As filed with the Securities and Exchange Commission on January 15, 1998.
Registration
No. 33-34930
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE
AMENDMENT NO. 9
ON FORM S-2
TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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B.F. Saul Real Estate Investment Trust
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(Exact name of registrant as specified in its charter)
Maryland
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(State or other jurisdiction of incorporation or organization)
6798
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(Primary standard industrial classification code number)
52-6053341
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(I.R.S. employer identification number)
8401 Connecticut Avenue, Chevy Chase, Maryland 20815 301-986-6000
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(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Henry Ravenel, Jr.
8401 Connecticut Avenue, Chevy Chase, Maryland 20815 301-986-6000
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(Name, address including zip code, and telephone number,
including area code, of agent for service)
Copies of correspondence to:
Thomas H. McCormick, Esq.
Shaw, Pittman, Potts & Trowbridge
2300 N Street, N.W.
Washington, D.C. 20037
(202) 663-8000
Approximate date of commencement
of proposed sale to the public: AS SOON AS PRACTICABLE AFTER THE REGISTRATION
STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. /X/
B.F. SAUL REAL ESTATE INVESTMENT TRUST
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
BETWEEN ITEMS IN PART I OF FORM S-2 AND THE PROSPECTUS
ITEM IN FORM S-2 CAPTION IN PROSPECTUS
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Item 1. Forepart of Registration Statement Facing Page; Cross Reference
and Outside Front Cover Page of Sheet; Front Cover Page of
Prospectus. . . . . . . . . . . . . Prospectus
Item 2. Inside Front and Outside Back Cover Available Information; Table of
Pages of Prospectus . . . . . . . . Contents
Item 3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed Summary; The Trust; Risk Fac-
Charges . . . . . . . . . . . . . . tors and Other Considerations
Item 4. Use of Proceeds . . . . . . . . . . Use of Proceeds
Item 5. Determination of Offering Price . . Not applicable
Item 6. Dilution. . . . . . . . . . . . . . Not applicable
Item 7. Selling Security Holders. . . . . . Not applicable
Item 8. Plan of Distribution. . . . . . . . Front Cover Page of Prospectus;
Plan of Distribution; How to
Purchase Notes
Item 9. Description of Securities to be
Registered. . . . . . . . . . . . . Description of Notes
Item 10. Interest of Named Experts and
Counsel . . . . . . . . . . . . . . Legal Matters
Item 11. Information with Respect to the Available Information; The
Registrant. . . . . . . . . . . . . Trust; Incorporation of Certain
Documents by Reference
Item 12. Incorporation of Certain Informa- Available Information; Incorpo-
tion by Reference . . . . . . . . . ration of Certain Documents by
Reference
Item 13. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities . . . . . . . . . . Not applicable
PROSPECTUS
$80,000,000
B.F. SAUL REAL ESTATE INVESTMENT TRUST
NOTES
DUE ONE YEAR TO TEN YEARS FROM DATE OF ISSUE
INTEREST PAYABLE EACH SIX MONTHS FROM DATE OF ISSUE AND AT MATURITY
Note Maturities INTEREST RATE
FROM ISSUE DATE PER ANNUM
One year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5.0%
Two Years. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.0%
Three Years. . . . . . . . . . . . . . . . . . . . . . . . . . . .9.0%
Four Years . . . . . . . . . . . . . . . . . . . . . . . . . . . .9.5%
Five to Ten Years. . . . . . . . . . . . . . . . . . . . . . . . 10.0%
THE RATE OF INTEREST ON THE NOTES OFFERED HEREBY (THE "NOTES") MAY BE
CHANGED BY B.F. SAUL REAL ESTATE INVESTMENT TRUST (THE "TRUST") FROM TIME TO
TIME, BUT ANY SUCH CHANGE WILL NOT AFFECT THE RATE OF INTEREST ON ANY NOTE
PURCHASED PRIOR TO THE EFFECTIVE DATE OF THE CHANGE. BASED ON THE AMOUNT OF A
PROPOSED INVESTMENT IN NOTES OR THE AGGREGATE PRINCIPAL AMOUNT OF THE TRUST'S
OUTSTANDING UNSECURED NOTES HELD BY A PROSPECTIVE INVESTOR, THE TRUST MAY OFFER
TO PAY INTEREST ON A NOTE OF ANY MATURITY AT AN ANNUAL RATE OF UP TO 2.0% IN
EXCESS OF THE INTEREST RATE SHOWN ABOVE FOR A NOTE OF SUCH MATURITY.
(CONTINUED ON NEXT PAGE)
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE NOTES ARE NOT GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR OTHERWISE.
AN INVESTMENT IN THE NOTES INVOLVES SIGNIFICANT RISKS, INCLUDING THE FOLLOWING,
DESCRIBED IN "RISK FACTORS AND OTHER CONSIDERATIONS":
- - THE NOTES ARE UNSECURED OBLIGATIONS AND RANK ON A PARITY WITH ALL OTHER
UNSECURED TRUST DEBT, WHICH CURRENTLY CONSISTS OF OUTSTANDING UNSECURED
NOTES AND ACCOUNTS PAYABLE AND ACCRUED EXPENSES. THE NOTES ARE EFFECTIVELY
SUBORDINATED TO THE TRUST'S SECURED DEBT.
- - THE INDENTURE PURSUANT TO WHICH THE NOTES WILL BE ISSUED DOES NOT RESTRICT
THE TRUST'S ABILITY TO PAY DIVIDENDS, ISSUE ADDITIONAL SECURITIES OR INCUR
ADDITIONAL DEBT.
- - THERE IS NO ESTABLISHED TRADING MARKET FOR THE NOTES AND THE TRUST DOES NOT
ANTICIPATE THAT AN ACTIVE TRADING MARKET WILL BE ESTABLISHED.
- - THE NOTES ARE SUBJECT TO REDEMPTION AT PAR AT THE TRUST'S OPTION, AS
DESCRIBED HEREIN.
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THE DATE OF THIS PROSPECTUS IS _________, 1998.
The Notes are limited to $80,000,000 principal amount initially offered
hereby and are offered on a continuing basis for sale by the Trust directly to
investors through its office at the address set forth on the back cover hereof.
See "How to Purchase Notes." The Notes will mature one to ten years from date
of issue, as selected by the investor. The Notes will be sold only in fully
registered form in denominations of $5,000, or any amount in excess thereof
which is an integral multiple of $1,000, at 100% of the principal amount. The
Notes will be transferable without service charge. See "Description of Notes."
No commissions will be paid in connection with this offering. This
offering is not contingent on the sale of any minimum amount of Notes. See "Use
of Proceeds," "Plan of Distribution" and "How to Purchase Notes." The Trust
reserves the right to withdraw, cancel or modify the offer made hereby without
notice and to reject any order in whole or in part.
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Price to Underwriting Discounts Proceeds to
Public and Commissions Trust (1)
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Per Note ........... 100% None 100%
Total .............. $80,000,000 None $80,000,000
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(1) Before deduction of expenses payable by the Trust estimated at
$1,710,000, including $800,000 payable to B. F. Saul Advisory Company for
administering the Note program. B. F. Saul Advisory Company serves as the
Trust's investment advisor and is an affiliate of the Trust. See "Risk Factors
and Other Considerations - Possible Conflicts of Interest Affecting Real Estate
Trust."
--------------------
PURSUANT TO THE FLORIDA SECURITIES ACT (THE "FLORIDA ACT"), WHEN SALES ARE
MADE TO FIVE OR MORE PERSONS IN FLORIDA, ANY SALE IN FLORIDA MADE PURSUANT TO
SECTION 517.061(11) OF THE FLORIDA ACT SHALL BE VOIDABLE BY THE PURCHASER IN
SUCH SALE EITHER WITHIN THREE DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS
MADE BY SUCH PURCHASER TO THE ISSUER, AN AGENT OF THE ISSUER OR AN ESCROW AGENT,
OR WITHIN THREE DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO
SUCH PURCHASER, WHICHEVER OCCURS LATER.
AVAILABLE INFORMATION
The Trust has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-2 (the "Registration
Statement") pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), and the rules and regulations promulgated thereunder, covering the Notes
being offered hereby. This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission, and to which
reference is hereby made. Statements made in this Prospectus as to the contents
of any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference.
The Trust is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Commission. Information
as of particular dates concerning the Trust's Trustees, officers and principal
holders of securities and any material interest of such persons in transactions
with the Trust is set forth in annual reports on Form 10-K with the Commission.
Such reports and other information filed by the Trust with the Commission may be
inspected and copied at the public reference facilities of the Commission,
located at 450 Fifth Street, N.W., Washington, D.C. 20549; Seven World Trade
Center, 13th Floor, New York, New York 10048; and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of this material may be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, certain of these
materials are publicly available through the Commission's web site located at
http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated in this Prospectus by reference
and made a part hereof:
1. Annual Report on Form 10-K of the Trust for the fiscal year ended
September 30, 1997, which has been filed with the Commission pursuant
to the Exchange Act.
2. Annual Report of the Trust to security holders for the fiscal year
ended September 30, 1997, which accompanies this Prospectus.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Trust will provide without charge to each person to whom a copy of this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents incorporated by reference herein, except for the
exhibits to such documents. Such request should be directed to B.F. Saul Real
Estate Investment Trust, 7200 Wisconsin Avenue, Suite 903, Bethesda, Maryland
20814, Attention: Henry Ravenel, Jr. (telephone number (301) 986-6207).
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS OR IN THE DOCUMENTS INCORPORATED IN THIS PROSPECTUS BY
REFERENCE. CAPITALIZED TERMS USED IN THE SUMMARY AND NOT DEFINED THEREIN HAVE
THE MEANINGS ASCRIBED TO SUCH TERMS ELSEWHERE IN THIS PROSPECTUS.
The Trust
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B.F. Saul Real Estate Investment Trust (the "Trust") operates as a Maryland
real estate investment trust. The Trust began its operations in 1964 as an
unincorporated business trust organized under a Declaration of Trust governed by
District of Columbia law. The Trust terminated its status as a qualified real
estate investment trust for federal income tax purposes in 1978 and is now
taxable as a corporation. On October 24, 1988, the Trust amended its
Declaration of Trust to qualify the Trust as a statutory real estate investment
trust under Maryland law.
The principal business activity of the Trust and its real estate
subsidiaries is the ownership and development of income-producing properties.
The Trust owns 80% of the outstanding common stock of Chevy Chase Bank, F.S.B.
("Chevy Chase" or the "Bank"), whose assets accounted for 95% of the Trust's
consolidated assets at September 30, 1997. The Trust is a savings and loan
holding company by virtue of its ownership of a majority interest in Chevy
Chase.
The Trust recorded net income of $18.9 million in the fiscal year ended
September 30, 1997, compared to a net loss of $78,000 in the fiscal year ended
September 30, 1996 and net income of $10.9 million in the fiscal year ended
September 30, 1995.
The Trust has prepared its financial statements and other disclosures on a
fully consolidated basis. The term "Trust" used in the text and the financial
statements included herein refers to the combined entity, which includes B.F.
Saul Real Estate Investment Trust and its subsidiaries, including Chevy Chase
and Chevy Chase's subsidiaries. "Real Estate Trust" refers to B.F. Saul Real
Estate Investment Trust and its subsidiaries, excluding Chevy Chase and Chevy
Chase's subsidiaries. The operations conducted by the Real Estate Trust are
designated as "Real Estate," while the business conducted by Chevy Chase and its
subsidiaries is identified by the term "Banking."
The Real Estate Trust's long-term objectives are to increase cash flow from
operations and to maximize capital appreciation of its real estate. The
properties owned by the Real Estate Trust are located predominantly in the
Mid-Atlantic and Southeastern regions of the United States and consist
principally of office and industrial projects, hotels and undeveloped land
parcels.
In August 1993, the Real Estate Trust consummated a series of transactions
in which it transferred its 22 shopping center properties and one of its office
properties and the debt associated with such properties to a newly organized
limited partnership, Saul Holdings Limited Partnership ("Saul Holdings
Partnership"), and one of two newly organized subsidiary limited partnerships of
Saul Holdings Partnership. In exchange for the transferred properties, the Real
Estate Trust received a 21.5% limited partnership interest in Saul Holdings
Partnership. Saul Centers, Inc. ("Saul Centers"), a newly organized, publicly
held real estate investment trust, received a 73.0% general partnership interest
in Saul Holdings Partnership in exchange for the contribution of approximately
$220.7 million to Saul Holdings Partnership. Saul Centers and a wholly-owned
subsidiary, which are the sole general partners of Saul Holdings Partnership and
the two subsidiary limited partnerships, generally have full, exclusive and
complete responsibility and discretion in the management and control of each
such partnership. B. Francis Saul II, the Chairman of the Board of Trustees and
Chief Executive Officer of the Trust, serves as Chairman of the Board of
Directors and Chief Executive Officer of Saul Centers. See "Risk Factors and
Other Considerations - Potential Conflicts of Interest Affecting Real Estate
Trust."
Chevy Chase
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Chevy Chase Bank is a federally chartered and federally insured stock
savings bank which at September 30, 1997 was conducting business from 128 full
service offices and 614 automated teller machines ("ATMs")
in Maryland, Virginia and the District of Columbia. The Bank has its home office
in McLean, Virginia and its executive offices in Chevy Chase, Maryland, both
suburban communities of Washington, D.C. The Bank also maintains 18 mortgage
loan production offices in the mid-Atlantic region, 17 of which are operated by
a wholly-owned mortgage banking subsidiary, and 18 consumer loan production
offices, 10 of which are operated by a wholly-owned finance subsidiary of the
Bank. At September 30, 1997, the Bank had total assets of $6.1 billion and total
deposits of $4.9 billion. Based on total consolidated assets at September 30,
1997, Chevy Chase is the largest bank headquartered in the Washington, D.C.
metropolitan area.
Chevy Chase recorded operating income of $80.2 million for the year ended
September 30, 1997, compared to operating income of $46.1 million for the year
ended September 30, 1996. At September 30, 1997, the Bank's tangible, core, tier
1 risk-based and total risk-based regulatory capital ratios were 6.96%, 6.96%,
7.24% and 13.50%, respectively. The Bank's capital ratios exceeded the
requirements under the Financial Institutions Reform, Recovery, and Enforcement
Act of 1989 ("FIRREA") as well as the standards established for "well
capitalized" institutions under the prompt corrective action regulations
established pursuant to the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA"). In addition, the Bank's capital levels immediately
following the acquisition of ASB discussed above, remained above the levels
established for well-capitalized institutions.
Chevy Chase is a consumer oriented, full service banking institution
principally engaged in the business of attracting deposits from the public and
using such deposits, together with borrowings and other funds, to make loans
secured by real estate, primarily residential mortgage loans, and credit card
and other types of consumer loans. The Bank also has an active commercial
lending program. The Bank's principal deposit and lending markets are located in
the Washington, D.C. metropolitan area. As a complement to its basic deposit and
lending activities, the Bank provides a number of related financial services to
its customers, including securities brokerage and insurance products offered
through its subsidiaries. On November 12, 1997, the Bank acquired ASB Capital
Management, Inc. ("ASB"), one of the largest SEC-registered investment managers
headquartered in the Washington, D.C. metropolitan area, through which the Bank
will provide a variety of investment products and fiduciary services to a
primarily institutional customer base.
According to industry statistics, the Bank was the third largest thrift
issuer of credit cards, based on managed credit card loans outstanding at June
30, 1997. At September 30, 1997, credit card loans outstanding totaled $1.1
billion and managed credit card receivables, including receivables owned by the
Bank and receivables securitized, sold and serviced by the Bank, totaled $5.1
billion. See "Risk Factors and Other Considerations - Risks of Credit Card
Lending by Chevy Chase." The Bank's portfolio of automobile loans, home
improvement loans, and overdraft lines of credit and other consumer loans
totaled $302.7 million at September 30, 1997.
Chevy Chase was the first major Washington, D.C. metropolitan area
financial institution to offer revolving home equity credit line loans, and is a
leading originator of home equity credit lines in its primary market area. The
Bank's home equity credit line loan provides revolving credit secured
principally by a second mortgage on the borrower's home. At September 30, 1997,
the Bank had over 22,000 individual credit lines totaling $1.1 billion in
available credit and $553.2 million in managed home equity credit line
receivables, including receivables owned by the Bank and receivables
securitized, sold and serviced by the Bank.
The Bank historically has relied on retail deposits originated in its
branch network as its primary funding source. Chevy Chase has developed its
branch network in furtherance of its corporate strategy to solidify its
relationships with existing customers, achieve a broader retail base to support
future growth and improve its ability to compete with other depository
institutions in the Washington, D.C. metropolitan area. With 47 of its 128
branches located in Montgomery County, which has one of the nation's highest per
capita incomes, the Bank has the leading market share of retail deposits in that
community. The Bank's branch network also includes locations in Northern
Virginia (38 branches), other Maryland counties (34 branches) and the District
of Columbia (9 branches). In addition to locations at deposit branch sites, the
Bank's network of ATMs includes ATMs located in shopping malls, museums, family
entertainment and sports parks, 132 ATMs located in stores operated by Safeway
Inc. and 57 ATMs located in stores operated by Superfresh Food Markets.
Chevy Chase has accessed the capital markets as an additional means of
funding its operations and managing its capital ratios and asset growth. Since
1988, the Bank has securitized approximately $10.6 billion of credit
card, home equity credit line, automobile and home loan receivables. These
transactions depend on sophisticated back-office systems to service complex
securitization structures and on personnel with the experience to design,
install and manage those systems. At September 30, 1997, the Bank serviced $4.0
billion, $459.1 million, $1.1 billion, and $244.1 million of securitized
credit card, home equity credit line, automobile and home loan receivables,
respectively. Chevy Chase derives fee-based income from servicing these
securitized portfolios. However, such fee based income may be adversely
affected by increases in delinquencies and charge-offs related to the
receivables placed in these securitized pools. See "Risk Factors and Other
Considerations - Reliance on Non-Interest Income by Chevy Chase."
On December 3, 1996, the Bank sold $100.0 million of 9 1/4% Subordinated
Debentures due 2008 (the "1996 Debentures"), the principal amount of which is
includable in the Bank's supplementary capital. In addition, on December 3,
1996, a new real estate investment trust subsidiary of the Bank sold $150.0
million of its Noncumulative Exchangeable Preferred Stock, Series A (the "REIT
Preferred Stock"), which is eligible for inclusion as core capital of the Bank
in an amount up to 25% of the Bank's total core capital.
Chevy Chase is subject to comprehensive regulation, examination and
supervision by the Office of Thrift Supervision (the "OTS") and, to a lesser
extent, by the Federal Deposit Insurance Corporation (the "FDIC"). The Bank's
deposit accounts are fully insured up to $100,000 per insured depositor by the
Savings Association Insurance Fund (the "SAIF"), which is administered by the
FDIC.
The Offering
------------
Securities Offered The Trust is offering $80,000,000 in principal amount
of notes of the Trust with varying interest rates as
fixed from time to time by the Trust (the "Notes"). At
December 31, 1997, $24.4 million in principal amount of
Notes was available to be issued.
Maturity Date The Notes will mature from one to ten years from the
date of issue, as selected by the investor.
Interest Payment Dates Interest on the Notes will be payable semi-annually
(six months from the date of issue and each six months
thereafter) and at maturity.
Ranking The Notes will be unsecured obligations and will rank
on a parity with all unsecured debt of the Real Estate
Trust. At September 30, 1997, the Real Estate Trust's
unsecured debt, consisting of outstanding unsecured
notes (referred to in this Prospectus as "Outstanding
Notes" and reflected in the Trust's Consolidated
Balance Sheets as Notes Payable - Unsecured) and
accounts payable and accrued expenses, totaled $82.9
million. At such date, there was no debt of the Real
Estate Trust which was subordinated to the Real Estate
Trust's unsecured debt. At September 30, 1997, the
Real Estate Trust had $353.7 million of secured debt,
which effectively will be prior in right of payment to
the Notes. Of such indebtedness, $178.7 million
consisted of mortgage notes payable, and $175.0 million
consisted of notes secured by the Chevy Chase common
stock owned by the Trust and other Trust assets. See
"Risk Factors and Other Considerations - Notes Unsecured
General Obligations of the Trust and Subordinated to
Secured Trust Debt."
Redemption The Trust, at its sole election, may redeem any of the
Notes having a Stated Maturity of more than one year
from the date of issue on any Interest Payment Date
with respect to such Note on or after the first
anniversary of the date of issue of such Note at a
Redemption Price equal to the Principal Amount of the
Note redeemed. See "Description of Notes - Redemption
of Certain Notes."
Covenants The Indenture does not impose any restrictions on the
Trust's ability to pay dividends or other distributions
to its shareholders, to incur debt, or to issue
additional securities. See "Risk Factors and Other
Considerations - No Limitation in Indenture on
Dividends, Distributions, Issuance of Securities or
Incurrence of Additional Indebtedness."
Claims of Noteholders Prospective Noteholders will not have any claim on any
of the assets of the Bank and may look only to the Real
Estate Trust's earnings and, subject to payment of the
Real Estate Trust's secured debt and other prior
claims, the Real Estate Trust's assets for the payment
of interest and principal due under the Notes.
Use of Proceeds The Trust will use the net proceeds of the offering of
the Notes hereunder primarily to retire maturing
Outstanding Notes (including the Notes offered hereby).
Any proceeds not applied to pay Outstanding Notes will
be used for other general corporate purposes.
RISK FACTORS AND OTHER CONSIDERATIONS
-------------------------------------
PROSPECTIVE INVESTORS ARE URGED TO READ THE SECTION OF THIS PROSPECTUS
ENTITLED "RISK FACTORS AND OTHER CONSIDERATIONS" FOR A DESCRIPTION OF CERTAIN
RISK FACTORS AND OTHER CONSIDERATIONS RELATING TO THE TRUST AND THE NOTES,
INCLUDING THE RISKS DISCUSSED UNDER THE CAPTIONS "NOTES UNSECURED GENERAL
OBLIGATIONS AND SUBORDINATED TO SECURED REAL ESTATE TRUST DEBT," "CONTINGENCIES
AFFECTING LIQUIDITY OF THE REAL ESTATE TRUST" AND "NO LIMITATION IN INDENTURE ON
DIVIDENDS, DISTRIBUTIONS, ISSUANCE OF SECURITIES OR INCURRENCE OF ADDITIONAL
INDEBTEDNESS."
THE TRUST
The Trust operates as a Maryland real estate investment trust. The
principal business activity of the Trust historically has been the ownership and
development of income-producing properties. The Trust is a savings and loan
holding company by virtue of its 80% equity ownership in Chevy Chase Bank,
F.S.B. ("Chevy Chase" or the "Bank"). At September 30, 1997, Chevy Chase's
assets accounted for approximately 95% of the Trust's consolidated assets.
The Trust has prepared its financial statements and other disclosures on a
fully consolidated basis. The term "Trust" used in the text and the financial
statements included herein refers to the combined entity, which includes B.F.
Saul Real Estate Investment Trust and its subsidiaries, including Chevy Chase
and Chevy Chase's subsidiaries. "Real Estate Trust" refers to B.F. Saul Real
Estate Investment Trust and its subsidiaries, excluding Chevy Chase and Chevy
Chase's subsidiaries. The operations conducted by the Real Estate Trust are
designated as "Real Estate," while the business conducted by Chevy Chase and its
subsidiaries is identified by the term "Banking."
The principal offices of the Trust are located at 8401 Connecticut
Avenue, Chevy Chase, Maryland 20815, and the Trust's telephone number is
(301) 986-6000.
RISK FACTORS AND OTHER CONSIDERATIONS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS
AND OTHER CONSIDERATIONS RELATING TO THE TRUST AND THE NOTES BEFORE DECIDING
WHETHER TO INVEST IN THE NOTES.
1. NOTES UNSECURED GENERAL OBLIGATIONS AND SUBORDINATED TO SECURED
REAL ESTATE TRUST DEBT. The Notes are general unsecured obligations of the
Trust. Prospective Noteholders may look only to the Real Estate Trust's
earnings and, subject to payment of the Real Estate Trust's secured debt and
other prior claims, the Real Estate Trust's assets for payment of principal and
interest due under the Notes. See "Contingencies Affecting Liquidity of the
Real Estate Trust" below and Note 35 to the Consolidated Financial Statements
included in the Trust's 1997 Annual Report to security holders which accompanies
this Prospectus (the "Annual Report") for condensed financial statement
information on the Trust without consolidation of balance sheet and operating
data of the Bank and the Bank's subsidiaries. Prospective Noteholders will not
have any claim on any of the assets of the Bank for payment under the Notes.
The Notes will rank equal in priority of payment with other unsecured debt
of the Real Estate Trust, including Outstanding Notes. At September 30, 1997,
unsecured debt, consisting of Outstanding Notes and accounts payable and accrued
expenses, totaled $82.9 million. At September 30, 1997, the Real Estate Trust
had $353.7 million of secured debt, which effectively will be prior in right of
payment to the Notes. Of such indebtedness, $178.7 million consisted of
mortgage notes payable, and $175.0 million consisted of notes secured by the
Chevy Chase common stock owned by the Trust and other Trust assets.
2. CONTINGENCIES AFFECTING LIQUIDITY OF THE REAL ESTATE TRUST. The
Real Estate Trust relies on external sources of funds to repay the principal of
maturing debt, including Outstanding Notes, to pay interest on its Senior
Secured Notes and to make capital improvements. As reflected in Note 35 to the
Consolidated Financial Statements included in the Annual Report, the Real Estate
Trust had positive cash flow from operating activities of $6.9, $9.0 and $4.3
million in fiscal 1997, 1996 and 1995, respectively. In the past, the Real
Estate Trust funded debt repayment and capital improvements by new financings
(including the public sale of unsecured notes), refinancings of maturing
mortgage debt, asset sales and tax sharing payments from the Bank pursuant to a
tax sharing agreement among the Trust, the Bank and their subsidiaries (the "Tax
Sharing Agreement"). See Cash Flows from Investing Activities in the
Consolidated Financial Statements in the Annual Report. In order to fund these
requirements in fiscal 1998 and future years, the Real Estate Trust will be
required to raise substantial amounts of cash from a combination of such
sources, which are subject to various contingencies, as described below.
The Real Estate Trust's ongoing program of public Note sales was initiated
in the 1970's as a vehicle for supplementing other external funding sources. In
fiscal 1997, the Real Estate Trust sold $10.0 million of Notes. The Real Estate
Trust is currently selling Notes principally to pay outstanding Notes as they
mature. See "Use of Proceeds." To the degree that the Real Estate Trust does
not sell new Notes in an amount sufficient to finance completely the scheduled
repayment of outstanding Notes as they mature, it believes it will be able to
finance such repayments from other sources of funds.
The Real Estate Trust's ability to meet its liquidity needs, including debt
service payments, will depend in significant part on its receipt of dividends
from the Bank and tax sharing payments from the Bank pursuant to the Tax Sharing
Agreement. The availability and amount of tax sharing payments and dividends in
future periods is dependent upon, among other things, the Bank's operating
performance and income, regulatory restrictions on such payments and (in the
case of tax sharing payments) the continued consolidation of the Bank and the
Bank's subsidiaries with the Trust for federal income tax purposes.
OTS regulations tie Chevy Chase's ability to pay dividends to specific
levels of regulatory capital and earnings. During fiscal 1997, the Real Estate
Trust received $7.2 million in dividends from the Bank. There can be no
assurances, however, that the Bank can pay dividends in similar amounts during
fiscal 1998.
3. REAL ESTATE TRUST OPERATING LOSSES AND TRUST DEFICIT IN
SHAREHOLDERS' EQUITY. The operations of the Real Estate Trust, before the
consolidation of Chevy Chase's results, reflect a loss from continuing
operations before gain on sale of properties in each of the Real Estate Trust's
last ten fiscal years. As reflected in Note 35 to the Consolidated Financial
Statements in the Annual Report, which presents condensed financial statement
information on the Trust without consolidation of balance sheet and operating
data of the Bank and the Bank's subsidiaries, the operating loss of the Trust in
recent periods would have been significantly higher without the consolidation of
the Bank's results.
The Real Estate Trust, like most real estate investors, employs significant
amounts of debt to finance its investments and operations. At September 30,
1997, its total debt, excluding debt of Chevy Chase, was $431.1 million. The
Trust's consolidated shareholders' equity at September 30, 1997 reflected a
deficit of $89.7 million.
4. FIXED CHARGES IN EXCESS OF AVAILABLE EARNINGS. The Real Estate
Trust's ratios of available earnings to fixed charges were less than 1:1 in each
of the last three fiscal years. These ratios represent a measure of the ability
to meet debt service obligations from funds generated by operations. For
purposes of computing the fixed-charges ratios, "available earnings" consist of
income (loss) from continuing operations plus (i) provisions for income taxes,
(ii) ground rent expense and (iii) interest and debt expense reduced by interest
capitalized. This sum is divided by the total of interest and debt expense and
ground rent expense to arrive at the ratio of available earnings to fixed
charges. For the Real Estate Trust, fixed charges exceeded available earnings
by $19.0 million in fiscal 1997, $ 24.2 million in fiscal 1996 and $27.3 million
in fiscal 1995.
5. RISKS OF CREDIT CARD LENDING BY CHEVY CHASE. At September 30,
1997, Chevy Chase's credit card loans of $1.1 billion constituted approximately
42.6% of the Bank's loan portfolio. In addition, at September 30, 1997, the
Bank managed $4.0 billion in securitized credit card loans which were not
reflected on the Bank's balance sheet. Credit card loans entail greater credit
risks than residential mortgage loans. Changes in credit card use and payment
patterns by cardholders, including increased defaults, may result from a variety
of social, legal and economic factors. Chevy Chase currently offers
introductory periodic interest rates for varying initial periods which, at the
conclusion of such periods, revert to the Bank's regular variable interest rate.
If account holders choose to use competing sources of credit, the rate at which
new receivables are generated may be reduced and certain purchase and payment
patterns with respect to the receivables may be affected. Economic factors
affecting credit card use include the rate of inflation and relative interest
rates offered for various types of loans. Adverse changes in economic
conditions could have a direct impact on the timing and amount of payments by
borrowers. Default rates on credit card loans generally may be expected to
exceed default rates on residential mortgage loans.
Primarily reflecting the industry-wide decline in the performance of credit
card loans, credit card delinquencies and net charge-offs on credit card loans
have increased since September 1995. The Bank regularly reviews the reasons for
delinquency and charge-off as compared to information available at the time an
account was originated to determine if such information should have indicated
the propensity for delinquency and/or loss. The results of these reviews are
used to adjust the Bank's underwriting criteria, as necessary. Although the Bank
believes it has appropriate underwriting criteria to mitigate the risks
associated with its credit card accounts, there can be no assurance that
charge-offs and delinquencies will not increase. The Bank increased its
allowance for losses on credit card loans during fiscal 1997 by $9.7 million to
$89.4 million at September 30, 1997. An increase in credit card delinquencies
and charge-offs also may affect the Bank's income from loan servicing fees by
reducing the amount earned on securitized credit card receivables.
Certain jurisdictions and their residents may attempt to require
out-of-state credit card issuers such as the Bank to comply with the consumer
protection laws of those jurisdictions (including laws limiting the charges
imposed by such credit card issuers) in connection with their operations in such
jurisdictions. For example, in recent years a number of lawsuits and
administrative actions have been filed in several states against out-of-state
credit card issuers (including both federally chartered and state chartered
insured depository institutions) challenging various fees and charges (such as
late fees, over-the-limit fees, returned check fees and annual membership fees)
assessed against residents of the states in which such lawsuits were filed,
based on restrictions or prohibitions under the laws of such states. The
Supreme Court recently ruled that national banks may export late fees on credit
cards as interest regardless of states' usury laws, however the law is not
settled with respect to all types of fees and charges. If it were determined
that out-of-state credit card issuers must comply with a jurisdiction's laws
limiting the charges imposed by credit card issuers, such an action could have
an adverse impact on the Bank's credit card operations.
The credit card industry is highly competitive and characterized by
increased pricing competition in interest rates and annual membership fees, use
of advertising, target marketing and other features (such as buyer protection
plans), as both established and new card issuers seek to expand or to enter the
market and to retain their existing customers. The Bank has issued credit cards
to customers nationwide, and competes for those customers with certain money
center banks and other large nationwide issuers, as well as with regional and
local depository institutions and other issuers, many of whom have sizable
branch systems or other customer relationships through which such issuers market
their credit cards. The Bank anticipates that competitive pressures will
require adjustments from time to time to the pricing of the Bank's credit card
accounts.
6. RISKS RELATING TO ALLOWANCE FOR LOSSES LEVELS AND REO OF CHEVY
CHASE. At September 30, 1997, the ratio of the Bank's allowance for losses to
non-performing assets was 100.6%. The Bank reviews on a quarterly basis the
carrying value of its REO in order to make any adjustments required to present
such assets at fair value. Although the Bank believes it has a reasonable basis
for estimating allowance for losses, no assurance can be given that the Bank
will not sustain losses in any particular period that exceed the amount of the
allowance for losses at the beginning of that period, or that subsequent
evaluations of the asset portfolio, in light of factors then prevailing
(including economic conditions, the Bank's internal review process and the
results of regulatory examinations), will not require significant increases in
the allowance for losses.
At September 30, 1997, approximately $67.6 million (or 74.5%), after all
valuation allowances, of the Bank's aggregate book value of REO was attributable
to its five planned unit developments (the "Communities"), four of which are
under active development. The Bank obtains updated appraisals on its REO from
time to time and, in the past, has been directed to do so by the OTS in
connection with regulatory examinations. As a result of such updated
appraisals, the Bank could be required to increase its allowance for losses.
7. RELIANCE ON NON-INTEREST INCOME BY CHEVY CHASE. In recent years,
non-interest income has become an increasingly large component of the Bank's net
income. The Bank has earned non-interest income primarily from credit card, loan
servicing and deposit servicing fees and gains on sales of loans. In fiscal
1997, 1996 and 1995, the Bank recognized non-interest income of $413.0 million,
$344.5 million and $232.6 million, respectively. Of those amounts, $227.8
million, $264.1 million and $184.3 million, respectively, or 45.7%, 61.8% and
52.1%, respectively, of total operating income was income from loan servicing
fees. The Bank's ability to realize non-interest income is dependent upon market
interest rates, the demand for mortgage and credit card loans, conditions in the
loan sale market, the level of securitized receivables and other factors. The
level of such income, therefore, is subject to substantial fluctuations. An
increase in
credit card delinquencies and charge-offs may affect the Bank's income from loan
servicing fees by reducing the amount earned on securitized credit card
receivables. Such charge-offs have increased significantly during recent
periods, although the Bank's income has not been significantly affected to date
as a result of the counterbalancing effects of such items as the expiration of
introductory rates, repricing of existing portfolios and new fee-based
strategies.
8. EFFECT OF AN INCREASE IN INTEREST RATES ON OPERATING RESULTS OF
CHEVY CHASE. The Bank's operating results depend to a large extent on its net
interest income, which is the difference between the interest the Bank receives
from its loans, securities and other assets and the interest the Bank pays on
its deposits and other liabilities. Interest rates are highly sensitive to many
factors, including governmental monetary policies and domestic and international
economic and political conditions. Conditions such as inflation, recession,
unemployment, money supply, international disorders and other factors beyond the
control of the Bank may affect interest rates. If generally prevailing interest
rates increase, the "net interest spread" of the Bank, which is the difference
between the rates of interest earned and the rates of interest paid by the Bank,
is likely to contract, resulting in less net interest income.
Although the Bank pursues an asset-liability management strategy designed
to control its risk from changes in market interest rates, the Bank's
liabilities have shorter terms and are more interest-sensitive than its assets.
At September 30, 1997, the Bank's one-year interest-sensitivity "gap" (the sum
of all interest earning assets to be re-priced within one year minus all
interest-bearing liabilities to be re-priced within one year, as a percentage of
total assets) adjusted for the effect of the Bank's interest rate caps was 4.5%.
As a result of its gap positions, the Bank's net interest spread will narrow,
and its operating results will be adversely affected, during periods of rising
market interest rates if the Bank is unable to reduce its gap. There can be no
assurance that the Bank will be able to adjust its gap sufficiently to offset
any negative effect of changing market interest rates.
9. RISKS OF OTHER CONSUMER LENDING OF CHEVY CHASE. Chevy Chase is
actively expanding its non-credit card consumer lending business, focusing on
automobile and home improvement loans. While such loans generally have shorter
terms to maturity and carry higher rates than residential mortgage loans, they
generally entail greater risk than residential mortgage loans, particularly when
secured by rapidly depreciable assets, such as automobiles. In such cases, any
collateral repossessed for a defaulted consumer loan may not provide an adequate
source of repayment of the outstanding loan balance as a result of damage, loss
or depreciation. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability and, thus, are more likely to be
affected by adverse personal circumstances.
The Bank also makes automobile loans through one of its operating
subsidiaries. The underwriting guidelines for this subsidiary apply to a
category of lending in which loans may be made to applicants who have
experienced certain adverse credit events (and, therefore, would not necessarily
meet all of the Bank's guidelines for its traditional loan program), but who
meet certain other creditworthiness tests. Such loans may experience higher
rates of delinquencies, repossessions and losses, especially under adverse
economic conditions, compared with loans originated pursuant to the Bank's
traditional lending program.
10. REGULATORY CAPITAL LEVELS OF CHEVY CHASE. At September 30, 1997,
the Bank's tangible, core, tier 1 risk-based and total risk-based regulatory
capital ratios were 6.96%, 6.96%, 7.24% and 13.50%, respectively. The Bank's
capital ratios exceeded the requirements under FIRREA as well as the standards
established for "well capitalized" institutions under the prompt
corrective action regulations established pursuant to FDICIA.
The OTS has the discretion under the prompt corrective action regulations
to reclassify an institution from one category to the next lower category, for
example, from "well capitalized" to "adequately capitalized," if, after notice
and an opportunity for a hearing, the OTS determines that the institution is in
an unsafe or unsound
condition or has received and has not corrected a less than satisfactory
examination rating for asset quality, management, earnings or liquidity.
Chevy Chase's levels of non-performing assets may result in reductions in
capital to the extent losses are recognized as a result of deteriorating
collateral values or general economic conditions. OTS capital regulations
provide a five-year holding period (or such longer period approved by the OTS)
for REO to qualify for an exception from treatment as an equity investment. If
an REO property is considered an equity investment, its then-current book value
is deducted from total risk-based capital. Accordingly, if the Bank is unable
to dispose of any REO property (through bulk sales or otherwise) prior to the
end of its applicable five-year holding period and is unable to obtain an
extension of such five-year holding period from the OTS, the Bank could be
required to deduct the then-current book value of the REO from risk-based
capital. In November 1996, the Bank received from the OTS an extension through
November 12, 1997 of the five-year holding period for certain of its REO
properties acquired through foreclosure in fiscal 1990, 1991 and 1992.
In addition, the Bank has submitted to the OTS a request for a further extension
of the holding periods through fiscal 1998 for certain of its REO properties.
There can be no assurance that the Bank will be able to dispose of all of its
REO properties within the applicable five-year period or obtain any necessary
further extensions. Accordingly, there can be no assurances that Chevy Chase
will be able to maintain levels of capital sufficient to meet the standards for
classification as "well capitalized" under prompt corrective action
regulations.
The Bank's ability to maintain or increase its capital levels in future
periods will be subject to general economic conditions, particularly in the
Bank's local markets. Adverse general economic conditions or a renewed downturn
in local real estate markets could require further additions to the Bank's
allowances for losses and further charge-offs. Any such developments would
adversely affect the Bank's earnings and thus its regulatory capital levels.
As a result of the foregoing factors, although the Bank's regulatory
capital ratios at September 30, 1997 would meet the ratios established for "well
capitalized" institutions, there can be no assurance that the Bank will be able
to maintain levels of capital sufficient to continue to meet the standards for
classification as "well capitalized" under the prompt corrective action
standards.
11. RISKS RELATING TO THRIFT CHARTER. Legislation passed in 1996
requires the merger of the BIF and the SAIF into a single Deposit Insurance Fund
on January 1, 1999, but only if the thrift charter is eliminated by that date.
Congress is considering legislation in various forms that would require federal
thrifts, like the Bank, to convert their charters to national or state bank
charters. The House Banking Committee approved a version of such legislation on
June 20, 1997 and the House Commerce Committee approved its version of the
legislation on October 30, 1997. The current session of Congress adjourned
without further action on the bills and leadership of the House has announced
its intention to resume consideration of the legislation when Congress returns
for the second session in January 1998. In the absence of appropriate
"grandfather" provisions, such legislation could have an adverse effect on the
Bank and the Trust because, among other things, the Trust engages in activities
that are not permissible for bank holding companies and the regulatory capital
and accounting treatment for banks and thrifts differs in certain significant
respects. While the versions of the bill approved by the House Banking and
Commerce Committees both contain grandfather provisions that address many of
these issues, the Bank cannot determine at this time whether, or in what form,
such legislation may eventually be enacted, and there can be no assurances that
any such legislation that is enacted will contain adequate grandfather rights
for the Bank or the Trust.
12. CAPITAL MAINTENANCE AGREEMENT BY THE TRUST. The Trust has
entered into an agreement with OTS's predecessor agency to maintain Chevy
Chase's regulatory capital at the level prescribed by applicable regulatory
requirements and, if necessary, to infuse additional capital to enable Chevy
Chase to meet those
requirements. If the Bank is unable to meet its capital requirements in the
future, the OTS could seek to enforce the Trust's obligations under the
agreement. To the extent additional capital infusions may be required pursuant
to the Trust's capital maintenance agreement, the funds available to repay Notes
would be reduced.
In addition, if the Bank were to become "undercapitalized" under the prompt
corrective action regulations, it would be required by statute to file a capital
restoration plan with the OTS setting forth, among other things, the steps the
Bank would take to become "adequately capitalized." The OTS could not accept
the plan unless the Trust guaranteed in writing the Bank's compliance with the
plan. The aggregate liability of the Trust under such a commitment would be
limited to the lesser of (i) an amount equal to 5.0% of the Bank's total assets
at the time the Bank became "undercapitalized" and (ii) the amount necessary to
bring the Bank into compliance with all applicable capital standards as of the
time the Bank fails to comply with its capital plan. If the Trust refused to
provide the guarantee, the Bank would be subject to the more restrictive
supervisory actions applicable to "significantly undercapitalized" institutions.
13. POTENTIAL EFFECT OF TAX SHARING REIMBURSEMENT OBLIGATION ON TRUST
LIQUIDITY. If Chevy Chase has net operating losses in the current year or in
any future year, the Trust could be obligated under the Tax Sharing Agreement to
make certain payments to Chevy Chase.
If in any year Chevy Chase has net operating losses and the Trust group
uses such losses to offset taxable income of the Trust (or other members of the
Trust group), the Trust (or other members of the Trust group) would be required
to make tax sharing payments to Chevy Chase. The sum of any such payments and
any payments actually made to the Internal Revenue Service (the "IRS") would not
exceed the amount otherwise required to be paid to the IRS if the Trust group
had not been able to use the Chevy Chase net operating losses.
In addition, to the extent that in any year Chevy Chase has net operating
losses that are not used in that year to offset taxable income of the Trust (or
other members of the Trust group), Chevy Chase would carry back such losses,
obtaining a refund of taxes it paid to the IRS or a reimbursement of tax sharing
payments it made to the Trust, or both, depending on the amount of the losses
and the taxable year in which they occur. At September 30, 1997, the maximum
amount the Trust could be required to reimburse Chevy Chase in the event of a
carryback of Chevy Chase losses, based on tax sharing payments received through
that date, was $69.7 million. Any such payments made by the Trust to Chevy
Chase could have a material adverse effect on the Trust's liquidity and, in any
event, would reduce funds available to repay the Notes.
14. NO LIMITATION IN INDENTURE ON DIVIDENDS, DISTRIBUTIONS, ISSUANCE
OF SECURITIES OR INCURRENCE OF ADDITIONAL INDEBTEDNESS. The indenture pursuant
to which the Notes will be issued (the "Indenture") does not include certain
covenants which are customary in negotiated indentures governing the issuance of
public debt securities similar to the Notes and which are intended to protect
the rights of security holders. The Indenture does not impose any restrictions
on the Trust with respect to the payment of dividends or distributions on its
capital stock or the issuance of additional securities, nor does the Indenture
limit the incurrence by the Trust of additional indebtedness. The Trust's
ability to pay dividends, issue additional securities and incur additional debt,
however, is currently subject to restrictions under various other loan
agreements to which the Trust is a party, including the indenture pursuant to
which the Trust has issued its 11-5/8% Senior Secured Notes due 2002.
15. TRUST OPTION TO REDEEM NOTES. The Trust, at its sole option, may
call for the redemption, at face value, of any Note with a Stated Maturity of
more than one year from the date of issue on any Interest Payment Date on or
after the first anniversary of its date of issue. See "Description of Notes -
Redemption of Certain Notes." Such early redemptions, if made, would reduce the
funds available to pay Notes maturing thereafter.
16. RISKS TO REAL ESTATE TRUST OF PROPERTY OWNERSHIP AND DEVELOPMENT.
Most of the operating expenses and virtually all of the debt service payments
associated with income-producing properties are fixed; they are not decreased by
reductions in occupancy or rental income. Operating expenses are also subject
to inflationary increases. Therefore, the ability of the Real Estate Trust to
meet its fixed obligations with cash flow from its income-producing properties
is highly dependent on its ability to maintain or increase their levels of
rental income and hotel sales revenues.
Rental income is subject to a number of risks, including adverse changes in
national or local economic conditions and other factors which might impair the
ability of existing tenants to maintain their rental payments and which might
reduce the potential demand by prospective new tenants for vacant space. Any of
the Real Estate Trust's commercial properties and hotels also could be adversely
affected by governmental actions such as increases in real estate tax rates.
Hotel revenues are subject to rapid declines if customer demand should be
impaired for any reason, since advance bookings represent only a limited portion
of overall revenues and are subject to cancellation.
Real estate investments tend to be relatively illiquid; they cannot be
converted quickly and readily to cash, although, under normal market conditions,
they can be so converted on an orderly basis over a period of time. This lack
of liquidity tends to limit the ability of the Real Estate Trust to vary its
portfolio promptly in response to changes in economic, demographic, social,
financial and investment conditions.
Real estate development and ownership in certain areas of the country is
currently suffering from overbuilding or adverse local economic conditions, or
both. In recent periods, the Real Estate Trust's office building leasing rates
have experienced a decline due to recessionary economic conditions in the
metropolitan areas in which the office properties are located.
17. POSSIBLE CONFLICTS OF INTEREST AFFECTING REAL ESTATE TRUST.
B. Francis Saul II, Chairman of the Trust, and his affiliates own 100% of the
Trust's common shares of beneficial interest and thus control the Trust.
Mr. Saul also controls B. F. Saul Company (the "Saul Company"), which in turn
controls B. F. Saul Advisory Company (the "Advisor") and Franklin Property
Company ("Franklin"). The Advisor acts as the Real Estate Trust's investment
advisor and carries on the day-to-day general management, financial, accounting,
legal and administrative affairs of the Real Estate Trust. Franklin acts as
leasing and management agent for most of the income-producing properties owned
by the Real Estate Trust and plans and oversees the development of other new
properties and the expansion and renovation of existing properties. The
compensation received by the Advisor and Franklin is determined by the Trustees,
including the independent trustees, who have no current affiliation with the
Saul Company or its subsidiaries. Since only two of the Trust's five trustees
are considered independent, the independent trustees represent a minority of the
Board of Trustees. There is no requirement in the Trust's Declaration of Trust
or in the Indenture, or elsewhere, that the Trust have a certain number or
percentage of independent Trustees.
The Saul Company, its affiliated companies, their officers and directors,
and two of the trustees of the Trust actively engage in various activities
relating to the general business of real estate development and finance. The
Saul Company and related companies have many clients other than the Real Estate
Trust with investment interests in real estate and are engaged in such
activities on their own behalf and as agents for and advisors to others. No
provision in the Declaration of Trust or the advisory contract with the Advisor
(the "Advisory Contract") prohibits the Advisor, Franklin, the Saul Company,
their affiliates, any officer, director or employee of such companies, or any
Trustee of the Trust from performing investment advisory services for parties
other than the Real Estate Trust, engaging in activities similar to or
competitive with the investment operations of the Real Estate Trust, or making
real estate investments that might be suitable or desirable for the Real Estate
Trust. The Advisory Contract provides that the Real Estate Trust has priority
with respect to any investment made by the Saul Company, the Advisor and their
directors and officers, for their account or for the account of any enterprise
(other than a savings and loan institution) in which they have a beneficial
interest aggregating 40% or more. There are no procedural safeguards to ensure
this priority, although the entities normally do not compete for the same type
of investments and thus conflicts generally have not arisen. Relevant personnel
have been advised concerning the conflict provision in the Advisory Contract and
have been instructed to comply with such provisions.
Potential conflicts of interest may arise from Mr. Saul's role as Chairman
of the Board and Chief Executive Officer of Saul Centers, the general partner of
Saul Holdings Partnership. See "Summary - The Trust." The Trust has entered
into an Exclusivity Agreement (the "Exclusivity Agreement") with, and has
granted a right of first refusal (the "Right of First Refusal") to, Saul
Centers, Saul Holdings Partnership and its two subsidiary limited partnerships
(collectively, the "Company"). The purpose of these agreements is to minimize
potential conflicts of interest between the Real Estate Trust and the Company.
The Exclusivity Agreement and Right of First Refusal generally require the Real
Estate Trust to conduct its shopping center business exclusively through the
Company and to grant the Company a right of first refusal to purchase commercial
properties and development sites that become available to the Real Estate Trust
in the District of Columbia or adjacent suburban Maryland. Subject to the
Exclusivity Agreement and Right of First Refusal, the Real Estate Trust may
continue to develop, acquire, own and
manage commercial properties and own land suitable for development as, among
other things, shopping centers and other commercial properties.
18. LACK OF INVESTMENT AND BORROWING LIMITATIONS IN DECLARATION OF
TRUST. With certain exceptions, the Trust's Declaration of Trust does not
specify the proportion of the Trust's assets which may or shall be committed to
each of the several types of investments which the Trust may make. The Trustees
may change the mix of the Trust's investment portfolio at any time or make
investments of a type not currently made by the Trust, provided that such
investments are not prohibited by the Declaration of Trust or by any indenture,
loan agreement or other instrument to which the Trust is a party. The
Declaration of Trust does not place any limitations on the amount of funds which
the Trust may borrow or on the types of short-term or long-term debt securities
which it may issue, including additional Notes or indebtedness senior to the
Notes.
19. LIMITATIONS ON LIABILITY OF SHAREHOLDERS, TRUSTEES AND OFFICERS
OF THE TRUST. The name "B.F. Saul Real Estate Investment Trust" is the
designation of the Trust under its Declaration of Trust currently in effect. In
accordance with the Declaration of Trust, all persons dealing with the Trust
must look solely to the Trust's property for the enforcement of any claims
against the Trust, since none of the Trustees, officers, agents or shareholders
of the Trust assumes any personal liability for obligations entered into on
behalf of the Trust. Further, as required by the Declaration of Trust, the
Indenture provides that covenants and obligations for the benefit of Noteholders
contained in the Indenture bind only the property of the Trust and are not
binding upon, and cannot be enforced against, the shareholders, Trustees,
officers, employees or agents of the Trust or their private property. In the
event of a default by the Trust under a Note, a Noteholder may have a more
limited right of action than such Noteholder would have absent such provisions
in the Declaration of Trust and Indenture.
20. ABSENCE OF BROKER OR DEALER. The Trust has not used and does not
intend to use an underwriter or selling agent in connection with the offering
and sale of the Notes. Purchasers, therefore, will not have the benefit of the
independent review of the Trust, the terms of the Notes, and the accuracy and
completeness of the information contained in the Prospectus that might be
provided by an underwriter or other selling agent involved in an offering of the
Notes. Also, because the offering of Notes will be conducted exclusively by
officers of the Trust who are not registered with the Securities and Exchange
Commission as brokers or dealers, such officers will not be in a position to
determine the suitability of the Notes for investors. EACH INVESTOR SHOULD
DETERMINE INDEPENDENTLY OR SEEK INDEPENDENT INVESTMENT ADVICE AS TO WHETHER THE
NOTES REPRESENT A SUITABLE INVESTMENT FOR SUCH INVESTOR.
USE OF PROCEEDS
The Trust will use the net proceeds from the sale of the Notes offered
hereby primarily to retire maturing Outstanding Notes (including the Notes
offered hereby). At December 31, 1997, $5.6 million and $16.1 million principal
amount of Outstanding Notes were scheduled to mature in fiscal 1998 and fiscal
1999, respectively. The interest rates on Outstanding Notes scheduled to mature
during this period vary from 7.0% to 15.0% per annum. Any proceeds not applied
to pay Outstanding Notes will be used for other general corporate purposes.
This offering is not contingent on the sale of any minimum amount of Notes.
PLAN OF DISTRIBUTION
The Notes will not be distributed through underwriters, brokers or dealers.
The Notes will be sold only by the Trust acting through one or more of its duly
authorized officers. Such officers are salaried employees of the Saul Company,
the parent of the Advisor, and do not receive any compensation in connection
with their participation in the offering and sale of the Notes in the form of
commissions or other remuneration based either directly or indirectly on sales
of the Notes. Although the Trust does not compensate the officers who
participate in the offering and sale of the Notes, the Trust does pay the
Advisor a fee of 1% of the principal amount of the Notes as they are issued to
offset its costs of administering the Note program. Notes will be available for
sale only at the Trust's office in Bethesda, Maryland. See "How to Purchase
Notes."
The offering of the Notes by this Prospectus will terminate when all of the
Notes have been sold. See "Description of Notes - General." The Trust may
terminate the offering of the Notes at any time without notice.
HOW TO PURCHASE NOTES
Notes may be purchased in person at the sales office of the Trust, 7200
Wisconsin Avenue, Suite 903, Bethesda, Maryland 20814, or by mail by completing
the applicable Note Order Form, which may be found at the end of this
Prospectus, and mailing the form and a check payable to the Trust in the
enclosed envelope. In either case, the Note, in registered form, will be mailed
directly to the purchaser by First Trust of New York, National Association, the
Indenture Trustee for the Notes. For further information on how to purchase
Notes, please telephone (301) 986-6207.
DESCRIPTION OF NOTES
The Notes will be issued under an Indenture dated as of September 1,
1992, as supplemented by the First Supplemental Indenture dated as of
January 16, 1997 (as supplemented, the "Indenture") between the Trust and
First Trust of New York, National Association (the "Indenture Trustee").
Included below is a summary of the material terms of the Notes and the
material provisions of the Indenture. The summary does not purport to be
complete and is subject in all respects to the provisions of, and is
qualified in its entirety by express reference to, the cited Sections and
Articles of, and definitions contained in, the Indenture, a copy of which has
been filed with the Commission as an exhibit to the Registration Statement of
which this Prospectus forms a part, and which is available as described under
Available Information.
GENERAL
The Notes are limited to the aggregate principal amount of $80 million
initially offered hereby (Section 3.01). At December 31, 1997, $24.4 million in
principal amount of Notes was available to be issued under the Indenture. The
Trust from time to time may enter into one or more supplemental indentures
providing for the issuance of additional notes without the consent of the
holders of outstanding Notes (Section 9.01).
The Notes will be issued in denominations of $5,000 or any amount in excess
thereof which is an integral multiple of $1,000. They will be issued in
registered form only, without coupons, to mature one to ten years from the date
of issue, as selected by the investor. The Notes will be unsecured general
obligations of the Trust and will be identical except for interest rate, issue
date and maturity date (Section 3.02). Except as described below under
"Redemption of Certain Notes," the Notes will not contain any provisions for
conversion, redemption, amortization, sinking fund or retirement prior to
maturity.
THE NOTES ARE NOT GUARANTEED OR INSURED AND ARE NOT SECURED BY ANY
MORTGAGE, PLEDGE OR LIEN. The Notes will rank on a parity in right of payment
with all unsecured debt of the Real Estate Trust. At September 30, 1997, the
Real Estate Trust's unsecured debt (consisting of Notes and accounts payable and
accrued expenses) totaled $82.9 million.
Each Note will bear interest from the date of issue to the date of maturity
at the annual rate stated on the face thereof. Such interest will be payable
semi-annually, six months from the date of issue and each six months thereafter,
and at maturity, to the persons in whose names the Notes are registered at the
close of business on the 20th day preceding such Interest Payment Dates.
Interest rates applicable to Notes will be subject to change by the Trust from
time to time, but no such change will affect any Notes issued prior to the
effective date of such change (Section 3.01). Based on the amount of a proposed
investment in Notes or the aggregate principal amount of the Trust's outstanding
unsecured notes held by a prospective investor, the Trust may offer to pay
interest on a Note of any maturity at an annual rate of up to 2% in excess of
the interest rate shown on the cover page of this Prospectus for a Note of such
maturity.
At maturity of any Note, principal will be payable upon surrender of such
Note without endorsement at First Trust of New York, National Association, 100
Wall Street, Suite 1600, New York, New York 10005. Interest
payments will be made by the Trust by check mailed to the person entitled
thereto (Sections 3.01 and 10.02). NOTES MUST BE PRESENTED AT THE ABOVE OFFICE
OF THE INDENTURE TRUSTEE FOR REGISTRATION OF TRANSFER OR EXCHANGE AND FOR
PAYMENT AT MATURITY. No service charge will be imposed for any transfer or
exchange of Notes, but the Trust may require payment to cover taxes or other
governmental charges that may be assessed in connection with any such transfer
or exchange (Section 3.05).
THE INDENTURE DOES NOT IMPOSE ANY RESTRICTIONS ON THE TRUST'S ABILITY TO
PAY DIVIDENDS OR OTHER DISTRIBUTIONS TO ITS SHAREHOLDERS, TO INCUR DEBT OR TO
ISSUE ADDITIONAL SECURITIES. SEE "RISK FACTORS AND OTHER CONSIDERATIONS - NO
LIMITATION IN INDENTURE ON DIVIDENDS, DISTRIBUTIONS, ISSUANCE OF SECURITIES OR
INCURRENCE OF ADDITIONAL INDEBTEDNESS."
There is no established trading market for the Notes, and the Trust does
not anticipate that an active trading market will be established.
REDEMPTION OF CERTAIN NOTES
The Trust may, at its sole election, redeem any of the Notes having a
Stated Maturity of more than one year from date of issue on any Interest Payment
Date with respect to such Note on or after the first anniversary of the date of
issue of such Note at a Redemption Price (exclusive of the installment of
interest due on the Redemption Date, payment of which shall have been made or
duly provided for to the registered holder on the relevant Record Date) equal to
the Principal Amount of the Note so redeemed. (Section 11.01). Notes called for
redemption will not bear interest after the Redemption Date. (Section 11.07).
If fewer than all of the Notes having a Stated Maturity of more than one
year and the same Interest Payment Date as the Redemption Date are to be
redeemed, the particular Notes to be redeemed will be selected by such method as
the Trust shall deem appropriate and may include redemption of Notes with higher
interest rates first (Section 11.04).
EVENTS OF DEFAULT AND NOTICE THEREOF
The Indenture provides that an "Event of Default" with respect to the Notes
will result upon the occurrence of any of the following:
(a) default in the payment of any interest upon any Note when it
becomes due and payable, and continuance of such default for a period
of 30 days;
(b) default in the payment of the principal of (and premium, if any,
on) any Note at its Maturity;
(c) default in the performance, or breach, of any covenant or
warranty of the Trust in the Indenture (other than a covenant or
warranty a default in whose performance or whose breach is elsewhere
in the Indenture specifically dealt with), and continuance of such
default or breach for a period of 60 days after there has been given,
by registered or certified mail, to the Trust by the Indenture Trustee
or to the Trust and the Indenture Trustee by the Holders of at least
10% in principal amount of the Notes Outstanding, a written notice
specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" under the Indenture;
(d) certain events of bankruptcy or insolvency affecting the Trust;
or
(e) B. F. Saul Advisory Company ceases to be the investment advisor
to the Trust without being immediately replaced by another entity the
majority voting interest of which is owned by the Saul Company or
B. Francis Saul II (Section 5.01).
Within 90 days after the occurrence of a default, the Indenture Trustee is
required to give the Noteholders notice of all defaults known to it; provided
that, except in the case of a default in the payment of principal of, and
premium, if any, or interest on, any of the Notes, the Indenture Trustee will be
protected in withholding such notice if it in good faith determines that the
withholding of such notice is in the interest of the Noteholders (Section 6.02).
If an Event of Default occurs and is continuing, the Indenture Trustee or the
Holders of not less than 25% in
principal amount of the Notes Outstanding may declare the principal of all the
Notes to be due and payable immediately, by a notice in writing to the Trust
(and to the Indenture Trustee if given by Noteholders), and upon any such
declaration such principal will become immediately due and payable (Section
5.02). At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Indenture Trustee, the Holders of a majority in principal amount of the
Notes Outstanding, by written notice to the Trust and the Indenture Trustee, may
rescind and annul such declaration and its consequences if (i) the Trust has
paid or deposited with the Indenture Trustee a sum sufficient to pay
(A) all overdue installments of interest on all Notes,
(B) the principal of (and premium, if any, on) any Notes which have
become due otherwise than by such declaration of acceleration and
interest thereon at the rate borne by the Notes,
(C) to the extent that payment of such interest is lawful, interest
upon overdue installments of interest at the rate borne by the Notes,
and
(D) all sums paid or advanced by the Indenture Trustee under the
Indenture and the reasonable compensation, expenses, disbursements and
advances of the Indenture Trustee, its agents and counsel; and
(ii) all Events of Default, other than the non-payment of the principal of Notes
which have become due solely by such acceleration, have been cured or have been
waived as provided in the Indenture (Section 5.02).
The Indenture provides that if (i) default is made in the payment of any
interest on any Note when such interest becomes due and payable and such default
continues for a period of 30 days, or (ii) default is made in the payment of the
principal of (or premium, if any, on) any Note at the Maturity thereof, the
Trust will, upon demand of the Indenture Trustee, pay to it, for the benefit of
the Holders of such Notes, the whole amount then due and payable on such Notes
for principal (and premium, if any) and interest, with interest upon the overdue
principal (and premium, if any) and, to the extent that payment of such interest
is legally enforceable, upon overdue installments of interest, at the rate borne
by the Notes. (Section 5.03).
In the case of an Event of Default which is not cured or waived, the
Indenture Trustee will be required to exercise such of its rights and powers
under the Indenture, and to use the degree of care and skill in their exercise,
that a prudent man would exercise or use under the circumstances in the conduct
of his own affairs, but it otherwise need only perform such duties as are
specifically set forth in the Indenture (Section 6.01). Subject to such
provisions, the Indenture Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any of the
Noteholders unless they offer to the Indenture Trustee reasonable security or
indemnity (Section 6.03).
MODIFICATION OF INDENTURE
The Indenture, the rights and obligations of the Trust and the rights of
the Noteholders may be modified by the Trust and the Indenture Trustee without
the consent of the Noteholders (i) to evidence the succession of a corporation
or other entity to the Trust, and the assumption by any such successor of the
covenants of the Trust in the Indenture and the Notes, (ii) to add to the
covenants of the Trust, for the benefit of the Noteholders, or to surrender any
right or power conferred in the Indenture upon the Trust, (iii) to cure any
ambiguity, to correct or supplement any provision of the Indenture which may be
defective or inconsistent with any other provisions, or to make any other
provisions with respect to matters or questions arising under the Indenture
which are not inconsistent with the Indenture, provided such action does not
adversely affect the interests of the Noteholders, (iv) to create, from time to
time, notes in addition to the Notes initially issuable under the Indenture and
any supplemental indenture thereto, which subsequently created notes are
identical to the Notes initially issuable under the Indenture and any
supplemental indenture thereto, except for interest rate, issue date and
maturity date, or (v) to modify, amend or supplement the Indenture to effect the
qualification of the Indenture under the Trust Indenture Act of 1939 and to add
to the Indenture specified provisions permitted by such Act (Section 9.01).
With certain exceptions, the Indenture, the rights and obligations of the
Trust and the rights of the Noteholders may be modified in any manner by the
Trust with the consent of the holders of not less than 66-2/3% in
aggregate principal amount of the Notes Outstanding; but no such modification
may be made without the consent of each Noteholder affected thereby which would
(i) change the maturity of the principal of, or any installment of interest on,
any Note or reduce the principal amount thereof or the interest thereon, or
impair the right of such Noteholder to institute suit for the enforcement of any
such payment on or after the maturity thereof, or (ii) reduce the percentage in
principal amount of the Notes Outstanding, the consent of whose holders is
required for any modification of the Indenture, or the consent of whose holders
is required for any waiver of compliance with certain provisions of the
Indenture or certain defaults thereunder and the consequences thereof provided
for in the Indenture (Section 9.02).
COMPLIANCE REPORTS
The Trust and each other obligor on the Notes, if any, must deliver
annually to the Trustee, within 120 days after the end of each fiscal year, an
officers' certificate stating whether the Trust is in default in the performance
and observance of any of the conditions or covenants of the Indenture, and if
the Trust is in default, specifying all such defaults and the nature and status
thereof (Section 10.06).
REPORTS TO NOTEHOLDERS
The Trust will furnish to the holders of Notes such summaries of all
quarterly and annual reports which it files with the Commission as may be
required by the rules and regulations of the Commission to be furnished to
holders of any Notes (Section 7.04).
EXPERTS
The Trust's Consolidated Financial Statements and related schedules
included in the Trust's Annual Report on Form 10-K at September 30, 1997 and
1996, for the years ended September 30, 1997, 1996 and 1995 have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are incorporated herein by reference in
reliance upon the authority of said firm as experts in giving said reports.
Reference is made to the report with respect to the Trust's Consolidated
Financial Statements at September 30, 1997 and 1996 and for the years ended
September 30, 1997, 1996 and 1995, which includes an explanatory paragraph
with respect to the changes in the method of accounting for (i) income taxes,
impaired loans and investments in securities and mortgage-backed securities,
(ii) mortgage servicing rights and (iii) foreclosed assets.
LEGAL MATTERS
The legality of the securities offered by this Prospectus has been passed
upon for the Trust by the firm of Shaw, Pittman, Potts & Trowbridge, Washington,
D.C., a partnership including professional corporations. George M. Rogers, Jr.,
a member of that firm, is a trustee of the Trust and a director of B. F. Saul
Company and of Chevy Chase.
NOTE ORDER FORM
B. F. SAUL REAL ESTATE INVESTMENT TRUST
7200 Wisconsin Avenue, Suite 903
Bethesda, Maryland 20814
PLEASE ISSUE A NOTE EXACTLY AS INDICATED BELOW AT THE INTEREST RATE SHOWN
ON YOUR CURRENT PROSPECTUS OR SUPPLEMENT THERETO. MY CHECK FOR 100% OF THE
PRINCIPAL AMOUNT IS ENCLOSED. I UNDERSTAND THAT MY NOTE WILL BE ISSUED AS OF THE
DATE THIS ORDER IS RECEIVED (IF RECEIVED BY NOON) AND THAT YOUR OFFER MAY BE
WITHDRAWN WITHOUT NOTICE.
===============================================================================
Owner's Name:
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
Address:
-------------------------------------------------------
-------------------------------------------------------
Taxpayer Identification
(Social Security) Number:
-----------------------------------------------------
- -------------------------------------------------------------------------------
Principal Amount of Note Maturity from date of issue
(Minimum $5,000):$ (circle one): 1 2 3 4 5 6 7 8 9 10 year(s)
If the maturity date falls on a Saturday, Sunday, or holiday, it will be
changed to the nearest business day. This change will not alter the interest
rate.
Under penalties of perjury, I certify (1) that the number shown on this
form is my correct taxpayer identification number, and (2) that I am not subject
to backup withholding because (a) I have not been notified that I am subject to
backup withholding as a result of a failure to report all interest or dividends,
or (b) the Internal Revenue Service has notified me that I am no longer subject
to backup withholding; or all of the account owners are neither citizens nor
residents of the United States and therefore exempt from withholding.
Note: Strike out the language certifying that you are not subject to
backup withholding due to notified payee underreporting if the Internal Revenue
Service has notified you that you are subject to backup withholding and you have
not received notice from the Internal Revenue Service advising that backup
withholding has terminated.
- ----------------------------------- ----------------------------------------
Date Signature
----------------------------------------
For office use only: Print Name
- --------------------
----------- ----------------------------------------
Date rec'd Address (if different from above)
----------- ----------------------------------------
Issue date City, State & Zip Code
----------- ----------------------------------------
Interest rate (Area Code) Telephone Number
B. F. SAUL REAL ESTATE INVESTMENT TRUST
7200 Wisconsin Avenue, Suite 903
Bethesda, Maryland 20814
Gentlemen:
I (We) hold a Note,
number
------------------------------
for the principal amount of $
------------------------------
which matures on
------------------------------
CHECK ONE OF THE FOLLOWING BOXES:
1 I (We) wish to receive a check for the principal amount
- if so, please send note
to First Trust of New York, National Association
2 I (We) wish to reinvest the principal amount in a new
Note as follows:
Principal Amount of New Note Maturity from date of issue
(Minimum $5,000):$ (circle one): 1 2 3 4 5 6 7 8 9 10 year(s)
The principal amount of the new note may be either increased or decreased in
increments of $1,000. In no case can the new principal be less than $5,000. If
increased, please send a check payable to B.F. Saul Real Estate Investment Trust
for the amount of the increase.
PLEASE ENCLOSE THE MATURING NOTE AND RETURN TO US
IF THE NEW NOTE TO BE ISSUED IS TO BE REGISTERED IN A NAME OTHER THAN THAT OF
THE PRESENT HOLDER(S), OR IF ANY OTHER ALTERATIONS IN THE FORM OF THE
REGISTRATION ARE REQUIRED,
PLEASE PRINT OR TYPE IN THE NEW INFORMATION BELOW.
Name of Owner(s)
---------------------------------------------
Printed
---------------------------------------------
Printed
Address:
---------------------------------------------
No. Street Apt.
---------------------------------------------
City State Zip Code
Telephone Number:
---------------------------------------------
Area Code
Federal Identification or
Social Security Number:
---------------------------------------------
- ------------------------------------------------------------ ---------------
Signature Date
ACKNOWLEDGMENT
B.F. SAUL REAL ESTATE INVESTMENT TRUST
7200 Wisconsin Avenue, Suite 903
Bethesda, MD 20814
Gentlemen:
I understand and acknowledge that (1) the Note I am purchasing is not a
savings account or a deposit and (2) the Note is not insured or guaranteed by
any federal governmental agency, including the Federal Deposit Insurance
Corporation, or by any state governmental agency.
- ----------------------------------- ----------------------------------------
Date Signature
- ----------------------------------- ----------------------------------------
Printed Name
================================================================================
No person has been authorized to give any information or to make any
representation not contained in this Prospectus, and, if given or made, such
information or representation must not be relied upon. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
not offered hereby, or an offer to sell or a solicitation of any offer to buy
the securities offered hereby in any jurisdiction in which (or to any person to
whom) it is unlawful to make such offer or solicitation, and this Prospectus may
not be used to make any such offer or solicitation by a person who is not
qualified to do so under the laws of the jurisdiction in which the offer or
solicitation is made. Neither the delivery of this Prospectus nor any sale
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Trust since the date on the cover page
hereof.
TABLE OF CONTENTS
Available Information . . . . . . . . . . . . . . . . . . . . . .
Incorporation of Certain Documents by Reference . . . . . . . . .
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors and Other Considerations . . . . . . . . . . . . . .
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . .
Plan of Distribution. . . . . . . . . . . . . . . . . . . . . . .
How to Purchase Notes . . . . . . . . . . . . . . . . . . . . . .
Description of Notes. . . . . . . . . . . . . . . . . . . . . . .
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . .
Note Order Forms. . . . . . . . . . . . . . . . . . . . . . . . .
B. F. SAUL REAL ESTATE
INVESTMENT TRUST
Notes Due One Year
To Ten Years
from Date of Issue
--------------------
P R O S P E C T U S
--------------------
7200 Wisconsin Avenue
Suite 903
Bethesda, Maryland 20814
Telephone: (301) 986-6207
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
It is estimated that the expenses in connection with the issuance and
distribution of the securities are as follows:
Registration fee. . . . . . . . . . . . . . . . . $ 20,000
Cost of printing and engraving. . . . . . . . . . 18,500
Indenture Trustee & Registrar's Fees. . . . . . . 80,000
Legal fees of counsel for registrant. . . . . . . 400,000
Accountants' fees . . . . . . . . . . . . . . . . 25,000
Payment to B. F. Saul Advisory Company for
Administering Note Program. . . . . . . . . . 800,000
Miscellaneous and Advertising . . . . . . . . . . 367,000
----------
Total . . . . . . . . . . . . . . . . . . . . $1,710,000
===========
Item 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Declaration of Trust (Article III) provides that no Trustee or officer
of the Trust shall be liable for any action or failure to act except for his own
bad faith, willful misfeasance, gross negligence or reckless disregard of his
duties, and, except as stated, Trustees and officers are entitled to be
reimbursed and indemnified for all loss, expenses, and outlays which they may
suffer because they are Trustees or officers of the Trust.
Item 16. EXHIBITS.
EXHIBITS DESCRIPTION
- ------------ -----------------------------------------------------------------
3. *(a) Amended and Restated Declaration of Trust filed with the
Maryland State Department of Assessments and Taxation on
June 22, 1990.
*(b) Amendment to Amended and Restated Declaration of Trust reflected
in Secretary Certificate filed with the Maryland State Department
of Assessments and Taxation on June 26, 1990.
(c) Amended and Restated By-Laws of the Trust dated as of
February 28, 1991 as filed as Exhibit T3B to the Trust's Form T-3
Application for Qualification of Indentures under the Trust
Indenture Act of 1939 (File No. 22-20838) is hereby incorporated
by reference.
4.* (a) Indenture dated as of September 1, 1992 with respect to the
Trust's Notes due from One to Ten Years from Date of Issue.
* (b) First Supplemental Indenture dated as of January 16, 1997 with
respect to the Trust's Notes due from One to Ten Years from
Date of Issue. The text of the Notes is set forth in Section 1.1.
EXHIBITS DESCRIPTION
- ------------ -----------------------------------------------------------------
(c) Indenture with respect to the Trust's Senior Notes Due from One
Year to Ten Years from Date of Issue as filed as Exhibit 4(a) to
Registration Statement No. 33-19909 is hereby incorporated by
reference.
(d) First Supplemental Indenture with respect to the Trust's Senior
Notes due from One Year to Ten Years from Date of Issue as
filed as Exhibit T-3C to the Trust's Form T-3 Application for
Qualification of Indentures under the Trust Indenture Act of 1939
(File No. 22-20838) is hereby incorporated by reference.
(e) Indenture with respect to the Trust's Senior Notes due from One
Year to Ten Years from Date of Issue as filed as Exhibit 4(a) to
Registration Statement No. 33-9336 is hereby incorporated by
reference.
(f) Fourth Supplemental Indenture with respect to the Trust's Senior
Notes due from One Year to Ten Years from Date of Issue as filed
as Exhibit 4(a) to Registration Statement No. 2-95506 is hereby
incorporated by reference.
(g) Third Supplemental Indenture with respect to the Trust's Senior
Notes due from One Year to Ten Years from Date of Issue as filed
as Exhibit 4(a) to Registration Statement No. 2-91126 is hereby
incorporated by reference.
(h) Second Supplemental Indenture with respect to the Trust's Senior
Notes due from One Year to Ten Years from Date of Issue as filed
as Exhibit 4(a) to Registration Statement No. 2-80831 is hereby
incorporated by reference.
(i) Supplemental Indenture with respect to the Trust's Senior Notes
due from One Year to Ten Years from Date of Issue as filed as
Exhibit 4(a) to Registration Statement No. 2-68652 is hereby
incorporated by reference.
(j) Indenture with respect to the Trust's Senior Notes due from One
Year to Five Years from Date of Issue as filed as Exhibit T-3C to
the Trust's Form T-3 Application for Qualification of Indentures
under the Trust Indenture Act of 1939 (File No. 22-10206) is
hereby incorporated by reference.
(k) Indenture dated as of March 30, 1994 between the Trust and
Norwest Bank Minnesota, National Association, as Trustee, with
respect to the Trust's 11 5/8% Series B Senior Secured Notes due
2002, as filed as Exhibit 4(a) to Registration Statement
No. 33-52995 is hereby incorporated by reference.
*5. Opinion of Shaw, Pittman, Potts & Trowbridge with respect to
legality of the Notes.
10. (a) Advisory Contract with B.F. Saul Advisory Company effective
October 1, 1982 filed as Exhibit 10(a) to Registration Statement
No. 2-80831 is hereby incorporated by reference.
(b) Commercial Property Leasing and Management Agreement effective
October 1, 1982 between the Trust and Franklin Property Company
as filed as Exhibit 10(b) to Registration Statement No. 2-80831
is hereby incorporated by reference.
*(c) Tax Sharing Agreement dated June 28, 1990 among the Trust, Chevy
Chase Savings Bank F.S.B. and certain of their subsidiaries.
*(d) Agreement dated June 28, 1990 among the Trust, B.F. Saul Company,
Franklin Development Co., Inc., The Klingle Corporation and
Westminster Investing Corporation relating to the transfer of
certain shares of Chevy Chase Savings Bank, F.S.B. and certain
real property to the Trust in exchange for preferred shares of
beneficial interest of the Trust.
EXHIBITS DESCRIPTION
- ------------ -----------------------------------------------------------------
(e) Regulatory Capital Maintenance/Dividend Agreement dated May 17,
1988 among B.F. Saul Company, the Trust and the Federal Savings
and Loan Insurance Corporation as filed as Exhibit 10(e) to the
Trust's Annual Report on Form 10-K (File No. 1-7184) for the
fiscal year ended September 30, 1991 is hereby incorporated by
reference.
* (f) Amendments to Commercial Property Leasing and Management
Agreement between the Trust and Franklin Property Company dated
as of December 31, 1992 (Amendment No. 5), July 1, 1989
(Amendment No. 4), October 1, 1986 (Amendment No. 3), January 1,
1985 (Amendment No. 2) and July 1, 1984 (Amendment No. 1).
* (g) Advisory Contract between B.F. Saul Advisory Company and Dearborn
Corporation dated as of December 31, 1992.
* (h) Commercial Property Leasing and Management Agreement between
Dearborn Corporation and Franklin Property Company dated as of
December 31, 1992.
(i) Registration Rights and Lock-Up Agreement dated August 26, 1993
by and among Saul Centers, Inc. and the Trust, Westminster
Investing Corporation, Van Ness Square Corporation, Dearborn
Corporation, Franklin Property Company and Avenel Executive
Park Phase II, Inc. as filed as Exhibit 10.6 to Registration
Statement No. 33-64562 is hereby incorporated by reference.
(j) Exclusivity and Right of First Refusal Agreement dated August 26,
1993 among Saul Centers, Inc., the Trust, B. F. Saul Company,
Westminster Investing Corporation, Franklin Property Company, Van
Ness Square Corporation, and Chevy Chase Savings Bank, F.S.B. as
filed as Exhibit 10.7 to Registration Statement No. 33-64562 is
hereby incorporated by reference.
(k) First Amended and Restated Reimbursement Agreement dated as of
August 1, 1994 by and among Saul Centers, Inc., Saul Holdings
Limited Partnership, Saul Subsidiary I Limited Partnership, Saul
Subsidiary II Limited Partnership, Avenel Executive Park
Phase II, Inc., Franklin Property Company, Westminster Investing
Corporation Van Ness Square Corporation, Dearborn Corporation and
the Trust as filed as Exhibit 10(l) to the Trust's Annual Report
on Form 10-K (File No. 1-7184) for the fiscal year ended
September 30, 1994 is hereby incorporated by reference.
(l) Registration Rights Agreement dated as of March 30, 1994 among
the Trust, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Friedman, Billings, Ramsey & Co., Inc. as
filed as Exhibit 4(c) to Registration Statement No. 33-52995 is
hereby incorporated by reference.
(m) Bank Stock Registration Rights Agreement dated as of March 30,
1994 between the Trust and Norwest Bank Minnesota, National
Association, as Trustee. filed as Exhibit 4(c) to Registration
Statement No. 33-52995 is hereby incorporated by reference.
**12. Statement re: Computation of Ratio of Earnings to Fixed Charges.
**13. Annual Report to Security Holders for the fiscal year ended
September 30, 1997.
**23. (a) Consent of Arthur Andersen LLP.
*24. Power of Attorney.
*25. Statement of Eligibility on Form T-1 of First Trust of New York,
National Association.
- ---------------------------
* Previously filed.
** Filed herewith.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provision, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has duly caused this post-effective amendment to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Chevy Chase, Maryland on this the 15th day of January 1998.
B.F. SAUL REAL ESTATE
INVESTMENT TRUST
By: B. FRANCIS SAUL II
----------------------
B. Francis Saul II
Chairman of the Board
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
post-effective amendment has been signed by the following persons in the
capacities indicated below on this 15th day of January 1998.
Signature Capacity
--------- --------
B. FRANCIS SAUL II Trustee, Chairman of the
-------------------------- Board and Principal
B. Francis Saul II Executive Officer
STEPHEN R. HALPIN, JR. Vice President and
-------------------------- Chief Financial Officer
Stephen R. Halpin Jr. (Principal Financial Officer)
ROSS E. HEASLEY Vice President
------------------------- (Principal Accounting
Ross E. Heasley Officer)
GARLAND J. BLOOM, JR.
------------------------- Trustee
Garland J. Bloom, Jr.
GILBERT M. GROSVENOR
------------------------- Trustee
Gilbert M. Grosvenor
GEORGE M. ROGERS, JR.
------------------------- Trustee
George M. Rogers, Jr.
B. FRANCIS SAUL III Trustee
--------------------------
B. Francis Saul III
JOHN R. WHITMORE
------------------------- Trustee
John R. Whitmore
EXHIBIT INDEX
EXHIBITS DESCRIPTION
- ------------ -----------------------------------------------------------------
3. *(a) Amended and Restated Declaration of Trust filed with the
Maryland State Department of Assessments and Taxation on
June 22, 1990.
*(b) Amendment to Amended and Restated Declaration of Trust reflected
in Secretary Certificate filed with the Maryland State Department
of Assessments and Taxation on June 26, 1990.
(c) Amended and Restated By-Laws of the Trust dated as of
February 28, 1991 as filed as Exhibit T3B to the Trust's Form T-3
Application for Qualification of Indentures under the Trust
Indenture Act of 1939 (File No. 22-20838) is hereby incorporated
by reference.
4.* (a) Indenture dated as of September 1, 1992 with respect to the
Trust's Notes due from One to Ten Years from Date of Issue.
* (b) First Supplemental Indenture dated as of January 16, 1997 with
respect to the Trust's Notes due from One to Ten Years from
Date of Issue. The text of the Notes is set forth in Section 1.1.
(c) Indenture with respect to the Trust's Senior Notes Due from One
Year to Ten Years from Date of Issue as filed as Exhibit 4(a) to
Registration Statement No. 33-19909 is hereby incorporated by
reference.
(d) First Supplemental Indenture with respect to the Trust's Senior
Notes due from One Year to Ten Years from Date of Issue as
filed as Exhibit T-3C to the Trust's Form T-3 Application for
Qualification of Indentures under the Trust Indenture Act of 1939
(File No. 22-20838) is hereby incorporated by reference.
(e) Indenture with respect to the Trust's Senior Notes due from One
Year to Ten Years from Date of Issue as filed as Exhibit 4(a) to
Registration Statement No. 33-9336 is hereby incorporated by
reference.
(f) Fourth Supplemental Indenture with respect to the Trust's Senior
Notes due from One Year to Ten Years from Date of Issue as filed
as Exhibit 4(a) to Registration Statement No. 2-95506 is hereby
incorporated by reference.
(g) Third Supplemental Indenture with respect to the Trust's Senior
Notes due from One Year to Ten Years from Date of Issue as filed
as Exhibit 4(a) to Registration Statement No. 2-91126 is hereby
incorporated by reference.
(h) Second Supplemental Indenture with respect to the Trust's Senior
Notes due from One Year to Ten Years from Date of Issue as filed
as Exhibit 4(a) to Registration Statement No. 2-80831 is hereby
incorporated by reference.
(i) Supplemental Indenture with respect to the Trust's Senior Notes
due from One Year to Ten Years from Date of Issue as filed as
Exhibit 4(a) to Registration Statement No. 2-68652 is hereby
incorporated by reference.
(j) Indenture with respect to the Trust's Senior Notes due from One
Year to Five Years from Date of Issue as filed as Exhibit T-3C to
the Trust's Form T-3 Application for Qualification of Indentures
under the Trust Indenture Act of 1939 (File No. 22-10206) is
hereby incorporated by reference.
EXHIBITS DESCRIPTION
- ------------ -----------------------------------------------------------------
(k) Indenture dated as of March 30, 1994 between the Trust and
Norwest Bank Minnesota, National Association, as Trustee, with
respect to the Trust's 11 5/8% Series B Senior Secured Notes due
2002, as filed as Exhibit 4(a) to Registration Statement
No. 33-52995 is hereby incorporated by reference.
*5. Opinion of Shaw, Pittman, Potts & Trowbridge with respect to
legality of the Notes.
10. (a) Advisory Contract with B.F. Saul Advisory Company effective
October 1, 1982 filed as Exhibit 10(a) to Registration Statement
No. 2-80831 is hereby incorporated by reference.
(b) Commercial Property Leasing and Management Agreement effective
October 1, 1982 between the Trust and Franklin Property Company
as filed as Exhibit 10(b) to Registration Statement No. 2-80831
is hereby incorporated by reference.
*(c) Tax Sharing Agreement dated June 28, 1990 among the Trust, Chevy
Chase Savings Bank F.S.B. and certain of their subsidiaries.
*(d) Agreement dated June 28, 1990 among the Trust, B.F. Saul Company,
Franklin Development Co., Inc., The Klingle Corporation and
Westminster Investing Corporation relating to the transfer of
certain shares of Chevy Chase Savings Bank, F.S.B. and certain
real property to the Trust in exchange for preferred shares of
beneficial interest of the Trust.
(e) Regulatory Capital Maintenance/Dividend Agreement dated May 17,
1988 among B.F. Saul Company, the Trust and the Federal Savings
and Loan Insurance Corporation as filed as Exhibit 10(e) to the
Trust's Annual Report on Form 10-K (File No. 1-7184) for the
fiscal year ended September 30, 1991 is hereby incorporated by
reference.
* (f) Amendments to Commercial Property Leasing and Management
Agreement between the Trust and Franklin Property Company dated
as of December 31, 1992 (Amendment No. 5), July 1, 1989
(Amendment No. 4), October 1, 1986 (Amendment No. 3), January 1,
1985 (Amendment No. 2) and July 1, 1984 (Amendment No. 1).
* (g) Advisory Contract between B.F. Saul Advisory Company and Dearborn
Corporation dated as of December 31, 1992.
* (h) Commercial Property Leasing and Management Agreement between
Dearborn Corporation and Franklin Property Company dated as of
December 31, 1992.
(i) Registration Rights and Lock-Up Agreement dated August 26, 1993
by and among Saul Centers, Inc. and the Trust, Westminster
Investing Corporation, Van Ness Square Corporation, Dearborn
Corporation, Franklin Property Company and Avenel Executive
Park Phase II, Inc. as filed as Exhibit 10.6 to Registration
Statement No. 33-64562 is hereby incorporated by reference.
(j) Exclusivity and Right of First Refusal Agreement dated August 26,
1993 among Saul Centers, Inc., the Trust, B. F. Saul Company,
Westminster Investing Corporation, Franklin Property Company, Van
Ness Square Corporation, and Chevy Chase Savings Bank, F.S.B. as
filed as Exhibit 10.7 to Registration Statement No. 33-64562 is
hereby incorporated by reference.
EXHIBITS DESCRIPTION
- ------------ -----------------------------------------------------------------
(k) First Amended and Restated Reimbursement Agreement dated as of
August 1, 1994 by and among Saul Centers, Inc., Saul Holdings
Limited Partnership, Saul Subsidiary I Limited Partnership, Saul
Subsidiary II Limited Partnership, Avenel Executive Park
Phase II, Inc., Franklin Property Company, Westminster Investing
Corporation Van Ness Square Corporation, Dearborn Corporation and
the Trust as filed as Exhibit 10(l) to the Trust's Annual Report
on Form 10-K (File No. 1-7184) for the fiscal year ended
September 30, 1994 is hereby incorporated by reference.
(l) Registration Rights Agreement dated as of March 30, 1994 among
the Trust, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Friedman, Billings, Ramsey & Co., Inc. as
filed as Exhibit 4(c) to Registration Statement No. 33-52995 is
hereby incorporated by reference.
(m) Bank Stock Registration Rights Agreement dated as of March 30,
1994 between the Trust and Norwest Bank Minnesota, National
Association, as Trustee. filed as Exhibit 4(c) to Registration
Statement No. 33-52995 is hereby incorporated by reference.
**12. Statement re: Computation of Ratio of Earnings to Fixed Charges.
**13. Annual Report to Security Holders for the fiscal year ended
September 30, 1997.
**23. (a) Consent of Arthur Andersen LLP.
*24. Power of Attorney.
*25. Statement of Eligibility on Form T-1 of First Trust of New York,
National Association.
- ---------------------------
* Previously filed.
** Filed herewith.