Filed Pursuant To Rule 424(b)(5)
Registration No. 333-139118
CALCULATION OF REGISTRATION FEE
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Proposed Maximum
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Title of Each Class of
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Amount to be
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Offering Price
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Aggregate Offering
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Amount of
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Securities To Be Registered
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Registered
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per Unit
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Price
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Registration Fee
(1)
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Common Shares
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(2)(3)
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(2)(3)
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$112,500,000
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$4,422
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Common Share Warrants
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(3)
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(3)
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(3)
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(3)
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Common Shares(3)(4)
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10,000,000
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$6.00
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$60,000,000
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$2,358
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Total
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$6,780
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(1)
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This filing fee is calculated in accordance with Rule 457(r) and relates to the Registration
Statement on Form S-3 (No. 333-139118) filed by the registrant on December 4, 2006.
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(2)
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Pursuant to the terms of a stock purchase agreement between the registrant and an individual
investor, the registrant has agreed to issue and sell to the investor 15,000,000 common
shares at a purchase price of $3.50 per share and 15,000,000 common shares at a purchase price
of $4.00 per share. The investor may also receive an indeterminate number of additional
common shares in an amount equal to any dividends declared by the registrant after the date
of the stock purchase agreement but prior to the date the investor purchases the initial
common shares. No separate consideration will be received by the registrant in connection
with the issuance of any additional common shares.
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(3)
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Pursuant to the terms of the stock purchase agreement, the investor will receive warrants to
purchase 10,000,000 common shares at an exercise price of $6.00 per share. No separate
consideration will be received by the registrant in connection with the issuance of the
warrants.
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(4)
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In accordance with Rule 416, the registration statement also covers any additional common
shares that may from time to time become issuable pursuant to the anti-dilution provisions of
the warrants.
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PROSPECTUS SUPPLEMENT
(To Prospectus Dated December 4, 2006)
DEVELOPERS DIVERSIFIED REALTY CORPORATION
Common Shares
Warrants to Purchase Common Shares
We have entered into a stock purchase agreement, dated as of February 23, 2009, with Mr.
Alexander Otto. Pursuant to the stock purchase agreement, we are offering to issue and sell
30,000,000 common shares and warrants to purchase 10,000,000 common shares (as well as our common
shares issuable from time to time upon exercise of these warrants). In addition to 30,000,000
common shares, we are offering to issue pursuant to the terms of the stock purchase agreement a
number of common shares representing any dividends declared by us after the date hereof and prior
to the applicable closing that the purchaser would have been entitled to had the common shares
being purchased been outstanding on the record dates for any such dividends and the purchaser had
elected to receive the amount of such dividends in common shares, which we refer to as the dividend
shares. We are offering the common shares, including the dividend shares, and warrants directly to
Mr. Otto and his permitted assigns under the stock purchase agreement.
The purchase price for the first 15,000,000 common shares is $3.50 per share, and the purchase
price for the remaining 15,000,000 common shares is $4.00 per share, in each case subject to
adjustment. No separate consideration will be paid for the dividend shares or the warrants. The
exercise price of the warrants will be $6.00 per share, subject to adjustment as further described
herein.
Our common shares are listed on the New York Stock Exchange under the symbol DDR. The last
reported sales price of our common shares on February 20, 2009 was $2.63 per share.
Investing in our securities involves risks. Before investing in our securities, you should
carefully read the discussion of material risks of investing in our securities on page S-8 of this
prospectus supplement under the heading Risk Factors, as well as the risk factors discussed in
the documents we file with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934, and which we incorporate into this prospectus supplement and the accompanying
prospectus by reference.
Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus supplement or the
accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus supplement is February 23, 2009.
TABLE OF CONTENTS
Prospectus Supplement
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Page
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S-1
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S-8
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S-8
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S-9
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S-17
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S-20
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S-21
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S-34
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S-35
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S-35
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S-35
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S-35
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Prospectus
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Forward-Looking Information
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1
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About This Prospectus
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1
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Where You Can Find More Information
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1
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Incorporation of Certain Information by Reference
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1
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The Company
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2
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Use of Proceeds
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2
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Description of Debt Securities
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3
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Description of Preferred Shares
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22
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Description of Depositary Shares
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30
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Description of Common Shares
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33
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Description of Common Share Warrants
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35
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Certain Anti-Takeover Provisions of Ohio Law
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36
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Certain Federal Income Tax Considerations
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37
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Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined
Fixed Charges and Preferred Share Dividends
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50
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Plan of Distribution
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50
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Experts
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52
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Legal Matters
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52
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We have not authorized any dealer, salesperson or other person to give any information or to make
any representation other than those contained or incorporated by reference into this prospectus
supplement and the accompanying prospectus. You must not rely upon any information or
representation not contained or incorporated by reference into this prospectus supplement or the
accompanying prospectus. This prospectus supplement and the accompanying prospectus do not
constitute an offer to sell or the solicitation of an offer to buy any securities other than the
registered securities to which they relate. Nor do this prospectus supplement and the accompanying
prospectus constitute an offer to sell or the solicitation of an offer to buy securities in any
jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such
jurisdiction. You should not assume that the information contained in this prospectus supplement,
the accompanying prospectus and the documents incorporated herein and therein by reference is
correct on any date after their respective dates, even though this prospectus supplement and the
accompanying prospectus are delivered or securities are sold on a later date. Our business,
financial condition and results of operations may have changed since those dates.
ABOUT THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part is this prospectus supplement, which describes
the terms of the offering. The second part is the accompanying prospectus, dated December 4, 2006,
which we refer to as the accompanying prospectus. Generally, when we refer to this prospectus,
we are referring to both this prospectus supplement and the accompanying prospectus combined. The
accompanying prospectus contains a description of our common shares and common share warrants and
gives more general information, some of which may not apply to the common shares or common share
warrants. To the extent there is a conflict between the information contained in this prospectus
supplement, on the one hand, and the information contained in the accompanying prospectus or any
document that has previously been filed and is incorporated into this prospectus by reference, on
the other hand, the information in this prospectus supplement shall control.
Before you invest in our securities, you should carefully read the registration statement
(including the exhibits thereto) of which this prospectus forms a part, this prospectus and the
documents incorporated by reference into this prospectus. The incorporated documents are described
in this prospectus supplement under Where You Can Find More Information and Incorporation by
Reference of Certain Information.
Unless otherwise indicated or unless the context requires otherwise, all references in this
prospectus to we, us, our, the Company or DDR mean Developers Diversified Realty
Corporation and all entities owned or controlled by Developers Diversified Realty Corporation.
FORWARD-LOOKING INFORMATION
This prospectus and the documents we incorporate by reference contain forward-looking
information, as defined in the Private Securities Litigation Reform Act of 1995, that is based on
current expectations, estimates and projections. Forward-looking information includes, without
limitation, statements related to acquisitions (including any related pro forma financial
information) and other business development activities, future capital expenditures, financing
sources and availability and the effects of environmental and other regulations. Although we
believe that the expectations reflected in those forward-looking statements are based upon
reasonable assumptions, we can give no assurance that our expectations will be achieved. For this
purpose, any statements contained herein that are not statements of historical fact should be
deemed to be forward-looking statements. Without limiting the foregoing, the words will,
believes, anticipates, plans, expects, seeks, estimates, projects, intends,
potential, forecasts and similar expressions are intended to identify forward-looking
statements. You should exercise caution in interpreting and relying on forward-looking statements
because they involve known and unknown risks, uncertainties and other factors that are, in some
cases, beyond our control and that could cause actual results to differ materially from those
expressed or implied in the forward-looking statements and could materially affect our actual
results, performance or achievements. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date on which they were made. We expressly
state that we have no current intention to update any forward-looking statements, whether as a
result of new information, future events or otherwise, unless required by law.
Factors that could cause actual results, performance or achievements to differ materially from
those expressed or implied by forward-looking statements include, but are not limited to, the
following:
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We are subject to general risks affecting the real estate industry, including the need
to enter into new leases or renew leases on favorable terms to generate rental revenues
and the current economic downturn may adversely affect the ability of our tenants, or new
tenants, to enter into new leases or the ability of our existing tenants to renew their
leases at rates at least as favorable as their current rates;
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We could be adversely affected by changes in the local markets where our properties
are located, as well as by adverse changes in national economic and market conditions;
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We may fail to anticipate the effects on our properties of changes in consumer buying
practices, including sales over the Internet and the resulting retailing practices and
space needs of our tenants or a general downturn in our tenants businesses, which may
cause tenants to close stores;
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We are subject to competition for tenants from other owners of retail properties, and
our tenants are subject to competition from other retailers and methods of distribution.
We are dependent upon the successful operations and financial condition of our tenants,
in particular of our major tenants, and could be adversely affected by the bankruptcy of
those tenants;
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We rely on major tenants, which makes us vulnerable to changes in the business and
financial condition of, or demand for our space, by such tenants;
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We may not realize the intended benefits of acquisition or merger transactions. The
acquired assets may not perform as well as we anticipated, or we may not successfully
integrate the assets and realize the improvements in occupancy and operating results that
we anticipate. The acquisition of certain assets may subject us to liabilities, including
environmental liabilities;
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We may fail to identify, acquire, construct or develop additional properties that
produce a desired yield on invested capital, or may fail to effectively integrate
acquisitions of properties or portfolios of properties. In addition, we may be limited in
our acquisition opportunities due to competition, the inability to obtain financing on
reasonable terms or any financing at all and other factors;
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We may fail to dispose of properties on favorable terms. In addition, real estate
investments can be illiquid, particularly as prospective buyers may experience increased
costs of financing or difficulties obtaining financing, and could limit our ability to
promptly make changes to our portfolio to respond to economic and other conditions;
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We may abandon a development opportunity after expending resources if we determine
that the development opportunity is not feasible due to a variety of factors, including a
lack of availability of construction financing on reasonable terms, the impact of the
current economic environment on prospective tenants ability to enter into new leases or
pay contractual rent, or if we are unable to obtain all necessary zoning and other
required governmental permits and authorizations;
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We may not complete development projects on schedule as a result of various factors,
many of which are beyond our control, such as weather, labor conditions, governmental
approvals, material shortages, or general economic downturn resulting in limited
availability of capital, increased debt service expense and construction costs and
decreases in revenue;
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Our financial condition may be affected by required debt service payments, the risk of
default and restrictions on our ability to incur additional debt or enter into certain
transactions under our credit facilities and other documents governing our debt
obligations. In addition, we may encounter difficulties in obtaining permanent financing
or refinancing existing debt. Borrowings under our revolving credit facilities are
subject to certain representations and warranties, including any event which has had or
could reasonably be expected to have a material adverse effect on our business or
financial condition;
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Changes in interest rates could adversely affect the market price of our common
shares, as well as our performance and cash flow;
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Debt and/or equity financing necessary for us to continue to grow and operate our
business may not be available or may not be available on favorable terms or at all;
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Recent disruptions in the financial markets could affect our ability to obtain
financing on reasonable terms and have other adverse effects on us and the market price
of our common shares;
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We are subject to complex regulations related to our status as a real estate
investment trust, or REIT, and would be adversely affected if we failed to qualify as a
REIT;
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We must make distributions to shareholders to continue to qualify as a REIT, and if we
borrow funds to make distributions, those borrowings may not be available on favorable
terms or at all;
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Joint venture investments may involve risks not otherwise present for investments made
solely by us, including the possibility that a partner or co-venturer may become
bankrupt, may at any time have different interests or goals than ours and may take action
contrary to our instructions, requests, policies or objectives, including our policy with
respect to maintaining our qualification as a REIT. In addition, a partner or co-venturer
may not have access to sufficient capital to satisfy its funding obligations to the joint
venture.
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Furthermore, if the current constrained credit conditions in the capital markets persist or
deteriorate further, we could be required to reduce the carrying value of our equity method
investments if a loss in the carrying value of the investment is other than a temporary
decline pursuant to APB 18, The Equity Method of Accounting for Investments in Common
Stock;
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We may not realize anticipated returns from our real estate assets outside the United
States. We expect to continue to pursue international opportunities that may subject us
to different or greater risks than those associated with our domestic operations. We own
assets in Puerto Rico, an interest in an unconsolidated joint venture that owns
properties in Brazil and an interest in consolidated joint ventures that will develop and
own properties in Canada, Russia and Ukraine;
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International development and ownership activities carry risks that are different from
those we face with our domestic properties and operations. These risks include:
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Adverse effects of changes in exchange rates for foreign currencies;
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Changes in foreign political or economic environments;
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Challenges of complying with a wide variety of foreign laws including tax
laws, addressing different practices and customs relating to corporate governance,
operations and litigation;
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Different lending practices;
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Cultural and consumer differences;
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Changes in applicable laws and regulations in the United States that affect foreign operations;
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Difficulties in managing international operations; and
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Obstacles to the repatriation of earnings and cash;
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Although our international activities are currently a relatively small portion of our
business, to the extent we expand our international activities, these risks could
significantly increase and adversely affect our results of operations and financial
condition;
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We are subject to potential environmental liabilities;
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We may incur losses that are uninsured or exceed policy coverage due to our liability
for certain injuries to persons, property or the environment occurring on our properties;
and
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We could incur additional expenses in order to comply with or respond to claims under
the Americans with Disabilities Act or otherwise be adversely affected by changes in
government regulations, including changes in environmental, zoning, tax and other
regulations.
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-iii-
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights information contained elsewhere in this prospectus. It does not
contain all of the information that you should consider before making an investment decision. We
encourage you to carefully read this entire prospectus and the documents that are incorporated
herein, especially the Risk Factors and the financial statements included elsewhere herein and
incorporated by reference hereto from our annual and quarterly reports filed with the Securities
and Exchange Commission, before making an investment decision.
The Company
We are a self-administered and self-managed REIT engaged in the business of acquiring,
expanding, owning, developing, redeveloping, leasing, managing and operating shopping centers and
enclosed malls. Our executive offices are located at 3300 Enterprise Parkway, Beachwood, Ohio
44122, and our telephone number is (216) 755-5500. Our website is located at http://www.ddr.com.
Information on or accessible through our website is not part of, or incorporated by reference into,
this prospectus.
The Offering
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Issuer
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Developers Diversified Realty Corporation
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Common Shares to be Offered
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30,000,000 common shares, plus a number of
common shares representing any dividends
declared by us after the date hereof and
prior to the applicable closing that the
purchaser would have been entitled to had the
common shares being purchased been
outstanding on the record dates for any such
dividends and the purchaser had elected to
receive the amount of such dividends in
common shares.
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Purchase Price of Common Shares
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$3.50 per share for the first 15,000,000
common shares and $4.00 per share for the
remaining 15,000,000 common shares, subject
to downward adjustment to the extent that the
weighted average purchase price of all
additional common shares (or equivalents
thereof) sold by us from February 23, 2009
until the applicable closing (taking into
account all issued and outstanding common
shares) is less than $2.94 per share. No
consideration will be paid with respect to
the dividend shares.
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Warrants to be Offered
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Warrants to purchase 10,000,000 common shares
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Exercise Price of Warrants
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$6.00 per share, subject to downward
adjustment to the extent that the weighted
average purchase price of all additional
common shares (or equivalents thereof) sold
by us from the date of the issuance of the
applicable Warrant (taking into account all
issued and outstanding common shares as of
the date of issuance) is less than $6.00 per
share.
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Warrant Exercisability
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Immediately exercisable upon issuance.
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Warrant Termination Date
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Fifth anniversary of the issuance date.
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Recent Developments
On February 23, 2009, we announced our preliminary financial results for our fourth quarter
and year ended December 31, 2008. The following discussion includes information from our earnings
release. You should read this discussion in conjunction with Selected Consolidated Financial
Data, Managements Discussion and Analysis of Financial Condition and Results of Operations and
our consolidated financial statements and the notes thereto for periods prior to December 31, 2008
incorporated by reference into this prospectus.
S-1
Because the financial statements for our fourth quarter and year ended December 31, 2008 have
not yet been finalized, information regarding these periods are subject to change and actual
results for these periods may differ materially from these preliminary results.
Net loss applicable to common shareholders for the three-month period ended December 31, 2008
was $190.2 million or a loss of $1.57 per diluted share which compares to net income of $32.2
million or $0.27 per diluted share for the prior-year comparable period.
For the year ended December 31, 2008, net loss applicable to common shareholders was $100.0
million or $0.83 per diluted share which compares to net income of $225.1 million or $1.85 per
diluted share in 2007.
(In thousands except per share data)
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Three-Month Period
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Year Ended
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Ended December 31,
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December 31,
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2008
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2007
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2008
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2007
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Revenues:
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Minimum rents (A)
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$
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156,158
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$
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157,870
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$
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628,664
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$
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635,415
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Percentage and overage rents (A)
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4,267
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5,066
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9,414
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10,540
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Recoveries from tenants
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47,269
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51,009
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198,919
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203,126
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Ancillary and other property income
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6,460
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5,505
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22,294
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19,518
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Management, development and other fee income
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15,588
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15,934
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62,890
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50,840
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Other (B)
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1,457
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161
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9,291
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13,697
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231,199
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235,545
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931,472
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933,136
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Expenses:
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Operating and maintenance (C)
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40,340
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37,790
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146,346
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131,409
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Real estate taxes
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27,610
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25,617
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110,773
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107,428
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Impairment charges (D)
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79,864
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79,864
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Termination of equity award plan (E)
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15,837
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15,837
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General and administrative (E)
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20,275
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20,940
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81,882
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81,244
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Depreciation and amortization
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65,085
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53,358
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242,032
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214,445
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249,011
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137,705
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676,734
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534,526
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Other income (expense):
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Interest income
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2,682
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1,045
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|
|
|
5,473
|
|
|
|
8,772
|
|
Interest expense
|
|
|
(61,790
|
)
|
|
|
(63,789
|
)
|
|
|
(244,212
|
)
|
|
|
(258,149
|
)
|
Gain on repurchase of senior notes
|
|
|
11,351
|
|
|
|
|
|
|
|
11,552
|
|
|
|
|
|
Abandoned projects and transaction costs (D)
|
|
|
(11,519
|
)
|
|
|
|
|
|
|
(12,433
|
)
|
|
|
|
|
Other expenses (F)
|
|
|
(9,273
|
)
|
|
|
(2,344
|
)
|
|
|
(15,819
|
)
|
|
|
(3,019
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(68,549
|
)
|
|
|
(65,088
|
)
|
|
|
(255,439
|
)
|
|
|
(252,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before equity in net (loss) income of
joint ventures, impairment of joint venture
investments, minority interests, income tax benefit
(expense) of taxable REIT subsidiaries and franchise
taxes, discontinued operations and gain on disposition
of real estate, net of tax
|
|
|
(86,361
|
)
|
|
|
32,752
|
|
|
|
(701
|
)
|
|
|
146, 214
|
|
Equity in net (loss) income of joint ventures (G)
|
|
|
(4,205
|
)
|
|
|
9,343
|
|
|
|
17,719
|
|
|
|
43,229
|
|
Impairment of joint venture investments (D)
|
|
|
(106,957
|
)
|
|
|
|
|
|
|
(106,957
|
)
|
|
|
|
|
Minority interests (H)
|
|
|
17,053
|
|
|
|
(2,013
|
)
|
|
|
11,188
|
|
|
|
(18,218
|
)
|
Income tax benefit (expense) of taxable REIT
subsidiaries and
franchise taxes (I)
|
|
|
2,351
|
|
|
|
(633
|
)
|
|
|
17,434
|
|
|
|
14,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(178,119
|
)
|
|
|
39,449
|
|
|
|
(61,317
|
)
|
|
|
185,894
|
|
(Loss) income from discontinued operations (J)
|
|
|
(2,117
|
)
|
|
|
(1,795
|
)
|
|
|
(3,421
|
)
|
|
|
21,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before gain on disposition of real estate
|
|
|
(180,236
|
)
|
|
|
37,654
|
|
|
|
(64,738
|
)
|
|
|
207,196
|
|
Gain on disposition of real estate, net of tax
|
|
|
594
|
|
|
|
5,137
|
|
|
|
6,962
|
|
|
|
68,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(179,642
|
)
|
|
$
|
42,791
|
|
|
$
|
(57,776
|
)
|
|
$
|
276,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income applicable to common shareholders
|
|
$
|
(190,209
|
)
|
|
$
|
32,224
|
|
|
$
|
(100,045
|
)
|
|
$
|
225,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period
|
|
|
Year Ended
|
|
|
|
Ended December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Basic
|
|
$
|
(1.57
|
)
|
|
$
|
0.27
|
|
|
$
|
(0.83
|
)
|
|
$
|
1.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(1.57
|
)
|
|
$
|
0.27
|
|
|
$
|
(0.83
|
)
|
|
$
|
1.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends Declared
|
|
$
|
|
|
|
$
|
0.66
|
|
|
$
|
2.07
|
|
|
$
|
2.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic average shares outstanding
|
|
|
121,019
|
|
|
|
120,786
|
|
|
|
119,843
|
|
|
|
120,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted average shares outstanding
|
|
|
121,019
|
|
|
|
121,103
|
|
|
|
119,987
|
|
|
|
121,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A)
|
|
Base and percentage rental revenues for the year ended December 31, 2008, as compared to the
prior year, decreased $7.9 million, primarily due to the disposition of properties in 2008 and
2007 to joint venture interests and third parties aggregating $29.0 million. Partially
offsetting this decrease were the following increases in base and percentage rental revenues:
an increase of $3.3 million relating to the core portfolio properties (an increase of 0.6%
over the comparable period in 2007), $17.8 million from the acquisition of assets and the
merger with IRRETI, $3.8 million related to developments and redevelopments and $0.4 million
from an increase in occupancy at our business centers. Included in rental revenues for the
years ended December 31, 2008 and 2007, is approximately $8.0 million and $12.1 million,
respectively, of revenue resulting from the recognition of straight-line rents.
|
|
(B)
|
|
Other income for the three-month periods and years ended December 31, 2008 and 2007 was
comprised of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period
|
|
|
Year Ended
|
|
|
|
Ended December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Acquisition fees
|
|
$
|
|
|
|
$
|
0.1
|
|
|
$
|
|
|
|
$
|
6.4
|
|
Lease termination fees
|
|
|
0.8
|
|
|
|
0.1
|
|
|
|
6.3
|
|
|
|
5.0
|
|
Financing fees
|
|
|
0.1
|
|
|
|
|
|
|
|
2.0
|
|
|
|
1.5
|
|
Other miscellaneous
|
|
|
0.6
|
|
|
|
|
|
|
|
1.0
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.5
|
|
|
$
|
0.2
|
|
|
$
|
9.3
|
|
|
$
|
13.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(C)
|
|
Included in operating and maintenance expenses is bad debt expense aggregating $8.5 million
and $2.4 million relating to the three-month periods ended December 31, 2008 and 2007,
respectively. Fourth quarter 2008 bad debt expense includes the write off of $4.1 million of
straight-line rents relating to Mervyns, of which 50% is allocable to minority interest. For
the years ended December 31, 2008 and 2007, bad debt expense was $18.7 million and $9.0
million or 2% and 1% of total revenues, respectively.
|
|
(D)
|
|
Due to the continued deterioration of the U.S. capital markets and the lack of liquidity and
the related impact on the real estate market and retail industry, during the fourth quarter of
2008, we recorded impairment charges on several consolidated real estate investments,
including both operating shopping centers and land under development, to the extent the book
basis of the asset was in excess of the estimated fair market value. As discussed below, some
of these charges are allocable to minority interest thereby providing a partial offset. In
addition, we determined that several of our unconsolidated joint venture investments suffered
an Other than Temporary Impairment. We recorded approximately $107.0 million of impairment
charges associated with certain of our joint venture investments in accordance with Accounting
Principles Board Opinion No. 18, The Equity Method of Accounting for Investment in Common
Stock. The provisions of this opinion require that a loss in value of an investment under
the equity method of accounting which is an other than temporary decline must be recognized.
We also wrote off costs related to abandoned development projects as well as costs incurred
for transactions that are not expected to close.
|
|
(E)
|
|
General and administrative expenses include internal leasing salaries, legal salaries and
related expenses associated with the releasing of space, which are charged to operations as
incurred. For the years ended December 31, 2008 and 2007, general and administrative expenses
were approximately 5.2% and 4.5%, respectively, of total revenues, including joint venture
revenues. For the year ended December 31, 2008, we recorded a non-cash charge of
approximately $15.8 million related to the termination of a supplemental equity award plan.
For the year ended December 31, 2007, we recorded a charge of approximately $4.1 million to
general and administrative expense in connection with our former presidents resignation as an
executive officer.
|
S-3
|
|
|
(F)
|
|
Other expense primarily relates to a reserve associated with a mezzanine notes receivable as
well as litigation costs related to a potential liability associated with a legal verdict.
The accrual for the legal verdict was established in the third quarter of 2008.
|
|
(G)
|
|
The following is a summary of the combined operating results of our joint ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period
|
|
|
Year Ended
|
|
|
|
Ended December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Revenues from operations (a)
|
|
$
|
231,716
|
|
|
$
|
237,654
|
|
|
$
|
946,340
|
|
|
$
|
812,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense
|
|
|
82,682
|
|
|
|
84,547
|
|
|
|
328,875
|
|
|
|
272,277
|
|
Impairment charges (b)
|
|
|
3,887
|
|
|
|
|
|
|
|
3,887
|
|
|
|
|
|
Depreciation
and amortization of real estate investments
|
|
|
65,929
|
|
|
|
57,825
|
|
|
|
241,652
|
|
|
|
193,032
|
|
Interest expense
|
|
|
82,572
|
|
|
|
79,543
|
|
|
|
307,580
|
|
|
|
269,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
235,070
|
|
|
|
221,915
|
|
|
|
881,994
|
|
|
|
734,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations before tax benefit
(expense) and discontinued operations
|
|
|
(3,354
|
)
|
|
|
15,739
|
|
|
|
64,346
|
|
|
|
77,916
|
|
Income tax (expense) benefit
|
|
|
(3,485
|
)
|
|
|
2,664
|
|
|
|
(15,479
|
)
|
|
|
(4,839
|
)
|
(Loss) gain on disposition of real estate
|
|
|
(18
|
)
|
|
|
1,399
|
|
|
|
(67
|
)
|
|
|
94,386
|
|
(Loss) income from discontinued operations, net of tax
|
|
|
(10
|
)
|
|
|
75
|
|
|
|
105
|
|
|
|
(784
|
)
|
Income (loss) on disposition of discontinued
operations, net of tax
|
|
|
(7,364
|
)
|
|
|
(12
|
)
|
|
|
(7,364
|
)
|
|
|
2,516
|
|
Other expense, net (c)
|
|
|
(47,791
|
)
|
|
|
|
|
|
|
(31,318
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(47,294
|
)
|
|
$
|
19,865
|
|
|
$
|
24,951
|
|
|
$
|
169,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DDR ownership interests (d)
|
|
$
|
(5,482
|
)
|
|
$
|
10,017
|
|
|
$
|
17,335
|
|
|
$
|
44,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Revenues for the three-month periods ended December 31, 2008 and 2007 included
approximately $0.7 million and $2.7 million, respectively, resulting from the
recognition of straight-line rents, of which our proportionate share was not material
and $0.4 million, respectively. Revenues for the years ended December 31, 2008 and
2007 included approximately $6.3 million and $9.3 million, respectively, resulting from
the recognition of straight-line rents, of which our proportionate share was $0.8
million and $1.4 million, respectively.
|
|
(b)
|
|
Impairment charges aggregating $3.9 million were recorded at two joint ventures
related to assets under contract expected to be sold in the first half of 2009 of which
our share was $0.5 million.
|
|
(c)
|
|
Includes non-cash impairment charges and loss on sale of assets, of which our
share aggregated $2.4 million. Also includes the effects of certain derivative
instruments that are marked to market through earnings from our equity investment in
Macquarie DDR Trust aggregating approximately $45.9 million and $29.4 million of loss
for the three-month period and year ended December 31, 2008, respectively, of which our
share was approximately $5.6 million and $1.7 million of loss, respectively.
|
|
(d)
|
|
Our share of joint venture net income was increased by $1.2 million and
decreased by $0.6 million for the three-month periods ended December 31, 2008 and 2007,
respectively. Our share of joint venture net income was increased by $0.4 million and
decreased by $1.2 million for the years ended December 31, 2008 and 2007, respectively.
These adjustments relate to basis differences impacting amortization and depreciation
and gain on dispositions. During the year ended December 31, 2007, we received $13.6
million of promoted income relating to the sale of assets from the DDR Markaz Joint
Venture which is included in our proportionate share of net income.
|
|
|
|
At December 31, 2008 and 2007, we owned joint venture interests, excluding consolidated
joint ventures, in 329 and 317 shopping center properties, respectively.
|
S-4
|
|
|
(e)
|
|
Distributions may include funds received from asset sales and refinancings in
addition to ongoing operating distributions.
|
|
(H)
|
|
Minority interests are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period
|
|
|
Year Ended
|
|
|
|
Ended December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Minority equity interests
|
|
$
|
17,053
|
|
|
$
|
(1,444
|
)
|
|
$
|
12,333
|
|
|
$
|
(6,253
|
)
|
Operating partnership units
|
|
|
|
|
|
|
(569
|
)
|
|
|
(1,145
|
)
|
|
|
(2,275
|
)
|
Preferred operating partnership units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,690
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,053
|
|
|
$
|
(2,013
|
)
|
|
$
|
11,188
|
|
|
$
|
(18,218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $17.1 million and $12.3 million of income from minority interests for the three-month
period and year ended December 31, 2008, respectively, is primarily related to asset
impairment charges and the write off of straight-line rent relating to the DDR MDT MV LLC, or
Mervyns, a consolidated joint venture, of which we have a 50% interest.
|
|
|
|
The preferred operating partnership units were redeemed in June 2007. In June 2008, 0.5
million operating partnership units were converted into an equivalent number of our common
shares.
|
|
(I)
|
|
During the third quarter of 2008 and the first quarter of 2007, we released to income
approximately $16.0 million and $15.0 million, respectively, of previously established
valuation allowances against certain deferred tax assets as management had determined, due to
several factors, that it is more likely than not that the deferred tax asset will be realized.
The release of this reserve in 2008 was primarily due to our increased use of our taxable REIT
subsidiaries relating to the recognition of fees, primarily from joint ventures, and other
miscellaneous non-real estate related income.
|
|
(J)
|
|
The operating results relating to assets classified as discontinued operations are summarized
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period
|
|
|
Year Ended
|
|
|
|
Ended December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Revenues
|
|
$
|
1,334
|
|
|
$
|
3,765
|
|
|
$
|
12,182
|
|
|
$
|
40,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
|
|
|
|
780
|
|
|
|
3,990
|
|
|
|
11,708
|
|
Interest, net
|
|
|
241
|
|
|
|
918
|
|
|
|
2,331
|
|
|
|
10,308
|
|
Depreciation
|
|
|
210
|
|
|
|
2,718
|
|
|
|
4,342
|
|
|
|
9,929
|
|
Minority interest
|
|
|
|
|
|
|
80
|
|
|
|
110
|
|
|
|
(434
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
451
|
|
|
|
4,496
|
|
|
|
10,773
|
|
|
|
31,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
before (loss)
gain on
disposition of
real estate
|
|
|
883
|
|
|
|
(731
|
)
|
|
|
1,409
|
|
|
|
9,043
|
|
(Loss) gain on
disposition of
real estate, net
|
|
|
(3,000
|
)
|
|
|
(1,064
|
)
|
|
|
(4,830
|
)
|
|
|
12,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(2,117
|
)
|
|
$
|
(1,795
|
)
|
|
$
|
(3,421
|
)
|
|
$
|
21,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-5
Selected Balance Sheet Data (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
(A)
|
|
December 31, 2007
|
(A)
|
Assets:
|
|
|
|
|
|
|
|
|
Real estate and rental property:
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
2,073,947
|
|
|
$
|
2,142,942
|
|
Buildings
|
|
|
5,890,332
|
|
|
|
5,933,890
|
|
Fixtures and tenant improvements
|
|
|
262,809
|
|
|
|
237,117
|
|
|
|
|
|
|
|
|
|
|
|
8,227,088
|
|
|
|
8,313,949
|
|
Less: Accumulated depreciation
|
|
|
(1,208,903
|
)
|
|
|
(1,024,048
|
)
|
|
|
|
|
|
|
|
|
|
|
7,018,185
|
|
|
|
7,289,901
|
|
Construction in progress
|
|
|
879,547
|
|
|
|
664,926
|
|
Assets held for sale
|
|
|
|
|
|
|
5,796
|
|
|
|
|
|
|
|
|
Real estate, net
|
|
|
7,897,732
|
|
|
|
7,960,623
|
|
|
|
|
|
|
|
|
|
|
Investments in and advances to joint ventures
|
|
|
583,767
|
|
|
|
638,111
|
|
Cash
|
|
|
29,494
|
|
|
|
49,547
|
|
Restricted cash (B)
|
|
|
111,792
|
|
|
|
58,958
|
|
Notes receivable
|
|
|
75,781
|
|
|
|
18,557
|
|
Receivables, including straight-line rent, net
|
|
|
164,356
|
|
|
|
199,354
|
|
Other assets, net
|
|
|
155,403
|
|
|
|
164,666
|
|
|
|
|
|
|
|
|
|
|
$
|
9,018,325
|
|
|
$
|
9,089,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Indebtedness:
|
|
|
|
|
|
|
|
|
Revolving credit facilities
|
|
$
|
1,027,183
|
|
|
$
|
709,459
|
|
Unsecured debt
|
|
|
2,452,741
|
|
|
|
2,622,219
|
|
Mortgage and other secured debt
|
|
|
2,437,440
|
|
|
|
2,259,336
|
|
|
|
|
|
|
|
|
|
|
|
5,917,364
|
|
|
|
5,591,014
|
|
Dividends payable
|
|
|
6,967
|
|
|
|
85,851
|
|
Other liabilities
|
|
|
281,179
|
|
|
|
285,245
|
|
|
|
|
|
|
|
|
|
|
|
6,205,510
|
|
|
|
5,962,110
|
|
Minority interests
|
|
|
128,130
|
|
|
|
128,881
|
|
Shareholders equity
|
|
|
2,684,685
|
|
|
|
2,998,825
|
|
|
|
|
|
|
|
|
|
|
$
|
9,018,325
|
|
|
$
|
9,089,816
|
|
|
|
|
|
|
|
|
|
|
|
(A)
|
|
Amounts include the consolidation of a 50% owned joint venture, DDR MDT MV LLC (MV LLC),
that owns 37 sites formerly occupied by Mervyns, which includes $348.5 and $405.8 million of
real estate assets at December 31, 2008 and 2007, respectively, $258.5 million of mortgage
debt at December 31, 2008 and 2007, and $70.2 million and $74.6 million of minority equity
interest at December 31, 2008 and 2007, respectively. The decrease in real estate assets at
MV LLC in 2008 is primarily due to the application of $25.0 million in cash proceeds received
under a purchase price rebate letter of credit from the seller of the Mervyns portfolio due
to the retailers bankruptcy filing during the third quarter and approximately $35.3 million
of non-cash impairment charges recorded on these assets in the fourth quarter.
|
|
(B)
|
|
Restricted cash includes $64.8 million at MV LLC at December 31, 2008. The MV LLC
restricted cash is comprised of $23.9 million received from the seller of the Mervyns
portfolio relating to Mervyns bankruptcy filing in the third quarter, a $33.0 million net
capital contribution by the members of MV LLC, and $7.9 million related to a security deposit
letter of credit, all of which are required to be held in escrow by the lender. Also
included in restricted cash is $47.0 million and $59.0 million at December 31, 2008 and 2007,
respectively, relating to the terms of a bond issue for one of our projects in Mississippi.
|
S-6
Combined condensed balance sheets relating to our joint ventures are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
Land
|
|
$
|
2,378,033
|
|
|
$
|
2,384,069
|
|
Buildings
|
|
|
6,353,985
|
|
|
|
6,253,167
|
|
Fixtures and tenant improvements
|
|
|
131,622
|
|
|
|
101,115
|
|
|
|
|
|
|
|
|
|
|
|
8,863,640
|
|
|
|
8,738,351
|
|
Less: Accumulated depreciation
|
|
|
(606,530
|
)
|
|
|
(412,806
|
)
|
|
|
|
|
|
|
|
|
|
|
8,257,110
|
|
|
|
8,325,545
|
|
Construction in progress
|
|
|
412,357
|
|
|
|
207,387
|
|
|
|
|
|
|
|
|
Real estate, net
|
|
|
8,669,467
|
|
|
|
8,532,932
|
|
Receivables, including straight-line rent, net
|
|
|
136,410
|
|
|
|
124,540
|
|
Leasehold interests
|
|
|
12,615
|
|
|
|
13,927
|
|
Other assets
|
|
|
315,591
|
|
|
|
365,925
|
|
|
|
|
|
|
|
|
|
|
$
|
9,134,083
|
|
|
$
|
9,037,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage debt
|
|
$
|
5,776,897
|
|
|
$
|
5,551,839
|
|
|
Notes and accrued interest payable to DDR
|
|
|
64,967
|
|
|
|
8,492
|
|
Other liabilities
|
|
|
237,363
|
|
|
|
201,083
|
|
|
|
|
|
|
|
|
|
|
|
6,079,227
|
|
|
|
5,761,414
|
|
|
Accumulated equity
|
|
|
3,054,856
|
|
|
|
3,275,910
|
|
|
|
|
|
|
|
|
|
|
$
|
9,134,083
|
|
|
$
|
9,037,324
|
|
|
|
|
|
|
|
|
S-7
RISK FACTORS
An investment in our securities involves a high degree of risk. You should carefully consider
the risks described in Item 1A Risk Factors of our most recent Annual Report on Form 10-K for
the year ended December 31, 2007 and our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2008, that were filed with the SEC and incorporated herein by reference in their
entirety, as well as other information in this prospectus and in any other documents incorporated
into this prospectus by reference before purchasing any of our securities. Each of the risks
described in these sections and documents could adversely affect our business, financial condition
and results of operations, and could result in a complete loss of your investment. This prospectus
and the incorporated documents also contain forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including the risks mentioned above.
USE OF PROCEEDS
We intend to use the net proceeds from the sale of our common shares and warrants (and our
common shares issuable from time to time upon exercise of these warrants) pursuant to the stock
purchase agreement and the warrants, as applicable, for working capital and general corporate
purposes including, but not limited to, the repayment of our indebtedness.
S-8
DESCRIPTION OF PREFERRED SHARES
Capitalization
Our articles of incorporation authorize us to issue up to:
|
|
|
750,000 Class A Cumulative Preferred Shares, without par value, or the Class A
Shares, of which 460,000 shares have been designated as 9 1/2% Class A Cumulative
Redeemable Preferred Shares;
|
|
|
|
|
750,000 Class B Cumulative Preferred Shares, without par value, or the Class B
Shares, of which 177,500 shares have been designated as 9.44% Class B Cumulative
Redeemable Preferred Shares;
|
|
|
|
|
750,000 Class C Cumulative Preferred Shares, without par value, or the Class C
Shares, of which 460,000 shares have been designated as 8 3/8% Class C Cumulative
Redeemable Preferred Shares;
|
|
|
|
|
750,000 Class D Cumulative Preferred Shares, without par value, or the Class D
Shares, of which 230,000 shares have been designated as 8.68% Class D Cumulative
Redeemable Preferred Shares;
|
|
|
|
|
750,000 Class E Cumulative Preferred Shares, without par value, or the Class E
Shares, of which 750,000 shares have been designated as Class E Series I Cumulative
Preferred Shares;
|
|
|
|
|
750,000 Class F Cumulative Preferred Shares, without par value, or the Class F
Shares, of which 690,000 shares have been designated as 8.60% Class F Cumulative
Redeemable Preferred Shares;
|
|
|
|
|
750,000 Class G Cumulative Preferred Shares, without par value, or the Class G
Shares, of which 736,000 shares have been designated as 8% Class G Cumulative
Redeemable Preferred Shares;
|
|
|
|
|
750,000 Class H Cumulative Preferred Shares, without par value, or the Class H
Shares, of which 410,000 shares have been designated as 7 3/8% Class H Cumulative
Redeemable Preferred Shares;
|
|
|
|
|
750,000 Class I Cumulative Preferred Shares, without par value, or the Class I
Shares, of which 345,000 shares have been designated as 7.50% Class I Cumulative
Redeemable Preferred Shares;
|
|
|
|
|
750,000 Class J Cumulative Preferred Shares, without par value, or the Class J
Shares, of which 450,000 shares have been designated as 9% Class J Cumulative
Redeemable Preferred Shares;
|
|
|
|
|
750,000 Class K Cumulative Preferred Shares, without par value, or the Class K
Shares, of which 350,000 shares have been designated as 8 7/8% Class K Cumulative
Redeemable Preferred Shares;
|
|
|
|
|
750,000 Noncumulative Preferred Shares, without par value, or the noncumulative
shares; and
|
|
|
|
|
2,000,000 Cumulative Voting Preferred Shares, without par value, or the cumulative
voting preferred shares.
|
General
We refer to the Class A Shares, the Class B Shares, the Class C Shares, the Class D Shares,
the Class E Shares, the Class F Shares, the Class G Shares, the Class H Shares, the Class I Shares,
the Class J Shares, the Class K Shares and the noncumulative shares collectively as the nonvoting
preferred shares.
The outstanding nonvoting preferred shares are represented by depositary shares. Each
depositary share represents a fractional interest in the respective preferred share. The preferred
shares have been deposited with National City Bank, Cleveland, Ohio, as depositary, under a deposit
agreement between us, National City Bank and the holders from time to time of the depositary
receipts issued under the deposit agreement. The depositary receipts
S-9
evidence the depositary shares. Each holder of a depositary receipt evidencing a depositary
share will be entitled to all the rights and preferences of a fractional interest in a
corresponding preferred share, including dividend, voting, redemption and liquidation rights and
preferences.
The following description summarizes certain general terms and provisions of each class of
nonvoting preferred shares and the cumulative voting preferred shares. This summary may not contain
all of the information that is important to you. For more detail, you should refer to the
applicable provisions of our articles of incorporation and code of regulations that are filed as
exhibits to the registration statement of which this prospectus forms a part.
Except as discussed below, the nonvoting preferred shares rank on a parity with each other and
are identical to each other. The cumulative voting preferred shares rank equally, except with
respect to voting rights, with all of the nonvoting preferred shares. Dividends on the Class A
Shares, the Class B Shares, the Class C Shares, the Class D Shares, the Class E Shares, the Class F
Shares, the Class G Shares, the Class H Shares, the Class I Shares, the Class J Shares, the Class K
Shares and the cumulative voting preferred shares will be cumulative, while dividends on the
noncumulative shares will not be cumulative.
Prior to the issuance of shares of each series of each class of nonvoting preferred shares,
our board of directors may, under our articles of incorporation and Ohio law, fix:
|
|
|
the designation of the series;
|
|
|
|
|
the authorized number of shares of the series. Our board of directors may, except
when otherwise provided in the creation of the series, increase or decrease the
authorized number of shares before or after issuance of the series (but not below the
number of shares of such series then outstanding);
|
|
|
|
|
the dividend rate or rates of the series, including the means by which such rates
may be established;
|
|
|
|
|
the date(s) from which dividends shall accrue and be cumulative and, with respect to
all nonvoting preferred shares, the date on which and the period(s) for which
dividends, if declared, shall be payable, including the means by which such date(s) and
period(s) may be established;
|
|
|
|
|
redemption rights and prices, if any;
|
|
|
|
|
the terms and amounts of the sinking fund, if any;
|
|
|
|
|
the amounts payable on shares of the series in the event of any voluntary or
involuntary liquidation, dissolution or winding-up of our affairs;
|
|
|
|
|
whether the shares of the series shall be convertible into common shares or shares
of any other class;
|
|
|
|
|
if the shares are convertible, the conversion rate(s) or price(s), any adjustments
to the rate or price and all other terms and conditions upon which such conversion may
be made; and
|
|
|
|
|
restrictions on the issuance of shares of the same or any other class or series.
|
Rank
All preferred shares will be equal to all other preferred shares with respect to dividend
rights (subject to dividends on noncumulative shares being noncumulative) and rights upon our
liquidation, dissolution or winding-up.
The preferred shares will:
|
|
|
rank prior to all classes of common shares and to all other equity securities
ranking junior to such preferred shares with respect to dividend rights and rights upon
our liquidation, dissolution or winding-up;
|
S-10
|
|
|
be equal to all of our equity securities the terms of which specifically provide
that such equity securities are equal to the preferred shares with respect to dividend
rights and rights upon our liquidation, dissolution or winding-up; and
|
|
|
|
|
be junior to all of our equity securities the terms of which specifically provide
that such equity securities rank prior to the preferred shares with respect to dividend
rights and rights upon our liquidation, dissolution or winding-up.
|
Dividends
The holders of each series of each class of preferred shares are entitled to receive, if, when
and as declared, out of funds legally available for payment, dividends in cash at the rate
determined for such series in preference to the holders of common shares and of any other class of
shares ranking junior to the preferred shares. Dividends shall be payable on the date fixed for
such series. Dividends with respect to each series of Class A Shares, Class B Shares, Class C
Shares, Class D Shares, Class E Shares, Class F Shares, Class G Shares, Class H Shares, Class I
Shares, Class J Shares, Class K Shares and the cumulative voting preferred shares will be
cumulative from the dates fixed for the series. Dividends will be payable to holders of record as
they appear on our stock transfer books on the record dates fixed by our board of directors. Any
dividend payment made on the preferred shares that have been designated under the Class A Shares,
Class B Shares, Class C Shares, Class D Shares, Class E Shares, Class F Shares, Class G Shares,
Class H Shares, Class I Shares, Class J Shares and Class K Shares, which we refer to collectively
as the designated preferred shares, will first be credited against the earliest accumulated but
unpaid dividend due with respect to such shares which remains payable.
Dividends on our preferred shares will accumulate whether or not we have earnings, whether or
not there are funds legally available for the payment of such dividends and whether or not such
dividends are declared. Accumulated but unpaid dividends on the designated preferred shares will
not bear interest.
If preferred shares are outstanding, dividends may not be paid or declared or set apart for
any series of preferred shares for any dividend period unless at the same time:
|
|
|
a proportionate dividend for the dividend periods terminating on the same or any
earlier date for all issued and outstanding shares of all series of such class entitled
to receive such dividend (but, if such series are series of noncumulative shares, then
only with respect to the current dividend period), ratably in proportion to the
respective annual dividend rates fixed therefor, have been paid or declared or set
apart; and
|
|
|
|
|
the dividends payable for the dividend periods terminating on the same or any
earlier date for all other classes of issued and outstanding preferred shares entitled
to receive such dividends (but, with respect to noncumulative shares, only with respect
to the then-current dividend period), ratably in proportion to the respective dividend
rates fixed therefor, have been paid or declared and set apart.
|
If any series of preferred shares is outstanding, a dividend shall not be paid or declared or
any distribution made in respect of the common shares or any other shares ranking junior to such
series of preferred shares, and common shares or any other shares ranking junior to such series of
preferred shares shall not be purchased, retired or otherwise acquired by us unless:
|
|
|
all accrued and unpaid dividends on all classes of outstanding preferred shares,
including the full dividends for all current dividend periods for the nonvoting
preferred shares (except, with respect to noncumulative shares, for the then-current
dividend period only), have been declared and paid or a sum sufficient for payment
thereof set apart; and
|
|
|
|
|
with respect to the nonvoting preferred shares, there are no arrearages with respect
to the redemption of any series of any class of preferred shares from any sinking fund
provided for such class in accordance with our articles of incorporation. However,
common shares and any other shares ranking junior to such series of preferred shares
may be purchased, retired or otherwise acquired using the proceeds of a sale of common
shares or other shares junior to such preferred shares received subsequent to the first
|
S-11
|
|
|
date of issuance of such preferred shares. In addition, we may pay or declare or
distribute dividends payable in common shares or other shares ranking junior to such
preferred shares.
|
The preceding restrictions on the payment of dividends or other distributions on, or on the
purchase, redemption, retirement or other acquisition of, common shares or any other shares ranking
equal to or junior to any class of preferred shares generally will be inapplicable to:
|
|
|
any payments in lieu of issuance of fractional shares, upon any merger, conversion,
stock dividend or otherwise in the case of the nonvoting preferred shares;
|
|
|
|
|
the conversion of preferred shares into common shares; or
|
|
|
|
|
the exercise of our rights to repurchase shares of capital stock in order to
preserve our status as a REIT under the Internal Revenue Code of 1986, as amended, or
the Code.
|
When dividends are not paid in full (or a sum sufficient for full payment is not set apart)
upon the preferred shares of any series and the shares of any other series of preferred shares
ranking on a parity as to dividends with such series, all dividends declared upon preferred shares
of such series and any other series of preferred shares ranking on a parity as to dividends with
such preferred shares shall be declared pro rata so that the amount of dividends declared per share
on the shares of such series of preferred shares shall in all cases bear to each other the same
ratio that accrued dividends per share on the preferred shares of such series (which shall not
include any accumulation in respect of unpaid dividends for prior dividend periods for
noncumulative shares) and such other series bear to each other.
Redemption
If our board of directors so provides, a series of preferred shares will be subject to
mandatory redemption or redemption at our option, as a whole or in part, in each case upon the
terms, at the times and at the redemption prices determined by our board of directors. The
redemption price per share will include an amount equal to all accrued and unpaid dividends on such
preferred shares as of the date of redemption; however, the redemption price of noncumulative
shares will include only unpaid dividends for the current dividend period. The redemption price may
be payable in cash or other property.
We may not purchase or redeem, for sinking fund purposes or otherwise, less than all of a
class of outstanding preferred shares except in accordance with a stock purchase offer made to all
holders of record of such class, unless all dividends on that class of outstanding preferred shares
for previous and current dividend periods (except, in the case of noncumulative shares, dividends
for the current dividend period only) have been declared and paid or funds set apart and all
accrued sinking fund obligations applicable thereto have been complied with. However, we may
repurchase shares of capital stock in order to maintain our qualification as a REIT under the Code.
If fewer than all of our outstanding shares of any class of preferred shares are to be
redeemed, we will determine the number of shares to be redeemed. Our board of directors will
determine the manner for selecting by lot the shares to be redeemed.
We will mail notice of redemption at least 30 days but not more than 60 days before the
redemption date to each holder of record of a preferred share to be redeemed at the address shown
on our stock transfer books. If fewer than all the preferred shares of any series are to be
redeemed, the notice of redemption will also specify the number of preferred shares to be redeemed
from each holder. If notice of redemption of any preferred shares has been given and if the funds
necessary for such redemption have been set aside by us in trust for the benefit of the holders of
the preferred shares to be redeemed, dividends will cease to accrue on such preferred shares. In
addition, the holders of preferred shares to be redeemed will cease to be shareholders with respect
to such shares and will have no right or claim against us with respect to such shares as of the
redemption date. However, such holders will have the right to receive the redemption price without
interest or to exercise before the redemption date any unexercised privileges of conversion.
S-12
The terms of redemption, if any, for the existing classes of preferred shares are included in
our articles of incorporation that are filed as an exhibit to the registration statement of which
this prospectus forms a part.
Liquidation Preference
In the event of our voluntary liquidation, dissolution or winding-up, the holders of any
series of any class of preferred shares shall be entitled to receive in full out of our assets,
including our capital, before any amount shall be paid or distributed among the holders of the
common shares or any other shares ranking junior to such series, the amounts fixed by our board of
directors with respect to such series and set forth in the applicable prospectus supplement. In
addition, each holder will receive an amount equal to all dividends accrued and unpaid on that
series of preferred shares to the date of payment of the amount due pursuant to our liquidation,
dissolution or winding-up. However, holders of noncumulative shares will only receive dividends for
the current dividend period. After holders of the preferred shares are paid the full preferential
amounts to which they are entitled, they will have no right or claim to any of our remaining
assets.
If liquidating distributions are made in full to all holders of preferred shares, our
remaining assets will be distributed among the holders of any other classes or series of capital
stock ranking junior to the preferred shares upon liquidation, dissolution or winding-up. The
distributions will be made according to the holders respective rights and preferences and, in each
case, according to their respective number of shares. Our merger or consolidation into or with any
other corporation, or the sale, lease or conveyance of all or substantially all of our assets,
shall not constitute a dissolution, liquidation or winding-up.
Voting Rights
Nonvoting Preferred Shares
Holders of nonvoting preferred shares have only the voting rights described below that apply
to all preferred shares, whether nonvoting or voting, and as from time to time required by law.
If and when we are in default in the payment of (or, with respect to noncumulative shares,
have not paid or declared and set aside a sum sufficient for the payment of) dividends on any
series of any class of outstanding nonvoting preferred shares, for dividend payment periods,
whether consecutive or not, which in the aggregate contain at least 540 days, all holders of shares
of such class, voting separately as a class, together and combined with all other preferred shares
upon which like voting rights have been conferred and are exercisable, will be entitled to elect a
total of two members to our board of directors. This voting right shall be vested and any
additional directors shall serve until all accrued and unpaid dividends (except, with respect to
noncumulative shares, only dividends for the then-current dividend period) on such outstanding
preferred shares have been paid or declared and a sufficient sum set aside for payment thereof.
The affirmative vote of the holders of at least two-thirds of a class of outstanding nonvoting
preferred shares, voting separately as a class, shall be necessary to effect either of the
following:
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The authorization, creation or increase in the authorized number of any shares, or
any security convertible into shares, ranking prior to such class of nonvoting
preferred shares; or
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Any amendment, alteration or repeal, whether by merger, consolidation or otherwise,
of any of the provisions of our articles of incorporation or our code of regulations
which adversely and materially affects the preferences or voting or other rights of the
holders of such class of nonvoting preferred shares which are set forth in our articles
of incorporation. However, the amendment of our articles of incorporation to authorize,
create or change the authorized or outstanding number of a class of such preferred
shares or of any shares ranking on a parity with or junior to such class of preferred
shares does not adversely and materially affect preferences or voting or other rights
of the holders of such class of preferred shares. In addition, amending the code of
regulations to change the number or classification of our directors does not adversely
or materially affect preferences or voting rights or
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other rights. Voting shall be done in person at a meeting called for one of the above
purposes or in writing by proxy.
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The preceding voting provisions will not apply if, at or prior to the time of the action with
respect to which such vote would be required, all outstanding shares of such series of preferred
shares have been redeemed or called for redemption and sufficient funds shall have been deposited
in trust to effect such redemption.
Cumulative Voting Preferred Shares
If and when we are in default in the payment of dividends on the cumulative voting preferred
shares, for at least six dividend payment periods, whether or not consecutive, all holders of
shares of such class, voting separately as a class, together and combined with all other preferred
shares upon which like voting rights have been conferred and are exercisable, will be entitled to
elect a total of two members to our board of directors. This voting right shall be vested and any
additional directors shall serve until all accrued and unpaid dividends (except, with respect to
noncumulative shares, only dividends for the then-current dividend period) on such outstanding
preferred shares have been paid or declared and a sufficient sum set aside for payment thereof.
The affirmative vote of the holders of at least two-thirds of the outstanding cumulative
voting preferred shares, voting separately as a class, shall be necessary to effect either of the
following:
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Any amendment, alteration or repeal of any of the provisions of, or the addition of
any provisions to, our articles of incorporation or code of regulations, whether by
merger, consolidation or otherwise, which we refer to as an event, that materially
adversely affects the voting powers, rights or preferences of the holders of the
cumulative voting preferred shares; provided, however, that the amendment of the
provisions of the articles of incorporation (a) so as to authorize or create, or to
increase the authorized amount of, or issue, any shares ranking junior to the
cumulative voting preferred shares or any shares of any class or series of shares
ranking on a parity with the cumulative voting preferred shares or (b) with respect to
the occurrence of any event, so long as the cumulative voting preferred shares remain
outstanding with the terms thereof materially unchanged, taking into account that upon
the occurrence of the event, we may not be the surviving entity, shall not in either
case be deemed to materially adversely affect the voting power, rights or preferences
of the holders of cumulative voting preferred shares; or
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the authorization, creation of, increase in the authorized amount of, or issuance of
any shares of any class or series of shares ranking prior to the cumulative voting
preferred shares or any security convertible into shares of any class or series of
shares ranking prior to the cumulative voting preferred shares (whether or not such
class or series of shares ranking prior to the cumulative voting preferred shares is
currently authorized).
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The preceding voting provisions will not apply, if at or prior to the time of the action with
respect to which such vote would be required, all outstanding shares of such series of cumulative
voting preferred shares have been redeemed or called for redemption and sufficient funds shall have
been deposited in trust to effect such redemption.
In addition to the foregoing, the holders of cumulative voting preferred shares shall be
entitled to vote on all matters on which holders of our common shares may vote and shall be
entitled to one vote for each cumulative voting preferred share entitled to vote at such meeting.
General
Without limiting the provisions described above, under Ohio law, holders of each class of
preferred shares will be entitled to vote as a class on any amendment to our articles of
incorporation, whether or not they are entitled to vote thereon by our articles of incorporation,
if the amendment would:
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increase or decrease the par value of the shares of such class;
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change the issued shares of such class into a lesser number of shares of such class
or into the same or different number of shares of another class;
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change or add to the express terms of the shares of the class in any manner
substantially prejudicial to the holders of such class;
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change the express terms of any class of issued shares ranking prior to the
particular class in any manner substantially prejudicial to the holders of shares of
the particular class;
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authorize shares of another class that are convertible into, or authorize the
conversion of shares of another class into, shares of the particular class, or
authorize the directors to fix or alter conversion rights of shares of another class
that are convertible into shares of the particular class;
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reduce or eliminate our stated capital;
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substantially change our purposes; or
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change the Company into a nonprofit corporation.
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If, and only to the extent that,
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a class of preferred shares is issued in more than one series and
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Ohio law permits the holders of a series of a class of capital stock to vote
separately as a class,
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the affirmative vote of the holders of at least two-thirds of each series of such class of
outstanding preferred shares, voting separately as a class, shall be required for any
amendment, alteration or repeal, whether by merger, consolidation or otherwise, of any of the
provisions of our articles of incorporation or our code of regulations which adversely and
materially affects the preferences or voting or other rights of the holders of such series as
set forth in our articles of incorporation. However, the amendment of our articles of
incorporation so as to authorize, create or change the authorized or outstanding number of a
class of preferred shares or of any shares ranking equal to or junior to such class of
preferred shares does not adversely and materially affect the preference or voting or other
rights of the holders of such series. In addition, the amendment of our code of regulations to
change the number or classification of our directors does not adversely and materially affect
the preference or voting or other rights of the holders of such series.
Restrictions on Ownership
In order to qualify as a REIT under the Code, not more than 50% in value of our outstanding
capital stock may be owned, directly or indirectly, by five or fewer individuals during the last
half of a taxable year. Individual is defined in the Code to include certain entities. In
addition, our capital stock must be beneficially owned by 100 or more persons during at least 335
days of a taxable year of 12 months or during a proportionate part of a shorter taxable year. We
also must satisfy certain other requirements. For more information on restrictions on ownership,
see Description of Common Shares Restrictions on Ownership.
To ensure that five or fewer individuals do not own more than 50% in value of our outstanding
preferred shares, our articles of incorporation provide that, subject to certain exceptions, no one
may own, or be deemed to own by virtue of the attribution provisions of the Code, more than 9.8%,
which we refer to as the preferred shares ownership limit, of any series of any class of our
outstanding preferred shares. In addition, because rent from a related party tenant (any tenant 10%
of which is owned, directly or constructively, by a REIT, including an owner of 10% or more of a
REIT) is not qualifying rent for purposes of the gross income tests under the Code, our articles of
incorporation provide that no individual or entity may own, or be deemed to own by virtue of the
attribution provisions of the Code (which differ from the attribution provisions applied to the
preferred shares ownership limit), in excess of 9.8%, which we refer to as the preferred shares
related party limit, of our outstanding preferred shares. Our board of directors may exempt a
person from the preferred shares ownership limit, if the person would not be deemed an individual
and may exempt a person from the preferred shares related party limit. As a condition of
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any exemption, our board of directors will require appropriate representations and
undertakings from the applicant with respect to preserving our REIT status.
The preceding restrictions on transferability and ownership of preferred shares may not apply
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. Even if the REIT provisions of the Code are changed
so as to no longer contain any ownership concentration limitation or if the ownership concentration
limitation is increased, the preferred shares ownership limit and the preferred shares related
party limit will not be automatically removed. Any change in the preferred shares ownership limit,
other than modifications that may be made by our board of directors as permitted by the articles of
incorporation, would require an amendment to our articles of incorporation, even if our board of
directors determines that maintenance of REIT status is no longer in our best interests. Amendments
to our articles of incorporation require the affirmative vote of holders owning not less than a
majority of our outstanding common shares. If it is determined that an amendment would materially
and adversely affect the holders of any class of preferred shares, such amendment would also
require the affirmative vote of holders of not less than two-thirds of such class of preferred
shares.
If preferred shares in excess of the preferred shares ownership limit or the preferred shares
related party limit are issued or transferred to any person absent a waiver of such limit, such
issuance or transfer will be null and void to the intended transferee, and the intended transferee
will acquire no rights to the shares. In addition, if an issuance or transfer would cause our
shares to be beneficially or constructively owned by fewer than 100 persons or would result in our
being closely held within the meaning of Section 856(h) of the Code, such issuance or transfer
will be null and void to the intended transferee, and the intended transferee will acquire no
rights to the shares. Preferred shares transferred or proposed to be transferred in excess of the
preferred shares ownership limit or the preferred shares related party limit or which would
otherwise jeopardize our REIT status will be subject to repurchase by the Company. The purchase
price of such preferred shares will be equal to the lesser of:
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the price in such proposed transaction; and
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the fair market value of such shares reflected in the last reported sales price for
the shares on the trading day immediately preceding the date on which we or our
designee determine to exercise our repurchase right if the shares are listed on a
national securities exchange, or such price for the shares on the principal exchange if
the shares are then listed on more than one national securities exchange.
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If the shares are not listed on a national securities exchange, the purchase price will be equal to
the lesser of:
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the price in such proposed transaction; and
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the latest bid quotation for the shares if the shares are then traded over the
counter, or, if such quotation is not available, the fair market value as determined by
our board of directors in good faith, on the last trading day immediately preceding the
day on which notice of such proposed purchase is sent by us.
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From and after the date fixed for our purchase of such preferred shares, the holder will cease
to be entitled to distributions, voting rights and other benefits with respect to such shares
except the right to payment of the purchase price for the shares. Any dividend or distribution paid
to a proposed transferee on such preferred shares must be repaid to us upon demand. 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 such preferred shares
may be deemed, at our option, to have acted as our agent in acquiring such preferred shares and to
hold such preferred shares on our behalf.
All certificates for preferred shares will bear a legend referring to the restrictions
described above.
Our articles of incorporation provide that all persons who own, directly or by virtue of the
attribution provisions of the Code, more than 5% of the preferred shares must give written notice
to us stating the name and address of such person, the number of shares owned, and a description of
how such shares are held each year by January 31. In addition, each of those shareholders must
provide supplemental information that we may request, in good faith, in order to determine our
status as a REIT.
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DESCRIPTION OF COMMON SHARES
Capitalization
Our articles of incorporation authorize us to issue up to 300,000,000 common shares, $0.10 par
value per share.
General
Our common shares are listed on the New York Stock Exchange, or NYSE, under the symbol DDR.
National City Bank, Cleveland, Ohio, is the transfer agent and registrar of the common shares.
The following description summarizes certain general terms and provisions of our common
shares. This summary may not contain all of the information that is important to you. For more
detail, you should refer to the applicable provisions of our articles of incorporation and our code
of regulations that are filed as exhibits to the registration statement of which this prospectus
forms a part.
Holders of our common shares are entitled to receive dividends when, as and if declared by our
board of directors, out of funds legally available therefor. Any payment and declaration of
dividends by the Company on our common shares and purchases thereof will be subject to certain
restrictions if we fail to pay dividends on any outstanding preferred shares. See Description of
Preferred Shares Dividends. If we are liquidated, dissolved or involved in any winding-up, the
holders of our common shares are entitled to receive ratably any assets remaining after we have
fully paid all of our liabilities, including the preferential amounts we owe with respect to any
preferred shares. Holders of our common shares possess ordinary voting rights, with each share
entitling the holder to one vote. Holders of our common shares have cumulative voting rights in the
election of directors. Holders of our common shares do not have preemptive rights, which means that
they have no right to acquire any additional common shares that we may subsequently issue.
All of our common shares currently outstanding are, and any common shares offered hereby when
issued will be, fully paid and nonassessable.
Restrictions on Ownership
In order for us to qualify as a REIT under the Code, not more than 50% in value of our
outstanding capital stock may be owned, directly or indirectly, by five or fewer individuals during
the last half of a taxable year. Individual is defined in the Code to include certain entities.
In addition, our capital stock must be beneficially owned by 100 or more persons during at least
335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year.
Additionally, certain other requirements must be satisfied.
To ensure that five or fewer individuals do not own more than 50% in value of our outstanding
common shares, our articles of incorporation provide that, subject to certain exceptions, no holder
may own, or be deemed to own by virtue of the attribution provisions of the Code, more than 5%,
which we refer to as the ownership limit, of our outstanding common shares. Shareholders whose
ownership exceeded the ownership limit immediately after the initial public offering, or IPO, may
continue to own common shares in excess of the ownership limit and may acquire additional shares
through the share option plan, the equity-based award plans, any dividend reinvestment plan adopted
by us or from other existing shareholders who exceed the ownership limit, but may not acquire
additional shares from those sources if the result would be that the five largest beneficial owners
of common shares hold more than 49.6% of our outstanding common shares. We refer the ownership
limitation applicable to these shareholders as the existing holder ownership limit. In addition,
because rent from a related party tenant (any tenant 10% of which is owned, directly or
constructively, by a REIT, including an owner of 10% or more of a REIT) is not qualifying rent for
purposes of the gross income tests under the Code, our articles of incorporation provide that no
individual or entity may own, or be deemed to own by virtue of the attribution provisions of the
Code (which differ from the attribution provisions applied to the ownership limit), in excess of
9.8% of our outstanding common shares, which we refer to as the related party limit. Our board of
directors may exempt a person from the ownership limit if the person would not be deemed an
individual and may exempt a person from the related party limit (the related party limit has been
waived with respect to the shareholders who exceeded the related party limit immediately after the
IPO) if an opinion of counsel or a ruling from the IRS is provided to our board of directors to the
effect that the
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ownership will not then or in the future jeopardize our status as a REIT. As a condition of
any exemption, our board of directors will require appropriate representations and undertakings
from the applicant with respect to preserving our REIT status.
In order to consummate the offering contemplated by this prospectus, our board of directors
has adopted, and our shareholders must approve, amendments to our articles of incorporation that
would:
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allow (i) Professor Werner Otto, his wife Maren Otto and/or all descendants of
Professor Werner Otto, including without limitation Alexander Otto, (ii) trusts or
family foundations established for the benefit of the Prof. Otto and the individuals
named in (i) above and (iii) other entities controlled by the individuals named in (i)
above (or trusts or family foundations established for the benefit of those
individuals), which we refer to collectively as the Otto Family, to own up to 29.8% of
our outstanding common shares;
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modify the existing holder limit so that the existing holder may own up to 5.1% our
outstanding common shares;
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grant our board of directors the authority to waive the related party limit with
respect to the Otto Family; and
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prohibit any transfer of common shares that would cause us to cease to be a
domestically controlled qualified investment entity as defined in
Section 897(h)(4)(B) of the Code.
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The preceding restrictions on transferability and ownership of common shares may not apply if
our board of directors determines that it is no longer in our best interests to continue to qualify
as a REIT. The ownership limit and the related party limit will not be automatically removed even
if the REIT provisions of the Code are changed to no longer contain any ownership concentration
limitation or if the ownership concentration limitation is increased. In addition to preserving our
status as a REIT, the effects of the ownership limit and the related party limit are to prevent any
person or small group of persons from acquiring unilateral control of us. Any change in the
ownership limit, other than modifications that may be made by our board of directors as permitted
by our articles of incorporation, requires an amendment to the articles of incorporation, even if
our board of directors determines that maintenance of REIT status is no longer in our best
interests. Amendments to the articles of incorporation require the affirmative vote of holders
owning a majority of our outstanding common shares. If it is determined that an amendment would
materially and adversely affect the holders of any class of preferred shares, that amendment also
would require the affirmative vote of holders of two-thirds of the affected class of preferred
shares.
If common shares in excess of the ownership limit or the related party limit, or common shares
which would cause us to be beneficially or constructively owned by less than 100 persons or would
result in us being closely held within the meaning of Section 856(h) of the Code, are issued or
transferred to any person absent a waiver, the issuance or transfer will be null and void to the
intended transferee. The intended transferee will not acquire rights to the shares. Common shares
transferred or proposed to be transferred in excess of the ownership limit or the related party
limit or which would otherwise jeopardize our REIT status, which we refer to as the excess shares,
will be subject to repurchase by us. The purchase price of any excess shares will be equal to the
lesser of:
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the price in the proposed transaction; and
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the fair market value of the shares reflected in the last reported sale price for
the common shares on the trading day immediately preceding the date on which we or our
designee determine to exercise our repurchase right, if the shares are then listed on a
national securities exchange, or such price for the shares on the principal exchange,
if they are then listed on more than one national securities exchange.
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If the common shares are not then listed on a national securities exchange, the purchase price
will equal the lesser of:
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the price in the proposed transaction; and
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the latest bid quotation for the common shares if they are then traded
over-the-counter, or, if such quotation is not available, the fair market value as
determined by our board of directors in good faith, on the last trading day
immediately preceding the day on which notice of the proposed purchase is sent by us.
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From and after the date fixed for purchase of excess shares by us, the holder of the excess
shares will cease to be entitled to distribution, voting rights and other benefits with respect to
the excess shares except the right to payment of the purchase price for the excess shares. Any
dividend or distribution paid to a proposed transferee on excess shares will be repaid to us upon
demand. 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 excess shares
may be deemed, at our option, to have acted as an agent on our behalf in acquiring the excess
shares and to hold the excess shares on our behalf.
All certificates representing our common shares bear a legend referring to the preceding
restrictions.
Our articles of incorporation provide that all persons who own, directly or by virtue of the
attribution provisions of the Code, more than 5% of our outstanding common shares must give written
notice to us stating the name and address of such person, the number of shares owned, and a
description of how such shares are held each year by January 31. In addition, each of those
shareholders must provide supplemental information that we may request, in good faith, in order to
determine our status as a REIT.
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DESCRIPTION OF WARRANTS
We are offering warrants to purchase up to 10,000,000 million of our common shares. The
following is a brief summary of the material terms of the warrants and is subject in all respects
to the provisions contained in the warrants. The form of the warrant will included in the stock
purchased agreement that will be filed as an exhibit to a Current Report on Form 8-K that will be
incorporated by reference into this prospectus, and reference is made thereto for a complete
description of the warrants.
Each warrant will entitle the holder thereof to purchase up to 5,00,000 of our common shares
at a price of $6.00 per share at any time on or after the issuance of the warrant and for a
five-year term thereafter. Each warrant may be exercised on a cashless basis. The exercise price
is subject to downward adjustment to the extent that the weighted average purchase price of all
additional common shares (or equivalents thereof) sold by us from the date of the issuance of the
warrant (taking into account all issued and outstanding common shares as of the date of issuance)
is less than $6.00 per share. The exercise price and the number of shares to be issued upon
exercise of each warrant will also be subject to appropriate adjustment in the event of dividends
and distributions payable to all of the holders of our common shares solely in common shares, stock
splits, stock combinations, reclassifications or similar events affecting our common shares and
also upon any distributions of assets, including cash, stock or other property to our shareholders.
The warrants may be transferred at the option of the warrant holder upon surrender of the
warrants with the appropriate instruments of transfer to any member of the Otto Family or to any
other person so long as the transfer would not cause the transferee to exceed the ownership
limitations contained in our articles of incorporation.
Except as otherwise provided in the warrants or by virtue of such holders ownership of our
common shares, the holders of the warrants do not have the rights or privileges of holders of our
common shares, including any voting rights, until they exercise their warrants.
We do not plan on making an application to list the warrants on the NYSE, any national
securities exchange or other nationally recognized trading system.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the material U.S. federal income tax considerations
relating to our qualification and taxation as a REIT and the acquisition, ownership and disposition
of our common shares. The information in this section is based on the Code, current, temporary and
proposed Treasury Regulations promulgated under the Code, the legislative history of the Code,
current administrative interpretations and practices of the IRS (including its practices and
policies as expressed in certain private letter rulings which are not binding on the IRS except
with respect to the particular taxpayers who requested and received such rulings), and court
decisions, all as of the date of this prospectus supplement. Future legislation, Treasury
Regulations, administrative interpretations and practices and court decisions may adversely affect,
perhaps retroactively, the tax considerations described herein. We have not requested, and do not
plan to request, any rulings from the IRS concerning our tax treatment and the statements in this
prospectus supplement are not binding on the IRS or any court. Thus, we can provide no assurance
that these statements will not be challenged by the IRS or sustained by a court if challenged by
the IRS.
This summary is for general information only, and does not purport to discuss all aspects of
U.S. federal income taxation that may be relevant to a particular holder in light of its investment
or tax circumstances, or to certain types of holders subject to special tax rules, such as
financial institutions, insurance companies, tax-exempt organizations (except to the extent
discussed under the subheadings Taxation of Tax-Exempt Shareholders, below), broker-dealers,
partnerships and other pass-through entities, shareholders holding our common shares as part of a
conversion transaction, or a hedge or hedging transaction or as a position in a straddle for tax
purposes, and Non-U.S. Shareholders (as defined below) (except to the extent discussed under the
subheading Taxation of Non-U.S. Shareholders, below).
You are advised to consult your tax advisor regarding the specific tax consequences to you of
the acquisition, ownership and sale of our common shares, including the federal, state, local,
foreign and other tax consequences of such acquisition, ownership and sale and of potential changes
in applicable tax laws.
Taxation of the Company
General.
We elected to be taxed as a REIT under the Code, commencing with our taxable year
ended December 31, 1993. We believe we have been organized and have operated in a manner which
allows us to qualify for taxation as a REIT under the Code, commencing with our taxable year ended
December 31, 1993. We intend to continue to operate in this manner.
No assurance can be given that the IRS will not challenge our qualifications as a REIT.
Moreover, our qualification and taxation as a REIT depend upon our ability, through actual annual
operating results and methods of operation, to meet the various qualification tests imposed under
the Code discussed below, including income types, asset composition, distribution levels and
diversity of share ownership. In addition, our ability to qualify as a REIT also depends in part
upon the operating results, organizational structure and entity classification for federal income
tax purposes of certain affiliated entities, including affiliates that have made elections to be
taxed as REITs. Accordingly, no assurance can be given that our actual results of operation for any
particular year have satisfied or will satisfy those requirements for qualification and taxation as
a REIT. Similarly, we have significant subsidiaries that have elected to be taxed as REITs and are
therefore subject to the same qualification tests.
Provided we qualify for taxation as a REIT, we generally will not be subject to U.S. federal
corporate income taxes on our taxable income that is distributed currently to our shareholders.
This treatment substantially eliminates the double taxation (once at the corporate level when
earned and once again at the shareholder level when distributed) that generally results from
investment in a C corporation. However, we will be subject to U.S. federal income tax as follows:
First, we will be taxed at regular corporate rates on any undistributed REIT taxable income,
including undistributed net capital gains.
Second, we may be subject to the alternative minimum tax on our items of tax preference
under some circumstances.
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Third, if we have (a) net income from the sale or other disposition of foreclosure property
(defined generally as property we acquired through foreclosure or after a default on a loan secured
by the property or a lease of the property) which is held primarily for sale to customers in the
ordinary course of business or (b) other nonqualifying income from foreclosure property, we will be
subject to tax at the highest U.S. federal corporate income tax rate on this income.
Fourth, we will be subject to a 100% tax on any net income from prohibited transactions (which
are, in general, certain sales or other dispositions of property (other than foreclosure property)
held primarily for sale to customers in the ordinary course of business).
Fifth, if we fail to satisfy the 75% or 95% gross income tests (as discussed below), but have
maintained our qualification as a REIT because we satisfied certain other requirements, we will be
subject to a 100% tax on an amount equal to (a) the gross income attributable to the greater of the
amounts by which we fail the 75% or 95% gross income tests multiplied by (b) a fraction intended to
reflect our profitability.
Sixth, if we fail to satisfy any of the REIT asset tests (as described below) by more than a
de minimis amount, due to reasonable cause and we nonetheless maintain our REIT qualification
because of specified cure provisions, we will be required to pay a tax equal to the greater of
$50,000 or the highest corporate tax rate multiplied by the net income generated by the
nonqualifying assets that caused us to fail such test.
Seventh, if we fail to distribute during each calendar year at least the sum of (a) 85% of our
REIT ordinary income for the year, (b) 95% of our REIT capital gain net income for the year (other
than certain long-term capital gains for which we make a capital gains designation (described
below) and on which we pay the tax), and (c) any undistributed taxable income from prior periods,
we would be subject to a 4% excise tax on the excess of the required distribution over the amounts
actually distributed.
Eighth, if we acquire any asset from a corporation which is or has been a C corporation in a
transaction in which the basis of the asset in our hands is determined by reference to the basis of
the asset in the hands of the C corporation, and we subsequently recognize gain on the disposition
of the asset during the ten-year period beginning on the date on which we acquired the asset, then
we will be subject to tax at the highest regular corporate tax rate on the excess of (a) the fair
market value of the asset over (b) our adjusted basis in the asset, in each case determined as of
the date we acquired the asset. The results described in this paragraph with respect to the
recognition of gain assume that we will not make an election pursuant to existing Treasury
Regulations to recognize such gain at the time we acquire the asset.
Ninth, we will be required to pay a 100% tax on any redetermined rents, redetermined
deductions or excess interest. In general, redetermined rents are rents from real property that
are overstated as a result of services furnished to any of our tenants by a taxable REIT
subsidiary of ours. Redetermined deductions and excess interest generally represent amounts that
are deducted by a taxable REIT subsidiary of ours for amounts paid to us that are in excess of the
amounts that would have been deducted based on arms length negotiations.
Tenth, if we fail to satisfy any provision of the Code that would result in our failure to
qualify as a REIT (other than a violation of the REIT gross income tests or certain violations of
the asset tests described below) and the violation is due to reasonable cause, we may retain our
REIT qualification but we will be required to pay a penalty of $50,000 for each such failure.
Requirements for Qualification as a REIT.
The Code defines a REIT as a corporation, trust or
association:
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(1)
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that is managed by one or more trustees or directors;
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(2)
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that issues transferable common shares or transferable certificates to evidence its
beneficial ownership;
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(3)
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that would be taxable as a domestic corporation, but for the special provisions of
the Code applicable to REITs;
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(4)
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that is not a financial institution or an insurance company within the meaning of
the Code;
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(5)
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that is beneficially owned by 100 or more persons;
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(6)
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not more than 50% in value of the outstanding stock of which is owned, actually or
constructively, by five or fewer individuals (as defined in the Code to include certain
entities) during the last half of each taxable year;
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(7)
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that meets certain other tests, described below, regarding the nature of its income
and assets and the amount of its distributions;
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(8)
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that elects to be a REIT, or has made such election for a previous year, and
satisfies the applicable filing and administrative requirements to maintain qualification
as a REIT; and
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(9)
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that adopts a calendar year accounting period.
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The Code provides that conditions (1) to (4), inclusive, must be met during the entire taxable
year and that condition (5) must be met during at least 335 days of a taxable year of 12 months, or
during a proportionate part of a taxable year of less than 12 months. Conditions (5) and (6) do not
apply until after the first taxable year for which an election is made to be taxed as a REIT. For
purposes of condition (6), certain pension funds and other tax-exempt entities are treated as
individuals, subject to a look-through exception with respect to certain pension funds.
We believe that we have satisfied each of the above conditions. In addition, our articles of
incorporation and code of regulations provide for restrictions regarding ownership and transfer of
common shares. These restrictions are intended to assist us in continuing to satisfy the share
ownership requirements described in (5) and (6) above. These restrictions, however, may not ensure
that we will, in all cases, be able to satisfy the share ownership requirements described in (5)
and (6) above. In general, if we fail to satisfy these share ownership requirements, our status as
a REIT will terminate. However, if we comply with the rules in applicable Treasury Regulations that
require us to ascertain the actual ownership of our common shares, and we do not know, or would not
have known through the exercise of reasonable diligence, that we failed to meet the requirement
described in condition (6) above, we will be treated as having met this requirement.
Ownership of Interests in Partnerships and Limited Liability Companies.
In the case of a REIT
which is a partner in a partnership or a member in a limited liability company treated as a
partnership for U.S. federal income tax purposes, Treasury Regulations provide that the REIT will
be deemed to own its proportionate share of the assets of the partnership or limited liability
company, based on its capital interest in the partnership or limited liability company, subject to
special rules relating to the 10% REIT asset test (described below). Also, the REIT will be deemed
to be entitled to its proportionate share of the income of that entity. The assets and items of
gross income of the partnership or limited liability company retain the same character in the hands
of the REIT for purposes of Section 856 of the Code, including satisfying the gross income tests
and the asset tests. Thus, our proportionate share of the assets and items of income of
partnerships and limited liability companies taxed as partnerships, in which we are, directly or
indirectly through other partnerships or limited liability companies taxed as partnerships, a
partner or member, are treated as our assets and items of income for purposes of applying the REIT
qualification requirements described in this prospectus (including the income and asset tests
described below).
Ownership of Interests in Qualified REIT Subsidiaries.
We own 100% of the stock of a number
of corporate subsidiaries that are qualified REIT subsidiaries (each, a QRS) and may acquire
stock of one or more new subsidiaries. A corporation qualifies as a QRS if 100% of its outstanding
stock is held by us, and we do not elect to treat the corporation as a taxable REIT subsidiary, as
described below. A QRS is not treated as a separate corporation, and all assets, liabilities and
items of income, deduction and credit of a QRS are treated as our assets, liabilities and items of
income, deduction and credit for all purposes of the Code, including the REIT qualification tests.
For this reason, references to our income and assets include the income and assets of any QRS. A
QRS is not subject to U.S. federal income tax, and our ownership of the voting stock of a QRS is
ignored for purposes of determining our compliance with the ownership limits described below under
" Asset Tests.
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Ownership of Interests in Taxable REIT Subsidiaries.
For taxable years beginning after
December 1, 2000, REITs may own more than 10% of the voting power and value of securities in a
taxable REIT subsidiary (TRS). A TRS is a corporation other than a REIT in which a REIT directly
or indirectly holds stock, and that has made a joint election with the REIT to be treated as a TRS.
A TRS also includes any corporation other than a REIT with respect to which a TRS owns securities
possessing more than 35% of the total voting power or value of the outstanding securities of such
corporation. Other than some activities relating to lodging and health care facilities, a TRS may
generally engage in any business, including the provision of customary or non-customary services to
tenants of its parent REIT. A TRS is subject to income tax as a regular C corporation. In addition,
a TRS may be prevented from deducting interest on debt funded directly or indirectly by its parent
REIT if certain tests regarding the TRSs debt to equity ratio and interest expense are not
satisfied. A REITs ownership of securities of a TRS will not be subject to the 10% or 5% asset
tests described below, and its operations will be subject to the provisions described above.
Income Tests.
We must satisfy two gross income requirements annually to maintain our
qualification as a REIT. First, in each taxable year at least 75% of our gross income (excluding
gross income from prohibited transactions) must be derived directly or indirectly from investments
relating to real property or mortgages secured by real property, including rents from real
property, dividends from other REITs, interest income derived from mortgage loans secured by real
property and gains from the sale of real estate assets, as well as certain types of temporary
investment income. Second, in each taxable year at least 95% of our gross income (excluding gross
income from prohibited transactions) must be derived directly or indirectly from income from the
real property investments described above or dividends, interest and gain from the sale or
disposition of stock or securities (or from any combination of the foregoing).
Rents we receive will qualify as rents from real property for purposes of satisfying the
gross income tests for a REIT described above only if all of the following conditions are met:
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The amount of rent must not be based in any way on the income or profits of any
person, although rents generally will not be excluded solely because they are based on
a fixed percentage or percentages of gross receipts or gross sales.
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We, or an actual or constructive owner of 10% or more of our outstanding common
shares, must not actually or constructively own 10% or more of the interests in the
tenant, or, if the tenant is a corporation, 10% or more of the voting power or value of
all classes of stock of the tenant. Rents received from such tenant that is our TRS,
however, will not be excluded from the definition of rents from real property as a
result of this condition if at least 90% of the space at the property to which the
rents relate is leased to third parties, and the rents paid by the TRS are comparable
to rents paid by our other tenants for comparable space. Whether rents paid by a TRS
are substantially comparable to rents paid by other tenants is determined at the time
the lease with the TRS is entered into, extended, and modified, if such modification
increases the rents due under such lease. Notwithstanding the foregoing, however, if a
lease with a controlled taxable REIT subsidiary is modified and such modification
results in an increase in the rents payable by such TRS, any such increase will not
qualify as rents from real property. For purposes of this rule, a controlled taxable
REIT subsidiary is a TRS in which we own shares possessing more than 50% of the voting
power or more than 50% of the total value of outstanding shares of such TRS.
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Rent attributable to personal property, leased in connection with a lease of real
property, is not greater than 15% of the total rent received under the lease. If this
condition is not met, then the portion of the rent attributable to personal property
will not qualify as rents from real property.
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For rents received to qualify as rents from real property, the REIT generally must
not operate or manage the property or furnish or render services to the tenants of the
property (subject to a 1% de minimis exception), other than through an independent
contractor from whom the REIT derives no revenue or through a TRS. The REIT may,
however, directly perform certain services that are usually or customarily rendered
in connection with the rental of space for occupancy only and are not otherwise
considered rendered to the occupant of the property. Any amounts we receive from a
TRS with respect to the TRSs provision of non-customary services will, however, be
nonqualifying income under the 75% gross income test and, except to the extent received
through the payment of dividends, the 95% gross income test.
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We do not intend to charge rent for any property that is based in whole or in part on the net
income or profits of any person (except by reason of being based on a percentage of gross receipts
or sales, as heretofore described), and we do not intend to rent any personal property (other than
in connection with a lease of real property where less than 15% of the total rent is attributable
to personal property). We directly perform services under certain of our leases, but such services
are not rendered to the occupant of the property. Furthermore, these services are usual and
customary management services provided by landlords renting space for occupancy in the geographic
areas in which we own property. To the extent that the performance of any services provided by us
would cause amounts received from our tenants to be excluded from rents from real property, we
intend to hire a TRS, or an independent contractor from whom we derive no revenue, to perform such
services.
For purposes of these gross income tests, the term interest generally does not include any
amount received or accrued (directly or indirectly) if the determination of some or all of the
amount depends in any way on the income or profits of any person. However, an amount received or
accrued generally will not be excluded from the term interest solely by reason of being based on
a fixed percentage or percentages of receipts or sales.
From time to time, we enter into hedging transactions with respect to one or more of our
assets or liabilities. Our hedging activities may include entering into interest rate swaps, caps,
and floors, options to purchase these items, and futures and forward contracts. Except to the
extent determined by the IRS, income from a hedging transaction, including gain from the sale or
disposition of such a transaction, that is clearly identified as such as specified in the Code and
that hedges indebtedness incurred or to be incurred by us to acquire or carry real estate as
specified in the Code will not constitute gross income for purposes of the 95% gross income test
(for hedging transactions entered into on or after January 1, 2005) and the 75% gross income test
(for hedging transactions entered into after July 30, 2008) and therefore will be exempt from these
gross income tests. Gross income from such hedging transactions entered into prior to July 30, 2008
is treated as nonqualifying income for purposes of the 75% gross income test. The term hedging
transaction, as used above, generally means any transaction we enter into in the normal course of
our business primarily to manage risk of interest rate changes or fluctuations with respect to
borrowings made or to be made by us (and for transactions entered into after July 30, 2008, it also
includes a transaction entered into to manage the risk of currency fluctuations with respect to any
item of income or gain that would be qualifying income under the 75% and 95% gross income tests).
To the extent that we hedge with other types of financial instruments, the income from those
transactions is not likely to be treated as qualifying income for purposes of the gross income
tests. We intend to structure any hedging transactions in a manner that does not jeopardize our
status as a REIT.
If we fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year,
we may nevertheless qualify as a REIT for the year if we are entitled to relief under certain
provisions of the Code. Commencing with our taxable year beginning January 1, 2005, we generally
may make use of the relief provisions if:
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following our identification of the failure to meet the 75% or 95% gross income
tests for any taxable year, we file a schedule with the IRS setting forth each item of
our gross income for purposes of the 75% or 95% gross income tests for such taxable
year in accordance with Treasury Regulations; and
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our failure to meet these tests was due to reasonable cause and not due to willful
neglect.
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For taxable years ending before January 1, 2005, we generally may avail ourselves of the
relief provisions if:
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our failure to meet the 75% and 95% gross income tests was due to reasonable cause
and not due to willful neglect;
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we attach a schedule of the sources of our income to our federal income tax return;
and
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any incorrect information on the schedule was not due to fraud with intent to evade
tax.
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It is not possible, however, to state whether in all circumstances we would be entitled to the
benefit of these relief provisions. For example, if we fail to satisfy the gross income tests
because nonqualifying income that we
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intentionally accrue or receive exceeds the limits on nonqualifying income, the IRS could
conclude that our failure to satisfy the tests was not due to reasonable cause. If these relief
provisions do not apply to a particular set of circumstances, we will not qualify as a REIT. As
discussed above, even if these relief provisions apply, and we retain our status as a REIT, a tax
would be imposed with respect to our nonqualifying income. We may not always be able to comply with
the gross income tests for REIT qualification despite periodic monitoring of our income.
Prohibited Transaction Income.
Any gain we realize on the sale of any property held primarily
for sale to customers in the ordinary course of business other than foreclosure property will be
treated as income from a prohibited transaction that is subject to a 100% penalty tax. Whether
property is held primarily for sale to customers in the ordinary course of a trade or business
depends on all the facts and circumstances surrounding the particular transaction. We do not intend
to engage in prohibited transactions.
Penalty Tax.
Any redetermined rents, redetermined deductions or excess interest we generate
will be subject to a 100% penalty tax. In general, redetermined rents are rents from real property
that are overstated as a result of any services furnished to any of our tenants by one of our TRSs,
and redetermined deductions and excess interest represent any amounts that are deducted by a TRS
for amounts paid to us that are in excess of the amounts that would have been deducted based on
arms-length negotiations. Rents we receive will not constitute redetermined rents if they qualify
for certain safe harbor provisions contained in the Code. These determinations are inherently
factual, and the IRS has broad discretion to assert that amounts paid between related parties
should be reallocated to clearly reflect their respective incomes. If the IRS successfully made
such an assertion, we would be required to pay a 100% penalty tax on the excess of an arms-length
fee for tenant services over the amount actually paid.
Asset Tests.
At the close of each quarter of our taxable year, we also must satisfy four
tests relating to the nature and diversification of our assets. First, at least 75% of the value of
our total assets must be represented by real estate assets, cash, cash items and government
securities. For purposes of this test, real estate assets include real property (including
interests in real property and interests in mortgages on real property) and common stock (or
transferable certificates of beneficial interest) in other REITs, as well as any stock or debt
instruments that are purchased with the proceeds of a stock offering or public offering of debt
with a maturity date of at least five years, but only for the one-year period beginning on the date
we receive such proceeds. Second, not more than 25% of our total assets may be represented by
securities, other than those securities includable in the 75% asset test. Third, of the investments
included in the 25% asset class, and except for investments in another REIT, a QRS or a TRS, the
value of any one issuers securities may not exceed 5% of the value of our total assets, and we may
not own more than 10% of the total vote or value of the outstanding securities of any one issuer
except, in the case of the 10% value test, securities satisfying the straight debt safe-harbor.
Certain types of securities we may own are disregarded as securities solely for purposes of the 10%
value test, including, but not limited to, any loan to an individual or an estate, any obligation
to pay rents from real property and any security issued by a REIT. In addition, commencing with our
taxable year beginning January 1, 2005, solely for purposes of the 10% value test, the
determination of our interest in the assets of a partnership or limited liability company in which
we own an interest will be based on our proportionate interest in any securities issued by the
partnership or limited liability company, excluding for this purpose certain securities described
in the Code. Fourth, no more than 20% (commencing with our taxable year beginning January 1, 2009,
25%) of the value of our assets may be comprised of securities of one or more TRSs.
After initially meeting the asset tests at the close of any quarter, we will not lose our
status as a REIT for failure to satisfy the asset tests at the end of a later quarter solely by
reason of changes in asset values. If we fail to satisfy an asset test because we acquire
securities or other property during a quarter, we can cure this failure by disposing of sufficient
nonqualifying assets within 30 days after the close of that quarter. We believe we have maintained
and intend to continue to maintain adequate records of the value of our assets to ensure compliance
with the asset tests. If we failed to cure any noncompliance with the asset tests within the 30 day
cure period, we would cease to qualify as a REIT unless we are eligible for certain relief
provisions discussed below.
Commencing with our taxable year beginning January 1, 2005, certain relief provisions may be
available to us if we fail to satisfy the asset tests described above after the 30 day cure period.
Under these provisions, we will be deemed to have met the 5% and 10% REIT asset tests if the value
of our nonqualifying assets (i) does not exceed the lesser of (a) 1% of the total value of our
assets at the end of the applicable quarter or (b) $10,000,000, and (ii) we
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dispose of the nonqualifying assets or otherwise satisfy such tests within six months after
the last day of the quarter in which the failure to satisfy the asset tests is discovered or the
period of time prescribed by Treasury Regulations to be issued. For violations due to reasonable
cause and not willful neglect that are in excess of the de minimis exception described above, we
may avoid disqualification as a REIT under any of the asset tests, after the 30 day cure period, by
taking steps including (i) the disposition of sufficient nonqualifying assets, or the taking of
other actions, which allow us to meet the asset test within six months after the last day of the
quarter in which the failure to satisfy the asset tests is discovered or the period of time
prescribed by Treasury Regulations to be issued, (ii) paying a tax equal to the greater of (a)
$50,000 or (b) the highest corporate tax rate multiplied by the net income generated by the
nonqualifying assets and (iii) disclosing certain information to the IRS.
Although we expect to satisfy the asset tests described above and plan to take steps to ensure
that we satisfy such tests for any quarter with respect to which retesting is to occur, there can
be no assurance we will always be successful. If we fail to cure any noncompliance with the asset
tests in a timely manner, and the relief provisions described above are not available, we would
cease to qualify as a REIT.
Annual Distribution Requirements.
To maintain our qualification as a REIT, we are required to
distribute dividends (other than capital gain dividends) to our shareholders in an amount at least
equal to (i) the sum of (a) 90% of our REIT taxable income (computed without regard to the
dividends paid deduction and our net capital gain) and (b) 90% of our net income (after tax), if
any, from foreclosure property minus (ii) the excess of (a) the sum of certain items of noncash
income (i.e., income attributable to leveled stepped rents, original issue discount on purchase
money debt, or a like-kind exchange that is later determined to be taxable) over (b) 5% of REIT
taxable income as described above.
In addition, if we dispose of any asset we acquired from a corporation which is or has been a
C corporation in a transaction in which our basis in the asset is determined by reference to the
basis of the asset in the hands of that C corporation, within the ten-year period following our
acquisition of such asset, we would be required to distribute at least 90% of the after-tax gain,
if any, we recognized on the disposition of the asset, to the extent that gain does not exceed the
excess of (a) the fair market value of the asset on the date we acquired the asset over (b) our
adjusted basis in the asset on the date we acquired the asset.
We must pay the distributions described above in the taxable year to which they relate
(current distributions), or in the following taxable year if they are either (i) declared before
we timely file our tax return for such year and paid on or before the first regular dividend
payment after such declaration (throwback distributions) or (ii) paid during January to
shareholders of record in October, November or December of the prior year (deemed current
distributions). Throwback distributions are taxable to our shareholders for the year in which they
are paid, even though the distributions relate to the prior year for purposes of our 90%
distribution requirement. Current distributions are taxable for the year they are paid and deemed
current distributions, although distributed in January are taxable for the year of their record
date. The amount distributed must not be preferential i.e., every shareholder of the class of
equity securities to which a distribution is made must be treated the same as every other
shareholder of that class, and no class of equity securities may be treated otherwise than in
accordance with its dividend rights as a class. To the extent that we do not distribute all of our
net capital gain or distribute at least 90%, but less than 100%, of our REIT taxable income, as
adjusted, we will be subject to tax thereon at regular ordinary and capital gain corporate tax
rates. We believe we have made and intend to continue to make timely distributions sufficient to
satisfy these annual distribution requirements.
We generally expect that our REIT taxable income will be less than our cash flow because of
the allowance of depreciation and other non-cash charges in computing REIT taxable income.
Accordingly, we anticipate that we will generally have sufficient cash or liquid assets to enable
us to satisfy the distribution requirements described above. However, from time to time, we may not
have sufficient cash or other liquid assets to meet these distribution requirements because of
timing differences between the actual receipt of income and actual payment of deductible expenses,
and the inclusion of income and deduction of expenses in arriving at our taxable income. If these
timing differences occur, in order to meet the distribution requirements, we may need to arrange
for short-term, or possibly long-term, borrowings or need to pay dividends in the form of taxable
share dividends.
Under certain circumstances, we may be able to rectify a failure (due to, for example, an IRS
adjustment such as an increase in our taxable income or a reduction in reported expenses) to meet
the 90% distribution
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requirement for a year by paying deficiency dividends to shareholders in a later year, which
may be included in our deduction for dividends paid for the earlier year. Thus, we may be able to
avoid being taxed on amounts distributed as deficiency dividends. However, we will be required to
pay interest to the IRS based on the amount of any deduction taken for deficiency dividends.
In addition, we would be subject to a 4% excise tax to the extent we fail to distribute during
each calendar year (or in the case of distributions with declaration and record dates falling in
the last three months of the calendar year, by the end of January immediately following such year)
at least the sum of 85% of our REIT ordinary income for such year, 95% of our REIT capital gain
income for the year (other than certain long-term capital gains for which we make a Capital Gains
Designation (as defined below) and on which we pay the tax), and any undistributed taxable income
from prior periods. Any REIT taxable income and net capital gain on which a REIT-level corporate
income tax is imposed for any year is treated as an amount distributed during that year for
purposes of calculating the excise tax.
Earnings and Profits Distribution Requirement.
In order to qualify as a REIT, we cannot have
at the end of any taxable year any undistributed earnings and profits that are attributable to a
C corporation taxable year (
i.e.
, a year in which a corporation is neither a REIT nor an S
corporation).
We intend to make timely distributions to satisfy the annual distribution requirements.
Failure to Qualify
Commencing with our taxable year beginning January 1, 2005, specified cure provisions are
available to us in the event that we violate a provision of the Code that would result in our
failure to qualify as a REIT. These cure provisions would reduce the instances that could lead to
our disqualification as a REIT for violations due to reasonable cause and would instead generally
require the payment of a monetary penalty. If we fail to qualify for taxation as a REIT in any
taxable year, and the relief provisions do not apply, we will be subject to tax (including any
applicable alternative minimum tax) on our taxable income at regular corporate rates. Distributions
to shareholders in any year in which we fail to qualify will not be deductible by us, and we will
not be required to distribute any amounts to our shareholders. As a result, our failure to qualify
as a REIT would reduce the cash available for distribution by us to our shareholders. In addition,
if we fail to qualify as a REIT, all distributions to shareholders will be taxable as ordinary
income to the extent of our current and accumulated earnings and profits, and, subject to certain
limitations of the Code, corporate distributees may be eligible for the dividends received
deduction. Unless entitled to relief under specific statutory provisions, we would also be
disqualified from taxation as a REIT for the four taxable years following the year during which we
lost our qualification. It is not possible to state whether in all circumstances we would be
entitled to this statutory relief.
Taxation of Taxable U.S. Shareholders
The following summary describes certain U.S. federal income tax consequences to taxable U.S.
Shareholders (as defined below) with respect to an investment in our common shares. Certain U.S.
federal income tax consequences applicable to tax-exempt shareholders are described under the
subheading Taxation of Tax-Exempt Shareholders, below and certain U.S. federal income tax
consequences applicable to Non-U.S. Shareholders are described under the subheading Taxation of
Non-U.S. Shareholders, below.
As used herein, the term U.S. Shareholder means a holder of common shares who, for U.S.
federal income tax purposes:
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is a citizen or resident of the United States;
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is a corporation or other entity classified as a corporation for U.S. federal income
tax purposes, created or organized in or under the laws of the United States or of any
state thereof or in the District of Columbia;
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is an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
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is a trust whose administration is subject to the primary supervision of a U.S.
court and that has one or more U.S. persons who have the authority to control all
substantial decisions of the trust. Notwithstanding the preceding sentence, to the
extent provided in Treasury Regulations, certain trusts in existence on August 20,
1996, and treated as U.S. persons prior to this date that elect to continue to be
treated as U.S. persons, shall also be considered U.S. Shareholders.
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If a partnership, including for this purpose any arrangement or entity that is treated as a
partnership for U.S. federal income tax purposes, holds our common shares, the tax treatment of a
partner in the partnership will generally depend on the status of the partner and the activities of
the partnership. If you are a partner in a partnership holding our common shares, you are urged to
consult your tax advisors about the consequences of the purchase, ownership and disposition of our
common shares by the partnership.
Distributions Generally.
As long as we qualify as a REIT, distributions out of our current or
accumulated earnings and profits, other than capital gain dividends discussed below, generally will
constitute dividends taxable to our taxable U.S. Shareholders as ordinary income. For purposes of
determining whether distributions to holders of our common shares are out of current or accumulated
earnings and profits, our earnings and profits will be allocated first to our outstanding preferred
shares and then to our common shares. These distributions will not be eligible for the
dividends-received deduction in the case of U.S. Shareholders that are corporations.
Because we generally are not subject to U.S. federal income tax on the portion of our REIT
taxable income distributed to our shareholders, our ordinary dividends generally are not eligible
for the reduced 15% rate currently available to most non-corporate taxpayers through 2010, and will
continue to be taxed at the higher tax rates applicable to ordinary income. However, the reduced
15% rate does apply to our distributions:
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to the extent attributable to dividends received by us from non-REIT corporations,
such as a TRS; and
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to the extent attributable to income upon which we have paid corporate income tax
(for example, if we distribute taxable income that we retained and paid tax on in the
prior year).
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To the extent that we make distributions in excess of our current and accumulated earnings and
profits, these distributions will be treated first as a tax-free return of capital to each U.S.
Shareholder. This treatment will reduce the adjusted basis that each U.S. Shareholder has in its
common shares for tax purposes by the amount of the distribution (but not below zero).
Distributions in excess of a U.S. Shareholders adjusted basis in its common shares will be taxable
as capital gains (provided that the common shares have been held as a capital asset) and will be
taxable as long-term capital gain if the common shares have been held for more than one year.
Dividends we declare in October, November, or December of any year and payable to a shareholder of
record on a specified date in any of these months shall be treated as both paid by us and received
by the shareholders on December 31 of that year, provided we actually pay the dividend on or before
January 31 of the following calendar year. Shareholders may not include in their own income tax
returns any of our net operating losses or capital losses.
Capital Gain Distributions.
Distributions that we properly designate as capital gain
dividends (and undistributed amounts for which we properly make a capital gains designation) will
be taxable to U.S. Shareholders as gains (to the extent that they do not exceed our actual net
capital gain for the taxable year) from the sale or disposition of a capital asset. Depending on
the period of time we have held the assets which produced these gains, and on certain designations,
if any, which we may make, these gains may be taxable to non-corporate U.S. Shareholders at either
a 15% or a 25% rate, depending on the nature of the asset giving rise to the gain. Corporate U.S.
Shareholders may, however, be required to treat up to 20% of certain capital gain dividends as
ordinary income.
Passive Activity Losses and Investment Interest Limitations.
Distributions we make and gain
arising from the sale or exchange by a U.S. Shareholder of our common shares will be treated as
portfolio income. As a result, U.S. Shareholders generally will not be able to apply any passive
losses against this income or gain. A U.S. Shareholder may elect to treat capital gain dividends,
capital gains from the disposition of common shares and qualified dividend income as investment
income for purposes of computing the investment interest limitation, but in such case, the
shareholders will be taxed at ordinary income rates on such amount. Other distributions we make (to
the extent they do not constitute a return of capital) generally will be treated as investment
income for purposes of
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computing the investment interest limitation. Gain arising from the sale or other disposition
of our common shares, however, will not be treated as investment income under certain
circumstances.
Retention of Net Long-Term Capital Gains.
We may elect to retain, rather than distribute as a
capital gain dividend, our net long-term capital gains. If we make this election (a Capital Gains
Designation) we would pay tax on our retained net long-term capital gains. In addition, to the
extent we make a Capital Gains Designation, a U.S. Shareholder generally would:
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include its proportionate share of our undistributed long-term capital gains in
computing its long-term capital gains in its income tax return for its taxable year in
which the last day of our taxable year falls (subject to certain limitations as to the
amount that is includable);
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be deemed to have paid the capital gains tax imposed on us on the designated amounts
included in the U.S. Shareholders long-term capital gains;
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receive a credit or refund for the amount of tax deemed paid by it;
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increase the adjusted basis of its common shares by the difference between the
amount of includable gains and the tax deemed to have been paid by it; and
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in the case of a U.S. Shareholder that is a corporation, appropriately adjust its
earnings and profits for the retained capital gains in accordance with Treasury
Regulations to be promulgated.
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Dispositions of Common Shares
Generally, if you are a U.S. Shareholder and you sell or dispose of your common shares, you
will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the
difference between the amount of cash and the fair market value of any property you receive on the
sale or other disposition and your adjusted basis in the common shares for tax purposes. This gain
or loss will be capital if you have held the common shares as a capital asset and will be long-term
capital gain or loss if you have held the common shares for more than one year. However, if you are
a U.S. Shareholder and you recognize loss upon the sale or other disposition of common shares that
you have held for six months or less (after applying certain holding period rules), the loss you
recognize will be treated as a long-term capital loss, to the extent you received distributions
from us that were required to be treated as long-term capital gains.
The maximum tax rate for individual taxpayers on net long-term capital gains (i.e., the excess
of net long-term capital gain over net short-term capital loss) is currently 15% for most assets.
In the case of individuals whose ordinary income is taxed at a 10% or 15% rate, the 15% rate is
reduced to 5%. Absent future legislation, the maximum tax rate on long-term capital gains will
return to 20% in 2011.
Backup Withholding
We report to our U.S. Shareholders and the IRS the amount of dividends paid during each
calendar year, and the amount of any tax withheld. Under the backup withholding rules, a
shareholder may be subject to backup withholding with respect to dividends paid unless the holder
is a corporation or comes within certain other exempt categories and, when required, demonstrates
this fact, or provides a taxpayer identification number, certifies as to no loss of exemption from
backup withholding, and otherwise complies with applicable requirements of the backup withholding
rules. A U.S. Shareholder that does not provide us with its correct taxpayer identification number
may also be subject to penalties imposed by the IRS. Backup withholding is not an additional tax.
Any amount paid as backup withholding will be creditable against the shareholders income tax
liability. In addition, we may be required to withhold a portion of capital gain distributions to
any shareholders who fail to certify their non-foreign status. See Taxation of Non-U.S.
Shareholders.
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Taxation of Tax-Exempt Shareholders
The IRS has ruled that amounts distributed as dividends by a qualified REIT do not constitute
unrelated business taxable income (UBTI) when received by a tax-exempt entity. Based on that
ruling, and provided that (i) a tax-exempt U.S. shareholder has not held our common shares as debt
financed property within the meaning of the Code (
i.e.
, where the acquisition or ownership of
common shares is financed through a borrowing by the tax-exempt shareholder) and (ii) our common
shares are not otherwise used in an unrelated trade or business, dividend income from us and income
from the sale of our common shares generally will not be UBTI to a tax-exempt shareholder.
Tax-exempt shareholders that are social clubs, voluntary employee benefit associations,
supplemental unemployment benefit trusts and qualified group legal services plans exempt from U.S.
federal income taxation under sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of the Code,
respectively, are subject to different UBTI rules, that generally will require them to characterize
distributions from us as UBTI.
Notwithstanding the above, a pension trust (i) that is described in Section 401(a) of the Code
and is tax-exempt under Section 501(a) of the Code and (ii) that owns more than 10% of the value of
our common shares could be required to treat a percentage of the dividends from us as UBTI if we
are a pension-held REIT. We will not be a pension-held REIT unless (i) either (a) one pension
trust owns more than 25% of the value of our common shares or (b) a group of pension trusts, each
individually holding more than 10% of the value of our common shares, collectively owns more than
50% of our outstanding common shares and (ii) we would not have qualified as a REIT without relying
upon the look through exemption for certain trusts under Section 856(h)(3) of the Code to satisfy
the requirement that not more than 50% in value of our outstanding common shares is owned by five
or fewer individuals. We do not expect to be classified as a pension held REIT, but because our
common shares are publicly traded, we cannot guarantee this will always be the case.
Tax-exempt shareholders are encouraged to consult their own tax advisors concerning the U.S.
federal, state, local and foreign tax consequences of an investment in our common shares.
Taxation of Non-U.S. Shareholders
The following discussion addresses the rules governing U.S. federal income taxation of the
ownership and disposition of common shares by persons that are Non-U.S. Shareholders. For purposes
of this summary, a Non-U.S. Shareholder is a beneficial owner of our common shares that is not a
U.S. Shareholder and is not a partnership or other entity that is treated as a partnership for U.S.
federal income tax purposes. The rules governing U.S. federal income taxation of Non-U.S.
Shareholders are complex and no attempt is made herein to provide more than a brief summary of such
rules. Non-U.S. Shareholders are urged to consult their own tax advisors concerning the U.S.
federal, state, local and foreign tax consequences to them of an acquisition of our common shares,
including tax return filing requirements and the U.S. federal, state, local and foreign tax
treatment of dispositions of interests in, and the receipt of distributions from, us.
Distributions Generally.
Distributions that are neither attributable to gain from our sale or
exchange of U.S. real property interests nor designated by us as capital gain dividends will be
treated as dividends of ordinary income to the extent that they are made out of our current or
accumulated earnings and profits. Such distributions ordinarily will be subject to withholding of
U.S. federal income tax at a 30% rate or such lower rate as may be specified by an applicable
income tax treaty, unless the distributions are treated as effectively connected with the conduct
by you of a U.S. trade or business. Under some treaties, however, lower withholding rates generally
applicable to dividends do not apply to dividends from REITs. Dividends that are treated as
effectively connected with the conduct of a U.S. trade or business will be subject to tax on a net
basis (that is, after allowance for deductions) at graduated rates, in the same manner as dividends
paid to U.S. Shareholders are subject to tax, and are generally not subject to withholding. Any
such dividends received by a Non-U.S. Shareholder that is a corporation may also be subject to an
additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable
income tax treaty.
We expect to withhold U.S. income tax at the rate of 30% on any distributions made to you
unless:
S-31
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a lower treaty rate applies and you file with us an IRS Form W-8BEN evidencing
eligibility for that reduced treaty rate; or
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you file an IRS Form W-8ECI with us claiming that the distribution is income
effectively connected with your U.S. trade or business.
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Distributions in excess of our current and accumulated earnings and profits will not be
taxable to you to the extent that such distributions do not exceed your adjusted basis in our
common shares. Instead, the distribution will reduce the adjusted basis of such common shares. To
the extent that such distributions exceed your adjusted basis in our common shares, they will give
rise to gain from the sale or exchange of such common shares. The tax treatment of this gain is
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 expect to treat
all distributions as made out of our current or accumulated earnings and profits and we therefore
expect to withhold tax on the entire amount of any distribution at the same rate as we would
withhold on a dividend. However, amounts withheld should generally be refundable if it is
subsequently determined that the distribution was, in fact, in excess of our current and
accumulated earnings and profits.
Capital Gain Dividends and Distributions Attributable to a Sale or Exchange of U.S. Real
Property Interests.
Distributions to you that we properly designate as capital gain dividends,
other than those arising from the disposition of a U.S. real property interest, generally should
not be subject to U.S. federal income taxation, unless (1) the investment in our common shares is
treated as effectively connected with your U.S. trade or business, in which case you will be
subject to the same treatment as U.S. Shareholders with respect to such gain, except that a
Non-U.S. Shareholder that is a foreign corporation may also be subject to the 30% branch profits
tax, as discussed above; or (2) you are a nonresident alien individual who is present in the United
States for 183 days or more during the taxable year and certain other conditions are met, in which
case you will be subject to a 30% tax on your capital gains.
Distributions that are attributable to gain from sales or exchanges of U.S. real property
interests by us are taxable to a Non-U.S. Shareholder under special provisions of the Code known
as the Foreign Investment in Real Property Tax Act (FIRPTA). The term U.S. real property
interests includes interests in U.S. real property. Under FIRPTA, subject to the 5% Exception
(discussed below), a distribution attributable to gain from sales of U.S. real property interests
is considered effectively connected with a U.S. business of the Non-U.S. Shareholder and will be
subject to U.S. federal income tax at the rates applicable to U.S. Shareholders (subject to a
special alternative minimum tax in the case of nonresident alien individuals), without regard to
whether the distribution is designated as a capital gain dividend. In addition, we will be required
to withhold tax equal to 35% of the amount of distribution attributable to gain from the sale or
exchange of the U.S. real property interest.
However, any distribution with respect to any class of equity securities which is regularly
traded on an established securities market located in the United States is not subject to FIRPTA,
and therefore, not subject to the 35% U.S. withholding tax described above, if you did not own more
than 5% of such class of equity securities at any time during the one-year period ending on the
date of the distribution (the 5% Exception). Instead, such distributions will be treated as
ordinary dividend distributions and, as a result, Non-U.S. Shareholders generally would be subject
to withholding tax on such distributions in the same manner as they are subject to ordinary
dividends.
Retention of Net Capital Gains.
Although the law is not clear on the matter, it appears that
amounts designated by us as retained capital gains in respect of the common shares held by Non-U.S.
Shareholders generally should be treated in the same manner as actual distributions by us of
capital gain dividends. Under this approach, you would be able to offset as a credit against your
U.S. federal income tax liability resulting from your proportionate share of the tax paid by us on
such retained capital gains, and to receive from the IRS a refund to the extent your proportionate
share of such tax paid by us exceeds your actual United States federal income tax liability.
Sale of Common Shares.
Gain recognized by a Non-U.S. Shareholder upon the sale or exchange of
our common shares generally will not be subject to United States taxation unless such common shares
constitutes a U.S. real property interest. Our common shares will not constitute a U.S. real
property interest if we are a domestically-controlled qualified investment entity, which includes a
REIT. A REIT is domestically-controlled if, at all times
S-32
during a specified testing period, less than 50% in value of its common shares are held
directly or indirectly by Non-U.S. Shareholders. We believe that we are, and expect to continue to
be, a domestically-controlled REIT. However, because our common shares are publicly traded, no
assurance can be given that we are or will be a domestically-controlled REIT.
Even if we do not qualify as a domestically-controlled REIT at the time you sell or exchange
our common shares, gain arising from such a sale or exchange would not be subject to tax under
FIRPTA as a sale of a U.S. real property interest provided that (i) such common shares are of a
class of our common shares that is regularly traded, as defined by applicable Treasury
Regulations, on an established securities market such as the NYSE; and (ii) you owned, actually and
constructively, 5% or less in value of such class of our common shares throughout the shorter of
the period during which you held such common shares or the five-year period ending on the date of
the sale or exchange.
If gain on the sale or exchange of our common shares were subject to taxation under FIRPTA,
you would be subject to regular U.S. federal income tax with respect to such gain in the same
manner as a taxable U.S. Shareholder (subject to any applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals) and the purchaser of
the common shares would be required to withhold and remit to the IRS 10% of the purchase price.
Notwithstanding the foregoing, gain from the sale or exchange of our common shares not
otherwise subject to FIRPTA will be taxable to you if either (i) the investment in our common
shares is effectively connected with your U.S. trade or business or (ii) you are a nonresident
alien individual who is present in the United States for 183 days or more during the taxable year
and certain other conditions are met.
Backup Withholding Tax and Information Reporting.
Generally, we must report annually to the
IRS the amount of dividends paid to you, your name and address, and the amount of tax withheld, if
any. A similar report is sent to you. Pursuant to tax treaties or other agreements, the IRS may
make its reports available to tax authorities in your country of residence.
Payments of dividends or of proceeds from the disposition of common shares made to you may be
subject to information reporting and backup withholding unless you establish an exemption, for
example, by properly certifying your Non-U.S. Shareholder status on an IRS Form W-8BEN or another
appropriate version of IRS Form W-8. Notwithstanding the foregoing, backup withholding and
information reporting may apply if either we have or our paying agent has actual knowledge, or
reason to know, that you are a U.S. person.
Backup withholding is not an additional tax. Rather, the United States income tax liability of
persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund or credit may be obtained, provided that the required
information is furnished to the IRS.
State and Local Tax Consequences
We may be subject to state or local taxation in various state or local jurisdictions,
including those in which we transact business and our shareholders may be subject to state or local
taxation in various state or local jurisdictions, including those in which they reside. Our state
and local tax treatment may not conform to the federal income tax treatment discussed above. In
addition, your state and local tax treatment may not conform to the federal income tax treatment
discussed above. You are urged to consult your own tax advisors regarding the effect of state and
local tax laws on an investment in our common shares.
S-33
PLAN OF DISTRIBUTION
On February 23, 2009, we entered into a stock purchase agreement with Mr. Alexander Otto to
issue and sell 30,000,000 common shares, which we refer to as the purchased shares, and warrants to
purchase 10,000,000 common shares, which we refer to as the warrant shares, to the purchaser and
his permitted assigns that are members of the Otto Family. The issuance and sale of the common
shares and warrants will occur in two closings, each consisting of 15,000,000 common shares and a
warrant to purchase 5,000,000 common shares. The second closing may occur, at the purchasers
option, at any time within six months of the date that our shareholders approve the amendments to
our articles of incorporation required to consummate the transactions contemplated by the stock
purchase agreement. The purchaser also has the right to purchase all of the purchased shares and
receive both of the warrants at one closing. Under the terms of the stock purchase agreement, we
are also required to issue additional common shares representing any dividends declared by us prior
to the applicable closing that the purchaser would have been entitled to had the purchased shares
been outstanding on the record dates for any such dividends, which we refer to as the dividend
shares.
The purchase price for the first 15,000,000 purchased shares will be $3.50 per share, and the
purchase price for the second 15,000,000 purchased shares will be $4.00 per share, regardless of
when purchased. No separate consideration will be paid for the dividend shares. The purchase
price for the purchased shares will be subject to downward adjustment to the extent that the
weighted average purchase price of all additional common shares (or equivalents thereof) sold by us
from February 23, 2009 until the applicable closing (taking into account all issued and outstanding
common shares) is less than $2.94 per share. If the weighted average price for such issuances is
less than $2.94, the applicable purchase price will be reduced by an amount equal to the difference
between $2.94 and such weighted average price. A warrant exercisable for 5,000,000 common shares
will be issued for each 15,000,000 purchased shares. The exercise price of each warrant will be
$6.00 per share, subject to adjustment subject to downward adjustment to the extent that the
weighted average purchase price of all additional common shares (or equivalents thereof) sold by us
from the date of the issuance of the warrant (taking into account all issued and outstanding common
shares as of the date of issuance) is less than $6.00 per share. No separate consideration will be
paid for the warrants.
The completion of the offering contemplated by this prospectus depends upon the satisfaction
of a number of conditions being satisfied or waived, including, but not limited to, the approval of
our shareholders of: (i) for purposes of the Section 312.03 of the New York Stock Exchange Listed
Company Manual, the issuance of the purchased shares, the dividend shares, the warrant shares and
the warrants; (ii) amendments to our articles of incorporation that, among other things, would
allow the Otto Family to beneficially own (under certain specified attribution rules under the
Code) up to 29.8% of our outstanding common shares; and (iii) an amendment to our code of
regulations to grant our board of directors the authority to fix the number of members on the board
of directors.
The common shares sold in this offering and the common shares issuable upon exercise of the
warrants sold in this offering will be listed on the NYSE under the symbol DDR.
We are not using any placement agent in connection with this offering. We estimate the total
expenses of this offering which will be payable by us will be approximately $500,000. Copies of
the stock purchase agreement, which includes the form of warrant, will be included as an exhibit to
a Current Report on Form 8-K that we will file with the SEC. You should review a copy of that
Current Report on Form 8-K and its exhibit for a complete description of the terms and conditions
of the stock purchase agreement and the warrant.
S-34
LEGAL MATTERS
The legality of the common shares offered hereby and certain other legal matters will be
passed upon for us by Jones Day.
EXPERTS
The financial statements and financial statement schedules incorporated in this prospectus by
reference to Developers Diversified Realty Corporations Current Report on Form 8-K dated December
3, 2008, and managements assessment of the effectiveness of internal control over financial
reporting (which is included in Managements Report on Internal Control over Financial Reporting)
incorporated in this prospectus by reference to the Annual Report on Form 10-K of Developers
Diversified Realty Corporation for the year ended December 31, 2007, have been so incorporated in
reliance on the reports of PricewaterhouseCoopers LLP, an independent registered public accounting
firm, given on the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other information with the
SEC. You may read and copy any document we file with the SEC at the SECs Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549. You may obtain information about the operation of the
SECs Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website
that contains reports, proxy and information statements, and other information regarding
registrants that file electronically with the SEC (http://www.sec.gov).
INCORPORATION BY REFERENCE OF CERTAIN INFORMATION
The SEC allows us to incorporate by reference the information contained in documents we file
with the SEC, which means that we can disclose important information to you by referring to those
documents. The information incorporated by reference is an important part of this prospectus. Any
statement contained in a document which is incorporated by reference into this prospectus is
automatically updated and superseded if information contained in this prospectus, or information
that we later file with the SEC, modifies or replaces that information. 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 incorporate by reference the following documents we filed, excluding
any information contained therein or attached as an exhibit thereto which has been furnished, but
not filed, with the SEC:
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Our Annual Report on Form 10-K for the fiscal year ended December 31, 2007;
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Our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2008;
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Our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2008;
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Our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2008;
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Our Current Reports on Form 8-K filed on March 31, 2008, May 15, 2008, July 2, 2008,
July 15, 2008, October 21, 2008, December 3, 2008, December 15, 2008, December 31, 2008
and January 6, 2009; and
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The description of our common shares contained in our Registration Statement on
Form 8-A dated January 26, 1993 and all amendments or reports filed with the SEC for the
purpose of updating such description.
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Any documents we file pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after
the date of this prospectus and prior to the termination of the offering of the common shares and
warrants to which this prospectus relates will automatically be deemed to be incorporated by
reference into this prospectus and be deemed a part of this prospectus from the date of filing such
documents, except to the extent any information contained in or attached to such documents has been
furnished, but not filed, with the SEC.
To receive a free copy of any of the documents incorporated by reference into this prospectus
(other than exhibits, unless they are specifically incorporated by reference in any such
documents), call or write Developers
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Diversified Realty Corporation, 3300 Enterprise Parkway, Beachwood, Ohio 44122, Attention:
Francine Glandt, Treasurer and Vice President of Finance, at telephone number (216) 755-5500. We
also maintain a website that contains additional information about us (http://www.ddr.com).
Information on or accessible through our website is not part of, or incorporated by reference into,
this prospectus.
You should not assume that the information contained in this prospectus and the documents
incorporated into this prospectus by reference is correct on any date after their respective dates,
even though this prospectus is delivered, or securities are sold, on a later date.
S-36
PROSPECTUS
Developers
Diversified Realty Corporation
Debt
Securities, Preferred Shares, Depositary Shares, Common Shares
and
Common Share Warrants
Developers Diversified Realty Corporation may offer, from time
to time, in one or more series or classes and in amounts, at
prices and on terms that it will determine at the time of
offering:
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unsecured debt securities which may be either senior debt
securities or subordinated debt securities;
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whole or fractional preferred shares;
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preferred shares represented by depositary shares;
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common shares, without par value; or
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warrants to purchase common shares.
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We will provide the specific terms of these securities in
supplements to this prospectus. You should read this prospectus
and the applicable supplement carefully before you invest.
Our common shares are listed on the New York Stock Exchange
under the symbol DDR. The last reported sale price
of our common shares on the New York Stock Exchange on
December 1, 2006 was $65.52 per share. Our
Class F Cumulative Redeemable Preferred Shares,
Class G Cumulative Redeemable Preferred Shares,
Class H Cumulative Redeemable Preferred Shares and
Class I Cumulative Redeemable Preferred Shares are listed
on the New York Stock Exchange under the symbols DDR
PrF, DDR PrG, DDR PrH and
DDR PrI, respectively.
We impose certain restrictions on the ownership of our common
and preferred shares so that we can maintain our qualification
as a real estate investment trust. You should read the
information under the headings Description of Preferred
Shares Restrictions on Ownership and
Description of Common Shares Restrictions on
Ownership in this prospectus for a description of those
restrictions.
Neither the Securities and Exchange Commission 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 December 4, 2006
We have not authorized any dealer, salesman or other person
to give any information or to make any representation other than
those contained or incorporated by reference in this prospectus
or any applicable supplement to this prospectus. You must not
rely upon any information or representation not contained or
incorporated by reference in this prospectus or any applicable
supplement to this prospectus as if we had authorized it. This
prospectus and any applicable prospectus supplement do not
constitute an offer to sell or the solicitation of an offer to
buy any securities other than the registered securities to which
they relate. Nor do this prospectus and any accompanying
prospectus supplement constitute an offer to sell or the
solicitation of an offer to buy securities in any jurisdiction
to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. You should not assume that
the information contained in this prospectus or any applicable
prospectus supplement is correct on any date after their
respective dates, even though this prospectus or a supplement is
delivered or securities are sold on a later date.
TABLE OF
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FORWARD-LOOKING
INFORMATION
This prospectus and the applicable prospectus supplement include
and incorporate by reference forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933,
as amended (the Securities Act), and
Section 21E of the Securities Exchange Act of 1934, as
amended (the Exchange Act). We intend such
forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995.
Forward-looking statements are generally identifiable by use of
the words believe, expect,
intend, anticipate, plan,
estimate, project or similar
expressions. Our ability to predict results or the actual effect
of future plans or strategies is inherently uncertain. Actual
results could differ materially from those in forward-looking
statements because of, among other reasons, the factors
described under the caption Risk Factors in our
Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
or any applicable prospectus supplement. We undertake no
obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future
events or otherwise.
ABOUT
THIS PROSPECTUS
This prospectus is part of a registration statement that we
filed with the Securities and Exchange Commission (the
SEC) using a shelf registration process.
Under this shelf process, we may sell any combination of our
debt securities, preferred shares, depositary shares, common
shares and common share warrants described in this prospectus in
one or more offerings. This prospectus provides you with a
general description of the securities we may offer. Each time we
sell securities, we will provide a prospectus supplement that
will contain specific information about the terms of that
offering. The prospectus supplement may also add, update or
change information contained in this prospectus. You should read
both this prospectus and the applicable prospectus supplement
together with additional information described under the heading
Where You Can Find More Information.
Unless otherwise indicated or unless the context requires
otherwise, all references in this prospectus to we,
us, our, the Company or
DDR mean Developers Diversified Realty Corporation
and all entities owned or controlled by Developers Diversified
Realty Corporation. When we refer to our articles of
incorporation we mean Developers Diversified Realty
Corporations Amended and Restated Articles of
Incorporation.
WHERE YOU
CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements
and other information with the SEC. You may read and copy any
document we file with the SEC at the SECs Public Reference
Room at 100 F Street, N.E., Washington, D.C. 20549.
You may obtain information about the operation of the SECs
Public Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC also maintains a web site that contains reports, proxy
and information statements, and other information regarding
registrants that file electronically with the SEC
(http://www.sec.gov). You can inspect reports and other
information we file at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.
We have filed a registration statement of which this prospectus
is a part and related exhibits with the SEC under the Securities
Act of 1933, as amended. The registration statement contains
additional information about us and the securities. You may
inspect the registration statement and exhibits without charge
at the SECs Public Reference Room or at the SECs web
site listed above, and you may obtain copies from the SEC at
prescribed rates.
INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
The SEC allows the Company to incorporate by
reference the information contained in documents we file
with the SEC, which means that we can disclose important
information to you by referring to those documents. The
information incorporated by reference is an important part of
this prospectus. Any statement contained in a document which is
incorporated by reference in this prospectus is automatically
updated and superseded if information contained in this
prospectus, or information that we later file with the SEC,
modifies or replaces that information. We incorporate by
reference the following documents we filed, excluding any
information contained therein or attached as exhibits thereto
which has been furnished but not filed, with the SEC:
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Annual Report on
Form 10-K
for the year ended December 31, 2005 as amended by
Form 10-K/A
filed on March 10, 2006;
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Quarterly Reports on
Form 10-Q
for the quarters ended March 31, 2006, June 30, 2006
and September 30, 2006;
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Current Reports on
Form 8-K
filed on March 10, 2006, July 6, 2006, August 22,
2006, August 23, 2006, September 1, 2006,
October 2, 2006, October 23, 2006, October 27,
2006 (under Item 5.02 only), November 3, 2006,
November 30, 2006 and December 4, 2006;
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the description of our common shares contained in our
Registration Statement on
Form 8-A
dated January 26, 1993 and all amendments or reports filed
with the SEC for the purpose of updating such description;
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The financial statements contained in our Annual Report on
Form 10-K
for the year ended December 31, 2005 as amended by the
Form 10-K/A
filed on March 10, 2006 have been superseded by those
contained in our Current Report on
Form 8-K
dated October 1, 2006 and filed December 4, 2006. The
pro forma financial statements contained in our Current Report
on
Form 8-K
filed March 10, 2006 have been superseded by those
contained in our Current Report on
Form 8-K
dated October 20, 2006 and filed December 4, 2006.
Any documents we file pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this prospectus
and prior to the termination of the offering of the securities
to which this prospectus relates will automatically be deemed to
be incorporated by reference in this prospectus and a part of
this prospectus from the date of filing such documents.
To receive a free copy of any of the documents incorporated by
reference in this prospectus (other than exhibits, unless they
are specifically incorporated by reference in any such
documents), call or write Developers Diversified Realty
Corporation, 3300 Enterprise Parkway, Beachwood, Ohio
44122, Attention: Michelle M. Dawson, Vice President of Investor
Relations, telephone number
(216) 755-5500.
We also maintain a web site that contains additional information
about us (http://www.ddr.com).
You should rely only on the information incorporated by
reference or set forth in this prospectus or the applicable
prospectus supplement. We have not authorized anyone else to
provide you with different information. We may only use this
prospectus to sell securities if it is accompanied by a
prospectus supplement. We are offering these securities only in
states where the offer is permitted.
You should not assume that the information in this prospectus or
the applicable prospectus supplement is accurate as of any date
other than the dates on the front of these documents.
THE
COMPANY
We are a self-administered and self-managed REIT in the business
of acquiring, developing, redeveloping, owning, leasing and
managing shopping centers.
Our executive offices are located at 3300 Enterprise
Parkway, Beachwood, Ohio 44122, and our telephone number is
(216) 755-5500.
Our website is located at
http://www.ddr.com
. Information
on our website is not part of, or incorporated by reference
into, this prospectus.
USE OF
PROCEEDS
Unless we indicate otherwise in an applicable prospectus
supplement, we intend to use the net proceeds from the sale of
debt securities, preferred shares, depositary shares, common
shares or common share warrants for general corporate purposes.
Our general corporate purposes may include:
(1) the acquisition or development of properties (including
using the net proceeds for possible portfolio or asset
acquisitions or in business combinations or joint ventures) as
suitable opportunities arise;
(2) the expansion and improvement of certain properties in
our portfolio;
(3) the repayment of our indebtedness; and
(4) the redemption of outstanding securities.
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DESCRIPTION
OF DEBT SECURITIES
The definitions of certain terms used in this description can be
found under the subheading Certain Definitions.
Our senior securities will be issued under a senior indenture
dated as of May 1, 1994, as amended or supplemented from
time to time, between the Company and U.S. Bank
Trust National Association, as Trustee. Our subordinated
securities will be issued under a subordinated indenture dated
as of May 1, 1994, as amended or supplemented from time to
time between the Company and The Bank of New York, as Trustee.
The following description is a summary of the material
provisions of the indentures including references to the
applicable section of the indentures. It does not restate the
indentures in their entirety. We urge you to read the indentures
because they, and not this description, define the rights of
holders of debt securities.
The indentures have been incorporated by reference as exhibits
to the Registration Statement of which this prospectus is a
part. The indentures are available for inspection at the
corporate trust offices of the applicable Trustee as follows:
(i) U.S. Bank Trust National Association, 100
Wall Street, Suite 1600, New York, NY 10005, and
(ii) The Bank of New York, 4 New York Plaza, New York, New
York 10004. The indentures are subject to, and are governed by,
the Trust Indenture Act of 1939. All section references
appearing herein are to sections of the applicable indenture.
General
Our debt securities will be direct, unsecured obligations. The
debt securities issued under each indenture are not limited as
to aggregate principal amount and may be issued in one or more
series. The principal amount and series will be established from
time to time in or pursuant to authority granted by a resolution
of our board of directors. The principal amount and series also
may be established in one or more indentures supplemental to the
applicable indenture. All debt securities of one series need not
be issued at the same time (section 301 of the indentures).
Unless otherwise provided, a series may be reopened for
issuances of additional debt securities of such series without
the consent of the holders of the debt securities of such series
(section 301 of the indentures). Either Trustee may resign
or be removed with respect to one or more series of debt
securities issued under the applicable indenture, and a
successor Trustee may be appointed to act with respect to such
series.
Reference is made to each prospectus supplement for the specific
terms of the series of debt securities being offered thereby,
including:
(1) the title of such debt securities;
(2) the aggregate principal amount of such debt securities
and any limit on such aggregate principal amount;
(3) the percentage of the principal amount at which such
debt securities will be issued and, if other than the principal
amount thereof, the portion of the principal amount thereof
payable upon declaration of acceleration of the maturity of such
debt securities, or (if applicable) the portion of the principal
amount of such debt securities which is convertible into our
common shares or other equity securities, or the method by which
any such portion shall be determined;
(4) if such debt securities are convertible, any limitation
on the ownership or transferability of our common shares or
other equity securities into which such debt securities are
convertible in connection with the preservation of our status as
a REIT;
(5) the date(s), or the method for determining the date(s),
on which the principal of such debt securities will be payable;
(6) the rate(s) (which may be fixed or variable) at which
such debt securities will bear interest, if any, or the method
by which such rate(s) shall be determined;
(7) the date(s), or the method for determining the date(s),
from which interest, if any, will accrue;
(8) the date(s) on which any interest will be payable;
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(9) the record date(s) for an interest payment, or the
method by which such record date(s) shall be determined (the
record date for an interest payment is the date on which a
Person must be a holder in order to receive the interest
payment);
(10) the Person to whom any interest shall be payable;
(11) the basis upon which any interest shall be calculated
if other than that of a
360-day
year
of twelve
30-day
months;
(12) the place(s) where:
(a) the principal of (and premium, if any) or interest, if
any, on such debt securities will be payable,
(b) such debt securities may be surrendered for conversion
or registration of transfer or exchange, and
(c) notices or demands in respect of such debt securities
and the applicable indenture may be served;
(13) the period(s) within which, the price(s) at which, and
the terms and conditions upon which such debt securities may be
redeemed at our option, as a whole or in part, if we are to have
the option to redeem such debt securities;
(14) our obligation, if any, to redeem, repay or purchase
such debt securities pursuant to any sinking fund or analogous
provision or at the option of a holder thereof, and the
period(s) within which, the price(s) at which, and the terms and
conditions upon which we are obligated, if at all, to redeem,
repay or purchase such debt securities, as a whole or in part,
pursuant to any sinking fund or analogous provision or at the
option of a holder thereof;
(15) if other than U.S. dollars, the currency or
currencies in which such debt securities are denominated and
payable, which may be a foreign currency or units of two or more
foreign currencies or a composite currency or currencies, and
the terms and conditions relating thereto;
(16) whether the amount of payments of principal of (and
premium, if any) or interest, if any, on such debt securities
may be determined with reference to an index, formula or other
method and the manner in which such amounts shall be determined
(the index, formula or method may, but need not be, based on a
currency, currencies, currency unit or units or composite
currency or currencies);
(17) any additions to, modifications of or deletions from
the terms of such debt securities with respect to the Events of
Default or covenants set forth in the applicable indenture;
(18) whether such debt securities will be issued in
certificated or book-entry form;
(19) whether such debt securities will be in registered or
bearer form or both and, if and to the extent in registered
form, the denominations thereof if other than $1,000 and any
integral multiple thereof and, if and to the extent in bearer
form, the denominations thereof and terms and conditions
relating thereto;
(20) the applicability, if any, of the defeasance and
covenant defeasance provisions of the applicable indenture;
(21) the terms, if any, upon which such debt securities may
be convertible into our common shares or other equity securities
(and the class thereof) and the terms and conditions upon which
such conversion will be effected, including, without limitation,
the initial conversion price or rate and the conversion period;
(22) whether and under what circumstances we will pay
Additional Amounts on such debt securities in respect of any
tax, assessment or governmental charge and, if so, whether we
will have the option to redeem such debt securities in lieu of
making such payment; and
(23) any other terms of such debt securities not
inconsistent with the provisions of the applicable indenture.
The debt securities may provide for the payment of less than the
entire principal amount upon declaration of acceleration of the
maturity of the debt securities. Such debt securities are known
as Original Issue Discount Securities. Any material
U.S. federal income tax, accounting and other
considerations applicable to Original Issue Discount Securities
will be described in the applicable prospectus supplement.
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Except as set forth under the captions Material
Covenants Limitation on Incurrence of Debt and
Maintenance of Unencumbered Real Estate
Assets, which relate solely to the senior indenture and
the senior securities, or as may be contained in a supplemental
indenture relating to a series of debt securities, neither
indenture contains any additional provision that would limit our
ability to incur indebtedness or that would afford holders of
debt securities protection in a highly leveraged or similar
action involving DDR or in the event of a change of control of
DDR. However, certain restrictions on ownership and transfer of
our common shares and other equity securities designed to
preserve our status as a REIT may act to prevent or hinder a
change of control. See Description of Common Shares,
Description of Preferred Shares and
Description of Depositary Shares. Reference is made
to the applicable prospectus supplement for information with
respect to any deletion from, modification of or addition to the
Events of Default or our covenants that are described below,
including any addition of a covenant or other provision
providing event risk or similar protection.
Denominations,
Interest, Registration and Transfer
Unless otherwise described in the applicable prospectus
supplement, the debt securities of any series will be issued in
denominations of $1,000 and integral multiples thereof
(section 302 of the indentures).
Unless otherwise specified in the applicable prospectus
supplement, principal, premium, if any, and interest payments on
any series of debt securities will be made at the corporate
trust office of the applicable Trustee as follows:
(i) U.S. Bank Trust National Association, 100
Wall Street, Suite 1600, New York, NY 10005 and
(ii) The Bank of New York, 4 New York Plaza, New York, New
York 10004. However, we may elect to pay interest by check
mailed to the address of the holder as it appears in the
register for debt securities of such series or by wire transfer
of funds to the holder at an account maintained within the
United States (sections 301, 305, 306, 307 and 1002 of the
indentures).
Any interest with respect to a debt security that is not
punctually paid or duly provided for on the date the interest is
due and payable will cease to be payable thereafter to the
holder on the applicable record date. The interest may be paid
to the holder at the close of business on a special record date
fixed by the applicable Trustee for the payment of the interest.
Notice of such payment must be given to the holder of such debt
security not less than 10 days prior to the special record
date. Such interest may also be paid at any time in any other
lawful manner, all as more completely described in the
applicable indenture (section 307 of the indentures).
Subject to certain limitations applicable to debt securities
issued in book-entry form, the debt securities of any series
will be exchangeable for other debt securities of the same
series and of a like aggregate principal amount and tenor of
different authorized denominations upon surrender of such debt
securities at the corporate trust office of the applicable
Trustee. In addition, subject to certain limitations applicable
to debt securities issued in book-entry form, the debt
securities of any series may be surrendered for conversion or
registration of transfer thereof at the corporate trust office
of the applicable Trustee. Every debt security surrendered for
conversion, registration of transfer or exchange must be duly
endorsed or accompanied by a written instrument of transfer. No
service charge will be incurred for any registration of transfer
or exchange of any debt securities, but we may require payment
of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith (section 305 of the
indentures). If the applicable prospectus supplement refers to
any transfer agent (in addition to the Trustee) that we
initially designated with respect to any series of debt
securities, we may at any time rescind the designation of any
such transfer agent or approve a change in the location at which
any such transfer agent acts; however, we will be required to
maintain a transfer agent in each place where principal,
premium, if any, and interest payments on debt securities of
such series are payable. We may designate additional transfer
agents with respect to any series of debt securities at any time
(section 1002 of the indentures).
Neither DDR nor any Trustee will be required:
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to issue, register the transfer of or exchange debt securities
of any series during a period beginning at the opening of
business 15 days before any selection of debt securities of
that series to be redeemed and ending at the close of business
on the day of mailing of the relevant notice of redemption;
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to register the transfer of or exchange any debt security, or
portion thereof, called for redemption, except the unredeemed
portion of any debt security being redeemed in part; or
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to issue, register the transfer of or exchange any debt security
that has been surrendered for repayment at the option of the
holder, except the portion, if any, of such debt security not to
be repaid (section 305 of the indentures).
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Merger,
Consolidation or Sale
Each indenture provides that we may consolidate with, or sell,
lease or convey all or substantially all of our assets to, or
merge with or into, any other corporation, provided that:
(1) we are the continuing corporation, or the successor
corporation expressly assumes payment of the principal of (and
premium, if any), and interest on, all of the outstanding debt
securities and the due and punctual performance and observance
of all of the covenants and conditions contained in the
applicable indenture;
(2) immediately after giving effect to such transaction and
treating any indebtedness which becomes our or our
subsidiaries obligation as a result thereof as having been
incurred by us or our subsidiaries at the time of such
transaction, no Event of Default under the applicable indenture,
and no event which, after notice or the lapse of time, or both,
would become such an Event of Default, occurs and is
continuing; and
(3) an officers certificate and legal opinion
confirming the satisfaction of the conditions are delivered to
the applicable Trustee (sections 801 and 803 of the
indentures).
Material
Covenants
The subordinated indenture does not contain the covenants
described in this section. It also does not contain any
limitation on the amount of Debt (as defined below) of any kind
that we may incur or on the amount of dividends or other
distributions that we may pay our shareholders. The senior
indenture contains the following covenants:
Limitation on Incurrence of Debt.
We will not,
and will not permit any subsidiary to, incur any Debt if,
immediately after the incurrence of such additional Debt, the
aggregate principal amount of all our outstanding Debt on a
consolidated basis determined in accordance with generally
accepted accounting principles is greater than 65% of the sum of:
(1) our Undepreciated Real Estate Assets (as defined below)
as of the end of the calendar quarter covered in our Annual
Report on
Form 10-K
or Quarterly Report on
Form 10-Q
most recently filed with the Commission (or, if such filing is
not permitted under the Exchange Act, filed with the applicable
Trustee) prior to the incurrence of such additional
Debt, and
(2) the purchase price of all real estate assets acquired
by us or our subsidiaries since the end of such calendar
quarter, including those obtained in connection with the
incurrence of such additional Debt (section 1004 of the
senior indenture).
We will not, and will not permit any subsidiary to, incur any
Debt if Consolidated Income Available for Debt Service (as
defined below) for any 12 consecutive calendar months within the
15 calendar months immediately preceding the date on which such
additional Debt is to be incurred shall have been less than 1.5
times the Maximum Annual Service Charge (as defined below) on
our consolidated Debt to be outstanding immediately after the
incurrence of such additional Debt (section 1004 of the
senior indenture).
In addition to the foregoing limitations on the incurrence of
Secured Debt, in connection with the issuance of our
4.625% Notes Due 2010, 3.875% Notes Due 2009,
5.25% Notes Due 2011, 5.0% Notes Due 2010,
5.5% Notes Due 2015 and 5.375% Notes Due
2012, we have added a covenant providing that as long as any of
our 4.625% Notes Due 2010, 3.875% Notes Due
2009, 5.25% Notes Due 2011, 5.0% Notes Due
2010, 5.5% Notes Due 2015 and
5.375% Notes Due 2012 remain outstanding, we will not,
and will not permit any subsidiary to, incur any Secured Debt,
if immediately after giving effect to the incurrence of such
Secured Debt and the application of the proceeds from such
Secured Debt, the aggregate amount of all of our and our
subsidiaries outstanding Secured Debt on a consolidated
basis is greater than 40% of the sum of our Total Assets as of
the end of the calendar quarter covered in our Annual Report on
Form 10-K
or Quarterly Report on
Form 10-Q,
as the case may be, most recently filed with the SEC (or, if
such filing is not permitted under the Exchange Act, with the
Trustee) prior to the incurrence of such additional Secured Debt
and the increase, if any, in Total Assets from the end of such
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quarter, including, without limitation, any increase in Total
Assets caused by the application of the proceeds of additional
Secured Debt.
Restrictions
on Dividends and Other
Distributions.
We
will not:
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declare or pay any dividends (other than dividends payable in
our capital stock) on any shares of our capital stock;
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apply any of our property or assets to the purchase, redemption
or other acquisition or retirement of any shares of our capital
stock;
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set apart any sum for the purchase, redemption or other
acquisition or retirement of any shares of our capital
stock; or
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make any other distribution on any shares of our capital stock,
by reduction of capital or otherwise
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if, immediately after such declaration or other such action, the
aggregate of all such declarations and other actions since the
date on which the indenture was originally executed exceeds the
sum of (a) Funds from Operations from December 31,
1993 until the end of the latest calendar quarter covered in our
Annual Report on
Form 10-K
or Quarterly Report on
Form 10-Q
most recently filed with the Commission (or, if such filing is
not permitted under the Exchange Act, with the applicable
Trustee) prior to such declaration or other action and
(b) $20,000,000.
This limitation does not apply to any declaration or other
action referred to above which is necessary to maintain our
status as a REIT under the Code if the aggregate principal
amount of all our and our subsidiaries outstanding Debt at
such time is less than 65% of our Undepreciated Real Estate
Assets as of the end of the latest calendar quarter covered in
our Annual Report on
Form 10-K
or Quarterly Report on
Form 10-Q
most recently filed with the Commission (or, if such filing is
not permitted under the Exchange Act, with the applicable
Trustee) prior to such declaration or other action
(section 1005 of the senior indenture).
Notwithstanding the provisions described above, we will not be
prohibited from making the payment of any dividend within
30 days after the declaration thereof if, at the date of
declaration, such payment would have complied with those
provisions (section 1005 of the senior indenture).
Existence.
Except as permitted under the
provisions of the senior indenture described in Merger,
Consolidation or Sale, we must preserve and keep in full
force and effect our corporate existence, rights (charter and
statutory) and franchises. We will not be required to preserve
any right or franchise if we determine that the preservation of
that right or franchise is no longer desirable in the conduct of
our business and that the loss thereof is not disadvantageous in
any material respect to the holders of the senior securities
(section 1006 of the senior indenture).
Maintenance of Properties.
All of our
properties that are used or useful in the conduct of our
business or the business of our subsidiaries must be maintained
and kept in good condition, repair and working order and
supplied with all necessary equipment. We also are required to
make all necessary repairs, renewals, replacements, betterments
and improvements to our properties. We must do these things as
necessary in our judgment to conduct the business carried on in
connection therewith in a proper and advantageous manner at all
times. However, we and our subsidiaries will not be prevented
from selling or otherwise disposing of properties for value in
the ordinary course of business (section 1007 of the senior
indenture).
Insurance.
We will, and will cause each of our
subsidiaries to, keep all of our or their respective insurable
properties insured against loss or damage at least equal to the
properties then full insurable value with insurers of
recognized responsibility having a rating of at least A:VIII in
Bests Key Rating Guide (section 1008 of the senior
indenture).
Payment of Taxes and Other Claims.
We must pay
or discharge, or cause to be paid or discharged, before the same
become delinquent:
(1) all taxes, assessments and governmental charges levied
or imposed upon us or any of our subsidiaries or upon our or any
of our subsidiaries income, profits or property; and
(2) all lawful claims for labor, materials and supplies
that, if unpaid, might by law become a lien upon our property or
the property of any of our subsidiaries.
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However, we will not be required to pay or discharge, or cause
to be paid or discharged, any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested
in good faith by appropriate proceedings (section 1009 of
the senior indenture).
Provision of Financial Information.
Whether or
not we are subject to Section 13 or 15(d) of the Exchange
Act, we must, to the extent permitted under the Exchange Act,
file with the Commission the annual reports, quarterly reports
and other documents which we would have been required to file
with the Commission pursuant to such Section 13 or 15(d) if
we were so subject, on or prior to the respective dates by which
we would have been required to file such documents. We must also
in any event:
(1) within 15 days after such document would have been
required to be filed:
(a) mail to all holders of senior securities, as their
names and addresses appear in the register for debt securities
of each series, without cost to such holders, copies of such
annual reports and quarterly reports which we would have been
required to file with the Commission pursuant to Section 13
or 15(d) of the Exchange Act if we were subject to those
sections, and
(b) file with the applicable Trustee copies of such annual
reports, quarterly reports and other documents which we would
have been required to file with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act if we were subject
to those Sections, and
(2) if we are not permitted to file such documents with the
Commission under the Exchange Act, we must supply copies of such
documents to any prospective holder of senior securities
promptly upon written request and payment of the reasonable cost
of duplication and delivery of such documents (section 1010
of the senior indenture).
Maintenance of Unencumbered Real Estate
Assets.
We must maintain an Unencumbered Real
Estate Asset Value of not less than 135% of the aggregate
principal amount of all our and our subsidiaries
outstanding unsecured Debt (section 1011 of the senior
indenture).
Events of
Default, Notice and Waiver
Each indenture provides that the following events are
Events of Default with respect to any series of debt
securities issued thereunder:
(1) default for 30 days in the payment of any
installment of interest, Additional Amounts or coupons on any
debt security of such series;
(2) default in the payment of the principal of (or premium,
if any, on) any debt security of such series at the time such
payment becomes due and payable;
(3) default in making any sinking fund payment as required
for any debt security of such series;
(4) default in the performance, or breach, of any other
covenant or warranty contained in the applicable indenture
continued for 60 days after written notice as provided in
such indenture; however, default in the performance, or breach,
of a covenant or warranty added to such indenture solely for the
benefit of a series of debt securities issued thereunder other
than such series is not an Event of Default;
(5) default under any bond, debenture, note or other
evidence of indebtedness of the Company or under any mortgage,
indenture or other instrument of the Company under which there
may be issued or by which there may be secured or evidenced any
indebtedness of the Company (or by any subsidiary, the repayment
of which the Company has guaranteed or for which the Company is
directly responsible or liable as obligor or guarantor), which
results in the acceleration of indebtedness in an aggregate
principal amount exceeding $10,000,000, but only if such
indebtedness is not discharged or such acceleration is not
rescinded or annulled as provided in the applicable indenture;
(6) certain events of bankruptcy, insolvency or
reorganization, or court appointment of a receiver, liquidator
or trustee, of the Company or of any significant subsidiary of
the Company as defined in
Regulation S-X
promulgated under the Securities Act or of the respective
property of either; and
(7) any other Event of Default provided with respect to
that series of debt securities (section 501 of the
indentures).
8
If an Event of Default occurs under either indenture with
respect to Outstanding debt securities of any series issued
thereunder and is continuing, then the Trustee or the holders of
not less than 25% in principal amount of the Outstanding debt
securities of that series may declare the principal amount of
all of the debt securities of that series to be due and payable
immediately by written notice to us. If the holders give notice
to us, they must also give notice to the applicable Trustee. If
the debt securities are Original Issue Discount Securities or
Indexed Securities, the amount declared to be due and payable
will be such portion of the principal amount as specified in the
terms thereof. However, at any time after a declaration of
acceleration with respect to debt securities of such series (or
of all debt securities then Outstanding under such indenture, as
the case may be) has been made, the holders of a majority in
principal amount of the debt securities of such series or of
each series of debt securities then Outstanding under such
indenture, as the case may be, may rescind and annul such
declaration and its consequences if:
(1) we have deposited with the applicable Trustee all
required payments of the principal of (and premium, if any) and
interest and Additional Amounts payable on the debt securities
of such series or of all debt securities then Outstanding under
such indenture, as the case may be, plus certain fees, expenses,
disbursements and advances of such Trustee, and
(2) all Events of Default have been cured or waived as
provided in such indenture (except for the nonpayment of
accelerated principal (or specified portion thereof) with
respect to debt securities of such series or of all debt
securities then Outstanding under such indenture)
(section 502 of the indentures).
The indentures also provide that the holders of a majority in
principal amount of the debt securities of any series or of each
series of debt securities then Outstanding under the applicable
indenture, as the case may be, may waive any past default with
respect to such series and its consequences.
However, holders may not waive a default:
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in the payment of the principal of (or premium, if any) or
interest on any debt security of such series; or
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in respect of a covenant or provision contained in such
indenture that cannot be modified or amended without the consent
of the holder of each Outstanding debt security affected thereby
(section 513 of the indentures).
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Each indenture provides that the applicable Trustee is required
to give notice to the holders of debt securities issued
thereunder within 90 days of a default under such
indenture. However, the Trustee may withhold notice of any
default to the holders of any such series of debt securities if
certain officers of such Trustee consider such withholding to be
in the interest of the holders. The Trustee may not withhold
notice with respect to a default in the payment of the principal
of (or premium, if any) or interest on any debt security or in
the payment of any sinking installment in respect of any debt
security (section 601 of the indentures).
Each indenture provides that no holder of debt securities of any
series issued thereunder may institute any proceeding, judicial
or otherwise, with respect to such indenture or for any remedy
thereunder. However, a holder of debt securities may institute a
proceeding if the applicable Trustee fails to act for
60 days after it has received a written request to
institute proceedings in respect of an Event of Default from the
holders of not less than 25% in principal amount of the
Outstanding debt securities of such series, as well as an offer
of reasonable indemnity (section 507 of the indentures).
However, this provision will not prevent any holder of debt
securities from instituting suit for the enforcement of payment
of the principal of (and premium, if any) and interest on the
debt securities held by that holder at the respective due dates
thereof (section 508 of the indentures).
Subject to provisions in the applicable indenture relating to
its duties in case of default and unless holders of any series
of debt securities then Outstanding under such indenture have
offered reasonable security or indemnity to the Trustee, the
Trustee is under no obligation to exercise any of its rights or
powers under such indenture at the request or direction of the
holders (section 602 of the indentures). The holders of a
majority in principal amount of the Outstanding debt securities
of any series (or of each series of debt securities then
Outstanding under such indenture, as the case may be) shall have
the right to direct the time, method and place of conducting any
proceeding for any remedy available to such Trustee. They also
have the right to direct the time, method and place of
exercising any trust or power conferred upon such Trustee.
However, such Trustee may refuse to follow any direction which
is in conflict with such indenture or any law which may involve
the Trustee in personal liability or which may be unduly
prejudicial to the holders of debt securities of such series not
joining therein (section 512 of the indentures).
9
Within 120 days after the close of each fiscal year, we
must deliver to each Trustee a certificate signed by one of
several specified officers. The certificate must state whether
such officer has knowledge of any default under the applicable
indenture and, if so, specify each such default and the nature
and status thereof (section 1012 of the senior indenture
and section 1004 of the subordinated indenture).
Modification
of the Indentures
Modifications and amendments to either indenture may be made
only with the consent of the holders of a majority in principal
amount of all Outstanding debt securities issued thereunder
which are affected by such modification or amendment. However,
unless the consent of the holder of each affected debt security
is obtained, no modification or amendment may:
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change the date specified in any such debt security as the fixed
date on which the principal thereof is due and payable;
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change the date specified in any such debt security as the fixed
date on which any installment of interest (or premium, if any)
is due and payable;
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reduce the principal amount of any such debt security;
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reduce the rate or amount of interest on any such debt security;
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reduce the premium payable on redemption of any such debt
security;
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reduce any Additional Amount payable in respect of any such debt
security;
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reduce the amount of principal of an Original Issue Discount
Security that would be due and payable upon declaration of
acceleration of the maturity thereof or would be provable in
bankruptcy, or adversely affect any right of repayment of the
holder of any such debt security;
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change the place of payment of principal of (or premium, if any)
or interest on any such debt security;
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change the currency or currencies for payment of principal of
(or premium, if any) or interest on such debt security;
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change our obligation to pay Additional Amounts;
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impair the right to institute suit for the enforcement of any
payment on or with respect to any such debt security;
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reduce the percentage of Outstanding debt securities of any
series necessary to modify or amend the applicable indenture, to
waive compliance with certain provisions thereof or certain
defaults and consequences thereunder, or to reduce the quorum or
voting requirements set forth in such indenture; or
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modify any of the foregoing provisions or any of the provisions
relating to the waiver of certain past defaults or certain
covenants, except to increase the required percentage to effect
such action or to provide that certain other provisions may not
be modified or waived without the consent of the holder of such
debt security (section 902 of the indentures).
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The senior indenture provides that the holders of a majority in
principal amount of Outstanding debt securities issued
thereunder have the right to waive our compliance with certain
covenants in the senior indenture, including those described in
the section of this prospectus captioned Material
Covenants (section 1014 of the senior indenture).
Developers Diversified Realty Corporation and the applicable
Trustee may modify and amend either indenture without the
consent of any holder of debt securities issued thereunder for
any of the following purposes:
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to evidence the succession of another Person to our obligations
under such indenture;
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to add to our covenants for the benefit of the holders of all or
any series of debt securities issued thereunder or to surrender
any right or power conferred upon us in such indenture;
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to add Events of Default for the benefit of the holders of all
or any series of debt securities issued thereunder;
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to add or change any provisions of such indenture to facilitate
the issuance of, or to liberalize certain terms of, debt
securities issued thereunder in bearer form, or to permit or
facilitate the issuance of such debt
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securities in uncertificated form, provided that such action
shall not adversely affect the interests of the holders of such
debt securities of any series in any material respect;
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to change or eliminate any provision of such indenture, provided
that any such change or elimination shall become effective only
when there are no debt securities Outstanding of any series
issued thereunder which are entitled to the benefit of such
provision;
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to secure the debt securities issued thereunder;
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to establish the form or terms of debt securities of any series
issued thereunder, including the provisions and procedures, if
applicable, for the conversion of such debt securities into our
common shares or preferred shares;
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to provide for the acceptance of appointment by a successor
Trustee;
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to facilitate the administration of the trusts under such
indenture by more than one Trustee;
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to cure any ambiguity, defect or inconsistency in such
indenture, provided that such action shall not adversely affect
in any material respect the interests of holders of debt
securities of any series issued thereunder; or
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to supplement any of the provisions of such indenture to the
extent necessary to permit or facilitate defeasance and
discharge of any series of debt securities issued thereunder;
however, such action shall not adversely affect in any material
respect the interests of the holders of the debt securities of
any series issued thereunder (section 901 of the
indentures).
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Each indenture provides that in determining whether the holders
of the requisite principal amount of Outstanding debt securities
of a series issued thereunder have given any request, demand,
authorization, direction, notice, consent or waiver thereunder
or whether a quorum is present at a meeting of holders of such
debt securities:
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the principal amount of an Outstanding Original Issue Discount
Security shall be the amount of the principal that would be due
and payable as of the date of such determination upon
declaration of acceleration of the maturity of the security;
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the principal amount of an Outstanding debt security denominated
in a foreign currency shall be the U.S. dollar equivalent,
determined on the issue date for such debt security, of the
principal amount (or, in the case of an Original Issue Discount
Security, the U.S. dollar equivalent on the issue date of
such debt security in the amount determined as provided above);
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the principal amount of an Outstanding Indexed Security shall be
the principal face amount of such Indexed Security at original
issuance, unless otherwise provided with respect to such Indexed
Security pursuant to section 301 of such indenture; and
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debt securities owned by us, any other obligor upon the debt
securities, any of our Affiliates or of such other obligor shall
be disregarded (section 101).
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Each indenture contains provisions for convening meetings of the
holders of an issued series of debt securities
(section 1501 of the indentures). The applicable Trustee
may call a meeting at any time. Developers Diversified Realty
Corporation or the holders of at least 10% in principal amount
of the Outstanding debt securities of such series may also call
a meeting upon request. Notice of a meeting must be given as
provided in the applicable indenture (section 1502 of the
indentures). Except for any consent that must be given by the
holder of each debt security affected by certain modifications
and amendments of such indenture, any resolution presented at a
meeting or adjourned meeting duly reconvened at which a quorum
is present may be adopted by the affirmative vote of the holders
of a majority in principal amount of the Outstanding debt
securities of that series. However, except as referred to above,
any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other
action that may be made, given or taken by the holders of a
specified percentage which is less than a majority in principal
amount of the Outstanding debt securities of a series may be
adopted at a meeting or adjourned meeting duly reconvened at
which a quorum is present by the affirmative vote of the holders
of such specified percentage in principal amount of the
Outstanding debt securities of that series. Any resolution
passed or decision taken at any duly held meeting of holders of
debt securities of any series will be binding on all holders of
debt securities of that series. The quorum at any meeting called
to adopt a resolution, and at any reconvened meeting, will be
the persons holding or representing a majority in principal
amount of the Outstanding debt securities of a series.
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However, if any action is to be taken at such meeting with
respect to a consent or waiver which may be given by the holders
of not less than a specified percentage in principal amount of
the Outstanding debt securities of a series, the persons holding
or representing such specified percentage in principal amount of
the Outstanding debt securities of such series will constitute a
quorum (section 1504 of the indentures).
Notwithstanding the provisions described above, if any action is
to be taken at a meeting of holders of debt securities of any
series with respect to any request, demand, authorization,
direction, notice, consent, waiver or other action that the
applicable indenture expressly provides may be made, given or
taken by the holders of a specified percentage in principal
amount of all Outstanding debt securities affected thereby, or
of the holders of such series and one or more additional series:
(1) there shall be no minimum quorum requirement for such
meeting and
(2) the principal amount of the Outstanding debt securities
of such series that vote in favor of such request, demand,
authorization, direction, notice, consent, waiver or other
action shall be taken into account in determining whether such
request, demand, authorization, direction, notice, consent,
waiver or other action has been made, given or taken under such
indenture (section 1504 of the indentures).
Discharge,
Defeasance and Covenant Defeasance
We may discharge certain obligations to holders of any series of
debt securities that have not already been delivered to the
applicable Trustee for cancellation and that either have become
due and payable or will become due and payable within one year
(or scheduled for redemption within one year) by irrevocably
depositing with such Trustee, in trust, funds in an amount
sufficient to pay the entire indebtedness on such debt
securities in respect of principal, premium, if any, and
interest to the date of such deposit if such debt securities
have become due and payable or to the date specified in such
debt securities as the fixed date on which the payment of
principal and interest on such debt securities is due and
payable or the date fixed for redemption of such debt
securities, as the case may be (section 401 of the
indentures). Funds shall be deposited in such currency or
currencies, currency unit(s) or composite currency or currencies
in which such debt securities are payable.
Each indenture provides that, if the provisions of
Article Fourteen thereof (relating to defeasance and
covenant defeasance) are made applicable to the debt securities
of or within any series issued thereunder, we may elect either:
(1) to defease and be discharged from any and all
obligations with respect to such debt securities. However, we
will not be discharged from the obligation to pay Additional
Amounts, if any, upon the occurrence of certain events of tax,
assessment or governmental charge with respect to payments on
such debt securities. In addition, we will not be discharged
from the obligations to register the transfer or exchange of
such debt securities, to replace temporary or mutilated,
destroyed, lost or stolen debt securities, to maintain an office
or agency in respect of such debt securities and to hold moneys
for payment in trust (defeasance) (section 1402
of the indentures); or
(2) to be released from our obligations relating to
(a) sections 1004 to 1011, inclusive, of the senior
indenture (being the restrictions described under the caption
Material Covenants) and, if provided under the
senior indenture, our obligations with respect to any other
covenant contained in the senior indenture, and (b) if
provided under the subordinated indenture, our obligations with
respect to any covenant contained in the subordinated indenture,
and any omission to comply with such obligations shall not
constitute a default or an Event of Default with respect to such
debt securities (covenant defeasance)
(section 1403 of the indentures).
Defeasance or covenant defeasance will occur upon our
irrevocable deposit with the applicable Trustee, in trust, of an
amount sufficient to pay the principal of (and premium, if any)
and interest on such debt securities, and any mandatory sinking
fund or analogous payments, on their scheduled due dates. The
amount deposited will be in Government Obligations (as defined
below) or such currency or currencies, currency unit(s) or
composite currency or currencies in which such debt securities
are payable at maturity, or both.
Such a trust may be established only if, among other things, we
have delivered to the applicable Trustee an opinion of counsel
(as specified in the applicable indenture) to the effect that
the holders of such debt securities will not recognize income,
gain or loss for U.S. federal income tax purposes as a
result of such defeasance or covenant defeasance and will be
subject to U.S. federal income tax on the same amounts, in
the same manner and at the same times as would have been the
case if such defeasance or covenant defeasance had not occurred.
In the case of
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defeasance, the opinion of counsel must refer to and be based
upon a ruling of the Internal Revenue Service or a change in
applicable United States federal income tax law occurring after
the date of such indenture (section 1404 of the indentures).
Government Obligations means securities that are
(1) direct obligations of the United States of America or
the government which issued the foreign currency in which the
debt securities of a particular series are payable, and for
which the full faith and credit of the applicable government is
pledged, or
(2) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of
America or such government which issued the foreign currency in
which the debt securities of such series are payable. The
payment of these obligations must be unconditionally guaranteed
as a full faith and credit obligation by the United States of
America or such other government, and the obligations may not be
callable or redeemable at the option of the issuer thereof. Such
obligations also include a depository receipt issued by a bank
or trust company as custodian with respect to any such
Government Obligation or a specific payment of interest on or
principal of any such Government Obligation held by such
custodian for the account of the holder of a depository receipt,
provided that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by
the custodian in respect of the Government Obligation or the
specific payment of interest on or principal of the Government
Obligation evidenced by such depository receipt
(section 101 of the indentures).
Unless otherwise provided in the applicable prospectus
supplement, if after we have deposited funds
and/or
Government Obligations to effect defeasance or covenant
defeasance with respect to debt securities of any series:
(1) the holder of a debt security of such series is
entitled to, and does, elect under the applicable indenture or
the terms of such debt security to receive payment in a
currency, currency unit or composite currency other than that in
which such deposit has been made in respect of such debt
security, or
(2) a Conversion Event (as defined below) occurs in respect
of the currency, currency unit or composite currency in which
such deposit has been made,
the indebtedness represented by such debt security shall be
deemed to have been, and will be, fully discharged and satisfied
through the payment of the principal of (and premium, if any)
and interest on such debt security as they become due out of the
proceeds yielded by converting the amount deposited in respect
of such debt security into the currency, currency unit or
composite currency in which such debt security becomes payable
as a result of such election or such cessation of usage based on
the applicable market exchange rate (section 1405 of the
indentures). Conversion Event means the cessation of
use of:
(1) a currency, currency unit or composite currency both by
the government of the country which issued such currency and for
the settlement of actions by a central bank or other public
institution of or within the international banking community,
(2) the ECU both within the European Monetary System and
for the settlement of transactions by public institutions of or
within the European Communities, or
(3) any currency unit or composite currency other than the
ECU for the purposes for which it was established
(section 101 of the indentures).
Unless otherwise described in the applicable prospectus
supplement, all payments of principal of (and premium, if any)
and interest on any debt security that is payable in a foreign
currency that ceases to be used by its government of issuance
shall be made in U.S. dollars.
In the event we effect covenant defeasance with respect to any
debt securities and such debt securities are declared due and
payable because of the occurrence of any Event of Default, other
than:
(1) with respect to senior securities, the Event of Default
described in clause (4) under Events of Default,
Notice and Waiver or
(2) with respect to all debt securities, the Event of
Default described in clause (7) under Events of
Default, Notice and Waiver with respect to any other
covenant as to which there has been covenant defeasance,
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the amount in such currency, currency unit or composite currency
in which such debt securities are payable, and Government
Obligations on deposit with the applicable Trustee, will be
sufficient to pay amounts due on such debt securities at the
fixed date on which they become due and payable but may not be
sufficient to pay amounts due on such debt securities at the
time of the acceleration resulting from such Event of Default.
In any such event, we would remain liable to make payment of
such amounts due at the time of acceleration.
The applicable prospectus supplement may further describe the
provisions, if any, permitting such defeasance or covenant
defeasance, including any modifications to the provisions
described above, with respect to the debt securities of or
within a particular series.
Senior
Securities and Senior Indebtedness
Each series of senior securities will constitute Senior
Indebtedness (as described below) and will rank equally with
each other series of senior securities and other Senior
Indebtedness. All subordinated indebtedness will be subordinated
to the senior securities and other Senior Indebtedness.
Subordinated indebtedness includes, but is not limited to, all
subordinated securities issued under the subordinated indenture.
Senior Indebtedness is defined in the subordinated indenture to
mean:
(1) the principal of (and premium, if any) and unpaid
interest on indebtedness for money borrowed,
(2) purchase money and similar obligations,
(3) obligations under capital leases,
(4) guarantees, assumptions or purchase commitments
relating to indebtedness of others, or other transactions as a
result of which we are responsible for the payment of
indebtedness of others,
(5) renewals, extensions and refunding of any such
indebtedness,
(6) interest or obligations in respect of any indebtedness
accruing after the commencement of any insolvency or bankruptcy
proceedings, and
(7) obligations associated with derivative products such as
interest rate and currency exchange contracts, foreign exchange
contracts, commodity contracts, and similar arrangements.
The indebtedness or obligations described above are not Senior
Indebtedness to the extent the instrument by which we incurred,
assumed or guaranteed the indebtedness or obligations provides
that such indebtedness or obligation is subordinate or junior in
right of payment to any of our other indebtedness or obligations.
Subordination
of Subordinated Securities
Subordinated Indenture.
The principal of (and
premium, if any) and interest payments on the subordinated
securities will be subordinated as set forth in the subordinated
indenture to our Senior Indebtedness whether outstanding on the
date of the subordinated indenture or thereafter incurred
(section 1701 of the subordinated indenture).
Ranking.
No class of subordinated securities
is subordinated to any other class of subordinated debt
securities. See Subordination Provisions below.
Subordination Provisions.
In the event:
(1) of any distribution of our assets upon any dissolution,
winding-up,
liquidation or reorganization, whether in bankruptcy,
insolvency, reorganization or receivership proceeding or upon an
assignment for the benefit of creditors or any other marshalling
of our assets and liabilities or otherwise, except a
distribution in connection with a merger or consolidation or a
conveyance or transfer of all or substantially all of our
properties which complies with the requirements of
Article Eight of the subordinated indenture,
(2) that a default shall have occurred and be continuing
with respect to the payment of principal of (or premium, if any)
or interest on any Senior Indebtedness, or
(3) that the principal of the subordinated securities of
any series issued under the subordinated indenture (or in the
case of Original Issue Discount Securities, the portion of the
principal amount thereof referred to in
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section 502 of the subordinated indenture) shall have been
declared due and payable pursuant to section 502 of the
subordinated indenture, and such declaration has not been
rescinded and annulled, then:
(a) in a circumstance described in clause (1) or
(2) above, the holders of all Senior Indebtedness, and in
the circumstance described in clause (3) above, the holders
of all Senior Indebtedness outstanding at the time the principal
of such issued subordinated securities (or in the case of
Original Issue Discount Securities, such portion of the
principal amount) has been declared due and payable, shall first
be entitled to receive payment of the full amount due thereon in
respect of principal, premium (if any) and interest, or
provision shall be made for such payment in money or
moneys worth, before the holders of any of the
subordinated securities are entitled to receive any payment on
account of the principal of (or premium, if any) or interest on
the subordinated securities;
(b) any payment by us, or distribution of our assets, of
any kind or character, whether in cash, property or securities
(other than certain subordinated securities issued in a
reorganization or readjustment), to which the holder of any of
the subordinated securities would be entitled except for the
provisions of Article Seventeen of the subordinated
indenture shall be paid or delivered by the Person making such
payment or distribution directly to the holders of Senior
Indebtedness (as provided in clause (a) above), or on their
behalf, to the extent necessary to make payment in full of all
Senior Indebtedness (as provided in clause (a) above)
before any payment or distribution is made to or in respect of
the holders of the subordinated securities. Such payment or
distribution will be made ratably according to the aggregate
amount remaining unpaid on account of such Senior Indebtedness.
The amount of Senior Indebtedness remaining unpaid shall be
calculated after giving effect to any concurrent payment or
distribution (or provisions therefor) to the holders of Senior
Indebtedness; and
(c) in the event that, notwithstanding the foregoing, any
payment by us, or distribution of our assets, of any kind or
character is received by the holders of any of the subordinated
securities issued under the subordinated indenture before all
Senior Indebtedness is paid in full, such payment or
distribution shall be paid over to the holders of such Senior
Indebtedness or on their behalf, ratably as stated above, for
application to the payment of all such Senior Indebtedness
remaining unpaid until all such Senior Indebtedness shall have
been paid in full. The amount of Senior Indebtedness remaining
unpaid shall be calculated after giving effect to any concurrent
payment or distribution (or provisions therefor) to the holders
of such Senior Indebtedness.
Because of subordination in favor of the holders of Senior
Indebtedness in the event of insolvency, certain of our general
creditors, including holders of Senior Indebtedness, may recover
more, ratably, than the holders of the subordinated securities.
Convertible
Debt Securities
The following provisions will apply to debt securities that will
be convertible into our common shares or other equity securities
(Convertible debt securities) unless otherwise
described in the prospectus supplement for such Convertible debt
securities.
Our board of directors will determine the terms and conditions
of any Convertible debt securities, if any, issued pursuant to
the senior indenture (Senior Convertible debt
securities). Such terms and conditions may include whether
the Senior Convertible debt securities are convertible into our
common or preferred shares (including, without limitation, the
initial conversion price or rate, the conversion period, any
adjustment of the applicable conversion price and any
requirements relative to the reservation of such shares for
purposes of conversion) (section 301 of the senior
indenture).
The holder of any Convertible debt securities issued pursuant to
the subordinated indenture (Subordinated Convertible debt
securities) will have the right to convert those
Subordinated Convertible debt securities into our common shares
or other equity securities at the conversion price or rate for
each $1,000 principal amount of Subordinated Convertible debt
securities set forth in the applicable prospectus supplement.
This conversion right is exercisable at any time during the time
period specified in the applicable prospectus supplement unless
the Subordinated Convertible debt security has been previously
redeemed. The holder of any Subordinated Convertible debt
security may convert a portion thereof, which is $1,000 or any
integral multiple of $1,000 (section 1602 of the
subordinated indenture). In the case of Subordinated Convertible
debt securities called for redemption, conversion
15
rights will expire at the close of business on the date fixed
for the redemption specified in the prospectus supplement.
However, in the case of repayment at the option of the
applicable holder, conversion rights will terminate upon our
receipt of written notice of the exercise of such option
(section 1602 of the subordinated indenture).
In certain events, the conversion price or rate will be subject
to adjustment as contemplated in the subordinated indenture. For
debt securities convertible into common shares, such events
include:
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the issuance of our common shares as a dividend;
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subdivisions and combinations of common shares;
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the issuance to all holders of rights or warrants entitling such
holders of common shares to subscribe for a purchase of common
shares at a price per share less than the current market price
per common share; and
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the distribution to all holders of common shares of shares of
our capital stock (other than common shares), evidences of our
indebtedness or assets (excluding cash dividends or
distributions paid from our retained earnings or subscription
rights or warrants other than those referred to above).
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The conversion price or rate is not required to be adjusted if
the adjustment would require a cumulative increase or decrease
in price or rate of less than 1% (section 1605 of the
subordinated indenture). Fractional common shares will not be
issued upon conversion; instead, we will pay cash adjustments
(section 1606 of the subordinated indenture). Unless
otherwise specified in the applicable prospectus supplement,
Subordinated Convertible debt securities convertible into common
shares surrendered for conversion between any record date for an
interest payment and the related interest payment date (except
such Subordinated Convertible debt securities called for
redemption on a redemption date during such period) must be
accompanied by the interest payment that the holder thereof is
entitled to receive (section 1604 of the subordinated
indenture).
To protect our status as a REIT, a Person may not own or convert
any Subordinated Convertible debt security if as a result of
such ownership or upon such conversion such Person would then be
deemed to Beneficially Own more than 5.0% of our outstanding
capital stock (section 1601 of the subordinated indenture).
For purposes of determining the percentage ownership of our
common shares or other equity securities held by an investor,
common shares or other equity securities that may be acquired
upon the conversion of Convertible debt securities directly or
constructively held by such investor, but not common shares or
other equity securities issuable with respect to the conversion
of Convertible debt securities held by others, are deemed to be
outstanding (a) at the time of purchase of the Convertible
debt securities, and (b) prior to the conversion of the
Convertible debt securities. See Certain Federal Income
Tax Considerations.
The adjustment provisions for debt securities convertible into
our equity securities other than common shares will be
determined at the time of issuance of such debt securities and
will be set forth in the applicable prospectus supplement.
Except as set forth in the applicable prospectus supplement, any
Convertible debt securities called for redemption, unless
surrendered for conversion on or before the close of business on
the redemption date, are subject to being purchased from the
holder of such Convertible debt securities by one or more
investment bankers or other purchasers who may agree with us to
purchase such Convertible debt securities and convert them into
our common shares or other equity securities, as the case may be
(section 1108 of the indentures).
Reference is made to the sections captioned Description of
Common Shares, Description of Preferred Shares
and Description of Depositary Shares for a general
description of securities to be acquired upon the conversion of
Convertible debt securities, including a description of certain
restrictions on the ownership of the common shares and the
preferred shares.
The
Trustees
U.S. Bank Trust National Association serves as Trustee
for our senior securities pursuant to the senior indenture.
National City Bank serves as Transfer Agent for our common
shares. The Bank of New York serves as Trustee for our
subordinated securities pursuant to the subordinated indenture.
16
Definitions
Set forth below are defined terms used in the indentures.
Reference is made to the indentures for a full disclosure of all
such terms, as well as any other capitalized terms used herein
for which no definition is provided.
Additional Amounts means any additional amounts
which are required by a debt security or by or pursuant to a
resolution of our board of directors, under circumstances
specified therein, to be paid by us in respect of certain taxes
imposed on certain holders and which are owing to such holders.
Affiliate of any Person means any other Person
directly or indirectly controlling or controlled by or under
direct or indirect common control with such Person. Control
means the power to direct the management and policies of a
Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise.
Beneficially Own means the ownership of our common
shares by a Person who would be treated as an owner of such
common shares either directly or through the application of
Section 544 of the Code, as modified by
Section 856(b)(1)(B) of the Code.
Consolidated Income Available for Debt Service for
any period means Consolidated Net Income (as defined below) of
Developers Diversified Realty Corporation and its subsidiaries:
(1) plus amounts which have been deducted for
(a) interest on our and our subsidiaries Debt,
(b) provision for our and our subsidiaries taxes
based on income,
(c) amortization of debt discount,
(d) depreciation and amortization, and
(2) adjusted, as appropriate, for
(a) the effect of any noncash charge resulting from a
change in accounting principles in determining Consolidated Net
Income for such period, and
(b) the effect of equity in net income or loss of joint
ventures in which we own an interest to the extent not providing
a source of, or requiring a use of, cash, respectively.
Consolidated Net Income for any period means the
amount of our and our subsidiaries net income (or loss)
for such period determined on a consolidated basis in accordance
with generally accepted accounting principles.
Debt means any of our or our subsidiaries
indebtedness, whether or not contingent, in respect of:
(1) borrowed money or evidenced by bonds, notes, debentures
or similar instruments;
(2) indebtedness secured by any mortgage, pledge, lien,
charge, encumbrance or any security interest existing on
property owned by us or our subsidiaries;
(3) letters of credit or amounts representing the balance
deferred and unpaid of the purchase price of any property except
any such balance that constitutes an accrued expense or trade
payable; or
(4) any lease of property by us or our subsidiaries as
lessee which is reflected on our Consolidated Balance Sheet as a
capitalized lease in accordance with generally accepted
accounting principles, in the case of items of indebtedness
under (1) through (3) above to the extent that any
such items (other than letters of credit) would appear as a
liability on our Consolidated Balance Sheet in accordance with
generally accepted accounting principles. Debt also includes, to
the extent not otherwise included, any obligation of ours or our
subsidiaries to be liable for, or to pay, as obligor, guarantor
or otherwise (other than for purposes of collection in the
ordinary course of business), indebtedness of another Person
(other than us or our subsidiaries). Debt shall be deemed to be
incurred by us or our subsidiaries whenever we or any such
subsidiary shall create, assume, guarantee or otherwise become
liable in respect thereof.
Funds from Operations means net income, adjusted to
exclude: (i) preferred dividends, (ii) gains (or
losses) from sales of depreciable real estate property, except
for those sold through the Companys merchant building
program, which are presented net of taxes, (iii) sales of
securities, (iv) extraordinary items, and (v) certain
non-cash items. These non-cash items principally include real
property depreciation, equity income from joint ventures and
equity income from minority equity investments and adding the
Companys proportionate share of Funds from
17
Operations from its unconsolidated joint ventures and minority
equity investments, determined on a consistent basis.
Holder means the Person in whose name a debt
security is registered in the register for each series of debt
securities.
Indexed Security means a debt security for which the
principal amount payable on the date specified in such debt
security as the fixed date on which the principal of such
security is due and payable may be more or less than the
principal face amount thereof at original issuance.
Maximum Annual Service Charge as of any date means
the maximum amount which may become payable in a period of 12
consecutive calendar months from such date for interest on, and
required amortization of, Debt. The amount payable for
amortization will include the amount of any sinking fund or
other analogous fund for the retirement of Debt. It will also
include the amount payable on account of principal of any such
Debt which matures serially other than at the final maturity
date of such Debt.
Outstanding, when used with respect to debt
securities, means, as of the date of determination, all debt
securities theretofore authenticated and delivered under the
indenture, except:
(1) debt securities theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(2) debt securities, or portions thereof, for whose payment
or redemption or repayment at the option of the holder money in
the necessary amount has been deposited with the Trustee or any
paying agent (other than by us) in trust or set aside and
segregated in trust by us (if we shall act as our own paying
agent) for the holders of such debt securities and any coupons
appertaining thereto, provided that, if such debt securities are
to be redeemed, notice of such redemption has been duly given
pursuant to the indenture or provision therefor satisfactory to
the Trustee has been made;
(3) debt securities, except to the extent provided in
sections 1402 and 1403 of the indenture, with respect to
which we have effected defeasance
and/or
covenant defeasance;
(4) debt securities which have been paid pursuant to
section 306 or in exchange for or in lieu of which other
debt securities have been authenticated and delivered pursuant
to the indenture, other than any such debt securities in respect
of which there shall have been presented to the Trustee proof
satisfactory to it that such debt securities are held by a bona
fide purchaser in whose hands such debt securities are our valid
obligations; and
(5) debt securities converted into common shares or
preferred shares in accordance with or as contemplated by the
indenture, if the terms of such debt securities provide for
convertibility pursuant to section 301;
provided, however, that in determining whether the holders of
the requisite principal amount of the Outstanding securities
have given any request, demand, authorization, direction,
notice, consent of waiver hereunder or are present at a meeting
of holders for quorum purposes, and for the purpose of making
the calculations required by section 313 of the Trust
Indenture Act of 1939, as amended:
(1) the principal amount of an Original Issue Discount
Security that may be counted in making such determination or
calculation and that shall be deemed to be Outstanding for such
purpose shall be equal to the amount of principal that would be
(or shall have been declared to be) due and payable, at the time
of such determination, upon a declaration of acceleration of the
maturity thereof;
(2) the principal amount of any debt security denominated
in a foreign currency that may be counted in making such
determination or calculation and that shall be deemed
Outstanding for such purpose shall be equal to the
U.S. dollar equivalent, determined pursuant to
section 301 as of the date such debt security is originally
issued by us, of the principal amount (or, in the case of an
Original Issue Discount Security, the U.S. dollar
equivalent as of such date of original issuance of the amount
determined as provided in clause (1) above) of such debt
security;
(3) the principal amount of any Indexed Security that may
be counted in making such determination or calculation and that
shall be deemed Outstanding for such purpose shall be equal to
the principal face amount of such Indexed Security at original
issuance, unless otherwise provided with respect to such Indexed
Security pursuant to section 301; and
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(4) debt securities owned by us or any other obligor upon
the debt securities or any Affiliate of ours or of such other
obligor shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be
protected in making such calculation or in relying upon any such
request, demand, authorization, direction, notice, consent or
waiver, only debt securities which the Trustee knows to be so
owned shall be so disregarded. Debt securities so owned which
have been pledged in good faith may be regarded as Outstanding
if the pledgee establishes to the satisfaction of the Trustee
the pledgees right so to act with respect to any such debt
securities and that the pledgee is not us or any other obligor
upon the debt securities or any Affiliate of ours or of such
other obligor.
Person means any individual, corporation,
partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency
or political subdivision thereof.
Secured Debt means, without duplication, Debt that
is secured by a mortgage, trust deed, deed of trust, deed to
secure Debt, security agreement, pledge, conditional sale or
other title retention agreement, capitalized lease, or other
like agreement granting or conveying security title to or a
security interest in real property or other tangible asset(s).
Secured Debt shall be deemed to be incurred (i) on the date
the obligor thereon creates, assumes, guarantees or otherwise
becomes liable in respect thereof if it is secured in the manner
described in the preceding sentence on such date or (ii) on
the date the obligor thereon first secures such Debt in the
manner described in the preceding sentence if such Debt was not
so secured on the date it was incurred.
Subsidiary means an entity a majority of the
outstanding voting stock of which is owned, directly or
indirectly, by us or by one or more of our other subsidiaries.
For purposes of this definition, voting stock means
stock having voting power for the election of directors, whether
at all times or only so long as no senior class of stock has
such voting power by reason of any contingency.
Total Assets as of any date means the sum of
(i) Undepreciated Real Estate Assets and (ii) all
other assets of the Company and its subsidiaries determined on a
consolidated basis in accordance with generally accepted
accounting principles (but excluding intangibles and trade
receivables related to rent and other charges derived from
leases with tenants) after eliminating intercompany accounts and
transactions.
Undepreciated Real Estate Assets as of any date
means the amount of our and our subsidiaries real estate
assets on such date, before depreciation and amortization and
determined on a consolidated basis in accordance with generally
accepted accounting principles.
Unencumbered Real Estate Asset Value as of any date
means the sum of:
(1) our Undepreciated Real Estate Assets, which are not
encumbered by any mortgage, lien, charge, pledge or security
interest, as of the end of the latest calendar quarter covered
in our Annual Report on
Form 10-K
or Quarterly Report on
Form 10-Q,
as the case may be, most recently filed with the Commission (or,
if that filing is not required under the Exchange Act, with the
Trustee) prior to such date; and
(2) the purchase price of any real estate assets that are
not encumbered by any mortgage, lien, charge, pledge, or
security interest and were acquired by us or any subsidiary
after the end of such calendar quarter.
Book-Entry
Debt Securities
We may issue debt securities of a series in whole or in part in
the form of one or more global securities. We will deposit such
global securities with, or on behalf of, a depository identified
in the applicable prospectus supplement. We may issue global
securities in either registered or bearer form and in either
temporary or permanent form. Unless we specify otherwise in the
applicable prospectus supplement, debt securities that are
represented by a global security will be issued in denominations
of $1,000 or any integral multiple thereof and will be issued in
registered form only, without coupons. We will make payments of
principal of, premium, if any, and interest on debt securities
represented by a global security to the applicable trustee under
the applicable indenture, which will then forward such payments
to the depository.
We anticipate that any global securities will be deposited with,
or on behalf of, The Depository Trust Company, New York, New
York (DTC), and that such global securities will be
registered in the name of Cede & Co., DTCs
nominee. We further anticipate that the following provisions
will apply to the depository arrangements with respect to any
such global securities. We will describe any additional or
differing terms of the depository arrangements in
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the applicable prospectus supplement relating to a particular
series of debt securities issued in the form of global
securities.
So long as DTC or its nominee is the registered owner of a
global security, DTC or its nominee, as the case may be, will be
considered the sole holder of the debt securities represented by
such global security for all purposes under the applicable
indenture. Except as described below, owners of beneficial
interests in a global security:
(i) will not be entitled to have debt securities
represented by such global security registered in their names;
(ii) will not receive or be entitled to receive physical
delivery of debt securities in certificated form; and
(iii) will not be considered the owners or holders thereof
under the applicable indenture.
The laws of some states require that certain purchasers of
securities take physical delivery of such securities in
certificated form; accordingly, such laws may limit the
transferability of beneficial interests in a global security.
Unless we specify otherwise in the applicable prospectus
supplement, each global security representing book-entry notes
will be exchangeable for certificated notes only if:
(i) DTC notifies us that it is unwilling or unable to
continue as depository or DTC ceases to be a clearing agency
registered under the Exchange Act (if so required by applicable
law or regulation) and, in either case, a successor depository
is not appointed by us within 90 days after we receive such
notice or become aware of such unwillingness, inability or
ineligibility;
(ii) we, in our sole discretion, determine that the global
securities shall be exchangeable for certificated notes; or
(iii) there shall have occurred and be continuing an event
of default under an indenture with respect to the notes and
beneficial owners representing a majority in aggregate principal
amount of the book-entry notes represented by global securities
advise DTC to cease acting as depository. Upon any such
exchange, owners of a beneficial interest in the global security
or securities representing book-entry notes will be entitled to
physical delivery of individual debt securities in certificated
form of like tenor and rank, equal in principal amount to such
beneficial interest, and to have such debt securities in
certificated form registered in the names of the beneficial
owners, which names shall be provided by DTCs relevant
participants (as identified by DTC) to the applicable trustee.
Unless we describe otherwise in the applicable prospectus
supplement, debt securities so issued in certificated form will
be issued in denominations of $1,000 or any integral multiple
thereof, and will be issued in registered form only, without
coupons.
DTC will act as securities depository for the debt securities.
The debt securities will be issued as fully registered
securities registered in the name of Cede & Co.
(DTCs partnership nominee) or such other name as may be
requested by an authorized representative of DTC. Except as
otherwise provided, one fully registered debt security
certificate will be issued with respect to each series of the
debt securities, each in the aggregate principal amount of such
series, and will be deposited with DTC. If, however, the
aggregate principal amount of any series exceeds
$500 million, one certificate will be issued with respect
to each $500 million of principal amount and an additional
certificate will be issued with respect to any remaining
principal amount of such series.
The following is based on information furnished to us by DTC:
DTC, the worlds largest securities depository, is a
limited-purpose trust company organized under the New York
Banking Law, a banking organization within the
meaning of the New York Banking Law, a member of the Federal
Reserve System, a clearing corporation within the
meaning of the New York Uniform Commercial Code, and a
clearing agency registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC holds
and provides asset servicing for over 2.2 million issues of
U.S. and
non-U.S. equity
issues, corporate and municipal debt issues, and money market
instruments from over 100 countries that DTCs participants
(Direct Participants) deposit with DTC. DTC also
facilitates the post-trade settlement among Direct Participants
of sales and other securities transactions in deposited
securities through electronic computerized book-entry transfers
and pledges between Direct Participants accounts. This
eliminates the need for physical movement of securities
certificates. Direct Participants include both U.S. and
non-U.S. securities
brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations. DTC is a
wholly-owned subsidiary of The Depository Trust &
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Clearing Corporation (DTCC). DTCC, in turn, is owned
by a number of Direct Participants of DTC and members of the
National Securities Clearing Corporation, Fixed Income Clearing
Corporation, and Emerging Markets Clearing Corporation (NSCC,
FICC, and EMCC are also subsidiaries of DTCC), as well as by the
New York Stock Exchange, Inc., the American Stock Exchange LLC,
and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others such as both U.S.
and
non-U.S. securities
brokers and dealers, banks, trust companies, and clearing
corporations that clear through or maintain a custodial
relationship with a Direct Participant, either directly or
indirectly (Indirect Participants). DTC has
Standard & Poors highest rating: AAA. The DTC
rules applicable to its Participants are on file with the SEC.
More information about DTC can be found at
www.dtcc.com
and
www.dtc.org.
Purchases of debt securities under the DTC system must be made
by or through Direct Participants, which will receive a credit
for the debt securities on DTCs records. The ownership
interest of each actual purchaser of each debt security
(Beneficial Owner) is in turn to be recorded on the
Direct and Indirect Participants records. Beneficial
Owners will not receive written confirmation from DTC of their
purchase, but Beneficial Owners are, however, expected to
receive a written confirmation providing details of the
transaction, as well as periodic statements of their holdings,
from the Direct or Indirect Participant through which the
Beneficial Owner entered into the transaction. Transfers of
ownership interests in debt securities are to be accomplished by
entries made on the books of Direct and Indirect Participants
acting on behalf of Beneficial Owners. Beneficial Owners will
not receive certificates representing their ownership interests
in debt securities, except in the event that use of the
book-entry system for the debt securities is discontinued.
To facilitate subsequent transfers, all debt securities
deposited by Direct Participants with DTC are registered in the
name of DTCs partnership nominee, Cede & Co, or
such other name as may be requested by an authorized
representative of DTC. The deposit of the debt securities with
DTC and their registration in the name of Cede & Co. or
such other DTC nominee do not effect any change in beneficial
ownership. DTC has no knowledge of the actual Beneficial Owners
of the debt securities; DTCs records reflect only the
identities of the Direct Participants to whose accounts debt
securities are credited, which may or may not be the Beneficial
Owners. The Direct and Indirect Participants will remain
responsible for keeping account of their holdings on behalf of
their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants,
and by Direct Participants and Indirect Participants to
Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in
effect from time to time.
Neither DTC nor Cede & Co. (nor any other DTC nominee)
will consent or vote with respect to the debt securities unless
authorized by a Direct Participant in accordance with DTCs
procedures. Under its usual procedures, DTC mails a proxy (an
Omnibus Proxy) to the issuer as soon as possible
after the record date. The Omnibus Proxy assigns Cede &
Co.s consenting or voting rights to those Direct
Participants to whose accounts the debt securities are credited
on the record date (identified on a list attached to the Omnibus
Proxy).
Principal, premium, if any, interest payments and redemption
proceeds on the debt securities will be made to Cede &
Co., or such other nominee, as may be requested by an authorized
representative of DTC. DTCs practice is to credit Direct
Participants accounts upon DTCs receipt of funds and
corresponding detail information from us or the trustee, on the
payment date in accordance with their respective holdings shown
on DTCs records. Payments by Participants to Beneficial
Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts
of customers in bearer form or registered in street
name and will be the responsibility of such Participant
and not of DTC, nor its nominee, the applicable Trustee or us,
subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of principal, premium, if any,
interest and redemption proceeds to Cede & Co. (or such
other nominee as may be requested by an authorized
representative of DTC) is our responsibility or the applicable
Trustees, disbursement of such payments to Direct
Participants will be the responsibility of DTC, and disbursement
of such payments to the Beneficial Owners will be the
responsibility of Direct and Indirect Participants.
If applicable, redemption notices shall be sent to DTC. If less
than all of the book-entry notes within an issue are being
redeemed, DTCs practice is to determine by lot the amount
of the interest of each Direct Participant in such issue to be
redeemed.
A Beneficial Owner shall give notice of any option to elect to
have its book-entry notes repaid by us, through its Participant,
to the applicable Trustee, and shall effect delivery of such
book-entry notes by causing the Direct
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Participant to transfer the Participants interest in the
global security or securities representing such book-entry
notes, on DTCs records, to such Trustee. The requirement
for physical delivery of book-entry notes in connection with a
demand for repayment will be deemed satisfied when the ownership
rights in the global security or securities representing such
book-entry notes are transferred by Direct Participants on
DTCs records and followed by a book-entry credit of
tendered securities to the Trustees DTC account.
DTC may discontinue providing its services as securities
depository with respect to the debt securities at any time by
giving reasonable notice to the applicable Trustee or us. Under
such circumstances, in the event that a successor securities
depository is not appointed, debt security certificates are
required to be printed and delivered.
We may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In
that event, debt security certificates will be printed and
delivered to DTC.
The information in this section concerning DTC and DTCs
book-entry system has been obtained from sources that we believe
to be reliable, but we take no responsibility for the accuracy
thereof.
Unless stated otherwise in the prospectus supplement, the
underwriters or agents with respect to a series of debt
securities issued as global securities will be Direct
Participants in DTC.
Neither we, the applicable Trustee nor any applicable paying
agent will have any responsibility or liability for any aspect
of the records relating to or payments made on account of
beneficial interests in a global security, or for maintaining,
supervising or reviewing any records relating to such beneficial
interest.
DESCRIPTION
OF PREFERRED SHARES
Our articles of incorporation authorize the Company to issue up
to:
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750,000 Class A Cumulative Preferred Shares, without par
value (the Class A Shares), of which none are
issued and outstanding;
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750,000 Class B Cumulative Preferred Shares, without par
value (the Class B Shares), of which none are
issued and outstanding;
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750,000 Class C Cumulative Preferred Shares, without par
value (the Class C Shares), of which none are
issued and outstanding;
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750,000 Class D Cumulative Preferred Shares, without par
value (the Class D Shares), of which none are
issued and outstanding;
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750,000 Class E Cumulative Preferred Shares, without par
value (the Class E Shares), of which none are
issued and outstanding;
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750,000 Class F Cumulative Preferred Shares, without par
value (the Class F Shares), of which
690,000 shares have been designated as 8.60% Class F
Cumulative Redeemable Preferred Shares and of which
600,000 shares are issued and outstanding;
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750,000 Class G Cumulative Preferred Shares, without par
value (the Class G Shares), of which
736,000 shares have been designated as 8% Class G
Cumulative Redeemable Preferred Shares and of which
720,000 shares are issued and outstanding;
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750,000 Class H Cumulative Preferred Shares, without par
value (the Class H Shares), of which
410,000 shares have been designated as
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3
/
8
%
Class H Cumulative Redeemable Preferred Shares, all of
which are issued and outstanding;
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750,000 Class I Cumulative Preferred Shares, without par
value (the Class I Shares), of which
345,000 shares have been designated as 7.50% Class I
Cumulative Redeemable Preferred Shares and of which
340,000 shares are issued and outstanding;
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750,000 Class J Cumulative Preferred Shares, without par
value (the Class J Shares), of which none are
issued and outstanding;
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750,000 Class K Cumulative Preferred Shares, without par
value (the Class K Shares), of which none are
issued and outstanding;
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750,000 Noncumulative Preferred Shares, without par value (the
Noncumulative Shares), of which none are issued and
outstanding (the Class A Shares, the Class B Shares,
the Class C Shares, the Class D Shares, the
Class E Shares, the Class F Shares, the Class G
Shares, the Class H Shares, the Class I Shares, the
Class J Shares, the Class K Shares and the Noncumulative
Shares, collectively the nonvoting preferred
shares); and
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2,000,000 Cumulative Voting Preferred Shares, without par value
(the Cumulative Voting Preferred Shares), of which
none are issued and outstanding.
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The outstanding nonvoting preferred shares are represented by
depositary shares. Each depositary share represents a fractional
interest in the respective preferred share. The preferred shares
have been deposited with National City Bank, Cleveland, Ohio, as
Depositary, under a Deposit Agreement between us, National City
Bank and the holders from time to time of the depositary
receipts issued under the Deposit Agreement. The depositary
receipts evidence the depositary shares. Each holder of a
depositary receipt evidencing a depositary share will be
entitled to all the rights and preferences of a fractional
interest in a corresponding preferred share, including dividend,
voting, redemption and liquidation rights and preferences.
The following description summarizes certain general terms and
provisions of each class of nonvoting preferred shares and the
Cumulative Voting Preferred Shares. This summary is not
complete. For more detail, you should refer to the applicable
provisions of our articles of incorporation and code of
regulations that are filed as exhibits to the registration
statement.
General
Except as discussed below, the nonvoting preferred shares rank
on a parity with each other and are identical to each other. The
Cumulative Voting Preferred Shares rank equally, except with
respect to voting rights, with all of the nonvoting preferred
shares. Dividends on the Class A Shares, the Class B
Shares, the Class C Shares, the Class D Shares, the
Class E Shares, the Class F Shares, the Class G
Shares, the Class H Shares, the Class I Shares, the
Class J Shares, the Class K Shares and the Cumulative
Voting Preferred Shares will be cumulative, while dividends on
the Noncumulative Shares will not be cumulative.
Prior to the issuance of shares of each series of each class of
nonvoting preferred shares, our board of directors may, under
our articles of incorporation and Ohio law, fix:
(1) the designation of the series;
(2) the authorized number of shares of the series. Our
board of directors may, except when otherwise provided in the
creation of the series, increase or decrease the authorized
number of shares before or after issuance of the series (but not
below the number of shares thereof then outstanding);
(3) the dividend rate or rates of the series, including the
means by which such rates may be established;
(4) the date(s) from which dividends shall accrue and be
cumulative and, with respect to all nonvoting preferred shares,
the date on which and the period(s) for which dividends, if
declared, shall be payable, including the means by which such
date(s) and period(s) may be established;
(5) redemption rights and prices, if any;
(6) the terms and amounts of the sinking fund, if any;
(7) the amounts payable on shares of the series in the
event of any voluntary or involuntary liquidation, dissolution
or
winding-up
of our affairs;
(8) whether the shares of the series shall be convertible
into common shares or shares of any other class;
(9) if the shares are convertible, the conversion rate(s)
or price(s), any adjustments to the rate or price and all other
terms and conditions upon which such conversion may be
made; and
(10) restrictions on the issuance of shares of the same or
any other class or series.
A prospectus supplement relating to the preferred shares being
offered will specify the following terms:
(1) the class, series and title of the preferred shares;
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(2) the number of preferred shares offered, the liquidation
preference per share and the offering price of such preferred
shares;
(3) the dividend rate(s), period(s) and payment date(s) or
method of calculation thereof applicable to such preferred
shares;
(4) the date from which dividends on such preferred shares
shall accumulate, if applicable;
(5) the procedures for any auction or remarketing of such
preferred shares;
(6) the provision for any sinking fund for such preferred
shares;
(7) the provision for redemption, if applicable, of such
preferred shares;
(8) any listing of such preferred shares on any securities
exchange;
(9) any terms and conditions upon which such preferred
shares will be convertible into our common shares, including the
conversion price (or manner of calculation thereof);
(10) whether interests in such preferred shares will be
represented by depositary shares;
(11) any other specific terms, preferences, rights,
limitations or restrictions of or on such preferred shares;
(12) a discussion of federal income tax considerations
applicable to such preferred shares;
(13) the relative ranking and preferences of such preferred
shares as to dividend rights and rights upon our liquidation,
dissolution or
winding-up;
(14) any limitations on issuance of securities ranking
senior to or on a parity with such preferred shares as to
dividend rights and rights upon our liquidation, dissolution or
winding-up; and
(15) any limitations on direct or beneficial ownership and
restrictions on transfer that may be appropriate to preserve our
status as a REIT.
The nonvoting preferred shares, upon issuance against full
payment of the purchase price, will be fully paid and
nonassessable and will have no preemptive rights.
Rank
All preferred shares will be equal to all other preferred shares
with respect to dividend rights (subject to dividends on
Noncumulative Shares being noncumulative) and rights upon our
liquidation, dissolution or
winding-up.
The preferred shares will:
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rank prior to all classes of common shares and to all other
equity securities ranking junior to such preferred shares with
respect to dividend rights and rights upon our liquidation,
dissolution or
winding-up;
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be equal to all of our equity securities the terms of which
specifically provide that such equity securities are equal to
the preferred shares with respect to dividend rights and rights
upon our liquidation, dissolution or
winding-up; and
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be junior to all of our equity securities the terms of which
specifically provide that such equity securities rank prior to
the preferred shares with respect to dividend rights and rights
upon our liquidation, dissolution or
winding-up.
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Dividends
The holders of each series of each class of preferred shares are
entitled to receive, if, when and as declared, out of funds
legally available for payment, dividends in cash at the rate
determined for such series in preference to the holders of
common shares and of any other class of shares ranking junior to
the preferred shares. Dividends shall be payable on the date
fixed for such series. Dividends with respect to each series of
Class A Shares, Class B Shares, Class C Shares,
Class D Shares, Class E Shares, Class F Shares,
Class G Shares, Class H Shares, Class I Shares,
Class J Shares, Class K Shares and the Cumulative
Voting Preferred Shares will be cumulative from the dates fixed
for the series. Dividends will be payable to holders of record
as they appear on our stock transfer books on the record
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dates fixed by our board of directors. Any dividend payment made
on such preferred shares will first be credited against the
earliest accumulated but unpaid dividend due with respect to
such shares which remains payable.
Dividends on our preferred shares will accumulate whether or not
we have earnings, whether or not there are funds legally
available for the payment of such dividends and whether or not
such dividends are declared. Accumulated but unpaid dividends on
the preferred shares will not bear interest.
If preferred shares are outstanding, dividends may not be paid
or declared or set apart for any series of preferred shares for
any dividend period unless at the same time:
(1) a proportionate dividend for the dividend periods
terminating on the same or any earlier date for all issued and
outstanding shares of all series of such class entitled to
receive such dividend (but, if such series are series of
Noncumulative Shares, then only with respect to the current
dividend period), ratably in proportion to the respective annual
dividend rates fixed therefor, have been paid or declared or set
apart, and
(2) the dividends payable for the dividend periods
terminating on the same or any earlier date for all other
classes of issued and outstanding preferred shares entitled to
receive such dividends (but, with respect to Noncumulative
Shares, only with respect to the then-current dividend period),
ratably in proportion to the respective dividend rates fixed
therefor, have been paid or declared and set apart.
If any series of preferred shares is outstanding, a dividend
shall not be paid or declared or any distribution made in
respect of the common shares or any other shares ranking junior
to such series of preferred shares, and common shares or any
other shares ranking junior to such series of preferred shares
shall not be purchased, retired or otherwise acquired by us
unless:
(1) all accrued and unpaid dividends on all classes of
outstanding preferred shares, including the full dividends for
all current dividend periods for the nonvoting preferred shares
(except, with respect to Noncumulative Shares, for the
then-current dividend period only), have been declared and paid
or a sum sufficient for payment thereof set apart, and
(2) with respect to the nonvoting preferred shares, there
are no arrearages with respect to the redemption of any series
of any class of preferred shares from any sinking fund provided
for such class in accordance with our articles of incorporation.
However, common shares and any other shares ranking junior to
such series of preferred shares may be purchased, retired or
otherwise acquired using the proceeds of a sale of common shares
or other shares junior to such preferred shares received
subsequent to the first date of issuance of such preferred
shares. In addition, we may pay or declare or distribute
dividends payable in common shares or other shares ranking
junior to such preferred shares.
The preceding restrictions on the payment of dividends or other
distributions on, or on the purchase, redemption, retirement or
other acquisition of, common shares or any other shares ranking
equal to or junior to any class of preferred shares generally
will be inapplicable to:
(1) any payments in lieu of issuance of fractional shares,
upon any merger, conversion, stock dividend or otherwise in the
case of the nonvoting preferred shares;
(2) the conversion of preferred shares into common
shares; or
(3) the exercise of our rights to repurchase shares of
capital stock in order to preserve our status as a REIT under
the Code.
When dividends are not paid in full (or a sum sufficient for
full payment is not set apart) upon the preferred shares of any
series and the shares of any other series of preferred shares
ranking on a parity as to dividends with such series, all
dividends declared upon preferred shares of such series and any
other series of preferred shares ranking on a parity as to
dividends with such preferred shares shall be declared pro rata
so that the amount of dividends declared per share on the shares
of such series of preferred shares shall in all cases bear to
each other the same ratio that accrued dividends per share on
the preferred shares of such series (which shall not include any
accumulation in respect of unpaid dividends for prior dividend
periods for Noncumulative Shares) and such other series bear to
each other. No interest, or sum of money in lieu of interest,
shall be payable in respect of any dividend payment or payments
on preferred shares of such series which may be in arrears.
Any dividend payment made on preferred shares will first be
credited against the earliest accrued but unpaid dividend due
with respect to such shares that remains payable.
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Redemption
If our board of directors so provides in the applicable
prospectus supplement, a series of preferred shares will be
subject to mandatory redemption or redemption at our option, as
a whole or in part, in each case upon the terms, at the times
and at the redemption prices set forth in such prospectus
supplement.
The prospectus supplement for a series of preferred shares
subject to mandatory redemption will specify the number of such
preferred shares that will be redeemed by us in each year
commencing after a date to be specified. The prospectus
supplement will also specify a redemption price per share. The
redemption price per share will include an amount equal to all
accrued and unpaid dividends on such preferred shares as of the
date of redemption; however, the redemption price of
Noncumulative Shares will include only unpaid dividends for the
current dividend period. The redemption price may be payable in
cash or other property, as specified in the applicable
prospectus supplement.
We may not purchase or redeem, for sinking fund purposes or
otherwise, less than all of a class of outstanding preferred
shares except in accordance with a stock purchase offer made to
all holders of record of such class, unless all dividends on
that class of outstanding preferred shares for previous and
current dividend periods (except, in the case of Noncumulative
Shares, dividends for the current dividend period only) have
been declared and paid or funds set apart and all accrued
sinking fund obligations applicable thereto have been complied
with. However, we may repurchase shares of capital stock in
order to maintain our qualification as a REIT under the Code.
If fewer than all of our outstanding shares of any class of
preferred shares are to be redeemed, we will determine the
number of shares to be redeemed. Our board of directors will
determine the manner for selecting by lot the shares to be
redeemed.
We will mail notice of redemption at least 30 days but not
more than 60 days before the redemption date to each holder
of record of a preferred share to be redeemed at the address
shown on our stock transfer books. If fewer than all the
preferred shares of any series are to be redeemed, the notice of
redemption will also specify the number of preferred shares to
be redeemed from each holder. If notice of redemption of any
preferred shares has been given and if the funds necessary for
such redemption have been set aside by us in trust for the
benefit of the holders of the preferred shares to be redeemed,
dividends will cease to accrue on such preferred shares. In
addition, the holders of preferred shares to be redeemed will
cease to be shareholders with respect to such shares and will
have no right or claim against us with respect to such shares as
of the redemption date. However, such holders will have the
right to receive the redemption price without interest or to
exercise before the redemption date any unexercised privileges
of conversion.
The terms of redemption for the existing classes of preferred
shares are included in our articles of incorporation, and
amendments thereto, that are filed as an exhibit to the
registration statement.
Liquidation
Preference
In the event of our voluntary liquidation, dissolution or
winding-up,
the holders of any series of any class of preferred shares shall
be entitled to receive in full out of our assets, including its
capital, before any amount shall be paid or distributed among
the holders of the common shares or any other shares ranking
junior to such series, the amounts fixed by our board of
directors with respect to such series and set forth in the
applicable prospectus supplement. In addition, each holder will
receive an amount equal to all dividends accrued and unpaid on
that series of preferred shares to the date of payment of the
amount due pursuant to our liquidation, dissolution or
winding-up.
However, holders of Noncumulative Shares will only receive
dividends for the current dividend period. After holders of the
preferred shares are paid the full preferential amounts to which
they are entitled, they will have no right or claim to any of
our remaining assets.
If liquidating distributions are made in full to all holders of
preferred shares, our remaining assets will be distributed among
the holders of any other classes or series of capital stock
ranking junior to the preferred shares upon liquidation,
dissolution or
winding-up.
The distributions will be made according to the holders
respective rights and preferences and, in each case, according
to their respective number of shares. Our merger or
consolidation into or with any other corporation, or the sale,
lease or conveyance of all or substantially all of our assets,
shall not constitute a dissolution, liquidation or
winding-up.
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Voting
Rights
Nonvoting
Preferred Shares
Holders of nonvoting preferred shares have only the voting
rights described below that apply to all preferred shares,
whether nonvoting or voting, and as from time to time required
by law.
If and when we are in default in the payment of (or, with
respect to Noncumulative Shares, have not paid or declared and
set aside a sum sufficient for the payment of) dividends on any
series of any class of outstanding nonvoting preferred shares,
for dividend payment periods, whether consecutive or not, which
in the aggregate contain at least 540 days, all holders of
shares of such class, voting separately as a class, together and
combined with all other preferred shares upon which like voting
rights have been conferred and are exercisable, will be entitled
to elect a total of two members to our board of directors. This
voting right shall be vested and any additional directors shall
serve until all accrued and unpaid dividends (except, with
respect to Noncumulative Shares, only dividends for the
then-current dividend period) on such outstanding preferred
shares have been paid or declared and a sufficient sum set aside
for payment thereof.
The affirmative vote of the holders of at least two-thirds of a
class of outstanding nonvoting preferred shares, voting
separately as a class, shall be necessary to effect either of
the following:
(1) The authorization, creation or increase in the
authorized number of any shares, or any security convertible
into shares, ranking prior to such class of nonvoting preferred
shares; or
(2) Any amendment, alteration or repeal, whether by merger,
consolidation or otherwise, of any of the provisions of our
articles of incorporation or our code of regulations which
adversely and materially affects the preferences or voting or
other rights of the holders of such class of nonvoting preferred
shares which are set forth in our articles of incorporation.
However, the amendment of our articles of incorporation to
authorize, create or change the authorized or outstanding number
of a class of such preferred shares or of any shares ranking on
a parity with or junior to such class of preferred shares does
not adversely and materially affect preferences or voting or
other rights of the holders of such class of preferred shares.
In addition, amending the code of regulations to change the
number or classification of our directors does not adversely or
materially affect preferences or voting rights or other rights.
Voting shall be done in person at a meeting called for one of
the above purposes or in writing by proxy.
The preceding voting provisions will not apply if, at or prior
to the time of the action with respect to which such vote would
be required, all outstanding shares of such series of preferred
shares have been redeemed or called for redemption and
sufficient funds shall have been deposited in trust to effect
such redemption.
Cumulative
Voting Preferred Shares.
If and when we are in default in the payment of dividends on the
Cumulative Voting Preferred Shares, for at least six dividend
payment periods, whether or not consecutive, all holders of
shares of such class, voting separately as a class, together and
combined with all other preferred shares upon which like voting
rights have been conferred and are exercisable, will be entitled
to elect a total of two members to our board of directors. This
voting right shall be vested and any additional directors shall
serve until all accrued and unpaid dividends (except, with
respect to Noncumulative Shares, only dividends for the
then-current dividend period) on such outstanding preferred
shares have been paid or declared and a sufficient sum set aside
for payment thereof.
The affirmative vote of the holders of at least two-thirds of
the outstanding Cumulative Voting Preferred Shares, voting
separately as a class, shall be necessary to effect either of
the following:
(1) Any amendment, alteration or repeal of any of the
provisions of, or the addition of any provisions to, our
articles of incorporation or code of regulations, whether by
merger, consolidation or otherwise (an Event), that
materially adversely affects the voting powers, rights or
preferences of the holders of the Cumulative Voting Preferred
Shares; provided, however, that the amendment of the provisions
of the articles of incorporation (a) so as to authorize or
create, or to increase the authorized amount of, or issue, any
shares ranking junior to the Cumulative Voting Preferred Shares
or any shares of any class or series of shares ranking on a
parity with the Cumulative Voting Preferred Shares or
(b) with respect to the occurrence of any Event, so long as
the Cumulative Voting Preferred Shares remain outstanding with
the terms thereof materially unchanged, taking into account that
upon the occurrence of the Event, we may not be the surviving
entity,
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shall not in either case be deemed to materially adversely
affect the voting power, rights or preferences of the holders of
Cumulative Voting Preferred Shares; or
(2) the authorization, creation of, increase in the
authorized amount of, or issuance of any shares of any class or
series of shares ranking prior to the Cumulative Voting
Preferred Shares or any security convertible into shares of any
class or series of shares ranking prior to the Cumulative Voting
Preferred Shares (whether or not such class or series of shares
ranking prior to the Cumulative Voting Preferred Shares is
currently authorized).
The preceding voting provisions will not apply, if at or prior
to the time of the action with respect to which such vote would
be required, all outstanding shares of such series of Cumulative
Voting Preferred Shares have been redeemed or called for
redemption and sufficient funds shall have been deposited in
trust to effect such redemption.
In addition to the foregoing, the holders of Cumulative Voting
Preferred Shares shall be entitled to vote on all matters on
which holders of our common shares may vote and shall be
entitled to one vote for each Cumulative Voting Preferred Share
entitled to vote at such meeting.
General
Without limiting the provisions described above, under Ohio law,
holders of each class of preferred shares will be entitled to
vote as a class on any amendment to our articles of
incorporation, whether or not they are entitled to vote thereon
by our articles of incorporation, if the amendment would:
(1) increase or decrease the par value of the shares of
such class;
(2) change the issued shares of such class into a lesser
number of shares of such class or into the same or different
number of shares of another class;
(3) change or add to the express terms of the shares of the
class in any manner substantially prejudicial to the holders of
such class;
(4) change the express terms of any class of issued shares
ranking prior to the particular class in any manner
substantially prejudicial to the holders of shares of the
particular class;
(5) authorize shares of another class that are convertible
into, or authorize the conversion of shares of another class
into, shares of the particular class, or authorize the directors
to fix or alter conversion rights of shares of another class
that are convertible into shares of the particular class;
(6) reduce or eliminate our stated capital;
(7) substantially change our purposes; or
(8) change the Company into a nonprofit corporation.
If, and only to the extent that, (1) a class of preferred
shares is issued in more than one series and (2) Ohio law
permits the holders of a series of a class of capital stock to
vote separately as a class, the affirmative vote of the holders
of at least two-thirds of each series of such class of
outstanding preferred shares, voting separately as a class,
shall be required for any amendment, alteration or repeal,
whether by merger, consolidation or otherwise, of any of the
provisions of our articles of incorporation or our code of
regulations which adversely and materially affects the
preferences or voting or other rights of the holders of such
series as set forth in our articles of incorporation. However,
the amendment of our articles of incorporation so as to
authorize, create or change the authorized or outstanding number
of a class of preferred shares or of any shares ranking equal to
or junior to such class of preferred shares does not adversely
and materially affect the preference or voting or other rights
of the holders of such series. In addition, amendment of our
code of regulations to change the number or classification of
our directors does not adversely and materially affect the
preference or voting or other rights of the holders of such
series.
Conversion
Rights
The terms and conditions, if any, upon which shares of any
series of any class of nonvoting preferred shares are
convertible into common shares will be set forth in the
applicable prospectus supplement. Such terms will include:
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the number of common shares into which the preferred shares are
convertible;
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the conversion price (or manner of calculation thereof);
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the conversion period;
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provisions as to whether conversion will be at the option of the
holders of such preferred shares or the Company;
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the events requiring an adjustment of the conversion
price; and
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provisions affecting conversion upon the occurrence of certain
events.
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Restrictions
on Ownership
In order to qualify as a REIT under the Code, not more than 50%
in value of our outstanding capital stock may be owned, directly
or indirectly, by five or fewer individuals during the last half
of a taxable year. Individual is defined in the Code to include
certain entities. In addition, our capital stock must be
beneficially owned by 100 or more persons during at least
335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year. We also must
satisfy certain other requirements. For more information on
restrictions on ownership, see Description of Common
Shares Restrictions on Ownership.
To ensure that five or fewer individuals do not own more than
50% in value of our outstanding preferred shares, our articles
of incorporation provide that, subject to certain exceptions, no
one may own, or be deemed to own by virtue of the attribution
provisions of the Code, more than 9.8% (the preferred
shares ownership limit) of any series of any class of our
outstanding preferred shares. In addition, because rent from a
related party tenant is not qualifying rent for purposes of the
gross income tests under the Code, our articles of incorporation
provide that no individual or entity may own, or be deemed to
own by virtue of the attribution provisions of the Code, in
excess of 9.8% of our outstanding shares of any series of any
class of preferred shares (the preferred shares related
party limit). The attribution provisions of the Code
applied to related party tenants differ from the attribution
provisions applied to the preferred shares ownership limit. A
related party tenant is any tenant of which 10% is owned,
directly or constructively, by a REIT, including an owner of 10%
or more of a REIT. Our board of directors may waive the
preferred shares ownership limit and the preferred shares
related party limit if it obtains such representations and
undertakings from the applicant with respect to preserving our
REIT status as are reasonably necessary to ascertain that such
ownership will not jeopardize our REIT status.
The preceding restrictions on transferability and ownership of
preferred shares may not apply 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. Even if the
REIT provisions of the Code are changed so as to no longer
contain any ownership concentration limitation or if the
ownership concentration limitation is increased, the preferred
shares ownership limit and the preferred shares related party
limit will not be automatically removed. Any change in the
preferred shares ownership limit would require an amendment to
our articles of incorporation, even if our board of directors
determines that maintenance of REIT status is no longer in our
best interests. Amendments to our articles of incorporation
require the affirmative vote of holders owning not less than a
majority of our outstanding common shares. If it is determined
that an amendment would materially and adversely affect the
holders of any class of preferred shares, such amendment would
also require the affirmative vote of holders of not less than
two-thirds of such class of preferred shares.
If preferred shares in excess of the preferred shares ownership
limit or the preferred shares related party limit are issued or
transferred to any person absent a waiver of such limit, such
issuance or transfer will be null and void to the intended
transferee, and the intended transferee will acquire no rights
to the shares. In addition, if an issuance or transfer would
cause our shares to be beneficially or constructively owned by
fewer than 100 persons or would result in our being
closely held within the meaning of
Section 856(h) of the Code, such issuance or transfer will
be null and void to the intended transferee, and the intended
transferee will acquire no rights to the shares. Preferred
shares transferred or proposed to be transferred in excess of
the preferred shares ownership limit or the preferred shares
related party limit or which would otherwise jeopardize our REIT
status will be subject to repurchase by the Company. The
purchase price of such preferred shares will be equal to the
lesser of (1) the price in such proposed transaction and
(2) the fair market value of such shares reflected in the
last reported sales price for the shares on the trading day
immediately preceding the date on which we or our designee
determine to exercise our repurchase right if the shares are
listed on a national securities exchange, or such price for the
shares on the principal exchange if the shares are then listed
on more than one national securities exchange. If the shares are
not listed on a national
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securities exchange, the purchase price will be equal to the
lesser of (1) the price in such proposed transaction and
(2) the latest bid quotation for the shares if the shares
are then traded over the counter, or, if such quotation is not
available, the fair market value as determined by our board of
directors in good faith, on the last trading day immediately
preceding the day on which notice of such proposed purchase is
sent by the Company.
From and after the date fixed for our purchase of such preferred
shares, the holder will cease to be entitled to distributions,
voting rights and other benefits with respect to such shares
except the right to payment of the purchase price for the
shares. Any dividend or distribution paid to a proposed
transferee on such preferred shares must be repaid to the
Company upon demand. 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 such preferred shares may be deemed, at our
option, to have acted as our agent in acquiring such preferred
shares and to hold such preferred shares on our behalf.
All certificates for preferred shares will bear a legend
referring to the restrictions described above.
Our articles of incorporation provide that all persons who own,
directly or by virtue of the attribution provisions of the Code,
more than 5% of the preferred shares shall upon demand disclose
to the Company in writing such information with respect to the
direct, indirect and constructive ownership of shares that our
board of directors deems necessary to comply with the provisions
of the Code as applicable to a REIT or to comply with the
requirements of any taxing authority or governmental agency.
DESCRIPTION
OF DEPOSITARY SHARES
General
We may issue receipts for depositary shares (Depositary
Receipts). Each Depositary Receipt will represent a
fractional interest or a share of a particular series of a class
of nonvoting preferred shares, as specified in the applicable
prospectus supplement. Preferred shares of each series of each
class represented by depositary shares will be deposited under a
separate Deposit Agreement among us, the depositary named
therein and the holders from time to time of the Depositary
Receipts. Subject to the terms of the Deposit Agreement, each
owner of a Depositary Receipt will be entitled to all the rights
and preferences of the preferred shares represented by such
depositary shares including dividend, voting, conversion,
redemption and liquidation rights. Such rights and preferences
will be proportionate to the fractional interest of a share of
the particular series of preferred shares represented by the
depositary shares evidenced by such Depositary Receipt. As of
the date of this prospectus, there are issued and outstanding:
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6,000,000 Depositary Shares each representing 1/10 of a
share of 8.60% Class F Cumulative Redeemable Preferred
Shares;
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7,200,000 Depositary Shares each representing 1/10 of a
share of 8% Class G Cumulative Redeemable Preferred Shares;
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8,200,000 Depositary Shares each representing 1/20 of a
share of the
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3
/
8
%
Class H Cumulative Redeemable Preferred Shares; and
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6,800,000 Depositary Shares each representing 1/20 of a
share of 7.50% Class I Redeemable Preferred Shares.
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See Description of Preferred Shares. These
depositary shares are listed on the New York Stock Exchange
under the symbols DDR PrF, DDR PrG, DDR PrH and DDR PrI,
respectively.
The depositary shares will be evidenced by Depositary Receipts
issued pursuant to the applicable Deposit Agreement. Immediately
after we issue and deliver the preferred shares to the
depositary, we will cause the depositary to issue the Depositary
Receipts on our behalf. Copies of the applicable form of Deposit
Agreement and Depositary Receipt may be obtained from us upon
request.
Dividends
and Other Distributions
The depositary will distribute all cash dividends or other cash
distributions received on behalf of the preferred shares
proportionately to the record holders of the related Depositary
Receipts owned by such holder. Such
30
distributions are subject to certain obligations of holders to
file proofs, certificates and other information and to pay
certain charges and expenses to the depositary.
In the event of a non-cash distribution, the depositary will
distribute property it receives to the record holders of
Depositary Receipts entitled to the property unless the
depositary determines that it is not feasible to make such
distribution, in which case the depositary may, with our
approval, sell such property and distribute the net proceeds of
such sale to holders. Such distributions by the depositary are
subject to certain obligations of holders to file proofs,
certificates and other information and to pay certain charges
and expenses to the depositary.
Withdrawal
of Shares
Unless the related depositary shares have previously been called
for redemption, upon surrender of the Depositary Receipts at the
corporate trust office of the depositary, the holders thereof
will be entitled to delivery at such office, to or upon such
holders order, of the number of whole or fractional
preferred shares and any money or other property represented by
the depositary shares evidenced by such Depositary Receipts.
Holders of Depositary Receipts will be entitled to receive whole
or fractional shares of the related preferred shares on the
basis of the proportion of preferred shares represented by each
depositary share as specified in the applicable prospectus
supplement, but holders of such preferred shares will not
thereafter be entitled to receive depositary shares therefor. If
the Depositary Receipts delivered by the holder evidence a
number of depositary shares in excess of the number of
depositary shares representing the preferred shares to be
withdrawn, the depositary will deliver to such holder at the
same time a new Depositary Receipt evidencing such excess number
of depositary shares.
Redemption
of Depositary Shares
Whenever we redeem preferred shares held by the depositary, the
depositary will redeem as of the same redemption date the number
of depositary shares representing the preferred shares so
redeemed, provided we have paid in full to the depositary the
redemption price of the preferred shares to be redeemed plus an
amount equal to any accrued and unpaid dividends thereon to the
date fixed for redemption. With respect to Noncumulative Shares,
dividends will be paid for the current dividend period only. The
redemption price per depositary share will be equal to the
redemption price and any other amounts per share payable with
respect to the preferred shares. If less than all the depositary
shares are to be redeemed, the depositary shares to be redeemed
will be selected by the depositary by lot.
After the date fixed for redemption, the depositary shares
called for redemption will no longer be deemed to be outstanding
and all rights of the holders of the Depositary Receipts
evidencing the depositary shares called for redemption will
cease. However, the holders will have the right to receive any
moneys payable upon redemption and any money or other property
that the holders of such Depositary Receipts were entitled to at
the time of redemption when they surrender their Depositary
Receipts to the depositary.
Voting of
the Underlying Preferred Shares
Upon receipt of notice of any meeting at which the holders of
the preferred shares are entitled to vote, the depositary will
mail the information contained in such notice to the record
holders of the Depositary Receipts related to such preferred
shares. Each record holder of Depositary Receipts on the record
date will be entitled to instruct the depositary as to the
exercise of the voting rights of the preferred shares related to
such holders Depositary Receipts. The record date for
Depositary Receipts will be the same date as the record date for
preferred shares. The depositary will vote the preferred shares
related to such Depositary Receipts in accordance with such
instructions, and we will agree to take all reasonable action
that the depositary deems necessary to enable it to vote the
preferred shares. The depositary will abstain from voting
preferred shares represented by such depositary shares to the
extent it does not receive specific instructions from the
holders of Depositary Receipts.
Liquidation
Preference
In the event of our liquidation, dissolution or
winding-up,
whether voluntary or involuntary, each holder of a Depositary
Receipt will be entitled to the fraction of the liquidation
preference accorded each preferred share represented by the
depositary share evidenced by such Depositary Receipt, as set
forth in the applicable prospectus supplement.
31
Conversion
of Preferred Shares
The depositary shares, as such, are not convertible into common
shares or any of our other securities or property. Nevertheless,
if so specified in the applicable prospectus supplement relating
to an offering of depositary shares, the Depositary Receipts may
be surrendered by holders thereof to the depositary with written
instructions to the depositary to instruct us to cause
conversion of the preferred shares represented by the depositary
shares into whole common shares, other preferred shares or other
shares of capital stock. We have agreed that upon receipt of
such instructions and any amounts payable in respect thereof, we
will cause the conversion thereof utilizing the same procedures
as those provided for delivery of preferred shares to effect
such conversion. If the depositary shares evidenced by a
Depositary Receipt are to be converted in part only, one or more
new Depositary Receipts will be issued for any depositary shares
not to be converted. No fractional common shares will be issued
upon conversion. If conversion will result in a fractional share
being issued, we will pay in cash an amount equal to the value
of the fractional interest based upon the closing price of the
common shares on the last business day prior to the conversion.
Amendment
and Termination of the Deposit Agreement
The form of Depositary Receipt evidencing the depositary shares
which represent the preferred shares and any provision of the
Deposit Agreement may at any time be amended by agreement
between the depositary and us. However, any amendment that
materially and adversely alters the rights of the holders of
Depositary Receipts will not be effective unless it has been
approved by the existing holders of at least a majority of the
depositary shares evidenced by outstanding Depositary Receipts.
We may terminate the Deposit Agreement upon not less than
30 days prior written notice to the depositary if
(1) such termination is to preserve our status as a REIT or
(2) a majority of each class of preferred shares affected
by such termination consents to such termination. Upon
termination of the Deposit Agreement, the depositary shall
deliver or make available to each holder of Depositary Receipts,
upon surrender of the Depositary Receipts held by such holder,
such number of whole or fractional preferred shares as are
represented by the depositary shares evidenced by such
Depositary Receipts. In addition, the Deposit Agreement will
automatically terminate if:
(1) all outstanding depositary shares have been redeemed,
(2) there has been a final distribution in respect of the
related preferred shares in connection with any liquidation,
dissolution or
winding-up
and such distribution has been distributed to the holders of
Depositary Receipts evidencing the depositary shares
representing such preferred shares, or
(3) each related preferred share shall have been converted
into capital stock that is not represented by depositary shares.
Charges
of Preferred Shares Depositary
We will pay all transfer and other taxes and governmental
charges arising solely from the existence of the Deposit
Agreement. In addition, we will pay the fees and expenses of the
depositary in connection with the performance of its duties
under the Deposit Agreement. However, holders of Depositary
Receipts will pay the depositarys fees and expenses for
any duties that holders request to be performed which are
outside those expressly provided for in the Deposit Agreement.
Resignation
and Removal of Depositary
The depositary may resign at any time by delivering to us notice
of its resignation, and we may remove the depositary at any
time. Any such resignation or removal will take effect upon the
appointment of a successor depositary. A successor depositary
must be appointed within 60 days after delivery of the
notice of resignation or removal. A successor depositary must be
a bank or trust company having its principal office in the
United States and having a combined capital and surplus of at
least $100,000,000.
Miscellaneous
The depositary will forward to holders of Depositary Receipts
any reports and communications from us which it receives with
respect to the related preferred shares.
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Neither we nor the depositary will be liable if it is prevented
from or delayed, by law or any circumstances beyond its control,
in performing its obligations under the Deposit Agreement. The
obligations of the Company and the depositary under the Deposit
Agreement will be limited to performing our respective duties
thereunder in good faith and without negligence, gross
negligence or willful misconduct. Developers Diversified Realty
Corporation and the depositary will not be obligated to
prosecute or defend any legal proceeding in respect of any
Depositary Receipts, depositary shares or preferred shares
represented thereby unless satisfactory indemnity is furnished.
Developers Diversified Realty Corporation and the depositary may
rely on written advice of counsel or accountants, or information
provided by persons presenting preferred shares represented
thereby for deposit, holders of Depositary Receipts or other
persons believed to be competent to give such information, and
on documents believed to be genuine and signed by a proper party.
If the depositary shall receive conflicting claims, requests or
instructions from any holders of Depositary Receipts, on the one
hand, and us, on the other hand, the depositary shall be
entitled to act on such claims, requests or instructions
received from us.
DESCRIPTION
OF COMMON SHARES
General
Our articles of incorporation authorize us to issue up to
200,000,000 common shares, without par value. As of
September 30, 2006, we had 108,894,237 common shares
outstanding. In addition, as of September 30, 2006, we have
reserved 1,565,988 common shares for issuance under our
equity-based award plans and 42,666 common shares for issuance
upon the exercise of options granted to our directors. As of
September 30, 2006, we also had outstanding
$250 million in aggregate principal amount of our
3.50% convertible senior notes due 2011, which may be
converted into our common shares under certain circumstances at
an initial conversion ratio of 15.3589 (subject to a net share
settlement provision), and operating partnership units, which
are exchangeable under certain circumstances and at our option
into an equivalent number of common shares or for the equivalent
amount of cash. Our common shares are listed on the New York
Stock Exchange under the symbol DDR. National City
Bank, Cleveland, Ohio, is the transfer agent and registrar of
the common shares.
The following description of our common shares sets forth
certain of their general terms and provisions. The following
description of our common shares is in all respects subject to
and qualified by reference to the applicable provisions of our
articles of incorporation and our code of regulations.
Holders of our common shares are entitled to receive dividends
when, as and if declared by our board of directors, out of funds
legally available therefore. Any payment and declaration of
dividends by the Company on our common shares and purchases
thereof will be subject to certain restrictions if we fail to
pay dividends on any outstanding preferred shares. See
Description of Preferred Shares
Dividends. If we are liquidated, dissolved or involved in
any
winding-up,
the holders of our common shares are entitled to receive ratably
any assets remaining after we have fully paid all of our
liabilities, including the preferential amounts we owe with
respect to any preferred shares. Holders of our common shares
possess ordinary voting rights, with each share entitling the
holder to one vote. Holders of our common shares have cumulative
voting rights in the election of directors. Holders of our
common shares do not have preemptive rights, which means that
they have no right to acquire any additional common shares that
we may subsequently issue.
All of our common shares currently outstanding are, and any
common shares offered hereby when issued will be, fully paid and
nonassessable.
Restrictions
on Ownership
In order for us to qualify as a REIT under the Code, not more
than 50% in value of our outstanding capital stock may be owned,
directly or indirectly, by five or fewer individuals during the
last half of a taxable year. Individual is defined in the Code
to include certain entities. In addition, our capital stock must
be beneficially owned by 100 or more persons during at least
335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year. Additionally,
certain other requirements must be satisfied.
To ensure that five or fewer individuals do not own more than
50% in value of our outstanding common shares, our articles of
incorporation provide that, subject to certain exceptions, no
holder may own, or be deemed to own by
33
virtue of the attribution provisions of the Code, more than 5%
(the ownership limit) of our outstanding common
shares. Securityholders whose ownership exceeded the ownership
limit immediately after the initial public offering, or IPO, may
continue to own common shares in excess of the ownership limit
and may acquire additional shares through the share option plan,
the equity-based award plans, any dividend reinvestment plan
adopted by us or from other existing securityholders who exceed
the ownership limit, but may not acquire additional shares from
those sources if the result would be that the five largest
beneficial owners of common shares hold more than 49.6% of our
outstanding common shares. In addition, because rent from a
related party tenant (any tenant 10% of which is owned, directly
or constructively, by a REIT, including an owner of 10% or more
of a REIT) is not qualifying rent for purposes of the gross
income tests under the Code, our articles of incorporation
provide that no individual or entity may own, or be deemed to
own by virtue of the attribution provisions of the Code (which
differ from the attribution provisions applied to the ownership
limit), in excess of 9.8% of our outstanding common shares. Our
board of directors may waive the ownership limit and the related
party limit (the related party limit has been waived with
respect to the securityholders who exceeded the related party
limit immediately after the IPO) if an opinion of counsel or a
ruling from the Internal Revenue Service (the IRS)
is provided to the board of directors to the effect that that
ownership will not then or in the future jeopardize our status
as a REIT. As a condition of any waiver, our board of directors
will require appropriate representations and undertakings from
the applicant with respect to preserving our REIT status.
The preceding restrictions on transferability and ownership of
common shares may not apply if our board of directors determines
that it is no longer in our best interests to continue to
qualify as a REIT. The ownership limit and the related party
limit will not be automatically removed even if the REIT
provisions of the Code are changed to no longer contain any
ownership concentration limitation or if the ownership
concentration limitation is increased. In addition to preserving
our status as a REIT, the effects of the ownership limit and the
related party limit are to prevent any person or small group of
persons from acquiring unilateral control of us. Any change in
the ownership limit requires an amendment to the articles of
incorporation, even if our board of directors determines that
maintenance of REIT status is no longer in our best interests.
Amendments to the articles of incorporation require the
affirmative vote of holders owning a majority of our outstanding
common shares. If it is determined that an amendment would
materially and adversely affect the holders of any class of
preferred shares, that amendment also would require the
affirmative vote of holders of two-thirds of the affected class
of preferred shares.
If common shares in excess of the ownership limit or the related
party limit, or common shares which would cause the REIT to be
beneficially or constructively owned by less than 100 persons or
would result in us being closely held within the
meaning of Section 856(h) of the Code, are issued or
transferred to any person absent a waiver, the issuance or
transfer will be null and void to the intended transferee. The
intended transferee will not acquire rights to the shares.
Common shares transferred or proposed to be transferred in
excess of the ownership limit or the related party limit or
which would otherwise jeopardize our REIT status (excess
shares) will be subject to repurchase by us. The purchase
price of any excess shares will be equal to the lesser of
(i) the price in the proposed transaction and (ii) the
fair market value of the shares reflected in the last reported
sale price for the common shares on the trading day immediately
preceding the date on which we or our designee determine to
exercise our repurchase right, if the shares are then listed on
a national securities exchange, or such price for the shares on
the principal exchange, if they are then listed on more than one
national securities exchange, or, if the common shares are not
then listed on a national securities exchange, the latest bid
quotation for the common shares if they are then traded
over-the-counter,
or, if such quotation is not available, the fair market value as
determined by our board of directors in good faith, on the last
trading day immediately preceding the day on which notice of the
proposed purchase is sent by us. From and after the date fixed
for purchase of excess shares by us, the holder of the excess
shares will cease to be entitled to distribution, voting rights
and other benefits with respect to the excess shares except the
right to payment of the purchase price for the excess shares.
Any dividend or distribution paid to a proposed transferee on
excess shares will be repaid to us upon demand. 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 excess shares may be deemed, at
our option, to have acted as an agent on our behalf in acquiring
the excess shares and to hold the excess shares on our behalf.
All certificates representing our common shares bear a legend
referring to the preceding restrictions.
Our articles of incorporation provide that all persons who own,
directly or by virtue of the attribution provisions of the Code,
more than 5% of our outstanding common shares must file an
affidavit with us containing
34
information specified in our articles of incorporation each year
by January 31. In addition, each of those securityholders
will upon demand be required to disclose to us in writing such
information with respect to the direct, indirect and
constructive ownership of shares as our board of directors deems
necessary for us to comply with the provisions of the Code as
applicable to a REIT or to comply with the requirements of any
taxing authority or governmental agency.
DESCRIPTION
OF COMMON SHARE WARRANTS
We may issue common share warrants for the purchase of common
shares. We may issue common share warrants independently or
together with any other securities offered by any prospectus
supplement. The common share warrants we issue may be attached
to or separate from such offered securities. Each series of
common share warrants will be issued under a separate warrant
agreement (each, a Warrant Agreement) to be entered
into between us and a warrant agent specified in the applicable
prospectus supplement (the Warrant Agent). The
Warrant Agent will act solely as our agent in connection with
the common share warrants of such series and will not assume any
obligation or relationship of agency or trust for or with any
holders or beneficial owners of common share warrants. The
following sets forth certain general terms and provisions of the
common share warrants that may be offered under this
Registration Statement. Further terms of the common share
warrants and the applicable Warrant Agreements will be set forth
in the applicable prospectus supplement.
The applicable prospectus supplement will describe the terms of
the common share warrants in respect of which this prospectus is
being delivered, including, where applicable, the following:
(i) the title of such common share warrants;
(ii) the aggregate number of such common share warrants;
(iii) the price or prices at which such common share
warrants will be issued;
(iv) the number of common shares purchasable upon exercise
of such common share warrants;
(v) the designation and terms of the other Offered
Securities with which such common share warrants are issued and
the number of such common share warrants issued with each such
Offered Security;
(vi) the date, if any, on and after which such common share
warrants and the related common shares will be separately
transferable;
(vii) the price at which each common share purchasable upon
exercise of such common share warrants may be purchased;
(viii) the date on which the right to exercise such common
share warrants shall commence and the date on which such right
shall expire;
(ix) the minimum or maximum amount of such common share
warrants which may be exercised at any one time;
(x) information with respect to book-entry procedures, if
any;
(xi) a discussion of certain federal income tax
considerations; and
(xii) any other terms of such common share warrants,
including terms, procedures and limitations relating to the
exchange and exercise of such common share warrants.
You should also read the section captioned Description of
Common Shares for a general description of the common
shares to be acquired upon the exercise of the common share
warrants, including a description of certain restrictions on the
ownership of common shares. We will treat as outstanding any
common shares that may be acquired upon the exercise of common
share warrants, directly or constructively held by an investor,
at the following times:
(i) at the time of acquisition of the common share
warrants, and
(ii) prior to the exercise of the common share warrants,
for purposes of determining the percentage ownership of common
shares held by such investor.
35
CERTAIN
ANTI-TAKEOVER PROVISIONS OF OHIO LAW
Certain provisions of Ohio law may have the effect of
discouraging or rendering more difficult an unsolicited
acquisition of a corporation or its capital stock to the extent
the corporation is subject to those provisions. We have opted
out of one such provision. We remain subject to the foregoing
provisions, which are described below.
Chapter 1704 of the Ohio Revised Code prohibits certain
transactions, including mergers, sales of assets, issuances or
purchases of securities, liquidation or dissolution, or
reclassifications of the then-outstanding shares of an Ohio
corporation with 50 or more shareholders involving, or for the
benefit of, certain holders of shares representing 10% or more
of the voting power of the corporation (any such shareholder, a
10% Shareholder), unless:
(i) the transaction is approved by the directors before the
10% Shareholder becomes a 10% Shareholder;
(ii) the acquisition of 10% of the voting power is approved
by the directors before the 10% Shareholder becomes a 10%
Shareholder; or
(iii) the transaction involves a 10% Shareholder who has
been a 10% Shareholder for at least three years and is approved
by the directors before the 10% Shareholder becomes a 10%
Shareholder, is approved by holders of two-thirds of our voting
power and the holders of a majority of the voting power not
owned by the 10% Shareholder, or certain price and form of
consideration requirements are met.
Chapter 1704 of the Ohio Revised Code may have the effect
of deterring certain potential acquisitions of us which might be
beneficial to shareholders.
Section 1707.041 of the Ohio Revised Code regulates certain
control bids for corporations in Ohio with fifty or
more shareholders that have significant Ohio contacts and
permits the Ohio Division of Securities to suspend a control bid
if certain information is not provided to offerees.
36
CERTAIN
FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of material federal income
tax considerations regarding the Company and the acquisition,
ownership and disposition of our shares. If we offer debt
securities, information about any additional income tax
consequences to holders of those securities will be included in
the documents pursuant to which those securities are offered.
This summary is based on current law, is for general information
only and is not tax advice. The tax treatment to holders of our
securities will vary depending on a holders particular
situation, and this discussion does not purport to deal with all
aspects of taxation that may be relevant to a holder of
securities in light of his or her personal investments or tax
circumstances, or to certain types of holders subject to special
treatment under the federal income tax laws except to the extent
discussed under the subheadings Taxation of
Tax-Exempt Shareholders and Taxation of
Non-U.S. Shareholders.
In addition, the summary below does not consider the effect of
any foreign, state, local or other tax laws that may be
applicable to holders of our shares.
The information in this section is based on the Code, current,
temporary and proposed Treasury Regulations promulgated under
the Code, the legislative history of the Code, current
administrative interpretations and practices of the Internal
Revenue Service (the IRS) (including its practices
and policies as expressed in certain private letter rulings
which are not binding on the IRS except with respect to the
particular taxpayers who requested and received such rulings),
and court decisions, all as of the date of this prospectus.
Future legislation, Treasury Regulations, administrative
interpretations and practices and court decisions may adversely
affect, perhaps retroactively, the tax considerations described
herein. We have not requested, and do not plan to request, any
rulings from the IRS concerning our tax treatment and the
statements in this prospectus supplement are not binding on the
IRS or any court. Thus, we can provide no assurance that these
statements will not be challenged by the IRS or sustained by a
court if challenged by the IRS.
You are advised to consult your tax advisor regarding the
specific tax consequences to you of the acquisition, ownership
and sale of our securities, including the federal, state, local,
foreign and other tax consequences of such acquisition,
ownership and sale and of potential changes in applicable tax
laws.
Taxation
of the Company
General.
We elected to be taxed as a REIT
under Sections 856 through 860 of the Code, commencing with
our taxable year ended December 31, 1993. We believe we
have been organized and have operated in a manner which allows
us to qualify for taxation as a REIT under the Code commencing
with our taxable year ended December 31, 1993. We intend to
continue to operate in this manner.
The law firm of Baker & Hostetler LLP has acted as our
tax counsel in connection with our election to be taxed as a
REIT. It is the opinion of Baker & Hostetler LLP that
we have qualified as a REIT under the Code for our taxable years
ended December 31, 1993 through December 31, 2005, we
are organized in conformity with the requirements for
qualification as a REIT, and our current and proposed method of
operation will enable us to meet the requirements for
qualification and taxation as a REIT under the Code for our
taxable year ended December 31, 2006 and for future taxable
years. It must be emphasized that the opinion of
Baker & Hostetler LLP is based upon certain assumptions
and representations as to factual matters made by us, including
representations made by us in a representation letter and
certificate provided by one of our officers and our factual
representations set forth herein and in registration statements
previously filed with the SEC. Any variation from the factual
statements set forth herein, in registration statements
previously filed with the SEC, or in the representation letter
and certificate we have provided to Baker & Hostetler
LLP may affect the conclusions upon which its opinion is based.
The opinions of Baker & Hostetler LLP are based on
existing law as contained in the Code and Treasury Regulations
promulgated thereunder, in effect on the date hereof, and the
interpretations of such provisions and Treasury Regulations by
the IRS and the courts having jurisdiction over such matters,
all of which are subject to change either prospectively or
retroactively, and to possibly different interpretations.
Baker & Hostetler LLP will have no obligation to advise
us or the holders of our securities of any subsequent change in
the matters stated, represented or assumed, or of any subsequent
change in the applicable law. You should be aware that the
opinion represents Baker & Hostetler LLPs best
judgment of how a court would decide if presented with the
issues addressed therein but, because opinions of counsel are
not binding upon the IRS or any court, there can be no assurance
that contrary positions may not successfully be asserted by the
IRS. Moreover, our qualification and
37
taxation as a REIT depends upon our ability, through actual
annual operating results and methods of operation, to satisfy
various qualification tests imposed under the Code, such as
distributions to securityholders, asset composition levels, and
diversity of stock ownership, the actual results of which have
not been and will not be reviewed by Baker & Hostetler
LLP. In addition, our ability to qualify as a REIT also depends
in part upon the operating results, organizational structure and
entity classification for federal income tax purposes of certain
affiliated entities, including affiliates that have made
elections to be taxed as REITs and for whom the actual results
of the various REIT qualification tests have not been and will
not be reviewed by Baker & Hostetler LLP. Our ability
to qualify as a REIT also requires that we satisfy certain asset
tests, some of which depend upon the fair market values of
assets directly or indirectly owned by us. Such values may not
be susceptible to a precise determination. Accordingly, no
assurance can be given that the actual results of our operations
for any particular taxable year will satisfy such requirements
for qualification and taxation as a REIT. Similarly, we have
significant subsidiaries that have elected to be taxed as REITs
and are therefore subject to the same qualification tests.
If we qualify for taxation as a REIT, we generally will not be
subject to federal corporate income taxes on our taxable income
that is distributed currently to our securityholders. This
treatment substantially eliminates the double
taxation (once at the corporate level when earned and once
again at the securityholders level when distributed) that
generally results from investment in a C corporation. However,
we will be subject to federal income tax as follows:
First, we will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed net
capital gains.
Second, we may be subject to the alternative minimum
tax on our items of tax preference under certain
circumstances.
Third, if we have (a) net income from the sale or other
disposition of foreclosure property (defined
generally as property we acquired through foreclosure or after a
default on a loan secured by the property or a lease of the
property) which is held primarily for sale to customers in the
ordinary course of business or (b) other nonqualifying
income from foreclosure property, we will be subject to tax at
the highest U.S. federal corporate income tax rate on this
income.
Fourth, we will be subject to a 100% tax on any net income from
prohibited transactions (which are, in general, certain sales or
other dispositions of property (other than foreclosure property)
held primarily for sale to customers in the ordinary course of
business).
Fifth, if we fail to satisfy the 75% or 95% gross income tests
(as discussed below), but have maintained our qualification as a
REIT because we satisfied certain other requirements, we will be
subject to a 100% tax on an amount equal to (a) the gross
income attributable to the greater of the amounts by which we
fail the 75% or 95% gross income tests multiplied by (b) a
fraction intended to reflect our profitability.
Sixth, if we fail to distribute during each calendar year at
least the sum of (a) 85% of our REIT ordinary income for
the year, (b) 95% of our REIT capital gain net income for
the year (other than certain long-term capital gains for which
we make a capital gains designation (described below) and on
which we pay the tax), and (c) any undistributed taxable
income from prior periods, we would be subject to a 4% excise
tax on the excess of the required distribution over the amounts
actually distributed.
Seventh, if we acquire any asset from a corporation which is or
has been a C corporation in a transaction in which the basis of
the asset in our hands is determined by reference to the basis
of the asset in the hands of the C corporation, and we
subsequently recognize gain on the disposition of the asset
during the ten-year period beginning on the date on which we
acquired the asset, then we will be subject to tax at the
highest regular corporate tax rate on the excess of (a) the
fair market value of the asset over (b) our adjusted basis
in the asset, in each case determined as of the date we acquired
the asset. The results described in this paragraph with respect
to the recognition of gain assume that we will not make an
election pursuant to existing Treasury Regulations to recognize
such gain at the time we acquire the asset.
Eighth, we will be required to pay a 100% tax on any
redetermined rents, redetermined
deductions or excess interest. In general,
redetermined rents are rents from real property that are
overstated as a result of services furnished to any of our
tenants by a taxable REIT subsidiary of ours.
Redetermined deductions and
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excess interest generally represent amounts that are deducted by
a taxable REIT subsidiary of ours for amounts paid to us that
are in excess of the amounts that would have been deducted based
on arms length negotiations.
Ninth, if we fail to satisfy any of the REIT asset tests, as
described below, by more than a de minimis amount, due to
reasonable cause and we nonetheless maintain our REIT
qualification because of specified cure provisions, we will be
required to pay a tax equal to the greater of $50,000 or the
highest corporate tax rate multiplied by the net income
generated by the nonqualifying assets that caused us to fail
such test.
Tenth, if we fail to satisfy any provision of the Code that
would result in our failure to qualify as a REIT (other than a
violation of the REIT gross income tests or certain violations
of the asset tests described below) and the violation is due to
reasonable cause, we may retain our REIT qualification but we
will be required to pay a penalty of $50,000 for each such
failure.
Requirements for Qualification as a REIT.
The
Code defines a REIT as a corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) that issues transferable shares or transferable
certificates to evidence its beneficial ownership;
(3) that would be taxable as a domestic corporation, but
for Sections 856 through 859 of the Code;
(4) that is not a financial institution or an insurance
company within the meaning of certain provisions of the Code;
(5) that is beneficially owned by 100 or more persons;
(6) not more than 50% in value of the outstanding stock of
which is owned, actually or constructively, by five or fewer
individuals (as defined in the Code to include certain entities)
during the last half of each taxable year;
(7) that meets certain other tests, described below,
regarding the nature of its income and assets and the amount of
its distributions;
(8) that elects to be a REIT, or has made such election for
a previous year, and satisfies the applicable filing and
administrative requirements to maintain qualification as a
REIT; and
(9) that adopts a calendar year accounting period.
The Code provides that conditions (1) to (4), inclusive,
must be met during the entire taxable year and that condition
(5) must be met during at least 335 days of a taxable
year of 12 months, or during a proportionate part of a
taxable year of less than 12 months. Conditions
(5) and (6) do not apply until after the first taxable
year for which an election is made to be taxed as a REIT. For
purposes of condition (6), pension funds and certain other
tax-exempt entities are treated as individuals, subject to a
look-through exception with respect to pension funds.
We believe that we have satisfied each of the above conditions.
In addition, our articles of incorporation and code of
regulations provide for restrictions regarding ownership and
transfer of shares. These restrictions are intended to assist us
in continuing to satisfy the share ownership requirements
described in (5) and (6) above. These restrictions,
however, may not ensure that we will, in all cases, be able to
satisfy the share ownership requirements described in
(5) and (6) above. In general, if we fail to satisfy
these share ownership requirements, our status as a REIT will
terminate. However, if we comply with the rules in applicable
Treasury Regulations that require us to ascertain the actual
ownership of our shares, and we do not know, or would not have
known through the exercise of reasonable diligence, that we
failed to meet the requirement described in condition
(6) above, we will be treated as having met this
requirement.
Ownership of Interests in Partnerships, Limited Liability
Companies and Qualified REIT Subsidiaries and Taxable REIT
Subsidiaries.
In the case of a REIT which is a
partner in a partnership, or a member in a limited liability
company treated as a partnership for federal income tax
purposes, Treasury Regulations provide that the REIT will be
deemed to own its proportionate share of the assets of the
partnership or limited liability company, based on its interest
in partnership capital, subject to special rules relating to the
10% REIT asset test described below. Also, the REIT will be
deemed to be entitled to its proportionate share of the income
of that entity. The assets and items of gross income of the
partnership or limited liability company retain the same
character in the hands of the REIT for purposes of
Section 856 of the Code, including satisfying the gross
income tests and the asset tests. Thus, our proportionate share
of the assets and items of income of partnerships and limited
liability companies taxed
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as partnerships, in which we are, directly or indirectly through
other partnerships or limited liability companies taxed as
partnerships, a partner or member, are treated as our assets and
items of income for purposes of applying the REIT qualification
requirements described in this prospectus (including the income
and asset tests described below).
We own 100% of the stock of a number of corporate subsidiaries
that are qualified REIT subsidiaries (each, a QRS)
and may acquire stock of one or more new subsidiaries. A
corporation qualifies as a QRS if 100% of its outstanding stock
is held by us, and we do not elect to treat the corporation as a
taxable REIT subsidiary, as described below. A QRS is not
treated as a separate corporation, and all assets, liabilities
and items of income, deduction and credit of a QRS are treated
as our assets, liabilities and items of income, deduction and
credit for all purposes of the Code, including the REIT
qualification tests. For this reason, references to our income
and assets include the income and assets of any QRS. A QRS is
not subject to federal income tax, and our ownership of the
voting stock of a QRS is ignored for purposes of determining our
compliance with the ownership limits described below under
Asset Tests.
For taxable years beginning after December 1, 2000, REITs
may own more than 10% of the voting power and value of
securities in a taxable REIT subsidiary (TRS). A TRS
is a corporation other than a REIT in which a REIT directly or
indirectly holds stock, and that has made a joint election with
the REIT to be treated as a TRS. A TRS also includes any
corporation other than a REIT with respect to which a TRS owns
securities possessing more than 35% of the total voting power or
value of the outstanding securities of such corporation. Other
than some activities relating to lodging and health care
facilities, a TRS may generally engage in any business,
including the provision of customary or non-customary services
to tenants of its parent REIT. A TRS is subject to income tax as
a regular C corporation. In addition, a TRS may be
prevented from deducting interest on debt funded directly or
indirectly by its parent REIT if certain tests regarding the
taxable REIT subsidiarys debt to equity ratio and interest
expense are not satisfied. A REITs ownership of securities
of a TRS will not be subject to the 10% or 5% asset tests
described below, and its operations will be subject to the
provisions described above.
Income Tests.
We must satisfy two gross income
requirements annually to maintain our qualification as a REIT.
First, in each taxable year at least 75% of our gross income
(excluding gross income from prohibited transactions) must be
derived directly or indirectly from investments relating to real
property or mortgages secured by real property, including
rents from real property and, in certain
circumstances, interest, or certain types of temporary
investment income. Second, in each taxable year at least 95% of
our gross income (excluding gross income from prohibited
transactions) must be derived directly or indirectly from income
from the real property investments described above or dividends,
interest and gain from the sale or disposition of stock or
securities (or from any combination of the foregoing).
Rents we receive will qualify as rents from real
property for purposes of satisfying the gross income tests
for a REIT described above only if all of the following
conditions are met:
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The amount of rent must not be based in any way on the income or
profits of any person, although rents generally will not be
excluded solely because they are based on a fixed percentage or
percentages of gross receipts or gross sales.
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We, or an actual or constructive owner of 10% or more of our
capital stock, must not actually or constructively own 10% or
more of the interests in the tenant, or, if the tenant is a
corporation, 10% or more of the voting power or value of all
classes of stock of the tenant. Rents received from such tenant
that is our TRS, however, will not be excluded from the
definition of rents from real property as a result
of this condition if at least 90% of the space at the property
to which the rents relate is leased to third parties, and the
rents paid by the TRS are comparable to rents paid by our other
tenants for comparable space. Whether rents paid by a TRS are
substantially comparable to rents paid by other tenants is
determined at the time the lease with the TRS is entered into,
extended, and modified, if such modification increases the rents
due under such lease. Notwithstanding the foregoing, however, if
a lease with a controlled taxable REIT subsidiary is
modified and such modification results in an increase in the
rents payable by such TRS, any such increase will not qualify as
rents from real property. For purposes of this rule,
a controlled taxable REIT subsidiary is a TRS in
which we own stock possessing more than 50% of the voting power
or more than 50% of the total value of outstanding stock of such
TRS.
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Rent attributable to personal property, leased in connection
with a lease of real property, is not greater than 15% of the
total rent received under the lease. If this condition is not
met, then the portion of the rent attributable to personal
property will not qualify as rents from real
property.
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For rents received to qualify as rents from real
property, the REIT generally must not operate or manage
the property or furnish or render services to the tenants of the
property (subject to a 1% de minimis exception), other than
through an independent contractor from whom the REIT derives no
revenue or through a TRS. The REIT may, however, directly
perform certain services that are usually or customarily
rendered in connection with the rental of space for
occupancy only and are not otherwise considered rendered
to the occupant of the property. Any amounts we receive
from a TRS with respect to the TRSs provision of
non-customary services will, however, be nonqualifying income
under the 75% gross income test and, except to the extent
received through the payment of dividends, the 95% gross income
test.
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We do not intend to charge rent for any property that is based
in whole or in part on the net income or profits of any person
(except by reason of being based on a percentage of gross
receipts or sales, as heretofore described), and we do not
intend to rent any personal property (other than in connection
with a lease of real property where less than 15% of the total
rent is attributable to personal property). We directly perform
services under certain of our leases, but such services are not
rendered to the occupant of the property. Furthermore, these
services are usual and customary management services provided by
landlords renting space for occupancy in the geographic areas in
which we own property. To the extent that the performance of any
services provided by us would cause amounts received from our
tenants to be excluded from rents from real property, we intend
to hire a TRS, or an independent contractor from whom we derive
no revenue, to perform such services.
The term interest generally does not include any
amount received or accrued (directly or indirectly) if the
determination of some or all of the amount depends in any way on
the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term
interest solely by reason of being based on a fixed
percentage or percentages of receipts or sales.
From time to time, we enter into hedging transactions with
respect to one or more of our assets or liabilities. Our hedging
activities may include entering into interest rate swaps, caps,
and floors, options to purchase these items, and futures and
forward contracts. Any income we derive from a hedging
transaction will be nonqualifying income for purposes of the 75%
gross income test. Except to the extent provided by Treasury
Regulations, however, income from a hedging transaction,
including gain from the sale or disposition of such a
transaction, entered into prior to January 1, 2005 will be
qualifying income for purposes of the 95% gross income test, but
only to the extent that the transaction hedges indebtedness
incurred or to be incurred by us to acquire or carry real
estate. Income from such a hedging transaction entered into on
or after January 1, 2005 that is clearly identified as such
as specified in the Code will not constitute gross income for
purposes of the 95% gross income test, and therefore will be
exempt from this test. The term hedging transaction,
as used above, generally means any transaction we enter into in
the normal course of our business primarily to manage risk of
interest rate changes or fluctuations with respect to borrowings
made or to be made by us. To the extent that we hedge with other
types of financial instruments, the income from those
transactions is not likely to be treated as qualifying income
for purposes of the gross income tests. We intend to structure
any hedging transactions in a manner that does not jeopardize
our status as a REIT.
If we fail to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, we may nevertheless qualify as a
REIT for the year if we are entitled to relief under certain
provisions of the Code. Commencing with our taxable year
beginning January 1, 2005, we generally may make use of the
relief provisions if:
(i) following our identification of the failure to meet the
75% or 95% gross income tests for any taxable year, we file a
schedule with the IRS setting forth each item of our gross
income for purposes of the 75% or 95% gross income tests for
such taxable year in accordance with Treasury Regulations to be
issued; and
(ii) our failure to meet these tests was due to reasonable
cause and not due to willful neglect.
For our taxable year ending December 31, 2005, we generally
may avail ourselves of the relief provisions if:
(i) our failure to meet these tests was due to reasonable
cause and not due to willful neglect;
(ii) we attach a schedule of the sources of our income to
our federal income tax return; and
(iii) any incorrect information on the schedule was not due
to fraud with intent to evade tax.
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It is not possible, however, to state whether in all
circumstances we would be entitled to the benefit of these
relief provisions. For example, if we fail to satisfy the gross
income tests because nonqualifying income that we intentionally
accrue or receive exceeds the limits on nonqualifying income,
the IRS could conclude that our failure to satisfy the tests was
not due to reasonable cause. If these relief provisions do not
apply to a particular set of circumstances, we will not qualify
as a REIT. As discussed above, even if these relief provisions
apply, and we retain our status as a REIT, a tax would be
imposed with respect to our nonqualifying income. We may not
always be able to comply with the gross income tests for REIT
qualification despite periodic monitoring of our income.
Prohibited Transaction Income.
Any gain we
realize on the sale of any property other than foreclosure
property held primarily for sale to customers in the ordinary
course of business will be treated as income from a prohibited
transaction that is subject to a 100% penalty tax. Whether
property is held primarily for sale to customers in the ordinary
course of a trade or business depends on all the facts and
circumstances surrounding the particular transaction. We do not
intend to engage in prohibited transactions.
Penalty Tax.
Any redetermined rents,
redetermined deductions or excess interest we generate will be
subject to a 100% penalty tax. In general, redetermined rents
are rents from real property that are overstated as a result of
any services furnished to any of our tenants by one of our TRSs,
and redetermined deductions and excess interest represent any
amounts that are deducted by a TRS for amounts paid to us that
are in excess of the amounts that would have been deducted based
on arms-length negotiations. Rents we receive will not
constitute redetermined rents if they qualify for certain safe
harbor provisions contained in the Code. These determinations
are inherently factual, and the IRS has broad discretion to
assert that amounts paid between related parties should be
reallocated to clearly reflect their respective incomes. If the
IRS successfully made such an assertion, we would be required to
pay a 100% penalty tax on the excess of an arms-length fee
for tenant services over the amount actually paid.
Asset Tests.
At the close of each quarter of
our taxable year, we also must satisfy four tests relating to
the nature and diversification of our assets. First, at least
75% of the value of our total assets must be represented by real
estate assets, cash, cash items and government securities. For
purposes of this test, real estate assets include real property
(including interests in real property and interests in mortgages
on real property) and shares (or transferable certificates of
beneficial interest) in other REITs, as well as any stock or
debt instruments that are purchased with the proceeds of a stock
offering or public offering of debt at least five years, but
only for the one-year period beginning on the date we receive
such proceeds. Second, not more than 25% of our total assets may
be represented by securities, other than those securities
includable in the 75% asset test. Third, of the investments
included in the 25% asset class, and except for investments in
another REIT, a QRS or a TRS, the value of any one issuers
securities may not exceed 5% of the value of our total assets,
and we may not own more than 10% of the total vote or value of
the outstanding securities of any one issuer except, in the case
of the 10% value test, securities satisfying the straight
debt safe-harbor. Certain types of securities we may own
are disregarded as securities solely for purposes of the 10%
value test, including, but not limited to, any loan to an
individual or an estate, any obligation to pay rents from real
property and any security issued by a REIT. In addition,
commencing with our taxable year beginning January 1, 2005,
solely for purposes of the 10% value test, the determination of
our interest in the assets of a partnership or limited liability
company in which we own an interest will be based on our
proportionate interest in any securities issued by the
partnership or limited liability company, excluding for this
purpose certain securities described in the Code. Fourth, no
more than 20% of the value of our assets may be comprised of
securities of one or more TRSs.
After initially meeting the asset tests at the close of any
quarter, we will not lose our status as a REIT for failure to
satisfy the asset tests at the end of a later quarter solely by
reason of changes in asset values. If we fail to satisfy an
asset test because we acquire securities or other property
during a quarter, we can cure this failure by disposing of
sufficient nonqualifying assets within 30 days after the
close of that quarter. We believe we have maintained and intend
to continue to maintain adequate records of the value of our
assets to ensure compliance with the asset tests. If we failed
to cure any noncompliance with the asset tests within the
30 day cure period, we would cease to qualify as a REIT
unless we are eligible for certain relief provisions discussed
below.
Commencing with our taxable year beginning January 1, 2005,
certain relief provisions may be available to us if we fail to
satisfy the asset tests described above after the 30 day
cure period. Under these provisions, we will be deemed to have
met the 5% and 10% REIT asset tests if the value of our
nonqualifying assets (i) does not exceed the lesser of
(a) 1% of the total value of our assets at the end of the
applicable quarter or (b) $10,000,000, and (ii) we
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dispose of the nonqualifying assets or otherwise satisfy such
tests within six months after the last day of the quarter in
which the failure to satisfy the asset tests is discovered or
the period of time prescribed by Treasury Regulations to be
issued. For violations due to reasonable cause and not willful
neglect that are in excess of the de minimis exception described
above, we may avoid disqualification as a REIT under any of the
asset tests, after the 30 day cure period, by taking steps
including (i) the disposition of sufficient nonqualifying
assets, or the taking of other actions, which allow us to meet
the asset test within six months after the last day of the
quarter in which the failure to satisfy the asset tests is
discovered or the period of time prescribed by Treasury
Regulations to be issued, (ii) paying a tax equal to the
greater of (a) $50,000 or (b) the highest corporate
tax rate multiplied by the net income generated by the
nonqualifying assets and (iii) disclosing certain
information to the IRS.
Although we expect to satisfy the asset tests described above
and plan to take steps to ensure that we satisfy such tests for
any quarter with respect to which retesting is to occur, there
can be no assurance we will always be successful. If we fail to
cure any noncompliance with the asset tests in a timely manner,
and the relief provisions described above are not available, we
would cease to qualify as a REIT.
Annual Distribution Requirements.
To maintain
our qualification as a REIT, we are required to distribute
dividends (other than capital gain dividends) to our
securityholders in an amount at least equal to the sum of 90% of
our REIT taxable income (computed without regard to
the dividends paid deduction and our net capital gain) and 90%
of our net income (after tax), if any, from foreclosure
property; minus the excess of the sum of certain items of
noncash income (i.e., income attributable to leveled stepped
rents, original issue discount on purchase money debt, or a
like-kind exchange that is later determined to be taxable) over
5% of REIT taxable income as described above.
In addition, if we dispose of any asset we acquired from a
corporation which is or has been a C corporation in a
transaction in which our basis in the asset is determined by
reference to the basis of the asset in the hands of that
C corporation, within the ten-year period following our
acquisition of such asset, we would be required to distribute at
least 90% of the after-tax gain, if any, we recognized on the
disposition of the asset, to the extent that gain does not
exceed the excess of (a) the fair market value of the asset
on the date we acquired the asset over (b) our adjusted
basis in the asset on the date we acquired the asset.
We must pay the distributions described above in the taxable
year to which they relate (current distributions),
or in the following taxable year if they are either
(i) declared before we timely file our tax return for such
year and paid on or before the first regular dividend payment
after such declaration (throwback distributions) or
(ii) paid during January to securityholders of record in
October, November or December of the prior year (deemed
current distributions). Throwback distributions are
taxable to our securityholders for the year in which they are
paid, even though the distributions relate to the prior year for
purposes of our 90% distribution requirement. Current
distributions are taxable for the year they are paid and deemed
current distributions, although distributed in January, are
taxable for the year of their record date. The amount
distributed must not be preferential i.e., every
securityholders of the class of stock to which a distribution is
made must be treated the same as every other securityholders of
that class, and no class of stock may be treated otherwise than
in accordance with its dividend rights as a class. To the extent
that we do not distribute all of our net capital gain or
distribute at least 90%, but less than 100%, of our REIT
taxable income, as adjusted, we will be subject to tax
thereon at regular ordinary and capital gain corporate tax
rates. We believe we have made and intend to continue to make
timely distributions sufficient to satisfy these annual
distribution requirements.
We generally expect that our REIT taxable income will be less
than our cash flow because of the allowance of depreciation and
other non-cash charges in computing REIT taxable income.
Accordingly, we anticipate that we will generally have
sufficient cash or liquid assets to enable us to satisfy the
distribution requirements described above. However, from time to
time, we may not have sufficient cash or other liquid assets to
meet these distribution requirements because of timing
differences between the actual receipt of income and actual
payment of deductible expenses, and the inclusion of income and
deduction of expenses in arriving at our taxable income. If
these timing differences occur, in order to meet the
distribution requirements, we may need to arrange for
short-term, or possibly long-term, borrowings or need to pay
dividends in the form of taxable share dividends.
Under certain circumstances, we may be able to rectify a failure
(due to for example, an IRS adjustment such as an increase in
our taxable income or a reduction in reported expenses) to meet
the 90% distribution requirement for a year by paying
deficiency dividends to securityholders in a later
year, which may be included in our deduction
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for dividends paid for the earlier year. Thus, we may be able to
avoid being taxed on amounts distributed as deficiency
dividends. However, we will be required to pay interest to the
IRS based on the amount of any deduction taken for deficiency
dividends.
In addition, we would be subject to a 4% excise tax to the
extent we fail to distribute during each calendar year (or in
the case of distributions with declaration and record dates
falling in the last three months of the calendar year, by the
end of January immediately following such year) at least the sum
of 85% of our REIT ordinary income for such year, 95% of our
REIT capital gain income for the year (other than certain
long-term capital gains for which we make a Capital Gains
Designation and on which we pay the tax), and any undistributed
taxable income from prior periods. Any REIT taxable income and
net capital gain on which a REIT-level corporate income tax is
imposed for any year is treated as an amount distributed during
that year for purposes of calculating the excise tax.
Earnings and Profits Distribution
Requirement.
In order to qualify as a REIT, we
cannot have at the end of any taxable year any undistributed
earnings and profits that are attributable to a
C corporation taxable year (i.e., a year in
which a corporation is neither a REIT nor an S corporation).
We intend to make timely distributions to satisfy the annual
distribution requirements.
Failure
to Qualify
Commencing with our taxable year beginning January 1, 2005,
specified cure provisions will be available to us in the event
that we violate a provision of the Code that would result in our
failure to qualify as a REIT. These cure provisions would reduce
the instances that could lead to our disqualification as a REIT
for violations due to reasonable cause and would instead
generally require the payment of a monetary penalty. If we fail
to qualify for taxation as a REIT in any taxable year, and the
relief provisions do not apply, we will be subject to tax
(including any applicable alternative minimum tax) on our
taxable income at regular corporate rates. Distributions to
securityholders in any year in which we fail to qualify will not
be deductible by us, and we will not be required to distribute
any amounts to our securityholders. As a result, our failure to
qualify as a REIT would reduce the cash available for
distribution by us to our securityholders. In addition, if we
fail to qualify as a REIT, all distributions to securityholders
will be taxable as ordinary income to the extent of our current
and accumulated earnings and profits, and, subject to certain
limitations of the Code, corporate distributees may be eligible
for the dividends received deduction. Unless entitled to relief
under specific statutory provisions, we would also be
disqualified from taxation as a REIT for the four taxable years
following the year during which we lost our qualification. It is
not possible to state whether in all circumstances we would be
entitled to this statutory relief.
Taxation
of Taxable U.S. Shareholders
The following summary describes certain federal income tax
consequences to U.S. shareholders with respect to an
investment in our shares. This discussion does not address the
tax consequences to persons who receive special treatment under
the federal income tax law. Shareholders subject to special
treatment include, without limitation, insurance companies,
financial institutions or broker-dealers, tax-exempt
organizations, shareholders holding securities as part of a
conversion transaction, or a hedge or hedging transaction or as
a position in a straddle for tax purposes, foreign corporations
or partnerships and persons who are not citizens or residents of
the United States.
As used herein, the term U.S. Shareholders
means a holder of shares who, for United States federal income
tax purposes:
(i) is a citizen or resident of the United States;
(ii) is a corporation, partnership or other entity
classified as a corporation or partnership for United States
federal income tax purposes, created or organized in or under
the laws of the United States or of any state thereof or in the
District of Columbia, unless, in the case of a partnership,
Treasury Regulations provide otherwise;
(iii) is an estate the income of which is subject to United
States federal income taxation regardless of its source; or
(iv) is a trust whose administration is subject to the
primary supervision of a United States court and which has one
or more United States persons who have the authority to control
all substantial decisions of the trust. Notwithstanding the
preceding sentence, to the extent provided in Treasury
Regulations, certain trusts in
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existence on August 20, 1996, and treated as United States
persons prior to this date that elect to continue to be treated
as United States persons, shall also be considered
U.S. Securityholders.
Distributions Generally.
As long as we qualify
as a REIT, distributions out of our current or accumulated
earnings and profits, other than capital gain dividends
discussed below, generally will constitute dividends taxable to
our taxable U.S. Shareholders as ordinary income. For
purposes of determining whether distributions to holders of
shares are out of current or accumulated earnings and profits,
our earnings and profits will be allocated first to our
outstanding preferred shares and then to our common shares.
These distributions will not be eligible for the
dividends-received deduction in the case of
U.S. Securityholders that are corporations.
Because we generally are not subject to federal income tax on
the portion of our REIT taxable income distributed to our
securityholders, our ordinary dividends generally are not
eligible for the reduced 15% rate available to most
non-corporate taxpayers through 2010 under the Tax Increase
Prevention and Reconciliation Act of 2006, and will continue to
be taxed at the higher tax rates applicable to ordinary income.
However, the reduced 15% rate does apply to our distributions:
(i) designated as long-term capital gain dividends (except
to the extent attributable to real estate depreciation, in which
case such distributions continue to be subject to tax at a 25%
rate);
(ii) to the extent attributable to dividends received by us
from non-REIT corporations or other taxable REIT
subsidiaries; and
(iii) to the extent attributable to income upon which we
have paid corporate income tax (for example, if we distribute
taxable income that we retained and paid tax on in the prior
year).
To the extent that we make distributions in excess of our
current and accumulated earnings and profits, these
distributions will be treated first as a tax-free return of
capital to each U.S. Shareholders. This treatment will
reduce the adjusted basis which each U.S. Shareholder has
in his shares of stock for tax purposes by the amount of the
distribution (but not below zero). Distributions in excess of a
U.S. Shareholders adjusted basis in his shares will
be taxable as capital gains (provided that the shares have been
held as a capital asset) and will be taxable as long-term
capital gain if the shares have been held for more than one
year. Dividends we declare in October, November, or December of
any year and payable to a shareholder of record on a specified
date in any of these months shall be treated as both paid by us
and received by the shareholders on December 31 of that
year, provided we actually pay the dividend on or before January
31 of the following calendar year. Shareholders may not include
in their own income tax returns any of our net operating losses
or capital losses.
Capital Gain Distributions.
Distributions that
we properly designate as capital gain dividends (and
undistributed amounts for which we properly make a capital gains
designation) will be taxable to U.S. Shareholders as gains
(to the extent that they do not exceed our actual net capital
gain for the taxable year)from the sale or disposition of a
capital asset. Depending on the period of time we have held the
assets which produced these gains, and on certain designations,
if any, which we may make, these gains may be taxable to
non-corporate U.S. Shareholders at either a 15% or a 25%
rate, depending on the nature of the asset giving rise to the
gain. Corporate U.S. Securityholders may, however, be
required to treat up to 20% of certain capital gain dividends as
ordinary income.
Passive Activity Losses and Investment Interest
Limitations.
Distributions we make and gain
arising from the sale or exchange by a U.S. Shareholder of
our shares will be treated as portfolio income. As a result,
U.S. Shareholders generally will not be able to apply any
passive losses against this income or gain. A
U.S. Shareholder may elect to treat capital gain dividends,
capital gains from the disposition of stock and qualified
dividend income as investment income for purposes of computing
the investment interest limitation, but in such case, the
shareholders will be taxed at ordinary income rates on such
amount. Other distributions we make (to the extent they do not
constitute a return of capital) generally will be treated as
investment income for purposes of computing the investment
interest limitation. Gain arising from the sale or other
disposition of our shares, however, will not be treated as
investment income under certain circumstances.
Retention of Net Long-Term Capital Gains.
We
may elect to retain, rather than distribute as a capital gain
dividend, our net long-term capital gains. If we make this
election (a Capital Gains Designation) we would
pay
45
tax on our retained net long-term capital gains. In addition, to
the extent we make a Capital Gains Designation, a
U.S. Shareholder generally would:
(i) include its proportionate share of our undistributed
long-term capital gains in computing its long-term capital gains
in its return for its taxable year in which the last day of our
taxable year falls (subject to certain limitations as to the
amount that is includable);
(ii) be deemed to have paid the capital gains tax imposed
on us on the designated amounts included in the
U.S. Shareholders long-term capital gains;
(iii) receive a credit or refund for the amount of tax
deemed paid by it;
(iv) increase the adjusted basis of its shares by the
difference between the amount of includable gains and the tax
deemed to have been paid by it; and
(v) in the case of a U.S. Shareholder that is a
corporation, appropriately adjust its earnings and profits for
the retained capital gains in accordance with Treasury
Regulations to be promulgated.
Dispositions
of Shares
Generally, if you are a U.S. Shareholder and you sell or
dispose of your shares, you will recognize gain or loss for
federal income tax purposes in an amount equal to the difference
between the amount of cash and the fair market value of any
property you receive on the sale or other disposition and your
adjusted basis in the shares for tax purposes. This gain or loss
will be capital if you have held the shares as a capital asset
and will be long-term capital gain or loss if you have held the
shares for more than one year. However, if you are a
U.S. Shareholder and you recognize loss upon the sale or
other disposition of shares that you have held for six months or
less (after applying certain holding period rules), the loss you
recognize will be treated as a long-term capital loss, to the
extent you received distributions from us which were required to
be treated as long-term capital gains.
The maximum tax rate for individual taxpayers on net long-term
capital gains (i.e., the excess of net long-term capital gain
over net short-term capital loss) is currently 15% for most
assets. In the case of individuals whose ordinary income is
taxed at a 10% or 15% rate, the 15% rate is reduced to 5%.
Absent future legislation, the maximum tax rate on long-term
capital gains will return to 20% in 2011.
Redemption
of Shares
If we redeem any of our shares held by you, the tax treatment of
the redemption can only be determined on the basis of particular
facts at the time of redemption. In general, you will recognize
gain or loss (as opposed to dividend income) equal to the
difference between the amount received by you in the redemption
and your adjusted tax basis in your shares redeemed if such
redemption results in a complete termination of your
interest in all classes of our equity securities, is a
substantially disproportionate redemption or is
not essentially equivalent to a dividend with
respect to you. In applying these tests, there must be taken
into account your ownership of all classes of our equity
securities. You also must take into account any equity
securities that are considered to be constructively owned by you.
If, as a result of a redemption by us of your shares, you no
longer own (either actually or constructively) any of our equity
securities or only own (actually and constructively) an
insubstantial percentage of our equity securities, then it is
likely that the redemption of your shares would be considered
not essentially equivalent to a dividend and, thus,
would result in gain or loss to you. Gain from the sale or
exchange of our shares held for more than one year is taxed at a
maximum long-term capital gain rate. However, whether a
distribution is not essentially equivalent to a
dividend depends on all of the facts and circumstances,
and if you rely on any of these tests at the time of redemption,
you should consult your tax advisor to determine their
application to the particular situation.
Generally, if the redemption does not meet the tests described
above, then the proceeds received by you from the redemption of
your shares will be treated as a distribution taxable as a
dividend to the extent of the allocable portion of current or
accumulated earnings and profits. If the redemption is taxed as
a dividend, your adjusted tax basis in the redeemed shares will
be transferred to any other shareholdings in us that you own. If
you own no other shareholdings in us, under certain
circumstances, such basis may be transferred to a related
person, or it may be lost entirely.
46
Backup
Withholding
We report to our U.S. Shareholders and the IRS the amount
of dividends paid during each calendar year, and the amount of
any tax withheld. Under the backup withholding rules, a
shareholder may be subject to backup withholding with respect to
dividends paid unless the holder is a corporation or comes
within certain other exempt categories and, when required,
demonstrates this fact, or provides a taxpayer identification
number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements
of the backup withholding rules. A U.S. Shareholder that
does not provide us with its correct taxpayer identification
number may also be subject to penalties imposed by the IRS.
Backup withholding is not an additional tax. Any amount paid as
backup withholding will be creditable against the
securityholders income tax liability. In addition, we may
be required to withhold a portion of capital gain distributions
to any shareholders who fail to certify their non-foreign
status. See Taxation of
Non-U.S. Shareholders.
Taxation
of Tax-Exempt Shareholders
The IRS has ruled that amounts distributed as dividends by a
qualified REIT do not constitute unrelated business taxable
income (UBTI) when received by a tax-exempt entity.
Based on that ruling, dividend income from us will not be UBTI
to a tax-exempt shareholder so long as the tax-exempt
shareholder (except certain tax-exempt shareholders described
below) has not held its shares as debt financed
property within the meaning of the Code (generally,
shares, the acquisition of which was financed through a
borrowing by the tax-exempt securityholders) and the shares are
not otherwise used in a trade or business. Similarly, income
from the sale of shares will not constitute UBTI unless a
tax-exempt shareholder has held its shares as debt
financed property within the meaning of the Code or has
used the shares in its trade or business.
For tax-exempt shareholders, which are social clubs, voluntary
employee benefit associations, supplemental unemployment benefit
trusts and qualified group legal services plans exempt from
federal income taxation under Code Sections 501(c)(7),
(c)(9), (c)(17) and (c)(20), respectively, income from an
investment in our shares will constitute UBTI unless the
organization is able to properly deduct amounts set aside or
placed in reserve for certain purposes so as to offset the
income generated by its investment in our shares. These
prospective investors should consult their own tax advisors
concerning these set aside and reserve requirements.
Notwithstanding the above, however, a portion of the dividends
paid by a pension held REIT may be treated as UBTI
as to certain types of trusts that hold more than 10% (by value)
of the interests in the REIT.
A REIT will not be a pension held REIT if it is able
to satisfy the not closely held requirement without
relying upon the look-through exception with respect
to certain trusts. We do not expect to be classified as a
pension held REIT, but because our shares are
publicly traded, we cannot guarantee this will always be the
case.
Tax-exempt shareholders should consult their own tax advisors
concerning the U.S. federal, state, local and foreign tax
consequences of an investment in our shares.
Taxation
of
Non-U.S. Shareholders
The following discussion addresses the rules governing United
States federal income taxation of the ownership and disposition
of shares by persons that are not U.S. Shareholders
(Non-U.S. Shareholders).
The rules governing United States federal income taxation of
Non-U.S. Shareholders
are complex and no attempt is made herein to provide more than a
brief summary of such rules. Accordingly, this discussion does
not address all aspects of United States federal income taxation
that may be relevant to a
Non-U.S. Shareholder
in light of its particular circumstances and does not address
any state, local or foreign tax consequences.
Non-U.S. Shareholders
should consult their own tax advisors concerning the
U.S. federal, state, local and foreign tax consequences to
them of an acquisition of shares, including tax return filing
requirements and the U.S. federal, state, local and foreign
tax treatment of dispositions of interests in, and the receipt
of distributions from, us.
Distributions Generally.
Distributions that
are neither attributable to gain from our sale or exchange of
United States real property interests nor designated by us as
capital gain dividends will be treated as dividends of ordinary
income to the extent that they are made out of our current or
accumulated earnings and profits. Such distributions ordinarily
will be subject to withholding of United States federal income
tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty unless the distributions are
treated as effectively connected with the conduct by you of a
United States trade or business. Under certain treaties,
however, lower
47
withholding rates generally applicable to dividends do not apply
to dividends from a REIT. Certain certification and disclosure
requirements must be satisfied to be exempt from withholding
under the effectively connected income exemption. Dividends that
are treated as effectively connected with such a trade or
business will be subject to tax on a net basis (that is, after
allowance for deductions) at graduated rates, in the same manner
as dividends paid to U.S. Holders are subject to tax, and
are generally not subject to withholding. Any such dividends
received by a
non-U.S. Holder
that is a corporation may also be subject to an additional
branch profits tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.
We expect to withhold United States income tax at the rate of
30% on any distributions made to you unless:
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a lower treaty rate applies and you file with us an IRS
Form W-8BEN
evidencing eligibility for that reduced treaty rate; or
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you file an IRS
Form W-8ECI
with us claiming that the distribution is income effectively
connected with your trade or business.
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Returning Capital Distributions.
Distributions
in excess of our current and accumulated earnings and profits
will not be taxable to you to the extent that such distributions
do not exceed your adjusted basis in our shares, but rather will
reduce the adjusted basis of such shares. To the extent that
such distributions exceed your adjusted basis in our shares,
they will give rise to gain from the sale or exchange of such
shares. The tax treatment of this gain is described below.
For withholding purposes, we expect to treat all distributions
as made out of our current or accumulated earnings and profits.
However, amounts withheld should generally be refundable if it
is subsequently determined that the distribution was, in fact,
in excess of our current and accumulated earnings and profits.
Capital Gain Dividends and Distributions Attributable to a
Sale or Exchange of U.S. Real Property
Interests.
Distributions to you that we properly
designate as capital gain dividends, other than those arising
from the disposition of a U.S. real property interest,
generally should not be subject to United States federal income
taxation, unless:
(1) the investment in our shares is treated as effectively
connected with your United States trade or business, in which
case you will be subject to the same treatment as
U.S. Holders with respect to such gain, except that a
non-U.S. Holder
that is a foreign corporation may also be subject to the 30%
branch profits tax, as discussed above; or
(2) you are a nonresident alien individual who is present
in the United States for 183 days or more during the
taxable year and certain other conditions are met, in which case
you will be subject to a 30% tax on your capital gains.
Pursuant to FIRPTA, distributions that are attributable to net
capital gain from the sale or exchange of U.S. real
property interests by us and paid to a
non-U.S. Holder
that owns more than 5% of the value of our shares at any time
during the one-year period ending on the date of distribution
will be subject to United States federal income tax as income
effectively connected with a United States trade or business.
The FIRPTA tax will apply to these distributions whether or not
the distribution is designated as a capital gain dividend.
You will generally be taxed at the same rates applicable to
U.S. Holders, subject to a special alternative minimum tax
in the case of nonresident alien individuals. We will be
required to withhold and to remit to the IRS 35% of any
distribution to you that could be treated as a capital gain
dividend. The amount withheld is creditable against your United
States federal income tax liability. However, any distribution
with respect to any class of stock which is regularly traded on
an established securities market located in the United States is
not subject to FIRPTA, and therefore, not subject to the 35%
United States withholding tax described above, if you did not
own more than 5% of such class of stock at any time during the
one-year period ending on the date of the distribution (the
5% Exception). Instead, such distributions will be
treated as ordinary dividend distributions.
Retention of Net Capital Gains.
Although the
law is not clear on the matter, it appears that amounts
designated by us as retained capital gains in respect of the
shares held by
non-U.S. Holders
generally should be treated in the same manner as actual
distributions by us of capital gain dividends. Under this
approach, you would be able to offset as a credit against your
United States federal income tax liability resulting from your
proportionate
48
share of the tax paid by us on such retained capital gains, and
to receive from the IRS a refund to the extent your
proportionate share of such tax paid by us exceeds your actual
United States federal income tax liability.
Sale of Shares.
Gain recognized by a
non-U.S. Holder
upon the sale or exchange of our shares generally will not be
subject to United States taxation unless such stock constitutes
a U.S. real property interest. Our shares will not
constitute a U.S. real property interest so long as we are
a domestically-controlled qualified investment entity, which
includes a REIT, if at all times during a specified testing
period less than 50% in value of its stock is held directly or
indirectly by
non-U.S. Holders.
Notwithstanding the foregoing, gain from the sale or exchange of
our shares not otherwise subject to FIRPTA will be taxable to
you if either (1) the investment in our shares is treated
as effectively connected with your United States trade or
business or (2) you are a nonresident alien individual who
is present in the United States for 183 days or more during
the taxable year and certain other conditions are met. In
addition, even if we are a domestically controlled qualified
investment entity, upon disposition of our shares (subject to
the 5% Exception applicable to regularly traded stock described
above), you may be treated as having gain from the sale or
exchange of U.S. real property interest if the you
(1) dispose of our shares within a
30-day
period preceding the ex-dividend date of a distribution, any
portion of which, but for the disposition, would have been
treated as gain from the sale or exchange of a U.S. real
property interest and (2) acquire, or enter into a contract
or option to acquire, or are deemed to acquire, substantially
identical shares within 30 days after such ex-dividend date.
Even if we do not qualify as a domestically-controlled qualified
investment entity at the time you sell or exchange our shares,
gain arising from such a sale or exchange would not be subject
to United States taxation under FIRPTA as a sale of a
U.S. real property interest if:
(1) such class of our shares is regularly traded, as
defined by applicable Treasury regulations, on an established
securities market such as the NYSE; and
(2) you owned, actually and constructively, 5% or less in
value of such class of our shares throughout the shorter of the
period during which you held such shares or the five-year period
ending on the date of the sale or exchange.
If gain on the sale or exchange of our shares were subject to
taxation under FIRPTA, you would be subject to regular United
States federal income tax with respect to such gain in the same
manner as a taxable U.S. Holder (subject to any applicable
alternative minimum tax and a special alternative minimum tax in
the case of nonresident alien individuals) and the purchaser of
the shares would be required to withhold and remit to the IRS
10% of the purchase price.
Backup Withholding Tax and Information
Reporting.
Generally, we must report annually to
the IRS the amount of dividends paid to you, your name and
address, and the amount of tax withheld, if any. A similar
report is sent to you. Pursuant to tax treaties or other
agreements, the IRS may make its reports available to tax
authorities in your country of residence.
Payments of dividends or of proceeds from the disposition of
shares made to you may be subject to information reporting and
backup withholding unless you establish an exemption, for
example, by properly certifying your
non-U.S. Holder
status on an IRS
Form W-8BEN
or another appropriate version of IRS
Form W-8.
Notwithstanding the foregoing, backup withholding and
information reporting may apply if either we have or our paying
agent has actual knowledge, or reason to know, that you are a
U.S. person.
Backup withholding is not an additional tax. Rather, the United
States income tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a refund or
credit may be obtained, provided that the required information
is furnished to the IRS.
State and
Local Tax Consequences
We may be subject to state or local taxation or withholding in
various state or local jurisdictions, including those in which
we transact business and our shareholders may be subject to
state or local taxation or withholding in various state or local
jurisdictions, including those in which they reside. Our state
and local tax treatment may not conform to the federal income
tax treatment discussed above. In addition, your state and local
tax treatment may not conform to the federal income tax
treatment discussed above. You should consult your own tax
advisors regarding the effect of state and local tax laws on an
investment in our shares.
49
RATIO OF
EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED SHARE DIVIDENDS
Our ratio of earnings to fixed charges for the fiscal years
ended December 31, 2001, December 31, 2002,
December 31, 2003, December 31, 2004 and
December 31, 2005 and the nine months ended
September 30, 2006 were as follows:
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Time Period
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Ratio
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December 31, 2001
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1.70
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x
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December 31, 2002
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1.90
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x
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December 31, 2003
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3.31
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x
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December 31, 2004
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2.89
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x
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December 31, 2005
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2.34
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x
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Nine Months Ended
September 30, 2006
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2.01
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x
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Our ratio of earnings to combined fixed charges and preferred
share dividends for the fiscal years ended December 31,
2001, December 31, 2002, December 31, 2003,
December 31, 2004 and December 31, 2005 and the nine
months ended September 30, 2006 were as follows:
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Time Period
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Ratio
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December 31, 2001
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1.36
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x
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December 31, 2002
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1.42
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x
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December 31, 2003
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2.17
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x
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December 31, 2004
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2.10
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x
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December 31, 2005
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1.82
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x
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Nine Months Ended
September 30, 2006
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1.64
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x
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For purposes of computing these ratios, earnings have been
calculated by adding fixed charges (excluding capitalized
interest, preferred dividend requirements of consolidated
subsidiaries and preferred dividends) and the minority interest
in the income of majority owned joint ventures that have fixed
charges and subtracting any undistributed net income of joint
ventures accounted for using the equity method of accounting
from pre-tax income from continuing operations, including gains
and losses on the disposition of real estate. Fixed charges
include interest costs, whether expensed or capitalized, the
interest component of rental expense, the amortization of debt
discounts and issue costs, whether expensed or capitalized, and,
preferred dividend requirements of consolidated subsidiaries.
PLAN OF
DISTRIBUTION
We may sell securities offered pursuant to any applicable
prospectus supplement to one or more underwriters for public
offering and sale by them or we may sell such securities to
investors directly or through agents. The name of any
underwriter or agent involved in the offer and sale of such
securities will be included in the applicable prospectus
supplement.
Underwriters may offer and sell securities offered pursuant to
any applicable prospectus supplement:
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at a fixed price or prices, which may be changed;
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at market prices prevailing at the time of sale;
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at prices related to prevailing market prices; or
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at negotiated prices.
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From time to time, we may also authorize underwriters acting as
our agents to offer and sell securities upon the terms and
conditions set forth in an applicable prospectus supplement.
Underwriters may be deemed to have received compensation from us
in the form of underwriting discounts or commissions in
connection with the sale of securities offered pursuant to any
applicable prospectus supplement. Underwriters may also receive
commissions from purchasers of securities for whom such
underwriters may act as agent. Underwriters may sell securities
offered pursuant to any applicable prospectus supplement to or
through dealers. Such dealers may receive compensation in
50
the form of discounts, concessions from the underwriters or
commissions from the purchasers for whom such dealers may act as
agent.
We may enter into derivative transactions with third parties, or
sell securities not covered by this prospectus to third parties
in privately negotiated transactions. If the applicable
prospectus supplement indicates, in connection with those
derivatives, the third parties may sell securities covered by
this prospectus and the applicable prospectus supplement,
including short sale transactions. If so, the third party may
use securities pledged by us or borrowed from us or others to
settle those sales or to close out any related open borrowings
of common shares, and may use securities received from us in
settlement of those derivatives to close out any related open
borrowings of common shares. The third party in such sale
transactions will be an underwriter and, if not identified in
this prospectus, will be identified in the applicable prospectus
supplement or a post-effective amendment to this registration
statement.
We will describe in the applicable prospectus supplement any
underwriting compensation we pay to underwriters or agents in
connection with any offering of securities. Likewise, we will
also describe any discounts, concessions or commissions allowed
by underwriters to participating dealers in the applicable
prospectus supplement. Underwriters, dealers and agents
participating in the distribution of the securities may be
deemed to be underwriters, and any discounts and commissions
received by them and any profit realized by them on resale of
the securities may be deemed to be underwriting discounts and
commissions. We may enter into agreements to indemnify
underwriters, dealers and agents against certain civil
liabilities, including liabilities under the Securities Act, and
to reimburse these persons for certain expenses. We will
describe any indemnification agreements in the applicable
prospectus supplement.
If indicated in the applicable prospectus supplement, we may
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 such 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 the respective amounts stated in the applicable
prospectus supplement. Likewise, the aggregate principal amount
of the securities sold pursuant to delayed delivery contracts
will not be less or more than the respective amounts stated in
the applicable prospectus supplement. We may make delayed
delivery with various institutions, including commercial and
savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions, and other
institutions. Delayed delivery contracts will always 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 contracts shall not at the time
of delivery be prohibited under the laws of any jurisdiction in
the United States to which such institution is subject; and
(ii) if the securities are being sold to underwriters, we
shall have sold to such underwriters the total principal amount
of the offered securities less the principal amount covered by
the delayed delivery contracts.
Certain of the underwriters and their affiliates may be
customers of, engage in transactions with and perform services
for us and our subsidiaries in the ordinary course of business.
51
EXPERTS
The financial statements incorporated in this Prospectus by
reference to the Developers Diversified Realty
Corporations Current Report on
Form 8-K
dated October 1, 2006 and filed December 4, 2006 and
the financial statement schedules and managements
assessment of the effectiveness of internal control over
financial reporting (which is included in Managements
Report on Internal Control over Financial Reporting)
incorporated in this Prospectus by reference to the Annual
Report on
Form 10-K
of Developers Diversified Realty Corporation for the year ended
December 31, 2005 have been so incorporated in reliance on
the reports of PricewaterhouseCoopers LLP, an independent
registered public accounting firm, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements and the related financial
statement schedule III of Inland Retail Real Estate Trust,
Inc. as of December 31, 2005 and 2004, and for each of the
years in the three-year period ended December 31, 2005 have
been incorporated by reference to Developers Diversified
Realtys current report on
Form 8-K
dated December 4, 2006 in this Prospectus in reliance upon
the report of KPMG LLP, independent registered public accounting
firm, incorporated by reference herein, and upon the authority
of said firm as experts in accounting and auditing.
LEGAL
MATTERS
The validity of the debt securities, preferred shares,
depositary shares, common shares and common share warrants will
be passed upon for us by Baker & Hostetler LLP,
Cleveland, Ohio.
52
Developers Realty (NYSE:DDR)
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From Jun 2024 to Jul 2024
Developers Realty (NYSE:DDR)
Historical Stock Chart
From Jul 2023 to Jul 2024