PROSPECTUS
$400,000,000
Common Stock
Class A Common
Stock
Preferred Stock
Depositary Shares
We intend to issue from time
to time common stock, Class A common stock, preferred stock and shares
representing entitlement to all rights and preferences of a fraction of a share
of preferred stock of a specified series and represented by depositary receipts,
having an aggregate public offering price of up to $400,000,000.
We may offer our common stock,
Class A common stock, preferred stock and depositary shares (collectively
referred to as our securities) in separate series, in amounts, at prices and on
terms that will be determined at the time of sale and set forth in one or more
supplements to this prospectus.
Our common stock entitles the
holder to one vote per share and our Class A common stock entitles the holder to
1/20th of one vote per share on all matters submitted to a vote of stockholders.
Each share of our Class A common stock is also entitled to dividends in an
amount equal to not less than 110% of the regular quarterly dividends paid on
each share of our common stock.
When we sell a particular
series of securities, we will prepare a prospectus supplement describing the
offering and the terms of that series of securities. Those terms may include
limitations on direct or beneficial ownership and restrictions on transfer of
the securities, in each case as may be set forth in our charter and as
appropriate to preserve our status as a real estate investment trust, or REIT,
for federal income tax purposes, among other reasons.
The applicable prospectus
supplement will also contain information, where applicable, about United States
federal income tax considerations, and any exchange listing of the securities
covered by the prospectus supplement.
We may offer the securities
directly or through agents or to or through underwriters or dealers. If any
agents or underwriters are involved in the sale of the securities, their names,
and any applicable purchase price, fee commission or discount arrangement
between or among them, will be set forth, or will be calculable from the
information set forth, in the accompanying prospectus supplement. We can sell
the securities through agents, underwriters or dealers only with delivery of a
prospectus supplement describing the method and terms of the offering of such
securities. None of our securities may be sold without delivery of the
applicable prospectus supplement describing the method and terms of the offering
of those securities.
Our common stock, our Class A
common stock, our 7.125% Series F Cumulative Redeemable Preferred Stock (Series F preferred stock)
and our 6.75%
Series G Cumulative Redeemable Preferred Stock (Series G
preferred stock) are listed on the New York Stock Exchange (the
NYSE) under the symbols UBP,
UBA, UBP.PRF, and UBP.PRG,
respectively.
Investing in our securities
involves risks. Before buying any securities, you should carefully read the
discussion of risks beginning on page 5 of our Annual Report on Form 10-K for
the fiscal year ended October 31, 2016 and any risk factors set forth in our
other filings with the Securities and Exchange Commission (SEC) pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the Exchange Act), and any risk factors set forth in the prospectus
supplement for a specific offering of securities.
NEITHER THE SEC NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus
is June 26, 2017.
TABLE OF CONTENTS
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
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1
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ABOUT THIS PROSPECTUS
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1
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OUR
COMPANY
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2
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RISK
FACTORS
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2
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CERTAIN RATIOS
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2
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USE
OF PROCEEDS
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2
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DESCRIPTION OF CAPITAL STOCK
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3
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CERTAIN PROVISIONS OF OUR CHARTER AND BYLAWS, MARYLAND LAW,
OUR
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STOCKHOLDER RIGHTS PLAN AND CHANGE OF CONTROL
AGREEMENTS
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21
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
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26
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PLAN
OF DISTRIBUTION
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49
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INCORPORATION BY REFERENCE
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50
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LEGAL MATTERS
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51
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EXPERTS
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51
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WHERE YOU CAN FIND MORE INFORMATION
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51
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SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This prospectus and any
accompanying prospectus supplement may contain or incorporate by reference
information that includes or is based upon forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Such statements can generally be identified by using such words as
anticipate, believe, can, continue, could, estimate, expect,
intend, may, plan, seek, should, will, or variations of such words
or other similar expressions and the negatives of such words.
All statements, other than
statements of historical facts, included in this prospectus that address
activities, events or developments that we expect, believe or anticipate will or
may occur in the future, including such matters as future capital expenditures,
dividends and acquisitions (including the amount and nature thereof), business
strategies, expansion and growth of our operations and other such matters, are
forward-looking statements. These statements are based on certain assumptions
and analyses made by us in light of our experience and our perception of
historical trends, current conditions, expected future developments and other
factors we believe are appropriate. Such statements are inherently subject to
risks, uncertainties and other factors, many of which cannot be predicted with
accuracy and some of which might not even be anticipated. Future events and
actual results, performance or achievements, financial and otherwise, may differ
materially from the results, performance or achievements expressed or implied by
the forward-looking statements. Risks, uncertainties and other factors that
might cause such differences, some of which could be material, include, but are
not limited to:
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economic and other market conditions that
could impact us, our properties or the financial stability of our tenants;
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financing risks, such as the inability to
obtain debt or equity financing on favorable terms, as well as the level
and volatility of interest rates;
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any difficulties in renewing leases, filling
vacancies or negotiating improved lease terms;
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the inability of the Companys properties to
generate revenue increases to offset expense
increases;
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environmental risk and
regulatory requirements;
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risks of real estate
acquisitions and dispositions (including the failure of transactions to
close); and
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risks of operating properties through partnerships that we do not
fully control.
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Forward-looking statements
contained in this prospectus speak only as of the date of the prospectus. Unless
required by law, we undertake no obligation to update publicly or revise any
forward-looking statements to reflect new information or future events or
otherwise. You should, however, review the factors and risks described in our
Annual Report on Form 10-K for the fiscal year ended October 31, 2016 and any
risk factors set forth in our other filings with the SEC pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act. See Where You Can Find More
Information and Incorporation by Reference elsewhere in this prospectus.
ABOUT THIS PROSPECTUS
This prospectus is part of a
registration statement that we filed with the SEC using a shelf registration
process. Under this shelf process, we may, from time to time, sell any
combination of the securities described in this prospectus in one or more
offerings. This prospectus only provides you with a general description of the
securities we may offer. Each time we sell securities under this prospectus, we
will provide a prospectus supplement that contains specific information about
the terms of the securities. The prospectus supplement may also add, update or
change information contained in this prospectus. You should both read this
prospectus and any prospectus supplement together with additional information
described in Where You Can Find More Information and Incorporation by
Reference elsewhere in this prospectus.
The total dollar amount of the
securities sold under this prospectus will not exceed $400,000,000.
You should rely only on the
information contained or incorporated by reference in this prospectus and the
prospectus supplement. We have not authorized anyone to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it.
You should not assume that the
information in this prospectus is accurate after the date of this prospectus.
Our business, financial condition and results of operations and prospects may
have changed since that date.
1
OUR COMPANY
Our sole business is the
ownership of real estate investments, which consist principally of investments
in income-producing properties, with primary emphasis on properties in the
metropolitan New York tri-state area outside of the City of New York. Our
properties consist primarily of neighborhood and community shopping centers and
seven small office buildings near our headquarters. We seek to identify
desirable properties for acquisition, which we acquire in the normal course of
business. In addition, we regularly review our portfolio and, from time to time,
may sell certain of our properties.
At April 30, 2017, we owned or
had equity interests in eighty properties comprised of neighborhood and
community shopping centers, office buildings, single tenant retail or restaurant
properties and office/retail mixed use properties located in four states
throughout the United States, containing a total of 5.0 million square feet of
gross leasable area ("GLA").
Our principal executive office
is located at 321 Railroad Avenue, Greenwich, Connecticut 06830. Our telephone
number is (203) 863-8200. Our website is located at www.ubproperties.com.
Information contained on our website is not part of, and is not incorporated
into, this prospectus.
RISK FACTORS
You should carefully consider
the specific risks described in our Annual Report on Form 10-K for the fiscal
year ended October 31, 2016 and any risk factors set forth in our other filings
with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act,
which are incorporated by reference in this prospectus. Before making an
investment decision, you should carefully consider these risks as well as other
information we include or incorporate by reference in this prospectus and any
prospectus supplement. See Where You Can Find More Information and
Incorporation by Reference elsewhere in this prospectus.
CERTAIN RATIOS
The following table sets forth
our ratios of earnings to fixed charges and earnings to combined fixed charges
and preferred stock dividends for the periods shown.
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Six months
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Year ended October
31,
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ended April
30,
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2016
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2015
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2014
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2013
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2012
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2017
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2016
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Ratio of earnings to fixed charges
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3.67
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3.21
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3.81
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4.14
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4.00
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3.40
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3.34
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Ratio of earnings to combined fixed charges and
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preferred stock dividends
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1.75
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1.54
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1.50
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1.33
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1.50
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1.62
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1.59
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The ratio of earnings to fixed
charges was computed by dividing earnings by fixed charges. The ratio of
earnings to combined fixed charges and preferred stock dividends was computed by
dividing earnings by the total of fixed charges and preferred stock dividends.
For purposes of computing these ratios, earnings consist of net income from
continuing operations reduced by the equity in earnings of unconsolidated joint
ventures, plus fixed charges. Fixed charges consists of interest
expense.
USE OF PROCEEDS
Unless otherwise described in
the applicable prospectus supplement to this prospectus used to offer specific
securities, we intend to use the net proceeds from the sale of securities under
this prospectus for general corporate purposes, which may include acquisitions
of additional properties, the repayment of outstanding indebtedness, capital
expenditures, the expansion, redevelopment and/or improvement of properties in
our portfolio, working capital and other general purposes.
2
DESCRIPTION OF CAPITAL
STOCK
General
Under our charter, as amended
and supplemented (our Charter), we may issue up to 30,000,000 shares of common
stock, 100,000,000 shares of Class A common stock, 50,000,000 shares of
preferred stock and 20,000,000 shares of excess stock. At June 5, 2017, we had
outstanding 9,662,496 shares of common stock, 29,730,172 shares of Class A
common stock, 5,175,000 shares of Series F preferred stock, 3,000,000 shares of
Series G preferred stock, and no shares of excess stock.
We previously issued and
designated 350,000 shares of 8.99% Series B Senior Cumulative Preferred Stock,
400,000 shares of 8.5% Series C Senior Cumulative Preferred Stock, 2,450,000
shares of 7.5% Series D Senior Cumulative Preferred Stock, and 2,400,000 shares
of 8.50% Series E Senior Cumulative Preferred Stock, all of which have been
repurchased and redeemed and are authorized but unissued shares of preferred
stock.
We have a Dividend
Reinvestment and Share Purchase Plan, as amended (the DRIP), that permits
stockholders to acquire additional shares of common stock and Class A common
stock by automatically reinvesting dividends. As of April 30, 2017, there
remained 345,216 shares of common stock and 401,588 shares of Class A common
stock available for issuance under the DRIP. Under our share repurchase program
approved by the Board of Directors on June 5, 2017, we may repurchase up to
2,000,000 shares, in the aggregate, of our common stock, Class A common stock,
and Series F preferred stock. Currently, there remain 2,000,000 shares available
for repurchase. Our board has authorized 350,000 shares of common stock and
350,000 shares of Class A common stock for issuance under our restricted stock
plan, and 3,800,000 shares which, at our compensation committees discretion,
may be awarded in any combination of shares of common stock or Class A common
stock for issuance under our restricted stock plan. As of April 30, 2017,
587,475 shares of stock remained available for issuance under the restricted
stock plan, which, at the discretion of the compensation committee administering
the plan, can be awarded in any combination of common stock or Class A common
stock. We have reserved an aggregate number of 20,361,300 shares of Class A
common stock issuable in connection with the exercise of conversion rights of
the holders of Series F and G preferred stock in connection with a Change of
Control (as defined below under Certain Definitions).
The Company has an investment
in four joint ventures, UB Ironbound, LP ("Ironbound"), UB Orangeburg, LLC
("Orangeburg"), McLean Plaza Associates, LLC ("McLean") and UB High Ridge, LLC
(UB High Ridge), each of which owns one or more commercial retail properties.
The limited partners or non-controlling members in Ironbound, Orangeburg, McLean
and UB High Ridge have the right to require the Company to redeem all or a part
of their limited partnership or limited liability company units for cash, or at
the option of the Company shares of its Class A Common stock, at prices as
defined in the governing agreements.
Description of Common Stock
and Class A Common Stock
Voting
Under our Charter, holders of
our common stock are entitled to one vote per share on all matters submitted to
the common stockholders for vote at all meetings of stockholders. Holders of our
Class A common stock are entitled to 1/20th of one vote per share on all matters
submitted to the common stockholders for vote at all meetings of stockholders.
Except as otherwise required by law or as to certain matters as to which
separate class voting rights may be granted in the future to holders of one or
more other classes or series of our capital stock, holders of common stock and
Class A common stock vote together as a single class, and not as separate
classes, on all matters voted upon by our stockholders. The holders of our
outstanding Class A common stock, as a group, control approximately 13.3% of the
voting power of our outstanding common equity securities and the holders of our
outstanding common stock, as a group, control approximately 86.7% of the voting
power of our outstanding common equity securities. Therefore, holders of our
common stock have sufficient voting power to approve or disapprove all matters
voted upon by our common stockholders, including any proposal that could affect
the relative dividend or other rights of our common stock and Class A common
stock.
3
As of June 5, 2017, Mr.
Urstadt and Mr. Biddle currently own beneficially in the aggregate approximately
46.2% and 23.9% of the outstanding shares of our common stock, respectively, and
approximately 0.5% and 0.1% of the outstanding shares of our Class A common
stock, respectively. Such holdings represent approximately 66.3% of our
outstanding voting interests. Their beneficial ownership may discourage a
takeover or other transaction that some of our stockholders may otherwise
believe to be desirable.
Dividends and
Distributions
Subject to the requirements
with respect to preferential dividends on any of our preferred stock, dividends
and distributions are declared and paid to the holders of common stock and Class
A common stock in cash, property or our other securities (including shares of
any class or series whether or not shares of such class or series are already
outstanding) out of funds legally available therefor. Each share of common stock
and each share of Class A common stock has identical rights with respect to
dividends and distributions, subject to the following:
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with respect to regular quarterly dividends,
each share of Class A common stock entitles the holder thereof to receive
not less than 110% of amounts paid on each share of common stock, the
precise amount of such dividends on the Class A common stock being subject
to the discretion of our Board of Directors;
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a stock dividend on the common stock may be
paid in shares of common stock or shares of Class A common stock; and
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a stock dividend on shares of Class A common
stock may be paid only in shares of Class A common stock.
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If we pay a stock dividend on
the common stock in shares of common stock, we are required to pay a stock
dividend on the Class A common stock in a proportionate number of shares of
Class A common stock. The dividend provisions of the common stock and Class A
common stock provide our Board of Directors with the flexibility to determine
appropriate dividend levels, if any, under the circumstances from time to time.
Mergers and
Consolidations
In the event we merge,
consolidate or combine with another entity (whether or not we are the surviving
entity), holders of shares of Class A common stock will be entitled to receive
the same per share consideration as the per share consideration, if any,
received by holders of common stock in that transaction.
Liquidation
Rights
Holders of common stock and
Class A common stock have the same rights with respect to distributions in
connection with a partial or complete liquidation of our Company.
Restrictions on Ownership
and Transfer
We have the right to refuse
transfers of stock that could jeopardize our status as a REIT and to redeem any
shares of stock in excess of 7.5% of the value of our outstanding stock
beneficially owned by any person (other than an exempted person). See
Restrictions on Ownership and Transfer.
Transferability
The common stock and Class A
common stock are freely transferable, and except for the ownership limit and
federal and state securities laws restrictions on our directors, officers and
other affiliates and on persons holding restricted stock, our stockholders are
not restricted in their ability to sell or transfer shares of the common stock
or Class A common stock.
Sinking Fund, Preemptive,
Subscription and Redemption Rights
Neither the common stock nor
the Class A common stock carries any sinking fund, preemptive, subscription or
redemption rights enabling a holder to subscribe for or receive shares of any
class of our stock or any other securities convertible into shares of any class
of our stock.
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Transfer Agent and
Registrar
The transfer agent and
registrar for the common stock and Class A common stock is Computershare Inc.
Description of Preferred
Stock
The following description of
the terms of the preferred stock sets forth certain general terms and provisions
of the preferred stock to which a prospectus supplement may relate. Specific
terms of any series of preferred stock offered by a prospectus supplement will
be described in that prospectus supplement. The description set forth below is
subject to and qualified in its entirety by reference to our Charter fixing the
preferences, limitations and relative rights of a particular series of preferred
stock.
General
Under our Charter, our Board
of Directors is authorized, without further stockholder action, to provide for
the issuance of up to 50,000,000 shares of preferred stock, in such class or
series, with such preferences, conversion or other rights, voting powers,
restrictions and limitations as to dividends, qualifications and terms and
conditions of redemption, as may be fixed by our Board of Directors. As a
result, our Board of Directors may afford the holders of any series or class of
preferred stock preferences, powers, and rights, voting or otherwise, senior to
the rights of holders of our common stock and our Class A common stock.
The preferred stock will have
the dividend, liquidation, redemption, conversion and voting rights set forth
below unless otherwise provided in the applicable prospectus supplement. You
should refer to the prospectus supplement relating to the particular class or
series of preferred stock offered thereby for specific terms, including:
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the title and
liquidation preference per share of the preferred stock and the number of
shares offered;
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the price at which the
class or series will be issued;
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the dividend rate (or
method of calculation), the dates on which dividends shall be payable and
the dates from which dividends shall commence to accumulate;
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any redemption or
sinking fund provisions of the class or series;
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any conversion
provisions of the class or series; and
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any additional dividend,
liquidation, redemption, sinking fund and other rights, preferences,
privileges, limitations and restrictions of the class or series.
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The preferred stock will, when
issued, be fully paid and nonassessable. Unless otherwise specified in the
applicable prospectus supplement and subject to the rights of the holders of our
existing preferred stock, each class or series will rank on a parity as to
dividends and distributions in the event of a liquidation with each other class
or series of preferred stock and, in all cases, will be senior to our common
stock and our Class A common stock.
We have a stockholder rights
agreement that expires on November 11, 2018. The rights are not currently
exercisable. When they are exercisable, the holder will be entitled to purchase
from us 1/100th of a share of Series A Participating Preferred Shares at a price
of $65 per 1/100th of a preferred share, subject to certain adjustments. The
distribution date for the rights will occur 10 days after a person or group
(Acquiring Person) either acquires or obtains the right to acquire 10% or more
of the combined voting power of our common stock, or announces an offer, the
consummation of which would result in such person or group owning 30% or more of
our then outstanding common stock. Thereafter, stockholders other than the
Acquiring Person will be entitled to purchase shares of our common stock having
a value equal to two times the exercise price of the right. In the event that
the rights become exercisable, the Series A Participating Preferred Shares will
rank junior to our Series F and G preferred stock as to dividends and amounts
distributed upon liquidation. See Rank and Certain Provisions of Our Charter
and Bylaws, Maryland Law, Our Stockholder Rights Plan and Change of Control
Agreements below.
Dividend
Rights
Holders of preferred stock of
each class or series offered and sold under this registration statement will be
entitled to receive, when, as and if declared by our Board of Directors, out of
our assets legally available therefor, cash dividends at such rates and on such
dates as are set forth in the applicable prospectus supplement. The rate may be
fixed or variable or both and may be cumulative, noncumulative or partially
cumulative.
5
The applicable prospectus
supplement may provide that, as long as any shares of preferred stock are
outstanding, no dividends will be declared or paid or any distributions be made
on our common stock or our Class A common stock, other than a dividend payable
in common stock or Class A common stock, unless the accrued dividends on each
class or series of preferred stock have been fully paid or declared and set
apart for payment and we shall have set apart all amounts, if any, required to
be set apart for all sinking funds, if any, for each class or series of
preferred stock.
The applicable prospectus
supplement may provide that, when dividends are not paid in full upon a class or
series of preferred stock and any other class or series of preferred stock
ranking on a parity as to dividends with that class or series of preferred
stock, all dividends declared upon the class or series of preferred stock and
any other series of preferred stock ranking on a parity as to dividends will be
declared pro rata so that the amount of dividends declared per share on the
class or series of preferred stock and the other class or series will in all
cases bear to each other the same ratio that accrued dividends per share on the
class or series of preferred stock and the other class or series bear to each
other.
Each class or series of
preferred stock will be entitled to dividends as described in the applicable
prospectus supplement, which may be based upon one or more methods of
determination. Different classes or series of preferred stock may be entitled to
dividends at different dividend rates or based upon different methods of
determination. Except as provided in the applicable prospectus supplement, no
class or series of preferred stock will be entitled to participate in our
earnings or assets in excess of the specified dividend and liquidation rights.
Rights Upon
Liquidation
In the event of any voluntary
or involuntary liquidation, dissolution or winding up of our affairs, the
holders of each series of preferred stock will be entitled to receive out of our
assets available for distribution to stockholders the amount stated
or determined on the basis set forth in the applicable prospectus supplement.
These amounts may include accrued dividends or may equal the current redemption
price per share for the series (otherwise than for the sinking fund, if any,
provided for such series). These amounts will be paid to the holders of
preferred stock on the preferential basis set forth in the applicable prospectus
supplement. If, upon any voluntary or involuntary liquidation, dissolution or
winding up of our affairs, the amounts payable with respect to preferred stock
of any series and any other shares of our stock ranking as to any such
distribution on a parity with the series of preferred stock are not paid in
full, the holders of preferred stock of the series and of such other shares will
share ratably in any such distribution of our assets in proportion to the full
respective preferential amounts to which they are entitled or on such other
basis as is set forth in the applicable prospectus supplement. The rights, if
any, of the holders of any series of preferred stock to participate in our
assets remaining after the holders of other series of preferred stock have been
paid their respective specified liquidation preferences upon any liquidation,
dissolution or winding up of our affairs will be described in the applicable
prospectus supplement.
Redemption
A series of preferred stock
may be redeemable, in whole or in part, at our option, and may be subject to
mandatory redemption pursuant to a sinking fund, in each case upon terms, at the
times, at the redemption prices and for the types of consideration set forth in
the applicable prospectus supplement. The prospectus supplement for a series of
preferred stock which is subject to mandatory redemption will specify the number
of shares of the series that will be redeemed by us in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to any accrued and unpaid dividends thereon to the
date of redemption.
If, after giving notice of
redemption to the holders of a series of preferred stock, we deposit with a
designated bank funds sufficient to redeem the preferred stock, then from and
after the deposit, all shares called for redemption will no longer be
outstanding for any purpose, other than the right to receive the redemption
price and the rights, if any, to convert the shares into other classes of our
stock. The redemption price will be stated in the applicable prospectus
supplement. Except as indicated in the applicable prospectus supplement, the
preferred stock will not be subject to any mandatory redemption at the option of
the holder.
Sinking Fund
The prospectus supplement for
any series of preferred stock will state the terms, if any, of a sinking fund
for the purchase or redemption of that series.
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Conversion and Preemptive
Rights
The prospectus supplement for
any series of preferred stock will state the terms, if any, on which shares of
that series are convertible into or redeemable for shares of common stock, Class
A common stock or another series of preferred stock. Except as indicated in the
applicable prospectus supplement, the preferred stock will have no preemptive
rights.
Voting
Rights
Except as indicated in the
applicable prospectus supplement relating to a particular series of preferred
stock, a holder of preferred stock will not be entitled to vote. Except as
indicated in the applicable prospectus supplement, in the event we issue full
shares of any series of preferred stock, each share will be entitled to one vote
on matters on which holders of the series of preferred stock are entitled to
vote.
Transfer Agent and
Registrar
The transfer agent, registrar
and dividend disbursement agent for a series of preferred stock will be selected
by us and be described in the applicable prospectus supplement. The registrar
for shares of preferred stock will send notices to stockholders of any meetings
at which holders of preferred stock have the right to vote on any matter.
Other
Our issuance of preferred
stock may have the effect of delaying or preventing a change in control. Our
issuance of preferred stock could decrease the amount of earnings and assets
available for distribution to the holders of our common stock or our Class A
common stock or could adversely affect the rights and powers, including voting
rights, of the holders of our common stock or our Class A common stock. The
issuance of preferred stock could have the effect of decreasing the market price
of our common stock or our Class A common stock.
Description of Outstanding
Series of Senior Cumulative Preferred Stock
General
In fiscal year 2012, we issued
and sold 5,175,000 shares of our Series F preferred stock in registered public
offerings. As of the date of this prospectus, all 5,175,000 shares of our Series
F preferred stock remain outstanding.
In fiscal year 2014, we issued
and sold 3,000,000 shares of our Series G preferred stock in a registered public
offering. As of the date of this prospectus, all 3,000,000 shares of our Series
G preferred stock remain outstanding.
Maturity
Each of the Series F and G
preferred stock has no stated maturity and is not subject to any sinking fund or
mandatory redemption.
Rank
Our Series F and G preferred
stock ranks, with respect to dividend rights and rights upon our liquidation,
dissolution or winding up:
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senior to our common
stock and Class A common stock and to all other equity securities we issue
ranking junior to our Series F and G preferred stock, as applicable, with
respect to dividend rights or rights upon our liquidation, dissolution or
winding up;
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on a parity with the
Series F and G preferred stock, as applicable, and with all other equity
securities we issue the terms of which specifically provide that such
equity securities rank on a parity with that series of preferred stock
with respect to dividend rights or rights upon our liquidation,
dissolution or winding up; and
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junior to all our
existing and future indebtedness.
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7
Dividends
Holders of shares of our
Series F preferred stock are entitled to receive, when and as authorized by our
Board of Directors and declared by us, out of our funds legally available for
the payment of dividends, preferential cumulative dividends payable in cash at
the rate per annum of $1.78125 per share of the Series F preferred stock, which
is equivalent to a rate of 7.125% per annum of the $25.00 per share liquidation
preference. Dividends on shares of our Series F preferred stock are cumulative
from, and including, the date of original issue and are payable quarterly in
arrears on January 31, April 30, July 31 and October 31 of each year, or, if not
a business day, the next succeeding business day, for the quarterly periods
ended January 31, April 30, July 31 and October 31, as applicable. A dividend
payable on our Series F preferred stock for any partial dividend period is
computed on the basis of a 360-day year consisting of twelve 30-day months.
Dividends are payable to holders of record as they appear in our stockholder
records at the close of business on the applicable record date determined each
quarter by our Board of Directors, as provided by the Maryland General
Corporation Law (the MGCL), which may not be more than 30 days preceding the
applicable dividend payment date.
Holders of shares of our
Series G preferred stock are entitled to receive, when and as declared by our
Board of Directors, out of our funds legally available for the payment of
dividends, preferential cumulative cash dividends at the rate per annum of
$1.6875 per share, which is equivalent to a rate of 6.75% per annum of the $25
per share liquidation preference. Dividends on shares of our Series G preferred
stock are cumulative from the date such shares were originally issued, and are
payable quarterly in arrears on January 31, April 30, July 31 and October 31 of
each year, or, if not a business day, the next succeeding business day, for the
quarterly periods ended January 31, April 30, July 31 and October 31, as
applicable. A dividend payable on our Series G preferred stock for any partial
dividend period is computed on the basis of a 360-day year consisting of twelve
30-day months. Dividends are payable to holders of record as they appear in our
stockholder records at the close of business on the applicable record date
determined each quarter by our Board of Directors, as provided by the MGCL,
which shall not be more than 30 days preceding the applicable dividend payment
date.
Our Board of Directors will
not declare dividends on outstanding shares of our Series F or G preferred stock
or pay or set aside for payment dividends on our Series F or G preferred stock
at such time as the terms and provisions of any agreement of our company,
including any agreement relating to our indebtedness, prohibits the declaration,
payment or setting aside for payment or provides that the declaration, payment
or setting apart for payment would constitute a breach or a default under the
agreement, or if the declaration or payment is restricted or prohibited by law.
Notwithstanding the foregoing,
dividends on our outstanding Series F or G preferred stock accrue whether or not
we have earnings, whether or not there are funds legally available for the
payment of those dividends and whether or not those dividends are declared.
Accrued but unpaid dividends on our Series F or G preferred stock do not bear
interest and holders of our Series F or G preferred stock are not entitled to
any distributions in excess of full cumulative distributions described above.
Except as described in the
next sentence, we will not declare or pay or set apart for payment dividends on
any of our stock ranking, as to dividends, on a parity with or junior to our
Series F or G preferred stock, as applicable (other than a dividend in shares of
our common stock or Class A common stock or in shares of any other class of
stock ranking junior to our Series F or G preferred stock, as applicable, as to
dividends and upon liquidation) for any period unless full cumulative dividends
on our Series F or G preferred stock, as applicable, for all past dividend
periods and the then current dividend period have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof is
set apart for such payment. When we do not pay dividends in full (or we do not
set apart a sum sufficient to pay them in full) upon our Series F or G preferred
stock and the shares of any other series of preferred stock ranking on a parity
as to dividends with our Series F or G preferred stock, we will declare all
dividends upon our Series F or G preferred stock and any other series of
preferred stock ranking on a parity as to dividends with our Series F or G
preferred stock proportionately so that the amount of dividends declared per
share of Series F or G preferred stock and such other series of preferred stock
will in all cases bear to each other the same ratio that accrued dividends per
share on our Series F or G preferred stock and such other series of preferred
stock (which will not include any accrual in respect of unpaid dividends for
prior dividend periods if such preferred stock does not have a cumulative
dividend) bear to each other.
Except as described in the
immediately preceding paragraph, unless full cumulative dividends on our Series
F or G preferred stock, as applicable, have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof is
set apart for payment for all past dividend periods and the then current
dividend
8
period, we will not declare or pay or set aside for payment dividends
(other than in shares of our common stock or Class A common stock or other
shares of capital stock ranking junior to our Series F or G preferred stock as
to dividends and upon liquidation) or declare or make any other distribution on
our common stock or Class A common stock, or any other stock ranking junior to
or on a parity with our Series F or G preferred stock as to dividends or upon
liquidation, nor will we redeem, purchase or otherwise acquire for any
consideration, or pay or make available any monies for a sinking fund for the
redemption of, any of our shares of common stock or Class A common stock or any
other shares of our stock ranking junior to or on a parity with our Series F or
G preferred stock as to dividends or upon liquidation
(except (i) by conversion into or exchange for our other capital stock ranking
junior to our Series F or G preferred stock, as applicable, as to dividends and
upon liquidation or (ii) redemption for the purpose of preserving our status as
a REIT).
Holders of shares of our
Series F or G preferred stock are not entitled to any dividend, whether payable
in cash, property or stock, in excess of full cumulative dividends on our Series
F or G preferred stock as described above. Any dividend payment made on shares
of our Series F or G preferred stock is first credited against the earliest
accrued but unpaid dividend due with respect to those shares which remains
payable. In the case of our Series F or G preferred stock, so long as no
dividends are in arrears, we are entitled at any time and from time to time to
repurchase shares of our Series F or G preferred stock, as applicable, in
open-market transactions duly authorized by our Board of Directors and effected
in compliance with applicable laws.
Liquidation Preference
Upon any voluntary or
involuntary liquidation, dissolution or winding up of our affairs, the holders
of shares of Series F or G preferred stock are entitled to be paid out of our
assets legally available for distribution to our stockholders a liquidation
preference of $25 per share, plus an amount equal to any accrued and unpaid
dividends to the date of payment (whether or not declared), but without
interest, before any distribution of assets may be made to holders of our common
stock or Class A common stock or any other class or series of our stock ranking
junior to our Series F or G preferred stock as to liquidation rights.
However, the holders of the
shares of Series F or G preferred stock are not entitled to receive the
liquidating distribution described above until the liquidation preference of any
other series or class of our capital stock hereafter issued ranking senior as to
liquidation rights to our Series F or G preferred stock, as applicable, has been
paid in full. The holders of Series F or G preferred stock and all series or
classes of our stock ranking on a parity as to liquidation rights with our
Series F or G preferred stock are entitled to share proportionately, in
accordance with the respective preferential amounts payable on such capital
stock, in any distribution (after payment of the liquidation preference of any
of our stock ranking senior to our Series F or G preferred stock as to
liquidation rights) which is not sufficient to pay in full the aggregate of the
amounts of the liquidating distributions to which they would otherwise be
respectively entitled. After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of Series F or G preferred
stock have no right or claim to any of our remaining assets. Our consolidation
or merger with or into any other corporation, trust or entity or of any other
corporation with or into our company, or the sale, lease or conveyance of all or
substantially all of our property or business, is not deemed to constitute our
liquidation, dissolution or winding up.
Our Charter provides that, in
determining whether a distribution to holders of Series F or G preferred stock
(other than upon voluntary or involuntary liquidation) by dividend, redemption
or other acquisition of shares of our stock or otherwise is permitted under the
MGCL, no effect will be given to amounts that would be needed, if we were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon distribution of holders of shares of our stock whose preferential rights
upon dissolution are superior to those receiving the distribution.
Redemption
On and after October 24, 2017,
we may, at our option, upon not less than 30 nor more than 90 days written
notice, redeem shares of the Series F preferred stock, in whole or in part, at
any time or from time to time, for cash at a redemption price of $25.00 per
share, plus all accrued and unpaid dividends to, but excluding, the date fixed
for redemption. Prior to that date, we may, at our option, upon not less than 30
nor more than 90 days written notice, redeem shares of the Series F preferred
stock in whole, or in part, at any time or from time to time, for cash at the
Make-Whole Redemption Price (as defined below). If the redemption date is after
the record date set for the payment
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of a dividend on the Series F preferred
stock and on or prior to the corresponding dividend payment date, the amount of
such accrued and unpaid dividend will not be included in the redemption price or
the Make-Whole Redemption Price. The holder of the Series F preferred stock at
the close of business on the applicable dividend record date will be entitled
to the dividend payment on such shares on the corresponding dividend payment
date, notwithstanding the redemption of such shares prior the dividend payment
date. If such redemption is being made in connection with a Change of Control,
as described below under Special Optional Redemption, holders of Series F
preferred stock being so called for redemption will not be able to tender such
shares of Series F preferred stock for conversion in connection with the Change
of Control and each share of Series F preferred stock tendered for conversion
that is called, prior to the conversion date, for redemption will be redeemed on
the related redemption date instead of converted on the conversion date.
On and after October 28, 2019,
we may, at our option, upon not less than 30 nor more than 90 days written
notice, redeem shares of the Series G preferred stock, in whole or in part, at
any time or from time to time, for cash at a redemption price of $25.00 per
share, plus all accrued and unpaid dividends to, but excluding, the date fixed
for redemption. Prior to that date, we may, at our option, upon not less than 30
nor more than 90 days written notice, redeem shares of the Series G preferred
stock in whole, or in part, at any time or from time to time, for cash at the
Make-Whole Redemption Price (as defined below). If the redemption date is after
the record date set for the payment of a dividend on the Series G preferred
stock and on or prior to the corresponding dividend payment date, the amount of
such accrued and unpaid dividend will not be included in the redemption price or
the Make-Whole Redemption Price. The holder of the Series G preferred stock at
the close of business on the applicable dividend record date will be entitled to
the dividend payment on such shares on the corresponding dividend payment date,
notwithstanding the redemption of such shares prior the dividend payment date.
If such redemption is being made in connection with a Change of Control, as
described below under Special Optional Redemption, holders of Series G
preferred stock being so called for redemption will not be able to tender such
shares of Series G preferred stock for conversion in connection with the Change
of Control and each share of Series G preferred stock tendered for conversion
that is called, prior to the conversion date, for redemption will be redeemed on
the related redemption date instead of converted on the conversion date.
Holders of Series F or G
preferred stock to be redeemed will be required to surrender our preferred stock
at the place designated in such notice and will be entitled to the redemption
price and any accrued and unpaid dividends payable upon the redemption or the
Make-Whole Redemption Price, as applicable, following surrender of the preferred
stock. If we have given notice of redemption of any shares of Series F or G
preferred stock and if we have set aside the funds necessary for the redemption
in trust for the benefit of the holders of any shares of the series so called
for redemption, then from and after the redemption date dividends will cease to
accrue on such shares of the series, the shares will no longer be deemed
outstanding and all rights of the holders of the shares will terminate, except
the right to receive the redemption price or the Make-Whole Redemption Price, as
applicable. If less than all of the outstanding shares of Series F or G
preferred stock is to be redeemed, the stock to be redeemed will be selected
proportionately (as nearly as may be practicable without creating fractional
shares) or by any other equitable method we determine.
Unless we have declared and
paid, we are contemporaneously declaring and paying, or we have declared and set
aside a sum sufficient for the payment of the full cumulative dividends on all
shares of Series F or G preferred stock, as applicable, for all past dividend
periods and the then current dividend period, we may not redeem any shares of
that series unless we simultaneously redeem all outstanding shares of that
series and we will not purchase or otherwise acquire directly or indirectly any
shares of that series (except by exchange for shares of our stock ranking junior
to that series of preferred stock as to dividends and upon liquidation).
Notwithstanding the foregoing, we may make any purchase or exchange offer made
on the same terms to holders of all outstanding shares of our Series F or G
preferred stock, as applicable, and we may in the case of our Series F or G
preferred stock, redeem stock in order to ensure that we continue to meet the
requirements for status as a REIT. So long as no dividends on the series are in
arrears, we are entitled at any time and from time to time to repurchase shares
of Series F or G preferred stock in open-market transactions duly authorized by
our Board of Directors and effected in compliance with applicable laws.
Immediately prior to any
redemption of Series F or G preferred stock, we will pay, in cash, any
accumulated and unpaid dividends through the redemption date, unless a
redemption date falls after the applicable dividend record date and prior to the
corresponding dividend payment date, in which case each holder of shares of the
series
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to be redeemed, at the close of business on the applicable dividend
record date, is entitled to the dividend payable on such shares on the
corresponding dividend payment date notwithstanding the redemption of such
shares before the dividend payment date.
Special Optional Redemption
In the event we experience a
Change of Control, we will have the option to redeem the Series F or G preferred
stock, in whole or in part and within 120 days after the first date on which
such Change of Control occurred, for a cash redemption price per share equal to
$25.00 plus any accumulated and unpaid dividends thereon (whether or not
declared) to, but not including, the redemption date (unless the redemption date
is after a record date set for the payment of a dividend on the Series F or G
preferred stock and on or prior to the corresponding dividend payment date, in
which case the amount of such accrued and unpaid dividend will not be included
in the redemption price). If, prior to the date fixed for conversion of Series F
or G preferred stock in connection with a Change of Control, as described more
fully below, we provide notice of redemption of shares of Series F or G
preferred stock as described above under Redemption, holders of such shares
of Series F or G preferred stock will not be entitled to convert their shares as
described below under Conversion.
Voting Rights
Holders of Series F and G
preferred stock will not have any voting rights, except as described below.
Whenever dividends on any
shares of the Series F or G preferred stock are in arrears for six or more
consecutive or non-consecutive quarterly periods, a preferred dividend default
will exist, the number of directors then constituting our Board of Directors
will be increased by two (if not already increased by reason of a similar
arrearage with respect to any parity preferred as defined below), and the
holders of the shares of the series for which there is a preferred dividend
default (subject to certain restrictions in the case of any regulated person in
Series F or G preferred stock (as defined below)) will be entitled to vote
separately as a class with all other series of preferred stock ranking on a
parity with such series as to dividends or upon liquidation and upon which like
voting rights have been conferred and are exercisable (parity preferred), in
order to fill the newly created vacancies, for the election of a total of two
additional directors of our Company (the preferred stock directors) at a
special meeting called by us at the request of holders of record of at least 10%
of the series for which the preferred dividend default has occurred of any
series of parity preferred so in arrears (unless the request is received less
than 90 days before the date fixed for the next annual meeting of stockholders)
or at the next annual meeting of stockholders, and at each subsequent annual
meeting until all dividends accumulated on the shares of the series for which
the preferred dividend default occurred and parity preferred for the past
dividend periods and the dividend for the then current dividend period are fully
paid or declared and a sum sufficient for payment has been set aside to pay
them. In the event our directors are divided into classes, each vacancy will be
apportioned among the classes of directors to prevent stacking in any one class
and to insure that the number of directors in each of the classes of directors
are as nearly equal as possible.
Each preferred stock director,
as a qualification for election (and regardless of how elected), will submit to
our Board of Directors a duly executed, valid, binding and enforceable letter of
resignation from the Board of Directors, to be effective upon the date upon
which all dividends accumulated on the shares of the series for which the
preferred dividend default occurred and parity preferred for the past dividend
periods and the dividend for the then current dividend period are fully paid or
declared and a sum sufficient for payment has been set aside to pay them at
which time the terms of office of all persons elected as preferred stock
directors by the holders of that series and any parity preferred will, upon the
effectiveness of their respective letters of resignation, terminate, and the
number of directors then constituting the Board of Directors will be reduced
accordingly. A quorum for any meeting will exist if at least a
majority of the outstanding shares of the series for which the preferred
dividend default occurred and shares of parity preferred are represented in
person or by proxy at the meetings.
The preferred stock directors
will be elected upon the affirmative vote of a plurality of the shares of the
series for which the preferred dividend default occurred and the parity
preferred present and voting in person or by proxy at a duly called and held
meeting at which a quorum is present. If and when all accumulated dividends and
the dividend for the then current dividend period on the series for which the
preferred dividend default occurred are paid in full or declared and set aside
for payment in full, the holders of that series will be divested of the
foregoing voting rights (subject to revesting in the event of each and every
preferred dividend default).
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Any preferred stock director
may be removed at any time with or without cause by, and will not be removed
otherwise than by the vote of, a majority of the votes entitled to be cast by
holders of the outstanding shares of a series for which there is a preferred
dividend default when they have the voting rights described above (voting
separately as a class with all series of parity preferred). So long as a
preferred dividend default continues, any vacancy in the office of a preferred
stock director may be filled by written consent of the preferred stock director
remaining in office, or if none remains in office, by a vote of a majority of
the votes entitled to be cast by holders of the outstanding shares of the series
for which the dividend default exists when they have the voting rights described
above (voting separately as a class with all series of parity preferred). The
preferred stock directors will each be entitled to one vote per director on any
matter properly coming before our Board of Directors.
In addition, each of the
Series F and G preferred stock have limited rights to approve certain actions.
So long as any shares of
Series F of G preferred stock remain outstanding, we will not, without the
affirmative vote or consent of the holders of at least two-thirds of the
outstanding shares of our Series F and G preferred stock (voting separately as a
class), at the time, given in person or by proxy, either in writing or at a
meeting:
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voluntarily terminate
our status as a REIT;
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amend, alter or repeal
the provisions of our Charter or the articles supplementary, whether by
merger, consolidation or otherwise (an Event), so as to materially and
adversely affect any preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of our Series F or G preferred stock or
the holders of our Series F or G preferred stock; or
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authorize, create or
increase the authorized amount of any shares of any class or series of any
security convertible into shares of any class or series ranking prior to
the Series F or G preferred stock in the distribution on any liquidation,
dissolution or winding up in the payment of dividends.
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With respect to the occurrence
of any Event described above in respect of the Series F or G preferred stock, so
long as that series (or any equivalent class or series of stock issued by the
surviving corporation in any merger or consolidation to which we became a party)
remains outstanding with the terms thereof materially unchanged, the occurrence
of any such Event will not be deemed to materially and adversely affect any
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption of holders of that series. Any increase in the amount of the
authorized preferred stock or the creation or issuance of any other series of
preferred stock, or any increase in the amount of the authorized shares of such
series, in each case ranking on a parity with or junior to that series with
respect to payment of dividends or the distribution of assets upon our
liquidation, dissolution or winding up, or the issuance of additional shares of
Series F or G preferred stock will not be deemed to materially and adversely
affect any preferences, conversion and other rights, voting power, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption.
The foregoing voting
provisions in respect of Series F or G preferred stock will not apply if, at or
prior to the time when the act with respect to which the vote would otherwise be
required is effected, all outstanding shares of that series are redeemed in
accordance with their terms or called for redemption upon proper notice and we
deposit sufficient funds in trust to effect the redemption.
Except as expressly stated in
the applicable articles supplementary, holders of our Series F or G preferred
stock will not have any relative, participating, optional or other special
voting rights and powers, and the consent of the holders of our Series F or G
preferred stock, as applicable, will not be required for the taking of any
corporate action, including any merger or consolidation involving us, our
liquidation or dissolution or a sale of all or substantially all of our assets,
irrespective of the effect that the merger, consolidation or sale may have upon
the rights, preferences or voting power of the holders of that series of
preferred stock.
Conversion
Except as provided below in
connection with a Change of Control, the Series F or G preferred stock is not
convertible into or exchangeable for any other property or securities, except
that the Series F or G preferred stock may be exchanged for shares of our excess
stock pursuant to the provisions of our Charter relating to restrictions on
ownership and transfer of our stock. For further information regarding the
restrictions on ownership and transfer of our stock and excess stock, see
Restrictions on Ownership and Transfer.
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Upon the occurrence of a
Change of Control, with respect to Series F and G preferred stock, unless, prior
to the date fixed for such conversion, we provide notice of redemption of such
shares of Series F or G preferred stock as described above under Redemption
or Special Optional Redemption, then, unless holders of the Series F or G
preferred stock will receive the Alternative Form Consideration as described
below, each holder of Series F or G preferred stock will have the right to
convert all or part of the Series F or G preferred stock held by such holder
into a number of shares of Class A common stock per share of Series F or G
preferred stock to be so converted, or the Class A Common Share Conversion
Consideration, equal to the lesser of:
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the quotient obtained,
which we refer to as the Conversion Rate, by dividing (i) the sum of
$25.00 plus the amount of any accumulated and unpaid dividends thereon
(whether or not declared) to, but not including, the applicable date fixed
for conversion (unless the applicable conversion date is after a record
date set for the payment of a dividend on the Series F or G preferred
stock and on or prior to the corresponding dividend payment date, in which
case the amount of such accrued and unpaid dividend will not be included
in this sum), by (ii) the Class A Common Share Price (as defined below);
and
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with respect to Series F
preferred stock, 2.5920 (the Series F Share Cap), and with respect to
Series G preferred stock, 2.3159 (the Series G Share Cap), subject to
certain adjustments described below.
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With respect to Series F
preferred stock, the Series F Share Cap will be subject to pro rata adjustments
for any stock splits (including those effected pursuant to a common stock
dividend), subdivisions or combinations with respect to our Class A common stock
as follows: the adjusted Series F Share Cap as the result of such an event will
be the number of shares of Class A common stock that is equivalent to the
product of (i) the Series F Share Cap in effect immediately prior to such event
multiplied by (ii) a fraction, the numerator of which is the number of shares of
Class A common stock outstanding after giving effect to such event and the
denominator of which is the number of shares of Class A common stock outstanding
immediately prior to such event.
For the avoidance of doubt,
subject to the immediately succeeding sentence, the aggregate number of shares
of Class A common stock (or equivalent Alternative Conversion Consideration, as
applicable) issuable in connection with the exercise of conversion rights in
connection with a Change of Control by holders of Series F preferred stock will
not exceed 13,413,600 shares of Class A common stock (or equivalent Alternative
Conversion Consideration, as applicable)
(the Series F Exchange Cap). The Series F Exchange Cap is subject to pro rata
adjustments for any share splits on the same basis as the corresponding
adjustment to the Series F Share Cap and is subject to increase in the event
that additional shares of Series F preferred stock are issued in the future.
With respect to Series G
preferred stock, the Series G Share Cap will be subject to pro rata adjustments
for any stock splits (including those effected pursuant to a common stock
dividend), subdivisions or combinations with respect to our Class A common stock
as follows: the adjusted Series G Share Cap as the result of such an event will
be the number of shares of Class A common stock that is equivalent to the
product of (i) the Series G Share Cap in effect immediately prior to such event
multiplied by (ii) a fraction, the numerator of which is the number of shares of
Class A common stock outstanding after giving effect to such event and the
denominator of which is the number of shares of Class A common stock outstanding
immediately prior to such event.
For the avoidance of doubt,
subject to the immediately succeeding sentence, the aggregate number of shares
of Class A common stock (or equivalent Alternative Conversion Consideration, as
applicable) issuable in connection with the exercise of conversion rights in
connection with a Change of Control by holders of Series G preferred stock will
not exceed 6,947,700 shares of Class A common stock (or equivalent Alternative
Conversion Consideration, as applicable) (the Series G Exchange Cap). The
Series G Exchange Cap is subject to pro rata adjustments for any share splits on
the same basis as the corresponding adjustment to the Series G Share Cap and is
subject to increase in the event that additional shares of Series G preferred
stock are issued in the future.
In the case of a Change of
Control pursuant to which, or in connection with which, shares of Class A common
stock will be converted into cash, securities or other property or assets
(including any combination thereof), or the Alternative Form Consideration, a
holder of shares of Series F or G preferred stock will receive upon conversion
of a share of Series F or G preferred stock, as applicable, the kind and amount
of Alternative Form Consideration which such holder would have owned or been
entitled to receive had such holder held a number of shares of Class A common
stock equal to the Class A Common Share Conversion Consideration immediately
prior to the effective time of the Change of Control.
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If the holders of shares of
Class A common stock have the opportunity to elect the form of consideration to
be received in connection with the Change of Control, the form of consideration
that holders of the Series F or G preferred stock will receive will be in the
form of consideration elected by the holders of a plurality of the shares of
Class A common stock held by stockholders who participate in the election and
will be subject to any limitations to which all holders of shares of Class A
common stock are subject, including, without limitation, pro rata reductions
applicable to any portion of the consideration payable in connection with the
Change of Control.
We will not issue fractional
common shares upon the conversion of the Series F or G preferred stock. Instead,
we will pay the cash value of any such fractional shares based on the Class A
Common Share Price.
If a conversion date falls
after a dividend record date and on or prior to the corresponding dividend
payment date, each holder of shares of Series F or G preferred stock at the
close of business on such record date shall be entitled to receive the dividend
payable on such shares on the corresponding payment date, notwithstanding the
conversion of such shares on or prior to such payment date, but the Conversion
Rate shall not be calculated to include such accrued and unpaid dividends.
Within 15 days following the
occurrence of a Change of Control, we will provide to holders of record of
outstanding shares of Series F or G preferred stock, at the addresses for such
holders shown on our share transfer books, a notice of the occurrence of the
Change of Control. This notice will state the following:
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the events constituting
the Change of Control;
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the date of the Change
of Control;
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the last date on which
the holders of shares of Series F or Series G preferred stock may exercise
their conversion rights in connection with Change of Control;
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the method and period
for calculating the Class A Common Share Price;
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the date fixed for
conversion in connection with the Change of Control, or the conversion
date, which will be a business day fixed by our Board of Directors that is
not fewer than 20 and not more than 35 days following the date of the
notice;
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that if, prior to the
applicable conversion date, we provide notice of our election to redeem
all or any portion of the shares of Series F or G preferred stock, holders
of the Series F and G preferred stock will not be able to convert the
shares of Series F or G preferred stock so called for redemption, and such
shares of Series F or G preferred stock will be redeemed on the related
redemption date, even if they have already been tendered for conversion in
connection with the Change of Control;
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if applicable, the type
and amount of Alternative Conversion Consideration entitled to be received
per share of Series F or G preferred stock converted;
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the name and address of
the paying agent and the conversion agent; and
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the procedures that the
holders of shares of Series F and G preferred stock must follow to
exercise their conversion rights in connection with the Change of Control.
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A failure to give such notice
or any defect in the notice or in its mailing will not affect the sufficiency of
the notice or validity of the proceedings for conversion of shares of Series F
or G preferred stock in connection with a Change of Control, except as to the
holder to whom notice was defective or not given. A notice that has been mailed
in the manner provided herein will be presumed to be given on the date it is
mailed whether or not the stockholder receives such notice.
We will issue a press release
for publication on the Dow Jones & Company, Inc., Business Wire, PR Newswire
or Bloomberg Business News (or, if these organizations are not in existence at
the time of issuance of the press release, such other news or press organization
as is reasonably calculated to broadly disseminate the relevant information to
the public) containing the information stated in such a notice, and post such a
notice on our website, in any event prior to the opening of business on the
first business day following any date on which we provide the notice described
above to the holders of record of Series F or G preferred stock.
14
To exercise conversion rights
in connection with a Change of Control, a holder of record of Series F or G
preferred stock will be required to deliver, on or before the close of business
on the applicable conversion date, the certificates, if any, representing any
certificated shares of Series F or G preferred stock to be converted, duly
endorsed for transfer, together with a completed written conversion notice and
any other documents we reasonably require in connection with such conversion, to
our conversion agent. The conversion notice must state:
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the relevant conversion
date; and
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the number of shares of
Series F or G preferred stock to be converted.
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A holder of Series F or G
preferred stock may withdraw any notice of exercise of such holders conversion
rights in connection with a Change of Control, in whole or in part, by a written
notice of withdrawal delivered to our conversion agent prior to the close of
business on the business day prior to the applicable conversion date. The notice
of withdrawal must state:
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the number of withdrawn
shares of Series F or G preferred stock;
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if certificated shares
of Series F or G preferred stock have been tendered for conversion and
withdrawn, the certificate numbers of the withdrawn certificated shares of
Series F or G preferred stock; and
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the number of shares of
Series F or G preferred stock, if any, which remain subject to the
conversion notice.
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Notwithstanding the foregoing,
if the Series F or G preferred stock is held in global form, the conversion
notice and/or the notice of withdrawal, as applicable, must comply with
applicable procedures of DTC.
Shares of Series F or G
preferred stock as to which the holders conversion right has been properly
exercised and for which the conversion notice has not been properly withdrawn
will be converted into the applicable form of consideration on the applicable
conversion date unless, prior to the applicable conversion date, we provide
notice of our election to redeem such shares of Series F or G preferred stock,
whether pursuant to our optional redemption right or our special optional
redemption right. If we elect to redeem shares of Series F or G preferred stock
that would otherwise be converted into the applicable form of consideration on a
conversion date, such shares of Series F or G preferred stock will not be so
converted and the holders of such shares will be entitled to receive on the
applicable redemption date the redemption price for such shares. We will deliver
amounts owing upon conversion no later than the third business day following the
applicable conversion date.
In connection with the
exercise of conversion rights in connection with any Change of Control, we will
comply with all U.S. federal and state securities laws and stock exchange rules
in connection with any conversion of shares of Series F or G preferred stock
into shares of Class A common stock. Notwithstanding any other provision of the
terms of the Series F or G preferred stock, no holder of the Series F or G
preferred stock will be entitled to convert such Series F or G preferred stock
into shares of Class A common stock to the extent that receipt of such shares of
Class A common stock would cause such holder (or any other person) to violate
the restrictions on ownership and transfer of our stock contained in our
Charter. See Restrictions on Ownership and Transfer.
The conversion and redemption
features of the Series F and G preferred stock may make it more difficult for or
discourage a party from taking over our company.
Information
Right
During any period during which
we are not subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act and any shares of Series F or G preferred stock are outstanding, we
will (i) transmit by mail or other permissible means under the Exchange Act to
all holders of Series F or G preferred stock as their names and addresses appear
in our record books and without cost to such holders, copies of the Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form
8-K that we would have been required to file with the SEC pursuant to Section 13
or 15(d) of the Exchange Act if we were subject thereto (other than any exhibits
that would have been required) within 15 days after the respective dates by
which we would have been required to file such reports with the SEC if we were
subject to Section 13 or 15(d) of the Exchange Act, in each case, based on the
dates on which we would be required to file such periodic reports if we were an
accelerated filer within the meaning of the Exchange Act, and (ii) within 15
days following written request, supply copies of such reports to any prospective
holder of the Series F or G preferred stock.
15
Listing
Our Series F and Series G
preferred stock are listed on the NYSE under the symbols, UBP-F and UBP-G,
respectively.
Certain
Definitions
Below is a summary of certain
of the defined terms used in the various articles supplementary for the Series F
or G preferred stock, as applicable. You should refer to the articles
supplementary for the full definition of all these terms, as well as any other
terms used but not defined in this prospectus.
Calculation period means, as
of any date of determination, the period comprised of our two most recently
completed fiscal quarters immediately preceding our fiscal quarter in which that
date of determination occurs.
Change of Control, means the
following have occurred and are continuing: (a) the acquisition by any person,
including any syndicate or group deemed to be a person under Section 13(d)(3)
of the Exchange Act, other than Exempted Persons (as defined hereinafter), of
beneficial ownership, directly or indirectly, through a purchase, merger or
other acquisition transaction or series of purchases, mergers or other
acquisition transactions, of shares of our common stock and Class A common stock
entitling that person to exercise more than 50% of the total voting power of all
outstanding shares of our common stock and Class A common stock entitled to vote
generally in the election of directors (and such a person will be deemed to have
beneficial ownership of all securities that such person has the right to
acquire, whether such right is currently exercisable or is exercisable only upon
the occurrence of a subsequent condition); and (b) following the closing of any
transaction referred to in the bullet point above, neither we nor the acquiring
or surviving entity has a class of common securities (or ADRs representing such
securities) listed on the NYSE, the NYSE MKT or the NASDAQ, or listed or quoted
on an exchange or quotation system that is a successor to the NYSE, the NYSE MKT
or the NASDAQ.
Class A Common Share Price,
for any Change of Control will be (i) if the consideration to be received in the
Change of Control by holders of shares of Class A common stock is solely cash,
the amount of cash consideration per share of Class A common stock, and (ii) if
the consideration to be received in the Change of Control by holders of shares
of Class A common stock is other than solely cash (including if such holders do
not receive consideration), the average of the closing price per share of Class
A common stock on the NYSE, NYSE MKT and NASDAQ for the 10 consecutive trading
days immediately preceding, but not including, the effective date of the Change
of Control.
Exempted Person means, (i)
Charles J. Urstadt; (ii) any Urstadt Family Member (as hereinafter defined);
(iii) any executor, administrator, trustee or personal representative who
succeeds to the estate of Charles J. Urstadt or an Urstadt Family Member as a
result of the death of such individual, acting in their capacity as an executor,
administrator, trustee or personal representative with respect to any such
estate; (iv) a trustee, guardian or custodian holding property for the primary
benefit of Charles J. Urstadt or any Urstadt Family Member, (v) any corporation,
partnership, limited liability company or other business organization that is
directly or indirectly controlled by one or more persons or entities described
in clauses (i) through (iv) hereof and is not controlled by any other person or
entity; and (vi) any charitable foundation, trust or other not-for-profit
organization for which one or more persons or entities described in clauses (i)
through (v) hereof controls the investment and voting decisions in respect of
any interest in the company held by such organization. For the sake of clarity
with respect to clause (v) above, control includes the power to control the
investment and voting decisions of any such corporation, partnership, limited
liability company or other business organization. For purposes of this
definition, the term Urstadt Family Member shall mean and include the spouse
of Charles J. Urstadt, the descendants of the parents of Charles J. Urstadt, the
descendants of the parents of the spouse of Charles J. Urstadt, the spouses of
any such descendant and the descendants of the parents of any spouse of a child
of Charles J. Urstadt. For this purpose, an individuals spouse includes the
widow or widower of such individual, and an individuals descendants includes
biological descendants and persons deriving their status as descendants by
adoption.
Make-Whole Redemption Price
means, for any shares of Series F or G preferred stock at any date of
redemption, the sum of (i) $25.00 per share, (ii) all accrued and unpaid
dividends thereon to, but excluding, such date of redemption, and (iii) the
present value as of the date of redemption of all remaining scheduled dividend
payments for such shares of Series F or G preferred stock until the fifth
anniversary date, calculated using a discount rate equal to the Treasury Rate
(determined on the date of the notice of redemption) plus 50 basis points.
16
Parity preferred means all
other series of preferred stock ranking on a parity with the Series F or G
preferred stock, as applicable, as to dividends or upon liquidation and upon
which like voting rights have been conferred and are exercisable.
Treasury Rate means, with
respect to any date of determination, the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity (as
compiled and published in the most recent Federal Reserve Statistical Release
H.15(519) that has become publicly available at least two business days prior to
such date of determination (or, if such Statistical Release is no longer
published, any publicly available source of similar market data)) most nearly
equal to the period from such date of redemption to the fifth anniversary date;
provided, however, that if the period from such date of redemption to the fifth
anniversary date is not equal to the constant maturity of the United States
Treasury security for which a weekly average yield is given, the Treasury Rate
will be obtained by linear interpolation (calculated to the nearest one-twelfth
of a year) from the weekly average yields of United States Treasury securities
for which such yields are given, except that if the period from the date of
redemption to the fifth anniversary date is less than one year, the weekly
average yield on actually traded United States Treasury securities adjusted to a
constant maturity of one year will be used.
Transfer Agent and
Registrar
The transfer agent and
registrar for each of our Series F preferred stock and Series G preferred stock
is Computershare Inc.
Description of Depositary
Shares
General
We may, at our option, elect
to offer fractional shares of our preferred stock, rather than full shares of
preferred stock. In such event, we will issue to the public receipts for
depositary shares, each of which will represent a fraction (to be set forth in
the prospectus supplement relating to a particular series of preferred stock) of
a share of a particular series of our preferred stock as described below.
The shares of any series of
our preferred stock represented by depositary shares will be deposited under a
deposit agreement between us and the depositary named in the applicable
prospectus supplement. Subject to the terms of the deposit agreement, each owner
of a depositary share will be entitled, in proportion to the applicable fraction
of a share of our preferred stock represented by such depositary share, to all
the rights and preferences of the preferred stock represented thereby (including
dividend, voting, redemption and liquidation rights).
The depositary shares will be
evidenced by depositary receipts issued pursuant to the deposit agreement.
Depositary receipts will be distributed to those persons purchasing the
fractional shares of our preferred stock in accordance with the terms of the
offering. If depositary shares are issued, copies of the forms of deposit
agreement and depositary receipt will be incorporated by reference in the
registration statement of which this prospectus is a part, and the following
summary is qualified in its entirety by reference to those documents.
Dividends and Other
Distributions
The depositary will distribute
all cash dividends or other cash distributions received in respect of our
preferred stock to the record holders of depositary shares relating to the
preferred stock in proportion to the number of depositary shares owned by the
holders. The depositary will distribute only such amount, however, as can be
distributed without attributing to any holder of depositary shares a fraction of
one cent, and the balance that is not distributed will be added to and treated
as part of the next sum received by the depositary for distribution to record
holders of depositary shares.
In the event of a distribution
other than in cash, the depositary will distribute property received by it to
the record holders of depositary shares in proportion to the depositary shares
held by each of them, unless the depositary determines that it is not feasible
to make the distribution, in which case the depositary may, with our approval,
sell the property and distribute the net proceeds from the sale to the holders.
The deposit agreement will
also contain provisions relating to the manner in which any subscription or
similar rights offered by us to holders of the preferred stock shall be made
available to the holders of depositary shares.
17
Withdrawal of Preferred
Stock
A holder of depositary shares
will be entitled to receive, upon surrender of depositary receipts representing
depositary shares, the number of whole or fractional shares of the applicable
series of preferred stock, and any money or other property, to which the
depositary shares relate.
Redemption of Depositary
Shares
If a series of our preferred
stock represented by depositary shares is subject to redemption, the depositary
shares will be redeemed from the proceeds received by the depositary resulting
from the redemption, in whole or in part, of the series of preferred stock held
by the depositary. The redemption price per depositary share will be equal to
the applicable fraction of the redemption price per share payable with respect
to the series of preferred stock. Whenever we redeem shares of preferred stock
held by the depositary, the depositary will redeem as of the same redemption
date the number of depositary shares representing the shares of preferred stock
that have been redeemed. If fewer than all the depositary shares are to be
redeemed, the depositary shares to be redeemed will be selected by lot or pro
rata as may be determined by the depositary.
After the date fixed for
redemption, the depositary shares that are called for redemption will no longer
be outstanding and all rights of the holders of the depositary shares will
cease, except the right to receive the money, securities, or other property
payable upon the redemption and any money, securities, or other property to
which the holders of the depositary shares were entitled upon the redemption
upon surrender to the depositary of the depositary receipts evidencing the
depositary shares.
Voting the Preferred
Stock
Upon receipt of notice of any
meeting at which the holders of our preferred stock are entitled to vote, the
depositary will mail the information contained in the notice of meeting to the
record holders of the depositary shares relating to the preferred stock. Each
record holder of the depositary shares on the record date (which will be the
same date as the record date for the preferred stock) will be entitled to
instruct the depositary as to the exercise of the voting rights pertaining to
the amount of preferred stock represented by that holders depositary shares.
The depositary will endeavor, insofar as practicable, to vote the amount of
preferred stock represented by the depositary shares in accordance with the
instructions, and we will agree to take all action which may be deemed necessary
by the depositary in order to enable the depositary to do so. The depositary may
abstain from voting shares of preferred stock to the extent it does not receive
specific instructions from the holders of depositary shares representing the
preferred stock.
Amendment and Termination
of the Deposit Agreement
The form of depositary receipt
evidencing the depositary shares and any provision of the deposit agreement may
at any time be amended by agreement between us and the depositary. We and the
depositary may amend a deposit agreement, except that an amendment which
materially and adversely affects the rights of holders of depositary shares, or
would be materially and adversely inconsistent with the rights granted to the
holders of the preferred stock to which they relate, must be approved by holders
of at least two-thirds of the outstanding depositary shares. No amendment will
impair the right of a holder of depositary shares to surrender the depositary
receipts evidencing those depositary shares and receive the preferred stock to
which they relate, except as required to comply with law. We may terminate a
deposit agreement with the consent of holders of a majority of the depositary
shares to which it relates. Upon termination of a deposit agreement, the
depositary will make the whole or fractional shares of preferred stock to which
the depositary shares issued under the deposit agreement relate available to the
holders of those depositary shares. A deposit agreement will automatically
terminate if:
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All outstanding
depositary shares to which it relates have been redeemed or converted;
and/or
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The depositary has made
a final distribution to the holders of the depositary shares issued under
the deposit agreement upon our liquidation, dissolution or winding up.
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18
Charges of
Depositary
We will pay all transfer and
other taxes and governmental charges arising solely from the existence of the
depositary arrangements. We will pay charges of the depositary in connection
with the initial deposit of the preferred stock and any redemption of the
preferred stock. Holders of depositary receipts will pay other transfer and
other taxes and governmental charges and such other charges, including a fee for
the withdrawal of shares of preferred stock upon surrender of depositary
receipts, as are expressly provided to be for their accounts in the deposit
agreement.
Miscellaneous
The depositary will forward to
holders of depositary receipts all reports and communications from us that are
delivered to the depositary and that we are required to furnish to holders of
our preferred stock. The deposit agreement will include provisions limiting our
liability and the liability of the depositary under the deposit agreement
(usually to failure to act in good faith, gross negligence or willful
misconduct) and indemnifying the depositary against certain possible
liabilities.
Resignation and Removal of
Depositary
The depositary may resign at
any time by delivering to us notice of its election to do so, and we may at any
time remove the depositary in which event we will appoint a successor depositary
after delivery of the notice of resignation or removal.
Restrictions on Ownership
In order to safeguard us
against an inadvertent loss of our REIT status, the deposit agreement will
contain provisions restricting the ownership and transfer of depositary shares.
These restrictions will be described in the applicable prospectus supplement and
will be referenced on the applicable depositary receipts.
Restrictions on Ownership
and Transfer
To qualify as a REIT under the
Internal Revenue Code, we must meet several requirements regarding the number of
our stockholders and concentration of ownership of our shares. Our Charter
contains provisions that restrict the ownership and transfer of our equity
securities to assist us in complying with these Internal Revenue Code
requirements. We refer to these restrictions as the ownership limit.
The ownership limit provides
that, in general, no person may own more than 7.5% of the aggregate value of all
outstanding stock of our Company. It also provides that:
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a transfer that violates
the limitation is void;
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a transferee gets no
rights to the shares that violate the limitation;
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shares transferred to a
stockholder in excess of the ownership limit are automatically exchanged,
by operation of law, for shares of excess stock; and
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the excess stock will be
held by us as trustee of a trust for the exclusive benefit of future
transferees to whom the shares of stock will ultimately be transferred
without violating the ownership limit.
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Pursuant to authority under
our Charter, our Board of Directors has determined that the ownership limit does
not apply to any stock of the company beneficially owned by Mr. Charles J.
Urstadt, our Chairman and Director, or Mr. Willing L. Biddle, our President,
Chief Executive Officer and Director, for holdings which, in aggregate value,
are not in excess of 27% of the aggregate value of all of our outstanding
securities. As of June 5, 2017, Mr. Urstadt and Mr. Biddle owned in the
aggregate approximately 13.9% of the aggregate value of all of our outstanding
securities.
Ownership of our stock is
subject to attribution rules under the Internal Revenue Code, which may result
in a person being deemed to own stock held by other persons. Our Board of
Directors may waive the ownership limit if it determines that the waiver will
not jeopardize our status as a REIT. As a condition of such a waiver, the Board
of Directors may require an opinion of counsel satisfactory to it or
undertakings or representations from the applicant with respect to preserving
our REIT status. We required no such opinion or undertakings with respect to Mr. Urstadts or Mr. Biddles
ownership rights.
19
Any person who acquires our
stock must, on our demand, immediately provide us with any information we may
request in order to determine the effect of the acquisition on our status as a
REIT. If our Board of Directors determines that it is no longer in our best
interests to qualify as a REIT the ownership limitation will not be relevant.
Otherwise, the ownership limit may be changed only by an amendment to our
Charter by a vote of a majority of the voting power of our common equity
securities.
Our Charter provides that any
purported transfer that results in a direct or indirect ownership of shares of
stock in excess of the ownership limit or that would result in the loss of our
Companys status as a REIT will be null and void, and the intended transferee
will acquire no rights to the shares of stock. The foregoing restrictions on
transferability and ownership will not be relevant if our Board of Directors
determines that it is no longer in our best interests to attempt to qualify, or
to continue to qualify, as a REIT. Our Board of Directors may, in its sole
discretion, waive the ownership limit if evidence satisfactory to our Board of
Directors and our tax counsel is presented that the changes in ownership will
not then or in the future jeopardize our REIT status and our Board of Directors
otherwise decides that such action is in our best interests.
Shares of stock owned, or
deemed to be owned, or transferred to a stockholder in excess of the ownership
limit will automatically be exchanged for shares of excess stock that will be
transferred, by operation of law, to us as trustee of a trust for the exclusive
benefit of the transferees to whom such shares of stock may be ultimately
transferred without violating the ownership limit. While the excess stock is
held in trust, it will not be entitled to vote, it will not be considered for
purposes of any stockholder vote or the determination of a quorum for such vote,
and except upon liquidation it will not be entitled to participate in dividends
or other distributions. Any distribution paid to a proposed transferee of excess
stock prior to the discovery by us that stock has been transferred in violation
of the provision of our Charter is required to be repaid to us upon demand.
The excess stock is not
treasury stock, but rather constitutes a separate class of our issued and
outstanding stock. The original transferee-stockholder may, at any time the
excess stock is held by us in trust, transfer the interest in the trust
representing the excess stock to any person whose ownership of shares of capital
stock exchanged for such excess stock would be permitted under the ownership
limit, at a price not in excess of:
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the price paid by the
original transferee-stockholders for shares of stock that were exchanged
into excess stock, or
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if the original
transferee-stockholder did not give value for such shares (e.g., the
shares were received through a gift, devise or other transaction), the
average closing price for the class of stock from which such shares of
excess stock were exchanged for the ten days immediately preceding such
sale, gift or other transaction.
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Immediately upon the transfer
to the permitted transferee, the excess stock will automatically be exchanged
back into shares of stock from which it was converted. If the foregoing transfer
restrictions are determined to be void or invalid by virtue of any legal
decision, statute, rule or regulation, then the intended transferee of any
shares of excess stock may be deemed, at our option, to have acted as an agent
on behalf of us in acquiring the excess stock and to hold the excess stock on
behalf of us.
In addition, we will have the
right, for a period of 90 days during the time any shares of excess stock are
held by us in trust, to purchase the excess stock from the purported
transferee-stockholder at the lesser of:
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the price initially paid
for such shares by the purported transferee-stockholder, or if the
purported transferee-stockholder did not give value for such shares (e.g.,
the shares were received through a gift, devise or other transaction), the
average closing price for the class of stock from which such shares of
excess stock were converted for the 30 days immediately preceding the date
we elect to purchase the shares, and
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the average closing
price for the class of stock from which such shares of excess stock were
converted for the ten trading days immediately preceding the date we elect
to purchase such shares.
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The 90-day period begins on
the date notice is received of the violative transfer if the purported
transferee-stockholder gives notice to us of the transfer, or, if no such notice
is given, the date our Board of Directors determines that a violative transfer
has been made.
All stock certificates bear a
legend referring to the restrictions described above.
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Every owner of more than 5%,
or any lower percentage set by federal income tax laws, of outstanding stock
generally must file a completed questionnaire with us containing information
regarding his or her ownership. In addition, each stockholder must, upon demand,
disclose in writing any information we may request in order to determine the
effect, if any, of such stockholders actual and constructive ownership of stock
on our status as a REIT and to ensure compliance with the ownership limitation.
CERTAIN PROVISIONS OF OUR
CHARTER AND BYLAWS, MARYLAND LAW, OUR
STOCKHOLDER RIGHTS PLAN AND CHANGE OF
CONTROL AGREEMENTS
Provisions of Our Charter
and Bylaws
Classification of Board,
Vacancies and Removal of Directors
Our Charter provides that our
Board of Directors is divided into three classes. Directors of each class serve
for staggered terms of three years each, with the terms of each class beginning
in different years. We currently have ten directors. The number of directors in
each class and the expiration of the current term of each class is as follows:
Class I
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3
directors
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Expires 2019
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Class II
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3
directors
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Expires 2020
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Class III
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4
directors
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Expires 2018
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At each annual meeting of our
stockholders, successors of the directors whose terms expire at that meeting
will be elected for a three-year term and the directors in the other two classes
will continue in office. A classified board may delay, defer or prevent a change
in control or other transaction that might involve a premium over the
then-prevailing market price for our common stock and Class A common stock or
other attributes that our stockholders may consider desirable. In addition, a
classified board could prevent stockholders who do not agree with the policies
of our Board of Directors from replacing a majority of the Board of Directors
for two years, except in the event of removal for cause.
Our Charter provides that,
subject to the rights of holders of our preferred stock, any director may be
removed (a) only for cause and (b) only by the affirmative vote of holders of
not less than two-thirds of the common equities then outstanding and entitled to
vote for the election of directors. Our Charter additionally provides that any
vacancy occurring on our Board of Directors (other than as a result of the
removal of a director) will be filled only by a majority of the remaining
directors except that a vacancy resulting from an increase in the number of
directors will be filled by a majority of the entire Board of Directors. A
vacancy resulting from the removal of a director may be filled by the
affirmative vote of a majority of all the votes cast at a meeting of the
stockholders called for that purpose.
The provisions of our Charter
relating to the removal of directors and the filling of vacancies on our Board
of Directors could preclude a third party from removing incumbent directors
without cause and simultaneously gaining control of our Board of Directors by
filling, with its own nominees, the vacancies created by such removal. The
provisions also limit the power of stockholders generally, and those with a
majority interest, to remove incumbent directors and to fill vacancies on our
Board of Directors without the support of incumbent directors.
Stockholder Action by
Written Consent
Our Charter provides that any
action required or permitted to be taken by our stockholders may be effected by
a consent in writing signed by the holders of all of our outstanding shares of
common equity securities entitled to vote on the matter. This requirement could
deter a change of control because it could delay or deter the stockholders
ability to take action with respect to us without convening a meeting.
Meetings of Stockholders
Our Bylaws provide for annual
stockholder meetings to elect directors. Special stockholder meetings may be
called by our Chairman, President or a majority of the Board of Directors and
shall be called by our Secretary at the written request of stockholders entitled
to cast at least a majority of all votes entitled to be cast at the meeting.
This requirement could deter a change of control because it could delay or deter
the stockholders ability to take action with respect to us.
21
Stockholder Proposals and
Director Nominations
Under our Bylaws, in order to
have a stockholder proposal or director nomination considered at an annual
meeting of stockholders, stockholders are generally required to deliver to us
certain information concerning themselves and their stockholder proposal or
director nomination not less than 75 days nor more than 120 days prior to the
anniversary date of the immediately preceding annual meeting (the annual
meeting anniversary date); provided, however, that, if the annual meeting is
scheduled to be held on a date more than 30 days before or more than 60 days
after the annual meeting anniversary date, notice must be delivered to us not
later than the close of business on the later of:
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the 75th day prior to
the scheduled date of such annual meeting or
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the 15th day after
public disclosure of the date of such meeting.
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Failure to comply with such
timing and informational requirements will result in such proposal or director
nomination not being considered at the annual meeting. The purpose of requiring
stockholders to give us advance notice of nominations and other business, and
certain related information is to ensure that we and our stockholders have sufficient time and
information to consider any matters that are proposed to be voted on at an
annual meeting, thus promoting orderly and informed stockholder voting. Such
Bylaw provisions could have the effect of precluding a contest for the election
of our directors or the making of stockholder proposals if the proper procedures
are not followed, and of delaying or deterring a third party from conducting a
solicitation of proxies to elect its own slate of directors or to have its own
proposals approved.
Authorization of
Consolidations, Mergers and Sales of Assets
Our Charter provides that any
consolidation, merger, share exchange or transfer of all or substantially all of
our assets must first be approved by the affirmative vote of a majority of our
Board of Directors (including a majority of the Continuing Directors, as defined
in our Charter) and thereafter must be approved by a vote of at least a majority
of all the votes entitled to be cast on such matter.
Amendment of our Charter
and Bylaws
Our Charter may be amended
with the approval of a majority of the Board of Directors (including a majority
of the Continuing Directors) and the affirmative vote of a majority of the votes
entitled to be cast by our stockholders on the matter. Our Bylaws may be amended
only by the Board of Directors. In addition, our Board of Directors may amend
our Charter without action by our stockholders to increase or decrease the
number of shares of stock of any class that we are authorized to issue.
Indemnification; Limitation
of Directors and Officers Liability
Our Charter provides that we
have the power, by our Bylaws or by resolution of the Board of Directors, to
indemnify directors, officers, employees and agents, provided that
indemnification is consistent with applicable law. Our Bylaws provide that we
will indemnify, to the fullest extent permitted from time to time by applicable
law, our directors, officers, employees and agents and any person serving at our
request as a director, officer or employee of another corporation or entity, who
by reason of that status or service is or is threatened to be made a party to,
or is otherwise involved in, any action, suit or proceeding. According to our
Bylaws, indemnification will be against all liability and loss suffered and
expenses, including attorneys fees, judgments, fines, penalties and amounts
paid in settlement, reasonably incurred by the indemnified person in connection
with the proceeding. Our Bylaws provide, however, that we will not be required
to indemnify a person in connection with an action, suit or proceeding initiated
by that person unless it was authorized by the Board of Directors. Our Bylaws
provide that we will pay or reimburse reasonable expenses in advance of final
disposition of a proceeding and without requiring a preliminary determination of
the ultimate entitlement to indemnification, provided that the individual
seeking payment provides (a) a written affirmation of the individuals good
faith belief that the individual meets the standard of conduct necessary for
indemnification under the laws of the State of Maryland, and (b) a written
undertaking to repay the amount advanced if it is ultimately determined that the
applicable standard of conduct has not been met. Our Charter limits the
liability of our officers and directors to us and our stockholders for money
damages to the maximum extent permitted by Maryland law.
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The MGCL permits a corporation
to indemnify its directors, officers and certain other parties against
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by them in connection with any proceeding to which they may be made a
party by reason of their service to the corporation or at the corporations
request, unless it is established that (i) the act or omission of the person was
material to the matter giving rise to the proceeding and (a) was committed in
bad faith or (b) was the result of active and deliberate dishonesty, or (ii) the
person actually received an improper personal benefit in money, property or
services, or (iii) in the case of any criminal proceeding, the person had
reasonable cause to believe that the act or omission was unlawful. The MGCL does
not permit indemnification in respect of any proceeding in which the person
seeking indemnification is adjudged to be liable to the corporation. Further, a
person may not be indemnified for a proceeding brought by that person against
the corporation, except (i) for a proceeding brought to enforce indemnification
or (ii) if the corporations charter or bylaws, a resolution of the board of
directors or an agreement approved by the board of directors to which the
corporation is a party expressly provides otherwise. Under the MGCL, reasonable
expenses incurred by a director or officer who is a party to a proceeding may be
paid or reimbursed by the corporation in advance of final disposition of the
proceeding upon receipt by the corporation of (i) a written affirmation by the
person of his or her good faith belief that the standard of conduct necessary
for indemnification has been met and (ii) a written undertaking by or on behalf
of the person to repay the amount if it shall ultimately be determined that the
standard of conduct has not been met. The MGCL also requires a corporation
(unless limited by the corporations charter) to indemnify a director or officer
who is successful, on the merits or otherwise, in the defense of any proceeding
against reasonable expenses incurred by the director in connection with the
proceeding in which the director or officer has been successful. Our Charter
contains no such limitation. The MGCL permits a corporation to limit the
liability of its officers and directors to the corporation or its stockholders
for money damages, but may not include any provision that restricts or limits
the liability of directors or officers to the corporation and it stockholders to
the extent that (i) it is proved that the person actually received an improper
benefit or profit in money, property or services; or (ii) a final judgment
adverse to the person is entered based on a finding that the persons act or
omission was the result of active or deliberate dishonesty and was material to
the cause of action adjudicated.
Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers or persons controlling our company pursuant to the foregoing
provisions, we have been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
Provisions of Maryland Law
Business Combinations
Under Maryland law, certain
business combinations between us and any person who beneficially owns,
directly or indirectly, 10% or more of the voting power of our stock, an
affiliate of ours who, at any time within the previous two years was the
beneficial owner of 10% or more of the voting power of our stock (who the
statute terms an interested stockholder), or an affiliate of an interested
stockholder, are prohibited for five years after the most recent date on which
the person became an interested stockholder. The business combinations that are
subject to this law include mergers, consolidations, share exchanges or, in
certain circumstances, asset transfers or issuances or reclassifications of
equity securities. After the five-year period has elapsed, a proposed business
combination with any such party must be recommended by the Board of Directors
and approved by the affirmative vote of at least:
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80% of the votes
entitled to be cast by holders of our outstanding voting stock;
and
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two-thirds of the votes
entitled to be cast by holders of the outstanding voting stock, excluding
shares held by the interested stockholder,
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unless, among other
conditions, the stockholders receive a fair price, as defined by Maryland law,
for their shares and the consideration is received in cash or in the same form
as previously paid by the interested stockholder for its shares.
These provisions do not apply,
however, to business combinations that the Board of Directors approves or
exempts before the time that the interested stockholder becomes an interested
stockholder. Our Charter provides that these provisions do not apply to
transactions between us and any person who owned 20% of the common stock of a
predecessor to the Company as of December 31, 1996, or such persons affiliates.
As of that date, only Mr. Charles J. Urstadt, Chairman and Chief Executive
Office of the Company, owned that percentage of our common stock.
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Our Board of Directors has
from time to time authorized issuances of our stock to Mr. Willing L. Biddle,
with the effect that he is not an interested stockholder and these provisions do
not apply to transactions between us and Mr. Biddle or his affiliates. In
addition, our Board of Directors has, by resolution, determined that the
Maryland law provisions restricting business combinations will not be applicable
to spouses, children and other descendants of Mr. Urstadt or Mr. Biddle and
certain trusts created for their benefit, and any of their affiliates.
Control Share Acquisitions
Maryland law provides that
control shares acquired in a control share acquisition have no voting rights
unless approved by the affirmative vote of two-thirds of all votes entitled to
be cast on the matter, excluding shares owned by the acquiror or by officers of
ours or employees of ours who are also directors. Control shares are voting
shares which, if aggregated with all other shares previously acquired by the
acquiring person, or in respect of which the acquiring person is able to
exercise or direct the exercise of voting power, other than by revocable proxy,
would entitle the acquiring person to exercise voting power in electing
directors within one of the following ranges of voting power:
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one-tenth or more but
less than one-third;
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one-third or more but
less than a majority; or
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a majority of all voting
power.
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Control shares do not include
shares the acquiring person is then entitled to vote as a result of having
previously obtained stockholder approval. A control share acquisition means
the acquisition of ownership of, or the power to direct the voting power of
control shares, subject to certain exceptions.
A person who has made or
proposes to make a control share acquisition, upon satisfaction of certain
conditions, including an undertaking to pay expenses, may compel our Board of
Directors to call a special meeting of stockholders to be held within 50 days of
demand to consider the voting rights of the shares. If no request for a meeting
is made, we may present the question at any stockholders meeting.
If voting rights are not
approved at the stockholders meeting or if the acquiring person does not
deliver the statement required by Maryland law, then, subject to certain
conditions and limitations, we may redeem any or all of the control shares,
except those for which voting rights have previously been approved, for fair
value. Fair value is determined without regard to the absence of voting rights
for the control shares and as of the date of the last control share acquisition
or of any meeting of stockholders at which the voting rights of the shares were
considered and not approved. If voting rights for control shares are approved at
a stockholders meeting and the acquiror is then entitled to direct the exercise
of a majority of all voting power, then all other stockholders may exercise
appraisal rights. The fair value of the shares for purposes of these appraisal
rights may not be less than the highest price per share paid by the acquiror in
the control share acquisition. The control share acquisition statute does not
apply to shares acquired in a merger, consolidation or share exchange if we are
a party to the transaction, nor does it apply to acquisitions of our stock
approved or exempted by our Charter or Bylaws.
Our Bylaws exempt from the
Maryland control share statute any and all acquisitions of our common stock or
preferred stock by any person. The Board of Directors has the right, however to
withdraw this exemption at any time in the future.
Dissolution Requirements
Maryland law generally permits
the dissolution of a corporation if approved (a) first by the affirmative vote
of a majority of the entire Board of Directors declaring such dissolution to be
advisable and directing that the proposed dissolution be submitted for
consideration at an annual or special meeting of stockholders, and (b) upon
proper notice being given as to the purpose of the meeting, then by the
stockholders of the corporation by the affirmative vote of two-thirds of all the
votes entitled to be cast on the matter. Our Charter reduces the required vote
(as permitted by Maryland law) to a majority of the votes entitled to be cast on
the matter.
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Additional Provisions of
Maryland Law
Maryland law also provides
that Maryland corporations that are subject to the Exchange Act and have at
least three outside directors can elect by resolution of the board of directors
to be subject to some corporate governance provisions that may be inconsistent
with the corporations charter and bylaws. Under the applicable statute, a board
of directors may classify itself without the vote of stockholders. A board of
directors classified in that manner cannot be altered by amendment to the
charter of the corporation. Further, the board of directors may, by electing
into applicable statutory provisions and notwithstanding the charter or bylaws:
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provide that a special
meeting of stockholders will be called only at the request of
stockholders, entitled to cast at least a majority of the votes entitled
to be cast at the meeting;
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reserve for itself the
right to fix the number of directors;
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provide that a director
may be removed only by the vote of the holders of two-thirds of the stock
entitled to vote;
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retain for itself sole
authority to fill vacancies created by the death, removal or resignation
of a director; and
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provide that all
vacancies on the board of directors may be filled only by the affirmative
vote of a majority of the remaining directors, in office, even if the
remaining directors do not constitute a quorum.
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In addition, a director
elected to fill a vacancy under this provision will serve for the balance of the
unexpired term and until a successor is elected and qualifies instead of until
the next annual meeting of stockholders. A board of directors may implement all
or any of these provisions without amending the charter or bylaws and without
stockholder approval. A corporation may be prohibited by its charter or by
resolution of its board of directors from electing any of the provisions of the
statute. We are not prohibited from implementing any or all of the statute.
While certain of these
provisions are already contemplated by our Charter and Bylaws, the law would
permit our Board of Directors to override further changes to the Charter or
Bylaws. If implemented, these provisions could discourage offers to acquire our
common stock or Class A common stock and could increase the difficulty of
completing an offer.
Under Maryland law, our Board
of Directors may amend our Charter without stockholder action to effect a
reverse stock split with respect to any class of shares, provided the Board does
not cause a combination of more than 10 shares of stock into one share in any
12-month period. According to the terms of our Series F and G preferred stock, no
such amendment may materially and adversely affect the provision of such series
without the consent of the holders thereof.
Under Maryland law, dissenting
stockholders may have, subject to satisfying certain procedures, the right to
demand and receive payment of the fair value of their shares of stock in
connection with certain transactions (often referred to as appraisal rights).
Under Maryland law, however, stockholders may not demand fair value of stock if
the shares are listed on a national securities exchange. Holders of shares of
any class of our stock that is listed on a national securities exchange, such as
our common stock, Class A common stock and our Series F and G preferred stock,
would be precluded from exercising appraisal rights and dissenting from
extraordinary transactions, such as the merger of our company with or into
another company or the sale of all or substantially all our assets.
Stockholder Rights Plan
We have adopted a stockholder
rights plan. Under the terms of this plan, we can in effect prevent a person or
a group from acquiring more than 10% of the combined voting power of our
outstanding shares of common stock and Class A common stock because, after (a)
the person acquires more than 10% of the combined voting power of our
outstanding common stock and Class A common stock, or (b) the commencement of a
tender offer or exchange offer by any person (other than us, any one of our
wholly owned subsidiaries or any of our employee benefit plans, or any exempted
person (as defined below)), if, upon consummation of the tender offer or
exchange offer, the person or group would beneficially own 30% or more of the
combined voting power of our outstanding shares of common stock and Class A
common stock, all other stockholders will have the right to purchase securities
from us at a price that is less than their fair market value, which would
substantially reduce the value and influence of the stock owned by the acquiring
person. Our Board of Directors can prevent the plan from operating by approving
of the transaction and
25
redeeming the rights. This gives our Board of Directors
significant power to approve or disapprove of the efforts of a person or group
to acquire a large interest in our Company. The rights plan exempts acquisitions
of common stock and Class A common stock by Mr. Charles J. Urstadt, members of
his family and certain of his affiliates.
Change of Control
Agreements
We have entered into change of
control agreements with certain of our senior executives providing for the
payment of money to these executives upon the termination of employment
following the occurrence of a change of control of our Company as defined in
these agreements. If, within 18 months following a change of control, we
terminate the executives employment other than for cause, or if the executive
elects to terminate his or her employment with us for reasons specified in the
agreement, we will pay the executive an amount equal to twelve months of the
executives base salary in effect at the date of the change of control and will:
(a) continue in effect for a period of twelve months, for the benefit of the
executive and his family, life and health insurance, disability, medical and
other benefit programs in which the executive participates, provided that the
executives continued participation is possible, or (b) if such continued
participation is not possible, arrange to provide for the executive and his
family similar benefits for the same period. In addition, our Compensation
Committee has the discretion under our restricted stock plan to accelerate the
vesting of outstanding restricted stock awards in the event of a change of
control. These provisions may deter changes of control of our Company because of
the increased cost for a third party to acquire control of our Company.
Possible Anti-Takeover
Effect of Certain Provisions of Our Charter and Bylaws, Maryland Law,
Stockholder Rights Plan and Change of Control Agreements
Certain provisions of our
Charter and Bylaws, certain provisions of Maryland law, our stockholder rights
plan and our change of control agreements with our officers could have the
effect of delaying or preventing a transaction or a change in control that might
involve a premium price for stockholders or that they otherwise may believe is
desirable.
Interests of Mr. Charles J.
Urstadt and Mr. Willing L. Biddle
Mr. Charles J. Urstadt, our
Chairman and Director, and Mr. Willing L. Biddle, our President, Chief
Executive Officer and Director,
beneficially own 4,464,625 and 2,919,558 shares of common stock, respectively
and 161,090 and 40,824 shares of Class A common stock, respectively,
constituting approximately 66.3% of the voting power of our outstanding common
equity securities. In view of the common equity securities beneficially owned by
Mr. Urstadt and Mr. Biddle, Mr. Urstadt and Mr. Biddle may control a sufficient
percentage of the voting power of our common equity securities to effectively
block certain proposals which require a vote of our stockholders.
UNITED STATES FEDERAL
INCOME TAX CONSIDERATIONS
This section summarizes
certain material federal income tax consequences to us and to holders of our
shares generally relating to our treatment as a REIT.
The laws governing the federal
income tax treatment of a REIT and its shareholders are highly technical and
complex. This summary is for general information only, and does not purport to
address all of the tax issues that may be important to you. In addition, this
section does not address the tax issues that may be important to certain types
of shareholders that are subject to special treatment under the federal income
tax laws, such as:
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insurance
companies;
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tax-exempt organizations
(except to the limited extent discussed in Taxation of Tax-Exempt
Shareholders, below);
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financial institutions
or broker-dealers;
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non-U.S. individuals and
foreign corporations (except to the limited extent discussed in Taxation
of Non-U.S. Shareholders, below);
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U.S.
expatriates;
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26
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persons who
mark-to-market our shares;
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subchapter S
corporations;
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U.S. shareholders (as
defined below) whose functional currency is not the U.S.
dollar;
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regulated investment
companies and REITs;
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trusts and
estates;
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persons who receive our
shares through the exercise of employee options or otherwise as
compensation;
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persons holding our
shares as part of a straddle, hedge, conversion transaction,
synthetic security or other integrated
investment;
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persons subject to the
alternative minimum tax provisions of the Internal Revenue Code of 1986,
as amended (the Code); and
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persons holding our
shares through a partnership or similar pass-through entity.
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This summary assumes that
shareholders hold our shares as capital assets for federal income tax purposes,
which generally means property held for investment.
The statements in this section
are not intended to be, and should not be, construed as tax advice. This summary
is based upon the Code, the final, temporary and proposed regulations
promulgated by the U.S. Treasury Department, the legislative history of the
Code, rulings and other administrative pronouncements issued by the Internal
Revenue Service (the IRS), and judicial decisions, all as currently in effect,
and all of which are subject to differing interpretations or to change, possibly
with retroactive effect. The reference to administrative pronouncements issued
by the IRS includes pronouncements issued in private letter rulings, which are
not binding on the IRS 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. Future legislation, regulations, administrative pronouncements
and judicial decisions could change the current law or adversely affect existing
interpretations of current law on which the information in this section is based
and any such change could apply retroactively. No assurance can be given that
the IRS would not assert, or that a court would not sustain, a position contrary
to any of the tax consequences described below. We have not sought and will not
seek an advance ruling from the IRS regarding any matter discussed herein.
WE URGE YOU TO CONSULT YOUR
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO YOU OF INVESTING IN
OUR SHARES AND OF OUR ELECTION TO BE TAXED AS A REIT. SPECIFICALLY, YOU SHOULD
CONSULT YOUR OWN TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH
INVESTMENT AND ELECTION, AND REGARDING POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
Taxation of the Company
We elected to be taxed as a
REIT under the federal income tax laws beginning with our taxable year ended
October 31, 1970. We believe that we have operated in a manner qualifying us as
a REIT since our election and intend to continue to so operate.
In connection with the filing
of this prospectus, Baker & McKenzie LLP has rendered an opinion that we
qualified to be taxed as a REIT under the federal income tax laws for our
taxable years ended October 31, 2014 through October 31, 2016, and our
organization and current method of operation will enable us to continue to
qualify as a REIT for our taxable year ending October 31, 2017 and in the
future. You should be aware that the opinion is based on current law and is not
binding on the IRS or any court. In addition, the opinion is based on customary
assumptions and on our representations as to factual matters.
It must be emphasized that the
opinion of tax counsel is based on various customary assumptions relating to our
organization and operation, and is conditioned upon certain representations and
covenants made by our management as to factual matters, including
representations regarding our organization, the nature of our assets and income,
and the past, present and future conduct of our business operations. Baker &
McKenzie LLPs opinion is not binding upon the IRS, or any court and only speaks
as of the date issued. In addition, Baker & McKenzie LLPs opinion
27
is based
on existing federal income tax law governing qualification as a REIT, which is
subject to change either prospectively or retroactively. While we intend to
operate so that we will continue to 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 by tax counsel or by us that we will qualify as a REIT
for any particular year.
Moreover, our qualification
and taxation as a REIT depends on our ability to meet, on a continuing basis,
qualification tests set forth in the federal income tax laws. Those
qualification tests involve the percentage of income that we earn from specified
sources, the percentages of our assets that fall within specified categories,
the diversity of our share ownership, and the percentage of our earnings that we
distribute. Baker & McKenzie LLP will not review our compliance with those
tests on a continuing basis. Accordingly, no assurance can be given that our
actual results of operations for any particular taxable year will satisfy these
requirements. Baker &McKenzie LLPs opinion does not foreclose the
possibility that we may have to use one or more of the REIT savings provisions
described below, which could require us to pay an excise or penalty tax (which
could be material) in order for us to maintain our qualification as a REIT. We
describe the REIT qualification tests in more detail below. For a discussion of
the tax consequences of our failure to qualify as a REIT, see Failure to
Qualify, below.
As a REIT, we generally are
not subject to federal income tax on the taxable income that we distribute to
our shareholders. The benefit of that tax treatment is that it avoids the
double taxation, or taxation at both the corporate and shareholder levels,
that generally results from owning stock in a non-REIT corporation. However, we
generally will be subject to federal tax in the following circumstances:
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We will pay federal
income tax on taxable income, including undistributed net capital gain,
that we do not distribute to shareholders during, or within a specified
time period after, the calendar year in which the income is
earned.
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We may be subject to the
alternative minimum tax on any items of tax preference that we do not
distribute or allocate to shareholders.
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We will pay income tax
at the highest corporate rate on:
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net income from the sale
or other disposition of certain property acquired at or in lieu of
foreclosure on a lease of, or indebtedness secured by, such property
(Foreclosure Property) that we hold primarily for sale to customers in
the ordinary course of business, and
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other non-qualifying
income from Foreclosure Property.
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We will pay a 100% tax
on net income from sales or other dispositions of property, other than
Foreclosure Property, that we hold primarily for sale to customers in the
ordinary course of business.
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If we fail to satisfy
one or both of the 75% gross income test or the 95% gross income test, as
described below under Income Tests, but nonetheless continue to qualify
as a REIT because we meet other requirements, we generally will pay a 100%
tax on:
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the gross income
attributable to the greater of the amount by which we fail the 75% gross
income test or the 95% gross income test, in either case, multiplied
by
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a fraction intended to
reflect our profitability.
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If during a calendar
year we fail to distribute at least the sum of: (1) 85% of our REIT
ordinary income for the year, (2) 95% of our REIT capital gain net income
for the year, and (3) any undistributed taxable income required to be
distributed from earlier periods, we will be subject to a 4% nondeductible
excise tax on the excess of the required distribution over the amount we
actually distributed.
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In the event of a
failure to satisfy any of the asset tests (other than a de minimis failure
of the 5% asset test, the 10% vote test or the 10% value test as described
below under Asset Tests), as long as the failure was due to reasonable
cause and not to willful neglect, we dispose of the assets or otherwise
comply with the asset tests within six months after the last day of the
quarter in which we identify such failure and we file a schedule with the
IRS describing the assets causing such failure, we will pay a tax equal to
the greater of $50,000 or the amount determined by multiplying the net
income from the non-qualifying assets during the period in which we failed
to satisfy the asset tests by the highest corporate tax rate (currently
35%).
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In the event we fail to
satisfy one or more requirements for REIT qualification, other than the
gross income tests and the asset tests, and such failure is due to
reasonable cause and not to willful neglect, we will be required to pay a
penalty of $50,000 for each such failure.
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We may elect to retain
and pay income tax on our net long-term capital gain. In that case, a U.S.
shareholder would be taxed on its proportionate share of our undistributed
long-term capital gain (to the extent that we make a timely designation of
such gain to the shareholder) and would receive a credit or refund for its
proportionate share of the tax we paid.
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We will be subject to a
100% excise tax on income attributable to transactions with a taxable REIT
subsidiary (a "TRS") that are not conducted on an arms-length
basis.
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If we acquire any asset
from an entity treated as a C corporation, or a corporation that generally
is subject to full corporate-level tax, in a merger or other transaction
in which we acquire a basis in the asset that is determined by reference
either to such entitys basis in the asset or to another asset, we will
pay tax at the highest regular corporate rate applicable if we recognize
gain on the sale or disposition of the asset during the five-year period
after we acquire the asset provided no election is made for the
transaction to be taxable on a current basis. The amount of gain on which
we will pay tax is the lesser of:
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the amount of gain that
we recognize at the time of the sale or disposition,
and
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the amount of gain that
we would have recognized if we had sold the asset at the time we acquired
it.
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We may be required to
pay monetary penalties to the IRS in certain circumstances, including if
we fail to meet record-keeping requirements intended to monitor our
compliance with rules relating to the composition of a REITs
shareholders, as described below in Recordkeeping
Requirements.
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The earnings of any
lower-tier entities that are treated as C corporations, including any TRS,
will be subject to federal corporate income tax.
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In addition, notwithstanding
our qualification as a REIT, we may have to pay certain state and local income
taxes because not all states and localities treat REITs in the same manner that
they are treated for federal income tax purposes. Moreover, as further described
below, any TRS will be subject to federal, state and local corporate income tax
on its taxable income.
Requirements for
Qualification
A REIT is an entity formed as
a corporation, trust or association that meets each of the following
requirements:
1.
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It is managed by one
or more trustees or directors.
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2.
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Its beneficial
ownership is evidenced by transferable shares, or by transferable
certificates of beneficial interest.
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3.
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It would be taxable
as a domestic corporation, but for the REIT provisions of the federal
income tax laws.
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4.
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It is neither a
financial institution nor an insurance company subject to special
provisions of the federal income tax laws.
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5.
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At least 100 persons
are beneficial owners of its shares or ownership
certificates.
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6.
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Not more than 50% of
the value of its outstanding shares or ownership certificates is owned,
directly or indirectly, by five or fewer individuals, which the Code
defines to include certain entities, during the last half of any taxable
year (the closely held test).
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7.
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It elects to be a
REIT, or has made such election for a previous taxable year, and satisfies
all relevant filing and other administrative requirements established by
the IRS that must be met in order to elect and maintain REIT
status.
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8.
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It meets certain
other qualification tests, described below, regarding the nature of its
income and assets and the amount of its distributions to
shareholders.
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9.
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It uses a calendar
year for federal income tax purposes (unless it first qualified for REIT
status before October 5, 1976) and complies with the recordkeeping
requirements of the federal income tax laws.
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We must meet requirements 1
through 4, 8 and 9 during our entire taxable year and must meet requirement 5
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. Because we elected
to be taxed as a REIT beginning with our taxable year ended October 31, 1970,
the use of the calendar year for federal income tax purposes in requirement 9
does not apply to us. If we comply with all the requirements for ascertaining
the ownership of our outstanding shares in a taxable year and we do not know, or
would not have reason to know after exercising reasonable diligence that we
violated the closely held test, we will be deemed to have satisfied requirement
6 for that taxable year. For purposes of determining share ownership under the
closely held test, an individual generally includes a supplemental
unemployment compensation benefits plan, a private foundation, or a portion of a
trust permanently set aside or used exclusively for charitable purposes. An
individual, however, generally does not include a trust that is a qualified
employee pension or profit sharing trust under the federal income tax laws, and
beneficiaries of such a trust will be treated as holding our shares in
proportion to their actuarial interests in the trust for purposes of the closely
held test.
We believe that we have issued
sufficient shares with sufficient diversity of ownership to allow us to satisfy
requirements 5 and 6. In addition, our Charter restricts the ownership and
transfer of our shares so that we should continue to satisfy these requirements.
The provisions of our Charter restricting the ownership and transfer of our
shares are described under Description of Capital Stock Restrictions on
Ownership and Transfer. These restrictions, however, may not ensure that we
will, in all cases, be able to satisfy the share ownership requirements. If we
fail to satisfy these requirements, our qualification as a REIT may terminate.
Qualified REIT
Subsidiaries
We have several corporate
subsidiaries, including qualified REIT subsidiaries, and interests in
unincorporated domestic entities. For federal income tax purposes, a corporation
that is a qualified REIT subsidiary (a "QRS") is not treated as a corporation
separate from its parent REIT. All assets, liabilities and items of income,
deduction and credit of a QRS are treated as assets, liabilities and items of
income, deduction and credit of the REIT. A QRS is a corporation all of the
capital stock of which is owned by the REIT and for which no election has been
made to treat such corporation as a TRS. Thus, in applying the requirements
described herein, any QRS that we own will be ignored, and all assets,
liabilities, and items of income, deduction, and credit of such subsidiary will
be treated as our assets, liabilities, and items of income, deduction, and
credit.
Other Disregarded
Entities and Partnerships
An unincorporated domestic
entity, such as a partnership or limited liability company, that has a single
owner generally is not treated as an entity separate from its parent for federal
income tax purposes. An unincorporated domestic entity with two or more owners
is generally treated as a partnership for federal income tax purposes. In the
case of a REIT that is a partner in a partnership that has other partners, the
REIT is treated as owning its proportionate share of the assets of the
partnership and as earning its allocable share of the gross income of the
partnership for purposes of the applicable REIT qualification tests. Our
proportionate share for purposes of the 10% value test (see Asset Tests) is
based on our proportionate interest in the equity interests and certain debt
securities issued by the partnership, and, for purposes of the gross income
tests (see Income Tests), we will be deemed to be entitled to the income of
the partnership attributable to such share. For all of the other asset tests,
our proportionate shares are based on our proportionate interest in the capital
interests in the partnership. Our proportionate share of the assets,
liabilities, and items of income of any partnership, joint venture, or limited
liability company that is treated as a partnership for federal income tax
purposes in which we acquire an equity interest, directly or indirectly, will be
treated as our assets and gross income for purposes of applying the various REIT
qualification requirements.
We intend to control any
subsidiary partnerships and limited liability companies, and we intend to
operate them in a manner consistent with the requirements for our qualification
as a REIT. We may from time to time be a limited partner or non-managing member
in some of our partnerships and limited liability companies. If a partnership or limited
liability company in which we own an interest takes or expects to take actions
that could jeopardize our status as a REIT or require us to pay tax, we may be
forced to dispose of our interest in such entity. In addition, it is possible
that a partnership or limited liability company could take an action which could
cause us to fail a gross income or asset test, and that we would not become
aware of such action in time to dispose of our interest in the partnership or
limited liability company or take other corrective action on a timely basis. In
that case, we could fail to qualify as a REIT unless we were entitled to relief,
as described below.
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Taxable REIT
Subsidiaries
A REIT may own up to 100% of
the stock of a TRS. A TRS is a fully taxable corporation that may earn income
that would not be qualifying income if earned directly by the parent REIT. Both
the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS.
A corporation, of which a TRS directly or indirectly owns more than 35% of the
voting power or value of the securities, will automatically be treated as a TRS.
We will not be treated as holding the assets of a TRS or as receiving any income
that the TRS earns. Rather, the stock issued by a TRS to us will be an asset in
our hands, and we will treat the distributions paid to us from such TRS, if any,
as income. This treatment may affect our compliance with the gross income and
asset tests. Because we will not include the assets and income of TRSs in
determining our compliance with the REIT requirements, we may use such entities
to undertake activities indirectly, such as earning fee income, that the REIT
rules might otherwise preclude us from doing directly or through pass-through
subsidiaries. For taxable years of a REIT beginning on or before December 31,
2017, no more than 25% of the value of a REITs assets may consist of stock or
securities of one or more TRSs, and for taxable years of a REIT beginning after
December 31, 2017, no more than 20% of the value of a REITs assets may consist
of stock or securities of one or more TRSs.
A TRS will pay income tax at
regular corporate rates on any income that it earns. In addition, the TRS rules
limit the deductibility of interest paid or accrued by a TRS to its parent REIT
to assure that the TRS is subject to an appropriate level of corporate taxation.
Further, the rules impose a 100% excise tax on income of a parent REIT
attributable to transactions between a TRS and such parent REIT or the REITs
tenants that are not conducted on an arms-length basis. Further, a 100% excise
tax is imposed on the gross income of a TRS attributable to services provided
to, or on behalf of, its parent REIT that are not conducted on an arms-length
basis.
A TRS may not directly or
indirectly operate or manage any health care facilities or lodging facilities or
provide rights to any brand name under which any health care facility or lodging
facility is operated. A TRS is not considered to operate or manage a qualified
health care property or qualified lodging facility solely because the TRS
directly or indirectly possesses a license, permit, or similar instrument
enabling it to do so.
We currently own stock of four
TRSs, and may form one or more TRSs in the future.
Income Tests
We must satisfy two gross
income tests annually to maintain our qualification as a REIT. First, at least
75% of our gross income for each taxable year must consist of defined types of
income that we derive, directly or indirectly, from investments relating to real
property or mortgages on real property or qualified temporary investment income.
Qualifying income for purposes of that 75% gross income test generally includes:
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rents from real
property;
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interest on obligations
secured by mortgages on real property, or on interests in real property,
including (for taxable years beginning after December 31, 2015)
obligations secured by both real and personal property and the fair market
value of the personal property does not exceed 15% of the total fair
market value of all the property;
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dividends or other
distributions on, and gain from the sale of, shares in other REITs;
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gain from the sale of
real estate assets, other than property held primarily for sale to
customers in the ordinary course of business;
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income derived from the
operation, and gain from the sale of, Foreclosure Property; and
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income derived from the
temporary investment of new capital that is attributable to the issuance
of our shares of beneficial interest or a public offering of our debt with
a maturity date of at least five years and that we receive during the
one-year period beginning on the date on which we receive such new
capital.
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Second, in general, at least
95% of our gross income for each taxable year must consist of income that is
qualifying income for purposes of the 75% gross income test, other types of
interest and dividends, or gain from the sale or disposition of stock or
securities. Certain types of gross income, including cancellation of
indebtedness income and gross income from our sale of property that we hold
primarily for sale to customers in the ordinary course of business, is excluded
from both the numerator and the denominator for purposes of the income tests. In
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addition, income and gain from hedging transactions that we enter into to
hedge indebtedness incurred or to be incurred to acquire or carry real estate
assets that are clearly and timely identified as such will be excluded from both
the numerator and the denominator for purposes of the 75% and 95% gross income
tests. Certain foreign currency gains will also be excluded from gross income
for purposes of one or both of the gross income tests.
Prohibited Transactions
A REIT will incur a 100% tax
on the net income (including foreign currency gain) derived from any sale or
other disposition of property, other than Foreclosure Property, that the REIT
holds primarily for sale to customers in the ordinary course of a trade or
business. We believe that none of our assets are held primarily for sale to
customers and that a sale of any of our assets would not be in the ordinary
course of our business. Whether a REIT holds an asset primarily for sale to
customers in the ordinary course of a trade or business depends, however, on
the facts and circumstances in effect from time to time, including those related
to a particular asset. A safe harbor to the characterization of the sale of
property by a REIT as a prohibited transaction and the 100% prohibited
transaction tax is available if the following requirements are met:
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the REIT has held the
property for not less than two years;
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the aggregate
expenditures made by the REIT, or any partner of the REIT, during the
two-year period preceding the date of the sale that are includible in the
basis of the property do not exceed 30% of the selling price of the
property;
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either (i) during the
year in question, the REIT did not make more than seven sales of property
other than Foreclosure Property or sales to which Section 1033 of the Code
applies, (ii) the aggregate adjusted bases of all such properties sold by
the REIT during the year did not exceed 10% of the aggregate bases of all
of the assets of the REIT at the beginning of the year, (iii) the
aggregate fair market value of all such properties sold by the REIT during
the year did not exceed 10% of the aggregate fair market value of all of
the assets of the REIT at the beginning of the year, (iv) for taxable
years beginning after December 18, 2015, the aggregate adjusted bases of
all such properties sold by the REIT during the year did not exceed 20% of
the aggregate bases of all of the assets of the REIT at the beginning of
the year, and the aggregate adjusted bases of all such properties sold by
the REIT during the three-year period ending with such year did not exceed
10% of the sum of the aggregate bases of all the assets of the REIT at the
beginning of each year in such three-year period, or (v) for taxable years
beginning after December 18, 2015, the aggregate fair market value of all
such properties sold by the REIT during the year did not exceed 20% of the
aggregate fair market value of all of the assets of the REIT at the
beginning of the year, and the aggregate fair market value of all such
properties sold by the REIT during the three-year period ending with such
year did not exceed 10% of the sum of the aggregate fair market values of
all the assets of the REIT at the beginning of each year in such
three-year period;
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in the case of property
not acquired through foreclosure or lease termination, the REIT has held
the property for at least two years for the production of rental income;
and
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if the REIT has made
more than seven sales of non-Foreclosure Property during the taxable year,
substantially all of the marketing and development expenditures with
respect to the property were made through an independent contractor from
whom the REIT derives no income or a TRS.
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We will attempt to comply with
the terms of these safe-harbor provisions in the federal income tax laws
prescribing when an asset sale will not be characterized as a prohibited
transaction. We cannot assure you, however, that we can comply with the
safe-harbor provisions or that we will avoid owning property that may be
characterized as property that we hold primarily for sale to customers in the
ordinary course of a trade or business. The 100% tax will not apply to gains
from the sale of property that is held through a TRS or other taxable
corporation, although such income will be taxed to the corporation at regular
corporate income tax rates.
Fee Income
Fee income generally will not
be qualifying income for purposes of either the 75% or 95% gross income tests.
Any fees earned by any TRS, such as fees for providing asset management and
construction management services to third parties, will not be included for
purposes of the gross income tests.
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Foreclosure Property
We will generally be subject
to tax at the maximum corporate rate on any net income from Foreclosure
Property, which includes certain foreign currency gains and related deductions,
other than income that otherwise would be qualifying income for purposes of the
75% gross income test, less expenses directly connected with the production of
that income. However, gross income and gains from Foreclosure Property will
qualify under the 75% and 95% gross income tests. Foreclosure Property is any
real property, including interests in real property, and any personal property
incident to such real property:
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that is acquired by a
REIT as the result of the REIT having bid on such property at foreclosure,
or having otherwise reduced such property to ownership or possession by
agreement or process of law, after there was a default, or when default
was imminent on a lease of such property or on indebtedness that such
property secured;
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for which the related
loan was acquired by the REIT at a time when the default was not imminent
or anticipated; and
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for which the REIT makes
a proper election to treat the property as Foreclosure Property.
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Foreclosure Property also
includes certain qualified healthcare properties acquired by a REIT as a
result of the termination or expiration of a lease of such property (other than
by reason of a default, or the imminence of a default, on the lease).
A REIT will not be considered
to have foreclosed on a property where the REIT takes control of the property as
a mortgagee-in-possession and cannot receive any profit or sustain any loss
except as a creditor of the mortgagor. Property generally ceases to be
Foreclosure Property at the end of the third taxable year (or, with respect to
qualified healthcare property, the second taxable year) following the taxable
year in which the REIT acquired the property, although Foreclosure Property
status may be terminated earlier upon the occurrence of certain events or may be
extended if an extension is granted by the IRS. However, this grace period
terminates and Foreclosure Property ceases to be Foreclosure Property on the
first day:
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on which a lease is
entered into for the property that, by its terms, will give rise to income
that does not qualify for purposes of the 75% gross income test, or any
amount is received or accrued, directly or indirectly, pursuant to a lease
entered into on or after such day that will give rise to income that does
not qualify for purposes of the 75% gross income test;
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on which any
construction takes place on the property, other than completion of a
building or any other improvement where more than 10% of the construction
was completed before default became imminent; or
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which is more than 90
days after the day on which the REIT acquired the property and the
property is used in a trade or business which is conducted by the REIT,
other than through an independent contractor from whom the REIT itself
does not derive or receive any income or a TRS.
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Any gain from the sale of
property with respect to which a Foreclosure Property election is made will not
be subject to the 100% tax described above, even if the property would otherwise
constitute inventory or property that is held for sale to customer in the
ordinary course of business. We have no Foreclosure Property as of the date of
this prospectus.
Rents from Real Property
Rent that we receive from real
property that we own and lease to tenants will qualify as rents from real
property, which is qualifying income for purposes of the 75% and 95% gross
income tests, only if each of the following conditions is met:
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The rent must not be
based, in whole or in part, on the income or profits of any person, but
may be based on a fixed percentage or percentages of receipts or sales.
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Neither we nor a direct
or indirect owner of 10% or more of our shares may own, actually or
constructively, 10% or more of a tenant from whom we receive rent (other
than a TRS). Rent we receive from a TRS will qualify as rents from real
property if at least 90% of the leased space of the property is rented to
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persons other than TRSs and 10%-owned tenants, and the amount of rent paid
by the TRS is substantially comparable to the rent paid by the other
tenants of the property for comparable space. The substantially
comparable requirement is treated as satisfied if such requirement is
satisfied under the terms of a lease when the lease is entered into, when
it is extended, and when the lease is modified, if the modification
increases the rent paid by the TRS. If the requirement that at least 90%
of the leased space in the property is rented to unrelated tenants is met
when a lease is entered into, extended, or modified, such requirement will
continue to be met as long as there is no increase in the space leased to
any TRS or related party tenant. Any increased rent that is attributable
to a modification of a lease with a controlled TRS (i.e., a TRS in which
we own, directly or indirectly, more than 50% of the voting power or value
of the stock) will not be treated as rents from real property.
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We generally must not
operate or manage our real property or furnish or render services to our
tenants, other than through an independent contractor who is adequately
compensated and from whom we do not derive revenue. However, we need not
provide services through an independent contractor, but instead may
provide services directly, if the services are usually or customarily
rendered in connection with the rental of space for occupancy only and
are not considered to be provided for the tenants convenience. In
addition, we may provide a minimal amount of noncustomary services to
the tenants of a property, other than through an independent contractor,
as long as our income from the services (valued at not less than 150% of
our direct cost of performing such services) does not exceed 1% of our
income from the related property. Such income will not disqualify all
rents from tenants of the property as rents from real property, but income
from such services will not qualify as rents from real property. Further,
we may own up to 100% of the stock of a TRS which may provide customary
and noncustomary services to our tenants without tainting our rental
income from the related properties.
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In addition, the amount of
rent that is attributable to personal property leased in connection with a lease
of real property will qualify as rents from real property but only if such
amount is no more than 15% of the total rent received under the lease. The
allocation of rent between real and personal property is based on the relative
fair market values of the real and personal property.
If a portion of the rent that
we receive from a property does not qualify as rents from real property
because the rent attributable to personal property exceeds 15% of the total rent
for a taxable year, the portion of the rent that is attributable to personal
property will not be qualifying income for purposes of either the 75% or 95%
gross income test. Thus, if such rent attributable to personal property, plus
any other income that is non-qualifying income for purposes of the 95% gross
income test, during a taxable year exceeds 5% of our gross income during the
year, we would lose our REIT qualification. If, however, the rent from a
particular property does not qualify as rents from real property because
either (i) the rent is considered based on the income or profits of the tenant,
(ii) the tenant either is a related party tenant or fails to qualify for the
exception to the related party tenant rule for qualifying TRSs, or (iii) we
furnish noncustomary services to the tenants of the property in excess of the 1%
threshold, or manage or operate the property, other than through a qualifying
independent contractor or a TRS, none of the rent from that property would
qualify as rents from real property.
We do not currently lease and
do not anticipate leasing significant amounts of personal property pursuant to
our leases. Moreover, we have not performed and do not intend to perform any
services other than customary ones for our tenants, unless such services are
provided through independent contractors from whom we do not receive or derive
income or through a TRS. Accordingly, we believe that our leases have produced
and will generally produce rent that qualifies as rents from real property for
purposes of the 75% and 95% gross income tests.
In addition to rent, tenants
may be required to pay certain additional charges. To the extent that such
additional charges represent reimbursements of amounts that we are obligated to
pay to third parties, such charges will generally qualify as rents from real
property. Additionally, to the extent that such additional charges represent
penalties for nonpayment or late payment of such amounts, such charges should
also qualify as rents from real property. However, to the extent that late
charges do not qualify as rents from real property, they may instead be
treated as interest that qualifies for the 95% gross income test.
Hedging Transactions
Income and gain from certain
hedging transactions that we may enter into to hedge indebtedness incurred or to
be incurred to acquire or carry real estate assets and that are clearly and
timely identified as such are excluded from gross income for purposes of both
the 75% and the 95% gross income tests. A hedging transaction means either
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(i) any transaction entered into in the normal course of our trade or business
primarily to manage the risk of interest rate, price changes, or currency
fluctuations with respect to borrowings made or to be made, or ordinary
obligations incurred or to be incurred to acquire or carry real estate assets (a
"Debt Financing Hedge"), or (ii) any transaction entered into primarily to
manage the risk of currency fluctuations with respect to any item of income or
gain that would be qualifying income under the 75% or 95% gross income tests (or
any property which generates such income or gain) (a "Currency Hedge"). A
hedging transaction also includes a transaction entered into to manage the
risk of a Debt Financing Hedge, when any portion of the hedged indebtedness is
extinguished, or a Currency Hedge, when there is a disposition of any portion of
the property producing the REIT qualifying income that is hedged by the Currency
Hedge. We are required to clearly identify any such hedging transaction before
the close of the day on which it was acquired, originated or entered into and to
satisfy other identification requirements. We intend to structure our hedging
transactions in a manner that does not jeopardize our status as a REIT.
Foreign Currency Gain
Certain foreign currency gains
will be excluded from gross income for purposes of one or both of the gross
income tests. Real estate foreign exchange gain will be excluded from gross
income for purposes of the 75% and 95% gross income tests. Real estate foreign
exchange gain generally includes foreign currency gain attributable to any item
of income or gain that is qualifying income for purposes of the 75% gross income
test, foreign currency gain attributable to the acquisition or ownership of (or
becoming or being the obligor under) obligations secured by mortgages on real
property or an interest in real property, and certain foreign currency gain
attributable to certain qualified business units of a REIT. Passive foreign
exchange gain will be excluded from gross income for purposes of the 95% gross
income test. Passive foreign exchange gain generally includes real estate
foreign exchange gain as described above, and also includes foreign currency
gain attributable to any item of income or gain that is qualifying income for
purposes of the 95% gross income test and foreign currency gain attributable to
the acquisition or ownership of (or becoming the obligor under) obligations.
These exclusions for real estate foreign exchange gain and passive foreign
exchange gain do not apply to any foreign currency gain derived from dealing, or
engaging in substantial or regular trading, in securities. Such gain is treated
as non-qualifying income for purposes of both the 75% and 95% gross income
tests.
Failure to Satisfy
Income Tests
If we fail to satisfy one or
both of the gross income tests for any taxable year, we nevertheless may qualify
as a REIT for that year if we qualify for relief under certain provisions of the
federal income tax laws. Those relief provisions generally will be available if:
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our failure to meet such
tests is due to reasonable cause and not due to willful neglect; and
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following such failure
for any taxable year, a schedule of the sources of our income is filed in
accordance with regulations prescribed by the Secretary of the Treasury.
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We cannot predict, however,
whether in all circumstances we would qualify for the relief provisions. In
addition, as discussed above in Taxation of the Company, even if the relief
provisions apply, we generally would incur a 100% tax on the gross income
attributable to the greater of the amounts by which we fail the 75% or the 95%
gross income test multiplied, in either case, by a fraction intended to reflect
our profitability.
Interest
For purposes of the 75% and
95% gross income tests, the term interest generally does not include any
amount received or accrued, directly or indirectly, if the determination of such
amount depends in whole or in part on the income or profits of any person.
However, interest generally includes the following:
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an amount that is based
on a fixed percentage or percentages of receipts or sales; and
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an amount that is based
on the income or profits of a debtor, as long as the debtor derives
substantially all of its income from leasing substantially all of its
interest in the real property securing the debt, and only to the extent
that the amounts received by the debtor would be qualifying rents from
real property if received directly by a REIT.
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If a loan contains a provision
that entitles a REIT to a percentage of the borrowers gain upon the sale of the
real property securing the loan or a percentage of the appreciation in the
propertys value as of a specific date, income attributable to that loan
provision will be treated as gain from the sale of the property securing the
loan, which generally is qualifying income for purposes of both gross income
tests.
Interest on debt secured by a
mortgage on real property or on interests in real property generally is
qualifying income for purposes of the 75% gross income test. For this purpose,
and for taxable years beginning after December 31, 2015, where a debt obligation
is secured by a mortgage on both real property and personal property and the
fair market value of the personal property does not exceed 15% of the total fair
market value of all such property, the entire obligation is treated as debt that
is secured by a mortgage on real property. If a loan is secured by real property
and other property and the highest principal amount of a loan outstanding during
a taxable year exceeds the fair market value of the real property securing the
loan as of the date the REIT agreed to originate or acquire the loan (or, if the
loan has experienced a significant modification that was not related to
default or anticipated default since its origination or acquisition by the REIT,
then as of the date of that significant modification), a portion of the
interest income from such loan will not be qualifying income for purposes of the
75% gross income test, but will be qualifying income for purposes of the 95%
gross income test. The portion of the interest income that will not be
qualifying income for purposes of the 75% gross income test will be equal to the
interest income attributable to the portion of the principal amount of the loan
that is not secured by real propertythat is, the amount by which the loan
exceeds the value of the real estate that is security for the loan.
Dividends
Our share of any dividends
received from any corporation (including any TRS, but excluding any REIT) in
which we own an equity interest will qualify for purposes of the 95% gross
income test but not for purposes of the 75% gross income test. Our share of any
dividends received from any other REIT in which we own an equity interest, if
any, will be qualifying income for purposes of both gross income tests.
Asset Tests
To maintain our qualification
as a REIT, we also must satisfy the following asset tests at the end of each
quarter of each taxable year. First, at least 75% of the value of our total
assets must consist of (the 75% asset test):
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cash or cash items,
including certain receivables, money market funds, and, in certain
circumstances, foreign currencies;
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government securities;
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interests in real
property, including leaseholds and options to acquire real property and
leaseholds;
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interests in mortgage
loans secured by real property;
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stock in other REITs;
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for taxable years
beginning after December 31, 2015, debt instruments issued by publicly
offered REITs (i.e., REITs that are required to file annual and periodic
reports with the SEC under the Exchange Act); and
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investments in stock or
debt instruments during the one-year period following our receipt of new
capital that we raise through equity offerings or public offerings of debt
with at least a five-year term.
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For purposes of the 75% asset
test, and for taxable years beginning after December 31, 2015, (1) if the rent
attributable to personal property leased in connection with a lease of real
property is 15% or less of the total rent received under the lease, such that
the entire rent received with respect to such real property and the personal
property leased in connection therewith qualifies as rents from real property
for purposes of the 75% gross income test, the value of such personal property,
as well as the value of the real property, will be treated as an interest in
real property and (2) where a debt obligation is secured by a mortgage on both
real property and personal property and the fair market value of the personal
property does not exceed 15% of the aggregate fair market values of the personal
property and real property, the entire obligation will treated as a mortgage
loan secured by real property.
36
Under a second set of asset
tests, except for securities in the 75% asset class, securities in a TRS or QRS,
and equity interests in partnerships:
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not more than 5% of the
value of our total assets may be represented by securities of any one
issuer (the 5% value test);
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we may not own
securities that possess more than 10% of the total voting power of the
outstanding securities of any one issuer (the 10% vote test);
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subject to certain
exceptions, we may not own securities that have a value of more than 10%
of the total value of the outstanding securities of any one issuer (the
10% value test);
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for taxable years
beginning on or prior to December 31, 2017, no more than 25% of the value
of our total assets may consist of the securities of one or more TRSs, and
for taxable years beginning after December 31, 2017, no more than 20% of
the value of our total assets may consist of the securities of one or more
TRSs;
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for taxable years
beginning after December 31, 2015, no more than 25% of the value of our
total assets may consist of debt instruments that are issued by
publicly-offered REITs; and
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no more than 25% of the
value of our total assets may consist of the securities of TRSs, other
non-TRS taxable subsidiaries and other assets that are not qualifying
assets for purposes of the 75% asset test.
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For purposes of the 5% value
test, the 10% vote test and the 10% value test, the term securities does not
include shares in another REIT, equity or debt securities of a QRS or a TRS,
mortgage loans that constitute real estate assets, or equity interests in a
partnership. The term securities, however, generally includes debt securities
issued by a partnership or another REIT, except that for purposes of the 10%
value test, the term securities does not include:
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straight debt
securities, which is defined as a written unconditional promise to pay on
demand or on a specified date a sum certain in money if (i) the debt is
not convertible, directly or indirectly, into equity, and (ii) the
interest rate and interest payment dates are not contingent on profits,
the borrowers discretion, or similar factors (except that straight debt
securities do not include any securities issued by a partnership or a
corporation in which we or any controlled TRS (i.e., a TRS in which we own
directly or indirectly more than 50% of the voting power or value of the
shares) hold non-straight debt securities that have an aggregate value
of more than 1% of the issuers outstanding securities) but straight
debt securities include debt subject to the following contingencies:
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a contingency relating
to the time of payment of interest or principal, as long as either (i)
there is no change to the effective yield of the debt obligation, other
than a change to the annual yield that does not exceed the greater of
0.25% or 5% of the annual yield, or (ii) neither the aggregate issue price
nor the aggregate face amount of the issuers debt obligations held by us
exceeds $1 million and no more than twelve months of unaccrued interest on
the debt obligations can be required to be prepaid; or
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a contingency relating
to the time or amount of payment upon a default or prepayment of a debt
obligation, as long as the contingency is consistent with customary
commercial practice;
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any loan to an
individual or estate;
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any section 467 rental
agreement, other than an agreement with a related party tenant;
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any accrued obligation
to pay rents from real property;
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certain securities
issued by government entities;
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any security issued by a
REIT;
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any debt instrument
issued by an entity treated as a partnership for federal income tax
purposes in which we are a partner to the extent of our proportionate
interest in the equity and debt securities of the partnership; and
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any debt instrument
issued by an entity treated as a partnership for federal income tax
purposes not described in the preceding bullet points if at least 75% of
the partnerships gross income, excluding income from prohibited
transactions, is qualifying income for purposes of the 75% gross income
test described above in Income Tests.
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37
For purposes of the 10% value
test, our proportionate share of the assets of a partnership is our
proportionate interest in any securities issued by the partnership, without
regard to the securities described in the last two bullet points above.
We believe that our existing
assets are qualifying assets for purposes of the 75% asset test. We also believe
that any additional real property that we acquire, loans that we extend and
temporary investments that we make generally will be qualifying assets for
purposes of the 75% asset test, except to the extent that the value of the loan
exceeds the value of the associated real property securing the loan (determined
as of the date we agreed to originate or acquire the loan) or to the extent the
asset is a loan that is not deemed to be an interest in real property. We intend
to monitor the status of our acquired assets for purposes of the various asset
tests and manage our portfolio in order to comply at all times with such tests.
However, there is no assurance that we will not inadvertently fail to comply
with such tests. We will also not obtain independent appraisals to support our
conclusions as to the value of our assets. Moreover, the values of some assets
may not be susceptible to a precise determination. As a result, there can be no
assurance that the IRS will not contend that our ownership of assets violates
one or more of the asset tests applicable to REITS. If we fail to satisfy the
asset tests at the end of a calendar quarter, we will not lose our REIT status
if:
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we satisfied the asset
tests at the end of the preceding calendar quarter; and
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the discrepancy between
the value of our assets and the asset test requirements arose from changes
in the market values of our assets and was not wholly or partly caused by
the acquisition of one or more non-qualifying
assets.
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If we did not satisfy the
condition described in the second item above, we still could avoid
disqualification by eliminating any discrepancy within 30 days after the close
of the calendar quarter in which it arose.
In the event that we violate
the 5% value test, 10% vote test, or 10% value test described above at the end
of any quarter of each taxable year, we will not lose our REIT qualification if
(i) the failure is de minimis (up to the lesser of 1% of the value of our assets
or $10 million) and (ii) we dispose of the assets that caused the failure or
otherwise comply with the asset tests within six months after the last day of
the quarter in which we identified such failure. In the event of a more than de
minimis failure of any of the asset tests, as long as the failure was due to
reasonable cause and not to willful neglect, we will not lose our REIT
qualification if we (i) dispose of the assets that caused the failure or
otherwise comply with the asset tests within six months after the last day of
the quarter in which we identified such failure, (ii) file a schedule with the
IRS describing the assets that caused such failure and (iii) pay a tax equal to
the greater of $50,000 or 35% of the net income from the non-qualifying assets
during the period in which we failed to satisfy the asset tests.
We believe that the assets
that we hold and that we will hold in the future will satisfy the foregoing
asset test requirements. However, we have not obtained and will not obtain
independent appraisals to support our conclusions as to the value of our assets.
Moreover, the values of some assets may not be susceptible to a precise
determination. As a result, there can be no assurances that the IRS will not
contend that our ownership of assets violates one or more of the asset tests
applicable to REITs.
Distribution Requirements
Each taxable year, we must
distribute dividends, other than capital gain dividends and deemed distributions
of retained capital gain, to our shareholders in an aggregate amount at least
equal to:
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90% of our REIT
taxable income, computed without regard to the dividends paid deduction
and our net capital gain or loss, and
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90% of our after-tax
income, if any, from Foreclosure Property, minus
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the sum of certain items
of non-cash income (to the extent such items of income exceed 5% of our
REIT taxable income, computed without regard to the dividends paid
deduction and our net capital gain or loss).
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We must pay such distributions
in the taxable year to which they relate, or in the following taxable year if we
declare the distribution before we timely file our federal income tax return for
the year and pay the distribution on or before the first regular dividend
payment date after such declaration.
38
We will pay federal income tax
on taxable income, including net capital gain, that we do not distribute to
shareholders. Furthermore, if we fail to distribute during a calendar year, or
by the end of January following the calendar year in the case of distributions
with declaration and record dates falling in the last three-months of the
calendar year, at least the sum of:
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85% of our REIT ordinary
income for such year,
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95% of our REIT capital
gain income for such year, and
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any undistributed
taxable income from prior periods,
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We will incur a 4%
nondeductible excise tax on the excess of such required distribution over the
amounts we actually distribute. We may elect to retain and pay income tax on the
net long-term capital gain we receive in a taxable year. See Taxation of
Taxable U.S. Shareholders below. If we so elect, we will be treated as having
distributed any such retained amount for purposes of the 4% nondeductible excise
tax described above. We have made, and we intend to continue to make, timely
distributions sufficient to satisfy the annual distribution requirements.
It is possible that, from time
to time, we may experience timing differences between:
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the actual receipt of
income and actual payment of deductible expenses, and
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the inclusion of that
income and deduction of such expenses in arriving at our REIT taxable
income.
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For example, we may not deduct
recognized capital losses from our REIT taxable income. Further, it is
possible that, from time to time, we may be allocated a share of net capital
gain attributable to the sale of depreciated property that exceeds our allocable
share of cash attributable to that sale.
As a result of the foregoing,
unless, for example, we raise funds by a borrowing or pay taxable dividends of
our shares or debt securities, we may have less cash than is necessary to
distribute taxable income sufficient to avoid corporate income tax and the 4%
excise tax described above or even to meet the 90% distribution requirement.
We may satisfy the 90%
distribution requirement with taxable distributions of our equity or debt
securities. The IRS has issued private letter rulings to other REITs treating
certain distributions that are paid partly in cash and partly in stock as
dividends that would satisfy the REIT annual distribution requirement and
qualify for the dividends paid deduction for federal income tax purposes. Those
rulings may be relied upon only by taxpayers to whom they were issued, but we
could request a similar ruling from the IRS. Accordingly, it is unclear whether
and to what extent we will be able to make taxable dividends payable in cash and
shares. We have not made and have no current intention to make a taxable
dividend payable in cash and our shares.
Under certain circumstances,
we may be able to correct a failure to meet the distribution requirement for a
year by paying deficiency dividends to our shareholders in a later year. We
may include such deficiency dividends in our deduction for dividends paid for
the earlier year. Although we may be able to avoid income tax on amounts
distributed as deficiency dividends, we will be required to pay interest to the
IRS based upon the amount of any deduction we take for deficiency dividends.
Recordkeeping Requirements
We must maintain certain
records in order to qualify as a REIT. In addition, to avoid a monetary penalty,
we must request on an annual basis information from our shareholders designed to
disclose the actual ownership of our outstanding shares. We have complied, and
we intend to continue to comply, with these requirements.
Failure to Qualify
If we fail to satisfy one or
more requirements for REIT qualification, other than the gross income tests and
the asset tests, we could avoid disqualification if our failure is due to
reasonable cause and not to willful neglect and we pay a penalty of $50,000 for
each such failure. In addition, there are relief provisions for a failure of the
gross income tests and asset tests, as described in Income Tests and Asset
Tests.
If we fail to qualify as a
REIT in any taxable year, and no relief provision applies, we would be subject
to federal income tax and any applicable alternative minimum tax on our taxable
income at regular corporate rates. In addition, we may be required to pay
penalties and/or interest in respect of such tax. In calculating our taxable
income in a year in which we fail to qualify as a REIT, we would not be able to
deduct amounts paid out to shareholders. In fact,
39
we would not be required to
distribute any amounts to shareholders in that year. To the extent of our
current and accumulated earnings and profits, any distributions to shareholders
in any such year generally would be taxed as ordinary dividend income.
Distributions to individual, trust and estate shareholders may be eligible to be
treated as qualified dividend income, which currently is taxed at capital gains
rates. Subject to certain limitations of the federal income tax laws, corporate
shareholders might be eligible for the dividends received deduction. Unless we
qualified for relief under specific statutory provisions, we also would be
disqualified from taxation as a REIT for the four taxable years following the
year during which we ceased to qualify as a REIT. We cannot predict whether we
would qualify for such statutory relief in all circumstances.
Taxation of Taxable U.S.
Shareholders
This section is a summary of
rules governing the federal income taxation of U.S. shareholders (defined below)
for general information only. WE URGE YOU TO CONSULT YOUR OWN TAX ADVISORS TO
DETERMINE THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX LAWS ON OWNERSHIP
OF OUR SHARES. For purposes of this summary, the term U.S. shareholder means a
holder of our shares that, for federal income tax purposes, is:
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a citizen or resident of the United States,
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a corporation (including an entity treated
as a corporation for federal income tax purposes) created or organized
under the laws of the United States, or of any state thereof, or the
District of Columbia,
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an estate whose income is includible in
gross income for federal income tax purposes regardless of its source, or
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any trust (i) with respect to which a United
States court is able to exercise primary supervision over its
administration, and one or more United States persons have the authority
to control all of its substantial decisions or (ii) that has a valid
election in place to be treated as a U.S. person.
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If a partnership, including
for this purpose any entity that is treated as a partnership for federal income
tax purposes, holds our shares, the federal income tax treatment of a partner in
the partnership will generally depend upon the status of the partner and the
activities of the partnership. A shareholder that is a partnership and the
partners in such partnership should consult their tax advisors about the federal
income tax consequences of the acquisition, ownership and disposition of our
shares.
As long as we qualify as a
REIT, a taxable U.S. shareholder must generally take into account as ordinary
income distributions made out of our current or accumulated earnings and profits
that we do not designate as capital gain dividends or retained long-term capital
gain. A U.S. shareholder will not qualify for the dividends received deduction
generally available to corporations.
A U.S. shareholder will
generally recognize distributions that we properly designate as capital gain
dividends as long-term capital gain without regard to the period for which the
U.S. shareholder has held its shares. A corporate U.S. shareholder, however, may
be required to treat up to 20% of certain capital gain dividends as ordinary
income.
We may elect to retain and pay
income tax on the net long-term capital gain that we receive in a taxable year.
In that case, to the extent that we timely designate the amount, a U.S.
shareholder would be taxed on its proportionate share of our undistributed
long-term capital gain. The U.S. shareholder would receive a credit or refund
for its proportionate share of the tax we paid. The U.S. shareholder would
increase the basis in our shares by the amount of its proportionate share of our
undistributed long-term capital gain, minus its share of the tax we paid. If we
make such an election, we may, if supported by reasonable authority that it will
not jeopardize our status as a REIT, make such an election only with respect to
capital gains allocable to our shares.
A U.S. shareholder will not
incur tax on a distribution in excess of our current and accumulated earnings
and profits if the distribution does not exceed the adjusted basis of the U.S.
shareholder in our shares. Instead, the distribution will reduce the U.S.
shareholders adjusted basis in our shares. A U.S. shareholder will recognize a
distribution in excess of both our current and accumulated earnings and profits
and the U.S. shareholders adjusted basis in our shares 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 U.S.
shareholder. For purposes of determining whether a distribution is made out of
our current or accumulated earnings and profits, our earnings and profits will
be allocated
40
first to dividends on our preferred shares and then to dividends on
our common stock. If, for any taxable year, we elect to designate as capital
gain dividends any portion of the distributions paid for the year to our
shareholders, the portion of the amount so designated (not in excess of our net
capital gain for the year) that will be allocable to the holders of our
preferred shares will be the amount so designated, multiplied by a fraction, the
numerator of which will be the total dividends (within the meaning of the Code)
paid to the holders of our preferred shares for the year and the denominator of
which will be the total dividends paid to the holders of all classes of our
shares for the year.
Dividends paid to a U.S.
shareholder generally will not qualify for the favorable tax rate for qualified
dividend income. Currently the maximum federal income tax rate for qualified
dividend income received by U.S. shareholders taxed at individual rates is 20%.
The maximum tax rate on qualified dividend income is lower than the maximum tax
rate on ordinary income, which is currently 39.6%. Qualified dividend income
generally includes dividends paid by domestic C corporations and certain
qualified foreign corporations to U.S. shareholders that are taxed at individual
rates. Because we are not generally subject to federal income tax on the portion
of our REIT taxable income distributed to our shareholders (see Taxation of
the Company above), our dividends generally will not be eligible for the 20%
rate applicable to qualified dividend income. As a result, our ordinary REIT
dividends will be taxed at the higher tax rate applicable to ordinary income.
However, the 20% tax rate for qualified dividend income will apply to our
ordinary REIT dividends, if any, that are (1) attributable to dividends received
by us from non-REIT corporations, such as a TRS, and (2) attributable to income
upon which we have paid corporate income tax (e.g., to the extent that we
distribute less than 100% of our taxable income). In general, to qualify for the
reduced tax rate on qualified dividend income, a U.S. shareholder must hold our
shares for more than 60 days during the 121-day period beginning on the date
that is 60 days before the date on which our shares become ex-dividend.
Individuals, trusts and
estates whose income exceeds certain thresholds are also subject to an
additional 3.8% Medicare tax on dividends received from us. U.S. shareholders
are urged to consult their own tax advisors regarding the implications of the
additional Medicare tax resulting from an investment in our shares.
Distributions made by us and
gain arising from the sale or exchange by a U.S. shareholder of our shares will
not be treated as passive activity income, and as a result, U.S. shareholders
generally will not be able to apply any passive activity losses, such as
losses from certain types of limited partnerships in which the U.S. shareholder
is a limited partner, against this income or gain. In addition, distributions
from us and gain from the disposition of our shares will generally be treated as
investment income for purposes of the investment interest limitations.
U.S. shareholders may not
include in their individual income tax returns any of our net operating losses
or capital losses. Instead, these losses are generally carried over by us for
potential offset against our future income.
We will notify U.S.
shareholders after the close of our taxable year as to the portions of our
distributions attributable to that year that constitute ordinary income, return
of capital and capital gain.
Taxation of U.S.
Shareholders on the Disposition of Shares
In general, a U.S. shareholder
who is not a dealer in securities must treat any gain or loss realized upon a
taxable disposition of our shares as long-term capital gain or loss if the U.S.
shareholder has held the shares for more than one year and otherwise as
short-term capital gain or loss. In general, a U.S. shareholder will realize
gain or loss in an amount equal to the difference between the sum of the fair
market value of any property and the amount of cash received in such disposition
and the U.S. shareholders adjusted tax basis. A shareholders adjusted tax
basis generally will equal the U.S. shareholders acquisition cost, increased by
the excess of net capital gains deemed distributed to the U.S. shareholder (as
described above) less tax deemed paid on such gains and reduced by any return of
capital. However, a U.S. shareholder must treat any loss upon a sale or exchange
of the shares held by such shareholder for six months or less as a long-term
capital loss to the extent of capital gain dividends and any other actual or
deemed distributions from us that such U.S. shareholder treats as long-term
capital gain. All or a portion of any loss that a U.S. shareholder realizes upon
a taxable disposition of our shares may be disallowed if the U.S. shareholder
purchases other shares of substantially identical stock within 30 days before or
after the disposition.
Individuals, trusts and
estates whose income exceeds certain thresholds are also subject to an
additional 3.8% Medicare tax on gain from the sale of our shares. U.S.
shareholders are urged to consult their own tax advisors regarding the
implications of the additional Medicare tax resulting from an investment in our
shares.
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If a U.S. shareholder has
shares redeemed by us, such U.S. shareholder will be treated as having sold the
redeemed shares if (1) all of the U.S. shareholders shares of our stock are
redeemed (after taking into consideration certain ownership attribution
rules set forth in the Code) or (2) such redemption is (a) not essentially
equivalent to a dividend within the meaning of Section 302(b)(1) of the Code or
(b) substantially disproportionate within the meaning of Section 302(b)(2) of
the Code. If a redemption is not treated as a sale of the redeemed shares, it
will be treated as a distribution made with respect to the U.S. shareholders
shares. U.S. shareholders should consult with their tax advisors regarding the
taxation of any particular redemption of our shares.
Dividend Reinvestment
Program
Shareholders in our dividend
reinvestment program are treated as having received the gross amount of any cash
distributions which would have been paid by us to such shareholders had they not
elected to participate in the program. These distributions will retain the
character and tax effect applicable to distributions from us generally.
Participants in the dividend reinvestment program are subject to federal income
and withholding tax on the amount of the deemed distributions to the extent that
such distributions represent dividends or gains, even though they receive no
cash. Shares of our stock received under the program will have a holding period
beginning with the day after purchase, and a tax basis equal to their cost.
Capital Gains and Losses
The tax rate differential
between capital gain and ordinary income for non-corporate taxpayers may be
significant. A taxpayer generally must hold a capital asset for more than one
year for gain or loss derived from its sale or exchange to be treated as
long-term capital gain or loss. The highest marginal individual income tax rate
is currently 39.6%. The current maximum tax rate on long-term capital gain
applicable to taxpayers taxed at individual rates is 20% for sales and exchanges
of assets held for more than one year. The maximum tax rate on long-term capital
gain from the sale or exchange of section 1250 property, or depreciable real
property, is 25%, which applies to the lesser of the total amount of the gain or
the accumulated depreciation on the section 1250 property. With respect to
distributions that we designate as capital gain dividends and any retained
capital gain that we are deemed to distribute, we generally may designate
whether such a distribution is taxable to our non-corporate shareholders at a
20% or 25% rate.
The characterization of income
as capital gain or ordinary income may also affect the deductibility of capital
losses. A non-corporate taxpayer may deduct capital losses not offset by capital
gains against its ordinary income only up to a maximum annual amount of $3,000.
A non-corporate taxpayer may carry forward unused capital losses indefinitely. A
corporate taxpayer must pay tax on its net capital gain at ordinary corporate
rates. A corporate taxpayer can deduct capital losses only to the extent of
capital gains, with unused losses being carried back three years and forward
five years.
Taxation of Tax Exempt
Shareholders
This section is a summary of
rules governing the federal income taxation of U.S. shareholders that are
tax-exempt entities for general information only. WE URGE YOU TO CONSULT YOUR
OWN TAX ADVISORS TO DETERMINE THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX
LAWS ON OWNERSHIP OF OUR SHARES, INCLUDING ANY REPORTING REQUIREMENTS.
Tax-exempt entities, including
qualified employee pension and profit sharing trusts and individual retirement
accounts, are generally exempt from federal income taxation. However, they are
subject to taxation on their unrelated business taxable income (UBTI). While
many investments in real estate generate UBTI, the IRS has issued a ruling that
dividend distributions from a REIT to an exempt employee pension trust do not
constitute UBTI so long as the exempt employee pension trust does not otherwise
use the shares of the REIT in an unrelated trade or business of the pension
trust. Based on that ruling, amounts that we distribute to tax-exempt
shareholders generally should not constitute UBTI. However, if a tax-exempt
shareholder were to finance (or be deemed to finance) its acquisition of our
shares with debt, a portion of the income that it receives from us would
constitute UBTI pursuant to the debt-financed property rules. Furthermore,
certain types of tax-exempt entities are subject to UBTI under rules that are
different from the general rules discussed above, which may require them to
characterize distributions that they receive from us as UBTI.
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In certain circumstances, a
qualified employee pension or profit sharing trust that owns more than 10% of
our shares of beneficial interest must treat a percentage of the dividends that
it receives from us as UBTI. Such percentage is equal to the gross income we
derive from an unrelated trade or business, determined as if we were a pension
trust, divided by our total gross income for the year in which we pay the
dividends. This rule applies to a pension trust holding more than 10% of our
shares of beneficial interest, and only if:
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the percentage of our dividends that the
tax-exempt trust must treat as UBTI is at least 5%;
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we qualify as a REIT by reason of the
modification of the rule requiring that no more than 50% of our shares of
beneficial interest be owned by five or fewer individuals that allows the
beneficiaries of the pension trust to be treated as holding our shares of
beneficial interest in proportion to their actuarial interest in the
pension trust, and
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either:
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one pension trust owns more than 25% of the
value of our shares of beneficial interest; or
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a group of pension trusts individually
holding more than 10% of the value of our shares of beneficial interest
collectively own more than 50% of the value of our shares of beneficial
interest.
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Certain restrictions on
ownership and transfer of our shares should generally prevent the above rules
from applying to dividends paid by us.
Taxation of Non-U.S.
Shareholders
This section is a summary of
the rules governing the federal income taxation of non-U.S. shareholders. For
purposes of this discussion, the term non-U.S. shareholder means a holder of
our shares that is not a U.S. shareholder or an entity treated as a partnership
for federal income tax purposes. The rules governing the federal income taxation
of non-U.S. shareholders are complex and this summary is for general information
only. WE URGE YOU TO CONSULT YOUR OWN TAX ADVISORS TO DETERMINE THE IMPACT OF
FEDERAL, STATE, AND LOCAL INCOME TAX LAWS ON OWNERSHIP OF OUR SHARES, INCLUDING
ANY REPORTING REQUIREMENTS.
Distributions
A non-U.S. shareholder that
receives a distribution that is not attributable to gain from our sale or
exchange of a United States real property interest (USRPI), as defined below,
and that we do not designate as a capital gain dividend or retained capital
gain, will recognize ordinary income to the extent that we pay such distribution
our of our current or accumulated earnings and profits. A withholding tax equal
to 30% of the gross amount of the distribution ordinarily will apply to such
distribution unless an applicable tax treaty reduces or eliminates the tax.
However, if a distribution is treated as effectively connected with the non-U.S.
shareholders conduct of a U.S. trade or business, the non-U.S. shareholder
generally will be subject to federal income tax on the distribution at graduated
rates, in the same manner as U.S. shareholders are taxed on distributions, and
also may be subject to a 30% branch profits tax if the non-U.S. shareholder is
a corporation. The branch profits tax may be reduced by an applicable income tax
treaty. We plan to withhold U.S. income tax at the rate of 30% on the gross
amount of any distribution paid to a non-U.S. shareholder unless either:
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a lower treaty rate applies and the non-U.S.
shareholder files an applicable IRS Form W-8 (i.e., IRS Form W-8BEN, IRS
Form W-8BEN-E, IRS Form W-8IMY or IRS Form W-8EXP) evidencing eligibility
for that reduced rate with us,
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the non-U.S. shareholder files an IRS Form
W-8ECI with us claiming that the distribution is effectively connected
with the conduct of a U.S. trade or business; or
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the distribution is treated as attributable
to a sale of a USRPI under the FIRPTA rules discussed below.
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A non-U.S. shareholder will
not incur tax on a distribution on our shares in excess of our current and
accumulated earnings and profits if the distribution does not exceed the
adjusted basis of the non-U.S. shareholder in those shares. Instead, the
distribution will reduce the adjusted basis of the non-U.S. shareholder in those
shares. A non-U.S. shareholder will be subject to tax on a distribution on our
shares that exceeds both our current and accumulated earnings and profits and
the adjusted basis of the non-U.S. shareholder in those shares if the non-U.S.
shareholder
43
otherwise would be subject to tax on gain from the sale or
disposition of those shares as described below. Because we generally cannot
determine at the time we make a distribution whether the distribution will
exceed our current and accumulated earnings and profits, we normally will
withhold tax on the entire amount of any distribution at the same rate as we
would withhold on a dividend. However, a non-U.S. shareholder may obtain a
refund of amounts that we withhold if we later determine that a distribution in
fact exceeded our current and accumulated earnings and profits.
Under the FIRPTA rules
discussed below, we are generally required to withhold 15% of any distribution
that exceeds our current and accumulated earnings and profits. Consequently,
although we intend to withhold at a rate of 30% on the entire amount of any
distribution, to the extent that we do not do so, we generally will withhold at
a rate of 15% on any portion of a distribution not subject to withholding at a
rate of 30%.
For any year in which we
qualify as a REIT, a non-U.S. shareholder may incur tax on distributions that
are attributable to gain from our sale or exchange of a USRPI under the Foreign
Investment in Real Property Act of 1980 (FIRPTA). A USRPI includes certain
interests in U.S. real property and shares in United States real property
holding corporations (USRPHCs), which are corporations at least 50% of the
value of whose assets consist of interests in USRPIs. Under FIRPTA, subject to
the exception discussed below for distributions on shares of a class of stock
that is regularly traded on an established securities market to a less-than-10%
holder of such class, a non-U.S. shareholder is taxed on distributions
attributable to gain from sales of USRPIs as if the gain were effectively
connected with a U.S. business of the non-U.S. shareholder. A non-U.S.
shareholder thus would be taxed on this distribution at the normal capital gain
rates applicable to U.S. shareholders, subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of a nonresident alien
individual. A non-U.S. corporate shareholder not entitled to treaty relief or
exemption also may be subject to the 30% branch profits tax on such a
distribution. Certain qualified foreign pension funds and certain publicly
traded non-U.S. qualified collective investment vehicles are not subject to
tax under FIRPTA on distributions that are attributable to gain from our sale or
exchange of a USRPI (the FIRPTA Exemption). Non-U.S. shareholders are urged to consult their
own tax advisors to determine the application to them of this potential relief
from FIRPTA taxation in light of their particular circumstances. Notwithstanding the foregoing, unless the
exception described in the next paragraph applies, we must withhold 35% of any
distribution that we could designate as a capital gain dividend. A non-U.S.
shareholder may receive a credit against its tax liability for the amount we
withhold.
Capital gain distributions to
the holders of shares of a class of our shares that are attributable to our sale
of real property will be treated as ordinary dividends rather than as gain from
the sale of a USRPI, as long as (1) that class of shares is regularly traded on
an established securities market and (2) the non-U.S. shareholder did not own
more than 10% of that class of shares during the one-year period ending on the
date of distribution. As a result, non-U.S. shareholders generally would be subject to withholding tax on such
capital gain distributions in the same manner as they are subject to withholding
tax on ordinary dividends.
Our common stock, Class A
common stock and Series F and G preferred stock are currently regularly traded
on an established securities market. If a class of our shares is not regularly
traded on an established securities market, capital gain distributions with
respect to that class that are attributable to our sale of USRPIs will be
subject to tax under FIRPTA (unless a non-U.S. shareholder qualifies for the
FIRPTA Exemption), as described above, and we will have to withhold 35% of any
distribution with respect to that class that we designate as a capital gain
dividend. A non-U.S. shareholder could receive a credit against its tax
liability for the amount we withhold.
Moreover, if a non-U.S.
shareholder disposes of our shares during the 30-day period preceding a dividend
payment, and such non-U.S. shareholder (or a person related to such non-U.S.
shareholder) acquires or enters into a contract or option to acquire our shares
within 61 days of the 1st day of the 30-day period described above, and any
portion of such dividend payment would, but for the disposition, be treated as a
USRPI capital gain to such non-U.S. shareholder, then such non-U.S. shareholder
will be treated as having USRPI capital gain in an amount that, but for the
disposition, would have been treated as USRPI capital gain.
Pursuant to the Foreign
Account Tax Compliance Act (FATCA), a 30% U.S. withholding tax will be imposed
on ordinary dividends paid to certain non-U.S. shareholders if certain
disclosure requirements related to U.S. accounts or ownership are not satisfied.
Ordinary dividends paid by us will not be subject to double withholding under
FATCA and the regular withholding rules described above, as the FATCA rules
contain coordination provisions to prevent such double withholding. If
withholding taxes are imposed under FATCA, non-U.S. shareholders that are
otherwise eligible for an exemption from, or reduction of, U.S. withholding
taxes with respect to such dividends will
44
be required to seek a refund from the
IRS to obtain the benefit of such exemption or reduction. We will not pay any
additional amounts in respect of any amounts withheld. All shareholders are
strongly urged to consult with their independent tax advisor as to the impact of
FATCA on their investment in our shares.
Dispositions
Non-U.S. shareholders could
incur tax under FIRPTA with respect to gain realized upon a disposition of our
stock if we are a USRPHC during a specified testing period. We believe that we
are a USRPHC based on our investments and assets. However, even if we are a
USRPHC, a non-U.S. shareholder generally would not incur tax under FIRPTA on
gain from the sale of our stock if we are a domestically controlled qualified
investment entity. A domestically controlled qualified investment entity
includes a REIT in which, at all times during a specified testing period, less
than 50% in value of its shares are held directly or indirectly by non-U.S.
shareholders. We cannot assure you that we will meet this test.
In addition, a non-U.S.
shareholder that owns, actually or constructively, 10% or less of the shares of
a class of stock at all times during a specified testing period will not incur
tax on such gain under FIRPTA if the shares of that class of stock are regularly
traded on an established securities market. In addition, pursuant to the FIRPTA
Exemption, certain qualified foreign pension funds and certain publicly traded
non-U.S. qualified collective investment vehicles are not subject to tax under
FIRPTA on a disposition of our stock, even if we do not qualify as a
domestically controlled qualified investment entity at the time of the
disposition. Non-U.S. shareholders
are urged to consult their own tax advisors to determine the application to them
of this potential relief from FIRPTA taxation in light of their particular
circumstances.
If the gain on the sale of
shares is taxed under FIRPTA, a non-U.S. shareholder would be taxed on that gain
in the same manner as U.S. shareholders, subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals. Finally, if we are not a domestically controlled qualified
investment entity at the time our shares are sold and a non-U.S. shareholder
does not qualify for the exemptions described above, under FIRPTA the purchaser
of our shares may also be required to withhold 15% of the purchase price and remit this amount to the IRS. This 15%
withholding tax may be credited against the income tax liability of the selling
non-U.S. shareholder on the sale.
A non-U.S. shareholder
generally will incur tax on gain not subject to FIRPTA if:
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the gain is effectively connected with the
non-U.S. shareholders U.S. trade or business, in which case the non-U.S.
shareholder will be subject to the same treatment as U.S. shareholders
with respect to such gain, or
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the non-U.S. shareholder is a nonresident
alien individual who was present in the U.S. for 183 days or more during
the taxable year and has a tax home in the United States, in which case
the non-U.S. shareholder will incur a 30% tax on his or her capital gains.
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For payments after December
31, 2018, under FATCA a 30% U.S. withholding tax will be imposed on gross
proceeds from the sale of our shares received by certain non-U.S. shareholders
if certain disclosure requirements related to U.S. accounts or ownership are not
satisfied. If withholding taxes are imposed under FATCA, non-U.S. shareholders
that are otherwise eligible for an exemption from, or reduction of, U.S.
withholding taxes with respect to such proceeds will be required to seek a
refund from the IRS to obtain the benefit of such exemption or reduction. We
will not pay any additional amounts in respect of any amounts withheld. All
shareholders are strongly urged to consult with their independent tax advisors
as to the impact of FATCA on their investment in our shares.
Information Reporting
Requirements and Withholding
We will report to our
shareholders and to the IRS the amount of distributions we pay during each
calendar year, and the amount of tax we withhold, if any. Under the backup
withholding rules, a shareholder may be subject to backup withholding at a rate
of 28% with respect to distributions unless the holder:
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is a corporation or qualifies for certain
other exempt categories and, when required, demonstrates this fact; or
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provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and
otherwise complies with the applicable requirements of the backup
withholding rules.
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45
A shareholder who does not
provide us with its correct taxpayer identification number also may be subject
to penalties imposed by the IRS. Any amount paid as backup withholding will be
creditable against the shareholders income tax liability. In addition, we may
be required to withhold a portion of capital gain distributions to any
shareholders who fail to certify their non-foreign status to us.
Backup withholding will
generally not apply to payments of dividends made by us or our paying agents, in
their capacities as such, to a non-U.S. shareholder provided that the non-U.S.
shareholder furnishes to us or our paying agent the required certification as to
its non-U.S. status, such as providing a valid IRS Form W-8BEN-E, W-8BEN or
W-8ECI, or certain other requirements are met. Notwithstanding the foregoing,
backup withholding may apply if either we or our paying agent has actual
knowledge, or reason to know, that the holder is a U.S. person that is not an
exempt recipient. Payments of the proceeds from a disposition or a redemption
effected outside the U.S. by a non-U.S. shareholder made by or through a foreign
office of a broker generally will not be subject to information reporting or
backup withholding. However, information reporting (but not backup withholding)
generally will apply to such a payment if the broker has certain connections
with the U.S. unless the broker has documentary evidence in its records that the
beneficial owner is a non-U.S. shareholder and specified conditions are met or
an exemption is otherwise established. Payment of the proceeds from a
disposition by a non-U.S. shareholder of our shares made by or through the U.S.
office of a broker is generally subject to information reporting and backup
withholding unless the non-U.S.
shareholder certifies under penalties of perjury that it is not a U.S. person
and satisfies certain other requirements, or otherwise establishes an exemption
from information reporting and backup withholding.
Backup withholding is not an
additional tax. Any amounts withheld under the backup withholding rules may be
refunded or credited against the shareholders federal income tax liability if
certain required information is furnished to the IRS. Shareholders should
consult their own tax advisors regarding application of backup withholding to
them and the availability of, and procedure for obtaining, an exemption from
backup withholding.
U.S. shareholders who own our
shares of beneficial interest through foreign entities will be impacted by FATCA
with respect to ordinary dividends paid by us to such foreign entities, because
such entities will be subject to the 30% FATCA withholding tax on such dividends
unless they comply with certain disclosure requirements. Moreover, if such
foreign entities dispose of our shares after December 31, 2018, gross proceeds
from such disposition may be subject to the 30% FATCA withholding tax unless the
relevant disclosure requirements are met. We will not pay any additional amounts
in respect of amounts withheld. All shareholders are strongly urged to consult
with their independent tax advisors as to the impact of FATCA on their
investment in our shares.
Tax Aspects of Our
Investments in Subsidiary Partnerships
The following discussion
briefly summarizes certain federal income tax considerations applicable to our
direct or indirect investments in any subsidiary partnerships or limited
liability companies that we form or acquire (each individually, a Partnership
and, collectively, the Partnerships). The discussion does not cover state or
local tax laws or any federal tax laws other than income tax laws.
Classification as
Partnerships
We will include in our income
our distributive share of each Partnerships income and deduct our distributive
share of each Partnerships losses only if such Partnership is classified for
federal income tax purposes as a partnership (or an entity that is disregarded
for federal income tax purposes if the entity is treated as having only one
owner for federal income tax purposes) rather than as a corporation or an
association taxable as a corporation. An unincorporated entity with at least two
owners or members will be classified as a partnership, rather than as a
corporation, for federal income tax purposes if it:
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is treated as a partnership under the
regulations relating to entity classification (the check-the-box
regulations); and
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is not a publicly traded
partnership.
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Under the check-the-box
regulations, an unincorporated entity with at least two owners or members may
generally elect to be classified either as an association taxable as a
corporation or as a partnership. If such an entity does not make an election, it
will generally be treated as a partnership (or an entity that is disregarded for
federal income tax purposes if the entity is treated as having only one owner or
member for federal income tax purposes) for federal income tax purposes.
We believe each of our
Partnerships will be treated for federal income tax purposes as a partnership
(or a disregarded entity). Pursuant to regulations under Section 7701 of the
Code, a partnership will be treated as a partnership for federal income tax
purposes unless it elects to be treated as an association taxable as a
corporation or would be treated as an association taxable as a corporation
because it is a publicly traded partnership. A publicly traded partnership is
a partnership whose interests are traded on an established securities market or
are readily tradable on a secondary market or the substantial equivalent
thereof. Although we intend to operate our Partnerships in a manner that will
cause them not to be treated as a publicly traded partnerships, we cannot
provide any assurance that they will not be so treated.
If a Partnership is a publicly
traded partnership, it will be taxed as a corporation unless 90% or more of its
operating gross income consists of certain passive-type income, including real
property rents, gains from the sale or other disposition of real property,
interest, and dividends (the 90% passive income exception). We believe that
our Partnerships will have sufficient qualifying income so that they will
qualify for the 90% passive income exception and will be taxed as partnerships,
even if they were publicly traded partnerships. The applicable income
requirements in order for us to qualify as a REIT under the Code and the
definition of qualifying income for purposes of the 90% passive income exception
under the publicly traded partnership rules are very similar. Although
differences exist under these two income tests, we do not believe that these
differences would cause any of our Partnerships to fail to satisfy the 90%
passive income exception.
We have not requested, and do
not intend to request, a ruling from the IRS that any of our Partnerships will
be classified as a partnership for federal income tax purposes. If for any
reason a Partnership were taxable as a corporation, rather than as a
partnership, for federal income tax purposes, it would be required to pay an
entity-level tax on its income at corporate rates, distributions to its
partners, including us, would constitute dividends that would not be deductible
in computing the Partnerships taxable income, and its partners, including us,
would be treated as shareholders for tax purposes. In this situation, the
character of our assets and items of gross income could change and could
preclude us from satisfying the REIT asset tests and possibly the REIT income
tests. See Income Tests and Asset Tests. In particular, if a Partnership
were taxable as a corporation, we may not qualify as a REIT because the value of
our ownership interest in such Partnership could exceed 5% of our assets and we
could be considered to hold more than 10% of the voting securities (and more
than 10% of the value of the outstanding securities) of such corporation. In
addition, any change in a Partnerships status for tax purposes might be treated
as a taxable event, in which case we might incur tax liability without any
related cash distribution.
Partners Subject to Tax
We are required to take into
account our allocable share of each Partnerships income, gains, losses,
deductions, and credits for any taxable year of such Partnership ending within
or with our taxable year, without regard to whether we have received or will
receive any distribution from such Partnership. A Partnership generally is not
subject to tax at the entity-level. Please note, however, that new legislation
known as The Bipartisan Budget Act of 2015 repealed the current partnership tax
audit rules, such that beginning in 2018, audit assessments may be imposed on,
and attendant taxes collected from, a partnership, unless the partnership opts
out of the new rules or makes certain elections to avoid entity-level taxes
arising from partnership tax audits. Accordingly, beginning in 2018, the new
legislation will apply to our Partnerships, and to the extent that a Partnership
becomes subject to an entity-level tax from audit assessments as a result of
this new legislation, this will likely reduce the amount of distributions from
such Partnership to us.
Partnership Allocations
Although a partnership
agreement generally will determine the allocation of income and losses among
partners, such allocations may be disregarded for tax purposes if they do not
comply with the provisions of the federal income tax laws governing partnership
allocations. If an allocation is not recognized for federal income tax purposes,
the
47
item subject to the allocation will be reallocated in accordance with the
partners interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to such item. Each Partnerships allocations of
taxable income, gain, and loss are intended to comply with the requirements of
the federal income tax laws governing partnership allocations.
Tax Allocations With
Respect to Partnership Properties
Income, gain, loss, and
deduction attributable to appreciated or depreciated property that is
contributed to a partnership in exchange for an interest in the partnership must
be allocated in a manner such that the contributing partner is charged with, or
benefits from, respectively, the unrealized gain or unrealized loss associated
with the property at the time
of the contribution. Such allocations are made under Section 704(c) of the Code.
The amount of the unrealized gain or unrealized loss (built-in gain or
built-in loss) is generally equal to the difference between the fair market
value of the contributed property at the time of contribution and the adjusted
tax basis of such property at the time of contribution (a book-tax
difference). Any property purchased for cash initially will have an adjusted
tax basis equal to its fair market value, resulting in no book-tax difference. A
book-tax difference generally is decreased on an annual basis as a result of
depreciation deductions to the contributing partner for book purposes but not
for tax purposes. The allocations under Section 704(c) of the Code are solely
for federal income tax purposes and do not affect the book capital accounts or
other economic or legal arrangements among the partners.
The U.S. tax laws require
partnerships to use a reasonable method for allocating items with respect to
which there is a book-tax difference, and provide several reasonable allocation
methods. Under certain available methods, the carryover basis of contributed
properties in the hands of a Partnership (1) could cause us to be allocated
lower amounts of depreciation deductions for tax purposes than would be
allocated to us if all contributed properties were to have a tax basis equal to
their fair market value at the time of the contribution and (2) in the event of
a sale of such properties, could cause us to be allocated taxable gain in excess
of the economic or book gain allocated to us as a result of such sale, with a
corresponding benefit to the contributing partners. An allocation described in
(2) above might cause us to recognize taxable income in excess of cash proceeds
in the event of a sale or other disposition of property, which may adversely
affect our ability to comply with the REIT distribution requirements and may
result in a greater portion of our distributions being taxed as dividends. Our
Partnerships may use any allowable method to account for book-tax differences in
a manner that allows us to minimize any potential adverse consequences described
above.
Sale of a Partnerships
Property
Generally, any gain realized
by a Partnership on the sale of property held by the Partnership for more than
one year will be long-term capital gain, except for any portion of such gain
that is treated as depreciation or cost recovery recapture. Under Section 704(c)
of the Code, any gain or loss recognized by a Partnership on the disposition of
contributed properties will be allocated first to the partners of the
Partnership who contributed such properties to the extent of their built-in gain
or built-in loss on those properties for federal income tax purposes at the time
of the contribution.
Our share of any gain realized
by a Partnership on the sale of any property held by the Partnership as
inventory or other property held primarily for sale to customers in the ordinary
course of the Partnerships trade or business will be treated as income from a
prohibited transaction that is subject to a 100% penalty tax. Such prohibited
transaction income may have an adverse effect upon our ability to satisfy the
income tests for REIT status. See Income Tests. We do not presently intend to
acquire or hold or to allow any Partnership to acquire or hold any property that
represents inventory or other property held primarily for sale to customers in
the ordinary course of our or such Partnerships trade or business.
State and Local Taxes
We and/or our shareholders may
be subject to taxation by various states and localities, including those in
which we or a shareholder transacts business, owns property or resides. The
state and local tax treatment may differ from the federal income tax treatment
described above. Consequently, prospective investors should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in our shares.
48
Possible Legislative or
Other Actions Affecting Tax Considerations
Prospective investors should
recognize that the present federal income tax treatment of an investment in our
shares may be modified by legislative, judicial or administrative action at any
time, and that any such action may affect investments and commitments previously
made. The rules dealing with federal income taxation are constantly under review
by persons involved in the legislative process and by the IRS and the U.S.
Treasury Department, resulting in
revisions of the U.S. Treasury regulations and revised interpretations of
established concepts as well as statutory changes. Revisions in federal income
tax laws and interpretations thereof could adversely affect the tax consequences
of an investment in our shares.
PLAN OF DISTRIBUTION
We may sell the securities
being offered hereby from time to time through agents to the public or to
investors, to or through one or more underwriters for resale to the public or to
investors, in at the market offerings within the meaning of Rule 415 of the
Securities Act, to or through a market maker or into an existing trading market
on the exchange or otherwise, directly to investors in privately negotiated
transactions or through a combination of any of these methods of sale. Any
underwriter or agent involved in the offer and sale of the securities will be
named in a prospectus supplement.
The distribution of the
offered securities may be effected from time to time in one or more transactions
at a fixed price or prices, which may be changed, or at market prices prevailing
at the time of sale, at prices related to such prevailing market prices, or at
negotiated prices, any of which may represent a discount from the prevailing
market price. We also may, from time to time, authorize underwriters acting as
agents to offer and sell the securities upon the terms and conditions set forth
in any prospectus supplement. In connection with the sale of offered 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 offered securities for whom they may act as agent. Underwriters
may sell the securities to or through dealers, and these dealers may receive
compensation in the form of discounts, concessions or commissions (which may be
changed from time to time) from the underwriters and/or 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 the
securities and any discounts, concessions or commissions allowed by underwriters
to participating dealers will be set forth in a 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 from us or from purchasers of the securities 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 agreements entered into with us, to
indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act.
Unless otherwise specified in
a prospectus supplement, each series of the securities will be a new issue with
no established trading market, other than our common stock and Class A common
stock which are both currently traded on the NYSE. We may elect to list any
series of preferred stock or depositary shares on the NYSE, on the NASDAQ Stock
Market or another exchange, but we are not obligated to do so. It is possible
that one or more underwriters may make a market in a series of the securities,
but will not be obligated to do so and may discontinue any market making at any
time without notice. Therefore, no assurance can be given as to the liquidity of
the trading market for the securities.
Rules of the SEC may limit the
ability of any underwriter to bid for or purchase securities before the
distribution of the shares of common stock is completed. However, underwriters
may engage in overallotment, stabilizing transactions, short covering
transactions and penalty bids in accordance with Regulation M under the Exchange
Act. Overallotment involves sales in excess of the offering size, which create a
short position. Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified maximum.
Short covering transactions involve purchases of the securities in the open
market after the distribution is completed to cover short positions. Penalty
bids permit the underwriters to reclaim a selling concession from a dealer when
the securities originally sold by the dealer are purchased in a covering
transaction to cover short positions. Those activities may cause the price of
the securities to be higher than it would otherwise be. If commenced, the
underwriters may discontinue any of the activities at any time.
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If so indicated in a
prospectus supplement, we will authorize dealers acting as our agents to solicit
offers by certain institutions to purchase the securities from us at the public
offering price set forth in the prospectus supplement pursuant to delayed
delivery contracts providing for payment and delivery on the date or dates
stated in the prospectus supplement. Each delayed delivery contract will be for
an amount not less than, and the principal amount of the securities sold
pursuant to the delayed delivery contracts will not be less nor more than, the
respective amounts stated in the prospectus supplement.
Institutions with which
delayed delivery 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 our approval. Delayed delivery contracts will not be subject
to any conditions except (i) the purchase by an institution of the securities
covered by its delayed delivery contract shall not at the time of delivery be
prohibited under the laws of any jurisdiction in the United States to which such
institution is subject and (ii) if the offered securities are being sold to
underwriters, we shall have sold to such underwriters the total principal amount
of the securities less the principal amount thereof covered by delayed delivery
contracts. A commission indicated in the prospectus supplement will be paid to
agents and underwriters soliciting purchases of the securities pursuant to
delayed delivery contracts accepted by us. Agents and underwriters shall have no
responsibility in respect of the delivery or performance of delayed delivery
contracts.
Certain of the underwriters,
agents and their affiliates may be customers of, engage in transactions with,
and perform services for, us in the ordinary course of business.
INCORPORATION BY
REFERENCE
The SEC allows us to
incorporate by reference certain information we file with the SEC. This permits
us to disclose important information to you by referencing these filed
documents. Any information referenced this way is considered part of this
prospectus, and any information filed with the SEC subsequent to this prospectus
will automatically be deemed to update and supersede this information. We
incorporate by reference the following documents which have been filed with the
SEC.
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Our Annual Report on
Form 10-K for the fiscal year ended October 31,
2016;
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Our Quarterly Reports on
Form 10-Q for the fiscal quarters ended January 31, 2017 and April 30,
2017;
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Our Current Report on
Form 8-K filed on March 23, 2017;
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The description of our
common stock, which is registered under Section 12 of the Exchange Act,
contained in our Form 8-A, filed on March 12, 1997 with the SEC under
Section 12(b) of the Exchange Act and including any additional amendment
or report filed for the purpose of updating such
description;
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The description of our
Class A common stock, which is registered under Section 12 of the
Exchange Act, contained in our
Form 8-A, filed on June 17, 1998, as amended by our Form 8-A/A filed on
August 3, 1998 with the SEC under Section 12(b) of the Exchange Act and
including any additional amendment or report filed for the purpose of
updating such description;
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The description of our
Series F Cumulative Redeemable Preferred Stock, which is registered under
Section 12 of the Exchange Act, contained in our Form 8-A, filed on
October 22, 2012 with the SEC under Section 12(b) of the Exchange Act and
including any additional amendment or report filed for the purpose of
updating such description; and
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The description of our
Series G Cumulative Redeemable Preferred Stock, which is registered under
Section 12 of the Exchange Act, contained in our Form 8-A, filed on
October 27, 2014 with the SEC under Section 12(b) of the Exchange Act and
including any additional amendment or report filed for the purpose of
updating such description.
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We also incorporate by
reference into this prospectus all documents that we may subsequently file
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to
the filing of a post-effective amendment terminating this registration
statement, including all documents that we may file pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of first filing this
registration statement and prior to the effectiveness of this registration
statement, provided, however, that we are not incorporating by reference any
information furnished
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under Item 2.02 or Item 7.01 of any Current Report on Form
8-K, unless, and to the extent, specified in any such Current Report on Form
8-K. Any statement herein or in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this prospectus to the extent that a statement contained in any
subsequently filed document which also is incorporated or deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this prospectus.
We will provide without charge
upon written or oral request to each person, including any beneficial owner, to
whom a copy of this prospectus is delivered, a copy of any or all of the
documents which are incorporated by reference in this prospectus (other than
exhibits unless such exhibits are specifically incorporated by reference in such
documents). Requests should be directed to Investor Relations, Urstadt Biddle
Properties Inc., 321 Railroad Avenue, Greenwich, CT 06830, or by calling
Investor Relations directly at (203) 863-8200.
LEGAL MATTERS
The validity of the securities
will be passed upon for us by Miles & Stockbridge P.C., Baltimore, Maryland.
Certain federal income tax matters will be passed upon by Baker & McKenzie
LLP, Chicago, Illinois.
EXPERTS
Our consolidated financial
statements and related financial statement schedules as of October 31, 2016 and 2015 and for each of the three fiscal years ended
October 31, 2016 and the effectiveness of our internal
control over financial reporting as of October 31, 2016 incorporated in this
prospectus by reference to the Annual Report on Form 10-K for the fiscal year
ended October 31, 2016 have been audited by PKF OConnor Davies, LLP, an
independent registered public accounting firm, as set forth in its report
thereon, and have been incorporated herein in reliance on said report of such
firm given on its authority as experts in auditing and accounting in giving said
report.
WHERE YOU CAN FIND MORE
INFORMATION
We file annual, quarterly and
current reports, proxy statements and other information with the SEC. The
reports, proxy statements and other information filed by us may be inspected
without charge at the public reference room of the SEC, which is located at 100
F Street, N.E., Washington, D.C. 20549. You may obtain copies of all or any part
of the reports, proxy statements and other information from the public reference
room, upon the payment of the prescribed fees. The SEC maintains a web site at
www.sec.gov that contains reports, proxy statements and other information
regarding registrants like us that file electronically with the SEC. You can
inspect the reports, proxy statements and other information on this website.
This prospectus, which
constitutes part of a registration statement on Form S-3 filed with the SEC,
does not include all of the information, undertakings and exhibits included in
such registration statement. Copies of the full registration statement can be
obtained from the SEC as indicated above, or from us.
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