e424b5
The
information in this preliminary prospectus supplement is not
complete and may be changed. This preliminary prospectus
supplement and the accompanying prospectus are not an offer to
sell these securities and we are not soliciting offers to buy
these securities in any jurisdiction where the offer or sale is
not permitted.
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Filed Pursuant to Rule 424(b)(5)
Registration No. 333-167472
SUBJECT TO COMPLETION, DATED
SEPTEMBER 27, 2010
PRELIMINARY PROSPECTUS SUPPLEMENT
(To Prospectus dated June 23, 2010)
8,000,000 Shares
Associated Estates Realty
Corporation
Common Shares
$ per
share
We are offering 8,000,000 of our common shares, without par
value. We have granted the underwriters an option to purchase up
to 1,200,000 additional common shares to cover over-allotments.
Our common shares are listed on the New York Stock Exchange and
the Nasdaq Global Market under the symbol AEC. On
September 24, 2010, the last reported sale price of our
common shares on the New York Stock Exchange was $14.67 per
share and on the Nasdaq Global Market, $14.67 per share.
Subject to certain exceptions, our Second Amended and Restated
Articles of Incorporation restrict ownership of more than 4% of
our common shares in order to protect our status as a real
estate investment trust, or REIT, for federal income tax
purposes. See Description of Common Shares
Restrictions on Ownership in the accompanying prospectus.
Investing in our common shares involves certain risks. See
Risk Factors beginning on
page S-6
of this prospectus supplement and in the reports we file with
the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, incorporated by reference in
this prospectus supplement and the accompanying prospectus, to
read about factors you should consider before buying our common
shares.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus supplement or the
accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
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Per Share
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Total
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Public Offering Price
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$
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$
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Underwriting Discount
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$
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$
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Proceeds, Before Expenses, to Us
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$
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$
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The underwriters expect that the common shares will be ready for
delivery on or about October , 2010.
Joint Book-Running Managers
September , 2010
You should rely only on the information contained in or
incorporated by reference in this prospectus supplement, the
accompanying prospectus and any related free writing prospectus
required to be filed with the Securities and Exchange
Commission, or the SEC. We have not, and the underwriters have
not, authorized anyone to provide you with different
information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not,
and the underwriters are not, making an offer to sell these
securities in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in
this prospectus supplement, the accompanying prospectus, any
such free writing prospectus and the documents incorporated by
reference is accurate only as of their respective dates. Our
business, financial condition, results of operations and
prospects may have changed since those dates.
TABLE OF
CONTENTS
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Page
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Prospectus Supplement
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About This Prospectus Supplement
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S-ii
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Cautionary Statement Regarding Forward-Looking Statements
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S-ii
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Summary
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S-1
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Risk Factors
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S-6
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Use of Proceeds
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S-12
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Supplemental United States Federal Income Tax Considerations
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S-13
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Underwriting
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S-14
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Experts
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S-17
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Legal Matters
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S-17
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Where You Can Find More Information
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S-17
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Incorporation of Certain Documents by Reference
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S-18
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Prospectus
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Cautionary Statement Regarding Forward-Looking Statements
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3
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Risk Factors
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4
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Where You Can Find More Information
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8
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Incorporation of Certain Documents by Reference
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8
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The Company
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10
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Ratio of Earnings to Fixed Charges and Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends
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11
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Use of Proceeds
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11
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Description of Debt Securities
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11
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Description of Common Shares
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21
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Description of Common Share Warrants
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22
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Description of Preferred Shares
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22
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Description of Depositary Shares
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27
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Certain Anti-Take Over Provisions
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31
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Certain Federal Income Tax Considerations
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31
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Plan of Distribution
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46
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Experts
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47
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Legal Matters
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47
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S-i
ABOUT
THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part is this prospectus
supplement, which describes the terms of this offering and also
adds to or updates the information contained in the accompanying
prospectus and the documents incorporated by reference into this
prospectus supplement and the accompanying prospectus. The
second part is the accompanying prospectus, which provides more
general information about our common shares and other securities
that do not pertain to this offering of common shares. To the
extent that the information contained in this prospectus
supplement conflicts with any information in the accompanying
prospectus or any document incorporated by reference, the
information in this prospectus supplement shall control. The
information in this prospectus supplement may not contain all of
the information that is important to you. You should read this
entire prospectus supplement, the accompanying prospectus and
the documents incorporated by reference carefully before
deciding whether to invest in our common shares.
References to we, us, our
and our company in this prospectus supplement and
the accompanying prospectus are to Associated Estates Realty
Corporation and its consolidated subsidiaries, unless the
context otherwise requires.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus
contain or incorporate by reference forward-looking statements
within the meaning of Section 27A of the Securities Act of
1933, or the Securities Act, and Section 21E of the
Securities Exchange Act of 1934, or the Exchange Act. We intend
such forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995. You can
identify forward-looking statements by the use of
forward-looking words, such as expects,
projects, believes, plans,
anticipates, estimates, may,
will or intends or the negative of those
words or similar words. Forward-looking statements involve
inherent risks and uncertainties regarding events, conditions
and financial trends that may affect our future plans of
operation, business strategy, results of operations and
financial position. For a discussion of factors that could cause
actual results to differ from those contemplated in the
forward-looking statements, please see the discussion under
Risk Factors contained in this prospectus supplement
and the reports we file under the Exchange Act, incorporated by
reference in this prospectus supplement and the accompanying
prospectus. We do not undertake any responsibility to update any
of these factors or to announce publicly any revisions to
forward-looking statements, whether as a result of new
information, future events or otherwise.
S-ii
SUMMARY
The following summary may not contain all of the information
that is important to you. You should read this entire prospectus
supplement, the accompanying prospectus and the documents
incorporated by reference carefully before deciding whether to
invest in our common shares. In this prospectus supplement, when
we refer to our same community portfolio for any
particular year, we mean the portfolio of properties that we own
during such year that are stabilized (i.e., properties that we
have owned for at least one year and that have achieved 93%
physical occupancy, but excluding Affordable Housing Properties
and properties that are held for sale). References to our
same community portfolio with regard to different
years should not be interpreted to mean a comparison of the same
group of properties during such different years, but rather a
comparison of the group of properties in our portfolio that were
stabilized in one year compared to the group of properties in
our portfolio that were stabilized in such other year. Other
real estate companies may define same community
portfolio in a different manner.
The
Company
We are a fully-integrated, self-administered and self-managed
REIT specializing in multifamily property management,
development, acquisition, disposition, construction, operation
and ownership activities. As of June 30, 2010, our owned
and non-owned portfolio consisted of 50 apartment communities
containing 12,730 units primarily located in the Midwest,
Mid-Atlantic and Southeast. We operate as a REIT for federal
income tax purposes and own two taxable REIT subsidiaries that
provide asset management and construction services to us and to
third parties.
As of June 30, 2010, our portfolio consisted of:
(i) 49 apartment communities containing 12,472 units
in seven states that are wholly owned, either directly or
indirectly through subsidiaries; (ii) one apartment
community that we manage for a third party owner consisting of
258 units; and (iii) a
186-unit
apartment community and a commercial property containing
approximately 145,000 square feet that we asset manage for
a government sponsored pension fund. (The contract for the asset
management of the
186-unit
apartment community was terminated effective August 31,
2010.)
Our corporate headquarters is located at 1 AEC Parkway, Richmond
Heights, Ohio 44143 and our telephone number is
(216) 261-5000.
Recent
Developments
In September 2010, we completed the acquisition of The
Ashborough, a
504-unit
apartment community located in Ashburn, Virginia, for a purchase
price of approximately $90 million. The property was built
in 2004 and is located in the Eastern Loudoun County submarket.
We also entered into an agreement to purchase an apartment
community located in Dallas, Texas, for a purchase price of
approximately $21 million. The due diligence period with
regards to this agreement has expired, although the acquisition
is subject to satisfaction of customary closing conditions. We
expect that the closing will occur in October 2010. There can be
no assurance that this acquisition will be consummated.
In addition, in July 2010, we entered into an agreement to
purchase a 2.74 acre land parcel and the development rights
for the purpose of developing a
242-unit
apartment community in Nashville, Tennessee. The development
will be owned by a joint venture in which we will have a 90%
ownership interest, and Merit Enterprises, Inc., or Merit, our
wholly owned subsidiary, will act as general contractor for
construction of the development. The acquisition was completed
on September 24, 2010.
Our
Competitive Strengths
Quality Portfolio of Assets in Attractive
Markets. We own a quality portfolio primarily
located in attractive submarkets in major metropolitan areas in
the Midwest, Mid-Atlantic and Southeast. Many of our apartment
communities are located in close proximity to major employment
centers and strong school systems. As of June 30, 2010, our
wholly owned apartment communities had an average age of
16 years. A key focus
S-1
of our acquisition/disposition strategy has been to maintain a
younger portfolio, which generally results in assets requiring
less capital maintenance.
Positive Trends in Operating Performance. From
2005 to June 2010, our same community portfolio (as defined
above) has averaged 94.4% physical occupancy and generated 4.1%
average annual net collected rent growth. Despite the protracted
economic downturn, our physical occupancy for our overall
portfolio remained strong at 96.0% as of June 30, 2010.
Since 2005, we have executed on our strategic plan to dispose of
low margin legacy properties and pursued what we
believed to be a disciplined approach to capital allocation. We
used a portion of the sale proceeds of these dispositions to
acquire assets in the Mid-Atlantic and Southeast markets and to
repay in excess of $200 million of high coupon commercial
mortgage backed securities debt. As of June 30, 2010,
23 of our properties, with a gross book value before
depreciation of approximately $387.2 million, are
unencumbered by mortgages. Those unencumbered properties
generated 33.8% of our property net operating income for the six
months ended June 30, 2010.
Multifamily Operating Platform Focused on Value
Creation. We have developed a leasing and
management platform that is focused on the support of property
level operations and maximizing property net operating income at
each of our apartment communities. Resident-centric programs
include customized, user-friendly property web pages and
portals, credit approval, rent payment, and utility connection
set-up and a
24/7 call
center for leasing and property information. Management systems
include web-based property management software that provides
live financial, unit availability, leasing, procurement and
expense data and a utility management program that bills
residents for trash and water/sewer reimbursements, monitors
rates and tariffs, and serves as a centralized utility payment
processing center.
We believe our operating platform and extensive infrastructure
of personnel, policies and procedures and corporate resources
all focused on site level operations will allow us to
efficiently manage a larger portfolio as we grow.
Experienced Management Team with Aligned
Interests. Our senior management team has over
165 years of collective multifamily experience and an
average of nearly eleven years with our company. We believe that
our senior management teams extensive knowledge of
multifamily operations provides us with a key competitive
advantage. As of June 30, 2010, our senior management team,
directors and members of their respective families collectively
owned approximately 9% of our common shares outstanding, which
we believe better aligns managements interest with those
of our shareholders.
Operating
Strategy and Business Objectives
Acquisition/Disposition. Our
acquisition/disposition strategy has been to purchase properties
outside the Midwest, sell older, low margin legacy
properties located in the Midwest and sell properties in markets
where we only owned a single or few properties. While most of
our property sales have been comprised of Midwest and single
property locations, we continually monitor the profitability of
all of our properties and we will consider opportunistic sales
of properties in any market, including our targeted growth
markets, if we determine that the proceeds from such sales would
provide a greater return on equity and increased cash flow when
invested in other properties or used to reduce debt or
repurchase our shares.
Since 2005, we have sold 31 properties containing a total of
6,923 units including 12 Affordable Housing properties.
Consistent with our strategy to diversify outside the Midwest,
since 2005, we acquired eight properties consisting of
2,939 units in Florida, Georgia and Virginia. We are
aggressively seeking acquisition opportunities.
Property Operations. We operate in many
different markets and submarkets. Each of these markets may have
economic characteristics that differ from other markets, and, as
a result, the degree to which we can increase rents varies
between markets. However, our goal is to maximize property net
operating income in all of our markets through a combination of
increasing net collected rents and by continual efforts to
contain controllable operating expenses. Strategies to increase
rents include constant monitoring of our markets, providing
superior resident service and desirable communities in which to
live, leveraging the power of the
S-2
internet through enhanced property websites, resident portals
and the implementation of programs such as utility and refuse
reimbursements. Our AEC Academy for Career Development provides
training and support for our employees, which helps us to
provide better trained, quality personnel at our communities as
well as minimizes or reduces employee turnover. We attempt to
control operating expenses through strategies such as utilizing
centralized purchasing contracts benefiting multiple properties
and through diligent upkeep and regular maintenance at our
apartment communities.
Financing and Capital. Proceeds received from
new debt, debt refinancing, property sales or equity issuances
are invested based upon the expected return and the impact on
our balance sheet. Reducing overall interest costs and
increasing the number of unencumbered assets have been two of
our principal objectives. During 2007, 2008, 2009 and 2010, we
continued to focus on lowering our cost of debt by financing,
refinancing and defeasing/prepaying debt. Our weighted average
interest rate on our total debt declined 140 basis points
from 7.2% at the end of 2006 to 5.8% at June 30, 2010. Our
interest coverage ratio and fixed charge coverage ratio were
1.75:1 and 1.55:1, respectively, at June 30, 2010, up from
1.54:1 and 1.38:1, respectively, at December 31, 2006.
During 2008, we increased our $100.0 million unsecured
revolving credit facility to $150.0 million. This facility
provides financial flexibility and the opportunity to capitalize
on strategic acquisitions without the delays associated with
financing contingencies. As of June 30, 2010, approximately
$35.0 million was outstanding under our unsecured revolving
credit facility, leaving approximately $115.0 million of
availability under this facility. In addition, we have a credit
facility agreement with Wells Fargo Multifamily Capital, on
behalf of the Federal Home Loan Mortgage Corporation, or Freddie
Mac. Pursuant to the terms of the facility, we have the
potential to borrow up to $100 million over a two-year
period with obligations being secured by nonrecourse, non
cross-collateralized fixed or variable rate mortgages having
terms of five, seven or ten years. In August 2010, we used this
facility to borrow $36.0 million at a fixed rate of 5.1%
for a term of 10 years, leaving $64.0 million of
availability under the terms of this facility.
General Contractor/Construction. Our
subsidiary, Merit, is a general contractor that acts as our
in-house construction division and provides general contracting
and construction management services to third parties.
S-3
Our
Portfolio
The following table presents property operating data for our
portfolio by market and region as of and for the six months
ended June 30, 2010:
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No. of
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Average
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Physical
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Property
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Units
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Age(1)
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Occupancy(2)
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Revenue
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(Dollar amounts in thousands)
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Midwest Properties
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Indiana
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836
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14
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97.8
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%
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$
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4,177
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Michigan
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2,888
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19
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97.3
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%
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12,935
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Ohio Central Ohio
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2,621
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19
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96.4
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%
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12,586
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Ohio Northeastern Ohio
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1,303
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15
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98.9
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%
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7,459
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Total/Average Midwest Properties
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7,648
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18
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97.3
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%
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37,157
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Mid-Atlantic Properties
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Baltimore/Washington
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667
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24
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95.7
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%
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5,114
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Virginia
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804
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4
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96.4
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%
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5,348
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Total/Average Mid-Atlantic Properties
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1,471
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13
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96.1
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%
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10,462
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Southeast Properties
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Florida
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1,272
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11
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95.9
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%
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8,779
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Georgia
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1,717
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15
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94.5
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%
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7,584
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Total/Average Southeast Properties
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2,989
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14
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95.1
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%
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16,363
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Total/Average Same Community
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12,108
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16
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96.6
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%
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63,982
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Acquisition
Properties(3)
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Virginia
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304
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5
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90.8
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%
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625
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Development Properties
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Virginia(4)
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60
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N/A
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N/A
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N/A
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Total/Average Portfolio
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12,472
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16
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96.0
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%
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$
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64,607
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(1) |
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Weighted average age shown in years. |
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(2) |
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Weighted average physical occupancy is as of June 30, 2010. |
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(3) |
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We define acquisition properties as properties which we have
owned for less than one year. |
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(4) |
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Reflects construction of 60 units on land adjacent to River
Forest Apartments in Richmond, Virginia placed in service on
June 30, 2010. |
S-4
The
Offering
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Issuer |
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Associated Estates Realty Corporation |
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Common shares offered by us |
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8,000,000 common shares, without par value (9,200,000 if the
underwriters over-allotment option is exercised in full) |
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Common shares to be outstanding after this offering |
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40,169,761 common shares (41,369,761 common shares if the
underwriters over-allotment option is exercised in
full)(1) |
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Use of proceeds |
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We expect that the net proceeds from this offering will be
approximately $ million after
deducting the underwriting discount and our estimated expenses
(or approximately $ million
if the underwriters over-allotment option is exercised in
full). We intend to use the net proceeds from this offering to
fund property acquisitions, to repay indebtedness and for
general corporate purposes. Pending application for the
foregoing purposes, we intend to use the net proceeds from this
offering to temporarily repay borrowings outstanding under our
unsecured revolving credit facility. |
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Ownership limit |
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Subject to certain exceptions, our Second Amended and Restated
Articles of Incorporation restrict ownership of more than 4% of
our common shares in order to protect our status as a REIT for
federal income tax purposes. See Description of Common
Shares Restrictions on Ownership in the
accompanying prospectus. |
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Listing |
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Our common shares are listed on the New York Stock Exchange and
the Nasdaq Global Market under the symbol AEC. |
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Risk factors |
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An investment in our common shares involves risks, and
prospective investors should carefully consider the matters
discussed under Risk Factors beginning on
page S-6
of this prospectus supplement and the reports we file with the
SEC pursuant to the Exchange Act, incorporated by reference in
this prospectus supplement and the accompanying prospectus,
before making an investment in our common shares. |
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(1) |
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The number of common shares to be outstanding after this
offering is based on 32,169,761 common shares outstanding as of
September 24, 2010 and excludes 751,640 common shares
issuable upon the exercise of outstanding options. |
S-5
RISK
FACTORS
You should carefully consider the risks described below and
the reports we file with the SEC pursuant to the Exchange Act,
incorporated by reference herein, before making an investment in
our common shares. The risks and uncertainties described below
are not the only ones facing our company and there may be
additional risks that we do not presently know of or that we
currently consider immaterial. All of these risks could
adversely affect our business, financial condition, results of
operations and cash flows. As a result, our ability to pay
dividends on, and the market price of, our common shares may be
adversely affected if any of such risks are realized.
Risks
Related to This Offering
The Market Price of Our Common Shares may Fluctuate or
Decline Significantly. The market price of
our common shares may fluctuate or decline significantly in
response to many factors, including those set forth under
Cautionary Statement Regarding Forward-Looking
Statements as well as:
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actual or anticipated changes in operating results or business
prospects;
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changes in earnings estimates by securities analysts;
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an inability to meet or exceed securities analysts
estimates or expectations;
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difficulties or inability to access capital or extend or
refinance existing debt;
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decreasing (or uncertainty in) real estate valuations;
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publication of research reports about us or the real estate
industry;
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changes in analyst ratings or our credit ratings;
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conditions or trends in our industry or sector;
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the performance of other multifamily residential REITs and
related market valuations;
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announcements by us or our competitors of significant
acquisitions, strategic partnerships, divestitures, joint
ventures or other strategic initiatives;
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we impose shareholder ownership limitations that may discourage
a takeover otherwise considered favorable by shareholders;
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hedging or arbitrage trading activity in our common shares;
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actions by institutional shareholders;
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changes in interest rates;
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capital commitments;
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additions or departures of key personnel;
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future sales of our common shares or securities convertible
into, or exchangeable or exercisable for, our common shares;
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the realization of any of the other risk factors included or
incorporated by reference in this prospectus supplement and the
accompanying prospectus; and
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general market and economic conditions.
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This Offering may have a Dilutive Effect on Our Earnings
per Share and Our Funds from Operations per
Share. The issuance of common shares in this
offering may have a dilutive effect on our 2010 earnings per
share and our funds from operations, as adjusted, per share and
could cause the market price of our common shares to decline
significantly.
S-6
There may be Future Dilution of Our Common
Shares. Our board of directors is authorized
under our Second Amended and Restated Articles of Incorporation,
as amended, to, among other things, authorize the issuance of
additional common shares or preferred shares or securities
convertible or exchangeable into equity securities, without
shareholder approval. We may issue such additional equity or
convertible securities to raise additional capital. Holders of
our common shares have no preemptive rights that entitle them to
purchase their pro rata share of any offering of shares of any
class or series and, therefore, such sales or offerings could
result in increased dilution to our shareholders. We cannot
predict the size of future issuances or sales of our common
shares or other related equity securities into the public market
or the effect, if any, that such issuances or sales may have on
the market price of our common shares.
We may Issue Debt and Equity Securities or Securities
Convertible into Equity Securities, Any of Which may be Senior
to Our Common Shares as to Distributions and in
Liquidation. In the future, we may issue
additional debt or equity securities or securities convertible
into or exchangeable for equity securities, or we may enter into
debt-like financing that is unsecured or secured by up to all of
our multifamily apartment communities. Such securities may be
senior to our common shares as to distributions. In addition, in
the event of our liquidation, our lenders and holders of our
debt and preferred securities would receive distributions of our
available assets before distributions to the holders of our
common shares.
Risks
Related to Our Business.
We are Subject to Risks Inherent in the Real Estate
Business and Operation of a REIT. We own and
manage multifamily apartment communities that are subject to
varying degrees of risk generally incident to the ownership of
real estate. Our financial condition, the value of our
properties and our ability to make distributions to our
shareholders will be dependent upon our continued access to the
debt and equity markets and our ability to operate our
properties in a manner sufficient to generate income in excess
of operating expenses and debt service charges, which may be
affected by the following risks, some of which are discussed in
more detail below:
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changes in the economic climate in the markets in which we own
and manage properties, including interest rates, the overall
level of economic activity, the availability of consumer credit
and mortgage financing, unemployment rates and other factors;
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our ability to refinance debt on favorable terms at maturity;
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risks of a lessening of demand for the multifamily units that we
own or manage;
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competition from other available multifamily units and changes
in market rental rates;
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new acquisitions
and/or
development projects may fail to perform in accordance with our
expectations;
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increases in property and liability insurance costs;
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unanticipated increases in real estate taxes and other operating
expenses;
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weather conditions that adversely affect operating expenses;
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expenditures that cannot be anticipated such as utility rate and
usage increases, unanticipated repairs and real estate tax
valuation reassessments or millage rate increases;
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our inability to control operating expenses or achieve increases
in revenue;
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shareholder ownership limitations that may discourage a takeover
otherwise considered favorable by shareholders;
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the results of litigation filed or to be filed against us;
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changes in tax legislation;
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risks of personal injury claims and property damage related to
mold claims that are not covered by our insurance;
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S-7
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catastrophic property damage losses that are not covered by our
insurance;
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our ability to acquire properties at prices consistent with our
investment criteria;
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risks associated with property acquisitions such as failure to
achieve expected results or matters not discovered in due
diligence;
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risks related to the perception of residents and prospective
residents as to the attractiveness, convenience and safety of
our properties or the neighborhoods in which they are
located; and
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construction and construction business risks.
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We are Dependent on Rental Income from Our Multifamily
Apartment Communities. If we are unable to
attract and retain residents or if our residents are unable to
pay their rental obligations, our financial condition and funds
available for distribution to our shareholders may be adversely
affected.
Our Multifamily Apartment Communities are Subject to
Competition. Our apartment communities are
located in developed areas that include other apartment
communities and compete with other housing alternatives, such as
condominiums, single and multifamily rental homes and owner
occupied single and multifamily homes. In certain markets, such
as Florida, failed condominium conversions or properties
originally developed as condominiums are reverting to apartment
rentals, creating increasing competition in those markets.
Foreclosed single family homes that become rental properties
could create additional competition in certain of our markets.
Such competition may affect our ability to attract and retain
residents and to increase or maintain rental rates.
The Properties We Own are Concentrated in Ohio, Michigan,
Georgia, Florida, Virginia, Indiana and
Maryland. As of June 30, 2010,
approximately 32%, 23%, 14%, 10%, 9%, 7% and 5% of the units in
properties we own were located in Ohio, Michigan, Georgia,
Florida, Virginia, Indiana and Maryland, respectively. Our
performance, therefore, is linked to economic conditions and the
market for available rental housing in the
sub-markets
in which we operate. The decline in the market for apartment
housing in the various
sub-markets
in Ohio and Michigan, where 55% of our units are located, or to
a lesser extent the
sub-markets
in the other states, may adversely affect our financial
condition, results of operations and ability to make
distributions to our shareholders.
Our Insurance may not be Adequate to Cover Certain
Risks. There are certain types of risks,
generally of a catastrophic nature, such as earthquakes, floods,
windstorms, acts of war and terrorist attacks that may be
uninsurable, are not economically insurable, or are not fully
covered by insurance. Moreover, certain risks, such as mold and
environmental exposures, generally are not covered by our
insurance. Other risks are subject to various limits, sublimits,
deductibles and self insurance retentions, which help to control
insurance costs, but which may result in increased exposures to
uninsured loss. Any such uninsured loss could have a material
adverse effect on our business, financial condition and results
of operations.
Secured Debt Financing could Adversely Affect Our
Performance. At June 30, 2010, 26 of our
49 properties were encumbered by project specific,
non-recourse, and except for five properties,
non-cross-collateralized mortgage debt. There is a risk that
these properties may not have sufficient cash flow from
operations to pay required principal and interest. We may not be
able to refinance these loans at an amount equal to the loan
balance and the terms of any refinancing may not be as favorable
as the terms of existing indebtedness. If we are unable to make
required payments on indebtedness that is secured by a mortgage,
the property securing the mortgage may be foreclosed with a
consequent loss of income and value to us. Although Fannie Mae
and Freddie Mac continue to provide needed financing and
refinancing credit facilities to qualified borrowers, such as
ourselves, there is no assurance that those facilities will
remain available.
Real Estate Investments are Generally Illiquid, and We may
not be Able to Sell Our Properties When it is Economically or
Strategically Advantageous to do So. Real
estate investments generally cannot be sold quickly, and our
ability to sell properties may be affected by market conditions.
We may not be able to further diversify or vary our portfolio in
accordance with our strategies or in response to economic or
other conditions. In addition, provisions of the Internal
Revenue Code of 1986, as amended, or the Code, limit the ability
of a
S-8
REIT to sell its properties in some situations when it may be
economically advantageous to do so, thereby potentially
adversely affecting our ability to make distributions to our
shareholders.
Unsecured Debt Risks. Our
$150.0 million unsecured revolving credit facility will
mature in March 2011. We are currently in discussion with
our lenders to renew that credit facility. Although current
indications suggest that we will be able to renew the facility
on acceptable terms, no assurance can be given that we will
renew that facility. Moreover, our lack of an investment grade
rating on our debt may hinder or make more costly our access to
the public debt markets.
Litigation may Result in Unfavorable
Outcomes. Like many real estate operators, we
are frequently involved in lawsuits involving premises liability
claims, housing discrimination claims and alleged violations of
landlord-tenant laws, which may give rise to class action
litigation or governmental investigations. Any material
litigation not covered by insurance could result in substantial
costs being incurred.
The Costs of Complying with Laws and Regulations could
Adversely Affect Our Cash Flow. Our
properties must comply with Title III of the Americans with
Disabilities Act, or the ADA, to the extent that they are
public accommodations or commercial
facilities as defined in the ADA. The ADA does not
consider apartment communities to be public accommodations or
commercial facilities, except for portions of such communities
that are open to the public. In addition, the Fair Housing
Amendments Act of 1988 requires apartment communities first
occupied after March 13, 1990 to be accessible to the
handicapped. Other laws also require apartment communities to be
handicap accessible. Noncompliance with these laws could result
in the imposition of fines or an award of damages to private
litigants. We have been subject to lawsuits alleging violations
of handicap design laws in connection with certain of our
developments.
Under various federal, state and local laws, an owner or
operator of real estate may be liable for the costs of removal
or remediation of certain hazardous or toxic substances on,
under or in the property. This liability may be imposed without
regard to whether the owner or operator knew of, or was
responsible for, the presence of the substances. Other laws
impose on owners and operators certain requirements regarding
conditions and activities that may affect human health or the
environment. Failure to comply with applicable requirements
could complicate our ability to lease or sell an affected
property and could subject us to monetary penalties, costs
required to achieve compliance and potential liability to third
parties. We are not aware of any material noncompliance,
liability or claim relating to hazardous or toxic substances or
other environmental matters in connection with any of our
properties. Nonetheless, it is possible that material
environmental contamination or conditions exist, or could arise
in the future in the apartment communities or on the land upon
which they are located.
We are Subject to Risks Associated with Development,
Acquisition and Expansion of Multifamily Apartment
Communities. Development projects,
acquisitions and expansions of apartment communities are subject
to a number of risks, including:
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availability of acceptable financing;
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competition with other entities for investment opportunities;
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failure of such projects, acquisitions or expansions to achieve
anticipated operating results;
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development construction costs exceeding original estimates;
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construction delays; and
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expenditure of funds on, and the devotion of management time and
effort to, transactions that may not come to fruition.
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We Impose Stock Ownership Limitations that may Discourage
a Takeover Otherwise Considered Favorable by
Shareholders. With certain limited
exceptions, our Second Amended and Restated Articles of
Incorporation, as amended and supplemented to date, prohibit the
ownership of more than 4% of our outstanding common shares and
more than 9.8% of the shares of any series of any class of
preferred shares by any person, unless we grant a waiver. Absent
such a waiver, any shares owned in excess of such ownership
limit are subject to repurchase by us and to other consequences
as set forth in our Second Amended and
S-9
Restated Articles of Incorporation, as amended. All common
shares issued by our company are subject to the following
restrictions, whether such shares are in certificated or
uncertificated form:
The Common Shares represented by this certificate are
subject to restrictions on transfer for the purpose of
preserving the Corporations status as a Real Estate
Investment Trust under the Internal Revenue Code of 1986, as
amended. Subject to certain provisions of the Corporations
Second Amended and Restated Articles of Incorporation, as
amended, no Person may Beneficially Own Common Shares in excess
of 4% of the outstanding Common Shares of the Corporation
(unless such Person is an Existing Holder) and no Person (other
than an Existing Holder who Constructively Owns in excess of
9.8% of the Common Shares immediately following the consummation
of the Initial Public Offering) may Constructively Own Common
Shares in excess of 9.8% of the outstanding Common Shares of the
Corporation. Any Person who attempts to Beneficially Own or
Constructively Own Common Shares in excess of the above
limitations must immediately notify the Corporation. All
capitalized terms in this legend have the meanings defined in
the Corporations Second Amended and Restated Articles of
Incorporation, a copy of which, including the restrictions of
transfer, will be sent without charge to each shareholder who so
requests. If the restrictions on transfer are violated, certain
of the Common Shares represented may be subject to repurchase by
the Corporation on the terms and conditions set forth in the
Corporations Second Amended and Restated Articles of
Incorporation, as amended.
Any preferred shares we would issue would be subject to the same
restrictions except for the ownership limit, which instead would
be 9.8%.
We have a Shareholders Rights Plan Which would Delay or
Prevent a Change in Control. We also have a
shareholders rights plan, which may be triggered if any person
or group becomes the beneficial owner of, or announces an offer
to acquire, 15% or more of our common shares. We are domiciled
in the State of Ohio, where various state statutes place certain
restrictions on takeover activity. Our shareholders rights plan
and these restrictions are likely to have the effect of
precluding acquisition of control of us without our consent even
if a change in control is in the interests of shareholders. All
common shares issued by our company include the following
reference to such shareholders rights agreement whether such
shares are in certificated or uncertificated form:
This certificate also evidences and entitles the holder
hereof to certain Rights as set forth in an Second Amended and
Restated Shareholder Rights Agreement between Associated Estates
Realty Corporation, an Ohio corporation (the
Company), and Wells Fargo Shareowner Services, a
division of Wells Fargo Bank, N.A. as rights agent (the
Rights Agent), dated as of December 30, 2008
(as amended, supplemented or otherwise modified from time to
time, the Rights Agreement), the terms of which are
incorporated by reference herein and a copy of which is on file
at the principal offices of the Company and the stock transfer
administration office of the Rights Agent. The Company will mail
a copy of the Rights Agreement without charge to the holder of
this certificate within five days after the receipt of a written
request therefor. Under certain circumstances, as set forth in
the Rights Agreement, the Rights will be evidenced by separate
certificates and will no longer be evidenced by this
certificate. The Company may redeem the Rights at a redemption
price of $0.01 per Right, subject to adjustment, under the terms
of the Rights Agreement. Under certain circumstances, Rights
issued to or held by Acquiring Persons or by any Affiliates or
Associates thereof (as defined in the Rights Agreement), and any
subsequent holder of such Rights, may become null and void. The
Rights are not exercisable, and are void so long as held, by a
holder in any jurisdiction where the requisite qualification to
the issuance to such holder, or the exercise by such holder, of
the Rights in such jurisdiction has not been obtained.
We may Fail to Qualify as a REIT and Our Shareholders may
Incur Tax Liability as a Result. Commencing
with our taxable year ending December 31, 1993, we have
operated in a manner so as to permit us to qualify as a REIT
under the Code, and we intend to continue to operate in such a
manner. Although we believe that we will continue to operate as
a REIT, no assurance can be given that we will remain qualified
as a REIT. If we were to fail to qualify as a REIT in any
taxable year, we would not be allowed a deduction for
distributions to our shareholders in computing our taxable
income and would be subject to federal income tax (including any
applicable alternative minimum tax) on our taxable income at
regular corporate rates. Unless
S-10
we are entitled to relief under certain Code provisions, we also
would be disqualified from treatment as a REIT for the four
taxable years following the year during which REIT qualification
was lost. As a result, the cash available for distribution to
our shareholders could be reduced or eliminated for each of the
years involved.
We are Subject to Control by Our Directors and
Officers. Our directors and executive
officers and members of their respective families owned
approximately 9% of our outstanding common shares as of
June 30, 2010. Accordingly, those persons have substantial
influence over us and the outcome of matters submitted to our
shareholders for approval.
We Depend on Our Key Personnel. Our
success depends to a significant degree upon the continued
contribution of key members of our management team, who may be
difficult to replace. The loss of services of these executives
could have a material adverse effect on us. There can be no
assurance that the services of such personnel will continue to
be available to us. Our Chairman of the Board, President and
Chief Executive Officer, Mr. Jeffrey I. Friedman, is a
party to an employment agreement with us. Other than
Mr. Friedman, we do not have employment agreements with key
personnel. We do not hold key-man life insurance on any of our
key personnel.
We may be Exposed to Construction Business
Risks. Our subsidiary, Merit, is engaged in
the construction business as a general contractor. Inherent
risks of those operations include the following:
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fixed price or guaranteed maximum cost contracts can be
adversely affected by a number of factors that cause actual
results to exceed the cost estimates at the time of original
bid, resulting in increased project costs and possible losses;
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penalties for late completion;
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adverse weather conditions;
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continuing difficulties in the development and construction
industries;
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continuing difficulties in obtaining financing for development
and construction;
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failure of subcontractors to perform as anticipated; and
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bonding indemnification obligations for which the parent company
is responsible.
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S-11
USE OF
PROCEEDS
We expect that the net proceeds from this offering will be
approximately $ million after
deducting the underwriting discount and our estimated expenses
(or approximately $ million
if the underwriters over-allotment option is exercised in
full). We intend to use the net proceeds from this offering to
fund property acquisitions, to repay indebtedness and for
general corporate purposes. Pending application for the
foregoing purposes, we intend to use the net proceeds from this
offering to temporarily repay borrowings outstanding under our
unsecured revolving credit facility. Our unsecured revolving
credit facility has a current interest rate of 1.6% and matures
in March 2011. As of June 30, 2010, approximately
$35.0 million was outstanding under our unsecured revolving
credit facility.
An affiliate of Raymond James & Associates, Inc. is
one of several lenders under our unsecured revolving credit
facility and may receive a pro rata portion of the net proceeds
from this offering used to repay amounts drawn on this facility.
See Underwriting.
S-12
SUPPLEMENTAL
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
This discussion is a supplement to, and is intended to be read
together with, the discussions under the caption Certain
Federal Income Tax Considerations Taxation of
Taxable U.S. Shareholders included in the
accompanying prospectus. This summary is for general information
only and is not tax advice.
Tax Rates. The maximum tax rate for
non-corporate taxpayers for (1) capital gains, including
certain capital gain dividends, is currently
generally 15% (although depending on the characteristics of the
assets which produced these gains and on designations which we
may make, certain capital gain dividends may be taxed at a 25%
rate) and (2) qualified dividend income is
currently generally taxed at a rate of 15%. In general,
dividends payable by REITs are not eligible for the 15% tax rate
on qualified dividend income, except to the extent that certain
holding requirements have been met and the REITs dividends
are attributable to dividends received from taxable corporations
(such as taxable REIT subsidiaries) or to income that was
subject to tax at the corporate/REIT level (for example,
distributed taxable income that a REIT retained and on which it
paid tax in a prior taxable year). The applicable provisions of
the United States federal income tax laws relating to the 15%
tax rate are scheduled to sunset or revert to the
provisions of prior law effective for taxable years beginning
after December 31, 2010, at which time the capital gains
tax rate will be increased to 20% and the rate applicable to
dividends will be increased to the tax rate then applicable to
ordinary income. United States holders that are corporations
may, however, be required to treat up to 20% of some capital
gain dividends as ordinary income.
S-13
UNDERWRITING
Citigroup Global Markets Inc. and Raymond James &
Associates, Inc. are acting as joint book-running managers and
as the representatives of the underwriters named below. Subject
to the terms and conditions stated in the underwriting agreement
dated the date of this prospectus supplement, each underwriter
named below has severally agreed to purchase, and we have agreed
to sell to that underwriter, the number of common shares set
forth opposite the underwriters name.
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Number
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Underwriter
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of Shares
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Citigroup Global Markets Inc.
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Raymond James & Associates, Inc.
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Total
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8,000,000
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The underwriting agreement provides that the obligations of the
underwriters to purchase the common shares included in this
offering are subject to approval of legal matters by counsel and
to other conditions. The underwriters are obligated to purchase
all the common shares (other than those covered by the
over-allotment option described below) if they purchase any of
the common shares.
Common shares sold by the underwriters to the public will
initially be offered at the initial public offering price set
forth on the cover of this prospectus supplement. Any common
shares sold by the underwriters to securities dealers may be
sold at a discount from the initial public offering price not to
exceed $ per share. If all the
common shares are not sold at the initial offering price, the
underwriters may change the offering price and the other selling
terms.
If the underwriters sell more common shares than the total
number set forth in the table above, we have granted to the
underwriters an option, exercisable for 30 days from the
date of this prospectus supplement, to purchase up to 1,200,000
additional common shares at the public offering price less the
underwriting discount. The underwriters may exercise the option
solely for the purpose of covering over-allotments, if any, in
connection with this offering. To the extent the option is
exercised, each underwriter must purchase a number of additional
common shares approximately proportionate to that
underwriters initial purchase commitment. Any common
shares issued or sold under the option will be issued and sold
on the same terms and conditions as the other common shares that
are the subject of this offering.
We and our officers and directors have agreed, subject to
certain exceptions that, for a period of 60 days from the
date of this prospectus supplement, we and they will not,
without the prior written consent of Citigroup Global Markets
Inc., dispose of or hedge any common shares or any securities
convertible into or exchangeable for our common shares.
Citigroup Global Markets Inc. in its sole discretion may release
any of the securities subject to these
lock-up
agreements at any time without notice. Notwithstanding the
foregoing, if (i) during the last 17 days of the
restricted period, we issue an earnings release or material news
or a material event relating to our company occurs, or
(ii) prior to the expiration of the restricted period, we
announce that we will release earnings results during the
16-day
period beginning on the last day of the restricted period, the
restrictions described above shall continue to apply until the
expiration of the
18-day
period beginning on the issuance of the earnings release or the
occurrence of the material news or material event.
The common shares are listed on the New York Stock Exchange and
the Nasdaq Global Market under the symbol AEC.
S-14
The following table shows the underwriting discount that we are
to pay to the underwriters in connection with this offering.
These amounts are shown assuming both no exercise and full
exercise of the underwriters over-allotment option.
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Paid by Us
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No Exercise
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Full Exercise
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Per share
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$
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$
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Total
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$
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$
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We estimate that our expenses in connection with the sale of the
common shares, other than the underwriting discount, will be
$ .
In connection with the offering, the underwriters may purchase
and sell common shares in the open market. Purchases and sales
in the open market may include short sales, purchases to cover
short positions, which may include purchases pursuant to the
over-allotment option, and stabilizing purchases.
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Short sales involve secondary market sales by the underwriters
of a greater number of common shares than they are required to
purchase in the offering.
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Covered short sales are sales of common shares in an
amount up to the number of common shares represented by the
underwriters over-allotment option.
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Naked short sales are sales of common shares in an
amount in excess of the number of common shares represented by
the underwriters over-allotment option.
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Covering transactions involve purchases of common shares either
pursuant to the over-allotment option or in the open market
after the distribution has been completed in order to cover
short positions.
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To close a naked short position, the underwriters must purchase
common shares in the open market after the distribution has been
completed. A naked short position is more likely to be created
if the underwriters are concerned that there may be downward
pressure on the price of the common shares in the open market
after pricing that could adversely affect investors who purchase
in the offering.
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To close a covered short position, the underwriters must
purchase common shares in the open market after the distribution
has been completed or must exercise the over-allotment option.
In determining the source of common shares to close the covered
short position, the underwriters will consider, among other
things, the price of common shares available for purchase in the
open market as compared to the price at which they may purchase
common shares through the over-allotment option.
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Stabilizing transactions involve bids to purchase common shares
so long as the stabilizing bids do not exceed a specified
maximum.
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Purchases to cover short positions and stabilizing purchases, as
well as other purchases by the underwriters for their own
accounts, may have the effect of preventing or retarding a
decline in the market price of the common shares. They may also
cause the price of the common shares to be higher than the price
that would otherwise exist in the open market in the absence of
these transactions. The underwriters may conduct these
transactions on the New York Stock Exchange or the Nasdaq Global
Market, in the
over-the-counter
market or otherwise. If the underwriters commence any of these
transactions, they may discontinue them at any time.
The underwriters have performed commercial banking, investment
banking and advisory services for us from time to time for which
they have received customary fees and reimbursement of expenses.
The underwriters may, from time to time, engage in transactions
with and perform services for us in the ordinary course of their
business for which they may receive customary fees and
reimbursement of expenses. An affiliate of Raymond
James & Associates, Inc. is one of several lenders
under our $150.0 million unsecured revolving credit
facility. To the extent any portion of the net proceeds from
this offering is used to repay amounts drawn on this facility,
this affiliate will receive a pro rata portion of the net
proceeds from this offering.
S-15
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act, or
to contribute to payments the underwriters may be required to
make because of any of those liabilities.
Notice to
Prospective Investors in the European Economic Area
In relation to each member state of the European Economic Area
that has implemented the Prospectus Directive (each, a relevant
member state), with effect from and including the date on which
the Prospectus Directive is implemented in that relevant member
state (the relevant implementation date), an offer of common
shares described in this prospectus supplement may not be made
to the public in that relevant member state prior to the
publication of a prospectus in relation to the common shares
that has been approved by the competent authority in that
relevant member state or, where appropriate, approved in another
relevant member state and notified to the competent authority in
that relevant member state, all in accordance with the
Prospectus Directive, except that, with effect from and
including the relevant implementation date, an offer of common
shares may be offered to the public in that relevant member
state at any time:
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to any legal entity that is authorized or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
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to any legal entity that has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than 43,000,000;
and (3) an annual net turnover of more than
50,000,000, as shown in its last annual or consolidated
accounts;
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to fewer than 100 natural or legal persons (other than qualified
investors, as defined below) subject to obtaining the prior
consent of the representatives for any such offer; or
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in any other circumstances that do not require the publication
of a prospectus pursuant to Article 3 of the Prospectus
Directive.
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Each purchaser of common shares described in this prospectus
supplement located within a relevant member state will be deemed
to have represented, acknowledged and agreed that it is a
qualified investor within the meaning of
Article 2(1)(e) of the Prospectus Directive.
For purposes of this provision, the expression an offer to
the public in any relevant member state means the
communication in any form and by any means of sufficient
information on the terms of the offer and the securities to be
offered so as to enable an investor to decide to purchase or
subscribe for the securities, as the expression may be varied in
that member state by any measure implementing the Prospectus
Directive in that member state, and the expression
Prospectus Directive means Directive 2003/71/EC and
includes any relevant implementing measure in each relevant
member state.
We have not authorized and do not authorize the making of any
offer of common shares through any financial intermediary on our
behalf, other than offers made by the underwriters with a view
to the final sale of the common shares as contemplated in this
prospectus supplement. Accordingly, no purchaser of the common
shares, other than the underwriters, is authorized to make any
further offer of the common shares on our behalf.
Notice to
Prospective Investors in the United Kingdom
This prospectus supplement is only being distributed to, and is
only directed at, persons in the United Kingdom that are
qualified investors within the meaning of Article 2(1)(e)
of the Prospectus Directive that are also (i) investment
professionals falling within Article 19(5) of the Financial
Services and Markets Act 2000 (Financial Promotion) Order 2005
(the Order) or (ii) high net worth entities,
and other persons to whom it may lawfully be communicated,
falling within Article 49(2)(a) to (d) of the Order
(each such person being referred to as a relevant
person). This prospectus supplement and its contents are
confidential and should not be distributed, published or
reproduced (in whole or in part) or disclosed by recipients to
any other persons in the United Kingdom. Any person in the
United Kingdom that is not a relevant person should not act or
rely on this document or any of its contents.
S-16
Notice to
Prospective Investors in France
Neither this prospectus supplement nor any other offering
material relating to the common shares described in this
prospectus supplement has been submitted to the clearance
procedures of the Autorité des Marchés Financiers
or of the competent authority of another member state of the
European Economic Area and notified to the Autorité des
Marchés Financiers. The common shares have not been
offered or sold and will not be offered or sold, directly or
indirectly, to the public in France. Neither this prospectus
supplement nor any other offering material relating to the
common shares has been or will be:
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released, issued, distributed or caused to be released, issued
or distributed to the public in France; or
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used in connection with any offer for subscription or sale of
the common shares to the public in France.
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Such offers, sales and distributions will be made in France only:
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to qualified investors (investisseurs qualifiés)
and/or to a
restricted circle of investors (cercle restreint
dinvestisseurs), in each case investing for their own
account, all as defined in, and in accordance with articles
L.411-2, D.411-1, D.411-2, D.734-1, D.744-1, D.754-1 and D.764-1
of the French Code monétaire et financier;
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to investment services providers authorized to engage in
portfolio management on behalf of third parties; or
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in a transaction that, in accordance with article
L.411-2-II-1°-or-2°-or 3° of the French Code
monétaire et financier and
article 211-2
of the General Regulations (Règlement
Général) of the Autorité des Marchés
Financiers, does not constitute a public offer (appel
public à lépargne).
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The common shares may be resold directly or indirectly, only in
compliance with
articles L.411-1,
L.411-2,
L.412-1 and L.621-8 through L.621-8-3 of the French Code
monétaire et financier.
EXPERTS
The financial statements and managements assessment of the
effectiveness of internal control over financial reporting
(which is included in Managements Report on Internal
Control over Financial Reporting) incorporated in this
prospectus supplement and the accompanying prospectus by
reference to our Annual Report on
Form 10-K
for the year ended December 31, 2009, have been so
incorporated in reliance on the report of PricewaterhouseCoopers
LLP, an independent registered public accounting firm, given on
the authority of said firm as experts in auditing and accounting.
LEGAL
MATTERS
The validity of the common shares offered hereby as well as
certain legal matters described under Certain Federal
Income Tax Considerations in the accompanying prospectus
have been passed upon by Baker & Hostetler LLP,
Cleveland, Ohio. Albert T. Adams, a director of our company, is
a partner of Baker & Hostetler LLP. Certain legal
matters in connection with this offering will be passed upon for
the underwriters by Sidley Austin LLP, New York, New York.
WHERE YOU
CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements
and other information with the SEC. Our SEC filings are
available on the Internet at the SECs website at
http://www.sec.gov.
You may also read and copy any document we file at the
SECs public reference room at 100 F Street,
N.E., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330
for more information on the public reference room and its copy
charges. You may also inspect our SEC reports and other
information at the New York Stock Exchange, 20 Broad
Street, New York, New York 10005. We also maintain a website at
http://www.AssociatedEstates.com.
Please note that all references to
http://www.AssociatedEstates.com
in this prospectus supplement and the accompanying
S-17
prospectus are inactive textual references only and that the
information contained on our website is not incorporated by
reference into this prospectus supplement or the accompanying
prospectus.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
Information that we have previously filed with the SEC can be
incorporated by reference into this prospectus
supplement and the accompanying prospectus. The process of
incorporation by reference allows us to disclose important
information to you without duplicating that information in this
prospectus supplement and the accompanying prospectus. The
information we incorporate by reference is considered a part of
this prospectus supplement and the accompanying prospectus. The
information in this prospectus supplement and the accompanying
prospectus, including any information that we incorporate by
reference, will be updated and superseded automatically by our
filings with the SEC after the date of this prospectus
supplement and the accompanying prospectus and prior to our sale
of the common shares covered by this prospectus supplement. We
are incorporating by reference the filed information contained
in documents listed below:
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(a)
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Our Annual Report on
Form 10-K
for the year ended December 31, 2009;
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(b)
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Our Quarterly Reports on
Form 10-Q
for the quarters ended March 31, 2010 and June 30,
2010;
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(c)
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Our Current Reports on
Form 8-K
filed with the SEC on February 4, 2010, May 5, 2010,
August 10, 2010 and September 21, 2010; and
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(d)
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The description of our common shares contained in our
Form 8-A
dated October 14, 1993.
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We are also incorporating by reference any filed information in
filings we make with the SEC pursuant to Sections 13(a),
13(c), 14, or 15(d) of the Exchange Act after the date of this
prospectus supplement and prior to our sale of the common shares
covered by this prospectus supplement.
We will furnish without charge to each person (including any
beneficial owner) to whom a prospectus supplement is delivered,
upon written or oral request, a copy of any or all of the
foregoing documents incorporated herein by reference (other than
certain exhibits). Requests for such documents should be made to:
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Mail:
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Associated Estates Realty Corporation
Attention: Investor Relations
1 AEC Parkway
Richmond Heights, Ohio 44143
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Telephone:
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216-261-5000
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Website:
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http://www.AssociatedEstates.com
(select Contact AEC option)
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S-18
PROSPECTUS
$500,000,000
Associated Estates Realty
Corporation
Debt Securities, Preferred
Shares,
Depositary Shares, Common
Shares and
Common Share Warrants
Associated Estates Realty Corporation (the Company)
may from time to time offer and sell in one or more offerings
(i) one or more series of its unsecured debt securities
(the Debt Securities) (ii) whole or fractional
preferred shares (collectively, Preferred Shares)
(iii) Preferred Shares represented by depositary shares
(Depositary Shares), (iv) common shares,
without par value (Common Shares), or
(v) warrants to purchase Common Shares (Common Share
Warrants), with an aggregate public offering price of up
to $500,000,000, on terms to be determined at the time or times
of offering. The Debt Securities, Preferred Shares, Depositary
Shares, Common Shares and Common Share Warrants (collectively,
the Offered Securities) may be offered, separately
or together, in separate classes or series, in amounts, at
prices and on terms to be set forth in a supplement to this
Prospectus (a Prospectus Supplement).
The specific terms of the Offered Securities to which this
Prospectus relates will be set forth in the applicable
Prospectus Supplement and will include, when applicable:
(i) in the case of Debt Securities, the specific title,
aggregate principal amount, currency, form (which may be
registered or bearer, or certificated or global), authorized
denominations, maturity, rate (or manner of calculation thereof)
and time of payment of interest, terms for redemption at the
option of the Company or repayment at the option of the holder
thereof, terms for sinking fund payments, terms for conversion
into Preferred Shares or Common Shares, and any initial public
offering price; (ii) in the case of Preferred Shares, the
specific class, series, title and stated value, any dividend,
liquidation, redemption, conversion, voting and other rights,
and any initial public offering price; (iii) in the case of
Depositary Shares, the whole or fractional Preferred Shares
represented by each such Depositary Share; (iv) in the case
of Common Shares, any initial public offering price; and
(v) in the case of Common Share Warrants, the duration,
offering price, exercise price and detachability features. In
addition, such specific terms may include limitations on direct
or beneficial ownership and restrictions on transfer of the
Offered Securities, in each case as may be appropriate to
preserve the status of the Company as a real estate investment
trust (REIT) for federal income tax purposes.
The applicable Prospectus Supplement will also contain
information, when applicable, about certain United States
federal income tax considerations relating to, and any listing
on a securities exchange of, the Offered Securities covered by
that Prospectus Supplement.
The Offered Securities may be offered directly, through agents
designated from time to time by the Company, or to or through
underwriters or dealers. If any agents or underwriters are
involved in the sale of any of the Offered Securities, their
names and any applicable purchase price, fee, commission or
discount arrangement will be set forth in or will be calculable
from the information set forth in the applicable Prospectus
Supplement. No Offered Securities may be sold without delivery
of the applicable Prospectus Supplement describing the method
and terms of the offering of those Offered Securities. See
Plan of Distribution for possible indemnification
arrangements with underwriters, dealers and agents.
These securities have not been approved or disapproved by the
Securities and Exchange Commission or any state securities
commission nor has the Securities and Exchange Commission or any
state securities commission passed upon the accuracy or adequacy
of this Prospectus. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is June 23, 2010
S-0.1
No person has been authorized to give any information or to
make any representations in connection with this offering other
than those contained or incorporated by reference in this
Prospectus or an applicable Prospectus Supplement and, if given
or made, such information or representations must not be relied
upon as having been authorized by the company or any
underwriter, dealer or agent. This Prospectus and any applicable
Prospectus Supplement do not constitute an offer to sell or a
solicitation of an offer to buy any securities offered hereby in
any jurisdiction to any person to whom it is unlawful to make
such offer or solicitation in such jurisdiction. Neither the
delivery of this Prospectus or any Prospectus Supplement nor any
sale made hereunder shall under any circumstances create any
implication that there has been no change in the affairs of the
company since the date hereof or thereof.
TABLE OF
CONTENTS
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Page
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
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3
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RISK FACTORS
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4
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WHERE YOU CAN FIND MORE INFORMATION
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8
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
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8
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THE COMPANY
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10
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RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
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11
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USE OF PROCEEDS
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11
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DESCRIPTION OF DEBT SECURITIES
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11
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DESCRIPTION OF COMMON SHARES
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21
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DESCRIPTION OF COMMON SHARE WARRANTS
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22
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DESCRIPTION OF PREFERRED SHARES
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22
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DESCRIPTION OF DEPOSITARY SHARES
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27
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CERTAIN ANTI-TAKEOVER PROVISIONS
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31
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
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31
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PLAN OF DISTRIBUTION
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46
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EXPERTS
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47
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LEGAL MATTERS
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47
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2
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus and the documents incorporated by reference
herein contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. We
intend such forward-looking statements to be covered by the safe
harbor provisions for forward-looking statements contained in
the Private Securities Litigation Reform Act of 1995. You can
identify forward-looking statements by the use of
forward-looking words, such as expects,
projects, believes, plans,
anticipates, estimates, may,
will or intends or the negative of those
words or similar words. Forward-looking statements involve
inherent risks and uncertainties regarding events, conditions
and financial trends that may affect our future plans of
operation, business strategy, results of operations and
financial position. For a discussion of factors that could cause
actual results to differ from those contemplated in the
forward-looking statements, please see the discussion under
Risk Factors contained in this Prospectus and in
other information contained in our publicly available filings
with the Securities and Exchange Commission, including our
Annual Report on
Form 10-K
for the year ended December 31, 2009 and other reports we
file under the Securities Exchange Act of 1934. We do not
undertake any responsibility to update any of these factors or
to announce publicly any revisions to forward-looking
statements, whether as a result of new information, future
events or otherwise.
3
RISK
FACTORS
You should carefully consider the risks described
below and the documents we file with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934,
incorporated by reference herein, before making an investment
decision in our company. The risks and uncertainties described
below are not the only ones facing our company and there may be
additional risks that we do not presently know of or that we
currently consider immaterial. All of these risks could
adversely affect our business, financial condition, results of
operations and cash flows. As a result, our ability to pay
dividends on, and the market price of, our equity securities may
be adversely affected if any of such risks are realized.
We are subject to risks inherent in the real estate business
and operation of a REIT. We own and manage
multifamily apartment communities that are subject to varying
degrees of risk generally incident to the ownership of real
estate. Our financial condition, the value of our properties and
our ability to make distributions to our shareholders will be
dependent upon our continued access to the debt and equity
markets and our ability to operate our properties in a manner
sufficient to generate income in excess of operating expenses
and debt service charges, which may be affected by the following
risks, some of which are discussed in more detail below:
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changes in the economic climate in the markets in which we own
and manage properties, including interest rates, the overall
level of economic activity, the availability of consumer credit
and mortgage financing, unemployment rates and other factors;
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our ability to refinance debt on favorable terms at maturity;
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risks of a lessening of demand for the multifamily units that we
own or manage;
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competition from other available multifamily units and changes
in market rental rates;
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new acquisitions
and/or
development projects may fail to perform in accordance with our
expectations;
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increases in property and liability insurance costs;
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unanticipated increases in real estate taxes and other operating
expenses;
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weather conditions that adversely affect operating expenses;
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expenditures that cannot be anticipated such as utility rate and
usage increases, unanticipated repairs and real estate tax
valuation reassessments or millage rate increases;
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our inability to control operating expenses or achieve increases
in revenue;
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shareholder ownership limitations that may discourage a takeover
otherwise considered favorable by shareholders;
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the results of litigation filed or to be filed against us;
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changes in tax legislation;
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risks of personal injury claims and property damage related to
mold claims that are not covered by our insurance;
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catastrophic property damage losses that are not covered by our
insurance;
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our ability to acquire properties at prices consistent with our
investment criteria;
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risks associated with property acquisitions such as failure to
achieve expected results or matters not discovered in due
diligence;
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risks related to the perception of residents and prospective
residents as to the attractiveness, convenience and safety of
our properties or the neighborhoods in which they are
located; and
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construction and construction business risks.
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4
We are dependent on rental income from our multifamily
apartment communities. If we are unable to
attract and retain residents or if our residents are unable to
pay their rental obligations, our financial condition and funds
available for distribution to our shareholders may be adversely
affected.
Our multifamily apartment communities are subject to
competition. Our apartment communities are
located in developed areas that include other apartment
communities and compete with other housing alternatives, such as
condominiums, single and multifamily rental homes and owner
occupied single and multifamily homes. In certain markets, such
as Florida, failed condominium conversions or properties
originally developed as condominiums are reverting to apartment
rentals, creating increasing competition in those markets.
Moreover, rentals resulting from home bank foreclosures may
create additional competition in certain of our markets. Such
competition may affect our ability to attract and retain
residents and to increase or maintain rental rates.
The properties we own are concentrated in Ohio, Michigan,
Georgia, Florida, Virginia, Indiana and
Maryland. As of June 4, 2010, approximately
32%, 23%, 14%, 10%, 9%, 7% and 5% of the units in properties we
own were located in Ohio, Michigan, Georgia, Florida, Virginia,
Indiana and Maryland, respectively. Our performance, therefore,
is linked to economic conditions and the market for available
rental housing in the
sub-markets
in which we operate. The decline in the market for apartment
housing in the various
sub-markets
in Ohio and Michigan, where 55% of our units are located, or to
a lesser extent the
sub-markets
in the other states, may adversely affect our financial
condition, results of operations and ability to make
distributions to our shareholders.
Our insurance may not be adequate to cover certain
risks. There are certain types of risks,
generally of a catastrophic nature, such as earthquakes, floods,
windstorms, acts of war and terrorist attacks that may be
uninsurable, are not economically insurable, or are not fully
covered by insurance. Moreover, certain risks, such as mold and
environmental exposures, generally are not covered by our
insurance. Other risks are subject to various limits, sublimits,
deductibles and self insurance retentions, which help to control
insurance costs, but which may result in increased exposures to
uninsured loss. Any such uninsured loss could have a material
adverse effect on our business, financial condition and results
of operations.
Secured debt financing could adversely affect our
performance. At June 4, 2010, 26 of our 49
properties were encumbered by project specific, non-recourse,
and except for five properties, non-cross-collateralized
mortgage debt. There is a risk that these properties may not
have sufficient cash flow from operations to pay required
principal and interest. We may not be able to refinance these
loans at an amount equal to the loan balance and the terms of
any refinancing may not be as favorable as the terms of existing
indebtedness. If we are unable to make required payments on
indebtedness that is secured by a mortgage, the property
securing the mortgage may be foreclosed with a consequent loss
of income and value to us. Although Fannie Mae and Freddie Mac
continue to provide needed financing and refinancing credit
facilities to qualified borrowers, such as ourselves, there is
no assurance that those facilities will remain available.
Unsecured debt risks. Our $150 million
unsecured credit facility will mature in March 2011. We are
currently in discussions with our lenders to renew that credit
facility at the expiration of its current term. Although current
indications suggest that we will be able to renew that facility
on favorable terms, no assurance can be given that we will be
able to renew that facility and whether the terms of any such
renewal will be at least as favorable as those under the current
facility. Moreover, the Companys not having an investment
grade rating may hinder or make more costly its access to public
debt markets.
Real estate investments are generally illiquid, and we may
not be able to sell our properties when it is economically or
strategically advantageous to do so. Real estate
investments generally cannot be sold quickly, and our ability to
sell properties may be affected by market conditions. We may not
be able to further diversify or vary our portfolio in accordance
with our strategies or in response to economic or other
conditions. In addition, provisions of the Internal Revenue Code
of 1986, as amended, or the Code, limit the ability of a REIT to
sell its properties in some situations when it may be
economically advantageous to do so, thereby potentially
adversely affecting our ability to make distributions to our
shareholders.
5
Litigation may result in unfavorable
outcomes. Like many real estate operators, we are
frequently involved in lawsuits involving premises liability
claims, housing discrimination claims and alleged violations of
landlord-tenant laws, which may give rise to class action
litigation or governmental investigations. Any material
litigation not covered by insurance could result in substantial
costs being incurred.
The costs of complying with laws and regulations could
adversely affect our cash flow. Our properties
must comply with Title III of the Americans with
Disabilities Act, or the ADA, to the extent that they are
public accommodations or commercial
facilities as defined in the ADA. The ADA does not
consider apartment communities to be public accommodations or
commercial facilities, except for portions of such communities
that are open to the public. In addition, the Fair Housing
Amendments Act of 1988, or the FHAA, requires apartment
communities first occupied after March 13, 1990 to be
accessible to the handicapped. Other laws also require apartment
communities to be handicap accessible. Noncompliance with these
laws could result in the imposition of fines or an award of
damages to private litigants. We have been subject to lawsuits
alleging violations of handicap design laws in connection with
certain of our developments.
Under various federal, state and local laws, an owner or
operator of real estate may be liable for the costs of removal
or remediation of certain hazardous or toxic substances on,
under or in the property. This liability may be imposed without
regard to whether the owner or operator knew of, or was
responsible for, the presence of the substances. Other laws
impose on owners and operators certain requirements regarding
conditions and activities that may affect human health or the
environment. Failure to comply with applicable requirements
could complicate our ability to lease or sell an affected
property and could subject us to monetary penalties, costs
required to achieve compliance and potential liability to third
parties. We are not aware of any material noncompliance,
liability or claim relating to hazardous or toxic substances or
other environmental matters in connection with any of our
properties. Nonetheless, it is possible that material
environmental contamination or conditions exist, or could arise
in the future in the apartment communities or on the land upon
which they are located.
We are subject to risks associated with development,
acquisition and expansion of multifamily apartment
communities. Development projects, acquisitions
and expansions of apartment communities are subject to a number
of risks, including:
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availability of acceptable financing;
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competition with other entities for investment opportunities;
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Failure of such projects, acquisitions or expansions to achieve
anticipated operating results;
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Development construction costs exceeding original estimates;
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construction delays; and
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expenditure of funds on, and the devotion of management time and
effort to, transactions that may not come to fruition.
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We impose stock ownership limitations that may discourage a
takeover otherwise considered favorable by
shareholders. With certain limited exceptions,
our Second Amended and Restated Articles of Incorporation, as
amended and supplemented to date, prohibit the ownership of more
than 4% of our outstanding common shares and more than 9.8% of
the shares of any series of any class of our preferred shares by
any person, unless we grant a waiver. Absent such a waiver, any
shares owned in excess of such ownership limit are subject to
repurchase by us and to other consequences as set forth in our
Second Amended and Restated Articles of Incorporation. All
shares of stock issued by our company are subject to the
following restrictions, whether such shares are in certificated
or uncertificated form:
The Common Shares represented by this certificate are
subject to restrictions on transfer for the purpose of
preserving the Corporations status as a Real Estate
Investment Trust under the Internal Revenue Code of 1986, as
amended. Subject to certain provisions of the Corporations
Second Amended and Restated Articles of Incorporation, no Person
may Beneficially Own Common Shares in excess of 4% of the
outstanding Common Shares of the Corporation (unless such Person
is an Existing Holder) and
6
no Person (other than an Existing Holder who Constructively Owns
in excess of 9.8% of the Common Shares immediately following the
consummation of the Initial Public Offering) may Constructively
Own Common Shares in excess of 9.8% of the outstanding Common
Shares of the Corporation. Any Person who attempts to
Beneficially Own or Constructively Own Common Shares in excess
of the above limitations must immediately notify the
Corporation. All capitalized terms in this legend have the
meanings defined in the Corporations Second Amended and
Restated Articles of Incorporation, a copy of which, including
the restrictions of transfer, will be sent without charge to
each shareholder who so requests. If the restrictions on
transfer are violated, certain of the Common Shares represented
may be subject to repurchase by the Corporation on the terms and
conditions set forth in the Corporations Second Amended
and Restated Articles of Incorporation.
We have a shareholders rights plan which would delay or
prevent a change in control. We have a
shareholders rights plan, which may be triggered if any person
or group becomes the beneficial owner of, or announces an offer
to acquire, 15% or more of our common shares. We are domiciled
in the State of Ohio, where various state statutes place certain
restrictions on takeover activity. Our shareholders rights plan
and these restrictions are likely to have the effect of
precluding acquisition of control of us without our consent even
if a change in control is in the interests of shareholders. All
shares of stock issued by our company include the following
reference to such shareholders rights agreement whether such
shares are in certificated or uncertificated form:
This certificate also evidences and entitles the holder
hereof to certain Rights as set forth in a Second Amended and
Restated Shareholder Rights Agreement between Associated Estates
Realty Corporation, an Ohio corporation (the
Company), and Wells Fargo Shareowner Services, a
division of Wells Fargo Bank, N.A. as rights agent (the
Rights Agent), dated as of December 30, 2008
(as amended, supplemented or otherwise modified from time to
time, the Rights Agreement), the terms of which are
incorporated by reference herein and a copy of which is on file
at the principal offices of the Company and the stock transfer
administration office of the Rights Agent. The Company will mail
a copy of the Rights Agreement without charge to the holder of
this certificate within five days after the receipt of a written
request therefore. Under certain circumstances, as set forth in
the Rights Agreement, the Rights will be evidenced by separate
certificates and will no longer be evidenced by this
certificate. The Company may redeem the Rights at a redemption
price of $0.01 per Right, subject to adjustment, under the terms
of the Rights Agreement. Under certain circumstances, Rights
issued to or held by Acquiring Persons or by any Affiliates or
Associates thereof (as defined in the Rights Agreement), and any
subsequent holder of such Rights, may become null and void. The
Rights are not exercisable, and are void so long as held, by a
holder in any jurisdiction where the requisite qualification to
the issuance to such holder, or the exercise by such holder, of
the Rights in such jurisdiction has not been obtained.
We may fail to qualify as a REIT and may incur tax liability
as a result. Commencing with our taxable year
ending December 31, 1993, we have operated in a manner so
as to permit us to qualify as a REIT under the Code, and we
intend to continue to operate in such a manner. Although we
believe that we will continue to operate as a REIT, no assurance
can be given that we will remain qualified as a REIT. If we were
to fail to qualify as a REIT in any taxable year, we would not
be allowed a deduction for distributions to our shareholders in
computing our taxable income and would be subject to federal
income tax (including any applicable alternative minimum tax) on
our taxable income at regular corporate rates. Unless we are
entitled to relief under certain Code provisions, we also would
be disqualified from treatment as a REIT for the four taxable
years following the year during which REIT qualification was
lost. As a result, the cash available for distribution to our
shareholders could be reduced or eliminated for each of the
years involved.
We are subject to control by our directors and
officers. Our directors and executive officers
and some members of their respective families owned
approximately 9% of our outstanding common shares as of
June 4, 2010. Accordingly, those persons have substantial
influence over us and the outcome of matters submitted to our
shareholders for approval.
We depend on our key personnel. Our success
depends to a significant degree upon the continued contribution
of key members of our management team, who may be difficult to
replace. The loss of services
7
of these executives could have a material adverse effect on us.
There can be no assurance that the services of such personnel
will continue to be available to us. Our Chairman of the Board,
President and Chief Executive Officer, Mr. Jeffrey I.
Friedman, is a party to an employment agreement with us. Other
than Mr. Friedman, we do not have employment agreements
with key personnel. We do not hold key-man life insurance on any
of our key personnel.
We may be exposed to construction business
risks. Our subsidiary, Merit, is engaged in the
construction business as a general contractor. Inherent risks of
those operations include the following:
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fixed price contracts can be adversely affected by a number of
factors that cause actual results to exceed the cost estimates
at the time of original bid, resulting in increased project
costs and possible losses;
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penalties for late completion;
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adverse weather conditions;
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continuing difficulties in the development and construction
industries;
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continuing difficulties in obtaining financing for development
and construction;
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failure of subcontractors to perform as anticipated; and
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bonding indemnification obligations for which the parent company
is responsible.
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WHERE YOU
CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements
and other information with the SEC. Our SEC filings are
available on the Internet at the SECs website at
http://www.sec.gov.
You may also read and copy any document we file at the
SECs public reference room at 100 F Street,
N.E., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330
for more information on the public reference room and its copy
charges. You may also inspect our SEC reports and other
information at the New York Stock Exchange, 20 Broad
Street, New York, New York 10005. We also maintain a website at
http://www.AssociatedEstates.com.
Please note that all references to
http://www.AssociatedEstates.com
in this Prospectus are inactive textual references only and that
the information contained on our website is not incorporated by
reference into this Prospectus.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
Information that we have previously filed with the SEC can be
incorporated by reference into this Prospectus. The
process of incorporation by reference allows us to disclose
important information to you without duplicating that
information in this Prospectus. The information we incorporate
by reference is considered a part of this Prospectus. The
information in this Prospectus, including any information that
we incorporate by reference, will be updated and superseded
automatically by our filings with the SEC after the date of this
Prospectus. We are incorporating by reference the filed
information contained in the documents listed below:
(a) Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009;
(b) Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2010;
(c) Current Reports on
Form 8-K
filed with the SEC on February 4, 2010 and May 5,
2010; and
(d) The description of the Companys Common Shares
contained in the Companys
Form 8-A
dated October 14, 1993.
We are also incorporating by reference any filings we make with
the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Offered
Securities.
8
We will furnish without charge to each person (including any
beneficial owner) to whom a Prospectus is delivered, upon
written or oral request, a copy of any or all of the foregoing
documents incorporated herein by reference (other than certain
exhibits). Requests for such documents should be made to:
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Mail:
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Associated Estates Realty Corporation
Attention: Investor Relations
1 AEC Parkway
Richmond Heights, Ohio 44143
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Telephone:
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216-261-5000
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Website:
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http://www.AssociatedEstates.com
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(under Investors select Contact Info
option)
9
THE
COMPANY
We are a fully-integrated, self-administered and self-managed
REIT specializing in multifamily property management, advisory,
development, acquisition, disposition, construction, operation
and ownership activities. As of June 4, 2010, our owned and
non-owned portfolio consisted of 50 apartment communities
containing 12,670 units located in the Midwest,
Mid-Atlantic and Southeast. We operate as a REIT for federal
income tax purposes and own two taxable REIT subsidiaries that
provide asset management and construction services to us and to
third parties.
As of June 4, 2010, our portfolio consisted of: (i) 49
apartment communities containing 12,412 units in seven
states that are wholly owned, either directly or indirectly
through subsidiaries; (ii) one apartment community that we
manage for a third party owner consisting of 258 units; and
(iii) a
186-unit
apartment community and a commercial property containing
approximately 145,000 square feet that we asset manage for
a government sponsored pension fund.
Our corporate headquarters is located at 1 AEC Parkway, Richmond
Heights, Ohio 44143 and our telephone number is
(216) 261-5000.
The foregoing information concerning us does not purport to be
comprehensive. For additional information concerning our
business and affairs, including capital requirements and
external financing plans, pending legal and regulatory
proceedings and descriptions of certain laws and regulations to
which we may be subject, please refer to the documents
incorporated by reference into this Prospectus.
10
RATIO OF
EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Our ratio of earnings to fixed charges for the three month
period ended March 31, 2010 and the fiscal years ended
December 31, 2009, December 31, 2008,
December 31, 2007, December 31, 2006 and
December 31, 2005 were as follows:
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Time Period
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Ratio
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December 31, 2005
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0.66
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December 31, 2006
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0.56
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December 31, 2007
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0.65
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December 31, 2008
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0.72
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December 31, 2009
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0.73
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Three month period ended March 31, 2010
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0.65
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Our ratio of earnings to combined fixed charges and preferred
stock dividends for the three month period ended March 31,
2010 and the fiscal years ended December 31, 2009,
December 31, 2008, December 31, 2007,
December 31, 2006 and December 31, 2005 were as
follows:
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Time Period
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Ratio
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December 31, 2005
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0.59
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December 31, 2006
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0.51
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December 31, 2007
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0.59
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December 31, 2008
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0.64
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December 31, 2009
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0.65
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Three month period ended March 31, 2010
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0.58
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For purposes of computing these ratios, earnings have been
calculated by adding fixed charges (excluding capitalized
interest) to income from continuing operations before taxes and
extraordinary items. Fixed charges consist of preferred
dividends accrued, interest costs, whether expensed or
capitalized, the interest component of rental expense, the
interest component of ground rent and the amortization of debt
discounts and issue costs, whether expensed or capitalized.
During the three months ended March 31, 2010 and the twelve
months ended December 31, 2009, 2008, 2007, 2006, and 2005,
the total dollar amount of the deficiency in the ratio of
earnings to fixed charges was $2.9 million,
$9.4 million, $11.1 million, $14.5 million,
$24.6 million and $14.8 million, respectively. During
the three months ended March 31, 2010 and the twelve months
ended December 31, 2009, 2008, 2007, 2006, and 2005, the
total dollar amount of the deficiency in the ratio of earnings
to combined fixed charges and preferred dividends was
$3.9 million, $13.6 million, $15.7 million,
$19.4 million, $29.6 million and $19.9 million,
respectively.
USE OF
PROCEEDS
Unless otherwise described in the applicable Prospectus
Supplement, the Company intends to use the net proceeds from the
sale of the Offered Securities for general corporate purposes,
which may include the acquisition of properties, the expansion
and improvement of certain properties in the Companys
portfolio and the repayment of indebtedness.
DESCRIPTION
OF DEBT SECURITIES
The Company may issue Debt Securities under an indenture (the
Indenture) to be entered into between the Company
and a trustee to be named. A supplemental indenture entered into
at the time of an offering will describe the specific terms of
each series of Debt Securities to be offered and together with
the Indenture will constitute the Indenture governing such Debt
Securities. The specific terms of Debt Securities offered by any
prospectus supplement will be detailed in such prospectus
supplement.
11
The following is a summary of certain general provisions of the
Indenture and does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all provisions
of the Indenture, supplemental indentures and the Debt
Securities. We have filed the form of Indenture with the SEC as
an exhibit to our registration statement, of which this
prospectus is a part, and you should read the Indenture for
provisions that may be important to you. See Where You Can
Find More Information above for information on how to
obtain a copy of the form of Indenture.
Capitalized terms used but not otherwise defined herein will
have the meanings ascribed to them in the Indenture.
General
The Debt Securities will be direct, unsecured obligations of the
Company. The Indenture provides that the Debt Securities issued
thereunder may be issued without limit as to aggregate principal
amount, in one or more series, in each case as established from
time to time in or pursuant to authority granted by a resolution
of the Board of Directors of the Company or as established in
one or more indentures supplemental to the Indenture. All Debt
Securities of one series need not be issued at the same time
and, unless otherwise provided, a series may be reopened,
without the consent of the holders of the Debt Securities of
such series, for issuances of additional Debt Securities of such
series. Any Trustee under the Indenture may resign or be removed
with respect to one or more series of Debt Securities issued
under the Indenture, and a successor Trustee may be appointed to
act with respect to such series.
Reference is made to each Prospectus Supplement for the specific
terms of the series of Debt Securities being offered thereby,
which will include some or all of the following:
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the title of the series;
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any limit on the total principal amount of the Debt Securities
of the same series;
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the Person to whom any interest on a series of Debt Securities
is payable, if other than the Person to whom the Debt Security
is registered;
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the date or dates on which principal is payable;
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the rate or rates at which any series of Debt Securities shall
bear interest; the date or dates from which interest accrues;
the interest payment dates; and the record date for any such
interest payable;
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if the Debt Security is a floating rate debt security, the
interest rate basis; any applicable index currency or index
maturity, spread or spread multiplier or initial base rate,
maximum rate or minimum rate; the interest reset, determination,
calculation and payment dates; the day count convention used to
calculate interest payments for any period; the business day
convention; and the calculation agent;
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if the Debt Security is an indexed debt security, the principal
amount, if any, we will pay at maturity, interest payment dates,
the amount of interest, if any, we will pay on an interest
payment date or the formula we will use to calculate these
amounts, if any, and the terms on which the Debt Security will
be exchangeable for or payable in cash, securities or other
property;
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if the Debt Security may be converted into or exercised or
exchanged for Common Shares, Preferred Shares or other
securities of the Company or debt or equity securities of one or
more third parties (and/or cash in lieu of such securities), the
terms on which conversion, exercise or exchange may occur,
including whether conversion, exercise or exchange is mandatory,
at the option of the holder or at our option, the period during
which conversion, exercise or exchange may occur, the initial
conversion, exercise or exchange price or rate and the
circumstances or manner in which the amount of Common Shares or
Preferred Shares or other securities issuable upon conversion,
exercise or exchange may be adjusted;
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if the Debt Security is an original issue discount debt
security, the yield to maturity and provisions relating to the
accretion of the principal thereof;
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if applicable, the circumstances under which the Debt Security
may be redeemed at our option or repaid at the holders
option before the stated maturity, including any redemption
commencement date, repayment date(s), redemption price(s) and
redemption period(s);
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the authorized denominations, if other than $1,000 and integral
multiples of $1,000;
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if applicable, the circumstances under which we will pay
additional amounts on any Debt Securities held by a person who
is not a United States person for tax purposes and under which
we can redeem the debt securities if we have to pay additional
amounts;
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the names and duties of any co-trustees, depositaries,
authenticating agents, paying agents, transfer agents or
registrars for the Debt Security, as applicable;
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the currency or currencies for principal and interest, if not
U.S. dollars;
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certain additional terms with respect to declarations of
acceleration upon an event of default and defeasibility of the
Debt Securities;
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the depositary for the Debt Security, if other than The
Depository Trust Company (DTC), and any
circumstances under which the holder may request securities in
non-global form, if we choose not to issue the Debt Security in
book-entry form only;
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any addition to, elimination of or other change to the
provisions of the indenture, as apply to the Debt Securities,
with respect to events of default, covenants of the Company
and/or
actions permitted or required to be taken by the holders of the
Debt Securities;
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any benefits, rights, remedies and claims with respect to the
Debt Securities that persons other than the Company and the
trustee may have, if applicable;
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any provisions related to subordination of any Debt Securities
to other indebtedness of the Company (including other series of
Debt Securities);
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the assets, if any, that will be pledged as security for the
payment of the Debt Security; and
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any other terms of the Debt Security which could be different
from those described in this prospectus.
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Redemption
or Repayment
If there are any provisions regarding redemption or repayment
applicable to a Debt Security, we will describe them in a
prospectus supplement.
We or our affiliates may purchase Debt Securities from investors
who are willing to sell from time to time, either in the open
market at prevailing prices or in private transactions at
negotiated prices. Debt Securities that we or they purchase may,
at our discretion, be held, resold or canceled.
Mergers
and Similar Transactions
We are generally permitted under the Indenture to merge or
consolidate with another corporation or other entity. We are
also permitted under the Indenture to sell all or substantially
all of our assets to another corporation or other entity. With
regard to any series of Debt Securities, however, we may not
take any of these actions unless all the following conditions,
among other things, are met:
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If the successor entity in the transaction is not the Company,
the successor entity must be organized and validly existing
under the laws of the United States, any State thereof or the
District of Columbia and must expressly assume our obligations
under the Debt Securities of that series and the Indenture.
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Immediately after the transaction, no default under the Debt
Securities of that series has occurred and is continuing. For
this purpose, default under the Debt Securities of that
series means an event of default with respect to that
series or any event that would be an event of default with
respect to that series if the requirements for giving us default
notice and for our default having to continue for a
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specific period of time were disregarded. We describe these
matters below under Default, Remedies
and Waiver of Default.
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If the conditions described above are satisfied with respect to
the Debt Securities of any series, we will not need to obtain
the approval of the holders of those Debt Securities in order to
merge or consolidate or to sell our assets. Also, these
conditions will apply only if we wish to merge or consolidate
with another entity or sell all or substantially all of our
assets to another entity. We will not need to satisfy these
conditions if we enter into other types of transactions,
including any transaction in which we acquire the stock or
assets of another entity, any transaction that involves a change
of control of the Company but in which we do not merge or
consolidate and any transaction in which we sell less than
substantially all our assets.
If we sell all or substantially all of our assets and the
purchaser assumes our obligations under the Debt Securities of
any series and the Indenture with respect to that series, we
will be released from all our liabilities and obligations under
the Debt Securities of such series and the Indenture with
respect to such series.
Defeasance,
Covenant Defeasance and Satisfaction and Discharge
When we use the term defeasance, we mean discharge from some or
all of our obligations under the Indenture. If we deposit with
the trustee funds or government securities, or if so provided in
the applicable prospectus supplement, obligations other than
government securities, sufficient to make payments on any series
of Debt Securities on the dates those payments are due and
payable and other specified conditions are satisfied, then, at
our option, either of the following will occur:
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we will be discharged from our obligations with respect to the
Debt Securities of such series (legal
defeasance); or
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we will be discharged from any covenants we make in the
Indenture for the benefit of such series and the related events
of default will no longer apply to us (covenant
defeasance).
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If we legally defease any series of Debt Securities, the holders
of such securities will not be entitled to the benefits of the
Indenture, except for our obligations to register the transfer
or exchange of such securities, replace stolen, lost or
mutilated securities or maintain paying agencies and hold moneys
for payment in trust. In case of covenant defeasance, our
obligation to pay principal, premium and interest on the
applicable series of Debt Securities will also survive, as may
other provisions depending on the nature of the defeasance.
We will be required to deliver to the trustee an opinion of
counsel that the deposit and related defeasance would not cause
the holders of the applicable series of Debt Securities to
recognize gain or loss for federal income tax purposes. If we
elect legal defeasance, that opinion of counsel must be based
upon a ruling from the United States Internal Revenue Service or
a change in law to that effect.
Default,
Remedies and Waiver of Default
Unless otherwise specified in the applicable prospectus
supplement, when we refer to an event of default with respect to
any series of Debt Securities, we mean any of the following:
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we do not pay the principal or any premium on any Debt Security
of that series when due at its stated maturity, upon optional
redemption, upon required purchase, upon declaration of
acceleration or otherwise;
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we do not pay interest on any Debt Security of that series
within 30 days after the due date;
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we remain in breach of our covenants regarding mergers or sales
of substantially all of our assets or any other covenant we make
in the Indenture for the benefit of the relevant series, for a
period of 60 days after we receive a notice of default
stating that we are in breach and requiring us to remedy the
breach within a specified time after receipt of such notice. The
notice must be sent by the trustee or the holders of at least
25% in principal amount of the relevant series of Debt
Securities;
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we file for bankruptcy or other events of bankruptcy, insolvency
or reorganization relating to the Company occur;
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if the applicable prospectus supplement states that any
additional event of default applies to the series, that event of
default occurs.
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We may change, eliminate, or add to the events of default with
respect to any particular series or any particular Debt Security
or Debt Securities within a series, as indicated in the
applicable prospectus supplement.
Except as otherwise specified in the applicable prospectus
supplement, if an event of default has occurred with respect to
any series of Debt Securities and has not been cured or waived,
the trustee or the holders of not less than 25% in principal
amount of all Debt Securities of that series then outstanding
may declare the entire principal amount of the Debt Securities
of that series to be due immediately. Except as otherwise
specified in the applicable prospectus supplement, if the event
of default occurs because of events in bankruptcy, insolvency or
reorganization relating to the Company, the entire principal
amount of the Debt Securities of that series will be
automatically accelerated, without any action by the trustee or
any holder.
Each of the situations described above is called an acceleration
of the stated maturity of the affected series of Debt
Securities. Except as otherwise specified in the applicable
prospectus supplement, if the stated maturity of any series is
accelerated and a judgment for payment has not yet been
obtained, the holders of a majority in principal amount of the
Debt Securities of that series may cancel the acceleration for
the entire series.
If an event of default occurs, the trustee will have special
duties. In that situation, the trustee will be obligated to use
those of its rights and powers under the Indenture, and to use
the same degree of care and skill in doing so, that a prudent
person would use in that situation in conducting his or her own
affairs.
Except as described in the prior paragraph, the trustee is not
required to take any action under the Indenture at the request
of any holders unless the holders offer the trustee protection
satisfactory to it from loss, liability or expense. These
majority holders may also direct the trustee in performing any
other action under the Indenture with respect to the debt
securities of that series.
Before a holder may take steps to enforce its rights or protect
its interests relating to any Debt Security, all of the
following must occur:
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the holder must give the trustee written notice that an event of
default has occurred with respect to the Debt Securities of the
series, and the event of default must not have been cured or
waived;
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the holders of at least 25% in principal amount of all Debt
Securities of the series must request that the trustee take
action because of the default, and they or other holders must
offer to the trustee indemnity reasonably satisfactory to the
trustee against the cost and other liabilities of taking that
action;
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the trustee must not have taken action for 60 days after
the above steps have been taken; and
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during those 60 days, the holders of a majority in
principal amount of the Debt Securities of the series must not
have given the trustee directions that are inconsistent with
such request.
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Book-entry and other indirect owners should consult their banks
or brokers for information on how to give notice or direction to
or make a request of the trustee and how to declare or cancel an
acceleration of the maturity.
Waiver of
Default
The holders of a majority in principal amount of the Debt
Securities of any series may by notice to the trustee waive an
existing default and its consequences for all Debt Securities of
that series except (i) a default in the payment of the
principal of or interest on a Debt Security (ii) a default
arising from the failure to redeem or purchase any Debt Security
when required pursuant to the Indenture or (iii) a default
in respect of a provision that under the Indenture cannot be
amended without the consent of each securityholder affected. If
this happens, the default is deemed cured, but no such waiver
shall extend to any subsequent or other default or impair any
consequent right.
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Annual
Information about Defaults to the Trustee
We will furnish to the trustee within 120 days after the
end of each fiscal year a certificate indicating whether the
signers thereof know of any default that occurred in the
previous year.
Modifications
and Waivers
Changes
Requiring Each Holders Approval
We and the trustee may amend the Indenture or a series of Debt
Securities with the written consent of the holders of at least a
majority in principal amount of such series of Debt Securities
then outstanding. However, without the consent of each
securityholder affected thereby, an amendment or waiver may not:
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change the stated maturity of, or any installment of principal
of or interest on, any Debt Security, or reduce the principal
amount of, the rate of interest on or any premium payable upon
the redemption of any Debt Security;
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permit redemption of a Debt Security if not previously permitted;
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change the location for, or currency of, any payment on a Debt
Security;
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change the ranking or priority of any Debt Security that would
adversely affect the securityholders;
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impair the right of any holder of a Debt Security to institute
suit for the enforcement of any payment on or with respect to
such holders Debt Security;
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reduce the amount of Debt Securities whose holders must consent
to an amendment; or
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change the amendment provisions which require each holders
consent or the waiver provisions.
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Changes
Not Requiring Approval
We and the trustee, may amend the Indenture or the Debt
Securities without notice to or consent of any securityholder:
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to cure any ambiguity, omission, defect or inconsistency;
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to provide for the assumption by a successor corporation of the
obligations of the Company under the Indenture;
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to add to the covenants of the Company for the benefit of the
holders of the Debt Securities or to surrender any right or
power conferred upon the Company;
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to add additional events of default for the benefit of the
holders of the Debt Securities;
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to provide for uncertificated Debt Securities in addition to or
in place of certificated Debt Securities;
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to secure the Debt Securities;
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to establish the form or terms of any series of Debt Securities
as permitted under the Indenture;
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to evidence and provide for the acceptance of appointment by a
successor trustee or to facilitate the administration of the
trusts under the Indenture by more than one trustee, pursuant to
the requirements of the Indenture;
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to facilitate the issuance, payment or conversion of any Debt
Securities that by their terms may be converted into securities
or other property other than securities of the same series;
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to comply with any requirement of the SEC in connection with the
qualification of the Indenture under the Trust Indenture
Act;
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to make any amendment to the provisions of the Indenture
relating to the transfer and legending of Debt Securities;
provided, however, that (a) compliance with the Indenture
as so amended would not result in Debt Securities being
transferred in violation of the Securities Act or any other
applicable
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securities law and (b) such amendment does not materially
and adversely affect the rights of holders to transfer Debt
Securities; or
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to make any other change that does not adversely affect the
rights of any holder of the Debt Securities in any material
respect.
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Changes
Requiring Majority Approval
Any other change to the Indenture as it relates to a series of
Debt Securities and such series of Debt Securities issued
thereunder would require the approval by the holders of a
majority in principal amount of such series of Debt Securities.
Special
Rules for Action by Holders
Only holders of outstanding Debt Securities of the applicable
series will be eligible to take any action under the Indenture,
such as giving a notice of default, declaring an acceleration,
approving any change or waiver or giving the trustee an
instruction with respect to Debt Securities of that series.
Also, we will count only outstanding Debt Securities in
determining whether the various percentage requirements for
taking action have been met. Any Debt Securities owned by us or
any of our affiliates or surrendered for cancellation or for
payment or redemption of which money has been set aside in trust
are not deemed to be outstanding. Any required approval or
waiver must be given by written consent.
In some situations, we may follow special rules in calculating
the principal amount of Debt Securities that are to be treated
as outstanding for the purposes described above. This may
happen, for example, if the principal amount is payable in a
non-U.S. dollar
currency, increases over time or is not to be fixed until
maturity.
We will generally be entitled to set any day as a record date
for the purpose of determining the holders that are entitled to
take action under the Indenture. In certain limited
circumstances, only the trustee will be entitled to set a record
date for action by holders. If we or the trustee sets a record
date for an approval or other action to be taken by holders,
that vote or action may be taken only by persons or entities who
are holders on the record date and must be taken during the
period that we specify for this purpose, or that the trustee
specifies if it sets the record date. We or the trustee, as
applicable, may shorten or lengthen this period from time to
time. This period, however, may not extend beyond the
180th day after the record date for the action. In
addition, record dates for any global Debt Security may be set
in accordance with procedures established by the depositary from
time to time. Accordingly, record dates for global Debt
Securities may differ from those for other Debt Securities.
Form,
Exchange and Transfer
If any Debt Securities cease to be issued in registered global
form, they will be issued:
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only in fully registered form;
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without interest coupons; and
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unless we indicate otherwise in the applicable prospectus
supplement, in denominations of $1,000 and integral multiples of
$1,000.
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Holders may exchange their Debt Securities for Debt Securities
of smaller denominations or combined into fewer Debt Securities
of larger denominations, as long as the total principal amount
is not changed. Holders may not exchange Debt Securities for
securities of a different series or having different terms,
unless permitted by the terms of that series and described in
the applicable prospectus supplement.
Holders may exchange or transfer their Debt Securities at the
office of the trustee. They may also replace lost, stolen,
destroyed or mutilated Debt Securities at that office. We have
appointed the trustee to act as our agent for registering Debt
Securities in the names of holders and transferring and
replacing Debt Securities. We may appoint another entity to
perform these functions or perform them ourselves.
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Holders will not be required to pay a service charge to transfer
or exchange their Debt Securities, but they may be required to
pay for any tax or other governmental charge associated with the
exchange or transfer. The transfer or exchange, and any
replacement, will be made only if our transfer agent is
satisfied with the holders proof of legal ownership. The
transfer agent may require an indemnity before replacing any
Debt Securities.
If we have designated additional transfer agents for a Debt
Security, they will be named in the applicable prospectus
supplement. We may appoint additional transfer agents or cancel
the appointment of any particular transfer agent. We may also
approve a change in the office through which any transfer agent
acts.
If the Debt Securities of any series are redeemable and we
redeem less than all those Debt Securities, we may block the
transfer or exchange of those Debt Securities during the period
beginning 15 days before the day we mail the notice of
redemption and ending on the day of that mailing, in order to
freeze the list of holders to prepare the mailing. We may also
refuse to register transfers of or exchange any Debt Security
selected for redemption, except that we will continue to permit
transfers and exchanges of the unredeemed portion of any Debt
Security being partially redeemed.
If a debt security is issued as a global debt security, only DTC
or other depositary will be entitled to transfer and exchange
the debt security as described in this subsection, since the
depositary will be the sole holder of the debt security.
The rules for exchange described above apply to exchange of Debt
Securities for other Debt Securities of the same series and
kind. If a Debt Security is convertible, exercisable or
exchangeable into or for a different kind of security, such as
one that we have not issued, or for other property, the rules
governing that type of conversion, exercise or exchange will be
described in the applicable prospectus supplement.
Payments
We will pay interest, principal and other amounts payable with
respect to the Debt Securities of any series to the holders of
record of those Debt Securities as of the record dates and
otherwise in the manner specified below or in the prospectus
supplement for that series.
We will make payments on a global debt security in accordance
with the applicable policies of the depositary as in effect from
time to time. Under those policies, we will pay directly to the
depositary, or its nominee, and not to any indirect owners who
own beneficial interests in the global debt security. An
indirect owners right to receive those payments will be
governed by the rules and practices of the depositary and its
participants.
We will make payments on a Debt Security in non-global,
registered form as follows. We will pay interest that is due on
an interest payment date by check mailed on the interest payment
date to the holder at his or her address shown on the
trustees records as of the close of business on the
regular record date. We will make all other payments by check at
the paying agent described below, against surrender of the Debt
Security. All payments by check will be made in
next-day
funds i.e., funds that become available on the day
after the check is cashed.
Alternatively, if a non-global Debt Security has a face amount
of at least $1,000,000 and the holder asks us to do so, we will
pay any amount that becomes due on the Debt Security by wire
transfer of immediately available funds to an account at a bank
in New York City, on the due date. To request wire payment, the
holder must give the paying agent appropriate wire transfer
instructions at least five business days before the requested
wire payment is due. In the case of any interest payment due on
an interest payment date, the instructions must be given by the
person or entity who is the holder on the relevant regular
record date. In the case of any other payment, payment will be
made only after the Debt Security is surrendered to the paying
agent. Any wire instructions, once properly given, will remain
in effect unless and until new instructions are given in the
manner described above.
Book-entry and other indirect owners should consult their banks
or brokers for information on how they will receive payments on
their Debt Securities.
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Regardless of who acts as paying agent, all money paid by us to
a paying agent that remains unclaimed at the end of two years
after the amount is due to a holder will be repaid to us. After
that two-year period, the holder may look only to us for payment
and not to the trustee, any other paying agent or anyone else.
Paying
Agents
We may appoint one or more financial institutions to act as our
paying agents, at whose designated offices Debt Securities in
non-global entry form may be surrendered for payment at their
maturity. We call each of those offices a paying agent. We may
add, replace or terminate paying agents from time to time. We
may also choose to act as our own paying agent. We will specify
in the prospectus supplement for the debt security the initial
location of each paying agent for that Debt Security. We must
notify the trustee of changes in the paying agents.
Notices
Notices to be given to holders of a global Debt Security will be
given only to the depositary, in accordance with its applicable
policies as in effect from time to time. Notices to be given to
holders of Debt Securities not in global form will be sent by
mail to the respective addresses of the holders as they appear
in the trustees records, and will be deemed given when
mailed. Neither the failure to give any notice to a particular
holder, nor any defect in a notice given to a particular holder,
will affect the sufficiency of any notice given to another
holder.
Book-entry and other indirect owners should consult their banks
or brokers for information on how they will receive notices.
Our
Relationship With the Trustee
The prospectus supplement for the Debt Security will describe
any material relationships we may have with the trustee with
respect to that Debt Security.
Governing
Law
The Indenture and the Debt Securities will be governed by New
York law.
Form of
Debt Securities
Each debt security will be represented by either one or more
global securities registered in the name of The Depository
Trust Company, as Depositary (the Depositary),
or a nominee (we will refer to any debt security represented by
a global debt security as a book-entry debt
security), or a certificate issued in definitive
registered form (we will refer to any debt security represented
by a certificated security as a certificated debt
security) as set forth in the applicable prospectus
supplement. Except as set forth under the heading
Global Debt Securities and Book-Entry
System below, book-entry debt securities will not be
issuable in certificated form.
Global
Debt Securities and Book-Entry System.
Each global debt security representing book-entry debt
securities will be issued to the Depositary or a nominee of the
Depositary and registered in the name of the Depositary or a
nominee of the Depositary.
The Depositary has indicated it intends to follow the following
procedures with respect to book-entry debt securities.
Ownership of beneficial interests in book-entry debt securities
will be limited to persons that have accounts with the
Depositary for the related global debt security
(participants) or persons that may hold interests
through participants. Upon the issuance of a global debt
security, the Depositary will credit, on its book-entry
registration and transfer system, the participants
accounts with the respective principal amounts of the book-entry
debt securities represented by such global debt security
beneficially owned by such participants.
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The accounts to be credited will be designated by any dealers,
underwriters or agents participating in the distribution of the
book-entry debt securities. Ownership of book-entry debt
securities will be shown on, and the transfer of such ownership
interests will be effected only through, records maintained by
the Depositary for the related global debt security (with
respect to interests of participants) and on the records of
participants (with respect to interests of persons holding
through participants). The laws of some states may require that
certain purchasers of securities take physical delivery of such
securities in definitive form. These laws may impair the ability
to own, transfer or pledge beneficial interests in book-entry
debt securities.
So long as the Depositary for a global debt security, or its
nominee, is the registered owner of that global debt security,
the Depositary or its nominee, as the case may be, will be
considered the sole owner or holder of the book-entry debt
securities represented by such global debt security for all
purposes under the indenture. Except as described below,
beneficial owners of book-entry debt securities will not be
entitled to have securities registered in their names, will not
receive or be entitled to receive physical delivery of a
certificate in definitive form representing securities and will
not be considered the owners or holders of those securities
under the indenture. Accordingly, each person beneficially
owning book-entry debt securities must rely on the procedures of
the Depositary for the related global debt security and, if such
person is not a participant, on the procedures of the
participant through which such person owns its interest, to
exercise any rights of a holder under the indenture.
We understand, however, that under existing industry practice,
the Depositary will authorize the persons on whose behalf it
holds a global debt security to exercise certain rights of
holders of debt securities, and the indenture provides that we,
the trustee and our respective agents will treat as the holder
of a debt security the persons specified in a written statement
of the Depositary with respect to such global debt security for
purposes of obtaining any consents, declarations, waivers or
directions required to be given by holders of the debt
securities pursuant to the indenture.
We will make payments of principal of, and premium and interest,
if any, on book-entry debt securities to the Depositary or its
nominee, as the case may be, as the registered holder of the
related global debt security. The Company, the trustee and any
other agent of ours or agent of the trustee will not have any
responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership
interests in a global debt security or for maintaining,
supervising or reviewing any records relating to beneficial
ownership interests.
We expect that the Depositary, upon receipt of any payment of
principal of, premium or interest, if any, on a global debt
security, will immediately credit participants accounts
with payments in amounts proportionate to the respective amounts
of book-entry debt securities held by each participant as shown
on the records of such Depositary. We also expect that payments
by participants to owners of beneficial interests in book-entry
debt securities held through those participants will be governed
by standing customer instructions and customary practices, as is
now the case with the securities held for the accounts of
customers in bearer form or registered in street
name, and will be the responsibility of those participants.
We will issue certificated debt securities in exchange for each
global debt security only if (i) the Depositary notifies us
that it is unwilling or unable to continue as Depositary for
such global debt security or if at any time such Depositary
ceases to be a clearing agency registered under the Exchange
Act, and, in either case, we fail to appoint a successor
Depositary registered as a clearing agency under the Exchange
Act within 90 days of such event or (ii) we execute
and deliver to the trustee an officers certificate to the
effect that such global debt security shall be so exchangeable.
Any certificated debt securities issued in exchange for a global
debt security will be registered in such name or names as the
Depositary shall instruct the trustee. We expect that such
instructions will be based upon directions received by the
Depositary from participants with respect to ownership of
book-entry debt securities relating to such global debt security.
We have obtained the foregoing information concerning the
Depositary and the Depositarys book-entry system from
sources we believe to be reliable, but we take no responsibility
for the accuracy of this information.
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DESCRIPTION
OF COMMON SHARES
General
The Second Amended and Restated Articles of Incorporation of the
Company, as amended (the Articles) authorize the
issuance of up to 91,000,000 Common Shares, without par value.
As of June 4, 2010, there were 32,120,102 Common Shares
issued and outstanding. In addition, up to 805,064 Common Shares
have been reserved for issuance upon the exercise of options
under the Companys employee share option plans of which
35,000 Common Shares have been reserved for issuance upon the
exercise of options granted to the Companys independent
directors. Furthermore, as of June 4, 2010, 236,885 Common
Shares have been reserved for issuance under the executive
deferred compensation plan and 253,290 Common Shares have been
reserved for issuance under the directors deferred
compensation plan. The Common Shares are listed on the NYSE and
the Nasdaq Global Market under the symbol AEC. Wells
Fargo Shareowner Services, a division of Wells Fargo Bank, N.A.
is the transfer agent and registrar of the Common Shares.
The following description of the Common Shares sets forth
certain general terms and provisions of the Common Shares to
which any Prospectus Supplement may relate, including a
Prospectus Supplement providing that Common Shares will be
issuable upon conversion of Debt Securities or Preferred Shares
of the Company or upon the exercise of Common Share Warrants
issued by the Company. The statements below describing the
Common Shares are in all respects subject to and qualified in
their entirety by reference to the applicable provisions of the
Articles and the Companys Amended and Restated Code of
Regulations (the Code of Regulations).
Holders of Common Shares are entitled to receive dividends,
when, as and if declared by the Board of Directors of the
Company, out of funds legally available therefore. The payment
and declaration of dividends on the Common Shares and purchases
thereof by the Company will be subject to certain restrictions
if the Company fails to pay dividends on any outstanding
Preferred Shares. See Description of Preferred
Shares. The holders of Common Shares, upon any
liquidation, dissolution or
winding-up
of, or any distribution of the assets of the Company, are
entitled to receive ratably any assets remaining after payment
in full of all liabilities of the Company, including the
preferential amounts owing with respect to any Preferred Shares.
The Common Shares possess ordinary voting rights, with each
share entitling the holder thereof to one vote. Holders of
Common Shares do not have cumulative voting rights in the
election of directors and do not have preemptive rights.
All of the Common Shares now outstanding are, and any Common
Shares offered hereby when issued will be, fully paid and
nonassessable. The Companys Articles provide that except
in certain specified instances, no director of the Company will
be personally liable to the Company or any of its shareholders
for monetary damages for breach of any fiduciary duty as a
director. However, this provision may not limit the availability
of monetary relief for violations of securities laws and does
not limit the availability of non-monetary relief.
Restrictions
on Ownership
With certain limited exceptions, our Second Amended and Restated
Articles of Incorporation, as amended and supplemented to date
(collectively the Articles), prohibit the ownership
of more than 4% of our outstanding common shares and more than
9.8% of the shares of any series of any class of our preferred
shares by any person, unless we grant a waiver. See Risk Factors
and Article IV of our Articles for further information.
Shareholder
Rights Plan
Each Common Share trades with a preferred share purchase right
pursuant to the shareholder rights agreement between the Company
and Wells Fargo Shareowner Services, a division of Wells Fargo
Bank, N.A. Each preferred share purchase right entitles the
holder to purchase a unit consisting of one one-thousandth of a
Class B Series I Cumulative Preferred Share. The
rights are not currently exercisable, but will become
exercisable if any person or group becomes the beneficial owner
of, or announces an offer to acquire, 15% or more of the Common
Shares.
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DESCRIPTION
OF COMMON SHARE WARRANTS
The Company may issue Common Share Warrants for the purchase of
Common Shares. Common Share Warrants may be issued independently
or together with any other Offered Securities offered by any
Prospectus Supplement and may be attached to or separate from
such Offered Securities. Each series of Common Share Warrants
will be issued under a separate warrant agreement (each, a
Warrant Agreement) to be entered into between the
Company and a warrant agent specified in the applicable
Prospectus Supplement (the Warrant Agent). The
Warrant Agent will act solely as an agent of the Company in
connection with the Common Share Warrants of such series and
will not assume any obligation or relationship of agency or
trust for or with any holders or beneficial owners of Common
Share Warrants. The following sets forth certain general terms
and provisions of the Common Share Warrants offered hereby.
Further terms of the Common Share Warrants and the applicable
Warrant Agreements will be set forth in the applicable
Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of
the Common Share Warrants in respect of which this Prospectus is
being delivered, including, when applicable, the following:
(1) the title of such Common Share Warrants; (2) the
aggregate number of such Common Share Warrants; (3) the
price or prices at which such Common Share Warrants will be
issued; (4) the number of Common Shares purchasable upon
exercise of such Common Share Warrants; (5) the designation
and terms of the other Offered Securities with which such Common
Share Warrants are issued and the number of such Common Share
Warrants issued with each such Offered Security; (6) the
date, if any, on and after which such Common Share Warrants and
the related Common Shares will be separately transferable;
(7) the price at which each Common Share purchasable upon
exercise of such Common Shares Warrants may be purchased;
(8) the date on which the right to exercise such Common
Share Warrants shall commence and the date on which such right
shall expire; (9) the minimum or maximum amount of such
Common Share Warrants which may be exercised at any one time;
(10) information with respect to book-entry procedures, if
any; (11) a discussion of certain federal income tax
considerations; and (12) any other terms of such Common
Share Warrants, including terms, procedures and limitations
relating to the exchange and exercise of such Common Share
Warrants.
Reference is made to the section captioned Description of
Common Shares for a general description of the Common
Shares to be acquired upon the exercise of the Common Share
Warrants, including a description of certain restrictions on the
ownership of the Common Shares. Common Shares that may be
acquired upon the exercise of Common Share Warrants directly or
constructively held by an investor, but not Common Shares
issuable with respect to the exercise of Common Share Warrants
held by others, are deemed to be outstanding (a) at the
time of acquisition of the Common Share Warrants, and
(b) prior to the exercise of the Common Share Warrants, for
purposes of determining the percentage ownership of Common
Shares held by such investor.
DESCRIPTION
OF PREFERRED SHARES
The Articles authorize the issuance of up to (i) 3,000,000
Class A Cumulative Preferred Shares, without par value (the
Class A Shares), (ii) 3,000,000
Class B Cumulative Preferred Shares, without par value (the
Class B Shares), and (iii) 3,000,000
Noncumulative Preferred Shares, without par value (the
Noncumulative Shares) (the Class A Shares, the
Class B Shares and the Noncumulative Shares, collectively
the Preferred Shares). Of the 3,000,000 Class B
Shares, 400,000 have been designated as Class B
Series I Cumulative Preferred Shares. On June 7,
2010, the Company redeemed all 193,050 outstanding 8.70%
Class B Series II Cumulative Redeemable Preferred
Shares ($250 liquidation preference per share).
The following descriptions of the classes of Preferred Shares
set forth certain general terms and provisions of each class of
Preferred Shares to which any Prospectus Supplement may relate.
The statements below describing each class of Preferred Shares
are in all respects subject to and qualified in their entirety
by reference to the applicable provisions of the Articles, which
will be further amended by the Board of Directors in connection
with the fixing by the Board of Directors of certain terms of
the Preferred Shares as provided below.
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General
The Class A Shares, the Class B Shares and the
Noncumulative Shares rank on a parity with each other and are
identical to each other, except (1) that dividends on the
Class A Shares and the Class B Shares will be
cumulative, while dividends on the Noncumulative Shares will not
be cumulative, and (2) in respect of the following matters
and the matters enumerated below that, pursuant to the terms of
the Articles and subject to Ohio law, such matters may be fixed
by the Board of Directors with respect to each series of each
class of Preferred Shares prior to the issuance thereof:
(a) the designation of the series which may be by
distinguishing number, letter or title, (b) the authorized
number of shares of the series, which number the Board of
Directors may (except when otherwise provided in the creation of
the series) increase or decrease from time to time before or
after the issuance thereof (but not below the number of shares
thereof then outstanding), (c) the dividend rate or rates
of the series, including the means by which such rates may be
established, (d) with respect to the Class A Shares
and the Class B Shares, the date or dates from which
dividends shall accrue and be cumulative and, with respect to
all Preferred Shares, the date on which and the period or
periods for which dividends, if declared, shall be payable,
including the means by which such dates and periods may be
established, (e) redemption rights and prices, if any,
(f) the terms and amounts of the sinking fund, if any,
(g) the amounts payable on shares of the series in the
event of any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the Company, (h) whether
the shares of the series shall be convertible into Common Shares
or shares of any other class and, if so, the conversion rate or
rates or price or prices, any adjustments thereof and all other
terms and conditions upon which such conversion may be made, and
(i) restrictions on the issuance of shares of the same or
any other class or series.
Reference is made to the Prospectus Supplement relating to the
Preferred Shares offered thereby for specific terms, including:
(1) The class, series and title of such Preferred Shares;
(2) The number of shares of such Preferred Shares offered,
the liquidation preference per share and the offering price of
such Preferred Shares;
(3) The dividend rate or rates, period or periods and
payment date or dates or method of calculation thereof
applicable to such Preferred Shares;
(4) The date from which dividends on such Preferred Shares
shall accumulate, if applicable;
(5) The procedures for any auction or remarketing of such
Preferred Shares;
(6) The provision for any sinking fund for such Preferred
Shares;
(7) The provision for redemption, if applicable, of such
Preferred Shares;
(8) Any listing of such Preferred Shares on any securities
exchange;
(9) Any terms and conditions upon which such Preferred
Shares will be convertible into Common Shares of the Company,
including the conversion price (or manner of calculation
thereof);
(10) Whether interests in such Preferred Shares will be
represented by Depositary Shares;
(11) Any other specific terms, preferences, rights,
limitations or restrictions of or on such Preferred Shares;
(12) A discussion of federal income tax considerations
applicable to such Preferred Shares;
(13) The relative ranking and preferences of such Preferred
Shares as to dividend rights and rights upon liquidation,
dissolution or winding up of the affairs of the Company;
(14) Any limitations on issuance of securities ranking
senior to or on a parity with such Preferred Shares as to
dividend rights and rights upon liquidation, dissolution or
winding up of the affairs of the Company; and
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(15) Any limitations on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate to
preserve the status of the Company as a REIT.
The Preferred Shares will, when issued, be fully paid and
nonassessable and will have no preemptive rights.
Rank
All Preferred Shares will, when issued, rank (i) on a
parity with all other Preferred Shares with respect to dividend
rights (subject to dividends on Noncumulative Shares being
noncumulative) and rights upon liquidation, dissolution or
winding up of the Company, (ii) senior to all classes of
Common Shares of the Company and to all other equity securities
ranking junior to such Preferred Shares with respect to dividend
rights and rights upon liquidation, dissolution or winding up of
the Company; (iii) on a parity with all equity securities
issued by the Company the terms of which specifically provide
that such equity securities rank on a parity with the Preferred
Shares with respect to dividend rights and rights upon
liquidation, dissolution or winding up of the Company; and
(iv) junior to all equity securities issued by the Company
the terms of which specifically provide that such equity
securities rank senior to the Preferred Shares, with respect to
dividend rights and rights upon liquidation, dissolution or
winding up of the Company.
Dividends
The holders of each series of each class of Preferred Shares are
entitled to receive, if, when and as declared, out of funds
legally available therefore, dividends in cash at the rate
determined for such series and no more, payable on the dates
fixed for such series, in preference to the holders of Common
Shares and of any other class of shares ranking junior to the
Preferred Shares. With respect to each series of Class A
Shares and Class B Shares, such dividends will be
cumulative from the dates fixed for the series. With respect to
each series of Noncumulative Preferred Shares, dividends will
not be cumulative (i.e., if the Board of Directors fails to
declare a dividend payable on a dividend payment date on any
Noncumulative Shares, the holders of such series of
Noncumulative Shares will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment
date, and the Company will have no obligation to pay any
dividend for such period, whether or not dividends on such
series of Noncumulative Shares would be declared to be payable
on any future dividend payment date). Each such dividend will be
payable to holders of record as they appear on the stock
transfer books of the Company on such record dates as shall be
fixed by the Board of Directors of the Company.
If Preferred Shares of any series of any class are outstanding,
no dividends may be paid upon or declared or set apart for any
series of Preferred Shares for any dividend period unless at the
same time (i) a like proportionate dividend for the
dividend periods terminating on the same or any earlier date for
all shares of all series of such class then issued and
outstanding and entitled to receive such dividend (but, if such
series are series of Noncumulative Shares, then only with
respect to the current dividend period), ratably in proportion
to the respective annual dividend rates fixed therefore, shall
have been paid upon or declared or set apart and (ii) the
dividends payable for the dividend periods terminating on the
same or any earlier date for all other classes of Preferred
Shares then issued and outstanding and entitled to receive such
dividends (but, with respect to Noncumulative Shares, only with
respect to the then current dividend period), ratably in
proportion to the respective dividend rates fixed therefore,
shall have been paid upon or declared or set apart.
So long as any series of Preferred Shares is outstanding, no
dividend, except a dividend payable in Common Shares or other
shares ranking junior to such series of Preferred Shares, shall
be paid or declared or any distribution made, except as
aforesaid, in respect of the Common Shares or any other shares
ranking junior to such series of Preferred Shares, nor shall any
Common Shares or any other shares ranking junior to such series
of Preferred Shares be purchased, retired or otherwise acquired
by the Company, except out of the proceeds of the sale of Common
Shares or other shares of the Company ranking junior to such
series of Preferred Shares received by the Company subsequent to
the date of first issuance of such series of Preferred Shares,
unless (i) all accrued and unpaid dividends on all classes
of Preferred Shares then outstanding, including the full
dividends for all current dividend periods (except, with respect
to Noncumulative Shares, for
24
the then current dividend period only), shall have been declared
and paid or a sum sufficient for payment thereof set apart, and
(ii) there shall be no arrearages with respect to the
redemption of any series of any class of Preferred Shares from
any sinking fund provided for such class in accordance with the
Articles.
The foregoing restrictions on the payment of dividends or other
distributions on, or on the purchase, redemption, retirement or
other acquisition of, Common Shares or any other shares ranking
on a parity with or junior to any class of Preferred Shares will
be inapplicable to (i) any payments in lieu of issuance of
fractional shares, whether upon any merger, conversion, stock
dividend or otherwise, (ii) the conversion of Preferred
Shares into Common Shares, or (iii) the exercise by the
Company of its rights to repurchase shares of its capital stock
in order to preserve its status as a REIT under the Code. When
dividends are not paid in full (or a sum sufficient for such
full payment is not so set apart) upon the Preferred Shares of
any series and the shares of any other series of Preferred
Shares ranking on a parity as to dividends with such series, all
dividends declared upon Preferred Shares of such series and any
other series of Preferred Shares ranking on a parity as to
dividends with such Preferred Shares shall be declared pro rata
so that the amount of dividends declared per share on the shares
of such series of Preferred Shares shall in all cases bear to
each other the same ratio that accrued dividends per share on
the Preferred Shares of such series (which shall not include any
accumulation in respect of unpaid dividends for prior dividend
periods for Noncumulative Shares) and such other series bear to
each other. No interest, or sum of money in lieu of interest,
shall be payable in respect of any dividend payment or payments
on Preferred Shares of such series which may be in arrears.
Any dividend payment made on Preferred Shares will first be
credited against the earliest accrued but unpaid dividend due
with respect to such shares which remains payable.
Redemption
If so described in the applicable Prospectus Supplement, a
series of a class of Preferred Shares will be subject to
mandatory redemption or redemption at the option of the Company,
as a whole or in part, in each case upon the terms, at the times
and at the redemption prices set forth in such Prospectus
Supplement.
The Prospectus Supplement relating to a series of Preferred
Shares that is subject to mandatory redemption will specify the
number of such Preferred Shares that shall be redeemed by the
Company in each year commencing after a date to be specified, at
a redemption price per share to be specified, together with an
amount equal to all accrued and unpaid dividends thereon (which,
in the case of Noncumulative Shares, includes only unpaid
dividends for the current dividend period) to the date of
redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement.
Except in connection with the repurchase by the Company of
shares of its capital stock in order to maintain its
qualification as a REIT for federal income tax purposes, the
Company may not purchase or redeem (for sinking fund purposes or
otherwise) less than all of a class of Preferred Shares then
outstanding, except in accordance with a stock purchase offer
made to all holders of record of such class, unless all
dividends on all Preferred Shares of that class then outstanding
for previous and current dividend periods (except, in the case
of Noncumulative Shares, dividends for the current dividend
period only) shall have been declared and paid or funds
therefore set apart and all accrued sinking fund obligations
applicable thereto shall have been complied with.
Notice of redemption will be mailed at least 30 days but
not more than 60 days before the redemption date to each
holder of record of a Preferred Share to be redeemed at the
address shown on the stock transfer books of the Company. If
fewer than all the Preferred Shares of any series are to be
redeemed, the notice mailed to each such holder thereof shall
also specify the number of Preferred Shares to be redeemed from
each holder. If notice of redemption of any Preferred Shares has
been given and if the funds necessary for such redemption have
been set aside by the Company in trust for the benefit of the
holders of the Preferred Shares so called for redemption, then
from and after the redemption date dividends will cease to
accrue on such Preferred Shares, and such holders will cease to
be shareholders with respect to such shares and such holders
shall have no right or claim against the Company with respect to
such shares, except only the right to receive the redemption
price without interest or to exercise before the redemption date
any unexercised privileges of conversion.
25
Liquidation
Preference
In the event of any voluntary liquidation, dissolution or
winding up of the affairs of the Company, the holders of any
series of any class of Preferred Shares shall be entitled to
receive in full out of the assets of the Company, including its
capital, before any amount shall be paid or distributed among
the holders of the Common Shares or any other shares ranking
junior to such series, the amounts fixed by the Board of
Directors with respect to such series and set forth in the
applicable Prospectus Supplement plus an amount equal to all
dividends accrued and unpaid thereon (except, with respect to
Noncumulative Shares, dividends for the current dividend period
only) to the date of payment of the amount due pursuant to such
liquidation, dissolution or winding up the affairs of the
Company. After payment to the holders of the Preferred Shares of
the full preferential amounts to which they are entitled, the
holders of Preferred Shares, as such, shall have no right or
claim to any of the remaining assets of the Company.
If liquidating distributions shall have been made in full to all
holders of Preferred Shares, the remaining assets of the Company
shall be distributed among the holders of any other classes or
series of capital stock ranking junior to the Preferred Shares
upon liquidation, dissolution or winding up, according to their
respective rights and preferences and in each case according to
their respective numbers of shares. The merger or consolidation
of the Company into or with any other corporation, or the sale,
lease or conveyance of all or substantially all of the assets of
the Company shall not constitute a dissolution, liquidation or
winding up of the Company.
Voting
Rights
Holders of Preferred Shares will not have any voting rights,
except as set forth below and as from time to time required by
law.
If and when the Company is in default in the payment of (or,
with respect to Noncumulative Shares, has not paid or declared
and set aside a sum sufficient for the payment of) dividends on
any series of any class of Preferred Shares at the time
outstanding, for a number of consecutive dividend payment
periods which in the aggregate contain at least 540 days,
all holders of shares of such class, voting separately as a
class, together and combined with all other Preferred Shares
upon which like voting rights have been conferred and are
exercisable, will be entitled to elect a total of two members of
the Board of Directors, which voting right shall be vested (and
any additional directors shall serve) until all accrued and
unpaid dividends (except, with respect to Noncumulative Shares,
only dividends for the then current dividend period) on such
Preferred Shares then outstanding shall have been paid or
declared and a sum sufficient for the payment thereof set aside
for payment.
The affirmative vote of the holders of at least two-thirds of a
class of Preferred Shares at the time outstanding, voting
separately as a class, given in person or by proxy either in
writing or at a meeting called for the purpose, shall be
necessary to effect either of the following:
(1) The authorization, creation or increase in the
authorized number of any shares, or any security convertible
into shares, in either case ranking prior to such class of
Preferred Shares; or
(2) Any amendment, alteration or repeal, whether by merger,
consolidation or otherwise, of any of the provisions of the
Articles or the Code of Regulations which affects adversely and
materially the preferences or voting or other right of the
holders of such class of Preferred Shares which are set forth in
the Articles; provided, however, neither the amendment of the
Articles so as to authorize, create or change the authorized or
outstanding number of a class of Preferred Shares or of any
shares ranking on a parity with or junior to such class of
Preferred Shares nor the amendment of the provisions of the Code
of Regulations so as to change the number or classification of
directors of the Company shall be deemed to affect adversely and
materially preferences or voting or other rights of the holders
of such class of Preferred Shares.
Without limiting the provisions described above, under Ohio law,
holders of each class of Preferred Shares will be entitled to
vote as a class on any amendment to the Articles, whether or not
they are entitled to vote thereon by the Articles, if the
amendment would (i) increase or decrease the par value of
the shares of
26
such class, (ii) change the issued shares of such class
into a lesser number of shares of such class or into the same or
different number of shares of another class, (iii) change
the express terms or add express terms of the shares of the
class in any manner substantially prejudicial to the holders of
such class, (iv) change the express terms of issued shares
of any class senior to the particular class in any manner
substantially prejudicial to the holders of shares of the
particular class, (v) authorize shares of another class
that are convertible into, or authorize the conversion of shares
of another class into, shares of the particular class, or
authorize the directors to fix or alter conversion rights of
shares of another class that are convertible into shares of the
particular class, (vi) reduce or eliminate the stated
capital of the Company, (vii) substantially change the
purposes of the Company, or (viii) change the Company into
a nonprofit corporation.
If, and only to the extent, that (i) a class of Preferred
Shares is issued in more than one series and (ii) Ohio law
permits the holders of a series of a class of capital stock to
vote separately as a class, the affirmative vote of the holders
of at least two-thirds of each series of such class of Preferred
Shares at the time outstanding, voting separately as a class,
given in person or by proxy either in writing or at a meeting
called for the purpose of voting on such matters, shall be
required for any amendment, alteration or repeal, whether by
merger, consolidation or otherwise, of any of the provisions of
the Articles or the Code of Regulations which affects adversely
and materially the preferences or voting or other rights of the
holders of such series which are set forth in the Articles;
provided, however, neither the amendment of the Articles so as
to authorize, create or change the authorized or outstanding
number of a class of Preferred Shares or of any shares ranking
on a parity with or junior to such class of Preferred Shares nor
the amendment of the provisions of the Code of Regulations so as
to change the number or classification of directors of the
Company shall be deemed to affect adversely and materially the
preference or voting or other rights of the holders of such
series.
The foregoing voting provisions will not apply if, at or prior
to the time when the act with respect to which such vote would
be required shall be effected, all outstanding shares of such
series of Preferred Shares shall have been redeemed or called
for redemption and sufficient funds shall have been deposited in
trust to effect such redemption.
Conversion
Rights
The terms and conditions, if any, upon which shares of any
series of any class of Preferred Shares are convertible into
Common Shares will be set forth in the applicable Prospectus
Supplement relating thereto. Such terms will include the number
of Common Shares into which the Preferred Shares are
convertible, the conversion price (or manner of calculation
thereof), the conversion period, provisions as to whether
conversion will be at the option of the holders of such
Preferred Shares or the Company, the events requiring an
adjustment of the conversion price, and provisions affecting
conversion upon the occurrence of certain events.
Restrictions
on Ownership
With certain limited exceptions, our Second Amended and Restated
Articles of Incorporation, as amended and supplemented to date
(collectively the Articles), prohibit the ownership
of more than 4% of our outstanding common shares and more than
9.8% of the shares of any series of any class of our preferred
shares by any person, unless we grant a waiver. See Risk Factors
and Article IV of our Articles for further information.
DESCRIPTION
OF DEPOSITARY SHARES
General
The Company may issue receipts (Depositary Receipts)
for Depositary Shares, each of which will represent a fractional
interest or a share of a particular series of a class of
Preferred Shares, as specified in the applicable Prospectus
Supplement. Preferred Shares of each series of each class
represented by Depositary Shares will be deposited under a
separate Deposit Agreement (each, a Deposit
Agreement) among the Company, the depositary named therein
(such depositary or its successor, the Preferred
Shares Depositary) and the holders from time to time
of the Depositary Receipts. Subject to the terms of the Deposit
Agreement,
27
each owner of a Depositary Receipt will be entitled, in
proportion to the fractional interest of a share of the
particular series of a class of Preferred Shares represented by
the Depositary Shares evidenced by such Depositary Receipt, to
all the rights and preferences of the Preferred Shares
represented by such Depositary Shares (including dividend,
voting, conversion, redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts
issued pursuant to the applicable Deposit Agreement. Immediately
following the issuance and delivery of the Preferred Shares by
the Company to the Preferred Shares Depositary, the Company
will cause the Preferred Shares Depositary to issue, on
behalf of the Company, the Depositary Receipts. Copies of the
applicable form of Deposit Agreement and Depositary Receipt may
be obtained from the Company upon request, and the following
summary of the form thereof filed as an exhibit to the
Registration Statement of which this Prospectus is a part is
qualified in its entirety by reference thereto. On June 7,
2010, the Company redeemed all 1,930,500 outstanding Depositary
Shares, each representing one-tenth of a share of 8.70%
Class B Cumulative Redeemable Preferred Shares.
Dividends
and Other Distributions
The Preferred Shares Depositary will distribute all cash
dividends or other cash distributions received in respect of the
Preferred Shares to the record holders of the Depositary
Receipts evidencing the related Depositary Shares in proportion
to the number of such Depositary Receipts owned by such holder,
subject to certain obligations of holders to file proofs,
certificates and other information and to pay certain charges
and expenses to the Preferred Shares Depositary.
In the event of a distribution other than in cash, the Preferred
Shares Depositary will distribute property received by it
to the record holders of Depositary Receipts entitled thereto,
subject to certain obligations of holders to file proofs,
certificates and other information and to pay certain charges
and expenses to the Preferred Shares Depositary, unless the
Preferred Shares Depositary determines that it is not
feasible to make such distribution, in which case the Preferred
Shares Depositary may, with the approval of the Company,
sell such property and distribute the net proceeds from such
sale to such holders.
Withdrawal
of Shares
Upon surrender of the Depositary Receipts at the corporate trust
office of the Preferred Shares Depositary (unless the
related Depositary Shares have previously been called for
redemption), the holders thereof will be entitled to delivery at
such office, to or upon such holders order, of the number
of whole or fractional Preferred Shares and any money or other
property represented by the Depositary Shares evidenced by such
Depositary Receipts. Holders of Depositary Receipts will be
entitled to receive whole or fractional shares of the related
Preferred Shares on the basis of the proportion of Preferred
Shares represented by each Depositary Share as specified in the
applicable Prospectus Supplement, but holders of such Preferred
Shares will not thereafter be entitled to receive Depositary
Shares therefore. If the Depositary Receipts delivered by the
holder evidence a number of Depositary Shares in excess of the
number of Depositary Shares representing the number of Preferred
Shares to be withdrawn, the Preferred Shares Depositary
will deliver to such holder at the same time a new Depositary
Receipt evidencing such excess number of Depositary Shares.
Redemption
of Depositary Shares
Whenever the Company redeems Preferred Shares held by the
Preferred Shares Depositary, the Preferred
Shares Depositary will redeem as of the same redemption
date the number of Depositary Shares representing the Preferred
Shares so redeemed, provided the Company shall have paid in full
to the Preferred Shares Depositary the redemption price of
the Preferred Shares to be redeemed plus an amount equal to any
accrued and unpaid dividends (except, with respect to
Noncumulative Shares, dividends for the current dividend period
only) thereon to the date fixed for redemption. The redemption
price per Depositary Share will be equal to the redemption price
and any other amounts per share payable with respect to the
Preferred Shares. If less than all the Depositary Shares are to
be redeemed, the Depositary Shares to be redeemed will be
selected by the Preferred Shares Depositary by lot.
28
After the date fixed for redemption, the Depositary Shares so
called for redemption will no longer be deemed to be outstanding
and all rights of the holders of the Depositary Receipts
evidencing the Depositary Shares so called for redemption will
cease, except the right to receive any moneys payable upon such
redemption and any money or other property to which the holders
of such Depositary Receipts were entitled upon such redemption
upon surrender thereof to the Preferred Shares Depositary.
Voting of
the Underlying Preferred Shares
Upon receipt of notice of any meeting at which the holders of
the Preferred Shares are entitled to vote, the Preferred
Shares Depositary will mail the information contained in
such notice of meeting to the record holders of the Depositary
Receipts evidencing the Depositary Shares which represent such
Preferred Shares. Each record holder of Depositary Receipts
evidencing Depositary Shares on the record date (which will be
the same date as the record date for the Preferred Shares) will
be entitled to instruct the Preferred Shares Depositary as
to the exercise of the voting rights pertaining to the amount of
Preferred Shares represented by such holders Depositary
Shares. The Preferred Shares Depositary will vote the
amount of Preferred Shares represented by such Depositary Shares
in accordance with such instructions, and the Company will agree
to take all reasonable action which may be deemed necessary by
the Preferred Shares Depositary in order to enable the
Preferred Shares Depositary to do so. The Preferred
Shares Depositary will abstain from voting the amount of
Preferred Shares represented by such Depositary Shares to the
extent it does not receive specific instructions from the
holders of Depositary Receipts evidencing such Depositary Shares.
Liquidation
Preference
In the event of liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, each holder of a
Depositary Receipt will be entitled to the fraction of the
liquidation preference accorded each Preferred Share represented
by the Depositary Share evidenced by such Depositary Receipt, as
set forth in the applicable Prospectus Supplement.
Conversion
of Preferred Shares
The Depositary Shares, as such, are not convertible into Common
Shares or any other securities or property of the Company.
Nevertheless, if so specified in the applicable Prospectus
Supplement relating to an offering of Depositary Shares, the
Depositary Receipts may be surrendered by holders thereof to the
Preferred Shares Depositary with written instructions to
the Preferred Shares Depositary to instruct the Company to
cause conversion of the Preferred Shares represented by the
Depositary Shares evidenced by such Depositary Receipts into
whole Common Shares, other Preferred Shares of the Company or
other shares of capital stock, and the Company has agreed that
upon receipt of such instructions and any amounts payable in
respect thereof, it will cause the conversion thereof utilizing
the same procedures as those provided for delivery of Preferred
Shares to effect such conversion. If the Depositary Shares
evidenced by a Depositary Receipt are to be converted in part
only, one or more new Depositary Receipts will be issued for any
Depositary Shares not to be converted. No fractional Common
Shares will be issued upon conversion, and if such conversion
will result in a fractional share being issued, an amount will
be paid in cash by the Company equal to the value of the
fractional interest based upon the closing price of the Common
Shares on the last business day prior to the conversion.
Amendment
and Termination of the Deposit Agreement
The form of Depositary Receipt evidencing the Depositary Shares
which represent the Preferred Shares and any provision of the
Deposit Agreement may at any time be amended by agreement
between the Company and the Preferred Shares Depositary.
However, any amendment that materially and adversely alters the
rights of the holders of Depositary Receipts will not be
effective unless such amendment has been approved by the
existing holders of at least a majority of the Depositary Shares
evidenced by the Depositary Receipts then outstanding.
29
The Deposit Agreement may be terminated by the Company upon not
less than 30 days prior written notice to the
Preferred Shares Depositary if (i) such termination is
to preserve the Companys status as a REIT or (ii) a
majority of each class of Preferred Shares affected by such
termination consents to such termination, whereupon the
Preferred Shares Depositary shall deliver or make available
to each holder of Depositary Receipts, upon surrender of the
Depositary Receipts held by such holder, such number of whole or
fractional Preferred Shares as are represented by the Depositary
Shares evidenced by such Depositary Receipts. In addition, the
Deposit Agreement will automatically terminate if (i) all
outstanding Depositary Shares shall have been redeemed,
(ii) there shall have been a final distribution in respect
of the related Preferred Shares in connection with any
liquidation, dissolution or winding up of the Company and such
distribution shall have been distributed to the holders of
Depositary Receipts evidencing the Depositary Shares
representing such Preferred Shares or (iii) each related
Preferred Share shall have been converted into capital stock of
the Company not so represented by Depositary Shares.
Charges
of Preferred Shares Depositary
The Company will pay all transfer and other taxes and
governmental charges arising solely from the existence of the
Deposit Agreement. In addition, the Company will pay the fees
and expenses of the Preferred Shares Depositary in
connection with the performance of its duties under the Deposit
Agreement. However, holders of Depositary Receipts will pay the
fees and expenses of the Preferred Shares Depositary for
any duties requested by such holders to be performed which are
outside of those expressly provided for in the Deposit Agreement.
Resignation
and Removal of Depositary
The Preferred Shares Depositary may resign at any time by
delivering to the Company notice of its election to do so, and
the Company may at any time remove the Preferred
Shares Depositary, any such resignation or removal to take
effect upon the appointment of a successor Preferred
Shares Depositary. A successor Preferred
Shares Depositary must be appointed within 60 days
after delivery of the notice of resignation or removal and must
be a bank or trust company having its principal office in the
United States and having a combined capital and surplus of at
least $50,000,000.
Miscellaneous
The Preferred Shares Depositary will forward to holders of
Depositary Receipts any reports and communications from the
Company which are received by the Preferred
Shares Depositary with respect to the related Preferred
Shares.
Neither the Preferred Shares Depositary nor the Company
will be liable if it is prevented from or delayed in, by law or
any circumstances beyond its control, performing its obligations
under the Deposit Agreement. The obligations of the Company and
the Preferred Shares Depositary under the Deposit Agreement
will be limited to performing their duties thereunder in good
faith and without negligence, gross negligence or willful
misconduct, and the Company and the Preferred
Shares Depositary will not be obligated to prosecute or
defend any legal proceeding in respect of any Depositary
Receipts, Depositary Shares or Preferred Shares represented
thereby unless satisfactory indemnity is furnished. The Company
and the Preferred Shares Depositary may rely on written
advice of counsel or accountants, or information provided by
persons presenting Preferred Shares represented thereby for
deposit, holders of Depositary Receipts or other persons
believed to be competent to give such information, and on
documents believed to be genuine and signed by a proper party.
If the Preferred Shares Depositary shall receive
conflicting claims, requests or instructions from any holders of
Depositary Receipts, on the one hand, and the Company, on the
other hand, the Preferred Shares Depositary shall be
entitled to act on such claims, requests or instructions
received from the Company.
30
CERTAIN
ANTI-TAKEOVER PROVISIONS
The Companys stock ownership limitations (see Risk Factors
and the Articles for further information) and Shareholders
Rights Plan (see Risk Factors) may discourage a takeover
otherwise considered favorable by shareholders. In addition,
certain provisions of Ohio law may have the effect of
discouraging or rendering more difficult an unsolicited
acquisition of a corporation or its capital stock to the extent
the corporation is subject to such provisions. The Company has
opted out of one such provision. The provisions remaining
applicable to the Company are described below.
Chapter 1704 of the Ohio Revised Code which prohibits
certain business combinations and transactions between an
issuing public corporation and an interested
shareholder for at least three years after the interested
shareholder attains 10% ownership, unless the board of directors
of the issuing public corporation approves the transaction
before the interested shareholder attains 10% ownership. An
issuing public corporation is an Ohio corporation
with 50 or more shareholders that has its principal place of
business, principal executive offices, or substantial assets
within the State of Ohio, and as to which no close corporation
agreement exists. An interested shareholder is a
beneficial owner of 10% or more of the shares of a corporation.
Examples of transactions regulated by Chapter 1704 include
the disposition of assets, mergers and consolidations, voluntary
dissolutions and the transfer of shares.
Subsequent to the three-year period, a transaction subject to
Chapter 1704 may take place provided that certain
conditions are satisfied, including:
(i) prior to the interested shareholders share
acquisition date, the board of directors approved the purchase
of shares by the interested shareholder;
(ii) the transaction is approved by the holders of shares
with at least
662/3%
of the voting power of the corporation (or a different
proportion set forth in the articles of incorporation),
including at least a majority of the outstanding shares after
excluding shares controlled by the Ohio law interested
shareholder; or
(iii) the business combination results in shareholders,
other than the Ohio law interested shareholder, receiving a fair
price plus interest for their shares.
Section 1704 of the Ohio Revised Code may have the effect
of deterring certain potential acquisitions of the Company which
may be beneficial to shareholders.
Section 1707.041 of the Ohio Revised Code regulates certain
tender offer control bids for corporations in Ohio
with fifty or more shareholders that have significant Ohio
contacts (as defined in that statute) and permits the Ohio
Division of Securities to suspend a control bid if certain
information is not provided to offerees.
CERTAIN
FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of material federal income
tax considerations regarding our company and the securities we
are registering. This summary is based on current law, is for
general information only and is not tax advice. The tax
treatment to holders of our securities will vary depending on a
holders particular situation, and this discussion does not
purport to deal with all aspects of taxation that may be
relevant to a holder of securities in light of his or her
personal investments or tax circumstances, or to certain types
of holders subject to special treatment under the federal income
tax laws except to the extent discussed under the subheadings
Taxation of Tax-Exempt Shareholders and
Taxation of
Non-U.S. Shareholders.
In addition, the summary below does not consider the effect of
any foreign, state, local or other tax laws that may be
applicable to holders of our securities.
The information in this section is based on the Code, current,
temporary and proposed Treasury Regulations promulgated under
the Code, the legislative history of the Code, current
administrative interpretations and practices of the Internal
Revenue Service, or the IRS (including its practices and
policies as expressed in certain private letter rulings which
are not binding on the IRS except with respect to the
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particular taxpayers who requested and received such rulings),
and court decisions, all as of the date of this prospectus
supplement. Future legislation, Treasury Regulations,
administrative interpretations and practices and court decisions
may adversely affect, perhaps retroactively, the tax
considerations described herein. We have not requested, and do
not plan to request, any rulings from the IRS concerning our tax
treatment and the statements in this prospectus supplement are
not binding on the IRS or any court. Thus, we can provide no
assurance that these statements will not be challenged by the
IRS or sustained by a court if challenged by the IRS.
You are advised to consult your tax advisor regarding the
specific tax consequences to you of the acquisition, ownership
and sale of our securities, including the federal, state, local,
foreign and other tax consequences of such acquisition,
ownership and sale and of potential changes in applicable tax
laws.
Taxation
of Our Company
General. We elected to be taxed as a REIT
under Sections 856 through 860 of the Code, commencing with
our taxable year ended December 31, 1993. We believe we
have been organized and have operated in a manner which allows
us to qualify for taxation as a REIT under the Code commencing
with our taxable year ending December 31, 1993. We intend
to continue to operate in this manner.
The law firm of Baker & Hostetler LLP has acted as our
tax counsel in connection with our election to be taxed as a
REIT. It is the opinion of Baker & Hostetler LLP that
we have qualified as a REIT under the Code for our taxable years
ended December 31, 1993 through December 31, 2009, we
are organized in conformity with the requirements for
qualification as a REIT, and our current and proposed method of
operation will enable us to meet the requirements for
qualification and taxation as a REIT under the Code for our
taxable year ending December 31, 2010 and for future
taxable years. It must be emphasized that the opinion of
Baker & Hostetler LLP is based upon certain
assumptions and representations as to factual matters made by
us, including representations made by us in a representation
letter and certificate provided by one of our officers and our
factual representations set forth herein and in registration
statements previously filed with the SEC. Any variation from the
factual statements set forth herein, in registration statements
previously filed with the SEC, or in the representation letter
and certificate we have provided to Baker & Hostetler
LLP may affect the conclusions upon which its opinion is based.
The opinion of Baker & Hostetler LLP is based on
existing law as contained in the Code and Treasury Regulations
promulgated thereunder, in effect on the date of the opinion,
and the interpretations of such provisions and Treasury
Regulations by the IRS and the courts having jurisdiction over
such matters, all of which are subject to change either
prospectively or retroactively, and to possibly different
interpretations. Baker & Hostetler LLP will have no
obligation to advise us or the holders of our securities of any
subsequent change in the matters stated, represented or assumed,
or of any subsequent change in the applicable law. You should be
aware that the opinion represents Baker & Hostetler
LLPs best judgment of how a court would decide if
presented with the issues addressed therein but, because
opinions of counsel are not binding upon the IRS or any court,
there can be no assurance that contrary positions may not
successfully be asserted by the IRS. Moreover, our qualification
and taxation as a REIT depends upon our ability, through actual
annual operating results and methods of operation, to satisfy
various qualification tests imposed under the Code, such as
distributions to shareholders, asset composition levels, gross
income tests and diversity of stock ownership, the actual
results of which are not reviewed by Baker & Hostetler
LLP on a continuing basis. In addition, our ability to qualify
as a REIT also depends in part upon the operating results,
organizational structure and entity classification for federal
income tax purposes of certain affiliated entities, the status
of which may not have been reviewed by Baker &
Hostetler LLP. Our ability to qualify as a REIT also requires
that we satisfy certain asset tests, some of which depend upon
the fair market values of assets directly or indirectly owned by
us. Such values may not be susceptible to a precise
determination. Accordingly, no assurance can be given that the
actual results of our operations for any particular taxable year
will satisfy the requirements for qualification and taxation as
a REIT.
If we qualify for taxation as a REIT, we generally will not be
subject to federal corporate income taxes on our taxable income
that is distributed currently to our shareholders. This
treatment substantially eliminates
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the double taxation (once at the corporate level
when earned and once again at the shareholder level when
distributed) that generally results from investment in a C
corporation. However, we will be subject to federal income tax
as follows:
First, we will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed net
capital gains.
Second, we may be subject to the alternative minimum
tax on our items of tax preference under certain
circumstances.
Third, if we have (a) net income from the sale or other
disposition of foreclosure property (defined
generally as property we acquired through foreclosure or after a
default on a loan secured by the property or a lease of the
property, and which includes certain foreign currency gains and
deductions recognized after July 30, 2008) which is
held primarily for sale to customers in the ordinary course of
business or (b) other nonqualifying income from foreclosure
property, we will be subject to tax at the highest
U.S. federal corporate income tax rate on this income.
Fourth, we will be subject to a 100% tax on any net income from
prohibited transactions (which are, in general, certain sales or
other dispositions of property (other than foreclosure property)
held primarily for sale to customers in the ordinary course of
business).
Fifth, if we fail to satisfy the 75% or 95% gross income tests
(as described below) due to reasonable cause and not due to
willful neglect, but have maintained our qualification as a REIT
because we satisfied certain other requirements, we will be
subject to a 100% tax on an amount equal to (a) the gross
income attributable to the greater of the amounts by which we
fail the 75% or 95% gross income tests multiplied by (b) a
fraction intended to reflect our profitability.
Sixth, if we fail to distribute during each calendar year at
least the sum of (a) 85% of our REIT ordinary income for
the year, (b) 95% of our REIT capital gain net income for
the year (other than certain long-term capital gains for which
we make a Capital Gains Designation (defined below) and on which
we pay the tax), and (c) 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.
Seventh, if we acquire any asset from a corporation which is or
has been a C corporation in a transaction in which the basis of
the asset in our hands is determined by reference to the basis
of the asset in the hands of the C corporation, and we
subsequently recognize gain on the disposition of the asset
during the ten-year period beginning on the date on which we
acquired the asset, then we will be subject to tax at the
highest regular corporate tax rate on the excess of (a) the
fair market value of the asset over (b) our adjusted basis
in the asset, in each case determined as of the date we acquired
the asset. The results described in this paragraph with respect
to the recognition of gain assume that we will not make an
election pursuant to existing Treasury Regulations to recognize
such gain at the time we acquire the asset.
Eighth, we will be required to pay a 100% tax on any
redetermined rents, redetermined
deductions or excess interest. In general,
redetermined rents are rents from real property that are
overstated as a result of services furnished to any of our
tenants by a taxable REIT subsidiary of ours.
Redetermined deductions and excess interest generally represent
amounts that are deducted by a taxable REIT subsidiary of ours
for amounts paid to us that are in excess of the amounts that
would have been deducted based on arms length negotiations.
Ninth, if we fail to satisfy any of the REIT asset tests, as
described below, by more than a de minimis amount, due to
reasonable cause and not due to willful neglect and we
nonetheless maintain our REIT qualification because of specified
cure provisions, we will be required to pay a tax equal to the
greater of $50,000 or the highest corporate tax rate multiplied
by the net income generated by the nonqualifying assets that
caused us to fail such test.
Tenth, if we fail to satisfy any provision of the Code that
would result in our failure to qualify as a REIT (other than a
violation of the REIT gross income tests or certain violations
of the asset tests
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described below) and the violation is due to reasonable cause,
we may retain our REIT qualification but we will be required to
pay a penalty of $50,000 for each such failure.
We may elect to retain and pay income tax on our net long-term
capital gain. In that case, a U.S. shareholder would be
taxed on its proportionate share of our undistributed long-term
capital gain (to the extent that we make a timely designation of
such gain to the shareholder) and would receive a credit or
refund for its proportionate share of the tax we paid.
Requirements for Qualification as a REIT. The
Code defines a REIT as a corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) that issues transferable shares or transferable
certificates to evidence its beneficial ownership;
(3) that would be taxable as a domestic corporation, but
for Sections 856 through 860 of the Code;
(4) that is not a financial institution or an insurance
company within the meaning of certain provisions of the Code;
(5) that is beneficially owned by 100 or more persons;
(6) not more than 50% in value of the outstanding stock of
which is owned, actually or constructively, by five or fewer
individuals (as defined in the Code to include certain entities)
during the last half of each taxable year;
(7) that meets certain other tests, described below,
regarding the nature of its income and assets and the amount of
its distributions;
(8) that elects to be a REIT, or has made such election for
a previous year, and satisfies the applicable filing and
administrative requirements to maintain qualification as a
REIT; and
(9) that adopts a calendar year accounting period.
The Code provides that conditions (1) to (4), inclusive,
must be met during the entire taxable year and that condition
(5) must be met during at least 335 days of a taxable
year of 12 months, or during a proportionate part of a
taxable year of less than 12 months. Conditions
(5) and (6) do not apply until after the first taxable
year for which an election is made to be taxed as a REIT. For
purposes of condition (6), pension funds and certain other
tax-exempt entities are treated as individuals, subject to a
look-through exception with respect to pension funds.
We believe that we have satisfied each of the above conditions.
In addition, our Second Amended and Restated Articles of
Incorporation and code of regulations provide for restrictions
regarding ownership and transfer of shares. These restrictions
are intended to assist us in continuing to satisfy the share
ownership requirements described in (5) and (6) above.
These restrictions, however, may not ensure that we will, in all
cases, be able to satisfy the share ownership requirements
described in (5) and (6) above. In general, if we fail
to satisfy these share ownership requirements, our status as a
REIT will terminate. However, if we comply with the rules in
applicable Treasury Regulations that require us to ascertain the
actual ownership of our shares, and we do not know, or would not
have known through the exercise of reasonable diligence, that we
failed to meet the requirement described in condition
(6) above, we will be treated as having met this
requirement.
Ownership of Interests in Partnerships, Limited Liability
Companies and Qualified REIT Subsidiaries and Taxable REIT
Subsidiaries. In the case of a REIT which is a
partner in a partnership, or a member in a limited liability
company treated as a partnership for federal income tax
purposes, Treasury Regulations provide that the REIT will be
deemed to own its proportionate share of the assets of the
partnership or limited liability company, based on its interest
in partnership capital, subject to special rules relating to the
10% REIT asset test described below. Also, the REIT will be
deemed to be entitled to its proportionate share of the income
of that entity. The assets and items of gross income of the
partnership or limited liability company retain the same
character in the hands of the REIT for purposes of
Section 856 of the Code, including
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satisfying the gross income tests and the asset tests. Thus, our
proportionate share of the assets and items of income of
partnerships and limited liability companies taxed as
partnerships, in which we are, directly or indirectly through
other partnerships or limited liability companies taxed as
partnerships, a partner or member, are treated as our assets and
items of income for purposes of applying the REIT qualification
requirements described in this prospectus supplement (including
the income and asset tests described below).
A corporation qualifies as a qualified REIT subsidiary, or a
QRS, if 100% of its outstanding stock is held by us, and we do
not elect to treat the corporation as a taxable REIT subsidiary,
as described below. A QRS is not treated as a separate
corporation, and all assets, liabilities and items of income,
deduction and credit of a QRS are treated as our assets,
liabilities and items of income, deduction and credit for all
purposes of the Code, including the REIT qualification tests.
For this reason, references to our income and assets include the
income and assets of any QRS. A QRS is not subject to federal
income tax, and our ownership of the voting stock of a QRS is
ignored for purposes of determining our compliance with the
ownership limits described below under Asset
Tests.
A taxable REIT subsidiary, or a TRS, is a corporation other than
a REIT in which a REIT directly or indirectly holds stock, and
that has made a joint election with the REIT to be treated as a
TRS. A TRS also includes any corporation other than a REIT with
respect to which a TRS owns securities possessing more than 35%
of the total voting power or value of the outstanding securities
of such corporation. Other than some activities relating to
lodging and health care facilities, a TRS may generally engage
in any business, including the provision of customary or
non-customary services to tenants of its parent REIT. A TRS is
subject to income tax as a regular C corporation. In addition, a
TRS may be prevented from deducting interest on debt funded
directly or indirectly by its parent REIT if certain tests
regarding the taxable REIT subsidiarys debt to equity
ratio and interest expense are not satisfied. A REITs
ownership of securities of a TRS will not be subject to the 10%
or 5% asset tests described below, and its operations will be
subject to the provisions described above.
Income Tests. We must satisfy two gross income
requirements annually to maintain our qualification as a REIT.
First, in each taxable year at least 75% of our gross income
(excluding gross income from prohibited transactions and certain
real estate liability hedges) must be derived directly or
indirectly from investments relating to real property or
mortgages secured by real property, including rents from
real property and, in certain circumstances, interest, or
certain types of temporary investment income. Second, in each
taxable year at least 95% of our gross income (excluding gross
income from prohibited transactions and certain real estate
liability hedges) must be derived directly or indirectly from
income from the real property investments described above or
dividends, interest and gain from the sale or disposition of
stock or securities (or from any combination of the foregoing).
Rents from Real Property. Rents we receive
will qualify as rents from real property for
purposes of satisfying the gross income tests for a REIT
described above only if all of the following conditions are met:
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The amount of rent must not be based in any way on the income or
profits of any person, although rents generally will not be
excluded solely because they are based on a fixed percentage or
percentages of gross receipts or gross sales.
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We, or an actual or constructive owner of 10% or more of our
capital stock, must not actually or constructively own 10% or
more of the interests in the tenant, or, if the tenant is a
corporation, 10% or more of the voting power or value of all
classes of stock of the tenant. Rents received from such tenant
that is our TRS, however, will not be excluded from the
definition of rents from real property as a result
of this condition if either at least 90% of the space at the
property to which the rents relate is leased to third parties,
and the rents paid by the TRS are comparable to rents paid by
our other tenants for comparable space. Whether rents paid by a
TRS are substantially comparable to rents paid by other tenants
is determined at the time the lease with the TRS is entered
into, extended, and modified, if such modification increases the
rents due under such lease. Notwithstanding the foregoing,
however, if a lease with a controlled taxable REIT
subsidiary is modified and such modification results in an
increase in the rents payable by such TRS, any such increase
will not qualify as rents from real property. For
purposes of this rule, a controlled taxable REIT
subsidiary is a TRS in which we own
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stock possessing more than 50% of the voting power or more than
50% of the total value of outstanding stock of such TRS.
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Rent attributable to personal property, leased in connection
with a lease of real property, is not greater than 15% of the
total rent received under the lease. If this condition is not
met, then the portion of the rent attributable to personal
property will not qualify as rents from real
property.
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For rents received to qualify as rents from real
property, the REIT generally must not operate or manage
the property or furnish or render services to the tenants of the
property (subject to a 1% de minimis exception), other than
through an independent contractor from whom the REIT derives no
revenue or through a TRS. The REIT may, however, directly
perform certain services that are usually or customarily
rendered in connection with the rental of space for
occupancy only and are not otherwise considered rendered
to the occupant of the property. Any amounts we receive
from a TRS with respect to the TRSs provision of
non-customary services will, however, be nonqualifying income
under the 75% gross income test and, except to the extent
received through the payment of dividends, the 95% gross income
test.
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We do not intend to charge rent for any property that is based
in whole or in part on the net income or profits of any person
(except by reason of being based on a percentage of gross
receipts or sales, as heretofore described), and we do not
intend to rent any personal property (other than in connection
with a lease of real property where less than 15% of the total
rent is attributable to personal property). We directly perform
services under certain of our leases, but such services are not
rendered to the occupant of the property. Furthermore, these
services are usual and customary management services provided by
landlords renting space for occupancy in the geographic areas in
which we own property. To the extent that the performance of any
services provided by us would cause amounts received from our
tenants to be excluded from rents from real property, we intend
to hire a TRS, or an independent contractor from whom we derive
no revenue, to perform such services.
Interest. The term interest
generally does not include any amount received or accrued
(directly or indirectly) if the determination of some or all of
the amount depends in any way on the income or profits of any
person. However, an amount received or accrued generally will
not be excluded from the term interest solely by
reason of being based on a fixed percentage or percentages of
receipts or sales.
Hedging Transactions. From time to time, we
may enter into hedging transactions with respect to our assets
or liabilities. Our hedging activities may include entering into
interest rate swaps, caps, and floors, options to purchase such
items, and futures and forward contracts.
Commencing with our 2005 taxable year, income and gain from
hedging transactions will be excluded from gross
income for purposes of the 95% gross income test, but not the
75% gross income test. For hedging transactions entered into
after July 30, 2008, income and gain from hedging
transactions will be excluded from gross income for
purposes of both the 75% and 95% gross income tests. A
hedging transaction means either (1) any
transaction entered into in the normal course of our trade or
business primarily to manage the risk of interest rate, price
changes, or currency fluctuations with respect to borrowings
made or to be made, or ordinary obligations incurred or to be
incurred, to acquire or carry real estate assets or (2) for
transactions entered into after July 30, 2008, any
transaction entered into primarily to manage the risk of
currency fluctuations with respect to any item of income or gain
that would be qualifying income under the 75% or 95% gross
income test (or any property which generates such income or
gain). We will be required to clearly identify any such hedging
transaction before the close of the day on which it was
acquired, originated, or entered into and to satisfy other
identification requirements. We intend to structure any hedging
or similar transactions so as not to jeopardize our status as a
REIT.
Prohibited Transactions Income. A REIT will
incur a 100% tax on the net income derived from any sale or
other disposition of property, other than foreclosure property,
that the REIT holds primarily for sale to customers in the
ordinary course of a trade or business. We believe that none of
our assets are held primarily for sale to customers and that a
sale of any of our assets will not be in the ordinary course of
our business. Whether a REIT holds an asset primarily for
sale to customers in the ordinary course of a trade or
business
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depends, however, on the facts and circumstances in effect from
time to time, including those related to a particular asset. A
safe harbor to the characterization of the sale of property by a
REIT as a prohibited transaction and the 100% prohibited
transaction tax is available if the following requirements are
met:
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the REIT has held the property for not less than four years (or,
for sales made after July 30, 2008, two years);
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the aggregate expenditures made by the REIT, or any partner of
the REIT, during the four-year period (or, for sales made after
July 30, 2008, two-year period) preceding the date of the
sale that are includable in the basis of the property do not
exceed 30% of the selling price of the property;
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either (1) during the year in question, the REIT did not
make more than seven sales of property other than foreclosure
property or sales to which Code Section 1033 applies,
(2) the aggregate adjusted bases of all such properties
sold by the REIT during the year did not exceed 10% of the
aggregate bases of all of the assets of the REIT at the
beginning of the year or (3) for sales made after
July 30, 2008, the aggregate fair market value of all such
properties sold by the REIT during the year did not exceed 10%
of the aggregate fair market value of all of the assets of the
REIT at the beginning of the year;
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in the case of property not acquired through foreclosure or
lease termination, the REIT has held the property for at least
four years (or, for sales made after July 30, 2008, two
years) for the production of rental income; and
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if the REIT has made more than seven sales of non-foreclosure
property during the taxable year, substantially all of the
marketing and development expenditures with respect to the
property were made through an independent contractor from whom
the REIT derives no income.
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We will attempt to comply with the terms of the safe-harbor
provision in the federal income tax laws prescribing when an
asset sale will not be characterized as a prohibited
transaction. We cannot assure you, however, that we can comply
with the safe-harbor provisions or that we will avoid owning
property that may be characterized as property held
primarily for sale to customers in the ordinary course of
a trade or business. We may, however, form or acquire a
taxable REIT subsidiary to hold and dispose of those properties
we conclude may not fall within the safe-harbor provisions.
Foreign Currency Gain. Certain foreign
currency gains recognized after June 30, 2008 will be
excluded from gross income for purposes of one or both of the
gross income tests. Real estate foreign exchange
gain will be excluded from gross income for purposes of
the 75% gross income test. Real estate foreign exchange gain
generally includes foreign currency gain attributable to any
item of income or gain that is qualifying income for purposes of
the 75% gross income test, foreign currency gain attributable to
the acquisition or ownership of (or becoming or being the
obligor under) obligations secured by mortgages on real property
or on interests in real property and certain foreign currency
gain attributable to certain qualified business
units of a REIT. Passive foreign exchange gain
will be excluded from gross income for purposes of the 95% gross
income test. Passive foreign exchange gain generally includes
real estate foreign exchange gain as described above, and also
includes foreign currency gain attributable to any item of
income or gain that is qualifying income for purposes of the 95%
gross income test and foreign currency gain attributable to the
acquisition or ownership of (or becoming or being the obligor
under) obligations secured by mortgages on real property or on
interests in real property. Because passive foreign exchange
gain includes real estate foreign exchange gain, real estate
foreign exchange gain is excluded from gross income for purposes
of both the 75% and 95% gross income test. These exclusions for
real estate foreign exchange gain and passive foreign exchange
gain do not apply to any foreign currency gain derived from
dealing, or engaging in substantial and regular trading, in
securities. Such gain is treated as nonqualifying income for
purposes of both the 75% and 95% gross income tests.
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Failure to Satisfy 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 the year
if we are entitled to relief under certain provisions of the
Code. We generally may make use of the relief provisions if:
(i) following our identification of the failure to meet the
75% or 95% gross income tests for any taxable year, we file a
schedule with the IRS setting forth each item of our gross
income for purposes of the 75% or 95% gross income tests for
such taxable year in accordance with Treasury Regulations to be
issued; and
(ii) our failure to meet these tests was due to reasonable
cause and not due to willful neglect.
It is not possible, however, to state whether in all
circumstances we would be entitled to the benefit of these
relief provisions. For example, if we fail to satisfy the gross
income tests because nonqualifying income that we intentionally
accrue or receive exceeds the limits on nonqualifying income,
the IRS could conclude that our failure to satisfy the tests was
not due to reasonable cause. If these relief provisions do not
apply to a particular set of circumstances, we will not qualify
as a REIT. As discussed above, even if these relief provisions
apply, and we retain our status as a REIT, a tax would be
imposed with respect to our nonqualifying income. We may not
always be able to comply with the gross income tests for REIT
qualification despite periodic monitoring of our income.
Penalty Tax. Any redetermined rents,
redetermined deductions or excess interest we generate will be
subject to a 100% penalty tax. In general, redetermined rents
are rents from real property that are overstated as a result of
any services furnished to any of our tenants by one of our TRSs,
and redetermined deductions and excess interest represent any
amounts that are deducted by a TRS for amounts paid to us that
are in excess of the amounts that would have been deducted based
on arms-length negotiations. Rents we receive will not
constitute redetermined rents if they qualify for certain safe
harbor provisions contained in the Code. These determinations
are inherently factual, and the IRS has broad discretion to
assert that amounts paid between related parties should be
reallocated to clearly reflect their respective incomes. If the
IRS successfully made such an assertion, we would be required to
pay a 100% penalty tax on the excess of the amount actually paid
over, in general, an arms-length amount for such rent,
payment of interest or other payment.
Asset Tests. At the close of each quarter of
each taxable year, we also must satisfy four tests relating to
the nature and composition of our assets. First, at least 75% of
the value of our total assets must be represented by real estate
assets, cash, cash items and government securities. For purposes
of this test, real estate assets include real property
(including interests in real property and interests in mortgages
on real property) and shares (or transferable certificates of
beneficial interest) in other REITs, as well as any stock or
debt instruments that are purchased with the proceeds of a stock
offering or public offering of debt having a maturity of at
least five years, but only for the one-year period beginning on
the date we receive such proceeds. Second, not more than 25% of
our total assets may be represented by securities, other than
those securities includable in the 75% asset test. Third, of the
investments included in the 25% asset class, and except for
investments in another REIT, a QRS or a TRS, the value of any
one issuers securities may not exceed 5% of the value of
our total assets, and we may not own more than 10% of the total
vote or value of the outstanding securities of any one issuer
except, in the case of the 10% value test, securities satisfying
the straight debt safe-harbor. Certain types of
securities we may own are disregarded as securities solely for
purposes of the 10% value test, including, but not limited to,
any loan to an individual or an estate, any obligation to pay
rents from real property and any security issued by a REIT. In
addition, solely for purposes of the 10% value test, the
determination of our interest in the assets of a partnership or
limited liability company in which we own an interest will be
based on our proportionate interest in any securities issued by
the partnership or limited liability company, excluding for this
purpose certain securities described in the Code. Fourth, no
more than 25% of the value of our assets (20% for taxable years
beginning before January 1, 2009) may be comprised of
securities of one or more TRSs.
After initially meeting the asset tests at the close of any
quarter, we will not lose our status as a REIT for failure to
satisfy the asset tests at the end of a later quarter solely by
reason of changes in asset values. If we fail to satisfy an
asset test because we acquire securities or other property
during a quarter, we can cure this failure by disposing of
sufficient nonqualifying assets within 30 days after the
close of that quarter. We believe
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we have maintained and intend to continue to maintain adequate
records of the value of our assets to ensure compliance with the
asset tests. If we failed to cure any noncompliance with the
asset tests within the 30 day cure period, we would cease
to qualify as a REIT unless we are eligible for certain relief
provisions discussed below.
Certain relief provisions may be available to us if we fail to
satisfy the asset tests described above after the 30 day
cure period. Under these provisions, we will be deemed to have
met the 5% and 10% REIT asset tests if the value of our
nonqualifying assets (i) does not exceed the lesser of
(a) 1% of the total value of our assets at the end of the
applicable quarter or (b) $10,000,000, and (ii) we
dispose of the nonqualifying assets or otherwise satisfy such
tests within six months after the last day of the quarter in
which the failure to satisfy the asset tests is discovered. For
violations due to reasonable cause and not willful neglect that
are in excess of the de minimis exception described above, we
may avoid disqualification as a REIT under any of the asset
tests, after the 30 day cure period, by taking steps
including (i) the disposition of sufficient nonqualifying
assets, or the taking of other actions, which allow us to meet
the asset test within six months after the last day of the
quarter in which the failure to satisfy the asset tests is
discovered, (ii) paying a tax equal to the greater of
(a) $50,000 or (b) the highest corporate tax rate
multiplied by the net income generated by the nonqualifying
assets and (iii) disclosing certain information to the IRS.
Although we expect to satisfy the asset tests described above
and plan to take steps to ensure that we satisfy such tests for
any quarter with respect to which retesting is to occur, there
can be no assurance we will always be successful. If we fail to
cure any noncompliance with the asset tests in a timely manner,
and the relief provisions described above are not available, we
would cease to qualify as a REIT.
Annual Distribution Requirements. To maintain
our qualification as a REIT, we are required to distribute
dividends (other than capital gain dividends) to our
shareholders in an amount at least equal to the sum of 90% of
our REIT taxable income (computed without regard to
the dividends paid deduction and our net capital gain) and 90%
of our net income (after tax), if any, from foreclosure
property; minus the excess of the sum of certain items of
noncash income (i.e., income attributable to leveled stepped
rents, original issue discount on purchase money debt, or a
like-kind exchange that is later determined to be taxable) over
5% of REIT taxable income as described above.
In addition, if we dispose of any asset we acquired from a
corporation which is or has been a C corporation in a
transaction in which our basis in the asset is determined by
reference to the basis of the asset in the hands of that C
corporation, within the ten-year period following our
acquisition of such asset, we would be required to distribute at
least 90% of the after-tax gain, if any, we recognized on the
disposition of the asset, to the extent that gain does not
exceed the excess of (a) the fair market value of the asset
on the date we acquired the asset over (b) our adjusted
basis in the asset on the date we acquired the asset.
We must pay the distributions described above in the taxable
year to which they relate, or, alternatively, in the taxable
year following the taxable year to which they relate, provided
we either (1) declare the distributions before timely
filing the tax return for the taxable year to which the
distributions relate and pay the distributions on or before the
first regular dividend payment after such declaration or
(2) declare the distributions in October, November or
December of the taxable year to which they relate, payable to
the shareholders of record on a specified date in such month and
pay the distributions in January of the following taxable year.
The distributions described in (1) are taxable to our
shareholders (other than, in certain circumstances, tax-exempt
entities) in the taxable year in which they are paid, even
though the distributions relate to the prior taxable year for
purposes of our 90% distribution requirement. The distributions
described in (2), however, are taxable to our shareholders
(other than, in certain circumstances, tax-exempt entities) in
the taxable year in which they are declared. The amount
distributed must not be preferential i.e., every
shareholder of the class of stock to which a distribution is
made must be treated the same as every other shareholder of that
class, and no class of stock may be treated otherwise than in
accordance with its dividend rights as a class. To the extent
that we do not distribute all of our net capital gain or
distribute at least 90%, but less than 100%, of our REIT
taxable income, as adjusted, we will be subject to tax
thereon at regular ordinary and capital gain corporate tax
rates. We believe we have made and intend to continue to make
timely distributions sufficient to satisfy these annual
distribution requirements.
39
We generally expect that our REIT taxable income will be less
than our cash flow because of the allowance of depreciation and
other non-cash charges in computing REIT taxable income.
Accordingly, we anticipate that we will generally have
sufficient cash or liquid assets to enable us to satisfy the
distribution requirements described above. However, from time to
time, we may not have sufficient cash or other liquid assets to
meet these distribution requirements because of timing
differences between the actual receipt of income and actual
payment of deductible expenses, and the inclusion of income and
deduction of expenses in arriving at our taxable income. If
these timing differences occur, in order to meet the
distribution requirements, we may need to arrange for
short-term, or possibly long-term, borrowings or need to pay
dividends in the form of taxable share dividends.
Under certain circumstances, we may be able to rectify a failure
to meet the 90% distribution requirement for a year by paying
deficiency dividends to shareholders 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 to the IRS based on the amount of
any deduction taken for deficiency dividends.
In addition, we would be subject to a 4% excise tax to the
extent we fail to distribute during each calendar year (or in
the case of distributions with declaration and record dates
falling in the last three months of the calendar year, by the
end of January immediately following such year) at least the sum
of 85% of our REIT ordinary income for such year, 95% of our
REIT capital gain income for the year (other than certain
long-term capital gains for which we make a Capital Gains
Designation (as discussed below) and on which we pay the tax),
and any undistributed taxable income from prior periods. Any
REIT taxable income and net capital gain on which this excise
tax is imposed for any year is treated as an amount distributed
during that year for purposes of calculating such tax.
Earnings and Profits Distribution
Requirement. In order to qualify as a REIT, we
cannot have at the end of any taxable year any undistributed
earnings and profits that are attributable to a
C corporation taxable year (i.e., a year in which a
corporation is neither a REIT nor an S corporation).
We intend to make timely distributions to satisfy the annual
distribution requirements.
Failure
to Qualify
Specified cure provisions may be available to us in the event
that we violate a provision of the Code that would result in our
failure to qualify as a REIT. These cure provisions would reduce
the instances that could lead to our disqualification as a REIT
for violations due to reasonable cause and would instead
generally require the payment of a monetary penalty. 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
shareholders in any year in which we fail to qualify will not be
deductible by us, and we will not be required to distribute any
amounts to our shareholders. As a result, our failure to qualify
as a REIT would reduce the cash available for distribution by us
to our shareholders. In addition, if we fail to qualify as a
REIT, all distributions to shareholders will be taxable as
ordinary income to the extent of our current and accumulated
earnings and profits, and, subject to certain limitations of the
Code, corporate distributees may be eligible for the dividends
received deduction. Unless entitled to relief under specific
statutory provisions, we would also be disqualified from
taxation as a REIT for the four taxable years following the year
during which we lost our qualification. It is not possible to
state whether in all circumstances we would be entitled to this
statutory relief.
Taxation
of Taxable U.S. Shareholders
The following summary describes certain federal income tax
consequences to U.S. shareholders with respect to an
investment in our shares. This discussion does not address the
tax consequences to persons who receive special treatment under
the federal income tax law. Shareholders subject to special
treatment include, without limitation, insurance companies,
financial institutions or broker-dealers, tax-exempt
organizations, shareholders holding securities as part of a
conversion transaction, or a hedge or hedging transaction or as
a
40
position in a straddle for tax purposes, foreign corporations or
partnerships and persons who are not citizens or residents of
the United States.
As used herein, the term U.S. Shareholder means
a holder of shares who, for United States federal income tax
purposes:
(i) is a citizen or resident of the United States;
(ii) is a corporation or other entity classified as a
corporation for United States federal income tax purposes,
created or organized in or under the laws of the United States
or of any state thereof or in the District of Columbia;
(iii) is an estate the income of which is subject to United
States federal income taxation regardless of its source; or
(iv) is a trust whose administration is subject to the
primary supervision of a United States court and which has one
or more United States persons who have the authority to control
all substantial decisions of the trust. Notwithstanding the
preceding sentence, to the extent provided in Treasury
Regulations, certain trusts in existence on August 20,
1996, and treated as United States persons prior to this date
that elect to continue to be treated as United States persons,
shall also be considered U.S. Shareholders.
If a partnership is a beneficial owner of our shares, the tax
treatment of a partner in the partnership will generally depend
upon the status of the partner and the activities of the
partnership. A beneficial owner that is a partnership and
partners in such a partnership are encouraged to consult their
tax advisors about the U.S. federal income tax consequences
of the purchase, ownership and disposition of our shares.
Distributions Generally. As long as we qualify
as a REIT, distributions out of our current or accumulated
earnings and profits, other than capital gain dividends
discussed below, generally will constitute dividends taxable to
our taxable U.S. Shareholders as ordinary income. For
purposes of determining whether distributions to holders of
shares are out of current or accumulated earnings and profits,
our earnings and profits will be allocated first to our
outstanding preferred shares and then to our common shares.
These distributions will not be eligible for the
dividends-received deduction in the case of
U.S. Shareholders that are corporations.
Because we generally are not subject to federal income tax on
the portion of our REIT taxable income distributed to our
shareholders, our ordinary dividends generally are not eligible
for the reduced 15% rate available to most non-corporate
taxpayers through 2010, and will continue to be taxed at the
higher tax rates applicable to ordinary income. However, the
reduced 15% rate does apply to our distributions:
(i) designated as long-term capital gain dividends (except
to the extent attributable to real estate depreciation, in which
case such distributions continue to be subject to tax at a 25%
rate);
(ii) to the extent attributable to dividends received by us
from non-REIT corporations or other taxable REIT
subsidiaries; and
(iii) to the extent attributable to income upon which we
have paid corporate income tax (for example, if we distribute
taxable income that we retained and paid tax on in the prior
year).
To the extent that we make distributions in excess of our
current and accumulated earnings and profits, these
distributions will be treated first as a tax-free return of
capital to each U.S. Shareholder. This treatment will
reduce the adjusted basis which each U.S. Shareholder has
in his shares of stock for tax purposes by the amount of the
distribution (but not below zero). Distributions in excess of a
U.S. Shareholders adjusted basis in his shares will
be taxable as capital gains (provided that the shares have been
held as a capital asset) and will be taxable as long-term
capital gain if the shares have been held for more than one
year. Dividends we declare in October, November, or December of
any year and payable to a shareholder of record on a specified
date in any of these months shall be treated as both paid by us
and received by the shareholder on December 31 of that year,
provided we actually pay the dividend on or before January 31 of
the following calendar year. Shareholders may not include in
their own income tax returns any of our net operating losses or
capital losses.
41
Stock Dividends. The IRS recently issued a
revenue procedure regarding the tax treatment of stock
distributions paid by a REIT. Under that guidance, which applies
to distributions declared on or before December 31, 2012
with respect to taxable years ending on or before
December 31, 2011, a REIT may pay up to 90% of a
distribution in common stock. No determination has been made as
to whether we will make future distributions in a combination of
cash and common shares that meet the IRS requirements. Paying
all or a portion of our dividend in a combination of cash and
common shares would allow us to satisfy our REIT taxable income
distribution requirement, while enhancing our financial
flexibility and balance sheet strength.
If we make a dividend distribution in a combination of cash and
common shares that satisfies the revenue procedure, a
U.S. Shareholder generally would include the sum of the
value of the common shares and the amount of cash received in
its gross income as dividend income to the extent that such
U.S. Shareholders share of the distribution is made
out of its share of the portion of our current and accumulated
earnings and profits allocable to such distribution. The value
of any common shares received as part of a distribution
generally is equal to the amount of cash that could have been
received instead of the common shares. Depending on the
circumstances of the U.S. Shareholder, the tax on the
distribution may exceed the amount of the distribution received
in cash, in which case such U.S. Shareholder would have to
pay the tax using cash from other sources. If a
U.S. Shareholder sells the common shares it receives as a
dividend in order to pay this tax and the sales proceeds are
less than the amount required to be included in income with
respect to the dividend, such U.S. Shareholder could have a
capital loss with respect to the common shares sale that could
not be used to offset such dividend income. A
U.S. Shareholder that receives common shares pursuant to a
distribution generally has a tax basis in such common shares
equal to the amount of cash that could have been received
instead of such common shares as described above, and a holding
period in such common shares that begins on the day following
the payment date for the distribution.
Capital Gain Distributions. Distributions that
we properly designate as capital gain dividends (and
undistributed amounts for which we properly make a capital gains
designation) will be taxable to U.S. Shareholders as gains
(to the extent that they do not exceed our actual net capital
gain for the taxable year) from the sale or disposition of a
capital asset. Depending on the period of time we have held the
assets which produced these gains, and on certain designations,
if any, which we may make, these gains may be taxable to
non-corporate U.S. Shareholders at either a 15% or a 25%
rate, depending on the nature of the asset giving rise to the
gain. Corporate U.S. Shareholders may, however, be required
to treat up to 20% of certain capital gain dividends as ordinary
income.
Passive Activity Losses and Investment Interest
Limitations. Distributions we make and gain
arising from the sale or exchange by a U.S. Shareholder of
our shares will be treated as portfolio income. As a result,
U.S. Shareholders generally will not be able to apply any
passive losses against this income or gain. A
U.S. Shareholder may elect to treat capital gain dividends,
capital gains from the disposition of stock and qualified
dividend income as investment income for purposes of computing
the investment interest limitation, but in such case, the
shareholder will be taxed at ordinary income rates on such
amount. Other distributions we make (to the extent they do not
constitute a return of capital) generally will be treated as
investment income for purposes of computing the investment
interest limitation. Gain arising from the sale or other
disposition of our shares, however, will not be treated as
investment income under certain circumstances.
Retention of Net Long-Term Capital Gains. We
may elect to retain, rather than distribute as a capital gain
dividend, our net long-term capital gains. If we make this
election, on a Capital Gains Designation, we would
pay tax on our retained net long-term capital gains. In
addition, to the extent we make a Capital Gains Designation, a
U.S. Shareholder generally would:
(i) include its proportionate share of our undistributed
long-term capital gains in computing its long-term capital gains
in its return for its taxable year in which the last day of our
taxable year falls (subject to certain limitations as to the
amount that is includable);
(ii) be deemed to have paid the capital gains tax imposed
on us on the designated amounts included in the
U.S. Shareholders long-term capital gains;
(iii) receive a credit or refund for the amount of tax
deemed paid by it;
42
(iv) increase the adjusted basis of its shares by the
difference between the amount of includable gains and the tax
deemed to have been paid by it; and
(v) in the case of a U.S. Shareholder that is a
corporation, appropriately adjust its earnings and profits for
the retained capital gains in accordance with Treasury
Regulations to be promulgated.
Dispositions of Shares. Generally, if you are
a U.S. Shareholder and you sell or dispose of your shares,
you will recognize gain or loss for federal income tax purposes
in an amount equal to the difference between the amount of cash
and the fair market value of any property you receive on the
sale or other disposition and your adjusted basis in the shares
for tax purposes. This gain or loss will be capital if you have
held the shares as a capital asset and will be long-term capital
gain or loss if you have held the shares for more than one year.
However, if you are a U.S. Shareholder and you recognize
loss upon the sale or other disposition of shares that you have
held for six months or less (after applying certain holding
period rules), the loss you recognize will be treated as a
long-term capital loss, to the extent you received distributions
from us which were required to be treated as long-term capital
gains. All or a portion of any loss a U.S. Shareholder
realizes upon a taxable disposition of our shares may be
disallowed if the U.S. Shareholder purchases substantially
identical stock within the
61-day
period beginning 30 days before and ending 30 days
after the disposition.
The maximum tax rate for individual taxpayers on net long-term
capital gains (i.e., the excess of net long-term capital gain
over net short-term capital loss) is 15% for most assets. In the
case of individuals whose ordinary income is taxed at a 10% or
15% rate, the 15% rate is reduced to 5%. Absent future
legislation, the maximum tax rate on long-term capital gains
will return to 20% for tax years beginning after
December 31, 2010.
Information Reporting and Backup
Withholding. We report to our
U.S. Shareholders and the IRS the amount of dividends paid
during each calendar year, and the amount of any tax withheld.
Under the backup withholding rules, a shareholder may be subject
to backup withholding with respect to dividends paid unless the
holder is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact, or
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 U.S. Shareholder that does not provide us with its
correct taxpayer identification number may also be subject to
penalties imposed by the IRS. Backup withholding is not an
additional tax. Any amount paid as backup withholding will be
creditable against the shareholders income tax liability.
In addition, we may be required to withhold a portion of capital
gain distributions to any shareholders who fail to certify their
non-foreign status. See Taxation of
Non-U.S. Shareholders.
Recently Enacted Legislation. Recently enacted
legislation will impose a 3.8% Medicare tax on the net
investment income (which includes taxable dividends and gross
proceeds of a disposition of our common shares) of certain
individuals, trusts, and estates for taxable years beginning
after December 31, 2012. (See Taxation of
Non-U.S. Shareholders
below for a discussion of other recently enacted legislation
which may be relevant to an investment in our common shares for
certain
non-U.S. Shareholders.)
Taxation
of Tax-Exempt Shareholders
The IRS has ruled that amounts distributed as dividends by a
qualified REIT do not constitute unrelated business taxable
income, or UBTI, when received by a tax-exempt entity. Based on
that ruling, dividend income from us will not be UBTI to a
tax-exempt shareholder so long as the tax-exempt shareholder
(except certain tax-exempt shareholders described below) has not
held its shares as debt financed property within the
meaning of the Code (generally, shares, the acquisition of which
was financed through a borrowing by the tax exempt shareholder)
and the shares are not otherwise used in a trade or business.
Similarly, income from the sale of shares will not constitute
UBTI unless a tax-exempt shareholder has held its shares as
debt financed property within the meaning of the
Code or has used the shares in its trade or business.
For tax-exempt shareholders which are social clubs, voluntary
employee benefit associations, supplemental unemployment benefit
trusts and qualified group legal services plans exempt from
federal income taxation under Code Sections 501(c)(7),
(c)(9), (c)(17) and (c)(20), respectively, income from an
investment in our
43
shares will constitute UBTI unless the organization is able to
properly deduct amounts set aside or placed in reserve for
certain purposes so as to offset the income generated by its
investment in our shares. These prospective investors should
consult their own tax advisors concerning these set
aside and reserve requirements.
Notwithstanding the above, however, a portion of the dividends
paid by a pension held REIT may be treated as UBTI
as to certain types of trusts that hold more than 10% (by value)
of the interests in the REIT.
A REIT will not be a pension held REIT if it is able
to satisfy the not closely held requirement without
relying upon the look-through exception with respect
to certain trusts. We do not expect to be classified as a
pension held REIT, but because our shares are
publicly traded, we cannot guarantee this will always be the
case.
Tax-exempt shareholders are encouraged to consult their own tax
advisors concerning the U.S. federal, state, local and
foreign tax consequences of an investment in our shares.
Taxation
of Non-U.S.
Shareholders
The rules governing U.S. federal income taxation of
non-U.S. Shareholders
(defined below) are complex. This section is only a summary of
such rules. We urge
non-U.S. Shareholders
to consult their own tax advisors to determine the impact of
foreign, federal, state, and local income tax laws on ownership
of shares, including any reporting requirements. As used herein,
the term
non-U.S. Shareholder
means any taxable beneficial owner of our shares (other than a
partnership or entity that is treated as a partnership for
U.S. federal income tax purposes) that is not a taxable
U.S. Shareholder.
Ordinary Dividends. A
non-U.S. Shareholder
that receives a distribution that is not attributable to gain
from our sale or exchange of U.S. real property interests
(as defined below) and that we do not designate as a capital
gain dividend or retained capital gain will recognize ordinary
income to the extent that we pay such distribution out of our
current or accumulated earnings and profits. A withholding tax
equal to 30% of the gross amount of the distribution ordinarily
will apply to such distribution unless an applicable income tax
treaty reduces or eliminates the tax. Under some treaties,
however, rates below 30% that are applicable to ordinary income
dividends from U.S. corporations may not apply to ordinary
income dividends from a REIT or may apply only if the REIT meets
certain additional conditions. If a distribution is treated as
effectively connected with the
non-U.S. Shareholders
conduct of a U.S. trade or business, however, the
non-U.S. Shareholder
generally will be subject to the federal income tax and the
federal alternative minimum tax (subject to a special adjustment
for non-resident alien individuals) on the distribution, in the
same manner as taxable U.S. Shareholders are taxed with
respect to such distributions (and also may be subject to the
30% branch profits tax in the case of a
non-U.S. Shareholder
that is a
non-U.S. corporation
unless the rate is reduced or eliminated by an applicable income
tax treaty).
Return of Capital. Except possibly with
respect to gains subject to FIRPTA (as described below), a
non-U.S. Shareholder
will not incur tax on a distribution to the extent it exceeds
our current and accumulated earnings and profits if such
distribution does not exceed the adjusted basis of its shares.
Instead, such distribution in excess of earnings and profits
will reduce the adjusted basis of such shares. A
non-U.S. Shareholder
will be subject to tax to the extent a distribution exceeds both
our current and accumulated earnings and profits and the
adjusted basis of its shares, if the
non-U.S. Shareholder
otherwise would be subject to tax on gain from the sale or
disposition of its shares, as described below. Because we
generally cannot determine at the time we make a distribution
whether or not the distribution will exceed our current and
accumulated earnings and profits, we normally will withhold tax
on the entire amount of any distribution just as we would
withhold on a dividend. However, a
non-U.S. Shareholder
may obtain a refund of amounts that we withhold if we later
determine that a distribution in fact exceeded our current and
accumulated earnings and profits.
Capital Gain Dividends. Provided that a
particular class of our shares is regularly traded
on an established securities market in the United States, and
the
non-U.S. Shareholder
does not own more than 5% of the shares of such class at any
time during the one-year period preceding the distribution, then
amounts distributed with respect to those shares that are
designated as capital gains from our sale or exchange of
44
U.S. real property interests are treated as ordinary
dividends taxable as described above under
Ordinary Dividends.
If the foregoing exception does not apply, for example, because
the
non-U.S. Shareholder
owns more than 5% of our shares, the
non-U.S. Shareholder
will incur tax on distributions that are attributable to gain
from our sale or exchange of U.S. real property interests
under the provisions of the Foreign Investment in Real Property
Tax Act of 1980, or FIRPTA, and would generally be required to
file a U.S. federal income tax return. The term
U.S. real property interests includes certain
interests in real property and shares in corporations at least
50% of whose assets consists of interests in real property, but
excludes mortgage loans and mortgage-backed securities. Under
FIRPTA, a
non-U.S. Shareholder
is taxed on distributions attributable to gain from sales of
U.S. real property interests as if such gain were
effectively connected with a U.S. business of the
non-U.S. Shareholder.
A
non-U.S. Shareholder
thus would be taxed on such a distribution at the normal capital
gain rates applicable to taxable U.S. Shareholders (subject
to applicable alternative minimum tax and a special alternative
minimum tax in the case of a nonresident alien individual). A
corporate
non-U.S. Shareholder
not entitled to treaty relief or exemption also may be subject
to the 30% branch profits tax on distributions subject to
FIRPTA. We must withhold 35% of any distribution that we could
designate as a capital gain dividend. However, if we make a
distribution and later designate it as a capital gain dividend,
then (although such distribution may be taxable to a
non-U.S. Shareholder)
it is not subject to withholding under FIRPTA. Instead, we must
make up the 35% FIRPTA withholding from distributions made after
the designation, until the amount of distributions withheld at
35% equals the amount of the distribution designated as a
capital gain dividend. A
non-U.S. Shareholder
may receive a credit against its FIRPTA tax liability for the
amount we withhold, provided that the required information is
timely supplied to the IRS.
Distributions to a
non-U.S. Shareholder
that we designate at the time of distribution as capital gain
dividends which are not attributable to or treated as
attributable to our disposition of a U.S. real property
interest generally will not be subject to U.S. federal
income taxation, except as described below under
Sale of Stock.
Stock Dividends. The IRS recently issued a
revenue procedure regarding the tax treatment of stock
distributions paid by a REIT. Under that guidance, which applies
to distributions declared on or before December 31, 2012
with respect to taxable years ending on or before
December 31, 2011, a REIT may pay up to 90% of a
distribution in common stock. No determination has been made as
to whether we will make future distributions in a combination of
cash and common shares that meet the IRS requirements.
Such distributions would, however, be subject to withholding tax
in the same manner as described herein under
Ordinary Dividends and
Capital Gain Dividends.
Sale of Stock. A
non-U.S. Shareholder
generally will not incur tax under FIRPTA on gain from the sale
of its shares as long as we are a domestically controlled
REIT. A domestically controlled REIT is a REIT
in which at all times during a specified testing period
non-U.S. persons
hold, directly or indirectly, less than 50% in value of the
shares. We believe that we are currently a domestically
controlled REIT. Because our common shares are publicly
traded, however, we cannot guarantee that we are or will
continue to be a domestically controlled REIT. In addition, a
non-U.S. Shareholder
that owns, actually or constructively, 5% (as determined under
applicable Treasury Regulations) or less of a class of our
outstanding shares at all times during a specified testing
period will not incur tax under FIRPTA on a sale of such shares
if the shares are regularly traded on an established
securities market.
If neither of these exceptions were to apply, the gain on the
sale of the shares would be taxed under FIRPTA, in which case a
non-U.S. Shareholder
would be required to file a U.S. federal income tax return
and would be taxed in the same manner as taxable
U.S. Shareholders with respect to such gain (that is, the
non-U.S. Shareholder
generally would be subject to the federal income tax and the
federal alternative minimum tax (subject to a special adjustment
for non-resident alien individuals) on the sale), and, if the
sold shares were not regularly traded on an established
securities market or we were not a domestically-controlled REIT,
the purchaser of the shares may be required to withhold and
remit to the IRS 10% of the purchase price. Additionally, a
corporate
non-U.S. Shareholder
may also be subject to the 30% branch profits tax on gains from
the sale of shares taxed under FIRPTA.
45
A
non-U.S. Shareholder
will incur tax on gain not subject to FIRPTA if (1) the
gain is effectively connected with the
non-U.S. Shareholders
U.S. trade or business, in which case the
non-U.S. Shareholder
will be subject to the same treatment as taxable
U.S. Shareholders with respect to such gain, or
(2) the
non-U.S. Shareholder
is a nonresident alien individual who was present in the
U.S. for 183 days or more during the taxable year and
certain other conditions are met, in which case the
non-U.S. Shareholder
will incur a 30% tax on his capital gains. Capital gains
dividends not subject to FIRPTA will be subject to similar
rules. A
non-U.S. Shareholder
that is treated as a corporation for U.S. federal income
tax purposes and has effectively connected income (as described
in the first point above) may also, under certain circumstances,
be subject to an additional branch profits tax, which is
generally imposed on a foreign corporation on the deemed
repatriation from the United States of effectively connected
earnings and profits, at a 30% rate, unless the rate is reduced
or eliminated by an applicable income tax treaty.
Information Reporting and Backup
Withholding. We must report annually to the IRS
and to each
non-U.S. Shareholder
the amount of distributions paid to such holder and the tax
withheld with respect to such distributions, regardless of
whether withholding was required. Copies of the information
returns reporting such distributions and withholding may also be
made available to the tax authorities in the country in which
the
non-U.S. Shareholder
resides under the provisions of an applicable income tax treaty.
Backup withholding and additional information reporting will
generally not apply to distributions to a
non-U.S. Shareholder
provided that the
non-U.S. Shareholder
certifies under penalty of perjury that the Shareholder is a
non-U.S. Shareholder,
or otherwise establishes an exemption. Backup withholding is not
an additional tax and may be credited against a
non-U.S. Shareholders
U.S. federal income tax liability or refunded to the extent
excess amounts are withheld, provided that the required
information is timely supplied to the IRS.
Recently Enacted Legislation. Beginning after
December 31, 2012, recently enacted legislation will
generally impose a 30% withholding tax on dividends and proceeds
from a disposition of our common shares paid to (i) a
foreign financial institution (as such term is defined in
Section 1471(d)(4) of the Code) unless such institution
enters into an agreement with the United States Treasury
Department to collect and disclose information regarding United
States account holders of such institution (including certain
account holders that are foreign entities with United States
owners) and satisfies certain other requirements, and
(ii) certain other
non-U.S. entities
unless such entity provides the payor with a certification
identifying the direct and indirect United States owners of the
entity and complies with certain other requirements. Under
certain circumstances, a
non-U.S. Shareholder
may be eligible for refunds or credits of such taxes.
Non-U.S. Shareholders
are encouraged to consult with their own tax advisors regarding
the possible implications of this recently enacted legislation
on an investment in the common shares.
State and
Local Tax Consequences
We may be subject to state or local taxation or withholding in
various state or local jurisdictions, including those in which
we transact business and our shareholders may be subject to
state or local taxation or withholding in various state or local
jurisdictions, including those in which they reside. Our state
and local tax treatment may not conform to the federal income
tax treatment discussed above. In addition, your state and local
tax treatment may not conform to the federal income tax
treatment discussed above. You are encouraged to consult your
own tax advisors regarding the effect of state and local tax
laws on an investment in our shares.
PLAN OF
DISTRIBUTION
The Company may sell the Offered Securities to one or more
underwriters for public offering and sale by them or may sell
the Offered Securities to investors directly or through agents.
Any such underwriter or agent involved in the offer and sale of
the Offered Securities will be named in the applicable
Prospectus Supplement.
46
Underwriters may offer and sell the Offered Securities at a
fixed price or prices, which may be changed, at prices related
to the prevailing market prices at the time of sale, or at
negotiated prices. The Company also may, from time to time,
authorize underwriters acting as the Companys agents to
offer and sell the Offered Securities upon the terms and
conditions set forth in an applicable Prospectus Supplement. In
connection with the sale of Offered Securities, underwriters may
be deemed to have received compensation from the Company in the
form of underwriting discounts or commissions and may also
receive commissions from purchasers of Offered Securities for
whom they may act as agent. Underwriters may sell Offered
Securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions from the
underwriters or commissions from the purchasers for whom they
may act as agent.
Any compensation paid by the Company to underwriters or agents
in connection with the offering of Offered Securities and any
discounts, concessions or commissions allowed by underwriters to
participating dealers will be set forth in the applicable
Prospectus Supplement. Underwriters, dealers and agents
participating in the distribution of the Offered Securities may
be deemed to be underwriters, and any discounts and commissions
received by them and any profit realized by them on resale of
the Offered Securities may be deemed to be underwriting
discounts and commissions under the Securities Act.
Underwriters, dealers and agents may be entitled, under
agreements entered into with the Company, to indemnification
against and contribution toward certain civil liabilities,
including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the
Company will authorize dealers acting as the Companys
agents to solicit offers by certain institutions to purchase
Offered Securities from the Company at the public offering price
set forth in such Prospectus Supplement pursuant to Delayed
Delivery Contracts (Contracts) providing for payment
and delivery on the date or dates stated in such Prospectus
Supplement. Each Contract will be for an amount not less than,
and the aggregate principal amount of Securities sold pursuant
to Contracts shall be not less or more than, the respective
amounts stated in the applicable Prospectus Supplement.
Institutions with whom Contracts, when authorized, may be made
include commercial and savings banks, insurance companies,
pension funds, investment companies, educational and charitable
institutions, and other institutions, but will in all cases be
subject to the approval of the Company. Contracts will not be
subject to any conditions except (i) the purchase by an
institution of the Offered Securities covered by its Contracts
shall not at the time of delivery be prohibited under the laws
of any jurisdiction in the United States to which such
institution is subject and (ii) if the Offered Securities
are being sold to underwriters, the Company shall have sold to
such underwriters the total principal amount of the Offered
Securities less the principal amount thereof covered by
Contracts.
Certain of the underwriters and their affiliates may be
customers of, engage in transactions with and perform services
for the Company and its subsidiaries in the ordinary course of
business.
The Prospectus Supplement will explain whether or not the
Offered Securities will be listed on a national securities
exchange. The Company cannot assure you that there will be a
market for any of the Offered Securities.
EXPERTS
The financial statements and managements assessment of the
effectiveness of internal control over financial reporting
(which is included in Managements Report on Internal
Control over Financial Reporting) incorporated in this
Prospectus by reference to the Annual Report on
Form 10-K
for the year ended December 31, 2009, have been so
incorporated in reliance on the report of PricewaterhouseCoopers
LLP, an independent registered public accounting firm, given on
the authority of said firm as experts in auditing and accounting.
LEGAL
MATTERS
The validity of the Offered Securities as well as certain legal
matters described under Federal Income Tax
Considerations have been passed upon for the Company by
Baker & Hostetler LLP, Cleveland, Ohio. Albert T.
Adams, a director of the Company, is a partner in
Baker & Hostetler LLP. Certain legal matters with
respect to the Offered Securities may be passed upon by counsel
for any underwriters, dealers or agents, each of whom will be
named in the related Prospectus Supplement.
47
8,000,000 Shares
Common Shares
$ per
Share
PRELIMINARY PROSPECTUS SUPPLEMENT
SEPTEMBER , 2010
Raymond James