes all direct costs relating to its successful leasing activities. Income Recognition Rental income is generally recognized based on the terms of leases entered into with tenants. Rental income from leases with scheduled rent increases is recognized on a straight-line basis over the lease term. Additional rents which are provided for in leases, are recognized as income when earned and their amounts can be reasonably estimated. Interest income is recognized as it is earned. Gains on sales of properties are recorded when the criteria for recognizing such gains under generally accepted accounting principles have been met. Statements of Cash Flows The Trust considers short-term investments with maturities of 90 days or less to be cash equivalents. Allowance For Possible Investment Losses The Trust's real estate investments are recorded at the lower of depreciated historical cost or estimated net realizable values. The Trust periodically reviews each of its investments for declines in net realizable values, to amounts below recorded balances, based on its present investment strategies. Future changes in such investment strategies and other circumstances may affect estimates of net realizable values and therefore the carrying amount of investments. Net Income Per Common Share Computations of net income per common share are based on the weighted average number of common shares outstanding during the respective periods. The additional shares issuable upon exercise of stock options (see Note 7) have not been included in the computations since their effect is immaterial. (2) REAL ESTATE INVESTMENTS The Trust's investments in real estate were composed of the following at October 31, 1994 and 1993 (in thousands):
Mortgage Properties Notes 1994 1993 Owned Receivable Totals Totals Retail $ 80,819 $ 4,013 $ 84,832 $ 61,860 Office 22,947 3,750 26,697 27,862 Distribution and Service 15,361 -- 15,361 17,220 Undeveloped Land 1,504 -- 1,504 1,504 --------- ------- --------- -------- $120,631 $ 7,763 $ 128,394 $108,446 ======== ======= ========= ========
The Trust's investments at October 31, 1994, consisted of equity interests in 23 properties which are located in various regions throughout the United States and mortgage notes. The following is a summary of the geographic locations of the Trust's investments at October 31, 1994 and 1993 (in thousands):
1994 1993 ------- ------- Northeast $66,963 $43,953 Southeast 22,464 23,225 Midwest 13,124 14,321 Rocky Mountain 11,887 11,954 Southwest 10,678 11,295 Pacific Coast 2,070 2,369 Pacific Northwest 1,208 1,329 -------- -------- $128,394 $108,446
(3) PROPERTIES OWNED Space at properties owned by the Trust is generally leased to various individual tenants under short-and intermediate term leases which are accounted for as operating leases. Certain properties have been leased on a long-term basis to a single tenant; these leases are generally accounted for as direct financing leases. Prior to fiscal 1994, the Trust had a 92% joint venture interest in an office building, which property was subject to a nonrecourse first mortgage loan with an outstanding principal balance of $13,540,000. During fiscal 1993, the joint venture elected not to make required debt service payments in an attempt to renegotiate the mortgage loan with the lender. Subsequently, the lender refused to renegotiate the terms of the mortgage loan and foreclosed on the property. The Trust wrote down the carrying amount in this property to its estimated fair value which approximated the related mortgage note payable balance at the time of foreclosure. This write-down amounted to approximately $2.6 million and is included in "Write-down in carrying value of investments" in the accompanying 1993 consolidated statements of income. The foreclosure of the property and the satisfaction of the mortgage note payable represented a noncash financing activity and therefore was not included in the accompanying 1993 consolidated statement of cash flows. In 1994, the Trust acquired two properties for an aggregate purchase price of $25.8 million. The acquisitions were financed principally from available cash and cash equivalents and a $15 million nonrecourse first mortgage loan. At October 31, 1994 and 1993, properties owned consisted of the following (in thousands):
1994 1993 Properties owned subject to operating leases $ 105,912 $ 83,089 Properties owned subject to direct financing leases 14,719 16,190 --------- --------- $ 120,631 $ 99,279 ========= ========= Operating Leases The components of properties owned subject to operating leases were as follows (in thousands): 1994 1993 Land $ 21,047 $ 16,085 Buildings and improvements 111,038 89,841 --------- --------- 132,085 105,926 Accumulated depreciation (26,173) (22,837) $ 105,912 $ 83,089 ========= =========
Minimum rental payments on noncancellable operating leases become due as follows: 1995 - $13,300,000; 1996 - $12,717,000; 1997 - $11,661,000; 1998 - $10,414,000; 1999 - $9,369,000; and thereafter - $41,719,000. In addition to minimum rental payments, certain tenants are required to pay additional rental amounts based on increases in property operating expenses and/or their share of the costs of maintaining common areas. Certain of the Trust's leases provide for the payment of additional rent based on a percentage of the tenant's revenues. Such additional rents are included in rental income and aggregated approximately $515,000, $559,000, and $529,000 in 1994, 1993 and 1992, respectively. Direct Financing Leases The components of properties owned subject to direct financing leases were as follows (in thousands):
1994 1993 Total remaining minimum lease payments to be received $11,465 $14,328 Assumed residual values of leased property 6,675 6,675 Unearned income (3,421) (4,813) ------- ------- Investment in property subject to financing leases $14,719 $16,190 ======= ======= Original cost of property subject to financing leases $26,737 $26,737 ======= =======
Assumed residual values are based upon a depreciated cost concept using estimated useful lives and thus do not contain an element of appreciation which may result by reason of inflation or other factors. Minimum lease payments receivable on direct financing leases become due at a rate of $2,810,000 in 1995, $2,454,000 in 1996, $1,734,000 in 1997, $1,468,000 in 1998, $1,468,000 in 1999, and $1,531,000 thereafter. Annual rental payments of approximately $2.5 million are received from one tenant which leases distribution space under direct financing lease arrangements. (4) INVESTMENTS IN AND LOANS TO UNCONSOLIDATED JOINT VENTURES In 1993, the Trust sold its 50% interest in an unconsolidated joint venture to its partner for proceeds of $250,000 and wrote-off an $800,000 loan to another unconsolidated joint venture which loan became non-performing as to principal and interest. In this connection, the Trust recorded charges of $5,685,000 to reflect the Trust's investments in the unconsolidated joint ventures at their net realizable values which charges are included in "Write-down in carrying value of investments" in the accompanying 1993 consolidated statement of income. (5) MORTGAGE NOTES RECEIVABLE The Trust's portfolio of mortgage notes receivable consists of fixed rate mortgages and one participating mortgage. The participating mortgage ($4,836,000) entitles the Trust to a fixed rate of interest plus a participation in increases in the property's income and market value. In December, 1994, the Trust sold the participating mortgage note receivable for net proceeds of $3,750,000. In this connection the Trust recorded a charge of $1,086,000 to reflect the Trust's investment in mortgage note receivable at its net realizable value which charge is included in "Write-down in carrying value of investments" in the accompanying consolidated statements of income. The components of the mortgage notes receivable at October 31, 1994 and 1993 were as follows (in thousands):
1994 1993 Remaining principal balance $ 9,946 $10,066 less: Reserve for Uncollectible Mortgage Note Receivable (1,086) -- Unamortized discounts to reflect market interest rates at time of acceptance of notes (1,097) (1,149) ------- ------- $ 7,763 $ 8,917 ======= =======
Principal payments on mortgage notes receivable become due as follows: 1995 - $132,000; 1996 - $144,000; 1997 - $158,000; 1998 - $172,000; 1999 - $189,000; thereafter - $ 9,151,000. At October 31, 1994, the remaining principal balance was due from four borrowers. The amount due from the largest individual borrower at October 31, 1994 was $4,836,000. The contractual interest rates on mortgage notes receivable range from 9% to 14%, and the weighted average interest rate of all such mortgages was 12% at October 31, 1994 and 1993. (6) MORTGAGE NOTES PAYABLE AND BANK LINE OF CREDIT Mortgage notes payable consisted of the following at October 31, 1994 and 1993 (in thousands):
1994 1993 7 1/2% note with interest only due monthly, until 11/1/95; thereafter installments of principal and interest of $120,840 due monthly until maturity in 1998. $ 15,000 $ -- 7.56% note with principal installments of $12,500 plus interest due monthly until maturity in 2001. 2,888 -- 9 3/4% note with installments of principal and interest of $39,143 due monthly until maturity in 2001. 4,497 -- 8 1/4% note with installments of principal and interest of $4,731 due monthly until maturity in 1998. 592 599 9 5/8% note with interest only due monthly; the principal is due at maturity in 1997. 9,100 9,100 8 1/2% note with installments of principal and interest of $19,607 due monthly until maturity in 1997. 2,506 2,528 9 3/4% note with interest only due monthly; the principal is due at maturity in 1997. 6,000 6,000 Variable rate note with principal installments of $16,419 plus interest at prime minus 1/4% due monthly until maturity in 2000.(See below). 5,803 6,000 ------- ------- $46,386 $24,227
Mortgage notes payable are collateralized by various real estate investments having a net carrying value of $73,481,000 as of October 31, 1994. All mortgage notes payable are nonrecourse except the variable rate note for which the Trust has guaranteed the repayment of $1.5 million of principal and all unpaid and accrued interest thereon. In connection with the variable rate note, the Trust has entered into an interest rate swap agreement in the notional amount of $6 million. Under the terms of the swap agreement, the Trust has agreed to pay interest at an annual rate of 7.55% on the notional amount in exchange for interest at prime minus 1/4% on the notional amount. This agreement which matures in 2000, effectively fixes the interest rate at 7.55% for the term of the note. Scheduled principal payments during the next five years are as follows: 1995 - $411,000; 1996 - $765,000; 1997 - $18,326,000; 1998 - $15,234,000; 1999 - $394,000; and thereafter -- $11,256,000. At October 31, 1994, the Trust had available $15 million in unsecured lines of credit with two commercial banks and in December, 1994, increased one such line of credit from $5 million to $7 million. The lines of credit expire at various dates in fiscal 1995 and bear interest at rates tied to the prime rate or LIBOR. The Trust pays fees of 1/4% per annum on the unused portions of the line of credit commitments. In connection with one of the commitments, the Trust has agreed to maintain certain deposit account balances with a bank. At October 31, 1994 the Trust had outstanding borrowings of $5,000,000 under the line of credit agreements. Interest paid for the years ended October 31, 1994, 1993 and 1992 was, $3,775,000, $2,494,000 and $2,318,000 respectively. (7) STOCK OPTIONS AND SHAREHOLDER RIGHTS PLAN At October 31, 1994, 460,333 shares of the Trust's authorized but unissued stock were reserved for issuance to key employees of the Trust and certain non-employee trustees under the Trust's stock option plan. Options are granted at fair market value on the date of the grant and are generally exercisable in installments over a maximum period of four years from the date of grant. A summary of stock options at October 31, 1994 and 1993 is as follows:
Number Option Price of Shares Per Share Outstanding at October 31, 1994 331,082 $11.38-$27.00 1993 270,917 $11.38-$27.00 Exercisable at October 31, 1994 194,729 $11.38-$27.00
No accounting recognition is given to stock options until they are exercised, at which time the proceeds are credited to shareholders' equity. During the years ended October 31, 1994 and 1993, options to purchase 3,542 common shares (none in 1993) were exercised. Stock appreciation rights may be issued in tandem with the stock options, in which case, either the option or the right can be exercised. Such rights entitle the grantee to payment in cash or a combination of common shares and cash equal to the increase in the value of the shares covered by the option to which the stock appreciation right is related. The plan limits the value of the stock appreciation rights to 150% of the option price for the related shares. The excess of the market price of the shares over the exercise price of vested options is charged to expense. For the years ended October 31, 1994, l993 and 1992, there were no amounts charged to expense. The Board of Trustees adopted a Preferred Share Purchase Rights Plan in 1988. In this connection, the Board of Trustees declared a dividend distribution of one preferred share purchase right for each outstanding common share. The rights, which expire on November 13, 1998, are not currently exercisable. When they are exercisable, the holder will be entitled to purchase from the Trust one one-hundredth of a share of a newly-established Series A Participating Preferred Stock at a price of $65 per one one-hundredth of a preferred share, subject to certain adjustments. The rights will become exercisable 10 days after a person or group either acquires 20% ("acquiring person") or more of the Trust's shares, or announces an offer the consummation of which would result in such person or group owning 30% or more of the shares. Following any such 20% acquisition, shareholders other than the acquiring person will be entitled to use the rights to purchase common shares of the Trust at 50% of market value. If the Trust is involved in a merger or other business combination at any time after the rights become exercisable, the rights will be modified to entitle a holder other than the acquiring person to purchase a number of shares of common stock of the acquiring company having a market value of twice the exercise price of each right. (8) SALES OF PROPERTIES In fiscal 1994, the Trust sold an industrial property net leased to a single tenant for a cash price of $450,000 resulting in a gain on sale of property of $82,000. In fiscal 1993, the Trust sold a retail property net leased to a single tenant for a cash price of $3,250,000 resulting in a gain on sale of property of $2,330,000. (9) COMMITMENTS, CONTINGENCY AND OTHER MATTERS In November 1994, the Trust entered into a contract to purchase a 193,000 square foot retail shopping center located in Danbury, Connecticut. The property was acquired at a purchase price of $19,250,000, subject to a nonrecourse first mortgage of $11,250,000. The mortgage loan will bear interest at 9.5% per annum for a five-year term. In November 1994, the Trust entered into a contract to sell four of its distribution and service facilities to a single purchaser for an aggregate sales price of approximately $13.5 million. The Trust also entered into a contract to sell its 106,000 square foot retail property located in Manassas, Virginia at a sale price of $7.5 million. The Trust leases its executive office space under an agreement which expires in 1995. Annual base rents are subject to escalation as provided for in the lease. Minimum annual rentals are $292,700 through the end of the lease. Rent expense for the fiscal years ended October 31, 1994, 1993 and 1992 was $400,000, $401,000, and $384,000, respectively. A consulting fee was paid to a trustee (and former officer) pursuant to an employment and consulting agreement between the trustee and the Trust which agreement expired in November 1993. Certain trustees have elected to defer payment of fees earned as trustees until their termination as a trustee or revocation of their election. Deferred fees earn interest at rates set annually by the Board of Trustees, currently 7.5% per annum. (10) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The unaudited quarterly results of operations for the years ended October 31, 1994 and 1993 are as follows (in thousands, except per share data):
Year Ended October 31, 1994 Year Ended October 31, 1993 Quarter Ended Quarter Ended Jan 31 Apr 30 July 31 Oct 31 Jan 31 Apr 30 July 31 Oct 31 ------ ------ ------- ------ ------ ------ ------- ------ Revenues $ 4,362 $ 4,885 $ 4,819 $ 4,903 $ 4,382 $ 4,441 $ 3,497 $3,841 ======= ======= ======= ======== ======= ======== ======== ====== Income (loss) before gains on sales of properties (1) $ 545 $ 571 $ 584 $ (438) $ 94 $(3,060) $(4,648) $ 322 Gains on sales of properties -- 82 -- -- -- 2,330 -- -- Net Income (loss) $ 545 $ 653 $ 584 $ (438) $ 94 $ (730) $(4,648) $ 322 ======= ======= ======= ======== ======= ======== ======== ====== Per share: Income (loss) before gains on sales of properties $ .10 $ .10 $ .11 $ (.08) $ .02 $ (.58) $ (.88) $ .06 Gains on sales of properties -- .02 -- -- -- .44 -- -- ------- ------- ------- ------ -------- -------- -------- --------- Net Income (loss) $ .10 $ .12 $ .11 $ (.08) $ .02 $ (.14) $ (.88) $ .06 ======= ======= ======= ======= ======== ======== ======== ======= (1) Quarter ended October 31, 1994 results include a charge of $1,086,000 to reflect the Trust's investment in a mortgage note receivable at its net realizable value. The mortgage note was sold subsequent to year end.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of HRE Properties: We have audited the accompanying consolidated balance sheets of HRE Properties (the Trust), a Massachusetts voluntary association, and subsidiary as of October 31, 1994 and 1993, and the related consolidated statements of income, cash flows and shareholders' equity for each of the three years in the period ended October 31, 1994. These financial statements and the schedules referred to below are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of HRE Properties and subsidiary as of October 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 1994 in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the accompanying index to financial statements are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP New York, New York December 14, 1994 SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
HRE PROPERTIES Three Years Ended October 31, 1994 (In thousands) - --------------------------------------------------------------------------------------------------------------------------------- - - Col.A Col.B Col.C Col.D Col.E - --------------------------------------------------------------------------------------------------------------------------------- Balance at Balance at DEDUCTIONS End of Period (c) Beginning of Amounts Amounts Not Name of Debtor Period Additions Collected Written off Current Current - -------------- ------- --------- --------- ----------- -------- ------- - --------------------------------------------------------------------------------------------------------------------------------- Year Ended October 31, 1992: Stephen C. Hagen (a) (b) $156 $0 $0 $0 $156 $0 ==== == == == ==== == Year Ended October 31, 1993: Stephen C. Hagen (a) (b) $156 $0 $156 $0 $0 $0 ==== == ==== == == == Year Ended October 31, 1994: $0 $0 $0 $0 $0 $0 - ---------------------------- == == == == == ==
NOTES: (a) The amounts receivable are notes that bear interest at a rate equal to the base rate of the First National Bank of Boston. The interest rate is adjusted quarterly. Interest is payable each March 31 and September 30. (b) The notes, as amended in 1990, were nonrecourse, were due in December, 1992 and were secured by an aggregate of 8,250 shares of the Trust's common shares, issued under the Trust's stock option plan. In December 1992, pursuant to an arrangement with Mr. Hagen, the notes were cancelled in consideration for the transfer of such 8,250 common shares to the Trust. (c) Amounts receivable at end of periods have been deducted from shareholders' equity in the Trust's consolidated balance sheets. HRE PROPERTIES OCTOBER 31, 1994 SCHEDULE IX - SHORT TERM BORROWINGS - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------- COL. A COL. B COL. C COL.D COL. E COL. F - -------------------------------------------------------------------------------------------------------------------- Maximum Average Weighted Balance Weighted Amount Amount Average Category of Aggregate at End of Average Outstanding Outstanding Interest Rate Short Term Borrowings Period Interest Rate During Period During Period (2) During Period (3) Year Ended October 31,1992 $0 ---- $0 $0 ---- Year Ended October 31,1993: Bank Loan (1) $0 7.00% $2,500,000 $105,200 7.00% Year Ended October 31,1994: Bank Loan (1) $5,000,000 6.98% $5,000,000 $4,315,000 6.81% (1) Bank Loan represent borrowings under line of credit borrowing arrangement that matures in fiscal 1995 and is reviewed annually for renewal . (2) The average amount outstanding during the period was computed by dividing the total daily outstanding principal balance by 365. (3) The weighted average interest rate during the period was computed by dividing the actual interest expense by the average amount outstanding.
SCHEDULE X-SUPPLEMENTARY INCOME STATEMENT INFORMATION HRE PROPERTIES Three Years Ended October 31, 1994 (In thousands)
- ----------------------------------------------------------------------------------------------------- COL. A COL. B - ----------------------------------------------------------------------------------------------------- Item Charged to Costs and Expenses - ----------------------------------------------------------------------------------------------------- Year Ended October, 31 1994 1993 1992 ------ ------- ------ 1. Maintenance and repairs $ 785 $ 619 $ 470 2. Amortization of deferred charges $ 545 $ 866 $ 725 3. Real estate taxes $1,960 $1,735 $1,636 4. Royalties None None None 5. Advertising costs (a) (a) (a) - ------------------------------------- (a) Amounts for advertising are not presented as such amounts are less than 1% of total revenues.
HRE PROPERTIES OCTOBER 31, 1994 SCHEDULE XI- REAL ESTATE AND ACCUMULATED DEPRECIATION - ------------------------------------------------------------------------------- (In thousands)
- -------------------------------------------------------------------------------------------------------------------------------- COL. A COL. B COL. C COL. D COL. E - -------------------------------------------------------------------------------------------------------------------------------- Life on which depreciation Cost Capitalized Subsequent Amount at Which Carried Initial Cost to Trust to Acquisition at Close of Period ------------------------ -------------------------- --------------------------- Building & Carrying Building & Building & Description and Location Encumbrances Land Improvements Costs Improvements Land Improvements - ---------------------------- -------------------------------------- -------------------------- ----------------------------- REAL ESTATE SUBJECT TO OPERATING LEASES (Note (a) ): - ------------------------------------------------------- OFFICE BUILDINGS: Denver, Colorado $0 $1,155 $10,257 $0 $1,257 $1,155 $11,514 Houston, Texas 0 900 2,758 0 2,158 900 4,916 Greenwich, Connecticut 592 199 795 0 0 199 795 Greenwich, Connecticut 0 111 444 0 0 111 444 Southfield, Michigan 0 1,000 10,280 0 675 1,000 10,955 --------- ------- ------- ------- ------- --------- --------- 592 3,365 24,534 0 4,090 3,365 28,624 --------- ------- ------- ------- ------- --------- --------- SHOPPING CENTERS: Clearwater, Florida 5,803 3,689 17,273 0 2,753 3,689 20,026 Springfield, Massachusetts 0 1,372 3,656 0 7,380 1,372 11,036 Farmingdale, New York 2888 1,029 4,176 0 39 1,029 4,215 Somers, New York 2,506 821 2,600 0 30 821 2,630 Wayne, New Jersey 9,100 2,492 9,966 0 93 2,492 10,059 Meriden, Connecticut 15,000 5,000 20,309 0 0 5,000 20,309 --------- ------- ------- ------- ------- --------- --------- 35,297 14,403 57,980 0 10,295 14,403 68,275 --------- ------- ------- ------- ------- --------- --------- DEPARTMENT STORES: Tempe, Arizona 0 378 1,518 0 970 378 2,488 Mesa, Arizona 0 440 1,631 0 989 440 2,620 Manassas, Virginia 0 283 1,723 0 42 283 1,765 --------- ------- ------- ------- ------- --------- --------- 0 1,101 4,872 0 2,001 1,101 6,873 --------- ------- ------- ------- ------- --------- ---------
==================== TABLE CONTINUED
- ----------------------------------------------------------------------- --------------------------- ----------------- COL. A COL. E COL. F COL. G/H COL. I - ----------------------------------------------------------------------- --------------------------- ----------------- Life on which depreciation Amount at Which Carried for buildings at Close of Period and improvements ---------- Accumulated Date in latest income Depreciation Constructed statements is Description and Location Total (Note (b)) or Acquired computed (Note (d)) - ------------------------------------------------------- ------------------------------------------------------------- REAL ESTATE SUBJECT TO OPERATING LEASES (Note (a) ): - ------------------------------------------------------- OFFICE BUILDINGS: Denver, Colorado $12,669 $2,977 1983 45 Houston, Texas 5,816 2,565 1975 40 Greenwich, Connecticut 555 8 1994 31.5 Southfield, Michigan 11,955 3,470 1983 35 ------- ------- 31,989 9,043 ------- ------- SHOPPING CENTERS: Clearwater, Florida 23,715 5,204 1985 40 Springfield, Massachusetts 12,408 4,533 1970 40 Farmingdale, New York 5,244 147 1993 31.5 Somers, New York 3,451 176 1992 31.5 Wayne, New Jersey 12,551 515 1992 31.5 Meriden, Connecticut 25,309 555 1993 31.5 ------- ------- 82,678 11,130 ------- ------- DEPARTMENT STORES: Tempe, Arizona 2,866 1,252 1970 40 Mesa, Arizona 3,060 1,316 1971 40 Manassas, Virginia 2,048 1,150 1972 40 ------- ------- 7,974 3,718 ------- -------
HRE PROPERTIES OCTOBER 31, 1994 SCHEDULE XI- REAL ESTATE AND ACCUMULATED DEPRECIATION - ------------------------------------------------------------------------------- (In thousands)
- ---------------------------------------------------------------------------------------------------------------------------------- COL. A COL. B COL. C COL. D - --------------------------------------------------------------------------------------------------------------------------------- Cost Capitalized Subsequent Initial Cost to Trust to Acquisition ------------------------ -------------------------- Building & Carrying Building & Description and Location Encumbrances Land Improvements Costs Improvements --------------------------------------------------------------------------------------- REAL ESTATE SUBJECT TO OPERATING LEASES (Note (a) ): - ------------------------------------------------------- INDUSTRIAL SERVICE CENTER: Syracuse, New York $0 $253 $530 $0 $0 --------- ------- ------- ------- -------- 0 253 530 0 0 --------- ------- ------- ------- -------- MIXED USE FACILITY: RETAIL/OFFICE: Newington, New Hampshire 4,497 421 1,997 0 4,739 --------- ------- ------- ------- ------- LAND: Newington, New Hampshire 0 305 0 0 0 Denver, Colorado 0 1,199 0 0 0 --------- ------- ------- ------- ------- 0 1,504 0 0 0 --------- ------- ------- ------- ------- TOTAL REAL ESTATE SUBJECT TO --------- ------- ------- ------- ------- OPERATING LEASES.................. $40,386 $21,047 $89,913 $0 $21,125 --------- ------- ------- ------- -------
==================== TABLE CONTINUED
- ---------------------------------------------------------------------------------------------------------------------------------- COL. A COL. E COL. F COL. G/H COL. I - ---------------------------------------------------------------------------------------------------------------------------------- Life on which depreciation Amount at Which Carried for buildings at Close of Period and improvements ---------------------------------------- Accumulated Date in latest income Building & Depreciation Constructed statements is or Description and Location Land Improvements Total (Note (b)) Acquired computed (Note (d)) - ---------------------------------------------------------------------------------------------------------------------------------- REAL ESTATE SUBJECT TO OPERATING LEASES (Note (a) ): - -------------------------------------------- INDUSTRIAL SERVICE CENTER: Syracuse, New York $253 $530 $783 $141 1973/1985 40 --------- --------- ------- -------- 253 530 783 141 --------- --------- ------- -------- MIXED USE FACILITY: RETAIL/OFFICE: Newington, New Hampshire 421 6,736 7,157 2,141 1979 40 --------- --------- ------- -------- LAND: Newington, New Hampshire 305 0 305 0 1981 - Denver, Colorado 1,199 0 1,199 0 1988 - --------- --------- --------- --------- ------- -------- 1,504 0 1,504 0 --------- --------- --------- --------- TOTAL REAL ESTATE SUBJECT TO --------- --------- ------- --------- OPERATING LEASES.................. $21,047 $111,038 $132,085 $26,173 --------- --------- ------- ---------
HRE PROPERTIES OCTOBER 31, 1994 SCHEDULE XI- REAL ESTATE AND ACCUMULATED DEPRECIATION - ------------------------------------------------------------------------------- (In thousands)
- ------------------------------------------------------------------------------------------------------------------------------ COL. A COL. B COL. C COL. D - ------------------------------------------------------------------------------------------------------------------------------- Cost Capitalized Subsequent Initial Cost to Trust to Acquisition -------------------------------------- -------------------------- Building & Carrying Building & Description and Location Encumbrances Land Improvements Costs Improvements - ------------------------------------------------------- ----------- ----------- ------------- ------------------------- REAL ESTATE SUBJECT TO FINANCING LEASES (Notes (c) and (e)): - ------------------------------------------------------- INDUSTRIAL DISTRIBUTION CENTERS: (Leased to Chrysler Corporation) Orlando, Florida $0 $717 $2,206 $0 $0 St. Louis, Missouri 0 523 2,253 0 2,363 Memphis, Tennessee 0 265 2,426 0 0 Dallas, Texas 6,000 193 2,266 0 4,195 Denver, Colorado 0 174 1,783 0 0 Beaverton, Oregon 0 168 2,263 0 0 Deferred Lease Renewal Rights 0 0 0 0 764 --------- ------- ------- ------- -------- 6,000 2,040 13,197 0 7,322 --------- ------- ------- ------- -------- INDUSTRIAL DISTRIBUTION CENTER: (Leased to Firestone Tire and Rubber Company): Albany, Georgia 0 835 3,343 0 0 --------- ------- ------- ------- --------- TOTAL REAL ESTATE SUBJECT TO --------- ------- ------- ------- --------- FINANCING LEASES.................. $6,000 $2,875 $16,540 $0 $7,322 --------- ------- ------- ------- ---------
============================= TABLE CONTINUED
- ---------------------------------------------------------------------------------------------- COL. A COL. E - ------------------------------------------------------------------------------------------------ Amount at Which Carried at Close of Period ----------------------------------------Net Investment Remaining in Properties Date Minimum Lease Residual Unearned Subject to Constructed Description and Location Payments Value Income Financing Lease or Acquired - ------------------------------------------------------- ------------- ------------- ----------- ----------- -------------- REAL ESTATE SUBJECT TO FINANCING LEASES (Notes (c) and (e)): - ------------------------------------------------------- INDUSTRIAL DISTRIBUTION CENTERS: (Leased to Chrysler Corporation) Orlando, Florida $589 $1,348 ($275) $1,662 1970 St. Louis, Missouri 2,641 1,166 (791) 3,016 1970 Memphis, Tennessee 636 959 (250) 1,345 1970 Dallas, Texas 4,076 841 (1,094) 3,823 1970 Denver, Colorado 412 683 (160) 935 1970 Beaverton, Oregon 511 814 (191) 1,134 1970 Deferred Lease Renewal Rights 0 764 0 764 1981 --------- --------- ------- -------- 8,865 6,575 (2,761) 12,679 --------- --------- ------- -------- INDUSTRIAL DISTRIBUTION CENTER: (Leased to Firestone Tire and Rubber Company): Albany, Georgia 2,600 100 (660) 2,040 1972 --------- --------- ------- -------- TOTAL REAL ESTATE SUBJECT TO --------- --------- ------- -------- FINANCING LEASES.................. $11,465 $6,675 ($3,421) $14,719 --------- --------- ------- --------
HRE PROPERTIES OCTOBER 31, 1994 SCHEDULE XI- REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued) - ------------------------------------------------------------------------------- (In thousands)
NOTES: 1994 1993 1992 --------- --------- -------- (a) RECONCILIATION OF PROPERTIES OWNED SUBJECT TO OPERATING (In thousands) LEASES Balance at beginning of year $105,926 $124,404 $108,168 Property improvements during the year 907 1,091 1,210 Property acquired during the year 25,816 6,197 15,881 Property sold or disposed of during the year (564) (25,766) (855) --------- --------------------- Balance at end of year $132,085 $105,926 $124,404 ========= ===================== (b) RECONCILIATION OF ACCUMULATED DEPRECIATION Balance at beginning of year $22,837 $27,985 $25,170 Provision during the year charged to income 3,531 3,497 3,670 Property sold or disposed of during the year (195) (8,645) (855) --------- --------------------- Balance at end of year $26,173 $22,837 $27,985 ========= ===================== (c) RECONCILIATION OF PROPERTIES OWNED SUBJECT TO FINANCING LEASES- Balance at beginning of year $16,190 $17,532 $18,757 Recovery of investment in property owned subject to financing leases (1,471) (1,342) (1,225) --------- --------- -------- Balance at end of year $14,719 $16,190 $17,532 ========= ========= ======== (d) Tenant improvement costs are depreciated over the life of the related leases, which range from 3 to 25 years. (e) The difference between the "Initial Costs to the Trust" and "Costs Capitalized Subsequent to Acquisition" and the "Amount at Which Carried at Close of Period" represents accumulated depreciation for the period prior to classification of these assets as financing leases and accumulated recoveries for the period thereafter.
HRE PROPERTIES OCTOBER 31, 1994 SCHEDULE XII- MORTGAGE LOANS ON REAL ESTATE - ----------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------- COL. A COL. B COL. C COL.D COL. E COL. F - ---------------------------------------------------------------------------------------------------------------------------- Face Amount Carrying Amount of Mortgages of Mortgages Interest Rate Final Maturit Periodic (Note (b) ) (Note (a) ) Description Coupon Effective Date Payment Terms (In Thousands) (In Thousands) - ---------------------------------------------------------------------------------------------------------------------------- I. FIRST MORTGAGE LOANS ON BUSINESS PROPERTIES (NOTE (c) and (d): Department Store: Clayton County, Georgia 9% 9% 10-30-1999 Principal payable $143 $143 In full at maturity. Retail Store: Interest paid currently. Fall River, Massachusetts 9% 14% 04-01-2013 Payable in monthly 1,285 943 installments of $11,920. Retail Store: Erie, Pennsylvania 9% 14% 07-01-2013 Payable in monthly 1,172 857 installments of $10,787. Retail Store: Riverside, California 9% 12% 01-15-2013 Payable in quarterly 2,110 1,702 installments of $54,313. Office Building: Syracuse, New York 10.5% 10.5% 04-01-2010 Principal payable 4,836 3,750 (f) In full at maturity. Interest is payable monthly at 8%; an additional 2.5% is due monthly under certain circumstances. ------------- --------------- Tot First Mortgage Loans 9,546 7,395 ------------- --------------- II. SECOND MORTGAGE LOAN ON BUSINESS PROPERTY (Notes (c) and (e) ): Retail Store: Riverside, California 9% 12% 01-15-2001 Payable in quarterly installments of $21, 400 368 ------------- --------------- TOTAL MORTGAGE LOANS ON REAL ESTATE $9,946 $7,763 ============= ===============
SCHEDULE XII- MORTGAGE LOANS ON REAL ESTATE (continued) NOTES TO SCHEDULE XII
Year Ended October 31, Reconciliation of Mortgage Loans on Real Estate ---------------------------------------------- 1994 1993 1992 ---------- ---------- ------------- (a) Balance at beginning of period: $8,917 $8,978 $9,031 Deductions during current period: Collections of principal and amortization of discounts (68) (61) (53) Reserve for Uncollectible Amount (1,086) ---- ---- -------- -------- -------- Balance at close of period: $7,763 $8,917 $8,978 ======== ======== ======== (b) The aggregate cost basis for Federal income tax purposes is equal to the face amount of the mortgages. (c) At October 31,1994 no mortgage loans were delinquent in payment of currently due principal or interest. (d) There are no prior liens for any of the First Mortgage Loans on Real Estate. (e) The First Mortgage Loan on this property is held by the Trust. (f) This Mortgage loan was sold in December 1994 at its carrying amount.
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HRE PROPERTIES By: /S/ CHARLES J. URSTADT -------------------------- Charles J. Urstadt Chairman and President Dated: January 26, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ CHARLES J. URSTADT January 26, 1995 - -------------------------------------- Charles J. Urstadt President and Trustee (Principal Executive Officer) /s/ JAMES R. MOORE January 26, 1995 - -------------------------------------- James R. Moore Senior Vice President - Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) /s/ E. VIRGIL CONWAY January 26, 1995 - -------------------------------------- E. Virgil Conway Trustee /s/ ROBERT R. DOUGLASS January 26, 1995 - -------------------------------------- Robert R. Douglass Trustee /s/ PETER HERRICK January 26, 1995 - -------------------------------------- Peter Herrick Trustee /s/ GEORGE H. C. LAWRENCE January 26, 1995 - -------------------------------------- George H. C. Lawrence Trustee /s/ PAUL D. PAGANUCCI January 26, 1995 - --------------------------------------- Paul D. Paganucci Trustee /s/ JAMES O. YORK January 26, 1995 - --------------------------------------- James O. York Trustee
INDEX TO EXHIBITS Exhibit (3) Articles of Incorporation and By-laws. 3.1 Fourth Amended and Restated Declaration of Trust of the Trust, as amended, to date. 3.2 By-laws of the Trust, as amended (incorporated by reference to Exhibit 4.2 of the Registrant's Registration Statement on Form S-8 (No. 33-41408)). (4) Instruments Defining the Rights of Security Holders, Including Indentures: 4.1 Common Shares: See Exhibit 3.1 hereto. 4.2 Preferred Shares: See Exhibit 3.1 hereto. 4.3 Preferred Share Purchase Rights: See Exhibits 3.1 and 10.3 hereto. (10) Material Contracts. 10.1 Form of Indemnification Agreement entered into between the Registrant and each of its Trustees and for future use with Trustees and officers of the Trust (incorporated herein by reference to Exhibit 10.1 of the Registrant's Annual Report on Form 10-K for the year ended October 31, 1989).* 10.2 Amended and Restated Change of Control Agreement between the Registrant and James R. Moore dated November 15, 1990 (incorporated herein by reference to Exhibit 10.3 of the Registrant's Annual Report on Form 10-K for the year ended October 31, 1990).* 10.3 Rights Agreement between the Trust and The First National Bank of Boston, as Rights Agent, dated as of October 28, 1988 (incorporated herein by reference to Exhibit 1 of the Registrant's Current Report on Form 8-K dated October 28, 1988). 10.4 Change of Control Agreement dated as of June 12, 1990 between the Registrant and Raymond P. Argila (incorporated herein by reference to Exhibit 10.7 of the Registrant's Annual Report on Form 10-K for the year ended October 31, 1990).* 10.4.1 Agreement dated December 19, 1991 between the Registrant and Raymond P. Argila amending the Change of Control Agreement dated as of June 12, 1990 between the Registrant and Raymond P. Argila (incorporated herein by reference to Exhibit 10.6.1 of the Registrant's Annual Report on Form 10-K for the year ended October 31, 1991).* 10.5 Change of Control Agreement dated as of December 20, 1990 between the Registrant and Charles J. Urstadt (incorporated herein by reference to Exhibit 10.8 of the Registrant's Annual Report on Form 10-K for the year ended October 31, 1990).* 10.6 Amended and Restated HRE Properties Stock Option Plan (incorporated herein by reference to Exhibit 10.8 of the Registrant's Annual Report on Form 10-K for the year ended October 31, 1991).* 10.6.1 Amendments to HRE Properties Stock Option Plan dated June 9, 1993.* 10.7 Purchase and Sale Agreement between the Registrant and Aetna Life Insurance Company dated December 22, 1993, relating to the Registrant's acquisition of Townline Center Shopping Center, Meriden, Connecticut. 10.8 Second Purchase and Sale Agreement dated January 6, 1995 between the Registrant and Aetna Life Insurance Company relating to the Registrant's acquisition of Danbury Square Mall, Danbury, Connecticut (incorporated herein by reference to Exhibit 1 of the Registrant's Current Report on Form 8-K dated January 6, 1995). (21) Subsidiaries. 21.1 List of Trust's subsidiaries (incorporated by reference to Exhibit 22.1 of the Registrant's Annual Report on Form 10-K for the year ended October 31, 1988). (23) Consents of Experts and Counsel. 23.1 The consent of Arthur Andersen LLP to the incorporation by reference of their reports included or incorporated by reference herein and in the Registrant's Registration Statements on Form S-3 (No. 33-57119), Form S-8 (No.2-93146) and Form S-8 (No. 33- 41408) is filed herewith as part of this report. (27) Financial Data Schedule. 27.1 Financial Data Schedule *Management contract, compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K pursuant to Item 14(c). EX-3.1 2 EXHIBIT 3.1 Hubbard Real Estate Investments Fourth Amended and Restated Declaration of Trust Dated April 9, 1974 (Amending and Restating the Declaration of Trust dated July 7, 1969, as Amended and Restated as of July 29, 1969, October 2, 1969 and October 31, 1969 and as further amended as of March 30, 1971) HUBBARD REAL ESTATE INVESTMENTS Index to Fourth Amended and Restated Declaration of Trust
PAGE(S) --------- PREAMBLE ARTICLE 1--Name, etc. SECTION 1.1. Name 2 SECTION 1.2. Title to Property 2 SECTION 1.3. Trust Only 2 SECTION 1.4. Location of Offices 2 ARTICLE 2--Trustees and Officers. SECTION 2.1. Number of Trustees 2 SECTION 2.2 Term of Office; Election and Qualification 3 SECTION 2.3. Resignation and Removal 3 SECTION 2.4. Vacancies 3 SECTION 2.5. Officers and Agents 3 SECTION 2.6. By-Laws 4 SECTION 2.7. Meetings of Trustees; Action by Trustees 4 SECTION 2.8. Notice of Meeting; Waiver of Notice 4 SECTION 2.9. Quorum; Action by Trustees at Meetings 4 SECTION 2.10. Action by Unanimous Written Consent 4 SECTION 2.11. Delegation of Powers of One or More Trustees; Execution of Instruments 5 SECTION 2.12. Committees 5 SECTION 2.13. Reports 5 SECTION 2.14. Board of Consultants 5 SECTION 2.15. Ownership by Trustees, etc. of Securities of the Trust 5 ARTICLE 3--Powers of the Trustees. SECTION 3.1. Absolute and Exclusive Power 6 SECTION 3.2. Investments, etc. 6 SECTION 3.3. Powers With Respect to Real Property 6 SECTION 3.4. Powers With Respect to Other Property 7 SECTION 3.5. Title to Trust Property 7 SECTION 3.6. Borrowings 7 SECTION 3.7. Issuance of Securities of the Trust 7 SECTION 3.8. Exercise Powers of Ownership, etc. 8 SECTION 3.9. Delegation of Powers 8 SECTION 3.10. Miscellaneous Administrative Powers 8 SECTION 3.11. Payment of Debts and Expenses; Power to Employ or Contract 8 SECTION 3.12. Endorsements and Guaranties, etc. 9 SECTION 3.13. Depositaries 9 SECTION 3.14. Discretion in Classification and in Accounting Treatment 9 SECTION 3.15. Valuation, etc. 9 SECTION 3.16. Fiscal Year and Method of Accounting 9 SECTION 3.17. Dividends 9 SECTION 3.18. Payment of Taxes, etc. 9 SECTION 3.19. Seal 9 SECTION 3.20. Conditions of Being FHA Approved Mortgagee 10 SECTION 3.21. Loans 10 SECTION 3.22. Insurance 10 SECTION 3.23. Transactions with Trustees, etc. 10 SECTION 3.24. Acting as Principal or Agent; Participations with Others 11 SECTION 3.25. Charitable Contributions 11 SECTION 3.26. Indemnification 11 SECTION 3.27. Powers not Enumerated, etc. 11
PAGE(S) --------- ARTICLE 4--Investment Policy. SECTION 4.1. Definitions 11 SECTION 4.2. Ownership of Income Producing Real Property 13 SECTION 4.3. Financing in Connection with Expected Ownership of Real Property 13 SECTION 4.4. Additional Investments 13 SECTION 4.5. Interim Use of Proceeds 14 SECTION 4.6. Prohibited Investments and Activities 14 SECTION 4.7. Combination of Permitted Investments 15 SECTION 4.8. Exercise of Powers under Article 3 15 SECTION 4.9. Obligor's Default 15 SECTION 4.10. Specifically Permitted Investments 15 ARTICLE 5--Limitations of Liability of Shareholders, Trustees and Others. SECTION 5.1. No Personal Liability of Shareholders, Trustees, etc. . 15 SECTION 5.2. Non-Liability of Trustees, etc. 16 SECTION 5.3. Mandatory Indemnification 16 SECTION 5.4. No Bond Required of Trustees 16 SECTION 5.5. No Duty of Investigation; Notice in Trust Instruments, etc. 16 SECTION 5.6. Reliance on Experts, etc. 17 ARTICLE 6--Shares of Beneficial Interest. SECTION 6.1. Description of Shares 17 SECTION 6.2. Common Shares 17 SECTION 6.3. Preferred Shares 17 SECTION 6.4. Trust Only 19 SECTION 6.5. Share Certificates 19 SECTION 6.6. Issuance of Shares 19 SECTION 6.7. Register of Shares 20 SECTION 6.8. Transfer Agent and Registrar 20 SECTION 6.9. Transfer of Shares 20 SECTION 6.10. Shareholders of Record by Operation of Law 20 SECTION 6.11. Joint Ownership 21 SECTION 6.12. No Obligation with Respect to Other Instruments 21 SECTION 6.13. Loss, etc. of Certificate 21 SECTION 6.14. Distributions to Shareholders 21 SECTION 6.15. Statement of Source of Funds 21 SECTION 6.16. Notices 22 SECTION 6.17. Purchase of Shares by the Trust; Treasury Shares 22 SECTION 6.18. Purchase, etc. of Shares by Trustees 22 SECTION 6.19. Redemption of Shares; Disclosure of Holding 22 SECTION 6.20. Warrants 22 SECTION 6.21. Issuance of Units 23 SECTION 6.22. Limitation of Pre-emptive Rights 23 SECTION 6.23. Dividend Investment Plan 23
PAGE(S) --------- ARTICLE 7--Shareholders. SECTION 7.1. Ownership of Trust Property 23 SECTION 7.2. Shares Deemed Personal Property 24 SECTION 7.3. Meetings 24 SECTION 7.4. Notice of Meeting 24 SECTION 7.5. Quorum 24 SECTION 7.6. Type of Shareholder Action Binding on Trustees 24 SECTION 7.7. Fixing Date For Determination of Shareholders of Record 25 SECTION 7.8. Proxies; Voting 25 SECTION 7.9. Shareholder Action By Unanimous Written Consent 25 SECTION 7.10. Inspection of Records 25 ARTICLE 8--Adviser. SECTION 8.1. Adviser 25 SECTION 8.2. Advisory Contract 26 SECTION 8.3. Relationship With Trustees 26 SECTION 8.4. Other Activities of the Adviser 26 SECTION 8.5. Increase of Adviser's Fee 27 ARTICLE 9--Compliance with Provisions of Internal Revenue Code. SECTION 9.1. Compliance With Provisions of Internal Revenue Code 27 ARTICLE 10--Amendment or Termination of Trust. SECTION 10.1. Amendments or Termination 27 SECTION 10.2. Termination or Amendment by Trustees Prior to First Offering 27 SECTION 10.3. Powers of Trustees Upon Termination 27 SECTION 10.4. Power to Effect Reorganization 28 SECTION 10.5. Limitation on Shareholder Rights 28 SECTION 10.6. Class Voting Rights of Preferred Shares 29 ARTICLE 11--Miscellaneous. SECTION 11.1. Governing Law; Filing 29 SECTION 11.2. Counterparts 30 SECTION 11.3. Conclusive Evidence 30 SECTION 11.4. Construction of Terms Used 30 ARTICLE 12--Duration of Trust.
INDEX TO DEFINITIONS SECTION ----------- "Adviser" ....................................... 8.1. "Annual Meeting" ................................ 7.3. "Annual Report" ................................. 2.13. "Appraisal" ..................................... 4.1. "Board of Consultants" .......................... 2.14. "Common Shares" ................................. 6.1. "Construction Loans" ............................ 4.1. "Conventional Loans" ............................ 4.1. "Declaration of Trust" .......................... Preamble "Development Loans" ............................. 4.1. "Executive Committee" ........................... 2.12. "FHA" ........................................... 4.1. "FHA Loans" ..................................... 4.1. "First Mortgage" ................................ 4.1. "First Mortgage Loans" .......................... 4.1. "Hubbard Real Estate Investments" ............... 1.1. "Independent Contractor" ........................ 3.23. "Individual" .................................... 6.19. "Internal Revenue Code" ......................... Preamble "Junior Mortgage" ............................... 4.1. "Junior Mortgage Loans" ......................... 4.1. "Majority of Trustees" .......................... 2.1. "Mortgage Loans" ................................ 4.1. "Mortgages" ..................................... 4.1. "Ownership" ..................................... 6.19. "Person" ........................................ 3.1. "Preferred Shares" .............................. 6.1. "President" ..................................... 2.5. "Real Estate Investment Trust" .................. Preamble "Real Property" ................................. 4.1. "REIT Provisions of the Internal Revenue Code" . Preamble "Secretary" ..................................... 2.5. "Securities" .................................... 4.1. "Securities of the Trust" ....................... 4.1. "Shareholders" .................................. 6.1. "Shares" ........................................ 6.1. "Special Meeting" ............................... 7.3. "Total Assets of the Trust Estate" .............. 4.1. "Treasurer" ..................................... 2.15. "Trust" ......................................... 1.1. "Trustee" ....................................... 2.1. "Trust Estate" .................................. 4.1. "Trust Property" ................................ 4.1. "Two-Thirds of Trustees" ........................ 2.1. "VA" ............................................ 4.1. "VA Loans" ...................................... 4.1. "Warrants" ...................................... 6.20. FOURTH AMENDED AND RESTATED DECLARATION OF TRUST -------------------- HUBBARD REAL ESTATE INVESTMENTS -------------------- The undersigned, a Trustee of Hubbard Real Estate Investments (the "Trust"), hereby certifies pursuant to Section 11.3 of the Third Amended and Restated Declaration of Trust, as amended by the Amendment dated March 30, 1971, that at a meeting of shareholders of the Trust duly called and held on April 9, 1974 in accordance with such Third Amended and Restated Declaration of Trust, as so amended, at which a quorum of shareholders was present and voting throughout, the holders of not less than two-thirds of the outstanding shares of beneficial interest of the Trust vote that such Third Amended and Restated Declaration of Trust, as theretofore amended, be amended in certain respects and authorized the filing with Secretary of The Commonwealth of Massachusetts of a Fourth Amended and Restated Declaration of Trust restating in a single instrument such Third Amended and Restated Declaration of Trust as theretofore amended and as amended at such meeting, and (ii) further certifies that the present Trustees of the Trust, at a meeting duly called and held on April 9, 1974, at which a quorum was present and voting throughout, by vote of majority of the Trustees present, duly authorized the filing of this instrument with the Secretary of The Commonwealth of Massachusetts restating such Third Amended and Restated Declaration of Trust, as so amended, in its entirety to read as follows: THIS FOURTH AMENDED AND RESTATED DECLARATION OF TRUST made this 9th day of April, 1974. This instrument amends and restates the Declaration of Trust made as of July 7, 1969, by the Trustees named therein, as amended and restated by the First Amended and Restated Declaration of Trust dated as of July 29, 1969, and as amended and restated by the Second Amended and Restated Declaration of Trust dated as of October 2, 1969, and as amended and restated by the Third Amended and Restated Declaration of Trust dated as of October 31, 1969, and as further amended by the Amendment dated March 30, 1971, which Declaration of Trust as so amended is hereby amended and restated in its entirety pursuant to Section 10.1 thereof to read as hereinafter provided. The Trustees desire to form a trust for the principal purpose of investing in Real Property and interests therein. The Trustees desire that such Trust qualify as a "real estate investment trust" under the provisions of Sections 856, 857, and 858 of the Internal Revenue Code of 1954, as from time to time amended, and successor Sections thereto, and the Regulations issued thereunder (hereinafter in this Declaration of Trust a real estate investment trust as so qualified is referred to as a "Real Estate Investment Trust" and said Code and Regulations and said Sections and Regulations issued thereunder as amended to the time in question and any successor Sections thereto, are referred to as the "Internal Revenue Code" and the "REIT Provisions of the Internal Revenue Code", respectively). The Trustees as trustees may hereafter require, hold, manage, and dispose of certain assets and divide the gains therefrom, in the manner hereinafter stated. It is proposed that the beneficial interest in the Trust shall be divided into transferable shares of such class or classes as shall from time to time be established, and evidenced by certificates therefor, as hereinafter provided. THEREFORE, the Trustees hereby declare that they will hold all property of every type and description which they are acquiring or may hereafter acquire as such Trustees, together with the proceeds thereof, in trust, to manage and dispose of the same for the benefit of the holders from time to time of the Shares being issued and to be issued and to be issued hereunder and in the manner and subject to the stipulations contained herein, which are: ARTICLE 1. NAME, ETC. SECTION 1.1. Name. The trust created by this Declaration of Trust is herein referred to as the "Trust" and shall be known by the name "Hubbard Real Estate Investments"; so far as may be practicable, legal and convenient, the affairs of the Trust shall be conducted and transacted under such name, which name (and the word "Trust" whenever used in this Declaration of Trust, except when the context otherwise requires) shall refer to the Trustees as trustees and not individually or personally and shall not refer to the beneficiaries or Shareholders of the Trust, or to any officers, employees, or agents of the Trust or of such Trustees. Under circumstances in which the Trustees determine that the use of the name "Hubbard Real Estate Investments" is not practicable, legal or convenient, they may as appropriate use their names with suitable reference to their trustee status, or some other suitable designation, or they may adopt another name under which the Trust may hold property or operate in any state, which name shall not refer to the beneficiaries or Shareholders of the Trust, or any officers, employees, or agents of the Trust or of such Trustees. If Hubbard, Westervelt & Mottelay, Inc., or any successor of such corporation, shall cease, for any reason, to render for the Trust the services of Adviser, as defined in Section 8.1 hereof, to be rendered pursuant to the contract referred to in Section 8.2 hereof, and any renewal or extension of such contract, then the Trustees shall, upon request of said Hubbard, Westervelt & Mottelay, Inc. or its successor and without any vote or consent of the Shareholders being required, promptly amend this Declaration of Trust to change its name to one which does not include "Hubbard" or any approximation thereof. SECTION 1.2. Title to Property. Legal title to all of the Trust Property shall be transferred to, vested in, and held by the Trustees, as joint tenants with right survivorship as Trustees of this Trust, except as provided in Section 3.5. Where legal title is transferred (whether to or by the Trust) in the name Hubbard Real Estate Investments, such name shall be deemed to refer to the Trustee as aforesaid. SECTION 1.3. Trust Only. The Trust shall be of the type commonly termed a Massachusetts business trust and shall not be a general partnership, limited partnership, joint stock association, or corporation. The Shareholders shall be beneficiaries and their relationship to the Trustees shall be solely in that capacity in accordance with the rights conferred upon them hereunder. Neither the Trustees nor the Shareholders, nor any of them, shall for any purpose be, or be deemed to be, partners or members of a joint stock association. SECTION 1.4. Location of Offices. The principal office of the Trust in Massachusetts shall be in Boston, Massachusetts, unless changed by the Trustees to another location in Massachusetts. The Trust shall have such other offices or places of business within or without The Commonwealth of Massachusetts as the Trustees may from time to time determine. ARTICLE 2. TRUSTEES AND OFFICERS. SECTION 2.1. Number of Trustees. The signatories to this Declaration of Trust, so long as they shall continue in office in accordance with the terms hereof, and all other persons who at the time in question have been duly elected or appointed and have qualified as trustees in accordance with the provisions hereof and are then in office, are herein referred to as the "Trustees", and reference in this Declaration of Trust to a Trustee or Trustees shall refer to such person or persons in their capacity as Trustees hereunder. Subject to the provisions of any series of Preferred Shares at the time outstanding, there shall be no less than three (3) nor more than fifteen (15) Trustees. Subject to any such provisions, within the foregoing limitations, the number of Trustees may be altered from time to time by vote of a Majority of the Trustees. Whenever a vacancy in the number of Trustees shall occur, until such vacancy is filled as provided in Section 2.4, the Trustee or Trustees continuing in office regardless of their number shall have all the powers granted to the Trustees and shall discharge all the duties imposed upon the Trustees by this Declaration of Trust. The terms "Two-thirds of the Trustees" and "Majority of the Trustees" whenever used herein shall mean two-thirds and more than one-half, respectively, of the total number of Trustees then in office when three or more Trustees are then in office, and shall mean one Trustee if only one Trustee is at the time in office, and shall mean both Trustees if only two Trustees are at the time in office. SECTION 2.2. Term of Office; Election and Qualification. Subject to the provisions of Sections 2.3 and 2.4, each Trustee shall hold office until the expiration of his term and until the election and qualification of his successor. The persons who have executed the original Declaration of Trust are the original Trustees and the term of each of them and of each Trustee appointed prior to the First Annual Meeting of Shareholders shall expire at such Annual Meeting of Shareholders and upon the election and qualification of his successor. Except as otherwise required by the provisions of any series of Preferred Shares at the time outstanding, thereafter, the term of each Trustee shall expire at the Annual Meeting of Shareholders held in the year following the election of such Trustee and upon the election and qualification of his successor. Trustees may succeed themselves in office. Except as otherwise required by the provisions of any series of Preferred Shares at the time outstanding, the election of Trustees at any meeting of Shareholders shall be by the affirmative vote of the holders of majority of the Shares present in person or by proxy at such meeting and then entitled to vote in the election of Trustees. A Trustee shall be an individual at least twenty-one (21) years of age who is not under a legal disability. Such individual shall qualify as a Trustee by signing this Declaration of Trust, as amended to the time in question, or by agreeing in writing to be bound by the terms of this Declaration of Trust, as so amended. Trustees continuing in office by re-election or re-appointment need not requalify as Trustees. Trustees may but need not own Shares. SECTION 2.3. Resignation and Removal. Any Trustee may resign his trusteeship by instrument in writing signed by him and delivered or mailed to the President or Secretary, and such resignation shall take effect immediately on receipt by the President or Secretary or at a later date according to the terms of the instrument. Subject to the provisions of any series of Preferred Shares at the time outstanding, the Shareholders, by action of the holders of a majority of the Shares then outstanding and entitled to vote in the election of Trustees (which action shall be taken only by vote at a meeting called for the purpose in accordance with Section 7.3), may remove any Trustee with or without cause. SECTION 2.4. Vacancies. The term of office of a Trustee shall terminate and a vacancy shall occur in the event of the bankruptcy, adjudicated incompetence, death, resignation or removal (pursuant to Section 2.3) of a Trustee. No such vacancy shall operate to annul the Trust or to revoke any existing agency created pursuant to the terms of this Declaration of Trust. Subject to the provisions of any series of Preferred Shares at the time outstanding, vacancies in the office of Trustee, including a vacancy resulting from an increase in the number of Trustees, may be filled by a written appointment signed by a Majority of the Trustees. Upon such appointment and the qualification of such Trustee, the Trust Property shall vest in the new Trustee jointly with the continuing or surviving Trustees without the necessity of any further act or conveyance. SECTION 2.5. Officers and Agents. The Trustees shall annually elect a President, who shall be the principal executive officer of the Trust, and a Treasurer and a Secretary. The President, Treasurer and Secretary shall serve until the first meeting of Trustees after then next Annual Meeting of Shareholders and until their successors are elected and qualified or until their sooner resignation or removal, with or without cause, by the affirmative vote of a Majority of Trustees. The President shall be and the Treasurer and Secretary may, but need not, be a Trustee. The Trustees may elect or appoint, from among their number or otherwise, such other officers or agents, who shall have such powers, duties and responsibilities, as to the Trustees may seem advisable, and who shall hold office for such periods as may be determined by the Trustees or by the by-laws. The Trustees shall fix the compensation of all officers, may receive reasonable compensation fixed by the Trustees in good faith for their general services as Trustees and officers hereunder, and may pay themselves or any one or more of themselves such compensation for special services, legal or otherwise, as they in good faith may deem reasonable. Any person may hold two or more offices. SECTION 2.6. By-Laws. A Majority of the Trustees may adopt and from to time to time amend or repeal by-laws for the conduct of the business of the of the Trust, and in such by-laws may define the duties of their officers, employees, agents and representatives. SECTION 2.7. Meetings of Trustees; Action by Trustees. Meetings of the Trustees may be held from time to time upon call by the President, the Secretary or any two Trustees. Meetings of the Trustees shall be held within or without The Commonwealth of Massachusetts at such place as may be specified in or determined in accordance with the by-laws and the notice of a meeting shall state the place, as well as the time thereof. Unless otherwise restricted by the by-laws, all or any one or more Trustees may participate in a meeting of the Trustees or any committee thereof by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and participation in a meeting pursuant to such communications shall constitute presence in person at such meeting. SECTION 2.8. Notice of Meeting; Waiver of Notice. Notice of a meeting shall be given by mail or by telegram or delivered personally. If notice is given by mail, it shall be mailed not later than the third business day preceding the meeting (excluding from such computation the day of the meeting itself) and if given by telegram or personal delivery such telegram shall be sent or delivery made not later than the business day preceding the meeting. Notice of a meeting of Trustees may be waived before or after such meeting by signed written waivers. Not notice need be given of action taken by unanimous written consent. The attendance of a Trustee at a meeting shall constitute a waiver of notice of such meeting except where a Trustee attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting has not been lawfully called or convened. SECTION 2.9. Quorum; Action by Trustees at Meetings. A Majority of the Trustees shall constitute a quorum for the transaction of business at any meeting of the Trustees but if less than such Majority is present at a meeting, a majority of the Trustees present may adjourn the meeting from time to time without further notice. The act of the majority of the Trustees present at a meeting at which a quorum is present shall be the act of the Trustees and shall have the same effect as if assented to by all except that any action which by the terms of any provision of this Declaration of Trust other than this Section 2.9 is required to be taken by a Majority of the Trustees or by Two-thirds, of the Trustees shall require the affirmative vote of such Majority or Two-thirds, as the case may be, and thereupon shall constitute the act of the act of the Trustees and shall have the same effect as if assented to by all. SECTION 2.10. Action by Unanimous Written Consent. Except as otherwise authorized by this Declaration of Trust, any action which could be taken by the Trustees only at a meeting may be taken without a meeting only if all the Trustees consent to the action in writing and the written consents are filed with the records of the meetings of Trustees. Such consents shall be deemed for all purposes to be action taken at a meeting. SECTION 2.11. Delegation of Powers of One or More Trustees; Execution of Instruments. Subject to their ultimate responsibilities as set forth in Section 8.1, the Trustees may delegate from time to time to such one or more of their number, or to such one or more officers or agents, the doing of such things and the execution of such deeds or other instruments either in the names of the Trustees or as their attorney or attorneys or otherwise as the Trustees may from time to time deem expedient. Any deed, mortgage, evidence of indebtedness or other instrument or agreement executed by one or more of the Trustees, officers of agents of the Trust, shall be valid and binding upon the Trustees and the Trust when authorized or ratified (pursuant to specific or general authorization or ratification) at a meeting or by written authorization or ratification without a meeting in accordance with the provisions of Section 2.9 and Section 2.10. SECTION 2.12. Committees. The Trustees, by vote of a Majority of Trustees, may appoint from among their own number committees, including an Executive Committee of two or more persons to whom the Trustees may delegate such of the powers herein given to the Trustees as that may deem expedient, except that powers requiring the vote of a Majority or Two-thirds of the Trustees may not be so delegated. SECTION 2.13. Reports. With respect to fiscal years commencing with the first full fiscal year of the Trust, the Trustees shall cause to be prepared and mailed to each Shareholder, within 120 days after the end of every fiscal year, an annual report of the affairs of the Trust, including a statement of the income and expenses of the Trust based on the books of account of the Trust. If, in the opinion of the Trustees, such statement fails to meet the requirements of any governmental authority or agency having jurisdiction over the Trust, or of any securities exchange on which the Shares are listed or to be listed , the Trustees shall in addition include in such annual report a statement of income and expenses which will, in their sole discretion, meet such requirements. Such annual report shall also contain a balance sheet and statement of surplus, both as of the end of the fiscal year consistent with either of such statements of income and expenses, as determined by the Trustees. Such annual report shall also include an opinion on the financial statements of an independent certified accountant or independent public accountant based on an examination of the books and records of the Trust not materially limited in scope made in accordance with generally accepted auditing standards and procedures. In addition, commencing after the close of the first full quarter of the first full fiscal year of the Trust, the Trustees shall mail to the Shareholders within 60 days after the close of that quarter and of each quarter thereafter (or as soon thereafter as may be practicable), other than the end of the fiscal year, an interim report containing a summary statement of income and expenses of the trust for such fiscal quarter, which a may be unaudited, and such other pertinent information regarding the trust and its activities in the quarter covered by the report as the trustees may deem appropriate. SECTION 2.14. Board of Consultants. The trustees may appoint a Board of Consultants to provide the Trustees with such advice as they may request in the performance of their duties as Trustees. Members of such Board of Consultants shall be appointed in any number and shall be removed by the vote of a Majority of the Trustees, and shall meet at such time and place as may be determined from time to time by the Trustees or the by-laws. The Board of Consultants shall have no power or authority over the Trust. Members of the Board of Consultants may be reasonably compensated for their services by the Trustees. SECTION 2.15. Ownership by Trustees, etc. of Securities of the Trust. Any Trustee, officer or agent may on his personal account acquire, hold and sell Securities of the Trust either in his individual name, or in a fiduciary capacity or jointly with other persons, or as a member of a firm or association or otherwise, without being thereby disqualified as a Trustee, officer or agent, and while so holding any such Securities of the Trust on his personal account shall be entitled to the same rights and privileges as other holders thereof. Without limiting the foregoing, but subject to any applicable requirements of Section 3.23, any Person, including any Person specified in Section 3.23, may purchase as underwriter Securities of the Trust. ARTICLE 3. POWERS OF THE TRUSTEES. SECTION 3.1. Absolute and Exclusive Power. The Trustees, subject only to the specific limitations expressly stated in this Declaration of Trust, shall have, without other or further authorization, continuing full, absolute and exclusive power, control and authority over and management of the Trust Property and of the affairs of the Trust, to the same extent as if the Trustees were the sole owners of such property and the sole persons interested in such Trust in their own right. Such powers of the Trustees may be exercised only on behalf of or for the advantage of the Trust; and all payments or reimbursements made by the Trustees shall be made only from Trust Property. Such powers of the Trustees may be exercised without the necessity of applying to any court or to the Shareholders for leave to do so. No Person (the word "Person" whenever used in this Declaration of Trust, except where the context otherwise requires, being deemed to mean any individual, individuals, association, trust, partnership, corporation, or other entity) shall in any event be bound to see to the application of any money or property paid to or delivered to the Trustees or their authorized representative. In the exercise of the powers given by this Article 3, the Trustees shall not be limited to obligations maturing before the possible termination of the Trust. The Trustees shall not be bound or limited by any law now or hereafter in force limiting the investments of trustees or other fiduciaries, but they shall have full authority and power to make any and all investments, within the limitations of this Article 3 and Article 4 that they, in their absolute discretion, shall deem proper in order to accomplish the purposes of this Trust, all to such extent as to them shall seem proper, even though such investments shall investments shall be of a character or in an amount not customarily considered proper for the investment of trust funds or which do not or may not produce income. The Trustees shall have power to enter into commitments to make any investment, purchase or acquisition authorized by this Article 3. Without restricting or limiting the generality of the foregoing, such powers of the Trustees shall include among others the powers enumerated in the ensuing Sections of this Article 3. The exercise of the powers of the Trustees in this Article 3 shall be subject at all times to the investment policy set forth in Article 4 hereof. SECTION 3.2. Investments, etc. The Trustees shall have power, for such consideration as they may deem proper, to invest in, purchase or otherwise acquire, for cash or other property or through the issuance of Securities of the Trust or for other consideration, and hold for investment, the entire or any participating interest in real, personal or mixed, tangible or intangible, property (including stocks, bonds, debentures, notes, certificates of indebtedness and securities of every nature) and obligations secured thereby and interests therein and rights thereto, including, without limiting the generality of the foregoing, the entire or any participating interest in notes, bonds or other obligations secured by Mortgages or other interests in Real Property. In connection with any such investment, purchase or acquisition, the Trustees shall have the power to acquire a share of rents, lease payments, or other income from, or a share of the profits from, or a share in the equity or ownership of Real Property. The Trustees shall also have power invest in loans secured by the pledge or transfer of mortgage obligations. SECTION 3.3. Powers With Respect to Real Property. Without limiting the powers expressed in Section 3.2, the Trustees shall have the power to (a) acquire, construct, hold, own, manage, subdivide, improve, develop, alter, tear down, lease from or to others (including building leases, part of the consideration for which is the building on or adding to the premises by the lessee) for terms which may extend beyond the possible termination of the Trust, or otherwise deal in Real Property of any type and description, including any type of interest therein or right pertaining thereto, wherever situated in the United States or any territory or possession thereof or in Canada; and (b) to sell, exchange, or otherwise dispose of, or grant participations in, any Real Property or interest therein at any time held or acquired hereunder, free and clear from any and all trusts, at public or private sale, for cash or on terms, without advertisement, and subject to such restrictions, stipulations, agreements and reservations as they shall deem proper, including the power to take back mortgages to secure the whole or any part of the purchase price of any of the Trust Property sold or transferred by them, and to execute and deliver any deed, or other instrument in connection with the foregoing; and (c) to grant easements, give consents, and make contracts relating to Real Property or its use; and (d) to release or dedicate any interest in Real Property. SECTION 3.4. Powers With Respect to Other Property. Without limiting the powers expressed in Section 3.2 the Trustees shall have with respect to all types of property, real, personal or mixed, tangible or intangible or any interest therein the powers set forth in Section 3. 3 with respect to Real Property. SECTION 3.5. Title to Trust Property. The Trustees shall have the power to cause legal title to any Trust Property to be held in the name of one or more of the Trustees, or any other person as nominee, on such terms, in such manner, and with such powers as the Trustees may determine, provided that the interest of the Trust is appropriately protected. The Trustees shall have the power to hold securities in bearer form. In furtherance of the forgoing provisions of this Section, the Trustees may form for the purposes of furthering the interests of the Trust, a corporation, partnership, trust or other business association, owned by the Trustees or by their nominees, for the purpose of holding title to the property of the Trust or managing the property of the Trust. SECTION 3.6. Borrowings. The Trustees shall have power to borrow or in any other manner raise such sum or sums of money or other property as they shall deem advisable in any manner and on any terms and to evidence the same by notes, debentures, bonds or other evidences of indebtedness of the Trust, subordinated or otherwise, which may mature at any time or times even beyond the possible termination of the Trust, to reacquire such evidences of indebtedness, to enter into other contracts on behalf of the Trust, to reacquire such evidences of indebtedness, to enter into other contracts on behalf of the Trust, and to execute and deliver any Mortgage, pledge or other instrument to secure any such indebtedness or other obligations or contracts. Subject to the provisions of any series of Preferred Shares at the time outstanding, any such notes, debentures, bonds, instruments or other evidences of indebtedness of the Trust may, at the discretion of the Trustees, without vote of the Shareholders, be convertible into Shares of any class or series at such time and on such terms as the Trustees may prescribed. SECTION 3.7. Issuance of Securities of the Trust. Subject to the provisions of any series of Preferred Shares at the time outstanding, the trustees shall have power to issue any type of Securities of the Trust, without vote of or other action by the Shareholders, to such Persons (except to the extent provided in Section 6.22) for such cash, property or other consideration (including Securities issued or created by, or interests in any Person) at such time or times and on such terms as the Trustees may deem advisable (provided, however, except as may be provided in the resolutions governing any series of Preferred Shares and except in connection with a dividend investment plan generally available to all holders of Common Shares, the purchase price for Shares purchased through exercise of Warrants, rights or options shall be not less than the fair market value of such Shares (determined in the manner provided in Section 6.19) on the date of, or prior to, the issuance of such Warrants, rights or options fixed by the trustees for such determination) and to list any of the foregoing Securities of the Trust on any securities exchange and to purchase or otherwise acquire, hold, cancel, reissue, sell and transfer any such Securities of the Trust. The Trustees may authorize the use facsimile signatures and/or a facsimile seal of the Trust on Securities of the Trust, provided that where facsimile signatures are so used, one of the authorized signatures be manual or the Security be manually countersigned or authenticated by an authenticating agent or trustee or similar Person. In case any Person who shall have signed (or whose facsimile signature shall appear on) Securities of the Trust shall have ceased to occupy the office or perform the function with respect to which such signature was authorized before such Securities shall have been actually issued, such Securities may nevertheless be issued with the same effect as though such Person had not ceased to occupy such office or perform such function. SECTION 3.8. Exercise Powers of Ownership, etc. The Trustees shall have power to exercise all the rights, powers and privileges appertaining to the ownership of all or any Securities forming part of the Trust Property to the same extent that an individual might, and, without limiting the generality of the foregoing, to vote or give any consent, request, or notice or waive any notice either in person or by proxy or power of attorney with or without power of substitution, to one or more Persons, which proxies and powers of attorney may be for meetings or action generally or for any particular meetings or action, and may include the exercise of discretionary powers. SECTION 3.9. Delegation of Powers. The Trustees shall have the power to delegate their powers to one or more Trustees, officers or agents, or to committees of Trustees and to the Adviser, as provided in Sections 2.11, 2.12 and 8.1, respectively. SECTION 3.10. Miscellaneous Administrative Powers. The Trustees shall have power to collect, sue for, receive and receipt for all sums of money or other property coming due to this Trust, to consent to the extension of the time for payment, or to the renewal, of any bonds or other securities or obligations, and to engage or intervene in, prosecute, defend, compound, compromise, abandon, or adjust by arbitration or otherwise any actions, suits, proceedings, disputes, claims, demands or things relating to the Trust Property; to foreclose any Mortgage or other security securing any notes, debentures, bonds, obligations or contracts, by virtue of which any sums of money are owed to the Trust, to exercise any power of sale held by them and exercise all rights pertaining to any Security or instrument held by or for the Trust, and to convey good title thereunder free of any and all trusts, and in connection with any such foreclosure or sale, to purchase or otherwise acquire title to any property, whether or not such property meets the requirements of this Article 3 with respect to investments; to be parties to reorganizations and to transfer to and deposit with any Person any stocks, shares, or bonds, or other securities or obligations of any corporation, trust, association, or other organization, the securities of which form a part of the Trust Property, for the purpose of any reorganization of any such corporation, trust, association, or other organization, or otherwise to participate in any arrangement for enforcing or protecting the interests of the Trustees as the owners or holders of such stock, shares, bonds, or other securities or obligations and to pay any assessment levied in connection with such reorganization or arrangement; and to give time with or without security for the payment or delivery of any debts or property and to execute and enter into releases, agreements, and other instruments; and to pay or satisfy any debts or claims upon any evidence that the Trustee shall think sufficient. SECTION 3.11. Payment of Debts and Expenses; Power to Employ or Contract. The Trustees shall have power to incur and pay any charges or expenses in the opinion of the Trustees necessary or incidental to or proper for carrying out any of the purposes of this Trust and to employ or contract with any Persons in accordance with the provisions of Section 8.1 and to pay appropriate fees to such Persons from the funds of the Trust. SECTION 3.12. Endorsements and Guaranties, etc. The trustees shall have power to endorse, guarantee or act as surety for, the payment or performance of any obligations of any Person in whose affairs or prosperity the Trust has an interest; to make contracts of guaranty or suretyship, or enter into other obligations therefor; and to mortgage and pledge the real and personal property of this Trust or any part thereof to secure any or all of such obligations. SECTION 3.13. Depositaries. The Trustees shall have power to deposit any money or securities included in the Trust Property with any one or more banks, trust companies , or other banking institutions deemed by the Trustees to be responsible, such money or securities to be subject to withdrawal on notice or upon demand and in such manner as the Trustees may determine, and the Trustees shall have no responsibility for any loss which may occur by reason of the failure of the Person with whom the money or securities have been deposited properly to account for the money or securities so deposited. SECTION 3.14. Discretion in Classification and in Accounting Treatment. The Trustees shall have power to determine conclusively whether any money, securities, or other properties of the Trust are for the purposes of the Trust to be considered as capital or income and in what manner any expenses or disbursements are to be borne as between capital and income whether or not in the absence of this provision such money, securities, or other properties would be regarded as capital or as income and whether or not in the absence of this provision such expense or disbursement would ordinarily be charged to capital or to income; and to determine what constitutes net earnings, profits and surplus; and to allocate to capital stock less than all of the consideration for any Share, in which case the balance of such consideration shall be paid-in surplus and, subject to the provisions of any series of Preferred Shares at the time outstanding, to utilize all surplus, including paid-in surplus for any purpose, including the payment of dividends, all as the Trustees may reasonably deem proper. SECTION 3.15. Valuation, etc. The Trustees shall have power to determine conclusively the value of any of the Real Property, securities or other properties of this Trust and of any services, securities, property or other consideration hereafter to be acquired by this Trust; and to revalue the real estate, securities, or other properties of the Trust from time to time in accordance with appraisals made by one or more of the Trustees deem responsible and experienced. SECTION 3.16. Fiscal year and Method of Accounting. The Trustees shall have power to determine the fiscal year of the Trust and the method or form in which its accounts shall be kept and from time to time to change the fiscal year or method or form of accounts. SECTION 3.17. Dividends. The Trustees shall have power to declare and pay dividends and make other distributions to Shareholders as provided in Section 6.14. SECTION 3.18. Payment of Taxes, etc. The Trustees shall have the power to pay all taxes or assessments, of whatever kind or nature, imposed upon or against the Trustees individually or collectively in connection with the Trust Property or income, or upon or against the Trust Property or income or any part thereof, to settle and compromise disputed tax liabilities, and for the foregoing purposes to make such returns and do all such other acts and things as may be deemed by the Trustees necessary or desirable. SECTION 3.19. Seal. The Trustees shall have the power to adopt a seal for the Trust in such form or forms as the Trustees may approve, which form or forms may be revised from time to time by the Trustees. Unless otherwise required by law or by the Trustees, the use of the Trust seal on Securities, agreements and other instruments and papers of the Trust shall not be a condition to their validity or effectiveness. SECTION 3.20. Conditions of Being FHA Approved Mortgagee. If the Trust shall be a so-called "FHA Approved Mortgage", then during such times or times, the Trustees shall not have the power to sell or otherwise dispose of any mortgage or mortgages or partial interest in such mortgage or mortgages insured by the FHA which the Trust owns unless such transfer is to a mortgagee approved by the FHA or is otherwise in accordance with the provisions of The National Housing Act, as amended, or regulations promulgated thereunder. The provision shall also apply in the event of dissolution or winding-up of the Trust. The Trustees shall have the power to execute on behalf of this Trust, in connection with any rental project on which the FHA has insured the indebtedness the Regulatory Agreement (FHA Form 2466), Application for Transfer of Physical Assets (FHA Form 2266), deed of trust or mortgage, and any and all other agreements, documents and forms which may be required by the FHA in connection with and approval by that Administration of the transfer of physical assets from any entity to the Trustees or the insurance by that Administration of any indebtedness or any rental project as to which the Trustees are or shall become owners for the benefit of this Trust. The provisions of such Regulatory Agreement shall be binding upon the Trust notwithstanding any conflict with or limitation of this Declaration of Trust. SECTION 3.21. Loans. The Trustees shall have power to lend money on behalf of the Trust to such Persons and on such terms as the Trustees shall deem advisable, subject to any applicable requirements of Section 3.23. SECTION 3.22. Insurance. Nowithstanding any other provision of this Declaration of Trust, the Trustee shall have power to purchase and pay for out of assets of the Trust insurance contracts and policies insuring the Trustees, officers and agents of the Trust individually against all claims and liabilities of every nature arising be reason of holding, being or having held any such office or position or by reason of any action alleged to have been taken or omitted by any such person as Trustee, officer or agent of the Trust, whether or not the Trust would have the power to indemnify such Person against such liability. SECTION 3.23. Transactions with Trustees, etc. The Trustees may contract or engage in transactions with any Person; provided, however, that the Trustees shall not knowingly, directly or indirectly, contract or engage in any transaction (other than transactions involving the holding of title as an accommodation to the Trust) with (1) and Trustee, officer or employee or member of any Board of Consultants of the Trust or (2) any officer, director or employee of the Adviser or of any Affiliate of the Adviser, or (3) the Adviser or independent contractor or (4) any corporation, partnership, trust or other organization of which a Trustee, any officer or employee of the Trust, the Adviser or any officer, director or employee of the Adviser is an Affiliate, unless (i) such contract or transaction has been approved or ratified, after disclosure of such an affiliation, by 75% of all the Trustees who are not parties to, or Affiliates of any Person (other than the Trust) who is a party to, such contract or transaction, and (ii) the Trustees approving the transaction have determined that such contract or transaction is on terms which are fair and reasonable to the Trust and the Shareholders, and (iii) the acquisition by the Trust of Real Property or Mortgages from any of the foregoing Persons in such transactions involves: (A) the acquisition by the Trust of federally insured or guaranteed Mortgages at prices not exceeding the currently quoted prices at which the Federal National Mortgage Association is purchasing comparable Mortgages; or (B) the acquisition by the Trust of other Mortgages on terms determined by the Trustees approving the transaction to be comparable to those available for similar transactions, if any, known to the Trustees with others who are not so affiliated; or (C) the acquisition by the Trust of Real Property at prices not exceeding the fair value thereof as set forth in an Appraisal. The Trustees and the Adviser shall disclose any interest, including expected commissions, which they have and any interest known to them which any of their Affiliates have, in any investment or contract or other transaction involving the Trust. Any interested Trustee or Trustees within the meaning of this Section 3.23 may be counted in determining the existence of a quorum and may vote at any meeting of the Trustees which shall authorize or ratify the matter in question. The Trustees in their capacity as Trustees shall not be required to devote their full time to the affairs of the Trust. Except as the Trustees may from time to time otherwise determine, Trustees, officers, agents, or members of the Board of Consultants, any Adviser and independent contractors of the Trust may engage individually or with or on behalf of other Persons in business activities of the types to be conducted by the Trust. For the purposes of this Section 3.23 (i) the term "independent contractor" shall mean an independent contractor as defined in the REIT Provisions of the Internal Revenue Code, which furnishes or renders services to tenants of, or manages or operates, Real Property owned by the Trust and (ii) the term "Affiliate" shall mean as to any corporation, partnership or trust any Person who (a) holds beneficially, directly or indirectly, 1% or more of the outstanding capital stock, shares or equity interests of such corporation, partnership or trust, (b) is an officer, director, employee, partner or trustee of such corporation, partnership or trust or of any Person which controls, is controlled by, or is under common control with, such corporation, partnership or trust, or (c) controls, is controlled by, or is under common control with, such corporation, partnership or trust. SECTION 3.24. Acting as Principal or Agent; Participations with Others. The Trustees shall have power to acquire, manage or dispose of any property, real, personal or mixed, tangible or intangible and take any action as principal or as agent and may participate with others in any corporation, partnership, limited partnership, joint venture, or other association of any kind. SECTION 3.25. Charitable Contributions. The Trustees shall have power to make donations, irrespective of benefit to the Trust, for the public welfare or for community fund, hospital, charitable, religious, educational, scientific, civic or similar purpose, and in time of war or other national emergency in aid thereof. SECTION 3.26. Indemnification. In addition to the mandatory indemnification provided for in Section 5.3, the Trustees shall have power to the extent permitted by law to indemnify or enter into agreements with respect to indemnification with any person or entity with whom this Trust has dealings, including, without limitation, any Adviser or independent contractor, to such extent as the Trustees shall determine. SECTION 3.27. Powers not Enumerated, etc. The Trustees shall have power to do all such things and execute all such instruments as they deem necessary, proper or desirable in order to carry out, promote or advance the purposes of this Trust although such matters or things are not herein specifically mentioned. Any determination of the purposes of the Trust made by the Trustees in good faith shall be conclusive. In construing the provisions of this Declaration of Trust, the presumption shall be in favor of the grant of power to the Trustees. ARTICLE 4 INVESTMENT POLICY SECTION 4.1. Definitions. As used in this Declaration of Trust the term: "REAL PROPERTY" shall mean land, rights in land (including, without limitation, leaseholds), and any buildings, structures, improvements, furnishings, fixtures and equipment located on or used in connection with land, leasehold interests and rights in land, or interests therein, but does not include Mortgages, Mortgage Loans, or interests therein; "MORTGAGES" shall mean mortgages, deeds of trust or other evidences of indebtedness secured by a lien on Real Property or on or in rights or interests in Real Property; "FIRST MORTGAGE" shall mean a mortgage which takes priority or precedence over all other charges or encumbrances upon the same property, and which must be satisfied before such other charges are entitled to participate in the proceeds of any sale. Such encumbered property may include a lesseen's interest therein. However, such priority shall not be deemed as abrogated by liens for taxes, assessments which are not due or remain payable without penalty, contracts (other than contracts for repayment of borrowed money); by leases, mechanics' and materialmen's liens for work performed and materials furnished which are not in default or are in food faith being contested; nor by other claims normally deemed in the same local jurisdiction, not to abrogate the priority of a first mortgage; "JUNIOR MORTGAGE" shall mean a Mortgage which (1) has the same priority or precedence over all charges or encumbrances upon Real Property as that required for a First Mortgage except that it is subject to the priority of one or more the other Mortgages and (2) must be satisfied before such other charges or encumbrances (other than prior Mortgages) are entitled to participate in the proceeds of any sale or other disposition of such Real Property; "MORTGAGE LOANS" shall mean loans evidenced by notes, debentures, bonds, and other evidences of indebtedness or obligations, which are negotiable or non-negotiable, and which are secured or collateralized by Mortgages; "FIRST MORTGAGE LOANS" shall mean Mortgage Loans secured or collateralized, at the time of acquisition thereof, by First Mortgages; "JUNIOR MORTGAGE LOANS" shall mean Mortgage Loans secured or collateralized, at the time of acquisition thereof, by Junior Mortgages; "TRUST ESTATE" or "TRUST PROPERTY" shall mean as of any particular time any and all property; real, personal or otherwise, tangible or intangible, which is transferred, conveyed or paid to the Trust or Trustees and all rents, income, profits and gains therefrom and which at such time is owned or held by or for the Trust or the Trustees; "TOTAL ASSETS OF THE TRUST ESTATE" shall mean the aggregate amount of all of the assets of the Trust Estate appearing on the most recent quarterly balance sheet or more recent interim balance sheet of the Trust, if any, available to the Trustees (increased, for purposes of computing restrictions under Sections 4.6(a), (b), (c) and (e) applicable to proposed Trust investments, by the aggregate amount of assets proposed to be acquired in such transaction), without deduction for mortgages or other security interest to which such assets are subject but after deduction for depreciation and other assets valuation reserves; "SECURITIES" shall mean any stock, shares, voting trust certificates, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise or in general any instruments commonly known as "securities" or any certificates of interest, shares or participations in temporary or interim certificates for, receipts for guarantees of, or warrants, options or rights to subscribe to, purchase or acquire any of the foregoing; "SECURITIES OF THE TRUST" shall mean any Securities issued by the Trust; "FHA" and "VA" shall mean respectively the Federal Housing Administration and the Veterans Administration, and any successors thereto; "FHA LOANS" shall mean Mortgage Loans which are insured under the provisions of the National Housing Act of 1934, as amended, or any analagous successor legislation; "VA LOANS" shall mean Mortgage Loans which are guaranteed under the provisions of the Servicemen's Readjustment Act of 1944, as amended, or any analagous successor legislation; "DEVELOPMENT LOANS" shall mean Mortgage Loans incurred to finance all or part of the cost of acquiring and improving vacant land and developing it into sites suitable for the construction of dwellings, including multi-family dwellings, and other income-producing properties, such as shopping centers and office and industrial buildings, and other structures, or suitable for other residential, commercial, industrial or public uses; "CONSTRUCTION LOANS" shall mean Mortgage Loans incurred to finance all or part of the cost of acquiring and improving land and the construction or improvement of dwellings, including multi-family dwelling, and other income-producing properties, such as shopping centers and office and industrial buildings, thereon; and "APPRAISAL" shall mean the value, as of the date of the Appraisal, of Real Property (or the aggregate of Real Property subject to a single Mortgage) in its existing state or in a state to be created, as determined by the Trustees or by a disinterested person having no economic interest in the Real Property, who, in the sole judgement of the Trustees, is properly qualified to make such a determination. The Trustees may in good faith rely on a previous Appraisal made on behalf of other Persons provided it meets the aforesaid standards and was made in connection with a Mortgage Loan in which the Trust acquires an entire or participating interest or which was prepared not earlier than two years prior to the acquisition by the Trust of its interest in the Real Property or Mortgage Loan. SECTION 4.2. Ownership of Income Producing Real Property. It shall be the policy of the Trustees to invest the Trust Estate primarily in entire or participating ownerships in Real Property which is income producing or which at the time of acquisition of such ownership the Trustees reasonably expect (by development, improvement, construction, alteration, lease or otherwise) to become income-producing within three years. The consideration given by the Trust for income-producing Real Property or Real Property which the Trustees reasonably expect to become income-producing within three years shall not exceed the value thereof set forth in an Appraisal by a disinterested person, except that the Trust may acquire at cost undeveloped or newly-constructed property which has not been in use for more than one year. SECTION 4.3. Financing in Connection with Expected Ownership of Real Property. In furtherance of the primary policy stated in Section 4.2, the Trustees may (by loan, secured or unsecured, by lease, by guarantee, by issuance of obligations of the Trust or by any combination thereof or by commitment, with or without fee, to do any of the foregoing or by commitment to purchase) finance the acquisition, improvement or development of, or the construction or alteration of stuctures on, any Real Property which within three years from the time of such financing, (a) the Trustees reasonably expect to acquire the entire or participating ownership of and (b) the Trustees reasonably expect to be income-producing. Any such financing shall not be subject to nor constitute part of any other investment limitation in this Article 4. SECTION 4.4. Additional Investments. In addition to investments pursuant to Sections 4.2 and 4.3. the Trustees may, subject to Section 9.1, also invest in entire or participating interests in any Mortgage Loan (including without limitation Construction, Development and other Mortgage Loans) or any other investment and may make commitment to make any such investment, unless such investment or commitment would result in the aggregate of all such additional investments (including amounts with respect to which commitments are outstanding), determined in accordance with the procedure for determining Total Assets of the Trust Estate, exceeding 40% of the Total Assets of the Trust Estate. SECTION 4.5. Interim Use of Proceeds. Pending utilization thereof in accordance with the investment policies of this Article 4 the proceeds from (a) any public or private offering of Securities of the Trust, (b) any borrowing or financing arrangement by the Trust, or (c) the sale of any capital asset may be invested subject to Section 9.1, in investments permitted under Section 4.4 (without being limited to 40% of Total Assets of the Trust Estate). SECTION 4.6. Prohibited Investments and Activities. It shall be the policy of the Trustees not to invest in the following investments or engage in the following activities: (a) Entire or participating ownership of non-income producing Real Property in excess of 10% of the Total Assets of the Trust Estate, except as permitted in Section 4.2 and Section 4.3. (b) Obligations secured by Mortgages other than First Mortgages, except as expressly permitted by Sections 4.3 and 4.4 and except that such Mortgages may be taken as additional collateral for First Mortgage Loans, or as part of the proceeds of the sale by the Trust of Real Property; provided, however, that in any event the Trustees may not invest in obligations secured by mortgages other than first mortgages (including "warehousing loans" collateralized by obligations other than First Mortgages) pursuant to any authorization in this Declaration of Trust in an aggregate amount exceeding 15% of the Total Assets of the Trust Estate. (c) Junior Mortgage Loans (excluding wrap-around loans) if as a result if such investment, the aggregate amount of Junior Mortgage Loans (determined in accordance with the procedure for determining Total Assets of the Trust Estate) would exceed 10% of the Total Assets of the Trust Estate. Notwithstanding the foregoing, Junior Mortgages may be taken as additional collateral for the First Mortgage Loans, as part of the proceeds of the sale by the Trust of Real Property or in any other transaction not involving a Junior Mortgage Loan. (d) Commodities, foreign currencies, bullion, or chattels, except such as required in the day-to-day business of the Trust or in connection with its Real Property or Mortgage Loans. (e) Real estate contracts of sale for purchase prices aggregating in excess of 1% of the Total Assets of the Trust Estate; provided, however, that nothing in this Section 4.6 shall prevent the holding of contracts of sale as security for loans made by the Trust and the ownership of such contracts of sale upon foreclosure of, or realization upon, such security interests and contracts of sale so held or owned shall not be counted in computing the percentage of assets invested in contracts of sale. (f) Engage in any short sale. (g) Incur indebtedness, whether secured or unsecured, in excess of 75% of the Total Assets of the Trust Estate (increased by the consideration received by the Trust for such indebtedness) at the time of such incurrence. (h) Encumber the aggregate of the Real Property of the Trust (excluding Real Property acquired by the Trust as a result of or in connection with foreclosure of any mortgages, or conveyed to the Trustees in full or partial satisfaction of indebtedness to the Trust and excluding Real Property of the Trust subject to FHA and VA or other governmentally insured or guaranteed encumbrances) in excess of 66 2/3 % of the aggregate fair market value of all and said Real Property not so excluded at the time of such encumbrance as determined under Section 3.15 hereof. (i) Issue "redeemable securities" as defined in Section 2(a)(32) of the Investment Company Act of 1940 as amended. (j) Invest in Securities in any real estate investment trust except upon the affirmative vote of at least 75% of the Trustees then in office. (k) Engage in trading as compared with investment activities, or engage in the business of underwriting or agency distribution of securities issued by others, but this prohibition shall not prevent the Trust from selling participations in Mortgage Loans or interests in real estate. SECTION 4.7. Combination of Permitted Investments. The Trustees may make any investment permitted under any provision of Article 4 in combination with any other investment or investments permitted under any other provision of this Article 4. SECTION 4.8. Exercise of Powers Under Article 3. Nothing in this Article 4 shall be deemed to prohibit or limit the exercise by the Trustees of the powers set forth in Article 3 except to the extent expressly provided in this Article 4. SECTION 4.9. Obligor's Default. Notwithstanding any provision in any Article of this Declaration of Trust, when an obligor to the Trust is in default under the terms of any obligation to the Trust (or in the good faith judgment of the Trustees, there is a significant risk that such default may occur), the Trustees shall have the power to pursue any remedies permitted by law which, in their sole judgment, are in the interest of the Trust, and the Trustees shall have the power to hold property of a type or in an amount not permitted hereunder and to enter into any desirable investment commitment or obligation of the Trust resulting from the pursuit of such remedies as may be necessary or desirable in the sole judgment of the Trustees to dispose of property acquired in the pursuit of such remedies. SECTION 4.10. Specifically Permitted Investments. Nothing contained in this Declaration of Trust shall preclude the Trustee from investing funds of the Trust, and notwithstanding any other provision of this Declaration of Trust the Trustees are specifically authorized and empowered to invest funds of the Trust, in any investments specifically referred to in the Registration Statement described in Section 10.2. ARTICLE 5. LIMITATIONS OF LIABILITY OF SHAREHOLDERS, TRUSTEES AND OTHERS. SECTION 5.1. No Personal Liability of Shareholders, Trustees, etc. No Shareholder shall be subject to any personal liability whatsoever to any other Person in connection with Trust Property or the affairs of the Trust and no Trustee, officer or agent of the Trust, or member of the Board of Consultants shall be subject to any personal liability whatsoever, in tort, contract or otherwise, to any other Person in connection with Trust Property of the affairs of the Trust, save only that arising from his bad faith, willful misfeasance, gross negligence or reckless disregard of his duties or for his failure to act in good faith in the reasonable belief that his action was in the best interests of the Trust; and all such other Persons shall look solely to the Trust Property for satisfaction of claims of any nature arising in connection with the affairs of the Trust. If any Shareholder, Trustee, officer, agent, or member of the Board of Consultants, as such, of this Trust, is made a party to any suit or proceeding to enforce any such liability, he shall not on account thereof be held to any personal liability. The Trust shall indemnify and hold each Shareholder harmless from and against all claims and liabilities, to which such Shareholder may become subject by reason of his being or having been a Shareholder, and shall reimburse such Shareholder for all legal and other expenses reasonably incurred by him in connection with any such claim or liability. The rights accruing to a Shareholder under this Section 5.1 shall not exclude any other right to which such Shareholder may be lawfully entitled, nor shall anything herein contained restrict the right of the Trust to indemnify or reimburse a Shareholder in appropriate situation even though not specifically provided herein. SECTION 5.2. Non-Liability of Trustees etc. No trustee, officer or agent of the Trust or member of the Board of Consultants, shall be liable to the Trust or to any Shareholder, Trustee, officer agent or member of the Board of Consultants thereof for any action of failure to act (including without to limitation the failure to compel in any way any former or acting Trustee to redress any breach of trust) except for his own bad faith, willful misfeasance, gross negligence or reckless disregard of his duties or for his failure to act in good faith in the reasonable belief that his action was in the best interests of the Trust. SECTION 5.3. Mandatory Indemnification. The Trust shall indemnify each of its Trustees, officers, agents and members of the Bord of Consultants, if any (including persons who serve at its request as directors, officers or trustees of another organization in which it has any interest, as a shareholder, creditor or otherwise) against all liabilities and expenses, including amounts paid in satisfaction of judgements, in compromise or as fines and penalties, and counsel fees, reasonably incurred by him in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, in which may be involved or with which he may be threatened, while in office or thereafter, by reason of his being or having been such a Trustee, officer, agent or member of the Board of Consultants, except with respect to any matter as to which he shall have been adjudicated to have acted in bad faith, willful misfeasance, reckless disregard of his duties or gross negligence or not to have acted in good faith in the reasonable belief that his action was in the best interests of the Trust; provided, however, that as to any matter disposed of by a compromise payment by such person, pursuant to a consent decree or otherwise, no indemnification either for said payment or for any other expenses shall be provided unless the Trust shall have received a written opinion from independent legal counsel approved by the Trustees to the effect that if either the matter or willful misfeasance, reckless disregard of duty or gross negligence, or the matter of good faith and reasonable belief as to the best interests of the Trust, had been adjudicated, it would have been adjudicated in favor of such Person. The rights accruing to any Person under these provisions shall not exclude any other right to which he may be lawfully entitled; provided, that no Person may satisfy any right of indemnity or reimbursement granted herein or in Section 5.1 or to which he may be otherwise entitled except out of the property of the Trust, and no Shareholder shall be personally liable to any Person with respect to any claim for indemnity or reimbursement or otherwise. The Trustees may make advance payments in connection with indemnification under this Section 5.3, provided that the indemnified person shall have given a written undertaking to reimburse the Trust in the event it is subsequently determined that he is not entitled to such indemnification. SECTION 5.4. No Bond Required of Trustees. No Trustee shall, as such, be obligated to give any bond or surety or other security for the performance of any of his duties hereunder. SECTION 5.5. No Duty of Investigation; Notice in Trust Instruments, etc. No purchaser, lender, transfer agent or other person dealing with the Trustees or any officer or agent of the Trust shall be bound to make any inquiry concerning the validity of any transaction purporting to be made by the Trustees or by said officer or agent or be liable for the application of money or property, paid, loaned, or delivered to or on the order of the Trustees or of said officer or agent. Every note, debenture, bond, obligation, contract, instrument, certificate, Share or undertaking, and every other act or thing whatsoever executed in connection with the Trust shall be conclusively taken to have been executed or done by the executors thereof only in their capacity as Trustees under this Declaration of Trust or in their capacity as officers or agents of the Trust. Every written such note, debenture, bond, obligation, contract, instrument, certificate, Share or undertaking made or issued by the Trustees or by any officers or agents of the Trust, in their capacity as such, shall contain an appropriate recital to the effect that the Shareholders, Trustees, officers and agents of the Trust shall not be personally liable thereunder, nor shall resort be had to their private property for the satisfaction of any obligation or claim thereunder, and appropriate references shall be made therein to the Declaration of Trust, and may contain any further recital which they may deem appropriate, but the omission of such recital shall not operate to impose personal liability on any of the Trustees, Shareholders, officers or agents of the Trust. The Trustees shall, at all times, maintain insurance for the protection of the Trust Property, its Shareholders, Trustees, officers and agents in such amount as the Trustees shall deem adequate to cover possible tort liability, and such other insurance as the Trustees in their sole judgement shall deem advisable. SECTION 5.6. Reliance on Experts, etc. Each Trustee and officer of the Trust shall, in the performance of his duties, be fully protected in relying in good faith upon the books of account of the Trust, reports made to the Trust by any of its officers or employees or by the Adviser or by counsel, accountants, appraisers or other experts or consultants selected with reasonable care by the Trustees or officers, or upon other records of the Trust. ARTICLE 6. SHARES OF BENFICIAL INTEREST SECTION 6.1. Description of Shares. The interest of the Shareholders hereunder shall be divided into shares of beneficial interest which shall be known collectively as "Shares", all of which shall be without par value and shall be fully paid and no assessment shall ever be made upon Shareholders. There shall be two classes of Shares; one such class shall be known as "Common Shares" and the other shall be known as "Preferred Shares". The number of Common Shares which the Trust shall have authority to issue is unlimited, and the number of Preferred Shares which the Trust shall have authority to issue is 2.000,000 Preferred Shares. Holders of record at any time of outstanding Shares of any class are herein referred to as "Shareholders". SECTION 6.2. Common Shares. Subject to the provisions of any series of Preferred Shares which may at the time be outstanding, the holders of Common Shares shall be entitled to receive, when and as declared from time to time by the Trustees out of any funds legally available for the purpose, such dividends as may be declared from time to time by the Trustees in accordance with Section 6.12. In the event of the termination of the Trust pursuant to Section 10.1, or upon the distribution of its assets, after the payment in full or the setting apart for payment of such preferential amounts, if any, as the holders of Preferred Shares at the time outstanding shall be entitled, the remaining assets of the Trust available for payment and distribution to Shareholders shall, subject to any participating or similar rights of Preferred Shares at the time outstanding, be distributed ratably among the holders of Common Shares at the time outstanding in accordance with Section 10.3. All Common Shares shall have non-cumulative voting rights, and shall have no preference, conversion, exchange or redemption rights. SECTION 6.3. Preferred Shares. The Trustees are hereby expressly authorized at any time, and from time to time, upon the affirmative vote of at least 75% of the Trustees then in office, to provide for the issuance of Preferred Shares in one or more series, with such voting powers, full or limited, or without voting powers, and with such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions providing for the issue thereof adopted by the Trustees, and as are not stated and expressed in the Declaration of Trust, including (without limiting the generality thereof) the following as to each such series: (a) the designation of such series, (b) the dividends payable with respect to such series, the rates or basis for determining such dividends, any conditions and dates upon which such dividends shall be payable, the preferences, if any, of such dividends over, or the relation of such dividends, shall be payable on any other class or series of Shares of the Trust, whether such dividends shall be non-cumulative or cumulative and, if cumulative, the date or dates from which such dividends shall be cumulative, (c) whether, subject to Section 4.6(i), Preferred Shares of shall be redeemable (in addition to the Trust's right of redemption as set forth in Section 6.19) at the option of the Trust or the holder or both or upon the happening of a specified event and, if redeemable, whether for cash, property or rights, including Securities of the Trust, the times, prices or rates and any adjustment and other terms and conditions of such redemption, (d) the terms and amount of any sinking, retirement or purchase fund provided for the purchase or redemption of Preferred Shares of such series, (e) whether or not Preferred Shares of such series shall be convertible into or exchangeable for Shares of another class or series, at the option of the Trust or of the holder or both or upon the happening of a specified event and, if provision be made for such conversion or exchange, the terms, prices, rates, adjustments and any other terms and conditions thereof, (f) the extent, if any, to which the holders of the Preferred Shares of such series shall be entitled to vote with respect to the election of Trustees or otherwise, including, without limitation, the extent, if any, to which such holders shall be entitled, voting as a series or as part of a class, to elect one or more Trustees upon the happening of a specified event or otherwise, (g) the restrictions, if any, on the issue or reissue of Preferred Shares of such series or any other series, (h) the extent, if any, to which the holders of the Preferred Shares of such series shall be entitled to preemptive rights, and (i) the rights of the holders of the Preferred Shares of such series upon the termination of the Trust or any distribution of its assets. Before the Trust shall issue any Preferred Shares of any series, a certificate setting forth the resolution or resolutions of the Trustees fixing the voting powers, designations, preferences and rights of such series, the qualifications, limitations or restrictions thereof, and the number of Preferred Shares of such series authorized by the Trustees, shall be signed by a Trustee or the Secretary of the Trust and filed in accordance with Section 11.1. Unless otherwise provided in any such resolution or resolutions, the number of Preferred Shares of the series authorized by such resolution or resolutions may be increased or decreased (but not below the number of Preferred Shares of such series then outstanding) by a certificate, setting forth a resolution or resolutions adopted by at least 75% of the Trustees then in office authorizing such increase or decrease, signed by a Trustee or the Secretary of the Trust and filed in accordance with Section 11.1. Unless otherwise provided in the resolution or resolutions creating such series, the number of Preferred Shares specified in any such decrease shall be restored to the status of authorized but unissued Preferred Shares (without designation as to series). Unless otherwise provided in such resolution or resolutions, any other amendment to such resolution or resolutions may be effected by a certificate, setting forth a resolution adopted by at least 75% of the Trustees then in office authorizing such amendment and certifying that such amendment has been approved by such votes, if any, as may be required pursuant to Section 10.6, signed by a Trustee or the Secretary of the Trust and filed in accordance with Section 11.1. Any such amendment may, without limitation, cancel or otherwise affect the right of the holders of Preferred Shares of such series to receive dividends which have accrued but have not been declared. Holders of Common Shares shall not be entitled to vote on such amendments to any such resolutions. SECTION 6.4. Trust Only. It is the intention of the Trustees to create on]y the relationship of Trustee and beneficiary between the Trustees and each Shareholder from time to time, and to give to each Shareholder only such rights and to impose upon him only such obligations as are conferred or imposed upon him as a beneficiary hereunder. It is not the intention of the Trustees to create a general partnership, limited partnership, joint stock association, corporation, bailment or any form of legal relationship other than a trust. Nothing in this Declaration of Trust or in the certificates of Shares shall be construed to make the holders of said certificates, either by themselves or with the Trustees, partners or members of a joint stock association. SECTION 6.5. Share Certificates. Every Shareholder shall be entitled to receive a certificate specifying the number of Shares of the applicable class or series held by him. Such certificates shall be treated as negotiable and title thereto, and to the Shares represented thereby, shall be transferred by delivery thereof to the same extent in all respects as stock certificates, and the shares represented thereby of a Massachusetts business corporation. Unless otherwise determined by the Trustees such certificates shall be signed by the President and Treasurer or Secretary, and shall be countersigned by a transfer agent, if any and registered by a registrar, if any. There shall be filed with each transfer agent and registrar, if any, a copy of the authorized form of certificate, certified by the President or Secretary and such form shall continue to be used unless and until the Trustees approve some other form. In case any one or more officers of the Trust who shall have signed (or whose facsimile signature shall appear on ) certificates shall cease to be such officer or officers before such certificates shall have been actually issued, such certificates may nevertheless be issued with the same effect as though the persons who signed such certificates (or whose facsimile signature appears thereon) had not ceased to be such officers of the Trust. The Trustees may, in their discretion, authorize certificates to be signed or authenticated by the facsimile signature of an officer or officers of the Trust provided that any certificate signed or authenticated by the facsimile signature of an officer shall not be valid unless manually countersigned by either a transfer agent or a registrar. Each certificate issued by the Trust after April 9, 1974 to represent any Shares shall include, on the face or back thereof, a statement that the Trust will furnish to the holder therof, upon written request without charge, the powers, designations, preferences and relative, participating, optional or other special rights of each class of Shares or series thereof and the qualifications, limitations or restrictions thereof. SECTION 6.6. Issuance of Shares. Subject to the provisions of any series of Preferred Shares at the time outstanding, the Trustees, in their discretion, may from time to time without vote of the Shareholders issue Shares, in addition to the then issued and outstanding Shares and Shares held in the treasury, to such party or parties and for such amount and type of consideration, including cash, property or services, at such time or times, and on such terms as the Trustees may deem best, and may in such manner acquire other assets (including the acquisition of assets subject to, and in connection with the assumption, of liabilities) and businesses. In connection with any issuance of Shares, the Trustees may issue fractional Shares or may provide for the issuance of scrip for fractions of Shares and determine the terms of such scrip including, without limiting the generality of the foregoing, the time which any such scrip must be surrendered for exchange into Shares and the rights if any, of holders of scrip upon the expiration of the time so fixed, the rights, if any, to receive proportional distributions, and the rights, if any, to redeem scrip for cash, or the Trustees may, in their discretion, or if they see fit at the option of each holder, provide in lieu of scrip for the adjustment of fractions in cash. The provisions of Section 6.5 hereinabove relative to certificates for Shares shall apply so far as appropriate to such scrip, except that such scrip may in the discretion of the Trustees be signed by a transfer agent alone notwithstanding that there is then a registrar for the Shares and need not be signed by any officer of the Trust. SECTION 6.7. Register of Shares. A register shall be kept by or on behalf of the Trustees under the direction of the Trustees which shall contain the names and addresses of the Shareholders and the number of Shares of each class and series thereof held by them respectively and the numbers of the certificates representing such Shares and a record of all transfers thereof. Only Shareholders whose certificates are so recorded shall be entitled to receive dividends or distributions applicable to the respective classes or series of Shares held by them, or otherwise to exercise or enjoy the rights of Shareholders. No Shareholder shall be entitled to receive payment of any dividend or distribution, nor to have notice given to him as herein provided, until he has give his address to a transfer agent or such other officer or agent of the Trustees as shall keep the said register for entry thereon. SECTION 6.8. Transfer Agent and Registrar. The Trustees shall have power to employ a transfer agent or transfer agents, and a registrar or registrars for any one or more classes or series of Shares. The transfer agent or transfer agents may keep the said register and record therein the original issues and transfers, if any, of the said Shares and countersign certificates of Shares issued to the persons entitled to the same. Any such transfer agents and registrars shall perform the duties usually performed by transfer agents and registrars of certificates of stock in a corporation, except as modified by the Trustees. In accordance with the usual custom of corporations having a transfer agent, certificates for Shares in blank (signed or bearing facsimile signatures) may be deposited with any transfer agent of the Trust, to be used by the transfer agent in accordance with the authority conferred upon it as occasion may require, and in so doing the signers of such certificates shall not be responsible for any loss resulting therefrom. SECTION 6.9. Transfer of Shares. Shares shall be transferable on the records of the Trust (other than pursuant to Section 6.10) only by, the record holder thereof or by his agent thereunto duly authorized in writing, upon delivery to the Trustees or a transfer agent of the Trust of the certificate therefor, properly endorsed or accompanied by a duly executed instrument of transfer, together with such evidence of the genuineness of each such endorsement, execution, and authorization and of other matters as may reasonably be required. Upon such delivery the transfer shall be recorded on the register of the Trust and a new certificate for the Shares so transferred shall be issued to the transferee, and in case of a transfer of only a part of the Shares represented by any certificate, a new certificate for the residue thereof, shall be issued to the transferor. But until such record is made, the Shareholder of record shall be deemed to be the holder of such Shares for all purposes hereof and neither the Trustees nor any transfer agent or registrar nor any officer or agent of the Trust shall be affected by any notice of the proposed transfer. SECTION 6.10. Shareholders of Record by Operation of Law. Any person becoming entitled to any Shares in consequence of the death, bankruptcy, or incompetence of any Shareholder, or otherwise by operation of law, shall be recorded as the holder of such Shares and receive a new certificate therefor upon production of the proper evidence thereof and delivery of the existing certificate to the Trustees or a transfer agent of the Trust. But until such record is made, the Shareholder of record shall be deemed to be the holder of such Shares for all purposes hereof and neither the Trustees nor any transfer agent or registrar nor any officer or agent of the Trust shall be affected by any notice of such death, bankruptcy or incompetence, or other operation of law. SECTION 6.11. Joint Ownership. The Trustees may treat two or more Persons holding any Shares as joint tenants of the entire interest therein unless their ownership is expressly otherwise recorded on the register of the Trust, but no entry shall be made in the register or in any certificate that any Person is in any other manner entitled to any future, limited, or contingent interest in any Share; provided, however, that any Person recorded as a holder of any Share may, subject to the provisions hereinafter contained, be described in the register or in any certificate as a fiduciary of any kind and any customary words may be added to the description of the holder to identify the nature of such fiduciary relationship. SECTION 6.12. No Obligation with the Respect to Other Instruments. The Trustees shall not, nor shall the Shareholders, or any officer, transfer agent or other agent of the Trust or of the Trustees, be bound to see to the execution of any trust, express, implied or constructive, or of any charge, pledge, or equity to which any of the Shares or any interest therein are subject, or to ascertain or inquire whether any sale or transfer or any such Shares or interests therein by any such Shareholder or his personal representatives is authorized by such trust, charge, pledge or equity, or to recognize any Person as having any interest therein except for the Persons recorded as such Shareholders. The receipt of the Person in whose name any Share is recorded, or, if such Share is recorded in the names of more than one Person, the receipt of any one of such Persons or the receipt of the duly authorized agent of any such Person shall be sufficient discharge for all dividends and other money and for all Shares, notes, debentures, bonds, obligations, scrip, and other property payable, issuable, or deliverable in respect of any such Share and from all liability to see to the application thereof. SECTION 6.13. Loss, etc. of Certificate. In case of the loss, mutilation or destruction of any certificate of Shares hereunder, the Trustees may issue or cause to be issued a new certificate on such terms as they may see fit. SECTION 6.14. Distributions to Shareholders. Subject to the provisions of any series of Preferred Shares at the time outstanding, the Trustees shall from time to time distribute such proportion of the net profits, surplus (including paid-in surplus), capital, or assets held by the Trustees as they may deem proper. Subject to any such provisions, the holders of Common Shares shall be entitled to receive, in proportion to their respective ownership of Common Shares, any such dividends or distributions. Subject to any such provisions, such distribution may be made in cash or property (including without limitation any type of obligations of the trust or any assets thereof), and the Trustees may distribute to the holders of Shares of any class or series, in proportion to their respective ownership thereof, additional Shares of such class or series, as the case may be, or of any other class or series, in such manner and on such terms as the Trustees may deem proper. Subject to any such provisions, and such distributions may be made even though the paid-in capital of this Trust at the time of any distribution exceeds the net assets of the Trust based either on the market value or the book value, and such distributions may be among the Shareholders or record at the time of declaring a distribution or among the Shareholders of record at such other date (not more than thirty days prior to payment of such distribution) as the Trustees shall determine. Subject to any such provisions, the Trustees may always retain from the net profits such amount as they may deem necessary to pay the debts or expenses of the Trust or to meet obligations of the Trust, or as they deem desirable to use in the conduct of its affairs or to retain for future requirements or extensions of the business. SECTION 6.15. Statement of Source of Funds. In connection with each distribution to Shareholders, the Trustees shall furnish the Shareholders with a statement in writing advising as to the source of the funds so distributed or, if the source thereof has not then been determined, the communication shall so state, and in such event, the statement as to source shall be forwarded to Shareholders not later than sixty (60) days after the close of the fiscal year in which the distribution was made. SECTION 6.16. Notices. Any and all notices to which any Shareholder hereunder may be entitled and any and all communications shall be deemed duly served or given if mailed, postage prepaid, addressed to any Shareholder of record at his last known address as recorded on the register of the Trustee. SECTION 6.17. Purchase of Shares by the Trust; Treasury Shares. Subject to the provisions of any series of Preferred Shares at the time outstanding the Trustees may, on behalf of the Trust, at any time purchase or otherwise acquire outstanding Shares of the Trust for such consideration and on such terms as they may deem proper. Shares so purchased or acquired by the Trustees on behalf of the Trust shall not, so long as they belong to the Trust, receive dividends or distributions or be entitled to any voting rights or be deemed outstanding for any purpose hereunder. Subject to any such provisions, such Shares may in the discretion of the Trustees be cancelled or such Shares may in the discretion of the Trustees be transferred at such times, to such parties, and for such consideration as the Trustees may determine. SECTION 6.18. Purchase etc. of Shares by Trustee. The Trustee, or any of them, may in their individual capacity, purchase and otherwise acquire or sell and otherwise dispose of Shares issued hereunder and in so doing shall be subject to the same limitations as a director of a Massachusetts business corporation at the time of the exercise of such power. SECTION 6.19. Redemption of Shares; Disclosure of Holding. If the Trustee shall, at any time and in good faith be of the opinion that direct or indirect ownership of Shares of the Trust has or may become concentrated in any individual or individuals to an extent which would disqualify the Trust as a Real Estate Investment Trust then the Trustees shall have the power by lot or other means deemed equitable to them (i) to call for redemption a number of concentrated Shares sufficient, in the opinion of the Trustees, to maintain or bring the direct or indirect ownership of Shares of the Trust into conformity with the requirements of such qualification and (ii) to refuse to transfer Shares to any person whose acquisition of the Shares in question would in the opinion of the Trustees result in such disqualification. The redemption price for a class or series shall be equal to the fair market value of the Shares as reflected in the latest bid quotation for the Shares (if then traded over-the-counter) or the closing sale price (if then listed on a national securities exchange) of such class or series as of the business day preceding the day on which notice of redemption is sent, or, if no quotations or closing sale price for the Shares are available, as determined in good faith by the Trustees. From and after the date fixed for redemption by the Trustee, the holder of any Shares so called for redemption shall cease to the entitled to dividends, voting rights and other benefits with respect to such Shares expecting only the right to payment of the redemption price fixed as aforesaid. For the purpose of this Section 6.19, the terms "individual" and "ownership" of Shares shall be defined in accordance with or by reference to the qualification requirements of the REIT Provisions of the Internal Revenue Code. The Shareholders shall upon demand disclose to the Trustees in writing such information with respect to direct and indirect ownership of Shares as the Trustee deem necessary to comply with the provisions of the Internal Revenue Code, or to comply with the requirements of any other taxing authority. SECTION 6.20. Warrants. Subject to the provisions of any series of Preferred Shares at the time outstanding, the Trustees, in their discretion, may from time to time without vote of the Shareholders issue share purchase warrants (herein referred to as "Warrants") which shall entitle the holders thereof to subscribe to Shares and/or fractional Shares of such class or series or scrip at such time or times and on such terms as the Trustees may prescribe including, without limiting the generality of the foregoing, the times within which any such Warrants must be exercised, any provision for redemption of Warrants by the Trust and the consideration to be paid for such Shares. Subject to any such provisions, warrants may be issued to such parties (but subject to Shareholder preemptive rights to the extent provided in Section 6.22) and for such consideration (subject to Section 3.7) as the Trustees may from time to time determine (including the issuance of detachable or non-detachable Warrants as an inducement to persons acquiring or underwriting any Securities of the Trust). The provisions of this Article 6 relative to certificates for Shares shall apply so far as appropriate to such Warrants, except that such Warrants may in the discretion of the Trustee, be signed by the Transfer Agent or Warrant Agent only. SECTION 6.21. Issuance of Shares in Units. Notwithstanding any other provision of this Declaration of Trust, the Trustees may issue from time to time Units containing multiple Shares, with or without detachable or non-detachable Warrants. Each Share issued in any such Unit shall have the same characteristics and entitle the registered holder thereof to the same rights as any other Share of the same class or series issued by the Trustees, except that the Trustees may provide (and may cause a notation to be placed on the certificate representing such Unit or the Shares issued in any such Unit) that for a specified period not to exceed one year after issuance, Shares and/or Warrants issued in any such Unit may be transferred upon the books of the Trust only in such Unit. SECTION 6.22. Limitation of Pre-emptive Rights. Holders of Common Shares shall have no pre-emptive rights with respect to any Shares of any class or series or any Securities of the Trust which evidence indebtedness (or any Shares into which such Securities of the Trust may be converted) sold, offered or issued by the Trust at any time and shall have no pre-emptive rights with respect to Warrants, rights and options of the Trust sold, offered or issued by the Trust at any time as part of a public offering of such Warrants, rights or options or as part of a private financing or borrowing arrangement or pursuant to a stock option plan providing for the issuance of Shares pursuant to "qualified stock options", as defined in the Internal Revenue Code, as from time to time amended. Subject to the provisions of any series of Preferred Shares at the time outstanding, and subject to the foregoing limitations, holders of Common Shares shall have pre-emptive rights solely with respect to the sale, offering or issuance of Warrants, rights and options to acquire Common Shares issued by the Trust. Holders of any series of Preferred Shares shall have pre-emptive rights only to the extent, if any, provided in the provisions of such series. SECTION 6.23. Dividend Investment Plan. Subject to the provisions of any series of Preferred Shares at the time outstanding, the Trustees may establish from time to time a plan for holders of Common Shares permitting the investment of dividends in Common Shares and may amend, modify, alter and terminate any such plan. Any such dividend investment plan may include a provision fixing the purchase price at market price or book value or at the lower of market price or the book value of the Common Shares. ARTICLE 7 SHAREHOLDERS. SECTION 7.1. Ownership of Trust Property. The ownership of all Trust Property and the control of the affairs of the Trust are vested exclusively in the Trustees, and the Shareholders shall have no interest therein other than the beneficial interest conferred by their Shares issued hereunder, and they shall have no right to call for any partition or division of any property, profits, rights, or interests. Notwithstanding any other provisions hereof, all real estate at any time forming part of the Trust Property shall be held upon trust for sale and conversion into personal estate at such time or times and in such manner and upon such terms as the Trustees shall approve, but the Trustees shall have power, until the termination of this Trust, to postpone such conversion so long as they in their uncontrolled discretion shall think fit, and for the purpose of determining the nature of the interest of the Shareholders therein, all such real estate shall at all time be considered as personal estate; and the real estate and personal property comprised in the trust estate shall constitute a single fund. SECTION 7.2 Shares Deemed Personal Property. The Shares issued hereunder shall be personal property giving only the rights in this Declaration of Trust and in the certificates thereof specifically set forth. The death of a Shareholder during the continuance of this Trust shall not terminate the Trust nor give his legal representatives a right to an accounting or to take any action in the courts or otherwise against other Shareholders or the Trustees or the property held hereunder, but shall simply entitle the legal representatives of the deceased Shareholder to demand and receive a new certificate held by the deceased Shareholder, and upon the acceptance of which new certificate such legal representatives shall succeed to all the rights of the deceased Shareholder under this Trust. SECTION 7.3. Meetings. The Annual Meeting of Shareholders shall be held each year after mailing to the Shareholders of the annual Report described in Section 2.13 at a place, within or without the Commonwealth of Massachusetts, and on a date to be fixed, from time to time, by the Trustees or by the By-laws. Special Meetings of the Shareholders shall be called at any time when ordered by the President or by two Trustees, or, subject to the provisions of any series of Preferred Shares then outstanding, upon the written request of the holders of 25% of the Shares of all classes then outstanding and entitled to vote at such meeting, specifying the nature of the business for which said meeting is called and no other business shall be considered at such meeting. In the event an Annual Meeting is not held in a year as above provided in this Section 7.3, a Special Meeting of Shareholders may be held in lieu thereof with all the force and effect of an Annual Meeting. SECTION 7.4. Notice of Meeting. Notice of all meetings of the Shareholders shall be mailed or delivered by a Trustee or Trustees or an officer or agent of the Trust to each Shareholder entitled to vote thereat at his registered address at least ten (10) days before the meeting. No business shall be transacted at any Special Meeting of Shareholders unless notice of such business has been given in the call for the meeting. Any adjourned meeting may be held as adjourned without further notice. SECTION 7.5. Quorum. Subject to the provisions of any series of Preferred Shares at the time outstanding, the presence, in person or by proxy, of the holders of record of Shares (of any class) entitled to vote at the meeting aggregating a majority of the total number of Shares of all classes then issued and outstanding and entitled to vote on any question shall be necessary and sufficient to constitute a quorum for action on such question at any Annual or Special Meeting of Shareholders. If a quorum shall not be present a majority of the Shareholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn from time to time the meeting until quorum shall be present or represented. At any adjourned meeting at which a quroum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. SECTION 7.6. Type of Shareholder Action Binding on Trustees. Subject to the provisions of any series of Preferred Shares then outstanding, only action taken by the Shareholders of the type specified in Section 2.2, 2.3, 7.3, 8.5, 10.1, 10.4, 10.5 and 10.6 hereof (and then only if such action receives the requisite Shareholder approval) shall in any way bind the Trustees. Subject to Section 10.6, the holders of Preferred Shares of any series shall be entitled to vote upon the matters referred to in the preceding sentence or any other matters only to the extent specified in the Trustee resolutions providing for such series. SECTION 7.7. Fixing Date For Determination of Shareholders of Record. Except as may be provided in the provisions of any series of Preferred Shares at the time outstanding, for the purpose of determining the Shareholders who are entitled to vote or act at any meeting or any adjournment thereof, or who are entitled to participate in any dividend, or for the purpose of any other action the Trustees may from time to time close the transfer books for such period not exceeding sixty (60) days as the Trustees may determine; or without closing the transfer books the Trustees may fix a date not more than sixty (60) days prior to the date of any meeting of Shareholders or dividend payment or other action as a record date for the determination of Shareholders entitled to vote at such meeting or any adjournment thereof or to receive such dividend or to be treated as Shareholders of record for purposes of such other action and any Shareholder who was a Shareholder at the time so fixed shall be entitled to vote at such meeting or any adjournment thereof or to receive such dividend or to be treated as a Shareholder of record for purposes of such other action even though he has since that date disposed of his Shares, and no Shareholder becoming such after said date shall be so entitled to vote at said meeting or any adjournment thereof or to receive such dividend or to be treated as a Shareholder of record for purposes of such other action. SECTION 7.8. Proxies; Voting. At any meeting of the Shareholders, any Shareholder entitled to vote thereat may vote by proxy, provided that no proxy shall be voted on any matter unless it shall have been filed prior to the vote on such matter with the Secretary or with such other officer or agent of the Trust as the Secretary may direct. A proxy purporting to be executed by or on behalf of a Shareholder shall be deemed valid unless challenged at or prior to its exercise and the burden of proving invalidity shall rest on the challenger. Pursuant to a resolution adopted by a Majority of the Trustees, proxies may be solicited in the name of one or more Trustees or one or more officers of the Trust. Only Shareholders of record shall be entitled to vote and each full Share having voting power shall be entitled to one vote or, in the case of Preferred Shares having voting power, such greater or lesser vote as may have been provided in the Trustees' resolutions providing for such Preferred Shares. When any full Share is held jointly by several persons, any one of them may vote at any meeting in person or by proxy in respect of such Share, but if more than one of them shall be present at such meeting in person or by proxy in respect of such Share, and such joint owners or their proxies so present disagree as to any vote to be cast, such vote shall not be received in respect of such Share. If the holder of any such Share is a minor or a person of unsound mind, and subject to guardianship or to the legal control of any other person as regards the charge or management of such Share, he may vote by his guardian or such other person appointed or having such control, and such vote may be given in person or by proxy. SECTION 7.9. Share Action by Unanimous Written Consent. Any action taken by Shareholders may be taken without a meeting if all Shareholders entitled to vote on the matter consent to the action in writing and the written consents are filed with the records of the meetings of Shareholders. Such consent shall be treated for all purposes as a vote taken at a meeting of Shareholders. Shareholder action by less than unanimous written consent or authorization may be taken only as expressly provided in this Declaration of Trust. SECTION 7.10. Inspection of Records. Shareholders and any Federal or state securities or "blue sky" administrator or other similar authority shall have the right and for proper purposes, to inspect the records of the Trust at such office or offices as the records may be regularly maintained to the same extent as is permitted to shareholders of a Massachusetts business corporation. ARTICLE 8 ADVISER. SECTION 8.1. Adviser. The Trustees are responsible for the general policies of the Trust and for such general supervision of the business of the Trust conducted by all officers, agents, employees, advisers, managers, or independent contractors of the Trust as may be necessary to ensure that such business conforms to the provisions of this Declaration of Trust. However, the Trustees are not required personally to conduct the business of the Trust and, consistent with their ultimate responsibility as stated above, the Trustees shall have the power to appoint, employ, or contract with such Persons including one or more of themselves and any corporation, partnership, or trust in which one or more of them may be directors, officers, stockholders, partners or trustees, subject to any applicable requirements of Section 3.23i as the Trustees may deem necessary or desirable for the transaction of the business of the Trust. The Trustees may also employ or contract with a corporation, partnership, trust, or individual (herein referred to as the "Adviser"), to whom, consistent with their ultimate responsibility as stated above the Trustees may grant or delegate such authority as the Trustees may, in their sole discretion, deem necessary or desirable, without regard to whether such authority is normally granted or delegated by trustees. The Trustees may exercise broad discretion in allowing the Advisor to administer the operations of the Trust, to act as agent for the Trust, to execute documents on behalf of the Trustees, and to make executive decisions which conform to general policies and general principles previously established by the Trustees. The Trustees shall have the power to determine the terms of compensation of the Adviser (subject to the provisions of Section 8.5 hereof) or any other such Person or Persons whom they may employ or with whom they may contract. SECTION 8.2. Advisory Contract. The first contract with the Adviser entered into by the Trustees may have an initial term which expires at the end of the first fiscal year of the Trust which commences after the first public offering of Shares; thereafter, the Trustees shall not enter into any contract (or extension thereof) with the Adviser unless such contract has an initial term of no more than one year and provides for annual renewal or extension thereafter. The initial contract with the Adviser and any extension or renewal thereof shall be terminable by either party on sixty (60) days notice. The Trustees shall not enter into such a contract with any corporation, trust or partnership in which a Trustee is a director, officer, Trustee or holder of more than 1% of the outstanding capital stock or participating or beneficial interest unless such contract requires for renewal or extension thereof the affirmative vote of a majority of the disinterested Trustees. SECTION 8.3 Relationship With Trustees. Not more than 49% of the total number of Trustees may be affiliated (i.e., may be a director, officer, partner, trustee, employee or holder of more than a one percent ownership interest) with the Adviser and its affiliates, provided, however, that if at any time the percentage of Trustees who are so affiliated becomes by reason of one or more vacancies in the Trustees more than 49% of the total number of Trustees then in office, then within 60 days of such vacancy occurring the continuing Trustees or Trustee then in office shall appoint, pursuant to Section 2.4 hereof, a sufficient number of other individuals as Trustees so that there is again not more than 49% of the total number of Trustees then in office who are so affiliated. The Trustees shall at all times endeavor to comply with the requirements of this Section 8.3 but failure to so comply shall not invalidate any action taken by the Trustees, the office of any Trustee or any act, or the authority to act, of the Advisor. SECTION 8.4. Other Activities of the Adviser. The Adviser which the Trustees employ or with which they contract and any officer, director, employee or shareholder of the Adviser who may also be a Trustee, officer or employee of the Trust, may engage in other activities, including acquiring, managing, operating, disposing of and otherwise dealing in property of all types, real, personal and mixed, tangible and intangible, and acting as a broker for, and/or rendering advice and other services to, other Persons in connection with the sale or purchase of real estate or Mortgages and the management of its or his own investments and the investments of other Persons and may be compensated for any such advice or services by such other Person. Where the Adviser originates or arranges the acquisition or disposition of a Trust investment, it may receive a brokerage commission or other compensation therefor from the seller or buyer or other Person, provided that except upon termination or non-renewal of the contract with the Adviser, such commission or other compensation is required to be deducted from future advisory fees otherwise payable by the Trust to the Adviser. The Adviser may also receive a brokerage commission or other compensation from a participant for services rendered to such participant in a real estate, mortgage or other investment in which the Trust has invested. SECTION 8.5. Increase of Adviser's Fee. The affirmative written consent or vote of the holders of a majority of the aggregate number of Shares then outstanding and entitled to vote thereon shall be required for any increase in the Adviser's rate of compensation contained in the first contract executed with the Adviser subsequent to the date thereon. ARTICLE 9 COMPLIANCE WITH PROVISIONS OF INTERNAL REVENUE CODE. SECTION 9.1. Compliance With Provisions of Internal Revenue Code. The Trustees, in exercising the powers herein granted to them, shall exercise due diligence to so conduct the affairs of the Trust as to qualify the Trust, as promptly as possible consistent with their investment objectives and requirements, and continue its qualification, as a Real Estate Investment Trust; provided, however, that no Trustee, officer or agent of this Trust shall be liable for any act or omission resulting in the loss of tax benefits under that law, except for that arising from his own bad faith, willful misfeasance, gross negligence, or reckless disregard of his duties. ARTICLE 10 AMENDMENT OR TERMINATION OF TRUST. SECTION 10.1. Amendments or Termination. Except for amendments effected pursuant to the final paragraph of Section 6.3 and except as provided in the provisions of any series of Preferred Shares at the time outstanding, the provisions of this Declaration of Trust maybe amended or altered (except as to the limitation of personal liability of the Shareholders, Trustees and members of the Board of Consultants, if any, and the prohibition of assessments upon Shareholders) or the Trust may be terminated, at any meeting of Shareholders called for the purpose, by the affirmative vote of the holders of not less than a majority of the aggregate number of Shares then outstanding and entitled to vote thereon or by an instrument in writing, without a meeting, signed by a Majority of the Trustees and the holders of not less than a majority of such Shares; provided, however, that after fifteen (15) days' written notice to the Shareholders of the proposed action, the Trustees may, from time to time by vote of Two-thirds of the Trustees, amend or alter the provisions of this Declaration of Trust (except for provisions subject to Section 10.5), without the vote or assent of the Shareholders, to the extent deemed by the Trustees in good faith to be necessary to meet the requirements for qualification as a Real Estate Investment Trust under the provisions of the Internal Revenue Code. Notwithstanding the foregoing, no amendment may be made pursuant to this Section 10.1 which would change any rights with respect to any outstanding Common Shares of the Trust by reducing the amount payable thereon upon liquidation of the Trust or by diminishing or eliminating any voting rights pertaining thereto, except with the vote or written consent of the holders of two-thirds ( 2/3 ) of the outstanding Common Shares entitled to vote thereon. SECTION 10.2. Termination or Amendment by Trustees Prior to First Offering. Notwithstanding any other provision hereof until such time as a Registration Statement under the Securities Act of 1933 as amended, covering the first public offering of Shares of the Trust shall have become effective this Declaration of Trust may be terminated or amended in any respect by a vote of a Majority of the Trustees or by unanimous written consent of the Trustees. SECTION 10.3. Powers of Trustees Upon Termination. Upon the Termination of the Trust, the Trustees may sell and convert into money the whole of the Trust Property, or any part thereof, and after paying, retiring, or providing for the payment of, all known liabilities and obligations of the Trustees and providing for indemnity against any other outstanding liabilities and obligations, shall divide the proceeds thereof among, and distribute in kind, at valuations made by them which shall be conclusive, all other property then held by them in trust hereunder to, the Shareholders ratably according to the respective rights of the class or series of Shares held by them. In making any sale under this provision the Trustees shall have power to sell by public auction or private contract and to buy in or rescind or vary any contract of sale and to resell without being answerable for loss and for said purposes, to do all things, including the execution and delivery of instruments, as may by their performance thereof be shown to be in their judgment necessary or desirable in connection therewith. The powers of sale and all other powers herein given to the Trustees shall continue as to all property at any time remaining in their hands or ownership even though all times herein fixed for distribution of Trust Property may have passed. SECTION 10.4. Power to Effect Reorganization. Except as provided in the provisions of any series of Preferred Shares at the time outstanding, the Trustees, by vote of, or written instrument signed by, a Majority of the Trustees, may direct the organization of a corporation, association, trust or other organization into which the Trust, if permitted by law, may merge, or which shall take over the Trust Property and carry on the affairs of the Trust, and after receiving an affirmative vote of the holders of not less than a majority of the aggregate number of Shares then outstanding and entitled to vote thereon, at a meeting of Shareholders called for the purpose, or after receipt of an instrument in writing, without a meeting, signed by the holders of not less than a majority of such Shares, the Trustees may effect such merger or may sell, convey and transfer the Trust Property to any such corporation, association, trust or organization in exchange for shares or securities thereof, or beneficial interest therein, and the assumption by such transferee of the liabilities of the Trust and thereupon terminate this Trust and deliver such shares, securities or beneficial interest to Shareholders in accordance with the terms of the merger or other agreement governing the transaction; provided, however, that no such merger into or sale, conveyance or transfer of the Trust Property shall be made to any corporation, association, trust or other organization unless and until the Trustees shall be furnished with the opinion of counsel selected by the Trustees that (i) such transferee will qualify for benefits with respect to the federal income tax which are substantially equal to the benefits for which this Trust qualifies at such time, or will qualify under the Federal Income Tax Law as enacted although not then in effect, (ii) such transferee has a primary purpose substantially the same as the principal purpose of this Trust, as stated in the Preamble to this Declaration of Trust, and (iii) the shares, securities, or beneficial interest which will be issued to holders of each class or series of Shares in exchange for such property will constitute an investment substantially equal in quality and substantially the same as an investment in such Shares. SECTION 10.5. Limitation on Shareholder Rights. The provisions of Sections 2.2, 2.3, 7.3, 8.5, 10.1, 10.4, and 10.6 shall be subject to the requirements of the Internal Revenue Code. If any provision granting limiting the voting rights and rights to consent of Shareholders in such Sections shall conflict with the requirements for qualification as a Real Estate Investment Trust, such provisions shall be deemed to be void and without any force or effect ab initio (except that any action taken pursuant to any such provision prior to the express determination by the Trustees of such conflict shall be valid) and the Trustees, without Shareholder consent shall promptly amend the Declaration of Trust to conform to the aforesaid requirements. In the event that any provision relating to the election of Trustees by the Shareholders of the Trust shall be deemed to be without force or effect, the Trustee then in office shall be deemed to be the qualified and acting Trustees until such time as the successor Trustees have been named and qualified. At the next meeting of Shareholders after the determination of such conflict, there shall be submitted to the Shareholders the question as to whether such Shareholder's right or rights should be restored. If the holders of a majority of the Shares outstanding and entitled to vote on the matter and voting, vote to restore such right or rights, the Trustees, without further Shareholder consent, shall promptly make any amendments to the Declaration of Trust necessary to restore such right or rights. SECTION 10.6. Class Voting, Right of Preferred Shares. The holders of the outstanding Preferred Shares shall be entitled to vote a class upon any proposed amendment or alteration of this Declaration of Trust pursuant to Section 10.1 or any proposed reorganization pursuant to Section 10.4, or upon any proposed amendment to be offered pursuant to the third sentence of the final paragraph of Section 6.3 whether or not otherwise entitled to vote thereon separately or together with other classes, if the proposed amendment alteration or reorganization would alter or change the powers, preferences or special rights expressly applicable to the Preferred Shares so as to affect them adversely. If any such proposed amendment, alteration or reorganization would alter or change the powers, preferences or special rights expressly applicable to the Preferred Shares of any series so as to affect them adversely in a manner different from other series of Preferred Shares, then only the Preferred Shares of such series together with any other series of Preferred Shares adversely affected in the same manner, shall be considered a separate class for purposes of this Section 10.6. Any vote pursuant to this Section 10.6 shall require the affirmative vote of the holders of not less than two-thirds of the outstanding Preferred Shares or series thereof, as the case may be, or an instrument or instruments in writing, without a meeting signed by at lease 75% of the Trustees then in office and the holders of not less than two-thirds of the outstanding Preferred Shares or series thereof as the case may be. Any resolution adopted by the Trustees pursuant to Section 6.3 providing for any series of Preferred Shares may specify amendments, alterations or reorganizations which shall not, for purposes of this Section 10.6 be deemed to change the powers, preferences or special rights expressly applicable to the Preferred Shares of such series so as to affect them adversely, but the absence of such specification as to any one or more amendments, alterations, or reorganizations shall not create any inference that such unspecified amendments, alterations or reorganizations would adversely affect such series. ARTICLE 11 MISCELLANEOUS SECTION 11.1. Governing Law; Filing. This Declaration of Trust is executed by the Trustees and is delivered in the City of Boston, Massachusetts and with reference to the laws of The Commonwealth of Massachusetts, and the rights of all parties and the validity, construction and effect of every provision hereof and the administration of the Trust created hereby shall be subject to and construed according to the laws of said Commonwealth. This Declaration of Trust and any amendment hereof (including any resolution adopted pursuant to Section 6.3) shall as soon as reasonably practicable after its execution or adoption, be filed in the office of the Secretary of The Commonwealth of Massachusetts, which filing shall be a condition precedent to the effectiveness of any such amendment. The Trustees shall also cause to be filed in the aforementioned office and in all other offices in which recording of the amendment or instrument in question shall be required from time to time by the laws of The Commonwealth of Massachusetts or by any other applicable laws or in which such recording shall seem desirable to the Trustees, all amendments to this Declaration of Trust and appropriate instruments disclosing changes in the persons who are Trustees of the Trust but such filing shall not be deemed a condition to the effectiveness of, and (except as to the required filing or amendments in the office of the Secretary of The Commonwealth of Massachusetts) the failure to so file shall not be deemed to invalidate any such amendment or any election or appointment of any person as a Trustee or the resignation or removal of any Trustee. In the event the filing under this Section 11.1 of any such amendment or instrument is not at the time permitted to be made in the office of the Secretary of The Commonwealth of Massachusetts, the recording of such amendment or instrument in the Registry of Deeds for Suffolk County, Massachusetts shall have the same effect as such filing. SECTION 11.2. Counterparts. This Declaration of Trust and any amendment hereof may be simultaneously executed in several counterparts each of which so executed shall be deemed to be an original and such counterparts together shall constitute one and the same instrument, which shall be sufficiently evidenced by any such counterpart. SECTION 11.3. Conclusive Evidence. Any certificate signed by a person who according to the records in the office of the Secretary of The Commonwealth of Massachusetts or in any recording office wherein instruments affecting local real estate are customarily recorded appears to be a Trustee hereunder certifying the number of identity of Trustees, the due authorization of the execution of any instrument or writing the form of any vote passed at a meeting of Trustees or Shareholders, the fact that the number of Trustees present at any meeting or executing any written instrument satisfied the requirements of this Declaration of Trust the form of any by-law adopted by or the identity of any officer elected by the Trustees or the existence or non-existence of any fact or facts which in any manner relate to the affairs of the Trust shall be conclusive evidence as to the matters so certified in favor of any person dealing with the Trustees or any one or more or them and the successors or assigns of such person. SECTION 11.4. Construction of Terms Used. In the construction of this Declaration of Trust whether or not so expressed, words used in the singular or in the plural respectively include both the plural and singular, word denoting males include females and words denoting persons including individuals, firms, associations, companies (joint, stock or otherwise), trusts and corporations unless a contrary intention is to be inferred from or required by the subject matter or context. The cover, title, heading of different parts hereof, the tables of contents, the index of definitions and the marginal notes, if any, are inserted only for convenience of reference and are not to be taken to be any part hereof or to control or affect the meaning, construction, interpretation or effect hereon. ARTICLE 12 DURATION OF TRUST Subject to possible earlier termination in accordance with the provisions of Article 10 hereof the Trust shall continue until the expiration of twenty (20) years after the death of the last survivor of the following named persons, whichever first occurs: July 18, 1966 Gordon A. Carpenter Concord born: son of: Circle Arlington, Bradford C. Carpenter....... address: Mass. May 6, 1969 C. Dean born: son of: Dusseault 16 Edgemoor Christopher D. Dusseault ... address: Road Belmont, Mass. April 2, 1968 Arthur born: daughter G. Siler 40 Heath Hill Juliet Siler................ of: address: Brookline, Mass March 28, 1966 Jerome M. Leonard 65 born: son of: Coronation Drive Jerome M. Leonard, Jr. ..... address: Dedham, Mass May 5, 1966 Fred R. born: daughter Becker 27 Albion Marth Kerr Becker........... of: address: Street Newton, Mass July 27, 1967 John A. born: son of: Ritsher 36 Upland Road Walter D. Ritsher........... address: Cambridge, Mass. January 4, 1969 Nelson born: son of: G. Ross 16 Michael Douglas M. Ross............. address: Road Hingham, Mass. January 27, 1966 John born: son of: L. Worden 8 Kensington Andrew B. Worden............ adress: Road Arlington, Mass. April 24, 1967 John L. born: son of: Worden 8 Kensington James D. Worden............. address: Road Arlington, Mass. IN WITNESS WHEREOF, BRINLEY M. HALL, as a Trustee as aforesaid, has signed these presents this 11th day of April, 1974. /s/ BRINLEY M. HALL ------------------------- BRINLEY M. HALL April 11, 1974 COMMONWEALTH OF MASSACHUSETTS | > ss COUNTY OF SUFFOLK | Then personally appeared before me, BRINLEY M. HALL, who acknowledged the foregoing instrument to be his free act and deed and the free act and deed of the Trustees of Hubbard Real Estate Investments. /s/ Ann Adams Hurley -------------------------- Notary Public ANN ADAMS HURLEY, Notary Public My Commission Expires: June 16, 1975 [NOTARY SEAL] EX-9.1.1 3 EXHIBIT 9.1.1 Exhibit 9 (a)(1) A true Copy Witnessed under the Great Seal of the Commonwealth of Massachusetts. /s/ Paul Guzzi ------------------- Paul Guzzi Secretary of the Commonwealth. /s/ John Grace ------------------- Deputy Secretary. HUBBARD REAL ESTATE INVESTMENTS Certificate of Amendment of Fourth Amended and Restated Declaration of Trust The undersigned, a Trustee of Hubbard Real Estate Investments (the "Trust"), hereby certifies pursuant to Section 1.3 of the Fourth Amended and Restated Declaration of Trust (the "Declaration of Trust"), that at a meeting of shareholders of the Trust duly called and held on March 29, 1977 in accordance with said declaration of Trust, at which a quroum of shareholders was present and voting throughout, the holders of not less than a majority of the aggregate number of shares of beneficial interest of the Trust then outstanding and entitled to vote thereon voted to amend the Declaration of Trust by amending Section 8.4 thereof to read as follows: SECTION 8.4. Other Activities of the Advisor. The Advisor which the Trustees employ or with which they contract and any office director, employee or shareholder of the Adviser who may also be a Trustee, officer or employee of the Trust, may engage in other activities, including acquiring, managing, operating, disposing of and otherwise dealing in property of all types, real, personal and mixed, tangible and intangible, and acting as a broker for, and/or rendering advice and other services to, other Persons in connection with the sale of purchase of real estate of Mortgages and the management of its or his own investments and the investment of other Persons and may be compensated for any such advice or service by such other Person. Where the Adviser originates or arranges the acquisition or disposition of a Trust investment, it may receive a brokerage commission or other compensation therefor from the seller or buyer or other Person, provided that except upon termination or non-renewal of the contract with the Adviser, such commission or other compensation is required to be deducted from future advisory fees otherwise payable by the Trust to the Adviser. The Adviser may also receive a brokerage commission or other compensation from a participant for services rendered to such participant in a real estate, mortgage or other investment in which the Trust has invested Affiliates of the Adviser may receive compensation from the Trust or other Persons in connection with investments and activities of the Trust and such compensation shall not be required to be deducted form advisory fees otherwise payable by the Trust to the Adviser. The undersigned further certifies that, pursuant to Section 10 thereof, such Declaration of Trust has bee amended as aforesaid, effective upon the filing of this Certificate of Amendment in the Office of the Secretary of the Commonwealth of Massachusetts. WITNESS may hand this 29th day of March, 1977. /s/ Brinley M. Hall ---------------------- Brinley M. Hall - Trustee COMMONWEALTH OF MASSACHUSETTS | > ss: COUNTY OF SUFFOLK | On this 29th day of March, 1977, before me personally appeared Brinley M. Hall, who executed the foregoing instrument and acknowledged that he executed the same as his free act and deed and the free act and deed of the Trustee of Hubbard Real Estate Investments. /s/ Ann Adams Hurley --------------------- Notary Public SEAL My Commission Expires: ANN ADAMS HURLEY NOTARY PUBLIC My commission expires June 18, 1978 HUBBARD REAL ESTATE INVESTMENTS Certificate of Amendment of Fourth Amended and Restated Declaration of Trust The undersigned, a Trustee of Hubbard Real Estate Investments (the "Trust") hereby certifies pursuant to Section 11.3 of the Fourth Amended and Restated Declaration of Trust (the "Declaration of Trust"), of the Trust, that at a meeting of shareholders of the Trust duly called and held on March 9, 1982 in accordance with said Declaration of Trust, at which a quorum of shareholders was present and voting throughout, the holders of not less than a majority of the aggregate number of shares of beneficial interest of the Trust then outstanding and entitled to vote thereon voted to amend the Declaration of Trust in the following respects: SECTION 6.19. To amend Section 6.19 of the Declaration of Trust to read in its entirety as follows: SECTION 6.19. Redemption of Shares; Disclosure of Holding. In the event that any Person, or Persons acting as a group, shall at any time acquire ownership in the aggregate of more than 9.9% of the outstanding Common Shares of this Trust, the Trustees may redeem such shares in excess of 9.9% (the "Excess Shares"). Any such redemption right may be exercised at any time but in no event later than 60 days after the Trustees shall have received written notice from such Person or Persons regarding such acquisition. After such 60 day period, the foregoing redemption right shall extend only to any Excess Shares not referred to in such notice and may be exercised at any time but in no event later than 60 days after the Trustees shall have received a similar notice regarding such additional Excess Shares. The redemption price shall be equal to the fair market value of the Shares as reflected in the latest bid quotation for the Shares (if then traded over-the-counter) or the closing sale price (if then listed on a national securities exchange) of such Shares as of the business day, preceding the day on which notice of redemption is sent, or, if no quotations or closing sale price for the Shares are available, as determined in good faith by the Trustees. From and after the date fixed for redemption by the Trustees, the holder of any Shares so called for redemption shall cease to be entitled to dividends, voting rights and other benefits with respect to such Shares excepting only the right to payment of the redemption price fixed as aforesaid. The right of redemption in this Section shall not apply to Excess Shares or additional Excess Shares acquired as a result of an offer for all outstanding Common Shares of the Trust. For the purpose of this Section 6.19, the term "ownership" of Shares shall be defined in accordance with or by reference to the qualfication requirements of the REIT Provisions of the Internal Revenue Code and shall also mean ownership as defined under Rule 13(d), as in effect on January 15, 1982, promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934; and the term "group" shall have the same meaning as that term has for purposes of such Rule 13(d), as in effect on January 15, 1982. The Shareholders shall upon demand disclose to the Trustees in writing such information with respect to direct and indirect ownership of Shares as the Trustees deem necessary to comply with the provisions of the Internal Revenue Code, or to comply with the requirements of any other taxing authority. SECTION 6.22. To amend Section 6.22 of the Declaration of Trust to read in its entirety as follows: SECTION 6.22. Limitation of Pre-emptive Rights. Holders of Common Shares shall have no pre-emptive rights with respect to any Shares of any class or series or any Securities of the Trust which evidence indebtedness (or any Shares into which such Securities of the Trust may be converted) sold, offered or issued by the Trust. Holders of any series of Preferred Shares shall have pre-emptive rights only to the extent, if any, provided in the provisions of such series. SECTION 6.23. To amend Section 6.23 of the Declaration of Trust to read in its entirety an follows: SECTION 6.23. Dividend Investment and Share Purchase Plans. Subject to the provisions of any series of Preferred Shares at the time outstanding, the Trustees may establish from time to time one or more plans for holders of Common Shares which may permit Shareholders to invest dividends in Common Shares and which may also permit Shareholders to purchase additional Common Shares. The Trustees may amend, modify, alter and terminate any such plans. Any such plans may include a provision fixing the purchase price at such price as the Trustees shall from time to time determine, which price may be below market price or book value, or both, of the Common Shares. The undersigned further certifies that, pursuant to Section 10.1 thereof, such Declaration of Trust has been amended as aforesaid, effective upon filing of this Certificate of Amendment in the Office of the Secretary of The Commonwealth of Massachusetts. WTTNESS my hand this 9th day of March, 1982. /s/ Brinley M. Hall ---------------------------- Brinley M. Hall - Trustee HUBBARD REAL ESTATE INVESTMENTS Certificate of Amendement of Fourth Amended and Restated Declaration of Trust The undersigned, a Trustee of Hubbard Real Estate Investments (the "Trust") hereby certifies pursuant to Section 11.3 of the Fourth Amended and Restated Declaration of Trust (the "Declaration of Trust"), of the Trust, that at a meeting of shareholders of the Trust duly called and held on March 12, 1985 in accordance with said Declaration of Trust, at which a quorum of shareholders was present and voting throughout, the holders of not less than a majority of the aggregate number of shares of beneficial interest of the Trust then outstanding and entitled to vote thereon voted to amend the Declaration of Trust in the following respect: To amend the second paragraph of Section 1.1 of the Declaration of Trust to read in its entirety as follows: Upon the written request of Hubbard Advisory Corporation ("HAC") or any successor to HAC made no later than 30 days after termination or expiration of the Advisory Agreement dated as of May 1, 1981 between the Trust and HAC, as the same may be amended from time to time (such termination or expiration being hereinafter referred to as the "termination"), the Trustees shall not later than the earlier of (a) 9 months following the termination or 9 months following the date of such request, whichever is later, or (b) following the termination, offering securities in a firm commitment or best efforts underwritten public offering registered with the Securities and Exchange Commission or in a firm commitment or best efforts underwritten private offering of equity securities of the Trust involving more than 35 purchasers, without any vote or consent of the Shareholders being required, amend the Declaration of Trust of the Trust to change the name of the Trust to "HRE Properties" or other name selected by the Trustees which does not' include "Hubbard" or any approximation thereof including any name using the three or four letters "Hub" or "Hubb." Upon the effectiveness of such name change, HAC or its successor shall promptly pay the Trust $50,000 in lieu and in full discharge of any reimbursement by HAC or its successor of any and all expenses incurred by the Trust in operation with such name change. In no event shall the Trust be required to change its name less that 60 days following the later of the foregoing written request or the termination. The undersigned further certifies that, pursuant to Section 10.1 thereof, such Declaration of Trust has been amended as aforesaid, effectve uoon filing of this Certificate of Amendment in the Office of the Secretary of The Commonwealth of Massachusetts. WITNESS my hand this 29th day of March, 1985. /s/ William F. Murdoch, Jr. ---------------------------- William F. Murdoch, Jr. HRE PROPERTIES Certificate of Amendment of Fourth Amended and Restated Declaration of Trust The undersigned, a Trustee of HRE Properties (formerly named Hubbard Real Estate Investments) (the 'Trust") hereby certifies pursuant to Section 11.3 of the Fourth Amended and Restated Declaration of Trust (the "Declaration of Trust"), of the Trust, that at a meeting of shareholders of the Trust duly called and held on March 18, 1987 in accordance with said Declaration of Trust, at which a quorum of shareholders was present and voting throughout, the holders of not less than a majority of the aggregate number of shares of beneficial interest of the Trust then outstanding and entitled to vote thereon voted' to amend Sections 5.1, 5.2 and 5.3 of the Declaration of Trust to read as set forth in Appendix A to this certificate. The undersigned further certifies that, pursuant to Section 10.1 thereof, such Declaration of Trust has been amended as aforesaid, effective upon filing of this Certificate of Amendment in the Office of the Secretary of The Commonwealth of Massachusetts. WITNESS my hand this 19th day of March, 1987. /s/ William F. Murdoch, Jr. ----------------------------------- William F. Murdoch, Jr. - Trustee APPENDIX A Amendments to Sections 5.1, 5.2 and 5.3 of Declaration of Trust of HRE Properties Adopted at Meeting of Shareholders Held on March 18, 1987 ------------------------------------------- VOTED: That Sections 5.1, 5.2 and 5.3 of the Declaration of Trust of HRE Properties be and they hereby are amended to read in their entirety as set forth below, and that invalidity or unenforceability of any of the provisions set forth below shall not affect the validity or enforceability of the remainder of such provisions: Section 5.1. No Personal Liability of Shareholders, Trustees, etc.. No Shareholder shall be subject to any personal liability whatsoever to any other Person in connection with Trust Property or the affairs of the Trust and no Trustee, officer, employee or agent of the Trust, or member of the Board of Consultants, shall be subject to any personal liability whatsoever, in tort, contract, or otherwise, to any other Person, in connection with Trust Property or the affairs of the Trust, save only that arising from his bad faith, willful misfeasance, gross negligence or reckless disregard of his duties or for his failure to act in good faith in the reasonable belief that his action was in the best interests of the Trust; and all such other Persons shall look solely to the Trust Property for satisfaction of claims of any nature arising in connection with the affairs of the Trust. If any Shareholder, Trustee, officer, employee, agent, or member of the Board of Consultants, as such, of this Trust, is made a party to any suit or proceeding to enforce any such liability, he shall not on account thereof be hold to any personal liability. The Trust shall indemnify and hold each Shareholder harmless from and against all claims and liabilities, to which such may become subject by reason of his being or having been a Shareholder, and shall reimburse such Shareholder for all legal and other expenses reasonably him in connection with any such claim or liability. The rights accruing to a Shareholder under this Section 5.1 shall not exclude any other right to which such Shareholder may be lawfully entitled, nor shall anything herein contained restrict the right of the Trust to indemnify or reimburse a Shareholder in any appropriate situation even though not specifically provided herein. Section 5.2. Non-Liability of Trustees, etc. No Trustee, officer or employee or agent of he Trust or member of the Board of Consultants, shall be liable to the Trust or to any Shareholder, Trustee, officer, employee, agent or member of the Board of Consultants thereof for any action or failure to act (including without limitation the failure to compel in any way any former or acting Trustee to redress any breach of trust) except for his own bad faith, willful misfeasance, gross negligence or reckless disregard of his duties or for his failure to act in good faith in the reasonable belief that his action was in the best interests of the Trust. Notwithstanding anything in this Article 5 or in Article 9 or elsewhere in this Declaration of Trust to the contrary and without in any way increasing the liability of the Trustees beyond that otherwise provided in this Declaration of Trust, no Trustee of the Trust shall be liable to the Trust or to any Shareholder, Trustee, officer, employee, agent or member of the Board of Consultants for monetary damages for breach of fiduciary duty as a Trustee; provided that such provision shall not eliminate or limit the liability of a Trustee (i) for any breach of the Trustee's duty of loyalty to the Trust or its Shareholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law, or (iii) for any transaction from which the Trustee derived an improper personal benefit. Section 5.3. Mandatory Indemnification. The Trust shall indemnify each of its Trustees, officers, employees, agents and members of the Board of Consultants, if any (including persons who serve at its request as directors, officers, trustees, employees or agents of any Trust employee benefit plan or another organization in which it has any interest, as a shareholder, creditor or otherwise) against all liabilities and expenses, including amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees, reasonably incurred by him in connection with the defense or disposition of any action, suit or other proceedings, whether civil or criminal, in which he may be involved or with which he may be threatened, while in office or thereafter, by reason of his being or having been such a Trustee, officer, employee, agent or member of the Board of Consultants, except with respect to any matter as to which he shall have been adjudicated to have acted in bad faith, willful misfeasance, reckless disregard of his duties or gross negligence or not to have acted in good faith in the reasonable belief that his action was in the best interests of the Trust (however, notwithstanding the foregoing exception, such indemnification shall extend to Trustees who shall have no personal liability for monetary damages to the Trust or its Shareholders pursuant to the last sentence in Section 5.2); provided, however, that as to any matter disposed of by a compromise payment by such person, pursuant to a consent decree or otherwise, no indemnification either for said payment or for any other expenses shall be provided unless .the Trust shall have received a written opinion from independent legal counsel approved by the Trustees to the effect either (i) that if the matter of bad faith, willful misfeasance, gross negligence or reckless disregard of duty or good faith and reasonable belief as to the best interests of the Trust, had been adjudicated, it would have been adjudicated in favor of such Person or (ii) if the matter of the personal liability of a Trustee to the Trust or any Shareholder, Trustee, officer, employee, agent or member of the Board of Consultants for monetary damages for breach of fiduciary duty pursuant to the last sentence of Section 5.2, had been adjudicated, it would have been adjudicated in favor of such Person. A Person shall be entitled to indemnification if such counsel opines favorably as to either the matter in clause (i) or the matter in clause (ii). The rights accruing to any Person under the provisions of this Section 5.3 shall not exclude any other right to which he may be lawfully entitled, including any provision of the By-laws of the Trust consistent with this Section 5.3, nor shall anything contained herein restrict the right of this Trust to indemnify or reimburse any Person in any proper case even though not specifically provided for herein, nor shall anything contained herein restrict such rights of any Person to contribution as may be available under applicable law, provided, that no Person may satisfy any right of indemnity or reimbursement granted herein or in Section 5.1 or to which he may be otherwise entitled except out of the property of the Trust, and no Shareholder shall be personally liable to any Person with respect to any claim for indemnity or reimbursement or otherwise. The Trust may make advance payments (and may agree in advance to make such advance payments generally or in particular cases) in connection with indemnification under this Section 5.3, provided that the indemnified Person shall have given a written undertaking to reimburse the Trust in the event it is subsequently determined that such Person is not entitled to such indemnification. In order to carry out the intent and purposes of this Section 5.3, and to assure the Trust's performance of its obligations hereunder, the Trust shall have the power to enter into agreements with Trustees, officers, employees, agents or members of the Board of Consultants designated by the Trustees, without specific approval thereof by the shareholders of this Trust. The terms of any such agreements need not be identical to the terms of any other such agreement and any such agreement which had been entered into may subsequently be amended or changed by mutual agreement of the parties thereto, without specific approval thereof by the shareholders of the Trust. The Trust shall have the power to dedicate the assets of the Trust to establish arrangements for funding its indemnification obligations under this Section 5.3, including but not limited to depositing assets in trust funds, obtaining bank letters of credit in favor of indemnified Persons, establishing specific reserve accounts and otherwise funding special self-insurance arrangements for these purposes. HRE PROPERTIES Certificate of Vote of the Trustees Designating a Series of Preferred Shares The undersigned, a Trustee of HRE Properties (formerly named Hubbard Real Estate Investments) (the "Trust") hereby certifies pursuant to Section 11.3 of the fourth amended and restated Declaration of Trust (the "Declaration of Trust"), of the Trust, that at a meeting of the Trustees of the Trust duly called and held on October 27, 1988 in accordance with said Declaration of Trust, at which a quorum of Trustees were present and voting throughout, no less than seventy-five percent of the Trustees then in office voted to designate a series of Preferred Shares pursuant to Section 6.3 of the Declaration of Trust as set forth in Appendix A to this Certificate. WITNESS my hand this day of October 27th, 1988. /s/ William F. Murdoch, Jr. ----------------------------------- William F. Murdoch, Jr. Trustee APPENDIX A VOTE OF THE TRUSTEES OF HRE PROPERTIES DESIGNATING A SERIES OF PREFERRED SHARES VOTED: That pursuant to the authority vested in the Trustees in accordance with Section 6.3 of the Declaration of Trust, as amended, a series of Preferred Shares be and it hereby is created, and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations and restrictions thereof are as follows: Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Participating Preferred Shares" (the "Series A Shares") and the number of shares constituting such series shall be 150,000. Section 2. Dividends and Distributions. (A) Subject to the prior and superior rights of the holders of any shares of any series of Preferred Shares ranking prior and superior to the Series A Shares with respect to dividends, the holders of Series A Shares shall be entitled to receive, when, as and if declared by the Trustees out of funds legally available for the purpose, quarterly dividends payable in cash to holders of record on the 15th day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Shares, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $.25 or (b) subject to the provision for adjustment set forth in Section 7 hereof, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in Common Shares or a subdivision of the outstanding Common Shares (by reclassification or otherwise), declared on the Common Shares of the Trust (the "Common Shares") since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share of fraction of a share of Series A Shares. (B) The Trust shall declare a dividend or distribution on the Series A Shares as provided in paragraph (A) of this Section 2 immediately after it declares a dividend or distribution on the Common Shares (other than a dividend payable in shares of or subdivision with respect to Common Shares); provided, however, that, in the event no dividend or distribution shall have been declared on the Common Shares during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $.25 per share on the Series A Shares shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Shares from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Shares entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Shares in an amount less than the total amount of all such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Trustees may fix a record date for the determination of holders of shares of Series A Shares entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 60 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Shares shall have the following voting rights: (A) Subject to the provision for adjustment set forth in Section 7 hereof, each share Of Series A Shares shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the shareholders of the Trust. (B) Except as otherwise provided herein, in the Declaration of Trust, as amended, of the Trust (the "Declaration of Trust") or by law, the holders of shares of Series A Shares and the holders of shares of Common Shares shall vote together as one class on all matters submitted to a vote of shareholders of the Trust. (C) (i) If at the time of any annual meeting of shareholders for the election of trustees a default in preferred dividends (as hereinafter defined) shall exist, the holders of shares of Preferred Shares voting separately as a class without regard to series (with each share of Preferred Shares being entitled to that number of votes to which it is entitled on matters submitted to shareholders generally, or, if it is not entitle to vote with respect to such matters, to one vote), shall have the right to elect two members of the Trustees of the Trust. The holders of Common Shares shall not be entitled to vote in the election of the two Trustees so to be elected by the holders of shares of Preferred Shares. Any trustee elected by the holders of shares of Preferred Shares, voting as a class as aforesaid, shall continue to serve as such trustee for the full term for which he shall have been elected notwithstanding that prior to the end of such term a default in preferred dividends shall cease to exist. If, prior to the end of the term of any trustee elected by the holders of the Preferred Shares, voting as a class as aforesaid, a vacancy in the office of such trustee shall occur by reason of death, resignation, removal or disability, or for any other cause, such vacancy shall be filled for the unexpired term in the manner provided in the Declaration of Trust, provided that, if the Declaration of Trust provides that such vacancy shall be filled by election by the shareholders at a meeting thereof, the right to fill such vacancy shall be vested in the holders of Preferred Shares, voting as a class as aforesaid, unless, in any such case, no default in preferred dividends shall exist at the time of such election. (ii) For the purposes of paragraph (C)(i) of this Section 3, a default in preferred dividends shall be deemed to have occurred whenever the amount of dividends in arrears upon any series of Preferred Shares shall be equivalent to six full quarterly dividends or more and, having so occurred, such default in preferred dividends shall be deemed to exist thereafter until all accrued dividends on all shares of Preferred Shares then outstanding shall have been paid to the end of the last preceding quarterly dividend period. Nothing herein contained shall be deemed to prevent an amendment of the Declaration of Trust, in the manner therein provided, which shall increase the number of Trustees so as to provide as additional places on the Trustees either or both the trusteeships to be filled by the two Trustees so to be elected by the holders of the Preferred Shares or to prevent any other change in the number of trustees of the Trust. (D) Except as set forth herein, holders of Series A Shares shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Shares as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Shares as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Shares outstanding shall have been paid in full, the Trust shall not (i) declare of pay dividends on, make any other distribution on, or redeem or purchase or otherwise acquire for consideration any beneficial shares ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Shares; (ii) declare or pay dividends on or make any other distributions of any beneficial shares ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Shares, except dividends paid ratably on the Series A Shares and all such parity shares on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration any beneficial shares ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Shares, provided that the Trust may at any time redeem, purchase or otherwise acquire such parity shares in exchange for any beneficial shares of the Trust ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Shares; or (iv) purchase or otherwise acquire for consideration any shares of Series A Shares, or any beneficial shares ranking on a parity with the Series A Shares, except in accordance with a purchase offer made in writing or by publication (as determined by the Trustees) to all holders of such shares upon such terms as the Trustees, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Trust shall not permit any subsidiary of the Trust to purchase or otherwise acquire for consideration any beneficial shares of the Trust unless the Trust could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Liquidation, Dissolution or Winding Up. (A) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Trust, no distribution shall be made to the holders of beneficial shares ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Shares unless, prior thereto, the holders of shares of Series A Shares shall have received $100 per share plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the "Series A Liquidation Preference"). Following the payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of shares of Series A Shares unless, prior thereto, the holders of shares of Common Stock (which term shall include, for the purposes only of this Section 5, any series of the Trust's Preferred Shares ranking on a parity with the Common Shares upon liquidation, dissolution or winding up) shall have received an amount per share (the "Common Adjustment") equal to the quotient obtained by dividing (i) the Series A Liquidation Preference by (ii) 100 (as appropriately adjusted as set forth in Section 7 hereof to reflect such events as share splits, share dividends and recapitalizations with respect to the Common Shares; such number in clause (ii), the "Adjustment Number"). In the event, however, that there are not sufficient assets available to permit payment in full of the Common Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Shares. Following the payment of the full amount of the Series A Liquidation Preference and the common Adjustment in respect of all outstanding shares of Series A Shares and Common Shares, respectively, holders of Series A Shares and holders of shares of Common Shares shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to one (1) with respect to such Series A Shares and Common Shares, on a per share basis, respectively. (B) In the event, however, that there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other series of Preferred Shares, if any, which rank on a parity with the Series A Shares, then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences. Section 6. Consolidation, Merqer, etc. In case the Trust shall enter into any consolidation, merger, combination or other transaction in which the Common Shares are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the Series A Shares shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment set forth in Section 7 hereof) equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each Common Share is changed or exchanged. Section 7. Certain Adjustments. In the event the Trust shall at any time declare or pay any dividend on common Shares payable in Common Shares, or effect a subdivision or combination or consolidation of the outstanding Common Shares (by reclassification or otherwise than by payment of a dividend in common Shares) into a greater or lesser number of shares of Common Shares, then, in each such case, the amounts set forth in Sections 2(A), 3(A), 5(A) and 6 hereof with respect to the multiple of (i) cash and non-cash dividends, (ii) votes, (iii) the Series A Liquidation Preference and (iv) an aggregate amount of stock, securities, cash and/or other property referred to in Section 6 hereof, shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immediately prior to such event. Section 8. Ranking. The Series A Shares shall rank pari passu with (or if determined by the Trustees in any vote establishing any other series of Preferred Shares, either, senior or preferred to or junior and subordinate to as the case may be) each other series of Preferred Shares of the Trust with respect to dividends and/or preference upon liquidation, dissolution or winding up. Section 9. Redemption. Series A Shares may be redeemed by the Trust at such times and on such terms as may be agreed to between the Trust and the redeeming shareholder, subject to any limitations which may be imposed by law or the Declaration of Trust. Section 10. Amendment. The Declaration of Trust, shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Shares so as to affect them adversely without the affirmative vote of the holders of two-thirds or more of the outstanding shares of Series A Shares, if any, voting together as a single class. Section 11. Fractional Share. Series A Shares may be issued by fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Shares. Certificate Of Amendment Of Fourth Amended and Restated Declaration of Trust The undersigned, a Trustee of Hubbard Real Estate Investments (the "Trust"), hereby certifies pursuant to Section 11.3 of the Fourth Amended and Restated Declaration of Trust (the "Declaration of Trust") of the Trust, that at a meeting of Trustees of the Trust duly called and held on December 17, 1985, in accordance with said Declaration of Trust, at which a quorum of Trustees was present and voting throughout, the Trustees unanimously voted to amend the Declaration of Trust, effective February 1, 1966, in the following respect: To amend Section 1.1 of the Declaration of Trust to read in its entirely as follows: SECTION 1.1. Name. The trust created by this Declaration of Trust is herein referred to as the "Trust" and shall be known by the name "HRE Properties"; so far as may be practicable, legal and convenient, the affairs of the Trust shall be conducted and transacted under such name, which name (and the word "Trust" whenever used in this Declaration of Trust, except when the context otherwise requires) shall refer to the trustees as trustees and not individually or personally and shall not refer to the beneficiaries or Shareholders of the Trust, or to any officers, employees, or agents of the Trust or of such Trustees. Under circumstances in which the Trustees determine that the use of the name "HRE Properties" is not practicable, legal or convenient, they may as appropriate use their names with suitable reference to their trustee status, or some other suitable designation, or they may adopt another name under which the Trust may hold property or operate in any state, which name shall not refer to the beneficiaries or Shareholders of the Trust, or any officers employees, or agents of the Trust or of such Trustees. To amend Section 1.2 of the Declaration of Trust to read in its entirety as follows: SECTION 1.2. Title to Property. Legal title to all of the Trust Property shall be transferred to, vested in and held by the Trustees, as joint tenants with right of survivorship as Trustees of this Trust, except as provided in Section 3.5. Where legal title is transferred (whether to or by the Trust) in the name HRE Properties, such name shall be deemed to refer to the Trustees as aforesaid. The undersigned further certifies that pursuant to Section 10.1. thereof, such Declaration of Trust has been amended as aforesaid, effective February 1, 1986. WITNESS my hand this 15 day of January, 1986. /s/ William F. Murdoch, Jr. ----------------------------------- William F. Murdoch, Jr. Trustee HRE PROPERTIES Certificate of Amendment Fourth Amended and Restated Declaration of Trust The undersigned, a Trustee of HRE Properties (fomerly named Hubbard Real Estate Investments) (the "Trust") hereby certifies pursuant to Section 11.3 of the Fourth Amended and Restated Declaration of Trust (the "Declaration of Trust"), of the Trust, that at a meeting of shareholders of the Trust duly called and held on March 3, 1994 in accordance with said Declaration of Trust, at which a quorum of shareholders was present and voting throughout, the holders of not less than a majority of the aggregate number of shares of beneficial interest of the Trust then outstanding and entitled to vote thereon voted to amend the Declaration of Trust in the following respect: To amend Section 2.2 of the Declaration of Trust to read in its entirety as follows: Section 2.2 Terms of Office; Election and Qualification. Subject to the provisions of Sections 2.3 and 2.4, each Trustee shall hold office until the expiration of his term and until the election and qualification of his successor. Except as otherwise required by the provisions of any series of Preferred Shares at the time outstanding, commencing at the Annual Shareholders Meeting held in 1994, the terms of office of the Board of Trustees shall be divided into three classes, Class 1, Class II and Class III. All classes shall be as nearly equal in number as possible, and no class shall include fewer than one or more than five Trustees. The terms of office of the Trustees initially classified shall be as follows: (i) that of Class I shall expire at the Annual Meeting of Shareholders to be held in 1995, (ii) that of Class II shall expire at the Annual Meeting of Shareholders to be held in 1996, and (iii) that of Class III shall expire at the Annual Meeting of Shareholders to be held in 1997, and in all cases until a successor shall have been duly elected and shall have qualified. At each Annual Meeting of Shareholders after the aforementioned classification, the successor to Trustees whose terms shall then expire shall be elected to serve from the time of election and qualification until the third Annual Meeting of Shareholders following election and until a successor shall have been duly elected and shall have qualified. Trustees may succeed themselves in office. Except as otherwise required by the provisions of any series of Preferred Shares at the time outstanding, the election of Trustees at any meeting of Shareholders shall be by the affirmative vote of the holders of a majority of the shares present in person or by proxy at such meeting and then entitled to vote in the election of Trustees. A Trustee shall be an individual at least twenty-one (21) years of age who is not under legal disability. Such individual shall qualify as a Trustee by signing this Declaration of Trust, as so amended. Trustees continuing in office by re-election or re-appointment need not re-qualify as Trustees. Trustees may, but need not, own shares. The undersigned further certifies that, pursuant to Section 10.1 thereof, such Declaration of Trust has been amended as aforesaid, effective upon filing of this Certificate of Amendment in the Office of the Secretary of The Commonwealth of Massachusetts. WITNESS my hand this 3rd day of March, 1994. /s/ Charles J. Urstadt -------------------------- Charles J. Urstadt NO. 30 AMENDMENT RE: TRUSTEES TERMS OF OFFICE HRE PROPERTIES EX-10.6.1 4 EXHIBIT 10.6.1 EXHIBIT 10.6.1 Amendments to HRE Properties Stock Option Plan Dated June 9, 1993 Section 7 of the Stock Option Plan of HRE Properties (the "Plan") is modified as follows: (I) A new subsection (h) is added, as follows: (h) No stock appreciation right held by a Trustee or officer of the Trust may be exercised, if such exercise would result in full or partial settlement of the stock appreciation right in cash, unless: (A.) such stock appreciation right has been held for at least six months from date of grant; and (B.) such stock appreciation right is exercised during the period begin- ning on the third business day following the date of release of quarterly or annual statements of revenues and net income of the Trust and ending on the twelfth business day following such date, unless a different period is speci- fied by Rule 16b-3(e) or any suc- cessor rule. (II) Subsequent subsections in Section 7 and all references to existing paragraph (h) would be relettered or adjusted accordingly. (III) The first sentence of relettered paragraph (i) is revised to read as follows: (i) Upon a Change of Control, all stock appreciation rights granted in relation to non-statutory op- tions, or to statutory options granted on or after January 8, 1985, shall become fully exercisable for cash and shall remain so exercisable for 60 days after the date of such Change of Control; provided, however, that, notwithstanding the fore- going, stock appreciation rights held by a Trustee or officer of the Trust shall be subject to the provisions of paragraph (h) above. EX-10.7 5 EXHIBIT 10.7 PURCHASE AND SALE AGREEMENT SELLER: AETNA LIFE INSURANCE COMPANY c/o Aetna Investment Group 242 Trumbull Street Hartford, Connecticut 06156 PURCHASER: HRE PROPERTIES 530 Fifth Avenue New York, New York 10036 PROPERTY: TOWNLINE CENTER Meriden/Wallingford, Connecticut December 22, 1993 INDEX ARTICLE I THE PROPERTY 1 ARTICLE II PURCHASE PRICE 3 ARTICLE III PRIOR TO CLOSING 5 ARTICLE IV REPRESENTATIONS AND WARRANTIES 8 ARTICLE V COSTS 9 ARTICLE VI DESTRUCTION OR CONDEMNATION OF PROPERTY 14 ARTICLE VII NOTICES 16 ARTICLE VIII CLOSING AND ESCROW 17 ARTICLE IX DEFAULT 19 ARTICLE X CONDITIONS TO OBLIGATIONS OF PURCHASER 20 ARTICLE XI DEFINITIONS 22 ARTICLE XII MISCELLANEOUS 26 PURCHASE AND SALE AGREEMENT THIS AGREEMENT, dated as of the 22nd day of December, 1993, is made by and between AETNA LIFE INSURANCE COMPANY, a Connecticut corporation (the "Seller"), with an office in care of Aetna Investment Group, 242 Trumbull Street, Hartford, Connecticut 06156, and HRE PROPERTIES, a voluntary association commonly known as a Massachusetts business trust (the "Purchaser"), with an office at 530 Fifth Avenue, New York, New York 10036. RECITALS: Seller desires to sell and transfer certain improved real property known as Townline Center located at South Broad Street and Old Stagecoach Road, Meriden and Wallingford, Connecticut along with certain related personal property, and Purchaser desires to purchase and acquire such real and personal property. NOW THEREFORE, in consideration of the foregoing, of the mutual covenants, promises and undertakings set forth herein and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Purchaser hereby agree s follows: ARTICLE I THE PROPERTY A. Subject to all the terms, conditions and provisions of this Agreement, and for the consideration herein set forth, Seller agrees to sell and transfer, and Purchaser agrees to purchase and acquire, all of Seller's right, title, and interest in and to certain land (the "Land") located in New Haven County; Connecticut and more specifically described in Exhibit A which is attached hereto and incorporated herein by reference, together with all of Seller's right, title and interest in and to the following: 1. The buildings, parking areas, improvements, and fixtures now situated on the Land (the "Improvements"); 2. All furniture, personal property, machinery, apparatus, and equipment currently used in the operation, repair and maintenance of the Land and Improvements and situated thereon (collectively, the "Personal Property"), listed in the inventory attached hereto as Exhibit B and incorporated herein by reference. The Personal Property to be conveyed is subject to depletions, replacements and additions in the ordinary course of Seller's business; 3. All easements, hereditaments, and appurtenances belonging to or inuring to the benefit of Seller and pertaining to the Land, if any; and 4. Any street or road abutting the Land to the center lines thereof, and in and to any strips and gores of land therein or adjacent to the Property. All of the above is hereinafter referred to as the "Property". The Property is being sold subject to (i) the lien of real and personal property taxes and assessments for the calendar year 1993 which are not yet due and payable, (ii) any state of facts shown on that certain survey dated December 1, 1993, by Kasper Group, Inc. (the "Survey"), (iii) unrecorded leaseholds listed in Exhibit D attached hereto and incorporated herein by reference, to the extent the same are in force and effect at Closing (hereafter defined), and those entered into after the date hereof in accordance with the provisions of Article III.4, and rights of vendors and holders of security interests on personal property installed upon the Property by tenants and rights of tenants to remove trade fixtures at the expiration of the term of the leases of tenants, (vii) exceptions shown on Schedule B of Lawyers Title Insurance Corporation Commitment No. B93-3526 (the "Title . Commitment"), and (viii) governmental laws, codes, ordinances and restrictions now or hereafter in effect so far as these affect the Property, (collectively, the "Permitted Encumbrances"). The Title Commitment is attached hereto as Exhibit C and incorporated herein by reference. B. The Property is being sold in an "AS IS" condition and with "ALL FAULTS" as of the date of this Agreement. Except as specifically set forth in this Agreement, no representations or warranties have been made or are made and no responsibility has been or is assumed by Seller or by any partner, officer, person, firm, agent or representative acting or purporting to act on behalf of Seller as to the condition or repair of the Property or the value, expense of operation, or income potential thereof or as to any other fact or condition which has or might affect the Property or the condition, repair, value, expense of operation or income potential of the Property or any portion thereof. The parties agree that all understandings and agreements heretofore made between them or their respective agents or representatives are merged in this Agreement and the Exhibits hereto annexed, which alone fully and completely express their agreement, and that this Agreement has been entered into after full investigation, neither party relying upon any statement or representation by the others unless such statement or representation is specifically embodied in this Agreement or the Exhibits annexed hereto. C. Seller agrees to convey, and Purchaser agrees to accept,title to the Land and Improvements by special warranty deed inthe condition described in Articles I(A) above and VIII(B)(1) below, and title to the Personal Property, by bill of sale, without warranty as to the title to or the condition of such personalty. D. Capitalized terms not immediately defined are defined in Article XI below. ARTICLE II PURCHASE PRICE ---------------- A. The purchase price (the "Purchase Price") which Seller agrees to accept and Purchaser agrees to pay as full compensation for the Property is TWENTY FIVE MILLION DOLLARS ($25,000,000.00) U.S., payment of which is to be made in cash, as follows: 1. (a) Contemporaneous with the execution of this Agreement by Purchaser, Purchaser has made an earnest money deposit in the amount of ONE HUNDRED THOUSAND DOLLARS ($100,000.00) (the "Initial Deposit"). (b) On or before December 15, 1993, the Purchaser shall make an additional deposit in the amount of THREE HUNDRED THOUSAND DOLLARS ($300,000.00) (the "Additional Deposit") (collectively, the Initial Deposit and the Additional Deposit shall be referred to hereinafter as the "Deposit). Except as otherwise provided in this Agreement, the Deposit will be applied to the Purchase Price at the Closing of this transaction. 2. At the Closing, the Purchaser shall pay Seller TEN MILLION DOLLARS ($10,000,000.00), inclusive of the Deposit and subject to adjustment for the prorations as provided herein, to a bank account designated by Seller no less than three (3) days prior to Closing, via wire transfer in immediately available funds. 3. The balance of the Purchase Price in the amount of FIFTEEN MILLION DOLLARS ($15,000,000.00) shall be represented by and paid according to the terms of a secured promissory note (the "Note") in the face amount of such balance, in form and substance satisfactory to Purchaser and Seller which satisfaction shall be evidenced by execution and acceptance of said document. (a) The Note shall be secured by: (i)a recorded first mortgage on the Property in form and substance satisfactory to Purchaser and Seller which satisfaction shall be evidenced by execution and acceptance of said document (the "Mortgage,,); (ii) an assignment of rents and leases in form and substance satisfactory to Purchaser and Seller which satisfaction shall be evidenced by execution and acceptance of said document (the "Assignment of Rents"); and (iii) financing statements under the Uniform Commercial Code. (b) At Closing, Purchaser shall submit to Seller current written opinions of counsel for Purchaser in form and substance satisfactory to Purchaser and Seller which satisfaction shall be evidenced by execution and acceptance of said document which in the aggregate cover matters concerning the organization and existence of Purchaser and to the effect that the loan is not usurious or otherwise illegal and that all loan documents have been duly authorized, executed and delivered by Purchaser, are valid and binding upon Purchaser and are enforceable in accordance with their terms, together with certified copies of Purchaser's organizational documents, authorizing resolutions, and other similar due diligence materials. (c) At closing, Purchaser shall provide Seller with a mortgagee title insurance policy in the amount of $15,000,000 consistent with and containing only those exceptions set forth in the Title Commitment. B. Payment of the Purchase Price and closing hereunder (the "Closing") will take place pursuant to an escrow closing on or before December 22, 1993 (the "Closing Date"), at the offices of Day, Berry & Howard, CityPlace, Hartford, Connecticut 06103 or at such other time and place as may be agreed upon in writing by Seller and Purchaser. ARTICLE III PRIOR TO CLOSING A. Seller will terminate all agreements relating to service, management, supply and maintenance of the Property (the "Contracts") on or before the Closing Date. B. Until Closing, Seller or Seller's agent shall: 1. Keep the Property insured against fire and other hazards covered by extended coverage endorsement and comprehensive public liability insurance against claims for bodily-injury, death and property damage occurring in, on or about the Property. 2. Operate and maintain the Property in a businesslike manner, substantially in accordance with Seller's past practices, and make any and all repairs and replacements reasonably required, in accordance with Seller's past practices, to deliver the Property to Purchaser at closing in its present condition, normal wear and tear excepted, provided that in the event of any loss or damage to the Property covered by Article VI, Seller shall have an obligation to Purchaser to repair the Property only if Seller so elects and then shall be obligated only to the extent of available insurance proceeds. 3. Enter into only those third party contracts which are necessary to carry out its obligations under this Article III and which in any case shall be cancelable on thirty (30) days written notice and as of the Closing. 4. Continue its present rental program and efforts at the Property to rent vacant space, provided that (i) except as hereinafter provided, Seller will not execute any new leases or amend, terminate or accept the surrender of any existing tenancies or approve any subleases without the prior written 'consent of Purchaser, which consent shall not be unreasonably withheld with respect to the foregoing dated on or prior to December 17, 1993, except that the Seller is authorized to accept the termination of leases at the end of their existing terms; and (ii) in the event that Seller, with Purchaser's consent, executes any new lease after the date of this Agreement and such lease requires the construction of tenant fixtures or improvements or the payment of leasing or brokerage commissions at the expense of the landlord, Purchaser at the Closing of the transaction contemplated in this Agreement will pay the cost of such improvements and leasing or brokerage commissions. Failure of Purchaser to consent or expressly withhold its consent stating with specificity the basis of its objection within seventy-two (72) hours after receipt by Purchaser of written request for such consent shall be deemed to constitute consent. Purchaser hereby consents to the execution by Seller of an amendment to the WFC- 1 Realty Corp. lease in form and substance satisfactory to Purchaser and Seller which satisfaction shall be evidenced by execution and acceptance of said document. Seller will use its best efforts to perform all of Seller's material obligations under the Leases. 5. Seller shall not remove from the Property, nor otherwise deplete, any of the Personal Property, as they exist on the date of this Agreement, except for items used or consumed in the ordinary course of business, and Seller shall restore or replace such Personal Property with replacements at least equal in value and quality. 6. Seller will not, without the prior consent of Purchaser, (i) permit any structural modifications or additions to the Property, except in accordance with Leases affecting the Property, or (ii) sell or permit to be sold or otherwise dispose of any item or group of items constituting a portion of the Property other than as authorized by Subsection 5 above. 7. Seller shall not consent to any zoning changes, or sell, transfer, assign, dispose of, or consent to the utilization of, any Development Rights, or modify or amend or consent to any modification or amendment of the certificates of occupancy for the Property without the prior written consent of Purchaser. C. Subject to the conditions hereinafter set forth, Purchaser, at Purchaser's sole cost and expense, shall have until December 17, 1993 to inspect and review the Property and all matters relating to the Property (the "Due Diligence Review"), including without limitation, the physical condition (including, environmental conditions) of the Property. Seller shall provide reasonable access to the Property to Purchaser and Purchaser's agents for such inspections, including engineering and environmental phase I investigations and inspections, during normal business hours. Seller shall make available to Purchaser all Contracts, Leases, Plans, books and records relating to income from and operating expenses of the Property, surveys, title examinations, and any other material document, instrument or writing relating to the Property in Seller's possession or under Seller's reasonable control (other than materials containing confidential or proprietary information, materials relating to valuation, and materials the disclosure of which is subject to the consent or approval of third parties) at Seller's offices or at the Property, during normal business hours. Seller hereby consents to Purchaser's making reasonable written and/or oral inquiries of any and all managers, Tenants, contractors and/or suppliers to the Property and all Governmental Entities of any information Purchaser may reasonably request in its investigation of the Property and relations between such parties and Seller. In the event any such party requests or requires the written consent of Seller in order for such party to make any disclosures to Purchaser, then, upon the request of Purchaser, Seller shall, in writing and at Purchaser's expense, request such parties to cooperate with Purchaser and answer such inquiries to the fullest extent they are able, subject to the limitations set forth above. Purchaser's rights and Seller's duties in the immediately preceding three sentences shall exist from the date of this Agreement until the Closing Date or earlier termination of this Agreement. D. If Purchaser, at its sole and exclusive discretion, choosesnot to proceed to Closing, then Purchaser shall give writtennotice (the "Termination Notice") to Seller of such fact. If theTermination Notice is given to Seller by Purchaser on or before the close of business on December 15, 1993 (the "Cutoff Date"), then the Deposit shall be immediately returned to Purchaser, less and with the exception of One Hundred and No/100 Dollars ($100.00) of the Deposit which shall be retained by Seller as independent consideration for Seller's entering into this Agreement, and all rights and obligations of Purchaser and Seller under this Agreement shall terminate and this Agreement shall be null and void and of no further force and effect except as provided in Article III.E. The election of Purchaser to terminate or not terminate this Agreement by the giving or not giving of the Termination Notice shall be at Purchaser's sole discretion and may be given or not given by Purchaser for any reason whatsoever or no reason at all. E. Purchaser agrees that, in making any inspections of, or conducting any testing of, on or under, the Property, Purchaser or Purchaser's agents will carry adequate liability insurance and, upon request of Seller, will provide Seller with written evidence of same, will not unreasonably interfere with the activity of tenants or any persons providing service at the Property, will not reveal to any third party not approved by Seller, except as required by law or judicial process or unless already in the public records, the results of or information acquired by Purchaser in the course of its inspections or tests or other Due Diligence Review, and will restore promptly any physical damage caused by the inspections or tests. Purchaser shall give Seller reasonable prior notice of its intention to conduct any inspections or tests, and Seller reserves the right to have a representative present. Purchaser agrees to provide Seller with a copy of any environmental or engineering inspection or test report upon Seller's written request. Purchaser agrees (which agreement shall survive Closing or termination of this Agreement) to indemnify, defend, and hold Seller free and harmless from any loss, injury, damage, claim, lien, cost or expense, including attorney's fees and costs, arising out of a breach of the forgoing agreements by Purchaser in connection 'With the inspection and testing of the Property and its other Due Diligence Review. Any inspections and testing shall be at Purchaser's expense. ARTICLE IV REPRESENTATIONS AND WARRANTIES -------------------------------- A. Seller represents and warrants to Purchaser as of the date hereof and as of the Closing Date (subject to revisions based upon a change in the best knowledge of Seller) that: 1. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Connecticut, has duly authorized the execution and performance of this Agreement, and such execution and performance will not violate any material term of its certificate of incorporation or by-laws. 2. To the best of Seller's knowledge, there are no judgments, lawsuits, actions, investigations, claims, or proceedings, pending or threatened, whether involving a governmental authority or private party, against Seller, or suits, actions, or proceedings in connection with the Property which would have a material adverse impact on the Property subsequent to Closing. 3. To the best of Seller's knowledge, the transactions contemplated by this Agreement are not in violation of, nor prohibited by, the terms of any agreement to which Seller is a party. 4. To the best of Seller's knowledge, Seller has received no written notice that there is any condemnation proceeding pending or contemplated with regard to all or any part of the Property. 5. To the best of Seller's knowledge, Seller has received no written notice that all or any part of the Property is in violation of any building, health, zoning, traffic, environmental (including hazardous or toxic materials), flood control or other applicable rules, regulations, or statutes of any local, state, or federal authorities or entities having jurisdiction of the Property. 6. To the best of Seller's knowledge, Exhibit D attached hereto is a true, complete and correct list of each and every Lease and assignment thereof and there are no other Leases affecting or encumbering the Property. 7. Attached hereto as Schedule A, is a true, complete and accurate copy of the most recent rent roll received from the managing agent of the Property. Seller has relied upon this rent roll in the ordinary conduct of its business affairs and to the best of Seller's knowledge the information set forth therein is true and accurate. Seller agrees to use reasonable effort's to obtain from Seller's property manager, Zamagias Properties, a certificate regarding such rent roll. 8. There are no employees of Seller at the Property who will become employees of Purchaser after the Closing. 9. William F. Towill, Jr. and C. Kevin Gallagher are the employees of Seller who have had primary responsibility for the operation, leasing, management and administration of the Property during the period from January 1, 1993 to the date hereof. B. Purchaser represents and warrants to Seller as of the date hereof and as of the Closing Date that: 1. Purchaser is a voluntary association commonly known as a Massachusetts business trust duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts, is authorized to do business in the State of Connecticut, has duly authorized the execution and performance of this Agreement, and such execution and performance will not violate any material term of its certificate of incorporation or by-laws. 2. Purchaser is acting as principal in this transaction with authority to close the transaction. 3. No petition in bankruptcy (voluntary or otherwise), assignment for the benefit of creditors, or petition seeking reorganization or arrangement or other action under Federal or State bankruptcy laws is pending against or contemplated by Purchaser. C. Each of Seller and Purchaser represents to the other that it has had no dealings, negotiations, or consultations with any broker, representative, employee, agent or other intermediary except Cushman & Wakefield of Connecticut, Inc. in connection with the Agreement or the sale of the Property. Seller and Purchaser agree that each will indemnify, defend and hold the other free and harmless from the claims of any other broker(s), representatives), employees), agent(s) or other intermediary(ies) claiming to have represented Seller or Purchaser, respectively, in connection with this Agreement or in connection with the sale of the Property. ARTICLE V COSTS --------- A. Purchaser will pay the following costs of closing this transaction: 1. The fees and disbursements of its counsel, inspecting architect and engineer, if any; 2. One-half (1/2) of any escrow fees and real estate transfer, conveyance, stamp or documentary tax(es); 3. One-half (1/2) of any sales or use taxes relating to the transfer of personal property to Purchaser; 4. One-half (1/2) of the cost of an ALTA owner's title insurance policy without extended coverage or special endorsements, issued in connection with this transaction, whether pursuant to the Title Commitment or otherwise; 5. The cost of any title insurance in excess of the cost(s) of an ALTA owner's policy without extended coverage or special endorsements, including, any additional.premium charge(s) for endorsements and/or deletions of exception items and any cancellation charge(s) imposed by any title company in the event a title insurance policy is not issued, unless caused by willful default of Seller hereunder; 6. One half (1/2) of the reasonable cost of the Survey; 7. Any recording fees; 8. Any other expense(s) incurred by Purchaser or its representatives in inspecting or evaluating the Property or closing this transaction; and 9. The cost of an ALTA (1970 Form B) title insurance policy in the amount of the purchase money mortgage. B. Seller will pay: 1. The fees and disbursements of its counsel; 2. One-half (1/2) of any escrow fees, and real estate transfer, conveyance, stamp or documentary taxes; 3. one-half (1/2) of any sales or use taxes relating to the transfer of personal property to Purchaser; 4. One-half (1/2) of the cost of an ALTA owner's title insurance policy without extended coverage or special endorsements, issued in connection with this transaction, whether pursuant to the Title Commitment or otherwise; 5. One-half (1/2) of the reasonable cost of the Survey; and 6. The broker's fee to the extent any such fee is payable pursuant to Seller's separate agreement with Cushman & Wakefield-of Connecticut, Inc. C. The income and expenses of the Property shall be prorated and apportioned by and between Seller and Purchaser as follows: 1. The following shall be adjusted between Seller and Purchaser as of 11:59 p.m. of the date preceding the Closing Date: (a) rents and additional rents under or in respect of the Leases, as, when and to the extent actually collected, on the basis of the period for which the same are payable under such applicable Lease and apportioned on the basis of the actual number of days in such period; (b) real property taxes, water and sewer rents and charges, vault taxes or charges, and elevator inspection charges, each on the basis of the fiscal year or other period for which assessed, and apportioned upon the basis of the actual number of days in such year or period (subject to Subsection C.6 below); (c) subject to Subsection C.7 below, electric, gas, steam and other public utility charges for services furnished to the Property, on the basis of the actual number of days in any period covered by the charge being apportioned (except that no apportionment shall be made for any of such items as are furnished and charged by the applicable utility company directly to Tenants under the Leases); (d) fuel, if any, and taxes thereon, on the basis of a reading taken as recently as possible prior to the Closing, at the price then charged by a supplier unrelated to either Purchaser or Seller. With regard to the Property, Seller shall pay, at or prior to the Closing, all installments or amounts of items which are being apportioned under this Section which became due and payable prior to the Closing. 2. Seller shall pay all unpaid commissions, fees and other charges currently due to real estate brokers or other Persons with respect to any lease executed prior to the Closing, including any Amendment of any Lease executed prior to the Closing Date but becoming effective after the Closing Date. if the Closing occurs, then Purchaser shall be responsible for commissions, fees, or other charges due to real estate brokers or other Persons with respect to the Leases, which become due after the Closing Date, whether by reason of renewals, exercise of options, or otherwise, and with respect to leases executed after the Closing Date; provided, however, that with respect to those Leases entered into by Seller, Purchaser shall be responsible only for commission's, fees, or other charges due to Zamagias Real Estate Inc. for any fees incurred under brokerage agreements with the real estate brokers listed in Exhibit E attached hereto, provided, further, that Purchaser will be given a credit of $2,116.80 against the Purchase Price for such commissions. 3. If the Closing occurs before a new real property or other applicable tax rate or charge of a Governmental Entity is fixed for the Property with respect to any period prior to the Closing Date, then the apportionment of such tax or charge at the Closing shall be based upon the tax rate for the immediately preceding fiscal period applied to the latest assessed valuation. Promptly after the new tax rate has been fixed, the apportionment of such tax or charge made at the Closing shall be recomputed. 4. With regard to the Property, if any Tenant under a Lease is in arrears in the payment of rent, additional rent, or other charges, payments received from such Tenant after the Closing shall be applied in the following order of priority: (a) to the month preceding the month in which the Closing occurred; (b) then to the month in which the Closing occurred; (c) then to any month or months following the month in which the Closing occurred with respect to which rent is due at time of receipt; and (d) then to the period prior to the month preceding the month in which the Closing occurred. If any payments from Tenants received by Seller after the Closing are payable to Purchaser by reason of this Subsection, then the appropriate sum (less a proportionate share of costs for collection thereof) shall be promptly paid to the other party. After the Closing, upon ten (10) days, prior written notice to Purchaser, Seller may bring, in Seller's name and expense, an action against any Tenant under a Lease to collect rent, additional rent, or other payments due Seller for a period prior to the Closing, together with the cost of collection thereof; but in no event shall Seller seek any remedy other than collection of funds from the particular Tenant (and Seller shall not be entitled to seek a termination of the Lease or eviction of the Tenant). Seller shall furnish Purchaser (within five (5) Business Days after issuing or receiving the same) copies of all papers served by Seller, the Tenant, or any other party to the particular action. 5. In this Section, "additional rents" means percentage rent, escalation charges for real estate taxes, parking charges and/or tax and labor, operating expenses and maintenance escalation rents or charges, cost-of-living increases, common area maintenance charges, or other charges of a similar nature payable under the Leases. With regard to the Property, if any additional rents are collected by Seller after the Closing which are attributable in whole or in part to any period subsequent to the Closing, then Seller shall pay to Purchaser Purchaser's share thereof, determined under Subsection C.l(a) above, less a proportionate share of the costs for collection thereof. With regard to the Property, if any additional rents are collected by Purchaser after the Closing which are attributable in whole or in part to any period prior to the Closing, then Purchaser shall pay to Seller Seller's share thereof, determined under Subsection C.l(a) above, less a proportionate share of costs for collection thereof. 6. If there are water meters on the Property, Seller, with respect to the Property, shall furnish to Purchaser meter reading to a date not more than ten (10) days prior to the Closing, and the unfixed meter charges for the intervening time to the Closing shall be apportioned on the basis of such meter readings. Upon the taking of a subsequent actual readings, such apportionments shall be readjusted, and Seller or Purchaser, as' the case may be, will promptly deliver to the other the amount determined to be so due upon such readjustments. 7. The apportionment of utility charges shall be made upon the basis of charges shown on the latest available bills of such utilities. The charges shown on such available bills for periods prior to the Closing shall be paid by Seller, with respect to the Property, and for the period from the date of each such last available utility bill to the Closing an apportionment shall be made based on the amount charged for the period covered by such last available bill. Notwithstanding the foregoing, Seller, with respect to the Property, will use its best efforts to cause the utility company to read its meters or fix its charges as of the Closing, in which event Seller shall pay such charges, when billed, to the Closing, and Purchaser shall pay such charges from and after the Closing. 8. At the Closing, Seller shall give Purchaser a credit against the Purchase Price in the amount of the Security Deposits. 9. If any item covered by this Section cannot be apportioned because the same has not been (or cannot be) fully ascertained on the Closing, or if any error has been made with respect to any apportionment, then such item shall be apportioned (or corrected, as applicable) as soon as the same is fully ascertained. 10. After the date hereof, Seller may withdraw, settle, or otherwise compromise any currently filed and proceeding protest or reduction proceeding affecting real estate taxes assessed against the Property for any fiscal period preceding or during which the Closing occurs. Real estate tax refunds and credits received after the Closing which are attributable to the tax year during which the Closing occurs shall be apportioned between Seller and Purchaser, after deducting the costs of collection thereof, pursuant to this Section. 11. If, as of the Closing, the Property shall be (or shall have become) subject to a special or local assessment or charge of any kind (whether or not yet a lien), then Seller shall pay all installments thereof due and payable prior to the Closing; provided, however, any installment thereof for a period which includes the Closing shall be apportioned at the Closing in the same manner as for taxes under Subsection C.l(b) above. 12. Seller shall pay to WFC-1 Realty Corp. "Landlord's Contribution" as defined in that certain First Amendment of Lease, dated December 1 1993, by and between Seller, as landlord, and WFC-1 Realty Corp., as tenant (the "Lease Amendment") in accordance with the terms and conditions of the Lease Amendment; provided, however, that Seller shall not be required to pay Landlord's Contribution, or any portion thereof, if any of such terms or conditions or any terms or conditions of the Lease (as defined in the Lease Amendment) are materially modified by landlord or tenant thereunder. If landlord under the Lease Amendment is entitled to reimbursement of Landlord's Contribution in accordance with Paragraph 16 of the Lease Amendment, Purchaser shall promptly turn over to Seller any of Landlord's Contribution received by Purchaser, and Purchaser shall cooperate with Seller in obtaining the reimbursement of Landlord's Contribution in accordance with the foregoing. 13. In the event either Seller or Purchaser shall owe the other any money as a result of the terms of this Section (whether at Closing or thereafter), then the party owing such money shall pay the other party such money as soon as the amount is determined. 14. This Section C of Article V of this Agreement, and all rights and duties of the parties hereunder, shall survive the Closing for a period of one (1) year. ARTICLE VI DESTRUCTION OR CONDEMNATION OF PROPERTY --------------------------------------- A. If prior to the Closing, a condemnation action is initiated or threatened to take any part of the Property, Seller shall promptly give Purchaser written notice of the action and, to the extent such information is known to Seller, the amount, type and location involved. If the value of the Property to be taken in such action exceeds Five Hundred Thousand and No/100 Dollars ($500,000.00), Purchaser may elect to terminate this Agreement upon written notice to Seller within ten (10) days after its receipt of notice of such condemnation; if notice of termination is not provided as set forth above, Purchaser shall be deemed to have elected to proceed to close the transaction contemplated by this Agreement. If Purchaser timely elects to terminate this Agreement, Seller shall return the Deposit to Purchaser and thereupon neither party shall have any further liability or obligation to the other except as provided in Article III.E above. If Purchaser does not elect to terminate this Agreement, Seller shall, at the Closing (i) assign, in a form reasonably satisfactory to Purchaser and Seller, and turn over the net proceeds of any award of such taking which may have been collected by Seller or (ii) if no award or other proceeds shall have been collected, deliver to Purchaser an assignment of Seller's right, in a form reasonably satisfactory to Purchaser and Seller, to any such award or other proceeds which may be payable as a result of such taking. In all other instances Purchaser shall be obligated to proceed to close the transaction contemplated by this Agreement, provided that Seller delivers or assigns to Purchaser, as the case may be, the net proceeds received or receivable in connection with such condemnation in form reasonably acceptable to Purchaser and Seller. B. Risk of loss or damage to the Property, or any part thereof, by fire or other casualty from the date hereof to the Closing Date shall be on Seller. If, prior to the Closing Date, the Property, or any portion thereof, is damaged by fire, or any other cause of whatsoever nature, Seller shall promptly give Purchaser written notice of such damage, together with a description of such damage and Seller's reasonable estimate of the cost and time necessary to repair such damage. If the cost for repairing such damage shall, in the reasonable judgment of Purchaser, exceed Five Hundred Thousand and No/100 Dollars ($500,000-00), Purchaser shall have the option, by written notice delivered to Seller within twenty (20) days of receipt of Seller's written notice of damage to Purchaser, either (1) to require Seller to convey the Property to Purchaser in its damaged condition without any abatement in the Purchaser Price, to assign to Purchaser all of Seller's right, title and interest in and to any claims Seller may have under the insurance policies covering the Property and all proceeds thereunder, and to pay to Purchaser the deductible amount of any such policy, but in no event more than the amount reasonably required to repair such damage, and Seller shall have no liability or obligation to repair or replace the Property, or (2) to terminate this Agreement, in which event Seller shall immediately return the Deposit to Purchaser, and neither party hereto shall have any further duties or obligations hereunder except as provided in Article III.E above. If the cost of repairing such damage shall, in the reasonable judgment of Purchaser, not exceed Five Hundred Thousand No/1OO Dollars ($500,000.00), Seller shall convey the Property to Purchaser in its damaged condition without any abatement in the Purchase Price, and Seller shall assign to Purchaser all of Seller's right, title and interest in and to any claims Seller may have under the insurance policies covering the Property and all proceeds thereunder, and pay Purchaser the deductible amount of any such policy, but in no event more than the amount reasonably required to repair such damage, and Seller shall have no liability or obligation to repair or replace the Property. Seller shall use good faith efforts to cooperate with Purchaser in its attempt to obtain a letter from the applicable insurer that such casualty is covered by the applicable insurance policy and that such claim, policy or proceeds may be assigned to Purchaser. ARTICLE VII NOTICES ------------------ Any notice required or permitted to be given hereunder shall be deemed to be given when hand delivered or one (1) business day after pickup by Emery Air Freight, Airborne, Federal Express, or similar overnight express service, in either case addressed to the parties at their respective addresses referenced below: If to Seller: c/o Aetna Investment Group 242 Trumbull Street Hartford, Connecticut 06156 Attention: William F. Towill, Jr. Tel. (203) 275-2202 Fax (203) 275-3065 With a copy to: Garrett J. Delehanty, Jr., Counsel Law Division Aetna Life & Casualty CityPlace, YFF1 Hartford, Connecticut 06156 Tel. (203) 275-3512 Fax (203) 275-4020 With a copy to: James A. McGraw, Esq. Day, Berry & Howard CityPlace 185 Asylum Street Hartford, Connecticut 06103 Tel. (203) 275-0180 Fax (203) 275-0343 If to Purchaser: HRE Properties 530 Fifth Avenue New York, New York 10036 Attention: John H. Kent and Raymond P. Argila, Esq. Tel. (212) 642-4800 Fax (212) 642-4823 With a copy to: Charles E. Aster, Esq. Coudert Brothers 1114 Avenue of the Americas New York, New York 10036-7794 Tel. (212) 626-4592 Fax (212) 626-4120 or in each case to such other address as either party may from time to time designate by giving notice in writing to the other party. Telephone and facsimile numbers are for informational purposes only. Effective notice will be deemed given only as provided above. ARTICLE VIII CLOSING AND ESCROW ------------------ A. Upon execution of this Agreement, the parties hereto shall deposit an executed counterpart of this Agreement with the Title Company and this instrument shall serve as the instructions to the Title Company as the escrow holder for consummation of the transaction contemplated herein. Seller and Purchaser agree to execute such additional and supplementary escrow instructions as may be appropriate to enable the Title Company to comply with the terms of this Agreement, provided, however that in the event of any conflict between the provisions of this Agreement and any supplementary escrow instructions, the terms of the Agreement shall prevail. B. At the Closing, Seller shall provide the following original documents (the "Closing Documents"), each executed and acknowledged (as appropriate): 1. A special warranty deed to the Property, in form and substance satisfactory to Purchaser and Seller which satisfaction shall be evidenced by execution and acceptance of said document, subject to the matters set out in Article I(A) and other matters subsequently approved by Purchaser or Purchaser's counsel. 2. A bill of sale, in form and substance satisfactory to Purchaser and Seller which satisfaction shall be evidenced by execution and acceptance of said document, conveying the Personal Property. 3. (i) The Leases then currently encumbering the Property, which Leases are listed in Exhibit D, attached hereto and incorporated herein by reference; (ii) a current listing of any Security Deposits and prepaid rents held by Seller with respect to the Property; and (iii) an assignment of such Leases, Security Deposits, and prepaid rents by way of an assignment and assumption agreement, which agreement shall be in form and substance satisfactory to Purchaser and Seller which satisfaction shall be evidenced by execution and acceptance of said document. 4. If requested by Purchaser, an assignment to Purchaser of Seller's right, title and interest, if any, in the name Townline Center, which assignment shall be in form and substance satisfactory to Purchaser and Seller which satisfaction shall be evidenced by execution and acceptance of said document. 5. An assignment of all transferable warranties and guarantees then in effect, if any, with respect to the improvements located on the Property or any repairs or renovations to such improvements and Personal Property being conveyed hereunder, which assignment shall be in form and substance satisfactory to Purchaser and Seller which satisfaction shall be evidenced by execution and acceptance of said document. 6. All books and records at the Property held by or for the account of Seller, including without limitation, plans and specifications and lease applications, as available. 7. An affidavit pursuant to the Foreign Investment in Real Property Tax Act, in form and substance satisfactory to Purchaser and Seller which satisfaction shall be evidenced by execution and acceptance of said document. 8. A corporate authorization in form and substance satisfactory to Purchaser and Seller which satisfaction shall be evidenced by execution and acceptance of said document. 9. An incumbency affidavit in form and substance satisfactory to Purchaser and Seller which satisfaction shall be evidenced by execution and acceptance of said document. 10. Notice letters (to be prepared and provided by Purchaser) originally executed by Seller and individually addressed to each Tenant under a Lease, in form and substance satisfactory to Purchaser and Seller which satisfaction shall be evidenced by execution and acceptance of said document. 11. Copies of all ad valorem tax statements for the Property for the calendar year of the Closing, if available, and the calendar year immediately preceding the calendar year of the Closing, if not previously delivered to Purchaser and in Seller's possession. 12. Possession of the Property shall be delivered to Purchaser at Closing, subject to the rights of Tenants and the Permitted Encumbrances, together with a complete set of keys to the Property, to the extent the same are in Seller's possession, properly labeled and identified. C. At the Closing, Purchaser shall (i) pay Seller the cash portion of the Purchase Price; and (ii) execute and deliver to Seller the Note, Mortgage, Assignment of Rents, and other agreements, opinions and documents referred to in Articles II.A.3 and VIII.B.3(iii). D. The documents referred to in Article VIII.B.3(i)and 6 shall be made available to the Purchaser at the Closing. E. Seller shall terminate its policies of insurance as of noon on the date of Closing Date and Purchaser shall be responsible for obtaining its own insurance thereafter. F. Seller shall be entitled to the return of any deposit(s) posted by it with any utility company and Purchaser shall-notify each utility company serving the Property to terminate Seller's account, effective at noon on the Closing Date. G. Subsequent to Closing, Seller shall provide to Purchaser copies of form letters to utility companies serving the Property, advising them of the sale of the Property to Purchaser and directing to Purchaser all bills for the services provided to the Property on and after the date of Closing. ARTICLE IX PRE-CLOSING DEFAULT -------------------- A. (i) If Purchaser shall default under this Agreement, the Deposit shall be retained by Seller as liquidated damages, and both parties shall be relieved of and released from any further liability hereunder except for the obligations of Purchaser set out in Article III.C. above. Seller and Purchaser agree that the Deposit is a fair and reasonable amount to be retained by Seller as agreed and liquidated damages in light of Seller's removal of the Property from the market and the costs incurred by Seller and shall not constitute a penalty or a forfeiture. (ii) If Seller shall default under this Agreement, Purchaser's sole remedy hereunder shall be either to terminate the Agreement and recover the Deposit or to enforce the Seller's obligations to convey the Property, provided that no such action in specific performance shall seek to require the Seller to do any of the following: (a) change the condition of the Property or restore the same after any fire or other casualty; (b) subject to Article IX.B, below, expend money or post a bond to remove a title Encumbrance or defect or correct any matter shown on a survey of the Property, except those Encumbrances or defects voluntarily placed on the Property or title thereto by Seller after the date hereof; or (c) secure any permit, approval, or consent with respect to the Property or Seller's conveyance of the Property, except those consents within the organization of Seller. B. If prior to Closing Seller discloses to Purchaser or Purchaser discovers that title to the Property is subject to defects, limitations or Encumbrances other than Permitted Encumbrances, that any representation or warranty of Seller contained in this Agreement is or, as of the date of Closing, will be untrue, or that Seller has failed to perform an obligation, covenant or agreement of Seller under this Agreement, then Purchaser shall promptly give Seller written notice of its objection thereto. In such event, Seller may elect to postpone the Closing for thirty (30) days and attempt to cure such objection, provided that Purchaser may not object to the state of title of the Property based on the Permitted Encumbrances. Subject to the exception set forth in Section A(ii)(b) of Article IX above, the parties acknowledge and agree that Seller shall have no obligation to cure such objection. If Purchaser fails to waive the objection within ten (10) Business Days after notice from Seller that Seller will not cure the objection, this Agreement will terminate automatically and Seller shall promptly return the Deposit to Purchaser, and neither party shall have any liability to the other except for the obligations of Purchaser set out in Article III.E., above. For the purposes of this Agreement, any title defect, limitation or Encumbrance other than a Permitted Encumbrance shall be deemed cured if the Title Company will agree to (i) issue an ALTA owner's title insurance policy to Purchaser for the Purchase Price, which policy takes no exception for such defect, limitation or encumbrance for no additional premium or for an additional premium upon Closing, or (ii) at the request of Purchaser, affirmatively insure that such matter will not affect Purchaser's title to the Property. ARTICLE X CONDITIONS TO OBLIGATIONS OF PURCHASER -------------------------------------- A. The obligations of Purchaser to execute and deliver the applicable Closing Documents, to pay the Purchase Price and to perform Purchaser's other obligations at the Closing under this Agreement are and shall be subject to the satisfaction of each of the following conditions at or prior to the Closing: 1. Title to the Property shall be free of all Encumbrances other than the Permitted Encumbrances (or all such other Encumbrances shall be deemed to have been cured pursuant to Article IX, Paragraph B above). 2. Seller shall have executed (where applicable) and delivered the Closing Documents to be executed and delivered by Seller and delivered to Purchaser all other documents and items required of Seller under this Agreement. 3. Purchaser shall have obtained an Owner's Policy of Title Insurance on the ALTA 1990 Standard Form (the "Title Policy") from the Title Company insuring Purchaser's right, title and interest in the Property in the amount of $25,000,000, and excepting no Encumbrances other than the Permitted Encumbrances; provided, however, that Purchaser shall have paid one-half of the cost of the Title Policy. 4. Purchaser shall have obtained, at Purchaser's sole cost, a zoning opinion confirming that the Property complies with all applicable zoning laws and regulations. 5. Seller shall deliver to Purchaser on or before the Closing, dated and originally executed by each of the Major Tenants and at least eighty percent (80%) in number of the other Tenants, no earlier than thirty (30) Business Days prior to the Closing Date, Tenant estoppel certificates, in form and substance satisfactory to Purchaser and Seller which satisfaction shall be evidenced by execution and acceptance of said document, with all blanks filled in by Purchaser based on information supplied by the property manager and agreed to by Purchaser (individually, an "Estoppel Certificate" and collectively, "Estoppel Certificates"). 6. All of the representations and warranties of Seller contained in this Agreement shall have been true and correct when made, and shall be true and correct on the Closing Date with the same effect as if made on and as of such date. 7. Seller shall have performed, observed, and complied with all covenants, agreements, and conditions required by this Agreement to be performed, observed, and complied with on Seller's part prior to or as of the Closing Date. 8. Neither Seller nor Purchaser has received written notice from the applicable Governmental Entity that there is an actual, threatened or imminent change in the zoning of the Property from the date hereof. 9. No uncured Violations shall exist against the Property, including but not limited to Violations of Environmental Laws. 10. on the Closing Date, no Major Tenants, shall be the subject of any pending bankruptcy proceeding pursuant to the United States Bankruptcy Code of 1978, as amended. 11. on the Closing Date, none of the Major Tenants (except Supermarkets General Corporation) nor more than two of the other Tenants in the Property as of the date hereof, nor The Wiz of Meriden, shall have vacated its respective demised premises. 12. All other conditions to Purchaser's obligations which are specifically set forth in this Agreement shall have been fulfilled. Purchaser shall use its best efforts, during the period from the date hereof to the Closing Date, to obtain the items described in Subsections A.3 and 4 above. B. In the event that, on the Closing Date, no more than thirty percent (300-.) in number of Tenants under a Lease (other than the Major Tenants), have failed or refused to deliver an Estoppel Certificate for the benefit of Purchaser, Seller may, at its option, in substitution of any of such missing Estoppel Certificate, execute and deliver to Purchaser on the Closing Date an estoppel certificate in form and substance satisfactory to Purchaser and Seller which satisfaction shall be evidenced by execution and acceptance of said document (a "Seller's Estoppel Certificate,,), and if Seller does so the condition precedent with respect to such Estoppel Certificate set forth in Subsection A.5 above shall be deemed satisfied. Any Seller's Estoppel Certificate shall survive the Closing Date until, and any action based upon any misrepresentation set forth therein must be commenced prior to, the earlier to occur of (i) the delivery to Purchaser by Seller of an Estoppel Certificate executed by the subject Tenant (a "Post Closing Tenant Estoppel") or (ii) one (1) year after the Closing Date. C. In the event any of the above conditions are not met, Purchaser may, at its sole election, terminate the Agreement in which case the Deposit will be immediately returned to Purchaser and all of the Seller's and Purchaser's obligations under this Agreementshall terminate, except as provided in Article III.E above. ARTICLE XI DEFINITIONS ------------ A. In this Agreement, and in the Exhibits and Schedules attached hereto, the following words and phrases shall have the following meanings: "Amendments" means an amendment, renewal, supplement, modification, expansion, restatement, extension, or any other change or revision. "Business Day" means any day other than (a) a Saturday or Sunday or (b) a federal or New York State or Connecticut State banking holiday. "Closing" is defined in Section B of Article II of this Agreement. "Closing Date" is defined in Section B of Article II of this Agreement. "Closing Documents" is defined in Section B of Article VIII of this Agreement. "Contracts" is defined in Section A of Article III of this Agreement. "Development Rights" means all rights of the owner to the air space above the Property, all zoning entitlements, development rights and appurtenances (including, but not limited to, all entitlements based upon so-called unused floor-area ratios) accruing to the Property (and/or Seller with respect to the Property) under, or by reason of, any applicable zoning ordinance or other laws. "Encumbrances" means any and all liens, mortgages, deeds of trust, security agreements, security interests, claims, options, rights of purchase or first refusal, encroachments, rights-of-way, operating agreements, covenants, reservations, orders, decrees, judgments, leases, subleases, licenses, assignments, agreements, charges, conditions, restrictions, or other encumbrances affecting title to a property and of record. "Environmental Laws" means any federal, state or local statute, law, rule, regulation, ordinance, code, policy, rule of common law, judicial order, administrative order, consent decree, or judgment now or hereafter in effect, in each case, as have been amended from time to time, relating to the environment, health or safety, including the National Environmental Policy Act (42 U.S.C. Sec. 4321 et seq.), the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. 9601 et seq.), as amended by the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act (42 U.S.C. Sec. 6901 et seq.), as amended by the Hazardous and Solid Waste Amendments of 1984, the Hazardous Materials Transportation Act (49 U.S.C. Sec. 1801 et seq.), the Toxic Substances Control Act (15 U.S.C. Sec. 2601 et seq.), the Clean Water Act (33 U.S.C. Sec. 1331 et seq.), Clean Air Act (42 U.S.C. 7401 et seq.), Occupational Safety and Health Act (25 U.S.C. 651 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Sec. 1251 et seq.), the Safe Drinking Water Act (42 U.S.C. Sec. 3808 et seq.), or any similar federal, state or local laws, ordinances or regulations implementing such laws. "Governmental Entity" means the United states, the State of New York, the State of Connecticut any other State in which a party to this Agreement is incorporated or organized, the County of New Haven, Town of Meriden, Town of Wallingford, or other political subdivision of any of the foregoing, and any agency, authority, department, court, commission or other legal entity of any of the foregoing asserting jurisdiction over any of the parties hereto or over the Property or over the operation of the business of the Property. "Hazardous Materials" means (a) asbestos, radon gas, urea formaldehyde foam insulation, transformers or other equipment which contain dielectric fluid contains levels of polychlorinated byphenyls in excess of federal, the State of Connecticut, the County of New Haven, Connecticut, or either of the Towns of Meriden or Wallingford, safety guidelines, whichever are more stringent, (b) any solid or liquid wastes (including hazardous wastes), hazardous air pollutants, hazardous substances, hazardous chemical substances and mixtures, toxic substances, pollutants and contaminants, as such terms are defined in the National Environmental Policy Act (42 U.S.C. Section 4321 et seq.), the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. Section 9601 et seq.), as amended by the Superfund Amendments and Reauthorization Act of 1986, the.Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), as amended by the Hazardous and Solid Wastes Amendments of 1984, the Hazardous Materials Transportation Act, the Toxic Substances Control Act, the Clean Water Act (33 U.S.C. Section 1321 et seq.), the Clean Air Act, the Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.), as such laws and regulations may be amended and/or supplemented from time to time, or any and all rules and regulations promulgated under any of the above as such may be amended and/or supplemented from time to time, or (c) any other chemical material or substance, exposure to which is prohibited, or, to the extent limited or regulated, limited or regulated by any Governmental Entity. "Leases" means all written leases, rental agreements, concession agreements, subleases, underleases or other agreements which permit or authorize the use and occupancy of the Property, of every kind whatsoever now existing or hereafter (prior to the Closing Date) created or granted with respect to the Property and/or use and occupancy thereof, together with any and all, if any, guaranties, for performance of a tenant's obligations thereunder known to Seller, and all Amendments and/or other agreements forming a part thereof. "Major Tenant" means each of Supermarkets General Corporation, WFC-1 Realty Corp., The Stop & Shop Companies, Inc., and Marshalls of Meriden, Ct., Inc. "Permitted Encumbrances" is defined in the last paragraph of Section A of Article I of this Agreement. "Person" means an individual person, a corporation, partnership, trust, joint venture, proprietorship, estate, association, Governmental Entity or other incorporated or unincorporated enterprise, entity.or organization of any kind. "Personal Property" is defined in Section A.2 of Article I of this Agreement. "Plans" means all architectural, electrical, mechanical, plumbing and other plans and specifications in Seller's possession or control produced in connection with the construction, repair and maintenance of the Property (including all revisions and supplements thereto) and all operating manuals and other documents pertaining,to the physical operation of the Property in Seller's possession. "Property" is defined in Section A of Article I of this Agreement. "Purchase Price" is defined in Section A of Article II of this Agreement. "Security Deposits" means those security deposits and/or prepaid rentals received from any Tenant under any Lease and in the possession of Seller, which Purchaser and Seller acknowledge and agree to be in the aggregate amount of $24,676.57. "Tenant" means a tenant, subtenant, undertenant, or occupant under a Lease. "Title Company" means Lawyers Title Insurance Corporation, located at 708 Third Avenue, Suite 2300, New York, New York 10017, Attention: Ms. Stephanie Butler. "Violation" means any written notice of any violation of law issued by any Governmental Entity against or with respect to the Property. B. Wherever used in this Agreement: 1. the words "include,, or "including" shall be construed as incorporating also, "but not limited to,' or "without limitation"; 2. the word "day" means a calendar day unless otherwise specified; 3. the word "law" (or "laws") means any statute, ordinance, resolution, regulation, code, rule, order, decree, judgment, injunction, mandate or other legally binding requirements of a Governmental Entity; 4. each reference to either Land or the Property shall be deemed to include "and/or any portion thereof"; and 5. The word "party" means Purchaser or Seller, as the case may be. ARTICLE XII MISCELLANEOUS --------------------- A. Entire Agreement - This Agreement is the entire Agreement between the parties with respect to the subject matter hereof, and no alteration, modification or interpretation hereof shall be binding unless in writing and signed by both parties. B. Severability - If any provision of this Agreement or application to any party or circumstances shall be determined by any court ' of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or .circumstances, other than those as to which it is so determined invalid or unenforceable, shall not be affected thereby, and each provision hereof shall be valid and shall be enforced to the fullest extent permitted by law. C. Applicable Law - This Agreement shall be construed and enforced in accordance with the laws of the State of Connecticut. D. Assignability - Purchaser may not assign this Agreement without first obtaining Seller's written consent. Any assignment in contravention of this provision shall be void. No assignment shall release the Purchaser herein named from any obligation or liability under this Agreement. If Purchaser requests Seller's written consent to any assignment, Purchaser shall (1) notify Seller in writing of the proposed assignment; (2) provide Seller with the name and address of the proposed assignee; (3) provide Seller with financial information including financial statements of the proposed assignee; and (4) provide Seller with a copy of the proposed assignment. E. Successors Bound - This Agreement shall be binding upon and inure to the benefit of Purchaser and Seller and their successors and permitted assigns. F. No Public Disclosure - Purchaser shall make no public disclosure of the terms of this transaction without the prior written consent of Seller, except that Purchaser may discuss the transaction in confidence with proposed joint venturers or prospective mortgagees. G. Captions - The captions in this Agreement are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope of this Agreement or the scope or content of any of its provisions. H. Attorney's Fees - In the event of any litigation arising out of this Agreement, the prevailing party shall be entitled to reasonable attorney's fees and costs. I. No Partnership - Nothing contained in this Agreement shall be construed to create a partnership or joint venture between the parties or their successors in interest. J. Time - Time is of the essence in this Agreement. K. Counterparts - This Agreement may be executed and delivered in any number of counterparts, each of which so executed and delivered shall be deemed to be an original and all of which shall constitute one and the same instrument. L. Recordation - Purchaser and Seller agree not to record this Agreement or any memorandum thereof. M. Proper Execution - The submission by Seller to Purchaser of this Agreement in unsigned form shall be deemed to be a submission solely for Purchaser's consideration and not for acceptance and execution. Such submission shall have no binding force and effect, shall not constitute an option, and shall not confer any rights or impose any obligations upon Purchaser, irrespective of any reliance thereon, change of position or partial performance. The submission by Seller of this Agreement for execution by Purchaser and the actual execution and delivery thereof by Purchaser to Seller shall similarly have no binding force and effect on Seller unless and until Seller shall have executed this Agreement and a counterpart thereof shall have been delivered to Purchaser. N. Best Knowledge - Whenever a representation or warranty is made in this Agreement on the basis of the best of knowledge of!Seller, such representation and warranty is made solely on the basis of the actual, as distinguished from implied, imputed and constructive, conscious knowledge on the date that such representation or warranty is made, without inquiry or investigation, of William F. Towill,, Jr. and C. Kevin Gallagher, without attribution to them of facts and matters otherwise within the personal knowledge of any other officers or employees of Seller or third parties, including but not limited to tenants and property managers of the Property. O. Survival and Limitation of Re-presentations and Warranties - The representations and warranties set forth in Article IV.A. and C shall survive the Closing but written notification of any claim arising therefrom must be received by Seller within one (1) year of the Closing Date or such claim shall be forever barred and Seller shall have no liability with respect thereto. The aggregate liability of the Seller with respect to all claims hereunder shall not exceed TWO MILLION DOLLARS ($2,000,000.00). P. Committee Approval This Agreement is subject to approval by Aetna's Investment Committee and the portfolio manager having responsibility for the Property. Q. Disclaimer - The Declaration of Trust establishing HRE Properties, dated July 7, 1969, a copy of which, together with all amendments thereto (the "Declaration"), is on file in the office of the Secretary of the Commonwealth of Massachusetts, provides that the name "HRE Properties" refers to the Trustees under the Declaration collectively as Trustee, but not as individuals or personally; and no trustee, shareholder, officer or agent of HRE Properties shall be held to any personal liability, nor shall resort be had to their private property for the satisfaction of any obligation or claim or otherwise in connection with affairs of said HRE Properties, but the trust estate only shall be liable. IN WITNESS WHEREOF, Purchaser and Seller have caused this Agreement to be executed on the dates set forth below, effective as of the date set forth above. ATTEST: SELLER: AETNA LIFE INSURANCE COMPANY By /s/ Davic J. Ingram --------------------------- Printed name : Davic J. Ingram Its: Vice President /s/ William F. Towill - ---------------------- Assistant Secretary Date: 12/22/93 PURCHASER: HRE PROPERTIES By /s/ John H. Kent --------------------------- Printed name : John H. Kent Its: Vice President - Acquisitions /s/ Natalie s. Keller - ---------------------- Date: 12/22/93 EX-23.1 6 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Annual Report on Form 10-K for the year ended October 31, 1994 of HRE Properties, into its previously filed Registration Statement on Form S-3 (No. 33-57119) and its previously filed Registration Statements on Form S-8 (No.2-93146 and No. 33-41408), and to the reference to our Firm under the caption "Experts" in said Registration Statements. ARTHUR ANDERSEN LLP New York, New York January 26, 1995 EX-27 7 EXHIBIT 27
5 12-MOS OCT-31-1994 OCT-31-1994 8738000 0 2343000 0 0 0 146804000 26173000 142559000 6024000 45386000 123507000 0 0 (35026000) 142559000 0 18969000 0 0 12866000 1086000 3775000 1262000 0 1262000 0 82000 0 1344000 .26 .26 This item consists of Real Estate Investments:Properties Owned This item consists of Gains on Sales of Properties This item consists of Writedown in carrying value of investment
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