-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L0N8a/489b79kZ16x8makFlSV85Aj5BQ/OR1ch6CX2ZWH6MdkxH/5RtC3kTPEsQF JxHP/5Oy5SsQU0bchpxOBA== 0000929624-97-001093.txt : 19970925 0000929624-97-001093.hdr.sgml : 19970925 ACCESSION NUMBER: 0000929624-97-001093 CONFORMED SUBMISSION TYPE: 424B1 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19970924 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTERN INVESTMENT REAL ESTATE TRUST CENTRAL INDEX KEY: 0000106135 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 946100058 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B1 SEC ACT: SEC FILE NUMBER: 333-32721 FILM NUMBER: 97684816 BUSINESS ADDRESS: STREET 1: 3450 CALIFORNIA ST CITY: SAN FRANCISCO STATE: CA ZIP: 94118 BUSINESS PHONE: 4159290211 424B1 1 FORM 424B(1) PROSPECTUS SUPPLEMENT File Pursuant to Rule 424(b)(1) (TO PROSPECTUS DATED AUGUST 1, 1997) Registration No. 333-32721 WESTERN INVESTMENT REAL ESTATE TRUST --------------- $25,000,000 7.10% SENIOR NOTES DUE 2006 $25,000,000 7.20% SENIOR NOTES DUE 2008 $25,000,000 7.30% SENIOR NOTES DUE 2010 --------------- Western Investment Real Estate Trust (the "Company") will issue its 7.10% Senior Notes due September 15, 2006 (the "2006 Notes"), its 7.20% Senior Notes due September 15, 2008 (the "2008 Notes") and its 7.30% Senior Notes due September 15, 2010 (the "2010 Notes"), (collectively the "Notes") offered hereby in aggregate principal amounts of $25,000,000 each. Interest on the Notes is payable semi-annually in arrears on each March 15 and September 15, commencing March 15, 1998. The Notes are redeemable at any time at the option of the Company, in whole or in part, at a redemption price equal to the sum of (i) the principal amount of the Notes being redeemed plus accrued interest to the redemption date, and (ii) the Make-Whole Amount (as defined in "Description of the Notes--Optional Redemption"), if any. The Notes are senior unsecured obligations of the Company and will rank equally with all unsecured and unsubordinated indebtedness of the Company. The Notes are not subject to any mandatory sinking fund. The Notes contain certain restrictions on the Company's ability to incur additional indebtedness. See "Description of the Notes." Each series of Notes will be represented by a single fully registered global note in book-entry form, without coupons (each a "Global Note"), registered in the name of The Depository Trust Company ("DTC") or its nominee. Beneficial interests in the Global Notes will be shown on, and transfers thereof will be effected only through, records maintained by DTC (with respect to beneficial interests of participants) or by participants or persons that hold interests through participants (with respect to beneficial interests of beneficial owners). Owners of beneficial interests in the Global Notes will be entitled to physical delivery of Notes in certificated form equal in principal amount to their respective beneficial interests only under the limited circumstances described under "Description of the Notes--Book-Entry System." Settlement of the Notes will be made in immediately available funds. The Notes will trade in DTC's Same-Day Funds Settlement System until maturity or earlier redemption, as the case may be, or until the Notes are issued in certificated form, and secondary market trading activity in the Notes will therefore settle in immediately available funds. All payments of principal and interest in respect of the Notes will be made by the Company in immediately available funds. See "Description of the Notes--Same-Day Settlement and Payment." SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THE ACCOMPANYING PROSPECTUS FOR A DISCUSSION OF CERTAIN FACTORS RELATING TO AN INVESTMENT IN THE NOTES. --------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================================= Underwriting Proceeds Price to Discounts and to Public (1) Commissions (2) Company (1)(3) - ------------------------------------------------------------------------------------------------- Per 2006 Note......................... 99.859% 0.600% 99.259% - ------------------------------------------------------------------------------------------------- Per 2008 Note......................... 99.764% 0.600% 99.164% - ------------------------------------------------------------------------------------------------- Per 2010 Note......................... 99.781% 0.600% 99.181% - ------------------------------------------------------------------------------------------------- Total................................. $74,851,000 $450,000 $74,401,000 =================================================================================================
(1) Plus accrued interest, if any, from September 25, 1997. (2) The Company has agreed to indemnify the Underwriter (as defined herein) against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (3) Before deducting expenses payable by the Company estimated at $222,000. --------------- The Notes are offered by the Underwriter, subject to prior sale, when, as and if delivered to and accepted by it, and subject to approval of certain legal matters by counsel for the Underwriter. The Underwriter reserves the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of the Notes will be made on or about September 25, 1997 through the book-entry facilities of DTC against payment therefor in immediately available funds. --------------- PAINEWEBBER INCORPORATED --------------- THE DATE OF THIS PROSPECTUS SUPPLEMENT IS SEPTEMBER 22, 1997. CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES. SPECIFICALLY, THE UNDERWRITER MAY OVERALLOT IN CONNECTION WITH THIS OFFERING OR MAY BID FOR, AND PURCHASE, THE NOTES IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." ---------------- THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE SET FORTH IN SUCH FORWARD-LOOKING STATEMENTS. CERTAIN FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE ARE DISCUSSED IN THE SECTION ENTITLED "RISK FACTORS" STARTING ON PAGE 4 OF THE ACCOMPANYING PROSPECTUS. THE COMPANY CAUTIONS THE READER, HOWEVER, THAT THE FACTORS DISCUSSED IN THAT SECTION MAY NOT BE EXHAUSTIVE. S-2 PROSPECTUS SUPPLEMENT SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with the more detailed information included elsewhere in this Prospectus Supplement and the accompanying Prospectus or incorporated herein or therein by reference. Unless the context otherwise requires, all references in this Prospectus Supplement to the "Company" or "Western" shall mean Western Investment Real Estate Trust and its subsidiaries on a consolidated basis. THE COMPANY Western is an owner and operator of grocery and drug store anchored neighborhood and community shopping centers located in Northern California and Northern Nevada. Founded in 1962, the Company is a self-administered and self- managed real estate investment trust ("REIT"), with acquisition, redevelopment, development, financing, property management and leasing capabilities. At June 30, 1997, the Company owned 45 retail properties, which generated approximately 92% of the Company's total revenue for the six months then ended. Additionally, the Company owned 9 commercial properties, 2 industrial properties, 23 unimproved pads and 22 acres of undeveloped land adjacent to two of its centers. As of such date, the Company's portfolio of approximately 4.8 million square feet of gross leasable area ("GLA") was approximately 93% leased. The average year-end occupancy for the Company's portfolio since 1992 has been approximately 92%. The weighted average age of the properties in the portfolio is approximately 13 years. The Company's operating strategy is to own and operate strategically located and well-maintained shopping centers that are anchored by supermarkets and drug stores. Neighborhood and community shopping centers with a diversified tenant mix offer the consumer basic goods and services. Consumer spending on basic goods and services generally is not adversely affected by economic cycles, thereby providing more consistent cash flow to the centers' tenants than certain other types of real estate investments which are highly dependent on discretionary spending. This operating strategy is designed to maximize the stability of future cash flows from the Company's tenants. The Company has historically maintained a conservative financial structure and intends to continue to do so in the future in order to maintain financial flexibility. The Company intends to acquire additional grocery and drug store anchored shopping centers that are strategically located and offer yields in excess of the Company's cost of capital. The Company also expects to expand existing properties through the development of adjacent land and pads currently within its portfolio. This type of development will enhance the existing centers and offer relatively attractive yields with limited risk, as the expansion space is typically leased prior to construction. The Company continually assesses its portfolio for possible dispositions of properties that no longer fit its investment criteria due to limited growth prospects, property type or other reasons. The total cost of the properties held for sale at June 30, 1997 aggregated less than 4% of the Company's Undepreciated Real Estate Assets (as herein defined). The Company's focus on neighborhood and community shopping centers in Northern California and Northern Nevada provides it with a high degree of market familiarity and promotes greater efficiencies in the Company's acquisition, property management and leasing activities. Such focus allows the Company to establish and maintain strong working relationships with major national and regional retailers that serve its markets. The Company's principal retail tenants include Food-4-Less, Nob Hill Foods, Pak N' Save, Raley's, Safeway, Save Mart, and Thrifty-PayLess. The Company believes the current economic environments of Northern California and Northern Nevada provide the Company with the opportunity to increase rental rates, to experience growth in percentage rents and S-3 to realize increased occupancy. To better track the economic prospects of the overall portfolio, the Company divides its geographic niche into five regional areas. During the period from 1990 to 1996, the weighted average population growth rate for the five regions was 9.8%, compared to a population growth rate for the United States of 6.7%. For the period from 1996 to 2005, the weighted average population growth rate for the five regions is estimated to be 19.4% compared to an estimated population growth rate of 9.1% for the United States. The Company has paid 133 consecutive quarterly cash dividends since it commenced real estate operations in 1964. The Company has elected to qualify as a REIT for Federal income tax purposes. Its Common Stock has been publicly traded on the American Stock Exchange since 1984 under the symbol "WIR." The Company's executive offices are located at 3450 California Street, San Francisco, California 94118, telephone (415) 929-0211. THE PROPERTIES As of June 30, 1997, the Company owned 45 neighborhood and community shopping centers and other retail properties with an average size of approximately 100,900 square feet of GLA. Fourteen of these properties are significant portions of larger, integrated shopping centers managed by the Company with an average GLA of approximately 224,000 square feet. The Company leases a substantial portion of its total GLA on a long-term, triple net basis. As of June 30, 1997, approximately 65% of the Company's total retail GLA was leased to anchor tenants of which 72% of the anchor tenant space was leased to grocery or drug store anchor tenants. Additionally, as of that date approximately 81% of the Company's Annualized Base Rent (as herein defined) was derived from national or regional retail tenants. The following tables set forth, as of June 30, 1997, certain information with respect to the Company's properties: SHOPPING CENTER AND RETAIL--ANCHOR/NON-ANCHOR
ANNUALIZED ANNUALIZED PERCENTAGE BASE RENT TYPE OF GLA PERCENTAGE BASE RENT OF PER LEASED TENANT (SQUARE OF LEASED ANNUALIZED SQUARE SPACE(1) FEET) GLA SPACE(2) BASE RENT FOOT -------- --------- ---------- ----------- ---------- ---------- Anchor.................. 2,938,810 65% $19,750,000 52% $ 6.72 Non-Anchor.............. 1,319,296 29% 18,310,000 48% 13.88 Unleased................ 280,654 6% -- -- -- --------- --- ----------- --- ------ Total or Weighted Average.............. 4,538,760 100% $38,060,000 100% $ 8.94
SHOPPING CENTER AND RETAIL--NATIONAL/REGIONAL/LOCAL
ANNUALIZED ANNUALIZED PERCENTAGE BASE RENT TYPE OF GLA PERCENTAGE BASE RENT OF PER LEASED TENANT (SQUARE OF LEASED ANNUALIZED SQUARE SPACE(3) FEET) GLA SPACE(2) BASE RENT FOOT -------- --------- ---------- ----------- ---------- ---------- National................ 1,859,184 41% $16,233,000 43% $ 8.73 Regional................ 1,810,661 40% 14,546,000 38% 8.03 Local................... 588,261 13% 7,281,000 19% 12.38 Unleased................ 280,654 6% -- -- -- --------- --- ----------- --- ------ Total or Weighted Average.............. 4,538,760 100% $38,060,000 100% $ 8.94
S-4 ALL PROPERTIES
ANNUALIZED ANNUALIZED PERCENTAGE BASE RENT GLA PERCENTAGE BASE RENT OF PER LEASED PROPERTY (SQUARE OF LEASED ANNUALIZED SQUARE TYPE FEET) GLA SPACE(2) BASE RENT FOOT -------- --------- ---------- ----------- ---------- ---------- Shopping Center and Retail................. 4,538,760 95% $38,060,000 93% $ 8.94 Commercial.............. 177,371 4% 2,528,000 6% 18.70 Industrial.............. 78,322 1% 443,000 1% 7.64 --------- --- ----------- --- ------ Total or Weighted Average.............. 4,794,453 100% $41,031,000 100% $ 9.22
- -------- (1) Tenants leasing 10,000 square feet or more are defined as "Anchor" tenants. (2) "Annualized Base Rent" represents the annualized minimum monthly rent in effect as of June 30, 1997. (3) "National" tenants are tenants with locations in multiple states. "Regional" tenants are tenants with three or more locations in one state, and "Local" tenants are tenants with fewer than three locations within a state. THE OFFERING All capitalized terms used herein and not defined herein have the meanings provided in the Indenture (as defined herein) or under "Description of the Notes." Securities Offered.......... $25,000,000 aggregate principal amount of 7.10% Senior Notes due 2006 (the "2006 Notes"), $25,000,000 aggregate principal amount of 7.20% Senior Notes due 2008 (the "2008 Notes") and $25,000,000 aggregate principal amount of 7.30% Senior Notes due 2010 (the "2010 Notes") (collectively the "Notes"). Maturity.................... The 2006 Notes will mature on September 15, 2006, the 2008 Notes will mature on September 15, 2008 and the 2010 Notes will mature on September 15, 2010. Interest Payment Dates...... Interest on the Notes is payable semi-annually in arrears on March 15 and September 15, commencing March 15, 1998. Ranking..................... The Notes will be senior unsecured obligations of the Company and will rank equally with the Company's other unsecured and unsubordinated indebtedness. Use of Proceeds............. The Company will use a portion of the net proceeds from this Offering to redeem its Convertible Debentures which have an interest rate of 8.0% and, as of June 30, 1997, had a principal balance of approximately $60.5 million. The remaining proceeds will be used for general corporate purposes. See "Use of Proceeds." Limitation on Incurrence of The Notes contain various covenants including the Debt........................ following: Neither the Company nor any Subsidiary may incur any Debt if, after giving effect thereto, the aggregate principal amount of all outstanding Debt of the Company and its Subsidiaries on a consolidated basis is greater than 60% of the sum of (i) the Total S-5 Assets of the Company and its Subsidiaries as of the end of the most recent calendar quarter, (ii) the purchase price of any real estate assets or mortgages receivable acquired by the Company and its Subsidiaries since the end of the most recent calendar quarter, and (iii) the amount of any securities offering proceeds received (to the extent that such proceeds were not used to acquire real estate assets or mortgages receivable or used to reduce Debt) by the Company or any Subsidiary since the end of such calendar quarter, including those proceeds obtained in connection with the incurrence of such additional Debt. Neither the Company nor any Subsidiary may incur any Debt secured by any mortgage or other lien upon any of the property of the Company or any Subsidiary if, after giving effect thereto, the aggregate principal amount of all outstanding Debt of the Company and its Subsidiaries on a consolidated basis which is secured by any mortgage or other lien on the property of the Company or any Subsidiary is greater than 40% of the sum of (i) the Total Assets of the Company and its Subsidiaries as of the end of the most recent calendar quarter, (ii) the purchase price of any real estate assets or mortgages receivable acquired by the Company and its Subsidiaries since the end of the most recent calendar quarter, and (iii) the amount of any securities offering proceeds received (to the extent that such proceeds were not used to acquire real estate assets or mortgages receivable or used to reduce Debt), by the Company or any Subsidiary since the end of such calendar quarter, including those proceeds obtained in connection with the incurrence of such additional Debt. The Company and its Subsidiaries must at all times own Total Unencumbered Assets greater than 150% of the aggregate outstanding principal amount of the Unsecured Debt of the Company and its Subsidiaries on a consolidated basis. Neither the Company nor any Subsidiary may incur any Debt if, after giving effect thereto, the ratio of Consolidated Income Available for Debt Service to the Debt Service Charge for the four consecutive fiscal quarters most recently ended prior to the date on which such additional Debt is to be incurred shall have been less than 1.5:1 on a pro forma basis after giving effect to certain assumptions. The foregoing covenants do not restrict the Company from refinancing existing Debt, provided that the outstanding principal amount of such Debt is not increased. Optional Redemption......... The Notes are redeemable at any time at the option of the Company, in whole or in part, at a redemption price equal to the sum of (i) the principal amount of the Notes being redeemed plus accrued interest to the redemption date, and (ii) the Make-Whole Amount, if any. See "Description of the Notes--Optional Redemption." S-6 BUSINESS AND PROPERTIES Western is an owner and operator of grocery and drug store anchored neighborhood and community shopping centers located in Northern California and Northern Nevada. Founded in 1962, the Company is a self-administered and self- managed real estate investment trust ("REIT"), with acquisition, redevelopment, development, financing, property management and leasing capabilities. At June 30, 1997, the Company owned 45 retail properties, which generated 92% of the Company's total revenue for the six months then ended. Additionally, the Company owned 9 commercial properties, 2 industrial properties, 23 unimproved pads and 22 acres of undeveloped land adjacent to two of its centers. As of June 30, 1997, the Company's portfolio of approximately 4.8 million square feet of GLA was approximately 93% leased. The average year-end occupancy for the Company's portfolio since 1992 has been approximately 92%. The weighted average age of the properties in the portfolio is approximately 13 years. OPERATING STRATEGY Overview The Company's operating strategy is to own and operate strategically located and well-maintained shopping centers that are anchored by supermarkets and drug stores. Neighborhood and community shopping centers with a diversified tenant mix offer basic goods and services. Consumer spending on basic goods and services generally is not adversely affected by economic cycles, thereby providing more consistent cash flow to the centers' tenants than certain other types of real estate investments which are highly dependent on discretionary spending. The Company believes that its tenant mix is attractive in that (i) its anchor space is leased primarily to retailers providing day-to-day necessities, (ii) its non-anchor tenants are diverse, and (iii) its exposure to the higher risk retail categories is limited. The Company believes that optimizing its tenant mix to reflect the needs of the community served is crucial to the success of a retail center. Approximately 65% of its retail space is leased by anchor tenants and the remaining space is leased to other retail and service businesses, such as restaurants and other food providers, home accessories retailers, and professional and financial service businesses. ANCHOR TENANT MIX NON-ANCHOR TENANT MIX [PIE CHART] [PIE CHART] - -------- (1) 54% of the Company's grocery store tenants include a pharmacy department. Acquisitions The Company intends to acquire additional grocery and drug store anchored shopping centers in its markets at yields exceeding its cost of capital. The Company's strategy is to acquire investments below replacement cost to which it can add value through its leasing and management capabilities. The Company looks for neighborhood S-7 and community shopping centers located in affordable, high-growth bedroom communities and commuter towns. Additionally, the Company looks for retail properties in areas that have attractive trade area demographics and high barriers to entry for competing retail properties. Management believes that there are currently acquisition opportunities that meet its requirements in terms of type and quality of property, strategic location and investment yield. The Company is currently under contract on an approximately 70,000 square foot grocery anchored neighborhood shopping center in Novato, California with a purchase price of approximately $4.5 million. Expansion The Company expects to expand existing properties through the development of adjacent land and pads within its portfolio. This type of development enhances the existing centers and offers attractive yields with limited risk, as the expansion space is typically leased prior to construction. The Company owns 23 unimproved pads located within its shopping centers that are available for development and leasing or sale. Additionally, the Company owns a total of 22 acres of undeveloped land: 12 acres adjacent to its North Hills Shopping Center and 10 acres adjacent to its Elko Shopping Center, both of which are located in Nevada. Dispositions The Company continually assesses its portfolio for possible dispositions of properties that no longer fit its investment criteria due to limited growth prospects, property type or other reasons. The total cost of the properties held for sale at June 30, 1997 aggregated less than 4% of the Undepreciated Real Estate Assets of the Company. In August 1997, the Company sold the Carpeteria retail property in Concord, California. The Company has entered into a contract to sell its San Antonio Center in Mountain View, California and has entered into letters of intent to sell its Lucky Store in El Cerrito, California and the Acapulco Y Los Arcos restaurant in Fresno, California. The Company is marketing the following properties for sale: the Dodge Center in Fallon, Nevada; the Viking Freight Systems industrial property in Santa Clara, California; the Old Dominion, Inc. industrial property in Commerce City, Colorado; and the Coast Federal Savings Bank commercial property in Salinas, California. S-8 Economic Outlook The Company's properties are principally located in Northern California and Northern Nevada. To better track the economic prospects of the overall portfolio, the Company divides its geographic niche into five regional areas. The chart below shows the distribution of the Company's properties in the five regional areas by minimum rent. [REGIONAL AREA PROPERTY DISTRIBUTION PIE CHART] - -------- (1) The counties of the Greater Sacramento/Sierra Foothills region are Butte, Plumas, Sierra, Yuba, Sutter, Colusa, Yolo, Sacramento, El Dorado, Placer and Nevada. The counties of the Greater San Francisco/Central Coastal region are Sonoma, Napa, Marin, Solano, Contra Costa, Alameda, Santa Clara, San Francisco, San Mateo, Santa Cruz, San Benito, Monterey, San Luis Obispo, and Santa Barbara. The counties of the Fresno/Central Valley region are Amador, San Joaquin, Stanislaus, Calaveras, Tuolumne, Mariposa, Merced, Madera, Fresno, Kings, Tulare and Kern. The counties of the Northern Nevada region are Carson City, Washoe, Humboldt, Elko, Pershing, Lander, Eureka, White Pine, Churchill, Lyon, Storey and Douglas. The counties of the Northern California Coastal Region are Del Norte, Siskiyou, Humboldt, Trinity, Mendocino, Lake, Glenn, Tehama, and Shasta. Each of the five regional areas has experienced population growth during the period 1990 to 1996. Based on data provided by the Center for Continuing Study of the California Economy (the "CSCE") or the Nevada State Data Center during the 1990 to 1996 period, population growth in the counties comprising each of the five designated regional areas was as follows: 10.3% for the Greater Sacramento/Sierra Foothills region, 7.5% for the Greater San Francisco/Central Coastal region, 13.8% for the Fresno/Central Valley region, 24.1% for the Northern Nevada region and 7.4% for the Northern California Coastal region. According to the U.S. Bureau of Labor Statistics, the overall population growth from 1990 to 1996 in the United States was approximately 6.7%. For the ten-year period of 1996 through 2005, the CSCE (or the Nevada Department of Taxation and State Demography) expects that the population will grow 24.3% in the Greater Sacramento/Sierra Foothills region, 13.3% for the Greater San Francisco/Central Coastal region, 31.6% for the Fresno/Central Valley region, 13.9% for the Northern Nevada region and 20.1% for the Northern California Coastal region. The U.S. Bureau of Labor Statistics projects that the population growth for the United States for the same period will be 9.1%. S-9 Conservative Financial Structure It is the Company's policy to maintain a conservative financial structure in order to preserve financial flexibility. It is the Company's belief that the combination of its operating strategy and a conservative financial structure will produce consistent results and long-term growth and stability for the Company. As of June 30, 1997: . There was no secured debt. . Percentage of Debt to Total Assets was 35%. . Ratio of Consolidated Income Available for Debt Service to Debt Service Charge was 3.0x. . Ratio of Unencumbered Assets to Unsecured Debt was 2.8x. For a description of each percentage or ratio, see "Description of the Notes-- Certain Covenants." Interest Rate Reduction and Extension of Line of Credit In August 1997, the Company successfully negotiated a reduction of the interest rate on its unsecured line of credit. The $45 million credit facility now provides for an interest rate calculated at LIBOR plus 1.22%, which represents a reduction of 38 basis points from the previous rate of LIBOR plus 1.60%. This rate is subject to change based on the Company's debt rating with Standard & Poor's. Additionally, the term of the credit facility was extended to June 30, 2000. Payoff of Convertible Debentures The Company will use a portion of the net proceeds of the Offering to redeem its 8.0% Convertible Debentures (the "Convertible Debentures"), due in 2008. The Convertible Debentures were issued in August 1988 and are convertible prior to maturity, unless previously redeemed. As of June 30, 1997, the principal balance outstanding on the Convertible Debentures was approximately $60.5 million. The Company expects the refinancing to result in lower interest cost and a simplified capital structure. Additionally, the Company believes that the multiple tranche maturities of the Notes will enable it to better manage refinancing risk. PROPERTIES Overview No single property accounted for more than 4.5% of total revenues in 1996. The Company's portfolio of 56 properties at June 30, 1997 is summarized as follows:
ANNUALIZED PERCENTAGE LAND GLA PERCENTAGE BASE RENT OF NUMBER OF (SQUARE (SQUARE OF LEASED ANNUALIZED PROPERTY TYPE(1) STATE PROPERTIES FEET) FEET) GLA SPACE(2) BASE RENT - ---------------- ----- ---------- ---------- --------- ---------- ----------- ---------- Shopping Center and Retail............. CA 38 15,821,168 3,865,616 81% $32,954,000 80% NV 7 4,026,117 673,144 14% 5,106,000 13% --- ---------- --------- --- ----------- --- 45 19,847,285 4,538,760 95% 38,060,000 93% Commercial.............. CA 9 627,169 177,371 4% 2,528,000 6% --- ---------- --------- --- ----------- --- Industrial.............. CA 1 274,311 58,022 1% 443,000 1% CO 1 162,500 20,300 0% -- 0% --- ---------- --------- --- ----------- --- 2 436,811 78,322 1% 443,000 1% --- ---------- --------- --- ----------- --- Total................. 56 20,911,265 4,794,453 100% $41,031,000 100% === ========== ========= === =========== ===
- -------- (1) The Company owns 23 unimproved pads located within or adjacent to the property lines of its shopping centers that are available for development and leasing or sale. Additionally, the Company owns a total of 22 acres of undeveloped land: 12 acres adjacent to its North Hills Shopping Center and 10 acres adjacent to its Elko Shopping Center, both of which are located in Nevada. (2) "Annualized Base Rent" represents the annualized minimum monthly rent in effect as of June 30, 1997. S-10 Additional information for the properties as of June 30, 1997, is as follows:
NUMBER OF AMOUNT OF PERCENTAGE OF OCCUPANCY WEIGHTED AVERAGE PROPERTY TYPE INVESTMENTS INVESTMENT(1) AMOUNT INVESTED RATE(2) AGE (IN YEARS)(3) ------------- ----------- ------------ --------------- --------- ----------------- Shopping Center and Retail................. 45 $372,038,000 93% 94% 12.9 Commercial.............. 9 26,507,000 6% 76% 22.5 Industrial.............. 2 2,885,000 1% 74% 16.4 --- ------------ --- --- ---- Total/Weighted Average.............. 56 $401,430,000 100% 93% 13.3 === ============ === === ====
- -------- (1) Reflects the original cost plus capital improvements, before depreciation and amortization. (2) Once a space is subject to an executed lease, the space is then included in occupied space. A space continues to be incorporated in the Company's occupied space until: (1) the related lease expires and the tenant is no longer in legal possession, or (2) the related lease is legally terminated and the tenant is no longer in legal possession. (3) This calculation is weighted by GLA and is based on the original construction date of the property. As such, any expansion or renovation occurring subsequent to the original construction date is not reflected in this calculation. Major Tenants The following table summarizes information on the Company's ten most significant tenants as of June 30, 1997:
PERCENTAGE OF NUMBER OF ANNUALIZED COMPANY GLA PERCENTAGE OF TENANT STORES BASE RENT (SQUARE FEET) COMPANY GLA ------ --------- ------------- ------------- ------------- 1. Raley's.............. 19 19% 1,093,494 23% 2. Coast Federal Savings Bank........ 6 5% 76,193 2% 3. Save Mart............ 7 4% 243,578 5% 4. Thrifty-PayLess (Rite Aid).......... 10 3% 242,056 5% 5. Food-4-Less (Fleming Foods).............. 3 3% 142,625 3% 6. Safeway/Pak 'N Save.. 3 3% 140,883 3% 7. Nob Hill Foods....... 3 2% 111,933 2% 8. Ross Dress for Less.. 3 2% 75,928 2% 9. Round Table Pizza.... 13 2% 39,728 1% 10. Scolari's Supermarkets........ 1 1% 50,451 1% --- --------- --- Total................ 44% 2,216,869 47% === ========= ===
At June 30, 1997, Raley's, a grocery and drug retailer, the Company's most significant tenant in terms of GLA and percentage of Annualized Base Rent, was a lessee in 19 of the Company's properties and accounted for 19% of the Company's Annualized Base Rent. Raley's is a privately owned company, and currently operates 87 stores in Northern California and Nevada. The Raley's organization has released information indicating that its sales totalled approximately $2.0 billion in its most recently reported fiscal year ended June 28, 1997. The Company receives audited financial statements annually from Raley's and uses them to monitor Raley's financial position and results of operations. Additionally, the Company provides Raley's audited financial statements to Moody's Investors Service and Standard & Poor's, the Company's rating agencies, for review. Leasing Policies The Company's leases with its tenants are for varying lengths and provide different mechanisms for increasing rents over the term of the lease based on the type of tenant. Virtually all of the Company's existing leases include at least one of the following provisions for payment of additional rent: (i) scheduled fixed increases, (ii) percentage rent based on tenants' gross sales, or (iii) CPI-based escalation clauses. The shopping S-11 center anchor tenant leases generally have initial terms of 10 to 25 years and provide for percentage rents, through which the Company receives a portion of the tenants' gross sales above a specified amount. The sales level at which percentage rents become payable generally is not achieved before seven years of successful operation by the tenant. Leases for smaller retail tenants generally have shorter terms of three to five years and include provisions for fixed rate increases. Leases for commercial and industrial tenants are of varying terms and generally include CPI based escalation clauses. The Company receives sales and other information on a monthly, quarterly or annual basis from its retail tenants, including Raley's, under leases which provide for such reports. The Company uses this information to monitor the payment of percentage rents where leases so provide. The Company recognized $649,000 and $559,000 of percentage rents during 1996 and 1995, respectively. Substantially all of the Company's leases are negotiated on a triple net basis, with the tenants being responsible for most operating expenses, such as real estate taxes, certain types of insurance, utilities and normal repairs and maintenance. In some cases, the tenant's obligation to pay these expenses is subject to negotiated caps for certain expenses. Property expenses not paid by tenants are paid by the Company. Most of the Company's leases require the tenant to be responsible for, or reimburse the Company for, liability and casualty insurance coverage on the properties. The Company maintains casualty and umbrella liability insurance on all of its properties and monitors tenant compliance with liability and casualty insurance coverage requirements. While the Company believes its properties are adequately insured, the Company does not carry earthquake, flood or pollution coverage. However, most major anchor tenants are required to rebuild or repair their leased premises if damaged or destroyed, regardless of the cause. Most of the Company's properties are located in areas of California and Nevada where earthquakes have been known to occur. In the event of a major earthquake, Company properties could suffer substantial damage or destruction. Since it commenced real estate operations in 1964, the Company has not incurred any material expense nor, to its knowledge, have any of its properties incurred any material damage from earthquakes or floods. Properties The following table sets forth certain information with respect to the Company's portfolio of properties as of June 30, 1997:
MAJOR TENANTS --------------------------- GLA YEAR GLA DATE (SQUARE PERCENT COMPLETED/ (SQUARE DESCRIPTION ACQUIRED FEET) LEASED REMODELED TENANT FEET) ----------- -------- ------- ------- ---------- ------------------- ------- SHOPPING CENTER/RETAIL CALIFORNIA Anderson, CA Anderson Square........ 1987 67,480 92% 1979 Hardware Express 10,000 J.J. Newberry's 15,000 Thrifty-PayLess 16,520 Angels Camp, CA Angel's Camp Town Center................ 1985 70,323 99% 1986 Save Mart 30,112 Thrifty-PayLess 19,120 Chico, CA Skypark Plaza Shopping Center................ 1988 176,477 95% 1985 Joann Fabrics 20,664 Raley's 61,046 Ross Dress For Less 26,428 Coalinga, CA Coalinga Shopping Center................ 1987 87,020 95% 1977 Save Mart 38,120 Thrifty-PayLess 16,520 Colma, CA Serra Center (30% interest)(1).......... 1973 94,461 100% 1972 Beverages & More! 18,000 Drug Barn 23,000 Target 25,922 Concord, CA Carpeteria(2)......... 1969 24,000 100% 1963 Carpeteria 24,000
S-12
MAJOR TENANTS -------------------------------- GLA YEAR GLA DATE (SQUARE PERCENT COMPLETED/ (SQUARE DESCRIPTION ACQUIRED FEET) LEASED REMODELED TENANT FEET) ----------- -------- ------- ------- ---------- ------------------------ ------- Dinuba, CA Mercantile Row Shopping Center....................... 1990 98,520 97% 1990 Save Mart 35,724 Thrifty-PayLess 31,456 El Cerrito, CA Lucky (3)..................... 1964 34,400 100% 1964/1983(4) Lucky 34,400 Elk Grove, CA Laguna 99 Shopping Center..... 1994 89,600 98% 1993 Pak 'N Save 59,103 Fair Oaks, CA Northridge Shopping Center.... 1994 97,331 95% 1958/1986(4) Raley's 59,231 Folsom, CA Commonwealth Square Shopping Center....................... 1990 141,288 96% 1988 Raley's 60,114 Fresno, CA Victorian Walk Shopping Center....................... 1988 102,581 98% 1988 Save Mart 35,724 Thrifty-PayLess 31,472 Fresno, CA Acapulco Y Los Arcos(3)....... 1972 8,360 100% 1972 Acapulco Y Los Arcos 8,360 Granite Bay, CA Country Gables Shopping Center....................... 1991 140,033 92% 1988 Raley's 60,114 Grass Valley, CA Pinecreek Shopping Center (50% interest)(5)............ 1989 213,218 93% 1988 Courthouse Athletic Club 12,567 Fashion Bug 12,000 J.C. Penney 37,842 Raley's 60,114 Sports Fever 10,420 Gridley, CA Heritage Oak Shopping Center.. 1987 102,555 80% 1981 Kim Kel Home Center 15,000 Safeway Stores, Inc. 23,690 Thrifty-PayLess 17,640 Hanford, CA Centennial Plaza Shopping Center....................... 1994 127,870 100% 1991 Food 4 Less 49,950 Joann Fabrics 16,173 Pep Boys 17,627 Hollister, CA Nob Hill General Stores....... 1994 44,420 100% 1994 Nob Hill Foods 44,420 Livermore, CA Plaza 580 Shopping Center..... 1994 104,586 91% 1993 Big 5 Sporting Goods 10,000 Richard Crafts 12,061 Ross Dress For Less 24,000 Los Banos, CA Canal Farms Shopping Center... 1986 110,535 99% 1988 Save Mart 38,234 Thrifty-PayLess 31,472 Manteca, CA Mission Ridge Shopping Center....................... 1994 96,281 93% 1993 Big 5 Sporting Goods 10,000 Pak 'N Save 58,090 Mountain View, CA San Antonio Center (3)........ 1965 45,500 100% 1959/1990(4) Beverages & More! 17,000 Ross Dress For Less 25,500 Napa, CA Kmart......................... 1966 103,284 100% 1964 Kmart 103,284 Newman, CA Nob Hill General Stores....... 1995 41,013 100% 1995 Nob Hill Foods 41,013 Oroville, CA Currier Square Shopping Center....................... 1989 134,702 94% 1969/1989(4) Raley's 59,885 Woolworth 41,100
S-13
MAJOR TENANTS ------------------------- GLA YEAR GLA DATE (SQUARE PERCENT COMPLETED/ (SQUARE DESCRIPTION ACQUIRED FEET) LEASED REMODELED TENANT FEET) ----------- -------- ------- ------- ------------ ----------------- ------- Porterville, CA Eastridge Plaza Shopping Center....... 1985 81,010 83% 1985 Save Mart 32,400 Thrifty-PayLess 19,120 Red Bluff, CA Belle Mill Landing..... 1987 119,888 93% 1982 Food 4 Less 42,725 Thrifty-PayLess 28,710 Redding, CA Cobblestone Shopping Center................ 1988 122,091 86% 1984 Raley's 60,000 Sacramento, CA Elverta Crossing Shopping Center....... 1990 119,998 86% 1991 Food 4 Less 49,950 Price Less Drugs 20,000 Sacramento, CA Kmart Center........... 1986 132,630 89% 1964 Kmart 96,349 Suisun, CA Heritage Park Shopping Center................ 1990 162,999 92% 1989 Ace Hardware 16,097 Playland 10,662 Raley's 60,114 Tulare, CA Heritage Place Shopping Center................ 1987 119,412 94% 1986 J.J. Newberry's 14,280 Save Mart 33,264 Thrifty-PayLess 30,026 Turlock, CA Blossom Valley Plaza... 1990 111,657 96% 1988 House of Fabrics 10,625 Raley's 60,114 Ukiah, CA Ukiah Crossroads Shopping Center....... 1989 110,565 88% 1986 Raley's 61,046 Vallejo, CA Park Place Shopping Center................ 1990 150,809 96% 1987 24 Hr. Fitness 22,000 New York Fabrics 11,200 Raley's 60,114 Watsonville, CA Nob Hill General Stores................ 1982 26,500 100% 1982 Nob Hill Foods 26,500 Yreka, CA Yreka Junction......... 1990 117,860 97% 1984 98c Clearance 10,350 J.C. Penny 22,204 Raley's 60,000 Yuba City, CA Raley's Shopping Center................ 1986 134,359 95% 1963 Raley's 61,842 Toys 'R' Us, Inc. 31,842 NEVADA Carson City, NV Eagle Station Shopping Center................ 1989 114,258 88% 1982 Raley's 59,018 Elko, NV Elko Junction Shopping Center................ 1988 169,754 90% 1986/1996(4) Raley's 61,000 Builder's Mart 46,700 Fallon, NV Dodge Center (3)....... 1977 52,296 100% 1976 J.C. Penney 23,051 The Hub 22,000 Fallon, NV Raley's Supermarket.... 1991 60,114 100% 1991 Raley's 60,114 Reno, NV Caughlin Ranch Shopping Center................ 1990 107,596 99% 1990 Scolari's 50,451
S-14
MAJOR TENANTS ------------------------------------- GLA YEAR GLA DATE (SQUARE PERCENT COMPLETED/ (SQUARE DESCRIPTION ACQUIRED FEET) LEASED REMODELED TENANT FEET) ----------- -------- --------- ------- ------------ --------------------------- --------- Reno, NV North Hills Shopping Center................ 1988 103,702 90% 1986 Raley's 61,046 Winnemucca, NV West Town.............. 1978 65,424 100% 1978 Raley's 63,024 --------- --------- TOTAL SHOPPING CENTER/RETAIL.......... 4,538,760 2,947,170 ========= ========= INDUSTRIAL CALIFORNIA Santa Clara, CA Viking Freight Systems(3)............ 1978 58,022 100% 1978 Viking Freight Systems 58,022 COLORADO Commerce City, CO (3)... 1984 20,300 0% 1984 Available(6) N/A --------- --------- TOTAL INDUSTRIAL........ 78,322 58,022 ========= ========= COMMERCIAL CALIFORNIA Cupertino, CA Coast Federal Savings Bank.................. 1985 6,495 100% 1980 Coast Federal Savings Bank 6,495 Milpitas, CA Heald Business College. 1987 47,150 100% 1987 Heald Business College 47,150 Monterey, CA Coast Federal Savings Bank.................. 1985 18,968 100% 1963 Coast Federal Savings Bank 18,968 Petaluma, CA Redwood II............. 1989 42,136 0% 1985 Available N/A Salinas, CA Coast Federal Savings Bank (3).............. 1986 18,253 100% 1937 Coast Federal Savings Bank 18,253 San Francisco, CA 3450 California St..... 1987 11,892 100% 1957/1987(4) California Advanced Imaging 7,115 San Francisco, CA Coast Federal Savings Bank (Market St.)..... 1986 12,700 100% 1964 Coast Federal Savings Bank 12,700 San Francisco, CA Coast Federal Savings Bank (Taraval Street). 1985 13,350 100% 1975 Coast Federal Savings Bank 13,350 Santa Cruz, CA Coast Federal Savings Bank.................. 1986 6,427 100% 1980 Coast Federal Savings Bank 6,427 --------- --------- TOTAL COMMERCIAL........ 177,371 130,458 --------- --------- TOTAL ALL PROPERTIES.... 4,794,453 3,135,650 ========= =========
- -------- (1) Serra Center is encumbered by a deed of trust relating to a promissory note under which the 70% co-owner is the borrower. The Company has no payment obligation under the promissory note. (2) This property was sold on August 1, 1997. (3) This property is currently held for sale. (4) Date of significant renovation to a substantial portion of the property. (5) Pinecreek is encumbered by a deed of trust relating to a promissory note under which the 50% co-owner is the borrower. The Company has no payment obligation under the promissory note. (6) This property was leased to Old Dominion, Inc. on July 15, 1997. S-15 Lease Expirations for All Properties The following tables set forth information with respect to anchor and non- anchor tenant lease expirations as of June 30, 1997: ANCHOR TENANTS
PERCENTAGE OF ANNUALIZED BASE AVERAGE BASE NUMBER OF GROSS TOTAL LEASED RENT UNDER RENT PER LEASE YEAR LEASES LEASABLE AREA GROSS LEASABLE EXPIRING SQUARE FOOT OF EXPIRATION EXPIRING(1) EXPIRING AREA EXPIRING LEASES(2) LEASES EXPIRING - ---------- ---------- ------------- -------------- --------------- --------------- 1997.................... 1 11,200 0.3% $ 80,640 $ 7.20 1998.................... 3 67,859 1.5% 393,840 5.80 1999.................... 2 113,704 2.6% 413,496 3.64 2000.................... 7 117,912 2.6% 1,388,472 11.78 2001.................... 5 170,102 3.8% 959,052 5.64 2002.................... 5 108,010 2.4% 381,324 3.53 2003.................... 9 223,881 5.0% 1,706,424 7.62 2004.................... 3 54,207 1.2% 403,224 7.44 2005.................... 3 88,578 2.0% 669,876 7.56 2006.................... 5 222,831 5.0% 1,650,768 7.41 2007.................... 1 20,664 0.5% 116,544 5.64 Thereafter.............. 46 1,908,305 42.9% 14,490,502 7.59 --- --------- ---- ----------- ------ Total Anchor Leases... 90 3,107,253 69.8% $22,654,162 $ 7.29
NON-ANCHOR TENANTS
GROSS PERCENTAGE OF ANNUALIZED BASE AVERAGE BASE NUMBER OF LEASABLE TOTAL LEASED RENT UNDER RENT PER LEASE YEAR LEASES AREA GROSS LEASABLE EXPIRING SQUARE FOOT OF EXPIRATION EXPIRING(1) EXPIRING AREA EXPIRING LEASES(2) LEASES EXPIRING - ---------- ---------- --------- -------------- --------------- --------------- Month-to-month.......... 47 85,207 1.9% $ 981,933 $11.52 1997.................... 27 47,917 1.1% 642,982 13.42 1998.................... 130 224,499 5.0% 3,310,724 14.75 1999.................... 109 233,498 5.2% 2,877,377 12.32 2000.................... 85 169,237 3.8% 2,504,483 14.80 2001.................... 53 111,086 2.5% 1,589,958 14.31 2002.................... 46 128,799 2.9% 2,011,269 15.62 2003.................... 19 78,284 1.8% 1,242,825 15.88 2004.................... 12 37,080 0.8% 581,655 15.69 2005.................... 10 47,630 1.1% 652,512 13.70 2006.................... 4 17,714 0.4% 306,804 17.32 2007.................... 13 43,120 1.0% 936,228 21.71 Thereafter.............. 33 120,039 2.7% 2,374,410 19.78 --- --------- ----- ----------- ------ Total Non-Anchor Leases............... 588 1,344,110 30.2% $20,013,160 $14.89 --- --------- ----- ----------- ------ All Leases............ 678 4,451,363(3) 100.0% $42,667,322 $ 9.59
- -------- (1) Does not reflect extension options granted to certain tenants. (2) Annualized Base Rent at lease expiration. (3) Total does not include 343,090 square feet GLA of unleased space (280,654 square feet GLA of shopping center and retail; 42,136 square feet GLA of commercial and 20,300 square feet GLA of industrial). S-16 SELECTED CONSOLIDATED FINANCIAL DATA The following table sets forth selected consolidated financial data for the Company and is qualified by, and should be read in conjunction with, the information included under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the "Consolidated Financial Statements" included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 incorporated herein by reference. In the opinion of Management, the consolidated historical financial information of the Company for the six months ended June 30, 1997 and 1996 includes all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the information set forth herein. See "Available Information" and "Incorporation of Certain Documents by Reference" in the accompanying Prospectus.
AS OF AND FOR THE SIX AS OF AND FOR THE YEARS MONTHS ENDED DECEMBER 31, ENDED JUNE 30, ----------------------------------- ----------------------- 1996 1995 1994 1997 1996 ----------- ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT FOR PER SHARE, PERCENTAGE AND RATIO DATA) OPERATING DATA Revenues Minimum rents......... $ 38,241 $ 37,641 $ 34,100 $ 18,940 $ 19,136 Percentage rents...... 649 559 537 327 340 Operating Expense Recoveries from Tenants.............. 7,355 6,821 6,083 3,478 3,312 Other income.......... 756 584 2,017 312 409 ----------- ----------- ----------- ----------- ----------- Total Revenues.......... 47,001 45,605 42,737 23,057 23,197 ----------- ----------- ----------- ----------- ----------- Expenses: Interest.............. 11,289 11,537 10,063 5,677 5,660 Property operating costs................ 8,933 8,310 7,411 4,191 4,039 Depreciation and amortization......... 11,264 10,893 9,879 5,500 5,567 Other operating expenses............. 2,693 2,917 2,967 1,102 1,339 General and administrative....... 1,706 1,691 1,510 921 939 ----------- ----------- ----------- ----------- ----------- Total expenses.......... 35,885 35,348 31,830 17,391 17,544 ----------- ----------- ----------- ----------- ----------- Income from operations.. 11,116 10,257 10,907 5,666 5,653 ----------- ----------- ----------- ----------- ----------- Provision for loss on real estate investment. -- -- 996 -- -- Income before gains on sales of real estate investments ........... 11,116 10,257 9,911 5,666 5,653 Gains on sales of real estate investments .... 1,115 47 5,355 1,160 1,032 ----------- ----------- ----------- ----------- ----------- Net Income.............. $ 12,231 $ 10,304 $ 15,266 $ 6,826 $ 6,685 =========== =========== =========== =========== =========== OTHER DATA Net income per share.... $ 0.72 $ 0.61 $ 0.92 $ 0.40 $ 0.39 Dividends declared per share.................. $ 1.12 $ 1.12 $ 1.12 $ 0.56 $ 0.56 Weighted average shares outstanding ........... 17,055,496 16,861,324 16,682,675 17,138,432 16,972,496 Funds from Operations(1).......... $ 22,274 $ 21,017 $ 20,084 $ 11,114 $ 11,168
S-17
AS OF AND FOR THE AS OF AND FOR THE YEARS SIX MONTHS ENDED DECEMBER 31, ENDED JUNE 30, ---------------------------- ------------------ 1996 1995 1994 1997 1996 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT FOR PER SHARE, PERCENTAGE AND RATIO DATA) EBITDA(2).................... $ 33,669 $ 32,687 $ 30,849 $ 16,843 $ 16,880 Net cash flows from (used in): Operating activities....... $ 21,956 $ 20,203 $ 20,212 $ 11,480 $ 11,480 Investing activities....... $ (4,225) $ (7,318) $(41,724) $ (1,576) $ (2,639) Financing activities....... $(17,436) $(12,876) $ 21,832 $ (9,882) $ (8,807) Ratio of earnings before fixed charges to fixed charges(3) ................. 2.0x 1.9x 2.1x 2.0x 2.0x Ratio of Funds from Operations before fixed charges to fixed charges(1)(3) .............. 3.0x 2.8x 3.0x 3.0x 2.9x Percentage of Debt to Total Assets(4) .................. 35% 35% 35% 35% 35% Percentage of secured Debt to Total Assets(4) ............ 0% 0% 0% 0% 0% Ratio of Total Unencumbered Assets to Unsecured Debt(4) .................... 2.8x 2.8x 2.8x 2.8x 2.8x Ratio of Consolidated Income Available for Debt Service to Debt Service Charge(4) .. 3.0x 2.9x 2.7x 3.0x 3.0x Percent occupied(5).......... 93.7% 93.9% 91.7% 92.9% 93.6% BALANCE SHEET DATA Net real estate investments.. $328,915 $334,551 $338,292 $324,771 $332,626 Total assets ................ 339,629 344,571 347,172 336,423 342,279 Mortgage notes payable....... -- 1,294 1,362 -- 1,257 8.0% Convertible Debentures.. 61,310 63,433 65,731 60,525 61,364 7 7/8% Senior Notes.......... 49,897 49,882 49,868 49,904 49,889 Indebtedness to banks........ 32,250 29,250 23,645 32,750 30,025 Total liabilities............ 147,681 147,772 144,488 147,246 146,332 Total shareholders' equity... 191,948 196,799 202,684 189,177 195,947
- -------- (1) The Company considers Funds from Operations to be an alternate measure of an equity REIT's performance since such measure does not recognize depreciation and amortization of real estate assets as reductions of cash flow from operations. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Yet, since real estate values have historically risen or fallen with market conditions, the Company, along with most industry investors, has considered presentation of operating results for real estate companies that use historical cost accounting to be less than fully informative. The National Association of Real Estate Investment Trusts (NAREIT) defines Funds from Operations as net income plus depreciation and amortization of assets uniquely significant to the real estate industry, reduced by gains and increased by losses on sales of property. Funds from Operations does not represent cash flows from operations as defined by generally accepted accounting principles and should not be considered a substitute for net income as an indicator of the Company's operating performance, or for cash flows as a measure of liquidity. The Company's computation of Funds from Operations may, however, differ from methodology for calculating Funds from Operations utilized by other equity REITS and, therefore, may not be comparable to such other REITS. (2) EBITDA represents earnings before interest, income taxes, depreciation and amortization, gain or loss on real estate investments and extraordinary items. The Company believes that EBITDA is relevant to an understanding of the economics of the Company because it indicates cash flow available from the operations of the Company to service fixed obligations. EBITDA should not be considered as an alternative, or necessarily indicative of, net income or cash flow provided by operations as specified by generally accepted accounting principles for purposes of evaluating the Company's results of operations. S-18 (3) For purposes of computing these ratios, fixed charges consist of interest costs, whether expensed or capitalized and amortization of debt costs, discounts and issue costs, whether expensed or capitalized. (4) For a description of each percentage or ratio, see "Description of the Notes--Certain Covenants." (5) Once a space is subject to an executed lease, the space is then included in occupied space. A space continues to be included in the Company's occupied space until: (a) the related lease expires and the tenant is no longer in legal possession, or (b) the related lease is formally terminated and the tenant is no longer in legal possession. S-19 USE OF PROCEEDS The net proceeds from the sale of the Notes offered hereby, after deducting the underwriting discount and estimated expenses of this Offering, are estimated to be $74.2 million. The Company will use a portion of the net proceeds from the sale of the Notes to redeem its Convertible Debentures and the balance for general corporate purposes. Such purposes may include (i) repayment of debt (including repayments of amounts drawn on the Company's bank line of credit), (ii) improvement, expansion or redevelopment of its properties, (iii) acquisition of additional properties, and (iv) working capital. Pending use for the foregoing purposes, including redemption of the Convertible Debentures which cannot be redeemed until October 27, 1997, such proceeds shall be invested in short-term, interest-bearing time or demand deposits with financial institutions, investment grade commercial paper, bankers' acceptances, cash items or qualified government securities, all in a manner consistent with the REIT provisions of the Internal Revenue Code of 1986, as amended ("Code"). S-20 CAPITALIZATION The following table sets forth the capitalization of the Company as of June 30, 1997 on an actual basis and on a pro forma basis to give effect to the offering of the Notes and the application of the net proceeds therefrom as described under "Use of Proceeds":
JUNE 30, 1997 ------------------- ACTUAL PRO FORMA -------- --------- (IN THOUSANDS EXCEPT FOR PER SHARE, PERCENTAGE AND RATIO DATA) CAPITALIZATION Debt: 8.0% Convertible Debentures............................. $ 60,525 $ -- 7 7/8% Senior Notes..................................... 49,904 49,904 Notes offered hereby.................................... -- 75,000 Indebtedness to banks................................... 32,750 18,916 -------- --------- Total Debt............................................ $143,179 $ 143,820 -------- --------- Shareholders' equity: Preferred stock, 2,000,000 shares authorized; No shares issued or outstanding.................................. $ -- $ -- Shares of beneficial interest, no par value, unlimited share authorization; 17,138,432 shares issued and outstanding, actual and pro forma...................... 242,054 242,054 Accumulated dividends in excess of net income........... (52,877) (52,877) -------- --------- Total shareholders' equity............................ $189,177 $ 189,177 -------- --------- Total capitalization.................................. $332,356 $ 332,997 ======== ========= CERTAIN RATIOS AND PERCENTAGES (1) Percentage of Debt to Total Assets ..................... 35% 35% Percentage of secured Debt to Total Assets(2) .......... 0% 0% Ratio of Consolidated Income Available for Debt Service to Debt Service Charge(3) ............................. 3.0x 3.1x Ratio of Total Unencumbered Assets to Unsecured Debt.... 2.8x 2.8x
- -------- (1) For a description of each percentage or ratio, see "Description of the Notes--Certain Covenants." (2) Two properties are encumbered by deeds of trust relating to promissory notes under which the co-owners of the centers are the borrowers. The Company has no payment obligation on these notes. (3) Ratio of Consolidated Income Available for Debt Service to Debt Service Charge assumes as of January 1, 1997 (i) $75 million sale of the Notes offered hereby, (ii) redemption of the Convertible Debentures, and (iii) pay down on indebtedness to banks equal to the balance of the net proceeds of the Offering. The pro forma interest rate on the Notes is estimated at 7.25%. S-21 DESCRIPTION OF THE NOTES The following description of the particular terms of the Notes offered hereby supplements, and to the extent inconsistent therewith replaces, the description of the general terms and provisions of the "Senior Securities" set forth in the accompanying Prospectus, to which reference is hereby made. Unless otherwise defined in this Prospectus Supplement, capitalized terms used under "Description of the Notes" have the meanings set forth in the Indenture. GENERAL The 2006 Notes, 2008 Notes and 2010 Notes each constitute separate series of Senior Securities (which are more fully described in the accompanying Prospectus) to be issued under an indenture (the "Original Indenture"), dated as of September 1, 1997, as supplemented by Supplemental Indenture No. 1, Supplemental Indenture No. 2 and Supplemental Indenture No. 3 (each a "Supplemental Indenture"), respectively, between the Company and The Bank of New York. The Original Indenture and the Supplemental Indentures are collectively referred to herein as the "Indenture." The form of the Indenture has been filed as an exhibit to (or incorporated by reference into) the Registration Statement of which this Prospectus Supplement is a part and is available for inspection at the offices of the Company. The Indenture is subject to, and governed by, the Trust Indenture Act of 1939, as amended (the "TIA"). The statements made hereunder relating to the Indenture and the Notes to be issued thereunder are summaries of certain provisions thereof, do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all provisions of the Indenture and such Notes. All section references appearing herein are to sections of the Indenture, and capitalized terms used but not defined herein shall have the respective meanings set forth in the Indenture. The 2006 Notes, 2008 Notes and 2010 Notes will be limited to an aggregate principal amount of $25,000,000 each, respectively, and will be direct, senior unsecured obligations of the Company and will rank equally with all other unsecured and unsubordinated indebtedness of the Company from time to time outstanding. The Notes will be effectively subordinated to mortgages and other secured indebtedness of the Company and to indebtedness and other liabilities of any Subsidiaries (as defined below) which may be formed by the Company in the future. As of June 30, 1997, on a pro forma basis after giving effect to this Offering, and the application of the net proceeds therefrom, the Company would have had outstanding approximately $143,820,000 of total indebtedness, all of which would have been unsecured and unsubordinated. See "Capitalization." Except as described under "--Certain Covenants--Limitations on Incurrence of Debt" below and under "Description of Debt Securities--Merger, Consolidation or Sale" in the accompanying Prospectus, the Indenture does not contain any provisions that would limit the ability of the Company to incur indebtedness or that would afford holders of the Notes protection in the event of (i) a debt-financed transaction involving the Company, (ii) a change of control, or (iii) a reorganization, restructuring, merger or similar transaction involving the Company that may adversely affect the holders of the Notes. The Company may, in the future, enter into certain transactions such as the sale of all or substantially all of its assets or a merger or consolidation that may increase the amount of the Company's indebtedness or substantially change the Company's assets, which may have an adverse effect on the Company's ability to service its indebtedness, including the Notes. The Company may incur additional indebtedness, including secured indebtedness, subject to the provisions described below under "--Certain Covenants--Limitations on Incurrence of Debt." The Notes will only be issued in fully registered form in denominations of $1,000 and integral multiples thereof. PRINCIPAL AND INTEREST The 2006 Notes, 2008 Notes and 2010 Notes each will bear interest at 7.10%, 7.20% and 7.30% per annum, respectively, and will mature on September 15, 2006, September 15, 2008 and September 15, 2010, respectively. The Notes will bear interest from September 25, 1997 or from the immediately preceding Interest Payment Date (as defined S-22 below) to which interest has been paid, payable semi-annually in arrears on March 15 and September 15 of each year, commencing on March 15, 1998 (each, an "Interest Payment Date"), and on the applicable Maturity Date to the persons in whose name the applicable Notes are registered in the Security Register on the preceding March 1 or September 1 (whether or not a Business Day, as defined below), as the case may be (each, a "Regular Record Date"). Interest on the Notes will be computed on the basis of a 360-day year of twelve 30-day months. If any Interest Payment Date or Stated Maturity falls on a day that is not a Business Day, the required payment shall be made on the next Business Day as if it were made on the date such payment was due and no interest shall accrue on the amount so payable for the period from and after such Interest Payment Date or the Maturity Date, as the case may be. "Business Day" means any day, other than a Saturday or Sunday, on which banks in the City of New York are not required or authorized by law or executive order to close. The principal of and interest on the Notes will be payable at the corporate trust office of The Bank of New York (the "Paying Agent") in the City of New York, initially located at 101 Barclay Street, Floor 21 West, New York, New York 10286, provided that, at the option of the Company, payment of interest can be made by check mailed to the address of the Person entitled thereto as it appears in the Security Register or by wire transfer of funds to such Person at an account maintained within the United States (Sections 301, 307, 1001 and 1002). CERTAIN COVENANTS Limitations on Incurrence of Debt. The Company will not, and will not permit any Subsidiary to, incur any Debt (as defined below) if, immediately after giving effect to the incurrence of such additional Debt and the application of the proceeds thereof, the aggregate principal amount of all outstanding Debt of the Company and its Subsidiaries on a consolidated basis determined in accordance with GAAP is greater than 60% of the sum of (without duplication) (i) the Total Assets (as defined below) of the Company and its Subsidiaries as of the end of the calendar quarter covered in the Company's Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be, most recently filed with the Securities and Exchange Commission (or, if such filing is not permitted under the Exchange Act, with the Trustee) prior to the incurrence of such additional Debt, and (ii) the purchase price of any real estate assets or mortgages receivable acquired since the end of the most recent calendar quarter, and (iii) the amount of any securities offering proceeds received (to the extent that such proceeds were not used to acquire real estate assets or mortgages receivable or used to reduce Debt), by the Company or any Subsidiary since the end of such calendar quarter, including those proceeds obtained in connection with the incurrence of such additional Debt (Section 2.4(a) of the Supplemental Indentures). In addition to the foregoing limitation on the incurrence of Debt, the Company will not, and will not permit any Subsidiary to, incur any Debt secured by any Encumbrance (as defined below) upon any of the property of the Company or any Subsidiary if, immediately after giving effect to the incurrence of such additional Debt and the application of the proceeds thereof, the aggregate principal amount of all outstanding Debt of the Company and its Subsidiaries on a consolidated basis which is secured by any Encumbrance on property of the Company or any Subsidiary is greater that 40% of the sum of (without duplication) (i) the Total Assets of the Company and its Subsidiaries as of the end of the calendar quarter covered in the Company's Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be, most recently filed with the Commission (or, if such filing is not permitted under the Exchange Act, with the Trustee) prior to the incurrence of such additional Debt, (ii) the purchase price of any real estate assets or mortgages receivable acquired since the end of the most recent calendar quarter, and (iii) the amount of any securities offering proceeds received (to the extent that such proceeds were not used to acquire real estate assets or mortgages receivable or used to reduce Debt), by the Company or any Subsidiary since the end of such calendar quarter, including those proceeds obtained in connection with the incurrence of such additional Debt (Section 2.4(c) of the Supplemental Indentures). S-23 The Company and its Subsidiaries must at all times own Total Unencumbered Assets (as defined below) greater than 150% of the aggregate outstanding principal amount of the Unsecured Debt of the Company and its Subsidiaries on a consolidated basis (Section 2.4(d) of the Supplemental Indentures). In addition to the foregoing limitations on the incurrence of Debt, the Company will not, and will not permit any Subsidiary to, incur any Debt if the ratio of Consolidated Income Available for Debt Service (as defined below) to the Debt Service Charge (as defined below) for the four consecutive fiscal quarters most recently ended prior to the date on which such additional Debt is to be incurred shall have been less than 1.5:1 on a pro forma basis after giving effect thereto and to the application of the proceeds therefrom, and calculated on the assumption that (i) such Debt and any other Debt incurred by the Company and its Subsidiaries since the first day of such four-quarter period and the application of the proceeds therefrom, including to refinance other Debt, had occurred at the beginning of such period, (ii) the repayment or retirement of any other Debt by the Company and its Subsidiaries since the first day of such four-quarter period had been repaid or retired at the beginning of such period (except that, in making such computation, the amount of Debt under any revolving credit facility shall be computed based upon the average daily balance of such Debt during such period), (iii) in the case of Acquired Debt (as defined below) or Debt incurred in connection with any acquisition since the first day of such four-quarter period, the related acquisition had occurred as of the first day of such period with the appropriate adjustments with respect to such acquisition being included in such pro forma calculation, and (iv) in the case of any acquisition or disposition by the Company or its Subsidiaries of any asset or group of assets since the first day of such four-quarter period, whether by merger, stock purchase or sale, or asset purchase or sale, such acquisition or disposition or any related repayment of Debt had occurred as of the first day of such period with the appropriate adjustments with respect to such acquisition or disposition being included in such pro forma calculation (Section 2.4(b) of the Supplemental Indentures). The foregoing covenants do not restrict the Company from refinancing existing Debt, provided that the outstanding principal amount of such Debt is not increased. As used herein, and in the Indenture: "Acquired Debt" means Debt of a Person (i) existing at the time such Person becomes a Subsidiary, or (ii) assumed in connection with the acquisition of assets from such Person, in each case, other than Debt incurred in connection with, or in contemplation of, such Person becoming a Subsidiary or such acquisition. Acquired Debt shall be deemed to be incurred on the date of the related acquisition of assets from any Person or the date the acquired Person becomes a Subsidiary. "Capital Stock" means, with respect to any Person, any capital stock (including preferred stock), shares, interests, participations or other ownership interests (however designated) of such Person and any rights (other than debt securities convertible into or exchangeable for corporate stock), warrants or options to purchase any thereof. "Consolidated Income Available for Debt Service" for any period means Earnings from Operations (as defined below) of the Company and its Subsidiaries plus amounts which have been deducted, minus amounts which have been added, for the following (without duplication): (i) interest on Debt of the Company and its Subsidiaries, (ii) provision for taxes of the Company and its Subsidiaries based on income, (iii) amortization of debt discount, (iv) provisions for gains and losses on properties and property depreciation and amortization, (v) the effect of any noncash charge resulting from a change in accounting principles in determining Earnings from Operations for such period, and (vi) amortization of deferred charges. "Debt" of the Company or any Subsidiary means any indebtedness of the Company or any Subsidiary, whether or not contingent, in respect of (i) money borrowed or evidenced by bonds, notes, debentures or similar instruments, (ii) indebtedness for borrowed money secured by any Encumbrance existing on property owned by the Company or any Subsidiary, (iii) the reimbursement obligations, contingent or otherwise, in connection with any letters of credit actually issued or amounts representing the balance deferred and unpaid of the purchase price of any property or services, except any such balance that constitutes an accrued expense or trade payable, or all conditional sale obligations or obligations under any S-24 title retention agreement, (iv) the principal amount of all obligations of the Company or any Subsidiary with respect to redemption, repayment or other repurchase of any Disqualified Stock, or (v) any lease of property by the Company or any Subsidiary as lessee which is reflected on the Company's Consolidated Balance Sheet as a capitalized lease in accordance with GAAP, to the extent, in the case of items of indebtedness under (i) through (iii) above, that any such items (other than letters of credit) would appear as a liability on the Company's Consolidated Balance Sheet in accordance with GAAP, and also includes, to the extent not otherwise included, any obligation by the Company or any Subsidiary to be liable for, or to pay, as obligor, guarantor or otherwise (other than for purposes of collection in the ordinary course of business), Debt of another Person (other than the Company or any Subsidiary) (it being understood that Debt shall be deemed to be incurred by the Company or any Subsidiary whenever the Company or such Subsidiary shall create, assume, guarantee or otherwise become liable in respect thereof). "Debt Service Charge" for any period means the maximum amount which is payable during such period for interest on, and the amortization during such period of any original issue discount of, Debt of the Company and its Subsidiaries and the amount of dividends which are payable during such period in respect of any Disqualified Stock. "Disqualified Stock" means with respect to any Person, any Capital Stock of such Person which is the term of such Capital Stock (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable), upon the happening of any event or otherwise (i) matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise (other than Capital Stock which is redeemable solely in exchange for common stock), (ii) is convertible into or exchangeable or exercisable for Debt or Disqualified Stock, or (iii) is redeemable at the option of the holder thereof, in whole or in part (other than Capital Stock which is redeemable solely in exchange for common stock), in each case on or prior to the Stated Maturity of the Notes. "Earnings from Operation" for any period means net earnings excluding gains and losses on sales of investments, extraordinary items, and property valuation losses, net as reflected in the financial statements of the company and its subsidiaries for such period determined on a consolidated basis in accordance with GAAP. "Encumbrance" has the meaning specified in the definition of "Debt" above. "Subsidiary" means (i) any corporation or other entity the majority of the share of the non-voting capital stock or other equivalent ownership interests of which (except trustees' qualifying shares) are at the time directly or indirectly owned by the Company, and the majority of the shares of the voting capital stock or other equivalent ownership interests of which (except trustees' qualifying shares) are at the time directly or indirectly owned by the Company or any other Subsidiary, and (ii) any other entity (other than the Company) the accounts of which are consolidated with the accounts of the Company or any Subsidiary. "Total Assets" as of the date means the sum of (i) the Undepreciated Real Estate Assets, and (ii) all other assets of the Company and its Subsidiaries determined in accordance with GAAP, but excluding intangibles. "Total Unencumbered Assets" means the sum of (i) those Undepreciated Real Estate Assets not subject to an Encumbrance for borrowed money, and (ii) all other assets of the Company and its Subsidiaries not subject to an Encumbrance for borrowed money determined in accordance with GAAP, but excluding intangibles. "Undepreciated Real Estate Assets" as of any date means the cost (original cost plus capital improvements) of real estate assets of the Company and its Subsidiaries on such date, before depreciation and amortization determined on a consolidated basis in accordance with GAAP. "Unsecured Debt" means Debt which is not secured by any Encumbrance upon any of the properties of the Company or any Subsidiary. See "Description of Debt Securities--Certain Covenants" in the accompanying Prospectus for a description of additional covenants applicable to the Company. S-25 OPTIONAL REDEMPTION The Notes may be redeemed at any time at the option and in the sole discretion of the Company in whole or from time to time in part, at a redemption price equal to the sum of (i) the principal amount of the Notes being redeemed plus accrued interest thereon to the redemption date, and (ii) the Make-Whole Amount (as defined below), if any, with respect to such Notes (the "Redemption Price"). If notice has been given as provided in the Indenture and funds for the redemption of any Notes called for redemption shall have been made available on the redemption date referred to in such notice, such Notes will cease to bear interest on the date fixed for such redemption specified in such notice, and the only right of the holders of the Notes will be to receive payment of the Redemption Price. Notice of any optional redemption of any Notes will be given to holders at their addresses, as shown in the security register for the Notes, not more than 60 nor less than 30 days prior to the date fixed for redemption. The notice of redemption will specify, among other items, the Redemption Price and the principal amount of the Notes held by each holder to be redeemed. If less than all the Notes are to be redeemed at the option and in the sole discretion of the Company, the Company will notify the Trustee at least 45 days prior to giving notice of redemption (or such shorter period as is satisfactory to the Trustee) of the aggregate principal amount of Notes to be redeemed and their redemption date. The Trustee shall select not more than 60 days prior to the redemption date, in such manner as it shall deem fair and appropriate, Notes to be redeemed in whole or in part. As used herein: "Make-Whole Amount" means in connection with any optional redemption or accelerated payment of any Notes, the excess, if any, of (i) the aggregate present value as of the date of such redemption or accelerated payment of each dollar of principal being redeemed or paid and the amount of interest (exclusive of interest accrued to the date of redemption or accelerated payment) that would have been payable in respect of each such dollar if such redemption of accelerated payment had not been made, determined by discounting, on a semi-annual basis, such principal and interest at the Reinvestment Rate (determined on the third business day preceding the date such notice of redemption is given or declaration of acceleration is made) from the respective dates on which such principal and interest would have been payable if such redemption or accelerated payment had not been made to the date of redemption or accelerated payment, over (ii) the aggregate principal amount of the Notes being redeemed or paid. For purposes of the Indenture, all references to any "premium" on the Notes shall be deemed to refer to any Make-Whole Amount, unless the context otherwise requires. "Reinvestment Rate" means 0.25% (one quarter of one percent) plus the arithmetic mean of the yields under the heading "Week Ending" published in the most recent Statistical Release under the caption "Treasury Constant Maturities" for the maturity (rounded to the nearest month) corresponding to the remaining life to maturity, as of the payment date of the principal being redeemed or paid. If no maturity exactly corresponds to such maturity, yields for the two published maturities most closely corresponding to such maturity shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For the purposes of calculating the Reinvestment Rate, the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used. "Statistical Release" means the statistical release designed "H.15(519)" or any successor publication which is published weekly by the Board of Governors of the Federal Reserve System and which reports yields on actively traded United State government securities adjusted to constant maturities, or, if such statistical release is not published at the time of any determination under the Indenture, then such other reasonably comparable index which shall be designated by the Company. S-26 DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE The provisions of the Indenture relating to defeasance and covenant defeasance, which are described under "Description of Debt Securities-- Discharge, Defeasance and Covenant Defeasance" in the accompanying Prospectus, will apply to the Notes. Each of the covenants described under "-- Certain Covenants" herein and "Description of Debt Securities--Certain Covenants" in the accompanying Prospectus will be subject to covenant defeasance. BOOK-ENTRY SYSTEM The Notes will be issued in the form of one or more fully registered global notes ("Global Notes") which will be deposited with, or on behalf of DTC, and registered in the name of DTC's nominee, Cede & Co. Except under the circumstance described below, the Notes will not be issuable in definitive form. Unless and until it is exchanged in whole or in part for the individual Notes represented thereby, a Global Note may not be transferred except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or by DTC or any nominee of DTC to a successor depository or any nominee of such successor. Upon the issuance of a Global Note, DTC or its nominee will credit on its book-entry registration and transfer system the respective principal amounts of the individual Notes represented by such Global Note to the accounts of persons that have accounts with DTC ("Participants"). Such accounts shall be designated by the underwriters, dealers or agents with respect to the Notes. Ownership of beneficial interests in a Global Note will be limited to Participants or persons that may hold interests through Participants. Ownership of beneficial interests in such Global Note will be shown on, and the transfer of that ownership will be effected only through, records maintained by DTC or its nominee (with respect to beneficial interests of Participants) and records of Participants (with respect to beneficial interests of persons who hold through Participants). The laws of some states require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and laws may impair the ability to own, pledge or transfer any beneficial interest in a Global Note. So long as DTC or its nominee is the registered owner of such Global Note, DTC or its nominee, as the case may be, will be considered the sole owner or holder of the Notes represented by such Global Note for all purposes under the Indenture and the beneficial owners of the Notes will be entitled only to those rights and benefits afforded to them in accordance with DTC's regular operating procedures. Except as provided below, owners of beneficial interest in a Global Note will not be entitled to have any of the individual Notes registered in their names, will not receive or be entitled to receive physical delivery of any such notes in definitive form and will not be considered the owners or holders thereof under the Indenture. Payments of principal of and any interest on, individual Notes represented by a Global Note registered in the name of DTC or its nominee will be made to DTC or its nominee, as the case may be, as the registered owner of the Global Note representing such Notes. None of the Company, the Trustee, any Paying Agent or the Security Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Note for such Notes or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. The Company expects that DTC or its nominee, upon receipt of any payment of principal or interest in respect of a permanent Global Note representing any Notes, immediately will credit Participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of such Global Note as shown on the records of DTC or its nominee. The Company also expects that payments by Participants to owners of beneficial interests in such Global Note held through such Participants will be governed by standing instructions and customary practices, as is the case with securities held for the account of customers in bearer form or registered in "street name." Such payments will be the responsibility of such Participants. If DTC is at any time unwilling, unable or ineligible to continue as depository and a successor depository is not appointed by the Company within 90 days, the Company will issue individual Notes in exchange for the Global Note or Notes representing the Notes. In addition, the Company may, at any time and in its sole S-27 discretion, determine not to have any Notes represented by one or more Global Notes and, in such event, will issue individual Notes in exchange for the Global Note or Notes representing the Notes. Individual Notes so issued will be issued in denominations unless otherwise specified by the Company, of $1,000 and integral multiples thereof. DTC has advised the Company of the following information regarding DTC: DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC holds securities that its Participants deposit with DTC. DTC also facilitates the settlement among its Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry charges in its Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants of DTC include securities brokers and dealers (including the Underwriter), banks, trust companies, clearing corporations, and certain other organizations. DTC is owned by a number of its direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a direct Participant of DTC, either directly or indirectly. The rules applicable to DTC and its participants are on file with the Commission. SAME-DAY SETTLEMENT AND PAYMENT Settlement for the Notes will be made by the Underwriter in immediately available funds. All payments of principal and interest in respect of the Notes will be made by the Company in immediately available funds. Secondary trading in long-term notes and debentures of corporate issuers is generally settled in clearing house or next-day funds. In contrast, the Notes will trade in DTC's Same-Day Funds Settlement System until maturity or until the Notes are issued in certificated form, and secondary market trading activity in the Notes will therefore be required by DTC to settle in immediately available funds. No assurance can be given as to the effect, if any, of settlement in immediately available funds on trading activity in the Notes. NO PERSONAL LIABILITY No past, present or future trustee, officer or shareholder of the Company or any successor thereof shall have any liability for any obligation, covenant or agreement of the Company contained under the Notes, the Indenture or other debt obligations. Each Holder of Notes by accepting such Notes waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Notes. S-28 UNDERWRITING Subject to the terms and conditions of the underwriting agreement, dated September 22, 1997 (the "Underwriting Agreement"), by and between the Company and PaineWebber Incorporated (the "Underwriter"), the Company has agreed to sell to the Underwriter, and the Underwriter has agreed to purchase, $25,000,000 principal amount of the 2006 Notes, $25,000,000 principal amount of the 2008 Notes and $25,000,000 principal amount of the 2010 Notes. The Underwriting Agreement provides that the obligations of the Underwriter are subject to certain conditions precedent, and that the Underwriter will purchase all Notes offered hereby if any of such Notes are purchased. The Underwriter has advised the Company that it proposes initially to offer each series of Notes directly to the public at the public offering price set forth on the cover page of this Prospectus Supplement and to certain dealers at such price less a concession not in excess of (i) 0.35% in the case of the 2006 Notes, (ii) 0.35% in the case of the 2008 Notes and (iii) 0.35% in the case of the 2010 Notes, respectively, of the principal amount thereof. The Underwriter may allow, and such dealers may reallow, a concession not in excess of 0.25% of the principal amount of the Notes to certain other dealers. After the initial offering of the Notes, the public offering price and other selling terms may from time to time be changed. Each series of Notes is a new issue of securities with no established trading market. The Company has been advised by the Underwriter that the Underwriter intends to make a market in the Notes but is not obligated to do so and may discontinue market making at any time without notice. No assurance can be given as to the liquidity of the trading market for the Notes. The Company has agreed to indemnify the Underwriter against certain civil liabilities, including liabilities under the Securities Act, or to contribute to payments the Underwriter may be required to make in respect thereof. Until the distribution of the Notes is completed, rules of the Securities and Exchange Commission may limit the ability of the Underwriter to bid for and purchase the Notes. As an exception to these rules, the Underwriter is permitted to engage in certain transactions that stabilize the price of the Notes. Such transactions consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of the Notes. In addition, if the Underwriter creates a short position in the Notes in connection with this Offering (i.e., they sell more Notes than are set forth on the cover page of this Prospectus Supplement), the Underwriter may reduce the short position by purchasing Notes in the open market. In general, purchases of a security for the purpose of stabilization or to reduce a short position could cause the price of the security to be higher than it might be in the absence of such purchases. Neither the Company nor the Underwriter makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Notes. In addition, neither the Company nor the Underwriter makes any representation that the Underwriter will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice. S-29 LEGAL MATTERS Certain matters with respect to the legality of the securities offered hereby will be passed upon for the Company by Steinhart & Falconer LLP, San Francisco, California and for the Underwriter by O'Melveny & Myers LLP, San Francisco, California. AVAILABLE INFORMATION This Prospectus Supplement constitutes a part of a Registration Statement on Form S-3 (together with all amendments and exhibits, herein referred to as the "Registration Statement") filed by the Company under the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus Supplement does not contain all of the information included in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. Reference is made to such Registration Statement and to the exhibits relating thereto for further information with respect to the Company and the securities offered hereby. S-30 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT NOR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER OR THEREUNDER 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 OR THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH THEY RELATE OR ANY OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY SUCH SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. --------------- TABLE OF CONTENTS
PAGE ---- PROSPECTUS SUPPLEMENT Prospectus Supplement Summary.............................................. S-3 Business and Properties.................................................... S-7 Selected Consolidated Financial Data....................................... S-17 Use of Proceeds............................................................ S-20 Capitalization............................................................. S-21 Description of the Notes................................................... S-22 Underwriting............................................................... S-29 Legal Matters.............................................................. S-30 Available Information...................................................... S-30
PROSPECTUS Available Information....................................................... 2 Incorporation of Certain Documents by Reference............................. 3 Risk Factors................................................................ 4 The Trust................................................................... 7 Use of Proceeds............................................................. 8 Description of Debt Securities.............................................. 8 Description of Common Stock................................................. 19 Description of Preferred Stock.............................................. 20 Taxation.................................................................... 25 Plan of Distribution........................................................ 27 Experts..................................................................... 28 Legal Matters............................................................... 28
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- WESTERN INVESTMENT REAL ESTATE TRUST $25,000,000 7.10% SENIOR NOTES DUE 2006 $25,000,000 7.20% SENIOR NOTES DUE 2008 $25,000,000 7.30% SENIOR NOTES DUE 2010 --------------------- PROSPECTUS SUPPLEMENT --------------------- PAINEWEBBER INCORPORATED --------------- SEPTEMBER 22, 1997 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----