AS FILED PURSUANT TO RULE 424(B)(2)
REGISTRATION NO. 333-121708
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JANUARY 31, 2005)
6,000,000 SHARES
(LEXINGTON REALTY TRUST LOGO)
7.55% SERIES D CUMULATIVE REDEEMABLE PREFERRED STOCK
LIQUIDATION PREFERENCE $25.00 PER SHARE
----------------------
We are offering 6,000,000 shares of our 7.55% Series D Cumulative
Redeemable Preferred Stock, which we refer to as our Series D Preferred Shares.
We have also granted the underwriters an option to purchase up to 900,000
additional shares of our Series D Preferred Shares to cover over-allotments. The
following is a summary of the Series D Preferred Shares:
- We will pay cumulative dividends on the Series D Preferred Shares, from
the date of original issuance, at the rate of 7.55% of the liquidation
preference per year ($1.8875 per year per share).
- We will pay dividends on the Series D Preferred Shares quarterly,
beginning on April 16, 2007 (with the payment on that date being based
pro rata on the number of days from the original issuance of the Series
D Preferred Shares to March 31, 2007).
- We will pay dividends on the Series D Preferred Shares at the increased
rate of 8.55% of the liquidation preference per year ($2.1375 per year
per share) if, following a change of control, the Series D Preferred
Shares are not listed on the New York Stock Exchange, the American
Stock Exchange or NASDAQ, which we collectively refer to as the
national stock exchanges.
- We are not allowed to redeem the Series D Preferred Shares before
February 14, 2012, except in order to preserve our status as a real
estate investment trust or if following a change of control the Series
D Preferred Shares are not listed on any of the national stock
exchanges.
- On and after February 14, 2012, we may, at our option, redeem the
Series D Preferred Shares by paying you $25.00 per share, plus any
accrued and unpaid dividends, whether or not declared.
- The Series D Preferred Shares have no stated maturity and are not
subject to any sinking fund or mandatory redemption and are not
convertible into any other securities.
- Investors in our Series D Preferred Shares generally have no voting
rights, except if we fail to pay dividends for six or more quarters
(whether or not consecutive) or as required by law.
We intend to apply to have our Series D Preferred Shares listed on the
New York Stock Exchange, which we refer to as the NYSE, under the symbol
"LXP--pd". If this application is approved, trading of our Series D Preferred
Shares on the NYSE is expected to begin within 30 days following initial
delivery of the shares.
----------------------
INVESTING IN OUR SERIES D PREFERRED SHARES INVOLVES RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE S-8 OF THIS PROSPECTUS SUPPLEMENT.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------
PER SHARE TOTAL
--------- ------------
Public Offering Price....................................... $25.0000 $150,000,000
Underwriting Discount (1)................................... $ 0.7875 $ 4,725,000
Proceeds, before expenses, to Lexington..................... $24.2125 $145,275,000
---------------
(1) See "Underwriting" section beginning on page S-52 of this prospectus
supplement for a discussion regarding certain additional underwriting
compensation and discounts.
The underwriters may also purchase up to an additional 900,000 shares of
Series D Preferred Shares at the public offering price, less the underwriting
discount, within 30 days from the date of this prospectus supplement to cover
over-allotments.
The underwriters are offering the Series D Preferred Shares subject to
various conditions. The underwriters expect to deliver the shares to purchasers
on or about February 14, 2007.
----------------------
MERRILL LYNCH & CO.
Sole Book-Running Manager
A.G. EDWARDS RAYMOND JAMES
BB&T CAPITAL MARKETS
KEYBANC CAPITAL MARKETS
RYAN BECK & CO.
February 9, 2007
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS
PROSPECTUS SUPPLEMENT.
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PROSPECTUS SUPPLEMENT
PAGE
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PROSPECTUS SUPPLEMENT SUMMARY............................................ S-1
RISK FACTORS............................................................. S-8
CAPITALIZATION........................................................... S-21
USE OF PROCEEDS.......................................................... S-22
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA.......................... S-23
SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL AND OTHER DATA....... S-24
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED SHARE
DIVIDENDS............................................................. S-25
DESCRIPTION OF SERIES D PREFERRED SHARES................................. S-26
DESCRIPTION OF COMMON SHARES............................................. S-33
CERTAIN PROVISIONS OF MARYLAND LAW AND OF OUR DECLARATION OF TRUST AND
BY-LAWS............................................................... S-35
FEDERAL INCOME TAX CONSIDERATIONS........................................ S-39
UNDERWRITING............................................................. S-52
LEGAL MATTERS............................................................ S-55
EXPERTS ................................................................. S-55
WHERE YOU CAN FIND MORE INFORMATION...................................... S-55
INCORPORATION OF INFORMATION WE FILE WITH THE SEC........................ S-55
i
PROSPECTUS
PAGE
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CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING INFORMATION............. ii
ABOUT THIS PROSPECTUS.................................................... ii
OUR COMPANY.............................................................. 1
DESCRIPTION OF OUR COMMON SHARES......................................... 2
DESCRIPTION OF OUR PREFERRED SHARES...................................... 4
DESCRIPTION OF OUR DEBT SECURITIES....................................... 10
RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK AND ANTI-TAKEOVER
PROVISIONS............................................................ 22
USE OF PROCEEDS.......................................................... 25
PLAN OF DISTRIBUTION..................................................... 25
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED SHARE DIVIDENDS................................. 26
EXPERTS.................................................................. 27
LEGAL MATTERS............................................................ 27
WHERE YOU CAN FIND MORE INFORMATION...................................... 27
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................... 27
This Prospectus Supplement and the accompanying Prospectus, including
documents incorporated by reference, contain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, which we
refer to as the Securities Act, and Section 21E of the Securities Exchange Act
of 1934, as amended, which we refer to as the Exchange Act. Forward-looking
statements are inherently subject to risk and uncertainties, many of which
cannot be predicted with accuracy and some of which might not even be
anticipated. Future events and actual results, financial and otherwise, may
differ materially from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Risk Factors" in this Prospectus Supplement and in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our most recent annual and quarterly reports.
ii
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights information contained elsewhere in this
prospectus supplement and the accompanying prospectus. Because this is a
summary, it may not contain all of the information that is important to you.
Before making a decision to invest in our Series D Preferred Shares, you should
read this entire prospectus supplement and the accompanying prospectus
carefully, especially "Risk Factors" beginning on page S-8 of this prospectus
supplement and "Where You Can Find More Information" beginning on page S-55 of
this prospectus supplement, as well as the documents incorporated by reference
in this prospectus supplement and the accompanying prospectus, as provided in
"Incorporation of Information We File With The SEC" beginning on page S-55 of
this prospectus supplement. Unless otherwise indicated, (i) all financial and
property information is presented as of December 31, 2006 and (ii) we assume the
underwriters' over-allotment option to purchase up to an additional 900,000
Series D Preferred Shares is not exercised.
LEXINGTON REALTY TRUST
We are a self-managed and self-administered real estate investment
trust, commonly referred to as a REIT, formed under the laws of the State of
Maryland. In addition to our common shares, we have three outstanding classes of
beneficial interests classified as preferred stock, which we refer to as
preferred shares: 8.05% Series B Cumulative Redeemable Preferred Stock, which we
refer to as our Series B Preferred Shares, 6.50% Series C Cumulative Convertible
Preferred Stock, which we refer to as our Series C Preferred Shares, and special
voting preferred stock. Our common shares, Series B Preferred Shares and Series
C Preferred Shares are traded on the New York Stock Exchange under the symbols
"LXP", "LXP_pb" and "LXP_pc", respectively. Our primary business is the
acquisition, ownership and management of a geographically diverse portfolio of
net leased office, industrial and retail properties. Substantially all of our
properties are subject to triple net leases, which are generally characterized
as leases in which the tenant bears all or substantially all of the costs and
cost increases for real estate taxes, utilities, insurance and ordinary repairs
and maintenance.
On December 31, 2006, we completed our merger with Newkirk Realty
Trust, Inc., or Newkirk (the "Merger"). Newkirk's primary business was similar
to our primary business. All of Newkirk's operations were conducted and all of
its assets were held through its master limited partnership, The Newkirk Master
Limited Partnership, which we refer to as the MLP. Newkirk was the general
partner of the MLP and owned, at the time of completion of the Merger, 31.0% of
the MLP. In connection with the Merger, we changed our name to Lexington Realty
Trust, the MLP was renamed The Lexington Master Limited Partnership and one of
our subsidiaries became the general partner of the MLP and the holder of the
31.0% ownership interest in the MLP.
In the Merger, Newkirk merged with and into us, with us as the
surviving entity. Each holder of Newkirk's common stock received 0.80 of our
common shares in exchange for each share of Newkirk's common stock, and the MLP
effected a reverse unit-split pursuant to which each outstanding unit of limited
partnership in the MLP, which we refer to as an MLP Unit, was converted into
0.80 units. Each MLP unit is either currently redeemable or in the future will
be redeemable at the option of the holder for cash based on the value of one of
our common shares or, if we elect, on a one-for-one basis for our common shares.
Following the completion of the Merger, we had ownership interests in
approximately 365 properties, located in 44 states and The Netherlands and
containing an aggregate of approximately 58.8 million net rentable square feet
of space, approximately 97.6% of which is subject to a lease. The MLP also owns
a 50.0% interest in a joint venture, Concord Debt Holdings LLC, which recently
closed its first collateralized debt obligation, which we refer to as the CDO
offering. The MLP's joint venture partner is Winthrop Realty Trust, which we
refer to as Winthrop, a REIT listed on the NYSE. Our Executive Chairman, Michael
L. Ashner, is the Chairman and Chief Executive Officer of Winthrop. An aggregate
of $377 million of investment grade-related debt was issued in the CDO and the
joint venture retained an equity investment in the portfolio with a notional
amount of $88 million. The MLP anticipates that the joint venture will
significantly expand its operations in the foreseeable future.
We elected to be taxed as a REIT under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended, which we refer to as the Code,
commencing with our taxable year ended December 31, 1993. If we qualify for
taxation as a REIT, we generally will not be subject to federal corporate income
taxes on our net income that is currently distributed to shareholders.
S-1
We grow our portfolio through (i) strategic transactions with other
real estate investment companies, (ii) acquisitions of individual properties and
portfolios of properties from: (A) corporations and other entities in
sale-leaseback transactions; (B) developers of newly-constructed properties
built to suit the needs of a corporate tenant; and (C) sellers of properties
subject to an existing lease, (iii) debt investments secured by real estate
assets and (iv) the building and acquisition of new business lines and operating
platforms.
We have diversified our portfolio by geographical location, tenant
industry segment, lease term expiration and property type with the intention of
providing steady internal growth with low volatility. We believe that this
diversification should help insulate us from regional recession, industry
specific downturns and price fluctuations by property type.
As part of our ongoing business efforts, we expect to continue to (i)
effect strategic transactions and portfolio and individual property acquisitions
and dispositions, (ii) explore new business lines and operating platforms, (iii)
expand existing properties, (iv) execute new leases with investment grade and
other quality tenants, (v) extend lease maturities in advance of expiration and
(vi) refinance outstanding indebtedness when advisable. Additionally, we expect
to continue to enter into joint ventures with third-party investors as a means
of creating additional growth and expanding the revenue realized from advisory
and asset management activities.
Through one of our wholly-owned taxable REIT subsidiaries, we act as
the advisor to Lexington Strategic Asset Corp., which we refer to as LSAC, a
specialty investment company of which we own a substantial majority of the fully
diluted outstanding common stock. LSAC seeks to make investments in (i) general
purpose real estate net leased to unrated or below investment grade credit
tenants, (ii) net leased special purpose real estate located in the United
States, such as medical buildings, theaters, hotels and auto dealerships, (iii)
net leased properties located in the Americas outside of the United States with
rent payments denominated in United States dollars which are typically leased to
U.S. companies, (iv) specialized facilities in the United States supported by
net leases or other contracts where a significant portion of the facility's
value is in equipment or other improvements, such as power generation assets and
cell phone towers, and (v) net leased equipment and major capital assets that
are integral to the operations of LSAC's tenants and LSAC's real estate
investments.
Our operating partnership structure enables us to acquire properties
by issuing to sellers, as a form of consideration, limited partnership interests
in any of our four operating partnership subsidiaries: the MLP, Lepercq
Corporate Income Fund L.P., Lepercq Corporate Income Fund II L.P. and Net 3
Acquisition L.P. We refer to these subsidiaries as operating partnerships and to
these limited partnership interests as OP units. The OP units are redeemable,
after certain dates, for our common shares or cash, in certain instances. We
believe that this structure facilitates our ability to raise capital and to
acquire portfolio and individual properties by enabling us to structure
transactions which may defer tax gains for a contributor of property while
preserving our available cash for other purposes, including the payment of
dividends and distributions.
Our principal executive offices are located at One Penn Plaza, Suite
4015, New York, New York 10119-4015 and our telephone number is (212) 692-7200.
RECENT DEVELOPMENTS
In addition to the developments disclosed in our reports filed with
the Securities and Exchange Commission, which we refer to as the SEC, the
following developments occurred during the fourth quarter of 2006 and the first
quarter of 2007:
During the fourth quarter of 2006, we, including through our
subsidiaries:
- acquired six properties for an aggregate capitalized cost of
approximately $118.1 million;
- sold one property for approximately $18.4 million resulting
in a gain of approximately $4.0 million and satisfied the
existing non-recourse mortgage resulting in a debt
satisfaction charge of
S-2
approximately $1.3 million;
- signed six lease extensions and one new lease;
- obtained approximately $59.2 million in non-recourse
mortgages at a fixed weighted average interest rate of 6.0%;
- satisfied approximately $20.4 million in mortgage debt
encumbering a property which resulted in a gain of
approximately $7.5 million and recorded an additional
impairment charge of approximately $6.1 million on the
property;
- increased our ownership in LSAC from 32.3% to 76.2% by
purchasing approximately 4.6 million of its common shares
for approximately $42.6 million, which caused LSAC to become
a consolidated subsidiary as of November 1, 2006 and results
in an increase in mortgage debt of approximately $92.7
million;
- issued approximately 249,000 of our common shares to
employees and trustees, which, with respect to shares issued
to employees, are generally subject to vesting provisions;
- repurchased approximately 0.5 million of our common shares
for approximately $9.7 million;
- accelerated the vesting of all time-based non-vested common
shares previously granted to employees resulting in a charge
of approximately $10.8 million;
- borrowed approximately $65.2 million under our Credit
Agreement, dated as of June 27, 2005, as amended, which we
refer to as our credit agreement, among us, Lepercq
Corporate Income Fund L.P., Lepercq Corporate Income Fund II
L.P. and Net 3 Acquisition L.P., collectively as borrowers,
each of lenders party thereto, and Wachovia Bank, National
Association, as agent; and
- declared a quarterly dividend of $0.365 per common share and
a special dividend of $0.2325 per common share, which were
paid on January 26, 2007 to shareholders of record on
December 28, 2006 and declared a regular quarterly dividend
of $0.503125 per share and $0.8125 per share on our Series B
Preferred Shares and Series C Preferred Shares,
respectively, to their respective shareholders of record on
January 31, 2007 to be paid on February 15, 2007.
During the first quarter of 2007, we, including through our
subsidiaries:
- signed two lease extensions and two new leases;
- borrowed an additional $25.0 million, net under our credit
agreement;
- acquired a property for approximately $14.3 million; and
- obtained approximately $17.3 million in non-recourse
mortgage debt at a weighted average fixed interest rate of
5.8%.
In addition, during January 2007, LSAC entered into a purchase and
sale agreement to sell a property leased to AmeriCredit Corp. in Jacksonville,
Florida to a third party for $15.9 million. Assuming the successful completion
of the purchaser's 90-day due diligence period and the other closing conditions,
the closing is scheduled to occur on June 23, 2007. In connection with entering
into the purchase and sale agreement, LSAC entered into a lease termination
agreement with AmeriCredit Corp. The lease termination agreement allows for the
early termination of the AmeriCredit Corp. lease contingent on the consummation
of the purchase and sale agreement on June 23, 2007 for a termination payment of
approximately $2.8 million, with $1.9 million of such payment being paid on May
31, 2007 and the balance being paid on June 23, 2007. AmeriCredit has a
termination option under its
S-3
lease as of June 30, 2008, with notice and payment of a $1.9 million penalty no
later than May 31, 2007. If the purchase and sale agreement is not consummated,
the lease will terminate on June 30, 2008.
In addition to the developments disclosed in the MLP's reports filed
with the SEC, since September 30, 2006, the MLP and its subsidiaries:
- acquired two properties for an aggregate purchase price of
approximately $24.9 million;
- refinanced approximately $43.8 million in mortgage loans
secured by properties in El Segundo, California with a new
non-recourse mortgage loan in the original principal amount
of approximately $55.0 million, which bears interest at
5.675% and matures on December 5, 2016, and which, together
with the write-off of deferred financing costs, resulted in
a charge of approximately $0.9 million;
- incurred approximately $12.5 million in expense charges
related to the termination of Newkirk's advisory agreement;
- incurred approximately $5.5 million in expense charges
related to the transaction costs of the Merger;
- incurred approximately $6.2 million in expense charges
related to the termination of the lockup provisions of an
exclusivity agreement;
- accrued approximately $29.0 million to pay a distribution to
unitholders of record as of December 29, 2006;
- repaid approximately $351.1 million on its loan facility
with KeyBank National Association, an affiliate of KeyBanc
Capital Markets, a division of McDonald Investments Inc.,
and the lenders party thereto, which we refer to as the
KeyBank facility, $292.0 million of which was obtained from
net proceeds from the sale of the MLP's 5.45% Notes
described below;
- completed an offering of its 5.45% Exchangeable Guaranteed
Notes due 2027, which we refer to as the MLP's 5.45% Notes,
in the aggregate principal amount of $300.0 million, which
notes were guaranteed by us and certain of our subsidiaries;
- financed a property located in McDonough, Georgia for $23.0
million, which bears interest at 6.11% and matures in
November 2017;
- recorded an impairment charge of $1.4 million on a property
in Cincinnati, Ohio;
- received five year lease extension notices from Safeway for
leases at its Granbury, Texas and Hillsboro, Texas
properties, which now expire on November 30, 2012; and
- received five year lease extension notices from Food Lion
for leases at its properties in Jacksonville, North
Carolina, Lexington, North Carolina, Staunton, Virginia and
Jefferson, North Carolina.
S-4
THE OFFERING
The following is a brief summary of certain terms of this offering.
For a more complete description of the terms of our Series D Preferred Shares,
see "Description of Series D Preferred Shares" beginning on page S-26 of this
prospectus supplement.
Issuer........................ Lexington Realty Trust
Securities Offered............ 6,000,000 preferred shares of beneficial
interest classified as 7.55% Series D
Cumulative Redeemable Preferred Stock
(6,900,000 shares if the underwriters'
over-allotment option is exercised in full).
Dividends..................... Investors will be entitled to receive
cumulative cash dividends on the Series D
Preferred Shares at a rate of 7.55% of the
$25.00 liquidation preference per year
(equivalent to $1.8875 per year per share).
Beginning on April 16, 2007, dividends on the
Series D Preferred Shares will be payable
quarterly in arrears on each of January 15,
April 15, July 15, and October 15 of each year
or, if not a business day, the next succeeding
business day. Dividends on the Series D
Preferred Shares will be cumulative from and
including the date of original issuance, which
is expected to be February 14, 2007. The first
dividend payable on the Series D Preferred
Shares will be a pro rata dividend for the
period to March 31, 2007 and will be payable on
April 16, 2007, in the amount of approximately
$0.25 per share.
If following a change of control, the Series D
Preferred Shares are not listed on any of the
national stock exchanges, investors will be
entitled to receive, when and as authorized by
our board of trustees and declared by us, out
of funds legally available for the payment of
dividends, cumulative cash dividends from, but
excluding, the first date on which both the
change of control has occurred and the Series D
Preferred Shares are not so listed at the
increased rate of 8.55% per annum of the $25.00
liquidation preference per share (equivalent to
$2.1375 per share per year) for as long as the
Series D Preferred Shares are not so listed. To
see how we define change of control for this
purpose, see "Description of Series D Preferred
Shares -- Dividends" on page S-26 of this
prospectus supplement.
Liquidation Preference........ If we liquidate, dissolve or wind up, holders
of our Series D Preferred Shares will have the
right to receive $25.00 per share, plus accrued
and unpaid dividends (whether or not declared)
to and including the date of payment before any
payments are made to the holders of our common
shares and any other class or series of capital
shares ranking junior to the Series D Preferred
Shares as to liquidation rights. The rights of
the holders of the Series D Preferred Shares to
receive their liquidation preference will be
subject to the proportionate rights of our
Series B Preferred Shares, Series C Preferred
Shares, and each other series or class of our
capital shares ranking, as to liquidation
rights, on parity with the Series D Preferred
Shares.
No Maturity Date.............. The Series D Preferred Shares have no maturity
date and we are not required to redeem the
Series D Preferred Shares at any time.
Accordingly, the Series D Preferred Shares will
remain outstanding indefinitely, unless we
decide, at our option on or after February 14,
2012, to exercise our redemption right. We are
not required to set aside funds to redeem the
Series D Preferred Shares.
Special Optional Redemption... If at any time following a change of control,
the Series D Preferred Shares are not listed on
any of the national stock exchanges, we will
S-5
have the option to redeem the Series D
Preferred Shares, in whole but not in part,
within 90 days after the first date on which
both the change of control has occurred and the
Series D Preferred Shares are not so listed,
for cash at a redemption price of $25.00 per
share, plus accrued and unpaid dividends
(whether or not declared) up to but excluding
the redemption date. To see how we define
change of control for this purpose, see
"Description of Series D Preferred Shares --
Dividends" on page S-26 of this prospectus
supplement.
Optional Redemption........... We may not redeem the Series D Preferred Shares
prior to February 14, 2012, except in limited
circumstances relating to the preservation of
our status as a REIT and pursuant to our
special optional redemption right. On or after
February 14, 2012, we may, at our option,
redeem the Series D Preferred Shares, in whole
or in part, at any time and from time to time,
for cash equal to $25.00 per share, plus any
accrued and unpaid dividends, if any, to and
including the date of redemption. Any partial
redemption will generally be on a pro rata
basis.
Ranking....................... The Series D Preferred Shares will, with
respect to the payment of dividends and amounts
upon liquidation, dissolution or winding up,
rank (i) senior to all classes or series of our
common shares and to all equity securities
ranking junior to our Series D Preferred
Shares, (ii) on parity with our Series B
Preferred Shares, Series C Preferred Shares and
all equity securities issued by us the terms of
which specifically provide that such equity
securities rank on parity with our Series D
Preferred Shares, and (iii) junior to all
equity securities issued by us the terms of
which specifically provide that such equity
securities rank senior to our Series D
Preferred Shares. As of the date of this
prospectus supplement, our only outstanding
equity securities are our common shares, Series
B Preferred Shares, Series C Preferred Shares
and our one share of Special Voting Preferred
Stock, which has no liquidation preference or
other economic rights.
Voting Rights................. Holders of the Series D Preferred Shares will
generally have no voting rights. However, if we
are in arrears on dividends on the Series D
Preferred Shares for six or more quarterly
periods, whether or not consecutive, the
holders of the Series D Preferred Shares,
voting together as a class with the holders of
our Series B Preferred Shares, Series C
Preferred Shares and all other classes or
series of our equity securities ranking on
parity with the Series D Preferred Shares which
are entitled to similar voting rights, will be
entitled to vote at the next annual meeting of
our shareholders for the election of two
additional trustees to serve on our board of
trustees until all unpaid cumulative dividends
have been paid or declared and set apart for
payment. In addition, the affirmative vote of
at least two-thirds of the Series D Preferred
Shares, voting together as a class with the
holders of our Series B Preferred Shares,
Series C Preferred Shares and all other classes
or series of our equity securities ranking on
parity with the Series D Preferred Shares which
are entitled to similar voting rights, is
required for us to authorize, create or
increase capital shares ranking senior to the
Series D Preferred Shares or to amend our
declaration of trust in a manner that
materially and adversely affects the rights of
the Series D Preferred Shares.
Information Rights............ During any period in which we are not subject
to Section 13 or 15(d) of the Exchange Act and
any of our Series D Preferred Shares are
outstanding, we will (1) transmit by mail to
all holders of our Series D Preferred Shares,
as their names and addresses appear in our
record
S-6
books and without cost to such holders, the
information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act and
(2) promptly, upon request, supply copies of
such reports to any prospective holder of our
Series D Preferred Shares. We will mail the
information to the holders of our Series D
Preferred Shares within 15 days after the
respective dates by which a periodic report on
Form 10-K or Form 10-Q, as the case may be, in
respect of such information would have been
required to be filed with the SEC, if we were
subject to Section 13 or 15(d) of the Exchange
Act.
Listing....................... We intend to apply to have our Series D
Preferred Shares listed on the NYSE under the
symbol "LXP_pd", subject to official notice of
issuance. We expect that trading on the NYSE
will commence within 30 days after the initial
delivery of the Series D Preferred Shares.
Settlement Date............... Delivery of the Series D Preferred Shares will
be made against payment therefor on or about
February 14, 2007.
Form.......................... The Series D Preferred Shares will be issued
and maintained in book-entry form registered in
the name of the nominee of The Depository Trust
Company, except under limited circumstances.
Restrictions on Ownership..... For us to qualify as a REIT under the Internal
Revenue Code, the transfer of our capital
shares, which includes the Series D Preferred
Shares, is restricted. Not more than 50% in
value of our outstanding capital shares may be
owned, directly or constructively, by five or
fewer individuals, as defined in the Internal
Revenue Code. Our declaration of trust provides
that no person or persons acting as a group may
own, or be deemed to own by virtue of the
attribution rules of the Internal Revenue Code,
subject to limited exceptions, more than 9.8%
of the value of our outstanding capital shares.
See "Description of Series D Preferred Shares
-- Restrictions On Ownership" on page S-31 of
this prospectus supplement and "Certain
Provisions of Maryland Law and of our
Declaration of Trust and By-Laws" on page S-35
of this prospectus supplement.
No Conversion................. The Series D Preferred Shares are not
convertible into, or exchangeable for, any
other property or securities.
Use of Proceeds............... We expect that the net proceeds from this
offering will be approximately $145.0 million
after deducting underwriting discounts and
commissions and our expenses (or approximately
$166.8 million if the underwriters'
over-allotment option is exercised in full). We
expect to use the net proceeds to repay in full
the borrowings under our credit agreement and
to use the balance for general corporate
purposes. See "Use of Proceeds" on page S-22 of
this prospectus supplement.
Risk Factors.................. See "Risk Factors" on page S-8 of this
prospectus supplement and other information
contained herein for a discussion of factors
you should carefully consider before deciding
to invest in the Series D Preferred Shares.
For additional information regarding the terms of the Series D
Preferred Shares, see "Description of Series D Preferred Shares" beginning on
page S-26 of this prospectus supplement.
S-7
RISK FACTORS
Investing in our Series D Preferred Shares involves risks and
uncertainties that could affect us and our business as well as the real estate
industry generally. You should consider carefully the following risk factors
before deciding to purchase the Series D Preferred Shares.
RISKS RELATED TO THE OFFERING
THERE IS NO ESTABLISHED TRADING MARKET FOR THE SERIES D PREFERRED
SHARES.
The Series D Preferred Shares are a new issue of securities with no
established trading market. Since the securities have no stated maturity date,
investors seeking liquidity will be limited to selling their Series D Preferred
Shares in the secondary market. We intend to apply to have our Series D
Preferred Shares listed on the NYSE under the symbol "LXP_pd", subject to
official notice of issuance. However, an active trading market on the NYSE for
the shares may not develop or, even if it develops, may not last, in which case
the trading price of the shares could be adversely affected and your ability to
transfer your Series D Preferred Shares will be limited. We have been advised by
the underwriters that prior to acceptance of the Series D Preferred Shares for
listing on the NYSE, they intend to make a market in the Series D Preferred
Shares, but they are not obligated to do so and may discontinue market-making at
any time without notice.
THE TRADING PRICE OF THE SERIES D PREFERRED SHARES MAY BE AFFECTED BY
VARIOUS FACTORS.
The trading price of the Series D Preferred Shares may depend on many
factors, including:
- increases in market interest rates, relative to the dividend
yield on the Series D Preferred Shares. If market interest
rates go up, prospective purchasers of our Series D
Preferred Shares may require a higher yield. Higher market
interest rates would not, however, result in more funds for
us to distribute and, to the contrary, would likely increase
our borrowing costs and potentially decrease funds available
for distribution. Thus, higher market interest rates could
cause the market price of our the Series D Preferred Shares
to decrease;
- anticipated benefit of an investment in our securities as
compared to investment in securities of companies in other
industries (including benefits associated with tax treatment
of dividends and distributions);
- perception by market professionals of REITs generally and
REITs comparable to us in particular;
- level of institutional investor interest in our securities;
- relatively low trading volumes in securities of REITs;
- investor confidence in the stock market generally;
- additional issuances of other series or classes of preferred
shares;
- general economic conditions;
- our financial condition, performance and prospects; and
- the factors described elsewhere in this section.
THE SERIES D PREFERRED SHARES HAVE NOT BEEN RATED AND ARE SUBORDINATED
TO EXISTING AND FUTURE DEBT; WE ARE NOT RESTRICTED FROM ISSUING PREFERRED
SECURITIES THAT RANK ON PARITY WITH THE SERIES D PREFERRED SHARES.
The Series D Preferred Shares have not been rated by any nationally
recognized statistical rating organization. Furthermore, payment of amounts due
on the Series D Preferred Shares will be subordinated to all of our existing and
future debt and will be structurally subordinate to distributions to the
partners in our operating partnerships and to payments to our third-party joint
venture partners of distributions from such third-party joint ventures in which
we invest. In addition, we may issue additional Series D Preferred Shares and/or
shares of another class or series of preferred shares ranking on parity with
(or, upon the affirmative vote or consent of the holders of two-thirds of the
outstanding Series D Preferred Shares, voting together as a class with the
holders of our Series B Preferred Shares, Series C Preferred Shares and all
other classes or series of our equity securities ranking
S-8
on parity with the Series D Preferred Shares which are entitled to similar
voting rights, senior to) the Series D Preferred Shares with respect to the
payment of dividends and the distribution of assets upon liquidation,
dissolution or winding up. These factors may affect the trading price of the
Series D Preferred Shares.
RISKS RELATED TO OUR BUSINESS
WE ARE SUBJECT TO RISKS INVOLVED IN SINGLE TENANT LEASES.
We focus our acquisition activities on real properties that are net
leased to single tenants. Therefore, the financial failure of, or other default
by, a single tenant under its lease is likely to cause a significant reduction
in the operating cash flow generated by the property leased to that tenant and
might decrease the value of that property.
In March 2006, Dana Corporation ("Dana"), a tenant in 11 of our
properties (including non-consolidated entities), filed for Chapter 11
bankruptcy. Dana succeeded on motions to reject leases on two of our properties
and those of a non-consolidated entity and has affirmed the nine other leases.
During the second quarter of 2006, we recorded an impairment charge of $1.1
million and accelerated amortization of an above-market lease of $2.3 million,
relating to the write-off of lease intangibles and the above market lease for
the disaffirmed lease of a consolidated property. During the fourth quarter of
2006, we recorded an additional impairment charge of approximately $6.1 million
relating to this property. In addition, our proportionate share from a
non-consolidated entity of the impairment charge and accelerated amortization of
an above-market lease for a disaffirmed lease was $0.6 million and $1.4 million,
respectively. In addition, we sold our bankruptcy claim (including our interest
through a non-consolidated entity) related to the two rejected leases for
approximately $7.1 million, which resulted in a gain of $6.9 million.
WE RELY ON REVENUES DERIVED FROM MAJOR TENANTS.
Revenues from several of our tenants and/or their guarantors
constitute a significant percentage of our base rental revenues. As of September
30, 2006, on a combined basis after giving effect to the Merger, our 10 largest
tenants/guarantors, which occupied 106 properties, represented approximately
36.8% of our base rental revenue for the nine months ended September 30, 2006,
including our proportionate share of rental revenue from non-consolidated
entities and rental revenue recognized from properties sold through the
respective date of sale. The default, financial distress or bankruptcy of any of
the tenants of these properties could cause interruptions in the receipt of
lease revenues from these tenants and/or result in vacancies, which would reduce
our revenues and increase operating costs until the affected property is re-let,
and could decrease the ultimate sales value of that property. Upon the
expiration or other termination of the leases that are currently in place with
respect to these properties, we may not be able to re-lease the vacant property
at a comparable lease rate or without incurring additional expenditures in
connection with the re-leasing.
WE COULD BECOME MORE HIGHLY LEVERAGED, RESULTING IN INCREASED RISK OF
DEFAULT ON OUR OBLIGATIONS AND IN AN INCREASE IN DEBT SERVICE REQUIREMENTS WHICH
COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND OUR
ABILITY TO PAY DISTRIBUTIONS.
We have incurred, and expect to continue to incur, indebtedness
(secured and unsecured) in furtherance of our activities. Neither our
declaration of trust nor any policy statement formally adopted by our board of
trustees limits either the total amount of indebtedness or the specified
percentage of indebtedness that we may incur. Accordingly, we could become more
highly leveraged, resulting in an increased risk of default on our obligations
and in an increase in debt service requirements which could adversely affect our
financial condition and results of operations and our ability to pay
distributions.
Our credit agreement and the KeyBank facility each contain
cross-default provisions to, with respect to the credit agreement, our other
material indebtedness (as defined therein), and, with respect to the KeyBank
facility, the MLP's other indebtedness. In the event of a default on such other
material indebtedness, the indebtedness under our credit agreement or the MLP's
indebtedness under the KeyBank facility, as applicable, could be accelerated.
Depending upon the amount of indebtedness under our credit agreement and the
KeyBank facility, such an acceleration could have a material adverse impact on
our financial condition and results of operations. Our current credit agreement
and the KeyBank facility also each contain various covenants which limit the
amount of secured, unsecured and variable-rate indebtedness we may incur and
restricts the amount of capital we may invest in specific categories of assets
in which we may otherwise want to invest.
S-9
MARKET INTEREST RATES COULD HAVE AN ADVERSE EFFECT ON OUR BORROWING
COSTS AND NET INCOME AND CAN ADVERSELY AFFECT OUR SHARE PRICE.
We have exposure to market risks relating to increases in interest
rates due to our variable-rate debt. An increase in interest rates may increase
our costs of borrowing on existing variable-rate indebtedness, leading to a
reduction in our net income. As of September 30, 2006, on a pro forma basis
after giving effect to the Merger, we had outstanding $549.1 million in
variable-rate indebtedness which represented 27.8% of our total mortgages and
notes payable. This debt, however, is subject to interest rate swap agreements
and interest rate cap agreements. The level of our variable-rate indebtedness,
along with the interest rate associated with such variable-rate indebtedness,
may change in the future and materially affect our interest costs and net
income. In addition, our interest costs on our fixed-rate indebtedness can
increase if we are required to refinance our fixed-rate indebtedness at maturity
at higher interest rates.
Furthermore, the public valuation of our common shares is related
primarily to the earnings that we derive from rental income with respect to our
properties and not from the underlying appraised value of the properties
themselves. As a result, interest rate fluctuations and capital market
conditions can affect the market value of our common shares. For instance, if
interest rates rise, the market price of our common shares may decrease because
potential investors seeking a higher dividend yield than they would receive from
our common shares may sell our common shares in favor of higher rate
interest-bearing securities.
WE FACE RISKS ASSOCIATED WITH REFINANCINGS.
A significant number of our properties are subject to mortgage notes
with balloon payments due at maturity. As of September 30, 2006, on a pro forma
basis after giving effect to the Merger, the consolidated scheduled balloon
payments for the next five calendar years, including our unsecured credit
facility and the MLP's KeyBank facility, are as follows:
2007 -- $0;
2008 -- $565.2 million;
2009 -- $60.8 million;
2010 -- $56.6 million; and
2011 -- $126.0 million.
As of September 30, 2006, the scheduled balloon payments for the MLP
and its subsidiaries for the next five calendar years, including the MLP's
KeyBank facility, are as follows:
2007 -- $0;
2008 -- $534.1 million;
2009 -- $23.8 million;
2010 -- $0; and
2011 -- $0.
Subsequent to September 30, 2006, the MLP's borrowings, which mature
in 2008, were reduced from approximately $549.1 million to approximately $198.0
million through the repayment of approximately $351.1 million.
S-10
As of September 30, 2006, the scheduled balloon payments on our joint
venture real properties for the next five calendar years were as follows:
Total Our Proportionate Share
------------- -----------------------
2007 $0 $0
2008 $0 $0
2009 $69.0 million $23.6 million
2010 $61.6 million $20.5 million
2011 $67.0 million $21.7 million
As of September 30, 2006, the scheduled balloon payments for the next
five calendar years for the MLP's joint venture investments are $169.0 million
in 2007, of which the MLP's proportionate share is $84.5 million.
Our ability to make the scheduled balloon payments will depend upon
the amount available under our unsecured revolving credit facility and our
ability either to refinance the related mortgage debt or to sell the related
property.
Our ability to accomplish these goals will be affected by various
factors existing at the relevant time, such as the state of the national and
regional economies, local real estate conditions, available mortgage rates, the
lease terms of the mortgaged properties, our equity in the mortgaged properties,
our financial condition, the operating history of the mortgaged properties and
tax laws. If we are unable to obtain sufficient financing to fund the scheduled
non-recourse balloon payments or to sell the related property at a price that
generates sufficient proceeds to pay the scheduled non-recourse balloon
payments, we would lose our entire investment in the related property.
On January 5, 2006, we announced that we informed the holder of the
non-recourse mortgage on one of our properties located in Milpitas, California
that we will no longer make debt service payments as a result of a vacancy
caused by the expiration of the lease on this property in December 2005. As a
result of this decision, we recorded an impairment charge of approximately $12.1
million in the fourth quarter of 2005, which was equal to the difference between
this property's net book value (approximately $17.3 million) and our estimate of
the property's fair market value (approximately $5.2 million). During the second
quarter of 2006, the property was conveyed to the lender in full satisfaction of
the mortgage, which resulted in a gain on debt satisfaction of $6.3 million.
During the third quarter of 2006, the tenant in our Warren, Ohio property
exercised its option to purchase the property at fair market value, as defined
in the purchase agreement. We have received appraisals that estimate that the
maximum fair market value, as defined, will not exceed approximately $15.8
million. As a result of the exercise of the purchase option, we recorded an
impairment charge of $28.2 million (including $6.6 million applicable to
minority interest) in the third quarter of 2006.
WE FACE UNCERTAINTIES RELATING TO LEASE RENEWALS AND RE-LETTING OF
SPACE.
Upon the expiration of current leases for space located in our
properties, we may not be able to re-let all or a portion of that space, or the
terms of re-letting (including the cost of concessions to tenants) may be less
favorable to us than current lease terms. If we are unable to re-let promptly
all or a substantial portion of the space located in our properties or if the
rental rates we receive upon re-letting are significantly lower than current
rates, our net income and ability to make expected distributions to our
shareholders will be adversely affected due to the resulting reduction in rent
receipts and increase in our property operating costs. There can be no assurance
that we will be able to retain tenants in any of our properties upon the
expiration of their leases.
This risk is increased as a result of the Merger since the current
term of many of the MLP's properties will expire over the next three years and
the renewal rates are substantially lower than the current rates, as noted
below. As of September 30, 2006, based upon the then current annualized rent,
the weighted average remaining lease term for the properties of the MLP and its
subsidiaries was approximately 4.1 years and 71% of its current leases were
scheduled to expire by the end of 2009. These amounts are based on the MLP's
consolidated rental income which includes rent attributable to properties
partially owned by unaffiliated third parties. In addition, leases on
approximately 8,031,017 square feet of the properties of the MLP and its
subsidiaries, representing approximately
S-11
$156.8 million of annual rental income, were scheduled to expire by the end of
2009. Upon expiration of their initial term, substantially all leases can be
renewed at the option of the tenants for one or more renewal terms. As of
September 30, 2006, the weighted average current rent per square foot for the
leases of the MLP and its subsidiaries scheduled to expire through 2009 was
$19.52 while the contractual renewal rent per square foot for those properties
was $9.43. These numbers do not include 566,836 square feet of vacant space and
707,000 square feet of space sold in September 2006.
CERTAIN OF OUR PROPERTIES ARE CROSS-COLLATERALIZED.
As of September 30, 2006, the mortgages on three sets of two
properties are cross-collateralized: (1) Canton, Ohio and Spartansburg, South
Carolina leased to Best Buy Co. Inc., (2) 730 N. Black Branch Road,
Elizabethtown, Kentucky and 750 N. Black Branch Road, Elizabethtown, Kentucky
leased to Dana Corporation, and (3) Dry Ridge, Kentucky and Owensboro, Kentucky
leased to Dana Corporation. Furthermore, all properties of the MLP's
subsidiaries that are not encumbered by property specific debt are
cross-collateralized under the KeyBank facility and, in addition, one set of
four properties is cross-collateralized. To the extent that any of our
properties are cross-collateralized, any default by us under the mortgage note
relating to one property will result in a default under the financing
arrangements relating to any other property that also provides security for that
mortgage note or is cross-collateralized with such mortgage note.
WE FACE POSSIBLE LIABILITY RELATING TO ENVIRONMENTAL MATTERS.
Under various federal, state and local environmental laws, statutes,
ordinances, rules and regulations, as an owner of real property, we may be
liable for the costs of removal or remediation of certain hazardous or toxic
substances at, on, in or under our properties, as well as certain other
potential costs relating to hazardous or toxic substances. These liabilities may
include government fines and penalties and damages for injuries to persons and
adjacent property. These laws may impose liability without regard to whether we
knew of, or were responsible for, the presence or disposal of those substances.
This liability may be imposed on us in connection with the activities of an
operator of, or tenant at, the property. The cost of any required remediation,
removal, fines or personal or property damages and our liability therefore could
exceed the value of the property and/or our aggregate assets. In addition, the
presence of those substances, or the failure to properly dispose of or remove
those substances, may adversely affect our ability to sell or rent that property
or to borrow using that property as collateral, which, in turn, would reduce our
revenues and ability to make distributions.
A property can also be adversely affected either through physical
contamination or by virtue of an adverse effect upon value attributable to the
migration of hazardous or toxic substances, or other contaminants that have or
may have emanated from other properties. Although our tenants are primarily
responsible for any environmental damages and claims related to the leased
premises, in the event of the bankruptcy or inability of any of our tenants to
satisfy any obligations with respect to the property leased to that tenant, we
may be required to satisfy such obligations. In addition, we may be held
directly liable for any such damages or claims irrespective of the provisions of
any lease.
From time to time, in connection with the conduct of our business, and
prior to the acquisition of any property from a third party or as required by
our financing sources, we authorize the preparation of Phase I environmental
reports and, when necessary, Phase II environmental reports, with respect to our
properties. Based upon these environmental reports and our ongoing review of our
properties, as of the date of this prospectus supplement, we are not aware of
any environmental condition with respect to any of our properties that we
believe would be reasonably likely to have a material adverse effect on us.
There can be no assurance, however, that the environmental reports
will reveal all environmental conditions at our properties or that the following
will not expose us to material liability in the future:
- the discovery of previously unknown environmental
conditions;
- changes in law;
- activities of tenants; or
- activities relating to properties in the vicinity of our
properties.
Changes in laws increasing the potential liability for environmental
conditions existing on properties or increasing the restrictions on discharges
or other conditions may result in significant unanticipated expenditures
S-12
or may otherwise adversely affect the operations of our tenants, which could
adversely affect our financial condition or results of operations, including
funds from operations.
UNINSURED LOSSES OR A LOSS IN EXCESS OF INSURED LIMITS COULD ADVERSELY
AFFECT OUR FINANCIAL CONDITION.
We carry comprehensive liability, fire, extended coverage and rent
loss insurance on most of our properties, with policy specifications and insured
limits that we believe are customary for similar properties. However, with
respect to those properties where the leases do not provide for abatement of
rent under any circumstances, we generally do not maintain rent loss insurance.
In addition, there are certain types of losses, such as losses resulting from
wars, terrorism or certain acts of God that generally are not insured because
they are either uninsurable or not economically insurable. Should an uninsured
loss or a loss in excess of insured limits occur, we could lose capital invested
in a property, as well as the anticipated future revenues from a property, while
remaining obligated for any mortgage indebtedness or other financial obligations
related to the property. Any loss of these types would adversely affect our
financial condition.
Future terrorist attacks such as the attacks which occurred in New
York City, Pennsylvania and Washington, D.C. on September 11, 2001, and the
military conflicts such as the military actions taken by the United States and
its allies in Afghanistan and Iraq, could have a material adverse effect on
general economic conditions, consumer confidence and market liquidity.
Among other things, it is possible that interest rates may be affected
by these events. An increase in interest rates may increase our costs of
borrowing on existing variable-rate indebtedness, leading to a reduction in our
net income. These types of terrorist acts could also result in significant
damages to, or loss of, our properties.
We and our tenants may be unable to obtain adequate insurance coverage
on acceptable economic terms for losses resulting from acts of terrorism. Our
lenders may require that we carry terrorism insurance even if we do not believe
this insurance is necessary or cost effective. We may also be prohibited under
the applicable lease from passing all or a portion of the cost of such insurance
through to the tenant. Should an act of terrorism result in an uninsured loss or
a loss in excess of insured limits, we could lose capital invested in a
property, as well as the anticipated future revenues from a property, while
remaining obligated for any mortgage indebtedness or other financial obligations
related to the property. Any loss of these types would adversely affect our
financial condition.
COMPETITION MAY ADVERSELY AFFECT OUR ABILITY TO PURCHASE PROPERTIES.
There are numerous commercial developers, real estate companies,
financial institutions and other investors with greater financial resources than
we have that compete with us in seeking properties for acquisition and tenants
who will lease space in our properties. Due to our focus on net lease properties
located throughout the United States, and because most competitors are locally
and/or regionally focused, we do not encounter the same competitors in each
market. Our competitors include other REITs, financial institutions, insurance
companies, pension funds, private companies and individuals. This competition
may result in a higher cost for properties that we wish to purchase.
OUR FAILURE TO MAINTAIN EFFECTIVE INTERNAL CONTROLS COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS, OPERATING RESULTS AND SHARE PRICE.
Section 404 of the Sarbanes-Oxley Act of 2002 requires annual
management assessments of the effectiveness of our internal controls over
financial reporting and a report by our independent registered public accounting
firm addressing these assessments.
If we fail to maintain the adequacy of our internal controls, as such
standards may be modified, supplemented or amended from time to time, we may not
be able to ensure that we can conclude on an ongoing basis that we have
effective internal controls over financial reporting in accordance with Section
404 of the Sarbanes-Oxley Act of 2002. Moreover, effective internal controls,
particularly those related to revenue recognition, are necessary for us to
produce reliable financial reports and to maintain our qualification as a REIT
and are important to helping prevent financial fraud. If we cannot provide
reliable financial reports or prevent fraud, our business and operating results
could be harmed, our REIT qualification could be jeopardized, investors could
lose confidence in our reported financial information, and the trading price of
our shares could drop significantly.
S-13
WE MAY HAVE LIMITED CONTROL OVER OUR JOINT VENTURE INVESTMENTS.
Our joint venture investments constitute a significant portion of our
assets and will constitute a significant component of our growth strategy. Our
joint venture investments may involve risks not otherwise present for
investments made solely by us, including the possibility that our joint venture
partner might, at any time, become bankrupt, have different interests or goals
than we do, or take action contrary to our instructions, requests, policies or
objectives, including our policy with respect to maintaining our qualification
as a REIT. Other risks of joint venture investments include impasse on
decisions, such as a sale, because neither we nor a joint venture partner have
full control over the joint venture. Also, there is no limitation under our
organizational documents as to the amount of funds that may be invested in joint
ventures.
One of the joint ventures, Concord Debt Holdings LLC, is owned equally
by the MLP and a subsidiary of Winthrop. This joint venture, which recently
completed a CDO offering, is managed by an investment committee which consists
of five members, two members appointed by each of the MLP and Winthrop (with one
appointee from each of the MLP and Winthrop qualifying as "independent") and the
fifth member appointed by FUR Holdings LLC, the primary owner of the former
external advisor of the MLP and the current external advisor of Winthrop. Each
investment in excess of $20.0 million to be made by this joint venture, as well
as additional material matters, requires the consent of three members of the
investment committee appointed by the MLP and Winthrop. Accordingly, the joint
venture may not take certain actions or invest in certain assets even if the MLP
believes it to be in its best interest. Michael L. Ashner, our Executive
Chairman and Director of Strategic Transactions is also the Chairman and Chief
Executive Officer of Winthrop.
JOINT VENTURE INVESTMENTS MAY CONFLICT WITH OUR ABILITY TO MAKE
ATTRACTIVE INVESTMENTS.
Under the terms of our active joint venture with the Comptroller of
the State of New York, as trustee of the Common Retirement Fund, or CRF, we are
required to first offer to the joint venture 50% of our opportunities to acquire
office and industrial properties requiring a minimum investment of $15.0 million
which are net leased primarily to investment grade tenants for a minimum term of
ten years, are available for immediate delivery and satisfy other specified
investment criteria.
Similarly, under the terms of our joint venture with the Utah State
Retirement Trust Fund, or Utah, unless 75% of Utah's capital commitment is
funded, we are required to first offer to the joint venture all of our
opportunities to acquire certain office, bulk warehouse and distribution
properties requiring an investment of $8.0 million to $30.0 million which are
net leased primarily to non-investment grade tenants for a minimum term of at
least nine years and satisfy other specified investment criteria, subject also
to our obligation to first offer such opportunities to our joint venture with
CRF.
Our board of trustees adopted a conflicts policy with respect to us
and LSAC, a real estate investment company that we advise. Under the conflicts
policy we are required to first offer to LSAC, subject to the first offer rights
of CRF and Utah, all of our opportunities to acquire: (i) general purpose real
estate net leased to unrated or below investment grade credit tenants; (ii) net
leased special purpose real estate located in the United States, such as medical
buildings, theaters, hotels and auto dealerships; (iii) net leased properties
located in the Americas outside of the United States with rent payments
denominated in United States dollars with such properties typically leased to
U.S. companies; (iv) specialized facilities in the United States supported by
net leases or other contracts where a significant portion of the facility's
value is in equipment or other improvements, such as power generation assets and
cell phone towers; and (v) net leased equipment and major capital assets that
are integral to the operations of LSAC's tenants and LSAC's real estate
investments. To the extent that a specific investment opportunity, which is not
otherwise subject to a first offer obligation to our joint ventures with CRF or
Utah, is determined to be suitable to us and LSAC, the investment opportunity
will be allocated to LSAC. If full allocation to LSAC is not reasonably
practicable (for example, if LSAC does not have sufficient capital), we may
allocate a portion of the investment to ourselves after determining in good
faith that such allocation is fair and reasonable. We will apply the foregoing
allocation procedures between LSAC and any investment funds or programs,
companies or vehicles or other entities that we control or which have
overlapping investment objectives with LSAC.
Only if a joint venture partner elects not to approve the applicable
joint venture's pursuit of an acquisition opportunity or the applicable
exclusivity conditions have expired may we pursue the opportunity directly. As a
result of the foregoing rights of first offer, we may not be able to make
attractive acquisitions directly and may only receive a minority interest in
such acquisitions through our minority interest in these joint ventures.
S-14
CERTAIN OF OUR TRUSTEES AND OFFICERS MAY FACE CONFLICTS OF INTEREST
WITH RESPECT TO SALES AND REFINANCINGS.
Michael L. Ashner, E. Robert Roskind and Richard J. Rouse, our
Executive Chairman, Co-Vice Chairman, and Co-Vice Chairman and Chief Investment
Officer, respectively, each own limited partnership interests in certain of our
operating partnerships, and as a result, may face different and more adverse tax
consequences than our other shareholders will if we sell certain properties or
reduce mortgage indebtedness on certain properties. Those individuals may,
therefore, have different objectives than our other shareholders regarding the
appropriate pricing and timing of any sale of such properties or reduction of
mortgage debt.
Accordingly, there may be instances in which we may not sell a
property or pay down the debt on a property even though doing so would be
advantageous to our other shareholders. In the event of an appearance of a
conflict of interest, the conflicted trustee or officer must recuse himself or
herself from any decision making or seek a waiver of our Code of Business
Conduct and Ethics.
OUR ABILITY TO CHANGE OUR PORTFOLIO IS LIMITED BECAUSE REAL ESTATE
INVESTMENTS ARE ILLIQUID.
Equity investments in real estate are relatively illiquid and,
therefore, our ability to change our portfolio promptly in response to changed
conditions will be limited. Our board of trustees may establish investment
criteria or limitations as it deems appropriate, but currently does not limit
the number of properties in which we may seek to invest or on the concentration
of investments in any one geographic region. We could change our investment,
disposition and financing policies without a vote of our shareholders.
THERE CAN BE NO ASSURANCE THAT WE WILL REMAIN QUALIFIED AS A REIT FOR
FEDERAL INCOME TAX PURPOSES.
We believe that we have met the requirements for qualification as a
REIT for federal income tax purposes beginning with our taxable year ended
December 31, 1993, and we intend to continue to meet these requirements in the
future. However, qualification as a REIT involves the application of highly
technical and complex provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), for which there are only limited judicial or
administrative interpretations. No assurance can be given that we have qualified
or will remain qualified as a REIT. The Code provisions and income tax
regulations applicable to REITs are more complex than those applicable to
corporations. The determination of various factual matters and circumstances not
entirely within our control may affect our ability to continue to qualify as a
REIT. In addition, no assurance can be given that legislation, regulations,
administrative interpretations or court decisions will not significantly change
the requirements for qualification as a REIT or the federal income tax
consequences of such qualification. If we do not qualify as a REIT, we would not
be allowed a deduction for distributions to shareholders in computing our net
taxable income. In addition, our income would be subject to tax at the regular
corporate rates. We also could be disqualified from treatment as a REIT for the
four taxable years following the year during which qualification was lost. Cash
available for distribution to our shareholders would be significantly reduced
for each year in which we do not qualify as a REIT. In that event, we would not
be required to continue to make distributions. Although we currently intend to
continue to qualify as a REIT, it is possible that future economic, market,
legal, tax or other considerations may cause us, without the consent of the
shareholders, to revoke the REIT election or to otherwise take action that would
result in disqualification.
DISTRIBUTION REQUIREMENTS IMPOSED BY LAW LIMIT OUR FLEXIBILITY.
To maintain our status as a REIT for federal income tax purposes, we
are generally required to distribute to our shareholders at least 90% of our
taxable income for that calendar year. Our taxable income is determined without
regard to any deduction for dividends paid and by excluding net capital gains.
To the extent that we satisfy the distribution requirement, but distribute less
than 100% of our taxable income, we will be subject to federal corporate income
tax on our undistributed income. In addition, we will incur a 4% nondeductible
excise tax on the amount, if any, by which our distributions in any year are
less than the sum of (i) 85% of our ordinary income for that year, (ii) 95% of
our capital gain net income for that year and (iii) 100% of our undistributed
taxable income from prior years. We intend to continue to make distributions to
our shareholders to comply with the distribution requirements of the Code and to
reduce exposure to federal income and nondeductible excise taxes. Differences in
timing between the receipt of income and the payment of expenses in determining
our income and the effect of required debt amortization payments could require
us to borrow funds on a short-term basis in order to meet the distribution
requirements that are necessary to achieve the tax benefits associated with
qualifying as a REIT.
S-15
CERTAIN LIMITATIONS LIMIT A THIRD PARTY'S ABILITY TO ACQUIRE US OR
EFFECTUATE A CHANGE IN OUR CONTROL.
Limitations imposed to protect our REIT status. In order to protect us
against the loss of our REIT status, our declaration of trust limits any
shareholder from owning more than 9.8% in value of any class of our outstanding
shares, subject to certain exceptions. The ownership limit may have the effect
of precluding acquisition of control of us. See "Risk Factors--Risks Related to
Our Business--Limits on ownership of our capital shares may have the effect of
delaying, deferring or preventing someone from taking control of us" in this
prospectus supplement.
Severance payments under employment agreements. Substantial
termination payments may be required to be paid under the provisions of
employment agreements with certain of our executives upon a change of control.
We have entered into employment agreements with seven of our executive officers
which provide that, upon the occurrence of a change in control of us (including
a change in ownership of more than 50% of the total combined voting power of our
outstanding securities, the sale of all or substantially all of our assets,
dissolution, the acquisition, except from us, of 20% or more of our voting
shares or a change in the majority of our board of trustees), those executive
officers would be entitled to severance benefits based on their current annual
base salaries and recent annual bonuses, as defined in the employment
agreements. The provisions of these agreements could deter a change of control
of us. Accordingly, these payments may discourage a third party from acquiring
us.
Limitation due to our ability to issue preferred shares. Our
declaration of trust authorizes the board of trustees to issue preferred shares,
without shareholder approval. The board of trustees is able to establish the
preferences and rights of any preferred shares issued which could have the
effect of delaying or preventing someone from taking control of us, even if a
change in control were in shareholders' best interests. As of the date of this
prospectus supplement, we had outstanding 3,160,000 Series B Preferred Shares
that we issued in June 2003, 3,100,000 Series C Preferred Shares that we issued
in December 2004 and January 2005 and one share of our special voting preferred
stock that we issued in December 2006 in connection with the Merger. Our Series
B and Series C Preferred Shares and our special voting preferred stock include
provisions that may deter a change of control. The establishment and issuance of
shares of our existing series of preferred shares or a future series of
preferred shares could make a change of control of us more difficult.
Limitation imposed by the Maryland Business Combination Act. The
Maryland General Corporation Law, as applicable to Maryland REITs, establishes
special restrictions against "business combinations" between a Maryland REIT and
"interested shareholders" or their affiliates unless an exemption is applicable.
An interested shareholder includes a person who beneficially owns, and an
affiliate or associate of the trust who, at any time within the two-year period
prior to the date in question, was the beneficial owner of, 10% or more of the
voting power of our then-outstanding voting shares, but a person is not an
interested shareholder if the board of trustees approved in advance the
transaction by which he otherwise would have been an interested shareholder.
Among other things, Maryland law prohibits (for a period of five years) a merger
and certain other transactions between a Maryland REIT and an interested
shareholder. The five-year period runs from the most recent date on which the
interested shareholder became an interested shareholder. Thereafter, any such
business combination must be recommended by the board of trustees and approved
by two super-majority shareholder votes unless, among other conditions, the
common shareholders receive a minimum price for their shares and the
consideration is received in cash or in the same form as previously paid by the
interested shareholder for its shares. The statute permits various exemptions
from its provisions, including business combinations that are exempted by the
board of trustees prior to the time that the interested shareholder becomes an
interested shareholder. The business combination statute could have the effect
of discouraging offers to acquire us and of increasing the difficulty of
consummating any such offers, even if such acquisition would be in shareholders'
best interests. In connection with our merger with Newkirk, certain holders of
MLP securities were granted a limited exemption from the definition of
"interested shareholder."
Maryland Control Share Acquisition Act. Maryland law provides that
"control shares" of a Maryland REIT acquired in a "control share acquisition"
shall have no voting rights except to the extent approved by a vote of
two-thirds of the vote entitled to be cast on the matter under the Maryland
Control Share Acquisition Act. Shares owned by the acquiror, by our officers or
by employees who are our trustees are excluded from shares entitled to vote on
the matter. "Control Shares" means shares that, if aggregated with all other
shares previously acquired by the acquiror or in respect of which the acquiror
is able to exercise or direct the exercise of voting power (except solely by
virtue of a revocable proxy), would entitle the acquiror to exercise voting
power in electing trustees within one of the following ranges of voting power:
one-tenth or more but less than one-third, one-third or more but less than a
majority or a majority or more of all voting power. Control shares do not
include shares the acquiring person is then entitled to vote as a result of
having previously obtained shareholder approval. A "control share acquisition"
means
S-16
the acquisition of control shares, subject to certain exceptions. If voting
rights of control shares acquired in a control share acquisition are not
approved at a shareholders' meeting, then subject to certain conditions and
limitations the issuer may redeem any or all of the control shares for fair
value. If voting rights of such control shares are approved at a shareholders'
meeting and the acquiror becomes entitled to vote a majority of the shares
entitled to vote, all other shareholders may exercise appraisal rights. Any
control shares acquired in a control share acquisition which are not exempt
under our by-laws will be subject to the Maryland Control Share Acquisition Act.
Our by-laws contain a provision exempting from the Maryland Control Share
Acquisition Act any and all acquisitions by any person of our shares. We cannot
assure you that this provision will not be amended or eliminated at any time in
the future.
LIMITS ON OWNERSHIP OF OUR CAPITAL SHARES MAY HAVE THE EFFECT OF
DELAYING, DEFERRING OR PREVENTING SOMEONE FROM TAKING CONTROL OF US.
For us to qualify as a REIT for federal income tax purposes, among
other requirements, not more than 50% of the value of our outstanding capital
shares may be owned, directly or indirectly, by five or fewer individuals (as
defined for federal income tax purposes to include certain entities) during the
last half of each taxable year, and these capital 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 (in each case,
other than the first such year for which a REIT election is made). Our
declaration of trust includes certain restrictions regarding transfers of our
capital shares and ownership limits.
Actual or constructive ownership of our capital shares in excess of
the share ownership limits contained in its declaration of trust would cause the
violative transfer or ownership to be void or cause the shares to be transferred
to a charitable trust and then sold to a person or entity who can own the shares
without violating these limits. As a result, if a violative transfer were made,
the recipient of the shares would not acquire any economic or voting rights
attributable to the transferred shares. Additionally, the constructive ownership
rules for these limits are complex and groups of related individuals or entities
may be deemed a single owner and consequently in violation of the share
ownership limits.
These restrictions and limits may not be adequate in all cases,
however, to prevent the transfer of our capital shares in violation of the
ownership limitations. The ownership limits discussed above may have the effect
of delaying, deferring or preventing someone from taking control of us, even
though a change of control could involve a premium price for the common shares
or otherwise be in shareholders' best interests.
LEGISLATIVE OR REGULATORY TAX CHANGES COULD HAVE AN ADVERSE EFFECT ON
US.
At any time, the federal income tax laws governing REITs or the
administrative interpretations of those laws may be amended. Any of those new
laws or interpretations may take effect retroactively and could adversely affect
us or you as a shareholder. REIT dividends generally are not eligible for the
reduced rates currently applicable to certain corporate dividends (unless
attributable to dividends from LSAC and other taxable REIT subsidiaries and
otherwise eligible for such rates). As a result, investment in non-REIT
corporations may be relatively more attractive than investment in REITs. This
could adversely affect the market price of our shares.
OUR BOARD OF TRUSTEES MAY CHANGE OUR INVESTMENT POLICY WITHOUT
SHAREHOLDERS' APPROVAL.
Subject to our fundamental investment policy to maintain our
qualification as a REIT, our board of trustees will determine its investment and
financing policies, growth strategy and its debt, capitalization, distribution,
acquisition, disposition and operating policies.
Our board of trustees may revise or amend these strategies and
policies at any time without a vote by shareholders. Accordingly, shareholders'
control over changes in our strategies and policies is limited to the election
of trustees, and changes made by our board of trustees may not serve the
interests of shareholders and could adversely affect our financial condition or
results of operations, including our ability to distribute cash to shareholders
or qualify as a REIT.
OUR OPERATIONS AND THE OPERATIONS OF NEWKIRK MAY NOT BE INTEGRATED
SUCCESSFULLY, AND THE INTENDED BENEFITS OF THE MERGER MAY NOT BE REALIZED.
The Merger presents challenges to management, including the
integration of our operations and properties with those of Newkirk. The Merger
also poses other risks commonly associated with similar transactions, including
unanticipated liabilities, unexpected costs and the diversion of management's
attention to the integration of the
S-17
operations of the two entities. Any difficulties that we encounter in the
transition and integration processes, and any level of integration that is not
successfully achieved, could have an adverse effect on our revenue, level of
expenses and operating results. We may also experience operational interruptions
or the loss of key employees, tenants and customers. As a result,
notwithstanding our expectations, we may not realize any of the anticipated
benefits or cost savings of the Merger.
OUR INABILITY TO CARRY OUT OUR GROWTH STRATEGY COULD ADVERSELY AFFECT
OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Our growth strategy is based on the acquisition and development of
additional properties and related assets, including acquisitions of large
portfolios and real estate companies and acquisitions through co-investment
programs such as joint ventures. In the context of our business plan,
"development" generally means an expansion or renovation of an existing property
or the acquisition of a newly constructed property. We may provide a developer
with a commitment to acquire a property upon completion of construction of a
property and commencement of rent from the tenant. Our plan to grow through the
acquisition and development of new properties could be adversely affected by
trends in the real estate and financing businesses. The consummation of any
future acquisitions will be subject to satisfactory completion of an extensive
valuation analysis and due diligence review and to the negotiation of definitive
documentation. Our ability to implement our strategy may be impeded because we
may have difficulty finding new properties and investments at attractive prices
that meet our investment criteria, negotiating with new or existing tenants or
securing acceptable financing. If we are unable to carry out our strategy, our
financial condition and results of operations could be adversely affected.
Acquisitions of additional properties entail the risk that investments
will fail to perform in accordance with expectations, including operating and
leasing expectations. Redevelopment and new project development are subject to
numerous risks, including risks of construction delays, cost overruns or force
majeure events that may increase project costs, new project commencement risks
such as the receipt of zoning, occupancy and other required governmental
approvals and permits, and the incurrence of development costs in connection
with projects that are not pursued to completion.
Some of our acquisitions and developments may be financed using the
proceeds of periodic equity or debt offerings, lines of credit or other forms of
secured or unsecured financing that may result in a risk that permanent
financing for newly acquired projects might not be available or would be
available only on disadvantageous terms. If permanent debt or equity financing
is not available on acceptable terms to refinance acquisitions undertaken
without permanent financing, further acquisitions may be curtailed or cash
available for distribution to shareholders may be adversely affected.
THE CONCENTRATION OF OWNERSHIP BY CERTAIN INVESTORS MAY LIMIT OTHER
SHAREHOLDERS FROM INFLUENCING SIGNIFICANT CORPORATE DECISIONS.
As of December 31, 2006 (after the exchange of all shares of Newkirk
in the Merger), Michael L. Ashner and Winthrop collectively owned 3,604,000 of
our outstanding common shares and Mr. Ashner, Vornado Realty Trust ("Vornado")
and Apollo Real Estate Investment Fund III, L.P. ("Apollo") collectively owned
27,684,378 voting MLP units which are redeemable by the holder thereof for, at
our election, cash or our common shares. Accordingly, on a fully-diluted basis,
Mr. Ashner, Apollo, Vornado and Winthrop collectively held a 24.8% ownership
interest in us, as of December 31, 2006 (after the exchange of all shares of
Newkirk in the Merger). As holders of voting MLP units, Mr. Ashner, Vornado and
Apollo, as well as other holders of voting MLP units, have the right to direct
the voting of our special voting preferred stock. Holders of interests in our
other operating partnerships do not have voting rights. In addition, Mr. Ashner
controls NKT Advisors, LLC, which holds one share of our special voting
preferred stock pursuant to a voting trustee agreement. To the extent that an
affiliate of Vornado is a member of our board of trustees, NKT Advisors, LLC has
the right to direct the vote of the voting MLP units held by Vornado with
respect to the election of members of our board of trustees.
E. Robert Roskind, our Co-Vice Chairman, owned, as of December 31,
2006, 819,656 of our common shares and 1,565,282 units of our limited
partnership interest in our other operating partnerships, which are redeemable
for, at our election, cash or our common shares. On a fully diluted basis, Mr.
Roskind held a 1.9% ownership interest in us as of December 31, 2006 (after the
exchange of all shares of common stock of Newkirk in the Merger).
S-18
FUTURE ISSUANCES OF SHARES PURSUANT TO EXISTING CONTRACTUAL
ARRANGEMENTS MAY HAVE ADVERSE EFFECTS ON OUR STOCK PRICE.
The joint ventures described below each have a provision in their
respective joint venture agreements permitting the joint venture partner to sell
its equity position to us. In the event that any of the joint venture partners
exercises its right to sell its equity position to us, and we elect to fund the
acquisition of such equity position with our common shares, such venture partner
could acquire a large concentration of our common shares.
In 1999, we entered into a joint venture agreement with CRF to acquire
properties. This joint venture and a separate partnership established by the
partners has made investments in 13 properties for an aggregated capitalized
cost of $390.5 million and no additional investments will be made unless they
are made pursuant to a tax-free exchange. We have a 33.33% equity interest in
this joint venture. In December 2001, we formed a second joint venture with CRF
to acquire additional properties in an aggregate amount of up to approximately
$560.0 million. We have a 25% equity interest in this joint venture. As of
September 30, 2006, this second joint venture has invested in 13 properties for
an aggregate capitalized cost of $421.9 million.
Under these joint venture agreements, CRF has the right to sell its
equity position in the joint ventures to us. In the event CRF exercises its
right to sell its equity interest in either joint venture to us, we may, at our
option, either issue our common shares to CRF for the fair market value of CRF's
equity position, based upon a formula contained in the respective joint venture
agreement, or pay cash to CRF equal to 110% of the fair market value of CRF's
equity position. We have the right not to accept any property in the joint
ventures (thereby reducing the fair market value of CRF's equity position) that
does not meet certain underwriting criteria. In addition, the joint venture
agreements contain a mutual buy-sell provision in which either CRF or us can
force the sale of any property.
In October 2003, we entered into a joint venture agreement with
CLPF-LXP/Lion Venture GP, LLC, or "Clarion," which has made investments in 17
properties for an aggregate capitalized cost of $487.0 million. No additional
investments will be made unless they are made pursuant to a tax-free exchange or
upon the mutual agreement of Clarion and us. We have a 30% equity interest in
this joint venture. Under the joint venture agreement, Clarion has the right to
sell its equity position in the joint venture to us. In the event Clarion
exercises its right to sell its equity interest in the joint venture to us, we
may, at our option, either issue our common shares to Clarion for the fair
market value of Clarion's equity position, based upon a formula contained in the
partnership agreement, or pay cash to Clarion equal to 100% of the fair market
value of Clarion's equity position. We have the right not to accept any property
in the joint venture (thereby reducing the fair market value of Clarion's equity
position) that does not meet certain underwriting criteria. In addition, the
joint venture agreement contains a mutual buy-sell provision in which either
Clarion or us can force the sale of any property.
In June 2004, we entered in a joint venture agreement with Utah which
was expanded in December 2004, to acquire properties in an aggregate amount of
up to approximately $345.0 million. As of September 30, 2006, this joint venture
has made investments in 15 properties for an aggregate capitalized cost of
$247.0 million. We have a 30% equity interest in this joint venture. Under the
joint venture agreement, Utah has the right to sell its equity position in the
joint venture to us. This right becomes effective upon the occurrence of certain
conditions. In the event Utah exercises its right to sell its equity interest in
the joint venture to us, we may, at our option, either issue our common shares
to Utah for the fair market value of Utah's equity position, based upon a
formula contained in the joint venture agreement, or pay cash to Utah equal to
100% of the fair market value of Utah's equity position. We have the right not
to accept any property in the joint venture (thereby reducing the fair market
value of Utah's equity position) that does not meet certain underwriting
criteria. In addition, the joint venture agreement contains a mutual buy-sell
provision in which either Utah or us can force the sale of any property.
SECURITIES ELIGIBLE FOR FUTURE SALE MAY HAVE ADVERSE EFFECTS ON OUR
SHARE PRICE.
Following the completion of the Merger, an aggregate of approximately
41,174,079 of our common shares became issuable upon: (i) the exchange of units
of limited partnership interests in our operating partnership subsidiaries
(5,652,312 common shares in the aggregate); (ii) the redemption of units of
limited partnership interests in the MLP (35,505,267 common shares in the
aggregate); and (iii) the exercise of outstanding options under our equity-based
award plans (16,500 common shares). Depending upon the number of such securities
exchanged or exercised at one time, an exchange or exercise of such securities
could be dilutive to or otherwise adversely affect the interests of holders of
our common shares.
S-19
We have filed a registration statement with the SEC that registers
35,505,267 of our common shares issuable on the redemption of outstanding MLP
units to be sold. The registration statement also covers the resale of 3,500,000
of our common shares owned by Winthrop, which shares were previously subject to
a lock up agreement that terminated on closing of the Merger, and 9,000 of our
common shares held by The LCP Group L.P., whose chairman is E. Robert Roskind,
our Co-Vice Chairman. The sale of these shares could result in a decrease in the
market price of our common shares.
WE ARE DEPENDENT UPON OUR KEY PERSONNEL AND THE TERMS OF MR. ASHNER'S
EMPLOYMENT AGREEMENT AFFECTS OUR ABILITY TO MAKE CERTAIN INVESTMENTS.
We are dependent upon key personnel whose continued service is not
guaranteed. We will be dependent on our executive officers for strategic
business direction and real estate experience. Prior to the Merger, we had
entered into employment agreements with E. Robert Roskind, our Chairman, Richard
J. Rouse, our Vice Chairman and Chief Investment Officer, T. Wilson Eglin, our
Chief Executive Officer, President and Chief Operating Officer, Patrick Carroll,
our Executive Vice President, Chief Financial Officer and Treasurer, John B.
Vander Zwaag, our Executive Vice President, and Paul Wood, our Vice President,
Chief Accounting Officer and Secretary. Upon the completion of the Merger, we
entered into an employment agreement with Michael L. Ashner, Newkirk's former
Chairman and Chief Executive Officer. Pursuant to Mr. Ashner's employment
agreement, Mr. Ashner may voluntarily terminate his employment with us and
become entitled to receive a substantial severance payment if we acquire or make
an investment in a non-net lease business opportunity during the term of Mr.
Ashner's employment. This provision in Mr. Ashner's agreement may cause us not
to avail ourselves of those other business opportunities due to the potential
consequences of acquiring such non-net lease business opportunities.
Our inability to retain the services of any of our key personnel or
our loss of any of their services could adversely impact our operations. We do
not have key man life insurance coverage on our executive officers.
S-20
CAPITALIZATION
The following table sets forth our capitalization as of September 30,
2006 on a pro forma basis after giving effect to the Merger as if it had
occurred on September 30, 2006 and on an as adjusted basis. The as adjusted
basis gives effect to (i) the issuance of the MLP's 5.45% Notes and the
application of the net proceeds therefrom and (ii) the issuance of the Series D
Preferred Shares and the use of the net proceeds as described under "Use of
Proceeds" in this prospectus supplement and assumes that the underwriters do not
exercise their over-allotment option. This table should be read in conjunction
with our consolidated financial statements and the notes thereto incorporated by
reference into this prospectus supplement. See "Where You Can Find More
Information" and "Selected Unaudited Pro Forma Consolidated Financial and Other
Data" in this prospectus supplement.
SEPTEMBER 30, 2006
----------------------------------------------
PRO FORMA AS ADJUSTED (1) AS ADJUSTED (2)
---------- --------------- ---------------
(IN THOUSANDS)
DEBT:
Mortgage and notes payable, including credit facilities and
discontinued operations ....................................... $1,985,577 $1,692,927 $1,692,927
5.45% Exchangeable Guaranteed Notes due 2027 .................. -- 300,000 300,000
---------- ---------- ----------
Total debt ................................................. 1,985,577 1,992,927 1,992,927
---------- ---------- ----------
MINORITY INTEREST ................................................ 958,747 958,747 958,747
---------- ---------- ----------
SHAREHOLDERS' EQUITY:
Common shares of beneficial interest, par value $0.0001 per
share; issued and outstanding: 68,599,996 pro forma and
as adjusted ................................................ 7 7 7
Preferred shares; issued and outstanding: 6,260,001 pro
forma and as adjusted (1) and 12,260,001 as adjusted (2) ... 226,904 226,904 371,884
Accumulated distributions in excess of net income ............. (252,441) (252,441) (252,441)
Additional paid-in capital .................................... 1,166,220 1,166,220 1,166,220
Accumulated other comprehensive income ........................ 1,141 1,141 1,141
---------- ---------- ----------
Total shareholders' equity ................................. 1,141,831 1,141,831 1,286,811
---------- ---------- ----------
TOTAL CAPITALIZATION ............................................. $4,086,155 $4,093,505 $4,238,485
========== ========== ==========
----------
(1) Gives effect to the issuance of the MLP's 5.45% Notes and the application
of the net proceeds therefrom and assumes no exchange of notes.
(2) Gives effect to (i) the issuance of the MLP's 5.45% Notes and the
application of the net proceeds therefrom and assumes no exchange of notes,
and (ii) the issuance of the Series D Preferred Shares and the use of the
net proceeds as described under "Use of Proceeds" in this prospectus
supplement and assumes that the underwriters do not exercise their
over-allotment option. The $90.2 million in borrowings under our credit
agreement that we expect to repay with the net proceeds of this offering
was not outstanding as of September 30, 2006, and, accordingly, no
reduction in mortgage and notes payable, including credit facilities and
discontinued operations, is presented in the table. The $90.2 million was
borrowed subsequent to September 30, 2006.
S-21
USE OF PROCEEDS
We expect that the net proceeds from this offering will be
approximately $145.0 million after deducting underwriting discounts and
commissions and our estimated offering expenses (or approximately $166.8 million
if the underwriters exercise their over-allotment option in full). We expect to
use the net proceeds to repay in full the borrowings under our credit agreement
and to use the balance for general corporate purposes. The lenders under our
credit agreement include affiliates of several underwriters participating in
this offering, including KeyBanc Capital Markets, a division of McDonald
Investments Inc. and BB&T Capital Markets, a division of Scott and Stringfellow
Inc. A portion of the net proceeds of this offering will be received by these
affiliates because we intend to use the net proceeds to repay borrowings under
our credit agreement.
As of the date of this prospectus supplement, we had approximately
$90.2 million outstanding under our credit agreement. The interest rate on our
credit agreement is LIBOR plus 170 basis points (7.02% as of February 6, 2007)
and the maturity date of the credit agreement is June 28, 2008.
S-22
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following tables set forth our unaudited selected historical
consolidated financial data as of and for the nine months ended September 30,
2006 and 2005 and our audited selected historical consolidated financial data as
of and for the years ended December 31, 2005, 2004, 2003, 2002 and 2001 and
should be read in conjunction with our consolidated financial statements and the
notes hereto incorporated by reference in this prospectus supplement.
2005 2004 2003 2002 2001 2006 2005
---------- ----------- ----------- --------- -------- ---------- ----------
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------- -----------------------
(in thousands, except
(in thousands, except per share data) per share data)
Total gross revenues ........... $ 197,132 $ 143,364 $ 105,974 $ 85,093 $ 74,602 $ 153,229 $ 133,901
Expenses applicable to
revenues .................... (94,400) (49,684) (33,696) (25,760) (21,594) (82,702) (62,274)
Interest and amortization
expense ..................... (65,065) (44,857) (34,168) (32,354) (29,416) (52,825) (45,373)
Income from continuing
operations .................. 18,192 35,293 24,411 22,409 15,180 9,987 21,898
Total discontinued
operations .................. 14,503 9,514 9,238 8,186 2,882 4,015 12,547
Net income ..................... 32,695 44,807 33,649 30,595 18,062 14,002 34,445
Net income allocable to
common shareholders ......... 16,260 37,862 30,257 29,902 15,353 1,676 22,119
Income (loss) from
continuing operations
per common share -- basic ... 0.04 0.61 0.62 0.80 0.64 (0.05) 0.19
Income (loss) from
continuing operations
per common share --
diluted ..................... 0.04 0.59 0.61 0.79 0.63 (0.05) 0.18
Income from discontinued
operations -- basic ......... 0.29 0.20 0.27 0.31 0.15 0.08 0.26
Income from discontinued
operations -- diluted ....... 0.29 0.21 0.27 0.30 0.14 0.08 0.23
Net income per common
share -- basic .............. 0.33 0.81 0.89 1.11 0.79 0.03 0.45
Net income per common
share -- diluted ............ 0.33 0.80 0.88 1.09 0.77 0.03 0.41
Cash dividends declared
per common share ............ 1.445 1.410 1.355 1.325 1.290 1.095 1.080
Net cash provided by
operating activities ........ 105,457 90,736 68,883 56,834 40,750 85,066 78,643
Net cash used in
investing activities ........ (643,777) (202,425) (295,621) (106,166) (63,794) (18,447) (642,575)
Net cash provided by
financing activities ........ 444,878 242,723 228,986 47,566 32,115 (57,315) 478,090
Real estate assets, net ........ 1,641,927 1,227,262 1,001,772 779,150 714,047 1,585,339 1,707,521
Investments in
non-consolidated
entities .................... 191,146 132,738 69,225 54,261 48,764 181,246 168,159
Total assets ................... 2,160,232 1,697,086 1,207,411 902,471 822,153 2,096,881 2,213,601
Mortgages, notes payable
and credit facility,
including discontinued
operations .................. 1,170,560 765,909 551,385 491,517 455,771 1,155,000 1,211,882
Shareholders' equity ........... 891,310 847,290 579,848 332,976 266,713 826,619 911,552
Preferred share
liquidation preference ...... 234,000 214,000 79,000 -- 25,000 234,000 234,000
S-23
SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL AND OTHER DATA
The following table shows information about our financial condition
and results of operations, including per share data, after giving effect to the
Merger. The table sets forth the information as if the Merger had become
effective on September 30, 2006, with respect to the balance sheet information,
and as of January 1, 2005, with respect to the income statement information. The
pro forma financial data presented are based on the purchase method of
accounting.
The information is based on, and should be read together with, our
historical financial statements, including the notes thereto, that have been
presented in prior filings with the SEC, the consolidated financial statements
of Newkirk and the MLP presented in prior filings with the SEC and the more
detailed unaudited pro forma financial information, including the notes thereto,
in the Form 8-K/A that we filed with the SEC on February 6, 2007.
The unaudited pro forma information, while helpful in illustrating the
financial characteristics of the combined company under one set of assumptions,
does not reflect benefits of expected cost savings or opportunities to earn
additional revenue and, accordingly, does not attempt to predict or suggest
future results. It also does not necessarily reflect what the historical results
of the combined company would have been had the companies been combined during
these periods.
LEXINGTON REALTY TRUST
PRO FORMA COMBINED
--------------------------------------
AS OF AND FOR THE
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 2005 SEPTEMBER 30, 2006
----------------- ------------------
(UNAUDITED, DOLLARS IN THOUSANDS)
Total gross revenues ............................................ $ 318,742 $ 258,310
Expenses applicable to revenues ................................. (172,982) (146,229)
Interest and amortization expense ............................... (121,672) (92,222)
Income from continuing operations ............................... 6,580 9,326
Loss from continuing operations per common share -- basic ....... (0.15) (0.04)
Loss from continuing operations per common share -- diluted ..... (0.33) (0.04)
Real estate assets, net ......................................... -- 3,049,024
Investments in non-consolidated entities ........................ -- 233,471
Total assets .................................................... -- 4,328,559
Mortgages, notes payable and credit facilities payable (including
discontinued operations) ..................................... -- 1,985,577
Shareholders' equity ............................................ -- 1,141,831
S-24
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED SHARE DIVIDENDS
The following table sets forth our ratio of earnings to combined fixed
charges and preferred share dividends for the periods indicated:
PRO FORMA
PRO FORMA (1) (1)
NINE MONTHS YEAR ENDED
ENDED NINE MONTHS ENDED DECEMBER YEARS ENDED
SEPTEMBER 30, SEPTEMBER 30, 31, DECEMBER 31,
------------- ----------------- ---------- -------------------------------------
2006 2006 2005 2005 2005 2004 2003 2002 2001
------------- ----- ----- ---------- ----- ----- ----- ----- -----
RATIO OF EARNINGS TO
FIXED CHARGES AND
PREFERRED SHARE
DIVIDENDS........ 1.04x 1.18x 1.31x 0.78x (2) 1.15x 1.57x 1.59x 1.82x 1.47x
(1) Our pro forma ratio of earnings to combined fixed charges and preferred
share dividends for the year ended December 31, 2005 and the nine months
ended September 30, 2006 (i) gives effect to the Merger, (ii) the issuance
of the MLP's 5.45% Notes and the application of the net proceeds therefrom
and (iii) the completion of this offering. However, the interest savings
from the application of the net proceeds of this offering to satisfy the
$90.2 million of outstanding borrowings under our credit agreement is not
reflected in the pro forma calculation as the $90.2 million was not
borrowed until after September 30, 2006.
(2) The deficiency in the ratio of earnings to combined fixed charges and
preferred share dividends is $35.9 million.
For the purpose of calculating the ratio of earnings to combined fixed
charges and preferred share dividends, earnings have been calculated by adding
minority interest attributable to continuing operations, income or loss from
equity investees, fixed charges and distributed income of equity investees to
income from continuing operations before income taxes, less capitalized interest
and preferred distributions of consolidated subsidiaries. Combined fixed charges
and preferred share dividends consist of interest costs, whether expensed or
capitalized, amortization of deferred financing costs, amortization of discounts
or premiums related to indebtedness and preferred share dividend requirements
with respect to our Series B Preferred Shares, Series C Preferred Shares and
Series D Preferred Shares, as applicable.
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DESCRIPTION OF SERIES D PREFERRED SHARES
The following description of the material terms and provisions of the
Series D Preferred Shares is only a summary and is qualified in its entirety by
reference to our amended and restated declaration of trust, the articles
supplementary to our declaration of trust establishing the Series D Preferred
Shares and our amended and restated by-laws, each of which is incorporated by
reference in this prospectus supplement and the accompanying prospectus.
GENERAL
Under our amended and restated declaration of trust, we have the
authority to issue up to 1,000,000,000 shares of beneficial interest, par value
$0.0001 per share, of which 400,000,000 shares are classified as common shares,
500,000,000 shares are classified as excess shares and 100,000,000 shares are
classified as preferred shares, of which 3,160,000 shares are designated as
Series B Preferred Shares, and 3,100,000 shares are designated as Series C
Preferred Shares and one share is classified as special voting preferred stock.
Our board of trustees may classify and re-classify any unissued shares of
beneficial interest by setting or changing, in any one or more respects, the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or conditions of redemption
of such shares of beneficial interest.
Prior to the closing of this offering, our board of trustees will
adopt articles supplementary to our amended and restated declaration of trust
establishing the number and fixing the terms, designations, powers, preferences,
rights, limitations and restrictions of a series of our preferred shares
classified as 7.55% Series D Cumulative Redeemable Preferred Stock. Our board of
trustees has authorized up to 8,000,000 Series D Preferred Shares. We will issue
6,000,000 Series D Preferred Shares (6,900,000 shares if the underwriters'
over-allotment option is exercised in full) in this offering.
No market currently exists for our Series D Preferred Shares. We
intend to apply to have our Series D Preferred Shares listed on the NYSE under
the symbol "LXP_pd", subject to official notice of issuance. We expect that
trading on the NYSE will commence within 30 days after the initial delivery of
the Series D Preferred Shares.
We own a substantial majority of our properties through our operating
partnerships. The limited partners of our operating partnerships, other than us
and our subsidiaries, are generally entitled to (i) receive distributions which
are in the same or lesser amounts than the dividends we pay on our common shares
and (ii) convert their operating partnership units on a one for one basis into
our common shares or cash, in certain instances.
RANK
The Series D Preferred Shares will, with respect to rights to the
payment of dividends and the distribution of assets in the event of our
liquidation, dissolution or winding up, rank: (i) senior to all classes or
series of our common shares and to all equity securities ranking junior to our
Series D Preferred Shares with respect to dividend rights and rights upon our
liquidation, dissolution or winding-up, (ii) on parity with our Series B
Preferred Shares, Series C Preferred Shares and all equity securities issued by
us the terms of which specifically provide that such equity securities rank on
parity with our Series D Preferred Shares with respect to dividend rights and
rights upon our liquidation, dissolution or winding-up, and (iii) junior to all
equity securities issued by us the terms of which specifically provide that such
equity securities rank senior to our Series D Preferred Shares with respect to
dividend rights and rights upon our liquidation, dissolution or winding-up. For
these purposes, the term "equity securities" does not include convertible debt
securities, which rank senior to the Series D Preferred Shares prior to
conversion, none of which are outstanding at this time, except that we and
certain of our subsidiaries are guarantors with respect to the $300 million of
the MLP's 5.45% Exchangeable Guaranteed Notes due 2027.
DIVIDENDS
Subject to the preferential rights of the holders of any class or
series of our capital shares ranking senior to the Series D Preferred Shares as
to dividends, the holders of our Series D Preferred Shares will be entitled to
receive, when, as and if authorized by our board of trustees, out of funds
legally available for the payment of dividends, cumulative cash dividends at a
rate of 7.55% of the $25.00 liquidation preference per year (equivalent to
$1.8875 per year per share).
S-26
However, if following a "change of control" (as defined below), the
Series D Preferred Shares are not listed on any of the national stock exchanges,
holders of the Series D Preferred Shares will be entitled to receive, when and
as authorized by our board of trustees and declared by us, out of funds legally
available for the payment of dividends, cumulative cash dividends from, but
excluding, the first date on which both the change of control has occurred and
the Series D Preferred Shares are not so listed at the increased rate of 8.55%
per annum of the $25.00 liquidation preference per share (equivalent to the
fixed annual amount of approximately $2.1375 per share of the Series D Preferred
Shares) for as long as the Series D Preferred Shares are not so listed.
Dividends on the Series D Preferred Shares will accrue and be
cumulative from and including the date of original issuance of the Series D
Preferred Shares and will be payable quarterly in arrears on each of January 15,
April 15, July 15, and October 15 of each year (or, if not a business day, the
next succeeding business day) in respect of the quarterly distribution periods
ending on December 31, March 31, June 30, and September 30, respectively. The
first dividend payable on the Series D Preferred Shares on April 16, 2007 will
be a pro rata dividend from the original issue date to March 31, 2007 in the
amount of approximately $0.25 per share. Future dividends payable on the Series
D Preferred Shares for any partial dividend period will be computed on the basis
of a 360-day year consisting of twelve 30-day months. Dividends will be payable
to holders of record as they appear in our shareholder records at the close of
business on the applicable record date, which will be a date designated by our
board of trustees for the payment of dividends that is not more than 30 days nor
less than 10 days before the dividend payment date.
We will not declare dividends on the Series D Preferred Shares, or pay
or set apart for payment dividends on the Series D Preferred Shares, at any time
if the terms and provisions of any of our agreements, including any agreement
relating to our indebtedness, prohibits the declaration, payment or setting
apart for payment or provides that the declaration, payment or setting apart for
payment would constitute a breach of or a default under the agreement, or if the
declaration, payment or setting apart for payment is restricted or prohibited by
law.
Notwithstanding the foregoing, dividends on the Series D Preferred
Shares will accrue whether or not we have earnings, whether or not there are
funds legally available for the payment of those dividends and whether or not
those dividends are declared. Except as described in the next paragraph, unless
full cumulative dividends on the Series D Preferred Shares for all past dividend
periods have been or contemporaneously are declared and paid in cash or declared
and a sum sufficient for the payment thereof is set apart for payment:
- no dividends, other than distributions in kind of our common
shares or other capital shares ranking junior to our Series D
Preferred Shares as to distributions and upon liquidation, may be
declared or paid or set aside for payment, and no other dividend
may be declared or made upon, our common shares, Series B
Preferred Shares, Series C Preferred Shares or any other capital
shares ranking junior to or on parity with our Series D Preferred
Shares as to distributions or upon liquidation (other than pro
rata dividends on our Series B Preferred Shares, Series C
Preferred Shares and preferred shares ranking on parity as to
distributions with the Series D Preferred Shares); and
- no common shares, Series B Preferred Shares, Series C Preferred
Shares, or any other capital shares ranking junior to or on
parity with our Series D Preferred Shares as to distributions or
upon liquidation may be redeemed, purchased or otherwise acquired
for any consideration (or any monies be paid to or made available
for a sinking fund for the redemption of any such shares) by us,
except (i) by conversion into or exchange for other capital
shares ranking junior to the Series D Preferred Shares as to
distributions and amounts upon liquidation and (ii) in accordance
with certain provisions of our amended and restated declaration
of trust, under which Series D Preferred Shares owned by a
shareholder in excess of the ownership limit discussed under "--
Restrictions on Ownership" herein and under "Certain Provisions
of Maryland Law and of our Declaration of Trust and By-Laws" will
be transferred to a trust for the exclusive benefit of one or
more charitable beneficiaries and may be purchased by us under
certain circumstances.
When we do not pay dividends in full (or we do not set apart a sum
sufficient to pay them in full) upon the Series D Preferred Shares, Series B
Preferred Shares, Series C Preferred Shares and the shares of any other class or
series of capital shares ranking, as to dividends, on parity with the Series D
Preferred Shares, we will declare any dividends upon the Series D Preferred
Shares, Series B Preferred Shares, Series C Preferred Shares and each such other
class or series of capital shares ranking, as to dividends, on parity with the
Series D Preferred Shares proportionately so that the amount of dividends
declared per share of Series D Preferred Shares, Series B Preferred Shares,
Series C Preferred Shares and such other class or series of capital shares will
in all cases bear to each other
S-27
the same ratio that accrued dividends per share on the Series D Preferred Shares
and such other class or series of preferred shares (which will not include any
accrual in respect of unpaid dividends on such other class or series of capital
shares for prior dividend periods if such other class or series of capital
shares does not have a cumulative dividend) bear to each other. No interest, or
sum of money in lieu of interest, will be payable in respect of any dividend
payment or payments on the Series D Preferred Shares which may be in arrears.
Holders of Series D Preferred Shares are not entitled to any dividend,
whether payable in cash, property or capital shares, in excess of full
cumulative dividends on the Series D Preferred Shares as described above. Any
dividend payment made on the Series D Preferred Shares will first be credited
against the earliest accrued but unpaid dividends due with respect to those
shares which remain payable. Accrued but unpaid dividends on the Series D
Preferred Shares will accumulate as of the due date for the dividend payment on
which they first become payable.
A "change of control" shall be deemed to have occurred at such time as
(1) the date a "person" or "group" (within the meaning of Sections 13(d) and
14(d) of the Exchange Act) becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a person or group shall be
deemed to have beneficial ownership of all voting shares that such person or
group has the right to acquire regardless of when such right is first
exercisable), directly or indirectly, of voting shares representing more than
50% of the total voting power of our total voting shares; (2) the date we sell,
transfer or otherwise dispose of all or substantially all of our assets; or (3)
the date of the consummation of a merger or share exchange of our company with
another entity where our shareholders immediately prior to the merger or share
exchange would not beneficially own, immediately after the merger or share
exchange, shares representing 50% or more of all votes (without consideration of
the rights of any class of shares to elect directors by a separate group vote)
to which all shareholders of the company issuing cash or securities in the
merger or share exchange would be entitled in the election of trustees or
directors, or where members of our board of trustees immediately prior to the
merger or share exchange would not immediately after the merger or share
exchange constitute a majority of the board of trustees of the company issuing
cash or securities in the merger or share exchange. "Voting shares" shall mean
shares of any class or kind having the power to vote generally in the election
of trustees.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or
winding-up of our affairs, the holders of our Series D Preferred Shares will be
entitled to be paid out of our assets legally available for distribution to our
shareholders a liquidation preference of $25.00 per share, plus an amount equal
to any accrued and unpaid dividends to the date of payment (whether or not
declared), before any distribution or payment may be made to holders of common
shares or any other class or series of our capital shares ranking, as to
liquidation rights, junior to the Series D Preferred Shares. If, upon our
voluntary or involuntary liquidation, dissolution or winding up, our available
assets are insufficient to pay the full amount of the liquidating distributions
on all outstanding Series D Preferred Shares and the corresponding amounts
payable on the Series B Preferred Shares, the Series C Preferred Shares and all
shares of each other class or series of capital shares ranking, as to
liquidation rights, on parity with the Series D Preferred Shares, then the
holders of the Series D Preferred Shares, Series B Preferred Shares, Series C
Preferred Shares and each such other class or series of capital shares ranking,
as to liquidation rights, on parity with the Series D Preferred Shares will
share in any distribution of assets in proportion to the full liquidating
distributions to which they would otherwise be respectively entitled. Holders of
Series D Preferred Shares will be entitled to written notice of any liquidation.
After payment of the full amount of the liquidating distributions to which they
are entitled, the holders of Series D Preferred Shares will have no right or
claim to any of our remaining assets. For these purposes, our consolidation or
merger with or into any other corporation, trust or other entity, or the sale,
lease, transfer or conveyance of all or substantially all of our property or
business, will not be deemed to constitute our liquidation, dissolution or
winding-up.
REDEMPTIONS
Our Series D Preferred Shares are not redeemable before February 14,
2012 except as set forth in the following sections.
SPECIAL OPTIONAL REDEMPTION
If at any time following a change of control (as defined under "--
Dividends"), the Series D Preferred Shares are not listed on any of the national
stock exchanges, we will have the option to redeem the Series D
S-28
Preferred Shares, in whole but not in part, upon not less than 30 days nor more
than 60 days' written notice, sent within 90 days after the first date on which
the change of control has occurred and the Series D Preferred Shares are not so
listed, for cash at a redemption price of $25.00 per share plus all accrued and
unpaid dividends (whether or not declared) up to but excluding the redemption
date. We may exercise this option by sending you a notice of redemption no later
than the end of such 90 day period and you will be required to redeem your
Series D Preferred Shares in accordance with the procedures set forth under "--
Redemption Procedures" below.
OPTIONAL REDEMPTION
In order to ensure that we remain qualified as a REIT for federal
income tax purposes, the Series D Preferred Shares will be subject to certain
provisions of our declaration of trust under which Series D Preferred Shares
owned by a shareholder in excess of the ownership limit discussed under "--
Restrictions on Ownership" herein and under "Certain Provisions of Maryland Law
and of our Declaration of Trust and By-Laws" will be transferred to a trust for
the exclusive benefit of one or more charitable beneficiaries and may be
purchased by us under certain circumstances.
On or after February 14, 2012, we may, at our option upon not less
than 30 days nor more than 60 days' written notice, redeem the Series D
Preferred Shares, in whole or in part, at any time or from time to time, for
cash at a redemption price of $25.00 per share plus all accrued and unpaid
dividends (whether or not declared) to and including the date fixed for
redemption, without interest. In such event, you will be required to redeem your
Series D Preferred Shares in accordance with the procedures set forth under "--
Redemption Procedures" below.
REDEMPTION PROCEDURES
Holders of Series D Preferred Shares to be redeemed must surrender
such Series D Preferred Shares at the place designated in such notice and will
be entitled to the redemption price and any accrued and unpaid dividends payable
upon such redemption following such surrender. If fewer than all of the
outstanding Series D Preferred Shares are to be redeemed, the Series D Preferred
Shares to be redeemed will be selected pro rata (as nearly as may be practicable
without creating fractional Series D Preferred Shares) or by any other equitable
method determined by us that will not result in a violation of the ownership
restrictions in our declaration of trust applicable to owners of our shares of
beneficial interest. See "-- Restrictions on Ownership" and "Certain Provisions
of Maryland Law and of our Declaration of Trust and By-Laws." If we have (i)
given notice of redemption of any Series D Preferred Shares, (ii) irrevocably
set aside the funds necessary for the redemption in trust for the benefit of the
holders of any Series D Preferred Shares so called for redemption, and (iii)
given irrevocable instructions to pay the redemption price and all accrued and
unpaid dividends, then from and after the redemption date dividends will cease
to accrue on such Series D Preferred Shares, the Series D Preferred Shares will
no longer be deemed outstanding and all rights of the holders of Series D
Preferred Shares will terminate, except the right to receive the redemption
price plus any accrued and unpaid dividends payable upon the redemption, without
interest. The redemption provisions of the Series D Preferred Shares do not in
any way limit or restrict our right or ability to purchase, from time to time
either at a public or a private sale, all or any part of the Series D Preferred
Shares at such price or prices as we may determine, subject to the provisions of
applicable law, to the provisions described under "-- Dividends" herein and to
the provisions described in the next paragraph.
Unless we have declared and paid in cash, or we are contemporaneously
declaring and paying, or we have declared and set aside a sum sufficient for the
payment of, the full cumulative dividends on all Series D Preferred Shares for
all past dividend periods, we may not redeem any Series D Preferred Shares
unless we simultaneously redeem all outstanding Series D Preferred Shares, and
we will not purchase or otherwise acquire directly or indirectly any Series D
Preferred Shares or any class or series of capital shares ranking, as to
dividends or upon liquidation, on parity with or junior to the Series D
Preferred Shares except by exchange for capital shares ranking junior, as to
dividends and upon liquidation, to the Series D Preferred Shares; except that we
may purchase Series D Preferred Shares pursuant to a purchase or exchange offer
made on the same terms to holders of all outstanding Series D Preferred Shares
or, subject to certain provisions of our declaration of trust, we may, under
certain circumstances, purchase Series D Preferred Shares owned by a shareholder
in excess of the ownership limit.
We will mail or cause to be mailed a notice of redemption, postage
prepaid, not less than 30 days nor more than 60 days prior to the redemption
date, addressed to the respective holders of record of the Series D Preferred
Shares to be redeemed at their respective addresses as they appear on the share
transfer records of the transfer agent. No failure to give such notice or any
defect in the notice or in the mailing thereof will affect the sufficiency of
notice
S-29
or validity of the proceedings for the redemption of any Series D Preferred
Shares except as to a holder to whom notice was defective or not given. A
redemption notice will be conclusively presumed to have been duly given on the
date mailed whether or not the holder actually received the redemption notice.
Each notice will state (i) the redemption date; (ii) the redemption price and
accrued and unpaid dividends payable on the redemption date; (iii) the number of
Series D Preferred Shares to be redeemed; (iv) the place or places where the
Series D Preferred Shares are to be surrendered for payment of the redemption
price and accrued and unpaid dividends payable on the redemption date; and (v)
that dividends on the Series D Preferred Shares to be redeemed will cease to
accrue on the redemption date. If we redeem fewer than all of the Series D
Preferred Shares held by any holder, the notice mailed to such holder will also
specify the number of Series D Preferred Shares held by such holder to be
redeemed.
If a redemption date falls after a dividend record date and on or
prior to the corresponding dividend payment date, each holder of Series D
Preferred Shares at the close of business on such dividend record date will be
entitled to the dividend payable on such shares on the corresponding dividend
payment date notwithstanding the redemption of such shares before the dividend
payment date and each holder of shares of Series D Preferred Shares that
surrenders such shares on such redemption date will be entitled to the dividends
accruing after the end of the applicable distribution period, up to but
excluding the redemption date. Except as described above, we will make no
payment or allowance for unpaid dividends, whether or not in arrears, on Series
D Preferred Shares for which a notice of redemption has been given.
Any Series D Preferred Shares that we redeem or repurchase will be
authorized but unissued Series D Preferred Shares until reclassified into
another class or series of capital shares.
The Series D Preferred Shares will have no stated maturity and will
not be subject to any sinking fund or mandatory redemption. However, in order to
ensure that we remain qualified as a REIT for federal income tax purposes, the
Series D Preferred Shares will be subject to provisions of our declaration of
trust, under which Series D Preferred Shares owned by a shareholder in excess of
the ownership limit discussed under "-- Restrictions on Ownership" herein and
under "Certain Provisions of Maryland Law and of our Declaration of Trust and
By-Laws" will be transferred to a trust and may be purchased by us under certain
circumstances.
INFORMATION RIGHTS
During any period in which we are not subject to Section 13 or 15(d)
of the Exchange Act and any shares of the Series D Preferred Shares are
outstanding, we will (1) transmit by mail to all holders of Series D Preferred
Shares, as their names and addresses appear in our record books and without cost
to such holders, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act and (2) promptly, upon request, supply
copies of such reports to any prospective holder of Series D Preferred Shares.
We will mail the information to the holders of Series D Preferred Shares within
15 days after the respective dates by which a periodic report on Form 10-K or
Form 10-Q, as the case may be, in respect of such information would have been
required to be filed with the SEC if we were subject to Section 13 or 15(d) of
the Exchange Act.
VOTING RIGHTS
Holders of the Series D Preferred Shares will not have any voting
rights, except as described below.
If we do not pay dividends on the Series D Preferred Shares for six or
more quarterly periods (whether or not consecutive), a preferred dividend
default will exist, and the holders of the Series D Preferred Shares, voting
together as a class with the holders of our Series B Preferred Shares and Series
C Preferred Shares and all other classes or series of our equity securities
ranking on parity with the Series D Preferred Shares which are entitled to
similar voting rights, will be entitled to vote at the next annual meeting of
our shareholders and at each subsequent meeting for the election of two
additional trustees to serve on our board of trustees. Notwithstanding the
foregoing, if, prior to the election of any additional trustees in the manner
described in this paragraph, all accumulated dividends are paid on the Series D
Preferred Shares, Series B Preferred Shares, Series C Preferred Shares and all
other classes or series of parity preferred shares upon which like voting rights
have been conferred and are exercisable, no such additional trustees will be so
elected. Any such additional trustees so elected will serve until all unpaid
cumulative dividends have been paid or declared and set apart for payment. Upon
such election, the number of members of the size of our board of trustees will
be increased by two trustees. If and when all such accumulated dividends shall
have been paid on the Series D Preferred Shares, Series B Preferred Shares,
Series C Preferred Shares and all other classes or series of parity preferred
shares upon which like voting rights have been conferred and are exercisable,
the term of office of each of the additional trustees so elected will terminate
and the size of our
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board of trustees will be reduced accordingly. So long as a preferred dividend
default continues, any vacancy in the office of additional trustees elected
under this paragraph may be filled by written consent of the other additional
trustee who remains in office, or if no additional trustee remains in office, by
a vote of the holders of a majority of the outstanding Series D Preferred Shares
when they have the voting rights described above (voting as a single class with
the Series B Preferred Shares, Series C Preferred Shares and all other classes
or series of parity preferred shares upon which like voting rights have been
conferred and are exercisable). Each of the trustees elected as described in
this paragraph will be entitled to one vote on any matter.
The affirmative vote or consent of the holders of two-thirds of the
outstanding Series D Preferred Shares, Series B Preferred Shares, Series C
Preferred Shares and each other class or series of preferred shares ranking on
parity with respect to the payment of dividends or the distribution of assets
upon our liquidation, dissolution or winding up, voting as a single class, will
be required to (i) authorize or create, or increase the authorized or issued
amount of, any class or series of capital shares ranking senior to the Series D
Preferred Shares with respect to payment of dividends or the distribution of
assets upon our liquidation, dissolution or winding-up or reclassify any of our
authorized shares into capital shares of that kind, or create, authorize or
issue any obligation or security convertible into or evidencing the right to
purchase any such capital shares; or (ii) amend, alter or repeal the provisions
of the declaration of trust or articles supplementary, whether by merger,
consolidation, transfer or conveyance of substantially all of its assets or
otherwise, so as to materially and adversely affect any right, preference,
privilege or voting power of the Series D Preferred Shares; except that with
respect to the occurrence of any of the events described in (ii) above, so long
as (x) the Series D Preferred Shares remains outstanding with the terms of the
Series D Preferred Shares materially unchanged, or (y) taking into account that,
upon the occurrence of an event described in (ii) above, we may not be the
surviving entity, the holders of the Series D Preferred Shares receive in such
event a substantially similar security, the occurrence of such event will not be
deemed to materially and adversely affect the rights, preferences, privileges or
voting power of holders of Series D Preferred Shares, and in such case such
holders shall not have any voting rights with respect to the events described in
(ii) above.
Holders of Series D Preferred Shares shall not be entitled to vote
with respect to (A) any increase, decrease or issuance of any class or series of
capital shares including the Series D Preferred Shares, or (B) the creation or
issuance of any other class or series of capital shares, in each case ranking on
parity with or junior to the Series D Preferred Shares with respect to the
payment of dividends and the distribution of assets upon liquidation,
dissolution or winding up.
The foregoing voting provisions will not apply if, at or before the
time when the act with respect to which the vote would otherwise be required is
effected, all outstanding Series D Preferred Shares are redeemed or called for
redemption upon proper notice and we deposit sufficient funds, in cash, in trust
to effect the redemption.
In any matter in which the Series D Preferred Shares may vote (as
expressly provided in the articles supplementary or as may be required by law),
each share of Series D Preferred Shares shall be entitled to one vote.
CONVERSION
The Series D Preferred Shares are not convertible into or exchangeable
for any property or securities, except that we may exchange shares of the Series
D Preferred Shares for shares of excess stock in order to ensure that we remain
a qualified real estate investment trust for federal income tax purposes.
RESTRICTIONS ON OWNERSHIP
As discussed under "Certain Provisions of Maryland Law and of our
Declaration of Trust and By-Laws," for us to qualify as a REIT under the
Internal Revenue Code, the transfer of our capital shares, which includes the
Series D Preferred Shares, is restricted and not more than 50% in value of our
outstanding capital shares may be owned, directly or constructively, by five or
fewer individuals, as defined in the Internal Revenue Code to include certain
entities, during the last half of any taxable year. Our declaration of trust
provides that, no person or persons acting as a group may own, or be deemed to
own by virtue of the attribution rules of the Internal Revenue Code, subject to
limited exceptions, more than 9.8% in value of the outstanding shares of each
class or series of our capital shares.
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EXCESS STOCK
The provisions of our declaration of trust relating to the excess
stock which apply to our common shares also applies to the Series D Preferred
Shares separately and without regard to any other series or class of our capital
shares. See "Certain Provisions of Maryland Law and of our Declaration of Trust
and By-Laws."
FORM
The Series D Preferred Shares will be issued and maintained in
book-entry form registered in the name of the nominee of The Depository Trust
Company.
TRANSFER AGENT
The transfer agent, registrar and dividend disbursing agent for the
Series D Preferred Shares will be Mellon Investor Services LLC.
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DESCRIPTION OF COMMON SHARES
The following updates and supersedes information about our common
shares included in the accompanying prospectus. This summary does not purport to
be complete and is qualified in its entirety by reference to our declaration of
trust and by-laws, each as amended or restated. See "Where You Can Find More
Information" in this prospectus supplement.
GENERAL
Authorized Capital
Under our declaration of trust, we have the authority to issue up to
1,000,000,000 shares of beneficial interest, par value $0.0001 per share, of
which 400,000,000 shares are classified as common shares, 500,000,000 shares are
classified as excess shares and 100,000,000 shares are classified as preferred
shares, of which 3,160,000 shares are designated as the 8.05% Series B
Cumulative Redeemable Preferred Shares, or Series B Preferred Shares, and
3,100,000 shares are designated as the 6.50% Series C Cumulative Convertible
Preferred Shares, or Series C Preferred Shares, one share is designated as
special voting preferred stock and prior to the closing of this offering,
8,000,000 shares will be designated as Series D Preferred Shares. Under Maryland
law, our shareholders generally are not responsible for our debts or obligations
as a result of their status as shareholders.
Special Voting Preferred Stock
Our special voting preferred stock gives holders of limited
partnership units in the MLP voting rights generally similar to those of our
shareholders. We refer to these MLP units as voting MLP units. As of December
31, 2006, the number of votes was 35,505,267, subject to reduction by the number
of voting MLP units that are subsequently redeemed by us. NKT Advisors LLC holds
the special voting preferred stock under a voting trust agreement and will cast
the votes attached to the special voting preferred stock in proportion to the
votes it receives from holders of voting MLP units, other than the general
partner of the MLP, subject to the following limitations. First, Vornado, will
not have the right to vote for board members at any time when an affiliate of
Vornado is serving or standing for election as a board member. In addition, at
all other times, Vornado's right to vote in the election of trustees will be
limited to the number of voting MLP units that it owns, not to exceed 9.9% of
our common shares outstanding on a fully diluted basis. NKT Advisors (through
its managing member) will be entitled to vote in its sole discretion to the
extent the voting rights of Vornado's affiliates are so limited. Unitholders in
our other operating partnerships do not have such a voting right. Accordingly,
based on our common shares (after the exchange of all shares of common stock of
Newkirk in the Merger) and MLP units outstanding as December 31, 2006, holders
of MLP units will be entitled to cast and/or direct the voting of approximately
34.0% of our votes.
Power to Issue and Classify Our Shares
We may issue our capital shares from time to time in the discretion of
our board of trustees to raise additional capital, acquire assets, including
additional real properties, redeem or retire debt or for any other business
purpose. In addition, the undesignated preferred shares may be issued in one or
more additional classes or series with such designations, preferences and
relative, participating, optional or other special rights including, without
limitation, preferential dividend or voting rights, and rights upon liquidation,
as will be fixed by our board of trustees. Our board of trustees is authorized
to classify and reclassify any unissued capital shares by setting or changing,
in any one or more respects, the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption of such shares. This authority includes, without
limitation, subject to the provisions of our declaration of trust, authority to
classify or reclassify any unissued shares into a class or classes of preferred
shares, preference shares, special shares or other shares, and to divide and
reclassify shares of any class into one or more series of that class.
In some circumstances, the issuance of preferred shares, or the
exercise by our board of trustees of its right to classify or reclassify shares,
could have the effect of deterring individuals or entities from making tender
offers for our common shares or seeking to change incumbent management.
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Terms
Subject to the preferential rights of any other shares or class or
series of equity securities and to the provisions of our declaration of trust
regarding excess shares, holders of our common shares are entitled to receive
dividends on the common shares if, as and when authorized by our board of
trustees and declared by us out of assets legally available therefor and to
share ratably in those of our assets legally available for distribution to our
shareholders in the event that we liquidate, dissolve or wind up, after payment
of, or adequate provision for, all of our known debts and liabilities and the
amount to which holders of any class or series of shares classified or
reclassified or having a preference on distributions in liquidation, dissolution
or winding up have a right.
Subject to the provisions of our declaration of trust regarding excess
shares, each outstanding common share entitles the holder to one vote on all
matters submitted to a vote of shareholders, including the election of trustees,
and, except as otherwise required by law or except as otherwise provided in our
declaration of trust with respect to any other class or series of shares,
including our special voting preferred stock, the holders of our common shares
will possess exclusive voting power. There is no cumulative voting in the
election of trustees, which means that the holders of a majority of our
outstanding common shares and special voting preferred stock entitled to cast a
majority of the votes in the election of trustees can elect all of the trustees
then standing for election, and the holders of our remaining common shares or
special voting preferred stock will not be able to elect any trustees.
Holders of our common shares have no conversion, sinking fund or
redemption rights, or preemptive rights to subscribe for any of our securities.
We furnish our shareholders with annual reports containing audited
consolidated financial statements and an opinion thereon expressed by an
independent public accounting firm.
Subject to the provisions of our declaration of trust regarding excess
shares, all of our common shares will have equal dividend, distribution,
liquidation and other rights and will have no preference, appraisal or exchange
rights.
Merger, Amendment to Declaration of Trust, Termination
Pursuant to the Maryland REIT law, a real estate investment trust
generally cannot amend its declaration of trust or merge unless approved by the
affirmative vote of shareholders holding at least two-thirds of the shares
entitled to vote on the matter unless a lesser percentage (but not less than a
majority of all of the votes to be cast on the matter) is set forth in our
declaration of trust. Our declaration of trust provides that those actions, with
the exception of certain amendments to our declaration of trust for which a
higher vote requirement has been set, will be valid and effective if authorized
by holders of a majority of the total number of shares of all classes
outstanding and entitled to vote thereon. Certain amendments to preserve our
REIT status may be made without shareholder approval. Subject to the provisions
of any other class or series of shares, we may be terminated by the affirmative
vote of the holders of not less than two-thirds of the votes entitled to be cast
on the matter.
Advance Notice of Trustee Nominations and New Business
Our by-laws provide that for any shareholder proposal to be presented
in connection with an annual meeting of shareholders, including any proposal
relating to the nomination of a trustee, the shareholders must have given timely
notice thereof in writing to our secretary in accordance with the provisions of
our by-laws.
Restrictions on Ownership
For us to qualify as a REIT under the Code, not more than 50% in value
of our outstanding capital shares may be owned, directly or indirectly, by five
or fewer individuals (as defined in the Code 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. See
"Certain Provisions of Maryland Law and of our Declaration of Trust and
By-Laws."
Transfer Agent
The transfer agent and registrar for our common shares is Mellon
Investor Services, LLC.
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CERTAIN PROVISIONS OF MARYLAND LAW AND OF OUR
DECLARATION OF TRUST AND BY-LAWS
The following updates and supersedes the information included in the
accompanying prospectus under the heading "Certain Provisions of Maryland Law
and our Declaration of Trust and By-Laws."
RESTRICTIONS RELATING TO REIT STATUS
For us to qualify as a REIT under the Code, among other things, not
more than 50% in value of our outstanding capital shares may be owned, directly
or indirectly, by five or fewer individuals (defined in the Code to include
certain entities) during the last half of a taxable year, and such capital
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 (in each case, other than the first such year). Our declaration of
trust, subject to certain exceptions, provides that no holder may own, or be
deemed to own by virtue of the attribution provisions of the Code, more than
9.8% of our equity shares, defined as common shares or preferred shares. We
refer to this restriction as the Ownership Limit. Our board of trustees may
waive the Ownership Limit if evidence satisfactory to our board of trustees and
tax counsel is presented that the changes in ownership will not then or in the
future jeopardize our status as a REIT. Our board of trustees has granted
waivers of the Ownership Limit to certain holders of our capital shares,
including Vornado and Apollo. Any transfer of equity shares or any security
convertible into equity shares that would create a direct or indirect ownership
of equity shares in excess of the Ownership Limit or that would result in our
disqualification as a REIT, including any transfer that results in the equity
shares being owned by fewer than 100 persons or results in our being "closely
held" within the meaning of Section 856(h) of the Code, will be null and void,
and the intended transferee will acquire no rights to such equity shares. The
foregoing restrictions on transferability and ownership will not apply if our
board of trustees determines that it is no longer in our best interests to
attempt to qualify, or to continue to qualify, as a REIT.
Equity shares owned, or deemed to be owned, or transferred to a
shareholder in excess of the Ownership Limit, or that would result in our being
"closely held" (within the meaning of Section 856(h) of the Code), will
automatically be converted into shares of beneficial interest classified as
excess stock, which we refer to as our excess shares, that will be transferred,
by operation of law, to us as trustee of a charitable trust for the exclusive
benefit of the transferees to whom such capital shares may be ultimately
transferred without violating the Ownership Limit. The excess shares are not
entitled to be voted, be considered for purposes of any shareholder vote or the
determination of a quorum for such vote and, except upon liquidation, entitled
to participate in dividends or other distributions. Any dividend or distribution
paid to a proposed transferee of excess shares prior to our discovery that
equity shares have been transferred in violation of the provisions of our
declaration of trust will be repaid to us upon demand. The excess shares are not
treasury shares, but rather constitute a separate class of our issued and
outstanding shares. The original transferee-shareholder may, at any time the
excess shares are held by us in trust, transfer the interest in the trust
representing the excess shares to any individual whose ownership of the equity
shares exchanged into such excess shares would be permitted under our
declaration of trust, at a price not in excess of the price paid by the original
transferee-shareholder for the equity shares that were exchanged into excess
shares, or, if the transferee-shareholder did not give value for such shares, a
price not in excess of the market price (as determined in the manner set forth
in our declaration of trust) on the date of the purported transfer. Immediately
upon the transfer to the permitted transferee, the excess shares will
automatically be exchanged for equity shares of the class from which they were
converted. If the foregoing transfer restrictions are determined to be void or
invalid by virtue of any legal decision, statute, rule or regulation, then the
intended transferee of any excess shares may be deemed, at our option, to have
acted as an agent on our behalf in acquiring the excess shares and to hold the
excess shares on our behalf.
In addition to the foregoing transfer restrictions, we will have the
right, for a period of 90 days, after the later of the day we receive written
notice of a transfer or other event, or our board of trustees determines in good
faith that a transfer or other event has occurred, resulting in excess shares,
to purchase all or any portion of the excess shares from the original
transferee-shareholder for the lesser of the price paid for the equity shares by
the original transferee-shareholder or the market price (as determined in the
manner set forth in our declaration of trust) of the equity shares on the date
we exercise our option to purchase.
Each shareholder will be required, upon demand, to disclose to us in
writing any information with respect to the direct, indirect and constructive
ownership of capital shares as our board of trustees deems necessary to
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comply with the provisions of the Code applicable to REITs, to comply with the
requirements of any taxing authority or governmental agency or to determine any
such compliance.
This Ownership Limit may have the effect of precluding an acquisition
of control unless our board of trustees determines that maintenance of REIT
status is no longer in our best interest.
MARYLAND LAW
Business Combinations. Under Maryland law, "business combinations"
between a Maryland real estate investment trust and an interested shareholder or
an affiliate of an interested shareholder are prohibited for five years after
the most recent date on which the interested shareholder becomes an interested
shareholder. These business combinations include a merger, consolidation, share
exchange, or, in circumstances specified in the statute, an asset transfer or
issuance or reclassification of equity securities. An interested shareholder is
defined as:
- any person who beneficially owns ten percent or more of the
voting power of the trust's shares; or
- an affiliate or associate of the trust who, at any time
within the two-year period prior to the date in question,
was the beneficial owner of ten percent or more of the
voting power of the then outstanding voting shares of the
trust.
A person is not an interested shareholder under the statute if the
board of trustees approved in advance the transaction by which he otherwise
would have become an interested shareholder. However, in approving a
transaction, the board of trustees may provide that its approval is subject to
compliance, at or after the time of approval, with any terms or conditions
determined by the board.
After the five-year prohibition, any business combination between the
Maryland real estate investment trust and an interested shareholder generally
must be recommended by the board of trustees of the trust and approved by the
affirmative vote of at least:
- eighty percent of the votes entitled to be cast by holders
of outstanding voting shares of the trust; and
- two-thirds of the votes entitled to be cast by holders of
voting shares of the trust other than shares held by the
interested shareholder with whom or with whose affiliate the
business combination is to be effected or held by an
affiliate or associate of the interested shareholder.
These super-majority vote requirements do not apply if the trust's
common shareholders receive a minimum price, as defined under Maryland law, for
their shares in the form of cash or other consideration in the same form as
previously paid by the interested shareholder for its shares.
The statute permits various exemptions from its provisions, including
business combinations that are exempted by the board of trustees prior to the
time that the interested shareholder becomes an interested shareholder.
In connection with its approval of the Merger, our board of trustees
has exempted, to a limited extent, certain holders of Newkirk stock and MLP
Units who received our common shares in the Merger.
The business combination statute may discourage others from trying to
acquire control of us and increase the difficulty of consummating any offer.
Control Share Acquisitions. Maryland law provides that control shares
of a Maryland real estate investment trust acquired in a control share
acquisition have no voting rights except to the extent approved by a vote of
two-thirds of the votes entitled to be cast on the matter. Shares owned by the
acquiror, by officers or by employees who are trustees of the trust are excluded
from shares entitled to vote on the matter. Control Shares are voting shares
which, if aggregated with all other shares owned by the acquiror or in respect
of which the acquiror is able to exercise or direct the exercise of voting power
(except solely by virtue of a revocable proxy), would entitle the acquiror to
exercise voting power in electing trustees within one of the following ranges of
voting power:
- one-tenth or more but less than one-third,
- one-third or more but less than a majority, or
- a majority or more of all voting power.
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Control shares do not include shares the acquiring person is then
entitled to vote as a result of having previously obtained shareholder approval.
A control share acquisition means the acquisition of control shares, subject to
certain exceptions.
A person who has made or proposes to make a control share acquisition
may compel the board of trustees of the trust to call a special meeting of
shareholders to be held within 50 days of demand to consider the voting rights
of the shares. The right to compel the calling of a special meeting is subject
to the satisfaction of certain conditions, including an undertaking to pay the
expenses of the meeting. If no request for a meeting is made, the trust may
itself present the question at any shareholders meeting.
If voting rights are not approved at the meeting or if the acquiring
person does not deliver an acquiring person statement as required by the
statute, then the trust may redeem for fair value any or all of the control
shares, except those for which voting rights have previously been approved. The
right of the trust to redeem control shares is subject to certain conditions and
limitations. Fair value is determined, without regard to the absence of voting
rights for the control shares, as of the date of the last control share
acquisition by the acquiror or of any meeting of shareholders at which the
voting rights of the shares are considered and not approved. If voting rights
for control shares are approved at a shareholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
shareholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of appraisal rights may not be less than the highest
price per share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply (a) to shares
acquired in a merger, consolidation or share exchange if the trust is a party to
the transaction, or (b) to acquisitions approved or exempted by the declaration
of trust or by-laws of the trust.
Our by-laws contain a provision exempting from the control share
acquisition statute any and all acquisitions by any person of our shares. There
can be no assurance that this provision will not be amended or eliminated at any
time in the future.
UNSOLICITED TAKEOVER PROVISIONS OF MARYLAND LAW
Publicly-held Maryland statutory real estate investment trusts may
elect to be governed by all or any part of Maryland law provisions relating to
extraordinary actions and unsolicited takeovers. The election to be governed by
one or more of these provisions can be made by a trust in its declaration of
trust or by-laws ("charter documents") or by resolution adopted by its board of
trustees so long as the trust has at least three trustees who, at the time of
electing to be subject to the provisions, are not:
- officers or employees of the trust;
- persons seeking to acquire control of the trust;
- trustees, officers, affiliates or associates of any person
seeking to acquire control of the trust; or
- nominated or designated as trustees by a person seeking to
acquire control of the trust.
Articles supplementary must be filed with the State Department of
Assessments and Taxation of Maryland if a trust elects to be subject to any or
all of the provisions by board resolution or bylaw amendment. Shareholder
approval is not required for the filing of these articles supplementary.
The Maryland law provides that a trust can elect to be subject to all
or any portion of the following provisions, notwithstanding any contrary
provisions contained in that trust's existing charter documents:
- Classified Board: The trust may divide its board into three
classes which, to the extent possible, will have the same
number of trustees, the terms of which will expire at the
third annual meeting of shareholders after the election of
each class;
- Two-thirds Shareholder Vote to Remove Trustees: The
shareholders may remove any trustee only by the affirmative
vote of at least two-thirds of all votes entitled to be cast
by the shareholders generally in the election of trustees;
- Size of Board Fixed by Vote of Board: The number of trustees
will be fixed only by resolution of the board;
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- Board Vacancies Filled by the Board for the Remaining Term:
Vacancies that result from an increase in the size of the
board, or the death, resignation, or removal of a trustee,
may be filled only by the affirmative vote of a majority of
the remaining trustees even if they do not constitute a
quorum. Trustees elected to fill vacancies will hold office
for the remainder of the full term of the class of trustees
in which the vacancy occurred, as opposed to until the next
annual meeting of shareholders, and until a successor is
elected and qualifies; and
- Shareholder Calls of Special Meetings: Special meetings of
shareholders may be called by the secretary of the trust
only upon the written request of shareholders entitled to
cast at least a majority of all votes entitled to be cast at
the meeting and only in accordance with procedures set out
in the Maryland General Corporation Law.
We have not elected to be governed by these specific provisions.
However, our declaration of trust and/or by-laws, as applicable, already provide
for an 80% vote to remove trustees only for cause, that the number of trustees
may be determined by a resolution of our board of trustees, subject to a minimum
number and that special meetings of the shareholders may only be called by the
chairman of the board of trustees or the president or by a majority of the board
of trustees and as may be required by law. In addition, we can elect to be
governed by any or all of the provisions of the Maryland law at any time in the
future.
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FEDERAL INCOME TAX CONSIDERATIONS
You are advised to assume that the information in this prospectus
supplement is accurate only as of its date.
The following discussion summarizes the material United States federal
income tax considerations to you as a prospective holder of our shares and
assumes that you will hold such shares as capital assets (within the meaning of
section 1221 of the Code). The following discussion is for general information
purposes only, is not exhaustive of all possible tax considerations and is not
intended to be and should not be construed as tax advice. For example, this
summary does not give a detailed discussion of any state, local or foreign tax
considerations. In addition, this discussion is intended to address only those
federal income tax considerations that are generally applicable to all of our
shareholders. It does not discuss all of the aspects of federal income taxation
that may be relevant to you in light of your particular circumstances or to
certain types of shareholders who are subject to special treatment under the
federal income tax laws including, without limitation, insurance companies,
tax-exempt entities, financial institutions or broker-dealers, foreign
corporations and persons who are not citizens or residents of the United States.
This summary is based on current provisions of the Code, the Treasury
regulations promulgated thereunder and judicial and administrative authorities.
No assurance can be given that future legislation, regulations, administrative
interpretations and court decisions will not significantly change current law or
adversely affect existing interpretations of current law. Any such change could
apply retroactively to transactions preceding the date of the change. In
addition, we have not received, and do not plan to request, any rulings from the
IRS concerning our tax treatment. Thus no assurance can be provided that the
statements set forth herein (which do not bind the IRS or the courts) will not
be challenged by the IRS or that such statements will be sustained by a court if
so challenged.
PROSPECTIVE HOLDERS OF OUR SHARES ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
INVESTING IN OUR SHARES IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.
TAXATION OF THE COMPANY
GENERAL
We elected to be taxed as a REIT under Sections 856 through 860 of the
Code, commencing with our taxable year ended December 31, 1993. We believe that
we have been organized, and have operated, in such a manner so as to qualify for
taxation as a REIT under the Code and intend to conduct our operations so as to
continue to qualify for taxation as a REIT. No assurance, however, can be given
that we have operated in a manner so as to qualify or will be able to operate in
such a manner so as to remain qualified as a REIT. Qualification and taxation as
a REIT depends upon our ability to meet on a continuing basis, through actual
annual operating results, the required distribution levels, diversity of share
ownership and the various qualification tests imposed under the Code discussed
below, the results of which will not be reviewed by counsel. Given the highly
complex nature of the rules governing REITs, the ongoing importance of factual
determinations, and the possibility of future changes in our circumstances, no
assurance can be given that the actual results of our operations for any one
taxable year have satisfied or will continue to satisfy such requirements.
In the opinion of Paul, Hastings, Janofsky & Walker LLP, based on
certain assumptions and our factual representations that are described in this
section and in an officer's certificate, commencing with our taxable year ended
December 31, 1993, we have been organized and operated in conformity with the
requirements for qualification as a REIT and our current and proposed method of
operation will enable us to continue to meet the requirements for qualification
and taxation as a REIT. It must be emphasized that this opinion is based on
various assumptions and is conditioned upon certain representations made by us
as to factual matters including, but not limited to, those set forth herein, and
those concerning our business and properties as set forth in this prospectus
supplement. An opinion of counsel is not binding on the IRS or the courts.
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, all of
which are subject to change prospectively or retroactively.
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If we qualify for taxation as a REIT, we generally will not be subject
to federal corporate income taxes on our REIT taxable income that is currently
distributed to shareholders. This treatment substantially eliminates the "double
taxation" (at the corporate and shareholder levels) that generally results from
investment in a corporation. However, we will be subject to federal income tax
as follows:
- we will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed
net capital gains.
- under certain circumstances, we may be subject to the
"alternative minimum tax" on our items of tax preference.
- if we have (a) net income from the sale or other disposition
of "foreclosure property," which is, in general, property
acquired on foreclosure or otherwise on default on a loan
secured by such real property or a lease of such property,
which is held primarily for sale to customers in the
ordinary course of business or (b) other nonqualifying
income from foreclosure property, we will be subject to tax
at the highest corporate rate on such income.
- if we have net income from "prohibited transactions," such
income will be subject to a 100% tax. Prohibited
transactions are, in general, certain sales or other
dispositions of property held primarily for sale to
customers in the ordinary course of business other than
foreclosure property.
- if we should fail to satisfy the 75% gross income test or
the 95% gross income test (as discussed below), but
nonetheless maintain our qualification as a REIT because
certain other requirements have been met, we will be subject
to a 100% tax on an amount equal to (a) the gross income
attributable to the greater of (1) the amount by which we
fail the 75% gross income test or (2) the amount by which
95% (90% for taxable years ending on or prior to December
31, 2004) of our gross income exceeds the amount of income
qualifying under the 95% gross income test, multiplied by
(b) a fraction intended to reflect our profitability.
- if we should fail to satisfy the asset tests (as discussed
below) but nonetheless maintain our qualification as a REIT
because certain other requirements have been met and we do
not qualify for a de minimis exception, we may be subject to
a tax that would be the greater of (a) $50,000; or (b) an
amount determined by multiplying the highest rate of tax for
corporations by the net income generated by the
nonqualifying assets for the period beginning on the first
date of the failure and ending on the day we dispose of the
assets (or otherwise satisfy the requirements for
maintaining REIT qualification).
- if we should fail to satisfy one or more requirements for
REIT qualification, other than the 95% and 75% gross income
tests and other than the asset tests, but nonetheless
maintain our qualification as a REIT because certain other
requirements have been met, we may be subject to a $50,000
penalty for each failure.
- if we should fail to distribute during each calendar year at
least the sum of (a) 85% of our REIT ordinary income for
such year, (b) 95% of our REIT capital gain net income for
such year, and (c) any undistributed taxable income from
prior periods, we would be subject to a 4% nondeductible
excise tax on the excess of such required distribution over
the amounts actually distributed.
- if we acquire any asset from a C corporation (i.e., a
corporation generally subject to full corporate level tax)
in a transaction in which the basis of the asset in our
hands is determined by reference to the basis of the asset
(or any other property) in the hands of the C corporation
and we do not elect to be taxed at the time of the
acquisition, we would be subject to tax at the highest
corporate rate if we dispose of such asset during the
10-year period beginning on the date that we acquired that
asset, to the extent of such property's "built-in gain" (the
excess of the fair market value of such property at the time
of our acquisition over the adjusted basis of such property
at such time). This tax is referred to as the "Built-In
Gains Tax."
- we will incur a 100% excise tax on transactions with a
taxable REIT subsidiary that are not conducted on an
arm's-length basis.
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- if we own a residual interest in a real estate mortgage
investment conduit, or REMIC, we will be taxable at the
highest corporate rate on the portion of any excess
inclusion income that we derive from the REMIC residual
interests equal to the percentage of our shares that is held
in record name by "disqualified organizations." Similar
rules apply if we own an equity interest in a taxable
mortgage pool. A "disqualified organization" includes the
United States, any state or political subdivision thereof,
any foreign government or international organization, any
agency or instrumentality of any of the foregoing, any rural
electrical or telephone cooperative and any tax-exempt
organization (other than a farmer's cooperative described in
Section 521 of the Code) that is exempt from income taxation
and from the unrelated business taxable income provisions of
the Code. However, to the extent that we own a REMIC
residual interest or a taxable mortgage pool through a
taxable REIT subsidiary, we will not be subject to this tax.
See the heading "Requirements for Qualification" below.
REQUIREMENTS FOR QUALIFICATION
A REIT is a corporation, trust or association (1) that is managed by
one or more trustees or directors, (2) the beneficial ownership of which is
evidenced by transferable shares, or by transferable certificates of beneficial
interest, (3) that would be taxable as a domestic corporation, but for Sections
856 through 860 of the Code, (4) that is neither a financial institution nor an
insurance company subject to certain provisions of the Code, (5) that has the
calendar year as its taxable year, (6) the beneficial ownership of which is held
by 100 or more persons, (7) during the last half of each taxable year (after the
first REIT 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 subject to certain attribution
rules) (the "5/50 Rule"), and (8) that meets certain other tests, described
below, regarding the nature of its income and assets. The Code provides that
conditions (1) through (5), inclusive, must be met during the entire taxable
year and that condition (6) 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 (other than the first year of a REIT).
We may redeem, at our option, a sufficient number of shares or
restrict the transfer thereof to bring or maintain the ownership of the shares
in conformity with the requirements of the Code. In addition, our declaration of
trust includes restrictions regarding the transfer of our shares that are
intended to assist it in continuing to satisfy requirements (6) and (7).
Moreover, if we comply with regulatory rules pursuant to which we are required
to send annual letters to our shareholders requesting information regarding the
actual ownership of our shares, and we do not know, or exercising reasonable
diligence would not have known, whether we failed to meet requirement (7) above,
we will be treated as having met the requirement. See "Description of Common
Shares--Restrictions on Ownership" in this prospectus supplement.
The Code allows a REIT to own wholly-owned corporate subsidiaries
which are "qualified REIT subsidiaries." The Code provides that a qualified REIT
subsidiary is not treated as a separate corporation, and all of its assets,
liabilities and items of income, deduction and credit are treated as assets,
liabilities and items of income, deduction and credit of the REIT. Thus, in
applying the requirements described herein, our qualified REIT subsidiaries will
be ignored, and all assets, liabilities and items of income, deduction and
credit of such subsidiaries will be treated as its assets, liabilities and items
of income, deduction and credit.
For taxable years beginning on or after January 1, 2001, a REIT may
also hold any direct or indirect interest in a corporation that qualifies as a
"taxable REIT subsidiary," as long as the REIT's aggregate holdings of taxable
REIT subsidiary securities do not exceed 20% of the value of the REIT's total
assets. A taxable REIT subsidiary is a fully taxable corporation that generally
is permitted to engage in businesses, own assets, and earn income that, if
engaged in, owned, or earned by the REIT, might jeopardize REIT status or result
in the imposition of penalty taxes on the REIT. To qualify as a taxable REIT
subsidiary, the subsidiary and the REIT must make a joint election to treat the
subsidiary as a taxable REIT subsidiary. A taxable REIT subsidiary also includes
any corporation (other than a REIT) in which a taxable REIT subsidiary directly
or indirectly owns more than 35% of the total voting power or value. See
"--Asset Tests" below. A taxable REIT subsidiary will pay tax at regular
corporate income rates on any taxable income it earns. Moreover, the Code
contains rules, including rules requiring the imposition of taxes on a REIT at
the rate of 100% on certain reallocated income and expenses, to ensure that
contractual arrangements between a taxable REIT subsidiary and its parent REIT
are at arm's-length.
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In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of each of the assets of the partnership. Also, we will be deemed to be entitled
to our proportionate share of the income of the partnership. In addition, the
character of the assets and items of gross income of the partnership will retain
the same character in the hands of the REIT for purposes of Section 856 of the
Code, including satisfying the gross income and assets tests (as discussed
below). Thus, our proportionate share of the assets, liabilities, and items of
gross income of the partnerships in which we own an interest are treated as our
assets, liabilities and items of gross income for purposes of applying the
requirements described herein. The treatment described above also applies with
respect to the ownership of interests in limited liability companies or other
entities that are treated as partnerships for tax purposes.
A significant number of our investments are held through partnerships.
If any such partnerships were treated as an association, the entity would be
taxable as a corporation and therefore would be subject to an entity level tax
on its income. In such a situation, the character of our assets and items of
gross income would change and might preclude us from qualifying as a REIT. We
believe that each partnership in which we hold a material interest (either
directly or indirectly) is properly treated as a partnership for tax purposes
(and not as an association taxable as a corporation).
Special rules apply to a REIT, a portion of a REIT, or a qualified
REIT subsidiary that is a taxable mortgage pool. An entity or portion thereof
may be classified as a taxable mortgage pool under the Code if:
- substantially all of the assets consist of debt obligations or
interests in debt obligations;
- more than 50% of those debt obligations are real estate mortgage
loans or interests in real estate mortgage loans as of specified
testing dates;
- the entity has issued debt obligations that have two or more
maturities; and
- the payments required to be made by the entity on its debt
obligations "bear a relationship" to the payments to be received
by the entity on the debt obligations that it holds as assets.
Under U.S. Treasury regulations, if less than 80% of the assets of an
entity (or the portion thereof) consist of debt obligations, these debt
obligations are considered not to comprise "substantially all" of its assets,
and therefore the entity would not be treated as a taxable mortgage pool.
An entity or portion thereof that is classified as a taxable mortgage
pool is generally treated as a taxable corporation for federal income tax
purposes. However, the portion of the REIT's assets, held directly or through a
qualified REIT subsidiary, that qualifies as a taxable mortgage pool is treated
as a qualified REIT subsidiary that is not subject to corporate income tax and
therefore the taxable mortgage pool classification does not change that
treatment. The classification of a REIT, qualified REIT subsidiary or portion
thereof as a taxable mortgage pool could, however, result in taxation of a REIT
and certain of its shareholders as described below.
Recently issued IRS guidance indicates that a portion of income from a
taxable mortgage pool arrangement, if any, could be treated as "excess inclusion
income." Excess inclusion income is an amount, with respect to any calendar
quarter, equal to the excess, if any, of (i) income allocable to the holder of a
REMIC residual interest or taxable mortgage pool interest over (ii) the sum of
an amount for each day in the calendar quarter equal to the product of (a) the
adjusted issue price at the beginning of the quarter multiplied by (b) 120% of
the long-term federal rate (determined on the basis of compounding at the close
of each calendar quarter and properly adjusted for the length of such quarter).
Under the recent guidance, such income would be allocated among our shareholders
in proportion to dividends paid and, generally, may not be offset by net
operating losses of the shareholder, would be taxable to tax-exempt shareholders
who are subject to the unrelated business income tax rules of the Code and would
subject non-U.S. shareholders to withholding tax (without exemption or reduction
of the withholding rate). To the extent that excess inclusion income is
allocated from a taxable mortgage pool to any disqualified organizations that
hold our shares, we may be taxable on this income at the highest applicable
corporate tax rate (currently 35%). Because this tax would be imposed on the
REIT, all of the REIT's shareholders, including shareholders that are not
disqualified organizations, would bear a portion of the tax cost associated with
the classification of any portion of our assets as a taxable mortgage pool.
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If we own less than 100% of the ownership interests in a subsidiary
that is a taxable mortgage pool, the foregoing rules would not apply. Rather,
the subsidiary would be treated as a corporation for federal income tax purposes
and would potentially be subject to corporate income tax. In addition, this
characterization would affect our REIT income and asset test calculations and
could adversely affect our ability to qualify as a REIT.
We have made and in the future intend to make investments or enter
into financing and securitization transactions that may give rise to our being
considered to own an interest, directly or indirectly, in one or more taxable
mortgage pools. Prospective holders are urged to consult their own tax advisors
regarding the tax consequences of the taxable mortgage pool rules to them in
light of their particular circumstances.
INCOME TESTS
In order to maintain qualification as a REIT, we must satisfy annually
certain gross income requirements. First, at least 75% of our gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived directly or indirectly from investments relating to real property or
mortgages on real property (including "rents from real property," dividends from
other qualifying REITs and, in certain circumstances, interest) or from certain
types of qualified temporary investments. Second, at least 95% of our gross
income (excluding gross income from prohibited transactions) for each taxable
year must be derived from such real property investments described above,
dividends, interest and gain from the sale or disposition of stock or securities
and certain other specified sources. For taxable years beginning on or after
January 1, 2005, any income from a hedging transaction that is clearly and
timely identified and that hedges indebtedness incurred or to be incurred to
acquire or carry real estate assets will not constitute gross income (rather
than being treated as qualifying or nonqualifying income) for purposes of the
95% gross income test.
Rents received by us will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if the
following conditions are met:
First, the amount of rent must not be based in whole or in part
on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the
term "rents from real property" solely by reason of being
based on a fixed percentage or percentages of receipts or
sales.
Second, the Code provides that rents received from a tenant
generally will not qualify as "rents from real property" in
satisfying the gross income tests if we, or an owner of 10%
or more of our shares, actually or constructively owns 10%
or more of such tenant.
Third, if rent attributable to personal property, leased in
connection with a lease of real property, is greater than
15% of the total rent received under the lease, then the
portion of rent attributable to such personal property
(based on the ratio of fair market value of personal and
real property) will not qualify as "rents from real
property."
Finally, in order for rents received to qualify as "rents from
real property," we generally must not operate or manage the
property (subject to a de minimis exception as described
below) or furnish or render services to the tenants of such
property, other than through an independent contractor from
whom we derive no revenue or through a taxable REIT
subsidiary. We may, however, directly perform certain
services that are "usually or customarily rendered" in
connection with the rental of space for occupancy only and
are not otherwise considered "rendered to the occupant" of
the property ("Permissible Services").
For our taxable years commencing on or after January 1, 1998, rents
received generally will qualify as rents from real property notwithstanding the
fact that we provide services that are not Permissible Services so long as the
amount received for such services meets a de minimis standard. The amount
received for "impermissible services" with respect to a property (or, if
services are available only to certain tenants, possibly with respect to such
tenants) cannot exceed one percent of all amounts received, directly or
indirectly, by us with respect to such property (or, if services are available
only to certain tenants, possibly with respect to such tenants). The amount that
we will be deemed to have received for performing "impermissible services" will
be the greater of the actual amounts so received or 150% of the direct cost to
us of providing those services.
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We believe that substantially all of our rental income will be
qualifying income under the gross income tests, and that our provision of
services will not cause the rental income to fail to be qualifying income under
those tests.
If we fail to satisfy one or both of the 75% or 95% gross income tests
for any taxable year, we may nevertheless qualify as a REIT for such year if
such failure was due to reasonable cause and not willful neglect and we
disclosed the nature and amounts of our items of gross income in a schedule
attached to our federal income tax return for such year (and for taxable years
beginning on or before October 22, 2004, such schedule is filed in accordance
with Treasury Regulations to be issued and any incorrect information on the
schedule was not due to fraud with intent to evade tax). It is not possible,
however, to state whether in all circumstances we would be entitled to the
benefit of this relief provision. Even if this relief provision applied, a 100%
penalty tax would be imposed on the greater of (1) the amount by which we failed
the 75% gross income test or (2) the amount by which 95% (90% for taxable years
ending on or before December 31, 2004) of our gross income exceeds the amount of
income qualifying under the 95% gross income test, multiplied by a fraction
intended to reflect our profitability.
Subject to certain safe harbor exceptions, any gain realized by us on
the sale of any property held as inventory or other property held primarily for
sale to customers in the ordinary course of business will be treated as income
from a prohibited transaction that is subject to a 100% penalty tax. Such
prohibited transaction income may also have an adverse effect upon our ability
to qualify as a REIT. 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.
ASSET TESTS
At the close of each quarter of our taxable year, we must also satisfy
the following tests relating to the nature of our assets. At least 75% of the
value of our total assets, including our allocable share of assets held by
partnerships in which we own an interest, must be represented by real estate
assets, stock or debt instruments held for not more than one year purchased with
the proceeds of an offering of equity securities or a long-term (at least five
years) debt offering by us, cash, cash items (including certain receivables) and
government securities. In addition, not more than 25% of our total assets may be
represented by securities other than those in the 75% asset class. Not more than
20% of the value of our total assets may be represented by securities of one or
more taxable REIT subsidiaries (as defined above under "--Requirements for
Qualification"). Except for investments included in the 75% asset class,
securities in a taxable REIT subsidiary or qualified REIT subsidiary and certain
partnership interests and debt obligations, (1) not more than 5% of the value of
our total assets may be represented by securities of any one issuer (the "5%
value test"), (2) we may not hold securities that possess more than 10% of the
total voting power of the outstanding securities of a single issuer (the "10%
vote test") and (3) we may not hold securities that have a value of more than
10% of the total value of the outstanding securities of any one issuer (the "10%
value test"). The following assets are not treated as "securities" held by us
for purposes of the 10% value test: (i) "straight debt" meeting certain
requirements, unless we hold (either directly or through our "controlled"
taxable REIT subsidiaries) certain other securities of the same corporate or
partnership issuer that have an aggregate value greater than 1% of such issuer's
outstanding securities; (ii) loans to individuals or estates; (iii) certain
rental agreements calling for deferred rents or increasing rents that are
subject to Section 467 of the Code, other than with certain related persons;
(iv) obligations to pay us amounts qualifying as "rents from real property"
under the 75% and 95% gross income tests; (v) certain securities issued by
certain governmental entities; and (vi) securities issued by another qualifying
REIT. In addition, any debt instrument issued by a partnership will not be
treated as a "security" under the 10% value test if at least 75% of the
partnership's gross income (excluding gross income from prohibited transactions)
is derived from sources meeting the requirements of the 75% gross income test.
If the partnership fails to meet the 75% gross income test, then the debt
instrument issued by the partnership nevertheless will not be treated as a
"security" to the extent of our interest as a partner in the partnership. Also,
in determining our allocable share of any securities owned by the partnership,
our share of the assets of the partnership, solely for purposes of applying the
10% value test in taxable years beginning on or after January 1, 2005, will
correspond not only to our interest as a partner in the partnership but also to
our proportionate interest in certain debt securities issued by the partnership.
We believe that substantially all of our assets consist of (1) real
properties, (2) stock or debt investments that earn qualified temporary
investment income, (3) other qualified real estate assets, and (4) cash, cash
items and government securities. We may also invest in securities of other
entities, provided that such investments will not prevent us from satisfying the
asset and income tests for REIT qualification set forth above.
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After initially meeting the asset tests at the close of any quarter,
we will not lose our 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 we
inadvertently fail one or more of the asset tests at the end of a calendar
quarter because we acquire securities or other property during the quarter, we
can cure this failure by disposing of sufficient non-qualifying assets within 30
days after the close of the calendar quarter in which it arose. If we were to
fail any of the asset tests at the end of any quarter without curing such
failure within 30 days after the end of such quarter, we would fail to qualify
as a REIT, unless we were to qualify under certain recently enacted relief
provisions. Under one of these relief provisions, if we were to fail the 5%
value test, the 10% vote test or the 10% value test, we nevertheless would
continue to qualify as a REIT if the failure was due to the ownership of assets
having a total value not exceeding the lesser of 1% of our assets at the end of
the relevant quarter or $10,000,000, and we were to dispose of such assets (or
otherwise meet such asset tests) within six months after the end of the quarter
in which the failure was identified. If we were to fail to meet any of the REIT
asset tests for a particular quarter, but did not qualify for the relief for de
minimis failures that is described in the preceding sentence, then we would be
deemed to have satisfied the relevant asset test if: (i) following our
identification of the failure, we were able to file a schedule with a
description of each asset that caused the failure; (ii) the failure was due to
reasonable cause and not due to willful neglect; (iii) we were to dispose of the
non-qualifying asset (or otherwise meet the relevant asset test) within six
months after the last day of the quarter in which the failure was identified,
and (iv) we were to pay a penalty tax equal to the greater of $50,000, or the
highest corporate tax rate multiplied by the net income generated by the
non-qualifying asset during the period beginning on the first date of the
failure and ending on the date we dispose of the asset (or otherwise cure the
asset test failure). These relief provisions will be available to us in the
taxable years beginning on or after January 1, 2005, although it is not possible
to predict whether in all circumstances we would be entitled to the benefit of
these relief provisions.
ANNUAL DISTRIBUTION REQUIREMENT
With respect to each taxable year, we must distribute to shareholders
as dividends (other than capital gain dividends) at least 90% of our taxable
income. Specifically, we must distribute an amount equal to (1) 90% of the sum
of our "REIT taxable income" (determined without regard to the deduction for
dividends paid and by excluding any net capital gain) and any after-tax net
income from foreclosure property, minus (2) the sum of certain items of "excess
noncash income" such as income attributable to leveled stepped rents,
cancellation of indebtedness and original issue discount. REIT taxable income is
generally computed in the same manner as taxable income of ordinary
corporations, with several adjustments, such as a deduction allowed for
dividends paid, but not for dividends received.
We will be subject to tax on amounts not distributed at regular U.S.
federal corporate income tax rates. In addition, a 4% nondeductible excise tax
is imposed on the excess of (1) 85% of our ordinary income for the year plus 95%
of capital gain net income for the year and the undistributed taxable income for
the prior year over (2) the actual distribution to shareholders during the year
(if any). Net operating losses that we generated may be carried forward (but not
carried back) and used for 15 years (or 20 years in the case of net operating
losses generated in our tax years commencing on or after January 1, 1998) to
reduce REIT taxable income and the amount that we will be required to distribute
in order to remain qualified as a REIT. As a REIT, our net capital losses may be
carried forward for five years (but not carried back) and used to reduce capital
gains.
In general, a distribution must be made during the taxable year to
which it relates to satisfy the distribution test and to be deducted in
computing REIT taxable income. However, we may elect to treat a dividend
declared and paid after the end of the year (a "subsequent declared dividend")
as paid during such year for purposes of complying with the distribution test
and computing REIT taxable income, if the dividend is (1) declared before the
regular or extended due date of our tax return for such year and (2) paid not
later than the date of the first regular dividend payment made after the
declaration, but in no case later than 12 months after the end of the year. For
purposes of computing the 4% nondeductible excise tax, a subsequent declared
dividend is considered paid when actually distributed. Furthermore, any dividend
that is declared by us in October, November or December of a calendar year, and
payable to shareholders of record as of a specified date in such quarter of such
year will be deemed to have been paid by us (and received by shareholders) on
December 31 of such calendar year, but only if such dividend is actually paid by
us in January of the following calendar year.
For purposes of complying with the distribution test for a taxable
year as a result of an adjustment in certain of our items of income, gain or
deduction by the IRS or us, we may be permitted to remedy such failure by paying
a "deficiency dividend" in a later year together with interest. Such deficiency
dividend may be included in our deduction of dividends paid for the earlier year
for purposes of satisfying the distribution test. For purposes of the
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nondeductible 4% excise tax, the deficiency dividend is taken into account when
paid, and any income giving rise to the deficiency adjustment is treated as
arising when the deficiency dividend is paid.
We believe that we have distributed and intend to continue to
distribute to our shareholders in a timely manner such amounts sufficient to
satisfy the annual distribution requirements. However, it is possible that
timing differences between the accrual of income and our actual collection, and
the need to make non-deductible expenditures (such as capital improvements or
principal payments on debt) may cause us to recognize taxable income in excess
of our net cash receipts, thus increasing the difficulty of compliance with the
distribution requirement. In addition, excess inclusion income might be non-cash
accrued income, or "phantom" taxable income, which could therefore adversely
affect our ability to satisfy our distribution requirements. In order to meet
the distribution requirement, we might find it necessary to arrange for
short-term, or possibly long-term, borrowings.
TAX LIABILITIES INHERITED FROM NEWKIRK
In connection with the Newkirk merger completed on December 31, 2006, we
succeeded to the tax and other liabilities of Newkirk. If Newkirk failed to
qualify as a REIT in any taxable year, it would have been subject to federal
income tax (including any applicable alternative minimum tax) on its taxable
income for such taxable years at regular corporate rates. Unless statutory
relief provisions apply, Newkirk would have been disqualified from treatment as
a REIT for the four taxable years following the year during which it lost
qualification. We, as successor to Newkirk, would be required to pay any such
tax. In addition, if Newkirk failed to qualify as a REIT at any time prior to
the merger, it may have non-REIT C corporation assets (which we now hold) which
are subject to the Built-In Gains Tax. As a condition to closing the merger, tax
counsel to Newkirk rendered an opinion relating to Newkirk's status as a REIT
commencing with its initial taxable year ended December 31, 2005.
FAILURE TO QUALIFY
Commencing with our taxable year beginning January 1, 2005, if we were
to fail to satisfy one or more requirements for REIT qualification, other than
an asset or income test violation of a type for which relief is otherwise
available as described above, we would retain our REIT qualification if the
failure was due to reasonable cause and not willful neglect, and if we were to
pay a penalty of $50,000 for each such failure. It is not possible to predict
whether in all circumstances we would be entitled to the benefit of this relief
provision.
If we fail to qualify as a REIT for any taxable year, and if certain
relief provisions of the Code do not apply, we would be subject to federal
income tax (including applicable alternative minimum tax) on our taxable income
at regular corporate rates. Distributions to shareholders in any year in which
we fail to qualify will not be deductible by us nor will they be required to be
made. As a result, our failure to qualify as a REIT would reduce the cash
available for distribution by it to shareholders. In addition, if we fail to
qualify as a REIT, all distributions to shareholders will be taxable as ordinary
income, to the extent of our current and accumulated earnings and profits, which
may be eligible for a reduced tax rate with respect to shareholders taxed as
individuals if certain additional requirements are met. Subject to certain
limitations of the Code, corporate distributees may be eligible for the
dividends-received deduction.
If our failure to qualify as a REIT is not due to reasonable cause but
results from willful neglect, we would not be permitted to elect REIT status for
the four taxable years after the taxable year for which such disqualification is
effective. In the event we were to fail to qualify as a REIT in one year and
subsequently requalify in a later year, we may elect to recognize taxable income
based on the net appreciation in value of our assets as a condition to
requalification. In the alternative, we may be taxed on the net appreciation in
value of our assets if we sell properties within ten years of the date we
requalify as a REIT under federal income tax laws.
TAXATION OF TAXABLE U.S. SHAREHOLDERS
As used herein, the term "U.S. shareholder" means a beneficial owner
of our shares who (for United States federal income tax purposes) (1) is a
citizen or resident of the United States, (2) is a corporation or other entity
treated as a corporation for federal income tax purposes created or organized in
or under the laws of the United States or of any political subdivision thereof,
(3) is an estate the income of which is subject to United States federal income
taxation regardless of its source or (4) is a trust whose administration is
subject to the primary supervision of a United States court and which has one or
more United States persons who have the authority to control all
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substantial decisions of the trust or a trust that has a valid election to be
treated as a U.S. person pursuant to applicable Treasury Regulations.
If a partnership (including any entity treated as a partnership for
U.S. federal income tax purposes) is a shareholder, the tax treatment of a
partner in the partnership generally will depend upon the status of the partner
and the activities of the partnership. A shareholder that is a partnership and
the partners in such partnership should consult their own tax advisors
concerning the U.S. federal income tax consequences of acquiring, owning and
disposing of our shares.
DISTRIBUTIONS
As long as we qualify as a REIT, distributions made to our taxable
U.S. 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 such amounts. For purposes of computing our
earnings and profits, depreciation for depreciable real estate will be computed
on a straight-line basis over a 40-year period. For purposes of determining
whether distributions on the shares constitute dividends for tax purposes, our
earnings and profits will be allocated first to distributions with respect to
the Series B Preferred Shares, Series C Preferred Shares, Series D Preferred
Shares and all other series of preferred shares that are equal in rank as to
distributions and upon liquidation with the Series B Preferred Shares, Series C
Preferred Shares and Series D Preferred Shares, and second to distributions with
respect to our common shares.
Certain "qualified dividend income" received by domestic non-corporate
shareholders in taxable years prior to December 31, 2010, is subject to tax at
the same tax rates as long-term capital gain. Dividends paid by a REIT generally
do not qualify as "qualified dividend income" because a REIT is not generally
subject to federal income tax on the portion of its REIT taxable income
distributed to its shareholders, and therefore, will continue to be subject to
tax at ordinary income rates, subject to two narrow exceptions. Under the first
exception, dividends received from a REIT may be treated as "qualified dividend
income" eligible for the reduced tax rates to the extent that the REIT itself
has received qualified dividend income from other corporations (such as taxable
REIT subsidiaries) in which the REIT has invested. Under the second exception,
dividends paid by a REIT in a taxable year may be treated as qualified dividend
income in an amount equal to the sum of (i) the excess of the REIT's "REIT
taxable income" for the preceding taxable year over the corporate-level federal
income tax payable by the REIT for such preceding taxable year and (ii) the
excess of the REIT's income that was subject to the Built-In Gains Tax (as
described above) in the preceding taxable year over the tax payable by the REIT
on such income for such preceding taxable year. We do not expect to distribute a
material amount of qualified dividend income, if any.
Distributions that are properly designated as capital gain dividends
will be taxed as gains from the sale or exchange of a capital asset held for
more than one year (to the extent they do not exceed our actual net capital gain
for the taxable year) without regard to the period for which the U.S.
shareholder has held its shares. However, corporate shareholders may be required
to treat up to 20% of certain capital gain dividends as ordinary income under
the Code. Capital gain dividends, if any, will be allocated among different
classes of shares in proportion to the allocation of earnings and profits
discussed above.
Distributions in excess of our current and accumulated earnings and
profits will constitute a non-taxable return of capital to a shareholder to the
extent that such distributions do not exceed the adjusted basis of the U.S.
shareholder's shares, and will result in a corresponding reduction in the U.S.
shareholder's basis in the shares. Any reduction in a shareholder's tax basis
for its shares will increase the amount of taxable gain or decrease the
deductible loss that will be realized upon the eventual disposition of the
shares. We will notify U.S. shareholders at the end of each year as to the
portions of the distributions which constitute ordinary income, capital gain or
a return of capital. Any portion of such distributions that exceeds the adjusted
basis of a U.S. shareholder's shares will be taxed as capital gain from the
disposition of shares, provided that the shares are held as capital assets in
the hands of the U.S. shareholder.
Aside from the different income tax rates applicable to ordinary
income and capital gain dividends for non-corporate taxpayers, regular and
capital gain dividends from us will be treated as dividend income for most other
federal income tax purposes. In particular, such dividends will be treated as
"portfolio" income for purposes of the passive activity loss limitation and U.S.
shareholders generally will not be able to offset any "passive losses" against
such dividends. Capital gain dividends and qualified dividend income may be
treated as investment income for purposes of the investment interest limitation
contained in Section 163(d) of the Code, which limits the deductibility
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of interest expense incurred by non-corporate taxpayers with respect to
indebtedness attributable to certain investment assets.
In general, dividends paid by us will be taxable to U.S. shareholders
in the year in which they are received, except in the case of dividends declared
at the end of the year, but paid in the following January, as discussed above.
We may elect to retain and pay income tax on net long-term capital
gains. If we make such an election, you, as a holder of shares, will (1) include
in your income as long-term capital gains your proportionate share of such
undistributed capital gains; (2) be deemed to have paid your proportionate share
of the tax paid by us on such undistributed capital gains and thereby receive a
credit or refund for such amount and (3) in the case of a U.S. shareholder that
is a corporation, appropriately adjust its earnings and profits for the retained
capital gains in accordance with Treasury Regulations to be promulgated by the
IRS. As a holder of shares you will increase the basis in your shares by the
difference between the amount of capital gain included in your income and the
amount of tax you are deemed to have paid. Our earnings and profits will be
adjusted appropriately.
DISPOSITIONS
In general, a U.S. shareholder will realize capital gain or loss on
the disposition of shares equal to the difference between (1) the amount of cash
and the fair market value of any property received on such disposition and (2)
the shareholder's adjusted basis of such shares. Such gain or loss will
generally be short-term capital gain or loss if the shareholder has not held
such shares for more than one year and will be long-term capital gain or loss if
such shares have been held for more than one year. Loss upon the sale or
exchange of shares by a shareholder who has held such shares for six months or
less (after applying certain holding period rules) will be treated as long-term
capital loss to the extent of distributions from us required to be treated by
such U.S. shareholder as long-term capital gains.
REDEMPTION OF SERIES D PREFERRED SHARES
A redemption of Series D Preferred Shares will be treated under Section 302
of the Code as a distribution taxable as a dividend to the extent of our current
and accumulated earnings and profits at ordinary income rates unless the
redemption satisfies one of the tests set forth in Section 302(b) of the Code
and is therefore treated as a sale or exchange of the redeemed shares. The
redemption will be treated as a sale or exchange if it (i) is "substantially
disproportionate" with respect to the U.S. shareholder; (ii) results in a
"complete termination" of the U.S. shareholder's interest in all classes of our
shares; or (iii) is "not essentially equivalent to a dividend" with respect to
the U.S. shareholder, all within the meaning of Section 302(b) of the Code.
In determining whether any of these tests have been met, stock considered
to be owned by the holder by reason of certain constructive ownership rules set
forth in the Code, as well as stock actually owned, generally must be taken into
account. Because the determination as to whether any of the alternative tests of
Section 302(b) of the Code will be satisfied with respect to the U.S.
shareholder depends upon the facts and circumstances at the time that the
determination must be made, U.S. shareholders are advised to consult their tax
advisors to determine such tax treatment.
If the redemption does not meet any of the tests under Section 302 of the
Code that are described above, then the redemption proceeds received from the
Series D Preferred Shares will be treated as a distribution on the Series D
Preferred Shares, with the consequences described above under "--Distributions."
If the redemption is taxed as a dividend, the U.S. shareholder's adjusted basis
in the redeemed Series B Preferred Shares for tax purposes will be transferred
to any other holdings of the holder in our shares. If the U.S. shareholder of
the Series B Preferred Shares owns no other shares, such basis may, under
certain circumstances, be transferred to a related person, or it may be lost
entirely. If a redemption of Series D Preferred Shares is not treated as a
distribution, it will be treated as a taxable sale or exchange in the manner
described above under "--Dispositions."
TAXATION OF NON-U.S. SHAREHOLDERS
The following discussion is only a summary of the rules governing U.S.
federal income taxation of non-U.S. shareholders (shareholders that do not
qualify as U.S. shareholders as defined above) such as nonresident alien
individuals, foreign corporations, foreign partnerships or other foreign estates
or trusts. Prospective non-U.S.
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shareholders should consult their own tax advisors to determine the impact of
federal, state and local income tax laws with regard to an investment in shares,
including any reporting requirements.
DISTRIBUTIONS GENERALLY
Distributions that are not attributable to gain from sales or
exchanges by us of United States real property interests and not designated by
us as capital gain dividends will be treated as dividends of ordinary income to
the extent that they are made out of our current or accumulated earnings and
profits. Such 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 or eliminates that tax. Certain tax treaties limit the extent to
which dividends paid by a REIT can qualify for a reduction of the withholding
tax on dividends. Our dividends that are attributable to excess inclusion income
will be subject to 30% U.S. withholding tax without reduction under any
otherwise applicable tax treaty. See "--Taxation of the Company--Requirements
for Qualification" above. Distributions in excess of our current and accumulated
earnings and profits 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 such shares. To the extent that such
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 his shares, as
described below.
For withholding tax purposes, we are generally required to treat all
distributions as if made out of our current or accumulated earnings and profits
and thus intend to withhold at the rate of 30% (or a reduced treaty rate if
applicable) on the amount of any distribution (other than distributions
designated as capital gain dividends) made to a non-U.S. shareholder. We would
not be required to withhold at the 30% rate on distributions we reasonably
estimate to be in excess of our current and accumulated earnings and profits. If
it cannot be determined at the time a distribution is made whether such
distribution will be in excess of current and accumulated earnings and profits,
the distribution will be subject to withholding at the rate applicable to
ordinary dividends. However, the non-U.S. shareholder may seek a refund of such
amounts from the IRS if it is subsequently determined that such distribution
was, in fact, in excess of our current or accumulated earnings and profits, and
the amount withheld exceeded the non-U.S. shareholder's United States tax
liability, if any, with respect to the distribution.
CAPITAL GAIN DISTRIBUTIONS
For any year in which we qualify as a REIT, distributions to non-U.S.
shareholders who own more than 5% of our shares that are attributable to gain
from sales or exchanges by us of United States 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"). Under FIRPTA, a non-U.S.
shareholder is taxed as if such gain were effectively connected with a United
States business. Non-U.S. shareholders who own more than 5% of our shares would
thus be taxed 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 non-resident alien individuals). Also, distributions made to
non-U.S shareholders who own more than 5% of our shares 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. We are required by applicable regulations to
withhold 35% of any distribution that could be designated by us as a capital
gain dividend regardless of the amount actually designated as a capital gain
dividend. This amount is creditable against the non-U.S. shareholder's FIRPTA
tax liability.
Under the Tax Increase Prevention and Reconciliation Act of 2005
("TIPRA"), enacted on May 17, 2006, distributions made to REIT or regulated
investment company ("RIC") shareholders that are attributable to gain from sales
or exchanges of U.S. real property interests will retain their character as gain
subject to the rules of FIRPTA discussed above when distributed by such REIT or
RIC shareholders to their respective shareholders. This provision is effective
for taxable years beginning after December 31, 2005.
If a non-U.S. holder of a class of our shares does not own more than
5% of such class during the one-year period prior to a distribution attributable
to gain from sales or exchanges by us of United States real property interests,
such distribution will not be considered to be gain effectively connected with a
U.S. business as long as the class of shares is regularly traded on an
established securities market in the United States. As such, a non-U.S. holder
who does not own more than 5% of such shares would not be required to file a
U.S. Federal income tax return by reason of receiving such a distribution. In
this case, the distribution will be treated as a REIT dividend that is not a
capital gain dividend as described above. In addition, the branch profits tax
will not apply to such distribution. If such class of shares is not regularly
traded or ceases to be regularly traded on an established
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securities market in the United States, a non-U.S. holder of such shares would
be subject to taxation under FIRPTA with respect to such distributions.
Gain recognized by a non-U.S. shareholder upon a sale of shares
generally will not be taxed under FIRPTA if we are 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 shares was held directly or
indirectly by non-U.S. persons. It is anticipated that we will continue to be a
"domestically controlled REIT" after the offering. Therefore, the sale of shares
will not be subject to taxation under FIRPTA. However, because our common shares
are publicly traded, no assurance can be given that we will continue to qualify
as a "domestically controlled REIT." In addition, a non-U.S. shareholder that
owns, actually or constructively, 5% or less of a class of our shares through a
specified testing period will not recognize taxable gain on the sale of its
shares under FIRPTA if the shares are regularly traded on an established
securities market in the United States.
Notwithstanding the general FIRPTA exception for sales of domestically
controlled REIT stock discussed above, a disposition of domestically controlled
stock will be taxable if the disposition occurs in a wash sale transaction
relating to a distribution on such stock. In addition, FIRPTA taxation will
apply to substitute dividend payments received in securities lending
transactions or sale-repurchase transactions of domestically controlled REIT
stock to the extent such payments are made to shareholders in lieu of
distributions that would have otherwise been subject to FIRPTA taxation. The
foregoing rules will not apply to stock that is regularly traded on an
established securities market within the United States and held by a non-U.S.
shareholder that held five percent or less of such stock during the one-year
period prior to the related distribution. These rules are effective for
distributions on and after June 16, 2006. Prospective purchasers are urged to
consult their own tax advisors regarding the applicability of the new rules
enacted under TIPRA to their particular circumstances.
If the gain on the sale of shares were to be subject to taxation under
FIRPTA, the non-U.S. shareholder would be subject to the same treatment as U.S.
shareholders with respect to such gain (subject to applicable alternative
minimum tax, special alternative minimum tax in the case of nonresident alien
individuals and possible application of the 30% branch profits tax in the case
of foreign corporations) and the purchaser would be required to withhold and
remit to the IRS 10% of the purchase price. Gain not subject to FIRPTA will be
taxable to a non-U.S. shareholder if (1) investment in the shares is effectively
connected with the non-U.S. shareholder's United States trade or business, in
which case the non-U.S. shareholder will be subject to the same treatment as
U.S. shareholders with respect to such gain, or (2) the non-U.S. shareholder is
a nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and such nonresident alien individual has a "tax
home" in the United States, in which case the nonresident alien individual will
be subject to a 30% tax on the individual's capital gain.
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts ("Exempt Organizations"),
generally are exempt from federal income taxation. However, they are subject to
taxation on their unrelated business taxable income ("UBTI"). While investments
in real estate may generate UBTI, the IRS has issued a published ruling to the
effect that dividend distributions by a REIT to an exempt employee pension trust
do not constitute UBTI, provided that the shares of the REIT are not otherwise
used in an unrelated trade or business of the exempt employee pension trust.
Based on that ruling, amounts distributed by us to Exempt Organizations
generally should not constitute UBTI. However, if an Exempt Organization
finances its acquisition of our shares with debt, a portion of its income from
us, if any, will constitute UBTI pursuant to the "debt-financed property" rules
under the Code. In addition, our dividends that are attributable to excess
inclusion income will constitute UBTI for most Exempt Organizations. See
"--Taxation of the Company--Requirements for Qualification" above. Furthermore,
social clubs, voluntary employee benefit associations, supplemental unemployment
benefit trusts, and qualified group legal services plans that are exempt from
taxation under specified provisions of the Code are subject to different UBTI
rules, which generally will require them to characterize distributions from us
as UBTI.
In addition, a pension trust that owns more than 10% of our shares is
required to treat a percentage of the dividends from us as UBTI (the "UBTI
Percentage") in certain circumstances. The UBTI Percentage is our gross income
derived from an unrelated trade or business (determined as if we were a pension
trust) divided by our total gross income for the year in which the dividends are
paid. The UBTI rule applies only if (i) the UBTI Percentage is at least 5%, (ii)
we qualify as a REIT by reason of the modification of the 5/50 Rule that allows
the beneficiaries of
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the pension trust to be treated as holding our shares in proportion to their
actuarial interests in the pension trust, and (iii) either (A) one pension trust
owns more than 25% of the value of our shares or (B) a group of pension trusts
individually holding more than 10% of the value of our capital shares
collectively owns more than 50% of the value of our capital shares.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX APPLICABLE TO SHAREHOLDERS
U.S. SHAREHOLDERS
We will report to U.S. shareholders and the IRS the amount of
dividends paid during each calendar year, and the amount of tax withheld, if
any, with respect thereto. Under the backup withholding rules, a U.S.
shareholder may be subject to backup withholding, currently at a rate of 28%,
with respect to dividends paid unless such holder (a) is a corporation or comes
within certain other exempt categories and, when required, demonstrates this
fact, or (b) provides a taxpayer identification number, certifies as to no loss
of exemption from backup withholding and otherwise complies with the applicable
requirements of the backup withholding rules. A U.S. shareholder who does not
provide us with its correct taxpayer identification number also may be subject
to penalties imposed by the IRS. Amounts withheld as backup withholding will be
creditable against the shareholder's income tax liability if proper
documentation is supplied. In addition, we may be required to withhold a portion
of capital gain distributions made to any shareholders who fail to certify their
non-foreign status to us.
NON-U.S. SHAREHOLDERS
Generally, we must report annually to the IRS the amount of dividends
paid to a non-U.S. shareholder, such holder's name and address, and the amount
of tax withheld, if any. A similar report is sent to the non-U.S. shareholder.
Pursuant to tax treaties or other agreements, the IRS may make its reports
available to tax authorities in the non-U.S. shareholder's country of residence.
Payments of dividends or of proceeds from the disposition of stock made to a
non-U.S. shareholder may be subject to information reporting and backup
withholding unless such holder establishes an exemption, for example, by
properly certifying its non-United States status on an IRS Form W-8BEN or
another appropriate version of IRS Form W-8. Notwithstanding the foregoing,
backup withholding and information reporting may apply if either we have or our
paying agent has actual knowledge, or reason to know, that a non-U.S.
shareholder is a United States person.
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UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated is acting as
representative of each of the underwriters named below. Subject to the terms and
conditions set forth in an underwriting agreement dated the date of this
prospectus supplement, we have agreed to sell to each of the underwriters the
number of Series D Preferred Shares set forth opposite its name below.
NUMBER OF
SERIES D
PREFERRED
UNDERWRITER SHARES
----------- ---------
Merrill Lynch, Pierce, Fenner & Smith Incorporated.................. 1,700,000
A.G. Edwards & Sons, Inc............................................ 1,700,000
Raymond James & Associates, Inc..................................... 1,700,000
BB&T Capital Markets, a division of Scott and Stringfellow, Inc..... 300,000
KeyBanc Capital Markets, a division of McDonald Investments Inc..... 300,000
Ryan Beck & Co., Inc................................................ 300,000
---------
Total............................................................ 6,000,000
Subject to the terms and conditions set forth in the underwriting
agreement, the underwriters have agreed, severally and not jointly, to purchase
all of the Series D Preferred Shares sold under the underwriting agreement if
any of these shares are purchased. If an underwriter defaults, the underwriting
agreement provides that the commitments of the nondefaulting underwriters may be
increased or the underwriting agreement may be terminated.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in respect of those
liabilities.
The underwriters are offering the Series D Preferred Shares, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of legal matters by their counsel, including the validity of the
shares, and other conditions contained in the underwriting agreement, such as
the receipt by the underwriters of officer's certificates and legal opinions.
The underwriters reserve the right to withdraw, cancel or modify offers to the
public and to reject orders in whole or in part.
COMMISSIONS AND DISCOUNTS
The representative has advised us that the underwriters propose
initially to offer the Series D Preferred Shares to the public at the public
offering price set forth on the cover page of this prospectus supplement and to
dealers at that price less a concession not in excess of $0.50 per share. The
underwriters may allow, and the dealers may reallow, a discount not in excess of
$0.45 per share to other dealers. After the public offering, the public offering
price, concession and discount may be changed.
The following table shows the public offering price, underwriting
discount and proceeds before expenses to us. The information assumes either no
exercise or full exercise by the underwriters of their over-allotment option.
TOTAL
---------------------------
WITHOUT WITH
PER SHARE OPTION OPTION
--------- ------------ ------------
Public offering price..................... $25.0000 $150,000,000 $172,500,000
Underwriting discount..................... $ 0.7875 $ 4,725,000 $ 5,433,750
Proceeds, before expenses, to Lexington... $24.2125 $145,275,000 $167,066,250
The expenses of the offering, not including the underwriting discount,
are estimated to be approximately $295,000 and are payable by us.
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OVER-ALLOTMENT OPTION
We have granted an option to the underwriters to purchase up to
900,000 additional Series D Preferred Shares at the public offering price, less
the underwriting discount. The underwriters may exercise this option for 30 days
from the date of this prospectus supplement solely to cover any over-allotments.
If the underwriters exercise this option, each will be obligated, subject to
conditions contained in the purchase agreement, to purchase a number of
additional Series D Preferred Shares proportionate to that underwriter's initial
amount reflected in the above table.
NO SALES OF SIMILAR SECURITIES
We have agreed, with exceptions, that for 30 days after the date of
this prospectus supplement we will not, without first obtaining the written
consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated, offer, sell,
grant any option for the sale of, contract to sell or otherwise issue any shares
of beneficial interest which are substantially similar to the Series D Preferred
Shares (except for shares of beneficial interest issued pursuant to employee
benefit plans, employee share option plans or as partial or full payment for
properties to be acquired by us), or enter into any swap or any other agreement
or any transaction that transfers, in whole or in part, directly or indirectly,
the economic consequence of ownership of shares of beneficial interest which are
substantially similar to the Series D Preferred Shares, whether any such swap or
transaction described above is to be settled by delivery of shares of beneficial
interest which are substantially similar to the Series D Preferred Shares, in
cash or otherwise.
NEW YORK STOCK EXCHANGE LISTING
We intend to apply to have our Series D Preferred Shares listed on the
NYSE. The underwriters have advised us that they intend to make a market in the
Series D Preferred Shares prior to the commencement of trading on the NYSE. The
underwriters will have no obligation to make a market in the Series D Preferred
Shares, however, and may cease market making activities, if commenced, at any
time.
STABILIZATION AND SHORT SALES
In order to facilitate this offering of the Series D Preferred Shares,
the underwriters may engage in transactions that stabilize, maintain or
otherwise affect the market price of the Series D Preferred Shares in accordance
with Regulation M under the Securities Exchange Act of 1934, as amended.
The underwriters may over-allot the Series D Preferred Shares in
connection with this offering, thus creating a short position for their own
account. Short sales involve the sale by the underwriters of a greater number of
shares than they are committed to purchase in this offering. A short position
may involve either "covered" short sales or "naked" short sales. Covered short
sales are sales made in an amount not greater than the underwriters'
over-allotment option to purchase additional Series D Preferred Shares as
described above. The underwriters may close out any covered short position by
either exercising their over-allotment option or purchasing shares in the open
market. In determining the source of shares to close the covered short position,
the underwriters will consider, among other things, the price of shares
available for purchase in the open market as compared to the price at which they
may purchase shares from us through the over-allotment option. Naked short sales
are sales in excess of the over-allotment option. The underwriters must close
out any naked short position by purchasing shares in the open market. A naked
short position is more likely to be created if the underwriters are concerned
that there may be downward pressure on the price of the Series D Preferred
Shares in the open market after pricing that could adversely affect investors
who purchase in this offering.
Accordingly, to cover these short sales positions or to stabilize the
market price of the Series D Preferred Shares, the underwriters may bid for, and
purchase, Series D Preferred Shares in the open market. These transactions may
be effected on the NYSE or otherwise. Additionally, the representatives, on
behalf of the underwriters, may also reclaim selling concessions allowed to
another underwriter or dealer. Similar to other purchase transactions, the
underwriters' purchases to cover the syndicate short sales or to stabilize the
market price of our Series D Preferred Shares may have the effect of raising or
maintaining the market price of our Series D Preferred Shares or preventing or
mitigating a decline in the market price of our Series D Preferred Shares. As a
result, the price of the Series D Preferred Shares may be higher than the price
that might otherwise exist in the open market. No representation is made as to
the magnitude or effect of any such stabilization or other activities. The
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underwriters are not required to engage in these activities and, if commenced,
may discontinue any of these activities at any time.
OTHER RELATIONSHIPS
From time to time, the underwriters and/or their affiliates have
engaged in, and may in the future engage in, investment banking and other
commercial dealings in the ordinary course of business with us and our
affiliates for which they have received, and expect to receive, customary fees
and commissions for these transactions.
The lenders under our credit agreement include affiliates of several
underwriters participating in this offering, including KeyBanc Capital Markets,
a division of McDonald Investments Inc. and BB&T Capital Markets, a division of
Scott and Stringfellow, Inc. A portion of the net proceeds of this offering will
be received by these affiliates because we intend to use the net proceeds to
repay borrowings under our credit agreement.
We expect that delivery of the Series D Preferred Shares will be made
against payment thereof on or about February 14, 2007. Delivery will be made
solely in book-entry form through DTC.
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LEGAL MATTERS
The legal matters described under "Federal Income Tax Considerations"
will be passed upon for us by Paul, Hastings, Janofsky & Walker LLP, New York,
New York. Legal matters relating to this offering will be passed upon for the
underwriters by Katten Muchin Rosenman LLP. The validity of the Series D
Preferred Shares offered will be passed upon for us and for the underwriters by
Venable LLP, Baltimore, Maryland. Katten Muchin Rosenman LLP has in the past
provided, and is continuing to provide, legal services for joint ventures in
which the MLP has a 50% interest.
EXPERTS
The consolidated financial statements and schedule of Lexington and
its subsidiaries as of December 31, 2005 and 2004, and for each of the years in
the three-year period ended December 31, 2005, and management's assessment of
the effectiveness of internal control over financial reporting as of December
31, 2005 have been incorporated by reference herein in reliance upon the reports
of KPMG LLP, independent registered public accounting firm, incorporated by
reference herein, and upon authority of said firm as experts in accounting and
auditing.
The consolidated financial statements and the related financial
statement schedule of Newkirk and the MLP incorporated in this prospectus
supplement by reference from our current report on Form 8-K filed on January 18,
2007, have been audited by Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in their report, which is incorporated herein
by reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The consolidated statements of operations, partners' equity and cash
flows of the MLP for the year ended December 31, 2003 have been audited by
Imowitz, Koenig & Co., LLP, an independent registered public accounting firm, as
set forth in their report incorporated herein by reference, and are included in
reliance upon the authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and
other information with the SEC. Those filings, as well as the MLP's filings with
the SEC, are available to the public on the Internet at the SEC's website at
http://www.sec.gov. You may also read and copy any document that we or the MLP
file with the SEC at its Public Reference Room, 100 F Street, N.E., Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the
Public Reference Room and their copy charges.
The information incorporated by reference herein is an important part
of this prospectus. Any statement contained in a document which is incorporated
by reference in this prospectus is automatically updated and superseded if
information contained in this prospectus, or information that we later file with
the SEC prior to the termination of this offering, modifies or replaces this
information. The following documents filed with the SEC are incorporated by
reference into this prospectus, except for any document or portion thereof
"furnished" to the SEC:
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we
file with them, which means:
- Incorporated documents are considered part of this prospectus
supplement and the accompanying prospectus;
- We can disclose important information to you by referring you to
those documents; and
- Information that we file with the SEC will automatically update
and supersede this prospectus supplement and the accompanying
prospectus.
We incorporate by reference the documents listed below which were
filed with the SEC under the Securities Exchange Act of 1934, as amended, except
for any document or portion thereof "furnished" to the SEC:
- our Annual Report on Form 10-K for the year ended December 31,
2005 (as amended by Amendment No. 1 thereto on Form 10-K/A filed
on March 15, 2006);
S-55
- our Quarterly Reports on Form 10-Q for the quarters ended March
31, 2006, June 30, 2006 and September 30, 2006;
- our Current Reports on Form 8-K or Form 8-K/A filed on January 5,
2006, January 6, 2006, February 6, 2006, February 16, 2006, March
20, 2006, March 27, 2006, April 27, 2006, May 5, 2006, June 2,
2006, July 24, 2006, August 1, 2006, August 15, 2006, September
13, 2006, October 6, 2006, October 10, 2006 (two separate
filings), October 13, 2006, October 18, 2006, October 27, 2006,
November 14, 2006, November 27, 2006, December 22, 2006, January
3, 2007, January 8, 2007, January 18, 2007, January 24, 2007,
January 29, 2007, February 6, 2007, February 7, 2007 (two
separate filings) and February 8, 2007;
- our Definitive Proxy Statement on Schedule 14A, filed on April 4,
2006;
- our final proxy statement and prospectus filed pursuant to Rule
424(b)(3) under the Securities Act on October 17, 2006;
- the MLP's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2006; and
- Newkirk's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2006.
If any statement in this prospectus supplement is inconsistent with a
statement in one of the incorporated documents referred to above, then the
statement in the incorporated document will be deemed to have been superseded by
the statement in this prospectus supplement.
We also incorporate by reference each of the following documents that
we will file with the SEC after the date of this prospectus supplement but
before the end of the offering:
- Reports filed under Sections 13(a) and (c) of the Exchange Act;
- Definitive proxy or information statements filed under Section 14
of the Exchange Act in connection with any subsequent
shareholders' meeting; and
- Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address:
Lexington Realty Trust
Attention: Carroll Merriman, Vice President, Investor Relations and
Corporate Development
One Penn Plaza, Suite 4015
New York, New York 10119-4015
(212) 692-7200
S-56
$500,000,000.00
LEXINGTON CORPORATE PROPERTIES TRUST
COMMON SHARES OF BENEFICIAL INTEREST
PREFERRED SHARES OF BENEFICIAL INTEREST
DEBT SECURITIES
We are Lexington Corporate Properties Trust, a self-managed and
self-administered real estate investment trust formed under the laws of the
State of Maryland. This prospectus relates to the public offer and sale by us of
one or more series of (i) common shares of beneficial interest, par value
$0.0001 per share, (ii) preferred shares of beneficial interest, par value
$0.0001 per share, and (iii) senior or subordinated debt securities. The
aggregate public offering price of the common shares, preferred shares and debt
securities covered by this prospectus, which we refer to collectively as the
securities, will not exceed $500,000,000.00 (or its equivalent based on the
exchange rate at the time of sale). The securities may be offered, separately or
together, in separate classes or series, in amounts, at prices and on terms to
be determined at the time of the offering and set forth in one or more
supplements to this prospectus.
The specific terms of the securities will be set forth in the
applicable prospectus supplement and will include, where applicable: (i) in the
case of common shares, any public offering price; (ii) in the case of preferred
shares, the specific designation and stated value per share, any dividend,
liquidation, redemption, conversion, voting and other rights, and any public
offering price; and (iii) in the case of debt securities, the specific title,
aggregate principal amount, ranking, currency, form (which may be registered or
bearer, or certificated or global), authorized denominations, maturity, rate (or
manner of calculation thereof) and time of payment of interest, terms for
redemption at our option or repayment at the option of the holder thereof, terms
for sinking fund payments, terms for conversion into common or preferred shares,
covenants and any public offering price. In addition, such specific terms may
include limitations on direct or beneficial ownership and restrictions on
transfer of the securities, in each case as may be consistent with our
declaration of trust or otherwise appropriate to preserve our status as a real
estate investment trust for federal income tax purposes. See "RESTRICTIONS ON
TRANSFERS OF CAPITAL STOCK AND ANTI-TAKEOVER PROVISIONS" beginning on page 22 of
this prospectus.
The applicable prospectus supplement will also contain information,
where appropriate, about the risk factors and federal income tax considerations
relating to, and any listing on a securities exchange of, the securities covered
by that prospectus supplement.
We may offer the securities directly, through agents designated by us
from time to time, or to or through underwriters or dealers. If any agents or
underwriters are involved in the sale of any of the securities, their names, and
any applicable purchase price, fee, commission or discount arrangement between
or among them will be set forth or will be calculable from the information set
forth in the applicable prospectus supplement. See "PLAN OF DISTRIBUTION." No
securities may be sold without delivery of a prospectus supplement describing
the method and terms of the offering of those securities.
Our common shares, 8.05% Series B Cumulative Redeemable Preferred
Stock, and 6.50% Series C Cumulative Convertible Preferred Stock are traded on
the New York Stock Exchange under the symbols "LXP", "LXP_pb", and "LXP_pc",
respectively.
----------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------
THE DATE OF THIS PROSPECTUS IS JANUARY 31, 2005.
TABLE OF CONTENTS
Page
----
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING INFORMATION............. ii
ABOUT THIS PROSPECTUS.................................................... ii
OUR COMPANY.............................................................. 1
DESCRIPTION OF OUR COMMON SHARES......................................... 2
DESCRIPTION OF OUR PREFERRED SHARES...................................... 4
DESCRIPTION OF OUR DEBT SECURITIES....................................... 10
RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK AND ANTI-TAKEOVER PROVISIONS.. 22
USE OF PROCEEDS.......................................................... 25
PLAN OF DISTRIBUTION..................................................... 25
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED SHARE DIVIDENDS................................. 26
EXPERTS.................................................................. 27
LEGAL MATTERS............................................................ 27
WHERE YOU CAN FIND MORE INFORMATION...................................... 27
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................... 27
i
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING INFORMATION
Certain information included or incorporated by reference in this
prospectus and any applicable prospectus supplement may contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, ("Securities Act") and Section 21E of the Securities Exchange Act of
1934, as amended, and as such may involve known and unknown risks, uncertainties
and other factors which may cause our actual results, performance or
achievements to be materially different from future results, performance or
achievements expressed or implied by these forward-looking statements.
Forward-looking statements, which are based on certain assumptions and describe
our future plans, strategies and expectations, are generally identifiable by use
of the words "may," "will," "should," "expect," "anticipate," "estimate,"
"believe," "intend," "project," or the negative of these words or other similar
words or terms. Factors which could have a material adverse effect on our
operations and future prospects include, but are not limited to, changes in
economic conditions generally and the real estate market specifically, adverse
developments with respect to our tenants, legislative/regulatory changes
including changes to laws governing the taxation of REITs, availability of debt
and equity capital, interest rates, competition, supply and demand for
properties in our current and proposed market areas, policies and guidelines
applicable to REITs and the other factors described under the heading "RISK
FACTORS" in any supplement to this prospectus. These risks and uncertainties
should be considered in evaluating any forward-looking statements contained or
incorporated by reference in this prospectus.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed or incorporated by reference in this prospectus
and any applicable prospectus supplement may not occur and actual results could
differ materially from those anticipated or implied in the forward-looking
statements.
ABOUT THIS PROSPECTUS
All references to "the Company," "we," "our" and "us" in this
prospectus mean Lexington Corporate Properties Trust and all entities owned or
controlled by us except where it is made clear that the term means only the
parent company. The term "you" refers to a prospective investor.
ii
OUR COMPANY
We are a self-managed and self-administered real estate investment
trust, commonly referred to as a REIT, formed under the laws of the State of
Maryland. Our common shares and preferred shares are traded on the New York
Stock Exchange under the symbols "LXP", "LXP_pb" and "LXP_pc", respectively. Our
primary business is the acquisition, ownership and management of a
geographically diverse portfolio of net leased office, industrial and retail
properties. Substantially all of our properties are subject to triple net
leases, which are generally characterized as leases in which the tenant bears
all or substantially all of the costs and cost increases for real estate taxes,
utilities, insurance and ordinary repairs and maintenance. As of September 30,
2004, we had ownership interests in 138 properties, located in 34 states and
containing an aggregate of approximately 30.0 million net rentable square feet
of space. Thirty-three of these properties, containing approximately 10.0
million net rentable square feet of space, were held through joint ventures with
third parties. Approximately 98.8% of the net rentable square feet was leased.
We elected to be taxed as a REIT under Sections 856 through 860 of the
Internal Revenue Code, as amended, commencing with our taxable year ended
December 31, 1993. If we qualify for taxation as a REIT, we generally will not
be subject to federal corporate income taxes on our net income that is currently
distributed to shareholders.
We grow our portfolio primarily by acquiring properties from (i)
corporations and other entities in sale-leaseback transactions, (ii) developers
of newly-constructed properties built to suit the needs of a corporate tenant
and (iii) sellers of properties subject to an existing lease. We have
diversified our portfolio by geographical location, tenant industry segment,
lease term expiration and property type with the intention of providing steady
internal growth with low volatility. We believe that this diversification should
help insulate us from regional recession, industry specific downturns and price
fluctuations by property type. As part of our ongoing efforts, we expect to
continue to effect portfolio and individual property acquisitions and
dispositions, expand existing properties, attract investment grade and other
quality tenants, extend lease maturities in advance of expiration and refinance
outstanding indebtedness when advisable. Additionally, we enter into joint
ventures with third-party investors as a means of creating additional growth and
expanding the revenue realized from advisory and asset management activities.
Our operating partnership structure enables us to acquire properties
by issuing to sellers, as a form of consideration, limited partnership interests
in any of our three operating partnership subsidiaries. We refer to these
limited partnership interests as OP units. The OP units are redeemable, after
certain dates, for our common shares. We believe that this structure facilitates
our ability to raise capital and to acquire portfolio and individual properties
by enabling us to structure transactions which may defer tax gains for a
contributor of property while preserving our available cash for other purposes,
including the payment of dividends and distributions.
Our principal executive offices are located at One Penn Plaza, Suite
4015, New York, New York 10119-4015, our telephone number is (212) 692-7200 and
our Internet address is www.lxp.com. NONE OF THE INFORMATION ON OUR WEBSITE THAT
IS NOT OTHERWISE EXPRESSLY SET FORTH IN OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS IS A PART OF THIS PROSPECTUS.
1
DESCRIPTION OF OUR COMMON SHARES
The following summary of the material terms and provisions of our
common shares does not purport to be complete and is subject to the detailed
provisions of our declaration of trust and our By-Laws, each of which is
incorporated by reference into this prospectus. You should carefully read each
of these documents in order to fully understand the terms and provisions of our
common shares. For information on incorporation by reference, and how to obtain
copies of these documents, see the sections entitled "WHERE YOU CAN FIND MORE
INFORMATION" on page 27 of this prospectus and "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE" on page 27 of this prospectus.
GENERAL
Under our declaration of trust, our board of trustees has authority to
issue 80,000,000 common shares. Under Maryland law, our shareholders generally
are not responsible for our debts or obligations as a result of their status as
shareholders.
TERMS
Subject to the preferential rights of any other shares or series of
equity securities and to the provisions of our declaration of trust regarding
excess shares, holders of our common shares are entitled to receive dividends on
our common shares if, as and when authorized and declared by our board of
trustees out of assets legally available therefor and to share ratably in those
of our assets legally available for distribution to our shareholders in the
event that we liquidate, dissolve or wind up, after payment of, or adequate
provision for, all of our known debts and liabilities and the amount to which
holders of any class of shares classified or reclassified or having a preference
on distributions in liquidation, dissolution or winding up have a right.
Subject to the provisions of our declaration of trust regarding excess
shares, each outstanding common share entitles the holder to one vote on all
matters submitted to a vote of shareholders, including the election of trustees
and, except as otherwise required by law or except as otherwise provided in our
declaration of trust with respect to any other class or series of shares, the
holders of our common shares will possess exclusive voting power. There is no
cumulative voting in the election of trustees, which means that the holders of a
majority of our outstanding common shares can elect all of the trustees then
standing for election, and the holders of the remaining common shares will not
be able to elect any trustees.
Holders of our common shares have no conversion, sinking fund or
redemption rights, or preemptive rights to subscribe for any of our securities.
We furnish our shareholders with annual reports containing audited
consolidated financial statements and an opinion thereon expressed by an
independent public accounting firm.
Subject to the provisions of our declaration of trust regarding excess
shares, all of our common shares will have equal dividend, distribution,
liquidation and other rights and will have no preference, appraisal or exchange
rights.
Pursuant to Maryland statutory law governing real estate investment
trusts organized under Maryland law, a real estate investment trust generally
cannot amend its declaration of trust or merge unless approved by the
affirmative vote of shareholders holding at least two-thirds of the shares
entitled to vote on the matter unless a lesser percentage (but not less than a
majority of all of the votes entitled to be cast on the matter) is set forth in
our declaration of trust. Our declaration of trust provides that those actions,
with the exception of certain amendments to our declaration of trust for which a
higher vote requirement has been set, will be valid and effective if authorized
by holders of a majority of the total number of shares of all classes
outstanding and entitled to vote thereon.
2
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Internal Revenue Code
of 1986, as amended (which is commonly referred to as the Code), not more than
50% in value of its outstanding capital 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 the Company
in meeting this requirement, the Company may take certain actions to limit the
beneficial ownership, directly or indirectly, by a single person of the
Company's outstanding equity securities. See "RESTRICTIONS ON TRANSFERS OF
CAPITAL STOCK AND ANTI-TAKEOVER PROVISIONS" beginning on page 21 of this
prospectus.
TRANSFER AGENT
The transfer agent and registrar for our common shares is Mellon
Investor Services, LLC.
3
DESCRIPTION OF OUR PREFERRED SHARES
The following summary of the material terms and provisions of our
preferred shares does not purport to be complete and is subject to the detailed
provisions of our declaration of trust (including any applicable articles
supplementary, amendment or annex to our declaration of trust designating the
terms of a series of preferred shares) and our By-Laws, each of which is
incorporated by reference into this prospectus. You should carefully read each
of these documents in order to fully understand the terms and provisions of our
preferred shares. For information on incorporation by reference, and how to
obtain copies of these documents, see the sections entitled "WHERE YOU CAN FIND
MORE INFORMATION" on page 27 of this prospectus and "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE" on page 27 of this prospectus.
GENERAL
Under our declaration of trust, we have authority to issue 10,000,000
preferred shares from time to time, in one or more series, as authorized by our
board of trustees. As of the date of this prospectus, there are two series of
preferred shares outstanding: our 8.05% Series B Cumulative Redeemable Preferred
Stock (see "-Terms of Our 8.05% Series B Cumulative Redeemable Preferred Stock"
below), which we refer to as the Series B Preferred Shares, and our 6.50% Series
C Cumulative Convertible Preferred Stock, which we refer to as the Series C
Preferred Shares (see "-Terms of Our 6.50% Series C Cumulative Convertible
Preferred Stock" below). Three million, one hundred and sixty thousand of the
preferred shares are designated as Series B Preferred Shares and 3,100,000 of
the preferred shares are designated as Series C Preferred Shares. All of our
Series A Senior Cumulative Convertible Preferred Stock, par value $0.0001 per
share, were converted into our common shares in April 2002.
Subject to limitations prescribed by Maryland law and our declaration
of trust, our board of trustees is authorized to fix the number of shares
constituting each series of preferred shares and the terms, preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption. The preferred shares will, when issued against payment therefor, be
fully paid and nonassessable and will not be subject to preemptive rights. Our
board of trustees could authorize the issuance of preferred shares with terms
and conditions that could have the effect of discouraging a takeover or other
transaction that holders of common shares might believe to be in their best
interests or in which holders of common shares might receive a premium for their
common shares over the then-current market price of their shares.
TERMS
Reference is made to the applicable prospectus supplement relating to
the preferred shares offered thereby for specific terms, including:
(1) the title and stated value of the preferred shares;
(2) the number of preferred shares offered, the liquidation
preference per share and the offering price of the preferred shares;
(3) the dividend rate(s), period(s), and/or payment date(s) or
method(s) of calculation thereof applicable to the preferred shares;
(4) the date from which dividends on the preferred shares shall
accumulate, if applicable;
(5) the provisions for a sinking fund, if any, for the preferred
shares;
(6) the provisions for redemption, if applicable, of the
preferred shares;
(7) any listing of the preferred shares on any securities
exchange;
(8) the terms and conditions, if applicable, upon which the
preferred shares will be convertible into common shares, including the
conversion price (or manner of calculation thereof);
(9) a discussion of federal income tax considerations applicable
to the preferred shares;
4
(10) the relative ranking and preferences of the preferred shares
as to dividend rights and rights upon our liquidation, dissolution or
winding-up of our affairs;
(11) any limitations on issuance of any series of preferred
shares ranking senior to or on parity with the preferred shares as to
dividend rights and rights upon our liquidation, dissolution or
winding-up of our affairs;
(12) any limitations on direct or beneficial ownership of our
securities and restrictions on transfer of our securities, in each
case as may be appropriate to preserve our status as a REIT; and
(13) any other specific terms, preferences, rights, limitations
or restrictions of the preferred shares.
RANK
Unless otherwise specified in the applicable prospectus supplement,
the preferred shares rank, with respect to dividend rights and rights upon our
liquidation, dissolution or winding-up, and allocation of our earnings and
losses: (i) senior to all classes or series of our common shares, and to all
equity securities ranking junior to the preferred shares; (ii) on parity with
all equity securities issued by us the terms of which specifically provide that
such equity securities rank on parity with the preferred shares; and (iii)
junior to all equity securities issued by us the terms of which specifically
provide that such equity securities rank senior to the preferred shares. As used
in this prospectus, the term "equity securities" does not include convertible
debt securities.
DIVIDENDS
Subject to any preferential rights of any outstanding securities or
series of securities, the holders of preferred shares will be entitled to
receive dividends, when, as and if declared by our board of trustees, out of
assets legally available for payment. Dividends will be paid at such rates and
on such dates as will be set forth in the applicable prospectus supplement.
Dividends will be payable to the holders of record of preferred shares as they
appear on our share transfer books on the applicable record dates fixed by our
board of trustees. Dividends on any series of our preferred shares may be
cumulative or non-cumulative, as provided in the applicable prospectus
supplement.
REDEMPTION
If so provided in the applicable prospectus supplement, the preferred
shares offered thereby will be subject to mandatory redemption or redemption at
our option, as a whole or in part, in each case upon the terms, at the times and
at the redemption prices set forth in such prospectus supplement.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or
winding-up of our affairs, and before any distribution or payment shall be made
to the holders of any common shares or any other class or series of shares
ranking junior to our preferred shares, the holders of our preferred shares
shall be entitled to receive, after payment or provision for payment of our
debts and other liabilities, out of our assets legally available for
distribution to shareholders, liquidating distributions in the amount of the
liquidation preference per share, if any, set forth in the applicable prospectus
supplement, plus an amount equal to all dividends accrued and unpaid thereon
(which shall not include any accumulation in respect of unpaid noncumulative
dividends for prior dividend periods). After payment of the full amount of the
liquidating distributions to which they are entitled, the holders of preferred
shares will have no right or claim to any of our remaining assets. In the event
that, upon any such voluntary or involuntary liquidation, dissolution or
winding-up of our affairs, the legally available assets are insufficient to pay
the amount of the liquidating distributions on all of our outstanding preferred
shares and the corresponding amounts payable on all of our other outstanding
equity securities ranking on parity with the preferred shares in the
distribution of assets upon our liquidation, dissolution or winding-up of our
affairs, then the holders of our preferred shares and the holders of such other
outstanding equity securities shall share ratably in any such distribution of
assets in proportion to the full liquidating distributions to which they would
otherwise be respectively entitled.
5
If liquidating distributions are made in full to all holders of our
preferred shares, our remaining assets shall be distributed among the holders of
any other classes or series of equity securities ranking junior to the preferred
shares in the distribution of assets upon our liquidation, dissolution or
winding-up of our affairs, according to their respective rights and preferences
and in each case according to their respective number of shares.
If we consolidate or merge with or into, or sell, lease or convey all
or substantially all of our property or business to, any corporation, trust or
other entity, such transaction shall not be deemed to constitute a liquidation,
dissolution or winding-up of our affairs.
VOTING RIGHTS
Unless otherwise from time to time required by law, or as otherwise
indicated in the applicable prospectus supplement, holders of our preferred
shares will not have any voting rights.
CONVERSION RIGHTS
The terms and conditions, if any, upon which our preferred shares are
convertible into common shares will be set forth in the applicable prospectus
supplement. Such terms will include the number of common shares into which the
preferred shares are convertible, the conversion price (or manner of calculation
thereof), the conversion period, provisions as to whether conversion will be at
the option of the holders of the preferred shares or at our option, the events
requiring an adjustment of the conversion price and provisions affecting
conversion in the event of the redemption of such preferred shares.
RESTRICTIONS ON OWNERSHIP
For us to qualify as a REIT under the Code, not more than 50% in value
of our outstanding capital shares may be owned, directly or indirectly, by five
or fewer individuals (as defined in the Code 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 series of our preferred shares. Therefore, the applicable amendment or annex
to our declaration of trust designating the terms of a series of preferred
shares may contain provisions restricting the ownership and transfer of such
preferred shares. The applicable prospectus supplement will specify any
additional ownership limitation relating to the preferred shares being offered
thereby. See "RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK AND ANTI-TAKEOVER
PROVISIONS" beginning on page 22 of this prospectus.
TRANSFER AGENT
The transfer agent and registrar for our Series B Preferred Shares and
Series C Preferred Shares is Mellon Investor Services LLC. The transfer agent
and registrar for our other series of preferred shares will be set forth in the
applicable prospectus supplement.
TERMS OF OUR 8.05% SERIES B CUMULATIVE REDEEMABLE PREFERRED STOCK
General. In June 2003, we sold 3,160,000 Series B Preferred Shares.
The Series B Preferred Shares are not convertible into our common shares and are
listed on the New York Stock Exchange under the symbol "LXP_pb."
Dividends. The holders of the Series B Shares are entitled to receive
cumulative cash dividends at a rate of 8.05% of the $25.00 liquidation
preference per year (equivalent to $2.0125 per year per share).
6
Liquidation Preference. If we liquidate, dissolve or wind up, holders
of our Series B Preferred Shares will have the right to receive $25.00 per
share, plus accrued and unpaid dividends (whether or not declared) to and
including the date of payment before any payments are made to the holders of our
common shares and any other capital shares ranking junior to the Series B
Preferred Shares as to liquidation rights. The rights of the holders of the
Series B Preferred Shares to receive their liquidation preference will be
subject to the proportionate rights of the Series C Preferred Shares and each
other series or class of our capital shares ranking, as to liquidation rights,
on parity with the Series B Preferred Shares.
Redemption. We may not redeem the Series B Preferred Shares prior to
June 19, 2008, except in limited circumstances relating to the preservation of
our status as a REIT. On or after June 19, 2008, we may, at our option, redeem
the Series B Preferred Shares, in whole or in part, at any time and from time to
time, for cash equal to $25.00 per share, plus any accrued and unpaid dividends,
if any, to and including the date of redemption.
Conversion. The Series B Preferred Shares are not convertible into, or
exchangeable for, any other property or securities, except that we may exchange
shares of the Series B Preferred Shares for shares of excess stock in order to
ensure that we remain a qualified REIT for federal income tax purposes.
Rank. With respect to the payment of dividends and amounts upon
liquidation, dissolution or winding up, the Series B Preferred Shares rank (i)
senior to all classes or series of our common shares and to all equity
securities ranking junior to our Series B Preferred Shares, (ii) on parity with
our Series C Preferred Shares and all equity securities issued by us the terms
of which specifically provide that such equity securities rank on parity with
our Series B Preferred Shares, and (iii) junior to all equity securities issued
by us the terms of which specifically provide that such equity securities rank
senior to our Series B Preferred Shares.
Voting Rights. Holders of the Series B Preferred Shares generally have
no voting rights. However, if we do not pay dividends on the Series B Preferred
Shares for six or more quarterly periods (whether or not consecutive), the
holders of the Series B Preferred Shares voting together as a class with the
holders of Series C Preferred Shares and all other classes or series of our
equity securities ranking on parity with the Series B Preferred Shares which are
entitled to similar voting rights, will be entitled to vote at the next annual
meeting of our shareholders for the election of two additional trustees to serve
on our board of trustees until all unpaid cumulative dividends have been paid or
declared and set apart for payment. The holders of Series B Preferred Shares,
Series C Preferred Shares and all other classes or series of our equity
securities ranking on parity with the Series B Preferred Shares which are
entitled to similar voting rights will vote in proportion to the liquidation
preference of $25.00 (i.e., one vote for each Series B Preferred Share; two
votes for each Series C Preferred Share).
TERMS OF OUR 6.50% SERIES C CUMULATIVE CONVERTIBLE PREFERRED STOCK
General. On December 8, 2004, we sold 2,700,000 Series C Preferred
Shares. The Series C Preferred Shares are convertible into our common shares and
are listed on the New York Stock Exchange under the symbol "LXP_pc."
Dividends. The holders of the Series C Shares are entitled to receive
cumulative cash dividends at a rate of 6.50% of the $50.00 liquidation
preference per year (equivalent to $3.25 per year per share).
Liquidation Preference. If we liquidate, dissolve or wind up, holders
of our Series C Preferred Shares will have the right to receive $50.00 per
share, plus accrued and unpaid dividends (whether or not declared) to and
including the date of payment before any payments are made to the holders of our
common shares and any other capital shares ranking junior to the Series C
Preferred Shares as to liquidation rights. The rights of the holders of the
Series C Preferred Shares to receive their liquidation preference will be
subject to the proportionate rights of the Series B Preferred Shares and each
other series or class of our capital shares ranking, as to liquidation rights,
on parity with the Series C Preferred Shares.
7
Redemption. We may not redeem the Series C Preferred Shares unless
necessary to preserve our status as a REIT.
Conversion Rights. The Series C Preferred Shares may be converted by
the holder, at its option, into our common shares initially at a conversion rate
of 1.8643 common shares per $50.00 liquidation preference, which is equivalent
to an initial conversion price of approximately $26.82 per common share (subject
to adjustment in certain events).
Company Conversion Option. On or after November 16, 2009, we may, at
our option, cause the Series C Preferred Shares to be automatically converted
into that number of common shares that are issuable at the then prevailing
conversion rate (the "Company Conversion Option"). We may exercise our
conversion right only if, for twenty (20) trading days within any period of
thirty (30) consecutive trading days (including the last trading day of such
period), the closing price of our common shares equals or exceeds 125% of the
then prevailing conversion price of the Series C Preferred Shares.
Settlement. Upon conversion (pursuant to a voluntary conversion or the
Company Conversion Option) we may choose to deliver the conversion value to
investors in cash, our common shares, or a combination of cash and our common
shares.
We can elect at any time to obligate ourselves to satisfy solely in
cash the portion of the conversion value that is equal to 100% of the
liquidation preference amount of the Series C Preferred Shares, with any
remaining amount of the conversion value to be satisfied in cash, common shares
or a combination of cash and common shares. If we elect to do so, we will notify
holders at any time that we intend to settle in cash the portion of the
conversion value that is equal to the liquidation preference amount of the
Series C Preferred Shares (referred to as the "liquidation preference conversion
settlement election"). This notification, once provided to holders, will be
irrevocable and will apply to future conversions of the Series C Preferred
Shares even if the shares cease to be convertible but subsequently become
convertible again.
Payment of Dividends Upon Conversion. Upon any conversion, a holder of
such converted Series C Preferred Shares will not receive any cash payment
representing accrued and unpaid dividends on the Series C Preferred Shares,
whether or not in arrears, except in certain circumstances, including upon the
exercise of the Company Conversion Option if the conversion date in connection
therewith is after the record date for payment of dividends and before the
corresponding dividend payment date. Upon the exercise of the Company Conversion
Option, a holder of such converted Series C Preferred Shares will receive a cash
payment for all unpaid dividends in arrears.
Conversion Rate Adjustments. The conversion rate is subject to
adjustment upon the occurrence of certain events, including if we distribute in
any quarter to all or substantially all holders of our common shares, any cash,
including quarterly cash dividends (subject to adjustment), in excess of:
$0.36 PER COMMON SHARE THROUGH AND INCLUDING NOVEMBER 15, 2005
$0.37 PER COMMON SHARE FROM NOVEMBER 16, 2005 THROUGH AND
INCLUDING NOVEMBER 15, 2006
$0.38 PER COMMON SHARE THEREAFTER
Fundamental Change. Upon the occurrence of certain fundamental changes
in the Company, a holder may require us to purchase for cash all or part of its
Series C Preferred Shares at a price equal to 100% of their liquidation
preference plus accrued and unpaid dividends, if any, up to, but not including,
the fundamental change purchase date.
If a holder elects to convert its Series C Preferred Shares in
connection with certain fundamental changes that occur on or prior to November
15, 2014, we will in certain circumstances increase the conversion rate by a
number of additional common shares upon conversion or, in lieu thereof, we may
in certain circumstances elect to adjust the conversion rate and related
conversion obligation so that the Series C Preferred Shares are convertible into
shares of the acquiring or surviving company.
Rank. With respect to the payment of dividends and amounts upon
liquidation, dissolution or winding up, the Series C Preferred Share rank (i)
senior to all classes or series of our common shares and to all equity
securities ranking junior to our Series C Preferred Shares, (ii) on parity with
our Series B Preferred Shares and all equity securities issued by us the terms
of which specifically provide that such equity securities rank on parity with
our
8
Series C Preferred Shares, and (iii) junior to all equity securities issued by
us the terms of which specifically provide that such equity securities rank
senior to our Series C Preferred Shares.
Voting Rights. Holders of the Series C Preferred Shares generally have
no voting rights. However, if we do not pay dividends on the Series C Preferred
Shares for six or more quarterly periods (whether or not consecutive), the
holders of the Series C Preferred Shares voting together as a class with the
holders of Series B Preferred Shares and all other classes or series of our
equity securities ranking on parity with the Series C Preferred Shares which are
entitled to similar voting rights, will be entitled to vote at the next annual
meeting of our shareholders for the election of two additional trustees to serve
on our board of trustees until all unpaid cumulative dividends have been paid or
declared and set apart for payment. The holders of Series C Preferred Shares,
Series B Preferred Shares and all other classes or series of our equity
securities ranking on parity with the Series C Preferred Shares which are
entitled to similar voting rights will vote in proportion to the liquidation
preference of $25.00 (i.e., two votes for each Series C Preferred Share; one
vote for each Series B Preferred Share).
9
DESCRIPTION OF OUR DEBT SECURITIES
We will issue our debt securities under one or more separate
indentures between us and a trustee that we will name in the applicable
supplement to this prospectus. A form of the indenture is attached as an exhibit
to the registration statement of which this prospectus is a part. Following its
execution, the indenture will be filed with the SEC and incorporated by
reference in the registration statement of which this prospectus is a part.
The following summary describes certain material terms and provisions
of the indenture and our debt securities. This summary is not complete and is
subject to, and is qualified in its entirety by reference to, the provisions of
the indenture. When we offer to sell a particular series of debt securities, we
will describe the specific terms of the series in the applicable supplement to
this prospectus. You should read the indenture for more details regarding the
provisions we describe below and for other provisions that may be important to
you. For information on incorporation by reference, and how to obtain a copy of
the indenture, see the sections entitled "WHERE YOU CAN FIND MORE INFORMATION"
on page 27 of this prospectus and "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE" on page 27 of this prospectus.
GENERAL
The debt securities will be direct obligations of the Company, which
may be secured or unsecured 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 in the form filed as
an exhibit to the Registration Statement of which this prospectus is a part (the
"Form of Indenture"). As provided in the Form of Indenture, the specific terms
of any Debt Security issued pursuant to an indenture will be set forth in one or
more Supplemental Indentures, each dated as of a date of or prior to the
issuance of the debt securities to which it relates (the "Supplemental
Indentures" and each a "Supplemental Indenture"). Senior Securities and
Subordinated Securities may be issued pursuant to separate indentures
(respectively, a "Senior Indenture" and a "Subordinated Indenture"), in each
case between the Company and a trustee (an "Indenture Trustee"), which may be
the same Indenture Trustee, subject to such amendments or supplements as may be
adopted from time to time. The Senior Indenture and the Subordinated Indenture,
as amended or supplemented from time to time, are sometimes hereinafter referred
to collectively as the "Indentures." The Indentures will be subject to and
governed by the Trust Indenture Act of 1939, as amended. The statements made
under this heading relating to the debt securities and the Indentures are
summaries of the provisions thereof, do not purport to be complete and are
qualified in their entirety by reference to the Indentures and such debt
securities.
Capitalized terms used herein and not defined shall have the meanings
assigned to them in the applicable Indenture.
TERMS
The indebtedness represented by the Senior Securities will rank
equally with all other unsecured and unsubordinated indebtedness of the Company.
The indebtedness represented by Subordinated Securities will be subordinated in
right of payment to the prior payment in full of the Senior Debt of the Company
as described under "--Subordination." The particular terms of the debt
securities offered by a prospectus supplement will be described in the
applicable prospectus supplement, along with any applicable federal income tax
considerations unique to such debt securities. Accordingly, for a description of
the terms of any series of debt securities, reference must be made to both the
prospectus supplement relating thereto and the description of the debt
securities set forth in this prospectus.
Except as set forth in any prospectus supplement, the debt securities
may be issued without limits as to aggregate principal amount, in one or more
series, in each case as established from time to time by the Company or as set
forth in the applicable Indenture or in one or more Supplemental Indentures. All
debt securities of one series need not be issued at the same time and, unless
otherwise provided, a series may be reopened, without the consent of the holders
of the debt securities of such series, for issuance of additional debt
securities of such series.
The Form of Indenture provides that the Company may, but need not,
designate more than one Indenture Trustee thereunder, each with respect to one
or more series of debt securities. Any Indenture Trustee under an Indenture may
resign or be removed with respect to one or more series of debt securities and a
successor Indenture Trustee may be appointed to act with respect to such series.
If two or more persons are acting as Indenture Trustee with respect to different
series of debt securities, each such Indenture Trustee shall be an Indenture
Trustee of a trust
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under the applicable Indenture separate and apart from the trust administered by
any other Indenture Trustee, and, except as otherwise indicated herein, any
action described herein to be taken by each Indenture Trustee may be taken by
each such Indenture Trustee with respect to, and only with respect to, the one
or more series of debt securities for which it is Indenture Trustee under the
applicable Indenture.
The following summaries set forth certain general terms and provisions
of the Indentures and the debt securities. The prospectus supplement relating to
the series of debt securities being offered will contain further terms of such
debt securities, including the following specific terms:
(1) The title of such debt securities and whether such debt
securities are secured or unsecured or Senior Securities or
Subordinated Securities;
(2) The aggregate principal amount of such debt securities and
any limit on such aggregate principal amount;
(3) The price (expressed as a percentage of the principal amount
thereof) at which such debt securities will be issued and, if other
than the principal amount thereof, the portion of the principal amount
thereof payable upon declaration of the maturity thereof, or (if
applicable) the portion of the principal amount of such debt
securities that is convertible into common shares or preferred shares,
or the method by which any such portion shall be determined;
(4) If convertible, the terms on which such debt securities are
convertible, including the initial conversion price or rate and the
conversion period and any applicable limitations on the ownership or
transferability of the common shares or preferred shares receivable on
conversion;
(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 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 the Company with respect to such debt securities and the
applicable Indenture may be served;
(9) The period or periods, if any, within which, the price or
prices at which and the other terms and conditions upon which such
debt securities may, pursuant to any optional or mandatory redemption
provisions, be redeemed, as a whole or in part, at the option of the
Company;
(10) The obligation, if any, of the Company to redeem, repay or
purchase such debt securities pursuant to any sinking fund or
analogous provision or at the option of a holder thereof, and the
period or periods within which, the price or prices at which and the
other terms and conditions upon which such debt securities will be
redeemed, repaid or purchased, as a whole or in part, pursuant to such
obligation;
(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;
11
(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) Whether such debt securities will be issued in certificated
or book-entry form and, if so, the identity of the depository for such
debt securities;
(14) Whether such debt securities will be in registered or bearer
form or both and, if in registered form, the denominations thereof if
other than $1,000 and any integral multiple thereof and, if in bearer
form, the denominations thereof and terms and conditions relating
thereto;
(15) The applicability, if any, of the defeasance and covenant
defeasance provisions described herein or set forth in the applicable
Indenture, or any modification thereof;
(16) Whether and under what circumstances the Company will pay
any additional amounts on such debt securities in respect of any tax,
assessment or governmental charge and, if so, whether the Company will
have the option to redeem such debt securities in lieu of making such
payment;
(17) Any deletions from, modifications of or additions to the
events of default or covenants of the Company, to the extent different
from those described herein or set forth in the applicable Indenture
with respect to such debt securities, and any change in the right of
any Trustee or any of the holders to declare the principal amount of
any of such debt securities due and payable;
(18) The provisions, if any, relating to the security provided
for such debt securities; and
(19) Any other terms of such debt securities not inconsistent
with the provisions of the applicable Indenture.
If so provided in the applicable prospectus supplement, the debt
securities may be issued at a discount below their principal amount and provide
for less than the entire principal amount thereof to be payable upon declaration
of acceleration of the maturity thereof ("Original Issue Discount Securities").
In such cases, any special U.S. federal income tax, accounting and other
considerations applicable to Original Issue Discount Securities will be
described in the applicable prospectus supplement.
Except as may be set forth in any prospectus supplement, neither the
debt securities nor the Indenture will contain any provisions that would limit
the ability of the Company to incur indebtedness or that would afford holders of
debt securities protection in the event of a highly leveraged or similar
transaction involving the Company or in the event of a change of control,
regardless of whether such indebtedness, transaction or change of control is
initiated or supported by the Company, any affiliate of the Company or any other
party. However, certain restrictions on ownership and transfers of the common
shares and preferred shares are designed to preserve the Company's status as a
REIT and, therefore, may act to prevent or hinder a change of control. See
"RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK AND ANTI-TAKEOVER PROVISIONS"
beginning on page 22 of this prospectus. Reference is made to the applicable
prospectus supplement for information with respect to any deletions from,
modifications of, or additions to, the events of default or covenants of the
Company that are described below, including any addition of a covenant or other
provision providing event risk or similar protection.
12
DENOMINATION, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable prospectus supplement,
the debt securities of any series will be issuable in denominations of $1,000
and integral multiples thereof.
Unless otherwise specified in the applicable prospectus supplement,
the principal of (and applicable premium, if any) and interest on any series of
debt securities will be payable at the corporate trust office of the applicable
Indenture Trustee, the address of which will be stated in the applicable
prospectus supplement; provided, however, that, at the option of the Company,
payment of interest may be made by check mailed to the address of the person
entitled thereto as it appears in the applicable register for such debt
securities or by wire transfer of funds to such person at an account maintained
within the United States.
Subject to certain limitations imposed upon debt securities issued in
book-entry form, the debt securities of any series will be exchangeable for any
authorized denomination of other debt securities of the same series and of a
like aggregate principal amount and tenor upon surrender of such debt securities
at the corporate trust office of the applicable Indenture Trustee or at the
office of any transfer agent designated by the Company for such purpose. In
addition, subject to certain limitations imposed upon debt securities issued in
book-entry form, the debt securities of any series may be surrendered for
conversion or registration of transfer or exchange thereof at the corporate
trust office of the applicable Indenture Trustee or at the office of any
transfer agent designated by the Company for such purpose. Every Debt Security
surrendered for conversion, registration of transfer or exchange must be duly
endorsed or accompanied by a written instrument of transfer, and the person
requesting such action must provide evidence of title and identity satisfactory
to the applicable Indenture Trustee or transfer agent. No service charge will be
made for any registration of transfer or exchange of any debt securities, but
the Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. If the applicable
prospectus supplement refers to any transfer agent (in addition to the
applicable Indenture Trustee) initially designated by the Company with respect
to any series of debt securities, the Company 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 the Company will be
required to maintain a transfer agent in each place of payment for such series.
The Company may at any time designate additional transfer agents with respect to
any series of debt securities.
Neither the Company nor any Indenture Trustee shall be required (i) to
issue, register the transfer of or exchange debt securities of any series during
a period beginning at the opening of business 15 days before the day of mailing
of a notice of redemption of any debt securities that may be selected for
redemption and ending at the close of business on the day of such mailing; (ii)
to register the transfer of or exchange any Debt Security, or portion thereof,
so selected for redemption, in whole or in part, except the unredeemed portion
of any Debt Security being redeemed in part; or (iii) to issue, register the
transfer of or exchange any Debt Security that has been surrendered for
repayment at the option of the holder, except the portion, if any, of such Debt
Security not to be so repaid.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indentures will provide that the Company may, without the consent
of the holders of any outstanding debt securities, consolidate with, or sell,
lease or convey all or substantially all of its assets to, or merge with or
into, any other entity provided that (a) either the Company shall be the
continuing entity, or the successor entity (if other than the Company) formed by
or resulting from any such consolidation or merger or which shall have received
the transfer of such assets, is organized under the laws of any domestic
jurisdiction and assumes the Company's obligations to pay principal of (and
premium, if any) and interest on all of the debt securities and the due and
punctual performance and observance of all of the covenants and conditions
contained in each Indenture; (b) immediately after giving effect to such
transaction and treating any indebtedness that becomes an obligation of the
Company or any subsidiary as a result thereof as having been incurred by the
Company or such subsidiary at the time of such transaction, no event of default
under the Indentures, and no event which, after notice or the lapse of time, or
both, would become such an event of default, shall have occurred and be
continuing; and (c) an officers' certificate and legal opinion covering such
conditions shall be delivered to each Indenture Trustee.
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CERTAIN COVENANTS
Existence. Except as permitted under "--Merger, Consolidation or Sale
of Assets," the Indentures will require the Company to do or cause to be done
all things necessary to preserve and keep in full force and effect its corporate
existence, rights (by declaration of trust, by-laws and statute) and franchises;
provided, however, that the Company will not be required to preserve any right
or franchise if its board of trustees determines that the preservation thereof
is no longer desirable in the conduct of its business by appropriate
proceedings.
Maintenance of Properties. The Indentures will require the Company to
cause all of its material properties used or useful in the conduct of its
business or the business of any subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that the
Company and its subsidiaries shall not be prevented from selling or otherwise
disposing of their properties for value in the ordinary course of business.
Insurance. The Indentures will require the Company to cause each of
its and its subsidiaries' insurable properties to be insured against loss or
damage with insurers of recognized responsibility and, if described in the
applicable prospectus supplement, having a specified rating from a recognized
insurance rating service, in such amounts and covering all such risks as shall
be customary in the industry in accordance with prevailing market conditions and
availability.
Payment of Taxes and Other Claims. The Indentures will require the
Company 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 the Company 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 the Company or any subsidiary; provided, however, that the Company
shall not be required to pay or discharge or cause to be paid or discharged any
such tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith.
Provision of Financial Information. Whether or not the Company is
subject to Section 13 or 15(d) of the Exchange Act, the Indentures will require
the Company, within 15 days of each of the respective dates by which the Company
would have been required to file annual reports, quarterly reports and other
documents with the Commission if the Company were so subject, (i) to file with
the applicable Indenture Trustee copies of the annual reports, quarterly reports
and other documents that the Company would have been required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act if the Company
were subject to such Sections and (ii) to supply, promptly upon written request
and payment of the reasonable cost of duplication and delivery, copies of such
documents to any prospective holder.
Additional Covenants. Any additional covenants of the Company with
respect to any series of debt securities will be set forth in the prospectus
supplement relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless otherwise provided in the applicable prospectus supplement,
each Indenture will provide that the following events are "Events of Default"
with respect to any series of debt securities issued thereunder (i) default for
30 days in the payment of any installment of interest on any Debt Security of
such series; (ii) default in the payment of principal of (or premium, if any,
on) any Debt Security of such series at its maturity; (iii) default in making
any sinking fund payment as required for any Debt Security of such series; (iv)
default in the performance or breach of any other covenant or warranty of the
Company contained in the Indenture (other than a covenant added to the Indenture
solely for the benefit of a series of debt securities issued thereunder other
than such series), continued for 60 days after written notice as provided in the
applicable Indenture; (v) a default under any bond, debenture, note or other
evidence of indebtedness for money borrowed by the Company or any of its
subsidiaries (including obligations under leases required to be capitalized on
the balance sheet of the lessee under generally accepted accounting principles
but not including any indebtedness or obligations for which recourse is limited
to property purchased) in an aggregate principal amount in excess of $30,000,000
or under any mortgage, indenture or instrument under which there may be issued
or by which there may be secured or evidenced any indebtedness for money
borrowed by the Company or any its subsidiaries (including such leases, but not
including such indebtedness or obligations for which recourse is limited to
property purchased) in an aggregate principal amount in excess of $30,000,000,
whether such
14
indebtedness exists on the date of such Indenture or shall thereafter be
created, with such obligations being accelerated and not rescinded or annulled;
(vi) certain events of bankruptcy, insolvency or reorganization, or court
appointment of a receiver, liquidator or trustee of the Company or any
Significant Subsidiary of the Company; and (vii) any other event of default
provided with respect to a particular series of debt securities. The term
"Significant Subsidiary" has the meaning ascribed to such term 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 Indenture Trustee or the holders of not less
than 25% in principal amount of the debt securities of that series will have the
right to declare the principal amount (or, if the debt securities of that series
are Original Issue Discount Securities or indexed securities, such portion of
the principal amount as may be specified in the terms thereof) of all the debt
securities of that series to be due and payable immediately by written notice
thereof to the Company (and to the applicable Indenture Trustee if given by the
holders). However, at any time after such a declaration of acceleration with
respect to debt securities of such series (or of all debt securities then
outstanding under any Indenture, as the case may be) has been made, but before a
judgment or decree for payment of the money due has been obtained by the
applicable Indenture Trustee, the holders of not less than a majority in
principal amount of outstanding debt securities of such series (or of all debt
securities then outstanding under the applicable Indenture, as the case may be)
may rescind and annul such declaration and its consequences if (i) the Company
shall have deposited with the applicable Indenture Trustee all required payments
of the principal of (and premium, if any) and interest on the debt securities of
such series (or of all debt securities than outstanding under the applicable
Indenture, as the case may be), plus certain fees, expenses, disbursements and
advances of the applicable Indenture Trustee and (ii) all events of default,
other than the non-payment of accelerated principal (or specified portion
thereof), with respect to debt securities of such series (or of all debt
securities then outstanding under the applicable Indenture, as the case may be)
have been cured or waived as provided in such Indenture. The Indentures will
also provide that the holders of not less than a majority in principal amount of
the outstanding debt securities of any series (or of all debt securities then
outstanding under the applicable Indenture, as the case may be) may waive any
past default with respect to such series and its consequences, except a default
(x) in the payment of the principal of (or premium, if any) or interest on any
Debt Security of such series or (y) in respect of a covenant or provision
contained in the applicable Indenture that cannot be modified or amended without
the consent of the holder of each outstanding Debt Security affected thereby.
The Indentures will require each Indenture Trustee to give notice to
the holders of debt securities within 90 days of a default under the applicable
Indenture unless such default shall have been cured or waived; provided,
however, that such Indenture Trustee may withhold notice to the holders of any
series of debt securities of any default with respect to such series (except a
default in the payment of the principal of (or premium, if any) or interest on
any Debt Security of such series or in the payment of any sinking fund
installment in respect to any Debt Security of such series) if specified
responsible officers of such Indenture Trustee consider such withholding to be
in the interest of such holders.
The Indentures will provide that no holder of debt securities of any
series may institute any proceeding, judicial or otherwise, with respect to such
Indenture or for any remedy thereunder, except in the case of failure of the
applicable Indenture Trustee, for 60 days, to act after it has received a
written request to institute proceedings in respect of an event of default from
the holders of not less than 25% in principal amount of the outstanding debt
securities of such series, as well as an offer of indemnity reasonably
satisfactory to it. This provision will not prevent, however, any holder of debt
securities from instituting suit for the enforcement of payment of the principal
of (and premium, if any) and interest on such debt securities at the respective
due dates thereof.
15
The Indentures will provide that, subject to provisions in each
Indenture relating to its duties in case of default, an Indenture Trustee will
be under no obligation to exercise any of its rights or powers under an
Indenture at the request or direction of any holders of any series of debt
securities then outstanding under such Indenture, unless such holders shall have
offered to the Indenture Trustee thereunder reasonable security or indemnity.
The holders of not less than a majority in principal amount of the outstanding
debt securities of any series (or of all debt securities then outstanding under
an Indenture, as the case may be) shall have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
applicable Indenture Trustee, or of exercising any trust or power conferred upon
such Indenture Trustee. However, an Indenture Trustee may refuse to follow any
direction which is in conflict with any law or the applicable Indenture, which
may involve such Indenture Trustee in personal liability or which may be unduly
prejudicial to the holders of debt securities of such series not joining
therein.
Within 120 days after the close of each fiscal year, the Company will
be required to deliver to each Indenture Trustee a certificate, signed by one of
several specified officers of the Company, stating whether or not such officer
has knowledge of any default under the applicable Indenture and, if so,
specifying each such default and the nature and status thereof.
MODIFICATION OF THE 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
affected by such modification or amendment; provided, however, that no such
modification or amendment may, without the consent of the holder of each such
Debt Security affected thereby, (i) change the stated maturity of the principal
of, or any installment of interest (or premium, if any) on, any such Debt
Security; (ii) reduce the principal amount of, or the rate or amount of interest
on, or any premium payable on redemption of, any such Debt Security, or reduce
the amount of principal of an Original Issue Discount Security that would be due
and payable upon declaration of acceleration of the maturity thereof or would be
provable in bankruptcy, or adversely affect any right of repayment of the holder
of any such Debt Security; (iii) change the place of payment, or the coin or
currency, for payment of principal of, premium, if any, or interest on any such
Debt Security; (iv) impair the right to institute suit for the enforcement of
any payment on or with respect to any such Debt Security; (v) reduce the
above-stated percentage of outstanding debt securities of any series necessary
to modify or amend the applicable Indenture, to waive compliance with certain
provisions thereof or certain defaults and consequences thereunder or to reduce
the quorum or voting requirements set forth in the applicable Indenture; or (vi)
modify any of the foregoing provisions or any of the provisions relating to the
waiver of certain past defaults or certain covenants, except to increase the
required percentage to effect such action or to provide that certain other
provisions may not be modified or waived without the consent of the holder of
such Debt Security.
The holders of a majority in aggregate principal amount of the
outstanding debt securities of each series may, on behalf of all holders of debt
securities of that series, waive, insofar as that series is concerned,
compliance by the Company with certain restrictive covenants of the applicable
Indenture.
Modifications and amendments of an Indenture will be permitted to be
made by the Company and the respective Indenture Trustee thereunder without the
consent of any holder of debt securities for any of the following purposes: (i)
to evidence the succession of another person to the Company as obligor under
such Indenture; (ii) to add to the covenants of the Company for the benefit of
the holders of all or any series of debt securities or to surrender any right or
power conferred upon the Company in such Indenture; (iii) to add events of
default for the benefit of the holders of all or any series of debt securities;
(iv) to add or change any provisions of an Indenture to facilitate the issuance
of, or to liberalize certain terms of, debt securities in bearer form, or to
permit or facilitate the issuance of debt securities in uncertificated form;
provided that such action shall not adversely affect the interest of the holders
of the debt securities of any series in any material respect; (v) to change or
eliminate any provisions of an Indenture; provided that any such change or
elimination shall be effective only when there are no debt securities
16
outstanding of any series created prior thereto which are entitled to the
benefit of such provision; (vi) to secure the debt securities; (vii) to
establish the form or terms of debt securities of any series, including the
provisions and procedures, if applicable, for the conversion of such debt
securities into common shares or preferred shares; (viii) to provide for the
acceptance of appointment by a successor Indenture Trustee or facilitate the
administration of the trusts under an Indenture by more than one Indenture
Trustee; (ix) to cure any ambiguity, defect or inconsistency in an Indenture;
provided that such action shall not adversely affect the interests of holders of
debt securities of any series issued under such Indenture; or (x) to supplement
any of the provisions of an Indenture to the extent necessary to permit or
facilitate defeasance and discharge of any series of such debt securities;
provided that such action shall not adversely affect the interests of the
holders of the outstanding debt securities of any series.
The Indentures will provide that, in determining whether the holders
of the requisite principal amount of outstanding debt securities of a series
have given any request, demand, authorization, direction, notice, consent or
waiver thereunder or whether a quorum is present at a meeting of holders of debt
securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof (ii) the principal amount of
any Debt Security denominated in a foreign currency that shall be deemed
outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
debt securities of the amount determined as provided in (i) above), (iii) the
principal amount of an indexed security that shall be deemed outstanding shall
be the principal face amount of such indexed security at original issuance,
unless otherwise provided with respect to such indexed security pursuant to such
Indenture, and (iv) debt securities owned by the Company or any other obligor
upon the debt securities or an affiliate of the Company or of such other obligor
shall be disregarded.
The Indentures will contain provisions for convening meetings of the
holders of debt securities of a series issued thereunder. A meeting may be
called at any time by the applicable Indenture Trustee, and also, upon request
by the Company or the holders of at least 25% in principal amount of the
outstanding debt securities of such series, in any such case upon notice given
as provided in such Indenture. Except for any consent that must be given by the
holder of each Debt Security affected by certain modifications and amendments of
an Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present may be adopted by the affirmative vote
of the holders of a majority in principal amount of the outstanding debt
securities of that series; provided, however, that, except as referred to above,
any resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
holders of a specified percentage, which is less than a majority, in principal
amount of the outstanding debt securities of a series may be adopted at a
meeting or adjourned meeting duly reconvened at which a quorum is present by the
affirmative vote of the holders of such specified percentage in principal amount
of the outstanding debt securities of that series. Any resolution passed or
decision taken at any meeting of holders of debt securities of any series duly
held in accordance with an Indenture will be binding on all holders of debt
securities of that series. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be persons holding or
representing a majority in principal amount of the outstanding debt securities
of a series; provided, however, that if any action is to be taken at such
meeting with respect to a consent or waiver which may be given by the holders of
not less than a specified percentage in principal amount of the outstanding debt
securities of a series, the persons holding or representing such specified
percentage in principal amount of the outstanding debt securities of such series
will constitute a quorum.
Notwithstanding the foregoing provisions, the Indentures will provide
that if any action is to be taken at a meeting of holders of debt securities of
any series with respect to any request, demand, authorization, direction,
notice, consent, waiver and other action that such Indenture expressly provides
may be made, given or taken by the holders of a specified percentage in
principal amount of all outstanding debt securities affected thereby, or of the
holders of such series and one or more additional series; (i) there shall be no
minimum quorum requirement for such meeting, and (ii) the principal amount of
the outstanding debt securities of such series that vote in favor of such
request, demand, authorization, direction, notice, consent, waiver or other
action shall be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been made,
given or taken under such Indenture.
17
SUBORDINATION
Unless otherwise provided in the applicable prospectus supplement,
Subordinated Securities will be subject to the following subordination
provisions.
Upon any distribution to creditors of the Company in a liquidation,
dissolution or reorganization, the payment of the principal of and interest on
any Subordinated Securities will be subordinated to the extent provided in the
applicable Indenture in right of payment to the prior payment in full of all
Senior Debt (as defined below), but the obligation of the Company to make
payments of the principal of and interest on such Subordinated Securities will
not otherwise be affected. No payment of principal or interest will be permitted
to be made on Subordinated Securities at any time if a default on Senior Debt
exists that permits the holders of such Senior Debt to accelerate its maturity
and the default is the subject of judicial proceedings or the Company receives
notice of the default. After all Senior Debt is paid in full and until the
Subordinated Securities are paid in full, holders will be subrogated to the
rights of holders of Senior Debt to the extent that distributions otherwise
payable to holders have been applied to the payment of Senior Debt. The
Subordinated Indenture will not restrict the amount of Senior Indebtedness or
other indebtedness of the Company and its subsidiaries. As a result of these
subordination provisions in the event of a distribution of assets upon
insolvency, holders of Subordinated Indebtedness may recover less, ratably, than
senior creditors of the Company.
Senior Debt will be defined in the applicable Indenture as the
principal of and interest on, or substantially similar payments to be made by
the Company in respect of, the following, whether outstanding at the date of
execution of the applicable Indenture or thereafter incurred, created or
assumed: (i) indebtedness of the Company for money borrowed or represented by
purchase-money obligations, (ii) indebtedness of the Company evidenced by notes,
debentures, or bonds, or other securities issued under the provisions of an
indenture, fiscal agency agreement or other agreement, (iii) obligations of the
Company as lessee under leases of property either made as part of any sale and
leaseback transaction to which the Company is a part or otherwise, (iv)
indebtedness of partnerships and joint ventures which is included in the
consolidated financial statements of the Company, (v) indebtedness obligations
and liabilities of others in respect of which the Company is liable contingently
or otherwise to pay or advance money or property or as guarantor, endorser or
otherwise or which the Company has agreed to purchase or otherwise acquire, and
(vi) any binding commitment of the real estate investment, in each case other
than (a) any such indebtedness, obligation or liability referred to in 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,
(b) any such indebtedness obligation or liability which is subordinated to
indebtedness of the Company to substantially the same extent as or to a greater
extent than the Subordinated Securities are subordinated, and (c) the
Subordinated Securities. There will not be any restriction in any Indenture
relating to Subordinated Securities upon the creation of additional Senior Debt.
If this prospectus is being delivered in connection with a series of
Subordinated Securities, the accompanying prospectus supplement or the
information incorporated herein by reference will set forth the approximate
amount of Senior Debt outstanding as of the end of the Company's most recent
fiscal quarter.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise indicated in the applicable prospectus supplement,
the Company will be permitted, at its option, to discharge certain obligations
to holders of any series of debt securities issued under any Indenture that have
not already been delivered to the applicable Indenture Trustee for cancellation
and that either have become due and payable or will become due and payable
within one year (or scheduled for redemption within one year) by irrevocably
depositing with the applicable Indenture Trustee, in trust, funds in such
currency or currencies, currency unit or units or composite currency or
currencies in which such debt securities are payable in an amount sufficient to
pay the entire indebtedness on such debt securities with respect to principal
(and premium, if any) and interest to the date of such deposit (if such debt
securities have become due and payable) or to the stated maturity or redemption
date, as the case may be.
18
The Indentures will provide that, unless otherwise indicated in the
applicable prospectus supplement, the Company may elect either (i) to defease
and be discharged from any and all obligations (except for the obligation to pay
additional amounts, if any, upon the occurrence of certain events of tax
assessment or governmental charge with respect to payments on such debt
securities and the obligations to register the transfer or exchange of such debt
securities, to replace temporary or mutilated, destroyed, lost or stolen debt
securities, to maintain an office or agency in respect of such debt securities,
to hold moneys for payment in trust and, with respect to Subordinated debt
securities which are convertible or exchangeable, the right to convert or
exchange) with respect to such debt securities ("defeasance") or (ii) to be
released from its obligations with respect to such debt securities under the
applicable Indenture ( being the restrictions described under "--Certain
Covenants") or, if provided in the applicable prospectus supplement, its
obligations with respect to any other covenant, and any omission to comply with
such obligations shall not constitute an event of default with respect to such
debt securities ("covenant defeasance"), in either case upon the irrevocable
deposit by the Company with the applicable Indenture Trustee, in trust, of an
amount in such currency or currencies, currency unit or units or composite
currency or currencies in which such debt securities are payable at stated
maturity, or Government Obligations (as defined below), or both, applicable to
such debt securities, which through the scheduled payment of principal and
interest in accordance with their terms will provide money in an amount
sufficient to pay the principal of (and premium, if any) and interest on such
debt securities, and any mandatory sinking fund or analogous payments thereon,
on the scheduled due dates therefor.
Such a trust will only be permitted to be established if, among other
things, the Company has delivered to the applicable Indenture Trustee an opinion
of counsel (as specified in the applicable Indenture) to the effect that the
holders of such debt securities will not recognize income, gain or loss for U.S.
federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to U.S. federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance or covenant defeasance had not occurred, and such opinion of counsel,
in the case of defeasance, will be required to refer to and be based upon a
ruling received from or published by the Internal Revenue Service or a change in
applicable United States federal income tax law occurring after the date of the
Indenture. In the event of such defeasance, the holders of such debt securities
would thereafter be able to look only to such trust fund for payment of
principal (and premium, if any) and interest.
"Government Obligations" means securities that are (i) direct
obligations of the United States of America or the government which issued the
foreign currency in which the debt securities of a particular series are
payable, for the payment of which its full faith and credit is pledged, or (ii)
obligations of a person controlled or supervised by and acting as an agency or
instrumentality of the United States of America or such government which issued
the foreign currency in which the debt securities of such series are payable,
the payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America or such other government, which, in
either case, are not callable or redeemable at the option of the issuer thereof,
and shall also include a depository receipt issued by a bank or trust company as
custodian with respect to any such Government Obligation or a specific payment
of interest on or principal of any such Government Obligation held by such
custodian for the account of the holder of a depository receipt; provided that
(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the Government Obligation or
the specific payment of interest on or principal of the Government Obligation
evidenced by such depository receipt.
Unless otherwise provided in the applicable prospectus supplement, if
after the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to debt securities of any series,
(i) the holder of a Debt Security of such series is entitled to, and does, elect
pursuant to the applicable Indenture or the terms of such Debt Security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or
(ii) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security will be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium, if any) and interest on such Debt Security as they become due out
of the proceeds yielded by converting the amount so deposited in respect of such
Debt Security into the currency, currency unit or composite currency in which
such Debt Security becomes payable
19
as a result of such election or such cessation of usage based on the applicable
market exchange rate. "Conversion Event" means the cessation of use of (a) a
currency, currency unit or composite currency both by the government of the
country which issued such currency and for the settlement of transactions by a
central bank or other public institutions of or within the international banking
community, (b) the ECU both within the European Monetary System and for the
settlement of transactions by public institutions of or within the European
Communities, or (c) any currency unit or composite currency other than the ECU
for the purposes for which it was established. Unless otherwise provided in the
applicable prospectus supplement, all payments of principal of (and premium, if
any) and interest on any Debt Security that is payable in a foreign currency
that ceases to be used by its government of issuance shall be made in U.S.
dollars.
If the Company effects covenant defeasance with respect to any debt
securities and such debt securities are declared due and payable because of the
occurrence of any event of default other than the event of default described in
clause (iv) under "--Events of Default, Notice and Waiver" with respect to
specified sections of an Indenture (which sections would no longer be applicable
to such debt securities) or described in clause (vii) under "--Events of
Default, Notice and Waiver" with respect to any other covenant as to which there
has been covenant defeasance, the amount in such currency, currency unit or
composite currency in which such debt securities are payable, and Government
Obligations on deposit with the applicable Indenture Trustee, will be sufficient
to pay amounts due on such debt securities at the time of their stated maturity
but may not be sufficient to pay amounts due on such debt securities at the time
of the acceleration resulting from such event of default. However, the Company
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 common shares or preferred shares will be set forth in the
applicable prospectus supplement relating thereto. Such terms will include
whether such debt securities are convertible into common shares or preferred
shares, the conversion price (or manner of calculation thereof), the conversion
period, provisions as to whether conversion will be at the option of the holders
or the Company, 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 the Company's REIT status.
PAYMENT
Unless otherwise specified in the applicable prospectus supplement,
the principal of (and applicable premium, if any) and interest on any series of
debt securities will be payable at the corporate trust office of the Indenture
Trustee, the address of which will be stated in the applicable prospectus
supplement; provided that, at the option of the Company, payment of interest may
be made by check mailed to the address of the person entitled thereto as it
appears in the applicable register for such debt securities or by wire transfer
of funds to such person at an account maintained within the United States.
All moneys paid by the Company to a paying agent or an Indenture
Trustee for the payment of the principal of or any premium or interest on any
Debt Security which remain unclaimed at the end of one year after such
principal, premium or interest has become due and payable will be repaid to the
Company, and the holder of such Debt Security thereafter may look only to the
Company for payment thereof.
20
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 depositary identified in the applicable
prospectus supplement relating to such series. Global Securities may be issued
in either registered or bearer form and in either temporary or permanent form.
The specific terms of the depositary arrangement with respect to a series of
debt securities will be described in the applicable prospectus supplement
relating to such series.
21
RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK AND ANTI-TAKEOVER PROVISIONS
RESTRICTIONS RELATING TO REIT STATUS
For us to qualify as a REIT under the Code, among other things, not
more than 50% in value of the outstanding shares of our capital stock may be
owned, directly or indirectly, by five or fewer individuals (defined in the Code
to include certain entities) during the last half of a taxable year, and such
shares of our capital stock 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 (in each case, other than the first
such year). To assist us in continuing to remain a qualified REIT, our
declaration of trust, subject to certain exceptions, provides that no holder may
own, or be deemed to own by virtue of the attribution provisions of the Code,
more than 9.8% of our equity shares, defined as common shares or preferred
shares. We refer to this restriction as the Ownership Limit. Our board of
trustees may waive the Ownership Limit if evidence satisfactory to our board of
trustees and our tax counsel is presented that the changes in ownership will not
then or in the future jeopardize our status as a REIT. Any transfer of equity
shares or any security convertible into equity shares that would create a direct
or indirect ownership of equity shares in excess of the Ownership Limit or that
would result in our disqualification as a REIT, including any transfer that
results in the equity shares being owned by fewer than 100 persons or results in
us being "closely held" within the meaning of Section 856(h) of the Code, will
be null and void, and the intended transferee will acquire no rights to such
equity shares. The foregoing restrictions on transferability and ownership will
not apply if our board of trustees determines that it is no longer in our best
interests to attempt to qualify, or to continue to qualify, as a REIT.
Equity shares owned, or deemed to be owned, or transferred to a
shareholder in excess of the Ownership Limit, will automatically be exchanged
for excess shares that will be transferred, by operation of law, to us as
trustee of a trust for the exclusive benefit of the transferees to whom such
shares of our capital stock may be ultimately transferred without violating the
Ownership Limit. While the excess shares are held in trust, they will not be
entitled to vote, they will not be considered for purposes of any shareholder
vote or the determination of a quorum for such vote and, except upon
liquidation, they will not be entitled to participate in dividends or other
distributions. Any dividend or distribution paid to a proposed transferee of
excess shares prior to our discovery that equity shares have been transferred in
violation of the provisions of our declaration of trust will be repaid to us
upon demand. The excess shares are not treasury shares, but rather constitute a
separate class of our issued and outstanding shares. The original
transferee-shareholder may, at any time the excess shares are held by us in
trust, transfer the interest in the trust representing the excess shares to any
individual whose ownership of the equity shares exchanged into such excess
shares would be permitted under our declaration of trust, at a price not in
excess of the price paid by the original transferee-shareholder for the equity
shares that were exchanged into excess shares, or, if the transferee-shareholder
did not give value for such shares, a price not in excess of the market price
(as determined in the manner set forth in our declaration of trust) on the date
of the purported transfer. Immediately upon the transfer to the permitted
transferee, the excess shares will automatically be exchanged for equity shares
of the class from which they were converted. If the foregoing transfer
restrictions are determined to be void or invalid by virtue of any legal
decision, statute, rule or regulation, then the intended transferee of any
excess shares may be deemed, at our option, to have acted as an agent on our
behalf in acquiring the excess shares and to hold the excess shares on our
behalf.
In addition to the foregoing transfer restrictions, we will have the
right, for a period of 90 days during the time any excess shares are held by us
in trust, to purchase all or any portion of the excess shares from the original
transferee-shareholder for the lesser of the price paid for the equity shares by
the original transferee-shareholder or the market price (as determined in the
manner set forth in our declaration of trust) of the equity shares on the date
we exercise our option to purchase. The 90-day period begins on the date on
which we receive written notice of the transfer or other event resulting in the
exchange of equity shares for excess shares.
Each shareholder will be required, upon demand, to disclose to us in
writing any information with respect to the direct, indirect and constructive
ownership of beneficial interests as our board of trustees deems necessary to
comply with the provisions of the Code applicable to REITs, to comply with the
requirements of any taxing authority or governmental agency or to determine any
such compliance.
This Ownership Limit may have the effect of precluding an acquisition
of control unless our board of trustees determines that maintenance of REIT
status is no longer in our best interests.
22
AUTHORIZED CAPITAL
Under our declaration of trust, we have authority to issue up to
130,000,000 shares of beneficial interest par value $0.0001 per share, of which
80,000,000 shares are classified as common shares, 40,000,000 shares are
classified as excess shares and 10,000,000 shares are classified as preferred
shares. We may issue such shares (other than reserved shares) from time to time
in the discretion of our board of trustees to raise additional capital, acquire
assets, including additional real properties, redeem or retire debt or for any
other business purpose. In addition, the undesignated preferred shares may be
issued in one or more additional classes with such designations, preferences and
relative, participating, optional or other special rights including, without
limitation, preferential dividend or voting rights, and rights upon liquidation,
as will be fixed by our board of trustees. Our board of trustees is authorized
to classify and reclassify any unissued shares of our capital stock by setting
or changing, in any one or more respects, the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
or terms or conditions of redemption of such shares. This authority includes,
without limitation, subject to the provisions of our declaration of trust,
authority to classify or reclassify any unissued shares into a class or classes
of preferred shares, preference shares, special shares or other shares, and to
divide and reclassify shares of any class into one or more series of that class.
In some circumstances, the issuance of preferred shares, or the
exercise by our board of trustees of its right to classify or reclassify shares,
could have the effect of deterring individuals or entities from making tender
offers for our common shares or seeking to change incumbent management.
MARYLAND LAW
Maryland law includes certain other provisions which may also
discourage a change in control of management. Maryland law provides that, unless
an exemption applies, we may not engage in any "business combination" with an
"interested stockholder" or any affiliate of an interested stockholder for a
period of five years after the interested stockholder became an interested
stockholder, and thereafter may not engage in a business combination with such
interested stockholder unless the combination is recommended by our board of
trustees and approved by the affirmative vote of at least (i) 80% of the votes
entitled to be cast by the holders of all of our outstanding voting shares, and
(ii) 66 2/3% of the votes entitled to be cast by all holders of outstanding
voting shares other than voting shares held by the interested stockholder. An
"interested stockholder" is defined, in essence, as any person owning
beneficially, directly or indirectly, 10% or more of the outstanding voting
shares of a Maryland real estate investment trust. The voting requirements do
not apply at any time to business combinations with an interested stockholder or
its affiliates if approved by our board of trustees prior to the time the
interested stockholder first became an interested stockholder. Additionally, if
the business combination involves the receipt of consideration by our
shareholders in exchange for common shares that satisfies certain "fair price"
conditions, such supermajority voting requirements do not apply.
Maryland law provides that "control shares" of a Maryland real estate
investment trust acquired in a "control share acquisition" have no voting rights
except to the extent approved by a vote of two-thirds of the votes entitled to
be cast on the matter, excluding shares owned by the acquiror or by officers or
trustees who are employees of the trust. "Control shares" are voting shares
that, if aggregated with all other shares previously acquired by that person,
would entitle the acquiror to exercise voting power in electing trustees within
one of the following ranges of voting power:
- one-tenth or more but less than one-third;
- one-third or more but less than a majority; or
- a majority or more of all voting power.
Control shares do not include shares the acquiring person is then
entitled to vote as a result of having previously obtained shareholder approval.
A "control share acquisition" means the acquisition of ownership of or
the power to direct the exercise of voting power of issued and outstanding
control shares, subject to certain exceptions. A person who has made or proposes
to make a control share acquisition, upon satisfaction of certain conditions
(including an undertaking to pay expenses), may compel the trust's board of
trustees to call a special meeting of shareholders, to be held within
23
50 days of demand, to consider the voting rights of the shares. If no request
for a meeting is made, the trust may itself present the question at any
shareholders' meeting.
If voting rights are not approved at the meeting or if the acquiring
person does not deliver an "acquiring person statement" as permitted by the
statute, then, subject to certain conditions and limitations, the trust may
redeem any or all of the control shares (except those for which voting rights
have previously been approved) for fair value determined, without regard to the
absence of voting rights, as of the date of the last control share acquisition
or of any meeting of shareholders at which the voting rights of such shares were
considered and not approved. If voting rights for control shares are approved at
a shareholders' meeting and the acquiror becomes entitled to vote a majority of
the shares entitled to vote, all other shareholders may exercise appraisal
rights. The fair value of the shares as determined for purposes of the appraisal
rights may not be less than the highest price per share paid in the control
share acquisition, and certain limitations and restrictions otherwise applicable
to the exercise of dissenters' rights do not apply in the context of a control
share acquisition.
The control share acquisition statute does not apply to shares
acquired in a merger, consolidation or share exchange if the trust is a party to
the transaction, or to acquisitions approved or exempted by our declaration of
trust or by-laws prior to the control share acquisition. No such exemption
appears in our declaration of trust or by-laws. The control share acquisition
statute could have the effect of discouraging offers to acquire us and of
increasing the difficulty of consummating any such offer.
CERTAIN ELECTIVE PROVISIONS OF MARYLAND LAW
Publicly-held Maryland statutory real estate investment trusts
("REITs") may elect to be governed by all or any part of Maryland law provisions
relating to extraordinary actions and unsolicited takeovers. The election to be
governed by one or more of these provisions can be made by a Maryland REIT in
its declaration of trust or bylaws ("charter documents") or by resolution
adopted by its board of trustees so long as the REIT has at least three trustees
who, at the time of electing to be subject to the provisions, are not:
- officers or employees of the REIT;
- persons seeking to acquire control of the REIT;
- trustees, officers, affiliates or associates of any person
seeking to acquire control; or
- nominated or designated as trustees by a person seeking to
acquire control.
Articles supplementary must be filed with the Maryland State
Department of Assessments and Taxation if a Maryland REIT elects to be subject
to any or all of the provisions by board resolution or bylaw amendment.
Shareholder approval is not required for the filing of these articles
supplementary.
The Maryland law provides that a REIT can elect to be subject to all
or any portion of the following provisions, notwithstanding any contrary
provisions contained in that REIT's existing charter documents:
Classified Board: The REIT may divide its board into three classes
which, to the extent possible, will have the same number of trustees, the terms
of which will expire at the third annual meeting of shareholders after the
election of each class;
Two-thirds Shareholder Vote to Remove Trustees Only for Cause: The
shareholders may remove any trustee only by the affirmative vote of at least
two-thirds of all votes entitled to be cast by the shareholders generally in the
election of trustees, but a trustee may not be removed without cause;
Size of Board Fixed by Vote of Board: The number of trustees will be
fixed only by resolution of the board;
Board Vacancies Filled by the Board for the Remaining Term: Vacancies
that result from an increase in the size of the board, or the death,
resignation, or removal of a trustee, may be filled only by the affirmative vote
of a majority of the remaining trustees even if they do not constitute a quorum.
Trustees elected to fill vacancies will hold office for the remainder of the
full term of the class of trustees in which the vacancy occurred, as opposed to
until the next annual meeting of shareholders, and until a successor is elected
and qualified; and
24
Shareholder Calls of Special Meetings: Special meetings of
shareholders may be called by the secretary of the REIT only upon the written
request of shareholders entitled to cast at least a majority of all votes
entitled to be cast at the meeting and only in accordance with procedures set
out in the Maryland General Corporation Law.
We have not elected to be governed by these specific provisions.
However, our declaration of trust and/or bylaws, as applicable, already provide
for an 80% vote to remove trustees only for cause, and that the number of
trustees may be determined by a resolution of our Board, subject to a minimum
number. In addition, we can elect to be governed by any or all of the provisions
of the Maryland law at any time in the future.
USE OF PROCEEDS
Unless otherwise described in the applicable prospectus supplement, we
intend to use the net proceeds from the sale of the securities for general
corporate purposes, which may include the acquisition of additional properties,
the repayment of outstanding indebtedness or the improvement of certain
properties already in our portfolio.
PLAN OF DISTRIBUTION
The Company may sell Securities through underwriters or dealers,
directly to one or more purchasers, through agents or through a combination of
any such methods of sale.
The distribution of the Securities may be effected from time to time
in one or more transactions at a fixed price or prices, which may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, or at negotiated prices.
We may sell equity securities in an offering "at the market" as
defined in Rule 415 under the Securities Act or negotiated transactions. One or
more of A.G. Edwards & Sons, Inc., Bear, Stearns & Co. Inc., Brinson Patrick
Securities Corporation, Cantor Fitzgerald & Co., Friedman, Billings, Ramsey &
Co., Inc., Mellon Financial Markets, LLC, Raymond James & Associates, Inc. and
Wachovia Capital Markets, LLC may act as underwriters in connection with such an
offering. None of the broker-dealers listed in the preceding sentence shall be
an underwriter in connection with any offering of our equity securities unless
such broker-dealer is named as an underwriter in the applicable prospectus
supplement. Unless the prospectus supplement states otherwise, our agent in "at
the market" or negotiated transactions will act on a best-efforts basis for the
period of its appointment.
In connection with the sale of Securities, underwriters or agents may
receive compensation from the Company and/or from purchasers of Securities, for
whom they may act as agents, in the form of discounts, concessions or
commissions. 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 agents. Underwriters, dealers, and agents that participate
in the distribution of Securities may be deemed to be underwriters under the
Securities Act, and any discounts or commissions they receive from the Company
and any profit on the resale of Securities they realize may be deemed to be
underwriting discounts and commissions under the Securities Act. Any such
underwriter or agent will be identified, and any such compensation received from
the Company will be described, in the applicable prospectus supplement.
Unless otherwise specified in the related prospectus supplement, each
series of Securities will be a new issue with no established trading market,
other than the common shares which are listed on the NYSE. Any common shares
sold pursuant to a prospectus supplement will be listed on the NYSE, subject to
official notice of issuance. The Company may elect to list any series of debt
securities or preferred shares on an exchange, but is not obligated to do so. It
is possible that one or more underwriters may make a market in a series of
Securities, but will not be obligated to do so and may discontinue any market
making at any time without notice. Therefore, no assurance can be given as to
the liquidity of, or the trading market for, the Securities.
Under agreements into which the Company may enter, underwriters,
dealers and agents who participate in the distribution of Securities may be
entitled to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, or be tenants of, the Company in the ordinary course of
business.
In order to comply with the securities laws of certain states, if
applicable, the Securities offered hereby will be sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
states
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Securities may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DIVIDENDS
The following table sets forth our historical ratios of earnings to
fixed charges and earnings to combined fixed charges and preferred share
dividends for the periods indicated:
NINE
MONTHS
ENDED
SEPTEMBER
30, YEAR ENDED DECEMBER 31,
--------- --------------------------------
2004 2003 2002 2001 2000 1999
--------- ---- ---- ---- ---- ----
RATIO OF EARNINGS TO FIXED
CHARGES 1.86 1.69 1.78 1.49 1.64 1.67
RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED
SHARE DIVIDENDS 1.63 1.57 1.75 1.38 1.51 1.53
The ratios of earnings to fixed charges were computed by dividing
earnings by fixed charges. The ratios of earnings to combined fixed charges and
preferred share dividends were computed by dividing earnings by the sum of fixed
charges and preferred share dividends. For these purposes, earnings consist of
pre-tax income from continued operations plus fixed charges (excluding
capitalized interest). Fixed charges consist of interest expense (including
capitalized interest) and the amortization of debt issuance costs.
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EXPERTS
The consolidated financial statements and related financial statement
schedule included in our Annual Report on Form 10-K as of and for the year ended
December 31, 2003, as updated by the Current Report on Form 8-K filed on
December 1, 2004 and incorporated by reference into this prospectus, have been
incorporated herein by reference in reliance on the report, also incorporated
herein by reference, of KPMG LLP, independent registered public accounting firm,
and upon the authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters will be passed upon for us by Paul, Hastings,
Janofsky & Walker LLP, New York, New York. Seth M. Zachary, a partner of Paul,
Hastings, Janofsky & Walker LLP, is presently serving on our board of trustees
and will continue to do so at least until the 2005 Annual Meeting of
Shareholders. As of the date of this prospectus, Mr. Zachary beneficially owned
46,619 common shares. Certain legal matters under Maryland law, including the
legality of the Securities covered by this prospectus, will be passed on for us
by Piper Rudnick LLP, Baltimore, Maryland.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934 which requires us to file reports and other information
with the Securities and Exchange Commission. You can inspect and copy reports,
proxy statements and other information filed by us at the Public Reference Room
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. You can obtain copies of this material by mail from the
Public Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. You can also obtain such reports, proxy statements
and other information from the web site that the SEC maintains at
http://www.sec.gov.
Reports, proxy statements and other information concerning us may also
be obtained electronically at our website, http://www.lxp.com and through a
variety of databases, including, among others, the SEC's Electronic Data
Gathering and Retrieval ("EDGAR") program, Knight-Ridder Information Inc.,
Federal Filing/ Dow Jones and Lexis/Nexis.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we
file with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, which is commonly referred to as
the Exchange Act (although with respect to the Form 8-Ks listed below, we are
only incorporating by reference those portions of such Form 8-Ks that were
deemed "filed" with the SEC and not those portions that were deemed "furnished"
to the SEC):
- Annual Report on Form 10-K for the year ended December 31, 2003;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 2004;
- Quarterly Report on Form 10-Q for the quarter ended June 30, 2004;
- Quarterly Report on Form 10-Q/A for the quarter ended June 30, 2004;
- Quarterly Report on Form 10-Q for the quarter ended September 30,
2004;
- Current Report on Form 8-K filed February 2, 2004 (except any
information furnished under Items 5 (to the extent Item 12 applies),
9, and 12);
27
- Current Report on Form 8-K filed March 1, 2004;
- Current Report on Form 8-K filed April 1, 2004;
- Current Report on Form 8-K filed May 4, 2004 (except any information
furnished under Items 5 (to the extent Item 12 applies), 9, and 12);
- Current Report on Form 8-K filed June 15, 2004;
- Current Report on Form 8-K filed July 30, 2004 (except any information
furnished under Items 5 (to the extent Item 12 applies), 9, and 12);
- Current Report on Form 8-K filed October 5, 2004;
- Current Report on Form 8-K filed November 2, 2004 (except any
information furnished under Items 2.02 and 7.01);
- Current Report on Form 8-K filed November 4, 2004;
- Current Report on Form 8-K filed December 1, 2004;
- Current Report on Form 8-K filed December 6, 2004;
- Current Report on Form 8-K filed December 8, 2004;
- Current Report on Form 8-K filed December 14, 2004;
- Current Report on Form 8-K filed December 28, 2004; and
- Our Definitive Proxy Statement on Schedule 14A dated April 14, 2004.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
T. Wilson Eglin, Chief Executive Officer
Lexington Corporate Properties Trust
One Penn Plaza, Suite 4015
New York, New York 10119-4015
(212) 692-7200
This prospectus is part of a registration statement we filed with the
SEC. You should rely only on the information or representations provided in this
prospectus. We have not authorized anyone else to provide you with different
information. You should not assume that the information in this prospectus or
any supplement is accurate as of any date other than the date on the front of
those documents.
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6,000,000 SHARES
(LEXINGTON LOGO)
7.55% SERIES D CUMULATIVE REDEEMABLE PREFERRED STOCK
LIQUIDATION PREFERENCE $25.00 PER SHARE
----------------------
PROSPECTUS SUPPLEMENT
----------------------
MERRILL LYNCH & CO.
A.G. EDWARDS
RAYMOND JAMES
BB&T CAPITAL MARKETS
KEYBANC CAPITAL MARKETS
RYAN BECK & CO.
FEBRUARY 9, 2007
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