As filed with the Securities and Exchange Commission on January 27, 1994.
Registration
No. 33-34930
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
POST-EFFECTIVE
AMENDMENT NO. 5
ON FORM S-2
TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
____________________
B. F. Saul Real Estate Investment Trust
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(Exact name of registrant as specified in its charter)
Maryland
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(State or other jurisdiction of incorporation or organization)
6798
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(Primary standard industrial classification code number)
52-6053341
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(I.R.S. employer identification number)
8401 Connecticut Avenue, Chevy Chase, Maryland 20815 301/986-6000
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(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Henry Ravenel, Jr.
8401 Connecticut Avenue, Chevy Chase, Maryland 20815 301/986-6000
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(Name, address including zip code, and telephone number,
including area code, of agent for service)
Copies of correspondence to:
Richard J. Parrino, Esq.
Shaw, Pittman, Potts & Trowbridge
2300 N Street, N.W.
Washington, D.C. 20037
(202) 663-8000
Approximate date of commencement
of proposed sale to the public: AS SOON AS PRACTICABLE AFTER THE REGISTRATION
STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. /X/
B. F. SAUL REAL ESTATE INVESTMENT TRUST
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
BETWEEN ITEMS IN PART I OF FORM S-2 AND THE PROSPECTUS
ITEM IN FORM S-2 CAPTION IN PROSPECTUS
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Item 1. Forepart of Registration Statement Facing Page; Cross Reference
and Outside Front Cover Page of Sheet; Front Cover Page of
Prospectus. . . . . . . . . . . . . Prospectus
Item 2. Inside Front and Outside Back Cover Available Information; Table of
Pages of Prospectus . . . . . . . . Contents
Item 3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed Summary; The Trust; Risk Fac-
Charges . . . . . . . . . . . . . . tors and Other Considerations
Item 4. Use of Proceeds . . . . . . . . . . Use of Proceeds
Item 5. Determination of Offering Price . . Not applicable
Item 6. Dilution. . . . . . . . . . . . . . Not applicable
Item 7. Selling Security Holders. . . . . . Not applicable
Item 8. Plan of Distribution. . . . . . . . Front Cover Page of Prospectus;
Plan of Distribution; How to
Purchase Notes
Item 9. Description of Securities to be
Registered. . . . . . . . . . . . . Description of Notes
Item 10. Interest of Named Experts and
Counsel . . . . . . . . . . . . . . Legal Matters
Item 11. Information with Respect to the Available Information; The
Registrant. . . . . . . . . . . . . Trust; Incorporation of Certain
Documents by Reference
Item 12. Incorporation of Certain Informa- Available Information; Incorpo-
tion by Reference . . . . . . . . . ration of Certain Documents by
Reference
Item 13. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities . . . . . . . . . . Not applicable
PROSPECTUS
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$80,000,000
B. F. SAUL REAL ESTATE INVESTMENT TRUST
NOTES
Due One Year to Ten Years From Date of Issue
Interest payable each six months from date of issue and at maturity
NOTE MATURITIES INTEREST RATE
FROM ISSUE DATE PER ANNUM
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One Year . . . . . . . . 5.0%
Two Years . . . . . . . . 7.0%
Three Years . . . . . . . 9.0%
Four Years . . . . . . . 9.5%
Five To Ten Years . . . . 10.0%
The rate of interest on the Notes offered hereby (the "Notes") may be
changed by B. F. Saul Real Estate Investment Trust (the "Trust") from time to
time, but any such change will not affect the rate of interest on any Note
purchased prior to the effective date of the change. Based on the amount of a
proposed investment in Notes or the aggregate principal amount of the Trust's
outstanding unsecured notes held by a prospective investor, the Trust may offer
to pay interest on a Note of any maturity at an annual rate of up to 2.0% in
excess of the interest rate shown above for a Note of such maturity.
(Continued on next page)
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
____________________
THE NOTES ARE NOT GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR
OTHERWISE. AN INVESTMENT IN THE NOTES INVOLVES SIGNIFICANT RISKS, INCLUDING THE
FOLLOWING, DESCRIBED IN "RISK FACTORS AND OTHER CONSIDERATIONS":
- - THE NOTES ARE UNSECURED OBLIGATIONS AND RANK ON A PARITY WITH ALL OTHER
UNSECURED TRUST DEBT, WHICH CURRENTLY CONSISTS OF OUTSTANDING UNSECURED NOTES
AND ACCOUNTS PAYABLE AND ACCRUED EXPENSES. THE NOTES ARE EFFECTIVELY
SUBORDINATED TO THE TRUST'S SECURED DEBT.
- - THE INDENTURE PURSUANT TO WHICH THE NOTES WILL BE ISSUED DOES NOT RESTRICT
THE TRUST'S ABILITY TO PAY DIVIDENDS, ISSUE ADDITIONAL SECURITIES OR INCUR
ADDITIONAL DEBT.
- - THERE IS NO ESTABLISHED TRADING MARKET FOR THE NOTES AND THE TRUST DOES NOT
ANTICIPATE THAT AN ACTIVE TRADING MARKET WILL BE ESTABLISHED.
- - THE NOTES ARE SUBJECT TO REDEMPTION AT PAR AT THE TRUST'S OPTION, AS
DESCRIBED HEREIN.
____________________
THE DATE OF THIS PROSPECTUS IS JANUARY 28, 1994.
The Notes are limited initially to $80,000,000 principal amount and are
offered hereby on a continuing basis for sale by the Trust directly to investors
through its office at the address set forth on the back cover hereof. See "How
to Purchase Notes." The Notes will mature one to ten years from date of issue,
as selected by the investor. The Notes will be sold only in fully registered
form in denominations of $5,000, or any amount in excess thereof which is an
integral multiple of $1,000, at 100% of the principal amount. The Notes will be
transferable without service charge. See "Description of Notes."
No commissions will be paid in connection with this offering. This
offering is not contingent on the sale of any minimum amount of Notes. See "Use
of Proceeds," "Plan of Distribution" and "How to Purchase Notes." The Trust
reserves the right to withdraw, cancel or modify the offer made hereby without
notice and to reject any order in whole or in part.
____________________
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS TRUST (1)
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Per Note . . . . . . . . 100% None 100%
Total. . . . . . . . . . $80,000,000 None $80,000,000
<FN>
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(1) Before deduction of expenses payable by the Trust estimated at $1,710,000,
including $800,000 payable to B. F. Saul Advisory Company for administering the
Note program. B. F. Saul Advisory Company serves as the Trust's investment
advisor and is an affiliate of the Trust. See "Risk Factors and Other
Considerations - Possible Conflicts of Interest Affecting Real Estate Trust."
____________________
PURSUANT TO THE FLORIDA SECURITIES ACT (THE "FLORIDA ACT"), WHEN SALES ARE
MADE TO FIVE OR MORE PERSONS IN FLORIDA, ANY SALE IN FLORIDA MADE PURSUANT TO
SECTION 517.0-61(11) OF THE FLORIDA ACT SHALL BE VOIDABLE BY THE PURCHASER IN
SUCH SALE EITHER WITHIN THREE DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS
MADE BY SUCH PURCHASER TO THE ISSUER, AN AGENT OF THE ISSUER OR AN ESCROW AGENT,
OR WITHIN THREE DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO
SUCH PURCHASER, WHICHEVER OCCURS LATER.
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AVAILABLE INFORMATION
The Trust has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-2 (the "Registration
Statement") pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), and the rules and regulations promulgated thereunder, covering the Notes
being offered hereby. This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission, and to which
reference is hereby made. Statements made in this Prospectus as to the contents
of any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference.
The Trust is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Commission. Information
as of particular dates concerning the Trust's Trustees, officers and principal
holders of securities and any material interest of such persons in transactions
with the Trust is set forth in annual reports on Form 10-K with the Commission.
Such reports and other information filed by the Trust with the Commission may be
inspected and copied at the public reference facilities of the Commission,
located at 450 Fifth Street, N.W., Washington, D.C. 20549; 7 World Trade Center,
13th Floor, New York, New York 10048; and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of this material may be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated in this Prospectus by reference
and made a part hereof:
1. Annual Report on Form 10-K of the Trust for the fiscal year ended
September 30, 1993, which has been filed with the Commission pursuant
to the Exchange Act.
2. Annual Report of the Trust to security holders for the fiscal year
ended September 30, 1993, which accompanies this Prospectus.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for
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purposes of this Prospectus to the extent that a statement contained herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Trust will provide without charge to each person to whom a copy of this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents incorporated by reference herein, except for the
exhibits to such documents. Such request should be directed to B. F. Saul Real
Estate Investment Trust, 7200 Wisconsin Avenue, Suite 903, Bethesda, Maryland
20814, Attention: Henry Ravenel, Jr. (telephone number (301) 986-6207).
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SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS OR IN THE DOCUMENTS INCORPORATED IN THIS PROSPECTUS BY
REFERENCE. CAPITALIZED TERMS USED IN THE SUMMARY AND NOT DEFINED THEREIN HAVE
THE MEANINGS ASCRIBED TO SUCH TERMS ELSEWHERE IN THIS PROSPECTUS.
THE TRUST
B. F. Saul Real Estate Investment Trust (the "Trust") operates as a
Maryland real estate investment trust. The Trust terminated its status as a
qualified real estate investment trust for federal income tax purposes in 1978
and is now taxable as a corporation.
The principal business activity of the Trust and its wholly-owned
subsidiaries is the ownership and development of income-producing properties.
The Trust owns 80% of the outstanding common stock of Chevy Chase Savings Bank,
F.S.B. ("Chevy Chase" or the "Bank"), whose assets accounted for 95.7% of the
Trust's consolidated assets at September 30, 1993. The Trust is subject to
federal regulation as a thrift holding company by virtue of its ownership of a
majority interest in Chevy Chase.
The Trust has prepared its financial statements and other disclosures on a
fully consolidated basis. The term "Trust" used in the text and the financial
statements included herein refers to the combined entity, which includes the
parent company and its wholly-owned subsidiaries, as well as Chevy Chase,
Chevy Chase's subsidiaries and the parent company's other majority-owned
subsidiaries. "Real Estate Trust" refers to the parent company and
its wholly-owned and majority-owned subsidiaries, excluding Chevy Chase
and Chevy Chase's subsidiaries. The business conducted by the Bank and
its subsidiaries is identified by the term "Banking," while the
operations conducted by the Real Estate Trust are designated as "Real Estate."
The Real Estate Trust's long-term objectives are to increase cash
flow from operations and to maximize capital appreciation of its real estate.
The properties owned by the Real Estate Trust are located predominantly in the
Mid-Atlantic and Southeastern regions of the United States and consist
principally of office projects, hotels and various undeveloped land parcels.
In August 1993, the Real Estate Trust consummated a series of transactions
in which it transferred its 22 shopping center
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properties and one of its office properties and the debt associated with such
properties to a newly organized limited partnership, Saul Holdings Limited
Partnership ("Saul Holdings Partnership"), and one of two newly organized
subsidiary limited partnerships of Saul Holdings Partnership. In exchange
for the transferred properties, the Real Estate Trust received securities
representing a 21.5% limited partnership interest in Saul Holdings Partnership.
Saul Centers, Inc. ("Saul Centers"), a newly organized, publicly held
real estate investment trust, received a 73.0% general partnership interest
in Saul Holdings Partnership in exchange for the contribution of approximately
$220.7 million to Saul Holdings Partnership. Saul Centers, which is the sole
general partner of each of Saul Holdings Partnership and the two subsidiary
limited partnerships, generally has full, exclusive and complete responsibility
and discretion in the management and control of each such partnership.
B. Francis Saul II, the Chairman of the Board of Trustees and Chief Executive
Officer of the Trust, serves as Chairman of the Board of Directors and Chief
Executive Officer of Saul Centers. See "Risk Factors and Other Considerations
- - Potential Conflicts of Interest Affecting Real Estate Trust."
CHEVY CHASE
Chevy Chase Savings Bank, F.S.B. ("Chevy Chase" or the "Bank") is a
federally chartered and federally insured stock savings bank which at September
30, 1993 was conducting business from 74 full-service offices and 284 automated
teller machines ("ATMs") in Maryland, Virginia and the District of Columbia.
The Bank, which is headquartered in Montgomery County, Maryland, a suburban
community of Washington, D.C., also maintains 17 loan production offices in
Maryland, Virginia and the District of Columbia which are operated by a wholly-
owned mortgage banking subsidiary. At September 30, 1993, the Bank had total
assets of $4.9 billion and total deposits of $3.9 billion. Based on total
consolidated assets at September 30, 1993, Chevy Chase is the largest savings
institution operating primarily in the Washington, D.C. metropolitan area and is
also the largest savings institution headquartered in Maryland.
The Bank's tangible, core (or leverage) and total risk-based regulatory
capital ratios at September 30, 1993 were 4.60%, 5.35% and 11.70%, respectively,
compared to the regulatory requirements of 1.5%, 3.0% and 8.0%, respectively.
At September 30, 1993, the Bank's leverage, tier 1 risk-based and total risk-
based regulatory capital ratios of 5.35%, 7.29% and 11.70%, respectively, were
sufficient for the Bank to meet the standards of 5.0%, 6.0% and 10.0%,
respectively, for classification as "well capitalized" under the "prompt
corrective action" regulations of the Office of Thrift Supervision (the "OTS"),
the Bank's primary regulator.
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See "Risk Factors and Other Considerations - Regulatory Capital Levels of Chevy
Chase."
Chevy Chase is a consumer-oriented retail bank offering a wide range of
products and services. The Bank has emphasized consumer lending programs that
it believes contribute to market share growth in its local markets by attracting
new depositors, promoting a high degree of customer loyalty and brand awareness
and providing opportunities to cross-market other products of the Bank. At
March 31, 1993, according to industry statistics, the Bank, which entered the
credit card business in June 1985, was the third largest thrift issuer of credit
cards in terms of outstanding receivables, including receivables owned by the
Bank and receivables securitized, sold and serviced by the Bank. Chevy Chase
had $1.6 billion of outstanding credit card receivables and approximately
750,000 cards in circulation at September 30, 1993. See "Risk Factors and Other
Considerations - Risks of Credit Card Lending by Chevy Chase." The Bank's
portfolio of other consumer loans, including automobile loans, overdraft lines
of credit and unsecured loans, totaled $144.8 million at September 30, 1993.
Chevy Chase was the first major Washington, D.C. metropolitan area
financial institution to offer revolving home equity credit line loans, and
currently is the leading originator of home equity credit lines in its primary
market area. The Bank's home equity credit line loan provides revolving credit
secured principally by a second mortgage on the borrower's home. At September
30, 1993, the Bank had approximately 21,000 individual credit lines totaling
$1.1 billion in available credit and $590.6 million in managed home equity
credit line receivables, including receivables owned by the Bank and receivables
securitized, sold and serviced by the Bank.
Retail consumer deposits constitute the Bank's primary source of funds for
its lending and other business operations. Chevy Chase has developed its branch
network in furtherance of its corporate strategy to solidify its relationships
with existing customers, achieve a broader retail base to support future growth
and improve its ability to compete with other depository institutions in the
Washington, D.C. metropolitan area. With 33 of its 74 branches located in
Montgomery County, which has one of the nation's highest per capita incomes, the
Bank, together with a commercial bank, has the leading market share of retail
deposits in that community. Thirteen of the Bank's branches are located in
Prince George's County, Maryland, the Bank's second largest source of funds,
where Chevy Chase ranks third in deposit share behind two of the area's leading
commercial banks. The Bank's branch network also includes locations in Northern
Virginia (18 branches), other Maryland counties (eight branches) and the
District of Columbia (two branches). In addition to locations at deposit branch
sites, the Bank's network of 284 ATMs
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includes locations bearing Chevy Chase's name and logo in shopping malls,
museums, family entertainment and sports parks, and 101 stores operated by
Safeway, Inc., a national grocery chain.
Chevy Chase has accessed the capital markets as an additional means of
funding its operations and managing its capital ratios and asset growth. Since
1988, the Bank has securitized approximately $2.8 billion of credit card, home
equity credit line and automobile loan receivables. These transactions depend
on sophisticated back-office systems to service complex securitization
structures and on personnel with the experience to design, install and manage
those systems. At September 30, 1993, the Bank serviced $841.8 million, $530.1
million and $29.6 million of securitized credit card, home equity credit line
and automobile loan receivables, respectively. Chevy Chase derives fee-based
income from servicing these securitized portfolios.
The deposits of Chevy Chase are insured by the Savings Association
Insurance Fund, which is administered by the Federal Deposit Insurance
Corporation (the "FDIC"). The Bank is subject to comprehensive regulation,
examination and supervision primarily by the OTS.
THE OFFERING
Securities Offered . . . . . . . . . The Trust is offering $80,000,000 in
principal amount of notes of the Trust
with varying interest rates as fixed from
time to time by the Trust (the "Notes").
At January 26, 1994, $61.7 million in
principal amount of Notes was available to
be issued.
Maturity Date. . . . . . . . . . . . The Notes will mature from one to ten
years from the date of issue, as selected
by the investor.
Interest Payment Dates . . . . . . . Interest on the Notes will be payable
semi-annually (six months from the date of
issue and each six months thereafter) and
at maturity.
Ranking. . . . . . . . . . . . . . . The Notes will be unsecured obligations
and will rank on a parity with all
unsecured debt of the Real Estate
Trust. At
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September 30, 1993, the Real Estate
Trust's unsecured debt, consisting of
outstanding unsecured notes (referred to
in this Prospectus as "Outstanding Notes"
and reflected in the Trust's Consolidated
Balance Sheets as Notes Payable -
Unsecured) and accounts payable and
accrued expenses, totaled $74.0 million.
At such date, there was no debt of the
Real Estate Trust which was subordinated
to the Real Estate Trust's unsecured debt.
At September 30, 1993, the Real Estate
Trust had $264.8 million of secured debt
(consisting of mortgage notes payable),
which effectively will be prior in right
of payment to the Notes. See "Risk
Factors and Other Considerations - Notes
Unsecured General Obligations of the Trust
and Subordinated to Secured Trust Debt."
Redemption . . . . . . . . . . . . . The Trust, at its sole election, may
redeem any of the Notes having a Stated
Maturity of more than one year from the
date of issue on any Interest Payment Date
with respect to such Note on or after the
first anniversary of the date of issue of
such Note at a Redemption Price equal to
the Principal Amount of the Note redeemed.
See "Description of Notes - Redemption of
Certain Notes."
Covenants. . . . . . . . . . . . . . The Indenture does not impose any
restrictions on the Trust's ability to pay
dividends or other distributions to its
shareholders, to incur debt, or to issue
additional securities. See "Risk Factors
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and Other Considerations - No Limitation
in Indenture on Dividends, Distributions,
Issuance of Securities or Incurrence of
Additional Indebtedness."
Claims of Noteholders. . . . . . . . Prospective Noteholders will not have any
claim on any of the assets of the Bank and
may look only to the Real Estate Trust's
earnings and, subject to payment of the
Real Estate Trust's secured debt and other
prior claims, the Real Estate Trust's
assets for the payment of interest and
principal due under the Notes.
Use of Proceeds. . . . . . . . . . . The Trust will use the net proceeds of the
offering of the Notes hereunder primarily
to retire maturing Outstanding Notes
(including the Notes offered hereby). Any
proceeds not applied to pay Outstanding
Notes will be used for other general
corporate purposes.
RISK FACTORS AND OTHER CONSIDERATIONS
Prospective investors are urged to read the section of this Prospectus
entitled "Risk Factors and Other Considerations" for a description of certain
risk factors and other considerations relating to the Trust and the Notes,
including the risks discussed under the captions "Notes Unsecured General
Obligations and Subordinated to Secured Real Estate Trust Debt," "Contingencies
Affecting Liquidity of the Real Estate Trust" and "No Limitation in Indenture on
Dividends, Distributions, Issuance of Securities or Incurrence of Additional
Indebtedness."
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THE TRUST
The Trust operates as a Maryland real estate investment trust. The
principal business activity of the Trust historically has been the ownership and
development of income-producing properties. The Trust is a savings and loan
holding company by virtue of its 80% equity ownership in Chevy Chase Savings
Bank, F.S.B. ("Chevy Chase" or the "Bank"). At September 30, 1993, Chevy
Chase's assets accounted for 95.7% of the Trust's consolidated assets.
The Trust has prepared its financial statements and other disclosures on a
fully consolidated basis. The term "Trust" used in the text and the financial
statements included herein refers to the combined entity, which includes the
parent company and its wholly-owned subsidiaries, as well as Chevy Chase, Chevy
Chase's subsidiaries and the parent company's other majority-owned subsidiaries.
"Real Estate Trust" refers to the parent company and its wholly-owned and
majority-owned subsidiaries, excluding Chevy Chase and Chevy Chase's
subsidiaries. The business conducted by the Bank and its subsidiaries is
identified by the term "Banking," while the operations conducted by the Real
Estate Trust are designated as "Real Estate."
The principal offices of the Trust are located at 8401 Connecticut Avenue,
Chevy Chase, Maryland 20815, and the Trust's telephone number is (301) 986-6000.
RISK FACTORS AND OTHER CONSIDERATIONS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS
AND OTHER CONSIDERATIONS RELATING TO THE TRUST AND THE NOTES BEFORE DECIDING
WHETHER TO INVEST IN THE NOTES.
1. NOTES UNSECURED GENERAL OBLIGATIONS AND SUBORDINATED TO SECURED REAL
ESTATE TRUST DEBT. The Notes are general unsecured obligations of the Trust.
Prospective Noteholders may look only to the Real Estate Trust's earnings and,
subject to payment of the Real Estate Trust's secured debt and other prior
claims, the Real Estate Trust's assets for payment of principal and interest due
under the Notes. See "Contingencies Affecting Liquidity of the Real Estate
Trust" below and Note 37 to the Consolidated Financial Statements included in
the Trust's 1993 Annual Report to security holders which accompanies this
Prospectus (the "Annual Report") for condensed financial statement information
on the Trust without consolidation of balance sheet and operating data of the
Bank and the Bank's subsidiaries. Prospective Noteholders will not have any
claim on any of the assets of the Bank for payment under the Notes.
The Notes will rank equal in priority of payment with other unsecured debt
of the Real Estate Trust, including Outstanding
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Notes. At September 30, 1993, unsecured debt, consisting of Outstanding Notes
and accounts payable and accrued expenses, totaled $74.0 million. At such date,
there was no debt of the Real Estate Trust that was subordinated to the Real
Estate Trust's unsecured debt. At September 30, 1993, the Real Estate Trust had
$264.8 million of secured debt (consisting of mortgage notes payable), which
effectively will be prior in right of payment to the Notes.
2. CONTINGENCIES AFFECTING LIQUIDITY OF THE REAL ESTATE TRUST. The Real
Estate Trust relies on external sources of funds to repay the principal of
outstanding debt, including Outstanding Notes, and to make capital improvements.
As reflected in Note 37 to the Consolidated Financial Statements included in the
Annual Report, the Real Estate Trust had negative cash flow from operating
activities of $3.1 million, $0.9 million and $16.4 million for fiscal 1993, 1992
and 1991, respectively. In the past, the Real Estate Trust funded debt
repayment and capital improvements by new financings (including the public sale
of unsecured notes), refinancings of maturing mortgage debt, asset sales and tax
sharing payments from the Bank pursuant to a tax sharing agreement among the
Trust, the Bank and their subsidiaries (the "Tax Sharing Agreement"). See Cash
Flows from Investing Activities in the Consolidated Financial Statements
in the Annual Report. In order to fund these requirements in fiscal
1994 and future years, the Real Estate Trust will be required to raise
substantial amounts of cash from a combination of such sources, which are
subject to various contingencies, as described below.
The Real Estate Trust's liquidity position was constrained in the last
three fiscal years, primarily because of the persistence of recessionary
conditions in the Real Estate Trust's major real estate markets. Those
conditions significantly curtailed the availability of long-term fixed-rate
mortgage financing on satisfactory terms. The Real Estate Trust refinanced
$350.0 million of mortgage debt in the first quarter of fiscal 1992. See Note 3
to the Consolidated Financial Statements included in the Annual Report.
The Real Estate Trust's ongoing program of public Note sales was initiated
in the 1970's as a vehicle for supplementing other external funding sources.
Note sales were suspended in June 1990, but resumed in November 1992. During
the period from the date of resumption of Note sales through January 26, 1994,
the Real Estate Trust sold $18.3 million of Notes. The Real Estate Trust is
currently selling Notes principally to pay outstanding Notes as they mature.
See "Use of Proceeds." To the degree that the Real Estate Trust does not sell
new Notes in an amount sufficient to finance completely the scheduled repayment
of outstanding Notes as they mature, which was the case in fiscal 1993, it will
finance such repayments from other sources of funds.
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In April 1993, the Bank received net proceeds of $71.9 million from its
sale of a new issue of preferred stock, which significantly strengthened the
Bank's regulatory capital ratios. This increase in capital, together with the
Bank's improved operating results, should enhance the prospects of the Real
Estate Trust to receive tax sharing payments and dividends from the Bank in the
future. In June 1993, after receiving approval of the OTS, the Bank made a $5.0
million tax sharing payment to the Real Estate Trust. OTS approval of this
payment was conditioned on a pledge by the Real Estate Trust of certain assets
to secure certain of the Trust's obligations under the Tax Sharing Agreement.
Following execution of the pledge, the OTS approved, and the Bank made in
October and November 1993, additional tax sharing payments of $4.6 million to
the Real Estate Trust. Any additional tax sharing payments by the Bank must be
approved by the OTS.
The Real Estate Trust to date has not relied on cash dividends from Chevy
Chase to meet its cash needs. In October 1993, the Bank's written agreement
with the OTS (see "Regulatory Restrictions Applicable to Chevy Chase Because of
Capital Levels" below) was amended to eliminate the requirement that Chevy Chase
obtain the written approval of the OTS prior to declaring or paying dividends on
its common stock. OTS regulations tie Chevy Chase's ability to pay dividends to
specific levels of regulatory capital and earnings.
As the owner, directly and through a wholly-owned subsidiary, of a 21.5%
limited partnership interest in Saul Holdings Partnership (see "Summary - The
Trust"), the Real Estate Trust will share in cash distributions from operations
and from capital transactions involving the sale or refinancing of the
properties of Saul Holdings Partnership. The partnership agreement of Saul
Holdings Partnership provides for quarterly cash
distributions to the partners out of net cash flow. In October 1993,
the Real Estate Trust received its first cash distribution, which was for a
partial period, in the amount of $524,000, from Saul Holdings Partnership.
3. REAL ESTATE TRUST OPERATING LOSSES AND TRUST DEFICIT IN SHAREHOLDERS'
EQUITY. The operations of the Real Estate Trust, before the consolidation of
Chevy Chase's results, reflect a loss from continuing operations before gain on
sale of properties in each of the Real Estate Trust's last ten fiscal years. As
reflected in Note 37 to the Consolidated Financial Statements in the Annual
Report, which presents condensed financial statement information on the Trust
without consolidation of balance sheet and operating data of the Bank and the
Bank's subsidiaries, the operating loss of the Trust in recent periods would
have been significantly higher without the consolidation of the Bank's results.
-13-
The Real Estate Trust, like most real estate investors, employs significant
amounts of debt to finance its investments and operations. As of September 30,
1993, its total debt, excluding debt of Chevy Chase, was $303.4 million. The
Trust's consolidated shareholders' equity at September 30, 1993 reflected a
deficit of $99.6 million.
4. FIXED CHARGES IN EXCESS OF AVAILABLE EARNINGS. The Real Estate
Trust's ratios of available earnings to fixed charges were less than 1:1 in each
of the last five fiscal years. These ratios represent a measure of the ability
to meet debt service obligations from funds generated by operations. For
purposes of computing the fixed-charges ratios, "available earnings" consist of
income (loss) from continuing operations plus (i) provisions for income taxes,
(ii) ground rent expense and (iii) interest and debt expense reduced by interest
capitalized. This sum is divided by the total of interest and debt expense and
ground rent expense to arrive at the ratio of available earnings to fixed
charges. For the Real Estate Trust, fixed charges exceeded available earnings
by $44.5 million in fiscal 1993, $28.5 million in fiscal 1992, $20.0 million in
fiscal 1991, $39.7 million in fiscal 1990 and $36.6 million in fiscal 1989. See
Statement re Computation of Ratio of Earnings to Fixed Charges in the Annual
Report for the applicable ratios of the Trust.
5. HIGH LEVEL OF CHEVY CHASE NON-PERFORMING ASSETS. Although Chevy
Chase's non-performing assets continued to decrease in fiscal 1993 from their
peak in February 1992, Chevy Chase's level of non-performing assets at September
30, 1993, after $101.5 million of all valuation allowances on real estate held
for sale ("REO"), totaled $372.0 million (or 7.6% of total assets). In
addition, the Bank maintained $4.5 million of valuation allowances on its non-
accrual loans and non-accrual real estate held for investment ("REI"). The
increase in the Bank's non-performing real estate assets (consisting of REO,
non-accrual loans and non-accrual REI) began in fiscal 1990 and resulted pri-
marily from the deterioration of the real estate markets in the Washington,
D.C., metropolitan area. Non-performing credit card loans as a percentage of
total credit card loans also increased beginning in fiscal 1990 primarily as a
result of adverse economic conditions in the Washington, D.C. metropolitan area
and other areas in which there is a significant concentration of holders of
Chevy Chase credit cards.
6. RISKS RELATING TO RESERVE LEVELS AND REO OF CHEVY CHASE. At September
30, 1993, the ratio of the Bank's reserves to non-performing assets was 48.3%.
The Bank increased its reserves for losses in the December 1992 quarter
primarily to comply with new OTS regulations regarding accounting for foreclosed
assets and the Bank's adoption of Statement of Position
-14-
92-3, "Accounting for Foreclosed Assets." Those regulations required that,
effective December 31, 1992, foreclosed assets (including assets classified as
in-substance foreclosed) be carried at the lower of cost or fair value
subsequent to acquisition. Based on management's internal calculations and
preliminary information with respect to certain appraisals, the Bank adjusted
the carrying value of certain of its REO to comply with the new regulations. The
Bank recorded valuation allowances against its foreclosed assets of
approximately $40.5 million at December 31, 1992, of which $21.5 million had
been previously provided in the year ended September 30, 1992. Subsequent to
December 31, 1992, the Bank reviews on a quarterly basis the carrying value of
its REO in order to make any adjustments required to present such assets at fair
value.
Although the Bank believes it has a reasonable basis for estimating
reserves, no assurance can be given that the Bank will not sustain losses in any
particular period that exceed the amount of the reserves at the beginning of
that period, or that subsequent evaluations of the asset portfolio, in light of
factors then prevailing (including economic conditions, the Bank's internal
review process and the results of regulatory examinations), will not require
significant increases in the reserves. In November 1990, the Securities and
Exchange Commission initiated an informal investigation concerning the Bank's
reserves for losses and related matters and requested documents from
the Bank covering the period since October 1, 1988. The Bank made certain
adjustments to its reserves for losses at June 30, 1992 based in part on the
results of concurrent examinations of the Bank by the OTS and the FDIC.
At September 30, 1993, approximately $240.9 million (or 72.3%), after all
valuation allowances, of the Bank's aggregate book value of REO was attributable
to its five planned unit developments (the "Communities"), four of which are
under active development. Under its written agreement with the OTS, the Bank is
required to make every effort to reduce its exposure on certain of its real
estate development properties, including the four active Communities. The Bank
from time to time obtains updated appraisals on its REO and, in the past, has
been directed to do so by the OTS in connection with regulatory examinations. As
a result of such updated appraisals, the Bank could be required to increase its
reserves.
7. RISKS OF CREDIT CARD LENDING BY CHEVY CHASE. At September 30, 1993,
Chevy Chase's credit card loans constituted 31.4% of the Bank's loan portfolio.
Credit card loans entail greater credit risks than residential mortgage loans.
Changes in credit card use and payment patterns by cardholders, including
increased defaults, may result from a variety of social, legal and economic
factors. Economic factors affecting credit card use
-15-
include the rate of inflation and relative interest rates offered for various
types of loans. Adverse changes in economic conditions could have a direct
impact on the timing and amount of payments by borrowers. Default rates on
credit card loans generally may be expected to exceed default rates on
residential mortgage loans.
As a percentage of outstanding credit card loans, credit card
delinquencies, net charge-offs on credit card loans and the reserve for credit
card loans increased each year over the past three fiscal years. In November
1990, the Bank ceased active national solicitation of new credit card accounts
due in part to the significant initial cost of acquiring accounts and the Bank's
desire to enhance its capital position. As a result of the improvement in the
Bank's regulatory capital ratios, in June 1993 the Bank reinstated the active
national solicitation of new credit card accounts in markets which the Bank
considers to have favorable demographic characteristics. As a result, the Bank
expects credit card loans to increase as a percentage of its total loan
portfolio in future periods. In addition, although the Bank believes it has
appropriate underwriting criteria to mitigate the risks associated with such new
accounts, there can be no assurance that charge-offs and delinquencies will not
increase as a result of the Bank's resumption of active solicitation of new
accounts.
8. REGULATORY CAPITAL LEVELS OF CHEVY CHASE. As a federal savings
association, Chevy Chase is subject to minimum capital requirements prescribed
by federal statute and OTS regulations. At September 30, 1993, the Bank was in
compliance with all of its regulatory capital requirements under the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), with
tangible, core (or leverage) and total risk-based regulatory capital ratios of
4.60%, 5.35% and 11.70%, respectively, compared to the regulatory requirements
of 1.50%, 3.00% and 8.00%, respectively. Chevy Chase's levels of regulatory
capital have been adversely affected over the past few years by the substantial
increase in Chevy Chase's level of non-performing assets beginning in fiscal
1990, which was due primarily to a downturn of the real estate markets and the
general deterioration of economic conditions in the Washington, D.C.
metropolitan area, Chevy Chase's principal market area. Chevy Chase's
regulatory capital levels also have been adversely affected by the required
phase-out of certain assets from the calculation of regulatory capital.
The OTS prompt corrective action regulations that took effect on December
19, 1992 establish five capital categories for thrift institutions: well
capitalized, adequately capitalized, undercapitalized, severely undercapitalized
and critically undercapitalized. A thrift will be considered "well capitalized"
if
-16-
it has a leverage (or core capital) ratio of at least 5.0%, a tier 1 risk-based
capital ratio of at least 6.0% and a total risk-based capital ratio of at least
10.0%. The Bank's leverage, tier 1 risk-based and total risk-based regulatory
capital ratios at September 30, 1993 of 5.35%, 7.29% and 11.70%, respectively,
were sufficient to meet the standards for classification of the Bank as a "well
capitalized" institution. The OTS has the discretion to reclassify an
institution from "well capitalized" to "adequately capitalized" if, after notice
and an opportunity for a hearing, the OTS determines that the institution is
being operated in an unsafe or unsound condition or has received and has not
corrected a less than satisfactory examination rating for asset quality,
management, earnings or liquidity.
The regulatory capital requirements applicable to Chevy Chase will become
more stringent over time as certain deductions from regulatory capital are
phased in over a period ending July 1, 1996. On the basis of its September 30,
1993 balance sheet, Chevy Chase would meet the fully phased-in capital
requirements under FIRREA that will apply in future periods as certain deduc-
tions from capital are phased in but, after giving effect to those deductions,
would not meet the capital standards for well capitalized institutions under the
prompt corrective action regulations. Chevy Chase's levels of non-performing
assets may result in reductions in capital to the extent losses are recognized
as a result of deteriorating collateral values or general economic conditions.
In addition, OTS capital regulations provide a five-year holding period (or such
longer period approved by the OTS) for REO to qualify for an exception from
treatment as an equity investment. If REO is considered an equity investment,
its then-current book value is deducted from total risk-based capital.
Accordingly, if the Bank is unable to dispose of its REO property (through bulk
sales or otherwise) prior to the end of its applicable five-year holding period
and is unable to obtain an extension of such five-year holding period from the
OTS, the Bank would be required to deduct the then-current book value of the REO
from risk-based capital. There can be no assurance that the Bank will be able
to dispose of all of its REO properties within the applicable five-year period
or obtain any necessary extensions. Accordingly, there can be no assurances
that Chevy Chase will be able to maintain compliance with the fully phased-in
FIRREA capital requirements or maintain levels of capital sufficient to meet the
standards for classification as "well capitalized" under the prompt corrective
action regulations.
9. REGULATORY RESTRICTIONS APPLICABLE TO CHEVY CHASE BECAUSE OF CAPITAL
LEVELS. Because the Bank's regulatory capital levels in prior periods did not
meet the applicable regulatory requirements, the Bank is currently subject to
various
-17-
restrictions and requirements contained in a written agreement with the OTS.
On September 30, 1991, after it failed to meet certain regulatory capital
requirements, Chevy Chase entered into a written agreement with the OTS designed
to expedite its return to full capital compliance. Among the areas addressed by
the agreement were transactions with affiliates, capital enhancement, profit-
ability enhancement, reduction of existing levels of REO, asset quality and
various internal controls, policies and procedures. Among other things, the
Bank agreed that it would not increase its investment in certain of its real
estate development properties, including the four active Communities, beyond
specified levels without OTS approval, would make very effort to reduce its
exposure in those properties and would notify the OTS 15 days before rejecting
any written purchase offers for those properties. In addition, Chevy Chase
agreed to provide the OTS with 15 days notice before selling significant
business assets and to make every effort to obtain an infusion of capital in an
amount sufficient to meet its fully phased-in capital requirements by June 30,
1992 and, if necessary, to seek a merger or acquisition partner. The Bank
continued to make such efforts and, as a result of improved operating results
and the receipt of $71.9 million in net proceeds from the sale of a new issue of
preferred stock in April 1993, the Bank met its fully phased-in capital
requirements at September 30, 1993.
In October 1993, the OTS amended the written agreement to remove the
provisions relating to capital enhancement, profitability enhancement, and
various internal controls, policies and procedures. Among other things, the OTS
removed the provisions requiring the Bank to make every effort to obtain an
infusion of capital in an amount sufficient to meet its fully phased-in capital
requirements and, if necessary, to seek a merger or acquisition partner. The
provisions of the agreement relating to transactions with affiliates and to
asset quality were not materially modified, except that a provision was removed
that required prior OTS approval before the Bank could pay common stock
dividends to the Trust, and the threshold for notifying the OTS prior to the
same of any asset was increased from $5 million to $20 million.
The Bank is also currently subject to growth restrictions, the highest
levels of OTS assessments and FDIC insurance premiums (which premiums will
decrease on January 1, 1994 based on the Bank's September 30, 1993 capital
levels), and a requirement to obtain OTS approval for changes in directors and
senior executive officers.
In September 1993, the Bank received OTS approval, subject to certain
conditions, to increase incrementally its assets
-18-
through the period from July 1, 1993 through June 30, 1994 to allow for an
increase in total assets of up to $400 million.
The OTS prompt corrective action regulations require appointment of an
conservator or receiver for "critically undercapitalized" institutions. An
institution will be considered critically undercapitalized if its ratio of
"tangible equity" (generally defined by the OTS as core capital plus cumulative
perpetual preferred stock) to total assets is 2.0% or below. At September 30,
1993, Chevy Chase's tangible equity ratio was 5.35%.
In July 1993, the OTS released the Bank from a capital plan and a capital
directive to which the Bank had been subject as a result of its failure to meet
all applicable regulatory capital requirements in prior periods.
The failure of the Bank to maintain capital compliance could result in
regulatory sanctions.
10. CAPITAL MAINTENANCE AGREEMENT BY THE TRUST. The Trust has entered
into an agreement with OTS's predecessor agency to maintain Chevy Chase's
regulatory capital at the level prescribed by applicable regulatory requirements
and, if necessary, to infuse additional capital to enable Chevy Chase to meet
those requirements. Following the Bank's failure to meet its risk-based capital
requirement in June 1991, the OTS advised the Trust that, based on the Trust's
liquidity position, the OTS did not plan to enforce the Trust's obligations at
that time. Subsequently, at September 30, 1992, the Bank returned to capital
compliance. However, to the extent the Bank is unable to meet capital
requirements in the future, the OTS could seek to enforce the Trust's
obligations under the agreement. To the extent additional capital infusions may
be required pursuant to the Trust's capital maintenance agreement, the funds
available to repay Notes would be reduced.
11. POTENTIAL EFFECT OF TAX SHARING REIMBURSEMENT OBLIGATION ON TRUST
LIQUIDITY. If Chevy Chase has net operating losses in the current year or in
any future year, the Trust could be obligated under the Tax Sharing Agreement to
make certain payments to Chevy Chase.
If in any year Chevy Chase has net operating losses and the Trust group
uses such losses to offset taxable income of the Trust (or other members of the
Trust group), the Trust (or other members of the Trust group) would be required
to make tax sharing payments to Chevy Chase. The sum of any such payments and
any payments actually made to the Internal Revenue Service (the "IRS") would not
exceed the amount otherwise required to be paid
-19-
to the IRS if the Trust group had not been able to use the Chevy Chase net
operating losses.
In addition, to the extent that in any year Chevy Chase has net operating
losses that are not used in that year to offset taxable income of the Trust (or
other members of the Trust group), Chevy Chase would carry back such losses,
obtaining a refund of taxes it paid to the IRS or a reimbursement of tax sharing
payments it made to the Trust, or both, depending on the amount of the losses
and the taxable year in which they occur. As of September 30, 1993, the maximum
amount the Trust could be required to reimburse Chevy Chase in the event of a
carryback of Chevy Chase losses, based on tax sharing payments received through
that date, was $19.7 million. Any such payments made by the Trust to Chevy
Chase could have a material adverse effect on the Trust's liquidity and, in any
event, would reduce funds available to repay the Notes.
12. NO LIMITATION IN INDENTURE ON DIVIDENDS, DISTRIBUTIONS, ISSUANCE OF
SECURITIES OR INCURRENCE OF ADDITIONAL INDEBTEDNESS. The indenture pursuant to
which the Notes will be issued (the "Indenture") does not include certain
covenants which are customary in negotiated indentures governing the issuance of
public debt securities similar to the Notes and which are intended to protect
the rights of security holders. The Indenture does not impose any restrictions
on the Trust with respect to the payment of dividends or distributions on its
capital stock or the issuance of additional securities, nor does the Indenture
limit the incurrence by the Trust of additional indebtedness. The Trust's
ability to pay dividends, issue additional securities and incur additional debt,
however, is currently subject to restrictions imposed by certain of the Trust's
institutional lenders under various other loan agreements to which the Trust is
a party.
13. TRUST OPTION TO REDEEM NOTES. The Trust, at its sole option, may call
for the redemption, at face value, of any Note with a Stated Maturity of more
than one year from the date of issue on any Interest Payment Date on or after
the first anniversary of its date of issue. See "Description of Notes - Redemp-
tion of Certain Notes." Such early redemptions, if made, would reduce the funds
available to pay Notes maturing thereafter.
14. RISKS TO REAL ESTATE TRUST OF PROPERTY OWNERSHIP AND DEVELOPMENT. Most
of the operating expenses and virtually all of the debt service payments
associated with income-producing properties are fixed; they are not decreased by
reductions in occupancy or rental income. Operating expenses are also subject
to inflationary increases. Therefore, the ability of the Real Estate Trust to
meet its fixed obligations with cash flow from its income-producing properties
is highly dependent on its
-20-
ability to maintain or increase their levels of rental income and hotel sales
revenues.
Rental income is subject to a number of risks, including adverse changes in
national or local economic conditions and other factors which might impair the
ability of existing tenants to maintain their rental payments and which might
reduce the potential demand by prospective new tenants for vacant space. Any of
the Real Estate Trust's commercial properties and hotels also could be adversely
affected by governmental actions such as increases in real estate tax rates.
Hotel revenues are subject to rapid declines if customer demand should be
impaired for any reason, since advance bookings represent only a limited portion
of overall revenues and are subject to cancellation.
Real estate investments tend to be relatively illiquid; they cannot be
converted quickly and readily to cash, although, under normal market conditions,
they can be so converted on an orderly basis over a period of time. This lack
of liquidity tends to limit the ability of the Real Estate Trust to vary its
portfolio promptly in response to changes in economic, demographic, social,
financial and investment conditions.
Real estate development and ownership in certain areas of the country is
currently suffering from overbuilding or adverse local economic conditions, or
both. In recent periods, the Real Estate Trust's office building leasing rates
have experienced a decline due to recessionary economic conditions in the
metropolitan areas in which the office properties are located.
15. RISKS OF ADJUSTABLE-RATE BORROWINGS BY REAL ESTATE TRUST. At
September 30, 1993, the Real Estate Trust had borrowings at floating interest
rates in the amount of approximately $36.0 million. Upward fluctuations in such
rates have had in the past, and could have in the future, an adverse impact on
the cost of funds to the Real Estate Trust and consequently on its earnings.
Future increases in these rates could have an adverse effect on the Trust's
operating results.
16. RISK OF UNAVAILABILITY OF LONG-TERM FIXED-RATE MORTGAGE FINANCING. The
availability of satisfactory long-term mortgage financing is important to the
Real Estate Trust's operations. The availability of such financing has a major
bearing on, among other things, the market value of existing properties that are
under-financed or free and clear of mortgage debt. In recent periods, the
availability of long-term fixed-rate mortgage financing for income-producing
properties on satisfactory terms or at acceptable interest rates has been
significantly curtailed. The current unavailability of such financing has
impaired the Real Estate Trust's ability to refinance income-producing proper-
ties in its portfolio. No assurance can be given as to when
-21-
financing for income-producing properties at acceptable terms and interest rates
will again become generally available.
17. POSSIBLE CONFLICTS OF INTEREST AFFECTING REAL ESTATE TRUST. B. Francis
Saul II, Chairman of the Trust, and his affiliates own 100% of the Trust's
common shares of beneficial interest and thus control the Trust. Mr. Saul also
controls B. F. Saul Company (the "Saul Company"), which in turn controls B. F.
Saul Advisory Company (the "Advisor") and Franklin Property Company
("Franklin"). The Advisor acts as the Real Estate Trust's investment advisor
and carries on the day-to-day general management, financial, accounting, legal
and administrative affairs of the Real Estate Trust. Franklin acts as leasing
and management agent for most of the income-producing properties owned by the
Real Estate Trust and plans and oversees the development of other new properties
and the expansion and renovation of existing properties. The compensation
received by the Advisor and Franklin is determined by the Trustees, including
the independent trustees, who have no current affiliation with the Saul Company
or its subsidiaries. Since only two of the Trust's five Trustees are considered
independent, the independent Trustees represent a minority of the Board of
Trustees. There is no requirement in the Trust's Declaration of Trust or in the
Indenture, or elsewhere, that the Trust have a certain number or percentage of
independent Trustees.
The Saul Company, its affiliated companies, their officers and directors,
and two of the Trustees of the Trust actively engage in various activities
relating to the general business of real estate development and finance. The
Saul Company and related companies have many clients other than the Real Estate
Trust with investment interests in real estate and are engaged in such
activities on their own behalf and as agents for and advisors to others. No
provision in the Declaration of Trust or the advisory contract with the Advisor
(the "Advisory Contract") prohibits the Advisor, Franklin, the Saul Company,
their affiliates, any officer, director or employee of such companies, or any
Trustee of the Trust from performing investment advisory services for parties
other than the Real Estate Trust, engaging in activities similar to or
competitive with the investment operations of the Real Estate Trust, or making
real estate investments that might be suitable or desirable for the Real Estate
Trust. The Advisory Contract provides that the Real Estate Trust has priority
with respect to any investment made by the Saul Company, the Advisor and their
directors and officers, for their account or for the account of any enterprise
(other than a savings and loan institution) in which they have a beneficial
interest aggregating 40% or more. There are no procedural safeguards to ensure
this priority, although the entities normally do not compete for the same type
of investments and thus conflicts generally have not arisen. Relevant personnel
have been advised concerning the
-22-
conflict provision in the Advisory Contract and have been instructed to comply
with such provisions.
Potential conflicts of interest may arise from Mr. Saul's role as Chairman
of the Board and Chief Executive Officer of Saul Centers, the general partner of
Saul Holdings Partnership. See "Summary - The Trust." The Trust has entered
into an Exclusivity Agreement (the "Exclusivity Agreement") with, and has
granted a right of first refusal (the "Right of First Refusal") to, Saul
Centers, Saul Holdings Partnership and its two subsidiary limited partnerships
(collectively, the "Company"). The purpose of these agreements is to minimize
potential conflicts of interest between the Real Estate Trust and the Company.
The Exclusivity Agreement and Right of First Refusal generally require the Real
Estate Trust to conduct its shopping center business exclusively through the
Company and to grant the Company a right of first refusal to purchase commercial
properties and development sites that become available to the Real Estate Trust
in the District of Columbia or adjacent suburban Maryland. Subject to the
Exclusivity Agreement and Right of First Refusal, the Real Estate Trust will
continue to develop, acquire, own and manage commercial properties and own land
suitable for development as, among other things, shopping centers and other
commercial properties.
18. LACK OF INVESTMENT AND BORROWING LIMITATIONS IN DECLARATION OF TRUST.
With certain exceptions, the Trust's Declaration of Trust does not specify the
proportion of the Trust's assets which may or shall be committed to each of the
several types of investments which the Trust may make. The Trustees may change
the mix of the Trust's investment portfolio at any time or make investments of a
type not currently made by the Trust, provided that such investments are not
prohibited by the Declaration of Trust or by any indenture, loan agreement or
other instrument to which the Trust is a party. The Declaration of Trust does
not place any limitations on the amount of funds which the Trust may borrow or
on the types of short-term or long-term debt securities which it may issue,
including additional Notes or indebtedness senior to the Notes.
19. LIMITATIONS ON LIABILITY OF SHAREHOLDERS, TRUSTEES AND OFFICERS OF THE
TRUST. The name "B. F. Saul Real Estate Investment Trust" is the designation of
the Trust under its Declaration of Trust currently in effect. In accordance
with the Declaration of Trust, all persons dealing with the Trust must look
solely to the Trust's property for the enforcement of any claims against the
Trust, since none of the Trustees, officers, agents or shareholders of the Trust
assumes any personal liability for obligations entered into on behalf of the
Trust. Further, as required by the Declaration of Trust, the Indenture provides
that covenants and obligations for the benefit of Noteholders contained in the
Indenture bind only the property of the Trust and are not
-23-
binding upon, and cannot be enforced against, the shareholders, Trustees,
officers, employees or agents of the Trust or their private property. In the
event of a default by the Trust under a Note, a Noteholder may have a more
limited right of action than such Noteholder would have absent such provisions
in the Declaration of Trust and Indenture.
20. ABSENCE OF BROKER OR DEALER. The Trust has not used and does not
intend to use an underwriter or selling agent in connection with the offering
and sale of the Notes. Purchasers, therefore, will not have the benefit of the
independent review of the Trust, the terms of the Notes, and the accuracy and
completeness of the information contained in the Prospectus that might be
provided by an underwriter or other selling agent involved in an offering of the
Notes. Also, because the offering of Notes will be conducted exclusively by
officers of the Trust who are not registered with the Securities and Exchange
Commission as brokers or dealers, such officers will not be in a position to
determine the suitability of the Notes for investors. EACH INVESTOR SHOULD
DETERMINE INDEPENDENTLY OR SEEK INDEPENDENT INVESTMENT ADVICE AS TO WHETHER THE
NOTES REPRESENT A SUITABLE INVESTMENT FOR SUCH INVESTOR.
USE OF PROCEEDS
The Trust will use the net proceeds from the sale of the Notes offered
hereby primarily to retire maturing Outstanding Notes (including the Notes
offered hereby). As of January 1, 1994, $11.1 million and $7.0 million
principal amount of Outstanding Notes were scheduled to mature in fiscal 1994
and fiscal 1995, respectively. The interest rates on Outstanding Notes
scheduled to mature during this period vary from 5.0% to 15.0% per annum. Any
proceeds not applied to pay Outstanding Notes will be used for other general
corporate purposes. This offering is not contingent on the sale of any minimum
amount of Notes.
PLAN OF DISTRIBUTION
The Notes will not be distributed through underwriters, brokers or dealers.
The Notes will be sold only by the Trust acting through one or more of its duly
authorized officers. Such officers are salaried employees of the Saul Company,
the parent of the Advisor, and do not receive any compensation in connection
with their participation in the offering and sale of the Notes in the form of
commissions or other remuneration based either directly or indirectly on sales
of the Notes. Although the Trust does not compensate the officers who
participate in the offering and sale of the Notes, the Trust does pay the
Advisor a fee of 1% of the principal amount of the Notes as they are issued to
offset its costs of administering the Note program. Notes will be available
-24-
for sale only at the Trust's office in Bethesda, Maryland. See "How to Purchase
Notes."
The offering of the Notes by this Prospectus will terminate when all of the
Notes have been sold. See "Description of Notes - General." The Trust may
terminate the offering of the Notes at any time without notice.
HOW TO PURCHASE NOTES
Notes may be purchased in person at the sales office of the Trust, 7200
Wisconsin Avenue, Suite 903, Bethesda, Maryland 20814, or by mail by completing
the applicable Note Order Form, which may be found at the end of this
Prospectus, and mailing the form and a check payable to the Trust in the
enclosed envelope. In either case, the Note, in registered form, will be mailed
directly to the purchaser by The Riggs National Bank of Washington, D.C., the
Indenture Trustee for the Notes. For further information on how to purchase
Notes, please telephone (301) 986-6207.
DESCRIPTION OF NOTES
The Notes will be issued under an Indenture dated as of September 1, 1992
(the "Indenture") between the Trust and The Riggs National Bank of Washington,
D.C. (the "Indenture Trustee"). Included below is a summary of the material
terms of the Notes and the material provisions of the Indenture. The summary
does not purport to be complete and is subject in all respects to the provisions
of, and is qualified in its entirety by express reference to, the cited Sections
and Articles of, and definitions contained in, the Indenture, a copy of which
has been filed with the Commission as an exhibit to the Registration Statement
of which this Prospectus forms a part, and which is available as described under
Available Information.
GENERAL
The Notes are limited initially to the aggregate principal amount of $80
million offered hereby (Section 3.01). At January 26, 1994, $61.7 million in
principal amount of Notes was available to be issued under the Indenture. The
Trust from time to time may enter into one or more supplemental indentures pro-
viding for the issuance of additional notes without the consent of the holders
of outstanding Notes (Section 9.01).
The Notes will be issued in denominations of $5,000 or any amount in excess
thereof which is an integral multiple of $1,000. They will be issued in
registered form only, without coupons, to mature one to ten years from the date
of issue, as selected by the investor. The Notes will be unsecured general
obligations of
-25-
the Trust and will be identical except for interest rate, issue date and
maturity date (Section 3.02). Except as described below under "Redemption of
Certain Notes," the Notes will not contain any provisions for conversion,
redemption, amortization, sinking fund or retirement prior to maturity.
THE NOTES ARE NOT GUARANTEED OR INSURED AND ARE NOT SECURED BY ANY
MORTGAGE, PLEDGE OR LIEN. The Notes will rank on a parity in right of payment
with all unsecured debt of the Real Estate Trust. At September 30, 1993, the
Real Estate Trust's unsecured debt (consisting of Notes and accounts payable and
accrued expenses) totaled $74.0 million. As of such date, there was no debt of
the Real Estate Trust which is subordinated to the Real Estate Trust's unsecured
debt.
Each Note will bear interest from the date of issue to the date of maturity
at the annual rate stated on the face thereof. Such interest will be payable
semi-annually, six months from the date of issue and each six months thereafter,
and at maturity, to the persons in whose names the Notes are registered at the
close of business on the 20th day preceding such Interest Payment Dates.
Interest rates applicable to Notes will be subject to change by the Trust from
time to time, but no such change will affect any Notes issued prior to the
effective date of such change (Section 3.01). Based on the amount of a proposed
investment in Notes or the aggregate principal amount of the Trust's outstanding
unsecured notes held by a prospective investor, the Trust may offer to pay
interest on a Note of any maturity at an annual rate of up to 2% in excess of
the interest rate shown on the cover page of this Prospectus for a Note of such
maturity.
At maturity of any Note, principal will be payable upon surrender of such
Note without endorsement at The Riggs National Bank of Washington, D.C.,
Corporate Trust Division, 808 17th Street N.W., Washington, D.C. 20006. Interest
payments will be made by the Trust by check mailed to the person entitled
thereto (Sections 3.01 and 10.02). NOTES MUST BE PRESENTED AT THE ABOVE OFFICE
OF THE INDENTURE TRUSTEE FOR REGISTRATION OF TRANSFER OR EXCHANGE AND FOR
PAYMENT AT MATURITY. No service charge will be imposed for any transfer or
exchange of Notes, but the Trust may require payment to cover taxes or other
governmental charges that may be assessed in connection with any such transfer
or exchange (Section 3.05).
THE INDENTURE DOES NOT IMPOSE ANY RESTRICTIONS ON THE TRUST'S ABILITY TO
PAY DIVIDENDS OR OTHER DISTRIBUTIONS TO ITS SHAREHOLDERS, TO INCUR DEBT OR TO
ISSUE ADDITIONAL SECURITIES. SEE "RISK FACTORS AND OTHER CONSIDERATIONS - NO
LIMITATION IN INDENTURE ON DIVIDENDS, DISTRIBUTIONS, ISSUANCE OF SECURITIES OR
INCURRENCE OF ADDITIONAL INDEBTEDNESS."
-26-
There is no established trading market for the Notes, and the Trust does
not anticipate that an active trading market will be established.
REDEMPTION OF CERTAIN NOTES
The Trust may, at its sole election, redeem any of the Notes having a
Stated Maturity of more than one year from date of issue on any Interest Payment
Date with respect to such Note on or after the first anniversary of the date of
issue of such Note at a Redemption Price (exclusive of the installment of
interest due on the Redemption Date, payment of which shall have been made or
duly provided for to the registered holder on the relevant Record Date) equal to
the Principal Amount of the Note so redeemed. (Section 11.01). Notes called
for redemption will not bear interest after the Redemption Date. (Section
11.07).
If fewer than all of the Notes having a Stated Maturity of more than one
year and the same Interest Payment Date as the Redemption Date are to be
redeemed, the particular Notes to be redeemed will be selected by such method as
the Trust shall deem appropriate and may include redemption of Notes with higher
interest rates first (Section 11.04).
EVENTS OF DEFAULT AND NOTICE THEREOF
The Indenture provides that an "Event of Default" with respect to the Notes
will result upon the occurrence of any of the following:
(i) default in the payment of any interest upon any Note when it becomes
due and payable, and continuance of such default for a period of 30
days; or
(ii) default in the payment of the principal of (and premium, if any, on)
any Note at its Maturity; or
(iii) default in the performance, or breach, of any covenant or warranty of
the Trust in the Indenture (other than a covenant or warranty a
default in whose performance or whose breach is elsewhere in the
Indenture specifically dealt with), and continuance of such default or
breach for a period of 60 days after there has been given, by
registered or certified mail, to the Trust by the Indenture Trustee or
to the Trust and the Indenture Trustee by the Holders of at least 10%
in principal amount of the Notes Outstanding, a written notice spec-
ifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" under the Indenture;
or
-27-
(iv) certain events of bankruptcy or insolvency affecting the Trust; or
(v) B. F. Saul Advisory Company ceases to be the investment advisor to the
Trust without being immediately replaced by another entity the
majority voting interest of which is owned by the Saul Company or
B. Francis Saul II (Section 5.01).
Within 90 days after the occurrence of a default, the Indenture Trustee is
required to give the Noteholders notice of all defaults known to it; provided
that, except in the case of a default in the payment of principal of, and
premium, if any, or interest on, any of the Notes, the Indenture Trustee will be
protected in withholding such notice if it in good faith determines that the
withholding of such notice is in the interest of the Noteholders (Section 6.02).
If an Event of Default occurs and is continuing, the Indenture Trustee or the
Holders of not less than 25% in principal amount of the Notes Outstanding may
declare the principal of all the Notes to be due and payable immediately, by a
notice in writing to the Trust (and to the Indenture Trustee if given by
Noteholders), and upon any such declaration such principal will become
immediately due and payable (Section 5.02). At any time after such a
declaration of acceleration has been made and before a judgment or decree for
payment of the money due has been obtained by the Indenture Trustee, the Holders
of a majority in principal amount of the Notes Outstanding, by written notice to
the Trust and the Indenture Trustee, may rescind and annul such declaration and
its consequences if (i) the Trust has paid or deposited with the Indenture
Trustee a sum sufficient to pay
(A) all overdue installments of interest on all
Notes,
(B) the principal of (and premium, if any, on)
any Notes which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate
borne by the Notes,
(C) to the extent that payment of such interest
is lawful, interest upon overdue installments of interest at
the rate borne by the Notes, and
(D) all sums paid or advanced by the Indenture
Trustee under the Indenture and the reasonable compensation,
expenses, disbursements and advances of the Indenture
Trustee, its agents and counsel; and
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(ii) all Events of Default, other than the non-payment of the principal of
Notes which have become due solely by such acceleration, have been cured or have
been waived as provided in the Indenture (Section 5.02).
The Indenture provides that if (i) default is made in the payment of any
interest on any Note when such interest becomes due and payable and such default
continues for a period of 30 days, or (ii) default is made in the payment of the
principal of (or premium, if any, on) any Note at the Maturity thereof, the
Trust will, upon demand of the Indenture Trustee, pay to it, for the benefit of
the Holders of such Notes, the whole amount then due and payable on such Notes
for principal (and premium, if any) and interest, with interest upon the overdue
principal (and premium, if any) and, to the extent that payment of such interest
is legally enforceable, upon overdue installments of interest, at the rate borne
by the Notes. (Section 5.03).
In the case of an Event of Default which is not cured or waived, the
Indenture Trustee will be required to exercise such of its rights and powers
under the Indenture, and to use the degree of care and skill in their exercise,
that a prudent man would exercise or use under the circumstances in the conduct
of his own affairs, but it otherwise need only perform such duties as are
specifically set forth in the Indenture (Section 6.01). Subject to such
provisions, the Indenture Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any of the
Noteholders unless they offer to the Indenture Trustee reasonable security or
indemnity (Section 6.03).
MODIFICATION OF INDENTURE
The Indenture, the rights and obligations of the Trust and the rights of
the Noteholders may be modified by the Trust and the Indenture Trustee without
the consent of the Noteholders (i) to evidence the succession of a corporation
or other entity to the Trust, and the assumption by any such successor of the
covenants of the Trust in the Indenture and the Notes, (ii) to add to the
covenants of the Trust, for the benefit of the Noteholders, or to surrender any
right or power conferred in the Indenture upon the Trust, (iii) to cure any
ambiguity, to correct or supplement any provision of the Indenture which may be
defective or inconsistent with any other provisions, or to make any other pro-
visions with respect to matters or questions arising under the Indenture which
are not inconsistent with the Indenture, provided such action does not adversely
affect the interests of the Noteholders, (iv) to create, from time to time,
notes in addition to the Notes initially issuable under the Indenture and any
supplemental indenture thereto, which subsequently created notes are identical
to the Notes initially issuable under the Indenture and
-29-
any supplemental indenture thereto, except for interest rate, issue date and
maturity date, or (v) to modify, amend or supplement the Indenture to effect the
qualification of the Indenture under the Trust Indenture Act of 1939 and to add
to the Indenture specified provisions permitted by such Act (Section 9.1).
With certain exceptions, the Indenture, the rights and obligations of the
Trust and the rights of the Noteholders may be modified in any manner by the
Trust with the consent of the holders of not less than 66-2/3% in aggregate
principal amount of the Notes Outstanding; but no such modification may be made
without the consent of each Noteholder affected thereby which would (i) change
the maturity of the principal of, or any installment of interest on, any Note or
reduce the principal amount thereof or the interest thereon, or impair the right
of such Noteholder to institute suit for the enforcement of any such payment on
or after the maturity thereof, or (ii) reduce the percentage in principal amount
of the Notes Outstanding, the consent of whose holders is required for any
modification of the Indenture, or the consent of whose holders is required for
any waiver of compliance with certain provisions of the Indenture or certain
defaults thereunder and the consequences thereof provided for in the Indenture
(Section 9.02).
COMPLIANCE REPORTS
The Trust and each other obligor on the Notes, if any, must deliver
annually to the Trustee, within 120 days after the end of each fiscal year, an
officers' certificate stating whether the Trust is in default in the performance
and observance of any of the conditions or covenants of the Indenture, and if
the Trust is in default, specifying all such defaults and the nature and status
thereof (Section 10.06).
REPORTS TO NOTEHOLDERS
The Trust will furnish to the holders of Notes such summaries of all
quarterly and annual reports which it files with the Commission as may be
required by the rules and regulations of the Commission to be furnished to
holders of any Notes (Section 7.04).
EXPERTS
The Trust's Consolidated Financial Statements and related schedules
included in the Trust's Annual Report on Form 10-K for the fiscal year ended
September 30, 1993 have been audited by Stoy, Malone & Company, P.C.,
independent auditors, as set forth in their reports
accompanying such financial statements and schedules, and are incorporated
herein
-30-
by reference in reliance upon such reports, which are given upon their authority
as experts in accounting and auditing.
LEGAL MATTERS
The legality of the securities offered by this Prospectus has been passed
upon for the Trust by the firm of Shaw, Pittman, Potts & Trowbridge, Washington,
D.C., a partnership including professional corporations. George M. Rogers, Jr.,
a member of that firm, is a Trustee of the Trust and a director of B. F. Saul
Company and of Chevy Chase.
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NOTE ORDER FORM
B. F. SAUL REAL ESTATE INVESTMENT TRUST
7200 Wisconsin Avenue, Suite 903
Bethesda, Maryland 20814
Please issue a Note exactly as indicated below at the interest rate shown
on your current Prospectus or supplement thereto. My check for 100% of the
principal amount is enclosed. I understand that my Note will be issued as of
the date this order is received (if received by noon) and that your offer may be
withdrawn without notice.
================================================================================
Owner's Name __________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Address _______________________________________________________________________
_______________________________________________________________________________
_______________________________________________________ Zip __________________
Taxpayer Identification (Social Security) Number ______________________________
Principal Amount of Note (minimum $5,000) $____________________________________
Maturity from date of issue (circle one) 1 2 3 4 5 6 7 8 9 10 year(s)
If the maturity date falls on a Saturday, Sunday, or holiday, it will be
changed to the nearest business day. This change will not alter the interest
rate.
Under penalties of perjury, I certify (1) that the number shown on this
form is my correct taxpayer identification number, and (2) that I am not subject
to backup withholding because (a) I have not been notified that I am subject to
backup withholding as a result of a failure to report all interest or dividends,
or (b) the Internal Revenue Service has notified me that I am no longer subject
to backup withholding; or all of the account owners are neither citizens nor
residents of the United States and therefore exempt from withholding.
Note: Strike out the language certifying that you are not subject to
backup withholding due to notified payee underreporting if the Internal Revenue
Service has notified you that you are subject to backup withholding and you have
not received notice from the Internal Revenue Service advising that backup
withholding has terminated.
____________________________________ ________________________________________
Date: Signature
____________________________________
____________________________________ ________________________________________
Printed Name
For Office Use Only:
________________________________________
Date Received: Address (if different from above)
Issue Date: ________________________________________
City & State Zip Code
Interest Rate: ________________________________________
____________________________________ Telephone (Including Area Code)
E-1
ACKNOWLEDGEMENT
I understand and acknowledge that (1) the Note I am purchasing is not a
savings account or a deposit and (2) the Note is not insured or guaranteed by
any federal governmental agency, including the Federal Deposit Insurance
Corporation, or by any state governmental agency.
___________________________________
Signature
___________________________________
Printed Name
E-2
NOTE ORDER FORM (Your Copy)
B. F. SAUL REAL ESTATE INVESTMENT TRUST
7200 Wisconsin Avenue, Suite 903
Bethesda, Maryland 20814
Please issue a Note exactly as indicated below at the interest rate shown
on your current Prospectus or supplement thereto. My check for 100% of the
principal amount is enclosed. I understand that my Note will be issued as of
the date this order is received (if received by noon) and that your offer may be
withdrawn without notice.
================================================================================
Owner's Name __________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Address _______________________________________________________________________
_______________________________________________________________________________
_______________________________________________________ Zip __________________
Taxpayer Identification (Social Security) Number ______________________________
Principal Amount of Note (minimum $5,000) $____________________________________
Maturity from date of issue (circle one) 1 2 3 4 5 6 7 8 9 10 year(s)
If the maturity date falls on a Saturday, Sunday, or holiday, it will be
changed to the nearest business day. This change will not alter the interest
rate.
UNDER PENALTIES OF PERJURY, I CERTIFY (1) THAT THE NUMBER SHOWN ON THIS
FORM IS MY CORRECT TAXPAYER IDENTIFICATION NUMBER, AND (2) THAT I AM NOT SUBJECT
TO BACKUP WITHHOLDING BECAUSE (A) I HAVE NOT BEEN NOTIFIED THAT I AM SUBJECT TO
BACKUP WITHHOLDING AS A RESULT OF A FAILURE TO REPORT ALL INTEREST OR DIVIDENDS,
OR (B) THE INTERNAL REVENUE SERVICE HAS NOTIFIED ME THAT I AM NO LONGER SUBJECT
TO BACKUP WITHHOLDING; OR ALL OF THE ACCOUNT OWNERS ARE NEITHER CITIZENS NOR
RESIDENTS OF THE UNITED STATES AND THEREFORE EXEMPT FROM WITHHOLDING.
Note: Strike out the language certifying that you are not subject to
backup withholding due to notified payee underreporting if the Internal Revenue
Service has notified you that you are subject to backup withholding and you have
not received notice from the Internal Revenue Service advising that backup
withholding has terminated.
____________________________________ ________________________________________
Date: Signature
____________________________________
____________________________________ ________________________________________
Printed Name
For Office Use Only:
________________________________________
Date Received: Address (if different from above)
Issue Date: ________________________________________
City & State Zip Code
Interest Rate:
________________________________________
_______________________________ Telephone (Including Area Code)
E-3
ACKNOWLEDGEMENT
I understand and acknowledge that (1) the Note I am purchasing is not a
savings account or a deposit and (2) the Note is not insured or guaranteed by
any federal governmental agency, including the Federal Deposit Insurance
Corporation, or by any state governmental agency.
___________________________________
Signature
___________________________________
Printed Name
E-4
No person has been authorized to give any information or to make any
representation not contained in this Prospectus and, if given or made, such
information or representation must not be relied upon. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
not offered hereby, or an offer to sell or a solicitation of any offer to buy
the securities offered hereby in any jurisdiction in which (or to any person to
whom) it is unlawful to make such offer or solicitation, and this Prospectus may
not be used to make any such offer or solicitation by a person who is not
qualified to do so under the laws of the jurisdiction in which the offer or
solicitation is made. Neither the delivery of this Prospectus nor any sale
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Trust since the date on the cover page
hereof.
B. F. SAUL REAL ESTATE
INVESTMENT TRUST
Notes Due One Year
to Ten Years
from Date of Issue
-------------------
P R O S P E C T U S
-------------------
TABLE OF CONTENTS
Page
----
Available Information . . . . . . . . . . . . 3
Incorporation of Certain
Documents by Reference . . . . . . . . . . 3
Summary . . . . . . . . . . . . . . . . . . . 5
The Trust . . . . . . . . . . . . . . . . . . 11
Risk Factors and
Other Considerations . . . . . . . . . . . 11
Use of Proceeds . . . . . . . . . . . . . . . 24
Plan of Distribution. . . . . . . . . . . . . 24
How to Purchase Notes . . . . . . . . . . . . 25
Description of Notes. . . . . . . . . . . . . 25
Experts . . . . . . . . . . . . . . . . . . . 30
Legal Matters . . . . . . . . . . . . . . . . 31
Note Order Forms. . . . . . . . . . . . . . . E-1
=============================================================================
7200 Wisconsin Avenue
Suite 903
Bethesda, Maryland 20814
Telephone: (301) 986-6207
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
It is estimated that the expenses in connection with the issuance and
distribution of the securities are as follows:
Registration fee. . . . . . . . . . . . . . . . . $ 20,000
Cost of printing and engraving. . . . . . . . . . 18,500
Indenture Trustee & Registrar's Fees. . . . . . . 80,000
Legal fees of counsel for registrant. . . . . . . 400,000
Accountants' fees . . . . . . . . . . . . . . . . 25,000
Payment to B. F. Saul Advisory Company for
Administering Note Program. . . . . . . . . . 800,000
Miscellaneous and Advertising . . . . . . . . . . 367,000
----------
Total . . . . . . . . . . . . . . . . . . . . $1,710,000
----------
----------
Item 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Declaration of Trust (Article III) provides that no Trustee or officer
of the Trust shall be liable for any action or failure to act except for his own
bad faith, willful misfeasance, gross negligence or reckless disregard of his
duties, and, except as stated, Trustees and officers are entitled to be
reimbursed and indemnified for all loss, expenses, and outlays which they may
suffer because they are Trustees or officers of the Trust.
Item 16. EXHIBITS.
*3.(a) Amended and Restated Declaration of Trust filed with the
Maryland Department of Assessments and Taxation on June 22,
1990.
*(b) Amendment to Amended and Restated Declaration of Trust
reflected in Secretary Certificate filed with the Maryland
Department of Assessments and Taxation on June 26, 1990.
(c) Amended and Restated By-Laws of the Trust dated as of
February 28, 1991 as filed as Exhibit T3B to the Trust's
Form T-3 Application for Qualification of Indentures under the
Trust Indenture Act of 1939 (File No. 22-20838) is hereby
incorporated by reference.
II-1
*4.(a) Indenture dated as of September 1, 1992 with respect to the
Trust's Senior Notes due from One to Ten Years from Date of
Issue. The text of the Notes is set forth in Section 2.02.
*5. Opinion of Shaw, Pittman, Potts & Trowbridge with respect to
legality of the Notes.
10.(a) Advisory Contract with B. F. Saul Advisory Company effective
October 1, 1982 filed as Exhibit 10(a) to Registration
Statement No. 2-80831 is hereby incorporated by reference.
(b) Commercial Property Leasing and Management Agreement effective
October 1, 1982 with Franklin Property Company filed as
Exhibit 10(b) to Registration Statement No. 2-80831 is hereby
incorporated by reference.
*(c) Tax Sharing Agreement dated June 28, 1990 among the Trust,
Chevy Chase Savings Bank F.S.B. and certain of their
subsidiaries.
*(d) Agreement dated June 28, 1990 among the Trust, B. F. Saul
Company, Franklin Development Co., Inc., The Klingle
Corporation and Westminster Investing Corporation relating to
the transfer of certain shares of Chevy Chase Savings Bank,
F.S.B. and certain real property to the Trust in exchange for
preferred shares of beneficial interest of the Trust.
(e) Regulatory Capital Maintenance/Dividend Agreement dated May 17,
1988 among B. F. Saul Company, the Trust and the Federal
Savings and Loan Insurance Corporation filed as Exhibit 10(e)
to the Trust's Annual Report on Form 10-K (File No. 1-7184) for
the fiscal year ended September 30, 1991 is hereby incorporated
by reference.
*(f) Written Agreement dated September 30, 1991 between the Office
of Thrift Supervision and Chevy Chase Savings Bank, F.S.B.
(g) Indenture with respect to the Trust's Senior Notes Due from One
Year to Ten Years from Date of Issue as filed as Exhibit 4(a)
to Registration Statement No. 33-19909 is hereby incorporated
by reference.
II-2
(h) First Supplemental Indenture with respect to the Trust's Senior
Notes due from One Year to Ten Years from Date of Issue as
filed as Exhibit T-3C to the Trust's Form T-3 Application for
Qualification of Indentures under the Trust Indenture Act of
1939 (File No. 22-20838) is hereby incorporated by reference.
(i) Indenture with respect to the Trust's Senior Notes due from One
Year to Ten Years from Date of Issue as filed as Exhibit 4(a)
to Registration Statement No. 33-9336 is hereby incorporated by
reference.
(j) Fourth Supplemental Indenture with respect to the Trust's
Senior Notes due from One Year to Ten Years from Date of Issue
as filed as Exhibit 4(a) to Registration Statement No. 2-95506
is hereby incorporated by reference.
(k) Third Supplemental Indenture with respect to the Trust's Senior
Notes due from One Year to Ten Years from Date of Issue as
filed as Exhibit 4(a) to Registration Statement No. 2-91126 is
hereby incorporated by reference.
(l) Second Supplemental Indenture with respect to the Trust's
Senior Notes due from One Year to Ten Years from Date of Issue
as filed as Exhibit 4(a) to Registration Statement No. 2-80831
is hereby incorporated by reference.
(m) Supplemental Indenture with respect to the Trust's Senior Notes
due from One Year to Ten Years from Date of Issue as filed as
Exhibit 4(a) to Registration Statement No. 2-68652 is hereby
incorporated by reference.
(n) Indenture with respect to the Trust's Senior Notes due from One
Year to Five Years from Date of Issue as filed as Exhibit T-3C
to the Trust's Form T-3 Application for Qualification of
Indentures under the Trust Indenture Act of 1939 (File
No. 22-10206) is hereby incorporated by reference.
*(o) Amendments to Commercial Property Leasing and Management
Agreement between the Trust and Franklin Property Company dated
as of December 31, 1992 (Amendment No. 5), July 1, 1989
(Amendment No. 4), October 1, 1986 (Amendment No. 3),
January 1, 1985 (Amendment No. 2) and July 1, 1984
(Amendment No. 1).
II-3
*(p) Advisory Contract between B. F. Saul Advisory Company and
Dearborn Corporation dated as of December 31, 1992.
*(q) Commercial Property Leasing and Management Agreement between
Dearborn Corporation and Franklin Property Company dated as of
December 31, 1992.
(r) Registration Rights and Lock-Up Agreement, dated August 26,
1993, by and among Saul Centers, Inc. and the Trust,
Westminster Investing Corporation, Van Ness Square Corporation,
Deaborn Corporation, Franklin Property Company and Avenel
Executive Park Phase II as filed as Exhibit 10.6 to
Registration Statement No. 33-64562 is hereby
incorporated by reference.
(s) Exclusivity and Right of First Refusal Agreement, dated
August 26, 1993, among Saul Centers, Inc., the Trust, B. F.
Saul Company, Westminster Investing Corporation, Franklin
Property Company, Van Ness Square Corporation, and Chevy Chase
Savings Bank, F.S.B. as filed as Exhibit 10.7 to Registration
Statement No. 33-64562 is hereby incorporated by reference.
**(t) Reimbursement Agreement, dated as of August 26, 1993, by and
among Saul Centers, Inc., Saul Holdings Limited Partnership,
Saul Subsidiary I Limited Partnership, Saul Subsidiary II
Limited Partnership, Avenel Executive Park Phase II, Inc.,
Franklin Property Company, Westminister Investing Corporation
Van Ness Square Corporation, Dearborn Corporation and the
Trust.
**(u) Amendment to Written Agreement, dated October 29, 1993,
between the Office of Thrift Supervision and Chevy Chase
Savings Bank, F.S.B.
11. Statement re: computation of Net Income (Loss) Per Common
Share of Beneficial Interest for the year ended September 30,
1993 filed as Exhibit 11 to the Trust's Annual Report on
Form 10-K (File No. 1-7184) for the fiscal year ended
September 30, 1993 is hereby incorporated by reference.
12. Statement re: Computation of Ratio of Earnings to Fixed Charges
filed as Exhibit 12 to the Trust's Annual Report on Form 10-K
(File No. 1-7184) for the fiscal year ended September 30, 1993
is hereby incorporated by reference.
**13. Annual Report to Security Holders for the fiscal year ended
September 30, 1993.
**23. Consent of Stoy, Malone & Company, P.C.
II-4
*25. Power of Attorney.
*26. Amendment No. 5 to Statement of Eligibility on Form T-1 of The
Riggs National Bank of Washington, D.C.
- ---------------------------
* Previously filed.
** Filed herewith.
II-5
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
II-6
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provision, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has duly caused this post-effective amendment to registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Chevy Chase, Maryland on this the 26th day of January 1994.
B. F. SAUL REAL ESTATE
INVESTMENT TRUST
By: /S/B. FRANCIS SAUL II
----------------------
B. Francis Saul II
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this post-
effective amendment to registration statement has been signed by the following
persons in the capacities indicated below on this 26th day of January 1994.
Signature Capacity
--------- --------
/S/ B. FRANCIS SAUL II Trustee, Chairman of the
------------------------- Board and Principal
B. Francis Saul II Executive Officer
/S/ PHILIP D. CARACI Chief Financial Officer
-------------------------
Philip D. Caraci
/S/ ROSS E. HEASLEY Principal Accounting
------------------------- Officer
Ross E. Heasley
/S/ GARLAND J. BLOOM, JR.
------------------------- Trustee
Garland J. Bloom, Jr.
/S/ GILBERT M. GROSVENOR
------------------------- Trustee
Gilbert M. Grosvenor
/S/ GEORGE M. ROGERS, JR.
------------------------- Trustee
George M. Rogers, Jr.
II-8
/S/ JOHN R. WHITMORE
------------------------- Trustee
John R. Whitmore
II-9
EXHIBIT INDEX
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- ----------- ----------- -------------
*3.(a) Amended and Restated Declaration of Trust filed with the
Maryland Department of Assessments and Taxation on June 22,
1990.
*(b) Amendment to Amended and Restated Declaration of Trust
reflected in Secretary Certificate filed with the Maryland
Department of Assessments and Taxation on June 26, 1990.
(c) Amended and Restated By-Laws of the Trust dated as of
February 28, 1991 as filed as Exhibit T3B to the Trust's
Form T-3 Application for Qualification of Indentures under the
Trust Indenture Act of 1939 (File No. 22-20838) is hereby
incorporated by reference.
*4.(a) Indenture dated as of September 1, 1992 with respect to the
Trust's Senior Notes due from One to Ten Years from Date of
Issue. The text of the Notes is set forth in Section 2.02.
*5. Opinion of Shaw, Pittman, Potts & Trowbridge with respect to
legality of the Notes.
10.(a) Advisory Contract with B. F. Saul Advisory Company effective
October 1, 1982 filed as Exhibit 10(a) to Registration
Statement No. 2-80831 is hereby incorporated by reference.
(b) Commercial Property Leasing and Management Agreement effective
October 1, 1982 with Franklin Property Company filed as
Exhibit 10(b) to Registration Statement No. 2-80831 is hereby
incorporated by reference.
*(c) Tax Sharing Agreement dated June 28, 1990 among the Trust,
Chevy Chase Savings Bank F.S.B. and certain of their
subsidiaries.
*(d) Agreement dated June 28, 1990 among the Trust, B. F. Saul
Company, Franklin Development Co., Inc., The Klingle
Corporation and Westminster Investing Corporation relating to
the transfer of certain shares of Chevy Chase Savings Bank,
F.S.B. and certain real property to the Trust in exchange for
preferred shares of beneficial interest of the Trust.
(e) Regulatory Capital Maintenance/Dividend Agreement dated May 17,
1988 among B. F. Saul Company, the Trust and the Federal
Savings and Loan Insurance Corporation filed as Exhibit 10(e)
to the Trust's Annual Report on Form 10-K (File No. 1-7184) for
the fiscal year ended September 30, 1991 is hereby incorporated
by reference.
EXHIBIT INDEX
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EXHIBIT NO. DESCRIPTION NUMBERED PAGE
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*(f) Written Agreement dated September 30, 1991 between the Office
of Thrift Supervision and Chevy Chase Savings Bank, F.S.B.
(g) Indenture with respect to the Trust's Senior Notes Due from One
Year to Ten Years from Date of Issue as filed as Exhibit 4(a)
to Registration Statement No. 33-19909 is hereby incorporated
by reference.
(h) First Supplemental Indenture with respect to the Trust's Senior
Notes due from One Year to Ten Years from Date of Issue as
filed as Exhibit T-3C to the Trust's Form T-3 Application for
Qualification of Indentures under the Trust Indenture Act of
1939 (File No. 22-20838) is hereby incorporated by reference.
(i) Indenture with respect to the Trust's Senior Notes due from One
Year to Ten Years from Date of Issue as filed as Exhibit 4(a)
to Registration Statement No. 33-9336 is hereby incorporated by
reference.
(j) Fourth Supplemental Indenture with respect to the Trust's
Senior Notes due from One Year to Ten Years from Date of Issue
as filed as Exhibit 4(a) to Registration Statement No. 2-95506
is hereby incorporated by reference.
(k) Third Supplemental Indenture with respect to the Trust's Senior
Notes due from One Year to Ten Years from Date of Issue as
filed as Exhibit 4(a) to Registration Statement No. 2-91126 is
hereby incorporated by reference.
(l) Second Supplemental Indenture with respect to the Trust's
Senior Notes due from One Year to Ten Years from Date of Issue
as filed as Exhibit 4(a) to Registration Statement No. 2-80831
is hereby incorporated by reference.
(m) Supplemental Indenture with respect to the Trust's Senior Notes
due from One Year to Ten Years from Date of Issue as filed as
Exhibit 4(a) to Registration Statement No. 2-68652 is hereby
incorporated by reference.
EXHIBIT INDEX
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EXHIBIT NO. DESCRIPTION NUMBERED PAGE
- ----------- ----------- -------------
(n) Indenture with respect to the Trust's Senior Notes due from One
Year to Five Years from Date of Issue as filed as Exhibit T-3C
to the Trust's Form T-3 Application for Qualification of
Indentures under the Trust Indenture Act of 1939 (File
No. 22-10206) is hereby incorporated by reference.
*(o) Amendments to Commercial Property Leasing and Management
Agreement between the Trust and Franklin Property Company dated
as of December 31, 1992 (Amendment No. 5), July 1, 1989
(Amendment No. 4), October 1, 1986 (Amendment No. 3),
January 1, 1985 (Amendment No. 2) and July 1, 1984
(Amendment No. 1).
*(p) Advisory Contract between B. F. Saul Advisory Company and
Dearborn Corporation dated as of December 31, 1992.
*(q) Commercial Property Leasing and Management Agreement between
Dearborn Corporation and Franklin Property Company dated as of
December 31, 1992.
(r) Registration Rights and Lock-Up Agreement, dated August 26,
1993, by and among Saul Centers, Inc. and the Trust,
Westminster Investing Corporation, Van Ness Square Corporation,
Deaborn Corporation, Franklin Property Company and Avenel
Executive Park Phase II as filed as Exhibit 10.6 to
Registration Statement No. 33-64562 is hereby
incorporated by reference.
(s) Exclusivity and Right of First Refusal Agreement, dated
August 26, 1993, among Saul Centers, Inc., the Trust, B. F.
Saul Company, Westminster Investing Corporation, Franklin
Property Company, Van Ness Square Corporation, and Chevy Chase
Savings Bank, F.S.B. as filed as Exhibit 10.7 to Registration
Statement No. 33-64562 is hereby incorporated by reference.
**(t) Reimbursement Agreement, dated as of August 26, 1993, by and
among Saul Centers, Inc., Saul Holdings Limited Partnership,
Saul Subsidiary I Limited Partnership, Saul Subsidiary II
Limited Partnership, Avenel Executive Park Phase II, Inc.,
Franklin Property Company, Westminister Investing Corporation
Van Ness Square Corporation, Dearborn Corporation and the
Trust.
**(u) Amendment to Written Agreement, dated October 29, 1993,
between the Office of Thrift Supervision and Chevy Chase
Savings Bank, F.S.B.
11. Statement re: computation of Net Income (Loss) Per Common
Share of Beneficial Interest for the year ended September 30,
1993 filed as Exhibit 11 to the Trust's Annual Report on
Form 10-K (File No. 1-7184) for the fiscal year ended
September 30, 1993 is hereby incorporated by reference.
12. Statement re: Computation of Ratio of Earnings to Fixed Charges
filed as Exhibit 12 to the Trust's Annual Report on Form 10-K
(File No. 1-7184) for the fiscal year ended September 30, 1993
is hereby incorporated by reference.
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EXHIBIT NO. DESCRIPTION NUMBERED PAGE
- ----------- ----------- -------------
**13. Annual Report to Security Holders for the fiscal year ended
September 30, 1993.
**23. Consent of Stoy, Malone & Company, P.C.
*25. Power of Attorney.
*26. Amendment No. 5 to Statement of Eligibility on Form T-1 of The
Riggs National Bank of Washington, D.C.
<FN>
- ---------------------------
* Previously filed.
** Filed herewith.