As filed with the Securities and Exchange Commission on December 29, 1995.
Registration
No. 33-34930
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
POST-EFFECTIVE
AMENDMENT NO. 7
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
---------------- ---------------------
Item 1. Forepart of Registration Statement Facing Page; Cross Reference
and Outside Front Cover Page of Sheet; Front Cover Page of
Prospectus. . . . . . . . . . . . . Prospectus
Item 2. Inside Front and Outside Back Cover Available Information; Table of
Pages of Prospectus . . . . . . . . Contents
Item 3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed Summary; The Trust; Risk Fac-
Charges . . . . . . . . . . . . . . tors and Other Considerations
Item 4. Use of Proceeds . . . . . . . . . . Use of Proceeds
Item 5. Determination of Offering Price . . Not applicable
Item 6. Dilution. . . . . . . . . . . . . . Not applicable
Item 7. Selling Security Holders. . . . . . Not applicable
Item 8. Plan of Distribution. . . . . . . . Front Cover Page of Prospectus;
Plan of Distribution; How to
Purchase Notes
Item 9. Description of Securities to be
Registered. . . . . . . . . . . . . Description of Notes
Item 10. Interest of Named Experts and
Counsel . . . . . . . . . . . . . . Legal Matters
Item 11. Information with Respect to the Available Information; The
Registrant. . . . . . . . . . . . . Trust; Incorporation of Certain
Documents by Reference
Item 12. Incorporation of Certain Informa- Available Information; Incorpo-
tion by Reference . . . . . . . . . ration of Certain Documents by
Reference
Item 13. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities . . . . . . . . . . Not applicable
PROSPECTUS
- ---------- $80,000,000
B.F. SAUL REAL ESTATE INVESTMENT TRUST
NOTES
DUE ONE YEAR TO TEN YEARS FROM DATE OF ISSUE
INTEREST PAYABLE EACH SIX MONTHS FROM DATE OF ISSUE AND AT MATURITY
NOTE MATURITIES INTEREST RATE
FROM ISSUE DATE PER ANNUM
--------------- -------------
One year. . . . . . . . . . . . . . 5.0%
Two Years . . . . . . . . . . . . . 7.0%
Three Years . . . . . . . . . . . . 9.0%
Four Years. . . . . . . . . . . . . 9.5%
Five to Ten Years . . . . . . . . . 10.0%
THE RATE OF INTEREST ON THE NOTES OFFERED HEREBY (THE "NOTES") MAY BE
CHANGED BY B.F. SAUL REAL ESTATE INVESTMENT TRUST (THE "TRUST") FROM TIME TO
TIME, BUT ANY SUCH CHANGE WILL NOT AFFECT THE RATE OF INTEREST ON ANY NOTE
PURCHASED PRIOR TO THE EFFECTIVE DATE OF THE CHANGE. BASED ON THE AMOUNT OF A
PROPOSED INVESTMENT IN NOTES OR THE AGGREGATE PRINCIPAL AMOUNT OF THE TRUST'S
OUTSTANDING UNSECURED NOTES HELD BY A PROSPECTIVE INVESTOR, THE TRUST MAY OFFER
TO PAY INTEREST ON A NOTE OF ANY MATURITY AT AN ANNUAL RATE OF UP TO 2.0% IN
EXCESS OF THE INTEREST RATE SHOWN ABOVE FOR A NOTE OF SUCH MATURITY.
(CONTINUED ON NEXT PAGE)
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
THE NOTES ARE NOT GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR OTHERWISE.
AN INVESTMENT IN THE NOTES INVOLVES SIGNIFICANT RISKS, INCLUDING THE FOLLOWING,
DESCRIBED IN "RISK FACTORS AND OTHER CONSIDERATIONS":
- THE NOTES ARE UNSECURED OBLIGATIONS AND RANK ON A PARITY WITH ALL
OTHER UNSECURED TRUST DEBT, WHICH CURRENTLY CONSISTS OF
OUTSTANDING UNSECURED NOTES AND ACCOUNTS PAYABLE AND ACCRUED
EXPENSES. THE NOTES ARE EFFECTIVELY SUBORDINATED TO THE TRUST'S
SECURED DEBT.
- THE INDENTURE PURSUANT TO WHICH THE NOTES WILL BE ISSUED DOES NOT
RESTRICT THE TRUST'S ABILITY TO PAY DIVIDENDS, ISSUE ADDITIONAL
SECURITIES OR INCUR ADDITIONAL DEBT.
- THERE IS NO ESTABLISHED TRADING MARKET FOR THE NOTES AND THE
TRUST DOES NOT ANTICIPATE THAT AN ACTIVE TRADING MARKET WILL BE
ESTABLISHED.
- THE NOTES ARE SUBJECT TO REDEMPTION AT PAR AT THE TRUST'S OPTION,
AS DESCRIBED HEREIN.
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THE DATE OF THIS PROSPECTUS IS _______________, 1996.
The Notes are limited to $80,000,000 principal amount initially offered
hereby and are offered on a continuing basis for sale by the Trust directly to
investors through its office at the address set forth on the back cover hereof.
See "How to Purchase Notes." The Notes will mature one to ten years from date
of issue, as selected by the investor. The Notes will be sold only in fully
registered form in denominations of $5,000, or any amount in excess thereof
which is an integral multiple of $1,000, at 100% of the principal amount. The
Notes will be transferable without service charge. See "Description of Notes.
"No commissions will be paid in connection with this offering. This
offering is not contingent on the sale of any minimum amount of Notes. See "Use
of Proceeds," "Plan of Distribution" and "How to Purchase Notes." The Trust
reserves the right to withdraw, cancel or modify the offer made hereby without
notice and to reject any order in whole or in part.
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Price to Underwriting Discounts Proceeds to
Public and Commissions Trust (1)
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Per Note. . . . . . . . 100% None 100%
Total . . . . . . . . . $80,000,00 None $80,000,000
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(1) Before deduction of expenses payable by the Trust estimated at
$1,710,000, including $800,000 payable to B. F. Saul Advisory Company for
administering the Note program. B. F. Saul Advisory Company serves as the
Trust's investment advisor and is an affiliate of the Trust. See "Risk Factors
and Other Considerations - Possible Conflicts of Interest Affecting Real Estate
Trust."
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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; Seven World Trade
Center, 13th Floor, New York, New York 10048; and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of this material may be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
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, 1995, 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, 1995, which accompanies this Prospectus.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Trust will provide without charge to each person to whom a copy of this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents incorporated by reference herein, except for the
exhibits to such documents. Such request should be directed to B.F. Saul Real
Estate Investment Trust, 7200
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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 an
unincorporated common law trust governed by Maryland law. The Trust terminated
its status as a qualified real estate investment trust for federal income tax
purposes in 1978 and is now taxable as a corporation.
The principal business activity of the Trust and its real estate
subsidiaries is the ownership and development of income-producing properties.
The Trust owns 80% of the outstanding common stock of Chevy Chase Bank, F.S.B.,
formerly Chevy Chase Savings Bank, F.S.B. ("Chevy Chase" or the "Bank"), whose
assets accounted for approximately 94% of the Trust's consolidated assets at
September 30, 1995. 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 B.F.
Saul Real Estate Investment Trust and its subsidiaries, including Chevy Chase
and Chevy Chase's subsidiaries. "Real Estate Trust" refers to B.F. Saul Real
Estate Investment Trust and its subsidiaries, excluding Chevy Chase and Chevy
Chase's subsidiaries. The operations conducted by the Real Estate Trust are
designated as "Real Estate," while the business conducted by Chevy Chase and its
subsidiaries is identified by the term "Banking."
The Real Estate Trust's long-term objectives are to increase cash flow from
operations and to maximize capital appreciation of its real estate. The
properties owned by the Real Estate Trust are located predominantly in the Mid-
Atlantic and Southeastern regions of the United States and consist principally
of office and industrial projects, hotels and undeveloped land parcels.
In August 1993, the Real Estate Trust consummated a series of transactions
in which it transferred its 22 shopping center properties and one of its office
properties and the debt associated with such properties to a newly organized
limited partnership, Saul Holdings Limited Partnership ("Saul Holdings
Partnership"), and one of two newly organized subsidiary limited partnerships of
Saul Holdings Partnership. In exchange for the transferred properties, the Real
Estate Trust received a 21.5% limited partnership interest in Saul Holdings
Partnership. Saul Centers, Inc. ("Saul Centers"), a newly organized, publicly
held real estate investment trust, received a 73.0% general partnership interest
in Saul Holdings Partnership in exchange for the contribution of approximately
$220.7 million to Saul
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Holdings Partnership. Saul Centers and a wholly-owned subsidiary, which are the
sole general partners of Saul Holdings Partnership and the two subsidiary
limited partnerships, generally have full, exclusive and complete responsibility
and discretion in the management and control of each such partnership.
B. Francis Saul II, the Chairman of the Board of Trustees and Chief Executive
Officer of the Trust, serves as Chairman of the Board of Directors and Chief
Executive Officer of Saul Centers. See "Risk Factors and Other Considerations -
Potential Conflicts of Interest Affecting Real Estate Trust."
CHEVY CHASE
Chevy Chase Bank, F.S.B. ("Chevy Chase" or the "Bank") is a federally
chartered and federally insured stock savings bank which at September 30, 1995
was conducting business from 88 full-service offices and 439 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 18 loan mortgage production offices in
Maryland, Virginia and the District of Columbia, of which 17 are operated by a
wholly-owned mortgage banking subsidiary. At September 30, 1995, the Bank had
total assets of $4.9 billion, total deposits of $4.2 billion and stockholders'
equity of $328.5 million. Based on total consolidated assets at September 30,
1995, Chevy Chase is the largest bank headquartered in the Washington, D.C.
metropolitan area.
At September 30, 1995, the Bank's tangible, core, tier 1 risk-based and
total risk-based regulatory capital ratios were 5.77% 5.77%, 6.65% and 11.63%,
respectively. The Bank's capital ratios exceeded the requirements under the
Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA")
as well as the standards established for "well capitalized" institutions under
the prompt corrective action regulations established pursuant to the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). On the basis
of its balance sheet at September 30, 1995, the Bank met the FIRREA-mandated
fully phased-in capital requirements and, on a fully phased-in basis, met the
capital standards established for "well capitalized" institutions under the
prompt corrective action regulations.
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.
According to industry statistics, the Bank was the second largest thrift issuer
of credit cards, based on total credit card loans outstanding at March 31, 1995.
At September 30, 1995, credit card loans outstanding totaled $1 billion and
managed credit card receivables, including receivables owned by the Bank and
receivables securitized, sold and serviced by the Bank, totaled $4.2 billion.
See "Risk Factors and Other Considerations - Risks of Credit Card Lending by
Chevy Chase." The Bank's portfolio of automobile loans, home improvement loans
and other consumer loans totaled $239.2 million at September 30, 1995.
-6-
Chevy Chase was the first major Washington, D.C. metropolitan area
financial institution to offer revolving home equity credit line loans, and is a
leading originator of home equity credit lines in its primary market area. The
Bank's home equity credit line loan provides revolving credit secured
principally by a second mortgage on the borrower's home. At September 30, 1995,
the Bank had approximately 17,300 individual credit lines totaling $1 billion in
available credit and $482.8 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 36 of its 88 branches located in
Montgomery County, which has one of the nation's highest per capita incomes, the
Bank has the leading market share of retail deposits in that community. The
Bank's branch network also includes locations in Northern Virginia (23
branches), other Maryland counties (24 branches) and the District of Columbia
(five branches). In addition to locations at deposit branch sites, the Bank's
network of ATMs includes ATMs located in shopping malls, museums, family
entertainment and sports parks, 129 ATMs located in stores operated by Safeway
Inc. and 48 ATMs located in stores operated by Superfresh Food Markets.
Chevy Chase has accessed the capital markets as an additional means of
funding its operations and managing its capital ratios and asset growth. Since
1988, the Bank has securitized approximately $7.3 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, 1995, the Bank serviced $3.2 billion, $455.8
million and $218.3 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 ("SAIF"), which is administered by the Federal Deposit Insurance
Corporation (the "FDIC"). The Bank is subject to comprehensive regulation,
examination and supervision primarily by the Office of Thrift Supervision (the
"OTS").
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THE OFFERING
Securities Offered..................... The Trust is offering $80,000,000 in
principal amount of notes of the Trust
with varying interest rates as fixed
from time to time by the Trust (the
"Notes"). At December 15, 1995, $42.6
million in principal amount of Notes was
available to be issued.
Maturity Date.......................... The Notes will mature from one to ten
years from the date of issue, as
selected by the investor.
Interest Payment Dates................. Interest on the Notes will be payable
semi-annually (six months from the date
of issue and each six months thereafter)
and at maturity.
Ranking................................ The Notes will be unsecured obligations
and will rank on a parity with all
unsecured debt of the Real Estate Trust.
At September 30, 1995, 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
$68 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, 1995,
the Real Estate Trust had $360 million
of secured debt, which effectively will
be prior in right of payment to the
Notes. Of such indebtedness, $184.5
million consisted of mortgage notes
payable, $175 million consisted of notes
secured by the Chevy Chase common stock
owned by the Trust and other Trust
assets, and $0.5 million consisted of
borrowings under a secured line of
credit. See "Risk Factors and Other
Considerations - Notes Unsecured General
Obligations of the Trust and
Subordinated to Secured Trust Debt."
-8-
Redemption............................. The Trust, at its sole election, may
redeem any of the Notes having a Stated
Maturity of more than one year from the
date of issue on any Interest Payment
Date with respect to such Note on or
after the first anniversary of the date
of issue of such Note at a Redemption
Price equal to the Principal Amount of
the Note redeemed. See "Description of
Notes - Redemption of Certain Notes."
Covenants.............................. The Indenture does not impose any
restrictions on the Trust's ability to
pay dividends or other distributions to
its shareholders, to incur debt, or to
issue additional securities. See "Risk
Factors and Other Considerations - No
Limitation in Indenture on Dividends,
Distributions, Issuance of Securities or
Incurrence of Additional Indebtedness."
Claims of Noteholders.................. Prospective Noteholders will not have
any claim on any of the assets of the
Bank and may look only to the Real
Estate Trust's earnings and, subject to
payment of the Real Estate Trust's
secured debt and other prior claims, the
Real Estate Trust's assets for the
payment of interest and principal due
under the Notes.
Use of
Proceeds.............................. The Trust will use the net proceeds of
the offering of the Notes hereunder
primarily to retire maturing Outstanding
Notes (including the Notes offered
hereby). Any proceeds not applied to
pay Outstanding Notes will be used for
other general corporate purposes.
RISK FACTORS AND OTHER CONSIDERATIONS
PROSPECTIVE INVESTORS ARE URGED TO READ THE SECTION OF THIS PROSPECTUS
ENTITLED "RISK FACTORS AND OTHER CONSIDERATIONS" FOR A DESCRIPTION OF CERTAIN
RISK FACTORS AND OTHER CONSIDERATIONS RELATING TO THE TRUST AND THE NOTES,
INCLUDING THE RISKS DISCUSSED UNDER THE CAPTIONS "NOTES UNSECURED GENERAL
OBLIGATIONS AND SUBORDINATED TO SECURED REAL ESTATE TRUST DEBT," "CONTINGENCIES
AFFECTING LIQUIDITY OF THE REAL ESTATE TRUST" AND "NO LIMITATION IN INDENTURE ON
DIVIDENDS, DISTRIBUTIONS, ISSUANCE OF SECURITIES OR INCURRENCE OF ADDITIONAL
INDEBTEDNESS."
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THE TRUST
The Trust operates as an unincorporated common law trust governed by
Maryland law. The principal business activity of the Trust historically has
been the ownership and development of income-producing properties. The Trust is
a savings and loan holding company by virtue of its 80% equity ownership in
Chevy Chase Bank, F.S.B., formerly Chevy Chase Savings Bank, F.S.B. ("Chevy
Chase" or the "Bank"). At September 30, 1995, Chevy Chase's assets accounted
for approximately 94% of the Trust's consolidated assets.
The Trust has prepared its financial statements and other disclosures on a
fully consolidated basis. The term "Trust" used in the text and the financial
statements included herein refers to the combined entity, which includes B.F.
Saul Real Estate Investment Trust and its subsidiaries, including Chevy Chase
and Chevy Chase's subsidiaries. "Real Estate Trust" refers to B.F. Saul Real
Estate Investment Trust and its subsidiaries, excluding Chevy Chase and Chevy
Chase's subsidiaries. The operations conducted by the Real Estate Trust are
designated as "Real Estate," while the business conducted by Chevy Chase and its
subsidiaries is identified by the term "Banking."
The principal offices of the Trust are located at 8401 Connecticut Avenue,
Chevy Chase, Maryland 20815, and the Trust's telephone number is (301) 986-6000.
RISK FACTORS AND OTHER CONSIDERATIONS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS
AND OTHER CONSIDERATIONS RELATING TO THE TRUST AND THE NOTES BEFORE DECIDING
WHETHER TO INVEST IN THE NOTES.
1. NOTES UNSECURED GENERAL OBLIGATIONS AND SUBORDINATED TO SECURED REAL
ESTATE TRUST DEBT. The Notes are general unsecured obligations of the Trust.
Prospective Noteholders may look only to the Real Estate Trust's earnings and,
subject to payment of the Real Estate Trust's secured debt and other prior
claims, the Real Estate Trust's assets for payment of principal and interest due
under the Notes. See "Contingencies Affecting Liquidity of the Real Estate
Trust" below and Note 37 to the Consolidated Financial Statements included in
the Trust's 1995 Annual Report to security holders which accompanies this
Prospectus (the "Annual Report") for condensed financial statement information
on the Trust without consolidation of balance sheet and operating data of the
Bank and the Bank's subsidiaries. Prospective Noteholders will not have any
claim on any of the assets of the Bank for payment under the Notes.
The Notes will rank equal in priority of payment with other unsecured debt
of the Real Estate Trust, including Outstanding Notes. At September 30, 1995,
unsecured debt, consisting of Outstanding Notes and accounts payable and accrued
expenses, totaled $68 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, 1995, the Real Estate Trust had $360 million of secured debt,
which effectively will be prior in right of payment to the Notes. Of such
indebtedness, $184.5 million consisted of mortgage notes payable, $175
-10-
million consisted of notes secured by the Chevy Chase common stock owned by the
Trust and other Trust assets, and $0.5 million consisted of borrowings under a
secured line of credit.
2. CONTINGENCIES AFFECTING LIQUIDITY OF THE REAL ESTATE TRUST. The Real
Estate Trust relies on external sources of funds to repay the principal of
maturing debt, including Outstanding Notes, to pay interest on its Senior
Secured Notes and to make capital improvements. As reflected in Note 37 to the
Consolidated Financial Statements included in the Annual Report, the Real Estate
Trust had positive cash flow from operating activities of $4.3 million in fiscal
1995 and negative cash flow from operating activities of $10.9 million and $3.1
million in fiscal 1994 and fiscal 1993, 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 1996 and future years, the Real Estate Trust will be
required to raise substantial amounts of cash from a combination of such
sources, which are subject to various contingencies, as described below.
The Real Estate Trust's ongoing program of public Note sales was initiated
in the 1970's as a vehicle for supplementing other external funding sources. In
fiscal 1995, the Real Estate Trust sold $8 million of Notes. The Real Estate
Trust is currently selling Notes principally to pay outstanding Notes as they
mature. See "Use of Proceeds." To the degree that the Real Estate Trust does
not sell new Notes in an amount sufficient to finance completely the scheduled
repayment of outstanding Notes as they mature, it believes it will be able to
finance such repayments from other sources of funds.
The Real Estate Trust's ability to meet its liquidity needs, including debt
service payments, will depend in significant part on its receipt of dividends
from the Bank and tax sharing payments from the Bank pursuant to the Tax Sharing
Agreement. The availability and amount of tax sharing payments and dividends in
future periods is dependent upon, among other things, the Bank's operating
performance and income, regulatory restrictions on such payments and (in the
case of tax sharing payments) the continued consolidation of the Bank and the
Bank's subsidiaries with the Trust for federal income tax purposes.
The Real Estate Trust believes that the improved financial condition and
operating results of the Bank in recent periods should enhance the Real Estate
Trust's prospects for receiving tax sharing payments and dividends from the
Bank, although there can be no assurance as to the timing or amounts of payments
from such sources. At September 30, 1995, $17.7 million in tax sharing payments
were due to the Real Estate Trust, of which $10 million was paid in November
1995 with the approval of the OTS. The Real Estate Trust to date has not
received any cash dividends from the Bank. OTS regulations tie the Bank's
ability to pay dividends to specific levels of regulatory capital and earnings.
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
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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.
The Real Estate Trust, like most real estate investors, employs significant
amounts of debt to finance its investments and operations. At September 30,
1995, its total debt, excluding debt of Chevy Chase, was $428 million. The
Trust's consolidated shareholders' equity at September 30, 1995 reflected a
deficit of $68.2 million.
4. FIXED CHARGES IN EXCESS OF AVAILABLE EARNINGS. The Real Estate Trust's
ratios of available earnings to fixed charges were less than 1:1 in each of the
last three fiscal years. These ratios represent a measure of the ability to
meet debt service obligations from funds generated by operations. For purposes
of computing the fixed-charges ratios, "available earnings" consist of income
(loss) from continuing operations plus (i) provisions for income taxes, (ii)
ground rent expense and (iii) interest and debt expense reduced by interest
capitalized. This sum is divided by the total of interest and debt expense and
ground rent expense to arrive at the ratio of available earnings to fixed
charges. For the Real Estate Trust, fixed charges exceeded available earnings
by $ 27.3 million in fiscal 1995, $34.3 million in fiscal 1994 and $44.5 million
in fiscal 1993.
5. HIGH LEVEL OF CHEVY CHASE NON-PERFORMING ASSETS. Although Chevy Chase's
non-performing real estate assets continued to decrease in fiscal 1995 from
their peak in February 1992, Chevy Chase's level of non-performing assets at
September 30, 1995, after $135 million of valuation allowances on real estate
held for sale ("REO"), totaled $247.2 million (or 5% of total assets). In
addition, the Bank maintained $2.3 million of valuation allowances on its non-
accrual loans. The substantial majority of the Bank's current non-performing
real estate assets (consisting of REO and non-accrual loans) became non-
performing in fiscal 1990 and fiscal 1991 primarily because of 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, 1995, the ratio of the Bank's reserves to non-performing assets was 51.2%.
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.
At September 30, 1995, approximately $162 million (or 73.9%), after all
valuation allowances, of the Bank's aggregate book value of REO was attributable
to its five planned
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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. In November
1995, the Bank sold its remaining residential lots (approximately 2,000 lots) in
two of the Communities at an amount that approximated their net carrying value
after utilization of applicable valuation allowances. The impact of the
transaction was to reduce REO, net of all valuation allowances, by $49.2
million. The Bank obtains updated appraisals on its REO from time to time and,
in the past, has been directed to do so by the OTS in connection with regulatory
examinations. As a result of such updated appraisals, the Bank could be
required to increase its reserves.
7. RISKS OF CREDIT CARD LENDING BY CHEVY CHASE. At September 30, 1995,
Chevy Chase's credit card loans constituted 34.4% 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 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.
Certain jurisdictions and their residents may attempt to require out-of-
state credit card issuers such as the Bank to comply with the consumer
protection laws of those jurisdictions (including laws limiting the charges
imposed by such credit card issuers) in connection with their operations in such
jurisdictions. For example, in recent years a number of lawsuits and
administrative actions have been filed in several states against out-of-state
credit card issuers (including both federally chartered and state chartered
insured depository institutions) challenging various fees and charges (such as
late fees, over-the-limit fees, returned check fees and annual membership fees)
assessed against residents of the states in which such lawsuits were filed,
based on restrictions or prohibitions under the laws of such states. Several
state and federal courts that have considered this issue have ruled in favor of
the issuing institutions; however, courts in some states, including Pennsylvania
and New Jersey, have determined that certain laws of those states that prohibit
certain fees and charges are applicable to out-of-state credit card issuers. If
it were determined that out-of-state credit card issuers must comply with a
jurisdiction's laws limiting the charges imposed by credit card issuers, such an
action could have an adverse impact on the Bank's credit card operations.
8. REGULATORY CAPITAL LEVELS OF CHEVY CHASE. At September 30, 1995, the
Bank's tangible, core, tier 1, risk-based and total risk-based regulatory
capital ratios were 5.77%, 5.77%, 6.65% and 11.63%, respectively. The Bank's
capital ratios exceeded the requirements under FIRREA as well as the standards
established for "well capitalized" institutions under the prompt corrective
action regulations established pursuant to FDICIA. On the basis of its balance
sheet at September 30, 1995, the Bank met the FIRREA-mandated fully phased-in
capital requirements and, on a fully phased-in basis, met the capital standards
established for "well capitalized" institutions under the prompt corrective
action regulations. The OTS has the discretion under the prompt corrective
action regulations to reclassify an
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institution from one category to the next lower category, for example, for "well
capitalized" to "adequately capitalized," if, after notice and an opportunity
for a hearing, the OTS determines that the institution is in an unsafe or
unsound condition, or has received and has not corrected a less than
satisfactory examination rating for asset quality, management, earnings or
liquidity.
Chevy Chase's levels of non-performing assets may result in reductions in
capital to the extent losses are recognized as a result of deteriorating
collateral values or general economic conditions. OTS capital regulations
provide a five-year holding period (or such longer period approved by the OTS)
for REO to qualify for an exception from treatment as an equity investment. If
an REO property is considered an equity investment, its then-current book value
is deducted from total risk-based capital. Accordingly, if the Bank is unable
to dispose of any REO property (through bulk sales or otherwise) prior to the
end of its applicable five-year holding period and is unable to obtain an
extension of such five-year holding period from the OTS, the Bank could be
required to deduct the then-current book value of the REO from risk-based
capital. In September 1995, the Bank received from the OTS an extension through
September 29, 1996 of the five-year holding period for certain of its REO
properties acquired through foreclosure in fiscal 1990 and fiscal 1991. There
can be no assurance that the Bank will be able to dispose of all of its REO
properties within the applicable five-year period or obtain any necessary
further extensions.
The Bank's ability to maintain or increase its capital levels in future
periods will be subject to general economic conditions, particularly in the
Bank's local markets. Adverse general economic conditions or a renewed downturn
in local real estate markets could require further additions to the Bank's
allowances for losses and further charge-offs. Any such developments would
adversely affect the Bank's earnings and thus its regulatory capital levels. In
addition, as discussed below under "Risks of Pending Legislation," legislation
is expected to be enacted which would require the Bank to pay as early as
January 1, 1996 a one-time assessment of up to 85 basis points on its SAIF-
insured deposits and thereby reduce the Bank's regulatory capital levels.
As a result of the foregoing factors, although the Bank's regulatory
capital ratios on a fully phased-in basis at September 30, 1995 would meet the
ratios established for "well capitalized" institutions, there can be no
assurance that the Bank will be able to maintain levels of capital sufficient to
continue to meet the standards for classification as "well capitalized" under
the prompt corrective action standards.
9. RISKS OF PENDING LEGISLATION. Legislation pending in the U.S.
Congress, if enacted into law in the form proposed, could affect the Bank's
earnings and regulatory capital levels. As of the date of this Prospectus, it
cannot be determined whether, or in what form, such legislation will be enacted.
BALANCED BUDGET ACT OF 1995. In November 1995, Congress passed and
presented to President Clinton the Balanced Budget Act of 1995 (the "Budget
Act"), which would, among other things, capitalize the SAIF and either reduce or
eliminate the disparity between the Bank Insurance Fund (the "BIF") and SAIF
insurance rates. Under the Budget Act, (i) thrift institutions would pay a one-
time assessment estimated to be up to 85 basis points on their SAIF-insured
deposits, as measured on March 31, 1995, to increase the SAIF's reserve ratio
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to 1.25% and (ii) effective January 1, 1996, the assessment base for interest on
Financing Corporation bonds, which were issued in the late 1980's to resolve
troubled thrifts, would be expanded to cover all FDIC-insured institutions,
including members of both BIF and SAIF. If the legislation is enacted in its
current form, the Bank would be required to pay a one-time assessment of up to
$35 million in the first quarter of calendar year 1996; however, the Bank's
semi-annual risk-based deposit insurance premiums should be reduced in future
years.
The Budget Act also would repeal the thrift bad debt reserve provisions of
the Internal Revenue Code. In addition, although the Budget Act does not
require savings associations to convert to bank charters, it does provide for a
merger of the BIF and the SAIF on January 1, 1998, if no insured depository
institution remains chartered as a savings association on that date.
On December 6, 1995, President Clinton vetoed the Budget Act for reasons
that are unrelated to the above-described provisions.
THRIFT CHARTER LEGISLATION. In September 1995, the Financial Institutions
Subcommittee of the House Banking Committee approved the Thrift Charter
Conversion Act of 1995 (the "Conversion Act"). The Conversion Act would, among
other things, eliminate the federal thrift charter by requiring all federally
chartered thrifts, including the Bank, to convert to national bank, state bank
or state thrift charters by January 1, 1998. Any institution with a federal
thrift charter on January 1, 1998, would be converted to a national bank by
operation of law. Effective January 1, 1998, the Conversion Act also would,
among other things (i) abolish the OTS and transfer its functions to other
agencies, (ii) repeal the Home Owners Loan Act, the federal statute governing
the operations of thrift institutions and their holding companies, and (iii)
merge the SAIF and BIF.
Following conversion, a federal thrift generally would be required to
conform its activities to those permissible under its new charter. However,
existing non-conforming activities could be continued for up to four years (two
years, with two possible one-year extensions) from the date that the thrift
converts to a new charter. Accordingly, if the Conversion Act were enacted in
its current form and Chevy Chase were to become a national bank, the Bank could
be required, within as little as two years after its conversion date, to
restrict its sales of non-credit-related insurance and to divest itself of
certain limited real estate investments.
The Conversion Act would permanently grandfather the existing interstate
branches of converted thrifts, but the converted thrift could establish
additional interstate branches only in conformity with federal and state law
applicable to national and state banks without regard to any grandfathered
interstate branches. Because Maryland and Virginia have enacted interstate
banking laws, the principal impact on the Bank of this provision of the
Conversion Act would be to eliminate the flexibility the Bank now has under
federal law to open interstate branches in any state, regardless of state law.
Conversion of the Bank to a commercial bank charter also would change (i) the
primary federal regulator of the Bank and (ii) certain of the regulatory capital
and accounting policies and rules applicable to the Bank. Application of
different capital and accounting policies and rules without an appropriate
transition period could have an adverse effect on the Bank's earnings and
regulatory capital ratios.
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Upon the Bank's conversion to a commercial bank, the Bank's four registered
savings and loan holding companies, including the Trust, would become bank
holding companies regulated at the holding company level by the Federal Reserve
Board (the "FRB"). Current rules and regulations of the FRB subject bank
holding companies to capital requirements and activities restrictions that are
not currently generally applicable to savings and loan holding companies under
OTS regulations. The Conversion Act would permit holding companies of converted
thrifts that meet certain requirements ("Qualified Bank Holding Companies" or
"QBHCs") to continue to engage in nonconforming activities so long as their
subsidiary converted thrift continued to satisfy the qualified thrift lender
test and continued to comply with all limitations and restrictions on the types
and amounts of loans and investments (such as the 10% of assets limitation on
commercial loans) that were applicable to such institutions on the Conversion
Act's enactment date. However, QBHC status would be lost if (i) the QBHC
underwent a change in control, or were the subject of any merger or
consolidation with a company not under common control with the QBHC or
(ii) either the QBHC or its subsidiary converted thrift acquired more than 5% of
the shares or assets of any insured depository institution. Under the
Conversion Act, QBHCs generally would not be subject to the FRB's bank holding
company capital requirements.
In November 1995, legislation identical to the Conversion Act was
introduced in the Senate, and the Senate Banking Committee has announced plans
to hold hearings on the bill and to approve its version of a bill by April 1996.
10. REGULATORY RESTRICTIONS APPLICABLE TO CHEVY CHASE. The Bank is
currently subject to various restrictions and requirements contained in a
written agreement with the OTS which became effective in September 1991. The
areas addressed by the agreement, as amended in October 1993, include
transactions with affiliates, reduction of existing levels of REO and asset
quality. Among other things, the Bank has agreed that it will not increase its
investment in certain of its real estate development properties, including the
four active Communities, beyond specified levels without OTS approval, will make
very effort to reduce its exposure in those properties and will notify the OTS
15 days before rejecting any written purchase offers for those properties. In
addition, Chevy Chase has agreed to provide the OTS with 15 days notice before
selling significant business assets.
The Bank remains subject to growth restrictions, higher FDIC insurance
premiums and a requirement to obtain OTS approval for changes in directors and
senior executive officers. The Bank has received limited waivers of the growth
restrictions from the OTS.
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,
1995, Chevy Chase's tangible equity ratio was 5.77%.
The failure of the Bank to maintain capital compliance could result in
regulatory sanctions.
11. 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
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the level prescribed by applicable regulatory requirements and, if necessary, to
infuse additional capital to enable Chevy Chase to meet those requirements. If
the Bank is unable to meet its capital requirements in the future, the OTS could
seek to enforce the Trust's obligations under the agreement. To the extent
additional capital infusions may be required pursuant to the Trust's capital
maintenance agreement, the funds available to repay Notes would be reduced.
12. POTENTIAL EFFECT OF TAX SHARING REIMBURSEMENT OBLIGATION ON TRUST
LIQUIDITY. If Chevy Chase has net operating losses in the current year or in
any future year, the Trust could be obligated under the Tax Sharing Agreement to
make certain payments to Chevy Chase.
If in any year Chevy Chase has net operating losses and the Trust group
uses such losses to offset taxable income of the Trust (or other members of the
Trust group), the Trust (or other members of the Trust group) would be required
to make tax sharing payments to Chevy Chase. The sum of any such payments and
any payments actually made to the Internal Revenue Service (the "IRS") would not
exceed the amount otherwise required to be paid to the IRS if the Trust group
had not been able to use the Chevy Chase net operating losses.
In addition, to the extent that in any year Chevy Chase has net operating
losses that are not used in that year to offset taxable income of the Trust (or
other members of the Trust group), Chevy Chase would carry back such losses,
obtaining a refund of taxes it paid to the IRS or a reimbursement of tax sharing
payments it made to the Trust, or both, depending on the amount of the losses
and the taxable year in which they occur. At September 30, 1995, 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 $35.1 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.
13. NO LIMITATION IN INDENTURE ON DIVIDENDS, DISTRIBUTIONS, ISSUANCE OF
SECURITIES OR INCURRENCE OF ADDITIONAL INDEBTEDNESS. The indenture pursuant to
which the Notes will be issued (the "Indenture") does not include certain
covenants which are customary in negotiated indentures governing the issuance of
public debt securities similar to the Notes and which are intended to protect
the rights of security holders. The Indenture does not impose any restrictions
on the Trust with respect to the payment of dividends or distributions on its
capital stock or the issuance of additional securities, nor does the Indenture
limit the incurrence by the Trust of additional indebtedness. The Trust's
ability to pay dividends, issue additional securities and incur additional debt,
however, is currently subject to restrictions under various other loan
agreements to which the Trust is a party, including the indenture pursuant to
which the Trust has issued its 11-5/8% Senior Secured Notes due 2002.
14. 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
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issue. See "Description of Notes - Redemption of Certain Notes." Such early
redemptions, if made, would reduce the funds available to pay Notes maturing
thereafter.
15. RISKS TO REAL ESTATE TRUST OF PROPERTY OWNERSHIP AND DEVELOPMENT.
Most of the operating expenses and virtually all of the debt service payments
associated with income-producing properties are fixed; they are not decreased by
reductions in occupancy or rental income. Operating expenses are also subject
to inflationary increases. Therefore, the ability of the Real Estate Trust to
meet its fixed obligations with cash flow from its income-producing properties
is highly dependent on its ability to maintain or increase their levels of
rental income and hotel sales revenues.
Rental income is subject to a number of risks, including adverse changes in
national or local economic conditions and other factors which might impair the
ability of existing tenants to maintain their rental payments and which might
reduce the potential demand by prospective new tenants for vacant space. Any of
the Real Estate Trust's commercial properties and hotels also could be adversely
affected by governmental actions such as increases in real estate tax rates.
Hotel revenues are subject to rapid declines if customer demand should be
impaired for any reason, since advance bookings represent only a limited portion
of overall revenues and are subject to cancellation.
Real estate investments tend to be relatively illiquid; they cannot be
converted quickly and readily to cash, although, under normal market conditions,
they can be so converted on an orderly basis over a period of time. This lack
of liquidity tends to limit the ability of the Real Estate Trust to vary its
portfolio promptly in response to changes in economic, demographic, social,
financial and investment conditions.
Real estate development and ownership in certain areas of the country is
currently suffering from overbuilding or adverse local economic conditions, or
both. In recent periods, the Real Estate Trust's office building leasing rates
have experienced a decline due to recessionary economic conditions in the
metropolitan areas in which the office properties are located.
16. 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.
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The Saul Company, its affiliated companies, their officers and directors,
and two of the trustees of the Trust actively engage in various activities
relating to the general business of real estate development and finance. The
Saul Company and related companies have many clients other than the Real Estate
Trust with investment interests in real estate and are engaged in such
activities on their own behalf and as agents for and advisors to others. No
provision in the Declaration of Trust or the advisory contract with the Advisor
(the "Advisory Contract") prohibits the Advisor, Franklin, the Saul Company,
their affiliates, any officer, director or employee of such companies, or any
Trustee of the Trust from performing investment advisory services for parties
other than the Real Estate Trust, engaging in activities similar to or
competitive with the investment operations of the Real Estate Trust, or making
real estate investments that might be suitable or desirable for the Real Estate
Trust. The Advisory Contract provides that the Real Estate Trust has priority
with respect to any investment made by the Saul Company, the Advisor and their
directors and officers, for their account or for the account of any enterprise
(other than a savings and loan institution) in which they have a beneficial
interest aggregating 40% or more. There are no procedural safeguards to ensure
this priority, although the entities normally do not compete for the same type
of investments and thus conflicts generally have not arisen. Relevant personnel
have been advised concerning the conflict provision in the Advisory Contract and
have been instructed to comply with such provisions.
Potential conflicts of interest may arise from Mr. Saul's role as Chairman
of the Board and Chief Executive Officer of Saul Centers, the general partner of
Saul Holdings Partnership. See "Summary - The Trust." The Trust has entered
into an Exclusivity Agreement (the "Exclusivity Agreement") with, and has
granted a right of first refusal (the "Right of First Refusal") to, Saul
Centers, Saul Holdings Partnership and its two subsidiary limited partnerships
(collectively, the "Company"). The purpose of these agreements is to minimize
potential conflicts of interest between the Real Estate Trust and the Company.
The Exclusivity Agreement and Right of First Refusal generally require the Real
Estate Trust to conduct its shopping center business exclusively through the
Company and to grant the Company a right of first refusal to purchase commercial
properties and development sites that become available to the Real Estate Trust
in the District of Columbia or adjacent suburban Maryland. Subject to the
Exclusivity Agreement and Right of First Refusal, the Real Estate Trust may
continue to develop, acquire, own and manage commercial properties and own land
suitable for development as, among other things, shopping centers and other
commercial properties.
17. 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.
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18. LIMITATIONS ON LIABILITY OF SHAREHOLDERS, TRUSTEES AND OFFICERS OF THE
TRUST. The name "B.F. Saul Real Estate Investment Trust" is the designation of
the Trust under its Declaration of Trust currently in effect. In accordance
with the Declaration of Trust, all persons dealing with the Trust must look
solely to the Trust's property for the enforcement of any claims against the
Trust, since none of the Trustees, officers, agents or shareholders of the Trust
assumes any personal liability for obligations entered into on behalf of the
Trust. Further, as required by the Declaration of Trust, the Indenture provides
that covenants and obligations for the benefit of Noteholders contained in the
Indenture bind only the property of the Trust and are not binding upon, and
cannot be enforced against, the shareholders, Trustees, officers, employees or
agents of the Trust or their private property. In the event of a default by the
Trust under a Note, a Noteholder may have a more limited right of action than
such Noteholder would have absent such provisions in the Declaration of Trust
and Indenture.
19. ABSENCE OF BROKER OR DEALER. The Trust has not used and does not
intend to use an underwriter or selling agent in connection with the offering
and sale of the Notes. Purchasers, therefore, will not have the benefit of the
independent review of the Trust, the terms of the Notes, and the accuracy and
completeness of the information contained in the Prospectus that might be
provided by an underwriter or other selling agent involved in an offering of the
Notes. Also, because the offering of Notes will be conducted exclusively by
officers of the Trust who are not registered with the Securities and Exchange
Commission as brokers or dealers, such officers will not be in a position to
determine the suitability of the Notes for investors. EACH INVESTOR SHOULD
DETERMINE INDEPENDENTLY OR SEEK INDEPENDENT INVESTMENT ADVICE AS TO WHETHER THE
NOTES REPRESENT A SUITABLE INVESTMENT FOR SUCH INVESTOR.
USE OF PROCEEDS
The Trust will use the net proceeds from the sale of the Notes offered
hereby primarily to retire maturing Outstanding Notes (including the Notes
offered hereby). At December 15, 1995, $4.3 million and $5.6 million principal
amount of Outstanding Notes were scheduled to mature in fiscal 1996 and fiscal
1997, respectively. The interest rates on Outstanding Notes scheduled to mature
during this period vary from 5% to 15% 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
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administering the Note program. Notes will be available for sale only at the
Trust's office in Bethesda, Maryland. See "How to Purchase Notes."
The offering of the Notes by this Prospectus will terminate when all of the
Notes have been sold. See "Description of Notes - General." The Trust may
terminate the offering of the Notes at any time without notice.
HOW TO PURCHASE NOTES
Notes may be purchased in person at the sales office of the Trust, 7200
Wisconsin Avenue, Suite 903, Bethesda, Maryland 20814, or by mail by completing
the applicable Note Order Form, which may be found at the end of this
Prospectus, and mailing the form and a check payable to the Trust in the
enclosed envelope. In either case, the Note, in registered form, will be mailed
directly to the purchaser by 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 to the aggregate principal amount of $80 million
initially offered hereby (Section 3.01). At December 15, 1995, $42.6 million in
principal amount of Notes was available to be issued under the Indenture. The
Trust from time to time may enter into one or more supplemental indentures
providing for the issuance of additional notes without the consent of the
holders of outstanding Notes (Section 9.01).
The Notes will be issued in denominations of $5,000 or any amount in excess
thereof which is an integral multiple of $1,000. They will be issued in
registered form only, without coupons, to mature one to ten years from the date
of issue, as selected by the investor. The Notes will be unsecured general
obligations of the Trust and will be identical except for interest rate, issue
date and maturity date (Section 3.02). Except as described below under
"Redemption of Certain Notes," the Notes will not contain any provisions for
conversion, redemption, amortization, sinking fund or retirement prior to
maturity.
THE NOTES ARE NOT GUARANTEED OR INSURED AND ARE NOT SECURED BY ANY
MORTGAGE, PLEDGE OR LIEN. The Notes will rank on a parity in right of payment
with all unsecured debt of the Real Estate Trust. At September 30, 1995, the
Real Estate Trust's unsecured debt
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(consisting of Notes and accounts payable and accrued expenses) totaled $68
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."
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).
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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;
(ii) default in the payment of the principal of (and premium, if
any, on) any Note at its Maturity;
(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 specifying
such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" under the
Indenture;
(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,
-23-
(B) the principal of (and premium, if any, on) any Notes which
have become due otherwise than by such declaration of acceleration and
interest thereon at the rate borne by the Notes,
(C) to the extent that payment of such interest is lawful,
interest upon overdue installments of interest at the rate borne by
the Notes, and
(D) all sums paid or advanced by the Indenture Trustee under
the Indenture and the reasonable compensation, expenses, disbursements
and advances of the Indenture Trustee, its agents and counsel; and
(ii) all Events of Default, other than the non-payment of the principal of Notes
which have become due solely by such acceleration, have been cured or have been
waived as provided in the Indenture (Section 5.02).
The Indenture provides that if (i) default is made in the payment of any
interest on any Note when such interest becomes due and payable and such default
continues for a period of 30 days, or (ii) default is made in the payment of the
principal of (or premium, if any, on) any Note at the Maturity thereof, the
Trust will, upon demand of the Indenture Trustee, pay to it, for the benefit of
the Holders of such Notes, the whole amount then due and payable on such Notes
for principal (and premium, if any) and interest, with interest upon the overdue
principal (and premium, if any) and, to the extent that payment of such interest
is legally enforceable, upon overdue installments of interest, at the rate borne
by the Notes. (Section 5.03).
In the case of an Event of Default which is not cured or waived, the
Indenture Trustee will be required to exercise such of its rights and powers
under the Indenture, and to use the degree of care and skill in their exercise,
that a prudent man would exercise or use under the circumstances in the conduct
of his own affairs, but it otherwise need only perform such duties as are
specifically set forth in the Indenture (Section 6.01). Subject to such
provisions, the Indenture Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any of the
Noteholders unless they offer to the Indenture Trustee reasonable security or
indemnity (Section 6.03).
MODIFICATION OF INDENTURE
The Indenture, the rights and obligations of the Trust and the rights of
the Noteholders may be modified by the Trust and the Indenture Trustee without
the consent of the Noteholders (i) to evidence the succession of a corporation
or other entity to the Trust, and the assumption by any such successor of the
covenants of the Trust in the Indenture and the Notes, (ii) to add to the
covenants of the Trust, for the benefit of the Noteholders, or to surrender any
right or power conferred in the Indenture upon the Trust, (iii) to cure any
ambiguity, to correct or supplement any provision of the Indenture which may be
defective or inconsistent with any other provisions, or to make any other
provisions with respect to matters or questions arising under the Indenture
which are not inconsistent with the Indenture, provided such action does not
adversely affect the interests of the Noteholders, (iv) to create, from time to
time, notes in addition to the Notes initially issuable under the Indenture and
any supplemental indenture thereto, which subsequently created notes are
identical to the Notes initially issuable under the Indenture and any
supplemental indenture
-24-
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).c5
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 year ended
September 30, 1993 have been audited by Stoy, Malone & Company, P.C.,
independent public accountants, as indicated in their reports with respect
thereto, and are incorporated herein by reference in reliance upon the
authority of said firm as experts in giving said reports. Reference is made
to the report with respect to the Trust's Consolidated Financial Statements
for the year ended September 30, 1993, which includes an explanatory
paragraph with respect to the change in the method of accounting for
foreclosed assets.
The Trust's Consolidated Financial Statements and related schedules
included in the Trust's Annual Report on Form 10-K at September 30, 1995 and for
the years ended September 30, 1995 and 1994 have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are incorporated
-25-
herein by reference in reliance upon the authority of said firm as experts in
giving said reports. Reference is made to the report with respect to the
Trust's Consolidated Financial Statements at September 30, 1995 and for the
years ended September 30, 1995 and 1994, which includes an explanatory paragraph
with respect to the changes in the method of accounting for (i) income taxes,
impaired loans and investments in securities and mortgage-backed securities and
(ii) mortgage servicing rights.
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.
-26-
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
B.F. SAUL REAL ESTATE INVESTMENT TRUST
7200 Wisconsin Avenue, Suite 903
Bethesda, Maryland 20814
Gentlemen:
I (We) hold a Note,
Number________________________________________________
for the principal amount of $______________________________________________
which matures on________________________________________________
Check One of the Following Boxes:
1 / / I (We) wish to receive a check for the principal amount - if so,
please send note to Riggs National Bank.
2 / / I (We) wish to reinvest the principal amount in a new Note as follows:
________________________________________________________________________________
Principal Amount of
New Note Maturity from date of issue
(Minimum $5,000): $___________________(circle one): 1 2 3 4 5 6 7 8 9 10 Year(s)
________________________________________________________________________________
The principal amount of the New Note may be either increased or decreased
in increments of $1,000. In no case can the new principal be less than $5,000.
If increased, please send a check payable to B.F. Saul Real Estate Investment
Trust for the amount of the increase.
PLEASE ENCLOSE THE MATURING NOTE AND RETURN TO US
If the new note to be issued is to be registered in name other than that of the
present holder(s), or if any other alterations in the form of the registration
are required, please print or type in the new information below.
Name of Owner(s) ______________________________________________________
Printed
______________________________________________________
Printed
Address ______________________________________________________
No. Street Apt.
______________________________________________________
City State Zip Code
Telephone Number ( )
------------------------------------------------------
Area Code
Federal Identification or
Social Security Number ______________________________________________________
_______________________________________________ _________________________
Signature Date
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 B.F. SAUL REAL ESTATE
information or representation must not INVESTMENT TRUST
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 Notes Due One Year
hereby in any jurisdiction in which (or to Ten Years
to any person to whom) it is unlawful to from Date of Issue
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 P R O S P E C T U S
circumstances create any implication ___________________
that there has been no change in the
affairs of the Trust since the date on
the cover page hereof.
TABLE OF CONTENTS
PAGE
----
Available Information ................ 3 7200 Wisconsin Avenue
Incorporation of Certain Suite 903
Documents by Reference ............. 3 Bethesda, Maryland 20814
Summary .............................. 5 Telephone: (301) 986-6207
The Trust ............................ 10
Risk Factors and
Other Considerations ............... 10
Use of Proceeds ...................... 20
Plan of Distribution ................. 20
How to Purchase Notes ................ 21
Description of Notes ................. 21
Experts .............................. 25
Legal Matters ........................ 26
Note Order Forms ..................... E-1
========================================== ===============================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
It is estimated that the expenses in connection with the issuance and
distribution of the securities are as follows:
Registration fee. . . . . . . . . . . . . . . . . $ 20,000
Cost of printing and engraving. . . . . . . . . . 18,500
Indenture Trustee & Registrar's Fees. . . . . . . 80,000
Legal fees of counsel for registrant. . . . . . . 400,000
Accountants' fees . . . . . . . . . . . . . . . . 25,000
Payment to B. F. Saul Advisory Company for
Administering Note Program. . . . . . . . . . 800,000
Miscellaneous and Advertising . . . . . . . . . . 367,000
----------
Total . . . . . . . . . . . . . . . . . . . . $1,710,000
----------
----------
Item 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Declaration of Trust (Article III) provides that no Trustee or officer
of the Trust shall be liable for any action or failure to act except for his own
bad faith, willful misfeasance, gross negligence or reckless disregard of his
duties, and, except as stated, Trustees and officers are entitled to be
reimbursed and indemnified for all loss, expenses, and outlays which they may
suffer because they are Trustees or officers of the Trust.
Item 16. EXHIBITS.
EXHIBITS DESCRIPTION PAGE
- ------------ --------------------------------------------------------------------------------------------- -----
*3. (a) Amended and Restated Declaration of Trust filed with the Maryland State Department of
Assessments and Taxation on June 22, 1990.
*(b) Amendment to Amended and Restated Declaration of Trust reflected in Secretary Certificate
filed with the Maryland State Department of Assessments and Taxation on June 26, 1990.
(c) Amended and Restated By-Laws of the Trust dated as of February 28, 1991 as filed as Exhibit
T3B to the Trust's Form T-3 Application for Qualification of Indentures under the Trust
Indenture Act of 1939 (File No. 22-20838) is hereby incorporated by reference.
II-1
EXHIBITS DESCRIPTION PAGE
- ------------ --------------------------------------------------------------------------------------------- -----
*4.* (a) Indenture dated as of September 1, 1992 with respect to the Trust's Notes due from One to
Ten Years from Date of Issue. The text of the Notes is set forth in Section 2.02.
(b) 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.
(c) 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.
(d) 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.
(e) 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.
(f) 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.
(g) 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.
(h) 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.
(i) 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.
(j) Indenture dated as of March 30, 1994 between the Trust and Norwest Bank Minnesota, National
Association, as Trustee, with respect to the Trust's 11 5/8% Series B Senior Secured Notes due
2002, as filed as Exhibit 4(a) to Registration Statement No. 33-52995 is hereby incorporated
by reference.
*5. Opinion of Shaw, Pittman, Potts & Trowbridge with respect to legality of the Notes.
10. (a) Advisory Contract with B.F. Saul Advisory Company effective October 1, 1982 filed as Exhibit
10(a) to Registration Statement No. 2-80831 is hereby incorporated by reference.
(b) Commercial Property Leasing and Management Agreement effective October 1, 1982 between the
Trust and Franklin Property Company as filed as Exhibit 10(b) to Registration Statement No.
2-80831 is hereby incorporated by reference.
*(c) Tax Sharing Agreement dated June 28, 1990 among the Trust, Chevy Chase Savings Bank F.S.B.
and certain of their subsidiaries.
*(d) Agreement dated June 28, 1990 among the Trust, B.F. Saul Company, Franklin Development Co.,
Inc., The Klingle Corporation and Westminster Investing Corporation relating to the transfer
of certain shares of Chevy Chase Savings Bank, F.S.B. and certain real property to the Trust
in exchange for preferred shares of beneficial interest of the Trust.
(e) Regulatory Capital Maintenance/Dividend Agreement dated May 17, 1988 among B.F. Saul Company,
the Trust and the Federal Savings and Loan Insurance Corporation as filed as Exhibit 10(e) to
the Trust's Annual Report on Form 10-K (File No. 1-7184) for the fiscal year ended September
30, 1991 is hereby incorporated by reference.
*(f) Written Agreement dated September 30, 1991 between the Office of Thrift Supervision and Chevy
Chase Savings Bank, F.S.B.
II-2
EXHIBITS DESCRIPTION PAGE
- ------------ --------------------------------------------------------------------------------------------- -----
* (g) 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).
* (h) Advisory Contract between B.F. Saul Advisory Company and Dearborn Corporation dated as of
December 31, 1992.
* (i) Commercial Property Leasing and Management Agreement between Dearborn Corporation and
Franklin Property Company dated as of December 31, 1992.
(j) Registration Rights and Lock-Up Agreement dated August 26, 1993 by and among Saul Centers,
Inc. and the Trust, Westminster Investing Corporation, Van Ness Square Corporation, Dearborn
Corporation, Franklin Property Company and Avenel Executive Park Phase II, Inc. as filed as
Exhibit 10.6 to Registration Statement No. 33-64562 is hereby incorporated by reference.
(k) 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.
(l) First Amended and Restated Reimbursement Agreement dated as of August 1, 1994 by and among
Saul Centers, Inc., Saul Holdings Limited Partnership, Saul Subsidiary I Limited
Partnership, Saul Subsidiary II Limited Partnership, Avenel Executive Park
Phase II, Inc., Franklin Property Company, Westminster Investing Corporation Van Ness
Square Corporation, Dearborn Corporation and the Trust as filed as Exhibit 10(l) to the Trust's
Annual Report on Form 10-K (File No. 1-7184) for the fiscal year ended September 30, 1994 is
hereby incorporated by reference.
* (m) Amendment to Written Agreement dated October 29, 1993 between the Office of Thrift
Supervision and Chevy Chase Savings Bank, F.S.B.
(n) Registration Rights Agreement dated as of March 30, 1994 among the Trust, Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Friedman, Billings, Ramsey & Co.,
Inc. as filed as Exhibit 4(c) to Registration Statement No. 33-52995 is hereby incorporated by
reference.
(o) Bank Stock Registration Rights Agreement dated as of March 30, 1994 between the Trust and
Norwest Bank Minnesota, National Association, as Trustee. filed as Exhibit 4(c) to
Registration Statement No. 33-52995 is hereby incorporated by reference.
**12. Statement re: Computation of Ratio of Earnings to Fixed Charges.
**13. Annual Report to Security Holders for the fiscal year ended September 30, 1995.
**23. (a) Consent of Stoy, Malone & Company, P.C.
**23. (b) Consent of Arthur Andersen LLP.
II-3
*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-4
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-5
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-6
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 29th day of December 1995.
B.F. SAUL REAL ESTATE
INVESTMENT TRUST
By: /S/B. FRANCIS SAUL II
----------------------
B. Francis Saul II
Chairman of the Board
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this post-
effective amendment to registration statement has been signed by the following
persons in the capacities indicated below on this 29th day of December 1995.
Signature Capacity
--------- --------
/S/ B. FRANCIS SAUL II Trustee, Chairman of the
-------------------------- Board and Principal
B. Francis Saul II Executive Officer
/S/ STEPHEN R. HALPIN, JR. Vice President and
-------------------------- Chief Financial Officer
Stephen R. Halpin Jr. (Principal Financial Officer)
/S/ ROSS E. HEASLEY Vice President
------------------------- (Principal Accounting
Ross E. Heasley Officer)
/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-7
/S/ JOHN R. WHITMORE
------------------------- Trustee
John R. Whitmore
II-8
EXHIBIT INDEX
EXHIBITS DESCRIPTION PAGE
- ------------ --------------------------------------------------------------------------------------------- -----
*3. (a) Amended and Restated Declaration of Trust filed with the Maryland State Department of
Assessments and Taxation on June 22, 1990.
* (b) Amendment to Amended and Restated Declaration of Trust reflected in Secretary Certificate
filed with the Maryland State Department of Assessments and Taxation on June 26, 1990.
(c) Amended and Restated By-Laws of the Trust dated as of February 28, 1991 as filed as Exhibit
T3B to the Trust's Form T-3 Application for Qualification of Indentures under the Trust
Indenture Act of 1939 (File No. 22-20838) is hereby incorporated by reference.
*4.* (a) Indenture dated as of September 1, 1992 with respect to the Trust's Notes due from One to Ten
Years from Date of Issue. The text of the Notes is set forth in Section 2.02.
(b) 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.
(c) 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.
(d) 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.
(e) 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.
EXHIBITS DESCRIPTION PAGE
- ------------ --------------------------------------------------------------------------------------------- -----
(f) 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.
(g) 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.
(h) 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.
(i) 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.
(j) Indenture dated as of March 30, 1994 between the Trust and Norwest Bank Minnesota, National
Association, as Trustee, with respect to the Trust's 11 5/8% Series B Senior Secured Notes
due 2002, as filed as Exhibit 4(a) to Registration Statement No. 33-52995 is hereby
incorporated by reference.
*5. Opinion of Shaw, Pittman, Potts & Trowbridge with respect to legality of the Notes.
10. (a) Advisory Contract with B. F. Saul Advisory Company effective October 1, 1982 filed as Exhibit
10(a) to Registration Statement No. 2-80831 is hereby incorporated by reference.
(b) Commercial Property Leasing and Management Agreement effective October 1, 1982 between the
Trust and Franklin Property Company as filed as Exhibit 10(b) to Registration Statement
No. 2-80831 is hereby incorporated by reference.
* (c) Tax Sharing Agreement dated June 28, 1990 among the Trust, Chevy Chase Savings Bank F.S.B.
and certain of their subsidiaries.
* (d) Agreement dated June 28, 1990 among the Trust, B. F. Saul Company, Franklin Development Co.,
Inc., The Klingle Corporation and Westminster Investing Corporation relating to the transfer
of certain shares of Chevy Chase Savings Bank, F.S.B. and certain real property to the Trust
in exchange for preferred shares of beneficial interest of the Trust.
(e) Regulatory Capital Maintenance/Dividend Agreement dated May 17, 1988 among B. F. Saul
Company, the Trust and the Federal Savings and Loan Insurance Corporation as filed as
Exhibit 10(e) to the Trust's Annual Report on Form 10-K (File No. 1-7184) for the fiscal year
ended September 30, 1991 is hereby incorporated by reference.
* (f) Written Agreement dated September 30, 1991 between the Office of Thrift Supervision and Chevy
Chase Savings Bank, F.S.B.
EXHIBITS DESCRIPTION PAGE
- ------------ --------------------------------------------------------------------------------------------- -----
* (g) 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).
* (h) Advisory Contract between B. F. Saul Advisory Company and Dearborn Corporation dated as of
December 31, 1992.
* (i) Commercial Property Leasing and Management Agreement between Dearborn Corporation and
Franklin Property Company dated as of December 31, 1992.
(j) Registration Rights and Lock-Up Agreement dated August 26, 1993 by and among Saul Centers,
Inc. and the Trust, Westminster Investing Corporation, Van Ness Square Corporation, Dearborn
Corporation, Franklin Property Company and Avenel Executive Park Phase II, Inc. as filed as
Exhibit 10.6 to Registration Statement No. 33-64562 is hereby incorporated by reference.
(k) 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.
(l) First Amended and Restated Reimbursement Agreement dated as of August 1, 1994 by and among
Saul Centers, Inc., Saul Holdings Limited Partnership, Saul Subsidiary I Limited
Partnership, Saul Subsidiary II Limited Partnership, Avenel Executive Park
Phase II, Inc., Franklin Property Company, Westminister Investing Corporation Van Ness
Square Corporation, Dearborn Corporation and the Trust as filed as Exhibit 10(l) to the
Trust's Annual Report on Form 10-K (File No. 1-7184) for the fiscal year ended September 30,
1994 is hereby incorporated by reference.
* (m) Amendment to Written Agreement dated October 29, 1993 between the Office of Thrift
Supervision and Chevy Chase Savings Bank, F.S.B.
(n) Registration Rights Agreement dated as of March 30, 1994 among the Trust, Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Friedman, Billings, Ramsey & Co.,
Inc. as filed as Exhibit 4(c) to Registration Statement No. 33-52995 is hereby incorporated
by reference.
(o) Bank Stock Registration Rights Agreement dated as of March 30, 1994 between the Trust and
Norwest Bank Minnesota, National Association, as Trustee filed as Exhibit 4(c) to
Registration Statement No. 33-52995 is hereby incorporated by reference.
**12. Statement re: Computation of Ratio of Earnings to Fixed Charges.
**13. Annual Report to Security Holders for the fiscal year ended September 30, 1995.
**23. (a) Consent of Stoy, Malone & Company, P.C.
**23. (b) Consent of Arthur Andersen LLP.
*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.