TABLE OF CONTENTS
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You should rely only on the information contained or incorporated by reference in this prospectus
supplement and the accompanying prospectus. We have not, and the Sales Agents have not, authorized anyone to provide you with information different from that contained or incorporated by reference in this prospectus supplement and the accompanying
prospectus. We are not, and the Sales Agents are not, offering to sell, and seeking offers to buy, common stock in jurisdictions where offers and sales are not permitted. The information appearing in this prospectus supplement and the accompanying
prospectus and the documents incorporated by reference herein or therein are accurate only as of their respective dates or on other dates which are specified in those documents. Our business, financial condition, results of operation and prospects
may have changed since those dates.
No action is being taken in any jurisdiction outside the United States to permit a public offering of
the common stock or possession or distribution of this prospectus supplement and the accompanying prospectus in that jurisdiction. Persons who come into possession of this prospectus supplement and the accompanying prospectus in jurisdictions
outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus supplement and the accompanying prospectus supplement and the accompanying prospectus
applicable to that jurisdiction.
About this prospectus supplement
This document is in two parts. The first is this prospectus supplement, which describes the specific terms of this offering. The second part,
the accompanying prospectus, gives more general information, some of which may not apply to this offering. This prospectus supplement also adds to, updates and changes information contained in the accompanying prospectus. If the description of the
offering varies between this prospectus supplement and the accompanying prospectus, you should rely on the information in this prospectus supplement.
This prospectus supplement and the accompanying prospectus are part of a registration statement that First Industrial Realty Trust, Inc. (the
Company or First Industrial) and First Industrial, L.P. (the Operating Partnership) filed with the Securities and Exchange Commission (the SEC), utilizing the shelf registration process,
relating to the common stock, preferred stock, depositary shares and debt securities described in the accompanying prospectus. Under this shelf registration process, the Company and the Operating Partnership may sell any combination of the
securities described in the accompanying prospectus from time to time and in one or more offerings up to a total amount of $1,500,000,000.
You should read both this prospectus supplement and the accompanying prospectus together with the additional information described under the
headings Where You Can Find More Information and Documents Incorporated by Reference in the accompanying prospectus.
As used in this prospectus supplement, we, us and our refer to the Company and its subsidiaries, including
the Operating Partnership, unless the context otherwise requires.
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Prospectus supplement summary
The information below is a summary of some of the more detailed information included elsewhere in, or incorporated by reference in, this
prospectus supplement and the accompanying prospectus. You should read carefully the following summary in conjunction with the more detailed information contained in this prospectus supplement, the accompanying prospectus and the information
incorporated by reference. This summary is not complete and does not contain all of the information you should consider before purchasing shares of the Companys common stock. You should carefully read the Risk factors section on
page S-3 of this prospectus supplement, and beginning on page 7 of the Companys Annual Report on Form 10-K for the year ended December 31, 2016, to determine whether an investment in the Companys common stock is
appropriate for you.
First Industrial Realty Trust, Inc.
The Company is a real estate investment trust, or REIT, subject to Sections 856 through 860 of the Internal Revenue Code of 1986, as amended
(the Code). We are a self-administered and fully integrated real estate company which owns, manages, acquires, sells, develops, and redevelops industrial real estate. As of December 31, 2016, our in-service portfolio consisted of
215 light industrial properties, 53 R&D/flex properties, 167 bulk warehouse properties and 100 regional warehouse properties containing an aggregate of approximately 62.2 million square feet of gross leasable area (GLA) located
in 23 states. Our in-service portfolio includes all properties other than developed, redeveloped and acquired properties that have not yet reached stabilized occupancy (generally defined as properties that are 90% occupied). Properties which are at
least 75% occupied at acquisition are placed in-service. Acquired properties less than 75% occupied at the date of acquisition, developments and redevelopments are placed in-service upon the earlier of reaching 90% occupancy or one year subsequent
to acquisition or development/redevelopment construction completion. Properties are moved out of the in-service portfolio to the redevelopment classification when capital expenditures for a project are estimated to exceed 25% of the undepreciated
gross book value of the property.
We began operations on July 1, 1994. The Companys operations are conducted primarily through
the Operating Partnership, of which the Company is the sole general partner, with an approximate 96.7% ownership interest at December 31, 2016. The Operating Partnership also conducts operations through eight other limited partnerships,
numerous limited liability companies and certain taxable REIT subsidiaries, the operating data of which, together with that of the Operating Partnership, is consolidated with that of the Company. At December 31, 2016, approximately 3.3% of the
outstanding limited partnership units in the Operating Partnership were held by outside investors, including a member of the management of the Company. Each limited partnership unit, other than those held by the Company, may be exchanged for cash
or, at the Companys option, one share of First Industrial common stock, subject to adjustments. Upon each exchange, the number of limited partnership units held by the Company, and its ownership percentage of the Operating Partnership,
increase.
We utilize an operating approach which combines the effectiveness of decentralized, locally based property management,
acquisition, sales and development functions with the cost efficiencies of centralized acquisition, sales and development support, capital markets expertise, asset management and fiscal control systems.
The Company, a Maryland corporation organized on August 10, 1993, completed its initial public offering in June 1994. The Operating
Partnership is a Delaware limited partnership organized on November 23, 1993. Our principal executive offices are located at 311 S. Wacker Drive, Suite 3900, Chicago, Illinois 60606, telephone number (312) 344-4300. Our
website is located at http://www.firstindustrial.com. The information on or linked to our website is not a part of, and is not incorporated by reference into, this prospectus supplement.
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The offering
Issuer
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First Industrial Realty Trust, Inc.
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Common stock offered by us
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Shares of our common stock with an aggregate offering price of up to $200,000,000
(1)
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Common stock outstanding prior to the offering
(2)
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117,274,432 shares outstanding as of March 15, 2017
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Manner of offering
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At-the-market offering that may be made from time to time through Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Robert W. Baird & Co. Incorporated, BTIG, LLC, Fifth Third Securities, Inc.,
Jefferies LLC, Samuel A. Ramirez & Company, Inc., and UBS Securities LLC, as Sales Agents using commercially reasonable efforts. See Plan of Distribution.
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Use of proceeds
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We intend to use the net proceeds from this offering for general corporate purposes, which may include the acquisition and development of properties and repayments or repurchases of debt. See Use of Proceeds. Certain affiliates of
our Sales Agents act as lenders under our unsecured credit facility and term loans and may receive pro rata portions of any proceeds used to repay amounts outstanding under the unsecured credit facility or term loans. See Plan of
Distribution.
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Risk factors
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Investing in the Companys common stock involves risks. See the Risk factors section beginning on page S-3 of this prospectus supplement, and beginning on page 7 of the Companys Annual Report on Form 10-K
for the year ended December 31, 2016, before buying shares of the Companys common stock.
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(1)
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We will not issue more than 8,000,000 shares of common stock pursuant to the distribution agreements.
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(2)
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This number does not include:
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An aggregate of 4,039,375 shares of common stock that may be issued in exchange for limited partnership units of the Operating Partnership outstanding on such date (limited partnership units of the Operating Partnership
may be exchanged for cash or, at our option, one share of the Companys common stock, subject to adjustment); or
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An aggregate of 1,961,188 additional shares of our common stock available for future issuance under our 2014 Stock Incentive Plan, and 706,628 shares issuable in respect of unvested Long-Term Incentive Program (LTIP)
awards outstanding as of such date.
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Risk factors
Investing in the Companys common stock involves risks. You should carefully consider the following risk factors and the information
under the heading Risk factors beginning on page 7 of the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2016, which information has been incorporated by reference into this prospectus
supplement, as well as other information included in or incorporated into this prospectus supplement and the attached prospectus before deciding to invest in shares of the Companys common stock.
This offering is expected to be dilutive.
Giving effect to the issuance of common stock in this offering, the receipt of the expected net proceeds and the use of those proceeds, we
expect that this offering will have a dilutive effect on our earnings per share and funds from operations per share for the years in which we issue shares in this offering. The actual amount of dilution cannot be determined at this time and will be
based on numerous factors.
Future sales or issuances of our common stock may cause the market price of our common stock to decline.
The sale of substantial amounts of our common stock, whether directly by us or in the secondary market, the perception that such sales could
occur or the availability of future issuances of shares of our common stock, limited partnership units of the Operating Partnership or other securities convertible into or exchangeable or exercisable for our common stock, could materially and
adversely affect the market price of our common stock and our ability to raise capital through future offerings of equity or equity-related securities. In addition, we may issue capital stock that is senior to our common stock in the future for a
number of reasons, including to finance our operations and business strategy or to adjust our ratio of debt to equity.
The market price of our
common stock may fluctuate significantly.
The market price of our common stock may fluctuate significantly in response to many
factors, including:
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actual or anticipated variations in our operating results, funds from operations, cash flows or liquidity;
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changes in our earnings estimates or those of analysts;
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changes in asset valuations and related impairment charges;
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changes in our dividend policy;
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publication of research reports about us or the real estate industry generally;
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the ability of our tenants to pay rent to us and meet their obligations to us under the current lease terms and our ability to re-lease space as leases expire;
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increases in market interest rates that lead purchasers of our common stock to demand a higher dividend yield;
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changes in market valuations of similar companies;
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adverse market reaction to the amount of our debt outstanding at any time, the amount of our debt maturing in the near- and medium-term and our ability to refinance our debt, or our plans to incur additional debt in the
future;
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our ability to comply with applicable financial covenants under our unsecured line of credit, unsecured term loans and the indentures and other agreements under which our senior unsecured indebtedness is, or may be,
issued;
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additions or departures of key management personnel;
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actions by institutional stockholders;
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speculation in the press or investment community;
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the realization of any of the other risk factors included or incorporated by reference in this prospectus supplement and the accompanying prospectus; and
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general market and economic conditions.
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Many of the factors listed above are beyond our
control. Those factors may cause the market price of our common stock to decline significantly, regardless of our financial condition, results of operations and prospects. It is impossible to provide any assurance that the market price of our common
stock will not fall in the future, and it may be difficult for holders to resell shares of our common stock at prices they find attractive, or at all.
Certain provisions of our charter and bylaws could hinder, delay or prevent a change in control of our company.
Certain provisions of our charter and our bylaws could have the effect of discouraging, delaying or preventing transactions that involve an
actual or threatened change in control of our company. These provisions include the following:
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Removal of Directors.
Under our charter, subject to the rights of one or more classes or series of preferred stock to elect one or more directors, a director may be removed only for cause and only by the
affirmative vote of at least a majority of all votes entitled to be cast by our stockholders generally in the election of directors.
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Preferred Stock.
Under our charter, our board of directors has the power to issue preferred stock from time to time in one or more series and to establish the terms, preferences and rights of any such series
of preferred stock, all without approval of our stockholders.
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Advance Notice Bylaws.
Our bylaws require advance notice procedures with respect to nominations of directors and shareholder proposals.
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Ownership Limit.
For the purpose, among others, of preserving our status as a REIT under the Internal Revenue Code of 1986, as amended, our charter generally prohibits any single stockholder, or any group of
affiliated stockholders, from beneficially owning more than 9.8% of our outstanding common and preferred stock unless our board of directors waives or modifies this ownership limit.
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Stockholder Action by Written Consent.
Our bylaws contain a provision that permits our stockholders to take action by written consent in lieu of an annual or special meeting of stockholders only if the
unanimous consent of the stockholders is obtained.
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Ability of Stockholders to Call Special Meeting.
Under our bylaws, we are only required to call a special meeting at the request of the stockholders if the request is made by at least a majority of all votes
entitled to be cast by our stockholders generally in the election of directors.
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Maryland Control Share Acquisition Act.
Our bylaws contain a provision exempting acquisitions of our shares from the Maryland Control Share Acquisition Act. However, our board of directors may amend our
bylaws in the future to repeal or modify this exemption, in which case any control shares of our company acquired in a control share acquisition will be subject to the Maryland Control Share Acquisition Act. See Certain Provisions of Maryland
Law and the Companys Charter and Bylaws Control Share Acquisitions for more information about the Maryland Control Share Acquisition Act.
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Special note about forward-looking statements
This prospectus supplement may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and
Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). We intend for 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 based on certain assumptions and describe our future plans, strategies and expectations, and are generally identifiable by use of the words believe,
expect, plan, intend, anticipate, estimate, project, seek, target, potential, focus, may, will,
should or similar words. Although we believe the expectations reflected in forward- looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be attained or that results will not
materially differ. Factors which could have a materially adverse effect on our operations and future prospects include, but are not limited to:
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changes in national, international, regional and local economic conditions generally and real estate markets specifically;
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changes in legislation/regulation (including changes to laws governing the taxation of real estate investment trusts) and actions of regulatory authorities;
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our ability to qualify and maintain our status as a real estate investment trust;
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the availability and attractiveness of financing (including both public and private capital) and changes in interest rates;
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the availability and attractiveness of terms of additional debt repurchases;
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changes in our credit agency ratings;
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our ability to comply with applicable financial covenants;
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our competitive environment;
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changes in supply, demand and valuation of industrial properties and land in our current and potential market areas;
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difficulties in identifying and consummating acquisitions and dispositions;
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our ability to manage the integration of properties we acquire;
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potential liability relating to environmental matters;
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defaults on or non-renewal of leases by our tenants;
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decreased rental rates or increased vacancy rates;
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higher-than-expected real estate construction costs and delays in development or lease-up schedules;
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changes in general accounting principles, policies and guidelines applicable to real estate investment trusts; and
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other risks and uncertainties detailed in the section entitled Risk factors beginning on page S-3 of this prospectus supplement.
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We caution you not to place undue reliance on forward-looking statements, which reflect our outlook only and speak only as of the date of this
prospectus supplement. We assume no obligation to update or supplement forward-looking statements.
Further information concerning us and
our business, including additional factors that could materially affect our financial results, is included in the prospectus of which this prospectus supplement is a part and in the documents we incorporate by reference, including the Annual Report
on Form 10-K of the Company and Operating Partnership for the year ended December 31, 2016.
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Use of proceeds
We intend to contribute the net proceeds from this offering to the Operating Partnership in exchange for additional ownership interests in the
Operating Partnership. We expect the Operating Partnership will subsequently use those net proceeds for general corporate purposes, which may include the acquisition and development of properties and repayments or repurchases of debt.
Certain affiliates of our Sales Agents act as lenders under our unsecured credit facility and term loans and may receive pro rata portions of
any proceeds used to repay amounts outstanding under the unsecured credit facility or term loans.
Plan of
distribution
We have entered into separate distribution agreements, each dated as of March 16, 2017, with each of Wells Fargo
Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Robert W. Baird & Co. Incorporated, BTIG, LLC, Fifth Third Securities, Inc., Jefferies LLC, Samuel A. Ramirez & Company, Inc., and UBS Securities LLC,
under which we may issue and sell from time to time, through the Sales Agents, shares of our common stock, par value $0.01 per share, having an aggregate offering price of up to $200,000,000. The sales, if any, of the shares of our common stock
under each of the distribution agreements may be made by the Sales Agents, acting as our agent, in at-the-market offerings as defined in Rule 415 of the Securities Act, including sales made directly on the NYSE, the existing trading
market for our common stock, or sales made to or through a market maker or through an electronic communications network. Under the terms of the distribution agreements, we may also sell our common stock to the Sales Agents as principals for their
own accounts at prices agreed upon at the time of sale. If we sell our common stock to any of the Sales Agents as principals, we will enter into a separate terms agreement with such Sales Agent. We will not issue more than 8,000,000 shares of our
common stock pursuant to the distribution agreements.
From time to time during the term of the distribution agreements, in connection
with the Sales Agents acting as our agents, we may propose to one of the Sales Agents the terms of a transaction notice establishing a selling period and specifying with respect to the selling period terms such as the amount of shares to be sold and
the minimum price below which sales may not be made. We will propose such a notice to only one Sales Agent relating to the sale of shares of our common stock on any given day. If the agent agrees to the terms of such proposal, it will submit for our
execution a binding transaction notice. Upon acceptance of such transaction notice by us, and subject to the terms and conditions of the respective distribution agreement, if acting as agent, each Sales Agent agrees to use its commercially
reasonable efforts consistent with its normal trading and sales practices to sell shares of our common stock on the terms set forth in such transaction notice. We or the Sales Agent then acting as our agent may suspend the offering of our shares at
any time upon proper notice to the other, upon which the selling period will immediately terminate.
No Sales Agent will engage in any
transactions that stabilize our common stock.
We will pay each of the Sales Agents a commission which in each case shall not be more than
2.00% of the gross sales price of all shares sold through it as our agent under the applicable distribution agreement. The remaining sales proceeds, after deducting any expenses payable by us and any transaction fees imposed by any governmental or
self-regulatory organization in connection with the sales, will equal our net proceeds for the sale of shares of our common stock. We have agreed to reimburse the Sales Agents for certain expenses in certain circumstances.
Settlement for sales of our common stock is generally anticipated to occur on the third trading day following the date on which any sales were
made in return for payment of the net proceeds to us (or such other day as may, from time to time, become standard industry practice for settlement of such a securities issuance), unless we
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agree otherwise with the relevant Sales Agent. There is no arrangement for funds to be received in an escrow, in trust or pursuant to a similar arrangement.
Sales of shares of our common stock as contemplated by this prospectus supplement will be settled through the facilities of The Depository
Trust Company or by such other means as we and the Sales Agents may agree upon.
Each Sales Agent will provide written confirmation
to us following the close of trading on the NYSE each day in which shares of our common stock are sold by it as agent for us under the relevant distribution agreement. Each confirmation will include the number of shares sold on that day, the gross
sales price per share and the net proceeds to us.
In connection with the sale of our common stock hereunder, each of the Sales Agents
will be deemed to be an underwriter, as that term is defined in the Securities Act, and the compensation paid to each of them may be deemed to be underwriting commissions or discounts. We have agreed to provide indemnification and contribution to
each of the Sales Agents against certain civil liabilities, including liabilities under the Securities Act.
The Sales Agents and their
respective affiliates have from time to time provided, and may in the future provide, various investment banking, commercial banking, financial advisory and other services for us for which they have received or will receive customary fees and
commissions for these transactions.
Each of Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Robert W. Baird & Co. Incorporated, Jefferies LLC, and UBS Securities LLC, Sales Agents under this offering, served as sales agents in connection with the offer and sale of shares of our common stock under the prospectus supplements dated
March 13, 2014 and February 26, 2016. Additionally, Wells Fargo Securities, LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, each a Sales Agent of this offering, served as joint book-running managers for an underwritten
offering of 5,600,000 shares of our common stock, which settled on April 5, 2016.
Wells Fargo Securities, LLC and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, each a Sales Agent for this offering, are the joint-lead arrangers and the joint book runners under our unsecured credit facility. Wells Fargo Bank, National Association, an affiliate of Wells Fargo
Securities, LLC, a Sales Agent for this offering, is the administrative agent and a lender under our unsecured credit facility. Bank of America, N.A., an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, a Sales Agent for
this offering, is the syndication agent and a lender under our unsecured credit facility. UBS AG, Stamford Branch, an affiliate of UBS Securities LLC, a Sales Agent for this offering, and Fifth Third Bank, an affiliate of Fifth Third Securities,
Inc., a Sales Agent for this offering, are each lenders under our unsecured credit facility. As of December 31, 2016, we had an aggregate of approximately $190 million of borrowings outstanding on our unsecured credit facility at an interest
rate of 1.77%. Our unsecured credit facility matures on March 11, 2019. The unsecured credit facility requires interest-only payments, currently at LIBOR plus 115 basis points, subject to change based on our leverage ratio. Because affiliates
of each of Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, UBS Securities LLC, and Fifth Third Securities, Inc. are lenders under our unsecured credit facility, these affiliates may each receive a portion of
the net proceeds from this offering to the extent any net proceeds are used to repay the debt. Robert W. Baird & Co. Incorporated, a Sales Agent for this offering, will pay a referral fee to an affiliate of Regions Bank, one of the lenders under
our unsecured credit facility, in connection with this offering. BTIG, LLC, a Sales Agent for this offering, will pay a referral fee to one of the lenders under our unsecured credit facility in connection with this offering.
Wells Fargo Bank, National Association, an affiliate of Wells Fargo Securities, LLC, a Sales Agent for this offering, is the administrative
agent and a lender under a $200 million unsecured term loan entered into by the Company and the Operating Partnership in January 2014 (the 2014 Term Loan). Wells Fargo Securities, LLC,
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a Sales Agent for this offering, served as a joint lead arranger and joint book runner under the 2014 Term Loan. Fifth Third Bank, an affiliate of Fifth Third Securities, Inc., a Sales Agent for
this offering, is a lender under the 2014 Term Loan. The 2014 Term Loan has a seven year term and requires interest only payments, currently at LIBOR plus 170 basis points, subject to adjustment based on our leverage ratio or credit ratings. Because
affiliates of each of Wells Fargo Securities, LLC and Fifth Third Securities, Inc. are lenders under the 2014 Term Loan, these affiliates may receive a portion of the net proceeds from this offering to the extent any net proceeds are used to repay
the debt. Robert W. Baird & Co. Incorporated, a Sales Agent for this offering, will pay a referral fee to an affiliate of Regions Bank, one of the lenders under the 2014 Term Loan, in connection with this offering.
Wells Fargo Bank, National Association, an affiliate of Wells Fargo Securities, LLC, a Sales Agent for this offering, is also the
administrative agent and a lender under a $260 million unsecured term loan entered into by the Company and the Operating Partnership in September 2015 (the 2015 Term Loan). Wells Fargo Securities, LLC, a Sales Agent for this offering,
served as a joint lead arranger and joint book runner under the 2015 Term Loan. Associated Bank, an affiliate of Associated Investment Services, Inc., which has a contractual relationship with Samuel A. Ramirez & Company, Inc., a Sales
Agent for this offering, pursuant to which it may receive a portion of the net proceeds from this offering, and Fifth Third Bank, an affiliate of Fifth Third Securities, Inc., a Sales Agent for this offering, are each lenders under the 2015 Term
Loan. The 2015 Term Loan has a seven year term and requires interest only payments, currently at LIBOR plus 160 basis points, subject to adjustment based on our leverage ratio or credit ratings. Because affiliates of each of Wells Fargo Securities,
LLC, and Fifth Third Securities, Inc. and Associated Investment Services, Inc. are lenders under the 2015 Term Loan, these affiliates may receive a portion of the net proceeds from this offering to the extent any net proceeds are used to repay the
debt. Robert W. Baird & Co. Incorporated, a Sales Agent for this offering, will pay a referral fee to an affiliate of Regions Bank, one of the lenders under the 2015 Term Loan, in connection with this offering. BTIG, LLC, a Sales Agent for this
offering, will pay a referral fee to one of the lenders under the 2015 Term Loan in connection with this offering.
Wells Fargo
Securities, LLC, a Sales Agent under this offering, and Bank of America Merrill Lynch, an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, a Sales Agent under this offering, each served as placement agent for a private
placement by the Operating Partnership of $125 million of 4.30% Series A Guaranteed Senior Notes due April 20, 2027 and $75 million of 4.40% Series B Guaranteed Senior Notes due April 20, 2029 (collectively, the Notes). The
issuance and sale of the Notes is scheduled to occur on April 20, 2017 and, in connection therewith, the placement agents will be entitled to certain fees for such services. Because Wells Fargo Securities, LLC and an affiliate of Merrill Lynch,
Pierce, Fenner & Smith Incorporated are placement agents with respect to this private placement, they each may receive a portion of the net proceeds from this offering to the extent any net proceeds are used to repay the fees due to them in
connection with the closing of such offering.
Wells Fargo Securities, LLC, a Sales Agent under this offering, has also acted as our agent
from time to time in connection with the periodic market repurchases of various amounts of our outstanding senior unsecured notes. In addition, from time to time the Sales Agents and their affiliates may effect transactions for their own account or
the accounts of their customers, and hold on behalf of themselves or their customers, long or short positions in our debt, equity securities or loans and may do so in the future.
If we or the Sales Agents have reason to believe that the common stock is no longer an actively-traded security excepted from the
requirements of Rule 101(c)(1) of Regulation M under the Exchange Act, that party will promptly notify the other and sales of common stock under the distribution agreements will be suspended until that or other exemptive provisions have been
satisfied in the judgment of the Sales Agents and us.
We estimate that the total expenses of the offering payable by us, excluding
commissions or discounts payable or provided to the Sales Agents under the distribution agreements, will be approximately $300,000.
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The offering of shares of our common stock pursuant to each distribution agreement will terminate
upon the earlier of (1) the sale of 8,000,000 shares pursuant to the distribution agreements, (2) the sale of shares pursuant to the distribution agreements for an aggregate offering price of $200,000,000, (3) the termination of such
distribution agreement by either us or the respective Sales Agent at any time in accordance with the terms of such distribution agreement and (4) March 16, 2020.
Associated Investment Services, Inc. (AIS), a Financial Industry Regulatory Authority member, a subsidiary of Associated Banc-Corp, is being
paid a referral fee by Samuel A. Ramirez & Company, Inc.
Legal matters
Certain legal matters will be passed upon for us by Barack Ferrazzano Kirschbaum & Nagelberg LLP, Chicago, Illinois and by
McGuireWoods LLP, Baltimore, Maryland. Certain legal matters will be passed upon for the Sales Agents by Clifford Chance US LLP New York, New York.
DESCRIPTION OF PREFERRED STOCK
The following is a summary of the material terms of our preferred stock. You should also read our charter and bylaws, which are incorporated by
reference to the registration statement of which this prospectus is a part. All material terms of the preferred stock, except those disclosed in the applicable prospectus supplement, are described in this prospectus.
General
Under our charter, the Company
has authority to issue 10 million shares of its preferred stock, par value $.01 per share. The preferred stock may be issued from time to time, in one or more series, as authorized by the Companys board of directors. Prior to issuance of
shares of each series, the Companys board of directors is required by the MGCL and our charter to fix for each series, subject to the provisions of the charter regarding excess stock, the terms, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption of those shares as may be permitted by Maryland law. These rights, powers, restrictions and limitations could include the
right to receive specified dividend payments and payments on liquidation prior to any payments to holders of common stock or other capital stock of the Company ranking junior to the preferred stock. The outstanding shares of preferred stock are, and
additional shares of preferred stock will be, when issued, fully paid and nonassessable and will have no preemptive rights. The Companys board of directors could authorize the issuance of shares of preferred stock with terms and conditions
that could have the effect of discouraging a takeover or other transaction that holders of common stock might believe to be in their best interests or in which holders of some, or a majority, of the shares of common stock might receive a premium for
their shares over the then market price of those shares of common stock.
Series of Preferred Stock
The following is a description of the general terms and provisions of the preferred stock to which any prospectus supplement may relate. The
statements below describing the preferred stock are in all respects subject to and qualified in their entirety by reference to the applicable provisions of our charter and bylaws and any applicable amendment or articles supplementary to our charter
designating terms of a series of preferred stock.
Any prospectus supplement relating to a series of the preferred stock may contain
specific terms, including:
(1) The title and stated value of the preferred stock;
(2) The number of shares of the preferred stock offered, the liquidation preference per share and the offering price of the
preferred stock;
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s) of calculation applicable to the
preferred stock;
(4) The date from which dividends on the preferred stock shall accumulate, if applicable;
(5) The procedures for any auction and remarketing, if any, for the preferred stock;
(6) The provision for a sinking fund, if any, for the preferred stock;
(7) The provision for redemption, if applicable, of the preferred stock;
(8) Any listing of the preferred stock on any securities exchange;
(9) The terms and conditions, if applicable, upon which the preferred stock will be convertible into common stock, including
the conversion price or manner of calculation of the conversion price;
(10) Any other specific terms, preferences, rights,
limitations or restrictions of the preferred stock;
(11) A discussion of federal income tax considerations applicable to
the preferred stock;
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(12) The relative ranking and preference of the preferred stock as to dividend
rights and rights upon liquidation, dissolution or winding up of the affairs of the Company;
(13) Any limitations on
issuance of any series of preferred stock ranking senior to or on a parity with the series of preferred stock as to dividend rights and rights upon liquidation, dissolution or winding up of the affairs of the Company; and
(14) Any limitations on direct or beneficial ownership and restrictions on transfer, in each case as may be appropriate to
preserve the status of the Company as a REIT.
Unless otherwise specified in the prospectus supplement, the preferred stock will, with
respect to dividend rights and rights upon liquidation, dissolution or winding up of the Company, rank:
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senior to all classes or series of common stock, and to all equity securities ranking junior to the preferred stock with respect to dividend rights or rights upon liquidation, dissolution or winding up of the Company;
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on a parity with all equity securities issued by the Company the terms of which specifically provide that those equity securities rank on a parity with the preferred stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company; and
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junior to all equity securities issued by the Company the terms of which specifically provide that those equity securities rank senior to the preferred stock with respect to dividend rights or rights upon liquidation,
dissolution or winding up of the Company.
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The term equity securities does not include convertible debt securities.
Dividends
Holders of the preferred stock
of each series will be entitled to receive, when, as and if declared by the Companys board of directors, out of the Companys assets legally available for payment, dividends in such form and at rates and on dates as will be set forth in
the applicable prospectus supplement. Each dividend shall be payable to holders of record as they appear on the share transfer books of the Company on the record dates as shall be fixed by the Companys board of directors.
Dividends on any series of the preferred stock may be cumulative or non-cumulative, as provided in the applicable prospectus supplement.
Dividends, if cumulative, will be cumulative from and after the date set forth in the applicable prospectus supplement. If the Companys board of directors fails to declare a dividend payable on a dividend payment date on any series of the
preferred stock for which dividends are non-cumulative, then the holders of that series of the preferred stock will have no right to receive a dividend in respect of the dividend period ending on that dividend payment date, and the Company will have
no obligation to pay the dividend accrued for that period, whether or not dividends on that series are declared payable on any future dividend payment date.
If preferred stock of any series is outstanding, no dividends will be declared or paid or set apart for payment on any capital stock of the
Company of any other series ranking, as to dividends, on a parity with or junior to the preferred stock of that series for any period unless:
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if that series of preferred stock has a cumulative dividend, full cumulative dividends on all outstanding shares of that series of preferred stock have been or contemporaneously are declared and paid or declared and a
sum sufficient for that payment is set apart for payment for all past dividend periods and the then current dividend period, or
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if that series of preferred stock does not have a cumulative dividend, full dividends on all outstanding shares of that series of preferred stock have been or contemporaneously are declared and paid or declared and a
sum sufficient for that payment is set apart for payment for the then current dividend period.
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When dividends are not paid in full, or a sum sufficient for full payment is not set apart, upon preferred stock
of any series and the shares of any other series of preferred stock ranking on a parity as to dividends with the preferred stock of that series, all dividends declared upon preferred stock of that series and any other series of preferred stock
ranking on a parity as to dividends with that preferred stock will be declared
pro rata
so that the amount of dividends declared per share of preferred stock of that series and the other series of preferred stock shall in all cases bear to
each other the same ratio that accrued dividends per share on the preferred stock of that series, which shall not include any accumulation in respect of unpaid dividends for prior dividend periods if that preferred stock does not have a cumulative
dividend, and the other series of preferred stock 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 stock of that series that may be in arrears.
Except as provided in the immediately preceding paragraph, unless:
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if a series of preferred stock has a cumulative dividend, full cumulative dividends on all outstanding shares of that series of preferred stock have been or contemporaneously are declared and paid or declared and a sum
sufficient for that payment is set apart for payment for all past dividend periods and the then current dividend period, or
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if a series of preferred stock does not have a cumulative dividend, full dividends on all outstanding shares of that series of preferred stock have been or contemporaneously are declared and paid or declared and a sum
sufficient for that payment is set apart for payment for the then current dividend period,
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no dividends, other than in shares of common
stock or other shares of capital stock ranking junior to the preferred stock of that series as to dividends and upon liquidation, shall be declared or paid or set aside for payment nor shall any other distribution be declared or made upon the common
stock, or any other capital stock of the Company ranking junior to or on a parity with the preferred stock of that series as to dividends or upon liquidation, nor shall any shares of common stock, or any other shares of capital stock of the Company
ranking junior to or on a parity with the preferred stock of that series as to dividends or upon liquidation, be redeemed, purchased or otherwise acquired for any consideration, or any moneys be paid to or made available for a sinking fund for the
redemption of any shares, by the Company, except by conversion into or exchange for other capital stock of the Company ranking junior to the preferred stock of that series as to dividends and upon liquidation.
Any dividend payment made on shares of a series of preferred stock shall first be credited against the earliest accrued but unpaid dividends
due with respect to shares of that series which remain payable.
Redemption
If provided in the applicable prospectus supplement, the preferred stock will be subject to mandatory redemption or redemption at the option of
the Company, as a whole or in part, in each case upon the terms, at the times and at the redemption prices set forth in the applicable prospectus supplement.
The prospectus supplement relating to a series of preferred stock that is subject to mandatory redemption will specify the number of shares of
the preferred stock that will be redeemed by the Company in each year commencing after a date to be specified, at a redemption price per share to be specified, together with an amount equal to all accrued and unpaid dividends, which will not, if
that preferred stock does not have a cumulative dividend, include any accumulation in respect of unpaid dividends for prior dividend periods, to the date of redemption. The redemption price may be payable in cash or other property, as specified in
the applicable prospectus supplement. If the redemption price for preferred stock of any series is payable only from the net proceeds of the issuance of shares of capital stock of the Company, the terms of that preferred stock may provide that, if
no shares of capital stock shall have been issued or to the extent the net proceeds from any issuance are insufficient to pay in full the aggregate redemption price then due, the preferred stock will automatically and mandatorily be converted into
the applicable shares of capital stock of the Company pursuant to conversion provisions specified in the applicable prospectus supplement.
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However, unless
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if a series of preferred stock has a cumulative dividend, full cumulative dividends on all outstanding shares of that series of preferred stock have been or contemporaneously are declared and paid or declared and a sum
sufficient for that payment is set apart for payment for all past dividend periods and the then current dividend period, or
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if a series of preferred stock does not have a cumulative dividend, full dividends on all outstanding shares of that series of preferred stock have been or contemporaneously are declared and paid or declared and a sum
sufficient for that payment is set apart for payment for the then current dividend period,
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no shares of the series of preferred stock will
be redeemed unless all outstanding shares of preferred stock of that series are simultaneously redeemed. However, the preceding shall not prevent the purchase or acquisition of preferred stock of that series to preserve the REIT qualification of the
Company or pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of preferred stock of that series.
In addition, unless
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if the series of preferred stock has a cumulative dividend, full cumulative dividends on all outstanding shares of that series of preferred stock have been or contemporaneously are declared and paid or declared and a
sum sufficient for that payment is set apart for payment for all past dividend periods and the then current dividend period, or
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if the series of preferred stock does not have a cumulative dividend, full dividends on all outstanding shares of that series of preferred stock have been or contemporaneously are declared and paid or declared and a sum
sufficient for that payment is set apart for payment for the then current dividend period,
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the Company will not purchase or otherwise
acquire directly or indirectly any shares of preferred stock of that series, except by conversion into or exchange for capital shares of the Company ranking junior to the preferred stock of that series as to dividends and upon liquidation. However,
the preceding shall not prevent the purchase or acquisition of shares of preferred stock of that series to preserve the REIT qualification of the Company or pursuant to a purchase or exchange offer made on the same terms to holders of all
outstanding shares of preferred stock of that series.
If fewer than all of the outstanding shares of preferred stock of any series are to
be redeemed, the number of shares to be redeemed will be determined by the Company. Those shares may be redeemed ratably from the holders of record of those shares in proportion to the number of those shares held or for which redemption is requested
by that holder, with adjustments to avoid redemption of fractional shares, or by any other equitable manner determined by the Company.
Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each holder of record
of preferred stock of any series to be redeemed at the address shown on the stock transfer books of the Company. Each notice shall state:
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the number of shares and series of the preferred stock to be redeemed;
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the place or places where certificates for the preferred stock are to be surrendered for payment of the redemption price;
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that dividends on the shares to be redeemed will cease to accrue on the redemption date; and
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the date upon which the holders conversion rights, if any, as to those shares shall terminate.
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If fewer than all the shares of preferred stock of any series are to be redeemed, the notice
mailed to each holder of preferred stock shall also specify the number of shares of preferred stock to be redeemed from each holder. If notice of redemption of any preferred stock has been given and if the funds necessary for the redemption have
been set aside by the Company in trust for the benefit of the holders of any preferred stock called for redemption, then from and after the redemption date dividends will cease to accrue on the preferred stock called for redemption, and all rights
of the holders of those shares will terminate, except the right to receive the redemption price.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, before any distribution or payment
shall be made to the holders of any common stock or any other class or series of capital stock of the Company ranking junior to the preferred stock in the distribution of assets upon any liquidation, dissolution or winding up of the Company, the
holders of each series of preferred stock shall be entitled to receive out of assets of the Company legally available for distribution to stockholders liquidating distributions in the amount of the liquidation preference per share, if any, set forth
in the applicable prospectus supplement, plus an amount equal to all dividends accrued and unpaid thereon, which shall not include any accumulation in respect of unpaid noncumulative dividends for prior dividend periods. After payment of the full
amount of the liquidating distributions to which they are entitled, the holders of preferred stock will have no right or claim to any of the Companys remaining assets. In the event that, upon any voluntary or involuntary liquidation,
dissolution or winding up, the Companys available assets are insufficient to pay the amount of the liquidating distributions on all outstanding shares of preferred stock and the corresponding amounts payable on all shares of other classes or
series of capital stock of the Company ranking on a parity with the preferred stock in the distribution of assets, then the holders of the preferred stock and those other classes or series of capital stock will share ratably in the distribution of
assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled.
If liquidating
distributions have been made in full to all holders of preferred stock, the Companys remaining assets will be distributed among the holders of any other classes or series of capital stock ranking junior to the preferred stock upon liquidation,
dissolution or winding up, according to their respective rights and preferences and in each case according to their respective number of shares. For these purposes, the consolidation or merger of the Company with or into any other corporation, trust
or entity, or the sale, lease or conveyance of all or substantially all of the property or business of the Company, will not be deemed to constitute a liquidation, dissolution or winding up of the Company.
Voting Rights
Holders of the preferred
stock will not have any voting rights, except as set forth below or as otherwise from time to time required by law or as indicated in the applicable prospectus supplement.
Unless provided otherwise for any series of preferred stock, so long as any shares of preferred stock of a series remain outstanding, the
Company will not, without the affirmative vote or consent of the holders of at least two-thirds of the shares of that series of preferred stock outstanding at the time, given in person or by proxy, either in writing or at a meeting, each series
voting separately as a class:
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authorize or create, or increase the authorized or issued amount of, any class or series of capital stock ranking prior to that series of preferred stock with respect to payment of dividends or the distribution of
assets upon liquidation, dissolution or winding up or reclassify any authorized capital stock of the Company into those shares, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase any of
those shares; or
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amend, alter or repeal the provisions of our charter or the articles supplementary for that series of preferred
stock, whether by merger, consolidation or otherwise, so as to materially and adversely affect
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any right, preference, privilege or voting power of that series of preferred stock or the holders of that series of preferred stock.
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However, with respect to the occurrence of any of the events set forth in the second subparagraph above, so long as the preferred stock remains outstanding
with its terms materially unchanged, taking into account that upon the occurrence of such an event, the Company may not be the surviving entity, the occurrence of any such event shall not be deemed to materially and adversely affect the rights,
preferences, privileges or voting power of holders of preferred stock. Further,
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any increase in the amount of the authorized preferred stock or the creation or issuance of any other series of preferred stock, or
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any increase in the amount of authorized shares of that series or any other series of preferred stock, in each case ranking on a parity with or junior to the preferred stock of that series with respect to payment of
dividends or the distribution of assets upon liquidation, dissolution or winding up,
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will not be deemed to materially and adversely affect
the rights, preferences, privileges or voting powers.
These voting provisions will not apply if, at or prior to the time when the act
with respect to which that vote would otherwise be required shall be effected, all outstanding shares of that series of preferred stock shall have been redeemed or called for redemption and sufficient funds will have been deposited in trust to
effect the redemption.
Conversion Rights
The terms and conditions, if any, upon which any series of preferred stock is convertible into common stock will be set forth in the applicable
prospectus supplement. The terms will include:
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the number of shares of common stock into which the shares of preferred stock are convertible;
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the conversion price (or manner of calculating the conversion price);
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provisions as to whether conversion will be at the option of the holders of the preferred stock or the Company;
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the events requiring an adjustment of the conversion price; and
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provisions affecting conversion in the event of the redemption of that series of preferred stock.
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Restrictions on Ownership
For the
Company to qualify as a REIT under the Code, not more than 50% in value of its outstanding capital stock may be owned, directly or indirectly, by five or fewer individuals, as defined in the Code to include certain entities, during the last half of
a taxable year. For the purpose, among others, of assisting the Company in meeting this requirement, we may take certain actions to limit the beneficial ownership, directly or indirectly, by individuals of the Companys outstanding equity
securities, including any preferred stock. Therefore, the articles supplementary for each series of preferred stock may contain provisions restricting the ownership and transfer of the preferred stock. The applicable prospectus supplement will
specify any additional ownership limitation relating to a series of preferred stock. See Restrictions on Transfers of Capital Stock.
Transfer Agent
The transfer agent and
registrar for the preferred stock will be set forth in the applicable prospectus supplement.
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DESCRIPTION OF DEBT SECURITIES
The debt securities will be issued under an indenture, dated as of May 13, 1997, between the Operating Partnership and U.S. Bank
National Association (formerly known as First Trust National Association), as trustee, which has been incorporated by reference as an exhibit to the registration statement of which this prospectus is a part, subject to such amendments or
supplements as may be adopted from time to time. The indenture is subject to and governed by the Trust Indenture Act of 1939, as amended. The statements made under this heading relating to the debt securities and the indenture are summaries
only, do not purport to be complete and are qualified in their entirety by reference to the debt securities and the indenture. All material terms of the debt securities and the indenture, other than those disclosed in the applicable prospectus
supplement, are described in this prospectus.
Terms
General.
The debt securities will be direct unsecured obligations of the Operating Partnership. The indebtedness represented by the
debt securities will rank equally with all other unsecured and unsubordinated indebtedness of the Operating Partnership. No partner of the Operating Partnership, whether limited or general, including the Company, has any obligation for the payment
of principal of, or premium, if any, or interest, if any, on, or any other amount with respect to, the debt securities. The particular terms of the debt securities offered by a prospectus supplement, including any applicable federal income tax
considerations, will be described in the applicable prospectus supplement, along with any applicable modifications of or additions to the general terms of the debt securities as described in this prospectus and in the indenture. For a description of
the terms of any series of debt securities, you should read both the prospectus supplement relating to the debt securities and the description of the debt securities in this prospectus.
Except as set forth in any prospectus supplement, the debt securities may be issued without limit as to aggregate principal amount, in one or
more series, in each case as established from time to time by the Operating Partnership or as set forth in the indenture or in one or more supplemental indentures to the indenture. All debt securities of one series need not be issued at the same
time and, unless otherwise provided, a series may be reopened, without the consent of the holders of the debt securities of such series, for issuance of additional debt securities of such series.
The indenture provides that the Operating Partnership may, but need not, designate more than one trustee, each with respect to one or more
series of debt securities. Any trustee under the indenture may resign or be removed with respect to one or more series of debt securities, and a successor trustee may be appointed to act with respect to the series. In the event that two or more
persons are acting as trustee with respect to different series of debt securities, each trustee shall be a trustee of a trust under the indenture separate and apart from the trust administered by any other trustee. In that event and except as
otherwise indicated in this prospectus, any action described in this prospectus to be taken by each trustee may be taken by each such trustee with respect to, and only with respect to, the one or more series of debt securities for which it is
trustee under the indenture.
The following summaries set forth general terms and provisions of the indenture and the debt securities. The
prospectus supplement relating to the applicable series of debt securities will contain further terms of the debt securities, including the following specific terms:
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The title of the debt securities;
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The aggregate principal amount of the debt securities and any limit on the aggregate principal amount;
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The price, expressed as a percentage of the principal amount thereof, at which the 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 maturity;
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The date or dates, or the method for determining the date or dates, on which the principal of the debt securities will be payable;
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The rate or rates, which may be fixed or variable, or the method by which the rate or rates shall be determined, at which the debt securities will bear interest, if any;
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The date or dates, or the method for determining the date or dates, from which any interest will accrue, the dates on which any interest will be payable, the record dates for interest payment dates, or the method by
which the dates shall be determined, the persons to whom the interest will be payable, and the basis upon which interest shall be calculated if other than that of a 360-day year of twelve 30-day months;
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The place or places where the principal of and premium or make-whole amount, if any, and interest, if any, on the debt securities will be payable, where the debt securities may be surrendered for registration of
transfer or exchange and where notices or demands to or upon the Operating Partnership in respect of the debt securities and the indenture may be served;
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The period or periods, if any, within which, the price or prices at which, and the other terms and conditions upon which, the debt securities may, under any optional or mandatory redemption provisions, be redeemed, as a
whole or in part, at the option of the Operating Partnership;
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The obligation, if any, of the Operating Partnership to redeem, repay or purchase the debt securities under any sinking fund or analogous provision or at the option of a holder thereof, and the period or periods within
which, the price or prices at which, and the other terms and conditions upon which, the debt securities will be redeemed, repaid or purchased, as a whole or in part, pursuant to such obligation;
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If other than U.S. dollars, the currency or currencies in which the 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;
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Whether the amount of payments of principal of and premium or make-whole amount, if any, including any amount due upon redemption, if any, or interest, if any, on the debt securities may be determined with reference to
an index, formula or other method, which index, formula or method may, but need not, be based on the yield on or trading price of other securities, including United States Treasury securities, or on a currency, currencies, currency unit or units, or
composite currency or currencies, and the manner in which such amounts shall be determined;
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Whether the principal of and premium or make-whole amount, if any, or interest on the debt securities of the series are to be payable, at the election of the Operating Partnership or a holder of debt securities, in a
currency or currencies, currency unit or units or composite currency or currencies other than that in which the debt securities are denominated or stated to be payable, the period or periods within which, and the terms and conditions upon which,
that election may be made, and the time and manner of, and identity of the exchange rate agent with responsibility for, determining the exchange rate between the currency or currencies, currency unit or units or composite currency or currencies in
which the debt securities are denominated or stated to be payable and the currency or currencies, currency unit or units or composite currency or currencies in which the debt securities are to be so payable;
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Provisions, if any, granting special rights to the holders of debt securities of the series upon the occurrence of such events as may be specified;
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Any deletions from, modifications of or additions to the events of default or covenants of the Operating Partnership with respect to debt securities of the series, whether or not such events of default or covenants are
consistent with the events of default or covenants described herein;
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Whether and under what circumstances the Operating Partnership will pay any additional amounts on the debt securities in respect of any tax, assessment or governmental charge and, if so, whether the Operating
Partnership will have the option to redeem the debt securities in lieu of making such payment;
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Whether debt securities of the series are to be issuable as registered securities, bearer securities (with or without coupons) or both, any restrictions applicable to the offer, sale or delivery of bearer securities and
the terms upon which bearer securities of the series may be exchanged for registered securities of the series and vice versa, if permitted by applicable laws and regulations, whether any debt securities of the series are to be issuable initially in
temporary global form and whether any debt securities of the series are to be issuable in permanent global form with or without coupons and, if so, whether beneficial owners of interests in any such permanent global security may exchange such
interests for debt securities of such series and of like tenor of any authorized form and denomination and the circumstances under which any such exchanges may occur, if other than in the manner provided in the indenture, and, if registered
securities of the series are to be issuable as a global security, the identity of the depository for such series;
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The date as of which any bearer securities of the series and any temporary global security representing outstanding debt securities of the series shall be dated if other than the date of original issuance of the first
security of the series to be issued;
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The person to whom any interest on any registered security of the series shall be payable, if other than the person in whose name that security, or one or more predecessor securities, is registered at the close of
business on the regular record date for such interest, the manner in which, or the person to whom, any interest on any bearer security of the series shall be payable, if otherwise than upon presentation and surrender of the coupons appertaining
thereto as they severally mature, and the extent to which, or the manner in which, any interest payable on a temporary global security on an interest payment date will be paid if other than in the manner provided in the indenture;
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Whether the debt securities will be issued in certificated or book-entry form;
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The applicability, if any, of the defeasance and covenant defeasance provisions of the indenture to the debt securities of the series;
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If the debt securities of the series are to be issuable in definitive form, whether upon original issue or upon exchange of a temporary security of the series, only upon receipt of certain certificates or other
documents or satisfaction of other conditions, then the form and/or terms of the certificates, documents or conditions; and
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Any other terms of the series, not inconsistent with the Trust Indenture Act of 1939, as amended.
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If so provided in the applicable prospectus supplement, the debt securities may be issued at a discount below their principal amount and
provide for less than the entire principal amount thereof to be payable upon declaration of acceleration of the maturity thereof. In such cases, all material U.S. federal income tax, accounting and other considerations applicable to such
original issue discount securities will be described in the applicable prospectus supplement.
Except as may be set forth in any
prospectus supplement, the indenture does not contain any provisions that would limit the ability of the Operating Partnership to incur indebtedness or that would afford holders of debt securities protection in the event of a highly leveraged or
similar transaction involving the Operating Partnership or in the event of a change of control. Restrictions on ownership and transfers of the common stock and preferred stock of the Company under its charter are designed to preserve the
Companys qualification as a REIT and, therefore, may act to prevent or hinder a change of control. See Restrictions on Transfers of Capital Stock. Reference is made to the applicable prospectus supplement for information with
respect to any deletions from, modifications of, or additions to, the events of default or covenants of the Operating Partnership that are described below, including any addition of a covenant or other provision providing event risk or similar
protection.
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Denomination, Interest, Registration and Transfer
Unless otherwise provided in the applicable prospectus supplement, the debt securities of any series will be issuable in denominations of
$1,000 and integral multiples thereof. Where debt securities of any series are issued in bearer form, the special restrictions and considerations, including special offering restrictions and special U.S. federal income tax considerations,
applicable to those debt securities and to payment on and transfer and exchange of those debt securities will be described in the applicable prospectus supplement. Bearer debt securities will be transferable by delivery.
Unless otherwise provided in the applicable prospectus supplement, any interest not punctually paid or duly provided for on any interest
payment date with respect to a debt security in registered form, or defaulted interest, will immediately cease to be payable to the holder on the applicable regular record date and may either be paid to the person in whose name the debt
security is registered at the close of business on a special record date for the payment of the defaulted interest to be fixed by the trustee, in which case notice thereof shall be given to the holder of the debt security not less than 10 days
prior to the special record date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which such debt securities are listed, all as more completely described in the indenture.
Subject to certain limitations imposed upon debt securities issued in book-entry form, the debt securities of any series will be
exchangeable for any authorized denomination of other debt securities of the same series and of a like aggregate principal amount and tenor upon surrender of the debt securities at the corporate trust office of the applicable trustee or at the
office of any transfer agent designated by the Operating Partnership for such purpose. In addition, subject to certain limitations imposed upon debt securities issued in book-entry form, the debt securities of any series may be surrendered for
registration of transfer or exchange thereof at the corporate trust office of the applicable trustee or at the office of any transfer agent designated by the Operating Partnership for that purpose. Every debt security in registered form surrendered
for registration of transfer or exchange must be duly endorsed or accompanied by a written instrument of transfer, and the person requesting that action must provide evidence of title and identity satisfactory to the applicable trustee or transfer
agent. No service charge will be made for any registration of transfer or exchange of any debt securities, but the Operating Partnership may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection
therewith. If the applicable prospectus supplement refers to any transfer agent, in addition to the applicable trustee, initially designated by the Operating Partnership with respect to any series of debt securities, the Operating Partnership may at
any time rescind the designation of any such transfer agent or approve a change in the location through which any such transfer agent acts, except that the Operating Partnership will be required to maintain a transfer agent in each place of payment
for that series. The Operating Partnership may at any time designate additional transfer agents with respect to any series of debt securities.
Neither the Operating Partnership nor any trustee shall be required to:
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issue, register the transfer of or exchange debt securities of any series during a period beginning at the opening of business 15 days before the selection of any debt securities for redemption and ending at the
close of business on
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if the debt securities are issuable only as registered securities, the day of the mailing of the relevant notice of redemption, and
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if the debt securities are issuable as bearer securities, the day of the first publication of the relevant notice of redemption or, if the debt securities are also issuable as registered securities and there is no
publication, the mailing of the relevant notice of redemption;
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register the transfer of or exchange any debt security, or portion thereof, so selected for redemption, in whole or in part, except the unredeemed portion of any debt security being redeemed in part;
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exchange any bearer security selected for redemption except that, to the extent provided with respect to the bearer security, the bearer security may be exchanged for a registered security of that series and of like
tenor, provided that the registered security shall be simultaneously surrendered for redemption; or
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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 the debt security not to be so repaid.
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Payment in respect of debt securities in bearer form will be made in the currency and in the manner designated in the applicable prospectus
supplement, subject to any applicable laws and regulations, at such paying agencies outside the United States as the Operating Partnership may appoint from time to time. The paying agents outside the United States, if any, initially appointed by the
Operating Partnership for a series of debt securities will be named in the applicable prospectus supplement. Unless otherwise provided in the applicable prospectus supplement, the Operating Partnership may at any time designate additional paying
agents or rescind the designation of any paying agents, except that:
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if debt securities of a series are issuable in registered form, the Operating Partnership will be required to maintain at least one paying agent in each place of payment for such series, and
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if debt securities of a series are issuable in bearer form, the Operating Partnership will be required to maintain at least one paying agent in a place of payment outside the United States where debt securities of such
series and any coupons appertaining thereto may be presented and surrendered for payment.
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Merger, Consolidation or Sale of Assets
The indenture provides that the Operating Partnership may, without the consent of the holders of any outstanding debt securities,
consolidate with, or sell, lease or convey all or substantially all of its assets to, or merge with or into, any other entity, except that:
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either the Operating Partnership shall be the continuing entity, or the successor entity, if other than the Operating Partnership, formed by or resulting from any such consolidation or merger or which shall have
received the transfer of such assets, shall be organized under the laws of any domestic jurisdiction and shall expressly assume the Operating Partnerships obligations to pay principal of and premium or make-whole amount, if any, and interest
on all of the debt securities and the due and punctual performance and observance of all of the covenants and conditions contained in the indenture;
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immediately after giving effect to such transaction and treating any indebtedness that becomes an obligation of the Operating Partnership or any subsidiary as a result thereof as having been incurred by the Operating
Partnership or such subsidiary at the time of such transaction, no event of default under the indenture, and no event which, after notice or the lapse of time, or both, would become an event of default, shall have occurred and be
continuing; and
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an officers certificate and legal opinion covering those conditions shall be delivered to each trustee.
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Certain Covenants
The applicable
prospectus supplement will describe any material covenants in respect of a series of debt securities that are not described in this prospectus. Unless otherwise indicated in the applicable prospectus supplement, the debt securities will include the
following covenants of the Operating Partnership:
Existence.
Except as permitted under Merger, Consolidation or
Sale of Assets, the indenture requires the Operating Partnership to do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights and franchises;
provided
,
however
, that the
Operating Partnership shall not be required to preserve any right or franchise if it determines that its preservation is no longer desirable in the conduct of its business.
Maintenance of properties.
The indenture requires the Operating Partnership to cause all of its material properties used or useful
in the conduct of its business or the business of any subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and to cause to be
23
made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Operating Partnership may be necessary so that the business carried on may
be properly and advantageously conducted at all times;
provided
,
however
, that the Operating Partnership and its subsidiaries shall not be prevented from selling or otherwise disposing of their properties for value in the ordinary
course of business.
Insurance.
The indenture requires the Operating Partnership to cause each of its and its
subsidiaries insurable properties to be insured against loss or damage in an amount at least equal to their then full insurable value with insurers of recognized responsibility. If described in the applicable prospectus supplement, such
insurer will be required to have a specified rating from a recognized insurance rating service.
Payment of taxes and other
claims.
The indenture requires the Operating Partnership to pay or discharge or cause to be paid or discharged, before the same shall become delinquent,
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all taxes, assessments and governmental charges levied or imposed upon it or any subsidiary or upon the income, profits or property of the Operating Partnership or any subsidiary; and
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all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon the property of the Operating Partnership or any subsidiary;
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provided, however
, that the Operating Partnership shall 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.
Events of Default, Notice and Waiver
Unless otherwise provided in the applicable prospectus supplement, the indenture provides that the following events are events of
default with respect to any series of debt securities issued thereunder:
(1) default in the payment of any interest
on any debt security of such series, when such interest becomes due and payable, that continues for a period of 30 days;
(2) default in the payment of the principal of, or premium or make-whole amount, if any, on, any debt security of such series
when 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 of the Operating Partnership in the indenture
with respect to the debt securities of such series and continuance of such default or breach for a period of 60 days after written notice as provided in the indenture;
(5) default under any bond, debenture, note, mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any indebtedness for money borrowed by the Operating Partnership, or by any subsidiary the repayment of which the Operating Partnership has guaranteed or for which the Operating Partnership is directly responsible
or liable as obligor or guarantor, having an aggregate principal amount outstanding of at least $10,000,000, whether such indebtedness now exists or shall hereafter be created, which default shall have resulted in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise have become due and payable, without such indebtedness having been discharged, or such acceleration having been rescinded or annulled, within a period of 10 days after
written notice to the Operating Partnership as provided in the indenture;
(6) certain events of bankruptcy, insolvency or
reorganization, or court appointment of a receiver, liquidator or trustee of the Operating Partnership or any significant subsidiary; and
(7) any other event of default provided with respect to a particular series of debt securities.
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The term significant subsidiary has the meaning ascribed to that term in
Regulation S-X promulgated under the Securities Act.
If an event of default under the indenture with respect to debt securities of
any series at the time outstanding occurs and is continuing, then in every such case the applicable trustee or the holders of not less than 25% in principal amount of the debt securities of that series will have the right to declare the principal
amount of, or, if the debt securities of that series are original issue discount securities or indexed securities, such portion of the principal amount as may be specified in the terms thereof, and premium or make-whole amount, if any, on, all the
debt securities of that series to be due and payable immediately by written notice thereof to the Operating Partnership, and to the applicable trustee if given by the holders;
provided
that in the case of an event of default described under
the sixth clause of the preceding paragraph, acceleration is automatic. However, at any time after such a declaration of acceleration with respect to debt securities of the series has been made, but before a judgment or decree for payment of the
money due has been obtained by the applicable trustee, the holders of not less than a majority in principal amount of outstanding debt securities of the series may rescind and annul such declaration and its consequences if:
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the Operating Partnership shall have deposited with the applicable trustee all required payments of the principal of, and premium or make-whole amount, if any, and interest on the debt securities of the series, plus
certain fees, expenses, disbursements and advances of the applicable trustee, and
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all events of default, other than the non-payment of accelerated principal of, or a specified portion thereof, and the premium or make-whole amount, if any, on, debt securities of the series have been cured or waived as
provided in the indenture.
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The indenture also provides that the holders of not less than a majority in principal amount of the outstanding
debt securities of any series may waive any past default with respect to such series and its consequences, except a default:
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in the payment of the principal of, or premium or make-whole amount, if any, or interest on, any debt security of the series, or
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in respect of a covenant or provision contained in the indenture that cannot be modified or amended without the consent of the holder of each outstanding debt security affected thereby.
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The indenture requires each trustee to give notice to the holders of debt securities within 90 days of a default under the indenture
unless such default shall have been cured or waived;
provided
,
however
, that the trustee may withhold notice to the holders of any series of debt securities of any default with respect to the series, except a default in the payment of
the principal of, or premium or make-whole amount, if any, or interest on, any debt security of the series or in the payment of any sinking fund installment in respect of any debt security of, the series if specified responsible officers of the
trustee determine in good faith that such withholding is in the interest of such holders.
The indenture provides that no holders of debt
securities of any series may institute any proceedings, judicial or otherwise, with respect to the indenture or for any remedy thereunder, except in the case of failure of the applicable trustee, for 60 days, to act 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 the series, as well as an offer of indemnity reasonably satisfactory to it.
This provision will not prevent, however, any holder of debt securities from instituting suit for the enforcement of payment of the principal of, and premium or make-whole amount, if any, and interest on, the debt securities at their respective due
dates or redemption dates.
The indenture provides that, subject to provisions in the indenture relating to its duties in case of default,
a trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request or direction of any holders of any series of debt securities then outstanding under the indenture, unless such holders
25
shall have offered to the trustee thereunder reasonable security or indemnity. The holders of not less than a majority in principal amount of the outstanding debt securities of any series, or of
all debt securities then outstanding under the 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 the applicable trustee, or of exercising any trust or
power conferred upon such trustee. However, a trustee may refuse to follow any direction which is in conflict with any law or the indenture, 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.
Within 120 days after the close of each fiscal year, the Operating Partnership
is required to deliver to each trustee a certificate, signed by one of several specified officers of the Company, stating whether or not such officer has knowledge of any default under the indenture and, if so, specifying each default and the nature
and status thereof.
Modification of the Indenture
Modifications and amendments of the indenture are permitted to be made only with the consent of the holders of not less than a majority in
principal amount of all outstanding debt securities issued under the indenture affected by such modification or amendment. However
,
no modification or amendment may, without the consent of the holder of each such debt security affected
thereby,
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change the stated maturity of the principal of, or any installment of interest, or premium or make-whole amount, if any, on, any debt security;
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reduce the principal amount of, or the rate or amount of interest on, or any premium or make-whole amount payable on redemption of, any such debt security, or 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 debt security;
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change the place of payment, or the coin or currency, for payment of principal of or premium or make-whole amount, if any, or interest on any debt security;
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impair the right to institute suit for the enforcement of any payment on or with respect to any debt security;
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reduce the above-stated percentage of outstanding debt securities of any series necessary to modify or amend the 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 the 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 the debt security.
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The holders
of a majority in aggregate principal amount of the outstanding debt securities of each series may, on behalf of all holders of debt securities of that series, waive, insofar as that series is concerned, compliance by the Operating Partnership with
certain restrictive covenants of the indenture.
Modifications and amendments of the indenture are permitted to be made by the Operating
Partnership and the respective trustee thereunder without the consent of any holder of debt securities for any of the following purposes:
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to evidence the succession of another person to the Operating Partnership as obligor under the indenture;
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to add to the covenants of the Operating Partnership for the benefit of the holders of all or any series of debt securities or to surrender any right or power conferred upon the Operating Partnership in the indenture;
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to add events of default for the benefit of the holders of all or any series of debt securities;
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to add or change any provisions of the indenture to facilitate the issuance of, or to liberalize certain terms of, debt securities in bearer form, or to permit or facilitate the issuance of debt securities in
uncertificated form, provided that such action shall not adversely affect the interests of the holders of the debt securities of any series in any material respect;
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to change or eliminate any provisions of the indenture, provided that any such change or elimination shall become effective only when there are no debt securities outstanding of any series created prior thereto that are
entitled to the benefit of such provision;
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to secure the debt securities;
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to establish the form or terms of debt securities of any series;
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to provide for the acceptance of appointment by a successor trustee or facilitate the administration of the trusts under the indenture by more than one trustee;
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to cure any ambiguity, defect or inconsistency in the indenture, provided that such action shall not adversely affect the interests of holders of debt securities of any series issued under the indenture in any material
respect; or
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to supplement any of the provisions of the indenture to the extent necessary to permit or facilitate defeasance and discharge of any series of the debt securities, provided that such action shall not adversely affect
the interests of the holders of the outstanding debt securities of any series in any material respect.
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The indenture
provides that in determining whether the holders of the requisite principal amount of outstanding debt securities of a series have given any request, demand, authorization, direction, notice, consent or waiver thereunder or whether a quorum is
present at a meeting of holders of debt securities,
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the principal amount of an original issue discount security that shall be deemed to be outstanding shall be the amount of the principal thereof that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof,
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the principal amount of any debt security denominated in a foreign currency that shall be deemed outstanding shall be the U.S. dollar equivalent, determined on the issue date of the debt security, of the principal
amount of the debt security, or, in the case of an original issue discount security, the U.S. dollar equivalent on the issue date of the debt security of the amount determined as provided in the subparagraph immediately above,
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the principal amount of an indexed security that shall be deemed outstanding shall be the principal face amount of such indexed security at original issuance, unless otherwise provided with respect to such indexed
security pursuant to the indenture, and
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debt securities owned by the Operating Partnership or any other obligor upon the debt securities or any affiliate of the Operating Partnership or of such other obligor shall be disregarded.
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The indenture contains provisions for convening meetings of the holders of debt securities of a series. A meeting will be permitted to be
called at any time by the applicable trustee, and also, upon request, by the Operating Partnership or the holders of at least 25% in principal amount of the outstanding debt securities of the series, in any case upon notice given as provided in the
indenture. Except for any consent that must be given by the holder of each debt security affected by certain modifications and amendments of the 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
27
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 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 meeting of holders
of debt securities of any series duly held in accordance with the indenture 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 persons
holding or representing a majority in principal amount of the outstanding debt securities of a series. However, if any action is to be taken at the meeting with respect to a consent or waiver that 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 the series will constitute a quorum.
Notwithstanding the foregoing provisions, the indenture provides that 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 and other action that the 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:
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there shall be no minimum quorum requirement for such meeting; and
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the principal amount of the outstanding debt securities of the 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 the indenture.
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Discharge, Defeasance and Covenant Defeasance
Unless otherwise provided in the applicable prospectus supplement, the Operating Partnership will be permitted, at its option, to discharge
certain obligations to holders of any series of debt securities issued under the indenture 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 the applicable trustee, in trust, funds in such currency or currencies, currency unit or units or composite currency or currencies in which the debt
securities are payable in an amount sufficient to pay the entire indebtedness on the debt securities in respect of principal, and premium or make-whole amount, if any, and interest to the date of such deposit, if the debt securities have become due
and payable, or to the stated maturity or redemption date, as the case may be.
The indenture provides that, unless otherwise provided in
the applicable prospectus supplement, the Operating Partnership may elect either
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to defease and be discharged from any and all obligations with respect to the debt securities, except for 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 the debt securities and the obligations to register the transfer or exchange of the debt securities, to replace temporary or mutilated, destroyed, lost or stolen debt securities, to maintain an office
or agency in respect of the debt securities, and to hold moneys for payment in trust, or defeasance, or
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to be released from certain obligations with respect to the debt securities under the indenture, including the restrictions described under Certain Covenants or, if provided in the applicable
prospectus supplement, its obligations with respect to any other covenant, and any omission to comply with such obligations shall not constitute an event of default with respect to the debt securities, or covenant defeasance,
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in either case upon the irrevocable deposit by the Operating Partnership with the applicable trustee, in trust,
of an amount, in such currency or currencies, currency unit or units or composite currency or currencies in which the debt securities are payable at stated maturity, or government obligations as defined below, or both, applicable to the debt
securities, which through the scheduled payment of principal and interest in accordance with their terms will provide money in an amount sufficient to pay the principal of and premium or make-whole amount, if any, and interest on the debt
securities, and any mandatory sinking fund or analogous payments thereon, on the scheduled due dates therefor.
Such a trust will only be
permitted to be established if, among other things, the Operating Partnership has delivered to the applicable trustee an opinion of counsel, as specified in the indenture, to the effect that the holders of the 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, and the opinion of counsel, in the case of defeasance, will be required to refer to and be based upon a ruling received from the Internal Revenue Service (the IRS) or a
change in applicable U.S. federal income tax law occurring after the date of the indenture. In the event of such defeasance, the holders of the debt securities would thereafter be able to look only to such trust fund for payment of principal,
and premium or make-whole amount, if any, and interest.
Government obligations
means securities that are
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direct obligations of the United States or the government which issued the foreign currency in which the debt securities of a particular series are payable, for the payment of which its full faith and credit is
pledged, or
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obligations of a person controlled or supervised by and acting as an agency or instrumentality of the United States or such government which issued the foreign currency in which the debt securities of the series are
payable, the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States or such other government,
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which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall 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, the 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.
Unless otherwise provided
in the applicable prospectus supplement, if after the Operating Partnership has deposited funds and/or government obligations to effect defeasance or covenant defeasance with respect to debt securities of any series,
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the holder of a debt security of the series is entitled to, and does, elect pursuant to the indenture or the terms of the 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 the debt security, or
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a conversion event, as defined below, occurs in respect of the currency, currency unit or composite currency in which such deposit has been made,
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the indebtedness represented by the debt security will be deemed to have been, and will be, fully discharged and satisfied through the payment of the
principal of and premium or make-whole amount, if any, and interest on the debt security as they become due out of the proceeds yielded by converting the amount so deposited in respect of the debt security into the currency, currency unit or
composite currency in which the debt security becomes payable as a result of such election or such cessation of usage based on the applicable market exchange rate.
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Conversion event
means the cessation of use of
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a currency, currency unit or composite currency both by the government of the country which issued such currency and for the settlement of transactions by a central bank or other public institutions of or within the
international banking community,
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the Euro both within the European Monetary System and for the settlement of transactions by public institutions of or within the European Communities or
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any currency unit or composite currency other than the Euro for the purposes for which it was established.
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Unless otherwise provided in the applicable prospectus supplement, all payments of principal of and premium or make-whole amount, 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 the Operating Partnership effects covenant defeasance with respect to any debt securities and the debt securities are declared
due and payable because of the occurrence of any event of default, other than the event of default described in clause (4) under Events of Default, Notice and Waiver with respect to specified sections of the indenture,
which sections would no longer be applicable to the debt securities, or 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, the amount in such currency, currency unit or composite currency in which the debt securities are payable, and government obligations on deposit with the applicable trustee, will be sufficient to pay amounts due on the debt securities at
the time of their stated maturity but may not be sufficient to pay amounts due on the debt securities at the time of the acceleration resulting from such event of default. However, the Operating Partnership would remain liable to make payment of
those amounts due at the time of acceleration.
The applicable prospectus supplement may further describe the provisions, if any,
permitting defeasance or covenant defeasance, including any modifications to the provisions described above, with respect to the debt securities of or within a particular series.
No Conversion Rights
The debt securities
will not be convertible into or exchangeable for any capital stock of the Company or equity interest in the Operating Partnership.
Global Securities
The debt securities of a series may be issued in whole or in part in book-entry form consisting of one or more global securities that
will be deposited with, or on behalf of, a depositary identified in the applicable prospectus supplement relating to the series. Global securities may be issued in either registered or bearer form and in either temporary or permanent form. The
specific terms of the depositary arrangement with respect to a series of debt securities will be described in the applicable prospectus supplement relating to the series.
The Trustee
U.S. Bank National
Trust is the trustee under the indenture. From time to time, we have and may in the future enter into other transactions with the trustee.
Payment and
Paying Agents
Unless otherwise provided in the applicable prospectus supplement, the principal of, and applicable premium or
make-whole amount, if any, and interest on, any series of debt securities will be payable at the
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corporate trust office of the trustee, the address of which will be stated in the applicable prospectus supplement. However, at the option of the Operating Partnership, payment of interest may be
made by check mailed to the address of the person entitled thereto as it appears in the applicable register for the debt securities or by wire transfer of funds to such person at an account maintained within the United States.
All moneys paid by the Operating Partnership to a paying agent or a trustee for the payment of the principal of or any premium, make-whole
amount or interest on any debt security which remain unclaimed at the end of two years after such principal, premium, make-whole amount or interest has become due and payable will be repaid to the Operating Partnership, and the holder of the debt
security thereafter may look only to the Operating Partnership for payment thereof.
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CERTAIN PROVISIONS OF MARYLAND LAW AND THE
COMPANYS CHARTER AND BYLAWS
The following summary of certain provisions of Maryland law is not complete and is qualified by reference to Maryland law and our charter and
bylaws, which are incorporated by reference to the registration statement of which this prospectus is a part.
Business Combinations
Under the MGCL, certain business combinations (as defined in the MGCL) between a Maryland corporation and an interested stockholder
are prohibited for five years after the most recent date on which the interested stockholder became an interested stockholder. Under the MGCL, an interested stockholder includes a person (other than the corporation or any subsidiary) who
is:
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the beneficial owner, directly or indirectly, of 10 percent or more of the voting power of the outstanding voting stock of the corporation after the date on which the corporation had 100 or more beneficial owners
of its stock; or
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is an affiliate or associate of the corporation and was the beneficial owner, directly or indirectly, of 10 percent or more of the voting power of the then outstanding stock of the corporation (i) at any time
within the two-year period immediately prior to the date in question, and (ii) after the date on which the corporation had 100 or more beneficial owners of its stock.
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Business combinations for the purposes of the preceding paragraph are defined by the MGCL to include certain mergers, consolidations, share
exchanges and asset transfers, some issuances and reclassifications of equity securities, the adoption of a plan of liquidation or dissolution or the receipt by an interested stockholder or its affiliate of any loan advance, guarantee, pledge or
other financial assistance or tax advantage provided by the Company. After the five-year moratorium period, any such business combination must be recommended by the board of directors of the corporation and approved by the affirmative vote of at
least:
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80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation voting together as a single group; and
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two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than voting stock held by the interested stockholder with whom (or with whose affiliate) the business combination is to be
effected or by any affiliate or associate of the interested stockholder voting together as a single voting group.
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The
super-majority vote requirements will not apply if, among other things, the corporations stockholders receive a minimum price (as defined in the MGCL) for their shares and the consideration is received in cash or in the same form as previously
paid by the interested stockholder for its shares. These provisions of Maryland law do not apply, however, to business combinations that are approved or exempted by the board of directors of the corporation prior to the most recent time that the
interested stockholder becomes an interested stockholder.
Control Share Acquisitions
The MGCL provides that control shares (as defined in the MGCL) of a Maryland corporation acquired in a control share
acquisition (as defined in the MGCL) have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter, excluding shares of stock owned by the acquiring person (meaning the person who
makes or proposes to make a control share acquisition) or by officers of the corporation or directors who are also employees of the corporation. Control shares are voting shares of stock that, if aggregated with all other shares of stock
previously acquired by that person, would entitle the acquiring person to exercise voting power in electing directors within one of the following ranges of voting power:
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one-tenth or more but less than one-third,
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one-third or more but less than a majority, or
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a majority or more of all voting power.
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Control shares do not include shares that the
acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A control share acquisition means the acquisition of ownership of or power to direct the voting power of issued and outstanding
control shares, subject to certain exceptions.
An acquiring person may compel the board of directors, upon satisfaction of certain
conditions, including an undertaking to pay certain expenses, to call a special meeting of stockholders to be held within 50 days after receiving a demand to consider the voting rights of the shares. If no request for a meeting is made, the
corporation may itself present the question at any meeting of stockholders.
If voting rights are not approved at the meeting or if the
acquiring person does not deliver an acquiring person statement as required by the MGCL, then, subject to certain conditions and limitations, the corporation may redeem any or all of the control shares, except those for which voting rights have
previously been approved. The corporations redemption of the control shares will be for fair value determined, without regard to the absence of voting rights, as of the date of the last control share acquisition or of any meeting of
stockholders at which the voting rights of the control shares are considered and not approved. If voting rights for control shares are approved at a stockholders meeting and the acquiring person becomes entitled to vote a majority of the shares
entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of the appraisal rights may not be less than the highest price per share paid in the control share acquisition. Certain
limitations and restrictions otherwise applicable to the exercise of dissenters rights do not apply in the context of a control share acquisition.
The control share acquisition statute does not apply to:
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shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction;or
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acquisitions approved or exempted by our charter or bylaws.
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Our bylaws contain a provision
exempting any and all acquisitions of our shares of capital stock from the control share provisions of the MGCL. There can be no assurance that this bylaw provision will not be amended or eliminated in the future.
Title 3, Subtitle 8 of the MGCL
Subtitle
8 of Title 3 of the MGCL allows Maryland corporations with a class of equity securities registered under the Securities Exchange Act of 1934 (the Exchange Act) to elect to be governed by all or any part of certain Maryland law provisions
relating to extraordinary actions and unsolicited takeovers. The election to be governed by one or more of these provisions can be made by a Maryland corporation in its charter or bylaws or by resolution adopted by the board of directors so long as
the corporation has at least three directors who, at the time of electing to be subject to the provisions, are not:
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officers or employees of the corporation;
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persons seeking to acquire control of the corporation;
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directors, officers, affiliates or associates of any person seeking to acquire control; or
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nominated or designated as directors by a person seeking to acquire control.
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Subtitle 8
provides that a Maryland corporation can elect to be subject to all or any portion of the following provisions notwithstanding any contrary provisions contained in its existing charter or bylaws:
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a two-thirds vote requirement for removing a director;
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a requirement that the number of directors be fixed only by vote of the directors;
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a requirement that a vacancy on the board be filled only by the majority vote of the remaining directors and for the remainder of the full term of the directorship in which the vacancy occurred; or
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a majority requirement for the calling of a special meeting of stockholders.
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Through
provisions in our charter and bylaws unrelated to Subtitle 8, we currently vest in our board of directors the exclusive power to fix the number of directorships and require, unless called by the Chairman of our board of directors, our President or a
majority of the board of directors, the request of stockholders entitled to cast a majority of all votes entitled to be cast to call a special meeting.
Restrictions on Ownership
For the
Company to qualify as a REIT under the Code, not more than 50% in value of its outstanding capital stock may be owned, directly or indirectly, by five or fewer individuals, as defined in the Code to include certain entities, during the last half of
a taxable year. For the purpose, among others, of assisting the Company in meeting this requirement, we may from time to time take certain actions to limit the beneficial ownership, directly or indirectly, by individuals of our outstanding equity
securities. See Restrictions on Transfer of Capital Stock.
Amendment of Charter
Our charter may be amended only by the affirmative vote of the holders of not less than two-thirds of all of the votes entitled to be cast on
the matter, except that the affirmative vote of a majority of the board of directors is required to change the name of the Company or change the name or other designation or the par value of any class or series of stock of the Company and the
aggregate par value of the stock of the Company.
Meetings of Stockholders
Our bylaws provide for annual meetings of stockholders to be held on such date and time as may be established from time to time by our board of
directors. Special meetings of stockholders may be called by:
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our Chairman of the Board or our President;
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a majority of the board of directors; or
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stockholders holding at least a majority of our outstanding capital stock entitled to vote at the meeting.
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Our bylaws provide that any stockholder of record wishing to nominate a director or have a stockholder proposal considered at an annual
meeting must provide written notice and certain supporting documentation to the Company relating to the nomination or proposal not later than the close of business on the 120th day nor earlier than the close of business on the 150th day prior to the
first anniversary of the date of the Companys proxy statement in connection with the previous years annual meeting of stockholders (the Anniversary Date). In the event that the annual meeting of stockholders is advanced or
delayed by more than 30 calendar days from the anniversary of the previous years annual meeting, stockholders generally must provide written notice within 10 calendar days after the date on which notice of the meeting is mailed to stockholders
or the date the meeting is publicly disclosed.
The purpose of requiring stockholders to give us advance notice of nominations and other
business is to afford our board of directors a meaningful opportunity to consider the qualifications of the proposed nominees or the advisability of the other proposed business and, to the extent deemed necessary or desirable by our board of
directors, to inform stockholders and make recommendations about the qualifications or business, as well as to
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provide a more orderly procedure for conducting meetings of stockholders. Although our bylaws do not give our board of directors any power to disapprove stockholder nominations for the election
of directors or proposals for action, they may have the effect of precluding a contest for the election of directors or the consideration of stockholder proposals if the proper procedures are not followed and of discouraging or deterring a third
party from conducting a solicitation of proxies to elect its own slate of directors or to approve its own proposal. Our bylaws may have those effects without regard to whether consideration of the nominees or proposal might be harmful or beneficial
to us and our stockholders.
Exclusive Forum Provision
Our bylaws provide that, unless the Company consents in writing to the selection of an alternate forum, the sole and exclusive forum for
(a) any derivative action or proceeding brought on behalf of the Company, (b) any action asserting a claim of breach of any duty owed by any director, officer or other employee of the Company to the Company or its stockholders,
(c) any action asserting a claim against the Company or any director or officer or other employee of the Company arising pursuant to any provision of the MGCL or the Companys charter or bylaws or (d) any action asserting a claim
against the Company or any director or officer or other employee of the Company that is governed by the internal affairs doctrine shall be the Circuit Court for Baltimore City, Maryland, or, if that court does not have jurisdiction, the United
States District Court for the District of Maryland, Baltimore Division.
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RESTRICTIONS ON TRANSFER OF CAPITAL STOCK
For the Company to qualify as a REIT under the Code, among other things, not more than 50% in value of its outstanding capital stock may be
owned, actually or by attribution, by five or fewer individuals (as defined in the Code to include certain entities) during the last half of a taxable year. Our capital stock must also 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 tax year. See Certain U.S. Federal Income Tax Considerations. For various purposes, including to ensure that we remain a qualified REIT,
our charter, subject to certain exceptions, provides that no person (or group, as declared in Section 13(d) of the Exchange Act) may own, or be deemed to own by virtue of the attribution provisions of the Code, more than an aggregate of 9.8% of
our total capital stock, or more than 9.8% of either our common stock or our preferred stock, as a class. Any transfer of capital stock or any security convertible into capital stock that would create a direct or indirect ownership of capital stock
in excess of the ownership limit or that would result in our disqualification as a REIT, including any transfer that results in the capital stock being owned by fewer than 100 persons or results in us being closely held within the
meaning of Section 856(h) of the Code, shall be null and void, and the intended transferee will acquire no rights to the capital stock.
Capital stock owned, or deemed to be owned, or transferred to a stockholder in excess of the ownership limit will automatically constitute
shares of excess stock, as defined in our Charter, that will be transferred, by operation of law, to a trust for the exclusive benefit of one or more charitable organizations selected by our board of directors. The trustee of the
charitable trust will have the right to vote the shares while the excess stock is held in trust, and any dividend or distribution payable with respect to the excess stock will be paid to the trustee of the charitable trust.
In addition, we will have the right, for a period of 90 days after the later of the date of any event that resulted in excess stock or the
date on which the board of directors determines that such an event has occurred, to purchase all or any portion of the excess stock from the original stockholder at the lesser of the price paid for the capital stock by the original stockholder (or,
in the case of a transfer without value or an event other than a transfer that results in excess stock, the market price on the date of such event) and the market price of the capital stock on the date we exercise our option to purchase, as
determined in the manner set forth in our charter. The 90-day period begins on the date of the violative event if the original stockholder gives notice to us of the event or, if no such notice is given, the date the board of directors determines
that a violative event has occurred. We may also direct the trustee to transfer the shares to a third party whose ownership would not violate our restrictions on transfer. For this transfer, proceeds would be distributed in a manner comparable to
the distribution of proceeds from a Company purchase.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of certain material U.S. federal income tax consequences relating to the purchase, ownership, and
disposition of common stock and preferred stock of the Company, as well as considerations regarding our qualification and taxation as a REIT and does not purport to deal with U.S. federal income tax consequences to investors who purchase debt
securities of the Operating Partnership (which consequences will be described in the applicable prospectus supplement).
This summary is
for general information only and is not tax advice. This discussion is based on the Code, Treasury regulations and administrative and judicial interpretations thereof, all as in effect as of the date hereof, and all of which are subject to change,
possibly with retroactive effect. This discussion does not purport to deal with all aspects of U.S. federal income taxation that may be relevant to holders subject to special treatment under the U.S. federal income tax laws, such as dealers in
securities, insurance companies, tax-exempt entities (except as described herein), persons who receive their stock as compensation for services, expatriates, persons subject to the alternative minimum tax, financial institutions and partnerships or
other pass-through entities. This section applies only to holders of securities who hold such securities as capital assets within the meaning of Section 1221 of the Code. This summary does not discuss any state, local or foreign tax
consequences associated with the ownership, sale or other disposition of the securities or our election to be taxed as a REIT.
You are urged to
consult your tax advisors regarding the specific tax consequences to you of:
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the acquisition, ownership and/or sale or other disposition of the common stock or preferred stock offered under this prospectus, including the federal, state, local, foreign and other tax consequences;
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our election to be taxed as a REIT for U.S. federal income tax purposes; and
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potential changes in the applicable tax laws.
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Taxation of the Company as a REIT
For purposes of this discussion, references to us, our, or we, and any similar terms, refer to First Industrial
Realty Trust, Inc. This section is a summary of the material U.S. federal income tax matters of general application pertaining to REITs under the Code. This discussion is based upon current law, which is subject to change, possibly on a retroactive
basis. The provisions of the Code pertaining to REITs are highly technical and complex and sometimes involve mixed questions of fact and law.
In the opinion of Barack Ferrazzano Kirschbaum & Nagelberg LLP:
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commencing with our taxable year ended December 31, 1994, we have been organized and operated in conformity with the requirements for qualification and taxation as a REIT under the Code; and
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our current and proposed method of operation (as represented by us to Barack Ferrazzano Kirschbaum & Nagelberg LLP in a written certificate) will enable us to continue to meet the requirements for qualification
and taxation as a REIT under the Code.
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Barack Ferrazzano Kirschbaum & Nagelberg LLPs opinion is based on
various assumptions and is conditioned upon certain representations made by us as to factual matters with respect to us and certain partnerships, limited liability companies and corporations through which we hold substantially all of our assets.
Moreover, our qualification and taxation as a REIT depends upon our ability to meet, as a matter of fact, through actual annual operating results, distribution levels, diversity of stock ownership and various other qualification tests imposed under
the Code, as discussed below, the results of which will not be reviewed by Barack Ferrazzano Kirschbaum & Nagelberg LLP. No assurance can be given that the actual results of our operations for any particular taxable year will satisfy those
requirements.
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So long as we qualify for taxation as a REIT, we generally will not be subject to U.S. federal
corporate income tax on our net ordinary taxable income that we distribute currently to our stockholders. This treatment substantially eliminates double taxation (that is, taxation at both the corporate and stockholder levels) that
generally results from an investment in a regular corporation. However, we will be subject to U.S. federal income tax as follows:
1. We will be taxed at regular U.S. federal corporate income tax rates on any undistributed REIT taxable income.
REIT taxable income is the taxable income of the REIT subject to specified adjustments, including a deduction for dividends paid;
2. Under some circumstances, we may be subject to the alternative minimum tax on our items of tax preference;
3. If we have net income from the sale or other disposition of foreclosure property that is held primarily for sale
to customers in the ordinary course of business or other nonqualifying income from foreclosure property, we will be subject to tax at the highest corporate rate on this income;
4. Our net income from prohibited transactions will be subject to a 100% tax. In general, prohibited transactions
are sales or other dispositions of property held primarily for sale to customers in the ordinary course of business other than foreclosure property;
5. If we fail to satisfy either the 75% gross income test or the 95% gross income test discussed below, but nonetheless
maintain our qualification as a REIT because other requirements are met, we will be subject to a tax equal to the gross income attributable to the greater of either (1) the amount by which we fail the 75% gross income test for the taxable year
or (2) the amount by which we fail the 95% gross income test for the taxable year, multiplied by a fraction intended to reflect our profitability;
6. If we fail to satisfy any of the REIT asset tests, as described below, other than a failure by a de minimis amount of the 5%
or 10% asset tests, as described below, but our failure is due to reasonable cause and not due to willful neglect 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 product of (x) the net income generated by the nonqualifying assets during the period in which we failed to satisfy the asset tests and (y) the highest U.S. federal income tax rate then applicable to U.S.
corporations;
7. If we fail to satisfy any provision of the Code that would result in our failure to qualify as a REIT
(other than a gross income or asset test requirement) and that violation is due to reasonable cause and not due to willful neglect, we may retain our REIT qualification, but we will be required to pay a penalty of $50,000 for each such failure;
8. We may be required to pay monetary penalties to the IRS in certain circumstances, including if we fail to meet
record-keeping requirements intended to monitor our compliance with rules relating to the composition of our stockholders, as described below in Requirements for qualification as a REIT;
9. We will be subject to a 4% excise tax on the excess of the required distribution over the sum of amounts actually
distributed and amounts retained for which U.S. federal income tax was paid, if we fail to distribute during each calendar year at least the sum of 85% of our REIT ordinary income for the year, 95% of our REIT capital gain net income for the year,
and any undistributed taxable income from prior taxable years;
10. We will be subject to a 100% penalty tax on some
payments we receive (or on certain expenses deducted by a taxable REIT subsidiary) if arrangements among us, our tenants, and/or our taxable REIT subsidiaries are not comparable to similar arrangements among unrelated parties;
11. If we should acquire any asset from a C corporation in a carry-over basis transaction and we subsequently
recognize gain on the disposition of such asset during a period of up to ten (10) years beginning on the date on which we acquired the asset, then, to the extent of any built-in gain, such gain may be subject to tax at the highest regular
corporate tax rate. Built-in gain means the excess of (1) the fair
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market value of the asset as of the beginning of the applicable recognition period over (2) the adjusted basis in such asset as of the beginning of such recognition period;
12. We may elect to retain and pay income tax on our net long-term capital gain. In that case, a stockholder would:
(1) include its proportionate share of our undistributed long-term capital gain (to the extent we make a timely designation of such gain to the stockholder) in its income, (2) be deemed to have paid the tax that we paid on such gain and
(3) be allowed a credit for its proportionate share of the tax deemed to have been paid with an adjustment made to increase the stockholders basis in our stock; and
13. We may have subsidiaries or own interests in other lower-tier entities that are C corporations that will
jointly elect, with us, to be treated as a taxable REIT subsidiary, the earnings of which would be subject to U.S. federal corporate income tax.
No assurance can be given that the amount of any such U.S. federal income taxes will not be substantial. In addition, we and our subsidiaries
may be subject to a variety of taxes other than U.S. federal income tax, including payroll taxes and state, local, and foreign income, franchise, property and other taxes on assets and operations. We could also be subject to tax in situations and on
transactions not presently contemplated.
Requirements for Qualification as a REIT
To qualify as a REIT, we must have met and continue to meet the requirements, discussed below, relating to our organization, the sources of our
gross income, the nature of our assets, and the level of distributions to our stockholders.
The Code requires that a REIT be a
corporation, trust, or association:
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which is managed by one or more trustees or directors;
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the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of beneficial interest;
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which would be taxable as a domestic corporation but for compliance with the REIT requirements;
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which is neither a financial institution nor an insurance company under the Code;
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the beneficial ownership of which is held by 100 or more persons;
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at any time during the last half of each taxable year not more than 50% in value of the outstanding stock or shares of beneficial interest of which is owned, directly or indirectly through the application of attribution
rules, by or for five or fewer individuals (as defined in the Code to include tax-exempt entities other than, in general, qualified domestic pension funds);
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which meets other tests, described below, regarding the nature of its income and assets and distribution requirements; and
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that makes an election to be a REIT for the current taxable year or has made such an election for a previous taxable year that has not been terminated or revoked.
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The Code provides that the first four conditions above must be met during the entire taxable year and that the fifth condition 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. A corporation may not elect to become a REIT unless its taxable year is a calendar year.
To qualify as a REIT, we also cannot have at the end of any taxable year any undistributed earnings and profits that are attributable to a
non-REIT taxable year. We do not believe that we have any non-REIT earnings and profits and believe that we therefore satisfy this requirement.
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We have issued sufficient shares to enough holders to allow us to satisfy the requirement set
forth in the fifth condition above (the 100 holder requirement). For purposes of determining ongoing compliance with the 100 holder requirement, Treasury regulations require us to issue letters to some stockholders demanding information
regarding the amount of shares each such stockholder actually or constructively owns. Although any failure by us to comply with the stockholder demand letters requirement should not jeopardize our REIT status, such failure would subject us to
financial penalties. A list of those stockholders failing or refusing to comply with this demand must be maintained as part of our records. A stockholder who fails or refuses to comply with the demand must submit a statement with its tax return
disclosing the actual ownership of the shares and other information.
As set forth in the sixth condition above, to qualify as a REIT, we
must also satisfy the requirement set forth in Section 856(a)(6) of the Code that we not be closely held. We will not be closely held so long as at all times during the last half of any of our taxable years (other than the first taxable year
for which the REIT election is made) not more than 50% in value of our outstanding shares of beneficial interest is owned, directly or constructively under the applicable attribution rules of the Code, by five or fewer individuals (as defined in the
Code to include tax-exempt entities, other than, in general, qualified domestic pension funds) (the 5/50 Rule).
Our charter
contains restrictions on the ownership and transfer of our shares intended to ensure that we will be able to satisfy the 5/50 Rule. However, if we fail to satisfy the 5/50 Rule, our status as a REIT will terminate, and we will not be able to prevent
such termination. However, for taxable years beginning after August 5, 1997, if we comply with the procedures prescribed in Treasury regulations for issuing stockholder demand letters and do not know, or with the exercise of reasonable
diligence would not have known, that the 5/50 Rule was violated, the requirement that we not be closely held will be deemed to be satisfied for the year. See Failure to qualify as a REIT.
Ownership of partnership interests
A REIT that is a partner in a partnership will be deemed to own its proportionate share of the assets of the partnership and will be deemed to
earn its proportionate share of the partnerships income. The assets and gross income of the partnership retain the same character in the hands of the REIT for purposes of the gross income and asset tests applicable to REITs as described below.
Thus, our proportionate share of the assets and items of income of the Operating Partnership, including the Operating Partnerships share of the assets and liabilities and items of income with respect to any partnership in which it holds an
interest, will be treated as our assets and liabilities and our items of income for purposes of applying the requirements described in this prospectus.
Qualified REIT subsidiary
If a
REIT owns a corporate subsidiary that is a qualified REIT subsidiary, within the meaning of section 856(i) of the Code, that subsidiary is disregarded for U.S. federal income tax purposes, and all assets, liabilities, and items of
income, deduction, and credit of the subsidiary are treated as assets, liabilities and such items of the REIT itself. A qualified REIT subsidiary is a corporation all of the capital stock of which is owned by the REIT. However, if an
existing corporation is acquired by a REIT and becomes a qualified REIT subsidiary of such REIT, all of its pre-acquisition earnings and profits must be distributed before the end of the REITs taxable year. A qualified REIT
subsidiary of ours will not be subject to U.S. federal corporate income taxation, although it may be subject to state and local taxation in some states.
Taxable REIT subsidiary
A
taxable REIT subsidiary is any corporation (other than another REIT and corporations involved in certain lodging, health care and franchising activities) owned by a REIT with respect to which the REIT and the corporation jointly elect
that the corporation is treated as a taxable REIT subsidiary. A taxable REIT subsidiary will pay income tax at regular U.S. federal corporate income tax rates on any income that it earns. Other than
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certain activities relating to lodging and health care facilities, a taxable REIT subsidiary may generally engage in any business, including the provision of customary or noncustomary services to
tenants of its parent REIT. The Code contains provisions intended to ensure that transactions between a REIT and its taxable REIT subsidiary occur at arms length and on commercially reasonable terms. These requirements include a
provision that prevents a taxable REIT subsidiary from deducting interest on direct or indirect indebtedness to its parent REIT if, under a specified series of tests, the taxable REIT subsidiary is considered to have an excessive interest expense
level or debt to equity ratio. In some cases a 100% tax is also imposed on the REIT if its rental, service and/or other agreements with its taxable REIT subsidiary are not on arms length terms.
A parent REIT is not treated as holding the assets of a taxable REIT subsidiary or as receiving any income that the subsidiary earns. Rather,
the stock issued by the taxable REIT subsidiary is an asset in the hands of the parent REIT, and the REIT recognizes as income any dividends that it receives from the subsidiary. This treatment can affect the income and asset test calculations that
apply to the REIT, as described below. Because a parent REIT does not include the assets and income of taxable REIT subsidiaries in determining the parents compliance with the REIT requirements, such entities may be used by the parent REIT to
indirectly undertake activities that the REIT rules might otherwise preclude it from doing directly or through pass-through subsidiaries.
Subsidiary REIT
Our Operating
Partnership is currently under contract to acquire 100% of the interests in an entity which has elected to be taxed as a REIT (Subsidiary REIT). Provided that Subsidiary REIT qualifies as a REIT, our interest in Subsidiary REIT will be
treated as a qualifying real estate asset for purposes of the REIT asset tests and any dividend income or gains derived by us from Subsidiary REIT will generally be treated as income that qualifies for purposes of the REIT gross income tests. To
qualify as a REIT, Subsidiary REIT must independently satisfy the various REIT qualification requirements described in this summary. If Subsidiary REIT were to fail to qualify as a REIT, and certain relief provisions did not apply, Subsidiary REIT
would be treated as a taxable C corporation and its income would be subject to federal income tax. In addition, a failure of Subsidiary REIT to qualify as a REIT could have an adverse effect on our ability to comply with the REIT income and asset
tests, and thus could impair our ability to qualify as a REIT.
Income Tests
To qualify as a REIT, we must satisfy two gross income tests on an annual basis. First, at least 75% of our gross income, excluding gross
income from prohibited transactions, for each taxable year must be derived directly or indirectly from investments relating to real property or mortgages on real property, including rents from real property, gains on the disposition of
real estate, dividends paid by another REIT, and interest on obligations secured by mortgages on real property or on interests in real property, or from some types of temporary investments. Second, at least 95% of our gross income for each taxable
year, excluding gross income from prohibited transactions, must be derived from any combination of income qualifying under the 75% test and dividends, interest, some payments under certain hedging instruments, and gain from the sale or disposition
of stock or securities and some hedging instruments.
Income and gain from certain hedging transactions will not constitute gross income
for purposes of both the 75% and 95% gross income tests. See Hedging transactions. In addition, certain foreign currency gains will be excluded from gross income for purposes of one or both of the gross income tests.
Rents we receive will qualify as rents from real property in satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole or in part on the income or profits of any person. However, an amount received or accrued generally will not be excluded from the term rents from real
property solely by reason of being based on a fixed percentage or percentages of receipts or sales. Second, rents received from a related party tenant will not qualify as rents
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from real property in satisfying the gross income tests unless the tenant is a taxable REIT subsidiary and either (i) at least 90% of the property is leased to unrelated tenants and the rent
paid by the taxable REIT subsidiary is substantially comparable to the rent paid by the unrelated tenants for comparable space, or (ii) the property leased is a qualified lodging facility, as defined in Section 856(d)(9)(D) of
the Code, or a qualified health care property, as defined in Section 856(e)(6)(D)(i), and certain other conditions are satisfied. A tenant is a related party tenant if the REIT, or an actual or constructive owner of 10% or more of the REIT,
actually or constructively owns 10% or more of the tenant. Third, if rent attributable to personal property, leased in connection with a lease of real property, is greater than 15% of the total rent received under the lease, then the portion of rent
attributable to the personal property will not qualify as rents from real property.
Generally, for rents to qualify as rents from real
property for the purpose of satisfying the gross income tests, we may provide directly only an insignificant amount of services, unless those services are usually or customarily rendered in connection with the rental of real property and
not otherwise considered rendered to the occupant. Accordingly, we may not provide impermissible services to tenants (except through an independent contractor from whom we derive no revenue and that meets other requirements
or through a taxable REIT subsidiary) without giving rise to impermissible tenant service income. Impermissible tenant service income is deemed to be at least 150% of the direct cost to us of providing the service. If the impermissible
tenant service income exceeds 1% of our total income from a property, then all of the income from that property will fail to qualify as rents from real property. If the total amount of impermissible tenant service income from a property does not
exceed 1% of our total income from the property, the services will not disqualify any other income from the property that qualifies as rents from real property, but the impermissible tenant service income will not qualify as rents from real
property.
We have not charged, and do not anticipate charging, significant rent that is based in whole or in part on the income or
profits of any person. We have not derived, and do not anticipate deriving, significant rents from related party tenants. We have not derived, and do not anticipate deriving, rent attributable to personal property leased in connection with real
property that exceeds 15% of the total rents from that property. We have not derived, and do not anticipate deriving, impermissible tenant service income that exceeds 1% of our total income from any property.
If we fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year, we may nevertheless qualify as a REIT for that
year if we are entitled to relief under the Code. These relief provisions generally will be available if our failure to meet the tests is due to reasonable cause and not due to willful neglect, we attached a schedule of the sources of our income to
our U.S. federal income tax return, and any incorrect information on the schedule is not due to fraud with intent to evade tax. It is not possible, however, to state whether in all circumstances we would be entitled to the benefit of these relief
provisions. For example, if we fail to satisfy the gross income tests because nonqualifying income that we intentionally incur unexpectedly exceeds the limits on nonqualifying income, the IRS could conclude that the failure to satisfy the tests was
not due to reasonable cause. If these relief provisions are inapplicable to a particular set of circumstances involving us, we will fail to qualify as a REIT. As discussed under Taxation of the Company as a REIT, even if these
relief provisions apply, a tax would be imposed based on the amount of nonqualifying income.
Asset Tests
At the close of each quarter of our taxable year, we must satisfy the following tests relating to the nature of our assets:
1. At least 75% of the value of our total assets must be represented by cash or cash items (including certain receivables),
government securities, real estate assets (including (i) interests in real property (ii) interests in mortgages on real property (iii) shares in other qualifying REITs (iv) unsecured debt instruments of REITs that are
required to file annual and periodic reports with the Securities and Exchange Commission under the Exchange Act (Publicly Offered REITs), (v) personal property securing a
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mortgage secured by both real property and personal property if the fair market value of such personal property does not exceed 15% of the combined fair market value of all such personal and real
property and (vi) personal property leased in connection with a lease of real property for which the rent attributable to personal property is not greater than 15% of the total rent received under the lease) or, in cases where we raise new
capital through stock or long-term debt offerings (i.e., having a maturity of at least five years), temporary investments in stock or debt instruments during the one-year period following our receipt of such capital (the 75% asset test);
2. not more than 25% of our total assets may be represented by securities other than those in the 75% asset class;
3. except for equity investments in REITs, qualified REIT subsidiaries, other securities that qualify as real estate
assets for purposes of the 75% asset test as described above, or securities of our taxable REIT subsidiaries, the value of any one issuers securities owned by us may not exceed 5% of the value of our total assets; we may not own more
than 10% of any one issuers outstanding voting securities; and we may not own more than 10% of the value of the outstanding securities of any one issuer;
4. no more than 25% (20% for taxable years beginning after December 31, 2017) of the value of our total assets can be
represented by securities of taxable REIT subsidiaries (the 25% TRS Test or after December 31, 2017, the 20% TRS Test); and
5. the aggregate value of all unsecured debt instruments of Publicly Offered REITs that we hold may not exceed 25% of the value
of our total assets.
Securities for purposes of the asset tests may include debt securities. However, the 10% value test does not apply to certain
straight debt and other excluded securities, as described in the Code including, but not limited to, any loan to an individual or estate, any obligation to pay rents from real property and any security issued by a REIT. In addition,
(a) a REITs interest as a partner in a partnership is not considered a security for purposes of applying the 10% value test to securities issued by the partnership; (b) any debt instrument issued by a partnership (other than straight
debt or another excluded security) will not be considered a security issued by the partnership if at least 75% of the partnerships gross income is derived from sources that would qualify for the 75% REIT gross income test; and (c) any
debt instrument issued by a partnership (other than straight debt or another excluded security) will not be considered a security issued by the partnership to the extent of the REITs interest as a partner in the partnership. In general,
straight debt is defined as a written, unconditional promise to pay on demand or at a specific date a fixed principal amount, and the interest rate and payment dates on the debt must not be contingent on profits or the discretion of the debtor. In
addition, straight debt may not contain a convertibility feature.
With respect to each issuer in which we currently own an interest that
does not qualify as a REIT, a qualified REIT subsidiary, or a taxable REIT subsidiary, we believe that our pro rata share of the value of the securities, including debt, of any such issuer does not exceed 5% of the total value of our assets and that
we comply with the 10% voting securities limitation and 10% value limitation with respect to each such issuer. In this regard, however, we cannot provide any assurance that the IRS might not disagree with our determinations. In addition, the
securities that we own in our taxable REIT subsidiaries do not, in the aggregate, exceed 25% of the total value of our assets (20% for taxable years beginning after December 31, 2017).
After initially meeting the asset tests at the close of any quarter, we will not lose our status as a REIT if we fail to satisfy the 75%, 25%
and 5% asset tests and the 10% value limitation at the end of a later quarter solely by reason of changes in the relative values of our assets (including changes in relative values as a result of fluctuations in foreign currency exchange rates). If
the failure to satisfy the 75%, 25% or 5% asset tests or the 10% value limitation results from an acquisition of securities or other property during a quarter, the failure can be cured by disposition of sufficient non-qualifying assets within 30
days after the close of that quarter. We intend to maintain adequate records of the value of our assets to ensure compliance with the asset tests and to take any available actions within 30 days after the close of any quarter as may be required to
cure any noncompliance with
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the 75%, 25%, or 5% asset tests or 10% value limitation. If we fail the 5% asset test or the 10% asset test at the end of any quarter, and such failure is not cured within 30 days thereafter, we
may dispose of sufficient assets or otherwise satisfy the requirements of such asset tests within six months after the last day of the quarter in which our identification of the failure to satisfy those asset tests occurred to cure the violation,
provided that the non-permitted assets do not exceed the lesser of 1% of the total value of our assets at the end of the relevant quarter or $10,000,000. If we fail any of the other asset tests, or our failure of the 5% and 10% asset tests is in
excess of this amount, as long as the failure is due to reasonable cause and not willful neglect and, following our identification of the failure, we file a schedule in accordance with the Treasury regulations describing each asset that caused the
failure, we are permitted to avoid disqualification as a REIT, after the thirty-day cure period, by taking steps to satisfy the requirements of the applicable asset test within six months after the last day of the quarter in which our identification
of the failure to satisfy the REIT asset test occurred, including the disposition of sufficient assets to meet the asset tests and paying a tax equal to the greater of $50,000 or the product of (x) the net income generated by the nonqualifying
assets during the period in which we failed to satisfy the relevant asset test and (y) the highest U.S. federal income tax rate then applicable to U.S. corporations.
Distribution Requirements
To
qualify as a REIT, we are required to distribute dividends, other than capital gain dividends, to our stockholders each year in an amount at least equal to (1) 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 the net income, after tax, from foreclosure property, minus (2) the sum of certain specified items of noncash income. In addition, if we recognize any built-in gain, we will
be required, under Treasury regulations, to distribute at least 90% of the built-in gain, after tax, recognized on the disposition of the applicable asset. See Taxation of the Company as a REIT for a discussion of the possible
recognition of built-in gain. These distributions must be paid either in the taxable year to which they relate, or in the following taxable year if declared before we timely file our tax return for the prior year and if paid with or before the first
regular dividend payment date after the declaration is made. We believe that we have made and intend to continue to make timely distributions sufficient to satisfy the annual distribution requirements.
Our REIT taxable income has been and is expected to be less than our cash flow due to the allowance of depreciation and other noncash 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 90% distribution requirement. It is possible, however, that we, from time to time, may not have
sufficient cash or other liquid assets to meet this distribution requirement or to distribute such greater amount as may be necessary to avoid income and excise taxation, due to timing differences between (a) the actual receipt of income and
the actual payment of deductible expenses and (b) the inclusion of such income and the deduction of such expenses in arriving at our taxable income, or as a result of nondeductible expenses such as principal amortization or capital expenditures
in excess of noncash deductions. In the event that such timing differences occur, we may find it necessary to arrange for borrowings or, if possible, pay taxable stock dividends in order to meet the dividend requirement.
Under some circumstances, we may be able to rectify a failure to meet the distribution requirement for a year by paying dividends to
stockholders in a later year, which may be included in our deduction for dividends paid for the earlier year. We will refer to such dividends as deficiency dividends. Thus, we may be able to avoid being taxed on amounts distributed as
deficiency dividends. We will, however, be required to pay interest based upon the amount of any deduction taken for deficiency dividends.
To the extent that we do not distribute (and are not deemed to have distributed) all of our net capital gain or distribute at least 90%, but
less than 100%, of our REIT taxable income, as adjusted, we are subject to tax on these retained amounts at regular corporate tax rates.
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We will be subject to a 4% excise tax on the excess of the required distribution over the sum of
amounts actually distributed and amounts retained for which U.S. federal income tax was paid, if we fail to distribute during each calendar year at least the sum of:
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85% of our REIT ordinary income for the year;
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95% of our REIT capital gain net income for the year; and
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any undistributed taxable income from prior taxable years.
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A REIT may elect to retain rather
than distribute all or a portion of its net capital gains and pay the tax on the gains. In that case, a REIT may elect to have its stockholders include their proportionate share of the undistributed net capital gains in income as long-term capital
gains and receive a credit for their share of the tax paid by the REIT. For purposes of the 4% excise tax described above, any retained amounts would be treated as having been distributed.
Prohibited Transactions
Net
income derived from prohibited transactions is subject to 100% tax. The term prohibited transactions generally includes a sale or other disposition of property (other than foreclosure property) that is held primarily for sale to
customers in the ordinary course of a trade or business. Whether property is held primarily for sale to customers in the ordinary course of a trade or business depends on the specific facts and circumstances. The Code provides a safe
harbor pursuant to which sales of properties held for at least two years and meeting certain additional requirements will not be treated as prohibited transactions, but compliance with the safe harbor may not always be practical. Moreover the
character of REIT dividends attributable to gain from assets that comply with the foregoing safe harbor as ordinary income or capital gain must still be determined pursuant to the specific facts and circumstances. We intend to engage in the business
of owning and operating properties and to make sales of properties that are consistent with our investment objectives. However, no assurance can be given that any particular property in which we hold a direct or indirect interest will not be treated
as property held for sale to customers, or that the safe-harbor provisions will apply. The 100% tax will not apply to gains from the sale of property held through a taxable REIT subsidiary or other taxable corporation, although such income will be
subject to tax at regular corporate income tax rates.
Foreclosure Property
Foreclosure property is real property (including interests in real property) and any personal property incident to such real property
(1) that is acquired by a REIT as a result of the REIT having bid on the property at foreclosure, or having otherwise reduced the property to ownership or possession by agreement or process of law, after there was a default (or default was
imminent) on a lease of the property or a mortgage loan held by the REIT and secured by the property, (2) for which the related loan or lease was made, entered into or acquired by the REIT at a time when default was not imminent or anticipated
and (3) for which such REIT makes an election to treat the property as foreclosure property. REITs generally are subject to tax at the maximum corporate rate (currently 35%) on any net income from foreclosure property, including any gain from
the disposition of the foreclosure property and certain foreign currency gain attributable to foreclosure property, other than income that would otherwise be qualifying income for purposes of the 75% gross income test. Any gain from the sale of
property for which a foreclosure property election has been made will not be subject to the 100% tax on gains from prohibited transactions described above, even if the property is held primarily for sale to customers in the ordinary course of a
trade or business.
Hedging Transactions
We may enter into hedging transactions with respect to one or more of our assets or liabilities. Hedging transactions could take a variety of
forms, including interest rate swaps or cap agreements, options, futures
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contracts, forward rate agreements or similar financial instruments. Except to the extent provided by Treasury regulations, any income from a hedging transaction (i) made in the normal
course of our business primarily to manage risk of interest rate or price changes or currency fluctuations with respect to borrowings made or to be made, or ordinary obligations incurred or to be incurred by us to acquire or own real estate assets,
(ii) primarily to manage the risk of currency fluctuations with respect to any item of income or gain that would be qualifying income under the 75% or 95% income tests (or any property which generates such income or gain), which is clearly
identified as such before the close of the day on which it was acquired, originated or entered into, including gain from the disposition of such a transaction or (iii) of previously acquired hedges that a REIT entered to manage risk associated
with liabilities or property that have been extinguished or disposed, will not constitute gross income for purposes of the 95% gross income test and the 75% gross income test. To the extent we enter into other types of hedging transactions, the
income from those transactions is likely to be treated as non-qualifying income for purposes of both the 75% and 95% gross income tests. We intend to structure any hedging transactions in a manner that does not jeopardize our ability to qualify as a
REIT.
Failure to Qualify as a REIT
In the event we violate a provision of the Code that would result in our failure to qualify as a REIT, specified relief provisions will be
available to us to avoid such disqualification if (1) the violation is due to reasonable cause and not willful neglect, (2) we pay a penalty of $50,000 for each failure to satisfy the provision and (3) the violation does not include a
violation under the gross income or asset tests described above (for which other specified relief provisions are available). This cure provision reduces the instances that could lead to our disqualification as a REIT for violations due to reasonable
cause. If we fail to qualify for taxation as a REIT in any taxable year, and the relief provisions of the Code do not apply, we will be subject to tax, including any applicable alternative minimum tax, on our taxable income at regular U.S. federal
corporate income tax rates. Distributions to our stockholders in any year in which we are not a REIT will not be deductible by us, nor will they be required to be made. In this situation, to the extent of current and accumulated earnings and
profits, and, subject to limitations of the Code, distributions to our stockholders will generally be taxable to non-corporate U.S. stockholders (as defined below) at a maximum rate of 20%, and dividends received by our corporate U.S. stockholders
may be eligible for the dividends received deduction. Unless we are entitled to relief under specific statutory provisions, we will also be disqualified from re-electing to be taxed as a REIT for the four taxable years following a year during which
qualification was lost. It is not possible to state whether, in all circumstances, we will be entitled to this statutory relief.
New Partnership
Audit Rules
The recently enacted Bipartisan Budget Act of 2015 changes the rules applicable to U.S. federal income tax audits of
partnerships. Under the new rules (which are generally effective for taxable years beginning after December 31, 2017), among other changes and subject to certain exceptions, any audit adjustment to items of income, gain, loss, deduction, or
credit of a partnership (and any partners distributive share thereof) is determined, and taxes, interest, or penalties attributable thereto are assessed and collected, at the partnership level. Although it is uncertain how these new rules will
be implemented, it is possible that they could result in partnerships in which we directly or indirectly invest being required to pay additional taxes, interest and penalties as a result of an audit adjustment, and we, as a direct or indirect
partner of these partnerships, could be required to bear the economic burden of those taxes, interest, and penalties even though we, as a REIT, may not otherwise have been required to pay additional corporate-level taxes had we owned the assets of
the partnership directly. The changes created by these new rules are sweeping and in many respects dependent on the promulgation of future regulations or other guidance by the U.S. Treasury. You should consult with your tax advisors with respect to
these changes and their potential impact on your investment in our common stock.
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Taxation of Our Stockholders
Taxable U.S. Stockholders
When we use the term U.S. stockholder we mean a beneficial owner of our common stock or preferred stock who, for U.S. federal
income tax purposes is:
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an individual citizen or resident of the United States;
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a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or any political subdivision thereof;
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an estate whose income is subject to U.S. federal income taxation regardless of its source; or
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a trust if a U.S. court is able to exercise primary supervision over the administration of that trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or it has a valid
election in place to be treated as a U.S. person.
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As used herein, the term non-U.S. stockholder means a
beneficial owner of our common stock or preferred stock that for U.S. federal income tax purposes is either a nonresident individual alien or a corporation, estate or trust that is not a U.S. stockholder.
The U.S. federal income tax treatment of a partner in a partnership that is the beneficial owner of our common stock or preferred stock will
depend on the activities of the partnership and the status of the partner. A partner in such partnership should consult its own tax advisor regarding the federal income treatment to the partner of such partnership holding our stock.
Distributions.
Except as discussed below, so long as we qualify for taxation as a REIT, distributions with respect to our stock made
out of current or accumulated earnings and profits (and not designated as capital gain dividends) will be includible by a U.S. stockholder as ordinary income. Distributions on our preferred stock will be treated as made out of any available earnings
and profits in priority to distributions on our common stock. None of these distributions will be eligible for the dividends received deduction for a corporate stockholder. Distributions in excess of current and accumulated earnings and profits will
not be taxable to a U.S. stockholder to the extent that they do not exceed the adjusted tax basis of the holders stock (as determined on a share by share basis), but rather will be treated as a return of capital and reduce the adjusted tax
basis of such stock. To the extent that such distributions exceed the adjusted tax basis of a U.S. stockholders stock, they will be included in income as long- term capital gain if the stockholder has held its shares for more than one year and
otherwise as short-term capital gain. Any dividend declared by us in October, November or December of any year payable to a stockholder of record on a specified date in any such month shall be treated as both paid by us and received by the
stockholder on December 31 of such year, provided that the dividend is actually paid by us during January of the following calendar year.
Dividends paid to a U.S. stockholder generally will not qualify for the reduced tax rates applicable to qualified dividend income.
Qualified dividend income generally includes dividends paid by domestic C corporations and certain qualified foreign corporations to most noncorporate U.S. stockholders. Because we are not generally subject to U.S. federal income tax on the portion
of our REIT taxable income that we distribute to our stockholders, our dividends generally will not be eligible for the reduced tax rates on qualified dividend income. As a result, our ordinary REIT dividends will continue to be taxed at the higher
tax rate applicable to ordinary income. Currently, the highest marginal individual income tax rate on ordinary income is 39.6%. However, the reduced tax rates for qualified dividend income will apply to our ordinary REIT dividends, if any, that are
(i) attributable to dividends received by us from non-REIT corporations, such as our taxable REIT subsidiaries, or (ii) attributable to income upon which we have paid corporate income tax (e.g., to the extent that we distribute less than
100% of our REIT taxable income) provided certain holding period requirements are met.
Distributions that are designated as capital gain
dividends will generally be taxed as long-term capital gains (to the extent they do not exceed our actual net capital gain for the taxable year) without regard to the period for
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which the holder has held our stock. However, corporate holders may be required to treat up to 20% of certain capital gain dividends as ordinary income. The distributions we designate as capital
gain dividends may not exceed our dividends paid for the taxable year, including dividends paid the following year that we treated as paid in the current year.
We may elect to retain and pay income tax on our net capital gain received during the taxable year. If we so elect for a taxable year, our
U.S. stockholders would include in income as long-term capital gains their proportionate share of such portion of our undistributed net capital gains for the taxable year as we may designate. A U.S. stockholder would be deemed to have paid its share
of the tax paid by us on such undistributed net capital gain, which would be credited or refunded to the stockholder. The U.S. stockholders basis in our stock would be increased by the amount of undistributed net capital gain included in such
U.S. stockholders income, less the capital gains tax paid by us.
Except as noted below, the maximum tax rate on long-term capital
gain applicable to non-corporate taxpayers is 20% for sales and exchanges of assets held for more than one year. The maximum tax rate on long-term capital gain from the sale or exchange of section 1250 property, or depreciable real
property, is 25% to the extent that such gain would have been treated as ordinary income if the property were section 1245 property (i.e., to the extent of depreciation recapture). With respect to distributions that we designate as
capital gain dividends and any retained capital gain that we are deemed to distribute, we generally may designate whether such a distribution is taxable to our non-corporate U.S. stockholders at a 20% or 25% tax rate. Thus, the tax rate differential
between capital gain and ordinary income for non-corporate taxpayers may be significant. In addition, the characterization of income as capital gain or ordinary income may affect the deductibility of capital losses. A non-corporate taxpayer may
deduct capital losses not offset by capital gains against its ordinary income only up to a maximum annual amount of $3,000. A non-corporate taxpayer may carry forward unused capital losses indefinitely. A corporate taxpayer must pay tax on its net
capital gain at ordinary U.S. federal corporate income tax rates. A corporate taxpayer may deduct capital losses only to the extent of capital gains, with unused losses being carried back three years and forward five years.
Stockholders may not include in their individual income tax returns any of our net operating losses or capital losses. Instead, such losses
would be carried over by us for potential offset against our future income (subject to certain limitations). Taxable distributions from us and gain from the disposition of stock will not be treated as passive activity income and, therefore,
stockholders generally will not be able to apply any passive activity losses (such as losses from certain types of limited partnerships in which the stockholder is a limited partner) against such income. In addition, taxable
distributions from us generally will be treated as investment income for purposes of the investment interest limitations. Capital gains from the disposition of stock (or distributions treated as such) will be treated as investment income only if the
stockholder so elects, in which case such capital gains will be taxed at ordinary income rates. We will notify stockholders after the close of our taxable year as to the portions of the distributions attributable to that year that constitute each of
(i) distributions taxable at ordinary income tax rates, (ii) capital gains dividends, (iii) qualified dividend income, if any, and (iv) nondividend distributions.
Sale or Exchange of Stock.
Upon the sale, exchange or other taxable disposition of stock to or with a person other than us, a
stockholder generally will recognize gain or loss equal to the difference between (i) the amount of cash and the fair market value of any property received (less any portion thereof attributable to accumulated and declared but unpaid dividends,
which will be taxable as a dividend to the extent of our current and accumulated earnings and profits attributable thereto) and (ii) the stockholders adjusted tax basis in such stock. Such gain or loss will be capital gain or loss and
will be long-term capital gain or loss if such stock has been held for more than one year. In general, any loss upon a sale or exchange of stock by a holder who has held such stock for six months or less (after applying certain holding period rules)
will be treated by such holder as long-term capital loss to the extent of distributions from us required to be treated by such stockholder as long-term capital gain. All or a portion of any loss realized upon a taxable disposition of stock may be
disallowed if substantially identical stock is purchased within 30 days before or after the disposition.
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A redemption by us of any redeemable preferred stock we may issue could be treated either as a
taxable disposition of shares or as a dividend, depending on the applicable facts and circumstances. In the event we issue any redeemable preferred stock, the applicable prospectus supplement will address the tax consequences of owning such
securities in more detail.
Medicare Tax on Unearned Income.
For taxable years beginning after December 31, 2012, a U.S.
stockholder that is an individual is subject to a 3.8% tax on the lesser of (1) his or her net investment income for the relevant taxable year or (2) the excess of his or her modified gross income for the taxable year over a
certain threshold (between $125,000 and $250,000 depending on the individuals U.S. federal income tax filing status). A similar regime applies to certain estates and trusts. Net investment income generally would include dividends on our stock
and gain from the sale of our stock. If you are a U.S. stockholder that is an individual, an estate or a trust, you are urged to consult your tax advisors regarding the applicability of this tax to your income and gains in respect of your investment
in our stock.
Tax-Exempt U.S. Stockholders
Distributions by us to a tax-exempt U.S. stockholder generally should not constitute unrelated business taxable income (UBTI)
provided that (i) the U.S. stockholder has not financed the acquisition of its common stock with acquisition indebtedness within the meaning of the Code and (ii) our stock is not otherwise used in an unrelated trade or business
of such tax-exempt U.S. stockholder.
Notwithstanding the preceding paragraph, under certain circumstances, qualified trusts that hold
more than 10% (by value) of our shares of stock may be required to treat a certain percentage of dividends as UBTI. This requirement will only apply if we are treated as a pension-held REIT. The restrictions on ownership of shares of
stock in our charter should prevent us from being treated as a pension-held REIT, although there can be no assurance that this will be the case.
Non-U.S. Stockholders
The
following discussion addresses the rules governing the U.S. federal income taxation of the ownership and disposition of stock by non-U.S. stockholders. These rules are complex, and no attempt is made herein to provide more than a brief summary of
such rules. Accordingly, the discussion does not address all aspects of U.S. federal income taxation and does not address U.S. estate and gift tax consequences or state, local or foreign tax consequences that may be relevant to a non-U.S.
stockholder in light of its particular circumstances.
Distributions.
Distributions to a non-U.S. stockholder that are neither
attributable to gain from sales or exchanges by us of U.S. real property interests nor designated as capital gains dividends will be treated as dividends of ordinary income to the extent that they are made out of current or accumulated
earnings and profits. These distributions ordinarily will be subject to withholding of U.S. federal income tax on a gross basis at a rate of 30%, or a lower rate as permitted under an applicable income tax treaty, unless the dividends are treated as
effectively connected with the conduct by the non-U.S. stockholder 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. Applicable certification
and disclosure requirements must be satisfied to be exempt from withholding under the effectively connected income exemption. Dividends that are effectively connected with a trade or business generally will be subject to tax on a net basis, that is,
after allowance for deductions, at graduated rates, in the same manner as U.S. stockholders are taxed with respect to these dividends, and are generally not subject to withholding. Any dividends received by a corporate non-U.S. stockholder that is
engaged in a U.S. trade or business also may be subject to an additional branch profits tax at a 30% rate, or lower applicable treaty rate.
Distributions in excess of current and accumulated earnings and profits that exceed the non-U.S. stockholders adjusted tax basis in its
stock (as determined on a share by share basis) will be taxable to a non-U.S. stockholder as gain from the sale of stock, which is discussed below. Distributions in excess of current or
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accumulated earnings and profits that do not exceed the adjusted tax basis of the non-U.S. stockholder in its stock will reduce the non-U.S. stockholders adjusted tax basis in its stock and
will not be subject to U.S. federal income tax, but will be subject to U.S. withholding tax as described below.
We expect to withhold
U.S. income tax at the rate of 30% on any ordinary dividend distributions (including distributions that later may be determined to have been in excess of current and accumulated earnings and profits) made to a non-U.S. stockholder unless: (i) a
lower treaty rate applies and the non-U.S. stockholder files an IRS Form W-8BEN, W-8BEN-E or other applicable form evidencing eligibility for that reduced treaty rate; or (ii) the non-U.S. stockholder files an IRS Form W-8ECI claiming that the
distribution is income effectively connected with the non-U.S. stockholders trade or business.
We may be required to withhold on
any distribution in excess of our current and accumulated earnings and profits, even if a treaty rate applies and the non-U.S. stockholder is not liable for tax on the receipt of that distribution. Moreover, because of the uncertainty in estimating
earnings and profits, we may choose to withhold 30% on all distributions. However, a non-U.S. stockholder may seek a refund of these amounts from the IRS if the non-U.S. stockholders U.S. tax liability with respect to the distribution is less
than the amount withheld.
Distributions to a non-U.S. stockholder that are designated at the time of the distribution 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: (i) the investment in our stock is effectively connected with the non-U.S.
stockholders U.S. trade or business, in which case the non-U.S. stockholder generally will be subject to the same treatment as U.S. stockholders with respect to any gain, except that a stockholder that is a foreign corporation also may be
subject to the 30% branch profits tax, as discussed above, or (ii) the non-U.S. stockholder is a nonresident alien individual who is present in the United States for 183 days or more during the taxable year and has a tax home in the
United States, in which case the nonresident alien individual will be subject to a 30% tax on the individuals capital gains.
Except
as hereinafter discussed, under the Foreign Investment in Real Property Tax Act, or FIRPTA, distributions to a non-U.S. stockholder that are attributable to gain from sales or exchanges by us of U.S. real property interests, whether or not
designated as a capital gain dividend, will cause the non-U.S. stockholder to be treated as recognizing gain that is income effectively connected with a U.S. trade or business. Non-U.S. stockholders generally will be taxed on this gain at the same
rates applicable to U.S. stockholders, subject to a special alternative minimum tax in the case of nonresident alien individuals. Also, this gain may be subject to a 30% branch profits tax in the hands of a non-U.S. stockholder that is a
corporation. However, even if a distribution is attributable to a sale or exchange of U.S. real property interests, the distribution will not be treated as gain recognized from the sale or exchange of U.S. real property interests, but as an ordinary
dividend subject to the general withholding regime discussed above, if:
(i) the distribution is made with respect to a
class of stock that is considered regularly traded under applicable Treasury regulations on an established securities market located in the United States, such as the New York Stock Exchange; and
(ii) the stockholder owns 10% or less of that class of stock at all times during the one-year period ending on the date of the
distribution.
We will be required to withhold and remit to the IRS 35% of any distributions to non-U.S. stockholders that are, or, if
greater, could have been, designated as capital gain dividends and are attributable to gain recognized from the sale or exchange of U.S. real property interests. Distributions can be designated as capital gains to the extent of our net capital gain
for the taxable year of the distribution. The amount withheld, which for individual non-U.S. stockholders may substantially exceed the actual tax liability, is creditable against the non-U.S. stockholders U.S. federal income tax liability and
is refundable to the extent such amount exceeds the non-U.S. stockholders actual U.S. federal income tax liability, and the non-U.S. stockholder timely files an appropriate claim for refund.
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Distributions by us to a qualified foreign pension fund, within the meaning of
Section 897(l) of the Code (Qualified Foreign Pension Fund), or any entity all of the interests of which are held by a Qualified Foreign Pension Fund, is exempt from FIRPTA, but may nonetheless be subject to U.S. federal dividend
withholding tax unless an applicable tax treaty or Section 892 of the Code provides an exemption from such dividend withholding tax. Non-U.S. Stockholders who are Qualified Foreign Pension Funds should consult their tax advisors regarding the
application of these rules.
Retention of Net Capital Gains.
Although the law is not clear on the matter, we believe that amounts
designated as undistributed capital gains in respect of the stock held by U.S. stockholders generally should be treated with respect to non-U.S. stockholders in the same manner as actual distributions by the Company of capital gain dividends. Under
that approach, the non-U.S. stockholders would be able to offset as a credit against their U.S. federal income tax liability resulting therefrom an amount equal to their proportionate share of the tax paid by us on the undistributed capital gains,
and to receive from the IRS a refund to the extent their proportionate share of this tax paid were to exceed their actual U.S. federal income tax liability, and the non-U.S. stockholder timely files an appropriate claim for refund.
Sale of Stock.
For so long as our stock continues to be regularly traded on an established securities market, the sale of such stock by
any Non-U.S. Stockholder who is not a Ten Percent Non-U.S. Stockholder (as defined below) generally will not be subject to U.S. federal income tax (unless the Non-U.S. Stockholder is a nonresident alien individual who was present in the United
States for more than 182 days during the taxable year of the sale and certain other conditions apply, in which case such gain (net of certain sources within the U.S., if any) will be subject to a 30% tax on a gross basis). A Ten Percent
Non-U.S. Stockholder is a Non-U.S. Stockholder who, at some time during the five-year period preceding such sale or disposition, beneficially owned (including under certain attribution rules) more than 10% of the total fair market value of our
stock (as outstanding from time to time).
In general, the sale or other taxable disposition of our stock by a Ten Percent Non-U.S.
Stockholder also will not be subject to U.S. federal income tax if we are a domestically controlled REIT. A REIT is a domestically controlled REIT if, at all times during the five-year period preceding the disposition in
question, less than 50% in value of its shares is held directly or indirectly by Non-U.S. Stockholders. For purposes of determining whether a REIT is a domestically controlled qualified REIT, certain special rules apply including the rule that a
person who at all applicable times holds less than 5 percent of a class of stock that is regularly traded is treated as a U.S. person unless the REIT has actual knowledge that such person is not a U.S. person. Because our common stock is
publicly traded, we believe, but cannot assure you, that we currently qualify as a domestically controlled REIT. Similarly, we cannot assure you that we will qualify as a domestically controlled REIT at all times in the future. If we do not
constitute a domestically controlled REIT, a Ten Percent Non-U.S. Stockholder generally will be taxed in the same manner as a U.S. Stockholder with respect to gain on the sale of our stock (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals). The sale or other taxable disposition of our stock by a Qualified Foreign Pension Fund, or any entity all of the interests of which are held by a Qualified Foreign Pension Fund,
is exempt from U.S. tax irrespective of the level of its shareholding in us and of whether we are a domestically controlled REIT.
Special
rules apply to certain collective investment funds that are qualified shareholders as defined in Section 897(k)(3) of the Code of a REIT. Such investors, which include publicly traded vehicles that meet certain requirements, should
consult with their own tax advisors prior to making an investment in our shares.
FATCA Withholding and Reporting Requirements
Pursuant to the Foreign Account Tax Compliance Act (FATCA) provisions of the Code, a 30% withholding tax will currently be imposed
on dividends paid on our stock and will be imposed on gross proceeds from a sale or redemption of our stock paid and certain pass-through payments after December 31, 2018 to (i) foreign financial institutions including non-U.S.
investment funds, unless they agree to collect and disclose to
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the IRS information regarding their direct and indirect U.S. account holders and (ii) certain other foreign entities, unless they certify certain information regarding their direct and
indirect U.S. owners. To avoid withholding, foreign financial institutions will need to (i) enter into agreements with the IRS that state that they will provide the IRS information, including the names, addresses and taxpayer identification
numbers of direct and indirect U.S. account holders, comply with due diligence procedures with respect to the identification of U.S. accounts, report to the IRS certain information with respect to U.S. accounts maintained, agree to withhold tax on
certain payments made to non-compliant foreign financial institutions or to account holders who fail to provide the required information, and determine certain other information as to their account holders, or (ii) in the event that an
applicable intergovernmental agreement and implementing legislation are adopted, provide local revenue authorities with similar account holder information or otherwise comply with the terms of the intergovernmental agreement and implementing
legislation. Other foreign entities will need to either provide the name, address, and taxpayer identification number of each substantial U.S. owner or certifications of no substantial U.S. ownership unless certain exceptions apply or agree to
provide certain information to other revenue authorities for transmittal to the IRS.
Information Reporting Requirements and Backup Withholding
Information returns may be filed with the IRS and backup withholding (at a rate of 28%) may be collected in connection with
distributions paid or required to be treated as paid during each calendar year and payments of the proceeds of a sale or other disposition of our stock by a stockholder, unless such stockholder is a corporation, non-U.S. person 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 the applicable requirements of the
backup withholding rules. A stockholder who does not provide us with its correct taxpayer identification number also may be subject to penalties imposed by the IRS.
Backup withholding is not an additional tax. Rather, the U.S. federal income tax liability of persons subject to backup withholding will be
offset by the amount of tax withheld. If backup withholding results in an overpayment of U.S. federal income taxes, a refund or credit may be obtained from the IRS, provided the required information is furnished timely thereto.
As a general matter, backup withholding and information reporting will not apply to a payment of the proceeds of a sale of our stock by or
through a foreign office of a foreign broker. Information reporting (but not backup withholding) will apply, however, to a payment of the proceeds of a sale of our stock by a foreign office of a broker that is a U.S. person, a foreign partnership
that engaged during certain periods in the conduct of a trade or business in the United States or more than 50% of whose capital or profit interests are owned during certain periods by U.S. persons, any foreign person that derives 50% or more of its
gross income for certain periods from the conduct of a trade or business in the United States, or a controlled foreign corporation for U.S. tax purposes, unless the broker has documentary evidence in its records that the holder is a
Non-U.S. Stockholder and certain other conditions are satisfied, or the stockholder otherwise establishes an exemption. Payment to or through a U.S. office of a broker of the proceeds of a sale of our stock is subject to both backup withholding and
information reporting unless the stockholder certifies under penalties of perjury that the stockholder is a Non-U.S. Stockholder or otherwise establishes an exemption. A stockholder may obtain a refund of any amounts withheld under the backup
withholding rules in excess of its U.S. federal income tax liability by timely filing the appropriate claim for a refund with the IRS.
State, Local
and Foreign Taxes
We and/or holders of our stock may be subject to state, local and foreign taxation in various state or local or
foreign jurisdictions, including those in which we or they transact business or reside. The foreign, state and local tax treatment of us and of holders of our stock may not conform to the U.S. federal income tax consequences discussed above.
Consequently, prospective investors should consult their own tax advisors regarding the effect of state, local and foreign tax laws on an investment in our stock.
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Possible Legislative or Other Actions Affecting Tax Consequences
You should recognize that future legislative, judicial and administrative actions or decisions, which may be retroactive in effect, could
adversely affect our federal income tax treatment or the tax consequences of an investment in shares of our stock. The rules dealing with U.S. federal income taxation are continually under review by persons involved in the legislative process and by
the IRS and the U.S. Treasury Department, resulting in statutory changes as well as promulgation of new, or revisions to existing, regulations and revised interpretations of established concepts. We cannot predict the likelihood of passage of any
new tax legislation or other provisions, either directly or indirectly, affecting us or our stockholders or the value of an investment in our stock. Changes to the tax laws, such as the Protecting Americans From Tax Hikes Act of 2015 enacted on
December 18, 2015 or the Bipartisan Budget Act of 2015 enacted on November 2, 2015, or interpretations thereof by the IRS and the Treasury, with or without retroactive application, could materially and adversely affect us or our
stockholders.
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