Filed Pursuant to Rule 424B2
Registration No. 333-39282
PROSPECTUS SUPPLEMENT
(To Prospectus dated December 12, 2001)
$150,000,000
LIBERTY PROPERTY
LIMITED PARTNERSHIP
6.375% SENIOR NOTES DUE 2012
- --------------------------------------------------------------------------------
This is an offering of $150,000,000 of our 6.375% senior notes due 2012. We will
pay interest on the notes twice a year, on February 15 and August 15, beginning
on February 15, 2003. The notes will mature on August 15, 2012.
We may redeem all or part of the notes at any time at the redemption prices
described in this prospectus supplement. The notes are unsecured and
unsubordinated debt securities. We do not intend to list the notes on any
national securities exchange.
YOU SHOULD REVIEW THE RISKS OF INVESTING IN THE NOTES AS SET FORTH IN "RISK
FACTORS" BEGINNING ON PAGE 4 OF THE ATTACHED PROSPECTUS.
<Table>
<Caption>
Per Note Total
-------- ------------
Public Offering Price....................................... 99.558% $149,337,000
Underwriting Discount....................................... 0.650% $ 975,000
------ ------------
Our Proceeds (before expenses).............................. 98.908% $148,362,000
====== ============
</Table>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE ATTACHED PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The underwriters for this offering expect to deliver the notes on August 22,
2002 through the book-entry facilities of The Depository Trust Company.
- --------------------------------------------------------------------------------
LEHMAN BROTHERS
BANC ONE CAPITAL MARKETS, INC.
CREDIT SUISSE FIRST BOSTON
GOLDMAN, SACHS & CO.
JPMORGAN
SALOMON SMITH BARNEY
WACHOVIA SECURITIES
August 19, 2002
ABOUT THIS PROSPECTUS SUPPLEMENT
This prospectus supplement and the attached prospectus contain information
about our company and about the notes. They also refer to information contained
in other documents that we file with the Securities and Exchange Commission.
References to this prospectus supplement or the prospectus also mean the
information contained in such other documents, including our Annual Report on
Form 10-K for the fiscal year ended December 31, 2001 and our Quarterly Reports
on Form 10-Q for the fiscal quarters ended March 31, 2002 and June 30, 2002. If
this prospectus supplement is inconsistent with the prospectus or the documents
that are incorporated by reference in the prospectus, rely on this prospectus
supplement.
You should rely only on the information in this prospectus supplement or
the prospectus or in documents that are incorporated by reference in the
prospectus. Neither we nor the underwriters have authorized anyone to provide
any different or additional information. We are not making an offer of the notes
in any jurisdiction where the offer is not permitted. You should not assume that
information in these documents is correct or complete after the date of this
prospectus supplement.
------------------
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
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PROSPECTUS SUPPLEMENT
About this Prospectus Supplement............................ S-2
Our Company................................................. S-3
Use of Proceeds............................................. S-3
Ratios of Earnings to Fixed Charges......................... S-4
Description of Notes........................................ S-4
Certain Federal Income Tax Considerations................... S-9
Forward-Looking Statements May Prove Inaccurate............. S-13
Underwriting................................................ S-14
Legal Matters............................................... S-15
PROSPECTUS
About this Prospectus....................................... 2
Where to Find Additional Information........................ 2
Risk Factors................................................ 4
The Company................................................. 10
Securities Offered by this Prospectus....................... 11
Use of Proceeds............................................. 11
Certain Ratios.............................................. 12
Description of Debt Securities.............................. 12
Description of Preferred Shares............................. 26
Description of Warrants..................................... 33
Federal Income Tax Considerations with Respect to the Trust
and the Operating Partnership............................. 34
Plan of Distribution........................................ 49
Legal Matters............................................... 51
Experts..................................................... 51
</Table>
S-2
Liberty Property Limited Partnership is the "operating partnership" of
Liberty Property Trust, a self-administered and self-managed real estate
investment trust. The Trust conducts substantially all of its operations and
owns substantially all of its assets through us. The Trust is the sole general
partner and a limited partner of the Partnership. When we use the terms "we,"
"us," the "Company" and the "Partnership," we are referring to the Partnership
(but not the Trust) and its consolidated subsidiaries.
OUR COMPANY
We provide leasing, property management, acquisition, development,
construction and design management and other related services for our
properties. As of June 30, 2002, we operated 657 industrial and office
properties totaling approximately 50.6 million leasable square feet. These
properties were approximately 92.5% leased to approximately 1,800 tenants as of
that date. As of the same date, we also had 30 properties under development,
which we expect will generate, upon completion, approximately 3.2 million
leasable square feet. We also owned 1,036 acres of land on June 30, 2002, which
we anticipate are capable of supporting, as and when developed, approximately
9.0 million leasable square feet. Our properties and land are located
principally within the Southeastern, Mid-Atlantic and Midwestern United States.
We own, either directly or indirectly through our consolidated
subsidiaries, substantially all of the assets of the Trust. We also conduct,
directly or indirectly, substantially all of the Trust's operations. The Trust
is a self-administered and self-managed real estate investment trust that was
formed to continue and expand the commercial real estate business of Rouse &
Associates. Founded in 1972, Rouse & Associates was a developer and manager of
commercial real estate in the Southeastern, Mid-Atlantic and West Coast markets
of the United States.
USE OF PROCEEDS
The net proceeds we will receive from the sale of the notes, after payment
of expenses related to this offering and underwriting discounts and commissions,
are estimated to be approximately $148.1 million. We intend to use the net
proceeds to repay indebtedness under our $450 million credit facility and for
other general corporate purposes. Affiliates of three of the underwriters for
this offering are lenders under the credit facility and will receive a portion
of the net proceeds from this offering. As of August 19, 2002, we had
outstanding indebtedness under the credit facility of $200 million, bearing
interest at a rate of approximately 2.9% per annum and maturing on April 25,
2003. The indebtedness outstanding under the credit facility was originally
incurred principally in connection with our acquisition and development
activities.
S-3
RATIOS OF EARNINGS TO FIXED CHARGES
The ratios of earnings to fixed charges of the Company for the six months
ended June 30, 2002 and the years ended December 31, 2001, 2000, 1999, 1998 and
1997 were 2.27, 2.23, 2.31, 2.24, 2.07 and 1.92, respectively.
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For the purpose of such computations, earnings have been
calculated by adding fixed charges (excluding capitalized interest) to income
from continuing operations. Fixed charges consist of interest costs, whether
expensed or capitalized, and amortization of deferred financing costs.
DESCRIPTION OF NOTES
The following description of the notes and the Indenture (as defined below)
summarizes certain provisions of the Indenture and is therefore incomplete.
Accordingly, the following description of the notes and the Indenture is subject
to and qualified in its entirety by reference to the Indenture, including the
definitions therein of certain terms used below. Except as otherwise indicated,
section references are to sections of the Indenture. If anything described in
this section is inconsistent with the terms described in the attached
prospectus, you should rely on this prospectus supplement.
GENERAL
The notes will be issued under a Senior Indenture dated as of October 24,
1997 (the "Base Indenture") between the Partnership, as obligor, and Bank One
Trust Company, N.A. (as successor to The First National Bank of Chicago), as
trustee (the "Trustee"), and a Supplemental Indenture thereto to be dated as of
August 22, 2002, between the Partnership and the Trustee (the "Supplemental
Indenture" and, together with the Base Indenture, the "Indenture"). The notes
will initially be issued in the aggregate principal amount of $150.0 million,
subject to "reopening" as described below. The terms of the notes include those
provisions contained in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). The notes are subject to all of those terms, and holders of notes should
refer to the Indenture and the Trust Indenture Act for a statement of those
terms.
The notes are a series of securities issued under the Indenture. The
Indenture permits us to "reopen" this series, without the consent of the holders
of the securities of this series, in order to issue additional securities of
this series. Thus, we may in the future issue additional debt securities of the
same series as the notes without your consent. Any additional securities of this
series will have the same ranking, interest rate and maturity as the notes.
These additional securities will, together with the notes, constitute a single
series of securities under the Indenture.
The notes will be our direct, unsecured recourse obligations and will rank
pari passu with all of our other unsecured unsubordinated indebtedness from time
to time outstanding. As of June 30, 2002, we had outstanding $1.4 billion
aggregate principal amount of unsecured unsubordinated indebtedness, including
$166.0 million under our unsecured credit facility. The notes will be
effectively subordinated to the claims of mortgage lenders holding our secured
indebtedness, as to the specific property securing each lender's mortgage. As of
June 30, 2002, we had outstanding $342.0 million aggregate principal amount of
secured indebtedness. The notes will be recourse to all of our assets, but will
be nonrecourse with respect to our partners, including the Trust, our sole
general partner. Subject to certain limitations set forth in the Indenture, and
as described under "Certain Covenants" below and in the attached prospectus
under "Description of Debt Securities -- Certain Covenants," the Indenture will
permit us to incur additional secured and unsecured indebtedness.
The notes are not convertible into or exchangeable for our partnership
interests or common shares of the Trust. We will not make any sinking fund
payments with respect to the notes. We do not intend to list the notes on any
national securities exchange.
The notes will mature on August 15, 2012 (the "Maturity Date").
S-4
PRINCIPAL AND INTEREST
The interest rate on the notes will be 6.375% per annum. We will pay
interest in arrears on February 15 and August 15, beginning February 15, 2003.
Interest will accrue from August 22, 2002 or from the most recent interest
payment date to which we have paid or provided for the payment of interest to
the next interest payment date or the scheduled maturity date, as the case may
be. We will pay interest computed on the basis of a 360-day year of twelve
30-day months. Interest on the notes will be paid to the persons in whose names
the notes are registered at the close of business on the February 1 or August 1
preceding the respective interest payment date. Unless we redeem the notes prior
to their maturity date, we will redeem the notes at their principal amount on
their maturity date. If an interest payment date is not a Business Day, we will
pay interest on the next succeeding Business Day. A "Business Day" means any day
other than a Saturday or Sunday that is neither a legal holiday nor a day on
which banking institutions in the City of New York or Chicago are authorized or
required by law, regulation or executive order to close.
Any interest not punctually paid or duly provided for on any interest
payment date with respect to the notes ("Defaulted Interest") will forthwith
cease to be payable to the holder of the note on the applicable regular record
date and may either be paid to the person in whose name such note is registered
at the close of business on a special record date (the "Special Record Date")
for the payment of such Defaulted Interest to be fixed by the Trustee, notice
whereof shall be given to the holder of such note not less than 10 days prior to
such Special Record Date, or may be paid at any time in any other lawful manner,
all as more completely described in the Indenture (Section 307).
The principal of each note payable on its Maturity Date will be paid
against presentation and surrender of such note at the corporate trust office of
the Trustee, located initially at One Bank One Plaza, Chicago, Illinois
60670-0126, in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts.
CERTAIN COVENANTS
The Indenture contains various covenants including the following:
Limitations on Incurrence of Debt. The Partnership will not, and will not
permit any Subsidiary (as defined below) to, incur any Debt (as defined below),
other than Intercompany Debt (as defined below) that is subordinate in right of
payment to the notes, if, immediately after giving effect to the incurrence of
such Debt and the application of the proceeds thereof, the aggregate principal
amount of all outstanding Debt of the Partnership and its Subsidiaries on a
consolidated basis determined in accordance with GAAP is greater than 60% of the
sum of: (i) the Partnership's Adjusted Total Assets (as defined below) as of the
end of the most recent fiscal quarter prior to the incurrence of such additional
Debt; and (ii) the increase in Adjusted Total Assets since the end of such
quarter (including any increase resulting from the incurrence of additional
Debt) (Section 1004(a)).
In addition to the foregoing limitation on the incurrence of Debt, the
Partnership will not, and will not permit any Subsidiary to, incur any Debt if
the ratio of Consolidated Income Available for Debt Service (as defined below)
to the Annual Service Charge (as defined below) on the date on which such
additional Debt is to be incurred, on a pro forma basis, after giving effect to
the incurrence of such Debt and to the application of the proceeds thereof,
would have been less than 1.5 to 1 (Section 1004(b)).
Further, the Partnership will not, and will not permit any Subsidiary to,
incur any Debt secured by any mortgage, lien, charge, pledge, encumbrance or
security interest of any kind upon any of the properties of the Partnership or
any Subsidiary ("Secured Debt"), whether owned at the date of the Indenture or
thereafter acquired, if, immediately after giving effect to the incurrence of
such Secured Debt and the application of the proceeds thereof, the aggregate
principal amount of all outstanding Secured Debt of the Partnership and its
Subsidiaries on a consolidated basis is greater than 40% of the sum of: (i) the
Partnership's Adjusted Total Assets as of the end of the most recent fiscal
quarter prior to the incurrence of such additional Debt; and (ii) the increase
in Adjusted Total Assets since the end of such quarter (including any increase
resulting from the incurrence of additional Debt) (Section 1004(c)).
S-5
Maintenance of Unencumbered Total Asset Value. The Partnership will at all
times maintain an Unencumbered Total Asset Value (as defined below) in an amount
not less than 150% of the aggregate principal amount of all outstanding
unsecured Debt of the Partnership and its Subsidiaries on a consolidated basis
(Section 1004(d)).
For purposes of the foregoing provisions regarding the limitation on the
incurrence of Debt, Debt shall be deemed to be "incurred" by the Partnership or
a Subsidiary whenever the Partnership or such Subsidiary shall create, assume,
guarantee or otherwise become liable in respect thereof.
As used herein:
- "Adjusted Total Assets" as of any date means the total of all assets, as
determined in accordance with GAAP, plus accumulated depreciation.
- "Annual Service Charge" as of any date means the aggregate amount of any
interest expensed for the four consecutive fiscal quarters most recently
ended prior to such date, as determined in accordance with GAAP.
- "Consolidated Income Available for Debt Service" as of any date means
Consolidated Net Income (as defined below) of the Partnership and its
Subsidiaries plus amounts that have been deducted for: (i) interest on
Debt of the Partnership and its Subsidiaries; (ii) provision for taxes of
the Partnership and its Subsidiaries based on income; (iii) amortization
of debt discount; (iv) depreciation and amortization; (v) the effect of
any noncash charge resulting from a change in accounting principles in
determining Consolidated Net Income; and (vi) amortization of deferred
charges, for the four consecutive fiscal quarters most recently ended,
all as determined in accordance with GAAP, and without taking into
account any provision for gains and losses on properties.
- "Consolidated Net Income" for any period means the amount of net income
(or loss) of the Partnership and its Subsidiaries for such period, as
determined on a consolidated basis in accordance with GAAP.
- "Debt" of the Partnership or any Subsidiary means any indebtedness of the
Partnership or any Subsidiary, whether or not contingent, in respect of:
(i) borrowed money evidenced by bonds, notes, debentures or similar
instruments; (ii) indebtedness secured by any mortgage, pledge, lien,
charge, encumbrance or any security interest existing on property owned
by the Partnership or any Subsidiary; (iii) reimbursement obligations in
connection with any letters of credit actually issued or amounts
representing the balance deferred and unpaid of the purchase price of any
property except any such balance that constitutes an accrued expense or
trade payable; or (iv) any lease of property by the Partnership or any
Subsidiary as lessee which is reflected on the Partnership's consolidated
balance sheet as a capitalized lease in accordance with GAAP; but in the
case of items of indebtedness incurred under (i) through (iii) above only
to the extent that any such items (other than letters of credit) would
appear as a liability on the Partnership's consolidated balance sheet in
accordance with GAAP; and also includes, to the extent not otherwise
included, any obligation of the Partnership or any Subsidiary to be
liable for, or to pay, as obligor, guarantor or otherwise (other than for
purposes of collection in the ordinary course of business), indebtedness
of another person (other than the Partnership or any Subsidiary).
- "GAAP" means generally accepted accounting principles, as in effect from
time to time, as used in the United States applied on a consistent basis;
provided, that solely for the purposes of any calculation required by the
financial covenants contained in the Indenture, "GAAP" shall mean
generally accepted accounting principles as used in the United States on
the date of the Indenture, applied on a consistent basis.
- "Intercompany Debt" means Debt to which the only parties are the Trust,
any of its subsidiaries, the Partnership and any Subsidiary, or Debt owed
to the Trust arising from routine cash management practices, but only so
long as such Debt is held solely by any of the Trust, any of its
subsidiaries, the Partnership and any Subsidiary.
S-6
- "Subsidiary" means a corporation, partnership or limited liability
company, a majority of the outstanding voting stock, partnership
interests or membership interests, as the case may be, of which is owned
or controlled, directly or indirectly, by the Partnership or by one or
more Subsidiaries of the Partnership. Liberty Property Development Corp.,
Liberty Property Development Corp.-II, Liberty Property Development
Corp.-III, Liberty UK Development Corp. and Liberty 2001 Corp. are each a
Subsidiary for purposes of this definition. For the purposes of this
definition, "voting stock" means stock having the voting power for the
election of directors, general partners, managers or trustees, as the
case may be, whether at all times or only so long as no senior class of
stock has such voting power by reason of any contingency.
- "Undepreciated Real Estate Assets" as of any date means the cost
(original cost plus capital improvements) of real estate assets of the
Partnership and its Subsidiaries on such date, before depreciation and
amortization, as determined on a consolidated basis in accordance with
GAAP.
- "Unencumbered Total Asset Value" as of any date means the sum of: (i) the
value of those Undepreciated Real Estate Assets not subject to an
encumbrance; and (ii) the value of all other assets of the Partnership
and its Subsidiaries on a consolidated basis not subject to an
encumbrance, as determined in accordance with GAAP (but excluding
accounts receivable and intangibles).
Compliance with the covenants described herein and with respect to the
notes generally may not be waived by the Partnership, or by the Trustee unless
the holders of at least a majority in principal amount of all outstanding notes
consent to such waiver; provided, however, that the defeasance and covenant
defeasance provisions of the Indenture described under "Description of Debt
Securities -- Discharge, Defeasance and Covenant Defeasance" in the attached
prospectus, will apply to the notes, including with respect to the covenants
described in this prospectus supplement.
OPTIONAL REDEMPTION
The notes may be redeemed at any time at our option, in whole or from time
to time in part, at a redemption price equal to the sum of: (i) the principal
amount of the notes being redeemed plus accrued interest thereon to the
redemption date; and (ii) the Make-Whole Amount, if any, with respect to such
notes (the "Redemption Price").
If notice of redemption has been given as provided in the Indenture and
funds for the redemption of any notes called for redemption shall have been made
available on the redemption date referred to in such notice, such notes will
cease to bear interest on the date fixed for such redemption specified in such
notice and the only right of the holders of the notes from and after the
redemption date will be to receive payment of the Redemption Price upon
surrender of such notes in accordance with such notice.
Notice of any optional redemption of any notes will be given to holders at
their addresses, as shown in the security register for the notes, not more than
60 nor less than 30 days prior to the date fixed for redemption. The notice of
redemption will specify, among other items, the redemption date, the Redemption
Price and principal amount of the notes held by such holder to be redeemed.
If all or less than all of the notes of any series are to be redeemed at
our option, we will notify the trustee for the notes at least 45 days prior to
giving notice of redemption (or such shorter period as may be satisfactory to
the trustee) of the aggregate principal amount of notes to be redeemed, if less
than all of the notes are to be redeemed, and their redemption date. The trustee
shall select, in such manner as it shall deem fair and appropriate, no less than
60 days prior to the date of redemption, the notes to be redeemed in whole or in
part.
Neither we nor the trustee shall be required to: (i) issue, register the
transfer of or exchange notes during a period beginning at the opening of
business 15 days before any selection of notes to be redeemed and ending at the
close of business on the day of mailing of the relevant notice of redemption;
(ii) register the transfer of or exchange any note, or portion thereof, called
for redemption, except the unredeemed portion of any note being redeemed in
part; or (iii) issue, register the transfer of or exchange any note that
S-7
has been surrendered for repayment at the option of the holder, except the
portion, if any, of such note not to be so repaid (Section 305).
As used herein:
- "Make-Whole Amount" means, in connection with any optional redemption of
any notes, the excess, if any, of: (i) the aggregate present value as of
the date of such redemption of each dollar of principal being redeemed
and the amount of interest (exclusive of interest accrued to the date of
redemption) that would have been payable in respect of each such dollar
if such redemption had not been made, determined by discounting, on a
semi-annual basis, such principal and interest at the Reinvestment Rate
(as defined below) (determined on the third Business Day preceding the
date notice of such redemption is given) from the respective dates on
which such principal and interest would have been payable if such
redemption had not been made, to the date of redemption, over (ii) the
aggregate principal amount of the notes being redeemed.
- "Reinvestment Rate" means the yield on Treasury securities at a constant
maturity corresponding to the remaining life (as of the date of
redemption, and rounded to the nearest month) to stated maturity of the
principal being redeemed (the "Treasury Yield"), plus 0.25%. For purposes
hereof, the Treasury Yield shall be equal to the arithmetic mean of the
yields published in the Statistical Release (as defined below) under the
heading "Week Ending" for "U.S. Government Securities -- Treasury
Constant Maturities" with a maturity equal to such remaining life;
provided, that if no published maturity exactly corresponds to such
remaining life, then the Treasury Yield shall be interpolated or
extrapolated on a straight-line basis from the arithmetic means of the
yields for the next shortest and next longest published maturities. For
purposes of calculating the Reinvestment Rate, the most recent
Statistical Release published prior to the date of determination of the
Make-Whole Amount shall be used. If the format or content of the
Statistical Release changes in a manner that precludes determination of
the Treasury Yield in the above manner, then the Treasury Yield shall be
determined in the manner that most closely approximates the above manner,
as reasonably determined by us.
- "Statistical Release" means the statistical release designated
"H.15(519)" or any successor publication which is published weekly by the
Federal Reserve System and which reports yields on actively traded United
States government securities adjusted to constant maturities, or, if such
statistical release is not published at the time of any determination
under the Indenture, then such other reasonably comparable index which
shall be designated by us.
THE TRUSTEE
Bank One Trust Company, N.A. (as successor to The First National Bank of
Chicago) is the Trustee under the Indenture. All payments of principal of, and
interest on, and all registration, transfer, exchange, authentication, and
delivery (including authentication and delivery on original issuance of the
notes) of, the notes will be effected by the Trustee in Chicago, Illinois, or at
an office designated by the Trustee in New York, New York. The Trustee is an
affiliate of Banc One Capital Markets, Inc.
The Indenture contains certain limitations on the right of the Trustee,
should it become our creditor, to obtain payment of claims in certain cases or
to realize on certain property received in respect of any such claim as security
or otherwise. The Trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such conflict
or resign.
The holders of not less than a majority in principal amount of the then
outstanding notes shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee with respect to the notes, provided
that (i) such direction shall not be in conflict with any rule of law or with
the Indenture; (ii) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction; (iii) such direction
would not be unduly prejudicial to the rights of another holder; and (iv) such
direction would not involve the Trustee in personal liability (Section 512). If
an Event of Default (as defined in the
S-8
attached prospectus) with respect to the notes occurs and is continuing, the
Trustee shall exercise with respect to the notes such rights and powers vested
in it by the Indenture, and use the same degree of care and skill in their
exercise, as a prudent man would exercise or use under the circumstances in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers vested in it by the
Indenture at the request of any of the holders, unless such holders shall have
offered to the Trustee security or indemnity reasonably satisfactory to the
Trustee against the costs, expenses and liabilities which might be incurred by
it in compliance with such request or direction (Section 602).
BOOK-ENTRY NOTES
The notes will be issued in book-entry form, as one or more notes
registered in the name of the nominee of The Depository Trust Company, which
will act as Depositary (as defined in the attached prospectus). See "Description
of Debt Securities -- Book-Entry System" in the attached prospectus.
SAME-DAY SETTLEMENT AND PAYMENT
The underwriters will make settlement for the notes in immediately
available funds. We will make all payments of principal and interest in respect
of the notes in immediately available funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing house or next-day funds. In contrast, the notes
will trade in The Depository Trust Company's Same-Day Funds Settlement System
until maturity or until the notes are issued in certificated form. Therefore,
The Depository Trust Company will require secondary market trading activity in
the notes to settle in immediately available funds. No assurance can be given as
to the effect, if any, of settlement in immediately available funds on trading
activity in the notes.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax considerations to the
purchasers of the notes is based on current law, is for general information only
and is not tax advice. This discussion deals only with notes held as "capital
assets" within the meaning of the Code and does not purport to deal with all
aspects of taxation that may be relevant to particular purchasers in light of
their personal investment or tax circumstances or to certain types of purchasers
(including insurance companies, financial institutions, broker-dealers, persons
who own notes that are a hedge or are hedged against interest rate risks, or
persons who own notes as part of a straddle or conversion transaction for tax
purposes) subject to special treatment under the federal income tax law.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE NOTES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER
TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND DISPOSITION AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
For a summary of the material federal income tax considerations to the
Partnership, see "Federal Income Tax Considerations with Respect to the Trust
and the Operating Partnership" in the attached prospectus. The capitalized terms
used under "Certain Federal Income Tax Considerations" have been defined under
"Federal Income Tax Considerations with Respect to the Trust and the Operating
Partnership" in the attached prospectus.
U.S. HOLDERS OF THE NOTES
Payments of Interest. The notes are not currently expected to be issued
with original issue discount ("OID"). Interest on a note without OID generally
will be included in the income of a holder as ordinary income at the time such
interest is received or accrued in accordance with the holder's regular method
of accounting.
Market Discount. Generally, if a U.S. Holder purchases a note for an
amount that is less than its issue price or, in the case of a subsequent
purchaser, its stated redemption price at maturity, such U.S. Holder will be
treated as having purchased the note at a "market discount," unless the market
discount is
S-9
less than a de minimis amount (generally 1/4 of 1 percent of the stated
redemption price of the note at maturity times the number of complete years to
maturity after the U.S. Holder acquires the note).
Under the market discount rules, a U.S. Holder will be required to treat
any partial principal payment on a note, or any gain realized on the sale,
exchange, retirement or other disposition of a note, as ordinary income to the
extent of the lesser of: (i) the amount of such payment or realized gain, or
(ii) the market discount which has not previously been included in income and is
treated as having accrued on the note at the time of such payment or
disposition. Market discount will be considered to accrue ratably during the
period from the date of acquisition to the maturity date of the note, unless the
U.S. Holder elects to accrue market discount on a constant yield basis. Once
made such an election may be revoked only with the consent of the IRS.
A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a note with market discount until the maturity of the note or
certain earlier dispositions, because a current deduction is only allowed to the
extent that the interest expense exceeds the portion of market discount
allocable to the days during the taxable year in which the note was held by the
taxpayer.
A U.S. Holder may elect to include market discount in income currently as
it accrues (on either a ratable or constant yield basis), in which case the
rules described above regarding the treatment as ordinary income of gain upon
the disposition of the note and upon the receipt of certain cash payments and
regarding the deferral of interest deductions will not apply. Generally, such
currently included market discount is treated as ordinary interest income for
federal income tax purposes. Such an election will apply to all debt instruments
with market discount acquired by the U.S. Holder on or after the first day of
the taxable year to which such election applies and may be revoked only with the
consent of the IRS.
Amortizable Bond Premium. If a U.S. Holder purchases a debt instrument for
an amount that is greater than the sum of all amounts payable on the debt
instrument after the purchase date, other than payments of qualified stated
interest, such U.S. Holder will be considered to have purchased the debt
instrument with "amortizable bond premium," generally equal in amount to such
excess. In the case of a debt instrument that may be optionally redeemed prior
to maturity (such as the notes), the applicable Treasury Regulations (the "Bond
Premium Regulations") provide that the amount of amortizable bond premium is
determined by substituting the first date on which the debt instrument may be
redeemed (the "redemption date") for the maturity date and the applicable
redemption price on the redemption date for the amount payable at maturity, if
the result would increase the holder's yield to maturity. If the issuer does not
in fact exercise its right to redeem the debt instrument on the applicable
redemption date, the debt instrument will be treated (solely for purposes of the
amortizable bond premium rules) as having matured and then as having been
reissued for the holder's "adjusted acquisition price," which is an amount equal
to the holder's basis in the debt instrument (as determined under the Bond
Premium Regulations), less the sum of (i) any amortizable bond premium allocable
to prior accrual periods, and (ii) any payments previously made on the debt
instrument (other than payments of qualified stated interest). The debt
instrument deemed to have been reissued will again be subject to the amortizable
bond premium rules with respect to the remaining dates on which the debt
instrument is redeemable.
A U.S. Holder may elect to amortize bond premium on a debt instrument. Once
made, the election applies to all taxable debt instruments then owned and
thereafter acquired by the U.S. Holder on or after the first day of the taxable
year to which such election applies, and may be revoked only with the consent of
the IRS. In general, a holder amortizes bond premium by offsetting the qualified
stated interest allocable to an accrual period with the bond premium allocable
to the accrual period, which is determined under a constant yield method
pursuant to the Bond Premium Regulations. If the bond premium allocable to an
accrual period exceeds the qualified stated interest allocable to such period,
the excess is treated by the holder as a bond premium deduction. The bond
premium deduction for each accrual period is limited to the amount by which the
holder's total interest inclusions on the debt instrument in prior accrual
periods exceed the total amount treated by such holder as a bond premium
deduction on the debt
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instrument in prior accrual periods. Any amounts not deductible in an accrual
period may be carried forward to the next accrual period and treated as bond
premium allocable to that period.
Disposition of the Notes. Upon the sale, exchange, redemption, retirement
or other disposition of a note, a U.S. Holder generally will recognize taxable
gain or loss equal to the difference between (i) the amount of cash proceeds and
the fair market value of any property received on the disposition (except to the
extent such amount is attributable to accrued but unpaid stated interest, which
is taxable as ordinary income), and (ii) such U.S. Holder's adjusted tax basis
in the note. For purposes of determining taxable gain or loss, a U.S. Holder's
adjusted tax basis in a note generally will equal the cost of the note to such
Holder increased by accrued market discount, if any, that the U.S. Holder has
included in income, and decreased by the amount of any payments other than
qualified stated interest payments received, and amortizable bond premium taken,
with respect to such note. A portion of the taxable gain may be treated as
ordinary income under the market discount rules described above. Gain or loss
recognized upon the disposition of a note will be a long-term capital gain or
loss if the note was a capital asset in the hands of the U.S. Holder and was
held for more than one year.
U.S. ALIEN HOLDERS OF THE NOTES
The rules governing the United States federal income taxation of a U.S.
Alien Holder are complex and no attempt will be made herein to provide more than
a summary of such rules. U.S. ALIEN HOLDERS SHOULD CONSULT WITH THEIR OWN TAX
ADVISORS TO DETERMINE THE EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS,
AS WELL AS TAX TREATIES, WITH REGARD TO AN INVESTMENT IN THE NOTES.
Payment of Interest. Generally, payments of principal and interest on a
note to a U.S. Alien Holder will qualify for the "portfolio interest exemption"
and, therefore, will not be subject to United States federal income tax or
withholding, unless the U.S. Alien Holder is (i) a direct or indirect 10% or
greater partner (as defined in Section 871(h)(3) of the Code) in the
Partnership, (ii) a controlled foreign corporation related to the Partnership,
or (iii) a bank receiving interest described in Section 881(c)(3)(A) of the
Code. To qualify for the portfolio interest exemption, the last United States
payor in the chain of payment prior to payment to a U.S. Alien Holder (the
"Withholding Agent") must have received a statement in a timely manner that (i)
is signed by the beneficial owner of the note under penalties of perjury, (ii)
certifies that such owner is a U.S. Alien Holder, and (iii) provides the name
and address of the beneficial owner. The statement may be made on an IRS Form
W-8BEN or a substantially similar form, and the beneficial owner must inform the
Withholding Agent of any change in the information on the statement within 30
days of such change. If a note is held through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide a signed statement to the Withholding Agent. In such
case, the signed statement must be accompanied by a copy of the IRS Form W-8BEN
or the substitute form provided by the beneficial owner to the organization or
institution.
Except to the extent that an applicable treaty otherwise provides, a U.S.
Alien Holder generally will be taxed in the same manner as a U.S. Holder with
respect to interest if the interest income is effectively connected with a
United States trade or business of the U.S. Alien Holder. Under certain
circumstances, effectively connected interest received by a corporate U.S. Alien
Holder may be subject to an additional "branch profits tax" at a 30% rate (or,
if applicable, a lower tax rate specified by a treaty). Even though such
effectively connected interest is subject to income tax, and may be subject to
the branch profits tax, it is not subject to withholding if the U.S. Alien
Holder delivers a properly executed IRS Form W-8ECI to the Withholding Agent.
Interest income of a U.S. Alien Holder that is not effectively connected
with a United States trade or business and that does not qualify for the
portfolio interest exemption described above generally is subject to a
withholding tax at a 30% rate (or, if applicable, a lower tax rate specified by
a treaty).
Disposition of the Notes. A U.S. Alien Holder of a note generally will not
be subject to United States federal income tax or withholding on any gain
realized on the sale, exchange, redemption, retirement or other disposition of a
note unless (i) the gain is effectively connected with a United States trade or
business of the U.S. Alien Holder, (ii) in the case of a U.S. Alien Holder who
is an individual,
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such U.S. Alien Holder is present in the United States for a period or periods
aggregating 183 days or more during the taxable year of the disposition, and
either such U.S. Alien Holder has a "tax home" in the United States or the
disposition is attributable to an office or other fixed place of business
maintained by such U.S. Alien Holder in the United States, or (iii) the U.S.
Alien Holder is subject to tax pursuant to the provisions of the Code applicable
to certain United States expatriates.
Certain United States Federal Estate Tax Considerations Applicable to a
U.S. Alien Holder. A note beneficially owned by an individual who is not a
citizen or resident of the United States at the time of death will not be
included in the decedent's gross estate for United States federal estate tax
purposes, unless the individual is a direct or indirect 10% or greater partner
of the Partnership, or, at the time of death, payments with respect to such note
would have been effectively connected with the conduct by such U.S. Alien Holder
of a trade or business within the United States.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements and back-up withholding at a
30% rate (for payments made in 2002 and 2003) will apply to payments on a note
(including stated interest payments and payments of the proceeds from the sale,
exchange, redemption, retirement or other disposition of a note), unless the
holder of the note (i) is a corporation or comes within certain other exempt
categories and, when required, demonstrates that fact, or (ii) provides a
correct taxpayer identification number, certifies as to its exemption from
backup withholding and otherwise complies with the applicable requirements of
the backup withholding rules. Certain penalties may be imposed by the IRS on a
holder that is required to supply information but does not do so in the proper
manner. The back-up withholding rate decreases to 29% in 2004 and 2005 and to
28% in 2006 and thereafter.
Information reporting requirements and backup withholding will not apply to
payments on a note to a U.S. Alien Holder if the U.S. Alien Holder provides the
required statement on IRS Form W-8BEN or a substantially similar form or on IRS
Form W-8ECI or a substantially similar form, provided that the withholding Agent
does not have actual knowledge that the Holder is a United States person.
However, we and other payors are required to report payments of interest on your
notes on Internal Revenue Service Form 1042-S even if the payments are not
otherwise subject to information reporting requirements. Information reporting
requirements and backup withholding will not apply to any payment of the
proceeds of the sale of a note effected outside the United States by a foreign
office of a "broker" (as defined in applicable Treasury Regulations), unless
such broker (i) is a United States person, (ii) derives 50% or more of its gross
income for certain periods from the conduct of a trade or business in the United
States, (iii) is a controlled foreign corporation as to the United States, or
(iv) is a foreign partnership, if at any time during its tax year, one or more
of its partners are "U.S. persons," as defined in U.S. Treasury regulations, who
in the aggregate hold more than 50% of the income or capital interest in the
partnership, or such foreign partnership is engaged in the conduct of a United
States trade or business. Payment of the proceeds of any such sale effected
outside the United States by a foreign office of any broker that is described in
(i), (ii) or (iii) of the preceding sentence generally will not be subject to
backup withholding, but will be subject to the information reporting
requirements unless such broker has documentary evidence in its records that the
beneficial owner is a U.S. Alien Holder and certain other conditions are met, or
the beneficial owner otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amount withheld from a
payment to a holder of a note under the backup withholding rules is allowable as
a credit against such holder's United States federal income tax liability (which
might entitle such holder to a refund), provided that such holder furnishes the
required information to the IRS.
OTHER TAX CONSIDERATIONS
Since the date of the attached prospectus, in May 2002, the Operating
Partnership acquired all of the stock of Liberty Property Development Corp. and
Liberty Property Development Corp.-II not previously held by the Operating
Partnership, and now owns 100% of the outstanding stock of Liberty Property
Development Corp. and Liberty Property Development Corp.-II.
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FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
We have made statements in this prospectus supplement, in the attached
prospectus and in the documents that are incorporated by reference in the
prospectus that constitute forward-looking statements, as that term is defined
in the Private Securities Litigation Reform Act of 1995. These statements are
subject to risks and uncertainties. Forward-looking statements include
information relating to acquisitions (including related pro forma financial
information) and other business development and development activities, future
capital expenditures, financing sources and availability, and the effects of
regulation (including environmental regulation) and competition. These
forward-looking statements generally are accompanied by words such as
"believes," "anticipates," "expects," "estimates," "should," "seeks," "intends,"
"planned," "outlook" and "goal" or similar expressions. You should understand
that forward-looking statements are not guaranties and that there are inherent
difficulties in predicting future results. Actual results could differ
materially from those expressed or implied in the forward-looking statements.
Risks and uncertainties that may affect the operations, performance and
results of our business include, but are not limited to, the following: (i)
uncertainties affecting real estate businesses generally (such as entry into new
leases, renewals of leases and dependence on tenants' business operations), (ii)
risks relating to construction and development activities, acquisitions and
dispositions, (iii) possible environmental liabilities, (iv) risks relating to
leverage and debt service (including availability of financing terms acceptable
to us and sensitivity of our operations and financing arrangements to
fluctuations in interest rates), (v) dependence on the primary markets in which
our properties are located, (vi) the existence of complex regulations relating
to status as a REIT and the adverse consequences of the failure to qualify as a
REIT and (vii) the potential adverse impact of market interest rates on the
market price for the securities of the Partnership and the Trust.
Should one or more of these risks or uncertainties materialize, or should
the underlying assumptions prove incorrect, actual results may vary materially
from those described in, or implied by, the forward-looking statements.
S-13
UNDERWRITING
Each of the underwriters named below has agreed to purchase from us the
principal amount of the notes set forth opposite its name.
<Table>
<Caption>
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
- ----------- ----------------
Lehman Brothers Inc. ........................... $ 87,000,000
Banc One Capital Markets, Inc. ................. 10,500,000
Credit Suisse First Boston Corporation.......... 10,500,000
Goldman, Sachs & Co. ........................... 10,500,000
J.P. Morgan Securities Inc. .................... 10,500,000
Salomon Smith Barney Inc. ...................... 10,500,000
Wachovia Securities, Inc. ...................... 10,500,000
------------
Total................................. $150,000,000
============
</Table>
The underwriters will purchase the notes pursuant to an Underwriting
Agreement with us. The underwriters will pay us the offering price less the
underwriting discount specified on the cover page of this prospectus supplement.
We estimate our expenses for this offering at $300,000. Certain conditions
contained in the Underwriting Agreement must be satisfied before the
underwriters are required to purchase the notes. The underwriters will either
purchase all of the notes or none of them.
The underwriters have advised us that they will offer the notes directly to
the public initially at the offering price and to certain dealers at the
offering price less a selling concession not to exceed 0.40% of the principal
amount of the notes. The underwriters may allow and these dealers may reallow a
concession not to exceed 0.20% of the principal amount of the notes to other
dealers. After the initial offering of the notes, the underwriters may change
the offering price, the concession to selected dealers and the reallowance to
other dealers.
The underwriters will offer the notes subject to prior sale, withdrawal,
cancellation or modification of the offer of the notes without notice, and to
their receipt and acceptance of the notes. The underwriters may reject any order
to purchase notes.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended, and to
contribute to payments which the underwriters may be required to make in respect
thereof.
We have agreed that until the closing of this offering, we will not,
without the prior written consent of Lehman Brothers Inc., sell, offer to sell,
distribute or otherwise dispose of any of our debt securities or register for
sale under the Securities Act of 1933, as amended, any of our debt securities,
except for the notes offered hereby.
There is currently no public market for the notes, and we currently have no
intention to list the notes on any national securities exchange. The
underwriters have advised us that they presently intend to make a market in the
notes as permitted by applicable laws and regulations. The underwriters are not
obligated to make a market in the notes, however, and they may discontinue such
market making at any time in their sole discretion. Accordingly, there may not
be adequate liquidity or adequate trading markets for the notes.
The underwriters may engage in stabilizing and syndicate covering
transactions in accordance with Rule 104 under the Securities Exchange Act of
1934, as amended. Rule 104 permits stabilizing bids to purchase a security so
long as bids do not exceed a specified maximum. Syndicate covering transactions
involve purchases of notes in the open market after the distribution has been
completed in order to cover syndicate short positions. Stabilizing and syndicate
covering transactions may cause the price of the notes
S-14
to be higher than it would otherwise be in the absence of such transactions. The
underwriters may or may not engage in such transactions, in their discretion,
and, if such transactions are commenced, they may be discontinued without
notice.
Certain of the underwriters and their affiliates have from time to time
provided, and may in the future provide, investment banking and general
financing and banking services to us and our affiliates. Affiliates of J.P.
Morgan Securities Inc., Banc One Capital Markets, Inc. and Wachovia Securities,
Inc. are lenders under the credit facility. The net proceeds from the sale of
the notes will be used to reduce borrowings under the credit facility.
Accordingly, this offering is being conducted pursuant to Rule 2710(c)(8) of the
Conduct Rules of the National Association of Securities Dealers, Inc.
For more information, see "Plan of Distribution" in the attached
prospectus.
LEGAL MATTERS
The validity of the notes will be passed upon for us by Morgan, Lewis &
Bockius LLP, Philadelphia, Pennsylvania, and for the underwriters by Clifford
Chance Rogers & Wells LLP, New York, New York. Morgan, Lewis & Bockius LLP and
Clifford Chance Rogers & Wells LLP will rely on the opinions of Saul Ewing LLP,
Baltimore, Maryland, as to matters of Maryland law.
S-15
PROSPECTUS
LIBERTY PROPERTY TRUST
$688,383,230
LIBERTY PROPERTY TRUST
COMMON SHARES OF BENEFICIAL INTEREST
PREFERRED SHARES OF BENEFICIAL INTEREST,
DEPOSITARY SHARES,
WARRANTS AND GUARANTIES
$561,080,100
LIBERTY PROPERTY LIMITED PARTNERSHIP
DEBT SECURITIES
Liberty Property Trust may offer up to $688,383,230 of its common shares of
beneficial interest, preferred shares of beneficial interest, depositary shares
representing interests in its preferred shares, warrants to purchase common
shares and/or preferred shares, and guaranties of the debt securities of Liberty
Property Limited Partnership. The Trust's common shares are listed on the New
York Stock Exchange under the symbol "LRY."
Liberty Property Limited Partnership may offer up to $561,080,100 of its
debt securities in one or more series.
We may offer the securities at prices and on terms to be set forth in one
or more supplements to this prospectus. The securities may be offered directly,
through agents on our behalf or through underwriters or dealers.
The terms of the securities may include limitations on ownership and
restrictions on transfer thereof as may be appropriate to preserve the status of
the Trust as a real estate investment trust for United States federal income tax
purposes.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS FOR A DESCRIPTION
OF RISKS THAT SHOULD BE CONSIDERED BY PURCHASERS OF THE SECURITIES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES DESCRIBED IN THIS
PROSPECTUS OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is December 12, 2001.
ABOUT THIS PROSPECTUS
This prospectus describes certain securities of Liberty Property Trust,
which is a real estate investment trust, and Liberty Property Limited
Partnership, which is a limited partnership. We sometimes refer to the Trust and
the Operating Partnership together, along with their subsidiaries and
affiliates, using the words "we," "our" or "us," or as the "Company." This
prospectus is part of a registration statement that we filed with the SEC
utilizing a "shelf" registration process, which allows us to offer and sell any
combination of the securities described in this prospectus in one or more
offerings. Using this prospectus, the Trust may offer up to $688,383,230 worth
of its securities, and the Operating Partnership may offer up to $561,080,100
worth of its securities.
This prospectus contains a general description of the securities we may
offer. We will describe the specific terms of these securities, as necessary, in
supplements that we attach to this prospectus for each offering. Each supplement
will also contain specific information about the terms of the offering it
describes. The supplements may also add, update or change information contained
in this prospectus. In addition, as we describe below in the section entitled
"Where to Find Additional Information," we have filed and plan to continue to
file other documents with the SEC that contain information about us. Before you
decide whether to invest in our securities, you should read this prospectus, the
supplement that further describes the offering of those securities and the
information we otherwise file with the SEC.
WHERE TO FIND ADDITIONAL INFORMATION
We are required by federal securities laws to file certain information with
the SEC. You can access this material on the SEC's Internet website, at
http://www.sec.gov. You can also read and copy this material at the SEC's public
reference room, located at 450 Fifth Street, N.W., Washington, DC 20549. Please
call the SEC at (800) 732-0330 for information on how the public reference room
operates. In addition, the common shares are listed on the NYSE, and you can
obtain our reports, proxy statements and other information about us at the
offices of the NYSE, located at 20 Broad Street, New York, New York 10005.
We will also send you copies of the material we file with the SEC, free of
charge, upon your request. Please call or write our Investor Relations
department at:
65 Valley Stream Parkway
Malvern, Pennsylvania 19355
Telephone No.: (610) 648-1700
The SEC allows us to "incorporate by reference" into this prospectus
certain important information about us. This means that the information in this
prospectus is not complete, and you should read the information incorporated by
reference for more detail. We incorporate by reference in two ways. First, we
list certain documents that we have already filed with the SEC. The information
in these documents is considered part of this prospectus. Second, we may in the
future file additional documents with the SEC. When filed, the information in
these documents will update and supersede the current information in, and
incorporated by reference in, this prospectus.
We incorporate by reference the documents listed below, and any other
documents we file with the SEC under Section 13(a), 13(c), 14 or 15 of the
Securities Exchange Act of 1934 until the offering described in this prospectus
is completed:
(a) The Annual Reports on Form 10-K of the Trust and the Operating
Partnership for the fiscal year ended December 31, 2000 (File Nos.
001-13130 and 001-13132);
(b) The Quarterly Report on Form 10-Q of the Trust and the Operating
Partnership for the fiscal quarters ended March 31, 2001, June 30, 2001
and September 30, 2001 (File Nos. 001-13130 and 001-13132);
2
(c) The Current Report on Form 8-K of the Trust and the Operating
Partnership filed with the SEC on March 13, 2001 (File Nos. 001-13130
and 001-13132);
(d) The description of the Trust's common shares contained in the
Registration Statement on Form 8-A of the Trust registering the common
shares under Section 12 of the Securities Exchange Act of 1934, filed
with the Commission on June 8, 1994 (File No. 001-13130); and
(e) The description of the Trust's preferred share purchase rights
contained in the Registration Statement on Form 8-A of the Trust
registering the preferred shares purchase rights under Section 12 of
the Securities Exchange Act of 1934, filed with the Commission on
December 23, 1997 (File No. 001-13130).
This prospectus is part of our "shelf" registration statement. We have
filed the registration statement with the SEC under the Securities Act of 1933
to register the securities that we may offer by this prospectus and any
supplements. Not all of the information in the registration statement appears in
this prospectus, or will appear in any supplement. For more detail, you can read
the entire registration statement, and all of the exhibits filed with it, at the
SEC's offices or website as described above.
You should rely on the information that is in this prospectus and its
supplements, or incorporated by reference. You should not, however, assume that
the information that appears directly in this prospectus, or any supplement, is
accurate or complete as of any date other than the date on the front cover of
the document.
3
RISK FACTORS
Investing in the securities can involve various risks. We have described
below the risks that we believe are material to your investment decision.
RISKS RELATED TO OUR PROPERTIES AND BUSINESS
NEGATIVE MARKET CONDITIONS, OR ADVERSE DEVELOPMENTS CONCERNING OUR EXISTING
TENANTS, THAT IN EITHER CASE AFFECT OUR ABILITY TO ATTRACT NEW TENANTS, RELET
SPACE, COLLECT RENT OR RENEW LEASES, COULD ADVERSELY AFFECT OUR CASH FLOW FROM
OPERATIONS AND INHIBIT ITS GROWTH.
Our cash flow from operations depends on our ability to lease space to
tenants, on economically favorable terms, in our properties currently in
operation and those under development. Therefore, we could also be adversely
affected by various facts and events over which we have no control, such as:
- lack of demand for space in the areas where our properties are located
- inability to retain existing and attract new tenants
- economic or physical decline of the areas where our properties are
located
- physical damage to our properties
- the national, state and local economic climate and real estate
conditions, such as oversupply of or reduced demand for space and changes
in market rental rates
- the need to periodically renovate and repair our space
- defaults by our tenants or their failure to pay rent on a timely basis
Furthermore, if our tenants do not renew their leases as they expire, we
may not be able to relet the space. Leases covering approximately 7.3 million
leasable square feet, accounting for $53.0 million in annual base rent, are
scheduled to expire during 2002. In connection with an offering of the
securities, we will reflect material changes in these amounts in the applicable
prospectus supplement or in our periodic reports filed under the Securities
Exchange Act of 1934, which will become incorporated by reference in this
prospectus. Some leases that are renewed, and some new leases for space that we
relet, may have terms that are less economically favorable to us than current
lease terms, or may require us to incur significant costs, such as for
renovations.
Any of these events could adversely affect our cash flow from operations
and our ability to make expected distributions to shareholders, as well as our
ability to grow our cash flow from operations.
Our cash flow from operations also could be adversely affected if a
significant number of our tenants in terms of our overall rental revenues, fail
to pay rent or become bankrupt. Also, if a tenant defaults on a lease, we may
experience delays and costs in enforcing our rights as landlord.
A significant portion of our expenses of real estate investments, such as
debt service payments, real estate taxes, insurance and maintenance costs, are
generally not reduced when circumstances cause a decrease in cash flow from our
properties.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY WITH OTHER ENTITIES THAT OPERATE IN
OUR INDUSTRY.
We experience a great deal of competition in attracting tenants for our
properties and in locating land to develop and properties to acquire.
In our efforts to lease our properties, we compete for tenants with a broad
spectrum of other landlords in each of our markets. These competitors include,
among others, publicly-held REITs, privately-held entities, and individual
property owners. Some of these competitors may offer prospective tenants more
attractive financial terms than we are able to offer.
If the availability of land for development or high quality properties to
acquire in our markets diminishes, our operating results could be adversely
affected.
4
WE MAY EXPERIENCE INCREASED OPERATING COSTS, WHICH COULD ADVERSELY AFFECT OUR
CASH FLOW FROM, AND RESULTS OF, OPERATIONS.
Our properties are subject to operating risks common to commercial real
estate, any and all of which could adversely affect occupancy or rental rates.
Our properties are subject to increases in our operating expenses such as
cleaning, electricity, heating, ventilation and air conditioning; elevator
repair and maintenance; insurance and administrative costs; and other costs
associated with security, landscaping, repairs and maintenance of our
properties. While our current tenants generally are currently obligated to pay a
portion of these costs, there is no assurance that these tenants will agree to
pay these costs upon renewal or that new tenants will agree to pay these costs
initially. If operating expenses increase in some or all of our markets, we may
not be able to increase rents in all of these markets so as to meet increased
expenses without at the same time decreasing occupancy rates. If this occurs,
our ability to pay distributions to our shareholders and service our
indebtedness could be adversely affected.
OUR ABILITY TO ACHIEVE GROWTH IN OPERATING INCOME DEPENDS IN PART ON OUR ABILITY
TO DEVELOP AND ACQUIRE PROPERTIES, WHICH MAY SUFFER UNDER CERTAIN CIRCUMSTANCES.
We intend to continue to develop and acquire properties. Our acquisition
and development activities include the risks that:
- our construction and leasing up of a property may not be completed on
schedule, which could result in increased expenses and construction
costs, and would result in a reduction in our anticipated cash flow from
that property
- we may exceed our original or budgeted estimates, possibly making the
property unprofitable
- some acquisitions and developments may fail to perform in accordance with
our expectations
- we may have to abandon some development projects
Our development activities are also subject to risks relating to our
inability to obtain, or delays in obtaining, all necessary zoning, land-use,
building, occupancy and other required governmental permits and authorizations.
Any delays in obtaining or failures to obtain these permits and authorizations
could result in increased debt service expenses and in reduced cash flow from
the affected properties.
We anticipate that future acquisitions and development will be financed
through proceeds from property dispositions as well as secured or unsecured
financing, including our $450 million credit facility. Also, we may, if
desirable, sell securities in capital markets. It is possible that financing on
desirable terms may become unavailable, and that we would not be able to
continue our acquisitions and development.
If any particular property that we develop is not successful, we could lose
our investment in that property.
WE MAY SUFFER ECONOMIC HARM AS A RESULT OF ALLOCATING RESOURCES TO UNPROFITABLE
EFFORTS TO ENTER NEW MARKETS.
At times we may attempt to expand our operations into markets where we do
not currently operate. We may fail to accurately gauge conditions in a new
market prior to entering it, and therefore may not achieve our anticipated
results in the new market. If this occurs, our cash flow from operations may be
adversely affected.
MANY OF OUR PROPERTIES ARE CONCENTRATED IN OUR PRIMARY MARKETS, AND WE MAY
THEREFORE SUFFER ECONOMIC HARM AS A RESULT OF ADVERSE CONDITIONS IN THOSE
MARKETS.
Our properties are located principally in specific geographic areas in the
Southeastern, Mid-Atlantic and Midwestern United States. Due to the
concentration of our properties in these areas, our performance is dependent on
economic conditions in these areas. These areas have experienced periods of
economic decline.
The percentage of our total real estate related revenues derived from each
of our geographic markets for the year ended December 31, 2000 is as follows:
Southeastern Pennsylvania, 25.9%; New Jersey, 9.1%;
5
Lehigh Valley, Pennsylvania, 9.5%; Virginia, 8.6%; the Carolinas, 8.1%;
Jacksonville, Florida, 8.8%; Detroit, Michigan, 10.9%; and all others combined,
19.1%. In connection with an offering of the securities, we will reflect
material changes in these statistics in the applicable prospectus supplement or
in our periodic reports filed under the Securities Exchange Act of 1934, which
will become incorporated by reference in this prospectus.
WE MAY NOT BE ABLE TO ACCESS FINANCIAL MARKETS TO OBTAIN CAPITAL ON A TIMELY
BASIS, OR ON ACCEPTABLE TERMS.
In order to qualify as a REIT for federal income tax purposes, we are
required to distribute 90% of our taxable income to our shareholders each year,
and thus cannot reinvest this portion of our income in our business. As a
result, we rely on proceeds from property dispositions and third party capital
sources for many of our capital needs, including capital for acquisitions and
development. The public debt and equity markets are among the sources we rely
on. There is no guarantee that we will be able to access these markets, or any
other source of capital. Our ability to access the public debt and equity
markets depends on a variety of factors, including:
- general economic conditions affecting these markets
- our own financial structure and performance
- the market's opinion of REITs in general
- the market's opinion of REITs that own properties like ours
WE MAY SUFFER ADVERSE EFFECTS AS A RESULT OF THE DEBT SERVICING TERMS OF AND
FINANCIAL COVENANTS RELATING TO OUR INDEBTEDNESS.
Our required payments on the mortgages and other indebtedness on some of
our properties generally are not reduced if the economic performance of the
property declines. If the economic performance of a property declines, our
income, cash flow from operations and cash available for distribution to our
shareholders will be reduced. If we cannot make payments on our debt, we could
sustain a loss, suffer foreclosures by mortgagees or suffer judgments against
us.
Further, some of our obligations, including our $450 million credit
facility and all of our unsecured notes, as well as, at September 30, 2001,
approximately $133.3 million in outstanding mortgage indebtedness, contain
cross-default and/or cross-acceleration provisions, which means that a default
on one obligation may constitute a default on other obligations.
Finally, we may not be able to obtain funds by selling assets, raising
equity or refinancing indebtedness to make required payments on maturing
indebtedness.
WE MAY SUFFER ECONOMIC HARM AS A RESULT OF INCREASES IN INTEREST RATES.
Some of our indebtedness, including that incurred under our credit
facility, bears interest at variable rates and we therefore are at risk of
increasing interest rates. At September 30, 2001, we had outstanding a total of
$96.0 million principal amount of indebtedness bearing interest at variable
rates. At that date, the weighted average interest rate of this indebtedness was
approximately 4.4%. In connection with an offering of the securities, we will
reflect material changes in these statistics in the applicable prospectus
supplement or in our periodic reports filed under the Securities Exchange Act of
1934, which will become incorporated by reference in this prospectus.
These rates are not generally subject to any caps. If interest rates
increase, we may not be able to refinance the credit facility, or any other
indebtedness, on attractive terms. We also may not be able to refinance any
indebtedness we incur in the future.
Increases in interest rates could increase our operating partnership's
interest expense, which could adversely affect the ability to service our
indebtedness or our ability to pay distributions to our shareholders. For the
year ended December 31, 2000, the weighted average interest rate on all of our
variable rate indebtedness was 7.5%. A hypothetical change in this weighted
average interest rate of 100
6
basis points higher or lower would have resulted in a corresponding increase or
decrease in our interest expense for that period of $1.5 million. In connection
with an offering of the securities, we will reflect material changes in these
statistics in the applicable prospectus supplement or in our periodic reports
filed under the Securities Exchange Act of 1934, which will become incorporated
by reference in this prospectus. In addition, we may incur indebtedness in the
future that also bears interest at a variable rate.
RISKS RELATED TO THE REAL ESTATE INDUSTRY
REAL ESTATE INVESTMENTS ARE ILLIQUID, AND WE MAY NOT BE ABLE TO SELL OUR
PROPERTIES IF AND WHEN WE DETERMINE IT IS APPROPRIATE TO DO SO.
Real estate generally cannot be sold quickly. We may not be able to alter
our portfolio or properties promptly in response to economic or other
conditions. In addition, provisions of the Internal Revenue Code limit a REIT's
ability to sell properties in some situations when it may be economically
advantageous to do so, thereby adversely affecting returns to our shareholders
and adversely impacting our ability to meet our obligations to the holders of
our other securities.
WE MAY EXPERIENCE ECONOMIC HARM IF ANY FUTURE DAMAGE TO OUR PROPERTIES IS NOT
COVERED BY INSURANCE.
We may suffer losses that are not covered under our comprehensive
liability, fire, extended coverage and rental loss insurance policies. For
example, we may not be insured for losses resulting from acts of war, or from
environmental liabilities. If an uninsured loss or a loss in excess of insured
limits should occur, we could lose our capital invested in a property, as well
as any future revenue from the property. We would nevertheless remain obligated
on any mortgage indebtedness or other obligations related to the property.
WE MAY HAVE ENVIRONMENTAL LIABILITIES RELATED TO OUR OPERATIONS.
Various federal, state and local laws, ordinances and regulations designed
to protect the environment may require us to investigate and clean up damage to
our properties from hazardous materials. These environmental laws often impose
liability regardless of whether we knew of, or were responsible for, the damage.
Also, the presence of hazardous materials on a property, or the damage caused by
those materials, may make it impossible to sell or rent the property or use it
as collateral. Our liability for the costs of cleaning up environmental damage
is generally not limited under environmental laws and could exceed the value of
the property and/or our aggregate assets. Also, private plaintiffs can sue us
for personal injury or initiate other causes of action if hazardous materials
are found on our properties.
We may incur environmental liability on some of our properties, and are
required to comply with rules and regulations regarding activities on our
properties as they affect the environment. Our failure to comply with those
requirements could result in difficulty in selling any affected property or in
our incurrence of monetary penalties and fines in addition to the costs
necessary to attain compliance.
RISKS RELATED TO OUR ORGANIZATION AND STRUCTURE
WE HAVE ELECTED REIT STATUS UNDER FEDERAL TAX LAWS, AND COULD SUFFER ADVERSE
CONSEQUENCES IF WE FAIL TO QUALIFY AS A REIT.
We have elected REIT status under federal tax laws and have taken the steps
known to us to perfect that status, but we cannot be certain that we in fact
qualify, or that we will remain qualified. Qualification as a REIT involves the
application of highly technical and complex provisions of the Internal Revenue
Code, as to which there are only limited judicial or administrative
interpretations. The complexity of these provisions and of the related income
tax regulations is greater in the case of a REIT that holds its assets in
partnership form, as we do. Moreover, no assurance can be given that new tax
laws will not significantly affect our qualification as a REIT or the federal
income tax consequences of such qualification. New laws could be applied
retroactively, which means that our past operations could be found to be in
violation, which would have a negative effect on our business.
7
If we fail to qualify as a REIT in any taxable year, we would not be able
to deduct our distributions to shareholders when computing our taxable income.
If this happened, we would be subject to federal income tax on our taxable
income at regular corporate rates. Also, we could be prevented from qualifying
as a REIT for the four years following the year in which we were disqualified.
Further, if we requalified as a REIT after failing to qualify, we might have to
pay the full corporate-level tax on any unrealized gain in our assets during the
period we were not qualified as a REIT. We would then have to distribute to our
shareholders the earnings we accumulated while we were not qualified as a REIT.
These additional taxes would reduce our funds available for distribution to our
shareholders for each of the years involved. In addition, while we were
disqualified as a REIT, we would not be required by the Internal Revenue Code to
make distributions to our shareholders.
Future economic, market, legal, tax or other considerations may cause our
Board of Trustees to revoke our election to qualify as a REIT. This decision
requires the consent of the holders of a majority of the voting interests of all
of our outstanding common shares.
For more information about federal income tax law as it affects us,
including a discussion of the qualification of the Operating Partnership as a
partnership for federal income tax purposes, see section of this prospectus
entitled "Federal Income Tax Considerations with Respect to the Trust and the
Operating Partnership -- Classification as a Partnership."
CERTAIN OFFICERS AND TRUSTEES OF THE TRUST MAY NOT HAVE THE SAME INTERESTS AS
OUR SHAREHOLDERS AS TO CERTAIN TAX LAWS.
Certain officers and trustees of the Trust own units of limited partnership
interest in the Operating Partnership. These units may be exchanged for our
common shares. The officers and trustees who own those units and have not yet
exchanged them for our common shares may suffer different and more adverse tax
consequences than holders of our common shares suffer in certain situations:
- when certain of our properties are sold
- when debt on those properties is refinanced
- if we are involved in a tender offer or merger
The Trust also owns units in the Operating Partnership. Because the Trust,
as well as the trustees and officers who own units, face different consequences
than our shareholders do, the Trust and those trustees and officers may have
different objectives as to these transactions than our shareholders do.
CERTAIN ASPECTS OF OUR ORGANIZATION COULD HAVE THE EFFECT OF RESTRICTING OR
PREVENTING A CHANGE OF CONTROL OF OUR COMPANY, WHICH COULD HAVE AN ADVERSE
EFFECT ON THE PRICE OF OUR SHARES.
Our charter contains an ownership limit on our shares. To qualify as a
REIT, five or fewer individuals cannot own, directly or indirectly, more than
50% in value of our outstanding shares of beneficial interest. To this end, our
Declaration of Trust, among other things, generally prohibits any holder of the
Trust's shares from owning more than 5.0% of the Trust's outstanding shares of
beneficial interest, unless that holder gets the consent of our Board of
Trustees. This limitation could prevent the acquisition of control of the
Company by a third party without the consent of our Board of Trustees.
We have a staggered board and certain restrictive nominating
procedures. Our Board of Trustees has three classes of trustees. The term of
office of one class expires each year. Trustees for each class are elected for
three-year terms as that class' term expires. The terms of the Class I, Class II
and Class III trustees expire in 2004, 2002 and 2003, respectively. Any nominee
for trustee must be selected under the nominating provisions contained in our
Declaration of Trust and By-Laws. The staggered terms for trustees and the
nominating procedures may affect our shareholders' ability to take control of
the Company, even if a change in control was in the shareholders' interest.
Our board can issue preferred shares. Our Declaration of Trust authorizes
our Board of Trustees to issue preferred shares of beneficial interest and to
establish the preferences and rights of any shares issued.
8
The issuance of preferred shares could have the effect of delaying, making more
difficult or preventing a change of control of the Company, even if a change in
control was in the shareholders' interest.
We have a poison pill. Under our shareholder rights plan, rights are
issued along with each of the Trust's common shares. Holders of these rights can
purchase from us, under certain conditions, a portion of a preferred share of
beneficial interest, or receive common shares of the Trust, or common shares of
an entity acquiring us, or other consideration, having a value equal to twice
the exercise price of the right. The exercise price of the right is $200. This
arrangement is often called a "poison pill." Our poison pill could have the
effect of delaying or preventing a change of control of the Company, even if a
change in control was in the shareholders' interest.
There are limitations on acquisition of and changes in control pursuant to,
and fiduciary protections of our board under, Maryland law. The Maryland
General Corporation Law contains provisions which are applicable to the Trust as
if the Trust were a corporation. Among these provisions is a section, referred
to as the "control share acquisition statute," which eliminates the voting
rights of shares acquired in quantities so as to constitute "control shares," as
defined under the MGCL. The MGCL also contains provisions applicable to us that
are referred to as the "business combination statute," which would generally
limit business combinations between the Company and any 10% owners of the
Trust's shares or any affiliate thereof. Further, Maryland law provides broad
discretion to the Board with respect to its fiduciary duties in considering a
change in control of our company, including that the Board is subject to no
greater level of scrutiny in considering a change in control transaction than
with respect to any other act by the Board. Finally, the "unsolicited takeovers"
provisions of the MGCL permit the Board, without shareholder approval and
regardless of what is currently provided in the Company's Declaration of Trust
or By-Laws, to implement takeover defenses that the Company does not yet have,
including: permitting only the Board to fix the size of the Board and permitting
only the Board to fill a vacancy on the Board. All of these provisions may have
the effect of inhibiting a third party from making an acquisition proposal for
our company or of delaying, deferring or preventing a change in control of our
company under circumstances that otherwise could provide the holders of our
common shares with the opportunity to realize a premium over the then current
market price.
VARIOUS FACTORS OUT OF OUR CONTROL COULD HURT THE MARKET VALUE OF OUR PUBLICLY
TRADED SECURITIES.
General market conditions could change for the worse. The value of our
publicly traded securities depends on various market conditions, which may
change from time to time. In addition to general economic and market conditions
and our particular financial condition and performance, the value of our
publicly traded securities could be affected by, among other things, the extent
of institutional investor interest in us and the market's opinion of REITs in
general and, in particular, REITs that own and operate properties similar to
ours.
The market value of the equity securities of a REIT may be based primarily
upon the market's perception of the REIT's growth potential and its current and
future cash distributions, and may be secondarily based upon the real estate
market value of the underlying assets. Our failure to meet the market's
expectations with regard to future earnings and cash distributions likely would
adversely affect the market price of our publicly traded securities.
Rising market interest rates could make an investment in our publicly
traded securities less attractive. If market interest rates increase, purchasers
of our publicly traded securities may demand a higher annual yield on the price
they pay for their securities. This could adversely affect the market price of
our publicly traded securities.
TRANSACTIONS BY THE TRUST OR THE OPERATING PARTNERSHIP COULD ADVERSELY AFFECT
DEBT HOLDERS.
Except with respect to several covenants limiting the incurrence of
indebtedness and a covenant requiring the Operating Partnership to maintain a
certain unencumbered total asset value, our indentures do not contain any
provisions that would protect holders of the Operating Partnership's debt
securities in the event of (i) a highly leveraged or similar transaction
involving the Operating Partnership, the management of the Operating Partnership
or the Trust, or any affiliate of any these parties, (ii) a change
9
of control, or (iii) certain reorganizations, restructuring, mergers or similar
transactions involving the Operating Partnership or the Trust.
RISKS RELATING TO FORWARD-LOOKING STATEMENTS WHICH MAY NOT COME TRUE
The Private Securities Litigation Reform Act of 1995 provides us with a
"safe harbor" for forward-looking statements we make. This means that we may not
be liable to our shareholders if the projections we make about our future
operations or performance do not come true. Certain materials that we have filed
or will file with the SEC, and that we incorporate by reference in this
Prospectus, contain forward-looking statements. These may include projections
about the performance of properties we acquire (including pro forma financial
information that we file about those properties) and other business development
activities. We may also make forward-looking statements about future capital
expenditures, access to financing sources, the effects of regulations (including
environmental regulations) and competition in our operations. These
forward-looking statements involve important risks and uncertainties that could
significantly affect our future results, which may not meet our expectations.
Among other things, these risks and uncertainties could include the types of
risks discussed in this "Risk Factors" section.
THE COMPANY
Liberty Property Trust (the "Trust") is a self-administered and
self-managed Maryland real estate investment trust ("REIT") that was formed to
continue and expand the commercial real estate business of Rouse & Associates, a
developer and manager of commercial real estate in the Southeastern,
Mid-Atlantic and West Coast markets, founded in 1972. The Trust provides
leasing, property management, acquisition, development, construction and design
management and other related services to our portfolio of industrial and office
properties.
On a consolidated basis, substantially all of the Trust's assets are owned
directly or indirectly by, and all of the Trust's operations are conducted
directly or indirectly by, Liberty Property Limited Partnership (the "Operating
Partnership"). The Trust is the sole general partner and also is a limited
partner of the Operating Partnership. Unless the context otherwise requires, as
used in this prospectus, (i) the term "Operating Partnership" includes Liberty
Property Limited Partnership and its subsidiaries (and, where the context
indicates, its predecessor entities, Rouse & Associates, a Pennsylvania general
partnership, and certain affiliated entities) and (ii) the term "Company"
includes the Trust and the Operating Partnership.
The Company's executive offices are located at 65 Valley Stream Parkway,
Malvern, Pennsylvania 19355. The telephone number is (610) 648-1700. The Company
maintains offices in each of its primary markets.
10
SECURITIES OFFERED BY THIS PROSPECTUS
EQUITY SECURITIES OF THE TRUST
Using this prospectus, the Trust may offer from time to time in one or more
series, together or separately, at prices and on terms to be determined at the
time of offering:
- common shares of beneficial interest, $0.001 par value
- preferred shares of beneficial interest, $0.001 par value
- warrants to purchase preferred shares
- warrants to purchase common shares
- guaranties of debt securities issued by the Operating Partnership.
The Trust's preferred shares may, at the option of the Trust, be issued in
the form of depositary shares evidenced by depositary receipts, and may be
convertible into or exchangeable for common shares or other securities of the
Trust or the Operating Partnership. The common shares, preferred shares,
depositary shares, warrants to purchase common shares and preferred shares and
any guaranties of the debt securities issued by the Operating Partnership are
sometimes referred to in this prospectus, collectively, as "Trust Securities."
DEBT SECURITIES OF THE OPERATING PARTNERSHIP
Using this prospectus, the Operating Partnership may offer from time to
time in one or more series, together or separately, at prices and on terms to be
determined at the time of offering, its debt securities, which may consist of:
- debentures
- notes
- other evidences of indebtedness
These debt securities may have one or more of the following
characteristics:
- they may represent secured or unsecured obligations of the Operating
Partnership
- they may be either senior or subordinated
- they may have the benefit of conditional or unconditional guaranties of
the Trust
- they may be convertible into or exchangeable for common shares, preferred
shares, units of limited partnership interest of the Operating
Partnership ("Units") and other Securities.
The Debt Securities and Units are referred to in this prospectus, together
with Trust Securities, as "Securities."
USE OF PROCEEDS
Unless we state otherwise in the applicable prospectus supplement
accompanying this prospectus, the net proceeds, if any, from the sale of the
Securities offered by this prospectus will be used for general corporate
purposes.
These purposes may include, among other things, the following:
- the acquisition or development of properties or other assets
- the repayment of indebtedness.
At the date of this prospectus, we do not consider any specific material
proposed purchases of properties or other assets to be probable of completion.
If, as of the date of any prospectus supplement, we have identified any probable
purchases, we will describe these purchases in the prospectus supplement. The
amount of Securities offered from time to time pursuant to this prospectus and
any prospectus supplement, and the precise amounts and timing of the application
of net proceeds from the sale of those Securities,
11
will depend upon our funding requirements. If we elect at the time of an
issuance of Securities to make different or more specific use of proceeds than
described in this section, that use will be described in the prospectus
supplement.
CERTAIN RATIOS
Our ratios of earnings to fixed charges for the nine-month period ended
September 30, 2001 and the years ended December 31, 2000, 1999, 1998, 1997 and
1996 were 2.25, 2.31, 2.24, 2.07, 1.92 and 1.66, respectively. Our ratios of
earnings to combined fixed charges and preferred share dividends for the nine-
month period ended September 30, 2001 and the years ended December 31, 2000,
1999, 1998, 1997 and 1996 were 1.94, 1.98, 1.98, 1.85, 1.80 and 1.66,
respectively.
The ratios of earnings to fixed charges and the ratios of earnings to
combined fixed charges and preferred share dividends were computed by dividing
earnings by fixed charges and by combined fixed charges and preferred share
dividends, respectively. For the purpose of these computations, earnings have
been calculated by adding fixed charges (excluding capitalized interest) to
income before minority interest and extraordinary items. Fixed charges consist
of interest costs, whether expensed or capitalized, and amortization of deferred
financing costs.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities may be issued in one or more series under a senior
indenture or a subordinated indenture (these indentures are sometimes referred
to together as the "Indentures"). The Indentures are by and between the
Operating Partnership and a Trustee, and are in the forms that have been filed
as exhibits to the registration statement, of which this prospectus is a part.
The Indentures are subject to the terms of amendments or supplements which may
be entered into from time to time. Any amendments or supplements to the
Indentures will be filed with the Commission as exhibits to or incorporated by
reference in the registration statement.
The following summaries of certain provisions of the Indentures are not
complete and are subject to, and qualified in their entirety by reference to,
all provisions of the Indentures, including the definitions in the Indentures of
certain terms. To the extent applicable to any particular series of Debt
Securities, the terms that are capitalized, but not defined, in this prospectus
shall have the respective meanings given to them in the Indenture applicable to
those Debt Securities. Whenever defined terms or whole sections of the
Indentures are summarized in this prospectus or in a prospectus supplement, it
is intended, unless otherwise noted, that those defined terms shall be
incorporated in this prospectus or in the prospectus supplement by reference.
See "Special Terms Relating to Subordinated Debt Securities." Except as
otherwise indicated, each reference to a section contained in this prospectus is
to that section of each of the Indentures.
The following describes certain general terms and provisions of the Debt
Securities to which any prospectus supplement may relate. The particular terms
of the Debt Securities offered by any prospectus supplement and the extent, if
any, to which these general provisions may apply to the Debt Securities so
offered, will be described in the prospectus supplement relating to those Debt
Securities. The Operating Partnership is referred to as the "Issuer" for
purposes of the following summary.
The Issuer's rights and the rights of its creditors, including the holders
of the Debt Securities offered pursuant to this prospectus, to participate in
the assets of any subsidiary upon its liquidation or recapitalization will be
subject to the prior claims of the subsidiary's creditors except, subject to
certain limitations, to the extent that the Issuer may itself be a creditor with
recognized claims against the subsidiary.
12
GENERAL
The Indentures do not limit the aggregate principal amount of Debt
Securities that may be issued under the Indentures, and provide that Debt
Securities may be issued from time to time in one or more series. The Debt
Securities will be direct obligations, secured or unsecured, of the Issuer. The
Senior Debt Securities issued under the senior indenture will rank on a parity
with all other unsubordinated indebtedness of the Issuer. The Subordinated Debt
Securities issued under the subordinated indenture will be subordinated and
junior in right of payment to all Senior Indebtedness of the Issuer, to the
extent and in the manner described in the subordinated indenture.
Reference is made to the prospectus supplement relating to the particular
series of Debt Securities offered under that prospectus supplement for the
following terms, to the extent applicable:
- the title and series of the Debt Securities;
- any limit on the aggregate principal amount of the Debt Securities;
- the price or prices at which the Debt Securities will be issued, which
will be expressed as a percentage of the aggregate principal amount of
the Debt Securities;
- the date or dates on which the Debt Securities will mature, or the method
or methods, if any, by which the date or dates shall be determined;
- the annual rate or rates, either fixed or variable, at which the Debt
Securities will bear interest, if any, or the method or methods, if any,
by which the rate or rates are to be determined;
- the date or dates from which interest, if any, on the Debt Securities
will accrue or the method or methods, if any, by which the date or dates
are to be determined, the dates on which interest, if any, will be
payable, the date on which payment of interest, if any, will commence and
the Regular Record Dates for these Interest Payment Dates, if any;
- the dates, if any, on which, and the price or prices at which the Debt
Securities will, pursuant to any mandatory sinking fund provisions, or
may, pursuant to any optional sinking fund or purchase fund provisions,
be redeemed by the Issuer or otherwise, and the other detailed terms and
provisions of any such sinking fund or purchase fund;
- the period or periods within which, the price or prices at which, the
currency or currencies, currency unit or units or composite currency or
currencies in which, and other terms and conditions upon which, the Debt
Securities may, pursuant to any optional redemption provisions, be
redeemed at the option of the Issuer, the holder thereof or otherwise and
the other detailed terms and provisions of such optional redemption;
- the extent to which any of the Debt Securities will be issuable in
temporary or permanent global form with or without coupons and, if so,
the identity of the depositary for this global Debt Security, and the
manner in which any interest payable on a temporary or permanent global
Debt Security will be paid;
- the denomination or denominations in which the Debt Securities are
authorized to be issued;
- whether any of the Debt Securities will be issued in bearer form and, if
so, any limitations on the issuance or conversion of the bearer Debt
Securities, including as to exchange for registered Debt Securities of
the same series;
- information with respect to book-entry procedures;
- whether any of the Debt Securities will be issued as Original Issue
Discount Securities (as defined below);
- the place or places where, subject to the terms of the related Indenture,
the principal of and interest on, and any other applicable amounts
payable in respect of, the Debt Securities shall be payable, and where
the Debt Securities may be presented for registration of transfer,
exchange or
13
conversion and where notices or demands to or upon the Issuer in respect
of the Debt Securities may be served;
- the currencies or currency units in which the Debt Securities are issued
and in which the principal of, interest on and additional amounts, if
any, in respect of the Debt Securities will be payable;
- whether the amount of payments of principal of, and interest and
additional amounts, if any, on the Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not be, based on one or more currencies, currency
units or composite currencies, commodities, equity indices or other
indices) and the manner in which these amounts shall be determined;
- whether the Issuer or a holder may elect payment of the principal of or
interest on the Debt Securities in a currency or currencies, currency
unit or units or composite currency or currencies other than that in
which the Debt Securities are denominated or stated to be payable, the
period or periods within which, and the terms and conditions upon which,
this election may be made, and the time and manner of determining the
exchange rate between the currency or currencies, currency unit or units
or composite currency or currencies in which the Debt Securities are
denominated or stated to be payable and the currency, currencies,
currency unit or units or composite currency or currencies in which the
Debt Securities are to be so payable;
- the identity of the Trustee, and if other than the applicable Trustee,
the identity of each Security Registrar, Paying Agent and Authenticating
Agent and the designation of the initial Exchange Rate Agent, if any;
- if applicable, the defeasance of certain obligations by the Issuer
pertaining to the Debt Securities;
- the person to whom any interest on any registered Debt Security of the
series shall be payable, if other than the person in whose name that Debt
Security (or one or more predecessor Debt Securities) is registered at
the close of business on the Regular Record Date for such interest, the
manner in which, or the person to whom, any interest on any bearer Debt
Security of the series shall be payable, if otherwise than upon
presentation and surrender of the coupons appertaining thereto as they
severally mature, and the extent to which, or the manner in which, any
interest payable on a temporary global Debt Security on an Interest
Payment Date will be paid if other than in the manner provided in the
related Indenture;
- whether and under what circumstances the Issuer will pay additional
amounts (the term "interest," as used in this prospectus, shall include
such additional amounts) on the Debt Securities to any holder who is not
a United States person (including any modification to the definition of
such term as contained in the related Indenture as originally executed)
in respect of any tax, assessment or governmental charge and, if so,
whether the Issuer will have the option to redeem the Debt Securities
rather than pay these additional amounts (and the terms of any such
option);
- any deletions from, modifications of or additions to the Events of
Default or covenants of the Issuer with respect to any of the Debt
Securities, whether or not these Events of Default or Covenants are
consistent with Events of Default or Covenants set forth in the
Indenture;
- whether the Debt Securities shall be convertible into or exchangeable for
other Securities and, if so, the terms of any such conversion or exchange
and the terms of these other Securities;
- any other terms of the series, which will not be inconsistent with the
provisions of the applicable Indenture; and
- the terms of any guaranties, which may be conditional. The prospectus
supplement relating to any particular guaranty offered by that prospectus
supplement will include any additional terms of the guaranty, including
the rank in priority and any covenants applicable to the guaranty.
Debt Securities may be issued as "Original Issue Discount Securities" to be
sold at a discount below their principal amount. This discount may be
substantial. In the event of an acceleration of the maturity of any Original
Issue Discount Security, the amount payable to the holder of the Original Issue
Discount Security upon acceleration will be determined in accordance with the
applicable prospectus supplement,
14
the terms of the Debt Security and the applicable Indenture, but will be an
amount less than the amount payable at the maturity of that Original Issue
Discount Security. All material federal income tax, accounting and other
considerations applicable to that Original Issue Discount Security will be
described in the prospectus supplement relating thereto.
Except as described below under "Merger, Consolidation or Sale" or as
indicated in the applicable prospectus supplement, the Indentures do not contain
any provisions that would limit the ability of the Issuer to incur indebtedness
or that would afford holders of Debt Securities protection in the event of:
- a highly leveraged or similar transaction involving the Issuer, the Trust
as the sole general partner of the Issuer or any affiliate of either such
party;
- a change of control of the Company; or
- a reorganization, restructuring, merger or similar transaction involving
the Company that may adversely affect the holders of Debt Securities.
However, certain restrictions on the ownership and transfer of the common
shares and the preferred shares designed to preserve the Trust's status as a
REIT may act to prevent or hinder a change of control. The Issuer and its
management have no present intention of engaging in a transaction which would
result in the Issuer being highly leveraged or that would result in a change of
control.
REGISTRATION, TRANSFER, PAYMENT AND PAYING AGENT
Unless otherwise indicated in the applicable prospectus supplement, each
series of Debt Securities will be issued in registered form only, without
coupons. The Indentures, however, provide that the Issuer may also issue Debt
Securities in bearer form only, or in both registered and bearer form. Debt
Securities issued in bearer form shall have interest coupons attached, unless
issued as Original Issue Discount Securities. Debt Securities in bearer form
shall not be offered, sold, resold or delivered in connection with their
original issuance in the United States or to any United States person (as
defined below) other than through offices located outside the United States of
certain United States financial institutions.
As used in this prospectus, "United States person" means any citizen or
resident of the United States, any corporation, partnership or other entity
created or organized in or under the laws of the United States, or any estate or
trust, the income of which is subject to United States federal income taxation
regardless of its source, and "United States" means the United States of America
(including the States and the District of Columbia), its territories, its
possessions and other areas subject to its jurisdiction. Purchasers of Debt
Securities in bearer form will be subject to certification procedures and may be
affected by certain limitations under United States tax laws. These procedures
and limitations will be described in the prospectus supplement relating to the
offering of the Debt Securities in bearer form.
Unless otherwise indicated in the applicable prospectus supplement, Debt
Securities will be issued in denominations of $1,000 or any integral multiple
thereof. No service charge will be made for any transfer, exchange or conversion
of the Debt Securities but the Issuer may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Unless otherwise described in the applicable prospectus supplement, the
principal, premium, if any, and interest, if any, of or on the Debt Securities
will be payable, transfer of the Debt Securities will be registerable, and, if
applicable, any Convertible Debt Securities (as defined below) will be
convertible, at the office or agency of the Issuer maintained for that purpose,
as the Issuer may designate from time to time. Alternatively, at the option of
the Issuer, payments of interest may be made by check mailed to the address
appearing in the Security Register (as defined below) of the person in whose
name the registered Debt Security is registered at the close of business on the
applicable Regular Record Date(s).
Unless otherwise indicated in the applicable prospectus supplement, payment
of principal of, premium, if any, and interest, if any, on, Debt Securities in
bearer form will be made payable, subject to any applicable laws and
regulations, at the office outside the United States as specified in the
prospectus supplement and as the Issuer may designate from time to time. These
payments may be made, at the
15
option of the holder, either by check or by transfer to an account maintained by
the payee with a bank located outside the United States. Unless otherwise
indicated in the applicable prospectus supplement, payment of interest and
certain additional amounts on Debt Securities in bearer form will be made only
against surrender of the coupon relating to the applicable Interest Payment
Date. No payment with respect to any Debt Security in bearer form will be made
at any office or agency of the Issuer in the United States or by check mailed to
any address in the United States or by transfer to an account maintained with a
bank located in the United States.
MERGER, CONSOLIDATION OR SALE
The Issuer may consolidate with, or sell, lease or convey all or
substantially all of its assets to, or merge with or into any other entity,
provided that in any of these events:
(i) either the Issuer shall be the continuing entity, or the successor
entity shall be an entity organized and existing under the laws of the United
States or a State thereof. In the latter case, the successor entity shall
expressly assume:
- the due and punctual payment of the principal of (and premium or
Make-Whole Amount, if any) and any interest on all of any series of Debt
Securities, according to their tenor; and
- the due and punctual performance and observance of all of the covenants
and conditions of the Indentures to be performed by the Issuer.
These assumptions shall be made by supplemental indenture, complying with
the provisions of the Indentures relating to supplemental indentures,
satisfactory to the Trustee, executed and delivered to the Trustee by the
successor entity;
(ii) immediately after giving effect to the transaction and treating any
indebtedness which becomes an obligation of the Issuer or any Subsidiary as a
result of the transaction as having been incurred by the Issuer or such
Subsidiary at the time of such transaction, no Event of Default, and no event
which, after notice or the lapse of time, or both, would become an Event of
Default, shall have occurred and be continuing; and
(iii) an officer's certificate and legal opinion covering these conditions
shall be delivered to the Trustee (Sections 801 and 803).
CERTAIN COVENANTS
The Indentures contain various covenants including the following:
Existence. Except as described under "Merger, Consolidation or Sale,"
above, the Issuer will do or cause to be done all things necessary to preserve
and keep in full force and effect its existence, rights (by partnership
agreement and statute) and franchises; provided, however, that the Issuer shall
not be required to preserve any right or franchise if it determines that the
preservation of the right or franchise is no longer desirable in the conduct of
its business and that the loss of the right or franchise is not disadvantageous
in any material respect to the Holders of Debt Securities (Section 1005).
Maintenance of Properties. The Issuer will cause all of its material
properties used or useful in the conduct of its business or the business of any
Subsidiary (as defined below) to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and will
cause to be made all necessary repairs, renewals, replacements, betterments and
improvements of these properties, all as in the judgment of the Issuer may be
necessary so that the business carried on in connection with these properties
may be properly and advantageously conducted at all times; provided, however,
that the Issuer and its Subsidiaries shall not be prevented from selling or
otherwise disposing of for value their respective properties in the ordinary
course of business (Section 1006).
Insurance. The Issuer will, and will cause each of its Subsidiaries to,
keep all of its insurable properties insured against loss or damage at least
equal to their then full insurable value with insurers of
16
recognized responsibility and having an A.M. Best policy holder's rating of not
less than A-V (Section 1007).
Payment of Taxes and Other Claims. The Issuer will pay or discharge or
cause to be paid or discharged, before the same shall become delinquent: (i) all
taxes, assessments and governmental charges levied or imposed upon it or any
Subsidiary or upon the income, profits or property of the Issuer or any
Subsidiary; and (ii) all lawful claims for labor, materials and supplies which,
if unpaid, might by law become a lien upon the property of the Issuer or any
Subsidiary; provided, however, that the Issuer shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings or for which the Issuer has set apart and maintains
an adequate reserve (Section 1008).
Provision of Financial Information. Whether or not the Issuer is subject
to Section 13 or 15(d) of the Exchange Act, the Issuer will, to the extent
permitted under the Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents which the Issuer would have been required
to file with the Commission pursuant to such Sections 13 or 15(d) if the Issuer
were so subject (the "Financial Information"), such documents to be filed with
the Commission on or prior to the required filing dates by which the Issuer
would have been required so to file such documents if the Issuer were so
subject. The Issuer also will in any event:
(i) within 15 days of the applicable required filing date:
- transmit by mail to all Holders of Debt Securities, as their names and
addresses appear in the Security Register, without cost to these Holders,
copies of the Financial Information; and
- file with the Trustee copies of the Financial Information, and
(ii) if filing these documents by the Issuer with the Commission is not
permitted under the Exchange Act, promptly upon written request and payment of
the reasonable cost of duplication and delivery, supply copies of these
documents to any prospective Holder (Section 1009).
As used in the Indentures and the description thereof in this prospectus:
"Security Register" means a register maintained at a place of payment for
the registration and transfer of the Debt Securities.
"Subsidiary" means a corporation, partnership or limited liability company,
a majority of the outstanding voting stock, partnership interests or membership
interests, as the case may be, of which is owned or controlled, directly or
indirectly, by the Company or by one or more Subsidiaries of the Company.
Liberty Property Development Corp., Liberty Property Development Corp.-II,
Liberty Development Corp.-III, Liberty 2001 Corp. and Liberty UK Development
Corp. are Subsidiaries for purposes of this definition. For the purposes of this
definition, "voting stock" means stock having the voting power for the election
of directors, general partners, managers or trustees, as the case may be,
whether at all times or only so long as no senior class of stock has such voting
power by reason of any contingency.
ADDITIONAL COVENANTS AND/OR MODIFICATION TO THE COVENANTS DESCRIBED ABOVE
Any additional covenants of the Issuer and/or modifications to the
covenants described above with respect to any Debt Securities, including any
covenants relating to limitations on incurrence of indebtedness or other
financial covenants, will be described in the applicable Indenture or an
applicable supplemental indenture and described in the applicable prospectus
supplement.
EVENTS OF DEFAULT, NOTICE AND WAIVER
When used in the Indenture, the term "Event of Default" means, whatever the
reason for such Event of Default and whether or not it shall be voluntary or
involuntary or be effected by operation of law or
17
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body, any one of the following
events:
- default in the payment of any interest upon any series of Debt Securities
when such interest becomes due and payable, and continuance of this
default for a period of 30 days;
- default in the payment of the principal of (or premium or Make-Whole
Amount, if any, on) any Debt Security when it becomes due and payable at
its Maturity Date or by declaration of acceleration, notice of redemption
or otherwise;
- default in the performance, or breach, of any covenant or warranty of the
Issuer in the Indentures with respect to any Debt Security (other than a
covenant or warranty a default in whose performance or whose breach is
elsewhere in the relevant section of the Indentures specifically dealt
with), and continuance of this default or breach for a period of 60 days
after there has been given, by registered or certified mail, to the
Issuer by the Trustee, or to the Issuer and the Trustee by the Holders of
at least 25% in principal amount of the affected series of Debt
Securities, a written notice specifying the default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" under the Indenture;
- default under any bond, debenture, note or other evidence of indebtedness
of the Issuer, or under any mortgage, indenture or other instrument of
the Issuer under which there may be issued or by which there may be
secured any indebtedness of the Issuer (or by any Subsidiary of the
Issuer, the repayment of which the Issuer has guaranteed or for which the
Issuer is directly responsible or liable as obligor or guarantor on a
full recourse basis), whether this indebtedness now exists or shall
hereafter be created, which default shall constitute a failure to pay an
aggregate principal amount exceeding $10,000,000 of this indebtedness
when due and payable after the expiration of any applicable grace period
with respect thereto and shall have resulted in such indebtedness in an
aggregate principal amount exceeding $10,000,000 becoming or being
declared due and payable prior to the date on which it would otherwise
have become due and payable, without such indebtedness having been
discharged, or such acceleration having been rescinded or annulled,
within a period of 10 days after there shall have been given, by
registered or certified mail, to the Issuer by the Trustee, or to the
Issuer and the Trustee by the Holders of at least 10% in principal amount
of the outstanding Debt Securities, a written notice specifying such
default and requiring the Issuer to cause such indebtedness to be
discharged or cause such acceleration to be rescinded or annulled and
stating that such notice is a "Notice of Default" under the Indenture; or
- certain events of bankruptcy, insolvency or reorganization (Section 501).
If an Event of Default under the Indentures with respect to any series of
Debt Securities at the time outstanding occurs and is continuing (other than
Events of Default arising in connection with certain events of bankruptcy,
insolvency or reorganization), then in every such case the Trustee or the
Holders of not less than 25% of the principal amount of the outstanding Debt
Securities of the series may declare the principal amount and premium (if any)
and accrued interest on all the Debt Securities of such series to be due and
payable immediately by written notice thereof to the Issuer (and to the Trustee
if given by the Holders).
However, at any time after such a declaration of acceleration with respect
to the Debt Securities has been made, but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the Holders of not
less than a majority in principal amount of the outstanding Debt Securities of
the affected series may rescind and annul such declaration and its consequences
if (a) the Issuer shall have deposited with the Trustee all required payments of
the principal of (and premium or Make-Whole Amount, if any) and interest on the
Debt Securities of such series, plus certain fees, expenses, disbursements and
advances of the Trustee and (b) all Events of Default with respect to the Debt
Securities of such series, other than the non-payment of principal of (or
premium or Make-Whole Amount, if any) or interest on the Debt Securities of such
series which has become due solely by such declaration of acceleration, have
been cured or waived as provided in the Indenture. In the event of a
18
declaration of acceleration because an Event of Default as described in the
fourth item of the preceding list has occurred and is continuing, such
declaration shall be automatically rescinded and annulled if the default
triggering such Event of Default (along with any other defaults caused thereby)
shall be remedied or cured by the Issuer or its relevant Subsidiary or waived by
the holders of such indebtedness within 60 days after such declaration of
acceleration. Upon the occurrence of an Event of Default arising in connection
with certain events of bankruptcy, insolvency or reorganization, the principal
of, premium, if any, and accrued interest on all Debt Securities of such series
then outstanding shall immediately become due and payable without any
declaration or other act on the part of the Trustee or any Holder (Section 502).
The Trustee will be required to give notice to the Holders of the Debt
Securities of the affected series within 90 days of the occurrence of a default
under the Indentures unless the default shall have been cured or waived;
provided, however, that the Trustee may withhold notice to the Holders of the
Debt Securities of the affected series of any default (except a default in the
payment of the principal of (or premium or Make-Whole Amount, if any) or
interest on the Debt Securities of such series) if and so long as specified
responsible officers of the Trustee determine in good faith that the withholding
of such notice is in the interest of such Holders; provided, that in the case of
any default or breach of a covenant or warranty under the Indentures as
described in the third item of the preceding list, no such notice to Holders
shall be given until at least 60 days after the occurrence thereof. For purposes
of this paragraph, the term "default" means any event which is, or after notice
or lapse of time or both would become, an Event of Default under the Indentures
with respect to the Debt Securities of such series (Section 601).
The Indentures provide that no Holder of Debt Securities may institute any
proceedings, judicial or otherwise, with respect to the Indentures or for any
remedy thereunder, except in the case of failure of the Trustee, for 60 days, to
act after it has received a written request to institute proceedings in respect
of an Event of Default from the Holders of not less than 25% in principal amount
of the outstanding Debt Securities of any series, as well as an offer of
indemnity reasonably satisfactory to it (Section 507). This provision will not
prevent, however, any Holder of Debt Securities from instituting suit for the
payment of the principal of (and premium or Make-Whole Amount, if any) and
interest on the Debt Securities of the affected series on the respective due
dates thereof (Section 508).
Defaults (except a default in the payment of principal of (or premium or
Make-Whole Amount, if any) or interest on the Debt Securities of any series or
default with respect to a covenant or provision which cannot be modified under
the terms of the Indentures without the consent of each Holder affected) may be
waived by the Holders of not less than a majority of principal amount of the
then outstanding Debt Securities of the affected series, upon the conditions
provided in the Indentures (Section 513).
Subject to provisions in the Indentures relating to its duties in case of
default, the Trustee is under no obligation to exercise any of its rights or
powers under the Indentures at the request or direction of any Holders of any
series of Debt Securities then outstanding under the Indenture, unless these
Holders shall have offered to the Trustee reasonable security or indemnity
(Section 602). The Holders of not less than a majority in principal amount of
the outstanding Debt Securities of any series shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or exercising any trust or power conferred upon such Trustee.
However, the Trustee may refuse to follow any direction which is in conflict
with any law or the Indenture, which may involve the Trustee in personal
liability or which may be unduly prejudicial to the Holders of the Debt
Securities of the affected series not joining therein and the Trustee may take
any other action it deems proper not inconsistent with such direction (Section
512).
Within 120 days after the close of each fiscal year, the Issuer will be
required to deliver to the Trustee a certificate, signed by one of several
specified officers of the Issuer, stating whether or not such officer has
knowledge of any default under the Indentures and, if so, specifying each such
default and the nature and status thereof (Section 1010).
19
MODIFICATION OF THE INDENTURE
Modifications and amendments of each Indenture may be made only with the
consent of the Holders of not less than a majority in principal amount of all of
the Debt Securities issued under that Indenture. In addition, the Holders of not
less than a majority in principal amount of the Debt Securities have the right
to waive compliance by the Issuer with certain covenants in the Indentures.
However, no such modification or amendment may, without the consent of the
Holder of each Debt Security affected thereby:
- change the stated maturity of the principal of (or premium or Make-Whole
Amount, if any, on), or any installment of interest on, any such Debt
Security;
- reduce the principal amount of, or the rate or amount of interest on, or
any premium payable on redemption of Debt Securities, or adversely affect
any right of repayment of the Holder of any Debt Securities;
- change the place of payment, or the coin or currency, for payment of
principal or premium, if any, or interest on the Debt securities;
- impair the right to institute suit for the enforcement of any payment on
or with respect to the Debt Securities on or after the stated maturity of
the Debt Securities;
- reduce the above-stated percentage in principal amount of outstanding
Debt Securities the consent of whose Holders is necessary to modify or
amend the Indenture, for any waiver with respect to the Debt Securities,
or to waive compliance with certain provisions of the Indentures or
certain defaults and consequences thereunder or to reduce the quorum or
voting requirements set forth in the Indenture; or
- modify any of the foregoing provisions or any of the provisions relating
to the waiver of certain past defaults or certain covenants, except to
increase the required percentage to effect such action or to provide that
certain other provisions of the Indentures may not be modified or waived
without the consent of the Holder of each Debt Security of all series
under both Indentures (Section 902).
- make any Debt Securities payable in money other than that stated in the
definitive notes representing those Debt Securities
- make any change that adversely affects the right to convert or exchange
any Convertible Debt Securities
- make any change to the provisions of either of the Indentures regarding
subordination and seniority of the Debt Securities that adversely affects
the rights of any Holders of Debt Securities outstanding under that
Indenture.
Modifications and amendments of the Indentures are permitted to be made by
the Issuer and the Trustee without the consent of any Holder for any of the
following purposes:
- to evidence the succession of another person to the Issuer as obligor
under the Indenture;
- to add to the covenants of the Issuer for the benefit of the Holders of
Debt Securities or to surrender any right or power conferred upon the
Issuer in the Indenture;
- to add Events of Default for the benefit of the Holders of Debt
Securities;
- to add or change any provisions of the Indenture to facilitate the
issuance of, or to liberalize certain terms of, Debt Securities in bearer
form, or to permit or facilitate the issuance of Debt Securities in
uncertificated form, provided that such action shall not adversely affect
the interests of the Holders of Debt Securities in any material respect;
- to change or eliminate any provisions of the Indenture, provided that any
such change or elimination shall become effective only when the
outstanding Debt Securities are not entitled to the benefit of such
provision;
20
- to secure the Debt Securities;
- to establish the form or terms of the Debt Securities and any related
coupons as permitted by the Indenture;
- to evidence and provide for the acceptance of appointment under the
Indenture by a successor Trustee with respect to the Debt Securities or
facilitate the administration of the trust under the Indenture by more
than one Trustee;
- to cure any ambiguity, defect or inconsistency in the Indenture, provided
that such action is not inconsistent with the provisions of the Indenture
and shall not adversely affect the interests of Holders of Debt
Securities in any material respect; or
- to supplement any of the provisions of the Indenture to the extent
necessary to permit or facilitate defeasance and discharge of Debt
Securities, provided that such action shall not adversely affect the
interests of the Holders of Debt Securities in any material respect
(Section 901).
Each of the Indentures contain provisions for convening meetings of the
Holders of the Debt Securities of any series (Section 1501). A meeting will be
permitted to be called at any time by the Trustee, and also, upon request, by
the Issuer or the Holders of at least 10% in principal amount of the outstanding
Debt Securities of that series, in any such case upon notice given as provided
in the Indenture. Except for any consent that must be given by the Holder of
each Debt Security of such series affected by certain modifications and
amendments of the Indenture, any resolution presented at a meeting or adjourned
meeting duly reconvened at which a quorum is present may be adopted by the
affirmative vote of the Holders of a majority in principal amount of the
outstanding Debt Securities of such series; provided, however, that, except as
referred to above, any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action that may be
made, given or taken by the Holders of a specific percentage, which is less than
a majority, in principal amount of the outstanding Debt Securities of a series,
may be adopted at a meeting or adjourned meeting duly reconvened and at which a
quorum is present by the affirmative vote of the Holders of the specified
percentage in principal amount of the outstanding Debt Securities of that
series. Any resolution passed or decision taken at any meeting of Holders of the
Debt Securities of any series duly held in accordance with the Indenture will be
binding on all Holders of Debt Securities of that series. The quorum at any
meeting called to adopt a resolution, and at any reconvened meeting, will be
persons entitled to vote a majority in principal amount of the outstanding Debt
Securities of a series; provided, however, that if any action is to be taken at
such meeting with respect to a consent or waiver which may be given by the
Holders of not less than a specified percentage in principal amount of the
outstanding Debt Securities of a series, the persons entitled to vote such
specified percentage in principal amount of the outstanding Debt Securities of
such series will constitute a quorum (Section 1504).
Notwithstanding the foregoing provisions, each of the Indentures provides
that if any action is to be taken at a meeting of Holders of Debt Securities of
any series with respect to any request, demand, authorization, direction,
notice, consent, waiver and other action that the Indenture expressly provides
may be made, given or taken by the Holders of a specified percentage in
principal amount of all outstanding Debt Securities affected thereby, or the
Holders of such series and the other series: (i) there shall be no minimum
quorum requirement for such meeting; and (ii) the principal amount of the
outstanding Debt Securities of such series that vote in favor of such request,
demand, authorization, direction, notice, consent, waiver or other action shall
be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been made,
given or taken under the Indenture.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Issuer will be permitted under each of the Indentures to discharge
certain obligations to the Holders of any series of Debt Securities that have
not already been delivered to the Trustee for cancellation by irrevocably
depositing with the Trustee, in trust, funds in the currency in which the Debt
21
Securities of that series are payable in an amount sufficient to pay the entire
indebtedness on the Debt Securities in respect of principal (and premium or
Make-Whole Amount, if any) and interest to the date of such deposit, if the Debt
Securities have become due and payable, or to the stated Maturity Date or
redemption date, as the case may be.
Each of the Indentures will also provide that the Issuer may elect either:
- to defease and be discharged from any and all obligations with respect to
any series of Debt Securities other than the obligations to register the
transfer or exchange of the Debt Securities, to replace temporary or
mutilated, destroyed, lost or stolen Debt Securities, to maintain an
office or agency in respect of the Debt Securities and to hold moneys for
payment in trust ("defeasance") (Section 1402); or
- to be released from its obligations with respect to that series of Debt
Securities under certain sections of Article Ten of the Indenture
relating to limitations on the incurrence of Debt, maintenance of
Unencumbered Total Asset Value, existence of the Issuer, maintenance of
the Issuer's properties, insurance, payment of taxes and other claims and
provision of financial information.
In either case, any omission to comply with such obligations shall not
constitute an Event of Default with respect to such Debt Securities ("covenant
defeasance") (Section 1403), so long as, in either case, the Issuer irrevocably
deposits with the Trustee, in trust, of an amount, in the currency in which the
affected Debt Securities are payable at stated maturity, or Government
Obligations (as defined below), or both, applicable to the Debt Securities which
through the scheduled payment of principal and interest in accordance with their
terms will provide money in an amount sufficient without reinvestment to pay the
principal of (and premium or Make-Whole Amount, if any) and interest on the Debt
Securities or analogous payments thereon, on the scheduled due dates therefor.
Such a trust may only be established if, among other things, the Issuer has
delivered to the Trustee an opinion of counsel (as specified in the Indenture)
to the effect that the Holders of the affected Debt Securities will not
recognize income, gain or loss for federal income tax purposes as a result of
such defeasance or covenant defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have been
the case if such defeasance or covenant defeasance had not occurred, and this
opinion of counsel, in the case of defeasance, will be required to refer to and
be based upon a ruling of the Internal Revenue Service or a change in applicable
federal income tax law occurring after the date of the Indenture (Section 1404).
"Government Obligations" means securities which are: (i) direct obligations
of the United States of America for the payment of which its full faith and
credit is pledged; or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America, the
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depositary receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depositary receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depositary receipt.
In the event the Issuer effects covenant defeasance with respect to any
Debt Securities and those Debt Securities are declared due and payable because
of the occurrence of any Event of Default other than the Event of Default
described in the third item listed under "Events of Default, Notice and Waiver"
with respect to certain specified sections of Article Ten of the Indentures
(which sections would no longer be applicable to those Debt Securities as a
result of such covenant defeasance) the amount in such currency in which those
Debt Securities are payable, and Government Obligations on deposit with the
22
Trustee, will be sufficient to pay amounts due on those Debt Securities at the
time of their stated maturity but may not be sufficient to pay amounts due on
those Debt Securities at the time of the acceleration resulting from the
Default. However, the Issuer would remain liable to make payment of such amounts
due at the time of acceleration.
OUTSTANDING DEBT SECURITIES
Unless otherwise indicated in the applicable prospectus supplement, in
determining whether the holders of the requisite principal amount of Outstanding
Debt Securities have given any request, demand, authorization, direction,
notice, consent or waiver under an Indenture:
- the portion of the principal amount of an Original Issue Discount
Security that shall be deemed to be Outstanding for these purposes shall
be that portion of the principal amount thereof that could be declared to
be due and payable pursuant to the terms of the Original Issue Discount
Security as of the date of such determination;
- the principal amount of any Indexed Security shall be the principal face
amount of the Indexed Security determined on the date of its original
issuance; and
- any Debt Security owned by the Issuer or any obligor on such Debt
Security, or any Affiliate of the Issuer or such other obligor, shall be
deemed not to be outstanding.
SPECIAL TERMS RELATING TO SUBORDINATED DEBT SECURITIES
Upon any distribution of assets of the Issuer resulting from any
dissolution, winding up, liquidation or reorganization, payments on Subordinated
Debt Securities are to be subordinated, to the extent provided in the
Subordinated Indenture, in right of payment to the prior payment in full of all
Senior Indebtedness, but the obligation of the Issuer to make payments on the
Subordinated Debt Securities will not otherwise be affected. No payment on
Subordinated Debt Securities may be made at any time when there is a default in
the payment of any principal, premium, interest, Additional Amounts or sinking
fund of or on any Senior Indebtedness. Holders of Subordinated Debt Securities
will be subrogated to the rights of holders of Senior Indebtedness to the extent
of payments made on Senior Indebtedness upon any distribution of assets in any
such proceedings out of the distributive shares of Subordinated Debt Securities.
By reason of this subordination, in the event of a distribution of assets upon
insolvency, certain creditors of the Issuer may recover more, ratably, than
holders of Subordinated Debt Securities.
The prospectus supplement relating to any Subordinated Debt Securities will
describe the aggregate amount of Senior Indebtedness outstanding as of the most
recent date practicable and any limitations on the issuance of additional Senior
Indebtedness. As of the date of this prospectus, there is no limitation on the
amount of Senior Indebtedness that may be issued by the Trust or the Operating
Partnership.
CONVERSION OR EXCHANGE
The holders of Debt Securities of a specified series that are convertible
into or exchangeable for other Securities ("Convertible Debt Securities") will
be entitled at certain times specified in the prospectus supplement relating to
those Convertible Debt Securities, subject to prior redemption, exchange,
repayment or repurchase, to convert or exchange any Convertible Debt Securities
of that series into such other Securities, at the conversion price set forth in
the applicable prospectus supplement, subject to adjustment and to such other
terms as are set forth in that prospectus supplement. Any such conversion or
exchange of Convertible Debt Securities will be further subject to the
applicable terms and conditions set forth in the applicable Indenture, as
supplemented or amended from time to time.
OPTIONAL REDEMPTION
Except as otherwise provided in the applicable prospectus supplement, the
Debt Securities of any series may be redeemed at any time at the option of the
Issuer, in whole or from time to time in part, at a redemption price equal to
the sum of: (i) the principal amount of the Debt Securities being redeemed plus
23
accrued interest thereon to the redemption date; and (ii) the Make-Whole Amount
(as defined below), if any, with respect to such Debt Securities (the
"Redemption Price").
If notice of redemption has been given as provided in the applicable
Indenture and funds for the redemption of any Debt Securities called for
redemption shall have been made available on the redemption date referred to in
such notice, such Debt Securities will cease to bear interest on the date fixed
for such redemption specified in such notice and the only right of the Holders
of the Debt Securities from and after the redemption date will be to receive
payment of the Redemption Price upon surrender of such Debt Securities in
accordance with such notice.
Notice of any optional redemption of any Debt Securities will be given to
Holders at their addresses, as shown in the security register for the Debt
Securities, not more than 60 nor less than 30 days prior to the date fixed for
redemption. The notice of redemption will specify, among other items, the
Redemption Price and principal amount of the Debt Securities held by such Holder
to be redeemed.
If all or less than all of the Debt Securities of any series are to be
redeemed at the option of the Issuer, the Issuer will notify the Trustee at
least 45 days prior to giving notice of redemption (or any shorter period that
is satisfactory to the Trustee) of the aggregate principal amount of Debt
Securities to be redeemed, if less than all of the Debt Securities of any series
are to be redeemed, and their redemption date. If less than all of the Debt
Securities of any series are to be redeemed, the Trustee shall select, in such
manner as it shall deem fair and appropriate, no less than 60 days prior to the
date of redemption, the Debt Securities of such series to be redeemed.
Neither the Issuer nor the Trustee shall be required to: (i) issue,
register the transfer of or exchange Debt Securities during a period beginning
at the opening of business 15 days before any selection of Debt Securities to be
redeemed and ending at the close of business on the day of mailing of the
relevant notice of redemption; (ii) register the transfer of or exchange any
Debt Securities, or portion thereof, called for redemption, except the
unredeemed portion of any Debt Securities being redeemed in part; or (iii)
issue, register the transfer of or exchange any Debt Securities that have been
surrendered for repayment at the option of the Holder, except the portion, if
any, of such Debt Securities not to be so repaid (Section 305).
As used herein:
"Make-Whole Amount" means, in connection with any optional redemption of
any Debt Securities, the excess, if any, of: (i) the aggregate present value as
of the date of such redemption of each dollar of principal being redeemed and
the amount of interest (exclusive of interest accrued to the date of redemption)
that would have been payable in respect of each such dollar if such redemption
had not been made, determined by discounting, on a semi-annual basis, such
principal and interest at the Reinvestment Rate (as defined below) (determined
on the third Business Day preceding the date notice of such redemption is given)
from the respective dates on which such principal and interest would have been
payable if such redemption had not been made, to the date of redemption, over
(ii) the aggregate principal amount of the Debt Securities being redeemed.
"Reinvestment Rate" means the yield on Treasury securities at a constant
maturity corresponding to the remaining life (as of the date of redemption, and
rounded to the nearest month) to stated maturity of the principal being redeemed
(the "Treasury Yield"), plus 0.25%, unless such percentage is otherwise provided
in the applicable prospectus supplement. For purposes hereof, the Treasury Yield
shall be equal to the arithmetic mean of the yields published in the Statistical
Release (as defined below) under the heading "Week Ending" for "U.S. Government
Securities -- Treasury Constant Maturities" with a maturity equal to such
remaining life; provided, that if no published maturity exactly corresponds to
such remaining life, then the Treasury Yield shall be interpolated or
extrapolated on a straight-line basis from the arithmetic means of the yields
for the next shortest and next longest published maturities. For purposes of
calculating the Reinvestment Rate, the most recent Statistical Release published
prior to the date of determination of the Make-Whole Amount shall be used. If
the format or content of the Statistical Release changes in a manner that
precludes determination of the Treasury Yield in the above manner,
24
then the Treasury Yield shall be determined in the manner that most closely
approximates the above manner, as reasonably determined by the Issuer.
"Statistical Release" means the statistical release designated "H.15(519)"
or any successor publication which is published weekly by the Federal Reserve
System and which reports yields on actively traded United States government
securities adjusted to constant maturities, or, if such statistical release is
not published at the time of any determination under the Indenture, then such
other reasonably comparable index which shall be designated by the Issuer.
GLOBAL DEBT SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities that will be deposited with, or on behalf
of, a depositary identified in the prospectus supplement relating to that
series. Global Debt Securities may be issued in either registered or bearer form
and in either temporary or permanent form. Unless and until it is exchanged in
whole or in part for individual certificates evidencing Debt Securities in
definitive form represented thereby, a global Debt Security may not be
transferred except as a whole by the depositary for that global Debt Security to
a nominee of that depositary or by a nominee of that depositary to that
depositary or another nominee of that Depositary or by that depositary or any
such nominee to a successor of that depositary or a nominee of such successor.
The specific terms of the depositary arrangement with respect to a series
of global Debt Securities, and certain limitations and restrictions relating to
a series of bearer global Debt Securities, will be described in the prospectus
supplement relating to that series.
BOOK-ENTRY SYSTEM
Certain series of Debt Securities may be represented by a single fully
registered note in book-entry form, or global note, registered in the name of a
nominee of The Depository Trust Company ("DTC"). The following are summaries of
certain rules and operating procedures of DTC that affect the payment of
principal and interest and transfers in the global notes. Upon issuance, each
series of Debt Securities that is represented by a global note will be issued
only in the form of a global note which will be deposited with, or on behalf of,
DTC and registered in the name of Cede & Co., as nominee of DTC. Unless and
until it is exchanged in whole or in part for Debt Securities of the appropriate
series in definitive form under the limited circumstances described below, a
global note may not be transferred except as a whole by: (i) DTC to a nominee of
DTC; (ii) a nominee of DTC to DTC or another nominee of DTC; or (iii) DTC or any
such nominee to a successor or a nominee of that successor.
Ownership of beneficial interests in a global note will be limited to
persons that have accounts with DTC for that global note ("participants") or
persons that may hold interests through participants. Upon the issuance of a
global note, DTC will credit, on its book-entry registration and transfer
system, the participants' accounts with the respective principal amounts of the
Debt Securities represented by the global note beneficially owned by those
participants. Ownership of beneficial interests in these global notes will be
shown on, and the transfer of these ownership interests will be effected only
through, records maintained by DTC (with respect to interests of participants)
and on the records of participants (with respect to interests of persons holding
through participants). The laws of some states may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. These laws may limit or impair the ability to own, transfer or pledge
beneficial interests in the global notes.
So long as DTC or its nominee is the registered owner of a global note, DTC
or its nominee, as the case may be, will be considered the sole owner or Holder
of the Debt Securities represented by that global note for all purposes under
the Indenture. Except as described below, owners of beneficial interests in a
global note will not be entitled to have Debt Securities represented by that
global note registered in their names, will not receive or be entitled to
receive physical delivery of those Debt Securities in certified form and will
not be considered the registered owners or Holders thereof under the Indenture.
Accordingly, each person owning a beneficial interest in a global note must rely
on the procedures of DTC and, if that person is not a participant, on the
procedures of the participant through which that person owns its interest, to
25
exercise any rights of a Holder under the Indenture. The Issuer understands that
under existing industry practices, if the Issuer requests any action of Holders
or if an owner of a beneficial interest in a global note desires to give or take
any action that a Holder is entitled to give or take under the Indenture, DTC
would authorize the participants holding the relevant beneficial interests to
give or take such action, and such participants would authorize beneficial
owners owning through such participants to give or take such action or would
otherwise act upon the instructions of beneficial owners holding through them.
Principal and interest payments on interests represented by a global note
will be made to DTC or its nominee, as the case may be, as the registered owner
of that global note. None of the Issuer, the Trustee or any agent of the Trustee
will have any responsibility or liability for any aspect of the records relating
to or payment made on account of beneficial ownership interests in the global
notes or for maintaining, supervising or reviewing any records relating to those
beneficial ownership interests.
The Issuer expects that DTC, upon receipt of any payment of principal or
interest in respect of a global note, will immediately credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in such global note as shown on the records of DTC. The Issuer also
expects that payments by participants to owners of beneficial interests in the
global notes held through these participants will be governed by standing
customer instructions and customary practice, as is now the case with securities
held for the accounts of customers in bearer form or registered in "street
name," and will be the responsibility of these participants.
If DTC is at any time unwilling or unable to continue as depositary for
Debt Securities represented by a global note and the Issuer fails to appoint a
successor depositary registered as a clearing agency under the Exchange Act
within 90 days, the Issuer will issue such Debt Securities in definitive from in
exchange for the global notes. Any Debt Securities issued in definitive form in
exchange for the global notes will be registered in such name or names, and will
be issued in denominations of $1,000 and such integral multiples thereof, as DTC
shall instruct the Trustee. It is expected that such instructions will be based
upon directions received by DTC from participants with respect to ownership of
beneficial interests in the global notes.
DTC has advised the Issuer of the following information regarding DTC. DTC
is a limited-purpose trust company organized under the Banking Law of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC was created to hold securities of its participants and to facilitate
the clearance and settlement of transactions among its participants in such
securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. DTC's participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations, some of
which (and/or their representatives) own DTC. Access to the DTC book-entry
system is also available to others, such as banks, brokers and dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly.
DESCRIPTION OF PREFERRED SHARES
GENERAL
The rights, preferences, privileges and restrictions of the preferred
shares in respect of which this prospectus is delivered shall be described in
the prospectus supplement relating to those preferred shares. Among the terms of
the preferred shares which may be specified in the related prospectus supplement
are the following:
- the annual dividend rate, if any, or the means by which the dividend rate
may be calculated, including without limitation the possibility that the
rate of the dividends may bear an inverse relationship to some index or
standard;
26
- the date or dates from which dividends shall accrue and the date or dates
on which dividends shall be paid and whether dividends shall be
cumulative;
- the price at which and the terms and conditions on which the series of
preferred shares described in the prospectus supplement may be redeemed,
including the period of time during which the shares may be redeemed, any
premium to be paid over and above the par value of the preferred shares,
and whether and to what extent accumulated dividends on the preferred
shares will be paid upon the redemption of the shares;
- the liquidation preference, if any, over and above the par value of the
preferred shares and whether and to what extent the holders of the shares
shall be entitled to accumulated dividends in the event of the voluntary
or involuntary liquidation, dissolution or winding-up of the affairs of
the Trust;
- whether the preferred shares shall be subject to the operation of a
retirement or sinking fund and, if so, a description of the operation of
the retirement or sinking fund;
- the terms and conditions, if any, on which the preferred shares may be
convertible into, or exchangeable for, shares of any other class or
classes of equity interests in the Trust, including the price or rate of
conversion or exchange and the method for effecting the conversion or
exchange, provided that no preferred shares will be convertible into
shares of a class that has superior rights or preferences as to dividends
or distribution of assets of the Trust upon the voluntary or involuntary
dissolution or liquidation of the Trust;
- a description of the voting rights, if any, of the preferred shares; and
- other preferences, rights, qualifications or restrictions or material
terms of the preferred shares.
The Maryland Real Estate Investment Trust Law and the Trust's Declaration
of Trust provide that no shareholder shall be personally liable for any
obligation of the Trust. The Trust's Declaration of Trust and By-laws further
provide that the Trust shall indemnify each shareholder against any claim or
liability to which the holder may become subject by reason of being or having
been a shareholder, and that the Company shall reimburse each shareholder for
all legal or other expenses reasonably incurred by the holder in connection with
any such claim or liability. It should be noted, however, that with respect to
tort claims, claims for taxes and certain statutory liabilities, shareholders
may, in some jurisdictions, be personally liable to the extent that these claims
are not satisfied by the Company. Because the Company will carry public
liability insurance in amounts that it considers adequate, any risk of personal
liability to shareholders will be limited to situations in which the Company's
assets, together with its insurance coverage, would be insufficient to satisfy
the claims against the Company and the shareholders, or in which the claim is
not covered by the Company's liability insurance policies.
The description of the foregoing provisions of the preferred shares as set
forth in the related prospectus supplement is only a summary, is not complete
and is subject to, and is qualified in its entirety by, reference to the
definitive Articles Supplementary to the Trust's Declaration of Trust relating
to that series of preferred shares. In connection with any offering of preferred
shares, the Articles Supplementary will be filed with the Commission as an
exhibit to or incorporated by reference in the registration statement of which
this prospectus is a part.
RANK
Unless otherwise specified in the applicable prospectus supplement, each
series preferred shares will, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of the Trust, rank:
- senior to all classes or series of common shares, and to all equity
securities ranking junior to that series of preferred shares;
- on a parity with all equity securities issued by the Trust the terms of
which specifically provide that those equity securities rank on a parity
with that series of preferred shares; and
27
- junior to all equity securities issued by the Trust the terms of which
specifically provide that those equity securities rank senior to that
series of preferred shares.
For these purposes, the term "equity securities" does not include
convertible debt securities for this purpose.
DIVIDENDS
Holders of the preferred shares of each series will be entitled to receive,
when, as and if declared by the Board of Trustees of the Trust, out of assets of
the Trust legally available for payment, cash dividends, or dividends in kind or
in other property if expressly permitted and described in the applicable
prospectus supplement, at the rates and on the dates as will be set forth in the
applicable prospectus supplement. Each dividend shall be payable to holders of
record as they appear in the shareholder records of the Trust at the close of
business on the record dates as shall be fixed by the Board of Trustees.
Dividends on any series of preferred shares may be cumulative or
non-cumulative, as provided in the applicable prospectus supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable prospectus supplement. If the Board of Trustees fails to declare a
dividend payable on a dividend payment date on any series of the preferred
shares for which dividends are non-cumulative, then the holders of that series
of the preferred shares will have no right to receive a dividend in respect of
the dividend period ending on that dividend payment date, and the Trust will
have no obligation to pay the dividend accrued for that period, whether or not
dividends on the series are declared payable on any future dividend payment
date.
Unless otherwise specified in the prospectus supplement, if any preferred
shares of any series are outstanding, no full dividends shall be declared or
paid or set apart for payment on any capital shares of the Trust of any other
series ranking, as to dividends, on a parity with or junior to the preferred
shares of that series for any period unless (i) if the series of preferred
shares has a cumulative dividend, full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment on the preferred shares of that series for
all past dividend periods and the then current dividend period or (ii) if the
series of preferred shares does not have a cumulative dividend, full dividends
for the then current dividend period have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart for
the payment on the preferred shares of that series. When dividends are not paid
in full (or a sum sufficient for such full payment is not so set apart) upon
preferred shares of any series and the shares of any other series of preferred
shares ranking on a parity as to dividends with the preferred shares of that
series, all dividends declared upon preferred shares of that series and any
other series of preferred shares ranking on a parity as to dividends with the
preferred shares shall be declared pro rata so that the amount of dividends
declared per share on the preferred shares of that series and the other series
of preferred shares shall in all cases bear to each other the same ratio that
accrued dividends per share on the preferred shares of that series (which shall
not include any accumulation in respect of unpaid dividends for prior dividend
periods if the preferred shares do not have a cumulative dividend) and such
other series of preferred shares bear to each other. No interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend payment
or payments on preferred shares of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
the series of preferred shares has a cumulative dividend, full cumulative
dividends on the preferred shares of that series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if the series of preferred shares does not have a
cumulative dividend, full dividends on the preferred shares of that series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period, no dividends (other than in common shares or other capital shares
ranking junior to the preferred shares of that series as to dividends and upon
liquidation) shall be declared or paid or set aside for payment or other
distribution upon the common shares, or any other capital shares of the Trust
ranking junior to or on a parity with the preferred
28
shares of that series as to dividends or upon liquidation, nor shall any common
shares, or any other capital shares of the Trust ranking junior to or on a
parity with the preferred shares of that series as to dividends or upon
liquidation be redeemed, purchased or otherwise acquired for any consideration
(or any moneys be paid to or made available for a sinking fund for the
redemption of any such shares) by the Trust (except by conversion into or
exchange for other capital shares of the Trust ranking junior to the preferred
shares of that series as to dividends and upon liquidation).
REDEMPTION
If so provided in the applicable prospectus supplement, the preferred
shares will be subject to mandatory redemption or redemption at the option of
the Trust, in whole or in part, in each case upon the terms, at the times and at
the redemption prices set forth in the applicable prospectus supplement.
The prospectus supplement relating to a series of preferred shares that is
subject to mandatory redemption will specify the number of those preferred
shares that shall be redeemed by the Trust in each year commencing after a date
to be specified, at a redemption price per share to be specified, together with
an amount equal to all accrued and unpaid dividends thereon (which shall not, if
such preferred shares do not have a cumulative dividend, include any
accumulation in respect of unpaid dividends for prior dividend periods) to the
date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable prospectus supplement. If the
redemption price for preferred shares of any series is payable only from the net
proceeds of the issuance of capital shares of the Trust, the terms of those
preferred shares may provide that, if no such capital shares shall have been
issued or to the extent the net proceeds from any issuance are insufficient to
pay in full the aggregate redemption price then due, the preferred shares shall
automatically and mandatorily be converted into the applicable capital shares of
the Trust pursuant to conversion provisions specified in the applicable
prospectus supplement.
Notwithstanding the foregoing, unless (i) if the series of preferred shares
has a cumulative dividend, full cumulative dividends on all preferred shares of
any series shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the current dividend period and (ii) if the series
of preferred shares does not have a cumulative dividend, full dividends of the
preferred shares of any series have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period, no preferred shares of any series
shall be redeemed unless all outstanding preferred shares of that series are
simultaneously redeemed; provided, however, that the foregoing shall not prevent
the purchase or acquisition of preferred shares of such series to preserve the
REIT status of the Trust or pursuant to a purchase or exchange offer made on the
same terms to holders of all outstanding preferred shares of such series. In
addition, unless (i) if the series of preferred shares has a cumulative
dividend, full cumulative dividends on all outstanding shares of any series of
preferred shares have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividends periods and the then current dividend period, and (ii) if the
series of preferred shares does not have a cumulative dividend, full dividends
on the preferred shares of any series have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for the then current dividend period, the Trust shall not
purchase or otherwise acquire directly or indirectly any preferred shares of
that series (except by conversion into or exchange for capital shares of the
Trust ranking junior to the preferred shares of such series as to dividends and
upon liquidation); provided, however, that the foregoing shall not prevent the
purchase or acquisition of preferred shares of such series to preserve the REIT
status of the Trust or pursuant to a purchase or exchange offer made on the same
terms to holders of all outstanding preferred shares of such series.
If fewer than all of the outstanding preferred shares of any series are to
be redeemed, the number of shares to be redeemed will be determined by the Trust
and those shares may be redeemed pro rata from the holders of record of those
shares in proportion to the number of those shares held or for which redemption
is requested by such holder (with adjustments to avoid redemption of fractional
shares) or by lot in a manner determined by the Trust.
29
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of preferred shares of
any series to be redeemed at the address shown on the share transfer books of
the Trust. Each notice shall state:
- the redemption date;
- the number and series of preferred shares to be redeemed;
- the place or places where the preferred shares are to be surrendered for
payment of the redemption price;
- that dividends on the shares to be redeemed will cease to accrue on the
redemption date; and
- the date upon which the holder's conversion rights, if any, as to such
shares shall terminate.
If fewer than all of the preferred shares of any series are to be redeemed,
the notice mailed to each holder of shares of that series shall also specify the
number of preferred shares to be redeemed from that holder. If notice of
redemption of any preferred shares has been given and if the funds necessary for
redemption have been set aside by the Trust from and after the redemption date
dividends will cease to accrue on those preferred shares, and all rights of the
holders of those shares will terminate, except the right to receive the
redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Trust, then, before any distribution or payment shall be made
to the holders of any common shares or any other class or series of capital
shares of the Trust ranking junior to the preferred shares in the distribution
of assets upon any liquidation, dissolution or winding up of the Trust, the
holders of each series of preferred shares shall be entitled to receive out of
the assets of the Trust legally available for distribution to shareholders
liquidating distributions in the amount of the liquidation preference per share
(set forth in the applicable prospectus supplement), plus an amount equal to all
dividends accrued and unpaid thereon (which shall not include any accumulation
in respect of unpaid dividends for prior dividend periods if such preferred
shares do not have a cumulative dividend). After payment of the full amount of
the liquidating distributions to which they are entitled, the holders of
preferred shares will have no right or claim to any of the remaining assets of
the Trust. In the event that, upon any such voluntary or involuntary
liquidation, dissolution or winding up, the available assets of the Trust are
insufficient to pay the amount of the liquidating distributions on all
outstanding preferred shares and the corresponding amounts payable on all shares
of other classes or series of capital shares of the Trust ranking on a parity
with the preferred shares in the distribution of assets, then the holders of the
preferred shares and all other such classes or series of capital shares shall
share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.
If liquidating distributions shall have been made in full to all holders of
preferred shares, the remaining assets of the Trust shall be distributed among
the holders of any other classes or series of capital shares ranking junior to
the preferred shares upon liquidation, dissolution or winding up, according to
their respective rights and preferences and in each case according to their
respective number of shares. For these purposes, the consolidation or merger of
the Trust with or into any other corporation, trust or entity, or the sale,
lease or conveyance of all or substantially all of the property or business of
the Trust, shall not be deemed to constitute a liquidation, dissolution or
winding up of the Trust.
VOTING RIGHTS
Holders of preferred shares will not have any voting rights except as
indicated in the applicable prospectus supplement.
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CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of preferred shares
is convertible into common shares will be set forth in the applicable prospectus
supplement relating to that series. These terms will include the number of
common shares into which the preferred shares are convertible, the conversion
price or manner of calculation thereof, the conversion period, provisions as to
whether conversion will be at the option of the holders of the preferred shares
or the Trust, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of that series of
preferred shares.
SHAREHOLDER LIABILITY
As discussed above under "Description of Preferred Shares -- General,"
applicable Maryland law provides that no shareholder, including holders of
preferred shares, shall be personally liable for the acts and obligations of the
Trust and that the funds and property of the Trust shall be the only recourse
for such acts or obligations.
RESTRICTIONS ON OWNERSHIP
For the Trust to qualify as a REIT under the Internal Revenue Code of 1986,
as amended (the "Code"), the issued and outstanding common shares and preferred
shares (together, the "Shares"), taken as a whole, must be beneficially owned by
100 or more persons during at least 335 days of a taxable year of 12 months
(other than the first year) or during a proportionate part of a shorter taxable
year. In addition, not more than 50% of the value of the issued and outstanding
Shares may be owned, directly or indirectly, by five or fewer individuals
(defined in the Code to include as one individual certain entities) during the
last half of a taxable year (other than the first year) or during a
proportionate part of a shorter taxable year.
Because the Board of Trustees believes it is essential for the Trust to
continue to qualify as a REIT, the Trust's Declaration of Trust, subject to
certain exceptions, provides that no holder may own, or be deemed to own by
virtue of the attribution provisions of the Code, more than 5.0% (the "Ownership
Limit") of the number or value of the issued and outstanding Shares. The Board
of Trustees, upon receipt of a ruling from the Internal Revenue Service (the
"IRS"), an opinion of counsel, or other evidence satisfactory to the Board of
Trustees, and upon any other conditions as the Board of Trustees may direct, may
also exempt a proposed transferee from the Ownership Limit. As a condition of
this exemption, the intended transferee must give written notice to the Trust of
the proposed transfer no later than the fifteenth day prior to any transfer
which, if consummated, would result in the intended transferee owning Shares in
excess of the Ownership Limit. The Board of Trustees may require any opinions of
counsel, affidavits, undertakings or agreements as it may deem necessary or
advisable in order to determine or ensure the Trust's status as a REIT. Any
transfer of Shares that would (i) create a direct or indirect ownership of
Shares in excess of the Ownership Limit, (ii) result in the Shares being owned
by fewer than 100 persons or (iii) result in the Trust being "closely held"
within the meaning of Section 856(h) of the Code, shall be null and void, and
the intended transferee will acquire no rights to the Shares. The foregoing
restrictions on transferability and ownership will not apply if the Board of
Trustees determines that it is no longer in the best interests of the Trust to
attempt to qualify, or to continue to qualify, as a REIT.
Any purported transfer of Shares that would (i) result in a person owning
Shares in excess of the Ownership Limit, (ii) cause the Trust to become "closely
held" under Section 856(h) of the Code or (iii) cause the Shares to be owned by
fewer than 100 persons and is not otherwise permitted as provided above will
result in those of the transferred Shares which cause any of the events in
clauses (i) through (iii) above to occur to become excess shares ("Excess
Shares"), which will be transferred by operation of law to the Trust as trustee
for the exclusive benefit of one or more organizations described in Sections
170(b)(1)(A) and 170(c) of the Code ("Charitable Beneficiary"). While these
Excess Shares are held in trust, the Trust, in its capacity as trustee, will be
deemed to have an irrevocable proxy to vote
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the Excess Shares for the benefit of the Charitable Beneficiary and will hold
any dividends payable with respect to the Excess Shares in trust for the
Charitable Beneficiary. Subject to the Ownership Limit, the Excess Shares may be
retransferred by the Trust, in its capacity as trustee, to any person (if the
Excess Shares would not be Excess Shares in the hands of such person). If such a
transfer is made, the interest of the Charitable Beneficiary would terminate and
proceeds of the sale would be payable to the intended transferee and to the
Charitable Beneficiary. The intended transferee would receive the lesser of (1)
the price paid by the intended transferee or, if the intended transferee did not
give value for such Excess Shares (e.g., a transfer by gift or devise), the fair
market value (as described below) at the time of the purported transfer that
resulted in the Excess Shares and (2) the price per share received by the
trustee from the sale or other disposition of the Excess Shares held in trust.
Any proceeds in excess of the amount payable to the intended transferee will be
payable to the Charitable Beneficiary. In addition, Excess Shares held in trust
are subject to purchase by the Trust at a purchase price equal to the lesser of
the price paid for the Shares by the intended transferee (or, in the case of a
devise or gift, the fair market value at the time of such devise or gift) and
the fair market value of the Shares on the date the Trust exercises its right to
purchase. Fair market value shall be the last reported sales price reported on
the New York Stock Exchange ("NYSE") on the trading day immediately preceding
the relevant date, or if not then traded on the NYSE, the last reported sales
price of Shares on the trading day immediately preceding the relevant date as
reported on any exchange or quotation system over which Shares may be traded, or
if not then traded over any exchange or quotation system, then the fair market
value of such Shares on the relevant date as determined in good faith by the
Board of Trustees. The Trust's right to purchase may be exercised during the 90
day period beginning immediately after the later of the date of the purported
transfer which resulted in the Excess Shares and the date the Board of Trustees
determines in good faith that such a transfer has occurred. From and after the
intended transfer to the intended transferee of the Excess Shares, the intended
transferee shall cease to be entitled to distributions, voting rights and other
benefits with respect to these Shares except the right to payment of the
purchase price for the Shares on the retransfer of Shares as provided above and
except for certain distributions upon liquidation. Any dividends or distribution
paid to a proposed transferee on Excess Shares prior to the discovery by the
Trust that the Shares have been transferred in violation of the provisions of
the Trust's Declaration of Trust shall be repaid to the Trust upon demand. Any
dividends so disgorged will then be paid over to the trustee and held in trust
for the Charitable Beneficiary. If the foregoing transfer restrictions are
determined to be void or invalid by virtue of any legal decision, statute, rule
or regulation, then the intended transferee of any Excess Shares may be deemed,
at the option of the Trust, to have acted as an agent on behalf of the Trust in
acquiring these Excess Shares and to hold these Excess Shares on behalf of the
Trust.
All certificates representing Shares will bear a legend referring to the
restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5.0% (or such other percentage between 0.5% and 5.0%, as
provided in the rules and regulations promulgated under the Code) of the number
or value of the outstanding Shares must give a written notice to the Trust by
January 31 of each year. In addition, each shareholder shall be required upon
demand to disclose to the Trust in writing such information with respect to the
direct, indirect and constructive ownership of Shares as the Board of Trustees
deems reasonably necessary to comply with the provisions of the Code applicable
to a REIT, to comply with the requirements of any taxing authority or
governmental agency or to determine any such compliance.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the preferred shares will be set forth
in the applicable prospectus supplement.
DEPOSITARY SHARES
The Trust may, at its option, elect to offer fractional preferred shares,
rather than full preferred shares. In the event such option is exercised, the
Trust will issue receipts for depositary shares, each of
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which will represent a fraction (to be set forth in the prospectus supplement
relating to the preferred shares) of a share of that series of preferred shares.
The preferred shares represented by depositary shares will be deposited
under a deposit agreement between the Trust and a bank or trust company selected
by the Trust having its principal office in the United States and having a
combined capital and surplus of at least $50,000,000 (the "Depositary Shares
Depositary"). Subject to the terms of the deposit agreement, each owner of a
depositary share will be entitled, in proportion to the applicable fraction of a
preferred share represented by the depositary share, to all the rights and
preferences of the preferred share, represented thereby (including dividend,
voting, redemption, conversion and liquidation rights).
The above description of the depositary shares is only a summary, is not
complete and is subject to, and is qualified in its entirety by, the description
in the related prospectus supplement and the provisions of the deposit
agreement, which will contain the form of depositary receipt. A copy of the
deposit agreement will be filed with the Commission as an exhibit to or
incorporated by reference in the registration statement of which this prospectus
is a part.
DESCRIPTION OF WARRANTS
The Trust may issue separately, or together with any preferred shares or
common shares offered by any prospectus supplement, warrants for the purchase of
other preferred shares or common shares. The warrants may be issued under
warrant agreements to be entered into between the Trust and a bank or trust
company, as warrant agent, or may be represented by certificates evidencing the
warrants, all as set forth in the prospectus supplement relating to the
particular series of warrants. The following summaries of certain provisions of
the warrants are not complete and are subject to, and are qualified in their
entirety by reference to, all the provisions of any related warrant agreement
and warrant certificate, respectively, including the definitions therein of
certain terms. Wherever defined terms of the warrant agreement are summarized in
this prospectus or in a prospectus supplement, it is intended that such defined
terms shall be incorporated in this prospectus or in that prospectus supplement
by reference. In connection with any offering of warrants, any related warrant
agreement or a form of any related warrant certificate will be filed with the
Commission as an exhibit to or incorporated by reference in the registration
statement of which this prospectus is a part.
GENERAL
The prospectus supplement relating to the particular series of warrants
offered by that prospectus supplement will describe the terms of the offered
warrants, any related warrant agreement and any related warrant certificate,
including the following, to the extent applicable:
- if the warrants are offered for separate consideration, the offering
price and the currency for which warrants may be purchased;
- if applicable, the designation, number, stated value and terms
(including, without limitation, liquidation, dividend, conversion and
voting rights) of the preferred shares purchasable upon exercise of
preferred shares warrants and the price at which that number of preferred
shares may be purchased upon exercise;
- if applicable, the number of common shares purchasable upon exercise of
common shares warrants and the price at which that number of common
shares may be purchased upon exercise;
- the date, if any, on and after which the offered warrants and the related
preferred shares and/or common shares will be separately transferable;
- the date on which the right to exercise the offered warrants shall
commence and the expiration date of those rights;
33
- a discussion of the specific U.S. federal income tax, accounting and
other considerations applicable to the warrants or to any Securities
purchasable upon the exercise of the warrants;
- whether the offered warrants represented by warrant certificates will be
issued in registered or bearer form, and if registered, where they may be
transferred and registered;
- any applicable anti-dilution provisions;
- any applicable redemption or call provisions;
- any applicable book-entry provisions; and
- any other terms of the offered warrants.
Warrant certificates will be exchangeable on the terms specified in the
related prospectus supplement for new warrant certificates of different
denominations and warrants may be exercised at the corporate trust office of the
applicable warrant agent or any other office indicated in the prospectus
supplement relating thereto. Prior to the exercise of their warrants, holders of
warrants will not have any of the rights of holders of the preferred shares or
common shares purchasable upon such exercise, including the right to receive
payments of dividends or distributions of any kind, if any, on the preferred
shares or common shares, respectively, purchasable upon exercise or to exercise
any applicable right to vote.
EXERCISE OF WARRANTS
Each warrant will entitle the holder thereof to purchase the referenced
number of preferred shares or common shares, as the case may be, at the exercise
price as shall in each case be set forth in, or be determinable from, the
prospectus supplement relating to that warrant, by payment of the exercise price
in full in the currency and in the manner specified in that prospectus
supplement. Warrants may be exercised at any time up to the close of business on
the applicable expiration date (or such later date to which that expiration date
may be extended by the Trust); unexercised warrants will become null and void.
Upon receipt at the corporate trust office of the applicable warrant agent
or any other office indicated in the related prospectus supplement of (a)
payment of the exercise price and (b) the warrant certificate properly completed
and duly executed, the Trust will, as soon as practicable, forward the preferred
shares or common shares purchasable upon such exercise to the holder of the
warrant. If less than all of the warrants represented by the tendered warrant
certificate are exercised, a new warrant certificate will be issued for the
remaining number of warrants.
FEDERAL INCOME TAX CONSIDERATIONS
WITH RESPECT TO THE TRUST AND THE OPERATING PARTNERSHIP
The following summary of the material federal income tax considerations
with respect to the Trust and the Operating Partnership regarding the offering
of Securities is based on current law, is for general information only and is
not intended as tax advice. The tax treatment of a holder of any of the
Securities will vary depending on the terms of the specific Securities acquired
or held by such holder as well as such holder's particular situation, and this
summary is addressed only to holders that hold Securities as capital assets and
does not attempt to address all aspects of federal income taxation relating to
holders of the Securities. Nor does it discuss all of the aspects of federal
income taxation that may be relevant to certain types of holders (including
insurance companies, tax-exempt entities, financial institutions or broker-
dealers, foreign corporations and persons who are not citizens or residents of
the United States, persons holding a position in a hedging transaction,
regulated investment companies and pension funds) who are subject to special
treatment under the federal income tax laws.
EACH PROSPECTIVE PURCHASER OF SECURITIES IS ADVISED TO CONSULT HIS OR HER
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND SALE OF THE SECURITIES AND OF THE TRUST'S ELECTION TO BE
TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUD-
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ING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH
PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE
TAX LAWS.
TAXATION OF THE TRUST
Management of the Trust believes that, commencing with the Trust's taxable
year ended December 31, 1994, the Trust has been organized and operated in such
a manner as to qualify as a REIT under Sections 856 through 860 of the Code. The
Trust intends to continue to operate in such a manner as to qualify for taxation
as a REIT in the future, but no assurance can be given that it has or will
remain qualified.
The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following sets forth the material aspects
of the Code sections that govern the federal income taxation of a REIT. This
summary is qualified in its entirety by the applicable Code provisions, rules
and regulations promulgated thereunder, and administrative and judicial
interpretations thereof.
Wolf, Block, Schorr and Solis-Cohen LLP has opined that, commencing with
the Trust's taxable year ended December 31, 1994, the Trust has been organized
and operated in conformity with the requirements for qualification and taxation
as a REIT under the Code, and its proposed method of operation will enable it to
continue to meet the requirements for qualification and taxation as a REIT under
the Code for future taxable periods. It must be emphasized that the opinion of
Wolf, Block, Schorr and Solis-Cohen LLP is based on certain assumptions and
representations made by the Trust and the Operating Partnership as to factual
matters. Moreover, such qualification and taxation as a REIT depend upon the
Trust's future ability to meet, through actual annual operating results,
requirements relating to asset ownership, distribution levels, diversity of
stock ownership and the various other qualification tests imposed under the Code
discussed below, the results of which may not be reviewed by Wolf, Block, Schorr
and Solis-Cohen LLP. Accordingly, no assurance can be given that the actual
results of the Trust's operation for any particular taxable year will satisfy
such requirements. For a discussion of the tax consequences of failure to
qualify as a REIT, see "-- Failure to Qualify."
As a REIT, the Trust generally is not subject to federal corporate income
taxes on its net income that it currently distributes to shareholders. This
treatment substantially eliminates the "double taxation" (at the corporate and
shareholder levels) that generally results from investment in a corporation.
However, the Trust will be subject to federal income or excise tax as follows.
First, the Trust will be taxed at regular corporate rates on any undistributed
real estate investment trust taxable income, including undistributed net capital
gains. Second, under certain circumstances, the Trust may be subject to the
"alternative minimum tax" on its items of tax preference. Third, if the Trust
has (i) net income from the sale or other disposition of "foreclosure property"
(generally property acquired by a REIT upon the default by a debtor with respect
to indebtedness secured by the property or upon the default by a lessee where
the REIT was the lessor) which is held primarily for sale to customers in the
ordinary course of business or (ii) other nonqualifying income from foreclosure
property, it will be subject to tax at the highest corporate tax rate on such
income. Fourth, if the Trust has net income from "prohibited transactions"
(which are, in general, certain sales or other dispositions of property held
primarily for sale to customers in the ordinary course of business, other than
foreclosure property, and dispositions of property that occur due to involuntary
conversion), such income will be subject to a 100% tax. Fifth, if the Trust
should fail to satisfy the 75% gross income test or the 95% gross income test
(discussed below), but has nonetheless maintained its qualification as a REIT
because certain other requirements have been met, it will be subject to a 100%
tax on an amount equal to (i) the gross income attributable to the greater of
the amount by which the Trust fails the 75% test or the 95% test in the taxable
year, multiplied by (ii) a fraction generally intended to reflect the Trust's
profitability. Sixth, if the Trust should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 90% of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, the Trust would be subject to a
4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if the Trust acquires any asset from a
corporation, where some or all of the gain from
35
the taxable disposition of the asset would have been taxable to the corporation
in a transaction in which the basis of the asset in the Trust's hands is
determined by reference to the basis of the asset (or any other property) in the
hands of such corporation, and the Trust recognizes gain on the disposition of
such asset during the 10-year period following acquisition of the asset, then,
pursuant to guidelines issued by the Internal Revenue Service (the "IRS"), to
the extent of the "built-in gain" (the excess of the fair market value of the
asset on the date acquired over its adjusted tax basis at that date in the case
of assets acquired from a C corporation), such gain will be subject to tax at
the Trust level at the highest regular corporate rate. The result described
above with respect to the recognition of built-in gain assumes the Trust is
eligible to make, and makes, an election pursuant to the temporary or final
regulations issued under Section 337(d) of the Code.
REQUIREMENTS FOR QUALIFICATION
The Code defines a REIT as a corporation, trust or association (1) that is
managed by one or more trustees or directors; (2) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (3) that would be taxable as a domestic corporation, but
for Sections 856 through 860 of the Code; (4) that is neither a financial
institution nor an insurance company subject to certain provisions of the Code;
(5) the beneficial ownership of which is held by 100 or more persons; (6) during
the last half of each taxable year not more than 50% in value of the outstanding
stock of which is owned, directly or indirectly, by five or fewer individuals
(as defined in the Code to include certain entities as "individuals" for these
purposes); (7) that makes an election to be taxable as a REIT, or has made this
election for a previous taxable year, which election has not been revoked or
terminated, and satisfies all of the relevant filing and administrative
requirements for REIT status; (8) that uses a calendar year for federal income
tax purposes and complies with the record keeping requirements of the Code and
regulations; and (9) which meets certain other tests, described below, regarding
the nature of its income and assets. The Code provides that conditions (1) to
(4), inclusive, must be met during the entire taxable year and that condition
(5) must be met during at least 335 days of a taxable year of 12 months, or
during a proportionate part of a taxable year of less than 12 months. For
purposes of determining stock ownership under the rule limiting ownership by
five or fewer individuals, REIT shares held by a pension fund generally are
treated as held proportionately by its beneficiaries and certain other
attribution rules will apply.
The Trust has satisfied and will continue to satisfy conditions (1) through
(8) above. In making the "five or fewer individuals" determination, if treating
interests in the Operating Partnership that can be converted into shares of the
Trust as converted into outstanding shares would cause the Trust to fail that
test, the interests are deemed to have been converted. In addition, the Trust's
Declaration of Trust provides for restrictions regarding transfer of its shares,
in order to assist the Trust in continuing to satisfy the share ownership
requirements described in (5) and (6) above. Such transfer restrictions are
included in the Trust's Declaration of Trust, filed as an exhibit to a report
incorporated by reference herein. See "Where to Find Additional Information."
Code Section 856(i) provides that a corporation which is a "qualified REIT
subsidiary" is not to be treated as a separate corporation, and all assets,
liabilities, and items of income, deduction, and credit of a "qualified REIT
subsidiary" are treated as assets, liabilities, and such items (as the case may
be) of the REIT. A qualified REIT subsidiary is any corporation 100% of the
stock of which is held by the REIT, regardless of whether the REIT has held such
corporation's stock at all times during its existence. In applying the
requirements described herein, the Trust's "qualified REIT subsidiaries" are
ignored, and all assets, liabilities, and items of income, deduction, and credit
of such subsidiaries will be treated as assets, liabilities and items of the
Trust.
In the case of a REIT which is a partner in a partnership, Treasury
Regulations (as defined below) provide that the REIT will be deemed to own its
proportionate share of the assets of the partnership and will be deemed to be
entitled to the income of the partnership attributable to such share. In
addition, the character of the assets and gross income of the partnership retain
the same character in the hands of the REIT for purposes of Section 856 of the
Code, including satisfying the gross income tests and the asset
36
tests described below. Thus, the Trust's proportionate share of the assets,
liabilities and items of income of the Operating Partnership and the other
partnerships through which the Trust's properties are owned (the "Property
Partnerships") will be treated as assets, liabilities and items of income of the
Trust for purposes of applying the requirements described herein. The references
to the gross income or assets of the Trust, as discussed immediately below in
"Income Tests" and "Assets Tests," include the Trust's proportionate share of
the gross income or assets, as the case may be, of the Operating Partnership and
the Property Partnerships. The Trust has control over the Operating Partnership
and the Property Partnerships and intends to operate them in a manner that is
consistent with the Trust's qualification as a REIT.
INCOME TESTS
For the Trust to maintain its qualification as a REIT, the Trust must
satisfy two tests based on the nature of the underlying gross income. These
requirements must be satisfied annually. First, at least 75% of the Trust's
gross income (excluding gross income from prohibited transactions) for each
taxable year must consist of income derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or certain
types of "qualified temporary investment income." Second, at least 95% of the
Trust's gross income (excluding gross income from prohibited transactions) for
each taxable year must be derived from such real property investments, and from
dividends, other types of interest, and gain from the sale or disposition of
stock or securities or from any combination of the foregoing.
Rents received by the Trust will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above provided
that several conditions are met. First, the amount of rent must not be based in
whole or in part on the income or profits of any person, although a payment of
rent generally is not excluded from the term "rents from real property" solely
by reason of being based on a fixed percentage or percentages of receipts or
sales. Special rules apply where the tenant is a sublessor with respect to
property to permit a REIT to receive rent determined by reference to the income
or profits of the tenant in some cases. Second, the Code provides that rents
received from a tenant do not qualify as "rents from real property" in
satisfying the gross income tests if the REIT, directly or through the
applicable ownership attribution rules, owns 10% or more, by voting power or
value, of such tenant (a "Related Party Tenant") unless, for periods after
December 31, 2000, the tenant is a taxable REIT subsidiary and specified
applicable conditions are met. Although the Trust may lease portions of its
properties to tenants that may constitute Related Party Tenants, the Trust does
not believe that the rents attributable to such leases would cause the Trust to
fail to satisfy the 75% or 95% gross income tests. Third, if rent attributable
to personal property leased in connection with a lease of real property is
greater than 15% of the total rent received under the lease, the portion of rent
attributable to such personal property will not qualify as "rents from real
property." The Trust does not anticipate that the rent attributable to the
personal property leased in connection with the real property will be greater
than 15% of the total rent received under the lease or, if it was as to any
particular lease or group of leases, that the rent attributable to the personal
property would cause the Trust to fail to satisfy the 75% or 95% gross income
tests. Finally, in order for rents received to qualify as "rents from real
property," the REIT generally must not operate or manage the property or furnish
or render services to the tenants of such property, other than through an
independent contractor that is adequately compensated and from whom the REIT
derives no revenue; provided, however, that the Trust may directly perform
services "usually and customarily" rendered in connection with the rental of
space for occupancy only and that are not otherwise considered "rendered to the
occupant" of the property. The Trust has represented that it does not and will
not knowingly (i) charge rent for any property that is based in whole or in part
on the income or profits of any person or (ii) directly perform services
considered to be rendered to the occupant of property, other than services
usually and customarily rendered in connection with the rental of space for
occupancy only.
The Trust is a self-managed REIT; i.e., the Operating Partnership performs
all of the management and leasing functions with respect to the properties it
owns, provided that the services called for do not cause the rents received with
respect to those leases to fail to qualify as "rents from real property." To the
extent that the services provided are not "usual and customary" under the
foregoing rules, the Trust will
37
employ a qualifying independent contractor to render the services. The Trust may
provide property management and leasing services to third parties and will
provide services to an affiliated entity for a fee.
The Trust is permitted to render a de minimis amount of impermissible
services to tenants, or in connection with the management of a property
(together, "Impermissible Services"), without otherwise qualifying rents from
the property being classified as not "rents from real property." In order to
qualify for this de minimis exception, the amount received by the Trust for
Impermissible Services with respect to any property for any taxable year may not
exceed 1% of all amounts received or accrued by the Trust during such taxable
year with respect to such property. For purposes of the foregoing, the amount
treated as "received" by the Trust for Impermissible Services will not be less
than 150% of the Trust's direct cost in rendering such service. However, the
amount of any income that the Trust receives for Impermissible Services will not
be treated as "rents from real property" for purposes of the gross income tests.
The Trust does not believe that the level of its gross income from Impermissible
Services, if any, would cause the Trust to violate the 1% safe harbor as to any
property.
The Operating Partnership may receive fees in consideration of the
performance of management and administrative services with respect to any
properties that are not owned entirely by the Operating Partnership. Although a
portion of such management and administrative fees generally will not constitute
"qualifying income" for purposes of the 75% and 95% gross income tests, the
Trust Management believes that the aggregate amount of such fees, if any (plus
any income from Impermissible Services and other nonqualifying income), in any
taxable year will not cause the Trust to fail the 75% and 95% gross income
tests.
For purposes of the gross income tests, the term "interest" generally does
not include any amount received or accrued (directly or indirectly) if the
determination of such amount depends in whole or in part on the net income or
profits of any person. However, an amount received or accrued generally will not
be excluded from the term "interest" solely by reason of being based on a fixed
percentage or percentages of receipts or sales.
Generally, the failure to satisfy either or both of the 75% and 95% gross
income tests will cause the REIT status of the Trust to terminate with the
taxable year in which the failure occurs. Relief from the adverse consequences
of such failure is available if the Trust's failure to meet such tests was due
to reasonable cause and not willful neglect, the Trust attaches a schedule of
the nature and the sources of its gross income to its income tax return, and any
incorrect information set forth on the schedule is not due to fraud with intent
to evade tax. It is not possible to state whether, in all circumstances, the
Trust would be entitled to the benefit of these relief provisions. As discussed
above in "Taxation of the Trust," even if these relief provisions apply, a tax
would be imposed with respect to the excess of 75% or 95% of the Trust's gross
income over the Trust's qualifying income in the relevant category, whichever is
greater.
ASSET TESTS
The Trust, at the close of each quarter of its taxable year, must also
satisfy three tests relating to the nature of its assets. First, at least 75% of
the value of the Trust's total assets must be represented by real estate assets
(including (i) its allocable share of real estate assets held by partnerships in
which the Trust owns an interest or held by "qualified REIT subsidiaries" of the
Trust and (ii) stock or debt instruments held for not more than one year
purchased with the proceeds of a stock offering or long-term (at least five
years) debt offering of the Trust), cash, cash items and government securities.
Second, not more than 25% of the Trust's total assets may be represented by
securities other than those in the 75% asset class. Third, of the investments
included in the 25% asset class, the value of any one issuer's securities owned
by the Trust may not exceed 5% of the value of the Trust's total assets and the
Trust may not own more than 10% of the value or voting power of any one issuer's
outstanding securities (other than the stock of a qualified REIT subsidiary, of
which the REIT is required to own all of the stock, or of another real estate
investment trust or of a "grandfathered preferred stock subsidiary" or a taxable
REIT subsidiary). This rule was amended recently to allow REITs to have a
greater percentage ownership of the stock of "taxable REIT subsidiaries."
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Not more than 20% of the Trust's total assets may constitute securities
issued by taxable REIT subsidiaries, and the 10% limit on voting power or value
of securities issued by one issuer does not apply to securities of a taxable
REIT subsidiary or a grandfathered preferred stock subsidiary. For these
purposes, a taxable REIT subsidiary is any corporation in which the Trust owns
an interest, that joins with the Trust in making an election to be treated as a
taxable REIT subsidiary, and that does not engage in certain activities.
The Operating Partnership owns 8.0% of the voting common stock and 100% of
the non-voting common stock of Liberty Property Development Corp. and none of
the voting common stock and 100% of the non-voting common stock of Liberty
Property Development Corp.-II. The Operating Partnership also owns 100% of the
outstanding stock of each of three other companies: Liberty Property Development
Corp.-III, Liberty 2001 Corp., and Liberty UK Development Corp. The Operating
Partnership also owns stock in Aymar House Limited, constituting 50% of the
voting power and 60% of the value of that company. A taxable REIT subsidiary
election has been made for each of these six companies. Neither the Trust nor
the Operating Partnership owns a material interest in the securities of any
other corporate entities except entities that are qualified REIT subsidiaries.
Based on its analysis of the estimated value of the securities of each of
the taxable REIT subsidiaries owned by the Operating Partnership relative to the
estimated value of the other assets of the Operating Partnership, the Trust has
determined that its pro rata share of the securities of the taxable REIT
subsidiaries combined does not exceed 20% of the total value of its assets. No
independent appraisal will be obtained to support these conclusions, and Wolf,
Block, Schorr & Solis-Cohen, LLP, in rendering its opinion as to the
qualification of the Trust as a REIT, is relying solely on the representations
of the Trust regarding the values of each taxable REIT subsidiary. The 20% of
value limitation must be satisfied each time the Trust increases its ownership
of securities of any taxable REIT subsidiary (including as a result of
increasing its interest in the Operating Partnership as its limited partners
exercise their conversion rights). Although the Trust plans to take steps to
insure that it satisfies the 20% of value limitation, for any quarter with
respect to which retesting is to occur, there can be no assurance that such
steps will always be successful or will not require a reduction in the Operating
Partnership's overall interest in any taxable REIT subsidiary.
After initially meeting the asset tests at the close of any quarter, the
Trust will not lose its status as a REIT for failure to satisfy the asset tests
at the end of a later quarter solely by reason of changes in asset values. If
the failure to satisfy the asset tests results from an acquisition of securities
or other property during a quarter, the failure can be cured by disposition of
sufficient non-qualifying assets within 30 days after the close of any quarter
as may be required to cure any non-compliance.
ANNUAL DISTRIBUTION REQUIREMENTS
To qualify as a REIT, the Trust is required to distribute dividends (other
than capital gain dividends) to its stockholders in an amount at least equal to
(A) the sum of (i) 90% of the "REIT taxable income" of the Trust (computed
without regard to the dividends paid deduction and the Trust's net capital gain)
and (ii) 90% of the net taxable income (after tax), if any, from foreclosure
property, minus (B) the sum of certain items of noncash income. Such
distributions must be paid in the taxable year to which they relate, or in the
following taxable year if declared before the Trust timely files its tax return
for such year and if paid on or before the first regular dividend payment after
such declaration. To the extent the Trust does not distribute all of the net
capital gain or distributes at least 90%, but less than 100%, of its "REIT
taxable income," as adjusted, it will be subject to tax on the undistributed
amount at the regular corporate tax rates applicable to such income.
Furthermore, if the Trust should fail to distribute during each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of
its REIT capital gain income for such year, and (iii) any undistributed taxable
income from prior periods, the Trust would be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed.
39
The Trust has made, and intends to make, timely distributions to its
shareholders in amounts sufficient to satisfy the annual distribution
requirements. The Operating Partnership, as the general partner of each Property
Partnership, is authorized under the various partnership agreements to cause
distributions to be made to their respective partners of all available cash to
permit the Trust to meet the annual distribution requirement. It is possible
that, from time to time, the Trust may experience timing differences between (i)
the actual receipt of income and actual payment of deductible expenses and (ii)
the inclusion of such income and deduction of such expenses in arriving at REIT
taxable income. Further, it is possible that, from time to time, the Trust may
be allocated a share of net capital gain attributable to the sale of depreciable
property which exceeds its allocable share of cash attributable to that sale. In
such cases, the Trust may have less cash available for distribution than is
necessary to meet the annual 90% distribution requirement or to avoid tax with
respect to the capital gain or the excise tax imposed on certain undistributed
income. To meet the 90% distribution requirement necessary to qualify as a real
estate investment trust or to avoid tax with respect to capital gain or the
excise tax imposed on certain undistributed income, the Trust may find it
appropriate to arrange for short-term (or possibly long-term) borrowings or to
pay distributions in the form of taxable stock dividends. Any such borrowings
for the purpose of making distributions to shareholders of the Trust are
required to be arranged through the Operating Partnership.
Under certain circumstances, the Trust may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
shareholders in a later year, which may be included in the Trust's deduction for
dividends paid for the earlier year. Thus, the Trust may be able to avoid being
taxed on amounts distributed as deficiency dividends; however, the Trust will be
required to pay interest based upon the amount of any deduction taken for
deficiency dividends.
FAILURE TO QUALIFY
If the Trust fails to qualify for taxation as a REIT in any taxable year
and the relief provisions do not apply, the Trust would be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders of the Trust in any year
in which the Trust failed to qualify would not be deductible by the Trust nor
would there be a requirement to make distributions. In such event, to the extent
of current and accumulated earnings and profits, all distributions to
shareholders of the Trust would be taxable as ordinary income, and, subject to
certain limitations of the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific statutory
provisions, the Trust would also be disqualified from taxation as a REIT for the
four taxable years following the year in which qualification was lost. It is not
possible to state whether in all circumstances the Trust would be entitled to
such statutory relief.
OTHER TAX CONSIDERATIONS
The Trust may be subject to state or local taxation in various state or
local jurisdictions, including those in which it transacts business. The state
and local tax treatment of the Trust may not conform to the federal income tax
consequences discussed above. Consequently, prospective investors should consult
their own tax advisors regarding the effect of state and local tax laws on an
investment in the Trust.
To the extent that the Trust engages in real estate development activities
in foreign countries or invests in real estate located in foreign countries, the
Trust's profits from such activities or investments will generally be subject to
tax in the countries where such activities are conducted or such properties are
located. The precise nature and amount of such taxation will depend on the laws
of the countries where the activities are conducted or the properties are
located. Although the Trust will attempt to minimize the amount of such foreign
taxation, there can be no assurance as to whether or the extent to which
measures taken to minimize such taxes will be successful. If the Trust satisfies
the annual distribution requirements for qualification as a REIT and is,
therefore, not subject to federal corporate income tax on that portion of its
ordinary income and capital gain that is currently distributed to its
shareholders, the Trust will generally not be able to recover the cost of any
foreign tax imposed on such profits from its foreign activities or investments
by claiming foreign tax credits against its federal income tax liability on such
profits.
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Moreover, the Trust will not be able to pass foreign tax credits through to its
shareholders. As a result, to the extent that the Trust is required to pay taxes
in foreign countries, the cash available for distribution to its shareholders
will be reduced accordingly.
The Operating Partnership will receive fees from an affiliated entity as
consideration for services that the Operating Partnership will provide to such
entity in connection with the development and management of the Kings Hill
project in the United Kingdom ("U.K."). The amount of this fee income will not
be qualifying income for purposes of the 75% or 95% gross income tests, although
the Trust does not expect that the revenue derived from such services would
cause it to fail the 75% or 95% gross income tests. The Trust may be subject to
Corporation Tax in the U.K. at the rate of 33% on its share of such fee income
if the Trust is deemed to have a branch or agency in the U.K. as a result of
services that may be performed for such entity in the U.K. In addition, rental
income received by the Trust with respect to leases of real property in the U.K.
would be subject to U.K. withholding tax at the rate of 25%. It is possible that
such rental income (together with any gain arising from the sale or other
disposition of such properties) could instead be subject to Corporation Tax in
the U.K. at the rate of 33% if the U.K. Inland Revenue did not regard the Trust
as holding the properties for purposes of long term investment or if such income
or gain were deemed attributable to a branch or agency of the Trust in the U.K.
Such U.K. taxes will reduce the amount of cash available for distribution by the
Trust to its shareholders out of such income.
TAX ASPECTS OF THE TRUST'S INVESTMENTS IN PARTNERSHIPS
The following discussion summarizes the material federal income tax
considerations applicable solely to the Trust's investment in the Operating
Partnership and the Property Partnerships (collectively, the "Partnerships").
CLASSIFICATION AS A PARTNERSHIP
The Trust will be required to include in its income its distributive share
of the Operating Partnership's income and to deduct its distributive share of
the Operating Partnership's losses, and the Trust and the Operating Partnership
will be required to include in computing their income their respective
distributive shares of the income and losses of the Property Partnerships only
if the Operating Partnership and each of the Property Partnerships is
classified, for federal income tax purposes, as a partnership rather than as an
association taxable as a corporation.
For taxable periods prior to January 1, 1997, an organization formed as a
partnership was treated as a partnership rather than as a corporation for
federal income tax purposes only if it possessed no more than two of the four
corporate characteristics that the Treasury Regulations used to distinguish a
partnership from a corporation. Although neither the Operating Partnership nor
the Property Partnerships requested a ruling from the IRS that they would be
classified as partnerships for Federal income tax purposes, rather than as
associations taxable as corporations, Wolf, Block, Schorr and Solis-Cohen LLP
had opined that, based on the provisions of the respective partnership
agreements of the Operating Partnership and each Property Partnership, and
certain factual assumptions and representations as to each of them, the
Operating Partnership and each Property Partnership will be treated as
partnerships for federal income tax purposes and not as associations taxable as
corporations. Effective January 1, 1997, newly promulgated Treasury Regulations
eliminated the four-factor test described above and permitted partnerships and
other non-corporate entities to be taxed as partnerships for federal income tax
purposes without regard to the number of corporate characteristics possessed by
such entity. Under those Regulations, both the Operating Partnership and each of
the Property Partnerships will be classified as partnerships for federal income
tax purposes unless an affirmative election is made by the entity to be taxed as
a corporation. The Trust has represented that no such election has been made, or
is anticipated to be made, on behalf of the Operating Partnership or any of the
Property Partnerships. Under a special transitional rule in the Regulations, the
IRS will not challenge the classification of an existing entity such as the
Operating Partnership or a Property Partnership for periods prior to January 1,
1997 if: (i) the entity has a "reasonable basis" for its classification; (ii)
the entity and each of its members recognized the federal income tax
consequences of any change in classification of the entity made within the 60
months prior to January 1, 1997; and
41
(iii) neither the entity nor any of its members had been notified in writing on
or before May 8, 1996 that its classification was under examination by the IRS.
Neither the Partnership nor any of the Property Partnerships changed their
classification within the 60 month period preceding May 8, 1996, nor was any one
of them notified that their classification as a partnership for federal income
tax purposes was under examination by the IRS. Therefore, in reliance on the
opinion previously rendered by Wolf, Block, Schorr and Solis-Cohen LLP, the
Operating Partnership and each of the Property Partnerships should continue to
be taxed as partnerships for federal tax purposes.
If for any reason the Operating Partnership or a Property Partnership were
taxable as a corporation rather than as a partnership for federal income tax
purposes, the Trust would not be able to satisfy the income and asset
requirements for status as a REIT. In addition, any change in the Operating
Partnership's status or that of a Property Partnership for tax purposes might be
treated as a taxable event, in which case the Trust might incur a tax liability
without any related cash distribution. See "-- Taxation of the Trust," above.
Further, items of income and deduction for the Operating Partnership or a
Property Partnership would not pass through to the respective partners, and the
partners would be treated as stockholders for tax purposes. Each Partnership
would be required to pay income tax at regular corporate tax rates on its net
income and distributions to partners would constitute dividends that would not
be deductible in computing the Partnership's taxable income.
INCOME TAXATION OF THE PARTNERSHIPS
Partners, Not the Operating Partnership or Property Partnerships, Subject to
Tax
A partnership is not a taxable entity for federal income tax purposes.
Rather, the Trust will be required to take into account its allocable share of
the income, gains, losses, deductions and credits of each of the Operating
Partnership and the Property Partnerships for any taxable year of such
Partnerships ending within or with the taxable year of the Trust, without regard
to whether the Trust has received or will receive any cash distributions. The
same will be true for the Operating Partnership with respect to its allocable
share of the income, gains, losses, deductions and credits of each of the
Property Partnerships.
Partnership Allocations
Although a partnership agreement generally will determine the allocation of
income and losses among partners, the allocations provided in the partnership
agreement will be disregarded for tax purposes if they do not comply with the
provisions of Section 704(b) of the Code and the Treasury Regulations
promulgated thereunder, which generally require that partnership allocations
respect the economic arrangement of the partners.
If an allocation is not recognized for federal income tax purposes, the
item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to such item. The allocations of taxable income and
loss of each of the Operating Partnership and the Property Partnerships are
intended to comply with the requirements of Section 704(b) of the Code and the
Treasury Regulations promulgated thereunder.
Tax Allocations with Respect to Pre-Contribution Gain
Pursuant to Section 704(c) of the Code, income, gain, loss, and deduction
attributable to appreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated for federal income
tax purposes in a manner such that the contributor is charged with the
unrealized gain associated with the property at the time of the contribution.
The amount of such unrealized gain is generally equal to the difference between
the fair market value of the contributed property at the time of contribution
and the adjusted tax basis of such property at the time of contribution (the
"Book-Tax Difference"). In general, the fair market value of the properties
owned (directly or indirectly) by the Trust and interests in Property
Partnerships contributed to the Operating Partnership has been substantially in
excess of their respective adjusted tax bases. The partnership agreements of
each of
42
the Operating Partnership and the Property Partnerships require that allocations
attributable to each item of contributed property be made so as to allocate the
tax depreciation available with respect to such property first to the partners
other than the partner that contributed the property, to the extent of, and in
proportion to, their book depreciation, and then, if any tax depreciation
remains, to the partner that contributed the property. Upon the disposition of
any item of contributed property, any gain attributable to the "built-in" gain
of the property at the time of contribution would be allocated for tax purposes
to the contributing partner. These allocations are intended to be consistent
with the Treasury Regulations under Section 704(c) of the Code.
In general, participants in the formation of the Trust (and the
Partnerships) have been allocated disproportionately lower amounts of
depreciation deductions for tax purposes relative to their percentage interests
in the Operating Partnership, and disproportionately greater shares relative to
their percentage interests in the Operating Partnership of the gain on the sale
by the Partnerships of one or more of the contributed properties. These tax
allocations will tend to reduce or eliminate the Book-Tax Difference over the
life of the Partnerships. Because the partnership agreements of the Partnerships
adopt the "traditional method" in accounting for items allocable under Section
704(c) of the Code, the amounts of the special allocations of depreciation and
gain under the special allocation rules of Section 704(c) of the Code may be
limited by the so-called "ceiling rule" and may not always eliminate the
Book-Tax Difference on an annual basis or with respect to a specific transaction
such as a sale. Thus, the carryover basis of the contributed assets in the hands
of the Partnerships may cause the Trust to be allocated less depreciation than
would be available for newly purchased properties.
The foregoing principles also apply in determining the earnings and profits
of the Trust. The application of these rules may result in a larger share of the
distributions from the Trust being taxable to shareholders as dividends.
Basis in Operating Partnership Interest
The Trust's adjusted tax basis in its partnership interest in the Operating
Partnership generally (i) will be equal to the amount of cash and the basis of
any other property contributed to the Operating Partnership by the Trust plus
the fair market value of the Shares it issues or cash it pays upon conversion of
interests in the Operating Partnership, (ii) has been, and will be, increased by
(a) its allocable share of the Operating Partnership's income and (b) its
allocable share of indebtedness of the Operating Partnership and of the Property
Partnerships and (iii) has been, and will be, reduced (but not below zero) by
the Trust's allocable share of (a) the Operating Partnership's loss and (b) the
amount of cash distributed to the Trust, and by constructive distributions
resulting from a reduction in the Trust's share of indebtedness of the Operating
Partnership and the Property Partnerships.
If the allocation of the Trust's distributive share of the Operating
Partnership's loss would reduce the adjusted tax basis of the Trust's
partnership interest in the Operating Partnership below zero, the loss is
deferred until such time as the recognition of such loss would not reduce the
Trust's adjusted tax basis below zero. To the extent that the Operating
Partnership's distributions, or any decrease in the Trust's share of the
indebtedness of the Operating Partnership or a Property Partnership (each such
decrease being considered a constructive cash distribution to the partners),
would reduce the Trust's adjusted tax basis below zero, such distributions
(including such constructive distributions) would be includible as taxable
income to the Trust in the amount of such excess. Such distributions and
constructive distributions would normally be characterized as capital gain, and
if the Trust's partnership interest in the Operating Partnership has been held
for longer than the long-term capital gain holding period (currently, one year),
the distributions and constructive distributions would constitute long-term
capital gain. Based on Treasury Regulations to be issued, the tax rates
applicable to such capital gain will likely vary depending on the precise amount
of time such interest has been held by the Trust and the nature of the Operating
Partnership's property.
43
SALE OF THE PARTNERSHIPS' PROPERTY
Generally, any gain realized by the Operating Partnership or a Property
Partnership on the sale of property held by the Operating Partnership or a
Property Partnership, or on the sale of partnership interests in the Property
Partnerships, if the property or partnership interests are held for more than
one year, will be long-term capital gain (except for any portion of such gain
that is treated as depreciation or cost recovery recapture), and may result in
capital gain distributions to the shareholders. See "-- Taxation of Taxable
Domestic Shareholders," below.
The Trust's share of any gain realized on the sale of any property held by
the Operating Partnership or a Property Partnership as inventory or other
property held primarily for sale to customers in the ordinary course of the
trade or business of any of the Operating Partnership or the Property
Partnerships will, however, be treated as income from a prohibited transaction
that is subject to a 100% penalty tax. Under existing law, whether property is
held as inventory or primarily for sale to customers in the ordinary course of a
trade or business is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction. The Operating
Partnership and the Property Partnerships intend to hold their properties for
investment with a view to long-term appreciation, to engage in the business of
acquiring, developing, owning and operating their properties and to make such
occasional sales of such properties, including peripheral land, as are
consistent with the investment objectives of the Trust and the Operating
Partnership. Complete assurance cannot be given, however, that the Trust will be
able to avoid owning property that may be characterized as property held
"primarily for sale to customers in the ordinary course of business."
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
As long as the Trust qualifies as a REIT, distributions made to the Trust's
taxable U.S. shareholders out of current or accumulated earnings and profits
(and not designated as capital gain dividends) will be taken into account by
such U.S. shareholders as ordinary income and will not be eligible for the
dividends received deduction for corporations. Distributions that are designated
as capital gain dividends will be taxed as gain from the sale or exchange of a
capital asset held for more than one year (to the extent they do not exceed the
Trust's actual net capital gain for the taxable year) without regard to the
period for which the shareholder has held its stock. Subject to certain
limitations, the Trust may further designate capital gain dividends as a "20%
rate gain distribution" or an "unrecaptured section 1250 gain distribution," in
which case such dividends will be taxable to recipient individual shareholders
when received at tax rates of 20% and 25%, respectively. Corporate shareholders
may be required to treat up to 20% of certain capital gain dividends as ordinary
income.
Distributions in excess of current and accumulated earnings and profits
will not be taxable to a shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's shares, but rather will reduce the adjusted
basis of such shares. To the extent that such distributions exceed the adjusted
basis of a shareholder's shares, they will be included in income as short-term
or long-term capital gain (depending on the length of time the shares have been
held) assuming the shares are a capital asset in the hands of the shareholder.
In addition, any dividend declared by the Trust in October, November or December
of any year payable to a shareholder of record on a specified date in any such
month shall be treated as both paid by the Trust and received by the shareholder
on December 31 of such year, provided that the dividend is actually paid by the
Trust during January of the following calendar year. Shareholders may not
include in their individual income tax returns any net operating losses or
capital losses of the Trust.
In general, a domestic shareholder will realize capital gain or loss on the
disposition of common shares equal to the difference between (i) the amount of
cash and the fair market value of any property received on such disposition, and
(ii) the shareholder's adjusted basis of such common shares. Subject to certain
exceptions, the maximum rate of tax on net capital gains of individuals, trusts
and estates from the sale or exchange of capital assets held for more than one
year is 20%. Any loss upon a sale or exchange of shares by a shareholder who has
held such shares for six months or less (after applying certain holding-
44
period rules) will be treated as a long-term capital loss to the extent of
distributions from the Trust required to be treated by such shareholder as
long-term capital gain.
The Trust may elect to retain its net long-term capital gains recognized
during a taxable year ("Retained Gains") and pay a corporate-level tax on such
Retained Gains. Corporations are currently subject to a maximum 35 percent tax
on recognized capital gains. A shareholder owning the Trust's shares of
beneficial interest on December 31 of any taxable year in which the Trust has
Retained Gains would be required to include in gross income such shareholder's
proportionate share of the Retained Gains (as designated by the Trust in a
notice mailed to shareholders within 60 days following the end of the taxable
year). The amount of any corporate-level tax paid by the Trust in respect of the
Retained Gains (the "Trust Tax") would be treated as having been paid by the
shareholders of the Trust and each shareholder would receive a credit for such
shareholder's share of the Trust Tax. A shareholder's basis in his shares of
beneficial interest would increase by the excess of such shareholder's
proportionate share of the Retained Gains over the shareholder's share of the
Trust Tax. Unless the Retained Gains were treated as actually distributed, it is
possible that the Retained Gains might be subject to the Excise Tax.
BACKUP WITHHOLDING
The Trust will report to its U.S. shareholders and the IRS the amount of
distributions paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a shareholder may be subject to backup
withholding at the rate of 31% with respect to distributions paid unless such
shareholder (a) is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact or (b) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. A shareholder that does not provide the Trust with his
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Any amount paid as backup withholding will be creditable against the
shareholder's income tax liability. In addition, the Trust may be required to
withhold a portion of capital gain distributions to shareholders who fail to
certify their non-foreign status to the Trust. See "-- Taxation of Foreign
Shareholders."
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Generally, distributions to a tax-exempt entity from a real estate
investment trust do not constitute unrelated business taxable income, as defined
in Section 512(a) of the Code ("UBTI"), provided that the tax-exempt entity has
not financed its acquisition of its shares with "acquisition indebtedness"
within the meaning of the Code and the shares are not otherwise used in an
unrelated trade or business of the tax-exempt entity. Thus, distributions by the
Trust to shareholders that are tax-exempt should not be taxable as UBTI,
provided that no acquisition indebtedness was incurred with respect to such
shares. However, for tax-exempt entities that are social clubs, voluntary
employee benefit associations, supplemental unemployment benefit trusts and
qualified group legal service plans exempt from federal income taxation under
sections 501(c)(7), (c)(9), (c)(17) and (c)(20), of the Code, respectively,
income from an investment in the Trust will constitute UBTI unless the
organization is able to properly deduct amounts set aside or placed in reserve
for applicable purposes to offset the income generated by its investment in the
Trust. These tax exempt shareholders should consult their own tax advisors
concerning these "set aside" and reserve requirements.
Some or all of the distributions by a real estate investment trust to a
tax-exempt employee's pension fund that owns more than 10% in value of the real
estate investment trust would be treated as UBTI if the real estate investment
trust constitutes a "pension-held REIT" and if other conditions are met. In
order to constitute a "pension-held REIT" the real estate investment trust must
meet the test for classification as a real estate investment trust only because
tax-exempt pension funds are not treated as a single individual for purposes of
the "five-or-fewer" rule (see "Risk Factors -- Limitations on Changes in
Control -- Ownership Limit") and either (A) one pension fund owns more than 25%
in value of the real estate investment trust or (B) one or more pension funds
(holding at least 10% in value of the real estate investment trust each) own, in
the aggregate, more than 50% of the value of the real estate investment
45
trust. In addition, the gross income of the real estate investment trust derived
from activities that would constitute unrelated trades or businesses, computed
as if the REIT was a "qualified trust," must be at least five percent of the
gross income of the real estate investment trust in the taxable year in which
the distributions are made. The ownership limitations in the Trust's Declaration
of Trust (assuming no waiver by the Board of Trustees) would prevent the Trust
from being classified as a "pension-held REIT."
TAXATION OF FOREIGN SHAREHOLDERS
The rules governing United States federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other foreign
shareholders (collectively, "Non-U.S. Shareholders") are complex, and no attempt
will be made herein to provide more than a summary of the rules. Prospective
Non-U.S. Shareholders should consult with their own tax advisors to determine
the impact of federal, state and local income tax laws with regard to an
investment in the Common Shares offered hereby, including any reporting
requirements, as well as the tax treatment of such an investment under their
home country laws. If income from the investment in the Common Shares offered
hereby is treated as "effectively connected" with the Non-U.S. Shareholder's
conduct of a United States trade or business or attributable to a permanent
establishment that the Non-U.S. Shareholder maintains in the United States that
is required by an applicable income tax treaty as a condition for subjecting the
Non-U.S. Shareholder to tax on a "net income basis," the Non-U.S. Shareholder
generally will be subject to a tax at graduated rates, in the same manner as
U.S. shareholders are taxed with respect to the dividends (and may also be
subject to the "branch profits" tax in the case of a shareholder that is a
foreign corporation). The remainder of this discussion assumes that the
distributions do not constitute "effectively connected" income. Prospective
investors whose investment in common shares may be "effectively connected" with
the conduct of a United States trade or business should consult their own tax
advisors as to the tax consequences thereof.
Distributions by the Trust that are not attributable to gain from sales or
exchanges by the Trust of United States real property interests and not
designated by the Trust as capital gains dividends will be treated as dividends
of ordinary income to the extent that they are made out of current or
accumulated earnings and profits of the Trust. Such distributions, ordinarily,
will be subject to a withholding tax equal to 30% of the gross amount of the
distribution unless an applicable tax treaty reduces or eliminates that tax.
Distributions in excess of current and accumulated earnings and profits of the
Trust will not be taxable to a shareholder to the extent that such distributions
do not exceed the adjusted basis of the shareholder's shares, but rather will
reduce the adjusted basis of such shares. To the extent that distributions in
excess of current accumulated earnings and profits exceed the adjusted basis of
a Non-U.S. Shareholder's shares, such distributions will give rise to tax
liability if the Non-U.S. Shareholder would otherwise be subject to tax on any
gain from the sale or disposition of his shares in the Trust, as described
below. The Trust expects to withhold United States income tax at the rate of 30%
on the gross amount of any distributions made to a Non-U.S. Shareholder unless
(i) a lower treaty rate applies and the Non-U.S. Shareholder files with the
Trust all necessary forms required to establish eligibility for the lower rate
and provides certification as to such eligibility, if necessary, or (ii) the
Non-U.S. Shareholder files with the Trust all necessary forms certifying that
the investment to which the distribution relates is "effectively connected" to a
United States trade or business of such Non-U.S. Shareholder. Lower treaty rates
generally applicable to dividend income may not necessarily apply to
distributions from a REIT, such as the Trust. If it cannot be determined at the
time a distribution is made whether or not such distribution will be in excess
of current and accumulated earnings and profits, the distributions will be
subject to withholding at the same rate as dividends. The Trust is obligated to
withhold 10% of the amount of any distribution in excess of the Trust's current
and accumulated earnings and profits. However, amounts withheld are refundable
if it is subsequently determined that the distribution was in excess of current
and accumulated earnings and profits of the Trust and the amount withheld
exceeded the Non-U.S. Shareholders' United States tax liability, if any.
For any year in which the Trust qualifies as a REIT, distributions that are
attributable to gain from sales or exchanges by the Trust of United States real
property interests will be taxed to a Non-U.S.
46
Shareholder under the provisions of the Foreign Investment in Real Property Tax
Act of 1980 ("FIRPTA"). Under FIRPTA, these distributions are taxed to a
Non-U.S. Shareholder as if the gain were "effectively connected" with a United
States business. Non-U.S. Shareholders would be taxed at the normal capital gain
rates applicable to domestic shareholders (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals), without regard to whether such distributions are designated
by the Trust as capital gain dividends. Also, distributions subject to FIRPTA
may be subject to a "branch profits" tax in the hands of a foreign corporate
shareholder at the rate of 30% unless reduced or eliminated by the treaty
("Branch Profits Tax"). The Trust is required by applicable income tax
regulations that have been promulgated under the Code (the "Treasury
Regulations") to withhold 35% of any distribution that could be designated by
the Trust as a capital gains dividend. This amount is creditable against the
Non-U.S. Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of shares generally
will not be taxed under FIRPTA if the Trust is a "domestically controlled REIT,"
defined generally as a REIT in which at all times during a specified testing
period less than 50% in value of the stock was held directly or indirectly by
foreign persons. The Trust currently is a "domestically controlled REIT," and
anticipates continuing to be so classified, and therefore the sale of the common
shares offered hereby should not be subject to taxation under FIRPTA. However,
because the common shares will be publicly traded, no assurance can be given
that the Trust will continue to so qualify. Notwithstanding the foregoing, any
gain not otherwise subject to FIRPTA will be taxable to a Non-U.S. Shareholder
if (i) investment in the shares is effectively connected with the Non-U.S.
Shareholder's United States trade or business, in which case the Non-U.S.
Shareholder will be subject to the same treatment as U.S. shareholders with
respect to the gain (a shareholder that is a foreign corporation may also be
subject to the Branch Profits Tax), or (ii) the Non-U.S. Shareholder is a
nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and has a "tax home" in the United States or
maintains an office or a fixed place of business in the United States to which
the gain is attributable, in which case the nonresident alien individual will be
subject to a 30% tax on the individual's capital gains. If the gain on the sale
of shares were to be subject to taxation under FIRPTA, the Non-U.S. Shareholder
will be subject to the same treatment as U.S. shareholders with respect to the
gain (subject to applicable alternative minimum tax and a special alternative
minimum tax in the case of nonresident alien individuals and, in the case of
foreign corporations, subject to the possible application of the Branch Profits
Tax).
If the proceeds of a disposition of common shares are paid by or through a
United States office of a broker, the payment is subject to information
reporting requirements and to backup withholding unless the disposing Non-U.S.
Shareholder certifies as to his name, address, and non-United States status or
otherwise establishes an exemption. Generally, United States information
reporting and backup withholding will not apply to the payment of disposition
proceeds if the payment is made outside the United States through a non-United
States broker. United States information reporting (but not backup withholding)
will apply, however, to a payment of disposition proceeds outside the United
States if (i) the payment is made through an office outside the United States
that is either (a) a United States person, (b) a foreign person that derives 50%
or more of its gross income for certain periods from the conduct of a trade or
business in the United States, (c) a foreign partnership which is owned 50% or
more by United States persons or is engaged in United States trade or business,
(d) a United States branch of a foreign bank or foreign insurance company, or
(e) a "controlled foreign corporation" for United States federal income tax
purposes, and (ii) the broker fails to obtain documentary evidence that the
Shareholder is a Non-U.S. Shareholder and that certain conditions are met or
that the Non-U.S. Shareholder is otherwise entitled to an exemption.
TAXATION OF HOLDERS OF DEBT SECURITIES
As used herein, the term "U.S. Holder" means a holder of a Debt Security
who (for United States Federal income tax purposes) is (i) a citizen or resident
of the United States, (ii) a domestic corporation, (iii) an estate, the income
of which is subject to United States federal income tax without regard to its
source, (iv) a Trust if a court within the United States is able to exercise
primary supervision over the
47
administration of the Trust and one or more United States persons have the
authority to control all substantial decisions of the Trust, or (v) any other
person who is subject to United States Federal income taxation on a net income
basis with respect to a Debt Security and "U.S. Alien Holder" means a holder of
a Debt Security who is not a U.S. Holder. In the case of a holder of a Debt
Security that is a partnership for United States tax purposes, each partner will
take into account its allocable share of income or loss from the Debt Security,
and will take such income or loss into account under the rules of taxation
applicable to such partner, taking into account the partnership and the partner.
U.S. HOLDERS
Payments of Interest
Interest on a Debt Security will be taxable to a U.S. Holder as ordinary
income at the time it is received or accrued, depending on the U.S. Holder's
method of accounting for tax purposes.
Purchase, Sale and Retirement of the Debt Securities
A U.S. Holder's tax basis in a Debt Security will generally be its U.S.
dollar cost.
A U.S. Holder will generally recognize gain or loss on the sale or
retirement of a Debt Security equal to the difference between the amount
realized on the sale or retirement and the U.S. Holder's tax basis in the Debt
Security. Except to the extent attributable to accrued but unpaid interest, gain
or loss recognized on the sale or retirement of a Debt Security will be capital
gain or loss and will be a long-term capital gain or loss if the Debt Security
was held for more than one year.
U.S. ALIEN HOLDERS
This discussion assumes that the Debt Security is not subject to the rules
of Section 871(h)(4)(A) of the Code (relating to interest payments that are
determined by reference to the income, profits, changes in the value of property
or other attributes of the debtor or a related party).
Under present United States Federal income and estate tax law, and subject
to the discussion of backup withholding above:
(i) payments of principal, premium (if any) and interest by the Operating
Partnership or any of its paying agents to any holder of a Debt
Security that is a U.S. Alien Holder will not be subject to United
States Federal withholding tax if, in the case of interest (a) the
beneficial owner of the Debt Security does not actually or
constructively own 10% or more of the capital or profits interest in
the Operating Partnership, (b) the beneficial owner of the Debt
Security is not a controlled foreign corporation that is related to the
Operating Partnership through stock ownership, (c) the beneficial owner
of the Debt Security is not a bank whose receipt of interest in the
Debt Security is described in Section 881(c)(3)(A) of the Code; and (d)
either (A) the beneficial owner of the Debt Security certifies to the
Operating Partnership or its agent, under penalties of perjury, that it
is not a U.S. person and provides its name and address or (B) a
securities clearing organization, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or
business (a "financial institution") and holds the Debt Security
certifies to the Operating Partnership or its agent under penalties of
perjury that such statement has been received from the beneficial owner
by it or by a financial institution between it and the beneficial owner
and furnishes the payor with a copy thereof;
(ii) a U.S. Alien Holder of a Debt Security will not be subject to United
States Federal withholding tax on any gain realized on the sale or
exchange of a Debt Security; and
(iii) a Debt Security held by an individual who at death is not a citizen
or resident of the United States will not be includible in the
individual's gross estate for purposes of the United States Federal
estate tax as a result of the individual's death if (a) the
individual did not actually or constructively own 10% or more of the
capital or profits interest in the Operating Partnership,
48
and (b) the income on the Debt Security would not have been
effectively connected with a United States trade or business of the
individual at the time of the individual's death.
Special rules may apply in the case of U.S. Alien Holders (i) that are
engaged in a United States trade or business, (ii) that are former citizens or
long term residents of the United States, "controlled foreign corporations,"
"foreign personal holding companies," corporations which accumulate earnings to
avoid United States Federal income tax, and certain foreign charitable
organizations, each within the meaning of the Code, or (iii) certain
non-resident alien individuals who are present in the United States for 183 days
of more during a taxable year. Such persons are urged to consult their own tax
advisors before purchasing a Debt Security.
PLAN OF DISTRIBUTION
The Trust and/or the Operating Partnership, as the case may be, may sell
the Securities being offered hereby: (a) directly to purchasers; (b) through
agents; (c) through underwriters; (d) through dealers; or (e) through a
combination of any such methods of sale. The Securities may also be used as all
or part of the consideration to be paid by the Trust or the Operating
Partnership for the acquisition of non-operating assets for which financial
statements would not be required to be filed with the Commission, or in exchange
for units of limited partnership interest of the Operating Partnership. In
addition, common shares may be offered hereby in exchange for certain debt
securities of the Operating Partnership that are exchangeable for such common
shares.
The distribution of the Securities may be effected from time to time in one
or more transactions: (a) at a fixed price or at final prices, which may be
changed; (b) at market prices prevailing at the time of sale; (c) at prices
related to such prevailing market prices; or (d) at negotiated prices. Offers to
purchase Securities may be solicited directly by the Trust or the Operating
Partnership, as the case may be, or by agents designated by the Trust or the
Operating Partnership, as the case may be, from time to time. Any such agent,
which may be deemed to be an underwriter as that term is defined in the
Securities Act of 1933, as amended (the "Securities Act"), involved in the offer
or sale of the Securities in respect of which this prospectus is delivered will
be named, and any commissions payable by the Trust or the Operating Partnership,
as the case may be, to such agent will be set forth, in the applicable
prospectus supplement.
If an underwriter is, or underwriters are, utilized in the offer and sale
of Securities in respect of which this prospectus and the accompanying
prospectus supplement are delivered, the Trust and/or the Operating Partnership
will execute an underwriting agreement with such underwriter(s) for the sale to
it or them and the name(s) of the underwriter(s) and the terms of the
transaction, including any underwriting discounts and other items constituting
compensation of the underwriters and dealers, if any, will be set forth in such
prospectus supplement, which will be used by the underwriter(s) to make resales
of the Securities in respect of which this prospectus and such prospectus
supplement are delivered to the public. The securities will be acquired by the
underwriters for their own accounts and may be resold from time to time in one
or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. Any initial
public offering price and any discounts or concessions allowed or reallowed or
paid to dealers may be changed from time to time.
If a dealer is utilized in the sale of the Securities in respect of which
this prospectus is delivered, the Trust and/or the Operating Partnership will
sell such Securities to the dealer, as principal. The Dealer may then resell
such Securities to the public at varying prices to be determined by such dealer
at the time of resale. The name of the dealer and the terms of the transaction
will be identified in the applicable prospectus supplement.
If an agent is used in an offering of securities being offered by this
prospectus, the agent will be named, and the terms of the agency will be
described, in the applicable prospectus supplement relating to the offering.
Unless otherwise indicated in the prospectus supplement, an agent will act on a
best efforts basis for the period of its appointment.
49
If indicated in the applicable prospectus supplement, the issuer(s) of the
Securities to which the prospectus supplement relates will authorize
underwriters or their other agents to solicit offers by certain institutional
investors to purchase Securities from the issuer(s) pursuant to contracts
providing for payment and delivery at a future date. Institutional investors
with which these contracts may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions and others. In all cases, these purchasers must be
approved by the issuer(s) of the Securities. The obligations of any purchaser
under any of these contracts will not be subject to any conditions except that
(a) the purchase of the securities must not at the time of delivery be
prohibited under the laws of any jurisdiction to which that purchaser is subject
and (b) if the securities are also being sold to underwriters, the issuer(s)
must have sold to these underwriters the securities not subject to delayed
delivery. Underwriters and other agents will not have any responsibility in
respect of the validity or performance of these contracts.
Certain of the underwriters, dealers or agents utilized by the Trust and/or
the Operating Partnership in any offering hereby may be customers of, including
borrowers from, engage in transactions with, and perform services for, the Trust
and/or the Operating Partnership or one or more of their respective affiliates
in the ordinary course of business. Underwriters, dealers, agents and other
persons may be entitled, under agreements which may be entered into with the
Trust or the Operating Partnership, as the case may be, to indemnification
against certain civil liabilities, including liabilities under the Securities
Act.
Until the distribution of the Securities is completed, rules of the
Commission may limit the ability of the underwriters and certain selling group
members, if any, to bid for and purchase the Securities. As an exception to
these rules, the representatives of the underwriters, if any, are permitted to
engage in certain transactions that stabilize the price of the Securities. Such
transactions may consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Securities.
If underwriters create a short position in the Securities in connection
with the offering thereof, (i.e., if they sell more Securities than are set
forth on the cover page of the applicable prospectus supplement), the
representatives of such underwriters may reduce that short position by
purchasing Securities in the open market. Any such representatives also may
elect to reduce any short position by exercising all or part of any
over-allotment option described in the applicable prospectus supplement.
Any such representatives also may impose a penalty bid on certain
underwriters and selling group members. This means that if the representatives
purchase Securities in the open market to reduce the underwriters' short
position or to stabilize the price of the Securities, they may reclaim the
amount of the selling concession from the underwriters and selling group members
who sold those shares as part of the offering thereof.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
the offering.
Neither the Company nor any of the underwriters, if any, makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Securities. In
addition, neither the Company nor any of the underwriters, if any, makes any
representation that the representatives of the underwriters, if any, will engage
in such transactions or that such transactions, once commenced, will not be
discontinued without notice.
The anticipated date of delivery of the Securities offered by this
prospectus will be described in the applicable prospectus supplement relating to
the offering. The Securities offered by this prospectus may or may not be listed
on a national securities exchange or a foreign securities exchange. We cannot
give any assurances that there will be a market for any of the Securities
offered by this prospectus and any prospectus supplement.
50
We estimate that the total expenses we will incur in offering the
Securities to which this prospectus relates, excluding underwriting discounts
and commissions, if any, will be approximately $1,147,500.
LEGAL MATTERS
Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania, has rendered an
opinion with respect to the legality of the Securities to be issued by the
Operating Partnership. Saul Ewing LLP, Baltimore, Maryland, has rendered an
opinion with respect to the legality of the Securities to be issued by the
Trust. The statements in this prospectus under the caption "Federal Income Tax
Considerations with Respect to the Trust and the Operating Partnership" and the
other statements herein relating to the Trust's qualification as a real estate
investment trust will be passed upon for the Trust by Wolf, Block, Schorr and
Solis-Cohen LLP, although such firm has rendered no opinion as to matters
involving the imposition of non-U.S. taxes on the operations of, and
distributions of payments from, the Trust's United Kingdom affiliate.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in our Annual Reports on Form 10-K
for the year ended December 31, 2000, as set forth in their reports, which are
incorporated by reference in this prospectus and elsewhere in the registration
statement. Our financial statements and schedule are incorporated by reference
in reliance on Ernst & Young LLP's reports, given on their authority as experts
in accounting and auditing.
51
NO DEALER, SALES PERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS. IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY US. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN OUR AFFAIRS
SINCE THE DATE OF THIS PROSPECTUS.
TABLE OF CONTENTS
PROSPECTUS
<Table>
<Caption>
PAGE
----
About This Prospectus....................................... 2
Where To Find Additional Information........................ 2
Risk Factors................................................ 4
The Company................................................. 10
Securities Offered By This Prospectus....................... 11
Use of Proceeds............................................. 11
Certain Ratios.............................................. 12
Description Of Debt Securities.............................. 12
Description Of Preferred Shares............................. 26
Description Of Warrants..................................... 33
Federal Income Tax Considerations With Respect To The Trust
And The Operating Partnership............................. 34
Plan Of Distribution........................................ 49
Legal Matters............................................... 51
Experts..................................................... 51
</Table>
52
LOGO
$150,000,000
LIBERTY PROPERTY
LIMITED PARTNERSHIP
6.375% Senior Notes due 2012
---------------------------
PROSPECTUS SUPPLEMENT
August 19, 2002
---------------------------
LEHMAN BROTHERS
BANC ONE CAPITAL MARKETS, INC.
CREDIT SUISSE FIRST BOSTON
GOLDMAN, SACHS & CO.
JPMORGAN
SALOMON SMITH BARNEY
WACHOVIA SECURITIES