Form S-3
Registration No. 333-
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------------
MONMOUTH REAL ESTATE INVESTMENT CORPORATION
(Exact name of registrant as specified in charter)
Delaware 22-1897375
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
----------------------
Juniper Business Plaza, Suite 3-C, 3499 Route 9 North, Freehold, New Jersey 07728
732-577-9996
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Anna T. Chew
Juniper Business Plaza, Suite 3-C, 3499 Route 9 North, Freehold, New Jersey 07728
732-577-9996
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Gary D. Gilson
Blackwell Sanders Peper Martin, LLP
Two Pershing Square
2300 Main Street, Suite 1000
Kansas City, Missouri 64108
----------------------
Approximate date of commencement of proposed sale to the public:
From time to time after the Registration Statement becomes effective
----------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _________
If this Form is a post-effective amendment filed pursuant to Rule
462(c)under the Securities Act, check the following box and list the Securities
Act registrations statement number of the earlier effective registration
statement for the same offering. [ ] ___________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
-------------------------
Calculation of Registration Fee
=============================================================================================================
Title of each class of Proposed maximum
securities to be Amount to be Proposed maximum offering aggregate offering price Amount of
registered registered price per unit (2) registration fee
-------------------------------------------------------------------------------------------------------------
Class A Common Stock (1) (1) $20,000,000 $1,840
=============================================================================================================
(1) Omitted pursuant to Rule 457(o).
(2) Estimated in accordance with Rule 457 solely for the purpose of calculating
the registration fee.
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated February 13, 2003
PROSPECTUS
$20,000,000
MONMOUTH REAL ESTATE INVESTMENT CORPORATION
Class A Common Stock
------------------------
We may use this prospectus to offer and sell shares of our Class A
Common Stock from time to time. Our Common Stock is listed and traded on the
NASDAQ under the symbol "MNRTA".
We will provide the specific terms of these securities in supplements to this
prospectus in connection with each offering. These terms may include:
o offering price;
o size of offering;
o underwriting discounts;
o limitations on direct or beneficial ownership; and
o restrictions on transfer.
The securities offered will contain other significant terms and conditions.
Please read this prospectus and the applicable prospectus supplement carefully
before you invest.
An investment in our Class A Common Stock involves a high degree of risk. See
"Risk Factors" beginning on page 5 of this prospectus for a discussion of risk
factors that you should consider in connection with an investment in our Class A
Common Stock.
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 ____________ ___, 2003
TABLE OF CONTENTS
Page
----
ABOUT THIS PROSPECTUS......................................................1
WHERE YOU CAN FIND MORE INFORMATION........................................1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................2
MONMOUTH REAL ESTATE INVESTMENT CORPORATION................................3
RISK FACTORS...............................................................5
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS............................9
USE OF PROCEEDS...........................................................10
DESCRIPTION OF CAPITAL STOCK..............................................10
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES....................11
PLAN OF DISTRIBUTION......................................................26
LEGAL MATTERS.............................................................27
EXPERTS...................................................................27
i
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with
the SEC using a "shelf" registration process. Under this process, we may from
time to time sell in one or more offerings any number of shares of Class A
Common Stock up to a total amount of $20,000,000. You should read this
prospectus and the applicable prospectus supplement together with the additional
information described under the heading "Where You Can Find More Information" in
this prospectus. The prospectus supplement may add, update or change the
information contained in this prospectus. The registration statement that
contains this prospectus and the exhibits to that registration statement contain
additional important information about us and the Class A Common Stock offered
under this prospectus. Specifically, we have filed certain legal documents that
control the terms of the Class A Common Stock as exhibits to the registration
statement. We may file certain other legal documents that control the terms of
the Class A Common Stock as exhibits to reports we file with the SEC. That
registration statement and the other reports can be read at the SEC's website or
at the SEC offices mentioned under the heading "Where You Can Find More
Information," or can be obtained by writing or telephoning us at the following
address and telephone number:
Monmouth Real Estate Investment Corporation
Attention: Shareholder Relations
3499 Route 9 N, Suite 3-C
Juniper Business Plaza
Freehold, NJ 07728
(732) 577-9996
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement under the
Securities Act with respect to the securities offered hereunder. As permitted by
the SEC's rules and regulations, this prospectus does not contain all the
information set forth in the registration statement. For further information
regarding our company and our Class A Common Stock, please refer to the
registration statement and the contracts, agreements and other documents filed
as exhibits to the registration statement. Additionally, we file annual,
quarterly and special reports, proxy statements and other information with the
SEC.
You may read and copy all or any portion of the registration statement
or any other materials that we file with the SEC at the SEC's public reference
rooms in Washington, D.C., Chicago, Illinois, and New York, New York. Please
call the SEC at 1-800-SEC-0330 for further information on the operation of the
public reference rooms. Our SEC filings, including the registration statement,
are also available to you on the SEC's website (http://www.sec.gov). We also
have a website (www.mreic.com) through which you may access our recent SEC
filings. In addition, you may look at our SEC filings at the offices of the
NASDAQ Stock Market, Inc., which is located at 1500 Broadway, New York, New York
10036. Our SEC filings are available at the NASDAQ because our Common Stock is
listed and traded on the NASDAQ under the symbol "MNRTA".
Information contained on our website is not a part of this prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information
contained in documents that we file with them. That means 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 later file with the SEC will automatically
update and supersede this information.
We incorporate by reference the documents listed below and any future
filings we make with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended, after the initial filing of the
registration statement that contains this prospectus and before we sell all the
securities offered by this prospectus.
o Our 2002 Annual Report on Form 10-K, as filed with the SEC on
December 23, 2002.
o Our Quarterly Report on Form 10-Q, as filed with the SEC pm
February 13, 2003.
o The description of the our Class A Common Stock, $.01 par value,
which is contained in a registration statement filed under the
Exchange Act, including any amendment or report filed for the
purpose of updating such description.
You may request a free copy of these filings (other than exhibits,
unless they are specifically incorporated by reference in the documents) by
writing or telephoning us at the following address and telephone number:
Monmouth Real Estate Investment Corporation
Attention: Shareholder Relations
3499 Route 9 N, Suite 3-C
Juniper Business Plaza
Freehold, NJ 07728
(732) 577-9996
2
MONMOUTH REAL ESTATE INVESTMENT CORPORATION
Monmouth Real Estate Investment Corporation is a corporation operating
as a qualified real estate investment trust under Sections 856 through 858 of
the Internal Revenue Code. Currently, we seek to invest in well-located, modern
buildings leased to creditworthy tenants on long-term leases and derive our
income primarily from the rental of these facilities. At September 30, 2002, we
owned approximately 2,986,000 square feet of property, of which approximately
944,000 square feet, or 32%, is leased to Federal Express Corporation and its
subsidiaries and approximately 301,000 square feet, or 10%, is leased to Keebler
Company. During fiscal 2002, 2001 and 2000 rental and occupancy charges from
properties leased to these companies approximated 52%, 55% and 52%,
respectively, of total rental and occupancy charges.
At September 30, 2002, we had investments in thirty properties. These
properties are located in Connecticut, Florida, Illinois, Iowa, Kansas,
Maryland, Massachusetts, Michigan, Mississippi, Missouri, Nebraska, New Jersey,
New York, North Carolina, Ohio, Pennsylvania, Virginia, and Wisconsin. All
properties are managed by a management company. All properties are leased on a
net basis except the property located in Monaca, Pennsylvania.
We compete with other investors in real estate for attractive
investment opportunities. These investors include other "equity" real estate
investment trusts, limited partnerships, syndications and private investors,
among others.
We have a flexible investment policy concentrating our investments in
the area of net-leased industrial properties. Our strategy is to obtain a
favorable yield spread between the yield from the net-leased industrial
properties and mortgage interest costs. We continue to purchase net-leased
industrial properties, since our management believes that there is a potential
for long-term capital appreciation through investing in well-located industrial
properties. There is the risk that, on expiration of current leases, the
properties can become vacant or re-leased at lower rents. The results we obtain
by re-leasing the properties will depend on the market for industrial properties
at that time.
We also continue to invest in both debt and equity securities of other
real estate investment trusts (REITs). We from time to time may purchase these
securities on margin when the interest and dividend yields exceed the cost of
the funds. Such securities are subject to risk arising from adverse changes in
market rates and prices, primarily interest rate risk relating to debt
securities and equity price risk relating to equity securities.
Recent Developments
On November 6, 2002, we purchased a 288,211 square foot manufacturing
and warehouse facility in Tolleson, Arizona from Centex Industrial Buckeye I,
LLC. This warehouse facility is 100% net leased to Western Container
Corporation, which manufactures plastic bottles for Coca-Cola soft drink
products. The lease is guaranteed by Coca-Cola Enterprises. The purchase price
was approximately $14,800,000. We paid approximately $550,000 in cash, borrowed
approximately $2,200,000 against our security portfolio with Prudential
Securities, used approximately $1,100,000 of our revolving line of credit with
Fleet Bank and obtained a
3
mortgage of approximately $10,950,000. This mortgage payable is at an interest
rate of 5.8% and is due November 1, 2012.
On November 21, 2002, we purchased a 90,020 square foot warehouse
facility in Ft. Myers, Florida from Jones Development Company, LLC. This
warehouse facility is 100% net leased to Fed Ex Ground Package System, Inc., a
subsidiary of Federal Express Corporation. The purchase price was approximately
$4,400,000. We paid approximately $1,200,000 in cash and obtained a mortgage of
approximately $3,200,000. This mortgage payable is at an interest rate of 6.33%
and is due November 1, 2012. This purchase resulted in an additional
concentration of our properties leased to Federal Express and its subsidiaries,
and as a result our financial condition is further dependent on Federal Express.
4
RISK FACTORS
Set forth below are the risks that we believe are important to
investors in our Class A Common Stock. Before you decide to purchase our Class A
Common Stock, you should consider carefully the risks described below, together
with the information provided in the other parts of this prospectus and any
related prospectus supplement. From time to time, we may make forward-looking
statements (within the meaning of Section 27A of the Securities Act and Section
21F of the Exchange Act) in documents filed under the Securities Act, the
Exchange Act, press releases or other public statements. If we make
forward-looking statements, we assume no obligation to update forward-looking
statements. Potential investors should not place undue reliance on
forward-looking statements as they involve numerous risks and uncertainties that
could cause actual results to differ materially from the results stated or
implied in the forward-looking statements. In addition to specific factors that
may be disclosed simultaneously with any forward-looking statement, some of the
factors related to us and our businesses that could cause actual results to
differ materially from a forward-looking statement are set forth below, and
elsewhere in this prospectus and in the documents we incorporate by reference.
Real Estate Industry Risks
We face risks associated with local real estate conditions in areas
where we own propertiesn. We may be affected adversely by general economic
conditions and local real estate conditions. For example, an oversupply of
industrial properties in a local area or a decline in the attractiveness of our
properties to tenants would have a negative effect on us.
Other factors that may affect general economic conditions or local real
estate conditions include:
o population and demographic trends;
o zoning, use and other regulatory restrictions;
o income tax laws;
o changes in interest rates and availability and costs of
financing;
o competition from other available real estate;
o our ability to provide adequate maintenance and insurance; and
o increased operating costs, including insurance premiums and real
estate taxes.
We may be unable to compete with our larger competitors and other
alternatives available to tenants or potential tenants of our properties. The
real estate business is highly competitive. We compete for properties with other
real estate investors, including other real estate investment trusts, limited
partnerships, syndications and private investors, many of whom have greater
financial resources, revenues, and geographical diversity than we have.
Furthermore, we compete for tenants with other property owners. All of our
industrial properties are subject to significant local competition. We also
compete with a wide variety of institutions
5
and other investors for capital funds necessary to support our investment
activities and asset growth.
We are subject to significant regulation that inhibits our activities
and increases our costs. Local zoning and use laws, environmental statutes and
other governmental requirements may restrict expansion, rehabilitation and
reconstruction activities. These regulations may prevent us from taking
advantage of economic opportunities. Legislation such as the Americans with
Disabilities Act may require us to modify our properties. Future legislation may
impose additional requirements. We cannot predict what requirements may be
enacted or what changes may be implemented to existing legislation.
Risks Associated with Our Properties
We may be unable to renew leases or relet space as leases expire. While
we seek to invest in well-located, modern buildings leased to credit-worthy
tenants on long term leases, a number of our properties are subject to short
term leases. When a lease expires, a tenant may elect not to renew it. We may
not be able to relet the property on similar terms, if we are able to relet the
property at all. We have established an annual budget for renovation and
reletting expenses that we believe is reasonable in light of each property's
operating history and local market characteristics. This budget, however, may
not be sufficient to cover these expenses.
We have been and may continue to be affected negatively by tenant
financial difficulties and leasing delays. A general decline in the economy may
result in a decline in the demand for industrial space. As a result, our tenants
may delay lease commencement, fail to make rental payments when due, or declare
bankruptcy. Any such event could result in the termination of that tenant's
lease and losses to us. We receive a substantial portion of our income as rents
under long-term leases. If tenants are unable to comply with the terms of their
leases because of rising costs or falling sales, we, in our sole discretion, may
deem it advisable to modify lease terms to allow tenants to pay a lower rental
or a smaller share of operating costs, taxes and insurance.
We may be unable to sell properties when appropriate because real
estate investments are illiquid. Real estate investments generally cannot be
sold quickly and, therefore, will tend to limit our ability to vary our property
portfolio promptly in response to changes in economic or other conditions. The
inability to respond promptly to changes in the performance of our property
portfolio could adversely affect our financial condition and ability to serve
debt and make distributions to our stockholders.
Environmental liabilities could affect our profitability. We face
possible environmental liabilities. Current and former real estate owners and
operators may be required by law to investigate and clean up hazardous
substances released at the properties they own or operate. They may also be
liable to the government or to third parties for property damage, investigation
costs and cleanup costs. Contamination may affect adversely the owner's ability
to sell or lease real estate or to borrow using the real estate as collateral.
We have no way of determining at this time the magnitude of any
potential liability to which we may be subject arising out of unknown
environmental conditions or violations with
6
respect to the properties we own or formerly owned. Environmental laws today can
impose liability on a previous owner or operator of a property that owned or
operated the property at a time when hazardous or toxic substances were disposed
on, or released from, the property. A conveyance of the property, therefore,
does not relieve the owner or operator from liability.
We are not aware of any environmental liabilities relating to our
investment properties which would have a material adverse effect on our
business, assets, or results of operations. However, we cannot assure you that
environmental liabilities will not arise in the future.
If our insurance coverage is inadequate or we cannot obtain acceptable
insurance coverage, our operations could be materially adversely affected. We
generally maintain insurance policies related to our business, including
casualty, general liability and other policies covering business operations,
employees and assets. We may be required to bear all losses that are not
adequately covered by insurance. Although our management believes that our
insurance programs are adequate, no assurance can be given that we will not
incur losses in excess of our insurance coverage, of that we will be able to
obtain insurance in the future at acceptable levels and reasonable cost.
Financing Risks
We face risks generally associated with our debt. We finance a portion
of our investments through debt. This debt creates risks, including:
o rising interest rates on our floating rate debt;
o failure to repay or refinance existing debt as it matures, which
may result in forced disposition of assets on disadvantageous
terms.
o refinancing terms less favorable than the terms of existing debt;
and
o failure to meet required payments of principal and/or interest;
We face risks associated with the use of debt to fund acquisitions,
including refinancing risk. We are subject to the risks normally associated with
debt financing, including the risk that our cash flow will be insufficient to
meet required payments of principal and interest. We anticipate that a portion
of the principal of our debt will not be repaid prior to maturity. Therefore, we
will likely need to refinance at least a portion of our outstanding debt as it
matures. There is a risk that we may not be able to refinance existing debt or
that the terms of any refinancing will not be as favorable as the terms of the
existing debt. If principal payments due at maturity cannot be refinanced,
extended or repaid with proceeds from other sources, such as new equity capital
or sales of properties, our cash flow will not be sufficient to repay all
maturing debt in years when significant "balloon" payments come due. As a
result, we may be forced to dispose of properties on disadvantageous terms.
We may amend our business policies without your approval. Our board of
directors determines our growth, investment, financing, capitalization,
borrowing, REIT status, operations and distributions policies. Although our
board of directors has no present intention to amend or reverse any of these
policies, they may be amended or revised without notice to stockholders.
7
Accordingly, stockholders may not have control over changes in our policies. We
cannot assure you that changes in our policies will serve fully the interests of
all stockholders.
Other Risks
The market value of our Class A Common Stock could decrease based on
our performance and market perception and conditions. The market value of our
Class A Common Stock may be based primarily upon the market's perception of our
growth potential and current and future cash dividends, and may be secondarily
based upon the real estate market value of our underlying assets. The market
price of our Class A Common Stock is influenced by the dividend on our Class A
Common Stock relative to market interest rates. Rising interest rates may lead
potential buyers of our Class A Common Stock to expect a higher dividend rate,
which would adversely affect the market price of our Class A Common Stock. In
addition, rising interest rates would result in increased expense, thereby
adversely affecting cash flow and our ability to service our indebtedness and
pay dividends.
There are restrictions on the transfer of our Class A Common Stock. To
maintain our qualification as a REIT under the Internal Revenue Code of 1986
(the "Code"), no more than 50% in value of our outstanding capital stock may be
owned, actually or by attribution, by five or fewer individuals, as defined in
the Code to also include certain entities, during the last half of a taxable
year. Accordingly, our charter and bylaws contain provisions restricting the
transfer of our capital stock. See "Description of Capital Stock - Ownership
Limitations."
Our earnings are dependent, in part, upon the performance of our
investment portfolio. As permitted by the Code, we invest in and own securities
of other real estate investment trusts. To the extent that the value of those
investments declines or those investments do not provide a return, our earnings
could be adversely affected.
We are subject to restrictions that may impede our ability to effect a
change in control. Certain provisions contained in our charter and bylaws, and
certain provisions of Delaware law may have the effect of discouraging a third
party from making an acquisition proposal for us and thereby inhibit a change in
control.
We may fail to qualify as a REIT. If we fail to qualify as a REIT, we
will not be allowed to deduct distributions to stockholders in computing our
taxable income and will be subject to Federal income tax, including any
applicable alternative minimum tax, at regular corporate rates. In addition, we
might be barred from qualification as a REIT for the four years following
disqualification. The additional tax incurred at regular corporate rates would
reduce significantly the cash flow available for distribution to stockholders
and for debt service.
Furthermore, we would no longer be required to make any distributions
to our stockholders as a condition to REIT qualification. Any distributions to
stockholders that otherwise would have been subject to tax as capital gain
dividends would be taxable as ordinary income to the extent of our current and
accumulated earnings and profits. Corporate distributees, however, may be
eligible for the dividends received deduction on the distributions, subject to
limitations under the Code.
8
To qualify as a REIT, and to continue to qualify as a REIT, we must
comply with certain highly technical and complex requirements. We cannot be
certain we have complied, and will always be able to comply, with these
requirements. In addition, facts and circumstances that may be beyond our
control may affect our ability to continue to qualify as a REIT. We cannot
assure you that new legislation, regulations, administrative interpretations or
court decisions will not change the tax laws significantly with respect to our
qualification as a REIT or with respect to the federal income tax consequences
of qualification. We believe that we have qualified as a REIT since our
inception and intend to continue to qualify as a REIT. However, we cannot assure
you that we are qualified or will remain qualified.
We may be unable to comply with the strict income distribution
requirements applicable to REITs. To obtain the favorable tax treatment
associated with qualifying as a REIT, among other requirements, we are required
each year to distribute to our stockholders at least 90% of our REIT taxable
income. We will be subject to corporate income tax on any undistributed REIT
taxable income. In addition, we will incur a 4% nondeductible excise tax on the
amount by which our distributions in any calendar year are less than the sum of
(i) 85% of our ordinary income for the year, (ii) 95% of our capital gain net
income for the year, and (iii) any undistributed taxable income from prior
years. We could be required to borrow funds on a short-term basis to meet the
distribution requirements that are necessary to achieve the tax benefits
associated with qualifying as a REIT (and to avoid corporate income tax and the
4% excise tax), even if conditions were not favorable for borrowing.
Notwithstanding our status as a REIT, we are subject to various
federal, state and local taxes on our income and property. For example, we will
be taxed at regular corporate rates on any undistributed taxable income,
including undistributed net capital gains, provided, however, that properly
designated undistributed capital gains will effectively avoid taxation at the
stockholder level. We may be subject to other federal income taxes as more fully
described in "Material United States Federal Income Tax Consequences-Taxation of
Us as a REIT." We may also have to pay some state income or franchise taxes
because not all states treat REITs in the same manner as they are treated for
federal income tax purposes.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
We have made forward-looking statements with respect to our financial
condition, results of operations and business. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions as they relate to us or our management are intended to identify
forward-looking statements. These forward-looking statements are not guarantees
of future performance and are subject to risks and uncertainties, including
those described under "Risk Factors" in this prospectus and those in the
documents we incorporate by reference that could cause actual results to differ
materially from the results contemplated by the forward-looking statements.
In evaluating the securities offered by this prospectus, you should
carefully consider the discussion of risks and uncertainties in the section
entitled "Risk Factors" beginning on page 5 of this prospectus.
9
USE OF PROCEEDS
Unless otherwise described in the applicable prospectus supplement, we
intend to use the net proceeds of any sale of Class A Common Stock for working
capital and general corporate purposes, including, without limitation, the
development and acquisition of additional properties.
DESCRIPTION OF CAPITAL STOCK
The following description is only a summary of certain terms and
provisions of our capital stock. You should refer to our charter and bylaws for
a complete description.
General. The total number of shares of capital stock of all classes
that we are authorized to issue is 20,100,000. Currently, our charter authorizes
the issuance of 20,000,000 shares of Class A Common Stock, par value $.01 per
share, and 100,000 shares of Class B Common Stock, par value $.01 per share. As
of December 31, 2002, 12,829,110 shares of Class A Common Stock were issued and
outstanding and no shares of Class B Common Stock were issued or outstanding.
Our outstanding shares of Class A Common Stock are currently listed on the
Nasdaq Stock Market under the symbol "MNRTA". We intend to apply to the Nasdaq
Stock Market to list any additional shares of Class A Common Stock offered
pursuant to any prospectus supplement, and we anticipate that such shares will
be so listed.
Distributions. As a holder of our Class A Common Stock, you will be
entitled to receive distributions, if, as and when declared by our board of
directors, out of our assets that we may legally use for distributions to
stockholders. We currently pay regular quarterly distributions on our Common
Stock. In the event of our liquidation, after payment of, or adequate provision
for, all of our known debts and liabilities, holders of Class A Common Stock
will be entitled to share ratably in all assets that we may legally distribute
to our stockholders. Holders of Class B Common Stock are not entitled to any
assets upon liquidation.
As a holder of our Class A Common Stock, you will have no preferences,
conversion, sinking fund, or preemptive rights to subscribe for any of our
securities. Subject to the provisions of our charter regarding distributions,
holders of Class A Common Stock and Class B Common Stock have identical rights,
preferences, terms and conditions.
Ownership Limitations. Under our charter, if our board of directors
determines, in good faith, that direct or indirect ownership of our stock has or
may become concentrated to an extent that may prevent us from qualifying as a
REIT, the board is authorized to prevent the transfer of stock or call for
redemption a number of shares of Class A Common Stock at a price generally equal
to the last reported sale price of the shares on the Nasdaq Stock Market on the
last day prior to the redemption date in an amount sufficient in the opinion of
the board to maintain or bring the direct or indirect ownership of our stock
into conformity with the REIT provisions of the Code. Our board has also passed
a resolution stating that any transfer of Class A Common Stock that results in a
person owning, directly or indirectly, in excess of 9.8% of the outstanding
shares of Class A Common Stock shall be void and of no effect.
The board may, at any time, order the redemption of all, but not less
than all, of the Class A Common Stock owned, directly or indirectly, by any
stockholder if the stockholder holds fewer than 50 shares of Class A Common
Stock.
10
Voting Rights. As a holder of Class A Common Stock, you will have one
vote per share on all matters submitted to a vote of stockholders, including the
election of directors. There is no cumulative voting in the election of
directors, which means that the holders of a plurality of the outstanding shares
of Class A Common Stock can elect all of the directors then standing for
election and the holders of the remaining shares of Class A Common Stock, if
any, will not be able to elect any directors.
Stockholder Liability. Under Delaware law applicable to Delaware
corporations, you will not be liable as a stockholder for our obligations solely
as a result of your status as a stockholder.
Anti-Takeover Effects. Our charter contains provisions that govern
business transactions with related persons that may have an effect of delaying,
deferring, or preventing a change in control. Our charter generally provides,
with certain exceptions, that the affirmative vote of 70% of the shares entitled
to vote in the election of directors is required for certain business
combinations with certain related persons. Related persons are generally defined
as persons who beneficially own 10% or more of the shares entitled to vote in
the election of directors and certain affiliates and associates of such persons.
However, the affirmative vote of 70% of the shares entitled to vote in the
election of directors is not required if the business combination is expressly
approved by both the board of directors and a majority of all continuing
directors or the business combination involves cash or other consideration being
received by the stockholders and certain fair market value conditions are met.
Further, a majority of the continuing directors has the power to make final and
binding determinations as to certain matters related to the transaction such as
whether a person is a related person.
In addition, the provision in our charter requiring the approval of 70%
of the stockholders to amend provisions in our charter relating to, among other
things, the election of directors, the removal of directors, the calling of
special stockholder meetings, restrictions on the transferability of shares of
our Class A Common Stock and business combinations could have an anti-takeover
effect. Further, our directors can only be removed for "cause" as defined in our
bylaws to include dishonesty, willful misconduct and failure to perform stated
duties. We also have authorized but unissued shares of Class B Common Stock that
could be issued in such a way as to have anti-takeover effects.
Transfer Agent. The registrar and transfer agent for shares of our
Class A Common Stock is Mellon Investor Services.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
Introductory Notes
The following is a description of the material Federal income tax
considerations to a holder of our Class A Common Stock. An applicable prospectus
supplement will contain information about additional Federal income tax
considerations, if any, relating to particular offerings of our Class A Common
Stock. The following discussion is not exhaustive of all possible tax
considerations and does not provide a detailed discussion of any state, local or
foreign tax considerations, nor does it discuss all of the aspects of Federal
income taxation that may be relevant to a prospective stockholder in light of
his or her particular circumstances or to
11
stockholders (including insurance companies, tax-exempt entities, financial
institutions or broker-dealers, foreign corporations, and persons who are not
citizens or residents of the United States) who are subject to special treatment
under the Federal income tax laws.
Blackwell Sanders Peper Martin LLP has provided an opinion to the
effect that this discussion, to the extent that it contains descriptions of
applicable Federal income tax law, is correct in all material respects and
fairly summarizes the Federal income tax laws referred to herein. This opinion
is filed as an exhibit to the registration statement of which this prospectus is
a part. This opinion, however, does not purport to address the actual tax
consequences of the purchase, ownership and disposition of our Class A Common
Stock to any particular holder. The opinion, and the information in this
section, is based on the Code, current, temporary and proposed Treasury
regulations, the legislative history of the Code, current administrative
interpretations and practices of the Internal Revenue Service, and court
decisions. The reference to Internal Revenue Service interpretations and
practices includes Internal Revenue Service practices and policies as endorsed
in private letter rulings, which are not binding on the Internal Revenue Service
except with respect to the taxpayer that receives the ruling. In each case,
these sources are relied upon as they exist on the date of this prospectus. 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 existing law, on which the
opinion and the information in this section are based. Any change of this kind
could apply retroactively to transactions preceding the date of the change.
Moreover, opinions of counsel merely represent counsel's best judgment with
respect to the probable outcome on the merits and are not binding on the
Internal Revenue Service or the courts. Accordingly, even if there is no change
in applicable law, no assurance can be provided that such opinion, or the
statements made in the following discussion, will not be challenged by the
Internal Revenue Service or will be sustained by a court if so challenged.
Each prospective purchaser is advised to consult the applicable
prospectus supplement, as well as his or her own tax advisor, regarding the
specific tax consequences to him or her of the acquisition, ownership and sale
of securities of an entity electing to be taxed as a real estate investment
trust, including the federal, state, local, foreign, and other tax consequences
of such acquisition, ownership, sale, and election and of potential changes in
applicable tax laws.
Taxation of Us as a REIT
General. We have elected to be taxed as a REIT under Sections 856
through 859 of the Code, commencing with our taxable year which ended September
30, 1968. Our qualification and taxation as a REIT depends upon our ability to
meet on a continuing basis, through actual annual operating results,
distribution levels and diversity of stock ownership, the various qualification
tests and organizational requirements imposed under the Code, as discussed
below. We believe that we are organized and have operated in such a manner as to
qualify under the Code for taxation as a REIT since our inception, and we intend
to continue to operate in such a manner. No assurances, however, can be given
that we will operate in a manner so as to qualify or remain qualified as a REIT.
See "Failure to Qualify" below.
12
The following is a general summary of the material Code provisions that
govern the Federal income tax treatment of a REIT and its stockholders. These
provisions of the Code are highly technical and complex. This summary is
qualified in its entirety by the applicable Code provisions, the regulations
promulgated thereunder ("Treasury Regulations"), and administrative and judicial
interpretations thereof.
Blackwell Sanders Peper Martin LLP has provided to us an opinion to the
effect that we have been organized and have operated in conformity with the
requirements for qualification and taxation as a REIT, effective for each of our
taxable years ended September 30, 2000 through September 30, 2002, and our
current and proposed organization and method of operation will enable us to
continue to meet the requirements for qualification and taxation as a REIT for
taxable year 2003 and thereafter. This opinion is filed as an exhibit to the
registration statement of which this prospectus is a part. It must be emphasized
that this opinion is conditioned upon certain assumptions and representations
made by us to Blackwell Sanders Peper Martin LLP as to factual matters relating
to our organization and operation. In addition, this opinion is based upon our
factual representations concerning our business and properties as described in
the reports filed by us under the federal securities laws.
Qualification and taxation as a REIT depends upon our ability to meet
on a continuing basis, through actual annual operating results, the various
requirements under the Code described in this prospectus with regard to, among
other things, the sources of our gross income, the composition of our assets,
our distribution levels, and our diversity of stock ownership. Blackwell Sanders
Peper Martin LLP will not review our operating results on an ongoing basis.
While we intend to operate so that we qualify as a REIT, given the highly
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 we satisfy all of the tests for REIT qualification
or will continue to do so.
If we qualify for taxation as a REIT, we generally will not be subject
to Federal corporate income taxes on net income that we currently distribute to
stockholders. This treatment substantially eliminates the "double taxation" (at
the corporate and stockholder levels) that generally results from investment in
a corporation.
Notwithstanding our REIT election, however, we will be subject to
Federal income tax in the following circumstances. First, we will be taxed at
regular corporate rates on any undistributed taxable income, including
undistributed net capital gains, provided, however, that properly designated
undistributed capital gains will effectively avoid taxation at the shareholder
level. Second, under certain circumstances, we may be subject to the
"alternative minimum tax" on any items of tax preference and alternative minimum
tax adjustments. Third, if we have (i) net income from the sale or other
disposition of "foreclosure property" (which is, in general, property acquired
by foreclosure or otherwise on default of a loan secured by the property) that
is held primarily for sale to customers in the ordinary course of business or
(ii) 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 (which are, in general, certain sales or other
dispositions of property (other than foreclosure property) held primarily for
sale to customers in the ordinary course of business), such income will be
subject to a 100% tax on prohibited transactions. Fifth, if we should fail to
satisfy the 75% gross income test or the
13
95% gross income test (as discussed below), and have nonetheless maintained our
qualification as a REIT because certain other requirements have been met, we
will be subject to a 100% tax equal to the gross income attributable to the
greater of either (i) the amount by which 75% of our gross income exceeds the
amount qualifying under the 75% test for the taxable year or (ii) the amount by
which 90% of our gross income exceeds the amount of our income qualifying under
the 95% test for the taxable year, multiplied in either case by a fraction
intended to reflect our profitability. Sixth, if we should fail to distribute
during each calendar year at least the sum of (i) 85% of our REIT ordinary
income for such year; (ii) 95% of our REIT capital gain net income for such year
(for this purpose such term includes capital gains which we elect to retain but
which we report as distributed to our stockholders. See "Annual Distribution
Requirements" below); and (iii) any undistributed taxable income from prior
years, 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, and we recognize gain on the
disposition of such asset during the 10-year period beginning on the date on
which such asset was acquired by us, then, to the extent of such property's
built-in gain (the excess of the fair market value of such property at the time
of acquisition by us over the adjusted basis of such property at such time),
such gain will be subject to tax at the highest regular corporate rate
applicable assuming that we made or would make an election pursuant to Notice
88-19 or Treasury Regulations that were promulgated in 2000. Eighth, we would be
subject to a 100% penalty tax on amounts received (or on certain expenses
deducted by a taxable REIT subsidiary) if arrangements among us, our tenants and
a taxable REIT subsidiary were not comparable to similar arrangements among
unrelated parties.
Requirements for Qualification
The Code defines a REIT as a corporation, trust or association (i)
which is managed by one or more trustees or directors; (ii) the beneficial
ownership of which is evidenced by transferable shares or by transferable
certificates of beneficial interest; (iii) which would be taxable as a domestic
corporation but for Code Sections 856 through 859; (iv) which is neither a
financial institution nor an insurance company subject to certain provisions of
the Code; (v) the beneficial ownership of which is held by 100 or more persons;
(vi) of which not more than 50% in value of the outstanding capital stock is
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities) during the last half of each taxable year
after applying certain attribution rules; (vii) that makes an election to be
treated as a REIT for the current taxable year or has made an election for a
previous taxable year which has not been revoked and (viii) which meets certain
other tests, described below, regarding the nature of its income and assets. The
Code provides that conditions (i) through (iv), inclusive, must be met during
the entire taxable year and that condition (v) 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. Condition (vi) must be met during the last half of
each taxable year. For purposes of determining stock ownership under condition
(vi), a supplemental unemployment compensation benefits plan, a private
foundation or a portion of a trust permanently set aside or used exclusively for
charitable purposes generally is considered an individual. However, a trust that
is a qualified trust under Code Section 401(a) generally is not considered an
individual, and beneficiaries of a qualified trust are treated as holding shares
of a REIT in proportion to their
14
actuarial interests in the trust for purposes of condition (vi). Conditions (v)
and (vi) do not apply until after the first taxable year for which an election
is made to be taxed as a REIT. We have issued sufficient Common Stock with
sufficient diversity of ownership to allow us to satisfy requirements (v) and
(vi). In addition, our Charter contains restrictions regarding the transfer of
our stock intended to assist in continuing to satisfy the stock ownership
requirements described in (v) and (vi) above. See "Description of Capital Stock
- General." These restrictions, however, may not ensure that we will be able to
satisfy these stock ownership requirements. If we fail to satisfy these stock
ownership requirements, we will fail to qualify as a REIT.
In addition, if a corporation elected to be a REIT subsequent to
October 4, 1976, it must have as its taxable year, the calendar year. We elected
to be classified as a REIT prior to that date. Consequently, our taxable year
ends September 30.
To qualify as a REIT, we cannot have at the end of any taxable year any
undistributed earnings and profits that are attributable to a non-REIT taxable
year. We believe that we have complied with this requirement.
For our tax years beginning prior to January 1, 1998, pursuant to
applicable Treasury Regulations, to be taxed as a REIT, we were required to
maintain certain records and request on an annual basis certain information from
our stockholders designed to disclose the actual ownership of our outstanding
shares. We have complied with such requirements. For our tax years beginning
January 1, 1998 and after, these records and informational requirements are no
longer a condition to REIT qualification. Instead, a monetary penalty will be
imposed for failure to comply with these requirements. If we comply with these
regulatory rules, and we do not know, or exercising reasonable diligence would
not have known, whether we failed to meet requirement (vi) above, we will be
treated as having met the requirement.
Qualified REIT Subsidiaries
If a REIT owns a corporate subsidiary that is a "qualified REIT
subsidiary," the separate existence of that subsidiary will be disregarded for
federal income tax purposes. Generally, a qualified REIT subsidiary is a
corporation, other than a taxable REIT subsidiary, all of the capital stock of
which is owned by the REIT. All assets, liabilities and items of income,
deduction and credit of the qualified REIT subsidiary will be treated as assets,
liabilities and items of income, deduction and credit of the REIT itself. A
qualified REIT subsidiary of ours will not be subject to federal corporate
income taxation, although it may be subject to state and local taxation in some
states.
Taxable REIT Subsidiaries
A "taxable REIT subsidiary" is an entity taxable as a corporation in
which we own stock and that elects with us to be treated as a taxable REIT
subsidiary under Section 856(l) of the Code. In addition, if one of our taxable
REIT subsidiaries owns, directly or indirectly, securities representing more
than 35% of the vote or value of a subsidiary corporation, that subsidiary will
also be treated as a taxable REIT subsidiary of ours. A taxable REIT subsidiary
is subject to federal income tax, and state and local income tax where
applicable, as a regular "C" corporation.
15
Generally, a taxable REIT subsidiary can perform impermissible tenant
services without causing us to receive impermissible tenant services income
under the REIT income tests. However, several provisions regarding the
arrangements between a REIT and its taxable REIT subsidiaries ensure that a
taxable REIT subsidiary will be subject to an appropriate level of federal
income taxation. For example, a taxable REIT subsidiary is limited in its
ability to deduct interest payments made to us. In addition, we will be
obligated to pay a 100% penalty tax on some payments that we receive or on
certain expenses deducted by the taxable REIT subsidiary if the economic
arrangements among us, our tenants and the taxable REIT subsidiary are not
comparable to similar arrangements among unrelated parties. We currently do not
have any taxable REIT subsidiaries.
Income Tests
In order for us to maintain qualification as a REIT, certain separate
percentage tests relating to the source of our gross income must be satisfied
annually. First, at least 75% of our gross income (excluding gross income from
prohibited transactions) for each taxable year generally must be derived
directly or indirectly from investments relating to real property or mortgages
on real property (including "rents from real property," gain, and, in certain
circumstances, interest) or from certain types of 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 described above, dividends, interest and gain from the sale or
disposition of stock or securities, some payments under hedging instruments, or
from any combination of the foregoing.
Rents received by us will qualify as "rents from real property" in
satisfying the above gross income tests only if several conditions are met.
First, the amount of rent must not be based in whole or in part on the income or
profits of any person. However, amounts received or accrued generally will not
be excluded from "rents from real property" solely by reason of being based on a
fixed percentage or percentages of receipts or sales.
Second, rents received from a tenant will not qualify as "rents from
real property" if we, or a direct or indirect owner of 10% or more of our stock,
actually or constructively owns 10% or more of such tenant (a "Related Party
Tenant"). We may, however, lease our properties to a taxable REIT subsidiary and
rents received from that subsidiary will not be disqualified from being "rents
from real property" by reason of our ownership interest in the subsidiary if at
least 90% of the property in question is leased to unrelated tenants and the
rent paid by the taxable REIT subsidiary is substantially comparable to the rent
paid by the unrelated tenants for comparable space.
Third, if rent attributable to personal property that is leased in
connection with a lease of real property is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to such personal
property will not qualify as "rents from real property." This 15% test is based
on relative fair market value of the real and personal property.
Generally, for rents to qualify as "rents from real property" for the
purposes of the gross income tests, we are only allowed to provide services that
are both "usually or customarily rendered" in connection with the rental of real
property and not otherwise considered "rendered
16
to the occupant." Income received from any other service will be treated as
"impermissible tenant service income" unless the service is provided through an
independent contractor that bears the expenses of providing the services and
from whom we derive no revenue or through a taxable REIT subsidiary, subject to
specified limitations. The amount of impermissible tenant service income we
receive is deemed to be the greater of the amount actually received by us or
150% of our direct cost of providing the service. If the impermissible tenant
service income exceeds 1% of our total income from a property, then all of the
income from that property will fail to qualify as rents from real property. If
the total amount of impermissible tenant service income from a property does not
exceed 1% of our total income from that property, the income will not cause the
rent paid by tenants of that property to fail to qualify as rents from real
property, but the impermissible tenant service income itself will not qualify as
rents from real property.
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 we
are entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if our failure to meet such tests was due
to reasonable cause and not due to willful neglect, if we attach a schedule of
the sources of our income to our federal income tax return for such years, and
if any incorrect information on the schedules 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 these relief provisions. As discussed
above in "General," even if these relief provisions were to apply, a tax would
be imposed with respect to the excess net income.
Asset Tests
At the close of each quarter of our taxable year, we must satisfy six
tests relating to the nature of our assets.
1. At least 75% of the value of our total assets must be represented
by "real estate assets," cash, cash items and government
securities. Our real estate assets include, for this purpose, our
allocable share of real estate assets held by the partnerships in
which we own an interest, and the non-corporate subsidiaries of
these partnerships, as well as stock or debt instruments held for
less than one year purchased with the proceeds of an offering of
shares or long term debt.
2. Not more than 25% of our total assets may be represented by
securities, other than those in the 75% asset class.
3. Except for certain investments in REITs, qualified REIT
subsidiaries, and taxable REIT subsidiaries, the value of any one
issuer's securities owned by us may not exceed 5% of the value of
our total assets.
4. Except for certain investments in REITs, qualified REIT
subsidiaries and taxable REIT subsidiaries, we may not own more
than 10% of any one issuer's outstanding voting securities.
5. Except for certain investments in REITs, qualified REIT
subsidiaries and taxable REIT subsidiaries, we may not own more
than 10% of the total value of the
17
outstanding securities of any one issuer, other than securities
that qualify as "straight debt" under the Internal Revenue Code.
6. Not more than 20% of our total assets may be represented by the
securities of one or more taxable REIT subsidiaries.
For purposes of these asset tests, any shares of qualified REIT
subsidiaries are not taken into account, and any assets owned by the qualified
REIT subsidiary are treated as owned directly by the REIT.
Securities, for purposes of the assets tests, may include debt we hold.
However, debt we hold in an issuer will not be taken into account for purposes
of the 10% value test if the debt securities meet the "straight debt" safe
harbor and either (1) the issuer is an individual, (2) the only securities of
the issuer that we hold are straight debt or (3) if the issuer is a partnership,
we hold at least a 20 percent profits interest in the partnership. Debt will
meet the "straight debt" safe harbor if the debt is a written unconditional
promise to pay on demand or on a specified date a sum certain in money (1) which
is not convertible, directly or indirectly, into stock and (2) the interest rate
(or the interest payment dates) of which is not contingent on the profits, the
borrower's discretion or similar factors.
With respect to each issuer in which we currently own an interest that
does not qualify as a REIT, a qualified REIT subsidiary or a taxable REIT
subsidiary, we believe that our pro rata share of the value of the securities,
including unsecured debt, of any such issuer does not exceed 5% of the total
value of our assets and that we comply with the 10% voting securities limitation
and 10% value limitation (taking into account the "straight debt" exceptions
with respect to certain issuers). With respect to our compliance with each of
these asset tests, however, we cannot provide any assurance that the Internal
Revenue Service might not disagree with our determinations.
After initially meeting the asset tests after the close of any quarter,
we will not lose our status as a REIT if we fail to satisfy the 25%, 20% or 5%
asset tests or the 10% value limitation at the end of a later quarter solely by
reason of changes in the relative values of our assets. If the failure to
satisfy the 25%, 20%, or 5% asset tests or the 10% value limitation results from
an increase in the value of our assets after the acquisition of securities or
other property during a quarter, the failure can be cured by a disposition of
sufficient non-qualifying assets within 30 days after the close of that quarter.
We have maintained and intend to continue to maintain adequate records of the
value of our assets to ensure compliance with the asset tests and to take any
available actions within 30 days after the close of any quarter as may be
required to cure any noncompliance with the 25%, 20%, or 5% asset tests or the
10% value limitation. We cannot ensure that these steps always will be
successful. If we were to fail to cure the noncompliance with the asset tests
within this 30 day period, we could fail to qualify as a REIT.
Annual Distribution Requirements
We, in order to qualify as a REIT, are required to distribute dividends
(other than capital gain dividends) to our stockholders in an amount at least
equal to (i) the sum of (a) 90% of our "REIT taxable income" (computed without
regard to the dividends paid deduction and our
18
net capital gain) and (b) 90% of the net income (after tax), if any, from
foreclosure property, minus (ii) the sum of certain items of noncash income.
Such distributions generally must be paid in the taxable year to which they
relate. Dividends may be paid in the following year in two circumstances. First,
dividends may be declared in the following year if the dividends are declared
before we timely file our tax return for the year and paid within 12 months of
the end of the tax year but before the first regular dividend payment made after
such declaration. Second, if we declare a dividend in October, November or
December of any year with a record date in one of these months and pay the
dividend on or before January 31 of the following year, we will be treated as
having paid the dividend on December 31 of the year in which the dividend was
declared. To the extent that we do not distribute all of our net capital gain or
distribute at least 90%, but less than 100%, of our "REIT taxable income," as
adjusted, we will be subject to tax on the nondistributed amount at regular
capital gains and ordinary corporate tax rates. Furthermore, if we should fail
to distribute during each calendar year at least the sum of (i) 85% of our REIT
ordinary income for such year; (ii) 95% of our REIT capital gain income for such
year; and (iii) any undistributed taxable income from prior periods, we will be
subject to a 4% excise tax on the excess of such required distribution over the
amounts actually distributed.
We may elect to retain and pay tax on net long-term capital gains and
require our stockholders to include their proportionate share of such
undistributed net capital gains in their income. If we make such election,
stockholders would receive a tax credit attributable to their share of the
capital gains tax paid by us, and would receive an increase in the basis of
their shares in us in an amount equal to the stockholder's share of the
undistributed net long-term capital gain reduced by the amount of the credit.
Further, any undistributed net long-term capital gains that are included in the
income of our stockholders pursuant to this rule will be treated as distributed
for purposes of the 4% excise tax.
We have made and intend to continue to make timely distributions
sufficient to satisfy the annual distribution requirements. It is possible,
however, that we, from time to time, may not have sufficient cash or liquid
assets to meet the distribution requirements due to timing differences between
the actual receipt of income and actual payment of deductible expenses and the
inclusion of such income and deduction of such expenses in arriving at our
taxable income, or if the amount of nondeductible expenses such as principal
amortization or capital expenditures exceeds the amount of noncash deductions.
In the event that such timing differences occur, in order to meet the
distribution requirements, we may arrange for short-term, or possibly long-term,
borrowing to permit the payment of required dividends. If the amount of
nondeductible expenses exceeds noncash deductions, we may refinance our
indebtedness to reduce principal payments and may borrow funds for capital
expenditures.
Under certain circumstances, we may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year that may be included in our deduction for dividends
paid for the earlier year. Thus, we may avoid being taxed on amounts distributed
as deficiency dividends; however, we will be required to pay interest to the
Internal Revenue Service based upon the amount of any deduction taken for
deficiency dividends.
19
Failure to Qualify
If we fail to qualify for taxation as a REIT in any taxable year and no
relief provisions apply, we will be subject to tax (including any applicable
alternative minimum tax) on our taxable income at regular corporate rates.
Distributions to stockholders in any year in which we fail to qualify will not
be deductible by us, nor will such distributions be required to be made. In such
event, to the extent of current and accumulated earnings and profits, all
distributions to stockholders will be taxable as ordinary income, and, subject
to certain limitations in the Code, corporate distributees may be eligible for
the dividends received deduction. Unless entitled to relief under specific
statutory provisions, we will also be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
It is not possible to state whether in all circumstances we would be entitled to
such statutory relief.
Taxation of Stockholders
Taxation of Taxable U.S. Stockholders. As used in the remainder of
this discussion, the term "U.S. Stockholder" means a beneficial owner of our
Class A Common Stock that is for United States federal income tax purposes:
1. a citizen or resident, as defined in Section 7701(b) of the Code,
of the United States;
2. a corporation or 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 United States or
any state or the District of Columbia;
3. an estate the income of which is subject to United States federal
income taxation regardless of its source; or
4. in general, a trust subject to the primary supervision of a
United States court and the control of one or more United States
persons.
Generally, in the case of a partnership that holds our Class A Common
Stock, any partner that would be a U.S. Stockholder if it held the Class A
Common Stock directly is also a U.S. Stockholder. As long as we qualify as a
REIT, distributions made to our taxable U.S. Stockholders out of current or
accumulated earnings and profits (and not designated as capital gain dividends
or retained capital gains) will be taken into account by them as ordinary
income, and corporate stockholders will not be eligible for the dividends
received deduction as to such amounts. Distributions in excess of current and
accumulated earnings and profits will not be taxable to a stockholder to the
extent that they do not exceed the adjusted basis of such stockholder's Class A
Common Stock, but rather will reduce the adjusted basis of such shares as a
return of capital. To the extent that such distributions exceed the adjusted
basis of a stockholder's Class A Common Stock, they will be included in income
as long-term capital gain (or short-term capital gain if the shares have been
held for one year or less), assuming the shares are a capital asset in the hands
of the stockholder. In addition, any dividend declared by us in October,
November or December of any year payable to a stockholder of record on a
specific date in any such month shall be treated as both paid by us and received
by the stockholder on December 31 of such year, provided that the dividend is
actually paid by us during January of the
20
following calendar year. For purposes of determining what portion of a
distribution is attributable to current or accumulated earnings and profits,
earnings and profits will first be allocated to distributions made to holders of
the shares of preferred stock. Stockholders may not include in their individual
income tax returns any net operating losses or capital losses of ours.
In general, any gain or loss realized upon a taxable disposition of
shares by a stockholder who is not a dealer in securities will be treated as a
long-term capital gain or loss if the shares have been held for more than one
year, otherwise as short-term capital gain or loss. However, any loss upon a
sale or exchange of Class A Common Stock by a stockholder who has held such
shares for six months or less (after applying certain holding period rules)
generally will be treated as long-term capital loss to the extent of
distributions from us required to be treated by such stockholder as long-term
capital gain.
Distributions that we properly designate as capital gain dividends will
be taxable to stockholders as gains (to the extent that they do not exceed our
actual net capital gain for the taxable year) from the sale or disposition of a
capital asset held for greater than one year. If we designate any portion of a
dividend as a capital gain dividend, a U.S. Stockholder will receive an Internal
Revenue Service Form 1099-DIV indicating the amount that will be taxable to the
stockholder as capital gain. However, stockholders that are corporations may be
required to treat up to 20% of certain capital gain dividends as ordinary
income. A portion of capital gain dividends received by noncorporate taxpayers
may be subject to tax at a 25% rate to the extent attributable to certain gains
realized on the sale of real property. In addition, noncorporate taxpayers are
generally taxed at a maximum rate of 20% on net long-term capital gain
(generally, the excess of net long-term capital gain over net short-term capital
loss) attributable to gains realized on the sale of property held for greater
that one year.
Distributions we make and gain arising from the sale or exchange by a
stockholder of shares of our stock will not be treated as passive activity
income, and, as a result, stockholders generally will not be able to apply any
"passive losses" against such income or gain. Distributions we make (to the
extent they do not constitute a return of capital) generally will be treated as
investment income for purposes of computing the investment interest limitation.
Gain arising from the sale or other disposition of our stock (or distributions
treated as such) will not be treated as investment income under certain
circumstances.
Upon any taxable sale or other disposition of our Class A Common Stock,
a U.S. Stockholder will recognize gain or loss for federal income tax purposes
on the disposition of our stock in an amount equal to the difference between
o the amount of cash and the fair market value of any property
received on such disposition; and
o the U.S. Stockholder's adjusted basis in such stock for tax
purposes.
Gain or loss will be capital gain or loss if the Class A Common Stock
has been held by the U.S. Stockholder as a capital asset. The applicable tax
rate will depend on the stockholder's holding period in the asset (generally, if
an asset has been held for more than one year it will produce long-term capital
gain) and the stockholder's tax bracket. A U.S. Stockholder who is an
21
individual or an estate or trust and who has long-term capital gain or loss will
be subject to a maximum capital gain rate of 20%. U.S. Stockholders that
acquire, or are deemed to acquire, stock after December 31, 2000 and who hold
the stock for more than five years and certain low income taxpayers may be
eligible for a lower long-term capital gains rate. However, to the extent that
the capital gain realized by a non-corporate stockholder on the sale of REIT
stock corresponds to the REIT's "unrecaptured Section 1250 gain," such gain
would be subject to tax at a rate of 25%. Stockholders are advised to consult
with their own tax advisors with respect to their capital gain tax liability.
Taxation of Tax-Exempt Stockholders. Provided that a tax-exempt
stockholder has not held our Class A Common Stock as "debt financed property"
within the meaning of the Internal Revenue Code, the dividend income from us
will not be unrelated business taxable income, referred to as UBTI, to a
tax-exempt stockholder. Similarly, income from the sale of Class A Common Stock
will not constitute UBTI unless the tax-exempt stockholder has held its stock as
debt financed property within the meaning of the Internal Revenue Code or has
used the Class A Common Stock in a trade or business. However, for a tax-exempt
stockholder that is a social club, voluntary employee benefit association,
supplemental unemployment benefit trust, or qualified group legal services plan
exempt from federal income taxation under Internal Revenue Code Sections
501(c)(7), (c)(9), (c)(17) and (c)(20), respectively, or a single parent
title-holding corporation exempt under Section 501(c)(2) the income of which is
payable to any of the aforementioned tax-exempt organizations, income from an
investment in us will constitute UBTI unless the organization properly sets
aside or reserves such amounts for purposes specified in the Internal Revenue
Code. These tax exempt stockholders should consult their own tax advisors
concerning these "set aside" and reserve requirements.
A "qualified trust" (defined to be any trust described in Code Section
401(a) and exempt from tax under Code Section 501(a)) that holds more than 10%
of the value of the shares of a REIT may be required, under certain
circumstances, to treat a portion of distributions from the REIT as UBTI. This
requirement will apply for a taxable year only if (i) the REIT satisfies the
requirement that not more than 50% of the value of its shares be held by five or
fewer individuals (the "five or fewer requirement") only by relying on a special
"look-through" rule under which shares held by qualified trust stockholders are
treated as held by the beneficiaries of such trusts in proportion to their
actuarial interests therein; and (ii) the REIT is "predominantly held" by
qualified trusts. A REIT is "predominantly held" by qualified trusts if either
(i) a single qualified trust holds more than 25% of the value of the REIT
shares, or (ii) one or more qualified trusts, each owning more than 10% of the
value of the REIT shares, hold in the aggregate more than 50% of the value of
the REIT shares. If the foregoing requirements are met, the percentage of any
REIT dividend treated as UBTI to a qualified trust that owns more than 10% of
the value of the REIT shares is equal to the ratio of (i) the UBTI earned by the
REIT (computed as if the REIT were a qualified trust and therefore subject to
tax on its UBTI) to (ii) the total gross income (less certain associated
expenses) of the REIT for the year in which the dividends are paid. A de minimis
exception applies where the ratio set forth in the preceding sentence is less
than 5% for any year.
The provisions requiring qualified trusts to treat a portion of REIT
distributions as UBTI will not apply if the REIT is able to satisfy the five or
fewer requirement without relying on the "look-through" rule. The restrictions
on ownership of stock in our charter should prevent
22
application of the foregoing provisions to qualified trusts purchasing our
stock, absent a waiver of the restrictions by the Board of Directors.
Taxation of Non-U.S. Stockholders. The rules governing U.S. Federal
income taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex, and no attempt will be made herein to provide more
than a limited summary of such rules. The discussion does not consider any
specific facts or circumstances that may apply to a particular Non-U.S.
Stockholder. Prospective Non-U.S. Stockholders should consult with their own tax
advisors to determine the impact of U.S. Federal, state and local income tax
laws with regard to an investment in our Class A Common Stock, 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 gain
dividends or retained capital gains 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 such rate. However, if income from the investment
in our stock is treated as effectively connected with the Non-U.S. Stockholder's
conduct of a U.S. trade or business, the Non-U.S. Stockholder generally will be
subject to a tax at graduated rates in the same manner as U.S. stockholders are
taxed with respect to such dividends (and may also be subject to a branch
profits tax of up to 30% if the stockholder is a foreign corporation). We expect
to withhold U.S. income tax at the rate of 30% on the gross amount of any
dividends paid to a Non-U.S. Stockholder that are not designated as capital gain
dividends, unless (i) a lower treaty rate applies and the Non-U.S. Stockholder
files an IRS Form W-8BEN evidencing eligibility for that reduced rate is filed
with us or (ii) the Non-U.S. Stockholder files an IRS Form W-8ECI with us
claiming that the distribution is income treated as effectively connected to a
U.S. trade or business.
Distributions in excess of our current and accumulated earnings and
profits will not be taxable to a stockholder to the extent that they do not
exceed the adjusted basis of the stockholder's stock, but rather will reduce the
adjusted basis of such shares. To the extent that such distributions exceed the
adjusted basis of a Non-U.S. Stockholder's shares, they will give rise to tax
liability if the Non-U.S. Stockholder would otherwise be subject to tax on any
gain from the sale or disposition of his or her stock as described below. We may
be required to withhold U.S. income tax at the rate of at least 10% on
distributions to Non-U.S. Stockholders that are not paid out of current or
accumulated earnings and profits unless the Non-U.S. Stockholders provide us
with withholding certificates evidencing their exemption from withholding tax.
If it cannot be determined at the time that such a distribution is made whether
or not 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 dividends. However, the Non-U.S. Stockholder may seek a refund of
such amounts from the Service if it is subsequently determined that such
distribution was, in fact, in excess of our current and accumulated earnings and
profits.
For any year in which we qualify as a REIT, distributions that are
attributable to gain from sales or exchanges by us of U.S. real property
interests will be taxed to a Non-U.S. Stockholder under the provisions of the
Foreign Investment in Real Property Tax Act of 1980
23
("FIRPTA"). Under FIRPTA, these distributions are taxed to a Non-U.S.
Stockholder as if such gain were effectively connected with a U.S. business.
Thus, Non-U.S. Stockholders will be taxed on such distributions at the normal
capital gain rates applicable to U.S. stockholders (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals). Also, distributions subject to FIRPTA may be
subject to a 30% branch profits tax in the hands of a corporate Non-U.S.
Stockholder not entitled to treaty relief or exemption. We are required by
applicable Treasury Regulations to withhold 35% of any distribution that could
be designated by us as a capital gain dividend. This amount is creditable
against the Non-U.S. Stockholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Stockholder upon the sale or exchange of
our stock generally would not be subject to United States taxation unless:
o the investment in our stock is effectively connected with the
Non-U.S. Stockholder's U.S. trade or business, in which case the
Non-U.S. Stockholder will be subject to the same treatment as
domestic stockholders with respect to any gain;
o the Non-U.S. Stockholder is a non-resident alien individual who
is present in the United States for 183 days or more during the
taxable year and has a tax home in the United States, in which
case the non-resident alien individual will be subject to a 30%
tax on the individual's net capital gains for the taxable year;
or
o our stock constitutes a U.S. real property interest within the
meaning of FIRPTA, as described below.
Our Class A Common Stock will not constitute a United States real
property interest if we are a domestically-controlled REIT. We will be a
domestically-controlled REIT if, at all times during a specified testing period,
less than 50% in value of our stock is held directly or indirectly by Non-U.S.
Stockholders.
We believe that, currently, we are a domestically controlled REIT and,
therefore, that the sale of our Class A Common Stock would not be subject to
taxation under FIRPTA. Because our Class A Common Stock is publicly traded,
however, we cannot guarantee that we are or will continue to be a
domestically-controlled REIT.
Even if we do not qualify as a domestically-controlled REIT at the time
a Non-U.S. Stockholder sells our Class A Common Stock, gain arising from the
sale still would not be subject to FIRPTA tax if:
o the class or series of shares sold is considered regularly traded
under applicable Treasury regulations on an established
securities market, such as the NYSE; and
o the selling Non-U.S. Stockholder owned, actually or
constructively, 5% or less in value of the outstanding class or
series of stock being sold throughout the five-year period ending
on the date of the sale or exchange.
24
If gain on the sale or exchange of our Class A Common Stock were
subject to taxation under FIRPTA, the Non-U.S. Stockholder would be subject to
regular U.S. income tax with respect to any gain in the same manner as a taxable
U.S. Stockholder, subject to any applicable alternative minimum tax and special
alternative minimum tax in the case of non-resident alien individuals.
State and Local Taxes. We and our stockholders may be subject to state
or local taxation in various state or local jurisdictions, including those in
which we or they transact business or reside (although U.S. Stockholders who are
individuals generally should not be required to file state income tax returns
outside of their state of residence with respect to our operations and
distributions). The state and local tax treatment of us and our stockholders may
not conform to the Federal income tax consequences discussed above.
Consequently, prospective stockholders should consult their own tax advisors
regarding the effect of state and local tax laws on an investment in our Class A
Common Stock.
Backup Withholding Tax and Information Reporting
U.S. Holders. In general, information-reporting requirements will apply
to certain U.S. holders with regard to payments of dividends on our stock, OID,
interest, and payments of the proceeds of the sale of our Class A Common Stock,
unless an exception applies.
The payor will be required to withhold tax on such payments at the rate
of 30% (scheduled to be reduced incrementally to 28% by 2006) if (i) the payee
fails to furnish a taxpayer identification number, or TIN, to the payor or to
establish an exemption from backup withholding, or (ii) the Internal Revenue
Service notifies the payor that the TIN furnished by the payor is incorrect.
In addition, a payor of dividends on our Class A Common Stock will be
required to withhold tax at a rate of 27% (scheduled to be reduced incrementally
to 25% by 2006) if (i) there has been a notified payee under-reporting with
respect to interest, dividends or original issue discount described in Section
3406(c) of the Code, or (ii) there has been a failure of the payee to certify
under the penalty of perjury that the payee is not subject to backup withholding
under the Internal Revenue Code.
Some holders, including corporations, may be exempt from backup
withholding. Any amounts withheld under the backup withholding rules from a
payment to a holder will be allowed as a credit against the holder's United
States Federal income tax and may entitle the holder to a refund, provided that
the required information is furnished to the Internal Revenue Service.
Non-U.S. Holders. Generally, information reporting will apply to
payments of dividends on our Class A Common Stock, interest, including OID, and
backup withholding as described above for a U.S. holder, unless the payee
certifies that it is not a U.S. person or otherwise establishes an exemption.
The payment of the proceeds from the disposition of our Class A Common
Stock to or through the U.S. office of a U.S. or foreign broker will be subject
to information reporting and backup withholding as described above for U.S.
holders unless the non-U.S. holder satisfies the
25
requirements necessary to be an exempt non-U.S. holder or otherwise qualifies
for an exemption. The proceeds of a disposition by a non-U.S. holder of stock to
or through a foreign office of a broker generally will not be subject to
information reporting or backup withholding. However, if the broker is a U.S.
person, a controlled foreign corporation for U.S. tax purposes, a foreign person
50% or more of whose gross income from all sources for specified periods is from
activities that are effectively connected with a U.S. trade or business, a
foreign partnership if partners who hold more than 50% of the interests in the
partnership are U.S. persons, or a foreign partnership that is engaged in the
conduct of a trade or business in the U.S., then information reporting generally
will apply as though the payment was made through a U.S. office of a U.S. or
foreign broker.
Applicable Treasury Regulations provide presumptions regarding the
status of holders when payments to the holders cannot be reliably associated
with appropriate documentation provided to the payor. Under these Treasury
Regulations, some holders are required to provide new certifications with
respect to payments made after December 31, 2000. Because the application of
these Treasury Regulations varies depending on the stockholder's particular
circumstances, you are advised to consult your tax advisor regarding the
information reporting requirements applicable to you.
PLAN OF DISTRIBUTION
We may sell our Class A Common Stock to one or more underwriters or
dealers for public offer and sale by them or may sell our Class A Common Stock
offered hereby to the public, to a limited number of institutional purchasers or
to a single purchaser, directly or through agents. Any underwriter or agent
involved in the offer and sale of the securities will be named in the applicable
prospectus supplement.
The distribution of the securities may be effected from time to time in
one or more transactions at a fixed price, prices which may be changed, prices
related to the prevailing market prices at the time of sale or negotiated prices
(any of which may represent a discount from the prevailing market prices). We
also may, from time to time, authorize underwriters acting as our agents to
offer and sell the securities upon the terms and conditions as are set forth in
the applicable prospectus supplement. In connection with the sale of securities,
underwriters may be deemed to have received compensation from us in the form of
underwriting discounts or commissions and may also receive commissions from
purchasers of securities for whom they may act as agent. Underwriters may sell
securities 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 agent.
Any underwriting compensation paid by us to underwriters or agents in
connection with the offering of securities and any discounts, concessions or
commissions allowed by underwriters to participating dealers, will be set forth
in the applicable prospectus supplement. Underwriters, dealers and agents
participating in the distribution of the securities may be deemed to be
underwriters, and any discounts and commissions received by them and any profit
realized by them on resale of the securities may be deemed to be underwriting
discounts and commissions, under the Securities Act. Underwriters, dealers and
agents may be entitled, under
26
agreements entered into with us, to indemnification against and contribution
toward certain civil liabilities, including liabilities under the Securities
Act.
If so indicated in the applicable prospectus supplement, we will
authorize the underwriters, dealers or other persons acting as our agents to
solicit offers by certain institutions to purchase securities from us at the
public offering price set forth in that prospectus supplement pursuant to
delayed delivery contracts providing for payment and delivery on the date or
dates stated in such prospectus supplement. Each contract will be for an amount
not less than, and the aggregate principal amount of securities sold pursuant to
contracts will not be less than nor greater than, the respective amounts stated
in the applicable prospectus supplement. Institutions with whom contracts, when
authorized, may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions, and other institutions but will in all cases be subject to the
approval of us. Contracts may be subject to any conditions including (i) the
purchase by an institution of the securities covered by its contract will not at
the time of delivery be prohibited under the laws of any jurisdiction in the
United States to which such institution is subject; and (ii) if the securities
are being sold to underwriters, we have sold to such underwriters the total
principal amount of the securities less the principal amount thereof covered by
the contracts.
Some of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for us in the ordinary course
of business.
LEGAL MATTERS
The legality of the securities has been passed upon for us by Blackwell
Sanders Peper Martin LLP. The discussion of legal matters under "Material United
States Federal Income Tax Consequences" is based upon an opinion of Blackwell
Sanders Peper Martin LLP.
EXPERTS
The consolidated financial statements and schedules of Monmouth Real
Estate Investment Corporation as of September 30, 2002 and 2001, and for each of
the years in the three-year period ended September 30, 2002, have been
incorporated by reference herein in reliance upon the report of KPMG LLP,
independent accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
27
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following is an itemized statement of estimated expenses to be paid
by the Registrant in connection with the issuance and sale of the securities
being registered.
Securities and Exchange Commission registration fee....... $ 1,840
Stock exchange listing fees............................... 6,000*
Accounting fees and expenses.............................. 7,500*
Printing fees............................................. 3,000*
Legal fees and expenses................................... 20,000*
Transfer agent, registrar and trustee fees................ 5,000*
Miscellaneous............................................. 5,000*
----------
Total............................................ $ 43,340*
==========
*Estimated
Item 15. Indemnification of Directors and Officers
Section 145 of the General Corporation Law of the State of Delaware
provides, in general, that a corporation incorporated under the laws of the
State of Delaware, such as the Registrant, may indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (other than a derivative action by or in
the right of the corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another enterprise, against expenses (including attorney's fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding if such person acted
in good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such person's
conduct was unlawful. In the case of a derivative action, a Delaware corporation
may indemnify any such person against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery of the State of Delaware or any other court in which such
action was brought determines such person is fairly and reasonable entitled to
indemnity for such expenses.
II-1
Article XII of the Registrant's Certificate of Incorporation and
Amendments thereto states: "To the fullest extent permitted by the General
Corporation Law of the State of Delaware, as the same exists or may hereafter be
amended, no director of the Corporation shall be personally liable to the
Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director; provided, however, that this Article XII shall not
eliminate or limit the liability of a director (i) for any breach of such
director's duty of loyalty to the Corporation nor its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Title 8, Section 174 of the General
Corporation Law of the State of Delaware or (iv) for any transaction from which
such director derived an improper personal benefit. Failure of the Corporation
to qualify as an REIT under the REIT Provisions of the Internal Revenue Code
shall not render the directors liable to any stockholder or any other person.
Any repeal or modification of this Article XII by the stockholders of the
Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or modification."
Article VI Section 2 of the Registrant's Bylaws and Amendments thereto
states: "The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit, proceeding or investigation, whether civil, criminal or administrative,
and whether external or internal to the corporation (other than a judicial
action or suit brought by or in the right of the Corporation), by reason of the
fact that he or she is or was an Agent, against all expenses, liability and loss
(including attorneys' fees, judgments, fines, excise taxes imposed under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
penalties and amounts paid or to be paid in settlement) actually and reasonably
incurred by the Agent in connection with such action, suit, proceeding or
investigation, or any appeal therein, if the Agent acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his or here conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the Agent did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Corporation and, with respect to any
criminal action or proceeding, that the Agent had reasonable cause to believe
that his or her conduct was unlawful."
Article VI Section 3 of the Registrant's Bylaws and Amendments thereto
states: "The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed judicial
action or suit brought by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person is or was an Agent,
against expenses (including attorneys' fees) and amounts paid in settlement
actually and reasonably incurred by such person in connection with the defense,
settlement or appeal of such action or suit if he or she acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the best
interests of the Corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and
II-2
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper."
In addition, the Registrant has entered into indemnification agreements
with its officers and directors which contain provisions which are in some
respects broader than the specific indemnification provisions contained in
Section 145 of the General Corporation Law of the State of Delaware. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers or persons controlling the Registrant pursuant
to the foregoing provisions, the Registrant has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
Item 16. Exhibits.
Exhibit Description of Exhibit
Number Filed herewith:
------ --------------
(1) Underwriting Agreement*
(4.1) Certificate of Incorporation of Monmouth Real Estate Investment
Corporation (incorporated by reference from Registrant's Form S-4,
Registration No. 33-34105, filed with the SEC on April 13, 1990).
(4.2) Certificate of Amendment to the Certificate of Incorporation dated May 9, 1995
(incorporated by reference from Exhibit 3(ii) to the Registrant's Form 10-K filed
with the SEC on December 23, 2002).
(4.3) Certificate of Amendment to the Certificate of Incorporation dated July 22, 1999
(incorporated by reference from Exhibit 3(iii) to the Registrant's Form 10-K filed
with the SEC on December 23, 2002).
(4.4) Certificate of Amendment to the Certificate of
Incorporation dated April 26, 2002 (incorporated by
reference from Exhibit 3(iv) to the Registrant's Form
10-K filed with the SEC on December 23, 2002).
(4.5) Bylaws of Monmouth Real Estate Investment Corporation (incorporated by reference
from Registrant's Form S-4, Registration No. 33-34105, filed with the SEC on April
13, 1990).
(5) Opinion of Blackwell Sanders Peper Martin LLP regarding legality.
(8) Opinion of Blackwell Sanders Peper Martin LLP.
(23.1) Consent of Blackwell Sanders Peper Martin LLP (included in Exhibit 5).
(23.2) Consent of KPMG LLP.
II-3
(24) Power of Attorney.
*To be incorporated by reference subsequent to the effectiveness of this
Registration Statement, pursuant to a current report on Form 8-K in connection
with the offering of the securities.
Item 17. Undertakings.
The Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)of
the Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereto) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement, including (but not limited to) any addition or
deletion of a managing underwriter;
Provided, however, That paragraphs 1(i) and (1)(ii) of this
section do not apply if the registration statement is on Form S-3, Form
S-8 or Form F-3, and the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission by the registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act
of 1934 that are incorporated by reference in the registration
statement.
2. That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
4. The undersigned Registrant hereby undertakes that, for purposes of
determining liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
shall be deemed to be the initial bona fide offering thereof.
II-4
5. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
[The remainder of this page is intentionally left blank.]
II-5
Signatures
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Township of Freehold, State of New Jersey on the 13th day
of February, 2003:
Monmouth Real Estate Investment Corporation
By: /s/ Eugene W. Landy
-----------------------------------------
Printed Name: Eugene W. Landy
Title: Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on this 13th day of February, 2003.
/s/ EUGENE W. LANDY /s/ MATTHEW I. HIRSCH
--------------------------------------- ---------------------------------------
Eugene W. Landy Matthew I. Hirsch
Chairman of the Board, Director
President and Director
(Principal Executive Officer)
/s/ CYNTHIA J. MORGENSTERN /s/ CHARLES P. KAEMPFFER
--------------------------------------- ---------------------------------------
Cynthia J. Morgenstern Charles P. Kaempffer
Executive Vice President and Director Director
/s/ ERNEST V. BENCIVENGA /s/ SAMUEL A. LANDY
--------------------------------------- ------------------------------
Ernest V. Bencivenga Samuel A. Landy
Treasurer and Director Director
/s/ ANNA T. CHEW /s/ JOHN R. SAMPSON
--------------------------------------- ---------------------------------------
Anna T. Chew John R. Sampson
Controller and Director Director
(Principal Financial and Accounting
Officer)
/s/ DANIEL D. CROHEIM /s/ PETER J. WEIDHORN
--------------------------------------- ---------------------------------------
Daniel D. Cronheim Peter J. Weidhorn
Director Director