The
information
in this prospectus supplement is not complete and may be changed. A registration
statement relating to these securities has been filed with and declared
effective by the Securities and Exchange Commission. This prospectus supplement
and the accompanying prospectus are not an offer to sell these securities
nor do
they seek an offer to buy these securities in any jurisdiction where the
offer
or sale is not permitted.
SUBJECT
TO COMPLETION, DATED JULY 6,
2007
|
PROSPECTUS
SUPPLEMENT
|
Filed
Pursuant to Rule 424(b)(5)
|
|
|
(To
Prospectus Dated October 8, 2002)
|
Registration
No. 333-87440
|
1,680,000
Shares
American
Mortgage Acceptance Company
%
Series A Cumulative Convertible Preferred Shares
(Liquidation
Preference $25.00 per share)
____________________
We
are
offering 1,680,000 % Series A Cumulative Convertible
Preferred Shares, par value $0.01 per share, which we refer to in this
prospectus supplement as the Preferred Shares. We will pay cumulative
dividends on the Preferred Shares from and including the date of original
issuance, in the amount of $ per share each year,
which is equivalent to % of the $25.00 liquidation
preference per share. Dividends on the Preferred Shares will be
payable quarterly in arrears, beginning on October 15, 2007. The
Preferred Shares will rank senior to our common shares and any other junior
shares that we may issue in the future.
Holders
may convert the Preferred Shares into our common shares subject to certain
conditions. The conversion rate will initially
be common shares per Preferred Share
and is equivalent to an initial conversion price of
$ per common share, which represents a 25% premium
over $ per share, the average closing price of
our common shares for the five trading days prior to July ,
2007. The conversion rate will be subject to adjustment upon the
occurrence of specified events. See “Description of Preferred
Shares—Conversion Rights” beginning on page S-29 of this prospectus
supplement.
If
certain fundamental changes to our company occur, holders of the Preferred
Shares may require us in certain circumstances to repurchase all or part
of
their Preferred Shares. See “Description of Preferred Shares—Purchase
of Preferred Shares Upon a Fundamental Change” beginning on page S-34 of this
prospectus supplement. In addition, in the event we are acquired by a
public company, we will adjust the conversion rate so that the Preferred
Shares
are convertible into shares of the public acquiring or surviving
company. See “Description of Preferred Shares—Conversion After a
Public Acquirer Change of Control” beginning on page S-33 of this prospectus
supplement.
We
may
not redeem the Preferred Shares, except in limited circumstances including
a
fundamental change in which we are acquired and our Shareholders are not
entitled to receive publicly traded common stock or to preserve our status
as a
real estate investment trust. See “Description of Preferred
Shares—Redemption” beginning on page S-28 of this prospectus
supplement. However, on or after July , 2012,
we may, at our option, cause the Preferred Shares to be automatically converted
into that number of our common shares that are issuable at the then prevailing
conversion rate. We may exercise our conversion right only if the
closing price of our common shares equals or exceeds 125% of the then prevailing
conversion price of the Preferred Shares for at least 20 trading days in a
period of 30 consecutive trading days (including the last trading day of
such period) ending on the trading day immediately prior to our issuance
of a
press release announcing our intent to exercise this option. Holders
of the Preferred Shares will generally not have voting rights, but will have
limited voting rights if we fail to pay dividends for six or more quarters
(whether or not consecutive) and under certain other
circumstances. See “Description of Preferred Shares—Voting Rights”
beginning on page S-26 of this prospectus supplement.
Centerline
Holding Company, the parent of our external advisor, Centerline/AMAC Manager
Inc., or one of its subsidiaries will purchase 280,000 of the Preferred Shares
in this offering at the same terms and $25.00 offering price offered to the
public. We will receive all of the proceeds from the sale of these
Preferred Shares because we will not be required to pay an underwriting discount
to the underwriters with respect to these shares.
The
Preferred Shares are subject to certain restrictions on ownership designed
to
preserve our qualification as a real estate investment trust for federal
income
tax purposes. See “Description of Preferred Shares—Restrictions on
Ownership” on page S-36 of this prospectus supplement and “Description of Our
Shares—Restrictions on Transfer” on page 5 of the accompanying
prospectus.
Our
common shares are listed on the American Stock Exchange, under the symbol
“AMC.” The last reported sale price of our common shares on
July , 2007 was $ per
share. There is currently no public market for the Preferred
Shares. We intend to apply to list the Preferred Shares on the
American Stock Exchange under the symbol “AMC.PrA.” If our
application is approved, trading of the Preferred Shares on the American
Stock
Exchange is expected to begin within 30 days following delivery of the
Preferred Shares.
Investing
in the Preferred Shares involves significant risks. See “Risk
Factors” beginning on page S-9 of this prospectus supplement and in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2006, which is
incorporated herein by reference.
____________________
|
Per
Share
|
Total
|
|||||||
|
Public
Offering
Price
|
$ |
25.00
|
$ | |||||
|
Underwriting
Discount
(1)
|
$ | $ | ||||||
|
Proceeds
to us, before expenses(1)
|
$ | $ | ||||||
___________
|
(1)
Centerline Holding Company or one of its subsidiaries will purchase
280,000 of the Preferred Shares in this offering, at the $25.00
offering
price. We will receive all of the proceeds from the sale of these
Preferred Shares because we will not be required to pay an underwriting
discount to the underwriters with respect to these shares.
|
||||||||
|
We
have granted the underwriters a 30-day option to purchase up to
an
additional 210,000 Preferred Shares to cover over-allotments, if
any.
|
||||||||
|
Neither
the Securities
and Exchange Commission nor any state securities commission has
approved
or disapproved of these securities or determined if this prospectus
supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
|
||||||||
Delivery
of the Preferred Shares in book-entry form through the Depository Trust Company
will be made on or about July , 2007.
____________________
|
Sterne,
Agee & Leach, Inc.
|
Boenning
& Scattergood, Inc.
|
____________________
The
date of this prospectus supplement is July ,
2007.
Prospectus
Supplement
Page
|
ii
|
|
|
iii
|
|
|
S-1
|
|
|
S-9
|
|
|
S-14
|
|
|
S-15
|
|
|
S-16
|
|
|
S-17
|
|
|
S-21
|
|
|
S-25
|
|
|
S-38
|
|
|
S-39
|
|
|
S-52
|
|
|
S-54
|
|
|
S-54
|
|
|
S-54
|
|
|
S-54
|
Page
|
1
|
|
|
2
|
|
|
10
|
|
|
10
|
|
|
11
|
|
|
11
|
|
|
11
|
|
|
11
|
|
|
12
|
____________________
ABOUT
THIS PROSPECTUS SUPPLEMENT
You
should rely only on the information contained in or incorporated by reference
in
this prospectus supplement and the accompanying prospectus. We have
not, and the underwriters have not, authorized anyone to provide you with
additional or different information. If anyone provides you with
different or additional information, you should not rely on such
information. We are not, and the underwriters are not, making an
offer to sell these securities in any jurisdiction where the offer or sale
is
not permitted. You should not assume that the information contained
in this prospectus supplement or the accompanying prospectus is accurate
as of
any date other than the date of this prospectus supplement or the accompanying
prospectus, respectively, or that information contained in any document
incorporated or deemed to be incorporated by reference is accurate as of
any
date other than the date of that document.
This
document is in two parts. The first part is this prospectus
supplement, which adds to and updates information contained in the accompanying
prospectus and the documents incorporated by reference into the accompanying
prospectus. The second part is the accompanying prospectus, which
gives more general information, some of which may not apply to this offering
of
the Preferred Shares. This prospectus supplement adds, updates and
changes information contained in the accompanying prospectus and the information
incorporated by reference. To the extent the information contained in
this prospectus supplement differs or varies from the information contained
in
the accompanying prospectus or any document incorporated by reference, the
information in this prospectus supplement shall control.
Unless
the context requires otherwise, all references to “our company,” “we,” “our” and
“us” in this prospectus supplement refer to American Mortgage Acceptance Company
and its wholly-owned subsidiaries. All references to “Centerline”
refer to Centerline Holding Company and/or its subsidiaries. All
references to “our Advisor” refer to Centerline/AMAC Manager Inc. (formerly,
CharterMac AMI Associates, Inc.), which is a subsidiary of
Centerline.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This
prospectus supplement and the accompanying prospectus contain or incorporate
by
reference certain forward-looking statements within the meaning of the “safe
harbor” provisions of the Private Securities Litigation Reform Act of 1995, as
amended. Forward-looking statements are those that predict or describe future
events or trends and that do not relate solely to historical
matters. These statements are based upon our current expectations and
speak only as of the date hereof. You can generally identify
forward-looking statements as statements containing the words “may,” “will,”
“believe,” “should,” “expect,” “anticipate,” “intend,” “estimate,” “assume” or
other similar expressions. You should not place undue reliance on our
forward-looking statements because the matters they describe are subject
to
known and unknown risks, uncertainties and other unpredictable factors, many
of
which are beyond our control. These factors include, but are not limited
to, the
following:
|
|
·
|
our
investment portfolio is subject to risks associated with real estate
investments generally and with the properties that secure many
of our
investments;
|
|
|
·
|
risk
of loss from non-investment grade commercial real estate
investments;
|
|
|
·
|
competition
in acquiring desirable investments may result in higher prices
for
investment assets, lower asset yields and a narrower spread of
yields over
our borrowing costs;
|
|
|
·
|
interest
rate fluctuations affect the value of our investment assets and
our
ability to generate net income;
|
|
|
·
|
general
economic conditions and economic conditions in the real estate
markets
specifically, particularly as they may adversely affect the value
of our
assets and the credit status of our
borrowers;
|
|
|
·
|
dependence
on our Advisor for all services necessary for our
operations;
|
|
|
·
|
conflicts
which may arise among us and other entities affiliated with our
Advisor
that have similar investment policies to
ours;
|
|
|
·
|
risks
associated with the repurchase agreements and warehouse facilities
we
utilize to finance our investments and our ability to raise
capital;
|
|
|
·
|
risks
associated with the failure to qualify as a real estate investment
trust,
or REIT; and
|
|
|
·
|
risks
associated with collateral debt obligation, or CDO, securitization
transactions, which include, but are not limited
to:
|
|
|
§
|
the
inability to acquire eligible investments for a CDO
issuance;
|
|
|
§
|
interest
rate fluctuations on variable-rate swaps entered into to hedge
fixed-rate
loans;
|
|
|
§
|
the
inability to find suitable replacement investments within reinvestment
periods; and
|
|
|
§
|
the
negative impact on our cash flow that may result from the use of
CDO
financings with over-collateralization and interest coverage
requirements.
|
|
|
·
|
other
factors discussed under the heading “Risk Factors” in this prospectus
supplement, in our Annual Report on Form 10-K and in other documents
filed with the Securities and Exchange Commission, or SEC, or otherwise
incorporated by reference into this prospectus
supplement.
|
You
are
cautioned not to place undue reliance on these forward-looking statements,
which
speak only as of the date of this prospectus supplement. We undertake
no obligation to revise or update publicly any forward-looking statements
other
than as required by law.
PROSPECTUS
SUPPLEMENT SUMMARY
The
following summary highlights information more fully described elsewhere or
incorporated by reference in this prospectus supplement and the accompanying
prospectus. This summary does not contain all of the information that
is important to you. Before making a decision to invest in the Preferred
Shares,
you should read carefully this entire prospectus supplement and the accompanying
prospectus, including the information incorporated by reference in this
prospectus supplement and the accompanying prospectus. This summary
is qualified in its entirety by the more detailed information and financial
statements, including the notes thereto, appearing elsewhere or incorporated
by
reference in this prospectus supplement and the accompanying
prospectus. Unless otherwise indicated, the information in this
prospectus supplement assumes that the underwriters’ over-allotment option is
not exercised.
American
Mortgage Acceptance Company
We
were
formed in 1991 as a Massachusetts business trust and have elected to be treated
as a REIT under the Internal Revenue Code of 1986, as amended, or the
Code. We are an externally managed REIT and all of our operations are
conducted pursuant to an advisory services agreement with Centerline/AMAC
Manager Inc. (formerly, CharterMac AMI Associates, Inc.), which we refer
to as
our Advisor. Our Advisor is a subsidiary of Centerline (NYSE: CHC), a
real estate finance and investment company, which had approximately $16.0
billion of assets under management as of March 31, 2007.
We
are a
commercial mortgage REIT focused on investing in loans and other debt and
equity
instruments secured by multifamily and commercial property throughout the
United
States. We invest in first mortgage loans, subordinated interests in
first mortgage loans, subordinated notes, mezzanine loans, bridge loans and
construction loans. These loans may have fixed or variable interest
rates. Additionally, we invest in subordinate commercial
mortgage-backed securities, subordinate debt and equity interests in CDO
securitizations and other real estate assets. We have also invested
in government insured or agency guaranteed first mortgages, insured mortgage
pass-through certificates or insured mortgage-backed securities. At
March 31, 2007, we had total assets of $775.1 million and total
shareholders’ equity of $86.7 million. Details of our investment
portfolio as of March 31, 2007 are set forth in the table
below:
|
At
March 31, 2007
|
||||||||||||
|
Carrying
Amount
(in
thousands)
|
%
of Total
|
Weighted
Average
Interest
Rate
|
||||||||||
|
(unaudited)
|
||||||||||||
|
Mortgage
loans
|
$ |
637,498
|
85.8% |
7.25%
|
||||||||
|
Debt
securities
|
80,955
|
10.9
|
6.49
|
|||||||||
|
CDO
securities (1)
|
10,061
|
1.4
|
9.00
|
|||||||||
|
Notes
receivable
|
9,260
|
1.2
|
9.78
|
|||||||||
|
Revenue
bonds
|
5,012
|
0.7
|
8.70
|
|||||||||
| $ |
742,786
|
100.0%
|
7.23%
|
|||||||||
__________
|
(1)
Includes debt and equity interests in CDO securitizations.
|
||||||||||||
We
obtain
debt financing for our activities through a combination of CDO notes payable,
a
CDO warehouse facility, master repurchase agreements, a revolving credit
facility with Centerline and other financings. We issued our first
CDO notes payable in November 2006, and we intend to continue financing a
large
portion of our investment portfolio using CDO notes payable.
Our
Corporate Information
Our
principal executive office is located at 625 Madison Avenue, New York, New
York
10022 and our telephone number is (212) 317-5700. We maintain a
website at http://www.americanmortgageco.com. The
contents
of
our
website are not a part of this prospectus supplement or the accompanying
prospectus. Our common shares are listed on the American Stock
Exchange, or AMEX, under the symbol “AMC.”
Recent
Developments
Investments
From
April 1, 2007 through July 6, 2007, we acquired a total of $257.0 million
of
assets comprised of the following:
|
|
·
|
$115.3
million of commercial mortgage-backed securities, or
CMBS;
|
|
|
·
|
$110.1
million of mezzanine loans;
|
|
|
·
|
$23.4
million of subordinated notes; and
|
|
|
·
|
$8.2
million of first mortgage loans.
|
Capital
Raising Activities
During
April 2007, we executed master repurchase agreements with Bear, Stearns
International Limited, or Bear Stearns, and with Wachovia Capital Markets,
LLC,
or Wachovia, for the purpose of providing financing for real estate related
investments, including but not limited to, our $10.1 million investment in
debt
and equity interests in a CDO securitization by Nomura. The Nomura
securities have a weighted average interest rate of 9.0% and mature in May
2042. We took possession of the Nomura securities in April
2007. In May 2007, we repaid all the outstanding borrowings pursuant
to the master repurchase agreement with Wachovia (and do not intend to utilize
this master repurchase agreement in the future) and entered into a corresponding
increase in the amounts financed pursuant to the master repurchase agreement
with Bear Stearns. Advance rates on the borrowings related to the
financing of the purchase of the Nomura securities pursuant to the Bear Stearns
master repurchase agreement range from 60 to 80% of the Nomura securities
and
interest on the borrowings range from 30-day LIBOR plus 0.40% to 30-day LIBOR
plus 0.85%. The Bear Stearns master repurchase agreement has no set
termination date and Bear Stearns has sole discretion whether to provide
financing for any individual transaction under the master repurchase
agreement.
Other
During
April 2007, we received approximately $337,000 of proceeds from the release
of
an escrow held back from the proceeds of the 2006 sale of ARCap Investors,
L.L.C. The entire amount will be recognized as income during the
second quarter of 2007.
Dividends
On
May
15, 2007, we paid a dividend of $0.225 per share for the first quarter of
2007 to shareholders of record as of March 30, 2007.
On
June 13, 2007, we announced a dividend of $0.225 per share for the
second quarter of 2007 payable on August 14, 2007 to shareholders of record
as of June 30, 2007.
Summary
Financial Data
The
following summary financial data as of December 31, 2005 and 2006 and for
the three years ended December 31, 2006 are derived from our audited financial
statements incorporated by reference in this prospectus supplement and the
accompanying prospectus. The summary financial data as of December
31, 2002, 2003 and 2004 and for the years ended December 31, 2002 and 2003
are
derived from audited financial statements not included in this prospectus
supplement or the accompanying prospectus. The summary financial data
as of March 31, 2006 and 2007 and for the three months ended March 31, 2006
and 2007 are derived from our unaudited financial statements for these
periods. You should read these summary financial data together with
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and our audited and unaudited financial statements and notes thereto
that are included in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2006 and in our Quarterly Report on Form 10-Q for the quarter
ended
March 31, 2007, which are incorporated by reference into this prospectus
supplement and the accompanying prospectus.
|
Year
Ended December 31,
|
Three
Months Ended
March
31,
|
|||||||||||||||||||||||||||
|
2002
|
2003
|
2004
|
2005
|
2006
|
2006
|
2007
|
||||||||||||||||||||||
|
(unaudited)
|
||||||||||||||||||||||||||||
|
(amounts
in thousands, except per share data)
|
||||||||||||||||||||||||||||
|
Operating
Highlights
|
||||||||||||||||||||||||||||
|
Total
revenues
|
$ |
10,458
|
$ |
15,051
|
$ |
15,097
|
$ |
27,160
|
$ |
31,694
|
$ |
5,671
|
$ |
12,501
|
||||||||||||||
|
Total
expenses (1)
|
3,812
|
5,653
|
8,124
|
15,106
|
27,533
|
4,062
|
10,837
|
|||||||||||||||||||||
|
Impairment
losses on investments
|
—
|
—
|
—
|
—
|
17,496
|
—
|
—
|
|||||||||||||||||||||
|
Other
income (expenses)
|
3,014
|
2,027
|
2,400
|
2,981
|
15,767
|
679
|
(31 | ) | ||||||||||||||||||||
|
Income
from continuing operations.
|
9,660
|
11,425
|
9,373
|
15,035
|
2,432
|
2,288
|
1,633
|
|||||||||||||||||||||
|
Net
income
|
9,660
|
11,884
|
11,273
|
15,235
|
2,687
|
2,169
|
5,164
|
|||||||||||||||||||||
|
Funds
from operations (FFO) (2)
|
9,660
|
11,884
|
13,416
|
17,624
|
4,128
|
2,619
|
1,889
|
|||||||||||||||||||||
|
Cash
Flows from:
|
||||||||||||||||||||||||||||
|
Operating
activities
|
$ |
8,948
|
$ |
11,790
|
$ |
14,032
|
$ |
18,049
|
$ |
8,290
|
$ |
1,654
|
$ |
1,629
|
||||||||||||||
|
Investing
activities
|
(74,362 | ) | (123,656 | ) | (22,592 | ) | (64,512 | ) | (320,856 | ) |
233
|
(84,328 | ) | |||||||||||||||
|
Financing
activities
|
74,800
|
103,490
|
9,206
|
55,003
|
308,905
|
(12,423 | ) |
89,654
|
||||||||||||||||||||
|
Per
Share Data
|
||||||||||||||||||||||||||||
|
Income
from continuing operations per share, basic and diluted
|
$ |
1.61
|
$ |
1.46
|
$ |
1.12
|
$ |
1.81
|
$ |
0.29
|
$ |
0.27
|
$ |
0.19
|
||||||||||||||
|
Net
income per share, basic and diluted
|
$ |
1.61
|
$ |
1.52
|
$ |
1.35
|
$ |
1.83
|
$ |
0.32
|
$ |
0.26
|
$ |
0.61
|
||||||||||||||
|
Dividends
per share
|
$ |
1.51
|
$ |
1.60
|
$ |
1.60
|
$ |
1.90
|
$ |
3.00
|
$ |
0.40
|
$ |
0.225
|
||||||||||||||
__________
|
(1)
Excludes losses reflected in the “Impairment losses on investments” line
item.
|
||||||||||||||||||||||||||||
|
(2)
Funds from operations, or FFO, represents net income or loss (computed
in
accordance with GAAP), excluding gains or losses from sales of
property,
excluding depreciation and amortization related to real property
and
including funds from operations for unconsolidated joint
ventures calculated on the same basis. FFO is calculated in
accordance with the National Association of Real Estate Investment
Trusts
definition. FFO does not represent cash generated from operating
activities in accordance with GAAP and is not necessarily indicative
of
cash available to fund cash needs. FFO should not be considered as an
alternative to net income as an indicator of our operating performance
or
as an alternative to cash flows as a measure of liquidity. Our
management considers FFO a supplemental measure of operating performance,
and believes that FFO, along with cash flows from
operating activities, financing activities and investing activities,
provides investors with an indication of our ability to incur and
service
debt, make capital expenditures, and to fund other cash
needs.
The
following calculation shows the reconciliation of net income and
FFO for
the periods indicated:
|
||||||||||||||||||||||||||||
|
Net
income
|
$ |
9,660
|
$ |
11,884
|
$ |
11,273
|
$ |
15,235
|
$ |
2,687
|
$ |
2,169
|
$ |
5,164
|
||||||||||||||
|
Add:
Depreciation on real property
|
—
|
—
|
2,143
|
2,389
|
1,671
|
450
|
336
|
|||||||||||||||||||||
|
Less:
Gain on sale of property
|
—
|
—
|
—
|
—
|
(230 | ) |
—
|
(3,611 | ) | |||||||||||||||||||
|
Funds
from operations
|
$ |
9,660
|
$ |
11,884
|
$ |
13,416
|
$ |
17,624
|
$ |
4,128
|
$ |
2,619
|
$ |
1,889
|
|
As
of December 31,
|
As
of
March
31,
|
|||||||||||||||||||||||||||
|
2002
|
2003
|
2004
|
2005
|
2006
|
2006
|
2007
|
||||||||||||||||||||||
|
(unaudited)
|
||||||||||||||||||||||||||||
|
(amounts
in thousands, except per share data)
|
||||||||||||||||||||||||||||
|
Balance
Sheet Highlights
|
||||||||||||||||||||||||||||
|
Total
assets
|
$ |
195,063
|
$ |
327,107
|
$ |
349,033
|
$ |
400,723
|
$ |
720,984
|
$ |
388,344
|
$ |
775,088
|
||||||||||||||
|
CDO
notes payable
|
—
|
—
|
—
|
—
|
362,000
|
—
|
362,000
|
|||||||||||||||||||||
|
Repurchase
facilities
|
87,880
|
149,529
|
157,633
|
209,101
|
163,576
|
205,650
|
268,389
|
|||||||||||||||||||||
|
Warehouse
facilities
|
8,788
|
34,935
|
3,827
|
4,070
|
—
|
—
|
—
|
|||||||||||||||||||||
|
Line
of credit – related party
|
—
|
—
|
4,600
|
—
|
15,000
|
—
|
10,190
|
|||||||||||||||||||||
|
Note
payable – related party
|
—
|
—
|
—
|
—
|
—
|
—
|
4,968
|
|||||||||||||||||||||
|
Mortgages
payable on real estate owned
|
—
|
15,993
|
56,993
|
40,487
|
39,944
|
40,355
|
—
|
|||||||||||||||||||||
|
Preferred
shares of subsidiary (subject to mandatory repurchase)
|
—
|
—
|
—
|
25,000
|
25,000
|
25,000
|
25,000
|
|||||||||||||||||||||
|
Total
liabilities
|
100,725
|
206,212
|
228,501
|
286,540
|
635,976
|
276,860
|
688,376
|
|||||||||||||||||||||
|
Total
shareholders’ equity
|
94,338
|
120,895
|
120,532
|
114,183
|
85,008
|
111,484
|
86,712
|
|||||||||||||||||||||
|
Book
value per share
|
$ |
14.82
|
$ |
14.50
|
$ |
14.46
|
$ |
13.75
|
$ |
10.12
|
$ |
13.43
|
$ |
10.32
|
||||||||||||||
|
Shares
outstanding
|
6,364
|
8,338
|
8,337
|
8,304
|
8,400
|
8,304
|
8,402
|
|||||||||||||||||||||
The
Offering
|
Issuer
|
American
Mortgage Acceptance Company
|
|
Securities
Offered
|
1,680,000 %
Series A Cumulative Convertible Preferred Shares (1,890,000 Preferred
Shares if the underwriters’ over-allotment option is exercised in
full).
|
|
Use
of Proceeds
|
We
intend to use the net proceeds from the sale of the Preferred Shares
in
this offering to acquire additional mortgage-related assets consistent
with our investment policy and for general corporate
purposes. To the extent suitable investments are not
immediately available, we may use the net proceeds to pay down
up to all
of the outstanding balance of our revolving credit facility with
Centerline, in which event we expect to use the excess capacity
under this
facility to acquire additional mortgage-related assets consistent
with our
investment policy and for general corporate purposes. It is
possible we may decide not to pay down our revolving credit facility
with
all or a portion of the net proceeds of this offering, in which
case, we
would expect to place the net proceeds in interest-bearing bank
accounts.
|
|
Ranking
|
The
Preferred Shares rank senior to our common shares and any other
junior
shares that we may issue in the future with respect to payments
of
distributions and rights to payment upon liquidation, dissolution
or
winding up.
|
|
Dividends
|
You
will be entitled to receive cumulative cash dividends on the Preferred
Shares at a rate of % per year of the $25.00
liquidation preference (equivalent to $ per year
per share). Dividends on the Preferred Shares are payable
quarterly in arrears on the 15th day of January, April, July and
October
of each year, or if such day is not a business day, the next succeeding
business day, beginning on October 15, 2007. Dividends paid to
investors on the Preferred Shares issued in this offering will
be
cumulative from July , 2007.
|
|
Centerline
Investment
|
Centerline,
the parent of our Advisor, or one of its subsidiaries will purchase
280,000 Preferred Shares in this offering at the same terms and
$25.00
offering price offered to the public. We will receive all of
the proceeds from the sale of these Preferred Shares because we
will not
be required to pay an underwriting discount to the underwriters
with
respect to these shares.
|
|
Liquidation
Preference
|
If
we liquidate, dissolve or wind up, you will have the right to receive
$25.00 per Preferred Share, plus accrued and unpaid dividends (whether
or
not declared) to the date of payment, before any payments are made
to our
common shareholders or to holders of any other of our equity securities
that we may issue ranking junior to the Preferred Shares as to
liquidation
rights. Your rights to receive the liquidation preference will
be subject
to the proportionate rights of each other series or class of our
equity
securities ranking on parity with the Preferred Shares we may
issue.
|
|
Restrictions
on Ownership and Transfer
|
Subject
to certain exceptions, no person or entity may own, directly or
indirectly, more than 9.8% (in value or number of shares, whichever
is
more restrictive) of the outstanding Preferred Shares, and no person
or
entity may own, directly or indirectly, more than 9.8% in value
of the
aggregate of our outstanding common shares.
|
|
If
any transfer of the Preferred Shares or other shares occurs (including
the
acquisition of common shares upon a conversion of the Preferred
Shares)
which, if effective, would result in any person or entity owning,
directly
or indirectly, our shares in violation of the ownership limits
set forth
above, then that number of shares that would cause the violation
will be
deemed to have been offered for sale to us or any designee for
a period
subsequent to the acquisition and the intended transferee will
not acquire
any rights in such shares.
|
|
|
Voting
Rights
|
You
will generally not have voting rights. If dividends on any outstanding
Preferred Shares, however, are in arrears for six or more quarterly
periods (whether or not consecutive), holders of the Preferred
Shares,
voting as a class with the shareholders of any other classes or
series of
our equity securities ranking on parity with the Preferred Shares
that are
entitled to similar voting rights, if any, will be entitled to
elect two
additional trustees to our board of trustees to serve until all
unpaid
cumulative dividends have been paid or declared and set apart for
payment. In addition, certain material and adverse changes to
the terms of the Preferred Shares cannot be made and certain other
actions
may not be taken without the affirmative vote of at least two-thirds
of
the outstanding Preferred Shares and classes and series of any
parity
shares, voting as a class with the shareholders of any other classes
or
series of our equity securities ranking on parity with the Preferred
Shares that are entitled to similar voting rights.
|
|
Maturity
|
The
Preferred Shares will have no maturity date and we may not redeem
the
Preferred Shares except in limited circumstances. See
“—Redemption” below. Accordingly, the Preferred Shares will
remain outstanding indefinitely unless you or we decide to convert
them,
you elect to have us repurchase them upon a fundamental change
or we are
allowed or required to redeem them. See “Description of
Preferred Shares—Conversion Rights,” “—Company Conversion Option” and
“—Purchase of Preferred Shares Upon a Fundamental Change”
below.
|
|
Redemption
|
We
may not redeem the Preferred Shares, except in limited circumstances
including a fundamental change in which we are acquired by a private
company or to preserve our status as a REIT. See “Description
of Preferred Shares—Redemption” below. However, on or
after July ,
2012, we will have the right, in certain circumstances, to require
you to
convert your Preferred Shares. See “Description of Preferred
Shares—Company Conversion Option” below.
|
|
Conversion
Rights
|
You
may, at your option, convert some or all of your Preferred Shares
initially at a conversion rate of common
shares per $25.00 liquidation preference, or the Conversion Rate,
which is
equivalent to an initial conversion price of $ per
common share, a 25%
premium
over $ per
share, the average closing price of our common shares
|
|
for
the five trading days prior to July ,
2007. The Conversion Rate may increase, ultimately increasing
the number of common shares received upon conversion. Except as
otherwise provided, the Preferred Shares will only be convertible
into our
common shares. See “—Conversion Rate Adjustments” and
“Description of the Preferred Shares—Conversion Rights”
below.
|
|
|
Company
Conversion Option
|
On
or after July , 2012, at our option, we may require
you to convert your Preferred Shares into that number of common
shares
that are issuable at the then prevailing Conversion Rate (as adjusted)
(we
refer to this option as the Company Conversion Option). We may
exercise our Company Conversion Option only if our common share
price
equals or exceeds 125% of the then prevailing conversion price
of the
Preferred Shares for at least 20 trading days in a period of 30
consecutive trading days (including the last trading day of such
period)
ending on the trading day immediately prior to our issuance of
a press
release announcing our intent to exercise our Company Conversion
Option. See “Description of Preferred Shares—Company Conversion
Option” below.
|
|
Payments
of Dividends Upon Conversion
|
If
you exercise your conversion rights, upon delivery of the Preferred
Shares
for conversion, those Preferred Shares will cease to cumulate dividends
as
of the end of the day immediately preceding the conversion date
and you
will not receive any cash payment representing accrued and unpaid
dividends on the Preferred Shares, except in those limited circumstances
discussed below. Except as provided below, we will make no
payment for accrued and unpaid dividends, whether or not in arrears,
on
Preferred Shares converted at your election, or for dividends on
the
common shares issued upon such conversion. If we convert your
Preferred Shares pursuant to our Company Conversion Option, whether
prior
to, on, or after the record date for the current period, all unpaid
dividends that are in arrears as of the Company Conversion Option
Date
will be payable to you. See “Description of Preferred
Shares—Payments of Dividends Upon Conversion” below.
|
|
Conversion
Rate Adjustments
|
The
Conversion Rate is subject to adjustment upon the occurrence of
certain
events. See “Description of the Preferred Shares—Conversion
Rate Adjustments” below.
|
|
Conversion
After a Public Change of Control
|
In
the event we are acquired by a public company, we will adjust the
conversion rate so that the Preferred Shares are convertible into
shares
of the acquiring or surviving company. See “Description of
Preferred Shares—Conversion After a Public Acquirer Change of Control”
below.
|
|
Purchase
of Preferred Shares Upon a Fundamental Change
|
In
the event of a fundamental change described below, you will have
the right
to require us to repurchase for cash all or any part of your Preferred
Shares at a purchase price equal to 100% of the liquidation preference
of
the Preferred Shares to be purchased plus accrued and unpaid dividends
(including additional dividends, if any) to, but not including,
the
fundamental change purchase date. See “Description of the
Preferred Shares—Purchase of Preferred Shares Upon a Fundamental Change”
below.
Furthermore,
if we are acquired and our common shareholders are not entitled
to receive
publicly traded common stock, unless we seek the consent of the
Preferred
Shareholders, we will be required to repurchase your Preferred
Shares at a
price equal to 101% (if such acquisition occurs prior to
July , 2012) or 100% (if such acquisition occurs on or
after July , 2012) of the liquidation preference of the
Preferred Shares to be purchased plus accrued and unpaid dividends
(including additional dividends, if any) to, but not including,
the
fundamental change purchase date. See “Description of the
Preferred Shares—Mandatory Redemption In the Event of a Private Acquirer
Change of Control” below.
|
|
Transfer
Agent
|
The
transfer agent, registrar and dividend disbursing agent for the
Preferred
Shares will be Computershare Trust Company, N.A.
|
|
Listing
|
We
intend to apply to list the Preferred Shares on the AMEX under
the symbol
“AMC.PrA.” If our application is approved, trading of the Preferred Shares
on the AMEX is expected to begin within 30 days following delivery
of the
Preferred Shares.
|
|
Form
and Book-Entry System
|
The
Preferred Shares will only be issued in the form of global securities
held
in book-entry form. The Depository Trust Company, or DTC, or
its nominee will be the sole registered holder of the Preferred
Shares. Owners of beneficial interests in the Preferred Shares
represented by the global securities will hold their interests
pursuant to
the procedures and practices of DTC. As a result, beneficial
interests in any such securities will be shown on, and transfers
will be
affected only through, records maintained by DTC and its direct
and
indirect participants and any such interest may not be exchanged
for
certificated securities, except in limited circumstances.
|
|
Risk
Factors
|
See
“Risk Factors” beginning on the next page of this prospectus
supplement and other information contained herein for a discussion
of
factors you should carefully consider before deciding to invest
in the
Preferred Shares.
|
For
additional information regarding the terms of the Preferred Shares, see
“Description of Preferred Shares” beginning on page S-25 of this prospectus
supplement.
RISK
FACTORS
An
investment in the Preferred Shares involves significant risks. You
should carefully consider the risks described below, together with the risks
set
forth under the caption “Risk Factors” in our Annual Report on Form 10-K for the
year ended December 31, 2006, as well as all of the information contained
in or
incorporated by reference in this prospectus supplement and the accompanying
prospectus, before investing in the Preferred Shares. If any of the
events described in these risk factors actually occur, our business, operating
results, prospects and financial condition could be materially
harmed. As a result, the market price of the Preferred Shares could
decline and may cause you to lose all or part of your
investment.
Risks
Relating to this Offering
An
active trading market for the Preferred Shares may not
develop.
The
Preferred Shares are a new issue of securities for which there is currently
no
established trading market. Although we intend to apply to list the
Preferred Shares on the AMEX, there is no assurance that the Preferred Shares
will be accepted for listing. Furthermore, even if the Preferred
Shares are accepted for listing on the AMEX, an active trading market may
not
develop or last, in which case, the trading price of the Preferred Shares
could
be adversely affected. The liquidity of any market for the Preferred
Shares will depend upon the number of Preferred Shareholders, our results
of
operations and financial condition, the market for similar securities, the
interest of securities dealers in making a market in the Preferred Shares
and
other factors.
The
trading price of the Preferred Shares may depend on many factors,
including:
|
|
·
|
prevailing
interest rates;
|
|
|
·
|
the
market price of our common shares;
|
|
|
·
|
the
market for similar securities;
|
|
|
·
|
additional
issuances by us of common shares;
|
|
|
·
|
additional
issuances by us of other series or classes of preferred
shares;
|
|
|
·
|
general
economic conditions; and
|
|
|
·
|
our
financial condition, performance and
prospects.
|
Each
of these factors, among others,
may cause the trading price of the Preferred Shares to fall below the offering
price, which could have a material adverse effect on your investment in the
Preferred Shares.
We
may not be able to pay dividends regularly.
Our
ability to pay dividends in the future is dependent on our ability to operate
profitably and to generate cash from our operations. We cannot
guarantee that we will be able to pay dividends on a regular quarterly basis
in
the future. Furthermore, any new securities issued by us could
increase the cash required to continue to pay cash dividends at current
levels. Any common shares or preferred shares that we may issue in
the future to finance acquisitions, upon exercise of stock options or otherwise,
would have a similar effect.
In
addition, our governing documents permit us to incur additional indebtedness.
See “Our Company—Limitations on Indebtedness.” Accordingly, we may incur
additional indebtedness and become more highly leveraged, which could adversely
affect our financial position and limit our cash available to pay
dividends. We may not have sufficient funds to satisfy our dividend
obligations relating to the Preferred Shares if we incur additional indebtedness
or if the other risks we face adversely affect our financial
condition.
We
may not have the ability to raise the funds necessary to repurchase the
Preferred Shares upon a fundamental change.
Following
a fundamental change as described under “Description of Preferred
Shares—Purchase of Preferred Shares Upon a Fundamental Change,” holders of the
Preferred Shares may require us to repurchase their Preferred
Shares. We may not have sufficient financial resources, or be able to
arrange financing, to pay the purchase price in cash with respect to any
Preferred Shares tendered by Preferred Shareholders for repurchase upon a
fundamental change. In addition, under the terms of our then existing
indebtedness, a fundamental change could constitute an event of default or
prepayment event under, and result in the acceleration of the maturity of,
such
indebtedness or could otherwise contain restrictions that would not allow
us to
repurchase the Preferred Shares.
You
may not be adequately compensated for the lost option value of the Preferred
Shares as a result of a fundamental change.
If
a
fundamental change occurs, we are not obligated to adjust the Conversion
Rate. Therefore, you will not be compensated for the lost option
value of the Preferred Shares as a result of the fundamental
change.
The
conversion rate of the Preferred Shares may not be adjusted for all dilutive
events.
The
Conversion Rate of the Preferred Shares is subject to adjustments for certain
events, including the issuance of rights or warrants, subdivisions or
combinations of our common shares, distributions of capital shares,
indebtedness, or assets and issuer tender or exchange offers. See
“Description of Preferred Shares—Conversion Rate Adjustments.” The
Conversion Rate may not be adjusted for other events that may adversely affect
the trading price of the Preferred Shares or the common shares into which
such
Preferred Shares may be convertible, including the issuance of share dividends
on our common shares in excess of our current dividend or dividends in excess
of
the dividend amount as of the latest quarterly period prior to the commencement
of this offering.
Conversion
of the Preferred Shares will dilute the ownership interest of our existing
common shareholders.
The
conversion of some or all of the Preferred Shares will dilute the ownership
interests of our existing common shareholders. Any sales in the
public market of the common shares issuable upon such conversion could adversely
affect prevailing market prices of our common shares. In addition,
the existence of the Preferred Shares may encourage short selling by market
participants because the conversion of the Preferred Shares could depress
the
price of our common shares.
If
you hold the Preferred Shares you will not be entitled to any rights with
respect to our common shares, but you will be subject to all changes made
with
respect to our common shares.
If
you
hold the Preferred Shares, you will not be entitled to any rights with respect
to our common shares (including, without limitation, voting rights and rights
to
receive any dividends or other distributions on our common shares), but you
will
be subject to all changes affecting the common shares. You will have
rights with respect to our common shares only if and when we deliver common
shares to you upon conversion of your Preferred Shares and, in certain cases,
under the conversion rate adjustments applicable to the Preferred
Shares. For example, in the event that an amendment is proposed to
our declaration of trust or bylaws requiring shareholder approval and the
record
date for determining the shareholders of record entitled to vote on the
amendment occurs prior to the delivery of common shares to you following
a
conversion, you will not be entitled to vote on the amendment, although you
will
nevertheless be subject to any changes in the powers, preferences or special
rights of our common shares.
The
Preferred Shares have not been rated and will be subordinated to our existing
and future debt; we are not restricted from issuing preferred equity securities
that rank on parity with the Preferred Shares.
The
Preferred Shares have not been rated by any nationally recognized statistical
rating organization. Furthermore, our declaration of trust provides that
we may
issue additional preferred shares in one or more series and our board of
trustees is entitled, in its discretion, to authorize additional shares,
including common and preferred shares, without shareholder
approval. We may also issue preferred shares that are senior to the
Preferred Shares with the approval of holders of two-thirds of the Preferred
Shares. The issuance of additional preferred shares on par with or
senior to the Preferred Shares could have the effect of diluting the amounts
we
may have available for
the
payment of dividends and the distribution of assets upon liquidation,
dissolution or winding up. The Preferred Shares will be subordinated
to all our existing and future debt (including, without limitation, securities
commonly referred to as trust preferred securities that are accounted for
as
debt). Other than the right of the Preferred Shareholders under
certain circumstances to require us to repurchase their Preferred Shares,
the
Preferred Shares do not contain any provisions affording the holders of the
Preferred Shares protection in the event of a highly leveraged or other
transaction, including a merger or the sale, lease or conveyance of all or
substantially all our assets or business, that might harm the holders of
the
Preferred Shares. These factors may affect the trading price of the
Preferred Shares.
Our
declaration of trust contains limits on ownership and transfer of our common
shares and the Preferred Shares, which could have adverse consequences to
you.
Our
declaration of trust contains provisions that restrict the ownership and
transfer of our common shares and the Preferred Shares. In particular, it
provides that, subject to certain exceptions, no person or entity may own,
directly or indirectly, more than 9.8% (in value or number of shares, whichever
is more restrictive) of our outstanding Preferred Shares, and no person or
entity may own, directly or indirectly, more than 9.8% in value of the aggregate
of our outstanding common shares. If any transfer of the Preferred
Shares or other shares occurs (including the acquisition of common shares
upon a
conversion of the Preferred Shares) which, if effective, would result in
any
person or entity owning, directly or indirectly, our common shares or the
Preferred Shares in violation of the ownership limits set forth above, then
that
number of shares that would cause the violation will be deemed to have been
offered for sale to us or any designee for a period subsequent to the
acquisition and the intended transferee will not acquire any rights in such
shares.
Our
ownership limit and transfer restrictions may have the effect of delaying,
deferring or preventing a change in control and, therefore, could adversely
affect our shareholders’ ability to realize a premium over the then prevailing
market price for our common shares in connection with a change in
control. The ownership limit and transfer restrictions would also
preclude Preferred Shareholders from increasing their position in the Preferred
Shares above the proscribed 9.8% limit without board approval and may also
constrain certain transferees from being able to purchase the Preferred
Shares.
You
should consider the U.S. federal income tax consequences of owning the Preferred
Shares.
The
principal U.S. federal income tax consequences of purchasing, owning and
disposing of the Preferred Shares and any common shares received upon their
conversion are summarized under “Federal Income Tax Considerations” in this
prospectus supplement. Certain of our actions may result in an
adjustment to the Conversion Rate that could cause you to be deemed to receive
a
taxable dividend subject to U.S. federal income tax without the receipt of
any
cash. If you are a foreign shareholder, such deemed dividend may
subject you to U.S. federal withholding tax at a 30% rate or such lower rate
as
may be specified by an applicable treaty. See “Federal Income Tax
Considerations” in this prospectus supplement.
Additional
Risks Relating to Our Company
Our
investment portfolio includes under-performing and impaired loans, which
may be
in default or subject to an increased risk of delinquency, foreclosure or
loss. The occurrence of such events could reduce our earnings and
negatively affect the cash available for distribution to our
shareholders.
We
have
under-performing and impaired mortgage loans in our investment portfolio
and we
could experience additional under-performing and impaired mortgage loans
in the
future. We held under-performing and impaired mortgage loans in our
investment portfolio in the carrying amount (including principal and all
accrued
and unpaid interest and fees) of approximately $15.6 million and $12.9 million,
respectively, as of December 31, 2006 and approximately $16.2 million and
$12.9
million, respectively, as of March 31, 2007. The aggregate carrying
amount of our impaired mortgage loans represented 1.8% of our total assets
as of
December 31, 2006, and 1.7% as of March 31, 2007. The aggregate
carrying amount of our under-performing mortgage loans represented 2.2% of
our
total assets as of December 31, 2006, and 2.1% as of March 31,
2007. We generated interest income from impaired loans (net of
amounts written off as unrecoverable) in the amount of $1.1 million during
the
year ended December 31, 2006, which represented 3.7% of our interest income
(net of amounts written off as unrecoverable). We recognized no
interest income from these loans for the three months ended March 31,
2007. With respect to these loans, we recognized impairment losses
for the year ended December 31, 2006 of $15.3 million (excluding
$2.2
million of recognized impairment losses in connection with the sale of GNMA
and
FNMA certificates). We recognized no impairment losses for the three
months ended March 31, 2007. We accrued interest income from
under-performing loans in the amount of $2.3 million during the year ended
December 31, 2006, which represented 7.9% of our interest income, and of
$0.6 million during the quarter ended March 31, 2007, which represented 5.0%
of
our interest income (net of amounts written off as unrecoverable). We
classify mortgage loans as being impaired when we do not expect full repayment
of all principal and interest. We classify mortgage loans as
under-performing when debt service payments on such loans are not
current. We accrue interest on under-performing mortgage loans only
when we expect to receive all principal and accrued interest.
In
the
event of a default under a mortgage loan held by us, we bear a risk of loss
to
the extent of any deficiency between the value of the collateral (net of
our
collection costs) and the principal and accrued interest of the mortgage
loan,
which could have a material adverse effect on our cash flow from
operations. In cases where we have mortgage loans where we do have
recourse to the borrower, in the event of the bankruptcy of a mortgage loan
borrower, the mortgage loan to such borrower will be deemed to be secured
only
to the extent of the value of the underlying collateral at the time of
bankruptcy (as determined by the bankruptcy court), and the lien securing
the
mortgage loan will be subject to the avoidance powers of the bankruptcy trustee
or debtor-in-possession to the extent the lien is unenforceable under state
law,
which could have a negative effect on our anticipated return on the foreclosed
loan. Further, foreclosing upon a loan can be very expensive, could
subject us to environmental liabilities and may distract our management from
our
other operations.
Management
makes various assumptions and judgments about the collectibility of our
investment portfolio loans, which may prove to be inaccurate. With
respect to individual loans, we write down the value of impaired loans in
our
financial statements based upon our assessment of the probability that we
will
recover our principal and interest. Our assessment is based upon our
evaluation of the nature of the borrower, the value of the underlying
collateral, whether we have a senior or subordinated position and many other
objective and subjective factors. As a result, our assessment of the
carrying value of an impaired loan could prove to be inaccurate.
Dividends
payable by REITs do not qualify for the reduced tax
rates.
Tax
legislation enacted in 2003 reduced the maximum U.S. federal tax rate on
certain
corporate dividends paid to individuals and other non-corporate taxpayers
to 15%
(through 2010). Dividends paid by REITs to these shareholders are
generally not eligible for these reduced rates. Although this
legislation does not adversely affect the taxation of REITs or dividends
paid by
REITs, the more favorable rates applicable to non-REIT corporate dividends
could
cause investors who are individuals, trusts and estates to perceive investments
in REITs to be relatively less attractive than investments in the shares
of
non-REIT corporations that pay dividends, which could adversely affect the
value
of the shares of REITs, including our preferred and common shares.
Our
warehouse facility and our CDO financing agreements may limit our ability
to
make investments.
Our
warehouse facility is subject to many of the same risks as our repurchase
agreements. Further, in order for us to borrow money to make
investments under our warehouse facility, our warehouse provider has the
right
to review the potential investment for which we are seeking
financing. We may be unable to obtain the consent of our warehouse
provider to make investments that we believe are favorable to us. In
the event that our warehouse provider does not consent to financing a potential
asset on the warehouse facility, we may be unable to obtain alternate financing
for that investment. Our warehouse provider’s consent rights with
respect to our warehouse facility may limit our ability to execute our business
strategy.
In
addition, each CDO securitization transaction that we execute will contain
certain eligibility criteria with respect to the collateral that we seek
to
acquire and sell to the CDO issuer. If the collateral does not meet
the eligibility criteria for eligible collateral as set forth in the transaction
documents of such CDO securitization transaction, we may not be able to acquire
such assets and finance them through the use of CDO notes
payable. The inability of the collateral to meet eligibility
requirements with respect to our CDO securitization transactions may negatively
impact our ability to execute our business strategy. Additionally,
change in investor demand for debt and equity interests in CDO securitizations
may negatively affect pricing levels and terms of future CDO securitization
transactions.
Environmental
compliance costs and liabilities associated with our properties or our real
estate related investments may materially impair the value of our
investments.
Under
various federal, state and local laws, ordinances and regulations, a current
or
previous owner or operator of real estate may be required to investigate
and
clean up certain hazardous substances released at the property, and may be
held
liable to a governmental entity or to third parties for property damage and
for
investigation and cleanup costs incurred by such parties in connection with
the
contamination. In addition, some environmental laws create a lien on
the contaminated site in favor of the government for damages and costs it
incurs
in connection with the contamination. The presence of contamination
or the failure to remediate contamination may adversely affect the property
owner’s ability to sell or lease real estate or to borrow using the real estate
as collateral. The owner or operator of a site may be liable under
common law to third parties for damages and injuries resulting from
environmental contamination emanating from the site. Accordingly, the
owners of the real estate securing our investments could be required to pay
removal or remediation costs. These costs of removal or remediation could
be
substantial and could negatively impact the availability of property cash
flow
for payments on our investments, which may impair the value of our
investments. In addition, we may invest in real estate or mortgage
loans secured by real estate with environmental problems that materially
impair
the value of the real estate. There are substantial risks associated
with such investments.
USE
OF PROCEEDS
We
estimate that net proceeds to us from this offering, after deducting the
underwriting discount and estimated offering expenses will be approximately
$ million ($ million if the
underwriters’ over-allotment option is exercised in full).
We
intend
to use the net proceeds from this offering to acquire additional
mortgage-related assets consistent with our investment policy and for general
corporate purposes. To the extent suitable investments are not
immediately available, we may use the net proceeds to pay down up to all
of the
outstanding balance of our revolving credit facility with Centerline, in
which
event we expect to use the excess capacity under this facility to acquire
additional mortgage-related assets consistent with our investment policy
and for
general corporate purposes. As of March 31, 2007, the amount
outstanding on the Centerline credit facility was $10.2 million and had an
interest rate of 8.32%. As of July , 2007, the
amount outstanding was $ million and the
interest rate was %. The maturity date
of the credit facility is June 30, 2008. It is possible we may decide
not to pay down our revolving credit facility with all or a portion of the
net
proceeds of this offering, in which case, we would expect to place the net
proceeds in interest-bearing bank accounts.
CAPITALIZATION
The
following table sets forth our actual capitalization as of March 31, 2007,
and our capitalization as adjusted to give effect to the issuance of the
Preferred Shares in this offering, at the public offering price of
$25.00 per share after deducting the underwriting discount and the
estimated offering expenses and the application of the net proceeds as described
in “Use of Proceeds.”
The
information set forth in the following table should be read in conjunction
with,
and is qualified in its entirety by, the financial statements and the notes
thereto included in our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2007, which is incorporated by reference into this prospectus
supplement and the accompanying prospectus.
|
As
of March 31, 2007
|
||||||||
|
Actual
|
As
Adjusted (1)
(3)
|
|||||||
|
(in
thousands)
|
||||||||
|
(unaudited)
|
||||||||
|
Assets:
|
||||||||
|
Cash
and cash equivalents
|
$ |
14,508
|
$ | |||||
|
Restricted
cash
|
2,116
|
2,116
|
||||||
|
Borrowings:(2)
|
||||||||
|
Indebtedness
|
670,547
|
670,547
|
||||||
|
Shareholders’
Equity:
|
||||||||
|
%
Series A Cumulative Convertible Preferred Shares, liquidation preference
$25.00 per share; no shares issued and outstanding; 1,680,000 issued
and
outstanding, as adjusted
|
—
|
|||||||
|
Common
shares of beneficial interest, par value $0.10 per share; 25,000,000
authorized; 8,817,049 issued and 8,402,049 outstanding
|
881
|
881
|
||||||
|
Treasury
shares of beneficial interest at par; 415,000 shares
|
(42 | ) | (42 | ) | ||||
|
Additional
paid-in capital
|
128,009
|
|||||||
|
Accumulated
other comprehensive loss
|
(5,235 | ) | (5,235 | ) | ||||
|
Accumulated
deficit
|
(36,901 | ) | (36,901 | ) | ||||
| Total shareholders’ equity | $ | 86,712 | $ | |||||
__________
|
(1)
|
After
deducting the estimated underwriting discount and the estimated
offering
expenses, and assuming no exercise of the underwriters’ over-allotment
option to purchase up to an additional 210,000 Preferred
Shares.
|
|
(2)
|
Includes
CDO notes payable, repurchase facilities, preferred shares of subsidiary
subject to mandatory repurchase (commonly referred to as trust
preferred
securities), line of credit-related party and note payable-related
party.
|
|
(3)
|
Assumes
that we do not pay down any of our outstanding indebtedness with
the net
proceeds of this offering.
|
RATIO
OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERENCE DIVIDENDS
The
following table sets forth our ratio of earnings to combined fixed charges
and
preference dividends for the periods shown:
|
For
the Year Ended December 31,
|
For
the Three Months
Ended
March 31,
|
|||||||||||||||||||||||||||
|
2002
|
2003
|
2004
|
2005
|
2006
|
2006
|
2007
|
||||||||||||||||||||||
|
Ratio
of earnings to combined fixed charges and preference dividends(1)(2)
|
8.8
|
|
5.2
|
|
3.2
|
2.5
|
1.1
|
1.8
|
1.1
|
|||||||||||||||||||
__________
(1)
The
ratio of earnings to combined fixed charges and preference dividends is equal
to
a fraction:
|
|
·
|
the
numerator of which is the positive difference between (a) the sum
of (i)
income from continuing operations before adjustment for minority
interests
in consolidated subsidiaries or income or loss from equity investees
and
(ii) fixed charges (which consist of interest expense, amortized
capitalized expenses and preference security dividend requirements
of
consolidated subsidiaries (i.e., trust preferred dividends)) and
(b) trust
preferred dividends; and
|
|
|
·
|
the
denominator of which is the sum of (a) fixed charges and (b) dividends
on
outstanding preferred shares (i.e., preference dividends, which
for
purposes of this calculation do not include trust preferred
dividends).
|
We
have
not issued any preferred shares in any period and, therefore, there were
no
preference dividends included in our calculation of ratios of earnings to
combined fixed charges and preference dividends for these periods.
(2)
If we
use the net proceeds from the offering to pay down, in full, our revolving
credit facility with Centerline, the pro forma ratio of earnings to combined
fixed charges and preference dividends for the periods shown would not differ
by
ten percent or more from the amounts shown above.
MANAGEMENT
Our
board
of trustees directs the management of our business but retains Centerline/AMAC
Manager Inc. as our Advisor to manage our day-to-day affairs. Our
Advisor is indirectly owned by Centerline. Our board delegates to our Advisor
responsibilities with respect to, among other things, overseeing our investment
portfolio of assets and acquiring and disposing of
investments. Set forth below are our executive and senior
officers, as well as a description of our Advisory Agreement with our
Advisor.
Executive
and Senior Officers
Marc
D. Schnitzer. Mr. Schnitzer is chairman of our board of
trustees and is also the chief executive officer and president of Centerline
and
a member of Centerline’s board of trustees. Mr. Schnitzer directs the
day-to-day operations of Centerline and is responsible for corporate development
and strategic planning. Mr. Schnitzer is a member of the
executive committee of the board of directors of the National Multi Housing
Council and a vice president of the Affordable Housing Tax Credit
Coalition. Mr. Schnitzer joined Centerline’s predecessor in 1988
after receiving his master of business administration from the Wharton School
of
the University of Pennsylvania in December 1987. From 1983 to 1986,
Mr. Schnitzer was a financial analyst with First Boston Corporation, an
international investment bank. Mr. Schnitzer received a bachelor of science
in business administration, summa cum laude, from the Boston University School
of Management in 1983.
J.
Larry
Duggins. Mr.
Duggins is our chief
executive officer and a trustee of our Company. Mr. Duggins is also
an executive managing director of Centerline Capital Group Inc., or Centerline
Capital, a subsidiary of Centerline, and is the co-head of Centerline Capital’s
commercial real estate group. Mr. Duggins is responsible for
overseeing the day-to-day operations of the commercial real estate group,
as
well as supervising Centerline’s information technology platform. Mr.
Duggins co-founded REMICap in April 1996. REMICap later became known
as ARCap, and was acquired by Centerline in August 2006. He was
instrumental in the growth of ARCap, an investor and funds manager in
subordinate commercial mortgage backed securities. Prior to undertaking that
endeavor, he served as managing director of the business acquisition group
of
Banc One Management and Consulting Corporation. He has been involved
in various aspects of mortgage finance and commercial banking for twenty-three
years. Mr. Duggins received a master of science in finance in 1983, a
master of business administration in 1982, and a bachelor of arts in history
in
1980 from Louisiana State University. He is a member of the
Counselors of Real Estate, the Commercial Mortgage Securities Association,
and
the Mortgage Bankers Association, and serves on the board of trustees for
the
Center for Real Estate at the University of Wisconsin at Madison and on the
dean’s advisory council for the E.J. Ourso College of Business at Louisiana
State University.
Daryl
J. Carter. Mr. Carter is our president. Mr.
Carter is also an Executive Managing Director of Centerline Capital and the
co-head of Centerline Capital’s commercial real estate group. Mr.
Carter, together with Mr. Duggins, is responsible for the day-to-day operations
and overall strategic direction of Centerline Capital’s commercial real estate
group, including its national origination platform and new business development.
Mr. Carter joined us from Capri Capital, or Capri, which he co-founded in
1992
and which was acquired by Centerline in 2005. Mr. Carter served as
chief executive officer of Capri’s mortgage banking business, Capri Capital
Finance. Prior to Capri, Mr. Carter served as regional vice
president for Westinghouse Credit Corporation, the financial services subsidiary
of Westinghouse, where he oversaw the Western U.S. real estate
operations. Before that, he was a second vice president in the real
estate division of Continental Bank in Chicago. Mr. Carter holds dual master’s
degrees in architecture and management, both received from the Massachusetts
Institute of Technology in 1981. He received a bachelor of science in
architecture from the University of Michigan in 1977. Mr. Carter is a trustee
of
the ULI, chair of the finance committee of the National Multifamily Housing
Association, and vice chairman of the commercial board of governors of the
Mortgage Bankers Association. Mr. Carter formerly served as an
independent director of Catellus Development Corporation, a publicly held
real
estate investment trust. Additionally, he serves on the dean’s
advisory council of Massachusetts Institute of Technology’s Sloan School of
Management.
Robert
L. Levy. Mr. Levy is our chief
financial officer and the chief financial officer of Centerline. Mr. Levy
joined Centerline in November 2001 as the director of capital markets.
From 1998 through 2001, Mr. Levy was a vice president in the real estate
equity
research and investment banking departments at Robertson Stephens, an investment
banking firm in San Francisco. Prior to 1998, Mr. Levy was employed by
Prudential Securities in the real estate equity research group and at the
Prudential Realty Group, the real estate investment arm of the Prudential
Insurance Company. He received his master in business administration from
the Leonard N. Stern School of Business at New York University and his bachelor
of arts from Northwestern University.
Donald
J. Meyer. Mr. Meyer is our chief investment officer and
the chief investment officer of Centerline Capital. Mr. Meyer was
appointed chief investment officer in June 2006 and his primary responsibilities
include the oversight of all property and credit underwriting, transaction
due
diligence and risk policy. Mr. Meyer has twenty-nine years of real
estate investment experience. Prior to joining Centerline Capital,
Mr. Meyer was the chief investment officer of Capri, which was acquired by
Centerline in 2005. Mr. Meyer’s previous experience includes being
the managing director and head of the capital markets unit of Cohen Financial,
a
nationwide mortgage banking firm, a managing director and the chief investment
officer of Capital Trust, an NYSE-listed mezzanine lender, and eighteen years
at
First National Bank of Chicago in a variety of assignments in both the real
estate and corporate banking groups. During his time at First
National Bank of Chicago, Mr. Meyer served as senior credit officer for the
bank’s $7.0 billion loan portfolio, head of the real estate loan workout group
in the early 1990s and head of the corporate investments unit responsible
for
high-yield real estate assets. Mr. Meyers holds a bachelor of science
in finance, with honors, from the University of Illinois.
John
J. Kelly. Mr. Kelly is our chief accounting officer and
the chief accounting officer of Centerline Capital. Prior to joining
Centerline Capital in 2004, Mr. Kelly was employed by Vertis Holdings, Inc.
and
Chancery Lane Capital from 1997 to 2002. Mr. Kelly held prior
positions with Pfizer, Inc., Melville Corporation and KPMG. Mr. Kelly
holds a bachelor of business administration in accounting from Old Dominion
University and is a certified public accountant.
Advisory
Agreement
We
and
our Advisor are parties to an advisory agreement pursuant to which our Advisor
is obligated to seek out and present to us, whether through its own efforts
or
those of third parties retained by it, suitable investment opportunities
that
are consistent with our investment and conflicts policies and objectives,
and
consistent with investment programs our board may adopt from time to time
in
conformity with our declaration of trust. The Advisory Agreement will
be in effect through March 2008 unless terminated by us or our Advisor, and
will
be renewed automatically for successive one year periods
thereafter.
Although
our board has continuing exclusive authority over our management, the conduct
of
our affairs, and the management and disposition of our assets, our board
has
delegated to our Advisor, subject to the supervision and review of our board
and
consistent with the provisions of our declaration of trust, the power and
duty
to: (i) obtain, furnish and/or supervise the services necessary
to manage our day-to-day operations and to perform any ministerial functions
in
connection therewith; (ii) seek out and present to us, whether through its
own efforts or those of third parties retained by it or with which it contracts,
suitable investment opportunities that are consistent with our investment
objectives and policies as adopted by our trustees from time to time;
(iii) exercise absolute discretion in decisions to evaluate, originate,
acquire, retain, sell, service, and negotiate for the waiver, amendment or
modification of terms, prepayment or restructuring of mortgages and our other
investments and, if applicable, coordinate with government agencies and
government-sponsored entities in connection therewith; (iv) recommend
investment opportunities consistent with our investment policy and negotiate
on
our behalf with respect to potential investments and our holdings or the
disposition thereof; (v) establish and manage our securitization and
capital market programs; (vi) cause an affiliate to serve as the owner of
record for, or servicer of, our investments if such affiliate is qualified
to do
so and, in that capacity, to hold escrows, if applicable, on behalf of
mortgagors in connection with the servicing of mortgages, which it may deposit
with various banks, including banks with which it may be affiliated;
(vii) obtain for or provide to us such other services as may be required in
acquiring, holding or disposing of investments, disbursing and collecting
our
funds, paying our debts and fulfilling our obligations, and handling,
prosecuting and settling any of our claims, including foreclosing and otherwise
enforcing mortgages and other liens securing investments; (viii) obtain for
or provide to us such services as may be required for property management,
mortgage brokerage and servicing, and other activities relating to our
investment portfolio; (ix) from time to time, or as requested by our
trustees, make reports to us as to its performance of the foregoing services;
and (x) do all things necessary to assure its ability to render the
services contemplated herein.
Fees
and Other Compensation Terms of the Advisory Agreement
Pursuant
to the terms of our Advisory Agreement, as amended in March 2007, our Advisor
is
entitled to receive the fees and other compensation set forth
below:
|
Fees
/ Compensation / Points (1)
|
Amount
|
|
Asset
management fee
|
Equal
to 1.75% per annum of company equity (as defined in the agreement)
for the
first $300.0 million of shareholders’ equity and 1.5% per annum of company
equity in excess of $300.0 million.
|
|
Annual
incentive fee
|
25.0%
of the dollar amount by which (A) our adjusted funds from operations
(before the annual incentive fee) per common share (based on the
weighted
average number of shares outstanding), excluding non-cash gains
or losses
due to the recording of fair value hedges, exceeds (B) the weighted
average of (1) $20.00 (the price per common share in our initial
public
offering) and (2) the prices per common share of any of our follow-on
offerings multiplied by the greater of (a) 9.0%; and (b) the ten-year
U.S.
treasury rate plus 2.0% per annum, multiplied by the weighted average
number of common shares outstanding during such year.
Subject
to any restrictions on the number of common shares that may be
held by our
Advisor pursuant to our governing documents or law, a minimum of
10.0% and
a maximum of 50.0% of the annual incentive fee, as established
by the
board in its sole discretion, may be paid in common shares using
the fair
market value of the common shares as of the due date (without extension)
of our Annual Report on Form 10-K for the fiscal year in
question.
|
|
Loan
origination fees
|
Our
Advisor is entitled to receive, with respect to each mortgage investment
originated by us, any of the origination fees paid by borrowers
under
mortgages or other loans made by us. Notwithstanding the
foregoing, in the event our Advisor is not entitled to an origination
fee
payable by a borrower under a loan originated for investment by
us, the
Advisor is entitled to an origination fee or a referral fee that
is
consistent with industry practice, amount and terms, to be paid
by
us.
|
|
Termination
fee
|
If
the Advisory Agreement is terminated by the Advisor for cause or
by us
without cause or not renewed pursuant to the terms of the Advisory
Agreement, we must pay the Advisor a termination fee on the termination
date: (A) if the termination date occurs on or prior to March 28,
2010, a
fee equal to (1) four times the asset management fee the Advisor
would
have been entitled to receive from us during the four-calendar-quarter
period immediately preceding the effective date of such termination,
plus
(2) four times the annual incentive fee the Advisor would have
been
entitled to receive from us during the four-calendar-quarter period
immediately preceding the effective date of such termination; or
(B) if
the termination date occurs after March 28, 2010, the greater of
(1) (a)
two times the asset management fee the Advisor would have been
entitled to
receive from us during the four-calendar-quarter period immediately
preceding the effective date of such termination, plus (b) two
times the
annual incentive fee the Advisor would have been entitled to receive
from
us during the four-calendar-quarter period immediately preceding
the
effective date of such termination or (2) a fee equal to the market
rate
termination fee payable to outside advisors of real estate investments
trusts.
|
|
Expense
reimbursement
|
For
direct expenses incurred by our Advisor acting pursuant to the
advisory
agreement.
|
|
Incentive
share options
|
Our
Advisor could receive options to acquire additional common shares
pursuant
to our Share Option Plan only if our distributions in any year
exceed
$1.45 per common share and the Compensation Committee of our board
determines to grant such options.
|
__________
|
(1)
|
Our
Advisor is also permitted to earn miscellaneous compensation, which
may
include, without limitation, construction fees, escrow interest,
property
management fees, leasing commissions and insurance brokerage
fees. The payment of any such compensation is generally limited
to the competitive rate for the services being
performed.
|
Affiliated
Transactions
We
have
in the past and may in the future invest in loans to parties with whom we
have a
pre-existing relationship (such as The Related Companies, L.P., whose
controlling shareholder is Stephen M. Ross, the chairman of
Centerline). In addition, we may purchase loans or securities from
Centerline or entities managed by Centerline. Each such transaction
must be reviewed and approved by our independent trustees.
We
finance a portion of our investing activity through borrowings from a revolving
credit facility we maintain with Centerline. This $80.0 million
facility provides for interest at the rate of LIBOR plus 3.00%. As of
March 31, 2007, the amount outstanding on the facility was
$10.2 million with an interest rate of 8.32%. We had
approximately $39.8 million available to borrow on this revolving credit
facility at March 31, 2007, which had a total capacity of $50.0 million at
that time. We intend to use the net proceeds from this offering to
acquire additional mortgage-related assets. To the extent suitable
investments are not immediately available, we may use the net proceeds to
pay
down up to all of the outstanding balance of our revolving credit facility
with
Centerline and/or deposit the proceeds in interest-bearing
accounts. To the extent we use the proceeds of this offering to pay
down our credit facility with Centerline, we expect to then use the excess
capacity under this facility to acquire additional mortgage-related assets
and
for general corporate purposes.
OUR
COMPANY
We
were
formed in 1991 as a Massachusetts business trust and have elected to be treated
as a REIT, under the Code. We are an externally managed REIT and all
of our operations are conducted pursuant to an advisory services agreement
with
our Advisor, Centerline/AMAC Manager, Inc. (formerly, CharterMac AMI Associates,
Inc.). Our Advisor is a subsidiary of Centerline (NYSE: CHC), a real
estate finance and investment company, which had approximately $16.0 billion
of
assets under management as of March 31, 2007.
We
are a
commercial mortgage REIT focused on investing in loans and other debt and
equity
instruments secured by multifamily and commercial property throughout the
United
States. We invest in first mortgage loans, subordinated interests in
first mortgage loans, subordinated notes, mezzanine loans, bridge loans and
construction loans. These loans may have fixed or variable interest
rates. Additionally, we may invest in subordinate CMBS, subordinate
debt and equity interests in CDO securitizations and other real estate
assets. We have also invested in government insured or agency
guaranteed first mortgages, insured mortgage pass-through certificates or
insured mortgage-backed securities. At March 31, 2007, we had
total assets of $775.1 million and total shareholders’ equity of
$86.7 million. Details of our investment portfolio as of
March 31, 2007 are set forth in the table below:
|
At
March 31, 2007
|
||||||||||||
|
Carrying
Amount
(in
thousands)
|
%
of Total
|
Weighted
Average
Interest
Rate
|
||||||||||
|
(unaudited)
|
||||||||||||
|
Mortgage
loans
|
$ |
637,498
|
85.8 | % | 7.25 | % | ||||||
|
Debt
securities
|
80,955
|
10.9
|
6.49
|
|||||||||
|
CDO
securities (1)
|
10,061
|
1.4
|
9.00
|
|||||||||
|
Notes
receivable
|
9,260
|
1.2
|
9.78
|
|||||||||
|
Revenue
bonds
|
5,012
|
0.7
|
8.70
|
|||||||||
| $ |
742,786
|
100.0 | % | 7.23 | % | |||||||
__________
|
(1)
Includes debt and equity interests in CDO securitizations.
|
||||||||||||
Investments
We
seek
to leverage the expertise of our Advisor and its affiliates in originating
and
acquiring the loans and other assets in which we invest. In addition,
our Advisor, through its affiliates, provides the expertise to perform both
the
initial underwriting of the real estate properties which serve as direct
or
indirect collateral for our loans, as well as the ongoing asset management
and
special servicing of the loans secured by these properties through construction,
lease-up and stabilization.
We
invest, or have invested in, the following types of commercial real estate
loans
and real estate related assets:
|
|
·
|
First
mortgage loans;
|
|
|
·
|
Subordinated
notes and mezzanine loans;
|
|
|
·
|
Bridge
loans;
|
|
|
·
|
Construction
loans;
|
|
|
·
|
Government
insured and guaranteed investments;
and
|
|
|
·
|
Other
investments, including CMBS and debt and equity interests in CDO
securitizations.
|
|
|
First
Mortgage Loans
|
During
2006, we significantly grew our investment base by investing in first mortgage
loans secured by multifamily or commercial properties. The loans,
which were originated by affiliates of our Advisor, may be in the form of
long-term fixed-rate financing obligations or subordinate interests in long-term
fixed-rate financing obligations. We will continue to invest in these
loans, but we expect such loans to constitute a smaller percentage of our
investment base in the future.
We
also
invest in revenue bonds secured by first mortgages on affordable multifamily
housing properties throughout the country. The revenue bonds
generally rank on par with tax-exempt first mortgage revenue bonds that are
owned by Centerline, the parent of our Advisor. The proceeds from
these revenue bonds are generally used for the new construction or substantial
rehabilitation of affordable multifamily properties.
Subordinated
Notes and Mezzanine
Loans
We
originate or acquire subordinated notes (typically secured by subordinated
interests in the underlying collateral) and mezzanine loans (subordinate
loans
typically secured by interests in the borrowing entity) that generally finance
newly stabilized or transitional multifamily, office, retail, industrial
or
other commercial properties. The interest rates we offer are either fixed
or
variable rate. Our subordinated notes and mezzanine transactions may
involve us:
|
|
·
|
issuing
mezzanine debt subordinated to an existing first mortgage
loan;
|
|
|
·
|
jointly
bidding with a senior lender and closing
simultaneously;
|
|
|
·
|
acquiring
a subordinated loan from a senior lender;
or
|
|
|
·
|
originating
the entire debt structure and selling the first mortgage to a senior
lender.
|
Subordinated
notes and mezzanine loans are subordinate to senior mortgages and may include
a
participating component, such as a right to a portion of the cash flow and
proceeds generated from the refinancing and sale of the underlying
properties.
Bridge
Loans
We
originate or acquire bridge financing on commercial properties nationwide.
Bridge loans are typically secured by first mortgage liens on assets undergoing
a transition or repositioning. Due to the transitional nature of the
underlying assets, bridge loans typically require additional credit enhancement
such as letters of credit or performance guarantees. Bridge loans are
typically short term financings with terms ranging from 1 to 5
years. The interest rates may be either fixed or
variable.
Government
Insured and Guaranteed
Investments
Our
debt
securities investments consist of government insured or guaranteed investments,
primarily through the acquisition of Government National Mortgage Association
and Federal National Mortgage Association mortgage-backed securities and
pass-through certificates. We believe that government agency insured
lending offers safety, liquidity and moderate yields, while also providing
a
strong asset base for collateralized borrowing on favorable terms.
Other
Investments
In
2007, we began investing in CMBS as
well as debt and equity interests in CDO securitizations. CMBS is a
type of mortgage-backed security that is secured by loans on commercial
properties such as apartment buildings, retail or office properties, hotels,
industrial properties and other commercial sites. A CDO
securitization is a capital markets transaction in which the holder of various
forms of real estate debt instruments finances those assets by selling
securities backed by the assets. By investing in these securities, we
seek to receive an attractive, risk
adjusted
yield, while leveraging off of the core competencies of our
Advisor. In certain of the CMBS transactions, a fund managed by
Centerline acquires the CMBS bonds subordinate to our investment.
Financing
We
obtain
debt financing for our activities through a combination of CDO notes payable,
a
CDO warehouse facility, master repurchase agreements, a revolving credit
facility with Centerline and other financings.
CDO
Notes Payable
In
2006, we began financing our
investment portfolio by utilizing securitization transactions. A real
estate CDO securitization is a capital markets transaction in which the holder
of various forms of real estate debt instruments finances those assets by
selling securities (shown on our balance sheet as CDO notes payable) backed
by
the assets. We securitized $400.0 million of our investment portfolio
in November 2006, and have issued $362.0 million of CDO notes payable in
connection with the securitization. We intend to continue financing a
large portion of our investment portfolio using these types of
transactions. At March 31, 2007, we had outstanding CDO notes
payable totaling $362.0 million with a weighted average interest rate of
5.29%, including the effects of interest rate hedges.
CDO
Warehouse Facility
Prior
to
a CDO securitization, we finance investments through a warehouse facility,
which
is repaid from the proceeds received when the CDO securitization is
complete. During December 2006, we executed a warehouse facility with
Citigroup Financial Products Inc. for the purpose of financing investment
activity. Advance rates on the borrowings from this facility, ranging
from 80% to 90% of collateral value, are determined on an asset-by-asset
basis.
Interest on the borrowings, which ranges from LIBOR plus 0.40% to LIBOR plus
1.25%, is also determined on a loan-by-loan basis. The warehouse
facility expires upon completion of a second planned CDO securitization,
or
twelve months after the inception of the warehouse facility, whichever comes
first. At March 31, 2007, we had approximately $190.2 million of
borrowings outstanding under this facility with a weighted average interest
rate
of 5.07%, including the effects of interest rate hedges. This $190.2
million of borrowings is included in the “Repurchase facilities” line on our
balance sheet.
Master
Repurchase
Agreements
As
a
vehicle to leverage our investments in debt securities, we currently finance
each transaction pursuant to master repurchase agreements with two
counter-parties, RBC Capital Markets Corporation and UBS Financial Services
Inc. The specific terms for each repurchase transaction are
negotiated on an individual basis. Advance rates for transactions
executed pursuant to these master repurchase agreements have been between
94%
and 97% of collateral value and borrowing rates for individual transactions
have
been between LIBOR minus 0.03% and LIBOR plus 0.10%. The borrowings
are subject to 30-day settlement terms. As of March 31, 2007, the
amount outstanding for transactions financed pursuant to these repurchase
agreements was $78.1 million, with a weighted average interest rate of
4.64%, which is weighted including the effects of interest rate hedges in
place
on these borrowings. These repurchase agreements have no set
termination date and may be terminated by either party upon written notice,
except as to amounts outstanding for specific transactions.
During
April 2007, we executed master repurchase agreements with Bear Stearns and
Wachovia for the purpose of providing financing for real estate related
investments, including but not limited to, our $10.1 million investment in
debt
and equity interests in a CDO securitization by Nomura. The Nomura
securities have a weighted average interest rate of 9.0% and mature in May
2042. We took possession of the Nomura securities in April
2007. In May 2007, we repaid all the outstanding borrowings pursuant
to the master repurchase agreement with Wachovia (and do not intend to utilize
this master repurchase agreement in the future) and entered into a corresponding
increase in the amounts financed pursuant to the master repurchase agreement
with Bear Stearns. Advance rates on the borrowings related to the
financing of the purchase of the Nomura securities pursuant to the Bear Stearns
master repurchase agreement range from 60 to 80% of the Nomura securities
and
interest on the borrowings range from 30-day LIBOR plus 0.40% to 30-day LIBOR
plus 0.85%. The Bear Stearns master repurchase agreement has no set
termination date and Bear Stearns has sole discretion whether to provide
financing for any individual transaction under the master repurchase
agreement.
Related
Party Line of Credit
We
finance our remaining investment activity primarily through borrowings from
a
revolving credit facility we maintain with Centerline. This
$80.0 million facility offers borrowing rates of LIBOR plus
3.00%. As of March 31, 2007, the amount outstanding was
$10.2 million with an interest rate of 8.32%. We had
approximately $39.8 million available to borrow on this credit facility at
March 31, 2007, which had a total capacity of $50.0 million at that
time. The credit facility matures on June 30,
2008. Although we intend to use the net proceeds from this offering
to acquire additional mortgage-related assets consistent with our investment
policy and for general corporate purposes, to the extent suitable investments
are not immediately available, we may use the net proceeds to pay down up
to all
of the outstanding balance of our revolving credit facility with Centerline,
in
which event we expect to use the excess capacity under this facility to acquire
additional mortgage-related assets and for general corporate
purposes.
Other
Financing
During
March 2005, AMAC Capital Financing I, our wholly owned subsidiary, issued
$25.0
million of trust preferred securities with a stated liquidation amount of
$1,000
per security. We received approximately $24.2 million in proceeds,
net of closing costs. The securities are callable in March 2010 and
bear interest, re-set quarterly, equal to 30-day LIBOR plus 3.75%. At
December 31, 2006, the rate was 9.12%. Effective March 30, 2007, we
executed an interest rate swap with a notional amount of $25.0
million. The swap has a term of three years, a fixed rate of 4.97%
and was executed to fix the pay rate on these trust preferred
securities. As a result of the swap, the effective interest on the
trust preferred securities is 8.72%.
Limitations
on Indebtedness
Pursuant
to our bylaws (which may be
amended by our board of trustees in their sole discretion), we may incur
indebtedness of up to 90% of the greater of:
|
|
·
|
the
sum of the aggregate market value of all of our outstanding shares
of
beneficial interest and all of our indebtedness (excluding the
debt of our
unconsolidated subsidiaries); and
|
|
|
·
|
the
aggregate value of our assets as determined by our Advisor based
upon
third party or management appraisals and other criteria as the
board of
trustees determines in its sole discretion (calculated at the time
debt is
incurred).
|
Competition
We
compete with various financial institutions including investment banks,
commercial banks, insurance companies, other mortgage REITs, opportunity
and
private equity funds and pension fund advisors for investment
opportunities. Many of our competitors have substantially greater
resources than us.
Management
and Governance
We
have
engaged our Advisor to manage our day-to-day affairs. Our Advisor has
subcontracted with Centerline Affordable Housing Advisors LLC, or Centerline
Affordable (formerly CharterMac Capital LLC), and Centerline Servicing, Inc.,
or
CSI (formerly ARCap Servicing, Inc.), which are subsidiaries of Centerline,
to
provide the services necessary for our operations. Through our
Advisor, Centerline Affordable and CSI offer us a core group of experienced
staff and executive management personnel who provide us with services on
both a
full- and part-time basis. These services include, among other
things, origination, acquisition, underwriting, asset monitoring, investment
portfolio management, legal, finance, accounting, capital markets, investor
relations and loan servicing. See “Management.”
We
have
no employees. We are governed by a board of trustees comprised of
four independent trustees and three non-independent trustees who are affiliated
with our Advisor. Our Advisor receives compensation for the services
it provides to us. In addition, we reimburse our Advisor and certain
of its affiliates for expenses they incur in connection with their performance
of services for us in accordance with our Advisory Agreement. See
“Management.”
DESCRIPTION
OF PREFERRED SHARES
The
following summary of the terms and provisions of the Preferred Shares does
not
purport to be complete and is qualified in its entirety by reference to our
declaration of trust and the resolution establishing the Preferred Shares,
each
of which is incorporated by reference in this prospectus supplement and the
accompanying prospectus. This description of the particular terms of
the Preferred Shares supplements and, to the extent inconsistent therewith,
supersedes the description of the general terms and provisions of the preferred
shares set forth in the accompanying prospectus. If the description
of the Preferred Shares in this prospectus supplement differs from the general
description of the preferred shares in the accompanying prospectus, you should
rely on the information in this prospectus supplement.
General
We
are
authorized to issue preferred shares from time to time, in one or more series
or
classes, with such designations, preferences, conversion or other rights,
voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption, in each case, if any,
as
are permitted by Massachusetts law and as our board of trustees may determine
prior to issuance thereof by adoption of a resolution with respect to the
rights, preferences and privileges of such preferred shares without any further
vote or action by our shareholders.
Ranking
The
Preferred Shares rank senior to our common shares with respect to the payments
of distributions and rights to payment upon liquidation, dissolution or winding
up. The Preferred Shares rank on a parity with all other series of
preferred shares that we may issue ranking on par with the Preferred Shares
with
respect to the payments of distributions and rights to payment upon liquidation,
dissolution or winding up. We refer to such series of parity
preferred shares as Parity Preferred. The Preferred Shares rank
junior to all equity securities issued by us, the terms of which specifically
provide that such equity securities rank senior to the Preferred
Shares.
Dividends
Holders
of Preferred Shares, which we refer to as Preferred Shareholders, are entitled
to receive, when and as authorized by our board of trustees, out of funds
legally available for the payment of dividends, cumulative preferential cash
dividends at the rate of % per annum of the $25.00
liquidation preference (equivalent to $ per
share). Such dividends will be cumulative from July , 2007 for
shares issued in this offering, and will be payable to holders of Preferred
Shares quarterly in arrears on the 15th day of January, April, July and October
of each year or, if not a business day, the next succeeding business day
(each,
a Dividend Payment Date). The first dividend for shares issued in
this offering will be payable on October 15, 2007 and will be for less than
the
full quarterly dividend period. Any dividend payable on the Preferred
Shares for any partial dividend period will be computed on the basis of a
360-day year consisting of twelve 30-day months. Dividends will be
payable to holders of record as they appear on our records at the close of
business on the last day of each of March, June, September and December,
as the
case may be, immediately preceding the applicable Dividend Payment Date (each,
a
Dividend Record Date). Holders of Preferred Shares will not be entitled to
receive any dividends in excess of cumulative dividends on the Preferred
Shares. No interest will be paid in respect of any dividend payment
or payments on the Preferred Shares that may be in arrears.
No
dividends on Preferred Shares will be declared by us or paid or set apart
for
payment by us at such time as the terms and provisions of any of our agreements,
including any agreement relating to our indebtedness, prohibit such declaration,
payment or setting apart for payment or provide that such declaration, payment
or setting apart for payment would constitute a breach thereof or a default
thereunder, or if such declaration or payment will be restricted or prohibited
by law.
Notwithstanding
the foregoing, dividends on the Preferred Shares will accrue whether or not
we
have earnings, whether or not there are funds legally available for the payment
of such dividends and whether or not such dividends are declared. Accrued
but
unpaid dividends on the Preferred Shares will accumulate as of the Dividend
Payment Date on which they first become payable.
Except
as
set forth in the next paragraph, unless full cumulative dividends on the
Preferred Shares have been or contemporaneously are declared and paid or
declared and a sum sufficient for such full payment is set apart for payment
for
all past dividend periods and the then current dividend period, no dividends
(other than dividends in common shares or dividends in any series of preferred
shares that we may issue ranking junior to the Preferred Shares as to dividends
and upon liquidation) will be declared or paid or set aside for
payment. Nor will any other distribution be declared or made upon our
common shares or preferred shares that we may issue ranking junior to or
on par
with the Preferred Shares as to dividends or upon liquidation. In
addition, any common shares or preferred shares that we may issue ranking
junior
to or on par with the Preferred Shares as to dividends or upon liquidation
will
not be redeemed, purchased or otherwise acquired for any consideration (or
any
moneys be paid to or made available for a sinking fund for the redemption
of any
such shares) by us (except by conversion into or exchange for our other capital
shares that we may issue ranking junior to the Preferred Shares as to dividends
and upon liquidation and except for transfers made pursuant to the provisions
of
our declaration of trust relating to restrictions on ownership and transfers
of
our capital shares).
If
dividends are not paid in full (or a sum sufficient for such full payment
is not
so set apart) upon the Preferred Shares and the shares of any other series
of
Parity Preferred, all dividends declared upon the Preferred Shares and the
shares of any other series of Parity Preferred will be declared pro rata
so that
the amount of dividends declared per share of the Preferred Shares and the
shares of any other series of Parity Preferred will in all cases bear to
each
other the same ratio that accrued dividends per share on the Preferred Shares
and the shares of any other series of Parity Preferred (which will not include
any accrual in respect of unpaid dividends for prior dividend periods if
such
preferred shares do not have a cumulative dividend) bear to each
other. No interest, or sum of money in lieu of interest, will be
payable in respect of any dividend payment or payments on the Preferred Shares,
which may be in arrears.
Preferred
Shareholders will not be entitled to any dividend, whether payable in cash,
property or shares, in excess of full cumulative dividends on the Preferred
Shares as provided above. Any dividend payment made on the Preferred
Shares will first be credited against the earliest accrued but unpaid dividend
due with respect to such shares, which remains payable.
Liquidation
Preference
Upon
any
voluntary or involuntary liquidation, dissolution or winding up of our affairs,
our Preferred Shareholders are entitled to be paid out of our assets that
are
legally available for distribution to our shareholders a liquidation preference
of $25.00 per share, plus an amount equal to any accrued and unpaid dividends
(whether or not declared) to the date of payment, before any distribution
of
assets is made to our common shareholders or to holders of any series of
preferred shares that we may issue that rank junior to the Preferred Shares
as
to liquidation rights.
In
the
event that, upon any such voluntary or involuntary liquidation, dissolution
or
winding up, our available assets are insufficient to pay the amount of the
liquidating distributions on all outstanding Preferred Shares and the
corresponding amounts payable on all shares of other classes or series of
Parity
Preferred, then the Preferred Shareholders and shareholders of such classes
or
series of Parity Preferred will share ratably in any such distribution of
assets
in proportion to the full liquidating distributions to which they would
otherwise be respectively entitled.
Preferred
Shareholders will be entitled to written notice of any such
liquidation. After payment of the full amount of the liquidating
distributions to which they are entitled, our Preferred Shareholders will
have
no right or claim to any of our remaining assets. The consolidation
or merger of us with or into any other corporation, trust or entity or of
any
other corporation with or into us, or the sale, lease or conveyance of all
or
substantially all of our assets or business, will not be deemed to constitute
a
liquidation, dissolution or winding up of us.
Voting
Rights
Our
Preferred Shareholders do not have any voting rights, except as set forth
below.
Whenever
dividends on any Preferred Shares will be in arrears for six or more quarterly
periods (whether or not consecutive), which we refer to as a Preferred Dividend
Default, our Preferred Shareholders (voting separately as a class with all
other
series of Parity Preferred upon which like voting rights have been conferred
and
are exercisable) will be entitled to vote for the election of a total of
two
additional members of our board of trustees,
or
Preferred Shares Trustees, and the number of trustees on the board of trustees
will increase by two, at a special meeting called by the holders of record
of at
least 10% of the Preferred Shares or any other series of Parity Preferred
so in
arrears (unless such request is received less than 90 days before the date
fixed
for the next annual or special meeting of the shareholders) or at the next
annual meeting of shareholders, and at each subsequent annual meeting until
all
dividends accumulated on such Preferred Shares for the past dividend periods
and
the dividend for the then current dividend period will have been fully paid
or
declared and a sum sufficient for the payment thereof set aside for
payment.
If
and
when all accumulated dividends and the dividend for the then current dividend
period on the Preferred Shares have been paid in full or set aside for payment
in full, the Preferred Shareholders will be divested of the foregoing voting
rights (subject to revesting in the event of each and every subsequent Preferred
Dividend Default) and, if all accumulated dividends and the dividend for
the
then current dividend period have been paid in full or set aside for payment
in
full on all series of Parity Preferred upon which like voting rights have
been
conferred and are exercisable, the term of office of each Preferred Shares
Trustee so elected will terminate and the number of trustees on the board
of
trustees will decrease by two. Any Preferred Shares Trustee may be
removed at any time with or without cause by, and will not be removed otherwise
than by the vote of, the holders of record of a majority of the outstanding
Preferred Shares when they have the voting rights described above (voting
separately as a class with all series of Parity Preferred upon which like
voting
rights have been conferred and are exercisable). So long as a
Preferred Dividend Default will continue, any vacancy in the office of a
Preferred Shares Trustee may be filled by the written consent of the Preferred
Shares Trustees remaining in office, or if none remains in office, by a vote
of
the holders of record of a majority of the outstanding Preferred Shares when
they have the voting rights described above (voting separately as a class
with
all series of Parity Preferred upon which like voting rights have been conferred
and are exercisable). The Preferred Shares Trustees will each be
entitled to one vote per trustee on any matter.
So
long
as any Preferred Shares remain outstanding, we will not, without the affirmative
vote or consent of the holders of at least two-thirds of the Preferred Shares
outstanding at the time, given in person or by proxy, either in writing or
at a
meeting (voting separately as a class with all other series of Parity Preferred
that we may issue upon which like voting rights have been conferred and are
exercisable), (a) authorize or create, or increase the authorized or issued
amount of, any class or series of capital shares ranking senior to the Preferred
Shares with respect to payment of dividends or the distribution of assets
upon
liquidation, dissolution or winding up or reclassify any of our authorized
capital shares into such shares, or create, authorize or issue any obligation
or
security convertible into or evidencing the right to purchase any such shares
(although the foregoing does not restrict our ability to issue trust preferred
securities that are accounted for as debt); or (b) amend, alter or repeal
the
provisions of our declaration of trust or resolutions creating the Preferred
Shares so as to materially and adversely affect any right, preference, privilege
or voting power of the Preferred Shares; provided, however, that any increase
in
the amount of the authorized preferred shares, including the Preferred Shares,
or the creation or issuance of any additional Preferred Shares or other series
of preferred shares that we may issue, or any increase in the amount of
authorized shares of such series, in each case ranking on a parity with or
junior to the Preferred Shares that we may issue with respect to payment
of
dividends or the distribution of assets upon liquidation, dissolution or
winding
up, will not be deemed to materially and adversely affect such rights,
preferences, privileges or voting powers. Notwithstanding the
foregoing, the provisions of clause (b) in the prior sentence will not apply
to,
and the Preferred Shareholders will not be entitled to vote or consent in
connection with, (i) a consolidation, merger or combination involving us
or (ii)
a sale, conveyance or lease to another entity of all or substantially all
of our
property and assets (other than to one or more of our subsidiaries), in either
case that otherwise amends, alters or repeals the provisions or our declaration
of trust or resolutions creating the Preferred Shares. Rather,
Preferred Shareholders will have the rights set forth in the sections below
entitled “—Conversion Rate Adjustments”,”—Redemption – Mandatory Redemption in
the Event of a Private Acquirer Change of Control” and “—Conversion After A
Public Acquirer Change of Control”.
Maturity
The
Preferred Shares will have no maturity date and we may not redeem the Preferred
Shares except in limited circumstances. See “—Redemption”
below. Accordingly, the Preferred Shares will remain outstanding
indefinitely unless a Preferred Shareholder or we decide to convert them,
a
Preferred Shareholder elects to have us repurchase them upon a fundamental
change or we are allowed or required to redeem them. See
“—Conversion
Rights,”
“—Company Conversion Option” and “—Purchase of Preferred Shares Upon a
Fundamental Change” below.
Redemption
We
are
not allowed to redeem the Preferred Shares, except in limited circumstances
including (i) in the event of a fundamental change that is a Private Acquirer
Change of Control (as defined below) or (ii) to preserve our status
as a REIT. See “—Mandatory Redemption in the Event of a Private
Acquirer Change of Control” and “—Optional Redemption to Preserve our Status as
a REIT” below. However, on or after July ,
2012, if certain conditions are met, we have the right to require each Preferred
Shareholder to convert its Preferred Shares to common shares. See
“—Company Conversion Option” below.
Optional
Redemption to Preserve our
Status as a REIT
We
are
entitled pursuant to the resolution creating the Preferred Shares to redeem
the
Preferred Shares in order to preserve our status as a REIT for federal income
tax purposes, in whole or in part, at any time or from time to time, for
cash at
a redemption price equal to 100% of the liquidation preference of the Preferred
Shares to be redeemed plus an amount equal to all accrued and unpaid dividends
up to, but not including, the date fixed for redemption, without interest;
provided that if the redemption date is on a date that is after a dividend
record date and on or prior to the corresponding dividend payment date, we
will
pay such dividends to the holder of record on the record date, which may
or may
not be the same person to whom we will pay the redemption price, and the
redemption price will be equal to 100% of the liquidation preference of the
Preferred Shares to be redeemed.
If
fewer
than all of the outstanding Preferred Shares are to be redeemed, we will
select
the Preferred Shares to be redeemed pro rata (as nearly as may be practicable
without creating fractional shares) by lot or by any other equitable method
that
we determine will not violate the 9.8% Preferred Shares ownership limit and
the
9.8% shares ownership limit. If such redemption is to be by lot and, as a
result
of such redemption, any holder of Preferred Shares, other than a holder of
Preferred Shares that has received an exemption from the applicable ownership
limit, would have actual or constructive ownership of more than 9.8% of the
issued and outstanding shares of Preferred Shares by value or number of shares,
whichever is more restrictive or more than 9.8% of the value of our outstanding
shares, because such holder’s Preferred Shares were not redeemed, or were only
redeemed in part, then, except as otherwise provided in our declaration of
trust, we will redeem the requisite number of Preferred Shares of such holder
such that no holder will own in excess of the applicable ownership limit
subsequent to such redemption. See “—Restrictions on Ownership.” In order for
their Preferred Shares to be redeemed, holders must surrender their Preferred
Shares at the place designated in the notice of redemption. Holders will
then be
entitled to the redemption price payable upon redemption following surrender
of
the certificates representing the Preferred Shares. If the funds necessary
for
the redemption have been set aside by us in trust for the benefit of the
holders
of any Preferred Shares called for redemption and if irrevocable instructions
have been given to pay the redemption price, then from and after the redemption
date, dividends will cease to accrue on such Preferred Shares and such Preferred
Shares will no longer be deemed outstanding. At such time all rights of the
holders of such shares will terminate, except the right to receive the
redemption price payable upon redemption, without interest.
Mandatory
Redemption in the Event of a
Private Acquirer Change of Control
Unless
we
seek the consent of the Preferred Shareholders as set forth under “—Voting
Rights” above, we are required pursuant to the resolutions creating the
Preferred Shares to redeem all of the Preferred Shares in the event of a
Private
Acquirer Change of Control for cash at a redemption price equal to (i) 101%,
if
the Private Acquirer Change of Control occurs prior to July ,
2012, or (ii) 100%, if the Private Acquirer Change of Control occurs on or
after
July , 2012, in either case of the liquidation preference
of the Preferred Shares to be redeemed plus an amount equal to all accrued
and
unpaid dividends up to, but not including, the date fixed for redemption,
without interest; provided that if the redemption date is on a date that
is
after a dividend record date and on or prior to the corresponding dividend
payment date, we will pay such dividends to the holder of record on the record
date, which may or may not be the same person to whom we will pay the redemption
price, and the redemption price will be equal to 101% or 100%, as applicable,
of
the liquidation preference of the Preferred Shares to be redeemed.
We
will
not be required to make an offer to repurchase the Preferred Shares upon
a
Private Acquirer Change of Control if a third party (1) makes an offer to
purchase the Preferred Shares in the manner, at the times and otherwise in
compliance with the requirements applicable to an offer made by us to purchase
Preferred Shares upon
a
fundamental change and (2) purchases all of the Preferred Shares validly
delivered and not withdrawn under such offer to purchase Preferred
Shares.
A
“Private Acquirer Change of Control” means any event constituting a fundamental
change where our common shareholders are not entitled to receive in connection
with such fundamental change transaction a class of common stock traded on
a
national securities exchange or quoted on the Nasdaq Global Market or which
will
be so traded or quoted when issued or exchanged in connection with such
fundamental change or other event (or rights to acquire the same).
Conversion
Rights
Preferred
Shareholders, at their option, may convert some or all of their outstanding
Preferred Shares initially at the Conversion Rate, which is equivalent to
an
initial conversion price of approximately $ per common
share, a 25% premium over $ per share, the average
closing price of our common shares for the five trading days prior to
July , 2007. The Preferred Shares will only be
convertible into our common shares.
We
will
not issue fractional common shares upon the conversion of Preferred
Shares. Instead, we will pay the cash value of such fractional shares
based upon the closing sale price of our common shares on the trading day
immediately prior to the Conversion Date (as defined below).
Preferred
Shareholders are not entitled to any rights of a common shareholder until
such
Preferred Shareholder has converted its Preferred Shares, and only to the
extent
that the Preferred Shares are deemed to have been converted to our common
shares
under the resolution creating such shares.
Company
Conversion Option
On
or
after July , 2012, we may, at our option, require
the Preferred Shareholders to convert the Preferred Shares into that number
of
common shares that are issuable at the then prevailing Conversion Rate (we
refer
to this option as the Company Conversion Option). We may exercise our
Company Conversion Option only if our common share price equals or exceeds
125%
of the then prevailing conversion price of the Preferred Shares for at least
20
trading days in a period of 30 consecutive trading days (including the last
trading day of such period) ending on the trading day immediately prior to
our
issuance of a press release announcing the exercise of our Company Conversion
Option as described below.
To
exercise our Company Conversion Option described above, we must issue a press
release for publication on PR Newswire, Dow Jones & Company, Inc., Business
Wire or Bloomberg Business News (or, if such organizations are not in existence
at the time of issuance of such press release, such other news or press
organization as is reasonably calculated to broadly disseminate the relevant
information to the public) prior to the opening of business on the first
trading
day following any date on which the conditions described in the preceding
paragraph are met, announcing such conversion. We will also give notice by
mail
or by publication (with subsequent prompt notice by mail) to our Preferred
Shareholders (not more than four trading days after the date of the press
release) of the exercise of our Company Conversion Option announcing our
intention to convert the Preferred Shares. The Conversion Date (or the Company
Conversion Option Date) will be the date that is five trading days after
the
date on which we issue such press release.
In
addition to any information required by applicable law or regulation, the
press
release and notice of the exercise of our Company Conversion Option will
state,
as appropriate:
|
|
·
|
the
Company Conversion Option Date;
|
|
|
·
|
the
number of our common shares to be issued upon conversion of each
Preferred
Share;
|
|
|
·
|
the
number of Preferred Shares to be converted;
and
|
|
|
·
|
that
dividends on the Preferred Shares to be converted will cease to
accrue on
the Company Conversion Option Date.
|
Conversion
Procedures
Preferred
Shareholders may convert some or all of their shares by surrendering to us
at
our principal office or at the office of our transfer agent, as may be
designated by our board of trustees, the certificate or certificates for
the
Preferred Shares to be converted accompanied by a written notice stating
that
the Preferred Shareholder elects to convert all or a specified whole number
of
those shares in accordance with the provisions described in this prospectus
supplement and specifying the name or names in which the Preferred Shareholder
wishes the certificate or certificates for the common shares to be issued.
In
case the notice specifies a name or names other than the Preferred Shareholder’s
name, the notice must be accompanied by payment of all transfer taxes payable
upon the issuance of common shares in that name or names. Other than
those taxes, we will pay any documentary, stamp or similar issue or transfer
taxes that may be payable in respect of any issuance or delivery of common
shares upon conversion of the Preferred Shares. As promptly as practicable
after
the surrender of that certificate or certificates and the receipt of the
notice
relating to the conversion and payment of all required transfer taxes, if
any,
or the demonstration to our satisfaction that those taxes have been paid,
we
will deliver or cause to be delivered (a) certificates representing the number
of validly issued, fully paid and non-assessable full common shares to which
the
Preferred Shareholder, or the Preferred Shareholder’s transferee, will be
entitled and (b) if less than the full number of Preferred Shares evidenced
by
the surrendered certificate or certificates is being converted, a new
certificate or certificates, of like tenor, for the number of shares evidenced
by the surrendered certificate or certificates, less the number of shares
being
converted. This conversion will be deemed to have been made at the
close of business on the date of giving the notice and of surrendering the
certificate or certificates representing the Preferred Shares to be converted,
or the Conversion Date, so that the Preferred Shareholder’s rights as to the
shares being converted will cease except for the right to receive the conversion
value, and, if applicable, the person entitled to receive common shares will
be
treated for all purposes as having become the record holder of those common
shares at that time.
In
lieu
of the foregoing procedures, if the Preferred Shares are held in global
certificate form, the Preferred Shareholder must comply with the procedures
of
DTC to convert the Preferred Shareholder’s beneficial interest in respect of the
Preferred Shares evidenced by a global share certificate of the Preferred
Shares.
Preferred
Shareholders are not eligible to exercise any rights of a common shareholder
until they have converted their Preferred Shares into common
shares.
In
case
any Preferred Shares are to be converted pursuant to our Company Conversion
Option, a Preferred Shareholder’s right to voluntarily convert those Preferred
Shares will terminate if we have not received such Preferred Shareholder’s
conversion notice by 5:00 p.m., New York City time, on the trading day
immediately preceding the date fixed for conversion pursuant to our Company
Conversion Option.
If
more
than one Preferred Share is surrendered for conversion by the same shareholder
at the same time, the number of common shares issuable on conversion of those
Preferred Shares will be computed on the basis of the total number of Preferred
Shares so surrendered.
We
will
at all times reserve and keep available, free from preemptive rights out
of our
authorized but unissued shares, for issuance upon the conversion of Preferred
Shares, a number of our authorized but unissued common shares that will from
time to time be sufficient to permit the conversion of all outstanding Preferred
Shares.
Before
the delivery of any securities upon conversion of the Preferred Shares, we
will
comply with all applicable federal and state laws and regulations. All common
shares delivered upon conversion of the Preferred Shares will upon delivery
be
duly authorized, validly issued, fully paid and non-assessable, free of all
liens and charges and not subject to any preemptive rights.
If
a
Preferred Shareholder has exercised its right to require us to repurchase
Preferred Shares as described under “—Purchase of Preferred Shares Upon a
Fundamental Change,” the Preferred Shareholder’s conversion rights with respect
to the Preferred Shares so subject to repurchase will expire if we have not
received their conversion notice by 5:00 p.m., New York City time, on the
trading day immediately preceding the repurchase date, unless we default
on the
payment of the purchase price. If a Preferred Shareholder has submitted any
such
shares for repurchase, such shares may be converted only if the Preferred
Shareholder submits a notice of withdrawal or complies with applicable DTC
procedures.
Payment
of Dividends Upon Conversion
Optional
Conversion
General. If
a Preferred Shareholder exercises its conversion rights, upon delivery of
the
Preferred Shares for conversion, those Preferred Shares will cease to cumulate
dividends as of the end of the day immediately preceding the Conversion Date
and
the Preferred Shareholder will not receive any cash payment representing
accrued
and unpaid dividends on the Preferred Shares, except in those limited
circumstances discussed below. Except as provided below, we will make no
payment
for accrued and unpaid dividends, whether or not in arrears, on Preferred
Shares
converted at the Preferred Shareholder’s election, or for dividends on the
common shares issued upon such conversion.
Conversion
On or Before Dividend Record Date. If we receive a conversion
notice before the close of business on a Dividend Record Date, the Preferred
Shareholder will not be entitled to receive any portion of the dividend payable
on such converted shares on the corresponding Dividend Payment
Date.
Conversion
After Record Date and Prior to Dividend Payment Date. If we
receive a conversion notice after the Dividend Record Date but prior to the
corresponding Dividend Payment Date, the Preferred Shareholder on the Dividend
Record Date will receive on that Dividend Payment Date accrued dividends
on
those Preferred Shares, notwithstanding the conversion of those Preferred
Shares
prior to that Dividend Payment Date, because that Preferred Shareholder will
have been the Preferred Shareholder of record on the corresponding Dividend
Record Date. At the time that such Preferred Shareholder surrenders Preferred
Shares for conversion, however, it must pay to us an amount equal to the
dividend that has accrued and that will be paid on the related Dividend Payment
Date.
Conversion
On or After Dividend Payment Date. If the Preferred Shareholder
is a Preferred Shareholder on a Dividend Record Date who converts such Preferred
Shares into common shares on or after the corresponding Dividend Payment
Date
such Preferred Shareholder will be entitled to receive the dividend payable
on
such Preferred Shares on such Dividend Payment Date, and the Preferred
Shareholder will not need to include payment of the amount of such dividend
upon
surrender for conversion of the Preferred Shares.
Company
Conversion Option
General. If
we convert a Preferred Shareholder’s shares pursuant to our Company Conversion
Option, whether prior to, on, or after the Dividend Record Date for the current
period, all unpaid dividends that are in arrears as of the Company Conversion
Option Date will be payable to the Preferred Shareholder.
Conversion
Before Dividend Record Date. If we exercise our Company
Conversion Option and the effective date of the conversion of the Preferred
Shares is a date that is prior to the close of business on any Dividend Record
Date, the Preferred Shareholder will not be entitled to receive any portion
of
the dividend payable for such period on such converted shares on the
corresponding Dividend Payment Date.
Conversion
On or After Dividend Record Date and Prior to Dividend Payment
Date. If we exercise our Company Conversion Option and the
effective date of the conversion of the Preferred Shares is a date that is
on or
after the close of business on any Dividend Record Date and prior the close
of
business on the corresponding Dividend Payment Date, all dividends, including
accrued and unpaid dividends, whether or not in arrears, with respect to
the
Preferred Shares called for a conversion on such date, will be payable on
such
Dividend Payment Date to the Preferred Shareholder if the Preferred Shareholder
is the record holder of such shares on such record date.
Conversion
Rate Adjustments
We
will
adjust the Conversion Rate if any of the following events occur:
|
|
·
|
We
issue our common shares as a dividend or distribution to all or
substantially all of our common shareholders (other than pursuant
to our
current dividend reinvestment and share purchase plan or any future
dividend reinvestment and share purchase plan we adopt which is
not
materially adverse to Preferred
Shareholders);
|
|
|
·
|
We
subdivide, combine or reclassify our common
shares;
|
|
|
·
|
We
distribute to all or substantially all of our common shareholders
certain
rights or warrants to subscribe for or purchase, for a period expiring
within sixty (60) days, common shares, or securities convertible
into or
exchangeable or exercisable for our common shares, at less than
the
closing sale price of our common shares on the trading day immediately
preceding the date of the announcement of such distribution, provided
that
the Conversion Rate will be readjusted to the extent that such
rights or
warrants are not exercised prior to the
expiration;
|
|
|
·
|
We
distribute to all or substantially all of our common shareholders
our
common or preferred shares or issue evidence of our indebtedness
or
assets, including securities, but
excluding:
|
|
|
§
|
dividends
or distributions referred to above;
|
|
|
§
|
rights
or warrants referred to above; or
|
|
|
§
|
dividends
and distributions in connection with a reclassification, change,
consolidation, merger, combination, sale or conveyance resulting
in a
change in the conversion consideration described
below;
|
|
|
·
|
We
distribute to all or substantially all of our common shareholders
capital
shares of one of our subsidiaries, with such adjustment, if any,
based on
the market value of the subsidiary capital shares so distributed
relative
to the market value of our common shares, in each case over a measurement
period following the distribution;
|
|
|
·
|
We
make payments in respect of a tender offer or exchange offer for
our
common shares by us or any of our subsidiaries to the extent that
the cash
and fair market value of any other consideration included in the
payment
per share exceeds the closing price of our common shares on the
trading
day following the last date on which tenders or exchanges may be
made
pursuant to such tender offer or exchange
offer.
|
To
the
extent we have a rights plan in effect upon conversion of the Preferred Shares
into common shares, the Preferred Shareholders will receive, in addition
to the
common shares, the rights under the rights plan unless the rights have separated
from the common shares prior to the time of conversion, in which case the
Conversion Rate will be adjusted at the time of separation as if we made
a
distribution referred to above (without regard to any of the exceptions
there).
In
the
case of the following events (each, a Business Combination):
|
|
·
|
any
recapitalization, reclassification or change of our common shares
(other
than changes resulting from a subdivision or
combination);
|
|
|
·
|
a
consolidation, merger or combination involving us;
or
|
|
|
·
|
a
sale, conveyance or lease to another entity of all or substantially
all of
our property and assets (other than to one or more of our
subsidiaries);
|
in
each
case, as a result of which our common shareholders are entitled to receive
shares, other securities, other property or assets (including cash or any
combination thereof) with respect to or in exchange for our common shares,
a
Preferred Shareholder will be entitled thereafter to convert such Preferred
Shares into the kind and amount of shares, other securities or other property
or
assets (including cash or any combination thereof) which the Preferred
Shareholder would have owned or been entitled to receive upon such Business
Combination, except that the Preferred Shareholder will not receive the premium
received by the common shareholders if the Preferred Shareholder does not
convert its Preferred Shares in connection with the relevant fundamental
change. A conversion of the Preferred Shares will be deemed for these
purposes to be “in connection with” a Business Combination if the notice of
conversion of the Preferred Shares is received by the conversion agent (who
initially shall be the transfer agent) from and including the effective date
of
the Business Combination up to and including the date that is two trading
days
prior to the effective date of the Business Combination (such notice may
be
conditioned on the happening of the Business Combination).
In
the
event that our common shareholders have the opportunity to elect the form
of
consideration to be received in such Business Combination, we will make adequate
provision whereby the Preferred Shareholders shall have a reasonable opportunity
to determine the form of consideration into which all of the Preferred Shares,
treated as a single class, shall be convertible from and after the effective
date of such Business Combination. Such determination shall be based on the
weighted average of elections made by the Preferred Shareholders who participate
in such determination, shall be subject to any limitations to which all of
our
common shareholders are subject, such as pro rata reductions applicable to
any
portion of the consideration payable in such Business Combination, and shall
be
conducted in such a manner as to be completed by the date which is the earliest
of (1) the deadline for elections to be made by our common shareholders,
and (2)
two trading days prior to the anticipated effective date of the Business
Combination. We will provide notice of the opportunity to determine
the form of such consideration, as well as notice of the determination made
by
our Preferred Shareholders (and the weighted average of elections), by posting
such notice with DTC and providing a copy of such notice to the transfer
agent.
If the effective date of a Business Combination is delayed beyond the initially
anticipated effective date, the Preferred Shareholders will be given the
opportunity to make subsequent similar determinations in regard to such delayed
effective date. We may not become a party to any such transaction
unless its terms are consistent with the preceding. None of the foregoing
provisions shall affect the Preferred Shareholder’s right to convert the
Preferred Shareholder’s shares into our common shares prior to the effective
date.
To
the
extent permitted by law, we may, from time to time, increase the Conversion
Rate
for a period of at least 20 days if our board of trustees determines that
such
an increase would be in our best interests. Any such determination by our
board
of trustees will be conclusive. In addition, we may increase the
Conversion Rate if our board of trustees deems it advisable to avoid or diminish
any income tax to common shareholders resulting from any distribution of
common
shares or similar event. We will give the Preferred Shareholders at
least 15 trading days’ notice of any increase in the Conversion
Rate.
We
will
not adjust the Conversion Rate pursuant to these provisions to the extent
that
the adjustments would reduce the conversion price below $0.01. Nor
will we be required to make an adjustment in the Conversion Rate unless the
adjustment would require a change of at least 1% in the Conversion
Rate. However, any adjustments that are not required to be made
because they would have required an increase or decrease of less than 1%
will be
carried forward and taken into account in any subsequent adjustment of the
Conversion Rate. Except as described above in this section, we will
not adjust the Conversion Rate for any issuance of our common shares or any
securities convertible into or exchangeable or exercisable for our common
shares
or rights to purchase our common shares or such convertible, exchangeable
or
exercisable securities.
A
Preferred Shareholder may, in some circumstances, including the distribution
of
cash dividends to shareholders, be deemed to have received a distribution
or
dividend subject to U.S. federal income tax as a result of an adjustment
or the
nonoccurrence of an adjustment to the Conversion Rate. See “Federal Income Tax
Considerations” below.
Conversion
After a Public Acquirer Change of Control
In
the
event of a Public Acquirer Change of Control (as defined below), we will
adjust
the conversion rate such that, from and after the effective time of such
Public
Acquirer Change of Control, holders of the Preferred Shares will be entitled
to
convert their Preferred Shares (subject to satisfaction of the conditions
to
conversion described under “— Conversion Rights” above) into
a number of shares of Public Acquirer Common Stock (as defined below) by
multiplying the conversion rate in effect immediately before the effective
time
of the Public Acquirer Change of Control by a fraction:
|
|
·
|
the
numerator of which will be (i) in the case of a share exchange,
consolidation, merger or binding share exchange, pursuant to which
our
common shares are converted into cash, securities or other property,
the
value of all cash, securities and other property (as determined
by our
board of trustees) paid or payable per common share or (ii) in
the case of
any other Public Acquirer Change of Control, the average of the
closing
sale price of our common shares for the five consecutive trading
days
prior to but excluding the effective date of such Public Acquirer
Change
of Control; and
|
|
|
·
|
the
denominator of which will be the average of the closing sale prices
of the
public acquirer common stock for the five consecutive trading days
commencing on the trading day next succeeding the effective date
of such
Public Acquirer Change of Control.
|
A
“Public
Acquirer Change of Control” means any event constituting a fundamental change
where the acquirer (or any entity that is a directly or indirectly wholly-owned
subsidiary of the acquirer) has a class of common stock traded on a national
securities exchange or quoted on the Nasdaq Global Market or which will be
so
traded or quoted when issued or exchanged in connection with such fundamental
change or other event (the “Public Acquirer Common Stock”).
As
described under “—Conversion Rights”, holders may
convert their Preferred Shares upon a Public Acquirer Change of Control during
the period specified therein. In addition, a holder may also, subject
to certain conditions, require us to repurchase all or a portion of our
Preferred Shares as described under “—Purchase of Preferred
Shares
Upon a Fundamental Change.”
Purchase
of Preferred Shares Upon a Fundamental Change
In
the
event of a fundamental change described below, a Preferred Shareholder will
have
the right to require us to repurchase for cash all or any part of its Preferred
Shares at a purchase price equal to 100% of the liquidation preference of
the
Preferred Shares to be purchased plus accrued and unpaid dividends (including
additional dividends, if any) to, but not including, the fundamental change
purchase date.
Within
30
days after the occurrence of a fundamental change, we will provide to the
Preferred Shareholder and the transfer agent a notice of the occurrence of
the
fundamental change and of the resulting repurchase right. Such notice
will state:
|
|
·
|
the
events constituting the fundamental
change;
|
|
|
·
|
the
date of the fundamental change;
|
|
|
·
|
the
last date on which the Preferred Shareholder may exercise the repurchase
right;
|
|
|
·
|
the
repurchase price;
|
|
|
·
|
the
repurchase date;
|
|
|
·
|
the
name and address of the paying agent and the conversion
agent;
|
|
|
·
|
the
Conversion Rate;
|
|
|
·
|
that
the Preferred Shares with respect to which a repurchase notice
is given by
the Preferred Shareholder may be converted, if otherwise convertible,
only
if the repurchase notice has been properly withdrawn;
and
|
|
|
·
|
the
procedures that the Preferred Shareholder must follow to exercise
the
repurchase rights.
|
Simultaneously
with providing the Preferred Shareholder such notice, we will issue a press
release for publication on PR Newswire, Dow Jones & Company, Inc., Business
Wire or Bloomberg Business News (or, if such organizations are not in existence
at the time of issuance of such press release, such other news or press
organization as is reasonably calculated to broadly disseminate the relevant
information to the public) and publish such information on our website (the
information on which is not part of this prospectus supplement or the
accompanying prospectus).
To
exercise the purchase right, a Preferred Shareholder must deliver, on or
before
the twentieth trading day after the date of our notice of a fundamental change
(subject to extension to comply with applicable law), the Preferred Shares
to be
purchased, duly endorsed for transfer, together with a written purchase notice
and the form entitled “Form of Fundamental Change Purchase Notice” on the
reverse side of the Preferred Shares duly completed, to the paying
agent. The purchase notice will state:
|
|
·
|
the
relevant purchase date;
|
|
|
·
|
the
portion of the liquidation preference of Preferred Shares to be
purchased,
in integral multiples of $25.00;
and
|
|
|
·
|
that
the Preferred Shares are to be purchased by us pursuant to the
applicable
provisions of the Preferred Shares.
|
If
the
Preferred Shares are not in certificated form, its purchase notice must comply
with applicable DTC procedures.
A
Preferred Shareholder may withdraw any purchase notice (in whole or in part)
by
a written notice of withdrawal delivered to the paying agent prior to the
close
of business on the trading day prior to the fundamental change purchase
date. The notice of withdrawal shall state:
|
|
·
|
the
liquidation preference of the withdrawn Preferred Shares, in integral
multiples of $25.00;
|
|
|
·
|
if
certificated Preferred Shares have been issued, the certificate
numbers of
the withdrawn Preferred Shares; and
|
|
|
·
|
the
liquidation preference, if any, which remains subject to the purchase
notice.
|
If
the
Preferred Shares are not in certificated form, a Preferred Shareholder’s notice
of withdrawal must comply with applicable DTC procedures.
We
will
be required to repurchase the Preferred Shares no less than 30 days nor more
than 45 days after the date of our notice of the occurrence of the relevant
fundamental change, subject to extension to comply with applicable
law. The Preferred Shareholder will receive payment of the
fundamental change purchase price promptly following the later of the
fundamental change purchase date or the time of book-entry transfer or delivery
of the Preferred Shares. If the paying agent holds cash sufficient to pay
the
fundamental change purchase price of the Preferred Shares on the trading
day
following the fundamental change purchase date, then:
|
|
·
|
the
Preferred Shares will cease to be outstanding and dividends (including
additional dividends, if any) will cease to accrue (whether or
not
book-entry transfer of the Preferred Shares is made or whether
or not the
Preferred Shares Certificate is delivered to the paying agent);
and
|
|
|
·
|
all
of the Preferred Shareholder’s other rights will terminate (other than the
right to receive the fundamental change purchase price upon delivery
or
transfer of the Preferred Shares).
|
A
“fundamental change” will be deemed to occur upon a change of control or a
termination of trading. A “change of control” will be deemed to have occurred at
such time after the original issuance of the Preferred Shares when the following
has occurred:
1. any
“person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934) acquires the beneficial ownership, directly
or
indirectly, through a purchase, merger or other acquisition transaction or
series of transactions, of 50% or more of the total voting power of our total
outstanding voting shares other than an acquisition by us or any of our
subsidiaries;
2. we
consolidate with, or merge with or into, another person or convey, transfer,
lease or otherwise dispose of all or substantially all of our assets to any
person, or any person consolidates with or merges with or into us, other
than:
(1) any transaction (A) that does not result in any reclassification, exchange,
or cancellation of our outstanding shares and (B) pursuant to which our capital
shareholders immediately prior to the transaction have the entitlement to
exercise, directly or indirectly, 50% or more of the total voting power of
all
of our shares entitled to vote generally in the election of trustees of the
continuing or surviving person immediately after the transaction; or (2)
any
merger solely for the purpose of changing our jurisdiction of formation and
resulting in a reclassification, conversion or exchange of outstanding common
shares solely into common shares of the surviving entity; or
3. we
approve a plan of liquidation or dissolution.
Notwithstanding
the foregoing, it will not constitute a change of control if at least 90%
of the
consideration for our common shares (excluding cash payments for fractional
shares and cash payments made in respect of dissenters’ appraisal rights) in the
transaction or transactions constituting the change of control consists of
common shares traded on a U.S. national securities exchange (including the
Nasdaq Global Market), or which will be so traded or quoted when issued or
exchanged in connection with the change of control, and as a result of such
transaction or transactions the Preferred Shares become convertible solely
into
such common shares.
A
“termination of trading” is deemed to occur if our common shares (or other
common shares into which the Preferred Shares are then convertible) is neither
listed for trading on a U.S. national securities exchange nor approved for
trading on an established automated over-the-counter trading market in the
U.S.
The
definition of fundamental change includes a phrase relating to the conveyance,
transfer, sale, lease or other disposition of “all or substantially all” of our
assets. There is no precise, established definition of the phrase
“substantially all” under the laws of the Commonwealth of Massachusetts, which
govern the Preferred Shares, and our formation. Accordingly, the
Preferred Shareholder’s ability to require us to repurchase the Preferred Shares
as a result of a conveyance, transfer, sale, lease or other disposition of
less
than all of our assets may be uncertain.
In
connection with the acquisition of the Preferred Shares as a result of a
fundamental change, we will comply with all U.S. federal and state securities
laws in connection with any offer by us to repurchase the Preferred Shares
upon
such fundamental change.
This
fundamental change repurchase feature may make it more difficult or discourage
a
party from taking over our company and removing incumbent
management. We are not aware, however, of any specific effort to
accumulate our shares with the intent to obtain control of our company by
means
of a merger, tender offer, solicitation or otherwise. In addition, the
fundamental change repurchase feature is not part of a plan by management
to
adopt a series of anti-takeover provisions. Instead, the fundamental
change repurchase feature is a result of negotiations between our company
and
the underwriters.
We
could,
in the future, enter into certain transactions, including recapitalizations
that
would not constitute a fundamental change but would increase the amount of
debt
outstanding or otherwise adversely affect a Preferred
Shareholder. The incurrence of significant amounts of additional debt
could adversely affect our ability to service our debt, and to satisfy our
obligation to repurchase the Preferred Shares upon a fundamental
change.
Our
ability to repurchase Preferred Shares upon the occurrence of a fundamental
change is subject to important limitations. If a fundamental change were
to
occur, we may not have sufficient funds, or be able to arrange financing,
to pay
the fundamental change purchase price for the Preferred Shares tendered by
a
Preferred Shareholder. In addition, we may in the future incur debt that
has
similar fundamental change provisions that permit holders of such debt to
accelerate or require us to purchase such debt upon the occurrence of events
similar to a fundamental change. In addition, our ability to
repurchase Preferred Shares for cash may be limited by restrictions on our
ability to obtain funds.
We
will
not be required to repurchase the Preferred Shares upon a fundamental change
if
a third party (1) makes an offer to purchase the Preferred Shares in the
manner,
at the times and otherwise in compliance with the requirements applicable
to an
offer made by us to purchase Preferred Shares upon a fundamental change and
(2)
purchases all of the Preferred Shares validly delivered and not withdrawn
under
such offer to purchase Preferred Shares.
Transfer
and Dividend Paying Agent
Computershare
Trust Company, N.A. will act as the transfer and dividend paying agent and
registrar in respect of the Preferred Shares.
Restrictions
on Ownership
In
order
for us to qualify as a REIT, our shares must be beneficially owned by 100
or
more persons for at least 335 days of a taxable year of 12 months or during
a
proportionate part of a shorter taxable year. Also, not more
than
50%
of the number or value of the outstanding shares may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code, to include
certain exempt entities) during the last half of a taxable year or during
a
proportionate part of a shorter taxable year (other than during its first
taxable year). In order to prevent five or fewer individuals from acquiring
more
than 50% of our outstanding shares, and a resulting failure to qualify as
a
REIT, we intend to limit the ownership and transfer of shares in order to
comply
with such limitations.
Certain
transfers or purchases may be prohibited by the board of trustees to ensure
our
continued qualification as a REIT under the Code. The board of
trustees may require each proposed transferee of shares to deliver a statement
or affidavit setting forth the number of shares, if any, already owned, directly
or indirectly, by such transferee and may refuse to permit any transfer of
shares which would cause an accumulation of shares that would jeopardize
our
status as a REIT.
Our
declaration of trust provides that the board of trustees may redeem shares
in
order to maintain our REIT status. The redemption price is determined
in good faith by our independent trustees.
Our
declaration of trust provides that, subject to certain exceptions, if at
any
time, a person or entity becomes an owner of, or is deemed to own by virtue
of
the attribution provisions of the Code, more than 9.8% of our outstanding
shares, including, without limitation, our common shares and preferred shares,
then the shares most recently acquired by such person or entity which are
in
excess of the 9.8% limit (the “Excess Shares”) will have the following
characteristics:
|
|
·
|
not
have any voting rights;
|
|
|
·
|
not
be deemed outstanding for the purpose of determining a quorum at
the
annual meeting or any special meeting of shareholders or for determining
the number of outstanding shares for purposes of determining a
“majority
of the outstanding shares” in connection with a shareholders’ vote without
a meeting;
|
|
|
·
|
any
dividends or distributions with respect to the Excess Shares will
be held
by us in a savings account for the benefit of the holders of such
Excess
Shares until such time as the Excess Shares cease to be Excess
Shares;
and
|
|
|
·
|
Excess
Shares shall be deemed to have been offered for sale to us or our
designee
for a period of 120 days from the date of (i) the transfer that
created
the Excess Shares, if we had actual knowledge of the transfer or
(ii) if
we do not have actual knowledge of the transfer, the determination
by the
trustees in good faith that a transfer creating Excess Shares has
taken
place. The price for such Excess Shares shall be their fair
market value as of the date of either (i) or (ii)
above.
|
After
we
give notice of our intention to purchase the Excess Shares such shares shall
have no further rights beyond the right of the shareholder to receive payment
for them.
Any
person or entity who acquires Excess Shares is obliged to immediately give
written notice to us and provide us with any information we may request in
order
to determine the effect of the acquisition on our status as a REIT.
DESCRIPTION
OF OUR SHARES
For
a
description of certain provisions of our declaration of trust and bylaws,
see
“Description of Our Shares” in the accompanying prospectus. In
addition, the disclosure in the accompanying prospectus relating to “Trustees”
and “Responsibility of Trustees” is superseded by the sections
below.
Trustees
A
majority of our trustees must at all
times be independent trustees. Independent trustees are trustees who
are not affiliated with our Advisor, do not serve as a director or trustee
for
more than three other REITs organized by our sponsor and do not perform other
services for us, except as trustees. Our declaration of trust
requires that we have not less than three nor more than nine trustees as
fixed
from time to time by the board of trustees. On March 19, 2007, our
board of trustees passed a resolution to fix the number of trustees at
seven.
A
trustee
may be removed by a majority of the other trustees only for cause. A
trustee may be removed, with or
without
cause, by the
affirmative vote of the majority of the outstanding shares entitled to
vote. Any vacancy, except a vacancy created by the removal of a
trustee by the shareholders, may be filled by a majority of the remaining
trustees, except that independent trustees must nominate replacements for
vacancies in independent trustee positions. Vacancies caused as a
result of the removal of a trustee by the shareholders must be filled by
the
shareholders. Each trustee serves a term of one
year.
No
bond is required to secure the
performance of a trustee unless the board of trustees so provide or as required
by law. The trustees are empowered to fix the compensation of all
officers whom they select. Non-independent trustees will not be
compensated by us.
None
of our Advisor, the trustees nor
their affiliates may vote any shares held by them on matters submitted to
the
shareholders regarding the removal of or on any transaction between us and
our
Advisor, the trustees or their affiliates. Shares held by our
Advisor, the trustees and their affiliates may not be included in determining
the number of outstanding shares entitled to vote on these matters, nor in
the
shares actually voted thereon.
Responsibility
of
Trustees
The
board of trustees is responsible for
our general policies and for such general supervision and management of our
business as may be necessary to insure that such business conforms to the
provisions of our declaration of trust.
The
trustees are accountable to the
shareholders as fiduciaries and are required to perform their duties in good
faith and in a manner each trustee believes to be in our best interest and
in
the best interest of our shareholders, with such care, including reasonable
inquiry, as a prudent person in a like position would use under similar
circumstances.
Our
declaration of trust provides that
the trustees have full, absolute and exclusive power, control, management
and
authority over our assets and over our business and affairs to the same extent
as if the trustees were the sole owners thereof in their own
right. The trustees have the power to enter into commitments to make
any investment, purchase or acquisition or to exercise any power authorized
by
our declaration of trust, including the power to retain an advisor and to
delegate any of the trustees’ powers and duties to an
advisor.
The
trustees may establish written
policies on investments and borrowings and shall monitor our and our Advisor’s
administrative procedures, investment operations and performance to assure
that
such policies are carried out. A majority of our independent trustees must
approve any change in our investment policies.
FEDERAL
INCOME TAX CONSIDERATIONS
The
following discussion summarizes the material federal income tax considerations
to you as a prospective holder of Preferred Shares. The following
discussion is for general information purposes only, is not exhaustive of
all
possible tax considerations and is not intended to be and should not be
construed as tax advice. For example, this summary does not give a
detailed discussion of any state, local or foreign tax
considerations. In addition, this discussion is intended to address
only those federal income tax considerations that are generally applicable
to
all our shareholders. It does not discuss all of the aspects of
federal income taxation that may be relevant to you in light of your particular
circumstances or to certain types of shareholders who are subject to special
treatment under the federal income tax laws including, without limitation,
insurance companies, tax-exempt entities, financial institutions or
broker-dealers, foreign corporations and persons who are not citizens or
residents of the U.S.
The
information in this section is based on the Code, temporary and proposed
regulations under the Code, the legislative history of the Code, current
administrative rulings and practices of the IRS and court decisions, all
as of
the date hereof. No assurance can be given that future legislation,
regulations, administrative interpretations and court decisions will not
significantly change current law or adversely affect existing interpretations
of
current law. Any such change could apply retroactively to
transactions preceding the date of the change. In addition, we have
not received, and do not plan to request, any rulings from the IRS concerning
our tax treatment. Thus, no assurance can be provided that the
statements set forth herein (which do not bind the IRS or the courts) will
not
be challenged by the IRS or that such statements will be sustained by a court
if
so challenged.
EACH
PROSPECTIVE PURCHASER OF PREFERRED SHARES IS ADVISED TO CONSULT WITH HIS
OR HER
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF
THE
PURCHASE, OWNERSHIP AND SALE OF PREFERRED SHARES OF AN ENTITY ELECTING TO
BE
TAXED AS A REIT, INCLUDING THE FEDERAL, STATE, LOCAL AND FOREIGN AND OTHER
TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
Taxation
of our Company
General
We
elected to be taxed as a REIT under Sections 856 through 860 of the Code,
commencing with our taxable year ended December 31, 1991. We believe
that we have been organized, and have operated, in such a manner so as to
qualify for taxation as a REIT under the Code and intend to conduct our
operations so as to continue to qualify for taxation as a REIT. No
assurance, however, can be given that we have operated in a manner so as
to
qualify or will be able to operate in such a manner so as to remain qualified
as
a REIT. Qualification and taxation as a REIT depend upon our ability
to meet on a continuing basis, through actual annual operating results, the
required distribution levels, diversity of share ownership and the various
qualification tests imposed under the Code discussed below, the results of
which
will not be reviewed by counsel. Given the complex nature of the
rules governing REITs, the ongoing importance of factual determinations,
and the
possibility of future changes in our circumstances, no assurance can be given
that the actual results of our operations for any one taxable year have
satisfied or will continue to satisfy such requirements.
The
following is a general summary of the Code provisions that govern the federal
income tax treatment of a REIT and its shareholders. These provisions
of the Code are highly technical and complex. This summary is
qualified in its entirety by the applicable Code provisions, Treasury
Regulations and administrative and judicial interpretations thereof, all
of
which are subject to change prospectively or retroactively.
If
we
qualify for taxation as a REIT, we generally will not be subject to federal
corporate income taxes on our net income that is currently distributed to
shareholders. This treatment substantially eliminates the “double
taxation” (at the corporate and shareholder levels) that generally results from
investment in a corporation. However, we will be subject to federal
income tax as follows: first, we will be taxed at regular corporate rates
on any
undistributed REIT taxable income, including undistributed net capital
gains. Second, under certain circumstances, we may be subject to the
“alternative minimum tax” on our items of tax preference. Third, if
we have (a) net income from the sale or other disposition of “foreclosure
property”, which is, in general, property acquired on foreclosure or otherwise
on default on a loan secured by such real property or a lease of such property,
which is held primarily for sale to customers in the ordinary course of business
or (b) other nonqualifying income from foreclosure
property,
we will be subject to tax at the highest corporate rate on such
income. Fourth, if we have net income from prohibited transactions
such income will be subject to a 100% tax. Prohibited transactions
are, in general, certain sales or other dispositions of property held primarily
for sale to customers in the ordinary course of business other than foreclosure
property. Fifth, if we should fail to satisfy the 75% gross income
test or the 95% gross income test (as discussed below), but nonetheless maintain
our qualification as a REIT because certain other requirements have been
met, we
will be subject to a 100% tax on an amount equal to (a) the gross income
attributable to the greater of the amount by which we fail the 75% or 95%
test
multiplied by (b) a fraction intended to reflect our
profitability. Sixth, if we should fail to distribute during each
calendar year at least the sum of (a) 85% of our REIT ordinary income for
such
year, (b) 95% of our REIT capital gain net income for such year, and (c)
any
undistributed taxable income from prior periods, we would be subject to a
4%
excise tax on the excess of such required distribution over the amounts actually
distributed. Seventh, if we acquire any asset from a C corporation
(i.e., a corporation generally subject to full corporate level tax) in a
transaction in which the basis of the asset in our hands is determined by
reference to the basis of the asset (or any other property) in the hands
of the
C corporation, we would be subject to tax at the highest corporate rate if
we
dispose of such asset during the 10 year period beginning on the date that
we
acquired that asset, to the extent of such property’s “built-in gain” (the
excess of the fair market value of such property at the time of our acquisition
over the adjusted basis of such property at such time). We also will
incur a 100% excise tax on transactions with a taxable REIT subsidiary that
are
not conducted on an arm’s-length basis. Finally, if we derive “excess
inclusion income” from an interest in certain mortgage loan securitization
structures (i.e., a “taxable mortgage pool” or a residual interest in a real
estate mortgage investment conduit, or REMIC), we could be subject to corporate
level federal income tax at a 35% rate to the extent that such income is
allocable to specified types of tax-exempt shareholders known as “disqualified
organizations” that are not subject to unrelated business income
tax. See “— Taxable Mortgage Pools and Excess Inclusion Income”
below.
Requirements
for Qualification
A
REIT is
a corporation, trust or association (1) which is managed by one or more trustees
or directors, (2) the beneficial ownership of which is evidenced by transferable
shares, or by transferable certificates of beneficial interest, (3) which
would
be taxable as a domestic corporation, but for Sections 856 through 859 of
the
Code, (4) which is neither a financial institution nor an insurance company
subject to certain provisions of the Code, (5) that has the calendar year
as its
taxable year, (6) the beneficial ownership of which is held by 100 or more
persons, (7) during the last half of each taxable year not more than 50%
in
value of the outstanding stock of which is owned, directly or indirectly,
by
five or fewer individuals (as defined in the Code to include certain entities),
and (8) which meets certain other tests, described below, regarding the nature
of its income and assets. The Code provides that conditions (1)
through (5), inclusive, must be met during the entire taxable year and that
condition (6) must be met during at least 335 days of a taxable year of 12
months, or during a proportionate part of a taxable year of less than 12
months.
We
may
redeem, at our option, a sufficient number of Preferred Shares or restrict
the
transfer thereof to bring or maintain the ownership of the Preferred Shares
in
conformity with the requirements of the Code. In addition, our
declaration of trust includes restrictions regarding the transfer of our
shares
that are intended to assist us in continuing to satisfy requirements (6)
and
(7). Moreover, if we comply with regulatory rules pursuant to which
we are required to send annual letters to holders of our shares requesting
information regarding the actual ownership of our shares, and we do not know,
or
exercising reasonable diligence would not have known, whether we failed to
meet
requirement (7) above, we will be treated as having met the
requirement.
The
Code
allows a REIT to own wholly-owned subsidiaries which are “qualified REIT
subsidiaries.” The Code provides that a qualified REIT subsidiary is
not treated as a separate corporation, and all of its assets, liabilities
and
items of income, deduction and credit are treated as assets, liabilities
and
items of income, deduction and credit of the REIT. Thus, in applying
the requirements described herein, our qualified REIT subsidiaries will be
ignored, and all assets, liabilities and items of income, deduction and credit
of such subsidiaries will be treated as our assets, liabilities and items
of
income, deduction and credit.
A
REIT
may also hold any direct or indirect interest in a corporation that qualifies
as
a “taxable REIT subsidiary,” as long as the REIT’s aggregate holdings of taxable
REIT subsidiary securities do not exceed 20% of the value of the REIT’s total
assets. A taxable REIT subsidiary is a fully taxable corporation that
generally is permitted to engage in businesses, own assets, and earn income
that, if engaged in, owned, or earned by the REIT, might jeopardize REIT
status
or result in the imposition of penalty taxes on the REIT. To qualify as a
taxable REIT subsidiary, the subsidiary and the REIT must make a joint election
to treat the subsidiary as a taxable REIT
subsidiary. A
taxable REIT subsidiary also includes any corporation (other than a REIT
or a
qualified REIT subsidiary) in which a taxable REIT subsidiary directly or
indirectly owns more than 35% of the total voting power or value. A
taxable REIT subsidiary will pay tax at regular corporate income rates on
any
taxable income it earns. Moreover, the Code contains rules, including
rules requiring the imposition of taxes on a REIT at the rate of 100% on
certain
reallocated income and expenses, to ensure that contractual arrangements
between
a taxable REIT subsidiary and its parent REIT are at arm’s-length.
In
the
case of a REIT which is a partner in a partnership, Treasury Regulations
provide
that the REIT will be deemed to own its proportionate share of each of the
assets of the partnership and will be deemed to be entitled to the income
of the
partnership attributable to such share. In addition, the character of
the assets and items of gross income of the partnership will retain the same
character in the hands of the REIT for purposes of Section 856 of the Code,
including satisfying the gross income and assets tests (as discussed
below). Thus, our proportionate share of the assets, liabilities, and
items of gross income of any partnerships in which we own an interest are
treated as our assets, liabilities and items of gross income for purposes
of
applying the requirements described herein.
Taxable
Mortgage Pools and
Excess Inclusion Income
An
entity, or a portion of an entity, may be classified as a taxable mortgage
pool
under the Code if:
|
|
·
|
substantially
all of its assets consist of debt obligations or interests in debt
obligations;
|
|
|
·
|
more
than 50% of those debt obligations are real estate mortgage loans
or
interests in real estate mortgage loans as of specified testing
dates;
|
|
|
·
|
the
entity has issued debt obligations that have two or more maturities;
and
|
|
|
·
|
the
payments required to be made by the entity on its debt obligations
“bear a
relationship” to the payments to be received by the entity on the debt
obligations that it holds as
assets.
|
Under
U.S. Treasury regulations, if less than 80% of the assets of an entity (or
a
portion of an entity) consist of debt obligations, these debt obligations
are
considered not to comprise “substantially all” of its assets, and therefore the
entity would not be treated as a taxable mortgage pool.
Our
financing and securitization transactions may cause us to be treated as owning
an interest in one or more taxable mortgage pools. Where an entity,
or a portion of an entity, is classified as a taxable mortgage pool, it is
generally treated as a taxable corporation for federal income tax
purposes. However, special rules apply to a REIT, a portion of a
REIT, or a qualified REIT subsidiary that is a taxable mortgage
pool. The portion of the REIT’s assets, held directly or through a
qualified REIT subsidiary that qualifies as a taxable mortgage pool is treated
as a qualified REIT subsidiary that is not subject to corporate income tax,
and
the taxable mortgage pool classification does not affect the tax status of
the
REIT. Rather, the consequences of the taxable mortgage pool
classification would generally, except as described below, be limited to
the
REIT’s shareholders.
A
portion
of our income from a taxable mortgage pool arrangement, which might be non-cash
accrued income, or “phantom” taxable income, could be treated as “excess
inclusion income.” Excess inclusion income is an amount, with respect
to any calendar quarter, equal to the excess, if any, of (i) income allocable
to
the holder of a REMIC residual interest or taxable mortgage pool interest
over
(ii) the sum of an amount for each day in the calendar quarter equal to the
product of (a) the adjusted issue price of the REMIC residual interest at
the
beginning of the quarter multiplied by (b) 120% of the long-term federal
rate
(determined on the basis of compounding at the close of each calendar quarter
and properly adjusted for the length of such quarter). This non-cash
or “phantom” income would be subject to the distribution requirements that apply
to us and could therefore adversely affect our liquidity. See “—Distribution
Requirements.”
Under
recently issued IRS guidance, our excess inclusion income must be allocated
among our shareholders in proportion to dividends paid. We are required to
notify shareholders of the amount of “excess inclusion income” allocated to
them. A shareholder’s share of excess inclusion income (a) would not be allowed
to be offset by any losses otherwise available to the shareholder, (b) would
be
subject to tax as unrelated business taxable income in the hands of most
types
of shareholders that are otherwise generally exempt from federal income tax,
and
(c) would result in the application of U.S. federal income tax withholding
at
the maximum rate (30%),
without
reduction for any otherwise applicable income tax treaty, to the extent
allocable to most types of foreign shareholders. Tax-exempt
investors, foreign investors and taxpayers with net operating losses should
carefully consider the tax consequences described above and are urged to
consult
their tax advisors in connection with their decision to invest in the Preferred
Shares.
If
we own
less than 100% of the ownership interests in a subsidiary that is a taxable
mortgage pool, the foregoing rules would not apply. Rather, the subsidiary
would
be treated as a corporation for federal income tax purposes, and would
potentially be subject to corporate income tax. In addition, this
characterization would alter our REIT income and asset test calculations
and
could adversely affect our compliance with those requirements. We
currently do not have, and currently do not intend to form, any subsidiary
in
which we own some, but less than all, of the ownership interests that are
or
will become taxable mortgage pools, and we intend to monitor the structure
of
any taxable mortgage pools in which we have an interest to ensure that they
will
not adversely affect our status as a REIT.
Income
Tests
In
order
to maintain qualification as a REIT, we must satisfy annually certain gross
income requirements. First, at least 75% of our gross income (excluding gross
income from prohibited transactions) for each taxable year must be derived
directly or indirectly from investments relating to real property or mortgages
on real property (including “rents from real property” and, in certain
circumstances, interest) or from certain types of qualified temporary
investments. Second, at least 95% of our gross income (excluding
gross income from prohibited transactions) for each taxable year must be
derived
from such real property investments, dividends, interest and gain from the
sale
or disposition of stock or securities.
Interest
will qualify as interest on obligations secured by mortgages on real property
or
on interests in real property in satisfying the gross income requirements
for a
REIT described above only if several conditions are met. Interest on obligations
secured by mortgages on real property or on interests in real property will
be
treated as qualifying income to the extent that the fair market value of
the
property that secures the loan has a value greater than or equal to the highest
principal amount, including accrued interest, of such loan outstanding during
the REIT taxable year. To the extent the fair market value of such
property at the time of issuance and when the loan is acquired is less than
the
highest principal amount, including accrued interest, of such loan outstanding
during the REIT taxable year, only a proportionate part of the interest on
such
loan shall be treated as qualifying income. For purposes of the gross
income requirements, interest includes only amounts that represent compensation
for the use or forbearance of money, and does not include a charge for services.
Interest includes income from a REMIC, as long as at least 95% of the assets
of
the REMIC are interests in real property. If less than 95% of the
assets of a REMIC consist of real estate, income accrued by the REIT will
be
treated as interest from a mortgage in the proportion in which assets of
the
REMIC consist of real estate assets. Subject to certain exceptions,
interest does not include amounts received or accrued, directly or indirectly,
if the amount depends, in whole or in part, on the income or profits of any
person. One exception to this rule is that amounts may be based on the gross
receipts or sales of a person, and still constitute interest for these
purposes. The second exception would be available if the REIT
receives or accrues amounts that would be excluded from interest because
the
borrower receives or accrues an amount based on the income or profits of
any
person; in such case, only a proportionate part of the amount received or
accrued by the REIT is excluded from being treated as
interest. Third, if the borrower derives substantially all of its
gross income with respect to the property subject to the mortgage from the
leasing of its property to tenants, an amount based on the net income or
profits
of the borrower may be treated as interest if the borrower receives or accrues
amounts that would qualify as rents from real property had such amounts been
received by the REIT.
Rents
received by us will qualify as “rents from real property” in satisfying the
gross income requirements for a REIT described above only if several conditions
are met.
We
believe that substantially all of our interest income will be qualifying
income
under the gross income tests.
If
we
fail to satisfy one or both of the 75% or 95% gross income tests for any
taxable
year, we may nevertheless qualify as a REIT for such year if such failure
was
due to reasonable cause and not willful neglect, we disclosed the nature
and
amounts of our items of gross income in a schedule attached to our return,
and
any incorrect information on the schedule was not due to fraud with intent
to
evade tax. It is not possible, however, to state whether in all circumstances
we
would be entitled to the benefit of this relief provision. Even if
this relief provision
applied,
a 100% penalty tax would be imposed on the amount by which we failed the
75% or
95% test (whichever amount is greater), less an amount which generally reflects
expenses attributable to earning the nonqualified income.
Subject
to certain safe harbor exceptions, any gain realized by us on the sale of
any
property held as inventory or other property held primarily for sale to
customers in the ordinary course of business will be treated as income from
a
prohibited transaction that is subject to a 100% penalty tax. Such
prohibited transaction income may also have an adverse effect upon our ability
to satisfy the income tests for qualification as a REIT. Under
existing law, whether property is held as inventory or primarily for sale
to
customers in the ordinary course of a trade or business is a question of
fact
that depends on all the facts and circumstances with respect to the particular
transaction.
Asset
Tests
At
the
close of each quarter of our taxable year, we must also satisfy the following
tests relating to the nature of our assets. At least 75% of the value
of our total assets must be represented by real estate assets, including
(1) our
allocable share of mortgage and other real estate assets held by partnerships
in
which we own an interest or held by our qualified REIT subsidiaries and (2)
stock or debt instruments held for not more than one year purchased with
the
proceeds of an offering of equity securities or a long-term (at least five
years) debt offering by us, cash, cash items and government securities. In
addition, not more than 25% of our total assets may be represented by securities
other than those in the 75% asset class. Not more than 20% of the
value of our total assets may be represented by securities of one or more
taxable REIT subsidiaries (as defined under “— Requirements for
Qualification”). Except for investments included in the 75% asset
class, securities in a taxable REIT subsidiary or qualified REIT subsidiary
and
certain partnership interests and debt obligations, (1) not more than 5%
of the
value of our total assets may be represented by securities of any one issuer,
(2) we may not hold securities that possess more than 10% of the total voting
power of the outstanding securities of a single issuer and (3) we may not
hold
securities that have a value of more than 10% of the total value of the
outstanding securities of any one issuer.
We
believe that substantially all of our assets consist and, after the offering,
will consist of (1) mortgages, (2) stock or debt investments that earn qualified
temporary investment income, (3) other qualified real estate assets, and
(4)
cash, cash items and government securities. We may also invest in
securities of other entities, provided that such investments will not prevent
us
from satisfying the asset and income tests for REIT qualification set forth
above.
We
intend
to hold mezzanine loans that are secured by equity interests in non-corporate
entities that directly or indirectly own real property. However, the
IRS has issued Revenue Procedure 2003-65, which provides a safe harbor pursuant
to which a mezzanine loan to such a non-corporate entity, if it meets each
of
the requirements contained in the Revenue Procedure, will be treated by the
IRS
as a real estate asset for purposes of the REIT asset tests (described below),
and interest derived from it will be treated as qualifying mortgage interest
for
purposes of the 75% gross income test. Although the Revenue Procedure
provides a safe harbor on which taxpayers may rely, it is unclear
whether all of the mezzanine loans that we acquire will meet the literal
terms
of all of the requirements for reliance on this safe harbor.
After
initially meeting the asset tests at the close of any quarter, we will not
lose
our status as a REIT for failure to satisfy the asset tests at the end of
a
later quarter solely by reason of changes in asset values. If we
inadvertently fail one or more of the asset tests at the end of a calendar
quarter because we acquire securities or other property during the quarter,
we
can cure this failure by disposing of sufficient nonqualifying assets within
30
days after the close of the calendar quarter in which it arose.
Annual
Distribution Requirement
With
respect to each taxable year, we must distribute to our shareholders as
dividends (other than capital gain dividends) at least 90% of our taxable
income. Specifically, we must distribute an amount equal to (1) 90%
of the sum of our “REIT taxable income” (determined without regard to the
deduction for dividends paid and by excluding any net capital gain), and
any
after-tax net income from foreclosure property, minus (2) the sum of certain
items of “excess noncash income” such as income attributable to leveled stepped
rents, cancellation of indebtedness and original issue discount. REIT
taxable income is generally computed in the same manner as taxable income
of
ordinary
corporations, with several adjustments, such as a deduction allowed for
dividends paid, but not for dividends received.
We
will
be subject to tax on amounts not distributed at regular U.S. federal corporate
income tax rates. In addition, a nondeductible 4% excise tax is imposed on
the
excess of (1) 85% of our ordinary income for the year plus 95% of capital
gain
net income for the year and the undistributed portion of the required
distribution for the prior year over (2) the actual distribution to shareholders
during the year (if any). Net operating losses generated by us may be
carried forward but not carried back and used by us for 20 years to reduce
REIT
taxable income and the amount that we will be required to distribute in order
to
remain qualified as a REIT. As a REIT, our net capital losses may be
carried forward for five years (but not carried back) and used to reduce
capital
gains.
In
general, a distribution must be made during the taxable year to which it
relates
to satisfy the distribution test and to be deducted in computing REIT taxable
income. However, we may elect to treat a dividend declared and paid
after the end of the year (a “subsequent declared dividend”) as paid during such
year for purposes of complying with the distribution test and computing REIT
taxable income, if the dividend is (1) declared before the regular or extended
due date of our tax return for such year and (2) paid not later than the
date of
the first regular dividend payment made after the declaration, but in no
case
later than 12 months after the end of the year. For purposes of
computing the 4% excise tax, a subsequent declared dividend is considered
paid
when actually distributed. Furthermore, any dividend that is declared by
us in
October, November or December of a calendar year, and payable to shareholders
of
record as of a specified date in such quarter of such year will be deemed
to
have been paid by us (and received by shareholders) on December 31 of such
calendar year, but only if such dividend is actually paid by us in January
of
the following calendar year.
For
purposes of complying with the distribution test for a taxable year as a
result
of an adjustment in certain of our items of income, gain or deduction by
the
IRS, we may be permitted to remedy such failure by paying a “deficiency
dividend” in a later year together with interest and a penalty. Such
deficiency dividend may be included in our deduction of dividends paid for
the
earlier year for purposes of satisfying the distribution test. For
purposes of the 4% excise tax, the deficiency dividend is taken into account
when paid, and any income giving rise to the deficiency adjustment is treated
as
arising when the deficiency dividend is paid.
We
believe that we have distributed and intend to continue to distribute to
our
shareholders in a timely manner such amounts sufficient to satisfy the annual
distribution requirements. However, it is possible that timing
differences between the accrual of income and its actual collection, and
the
need to make non-deductible expenditures (such as principal payments on debt)
may cause us to recognize taxable income in excess of our net cash receipts,
thus increasing the difficulty of compliance with the distribution requirement.
In order to meet the distribution requirement, we might find it necessary
to
arrange for short-term, or possibly long-term, borrowings.
Failure
to Qualify
If
we
fail to qualify as a REIT for any taxable year, and if certain relief provisions
of the Code do not apply, we would be subject to federal income tax (including
applicable alternative minimum tax) on our taxable income at regular corporate
rates. Distributions to shareholders in any year in which we fail to qualify
will not be deductible by us nor will they be required to be made. As
a result, our failure to qualify as a REIT would reduce the cash available
for
distribution by us to our shareholders. In addition, if we fail to
qualify as a REIT, all distributions to shareholders will be taxable as ordinary
income, to the extent of our current and accumulated earnings and profits.
Subject to certain limitations of the Code, corporate distributees may be
eligible for the dividends-received deduction.
If
our
failure to qualify as a REIT is not due to reasonable cause but results from
willful neglect, we would not be permitted to elect REIT status for the four
taxable years after the taxable year for which such disqualification is
effective. In the event we were to fail to qualify as a REIT in one
year and subsequently requalify in a later year, we might be required to
recognize taxable income based on the net appreciation in value of our assets
as
a condition to requalification. In the alternative, we may be taxed
on the net appreciation in value of our assets if we sell assets within ten
years of the date we requalify as a REIT under federal income tax
laws.
Taxation
of Taxable U.S. Shareholders with Respect to Our Status as a
REIT
As
used
herein, the term “U.S. shareholder” means a holder of Preferred Shares who (for
U.S. federal income tax purposes) (1) is a citizen or resident of the U.S.,
(2)
is a corporation, partnership, or other entity treated as a corporation or
partnership for federal income tax purposes created or organized in or under
the
laws of the U.S. or of any political subdivision thereof (unless, in the
case of
a partnership, Treasury regulations are adopted that
provide
otherwise), (3) is an estate the income of which is subject to U.S. federal
income taxation regardless of its source or (4) is a trust whose administration
is subject to the primary supervision of a U.S. court and which has one or
more
U.S. persons who have the authority to control all substantial decisions
of the
trust or a trust that has a valid election to be treated as a U.S. person
in
effect.
As
long
as we qualify as a REIT, distributions made to our U.S. shareholders out
of
current or accumulated earnings and profits (and not designated as capital
gain
dividends) will be taken into account by them as ordinary income and corporate
shareholders will not be eligible for the dividends-received deduction as
to
such amounts. Distributions that are properly designated as capital
gain dividends will be taxed as gains from the sale or exchange of a capital
asset held for more than one year (to the extent they do not exceed our actual
net capital gain for the taxable year) without regard to the period for which
the shareholder has held its Preferred Shares. However, corporate
shareholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income under the Code.
In
determining whether a distribution is taxable as a dividend, we are required
to
allocate our current and accumulated earnings and profits first to the
distributions made with respect to our Preferred
Shares. Distributions in excess of our current and accumulated
earnings and profits will constitute a non-taxable return of capital to a
shareholder to the extent that such distributions do not exceed the adjusted
basis of the shareholder’s Preferred Shares, and will result in a corresponding
reduction in the shareholder’s basis in the Preferred Shares. Any
reduction in a shareholder’s tax basis for its Preferred Shares will increase
the amount of taxable gain or decrease the deductible loss that will be realized
upon the eventual disposition of the Preferred Shares. We will notify
shareholders at the end of each year as to the portions of the distributions
which constitute ordinary income, capital gain or a return of
capital. Any portion of such distributions that exceed the adjusted
basis of a U.S. shareholder’s Preferred Shares will be taxed as capital gain
from the disposition of Preferred Shares, provided that the Preferred Shares
are
held as capital assets in the hands of the U.S. shareholder.
Aside
from the different income tax rates applicable to ordinary income and capital
gain dividends, regular and capital gain dividends from us will be treated
as
dividend income for most other U.S. federal income tax purposes. In
particular, such dividends will be treated as “portfolio” income for purposes of
the passive activity loss limitation (including all individuals) and
shareholders generally will not be able to offset any “passive losses” against
such dividends. Dividends will be treated as investment income for
purposes of the investment interest limitation contained in Section 163(d)
of
the Code, which limits the deductibility of interest expense incurred by
noncorporate taxpayers with respect to indebtedness attributable to certain
investment assets.
In
general, dividends paid by us will be taxable to shareholders in the year
in
which they are received, except in the case of dividends declared at the
end of
the year, but paid in the following January, as discussed above.
In
general, a domestic shareholder will realize capital gain or loss on the
disposition of Preferred Shares equal to the difference between (1) the amount
of cash and the fair market value of any property received on such disposition
and (2) the shareholder’s adjusted basis of such Preferred
Shares. Such gain or loss will generally be short-term capital gain
or loss if the shareholder has not held such Preferred Shares for more than
one
year and will be long-term capital gain or loss if such Preferred Shares
have
been held for more than one year. Loss upon the sale or exchange of
Preferred Shares by a shareholder who has held such Preferred Shares for
six
months or less (after applying certain holding period rules) will be treated
as
long-term capital loss to the extent of distributions from us required to
be
treated by such shareholder as long-term capital gain.
We
may
elect to retain and pay income tax on net long-term capital gains. If
we make such an election, you, as a holder of Preferred Shares, will (1)
include
in your income as long-term capital gains your proportionate share of such
undistributed capital gains and (2) be deemed to have paid your proportionate
share of the tax paid by us on such undistributed capital gains and thereby
receive a credit or refund for such amount. As a holder of Preferred
Shares you will increase the basis in your Preferred Shares by the difference
between the amount of capital gain
included in your income and the amount of tax you are deemed to have
paid. Our earnings and profits will be adjusted
appropriately.
Any
excess inclusion income that we recognize generally will be allocated among
our
shareholders to the extent that it exceeds our undistributed REIT taxable
income
in a particular year. A shareholder’s share of excess inclusion
income would not be allowed to be offset by any net operating losses or
other
deductions otherwise available to the shareholder.
Backup
Withholding
We
will
report to our domestic shareholders and the IRS the amount of dividends paid
during each calendar year, and the amount of tax withheld, if any, with respect
thereto. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of up to 30% with respect to dividends
paid unless such holder (a) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact, or (b) provides
a
taxpayer identification number, certifies as to no loss of exemption from
backup
withholding and otherwise complies with the applicable requirements of the
backup withholding rules. Amounts withheld as backup withholding will
be creditable against the shareholder’s income tax liability. In
addition, we may be required to withhold a portion of capital gain distributions
made to any shareholders who fail to certify their non-foreign status to
us. Additional issues may arise pertaining to information reporting
and backup withholding with respect to Non-U.S. Shareholders (persons other
than
U.S. shareholders, further described below). Non-U.S. Shareholders
should consult their tax advisors with respect to any such information and
backup withholding requirements.
Taxation
of Non-U.S. Shareholders with Respect to Our Status as a
REIT
The
following discussion is only a summary of the rules governing U.S. federal
income taxation of Non-U.S. Shareholders such as nonresident alien individuals,
foreign corporations, foreign partnerships or other foreign estates or
trusts. Prospective Non-U.S. Shareholders should consult with their
own tax advisors to determine the impact of federal, state and local income
tax
laws with regard to an investment in Preferred Shares, including any reporting
requirements.
Distributions
that are not attributable to gain from sales or exchanges by us of U.S. real
property interests and not designated by us as capital gains dividends will
be
treated as dividends of ordinary income to the extent that they are made
out of
our current or accumulated earnings and profits. Such distributions
ordinarily will be subject to a withholding tax equal to 30% of the gross
amount
of the distribution unless an applicable tax treaty reduces or eliminates
that
tax. Certain tax treaties limit the extent to which dividends paid by a REIT
can
qualify for a reduction of the withholding tax on dividends. In addition,
reduced treaty rates are not available to the extent that the income allocated
to a foreign shareholder is excess inclusion income. Distributions in
excess of our current and accumulated earnings and profits will not be taxable
to a Non-U.S. Shareholder to the extent that they do not exceed the adjusted
basis of the shareholder’s Preferred Shares, but rather will reduce the adjusted
basis of such Preferred Shares. To the extent that such distributions
exceed the adjusted basis of a Non-U.S. Shareholder’s Preferred Shares, they
will give rise to tax liability if the Non-U.S. Shareholder would otherwise
be
subject to tax on any gain from the sale or disposition of his Preferred
Shares,
as described below.
For
withholding tax purposes, we are currently required to treat all distributions
as if made out of our current or accumulated earnings and profits and thus
intend to withhold at the rate of 30% (or a reduced treaty rate if applicable)
on the amount of any distribution (other than distributions designated as
capital gain dividends) made to a Non-U.S. Shareholder. Under
regulations, we would not be required to withhold at the 30% rate on
distributions we reasonably estimate to be in excess of our current and
accumulated earnings and profits. If it cannot be determined at the
time a distribution is made whether such distribution will be in excess of
current and accumulated earnings and profits, the distribution will be subject
to withholding at the rate applicable to ordinary dividends. However,
the Non-U.S. Shareholder may seek from the IRS a refund of such amounts from
the
IRS if it is subsequently determined that such distribution was, in fact,
in
excess of our current or accumulated earnings and profits, and the amount
withheld exceeded the Non-U.S. Shareholder’s U.S. tax liability, if any, with
respect to the distribution.
For
any
year in which we qualify as a REIT, distributions that are attributable to
gain
from sales or exchanges by us of U.S. real property interests will be taxed
to a
Non-U.S. Shareholder under the provisions of the Foreign Investment in Real
Property Tax Act of 1980 (“FIRPTA”). Under FIRPTA, a Non-U.S.
Shareholder is taxed as if such gain were effectively connected with a U.S.
business. However, distributions to a non-U.S. shareholder that
are attributable to our sale of real property are not subject to FIRPTA if
the
non-U.S. shareholder did not own more than 5% of the class of our shares on
which the distributions are made during the taxable year. Instead,
such a distribution will be treated as an ordinary dividend rather than as
gain
from the sale of a U.S. real property interest, and a non-U.S. shareholder
generally would be subject to withholding tax on such distribution in the
same
manner as it is subject to withholding tax on ordinary
dividends. Non-U.S. Shareholders would thus be taxed at the normal
capital gain rates applicable to U.S. shareholders (subject to applicable
alternative
minimum
tax and a special alternative minimum tax in the case of non-resident alien
individuals). Also, distributions subject to FIRPTA may be subject to
a 30% branch profits tax in the hands of a corporate Non-U.S. Shareholder
not
entitled to treaty relief or exemption. We are required by applicable
regulations to withhold 35% of any distribution that could be designated
by us
as a capital gains dividend regardless of the amount actually designated
as a
capital gain dividend. This amount is creditable against the Non-U.S.
Shareholder’s FIRPTA tax liability.
Gain
recognized by a Non-U.S. Shareholder upon a sale of Preferred Shares generally
will not be taxed under FIRPTA if we are a “domestically controlled REIT,”
defined generally as a REIT in which at all times during a specified testing
period less than 50% in value of our outstanding shares was held directly
or
indirectly by foreign persons. It is anticipated that we will
continue to be a “domestically controlled REIT” after the offering, in which
case, gains from the sale of Preferred Shares would not be subject to taxation
under FIRPTA. However, because our common shares are publicly traded,
no assurance can be given that we will continue to qualify as a “domestically
controlled REIT.” A non-U.S. shareholder that owned, actually or
constructively, 5% or less of our Preferred Shares at all times during a
specified testing period also will not incur tax under FIRPTA on gain from
the
disposition of the Preferred Shares as long as the Preferred Shares are
“regularly traded” on an established securities market. Because the Preferred
Shares will be listed on AMEX, a non-U.S. shareholder owning 5% or less of
our
Preferred Shares will not incur tax under FIRPTA on gain from the disposition
of
the Preferred Shares. If the gain on the sale of Preferred Shares
were to be subject to taxation under FIRPTA, the Non-U.S. Shareholder would
be
subject to the same treatment as U.S. Shareholders with respect to such gain
(subject to applicable alternative minimum tax, special alternative minimum
tax
in the case of nonresident alien individuals and possible application of
the 30%
branch profits tax in the case of foreign corporations) and the purchaser
would
be required to withhold and remit to the Internal Revenue Service 10% of
the
purchase price.
Gain
not
subject to FIRPTA will be taxable to a Non-U.S. Shareholder if (1) investment
in
the Preferred Shares is effectively connected with the Non-U.S. Shareholder’s
U.S. trade or business, in which case the Non-U.S. Shareholder will be subject
to the same treatment as U.S. Shareholders with respect to such gain, or
(2) the
Non-U.S. Shareholder is a nonresident alien individual who was present in
the
U.S. for 183 days or more during the taxable year and such nonresident alien
individual has a “tax home” in the U.S., in which case the nonresident alien
individual will be subject to a 30% tax on the individual’s capital
gain.
Taxation
of Tax-Exempt Shareholders with Respect to Our Status as a
REIT
Tax-exempt
entities, including qualified employee pension and profit sharing trusts
and
individual retirement accounts (“Exempt Organizations”), generally are exempt
from U.S. federal income taxation. However, they are subject to taxation
on
their unrelated business taxable income (“UBTI”). While investments in real
estate may generate UBTI, the Service has issued a published ruling to the
effect that dividend distributions by a REIT to an exempt employee pension
trust
do not constitute UBTI, provided that the Preferred Shares of the REIT are
not
otherwise used in an unrelated trade or business of the exempt employee pension
trust. Based on that ruling, amounts distributed by us to Exempt
Organizations generally should not constitute UBTI. However, if an
Exempt Organization finances its acquisition of the Preferred Shares with
debt,
a portion of its income from us, if any, will constitute UBTI pursuant to
the
“debt-financed property” rules.
Furthermore,
social clubs, voluntary employee benefit associations, supplemental unemployment
benefit trusts and qualified group legal services plans that are exempt from
taxation under paragraphs (7), (9), (17), and (20), respectively, of Code
Section 501(c) are subject to different UBTI rules, which generally will
require
them to characterize distributions from us as UBTI. In addition, a
tax-exempt shareholder’s share of any excess inclusion income that we recognize
would be subject to tax as UBTI.
In
addition, a pension trust that owns more than 10% of the Preferred Shares
is
required to treat a percentage of the dividends from us as UBTI (the “UBTI
Percentage”) in certain circumstances. The UBTI Percentage is our gross income
derived from an unrelated trade or business (determined as if we were a pension
trust) divided by our total gross income for the year in which the dividends
are
paid. The UBTI rule applies only if (i) the UBTI Percentage is at
least 5% (ii) we qualify as a REIT by reason of the modification of the 5/50
Rule that allows the beneficiaries of the pension trust to be treated as
holding
the Preferred Shares in proportion to their actuarial interests in the pension
trust and (iii) either (A) one pension trust owns more than 25% of the value
of
the Preferred Shares or (B) a group of pension trusts individually holding
more
than 10% of the value of the Preferred Shares collectively owns more than
50% of
the value of the Preferred Shares.
While
an
investment in the Preferred Shares by an Exempt Organization generally is
not
expected to result in UBTI except in the circumstances described in the
preceding paragraph, any gross UBTI that does arise from such an investment
will
be combined with all other gross UBTI of the Exempt Organization for a taxable
year and reduced by the sum of all deductions attributable to the UBTI and
$1,000. Any amount then remaining will constitute UBTI on which the
Exempt Organization will be subject to tax. If the gross income taken into
account in computing UBTI exceeds $1,000, the Exempt Organization is obligated
to file a tax return for such year on IRS Form 990-T. We, our board of trustees,
and any of our or their affiliates do not intend to undertake the preparation
or
filing of IRS Form 990-T for any Exempt Organization in connection with an
investment by such Exempt Organization in the Preferred
Shares. Generally, IRS Form 990-T must be filed with the Service by
April 15 of the year following the year in which it relates.
Taxation
of U.S. Holders with Respect to the Preferred Shares
Distributions
and Dividends
Distributions
with respect to the Preferred Shares, and distributions with respect to our
common shares received upon conversion, generally will be characterized as
dividend income when paid to the extent of our current and accumulated earnings
and profits as determined for U.S. federal income tax purposes. For
this purpose, our earnings and profits will be allocated first to our preferred
shares, including the Preferred Shares, and then to our common
shares. To the extent that the amount of a distribution with respect
to the Preferred Shares or common shares exceeds our current and accumulated
earnings and profits, such distribution will be treated first as a tax−free
return of capital to the extent of the U.S. holder’s adjusted tax basis in such
Preferred Shares or common shares, as the case may be, which reduces such
basis
dollar−for−dollar, and thereafter as capital gain. Such gain will be
long−term capital gain provided that the U.S. holder has held such Preferred
Shares or common shares, as the case may be, at the time of the distribution
for
more than one year.
Distributions
constituting dividend income received before January 1, 2011 by a non−corporate
U.S. holder in respect of the Preferred Shares and common shares generally
will
be subject to taxation at a maximum rate of 15%. Distributions on the
Preferred Shares and common shares constituting dividend income paid to U.S.
holders that are corporations generally will qualify for the dividends received
deduction, subject to applicable limitations. Each U.S. holder should
consult its tax advisor regarding the availability of the reduced dividend
tax
rate and the dividends received deduction in the light of its particular
circumstances.
An
adjustment to the conversion rate of the Preferred Shares may in some
circumstances result in the receipt of a taxable constructive
dividend.
Investors
who are U.S. corporations should be aware that under certain circumstances,
a
corporation that receives an “extraordinary dividend” (as defined in section
1059 of the Code) is required to (i) reduce its stock basis (but not below
zero)
by the portion of such dividend that is not taxed because of the dividends
received deduction and (ii) treat the non−taxed portion of such dividends as
gain from the sale or exchange of the Preferred Shares or our common shares
for
the taxable year in which such dividend is received (to the extent that the
non−taxed portion of such dividend exceeds such U.S. holder’s
basis). Non−corporate U.S. holders who receive an “extraordinary
dividend” on the Preferred Shares or common shares would be required to treat
any losses on the sale of the stock as long−term capital losses to the extent
such dividends received by them qualify for the reduced 15% tax
rate. Investors should consult their tax advisor with respect to the
potential application of the extraordinary dividend rules to an investment
in
the Preferred Shares or common shares.
Conversion
into Common Shares
Except
as
discussed below, a U.S. holder generally will not recognize (i.e. take
into account for U.S. federal income tax purposes) gain or loss upon the
conversion of the Preferred Shares, except to the extent of any cash or
common
shares received attributable to accrued, cumulated and unpaid dividends,
which
will be treated as described above under “Distributions and
Dividends.” Except as discussed below, the adjusted tax basis of
common shares received on conversion, other than common shares attributable
to
accrued, cumulated and unpaid dividends, generally will equal the adjusted
tax
basis of the Preferred Shares converted (reduced by the portion of adjusted
tax
basis allocated to any fractional common shares exchanged for cash), and
the
holding period of such common shares received on conversion generally will
include the period during which the U.S. holder held its converted Preferred
Shares prior to conversion.
A
U.S.
holder’s adjusted tax basis in any common shares received as a dividend upon
conversion will equal the fair market value of such common shares, and a
U.S.
holder’s holding period for such shares shall begin on the day after receipt
thereof.
In
the
event we permit the early conversion of the Preferred Shares, we will pay
a U.S.
holder cash and/or common shares in an amount equal to the sum of the accrued
and unpaid dividends, plus the present value of all future dividend payments
on
that U.S. holder’s Preferred Shares through and including, 2010. To
the extent we pay cash and/or common shares in respect of future dividend
payments, the U.S. federal income tax consequences of such payments to U.S.
holders is unclear.
Under
one
alternative, the cash and/or common shares received in respect of future
dividend payments could be treated as an additional payment received in
connection with the conversion of the Preferred Shares into common shares,
in
which case gain realized, if any, should be recognized by the U.S. holder
but
only to the extent of any cash received by the U.S. holder on the
conversion. For this purpose, a U.S. holder’s gain realized on the
conversion would equal the excess, if any, of the sum of the fair market
value
of our common shares and the cash received upon such conversion (other than
amounts paid for accrued but unpaid dividends) over the U.S. holder’s adjusted
tax basis in the Preferred Shares immediately prior to
conversion. Any gain recognized by the U.S. holder will be capital
gain, unless the receipt of such cash is considered to have the effect of
a
dividend as determined under section 302(a) of the Code, in which case the
gain
recognized will be taxable as a dividend to the extent of the holder’s ratable
share of our current and accumulated earnings and profits. Gain
recognized in excess of the U.S. holder’s ratable share of our current and
accumulated profits will be capital gain. To the extent the amount of
cash that the U.S. holder receives exceeds the gain realized by the U.S.
holder
upon the conversion, the excess amount would not be taxable to such U.S.
holder
but would reduce such U.S. holder’s adjusted tax basis in our common shares
received upon the conversion.
Under
another alternative, the cash and common shares paid in respect of future
dividend payments could be treated as a distribution, subject to tax as a
dividend to the extent of our current and accumulated earnings and profits
as
ordinary income. Under this characterization, the U.S. holder would
be taxable on cash and common shares received on account of future dividends
even if it realized a loss on its early conversion of the Preferred Shares
into
our common shares.
A
U.S.
holder will not be permitted to recognize any loss realized by it upon
conversion of the Preferred Shares into common shares at the time of the
conversion.
In
the
event a U.S. holder’s Preferred Shares are converted pursuant to certain other
transactions including our consolidation or merger into another person, the
tax
treatment of such a conversion will depend upon the facts underlying the
particular transaction triggering such a conversion.
Cash
received upon conversion in lieu of a fractional common share generally will
be
treated as a payment in a taxable exchange for such fractional common share,
and
gain or loss will be recognized on the receipt of cash in an amount equal
to the
difference between the amount of cash received and the adjusted tax basis
allocable to the fractional common share deemed exchanged.
Each
U.S.
holder should consult its tax advisor to determine the specific tax treatment
in
light of its particular circumstances of a conversion of the Preferred Shares
into common shares.
Adjustment
of Conversion Rate
A
U.S.
holder’s right to receive a greater number of our common shares under certain
circumstances, as compared to the common shares that such holder would receive
upon conversion under other circumstances (e.g., the amount of common
shares received at the mandatory conversion may be higher than the amount
of
common shares that would be receivable upon an early conversion), could be
viewed as a constructive distribution of shares to such U.S. holder under
section 305 of the Code, which, if so treated, would be subject to tax as
a
dividend to the extent of our current and accumulated earnings and profits
even
though no cash or property had been distributed to the U.S.
holder. While the matter is not free from doubt due to lack of
authority directly on point, we intend to take the position that such a right
on
the part of the holder of the Preferred Shares to receive a greater number
of
common shares, as described in this paragraph, should not result in a
constructive distribution of shares.
In
addition, under certain circumstances, adjustments (or failure to make
adjustments) to the conversion rate of the Preferred Shares may result in
constructive distributions under section 305(c) of the Code to the holders
of
the Preferred Shares includable in income to the extent of our current and
accumulated earnings and profits. However, under applicable
authorities, an adjustment to the conversion rate made pursuant to a bona
fide
reasonable adjustment formula that has the effect of preventing the dilution
of
the interest of a U.S. holder generally will not be considered to result
in a
constructive distribution of shares. Such authorities do not exempt
adjustments to take account of distributions of cash or property with respect
to
other classes of shares. Thus, under certain circumstances, a U.S.
holder may recognize income in the event of a constructive distribution even
though the U.S. holder will not receive any cash or property.
Sales,
Exchange or Other Taxable Dispositions
A
U.S.
holder generally will recognize capital gain or loss on a sale, exchange
(other
than the conversion, which is discussed above) or other taxable disposition
of
the Preferred Shares or our common shares equal to the difference between
the
amount realized upon the sale, exchange or other taxable disposition (not
including any proceeds attributable to any declared accrued but unpaid
dividends, which will be taxable as described above to U.S. holders of record
who have not previously included such dividends in income) and the U.S. holder’s
adjusted tax basis in the shares sold or exchanged. Such capital gain or
loss
generally will be long−term capital gain or loss if the U.S. holder’s holding
period for the shares sold or exchanged is more than one
year. Long−term capital gains of noncorporate taxpayers generally are
taxed at a maximum tax rate of 15%. The deductibility of net capital
losses is subject to limitations.
Information
Reporting and Backup Withholding on U.S. Holders
Certain
U.S. holders may be subject to backup withholding with respect to the payment
of
dividends on the Preferred Shares or common shares and certain payments of
proceeds on the sale or redemption of the Preferred Shares or common shares
unless such U.S. holders provide proof of an applicable exemption or a correct
taxpayer identification number, and otherwise comply with applicable
requirements of the backup withholding rules.
Backup
withholding is not an additional tax. If backup withholding applies
to a U.S. Holder, it may use the amounts withheld as a refund or credit against
its U.S. federal income tax liability, as long as it timely provides certain
information to the IRS.
Taxation
of Non−U.S. Holders with Respect to the Preferred Shares
Distributions
and Dividends
Generally,
dividends (including any constructive distributions taxable as dividends
and any
cash or common shares paid upon conversion of the Preferred Shares that is
treated as a dividend as described above) paid to a non−U.S. holder with respect
to the Preferred Shares or our common shares will be subject to a 30% U.S.
withholding tax, or such lower rate as may be specified by an applicable
income
tax treaty, unless (i) a lower rate is specified by an applicable income
tax
treaty and the non−U.S. holder provides proper documentation certifying
eligibility for treaty benefits (e.g., on an IRS Form W−8BEN or
applicable substitute form) or (ii) such dividends are effectively connected
with a trade or business carried on by the non−U.S. holder within the U.S. and
the non−U.S. holder provides an IRS Form W−8ECI or applicable substitute
form. Dividends effectively connected with such trade or business,
and, if a treaty applies, attributable to a permanent establishment or fixed
base maintained by such non−U.S.
holder in the U.S. will be subject to regular U.S. federal income tax on
the
dividends in the same manner as if the non−U.S. holder were a U.S.
person. If dividends are effectively connected with a trade or
business of a non−U.S. holder that is a corporation, such corporation may be
subject to a “branch profits tax” at a 30% rate (or such lower rate as may be
specified by an applicable income tax treaty) subject to certain
adjustments.
Conversion
into Common Shares
A
non−U.S. holder will not recognize any gain or loss in respect of the receipt
of
cash or common shares upon the mandatory conversion of the Preferred Shares,
except that common shares received that are attributable to accrued, cumulated
and unpaid dividends will be treated as described above under “Distributions and
Dividends.”
Sales,
Exchanges or Other Dispositions
A
non−U.S. holder generally will not be subject to U.S. federal income or
withholding tax on gain realized on the sale, exchange or other taxable
distribution of the Preferred Shares or our common shares so long
as:
|
|
·
|
the
gain is not effectively connected with a trade or business carried
on by
the non−U.S. holder within the U.S. (or, if an income tax treaty applies,
the gain is not attributable to a U.S. permanent establishment
or fixed
base maintained by such non−U.S. holder in the
U.S.);
|
|
|
·
|
in
the case of a non−U.S. holder that is an individual, such holder is not
present in the U.S. for 183 or more days in the taxable year of
the sale
or disposition; and
|
|
|
·
|
we
are not and have not been a U.S. real property holding corporation
for
U.S. income tax purposes at any time during the five−year period preceding
such sale or other disposition.
|
We
believe that we have not been and are not currently a U.S. real property
holding
corporation, and we do not expect to become one in the future based on
anticipated business operations, however no assurances can be provided in
this
regard.
Information
Reporting and Backup Withholding on Non−U.S. Holders
We
must
report annually to the IRS and to each non−U.S. holder the amount of dividends
paid to such holder and the tax withheld with respect to such dividends,
regardless of whether withholding was required. Copies of the
information returns reporting such dividends and withholding may also be
made
available under the provisions of an applicable income tax treaty or agreement
to the tax authorities in the country in which the non−U.S. holder resides. U.S.
backup withholding (currently at a rate of 28%) generally will apply on payment
of dividends to a non−U.S. holder unless such non−U.S. holder furnishes to the
payor an IRS Form W−8BEN (or other applicable form), or otherwise establishes an
exemption.
Payment
by a U.S. office of a broker of the proceeds of a sale of our common shares
is
subject to both backup withholding and information reporting unless the non−U.S.
holder, or beneficial owner thereof, as applicable, certifies that it is
a
non−U.S. holder on IRS Form W−8BEN (or other applicable form), or otherwise
establishes an exemption. Payments of the proceeds from the sale by a
Non−U.S. Holder of our common shares made to or through a foreign office of a
broker generally will not be subject to information reporting or backup
withholding. However, information reporting requirements (but not backup
withholding) generally will apply to a payment made outside the U.S. of the
proceeds of a sale of our common shares through an office outside the U.S.
of a
broker (i) that is a U.S. person, (ii) 50% or more of the gross income of
which
for a specified three−year period is effectively connected with the conduct of a
trade or business in the U.S., (iii) that is a “controlled foreign corporation”
or (iv) that is a foreign partnership, if at any time during its tax year,
one
or more of its partners are U.S. persons (as defined in U.S. Treasury
regulations) who in the aggregate hold more than 50% of the income or capital
interest in the partnership or if, at any tie during its tax year, such foreign
partnership is engaged in a U.S. trade or business, unless the broker has
documentary evidence in its files that the holder or beneficial owner is
a
non−U.S. Holder or the holder or beneficial owner otherwise establishes an
exemption.
Backup
withholding is not an additional tax. Any amount withheld under the backup
withholding rules from a payment to a holder is allowable as a credit against
such holder’s U.S. federal income tax, which may entitle the holder to a refund,
provided that the holder timely provides the required information to the
IRS.
Each
prospective non−U.S. holder of the Preferred Shares or common shares should
consult their tax advisor with respect to the federal, state, local and foreign
tax consequences of the acquisition, ownership and disposition of the Preferred
Shares and common shares.
The
underwriters named below are acting through their representatives, Sterne,
Agee
& Leach, Inc. and Boenning & Scattergood, Inc. Subject to the
terms and conditions set forth in the underwriting agreement, we have agreed
to
sell to the underwriters, and the underwriters have agreed to purchase, the
number of Preferred Shares set forth below opposite their names. The
underwriting agreement provides that the obligation of the underwriters to
pay
for and accept delivery of the Preferred Shares is subject to certain
conditions.
|
Underwriters
|
Number
of Shares
|
|
Sterne,
Agee & Leach,
Inc.
|
|
|
Boenning
& Scattergood,
Inc.
|
|
|
Total
|
We
have
granted the underwriters an option exercisable during the 30-day period after
the date of this prospectus supplement to purchase from us, at the public
offering price less an underwriting discount, up to 210,000 Preferred Shares
for
the sole purpose of covering over-allotments, if any. To the extent
that the underwriters exercise the option, each underwriter will be committed,
subject to certain conditions, to purchase that number of additional Preferred
Shares that is proportionate to such underwriter’s initial
commitment.
Under
the
terms and conditions of the underwriting agreement, the underwriters are
committed to purchase all of the Preferred Shares offered by this prospectus
supplement, other than the shares subject to the over-allotment option, if
any
are purchased. We have agreed to indemnify the underwriters against
certain civil liabilities under the Securities Act of 1933, as amended, or
the
Securities Act, or to contribute to payments the underwriters may be required
to
make in respect of such liabilities. We also have agreed to reimburse
the underwriters for their reasonable out-of-pocket expenses in connection
with
this offering, including reimbursement of certain legal fees and
expenses.
The
underwriters initially propose to offer the Preferred Shares 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 offering price less
a
concession not to exceed
$ per share. The
underwriters may allow, and such dealers may reallow, a concession not to
exceed
$ per share to certain other
dealers. If all of the Preferred Shares are not sold at the public
offering price, the underwriters may change the public offering price and
the
other selling terms.
The
following table provides information regarding the per share and total
underwriting discount we will pay to the underwriters. These amounts
are shown assuming both no exercise and full exercise of the underwriters’
option to purchase from us up to an additional 210,000 Preferred Shares to
cover
over-allotments.
|
Per
Share
|
No
Exercise
|
Full
Exercise
|
||||||||||
|
Public
offering
price
|
$ |
25.00
|
$ | $ | ||||||||
|
Underwriting
Discount (1)
|
$ | $ | $ | |||||||||
|
Proceeds
to us, before
expenses
|
$ | $ | $ | |||||||||
__________
(1)
Centerline or one of its subsidiaries will purchase 280,000 of the Preferred
Shares in this offering, at the $25.00 offering price. We will
receive all of the proceeds from the sale of these Preferred Shares because
we
will not be required to pay an underwriting discount to the underwriters
with
respect to these shares.
The
expenses of this offering, not including the underwriting discount, are
estimated at $ and are payable by
us.
We
have
agreed, subject to limited exceptions, that we will not offer, sell, contract
to
sell or otherwise dispose of, any of our preferred securities that are
substantially similar to the Preferred Shares, including but not limited
to any
securities that are convertible into or exchangeable for, or that represent
the
right to receive, any such substantially similar securities without the prior
written consent of the representatives for a period of
90 days after the delivery date of the Preferred
Shares.
We
intend
to file an application to list the Preferred Shares on the AMEX under the
symbol
“AMC.PrA.” We expect trading of the Preferred Shares on the AMEX, if
listing is approved, to commence within 30 days after
the
initial delivery of the Preferred Shares. The underwriters have
advised us that they intend to make a market in the shares prior to the
commencement of trading on the AMEX. The underwriters will have no
obligation to make a market in the Preferred Shares, however, and may cease
marketing activities, if commenced, at any time.
In
connection with this offering, the underwriters may purchase and sell the
Preferred Shares in the open market. These transactions may include
short sales, stabilizing transactions and purchases to cover positions created
by short sales. Short sales involve the sale by the underwriters of a
greater number of shares than they are required to purchase in this offering.
“Covered” short sales are sales made in an amount not greater than the
underwriters’ option to purchase additional shares from us in this
offering. The underwriters may close out any covered short position
by either exercising their option to purchase additional shares or purchasing
shares in the open market. In determining the source of shares to
close out the covered short position, the underwriters will consider, among
other things, the price of shares available for purchase in the open market
as
compared to the price at which they may purchase shares through the
over-allotment option. “Naked” short sales are any sales in excess of
such option. The underwriters must close out any naked short position
by purchasing shares in the open market. A naked short position is
more likely to be created if the underwriters are concerned that there may
be
downward pressure on the price of the Preferred Shares in the open market
after
pricing that could adversely affect investors who purchase in the public
offering. Stabilizing transactions consist of various bids for or
purchases of the Preferred Shares made by the underwriters in the open market
prior to the completion of this offering.
The
underwriters may also impose a penalty bid. A penalty bid occurs when
a particular underwriter repays to the representative a portion of the
underwriting discount received by it because the representative has repurchased
shares sold by or for the account of such underwriter in stabilizing or short
covering transactions.
Purchases
to cover a short position and stabilizing transactions may have the effect
of
preventing or retarding a decline in the market price of the Preferred Shares
and, together with the imposition of the penalty bid, may stabilize, maintain
or
otherwise affect the market price of the Preferred Shares. As a
result, the price of the Preferred Shares may be higher than the price that
otherwise might exist in the open market. If these activities are
commenced, they may be discontinued at any time.
Any
of
these activities may stabilize or maintain the market price of the Preferred
Shares above independent market levels. These transactions may be
effected on the AMEX or in the over-the-counter market or
otherwise. The underwriters are not required to engage in these
activities and may end any of these activities at any time.
The
underwriters have informed us that they do not intend to confirm sales of
the
Preferred Shares offered by this prospectus supplement to any accounts over
which they exercise discretionary authority.
A
prospectus supplement and accompanying prospectus in electronic format may
be
made available on the websites of, or through other online services maintained
by, one or more of the underwriters participating in this offering, or by
their
affiliates. In those cases, prospective investors may view offering
terms online and, depending upon the particular underwriter, prospective
investors may be allowed to place orders online.
The
underwriters may agree with us to allocate a specific number of shares for
sale
to online brokerage account holders. Any such allocation for online
distributions will be made by the underwriters on the same basis as other
allocations. Other than this prospectus supplement and the
accompanying prospectus in electronic format, the information on any
underwriter’s website and any information contained on any other website
maintained by an underwriter is not part of this prospectus supplement and
the
accompanying prospectus or the registration statement of which this prospectus
supplement and the accompanying prospectus form a part, has not been approved
and/or endorsed by us or any underwriter in its capacity as underwriter and
should not be relied upon by investors.
The
underwriters or their affiliates from time to time provide and may in the
future
provide investment banking, commercial banking and financial advisory services
to us, for which they have received and may receive customary
compensation.
The
validity of our securities offered in this prospectus supplement and
accompanying prospectus will be passed upon for us by Paul, Hastings, Janofsky
& Walker, LLP, New York, New York. Selected legal matters related
to Massachusetts law will be passed upon for us by Riemer & Braunstein LLP,
Boston, Massachusetts. Certain legal matters relating to this offering will
be
passed upon for the underwriters by Hunton & Williams LLP.
The
financial statements and schedules and management’s report on the effectiveness
of internal control over financial reporting incorporated by reference in
this
prospectus supplement and the accompanying prospectus have been audited by
Deloitte & Touche LLP, an independent registered public accounting firm, to
the extent and for the periods set forth in their reports incorporated herein
by
reference, and are incorporated herein in reliance upon such reports given
upon
the authority of said firm as experts in auditing and accounting.
We
are
subject to the informational requirements of the Securities Exchange Act
of
1934, as amended, and, in accordance therewith, file annual, quarterly and
current reports, proxy statements and other information with the
SEC. You may read and copy any reports, proxy statements or other
information filed by us at the Public Reference Room maintained by the SEC
at
100 F Street, N.E., Washington, D.C. 20549. You can obtain information
on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. You can obtain copies of this material by mail from
the Public Reference Room of the SEC at 100 F Street, N.E.,
Washington, D.C. 20549, at prescribed rates. You can also obtain such
reports, proxy statements and other information from the web site that the
SEC
maintains at http://www.sec.gov.
Reports,
proxy statements and other information concerning us may also be obtained
electronically at our website, http://www.americanmortgageco.com, and
through a variety of databases, including, among others, the SEC’s Electronic
Data Gathering and Retrieval (EDGAR) program, Knight-Ridder Information Inc.,
Federal Filing/ Dow Jones and Lexis/Nexis. The information contained
on our website or any other website is not a part of this prospectus supplement
or the accompanying prospectus.
The
SEC
allows us to “incorporate by reference” the information we file with them, which
means:
|
|
·
|
Incorporated
documents are considered part of this prospectus supplement and
the
accompanying prospectus;
|
|
|
·
|
We
can disclose important information to you by referring you to those
documents; and
|
|
|
·
|
Information
that we file with the SEC will automatically update and supersede
this
prospectus supplement and the accompanying
prospectus.
|
We
incorporate by reference the documents listed below which were filed with
the
SEC under the Securities Exchange Act of 1934, as amended, except
for any
document or portion thereof “furnished” to the SEC:
|
|
·
|
our
Annual Report on Form 10-K for the year ended December 31,
2006;
|
|
|
·
|
our
Quarterly Report on Form 10-Q for the quarter ended March 31,
2007;
|
|
|
·
|
our
Current Reports on Form 8-K filed on February 16, 2007, March 20,
2007
(regarding the resignation of a trustee), March 23, 2007, April
9, 2007,
June 18, 2007 and July 5, 2007; and
|
|
|
·
|
our
Definitive Proxy Statement on Schedule 14A, filed on April 23,
2007.
|
We
also
incorporate by reference all documents that we will file with the SEC after
the
date of this prospectus supplement but before the end of the offering pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act between the date
of this prospectus and the termination of this offering. Any
statement herein or in a document incorporated or deemed to be incorporated
herein by reference shall be deemed to be modified or superseded for purposes
of
this prospectus supplement and the accompanying prospectus to the extent
that
a
statement
contained in any subsequently filed document, which also is incorporated
or
deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
prospectus supplement or the accompanying prospectus.
We
will
provide you with a copy of any or all documents that are incorporated herein
by
reference upon an oral or written request. Such documents will be
provided to you free of charge, but will not contain any exhibits, unless
those
exhibits are incorporated by reference into the document. Requests
should be addressed to Brenda Abuaf, American Mortgage Acceptance Company,
625 Madison Avenue, New York, New York 10022, telephone number (212)
317-5700.
$200,000,000
AMERICAN
MORTGAGE ACCEPTANCE COMPANY
___________________________
Common
Shares of Beneficial Interest and
Preferred
Shares of Beneficial Interest
We
are
American Mortgage Acceptance Company, a business trust formed under the laws
of
the Commonwealth of Massachusetts. This prospectus relates to the public
offer
and sale of our common and preferred shares of beneficial interest which
we may
offer from time to time in one or more series, with an aggregate public offering
price of up to $200,000,000. Our shares may be offered, separately or
together, in separate series and in amounts, at prices and on terms to be
determined at the time of the offering of our shares.
The
specific terms of our shares in respect of which this prospectus is being
delivered will be set forth in one or more supplements to this prospectus
and
will include, in the case of preferred shares, the number of preferred shares,
the specific title and stated value, any distribution, liquidation, redemption,
conversion, voting and other rights, and any public offering price, and in
the
case of common shares, the number of common shares and the terms of the offering
and sale. The supplement to this prospectus will also contain
information, where appropriate, about the risk factors and federal income
tax
considerations relating to, and any listing on a securities exchange of,
our
shares.
Our
shares may be offered directly, through agents designated from time to time
by
us, or to or through underwriters or dealers. If any agents or
underwriters are involved in the sale of any of our shares, their names,
and any
applicable purchase price, fee, commission or discount arrangement between
or
among them, will be set forth, or will be calculable from the information
set
forth in the applicable supplement to this prospectus. See "Plan of
Distribution". No shares may be sold without delivery of the
applicable supplement to this prospectus describing the method of distribution
and terms of such shares.
Our
common shares are traded on the American Stock Exchange under the symbol
"AMC".
____________________________________
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
____________________________________
The
date of this prospectus is October 8, 2002
TABLE
OF CONTENTS
PAGE
|
OUR
COMPANY
|
1
|
|
DESCRIPTION
OF OUR SHARES
|
2
|
|
USE
OF PROCEEDS
|
10
|
|
PLAN
OF DISTRIBUTION
|
10
|
|
RATIO
OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERENCE
DIVIDENDS
|
11
|
|
EXPERTS
|
11
|
|
LEGAL
MATTERS
|
11
|
|
WHERE
YOU CAN FIND MORE INFORMATION
|
11
|
|
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
|
12
|
FORWARD-LOOKING
INFORMATION
Certain
information both included and incorporated by reference in this prospectus
may
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities and Exchange Act
of
1934 and as such may involve known and unknown risks, uncertainties and other
factors which may cause our actual results, performance or achievements to
be
materially different from future results, performance or achievements expressed
or implied by such forward-looking statements. Forward-looking
statements, which are based on certain assumptions and describe our future
plans, strategies and expectations are generally identifiable by use of the
words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,”
“intend” or “project” or the negative thereof or other variations thereon or
comparable terminology. Factors which could have a material adverse
effect on the operations and future prospects of our Company include, but
are
not limited to those set forth under the heading “Risk Factors” in any
supplement to this prospectus. These risks and uncertainties should
be considered in evaluating any forward-looking statements contained or
incorporated by reference herein.
Throughout
this prospectus, the terms “Company,” “we,” “our” and “us,” are all used in
reference to American Mortgage Acceptance Company and our subsidiaries, except
as the context otherwise requires. Additionally, the term “shares” is
used in reference to our common and preferred shares of beneficial interest
to
which this prospectus, and any supplement thereto relates.
We
are
American Mortgage Acceptance Company, a business trust formed in June 1991
under
the laws of the Commonwealth of Massachusetts. We have elected to be
treated as a real estate investment trust (“REIT”) under the Internal Revenue
Code (the “Code”). From formation until April 1999, we were a closed-end,
finite-life REIT not permitted to finance or invest beyond the proceeds raised
in our initial public offering. In April 1999, we reorganized the
Company into an open-ended, infinite life REIT authorized to issue debt and
equity securities and make a broader range of investments. Also in
April 1999, we changed our name from American Mortgage Investors Trust to
American Mortgage Acceptance Company. Our shares of beneficial interest began
trading on the American Stock Exchange on July 1, 1999 under the symbol
“AMC”.
We
are a
REIT that seeks asset diversification, capital appreciation and income for
distributions to our shareholders primarily through the acquisition and
origination of both government insured and uninsured mortgages secured by
multifamily properties. These investments may take the
form of government insured first mortgages and uninsured mezzanine loans,
construction loans and bridge loans. We have also indirectly invested
in subordinate commercial mortgage-backed securities and may invest in other
real estate assets.
We
finance the acquisition of our assets primarily through borrowing at short
term
rates using demand repurchase agreements. Under our declaration of trust,
we may
incur permanent indebtedness of up to 50% of our total market value calculated
at the time the debt is incurred. Permanent indebtedness and working capital
indebtedness may not exceed 100% of our total market value. Our declaration
of
trust provides that we may not change our policy regarding indebtedness without
the consent of a majority in interest of our shareholders.
We
have
engaged Related AMI Associates, Inc., which we refer to as our “Advisor,” to
manage our day-to-day affairs. Our Advisor has subcontracted its management
obligations to its affiliate, Related Capital Company, the nation’s largest
non-agency financier of affordable multifamily housing. The management team
responsible for our day-to-day affairs has an average of 12 years of experience
with Related Capital and an average of 20 years experience in the real estate
industry.
We
have
elected to be treated as a REIT for federal income tax purposes. This treatment
permits us to deduct dividend distributions to our shareholders for federal
income tax purposes, thus effectively eliminating the “double taxation” that
generally results when a corporation earns income and distributes that income
to
its shareholders by way of dividends. In order to maintain our status as
a REIT,
we must comply with a number of requirements under federal income tax
law. See “Risk Factors” and “Certain Federal Income Tax
Considerations” in the supplement relating to this prospectus.
We
are
not registered under the Investment Company Act of 1940, as amended (the
“Investment Company Act”) and believe that we are not required to so
register. If we were required to become registered, we would not be
able to conduct our activities as we currently conduct them. We at
all times intend to conduct our activities so as not to become regulated
as an
investment company under the Investment Company Act. Additional
information regarding this risks associated with the failure to qualify for
an
exemption may be found in the applicable supplement to this
prospectus.
In
considering whether to purchase our shares, you should also carefully consider
the matters discussed under “Risk Factors” in the supplement relating to this
prospectus.
Our
principal executive offices are located at 625 Madison Avenue, New York,
New
York 10022. Our phone number is (212) 421-5333.
The
following description of our shares does not purport to be complete and is
qualified in its entirety by reference to applicable Massachusetts law, and
to
provisions of our declaration of trust, as amended and restated, copies of
which
are exhibits to the registration statement of which this prospectus is a
part. See “Where you can find more information.”
Overview
This
prospectus relates to the offer and sale from time to time of common shares
and/or preferred shares, which may be issued in one or more series, with
an
aggregate public offering price of up to $200,000,000, in amounts, at prices
and
on terms to be determined at the time of the offering.
Our
authorized capital consists of 25,000,000 shares of beneficial interest,
par
value $0.10 per share. All of our authorized and issued capital is designated
as
common shares. We have not designated any of our shares of beneficial interest
as preferred shares. As of April 30, 2002, we had 6,363,630 outstanding common
shares. In addition, we have reserved 383,863 common shares for issuance
under
our Incentive Share Option Plan. We may sell and issue as many shares of
beneficial interest as the trustees determine in their sole discretion. A
majority of the trustees, including a majority of the independent trustees,
are
authorized to determine from time to time the number of authorized shares
that
will be sold and issued. The Board of Trustees may classify any unissued
shares
in one or more classes or series of beneficial interests.
Subject
to the American Stock Exchange rules which require shareholder approval for
certain issuances of securities, we may issue shares from time to time in
one or
more series, generally without shareholder approval, with such preferences,
conversion and other rights, voting powers, restrictions, limitations as
to
distributions, qualifications and terms and conditions of redemption as are
permitted by Massachusetts law and as established by our Board of
Trustees.
The
following description sets forth certain general terms and provisions of
our
shares to which a supplement to this prospectus may relate. The
particular terms of the shares being offered and the extent to which such
general provisions may apply will be described in the applicable supplement
to
this prospectus relating to such shares. If so indicated in the
applicable supplement to this prospectus, the terms of any series of shares
may
differ from the terms set forth below, except those terms required by our
declaration of trust. The statements below describing our shares are
subject to and qualified by reference to the applicable provisions of our
declaration of trust.
General
Description of our Common Shares
General. Unless
otherwise provided for in the applicable supplement to this prospectus, our
common shares have equal voting, dividend, distribution, liquidation, redemption
and other rights and have one vote per share on all matters submitted to
a vote
of the shareholders. Common shares will be validly issued, fully paid
and non-assessable by us or on our behalf upon receipt of full consideration
for
which they have been issued or without additional consideration if issued
by way
of share dividend, share split, or upon the conversion of convertible debt,
and
will not be subject to redemption by us (except in the case of a redemption
to
prevent a violation of the concentration of ownership provisions of the Code
applicable to REITs). Unless otherwise permitted by the Board of
Trustees, the common shares do not entitle the shareholders to preference,
preemptive, appraisal, conversion or exchange rights of any kind.
Distributions.
Except as otherwise provided, our common shareholders are entitled to receive
distributions, when and as authorized by our Board of Trustees, out of legally
available funds. Distributions will be made at such rates and on such
dates as will be set forth in the applicable supplement to this
prospectus.
Voting
Rights. Except as otherwise provided, all common shares shall
have equal voting rights. Shareholders do not have cumulative voting
rights. Excess Shares are not entitled to any voting rights and are
not considered outstanding for the purpose of determining a quorum.
Registrar
and Transfer Agent. The registrar and transfer agent for our
common shares will be set forth in the applicable supplement to this
prospectus.
General
Description of our Preferred Shares
General. Subject
to limitations prescribed by Massachusetts law and our declaration of trust,
our
Board of Trustees is authorized to fix the number of shares constituting
each
series of preferred shares and the designations and terms, preferences, and
relative, participating, optional or other special rights and qualifications,
limitations or restrictions thereof, including such provisions as may be
desired
concerning voting, redemption, distributions, dissolution or the distribution
of
assets, conversion or exchange, and such other subjects or matters as may
be
fixed by resolution of our Board of Trustees or a duly authorized committee
thereof. The preferred shares will, when issued, be fully paid and
non assessable and, if so provided in a supplement to this prospectus, will
have
no preemptive rights.
As
of the
date of this prospectus, we have not designated any of our shares of beneficial
interest as preferred shares. The Board of Trustees may classify any
unissued preferred shares of beneficial interest and reclassify any previously
classified but unissued preferred shares of any series from time to time,
in one
or more series of shares. Reference is made to any supplement to this prospectus
relating to the preferred shares offered thereby for specific items,
including:
|
|
·
|
The
title and stated value of such preferred
shares;
|
|
|
·
|
The
number of shares of such preferred shares offered, the liquidation
preference per share and the offering price of such preferred
shares;
|
|
|
·
|
The
distribution rate(s), period(s), and/or payment date(s) or method(s)
of
calculation thereof applicable to such preferred
shares;
|
|
|
·
|
The
date from which distributions on such preferred shares shall accumulate,
if applicable;
|
|
|
·
|
The
procedures for any auction and remarketing, if any, for such preferred
shares;
|
|
|
·
|
The
provisions for a sinking fund, if any, for such preferred
shares;
|
|
|
·
|
The
provision for redemption, if applicable, of such preferred
shares;
|
|
|
·
|
Any
listing of such preferred shares on any securities
exchange;
|
|
|
·
|
The
terms and conditions, if applicable, upon which such preferred
shares will
be convertible into common shares, including the conversion price
(or
manner of calculation thereof);
|
|
|
·
|
A
discussion of federal income tax considerations applicable to such
preferred shares;
|
|
|
·
|
The
relative ranking and preferences of such preferred shares as to
distribution rights (including whether any liquidation preference
as to
the preferred shares will be treated as a liability for purposes
of
determining the availability of assets for distributions to holders
of
shares ranking junior to the preferred shares as to distribution
rights)
and rights upon our liquidation or winding up of our
affairs;
|
|
|
·
|
Any
limitations on issuance of any series of preferred shares ranking
senior
to or on a parity with such series of preferred shares as to distribution
rights and rights upon the liquidation, dissolution or winding
up of our
affairs; and
|
|
|
·
|
Any
other specific terms, preferences, rights, limitations or restrictions
of
such preferred shares.
|
Rank. Unless
otherwise indicated in the applicable supplement to this prospectus, our
preferred shares rank, with respect to payment of distributions and rights
upon
our liquidation, dissolution or winding up, and allocation of our earnings
and
losses:
|
|
·
|
senior
to all classes or series of common shares, and to all equity securities
ranking junior to such preferred
shares;
|
|
|
·
|
on
a parity with all equity securities issued by us, the terms of
which
specifically provide that such equity securities rank on a parity
with the
preferred shares; and
|
|
|
·
|
junior
to all equity securities issued by us, the terms of which specifically
provide that such equity securities rank senior to the preferred
shares.
|
Distributions. Subject
to any preferential rights of any outstanding shares or series of shares,
our
preferred shareholders are entitled to receive distributions, when and as
authorized by our Board of Trustees, out of legally available funds, and
share
pro rata based on the number of preferred shares and other parity equity
securities outstanding. Distributions will be made at such rates and
on such dates as will be set forth in the applicable supplement to this
prospectus.
Voting
Rights. Unless otherwise indicated in the applicable supplement
to this prospectus, holders of our preferred shares will not have any voting
rights.
Liquidation
Preference. Upon the voluntary or involuntary liquidation,
dissolution or winding up of our affairs, then, before any distribution or
payment shall be made to the holders of any common shares or any other class
or
series of shares ranking junior to the preferred shares in our distribution
of
assets upon any liquidation, dissolution or winding up, the holders of each
series of preferred shares are entitled to receive, after payment or provision
for payment of our debts and other liabilities, out of our assets legally
available for distribution to shareholders, liquidating distributions in
the
amount of the liquidation preference per share (set forth in the applicable
supplement to this prospectus), plus an amount, if applicable, equal to all
distributions accrued and unpaid thereon (which shall not include any
accumulation in respect of unpaid distributions for prior distribution periods
if such preferred shares do not have a cumulative
distribution). After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of preferred shares
will
have no right or claim to any of our remaining assets. In the event
that, upon any such of our voluntary or involuntary liquidation, dissolution
or
winding up, the legally available assets are insufficient to pay the amount
of
the liquidating distributions on all of our outstanding preferred shares
and the
corresponding amounts payable on all of our shares of other classes or series
of
equity security ranking on a parity with the preferred shares in the
distribution of assets upon liquidation, dissolution or winding up, then
the
holders of our preferred shares and all other such classes or series of equity
security shall share ratably in any such distribution of assets in proportion
to
the full liquidating distributions to which they would otherwise be respectively
entitled.
If
the
liquidating distributions are made in full to all holders of preferred shares,
our remaining assets shall be distributed among the holders of any other
classes
or series of equity security ranking junior to the preferred shares upon
our
liquidation, dissolution or winding up, according to their respective rights
and
preferences and in each case according to their respective number of
shares.
Conversion
Rights. The terms and conditions, if any, upon which shares of
any series of preferred shares are convertible into common shares will be
set
forth in the applicable supplement to this prospectus. Such terms
will include the number of common shares into which the preferred shares
are
convertible, the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option
of
the holders of the preferred shares or us, the events requiring an adjustment
of
the conversion price and provisions affecting conversion in the event of
the
redemption of such preferred shares.
Redemption. If
so provided in the applicable supplement to this prospectus, our preferred
shares will be subject to mandatory redemption or redemption at our option,
in
whole or in part, in each case upon the terms, at the times and at the
redemption prices set forth in the such supplement to this
prospectus.
Registrar
and Transfer Agent. The registrar and transfer agent for our
preferred shares will be set forth in the applicable supplement to this
prospectus.
Restrictions
on Transfer
In
order
for us to qualify as a REIT, our shares must be beneficially owned by 100
or
more persons for at least 335 days of a taxable year of 12 months or during
a
proportionate part of a shorter taxable year. Also, not more than 50% of
the
number or value of the outstanding shares may be owned, directly or indirectly,
by five or fewer individuals (as defined in the Internal Revenue Code of
1986,
as amended, to include certain exempt entities) during the last half of a
taxable year or during a proportionate part of a shorter taxable year (other
than during its first taxable year). In order to prevent five or fewer
individuals from acquiring more than 50% of our outstanding shares, and a
resulting failure to qualify as a REIT, we intend to limit the ownership
and
transfer of shares in order to comply with such limitations.
Certain
transfers or purchases may be prohibited by the Board of Trustees to ensure
our
continued qualification as a REIT under the Code. The Board of Trustees may
require each proposed transferee of shares to deliver a statement or affidavit
setting forth the number of shares, if any, already owned, directly or
indirectly, by such transferee and may refuse to permit any transfer of shares
which would cause an accumulation of shares that would jeopardize our status
as
a REIT.
Our
declaration of trust provides that the Board of Trustees may redeem shares
in
order to maintain our REIT status. The redemption price is determined in
good
faith by our independent trustees.
Our
declaration of trust provides that, subject to certain exceptions, if at
any
time, a person becomes an owner of, or is deemed to own by virtue of the
attribution provisions of the Code, more than 9.8% of the outstanding shares,
then the shares most recently acquired by such person which are in excess
of the
9.8% limit (the “Excess Shares”) will have the following
characteristics:
|
|
·
|
not
have any voting rights;
|
|
|
·
|
not
be deemed outstanding for the purpose of determining a quorum at
the
annual meeting or any special meeting of shareholders or for determining
the number of outstanding shares for purposes of determining a
“majority of the outstanding shares” in connection with a
shareholders’ vote without a
meeting;
|
|
|
·
|
any
dividends or distributions with respect to the Excess Shares will
be held
by us in a savings account for the benefit of the holders of such
Excess
Shares until such time as the Excess Shares cease to be Excess
Shares;
and
|
|
|
·
|
Excess
Shares shall be deemed to have been offered for sale to us or our
designee
for a period of 120 days from the date of (i) the transfer that
created
the Excess Shares, if we had actual knowledge of the transfer or
(ii) if
we do not have actual knowledge of the transfer, the determination
by the
trustees in good faith that a transfer creating Excess Shares
has taken place. The price for such Excess Shares shall be
their fair market value as of the date of either (i) or (ii)
above.
|
After
we
give notice of our intention to purchase the Excess Shares such shares shall
have no further rights beyond the right of the shareholder to receive payment
for them.
Any
person who acquires Excess Shares is obliged to immediately give written
notice
to us and provide us with any information we may request in order to determine
the effect of the acquisition on our status as a REIT.
Restrictions
on Certain Conversion Transactions
Our
declaration of trust requires that 80% in interest of the shareholders and
all
the independent trustees approve “conversion transactions,” which are exchange
offers, mergers, consolidations or similar transactions involving us in which
the shareholders receive securities in a surviving entity having a substantially
longer duration or materially different investment objectives and policies,
or
that is anticipated to provide significantly greater compensation to management,
except for any such transaction affected because of changes in applicable
law,
or to preserve tax advantages for a majority in interest of the shareholders.
It
should be noted that standards such as “substantially longer duration,”
“materially different investment objectives and policies” or “provides
significantly greater compensation to management” are not defined and are by
their nature potentially ambiguous. Any ambiguities will be resolved by the
Board of Trustees (a majority of whom are independent trustees).
Certain
Provisions of our Declaration of Trust
Our
organizational document, our declaration of trust, binds each trustee and
each
shareholder. Each shareholder is deemed to have agreed to the terms of our
declaration of trust by electing to become a shareholder.
Shareholder
Meetings
An
annual
meeting of shareholders will be held not less than 30 days after delivery
of the
annual report, but in no event later than June 30 of each year. Special meetings
may be called by the Chairman of the Board, by the President, by a majority
of
the trustees or by a majority of the independent trustees, or by shareholders
holding, in the aggregate, not less than 10% of the outstanding common shares.
At any meeting of shareholders, each shareholder is entitled to one vote
for
each common share owned of record (other than Excess Shares) on the applicable
record date. In general, the presence in person or by proxy of a majority
of the
outstanding common shares shall constitute a quorum, and a majority vote
of the
shareholders will be binding on all our shareholders.
Shareholder
Voting
All
elections for trustees are decided by a plurality vote at a meeting or without
a
meeting provided that at least a majority of the outstanding shares cast
a vote
in such election. Unless otherwise provided by our declaration of trust,
all
other questions are decided by a majority of the votes cast at a meeting
at
which a quorum is present or a majority of outstanding shares cast, without
a
meeting.
Each
shareholder entitled to vote may do so (i) at a meeting, in person, by written
proxy or by a signed writing or consent directing the manner in which the
shareholder desires that the shareholder’s vote be cast (which must be received
by the trustees prior to such meeting) or (ii) without a meeting, by a signed
writing or consent directing the manner in which the shareholder desires
that
the shareholder’s vote be cast (which must be received by the trustees prior to
the date the votes of the shareholders are to be counted).
Shareholder
Lists
An
alphabetical list of names, record addresses and business telephone numbers
of
all shareholders with the number of shares held by each, is maintained as
part
of our books and records at our principal office. Such list is updated at
least
quarterly, and is open for inspection by a shareholder or the shareholder’s
designated agent upon such shareholder’s request. Such list will be mailed to
any shareholder requesting the list within 10 days of the request. We may
require the shareholder requesting such shareholder’s list to represent that the
list is not requested for a commercial purpose unrelated to the shareholder’s
interest in us.
Inspection
of Books and Records
Any
shareholder and any designated representative thereof is permitted access
to all
of our records at all reasonable times, and may inspect and copy any of them.
In
addition, our books and records are open for inspection by state securities
administrators upon reasonable notice and during normal business hours at
our
principal place of business.
Trustees
A
majority of the trustees must at all times be independent trustees. Independent
trustees are trustees who are not affiliated with the Advisor, not serving
as a
director or trustee for more than three other REITs organized by our sponsor
and
not performing other services for us except as trustees. Our declaration
of
trust requires that we have not less than three nor more than nine trustees
as
fixed from time to time by the Board of Trustees. On June 12, 2001, the Board
of
Trustees fixed the number of trustees at five.
A
trustee
may be removed by a majority of the other trustees only for cause. A trustee
may
be removed, with or without cause, by vote of the majority of the outstanding
shares entitled to vote. Any vacancy, except a vacancy created by the removal
of
a trustee by the shareholders, may be filled by a majority of the remaining
trustees, except that independent trustees must nominate replacements for
vacancies in independent trustee positions. Vacancies caused as a result
of the
removal of a trustee by the shareholders must be filled by the shareholders.
Each trustee serves a term of one year.
No
bond
is required to secure the performance of a trustee unless the Board of Trustees
so provide or as required by law. The trustees are empowered to fix the
compensation of all officers whom they select. The independent trustees will
be
paid $10,000 per year. Non-independent trustees will not be compensated by
us.
None
of
the Advisor, the trustees nor their affiliates may vote any shares held by
them
on matters submitted to the shareholders regarding the removal of or on any
transaction between us and the Advisor, the trustees or their affiliates.
Shares
held by the Advisor, the trustees and their affiliates may not be included
in
determining the number of outstanding shares entitled to vote on these matters,
nor in the shares actually voted thereon.
Amendment
of the Declaration of Trust
Our
declaration of trust may be amended by the vote of the holders of a majority
of
the outstanding common shares and a majority of the trustees, including a
majority of the independent trustees, except that the amendment of the provision
contained in our declaration of trust regarding supermajority shareholder
approval of certain roll-up or conversion transactions requires the vote
of the
holders of 80% of the outstanding shares. Notwithstanding the foregoing,
a
majority of the trustees, including a majority of the independent trustees,
are
authorized to amend our declaration of trust without the consent of shareholders
(i) to the minimum extent necessary, based on an opinion of counsel, to comply
with the provisions of the Code applicable to REITs, the regulations thereunder,
and any ruling on or interpretation of the Code or the regulations thereunder
(ii) to delete or add any provision required to be deleted or added by the
Securities and Exchange Commission or a state “blue sky” commissioner, which
addition or deletion is deemed by such official to be for the benefit or
protection of shareholders or (iii) to clarify any ambiguities or correct
any
inconsistencies.
Responsibility
of Trustees
The
Board
of Trustees is responsible for our general policies and for such general
supervision and management of our business as may be necessary to insure
that
such business conforms to the provisions of our declaration of
trust.
The
trustees are accountable to the shareholders as fiduciaries and are required
to
perform their duties in good faith and in a manner each trustee believes
to be
in our best interest and our shareholders, with such care, including reasonable
inquiry, as a prudent person in a like position would use under similar
circumstances.
Our
declaration of trust provides that the trustees shall have full, absolute
and
exclusive power, control, management and authority over our assets and over
our
business and affairs to the same extent as if the trustees were the sole
owners
thereof in their own right. The trustees have the power to enter into
commitments to make any investment, purchase or acquisition or to exercise
any
power authorized by our declaration of trust, including the power to retain
an
advisor and to delegate any of the trustees’ powers and duties to an
advisor.
The
trustees have the responsibility to establish written policies on investments
and borrowings and shall monitor our and the Advisor’s administrative
procedures, investment operations and performance to assure that such policies
are carried out. A majority in interest of the shareholders must approve
any
change in our investment objectives.
Indemnification
We
agreed
to indemnify and hold harmless our trustees, our Advisor and their affiliates
who are performing services on our behalf (“Indemnified Parties”) against
expense or liability, including attorneys’ fees and disbursements, in any action
arising out of any act performed or omitted to be performed by them in
connection with our operation or business; provided, that, (i) our trustee
or
the Advisor has determined, in good faith, that the course of conduct which
caused the loss or liability was in our best interests (ii) such liability
or
loss was not the result of negligence or misconduct on the part of the
Indemnified Party and (iii) such indemnification or agreement to hold harmless
is recoverable only out of our assets and not from the shareholders. In
addition, our declaration of trust contains provisions limiting the personal
liability of our trustees, officers and shareholders.
We
do not
indemnify the Indemnified Parties for any liability imposed by a judgment,
and
costs associated with a judgment, including attorneys’ fees, arising from or out
of a violation of state or federal securities laws. However, we may indemnify
the Indemnified Parties for settlements and related expenses of lawsuits
alleging securities laws violations and for expenses incurred in successfully
defending such lawsuits, but only if: (a) a court either (i) approves the
settlement and finds that indemnification of the settlement and related costs
should be made or (ii) approves indemnification of litigation costs if there
has
been a successful defense or (b) there has been a dismissal on the merits
with
prejudice (without a settlement).
Possible
Shareholder Liability
It
is
possible that certain states may not recognize the limited liability of
shareholders, although our declaration of trust provides that our shareholders
shall not be subject to any personal liability for our acts or obligations.
Our
declaration of trust also provides that every written agreement entered into
by
us shall contain a provision that our obligations are not enforceable against
our shareholders personally. No personal liability should attach to our
shareholders under any agreement containing such a provision; however, not
every
written agreement entered into by us contains such a provision. In certain
states, our shareholders may be held personally liable for claims against
us
(such as contract claims where the underlying agreement does not specifically
exclude shareholder liability, claims for taxes, certain statutory liability
and
tort claims). Upon payment of any such liability, however, the shareholder
will,
in the absence of willful misconduct on the shareholder’s part, be entitled to
reimbursement from our general assets, to the extent such assets are sufficient
to satisfy the claim.
Unless
otherwise described in a supplement to this prospectus, we expect to use
the net
proceeds of the sale of our shares primarily to acquire and originate government
insured and uninsured mortgage investments consistent with our investment
policy
limitations as stated in our declaration of trust, in each case, as described
in
detail in the prospectus supplement depending upon the circumstances at the
time
of the related offering, and for other general trust purposes. Any
specific allocation of the net proceeds of an offering of shares to a specific
purpose will be determined at the time of such offering and will be described
in
the related supplement to this prospectus.
We
may
sell our shares in or outside the U.S. to or through underwriters or dealers,
through agents or directly to other purchasers. The applicable
supplement to this prospectus with respect to our shares, will set forth
the
terms of the offering of our shares, including the name or names of any
underwriters, dealers or agents, the public offering price, any underwriting
discounts and other items constituting underwriter compensation, any discounts
or concessions allowed or reallowed or paid to dealers, and any securities
exchanges on which the securities may be listed.
Our
shares may be sold directly by us or through agents designated by us from
time
to time at fixed prices, which may be changed. Any agent involved in
the offer or sale of our shares will be named, and any commissions payable
by us
to such agent will be set forth, in the supplement to this prospectus relating
thereto.
In
connection with the sale of our shares, underwriters or agents may receive
compensation from us or from purchasers of our shares, for whom they may
act as
agents, in the form of discounts, concessions or
commissions. Underwriters may sell our shares to or through dealers,
and such dealers may receive compensation in the form of discounts, concessions
or commissions from the underwriters and/or commissions from the purchasers
for
whom they may act as agents. Underwriters, dealers and agents that
participate in the distribution of our shares may be deemed to be underwriters
under the Securities Act, and any discounts or commissions they receive from
us
and any profit on the resale of our shares they realize may be deemed to
be
underwriting discounts and commissions under the Securities Act. Any
such underwriter or agent will be identified, and any such compensation received
from us will be described, in the applicable supplement to this
prospectus. Unless otherwise set forth in the supplement to this
prospectus relating thereto, the obligations of the underwriters or agents
to
purchase our shares will be subject to conditions precedent and the underwriters
will be obligated to purchase all our shares if any are
purchased. The public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time to
time.
Any
common shares sold pursuant to this prospectus and applicable prospectus
supplement, will be approved for trading, upon notice of issuance, on the
American Stock Exchange.
Under
agreements into which we may enter, underwriters, dealers and agents who
participate in the distribution of our shares may be entitled to indemnification
by us against and contribution toward certain liabilities, including liabilities
under the Securities Act.
Underwriters,
dealers and agents may engage in transactions with, or perform services for,
us
in the ordinary course of business.
In
order
to comply with the securities laws of certain states, if applicable, our
shares
will be sold in such jurisdictions only through registered or licensed brokers
or dealers. In addition, in certain states securities may not be sold
unless they have been registered or qualified for sale in the applicable
state
or an exemption from the registration or qualification requirement is available
and complied with.
RATIO
OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERENCE
DIVIDENDS
The
following table sets forth our historical ratio of earnings to combined fixed
charges and preference dividends for the periods indicated:
|
Year
Ended December 31,
|
||||
|
1997
|
1998
|
1999
|
2000
|
2001
|
|
N/A
|
N/A
|
8:1
|
2:1
|
4:1
|
For
the
purposes of computing the ratio of earnings to fixed charges and preference
dividends, earnings were calculated using income before minority interests,
adding back total fixed charges less preference security dividend requirements
of consolidated subsidiaries. Fixed charges consist of interest
expense, minority interest in income of subsidiary, recurring fees and
amortization of capitalized costs related to indebtedness and preference
security dividend requirements of consolidated subsidiaries. There
are no periods in which earnings were insufficient to cover combined fixed
charges and preference dividends. We had no debt outstanding prior to
1999.
The
consolidated financial statements of American Mortgage Acceptance Company
and of
ARCap Investors, L.L.C. incorporated in this prospectus by reference from
the
Annual Report on Form 10-K of American Mortgage Acceptance Company for the
year
ended December 31, 2001 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports which are incorporated herein
by reference, and have been so incorporated in reliance upon the reports
of such
firm given upon their authority as experts in accounting and
auditing.
Certain
legal matters will be passed upon for us by Paul, Hastings, Janofsky &
Walker LLP, New York, New York. The validity of the shares will be
passed upon for us by Goodwin Procter LLP, Boston, Massachusetts.
WHERE
YOU CAN FIND MORE INFORMATION
We
are
subject to the informational requirements of the Securities Exchange Act
of
1934, as amended (the “Exchange Act”). As a result, we file annual,
quarterly and special reports, proxy statements and other information with
the
Securities and Exchange Commission (“SEC”). You may read and copy any
document we file at the SEC’s regional offices at Citigroup Center, 500 West
Madison Street, Room 1400, Chicago, Illinois 60661-2511. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the
Public
Reference Rooms. The SEC maintains an internet site that contains
reports, proxy and information
statements,
and other information that we file electronically with the SEC and which
are
available at the SEC’s web site at: http://www.sec.gov.
We
have
filed with the SEC a registration statement on Form S-3 under the Securities
Act
to register the shares offered by this prospectus. This prospectus is
part of the registration statement. This prospectus does not contain
all the information contained in the registration statement because we have
omitted certain parts of the registration statement in accordance with the
rules
and regulations of the SEC. You can obtain a copy of the registration
statement from the SEC at the address listed above or from the SEC’s web site
listed above.
INCORPORATION
OF CERTAIN DOCUMENTS BY
REFERENCE
The
SEC
allows us to “incorporate by reference” the information we file with them, which
means that we can disclose important information to you by referring you
to
those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this
information. We incorporate by reference the documents listed below
and any future filings we will make with the SEC under Section 13(a), 13(c),
14
or 15(d) of the Exchange Act:
|
|
·
|
Our
Annual Report on Form 10-K for the fiscal year ended December 31,
2001,
filed with the SEC on April 1, 2002 (SEC File No.
001-14583);
|
|
|
·
|
Our
Quarterly Report on Form 10-Q for the period ending March 31, 2002,
filed
with the SEC on May 15, 2002 (SEC File No.
001-14583);
|
|
|
·
|
Our
Quarterly Report on Form 10-Q for the period ending June 30, 2002,
filed
with the SEC on August 14, 2002 (SEC File No. 001-14583);
and
|
|
|
·
|
Form
8-A12B, filed with the SEC on October 30, 1998 (SEC File No.
001-14583).
|
You
may
request a copy of these filings (not including the exhibits to such documents
unless the exhibits are specifically incorporated by reference in the
information contained in this prospectus), at no cost, by writing or telephoning
us at the following address:
American
Mortgage Acceptance Company
625
Madison Avenue
New
York,
New York 10022
Attn:
Hilary Forman
Telephone
requests may be directed to (212) 421-5333.
This
prospectus is part of a registration statement we filed with the
SEC. You should rely only on the information or representations
provided in this prospectus. We have authorized no one to provide you
with different information. We are not making an offer of these
securities in any state where the offer is not permitted. You should
not assume that the information in this prospectus is accurate as of any
date
other than the date on the front of the document.
Statements
contained in this prospectus as to the contents of any contract or document
are
not necessarily complete and in each instance reference is made to the copy
of
that contract or document filed as an exhibit to the registration statement
or
as an exhibit to another filing, each such statement being qualified in all
respects by such reference and the exhibits and schedules thereto.
American
Mortgage Acceptance Company
1,680,000
Shares
%
Series A Cumulative Convertible Preferred Shares
____________________
PROSPECTUS
SUPPLEMENT
July
, 2007
____________________
Sterne,
Agee & Leach, Inc.
Boenning
& Scattergood, Inc.