Prospectus Supplement Filed Pursuant to Rule 424(b)(5)
(to Prospectus dated July 10, 2001) Registration No. 033-61115
2,000,000 Shares
[GRAPHIC OMITTED]
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
Shares of Beneficial Interest
We are offering 2,000,000 of our shares of beneficial interest and the
associated rights which we refer to in this prospectus supplement as the
"shares." The shares will be listed on the New York Stock Exchange under the
symbol "PEI." The last reported sale price of the shares on July 10, 2001 was
$24.80 per share.
Investing in our shares involves risks. See "Risk Factors" beginning on
page 1 in the accompanying prospectus.
Per Share Total
--------- -----------
Public offering price ............................... $23.00 $46,000,000
Underwriting discount ............................... $ 0.75 $ 1,500,000
Proceeds to us (before expenses) .................... $22.25 $44,500,000
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus supplement or the accompanying
prospectus. Any representation to the contrary is a criminal offense.
Lehman Brothers may also purchase up to an additional 300,000 shares from us
at the public offering price, less the underwriting discount, within 30 days
from the date of this prospectus supplement to cover over-allotments.
Lehman Brothers expects to deliver the shares against payment in New York,
New York on July 16, 2001.
LEHMAN BROTHERS
July 10, 2001
TABLE OF CONTENTS
Prospectus Supplement
Forward Looking Statements ............................................... S-1
Pennsylvania Real Estate Investment Trust ................................ S-1
Recent Developments ...................................................... S-1
Use of Proceeds .......................................................... S-3
Capitalization ........................................................... S-4
Price Range of Shares and Distributions .................................. S-4
Underwriting ............................................................. S-5
Legal Matters ............................................................ S-6
Experts .................................................................. S-6
Prospectus
Risk Factors ............................................................. 1
Forward Looking Statements ............................................... 7
Pennsylvania Real Estate Investment Trust ................................ 7
Use of Proceeds .......................................................... 7
Ratio of Earnings to Fixed Charges ....................................... 8
Description of Debt Securities ........................................... 8
Description of Preferred Shares of Beneficial Interest ................... 18
Description of Shares of Beneficial Interest ............................. 23
Summary of the Trust Agreement ........................................... 27
Description of Share Warrants ............................................ 28
Description of Shareholder Rights ........................................ 29
Summary of the Operating Partnership Agreement ........................... 29
Federal Income Tax Considerations ........................................ 31
Plan of Distribution ..................................................... 37
Legal Matters ............................................................ 38
Experts .................................................................. 38
Where You Can Find More Information ...................................... 38
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not authorized anyone else to provide you with different information. You
should not rely on any other representations. Our affairs may change after
this prospectus supplement is distributed. You should not assume that the
information contained in this prospectus supplement or the accompanying
prospectus is accurate as of any date other than the date on the front cover
of the document. The shares are not being offered in any jurisdiction where
the offer is not permitted.
No dealer, sales person or other person is authorized to give any
information or to represent anything not contained in this prospectus
supplement or the accompanying prospectus. You must not rely on any
unauthorized information or representations. This prospectus supplement and
the accompanying prospectus are an offer to sell only the securities
specifically offered by it, but only under circumstances and in jurisdictions
where it is lawful to do so.
i
FORWARD LOOKING STATEMENTS
This prospectus supplement, the accompanying prospectus and the documents
incorporated by reference contain "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities and Exchange Act of 1934 and the Private Securities Litigation
Reform Act of 1995. Forward-looking statements relate to expectations,
beliefs, projections, future plans and strategies, anticipated events or
trends and similar expressions concerning matters that are not historical
facts. These forward-looking statements reflect our management's current views
about future events and are subject to risks, uncertainties, assumptions and
changes in circumstances that may cause our actual results to differ
significantly from those expressed in any forward-looking statement. Certain
factors that could cause actual results to differ materially from expected
results include uncertainties affecting real estate businesses generally, the
effects of complex regulations relating to our status as a REIT, environmental
risks and others, many of which are outside of our control. For more
information regarding the risks and uncertainties we face, please see "Risk
Factors" beginning on page 1 in the accompanying prospectus. We do not intend
and disclaim any duty or obligation to update or revise any industry
information or forward-looking statements set forth in this prospectus
supplement, the accompanying prospectus or the documents incorporated by
reference to reflect new information, future events or otherwise.
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
Pennsylvania Real Estate Investment Trust, which is organized as a business
trust under Pennsylvania law, is a fully integrated, self-administered and
self-managed real estate investment trust, founded in 1960, that acquires,
develops, redevelops and operates retail and multifamily properties. We
conduct substantially all of our operations through PREIT Associates, L.P., a
Delaware limited partnership.
We own interests in 22 shopping centers containing an aggregate of
approximately 10.6 million square feet, 19 multifamily properties containing
7,242 units and four industrial properties with an aggregate of approximately
300,000 square feet. We also own interests in six shopping centers currently
under development, which we currently expect to contain an aggregate of
approximately 1.6 million square feet upon completion. We cannot assure you
that any of the six development properties will be completed successfully.
We provide management, leasing and development services to 18 retail
properties containing approximately 7.5 million square feet, seven office
buildings containing approximately 1.9 million square feet and two multifamily
properties with approximately 100,000 square feet for affiliated and third-
party owners.
Our principal executive offices are located at The Bellevue, 200 S. Broad
Street, Philadelphia, Pennsylvania 19102, telephone: (215) 875-0700.
RECENT DEVELOPMENTS
In January 2001, we created PREIT Services, LLC to develop, manage and lease
properties wholly-owned by us. We consolidate the results of PREIT Services
and therefore do not incur any management, development or leasing fees for any
of our wholly-owned properties that PREIT Services manages or leases.
On January 1, 2001, we acquired the remaining 5% minority interest in PREIT-
RUBIN, Inc. that we did not own, representing all of the voting common stock
of PREIT-RUBIN, in exchange for 26,842 of our shares.
Effective January 1, 2001, we consolidate the results of PREIT-RUBIN which
is wholly-owned by PREIT Associates. We also converted PREIT-RUBIN to a
taxable REIT subsidiary as defined by federal tax laws, which enables us to
offer an expanded menu of services to tenants without jeopardizing our
continued qualification as a real estate investment trust. Prior to January 1,
2001, we accounted for PREIT-RUBIN's results using the equity method of
accounting. PREIT-RUBIN is responsible for various activities, including
management, leasing and real estate development for certain properties in
which we are a joint venture partner, for properties owned by third parties
and, prior to January 1, 2001, for certain of our properties. PREIT-RUBIN also
provides management, leasing and development services for partnerships and
other ventures in which certain of our officers and officers of PREIT-RUBIN
have either direct or indirect ownership interests.
S-1
The following is a diagram of our structure as of January 1, 2001, which
reflects the acquisition by PREIT Associates of the minority interest in
PREIT-RUBIN:
----------------------------
| Pennsylvania Real Estate |
| Investment Trust |
----------------------------
| --------------
| 87.9% | Minority |
| -----------| Limited |
| | 12.1% | Partners |
| | --------------
-----------------------------------
---------| PREIT ASSOCIATES, L.P. |----------
| ----------------------------------- |
| | |
| | |
| | |
| | |
-------------- ----------------- ---------------
| Preit | | | | PREIT |
| Services, | | 52 Properties | | RUBIN, INC. |
| LLC | | | | Partners |
-------------- ----------------- ---------------
In January 2001, we refinanced a mortgage secured by our Eagles Nest
multifamily property located in Coral Springs, FL. The new mortgage amount is
$15 million, has a 10 year term and bears interest at the rate of 7.52% per
annum.
In March 2001, we sold our interest in the Ingleside Center, located in
Thorndale, PA, for $5.1 million, of which $0.9 million was used to pay off the
mortgage on the property. Our proportionate share of the gain on the sale of
the property was approximately $1.8 million.
In May 2001, we sold a parcel of land at Paxton Towne Center in Harrisburg,
PA for $6.3 million. Proceeds from the sale were used to pay down debt. We
expect to record a nominal gain on the sale.
In May 2001, the mortgage on Countrywood Apartments, located in Tampa, FL,
in which we own a 50% interest, was refinanced. Our $4.3 million share of the
net proceeds was used to pay down debt.
In June 2001, we entered into agreements to take over the management and
leasing operations at two retail properties and one apartment complex. The
management and leasing fees under these arrangements will vary based upon the
performance of each property; however, we currently expect these fees to
aggregate approximately $0.2 million for the remainder of 2001, and
approximately $0.7 million in 2002. Starting on July 15, 2001, we will manage,
under a three-year agreement, the 837,000 square-foot Harrisburg East Mall,
located in Harrisburg, PA and owned by The Prudential Insurance Company of
America. Starting on January 1, 2002, we will also manage, under a five-year
agreement, the 250,000 square foot Home Depot Plaza, located in Clifton
Heights, PA. The Home Depot Plaza is owned by a partnership between Mainard,
Inc. and another entity. Two of our trustees are also the principals of
Mainard, Inc. In addition, beginning on January 1, 2002, we will manage and
lease, pursuant to a five-year agreement, a 233-unit apartment complex located
in West Chester, PA, which is owned by a partnership between another entity
and us.
In June 2001, we completed a transaction with the Target Corporation for the
sale of eight acres of land at its Florence Commons Shopping Center in
Florence, SC, which yielded net proceeds of $2.5 million. We are currently
working with Target to support the opening of a Target Store in the second
half of 2002, anchoring the redevelopment and expansion of this center.
S-2
We are being impacted by the recent bankruptcies of retail tenants under
multi-year lease agreements, including tenants expected to occupy space yet to
be constructed, such as Bradlees, Inc. (scheduled to begin occupancy on
February 1, 2001 at Northeast Tower Center in Philadelphia, PA) and Lechter's,
Inc. (scheduled to begin occupancy on July 1, 2001 at Creekview Shopping
Center in Warrington, PA), and existing tenants such as Homeplace, Inc.
(ceased paying rent on July 1, 2001 at The Court at Oxford Valley in
Langhorne, PA). In addition, confronting the recent challenges of the retail
leasing environment, the Company entered into an agreement with JC Penney
Company, Inc. to induce them to keep their store open at Prince Georges Plaza
in Hyattsville, MD beyond the scheduled expiration of their lease in July
2001.
The amount of rent and expense reimbursements that we would have received
under the four lease agreements as well as the cost of the inducement that we
agreed to pay totals approximately $2.2 million in 2001. Although we are
actively seeking to re-lease three of these properties as well as pursuing
bankruptcy claims, we have not yet secured replacement tenants at any of these
properties. For the yet to be constructed spaces, until replacement tenants
are secured, we will capitalize certain costs, including interest, and will
not incur certain expenses and required capital expenditures in connection
with their completion. Because of likely additional development requirements
at Creekview Shopping Center and Northeast Tower Center, we currently do not
anticipate that, upon re-leasing the available space, replacement tenants will
begin occupancy before the beginning of 2002.
USE OF PROCEEDS
After deducting the underwriting discount and commissions and other expenses
associated with this offering, we estimate that the net proceeds from the sale
of the shares will be approximately $44.2 million. We expect to use these net
proceeds to fund our existing development projects and other land and property
acquisitions, and to repay up to approximately $28 million of construction
loans outstanding, which bear interest at a variable rate based on LIBOR,
currently fixed at 5.77%, and mature on September 30, 2001. We expect to use
the balance of the net proceeds for other working capital purposes. We may
also use some of the net proceeds to repay outstanding indebtedness under our
$250 million credit facility, which matures in December 28, 2003, subject to
extension in accordance with the terms of the credit agreement. We entered
into this credit facility to provide financing of acquisitions and for
operations and general business purposes. As of June 30, 2001, our credit
facility had an aggregate of $103 million outstanding, bearing interest at a
weighted average rate of 7.8% per year.
S-3
CAPITALIZATION
Our capitalization is set forth as of March 31, 2001 in the following table
and is shown as adjusted to give effect to the issuance of 2,000,000 shares
which we are selling in this offering and the application of the net proceeds
from that sale. Unless we specifically state otherwise, the information in
this prospectus supplement does not take into account the issuance of up to
300,000 shares which Lehman Brothers has the option to purchase solely to
cover over-allotments.
March 31, 2001
------------------------
Historical As Adjusted
---------- -----------
(in thousands)
Debt:
Mortgage Loans Payable........................... $261,368 $261,368
Credit Facility.................................. 100,500 84,469
Construction Loans Payable....................... 28,119 -
-------- --------
Total debt.................................... 389,987 345,837
Minority Interest .................................. 41,133 41,133
Shareholders' equity:
Shares of Beneficial Interest ($1 Par)........... 13,688 15,688
Additional Paid in Capital....................... 152,211 194,361
Restricted Stock................................. (1,893) (1,893)
Accumulated Other Comprehensive Loss............. (2,316) (2,316)
Distributions in Excess of Net Income............ (20,812) (20,812)
-------- --------
Total shareholders' equity.................... 140,878 185,028
-------- --------
Total capitalization.......................... $571,998 $571,998
======== ========
PRICE RANGE OF SHARES AND DISTRIBUTIONS
Our shares began trading on the New York Stock Exchange on November 14, 1997
(ticker symbol: PEI). Before then, our shares were traded on the American
Stock Exchange. The following table presents the high and low sales prices for
our shares, as reported by the New York Stock Exchange, and cash distributions
paid for the periods indicated:
Distributions
1999 High Low Paid
---- ------ ------ -------------
Quarter ended March 31, 1999 $20.25 $18.56 $0.47
Quarter ended June 30, 1999 $21.69 $18.56 0.47
Quarter ended September 30, 1999 $21.00 $18.56 0.47
Quarter ended December 31, 1999 $18.88 $14.00 0.47
-----
$1.88
=====
Distributions
2000 High Low Paid
---- ------ ------ -------------
Quarter ended March 31, 2000 $17.25 $14.63 $0.47
Quarter ended June 30, 2000 $18.50 $16.00 0.47
Quarter ended September 30, 2000 $18.06 $16.88 0.47
Quarter ended December 31, 2000 $19.75 $16.81 0.51
-----
$1.92
=====
S-4
Distributions
2001 High Low Paid
---- ------ ------ -------------
Quarter ended March 31, 2001 $22.36 $18.94 $0.51
Quarter ended June 30, 2001 $24.70 $20.50 $0.51
Quarter ended September 30, 2001 (through July 10, 2001) $25.05 $24.50 $ --
The last reported sale price of the shares on July 10, 2001 was $24.80 per
share. As of June 30, 2001, there were approximately 1,201 holders of record
of our shares.
We currently anticipate that we will continue to make cash distributions in
the future in March, June, September and December of each year; however, our
future payment of distributions will be at the discretion of our Board of
Trustees and will depend on numerous factors, including our cash flow,
financial condition, capital requirements, annual distribution requirements
under the real estate investment trust provisions of the Internal Revenue Code
and other factors that our Board of Trustees deem relevant.
UNDERWRITING
Pennsylvania Real Estate Investment Trust has agreed to sell to Lehman
Brothers Inc., the underwriter, all 2,000,000 of our shares.
The underwriting agreement provides that the underwriter's obligation to
purchase shares depends on the satisfaction of the conditions contained in the
underwriting agreement. The conditions contained in the underwriting agreement
include the requirement that the representations and warranties made by us to
the underwriter are true, that there is no material change in the financial
markets and that we deliver to the underwriter customary closing documents.
The following table shows the per share and total underwriting discount and
commissions that we are required to pay to the underwriter:
Paid By Us
----------
Per share $ 0.75
Total (before expenses) $1,500,000
The underwriter has advised us that it proposes to offer the shares directly
to the public at the public offering price shown on the cover page of this
prospectus supplement, and to dealers, who may include the underwriter, at the
public offering price less a selling concession not in excess of $0.75 per
share. After the offering, the underwriter may change the offering price and
other selling terms.
We have agreed that, for a period of 90 days after the date of this
prospectus supplement, we will not, without the prior written consent of
Lehman Brothers Inc., offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, any additional shares or securities
convertible into or exchangeable or exercisable for any shares. Lehman
Brothers Inc. has allowed certain exceptions to these restrictions.
Our executive officers have agreed that for a period of 90 days from the
date of this prospectus supplement they will not, without, in each case, the
prior written consent of Lehman Brothers Inc.:
o offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, any shares or securities convertible into or exchangeable or
exercisable for any shares;
o enter into a transaction that would have the same effect; or
o enter into any swap or other derivatives transaction that transfers, in
whole or in part, any of the economic consequences of ownership of shares,
whether any such aforementioned transaction is to be settled by delivery
of those shares or other securities, in cash or otherwise.
S-5
The underwriter may engage in over-allotment covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934. These financial terms have the following meanings:
o Over-allotment involves sales in excess of the offering size, which
creates a short position for the underwriter.
o Covering transactions involve purchases of our shares in the open market
after the distribution has been completed in order to cover short
positions.
o Penalty bids permit the underwriter to reclaim a selling concession from a
broker/dealer when our shares originally sold by such broker/dealer are
purchased in a stabilizing transaction or a covering transaction to cover
short positions.
The covering transactions and penalty bids may cause the price of our shares
to be higher than it would otherwise be in the absence of these transactions.
These transactions may be effected on the NYSE or otherwise and, if commenced,
may be discontinued at any time.
Lehman Brothers Inc. or its affiliates have engaged, are engaging in and may
in the future engage in providing banking, investment banking and/or financial
advisory services to us and our affiliates for which they receive customary
compensation and expense reimbursement.
We have agreed to indemnify the underwriter against certain liabilities
under the Securities Act of 1933.
We estimate the expenses associated with this offering to be approximately
$350,000.
Our shares are traded on the NYSE under the symbol "PEI."
LEGAL MATTERS
Drinker Biddle & Reath LLP, Philadelphia, Pennsylvania, will pass upon the
validity of the shares offered by this prospectus supplement and the
statements in the accompanying prospectus under "Federal Income Tax
Considerations." Sylvan M. Cohen, Chairman of our Board of Trustees and one of
our principal shareholders, is of counsel to Drinker Biddle & Reath LLP.
Certain legal matters will be passed upon for the underwriter by Hogan &
Hartson L.L.P., Washington, D.C.
EXPERTS
The financial statements and financial statement schedules incorporated by
reference in this prospectus supplement, to the extent and for the periods
indicated in their report, have been audited by Arthur Andersen LLP,
independent public accountants, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in giving said reports.
S-6
PROSPECTUS
$200,000,000
[GRAPHIC OMITTED]
Pennsylvania Real Estate Investment Trust
Debt Securities, Preferred Shares, Shares,
Share Warrants and Shareholder Rights
We may use this prospectus to offer and sell securities from time to time.
The types of securities we may sell include:
o unsecured debt securities;
o preferred shares of beneficial interest;
o shares of beneficial interest, $1.00 par value per share, and associated
shareholder rights;
o warrants exercisable for shares; and
o shareholder rights exercisable for shares.
The aggregate public offering price of the securities may be up to
$200,000,000, or its equivalent based on the exchange rate at the time of
sale, in amounts, at prices and on terms to be determined at the time of
offering. The debt securities, preferred shares, shares, share warrants and
shareholder rights may be offered, separately or together, in separate series,
in amounts, at prices and on terms to be described in one or more supplements
to this prospectus.
The specific terms of the securities offered will be provided in the
applicable prospectus supplement and will include, where applicable:
o for 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, any terms for
redemption at our option or repayment at the holder's option, any terms
for any sinking fund payments, any terms for conversion into preferred
shares or shares, covenants and any initial public offering price;
o for preferred shares, the specific title and stated value, any dividend,
liquidation, redemption, conversion, voting and other rights, and any
initial public offering price;
o for shares, any initial public offering price;
o for share warrants, the specific title and aggregate number, and the issue
and exercise price; and
o for shareholder rights, the date for determining the shareholders entitled
to the distribution, aggregate number of shares purchasable, exercise
price and date of expiration.
Consider carefully the Risk Factors beginning on page 1 before deciding to
invest in the securities.
These securities have not been approved or disapproved by the Securities and
Exchange Commission nor has the Securities and Exchange Commission passed upon
the accuracy or adequacy of this prospectus. Any representation to the
contrary is a criminal offense.
The date of this prospectus is July 10, 2001.
RISK FACTORS
Before you decide to invest in any of our securities, you should consider
carefully the risks described below, together with the information provided in
the other parts of this prospectus. Our ability to make expected distributions
to shareholders and debt service payments to lenders, as well as our prospects
as a whole, could be affected by any or all of these factors or others not
mentioned below.
Real Estate Industry
We face risks associated with local real estate conditions in areas where we
own properties
We may be affected adversely by general economic conditions and local real
estate conditions. For example, an oversupply of retail space or apartments in
a local area or a decline in the attractiveness of our properties to shoppers,
residents or tenants would have a negative effect on us.
Other factors that may affect general economic conditions or local real
estate conditions include:
o population trends
o income tax laws
o availability and costs of financing
o construction costs
o weather conditions that may increase or decrease energy costs
We may be unable to compete with our larger competitors and other
alternatives to our portfolio of properties
The real estate business is highly competitive. We compete for interests in
properties with other real estate investors and purchasers, many of whom have
greater financial resources, revenues and geographical diversity than we have.
Furthermore, we compete for tenants with other property owners. Our apartment
properties portfolio competes with providers of other forms of housing, such
as single family housing. Competition from single family housing increases
when lower interest rates make mortgages more affordable. All of our shopping
center and apartment properties are subject to significant local competition.
Further, our portfolio of retail properties faces competition from interest-
based operations that may be capable of providing lower-cost alternatives to
customers.
We are subject to significant regulation that inhibits our activities
Local zoning and use laws, environmental statutes and other governmental
requirements restrict our expansion, rehabilitation and reconstruction
activities. These regulations may prevent us from taking advantage of economic
opportunities.
Legislation such as the Americans with Disabilities Act may require us to
modify our properties. Future legislation may impose additional requirements.
We cannot predict what requirements may be enacted.
Our Properties
We face risks that may restrict our ability to develop properties
There are risks associated with our development activities in addition to
those generally associated with the ownership and operation of established
shopping centers and multifamily properties. These risks include:
o expenditure of money and time on projects that may never be completed
o higher than estimated construction costs
o late completion because of unexpected delays in zoning approvals, other
land use approvals, construction or other factors outside of our control
o failure to obtain zoning, occupancy or other governmental approvals
The risks described above are compounded by the fact that we must distribute
90% of our taxable income in order to maintain our qualification as a REIT. As
a result of these distribution requirements, new developments
1
are financed primarily through lines of credit or other forms of construction
financing. Because we incur debt to finance the developments, our loss could
exceed our equity investment in these developments.
Furthermore, we must acquire and develop suitable high traffic retail sites
at costs consistent with the overall economics of the project. Because retail
development is extremely competitive, we cannot assure you that we can
contract for appropriate sites within our geographic markets.
Some of our properties are old and in need of maintenance and/or renovation
Some of the properties in which we have an interest were constructed or last
renovated more than 10 years ago. Older properties may generate lower rentals or
may require significant capital expense for renovations. More than forty percent
of our apartment communities have not been renovated in the last ten years. Some
of our apartments lack amenities that are customarily included in modern
construction, such as dishwashers, central air conditioning and microwave ovens.
Some of our facilities are difficult to lease because they are too large, too
small or inappropriately proportioned for today's market. We generally consider
renovation of properties when renovation will enhance or maintain the long-term
value of our properties.
We may be unable to successfully integrate and effectively manage the
properties we acquire
Subject to the availability of financing and other considerations, we intend
to continue to acquire interests in properties that we believe will be
profitable or will enhance the value of our portfolios. Some of these
properties may have unknown characteristics or deficiencies. Therefore, it is
possible that some properties will be worth less or will generate less revenue
than we believe at the time of acquisition. It is also possible that the
operating performance of some of our properties will decline.
To manage our growth effectively, we must successfully integrate new
acquisitions. We cannot assure you that we will be able to successfully
integrate or effectively manage additional properties.
When we acquire properties, we also take on other risks, including:
o financing risks (some of which are described below)
o the risk that we will not meet anticipated occupancy or rent levels
o the risk that we will not obtain required zoning, occupancy and other
governmental approvals
o the risk that there will be changes in applicable zoning and land use laws
that affect adversely the operation or development of our properties
We may be unable to renew leases or relet space as leases expire
When a lease expires, a tenant may refuse to renew it. We may not be able to
relet the property on similar terms, if we are able to relet the property at
all. We have established an annual budget for renovation and reletting
expenses that we believe is reasonable in light of each property's operating
history and local market characteristics. This budget, however, may not be
sufficient to cover these expenses.
We have been and may continue to be affected negatively by tenant
bankruptcies and leasing delays
At any time, a tenant may experience a downturn in its business that may
weaken its financial condition. As a result, our tenants may delay lease
commencement, fail to make rental payments when due, or declare bankruptcy.
Any such event could result in the termination of that tenant's lease and
material losses to us.
We receive a substantial portion of our shopping center income as rents
under long-term leases. If retail tenants are unable to comply with the terms
of their leases because of rising costs or falling sales, we may modify lease
terms to allow tenants to pay a lower rental or a smaller share of operating
costs and taxes.
For example, we are being impacted by the recent bankruptcies of retail
tenants under multi-year lease agreements, including tenants expected to
occupy space yet to be contstructed, such as Bradlees, Inc., which was
scheduled to begin occupancy on February 1, 2001 at Northeast Tower Center in
Pennsylvania and Lechter's, Inc., which was scheduled to begin occupancy on
July 1, 2001 at Creekview Shopping Center in Warrington, Pennsylvania and
existing tenants such as Homeplace, Inc., which ceased paying rent on July 1,
2001 at The Court at Oxford Valley in Langhorne, Pennsylvania. In addition, as
a result of the weakening economy, we entered into an agreement, which
included payment of inducements with JC Penney Company, Inc., to induce
2
them to keep their store open at Prince George's Plaza in Hyattsville,
Maryland beyond the scheduled expiration of their lease in July 2001.
The amount of rent and expense reimbursements that we would have received
under the four lease agreements, as well as the cost of the inducement that we
agreed to pay, totals approximately $2.2 million in 2001. We have not yet
secured replacement tenants at the three vacant properties and do not
anticipate that, upon releasing the available space, replacement tenants will
begin occupancy at two of these properties before the beginning of 2002. Any
additional financial problems encountered by existing or prospective retail
tenants at our properties may continue to substantially harm our business.
We face risks associated with PREIT-RUBIN's management of properties owned
by third parties
PREIT-RUBIN manages a substantial number of properties owned by third
parties. Risks associated with the management of properties owned by third
parties include:
o the property owner's termination of the management contract
o loss of the management contract in connection with a property sale
o non-renewal of the management contract after expiration
o renewal of the management contract on terms less favorable than current
terms
o decline in management fees as a result of general real estate market
conditions or local market factors
Coverage under our existing insurance policies may be inadequate to cover
losses
We generally maintain insurance policies related to our business, including
casualty, general liability and other policies covering our business
operations, employees and assets. However, we would be required to bear all
losses that are not adequately covered by insurance. Although we believe that
our insurance programs are adequate, we cannot assure you that we will not
incur losses in excess of our insurance coverage, or that we will be able to
obtain insurance in the future at acceptable levels and reasonable cost.
We face risks due to lack of geographic diversity
Most of our properties are located in the eastern United States. A majority
of the properties are located either in Pennsylvania or Florida. General
economic conditions and local real estate conditions in these geographic
regions have a particularly strong effect on us. Other REITs may have a more
geographically diverse portfolio and thus may be less susceptible to downturns
in one or more regions.
We face possible environmental liabilities
Current and former real estate owners and operators may be required by law
to investigate and clean up hazardous substances released at the properties
they own or operate. They may also be liable to the government or to third
parties for substantial property damage, investigation costs and cleanup
costs. In addition, some environmental laws create a lien on the contaminated
site in favor of the government for damages and costs the government incurs in
connection with the contamination. Contamination may affect adversely the
owner's ability to sell or lease real estate or to borrow with the real estate
as collateral.
From time to time, we respond to inquiries from environmental authorities
with respect to properties both currently and formerly owned by us. We cannot
assure you of the results of pending investigations, but we do not believe
that resolution of these matters will have a material adverse effect on our
financial condition or results of operations.
We have no way of determining at this time the magnitude of any potential
liability to which we may be subject arising out of unknown environmental
conditions or violations with respect to the properties we formerly owned.
Environmental laws today can impose liability on a previous owner or operator
of a property that owned or operated the property at a time when hazardous or
toxic substances were disposed of, or released from, the property. A
conveyance of the property, therefore, does not relieve the owner or operator
from liability.
We are aware of certain environmental matters at some of our properties,
including ground water contamination, above-normal radon levels and the
presence of asbestos containing materials and lead-based paint. We have, in
the past, performed remediation of such environmental matters, and, at
December 31, 2000, we are not aware of any significant remaining potential
liability relating to these environmental matters. We may be
3
required in the future to perform testing relating to these matters. We have
reserved approximately $100,000 to cover such costs if they are necessary. We
cannot assure you that these amounts will be adequate to cover future
environmental costs.
At five properties in which we currently have an interest, and at two
properties in which we formerly had an interest, the environmental conditions
have been or continue to be investigated and have not been remediated fully.
At five of these properties, groundwater contamination has been found. At two
of the properties with groundwater contamination, the former owners of the
properties are remediating the groundwater contamination. Dry cleaning
operations were performed at three of the properties in which we currently or
formerly had an interest. At two of the dry cleaning properties, soil
contamination has been identified and groundwater contamination was found at
the other dry cleaning property. Although the properties with contamination
arising from dry cleaning operations may be eligible under a state law for
remediation with state funds, we cannot assure you that sufficient funds will
be available under the legislation to pay the full costs of any such
remediation.
There are asbestos-containing materials in a number of our properties,
primarily in the form of floor tiles and adhesives. The floor tiles and
adhesives are generally in good condition. Fire-proofing material containing
asbestos is present at some of our properties in limited concentrations or in
limited areas. At properties where radon has been identified as a potential
concern, we have remediated or are performing additional testing. Lead-based
paint has been identified at certain of our multifamily properties and we have
notified tenants under applicable disclosure requirements. Based on our
current knowledge, we do not believe that the future liabilities associated
with asbestos, radon and lead-based paint at the foregoing properties will be
material.
We have limited environmental liability coverage for the types of
environmental liabilities described above. The policy covers liability for
pollution and on-site remediation limited to $2 million for any single claim
and further limited to $4 million in the aggregate. The policy expires on
December 1, 2002.
We are aware of environmental concerns at two of our development properties.
Our present view is that our share of any remediation costs necessary in
connection with the development of these properties will be within the budgets
for development of these properties (or, in the case of one of these
properties, our prospective partner, who also is the current owner of such
property, will address the environmental concerns prior to the commencement of
the development process), but the final costs and necessary remediation are
not known and may cause us to decide not to develop one or more of these
properties.
Financing Risks
We face risks generally associated with our debt
We finance parts of our operations and acquisitions through debt. This debt
creates risks, including:
o rising interest rates on our floating rate debt
o failure to prepay or refinance existing debt, which may result in forced
disposition of properties on disadvantageous terms
o refinancing terms less favorable than the terms of existing debt
o failure to meet required payments of principal and interest
We may not be able to comply with leverage ratios imposed by our credit
facility or to use our credit facility when credit markets are tight
We currently use a three year secured credit facility for working capital,
acquisitions, construction of our development pipeline, renovations and
capital improvements to our properties. The credit facility is secured by ten
properties and currently requires our operating partnership, PREIT Associates,
to maintain certain asset and income to debt ratios and minimum income and net
worth levels. As of March 31, 2001, we were in compliance with all debt
covenants. If, in the future, PREIT Associates fails to meet any one or more
of these requirements, we would be in default. The lenders, in their sole
discretion, may waive a default. We might secure alternative or substitute
financing. We cannot assure you, however, that we can obtain waivers or
alternative financing. Any default may have a materially adverse effect on our
operations and financial condition.
When the credit markets are tight, we may encounter resistance from lenders
when we seek financing or refinancing for some of our properties. If our
credit facility is reduced significantly or withdrawn, our operations
4
would be affected adversely. If we are unable to increase our borrowing
capacity under the credit facility, our ability to make acquisitions and grow
would be affected adversely. We cannot assure you as to the availability or
terms of financing for any particular property.
We have entered into agreements limiting the interest rate on portions of
our credit facility. If other parties to these agreements fail to perform as
required by the agreements, we may suffer credit loss.
We may be unable to obtain long-term financing required to finance our
partnerships and joint ventures
The profitability of each partnership or joint venture in which we are a
partner or co-venturer that has short-term financing or debt requiring a
balloon payment is dependent on the availability of long-term financing on
satisfactory terms. If satisfactory long-term financing is not available, we
may have to rely on other sources of short-term financing, equity
contributions or the proceeds of refinancing the existing properties to
satisfy debt obligations. Although we do not own the entire interest in
connection with many of the properties held by such partnerships or joint
ventures, we may be required to pay the full amount of any obligation of the
partnership or joint venture that we have guaranteed in whole or in part to
protect our equity interest in the property owned by the partnership or joint
venture. Additionally, we may determine to pay a partnership's or joint
venture's obligation to protect our equity interest in its assets.
Governance
We may be unable to effectively manage our partnerships and joint ventures
due to disagreements with our partners and joint venturers
Generally, we hold interests in our portfolio properties through PREIT
Associates. In many cases we hold properties through joint ventures or
partnerships with third-party partners and joint venturers and, thus, we hold
less than 100% of the ownership interests in these properties. Of the
properties with respect to which our ownership is partial, most are owned by
partnerships in which we are a general partner. The remaining properties are
owned by joint ventures in which we have substantially the same powers as a
general partner. Under the terms of the partnership and joint venture
agreements, major decisions, such as a sale, lease, refinancing, expansion or
rehabilitation of a property, or a change of property manager, require the
consent of all partners or co-venturers. Because decisions must be unanimous,
necessary actions may be delayed significantly. It may be difficult or even
impossible to change a property manager if a partner or co-venturer is serving
as property manager.
Business disagreements with partners may arise. We may incur substantial
expenses in resolving these disputes. To preserve our investment, we may be
required to make commitments to or on behalf of a partnership or joint venture
during a dispute. Moreover, we cannot assure you that our resolution of a
dispute with a partner will be on terms that are favorable to us.
Other risks of investments in partnerships and joint ventures include:
o partners or co-venturers might become bankrupt or fail to fund their share
of required capital contributions
o partners or co-venturers might have business interests or goals that are
inconsistent with our business interests or goals
o partners or co-venturers may be in a position to take action contrary to
our policies or objectives
o potential liability for the actions of our partners or co-venturers
We are subject to restrictions that may impede our ability to effect a
change in control
Our Trust Agreement restricts the possibility of our sale or change in
control, even if a sale or change in control were in our shareholders'
interest. These restrictions include the ownership limit designed to ensure
qualification as a REIT, the staggered terms of our Trustees and our ability
to issue preferred shares. Additionally, we have adopted a rights plan that
may deter a potential acquiror from attempting to acquire us.
We have entered into agreements restricting our ability to sell some of our
properties
Because some limited partners of PREIT Associates may suffer adverse tax
consequences if certain properties owned by PREIT Associates are sold, we, as
the general partner of PREIT Associates, have agreed from time to time,
subject to certain exceptions, that the consent of the holders of a majority
(or all) of certain limited partner interests issued by PREIT Associates in
exchange for a property is required before that property
5
may be sold. These agreements may result in our being unable to sell one or
more properties, even in circumstances in which it would be advantageous to do
so.
We may issue preferred shares with greater rights than your shares
Our Board of Trustees may issue up to 25,000,000 preferred shares without
shareholder approval. Our Board of Trustees may determine the relative rights,
preferences and privileges of each class or series of preferred shares.
Because our Board of Trustees has the power to establish the preferences and
rights of the preferred shares, preferred shares may have preferences,
distributions, powers and rights senior to your rights as a shareholder.
We may amend our business policies without your approval
Our Board of Trustees determines our growth, investment, financing,
capitalization, borrowing, REIT status, operating and distribution policies.
Although the Board of Trustees has no present intention to amend or revise any
of these policies, these policies may be amended or revised without notice to
shareholders. Accordingly, shareholders may not have control over changes in
our policies. We cannot assure you that changes in our policies will serve
fully the interests of all shareholders.
Limited partners of PREIT Associates may vote on fundamental changes we
propose
Our assets are generally held through PREIT Associates, a Delaware limited
partnership of which we are the sole general partner. We currently hold a
majority of the limited partner interests in PREIT Associates. However, PREIT
Associates may from time to time issue additional limited partner interests in
PREIT Associates to third parties in exchange for contributions of property to
PREIT Associates. These issuances will dilute our percentage ownership of
PREIT Associates. Limited partner interests in PREIT Associates generally do
not carry a right to vote on any matter voted on by our shareholders, although
limited partner interests may, under certain circumstances, be redeemed for
our shares. However, before the date on which at least half of the partnership
interests issued on September 30, 1997 have been redeemed, the holders of
partnership interests issued on September 30, 1997 are entitled to vote, along
with our shareholders, on any proposal to merge, consolidate or sell
substantially all of our assets. Our partnership interests are not included
for purposes of determining when half of the partnership interests have been
redeemed, nor are they counted as votes. We cannot assure you that we will not
agree to extend comparable rights to other limited partners in PREIT
Associates.
Our success depends in part on Ronald Rubin
We are dependent on the efforts of Ronald Rubin, our Chief Executive
Officer. The loss of his services could have an adverse effect on our
operations. If Mr. Rubin were to terminate his employment, his current
employment agreement with us would prevent him from becoming an employee of
one of our competitors for one year.
Our employees who work both for us and for PREIT-RUBIN may have conflicts of
interest
There are numerous potential conflicts of interest relating to our ownership
of PREIT-RUBIN. PREIT-RUBIN renders management, development, leasing and
related services to a substantial number of properties in which affiliates of
PREIT-RUBIN retain equity interests. In such instances the interests of our
management who are also PREIT-RUBIN affiliates may differ from your own. We
believe that PREIT-RUBIN's management arrangements with these entities are on
terms at least as favorable to PREIT-RUBIN as the average of management
arrangements with parties unrelated to PREIT-RUBIN. In addition, PREIT-RUBIN
leases substantial office space from entities in which our affiliates have an
interest.
Other Risks
We may fail to qualify as a REIT and you may incur tax liabilities as a
result
If we fail to qualify as a REIT, we will be subject to Federal income tax at
regular corporate rates. In addition, we might be barred from qualification as
a REIT for the four years following disqualification. The additional tax
incurred at regular corporate rates would reduce significantly the cash flow
available for distribution to shareholders and for debt service.
6
To qualify as a REIT, we must comply with certain highly technical and
complex requirements. We cannot be certain we have complied because there are
few judicial and administrative interpretations of these provisions. In
addition, facts and circumstances that may be beyond our control may affect
our ability to qualify as a REIT. We cannot assure you that new legislation,
regulations, administrative interpretations or court decisions will not change
the tax laws significantly with respect to our qualification as a REIT or with
respect to the federal income tax consequences of qualification. We believe
that we have qualified as a REIT since our inception and intend to continue to
qualify as a REIT. However, we cannot assure you that we have been qualified
or will remain qualified.
We may be unable to comply with the strict income distribution requirements
applicable to REITs
To obtain the favorable tax treatment associated with qualifying as a REIT,
we are required each year to distribute to our shareholders at least 90% of
our net taxable income. We could be required to borrow funds on a short-term
basis to meet the distribution requirements that are necessary to achieve the
tax benefits associated with qualifying as a REIT, even if conditions were not
favorable for borrowing.
FORWARD LOOKING STATEMENTS
This prospectus and the documents incorporated by reference contain
"forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities and Exchange Act of 1934 and
the Private Securities Litigation Reform Act of 1995. Forward-looking
statements relate to expectations, beliefs, projections, future plans and
strategies, anticipated events or trends and similar expressions concerning
matters that are not historical facts. These forward-looking statements
reflect our management's current views about future events and are subject to
risks, uncertainties, assumptions and changes in circumstances that may cause
our actual results to differ significantly from those expressed in any
forward-looking statement. Certain factors that could cause actual results to
differ materially from expected results include uncertainties affecting real
estate businesses generally, the effects of complex regulations relating to
our status as a REIT, environmental risks and others, many of which are
outside of our control. For more information regarding the risks and
uncertainties we face, please see "Risk Factors" beginning on page 1. We do
not intend and disclaim any duty or obligation to update or revise any
industry information or forward-looking statements set forth in this
prospectus or the documents incorporated by reference to reflect new
information, future events or otherwise.
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
Pennsylvania Real Estate Investment Trust, which is organized as a business
trust under Pennsylvania law, is a fully integrated, self-administered and
self-managed real estate investment trust, founded in 1960, that acquires,
develops, redevelops and operates retail and multifamily properties. We
conduct substantially all of our operations through PREIT Associates, L.P., a
Delaware limited partnership.
Our principal executive offices are located at The Bellevue, 200 S. Broad
Street, Philadelphia, Pennsylvania 19102, telephone: (215) 875-0700.
USE OF PROCEEDS
Unless otherwise specified in the applicable prospectus supplement
accompanying this prospectus, we intend to use the net proceeds of any sale of
securities for general business purposes, including the development and
acquisition of additional properties and other acquisition transactions as
suitable opportunities arise, the payment of certain outstanding secured or
other indebtedness and improvements to certain properties in our portfolio.
7
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges for each of the last five full fiscal
years are presented below:
--------------------------------------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------------------------------
1.55 1.55 1.93 1.55 1.66
--------------------------------------------------------------------------------
In 1997, we changed our fiscal year. Information in the table above is given
with respect to the fiscal years ended December 31, 1998, 1999 and 2000, and
the fiscal years ended August 31, 1996 and 1997. For the period from September
1, 1997 through December 31, 1997, the ratio was 1.53. The ratios of earnings
to fixed charges were computed by dividing earnings by fixed charges. For this
purpose, earnings consist of income before gains from sales of property, plus
fixed charges reduced by the amounts of capitalized interest, plus income
allocable to minority interests in consolidated entities that have incurred
fixed charges. Fixed charges consist of interest expense (including interest
costs capitalized), amortization of capitalized expenses related to
indebtedness. Earnings and fixed charges are based on both wholly owned
properties and our share of partnership and joint venture properties. To date,
we have not issued any preferred shares; therefore, the ratios of earnings to
combined fixed charges and preferred share dividends are not presented.
DESCRIPTION OF DEBT SECURITIES
The following description provides the general terms and provisions of the
debt securities to which this prospectus and any applicable prospectus
supplement may relate. The particular terms of the debt securities being
offered and the extent to which the general provisions may apply will be
provided in the applicable Indenture or in one or more indentures supplemental
to the Indenture and described in a prospectus supplement relating to the debt
securities. The forms of the Senior Indenture (as defined herein) and the
Subordinated Indenture (as defined herein) have been filed as exhibits to the
registration statement of which this prospectus is a part.
General
The debt securities will be our direct, unsecured obligations and may be
either senior debt securities ("Senior Securities") or subordinated debt
securities ("Subordinated Securities"). The debt securities will be issued
under one or more indentures (the "Indentures"). Senior Securities and
Subordinated Securities will be issued pursuant to separate indentures
(respectively, a "Senior Indenture" and a "Subordinated Indenture"), in each
case between us and a trustee (a "Trustee"). The Indentures will be subject to
and governed by the Trust Indenture Act of 1939, as amended (the "TIA"). The
statements made under this heading relating to the debt securities and the
Indentures are summaries of the anticipated provisions thereof, do not purport
to be complete and are qualified in their entirety by reference to the
Indentures and such debt securities. All section references appearing herein
are to sections of each Indenture unless otherwise indicated, and capitalized
terms used but not defined below shall have the respective meanings set forth
in each Indenture.
The indebtedness represented by Subordinated Securities will be subordinated
in right of payment to the prior payment in full of our Senior Debt (as
defined below) as described under "--Subordination."
Except as set forth in the applicable Indenture or in one or more indentures
supplemental thereto and described in a prospectus supplement relating
thereto, 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 Board of
Trustees or as established in the applicable Indenture or in one or more
indentures supplemental to such 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.
It is anticipated that each Indenture will provide that there may be more
than one Trustee thereunder, each with respect to one or more series of debt
securities. Any Trustee under an Indenture may resign or be removed with
respect to one or more series of debt securities, and a successor Trustee may
be appointed to act with respect to such series. 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
applicable Indenture separate and apart from
8
the trust administered by any other Trustee, and, except as otherwise
indicated herein, any action described herein to be taken by each 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
applicable Indenture.
The prospectus supplement relating to any series of debt securities being
offered will contain the specific terms thereof, including, without
limitation:
(1) The title of such debt securities and whether such debt securities are
Senior Securities or Subordinated Securities;
(2) The aggregate principal amount of such debt securities and any limit on
such aggregate principal amount;
(3) The percentage of the principal amount at which such debt securities will
be issued and, if other than the principal amount thereof, the portion of
the principal amount thereof payable upon declaration of acceleration of
the maturity thereof;
(4) If convertible in whole or in part into shares or preferred shares, the
terms on which such debt securities are convertible, including the initial
conversion price or rate (or method for determining the same), the portion
that is convertible and the conversion period, and any applicable
limitations on the ownership or transferability of the shares or preferred
shares receivable on conversion;
(5) The date or dates, or the method for determining such date or dates, on
which the principal of such debt securities will be payable;
(6) 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;
(7) The date or dates, or the method for determining such date or dates, from
which any such interest will accrue, the dates on which any such interest
will be payable, the regular record dates for such interest payment dates,
or the method by which such dates shall be determined, the persons to whom
such interest shall be payable, and the basis upon which interest shall be
calculated if other than that of a 360-day year of twelve 30-day months;
(8) The place or places where the principal of (and premium, if any) and
interest, if any, on such debt securities will be payable, where such debt
securities may be surrendered for conversion or registration of transfer or
exchange and where notices or demands to or upon us in respect of such debt
securities and the applicable Indenture may be served;
(9) The period or periods within which, the price or prices at which and the
other terms and conditions upon which such debt securities may be redeemed,
in whole or in part, at our option, if we are to have such an option;
(10) Our obligation, if any, to redeem, repay or purchase such debt securities
pursuant to any sinking fund or analogous provision or at the option of a
holder thereof, and the period or periods within which or the date and
dates on which, the price or prices at which and the other terms and
conditions upon which such debt securities will be redeemed, repaid or
purchased, in whole or in part, pursuant to such obligation;
(11) If other than U.S. dollars, the currency or currencies in which such debt
securities are denominated and payable, which may be a foreign currency or
units of two or more foreign currencies or a composite currency or
currencies, and the terms and conditions relating thereto;
(12) Whether the amount of payments of principal of (and premium, if any) or
interest, if any, on such debt securities may be determined with reference
to an index, formula or other method (which index, formula or method may,
but need not be, based on a currency, currencies, currency unit or units
or composite currency or currencies) and the manner in which such amounts
shall be determined;
(13) Any additions to, modifications of or deletions from the terms of such
debt securities with respect to Events of Default or covenants set forth
in the applicable Indenture;
(14) Whether such debt securities will be issued in certificate or book-entry
form;
9
(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 and terms and conditions relating thereto;
(16) The applicability, if any, of the defeasance and covenant defeasance
provisions of Article Fourteen of the applicable Indenture;
(17) Whether and under what circumstances we will pay any additional amounts on
such debt securities in respect of any tax, assessment or governmental
charge and, if so, whether we will have the option to redeem such debt
securities in lieu of making such payment; and
(18) Any other terms of such debt securities not inconsistent with the
provisions of the applicable 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
or bear interest at a rate which at the time of issuance is below market rates
("Original Issue Discount Securities"). All material federal income tax,
accounting and other considerations applicable to Original Issue Discount
Securities will be described in the applicable prospectus supplement.
Except as set forth in the applicable Indenture or in one or more indentures
supplemental thereto, the applicable Indenture will not contain any provisions
that would limit our ability to incur indebtedness or that would afford
holders of debt securities protection in the event of a highly leveraged or
similar transaction involving us or in the event of a change of control.
However, restrictions on ownership and transfers of our shares and preferred
shares are designed to preserve our status as a REIT and, therefore, may act
to prevent or hinder a change of control. See "Description of Preferred Shares
of Beneficial Interest -- Restrictions on Ownership" and "Description of
Shares of Beneficial Interest -- Restrictions on Transfer." We refer you to
the applicable prospectus supplement for information with respect to any
deletions from, modifications of or additions to the Events of Default or our
covenants 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 will be issuable in denominations of $1,000 and
integral multiples thereof (Section 302).
Unless otherwise specified in the applicable prospectus supplement, the
principal of (and applicable premium, if any) and interest on any series of
debt securities will be payable at the corporate trust office of the Trustee,
the address of which will be stated in the applicable prospectus supplement;
provided that, at our option, payment of interest may be made by check mailed
to the address of the person entitled thereto as it appears in the applicable
register for such debt securities or by wire transfer of funds to such person
at an account maintained within the United States (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 may either 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 us,
notice whereof shall be given to the holder of such debt security not less
than ten 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 applicable 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 conversion or registration of transfer or exchange thereof at
the corporate trust office of the applicable Trustee. Every debt security
surrendered for conversion, registration of transfer or exchange must be duly
endorsed or accompanied
10
by a written instrument of transfer. No service charge will be made for any
registration of transfer or exchange of any debt securities, but we may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. If the applicable prospectus
supplement refers to any transfer agent (in addition to the applicable
Trustee) initially designated by us with respect to any series of debt
securities, we may at any time rescind the designation of any such transfer
agent or approve a change in the location through which any such transfer
agent acts, except that we will be required to maintain a transfer agent in
each place of payment for such series. We may at any time designate additional
transfer agents with respect to any series of debt securities (Section 1002).
Neither we nor any 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 that has been surrendered for repayment at the option of the holder,
except the portion, if any, of such debt security not to be so repaid (Section
305).
Merger, Consolidation or Sale
We will be permitted to consolidate with, or sell, lease or convey all or
substantially all of our assets to, or merge with or into, any other entity
provided that (a) either we shall be the continuing entity, or the successor
entity (if other than us) formed by or resulting from any such consolidation
or merger or which shall have received the transfer of such assets shall
expressly assume payment of the principal of (and premium, if any) and
interest on all of the debt securities and the due and punctual performance
and observance of all of the covenants and conditions contained in each
Indenture; (b) immediately after giving effect to such transaction and
treating any indebtedness that becomes our obligation or that of our
Subsidiary as a result thereof as having been incurred by us or by our
Subsidiary at the time of such transaction, no Event of Default under the
Indentures, and no event which, after notice by 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 each company (Sections 801 and 803).
Certain Covenants
Existence. Except as described above under "Merger, Consolidation or Sale,"
we will be required to do or cause to be done all things necessary to preserve
and keep in full force and effect our existence, rights (by declaration of
trust, by-laws and statute) and franchises; provided, however, that we 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 our business and
that the loss thereof is not disadvantageous in any material respect to the
holders of the debt securities.
Maintenance of Properties. We will be required to cause all of our material
properties used or useful in the conduct of our business or the business of
any Subsidiary to be maintained and kept in good condition, repair and working
order and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in our judgment may be necessary so that the business carried
on in connection therewith may be properly and advantageously conducted at all
times (Section 1007).
Insurance. We will be required to, and will be required to cause each of
our Subsidiaries to, keep all of our insurable properties insured against loss
or damage at least equal to their then full insurable value with insurers of
recognized responsibility and, if described in the applicable prospectus
supplement, having a specified rating from a recognized insurance rating
service (Section 1008).
Payment of Taxes and Other Claims. We will be required to pay or discharge
or cause to be paid or discharged, before the same shall become delinquent,
(i) all taxes, assessments and governmental charges levied or imposed upon it
or any Subsidiary or upon the income, profits or property of us 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 us or any
Subsidiary; provided, however, that we shall not be required to pay or
discharge or cause to be paid or
11
discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings (Section 1009).
Provision of Financial Information. Whether or not we are subject to
Section 13 or 15(d) of the Exchange Act, we will, to the extent permitted
under the Exchange Act, file with the SEC the annual reports, quarterly
reports and other documents which we would have been required to file with the
SEC pursuant to such Sections 13 or 15(d) if we were so subject (the
"Financial Information"), such documents to be filed with the SEC on or prior
to the respective dates (the "Required Filing Dates") by which we would have
been required so to file such documents if we were so subject. We 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 Financial
Information and (ii) file with the Trustee copies of the Financial
Information, and (y) if our filing such documents with the SEC 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 1010).
Additional Covenants and/or Modifications to the Covenants Described Above
Any additional covenants of us and/or modifications to the covenants
described above with respect to any debt securities or series thereof,
including any covenants relating to limitations on incurrence of indebtedness
or other financial covenants, will be set forth in the applicable Indenture or
an indenture supplemental thereto and described in the prospectus supplement
relating thereto.
Events of Default, Notice and Waiver
Each Indenture will provide that the following events are "Events of
Default" with respect to any series of debt securities issued thereunder: (i)
default for 30 days in the payment of any installment of interest on any debt
security of such series; (ii) default in the payment of principal of (or
premium, if any, on) any debt security of such series at its maturity; (iii)
default in making any sinking fund payment as required for any debt security
of such series; (iv) default in the performance or breach of any other
covenant or warranty of us contained in the applicable Indenture (other than a
covenant added to the Indenture solely for the benefit of a series of debt
securities issued thereunder other than such series), continued for 60 days
after written notice as provided in the applicable Indenture; (v) default in
the payment of an aggregate principal amount exceeding $10,000,000 of any
indebtedness of us 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; (vi) certain events of bankruptcy, insolvency or
reorganization, or court appointment of a receiver, liquidator or trustee of
us or any Significant Subsidiary or either of its property; and (vii) any
other Event of Default provided with respect to a particular series of debt
securities (Section 501). The term "Significant Subsidiary" means each of our
significant subsidiaries (as defined in Regulation S-X promulgated under the
Securities Act).
If an Event of Default under any Indenture with respect to debt securities
of any series at the time outstanding occurs and is continuing, then in every
such case the applicable Trustee or the holders of not less than 25% of the
principal amount of the Outstanding debt securities of that series will have
the right to declare the principal amount (or, if the debt securities of that
series are Original Issue Discount Securities or indexed securities, such
portion of the principal amount as may be specified in the terms thereof) of
all the debt securities of that series to be due and payable immediately by
written notice thereof to us (and to the applicable Trustee if given by the
holders). However, at any time after such a declaration of acceleration with
respect to debt securities of such series (or of all debt securities then
Outstanding under any Indenture, as the case may be) has been made, but before
a judgment or decree for payment of the money due has been obtained by the
applicable Trustee, the holders of not less than a majority in principal
amount of Outstanding debt securities of such series (or of all debt
securities then Outstanding under the applicable Indenture, as the case may
be) may rescind and annul such declaration and its consequences if (a) we
shall have deposited with the applicable Trustee all required payments of the
principal of (and premium, if any) and interest on the debt securities of such
series (or of all debt securities then Outstanding under the applicable
Indenture, as the case may be), plus certain fees, expenses, disbursements and
advances of the applicable Trustee and (b) all events of default, other than
the non-payment of accelerated
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principal (or specified portion thereof), with respect to debt securities of
such series (or of all debt securities then Outstanding under the applicable
Indenture, as the case may be) have been cured or waived as provided in such
Indenture (Section 502 ). Each Indenture also will provide that the holders of
not less than a majority in principal amount of the Outstanding debt
securities of any series (or of all debt securities then Outstanding under the
applicable Indenture, as the case may be) may waive any past default with
respect to such series and its consequences, except a default (x) in the
payment of the principal of (or premium, if any) or interest on any debt
security of such series or (y) in respect of a covenant or provision contained
in the applicable Indenture that cannot be modified or amended without the
consent of the holder of each Outstanding debt security affected thereby
(Section 513).
Each Trustee will be required to give notice to the holders of debt
securities within 90 days of a default under the applicable Indenture unless
such default shall have been cured or waived; provided, however, that such
Trustee may withhold notice to the holders of any series of debt securities of
any default with respect to such series (except a default in the payment of
the principal of (or premium, if any) or interest on any debt security of such
series or in the payment of any sinking fund installment in respect of any
debt security of such series) if specified responsible officers of such
Trustee consider such withholding to be in the interest of such holders
(Section 601).
Each Indenture will provide that no holders of debt securities of any series
may institute any proceedings, judicial or otherwise, with respect to such
Indenture or for any remedy thereunder, except in the cases of failure of the
applicable Trustee, for 60 days, to act after it has received a written
request to institute proceedings in respect of an Event of Default from the
holders of not less than 25% in principal amount of the Outstanding debt
securities of such series, as well as an offer of indemnity reasonably
satisfactory to it (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, if any) and interest on such debt
securities at the respective due dates thereof (Section 508).
Subject to provisions in each Indenture relating to its duties in case of
default, no Trustee will be under any obligation to exercise any of its rights
or powers under an Indenture at the request or direction of any holders of any
series of debt securities then Outstanding under such Indenture, unless such
holders shall have offered to the Trustee thereunder 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 an Indenture, as the case may be) shall have
the right to direct the time, method and place of conducting any proceeding
for any remedy available to the applicable Trustee, or of exercising any trust
or power conferred upon such Trustee. However, a Trustee may refuse to follow
any direction which is in conflict with any law or the applicable Indenture,
which may involve such 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, we will be required to
deliver to each Trustee a certificate, signed by one of several specified
officers, stating whether or not such officer has knowledge of any default
under the applicable Indenture and, if so, specifying each such default and
the nature and status thereof (Section 1011).
Modification of the Indentures
Modifications and amendments of an Indenture will be permitted to be made
only with the consent of the holders of not less than a majority in principal
amount of all Outstanding debt securities issued under such Indenture 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 any installment of interest (or premium, if any) on, any such
debt security; (b) reduce the principal amount of, or the rate or amount of
interest on, or any premium payable on redemption of, any such debt security,
or reduce the amount of principal of an Original Issue Discount Security that
would be due and payable upon declaration of acceleration of the maturity
thereof or would be provable in bankruptcy, or adversely affect any right of
repayment of the holder of any such debt security; (c) change the place of
payment, or the coin or currency, for payment of principal or premium, if any,
or interest on any such debt security; (d) impair the right to institute suit
for the enforcement of any payment on or with respect to any such debt
security;
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(e) reduce the above-stated percentage of Outstanding debt securities of any
series necessary to modify or amend the applicable Indenture, to waive
compliance with certain provisions thereof or certain defaults and
consequences thereunder or to reduce the quorum or voting requirements set
forth in the applicable Indenture; or (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 of each series affected thereby will have the right to waive
our compliance with certain covenants in such Indenture (Section 1013).
Modifications and amendments of an Indenture will be permitted to be made by
us and the respective Trustee thereunder without the consent of any holder of
debt securities for any of the following purposes: (i) to evidence the
succession of another person to us as obligor under such Indenture; (ii) to
add to the covenants of us for the benefit of the holders of all or any series
of debt securities or to surrender any right or power conferred upon us in 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
an Indenture to facilitate the issuance of, or to liberalize certain terms of,
debt securities in bearer form, or to permit or facilitate the issuance of
debt securities in uncertificated form, provided that such action shall not
adversely affect the interests of the holders of the debt securities of any
series in any material respect; (v) to change or eliminate any provisions of
an Indenture, provided that any such change or elimination shall 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, including the provisions and procedures, if
applicable, for the conversion of such debt securities into shares or
preferred shares; (viii) to provide for the acceptance of appointment by a
successor Trustee or facilitate the administration of the trusts under an
Indenture by more than one Trustee; (ix) to cure any ambiguity, defect or
inconsistency in an Indenture, provided that such action shall not adversely
affect the interests of holders of debt securities of any series issued under
such Indenture in any material respect; or (x) to supplement any of the
provisions of an Indenture to the extent necessary to permit or facilitate
defeasance and discharge of any series of such debt securities, provided that
such action shall not adversely affect the interests of the holders of the
debt securities of any series in any material respect (Section 901).
Each Indenture will provide that in determining whether the holders of the
requisite principal amount of Outstanding debt securities of a series have
given any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of holders of debt
securities, (i) the principal amount of an Original Issue Discount Security
that shall be deemed to be Outstanding shall be the amount of the principal
thereof that would be due and payable as of the date of such determination
upon declaration of acceleration of the maturity thereof, (ii) the principal
amount of any debt security denominated in a foreign currency that shall be
deemed Outstanding shall be the U.S. dollar equivalent, determined on the
issue date for such debt security, of the principal amount (or, in the case of
Original Issue Discount Security, the U.S. 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 the applicable Indenture, and (iv) debt securities owned
by us or any other obligor upon the debt securities or any of our affiliates
or of such other obligor shall be disregarded.
Each Indenture will contain provisions for convening meetings of the holders
of debt securities of a series (Section 1501). A meeting will be permitted to
be called at any time by the applicable Trustee, and also, upon request, by us
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. Except for any consent that must be given by the holder of each
debt security affected by certain modifications and amendments of an
Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present may be adopted by the affirmative vote
of the holders of a majority in principal amount of the Outstanding debt
securities of that series; provided, however, that, except as referred to
above, any resolution with respect to any request, demand, authorization,
direction, notice, consent, waiver or other action that may be made, given or
taken by the holders
14
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 or adjourned meeting duly reconvened at which a quorum is
present by the affirmative vote of the holders of such specified percentage in
principal amount of the Outstanding debt securities of that series. Any
resolution passed or decision taken at any meeting of holders of debt
securities of any series duly held in accordance with an Indenture will be
binding on all holders of debt securities of that series. The quorum at any
meeting called to adopt a resolution, and at any reconvened meeting, will be
persons holding or representing a majority in principal amount of the
Outstanding debt securities of a series; provided, however, that if any action
is to be taken at such meeting with respect to a consent or waiver which may
be given by the holders of not less than a specified percentage in principal
amount of the Outstanding debt securities of a series, the persons holding or
representing such specified percentage in principal amount of the Outstanding
debt securities of such series will constitute a quorum.
Notwithstanding the foregoing provisions, each Indenture will provide that
if any action is to be taken at a meeting of holders of debt securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver and other action that such Indenture expressly provides may be
made, given or taken by the holders of a specified percentage in principal
amount of all Outstanding debt securities affected thereby, or the holders of
such series and one or more additional series: (i) there shall be no minimum
quorum requirement for such meeting, and (ii) the principal amount of the
Outstanding debt securities of such series that vote in favor of such request,
demand, authorization, direction, notice, consent, waiver or other action
shall be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been
made, given or taken under such Indenture.
Subordination
Upon any distribution to our creditors in a liquidation, dissolution or
reorganization, the payment of the principal of and interest on any
Subordinated Securities will be subordinated to the extent provided in the
applicable Indenture in right of payment to the prior payment in full of all
Senior Debt (Sections 1601 and 1602 of the Subordinated Indenture), but our
obligation to make payment of the principal and interest on such Subordinated
Securities will not otherwise be affected (Section 1608 of the Subordinated
Indenture). No payment of principal or interest will be permitted to be made
on Subordinated Securities at any time if a default on Senior Debt exists that
permits the holders of such Senior Debt to accelerate its maturity and the
default is the subject of judicial proceedings or we receive notice of the
default (Section 1602 of the Subordinated Indenture). After all Senior Debt is
paid in full and until the Subordinated Securities are paid in full, holders
will be subrogated to the right of holders of Senior Debt to the extent that
distributions otherwise payable to holders have been applied to the payment of
Senior Debt (Section 1607 of the Subordinated Indenture). By reason of such
subordination, in the event of a distribution of assets upon insolvency,
certain of our general creditors may recover more, ratably, than holders of
Subordinated Securities.
Senior Debt will be defined in the Subordinated Indenture as the principal
of and interest on, or substantially similar payments to be made by us in
respect of, the following, whether outstanding at the date of execution of the
applicable Indenture or thereafter incurred, created or assumed: (i) our
indebtedness for money borrowed or represented by purchase-money obligations,
(ii) our indebtedness evidenced by notes, debentures, or bonds or other
securities issued under the provisions of an indenture, fiscal agency
agreement or other agreement, (iii) our obligations as lessee under leases of
property either made as part of any sale and leaseback transaction to which we
are a party or otherwise, (iv) our indebtedness of partnerships and joint
ventures which is included in our consolidated financial statements, (v) our
indebtedness, obligations and liabilities of others in respect of which we are
liable contingently or otherwise to pay or advance money or property or as
guarantor, endorser or otherwise or which we have agreed to purchase or
otherwise acquire, and (vi) any binding commitment of us to fund any real
estate investment or to fund any investment in any entity making such real
estate investment, in each case other than (1) any such indebtedness,
obligation or liability referred to in clauses (i) through (vi) above as to
which, in the instrument creating or evidencing the same pursuant to which the
same is outstanding, it is provided that such indebtedness, obligation or
liability is not superior in right of payment to the Subordinated Securities
or ranks pari passu with the Subordinated Securities, (2) any such
indebtedness, obligation or liability which is subordinated to our
indebtedness to substantially the same extent as or to a greater extent than
the Subordinated Securities are subordinated, and (3) the Subordinated
Securities. There will not be any restrictions in an Indenture relating to
Subordinated Securities upon the Creation of additional Senior Debt.
15
If this prospectus is being delivered in connection with a series of
Subordinated Securities, the accompanying prospectus supplement or the
information incorporated herein by reference will contain the approximate
amount of Senior Debt outstanding as of the end of our most recent fiscal
quarter.
Discharge, Defeasance and Covenant Defeasance
We may be permitted under the applicable Indenture to discharge certain
obligations to holders of any series of debt securities issued thereunder that
have not already been delivered to the applicable Trustee for cancellation and
that either have become due and payable or will become due and payable within
one year (or scheduled for redemption within one year) by irrevocably
depositing with the applicable 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, if any) and interest to the date of such deposit (if such debt
securities have become due and payable) or to the stated maturity or
redemption date, as the case may be.
Each Indenture will provide that, if the provisions of Article Fourteen are
made applicable to the debt securities of or within any series pursuant to
Section 301 of such Indenture, we 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 certain specified
sections of Article Ten of such Indenture as specified in the applicable
prospectus supplement and any omission to comply with such obligations shall
not constitute an Event of Default with respect to such debt securities
("covenant defeasance") (Section 1403), in either case upon our irrevocable
deposit with the applicable 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 without
reinvestment to pay the principal of (and premium, if any) and interest on
such debt securities, and any mandatory sinking fund or analogous payments
thereon, on the scheduled due dates therefor.
Such a trust will only be permitted to be established if, among other
things, we have delivered to the applicable Trustee an opinion of counsel (as
specified in the applicable Indenture) to the effect that the holders of such
debt securities will not recognize income, gain or loss for federal income tax
purposes as a result of such defeasance or covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such defeasance or covenant
defeasance had not occurred, and such opinion of counsel, in the case of
defeasance, will be required to refer to and be based upon a ruling of the
Internal Revenue Service or a change in applicable U.S. 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 timely payment of which is unconditionally guaranteed as a full
faith and credit obligation of the United States of America or such
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 of each Indenture).
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Unless otherwise provided in the applicable prospectus supplement, if after
we have deposited funds and/or Government Obligations to effect defeasance or
covenant defeasance with respect to debt securities of any series, (a) the
holder of a debt security of such series is entitled to, and does, elect
pursuant to the applicable Indenture or the terms of such debt security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such debt security, or
(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 will be deemed to have been,
and will be, fully discharged and satisfied through the payment of the
principal of (and premium, if any) and interest on such debt security as they
become due out of the proceeds yielded by converting the amount so deposited
in respect of such debt security into the currency, currency unit or composite
currency in which such debt security becomes payable as a result of such
election or such cessation of usage based on the applicable market exchange
rate. "Conversion Event" means the cessation of use of (i) a currency,
currency unit or composite currency both by the government of the country
which issued such currency and for the settlement of transactions by a central
bank or other public institutions of or within the international banking
community, (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, if any) and interest on any debt security that is payable in a
foreign currency that ceases to be used by its government of issuance shall be
made in U.S. dollars.
If we effect covenant defeasance with respect to any debt securities and
such debt securities are declared due and payable because of the occurrence of
any Event of Default other than the Event of Default described in clause (iv)
under "Events of Default, Notice and Waiver" with respect to certain specified
sections of Article Ten of each Indenture (which sections would no longer be
applicable to such debt securities as a result of such covenant defeasance) or
described in clause (vii) under "Events of Default, Notice and Waiver" with
respect to any other covenant as to which there has been covenant defeasance,
the amount in such currency, currency unit or composite currency in which such
debt securities are payable, and Government Obligations on deposit with the
applicable Trustee, will be sufficient to pay amounts due on such debt
securities at the time of their stated maturity but may not be sufficient to
pay amounts due on such debt securities at the time of the acceleration
resulting from such Default. However, we 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.
Conversion Rights
The terms and conditions, if any, upon which the debt securities are
convertible into shares or preferred shares will be set forth in the
applicable prospectus supplement relating thereto. Such terms will include
whether such debt securities are convertible into shares or preferred shares,
the conversion price (or manner of calculation thereof), the conversion
period, provisions as to whether conversion will be at the option of the
holders or us, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such debt
securities and any restrictions on conversion, including restrictions directed
at maintaining our REIT status and the listing of the shares on the New York
Stock Exchange.
Redemption of Securities
The Indenture provides that the debt securities may be redeemed at any time
at the option of us, in whole or in part, at the Redemption Price, except as
may otherwise be provided in connection with any debt securities or series
thereof.
From and after notice has been given as provided in the Indenture, if funds
for the redemption of any debt securities called for redemption shall have
been made available on such redemption date, such debt securities will cease
to bear interest on the date fixed for such redemption specified in such
notice, and the only right of the holders of the debt securities will be to
receive payment of the Redemption Price.
17
Notice of any optional redemption of any debt securities will be given to
holders at their addresses, as shown in the Security Register, not more than
60 nor less than 30 days prior to the date fixed for redemption. The notice of
redemption will specify, among other items, the Redemption Price and the
principal amount of the debt securities held by such holder to be redeemed.
If we elect to redeem debt securities, it will notify the Trustee at least
45 days prior to the redemption date (or such shorter period as satisfactory
to the Trustee) of the aggregate principal amount of debt securities to be
redeemed and the redemption date. If less than all the debt securities are to
be redeemed, the Trustee shall select the debt securities to be redeemed pro
rata, by lot or in such manner as it shall deem fair and appropriate.
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 (the "Global Securities") that will be
deposited with, or on behalf of, a depository identified in the applicable
prospectus supplement relating to such series. Global Securities may be issued
in either registered or bearer form and in either temporary or permanent form.
The specific terms of the depository arrangement with respect to a series of
debt securities will be described in the applicable prospectus supplement
relating to such series. The laws of some jurisdictions require that certain
purchasers of securities take physical delivery of such securities in
definitive form. Such laws may impair the ability to transfer beneficial
interests in debt securities represented by Global Securities.
DESCRIPTION OF PREFERRED SHARES OF BENEFICIAL INTEREST
Our Trust Agreement authorizes our Board of Trustees from time to time to
establish and issue, in one or more classes or series, up to 25,000,000
preferred shares (the "preferred shares"). The Trustees are authorized to
classify or reclassify any unissued preferred shares by setting or changing
the number, designation, preference, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms or
conditions of redemption of such series.
The following description of the preferred shares sets forth certain general
terms and provisions of the preferred shares to which any prospectus
supplement may relate. The statements below describing the preferred shares
are in all respects subject to and qualified in their entirety by reference to
the applicable provisions of our Trust Agreement.
The Board of Trustees
The Board of Trustees is empowered by the Trust Agreement to designate and
issue from time to time one or more series of preferred shares without
shareholder approval. The Board of Trustees may determine the relative rights,
preferences and privileges of each series of preferred shares so issued.
Because the Board of Trustees has the power to establish the preferences and
rights of each series of preferred shares, it may afford the holders of any
series of preferred shares preferences, powers and rights, voting or
otherwise, senior to the rights of holders of shares. The preferred shares
will, when issued, be fully paid and nonassessable.
The prospectus supplement relating to any preferred shares offered thereby
will contain specific terms, including:
(1) The title and stated value of such preferred shares;
(2) The number 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 accumulate,
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;
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(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 shares, including the conversion price (or manner
of calculation thereof);
(10) Any other specific terms, preferences, rights, limitations or restrictions
of such preferred shares;
(11) A discussion of federal income tax considerations applicable to such
preferred shares;
(12) The relative ranking and preferences of such preferred shares as to
dividend rights and rights upon our liquidation, dissolution or winding up
of our affairs;
(13) Any limitations on issuance of any series of preferred shares ranking
senior to or on a parity with such series of preferred shares as to
dividend rights and rights upon our liquidation, dissolution or winding up
of our affairs; and
(14) Any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to preserve our status as a
REIT.
Rank
Unless otherwise specified in the prospectus supplement, the preferred
shares will, with respect to dividend rights and rights upon our liquidation,
dissolution or winding up, rank (i) senior to all classes or series of our
shares, and to all equity securities ranking junior to such preferred shares;
(ii) on a parity with all equity securities we issue with terms that
specifically provide that such equity securities rank on a parity with the
preferred shares; and (iii) junior to all equity securities we issue with
terms that specifically provide that such equity securities rank senior to the
preferred shares. The term "equity securities" does not include convertible
debt securities.
Dividends
Holders of the preferred shares of each series will be entitled to receive,
when, as and if declared by our Board of Trustees, out of our assets 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 our share transfer books on
such record dates as shall be fixed by the Board of Trustees.
Dividends on any series of preferred shares may be cumulative or non-
cumulative, 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 fails to declare a
dividend payable on a dividend payment date on any series of the preferred
shares for which dividends are non-cumulative, 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 we 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 any preferred shares of any series are outstanding, no full dividends
shall be declared or paid or set apart for payment on any of our capital
shares 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 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 of 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
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share on the preferred shares of such series (which shall not include any
accumulation in respect of unpaid dividends for prior dividend periods if such
preferred shares do 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 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
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 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 upon the shares, or any other of our capital
shares ranking junior to or on a parity with the preferred shares of such
series as to dividends or upon liquidation, nor shall any shares, or any other
of our capital shares 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 such shares)
by us (except by conversion into or exchange for other capital shares ranking
junior to the preferred shares of such series as to dividends and upon
liquidation).
Redemption
If so provided in the applicable prospectus supplement, the preferred shares
will be subject to mandatory redemption or redemption at our option, in whole
or in part, in each case upon the terms, at the times and at the redemption
prices set forth in such prospectus supplement.
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 us 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 preferred shares do not have a cumulative dividend, include any
accumulation 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 our capital shares, the terms of such
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 our applicable capital
shares 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 preferred shares
of any series 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 current dividend period and (ii) if such
series of preferred shares does not have a cumulative dividend, full dividends
of 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 preferred shares of
any series 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 to preserve our REIT status or pursuant to a purchase or exchange offer
made on the same terms to holders of all outstanding preferred shares of such
series. In addition, 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 dividends 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, we shall not purchase or otherwise acquire directly or indirectly any
preferred shares of such series (except by conversion into or exchange for our
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capital shares ranking junior to the preferred shares of such series as to
dividends and upon liquidation); provided, however, that the foregoing shall
not prevent the purchase or acquisition of preferred shares of such series to
preserve our REIT status pursuant to a purchase or exchange offer made on the
same terms to holders of all outstanding preferred shares of such series.
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 us 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 or for which redemption is
requested by such holder (with adjustments to avoid redemption of fractional
shares) or by lot in a manner determined by us.
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 our share transfer books.
Each notice shall state: (i) the redemption date; (ii) the number and series
of preferred shares to be redeemed; (iii) the address where preferred shares
are to be surrendered for payment of the redemption price; (iv) that dividends
on the shares to be redeemed will cease to accrue on such redemption date; and
(v) the date upon which the holder's conversion rights, if any, as to such
shares shall terminate. If fewer than all of 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 us 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.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding up of
our affairs, then, before any distribution or payment shall be made to the
holders of any shares or any other class or series of our capital shares
ranking junior to the preferred shares in the distribution of assets upon our
liquidation, dissolution or winding up, the holders of each series of
preferred shares shall be entitled to receive out of our assets 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 accumulation in respect of unpaid
dividends for prior dividend periods if such preferred shares do 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 our remaining assets. In the event that, upon
any such voluntary or involuntary liquidation, dissolution or winding up, our
available assets 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 our capital shares
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, our remaining assets 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, our consolidation or merger
with or into any other corporation, trust or entity, or the sale, lease or
conveyance of all or substantially all of our property or business, shall not
be deemed to constitute our liquidation, dissolution or winding up.
Voting Rights
Holders of 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.
Whenever dividends on any preferred shares shall be in arrears for six or
more consecutive quarterly periods, the holders of such preferred shares
(voting separately as a class with all other series of preferred shares upon
which like voting rights have been conferred and are exercisable) will be
entitled to vote for the election of two additional Trustees at a special
meeting called by the holders of record of at least ten percent (10%) of any
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series of preferred shares so in arrears (unless such request is received less
than 90 days before the date fixed for the next annual or special meeting of
the shareholders) or at the next annual meeting of shareholders, and at each
subsequent annual meeting until (i) if such series of preferred shares has a
cumulative dividend, all dividends accumulated on such shares of preferred
shares for the past dividend periods and the then current dividend period
shall have been fully paid or declared and a sum sufficient for the payment
thereof set aside for payment or (ii) if such series of preferred shares do
not have a cumulative dividend, four consecutive quarterly dividends shall
have been fully paid or declared and a sum sufficient for the payment thereof
set aside for payment. In such case, the entire Board of Trustees will be
increased by two Trustees.
Unless provided otherwise for any series of preferred shares, so long as any
preferred shares remain outstanding, we will not, without the affirmative vote
or consent of the holders of at least two-thirds of each series of preferred
shares outstanding at the time, given in person or by proxy, either in writing
or at a meeting (such series voting separately as a class), (i) authorize or
create, or increase the authorized or issued amount of, any class or series of
capital shares ranking prior to such series of preferred shares with respect
to the payment of dividends or the distribution of assets upon liquidation,
dissolution or winding up or reclassify our authorized capital shares into
such shares, or create, authorize or issue any obligation or security
convertible into or evidencing the right to purchase any such shares; or (ii)
amend, alter or repeal the provisions of our Trust Agreement or the
Designating Amendment for such series of preferred shares, whether by merger,
consolidation or otherwise (an "Event"), so as to materially and adversely
affect any right, preference, privilege or voting power of such series of
preferred shares or the holders thereof, provided, however, with respect to
the occurrence of any of the Events set forth in (ii) above, so long as the
preferred shares remain outstanding with the terms thereof materially
unchanged, taking into account that upon the occurrence of an Event, we may
not be the surviving entity, the occurrence of any such Event shall not be
deemed to materially and adversely affect such rights, preferences, privileges
or voting power of holders of preferred shares and provided further that (x)
any increase in the amount of the authorized preferred shares or the creation
or issuance of any other series of preferred shares, or (y) any increase in
the amount of authorized shares of such series or any other series of
preferred shares, in each case ranking on a parity with or junior to the
preferred shares of such series with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up, shall not
be deemed to materially and adversely affect such rights, preferences,
privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding preferred shares of such series shall have been
redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
Conversion Rights
The terms and conditions, if any, upon which any series of preferred shares
is convertible into shares will be set forth in the applicable prospectus
supplement relating thereto. Such terms will include the number of 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 our preferred shares, the
events requiring an adjustment of the conversion price and provisions
affecting conversion in the event of the redemption of such series of
preferred shares and the listing on the New York Stock Exchange of the shares
into which the preferred shares are convertible.
Limited Liability of Shareholders
As discussed below under "Description of Shares of Beneficial Interest --
Limited Liability of Shareholders," the Trust Agreement provides that
shareholders are not liable for assessment by us and that the Trustees have no
general power to bind them personally. In the opinion of Drinker Biddle &
Reath LLP, counsel to the Company, under Pennsylvania law no personal
liability will attach to any shareholder under any undertaking or obligation
of ours. However, there may be liability in some jurisdictions which may
decline to recognize a business trust as a valid organization. With respect to
all types of claims in such jurisdictions, and with respect to tort claims,
contract claims where the required provision is omitted, and possible tax
claims in jurisdictions where the business trust is treated as a partnership
for certain purposes, shareholders may be
22
personally liable for such obligations to the extent that we do not satisfy
such claims. We carry insurance in amounts which the Trustees deem adequate to
cover foreseeable tort claims.
Restrictions on Ownership
As discussed below under "Description of Shares of Beneficial Interest --
Restrictions on Transfers," for us to qualify as a REIT under the Code, not
more than 50% in value of our outstanding shares may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year. To assist us in
meeting this requirement, we may take certain actions to limit the beneficial
ownership, directly or indirectly, by a single person of our outstanding
equity securities, including any preferred shares. Therefore, the Designating
Amendment for each series of preferred shares may contain provisions
restricting the ownership and transfer of preferred shares.
Registrar and Transfer Agent
The Registrar and Transfer Agent for the preferred shares will be set forth
in the applicable prospectus supplement.
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
Under the Trust Agreement, we have the authority to issue up to 100,000,000
shares and up to 25,000,000 preferred shares.
General Provisions
Voting, Dividend and Other Rights. Subject to the provisions of the Trust
Agreement regarding "Excess Shares" (See "-- Restrictions on Transfer"), (i)
the holders of the shares are entitled to one vote per share on all matters
voted on by the shareholders, including elections of the Trustees, and (ii),
subject to the rights of holders of any preferred shares, the holders of the
shares are entitled to a pro rata portion of such distributions as may be
declared from time to time by the Trustees from funds available therefor, and
upon liquidation are entitled to receive pro rata all of our assets available
for distribution to such holders. The majority of shares voting on a matter at
a meeting at which at least a majority of the shares are present in person or
by proxy constitutes the act of the shareholders, except with respect to the
election of Trustees (see below). Although the shareholders generally possess
all of the voting power, the Trust Agreement permits the holders of securities
of our affiliates to vote with the shareholders on certain matters, and the
Trustees have exercised that right as to holders of currently outstanding
units of limited partnership interest in the Operating Partnership ("OP
Units") with respect to fundamental changes in us (i.e. mergers,
consolidations and sales of substantially all of our assets). See "Summary of
the Operating Partnership Agreement - Authorization of OP Units and Voting
Rights." All shares are fully paid and nonassessable. Shareholders do not have
any pre-emptive rights to purchase our securities.
The Trust Agreement provides that the Trustees may issue multiple classes
and series of shares of beneficial interest (including classes and series of
preferred shares having preferences to the existing shares in any matter,
including rights in liquidation or to dividends) and options, rights
(including shareholder rights plans), and other securities having conversion
or option rights and may authorize the creation and issuance by our
subsidiaries and affiliates of securities having conversion and option rights
in respect of shares. Thus, the rights of holders of existing shares are
subject to preferred rights as to dividends and in liquidation (and other such
matters) to the extent set forth in any subsequently authorized preferred
shares or class of preferred shares.
Board of Trustees. The Board of Trustees is divided into three classes
serving staggered three-year terms. The Trust Agreement does not provide for
cumulative voting in the election of Trustees, and the candidates receiving
the highest number of votes are elected to the office of Trustee.
Trustee Nomination Process. The Trust Agreement provides that nominations
for election to the office of Trustee at any Annual or Special Meeting of
Shareholders shall be made by the Trustees, or by petition in writing
delivered to our Secretary not fewer than thirty-five days before the meeting
signed by the holders of at least two percent of the shares outstanding on the
date of the petition. Nominations not made in accordance with these procedures
will not be considered unless the number of persons nominated is fewer than
the number of persons to
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be elected to the office of Trustee at the meeting. In this latter event,
nominations for the Trustee positions which would not otherwise be filled may
be made at the meeting by any person entitled to vote in the election of
Trustees.
Transfer Agent. The transfer agent for the shares is American Stock
Transfer and Trust Company.
Shareholder Rights Plan
Each right entitles its registered holder to purchase from us one share at a
price of $70.00 (the "Exercise Price"), subject to certain adjustments. The
description and terms of the rights are set forth in a Rights Agreement, dated
as of April 30, 1999, as the same may be amended from time to time (the
"Rights Agreement"), between us and American Stock Transfer and Trust Company,
as rights agent (the "Rights Agent").
The rights, unless earlier redeemed or exchanged by the Board of Trustees,
become exercisable upon the close of business on the day (the "Distribution
Date") that is the earlier of (i) the tenth day following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person"), with certain exceptions set forth below, has acquired
beneficial ownership or voting control of 15% or more of our outstanding
voting shares, and (ii) the tenth business day (or such later date as may be
determined by the Board of Trustees prior to such time as any person or group
of affiliated or associated persons becomes an Acquiring Person) after the
date of the commencement or public announcement of a person's or group's
intention to commence a tender or exchange offer the consummation of which
would result in the acquisition of beneficial ownership or voting control of
15% or more our outstanding voting shares (even if no shares are actually
acquired pursuant to such offer). The rights will expire at the close of
business on March 31, 2009, unless earlier redeemed or exchanged by us as
described below.
Unless the rights are earlier redeemed or exchanged, in the event that a
person or group of affiliated or associated persons becomes an Acquiring
Person, the Rights Agreement provides that each holder of record of a right,
other than the Acquiring Person (whose rights will thereupon become null and
void), will thereafter have the right to receive, upon payment of the Exercise
Price, that number of shares having a market value at the time of the
transaction equal to two times the Exercise Price. In addition, unless the
rights are earlier redeemed or exchanged, in the event that, after the time
that a person or group of affiliated or associated persons becomes an
Acquiring Person, we were to be acquired in a merger or other business
combination (in which any shares are changed into or exchanged for other
securities or assets) or more than 50% of our assets or earning power and that
of our subsidiaries (taken as a whole) were to be sold or transferred in one
or a series of related transactions, the Rights Agreement provides that proper
provision will be made so that each holder of record of a right, other than
the Acquiring Person (whose rights will thereupon become null and void), will
from and after such date have the right to receive, upon payment of the
Exercise Price, that number of shares of common stock of the acquiring entity
having a market value at the time of such transaction equal to two times the
Exercise Price.
At any time after any person or group of affiliated or associated persons
becomes an Acquiring Person and prior to the acquisition by such Acquiring
Person of 50% or more of our outstanding voting shares, the Board of Trustees
may exchange the rights (other than rights owned by the Acquiring Person which
will have become null and void), in whole or in part, at an exchange ratio of
one share per right (subject to adjustment).
The rights have anti-takeover effects in that they will cause substantial
dilution to a person or group of affiliated or associated persons that
attempts to acquire us on terms not approved by the Board of Trustees. The
rights should not interfere with any merger or other business combination
approved by the Board of Trustees because the rights may be redeemed by us at
$0.001 per right at any time until the close of business on the tenth day (or
such later date as described above) after a person or group has obtained
beneficial ownership or voting control of 15% or more of the voting shares.
Limited Liability of Shareholders
The Trust Agreement provides that shareholders, to the fullest extent
permitted by applicable law, as amended or supplemented, are not liable for
any act, omission or liability of a Trustee and that the Trustees have no
general power to bind shareholders personally. Notwithstanding the foregoing,
there may be liability in some
24
jurisdictions that may decline to recognize a business trust as a valid
organization. With respect to all types of claims in such jurisdictions, and
with respect to tort claims, contract claims where the required provision is
omitted, and possible tax claims in jurisdictions where the business trust is
treated as a partnership for certain purposes, shareholders may be personally
liable for such obligations to the extent that we do not satisfy such claims.
We conduct substantially all of our business in jurisdictions other than the
Commonwealth of Pennsylvania in entities recognized in the relevant
jurisdiction to limit the liability of equity owners. We carry insurance in
amounts which the Trustees deem adequate to cover foreseeable tort claims.
Restrictions on Transfer
Among the requirements for our qualification as a REIT under the Code are,
(i) not more than 50% in value of our outstanding shares of beneficial
interest (after taking into account options to acquire stock) may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code
to include certain entities) during the last half of a taxable year, (ii) the
shares must be beneficially owned by 100 or more persons during at least 335
days of a taxable year of 12 months or during a proportionate part of a
shorter taxable year, and (iii) certain percentages of our gross income must
be from particular activities. In order to continue to qualify as a REIT under
the Code, the Trustees have adopted, and the shareholders have approved,
provisions of the Trust Agreement that restrict the ownership and transfer of
shares (the "Ownership Limit Provisions").
The Ownership Limit Provisions provide that no person may beneficially own,
or be deemed to own by virtue of the attribution provisions of the Code, more
than 9.9% of our shares of beneficial interest, whether measured by vote,
value or number of our outstanding shares. The Trustees may waive the
Ownership Limit Provisions if evidence satisfactory to the Trustees and our
tax counsel is presented that such ownership will not jeopardize our status as
a REIT.
Issuance or transfers of shares in violation of the Ownership Limit
Provisions or which would cause us to be beneficially owned by fewer than 100
persons are void ab initio and the intended transferee acquires no rights to
the shares.
In the event of a purported transfer or other event that would, if
effective, result in the ownership of shares in violation of the Ownership
Limit Provisions, such transfer or other event with respect to that number of
shares that would be owned by the transferee in excess of the Ownership Limit
Provisions automatically are exchanged for excess shares (the "Excess
Shares"), authorized by the Trust Agreement, according to the rules set forth
therein, to the extent necessary to insure that the purported transfer or
other event does not result in the ownership of shares in violation of the
Ownership Limit Provisions. Any purported transferee or other purported holder
of Excess Shares is required to give written notice to us of a purported
transfer or other event that would result in the issuance of Excess Shares.
Excess Shares are not treasury shares but rather continue as issued and
outstanding shares of beneficial interest. While outstanding, Excess Shares
will be held in trust. The trustee of such trust shall be us. The beneficiary
of such trust shall be designated by the purported holder of shares. Excess
Shares are not entitled to any dividends or distributions. If, after the
purported transfer or other event resulting in an exchange of shares of
beneficial interest for Excess Shares and prior to our discovery of such
exchange, dividends or distributions are paid with respect to the shares that
were exchanged for Excess Shares, then such dividends or distributions are to
be repaid to us upon demand. Excess Shares participate ratably (based on the
total number of shares and Excess Shares) in any liquidation, dissolution or
winding up of the Company. Except as required by law, holders of Excess Shares
are not entitled to vote with respect to such shares on any matter. While
Excess Shares are held in trust, any interest in that trust may be transferred
by the trustee only to a person whose ownership of shares will not violate the
Ownership Limit Provisions, at which time the Excess Shares will be
automatically exchanged for the same number of shares of the same type and
class as the shares for which the Excess Shares were originally exchanged. The
Trust Agreement contains provisions that are designed to insure that the
purported transferee or other purported holder of Excess Shares may not
receive in return for such a transfer an amount that reflects any appreciation
in the shares for which Excess Shares were exchanged during the period that
such Excess Shares were outstanding. Any amount received by a purported
transferee or other purported holder in excess of the amount permitted to be
received must be paid to us. If the foregoing restrictions are determined to
be invalid by any court of competent jurisdiction then the intended transferee
or holder of any Excess Shares may be deemed,
25
at our option, to have acted as an agent on our behalf in acquiring such
Excess Shares and to hold such Excess Shares on our behalf.
The Trust Agreement further provides that Excess Shares shall be deemed to
have been offered for sale to us at the lesser of the price paid for the
shares by the purported transferee or in the case of a gift, devise or other
transaction, the market price for such shares at the time of such gift, devise
or other transaction or the market price for the shares on the date we or our
designee exercises its option to purchase. We may purchase such Excess Shares
during a 90-day period, beginning on the date of the violative transfer if the
original transferee-shareholder gives notice to us of the transfer or, if no
notice is given, the date the Board of Trustees determines that a violative
transfer has been made.
Each shareholder upon demand is required to disclose to us in writing such
information with respect to the direct, indirect and constructive ownership of
shares as the Board of Trustees deems necessary to comply with the provisions
of the Trust Agreement or the Code applicable to a REIT or to comply with the
requirements of any taxing authority or governmental agency. Certificates
representing shares of any class or series issued after September 29, 1997
will bear a legend referring to the restrictions described above.
Change-in-Control Provisions
In addition to our shareholder rights plan, the following may deter a
potential acquiror from acquiring us:
Ownership Limit. In order to protect our status as a REIT, we must satisfy
certain conditions, including the conditions that: (i) no more than 50% in
value of the outstanding shares may be owned, directly or indirectly, by five
or fewer individuals; and (ii) the shares must be beneficially owned by 100 or
more persons during at least 335 days of a taxable year of 12 months or during
a proportionate part of a shorter taxable year. To this end, the Trust
Agreement, among other things, prohibits: (a) any holder from owning more than
9.9% of our outstanding shares of beneficial interest without the consent of
the Board of Trustees after evidence satisfactory to the Trustees and our tax
counsel is presented evidencing that such ownership will not jeopardize our
tax status as a REIT, and (b) transfers of shares that would cause us to be
beneficially owned by fewer than 100 persons.
Staggered Board. Our Board of Trustees has three classes of trustees. The
term of office of one class expires each year. Trustees for each class are
elected for three-year terms upon the expiration of the respective class'
term. The staggered terms for trustees may affect our shareholders' ability to
take control of us, even if a change in control were in the shareholders'
interest.
Multiple Classes and Series of Shares of Beneficial Interest. The Trust
Agreement provides that the Trustees may create and issue multiple classes and
series of preferred shares of beneficial interest (including classes and
series of preferred shares having preferences to the existing shares in any
matter, including rights in liquidation or to dividends) and options, rights
(including shareholder rights plans), and other securities having conversion
or option rights and may authorize the creation and issuance by our
subsidiaries and affiliates of securities having conversion and option rights
in respect of shares. The Trust Agreement further provides that the terms of
such rights or other securities may provide for disparate treatment of certain
holders or groups of holders of such rights or other securities. The issuance
of such rights or preferred shares could have the effect of delaying or
preventing a change of control over us, even if a change in control were in
the shareholders' interest. As described above, we are party to a shareholder
rights plan, but no preferred shares are currently issued or outstanding.
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SUMMARY OF THE TRUST AGREEMENT
The following summary of the Trust Agreement is qualified in its entirety by
reference to the Trust Agreement, which is incorporated by reference as an
exhibit to the Registration Statement of which this prospectus is a part.
The Trustees
The Trustees are divided into three classes, with each member of a class
elected for a term of three years or until his successor is duly elected and
qualified. The Trust Agreement provides that there will be not fewer than five
nor more than 15 Trustees. The Trustees are not required to furnish a bond.
Trustees may resign at any time, but no resignation is effective until a
successor is elected if its effect would be to reduce the number of Trustees
below five. The Trustees may fill vacancies that shall have occurred as a
result of an increase in the number of Trustees or by reason of the death,
resignation or incapacity of any of the Trustees. A Trustee chosen by the
other Trustees to fill a vacancy that has occurred as a result of an increase
in the number of Trustees will serve until the next annual or special meeting
of shareholders and until his successor is elected and qualified. A Trustee
chosen by other trustees to fill a vacancy created by reason of the death,
resignation or incapacity of a Trustee will hold office for the full remaining
term of the former Trustee and until his successor is elected and qualified.
At meetings to elect Trustees, the holders of a majority of shares represented
will elect Trustees for the term of the class of Trustees being elected. The
shareholders may also elect Trustees to fill a vacancy that the other Trustees
have not filled. Two-thirds of the serving Trustees have the right at any time
to remove any of their number, including a Trustee elected by the
shareholders, for any cause deemed by them to be sufficient. Any Trustee may
be removed for cause by the holders of a majority of the outstanding shares
then outstanding and entitled to vote. A vacancy created by the removal of a
Trustee by the other Trustees may be filled only by the shareholders at their
next annual meeting or a special meeting called for that purpose unless there
are fewer than five Trustees, in which case the remaining Trustees are
required to elect a sufficient number of persons so that at least five will be
serving. Regular meetings of the shareholders are held annually, and special
meetings of the shareholders may be called upon proper notice.
The concurrence of a majority of the Trustees present at any meeting where
there is a quorum, or the written consent of a majority of the Trustees then
serving, is necessary for the validity of any action taken. In no event may
action be taken without the concurrence, at a meeting or by consent in
writing, of at least four Trustees. A majority of the Trustees, provided that
the majority consists of at least four Trustees, constitutes a quorum.
However, if there are fewer than five Trustees, the remainder must act to fill
vacancies to bring the total number of Trustees to at least five.
The Trustees may hold legal title to our properties on our behalf or
designate persons to so hold on our behalf. The Trustees have complete control
of the conduct of our business, including investments, sales, leasing,
issuance of additional shares, borrowing and distributions to shareholders
without the necessity of securing shareholder approval.
Indemnification
The Trustees are not liable for errors of judgment or any loss to us in the
absence of self-dealing, willful misconduct or recklessness. The Trustees are
indemnified from all claims or liabilities asserted against them by reason of
their positions, if the Trustee acted in good faith and in a manner that the
Trustee reasonably believed to be in, or not opposed to, our best interests
and, with respect to any criminal proceeding, had no reason to believe that
the Trustee's conduct was unlawful.
Transactions with Trustees
The Trustees may deal with us by rendering services for reasonable
compensation, buying property from or selling property to us or otherwise. No
Trustee shall have any liability for such transactions approved by a majority
of the other Trustees, except for his bad faith or gross negligence, and any
such Trustee may be counted in determining the existence of a quorum at any
meeting of the Board of Trustees that authorizes any such transaction and may
vote at the meeting to authorize any such transaction.
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Term
Our term is perpetual. Our existence does not terminate automatically if we
fail to maintain our qualification as a real estate investment trust for tax
purposes.
Fundamental Transactions; Amendments
Any merger to which we are a party (other than a merger of any entity with
and into us in which we owned at least 80% of the voting power immediately
prior to the merger and other than a merger that does not affect the aggregate
ownership interests of our shareholders in the surviving entity) and any sale
or transfer of all or substantially all of our assets (other than to an entity
directly or indirectly controlled by us) must be approved by the affirmative
vote of a majority of the votes cast by the holders of all shares entitled to
vote thereon (other than the holders of shares of a class or series of shares
entitled to vote thereon exclusively as a separate class or series) and by a
majority of the votes cast by the holders of any class or series entitled to
vote thereon separately as a class or series.
Amendments to the Trust Agreement can be made by the consent of two-thirds
of the Trustees, but not fewer than four. However: (i) no amendment to
increase the liability of shareholders shall be effective without the consent
of the holders of two-thirds of each class or series of shares outstanding;
(ii) no amendment may require additional contributions from or assessments
against shareholders; and (iii) no amendment (A) increasing our authorized
capitalization, or (B) having the reasonably foreseeable effect of impeding or
preventing a "Control Transaction" shall be effective unless approved by a
majority of the votes cast by all shareholders entitled to vote thereon (other
than the holders of any class or series entitled to vote thereon exclusively
as a separate class or series) and a majority of the votes cast by the holders
of any class or series entitled to vote thereon separately as a class or
series. As used in the Trust Agreement, the term "Control Transaction" means
the acquisition by any person or group of our shares having at least 20% of
the votes that all shareholders are entitled to cast in the election of
Trustees.
Applicable Law
The Trust Agreement provides that it shall be construed in accordance with
Pennsylvania law.
DESCRIPTION OF SHARE WARRANTS
We may issue share warrants for the purchase of shares. Share warrants may
be issued independently or together with any other securities offered by any
prospectus supplement and may be attached to or separate from such securities.
Each series of share warrants will be issued under a separate warrant
agreement (each, a "Warrant Agreement") to be entered into between us and a
bank or trust company, as warrant agent specified in the applicable prospectus
supplement relating to the particular issue of Warrants (the "Warrant Agent").
The Warrant Agent will act solely as our agent in connection with the share
warrants of such series and will not assume any obligation or relationship of
agency or trust for or with any holders or beneficial owners of share
warrants. The following sets forth certain general terms and provisions of the
share warrants offered hereby. Further terms of the share warrants and the
applicable Warrant Agreements will be set forth in the applicable prospectus
supplement to be filed with the SEC and incorporated by reference as an
exhibit to the registration statement of which this prospectus is a part at or
prior to the time of the issuance of such series of share warrants.
The applicable prospectus supplement will describe the terms of the share
warrants to be issued, including, where applicable, the following: (i) the
title of such share warrants; (ii) the aggregate number of such share
warrants; (iii) the price or prices at which such share warrants will be
issued; (iv) the designation, number and terms of the shares purchasable upon
exercise of such share warrants; (v) the designation and terms of the other
securities offered thereby with which such share warrants are issued and the
number of such share warrants issued with each such Security offered thereby;
(vi) the date, if any, on and after which such share warrants and the related
shares will be separately transferable; (vii) the price at which each of the
shares purchasable upon exercise of such share warrants may be purchased;
(viii) the date on which the right to exercise such share warrants shall
commence and the date on which such right shall expire; (ix) the minimum or
maximum number of such share warrants which may be exercised at any one time;
(x) information with respect to book entry procedures, if any; (xi) a
discussion of certain federal income tax considerations; and (xii) any other
terms of such share warrants, including terms, procedures and limitations
relating to the exchange and exercise of such share warrants.
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DESCRIPTION OF SHAREHOLDER RIGHTS
We may issue shareholder rights to our shareholders for the purchase of
shares. Rights may be issued independently or together with any other
securities offered by any prospectus supplement and may be attached to or
separate from such securities. Each series of rights will be issued under a
separate rights agreement (each, a "Rights Agreement") to be entered into
between us and a bank or trust company, as rights agent specified in the
applicable prospectus supplement relating to the particular issue of rights
(the "Rights Agent"). The Rights Agent will act solely as our agent in
connection with the rights and will not assume any obligation or relationship
of agency or trust for or with any holders or beneficial owners of rights. The
following sets forth certain general terms and provisions of the rights
offered hereby. Further terms of the rights and the applicable Rights
Agreements will be set forth in the applicable prospectus supplement to be
filed with the SEC and incorporated by reference as an exhibit to the
registration statement of which this prospectus is a part at or prior to the
time of the issuance of such series of rights.
The applicable prospectus supplement will describe the terms of the rights
to be issued, including, where applicable, the following: (i) the date for
determining the shareholders entitled to the Rights distribution; (ii) the
aggregate number of shares purchasable upon exercise of such rights and the
exercise price; (iii) the aggregate number of rights being issued; (iv) the
date, if any, on and after which such rights may be separately transferable;
(v) the date on which the right to exercise such rights shall commence and the
date on which such rights shall expire; (vi) the minimum or maximum number of
such rights which may be exercised at any one time; (vii) a discussion of
certain federal income tax considerations; and (viii) any other terms of such
rights, including terms, procedures and limitations relating to the
distribution, exchange and exercise of such rights. Rights will be exercisable
for United States dollars only and will be in registered form only.
SUMMARY OF THE OPERATING PARTNERSHIP AGREEMENT
The following summary of the First Amended and Restated Agreement of Limited
Partnership of PREIT Associates, L.P. (the "Operating Partnership Agreement")
is qualified in its entirety by reference to the Operating Partnership
Agreement, which is incorporated by reference as an exhibit to the
registration statement of which this prospectus is a part.
General
We are the sole general partner of the Operating Partnership. We contributed
to the Operating Partnership, or to entities wholly owned by the Operating
Partnership, the real estate interests owned, directly or indirectly, by us,
or the economic benefits thereof, in exchange for a general partnership
interest in the Operating Partnership and a number of Class A OP Units that
equaled, in the aggregate, the number of our shares of beneficial interest
issued and outstanding on September 30, 1997.
Management
Under the Operating Partnership Agreement, we, as the sole general partner
of the Operating Partnership, have the authority, to the exclusion of the
limited partners, to make all management decisions on behalf of the Operating
Partnership. In addition, we, as general partner, will have the ability to
cause the Operating Partnership to create and issue subsequent classes of
limited or preferred partner interests with terms different from the limited
partner and general partner interests issued in connection with our
acquisition of The Rubin Organization, Inc. (the "TRO Transaction"). We have
agreed in the Operating Partnership Agreement to conduct substantially all of
our business activities through the Operating Partnership unless a majority in
interest of the OP Units (exclusive of OP Units owned by us) consent to the
conduct of business activities outside the Operating Partnership.
Authorization of OP Units and Voting Rights
The Operating Partnership Agreement authorizes the issuance of an unlimited
number of OP Units in one or more classes. Holders of OP Units are entitled to
distributions from the Operating Partnership as and when made by the general
partner. Since the general partner will, of necessity, have to make
distributions on the Class A OP Units held directly or indirectly by it at the
times and in the amounts as will permit it to make distributions to our
shareholders necessary to preserve our status as a REIT for federal income tax
purposes, it is anticipated that the
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holders of OP Units will receive such distributions at the approximate time,
and in the same amounts, as distributions are declared and paid by us to the
shareholders.
Holders of OP Units generally will have no right to vote on any matter voted
on by holders of shares except that prior to the date on which at least half
of the OP Units issued on September 30, 1997 (other than to us or an affiliate
of us) have been redeemed, the holders of OP Units issued on September 30,
1997 (other than us or an affiliate of us) shall be entitled to vote, as a
single class, on any proposal to merge, consolidate, or sell substantially all
of our assets if the holders of shares vote thereon and, in such event,
holders of OP Units will be entitled to one vote for each share issuable by us
upon the redemption of one OP Unit and the necessary vote to effect such
action shall be the sum of an absolute majority of the outstanding OP Units
and the applicable vote of the holders of the shares, which such vote may be
met by any combination of holders of the OP Units and the shares.
The Operating Partnership Agreement also provides that we may not engage in
a fundamental transaction (e.g., a merger) unless, by the terms of such
transaction, the OP Units are treated in the same manner as that number of
shares for which they are exchangeable by us upon notice of redemption are
treated and that holders of OP Units will have the right to vote on certain
amendments to the Operating Partnership Agreement.
Redemption Rights
As of the date of this prospectus, the Operating Partnership had outstanding
15,359,011 Class A OP Units and 227,769 Class B OP Units. Class A and Class B
OP Units are redeemable by the Operating Partnership at the election of a
limited partner holding such units, at such time, and for such consideration,
as set forth in the Operating Partnership Agreement. In general, and subject
to certain exceptions and limitations, holders of OP Units (other than us and
our subsidiaries) may, beginning one year following the respective issue
dates, give one or more notices of redemption with respect to all or any part
of the Class A OP Units so received and then held by such party. Class B OP
Units are redeemable at the option of the holder at any time after issuance.
If a notice of redemption is given, we have the right to elect to acquire
the Units tendered for redemption for our own account, either in exchange for
the issuance of a like number of shares (subject to adjustments for stock
splits, recapitalizations, and like events) or a cash payment equal to the
average closing price of the shares over the ten consecutive trading days
immediately prior to receipt by us, in our capacity as general partner of the
Operating Partnership, of the notice of redemption. If we decline to exercise
such right, then on the tenth day following tender for redemption, the
Operating Partnership will pay a cash amount equal to the number of OP Units
so tendered multiplied by such average closing price.
Registration Rights
At the TRO Closing, we entered into Registration Rights Agreements with
those persons receiving or entitled to receive (i) Class A OP Units in respect
of shares of TRO and/or their interests in certain properties acquired by the
Operating Partnership in the TRO Transaction and (ii) the Class B OP Units
issued in the TRO Transaction. In general, the Registration Rights Agreement
for the holders of Class A OP Units provides that those parties receiving and
entitled to receive Class A OP Units in the TRO Transaction will be entitled
to cause us, subject to exclusions and limitations commonly found in
agreements of this type, to register shares issuable upon redemption of such
OP Units for resale by them in connection with other registration statements
filed by us. This Registration Rights Agreement contains provisions dealing
with registration procedures, holdbacks, responsibility for expenses,
indemnification, and other customary provisions.
If the former TRO shareholders having piggyback registration rights do not
have an opportunity to exercise those rights before a specified period
following the last issuance of Class A OP Units pursuant to the TRO
Transaction, these former TRO shareholders will have the right to cause us to
file a registration statement covering the resale of the shares issuable upon
redemption of such OP Units. In such event, we will be obligated to use our
commercially reasonable efforts to cause the registration statement to become
effective within 60 days after filing and to remain effective for not less
than two years (or until the date on which shares may be sold without
registration, if earlier).
We also entered into Registration Rights Agreements with other holders of
Class A and Class B OP Units, pursuant to which we have agreed to file and
maintain registration statements covering resales from time to time
30
of shares obtained in connection with the redemption of Class A and Class B OP
Units. We have agreed to use our reasonable best efforts to include in such
registration statement resales of shares issued upon redemption of Class A OP
Units issued in connection with the TRO Transaction.
Other Rights
If the Operating Partnership determines to sell, before the fifth
anniversary of the date on which a property is acquired by the Operating
Partnership, certain specified properties for which Class A OP Units were
issued in the TRO Transaction, and the holders of a majority of the then
outstanding Class A OP Units issued to the former affiliates of TRO object to
such sale, the sale will not be consummated unless (i) the sale constitutes an
exchange under Section 1031 of the Code or (ii) the sale is in connection with
the proposed sale of all or substantially all of the assets of the Operating
Partnership.
Pursuant to a separate agreement by and between us and an affiliate of the
holder of Class B OP Units, before September 30, 2001, the Operating
Partnership may not sell or otherwise dispose of Magnolia Mall in a
transaction in which taxable gain is recognized unless (i) the sale
constitutes an exchange under Section 1031 of the Code and no gain is
recognized on such sale or (ii) the sale is in connection with a program to
sell substantially all of the Operating Partnership's (and its affiliates')
retail assets to an entity not affiliated with the Operating Partnership and
at least 80% of the retail properties owned by the Operating Partnership have
been sold or are under binding contracts of sale with unaffiliated third
parties and are scheduled to close within six months of the date of the
closing of the sale of Magnolia Mall.
FEDERAL INCOME TAX CONSIDERATIONS
General
The following discussion summarizes the federal income tax considerations
that may be material to a prospective holder of shares. Drinker Biddle & Reath
LLP, our counsel, has provided an opinion letter to us respecting the
discussion set forth below under this heading "Federal Income Tax
Considerations," and the opinion is included as an Exhibit to the registration
statement. The following discussion, which is not exhaustive of all possible
tax considerations, does not give a detailed discussion of any state, local or
foreign tax considerations; nor does it discuss all of the aspects of federal
income taxation that may be relevant to a prospective shareholder in light of
his or her particular circumstances or to certain types of shareholders
(including insurance companies, tax-exempt entities, financial institutions or
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) who are subject to special treatment under the
federal income tax laws.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP AND SALE OF SHARES IN AN ENTITY ELECTING TO BE TAXED AS A REIT,
INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE
TAX LAWS.
Taxation of the Company
General. The Company is designed to qualify and has elected to qualify as a
"real estate investment trust" under Sections 856 through 860 of the Code. The
Company believes that it has been organized and has operated in a manner to
qualify for taxation as a REIT under the Code, and the Company intends to
continue to operate in this manner. No assurance, however, can be given that
the Company has operated in a manner so as to qualify as a REIT or that it
will continue to operate in this manner in the future. Qualification and
taxation as a REIT depends upon the Company's ability to meet on a continuing
basis, through actual annual operating results, distribution levels and
diversity of share ownership, the various qualification tests imposed under
the Code on REITs, some of which are summarized below. While the Company
intends to operate so that it qualifies as a REIT, given the highly complex
nature of the rules governing REITs, the ongoing importance of factual
determinations, and the possibility of future changes in circumstances of the
Company, no assurance can be given that the Company satisfies these tests or
will continue to do so. See "Failure to Qualify" below.
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The following is a general summary of the Code provisions that govern the
Federal income tax treatment of a REIT and its shareholders. These provisions
of the Code are highly technical and complex. This summary is qualified in its
entirety by the applicable Code provisions, Treasury Regulations and
administrative and judicial interpretations thereof. If the Company qualifies
for taxation as a REIT, it generally will not be subject to Federal corporate
income taxes on net income that it currently distributes to shareholders.
However, the Company will be subject to Federal income tax on any income that
it does not distribute and will be subject to Federal income tax in certain
circumstances on certain types of income even though that income is
distributed.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (i) that is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares of
stock, or by transferable certificates of beneficial interest; (iii) that
would be taxable as a domestic corporation, but for Sections 856 through 859
of the Code; (iv) that is neither a financial institution nor an insurance
company subject to certain provisions of the Code; (v) the beneficial
ownership of which is held by 100 or more persons; (vi) that during the last
half of each taxable year not more than 50% in value of the outstanding stock
of which is owned, directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities); and (vii) that meets certain
other tests, described below, regarding the nature of its income and assets.
The Code provides that conditions (i) through (iv), inclusive, must be met
during the entire taxable year and that condition (v) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part
of a taxable year of less than 12 months. The Company's Trust Agreement
provides certain disclosure requirements for 1% or greater shareholders and
certain restrictions regarding the transfers of Company shares that are
intended to assist the Company in continuing to satisfy the share ownership
requirements described in (v) and (vi) above.
A REIT is permitted to have a wholly owned subsidiary (also referred to as a
"qualified REIT subsidiary"). A qualified REIT subsidiary is not treated as a
separate entity for Federal income tax purposes. Rather, all of the assets,
liabilities and items of income, deductions and credit of a qualified REIT
subsidiary are treated as if they were those of the REIT.
A REIT is also generally permitted to own any percentage of the stock of a
corporation (a "taxable REIT subsidiary"), provided that the aggregate value
of the REIT's interests in taxable REIT subsidiaries and other securities does
not exceed 20% of the value of the REIT's gross assets. A corporation that is
wholly or partially owned by a REIT will qualify as a "taxable REIT
subsidiary" if both the REIT and the subsidiary so elect.
A REIT is deemed to own its proportionate share of the assets of a
partnership in which it is a partner and is deemed to receive its
proportionate share of the income of the partnership. Thus, the Company's
proportionate share of the assets, liabilities and items of income of PREIT
Associates (the "Operating Partnership") and each of the real estate
partnerships or other pass-through entities in which PREIT Associates holds an
interest (the "Title Holding Partnerships") will be treated as assets,
liabilities and items of income of the Company for purposes of applying the
requirements described herein, provided that PREIT Associates and the Title
Holding Partnerships are treated as partnerships for Federal income tax
purposes.
Income Tests. To maintain its qualification as a REIT, a REIT must satisfy
two gross income requirements each year. First, at least 75% of the REIT's
gross income (excluding gross income from prohibited transactions) for each
year must be derived directly or indirectly from investments in real property
or mortgages on real property (including "rents from real property" and, in
certain circumstances, interest) or from certain types of temporary
investments. Second, at least 95% of the REIT's gross income (excluding gross
income from prohibited transactions) for each year must be derived from the
same items that qualify under the 75% income test, and from dividends,
interest and gain from the sale or disposition of stock or securities, or from
any combination of the foregoing.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions (related to the identity of the tenant, the computation of
the rent payable, and the nature of the property leased) are met. The Company
does not anticipate receiving rents in excess of five (5%) percent of gross
income that fail to meet these conditions. In addition, for rents received to
qualify as "rents from real property," the Company generally must not operate
or manage the property or furnish or render more than a de minimus amount of
services to tenants, other than through an "independent contractor" from whom
the Company derives no revenue or a "taxable REIT subsidiary." The
32
"independent contractor" requirement, however, does not apply to the extent
the services provided by the Company are "usually or customarily rendered" in
connection with the rental of space for occupancy only and are not otherwise
considered "rendered to the occupant." Although PREIT-RUBIN renders services
with respect to rental properties of PREIT Associates and the Title Holding
Partnerships, and PREIT-RUBIN does not constitute an "independent contractor"
for this purpose, the Company believes that the services being provided by
PREIT-RUBIN with respect to these properties in past years have been usual or
customary or should not otherwise be considered "rendered to the occupant."
Moreover, for years beginning after December 31, 2000, the Company has elected
for PREIT-RUBIN to be treated as a taxable REIT subsidiary. The Company
believes that the aggregate amount of any nonqualifying income in any taxable
year earned by PREIT Associates and the Title Holding Partnerships has not
caused, and will not cause, the Company to exceed the limits on nonqualifying
income under the 75% and 95% gross income tests.
PREIT Associates owns all of the outstanding shares of PREIT-RUBIN. As a
taxable REIT subsidiary, PREIT-RUBIN is taxable as a regular corporation.
PREIT-RUBIN performs management, development and leasing services for PREIT
Associates and other real estate owned in whole or in part by third parties.
The third-party income earned by and taxed to PREIT-RUBIN would be
nonqualifying income if earned directly by the Company. As a result of the
corporate structure, all third-party and other services income will be earned
by and taxed to PREIT-RUBIN at applicable Federal and state corporate income
tax rates and will be received by the Company only indirectly as dividends,
after reduction by these taxes. Such dividends will be qualifying income under
the 95% test.
If the Company fails to satisfy one or both of the 75% or the 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
that year if it is entitled to relief under certain provisions of the Code. It
is not possible, however, to state whether in all circumstances the Company
would be entitled to the benefit of these relief provisions. Even if these
relief provisions were to apply, however, a tax would be imposed with respect
to the "excess net income" attributable to the failure to satisfy the 75% and
95% gross income tests.
Asset Tests. The Company, at the close of each quarter of its taxable
year, must also satisfy three tests relating to the nature of its assets: (i)
at least 75% of the value of the Company's total assets must be represented by
"real estate assets," cash, cash items and government securities; (ii) not
more than 25% of the Company's total assets may be represented by securities
other than those in the 75% asset class; and (iii) of the investments included
in the 25% asset class, the value of any one issuer's securities (other than
an interest in a partnership, shares of a "qualified REIT subsidiary" or
another REIT) owned by the Company may not exceed 5% of the value of the
Company's total assets, and the Company may not own more than 10% of the vote
or value of any one issuer's outstanding securities (other than an interest in
a partnership, shares of a qualified REIT subsidiary, a taxable REIT
subsidiary or another REIT).
The Company believes that it has complied, and anticipates that it will
continue to comply, with these asset tests. The Company is deemed to hold
directly its proportionate share of all real estate and other assets of PREIT
Associates and all assets deemed owned by PREIT Associates through its
ownership of partnership interests in other partnerships. As a result, the
Company believes that more than 75% of its assets are real estate assets. In
addition, the Company does not plan to hold any securities representing more
than 10% of the vote or value of any one issuer's outstanding securities,
other than any qualified REIT subsidiary or taxable REIT subsidiary of the
Company, nor securities of any one issuer exceeding 5% of the value of the
Company's gross assets. As previously discussed, the Company is deemed to own
its proportionate share of the assets of a partnership in which it is a
partner so that the partnership interest, itself, is not a security for
purposes of this asset test.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset
values. If the failure to satisfy the asset tests results from an acquisition
of securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close
of that quarter. The Company intends to maintain adequate records of the value
of its assets to ensure compliance with the asset tests, and to take any other
action within 30 days after the close of any quarter as may be required to
cure any noncompliance. We cannot assure you, however, that this other action
will always be successful.
Annual Distribution Requirements. To qualify as a REIT, the Company
generally must distribute to its shareholders at least 90% of its income each
year. In addition, the Company will be subject to tax on the
33
undistributed amount at regular corporate rates and also may be subject to a
4% excise tax on undistributed income.
The Company believes that it has made, and expects to continue to make,
timely distributions sufficient to satisfy the annual distribution
requirements. It is possible, however, that the Company, from time to time,
may not have sufficient cash or other liquid assets to meet the distribution
requirements. In that event, the Company may arrange for short-term, or
possibly long-term, borrowing (by itself or by PREIT Associates) to permit the
payments of required dividends.
Failure to Qualify. If the Company fails to qualify for taxation as a REIT
in any taxable year, the Company will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Unless entitled to relief under specific statutory provisions, the
Company also will be disqualified from taxation as a REIT for the four taxable
years following the year during which qualification was lost. It is not
possible to state whether in all circumstances the Company would be entitled
to this statutory relief.
Limitations Applicable to Taxable REIT Subsidiaries. Certain provisions are
designed to curtail a REIT's ability to minimize the taxable income of any
taxable REIT subsidiary, such as PREIT-RUBIN. A 100% tax will apply to any
excessive interest expense or other deductions paid by a taxable REIT
subsidiary to the REIT and to any amounts by which the taxable REIT subsidiary
undercharges tenants of the REIT. Also, there are limitations on the
deductibility of interest by highly leveraged taxable REIT subsidiaries.
Income Taxation of PREIT Associates, the Title Holding Partnerships and
Their Partners. The following discussion summarizes certain Federal income tax
considerations applicable to the Company's investment in PREIT Associates and
the Title Holding Partnerships:
Classification of PREIT Associates and Title Holding Partnerships as
Partnerships. The Company will be entitled to include in its income its
distributive share of the income and to deduct its distributive share of the
losses of PREIT Associates (including PREIT Associates' share of the income or
losses of the Title Holding Partnerships) only if PREIT Associates and the
Title Holding Partnerships (collectively, the "Partnerships") are classified
for Federal income tax purposes as partnerships rather than as associations
taxable as corporations. The Partnerships have not elected, and do not intend
to elect, to be taxable for Federal income tax purposes as corporations.
Accordingly, under applicable "check-the-box" regulations, they should be
classified as partnerships for Federal income tax purposes.
Partnership Allocations. Although a partnership agreement generally will
determine the allocation of income and losses among partners, the allocations
will be disregarded for tax purposes under Section 704(b) of the Code if they
do not comply with the provisions of Section 704(b) of the Code and the
Treasury Regulations promulgated thereunder as to substantial economic effect
and other requirements.
If an allocation is not recognized for Federal income tax purposes, the item
subject to the allocation will be reallocated in accordance with the partners'
interests in the partnership, which will be determined by taking into account
all of the facts and circumstances relating to the economic arrangement of the
partners with respect to the item. PREIT Associates' allocations of taxable
income and loss are intended to comply with the requirements of Section 704(b)
of the Code and the Treasury Regulations promulgated thereunder.
Tax Allocations With Respect to Contributed Properties. The properties
contributed directly or indirectly to PREIT Associates have generally been
appreciated as of the time of contribution, and it is likely that properties
contributed in the future will also be appreciated. Under Section 704(c) of
the Code, items of income, gain, loss, and deduction attributable to
appreciated or depreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated for Federal
income tax purposes in a manner so that the contributor is charged with or
benefits from the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of the unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value of the contributed property at the time of contribution and the adjusted
tax basis of the property at the time of contribution. The partnership
agreements of the Partnerships require allocations of income, gain, loss and
deduction attributable to the contributed property to be made in a manner that
is consistent with Section 704(c) of the Code. If the Partnerships sell
contributed property at a gain or loss, the gain or loss will be allocated to
the contributing partner(s) generally to the extent of the precontribution
unrealized gain or loss.
34
Depreciation. The Partnerships' assets other than cash consist largely of
appreciated property contributed by its partners. Assets contributed to a
partnership in a tax-free transaction carry over their depreciation schedules.
Accordingly, PREIT Associates depreciation deductions for its real property
are based largely on the historic depreciation schedules for the properties.
The properties are being depreciated over a range of 15 to 40 years using
various methods of depreciation which were determined at the time that each
item of depreciable property was placed in service. Any real property
purchased by the Partnerships will be depreciated over at least 39 years. In
certain instances where a partnership interest rather than real estate is
contributed to the Partnership, the real estate may not carry over its
depreciation schedule but rather may, similarly, be subject to the lengthier
depreciation period.
Section 704(c) of the Code requires that depreciation as well as gain and
loss be allocated in a manner so as to take into account the variation between
the fair market value and tax basis of the property contributed. Depreciation
with respect to any property purchased by PREIT Associates subsequent to the
admission of its partners, however, will be allocated among the partners in
accordance with their respective percentage interests in the Partnerships.
Sale of Partnership Property. Generally, any gain realized by a partnership
on the sale of property held by the partnership for more than one year will be
long-term capital gain, except for any portion of the gain that is treated as
depreciation or cost recovery recapture. However, under the REIT requirements,
the Company's share as a partner of any gain realized by the Partnerships on
the sale of any property held as inventory or other property held primarily
for sale to customers in the ordinary course of a trade or business will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. The prohibited transaction income could also have an adverse
effect upon the Company's ability to satisfy the income tests for REIT status.
Under existing law, whether property is held as inventory or primarily for
sale to customers in the ordinary course of a trade or business is a question
of fact that depends on all the facts and circumstances with respect to the
particular transaction. A safe harbor to avoid classification as a prohibited
transaction exists as to real estate assets held for the production of rental
income by a REIT for at least four years where in any taxable year the REIT
has made no more than seven sales of property or, in the alternative, the
aggregate of the adjusted bases of all properties sold does not exceed 10% of
the adjusted bases of all of the REIT's properties during the year and the
expenditures includable in a property's net sales price. The Partnerships
intend to hold properties for investment with a view to long-term
appreciation, to engage in the business of acquiring, developing, owning, and
operating and leasing properties and to make occasional sales of the
properties as are consistent with the Company's and PREIT Associates
investment objectives. No assurance can be given, however, that no property
sale by the Partnerships will constitute a sale of inventory or other property
held primarily for sale to customers.
Taxation of Shareholders
Taxation of Taxable Domestic Shareholders. As long as the Company qualifies
as a REIT, distributions made to the Company's taxable domestic shareholders
out of current or accumulated earnings and profits (and not designated as
capital gain dividends) will be taken into account by them as ordinary income,
and corporate shareholders will not be eligible for the dividends received
deduction as to the amounts. Distributions that are designated as 20%-rate
capital gain dividends will be taxed as long-term capital gains, and
distributions that are designated as 25%-rate gain dividends will be taxed as
25%-rate gain, in each case without regard to the period for which the
shareholder has held its shares. However, corporate shareholders may be
required to treat up to 20% of certain capital gain dividends as ordinary
income. Distributions in excess of current or accumulated earnings and profits
will not be taxable to a shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's shares, but rather will reduce the
adjusted basis of the shares. To the extent that the distributions exceed the
adjusted basis of a shareholder's shares, they will be included in income as
long-term capital gain (or short-term capital gain if the shares have been
held for one year or less), assuming the shares are a capital asset in the
hands of the shareholder.
In addition, to the extent, if any, that the Company does not distribute all
of its net capital gain (including 25%-rate gain) in a year, the Company may
elect to designate (in a written notice to shareholders) that the
undistributed capital gain shall nonetheless be treated for Federal income tax
purposes as if it had been distributed proportionately to the Company's
shareholders as of the end of the year and recontributed to the Company's
capital. In that case, the shareholders will be taxed on the gain, but will
receive a tax credit for the tax paid by the
35
Company on the gain, and each shareholder's basis in shares of the Company
will be increased by the excess of the amount of the gain over the amount of
the tax credit.
In general, a domestic shareholder will realize capital gain or loss on the
disposition of shares equal to the difference between (i) the amount of cash
and the fair market value of any property received on the disposition and (ii)
the shareholder's adjusted basis of the shares. The gain or loss generally
will constitute long-term capital gain or loss if the shareholder has held the
shares for more than one year. Loss upon a sale or exchange of shares by a
shareholder who has held the shares for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss to
the extent of distributions from the Company required to be treated by the
shareholder as long-term capital gain (including both 20%- and 25%-rate gain).
Under certain circumstances, domestic shareholders may be subject to backup
withholding at the rate of 31% with respect to dividends paid.
Taxation of Tax-Exempt Shareholders. The Company does not expect that
distributions by the Company to a shareholder that is a tax-exempt entity will
constitute "unrelated business taxable income" ("UBTI"), provided that the
tax-exempt entity has not financed the acquisition of its shares with
"acquisition indebtedness" within the meaning of the Code and the shares are
not otherwise used in an unrelated trade or business of the tax-exempt entity.
Taxation of Non-U.S. Shareholders. The rules governing U.S. Federal income
taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign shareholders (collectively, "Non-U.S.
Shareholders") are complex, and no attempt will be made herein to provide more
than a limited summary of these rules. Prospective Non-U.S. Shareholders
should consult with their own tax advisor to determine the impact of U.S.
Federal, state and local income tax laws with regard to an investment in
shares, including any reporting requirements. In particular, Non-U.S.
Shareholders who are engaged in a trade or business in the United States, and
Non-U.S. Shareholders who are individuals and who were present in the United
States for 183 days or more during the tax year and have a "tax home" in the
United States, may be subject to tax rules different from those described
below.
Distributions that are not attributable to gain from sales or exchanges by
the Company of U.S. real property interests and not designated by the Company
as capital gain dividends will be treated as dividends of ordinary income to
the extent that they are made out of current or accumulated earnings and
profits of the Company. These distributions, ordinarily, will be subject to a
withholding tax equal to 30% of the gross amount of the distribution unless an
applicable tax treaty reduces that tax. Distributions in excess of current and
accumulated earnings and profits of the Company will not be taxable to a Non-
U.S. Shareholder to the extent that they do not exceed the adjusted basis of
the shareholder's shares, but rather will reduce the adjusted basis of the
shares. To the extent that these distributions exceed the adjusted basis of a
Non-U.S. Shareholder's shares, they will give rise to tax liability if the
Non-U.S. Shareholder would otherwise be subject to tax on any gain from the
sale or disposition of shares as described below (in which case they also may
be subject to a 30% branch profits tax if the shareholder is a foreign
corporation). If it cannot be determined at the time a distribution is made
whether or not the distribution will be in excess of current or accumulated
earnings and profits, the entire distribution will be subject to withholding
at the rate applicable to dividends. However, the Non-U.S. Shareholder may
seek a refund of the amounts from the IRS if it is subsequently determined
that the distribution was, in fact, in excess of current or accumulated
earnings and profits of the Company.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of U.S. real
property interests will be taxed to a Non-U.S. Shareholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA") at the normal capital gain rates applicable to U.S. shareholders
(subject to applicable alternative minimum tax and a special alternative
minimum tax in the case of nonresident alien individuals). Also, distributions
subject to FIRPTA may be subject to a 30% branch profits tax in the hands of a
corporate Non-U.S. Shareholder not entitled to treaty relief or exemption. The
Company is required by applicable Treasury Regulations to withhold 35% of any
distribution that is or could be designated by the Company as a capital gain
dividend. The amount withheld is creditable against the Non-U.S. Shareholder's
FIRPTA tax liability.
36
Although the law is not entirely clear on the matter, it appears that
amounts of undistributed capital gain that are designated by the Company as
deemed distributions (as discussed under "Taxation of Taxable Domestic
Shareholders" above) would be treated with respect to Non-U.S. Shareholders in
the manner outlined in the preceding paragraph for actual distributions by the
Company of capital gain dividends. Under that approach, the Non-U.S.
Shareholders would be able to offset as a credit against their United States
Federal income tax liability resulting therefrom their proportionate share of
the tax paid by the Company on the undistributed capital gains (and to receive
from the IRS a refund to the extent their proportionate share of the tax paid
by the Company were to exceed their actual United States Federal income tax
liability).
Gain recognized by a Non-U.S. Shareholder upon a sale of shares generally
will not be taxed under FIRPTA if the Company is a "domestically controlled
REIT," defined generally as a REIT in which at all times during a specified
testing period less than 50% in value of the stock was held directly or
indirectly by foreign persons. The Company believes that it is a "domestically
controlled REIT," and, therefore, that the sale of shares will not be subject
to taxation under FIRPTA. If the gain on the sale of shares were to be subject
to tax under FIRPTA, the Non-U.S. Shareholder would be subject to the same
treatment as U.S. shareholders with respect to the gain (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals), and the purchaser of the shares would be
required to withhold and remit to the IRS 10% of the purchase price.
Other Tax Considerations
State and Local Taxes. The Company and its shareholders may be subject to
state or local taxation in various state or local jurisdictions, including
those in which it or they transact business or reside. The state and local tax
treatment of the Company and its shareholders may not conform to the Federal
income tax consequences discussed above. Consequently, prospective
shareholders should consult their own tax advisor regarding the effect of
state and local tax laws on an investment in the shares of the Company.
PLAN OF DISTRIBUTION
We may sell securities to or through underwriters for public offer and sale
by them, and also may sell securities offered hereby to investors directly or
through agents. Any such underwriter or agent involved in the offer and sale
of the securities will be named in the applicable prospectus supplement.
Underwriters may offer and sell the 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. We also may, from time to time,
authorize underwriters acting as our agents to offer and sell securities upon
terms and conditions set forth in the applicable prospectus supplement. In
connection with the sale of the securities, underwriters may be deemed to have
received compensation from us in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of the securities
for whom they may act as agent. Underwriters may sell securities to or through
dealers, and such dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters and/or commissions from the
purchasers for whom they may act as agent. Any underwriting compensation we
pay to underwriters or agents in connection with the offering of the
securities, and any discounts, concessions or commissions allowed by
underwriters to participating dealers, will be set forth in the applicable
prospectus supplement. Underwriters, dealers and agents participating in the
distribution of the securities may be deemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them on
resale of the securities may be deemed to be underwriting discounts and
commissions under the Securities Act. Underwriters, dealers and agents may be
entitled, under agreements entered into with us, to indemnification against
and contribution toward certain civil liabilities, including liabilities under
the Securities Act.
If so indicated in the applicable prospectus supplement, we will authorize
underwriters or other persons acting as our agents to solicit offers by
certain institutions to purchase securities from us at the public offering
price set forth in 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 of the Contracts will be for
an amount not less than, and the aggregate principal amount of 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
37
funds, investment companies, educational and charitable institutions, and
other institutions but will in all cases be subject to our approval. Contracts
will not be subject to any conditions except (i) the purchase by an
institution of the securities covered by its Contracts shall not at the time
of delivery be prohibited under the laws of any jurisdiction in the United
States to which such institution is subject, and (ii) if the securities are
being sold to underwriters, we shall have sold to such underwriters the total
principal amount of the 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 us and our Subsidiaries in the
ordinary course of business.
LEGAL MATTERS
The legality of the debt securities, the preferred shares, the shares, the
share warrants and the rights offered hereby will be passed upon for us by
Drinker Biddle & Reath LLP. Drinker Biddle & Reath LLP will also pass on
certain aspects of limited liability of our shareholders and certain federal
income tax matters respecting us. Sylvan M. Cohen, Chairman of our Board of
Trustees and one of our principal shareholders, is of counsel to Drinker
Biddle & Reath LLP.
EXPERTS
The financial statements and financial statement schedules incorporated by
reference in this prospectus and elsewhere in the registration statement, to
the extent and for the periods indicated in their report, have been audited by
Arthur Andersen LLP, independent public accountants, and are incorporated by
reference herein in reliance upon the authority of said firm as experts in
giving said reports.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, which require us to file reports, proxy statements and other
information with the SEC. You may read and copy our SEC filings at the SEC's
Public Reference Facilities, which are in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and the SEC's following regional offices: Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and
Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of the
material can be obtained from the Public Reference Section of the SEC, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates, by calling 1-
800-SEC-0330. The SEC also maintains an Internet web site at http://
www.sec.gov that contains our SEC filings. In addition, our shares are listed
on the New York Stock Exchange and our SEC filings can be inspected at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
We filed with the SEC a registration statement on Form S-3 under the
Securities Act of 1933 with respect to the securities we are offering by this
prospectus. This prospectus does not contain all of the information set forth
in the registration statement because we have omitted some of the information
as permitted by the SEC's rules and regulations. Statements contained in this
prospectus as to the contents of any contract or other document are not
necessarily complete. In each instance, each statement is qualified, in all
respects, by reference to the copy of the applicable contract or document
filed as an exhibit to the registration statement. For further information
about us and our securities, we refer you to the registration statement and
the exhibits and schedules that may be obtained from the SEC at its principal
office in Washington, D.C. after payment of the SEC's prescribed fees.
The SEC allows us to "incorporate by reference" the information in documents
we file with them. This means that we can disclose important information by
referring you to these documents. The information we incorporate by reference
is an important part of this prospectus, and information in documents we file
after the date of this prospectus automatically will update and supersede
information in this prospectus.
We filed the documents listed below under the Exchange Act with the SEC, and
we incorporate each of the documents, and all documents filed after the date
of this prospectus under Section 13(a), 13(c), 14 or 15(d) of the Exchange
Act, into this prospectus by reference:
1. Our Annual Report on Form 10-K for the calendar year ended December 31,
2000.
38
2. Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2001.
3. Our Current Reports on Form 8-K, filed on January 4, 2001 and on July 3,
2001.
4. The description of our shares contained in the registration statement on
Form 8-A filed on October 24, 1997 (amended November 13, 1997 and again on
December 17, 1997) and the description of the rights to purchase our shares
contained in the registration statement on Form 8-A filed on May 3, 1999.
5. Our definitive proxy statement for the Annual Meeting of Shareholders on
May 10, 2001, filed on April 5, 2001.
We will provide without charge to each person to whom a copy of this
prospectus is delivered, after their written or oral request, a copy of any or
all of the documents we have incorporated in this prospectus by reference.
Written requests for copies should be addressed to:
Pennsylvania Real Estate Investment Trust
Attention: Jeffrey A. Linn,
Senior Vice President-Acquisitions & Secretary
The Bellevue
200 S. Broad Street
Philadelphia, Pennsylvania 19102
Telephone: (215) 875-0700
------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representations not contained in this prospectus or
any accompanying prospectus supplement, and if given or made, such information
or representations must not be relied upon as having been authorized by us or
any of the underwriters. Neither this prospectus nor any accompanying
prospectus supplement constitutes an offer of any securities other than those
to which it relates or an offer to sell, or a solicitation of an offer to buy,
to any person in any jurisdiction where such an offer or solicitation would be
unlawful. Neither the delivery of this prospectus and any accompanying
prospectus supplement nor any offer or sale made hereunder or thereunder
shall, under any circumstances, create any implication that the information
contained herein or therein is correct as of any time subsequent to the date
hereof or thereof.
------------------------
Until August 4, 2001 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock, whether or not
participating in this Offering, may be required to deliver a Prospectus. This
is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
39
2,000,000 Shares
[GRAPHIC OMITTED]
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
Shares of Beneficial Interest
_________________________________
PROSPECTUS SUPPLEMENT
July 10, 2001
_________________________________
LEHMAN BROTHERS