Use these links to rapidly review the document
TABLE OF CONTENTS Prospectus Supplement
TABLE OF CONTENTS
Table of Contents
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-228157
CALCULATION OF REGISTRATION FEE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title of Each Class of Securities
to be Registered
|
|
Amount To be
Registered
|
|
Proposed Maximum
Aggregate Offering Price Per
Security(1)(2)
|
|
Proposed Maximum
Aggregate Offering
Price(1)(2)
|
|
Amount of
Registration Fee(1)
|
|
Common Stock, par value $0.01 per share
|
|
30,000,000 shares
|
|
$75.595
|
|
$2,267,850,000
|
|
$294,366.93
|
|
-
(1)
-
We
previously registered 28,961,855 shares of our common stock, par value $0.01 per share, pursuant to our registration statement on Form S-3 (Registration
No. 333-228157) filed on November 5, 2018 and a related prospectus supplement (the "Prior Prospectus Supplement") and prospectus filed on November 5, 2018 pursuant to
Rule 424(b)(5) under the Securities Act of 1933, as amended (the "Securities Act"). Of those 28,961,855 shares of our common stock, 3,402,405 shares have not been sold (the "Unsold Shares").
The offering pursuant to the Prior Prospectus Supplement has terminated and all of the Unsold Shares are hereby included in the shares of our common stock being offered by this prospectus supplement
and the accompanying prospectus. Specifically, of the 33,402,405 shares of common stock being offered pursuant to this prospectus supplement and the accompanying prospectus, 3,402,405 of such shares
are Unsold Shares (which, as described below, have been registered under the Securities Act), while the remaining 30,000,000 of such shares are being registered hereby.
-
-
As
reflected under the caption "Calculation of Registration Fee" in the Prior Prospectus Supplement, a registration fee of $182,693.85 was previously
paid in connection with the registration of the 28,961,855 shares of our common stock referred to above, which registration fee was calculated in accordance with Rules 456(b), 457(c) and 457(r)
of the Securities Act. A portion of that registration fee, $21,462.66 (the "Remaining Registration Fee"), was previously paid in connection with the registration of the Unsold Shares pursuant to the
Prior Prospectus Supplement and the registration statement referred to above. Accordingly, the Remaining Registration Fee of $21,462.66 continues to be applied to the Unsold Shares, which are included
in the shares offered pursuant to this prospectus supplement and the accompanying prospectus, and the registrant is paying a registration fee of $294,366.93 herewith, which covers the proposed maximum
aggregate offering price of the 30,000,000 shares of common stock being registered hereby. The registration fee being paid by the registrant herewith was calculated in accordance with
Rules 456(b), 457(c) and 457(r) of the Securities Act.
-
(2)
-
This
estimate is made pursuant to Rule 457(c) under the Securities Act solely for the purposes of calculating the registration fee, and is based on a price of
$75.595 per share, which represents the average high and low prices per share of the registrant's common stock as reported on the New York Stock Exchange on December 4, 2019.
Table of Contents
PROSPECTUS SUPPLEMENT
(To prospectus dated November 5, 2018)
33,402,405 Shares
Common Stock
We have entered into a sales agreement dated December 6, 2019 with Mizuho Securities USA LLC, BB&T Capital Markets, a division of
BB&T Securities, LLC, Stifel, Nicolaus & Company, Incorporated, Wells Fargo Securities, LLC, RBC Capital Markets, LLC, BofA Securities, Inc., Robert W.
Baird & Co. Incorporated, Barclays Capital Inc., J.P. Morgan Securities LLC, BNY Mellon Capital Markets, LLC, Jefferies LLC, Citigroup Global
Markets Inc., Goldman Sachs & Co. LLC, Morgan Stanley & Co. LLC, UBS Securities LLC, Credit Suisse Securities (USA) LLC, BMO Capital
Markets Corp., BTIG, LLC, MUFG Securities Americas Inc., Regions Securities LLC, Scotia Capital (USA) Inc. and TD Securities (USA) LLC (each, an "Agent" and
together, the "Agents") and the Forward Purchasers (as defined below) providing for the offer and sale of up to 33,402,405 shares of our common stock, par value $0.01 per share, from time to time
through the Agents, acting as our sales agents, or, if applicable, as Forward Sellers (as defined below), or directly to one or more of the Agents, acting as principal.
Sales
of shares of our common stock, if any, as contemplated by this prospectus supplement made through the Agents, as our sales agents or as Forward Sellers, will be made by means of
ordinary brokers' transactions on the New York Stock Exchange (the "NYSE") or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated
prices, by privately negotiated transactions (including block sales) or by any other methods permitted by applicable law. The sales agreement contemplates that, in addition to the issuance and sale by
us of shares of our common stock to or through the Agents, we may enter into separate forward sale agreements (each, a "forward sale agreement" and, collectively, the "forward sale agreements"), each
with Wells Fargo Securities, LLC, RBC Capital Markets, LLC, BofA Securities, Inc., Barclays Capital Inc., J.P. Morgan Securities LLC, BNY Mellon Capital
Markets, LLC, Jefferies LLC, Citigroup Global Markets Inc., Goldman Sachs & Co. LLC, Morgan Stanley & Co. LLC, UBS Securities LLC,
Credit Suisse Securities (USA) LLC, BMO Capital Markets Corp., MUFG Securities Americas Inc. or Scotia Capital (USA) Inc. or one of their respective affiliates (in such capacity,
each a "Forward Purchaser" and, collectively, the "Forward Purchasers"). If we enter into a forward sale agreement with any Forward Purchaser, we expect that such Forward Purchaser or its affiliate
will attempt to borrow from third parties and sell, through the relevant Agent, acting as sales agent for such Forward Purchaser, shares of our common stock to hedge such Forward Purchaser's exposure
under such forward sale agreement. We refer to an Agent, when acting as sales agent for the relevant Forward Purchaser, as, individually, a "Forward Seller" and, collectively, the "Forward Sellers."
Each Forward Purchaser will be either one of the Agents named in the second sentence of this paragraph or an affiliate of one of those Agents and unless otherwise expressly stated or the context
otherwise requires, references herein to the "related" or "relevant" Forward Purchaser mean, with respect to any Agent, the affiliate of such Agent that is acting as Forward Purchaser or, if
applicable, such Agent acting in its capacity as Forward Purchaser. Only Agents that are, or are affiliated with, Forward Purchasers will act as Forward Sellers. We will not initially receive any
proceeds from any sale of shares of our common stock borrowed by a Forward Purchaser or its affiliate and sold through the related Forward Seller.
We
currently expect to fully physically settle each forward sale agreement, if any, with the relevant Forward Purchaser on one or more dates specified by us on or prior to the maturity
date of such forward sale agreement, in which case we expect to receive aggregate net cash proceeds at settlement equal to the number of shares specified in such forward sale agreement multiplied by
the relevant forward price per share. However, subject to certain exceptions, we may also elect, in our sole discretion, to cash settle or net share settle all or any portion of our obligations under
any forward sale agreement, in which case we may not receive any proceeds (in the case of cash settlement) or will not receive any proceeds (in the case of net share settlement), and we may owe cash
(in the case of cash settlement) or shares of our common stock (in the case of net share settlement) to the relevant Forward Purchaser. See "Plan of Distribution (Conflicts of Interest)" in this
prospectus supplement.
None
of the Agents, whether acting as our sales agent or Forward Seller, is required to sell any specific number or dollar amount of shares of our common stock, but each has agreed,
subject to the terms and conditions of the sales agreement, to use its commercially reasonable efforts, consistent with its normal trading and sales practices and applicable law and regulations, to
sell shares of our common stock on the terms agreed upon by such Agent, us and, in the case of shares offered through such Agent as Forward Seller, the relevant Forward Purchaser from time to time.
The sales agreement provides that the shares of our common stock offered and sold through the Agents, as our sales agents or as Forward Sellers, pursuant to the sales agreement will be offered and
sold through only one Agent on any trading day.
We
will pay the applicable Agent a commission at a mutually agreed rate that will not (except as provided below) exceed, but may be lower than, 2.0% of the gross sales price of the
shares of our common stock sold through such Agent, as our sales agent. In connection with each forward sale agreement, we will pay the applicable Agent, acting as Forward Seller in connection with
such forward sale agreement, a commission, in the form of a reduction to the initial forward price under the related forward sale agreement, at a mutually agreed rate that will not (except as provided
below) exceed, but may be lower than, 2.0% of the gross sales price of the borrowed shares of our common stock sold through such Agent, as Forward Seller, during the applicable forward selling period
for such shares (subject to certain possible adjustments to such gross sales price for daily accruals and any monthly dividends having an "ex-dividend" date during such forward selling period). We may
also agree with any Agent, whether acting as our sales agent or as Forward Seller, to sell shares of our common stock other than through ordinary brokers' transactions using sales efforts and methods
that may constitute "distributions" within the meaning of Rule 100 of Regulation M under the Securities Exchange Act of 1934, as amended, and for which we may agree to pay such Agent a
commission that may exceed 2.0% of the gross sales price of our common stock sold through such Agent.
Under
the terms of the sales agreement, we may also sell shares of our common stock to one or more of the Agents as principal, at a price per share to be agreed upon at the time of
sale. If we sell shares to one or more of the Agents as principal, we will enter into a separate terms agreement with such Agent or Agents, as the case may be, and we will describe the terms of the
offering of those shares in a separate prospectus supplement. In any such sale to an Agent or Agents as principal, we may agree to pay the applicable Agent or Agents a commission or underwriting
discount that may exceed 2.0% of the gross sales price of our common stock sold to such Agent or Agents, as principal.
We
currently pay regular monthly dividends to holders of our common stock, which is listed on the NYSE under the symbol "O." On December 5, 2019, the last reported sale price of
our common stock on the NYSE was $75.68 per share.
Realty
Income Corporation, The Monthly Dividend Company®, is an S&P 500 company dedicated to providing stockholders with dependable monthly dividends that increase
over time. We are structured as a real estate investment trust, or REIT, requiring us annually to distribute at least 90% of our taxable income (excluding net capital gains) in the form of dividends
to our stockholders. Our monthly dividends are supported by the cash flow generated from real estate owned under long-term, net lease agreements with commercial tenants.
Investing in our common stock involves risks. See "Risk Factors" beginning on page S-5 of this prospectus
supplement.
Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus supplement or the accompanying prospectus. Any representation to the contrary is a criminal
offense.
|
|
|
|
|
|
|
Mizuho Securities
|
|
BB&T Capital Markets
|
|
Stifel
|
|
Wells Fargo Securities
|
RBC Capital Markets
|
|
BofA Securities
|
|
Baird
|
|
Barclays
|
J.P. Morgan
|
|
BNY Mellon Capital Markets, LLC
|
|
Jefferies
|
|
Citigroup
|
Goldman Sachs & Co. LLC
|
|
Morgan Stanley
|
|
UBS Investment Bank
|
|
Credit Suisse
|
BMO Capital Markets
|
|
BTIG
|
|
MUFG
|
|
Regions Securities LLC
|
Scotiabank
|
|
TD Securities
|
The date of this prospectus supplement is December 6, 2019.
Table of Contents
TABLE OF CONTENTS
Prospectus Supplement
Prospectus
You
should rely only on the information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus and, if applicable, any free writing
prospectus, pricing supplement or other prospectus supplement we may provide you in connection with this offering. We have not, and the Agents, the Forward Sellers and the Forward Purchasers have not,
authorized any person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the Agents, the Forward
Sellers and the Forward Purchasers are not, making an offer to sell these securities or soliciting an offer to buy these securities in any jurisdiction where, or to any person to whom, the offer or
sale of these securities is not permitted. You should assume that the information appearing in this prospectus supplement, the accompanying prospectus, the documents incorporated by reference herein
or therein and, if applicable, any free writing prospectus, pricing supplement or other prospectus supplement we may provide you in connection with this offering is accurate only as of those
documents' respective dates or, in the case of documents incorporated or deemed to be incorporated by reference herein or therein, as of the respective dates those documents were filed with the
Securities and Exchange Commission, or the SEC.
S-i
Table of Contents
Our
business, financial condition, results of operations and prospects may have changed since those dates.
This
document is in two parts. The first part is this prospectus supplement, which adds to and updates information contained in the accompanying prospectus. The second part, the
prospectus, provides more general information, some of which may not apply to this offering. Unless otherwise expressly stated or the context otherwise requires, when we refer to this prospectus, we
are referring to both parts of this document combined. To the extent there is a conflict between the information contained in this prospectus supplement and the information contained in the
accompanying prospectus, you should rely on the information in this prospectus supplement.
Before
purchasing any securities, you should carefully read both this prospectus supplement and the accompanying prospectus, together with the incorporated documents described under the
heading "Incorporation by Reference" in the accompanying prospectus, and any free writing prospectus, pricing supplement and other prospectus supplement we may provide to you in connection with this
offering.
No
action has been or will be taken in any jurisdiction by us or by any Agent, Forward Seller or Forward Purchaser that would permit a public offering of these securities or possession
or distribution of this prospectus supplement, the accompanying prospectus or any related free writing prospectus, pricing supplement or other prospectus supplement where action for that purpose is
required, other than in the United States. Unless otherwise expressly stated or the context otherwise requires, references to "dollars" and "$" in this prospectus supplement, the accompanying
prospectus and any related free writing prospectus, pricing supplement and other prospectus supplement are to United States dollars.
S-ii
Table of Contents
PROSPECTUS SUPPLEMENT SUMMARY
This summary does not contain all the information that may be important to you. You should read this entire prospectus
supplement and the accompanying prospectus and the documents incorporated and deemed to be incorporated by reference herein and therein, including the financial statements and related notes, and, if
applicable, any free writing prospectus, pricing supplement and other prospectus supplement we may provide you in connection with this offering before making an investment decision. Unless this
prospectus supplement otherwise indicates or the context otherwise requires, (a) the terms "Realty Income," "our," "us" and "we" as used in this prospectus supplement refer to Realty Income
Corporation, a Maryland corporation, and its subsidiaries on a consolidated basis, and (b) references to our "$3.0 billion revolving credit facility," our "revolving credit facility" and
similar references mean our current $3.0 billion unsecured revolving credit facility and references to our "$250.0 million term loan facilities," "our term loan facilities" and similar
references mean our two current $250.0 million unsecured term loan facilities, in each case as the same may be amended, supplemented or restated from time to time, and any revolving credit
facility or facilities that may replace our current $3.0 billion unsecured revolving credit facility and any term loan facility or facilities that may replace one or both of our current
$250.0 million unsecured term loan facilities, as the case may be, from time to time.
Realty Income
Realty Income Corporation, The Monthly Dividend Company®, is an S&P 500 company dedicated to providing stockholders with
dependable monthly dividends that increase over time. We are structured as a real estate investment trust, or REIT, requiring us annually to distribute at least 90% of our taxable income (excluding
net capital gains) in the form of dividends to our stockholders. Our monthly dividends are supported by the cash flow generated from real estate owned under long-term, net lease agreements with
commercial tenants.
As
of September 30, 2019, we owned a diversified portfolio of 5,964 properties located in 49 U.S. states, Puerto Rico and the United Kingdom, with over 100.5 million square
feet of leasable space leased to 274 different commercial tenants doing business in 49 separate industries. Of the 5,964 properties in the portfolio at September 30, 2019, 5,934, or 99.5%, were
single-tenant properties, and the remaining were multi-tenant properties. As of September 30, 2019, of the 5,964 properties, 5,862, or 98.3%, were leased with a weighted average remaining lease
term (excluding rights to extend the lease at the option of the tenant) of approximately 9.3 years.
Our
principal executive offices are located at 11995 El Camino Real, San Diego, California 92130 and our telephone number is (858) 284-5000.
S-1
Table of Contents
The Offering
For a description of the common stock being offered by this prospectus supplement and the accompanying prospectus, see "Authorized Shares" on
the next page of this prospectus supplement and "Description of Common Stock," "Restrictions on Ownership and Transfers of Stock" and "Certain Provisions of Maryland Law and of our Charter and Bylaws"
in the accompanying prospectus, as the same may be further amended or supplemented from time to time by information in the documents incorporated or deemed to be incorporated by reference in the
accompanying prospectus.
|
|
|
Issuer
|
|
Realty Income Corporation
|
Common Stock Offered
|
|
Up to 33,402,405 shares of common stock may be offered and sold from time to time pursuant to this prospectus supplement and
the accompanying prospectus. The shares of common stock include newly issued shares that may be offered and sold by us to or through the Agents, acting as our sales agents or as principal, and borrowed shares of common stock that may be offered and
sold by the Forward Purchasers through their respective Forward Sellers. We will not initially receive any proceeds from any sale of shares of our common stock borrowed by a Forward Purchaser or its affiliate and sold through a Forward Seller. For
additional information, see "Plan of Distribution (Conflicts of Interest)."
|
Use of Proceeds
|
|
We intend to use any net cash proceeds we receive from the issuance and sale by us of any shares of our common stock to or
through the Agents and any net cash proceeds we receive upon settlement of any forward sale agreements with the relevant Forward Purchasers for general corporate purposes, which may include, among other things, the repayment or repurchase of our
indebtedness (including borrowings under our revolving credit facility), the development and acquisition of additional properties and other acquisition transactions, and the expansion and improvement of certain properties in our portfolio. For
information concerning potential conflicts of interest that may arise from the use of proceeds to repay borrowings under our revolving credit facility or other indebtedness, see "Plan of Distribution (Conflicts of Interest)Other Relationships"
and "Plan of Distribution (Conflicts of Interest)Conflicts of Interest" in this prospectus supplement.
|
Restrictions on Ownership and Transfer
|
|
Our charter contains restrictions on the ownership and transfer of our common stock intended, among other purposes, to
assist us in maintaining our status as a REIT for United States federal and/or state income tax purposes. For example, our charter restricts any person from acquiring beneficial or constructive ownership of more than 9.8% (by value or by number of
shares, whichever is more restrictive) of our outstanding shares of common stock, as more fully described in the section entitled "Restrictions on Ownership and Transfers of Stock" in the accompanying prospectus.
|
NYSE Listing
|
|
Our common stock is listed on the New York Stock Exchange ("NYSE") under the symbol "O."
|
S-2
Table of Contents
|
|
|
Authorized Shares
|
|
We have authority to issue 740,200,000 shares of our common stock under our charter. The preceding sentence supersedes and replaces, in its
entirety, the first sentence under the heading "Description of Common Stock" in the accompanying prospectus.
|
Accounting Treatment of any Forward Sales
|
|
For information concerning the expected accounting treatment of shares issuable upon settlement of any forward sale
agreements, see "Plan of Distribution (Conflicts of Interest)Sales Through Forward Sellers."
|
Risk Factors
|
|
An investment in our common stock involves various risks and prospective investors should carefully consider the matters
discussed under "Risk Factors" in this prospectus supplement, as well as the other risks described in this prospectus supplement, the accompanying prospectus and the documents incorporated and deemed to be incorporated by reference therein, before
making a decision to invest in the common stock.
|
Conflicts of Interest
|
|
Affiliates of some of the Agents are, as of the date of this prospectus supplement, lenders under our revolving credit
facility and term loan facilities, affiliates of some or all of the Agents may in the future be lenders under any new credit facilities or any amendments, restatements or replacements of these existing credit facilities that we may enter into from
time to time, and the Agents and their respective affiliates may from time to time hold debt securities or other indebtedness of ours. Because affiliates of some of the Agents are lenders under our existing revolving credit facility and term loan
facilities and because affiliates of some or all of the Agents may be lenders under any future credit facilities entered into by us, to the extent that we use net cash proceeds, if any, we receive from this offering or from settlement under any
forward sale agreements to repay borrowings under any such credit facilities under which affiliates of any of the Agents are lenders, such affiliates will receive proceeds from this offering or from settlement under any such forward sale agreements,
as applicable, through the repayment of those borrowings. Likewise, to the extent that we use net cash proceeds, if any, we receive from this offering or from settlement under any forward sale agreements to repay or repurchase any other indebtedness
of ours that may be held by any of the Agents or any of their respective affiliates, such Agents or affiliates, as the case may be, will receive proceeds of this offering or from settlement under any such forward sale agreements, as applicable,
through the repayment or repurchase of that indebtedness.
|
S-3
Table of Contents
|
|
|
|
|
If we enter into a forward sale agreement with any Forward Purchaser, we expect that such Forward Purchaser or its affiliate will attempt to
borrow from third parties and sell, through the relevant Agent, acting as Forward Seller, shares of our common stock to hedge such Forward Purchaser's exposure under such forward sale agreement. All of the net proceeds from the sale of any such
borrowed shares will be paid to the applicable Forward Purchaser (or one or more of its affiliates). Each Forward Purchaser will be either an Agent or an affiliate of an Agent. As a result, an Agent or its affiliate will receive the net proceeds from
any sale of borrowed shares of our common stock made in connection with any forward sale agreements.
|
|
|
For additional information, see "Plan of Distribution (Conflicts of Interest)Conflicts of Interest" and "Plan of
Distribution (Conflicts of Interest)Other Relationships" in this prospectus supplement.
|
S-4
Table of Contents
RISK FACTORS
In evaluating an investment in our common stock, you should carefully consider the following risk factors and the risk
factors described under the captions "Forward-Looking Statements" in this prospectus supplement and "Risk Factors" in the accompanying prospectus and in our most recent Annual Report on
Form 10-K and, if applicable, our subsequent Quarterly Reports on Form 10-Q and any amendments thereto filed with the SEC, all of which are incorporated by reference in the accompanying
prospectus, in addition to the other risks and uncertainties described in this prospectus supplement, the accompanying prospectus, the documents incorporated and deemed to be incorporated by reference
therein and, if applicable, any free writing prospectus, pricing supplement and other prospectus supplement we may provide you in connection with this offering. You should also carefully consider the
risks described below under the caption "Forward-Looking Statements." As used under the captions "Risk Factors" in this prospectus supplement, in our most recent Annual Report on Form 10-K and,
if applicable, in our subsequent Quarterly Reports on Form 10-Q and any amendments thereto filed with the SEC, references to our capital stock include both our common stock, including the
common stock offered by this prospectus supplement, and any class or series of our preferred stock that we may issue, and references to our
stockholders include holders of our common stock and any class or series of our preferred stock that we may issue, in each case unless otherwise expressly stated or the context otherwise
requires.
We are subject to risks associated with debt and capital stock financing.
We intend to incur additional indebtedness in the future, including borrowings under our revolving credit facility. The credit agreement
governing our revolving credit facility also governs our two existing $250 million unsecured term loan facilities. At September 30, 2019, we had no outstanding borrowings under our
revolving credit facility, a total of $6.3 billion of outstanding unsecured senior debt securities (excluding unamortized original issuance premiums of $6.6 million and deferred
financing costs of $37.3 million), $500.0 million of borrowings outstanding under our two term loan facilities (excluding deferred financing costs of $1.1 million) and
approximately $278.9 million of outstanding mortgage debt (excluding net unamortized premiums totaling $3.3 million and deferred financing costs of $143,000 on this mortgage debt). Our
revolving credit facility grants us the option, subject to customary conditions, to expand the borrowing limits thereunder to up to $4.0 billion. We also may in the future enter into amendments
and restatements of our current revolving credit facility and term loan facilities, or enter into new revolving credit facilities or term loan facilities, and any such amended, restated or replacement
revolving credit facilities or term loan facilities may increase the amounts we are entitled to borrow, subject to customary conditions, compared to our current revolving credit facility and term loan
facilities or we may incur other indebtedness. To the extent that new indebtedness is added to our current debt levels, the related risks that we now face would increase. As a result, we are and will
be subject to risks associated with debt financing, including the risk that our cash flow could be insufficient to make required payments on our debt. We also face variable interest rate risk as the
interest rates on our revolving credit facility, our term loans and some of our mortgage debt are variable and could therefore increase over time. We also face the risk that we may be unable to
refinance or repay our debt as it comes due. Given past disruptions in the financial markets and the ongoing global financial and related uncertainties, including the impact of the United Kingdom's
proposed withdrawal from the European Union (referred to as Brexit), we also face the risk that one or more of the participants in our revolving credit facility may not be able to lend us money.
In
addition, our revolving credit facility, our term loan facilities and our mortgage loan documents contain provisions that could limit or, in certain cases, prohibit the payment of
dividends and other distributions to holders of our common stock and any outstanding preferred stock. In particular, our revolving credit facility and our two $250.0 million term loan
facilities, all of which are governed by the same credit agreement, provide that, if an event of default (as defined in the credit agreement) exists, we may not pay any dividends or make other
distributions on (except distributions payable in shares of
S-5
Table of Contents
a
given class of our stock to the stockholders of that class), or repurchase or redeem, among other things, any shares of our common stock or any outstanding preferred stock, during any period of four
consecutive fiscal quarters in an aggregate amount in excess of the greater of:
-
-
the sum of (a) 95% of our adjusted funds from operations (as defined in the credit agreement) for that period plus (b) the
aggregate amount of cash distributions made to holders of our outstanding preferred stock, if any, for that period, and
-
-
the minimum amount of cash distributions required to be made to our stockholders in order to maintain our status as a REIT for federal income
tax purposes and to avoid the payment of any income or excise taxes that would otherwise be imposed under specified sections of the Internal Revenue Code of 1986, as amended, or the Code, on income we
do not distribute to our stockholders,
except
that we may repurchase or redeem shares of our outstanding preferred stock, if any, with net proceeds from the issuance of shares of our common stock or preferred stock. The credit agreement
further provides that, in the event of a failure to pay principal, interest or any other amount payable thereunder when due or upon the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to us or with respect to one or more of our subsidiaries that in the aggregate meet a significance test set forth in the credit agreement, we and our subsidiaries (other
than our wholly-owned subsidiaries) may not pay any dividends or make other distributions on (except for (a) distributions payable in shares of a given class of our stock to the stockholders of
that class and (b) dividends and distributions described in the second bullet point above), or repurchase or redeem, among other things, any shares of our common stock or preferred stock. If
any such event of default under the credit agreement were to occur, it would likely have a material adverse effect on the market price of our outstanding common stock, including the shares of common
stock offered hereby, and any outstanding preferred stock and on the market value of our debt securities, could limit the amount of dividends or other distributions payable to holders of our common
stock and any outstanding preferred stock or the amount of interest and principal we are able to pay on our indebtedness, or prevent us from paying those dividends, other distributions, interest or
principal altogether, and may adversely affect our ability to qualify, or prevent us from qualifying, as a REIT.
Our
indebtedness could also have other important consequences to holders of our common stock, including the common stock offered hereby, any outstanding preferred stock and our debt
securities, including:
-
-
Increasing our vulnerability to general adverse economic and industry conditions;
-
-
Limiting our ability to obtain additional financing to fund future working capital, acquisitions, capital expenditures and other general
corporate requirements;
-
-
Requiring the use of a substantial portion of our cash flow from operations for the payment of principal and interest on our indebtedness,
thereby reducing our ability to use our cash flow to fund working capital, acquisitions, capital expenditures and general corporate requirements;
-
-
Limiting our flexibility in planning for, or reacting to, changes in our business and our industry; and
-
-
Putting us at a disadvantage compared to our competitors with less indebtedness.
If
we default under a credit facility, loan agreement or other debt instrument, the lenders will generally have the right to demand immediate repayment of the principal and interest on
all of their loans and, in the case of secured indebtedness, to exercise their rights to seize and sell the collateral. Moreover, a default under a single loan or debt instrument may trigger
cross-default or cross-acceleration provisions in other indebtedness and debt instruments, giving the holders of such other
S-6
Table of Contents
indebtedness
and debt instruments similar rights to demand immediate repayment and to seize and sell any collateral.
Our charter contains restrictions upon ownership of our common stock.
Our charter contains restrictions on ownership and transfer of our common stock intended to, among other purposes, assist us in maintaining our
status as a REIT for United States federal and/or state income tax purposes. For example, our charter restricts any person from acquiring beneficial or constructive ownership of more than 9.8% (by
value or by number of shares, whichever is more restrictive) of our outstanding shares of common stock. See "Restrictions on Ownership and Transfers of Stock" in the accompanying prospectus. These
restrictions could have anti-takeover effects and could reduce the possibility that a third party will attempt to acquire control of us, which could adversely affect the market price of our common
stock.
We could issue preferred stock without stockholder approval.
Our charter authorizes our board of directors to issue up to 69,900,000 shares of preferred stock, including convertible preferred stock,
without stockholder approval. The board of directors may establish the preferences, rights and other terms of any class or series of preferred stock we may issue, including the right to vote and the
right to convert any shares issued into common stock. The issuance of preferred stock could delay or prevent a tender offer or a change of control, even if a tender offer or a change of control were
in our stockholders' interests, and could dilute or otherwise adversely affect the voting or other rights and economic interests of holders of our common stock, any of which could adversely affect the
market price of our common stock, including the shares of common stock offered hereby. See "General Description of Preferred Stock" and "Certain Provisions of Maryland Law and of our Charter and
Bylaws" in the accompanying prospectus. As of December 2, 2019, we had no outstanding shares of preferred stock.
This offering and future issuances of our common stock could be dilutive to our earnings per share, funds
from operations per share and adjusted funds from operations per share.
The issuance and sale by us of any shares of our common stock in this offering or upon settlement of any forward sale agreements we may enter
into with any of the Forward Purchasers, the receipt of the net proceeds therefrom and the use of those net proceeds could have a dilutive effect on our earnings per share, funds from operations per
share and adjusted funds from operations per share. Additional issuances of our common stock could also be dilutive to our earnings per share, funds from operations per share and adjusted funds from
operations per share. The issuance or sale by us of our common stock, including the sale by us of shares in this offering or pursuant to any forward sale agreements, or the perception that such
additional issuances or sales could occur, could also adversely affect the trading price of our common stock and our ability to raise capital through future offerings of equity or equity-related
securities. In addition, if we are unable to apply any net proceeds we may receive from this offering, from settlement under any forward sale agreements we may enter into or from other issuances or
sales of our common stock to make investments that generate sufficient revenues to offset the dilutive impact of the issuance by us of shares of our common stock in this offering or pursuant to those
forward sale agreements or from any other such issuances of our common stock, there will be further dilution of our earnings per share, funds from operations per share and adjusted funds from
operations per share. In the event that we enter into forward sale agreements in addition to any forward sale agreements we may enter into pursuant to the offering made by this prospectus supplement,
those other forward sale agreements may subject us to risks similar to those described in this risk factor and the following two risk factors.
S-7
Table of Contents
Settlement provisions contained in any forward sale agreement subject us to certain risks.
Each Forward Purchaser will have the right to accelerate any forward sale agreement it may enter into with us with respect to all or any portion
of the shares underlying such forward sale agreement (except with respect to events specified in (1) and (3) below, where accelerated settlement is limited to the portion of shares whose
settlement would address the relevant event or that is affected by the relevant event) and require us to physically settle such shares on a date specified by such Forward Purchaser if: (1) in
such Forward Purchaser's commercially reasonable judgment, it or its affiliate is unable to hedge (or maintain a hedge of) its exposure in a commercially reasonable manner under such forward sale
agreement because (x) insufficient shares of our common stock have been made available for borrowing by securities lenders or (y) such Forward Purchaser or any of its affiliates would
incur a stock borrow cost in excess of a specified threshold; (2) we declare any distribution, issue or dividend on shares of our common stock (a) payable in cash in excess of specified
amounts (unless it is an extraordinary dividend), (b) that constitutes an extraordinary dividend under the forward sale
agreement, (c) payable in securities of another company as a result of a spin-off or similar transaction, or (d) payable in any other type of securities (other than our common stock),
rights, warrants or other assets for payment at less than the prevailing market price; (3) certain ownership thresholds applicable to such Forward Purchaser and its affiliates are or would be
exceeded; (4) an event (a) is announced that if consummated would result in a specified extraordinary event (including certain mergers or tender offers, as well as certain events
involving our nationalization, our insolvency or a delisting of our common stock) or (b) occurs that would constitute a hedging disruption or change in law; or (5) certain other events
of default or termination events occur, including, among others, any material misrepresentation made by us in connection with such forward sale agreement or our insolvency (each as more fully
described in the relevant forward sale agreement).
A
Forward Purchaser's decision to exercise its right to accelerate all or a portion of the settlement of any forward sale agreement and to require us to physically settle the relevant
shares will be made irrespective of our interests, including our need for capital. In such cases, we could be required to issue and deliver shares of our common stock under the terms of the physical
settlement provisions of the applicable forward sale agreement irrespective of our capital needs, which would result in dilution to our earnings per share, funds from operations per share and adjusted
funds from operations per share.
Except
under certain circumstances, we will generally have the right, in lieu of physical settlement of any forward sale agreement, to elect cash or net share settlement in respect of
any or all of the shares of common stock subject to such forward sale agreement. If we elect to cash or net share settle all or any part of any forward sale agreement, we would expect the relevant
Forward Purchaser or one of its affiliates to purchase shares of our common stock in secondary market transactions over an unwind period to:
-
-
return shares of our common stock to securities lenders in order to unwind such Forward Purchaser's hedge (after taking into consideration any
shares of our common stock to be delivered by us to such Forward Purchaser, in the case of net share settlement); and
-
-
if applicable, in the case of net share settlement, deliver shares of our common stock to us to the extent required upon settlement of such
forward sale agreement.
The
initial forward price we expect to receive upon physical settlement of a forward sale agreement will be subject to adjustment on a daily basis based on a floating interest rate
factor equal to a specified daily rate less a spread. In addition, the initial forward price will be subject to decrease on certain dates specified in the relevant forward sale agreement by the amount
per share of monthly dividends we expect to declare on our common stock during the term of such forward sale agreement. If the specified daily rate is less than the applicable spread on any day, the
interest rate factor will result in a
daily reduction of the forward price. If the price of our common stock at which purchases by such Forward Purchaser (or its affiliate) as described in the immediately preceding paragraph are made
S-8
Table of Contents
is
below the relevant forward price, such Forward Purchaser will pay us such difference in cash (if we elect to cash settle) or deliver to us shares of our common stock having a market value equal to
such difference (if we elect to net share settle). If the price of our common stock at which these purchases are made by such Forward Purchaser (or its affiliate) exceeds the applicable forward price,
we will pay such Forward Purchaser an amount in cash equal to such difference (if we elect to cash settle) or we will deliver to such Forward Purchaser a number of shares of our common stock having a
market value equal to such difference (if we elect to net share settle). Any such difference could be significant and could result in our receipt of a significant amount of cash or number of shares of
our common stock from such Forward Purchaser or require us to pay a significant amount of cash or deliver a significant number of shares of our common stock to such Forward Purchaser. See "Plan of
Distribution (Conflicts of Interest)Sales Through Forward Sellers."
In
addition, the purchase of our common stock by a Forward Purchaser or its affiliate to unwind the Forward Purchaser's hedge position could cause the price of our common stock to
increase above the price that would have prevailed in the absence of those purchases (or prevent a decrease in such price), thereby increasing the amount of cash (in the case of cash settlement) or
the number of shares (in the case of net share settlement) that we may owe such Forward Purchaser upon settlement of the applicable forward sale agreement or decrease the amount of cash (in the case
of cash settlement) or the number of shares (in the case of net share settlement) that such Forward Purchaser may owe us upon settlement of the applicable forward sale agreement.
In case of our bankruptcy or insolvency, any forward sale agreements will automatically terminate, and we
would not receive the expected net proceeds from any forward sales of shares of our common stock under these agreements.
If we file for or consent to a proceeding seeking a judgment in bankruptcy or insolvency or any other relief under any bankruptcy or insolvency
law or other similar law affecting creditors' rights, or we or a regulatory authority with jurisdiction over us presents a petition for our winding-up or liquidation, or we consent to such a petition,
any forward sale agreement that is then in effect will automatically terminate. If any such forward sale agreement so terminates under these circumstances, we would not be obligated to deliver to the
relevant Forward Purchaser any shares of our common stock not previously delivered, and the relevant Forward Purchaser would be discharged from its obligation to pay the applicable forward price per
share in respect of any shares of our common stock not previously settled under the applicable forward sale agreement. Therefore, to the extent that there are any shares of our common stock with
respect to which any forward sale
agreement has not been settled at the time of the commencement of any such bankruptcy or insolvency proceedings, we would not receive the relevant forward price per share in respect of those shares of
our common stock.
S-9
Table of Contents
FORWARD-LOOKING STATEMENTS
This prospectus supplement, the accompanying prospectus and the documents incorporated or deemed to be incorporated by reference therein
contain, and any free writing prospectus, pricing supplement and other prospectus supplement we may provide you in connection with this offering contains or may contain, forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the
Securities Exchange Act of 1934, as amended, or the Exchange Act. When used in this prospectus supplement, the accompanying prospectus, the documents incorporated or deemed to be incorporated by
reference therein and any free writing prospectus, pricing supplement and other prospectus supplement we may provide you in connection with this offering, the words "estimated," "anticipated,"
"expect," "believe," "intend" and similar expressions are intended to identify forward-looking statements. Forward-looking statements include, without limitation, discussions of strategy, plans and
intentions and statements regarding estimated or future results of operations, financial condition or prospects (including, without limitation, estimated and future funds from operations and
normalized and adjusted funds from operations and net income, estimated initial weighted average contractual lease rates, estimated square footage of properties under development or expansion, the
timing and terms of potential or planned acquisitions, statements regarding the payment, dependability and amount of and potential increases in future common stock dividends, statements regarding
future cash flow or cash generation, and statements regarding our ability to meet our liquidity needs). Forward-looking statements are subject to risks, uncertainties and assumptions about us,
including, among other things:
-
-
our anticipated growth strategies;
-
-
our intention to acquire additional properties and the timing of these acquisitions;
-
-
our intention to sell properties and the timing of these property sales;
-
-
our intention to re-lease vacant properties;
-
-
anticipated trends in our business, including trends in the market for long-term net leases of freestanding, single-tenant properties; and
-
-
future expenditures for development projects.
Future
events and actual results, financial and otherwise, may differ materially from the results discussed in or implied by the forward-looking statements. In particular,
forward-looking statements regarding estimated or future results of operations are based upon numerous assumptions and estimates and are inherently subject to substantial uncertainties and actual
results of operations may differ materially from those expressed or implied in the forward-looking statements, particularly if actual events differ from those reflected in the estimates and
assumptions upon which such forward-looking statements are based. Some of the factors that could cause actual results to differ materially are:
-
-
our continued qualification as a real estate investment trust;
-
-
general, local and foreign business and economic conditions;
-
-
competition;
-
-
fluctuating interest and currency rates;
-
-
access to debt and equity capital markets;
-
-
continued volatility and uncertainty in the credit markets and broader financial markets;
S-10
Table of Contents
-
-
other risks inherent in the real estate business, including tenant defaults, potential liability relating to environmental matters, illiquidity
of real estate investments and potential damages from natural disasters;
-
-
impairments in the value of our real estate assets;
-
-
changes in tax laws and rates of the United States or other jurisdictions;
-
-
the outcome of any legal proceedings to which we are a party or which may occur in the future; and
-
-
acts of terrorism and war.
Additional
factors that may cause future events and actual results, financial or otherwise, to differ, potentially materially, from those discussed in or implied by the forward-looking
statements include the risks and uncertainties discussed in the section "Risk Factors" in this prospectus supplement, the sections entitled "Business," "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in our most recent Annual Report on Form 10-K (in each case as amended, if applicable) and the sections entitled "Risk Factors" (if
applicable) and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our subsequent Quarterly Reports on Form 10-Q (as amended, if applicable), if any, and
also include risks and other information discussed in those and other documents that are incorporated by reference in the accompanying prospectus and that may be discussed in any free writing
prospectus, pricing supplement or other prospectus supplement we may provide you in connection with this offering.
You
are cautioned not to place undue reliance on forward-looking statements contained in this prospectus supplement, the accompanying prospectus, the documents incorporated by reference
therein and any free writing prospectus, pricing supplement or other prospectus supplement we may provide you in connection with this offering. Those forward-looking statements are not guarantees of
future performance and speak only as of the respective dates of those documents or, in the case of documents incorporated by reference in the accompanying prospectus, as of the respective dates those
documents were filed with the SEC and we undertake no obligation to update any information contained in this prospectus supplement, the accompanying prospectus, the documents incorporated by reference
therein and any free writing prospectus, pricing supplement or other prospectus supplement we may provide you in connection with this offering or to publicly release the results of any revisions to
these forward-looking statements that may be made to reflect events or circumstances after the respective dates or filing dates, as the case may be, of those documents or to reflect the occurrence of
unanticipated events. In light of these risks and uncertainties, the forward-looking events discussed in this prospectus supplement, the accompanying prospectus, the documents incorporated by
reference therein and any free writing prospectus, pricing supplement or other prospectus supplement we may provide you in connection with this offering might not occur.
S-11
Table of Contents
USE OF PROCEEDS
We intend to use any net cash proceeds we receive from the issuance and sale by us of any shares of our common stock to or through the Agents
and any net cash proceeds we receive upon settlement of any forward sale agreements with the relevant Forward Purchasers for general corporate purposes, which may include, among other things, the
repayment or repurchase of our indebtedness (including borrowings under our revolving credit facility), the development and acquisition of additional properties and other acquisition transactions, and
the expansion and improvement of certain properties in our portfolio. As of December 2, 2019, we had approximately $897 million of outstanding borrowings under our revolving credit
facility. Borrowings under the revolving credit facility are generally used to acquire properties. Our revolving credit facility matures on March 24, 2023, but may, at our option, be extended
by up to two six-month extensions, subject to certain terms and conditions. As of December 2, 2019, the weighted average interest rate of borrowings under our revolving credit facility was
approximately 2.46% per annum. At our investment grade credit ratings as of December 2, 2019, our revolving credit facility provides for borrowing at an interest rate 0.775% over London
Interbank Offered Rate, or LIBOR, plus a facility commitment fee of 0.125%. However, our current investment ratings are subject to revision or withdrawal at any time, and any decline in our credit
ratings could increase our borrowing costs under the revolving credit facility. In addition, a credit rating is not a recommendation to buy, sell or hold our securities, including the common stock
offered hereby. Borrowings under our revolving credit facility that we repay with net proceeds from this offering may be reborrowed, subject to customary conditions.
Pending
application of the net proceeds for the purposes described above, we may temporarily invest the net proceeds in short-term government securities, short-term money market funds
and/or bank certificates of deposit.
Affiliates
of some of the Agents are, as of the date of this prospectus supplement, lenders under our revolving credit facility and term loan facilities. In addition, affiliates of some
or all of the Agents may in the future be lenders under any new credit facilities or any amendments, restatements or replacements of these existing credit facilities that we may enter into from time
to time, and the Agents and their respective affiliates may from time to time hold debt securities or other indebtedness of ours. As described above, any net cash proceeds we receive from this
offering or from settlement under any forward sale agreements we enter into may be used to repay borrowings under any such existing or future credit facilities or to repay or repurchase any such
indebtedness. Because affiliates of some of the Agents are lenders under our existing revolving credit facility and term loan facilities and because affiliates of some or all of the Agents may be
lenders under any future credit facilities entered into by us, to the extent that we use net cash proceeds, if any, we receive from this offering or from settlement under any forward sale agreements
to repay borrowings under any such credit facilities under which
affiliates of any of the Agents are lenders, such affiliates will receive proceeds from this offering or from settlement under any such forward sale agreements, as applicable, through the repayment of
those borrowings. Likewise, to the extent that we use net cash proceeds, if any, we receive from this offering or from settlement under any forward sale agreements to repay or repurchase any other
indebtedness of ours that may be held by any of the Agents or any of their respective affiliates, such Agents or affiliates, as the case may be, will receive proceeds of this offering or from
settlement under any such forward sale agreements, as applicable, through the repayment or repurchase of that indebtedness. The amount received by any Agent and its respective affiliates, as
applicable, from any repayment or repurchase of those borrowings and/or any such indebtedness may exceed 5% of the net proceeds of this offering (not including the Agents' discounts and commissions).
Nonetheless, in accordance with Rule 5121 of the Financial Industry Regulatory Authority Inc., or FINRA, the appointment of a qualified independent underwriter is not necessary in
connection with this offering because REITs are excluded from that requirement.
S-12
Table of Contents
If
we enter into a forward sale agreement with any Forward Purchaser, we expect that such Forward Purchaser or its affiliate will attempt to borrow from third parties and sell, through
the relevant Agent, acting as Forward Seller, shares of our common stock to hedge such Forward Purchaser's exposure under such forward sale agreement. All of the net proceeds from the sale of any such
borrowed shares will be paid to the applicable Forward Purchaser (or one or more of its affiliates). Each Forward Purchaser will be either an Agent or an affiliate of an Agent. As a result, an Agent
or its affiliate will receive the net proceeds from any sale of borrowed shares of our common stock made in connection with any forward sale agreements.
For
additional information, see "Plan of Distribution (Conflicts of Interest)Other Relationships" and "Plan of Distribution (Conflicts of Interest)Conflicts of
Interest."
S-13
Table of Contents
DIVIDEND POLICY
Future dividends on our common stock will be at the discretion of our board of directors and will depend on, among other things, our results of
operations, funds from operations, cash flow from operations, financial condition and capital requirements, the annual distribution requirements under the REIT provisions of the Code, our debt service
requirements, dividend requirements on our outstanding preferred stock, if any, applicable law and any other factors our board of directors deems relevant. In addition, our revolving credit facility,
our term loan facilities and our mortgage loan documents contain provisions that could limit or, in certain cases, prohibit the payment of dividends and other distributions on our common stock and any
outstanding preferred stock. See "Risk FactorsWe are subject to risks associated with debt and capital stock financing" above.
Accordingly,
although we expect to continue our policy of paying monthly dividends in cash on our common stock, we cannot guarantee that we will maintain the current level of cash
dividends per share of common stock, that we will continue our pattern of increasing cash dividends per share of common stock, or what our actual dividend yield will be for any future period.
S-14
Table of Contents
PLAN OF DISTRIBUTION (CONFLICTS OF INTEREST)
We have entered into a sales agreement dated December 6, 2019 (the "sales agreement") with Mizuho Securities USA LLC, BB&T Capital
Markets, a division of BB&T Securities, LLC, Stifel, Nicolaus & Company, Incorporated, Wells Fargo Securities, LLC, RBC Capital Markets, LLC, BofA Securities, Inc.,
Robert W. Baird & Co. Incorporated, Barclays Capital Inc., J.P. Morgan Securities LLC, BNY Mellon Capital Markets, LLC, Jefferies LLC, Citigroup Global
Markets Inc., Goldman Sachs & Co. LLC, Morgan Stanley & Co. LLC, UBS Securities LLC, Credit Suisse Securities (USA) LLC, BMO Capital Markets
Corp., BTIG, LLC, MUFG Securities Americas Inc., Regions Securities LLC, Scotia Capital (USA) Inc. and TD Securities (USA) LLC (each, an "Agent" and together, the
"Agents") and the Forward Purchasers (as defined below) providing for the offer and sale of up to 33,402,405 shares of our common stock from time to time through the Agents, acting as our sales
agents, or, if applicable, as Forward Sellers (as defined below), or directly to one or more of the Agents, acting as principal.
The
sales agreement contemplates that, in addition to the issuance and sale by us of shares of our common stock to or through the Agents, we may enter into separate forward sale
agreements (each, a "forward sale agreement" and, collectively, the "forward sale agreements"), each with Wells Fargo Securities, LLC, RBC Capital Markets, LLC, BofA
Securities, Inc., Barclays Capital Inc., J.P. Morgan Securities LLC, BNY Mellon Capital Markets, LLC, Jefferies LLC, Citigroup Global Markets Inc., Goldman
Sachs & Co. LLC, Morgan Stanley & Co. LLC, UBS Securities LLC, Credit Suisse Securities (USA) LLC, BMO Capital Markets Corp., MUFG Securities
Americas Inc. or Scotia Capital (USA) Inc. or one of their respective affiliates (in such capacity, each a "Forward Purchaser" and, collectively, the "Forward Purchasers"). If we enter
into a forward sale agreement with any Forward Purchaser, we expect that such Forward Purchaser or its affiliate will attempt to borrow from third parties and sell, through the relevant Agent, acting
as sales agent for such Forward Purchaser, shares of our common stock to hedge such Forward Purchaser's exposure under such forward sale agreement. We refer to an Agent, when acting as sales agent for
the relevant Forward Purchaser, as, individually, a "Forward Seller" and, collectively, the "Forward Sellers." Each Forward Purchaser will be either one of the Agents named in the first sentence of
this paragraph or an affiliate of one of those Agents and unless otherwise expressly stated or the context otherwise requires, references herein to the "related" or "relevant" Forward Purchaser mean,
with respect to any Agent, the affiliate of such Agent that is acting as Forward Purchaser or, if applicable, such Agent acting in its capacity as Forward Purchaser. Only Agents that are, or are
affiliated with, Forward Purchasers will act as Forward Sellers. We will not initially receive any proceeds from any sale of shares of our common stock borrowed by a Forward Purchaser or its affiliate
and sold through the related Forward Seller.
Sales
of shares of our common stock, if any, as contemplated by this prospectus supplement made through the Agents, as our sales agents or as Forward Sellers, will be made by means of
ordinary brokers' transactions on the New York Stock Exchange (the "NYSE") or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated
prices, by privately negotiated transactions (including block sales) or by any other methods permitted by applicable law.
None
of the Agents, whether acting as our sales agent or as Forward Seller, is required to sell any specific number or dollar amount of shares of our common stock, but each has agreed,
subject to the terms and conditions of the sales agreement, to use its commercially reasonable efforts, consistent with its normal trading and sales practices and applicable law and regulations, to
sell shares of our common stock on the terms agreed upon by such Agent, us and, in the case of shares offered through such Agent as Forward Seller, the relevant Forward Purchaser from time to time.
The sales agreement provides that shares of our common stock offered and sold through the Agents, as our sales agents or as Forward Sellers, pursuant to the sales agreement will be offered and sold
through only one Agent on any trading day.
S-15
Table of Contents
We
will report at least quarterly the number of shares of common stock sold by or through the Agents acting as our sales agents or as principal, the number of shares of common stock sold
through the
Agents acting as Forward Sellers, the net proceeds to us and the aggregate compensation paid by us to the Agents in connection with those sales of our common stock, and the number of shares of common
stock sold or delivered upon settlement of any forward sale agreements, in each case during such fiscal quarter, and the number of shares of common stock remaining for future settlement under any
forward sale agreements as of the end of such fiscal quarter.
The
offering of shares of our common stock pursuant to the sales agreement will terminate upon the earlier of (1) the sale of 33,402,405 shares of our common stock (including
shares sold by us to or through the Agents and borrowed shares sold through the Agents acting as Forward Sellers) and (2) the termination of the sales agreement by us or by the parties thereto
by mutual agreement. Any Agent or Forward Purchaser may also terminate the sales agreement but only with respect to itself.
We
have agreed in the sales agreement to provide indemnification and contribution to the Agents and the Forward Purchasers against certain liabilities, including liabilities under the
Securities Act. We have also agreed, under certain circumstances, to reimburse the Agents and the Forward Purchasers for certain of their out-of-pocket expenses, including fees and expenses of
counsel, in connection with the transactions contemplated by the sales agreement.
If
any party to the sales agreement has reason to believe that the exemptive provisions set forth in Rule 101(c)(1) of Regulation M under the Exchange Act, are not
satisfied with respect to us or the shares being offered pursuant to the sales agreement, such party will promptly notify the other parties to the sales agreement and offers and sales of shares
through the Agents, as our sales agents or as Forward Sellers, will be suspended until that or another exemptive provision has been satisfied in the judgment of the parties to the sales agreement.
In
connection with the offering, the Agents or securities dealers may distribute this prospectus supplement and the accompanying prospectus, as well as any free writing prospectus,
pricing supplement or other prospectus supplement we may provide you in connection with this offering, by electronic means, such as e-mail.
We
estimate that the total expenses payable by us in connection with the offering and sale of shares of our common stock pursuant to the sales agreement, excluding commissions and
discounts, will be approximately $600,000. The remaining sale proceeds from the sale of any shares of our common stock by us to or through the Agents, after deducting discounts and commissions, any
transaction fees, transfer taxes or similar taxes or fees imposed by any arbitrator, court, governmental body, regulatory body, administrative agency or other authority, body or agency having
jurisdiction over us or any of our subsidiaries or any of our or their respective properties, assets or operations or any self-regulatory organization in respect of such sales, shall constitute the
net proceeds from our common stock sold by us to or through the Agents pursuant to this prospectus supplement and the accompanying prospectus. As described below under "Sales Through
Forward Sellers," we will not initially receive any proceeds from the sale of shares of our common stock borrowed by a Forward Purchaser or its affiliate and sold through the relevant Agent, acting as
Forward Seller.
Stifel,
Nicolaus & Company, Incorporated may pay an unaffiliated entity or its affiliate, who as of the date of this prospectus supplement is also a lender under our revolving
credit facility and certain of our term loan facilities, a fee in connection with this offering.
In connection with any offers of shares of our common stock through an Agent, acting as our sales agent, we will deliver instructions directing
such Agent, as our sales agent, to offer and sell the applicable shares of common stock on our behalf. Such instructions shall specify the maximum number
S-16
Table of Contents
of
shares to be sold and the minimum price per share at which such shares may be sold. Subject to, among other things, the terms and conditions in the sales agreement and the acceptance of such
instructions from us by the applicable Agent, such Agent has agreed to use its commercially reasonable efforts, consistent with its normal trading and sales practices and applicable laws and
regulations, to sell, as our sales agent, all of the shares so designated for sale by us in accordance with such instructions, on the terms and subject to the conditions set forth in the sales
agreement. We or any Agent may at any time immediately suspend the offering of shares of our common stock through such Agent, as our sales agent, upon notice to the other party.
The
applicable Agent will provide written confirmation to us following the close of trading on the NYSE on each day on which shares of our common stock are sold through such Agent, as
our sales agent, under the sales agreement. Each confirmation will include the number of shares of our common stock sold on that day, the aggregate gross sales price of the shares of our common stock
sold, the net proceeds and the compensation payable by us to such Agent in connection with such sales of our common stock.
We
will pay the applicable Agent a commission at a rate agreed upon by us and such Agent that will not (except as provided below) exceed, but may be lower than, 2.0% of the gross sales
price of the shares of our common stock sold through such Agent, as our sales agent under the sales agreement. We may also agree with any Agent, acting as our sales agent, to sell shares of our common
stock other than through ordinary brokers' transactions using sales efforts and methods that may constitute "distributions" within the meaning of Rule 100 of Regulation M under the
Exchange Act,, and for which
we may agree to pay such Agent a commission that may exceed 2.0% of the gross sales price of our common stock sold through such Agent.
Under
the terms of the sales agreement, we may also sell shares of our common stock to one or more of the Agents, as principal, at a price to be agreed upon at the time of sale. If we
sell shares to one or more of the Agents as principal, we will enter into a separate terms agreement with such Agent or Agents, as the case may be, and we will describe the terms of the offering of
those shares in a separate prospectus supplement. In any such sale to an Agent or Agents as principal, we may agree to pay the applicable Agent or Agents a commission or underwriting discount that may
exceed 2.0% of the gross sales price of our common stock sold to such Agent or Agents, as principal. None of the Agents has any obligation to purchase shares of common stock from us and may elect
whether or not to do so in its sole and absolute discretion.
We
expect that settlement for sales of our common stock through an Agent, acting as our sales agent, or to an Agent, acting as principal, as well as settlement between such Agent and
buyers of such shares in the market, will occur on the second business day (or on such other date as may be agreed upon by the relevant parties) following the respective dates on which any such sales
are made in return for payment of the net proceeds to us. There is no arrangement for funds to be received in an escrow, trust or similar arrangement. The obligations of each Agent under the sales
agreement are subject to a number of conditions, which such Agent may waive in its sole and absolute discretion.
If we enter into a forward sale agreement with any Forward Purchaser, we expect that such Forward Purchaser or its affiliate will attempt to
borrow from third parties and sell, through the relevant Agent, acting as sales agent for such Forward Purchaser, shares of our common stock to hedge such Forward Purchaser's exposure under such
forward sale agreement.
In
connection with any forward sale agreement, we will deliver instructions to the relevant Agent directing such Agent, as Forward Seller, to offer and sell the applicable borrowed
shares of our common stock on behalf of the relevant Forward Purchaser. Such instructions shall specify the maximum number of shares to be sold and the minimum price per share at which such shares may
be
S-17
Table of Contents
sold.
Subject to, among other things the terms and conditions in the sales agreement and the acceptance of such instructions from us by the applicable Agent, such Agent has agreed to use its
commercially reasonable efforts, consistent with its normal trading and sales practices and applicable laws and regulations, to sell, as Forward Seller for the applicable Forward Purchaser, all of the
shares so designated for sale by us in accordance with such instructions, on the terms and subject to the conditions set forth in the sales agreement. We or the applicable Agent may at any time
immediately suspend the offering of shares of our common stock through such Agent, as Forward Seller, upon notice to the other party.
The
applicable Agent will provide written confirmation to us following the close of trading on the NYSE on each day on which shares of our common stock are sold through such Agent, as
Forward Seller, under the sales agreement. Each confirmation will include the number of shares of our common stock sold on that day, the aggregate gross sales price of the shares of our common stock
sold, the net proceeds and the compensation payable by us to such Agent in connection with such sales of our common stock.
In
connection with each forward sale agreement, we will pay the applicable Agent, acting as Forward Seller in connection with such forward sale agreement, a commission, in the form of a
reduction to the initial forward price under the related forward sale agreement, at a rate agreed upon by us, such Agent and the relevant Forward Purchaser that will not (except as provided below)
exceed, but may be lower than, 2.0% of the gross sales price of the borrowed shares of our common stock sold through such Agent, acting as Forward Seller, during the applicable forward selling period
for such shares (subject to certain possible adjustments to such gross sales price for daily accruals and any monthly dividends having an "ex-dividend" date during such forward selling period). We may
also agree with any Agent, acting as Forward Seller, to sell shares of our common stock other than through ordinary brokers' transactions using sales efforts and methods that may constitute
"distributions" within the meaning of Rule 100 of Regulation M under the Exchange Act, and for which we may agree to pay such Agent a commission, in the form of a reduction to the
initial forward price under the related forward sale agreement, that may exceed 2.0% of the gross sales price of our common stock sold through such Agent. We sometimes refer to this commission as the
"forward selling commission."
We
expect that settlement between a Forward Purchaser and the relevant Agent, as Forward Seller, for sales of borrowed shares of our common stock, as well as settlement between such
Agent and buyers of such shares in the market, will occur on the second business day (or on such other date as may be agreed upon by the relevant parties) following the respective dates on which any
such sales are made in return for the payment of the net proceeds therefor. There is no arrangement for funds to be received in an escrow, trust or similar arrangement. The obligations of a Forward
Purchaser and the related Agent, acting as Forward Seller, under the sales agreement are subject to a number of conditions, which such Forward Purchaser and Agent, respectively, may waive in their
sole and absolute discretion.
Pursuant
to each forward sale agreement, if any, we will have the right to issue and sell to the Forward Purchaser party thereto a specified number of shares of our common stock on the
terms and subject to the conditions set forth therein, or, alternatively, to elect cash settlement or net share settlement, as described below, for all or any portion of such shares. The initial
forward price per share under each forward sale agreement will equal the product of (1) an amount equal to one minus the applicable forward selling commission and (2) the volume weighted
average price per share at which the borrowed shares of our common stock were sold pursuant to the sales agreement by the relevant Agent, acting as Forward Seller, during the applicable forward
selling period for such shares to hedge the relevant Forward Purchaser's exposure under such forward sale agreement (subject to certain possible adjustments for daily accruals and any monthly
dividends having an "ex-dividend" date during such forward selling period). Thereafter, the forward price will be subject to the price adjustment provisions of the applicable forward sale agreement,
as described in the next paragraph. We will not
S-18
Table of Contents
initially
receive any proceeds from any sale of shares of our common stock borrowed by a Forward Purchaser or its affiliate and sold through a Forward Seller, and all of such net proceeds will be paid
to the relevant Forward Purchaser (or one or more of its affiliates).
We
currently expect to fully physically settle each forward sale agreement, if any, with the relevant Forward Purchaser on one or more dates specified by us on or prior to the maturity
date of such forward sale agreement, although, as discussed below, we will generally have the right, subject to certain exceptions, to elect cash settlement or net share settlement instead of physical
settlement for any of the shares we have agreed to sell under such forward sale agreement. If we elect or are deemed to have elected to physically settle any forward sale agreement by delivering
shares of our common stock, we will receive an amount of cash from the relevant Forward Purchaser equal to the product of (1) the initial forward price per share under such forward sale
agreement and (2) the number of shares of our common stock as to which we have elected or are deemed to have elected physical settlement, subject to the price adjustment and other provisions of
such forward sale agreement. Each forward sale agreement will provide that the initial forward price will be subject to adjustment on a daily basis based on a floating interest rate factor equal to a
specified daily rate less a spread. In addition, the initial forward price will be subject to decrease on certain dates specified in the relevant forward sale agreement by the amount per share of
monthly dividends we expect to declare on our common stock during the term of such forward sale agreement. If the specified daily rate is less than the applicable spread on any day, the interest rate
factor will result in a daily reduction of the forward price.
We
expect that, before any issuance of shares of our common stock upon physical settlement or net share settlement of any forward sale agreement, the shares issuable upon settlement of
such forward sale agreement will be reflected in our diluted earnings per share calculations using the treasury stock method. Under this method, the number of shares of our common stock used in
calculating diluted earnings per share, funds from operations per share and adjusted funds from operations per share will be deemed to be increased by the excess, if any, of the number of shares that
would be issued upon physical settlement of such forward sale agreement over the number of shares that could be purchased by us in the market (based on the average market price during the relevant
forward selling period
specified in such forward sale agreement) using the proceeds receivable upon settlement (based on the adjusted forward price at the end of the relevant reporting period). Consequently, prior to
physical or net share settlement of the forward sale agreement and subject to the occurrence of certain events, we anticipate there will be no dilutive effect on our earnings per share, funds from
operations per share or adjusted funds from operations per share as a result of such forward sale agreement except during periods when the average market price of our common stock is above the per
share adjusted forward price of such forward sale agreement, subject to increase or decrease based on a specified daily rate less a spread, and subject to decrease by amounts related to expected
dividends on our common stock during the term of that particular forward sale agreement. However, if we decide to physically or net share settle any forward sale agreement, delivery of shares of our
common stock by us will result in dilution to our earnings per share, funds from operations per share and adjusted funds from operations per share.
Except
under the circumstances described below, we will generally have the right, in lieu of physical settlement of any forward sale agreement, to elect cash or net share settlement in
respect of any or all of the shares of common stock subject to such forward sale agreement. If we elect to cash or net share settle all or any part of any forward sale agreement, we would expect the
relevant Forward Purchaser or one of its affiliates to purchase shares of our common stock in secondary market transactions over an unwind period to:
-
-
return shares of our common stock to securities lenders in order to unwind such Forward Purchaser's hedge (after taking into consideration any
shares of our common stock to be delivered by us to such Forward Purchaser, in the case of net share settlement); and
S-19
Table of Contents
-
-
if applicable, in the case of net share settlement, deliver shares of our common stock to us to the extent required upon settlement of such
forward sale agreement.
If
the price of our common stock at which these purchases by such Forward Purchaser (or its affiliate) are made is below the relevant forward price, such Forward Purchaser will pay us
such difference in cash (if we elect to cash settle) or deliver to us shares of our common stock having a market value equal to such difference (if we elect to net share settle). If the price of our
common stock at which these purchases are made by such Forward Purchaser (or its affiliate) exceeds the applicable forward price, we will pay such Forward Purchaser an amount in cash equal to such
difference (if we elect to
cash settle) or we will deliver to such Forward Purchaser a number of shares of our common stock having a market value equal to such difference (if we elect to net share settle). Any such difference
could be significant and could result in our receipt of a significant amount of cash or number of shares of our common stock from such Forward Purchaser or require us to pay a significant amount of
cash or deliver a significant number of shares of our common stock to such Forward Purchaser.
In
addition, the purchase of our common stock by a Forward Purchaser or its affiliate to unwind the Forward Purchaser's hedge position could cause the price of our common stock to
increase above the price that would have prevailed in the absence of those purchases (or prevent a decrease in such price), thereby increasing the amount of cash (in the case of cash settlement) or
the number of shares (in the case of net share settlement) that we may owe such Forward Purchaser upon settlement of the applicable forward sale agreement or decrease the amount of cash (in the case
of cash settlement) or the number of shares (in the case of net share settlement) that such Forward Purchaser may owe us upon settlement of the applicable forward sale agreement.
Each
Forward Purchaser will have the right to accelerate any forward sale agreement it may enter into with us with respect to all or any portion of the shares underlying any forward sale
agreement (except with respect to events specified in (1) and (3) below, where accelerated settlement is limited to the portion of shares whose settlement would address the relevant
event or that is affected by the relevant event) and require us to physically settle such shares on a date specified by such Forward Purchaser if: (1) in such Forward Purchaser's commercially
reasonable judgment, it or its affiliate is unable to hedge (or maintain a hedge of) its exposure in a commercially reasonable manner under such forward sale agreement because (x) insufficient
shares of our common stock have been made available for borrowing by securities lenders or (y) such Forward Purchaser or any of its affiliates would incur a stock borrow cost in excess of a
specified threshold; (2) we declare any distribution, issue or dividend on shares of our common stock (a) payable in cash in excess of specified amounts (unless it is an extraordinary
dividend), (b) that constitutes an extraordinary dividend under the forward sale agreement, (c) payable in securities of another company as a result of a spin-off or similar transaction,
or (d) payable in any other type of securities (other than our common stock), rights, warrants or other assets for payment at less than the prevailing market price; (3) certain ownership
thresholds applicable to such Forward Purchaser and its affiliates are or would be exceeded; (4) an event (a) is announced that if consummated would result in a specified extraordinary
event (including certain mergers or tender offers, as well as certain events involving our nationalization, our insolvency or a delisting of our common stock) or (b) occurs that would
constitute a hedging disruption or change in law; or (5) certain other events of default or termination events occur, including, among others, any material misrepresentation made by us in
connection with such forward sale agreement or our insolvency (each as more fully described in the relevant forward sale agreement).
A
Forward Purchaser's decision to exercise its right to accelerate all or a portion of the settlement of any forward sale agreement and to require us to physically settle the relevant
shares will be made irrespective of our interests, including our need for capital. In such cases, we could be required to issue and deliver shares of our common stock under the terms of the physical
settlement provisions of the applicable forward sale agreement irrespective of our capital needs, which would result in dilution to
S-20
Table of Contents
our
earnings per share, funds from operations per share and adjusted funds from operations per share. For further information, see "Risk FactorsSettlement provisions contained in any
forward sale agreement subject us to certain risks."
In
addition, upon certain events of bankruptcy or insolvency relating to us, the forward sale agreements will terminate without further liability of the parties thereto. Following any
such termination, we would not issue any shares of our common stock pursuant to such forward sale agreement agreements, and we would not receive any proceeds pursuant to the forward sale agreements.
For further information, see "Risk FactorsIn case of our bankruptcy or insolvency, any forward sale agreements will automatically terminate, and we would not receive the expected net
proceeds from any forward sales of shares of our common stock under these agreements."
The
descriptions of certain provisions of the forward sale agreements appearing above and elsewhere in this prospectus supplement are not complete and are subject to, and qualified in
their entirety by reference to, the terms and provisions of such forward sale agreements. A form of the forward sale agreement is included as an exhibit to the sales agreement, and the sales agreement
has been or will be filed as an exhibit to a document incorporated by reference in the accompanying prospectus and may be obtained as described under "Where You Can Find More Information" in the
accompanying prospectus.
Some or all of the Agents and Forward Purchasers and/or their respective affiliates have provided and in the future may provide investment
banking, commercial banking and/or other financial services, including the provision of credit facilities, to us in the ordinary course of business for which they have received and may in the future
receive compensation. In particular, as described below under "Conflicts of Interest," as of the date of this prospectus supplement affiliates of some of the Agents are lenders under our
revolving credit facility and our term loan facilities.
In
addition, in the ordinary course of their business activities, the Agents and the Forward Purchasers and their respective affiliates may make or hold a broad array of investments and
actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such
investments and securities activities may involve securities and/or instruments of ours. In the case of any Agents, Forward Purchasers or their respective affiliates that have lending relationships
with us, certain of those Agents, Forward
Purchasers and/or affiliates routinely hedge, and certain other of those Agents, Forward Purchasers and affiliates may hedge, their credit exposure to us consistent with their customary risk
management policy. Typically those Agents, Forward Purchasers or affiliates would hedge such exposure by entering into transactions, which may consist of either the purchase of credit default swaps or
the creation of short positions in our securities. The Agents and the Forward Purchasers and their respective affiliates may also make investment recommendations and/or publish or express independent
research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
As described above under "Use of Proceeds," we intend to use any net cash proceeds we receive from the issuance and sale by us of any shares of
our common stock to or through the Agents and any net cash proceeds we receive upon settlement of any forward sale agreements with the relevant Forward Purchasers for general corporate purposes, which
may include, among other things, the repayment or repurchase of our indebtedness (including borrowings under our revolving credit facility).
S-21
Table of Contents
Affiliates
of some of the Agents are, as of the date of this prospectus supplement, lenders under our revolving credit facility and term loan facilities. In addition, affiliates of some
or all of the Agents may in the future be lenders under any new credit facilities or any amendments, restatements or replacements of these existing credit facilities that we may enter into from time
to time, and the Agents and their respective affiliates may from time to time hold debt securities or other indebtedness of ours. As described above, any net cash proceeds we receive from this
offering or from settlement under any forward sale agreements we enter into may be used to repay borrowings under any such existing or future credit facilities or to repay or repurchase any such
indebtedness. Because affiliates of some of the Agents are lenders under our existing revolving credit facility and term loan facilities and because affiliates of some or all of the Agents may be
lenders under any future credit facilities entered into by us, to the extent that we use net cash proceeds, if any, we receive from this offering or from settlement under any forward sale agreements
to repay borrowings under any such credit facilities under which affiliates of any of the Agents are lenders, such affiliates will receive proceeds from this offering or from settlement under any such
forward sale agreements, as applicable, through the repayment of those borrowings. Likewise, to the extent that we use net cash proceeds, if any, we receive from this offering or from settlement under
any forward sale agreements to repay or repurchase any other indebtedness of ours that may be held by any of the Agents or any of their respective affiliates, such Agents or affiliates, as the case
may be, will receive proceeds of this offering or from settlement under any such forward sale agreements, as applicable, through the repayment or repurchase of that indebtedness. The amount received
by any Agent and its respective affiliates, as applicable, from any repayment or
repurchase of those borrowings and/or any such indebtedness may exceed 5% of the net proceeds of this offering (not including the Agents' discounts and commissions). Nonetheless, in accordance with
FINRA Rule 5121, the appointment of a qualified independent underwriter is not necessary in connection with this offering because REITs are excluded from that requirement.
If
we enter into a forward sale agreement with any Forward Purchaser, we expect that such Forward Purchaser or its affiliate will attempt to borrow from third parties and sell, through
the relevant Agent, acting as Forward Seller, shares of our common stock to hedge such Forward Purchaser's exposure under such forward sale agreement. All of the net proceeds from the sale of any such
borrowed shares will be paid to the applicable Forward Purchaser (or one or more of its affiliates). Each Forward Purchaser will be either an Agent or an affiliate of an Agent. As a result, an Agent
or its affiliate will receive the net proceeds from any sale of borrowed shares of our common stock made in connection with any forward sale agreements.
S-22
Table of Contents
SUPPLEMENTAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
For a discussion of certain material United States federal income tax consequences regarding our company and an investment in our common stock,
please see Exhibit 99.1 to our Current Report on Form 8-K, which was filed with the
SEC on February 22, 2019 pursuant to Item 8.01 of Form 8-K (the "February 2019 Form 8-K"), as the same may be amended, supplemented and, if applicable,
superseded (in whole or in part) from time to time by information appearing in our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K
filed with the SEC after the date of this prospectus supplement (excluding any such Current Reports on Form 8-K or portions thereof or exhibits thereto that are deemed to have been "furnished"
to, rather than "filed" with, the SEC), all of which are incorporated by reference in the accompanying prospectus. The February 2019 Form 8-K (including Exhibit 99.1 thereto) is
incorporated by reference in this prospectus supplement and the accompanying prospectus and the discussion under the heading "United States Federal Income Tax Considerations" in Exhibit 99.1 to
the February 2019 Form 8-K supersedes and replaces, in its entirety the discussion under the heading "United States Federal Income Tax Considerations" in the accompanying prospectus and in the
related registration statement on Form S-3 (File No. 333-228157) filed by us
with the SEC on November 5, 2018. The February 2019 Form 8-K may be obtained as described under "Where You Can Find More Information" in the accompanying prospectus. See
"Incorporation by Reference" in the accompanying prospectus. Prospective investors in our common stock should consult their tax advisors regarding the United States
federal income and other tax considerations to them of the acquisition, ownership and disposition of our common stock offered by this prospectus supplement.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us by Venable LLP, Baltimore, Maryland. Certain legal matters
relating to this offering will be passed upon for us by Latham & Watkins LLP, Costa Mesa, California. Sidley Austin LLP, San Francisco, California will act as counsel for the
Agents and the Forward Purchasers. As of December 4, 2019, William J. Cernius, a partner of Latham & Watkins LLP, beneficially owned approximately 8,601 shares of our common
stock. As of December 1, 2019, Eric S. Haueter, a partner of Sidley Austin LLP, beneficially owned approximately 9,783 shares of our common stock.
EXPERTS
The consolidated balance sheets of Realty Income Corporation and subsidiaries as of December 31, 2018 and 2017, the related consolidated
statements of income and comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2018, and the related notes and financial statement
schedule III (collectively, the consolidated financial statements), and management's assessment of the effectiveness of internal control over financial reporting as of December 31, 2018,
have been incorporated by reference in the accompanying prospectus in reliance upon the reports of KPMG LLP, independent registered public accounting firm, incorporated by reference therein,
and upon the authority of said firm as experts in accounting and auditing.
INCORPORATION BY REFERENCE
As described in the accompanying prospectus under the caption "Incorporation by Reference," we have incorporated by reference in the
accompanying prospectus specified documents that we have filed or may file with the SEC under the Exchange Act. However, no document, exhibit or information or portion thereof that we have "furnished"
or may in the future "furnish" to (rather than "file" with) the SEC shall be incorporated by reference into this prospectus supplement or the accompanying prospectus.
S-23
Table of Contents
PROSPECTUS
REALTY INCOME CORPORATION
Debt Securities
Common Stock
Preferred Stock
Depositary Shares
Warrants
Realty Income Corporation, a Maryland corporation, may from time to time offer and sell the securities identified above (collectively referred to
as our "securities"), in one or more offerings, in separate series or classes, and in amounts, at prices and on terms that will be set forth in one or more prospectus supplements to this prospectus or
other offering materials.
The
specific terms of the securities with respect to which this prospectus is being delivered will be set forth in the applicable prospectus supplement or other offering materials, which
will contain specific information about the offering and the amounts, prices and, if applicable, terms of the securities being offered.
The
specific terms of any securities we may offer may include limitations on actual, beneficial or constructive ownership and restrictions on transfer of the securities, in each case as
may be appropriate, among other purposes, to preserve our status as a real estate investment trust, or REIT, for United States federal income tax purposes. The applicable prospectus supplement or
other offering materials may also contain information, where applicable, about United States federal income tax considerations relevant to, and any exchange listing of, the securities covered by the
prospectus supplement or other offering materials, as the case may be. The applicable prospectus supplement may also add, update or change information contained in this prospectus with respect to that
offering or the securities being offered. You should carefully read this prospectus and the applicable prospectus supplement, as well as any other offering materials we provide you in connection with
any offering of securities, before you invest in any of our securities.
Our
securities may be offered directly, through agents designated from time to time by us, or to or through underwriters or dealers. If any agents or underwriters are involved in the
sale of any of our securities, their names, and any applicable purchase price, fee, commission or discount arrangement between or among them, will be set forth, or will be calculable from the
information set forth, in the applicable prospectus supplement
or other offering materials. See the sections of this prospectus entitled "Plan of Distribution" for more information. No securities may be sold without delivery of this prospectus and the applicable
prospectus supplement describing the method and terms of the offering of such securities.
INVESTING IN OUR SECURITIES INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 4 OF THIS PROSPECTUS AND ANY SIMILAR SECTION CONTAINED IN THE APPLICABLE
PROSPECTUS SUPPLEMENT CONCERNING FACTORS YOU SHOULD CONSIDER BEFORE INVESTING IN OUR SECURITIES.
Our common stock is traded on the New York Stock Exchange under the symbol "O." On November 2, 2018, the last reported sale price of the
common stock on the New York Stock Exchange was $60.26 per share.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is November 5, 2018.
Table of Contents
TABLE OF CONTENTS
Table of Contents
ABOUT THIS PROSPECTUS
Unless this prospectus otherwise indicates or the context otherwise requires, all references to "Realty Income," "our,"
"us" and "we" in this prospectus mean Realty Income Corporation, a Maryland corporation, and its subsidiaries on a consolidated basis.
This
prospectus is part of an automatic shelf registration statement that we filed with the U.S. Securities and Exchange Commission, or the SEC, as a "well-known seasoned issuer" as
defined in Rule 405 under the Securities Act of 1933, as amended, or the Securities Act, using a "shelf" registration process for the delayed offering and sale of securities pursuant to
Rule 415 under the Securities Act. Under this shelf registration process, we may, from time to time, offer and sell any of the securities, or any combination of the securities, described in
this prospectus in one or more offerings. This prospectus only provides you with a general description of the securities that we may offer. Each time we sell securities, we will provide a prospectus
supplement and may provide you with a free writing prospectus or other offering materials (collectively, "offering materials") that will contain
specific information about the securities being offered and sold and the specific terms of that offering. The prospectus supplement or other offering materials may also add, update or change
information contained or incorporated by reference in this prospectus. If there is any inconsistency between the information in this prospectus and any applicable prospectus supplement or other
offering materials, you should rely on the information in the applicable prospectus supplement or other offering materials. Before purchasing any securities, you should carefully read this prospectus,
the applicable prospectus supplement and any other offering materials we may provide you in connection with the offering of those securities, together with the documents incorporated and deemed to be
incorporated by reference in this prospectus, which incorporated documents may be obtained as described under the headings "Where You Can Find More Information" and "Incorporation by Reference."
As
allowed by SEC rules, this prospectus does not contain all the information you can find in the registration statement or the exhibits to the registration statement. For further
information, we refer you to the registration statement, including its exhibits and any schedules. Statements contained or incorporated by reference in this prospectus about the provisions or contents
of any contract, agreement or any other document referred to are not complete. For each of these contracts, agreements or documents filed as an exhibit to the registration statement or a document
incorporated or deemed to be incorporated by reference in this prospectus, we refer you to the actual exhibit for a complete description of the matters involved, and any statements contained or
incorporated by reference in this prospectus or any prospectus supplement or any other offering materials we may provide you regarding those contracts, agreements or other documents are subject to,
and qualified in their entirety by reference to, the complete terms of those documents. You should rely only on the information contained or incorporated by reference in this prospectus and in any
supplement to this prospectus and, if applicable, any other offering materials we may provide you. We have not authorized any other person to provide you with any information or to make any
representations other than those contained or incorporated by reference in this prospectus, any applicable prospectus supplement or any other offering materials prepared by or on behalf of us or to
which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We will not offer or sell any
securities in any jurisdiction where, or to any person to whom, such offer or sale is not permitted. You should assume that the information appearing in this prospectus, the applicable prospectus
supplement and any other offering materials we may provide you in connection with an offering of securities is accurate only as of the respective dates of those documents, and that the information
appearing in any document incorporated or deemed to be incorporated by reference in this prospectus or any accompanying prospectus supplement is accurate only as of the respective dates on which those
documents were filed with the SEC, in each case unless we expressly indicate otherwise. Our business, financial condition, results of operations and prospects may have changed since those dates.
1
Table of Contents
This
prospectus, any accompanying prospectus supplement and any related offering materials we may provide you in connection with an offering of securities, and any documents incorporated
or deemed to be incorporated by reference in this prospectus contain or may contain information regarding the industry, markets, submarkets and sectors in which we operate or expect to operate or
related demographic data, all of which is based upon information from third party sources (which may include,
among other things, industry and governmental publications and websites and data prepared or made available by market research firms) and, in some cases, our own internal estimates. We believe that
these sources and estimates are reliable, but this information (whether obtained from third-party sources or based on our internal estimates) is subject to assumptions, estimates and other
uncertainties, and we have not independently verified any of this information and cannot guarantee its accuracy or completeness.
2
Table of Contents
THE COMPANY
Realty Income Corporation, The Monthly Dividend Company®, is an S&P 500 company dedicated to providing stockholders with
dependable monthly dividends that increase over time. We are structured as a real estate investment trust, or REIT, requiring us annually to distribute at least 90% of our taxable income (excluding
net capital gains) in the form of dividends to our stockholders. Our monthly dividends are supported by the cash flow generated from real estate owned under long-term, net lease agreements with
regional and national commercial tenants.
As
of September 30, 2018, we owned a diversified portfolio of 5,694 properties located in 49 states and Puerto Rico, with over 92.7 million square feet of leasable
space leased to 260 different commercial tenants doing business in 48 separate industries. Of the 5,694 properties in the portfolio at September 30, 2018, 5,666, or 99.5%, were
single-tenant properties, and the remaining were multi-tenant properties. At September 30, 2018, of the 5,666 single-tenant properties, 5,596 were leased with a weighted average
remaining lease term (excluding rights to extend a lease at the option of the tenant) of approximately 9.3 years.
Our
principal executive offices are located at 11995 El Camino Real, San Diego, California 92130 and our telephone number is (858) 284-5000. We were founded in 1969. Our common
stock is listed on The New York Stock Exchange, or NYSE, under the ticker symbol "O" with a cusip number of 756109-104. Our central index key number is 726728.
3
Table of Contents
RISK FACTORS
Investment in any securities offered pursuant to this prospectus and the applicable prospectus supplement involves risks. In evaluating an
investment in our securities, you should carefully consider the risk factors described under the caption "Risk Factors" in our most recent Annual Report on
Form 10-K and, if applicable, in any of our subsequent
Quarterly Reports on Form 10-Q, which are incorporated or
deemed to be incorporated by reference in this prospectus,as well as the other risks and uncertainties described in those documents, this prospectus, the applicable prospectus supplement and any other
offering materials we may provide to you in connection with an offering of our securities and the other documents incorporated and deemed to be incorporated by reference in this prospectus. The
occurrence of any of these risks might cause you to lose all or part of your investment in the offered securities. You should also carefully consider the risks described below in the section entitled
"Forward-Looking Statements."
4
Table of Contents
FORWARD-LOOKING STATEMENTS
This prospectus, any related prospectus supplements or other offering materials and the documents incorporated or deemed to be incorporated by
reference herein or therein contain or may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act, and
Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. When used in this prospectus, any related prospectus supplements or other offering materials and the
documents incorporated or deemed to be incorporated by reference herein or therein, the words "estimated," "anticipated," "expect," "believe," "intend" and similar expressions are intended to identify
forward-looking statements. Forward-looking statements
include, without limitation, discussions of strategy, plans and intentions and statements regarding estimated or future results of operations, financial condition or prospects (including, without
limitation, estimated and future normalized and adjusted funds from operations and net income, estimated initial weighted average contractual lease rates, statements regarding the payment,
dependability and amount of or increases in future common stock dividends, statements regarding future cash flow or cash generation, and statements regarding our ability to meet our liquidity needs).
Forward-looking statements are subject to risks, uncertainties and assumptions about us, including, among other things:
-
-
our anticipated growth strategies;
-
-
our intention to acquire additional properties and the timing of these acquisitions;
-
-
our intention to sell properties and the timing of these property sales;
-
-
our intention to re-lease vacant properties;
-
-
anticipated trends in our business, including trends in the market for long-term net leases of freestanding, single-tenant properties; and
-
-
future expenditures for development projects.
Future
events and actual results, financial and otherwise, may differ materially from the results discussed in or implied by the forward-looking statements. In particular,
forward-looking statements regarding estimated or future results of operations are based upon numerous assumptions and
estimates and are inherently subject to substantial uncertainties and actual results of operations may differ materially from those expressed or implied in the forward-looking statements, particularly
if actual events differ from those reflected in the estimates and assumptions upon which such forward-looking statements are based. Some of the factors that could cause actual results to differ
materially are:
-
-
our continued qualification as a real estate investment trust;
-
-
general business and economic conditions;
-
-
competition;
-
-
fluctuating interest rates;
-
-
access to debt and equity capital markets;
-
-
continued volatility and uncertainty in the credit markets and broader financial markets;
-
-
other risks inherent in the real estate business, including tenant defaults, potential liability relating to environmental matters, illiquidity
of real estate investments and potential damages from natural disasters;
-
-
impairments in the value of our real estate assets;
-
-
changes in the tax laws of the United States of America;
5
Table of Contents
-
-
the outcome of any legal proceedings to which we are a party or which may occur in the future; and
-
-
acts of terrorism and war.
Additional
factors that may cause future events and actual results, financial or otherwise, to differ, potentially materially, from those discussed in or implied by the forward-looking
statements include the risks and uncertainties discussed in the sections entitled "Business," "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations"
in our most recent Annual Report on Form 10-K and the sections entitled "Risk Factors" (if applicable) and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our subsequent Quarterly Reports on Form 10-Q (if any), and also include risks and other information discussed in other documents that are incorporated or deemed to be
incorporated by reference in this prospectus and in the prospectus supplement and any other offering materials relating to any offering of our securities.
You
are cautioned not to place undue reliance on forward-looking statements contained or incorporated by reference in this prospectus, any related prospectus supplements or other
offering materials. Those forward-looking statements are not guarantees of future performance and speak only as of the respective dates of those documents or, in the case of documents incorporated or
deemed to be incorporated by reference in this prospectus, as of the respective dates those documents were filed with the SEC and we undertake no obligation to update any such forward-looking
statements or to publicly release the results of any revisions to these forward-looking statements that may be made to
reflect events or circumstances after the respective dates or filing dates, as the case may be, of those documents or to reflect the occurrence of unanticipated events. In light of these risks and
uncertainties, the forward-looking events discussed in this prospectus, any related prospectus supplements or other offering materials, and the documents incorporated by reference herein and therein
might not occur.
6
Table of Contents
USE OF PROCEEDS
We intend to use the net proceeds from the sale of the securities as set forth in the applicable prospectus supplement.
7
Table of Contents
DESCRIPTION OF DEBT SECURITIES
General
This prospectus describes certain general terms and provisions of our debt securities. When we offer to sell a particular series of debt
securities, we will describe the specific terms of the series in a prospectus supplement, a pricing supplement or other offering materials. We will also indicate in the supplement or other offering
materials whether the general terms and provisions described in this prospectus apply to a particular series of debt securities. Our debt securities will be our direct obligations and they may be
secured or unsecured, senior or subordinated indebtedness. We
may issue our debt securities under one or more indentures. Each indenture and the certificate or certificates evidencing the debt securities of each series will be in the form filed or incorporated
by reference as an exhibit to the registration statement containing this prospectus, a post-effective amendment to the registration statement or a document incorporated by reference herein and may be
obtained as described below under "Where You Can Find More Information." The form of indenture is subject to any amendments or supplements that may be adopted from time to time. We will enter into
each indenture with a trustee and the trustee for each indenture may be the same. Each indenture will be subject to, and governed by, the Trust Indenture Act of 1939, as amended. Unless otherwise
expressly stated in the applicable prospectus supplement, the debt securities will be issued under an indenture dated as of October 28, 1998 between us and The Bank of New York Mellon Trust
Company, N.A., as successor trustee, a copy of which has been incorporated by reference as an exhibit to the registration statement containing this prospectus. Because this description of debt
securities is a summary, it does not contain all the information that may be important to you and this description is subject to, and qualified in its entirety by reference to, the form of the
applicable indenture and the certificate evidencing the debt securities of the applicable series. You should read the applicable indenture and the form of certificate evidencing the applicable debt
securities in their entirety to assure that you have all the important information you need to make any required decisions. Unless otherwise expressly stated or the context otherwise requires, all
references to the "Company," "Realty Income," "our," "we" and "us" and all similar references appearing under this caption "Description of Debt Securities" mean Realty Income Corporation, a Maryland
corporation, excluding its subsidiaries. All other capitalized terms used, but not defined, in this section shall have the meanings set forth in the applicable indenture.
Terms
The particular terms of any series of our debt securities will be described in a prospectus supplement or other offering materials.
Additionally, any applicable modifications of or additions to the general terms of our debt securities, described in this prospectus and in the applicable indenture, will also be described in a
prospectus supplement or other offering materials. Accordingly, for a description of the terms of any series of our debt securities, you must refer to both the prospectus supplement or other offering
materials, if any, relating to those debt securities and the description of the debt securities set forth in this prospectus. If any particular terms of our debt securities, described in a prospectus
supplement or other offering materials, differ from any of the terms described in this prospectus, then those terms as set forth in the relevant prospectus supplement or other offering materials will
control.
Except
as set forth in any prospectus supplement or other offering materials, our 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 our board of directors, a committee of the board of directors or as set forth in the applicable indenture or one or more supplements to that indenture.
All of our debt securities of one series need not be issued at the same time, and unless otherwise provided, a series may be reopened for issuance of additional debt securities without the consent of
the holders of the debt securities of that series.
8
Table of Contents
Each
indenture will provide that we may, but need not, designate more than one trustee for the indenture, each with respect to one or more series of our debt securities. Any trustee
under an indenture may resign or be removed with respect to one or more series of our debt securities, and a successor trustee may be appointed to act with respect to that series. If two or more
persons are acting as trustee to different series of our debt securities, each trustee shall be a trustee of a trust under the applicable indenture separate and apart from the trust administered by
any other trustee and, except as otherwise indicated in this prospectus, any action taken by a trustee may be taken by that trustee with respect to, and only with respect to, the one or more series of
debt securities for which it is trustee under the applicable indenture.
This
summary sets forth certain general terms and provisions of our indentures and our debt securities. For a detailed description of a specific series of debt securities, you should
consult the prospectus supplement or other offering materials for that series. The prospectus supplement or other offering materials will contain the following information, to the extent
applicable:
-
(1)
-
the
title and ranking of those debt securities;
-
(2)
-
the
aggregate principal amount of those debt securities and any limitation thereon;
-
(3)
-
the
price at which those debt securities will be issued and, if other than the principal amount of those debt securities, the portion of the principal amount payable
upon declaration of acceleration of the maturity thereof, or (if applicable) the portion of the principal amount of those debt securities that is convertible into other securities offered hereby, or
the method by which any convertible portion of those debt securities shall be determined;
-
(4)
-
if
those debt securities are convertible, the terms on which they are convertible, including the initial conversion price or rate and conversion period and, in
connection with the preservation of our status as a REIT, any applicable limitations on the ownership or transferability of the securities into which those debt securities are convertible;
-
(5)
-
the
date or dates, or the method for determining the date or dates, on which the principal of those debt securities will be payable;
-
(6)
-
the
rate or rates (which may be fixed or variable), or the method by which the rate or rates shall be determined, at which those debt securities will bear interest,
if any;
-
(7)
-
the
date or dates, or the method for determining the date or dates, from which any interest will accrue, the dates upon which that interest will be payable, the
record dates for payment of that interest, or the method by which any of those dates shall be determined, the persons to whom that interest shall be payable, and the basis upon which that interest
shall be calculated if other than that of a 360-day year of twelve 30-day months;
-
(8)
-
the
place or places where the principal of (and premium, if any) and interest, if any, on debt securities will be payable, where debt securities may be surrendered
for conversion, registration of transfer or exchange and where notices or demands to or upon us relating to debt securities and the indenture may be served;
-
(9)
-
the
period or periods, if any, within which, the price or prices at which, and the terms and conditions upon which those debt securities may be redeemed, as a whole
or in part, at our option;
-
(10)
-
our
obligation, if any, to redeem, repay or purchase those debt securities pursuant to any sinking fund or analogous provision or at the option of a holder of those
debt securities, and the period or periods within which, the price or prices at which, and the terms and conditions upon which, those debt securities will be redeemed, repaid or purchased, as a whole
or in part, pursuant to this obligation;
9
Table of Contents
-
(11)
-
if
other than U.S. dollars, the currency or currencies in which those 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;
-
(12)
-
whether
the amount of payments of principal of (and premium, if any) or interest, if any, on those 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 a currency, currencies, currency unit or units or composite currency or currencies) and the manner in which those
amounts shall be determined;
-
(13)
-
whether
those debt securities will be issued in certificated and/or book-entry form, and, if in book-entry form, the identity of the depositary for those debt
securities;
-
(14)
-
whether
those debt securities will be in registered or bearer form and, if in registered form, the denominations thereof if other than $2,000 and any integral
multiple of $1,000 in excess thereof and, if in bearer form, the denominations thereof and terms and conditions relating thereto;
-
(15)
-
the
applicability, if any, of the defeasance and covenant defeasance provisions described herein or set forth in the applicable indenture, or any modification of
the indenture;
-
(16)
-
any
deletions from, modifications of or additions to the events of default or our covenants with respect to those debt securities;
-
(17)
-
whether
and under what circumstances we will pay any additional amounts on those debt securities in respect of any tax, assessment or governmental charge and, if
so, whether we will have the option to redeem those debt securities in lieu of making this payment;
-
(18)
-
the
subordination provisions, if any, relating to those debt securities;
-
(19)
-
the
provisions, if any, relating to any security provided for those debt securities; and
-
(20)
-
any
other terms of those debt securities.
If
the applicable prospectus supplement provides or other offering materials provide, we may issue the debt securities at a discount below their principal amount and provide for less
than the entire principal amount of the debt securities to be payable upon declaration of acceleration of the maturity thereof ("Original Issue Discount Securities"). In those cases, any material
United States federal income tax, accounting and other considerations applicable to Original Issue Discount Securities will be described in the applicable prospectus supplement or other offering
materials.
Denominations, Interest, Registration and Transfer
Unless otherwise described in the applicable prospectus supplement or other offering materials, the debt securities of any series will be
issuable in denominations of $2,000 and integral multiples of $1,000 in excess thereof.
Unless
otherwise described in the applicable prospectus supplement or other offering materials, we will pay the principal of (and premium, if any) and interest on any series of debt
securities at the applicable trustee's corporate trust office, the address of which will be set forth in the applicable prospectus supplement or other offering materials, provided however, that unless
otherwise provided in the applicable prospectus supplement or other offering materials, we may make interest payments (1) by check mailed to the address of the person entitled to the payment as
that address appears in the applicable register for those debt securities, or (2) by wire transfer of funds to the person at an account maintained within the United States.
10
Table of Contents
Subject
to certain limitations imposed on 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 those debt securities at the office of any transfer agent we designate for that purpose. In addition,
subject to certain limitations imposed on debt securities issued in book-entry form, the debt securities of any series may be surrendered for conversion or registration of transfer thereof at the
office of any transfer agent we designate for that purpose. Every debt security surrendered for conversion, registration of transfer or exchange shall be duly endorsed or accompanied by a written
instrument of transfer and the person requesting that transfer must provide evidence of title and identity satisfactory to us and the applicable transfer agent. No service charge will be made for any
registration of transfer or exchange of any debt securities, but we may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. We may at any
time rescind the designation of any transfer agent appointed with respect to the debt securities of any series or approve a change in the location through which any transfer agent acts, except that we
will be required to maintain a transfer agent in each place of payment for that series. We may at any time designate additional transfer agents with respect to any series of debt securities.
Neither
we nor any trustee shall be required to:
-
-
issue, register the transfer of, or exchange debt securities of any series if that debt security may be among those selected for redemption
during a period beginning at the opening of business 15 days before the mailing or first publication, as the case may be, of notice of redemption of those debt securities and ending at the
close of business on
-
1.
-
the
day of mailing of the relevant notice of redemption if the debt securities of that series are issuable only in registered form, or
-
2.
-
the
day of the first publication of the relevant notice of redemption if the debt securities of that series are issuable in bearer form, or
-
3.
-
the
day of mailing of the relevant notice of redemption if those debt securities are issuable in both bearer and registered form and there is no publication; or
-
-
register the transfer of or exchange any debt security in registered form, or portion thereof, so selected for redemption, in whole or in part,
except the unredeemed portion of any debt security being redeemed in part; or
-
-
exchange any debt security in bearer form selected for redemption, except in exchange for a debt security of that series in registered form
that is simultaneously surrendered for redemption; or
-
-
issue, register the transfer of or exchange any debt security that has been surrendered for repayment at the holder's option, except the
portion, if any, of that debt security not to be repaid.
No Protection in the Event of a Change of Control
Unless we state otherwise in the applicable prospectus supplement, the debt securities of any series will not contain any provisions which may
afford holders of the debt securities of such series protection in the event of a change of control of Realty Income or in the event of a highly leveraged transaction (whether or not such transaction
results in a change of control), which could adversely affect holders of debt securities.
11
Table of Contents
Merger, Consolidation or Sale of Assets
Each indenture will provide that we will not consolidate with, sell, lease or convey all or substantially all of our assets to, or merge with or
into, any person unless:
-
-
either we shall be the continuing entity, or the successor person (if not us) formed by or resulting from the consolidation or merger or which
shall have received the transfer of the assets shall be a corporation organized and existing under the laws of the United States or any State thereof and shall expressly assume (1) our
obligation to pay the principal of (and premium, if any) and interest on all the debt securities issued under the indenture and (2) the due and punctual performance and observance of all the
covenants and conditions contained in the indenture and in the debt securities to be performed or observed by us;
-
-
immediately after giving effect to the transaction and treating any indebtedness that becomes our obligation or the obligation of any
Subsidiary as a result of the transaction as having been incurred, and treating any liens on any property or assets of ours or any Subsidiary that are incurred, created or assumed as a result of the
transaction as having been created, incurred or assumed, by us or the Subsidiary at the time of the transaction, no event of default under the indenture, and no event that, after notice or the lapse
of time, or both, would become an event of default, shall have occurred and be continuing; and
-
-
an officers' certificate and legal opinion covering these conditions shall be delivered to the trustee.
Certain Covenants
Existence. Except as permitted under the heading above entitled "Merger, Consolidation or Sale of Assets," we will be required
under
each indenture to do or cause to be done all things necessary to preserve and keep in full force and effect our corporate existence, all material rights (by charter, bylaws and statute) and all
material franchises; provided, however, that we shall not be required to preserve any right or franchise if our board of directors determines that the preservation thereof is no longer desirable in
the conduct of our business.
Maintenance of Properties. Each indenture will require us to cause all of our material properties used or useful in the conduct of our
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 will require us to cause to be made all necessary
repairs, renewals, replacements, betterments and improvements to those properties, as in our judgment may be necessary so that the business carried on in connection with those properties may be
properly and advantageously conducted at all times; provided, however, that we and our Subsidiaries shall not be prevented from selling or otherwise disposing of these properties for value in the
ordinary course of business.
Insurance. Each indenture will require us to, and to cause each of our Subsidiaries to, keep in force upon all of our and their
properties and
operations policies of insurance carried with responsible companies in such amounts and covering all risks as shall be customary in the industry in accordance with prevailing market conditions and
availability.
Payment of Taxes and Other Claims. Each indenture will require us to pay or discharge or cause to be paid or discharged, before the
same shall become
delinquent, (a) all taxes, assessments and governmental charges levied or imposed on us or any of our Subsidiaries or upon the income, profits or property of us or any of our Subsidiaries and
(b) all lawful claims for labor, materials and supplies that, if unpaid, might by law become a lien upon our property or the property of any Subsidiary; provided, however, that we shall not be
required to pay or discharge or cause to be paid or discharged
12
Table of Contents
any
tax, assessment, charge or claim the amount, applicability or validity of which we are contesting in good faith through appropriate proceedings.
Provisions of Financial Information. Whether or not we are subject to Section 13 or 15(d) of the Exchange Act, we will be required
by each
indenture, within 15 days after each of the respective dates by which we would have been required to file annual reports, quarterly reports and other documents with the SEC if we were subject
to those Sections of the Exchange Act to:
-
-
transmit by mail to all holders of debt securities issued under the indenture, as their names and addresses appear in the applicable register
for those debt securities, without cost to the holders, copies of the annual reports, quarterly reports and other documents that we would have been required to file with the SEC pursuant to
Section 13 or 15(d) of the Exchange Act if we were subject to those Sections;
-
-
file with the applicable trustee copies of the annual reports, quarterly reports and other documents that we would have been required to file
with the SEC pursuant to Section 13 or 15(d) of the Exchange Act if we were subject to those Sections; and
-
-
supply promptly, upon written request and payment of the reasonable cost of duplication and delivery, copies of these documents to any
prospective holder of the debt securities.
Except
as may otherwise be provided in the prospectus supplement or other offering materials relating to any series of debt securities, the term "Subsidiary," as used in any indenture
means any other person of which more than 50% of (a) the equity or other ownership interests or (b) the total voting power of shares of capital stock or other ownership interests
entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers, trustees or general or managing partners thereof is at the time owned by us or one or
more of our Subsidiaries or a combination thereof.
Additional Covenants. If we make any additional covenants with respect to any series of debt securities, those covenants will be set
forth in the
prospectus supplement or other offering materials relating to those debt securities.
Events of Default, Notice and Waiver
Unless otherwise provided in the applicable indenture, each indenture will provide that the following events are "events of default" for any
series of debt securities issued under it:
-
(1)
-
default
for 30 days in the payment of any installment of interest on any debt security of that series;
-
(2)
-
default
in the payment of the principal of (or premium, if any, on) any debt security of that series when due, whether at stated maturity or by declaration of
acceleration, notice of redemption, notice of option to elect repayment or otherwise;
-
(3)
-
default
in the deposit of any sinking fund payment, when and as due by the terms of any debt security of that series;
-
(4)
-
default
in the performance of any of our other covenants contained in the indenture or in any debt security of that series (other than a covenant added to the
indenture solely for the benefit of a series of debt securities issued thereunder other than that series), which continues for 60 days after written notice is given to us by the trustee or to
us and the trustee by the holders of at least 25% in principal amount of the outstanding debt securities of that series;
-
(5)
-
default
under any bond, debenture, note or other evidence of indebtedness for money borrowed by us or any of our Subsidiaries (including obligations under leases
required to be capitalized on the balance sheet of the lessee under generally accepted accounting principles,
13
Table of Contents
but
not including any indebtedness or obligations for which recourse is limited to property purchased) in an aggregate principal amount in excess of $25,000,000 or under any 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 us or any of our Subsidiaries (including such leases, but not including
such indebtedness or obligations for which recourse is limited to property purchased) in an aggregate principal amount in excess of $25,000,000, whether the indebtedness exists at the date of the
relevant indenture or shall thereafter be created, which default shall have resulted in the indebtedness becoming or being declared due and payable prior to the date on which it would otherwise have
become due and payable or which default shall have resulted in the obligation being accelerated, without the acceleration having been rescinded or annulled;
-
(6)
-
certain
events of bankruptcy, insolvency or reorganization with respect to us or any of our Significant Subsidiaries; or
-
(7)
-
any
other event of default provided with respect to a particular series of debt securities.
The
term "Significant Subsidiary" as used above has the meaning ascribed to the term in Rule 1-02 of Regulation S-X promulgated under the Securities Act, as the Regulation was in effect
on January 1, 1996.
If
an event of default under any indenture with respect to debt securities of any series at the time outstanding occurs and is continuing, then the applicable trustee or the holders of
not less than 25% in principal amount of the outstanding debt securities of that series may declare the principal amount (or, if the debt securities of that series are Original Issue Discount
Securities or Indexed Securities, that portion of the principal amount as may be specified in the terms thereof) of all the debt securities of that series to be due and payable immediately by written
notice thereof to us (and to the applicable trustee if given by the holders). However, at any time after the declaration of acceleration with respect to debt securities of a 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 of the principal amount of the outstanding debt securities
of that series may rescind and annul the declaration and its consequences if:
-
-
we shall have deposited with the applicable trustee all required payments of the principal of (and premium, if any) and interest on the debt
securities of that series (other than principal that has become due solely as a result of the acceleration), plus certain fees, expenses, disbursements and advances of the applicable trustee; and
-
-
all events of default, other than the nonpayment of accelerated principal (or specified portion thereof), premium, if any, and interest with
respect to debt securities of that series, have been cured or waived as provided in the indenture.
Each
indenture will also provide 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 that series and its consequences, except:
-
-
a default in the payment of the principal of (or premium, if any) or interest on any debt security of that series; or
-
-
a default 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 of the series affected by the default.
Each
indenture will require each trustee to give notice of a default under the indenture to the holders of debt securities within 90 days unless the default shall have been cured
or waived, subject to certain exceptions; provided, however, that the trustee may withhold notice to the holders of any series
14
Table of Contents
of
debt securities of any default with respect to that series (except a default in the payment of the principal of (or premium, if any) or interest on any debt security of that series or in the
payment of any sinking fund installment in respect of any debt security of that series) if specified Responsible Officers of the trustee consider a withholding to be in those holders' interest.
Each
indenture will provide 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 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 that series, as well as an offer of indemnity reasonably satisfactory to it, and no direction inconsistent with the
written request has been given to the trustee during the 60-day period by holders of a majority in principal amount of the outstanding debt securities of that series. 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, if any) and interest on those debt securities at the respective due dates
thereof.
Each
indenture will provide that, subject to provisions in the Trust Indenture Act of 1939 relating to its duties in case of default, the trustee is 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 the debt securities then outstanding under the indenture, unless those holders shall have
offered to the trustee reasonable security or indemnity. The holders of not less than a majority in principal amount of the outstanding debt securities of any series shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to the trustee, or of exercising any trust or power conferred upon the trustee; provided that the direction shall not
conflict with any rule of law or the indenture, and provided further that the trustee may refuse to follow any direction that may involve the trustee in personal liability or that may be unduly
prejudicial to the holders of debt securities of that series not joining in the direction to the trustee.
Within
120 days after the close of each fiscal year, we will be required to deliver to the trustee a certificate, signed by one of several specified officers, stating whether or
not the 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 any indenture will be permitted with the consent of the holders of not less than a majority in principal amount
of all outstanding debt securities
of each series issued under the indenture affected by the modification or amendment; provided, however, that no modification or amendment may, without the consent of the holder of each debt security
affected thereby:
-
-
change the stated maturity of the principal of, or any installment of principal of, or interest (or premium, if any) on any debt security;
-
-
reduce the principal amount of, or the rate or amount of interest on, or any premium payable on redemption of any 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 of the Original Issue Discount Security or would be provable
in bankruptcy, or adversely affect any right of repayment at the option of the holder of any debt security (or reduce the amount of premium payable upon any repayment);
-
-
change the place of payment, or the coin or currency, for payment of principal of (or premium, if any) or interest on any debt security;
-
-
impair the right to institute suit for the enforcement of any payment on or with respect to any debt security when due;
15
Table of Contents
-
-
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 of the indenture or certain defaults and consequences under the indenture or to reduce the quorum or voting requirements set forth in the indenture; or
-
-
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 the action or to provide that certain other provisions may not be modified or waived without the consent of the holder of each outstanding debt security
affected thereby.
The
holders of a majority in aggregate principal amount of outstanding debt securities of any series may, on behalf of all holders of debt securities of that series, waive (insofar as
that series is concerned) our compliance with certain restrictive covenants in the applicable indenture.
We,
along with the trustee, shall be permitted to modify and amend an indenture without the consent of any holder of debt securities for any of the following
purposes:
-
-
to evidence the succession of another person to our obligations under the indenture;
-
-
to add to our covenants for the benefit of the holders of all or any series of debt securities or to surrender any right or power conferred
upon us in the indenture;
-
-
to add events of default for the benefit of the holders of all or any series of debt securities;
-
-
to add or change any provisions of the indenture to provide that debt securities in bearer form may be registerable as to principal or to
change or eliminate any restrictions on the payment of principal of or any premium or interest on debt securities in bearer form or to make certain other provisions relating to debt securities in
bearer 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;
-
-
to change or eliminate any provisions of the indenture, provided that any such change or elimination does not apply to any outstanding debt
securities of a series created prior to the date of the amendment or supplement that are entitled to the benefit of that provision;
-
-
to secure the debt securities;
-
-
to establish the form or terms of debt securities of any series, including the provisions and procedures, if applicable, for the conversion of
debt securities into common stock or preferred stock;
-
-
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;
-
-
to cure any ambiguity or to correct any defect or inconsistency in the indenture, or to make any other provisions with respect to matters or
questions arising under the indenture which shall not be inconsistent with the provisions of the indenture, provided, however, that such action shall not adversely affect the interests of holders of
debt securities of any series in any material respect; or
-
-
to supplement any of the provisions of the indenture to the extent necessary to permit or facilitate defeasance, covenant defeasance and
discharge of any series of debt securities, provided, however, that this action shall not adversely affect the interests of the holders of the debt securities of any series in any material respect.
Each
indenture will provide that in determining whether the holders of the requisite principal amount of outstanding debt securities of a series have given any request, demand,
authorization,
16
Table of Contents
direction,
notice, consent or waiver described in the indenture or whether a quorum is present at a meeting of holders of debt securities:
-
-
the principal amount of an Original Issue Discount Security that shall be deemed to be outstanding shall be the amount of the principal of that
security that would be due and payable as of the date of the determination upon declaration of acceleration of the maturity thereof;
-
-
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 for the debt security, of the principal amount (or, in the case of an Original Issue Discount Security, the U.S. dollar equivalent on the issue date of the
debt security of the amount determined as provided in the first bullet above);
-
-
the principal amount of an Indexed Security that shall be deemed outstanding shall be the principal face amount of the Indexed Security at
original issuance, unless otherwise provided with respect to the Indexed Security in the applicable prospectus supplement; and
-
-
debt securities owned by us or any other obligor upon the debt securities or any affiliate of ours or of the other obligor shall be
disregarded.
Each
indenture will contain provisions for convening meetings of the holders of debt securities of a series. A meeting may be called at any time by the trustee, and also, upon our
request or request of the holders of at least 10% in principal amount of the outstanding debt securities of a series, in any case upon notice given as provided in the indenture. Except for any consent
or waiver that must be given by the holder of each debt security affected thereby, any resolution presented at a meeting or at
an 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; provided, however, that, except as referred to above, any resolution with respect to any request, demand, authorization, direction, notice, consent, waiver or other action that may be made,
given or taken by the holders of a specified percentage, which is less than a majority, in principal amount of the outstanding debt securities of the series may be adopted at a meeting or adjourned
meeting duly reconvened at which a quorum is present by the affirmative vote of the holders of the 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 persons holding or representing a majority in principal amount of the outstanding debt securities of a series shall constitute a quorum for a meeting of holders of that series; provided,
however, that if any action is to be taken at a 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 that series, the persons holding or representing the specified percentage in principal amount of the outstanding debt securities of that series will constitute a quorum.
Notwithstanding
the foregoing provisions, each indenture will provide 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 or other action that the indenture expressly provides may be made, given or taken by the holders of that series and one or more
additional series: (a) there shall be no minimum quorum requirement for the meeting and (b) the principal amount of the outstanding debt securities of all those series that are entitled
to vote in favor of the request, demand, authorization, direction, notice, consent, waiver or other action shall be taken into account in determining whether the request, demand, authorization,
direction, notice, consent, waiver or other action has been made, given or taken under the indenture.
17
Table of Contents
Discharge, Defeasance and Covenant Defeasance
Unless otherwise indicated in the applicable prospectus supplement or other offering materials, upon our request any indenture shall cease to be
of further effect with respect to any series of debt securities issued under the indenture specified in our request (except as to certain limited provisions of the indenture which shall survive) when
either (a) all debt securities of that series have been delivered to the trustee for cancellation or (b) all debt securities of that series have become due and payable or will become due
and payable within one year (or are scheduled for redemption within one year) and we have irrevocably deposited with the applicable trustee, in trust, funds in the currency or currencies, currency
unit or units or composite currency or currencies in which those debt securities are payable an amount sufficient to pay the entire indebtedness on those debt securities in
respect of principal (and premium, if any) and interest to the date of the deposit (if those debt securities have become due and payable) or to the stated maturity or redemption date, as the case may
be.
Each
indenture will provide that, unless otherwise indicated in the applicable prospectus supplement or other offering materials, we may elect either
to:
-
-
defease and be discharged from any and all obligations with respect to any series of debt securities (except for the obligation, if any, to pay
additional amounts in respect of certain taxes imposed on non-U.S. holders of 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 money for payment in trust) ("defeasance"); or
-
-
be released from our obligations with respect to certain covenants (which will be described in the relevant prospectus supplement or other
offering materials) applicable to the debt securities under the applicable indenture (which may include, subject to a limited exception, the covenants described under "Certain
Covenants"), and any omission to comply with these obligations shall not constitute a default or an event of default with respect to those debt securities ("covenant defeasance"),
in
either case upon our irrevocable deposit with the applicable trustee, in trust, of an amount, in the currency or currencies, currency unit or units or composite currency or currencies in which
those debt securities are payable at stated maturity, or Government Obligations (as defined below), or both, applicable to those debt securities that 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, if any) and interest on those debt securities, and any mandatory sinking fund
or analogous payments on those debt securities, on the scheduled due dates.
A
trust may only be established if, among other things, we have delivered to the applicable trustee an opinion of counsel (as specified in the applicable indenture) to the effect that
the holders of those debt securities will not recognize income, gain or loss for United States federal income tax purposes as a result of the defeasance or covenant defeasance and will be subject to
United States federal income tax on the same amounts, in the same manner and at the same times as would have been the case if the defeasance or covenant defeasance had not occurred. Additionally, in
the case of defeasance, an opinion of counsel must refer to and be based on a ruling of the Internal Revenue Service (the "IRS") or a change in applicable United States federal income tax law
occurring after the date of the applicable indenture. In the event of defeasance, the holders of those debt securities will thereafter be able to look only to the trust fund for payment of principal
(and premium, if any) and interest.
"Government
Obligations" means securities that are (a) direct obligations of the United States of America or the government which issued the foreign currency in which the debt
securities of a particular series are payable, for the payment of which its full faith and credit is pledged, or (b) obligations of a person controlled or supervised by and acting as an agency
or instrumentality of the
18
Table of Contents
United
States of America or the government which issued the foreign currency in which the debt securities of that series are payable, the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America or the other government, 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 Government Obligation or a specific payment of interest on or principal of any Government Obligation held by a
custodian for the account of the holder of a depository receipt; provided, however, that (except as required by law) the custodian is not authorized to make any deduction from the amount payable to
the holder of the 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 the depository receipt.
Unless
otherwise provided in the applicable prospectus supplement or other offering materials, if after we have deposited funds and/or Government Obligations to effect defeasance or
covenant defeasance with respect to debt securities of any series:
-
-
the holder of a debt security of that series is entitled to, and does, elect pursuant to the applicable indenture or the terms of that debt
security to receive payment in a currency, currency unit or composite currency other than that in which the deposit has been made in respect of that debt security, or
-
-
a Conversion Event (as defined below) occurs in respect of the currency, currency unit or composite currency in which the deposit has been
made,
then
the indebtedness represented by that debt security will be deemed to have been, and will be, fully discharged and satisfied through the payment of the principal of (and premium, if any) and
interest on
that debt security as they become due out of the proceeds yielded by converting the amount so deposited in respect of that debt security into the currency, currency unit or composite currency in which
the debt security becomes payable as a result of the election or Conversion Event based on the applicable market exchange rate. "Conversion Event" means the cessation of use
of:
-
-
a currency, currency unit or composite currency both by the government of the country which issued the currency and for the settlement of
transactions by a central bank or other public institution of or within the international banking community; or
-
-
any currency unit or composite currency for the purposes for which it was established.
In
the event we effect a covenant defeasance with respect to any debt securities and those debt securities are declared due and payable because of the occurrence of any event of default,
other than an event of default due to a breach of any of the covenants as to which there has been covenant defeasance (which covenants would no longer be applicable to those debt securities as a
result of such covenant defeasance), the cash and Government Obligations on deposit with the applicable trustee may not be sufficient to pay amounts due on those debt securities at the time of the
acceleration resulting from the event of default. We would, however, remain obligated to make payment of the amounts due at the time of acceleration.
The
applicable prospectus supplement or other offering materials may further describe the provisions, if any, permitting the defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the debt securities of or within a particular series.
Conversion Rights
The terms and conditions, if any, upon which the debt securities are convertible into common stock, preferred stock or other securities offered
hereby will be set forth in the applicable prospectus supplement or other offering materials relating to those debt securities. The terms will include whether
19
Table of Contents
the
debt securities are convertible into common stock, preferred stock, or other securities offered hereby, and the conversion price or rate (or manner of calculation thereof), and may include, if
applicable, the conversion period, provisions as to whether conversion will be at our option or the option of the holders, the events requiring an adjustment of the conversion price or rate and
provisions affecting conversion in the event of the redemption of the debt securities and any restrictions on conversion, including restrictions directed at maintaining our REIT status.
Unclaimed Payments
We will be repaid for all amounts we pay to a paying agent or a trustee for the payment of the principal of or any premium or interest on any
debt security that remains unclaimed at the end of two years after the principal, premium or interest has become due and payable, and the holder of that debt security may look only to us for payment
of the principal, premium or interest.
Global Securities
The debt securities of a series may be issued in whole or in part in the form of one or more global securities (the "Global Securities") that
will be deposited with, or on behalf of, a depositary identified in the applicable prospectus supplement or other offering materials relating to that 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 or other offering materials relating to that series.
20
Table of Contents
DESCRIPTION OF COMMON STOCK
We have authority to issue 370,100,000 shares of our common stock, $0.01 par value per share. As of September 30, 2018, we had
outstanding 295,145,532 shares of our common stock.
General
The following description of our common stock sets forth certain general terms and provisions of our common stock to which any prospectus
supplement or other offering materials may relate, including a prospectus supplement or other offering materials relating to shares of our
common stock that may be issuable upon conversion of our debt securities, preferred stock or depositary shares or upon exercise of our warrants. The statements below and elsewhere in this prospectus,
any accompanying prospectus supplement or any other offering materials we may provide you in connection with an offering of securities that describe certain terms and provisions of our common stock.
charter or bylaws do not purport to be complete,, do not contain all of the information that may be important to you, and are in all respects subject to, and qualified in their entirety by reference
to, the Maryland General Corporation Law, or MGCL, and the applicable provisions of our charter and bylaws, copies of which have been or will be filed or incorporated by reference as exhibits to the
registration statement of which this prospectus is a part or to a document incorporated or deemed to be incorporated by reference herein and may be obtained as described below under "Where You Can
Find More Information" and "Incorporation by Reference." The following description should be read in conjunction with the information appearing in this prospectus under the captions "Restrictions on
Ownership and Transfers of Stock" and "Certain Provisions of Maryland Law and Our Charter and Bylaws" (as such information may be amended or supplemented from time to time by information appearing in
documents that we file with the SEC after the date of this prospectus supplement that are incorporated or deemed to be incorporated by reference herein or by information appearing in the applicable
prospectus supplement or other offering materials we may provide you in connection with an offering of common stock) which provides important additional information about our common stock. Unless
otherwise expressly stated or the context otherwise requires, all references to "our company," "Realty Income," "our," "we" and "us" and all similar references appearing under this caption
"Description of Common Stock" mean Realty Income Corporation, a Maryland corporation, excluding its subsidiaries.
Terms
Subject to the preferential rights of any other class or series of our stock and to the provisions of our charter regarding the restrictions on
ownership and transfer of stock, holders of our common stock are entitled to receive dividends when, as and if authorized by our board of directors and declared by us out of assets legally available
therefor. The terms of any preferred stock we may issue in the future may provide for restrictions or prohibitions on the payment of dividends on, and the purchase of, our common stock and may also
provide for holders of that class or series of preferred stock to receive preferential distributions in the event of our liquidation, dissolution or winding up before any payments may be made on our
common stock. For additional information, see "General Description of Preferred Stock" in this prospectus and, if applicable, the articles supplementary classifying and designating shares of any class
or series of preferred stock we may subsequently issue, which will be filed or incorporated by reference as an exhibit to the registration statement of which this prospectus is a part or to a document
incorporated or deemed to be incorporated by reference in this prospectus or another document we file with the SEC, and the description of any such subsequently issued class or series of our preferred
stock contained in the applicable Registration Statement on Form 8-A, including any subsequently filed amendments and reports filed for purposes of updating such descriptions, all of which may
be obtained as described below under "Where You Can Find More Information" and "Incorporation by Reference."
21
Table of Contents
Our
charter authorizes our board of directors to classify and reclassify any unissued shares of our common stock or preferred stock into other classes or series of stock and to establish
the number of shares in each class or series and to set the terms, preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends or other distributions,
qualifications or terms or conditions of redemption for each such class or series. Thus, the board of directors could cause the issuance of shares of preferred stock with dividend rights, rights to
distributions in the event of our liquidation, dissolution or winding up, voting rights or other rights that could adversely affect the rights of holders of our common stock or delay or prevent a
tender offer or change of control of our company that might involve a premium price for shares of our common stock or otherwise be in their best interests, any of which could adversely affect the
market price of our common stock. For additional information, see "General Description of Preferred Stock" and "Certain Provisions of Maryland Law and of our Charter and BylawsEffect of
Certain Provisions of Maryland Law and our Charter and Bylaws."
Subject
to the provisions of our charter regarding the restrictions on ownership and transfer of our common stock (see "Restrictions on Ownership and Transfers of Stock" below), each
outstanding share of our common stock entitles the holder to one vote on all matters submitted to a vote of stockholders, including the election of directors (other than any directors to be elected
exclusively by holders of our outstanding preferred stock or any other class or series of our stock) and, except as provided with respect to any other class or series of stock, the holders of shares
of our common stock will possess the exclusive voting power.
Holders
of our common stock do not have cumulative voting rights in the election of directors, which means that holders of more than 50% of all the shares of our common stock voting for
the election of directors can elect all the directors standing for election (other than any directors to be elected exclusively by holders of our outstanding preferred stock or any other class or
series of our stock) at the time if they choose to do so, and the holders of the remaining shares of our common stock cannot elect any such directors. All of our directors currently serve a one year
term. Holders of shares of common stock do not have preemptive rights, which means they have no right under the charter, bylaws, or Maryland law to acquire any additional shares of common stock that
may be issued by us at a subsequent date. Holders of shares of common stock have no preference, conversion, exchange, sinking fund or redemption rights. Under Maryland law, stockholders generally are
not liable for the corporation's debts or obligations.
Under
the MGCL, a Maryland corporation generally cannot dissolve, amend its charter, merge, convert into another entity, sell all or substantially all of its assets, engage in a share
exchange or engage in similar transactions outside the ordinary course of business unless approved by its stockholders by the affirmative vote of two-thirds of the votes entitled to be cast on the
matter unless a lesser percentage (but not less than a majority of all of the votes entitled to be cast on the matter) is set forth in the corporation's charter. Our charter provides that any such
action shall be effective if approved by the
affirmative vote of holders of shares entitled to cast a majority of all the votes entitled to be cast on the matter. Because the term "substantially all" of a company's assets is not defined in the
MGCL, it is subject to Maryland common law and to judicial interpretation and review in the context of the unique facts and circumstances of any particular transaction. Accordingly, there may be
uncertainty as to whether a sale of "substantially all" of our assets has taken place within the meaning of the MGCL provisions described above.
Restrictions on Ownership
For us to qualify as a REIT under the Internal Revenue Code of 1986, as amended, or the Code, not more than 50% in value of our outstanding
stock may be owned, actually or constructively, by or for five or fewer individuals (defined in the Code to include certain entities) during the last half of a taxable year. To assist us in meeting
this requirement and certain other requirements relating to our tax
22
Table of Contents
status
as a REIT, among other purposes, our charter contains provisions intended to limit the actual, beneficial or constructive ownership by a single person or entity of our outstanding shares of
common stock. See "Restrictions on Ownership and Transfers of Stock" below.
Transfer Agent
The registrar and transfer agent for our common stock is Computershare Trust Company, N.A.
23
Table of Contents
GENERAL DESCRIPTION OF PREFERRED STOCK
We are authorized to issue 69,900,000 shares of preferred stock, $0.01 par value per share. As of September 30, 2018, no shares of
preferred stock were outstanding. For a description of some of the terms of any class or series of preferred stock we may issue in the future, see the articles supplementary classifying and
designating shares of such class or series of preferred stock, which will be filed or incorporated by reference as an exhibit to the registration statement of which this prospectus is a part or a
document incorporated or deemed to be incorporated by reference in this prospectus or other document we file with the SEC, and the description of such class or series of preferred stock contained in
the applicable Registration Statement on Form 8-A, including any subsequently filed amendments and reports filed for the purpose of updating such description, all of which may be obtained as
described below under "Where You Can Find More Information" and "Incorporation by Reference."
General
The following description of our preferred stock sets forth certain general terms and provisions of our preferred stock to which any prospectus
supplement or other offering materials may relate. The statements below describing our preferred stock are not complete, do not contain all of the information that may be important to you and are in
all respects subject to, and qualified in their entirety by reference to, the MGCL and the applicable provisions of our charter (including the applicable articles supplementary classifying and
designating shares of a class or series of preferred stock) and our bylaws, copies of which have been or will be filed or incorporated by reference as exhibits to the registration statement of which
this prospectus is a part or a document incorporated or deemed to be incorporated by reference herein and may be obtained as described below under "Where You Can Find More Information" and
"Incorporation by Reference." The following description should be read in conjunction with the information appearing in this prospectus under the captions "Restrictions on Ownership and Transfers of
Stock" and "Certain Provisions of Maryland Law and Our Charter and Bylaws" (as such information may be amended or supplemented from time to time by information appearing in documents that we file with
the SEC after the date of this prospectus supplement and that are incorporated by reference herein or by information appearing in the applicable prospectus supplement or other offering materials we
may provide you in connection with an offering of preferred stock), which provides important additional information about our preferred stock. You should review our charter and bylaws and the articles
supplementary classifying and designating shares of the applicable class or series of our preferred stock carefully before you invest. Unless otherwise expressly stated or the context otherwise
requires, as used under this caption "General
Description of Preferred Stock," references to "our company," "Realty Income," "our," "we" and "us," and all similar references mean Realty Income Corporation, a Maryland corporation, excluding its
subsidiaries, unless otherwise expressly stated or the context otherwise requires.
Our
charter authorizes our board of directors to classify and reclassify any unissued shares of common stock or preferred stock into, among other things, one or more classes or series of
preferred stock. Prior to the issuance of shares of each class or series, our board is required by the MGCL and our charter to determine the number of shares of such class or series and to set,
subject to the provisions of our charter regarding the restrictions on ownership and transfer of 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 for each such class or series. Thus, the board of directors could authorize the issuance of shares of
preferred stock with dividend rights, rights to distributions in the event of our liquidation, dissolution or winding up, voting rights or other rights that could adversely affect the rights of
holders of our common stock or any other class or series of our preferred stock or which could have the effect of delaying or preventing a tender offer or a change of control of our company that might
involve a premium price for holders of our stock or
24
Table of Contents
otherwise
be in their best interests, any of which could adversely affect the market price of our common stock or any class or series of our preferred stock. For additional information, see "Certain
Provisions of Maryland Law and of our Charter and BylawsEffect of Certain Provisions of Maryland Law and our Charter and Bylaws."
You
should refer to the prospectus supplement or other offering materials relating to any class or series of our preferred stock offered thereby for specific terms of and other
information concerning such class or series of preferred stock, including:
-
(1)
-
the
title of such class or series of preferred stock;
-
(2)
-
the
number of shares of such class or series of preferred stock offered, the liquidation preference per share and the offering price of such class or series of
preferred stock;
-
(3)
-
the
dividend rate(s), period(s) and/or payment date(s), or method(s) of calculation thereof, applicable to such class or series of preferred stock;
-
(4)
-
whether
the dividends will be cumulative or not and, if cumulative, the date from which dividends on such class or series of preferred stock shall accumulate;
-
(5)
-
the
procedures for any auction and remarketing, if any, for such class or series of preferred stock;
-
(6)
-
the
provision for a sinking fund, if any, for such class or series of preferred stock;
-
(7)
-
any
voting rights of such class or series of preferred stock, which may include, among other things, the right to elect one or more directors;
-
(8)
-
the
provision for redemption, if applicable, of such class or series of preferred stock;
-
(9)
-
any
listing of such class or series of preferred stock on any securities exchange;
-
(10)
-
the
terms and conditions, if applicable, upon which such class or series of preferred stock will be convertible into common stock or other securities, including the
conversion price or rate (or manner of calculation thereof);
-
(11)
-
a
discussion of federal income tax considerations applicable to such class or series of preferred stock;
-
(12)
-
any
limitations on actual, beneficial or constructive ownership of, and restrictions on transfer of, such class or series of preferred stock, in each case as may be
appropriate to preserve our REIT status;
-
(13)
-
the
relative ranking and preferences of such class or series of preferred stock as to dividend rights and rights upon liquidation, dissolution or winding up of our
affairs;
-
(14)
-
whether
liquidation preferences on such class or series of preferred stock will be counted as liabilities of ours in determining whether distributions to
stockholders can be made under the MGCL;
-
(15)
-
any
limitations on issuance of any class or series of preferred stock ranking senior to or on a parity with such class or series of preferred stock as to dividend
rights or rights upon liquidation, dissolution or winding up of our affairs; and
-
(16)
-
any
other specific terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications
and terms or conditions of redemption of such class or series of preferred stock.
25
Table of Contents
Rank
Unless otherwise specified in the applicable prospectus supplement or other offering materials, the preferred stock of any class or series
offered by this prospectus and the applicable prospectus supplement will rank, with respect to the payment of dividends and the distribution of assets in the event of our liquidation, dissolution or
winding up:
-
-
senior to all classes or series of our common stock and to all other equity securities issued by us other than equity securities referred to in
the two immediately following bullet points;
-
-
on a parity with all equity securities issued by us the terms of which specifically provide that such equity securities rank on a parity with
the preferred stock of such class or series with respect to rights to the payment of dividends and the distribution of assets in the event of our liquidation, dissolution or winding up; and
-
-
junior to all equity securities issued by us the terms of which specifically provide that such equity securities rank senior to the preferred
stock of such class or series with respect to rights to the payment of dividends and the distribution of assets in the event of our liquidation, dissolution or winding up.
For
these purposes, the term "equity securities" does not include convertible debt securities.
Restrictions on Ownership
For us to qualify as a REIT under the Code, not more than 50% in value of our outstanding stock may be owned, actually or constructively, by or
for five or fewer individuals (defined in the Code to include certain entities) during the last half of a taxable year. To assist us in meeting this requirement and certain other requirements relating
to our tax status as a REIT, the articles supplementary establishing any class or series of preferred stock may contain provisions, which will be described in the applicable prospectus supplement or
other offering materials, intended to limit the actual, beneficial or constructive ownership by a single person or entity of our outstanding preferred stock. See "Restrictions on Ownership and
Transfers of Stock" below.
Transfer Agent
The transfer agent and registrar for any class or series of preferred stock will be set forth in the applicable prospectus supplement or other
offering materials.
26
Table of Contents
DESCRIPTION OF OTHER SECURITIES
We will set forth in the applicable prospectus supplement a description of any depositary shares or warrants that may be offered and sold
pursuant to this prospectus and such prospectus supplement. Among other things, we may issue depositary shares representing fractional interests in shares of a class or series of our preferred stock
and we may issue warrants exercisable for any of our other securities offered by this prospectus.
27
Table of Contents
RESTRICTIONS ON OWNERSHIP AND TRANSFERS OF STOCK
Internal Revenue Code Requirements
To maintain our REIT status under the Code, no more than 50% in value of our outstanding shares of stock may be owned, actually or
constructively, by or for five or fewer individuals (as defined in the Code to include certain entities) during the last half of a taxable year. In addition, if we, or an owner of 10% or more of our
stock, actually or constructively owns 10% or more of a tenant of ours (or a tenant of any partnership or limited liability company that is treated as a partnership for federal income tax purposes in
which we are a partner or member), the rent received by us (either directly or through one or more subsidiaries) from that tenant will not be qualifying income for purposes of the REIT gross income
tests of the Code. A REIT's stock must also be beneficially owned by 100 or more persons during at least 335 days of a taxable year of twelve months or during a proportionate part of a shorter
taxable year.
Transfer Restrictions in Charter
Because we expect to continue to qualify as a REIT, our charter contains restrictions on the ownership and transfer of our common stock which,
among other purposes, are intended to assist us in complying with applicable Code requirements. Our charter provides that, subject to certain specified exceptions, no person or entity may own, or be
deemed to own by virtue of the applicable constructive ownership provisions of the Code, more than 9.8% (by value or by number of shares, whichever is more restrictive) of our outstanding shares of
common stock. We refer to this restriction as the "ownership limit." The constructive ownership rules of the Code are complex, and may cause shares of common stock owned actually or constructively by
a group of related individuals and/or entities to be constructively owned by one individual or entity. As a result, the acquisition of less than 9.8% of the shares of common stock (or the acquisition
of an interest in an entity that owns, actually or constructively, common stock) by an individual or entity, could nevertheless cause that individual or entity, or another individual or entity, to
constructively own more than 9.8% of our outstanding common stock and thus violate the ownership limit, or any other limit as provided in our charter or as otherwise permitted by our board of
directors. Our board of directors may, but in no event is required to, exempt from the ownership limit a particular stockholder if it determines that such ownership will not jeopardize our status as a
REIT. As a condition of such exemption, the board of directors may require a ruling from the Internal Revenue Service or an opinion of counsel satisfactory to it and/or undertakings or representations
from the applicant with respect to preserving our REIT status.
Our
charter further prohibits (1) any person from actually or constructively owning shares of our common stock that would result in our being "closely held" under
Section 856(h) of the Code or otherwise cause us to fail to qualify as a REIT, and (2) any person from transferring shares of our common stock if such transfer would result in shares of
our capital stock being beneficially owned by fewer than 100 persons (determined without reference to any rules of attribution).
Any
person who acquires or attempts to acquire actual or constructive ownership of shares of our common stock that would violate any of the foregoing restrictions on transferability and
ownership is required to give notice to us immediately and provide us with such other information as we may request in order to determine the effect of such transfer on our status as a REIT. The
foregoing restrictions on transferability and ownership will not apply if our board of directors determines that it is no longer in our best interest to attempt to qualify, or to continue to qualify,
as a REIT and such determination is approved by the holders of two-thirds of all shares entitled to vote on the matter, as required by our charter. Except as otherwise described above, any change in
the ownership limit would require an amendment to the charter.
28
Table of Contents
We
anticipate that any class or series of preferred stock that we issue in the future will be subject to similar restrictions. The restrictions on transfer applicable to any class or
series of preferred stock we issue will be described in the applicable prospectus supplement or other offering materials.
Effect of Violation of Transfer Provisions
According to our charter, if any purported transfer of common stock or any other event would result in any person violating the ownership limit
or such other limit as provided in the charter, or as otherwise permitted by our board of directors, or result in our being "closely held" under Section 856(h) of the Code, or otherwise cause
us to fail to qualify as a REIT, then the number of shares that would otherwise cause such violation or result will be transferred automatically to a trust, the beneficiary of which will be a
qualified charitable organization selected by us. Such automatic transfer shall be deemed to be effective as of the close of business on the business day prior to the date of such violative transfer.
Within
20 days of receiving notice from us of the transfer of shares to the trust, the trustee of the trust (who shall be designated by us and be unaffiliated with us and any
prohibited transferee or prohibited owner) will be required to sell such shares to a person or entity who could own the shares without violating the ownership limit, or any other limit as provided in
our charter or as otherwise permitted by our board of directors, and distribute to the prohibited transferee or prohibited owner, as applicable, an amount equal to the lesser of the price paid by the
prohibited transferee or prohibited owner for such shares or the net sales proceeds received by the trust for such shares. In the case of any event other than a transfer, or in the case of a transfer
for no consideration (such as a gift), the trustee will be required to sell such shares to a qualified person or entity and distribute to the prohibited owner an
amount equal to the lesser of the market price (determined as provided in our charter) of such shares as of the date of the event resulting in the transfer or the net sales proceeds received by the
trust for such shares. In either case, any proceeds in excess of the amount distributable to the prohibited transferee or prohibited owner, as applicable, will be distributed to the beneficiary. Prior
to a sale of any such shares by the trust, the trustee will be entitled to receive, in trust for the beneficiary, all dividends and other distributions paid by us with respect to such shares, and also
will be entitled to exercise all voting rights with respect to such shares.
Subject
to Maryland law, effective as of the date that such shares have been transferred to the trust, the trustee shall have the authority (at the trustee's sole discretion)
(1) to rescind as void any vote cast by a prohibited transferee or prohibited owner, as applicable, prior to the discovery by us that such shares have been transferred to the trust and
(2) to recast such vote in accordance with the desires of the trustee acting for the benefit of the beneficiary. However, if we have already taken irreversible corporate action, then the
trustee shall not have the authority to rescind and recast that vote. Any dividend or other distribution paid to the prohibited transferee or prohibited owner prior to the discovery by us that such
shares had been automatically transferred to a trust as described above will be required to be repaid to the trustee upon demand for distribution to the beneficiary. In the event that the transfer to
the trust as described above is not automatically effective (for any reason) to prevent violation of the ownership limit or any other limit as provided in our charter or as otherwise permitted by our
board of directors, then our charter provides that the transfer of such shares will be void.
In
addition, shares of our common stock held in the trust shall be deemed to have been offered for sale to us, or our designee, at a price per share equal to the lesser of (1) the
price per share in the transaction that resulted in such transfer to the trust (or, in the case of a devise or gift, the market price at the time of such devise or gift) and (2) the market
price on the date we, or our designee, accept such offer. We shall have the right to accept such offer until the trustee has sold the shares of common stock held in the trust. Upon such a sale to us,
the interest of the beneficiary in the shares sold shall terminate and the trustee shall distribute the net proceeds of the sale to the prohibited
29
Table of Contents
transferee
or prohibited owner, and any dividends or other distributions held by the trustee with respect to such shares will be paid to the beneficiary.
If
any purported transfer of shares of common stock would cause us to be beneficially owned by fewer than 100 persons, such transfer will be null and void in its entirety and the
intended transferee will acquire no rights to the stock.
All
certificates representing shares of our common stock will bear a legend referring to the restrictions described above. The foregoing ownership limitations could delay, defer or
prevent a transaction or a change in control of Realty Income that might involve a premium price for our common stock or otherwise be in the best interests of stockholders.
As
set forth in the Treasury Regulations promulgated under the Code, every owner of a specified percentage (or more) of the outstanding shares of our stock (including both common stock
and preferred stock) must file a completed questionnaire with us containing information regarding their ownership of such shares. Under current Treasury Regulations, the percentage will be set
between 0.5% and 5.0%, depending upon the number of record holders of our shares of stock. Under our charter, each common stockholder shall upon demand be required to disclose to us in writing such
information as we may request, in good faith, in order to determine the effect, if any, of such common stockholder's actual and constructive ownership of common stock on our status as a REIT and to
ensure compliance with the ownership limit, or any other limit as provided in our charter or as otherwise permitted by our board of directors.
The
transfer restrictions and limitations described above could delay or prevent a tender offer or change in control of our company or reduce the possibility that a third party will
attempt such a transaction, even if a tender offer or a change in control were in our stockholders' best interests or involved a premium price for our stock, which could adversely affect the market
price of our common stock or any class or series of our preferred stock.
30
Table of Contents
CERTAIN PROVISIONS OF MARYLAND LAW AND OF OUR CHARTER AND BYLAWS
The following summary of certain provisions of Maryland law and of our charter and bylaws does not purport to be complete and is subject to, and
qualified in its entirety by reference to, our charter and bylaws, copies of which are incorporated by reference as exhibits to the registration statement of which this prospectus is a part, and to
the MGCL. See "Where You Can Find More Information."
Election and Removal of Directors
Our charter and bylaws provide that our board of directors may establish the number of directors of our company as long as the number is not
fewer than the minimum number required under the MGCL, which is one, nor, unless our bylaws are amended, more than 15.
Pursuant
to our charter, each of our directors is elected by our stockholders to serve until the next annual meeting following his or her election and until his or her successor is duly
elected and qualifies.
Pursuant
to our bylaws, directors in uncontested elections are elected upon the affirmative vote of a majority of the total votes cast for and against such nominee at a duly called
meeting of stockholders, and directors in contested elections are elected by a plurality of all of the votes cast. In both uncontested and contested elections, holders of shares of our common stock
have no right to cumulative voting in the election of directors. Consequently, at each annual meeting of stockholders, the holders of a majority of the shares of our common stock will be able to elect
all of our directors.
Under
the MGCL and our bylaws, except as otherwise provided in the terms of any class or series of our stock, vacancies on our board of directors created by any reason other than an
increase in the number of directors may be filled by a majority of the remaining directors, even if the remaining directors do not constitute a quorum, and any vacancy in the number of directors
created by an increase in the number of directors may be filled by a majority vote of the entire board. Any individual elected to fill a vacancy will serve until the next annual meeting of
stockholders and until his or her successor is duly elected and qualifies.
Our
charter provides that, subject to the rights of holders of shares of one or more classes or series of preferred stock to elect or remove one or more directors, a director may be
removed only for cause and by the affirmative vote of stockholders entitled to cast a majority of the votes entitled to be cast generally in the election of directors.
Amendment to Charter and Bylaws
Except as provided in the MGCL, amendments to our charter must be advised by our board of directors and approved by the affirmative vote of our
stockholders entitled to cast a majority of all of the votes entitled to be cast on the matter. Our board of directors generally has the
power to amend our bylaws; provided, that, amendments to certain provisions in our bylaws related to a written statement required to be furnished to stockholders in the event of certain distributions,
our investment policy and restrictions, an annual report to stockholders and the definitions used in those sections of our bylaws must be approved by the affirmative vote of our stockholders entitled
to cast a majority of all of the votes entitled to be cast on the matter. Additionally, our bylaws may be amended by the affirmative vote of the holders of a majority of all votes entitled to be cast
on the matter pursuant to a binding proposal submitted for approval at any annual or special meeting of stockholders by any stockholder or group of up to five stockholders holding at least one percent
of the outstanding shares of our common stock for at least one year and who comply with the advance notice provisions in our bylaws. A stockholder proposal submitted under the bylaws may not alter or
repeal the amendment provisions of the bylaws or the provisions of the bylaws related to indemnification of our directors and officers, in either case, without the approval of the board of directors.
31
Table of Contents
Maryland Business Combination Act
Under the MGCL, certain "business combinations" (including certain issuances of equity securities) between a Maryland corporation and any person
who beneficially owns ten percent or more of the voting power of the corporation's outstanding voting stock, or an affiliate or associate of the corporation who beneficially owned ten percent or more
of the voting power at any time within the preceding two years, in each case referred to as an "interested stockholder," or an affiliate thereof, are prohibited for five years after the most recent
date on which the interested stockholder becomes an interested stockholder. Thereafter, any such business combination must be approved by two super-majority stockholder votes unless, among other
conditions, the corporation's common 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 of common stock. The business combination provisions of the MGCL do not apply, however, to business combinations that are approved or exempted by the board of
directors prior to the time that the interested stockholder becomes an interested stockholder. These provisions of the MGCL may delay, defer or prevent a transaction or a change of control of our
company that might involve a premium price for our common stock or any class or series of our preferred stock, or otherwise be in the best interests of our stockholders.
Maryland Control Share Acquisition Act
The MGCL provides that holders of "control shares" of a Maryland corporation acquired in a "control share acquisition" 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 acquirer, by officers of the corporation or by employees
who are directors of the corporation. "Control shares" are voting shares of stock which, if aggregated with all other such shares of stock previously acquired by the acquiror or in respect of which
the acquiror is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquiror to exercise voting power in electing directors within
one of the following ranges of voting power: (1) one-tenth or more but less than one-third, (2) one-third or more but less than a majority, or (3) a majority or more of all voting
power. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A "control share acquisition" means the
acquisition of control shares, subject to certain exceptions.
A
person who has made or proposes to make a control share acquisition, upon satisfaction of certain conditions (including an undertaking to pay expenses), may compel the board of
directors of the corporation to call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the shares. If no request for a meeting is made, the
corporation may itself present the question at any stockholders meeting.
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 statute, then, subject to certain conditions
and limitations, the corporation may redeem for fair value any and all of the control shares (except those for which voting rights have previously been approved). Fair value is determined, without
regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquiror or, if a meeting of stockholders is held at which the voting rights
of such shares are considered and not approved, as of the date of the meeting. If voting rights for control shares are approved at a stockholders meeting and the acquiror becomes entitled to vote a
majority of the shares entitled to vote, all other stockholders may exercise appraisal rights, meaning that they may require us to repurchase their shares for their appraised value as determined
pursuant to the MGCL. The fair value of the shares as determined for purposes of such appraisal rights may not be less than the highest price per share paid by the acquiror in the control share
acquisition.
32
Table of Contents
The
control share acquisition statute does not apply to (1) shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction, or
(2) acquisitions exempted by the charter or bylaws of the corporation, adopted at any time before the acquisition of the shares.
As
permitted by the MGCL, our bylaws contain a provision exempting us from the control share acquisition statute. That bylaw provision states that the control share statute shall not
apply to any acquisition by any person of shares of our stock. Our board of directors may, without the consent of any of our stockholders, amend or eliminate this bylaw provision at any time, which
means that we would then become subject to the Maryland control share acquisition statute, and there can be no assurance that such provision will not be amended or eliminated by our board of directors
at any time in the future.
Subtitle 8
Subtitle 8 of Title 3 of the MGCL permits a Maryland corporation with a class of equity securities registered under the Exchange Act and at
least three independent directors to elect, by provision in its charter or bylaws or a resolution of its board of directors and notwithstanding any contrary provision in the charter or bylaws, to be
subject to any or all of five provisions, including:
-
-
a classified board;
-
-
a two-thirds vote requirement for removing a director;
-
-
a requirement that the number of directors be fixed only by vote of the board of directors;
-
-
a requirement that a vacancy on the board of directors be filled only by a vote of the remaining directors in office and for the remainder of
the full term of the class of directors in which the vacancy occurred and until a successor is elected and qualifies; and
-
-
a majority requirement for the calling of a stockholder-requested special meeting of stockholders.
We
have not elected to be subject to any of the provisions of Subtitle 8, including the provisions that would permit us to classify our board of directors or increase the vote required
to remove a director without stockholder approval. Through provisions in our charter and bylaws unrelated to Subtitle 8, we (1) vest in our board of directors the exclusive power to fix the
number of directors and (2) require, unless called by our chairman, our chief executive officer, our president or our board of directors, the request of stockholders entitled to cast not less
than a majority of all the votes entitled to be cast at the meeting to call a special meeting of stockholders. The provisions of Subtitle 8 expressly provide that Subtitle 8 does not limit the power
of a Maryland corporation, by provision in its charter, to confer on the holders of any class or series of preferred stock the right to elect one or more directors or designate the terms and voting
powers of directors, which may vary among directors.
Special Meetings of Stockholders
Pursuant to our bylaws, our chairman, our chief executive officer, our president or our board of directors may call a special meeting of our
stockholders. Subject to the provisions of our bylaws, a special meeting of our stockholders to act on any matter that may properly be considered by our stockholders will also be called by our
secretary upon the written request of stockholders entitled to cast not less than a majority of all the votes entitled to be cast at the meeting on such matter, accompanied by the information required
by our bylaws. Our secretary will inform the requesting stockholders of the reasonably estimated cost of preparing and delivering the notice of meeting (including our proxy materials), and the
requesting stockholder must pay such estimated cost before our secretary may prepare and deliver the notice of the special meeting.
33
Table of Contents
Proxy Access
Our bylaws include provisions permitting, subject to certain eligibility, procedural and disclosure requirements, qualifying stockholders, or a
qualifying group of no more than 20 stockholders, who have maintained continuous ownership of at least three percent of our outstanding shares of common stock for at least three years to require us to
include in our proxy materials for an annual meeting of stockholders a number of director nominees not to exceed the greater of two nominees or 20 percent of the number of directors up for
election.
Advance Notice of Director Nomination and New Business
Our bylaws provide that nominations of individuals for election as directors and proposals of business to be considered by stockholders at any
annual meeting may be made only (1) pursuant to our notice of the meeting, (2) by or at the direction of our board of directors or (3) by any stockholder who was a stockholder of
record as of the record date set by the board for the annual meeting, at the time of giving the notice required by our bylaws and at the time of the meeting, who is entitled to vote at the meeting in
the election of each individual so nominated or on such other proposed business and who has complied with the advance notice procedures and, if applicable, the proxy access provisions, of our bylaws.
Stockholders generally must provide notice to our secretary not earlier than the 150th day or later than 5:00 p.m., Pacific Time, on the 120th day before the first anniversary of
the date our proxy statement was released for the preceding year's annual meeting.
Only
the business specified in the notice of the meeting may be brought before a special meeting of our stockholders. Nominations of individuals for election as directors at a special
meeting of stockholders may be made only (1) by or at the direction of our board of directors, (2) by a stockholder that has requested that a special meeting be called for the purpose of
electing directors in compliance with our bylaws or (3) if the special meeting has been called in accordance with our bylaws for the purpose of electing directors, by a stockholder who is a
stockholder of record as of the record date set by the board for the special meeting, at the time of giving the notice required by our bylaws and at the time of the special meeting, who is entitled to
vote at the meeting in the election of each individual so nominated and who has complied with the advance notice procedures of our bylaws. Stockholders generally must provide notice to our secretary
not earlier than the 120th day before such special meeting or later than 5:00 p.m., Pacific Time, on the later of the 90th day before the special meeting or the tenth day after
the first public announcement of the date of the special meeting and the nominees of our board of directors to be elected at the meeting.
A
stockholder's notice must contain certain information specified by our bylaws about the stockholder, its affiliates and any proposed business or nominee for election as a director,
including information about the economic interest of the stockholder, its affiliates and any proposed nominee in us.
Effect of Certain Provisions of Maryland Law and our Charter and Bylaws
Our charter contains restrictions on ownership and transfer of our stock intended to, among other purposes, assist us in maintaining our status
as a REIT for United States federal and/or state income tax purposes. For example, our charter restricts any person or entity from acquiring actual or constructive ownership of more than 9.8% (by
value or by number of shares, whichever is more restrictive) of our outstanding shares of common stock. See "Restrictions on Ownership and Transfers of Stock." These restrictions could delay or
prevent a tender offer or change in control of our company or reduce the possibility that a third party will attempt such a transaction, even if a tender offer or a change of control were in our
stockholders' interests or involved a premium price for our common stock, which could adversely affect the market price of our common stock.
34
Table of Contents
Our
charter authorizes our board of directors to issue preferred stock of the company, including convertible preferred stock, without stockholder approval. The board of directors may
establish 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
any class or series of preferred stock we may issue, which may include voting rights and rights to convert such preferred stock into common stock. See "General Description of Preferred Stock." The
issuance of preferred stock could delay or prevent a tender offer or change in control of our company or reduce the possibility that a third party will attempt such a transaction, even if a tender
offer or a change of control were in our stockholders' interests or involved a premium price for our common stock or any class or series of our preferred stock, which could adversely affect the market
price of our common stock and any such class or series of preferred stock.
Our
charter and bylaws also provide that the number of directors may be established only by our board of directors, which prevents our stockholders from increasing the number of our
directors and filling any vacancies created by such increase with their own nominees. The provisions of our bylaws discussed above under the captions "Special Meetings of Stockholders"
and "Advance Notice of Director Nomination and New Business" require stockholders seeking to call a special meeting, nominate an individual for election as a director or propose other
business at an annual or special meeting to comply with certain notice and information requirements. These provisions, alone or in combination, could make it more difficult for our stockholders to
remove
incumbent directors or fill vacancies on our board of directors with their own nominees and could delay or prevent a proxy contest, tender offer or change in control of our company or reduce the
possibility that a third party will attempt such a contest or transaction, even if a proxy contest, tender offer or a change of control were in our stockholders' interests or involved a premium price
for our common stock or any class or series of our preferred stock, which could adversely affect the market price of our common stock and any such class or series of preferred stock.
35
Table of Contents
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain material U.S. federal income tax considerations regarding our election to be taxed as a REIT
and the acquisition, ownership and disposition of our capital stock or debt securities. Supplemental U.S. federal income tax considerations relevant to holders of the securities offered by this
prospectus (including warrants, preferred stock and depositary shares) may be provided in the prospectus supplement or a free writing prospectus that relates to those securities or a document
incorporated by reference in the prospectus supplement. For purposes of this discussion, references to "we," "our" and "us" mean only Realty Income Corporation and do not include any of its
subsidiaries, except as otherwise indicated. This discussion is for general information only and is not tax advice. The information under this caption "United States Federal Income Tax Considerations"
(a) supersedes and replaces in its entirety the information appearing in our
Form 8-K filed with the SEC on February 27, 2018
(including Exhibit 99.1 thereto) and (b) may be amended, supplemented or superseded (in whole or in part) from time to time by information in documents we subsequently file with the SEC
that are incorporated by reference in this prospectus.
The
information in this discussion is based on:
-
-
the Code;
-
-
current, temporary and proposed Treasury Regulations promulgated under the Code;
-
-
the legislative history of the Code;
-
-
administrative interpretations and practices of the IRS; and
-
-
court decisions;
in
each case, as of the date of this prospectus. In addition, the administrative interpretations and practices of the IRS include its practices and policies as expressed in private letter rulings that
are not binding on the IRS except with respect to the particular taxpayers who requested and received those rulings. The sections of the Code and the corresponding Treasury Regulations that relate to
qualification and taxation as a REIT are highly technical and complex. The following discussion sets forth certain material aspects of the sections of the Code that govern the U.S. federal income tax
treatment of a REIT, its stockholders and the holders of its debt securities. This discussion is qualified in its entirety by the applicable Code provisions, Treasury Regulations promulgated under the
Code, and administrative and judicial interpretations thereof. Potential tax reforms may result in significant changes to the rules governing U.S. federal income taxation. New legislation, Treasury
Regulations, administrative interpretations and practices and/or court decisions may significantly and adversely affect our ability to qualify as a REIT, the U.S. federal income tax consequences of
such qualification, or the U.S. federal income tax consequences of an investment in our capital stock or debt securities, including those described in this discussion. Moreover, the law relating to
the tax treatment of other entities, or an investment in other entities, could change, making an investment in such other entities more attractive relative to an investment in a REIT. Any such changes
could apply retroactively to transactions preceding the date of the change. We have not requested, and do not plan to request, any rulings from the IRS that we qualify as a REIT, and the statements in
this prospectus are not binding on the IRS or any court. Thus, we can provide no assurance that the tax considerations contained in this discussion will not be challenged by the IRS or will be
sustained by a court if challenged by the IRS. This summary does not discuss any state, local or non-U.S. tax consequences, or any tax consequences arising under any U.S. federal tax laws other than
U.S. federal income tax laws, associated with the acquisition, ownership or disposition of our capital stock or debt securities, or our election to be taxed as a REIT.
36
Table of Contents
Taxation of Our Company
General. We have elected to be taxed as a REIT under Sections 856 through 860 of the Code, commencing with our taxable year
ended
December 31, 1994. We believe that we have been organized
and have operated in a manner that has allowed us to qualify for taxation as a REIT under the Code commencing with such taxable year, and we intend to continue to be organized and operate in this
manner. However, qualification and taxation as a REIT depend upon our ability to meet the various qualification tests imposed under the Code, including through actual operating results, asset
composition, distribution levels and diversity of stock ownership. Accordingly, no assurance can be given that we have been organized and have operated, or will continue to be organized and operate,
in a manner so as to qualify or remain qualified as a REIT. See "Failure to Qualify" for potential tax consequences if we fail to qualify as a REIT.
Latham &
Watkins LLP has acted as our tax counsel in connection with our filing of this prospectus and our election to be taxed as a REIT. Latham &
Watkins LLP has rendered an opinion to us, as of the date of this prospectus, to the effect that, commencing with our taxable year ending December 31, 1994, we have been organized and
have operated in conformity with the requirements for qualification and taxation as a REIT under the Code, and our proposed method of operation will enable us to continue to meet the requirements for
qualification and taxation as a REIT under the Code. It must be emphasized that this opinion was based on various assumptions and representations as to factual matters, including representations made
by us in a factual certificate provided by one of our officers. In addition, this opinion was based upon our factual representations set forth in this prospectus. Moreover, our qualification and
taxation as a REIT depend upon our ability to meet the various qualification tests imposed under the Code, which are discussed below, including through actual operating results, asset composition,
distribution levels and diversity of stock ownership, the results of which have not been and will not be reviewed by Latham & Watkins LLP. Accordingly, no assurance can be given that our
actual results of operation for any particular taxable year have satisfied or will satisfy those requirements. Further, the anticipated U.S. federal income tax treatment described herein may be
changed, perhaps retroactively, by legislative, administrative or judicial action at any time. Latham & Watkins LLP has no obligation to update its opinion subsequent to the date of such
opinion.
Provided
we qualify for taxation as a REIT, we generally will not be required to pay U.S. federal corporate income taxes on our REIT taxable income that is currently distributed to our
stockholders. This treatment substantially eliminates the "double taxation" that ordinarily results from investment in a C corporation. A C corporation is a corporation that generally is required to
pay tax at the corporate level. Double taxation means taxation once at the corporate level when income is earned and once again at the stockholder level when the income is distributed. We will,
however, be required to pay U.S. federal income tax as follows:
-
-
First, we will be required to pay regular U.S. federal corporate income tax on any undistributed REIT taxable income, including undistributed
capital gain.
-
-
Second, if we have (1) net income from the sale or other disposition of "foreclosure property" held primarily for sale to customers in
the ordinary course of business or (2) other nonqualifying income from foreclosure property, we will be required to pay regular U.S. federal corporate income tax on this income. To the extent
that income from foreclosure property is otherwise
37
Table of Contents
qualifying
income for purposes of the 75% gross income test, this tax is not applicable. Subject to certain other requirements, foreclosure property generally is defined as property we acquired
through foreclosure or after a default on a loan secured by the property or a lease of the property. See "Foreclosure Property."
-
-
Third, we will be required to pay a 100% tax on any net income from prohibited transactions. Prohibited transactions are, in general, sales or
other taxable dispositions of property, other than foreclosure property, held as inventory or primarily for sale to customers in the ordinary course of business.
-
-
Fourth, if we fail to satisfy the 75% gross income test or the 95% gross income test, as described below, but have otherwise maintained our
qualification as a REIT because certain other requirements are met, we will be required to pay a tax equal to (1) the greater of (A) the amount by which we fail to satisfy the 75% gross
income test and (B) the amount by which we fail to satisfy the 95% gross income test, multiplied by (2) a fraction intended to reflect our profitability.
-
-
Fifth, if we fail to satisfy any of the asset tests (other than a de minimis failure of the 5% or 10% asset tests), as described below, 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 U.S. federal corporate income tax rate multiplied by the net income generated by the nonqualifying assets that caused us to fail such test.
-
-
Sixth, if we fail to satisfy any provision of the Code that would result in our failure to qualify as a REIT (other than a violation of the
gross income tests or certain violations of the asset tests, as described below) and the 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.
-
-
Seventh, we will be required to pay a 4% excise tax to the extent we fail to distribute during each calendar year at least the sum of
(1) 85% of our ordinary income for the year, (2) 95% of our capital gain net income for the year, and (3) any undistributed taxable income from prior periods.
-
-
Eighth, if we acquire any asset from a corporation that is or has been a C corporation in a transaction in which our tax basis in the asset is
less than the fair market value of the asset, in each case determined as of the date on which we acquired the asset, and we subsequently recognize gain on the disposition of the asset during the
five-year period beginning on the date on which we acquired the asset, then we generally will be required to pay regular U.S. federal corporate income tax on this gain to the extent of the excess of
(1) the fair market value of the asset over (2) our adjusted tax basis in the asset, in each case determined as of the date on which we acquired the asset. The results described in this
paragraph with respect to the recognition of gain assume that the C corporation will refrain from making an election to receive different treatment under applicable Treasury Regulations on its tax
return for the year in which we acquire the asset from the C corporation. Under applicable Treasury Regulations, any gain from the sale of property we acquired in an exchange under Section 1031
(a like-kind exchange) or Section 1033 (an involuntary conversion) of the Code generally is excluded from the application of this built-in gains tax.
-
-
Ninth, our subsidiaries that are C corporations, including our "taxable REIT subsidiaries" described below, generally will be required to pay
regular U.S. federal corporate income tax on their earnings.
38
Table of Contents
-
-
Tenth, we will be required to pay a 100% tax on any "redetermined rents," "redetermined deductions," "excess interest" or "redetermined TRS
service income," as described below under "Penalty Tax." In general, redetermined rents are rents from real property that are overstated as a result of services furnished to any of our
tenants by a taxable REIT subsidiary of ours. Redetermined deductions and excess interest generally represent amounts that are deducted by a taxable REIT subsidiary of ours for amounts paid to us that
are in excess of the amounts that would have been deducted based on arm's length negotiations. Redetermined TRS service income generally represents income of a taxable REIT subsidiary that is
understated as a result of services provided to us or on our behalf.
-
-
Eleventh, we may elect to retain and pay income tax on our net capital gain. In that case, a stockholder would include its proportionate share
of our undistributed capital gain (to the extent we make a timely designation of such gain to the stockholder) in its income, would be deemed to have paid the tax that we paid on such gain, and would
be allowed a credit for its proportionate share of the tax deemed to have been paid, and an adjustment would be made to increase the tax basis of the stockholder in our capital stock.
-
-
Twelfth, if we fail to comply with the requirement to send annual letters to our stockholders holding at least a certain percentage of our
stock, as determined under applicable Treasury Regulations, requesting information regarding the actual ownership of our stock, and the failure is not due to reasonable cause or is due to willful
neglect, we will be subject to a $25,000 penalty, or if the failure is intentional, a $50,000 penalty.
We
and our subsidiaries may be subject to a variety of taxes other than U.S. federal income tax, including payroll taxes and state and local income, property and other taxes on our
assets and operations.
From
time to time, we may own properties in other countries, which may impose taxes on our operations within their jurisdictions. To the extent possible, we will structure our activities
to minimize our non-U.S. tax liability. However, there can be no assurance that we will be able to eliminate our non-U.S. tax liability or reduce it to a specified level. Furthermore, as a REIT, both
we and our stockholders will derive little or no benefit from foreign tax credits arising from those non-U.S. taxes.
Requirements for Qualification as a REIT. The Code defines a REIT as a corporation, trust or association:
-
(1)
-
that
is managed by one or more trustees or directors;
-
(2)
-
that
issues transferable shares or transferable certificates to evidence its beneficial ownership;
-
(3)
-
that
would be taxable as a domestic corporation, but for Sections 856 through 860 of the Code;
-
(4)
-
that
is not a financial institution or an insurance company within the meaning of certain provisions of the Code;
-
(5)
-
that
is beneficially owned by 100 or more persons;
-
(6)
-
not
more than 50% in value of the outstanding stock of which is owned, actually or constructively, by five or fewer individuals, including certain specified
entities, during the last half of each taxable year; and
-
(7)
-
that
meets other tests, described below, regarding the nature of its income and assets and the amount of its distributions.
The
Code provides that conditions (1) to (4), inclusive, must be met during the entire taxable year and that condition (5) must be met during at least 335 days of a
taxable year of 12 months, or during a
39
Table of Contents
proportionate
part of a taxable year of less than 12 months. Conditions (5) and (6) do not apply until after the first taxable year for which an election is made to be taxed as a
REIT. For purposes of condition (6), the term "individual" includes a supplemental unemployment compensation benefit plan, a private foundation or a portion of a trust permanently set aside or
used exclusively for charitable purposes, but generally does not include a qualified pension plan or profit sharing trust.
We
believe that we have been organized and have operated in a manner that has allowed us, and will continue to allow us, to satisfy conditions (1) through (7) inclusive,
during the relevant time periods. In addition, our charter provides for restrictions regarding ownership and transfer of our shares that are intended to assist us in continuing to satisfy the share
ownership requirements described in conditions (5) and (6) above. A description of the share ownership and transfer restrictions relating to our capital stock is contained in the
discussion in this prospectus under the heading "Restrictions on Ownership and Transfers of Stock." These restrictions, however, do not ensure that we have previously satisfied, and may not ensure
that we will, in all cases, be able to continue to satisfy, the share ownership requirements described in conditions (5) and (6) above. If we fail to satisfy these share ownership
requirements, except as provided in the next sentence, our status as a REIT will terminate. If, however, we comply with the rules contained in applicable Treasury Regulations that require us to
ascertain the actual ownership of our shares and we do not know, or would not have known through the exercise of reasonable diligence, that we failed to meet the requirement described in
condition (6) above, we will be treated as having met this requirement. See "Failure to Qualify."
In
addition, we may not maintain our status as a REIT unless our taxable year is the calendar year. We have and will continue to have a calendar taxable year.
Ownership of Interests in Partnerships, Limited Liability Companies and Qualified REIT Subsidiaries. In the case of a REIT that
is a partner in a
partnership (for purposes of this discussion, references to "partnership" include a limited liability company treated as a partnership for U.S. federal income tax purposes, and references to "partner"
include a member in such a limited liability company), Treasury Regulations provide that the REIT will be deemed to own its proportionate share of the assets of the partnership based on its interest
in partnership capital, subject to special rules relating to the 10% asset test described below. Also, the REIT will be deemed to be entitled to its proportionate share of the income of that entity.
The assets and gross income of the partnership retain the same character in the hands of the REIT for purposes of Section 856 of the Code, including satisfying the gross income tests and the
asset tests. Thus, our pro rata share of the assets and items of income of any partnership or disregarded entity for U.S. federal income tax purposes in which we directly or indirectly own an interest
is treated as our assets and items of income for purposes of applying the requirements described in this discussion, including the gross income and asset tests described below. A brief summary of the
rules governing the U.S. federal income taxation of partnerships is set forth below in "Tax Aspects of the Subsidiary Partnerships and the Limited Liability Companies."
We
generally have control of our subsidiary partnerships and intend to operate them in a manner consistent with the requirements for our qualification as a REIT. We may from time to time
be a limited partner or non-managing member in some of our partnerships. If a partnership in which we own an interest takes or expects to take actions that could jeopardize our status as a REIT or
require us to pay tax, we may be forced to dispose of our interest in such entity. In addition, it is possible that a partnership could take an action which could cause us to fail a gross income or
asset test, and that we would not become aware of such action in time to dispose of our interest in the partnership or take other corrective action on a timely basis. In such a case, we could fail to
qualify as a REIT unless we were entitled to relief, as described below.
We
may from time to time own and operate certain properties through wholly-owned subsidiaries that we intend to be treated as "qualified REIT subsidiaries" under the Code. A corporation
will qualify as our qualified REIT subsidiary if we own 100% of the corporation's outstanding stock and do
40
Table of Contents
not
elect with the subsidiary to treat it as a "taxable REIT subsidiary," as described below. A qualified REIT subsidiary is not treated as a separate corporation, and all assets, liabilities and
items of income, gain, loss, deduction and credit of a qualified REIT subsidiary are treated as assets, liabilities and items of income, gain, loss, deduction and credit of the parent REIT for all
purposes under the Code, including all REIT qualification tests. Thus, in applying the U.S. federal income tax requirements described in this discussion, any qualified REIT subsidiaries we own are
ignored, and all assets, liabilities and items of income, gain, loss, deduction and credit of such corporations are treated as our assets, liabilities and items of income, gain, loss, deduction and
credit. A qualified REIT subsidiary is not subject to U.S. federal income tax, and our ownership of the stock of a qualified REIT subsidiary will not violate the restrictions on ownership of
securities, as described below under "Asset Tests."
Ownership of Interests in Taxable REIT Subsidiaries. We currently own an interest in a number of taxable REIT subsidiaries and
may acquire securities
in additional taxable REIT subsidiaries in the future. A taxable REIT subsidiary is a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) other than a REIT in
which a REIT directly or indirectly holds stock, and that has made a joint election with such REIT to be treated as a taxable REIT subsidiary. If a taxable REIT subsidiary owns more than 35% of the
total voting power or value of the outstanding securities of another corporation, such other corporation will also be treated as a taxable REIT subsidiary. Other than some activities relating to
lodging and health care facilities, a taxable REIT subsidiary may generally engage in any business, including the provision of customary or non-customary services to tenants of its parent REIT. A
taxable REIT subsidiary is subject to U.S. federal income tax as a regular C corporation. A REIT's ownership of securities of a taxable REIT subsidiary is not subject to the 5% or 10% asset test
described below. See "Asset Tests." For taxable years beginning after December 31, 2017, taxpayers are subject to a limitation on their ability to deduct net business interest
generally equal to 30% of adjusted taxable income, subject to certain exceptions. See "Annual Distribution Requirements." While not certain, this provision may limit the ability of our
taxable REIT subsidiaries to deduct interest, which could increase their taxable income.
Income Tests. We must satisfy two gross income requirements annually to maintain our qualification as a REIT. First, in each
taxable year we must
derive directly or indirectly at least 75% of our gross income (excluding gross income from prohibited transactions, certain hedging transactions and certain foreign currency gains) from investments
relating to real property or mortgages on real property, including "rents from real property," dividends from other REITs and, in certain circumstances, interest, or certain types of temporary
investments. Second, in each taxable year we must derive at least 95% of our gross income (excluding gross income from prohibited transactions, certain hedging transactions, and certain foreign
currency gains) from the real property investments described above or dividends, interest and gain from the sale or disposition of stock or securities, or from any combination of the foregoing. For
these purposes, the term "interest" generally does not include any amount received or accrued, directly or indirectly, if the determination of all or some of the amount depends in any way on the
income or profits of any person. However, an amount received or accrued generally will not be excluded from the term "interest" solely by reason of being based on a fixed percentage or percentages of
receipts or sales.
Rents
we receive from a tenant will qualify as "rents from real property" for the purpose of satisfying the gross income requirements for a REIT described above only if all of the
following conditions are met:
-
-
The amount of rent is not based in whole or in part on the income or profits of any person. However, an amount we receive or accrue generally
will not be excluded from the term "rents from real property" solely because it is based on a fixed percentage or percentages of receipts or sales;
41
Table of Contents
-
-
Neither we nor an actual or constructive owner of 10% or more of our capital stock actually or constructively owns 10% or more of the interests
in the assets or net profits of a non-corporate tenant, or, if the tenant is a corporation, 10% or more of the total combined voting power of all classes of stock entitled to vote or 10% or more of
the total value of all classes of stock of the tenant. Rents we receive from such a tenant that is a taxable REIT subsidiary of ours, however, will not be excluded from the definition of "rents from
real property" as a result of this condition if at least 90% of the space at the property to which the rents relate is leased to third parties, and the rents paid by the taxable REIT subsidiary are
substantially comparable to rents paid by our other tenants for comparable space. Whether rents paid by a taxable REIT subsidiary are substantially comparable to rents paid by other tenants is
determined at the time the lease with the taxable REIT subsidiary is entered into, extended, and modified, if such modification increases the rents due under such lease. Notwithstanding the foregoing,
however, if a lease with a "controlled taxable REIT subsidiary" is modified and such modification results in an increase in the rents payable by such taxable REIT subsidiary, any such increase will
not qualify as "rents from real property." For purposes of this rule, a "controlled taxable REIT subsidiary" is a taxable REIT subsidiary in which the parent REIT owns stock possessing more than 50%
of the voting power or more than 50% of the total value of the outstanding stock of such taxable REIT subsidiary;
-
-
Rent attributable to personal property, leased in connection with a lease of real property, is not greater than 15% of the total rent received
under the lease. If this condition is not met, then the portion of the rent attributable to personal property will not qualify as "rents from real property." To the extent that rent attributable to
personal property, leased in connection with a lease of real property, exceeds 15% of the total rent received under the lease, we may transfer a portion of such personal property to a taxable REIT
subsidiary; and
-
-
We generally may not operate or manage the property or furnish or render services to our tenants, subject to a 1% de minimis exception and
except as provided below. We may, however, perform services that are "usually or customarily rendered" in connection with the rental of space for occupancy only and are not otherwise considered
"rendered to the occupant" of the property. Examples of these services include the provision of light, heat, or other utilities, trash removal and general maintenance of common areas. In addition, we
may employ an independent contractor from whom we derive no revenue to provide customary services to our tenants, or a taxable REIT subsidiary (which may be wholly or partially owned by us) to provide
both customary and non-customary services to our tenants without causing the rent we receive from those tenants to fail to qualify as "rents from real property."
We
generally do not intend to take actions we believe will cause us to fail to satisfy the rental conditions described above. However, we may intentionally fail to satisfy some of these
conditions to the extent we determine, based on the advice of our tax counsel, that the failure will not jeopardize our tax status as a REIT. In addition, with respect to the limitation on the rental
of personal property, we generally have not obtained appraisals of the real property and personal property leased to tenants. Accordingly, there can be no assurance that the IRS will not disagree with
our determinations of value.
From
time to time, we may enter into hedging transactions with respect to one or more of our assets or liabilities. Our hedging activities may include entering into interest rate swaps,
caps, and floors, options to purchase these items, and futures and forward contracts. Income from a hedging transaction, including gain from the sale or disposition of such a transaction, that is
clearly identified as a hedging transaction as specified in the Code will not constitute gross income under, and thus will be exempt from, the 75% and 95% gross income tests. The term "hedging
transaction," as used above, generally means (A) any transaction we enter into in the normal course of our business primarily to manage risk of (1) interest rate changes or fluctuations
with respect to borrowings made or to be made by us to acquire or carry real estate assets, or (2) currency fluctuations with respect to an item of
42
Table of Contents
qualifying
income under the 75% or 95% gross income test or any property which generates such income and (B) new transactions entered into to hedge the income or loss from prior hedging
transactions, where the property or indebtedness which was the subject of the prior hedging transaction was extinguished or disposed of. To the extent that we do not properly identify such
transactions as hedges or we hedge with other types of financial instruments, the income from those transactions is not likely to be treated as qualifying income for purposes of the gross income
tests. We intend to structure any hedging transactions in a manner that does not jeopardize our status as a REIT.
From
time to time we may own properties or entities located outside the United States. These acquisitions could cause us to incur foreign currency gains or losses. Any foreign currency
gains, to the extent attributable to specified items of qualifying income or gain, or specified qualifying assets, however, generally will not constitute gross income for purposes of the 75% and 95%
gross income tests, and therefore will be excluded from these tests.
To
the extent our taxable REIT subsidiaries pay dividends or interest, our allocable share of such dividend or interest income will qualify under the 95%, but not the 75%, gross income
test (except that our allocable share of such interest would also qualify under the 75% gross income test to the extent the interest is paid on a loan that is adequately secured by real property).
We
will monitor the amount of the dividend and other income from our taxable REIT subsidiaries and will take actions intended to keep this income, and any other nonqualifying income,
within the limitations of the gross income tests. Although we expect these actions will be sufficient to prevent a violation of the gross income tests, we cannot guarantee that such actions will in
all cases prevent such a violation.
If
we fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year, we may nevertheless qualify as a REIT for the year if we are entitled to relief under certain
provisions of the Code. We generally may make use of the relief provisions if:
-
-
following our identification of the failure to meet the 75% or 95% gross income tests for any taxable year, we file a schedule with the
IRS setting forth each item of our gross income for purposes of the 75% or 95% gross income tests for such taxable year in accordance with Treasury Regulations to be issued; and
-
-
our failure to meet these tests was due to reasonable cause and not due to willful neglect.
It
is not possible, however, to state whether in all circumstances we would be entitled to the benefit of these relief provisions. For example, if we fail to satisfy the gross income
tests because nonqualifying income that we intentionally accrue or receive exceeds the limits on nonqualifying income, the IRS could conclude that our failure to satisfy the tests was not due to
reasonable cause. If these relief provisions do not apply to a particular set of circumstances, we will not qualify as a REIT. See "Failure to Qualify" below. As discussed above
inGeneral," even if these relief provisions apply, and we retain our status as a REIT, a tax would be imposed with respect to our nonqualifying income. We may not always be able to comply
with the gross income tests for REIT qualification despite periodic monitoring of our income.
Prohibited Transaction Income. Any gain that we realize on the sale of property (other than any foreclosure property) held as
inventory or otherwise
held primarily for sale to customers in the ordinary course of business, including any gain realized by our qualified REIT subsidiaries and our share of any gain realized by any of the partnerships in
which we own an interest, will be treated as income from a prohibited transaction that is subject to a 100% penalty tax, unless certain safe harbor exceptions apply. This prohibited transaction income
may also adversely affect our ability to satisfy the gross income tests for qualification as a REIT. Under existing law, whether property is held as inventory or primarily for sale to customers in the
ordinary course of a trade or business is a question of fact that depends on all the facts and circumstances surrounding the particular transaction. We intend to hold our properties for
43
Table of Contents
investment
with a view to long-term appreciation, to engage in the business of acquiring, developing and owning our properties and to make occasional sales of the properties as are consistent with our
investment objectives. We do not intend, and do not intend to permit any of the partnerships in which we own an interest, to enter into any sales that are prohibited transactions. However, the IRS may
successfully contend that some or all of the sales made by us or our subsidiary partnerships are prohibited transactions. We would be required to pay the 100% penalty tax on our allocable share of the
gains resulting from any such sales. The 100% penalty tax will not apply to gains from the sale of assets that are held through a taxable REIT subsidiary, but such income will be subject to regular
U.S. federal corporate income tax.
Penalty Tax. Any redetermined rents, redetermined deductions, excess interest or redetermined TRS service income we generate
will be subject to a
100% penalty tax. In general, redetermined rents are
rents from real property that are overstated as a result of any services furnished to any of our tenants by a taxable REIT subsidiary of ours, redetermined deductions and excess interest represent any
amounts that are deducted by a taxable REIT subsidiary of ours for amounts paid to us that are in excess of the amounts that would have been deducted based on arm's length negotiations, and
redetermined TRS service income is income of a taxable REIT subsidiary that is understated as a result of services provided to us or on our behalf. Rents we receive will not constitute redetermined
rents if they qualify for certain safe harbor provisions contained in the Code.
We
do not believe we have been, and do not expect to be, subject to this penalty tax, although any rental or service arrangements we enter into from time to time may not satisfy the
safe-harbor provisions described above. These determinations are inherently factual, and the IRS has broad discretion to assert that amounts paid between related parties should be reallocated to
clearly reflect their respective incomes. If the IRS successfully made such an assertion, we would be required to pay a 100% penalty tax on any overstated rents paid to us, or any excess deductions or
understated income of our taxable REIT subsidiaries.
Asset Tests. At the close of each calendar quarter of our taxable year, we must also satisfy certain tests relating to the
nature and diversification
of our assets. First, at least 75% of the value of our total assets must be represented by real estate assets, cash, cash items and U.S. government securities. For purposes of this test, the term
"real estate assets" generally means real property (including interests in real property and interests in mortgages on real property or on both real property and, to a limited extent, personal
property), shares (or transferable certificates of beneficial interest) in other REITs, any stock or debt instrument attributable to the investment of the proceeds of a stock offering or a public
offering of debt with a term of at least five years (but only for the one-year period beginning on the date the REIT receives such proceeds), debt instruments of publicly offered REITs, and 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.
Second,
not more than 25% of the value of our total assets may be represented by securities (including securities of taxable REIT subsidiaries), other than those securities includable in
the 75% asset test.
Third,
of the investments included in the 25% asset class, and except for certain investments in other REITs, our qualified REIT subsidiaries and taxable REIT subsidiaries, the value of
any one issuer's securities may not exceed 5% of the value of our total assets , and we may not own more than 10% of the total vote or value of the outstanding securities of any one issuer. Certain
types of securities we may own are disregarded as securities solely for purposes of the 10% value test, including, but not limited to, securities satisfying the "straight debt" safe-harbor, securities
issued by a partnership that itself would satisfy the 75% income test if it were a REIT, any loan to an individual or an estate, any obligation to pay rents from real property and any security issued
by a REIT. In addition, solely for purposes of the 10% value test, the determination of our interest in the assets of a partnership in
44
Table of Contents
which
we own an interest will be based on our proportionate interest in any securities issued by the partnership, excluding for this purpose certain securities described in the Code. From time to time
we may own securities (including debt securities) of issuers that do not qualify as a REIT, a qualified REIT subsidiary or a taxable REIT subsidiary. We intend that our ownership of any such
securities will be structured in a manner that allows us to comply with the asset tests described above.
Fourth,
not more than 20% (25% for taxable years beginning after July 30, 2008 and before January 1, 2018) of the value of our total assets may be represented by the
securities of one or more taxable REIT subsidiaries. We currently own 100% of the stock of certain corporations that have elected, together with us, to be treated as our taxable REIT subsidiaries, and
we may acquire securities in additional taxable REIT subsidiaries in the future. So long as each of these companies qualifies as a taxable REIT subsidiary of ours, we will not be subject to the 5%
asset test, the 10% voting securities limitation or the 10% value limitation with respect to our ownership of the securities of such companies. We believe that the aggregate value of our taxable REIT
subsidiaries has not exceeded, and in the future will not exceed, 20% (25% for taxable years beginning after July 30, 2008 and before January 1, 2018) of the aggregate value of our gross
assets. We generally do not obtain independent appraisals to support these conclusions. In addition, there can be no assurance that the IRS will not disagree with our determinations of value.
Fifth,
not more than 25% of the value of our total assets may be represented by debt instruments of publicly offered REITs to the extent those debt instruments would not be real estate
assets but for the inclusion of debt instruments of publicly offered REITs in the meaning of real estate assets, as described above (e.g., a debt instrument issued by a publicly offered REIT
that is not secured by a mortgage on real property).
The
asset tests must be satisfied at the close of each calendar quarter of our taxable year in which we (directly or through our qualified REIT subsidiaries or partnerships) acquire
securities in the applicable issuer, and also at the close of each calendar quarter in which we increase our ownership of securities of such issuer (including as a result of an increase in our
interest in any partnership that owns such securities). For example, our indirect ownership of securities of each issuer may increase as a result of our capital contributions to, or the redemption of
other partners' interests in, a partnership in which we have an ownership interest. Also, after initially meeting the asset tests at the close of any quarter, we will not lose our status as a REIT for
failure to satisfy the asset tests at the end of a later quarter solely by reason of changes in asset values. If we fail to satisfy an asset test because we acquire securities or other property during
a quarter (including as a result of an increase in our interest in any partnership), we may cure this failure by disposing of sufficient nonqualifying assets within 30 days after the close of
that quarter. We believe that we have maintained, and we intend to maintain, adequate records of the value of our assets to ensure compliance with the asset tests. If we fail to cure any noncompliance
with the asset tests within the 30-day cure period, we would cease to qualify as a REIT unless we are eligible for certain relief provisions discussed below.
Certain
relief provisions may be available to us if we discover a failure to satisfy the asset tests described above after the 30-day cure period. Under these provisions, we will be
deemed to have met the 5% and 10% asset tests if the value of our nonqualifying assets (i) does not exceed the lesser of (a) 1% of the total value of our assets at the end of the
applicable quarter or (b) $10,000,000, and (ii) we dispose of the nonqualifying assets or otherwise satisfy such tests within (a) six months after the last day of the quarter in
which the failure to satisfy the asset tests is discovered or (b) the period of time prescribed by Treasury Regulations to be issued. For violations of any of the asset tests due to reasonable
cause and not due to willful neglect and that are, in the case of the 5% and 10% asset tests, in excess of the de minimis exception described above, we may avoid disqualification as a REIT after the
30-day cure period by taking steps including (i) the disposition of sufficient nonqualifying assets, or the taking of other actions, which allow us to meet the asset tests within (a) six
months after the last day of the quarter in which the failure to satisfy the asset tests is discovered or (b) the period of time
45
Table of Contents
prescribed
by Treasury Regulations to be issued, (ii) paying a tax equal to the greater of (a) $50,000 or (b) the U.S. federal corporate income tax rate multiplied by the net
income generated by the nonqualifying assets, and (iii) disclosing certain information to the IRS.
Although
we believe we have satisfied the asset tests described above and plan to take steps to ensure that we satisfy such tests for any quarter with respect to which retesting is to
occur, there can be no assurance that we will always be successful, or will not require a reduction in our overall interest in an issuer (including in a taxable REIT subsidiary). If we fail to cure
any noncompliance with the asset tests in a timely manner, and the relief provisions described above are not available, we would cease to qualify as a REIT.
Annual Distribution Requirements. To maintain our qualification as a REIT, we are required to distribute dividends, other than
capital gain
dividends, to our stockholders in an amount at least equal to the sum of:
-
-
90% of our REIT taxable income; and
-
-
90% of our after-tax net income from foreclosure property, if any; minus
-
-
the excess of the sum of certain items of non-cash income over 5% of our REIT taxable income.
For
these purposes, our REIT taxable income is computed without regard to the dividends paid deduction and our net capital gain. In addition, for purposes of this test, non-cash income
generally means income attributable to leveled stepped rents, original issue discount, cancellation of indebtedness, or a like-kind exchange that is later determined to be taxable.
In
addition, our REIT taxable income will be reduced by any taxes we are required to pay on any gain we recognize from the disposition of any asset we acquired from a corporation that is
or has been a C corporation in a transaction in which our tax basis in the asset is less than the fair market value of the asset, in each case determined as of the date on which we acquired the asset,
within the five-year period following our acquisition of such asset, as described above under "General."
For
taxable years beginning after December 31, 2017, and except as provided below, our deduction for net business interest expense will generally be limited to 30% of our taxable
income, as adjusted for certain items of income, gain, deduction or loss. Any business interest deduction that is disallowed due to this limitation may be carried forward to future taxable years. If
we are subject to this interest expense limitation, our REIT taxable income for a taxable year may be increased. Taxpayers that conduct certain real estate businesses may elect not to have this
interest expense limitation apply to them, provided that they use an alternative depreciation system to depreciate certain property. We believe that we will be eligible to make this election. If we
make this election, although we would not be subject to the interest expense limitation described above, our depreciation deductions may be reduced and, as a result, our REIT taxable income for a
taxable year may be increased.
We
generally must pay, or be treated as paying, the distributions described above in the taxable year to which they relate. At our election, a distribution will be treated as paid in a
taxable year if it is declared before we timely file our tax return for such year and paid on or before the first regular dividend payment after such declaration, provided such payment is made during
the 12-month period following the close of such year. These distributions are treated as received by our stockholders in the year in which they are paid. This is so even though these distributions
relate to the prior year for purposes of the 90% distribution requirement. In order to be taken into account for purposes of our distribution requirement, except as provided below, the amount
distributed must not be preferentiali.e., every stockholder of the class of stock to which a distribution is made must be treated the same as every other stockholder of that class,
and no class of stock may be treated other than according to its dividend rights as a class. This preferential limitation will not apply to distributions made by us, provided we qualify as a "publicly
offered REIT." We believe that we are, and expect we will continue
46
Table of Contents
to
be, a "publicly offered REIT." To the extent that we do not distribute all of our net capital gain, or distribute at least 90%, but less than 100%, of our REIT taxable income, as adjusted, we will
be required to pay regular U.S. federal corporate income tax on the undistributed amount. We believe that we have made, and we intend to continue to make, timely distributions sufficient to satisfy
these annual distribution requirements and to minimize our corporate tax obligations.
We
expect that our REIT taxable income will be less than our cash flow because of depreciation and other non-cash charges included in computing REIT taxable income. Accordingly, we
anticipate that we generally will have sufficient cash or liquid assets to enable us to satisfy the distribution requirements described above. However, from time to time, we may not have sufficient
cash or other liquid assets to meet these distribution requirements due to timing differences between the actual receipt of income and actual payment of deductible expenses, and the inclusion of
income and deduction of expenses in determining our taxable income. In addition, we may decide to retain our cash, rather than distribute it, in order to repay debt or for other reasons. If these
timing differences occur, we may borrow funds to pay dividends or pay dividends in the form of taxable stock distributions in order to meet the distribution requirements, while preserving our cash.
Under
some circumstances, we may be able to rectify an inadvertent failure to meet the 90% distribution requirement for a year by paying "deficiency dividends" to our stockholders in a
later year, which may be included in our deduction for dividends paid for the earlier year. In that case, we may be able to avoid being taxed on amounts distributed as deficiency dividends, subject to
the 4% excise tax described below. However, we will be required to pay interest to the IRS based upon the amount of any deduction claimed for deficiency dividends. While the payment of a deficiency
dividend will apply to a prior year for purposes of our REIT distribution requirements, it will be treated as an additional distribution to our stockholders in the year such dividend is paid.
Furthermore,
we will be required to pay a 4% excise tax to the extent we fail to distribute during each calendar year at least the sum of 85% of our ordinary income for such year, 95% of
our capital gain net income for the year and any undistributed taxable income from prior periods. Any ordinary income and net capital gain on which corporate income tax is imposed for any year is
treated as an amount distributed during that year for purposes of calculating this excise tax.
For
purposes of the 90% distribution requirement and excise tax described above, dividends declared during the last three months of the taxable year, payable to stockholders of record on
a specified date during such period and paid during January of the following year, will be treated as paid by us and received by our stockholders on December 31 of the year in which they are
declared.
Like-Kind Exchanges. We may dispose of real property that is not held primarily for sale in transactions intended to qualify as
like-kind exchanges
under the Code. Such like-kind exchanges are intended to result in the deferral of gain for U.S. federal income tax purposes. The failure of any such transaction to qualify as a like-kind exchange
could require us to pay U.S. federal income tax, possibly including the 100% prohibited transaction tax, or deficiency dividends, depending on the facts and circumstances surrounding the particular
transaction.
Tax Liabilities and Attributes Inherited in Connection with Acquisitions. From time to time, we may acquire other corporations or
entities and, in
connection with such acquisitions, we may succeed to the historical tax attributes and liabilities of such entities. For example, if we acquire a C corporation and subsequently dispose of its assets
within five years of the acquisition, we could be required to pay the built-in gain tax described above under "General." In addition, in order to qualify as a REIT, at the end of any
taxable year, we must not have any earnings and profits accumulated in a non-REIT year. As a result, if we acquire a C corporation, we must distribute the corporation's earnings and profits
accumulated prior to the acquisition before the end of the taxable year in which we acquire the corporation. We also could be required to pay the acquired entity's unpaid taxes even though such
liabilities arose prior to the time we acquired the entity.
47
Table of Contents
Moreover,
we may from time to time acquire other REITs through a merger or acquisition. If any such REIT failed to qualify as a REIT for any of its taxable years, such REIT would be
liable for (and we, as the surviving corporation in the merger or acquisition, would be obligated to pay) regular U.S. federal corporate income tax on its taxable income for such taxable years. In
addition, if such REIT was a C corporation at the time of the merger or acquisition, the tax consequences described in the preceding paragraph generally would apply. If such REIT failed to qualify as
a REIT for any of its previous taxable years, but qualified as a REIT at the time of such merger or acquisition, and we acquired such REIT's assets in a transaction in which our tax basis in the
assets of such REIT is determined, in whole or in part, by reference to such REIT's tax basis in such assets, we generally would be subject to tax on the built-in gain on each asset of such REIT as
described above if we were to dispose of the asset in a taxable transaction during the five-year period following such REIT's requalification as a REIT, subject to certain exceptions. Moreover, even
if such REIT qualified as a REIT at all relevant times, we would similarly be liable for other unpaid taxes (if any) of such REIT (such as the 100% tax on gains from any sales treated as "prohibited
transactions" as described above under "Prohibited Transaction Income").
Furthermore,
after our acquisition of another corporation or entity, the asset and income tests will apply to all of our assets, including the assets we acquire from such corporation or
entity, and to all of our income, including the income derived from the assets we acquire from such corporation or entity. As a result, the nature of the assets that we acquire from such corporation
or entity and the income we derive from those assets may have an effect on our tax status as a REIT.
Foreclosure Property. The foreclosure property rules permit us (by our election) to foreclose or repossess properties without
being disqualified as a
REIT as a result of receiving income that does not qualify under the gross income tests. However, in such a case, we would be subject to the U.S. federal corporate income tax on the net non-qualifying
income from the "foreclosure property," and the after-tax amount would increase the dividends we would be required to distribute to stockholders. See "Annual Distribution Requirements."
This corporate tax would not apply to income that qualifies under the REIT 75% income test.
Foreclosure
property treatment will end on the first day on which we enter into a lease of the applicable property that will give rise to income that does not qualify under the REIT 75%
income test, but will not end if the lease will give rise only to qualifying income under such test. Foreclosure property treatment also will end if any construction takes place on the property (other
than completion of a building or other improvement that was more than 10% complete before default became imminent). Foreclosure property treatment is generally available for an initial period of three
years and may, in certain circumstances, be extended for an additional three years.
Failure to Qualify. If we discover a violation of a provision of the Code that would result in our failure to qualify as a REIT,
certain specified
cure provisions may be available to us. Except with respect to violations of the gross income tests and asset tests (for which the cure provisions are described above), and provided the violation is
due to reasonable cause and not due to willful neglect, these cure provisions generally impose a $50,000 penalty for each violation in lieu of a loss of REIT status. If we fail to satisfy the
requirements for taxation as a REIT in any taxable year, and the relief provisions do not apply, we will be required to pay regular U.S. federal corporate income tax, including any applicable
alternative minimum tax for taxable years beginning before January 1, 2018, on our taxable income. Distributions to stockholders in any year in which we fail to qualify as a REIT will not be
deductible by us. As a result, we anticipate that our failure to qualify as a REIT would reduce the cash available for distribution by us to our stockholders. In addition, if we fail to qualify as a
REIT, we will not be required to distribute any amounts to our stockholders and all distributions to stockholders will be taxable as regular corporate dividends to the extent of our current and
accumulated earnings and profits. In such event, corporate distributees may be eligible for the dividends-received deduction. In addition, non-corporate stockholders, including individuals, may be
eligible for the preferential tax
48
Table of Contents
rates
on qualified dividend income. Non-corporate stockholders, including individuals, generally may deduct up to 20% of dividends from a REIT, other than capital gain dividends and dividends treated
as qualified dividend income, for taxable years beginning after December 31, 2017 and before January 1, 2026. If we fail to qualify as a REIT, such stockholders may not claim this
deduction with respect to
dividends paid by us. Unless entitled to relief under specific statutory provisions, we would also be ineligible to elect to be treated as a REIT for the four taxable years following the year for
which we lose our qualification. It is not possible to state whether in all circumstances we would be entitled to this statutory relief.
Tax Aspects of the Subsidiary Partnerships and the Limited Liability Companies
General. From time to time, we may own, directly or indirectly, interests in various partnerships and limited liability
companies. We expect these
will be treated as partnerships or disregarded entities for U.S. federal income tax purposes. In general, entities that are treated as partnerships or disregarded entities for U.S. federal income tax
purposes are "pass-through" entities which are not required to pay U.S. federal income tax. Rather, partners of such partnerships are allocated their shares of the items of income, gain, loss,
deduction and credit of the partnership, and are potentially required to pay tax on this income, without regard to whether they receive a distribution from the partnership. We will include in our
income our share of these partnership items for purposes of the various gross income tests, the computation of our REIT taxable income, and the REIT distribution requirements. Moreover, for purposes
of the asset tests, we will include our pro rata share of assets held by these partnerships, based on our capital interests in each such entity. See "Taxation of Our
CompanyOwnership of Interests in Partnerships, Limited Liability Companies and Qualified REIT Subsidiaries." A disregarded entity is not treated as a separate entity for U.S. federal
income tax purposes, and all assets, liabilities and items of income, gain, loss, deduction and credit of a disregarded entity are treated as assets, liabilities and items of income, gain, loss,
deduction and credit of its parent that is not a disregarded entity for all purposes under the Code, including all REIT qualification tests.
Entity Classification. Our interests in the subsidiary partnerships and limited liability companies involve special tax
considerations, including the
possibility that the IRS might challenge the status of these entities as partnerships or disregarded entities for U.S. federal income tax purposes. For example, an entity that would otherwise be
treated as a partnership for U.S. federal income tax purposes may nonetheless be taxable as a corporation if it is a "publicly traded partnership" and certain other requirements are met. A partnership
would be treated as a publicly traded partnership if its interests are traded on an established securities market or are readily tradable on a secondary market or a substantial equivalent thereof,
within the meaning of applicable Treasury Regulations. We do not anticipate that any subsidiary partnership will be treated as a publicly traded partnership that is taxable as a corporation. However,
if any such entity were treated as a corporation, it would be required to pay an entity-level tax on its income. In this situation, the character of our assets and items of gross income would change
and could prevent us from satisfying the REIT asset tests and possibly the REIT income tests. See "Taxation of Our CompanyAsset Tests" and
"Income Tests." This, in turn, could prevent us from qualifying as a REIT. See "Failure to Qualify" for a discussion of the effect of our failure to meet these tests. In
addition, a change in the tax status of a subsidiary treated as a partnership or disregarded entity to a corporation might be treated as a taxable event. If so, we might incur a tax liability without
any related cash payment. We believe that each of our partnerships and limited liability companies are and will continue to be treated as partnerships or disregarded entities for U.S. federal income
tax purposes.
Allocations of Income, Gain, Loss and Deduction. A partnership agreement (or, in the case of a limited liability company treated
as a partnership for
U.S. federal income tax purposes, the limited liability company agreement) generally will determine the allocation of income and loss among partners. These allocations, however, will be disregarded
for tax purposes if they do not comply with
49
Table of Contents
the
provisions of Section 704(b) of the Code and the Treasury Regulations thereunder. Generally, Section 704(b) of the Code and the Treasury Regulations thereunder require that
partnership allocations respect the economic arrangement of the partners. If an allocation of partnership income or loss does not comply with the requirements of Section 704(b) of the Code and
the Treasury Regulations thereunder, the item subject to the allocation will be reallocated in accordance with the partners' interests in the partnership. This reallocation will be determined by
taking into account all of the facts and circumstances relating to the economic arrangement of the partners with respect to such item. We intend that the allocations of taxable income and loss in each
of the partnerships in which we own an interest from time to time comply with the requirements of Section 704(b) of the Code and the Treasury Regulations thereunder.
Tax Allocations With Respect to the Properties. Under Section 704(c) of the Code, income, gain, loss and deduction
attributable to appreciated
or depreciated property that is contributed to a partnership in exchange for an interest in the partnership must be allocated in a manner so that the contributing partner is charged with the
unrealized gain or benefits from the unrealized loss associated with the property at the time of the contribution. The amount of the unrealized gain or unrealized loss generally is equal to the
difference between the fair market value or book value and the adjusted tax basis of the contributed property at the time of contribution (this difference is referred to as a book-tax difference), as
adjusted from time to time. These allocations are solely for U.S. federal income tax purposes and do not affect the book capital accounts or other economic or legal arrangements among the partners.
Some of the partnerships in which we own an interest were formed by way of contributions of appreciated property. The relevant partnership and/or limited liability company agreements require that
allocations be made in a manner consistent with Section 704(c) of the Code. Under Section 704(c) of the Code we could be allocated less depreciation or more gain on sale with respect to
a contributed property than the amounts that would have been allocated to us if we had instead acquired the contributed property with an initial tax basis equal to its fair market value. Such
allocations might
adversely affect our ability to comply with the REIT distribution requirements. See "Taxation of Our CompanyRequirements for Qualification as a REIT" and "Annual
Distribution Requirements."
Any
property acquired by a subsidiary partnership in a taxable transaction will initially have a tax basis equal to its fair market value, and Section 704(c) of the Code generally
will not apply.
Partnership Audit Rules. The Bipartisan Budget Act of 2015 changed the rules applicable to U.S. federal income tax audits of
partnerships. Under the
new rules , 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 partner's 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 certain aspects of 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 as a result of the related audit adjustment. The changes created by these new rules are sweeping and in many respects dependent
on the promulgation and finalization of further regulations or other guidance by the U.S. Department of the Treasury. Investors are urged to consult their tax advisors with respect to these changes
and their potential impact on their investment in our capital stock.
50
Table of Contents
Material U.S. Federal Income Tax Consequences to Holders of Our Capital Stock and Debt Securities
The following discussion is a summary of the material U.S. federal income tax consequences to you of acquiring, owning and disposing of our
capital stock or debt securities. This discussion is limited to holders who hold our capital stock or debt securities as "capital assets" within the meaning of Section 1221 of the Code
(generally, property held for investment). This discussion does not address all U.S. federal income tax consequences relevant to a holder's particular circumstances. In addition, except where
specifically noted, it does not address consequences relevant to holders subject to special rules, including, without limitation:
-
-
U.S. expatriates and former citizens or long-term residents of the United States;
-
-
persons subject to the alternative minimum tax;
-
-
U.S. holders (as defined below) whose functional currency is not the U.S. dollar;
-
-
persons holding our capital stock or debt securities as part of a hedge, straddle or other risk reduction strategy or as part of a conversion
transaction or other integrated investment;
-
-
banks, insurance companies, and other financial institutions;
-
-
REITs or regulated investment companies;
-
-
brokers, dealers or traders in securities;
-
-
"controlled foreign corporations," "passive foreign investment companies," and corporations that accumulate earnings to avoid U.S. federal
income tax;
-
-
S corporations, partnerships or other entities or arrangements treated as partnerships for U.S. federal income tax purposes (and investors
therein);
-
-
tax-exempt organizations or governmental organizations;
-
-
persons subject to special tax accounting rules as a result of any item of gross income with respect to our capital stock or debt securities
being taken into account in an applicable financial statement;
-
-
persons deemed to sell our capital stock or debt securities under the constructive sale provisions of the Code; and
-
-
persons who hold or receive our capital stock pursuant to the exercise of any employee stock option or otherwise as compensation.
THIS DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT INTENDED AS TAX ADVICE. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION
OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR CAPITAL STOCK OR DEBT SECURITIES ARISING UNDER
OTHER U.S. FEDERAL TAX LAWS (INCLUDING ESTATE AND GIFT TAX LAWS), UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
For
purposes of this discussion, a "U.S. holder" is a beneficial owner of our capital stock or debt securities that, for U.S. federal income tax purposes, is or is treated
as:
-
-
an individual who is a citizen or resident of the United States;
-
-
a corporation created or organized under the laws of the United States, any state thereof, or the District of Columbia;
51
Table of Contents
-
-
an estate, the income of which is subject to U.S. federal income tax regardless of its source; or
-
-
a trust that (1) is subject to the primary supervision of a U.S. court and the control of one or more "United States persons" (within
the meaning of Section 7701(a)(30) of the Code) or (2) has a valid election in effect to be treated as a United States person for U.S. federal income tax purposes.
For
purposes of this discussion, a "non-U.S. holder" is any beneficial owner of our capital stock or debt securities that is neither a U.S. holder nor an entity treated as a partnership
for U.S. federal income tax purposes.
If
an entity treated as a partnership for U.S. federal income tax purposes holds our capital stock or debt securities, the tax treatment of a partner in the partnership will depend on
the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding our capital stock or debt securities and the
partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.
Taxation of Taxable U.S. Holders of Our Capital Stock
Distributions Generally. Distributions out of our current or accumulated earnings and profits will be treated as dividends and,
other than with
respect to capital gain dividends and certain amounts which have previously been subject to corporate level tax, as discussed below, will be taxable to our taxable U.S. holders as ordinary income when
actually or constructively received. See "Tax Rates" below. As long as we qualify as a REIT, these distributions will not be eligible for the dividends-received deduction in the case of
U.S. holders that are corporations or, except to the extent described in "Tax Rates" below, the preferential rates on qualified dividend income applicable to non-corporate U.S. holders,
including individuals. For purposes of determining whether distributions to holders of our capital stock are out of our current or accumulated earnings and profits, our earnings and profits will be
allocated first to our outstanding preferred stock, if any, and then to our outstanding common stock.
To
the extent that we make distributions on our capital stock in excess of our current and accumulated earnings and profits allocable to such stock, these distributions will be treated
first as a tax-free return of capital to a U.S. holder to the extent of the U.S. holder's adjusted tax basis in such shares of stock. This treatment will reduce the U.S. holder's adjusted tax basis in
such shares of stock by the amount of the excess of the distribution over our current and accumulated earnings and profits allocable to such stock, but not below zero. Distributions in excess of our
current and accumulated earnings and profits and in excess of a U.S. holder's adjusted tax basis in its shares will be taxable as capital gain. Such gain will be taxable as long-term capital gain if
the shares have been held for more than one year. Dividends we declare in October, November, or December of any year and which are payable to a holder of record on a specified date in any of these
months will be treated as both paid by us and received by the holder on December 31 of that year, provided we actually pay the dividend on or before January 31 of the following year.
U.S. holders may not include in their own income tax returns any of our net operating losses or capital losses.
Capital Gain Dividends. Dividends that we properly designate as capital gain dividends will be taxable to our taxable U.S.
holders as a gain from the
sale or disposition of a capital asset held for more than one year, to the extent that such gain does not exceed our actual net capital gain for the taxable year and may not exceed our dividends paid
for the taxable year, including dividends paid the following year that are treated as paid in the current year. U.S. holders that are corporations may, however, be required to treat up to 20% of
certain capital gain dividends as ordinary income. If we properly designate any portion of a dividend as a capital gain dividend, then, except as otherwise required by law, we presently intend to
allocate a portion of the total capital gain dividends paid or made available to holders of all classes of our capital stock for the year to the holders of each class of
52
Table of Contents
our
capital stock in proportion to the amount that our total dividends, as determined for U.S. federal income tax purposes, paid or made available to the holders of each such class of our capital
stock for the year bears to the total dividends, as determined for U.S. federal income tax purposes, paid or made available to holders of all classes of our capital stock for the year. In addition,
except as otherwise required by law, we will make a similar allocation with respect to any undistributed long-term capital gains which are to be included in our stockholders' long-term capital gains,
based on the allocation of the capital gain amount which would have resulted if those undistributed long-term capital gains had been distributed as "capital gain dividends" by us to our stockholders.
Retention of Net Capital Gains. We may elect to retain, rather than distribute as a capital gain dividend, all or a portion of
our net capital gains.
If we make this election, we would pay tax on our retained net capital gains. In addition, to the extent we so elect, our earnings and profits (determined for U.S. federal income tax purposes) would
be adjusted accordingly, and a U.S. holder generally would:
-
-
include its pro rata share of our undistributed capital gain in computing its long-term capital gains in its return for its taxable year in
which the last day of our taxable year falls, subject to certain limitations as to the amount that is includable;
-
-
be deemed to have paid its share of the capital gains tax imposed on us on the designated amounts included in the U.S. holder's income as
long-term capital gain;
-
-
receive a credit or refund for the amount of tax deemed paid by it;
-
-
increase the adjusted tax basis of its capital stock by the difference between the amount of includable gains and the tax deemed to have been
paid by it; and
-
-
in the case of a U.S. holder that is a corporation, appropriately adjust its earnings and profits for the retained capital gains in accordance
with Treasury Regulations to be promulgated by the IRS.
Passive Activity Losses and Investment Interest Limitations. Distributions we make and gain arising from the sale or exchange by
a U.S. holder of our
capital stock will not be treated as passive activity income. As a result, U.S. holders generally will not be able to apply any "passive losses" against this income or gain. A U.S. holder generally
may elect to treat capital gain dividends, capital gains from the disposition of our capital stock and income designated as qualified dividend income, as described in "Tax Rates" below,
as investment income for purposes of computing the investment interest limitation, but in such case, the holder will be taxed at ordinary income rates on such amount. Other distributions made by us,
to the extent they do not constitute a return of capital, generally will be treated as investment income for purposes of computing the investment interest limitation.
Dispositions of Our Capital Stock. Except as described below under "Taxation of Taxable U.S. Holders of Our Capital
StockRedemption or Repurchase by Us," if a U.S. holder sells or disposes of shares of our capital stock, it will recognize gain or loss for U.S. federal income tax purposes in an amount
equal to the difference between the amount of cash and the fair market value of any property received on the sale or other disposition and the holder's adjusted tax basis in the shares. This gain or
loss, except as provided below, will be long-term capital gain or loss if the holder has held such capital stock for more than one year. However, if a U.S. holder recognizes a loss upon the sale or
other disposition of capital stock that it has held for six months or less, after applying certain holding period rules, the loss recognized will be treated as a long-term capital loss to the extent
the U.S. holder received distributions from us which were required to be treated as long-term capital gains.
Redemption or Repurchase by Us. A redemption or repurchase of shares of our capital stock will be treated under Section 302
of the Code as a
distribution (and taxable as a dividend to the extent of our current and accumulated earnings and profits as described above under "Distributions
53
Table of Contents
Generally")
unless the redemption or repurchase satisfies one of the tests set forth in Section 302(b) of the Code and is therefore treated as a sale or exchange of the redeemed or repurchased
shares. The redemption or repurchase generally will be treated as a sale or exchange if it:
-
-
is "substantially disproportionate" with respect to the U.S. holder,
-
-
results in a "complete redemption" of the U.S. holder's stock interest in us, or
-
-
is "not essentially equivalent to a dividend" with respect to the U.S. holder,
all
within the meaning of Section 302(b) of the Code.
In
determining whether any of these tests has been met, shares of our capital stock, including common stock and other equity interests in us, considered to be owned by the U.S. holder by
reason of certain constructive ownership rules set forth in the Code, as well as shares of our capital stock actually owned by the U.S. holder, generally must be taken into account. Because the
determination as to whether any of the alternative tests of Section 302(b) of the Code will be satisfied with respect to the U.S. holder depends upon the facts and circumstances at the time
that the determination must be made, U.S. holders are advised to consult their tax advisors to determine such tax treatment.
If
a redemption or repurchase of shares of our capital stock is treated as a distribution, the amount of the distribution will be measured by the amount of cash and the fair market value
of any property received. See "Distributions Generally." A U.S. holder's adjusted tax basis in the redeemed or repurchased shares generally will be transferred to the holder's remaining
shares of our capital stock, if any. If a U.S. holder owns no other shares of our capital stock, under certain circumstances, such basis may be transferred to a related person or it may be lost
entirely. Proposed Treasury Regulations issued in 2009, if enacted in their current form, would affect the basis recovery
rules described above. It is not clear whether these proposed regulations will be enacted in their current form or at all. Prospective investors should consult their tax advisors regarding the U.S.
federal income tax consequences of a redemption or repurchase of our capital stock.
If
a redemption or repurchase of shares of our capital stock is not treated as a distribution, it will be treated as a taxable sale or exchange in the manner described under
"Dispositions of Our Capital Stock."
Tax Rates. The maximum tax rate for non-corporate taxpayers for (1) long-term capital gains, including certain "capital
gain dividends,"
generally is 20% (although depending on the characteristics of the assets which produced these gains and on designations which we may make, certain capital gain dividends may be taxed at a 25% rate)
and (2) "qualified dividend income" generally is 20%. In general, dividends payable by REITs are not eligible for the reduced tax rate on qualified dividend income, except to the extent that
certain holding period requirements have been met and the REIT's dividends are attributable to dividends received from taxable corporations (such as its taxable REIT subsidiaries) or to income that
was subject to tax at the corporate/REIT level (for example, if the REIT distributed taxable income that it retained and paid tax on in the prior taxable year). Capital gain dividends will only be
eligible for the rates described above to the extent that they are properly designated by the REIT as "capital gain dividends." U.S. holders that are corporations may be required to treat up to 20% of
some capital gain dividends as ordinary income. In addition, non-corporate U.S. holders, including individuals, generally may deduct up to 20% of dividends from a REIT, other than capital gain
dividends and dividends treated as qualified dividend income, for taxable years beginning after December 31, 2017 and before January 1, 2026.
Taxation of Tax-Exempt Holders of Our Capital Stock
Dividend income from us and gain arising upon a sale of shares of our capital stock generally should not be unrelated business taxable income,
or UBTI, to a tax-exempt holder, except as described
54
Table of Contents
below.
This income or gain will be UBTI, however, to the extent a tax-exempt holder holds its shares as "debt-financed property" within the meaning of the Code. Generally, "debt-financed property" is
property the acquisition or holding of which was financed through a borrowing by the tax-exempt holder.
For
tax-exempt holders that are social clubs, voluntary employee benefit associations or supplemental unemployment benefit trusts exempt from U.S. federal income taxation under
Sections 501(c)(7), (c)(9) or (c)(17) of the Code, respectively, income from an investment in our shares will constitute UBTI unless the organization is able to properly claim a deduction for
amounts set aside or placed in reserve for specific purposes so as to offset the income generated by its investment in our shares. These prospective investors should consult their tax advisors
concerning these "set aside" and reserve requirements.
Notwithstanding
the above, however, a portion of the dividends paid by a "pension-held REIT" may be treated as UBTI as to certain trusts that hold more than 10%, by value, of the
interests in the REIT. A REIT will not be a "pension-held REIT" if it is able to satisfy the "not closely held" requirement without relying on the "look-through" exception with respect to certain
trusts or if such REIT is not "predominantly held" by "qualified trusts." As a result of restrictions on ownership and transfer of our stock contained in our charter, we do not expect to be classified
as a "pension-held REIT," and as a result, the tax treatment described above should be inapplicable to our holders. However, because our common stock is (and, we anticipate, will continue to be)
publicly traded, we cannot guarantee that this will always be the case.
Taxation of Non-U.S. Holders of Our Capital Stock
The following discussion addresses the rules governing U.S. federal income taxation of the acquisition, ownership and disposition of our capital
stock by non-U.S. holders. 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 other federal, state, local or non-U.S. tax consequences that may be relevant to a non-U.S. holder in light of its particular circumstances. We urge
non-U.S. holders to consult their tax advisors to determine the impact of U.S. federal, state, local and non-U.S. income and other tax laws and any applicable tax treaty on the acquisition, ownership
and disposition of shares of our capital stock, including any reporting requirements.
Distributions Generally. Distributions (including any taxable stock distributions) that are neither attributable to gains from
sales or exchanges by
us of United States real property interests, or USRPIs, nor designated by us as capital gain dividends (except as described below) will be treated as dividends of ordinary income to the extent that
they are made out of our current or accumulated earnings and profits. Such distributions ordinarily will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty, unless the distributions
are treated as effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder
maintains a permanent establishment in the United States to which such dividends are attributable). Under certain treaties, however, lower withholding rates generally applicable to dividends do not
apply to dividends from a REIT. Certain certification and disclosure requirements must be satisfied for a non-U.S. holder to be exempt from withholding under the effectively connected income
exemption. Dividends that are treated as effectively connected with a U.S. trade or business generally will not be subject to withholding but will be subject to U.S. federal income tax on a net basis
at the regular graduated rates, in the same manner as dividends paid to U.S. holders are subject to U.S. federal income tax. Any such dividends received by a non-U.S. holder that is a corporation may
also be subject to an additional branch profits tax at a 30% rate (applicable after deducting U.S. federal income taxes
55
Table of Contents
paid
on such effectively connected income) or such lower rate as may be specified by an applicable income tax treaty.
Except
as otherwise provided below, we expect to withhold U.S. federal income tax at the rate of 30% on any distributions made to a non-U.S. holder unless:
-
(1)
-
a
lower treaty rate applies and the non-U.S. holder furnishes an IRS Form W-8BEN or W-8BEN-E (or other applicable documentation) evidencing eligibility for
that reduced treaty rate; or
-
(2)
-
the
non-U.S. holder furnishes an IRS Form W-8ECI (or other applicable documentation) claiming that the distribution is income effectively connected with the
non-U.S. holder's trade or business.
Distributions
in excess of our current and accumulated earnings and profits will not be taxable to a non-U.S. holder to the extent that such distributions do not exceed the adjusted tax
basis of the holder's capital stock, but rather will reduce the adjusted tax basis of such stock. To the extent that such distributions exceed the non-U.S. holder's adjusted tax basis in such capital
stock, they generally will give rise to gain from the sale or exchange of such stock, the tax treatment of which is described below. However, such excess distributions may be treated as dividend
income for certain non-U.S. holders. For withholding purposes, we expect to treat all distributions as made out of our current or accumulated earnings and profits. However, amounts withheld may be
refundable if it is subsequently
determined that the distribution was, in fact, in excess of our current and accumulated earnings and profits, provided that certain conditions are met.
Capital Gain Dividends and Distributions Attributable to a Sale or Exchange of United States Real Property Interests. Distributions to a non-U.S.
holder that we properly designate as capital gain dividends, other than those arising from the disposition of a USRPI, generally should not be subject to U.S. federal income taxation,
unless:
-
(1)
-
the
investment in our capital stock is treated as effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States (and,
if required by an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such dividends are attributable), in which case the non-U.S.
holder will be subject to the same treatment as U.S. holders with respect to such gain, except that a non-U.S. holder that is a corporation may also be subject to a branch profits tax of up to 30%, as
discussed above; or
-
(2)
-
the
non-U.S. holder is a nonresident alien individual who is present in the United States for 183 days or more during the taxable year and certain other
conditions are met, in which case the non-U.S. holder will be subject to U.S. federal income tax at a rate of 30% on the non-U.S. holder's capital gains (or such lower rate specified by an applicable
income tax treaty), which may be offset by U.S. source capital losses of such non-U.S. holder (even though the individual is not considered a resident of the United States), provided the non-U.S.
holder has timely filed U.S. federal income tax returns with respect to such losses.
Pursuant
to the Foreign Investment in Real Property Tax Act, which is referred to as "FIRPTA," distributions to a non-U.S. holder that are attributable to gain from sales or exchanges by
us of USRPIs, whether or not designated as capital gain dividends, will cause the non-U.S. holder to be treated as recognizing such gain as income effectively connected with a U.S. trade or business.
Non-U.S. holders generally would be taxed at the regular graduated rates applicable to U.S. holders, subject to any applicable alternative minimum tax and a special alternative minimum tax in the case
of nonresident alien individuals. We also will be required to withhold and to remit to the IRS 21% of any distribution to non-U.S. holders attributable to gain from sales or exchanges by us of USRPIs.
Distributions subject to FIRPTA may also be subject to a 30% branch profits tax in the hands of a
56
Table of Contents
non-U.S.
holder that is a corporation. The amount withheld is creditable against the non-U.S. holder's U.S. federal income tax liability. However, any distribution with respect to any class of stock
that is "regularly traded," as defined by applicable Treasury Regulations, on an established securities market located in the United States is not subject to FIRPTA, and therefore, not subject to the
21% U.S. withholding tax described above, if the non-U.S. holder did not own more than 10% of such class of stock at any time during the one-year period ending on the date of the distribution.
Instead, such distributions generally will be treated as ordinary dividend distributions and subject to withholding in the manner described above with respect to ordinary dividends. In addition,
distributions to certain non-U.S. publicly traded shareholders that meet certain record-keeping and other requirements ("qualified shareholders") are exempt from FIRPTA, except to the extent owners of
such qualified shareholders that are not also qualified shareholders own, actually or constructively, more than 10% of our capital stock. Furthermore, distributions to "qualified foreign pension
funds" or entities all of the interests of which are held by "qualified foreign pension funds" are exempt from FIRPTA. Non-U.S. holders 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, it appears that amounts we designate as retained
net capital gains in
respect of our capital stock should be treated with respect to non-U.S. holders as actual distributions of capital gain dividends. Under this approach, the non-U.S. holders may be able to offset as a
credit against their U.S. federal income tax liability their proportionate share of the tax paid by us on such retained net capital gains and to receive from the IRS a refund to the extent their
proportionate share of such tax paid by us exceeds their actual U.S. federal income tax liability. If we were to designate any portion of our net capital gain as retained net capital gain, non-U.S.
holders should consult their tax advisors regarding the taxation of such retained net capital gain.
Sale of Our Capital Stock. Except as described below under "Redemption or Repurchase by Us," gain realized by a non-U.S.
holder upon the
sale, exchange or other taxable disposition of our capital stock generally will not be subject to U.S. federal income tax unless such stock constitutes a USRPI. In general, stock of a domestic
corporation that constitutes a "United States real property holding corporation," or USRPHC, will constitute a USRPI. We believe that we are a USRPHC. Our capital stock will not, however, constitute a
USRPI so long as we are a "domestically controlled qualified investment entity." A "domestically controlled qualified investment entity" includes a REIT in which at all times during a five-year
testing period less than 50% in value of its stock is held directly or indirectly by non-United States persons, subject to certain rules. For purposes of determining whether a REIT is a "domestically
controlled qualified investment entity," a person who at all applicable times holds less than 5% of a class of stock that is "regularly traded" is treated as a United States person unless the REIT has
actual knowledge that such person is not a United States person. We believe, but cannot guarantee, that we are a "domestically controlled qualified investment entity." Because our common stock is
(and, we anticipate, will continue to be) publicly traded, no assurance can be given that we will continue to be a "domestically controlled qualified investment entity."
Even
if we do not qualify as a "domestically controlled qualified investment entity" at the time a non-U.S. holder sells our capital stock, gain realized from the sale or other taxable
disposition by a non-U.S. holder of such capital stock would not be subject to U.S. federal income tax under FIRPTA as a sale of a USRPI if:
-
(1)
-
such
class of stock is "regularly traded," as defined by applicable Treasury Regulations, on an established securities market such as the New York Stock Exchange;
and
-
(2)
-
such
non-U.S. holder owned, actually and constructively, 10% or less of such class of stock throughout the shorter of the five-year period ending on the date of the
sale or other taxable disposition or the non-U.S. holder's holding period.
57
Table of Contents
In
addition, dispositions of our capital stock by qualified shareholders are exempt from FIRPTA, except to the extent owners of such qualified shareholders that are not also qualified
shareholders own, actually or constructively, more than 10% of our capital stock. Furthermore, dispositions of our capital stock by "qualified foreign pension funds" or entities all of the interests
of which are held by "qualified foreign pension funds" are exempt from FIRPTA. Non-U.S. holders should consult their tax advisors regarding the application of these rules.
Notwithstanding
the foregoing, gain from the sale, exchange or other taxable disposition of our capital stock not otherwise subject to FIRPTA will be taxable to a non-U.S. holder if
either (a) the investment in our capital stock is treated as effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States (and, if required by
an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such gain is attributable), in which case the non-U.S. holder will be subject to
the same treatment as U.S. holders with respect to such gain, except that a non-U.S. holder that is a corporation may also be subject to the 30% branch profits tax (or such lower rate as may be
specified by an applicable income tax treaty) on such gain, as adjusted for certain items, or (b) the non-U.S. holder is a nonresident alien individual who is present in the United States for
183 days or more during the taxable year and certain other conditions are met, in which case the non-U.S. holder will be subject to a 30% tax on the non-U.S. holder's capital gains (or such
lower rate specified by an applicable income tax treaty), which may be offset by U.S. source capital losses of the non-U.S. holder (even though the individual is not considered a resident of the
United States), provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses. In addition, even if we are a domestically controlled qualified investment
entity, upon disposition of our capital stock, a non-U.S. holder may be treated as having
gain from the sale or other taxable disposition of a USRPI if the non-U.S. holder (1) disposes of such stock within a 30-day period preceding the ex-dividend date of a distribution, any portion
of which, but for the disposition, would have been treated as gain from the sale or exchange of a USRPI and (2) acquires, or enters into a contract or option to acquire, or is deemed to
acquire, other shares of that stock during the 61-day period beginning with the first day of the 30-day period described in clause (1), unless such stock is "regularly traded" and the non-U.S.
holder did not own more than 10% of the stock at any time during the one-year period ending on the date of the distribution described in clause (1).
If
gain on the sale, exchange or other taxable disposition of our capital stock were subject to taxation under FIRPTA, the non-U.S. holder would be required to file a U.S. federal
income tax return and would be subject to regular U.S. federal income tax with respect to such gain in the same manner as a taxable U.S. holder (subject to any applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals). In addition, if the sale, exchange or other taxable disposition of our capital stock were subject to taxation under
FIRPTA, and if shares of the applicable class of our capital stock were not "regularly traded" on an established securities market, the purchaser of such capital stock generally would be required to
withhold and remit to the IRS 15% of the purchase price.
Redemption or Repurchase by Us. A redemption or repurchase of shares of our capital stock will be treated under Section 302
of the Code as a
distribution (and taxable as a dividend to the extent of our current and accumulated earnings and profits) unless the redemption or repurchase satisfies one of the tests set forth in
Section 302(b) of the Code and is therefore treated as a sale or exchange of the redeemed or repurchased shares. See "Taxation of Taxable U.S. Holders of Our Capital
StockRedemption or Repurchase by Us." Qualified shareholders and their owners may be subject to different rules, and should consult their tax advisors regarding the application of such
rules. If the redemption or repurchase of shares is treated as a distribution, the amount of the distribution will be measured by the amount of cash and the fair market value of any property received.
See "Taxation of Non-U.S. Holders of Our Capital StockDistributions Generally" above. If the redemption or
58
Table of Contents
repurchase
of shares is not treated as a distribution, it will be treated as a taxable sale or exchange in the manner described above under "Sale of Our Capital Stock."
Taxation of Holders of Our Debt Securities
The following summary describes the material U.S. federal income tax consequences of acquiring, owning and disposing of our debt securities.
This discussion assumes the debt securities will be issued with less than a statutory de minimis amount of original issue discount for U.S. federal
income tax purposes. In addition, this discussion is limited to persons purchasing the debt securities for cash at original issue and at their original "issue price" within the meaning of
Section 1273 of the Code (i.e., the first price at which a substantial amount of the debt securities is sold to the public for cash).
Payments of Interest. Interest on a debt security generally will be taxable to a U.S. holder as ordinary income at the time such
interest is received
or accrued, in accordance with such U.S. holder's method of accounting for U.S. federal income tax purposes.
Sale or Other Taxable Disposition. A U.S. holder will recognize gain or loss on the sale, exchange, redemption, retirement or other
taxable
disposition of a debt security. The amount of such gain or loss generally will be equal to the difference between the amount received for the debt security in cash or other property valued at fair
market value (less amounts attributable to any accrued but unpaid interest, which will be taxable as interest to the extent not previously included in income) and the U.S. holder's adjusted tax basis
in the debt security. A U.S. holder's adjusted tax basis in a debt security generally will be equal to the amount the U.S. holder paid for the debt security. Any gain or loss generally will be capital
gain or loss, and will be long-term capital gain or loss if the U.S. holder has held the debt security for more than one year at the time of such sale or other taxable disposition. Otherwise, such
gain or loss will be short-term capital gain or loss. Long-term capital gains recognized by certain non-corporate U.S. holders, including individuals, generally will be taxable at reduced rates. The
deductibility of capital losses is subject to limitations.
Payments of Interest. Interest paid on a debt security to a non-U.S. holder that is not effectively connected with the non-U.S.
holder's conduct of a
trade or business within the United States generally will not be subject to U.S. federal income tax or withholding, provided that:
-
-
the non-U.S. holder does not, actually or constructively, own 10% or more of the total combined voting power of all classes of our voting
stock;
-
-
the non-U.S. holder is not a controlled foreign corporation related to us through actual or constructive stock ownership; and
-
-
either (1) the non-U.S. holder certifies in a statement provided to the applicable withholding agent under penalties of perjury that it
is not a United States person and provides its name and address; (2) a securities clearing organization, bank or other financial institution that holds customers' securities in the ordinary
course of its trade or business and holds the debt security on behalf of the non-U.S. holder certifies to the applicable withholding agent under penalties of perjury that it, or the financial
institution between it and the non-U.S. holder, has received from the non-U.S. holder a statement under penalties of perjury that such holder is not a United States person and provides the applicable
withholding agent with a copy of such statement; or (3) the non-U.S. holder holds its debt security directly through a "qualified intermediary" (within the meaning of the applicable Treasury
Regulations) and certain conditions are satisfied.
59
Table of Contents
If
a non-U.S. holder does not satisfy the requirements above, such non-U.S. holder will be subject to withholding tax of 30%, subject to a reduction in or an exemption from withholding
on such interest as a result of an applicable tax treaty. To claim such entitlement, the non-U.S. holder must provide the applicable withholding agent with a properly executed IRS Form W-8BEN
or W-8BEN-E (or other applicable documentation) claiming a reduction in or exemption from withholding tax under the benefit of an income tax treaty between the United States and the country in which
the non-U.S. holder resides or is established.
If
interest paid to a non-U.S. holder is effectively connected with the non-U.S. holder's conduct of a trade or business within the United States (and, if required by an applicable
income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such interest is attributable), the non-U.S. holder will be exempt from the U.S. federal
withholding tax described above. To claim the exemption, the non-U.S. holder must furnish to the applicable withholding agent a valid IRS Form W-8ECI, certifying that interest paid on a debt
security is not subject to withholding tax because it is effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States.
Any
such effectively connected interest generally will be subject to U.S. federal income tax at the regular graduated rates. A non-U.S. holder that is a corporation may also be subject
to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected interest, as adjusted for certain items.
The
certifications described above must be provided to the applicable withholding agent prior to the payment of interest and must be updated periodically. Non-U.S. holders that do not
timely provide the applicable withholding agent with the required certification, but that qualify for a reduced rate under an applicable income tax treaty, may obtain a refund of any excess amounts
withheld by timely filing an appropriate claim for refund with the IRS. Non-U.S. holders should consult their tax advisors regarding their entitlement to benefits under any applicable income tax
treaty.
Sale or Other Taxable Disposition. A non-U.S. holder will not be subject to U.S. federal income tax on any gain realized upon the sale,
exchange,
redemption, retirement or other taxable disposition of a debt security (such amount excludes any amount allocable to accrued and unpaid interest, which generally will be treated as interest and may be
subject to the rules discussed above in "Taxation of Holders of Our Debt SecuritiesNon-U.S. HoldersPayments of Interest")
unless:
-
-
the gain is effectively connected with the non-U.S. holder's conduct of a trade or business within the United States (and, if required by an
applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such gain is attributable); or
-
-
the non-U.S. holder is a nonresident alien individual present in the United States for 183 days or more during the taxable year of the
disposition and certain other requirements are met.
Gain
described in the first bullet point above generally will be subject to U.S. federal income tax on a net income basis at the regular graduated rates. A non-U.S. holder that is a
corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected gain, as adjusted for certain
items.
Gain
described in the second bullet point above will be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty), which may
be offset by U.S. source capital losses of the non-U.S. holder (even though the individual is not considered a resident of the United States), provided the non-U.S. holder has timely filed U.S.
federal income tax returns with respect to such losses.
Non-U.S.
holders should consult their tax advisors regarding any applicable income tax treaties that may provide for different rules.
60
Table of Contents
Information Reporting and Backup Withholding
U.S. Holders. A U.S. holder may be subject to information reporting and backup withholding when such holder receives payments on
our capital stock or
debt securities or proceeds from the sale or other taxable disposition of such stock or debt securities (including a redemption or retirement of a debt security). Certain U.S. holders are exempt from
backup withholding, including corporations and certain tax-exempt organizations. A U.S. holder will be subject to backup withholding if such holder is not otherwise exempt
and:
-
-
the holder fails to furnish the holder's taxpayer identification number, which for an individual is ordinarily his or her social security
number;
-
-
the holder furnishes an incorrect taxpayer identification number;
-
-
the applicable withholding agent is notified by the IRS that the holder previously failed to properly report payments of interest or dividends;
or
-
-
the holder fails to certify under penalties of perjury that the holder has furnished a correct taxpayer identification number and that the IRS
has not notified the holder that the holder is subject to backup withholding.
Backup
withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a U.S. holder's U.S. federal income
tax liability, provided the required information is timely furnished to the IRS. U.S. holders should consult their tax advisors regarding their qualification for an exemption from backup withholding
and the procedures for obtaining such an exemption.
Non-U.S. Holders. Payments of dividends on our capital stock or interest on our debt securities generally will not be subject to
backup withholding,
provided the applicable withholding agent does not have actual knowledge or reason to know the holder is a United States person and the holder either certifies
its non-U.S. status, such as by furnishing a valid IRS Form W-8BEN, W-8BEN-E or W-8ECI, or otherwise establishes an exemption. However, information returns are required to be filed with the IRS
in connection with any dividends on our capital stock or interest on our debt securities paid to the non-U.S. holder, regardless of whether any tax was actually withheld. In addition, proceeds of the
sale or other taxable disposition of such stock or debt securities (including a retirement or redemption of a debt security) within the United States or conducted through certain U.S.-related brokers
generally will not be subject to backup withholding or information reporting, if the applicable withholding agent receives the certification described above and does not have actual knowledge or
reason to know that such holder is a United States person, or the holder otherwise establishes an exemption. Proceeds of a disposition of such stock or debt securities conducted through a non-U.S.
office of a non-U.S. broker generally will not be subject to backup withholding or information reporting.
Copies
of information returns that are filed with the IRS may also be made available under the provisions of an applicable treaty or agreement to the tax authorities of the country in
which the non-U.S. holder resides or is established.
Backup
withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a non-U.S. holder's U.S. federal
income tax liability, provided the required information is timely furnished to the IRS.
Medicare Contribution Tax on Unearned Income
Certain U.S. holders that are individuals, estates or trusts are required to pay an additional 3.8% tax on, among other things, dividends on
stock, interest on debt obligations, and capital gains from the sale or other disposition of stock or debt obligations, subject to certain limitations. U.S. holders should
61
Table of Contents
consult
their tax advisors regarding the effect, if any, of these rules on their ownership and disposition of our capital stock or debt securities.
Additional Withholding Tax on Payments Made to Foreign Accounts
Withholding taxes may be imposed under Sections 1471 to 1474 of the Code (such sections commonly referred to as the Foreign Account Tax
Compliance Act, or FATCA) on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed on dividends on
our capital stock, interest on our debt securities, or gross proceeds from the sale or other disposition of our capital stock or debt securities, in each case paid to a "foreign financial institution"
or a "non-financial foreign entity" (each as defined in the Code), unless (1) the foreign financial institution undertakes certain diligence and reporting obligations, (2) the
non-financial foreign entity either certifies it does not have any "substantial United States owners" (as defined in the Code) or furnishes identifying information regarding each substantial United
States owner, or (3) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and
is subject to the diligence and reporting requirements in clause (1) above, it must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it
undertake to identify accounts held by certain "specified United States persons" or "United States owned foreign entities" (each as defined in the Code), annually report certain information about such
accounts, and withhold 30% on certain payments to non-compliant foreign financial institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have an
intergovernmental agreement with the United States governing FATCA may be subject to different rules.
Under
the applicable Treasury Regulations and administrative guidance, withholding under FATCA generally applies to payments of dividends on our capital stock or interest on our debt
securities, and will apply to payments of gross proceeds from the sale or other disposition of such stock or debt securities on or after January 1, 2019. Because we may not know the extent to
which a distribution is a dividend for U.S. federal income tax purposes at the time it is made, for purposes of these withholding rules we may treat the entire distribution as a dividend.
Prospective
investors should consult their tax advisors regarding the potential application of withholding under FATCA to their investment in our capital stock or debt securities.
Other Tax Consequences
State, local and non-U.S. income tax laws may differ substantially from the corresponding U.S. federal income tax laws, and this discussion does
not purport to describe any aspect of the tax laws of any state, local or non-U.S. jurisdiction, or any U.S. federal tax other than the income tax. You should consult your tax advisor regarding the
effect of state, local and non-U.S. tax
laws with respect to our tax treatment as a REIT and on an investment in our capital stock or debt securities.
62
Table of Contents
PLAN OF DISTRIBUTION
We may sell the securities being offered by this prospectus and the applicable prospectus supplement from time to
time:
-
-
through underwriters or dealers;
-
-
through agents;
-
-
directly to one or more purchasers; or
-
-
through a combination of any of these methods of sale.
We
will identify the specific plan of distribution, including any underwriters, dealers, agents or direct purchasers and their compensation in the applicable prospectus supplement.
63
Table of Contents
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for us by Venable LLP, Baltimore, Maryland, and Latham &
Watkins LLP, Costa Mesa, California. Latham & Watkins LLP, Los Angeles, California, has issued an opinion to us regarding certain tax matters described under "United States
Federal Income Tax Considerations." Sidley Austin LLP, San Francisco, California will act as counsel for any underwriters or agents. As of November 2, 2018, William J. Cernius, a partner
of Latham & Watkins LLP, beneficially owned approximately 9,236 shares of our common stock. As of October 29, 2018, Eric S. Haueter, a partner of Sidley Austin LLP,
beneficially owned approximately 9,386 shares of our common stock.
EXPERTS
The consolidated balance sheets of Realty Income Corporation and subsidiaries as of December 31, 2017 and 2016, the related consolidated
statements of income, equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes and
financial statement schedule III (collectively, the consolidated financial statements), and management's assessment of the effectiveness of internal control over financial reporting as of
December 31, 2017, have been incorporated by reference in this prospectus in reliance upon the reports of KPMG LLP, independent registered public accounting firm, incorporated by
reference herein, and upon the authority of said firm as experts in accounting and auditing.
64
Table of Contents
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the information reporting requirements of the Exchange Act, and in accordance with these requirements, we file annual,
quarterly and current reports, proxy statements and other information with the SEC. Such reports, proxy statements and other information are available to the public at the SEC's website at http://www.sec.gov. This is an internet site maintained by the SEC where reports, proxy and information statements and other information of companies
that file electronically with the SEC may be obtained.
Our
web site address is http://www.realtyincome.com. The information on, or that can be accessed through, our website is not a part of
this prospectus and is not incorporated or deemed to be incorporated by reference herein.
This
prospectus and any applicable prospectus supplement are part of a registration statement that we filed with the SEC and do not contain all of the information in the registration
statement. The full registration statement may be obtained from the SEC or us, as provided below. Forms or copies of the indenture pursuant to which any debt securities offered hereby will be issued
and other documents establishing the terms of the offered securities are or may be filed as exhibits to the registration statement or documents that are or will be incorporated or deemed to be
incorporated by reference in this prospectus. Statements in this prospectus or any prospectus supplement about these documents are not complete and each such statement is subject to, and qualified in
all respects by reference to, the document to which it refers. You should refer to the actual documents for a more complete description of the relevant matters. You may inspect copies of the
registration statement and the documents incorporated and deemed to be incorporated by reference in this prospectus at the SEC's website referred to above.
INCORPORATION BY REFERENCE
We "incorporate by reference" certain information we file with the SEC, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is an important part of this prospectus, and any information contained in this prospectus, in any accompanying prospectus
supplement or in any document incorporated or deemed to be incorporated by reference in this prospectus will be deemed to have been modified or superseded to the extent that a statement contained in
this prospectus, or, if applicable, the accompanying prospectus supplement, in any other offering materials we may provide you in connection with the offering of securities, or in any other document
we subsequently file with the SEC that also is incorporated or deemed to be incorporated by reference in this prospectus, modifies or supersedes the original statement. Any statement so modified or
superseded will not be deemed, except as so modified or superseded, to be a part of this prospectus or any accompanying prospectus supplement. We incorporate by reference the documents listed below
and any future filings made by us with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act between the date of this prospectus and the termination of the offering of securities
described in this prospectus; provided, however, that we are not incorporating by reference any documents, portions of documents, exhibits or other information that is deemed to have been "furnished"
to and not "filed" with the SEC:
65
Table of Contents
-
-
Our Quarterly Report on
Form 10-Q for the quarter ended June 30, 2018, filed with the SEC on August 2, 2018;
-
-
Our Quarterly Report on
Form 10-Q for the quarter ended September 30, 2018, filed with the SEC on November 1, 2018; and
-
-
Our Current Reports on
Form 8-K filed with the SEC on February 27, 2018 (as stated elsewhere in this prospectus, the information in such Form 10-K and in Exhibit 99.1 thereto has
been superseded and replaced in its entirety by the information appearing in this prospectus under the caption "United States Federal Income Tax considerations"),
March 14, 2018,
March 29, 2018,
April 4, 2018,
May 8, 2018 (but only the information filed under
Item 5.02 that is included in the first Report on Form 8-K that we filed on
May 8, 2018), May 22, 2018,
July 12, 2018,
October 17, 2018 (but only the information filed under Item 5.02)
and October 26, 2018.
You
may request a copy of the filings referred to above at no cost by writing or telephoning us at the following address:
Realty
Income Corporation
11995 El Camino Real
San Diego, CA 92130
Attention: Corporate Secretary
(858) 284-5000
Exhibits
to the filings will not be sent, however, unless those exhibits have specifically been incorporated by reference in this prospectus or any accompanying prospectus supplement.
66
Table of Contents
33,402,405 Shares
Common Stock
PROSPECTUS SUPPLEMENT
Mizuho Securities
BB&T Capital Markets
Stifel
Wells Fargo Securities
RBC Capital Markets
BofA Securities
Baird
Barclays
J.P. Morgan
BNY Mellon Capital Markets, LLC
Jefferies
Citigroup
Goldman Sachs & Co. LLC
Morgan Stanley
UBS Investment Bank
Credit Suisse
BMO Capital Markets
BTIG
MUFG
Regions Securities LLC
Scotiabank
TD Securities
December 6, 2019
Realty Income (NYSE:O)
Historical Stock Chart
From Mar 2024 to Apr 2024
Realty Income (NYSE:O)
Historical Stock Chart
From Apr 2023 to Apr 2024