As filed with the Securities and Exchange Commission on June 7, 1999.
Registration No. 333-____________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
THE MACERICH COMPANY
(Exact name of Registrant as specified in its charter)
MARYLAND 99-4448705
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
401 Wilshire Boulevard, No. 700 Arthur M. Coppola, President COPY TO:
Santa Monica, California 90401 The Macerich Company Mark C. Easton, Esq.
(310) 394-6000 401 Wilshire Boulevard, No. 700 O'Melveny & Myers LLP
Santa Monica, California 90401 400 South Hope Street
(Address, including zip code, (310) 394-6000 Los Angeles, California 90071-2899
and telephone number, including (213) 430-6000
area code, of Registrant's (Name, Address, including zip code,
principal executive offices) and telephone number, including
area code, of Agent for Service)
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
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 Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
------------------------------------
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------------
AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF REGISTERED OFFERING PRICE PER SHARE AGGREGATE OFFERING PRICE REGISTRATION FEE
SECURITIES TO BE REGISTERED (1) (1) (1)
- -----------------------------------------------------------------------------------------------------------------------------------
Series A Cumulative Convertible
Redeemable Preferred Stock, par
value $0.01 per share 3,627,131 shares $26.41 $95,792,529.71 $26,630.32
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $0.01 per
share (3) 3,627,131 shares -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Pursuant to Rule 457(a) and (i) under the Securities Act of 1933, the
registration fee has been calculated on the basis of a bona fide estimate
of the maximum offering price of the Series A Preferred Stock. This
estimate was based on the average of the high and low prices for the
common stock on the NYSE on June 1, 1999.
(2) This Registration Statement also includes rights in respect of such
common stock pursuant to the Agreement between The Macerich Company and
First Chicago Trust Company of New York.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
PROSPECTUS
Subject to Completion
Dated June 7, 1999
THE MACERICH COMPANY
3,627,131 SHARES
SERIES A CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK
3,627,131 SHARES
COMMON STOCK
Offered by selling stockholders
This prospectus relates to the offer and sale of 3,627,131 shares of
Series A Cumulative Convertible Redeemable Preferred Stock and 3,627,131 shares
of Common Stock of The Macerich Company, a Maryland corporation, by Security
Capital Preferred Growth Incorporated and/or its permitted transferees,
pledgees, donees or successors.
-------------------------------
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 3 OF THIS PROSPECTUS.
-------------------------------
Our Common Stock is listed on the New York Stock Exchange under the
symbol "MAC." Any shares of Common Stock sold in accordance with a prospectus
supplement will be approved for listing, subject to notice of issuance, on the
New York Stock Exchange. On June 1, 1999, the last reported sale price of the
Common Stock on the New York Stock Exchange was $26.44 per share. The Series A
Cumulative Convertible Redeemable Preferred Stock is not listed on any exchange
or quoted on any national quotation system.
-------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, NOR HAVE THESE
ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------------------
The date of this prospectus is June 7, 1999.
- -------------------------------------------------------------------------------
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THE SELLING STOCKHOLDERS MAY NOT OFFER OR SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND THE
SELLING STOCKHOLDERS ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
- -------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR
TO WHICH THIS DOCUMENT REFERS YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU
WITH INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES TO YOU AND IT IS NOT SOLICITING AN OFFER FROM YOU TO BUY THESE
SECURITIES IN ANY PLACE WHERE THE OFFER OR SALE TO YOU IS NOT PERMITTED. YOU
SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT
ON ANY DATE AFTER THE DATE OF THIS PROSPECTUS, EVEN IF THIS PROSPECTUS IS GIVEN
TO YOU OR THESE SECURITIES ARE OFFERED OR SOLD TO YOU ON A LATER DATE.
TABLE OF CONTENTS
PAGE
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
FORWARD-LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ABOUT THIS PROSPECTUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SELLING STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
STOCK OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
DESCRIPTION OF THE COMMON STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . 20
DESCRIPTION OF THE SERIES A PREFERRED STOCK. . . . . . . . . . . . . . . . . . . . 21
REGISTRATION RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
RESTRICTIONS ON TRANSFER AND OWNERSHIP . . . . . . . . . . . . . . . . . . . . . . 31
STOCKHOLDER RIGHTS PLAN, SELECTED PROVISIONS OF MARYLAND LAW AND OF OUR CHARTER
AND BYLAWS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
FEDERAL INCOME TAX CONSIDERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . 36
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
WHERE YOU CAN FIND MORE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 53
2
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER, AMONG OTHER FACTORS, THE MATTERS
DESCRIBED BELOW BEFORE PURCHASING ANY OF THE 3,627,131 SHARES (THE "SERIES A
PREFERRED SHARES") OF SERIES A CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED
STOCK, PAR VALUE $.01 PER SHARE (THE "SERIES A PREFERRED STOCK"), OR THE
3,627,131 SHARES (THE "COMMON SHARES") OF COMMON STOCK, PAR VALUE $.01 PER SHARE
(THE "COMMON STOCK"), OF THE MACERICH COMPANY OFFERED HEREBY. THE SERIES A
PREFERRED SHARES AND THE COMMON SHARES ARE REFERRED TO COLLECTIVELY AS THE
"SHARES" OR "SECURITIES."
WE INVEST PRIMARILY IN SHOPPING CENTERS, WHICH ARE SUBJECT TO A NUMBER OF
SIGNIFICANT RISKS.
OUR INVESTMENTS IN SHOPPING CENTERS ARE SUBJECT TO A NUMBER OF RISKS BEYOND
OUR CONTROL.
Real property investments are subject to varying degrees of risk that
may affect the ability of our regional and community shopping centers to
generate sufficient revenues to meet operating and other expenses, including
debt service, lease payments, capital expenditures and tenant improvements and
to make distributions to their owners and our stockholders. The shopping centers
owned wholly by us are referred to as "Wholly-Owned Centers" and those shopping
centers that are partly but not wholly owned by us are referred to as "Joint
Venture Centers"; each of the Wholly-Owned Centers and Joint Venture Centers is
a "Center" and all are collectively "Centers". A number of factors may decrease
the income generated by the Centers, including:
- the national economic climate;
- the regional and local economy (which may be negatively impacted
by plant closings, industry slowdowns, adverse weather
conditions, natural disasters and other factors);
- local real estate conditions (such as an oversupply of, or a
reduction in demand for, retail space);
- perceptions by retailers or shoppers of the safety, convenience
and attractiveness of a Center; and
- increased costs of maintenance, insurance and operations
(including real estate taxes).
Income from shopping center properties and shopping center values are
also affected by applicable laws and regulations, including tax and zoning laws,
interest rate levels and the availability and cost of financing. In addition,
the number of prospective buyers interested in purchasing shopping centers is
limited. Therefore, if we sell the Centers, we may receive less money than we
have invested in the Centers.
3
OUR CENTERS MUST COMPETE WITH OTHER RETAIL CENTERS AND RETAIL FORMATS FOR
TENANTS AND CUSTOMERS.
There are numerous shopping facilities that compete with the Centers
in attracting tenants to lease space and an increasing number of new retail
formats other than retail shopping centers that compete with the Centers for
retail sales. Competing retail formats include factory outlet centers, power
centers, discount shopping clubs, mail-order services, internet shopping and
home shopping networks. Our revenues may be reduced as a result of increased
competition.
OUR CENTERS DEPEND ON TENANTS TO GENERATE RENTAL REVENUES.
Our revenues and funds available for distribution will be reduced if:
- a significant number of our tenants are unable (due to poor
operating results, bankruptcy or other reasons) to meet their
obligations;
- we are unable to lease a significant amount of space in the
Centers on economically favorable terms; or
- for any other reason, we are unable to collect a significant
amount of rental payments.
A decision by a department store or other large retail store tenant
(an "anchor"), or other significant tenant, to cease operations at a Center
could also have an adverse effect on our financial condition. The closing of an
anchor could allow other anchors or other tenants to terminate their leases or
cease operating their stores at the Center. In addition, tenants at one or more
Centers might terminate their leases as a result of mergers, acquisitions,
consolidations, dispositions or bankruptcies in the retail industry. The
bankruptcy and subsequent closure of retail stores may reduce occupancy levels
and rental income, or otherwise adversely affect our financial performance.
Furthermore, if the store sales of retailers operating in the Centers decline
sufficiently, tenants might be unable to pay their minimum rents or expense
recovery charges. In the event of a default by a lessee, the affected Center
may experience delays and costs in enforcing its rights as lessor.
OUR MANAGEMENT COMPANIES ARE SUBJECT TO THE RISKS ASSOCIATED WITH THE
PROPERTY MANAGEMENT AND LEASING BUSINESS.
Each of our three management companies, Macerich Property Management
Company, Macerich Manhattan Management Company and Macerich Management Company
(each a "management company" and collectively, the "management companies"), is
subject to the risks associated with the property management and leasing
business. These risks include the risks that:
- management and leasing contracts with third-party owners will be
lost to competitors;
- contracts will not be renewed on terms consistent with current
terms; and
- leasing activity generally may decline.
4
Third parties can terminate most of our third-party management contracts on 30
to 60 days notice. In addition, if revenues fall, the management companies will
receive reduced compensation under virtually all of our third-party property
management agreements.
OUR ACQUISITION AND REDEVELOPMENT STRATEGY MAY NOT BE SUCCESSFUL.
Our historical growth in revenues, net income and funds from
operations ("FFO") has been closely tied to the acquisition and redevelopment of
shopping centers. Many factors, including the availability and cost of capital,
total debt to market capitalization ratio, interest rates and the availability
of attractive acquisition targets, among others, will affect our ability to
acquire and redevelop additional properties in the future. We may not be
successful in pursuing acquisition opportunities and newly acquired properties
may not perform as well as expected. Expenses arising from our efforts to
complete acquisitions, redevelop properties or increase our market penetration
may have a material adverse effect on our business, financial condition and
results of operations. We face competition for acquisitions primarily from
other publicly-traded real estate investment trusts ("REITs"), as well as
private real estate companies and financial buyers. Some of our competitors
have greater financial and other resources than we do. Increased competition
for shopping center acquisitions may impact adversely our ability to acquire
additional properties on favorable terms. We cannot guarantee that we will be
able to implement our growth strategy successfully or manage our expanded
operations effectively and profitably.
CONFLICTS OF INTEREST MAY RESULT IN ACTIONS THAT ARE NOT IN THE BEST INTEREST OF
OUR STOCKHOLDERS.
THE STRUCTURE OF THE MANAGEMENT COMPANIES AND THEIR MANAGEMENT AGREEMENTS
MAY CREATE CONFLICTS OF INTEREST.
The management companies carry on our management, leasing and
redevelopment business. Mace Siegel, Arthur M. Coppola, Dana K. Anderson and
Edward C. Coppola (the "Principals") own 100% of the outstanding shares of
voting common stock of each of Macerich Property Management Company and Macerich
Management Company. The Macerich Partnership L.P., a Delaware limited
partnership (the "operating partnership") owns 100% of the outstanding shares of
non-voting preferred stock of each of these two entities. As the holder of 100%
of the preferred stock, the operating partnership has the right to receive 95%
of each company's net cash flow. However, since the management companies are
operating companies and not passive entities, our investment in the non-voting
preferred stock is subject to the risk that the Principals might have interests
that are inconsistent with our interests. Macerich Manhattan Management Company
is a wholly-owned subsidiary of Macerich Management Company.
The management companies have entered into management agreements (the
"management agreements") with each of the Property Partnerships (as defined in
the following sentence), except the Property Partnerships that own West Acres
Center, South Park Mall, Valley Mall, Granite Run Mall, Eastland Mall, Lake
Square Mall and North Park Mall. The "Property Partnerships" include:
- single purpose entities jointly owned by us and the operating
partnership that own Wholly-Owned Centers; and
5
- partnerships, limited liability companies or other entities
jointly owned by us and third parties that own Joint Venture
Centers.
Under the management agreements, the management companies manage the Centers on
a day-to-day basis. The terms of some of the management agreements were not
negotiated on an arm's-length basis. The Principals have a conflict of interest
with respect to the management agreements because they are both stockholders of
the management companies and our executive officers and directors. In their
capacity as our executive officers and directors, the Principals enforce the
terms of the management agreements with the management companies through the
operating partnership and its subsidiaries. The failure to enforce the material
terms of those agreements could have a negative effect on our financial
condition.
The management companies also provide management, leasing,
construction and redevelopment services for shopping centers owned by third
parties that are unaffiliated with us. The management companies may agree to
manage additional shopping centers that might compete with the Centers. These
types of arrangements could also create conflicts of interest for the
Principals.
THE PRINCIPALS HAVE SUBSTANTIAL INFLUENCE OVER THE MANAGEMENT OF BOTH OUR
COMPANY AND THE OPERATING PARTNERSHIP, WHICH MAY CREATE CONFLICTS OF
INTEREST.
Under the Partnership Agreement, we, as the sole general partner of
the operating partnership, are responsible for the management of the operating
partnership's business and affairs. Each of the Principals serves as one of our
executive officers and as a member of our Board of Directors. Accordingly, the
Principals have substantial influence over our management and the management of
the operating partnership.
THE TAX CONSEQUENCES OF THE SALE OF SOME OF THE CENTERS MAY CREATE
CONFLICTS OF INTEREST.
The Principals will experience negative tax consequences if some of
the Centers are sold. As a result, the Principals may not favor a sale of these
Centers even though such a sale may benefit our other stockholders. See
"FEDERAL INCOME TAX CONSIDERATIONS."
THE REQUIRED CONSENT OF THIRD PARTY LIMITED PARTNERS OF THE OPERATING
PARTNERSHIP FOR SOME TRANSACTIONS MAY CREATE CONFLICTS OF INTEREST.
The partnership agreement of the operating partnership (the
"Partnership Agreement") provides that a decision to merge the operating
partnership, sell all or substantially all of its assets or liquidate must be
approved by the holders of 75% of the outstanding common and preferred limited
partnership interests in the operating partnership ("OP units"). Depending on
the percentage of the outstanding OP units owned by us at the time, the
concurrence of at least some of the other holders of OP units (the
"Participants") may be required to approve any merger, sale of all or
substantially all of the assets, or liquidation of the operating partnership.
As of the date of this prospectus, we own 78% of the outstanding common and
preferred OP units.
6
THE GUARANTEES OF INDEBTEDNESS BY THE PRINCIPALS MAY CREATE CONFLICTS OF
INTEREST.
The Principals have guaranteed mortgage loans encumbering some of the
Centers. As of the date of this prospectus, the aggregate principal amount
guaranteed by the Principals is approximately $15.0 million. The existence of
guarantees of these loans by the Principals could result in the Principals
having interests that are inconsistent with our interests.
IF OUR INDEBTEDNESS INCREASES, OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COULD BE ADVERSELY AFFECTED.
Since our initial public offering of Common Stock in March 1994, we
have had a debt level of less than 62% of our Total Market Capitalization.
"Total Market Capitalization" means the sum of:
- the aggregate market value of the outstanding equity shares,
assuming full redemption of outstanding OP units and full
conversion of our outstanding preferred stock for shares of
Common Stock; plus
- the total debt of the operating partnership, including a pro rata
share of the debt of the Joint Venture Centers.
Our organizational documents do not limit the amount or percentage of
indebtedness that we may incur. Accordingly, our Board of Directors could
increase our leverage in the future. If it did, there will be an increase in
our debt service requirements and an increased risk of default on our
obligations, either of which could adversely affect our financial condition and
results of operations.
WE MAY CHANGE OUR POLICIES IN WAYS THAT ADVERSELY AFFECT OUR FINANCIAL CONDITION
OR RESULTS OF OPERATIONS.
Our investment and financing policies and our policies with respect to
other activities, including our growth, debt capitalization, distributions, REIT
status and operating policies are determined by our Board of Directors. Our
Board of Directors may change these policies at any time without a vote of our
stockholders. A change in these policies might adversely affect our financial
condition or results of operations.
IF WE FAIL TO QUALIFY AS A REIT, WE WILL HAVE REDUCED FUNDS AVAILABLE FOR
DISTRIBUTION TO OUR STOCKHOLDERS.
No assurance can be given that we have qualified or will remain
qualified as a REIT. Qualification as a REIT involves the application of highly
technical and complex Internal Revenue Code provisions for which there are only
limited judicial or administrative interpretations. The complexity of these
provisions and of the applicable income tax regulations is greater in the case
of a REIT that holds its assets in partnership form. The determination of
various factual matters and circumstances not entirely within our control,
including by our partners in the Joint Venture Centers, may affect our ability
to qualify as a REIT. In addition, legislation, new regulations, administrative
interpretations or court decisions could significantly change the tax
7
laws with respect to our qualification as a REIT or the federal income tax
consequences of that qualification.
If in any taxable year we fail to qualify as a REIT, we will suffer
the following negative results:
- we will not be allowed a deduction for distributions to
stockholders in computing our taxable income; and
- we will be subject to federal income tax on our taxable income at
regular corporate rates.
In addition, we will be disqualified from treatment as a REIT for the four
taxable years following the year during which the qualification was lost, unless
we were entitled to relief under statutory provisions. As a result, net income
and the funds available for distribution to our stockholders will be reduced for
five years. It is possible that future economic, market, legal, tax or other
considerations might cause the Board of Directors to revoke the REIT election.
See "FEDERAL INCOME TAX CONSIDERATIONS."
OUR DEBT FINANCING MAY ADVERSELY IMPACT OUR STOCKHOLDERS.
We are subject to the risks associated with debt financing, including
the risk that our cash flow will be insufficient to meet required payments of
principal and interest. Other than our 7-1/4% Convertible Subordinated
Debentures due 2002 (the "Debentures"), our outstanding indebtedness represents
obligations of the operating partnership and the Property Partnerships that hold
some of the Centers. Most of this outstanding indebtedness is nonrecourse to
the obligor. We have mortgaged a majority of the Centers to secure payment of
this indebtedness. If mortgage payments cannot be made, a mortgagee could
foreclose, resulting in a loss to us. Outstanding indebtedness under our
working capital credit facility is the obligation of the operating partnership
and some of the Property Partnerships.
Our current indebtedness bears interest at both fixed rates and
floating rates. For future financings, we intend to seek the most attractive
financing arrangements available at the time, which may involve either fixed or
floating interest rates. With respect to floating rate indebtedness, increases
in interest rates could adversely affect our FFO, funds available for
distribution and ability to meet our debt service obligations.
We are obligated to make balloon payments of principal under mortgages
on some of the Centers. Although we anticipate that we will be able to
refinance those mortgages by the time the balloon payments become due, or
otherwise obtain funds by raising equity, incurring debt or selling assets,
there can be no assurance that we will be able to do so. In addition, interest
rates and other terms of any debt issued to refinance this mortgage debt may be
less favorable than the terms of the current mortgage debt.
To qualify as a REIT under the Internal Revenue Code, we generally are
required each year to distribute to our stockholders at least 95% of our net
taxable income determined without regard to net capital gains and the dividends
paid deduction. We could be required to borrow funds on a short-term basis or
liquidate investments to meet the distribution requirements
8
that are necessary to qualify as a REIT, even if management believed that it was
not in our best interests to do so.
OUTSIDE PARTNERS IN JOINT VENTURE CENTERS RESULT IN ADDITIONAL RISKS TO OUR
STOCKHOLDERS.
We own partial interests in Property Partnerships that own the 22
Joint Venture Centers. We own a 50% interest in Property Partnerships that own
12 of the Joint Venture Centers with shared management control (Eastland Mall,
Empire Mall, Granite Run Mall, Lake Square Mall, Lindale Mall, Mesa Mall, North
Park Mall, South Park Mall, Southern Hills Mall, Southridge Mall and Valley
Mall), a 50% managing general partnership interest in Property Partnerships that
own two of the Joint Venture Centers (Broadway Plaza and Panorama Mall), a 51%
interest in the Property Partnerships that own six of the Joint Venture Centers
with shared management control (Albany Plaza, Cascade Mall, Eastland Plaza,
Kitsap Mall, Redmond Town Center and Washington Square), a 19% non-managing
general partnership interest in the Property Partnership that holds one of the
Joint Venture Centers (West Acres Center), and a managing member interest of 10%
in the limited liability company that holds the remaining Joint Venture Center
(Manhattan Village Shopping Center). We may acquire partial interests in
additional properties through joint venture arrangements. Investments in
Centers that are not wholly-owned by us involve risks different from those of
investments in wholly-owned Centers.
We may have fiduciary responsibilities to our partners that could
affect decisions concerning the Joint Venture Centers. Third parties may share
control of major decisions relating to the Joint Venture Centers with us,
including decisions with respect to sales, refinancings and the timing and
amount of additional capital contributions, as well as decisions that could have
an adverse impact on our REIT status. For example, we may lose our management
rights relating to the Joint Venture Centers if:
- the operating partnership fails to contribute its share of
additional capital needed by the Property Partnerships; or
- the operating partnership defaults under a partnership agreement
for a Property Partnership or other agreements relating to the
Property Partnerships or the Joint Venture Centers.
In addition, one of our outside partners controls the day-to-day operation of
seven Joint Venture Centers (West Acres Center, Eastland Mall, Granite Run Mall,
Lake Square Mall, North Park Mall, South Park Mall and Valley Mall). We
therefore do not control cash distributions from these Centers, and the lack of
cash distributions from these Centers could jeopardize our ability to maintain
our qualification as a REIT.
OUR HOLDING COMPANY STRUCTURE MAKES US DEPENDENT ON OPERATING PARTNERSHIP
DISTRIBUTIONS.
Because we conduct our operations through the operating partnership,
our ability to service our debt obligations and our ability to pay dividends on
the Common Stock are strictly dependent upon the earnings and cash flows of the
operating partnership and the ability of the operating partnership to make
intercompany distributions to us. Under the Delaware Revised Uniform Limited
Partnership Act, the operating partnership is prohibited from making any
distribution to us to the extent that at the time of the distribution, after
giving effect to the
9
distribution, all liabilities of the operating partnership (other than some
nonrecourse liabilities and some liabilities to the partners) exceed the fair
value of the assets of the operating partnership.
BANKRUPTCY AND/OR CLOSURE OF RETAIL STORES COULD ADVERSELY AFFECT THE CENTERS.
The bankruptcy and/or closure of an anchor, or its sale to a less
desirable retailer, could reduce customer traffic in a Center and thereby reduce
the income generated by that Center. Furthermore, the closing of an anchor could
allow other anchors or other tenants to terminate their leases or cease
operating their stores at the Center or otherwise lower the occupancy rate at
the Center.
Montgomery Ward is an anchor in 11 of the Centers. Montgomery Ward
filed for bankruptcy in 1997. Montgomery Ward has ceased operating at three of
these locations. We are negotiating to recapture these locations and replace
Montgomery Ward with another department store. Montgomery Ward has not yet
disclosed whether it will cease to operate any of its eight remaining stores at
the Centers. One or more of these Centers could be adversely affected if
Montgomery Ward ceases to operate any of these stores.
Retail stores at the Centers other than anchors may also seek the
protection of the bankruptcy laws and/or close stores, which could result in the
termination of their leases and thus cause a reduction in the cash flow
generated by an affected Center, as well as in the occupancy levels and rental
incomes at the Center.
POSSIBLE ENVIRONMENTAL LIABILITIES COULD ADVERSELY AFFECT US.
Under various federal, state and local environmental laws, ordinances
and regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in that real property. These laws often impose liability whether
or not the owner or operator knew of, or was responsible for, the presence of
hazardous or toxic substances. The costs of investigation, removal or
remediation of hazardous or toxic substances may be substantial. In addition,
the presence of hazardous or toxic substances, or the failure to remedy
environmental hazards properly, may adversely affect the owner's or operator's
ability to sell or rent affected real property or to borrow using affected real
property as collateral.
Persons or entities that arrange for the disposal or treatment of
hazardous or toxic substances may also be liable for the costs of removal or
remediation of hazardous or toxic substances at the disposal or treatment
facility, whether or not that facility is owned or operated by the person
arranging for the disposal or treatment of hazardous or toxic substances. Laws
exist that impose liability for release of asbestos-containing materials into
the air and third parties may seek recovery from owners or operators of real
property for personal injury associated with exposure to asbestos-containing
materials. In connection with our ownership, operation, management and
development of the Centers, we may be potentially liable under these laws and
may incur costs in responding to these liabilities. For a description of known
environmental liabilities, see our most recent Annual Report on Form 10-K and
our most recent Quarterly Report on Form 10-Q.
10
THE OWNERSHIP LIMIT AND CERTAIN ANTI-TAKEOVER DEFENSES COULD INHIBIT A CHANGE OF
CONTROL OR REDUCE THE VALUE OF OUR STOCK.
THE OWNERSHIP LIMIT. In order for a corporation to maintain its
qualification as a REIT, not more than 50% in value of its outstanding stock
(after taking into account options to acquire stock) may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Internal Revenue
Code to include some entities that would not ordinarily be considered
"individuals") during the last half of a taxable year. Our charter restricts
ownership of more than 5% (the "Ownership Limit") of the number or value of the
outstanding shares of stock by any single stockholder (with limited exceptions
for some holders of the OP units, and their respective families and affiliated
entities, including all four Principals). In addition to enhancing preservation
of our status as a REIT, the Ownership Limit may:
- have the effect of delaying, deferring or preventing a change in
control of the Company or other transaction without the approval
of our Board of Directors even if a change in control or other
transaction were in the best interest of our stockholders; and
- limit the opportunity for stockholders to receive a premium for
their Common Stock that might otherwise exist if an investor were
attempting to assemble a block of Common Stock in excess of the
Ownership Limit or otherwise effect a change in control of the
Company.
The Board of Directors, in its sole discretion, may waive or modify (subject to
limitations) the Ownership Limit with respect to one or more stockholders if it
is satisfied that ownership in excess of this limit will not jeopardize our
status as a REIT.
STOCKHOLDER RIGHTS PLAN AND SELECTED PROVISIONS OF OUR CHARTER AND
BYLAWS. Agreements to which we are a party, as well as some of the
provisions of our charter and bylaws, may have the effect of delaying,
deferring or preventing a third party from making an acquisition proposal for
the Company and may thereby inhibit a change in control that some, or a
majority, of the holders of Common Stock might believe to be in their best
interest or that could give the stockholders the opportunity to realize a
premium over the then-prevailing market prices. These agreements and
provisions include the following:
- a stockholder rights plan (which is generally triggered when an
entity, group or person acquires 15% or more of our Common
Stock);
- a staggered board of directors and limitations on the removal of
directors;
- advance notice requirements for stockholder nominations of
directors and stockholder proposals;
- the obligation of the directors to consider a variety of factors
(in addition to maximizing stockholder value) with respect to a
proposed business combination or other transaction;
11
- the authority of the directors to classify or reclassify or issue
one or more series of preferred stock, and
- the authority to create and issue rights entitling the holders
thereof to purchase from us shares of stock or other securities
or property.
SELECTED PROVISIONS OF MARYLAND LAW. The Maryland General
Corporation Law prohibits business combinations between a Maryland
corporation and an interested stockholder (which includes any person who
beneficially holds ten percent or more of the voting power of the
corporation's shares) for five years and, after the five-year period,
requires the recommendation of the board of directors and two super-majority
stockholder votes to approve a business combination unless the Stockholders
receive a minimum price determined by the statute. Our charter has exempted
from these provisions of Maryland law any business combination involving the
Principals and their respective existing or future affiliates, associates,
successors or assigns.
The Maryland General Corporation Law also provides that the acquiror
of over 20% of the voting stock of a Maryland corporation is not entitled to
vote the shares in excess of the 20% threshold unless voting rights for the
shares are approved by holders of two thirds of the disinterested shares or
unless the acquisition of the shares has been specifically or generally approved
or exempted from the statute by a provision in our Charter or bylaws adopted
before the acquisition of the shares. Our Bylaws contain a provision exempting
from this statute any acquisition by any person of shares of our stock. There
can be no assurance that this provision will not be amended or eliminated in the
future.
See also "STOCKHOLDER RIGHTS PLAN, SELECTED PROVISIONS OF MARYLAND
LAW AND OF OUR CHARTER AND BYLAWS," which provides a more detailed summary of
these and other provisions. For a complete description, we refer you to our
charter, bylaws and stockholders rights agreement (all of which are
incorporated by reference into the registration statement of which this
prospectus is a part) and to the Maryland General Corporation Law.
UNINSURED LOSSES COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION.
Our comprehensive liability, fire, extended coverage and rental loss
insurance includes insured limits customarily carried for similar properties.
We do not insure certain types of losses (such as from wars) because they are
either uninsurable or not economically insurable. Further, we have been
notified by some of our insurance carriers that they will not provide coverage
for various claims relating to Year 2000 issues and we are negotiating with
these carriers regarding the scope of any Year 2000 exclusions. In addition,
while we or the relevant joint venture, as applicable, carry earthquake
insurance on the Centers located in California, the policies are subject to a
deductible equal to 5% of the total insured value of each Center, a $500,000 per
occurrence minimum and a combined annual aggregate loss limit of $100 million on
these Centers. Furthermore, we carry title insurance on many of the Centers for
less than their full value. Should an uninsured loss or a loss in excess of
insured limits occur, the operating partnership or the Property Partnership, as
the case may be, that owns the affected Center could lose its capital invested
in the Center, as well as the anticipated future revenue from the Center, while
remaining obligated for any mortgage indebtedness or other financial obligations
related to the Center. An uninsured loss or loss in excess of insured limits
may negatively impact our financial condition.
12
As the general partner of the operating partnership and each of the Property
Partnerships, we are generally liable for any of their unsatisfied obligations
other than non-recourse obligations.
FAILURE TO RESOLVE THE YEAR 2000 PROBLEM COULD HAVE AN ADVERSE EFFECT ON OUR
RESULTS OF OPERATIONS.
The Year 2000 issue is the result of many existing computer programs
and embedded technology using two digits rather than four to define the
applicable year. Computer equipment and software and devices with embedded
technology that are time-sensitive may recognize a date using "00" as the year
1900 rather than the year 2000. This may result in system failure or erroneous
data that may cause disruptions of operations. We have initiated a Year 2000
compliance program that includes a review of both our information technology and
non-information technology systems, as well as inquiries to our material
vendors, utilities and tenants. Based on currently available information, we
believe that the Year 2000 issue will not pose significant operational problems
for us. However, if all Year 2000 issues are not properly identified, or
assessment, remediation and testing are not effected in a timely manner, there
can be no assurance that the Year 2000 issue will not adversely affect our
results of operations or our relationships with tenants or other third parties.
Additionally, there can be no assurance that the Year 2000 issues of third
parties will not have an adverse impact on our results of operations. For
further Year 2000 readiness disclosure, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in our most
recent Annual Report on Form 10-K and in our most recent Quarterly Report on
Form 10-Q.
13
FORWARD-LOOKING STATEMENTS
This prospectus, any prospectus supplement and the documents we have
incorporated into this document by reference may contain forward-looking
statements. Forward-looking statements appear in a number of places in this
prospectus and include statements regarding, among other matters, our growth and
acquisition opportunities, acquisition strategy, compliance with governmental
regulations and other matters affecting our financial condition and results of
operations. When used in this prospectus or the incorporated documents, words
such as "anticipate," "believe," "estimate," "expect," "intend," "plan,"
"predict," "project," "seek," "should" and similar expressions, as they relate
to us or our management, identify forward-looking statements.
Forward-looking statements are based on the beliefs of our management
as well as assumptions made by and information currently available to us. These
forward-looking statements are not guarantees of future performance and are
subject to risks, uncertainties and other factors, including those described in
this prospectus under "Risk Factors" and in our registration statements and
reports filed with the SEC. Should one or more of these risks, uncertainties or
other factors materialize, or should underlying assumptions prove incorrect, our
actual results, performance or achievements, or those of our industry, may vary
materially from those anticipated, expected or projected. Forward-looking
statements in this prospectus or the incorporated documents reflect our current
views with respect to future events and are subject to these and other risks,
uncertainties and other factors relating to our operations, results of
operations, growth strategy and liquidity. All subsequent written and oral
forward-looking statements attributable to us or individuals acting on our
behalf are expressly qualified in their entirety by this paragraph. We will not
update any forward-looking information to reflect actual results or changes in
the factors affecting the forward-looking information.
You should specifically consider the various factors identified in
this prospectus, any prospectus supplement and the incorporated documents, which
could cause actual results to differ, including particularly those discussed in
the section entitled "RISK FACTORS" in this prospectus and in our other SEC
filings. For information on how to obtain copies of our SEC filings, please
refer to the section of this prospectus entitled "WHERE YOU CAN FIND MORE
INFORMATION."
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with
the SEC using a "shelf registration" process. Under this shelf registration
process, Security Capital Preferred Growth Incorporated and/or its permitted
transferees, pledgees, donees or successors (the "selling stockholders") may,
from time to time, sell the securities described in this prospectus. You should
read both this prospectus and any prospectus supplement together with additional
information described under the heading "WHERE YOU CAN FIND MORE INFORMATION."
Unless the context otherwise requires, all references to the
"Company," "us," "we" or "our" in this prospectus include The Macerich Company,
those entities owned or controlled by The Macerich Company and predecessors of
The Macerich Company.
14
THE COMPANY
BUSINESS AND STRUCTURE
We are involved in the acquisition, ownership, redevelopment,
management and leasing of regional and community shopping centers located
throughout the United States. We are the sole general partner of, and own
approximately 78% of the ownership interests in, the operating partnership. The
operating partnership owns or has an ownership interest in the Centers. As of
the date of this prospectus, the Centers consist of 47 regional shopping centers
and seven community centers aggregating approximately 41.3 million square feet
of gross leasable area. We are a self-administered and self-managed REIT and
conduct all of our operations through the operating partnership and our three
management companies.
We were organized as a Maryland corporation in September 1993 to
continue and expand the shopping center operations of the Principals and some of
their business associates.
We conduct all of our operations through the following entities:
- the operating partnership;
- the management companies; and
- the Property Partnerships.
We have a 78% ownership interest in the operating partnership and, as
its sole general partner, have exclusive power to manage and conduct its
business, subject to limited exceptions. The operating partnership owns all of
the non-voting preferred stock (generally entitled to dividends equal to 95% of
cash flow) of Macerich Management Company and Macerich Property Management
Company. The Principals own all of the outstanding voting stock of Macerich
Management Company and Macerich Property Management Company. Macerich Manhattan
Management Company is a wholly-owned subsidiary of Macerich Management Company.
Our primary objective is to enhance stockholder value by increasing
our FFO per share, primarily by focusing on the acquisition of potentially
dominant franchise regional shopping centers that have internal growth
characteristics. Our strategy is to increase the net operating income of each
acquired property by rolling below-market rents up to market levels as leases
expire, expanding the Centers, adding department stores, changing the tenant mix
and increasing occupancy levels. In addition to our acquisition strategy, we
also seek to improve the financial performance of the Centers that we already
own by rolling below-market rents up to market levels as leases expire,
increasing occupancy levels and by redeveloping, expanding and renovating the
properties.
Our principal executive offices are located at 401 Wilshire Boulevard,
No. 700, Santa Monica, California 90401 and our telephone number is (310)
394-6000.
15
SELLING STOCKHOLDERS
On the date of this prospectus, Security Capital Preferred Growth
Incorporated owns all of the Series A Preferred Shares. Security Capital
Preferred Growth Incorporated purchased all 3,627,131 Series A Preferred
Shares from us in a private placement in February 1998. As of the date of
this prospectus, these Series A Preferred Shares are convertible into
3,627,131 Common Shares. The selling stockholders will be included in
supplements to this prospectus, as necessary.
Because each of the selling stockholders may offer all, some or none
of the Series A Preferred Shares or the Common Shares, and because the offering
contemplated by this prospectus is currently not being underwritten, no estimate
can be given as to the number of Series A Preferred Shares or the Common Shares
that will be held by each of the selling stockholders upon or prior to
termination of this offering. Such information has been obtained from the
selling stockholders.
The sole relationship that Security Capital Preferred Growth
Incorporated has had with us within the past three years is through its
ownership of the Series A Preferred Shares.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of any of the
Series A Preferred Shares or the Common Shares. The selling stockholders will
receive all proceeds from the sale of the Series A Preferred Shares and the
Common Shares.
STOCK OF THE COMPANY
The following description of the terms of the Series A Preferred Stock
and the Common Stock is only a summary. Our charter and bylaws may affect some
of the terms of the Series A Preferred Stock and the Common Stock. For a
complete description, we refer you to the Maryland General Corporation Law, our
charter and our bylaws. Our charter and bylaws are incorporated by reference as
exhibits to the Registration Statement of which this prospectus is a part.
Our charter authorizes us to issue up to 220,000,000 shares of stock,
consisting of 100,000,000 shares of Common Stock, $.01 par value per share,
11,000,000 shares of preferred stock, $.01 par value per share, and 109,000,000
shares (the "Excess Shares") of excess stock, $.01 par value per share. We had
34,305,746 shares of Common Stock outstanding as of June 1, 1999.
Our charter provides that our Board of Directors (as used in this
prospectus, the term "Board of Directors" may include any of its duly authorized
committees) may classify and reclassify any unissued shares of stock by setting
or changing in any one or more respects the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
or terms or conditions of redemption of the classified or reclassified shares of
stock. The terms of any stock classified or reclassified by our Board of
Directors in accordance with our charter will be set forth in Articles
Supplementary filed with the State Department of Assessments and Taxation of
Maryland prior to the issuance of any classified or reclassified stock.
16
We have authorized and issued 3,627,131 shares of Series A Preferred
Stock and 5,487,471 shares of Series B Cumulative Convertible Redeemable
Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"). The
Series B Preferred Stock is on a parity with the Series A Preferred Stock. The
Series A Preferred Stock and Series B Preferred Stock can be converted into
shares of Common Stock based on a formula set forth in the Articles
Supplementary. As of the date of this prospectus the conversion ratio is
one-for-one for both the Series A Preferred Stock and the Series B Preferred
Stock. Rights of holders of the Series A Preferred Stock and Series B Preferred
Stock include dividend and liquidation preferences over the holders of our
Common Stock and voting rights in some circumstances. The terms of the Series A
Preferred Stock and Series B Preferred Stock, including the liquidation
preference, conversion or other rights, voting powers, restrictions, limitations
as to dividends, qualifications, or terms or conditions of redemption are set
forth in the Articles Supplementary filed as exhibits to our Current Reports on
Form 8-K, event dates February 25, 1998 and June 17, 1998, respectively,
incorporated herein by reference. See "WHERE YOU CAN FIND MORE INFORMATION."
The material terms of the Series A Preferred Stock are described below. See
"DESCRIPTION OF SERIES A PREFERRED STOCK."
In connection with our stockholder rights plan, we designated
1,200,000 shares of Series C Junior Participating Preferred Stock, par value
$0.01 per share (the "Series C Preferred Stock"), which may be issued to
holders of rights if the rights become exercisable. Rights of holders of the
Series C Preferred Stock include voting, dividend and liquidation preferences
over the holders of our Common Stock. The Series C Preferred Stock is junior
to the Series A Preferred Stock and Series B Preferred Stock with respect to
both dividend and liquidation preferences. The terms of the Series C
Preferred Stock, including the liquidation preference, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption are set forth in the
Articles Supplementary filed as an exhibit to our Annual Report on Form 10-K
for the fiscal year ended December 31, 1998, incorporated herein by
reference. See "WHERE YOU CAN FIND MORE INFORMATION." As of the date of
this prospectus, no Series C Preferred Stock is outstanding. See
"STOCKHOLDER RIGHTS PLAN, SELECTED PROVISIONS OF MARYLAND LAW AND OF OUR
CHARTER AND BYLAWS."
ISSUANCE OF EXCESS SHARES
Our charter provides that in the event of a purported transfer of
stock or other event that will, if effective, result in any of the following:
- a person owning stock in excess of the Ownership Limit or owning
(directly or indirectly) more than a specified percentage of the
Common Stock as determined in accordance with our charter (that
person's "Percentage Limitation");
- our Common Stock and preferred stock being owned by fewer than
100 persons (determined without reference to any rules of
attribution);
- our becoming "closely held" under Section 856(h) of the Internal
Revenue Code (determined without regard to Internal Revenue Code
Section 856(h)(2)
17
and by deleting the words "the last half of" in the first
sentence of Internal Revenue Code Section 542(a)(2) in applying
Internal Revenue Code Section 856(h)); or
- our disqualification as a REIT (each a "Prohibited Event" and
collectively, the "Prohibited Events"),
the relevant stock will automatically be exchanged for Excess Shares, to the
extent necessary to ensure that the purported transfer or other event does not
result in a Prohibited Event. Outstanding Excess Shares will be held in trust.
The trustee of the trust will be appointed by us and will be independent of us,
any purported record or beneficial transferee and any beneficiary of such trust
(the "Beneficiary"). The Beneficiary will be one or more charitable
organizations selected by the trustee.
Our charter further provides that Excess Shares are entitled to the
same dividends as the shares of stock exchanged for Excess Shares (the "Original
Shares"). The trustee, as record holder of the Excess Shares, is entitled to
receive all dividends and distributions in respect of the Excess Shares as may
be authorized and declared by the Board of Directors and will hold the dividends
or distributions in trust for the benefit of the Beneficiary. The trustee is
also entitled to cast all votes that holders of the Excess Shares are entitled
to cast. Excess Shares in the hands of the trustee will have the same voting
rights as Original Shares. Upon our liquidation, dissolution or winding up,
each Excess Share will be entitled to receive ratably with each other share of
stock of the same class or series as the Original Shares, the same assets
distributed to the holders of the class or series of stock. The trustee will
distribute to the purported transferee the amounts received upon our
liquidation, dissolution or winding up, but only up to the amount paid by the
purported transferee, or the market price for the Original Shares on the date of
the purported transfer, if no consideration was paid by the transferee, and
subject to additional limitations and offsets set forth in our charter.
If, after the purported transfer or other event resulting in an
exchange of stock for Excess Shares, dividends or distributions are paid with
respect to the Original Shares, then the dividends or distributions will be paid
to the trustee for the benefit of the Beneficiary. While Excess Shares are held
in trust, Excess Shares may be transferred by the trustee only to a person whose
ownership of the Original Shares will not result in a Prohibited Event. At the
time of any permitted transfer, the Excess Shares will be automatically
exchanged for the same number of shares of the same type and class as the
Original Shares. Our charter contains provisions that prohibit the purported
transferee of the Excess Shares from receiving in return for the transfer an
amount that reflects any appreciation in the Original Shares during the period
that the Excess Shares were outstanding. Our charter requires any amount
received by a purported transferee, in excess of the amount permitted to be
received, to be paid to the Beneficiary.
Our charter further provides that we may purchase, for a period of 90
days during the time the Excess Shares are held in trust, all or any portion of
the Excess Shares at the lesser of the price paid for the stock by the purported
transferee (or if no consideration was paid, the market price at the time of
such transaction) or the market price of the relevant shares as determined in
accordance with our charter. The 90-day period begins on the date of the
prohibited transfer if the purported transferee gives notice to the Board of
Directors of the
18
transfer or, if no notice is given, the date the Board of Directors determines
in good faith that a prohibited transfer has been made.
These provisions of our charter will not be automatically removed even
if the REIT provisions of the Internal Revenue Code are changed so as to no
longer contain any ownership concentration limitation or if the ownership
concentration limitation is increased. Amendments to our charter require the
affirmative vote of at least two-thirds of the shares entitled to vote. In
addition to preserving our status as a REIT, the Ownership Limit may have the
effect of precluding an acquisition of control of the Company without the
approval of the Board of Directors.
All certificates representing shares of Common Stock and our preferred
stock bear a legend referring to the restrictions described above.
All persons who own, directly or by virtue of the attribution
provisions of the Internal Revenue Code, more than 5% of our outstanding
stock must file an affidavit with us containing the information specified in
our charter within 30 days after January 1 of each year. In addition, these
and other significant stockholders are required, upon demand, to disclose to
us in writing the information with respect to their direct, indirect and
constructive ownership of shares that our Board of Directors deems necessary
to comply with the provisions of the Internal Revenue Code applicable to a
REIT, to comply with or to determine our compliance with the requirements of
any taxing authority or governmental agency or to determine compliance.
19
DESCRIPTION OF THE COMMON STOCK
RIGHTS OF HOLDERS OF COMMON STOCK
Subject to the provisions of our charter regarding Excess Shares,
the holders of Common Stock have full voting rights, one vote for each share
held of record. Subject to the provisions of our charter regarding Excess
Shares and the rights of holders of preferred stock, holders of Common Stock
are entitled to receive the dividends authorized by our Board of Directors
out of funds legally available for this purpose. Upon liquidation,
dissolution or winding up of the Company (but subject to the provisions of
our charter and the rights of holders of preferred stock), the assets legally
available for distribution to holders of Common Stock will be distributed
ratably among the holders of Common Stock. Except as set forth in our
stockholder rights plan, holders of Common Stock have no preemptive or other
subscription or conversion rights and no liability for further calls upon
shares. See "STOCKHOLDER RIGHTS PLAN, SELECTED PROVISIONS OF MARYLAND LAW
AND OF OUR CHARTER AND BYLAWS." The Common Stock is not subject to
assessment.
The transfer agent and registrar for the Common Stock is First Chicago
Trust Company of New York.
Under Maryland law and our bylaws, stockholders are entitled to
receive prior notice of annual and special meetings of stockholders. Notice
is given to a stockholder when it is personally delivered to him or her, left
at his or her residence or usual place of business, or mailed to him or her
at his or her address as it appears on our records.
Under Maryland law, a Maryland corporation generally cannot
dissolve, amend its charter, merge, sell all or substantially all of its
assets, engage in a share exchange or engage in similar transactions outside
the ordinary course of business unless approved by our Board and by the
affirmative vote of holders of at least two-thirds of the votes entitled to
be cast on the matter unless a lesser percentage (but not less than a
majority of all of the votes entitled to be cast on the matter) is set forth
in the corporation's charter. Except for Article Ninth of our charter, which
provides that the Company is subject to termination at any time by the
holders of a majority of the outstanding Common Stock entitled to vote on the
matter, our charter does not provide for a lesser percentage in these
situations.
20
DESCRIPTION OF THE SERIES A PREFERRED STOCK
THIS SECTION DESCRIBES THE MATERIAL TERMS AND PROVISIONS OF THE SERIES
A PREFERRED STOCK. THIS DESCRIPTION IS NOT COMPLETE AND YOU SHOULD ALSO REFER
TO THE MARYLAND GENERAL CORPORATION LAW, OUR CHARTER AND OUR BYLAWS FOR MORE
INFORMATION.
On the date of this prospectus, 3,627,131 shares of Series A Preferred
Stock and 5,487,471 shares of Series B Preferred Stock are outstanding. The
Board of Directors is authorized, without the approval of stockholders, to cause
us to issue shares of preferred stock in one or more series, to determine the
number of shares of each series and to set the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms or conditions of redemption of each series, which may be senior to the
rights of Common Stock.
RANKING
The Series A Preferred Stock ranks, as to dividends and the
distribution of assets, as follows:
- senior, as to both dividends and the distribution of assets, to
the Common Stock and any other class or series of stock over
which the Series A Preferred Stock has preference or priority in
both dividends and distributions of assets (including our Series
C Junior Participating Preferred Stock) ("Fully Junior Shares");
- senior, as to dividends or the distribution of assets, to the
Common Stock and any other class or series of stock over which
the Series A Preferred Stock has preference or priority in either
dividends or distributions of assets ("Junior Shares");
- on a parity with any class or series of stock which ranks on a
parity basis with the Series A Preferred Stock (including the
Series B Preferred Stock) ("Parity Stock");
- junior to any class or series of stock which ranks senior to the
Series A Preferred Stock; and
- junior to our general creditors.
DIVIDENDS
Subject to the preferences and other rights of any series of stock
ranking senior to the Series A Preferred Stock, the holders of Series A
Preferred Stock are entitled to receive, when, as and if authorized by our Board
of Directors, out of funds legally available for that purpose, cumulative
preferential dividends payable in cash in an amount per share of Series A
Preferred Stock equal to the greater of (i) an annual dividend of $1.84 or (ii)
the regular quarterly cash dividends on the Common Stock, or portion thereof,
into which a share of Series A
21
Preferred Stock will then be convertible (without giving effect to the
Conversion Lockout described under " - Conversion" below).
The dividends are cumulative from the first day of the applicable
quarterly dividend period, whether or not we have funds legally available to pay
those dividends, and are payable quarterly in arrears on the date on which we
pay cash dividends on the Common Stock for that quarter (the "Dividend Payment
Date").
Each dividend is payable in arrears to holders of record on the record
date fixed by the Board of Directors. The record date will not be more than 60
days prior to the corresponding Dividend Payment Date.
Holders of Series A Preferred Stock are not entitled to any dividends
in excess of the full cumulative dividends described above. We will not pay
interest, or any sum of money in lieu of interest, in respect of any dividend
payment or payments on the Series A Preferred Stock that are in arrears.
So long as any Series A Preferred Stock is outstanding, we may not
declare or pay or set apart for payment any dividends on any Parity Stock for
any period unless we have declared and paid or declared and set apart a sum
sufficient to pay (or contemporaneously declare and pay or declare and set
apart a sum sufficient to pay) full cumulative dividends on the Series A
Preferred Stock for all past dividend periods. If we do not pay or set apart
a sum sufficient to pay full cumulative dividends on the Series A Preferred
Stock for all past dividend periods, we will declare all dividends on the
Series A Preferred Stock and any Parity Stock ratably in proportion to the
amount of dividends accrued and unpaid on the Series A Preferred Stock and on
the Parity Stock.
So long as any Series A Preferred Stock is outstanding, we may not
declare or pay or set apart for payment any dividends (other than dividends or
distributions paid solely in Fully Junior Shares or options, warrants or rights
to subscribe for or purchase Fully Junior Shares), nor may we redeem, purchase
or otherwise acquire any Junior Shares (other than a redemption, purchase or
other acquisition of Common Stock made for purposes of any of our employee
incentive or benefit plans of or a conversion into Fully Junior Shares) for any
consideration, nor may we pay or make money available for a sinking fund for the
redemption of any Junior Shares, or pay any other cash or property otherwise
paid or distributed to or for the benefit of any holder of Junior Shares in
respect thereof, directly or indirectly, unless we have declared and paid or
declared and set apart a sum sufficient to pay (or contemporaneously declare and
pay or declare and set apart a sum sufficient to pay) full cumulative dividends
on the Series A Preferred Stock and any Parity Stock for all past dividend
periods and the then current dividend period.
LIQUIDATION PREFERENCE
Upon our liquidation, dissolution or winding up, whether voluntary or
involuntary, subject to the prior preferences and other rights of any series of
stock ranking senior to the Series A Preferred Stock, before any payment or
distribution of its assets is made to or set apart for the holders of the Junior
Shares, the holders of Series A Preferred Stock will be entitled to receive
$27.57 per share plus all accrued and unpaid dividends. However, those holders
will not be entitled to any further payment. If, upon our liquidation,
dissolution or winding up, our
22
assets or proceeds thereof distributable among the holders of the Series A
Preferred Stock are insufficient to pay in full the preferential amount
described above and liquidating payments on any other shares of any class or
series of Parity Stock, then the assets distributable among the holders of the
Series A Preferred Stock, or the proceeds of those assets, will be distributed
among the holders of Series A Preferred Stock and any such other Parity Stock in
proportion to the full liquidating distributions that would be payable if all
amounts payable were paid in full.
Subject to the rights of the holders of shares of any series or class
or classes of stock senior to the Series A Preferred Stock, upon our
liquidation, dissolution or winding up, after payment has been made in full to
the holders of the Series A Preferred Stock and Parity Stock, the Junior Shares
will be entitled to receive any remaining assets.
For purposes of determining the rights of holders of Series A
Preferred Stock, a consolidation, merger or other business combination with one
or more corporations, REITs or other entities, or the sale, lease or conveyance
of substantially all of our property or business, or a statutory share exchange
will not be deemed to be a liquidation, dissolution or winding up of the
Company.
REDEMPTION
We may not redeem the Series A Preferred Stock prior to February 25,
2004 unless fewer than 362,713 shares of Series A Preferred Stock remain
outstanding, in which case we may redeem all of those shares at any time.
Beginning on February 25, 2004, we may, at our option, redeem all of the Series
A Preferred Stock at any time or part of the Series A Preferred Stock from time
to time out of the funds legally available therefor at a redemption price
payable in cash equal to $27.57 plus all accumulated, accrued and unpaid
dividends to the redemption date.
However, if we have not declared and paid or declared and set apart
for payment full cumulative dividends on the Series A Preferred Stock and any
Parity Stock for all past dividend periods, we may not redeem any Series A
Preferred Stock unless we redeem all outstanding Series A Preferred Stock, and
we may not purchase or acquire Series A Preferred Stock otherwise than in a
purchase or exchange offer made on the same terms to all holders of Series A
Preferred Stock.
We will mail a notice of redemption of Series A Preferred Stock to
each holder of record of Series A Preferred Stock at the address shown on our
records not less than 30 days nor more than 90 days prior to the date of
redemption. Each notice of redemption will state:
- the date of redemption;
- the number of shares of Series A Preferred Stock to be redeemed
and, if fewer than all the shares held by the holder receiving
the notice are to be redeemed, the number of such shares to be
redeemed from the holder receiving the notice;
- the redemption price;
23
- the place or places at which certificates for shares are to be
surrendered;
- the then-current conversion price (discussed further below under
"--Conversion Price"); and
- that dividends on the shares to be redeemed will cease to accrue
on the date of redemption with limited exceptions.
If we mail a notice of redemption of any Series A Preferred Stock and
make available an amount of cash necessary to effect the redemption, then,
beginning on the date of the redemption, the following will occur:
- except as otherwise provided, dividends on the Series A Preferred
Stock so called for redemption will cease to accrue;
- the redeemed shares will no longer be deemed outstanding; and
- all rights of the holders thereof will cease, except the right to
receive the redemption price.
If less than all outstanding shares of Series A Preferred Stock will
be redeemed, we will select shares to be redeemed pro rata, by lot, or by any
other method we determine in our sole discretion to be equitable.
CONVERSION RIGHTS
The holders of Series A Preferred Stock may, at their option, convert
Series A Preferred Stock into Common Stock, upon the earliest to occur of
(i) the 61st day following the delivery by a holder of Series A Preferred Stock
stating the holder's intention to convert his or her Series A Preferred Stock or
any other conversion date mutually agreed upon by us and the holder, (ii) the
first day on which a Change of Control (as defined below) occurs, (iii) the
occurrence of a REIT Termination Event (as defined below) or (iv) the first day
on which any dividends payable to the Series A Preferred Stock are in arrears,
whether or not earned or declared.
"Change of Control" means each occurrence of any of the following:
- the acquisition, directly or indirectly, by any individual or
entity or group (as this term is used in Section 13(d)(3) of the
Exchange Act) of beneficial ownership (as defined in Rule 13d-3
under the Exchange Act, except that the individual or entity will
be deemed to have beneficial ownership of all shares that the
individual or entity has the right to acquire, whether the right
is exercisable immediately or only after passage of time) of more
than 25% of our outstanding capital stock with voting power,
under ordinary circumstances, to elect our directors;
- other than with respect to the election, resignation or
replacement of any director designated, appointed, or elected by
the holders of the Series A
24
Preferred Stock (each a "Preferred Director"), during any period
of two consecutive years, individuals who at the beginning of the
two-year period constituted our Board of Directors (together with
any new directors whose election by our Board of Directors or
whose nomination for election by our stockholders was approved by
a vote of two-thirds of our directors (excluding Preferred
Directors) then still in office who were either directors at the
beginning of the two-year period, or whose election or nomination
for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors then in office;
and
- (A) our consolidation with or merger into another entity or
conveyance, transfer or lease of all or substantially all of our
assets (including, but not limited to, real property investments)
to any individual or entity, or (B) the consolidation with or
merger into us of any other entity, which in either event (A) or
(B) is in a transaction in which the outstanding shares of our
voting stock are reclassified or changed into or exchanged for
cash, securities, or other property; provided, however, that the
events described in (A) and (B) will not be deemed to be a Change
of Control (1) if the sole purpose of the particular event is
that we are seeking to change our domicile or to change our form
of organization from a corporation to a trust, or (2) if the
holders of our exchanged securities immediately after such
transaction beneficially own at least a majority of the
securities of the surviving or consolidated entity normally
entitled to vote in elections of directors.
A "REIT Termination Event" is the earliest to occur of:
- the filing of a federal tax return by us on which we do not elect
to be taxed as a REIT;
- the approval by our stockholders of a proposal for us to cease to
qualify as a REIT;
- a determination by our Board of Directors, based on the advice of
counsel, that we have ceased to qualify as a REIT; or
- a "determination" (as defined in Section 1313(a) of the Internal
Revenue Code) that we have ceased to qualify as a REIT.
Holders of shares of Series A Preferred Stock may convert those shares
by surrendering the certificate representing those shares endorsed or assigned
to us or in blank, at the office of the transfer agent, accompanied by written
notice of conversion.
Holders of Series A Preferred Stock at the close of business on a
dividend payment record date are entitled to receive the dividend payable on
those shares on the corresponding dividend payment date, even if they convert
the Series A Preferred Stock into Common Stock between those two dates. Except
as provided above, we will make no payment or allowance for unpaid dividends,
whether or not in arrears, on converted shares or for dividends on the Common
Stock issued upon the conversion. If Series A Preferred Stock is
25
surrendered for conversion during the period between the close of business on
any dividend payment record date and the opening of business on the
corresponding dividend payment date (except shares converted after the issuance
of notice of redemption with respect to a call date during that period, that
Series A Preferred Stock being entitled to the dividend on the dividend payment
date), the holder of the Series A Preferred Stock being converted must pay to us
an amount equal to the dividend payable on the shares on the dividend payment
date.
Each conversion will be deemed to have been effected immediately prior
to the close of business on the date on which the certificates for Series A
Preferred Stock have been surrendered and we have received a conversion notice.
The conversion price in effect at that time will be the conversion price for
that conversion. We will not issue fractional shares or scrip representing
fractions of Common Stock upon conversion. Instead, we will pay cash to the
converting holder based on the market price of the Common Stock on the day prior
to the conversion date.
CONVERSION PRICE ADJUSTMENTS
We will adjust the conversion price if we:
- pay a dividend or make a distribution on our shares of stock in
Common Stock;
- subdivide or combine our outstanding Common Stock;
- issue any stock by reclassification of Common Stock;
- issue rights, options, or warrants to all holders of Common Stock
entitling them to subscribe for or purchase additional Common
Stock at a price per share less than 95% (100% if we use a
stand-by underwriter and pay a commission) of the Common Stock's
fair market value on the record date;
- make other noncash distributions to all holders of Common Stock
or cash distributions greater than cumulative undistributed
earnings since December 31, 1996; or
- pay consideration per share of Common Stock greater than the
current market price of the Common Stock in a tender or exchange
offer.
We will not be required to adjust the conversion unless the adjustment
equals 1% or more of the conversion price. We will carry forward any
adjustments not required to be made and take them into account in subsequent
adjustments.
If we are a party to any transaction (including a merger,
consolidation, statutory share exchange, self tender offer for 30% or more of
our Common Stock, sale of all or substantially all of our assets or
recapitalization of our Common Stock), as a result of which all or
substantially all of the Common Stock is converted into the right to receive
shares, securities or other property (including cash or any combination
thereof), then each share of Series A Preferred Stock that is not redeemed or
converted into the right to receive shares, securities or
26
other property prior to such transaction will thereafter be convertible into
the kind and amount of shares, securities and other property (including cash
or any combination thereof) which the holder of that stock would have
received if it had converted the stock immediately before the transaction.
We will not be a party to any transaction unless the terms of the transaction
are consistent with the terms described above.
VOTING RIGHTS
Holders of Series A Preferred Stock do not have any voting rights,
except as described in this section or as applicable law may otherwise require
from time to time.
If and whenever (i) four consecutive quarterly dividends payable on
the Series A Preferred Stock or any series or class of Parity Stock are in
arrears (which means, with respect to any quarterly dividend, that the dividend
has not been paid in full), whether or not earned or declared, or (ii) for four
consecutive quarterly dividend periods we fail to pay dividends on the Common
Stock in an amount per share at least equal to $0.437 (subject to adjustment
consistent with any adjustment of the conversion price as described above under
" -- Conversion Price"), then the number of directors then constituting our
Board of Directors will be increased by the greater of (x) one director or (y)
the number of directors as would represent 10% of the total number of directors
serving on our Board of Directors (after giving effect to the appointments and
rounded down to the nearest whole number) and the holders of Series A Preferred
Stock, together with the holders of shares of every other series of Parity Stock
(any such series, the "Voting Preferred Stock"), voting as a single class
regardless of series, will be entitled to elect the additional director(s) to
serve on our Board of Directors at an annual meeting of stockholders or at a
special meeting.
Rights of holders of Series A Preferred Stock to elect an additional
director will cease (subject to the future vesting of such voting rights in case
of any future arrearage in quarterly dividends) when (i) all arrears in
dividends on the Series A Preferred Stock and the Voting Preferred Stock then
outstanding have been paid and we have paid dividends thereon for two
consecutive quarters, or (ii) we have paid dividends on the Common Stock in an
amount per share at least equal to $0.437 (subject to adjustment consistent with
any adjustment of the conversion price) for two consecutive quarters. The terms
of office of all persons elected as director(s) by the holders of the Series A
Preferred Stock and the Voting Preferred Stock will terminate at the same time
and the number of directorships will be reduced accordingly.
In addition to any other vote required by law or our charter, at least
two-thirds of the outstanding shares of Series A Preferred Stock must approve in
order for us to:
- make any amendment to our charter or the Partnership Agreement
that materially and adversely affects the voting powers, rights,
or preferences of the holders of the Series A Preferred Stock;
- enter into a share exchange that affects the Series A Preferred
Stock, a consolidation with or merger into another entity, or a
consolidation with or merger of another entity into the Company,
unless each share of Series A Preferred Stock (a) remains
outstanding without a material and adverse change to its terms or
rights, or (b) is converted into or exchanged for
27
convertible preferred shares of the surviving entity having
preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends and other
distributions, qualifications and terms or conditions of
redemption of which are not materially and adversely different
than those of the Series A Preferred Stock.
FIXED CHARGE COVERAGE TEST
So long as 25% of the Series A Preferred Stock remains issued and
outstanding, none of us, the operating partnership or any of our or the
operating partnership's subsidiaries may issue any additional preferred
securities or incur any additional indebtedness (other than trade payables or
accrued expenses incurred in the ordinary course of business) for borrowed money
unless
(1) the holders of a majority of the shares of Series A Preferred
Stock consent to the issuance of additional preferred securities or
incurrence of additional indebtedness, or
(2) immediately following the issuance of additional preferred
securities or incurrence of additional indebtedness and after giving effect
to the issuance/incurrence and the application of the net proceeds
therefrom, our Consolidated EBITDA to Consolidated Fixed Charges for each
of the four fiscal quarters immediately preceding the issuance/ incurrence
would have been greater than or equal to 1.4 to 1.0.
For purposes of the test described above, "Consolidated EBITDA" for
any period means our consolidated net income (before minority interest and
extraordinary income or loss) calculated in accordance with generally accepted
accounting principles ("GAAP") increased by the sum of the following (without
duplication), each as calculated in accordance with GAAP:
(a) all income and state franchise taxes paid or accrued for the
period (other than income taxes attributable to extraordinary,
unusual or non-recurring gains or losses except to the extent
that the gains were not included in Consolidated EBITDA);
(b) all interest expense (other than capitalized interest) paid or
accrued for the period (including financing fees, amortization of
deferred financing fees and amortization of original issue
discount);
(c) depreciation and depletion reflected in reported net income;
(d) amortization reflected in reported net income including, without
limitation, amortization of capitalized debt issuance costs (only
to the extent that these amounts have not been previously
included in the amount of Consolidated EBITDA pursuant to clause
(b) above), goodwill, other intangibles and management fees;
(e) losses on sales of fixed assets, and writedowns of assets under
Financial Accounting Standards Board Statement No. 121 (to the
extent these losses
28
and writedowns were included in the calculation of our
consolidated net income (before extraordinary income or gains));
plus
(f) any other non-cash charges or discretionary prepayment penalties,
to the extent deducted from consolidated net income (including,
but not limited to, income allocated to minority interests);
and decreased by gains on the sale of fixed assets as calculated in accordance
with GAAP (to the extent these gains were included in the calculation of our
consolidated net income (before extraordinary income or gains)).
"Consolidated Fixed Charges" for any period means the sum of the
following (without duplication), each as calculated in accordance with GAAP:
(a) all interest expense (other than capitalized interest) paid or
accrued for that period (including financing fees and
amortization of deferred financing fees with respect to debt
incurred on or after January 19, 1998 and amortization of
original issue discount);
(b) dividend and distribution requirements on shares of preferred
stock (other than Fully Junior Shares) and other preferred
securities for that period, whether or not declared or paid;
(c) regularly scheduled amortization of principal during that period
(other than any balloon payments at maturity) with respect to any
indebtedness; plus
(d) rent payments under any ground leases (excluding deferred ground
lease payments) (to the extent not included in (a) or (c) above).
29
REGISTRATION RIGHTS
This summary of the material terms of our agreement with Security
Capital Preferred Growth Incorporated regarding registration rights does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the registration rights agreement, which we
filed as an exhibit to our Annual Report on Form 10-K for the fiscal year ended
December 31, 1997. See "WHERE YOU CAN FIND MORE INFORMATION."
We have agreed with Security Capital Preferred Growth Incorporated,
for the benefit of the selling stockholders, that we will, at our cost, keep the
Registration Statement effective until the earlier of February 25, 2000, or the
date all Series A Preferred Shares and Common Shares covered by the Registration
Statement have been sold under the Registration Statement or may be sold in
accordance with Rule 144(k) under the Securities Act.
We will provide to each selling stockholder copies of the Registration
Statement, any amendment to the Registration Statement, the prospectus that is a
part of the Registration Statement and those other documents that the selling
stockholders may reasonably request and will take other actions required to
permit unrestricted resales of the Series A Preferred Shares or the Common
Shares, as the case may be. A selling stockholder selling Series A Preferred
Shares or Common Shares pursuant to the Registration Statement generally will
be:
- required to comply with the prospectus delivery requirements of
the NYSE;
- subject to civil liability provisions under the Securities Act in
connection with its sales of Series A Preferred Shares or Common
Shares; and
- bound by the provisions of the registration rights agreement that
are applicable to the selling stockholder, including
indemnification obligations.
Additionally, prospective investors should be aware that if a selling
stockholder wishes to sell Series A Preferred Shares or Common Shares through a
broker-dealer, the broker-dealer may be unwilling to proceed with the sale
unless the selling stockholder indemnifies it against securities law liabilities
that the broker-dealer may face as a result of participating in a registered
distribution.
30
RESTRICTIONS ON TRANSFER AND OWNERSHIP
For us to qualify as a REIT under the Internal Revenue Code, all of
the following conditions must be satisfied:
- not more than 50% in value of our outstanding stock (after taking
into account options to acquire stock) may be owned, directly or
indirectly, by five or fewer "individuals" (as defined under the
Internal Revenue Code to include some entities that would not
ordinarily be considered "individuals") during the last half of a
taxable year;
- stock must be beneficially owned by 100 or more persons during at
least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year; and
- percentages of our gross income must be from particular
activities.
See "FEDERAL INCOME TAX CONSIDERATIONS--Taxation of the Company" and
"--Requirements for Qualification." Our charter restricts the ownership and
transfer of shares of our stock.
Subject to exceptions specified in our charter, no stockholder may
own, or be deemed to own by virtue of the attribution provisions of the Internal
Revenue Code, more than the Ownership Limit. The attribution provisions are
complex and may cause stock owned directly or indirectly by a group of related
individuals or entities to be deemed to be owned by one individual or entity.
As a result, the acquisition of less than 5% in value or in number of shares of
stock (or the acquisition of an interest in an entity which owns stock) by an
individual or entity could cause that individual or entity (or another
individual or entity) to be deemed to own in excess of 5% in value or in number
of shares of our outstanding capital stock, and thus subject such stock to the
Ownership Limit. The Board of Directors, in its sole discretion, may waive the
Ownership Limit with respect to stockholders, but is under no obligation to do
so. As a condition of a waiver of the Ownership Limit, the Board of Directors
may require opinions of counsel satisfactory to it or an agreement from the
applicant that the applicant will not act to threaten our REIT status. Our
charter excludes from the Ownership Limit some persons and their respective
families and affiliates ("Excluded Participants") but provides that no Excluded
Participant may own (directly or indirectly) more than the Excluded
Participant's Percentage Limitation.
Our charter provides that any purported transfer or issuance of
shares, or other event, will be null and void if it results in a Prohibited
Event. The intended transferee or purported owner in a transaction that results
in a Prohibited Event will not acquire, and will retain no rights to, or
economic interest in, those shares of stock. See "STOCK OF THE COMPANY--
Issuance of Excess Shares."
31
STOCKHOLDER RIGHTS PLAN, SELECTED PROVISIONS OF MARYLAND LAW
AND OF OUR CHARTER AND BYLAWS
In addition to the Ownership Limit, certain provisions of our
charter and bylaws, as well as our stockholder rights plan, may delay, defer
or prevent a change of control or other transaction in which holders of some,
or a majority, of the Common Stock might receive a premium for their Common
Stock over the then prevailing market price or which such holders might
believe to be otherwise in their best interests. The following paragraphs
summarize a number of these provisions, as well as selected provisions of the
Maryland General Corporation Law. This summary is not complete. For a
complete description, we refer you to our charter, bylaws and stockholders
rights agreement (all of which are incorporated by reference into the
registration statement of which this prospectus is a part) and to the
Maryland General Corporation Law.
STOCKHOLDER RIGHTS PLAN
On November 10, 1998, we adopted a preferred share purchase rights
plan (the "Rights Plan") and authorized a dividend distribution of one
preferred share purchase right on each outstanding share of Common Stock.
The Rights Plan is designed to give the Board of Directors the time and
opportunity to protect stockholder interests and encourage equal treatment of
all stockholders in a takeover situation. The Rights Plan provides for a
trigger percentage of 15% (with certain exceptions). In the event of a
takeover attempt not approved by our Board, the holders of the rights may
exercise them to purchase Common Stock at a 50% discount or, in the event of
a "squeeze out" transaction where we would not be the surviving entity,
acquire stock of the acquiror at a 50% discount.
STAGGERED BOARD OF DIRECTORS
Under our charter, the number of our directors - currently nine - may
be established in accordance with our bylaws. The charter also provides that
the directors are divided into three classes. Three directors hold office for a
term expiring at the annual meeting of stockholders to be held in 2000. Three
directors hold office for a term expiring at the annual meeting of stockholders
to be held in 2001. Three directors hold office for a term expiring at the
annual meeting of stockholders to be held in 2002. As the term of each class
expires, directors in that class will be elected for a term of three years and
until their successors are duly elected and qualify. The classification of the
Board may make the replacement of incumbent directors more time-consuming and
difficult.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS; PROCEDURES FOR
SPECIAL MEETINGS REQUESTED BY STOCKHOLDERS
Our charter and bylaws provide that for any stockholder proposal to be
presented in connection with an annual meeting or special meeting of our
stockholders, including a proposal to nominate a director, the stockholder must
have given timely written notice thereof to the Secretary. The bylaws provide
that nominations to the Board of Directors and the proposal of business to be
considered by stockholders at the annual meeting of stockholders may be made
only:
- pursuant to our notice of the meeting;
32
- by or at the direction of the Board of Directors; or
- by a stockholder who is entitled to vote at the meeting and has
complied with the advance notice procedures, including
minimum and maximum time periods, set forth in our charter and
bylaws.
Our bylaws also provide that only the business specified in our notice
of meeting may be brought before a special meeting of stockholders. Nominations
of persons for election to the Board of Directors at a special meeting of
stockholders may be made only:
- pursuant to our notice of the meeting;
- by or at the direction of the Board of Directors; or
- if the Board of Directors has determined that directors shall be
elected at such meeting, by a stockholder who is entitled to vote
at the meeting and has complied with the advance notice
provisions, including minimum and maximum time periods, set forth
in our charter or bylaws.
Our bylaws also contain special procedures applicable to a special
meeting of stockholders that is called at the request of stockholders
entitled to cast not less than a majority of all the votes entitled to be
cast at the meeting.
EXEMPTIONS FOR THE PRINCIPALS FROM THE MARYLAND BUSINESS COMBINATION
LAW
Under Maryland law, "business combinations" between a Maryland
corporation and an interested stockholder or an affiliate of an interested
stockholder are prohibited for five years after the most recent date on which
the interested stockholder becomes an interested stockholder. These business
combinations include a merger, consolidation, share exchange, or, in
circumstances specified in the statute, an asset transfer or issuance or
reclassification of equity securities. An interested stockholder is defined as:
- any person who beneficially owns ten percent or more of the
voting power of the corporation's shares; or
- an affiliate of the corporation who, at any time within the
two-year period prior to the date in question, was the beneficial
owner of ten percent or more of the voting power of the then
outstanding voting stock of the corporation.
After the five-year prohibition, any business combination between the Maryland
corporation and an interested stockholder generally must be recommended by the
board of directors of the corporation and approved by two super-majority
stockholder votes, unless, among other conditions, the holders of our Common
Stock receive a minimum price, as defined by Maryland law, for their shares and
the consideration is received in cash or in the same form as previously paid by
the interested stockholder for its Common Stock. None of these provisions of
Maryland law will apply, however, to business combinations that are approved or
exempted by the board of directors of the corporation before the time that the
interested stockholder becomes an interested stockholder.
33
Our charter has exempted from these provisions of Maryland law any
business combination involving the Principals and their respective existing or
future affiliates, associates, successors and assigns. As a result, these
persons may be able to enter into business combinations with us that may not be
in the best interest of our stockholders without compliance with the
super-majority vote requirements and the other provisions of the statute.
NON-STOCKHOLDER CONSTITUENCIES
Under our charter, for the purpose of determining our and our
stockholders' best interests with respect to a proposed business combination
or other transaction involving a change of control of us, our Board of
Directors must give due consideration to all relevant factors, including,
without limitation, the interests of our employees, the economy, community
and societal interests and our and our stockholders' long-term as well as
short-term interests, including the possibility that these interests may be
best served by our continued independence.
OTHER PROVISIONS OF THE CHARTER
Our charter authorizes our Board of Directors to classify and
reclassify one or more series of preferred stock and authorizes the creation and
issuance of rights entitling holders thereof to purchase from us shares of stock
or other securities or property.
CONTROL SHARE ACQUISITIONS
Maryland law provides that the acquirer of over 20% of the voting
stock of a Maryland corporation is not entitled to vote the shares in excess of
the 20% threshold unless voting rights for the shares are approved by holders of
two-thirds of the disinterested shares or unless the acquisition of the shares
has been specifically or generally approved or exempted from the statute by a
provision in a Maryland corporation's charter or bylaws adopted before the
acquisition of the shares. Our bylaws contain a provision exempting from this
statute any acquisition by any person of shares of our stock. There can be no
assurance that this provision will not be amended or eliminated in the future.
AMENDMENT TO OUR CHARTER
Amendments to our charter require the affirmative vote of holders of
not less than two-thirds of all the votes entitled to be cast on the matter.
AMENDMENT TO THE BYLAWS
Our Board of Directors has the exclusive power to adopt, alter or
repeal any provision of our bylaws and to make new bylaws.
DIRECTOR REMOVAL
Subject to the rights of holders of any series of preferred stock, our
charter provides that a director may be removed only for cause and only by the
affirmative vote of the holders of shares entitled to cast at least two-thirds
of the votes entitled to be cast generally in the election of directors.
34
DISSOLUTION OF THE COMPANY
Our dissolution must be approved by the affirmative vote of not less
than a majority of all of the votes entitled to be cast on the matter.
SUPERMAJORITY VOTE FOR EXTRAORDINARY CORPORATE ACTIONS
Under Maryland law, a Maryland corporation generally cannot
dissolve, amend its charter, merge, sell all or substantially all of its
assets, engage in a share exchange or in similar transactions outside the
ordinary course of business unless approved by our Board and the affirmative
vote of holders of at least two-thirds of the votes entitled to be cast on
the matter, unless a lesser percentage (but not less than a majority of all
of the votes entitled to be cast on the matter) is set forth in the
corporation's charter. Except for Article Ninth of our charter, which
provides that the Company is subject to termination at any time by the vote
of holders of a majority of the outstanding Common Stock entitled to vote on
the matter, our charter does not provide for a lesser percentage in these
situations.
LIMITATION OF LIABILITY OF DIRECTORS
Our charter includes provisions that limit the liability of directors
and officers to the fullest extent permitted under Maryland law. Our charter
also requires us to indemnify our present and former directors and officers to
the maximum extent permitted under Maryland law. In addition, we have entered
into indemnification agreements with some of our officers and directors.
35
FEDERAL INCOME TAX CONSIDERATIONS
This section summarizes the material federal income tax consequences
to us and to our stockholders resulting from the treatment of us as a REIT.
Because this section is a general summary, it does not address all of the
potential federal income tax issues which may be relevant to you in light of
your particular circumstances. Further, this section does not address any
state, local, or foreign tax considerations. The discussion in this section is
based on and is qualified in its entirety by the current Internal Revenue Code,
its legislative history, administrative pronouncements, judicial decisions and
United States Treasury Department ("Treasury") regulations. Subsequent changes
to any of the above may affect the tax consequences described in this section,
possibly on a retroactive basis.
THIS SECTION IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING. YOU SHOULD
CONSULT THE APPLICABLE PROSPECTUS SUPPLEMENT AND YOUR OWN TAX ADVISOR REGARDING
THE SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES TO YOU
REGARDING THE PURCHASE, OWNERSHIP AND SALE OF THE SERIES A PREFERRED STOCK AND
COMMON STOCK. YOU SHOULD ALSO CONSULT WITH YOUR TAX ADVISOR REGARDING THE
IMPACT OF POTENTIAL CHANGES IN THE APPLICABLE TAX LAWS.
We have elected to be taxed as a REIT under Sections 856 through 860
of the Internal Revenue Code, commencing with our taxable year ending December
31, 1994. We believe that we are organized and have operated in a manner which
qualifies for taxation as a REIT under the Internal Revenue Code. We further
believe that our proposed future method of operation will enable us to continue
to qualify as a REIT. However, no assurances can be given that our beliefs or
expectations will be fulfilled, since qualification as a REIT depends on our
continuing to satisfy numerous asset, income and distribution tests described
below, and which depend, in part, on our operating results.
TAXATION OF THE COMPANY
We generally are not subject to federal income tax on the portion of
our taxable income or capital gain that is distributed to stockholders annually
as long as we qualify as a REIT. This treatment substantially eliminates the
"double taxation" (at the corporate and stockholder levels) that typically
results from investment in a corporation.
Notwithstanding our qualification as a REIT, we are subject to federal
income tax as follows:
- we are taxed at normal corporate rates on any undistributed net
income (including undistributed net capital gains);
- if we fail to satisfy either the 75% or the 95% gross income
tests (discussed below), but nonetheless maintain our
qualification as a REIT because other requirements are met, we
will be subject to a 100% tax on an amount equal to (a) the gross
income attributable to the greater of the amount by which we fail
to satisfy the 75% test or the 95% test, multiplied by (b) a
fraction intended to reflect our profitability;
36
- we are subject to a tax of 100% on net income from any
"prohibited transaction;"
- we are subject to tax, at the highest corporate rate, on net
income from (a) the sale or other disposition of "foreclosure
property," which is held primarily for sale to customers in the
ordinary course of business or (b) other non-qualifying income
from foreclosure property;
- if we fail to distribute during each calendar year at least the
sum of (1) 85% of our REIT ordinary income for the relevant year,
(2) 95% of our REIT capital gain income for the relevant year and
(3) any undistributed taxable income from prior years, we will be
subject to a 4% excise tax on the excess of the required
distribution over the amounts actually distributed; provided that
to the extent that we elect to retain and pay income tax on our
long-term capital gain, those retained amounts are treated as
having been distributed for purposes of the 4% excise tax; and
- we are subject to the corporate alternative minimum tax, as well
as additional taxes if we find ourselves in situations not
presently contemplated.
The management companies are taxed on their income at regular
corporate rates. We use the calendar year both for federal income tax purposes
and for financial reporting purposes.
REQUIREMENTS FOR QUALIFICATION
To qualify as a REIT, we must elect to be treated as a REIT and must
meet various (a) organizational requirements, (b) gross income tests, (c) assets
tests and (d) distribution requirements.
ORGANIZATIONAL REQUIREMENTS
We must be organized as a corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable
shares, or by transferable certificates of beneficial interest;
(3) that would be taxable as a domestic corporation, but for
Sections 856 through 860 of the Internal Revenue Code;
(4) that is neither a financial institution nor an insurance company
subject to specified provisions of the Internal Revenue Code;
(5) the beneficial ownership of which is held by 100 or more persons;
37
(6) during the last half of each taxable year not more than 50% in
value of the outstanding stock of which is owned, directly or indirectly, by
five or fewer individuals (as defined in the Internal Revenue Code to include
some entities that would not ordinarily be considered "individuals"); and
(7) that meets other tests, described below, regarding the nature of
its income and assets.
The Internal Revenue Code provides that conditions (1) to (4),
inclusive, must be met during the entire taxable year, and that condition (5)
must be met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months. Our charter
provides for restrictions regarding transfer of our capital stock, in order to
assist us in continuing to satisfy the share ownership requirements described in
(5) and (6) above. These transfer restrictions are described in "Description of
Common Stock -- Restrictions on Transfer."
To monitor our compliance with these share ownership requirements, we
are required to maintain records regarding the actual ownership of our shares.
To do so, we must demand written statements each year from the record holders of
specified percentages of our stock in which the record holders are to disclose
the actual owners of the shares. We are treated as having satisfied condition
(6) above if we comply with the regulatory requirements to request information
from our stockholders regarding their actual ownership of our stock, and do not
know, or in exercising reasonable diligence would not have known, that we failed
to satisfy this condition. A list of those persons failing or refusing to
comply with this demand must be maintained as part of our records. A
stockholder who fails or refuses to comply with the demand must submit a
statement with its tax return disclosing the actual ownership of the shares and
other information.
GROSS INCOME TESTS
We must satisfy the following two separate income tests each year:
1. 75% GROSS INCOME TEST. At least 75% of our gross income
(excluding gross income from prohibited transactions) must consist of income
derived directly or indirectly from investments relating to real property,
mortgages on real property (including rents from real property and, in some
circumstances, interest), or some types of temporary investment income.
2. 95% GROSS INCOME TEST. At least 95% of our gross income
(excluding gross income from prohibited transactions) must consist of items that
satisfy the 75% gross income test and dividends, interest and gain from the sale
or disposition of stock or securities (or from any combination of these types of
income).
RENTS FROM REAL PROPERTY. Rents received by us qualify as "rents from
real property" in satisfying the gross income tests described above if the
following conditions are met. First, the amount of rent must not be based, in
whole or in part, on the income or profits of any person. An amount received or
accrued generally is not excluded from the term "rents from real property"
solely because the amount is based on a fixed percentage or percentages of
receipts or sales. Second, we, or an owner of 10% or more of our equity
securities, must not directly or constructively, own 10% or more of a tenant.
Third, if more than 15% of the total rent received
38
under the lease is attributable to personal property leased in connection with a
lease of real property, then the portion of rent attributable to that personal
property does not qualify as "rents from real property." Finally, we generally
must not operate or manage the property, or furnish or render services to the
tenants of the property, other than through an independent contractor from whom
we do not derive revenue. However, we may directly perform services that are
"usually or customarily rendered" in connection with the rental of space for
occupancy only or are not otherwise considered "rendered to the occupant" for
its convenience. A de minimis amount of up to 1% of the gross income may be
received by us from each property from the provision of non-customary services
without disqualifying all other amounts received from that property as "rents
from real property." However, the de minimis amount itself will not qualify as
"rents from real property" for purposes of the 75% and 95% gross income tests.
The management companies (which do not satisfy the independent
contractor standard) as manager for the operating partnership and Property
Partnerships, will provide services with respect to the Centers (other than West
Acres Center, Eastland Mall, Granite Run Mall, Lake Square Mall, North Park
Mall, South Park Mall and Valley Mall) and any newly-acquired property of the
operating partnership or a Property Partnership. We believe that all of the
services provided will be of the type usually or customarily rendered in
connection with the rental of space for occupancy only. Therefore, the
provision of those services will not cause the rents received with respect to
the Centers or newly-acquired centers to fail to qualify as rents from real
property for purposes of the 75% and 95% gross income tests. If the operating
partnership or a Property Partnership contemplates providing services in the
future that reasonably might be expected to fail the "usual or customary"
standard, it will arrange to have those services provided by an independent
contractor from which neither the operating partnership nor the Property
Partnership receives any income.
PROHIBITED TRANSACTIONS. Net income from prohibited transactions is
subject to a 100% tax. The term "prohibited transaction" generally includes a
sale or other disposition of property (other than foreclosure property) that is
held primarily for sale to customers in the ordinary course of a trade or
business. The operating partnership and we believe that none of the assets
owned by the operating partnership, the Property Partnerships, or us are held
for sale to customers. Further, the sale of any Center and associated property
will not be in the ordinary course of business of the operating partnership, the
relevant Property Partnership or us. The operating partnership and we will
attempt to comply with the terms of the safe-harbor provisions in the Internal
Revenue Code prescribing when asset sales will not be characterized as
prohibited transactions. However, whether property is held "primarily for sale
to customers in the ordinary course of a trade or business" depends on the facts
and circumstances, including those related to a particular property. As such,
complete assurance cannot be given that we can comply with the safe-harbor
provisions of the Internal Revenue Code or avoid owning property that may be
characterized as property held "primarily for sale to customers in the ordinary
course of business."
Our investment in the Centers through the operating partnership and
Property Partnerships should give rise to qualifying income in the form of rents
and gains on the sales of Centers. Substantially all income derived by us from
the management companies will be in the form of dividends on the stock of the
management companies owned by the operating partnership. While these dividends
only satisfy the 95% (and not the 75%) gross income test, we anticipate that
39
non-qualifying income on our investments (including dividend income) will not
result in our failing the two gross income tests.
RELIEF PROVISIONS FOR FAILING THE 75% OR THE 95% GROSS INCOME TESTS.
If we fail to satisfy one or both of the 75% or 95% gross income tests for any
taxable year, we may nevertheless qualify as a REIT for that year if we are
entitled to relief under provisions of the Internal Revenue Code. Relief
provisions are generally available if (1) our failure to meet the tests is due
to reasonable cause and not due to willful neglect, (2) we attach a schedule of
the sources of our income to our return, and (3) any incorrect information on
the schedule was not due to fraud with intent to evade tax. However, it is not
possible to state whether in all circumstances we would be entitled to the
benefit of these relief provisions. As discussed above in "-- Taxation of the
Company," even if the relief provisions apply, a tax will be imposed with
respect to the excess of 75% or 95% of our gross income over our qualifying
income in the relevant category, whichever is greater, reduced by approximated
expenses.
ASSET TESTS
We must satisfy the following three tests relating to the nature of
our assets at the close of each quarter of our taxable year:
1. at least 75% of the value of our total assets must be represented
by real estate assets (including (1) our allocable share of real estate assets
held by partnerships in which we own an interest and (2) stock or debt
instruments held for not more than one year purchased with the proceeds of a
stock offering or long-term (at least five years) debt offering of the Company),
cash, cash items and government securities;
2. not more than 25% of our total assets may be represented by
securities other than those in the 75% asset class; and
3. of the investments included in the 25% asset class, the value of
any one issuer's securities owned by us may not exceed 5% of the value of our
total assets and we may not own more than 10% of any one issuer's outstanding
voting securities. Our investment in the Centers through our interests in the
operating partnership and Property Partnerships will constitute qualified assets
for purposes of the 75% asset test.
The operating partnership owns 100% of the non-voting preferred stock
of each of the management companies. Because we have a partnership interest in
the operating partnership, we are deemed to own our pro rata share of the assets
of the operating partnership, including the securities of the management
companies.
Because the operating partnership does not own any of the voting
securities of any of the management companies, the 10% limitation on holdings of
the voting securities of any one issuer has not been violated. In addition,
based upon a comparison of the total estimated value of the securities of the
management companies owned by the operating partnership to the estimated value
of the total assets owned by the operating partnership and us, we have
represented that our pro rata share of the value of the securities of each
management company has not exceeded, and is not expected to exceed in the
future, 5% by value of the total assets owned by us. This 5% limitation must be
satisfied not only on the date that we (directly or through the operating
40
partnership) acquire securities of the management companies, but also at the end
of any quarter in which we so increase our interest in such entities or so
acquire other property. In this respect, if any limited partner of the
operating partnership exercises its rights to redeem OP units and we satisfy the
operating partnership's obligation upon that exercise with shares of Common
Stock, we will thereby increase our proportionate (indirect) ownership interest
in the management companies, thus requiring us to meet the 5% test in any
quarter in which the rights are exercised. Although we plan to take steps to
ensure that we satisfy the 5% value test for any quarter with respect to which
retesting is to occur, there can be no assurance that these steps will always be
successful or will not require a reduction in the operating partnership's
overall interest in the management companies.
ANNUAL DISTRIBUTION REQUIREMENTS
We are required to distribute dividends (other than capital gain
dividends) to our stockholders in an amount at least equal to (A) the sum of
(1) 95% of our REIT taxable income (computed without regard to the dividends
paid deduction and our net capital gain) and (2) 95% of the net income (after
tax), if any, from foreclosure property, minus (B) the sum of specified items of
noncash income. Dividends must be paid in the taxable year to which they
relate, or in the following taxable year if declared before we timely file our
tax return for that year and if paid on or before the first regular dividend
payment after the declaration. To the extent that we do not distribute all of
our net capital gain or distribute at least 95%, but less than 100%, of our REIT
taxable income, as adjusted, we will be subject to tax on the undistributed
amount at regular ordinary and capital gains corporate tax rates, as applicable.
We may designate, in a written notice to our stockholders, all or a portion of
our undistributed net capital gains as being includable in the income of our
stockholders as gain from the sale or exchange of a capital asset. If we so
designate, the stockholders receive an increase in the basis of their stock in
the amount of the income recognized. Stockholders are also to be treated as
having paid their proportionate share of the capital gains tax imposed on us on
the undistributed amounts and receive a corresponding decrease in the basis of
their stock. Furthermore, if we should fail to distribute during each calendar
year at least the sum of (1) 85% of our REIT ordinary income for that year,
(2) 95% of our REIT capital gain net income for that year and (3) any
undistributed taxable income from prior periods, we would be subject to a 4%
excise tax on the excess of the required distribution over the amounts actually
distributed. We have made and intend to make timely distributions sufficient to
satisfy all annual distribution requirements.
From time to time, we may experience timing differences between
(1) the actual receipt of income and actual payment of deductible expenses and
(2) the inclusion of that income and deduction of those expenses in arriving at
our taxable income. Further, it is possible that, from time to time, we may be
allocated a share of net capital gain attributable to the sale of depreciated
property which exceeds our allocable share of cash attributable to that sale.
Additionally, we may incur cash expenditures that are not currently deductible
for tax purposes. As such, we may have less cash available for distribution
than is necessary to meet our annual 95% distribution requirement or to avoid
tax with respect to capital gain or the excise tax imposed on specified
undistributed income. To meet the 95% distribution requirement necessary to
qualify as a REIT or to avoid tax with respect to capital gain or the excise tax
imposed on specified undistributed income, we may find it appropriate to arrange
for short-term (or possibly long-term) borrowings or to pay distributions in the
form of taxable stock dividends. Any borrowings for the purpose of making
distributions to stockholders are required to be arranged through the operating
partnership.
41
Under circumstances relating to any Internal Revenue Service (the
"IRS") audit adjustments that increase income, we may be able to rectify a
failure to meet the distribution requirement for a year by paying "deficiency
dividends" to stockholders in a later year, which may be included in our
deduction for dividends paid for the earlier year. Thus, we may be able to
avoid being taxed on amounts distributed as deficiency dividends; however, we
will be required to pay interest based upon the amount of any deduction taken
for deficiency dividends.
To elect taxation as a REIT under applicable Treasury Regulations, we
must maintain records and request information from our stockholders designed to
disclose the actual ownership of our stock. We have complied and intend to
continue to comply with these requirements.
FAILURE TO QUALIFY AS A REIT
If we fail to qualify for taxation as a REIT in any taxable year and
the relief provisions do not apply, we will be subject to tax (including any
applicable alternative minimum tax) on our taxable income at regular corporate
rates. Distributions to stockholders in any year in which we fail to qualify
will not be deductible by us, nor will we be required to make those
distributions. If we fail to so qualify and the relief provisions do not apply,
to the extent of current and accumulated earnings and profits, all distributions
to stockholders will be taxable as ordinary income, and, subject to specified
limitations of the Internal Revenue Code, corporate distributees may be eligible
for the dividends received deduction. Unless entitled to relief under specific
statutory provisions, we will also be disqualified from taxation as a REIT for
the four taxable years following the year during which we ceased to qualify as a
REIT. It is not possible to state whether in all circumstances we would be
entitled to statutory relief.
TAXATION OF STOCKHOLDERS
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS
As long as we qualify as a REIT, distributions made to our taxable
U.S. stockholders will be taxed as follows:
- Distributions out of current or accumulated earnings and profits
(and not designated as capital gain dividends) constitute
ordinary income to the U.S. stockholders and are not be eligible
for the dividends received deduction for corporations.
- Distributions in excess of current and accumulated earnings and
profits are not taxable to a stockholder to the extent that they
do not exceed the adjusted basis of the stockholder's shares, but
rather reduce the adjusted basis of those shares. To the extent
that distributions in excess of current and accumulated earnings
and profits exceed the adjusted basis of a stockholder's shares,
they are to be included in income as long-term capital gain (or
short-term capital gain if the shares have been held for one year
or less) assuming the shares are a capital asset in the hands of
the stockholder.
42
- Distributions designated as capital gain dividends constitute
long-term capital gains (to the extent they do not exceed our
actual net capital gain for the taxable year) without regard to
the period for which the stockholder has held its stock.
Corporate stockholders may be required to treat up to 20% of some
capital gain dividends as ordinary income.
- Distribution declared by us in October, November or December of
any year payable to a stockholder of record on a specified date
in October, November or December will be treated as both paid by
us and received by the stockholder on December 31 of that year,
provided that the distribution is actually paid by us during
January of the following calendar year.
- Stockholders may not include in their individual income tax
returns any of our net operating losses or capital losses.
- In general, any loss upon a sale or exchange of shares by a
stockholder who has held its shares for six months or less (after
applying holding period rules), is treated as a long-term capital
loss to the extent of distributions from us required to be
treated by that stockholder as long-term capital gain.
TAX CONSEQUENCES UPON CONVERSION OF PREFERRED STOCK INTO COMMON STOCK
Generally, except with respect to cash received in lieu of fractional
shares, no gain or loss is recognized upon the conversion of shares of preferred
stock into shares of Common Stock. The tax basis of a holder of shares of
preferred stock (a "Preferred Holder") in the shares of Common Stock received is
equal to that holder's tax basis in the shares of preferred stock surrendered in
the conversion, reduced by any basis attributable to fractional shares deemed
received, and the holding period for the shares of Common Stock includes the
Preferred Holder's holding period for the shares of preferred stock. Based on
the IRS's present advance ruling policy, cash received, in lieu of a fractional
share of Common Stock upon conversion of shares of preferred stock should be
treated as a payment in redemption of the fractional share interest in those
shares of Common Stock. See "-- Redemption of Preferred Stock" below.
DEEMED DIVIDENDS ON PREFERRED STOCK
The conversion price of the shares of Series A Preferred Stock may be
adjusted if we make distributions of stock, cash, or other property to our
stockholders in some circumstances. While we do not presently contemplate
making distributions in any of these circumstances, if we make a distribution of
cash or property resulting in an adjustment to the conversion price, a Preferred
Holder may be viewed as receiving a "deemed distribution" which is taxable as a
dividend under Sections 301 and 305 of the Internal Revenue Code.
REDEMPTION OF PREFERRED STOCK
The treatment to be accorded to any redemption by us of shares of
preferred stock can only be determined on the basis of particular facts as to
each Preferred Holder at the time of redemption. In general a Preferred Holder
will recognize capital gain or loss measured by the difference between the
amount realized by the Preferred Holder upon the redemption and its
43
adjusted tax basis in the shares of preferred stock redeemed (provided the
shares of preferred stock are held as a capital asset) if that redemption (1)
results in a "complete termination" of the Preferred Holder's share interest in
all classes of our shares under Section 302(b)(3) of the Internal Revenue Code;
(2) is "substantially disproportionate" with respect to the holder's interest in
the Company under Section 302 (b)(2) of the Internal Revenue Code (which
generally will not be the case if only shares of preferred stock are redeemed,
since they generally do not have voting rights); or (3) is "not essentially
equivalent to a dividend" with respect to the Preferred Holder under Section
302(b)(1) of the Internal Revenue Code. In determining whether any of these
tests have been met, shares considered to be owned by the Preferred Holder by
reason of constructive ownership rules set forth in the Internal Revenue Code,
as well as shares actually owned, must generally be taken into account. Because
the determination as to whether any of the alternative tests of Section 302(b)
of the Internal Revenue Code will be satisfied with respect to any particular
Preferred Holder depends on the facts and circumstances at the time when the
determination must be made, prospective investors are advised to consult their
own tax advisors to determine their tax treatment.
If the redemption does not meet any of the tests under Section 302 of
the Internal Revenue Code, then the redemption proceeds received from the shares
of preferred stock will be treated as a distribution on the shares of preferred
stock as described under "-- Taxation of Taxable Domestic Stockholders." If the
redemption is taxed as a dividend, the Preferred Holder's adjusted tax basis in
the shares of preferred stock will be transferred to its other share holdings in
the Company. If, however, the Preferred Holder has no remaining share holdings
in the Company, that basis could be transferred to a related person or it may be
lost.
BACKUP WITHHOLDING
We will report to our U.S. stockholders and the IRS the amount of
distributions paid during each calendar year and the amount of tax withheld,
if any. Under the backup withholding rules, a stockholder may be subject to
backup withholding at the rate of 31% with respect to distributions paid,
unless the holder (a) is a corporation or comes within other exempt
categories and when required, demonstrates this fact; or (b) provides a
taxpayer identification number, certifies as to no loss of exemption from
backup withholding, and otherwise complies with applicable requirements of
the backup withholding rules. A stockholder that does not provide us with his
or her correct taxpayer identification number may also be subject to
penalties imposed by the IRS. Any amount paid as backup withholding will be
creditable against the stockholder's income tax liability. In addition, we
may be required to withhold a portion of capital gain distributions to any
stockholders who fail to certify their nonforeign status to us. See "--
Taxation of Stockholders--Taxation of Foreign Stockholders."
TREATMENT OF TAX-EXEMPT STOCKHOLDERS
Distributions from us to a tax-exempt employee pension trust, or other
domestic tax-exempt stockholder, generally will not constitute unrelated
business taxable income ("UBTI"), unless the stockholder has borrowed to acquire
or carry the Common Stock. However, qualified trusts that hold more than 10%
(by value) of some REITs may be required to treat a specified percentage of
those REITs' distributions as UBTI. This requirement will apply only if
(1) the REIT would not qualify for federal income tax purposes but for the
application of a "look-through" exception to the "five or fewer" requirement
applicable to shares held by qualified trusts and
44
(2) the REIT is "predominantly held" by qualified trusts. A REIT is
predominantly held if either (1) a single qualified trust holds more than 25% by
value of the REIT interests; or (2) one or more qualified trusts, each owning
more than 10% by value of the REIT interests, hold in the aggregate more than
50% of the REIT interests. The percentage of any REIT dividend treated as UBTI
is equal to the ratio of (a) the UBTI earned by the REIT (treating the REIT as
if it were a qualified trust and therefore subject to tax on UBTI) to (b) the
total gross income (less specified associated expenses) of the REIT. A de
minimis exception applies where the ratio set forth in the preceding sentence is
less than 5% for any year. For those purposes, a qualified trust is any trust
described in Section 401(a) of the Internal Revenue Code and exempt from tax
under Section 501(a) of the Internal Revenue Code. The provisions requiring
qualified trusts to treat a portion of REIT distributions as UBTI will not apply
if the REIT is able to satisfy the "five or fewer" requirement without relying
upon the "look-through" exception. The restrictions on ownership of the Common
Stock in our charter will prevent application of the provisions treating a
portion of REIT distributions as UBTI to tax-exempt entities purchasing the
Common Stock, absent approval by the Board of Directors.
TAXATION OF FOREIGN STOCKHOLDERS
This section provides a brief summary of the complex rules governing
United States federal income taxation of nonresident alien individuals, foreign
corporations, foreign partnerships and other foreign stockholders (collectively,
"Non-U.S. Stockholders"). Prospective Non-U.S. Stockholders should consult with
their own tax advisors to determine the impact of federal, state and local
income tax laws with regard to an investment in shares, including any reporting
requirements.
Distributions that are not attributable to gain from sales or
exchanges by us of United States real property interests and not designated by
us as capital gains dividends will be treated as dividends of ordinary income to
the extent that they are made out of our current or accumulated earnings and
profits. These distributions will ordinarily be subject to a withholding tax of
30% of the gross amount of the distribution, unless an applicable tax treaty
reduces or eliminates that tax. However, if income from the investment in the
shares is treated as effectively connected with the Non-U.S. Stockholder's
conduct of a United States trade or business, the Non-U.S. Stockholder generally
will be subject to a tax at graduated rates, in the same manner that U.S.
stockholders are taxed with respect to distributions of this kind (and may also
be subject to the 30% branch profits tax in the case of a stockholder that is a
foreign corporation). We expect to withhold United States income tax at the
rate of 30% on the gross amount of any distributions of this kind made to a
Non-U.S. Stockholder, unless (1) a lower treaty rate applies, or (2) the
Non-U.S. Stockholder files an IRS Form 4224 with us claiming that the
distribution is effectively connected income.
Distributions in excess of our current and accumulated earnings and
profits will not be taxable to a stockholder to the extent that these
distributions do not exceed the adjusted basis of a stockholder's shares, but
rather will reduce the adjusted basis of those shares. To the extent that
distributions in excess of current accumulated earnings and profits exceed the
adjusted basis of a Non-U.S. Stockholder's shares, these distributions will give
rise to tax liability if the Non-U.S. Stockholder would otherwise be subject to
tax on any gain from the sale or disposition of his or her shares in the
Company, as described below. If it cannot be determined, at the time a
distribution is made, whether or not that distribution will be in excess of
current and accumulated earnings and
45
profits, the distributions will be subject to withholding at the same rate as
dividends. However, amounts thus withheld are refundable if it is subsequently
determined that the distribution was, in fact, in excess of our current and
accumulated earnings and profits.
For any year in which we qualify as a REIT, distributions that are
attributable to gain from sales or exchanges by us of United States real
property interests will be taxed to a Non-U.S. Stockholder under the provisions
of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under
FIRPTA, distributions attributable to gain from sales of United States real
property interests are taxed to a Non-U.S. Stockholder as if the gain is
effectively connected with a United States business. Non-U.S. Stockholders
would thus be taxed at the normal capital gain rates applicable to U.S.
stockholders (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals). Also,
distributions subject to FIRPTA may be subject to a 30% branch profits tax in
the hands of a foreign corporate stockholder not entitled to treaty exemption.
We are required by applicable Treasury Regulations to withhold 35% of any
distribution that could be designated by us as a capital gains dividend. This
amount is creditable against the Non-U.S. Stockholder FIRPTA tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of shares
generally will not be taxed under FIRPTA if we are a "domestically controlled
REIT" (defined generally as a REIT in which at all times during a specified
testing period less than 50% in value of the stock was held directly or
indirectly by foreign persons). We currently anticipate that we constitute a
domestically controlled REIT, although there can be no assurance that we will
retain our status as such. If we are not domestically controlled, gain
recognized by a Non-U.S. Stockholder will continue to be exempt under FIRPTA if
that non-U.S. Stockholder at no time owned more than five percent of our Common
Stock. However, gain not subject to FIRPTA will be taxable to a Non-U.S.
Stockholder if (1) investment in the shares is effectively connected with the
Non-U.S. Stockholder's United States trade or business, in which case the
Non-U.S. Stockholder will be subject to the same treatment as U.S. stockholders
with respect to the gain; or (2) the Non-U.S. Stockholder is a nonresident alien
individual who was present in the United States for more than 182 days during
the taxable year and has a "tax home" in the United States, in which case the
nonresident alien individual will be subject to a 30% tax on the individual's
capital gains. If the gain on the sale of shares were to be subject to taxation
under FIRPTA, the Non-U.S. Stockholder will be subject to the same treatment as
U.S stockholders with respect to the gain (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals).
If the proceeds of a sale of shares are paid by or through a U.S.
office of a broker, the payment is subject to information reporting and to
backup withholding, unless the disposing Non-U.S. Stockholder certifies as to
his or her name, address and non-U.S. status or otherwise establishes an
exemption. Generally, U.S. information reporting and backup withholding will
not apply to a payment of disposition proceeds if the payment is made outside
the U.S. through a non-U.S. office of a non-U.S. broker. U.S. information
reporting requirements (but not backup withholding) will apply, however, to a
payment of disposition proceeds outside the U.S. if: (1) the payment is made
through an office outside the U.S. of a broker that is (a) a U.S. person, (b) a
foreign person that derives 50% or more of its gross income for specified
periods from the conduct of a trade or business in the U.S., or (c) a
"controlled foreign corporation" for U.S. federal income tax purposes; and
(2) the broker fails to initiate documentary evidence that the shareholder is a
46
Non-U.S. Stockholder and that specified conditions are met or that the Non-U.S.
Stockholder otherwise is entitled to a exemption.
TAX ASPECTS OF OUR INVESTMENTS IN PARTNERSHIPS
We hold direct or indirect interests in the operating partnership and
the Property Partnerships (each individually a "Partnership" and, collectively,
the "Partnerships"). In general, partnerships are "pass-through" entities which
are not subject to federal income tax. Rather, partners are allocated their
proportionate shares of the items of income, gain, loss, deduction and credit of
a partnership. Further, the partners are potentially subject to tax thereon
without regard to whether the partners receive a distribution from the
partnership. We will include our proportionate share of the items of income,
gain, loss, deduction and credit of the Partnerships for purposes of the various
REIT income tests and in the computation of our REIT taxable income. See "--
Requirements for Qualification -- Gross Income Tests". Any resultant increase
in our REIT taxable income will increase our distribution requirements (see
"--Requirements or Qualification -- Annual Distribution Requirements").
However, these increases will not be subject to federal income tax in our hands
provided that the income is distributed by us to our stockholders. Moreover,
for purposes of the REIT asset tests (see "-- Requirements for Qualification --
Asset Tests"), we will include our proportionate share of assets held by the
Partnerships.
TAX ALLOCATIONS WITH RESPECT TO CONTRIBUTED PROPERTIES
Under Section 704(c) of the Internal Revenue Code, income, gain, loss
and deduction attributable to appreciated or depreciated property that is
contributed to a partnership in exchange for an interest in the partnership,
must be allocated in a manner such that the contributing partner is charged
with, or benefits from, respectively, the unrealized gain or unrealized loss
associated with the property at the time of the contribution. The amount of the
unrealized gain or unrealized loss is generally equal to the difference between
the fair market value of contributed property at the time of contribution, and
the adjusted tax basis of the property at the time of contribution (a "Book-Tax
Difference"). These allocations are solely for federal income tax purposes and
do not affect the book capital accounts or other economic or legal arrangements
among the partners. The operating partnership was formed principally by way of
contributions of appreciated property. Consequently, the Partnership Agreement
requires these allocations to be made in a manner consistent with Section 704(c)
of the Internal Revenue Code.
In general, the limited partners of the operating partnership will be
allocated lower amounts of depreciation deductions for tax purposes and
increased taxable income and gain on sale by the Partnerships of the contributed
assets. This will tend to eliminate the Book-Tax Difference over the life of
the Partnerships. However, the special allocation rules of Section 704(c) do
not always rectify the Book-Tax Difference on an annual basis or with respect to
a specific taxable transaction such as a sale. Under the applicable Treasury
Regulations, special allocations of income and gain and depreciation deductions
must be made on a property-by-property basis. Depreciation deductions resulting
from the carryover basis of a contributed property are used to eliminate the
Book-Tax Difference by allocating these deductions to the non-contributing
partners (i.e., the REIT and the other non-contributing partners) up to the
amount of their share of book depreciation. Any remaining tax depreciation for
the contributed property would be allocated to the partners that contributed the
property. The operating partnership intends to elect the traditional method of
rectifying the Book-Tax Difference under the applicable Treasury Regulations,
under
47
which, if depreciation deductions are less than the non-contributing partners'
share of book depreciation, then the non-contributing partners lose the benefit
of these deductions ("ceiling rule"). When the property is sold, the resulting
tax gain is used to the extent possible to eliminate the Book-Tax Difference
(reduced by any previous book depreciation). Because of the application of the
ceiling rule it is anticipated that tax depreciation will be allocated
substantially in accordance with the percentages of OP units held by us and the
limited partners of the operating partnership, notwithstanding Section 704(c) of
the Internal Revenue Code. Thus, the carryover basis of the contributed assets
in the hands of the Partnerships will cause us to be allocated lower
depreciation and other deductions, and possibly greater amounts of taxable
income in the event of a sale of those contributed assets in excess of the
economic or book depreciation allocated to them, and possibly the economic and
book income or gain allocated to them as a result of the sale. This may cause
us to recognize taxable income in excess of cash proceeds, which might adversely
affect our ability to comply with the REIT distribution requirements. See "--
Requirements for Qualification -- Annual Distribution Requirements."
OTHER TAX CONSIDERATIONS
THE MANAGEMENT COMPANIES
A portion of the cash to be used by the operating partnership to fund
distributions to partners, including us, may come from the management companies
through dividends on the stock that will be held by the operating partnership.
The management companies will receive income from the operating partnership, the
Property Partnerships and unrelated third parties. Because we, the operating
partnership and the management companies are related through stock ownership,
income of the management companies from services performed for us and the
operating partnership may be subject to rules under which additional income may
be allocated to the management companies. The management companies will pay
federal and state income tax at the full applicable corporate rates on their
income prior to payment of any dividends. The management companies will attempt
to minimize the amount of these taxes, but there can be no assurance whether, or
the extent to which, measures taken to minimize taxes will be successful. To
the extent that the management companies are required to pay federal, state or
local taxes, the cash available for distribution by us to stockholders will be
reduced accordingly.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING TAX CONSEQUENCES
You should recognize that the present federal income tax treatment of
investment in us may be modified by legislative, judicial, or administrative
action at any time and that any such action may affect investments and
commitments previously made. The rules dealing with federal income taxation are
constantly under review by persons involved in the legislative process and by
the IRS and the Treasury Department, resulting in revisions of regulations and
revised interpretations of established concepts as well as statutory changes.
Revisions in federal tax laws and interpretations of federal tax laws could
adversely affect the tax consequences of investment in us. In this connection,
the Clinton Administration's fiscal year 2000 budget proposal plan, announced on
February 1, 1999, contains several proposals which may impact our tax treatment.
Under the proposal, the 10% vote test would be changed to a 10% "vote or value"
(see "Requirements for Qualification--Asset Tests" above). The proposal also
contains an exception to the 5% and 10% assets tests that would allow a REIT to
have "taxable REIT subsidiaries" which may perform certain services that are
currently prohibited. However, under the proposal, a number
48
of constraints would be imposed on the taxable REIT subsidiaries. Specifically,
under the proposal, the value of all taxable REIT subsidiaries owned by a REIT
could not represent more than 15% of the value of the REIT's assets, and no more
than 5% of the total value of the REIT's assets could consist of "qualified
independent contractor subsidiaries." Further, under the proposal, a taxable
REIT subsidiary would not be entitled to deduct any interest on debt funded
directly by the REIT. This proposal would be effective after the date of
enactment and a REIT would be allowed to combine and convert certain existing
corporate subsidiaries into taxable REIT subsidiaries before the 10% vote or
value test would become effective. For taxable years after the effective date
of the proposal and after any applicable transition period, the 10% vote or
value test would apply to the Company's ownership of any non-qualified REIT
subsidiary not converted into a taxable REIT subsidiary. It is difficult to
predict what form, if any, such proposed legislation will take, and its impact,
if any, on our operations.
In addition, on April 28, 1998, the Real Estate Investment Trust
Modernization Act of 1999 (the "Bill") was introduced in Congress. Like the
Administration's proposal, the Bill would create "taxable REIT subsidiaries."
Under the Bill, taxable REIT subsidiaries would be exempt from the 5% asset
test. However, the taxable REIT subsidiaries would also be subject to the
"earnings stripping" limitations on the deductibility of interest. The Bill
would also change the 10% vote test to a 10% "vote or value" test unless the
corporation elects to be a taxable REIT subsidiary or qualifies for the
"grandfather rule." Under the Bill, the "grandfathered" status of any existing
subsidiary would terminate when it engages in a new line of business or acquires
substantial new assets after April 28, 1999 (other than pursuant to a binding
contract in effect on that date). As with the Administration's proposal, it is
difficult to predict what form, if any, such proposed legislation will take, and
its impact, if any, on our operations.
STATE AND LOCAL TAXES
We and our stockholders may be subject to state or local taxation in
various jurisdictions, including those in which it or they transact business or
reside. The state and local tax treatment of us and our stockholders may not
conform to the federal income tax consequences discussed above. Consequently,
you should consult your own tax advisors regarding the effect of state and local
tax laws on an investment in any Securities.
49
PLAN OF DISTRIBUTION
The selling stockholders may from time to time offer and sell the
Common Shares on the New York Stock Exchange (the "NYSE"), in the
over-the-counter market, or otherwise. They may sell the Series A Preferred
Shares or the Common Shares either at market prices or at negotiated prices.
They may sell the Series A Preferred Shares or the Common Shares in ordinary
brokerage transactions, in block transactions, in privately negotiated
transactions, through put or call transactions relating to the Series A
Preferred Shares or the Common Shares, through short sales of the Series A
Preferred Shares or the Common Shares, under Rule 144 or otherwise. Those
transactions may or may not involve brokers or dealers. The selling
stockholders may include Merrill Lynch International Private Finance Limited, a
Delaware corporation, and pledgees of Security Capital Preferred Growth
Incorporated, or any donees or other pledgees of the selling stockholders after
the date of this prospectus. If the selling stockholders sell the Series A
Preferred Shares or the Common Shares through brokers, they expect to pay
customary brokerage commissions and charges.
If the selling stockholders sell Shares to or through underwriters or
through agents, the accompanying prospectus supplement will set forth the names
of any underwriters or agents involved in the sale of Shares in respect of which
this prospectus is being delivered, the principal amounts, if any, to be
purchased by each underwriter, and the compensation, if any, of such
underwriters or agents.
We are registering the Series A Preferred Shares and the Common Shares
to permit the selling stockholders to resell the Series A Preferred Shares and
the Common Shares and to permit public secondary trading of the Shares now and
in the future. We are required to register the Common Shares under the terms of
the registration rights agreement dated February 25, 1998, between us and
Security Capital Preferred Growth Incorporated. The registration of the Shares
does not necessarily mean that the selling stockholders will offer or sell any
of the Shares.
We have agreed to pay all expenses (other than selling commissions,
underwriting discounts, stock transfer taxes and fees and expenses of counsel to
any selling stockholder) of the selling stockholders in connection with the
registration and sale of the Series A Preferred Shares and the Common Shares.
The following table lists the estimated expenses in connection with the
registration and sale of the Series A Preferred Shares and the Common Shares,
which will be paid by us:
Registration fee $ 26,630.32
Printing and duplicating expenses 5,000.00
Legal fees and expenses 75,000.00
Accounting fees and expenses 10,000.00
Miscellaneous expenses 4,000.00
------------------
Total $ 120,630.32
50
The selling stockholders and any dealer, broker or other agent selling
the Series A Preferred Shares or the Common Shares for a selling stockholder or
purchasing the Series A Preferred Shares or the Common Shares from a selling
stockholder for purposes of resale may be deemed to be an underwriter under the
Securities Act and any compensation received by the selling stockholder, dealer,
broker or other agent may be deemed to be underwriting compensation. The amount
of that compensation cannot currently be estimated. We know of no existing
arrangements between any selling stockholder and any dealer, broker or other
agent.
To comply with some states' securities laws, if applicable, the Series
A Preferred Shares and the Common Shares may be sold in those states only
through brokers or dealers. In addition, the Series A Preferred Shares and the
Common Shares may not be sold in certain states unless they have been registered
or qualified for sale in that state or an exemption from registration or
qualification is available and is complied with.
We have agreed to indemnify the selling stockholders and their
respective directors, officers and controlling persons against specified
liabilities relating to the Registration Statement relating to the Series A
Preferred Shares and Common Shares offered by this prospectus, as described
further under "WHERE YOU CAN FIND MORE INFORMATION" below, including specified
liabilities under the Securities Act. Each selling stockholder has agreed to
indemnify us and our directors, officers and controlling persons against certain
liabilities relating to information furnished by that selling stockholder to us
in writing for inclusion in the Registration Statement, including specified
liabilities under the Securities Act.
51
EXPERTS
Our financial statements and financial statement schedule incorporated
in this prospectus by reference to our Annual Report on Form 10-K for the fiscal
year ended December 31, 1998 have been audited by PricewaterhouseCoopers LLP,
independent accountants, as indicated in their report included in that 10-K and
incorporated in this document by reference.
The financial statements and financial statement schedule of SDG
Macerich Properties, L.P. as of December 31, 1998 and for the year then ended
incorporated in this prospectus by reference to our Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 have been audited by KPMG LLP,
independent auditors, as indicated in their report included in that 10-K and
incorporated in this prospectus.
The financial statement included in the Current Report on Form 8-K/A
dated April 21, 1999 for event date February 18, 1999 with respect to the
acquisition of the SAFECO Portfolio has been audited by Ernst & Young LLP,
independent auditors, as set forth in their report included in that 8-K/A and
incorporated in this prospectus by reference.
Each of the above-referenced financial statements, schedules and
reports is incorporated herein by reference in reliance upon the relevant
report, each of which was given on the authority of the respective firm as an
expert in accounting and auditing.
LEGAL MATTERS
O'Melveny & Myers LLP will pass on legal matters relating to the
validity of the Series A Preferred Stock and the Common Stock for us.
O'Melveny & Myers LLP will rely as to selected matters of Maryland law on
the opinion of Ballard Spahr Andrews & Ingersoll, LLP. O'Melveny & Myers LLP
has in the past represented and is currently representing us and some of our
affiliates.
52
WHERE YOU CAN FIND MORE INFORMATION
We have filed our Registration Statement on Form S-3 with the SEC
under the Securities Act with respect to the Series A Preferred Shares and the
Common Shares. The Registration Statement and the exhibits to the Registration
Statement contain more information than this prospectus does. You may read and
copy any document that we file, including the Registration Statement and the
exhibits to the Registration Statement, at the SEC's public reference at Room
1024, 450 Fifth Street, N.W., Washington D.C. 20549 and at certain regional
offices of the SEC located at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 13th Floor, 7 World Trade Center, New York,
New York 10048. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
at the SEC's web site at http://www.sec.gov.
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy these reports, proxy
statements and other information at the SEC's public reference rooms listed
above, or through the web site listed above. In addition, you may inspect and
copy reports, proxy statements and other information about us at the offices of
the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
The SEC allows us to "incorporate by reference" the information we
file with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information filed with the
SEC will update and supercede the information included or incorporated by
reference in this prospectus. We incorporate by reference:
- our Annual Report on Form 10-K for the fiscal year ended December
31, 1998;
- our Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1999;
- our Current Reports on Form 8-K and Form 8-K/A for event date
February 18, 1999.
We also incorporate by reference any future filings we may make with
the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act until this
offering is completed.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Corporate Secretary
The Macerich Company
401 Wilshire Boulevard, No. 700
Santa Monica, California 90401
Telephone: (310) 394-6000
53
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the registration and sale of the
Securities as follows:
SEC registration fee $ 26,630.32
Printing and duplicating expenses 5,000.00
Legal fees and expenses 75,000.00
Accounting fees and expenses 10,000.00
Miscellaneous expenses 4,000.00
-----------
Total $120,630.32
-----------
-----------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Maryland General Corporations Law permits a corporation formed in Maryland
to include in its charter a provision limiting the liability of its directors
and officers to the corporation and its stockholders for money damages except
for liability resulting from (1) active and deliberate dishonesty established by
a final judgment as being material to that cause of action, or (2) actual
receipt of an improper benefit or profit in money, property or services. Our
charter has incorporated a provision that limits the liability of our directors
and officers to the fullest extent permitted by the Maryland General Corporation
Law.
Our charter requires us to indemnify our present and former
officers and directors, whether serving us or at its request another entity,
and to pay or reimburse reasonable expenses in advance of the final
disposition of the proceeding to the maximum extent permitted from time to
time by the laws of Maryland. Our charter provides that the indemnification
rights are non-exclusive of any other rights to which those seeking
indemnification may be entitled. The Maryland General Corporation Law
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any
proceeding to which they may be made a party by reason of their service in
those or other capacities unless it is established that (1) the act or
omission of the director or officer was material to the matter giving rise to
the proceeding and (a) was committed in bad faith, or (b) was the result of
active and deliberate dishonesty; (2) the director or officer actually
received an improper personal benefit; or (3) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the
act or omission was unlawful. In addition, the Maryland General Corporation
Law requires us, as conditions to advancing expenses, to obtain (1) a written
affirmation by the director or officer of his or her good faith belief that
he or she has met the standard of conduct necessary for indemnification by us
and (2) a written undertaking by him or her or on his or her behalf to repay
the amount paid or reimbursed by us if it is ultimately determined that the
standard of conduct was not met. The Maryland General Corporation Law
requires a corporation (unless its charter
II-1
provides otherwise, which our charter does not) to indemnify a director or
officer who has been successful, on the merits or otherwise, in the defense
of any proceeding to which he or she is made a party by reason of his or her
service in that capacity. However, under the Maryland General Corporation
Law, a Maryland corporation may not indemnify for an adverse judgment in a
suit by or in the right of the corporation or for a judgment of liability on
the basis that a personal benefit was improperly received unless, in either
case, a court orders indemnification and then only for expenses. Our bylaws
specify the procedures for indemnification and advance of expenses.
The Partnership Agreement of the operating partnership also provides
for indemnification of us and our officers and directors similar to that
provided to our officers and directors in the charter, and includes limitations
on the liability of us and our officers and directors to the operating
partnership and its partners similar to those contained in the charter.
We and the operating partnership have entered into indemnification
agreements with certain of our executive officers and directors. The
indemnification agreements require, among other things, that we and the
operating partnership indemnify those executive officers and directors to the
fullest extent permitted by law, and advance to them all related reasonable
expenses, subject to certain defenses. We and the operating partnership must
also indemnify and advance all expenses incurred by those executive officers and
directors seeking to enforce their rights under the indemnification agreements,
and cover them under our directors' and officers' liability insurance. Although
this form of indemnification agreement offers substantially the same scope of
coverage afforded by provisions in our charter and our bylaws and the
Partnership Agreement of the operating partnership, it provides greater
assurance to directors and officers that indemnification will be available,
because, as a contract, it cannot be modified unilaterally in the future by the
Board of Directors, by the stockholders or by the partners of the operating
partnership to eliminate the rights it provides.
ITEM 16. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
4.1 Articles of Amendment and Restatement (filed as Exhibit
3.2 to our Registration Statement on Form S-11, as
amended (No. 33-68964) and incorporated herein by
reference)
4.2 Articles Supplementary (filed as Exhibit 4.2 to our
Current report on Form 8-K, event date May 30, 1995,
and incorporated herein by reference)
4.3 Articles Supplementary (Series A Preferred Stock)
(filed as Exhibit 3.1 to our Current Report on Form
8-K, event date February 25, 1996 and incorporated
herein by reference)
II-2
4.4 Amended and Restated Bylaws (filed as Exhibit 3.1 to
our current Report on Form 8-K, event date November 10,
1998 and incorporated herein by reference)
4.5 Form of Common Stock Certificate (filed as Exhibit
4.3 to our Amendment to Current Report on Form 8-KA,
event date November 10, 1998 and incorporated herein
by reference)
4.6 Form of Series A Preferred Stock Certificate (filed as
Exhibit 4.2 to our Annual Report on Form 10-K for the
year ended December 31, 1997 and incorporated herein by
reference)
4.7 Agreement dated as of November 10, 1998, between us and
First Chicago Trust Company of New York, as Rights
Agent (filed as Exhibit 4.2 to our Current Report on
Form 8-K, event date November 10, 1998 and incorporated
herein by reference)
4.8 Registration Rights Agreement, dated as of February 25,
1998 between the Company and Security Capital Preferred
Growth Incorporated (filed as Exhibit 10.13 to our
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, and incorporated herein by
reference)
5.1 Opinion of O'Melveny & Myers LLP regarding the legality
of the Shares
8.1 Opinion of O'Melveny & Myers LLP regarding certain tax
matters
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of KPMG LLP
23.3 Consent of Ernst & Young LLP
23.4 Consent of O'Melveny & Myers LLP (contained in Exhibits
5.1 and 8.1)
24.1 Power of Attorney (contained on page II-6)
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:
II-3
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act;
(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. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the SEC pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than a 20 percent change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
Registration Statement; and
(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 will be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time will be deemed to be the initial bona
fide offering thereof; and
(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 further undertakes:
(1) That for purposes of determining any liability under the
Securities Act, each filing of the registrant's annual report pursuant to
Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in the registration statement
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;
(2) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities 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
II-4
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue;
(3) That, for purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act will be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(4) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
will be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time will be deemed
to be the initial bona fide offering thereof.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Santa Monica, State of California, on June 7, 1999.
THE MACERICH COMPANY
By: /s/ Richard A. Bayer
--------------------------
Richard A. Bayer
GENERAL COUNSEL AND SECRETARY
We, the undersigned directors and officers of The Macerich Company,
and each of us, do hereby constitute and appoint Mace Siegel, Dana K. Anderson,
Arthur M. Coppola, Thomas E. O'Hern and Richard A. Bayer, or any one of them,
our true and lawful attorneys and agents, each with power of substitution, to do
any and all acts and things in our name and on our behalf in our capacities as
directors and officers and to execute any and all instruments for us and in our
names in the capacities indicated above, which said attorneys and agents, or any
one of them, may deem necessary or advisable to enable said corporation to
comply with the Securities Act of 1933, as amended, and any rules, regulations,
and requirements of the Securities and Exchange Commission, in connection with
this Registration Statement, including specifically but without limitation,
power and authority to sign for us and any of us in our names in the capacities
indicated below, any and all amendments (including post-effective amendments)
hereto; and we do hereby ratify and confirm all that the said attorneys and
agents, or their substitute or substitutes, or any one of them, shall do or
cause to be done by virtue hereof.
II-6
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities effective
as of May 28, 1999.
Signature Title
--------- -------
/s/ Arthur M. Coppola President and Chief Executive
------------------------ Officer and Director (Principal
Arthur M. Coppola Executive Officer)
/s/ Mace Siegel
------------------------
Mace Siegel Chairman of the Board
/s/ Dana K. Anderson
------------------------
Dana K. Anderson Vice Chairman of the Board
/s/ Edward C. Coppola
------------------------
Edward C. Coppola Executive Vice President
/s/ James Cownie
------------------------
James Cownie Director
/s/ Theodore Hochstim
------------------------
Theodore Hochstim Director
/s/ Frederick Hubbell
------------------------
Frederick Hubbell Director
/s/ Stanley Moore
------------------------
Stanley Moore Director
/s/ William Sexton
------------------------
William Sexton Director
/s/ Thomas E. O'Hern Executive Vice President,
------------------------ Treasurer and Chief Financial
Thomas E. O'Hern and Accounting Officer
EXHIBIT 5.1
[LETTERHEAD OF O'MELVENY & MYERS LLP]
June 7, 1999
The Macerich Company
401 Wilshire Boulevard, Suite 700
Santa Monica, California 90401
Re: 3,627,131 SHARES OF SERIES A CUMULATIVE CONVERTIBLE
REDEEMABLE PREFERRED STOCK AND 3,627,131 SHARES OF
COMMON STOCK OF THE MACERICH COMPANY
---------------------------------------------------
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on
Form S-3, Registration No. 333-_____ (the "Registration Statement"), filed by
The Macerich Company (the "Company") with the Securities and Exchange Commission
in connection with the registration of 3,627,131 shares of Series A Preferred
Convertible Stock, $.01 per share (the "Series A Preferred Stock"), and
3,627,131 shares of Common Stock, $.01 par value per share (the "Common Stock"
and, together with the Series A Preferred Stock, the "Securities") of the
Company. We are familiar with the proceedings heretofore taken by the Company
in connection with the authorization, registration, issuance and sale of the
Securities.
On the basis of our consideration of such questions of law as we have
deemed relevant in the circumstances, and subject to (1) the proposed additional
proceedings being taken as now contemplated by us and Ballard Spahr Andrews &
Ingersoll, LLP as your counsel prior to the issuance of the Common Stock; and
(2) the effectiveness of the Registration Statement under the Securities Act of
1933, as amended, it is our opinion that
(1) The Series A Preferred Stock has been validly issued and is
fully paid and nonassessable, and
(2) When the Common Stock is issued upon conversion of the
Series A Preferred Stock in accordance with the terms of
the Company's charter, the common stock will be validly
issued, fully paid and nonassessable.
We have, with your approval, assumed that the certificates for the
Securities will conform to the forms thereof examined by us, that the signatures
on all documents examined by us are genuine, that all items submitted as
originals are authentic, and that all items submitted as copies conform to the
originals, assumptions which we have not independently verified.
The law covered by this opinion is limited to the present federal
law of the United States, the present corporate law of the State of
California, and the present corporate law of the State of Maryland. In
rendering our opinion as to Maryland law, we have relied upon the opinion of
Ballard Spahr Andrews & Ingersoll, LLP, special counsel to the Company, as to
such matters, with respect to such matters, this opinion is therefore subject
to the qualifications set forth therein. We express no opinion as to the laws of
any other jurisdiction and no opinion regarding the statutes, administrative
decisions, rules or regulations or requirements of any county, municipality
or special political subdivision or other local authority of any jurisdiction.
The Macerich Company, June 7, 1999 - Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm therein.
Respectfully submitted,
/s/ O'MELVENY & MYERS LLP
EXHIBIT 8.1
[O'MELVENY & MYERS LLP LETTERHEAD]]
June 7, 1999
The Macerich Company
401 Wilshire Boulevard, Suite 700
Santa Monica, California 90401
Re: STATUS AS A REAL ESTATE INVESTMENT TRUST ("REIT")
-------------------------------------------------
Ladies and Gentlemen:
You have requested our opinion concerning certain federal income tax
considerations in connection with the registration by The Macerich Company (the
"Company") of 3,627,131 shares of Series A Preferred Convertible Stock, $.01 par
value per share ("Series A Preferred Stock") and 3,627,131 shares of common
stock, $.01 par value per share ("Common Stock" and, together with the Series A
Preferred Stock, the "Securities"), as more fully described in the Registration
Statement on Form S-3 (Registration No. 333-_____) filed with the Securities and
Exchange Commission on June 7, 1999 (the "Registration Statement," which
includes the Prospectus). Capitalized terms used in this letter and not
otherwise defined herein have the meanings assigned to such terms in the
Prospectus.
The opinion set forth in this letter is based on relevant provisions
of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"),
Treasury Regulations thereunder (including proposed and temporary Treasury
Regulations), and interpretations of the foregoing as expressed in court
decisions, administrative determinations, and the legislative history as of the
date hereof. These provisions and interpretations are subject to change, which
may or may not be retroactive in effect, that might result in modifications of
our opinion.
In rendering our opinion we examined such records, certificates,
documents and other materials as we considered necessary or appropriate as a
basis for such opinion, including the following: (1) the Registration Statement
(including the exhibits thereto and all amendments made through the date
hereof), (2) the Amended and Restated Limited Partnership Agreement of The
Macerich Partnership, L.P. (the "Operating Partnership"), (3) the corporate
charter of the Company, as supplemented by Articles Supplementary filed with the
appropriate State of Maryland authorities through the date hereof, (4) the
corporate organizational documents of the three management companies, (5) the
Company's Annual Report on Form 10-K for the year ended December 31, 1998, (6)
the agreements for the partnerships in which the Operating
The Macerich Company, June 7, 1999 - Page 2
Partnership is a partner (the "Property Partnerships") and (7) such other
documents and information provided by you as we deemed relevant to our opinion.
In addition, you have provided us with a certificate (the "Officer's
Certificate"), executed by a duly appointed officer of the Company, as the
corporation which is directly or indirectly serving as (i) the sole corporate
general partner of the Operating Partnership and (ii) a general partner of each
of the Property Partnerships, setting forth certain representations relating to
the formation and operation of the Company and its subsidiaries (including the
Operating Partnership and the Property Partnerships).
For purposes of our opinion, we have not made an independent
investigation of the facts set forth in such documents, the Officer's
Certificate, the partnership agreement for the Operating Partnership, the
partnership agreements for the Property Partnerships, or the Prospectus. We
have, consequently, relied on your respective representations that the
information presented in such documents, or otherwise furnished to us,
accurately and completely describes all material facts relevant to our opinion.
We have also assumed, with your permission, that the opinion of Richards, Layton
& Finger, dated March 16, 1994, as to certain matters of Delaware law relating
to the Lakewood Mall Business Company, a Delaware business trust, continues to
be correct. No facts have come to our attention, however, cause us to question
the accuracy and completeness of such facts, documents, or assumptions in a
material way.
We have also assumed for the purposes of this opinion that the Company
is validly organized and duly incorporated under the laws of the State of
Maryland, that the management companies are validly organized and duly
incorporated under the laws of the State of Delaware, that the Operating
Partnership is a duly organized and validly existing partnership under the laws
of the State of Delaware and that each of the Property Partnerships is a duly
organized and validly existing partnership under the law of its state of
organization.
Based on the foregoing, we are of the opinion that:
1. The Company has qualified for treatment as a real estate
investment trust ("REIT") under the Internal Revenue Code for its taxable years
ended December 31, 1996, December 31, 1997 and December 31, 1998, and the
Company's organization and method of operation will enable it to meet the
requirements for qualification and taxation as a REIT for its taxable year
ending December 31, 1999, and to continue to meet such requirements in each
taxable year thereafter.
2. The discussion in the Prospectus under the heading "FEDERAL
INCOME TAX CONSIDERATIONS," fairly summarizes the federal income tax
considerations that are likely to be material to a holder of Common Stock.
The Company's qualification and taxation as a REIT depends upon the
Company's ability to meet on a continuing basis, through actual annual operating
and other results, the various requirements under the Internal Revenue Code and
described in the
The Macerich Company, June 7, 1999 - Page 3
Prospectus with regard to, among other things, the sources of its gross income,
the composition of its assets, the level of its distributions to stockholders
and the diversity of its stock ownership. O'Melveny & Myers LLP will not review
the Company's compliance with these requirements on a continuing basis.
Accordingly, no assurance can be given that the actual results of the operations
of the Company, the Operating Partnership and their subsidiaries, the sources of
their income, the nature of their assets, the level of the Company's
distributions to stockholders and the diversity of its stock ownership for any
given taxable year will satisfy the requirements under the Internal Revenue Code
for qualification and taxation as a REIT.
For a discussion relating the law to the facts and the legal analysis
underlying the opinion set forth in this letter, we incorporate by reference the
discussion of federal income tax issues, which we assisted in preparing, in the
sections of the Prospectus under the heading "FEDERAL INCOME TAX
CONSIDERATIONS."
Other than as expressly stated above, we express no opinion on any
issue relating to the Company, the Operating Partnership, one or more of the
Property Partnerships or to any investment therein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the use to the name of our firm therein.
Respectfully submitted,
/s/ O'MELVENY & MYERS LLP
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
The Macerich Company on Form S-3 and Form S-8 of our report dated March 17,
1999, on our audits of the consolidated financial statements and financial
statement schedule of The Macerich Company as of December 31, 1998 and 1997 and
for the years ended December 31, 1998, 1997 and 1996, which report is included
in the Annual Report on Form 10-K. We also consent to the reference to us under
the heading "Experts" in such registration statements.
/s/ PricewaterhouseCoopers LLP
June 7, 1999
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Partners
SDG Macerich Properties, L.P.
and
The Board of Directors
The Macerich Company
We consent to incorporation by reference in the registration statements on Form
S-3 of The Macerich Company of our report dated February 11, 1999 relating to
the balance sheet of SDG Macerich Properties, L.P. as of December 31, 1998 and
the related statements of operations, cash flows, and partners' equity for the
year then ended, and the related financial statement schedule, which report
appears in the December 31, 1998 Annual Report on Form 10-K of The Macerich
Company. We also consent to the reference to our firm under the heading
"Experts" in the registration statement.
/s/ KPMG LLP
Indianapolis, Indiana
June 4, 1999
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of The Macerich Company
for the registration of 3,627,131 shares of Series A Cumulative Convertible
Redeemable Preferred Stock and 3,627,131 shares of Common Stock and to the
incorporation by reference therein of our report dated February 24, 1999, with
respect to the combined statement of gross income and direct operating expenses
of the SAFECO Portfolio for the year ended December 31, 1998, included in the
Form 8-K/A of The Macerich Company dated April 21, 1999, filed with the
Securities and Exchange Commission. Such report contains a paragraph that
states that the accompanying combined statement was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission, as described in Note 2, and is not intended to be a complete
presentation of the SAFECO Portfolio's revenue and expenses.
/s/ Ernst & Young LLP
Seattle, Washington
June 7, 1999
