-----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, Ass8LXK06YND11gf1dP6HmAsE9+BL9G5lu2/gaQKTGqIfza1JoOoyMR9Ns09++V1 XKQOWZcW7nvWAXuoa9EZNQ== 0000950131-95-001313.txt : 19950516 0000950131-95-001313.hdr.sgml : 19950516 ACCESSION NUMBER: 0000950131-95-001313 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19950515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SECURITY CAPITAL PACIFIC TRUST CENTRAL INDEX KEY: 0000080737 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 746056896 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-86444 FILM NUMBER: 95539805 BUSINESS ADDRESS: STREET 1: 7777 MARKET CENTER AVE CITY: EL PASO STATE: TX ZIP: 79912 BUSINESS PHONE: 9158773900 MAIL ADDRESS: STREET 1: 7777 MARKET CENTER AVE CITY: EL PASO STATE: TX ZIP: 79912 FORMER COMPANY: FORMER CONFORMED NAME: PROPERTY TRUST OF AMERICA DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: EL PASO REAL ESTATE INVESTMENT TRUST DATE OF NAME CHANGE: 19700108 424B3 1 PRELIMINARY PRO SUPP Filed Pursuant to Rule 424(b)(3) Registration Number 33-86444 ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS SUPPLEMENT IS SUBJECT TO + +COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO + +BUY BE ACCEPTED PRIOR TO THE TIME A FINAL PROSPECTUS SUPPLEMENT IS DELIVERED. + +THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS SHALL NOT + +CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL + +THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, + +SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION + +UNDER THE SECURITIES LAWS OF ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED MAY 15, 1995 PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED DECEMBER 1, 1994 4,000,000 SHARES LOGO SERIES B CUMULATIVE REDEEMABLE PREFERRED SHARES OF BENEFICIAL INTEREST (LIQUIDATION PREFERENCE $25.00 PER SHARE) ----------- Distributions on the Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, $1.00 par value per share (the "Series B Preferred Shares"), of Security Capital Pacific Trust (formerly Property Trust of America), a Maryland real estate investment trust ("PTR"), will be cumulative from the date of original issue and will be payable quarterly in arrears on the last day of March, June, September and December of each year, commencing June 30, 1995, at the rate of % of the liquidation preference per annum. See "Description of Series B Preferred Shares--Distributions". The Series B Preferred Shares are not redeemable prior to May , 2000. On and after May , 2000, the Series B Preferred Shares may be redeemed for cash at the option of PTR, in whole or in part, at a redemption price of $25.00 per share, plus accrued and unpaid distributions, if any, thereon. The redemption price (other than the portion thereof consisting of accrued and unpaid distributions) is payable solely out of the sale proceeds of other capital shares of PTR, which may include shares of other series of preferred shares. The Series B Preferred Shares have no stated maturity and will not be subject to any sinking fund or mandatory redemption and will not be convertible into any other securities of PTR. See "Description of Series B Preferred Shares-- Redemption". No person or persons acting as a group may beneficially own more than 25% of the Series B Preferred Shares, with limited exceptions. See "Description of Series B Preferred Shares--Restrictions on Ownership". Application has been made to list the Series B Preferred Shares on the New York Stock Exchange (the "NYSE"). If such application is approved, trading on the Series B Preferred Shares is expected to commence within a 30-day period after the initial delivery of the Series B Preferred Shares. See "Underwriting". ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ----------- THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. -----------
INITIAL PUBLIC UNDERWRITING PROCEEDS TO OFFERING PRICE DISCOUNT(1) PTR(2) -------------- ------------ ----------- Per Share....................................... $ $ $ Total(3)........................................ $ $ $
- ----- (1) PTR has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. (2) Before deducting expenses payable by PTR estimated at $ . (3) PTR has granted the several Underwriters an option for 30 days to purchase up to an additional 600,000 Series B Preferred Shares at the initial public offering price per share, less underwriting discounts, solely to cover over-allotments. If such option is exercised in full, the total initial public offering price, underwriting discount and proceeds to PTR will be $ , $ and $ , respectively. See "Underwriting". ----------- The Series B Preferred Shares are offered severally by the Underwriters, as specified herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that certificates for the Series B Preferred Shares will be ready for delivery in New York, New York on or about May , 1995. GOLDMAN, SACHS & CO. DEAN WITTER REYNOLDS INC. A.G. EDWARDS & SONS, INC. PAINEWEBBER INCORPORATED PRUDENTIAL SECURITIES INCORPORATED ----------- The date of this Prospectus Supplement is May , 1995. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. S-2 SECURITY CAPITAL PACIFIC TRUST The objective of Security Capital Pacific Trust (formerly known as Property Trust of America, and referred to herein as "PTR") is to be the preeminent real estate operating company focusing on multifamily property in its target market. PTR'S REIT manager is Security Capital Pacific Incorporated, formerly Security Capital (Southwest) Incorporated (the "REIT Manager" or "REIT Management"). Through its REIT Manager, PTR is a fully integrated operating company which engages in development, acquisition, operation and long term ownership of multifamily properties. At March 31, 1995, PTR owned and operated or was developing 47,569 multifamily units. The total investment cost of all of PTR's multifamily properties is $1.9 billion, including planned renovations and development expenditures. PTR seeks to achieve long term sustainable growth in cash flow and distributions by maximizing operating performance through value-added asset management, concentrating its fully integrated development capability and experienced team of professionals on developing industry-leading product in targeted submarkets that exhibit strong job growth and demographic trends and implementing an asset optimization strategy of redeploying capital into targeted moderate income developments with significant long-term cash flow growth prospects. PTR has traditionally focused on multifamily assets in the Southwest. In November 1994, PTR's Board of Trustees expanded PTR's target market to include a six-state region of the western United States comprised of California, Idaho, Nevada, Oregon, Utah and Washington. On March 23, 1995, PTR consummated a merger (the "Merger") of Security Capital Pacific Incorporated, a Maryland corporation ("PACIFIC"), with and into PTR. The assets acquired from PACIFIC in the Merger are located in some of the new markets, which the REIT Manager believes have significant growth prospects. PTR highlights include: . Average rental rates increased 6.42% in 1994 for PTR's multifamily properties that were fully operational throughout both 1994 and 1993. At March 31, 1995, PTR's operating multifamily properties were 95% leased. Average rental rates increased 4.76% in the first quarter of 1995 over the same period of the prior year for PTR's multifamily properties that were stabilized throughout both periods. . PTR believes that development of multifamily properties from the ground up that are built for long term ownership and are designed to meet broad renter preferences and demographic trends will provide a greater source of long term cash flow growth in the future than acquisitions. PTR expects to complete an additional 1,508 multifamily units by June 30, 1995. At March 31, 1995, PTR had completed $226.4 million of developments, had $196.6 million of developments under construction, had $254.8 million of developments in planning and owned land for which $83.6 million of developments are projected. . Security Capital Group Incorporated ("Security Capital Group"), PTR's largest shareholder, which owned 37.9% of PTR's common shares of beneficial interest, $1.00 par value per share (the "Common Shares"), at March 31, 1995, is the owner of the REIT Manager and has provided investment capital to PTR, at the same times and on the same terms made available to public investors. . Based on forecasts published by Woods & Poole Economics, Inc., the projected growth in population of PTR's primary target market is 39.5% for the years 1994-2015, whereas the projected growth in population in the United States as a whole for such period is 19.2%. For the same time period, job growth is projected to be 31.5% in PTR's primary target market, and 22.4% in the United States as a whole. . A review of local market information in PTR's primary target market indicates that the number of multifamily units for which building permits have been issued has declined significantly from mid-1980 levels. In 1985, 76,044 units were permitted as compared to 32,216 units in 1994. S-3 . PTR's long term debt as a percentage of total long term book capitalization was 26% at December 31, 1994 and 21% at March 31, 1995, on a pro forma basis giving effect to the offering of the Series B Preferred Shares made hereby and the application of the proceeds therefrom. PTR has elected to be taxed as a real estate investment trust ("REIT") for federal income tax purposes. PTR was formed in 1963 and is a real estate investment trust organized under the laws of Maryland. Its principal executive offices are located at 7777 Market Center Avenue, El Paso, Texas 79912, and its telephone number is (915) 877-3900. BUSINESS Commitment to Fundamental Real Estate Research. PTR utilizes its affiliate, Security Capital (U.S.) Investment Research Incorporated ("Security Capital (U.S.) Investment Research"), to conduct comprehensive evaluations of its target markets on a submarket-by-submarket basis to identify those submarkets and product types that present above average prospects for long term cash flow growth. These evaluations, combined with PTR's experience in development and as one of the largest multifamily property owners in its target market, assist PTR in identifying the submarkets with the highest projected job and population growth and in determining the product type to develop, acquire and own in each submarket to appeal to the local resident base. Asset Review and Reallocation. PTR develops and acquires properties with a view to effective long term operation and ownership. REIT Management's asset managers actively review PTR's asset base. These reviews generate operating and capital plans and, with guidance from Security Capital (U.S.) Investment Research, identify submarkets and product types that PTR believes represent better long term growth opportunities. For each market, PTR's research evaluates five major economic factors, further broken down into 20-25 submarket characteristics. This research provides PTR with the demographic information to target specific resident profiles and identify unit size, density and amenities for each community which will provide the greatest opportunity for consistent rental increases and high occupancies and will be contributors to long term income growth. Based upon PTR's market research and in an effort to optimize its portfolio allocation, PTR may from time to time seek to dispose of assets that in management's view do not meet PTR's long term investment criteria and redeploy the proceeds therefrom, preferably through like-kind exchanges, into assets that it believes provide better long term growth opportunities. Development. At March 31, 1995, PTR had completed $226.4 million of multifamily developments, had $196.6 million of developments under construction, had $254.8 million of developments in planning and owned land for which $83.6 million of developments are projected. PTR has engaged in multifamily development since 1970. PTR has developed from the ground up, or has under development, 29.7%, based on cost, of its multifamily portfolio as of March 31, 1995. Historically, actual operating results on properties developed by PTR have generally exceeded projected operating results and the results available from acquisitions. PTR's development strategy is to focus on developing state of the art product in attractive submarkets to meet renter preferences and demographic trends. PTR believes that developing communities designed for long term appeal to the largest segment of the renter population will allow PTR to achieve more consistent rental increases and higher occupancies over the long term and, thereby, realize cash flow growth. PTR minimizes development risks by having zoning, site planning, construction budgets and similar risks resolved or assumed by third parties prior to PTR's commitment. PTR also targets development for markets with high occupancy rates where population and job growth trends indicate increasing future demand. PTR cannot eliminate all development risk but believes that the opportunities to better control product and realize higher returns from development properties compensate for the retained risk. S-4 Development opportunities also permit PTR to incorporate into multifamily communities proprietary technologies and designs aimed at enhancing long term rental growth while reducing ongoing maintenance costs. PTR has had the opportunity to evaluate and refine its multifamily product through its long history of development. PTR, unlike a typical merchant builder, intends to own long term the properties that it develops. Hence, PTR focuses on the quality of construction, materials and design with a view towards minimizing long term operation and maintenance costs. REIT Management believes that development of multifamily units from the ground up that are built for long term ownership and are designed to meet broad renter preferences and demographic trends will provide a greater source of long term cash flow growth. Therefore, while land prices are favorable, PTR has acquired and will acquire, on an unleveraged basis, prudent amounts of zoned land for future multifamily development. For purposes of the property chart and other information contained herein, land held for these future developments, which comprises less than 1% of assets, based on cost, has not been aggregated with the multifamily properties. PTR believes that effective execution of the strategy described above will contribute to long term sustainable growth in cash flow and distributions. PTR categorizes operating multifamily properties (which include all properties not under development) as either "stabilized" or "pre-stabilized." The term "stabilized" means that renovation, repositioning, new management and new marketing programs (or development and marketing in the case of newly- developed properties) have been completed and in effect for a sufficient period of time (but in no case longer than 12 months or, in the case of properties requiring major rehabilitation, as long as 18 months) to achieve 93% occupancy at market rents. Prior to being "stabilized," a property is considered "pre- stabilized." For operating properties that PTR has acquired, stabilized operations generally have been achieved six to twelve months after acquisition. For properties that PTR has developed, stabilized operations generally have been achieved 12 to 18 months after construction commenced. Due to its active development and acquisition programs, 81.0% of PTR's operating multifamily properties, based on cost, were classified by PTR as stabilized as of March 31, 1995. At March 31, 1995, PTR's operating multifamily properties were 95.5% leased and PTR's stabilized multifamily properties were 96.1% leased. PTR's multifamily properties are primarily garden style, two-story multifamily dwellings that range in size from 57 units to 896 units. Resident leases are generally for six-month to twelve-month terms and require security deposits. As of March 31, 1995, PTR owned 28 properties that contain affordable corporate efficiency units which are rented for terms generally shorter than six months. As of March 31, 1995, ten of these properties were under development, including two in the lease-up stage, and five additional properties were in planning. PTR expects to develop more of these properties. PTR believes that its multifamily communities generally occupy strategic locations in growing submarkets. At March 31, 1995, excluding affordable corporate efficiency properties, the average unit size for properties operating, under development and in planning was 840 square feet, with 53.8% of the units having two or more bedrooms. Many units have washer/dryer connections and walk-in closets, which REIT Management believes substantially enhance marketability. PTR improves attractiveness by investing in extensive landscaping when developing or repositioning multifamily units. Other features frequently included in PTR's multifamily communities are swimming pools, playgrounds, volleyball courts, fitness centers and community rooms. PTR expects to continue to focus a large portion of its future development and acquisition efforts on moderate income multifamily housing, which includes moderately priced apartments and efficiency units priced to appeal to the largest segment of the renter population, based on income, age and family size. S-5 PTR's multifamily and non-multifamily properties are located in 21 metropolitan areas in 11 states. The table below demonstrates the geographic distribution of PTR's property investments at March 31, 1995:
NUMBER OF PERCENTAGE OF ASSETS PROPERTIES BASED ON COST(1) ---------- -------------------- Albuquerque, New Mexico................... 12 7% Austin, Texas............................. 17 10 Dallas/Fort Worth, Texas.................. 21 7 Denver, Colorado.......................... 11 6 El Paso, Texas/Las Cruces, New Mexico..... 15 5 Houston, Texas............................ 22 12 Las Vegas, Nevada......................... 5 6 Oklahoma City, Oklahoma................... 2 1 Omaha, Nebraska........................... 2 1 Ontario, California....................... 1 * Phoenix, Arizona.......................... 21 15 Portland, Oregon/Vancouver, Washington.... 6 4 Reno, Nevada.............................. 1 1 Salt Lake City, Utah...................... 4 2 San Antonio, Texas........................ 24 10 San Diego, California..................... 2 2 San Francisco, California................. 1 1 Santa Fe, New Mexico...................... 4 2 Seattle, Washington....................... 4 2 Tucson, Arizona........................... 11 6 Tulsa, Oklahoma........................... 1 * --- --- Total................................. 187 100% === ===
- -------- * Less than 1%. (1) Represents cost, including planned renovations, for properties owned at March 31, 1995. Represents budgeted development costs, which includes the cost of land, fees, permits, payments to contractors, architectural and engineering fees and interest and property taxes to be capitalized during the construction period, for properties under development. Does not include land held for future development, which is less than 1% of assets based on cost. USE OF PROCEEDS The net proceeds to PTR from the sale of the Series B Preferred Shares offered hereby are estimated to be approximately $ ($ if the Underwriters' over-allotment option is exercised in full). The net proceeds will be used for the development and acquisition of additional multifamily properties, as suitable opportunities arise, for the repayment of indebtedness under PTR's revolving line of credit and for working capital purposes. Pending investment in multifamily properties, PTR will invest any remaining net proceeds in short term money market instruments. At May 11, 1995, approximately $48 million of borrowings were outstanding under PTR's $350 million unsecured revolving line of credit with Texas Commerce Bank National Association, as agent bank ("TCB"), which matures in August 1996 and bears interest at the greater of prime or the federal funds rate plus 0.5% or, at PTR's option, LIBOR plus 1.625% (which can vary from LIBOR plus 1.25% to LIBOR plus 2.0% based upon the rating of PTR's senior unsecured debt). The borrowings under the line of credit were used for the development and acquisition of multifamily properties and for working capital purposes. S-6 CAPITALIZATION The following table sets forth the capitalization of PTR at March 31, 1995, and as adjusted to give effect to the issuance and sale of the 4,000,000 Series B Preferred Shares offered hereby. The table should be read in conjunction with the financial statements of PTR incorporated by reference herein.
MARCH 31, 1995 -------------------------- HISTORICAL AS ADJUSTED(1) ---------- -------------- (IN THOUSANDS EXCEPT SHARE DATA) Mortgages payable................................... $ 147,859 $ 147,859 ---------- ---------- Long Term Unsecured Debt(2): 6 7/8% Notes Due 2008............................. 100,000 100,000 7 1/2% Notes Due 2014............................. 100,000 100,000 ---------- ---------- 200,000 200,000 ---------- ---------- Shareholders' Equity: Shares of Beneficial Interest, $1.00 par value; 150,000,000 shares authorized; Series A Preferred Shares (liquidation preference $25.00 per share); 9,200,000 shares issued......................................... 230,000 230,000 Series B Preferred Shares (liquidation preference $25.00 per share); 0 shares issued; 4,000,000 shares issued as adjusted............ -- 100,000 Common Shares; 72,376,815 shares issued......... 72,377 72,377 Additional paid-in capital...................... 956,579 953,129 Distributions in excess of net earnings............. (49,696) (49,696) Common Shares held in treasury, at cost--164,478.... (1,929) (1,929) ---------- ---------- Total Shareholders' Equity.......................... 1,207,331 1,303,881 Total Capitalization.......................... $1,555,190 $1,651,740 ========== ==========
- -------- (1) As described under "Use of Proceeds," a portion of the proceeds of this offering will be used to repay $48 million of borrowings (as of May 11, 1995) under PTR's unsecured revolving line of credit. (2) The Notes (as hereafter defined) have an average life to maturity of 14.25 years and an average effective interest cost, inclusive of offering discounts, issuance costs and an interest rate protection agreement, of 7.37% per annum. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." S-7 SELECTED FINANCIAL DATA The following table sets forth selected historical financial data for PTR and should be read in conjunction with the financial statements incorporated by reference herein (amounts in thousands, except ratio information and per share data).
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, ------------------ ------------------------------- 1995 1994 1994 1993 1992 -------- -------- --------- --------- --------- OPERATIONS SUMMARY: Rental Income............. $ 53,517 $ 37,414 $ 183,472 $ 76,129 $ 30,970 Total Revenues............ 54,072 38,277 186,105 78,418 32,779 General and Administrative Expenses................. 214 148 784 660 436 REIT Management Fee....... 3,957 3,004 13,182 7,073 2,711 Earnings from Operations(1)............ 14,540 9,512 46,719 23,191 9,037 Gain (loss) on Sale of Investments.............. -- -- -- 2,302 (51) Preferred Share Distributions Paid....... $ 4,025 $ 4,025 $ 16,100 $ 1,341 $ -- Net Earnings Attributable to Common Shares......... $ 10,515 $ 5,487 $ 30,619 $ 24,152 $ 8,986 Common Share Distributions Paid(2)(3)............... $ 14,506 $ 11,161 $ 46,121 $ 29,162 $ 13,059 PER SHARE DATA: Net Earnings Attributable to Common Shares......... $ 0.20 $ 0.12 $ 0.66 $ 0.66 $ 0.46 Common Share Distributions Paid(2)(3)............... 0.2875 0.25 1.00 0.82 0.70 Preferred Share Distributions Paid....... $ 0.4375 $ 0.4375 $ 1.75 $ 0.1458 $ -- Weighted Average Common Shares Outstanding....... 51,485 44,668 46,734 36,549 19,435 OTHER DATA: Funds from Operations Attributable to Common Shares(4)................ $ 18,059 $ 12,037 $ 56,833 $ 34,716 $ 14,922 Ratio of Funds from Operations to Combined Fixed Charges and Preferred Share Distributions(5)......... 2.3 2.2 2.2 4.9 4.3 Ratio of Earnings to Combined Fixed Charges and Preferred Share Distributions(6)......... 1.7 1.5 1.6 3.4 2.9 Net Cash Provided by Operating Activities..... 12,016 16,928 94,625 49,247 20,252 Net Cash Used by Investing Activities............... (58,926) (85,214) (368,515) (529,065) (229,489) Net Cash Provided by Financing Activities..... $ 48,211 $131,340 $ 276,457 $ 478,345 $ 185,130
DECEMBER 31, MARCH 31, ---------------------------- 1995 1994 1993 1992 ---------- ---------- -------- -------- FINANCIAL POSITION: Real Estate Owned, at Cost.............. $1,599,564 $1,296,288 $872,610 $337,274 Total Assets............................ 1,671,210 1,295,778 890,301 342,235 Line of Credit.......................... 76,090 102,000 51,500 54,802 Long Term Debt.......................... 200,000 200,000 -- -- Mortgages Payable....................... 147,859 93,624 48,872 30,824 Total Liabilities....................... 463,879 455,136 135,284 94,186 Shareholders' Equity.................... $1,207,331 $ 840,642 $755,017 $248,049 Number of Common Shares Outstanding..... 72,212 50,456 44,645 27,034
- -------- (1) Earnings from operations for the three-month period ended March 31, 1995 and 1994 reflect a $120,000 and a $1.6 million provision, respectively, and earnings from operations for the years ended December 31, 1994 and December 31, 1993 reflect a $1.6 million and a $2.3 million provision, respectively, for possible losses relating to investments in non-multifamily properties. (2) A distribution of $0.25 per Common Share was declared by PTR's Trustees on December 28, 1993 and was paid on February 18, 1994 to shareholders of record on February 4, 1994 and therefore is reflected in 1994. S-8 (3) The December 31, 1994 amount excludes the distribution of $0.2875 per Common Share which was declared by the Board of Trustees on December 6, 1994 and paid on February 13, 1995 to holders of record on February 2, 1995. (4) Funds from operations means net income computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains (or losses) from debt restructuring and sales of property, plus certain non- cash items, principally property depreciation, and after adjustments for unconsolidated partnerships and joint ventures. PTR believes that funds from operations is helpful in understanding a property portfolio in that such calculation reflects cash flow from operating activities and the properties' ability to support interest payments and general operating expenses before the impact of certain activities, such as gains or losses from property sales and changes in accounts receivable and accounts payable. Funds from operations should not be considered as an alternative to net earnings or any other GAAP measurement of performance as an indicator of PTR's operating performance or as an alternative to cash flows from operating, investing or financing activities as a measure of liquidity. In July 1994, PTR changed to a more conservative policy of expensing the amortization of loan costs in determining funds from operations. For comparability, funds from operations has been restated to give effect to this policy as if it had been in effect since January 1, 1992. (5) For purposes of computing the ratio of funds from operations to combined fixed charges and preferred share distributions, funds from operations consists of funds from operations plus fixed charges, other than capitalized interest. Fixed charges consist of interest on borrowed funds (including capitalized interest) and amortization of debt discount and expense. (6) The ratio of earnings to combined fixed charges and preferred share distributions was 1.5 and 1.5 for the years ended December 31, 1991 and 1990, respectively. For purposes of computing the ratio of earnings to combined fixed charges and preferred share distributions, earnings consist of earnings from operations plus fixed charges other than capitalized interest. Fixed charges consist of interest on borrowed funds (including capitalized interest) and amortization of debt discount and expense. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW PTR's operating results depend primarily upon income from multifamily properties, which is substantially influenced by (i) the demand for and supply of multifamily units in PTR's target market and submarkets, (ii) rental expense levels, (iii) the effectiveness of property level operations and (iv) the pace and price at which PTR can develop and acquire additional multifamily properties. Capital and credit market conditions which affect PTR's cost of equity and debt capital also influence operating results. PTR's target market and submarkets have benefitted substantially in recent periods from demographic trends (including job and population growth) that increase the demand for multifamily units while financing constraints (specifically, reduced availability of development capital) have limited new construction to levels substantially below construction activity prior to 1986. Consequently, rental rates for multifamily units have increased more than the inflation rate for the last two years and are expected to continue experiencing such increases for 1995. Expense levels also influence operating results, and rental expenses (other than real estate taxes) for multifamily properties have generally increased at approximately the same rate as rents for the past year and are expected to increase at a lower rate than rents for 1995. The following discussion outlines PTR's financial condition and results of operations for the first quarter of 1995 compared to the first quarter of 1994. A discussion of other fiscal periods is included in the financial statements of PTR which are incorporated herein by reference. S-9 RESULTS OF OPERATIONS--MARCH 31, 1995 COMPARED TO MARCH 31, 1994 During the three months ended March 31, 1995, PTR acquired 19 multifamily properties aggregating 6,041 units for a total purchase price, including planned renovations, of approximately $261.2 million (acquisitions from the Merger represented 17 operating multifamily properties, aggregating 5,579 units, for a total purchase price of approximately $242.5 million), and completed development of four multifamily properties aggregating 479 units with a completed cost of $20.3 million. At April 24, 1995, PTR had 4,700 multifamily units under construction with a budgeted completion cost of $205.4 million and had in the final planning stages an estimated 5,240 multifamily units with an aggregate expected investment of $269.3 million. During the three months ended March 31, 1994, PTR acquired five multifamily properties aggregating 1,374 units for a total purchase price, including planned renovations, of approximately $53 million and completed development of five multifamily properties aggregating 1,016 units with a completed cost of $38.3 million. At March 31, 1994, PTR had 3,188 multifamily units under construction with a budgeted completion cost of $144.1 million and had in the final planning stages an estimated 2,458 multifamily units with an aggregate budgeted completion cost of $112.6 million. The percentage of PTR's total rental income generated by multifamily properties was 98.6% and 97.9% for the three months ended March 31, 1995 and 1994, respectively. This percentage will continue to increase throughout 1995 due to the Merger, past and ongoing multifamily property acquisitions and developments and the periodic sale of non-multifamily properties. Property Operations. Property operations contributed to increased net earnings primarily due to property rental income increases of $16.1 million (43.0%), partially offset by higher rental expenses, which increased by $5.9 million (36.9%) for the period. Depreciation expense increased $2.5 million (50.0%) for the three months ended March 31, 1995 as compared to 1994. These increases are due to additional operating multifamily properties placed in service and to rental rate increases. For operating multifamily properties, which comprise 97.7% of PTR's total operating properties based on cost at March 31, 1995, rental expenses were 41.0% and 42.7% of rental income during the three months ended March 31, 1995 and 1994, respectively. At March 31, 1995, 81.0% of PTR's operating multifamily properties, based on cost, were classified by PTR as stabilized as compared to 56.9% for the same period in 1994. At March 31, 1995, PTR's operating multifamily properties were 95.5% leased and PTR's stabilized multifamily properties were 96.1% leased. Multifamily Properties Stabilized Throughout Both Periods. For the 39 multifamily properties that were stabilized throughout the three months ended March 31, 1995 and 1994, property level earnings before interest, income taxes, depreciation and amortization ("EBITDA") as a percentage of PTR's aggregate investment in these properties increased to 11.49% in 1995 from 11.0% in 1994. EBITDA does not represent and should not be substituted for net earnings as defined by GAAP and is not indicative of cash flows from operations or that cash flows are sufficient to fund all cash needs. This increase in return on investment, which is a function of rental rate growth, occupancy levels, expense rate growth and capital expenditure levels, is attributable primarily to growth in rental rates, and was achieved at the same time that PTR increased its investment in these properties by $1.2 million (0.34% of total investment in these properties) as a result of renovation and other capital expenditures. Rental income increased 5.1% (the majority resulting from a 4.8% rental rate increase) for such properties for the three months ended March 31, 1995 as compared to the three months ended March 31, 1994. Performance of these properties was further enhanced by decreases in rental expenses, primarily due to lower turnover expenses. Lower turnover expenses resulted from certain asset management programs designed to reduce turnover, and a rising interest rate environment which commenced in the latter part of 1994 and contributed to such reduction by decreasing the number of residents moving out to purchase homes. However, management does not anticipate that property operation expenses will decline throughout 1995. S-10 Interest Income. Interest income for the three months ended March 31, 1995 decreased $308,000 (35.7%) as compared to 1994, primarily resulting from a decrease in interest income from bank accounts due to lower average cash balances in 1995 ($2.5 million) as compared to 1994 ($43.6 million). The higher average cash balances in 1994 resulted from the proceeds of the long term debt offering of $200 million which was closed in February 1994, as more fully discussed under "--Liquidity and Capital Resources." Interest Expense. Interest expense increased $2.9 million (90.4%) for the three months ended March 31, 1995 when compared to 1994. The increase is primarily attributable to the increase in interest expense of $1.6 million resulting from the issuance of $200 million of long term notes in February 1994, as more fully discussed under "--Liquidity and Capital Resources" and the increase in line of credit interest expense as discussed below. Mortgage interest expense increased $764,000 (64.3%) for the three months ended March 31, 1995 when compared to 1994 primarily as a result of the addition of mortgages aggregating $48.7 million during 1994. Line of credit interest expense increased $1.5 million (126.3%) resulting primarily from higher outstanding balances and higher interest rates relating to PTR's revolving credit facility. Average borrowings on the line of credit were approximately $127.0 million (with an average interest rate of 8.15%) during the three months ended March 31, 1995, as compared to average borrowings of $32.8 million (with an average interest rate of 7.05%) during 1994. The increases in interest expense were offset by an increase of $1.0 million (87%) in capitalized interest. The increase in capitalized interest is attributable to increased multifamily development activity for the three months ended March 31, 1995 as compared to 1994. General and Administrative Expense Including REIT Management Fee. The REIT management fee paid by PTR fluctuates with the level of PTR's pre-REIT management fee cash flow, as defined in the REIT management agreement, and therefore increased by $953,000 (31.7%) during the three months ended March 31, 1995 as compared to 1994 because cash flow increased substantially. With the issuance of $200 million of amortizing, long term debt as more fully described under "--Liquidity and Capital Resources," the REIT management fee will decline in proportion to PTR's earnings from operations because actual or assumed regularly scheduled principal and interest payments, as defined in the agreement, associated with the long term debt will be deducted from the cash flow amount on which the REIT management fee is based. PTR will amend the REIT management agreement to deduct from the cash flow amount on which the REIT management fee is based distributions paid in respect of non-convertible preferred shares, such as the Series B Preferred Shares. Provision for Possible Loss. PTR is a minority partner with a 40% interest in a partnership which owns and operates an office building near Dallas, Texas. During the first quarter of 1994, the partnership adopted a strategy of disposing of the property rather than continuing to hold the property as a long term investment. As a result, the managing partner evaluated the building for net realizable value which resulted in provisions for possible loss of $4 million in the first quarter of 1994 and an additional $300,000 in the first quarter of 1995. PTR's share of the loss provisions were $1.6 million and $120,000 as reflected in the statement of earnings for March 31, 1994 and 1995, respectively. PTR's net carrying value after the provisions is $2.7 million These provisions had no impact on cash flow from operating activities nor does PTR have any further financial obligation to the partnership. LIQUIDITY AND CAPITAL RESOURCES The REIT Manager considers PTR's liquidity and ability to generate cash to be adequate and expects it to continue to be adequate to meet PTR's development, acquisition, operating, debt service and shareholder distribution requirements. S-11 Net cash flow provided by operating activities decreased $4.9 million (29.0%) for the three months ended March 31, 1995 compared to 1994. The decrease is due primarily to changes in the timing of the payment of accrued expenses in 1995 as compared to 1994. Investing Activities. During the three months ended March 31, 1995, PTR invested $248.9 million for the development, acquisition (including properties acquired in the Merger) and renovation of multifamily properties, net of $54.5 million in mortgages assumed. During the first three months of 1994, PTR invested $85.2 million for the development, acquisition and renovation of multifamily properties, net of $7.9 million in mortgages assumed. These developments, acquisitions and renovations were financed with cash on hand, shares issued in the Merger and borrowings under PTR's revolving line of credit, which it repaid with the proceeds from PTR's equity and debt offerings. At April 24, 1995, PTR had unfunded development commitments for developments under construction of $100.5 million. Additionally, the land PTR owned or controlled through letters of intent or contingent contracts at such date, subject to PTR's final due diligence, will allow for the development of additional multifamily units, which will be an important generator of growth for PTR in 1996 and beyond. The foregoing transactions are subject to a number of conditions and PTR cannot predict with certainty that any of them will be consummated. Financing Activities. PTR's financing activities for the three months ended March 31, 1995 provided $48.2 million as compared to $131.3 million for the same period in 1994. Net cash proceeds received from the $216.3 million subscription offering consummated concurrently with the Merger were $143.7 for the three months ended March 31, 1995 ($72.6 million was subsequently collected) as compared to $200 million of long term debt proceeds for the same period in 1994. In addition, PTR issued $138.7 million in Common Shares in exchange for all of PACIFIC's common stock in the Merger. Proceeds from the offerings were used for acquisition, development and renovation of multifamily properties or to repay revolving credit balances incurred for such purposes. On August 4, 1994, PTR consummated a conversion of its $200 million revolving line of credit facility with TCB and the other participating lenders into an unsecured facility, which was increased to $275 million and extended to August 15, 1996 on October 27, 1994 and was further increased to $350 million on March 23, 1995. The line of credit may annually be extended for an additional year with the approval of TCB and the other participating lenders. Borrowings bear interest at the greater of prime or the federal funds rate plus 0.5% or, at PTR's option, LIBOR plus 1.625% (which can vary from LIBOR plus 1.25% to LIBOR plus 2.0% based upon the rating of PTR's senior unsecured debt). Additionally, there is a commitment fee on the average unfunded line of credit balance. All debt incurrences are subject to covenants that PTR maintain (i) an interest coverage ratio of not less than 2:1, (ii) a debt to tangible net worth ratio of no greater than 1:1, (iii) a fixed charge ratio of no less than 1.4 and (iv) an unencumbered pool of real estate properties of which certain properties must meet certain occupancy requirements and which have an aggregate historical cost of at least of 175% of unsecured indebtedness. PTR was in compliance with all debt covenants at March 31, 1995. At May 11, 1995, there were $48 million of borrowings outstanding under the line of credit. PTR expects to finance developments, acquisitions and renovations with cash on hand and borrowings under its line of credit prior to arranging long term capital in order to efficiently respond to market opportunities while minimizing the amount of cash invested in short term investments at lower yields. PTR believes that its current conservative ratio of long term debt to total long term capitalization, the sum of long term debt and shareholders' equity (22% at March 31, 1995), provides considerable flexibility to prudently utilize long term debt as a future financing tool. PTR intends to limit the sum of long term debt and line of credit debt to less than 40% (debt covenants permit up to 50%) of the sum of total book capitalization. PTR expects primarily to fund additional growth for the foreseeable future through further issuances of unsecured long term, fixed rate amortizing debt securities similar to the Notes issued in February 1994 and through its asset optimization strategy. To a lesser extent, under certain circumstances, PTR may, on occasion, arrange for debt with different maturities in order to optimize its debt maturity schedule. S-12 Based on the Merger, its recent subscription offering, debt issuance capacity, asset optimization strategy and current real estate and debt market conditions, PTR believes it has reached an optimal level of Common Share equity capitalization. Hence, PTR has no plans to raise additional capital through the sale of Common Shares. No assurance can be given that changes in market conditions or other factors will not affect these plans. On March 23, 1995, PTR raised $216.3 million of net proceeds from a subscription offering of 13.2 million Common Shares at a price of $16.375 per Common Share, which was the same price per Common Share on which the exchange ratio for the Merger was based. The subscription offering closed concurrently with the consummation of the Merger. The subscription offering was designed to allow shareholders the opportunity to purchase Common Shares at the same price at which PACIFIC shareholders acquired Common Shares in the Merger and to maintain PTR's balance sheet ratios. Security Capital Group acquired 3,053,435 Common Shares ($50 million) in the subscription offering pursuant to the oversubscription privilege. On August 16, 1994, PTR raised $101.8 million of net proceeds from a rights offering of 5,593,718 Common Shares at a price of $18.25 per Common Share. Security Capital Group exercised in full its rights to acquire Common Shares in the offering at the same price paid by the public ($18.25 per Common Share) and acquired additional rights in the open market. Proceeds from the offering were used to fund developments and to invest in additional multifamily properties in PTR's target market and to repay borrowings under PTR's line of credit. On February 8, 1994, PTR issued $100 million of 6.875% Senior Notes due 2008 (the "2008 Notes") and $100 million of 7.5% Senior Notes due 2014 (the "2014 Notes"), collectively referred to as the "Notes." The 2008 Notes bear interest at 6.875% per annum and require annual principal payments of $12.5 million, commencing February 15, 2001. The 2014 Notes bear interest at 7.5% per annum and require aggregate annual principal payments of $10 million in 2009, $12.5 million in 2010, $15 million in 2011, $17.5 million in 2012, $20 million in 2013 and $25 million in 2014. Collectively, the Notes have an average life to maturity of 14.25 years and an average effective interest cost, inclusive of offering discounts, issuance costs and the interest rate protection agreement of 7.37% per annum. The Notes are redeemable any time at the option of PTR, in whole or in part, at a redemption price equal to the sum of the principal amount of the Notes being redeemed plus accrued interest thereon to the redemption date plus an adjustment, if any, based on the yield to maturity relative to market yields available at redemption. The Notes are governed by the terms and provisions of an indenture agreement (the "Indenture") between PTR and State Street Bank and Trust Company, as trustee. Under the terms of the Indenture, PTR can incur additional debt only if, after giving effect to the debt being incurred and application of the proceeds therefrom, (i) the ratio of debt to total assets, as defined in the Indenture, does not exceed 60%, (ii) the ratio of secured debt to total assets, as defined in the Indenture, does not exceed 40% and (iii) PTR's pro forma interest coverage ratio, as defined in the Indenture, for the four preceding fiscal quarters is not less than 1.5. At March 31, 1995, PTR was in compliance with all covenants under the Indenture. Distributions. PTR's current distribution policy is to pay quarterly distributions to holders of Common Shares based upon what it believes to be a prudent percentage of cash flow. Because depreciation is a non-cash expense, cash flow typically will be greater than net earnings attributable to Common Shares. Therefore, quarterly distributions paid will generally be higher than quarterly net earnings. Funds from operations represents PTR's net earnings computed in accordance with GAAP, excluding gains (or losses) plus depreciation and provision for possible loss on investments. PTR believes that funds from operations is helpful in understanding a property portfolio in that such calculation reflects cash flow from operating activities and the properties' ability to support interest payments and general operating expenses before the impact of certain activities, such as gains or S-13 losses from property sales and changes in accounts receivable and accounts payable. In July 1994, PTR changed to a more conservative policy of expensing the amortization of loan costs in determining funds from operations. For comparability, funds from operations for the three months ended March 31, 1994 has been restated to give effect to this policy as if it had been in effect since January 1, 1994. As a result, funds from operations attributable to Common Shares increased $6.1 million (50.0%) to $18.1 million for the three months ended March 31, 1995 from $12.0 million for 1994. The increase resulted primarily from increased properties in operation. Funds from operations should not be considered as an alternative to net earnings or any other GAAP measurement of performance as an indicator of PTR's operating performance nor as an alternative to cash flows from operating, investing or financing activity as a measure of liquidity. DESCRIPTION OF SERIES B PREFERRED SHARES The summary of certain terms and provisions of the Series B Preferred Shares contained in this Prospectus Supplement does not purport to be complete and is subject to, and qualified in its entirety by reference to, the terms and provisions of the Articles Supplementary relating to the Series B Preferred Shares and PTR's Restated Declaration of Trust, as amended, which are incorporated by reference herein. The following description of the particular terms of the Series B Preferred Shares supplements, and to the extent inconsistent therewith replaces, the description of the general terms and provisions of the Series B Preferred Shares set forth in the accompanying Prospectus, to which description reference is hereby made. GENERAL PTR's Board of Trustees is authorized to issue, from the authorized but unissued shares of beneficial interest of PTR, preferred shares in series and to establish from time to time the number of preferred shares to be included in such series and to fix the designation and any preferences, conversion and other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption of the shares of each such series. PTR currently has outstanding 9,200,000 of its Cumulative Convertible Series A Preferred Shares of Beneficial Interest, $1.00 par value per share (the "Series A Preferred Shares"). On May 11, 1995, the Board of Trustees authorized PTR to classify and issue the Series B Preferred Shares. The Series A Preferred Shares and the Series B Preferred Shares will rank on a parity as to distributions and liquidation proceeds. When issued, the Series B Preferred Shares will be validly issued, fully paid and, except as set forth in the accompanying Prospectus under "Description of Common Shares--Shareholder Liability," nonassessable. The holders of the Series B Preferred Shares will have no preemptive rights with respect to any shares of the capital securities of PTR or any other securities of PTR convertible into or carrying rights or options to purchase any such shares. The Series B Preferred Shares will not be subject to any sinking fund or other obligation of PTR to redeem or retire the Series B Preferred Shares. The transfer agent, registrar and distribution disbursing agent for the Series B Preferred Shares will be Chemical Bank, New York, New York. DISTRIBUTIONS Holders of the Series B Preferred Shares shall be entitled to receive, when and as declared by the Board of Trustees, out of funds legally available for the payment of distributions, cumulative preferential cash distributions at the rate of % of the liquidation preference per annum (equivalent to $ per share). Such distributions shall be cumulative from the date of original issue and shall be payable quarterly in arrears on the last day of each March, June, September and December or, if not a business day, the next succeeding business day (each, a "Distribution Payment Date"). The first distribution, S-14 which will be paid on June 30, 1995, will be for less than a full quarter. Such distribution and any distribution payable on the Series B Preferred Shares for any partial distribution period will be computed on the basis of a 360-day year consisting of twelve 30-day months. Distributions will be payable to holders of record as they appear in the records of PTR at the close of business on the applicable record date, which shall be on such date designated by the Board of Trustees of PTR for the payment of distributions that is not more than 50 nor less than 10 days prior to such Distribution Payment Date (each, a "Distribution Record Date"). No distributions on Series B Preferred Shares shall be declared by the Board of Trustees of PTR or paid or set apart for payment by PTR at such time as the terms and provisions of any agreement of PTR, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law. Notwithstanding the foregoing, distributions on the Series B Preferred Shares will accrue whether or not PTR has earnings, whether or not there are funds legally available for the payment of such distributions and whether or not such distributions are declared. Accrued but unpaid distributions on the Series B Preferred Shares will not bear interest. Holders of the Series B Preferred Shares will not be entitled to any distributions in excess of full cumulative distributions as described above. See "Description of Preferred Shares-- Dividends" in the accompanying Prospectus. If, for any taxable year, PTR elects to designate as "capital gain distributions" (as defined in Section 857 of the Internal Revenue Code of 1986, as amended (the "Code")) any portion (the "Capital Gains Amount") of the distributions (as determined for federal income tax purposes) paid or made available for the year to holders of all classes of shares (the "Total Distributions"), then the portion of the Capital Gains Amount that shall be allocable to the holders of Series B Preferred Shares shall be the amount that the total distributions (as determined for federal income tax purposes) paid or made available to the holders of the Series B Preferred Shares for the year bears to the Total Distributions. If any Series B Preferred Shares are outstanding, no full distributions shall be declared or paid or set apart for payment on any series of preferred shares of PTR ranking, as to distributions, on a parity with or junior to the Series B Preferred Shares for any period unless full cumulative distributions have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payments on the Series B Preferred Shares for all past distribution periods and the then current distribution period. When distributions are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series B Preferred Shares and the shares of any other series of preferred shares ranking on parity as to distributions with the Series B Preferred Shares, all distributions declared upon Series B Preferred Shares and any other series of preferred shares ranking on a parity as to distributions with the Series B Preferred Shares shall be declared pro rata so that the amount of distributions declared per share on the Series B Preferred Shares and such other series of preferred shares shall in all cases bear to each other the same ratio that accrued distributions per share on the Series B Preferred Shares and such other series of preferred shares bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on Series B Preferred Shares which may be in arrears. Except as provided in the immediately preceding paragraph, unless full cumulative distributions on the Series B Preferred Shares have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past distribution periods and the then current distribution period, no distributions (other than in Common Shares or other capital shares ranking junior to the Series B Preferred Shares as to distributions and upon liquidation) shall be declared or paid or set aside for payment or other distribution shall be declared or made upon the Common Shares or any other capital shares of PTR ranking junior to or on a parity with the Series B Preferred S-15 Shares as to distributions or upon liquidation, nor shall any Common Shares or any other capital shares of PTR ranking junior to or on a parity with the Series B Preferred Shares as to distributions or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such shares) by PTR (except by conversion into or exchange for other capital shares of PTR ranking junior to the Series B Preferred Shares as to distributions and upon liquidation). Any distribution payment made on Series B Preferred Shares shall first be credited against the earliest accrued but unpaid distribution due with respect to Series B Preferred Shares which remains payable. LIQUIDATION RIGHTS Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of PTR, then, before any distribution or payment shall be made to the holders of any Common Shares or any other class or series of capital shares of PTR ranking junior to the Series B Preferred Shares in the distribution of assets upon any liquidation, dissolution or winding up of PTR, the holders of Series B Preferred Shares shall be entitled to receive out of assets of PTR legally available for distribution to shareholders, liquidation distributions in the amount of the liquidation preference ($25.00 per share), plus an amount equal to all distributions accrued and unpaid thereon. After payment of the full amount of the liquidating distributions to which they are entitled, the holders of Series B Preferred Shares will have no right or claim to any of the remaining assets of PTR. In the event that, upon any such voluntary or involuntary liquidation, dissolution or winding up, the available assets of PTR are insufficient to pay the amount of the liquidation distributions on all outstanding Series B Preferred Shares and the corresponding amounts payable on all shares of other classes or series of capital shares of PTR ranking on a parity with the Series B Preferred Shares in the distribution of assets, then the holders of the Series B Preferred Shares and all other such classes or series of capital shares shall share ratably in any such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled. If liquidating distributions shall have been made in full to all holders of Series B Preferred Shares and all other classes or series of capital shares of PTR ranking on a parity with the Series B Preferred Shares in the distribution of assets, the remaining assets of PTR shall be distributed among the holders of any other classes or series of capital shares ranking junior to the Series B Preferred Shares upon liquidation, dissolution or winding up, according to their respective rights and preferences and in each case according to their respective number of shares. For such purposes, the consolidation or merger of PTR with or into any other entity, or the sale, lease or conveyance of all or substantially all of the property or business of PTR, shall not be deemed to constitute a liquidation, dissolution or winding up of PTR. REDEMPTION The Series B Preferred Shares are not redeemable prior to May , 2000. On and after May , 2000, PTR, at its option upon not less than 30 nor more than 90 days' written notice, may redeem the Series B Preferred Shares, in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus all accrued and unpaid distributions thereon to the date fixed for redemption, without interest. The redemption price of the Series B Preferred Shares (other than the portion thereof consisting of accrued and unpaid distributions) is payable solely out of the sale proceeds of other capital shares of PTR, which may include other series of preferred shares. Holders of Series B Preferred Shares to be redeemed shall surrender such Series B Preferred Shares at the place designated in such notice and shall be entitled to the redemption price and any accrued and unpaid distributions payable upon such redemption following such surrender. If notice of redemption of any Series B Preferred Shares has been given and if the funds necessary for such redemption have been set aside by PTR in trust for the benefit of the holders of any Series B Preferred Shares so called for S-16 redemption, then from and after the redemption date distributions will cease to accrue on such Series B Preferred Shares, such Series B Preferred Shares shall no longer be deemed outstanding and all rights of the holders of such shares will terminate, except the right to receive the redemption price. If fewer than all of the outstanding Series B Preferred Shares are to be redeemed, the number of shares to be redeemed will be determined by PTR and such shares may be redeemed pro rata from the holders of record of such shares in proportion to the number of such shares held by such holders (with adjustments to avoid redemption of fractional shares) or by lot in a manner determined by PTR. Unless full cumulative distributions on all Series B Preferred Shares and all shares ranking on a parity with the Series B Preferred Shares with respect to the payment of distributions and amounts upon liquidation, dissolution and winding up ("Parity Shares") shall have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past distribution periods and the then current distribution period, no Series B Preferred Shares or Parity Shares shall be redeemed unless all outstanding Series B Preferred Shares and Parity Shares are simultaneously redeemed; provided, however, that the foregoing shall not prevent the purchase or acquisition of Series B Preferred Shares or Parity Shares pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series B Preferred Shares or Parity Shares, as the case may be. Furthermore, unless full cumulative distributions on all outstanding Series B Preferred Shares and Parity Shares have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past distribution periods and the then current distribution period, PTR shall not purchase or otherwise acquire directly or indirectly any Series B Preferred Shares or Parity Shares (except by conversion into or exchange for capital shares of PTR ranking junior to the Series B Preferred Shares and Parity Shares as to distributions and upon liquidation). Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each holder of record of Series B Preferred Shares at the address shown on the share transfer books of PTR. Each notice shall state: (i) the redemption date; (ii) the number of Series B Preferred Shares to be redeemed; (iii) the redemption price; (iv) the place or places where certificates for Series B Preferred Shares are to be surrendered for payment of the redemption price; and (v) that distributions on the Series B Preferred Shares will cease to accrue on such redemption date. If fewer than all Series B Preferred Shares are to be redeemed, the notice mailed to each such holder thereof shall also specify the number of Series B Preferred Shares to be redeemed from each such holder. If notice of redemption of any Series B Preferred Shares has been given and if the funds necessary for such redemption have been set aside by PTR in trust for the benefit of the holders of Series B Preferred Shares so called for redemption, then from and after the redemption date, distributions will cease to accrue on the Series B Preferred Shares, and all rights of the holders of such shares will terminate, except the right to receive the redemption price. The holders of Series B Preferred Shares at the close of business on a Distribution Record Date will be entitled to receive the distribution payable with respect to such Series B Preferred Shares on the corresponding Distribution Payment Date notwithstanding the redemption thereof between such Distribution Record Date and the corresponding Distribution Payment Date or PTR's default in the payment of the distribution due. Except as provided above, PTR will make no payment or allowance for unpaid distributions, whether or not in arrears, on Series B Preferred Shares which have been called for redemption. The Series B Preferred Shares have no stated maturity and will not be subject to any sinking fund or mandatory redemption. However, in order to preserve PTR's status as a REIT as defined in the Code, the Series B Preferred Shares may be subject to redemption as described in "Description of Preferred Shares-- Restrictions on Ownership" in the accompanying Prospectus. Any such redemption would apply only to shares held, directly or indirectly, by those shareholders with concentrated share ownership that would violate the REIT requirements of the Code. In addition, the number of shares S-17 subject to such a redemption would be limited to that number of concentrated shares sufficient in the opinion of the Board of Trustees of PTR to maintain or bring the ownership of shares into conformity with the requirements of the Code. VOTING RIGHTS Except as indicated below, or except as otherwise from time to time required by applicable law, the holders of Series B Preferred Shares will have no voting rights. If six quarterly distributions (whether or not consecutive) payable on the Series B Preferred Shares or any Parity Shares are in arrears, whether or not earned or declared, the number of Trustees then constituting the Board of Trustees of PTR will be increased by two, and the holders of Series B Preferred Shares, voting together as a class with the holders of any other series of Parity Shares, including the outstanding Series A Preferred Shares (any such other series, the "Voting Preferred Shares"), will have the right to elect two additional Trustees to serve on PTR's Board of Trustees at any annual meeting of shareholders or a properly called special meeting of the holders of Series B Preferred Shares and such Voting Preferred Shares and at each subsequent annual meeting of shareholders until all such distributions and distributions for the current quarterly period on the Series B Preferred Shares and such other Voting Preferred Shares have been paid or declared and paid or set aside for payment. The term of office of all Trustees so elected will terminate with the termination of such voting rights. For so long as Security Capital Group and certain of its affiliates beneficially own in excess of 10% of the outstanding Common Shares, in any such vote by holders of Series B Preferred Shares and such other Voting Preferred Shares, Security Capital Group and certain of its affiliates shall vote their Series B Preferred Shares and Voting Preferred Shares, if any, in the same respective percentages as the Series B Preferred Shares and Voting Preferred Shares that are not held by such persons. The approval of two-thirds of the outstanding Series B Preferred Shares and all other series of Voting Preferred Shares similarly affected, voting as a single class, is required in order to (i) amend PTR's Declaration of Trust to affect materially and adversely the rights, preferences or voting power of the holders of the Series B Preferred Shares or the Voting Preferred Shares, (ii) enter into a share exchange that affects the Series B Preferred Shares, consolidate with or merge into another entity, or permit another entity to consolidate with or merge into PTR, unless in each such case each Series B Preferred Share remains outstanding without a material adverse change to its terms and rights or is converted into or exchanged for convertible preferred stock of the surviving entity having preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms or conditions of redemption thereof identical to that of a Series B Preferred Share (except for changes that do not materially and adversely affect the holders of the Series B Preferred Shares) or (iii) authorize, reclassify, create, or increase the authorized amount of any class of stock having rights senior to the Series B Preferred Shares with respect to the payment of distributions or amounts upon liquidation, dissolution or winding up. However, PTR may create additional classes of Parity Shares and shares ranking junior to the Series B Preferred Shares as to distributions or upon liquidation ("Junior Shares"), increase the authorized number of Parity Shares and Junior Shares and issue additional series of Parity Shares and Junior Shares without the consent of any holder of Series B Preferred Shares. Except as provided above and as required by law, the holders of Series B Preferred Shares are not entitled to vote on any merger or consolidation involving PTR or a sale of all or substantially all of the assets of PTR. CONVERSION The Series B Preferred Shares are not convertible into or exchangeable for any other property or securities of PTR. S-18 RESTRICTIONS ON OWNERSHIP For information regarding restrictions on ownership of the Series B Preferred Shares, see "Description of Preferred Shares--Restrictions on Ownership" in the accompanying Prospectus. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following summary of certain federal income tax considerations is based on current law, is for general information only, and is not tax advice. This discussion does not purport to deal with all aspects of taxation that may be relevant to particular shareholders in light of their personal investment or tax circumstances, or to certain types of shareholders (including insurance companies, tax exempt organizations, financial institutions or broker dealers, foreign corporations and persons who are not citizens or residents of the United States) subject to special treatment under the federal income tax laws. In addition, this section does not discuss foreign, state, or local taxation. This Prospectus Supplement does not address the taxation of PTR or the impact on PTR of its election to be taxed as a REIT. Such matters are addressed in the accompanying Prospectus under "Federal Income Tax Considerations--Taxation of PTR." Prospective investors should consult, and must depend on, their own tax advisors regarding the state, local, foreign and other tax consequences of holding and disposing of Series B Preferred Shares. Dividends and Other Distributions. For a discussion regarding the taxation of dividends and other distributions, see "Federal Income Tax Considerations-- Taxation of the Shareholders of PTR" in the accompanying Prospectus. Backup Withholding. For a discussion of backup withholding, see "Federal Income Tax Considerations--Backup Withholding" in the accompanying Prospectus. Sale or Exchange of Series B Preferred Shares. Upon the sale or exchange of Series B Preferred Shares to a party other than PTR, a holder of Series B Preferred Shares will realize a capital gain or loss measured by the difference between the amount realized on the sale or other disposition and the holder's adjusted tax basis in the Series B Preferred Shares (provided the Series B Preferred Shares are held as a capital asset). Such gain or loss will be a long term capital gain or loss if the holder's holding period with respect to the Series B Preferred Shares is more than one year at the time of the sale or exchange. Further, any loss on a sale of Series B Preferred Shares which were held by the holder for six months or less and with respect to which a capital gain dividend was received will be treated as a long term capital loss, up to the amount of the capital gain dividend received with respect to such shares. Redemption of Series B Preferred Shares. The treatment to be accorded to any redemption by PTR of Series B Preferred Shares can only be determined on the basis of particular facts as to each holder of Series B Preferred Shares at the time of redemption. In general a Preferred Holder will recognize capital gain or loss measured by the difference between the amount realized by the holder upon the redemption and such holder's adjusted tax basis in the Series B Preferred Shares redeemed (provided the Series B Preferred Shares are held as a capital asset) if such redemption (i) results in a "complete termination" of the holder's share interest in all classes of shares of PTR under Section 302(b)(3) of the Code, (ii) is "substantially disproportionate" with respect to the holder's interest in PTR under Section 302(b)(2) of the Code (which will not be the case if only Series B Preferred Shares are redeemed, since they generally do not have voting rights) or (iii) is "not essentially equivalent to a dividend" with respect to the holder of Series B Preferred Shares under Section 302(b)(1) of the Code. In determining whether any of these tests have been met, shares considered to be owned by the holder by reason of certain constructive ownership rules set forth in the Code, as well as shares actually owned, must generally be taken into account. Because the determination as to whether any of the S-19 alternative tests of Section 302(b) of the Code will be satisfied with respect to any particular holder of Series B Preferred Shares depends upon the facts and circumstances at the time when the determination must be made, prospective investors are advised to consult their own tax advisors to determine such tax treatment. If the redemption does not meet any of the tests under Section 302 of the Code, then the redemption proceeds received from the Series B Preferred Shares will be treated as a distribution on the Series B Preferred Shares as described under "Federal Income Tax Considerations--Taxation of the Shareholders of PTR." If the redemption is taxed as a dividend, the holder's adjusted tax basis in the Series B Preferred Shares will be transferred to any other shareholdings of the holder in PTR. If, however, the shareholder has no remaining shareholdings in PTR, such basis could be transferred to a related person or it may be lost. UNDERWRITING Subject to the terms and conditions of the underwriting agreement (the "Underwriting Agreement"), PTR has agreed to sell to each of the Underwriters named below, and each of such Underwriters, for whom Goldman, Sachs & Co., Dean Witter Reynolds Inc., A.G. Edwards & Sons, Inc., PaineWebber Incorporated and Prudential Securities Incorporated are acting as representatives, has severally agreed to purchase from PTR, the respective number of Series B Preferred Shares set forth opposite its name below:
NUMBER OF SERIES B UNDERWRITER PREFERRED SHARES ----------- ---------------- Goldman, Sachs & Co...................................... Dean Witter Reynolds Inc................................. A.G. Edwards & Sons, Inc................................. PaineWebber Incorporated................................. Prudential Securities Incorporated....................... ---------- Total................................................ 4,000,000 ==========
Under the terms and conditions of the Underwriting Agreement, the Underwriters are committed to take and pay for all the Series B Preferred Shares offered hereby to the public, if any are taken. The Underwriters propose to offer the Series B Preferred Shares in part directly to the public at the initial public offering price set forth on the cover page of this Prospectus, and in part to certain securities dealers at such price less a concession of $ per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain brokers and dealers. After the Series B Preferred Shares are released for sale to the public, the offering price and other selling terms may from time to time be varied by the representatives. S-20 PTR has granted the Underwriters an option exercisable for 30 days after the date of this Prospectus Supplement to purchase up to an aggregate of 600,000 additional Series B Preferred Shares solely to cover over-allotments, if any. If the Underwriters exercise their over-allotment option, the Underwriters have severally agreed, subject to certain conditions, to purchase approximately the same percentage thereof that the number of Series B Preferred Shares to be purchased by each of them, as shown in the foregoing table, bears to the 4,000,000 Series B Preferred Shares offered. The Underwriters may exercise such option only to cover over-allotments in connection with the sale of the 4,000,000 Series B Preferred Shares offered. PTR has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. The representatives of the Underwriters have engaged, and may in the future engage, in investment banking transactions with PTR and its affiliates. Additionally, affiliates of PTR have acquired properties that were subject to mortgage indebtedness provided by affiliates of Prudential Securities Incorporated, which indebtedness is currently outstanding. Application has been made to list the Series B Preferred Shares on the NYSE. If such application is approved, trading of the Series B Preferred Shares on the NYSE is expected within a 30-day period after the initial delivery of the Series B Preferred Shares. The representatives have advised PTR that they intend to make a market in the Series B Preferred Shares prior to the commencement of trading on the NYSE. The representatives will have no obligation to make a market in the Series B Preferred Shares, however, and may cease market making activities, if commenced, at any time. VALIDITY OF SHARES The validity of the issuance of the Series B Preferred Shares offered pursuant to this Prospectus Supplement will be passed upon for PTR by Mayer, Brown & Platt, Chicago, Illinois, and for the Underwriters by Sullivan & Cromwell, New York, New York. Mayer, Brown & Platt has in the past represented and is currently representing PTR and certain of its affiliates, including Security Capital Group. As to all matters of Maryland law, Sullivan & Cromwell will rely on the opinion of Neuberger, Quinn, Gielen, Rubin & Gibber, P.A., Baltimore, Maryland. S-21 PROSPECTUS LOGO $564,784,800 DEBT SECURITIES, PREFERRED SHARES AND COMMON SHARES ---------------- Property Trust of America ("PTR") may from time to time offer in one or more series its (i) unsecured senior debt securities (the "Debt Securities"), (ii) Preferred Shares of Beneficial Interest, par value $1.00 per share (the "Preferred Shares") and (iii) Common Shares of Beneficial Interest, par value $1.00 per share (the "Common Shares"). The Debt Securities, Preferred Shares and Common Shares (collectively, the "Offered Securities") may be offered, separately or together, in separate series, in amounts, at prices and on terms to be set forth in a supplement to this Prospectus (a "Prospectus Supplement"). The specific terms of the Offered Securities in respect of which this Prospectus is being delivered will be set forth in the applicable Prospectus Supplement and will include, where applicable: (i) in the case of Debt Securities, the specific title, aggregate principal amount, currency, form (which may be registered or bearer, or certificated or global), authorized denominations, maturity, rate (or manner of calculation thereof) and time of payment of interest, terms for redemption at the option of PTR or repayment at the option of the Holder, terms for sinking fund payments, and any initial public offering price; (ii) in the case of Preferred Shares, the specific title and stated value, any dividend, liquidation, redemption, conversion, voting and other rights, and any initial public offering price; and (iii) in the case of Common Shares, any initial public offering price. In addition, such specific terms may include limitations on direct or beneficial ownership and restrictions on transfer of the Offered Securities, in each case as may be appropriate to preserve the status of PTR as a real estate investment trust ("REIT") for federal income tax purposes. The applicable Prospectus Supplement will also contain information, where applicable, about certain United States federal income tax considerations relating to, and any listing on a securities exchange of, the Offered Securities covered by such Prospectus Supplement. The Offered Securities may be offered directly, through agents designated from time to time by PTR, or to or through underwriters or dealers. If any agents or underwriters are involved in the sale of any of the Offered Securities, their names, and any applicable purchase price, fee, commission or discount arrangement between or among them, will be set forth, or will be calculable from the information set forth, in the applicable Prospectus Supplement. See "Plan of Distribution." No Offered Securities may be sold without delivery of the applicable Prospectus Supplement describing the method and terms of the offering of such series of Offered Securities. ---------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ---------------- THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. ---------------- THE DATE OF THIS PROSPECTUS IS DECEMBER 1, 1994. AVAILABLE INFORMATION PTR is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; Room 1204, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such material can be obtained at prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. PTR's outstanding Common Shares and Cumulative Convertible Series A Preferred Shares of Beneficial Interest, $1.00 par value ("Series A Preferred Shares"), are listed on the New York Stock Exchange (the "NYSE") under the symbols "PTR" and "PTR-PRA," respectively, and all such reports, proxy statements and other information filed by PTR with the NYSE may be inspected at the NYSE's offices at 20 Broad Street, New York, New York 10005. This Prospectus constitutes part of a registration statement on Form S-3 (together with all amendments and exhibits, the "Registration Statement") filed by PTR with the Commission under the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information, reference is hereby made to the Registration Statement. INCORPORATION BY REFERENCE There are incorporated herein by reference the following documents heretofore filed by PTR with the Commission: (a) PTR's Annual Report on Form 10-K for the fiscal year ended December 31, 1993; (b) PTR's Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30, and September 30, 1994; (c) PTR's Current Reports on Form 8-K dated January 22, February 3 (as amended by Form 8 dated July 28, Form 8-K/A No. 1 dated May 21, and Form 8- K/A No. 2 dated August 11), November 4, November 22, and December 17, 1993, and February 2, April 29, May 3, July 11, July 19, July 27, and November 30, 1994; and (d) The description of PTR's preferred share purchase rights contained in PTR's registration statement on Form 8-A filed with the Commission on July 12, 1994 (as amended by Form 8-A/A No. 1 dated July 20, 1994). All documents subsequently filed by PTR pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of the offering of the Offered Securities, shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents. Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein, or in any subsequently filed document which is also or is deemed to be incorporated by reference herein, modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. PTR will provide without charge to each person, including any beneficial owner, to whom a copy of this Prospectus is delivered, upon the written or oral request of such person, a copy of any or all of the documents incorporated herein by reference, other than exhibits to such documents unless such exhibits are specifically incorporated by reference into such documents. Requests should be addressed to Secretary, Property Trust of America, 7777 Market Center Avenue, El Paso, Texas 79912, telephone number: (915) 877-3900. PROPERTY TRUST OF AMERICA PTR's objective is to be the preeminent real estate operating company focusing on multifamily property in its target market. As a fully integrated operating company, through its experienced REIT management team, PTR engages in development, acquisition, operation and long term ownership of multifamily properties. PTR operates as a REIT. PTR seeks to achieve long term sustainable growth in cash flow and dividends 2 through a commitment to fundamental real estate research, actively reviewing and reallocating assets to product types and submarkets with strong growth prospects, developing industry-leading multifamily product designed for the largest renter groups and making opportunistic acquisitions. PTR's REIT Manager, Security Capital (Southwest) Incorporated (the "REIT Manager" or "REIT Management"), provides PTR with strategic and day-to-day management, including research, investment analysis, development, acquisition, due diligence, asset management, capital markets, legal and accounting services. PTR's REIT Manager believes that PTR's target market presents attractive investment opportunities because of its growing population and job market and the reduced supply of real estate investment capital. PTR was formed in 1963 and is a real estate investment trust organized under the laws of Maryland. Its principal executive offices are located at 7777 Market Center Avenue, El Paso, Texas 79912, and its telephone number is (915) 877-3900. USE OF PROCEEDS Unless otherwise described in the applicable Prospectus Supplement, the net proceeds from the sale of the Offered Securities will be used for the development and acquisition of additional multifamily properties, as suitable opportunities arise, for the repayment of certain outstanding indebtedness at such time, for working capital purposes and, to a lesser extent, for capital improvements to properties. DESCRIPTION OF DEBT SECURITIES The Debt Securities are to be issued under an Indenture, dated as of February 1, 1994, as supplemented by the First Supplemental Indenture, dated as of February 2, 1994 (as so supplemented, the "Indenture"), between PTR and State Street Bank and Trust Company (the "Trustee"). The Indenture has been filed as an exhibit to the Registration Statement of which this Prospectus is a part and is available for inspection at the corporate trust office of the Trustee at 225 Franklin Street, Boston, Massachusetts 02110 or as described above under "Available Information." The Indenture is subject to, and governed by, the Trust Indenture Act of 1939, as amended (the "TIA"). The statements made hereunder relating to the Indenture and the Debt Securities to be issued thereunder are summaries of certain provisions thereof, do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all provisions of the Indenture and such Debt Securities. All section references appearing herein are to sections of the Indenture, and capitalized terms used but not defined herein shall have the respective meanings set forth in the Indenture. GENERAL The Debt Securities will be direct, unsecured obligations of PTR and will rank equally with all other unsecured and unsubordinated indebtedness of PTR. The Indenture provides that the Debt Securities may be issued without limit as to aggregate principal amount, in one or more series, in each case as established from time to time in or pursuant to authority granted by a resolution of the Board of Trustees of PTR or as established in one or more indentures supplemental to the Indenture. All Debt Securities of one series need not be issued at the same time and, unless otherwise provided, a series may be reopened, without the consent of the Holders of the Debt Securities of such series, for issuances of additional Debt Securities of such series (Section 301). The Indenture provides that there may be more than one Trustee thereunder, each with respect to one or more series of Debt Securities. Any Trustee under the Indenture may resign or be removed with respect to one or more series of Debt Securities, and a successor Trustee may be appointed to act with respect to such series (Section 608). In the event that two or more persons are acting as Trustee with respect to different series of Debt Securities, each such Trustee shall be a Trustee of a trust under the Indenture separate and apart from the trust administered by any other Trustee (Sections 101 and 609), and, except as otherwise indicated herein, any action described herein to be taken by the Trustee may be taken by each such Trustee with respect to, and only with respect to, the one or more series of Debt Securities for which it is Trustee under the Indenture. 3 Reference is made to the Prospectus Supplement relating to the series of Debt Securities being offered for the specific terms thereof, including: (1) the title of such Debt Securities; (2) the aggregate principal amount of such Debt Securities and any limit on such principal amount; (3) the percentage of the principal amount at which such Debt Securities will be issued and, if other than the full principal amount thereof, the portion of the principal amount thereof payable upon declaration of acceleration of the maturity thereof, or the method by which any such portion shall be determined; (4) the date or dates, or the method for determining such date or dates, on which the principal of such Debt Securities will be payable and the amount of principal payable thereon; (5) the rate or rates (which may be fixed or variable), or the method by which such rate or rates shall be determined, at which such Debt Securities will bear interest, if any; (6) the date or dates, or the method for determining such date or dates, from which any such interest will accrue, the Interest Payment Dates on which any such interest will be payable, the Regular Record Dates for such Interest Payment Dates, or the method by which such Dates shall be determined, the Person to whom such interest shall be payable, and the basis upon which interest shall be calculated if other than that of a 360- day year comprised of twelve 30-day months; (7) the place or places where the principal of (and premium or Make-Whole Amount (as defined), if any) and interest and Additional Amounts, if any, on such Debt Securities will be payable, where such Debt Securities may be surrendered for registration of transfer or exchange and where notices or demands to or upon PTR in respect of such Debt Securities and the Indenture may be served; (8) the period or periods within which, the price or prices (including the premium or Make-Whole Amount, if any) at which, the currency or currencies in which, and the other terms and conditions upon which such Debt Securities may be redeemed, as a whole or in part, at the option of PTR, if PTR is to have such an option; (9) the obligation, if any, of PTR to redeem, repay or purchase such Debt Securities pursuant to any sinking fund or analogous provision or at the option of a Holder thereof, and the period or periods within which, the price or prices at which and the terms and conditions upon which such Debt Securities will be redeemed, repaid or purchased, as a whole or in part, pursuant to such obligation; (10) if other than United States dollars, the currency or currencies in which such Debt Securities are denominated and payable, which may be a foreign currency or units of two or more foreign currencies or a composite currency or currencies, and the terms and conditions relating thereto; (11) whether the amount of payments of principal of (and premium or Make- Whole Amount, if any) or interest, if any, on such Debt Securities may be determined with reference to an index, formula or other method (which index, formula or method may, but need not be, based on a currency, currencies, currency unit or units or composite currency or currencies) and the manner in which such amounts shall be determined; (12) whether the principal of (and premium or Make-Whole Amount, if any) or interest or Additional Amounts, if any, on such Debt Securities are to be payable, at the election of PTR or a Holder, in one or more currencies other than that in which such Debt Securities are denominated or stated to be payable, the period or periods within which, and the terms and conditions upon which, such election may be made, and the time and manner of, and identity of the exchange rate agent with responsibility for, determining the exchange rate between the currency or currencies in which such Debt Securities are denominated or stated to be payable and the currency or currencies in which such Debt Securities are to be so payable; (13) any additions to, modifications of or deletions from the terms of such Debt Securities with respect to the Events of Default or covenants set forth in the Indenture; 4 (14) whether such Debt Securities will be issued in certificated or book- entry form; (15) whether such Debt Securities will be in registered or bearer form and, if in registered form, the denominations thereof if other than $1,000 and any integral multiple thereof and, if in bearer form, the denominations thereof if other than $5,000 and terms and conditions relating thereto; (16) the applicability, if any, of the defeasance and covenant defeasance provisions of Article Fourteen of the Indenture; (17) if such Debt Securities are to be issued upon the exercise of debt warrants, the time, manner and place for such Debt Securities to be authenticated and delivered; (18) whether and under what circumstances PTR will pay Additional Amounts as contemplated in the Indenture on such Debt Securities in respect of any tax, assessment or governmental charge and, if so, whether PTR will have the option to redeem such Debt Securities in lieu of making such payment; and (19) any other terms of such Debt Securities not inconsistent with the provisions of the Indenture (Section 301). The Debt Securities may provide for less than the entire principal amount thereof to be payable upon declaration of acceleration of the maturity thereof ("Original Issue Discount Securities"). Special United States federal income tax, accounting and other considerations applicable to Original Issue Discount Securities will be described in the applicable Prospectus Supplement. Under the Indenture, PTR will have the ability, in addition to the ability to issue Debt Securities with terms different from those of Debt Securities previously issued, without the consent of the Holders, to reopen a previous issue of a series of Debt Securities and issue additional Debt Securities of such series. Except as set forth below under "Certain Covenants--Limitations on Incurrence of Debt," the Indenture does not contain any other provisions that would limit the ability of PTR to incur indebtedness or that would afford Holders of Debt Securities protection in the event of a highly leveraged or similar transaction involving PTR or in the event of a change of control. However, PTR's Restated Declaration of Trust restricts beneficial ownership of PTR's outstanding Common Shares by a single person, or persons acting as a group, to 9.8% of such Common Shares, with certain exceptions (including an exception for the ownership of up to 49% of such Common Shares in the case of Security Capital Realty Incorporated ("Security Capital Realty")). See "Description of Common Shares-- Restriction on Size of Holdings." Additionally, the Articles Supplementary relating to the Series A Preferred Shares restrict beneficial ownership of such Series A Preferred Shares by a person, or persons acting as a group, to 25% of such Series A Preferred Shares. Similarly, the Articles Supplementary for each series of Preferred Shares will contain certain provisions restricting the ownership and transfer of the Preferred Shares. See "Description of Preferred Shares--Restrictions on Ownership." These restrictions are designed to preserve PTR's status as a REIT and, therefore, may act to prevent or hinder a change of control. Reference is made to the applicable Prospectus Supplement for information with respect to any deletions from, modifications of or additions to the Events of Default or covenants of PTR that are described below, including any addition of a covenant or other provision providing event risk or similar protection. DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER Unless otherwise described in the applicable Prospectus Supplement, the Debt Securities of any series issued in registered form will be issuable in denominations of $1,000 and integral multiples thereof. Unless otherwise described in the applicable Prospectus Supplement, the Debt Securities of any series issued in bearer form will be issuable in denominations of $5,000 (Section 302). Unless otherwise specified in the applicable Prospectus Supplement, the principal of (and premium or Make-Whole Amount, if any) and interest on any series of Debt Securities will be payable at the corporate 5 trust office of the Trustee, initially located at 225 Franklin Street, Boston, Massachusetts 02110; provided that, at the option of PTR, payment of interest may be made by check mailed to the address of the Person entitled thereto as it appears in the Security Register or by wire transfer of funds to such Person to an account maintained within the United States (Sections 301, 305, 306, 307 and 1002). Any interest not punctually paid or duly provided for on any Interest Payment Date with respect to a Debt Security ("Defaulted Interest") will forthwith cease to be payable to the Holder on the applicable Regular Record Date and either may be paid to the person in whose name such Debt Security is registered at the close of business on a special record date (the "Special Record Date") for the payment of such Defaulted Interest to be fixed by the Trustee, notice of which shall be given to the Holder of such Debt Security not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner, all as more completely described in the Indenture (Section 307). Subject to certain limitations imposed upon Debt Securities issued in book- entry form, the Debt Securities of any series will be exchangeable for other Debt Securities of the same series and of a like aggregate principal amount and tenor of different authorized denominations upon surrender of such Debt Securities at the corporate trust office of the Trustee referred to above. In addition, subject to certain limitations imposed upon Debt Securities issued in book-entry form, the Debt Securities of any series may be surrendered for registration of transfer thereof at the corporate trust office of the Trustee referred to above. Every Debt Security surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instrument of transfer. No service charge will be made for any registration of transfer or exchange of any Debt Securities, but PTR may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith (Section 305). If the applicable Prospectus Supplement refers to any transfer agent (in addition to the Trustee) initially designated by PTR with respect to any series of Debt Securities, PTR may at any time rescind the designation of any such transfer agent or approve a change in the location at which any such transfer agent acts, except that PTR will be required to maintain a transfer agent in each Place of Payment for such series. PTR may at any time designate additional transfer agents with respect to any series of Debt Securities (Section 1002). Neither PTR nor the Trustee shall be required to (i) issue, register the transfer of or exchange Debt Securities of any series during a period beginning at the opening of business 15 days before any selection of Debt Securities of that series to be redeemed and ending at the close of business on the day of mailing of the relevant notice of redemption; (ii) register the transfer of or exchange any Debt Security, or portion thereof, called for redemption, except the unredeemed portion of any Debt Security being redeemed in part; or (iii) issue, register the transfer of or exchange any Debt Security which has been surrendered for repayment at the option of the Holder, except the portion, if any, of such Debt Security not to be so repaid (Section 305). MERGER, CONSOLIDATION OR SALE PTR may consolidate with, or sell, lease or convey all or substantially all of its assets to, or merge with or into, any other entity, provided that (a) either PTR shall be the continuing entity, or the successor entity (if other than PTR) formed by or resulting from any such consolidation or merger or which shall have received the transfer of such assets is a Person organized and existing under the laws of the United States or any State thereof and shall expressly assume payment of the principal of (and premium or Make-Whole Amount, if any) and any interest (including Additional Amounts, if any) on all of the Debt Securities and the due and punctual performance and observance of all of the covenants and conditions contained in the Indenture; (b) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of PTR or any Subsidiary as a result thereof as having been incurred by PTR or such Subsidiary at the time of such transaction, no Event of Default under the Indenture, and no event which, after notice or the lapse of time, or both, would become such an Event of Default, shall have occurred and be continuing; and (c) an officer's certificate and legal opinion covering such conditions shall be delivered to the Trustee (Sections 801 and 803). 6 CERTAIN COVENANTS Limitations on Incurrence of Debt. PTR will not, and will not permit any Subsidiary to, incur any Debt (as defined below) if, immediately after giving effect to the incurrence of such additional Debt and the application of the proceeds thereof, the aggregate principal amount of all outstanding Debt of PTR and its Subsidiaries on a consolidated basis determined in accordance with generally accepted accounting principles is greater than 60% of the sum of (without duplication) (i) PTR's Total Assets (as defined below) as of the end of the calendar quarter covered in PTR's Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be, most recently filed with the Commission (or, if such filing is not permitted under the Exchange Act, with the Trustee) prior to the incurrence of such additional Debt and (ii) the purchase price of any real estate assets or mortgages receivable acquired, and the amount of any securities offering proceeds received (to the extent that such proceeds were not used to acquire real estate assets or mortgages receivable or used to reduce Debt), by PTR or any Subsidiary since the end of such calendar quarter, including those proceeds obtained in connection with the incurrence of such additional Debt (Section 1004). In addition to the foregoing limitation on the incurrence of Debt, PTR will not, and will not permit any Subsidiary to, incur any Debt secured by any mortgage, lien, charge, pledge, encumbrance or security interest of any kind upon any of the property of PTR or any Subsidiary if, immediately after giving effect to the incurrence of such additional Debt and the application of the proceeds thereof, the aggregate principal amount of all outstanding Debt of PTR and its Subsidiaries on a consolidated basis which is secured by any mortgage, lien, charge, pledge, encumbrance or security interest on property of PTR or any Subsidiary is greater than 40% of PTR's Total Assets (Section 1004). In addition to the foregoing limitations on the incurrence of Debt, PTR will not, and will not permit any Subsidiary to, incur any Debt if the ratio of Consolidated Income Available for Debt Service (as defined below) to the Annual Service Charge (as defined below) for the four consecutive fiscal quarters most recently ended prior to the date on which such additional Debt is to be incurred shall have been less than 1.5, on a pro forma basis after giving effect thereto and to the application of the proceeds therefrom, and calculated on the assumption that (i) such Debt and any other Debt incurred by PTR and its Subsidiaries since the first day of such four-quarter period and the application of the proceeds therefrom, including to refinance other Debt, had occurred at the beginning of such period; (ii) the repayment or retirement of any other Debt by PTR and its Subsidiaries since the first day of such four- quarter period had been incurred, repaid or retired at the beginning of such period (except that, in making such computation, the amount of Debt under any revolving credit facility shall be computed based upon the average daily balance of such Debt during such period); (iii) in the case of Acquired Debt (as defined below) or Debt incurred in connection with any acquisition since the first day of such four-quarter period, the related acquisition had occurred as of the first day of such period with the appropriate adjustments with respect to such acquisition being included in such pro forma calculation; and (iv) in the case of any acquisition or disposition by PTR or its Subsidiaries of any asset or group of assets since the first day of such four-quarter period, whether by merger, stock purchase or sale, or asset purchase or sale, such acquisition or disposition or any related repayment of Debt had occurred as of the first day of such period with the appropriate adjustments with respect to such acquisition or disposition being included in such pro forma calculation (Section 1004). Existence. Except as permitted under "--Merger, Consolidation or Sale," PTR will do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and franchises; provided, however, that PTR shall not be required to preserve any right or franchise if it determines that the preservation thereof is no longer desirable in the conduct of its business and that the loss thereof is not disadvantageous in any material respect to the Holders of the Debt Securities (Section 1005). Maintenance of Properties. PTR will cause all of its properties used or useful in the conduct of its business or the business of any Subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, 7 betterments and improvements thereof, all as in the judgment of PTR may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that PTR and its Subsidiaries shall not be prevented from selling or otherwise disposing for value its properties in the ordinary course of business (Section 1006). Insurance. PTR will, and will cause each of its Subsidiaries to, keep all of its insurable properties insured against loss or damage at least equal to their then full insurable value with financially sound and reputable insurance companies (Section 1007). Payment of Taxes and Other Claims. PTR will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all taxes, assessments and governmental charges levied or imposed upon it or any Subsidiary or upon the income, profits or property of PTR or any Subsidiary, and (ii) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon the property of PTR or any Subsidiary; provided, however, that PTR shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings (Section 1008). Provision of Financial Information. Whether or not PTR is subject to Section 13 or 15(d) of the Exchange Act, PTR will, to the extent permitted under the Exchange Act, file with the Commission the annual reports, quarterly reports and other documents which PTR would have been required to file with the Commission pursuant to such Section 13 and 15(d) (the "Financial Statements") if PTR were so subject, such documents to be filed with the Commission on or prior to the respective dates (the "Required Filing Dates") by which PTR would have been required so to file such documents if PTR were so subject. PTR will also in any event (x) within 15 days of each Required Filing Date (i) transmit by mail to all Holders of Debt Securities, as their names and addresses appear in the Security Register, without cost to such Holders, copies of the annual reports and quarterly reports which PTR would have been required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act if PTR were subject to such Sections and (ii) file with the Trustee copies of the annual reports, quarterly reports and other documents which PTR would have been required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act if PTR were subject to such Sections and (y) if filing such documents by PTR with the Commission is not permitted under the Exchange Act, promptly upon written request and payment of the reasonable cost of duplication and delivery, supply copies of such documents to any prospective Holder (Section 1009). As used herein, "Acquired Debt" means Debt of a Person (i) existing at the time such Person becomes a Subsidiary or (ii) assumed in connection with the acquisition of assets from such Person, in each case, other than Debt incurred in connection with, or in contemplation of, such Person becoming a Subsidiary or such acquisition. Acquired Debt shall be deemed to be incurred on the date of the related acquisition of assets from any Person or the date the acquired Person becomes a Subsidiary. "Annual Service Charge" as of any date means the maximum amount which is payable in any period for interest on, and original issue discount of, Debt of PTR and its Subsidiaries and the amount of dividends which are payable in respect of any Disqualified Stock. "Capital Stock" means, with respect to any Person, any capital stock (including preferred stock), shares, interests, participations or other ownership interests (however designated) of such Person and any rights (other than debt securities convertible into or exchangeable for corporate stock), warrants or options to purchase any thereof. "Consolidated Income Available for Debt Service" for any period means Earnings from Operations (as defined below) of PTR and its Subsidiaries plus amounts which have been deducted, and minus amounts which have been added, for the following (without duplication): (a) interest on Debt of PTR and its 8 Subsidiaries, (b) provision for taxes of PTR and its Subsidiaries based on income, (c) amortization of debt discount, (d) provisions for gains and losses on properties and property depreciation and amortization, (e) the effect of any noncash charge resulting from a change in accounting principles in determining Earnings from Operations for such period and (f) amortization of deferred charges. "Debt" of PTR or any Subsidiary means any indebtedness of PTR or any Subsidiary, whether or not contingent, in respect of (i) borrowed money or evidenced by bonds, notes, debentures or similar instruments, (ii) indebtedness secured by any mortgage, pledge, lien, charge, encumbrance or any security interest existing on property owned by PTR or any Subsidiary, (iii) the reimbursement obligations, contingent or otherwise, in connection with any letters of credit actually issued or amounts representing the balance deferred and unpaid of the purchase price of any property or services, except any such balance that constitutes an accrued expense or trade payable, or all conditional sale obligations or obligations under any title retention agreement, (iv) the principal amount of all obligations of PTR or any Subsidiary with respect to redemption, repayment or other repurchase of any Disqualified Stock or (v) any lease of property by PTR or any Subsidiary as lessee which is reflected on PTR's Consolidated Balance Sheet as a capitalized lease in accordance with generally accepted accounting principles to the extent, in the case of items of indebtedness under (i) through (iii) above, that any such items (other than letters of credit) would appear as a liability on PTR's Consolidated Balance Sheet in accordance with generally accepted accounting principles, and also includes, to the extent not otherwise included, any obligation by PTR or any Subsidiary to be liable for, or to pay, as obligor, guarantor or otherwise (other than for purposes of collection in the ordinary course of business), Debt of another Person (other than PTR or any Subsidiary) (it being understood that Debt shall be deemed to be incurred by PTR or any Subsidiary whenever PTR or such Subsidiary shall create, assume, guarantee or otherwise become liable in respect thereof). "Disqualified Stock" means, with respect to any Person, any Capital Stock of such Person which by the terms of such Capital Stock (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable), upon the happening of any event or otherwise (i) matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, (ii) is convertible into or exchangeable or exercisable for Debt or Disqualified Stock or (iii) is redeemable at the option of the holder thereof, in whole or in part, in each case on or prior to the Stated Maturity of the series of Debt Securities. "Earnings from Operations" for any period means net earnings excluding gains and losses on sales of investments, net as reflected in the financial statements of PTR and its Subsidiaries for such period determined on a consolidated basis in accordance with generally accepted accounting principles. "Total Assets" as of any date means the sum of (i) PTR's Undepreciated Real Estate Assets and (ii) all other assets of PTR determined in accordance with generally accepted accounting principles (but excluding accounts receivable and intangibles). "Undepreciated Real Estate Assets" as of any date means the cost (original cost plus capital improvements) of real estate assets of PTR and its Subsidiaries on such date, before depreciation and amortization determined on a consolidated basis in accordance with generally accepted accounting principles. EVENTS OF DEFAULT, NOTICE AND WAIVER The Indenture provides that the following events are "Events of Default" with respect to any series of Debt Securities issued thereunder: (a) default for 30 days in the payment of any installment of interest or Additional Amounts payable on any Debt Security of such series; (b) default in the payment of the principal of (or premium or Make-Whole Amount, if any, on) any Debt Security of such series at its Maturity; (c) default in making any sinking fund payment as required for any Debt Security of such series; (d) default in the performance of any other covenant of PTR contained in the Indenture (other than a covenant added to the Indenture solely for the benefit of a series of Debt Securities issued thereunder other than such series), continued for 60 days after written notice as provided in the Indenture; (e) default in the payment of an 9 aggregate principal amount exceeding $10,000,000 of any evidence of indebtedness of PTR or any mortgage, indenture or other instrument under which such indebtedness is issued or by which such indebtedness is secured, such default having occurred after the expiration of any applicable grace period and having resulted in the acceleration of the maturity of such indebtedness, but only if such indebtedness is not discharged or such acceleration is not rescinded or annulled; (f) the entry by a court of competent jurisdiction of one or more judgments, orders or decrees against PTR or any of its Subsidiaries in an aggregate amount (excluding amounts fully covered by insurance) in excess of $10,000,000 and such judgments, orders or decrees remain undischarged, unstayed and unsatisfied in an aggregate amount (excluding amounts fully covered by insurance) in excess of $10,000,000 for a period of 30 consecutive days; (g) certain events of bankruptcy, insolvency or reorganization, or court appointment of a receiver, liquidator or trustee of PTR or any Significant Subsidiary or for all or substantially all of either of its property; and (h) any other Event of Default provided with respect to a particular series of Debt Securities (Section 501). The term "Significant Subsidiary" means each significant subsidiary (as defined in Regulation S-X promulgated by the Commission) of PTR. If an Event of Default under the Indenture with respect to Debt Securities of any series at the time Outstanding occurs and is continuing, then in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Debt Securities of that series may declare the principal amount (or, if the Debt Securities of that series are Original Issue Discount Securities or Indexed Securities, such portion of the principal amount as may be specified in the terms thereof) of, and the Make-Whole Amount, if any, on, all of the Debt Securities of that series to be due and payable immediately by written notice thereof to PTR (and to the Trustee if given by the Holders). However, at any time after such a declaration of acceleration with respect to Debt Securities of such series (or of all Debt Securities then Outstanding under the Indenture, as the case may be) has been made, but before a judgment or decree for payment of the money due has been obtained by the Trustee, the Holders of not less than a majority in principal amount of Outstanding Debt Securities of such series (or of all Debt Securities then Outstanding under the Indenture, as the case may be) may rescind and annul such declaration and its consequences if (a) PTR shall have deposited with the Trustee all required payments of the principal of (and premium or Make-Whole Amount, if any) and interest, and any Additional Amounts, on the Debt Securities of such series (or of all Debt Securities then outstanding under the Indenture, as the case may be), plus certain fees, expenses, disbursements and advances of the Trustee and (b) all Events of Default, other than the nonpayment of accelerated principal (or specified portion thereof and the Make-Whole Amount, if any) or interest, with respect to Debt Securities of such series (or of all Debt Securities then Outstanding under the Indenture, as the case may be) have been cured or waived as provided in the Indenture (Section 502). The Indenture also provides that the Holders of not less than a majority in principal amount of the Outstanding Debt Securities of any series (or of all Debt Securities then Outstanding under the Indenture, as the case may be) may waive any past default with respect to such series and its consequences, except a default (x) in the payment of the principal of (or premium or Make-Whole Amount, if any) or interest or Additional Amounts payable on any Debt Security of such series or (y) in respect of a covenant or provision contained in the Indenture that cannot be modified or amended without the consent of the Holder of each Outstanding Debt Security affected thereby (Section 513). The Trustee is required to give notice to the Holders of Debt Securities within 90 days of a default under the Indenture; provided, however, that the Trustee may withhold notice to the Holders of any series of Debt Securities of any default with respect to such series (except a default in the payment of the principal of (or premium or Make-Whole Amount, if any) or interest or Additional Amounts payable on any Debt Security of such series or in the payment of any sinking fund installment in respect of any Debt Security of such series) if the Responsible Officers of the Trustee consider such withholding to be in the interest of such Holders (Section 601). The Indenture provides that no Holders of Debt Securities of any series may institute any proceedings, judicial or otherwise, with respect to the Indenture or for any remedy thereunder, except in the case of failure of the Trustee, for 60 days, to act after it has received a written request to institute proceedings in respect of 10 an event of Default from the Holders of not less than 25% in principal amount of the Outstanding Debt Securities of such series, as well as an offer of reasonable indemnity (Section 507). This provision will not prevent, however, any Holder of Debt Securities from instituting suit for the enforcement of payment of the principal of (and premium or Make-Whole Amount, if any), interest on, and Additional Amounts payable with respect to, such Debt Securities at the respective due dates thereof (Section 508). Subject to provisions in the Indenture relating to its duties in case of default, the Trustee is under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any Holders of any series of Debt Securities then Outstanding under the Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity (Section 602). The Holders of not less than a majority in principal amount of the Outstanding Debt Securities of any series (or of all Debt Securities then Outstanding under the Indenture, as the case may be) shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or of exercising any trust or power conferred upon the Trustee. However, the Trustee may refuse to follow any direction which is in conflict with any law or the Indenture, which may involve the Trustee in personal liability or which may be unduly prejudicial to the Holders of Debt Securities of such series not joining therein (Section 512). Within 120 days after the close of each fiscal year, PTR must deliver to the Trustee a certificate, signed by one of several specified officers, stating whether or not such officer has knowledge of any default under the Indenture and, if so, specifying each such default and the nature and status thereof (Section 1010). MODIFICATION OF THE INDENTURE Modifications and amendments of the Indenture may be made with the consent of the Holders of not less than a majority in principal amount of all Outstanding Debt Securities which are affected by such modification or amendment; provided, however, that no such modification or amendment may, without the consent of the Holder of each such Debt Security affected thereby, (a) change the Stated Maturity of the principal of (or premium or Make-Whole Amount, if any), or any installment of principal of or interest or Additional Amounts payable on, any such Debt Security; (b) reduce the principal amount of, or the rate or amount of interest on, or any premium or Make-Whole Amount payable on redemption of, or any Additional Amounts payable with respect to, any such Debt Security, or reduce the amount of principal of an Original Issue Discount Security or Make- Whole Amount, if any, that would be due and payable upon declaration of acceleration of the maturity thereof or would be provable in bankruptcy, or adversely affect any right of repayment of the Holder of any such Debt Security; (c) change the Place of Payment, or the coin or currency, for payment of principal of (and premium or Make-Whole Amount, if any), or interest on, or any Additional Amounts payable with respect to, any such Debt Security; (d) impair the right to institute suit for the enforcement of any payment on or with respect to any such Debt Security; (e) reduce the above-stated percentage of Outstanding Debt Securities of any series necessary to modify or amend the Indenture, to waive compliance with certain provisions thereof or certain defaults and consequences thereunder or to reduce the quorum or voting requirements set forth in the Indenture; or (f) modify any of the foregoing provisions or any of the provisions relating to the waiver of certain past defaults or certain covenants, except to increase the required percentage to effect such action or to provide that certain other provisions may not be modified or waived without the consent of the Holder of such Debt Security (Section 902). The Holders of not less than a majority in principal amount of Outstanding Debt Securities have the right to waive compliance by PTR with certain covenants in the Indenture (Section 1012). Modifications and amendments of the Indenture may be made by PTR and the Trustee without the consent of any Holder of Debt Securities for any of the following purposes: (i) to evidence the succession of another Person to PTR as obligor under the Indenture; (ii) to add to the covenants of PTR for the benefit of the Holders of all or any series of Debt Securities or to surrender any right or power conferred upon PTR in the Indenture; (iii) to add Events of Default for the benefit of the Holders of all or any series of Debt Securities; (iv) to add or change any provisions of the Indenture to facilitate the issuance of, or to liberalize 11 certain terms of, Debt Securities in bearer form, or to permit or facilitate the issuance of Debt Securities in uncertificated form, provided that such action shall not adversely affect the interests of the Holders of the Debt Securities of any series in any material respect; (v) to change or eliminate any provisions of the Indenture, provided that any such change or elimination shall become effective only when there are no Debt Securities Outstanding of any series created prior thereto which are entitled to the benefit of such provision; (vi) to secure the Debt Securities; (vii) to establish the form or terms of Debt Securities of any series and any related coupons; (viii) to provide for the acceptance of appointment by a successor Trustee or facilitate the administration of the trusts under the Indenture by more than one Trustee; (ix) to cure any ambiguity, defect or inconsistency in the Indenture or to make any other changes, provided that in each case, such action shall not adversely affect the interests of Holders of Debt Securities of any series in any material respect; (x) to close the Indenture with respect to the authentication and delivery of additional series of Debt Securities or to qualify, or maintain qualification of, the Indenture under the TIA; or (xi) to supplement any of the provisions of the Indenture to the extent necessary to permit or facilitate defeasance and discharge of any series of such Debt Securities, provided that such action shall not adversely affect the interests of the Holders of the Debt Securities of any series in any material respect (Section 901). The Indenture provides that in determining whether the Holders of the requisite principal amount of Outstanding Debt Securities of a series have given any request, demand, authorization, direction, notice, consent or waiver thereunder or whether a quorum is present at a meeting of Holders of Debt Securities, (i) the principal amount of an Original Issue Discount Security that shall be deemed to be outstanding shall be the amount of the principal thereof that would be due and payable as of the date of such determination upon declaration of acceleration of the maturity thereof, (ii) the principal amount of a Debt Security denominated in a Foreign Currency that shall be deemed outstanding shall be the United States dollar equivalent, determined on the issue date for such Debt Security, of the principal amount (or, in the case of an Original Issue Discount Security, the United States dollar equivalent on the issue date of such Debt Security of the amount determined as provided in (i) above), (iii) the principal amount of an Indexed Security that shall be deemed outstanding shall be the principal face amount of such Indexed Security at original issuance, unless otherwise provided with respect to such Indexed Security pursuant to Section 301 of the Indenture, and (iv) Debt Securities owned by PTR or any other obligor upon the Debt Securities or any Affiliate of PTR or of such other obligor shall be disregarded (Section 101). The Indenture contains provisions for convening meetings of the Holders of Debt Securities of a series (Section 1501). A meeting may be called at any time by the Trustee, and also, upon request, by PTR or the Holders of at least 10% in principal amount of the Outstanding Debt Securities of such series, in any such case upon notice given as provided in the Indenture (Section 1502). Except for any consent that must be given by the Holder of each Debt Security affected by certain modifications and amendments of the Indenture, any resolution presented at a meeting or adjourned meeting duly reconvened at which a quorum is present may be adopted by the affirmative vote of the Holders of a majority in principal amount of the Outstanding Debt Securities of that series; provided, however, that, except as referred to above, any resolution with respect to any request, demand, authorization, direction, notice, consent, waiver or other action that may be made, given or taken by the Holders of a specified percentage, which is less than a majority, in principal amount of the Outstanding Debt Securities of a series may be adopted at a meeting or adjourned meeting duly reconvened at which a quorum is present by the affirmative vote of the Holders of such specified percentage in principal amount of the Outstanding Debt Securities of that series. Any resolution passed or decision taken at any meeting of Holders of Debt Securities of any series duly held in accordance with the Indenture will be binding on all Holders of Debt Securities of that series. The quorum at any meeting called to adopt a resolution, and at any reconvened meeting, will be Persons holding or representing a majority in principal amount of the Outstanding Debt Securities of a series; provided, however, that if any action is to be taken at such meeting with respect to a consent or waiver which may be given by the Holders of not less than a specified percentage in principal amount of the Outstanding Debt Securities of a series, the Persons holding or representing such specified percentage in principal amount of the Outstanding Debt Securities of such series will constitute a quorum (Section 1504). 12 Notwithstanding the foregoing provisions, if any action is to be taken at a meeting of Holders of Debt Securities of any series with respect to any request, demand, authorization, direction, notice, consent, waiver or other action that the Indenture expressly provides may be made, given or taken by the Holders of a specified percentage in principal amount of all Outstanding Debt Securities affected thereby, or of the Holders of such series and one or more additional series: (i) there shall be no minimum quorum requirement for such meeting and (ii) the principal amount of the Outstanding Debt Securities of such series that vote in favor of such request, demand, authorization, direction, notice, consent, waiver or other action shall be taken into account in determining whether such request, demand, authorization, direction, notice, consent, waiver or other action has been made, given or taken under the Indenture (Section 1504). Any request, demand, authorization, direction, notice, consent, waiver or other action provided by the Indenture to be given or taken by a specified percentage in principal amount of the Holders of any or all series of Debt Securities may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such specified percentage of Holders in person or by agent duly appointed in writing; and, except as otherwise expressly provided in the Indenture, such action shall become effective when such instrument or instruments are delivered to the Trustee. Proof of execution of any instrument or of a writing appointing any such agent shall be sufficient for any purpose of the Indenture and (subject to Article Six) conclusive in favor of the Trustee and PTR, if made in the manner specified above (Section 1507). DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE PTR may discharge certain obligations to Holders of any series of Debt Securities that have not already been delivered to the Trustee for cancellation and that either have become due and payable or will become due and payable within one year (or scheduled for redemption within one year) by irrevocably depositing with the Trustee, in trust, funds in such currency or currencies, currency unit or units or composite currency or currencies in which such Debt Securities are payable in an amount sufficient to pay the entire indebtedness on such Debt Securities in respect of principal (and premium or Make-Whole Amount, if any) and interest and Additional Amounts payable to the date of such deposit (if such Debt Securities have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be (Section 401). The Indenture provides that, if the provisions of Article Fourteen are made applicable to the Debt Securities of or within any series pursuant to Section 301 of the Indenture, PTR may elect either (a) to defease and be discharged from any and all obligations with respect to such Debt Securities (except for the obligation to pay Additional Amounts, if any, upon the occurrence of certain events of tax, assessment or governmental charge with respect to payments on such Debt Securities and the obligations to register the transfer or exchange of such Debt Securities, to replace temporary or mutilated, destroyed, lost or stolen Debt Securities, to maintain an office or agency in respect of such Debt Securities and to hold moneys for payment in trust) ("defeasance") (Section 1402) or (b) to be released from its obligations with respect to such Debt Securities under Sections 1004 to 1009, inclusive, of the Indenture (being the restrictions described under "--Certain Covenants") and, if provided pursuant to Section 301 of the Indenture, its obligations with respect to any other covenant, and any omission to comply with such obligations shall not constitute a default or an Event of Default with respect to such Debt Securities ("covenant defeasance") (Section 1403), in either case upon the irrevocable deposit by PTR with the Trustee, in trust, of an amount, in such currency or currencies, currency unit or units or composite currency or currencies in which such Debt Securities are payable at Stated Maturity, or Government Obligations (as defined below), or both, applicable to such Debt Securities which through the scheduled payment of principal and interest in accordance with their terms will provide money in an amount sufficient to pay the principal of (and premium or Make-Whole Amount, if any) and interest on such Debt Securities, and any mandatory sinking fund or analogous payments thereon, on the scheduled due dates therefor. Such a trust may only be established if, among other things, PTR has delivered to the Trustee an Opinion of Counsel (as specified in the Indenture) to the effect that the Holders of such Debt Securities will not 13 recognize income, gain or loss for United States federal income tax purposes as a result of such defeasance or covenant defeasance and will be subject to United States federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance or covenant defeasance had not occurred, and such Opinion of Counsel, in the case of defeasance, must refer to and be based upon a ruling of the Internal Revenue Service or a change in applicable United States federal income tax law occurring after the date of the Indenture (Section 1404). "Government Obligations" means securities which are (i) direct obligations of the United States of America or the government which issued the Foreign Currency in which the Debt Securities of a particular series are payable, for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America or such government which issued the Foreign Currency in which the Debt Securities of such series are payable, the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America or such other government, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such Government Obligation or a specific payment of interest on or principal of any such Government Obligation held by such custodian for the account of the holder of a depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the Government Obligation or the specific payment of interest on or principal of the Government Obligation evidenced by such depository receipt (Section 101). Unless otherwise provided in the applicable Prospectus Supplement, if after PTR has deposited funds and/or Government Obligations to effect defeasance or covenant defeasance with respect to Debt Securities of any series, (a) the Holder of a Debt Security of such series is entitled to, and does, elect pursuant to Section 301 of the Indenture or the terms of such Debt Security to receive payment in a currency, currency unit or composite currency other than that in which such deposit has been made in respect of such Debt Security, or (b) a Conversion Event (as defined below) occurs in respect of the currency, currency unit or composite currency in which such deposit has been made, the indebtedness represented by such Debt Security shall be deemed to have been, and will be, fully discharged and satisfied through the payment of the principal of (and premium or Make-Whole Amount, if any) and interest on such Debt Security as they become due out of the proceeds yielded by converting the amount so deposited in respect of such Debt Security into the currency, currency unit or composite currency in which such Debt Security becomes payable as a result of such election or such cessation of usage based on the applicable market exchange rate (Section 1405). "Conversion Event" means the cessation of use of (i) a currency, currency unit or composite currency (other than the ECU or other currency unit) both by the government of the country which issued such currency and for the settlement of transactions by a central bank or other public institutions of or within the international banking community, (ii) the ECU both within the European Monetary System and for the settlement of transactions by public institutions of or within the European Communities or (iii) any currency unit or composite currency other than the ECU for the purposes for which it was established. Unless otherwise provided in the applicable Prospectus Supplement, all payments of principal of (and premium or Make-Whole Amount, if any) and interest on any Debt Security that is payable in a Foreign Currency that ceases to be used by its government of issuance shall be made in United States dollars (Section 101). In the event PTR effects covenant defeasance with respect to any Debt Securities and such Debt Securities are declared due and payable because of the occurrence of any Event of Default other than the Event of Default described in clause (d) under "--Events of Default, Notice and Waiver" with respect to Sections 1004 to 1009, inclusive, of the Indenture (which Sections would no longer be applicable to such Debt Securities) or described in clause (g) under "--Events of Default, Notice and Waiver" with respect to any other covenant as to which there has been covenant defeasance, the amount in such currency, currency unit or composite currency in which such Debt Securities are payable, and Government Obligations on deposit with the Trustee, will be sufficient to pay amounts due on such Debt Securities at the time of their 14 Stated Maturity but may not be sufficient to pay amounts due on such Debt Securities at the time of the acceleration resulting from such Event of Default. However, PTR would remain liable to make payment of such amounts due at the time of acceleration. The applicable Prospectus Supplement may further describe the provisions, if any, permitting such defeasance or covenant defeasance, including any modifications to the provisions described above, with respect to the Debt Securities of or within a particular series. GLOBAL SECURITIES The Debt Securities of a series may be issued in whole or in part in the form of one or more global securities ("Global Securities") that will be deposited with, or on behalf of, a depository (the "Depository") identified in the applicable Prospectus Supplement relating to such series. Global Securities, if any, are expected to be deposited with The Depository Trust Company, as Depository. Global Securities may be issued in fully registered form and may be issued in either temporary or permanent form. Unless and until it is exchanged in whole or in part for the individual Debt Securities represented thereby, a Global Security may not be transferred except as a whole by the Depository for such Global Security to a nominee of such Depository or by a nominee of such Depository to such Depository or another nominee of such Depository or by the Depository or any nominee of such Depository to a successor Depository or any nominee of such successor. The specific terms of the depository arrangement with respect to a series of Debt Securities will be described in the applicable Prospectus Supplement relating to such series. Unless otherwise indicated in the applicable Prospectus Supplement, PTR anticipates that the following provisions will apply to depository arrangements. Upon the issuance of a Global Security, the Depository for such Global Security or its nominee will credit on its book-entry registration and transfer system the respective principal amounts of the individual Debt Securities represented by such Global Security to the accounts of persons that have accounts with such Depository ("Participants"). Such accounts shall be designated by the underwriters, dealers or agents with respect to such Debt Securities or by PTR if such Debt Securities are offered and sold directly by PTR. Ownership of beneficial interests in a Global Security will be limited to Participants or persons that may hold interests through Participants. Ownership of beneficial interests in such Global Security will be shown on, and the transfer of that ownership will be effected only through, records maintained by the applicable Depository or its nominee (with respect to beneficial interests of Participants) and records of Participants (with respect to beneficial interests of persons who hold through Participants). The laws of some states require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and laws may impair the ability to own, pledge or transfer beneficial interest in a Global Security. So long as the Depository for a Global Security or its nominee is the registered owner of such Global Security, such Depository or such nominee, as the case may be, will be considered the sole owner or holder of the Debt Securities represented by such Global Security for all purposes under the Indenture. Except as provided below or in the applicable Prospectus Supplement, owners of beneficial interest in a Global Security will not be entitled to have any of the individual Debt Securities of the series represented by such Global Security registered in their names, will not receive or be entitled to receive physical delivery of any such Debt Securities of such series in definitive form and will not be considered the owners or holders thereof under the Indenture. Payments of principal of, any premium or Make-Whole Amount and any interest on, or any Additional Amounts payable with respect to, individual Debt Securities represented by a Global Security registered in the name of a Depository or its nominee will be made to the Depository or its nominee, as the case may be, as the registered owner of the Global Security representing such Debt Securities. None of PTR, the Trustee, any Paying Agent or the Security Registrar for such Debt Securities will have any responsibility or liability 15 for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Security for such Debt Securities or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. PTR expects that the Depository for a series of Debt Securities or its nominee, upon receipt of any payment of principal, premium, Make-Whole Amount or interest in respect of a permanent Global Security representing any of such Debt Securities, immediately will credit Participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of such Global Security for such Debt Securities as shown on the records of such Depository or its nominee. PTR also expects that payments by Participants to owners of beneficial interests in such Global Security held through such Participants will be governed by standing instructions and customary practices, as is the case with securities held for the account of customers in bearer form or registered in "street name." Such payments will be the responsibility of such Participants. If a Depository for a series of Debt Securities is at any time unwilling, unable or ineligible to continue as depository and a successor depository is not appointed by PTR within 90 days, PTR will issue individual Debt Securities of such series in exchange for the Global Security representing such series of Debt Securities. In addition, PTR may, at any time and in its sole discretion, subject to any limitations described in the applicable Prospectus Supplement relating to such Debt Securities, determine not to have any Debt Securities of such series represented by one or more Global Securities and, in such event, will issue individual Debt Securities of such series in exchange for the Global Security or Securities representing such series of Debt Securities. Individual Debt Securities of such series so issued will be issued in denominations, unless otherwise specified by PTR, of $1,000 and integral multiples thereof. NO PERSONAL LIABILITY No past, present or future trustee, officer, employee or shareholder, as such, of PTR or any successor thereof shall have any liability for any obligations of PTR under the Debt Securities or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Debt Securities by accepting such Debt Securities waives and releases all such liability. The waiver and release are part of the consideration for the issue of Debt Securities (Section 111). DESCRIPTION OF COMMON SHARES GENERAL PTR has 150 million Shares of Beneficial Interest, $1.00 par value, authorized. On November 11, 1994, PTR had 50,397,188 Common Shares issued and outstanding, which were held of record by approximately 3,450 shareholders. PTR has reserved 150,000 Common Shares for issuance upon the exercise of options pursuant to the Property Trust of America Share Option Plan for Outside Trustees. In addition, PTR held 164,478 Common Shares in treasury as of November 11, 1994 and 11,189,040 Common Shares were reserved for issuance upon conversion of Series A Preferred Shares. The following description sets forth certain general terms and provisions of the Common Shares to which any Prospectus Supplement may relate, including a Prospectus Supplement which provides for Common Shares issuable upon conversion of Preferred Shares. The statements below describing the Common Shares are in all respects subject to and qualified in their entirety by reference to the applicable provisions of PTR's Restated Declaration of Trust and Bylaws. The outstanding Common Shares are fully paid and, except as set forth below under "--Shareholder Liability," non-assessable. Each Common Share has one vote on all matters requiring a vote of shareholders. Holders of Common Shares do not have the right to cumulate their votes in the election of Trustees. Holders 16 of Common Shares are entitled to receive dividends when, as and if declared by the Board of Trustees. Common Shares do not have preemptive, redemption or conversion rights or the benefit of a sinking fund. In the event of a liquidation, dissolution or winding up of PTR, the holders of the Common Shares are entitled to receive ratably the assets remaining after satisfaction of all liabilities and payment of liquidation preferences and accrued dividends, if any, on the Series A Preferred Shares, any classes of preferred shares ranking on a parity with the Series A Preferred Shares with respect to the payment of dividends and amounts upon dissolution and winding up ("Parity Shares") and any preferred shares ranking senior to the Parity Shares with respect to the payment of dividends or amounts upon liquidation, dissolution or winding up. The right of holders of the Common Shares are subject to the rights and preferences established by the Trustees for any preferred shares which may subsequently be issued by PTR. See "Description of Preferred Shares." PURCHASE RIGHTS On July 11, 1994, the Board of Trustees declared a dividend of one preferred share purchase right (a "Purchase Right") for each Common Share outstanding, payable to holders of Common Shares of record at the close of business on July 21, 1994. Each Purchase Right entitles the holder under certain circumstances to purchase from PTR one one-hundredth of a share of Series B Junior Participating Preferred Shares, par value $1.00 per share (the "Participating Preferred Shares") at a price of $60.00 per one one-hundredth of a Participating Preferred Share, subject to adjustment. Purchase Rights are exercisable when a person or group of persons acquires 20% or more of the outstanding Common Shares (49% in the case of Security Capital Realty and certain defined affiliates) or announces a tender offer for 25% or more of the outstanding Common Shares. Under certain circumstances, each Purchase Right entitles the holder to purchase, at the Purchase Right's then current exercise price, a number of Common Shares having a market value of twice the Purchase Right's exercise price. The acquisition of PTR pursuant to certain mergers or other business transactions would entitle each holder to purchase, at the Purchase Right's then current exercise price, a number of the acquiring company's common shares having a market value at that time equal to twice the Purchase Right's exercise price. The Purchase Rights held by certain 20% shareholders (other than Security Capital Realty) would not be exercisable. The Purchase Rights will expire in July 2004 and are subject to redemption in whole, but not in part, at a price of $0.01 per Purchase Right payable in cash, shares of PTR or any other form of consideration determined by PTR's Board of Trustees. TRANSFER AGENT The transfer agent and registrar for the Common Shares is Chemical Bank, P.O. Box 3068, JAF Building, New York, New York 10116-3068. The Common Shares are listed on the NYSE under the symbol "PTR." RESTRICTION ON SIZE OF HOLDINGS PTR's Restated Declaration of Trust restricts beneficial ownership of PTR's outstanding capital shares by a single person, or persons acting as a group, to 9.8% of PTR's Common Shares. Beneficial ownership of Common Shares includes Common Shares which a person may acquire upon conversion of Preferred Shares, including Series A Preferred Shares. The purposes of these provisions are to assist in protecting and preserving PTR's REIT status and to protect the interest of shareholders in takeover transactions by preventing the acquisition of a substantial block of shares unless the acquiror makes a cash tender offer for all outstanding shares. For PTR to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"), not more than 50% in value of its outstanding capital shares may be owned by five or fewer individuals at any time during the last half of PTR's taxable year. The provision permits five persons to acquire up to a maximum of 9.8% of the Common Shares each, or an aggregate of 49% of the outstanding Common Shares, and, thus, assists the Trustees in protecting and preserving PTR's REIT status for tax purposes. Capital shares owned by a person or group of persons in excess of 9.8% (49% in the case of Security Capital Realty and certain defined affiliates) of PTR's outstanding Common Shares ("Excess Shares") are subject to redemption by PTR, at its option, upon 30 days' notice, at a price equal to the average daily per 17 share closing sale price during the 30-day period ending on the business day prior to the redemption date. PTR may make payment of the redemption price at any time or times up to the earlier of five years after the redemption date or liquidation of PTR. PTR may refuse to effect the transfer of any Common Shares which would make the transferee a holder of Excess Shares. Shareholders of PTR are required to disclose, upon demand of the Board of Trustees, such information with respect to their direct and indirect ownership of Common Shares as the Board of Trustees deems necessary to comply with the provisions of the Code pertaining to qualification, for tax purposes, of REITs, or to comply with the requirements of any other appropriate taxing authority. The 9.8% restriction does not apply to acquisitions by an underwriter in a public offering and sale of Common Shares or to any transaction involving the issuance of Common Shares in which a majority of the Board of Trustees determines that the eligibility of PTR to qualify as a REIT for federal income tax purposes will not be jeopardized or the disqualification of PTR as a REIT is advantageous to the shareholders. Security Capital Realty's ownership of Common Shares is attributed for tax purposes to its shareholders. The Board of Trustees has permitted Security Capital Realty to acquire up to 49% of PTR's outstanding Common Shares. TRUSTEE LIABILITY PTR's Restated Declaration of Trust provides that Trustees shall not be individually liable for any obligation or liability incurred by or on behalf of PTR or by Trustees for the benefit and on behalf of PTR. Under the Restated Declaration of Trust and Maryland law respecting REITs, Trustees are not liable to PTR or the shareholders for any act or omission except for acts or omissions which constitute bad faith, willful misfeasance, gross negligence or reckless disregard of duties to PTR and its shareholders. SHAREHOLDER LIABILITY Both Maryland statutory law governing REITs organized under the laws of that state (the "Maryland REIT Law") and PTR's Restated Declaration of Trust provide that shareholders shall not be personally or individually liable for any debt, act, omission or obligation of PTR or the Trustees. PTR's Restated Declaration of Trust further provides that PTR shall indemnify and hold each shareholder harmless from all claims and liabilities to which the shareholder may become subject by reason of his being or having been a shareholder and that PTR shall reimburse each shareholder for all legal and other expenses reasonably incurred by the shareholder in connection with any such claim or liability, except to the extent that such claim or liability arises out of the shareholder's bad faith, willful misconduct or gross negligence and provided that such shareholder gives PTR prompt notice of any such claim or liability and permits PTR to conduct the defense thereof. In addition, PTR is required to, and as a matter of practice does, insert a clause in its management and other contracts providing that shareholders assume no personal liability for obligations entered into on behalf of PTR. Nevertheless, with respect to tort claims, contractual claims where shareholder liability is not so negated, claims for taxes and certain statutory liability, the shareholders may, in some jurisdictions, be personally liable to the extent that such claims are not satisfied by PTR. Inasmuch as PTR carries public liability insurance which it considers adequate, any risk of personal liability to shareholders is limited to situations in which PTR's assets plus its insurance coverage would be insufficient to satisfy the claims against PTR and its shareholders. DESCRIPTION OF PREFERRED SHARES GENERAL Subject to limitations prescribed by Maryland law and the Restated Declaration of Trust, the Board of Trustees is authorized to issue, from the authorized but unissued capital shares of PTR, Preferred Shares in series and to establish from time to time the number of Preferred Shares to be included in such series and to fix the designation and any preferences, conversion and other rights, voting powers, restrictions, limitations 18 as to dividends, qualifications and terms and conditions of redemption of the shares of each series, and such other subjects or matters as may be fixed by resolution of the Board of Trustees or duly authorized committee thereof. On November 11, 1994, PTR had 9,200,000 of its Series A Preferred Shares, issued and outstanding and held of record by approximately 100 shareholders. Reference is made to the Prospectus Supplement relating to the Preferred Shares offered thereby for specific terms, including: (1) The title and stated value of such Preferred Shares; (2) The number of shares of such Preferred Shares offered, the liquidation preference per share and the offering price of such Preferred Shares; (3) The dividend rate(s), period(s) and/or payment date(s) or method(s) of calculation thereof applicable to such Preferred Shares; (4) The date from which dividends on such Preferred Shares shall cumulate, if applicable; (5) The procedures for any auction and remarketing, if any, for such Preferred Shares; (6) The provision for a sinking fund, if any, for such Preferred Shares; (7) The provision for redemption, if applicable, of such Preferred Shares; (8) Any listing of such Preferred Shares on any securities exchange; (9) The terms and conditions, if applicable, upon which such Preferred Shares will be convertible into Common Shares of PTR, including the conversion price (or manner of calculation thereof); (10) Whether interests in such Preferred Shares will be represented by Global Securities; (11) Any other specific terms, preferences, rights, limitations or restrictions of such Preferred Shares; (12) A discussion of federal income tax considerations applicable to such Preferred Shares; (13) The relative ranking and preferences of such Preferred Shares as to dividend rights and rights upon liquidation, dissolution or winding up of the affairs of PTR; (14) Any limitations on issuance of any series of preferred stock ranking senior to or on a parity with such series of Preferred Shares as to dividend rights and rights upon liquidation, dissolution or winding up of the affairs of PTR; and (15) Any limitations on direct or beneficial ownership and restrictions on transfer, in each case as may be appropriate to preserve the status of PTR as a REIT. RANK Unless otherwise specified in the Prospectus Supplement, the Preferred Shares will, with respect to dividend rights and rights upon liquidation, dissolution or winding up of PTR, rank (i) senior to all classes or series of Common Shares, and to all equity securities ranking junior to such Preferred Shares; (ii) on a parity with all equity securities issued by PTR the terms of which specifically provide that such equity securities rank on a parity with the Preferred Shares; and (iii) junior to all equity securities issued by PTR the terms of which specifically provide that such equity securities rank senior to the Preferred Shares. DIVIDENDS Holders of Preferred Shares of each series shall be entitled to receive, when, as and if declared by the Board of Trustees of PTR, out of assets of PTR legally available for payment, cash dividends at such rates and on such dates as will be set forth in the applicable Prospectus Supplement. Each such dividend shall be payable to holders of record as they appear on the share transfer books of PTR on such record dates as shall be fixed by the Board of Trustees of PTR. 19 Dividends on any series of the Preferred Shares may be cumulative or noncumulative, as provided in the applicable Prospectus Supplement. Dividends, if cumulative, will be cumulative from and after the date set forth in the applicable Prospectus Supplement. If the Board of Trustees of PTR fails to declare a dividend payable on a dividend payment date on any series of the Preferred Shares for which dividends are noncumulative, then the holders of such series of the Preferred Shares will have no right to receive a dividend in respect of the dividend period ending on such dividend payment date, and PTR will have no obligation to pay the dividend accrued for such period, whether or not dividends on such series are declared payable on any future dividend payment date. If Preferred Shares of any series are outstanding, no full dividends shall be declared or paid or set apart for payment on the Preferred Shares of PTR of any other series ranking, as to dividends, on a parity with or junior to the Preferred Shares of such series for any period unless (i) if such series of Preferred Shares has a cumulative dividend, full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Preferred Shares of such series for all past dividend periods and the then current dividend period or (ii) if such series of Preferred Shares does not have a cumulative dividend, full dividends for the then current dividend period have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Preferred Shares of such series. When dividends are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Preferred Shares of any series and the shares of any other series of Preferred Shares ranking on a parity as to dividends with the Preferred Shares of such series, all dividends declared upon Preferred Shares of such series and any other series of Preferred Shares ranking on a parity as to dividends with such Preferred Shares shall be declared pro rata so that the amount of dividends declared per share on the Preferred Shares of such series and such other series of Preferred Shares shall in all cases bear to each other the same ratio that accrued dividends per share on the Preferred Shares of such series (which shall not include any cumulation in respect of unpaid dividends for prior dividend periods if such series of Preferred Shares does not have a cumulative dividend) and such other series of Preferred Shares bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on Preferred Shares of such series which may be in arrears. Except as provided in the immediately preceding paragraph, unless (i) if such series of Preferred Shares has a cumulative dividend, full cumulative dividends on the Preferred Shares of such series have been or contemporaneously are declared and paid or declared and a sum sufficient of the payment thereof set apart for payment for all past dividend periods and the then current dividend period and (ii) if such series of Preferred Shares does not have a cumulative dividend, full dividends on the Preferred Shares of such series have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for the then current dividend period, no dividends (other than in Common Shares or other capital shares ranking junior to the Preferred Shares of such series as to dividends and upon liquidation) shall be declared or paid or set aside for payment or other distribution shall be declared or made upon the Common Shares or any other capital shares of PTR ranking junior to or on a parity with the Preferred Shares of such series as to dividends or upon liquidation, nor shall any Common Shares or any other capital shares of PTR ranking junior to or on a parity with the Preferred Shares of such series as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such shares) by PTR (except by conversion into or exchange for other capital shares of PTR ranking junior to the Preferred Shares of such series as to dividends and upon liquidation). Any dividend payment made on a series of Preferred Shares shall first be credited against the earliest accrued but unpaid dividend due with respect to shares of such series which remains payable. REDEMPTION If so provided in the applicable Prospectus Supplement, the Preferred Shares will be subject to mandatory redemption or redemption at the option of PTR, as a whole or in part, in each case upon the terms, at the times and at the redemption prices set forth in such Prospectus Supplement. 20 The Prospectus Supplement relating to a series of Preferred Shares that is subject to mandatory redemption will specify the number of such Preferred Shares that shall be redeemed by PTR in each year commencing after a date to be specified, at a redemption price per share to be specified, together with an amount equal to all accrued and unpaid dividends thereon (which shall not, if such series of Preferred Shares does not have a cumulative dividend, include any cumulation in respect of unpaid dividends for prior dividend periods) to the date of redemption. The redemption price may be payable in cash or other property, as specified in the applicable Prospectus Supplement. If the redemption price for Preferred Shares of any series is payable only from the net proceeds of the issuance of capital shares of PTR, the terms of such series of Preferred Shares may provide that, if no such capital shares shall have been issued or to the extent the net proceeds from any issuance are insufficient to pay in full the aggregate redemption price then due, such Preferred Shares shall automatically and mandatorily be converted into shares of the applicable capital shares of PTR pursuant to conversion provisions specified in the applicable Prospectus Supplement. Notwithstanding the foregoing, unless (i) if such series of Preferred Shares has a cumulative dividend, full cumulative dividends on all shares of any series of Preferred Shares shall have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past dividend periods and the then current dividend period and (ii) if such series of Preferred Shares does not have a cumulative dividend, full dividends on the Preferred Shares of any series have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for the then current dividend period, no shares of any series of Preferred Shares shall be redeemed unless all outstanding Preferred Shares of such series are simultaneously redeemed; provided, however, that the foregoing shall not prevent the purchase or acquisition of Preferred Shares of such series pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Preferred Shares of such series, and, unless (i) if such series of Preferred Shares has a cumulative dividend, full cumulative dividends on all outstanding shares of any series of Preferred Shares have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past dividend periods and the then current dividend period and (ii) if such series of Preferred Shares does not have a cumulative dividend, full dividends on the Preferred Shares of any series have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for the then current dividend period, PTR shall not purchase or otherwise acquire directly or indirectly any shares of Preferred Shares of such series (except by conversion into or exchange for capital shares of PTR ranking junior to the Preferred Shares of such series as to dividends and upon liquidation). If fewer than all of the outstanding Preferred Shares of any series are to be redeemed, the number of shares to be redeemed will be determined by PTR and such shares may be redeemed pro rata from the holders of record of such shares in proportion to the number of such shares held by such holders (with adjustments to avoid redemption of fractional shares) or by lot in a manner determined by PTR. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each holder of record of Preferred Shares of any series to be redeemed at the address shown on the share transfer books of PTR. Each notice shall state: (i) the redemption date; (ii) the number of shares and series of the Preferred Shares to be redeemed; (iii) the redemption price; (iv) the place or places where certificates for such Preferred Shares are to be surrendered for payment of the redemption price; (v) that dividends on the shares to be redeemed will cease to accrue on such redemption date; and (vi) the date upon which the holder's conversion rights, if any, as to such shares shall terminate. If fewer than all the Preferred Shares of any series are to be redeemed, the notice mailed to each such holder thereof shall also specify the number of Preferred Shares to be redeemed from each such holder. If notice of redemption of any Preferred Shares has been given and if the funds necessary for such redemption have been set aside by PTR in trust for the benefit of the holders of any Preferred Shares so called for redemption, then from and after the redemption date dividends will cease to accrue on such Preferred Shares, and all rights of the holders of such shares will terminate, except the right to receive the redemption price. 21 LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of PTR, then, before any distribution or payment shall be made to the holders of any Common Shares or any other class or series of capital shares of PTR ranking junior to the Preferred Shares in the distribution of assets upon any liquidation, dissolution or winding up of PTR, the holders of each series of Preferred Shares shall be entitled to receive out of assets of PTR legally available for distribution to shareholders liquidating distributions in the amount of the liquidation preference per share (set forth in the applicable Prospectus Supplement), plus an amount equal to all dividends accrued and unpaid thereon (which shall not include any cumulation in respect of unpaid dividends for prior dividend periods if such series of Preferred Shares does not have a cumulative dividend). After payment of the full amount of the liquidating distributions to which they are entitled, the holders of Preferred Shares will have no right or claim to any of the remaining assets of PTR. In the event that, upon any such voluntary or involuntary liquidation, dissolution or winding up, the available assets of PTR are insufficient to pay the amount of the liquidating distributions on all outstanding Preferred Shares and the corresponding amounts payable on all shares of other classes or series of capital shares of PTR ranking on a parity with the Preferred Shares in the distribution of assets, then the holders of the Preferred Shares and all other such classes or series of capital shares shall share ratably in any such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled. If liquidating distributions shall have been made in full to all holders of Preferred Shares, the remaining assets of PTR shall be distributed among the holders of any other classes or series of capital shares ranking junior to the Preferred Shares upon liquidation, dissolution or winding up, according to their respective rights and preferences and in each case according to their respective number of shares. For such purposes, the consolidation or merger of PTR with or into any other corporation, or the sale, lease or conveyance of all or substantially all of the property or business of PTR, shall not be deemed to constitute a liquidation, dissolution or winding up of PTR. VOTING RIGHTS Holders of the Preferred Shares will not have any voting rights, except as set forth below or as otherwise from time to time required by law or as indicated in the applicable Prospectus Supplement. The following is a summary of the voting rights applicable to the Series A Preferred Shares, which, unless provided otherwise in the applicable Prospectus Supplement, will apply to each series of Preferred Shares. If six quarterly dividends (whether or not consecutive) payable on the Series A Preferred Shares or any other Parity Shares are in arrears, whether or not earned or declared, the number of Trustees then constituting the Board of Trustees of PTR will be increased by two, and the holders of Series A Preferred Shares, voting together as a class with the holders of any other series of Parity Shares (any such other series, the "Voting Preferred Shares"), will have the right to elect two additional trustees to serve on PTR's Board of Trustees at any annual meeting of shareholders or a properly called special meeting of the holders of Series A Preferred Shares and such Voting Preferred Shares and at each subsequent annual meeting of shareholders until all such dividends and dividends for the current quarterly period on the Series A Preferred Shares and such other Voting Preferred Shares have been paid or declared and set aside for payment. Such voting rights will terminate when all such accrued and unpaid dividends have been declared and paid or set aside for payment. The term of office of all trustees so elected will terminate with the termination of such voting rights. For so long as Security Capital Realty and certain of its affiliates beneficially own in excess of 10% of the outstanding Common Shares, in any such vote by holders of Series A Preferred Shares, Security Capital Realty and certain of its affiliates shall vote their Series A Preferred Shares, if any, in the same respective percentages as the Series A Preferred Shares and Voting Preferred Shares that are not held by such persons. The approval of two-thirds of the outstanding Series A Preferred Shares and all other series of Voting Preferred Shares similarly affected, voting as a single class, is required in order to (i) amend PTR's Declaration of Trust to affect materially and adversely the rights, preferences or voting power of the holders 22 of the Series A Preferred Shares or the Voting Preferred Shares, (ii) enter into a share exchange that affects the Series A Preferred Shares, consolidate with or merge into another entity, or permit another entity to consolidate with or merge into PTR, unless in each such case each Series A Preferred Share remains outstanding without a material and adverse change to its terms and rights or is converted into or exchanged for convertible preferred stock of the surviving entity having preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms or conditions of redemption thereof identical to that of a Series A Preferred Share (except for changes that do not materially and adversely affect the holders of the Series A Preferred Shares) or (iii) authorize, reclassify, create, or increase the authorized amount of any class of stock having rights senior to the Series A Preferred Shares with respect to the payment of dividends or amounts upon liquidation, dissolution or winding up. However, PTR may create additional classes of Parity Shares and Junior Shares, increase the authorized number of Parity Shares and Junior Shares and issue additional series of Parity Shares and Junior Shares without the consent of any holder of Series A Preferred Shares. Except as provided above and as required by law, the holders of Series A Preferred Shares are not entitled to vote on any merger or consolidation involving PTR or a sale of all or substantially all of the assets of PTR. CONVERSION RIGHTS The terms and conditions, if any, upon which shares of any series of Preferred Shares are convertible into Common Shares will be set forth in the applicable Prospectus Supplement relating thereto. Such terms will include the number of Common Shares into which the Preferred Shares are convertible, the conversion price (or manner of calculation thereof), the conversion period, provisions as to whether conversion will be at the option of the holders of the Preferred Shares or PTR, the events requiring an adjustment of the conversion price and provisions affecting conversion in the event of the redemption of such Preferred Shares. RESTRICTIONS ON OWNERSHIP As discussed above under "Description of Common Shares--Restriction on Size of Holdings," for PTR to qualify as a REIT under the Code, not more than 50% in value of its outstanding capital shares may be owned by five or fewer individuals at any time during the last half of a taxable year, and the capital stock must be beneficially owned by 100 or more persons during at least 335 days of PTR's taxable year of 12 months. Therefore, the Articles Supplementary for each series of Preferred Shares will contain certain provisions restricting the ownership and transfer of the Preferred Shares (the "Preferred Shares Ownership Limit Provision"). Except as otherwise described in the applicable Prospectus Supplement relating thereto, the provisions of each Articles Supplementary relating to the Preferred Shares Ownership Limit will provide (as in the case of the Series A Preferred Shares) as summarized below. The Preferred Shares Ownership Limit Provision will provide that, subject to certain exceptions contained in such Articles Supplementary, no person, or persons acting as a group, may beneficially own more than 25% of any series of Preferred Shares outstanding at any time, except as a result of PTR's redemption of Preferred Shares. Shares acquired in excess of the Preferred Shares Ownership Limit Provision must be redeemed by PTR at a price equal to the average daily per share closing sale price during the 30-day period ending on the business day prior to the redemption date. Such redemption is not applicable if a person's ownership exceeds the limitations due solely to PTR's redemption of Preferred Shares; provided that thereafter any additional Preferred Shares acquired by such person shall be Excess Shares. See "Description of Common Shares--Restriction on Size of Holdings." From and after the date of notice of such redemption, the holder of the Preferred Shares thus redeemed shall cease to be entitled to any distribution (other than distributions declared prior to the date of notice of redemption), voting rights and other benefits with respect to such shares except the right to receive payment of the redemption price determined as described above. The Preferred Shares Ownership Limit Provision may not be waived with respect to certain affiliates of PTR. 23 All certificates representing shares of Preferred Shares will bear a legend referring to the restrictions described above. FEDERAL INCOME TAX CONSIDERATIONS This section is a summary of certain federal income tax matters of general application pertaining to REITs under the Code. The discussion is based on current law and does not purport to deal with all aspects of federal income taxation that may be relevant to investors subject to special treatment under federal income tax laws, such as investors subject to the Employee Retirement Income Security Act of 1974, as amended, other tax exempt investors, dealers in securities or foreign persons. The provisions of the Code pertaining to REITs are highly technical and complex and sometimes involve mixed questions of fact and law. In addition, this section does not discuss foreign, state or local taxation. PTR has not requested and will not request a ruling from the Internal Revenue Service (the "Service") with respect to any of the federal income tax issues discussed below. Prospective investors should consult, and must depend on, their own tax advisors regarding the federal, state, local, foreign and other tax consequences of holding and disposing of Common Shares, Preferred Shares or Debt Securities. TAXATION OF PTR PTR believes that it has been organized and operated, and it intends to continue to operate, in a manner qualifying it as a REIT under Sections 856 through 860 of the Code, but no assurance can be given that it will at all times so qualify. PTR's ability to qualify as a REIT under the requirements of the Code and the regulations promulgated thereunder is dependent upon actual operating results. To qualify as a REIT under the Code for a taxable year, PTR must meet certain organizational and operational requirements, which generally require it to be a passive investor in operating real estate and to avoid excessive concentration of ownership of its capital stock. First, its principal activities must be real estate related. Generally, at least 75% of the value of the total assets of PTR at the end of each calendar quarter must consist of real estate assets, cash or governmental securities and for each taxable year at least 75% of its gross income must be from real estate sources, including rents from real property and interest on mortgage obligations. PTR may not own more than 10% of the outstanding voting securities of any corporation; shares of qualified REITs, qualified temporary investments and shares of certain wholly owned subsidiaries are exempt from this prohibition. PTR holds assets through certain wholly owned subsidiary corporations that it believes qualify for the exemption. Additionally, gross income from the sale or other disposition of stock and securities held for less than one year and of real property held for less than four years must constitute less than 30% of the gross income for each taxable year of a REIT. For each taxable year, at least 75% of a REIT's gross income must be derived from specified real estate sources and 95% must be derived from such real estate sources plus certain other permitted sources. Real estate income for purposes of these requirements includes gains from the sale of real property not held primarily for sale to customers in the ordinary course of business, dividends on REIT shares, interest on loans secured by mortgages on real property, certain rents from real property and income from foreclosure property. For rents to qualify, they may not be based on the income or profits of any person, except that they may be based on a percentage or percentages of gross income or receipts, and, subject to certain limited exceptions, the REIT may not manage the property or furnish services to tenants except through an independent contractor which is paid an arm's-length fee and from which the REIT derives no income. PTR must satisfy certain ownership restrictions that limit (i) concentration of ownership of capital stock by a few individuals and (ii) ownership by PTR of its tenants. The outstanding capital stock of PTR must be held by at least 100 shareholders. No more than 50% in value of the outstanding capital stock, including in some circumstances capital stock into which outstanding securities might be converted, may be owned actually or constructively by five or fewer individuals or certain other entities at any time during the last half of PTR's taxable year. Accordingly, PTR's Restated Declaration of Trust restricts the transfer of Common 24 Shares, Preferred Shares and any other outstanding securities convertible into Common Shares when necessary to maintain PTR's qualification as a REIT under the Code. However, because the Code imposes broad attribution rules in determining constructive ownership, no assurances can be given that the restrictions of PTR's Restated Declaration of Trust will be effective in maintaining PTR's REIT status. See "Description of Common Shares--Restriction on Size of Holdings" and "Description of Preferred Shares--Restrictions on Ownership." Because Security Capital Realty is a corporation, its ownership is attributed proportionally to all of its shareholders. So long as PTR qualifies for taxation as a REIT and distributes at least 95% of its real estate investment trust taxable income (computed without regard to net capital gains or the dividends-paid deduction) for its taxable year to its shareholders annually, PTR itself will not be subject to federal income tax on that portion of such income distributed to shareholders. PTR will be taxed at regular corporate rates on all income not distributed to shareholders. PTR's policy is to distribute at least 95% of its taxable income. REITs may also incur taxes for certain other activities or to the extent distributions do not satisfy certain other requirements. Failure of PTR to qualify during any taxable year as a REIT could, unless certain relief provisions were available, have a material adverse effect upon its shareholders. If disqualified for taxation as a REIT for a taxable year, PTR would also be disqualified for taxation as a REIT for the next four taxable years, unless the failure was due to reasonable cause and not willful neglect. PTR would be subject to federal income tax at corporate rates on all of its taxable income and would not be able to deduct the dividends paid, which could result in a discontinuation of or substantial reduction in dividends to shareholders. Dividends would also be subject to the regular tax rules applicable to dividends received by shareholders of corporations. Should the failure to qualify be determined to have occurred retroactively in an earlier tax year of PTR, the imposition of a substantial federal income tax liability on PTR attributable to such nonqualifying tax years may adversely affect PTR's ability to pay dividends. In the event that PTR fails to meet certain income tests of the tax law, it may, generally, nonetheless retain its qualification as a REIT if it pays a 100% tax on the amount by which it failed to meet the income tests so long as its failure was due to reasonable cause and not willful neglect. Any such taxes would adversely affect PTR's ability to pay dividends. TAXATION OF THE SHAREHOLDERS OF PTR As long as PTR qualifies as a REIT, distributions made to its shareholders out of current or accumulated earnings and profits of PTR (which are not designated as capital gain dividends) will generally be taxed to shareholders as ordinary income either in the year of payment or, with respect to distributions declared in the last quarter of any year and paid by January 31 of the following year, in the year of declaration and will not be eligible for the dividends received deduction for corporations. PTR's earnings and profits will first be allocated to any outstanding Preferred Shares. A distribution of net capital gains by PTR will generally be treated as a long term capital gain to shareholders to the extent properly designated by PTR as a capital gain dividend and regardless of the length of time a shareholder has held his shares of capital stock. Under Section 291 of the Code, however, corporate shareholders may be required to treat up to 20% of any such capital gain as ordinary income. Section 291 of the Code provides, in general, that if a corporation sells or disposes of depreciable real property in a taxable transaction, it must, to the extent of gain, include as ordinary income up to 20% of the depreciation previously taken on such property. Corporate shareholders of a REIT are required to treat the portion of a capital gain dividend attributable to the gain from the REIT's sale or exchange of depreciable real property as subject to the 20% ordinary income rule. Capital gains distributions are not eligible for the dividends-received deduction for corporations. A dividend in excess of current or accumulated earnings and profits will constitute a nontaxable return of capital, to the extent of the shareholder's basis in his shares of capital stock, and is applied to reduce the shareholder's basis in the shares of capital stock. To the extent such a dividend is greater than such basis, it will be treated as capital gain to those shareholders holding their shares of capital stock as capital assets. PTR will notify shareholders as to the portions of each dividend which, in its judgment, constitute ordinary income, capital gain dividends or return of capital. Should PTR incur ordinary or capital losses, shareholders will not be entitled to include such losses in their own income tax returns. 25 BACKUP WITHHOLDING PTR will report to its U.S. shareholders and the Service the amount of distributions paid during each calendar year, and the amount of tax withheld, if any. Under the backup withholding rules, a shareholder may be subject to backup withholding at applicable rates with respect to distributions paid unless such shareholder (a) is a corporation or falls within certain other exempt categories and, when required, demonstrates this fact, or (b) provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding and otherwise complies with applicable requirements of the backup withholding rules. A shareholder that does not provide PTR with his correct taxpayer identification number may also be subject to penalties imposed by the Service. Any amount paid as backup withholding will be creditable against the shareholder's income tax liability. In addition, PTR may be required to withhold a portion of capital gain distributions to any shareholders who fail to certify their nonforeign status to PTR. PLAN OF DISTRIBUTION PTR may sell the Offered Securities to one or more underwriters for public offering and sale by them or may sell the Offered Securities to investors directly or through agents, which agents may be affiliated with PTR. Direct sales to investors may be accomplished through subscription offerings or concurrent rights offerings to PTR shareholders and direct placements to third parties. Any such underwriter or agent involved in the offer and sale of the Offered Securities will be named in the applicable Prospectus Supplement. Underwriters may offer and sell the Offered Securities at a fixed price or prices, which may be changed, at prices related to the prevailing market prices at the time of sale or at negotiated prices. PTR also may, from time to time, authorize underwriters acting as PTR's agents to offer and sell the Offered Securities upon the terms and conditions as set forth in the applicable Prospectus Supplement. In connection with the sale of Offered Securities, underwriters may be deemed to have received compensation from PTR in the form of underwriting discounts or commissions and may also receive commissions from purchasers of Offered Securities for whom they may act as agent. Underwriters may sell Offered Securities to or through dealers, and such dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters and/or commissions from the purchasers for whom they may act as agent. Any underwriting compensation paid by PTR to underwriters or agents in connection with the offering of Offered Securities, and any discounts, concessions or commissions allowed by underwriters to participating dealers, will be set forth in the applicable Prospectus Supplement. Underwriters, dealers and agents participating in the distribution of the Offered Securities may be deemed to be underwriters, and any discounts and commissions received by them and any profit realized by them on resale of the Offered Securities may be deemed to be underwriting discounts and commissions, under the Securities Act. Underwriters, dealers and agents may be entitled, under agreements entered into with PTR, to indemnification against and contribution toward certain civil liabilities, including liabilities under the Securities Act. Any such indemnification agreements will be described in the applicable Prospectus Supplement. If so indicated in the applicable Prospectus Supplement, PTR will authorize dealers acting as PTR's agents to solicit offers by certain institutions to purchase Offered Securities from PTR at the public offering price set forth in such Prospectus Supplement pursuant to Delayed Delivery Contracts ("Contracts") providing for payment and delivery on the date or dates stated in such Prospectus Supplement. Each Contract will be for an amount not less than, and the aggregate principal amount of Offered Securities sold pursuant to Contracts shall be not less nor more than, the respective amounts stated in the applicable Prospectus Supplement. Institutions with whom Contracts, when authorized, may be made include commercial and savings banks, insurance companies, pension funds, investment companies, educational and charitable institutions, and other institutions but will in all cases be subject to the approval of PTR. Contracts will not be subject to any conditions except (i) the purchase by an institution of the Offered Securities covered by its Contracts shall not at the time of delivery be prohibited under the laws of any jurisdiction in the United 26 States to which such institution is subject, and (ii) if the Offered Securities are being sold to underwriters, PTR shall have sold to such underwriters the total principal amount of the Offered Securities less the principal amount thereof covered by Contracts. Certain of the underwriters and their affiliates may be customers of, engage in transactions with and perform services for PTR and its subsidiaries in the ordinary course of business. EXPERTS The financial statements of PTR as of December 31, 1993 and 1992 and for each of the years in the three-year period ended December 31, 1993; the combined statements of revenues and certain expenses for certain multifamily properties acquired, or to be acquired, by PTR; and the statement of revenues and certain expenses of Brompton Court Apartments, incorporated by reference herein, have been incorporated by reference herein in reliance upon the reports of KPMG Peat Marwick LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. With respect to the unaudited interim financial information incorporated by reference herein, the independent certified public accountants have reported that they applied limited procedures in accordance with professional standards for a review of such information. However, their separate reports included in PTR's quarterly reports on Form 10-Q for the quarters ended March 31, June 30, and September 30, 1994, incorporated by reference herein, state that they did not audit and they do not express an opinion on that interim financial information. Accordingly, the degree of reliance on their reports on such information should be restricted in light of the limited nature of the review procedures applied. The accountants are not subject to the liability provisions of section 11 of the Securities Act for their reports on the unaudited interim financial information because such reports are not a "report" or a "part" of the registration statement prepared or certified by the accountants within the meaning of sections 7 and 11 of the Securities Act. KPMG Peat Marwick LLP has not examined, compiled, or otherwise applied agreed-upon procedures to the prospective financial information presented or incorporated herein and, accordingly, does not express an opinion or any other form of assurance on it. LEGAL MATTERS The validity of the Offered Securities will be passed upon for PTR by Mayer, Brown & Platt, Chicago, Illinois. 27 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE- SENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMA- TION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SE- CURITIES TO WHICH THEY RELATE OR ANY OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SO- LICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THE PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AF- FAIRS OF PTR SINCE THE DATE HEREOF OR THEREOF OR THAT THE INFORMATION CON- TAINED OR INCORPORATED BY REFERENCE HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION. ----------- TABLE OF CONTENTS PROSPECTUS SUPPLEMENT
PAGE ---- Security Capital Pacific Trust............................................ S-3 Business.................................................................. S-4 Use of Proceeds........................................................... S-6 Capitalization............................................................ S-7 Selected Financial Data................................................... S-8 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... S-9 Description of Series B Preferred Shares.................................. S-14 Certain Federal Income Tax Considerations................................. S-19 Underwriting.............................................................. S-20 Validity of Shares........................................................ S-21 PROSPECTUS Available Information..................................................... 2 Incorporation by Reference................................................ 2 Property Trust of America................................................. 2 Use of Proceeds........................................................... 3 Description of Debt Securities............................................ 3 Description of Common Shares.............................................. 16 Description of Preferred Shares........................................... 18 Federal Income Tax Considerations......................................... 24 Plan of Distribution...................................................... 26 Experts................................................................... 27 Legal Matters............................................................. 27
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 4,000,000 SHARES LOGO A REAL ESTATE INVESTMENT TRUST SERIES B CUMULATIVE REDEEMABLE PREFERRED SHARES ----------- PROSPECTUS SUPPLEMENT ----------- GOLDMAN, SACHS & CO. DEAN WITTER REYNOLDS INC. A.G. EDWARDS & SONS, INC. PAINEWEBBER INCORPORATED PRUDENTIAL SECURITIES INCORPORATED REPRESENTATIVES OF THE UNDERWRITERS - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----