CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This prospectus supplement, the accompanying prospectus and the documents incorporated by reference in this prospectus supplement and the accompanying
prospectus contain statements that are not based on historical facts, including statements or information with words such as may, will, could, should, plans, intends,
expects, believes, estimates, anticipates, continues and other similar words. These statements constitute forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, or the Securities Act, Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the Private Securities Litigation Reform Act of 1995. In particular, the risk factors included and
incorporated by reference in this prospectus supplement and the accompanying prospectus describe forward-looking information. The risk factors, including those contained on page
S-6
of this prospectus
supplement, on page 3 of the accompanying prospectus and in our Annual Report on Form
10-K
for the year ended December 31, 2016, filed with the SEC on February 13, 2017, describe risks that may
affect these statements but are not exhaustive, particularly with respect to possible future events. Many things can happen that can cause actual results to be different from those we describe. These factors include, but are not limited to:
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risks that our tenants may not pay rent, may vacate early or may file for bankruptcy, or that we may be unable to renew leases or
re-let
space at favorable rents as leases expire;
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risks that we may not be able to proceed with or obtain necessary approvals for any redevelopment or renovation project, and that completion of anticipated or ongoing property redevelopment or renovation projects that
we do pursue may cost more, take more time to complete or fail to perform as expected;
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risk that we are investing a significant amount in
ground-up
development projects that may be dependent on third parties to deliver critical aspects of certain projects, requires
spending a substantial amount upfront in infrastructure, and assumes receipt of public funding which has been committed but not entirely funded;
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risks normally associated with the real estate industry, including risks that:
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occupancy levels at our properties and the amount of rent that we receive from our properties may be lower than expected,
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new acquisitions may fail to perform as expected,
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competition for acquisitions could result in increased prices for acquisitions,
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environmental issues may develop at our properties and result in unanticipated costs, and
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because real estate is illiquid, we may not be able to sell properties when appropriate;
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risks that our growth will be limited if we cannot obtain additional capital;
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risks associated with general economic conditions, including local economic conditions in our geographic markets;
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risks of financing, such as our ability to consummate additional financings or obtain replacement financing on terms which are acceptable to us, our ability to meet existing financial covenants and the limitations
imposed on our operations by those covenants, and the possibility of increases in interest rates that would result in increased interest expense; and
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risks related to our status as a real estate investment trust, commonly referred to as a REIT, for federal income tax purposes, such as the existence of complex tax regulations relating to our status as a REIT, the
effect of future changes in REIT requirements as a result of new legislation, and the adverse consequences of the failure to qualify as a REIT.
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Given these uncertainties, readers are cautioned not to place undue reliance on these forward-looking statements or those contained in or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We also make no promise to update any of the forward-looking statements, or to publicly release the results if we revise any of them.
iii
PROSPECTUS SUPPLEMENT SUMMARY
The following is only a summary. It should be read together with the more detailed information included elsewhere in this prospectus supplement and the
accompanying prospectus. In addition, important information is incorporated by reference in this prospectus supplement and the accompanying prospectus.
The Trust
Federal Realty Investment
Trust is an equity REIT specializing in the ownership, management, and redevelopment of high quality retail and
mixed-use
properties located primarily in densely populated and affluent communities in
strategically selected metropolitan markets in the Northeast and
Mid-Atlantic
regions of the United States, California, and South Florida. As of September 30, 2017, we owned or had a majority interest in
community and neighborhood shopping centers and
mixed-use
properties which are operated as 104 predominantly retail real estate projects comprising approximately 24.1 million square feet. In total, the
real estate projects were 94.9% leased and 93.8% occupied at September 30, 2017. We have paid quarterly dividends to our shareholders continuously since our founding in 1962 and have increased our dividends per common share for 50 consecutive
years.
We were founded in 1962 as a REIT under the laws of the District of Columbia and
re-formed
as a REIT in
the state of Maryland in 1999. We operate in a manner intended to qualify as a REIT for tax purposes pursuant to provisions of the Internal Revenue Code of 1986, as amended, or the Code. Our principal executive offices are located at 1626 East
Jefferson Street, Rockville, Maryland 20852. Our telephone number is
(301) 998-8100.
Our website address is
www.federalrealty.com
. The information contained on our website is not a part of this
prospectus supplement or the accompanying prospectus and is not incorporated herein or therein by reference.
Ratios of Earnings to
Fixed Charges
The following table sets forth our historical ratios of earnings to fixed charges for the periods indicated:
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For the Nine Months
Ended
September 30,
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For the Years Ended December 31,
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2017
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2016
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2015
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2014
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2013
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2012
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Ratios of earnings to fixed charges
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2.7
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2.8
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2.3
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2.1
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1.9
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2.0
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The ratios of earnings to fixed charges are computed by dividing earnings by fixed charges. In computing the ratios of
earnings to fixed charges: (a) earnings consist of income from continuing operations before income or loss from equity investees plus distributed income of equity investees and fixed charges (excluding capitalized interest) less noncontrolling
interests of subsidiaries with no fixed charges; and (b) fixed charges consist of interest expense including amortization of debt premiums and discounts and issuance costs (including capitalized interest), prepayment charges and the estimated
portion of rents payable by us representing interest.
S-1
The Offering
All capitalized terms not defined herein have the meanings specified in Description of Notes in this prospectus supplement or in
Description of Debt Securities in the accompanying prospectus. For a more complete description of the terms of the notes specified in the following summary, see Description of Notes.
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Issuer
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Federal Realty Investment Trust.
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Securities offered
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$ million aggregate principal amount of 3.25% Notes due 2027.
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Maturity
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Unless redeemed prior to maturity as described below, the notes will mature on July 15, 2027.
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Interest payment dates
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Interest on the notes is payable semi-annually in arrears on January 15 and July 15 of each year, beginning on January 15, 2018, and at maturity (or any earlier redemption date).
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Ranking
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The notes will be our senior unsecured obligations and will rank
pari passu
, or equally, with all of our other unsecured and unsubordinated indebtedness. The notes will be effectively subordinated to the prior claims of each
secured mortgage lender to any specific property that secures such lenders mortgage and to all of the unsecured indebtedness of our subsidiaries. At September 30, 2017, we had outstanding approximately $493 million (excluding net
unamortized premium and debt issuance costs) of secured indebtedness, which was issued by our subsidiaries and is collateralized by all or parts of 13 properties, and which will rank senior to the notes to the extent of the securing collateral and
will also be structurally senior to the notes, approximately $5 million (excluding net unamortized debt issuance costs) of unsecured indebtedness issued by our subsidiaries, which will be structurally senior to the notes, and approximately
$2,711 million of unsecured indebtedness (excluding net unamortized discount and debt issuance costs), which will rank equally with the notes.
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Use of proceeds
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We intend to use the net proceeds from this offering to redeem all of our outstanding 5.90% Notes due 2020 and for general corporate purposes or may use the net proceeds to temporarily repay amounts outstanding under our revolving
credit facility. See Use of Proceeds on page
S-7
for more information.
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Limitations on incurrence of debt
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The notes contain various covenants, including the following:
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(1) we will not, and will not permit any subsidiary to, incur any Debt if, immediately after giving effect to the incurrence of such Debt and the application of the proceeds thereof, the aggregate principal amount of all of our and
our subsidiaries outstanding Debt on a consolidated basis determined in accordance with generally accepted accounting principles is greater than 60% of the sum of (without duplication) (a) Total Assets as of the end of the calendar
quarter covered in our Annual Report on Form
10-K
or Quarterly Report on Form
10-Q,
as the case may be, most recently filed with the SEC (or, if such filing is not
permitted under the Exchange Act, with U.S. Bank National Association, the trustee) prior to the incurrence of such additional Debt and (b) the purchase price of any real estate assets or mortgages receivable acquired, and the amount of any
securities offering proceeds received (to the extent such proceeds were not used to acquire real estate assets or mortgages receivable or used to reduce Debt), by us or any subsidiary since the end of such calendar quarter, including those proceeds
obtained in connection with the incurrence of such additional Debt;
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S-2
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(2) we will not, and will not permit any subsidiary to, incur any Debt secured by any mortgage, lien, charge, pledge, encumbrance or security interest of any kind upon any of our or any of our subsidiaries property if,
immediately after giving effect to the incurrence of such Debt and the application of the proceeds thereof, the aggregate principal amount of all of our and our subsidiaries outstanding Debt on a consolidated basis which is secured by any
mortgage, lien, charge, pledge, encumbrance or security interest on our or our subsidiaries property is greater than 40% of the sum of (without duplication) (a) Total Assets as of the end of the calendar quarter covered in our Annual
Report on Form
10-K
or Quarterly Report on Form
10-Q,
as the case may be, most recently filed with the SEC (or, if such filing is not permitted under the Exchange Act,
with the trustee) prior to the incurrence of such additional Debt and (b) the purchase price of any real estate assets or mortgages receivable acquired, and the amount of any securities offering proceeds received (to the extent such proceeds
were not used to acquire real estate assets or mortgages receivable or used to reduce Debt), by us or any subsidiary since the end of such calendar quarter, including those proceeds obtained in connection with the incurrence of such additional Debt;
provided that
for purposes of this limitation, the amount of obligations under capital leases shown as a liability on our consolidated balance sheet shall be deducted from Debt and from Total Assets;
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(3) we will not, and will not permit any subsidiary to, incur any Debt if the ratio of Consolidated Income Available for Debt Service to the Annual Debt Service Charge for the four consecutive fiscal quarters most recently ended
prior to the date on which such additional Debt is to be incurred shall have been less than 1.5 to 1, on an unaudited pro forma basis after giving effect thereto and to the application of the proceeds therefrom and calculated on the assumption that
(a) such Debt and any other Debt incurred by us and our subsidiaries since the first day of such four-quarter period and the application of the proceeds therefrom, including to refinance other Debt, had occurred at the beginning of such period;
(b) the repayment or retirement of any other Debt by us and our subsidiaries since the first day of such four-quarter period had been repaid or retired at the beginning of such period (except that, in making such computation, the amount of Debt
under any revolving credit facility shall be computed based upon the average daily balance of such Debt during such period); (c) in the case of Acquired Debt or Debt incurred in connection with any acquisition since the first day of such
four-quarter period, the related acquisition had occurred as of the first day of such period, with the appropriate adjustments with respect to such acquisition being included in such unaudited pro forma calculation; and (d) in the case of any
acquisition or disposition by us or our subsidiaries of any asset or group of assets since the first day of such four-quarter period, whether by merger, stock purchase or sale, or asset purchase or sale, such acquisition or disposition or any
related repayment of Debt had occurred as of the first day of such period, with the appropriate adjustments with respect to such acquisition or disposition being included in such unaudited pro forma calculation; and
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(4) we, together with our subsidiaries, will maintain an Unencumbered Total Asset Value in an amount not less than 150% of the aggregate outstanding principal amount of all of our and our subsidiaries unsecured Debt, taken as
a whole.
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S-3
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Optional redemption
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The notes are redeemable at any time at our option, in whole or in part. If the notes are redeemed before April 15, 2027 (three months prior to the stated maturity date), the redemption price will be equal to the greater of
(1) 100% of the principal amount of the notes being redeemed, or (2) the sum of the present values of the remaining scheduled payments of principal and interest thereon, discounted to the redemption date on a semi-annual basis at the
Adjusted Treasury Rate plus 20 basis points (0.20%), plus, in each case, accrued and unpaid interest thereon to, but excluding, the redemption date. If the notes are redeemed on or after April 15, 2027 (three months prior to the maturity
date), the redemption price will be equal to 100% of the principal amount of the notes being redeemed plus accrued and unpaid interest thereon to, but excluding, the redemption date.
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See Description of Notes Optional Redemption for more
information.
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Material federal income tax considerations
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For a description of the material U.S. federal income tax considerations of an investment in the notes, please review the disclosure in this prospectus supplement under Additional Material Federal Income Tax
Considerations and in the accompanying prospectus under Material Federal Income Tax Considerations.
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Risk factors
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Investing in the notes involves risks. Please review the risk factors discussed beginning on page
S-5
of this prospectus supplement, on page 3 of the accompanying prospectus and in our Annual
Report on Form
10-K
for the year ended December 31, 2016, filed with the SEC on February 13, 2017, and the other information contained or incorporated by reference in this prospectus supplement and
the accompanying prospectus for a discussion of factors you should consider before deciding to invest in the notes. You may obtain a copy of our Annual Report on Form
10-K
and the other documents incorporated
by reference in this prospectus supplement and the accompanying prospectus by following the procedures described under Where You Can Find More Information on page 47 of the accompanying prospectus.
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S-4
RISK FACTORS
An investment in the notes involves a significant degree of risk. You should carefully consider the following risk factors, together with all of the other
information contained in or incorporated by reference in this prospectus supplement, including the additional risk factors on page 3 of the accompanying prospectus and the risk factors included in our Annual Report on Form
10-K
for the year ended December 31, 2016 filed with the SEC on February 13, 2017 before you decide to purchase the notes. The risks and uncertainties described below and in the incorporated Form
10-K
for the year ended December 31, 2016 are not the only ones we may confront. Additional risks and uncertainties not currently known to us or that we currently deem immaterial also may impair our business
operations. If any of those risks actually occur, our financial condition, operating results, liquidity and prospects could be materially adversely affected. This section contains forward-looking statements.
We are dependent on intercompany cash flows to satisfy our obligations under the notes.
We derive a significant portion of our operating income from our subsidiaries. As a holder of notes, you will have no direct claim against our subsidiaries for
payment under the notes. We generate net cash flow from the operations of the assets that we own directly but also rely on distributions and other payments from our subsidiaries to produce the funds necessary to meet our obligations, including the
payment of principal of and interest on the notes. If the cash flow from our directly owned assets, together with the distributions and other payments we receive from subsidiaries, are insufficient to meet all of our obligations, we will be required
to seek other sources of funds. These sources of funds could include proceeds derived from borrowings under our existing debt facilities, select property sales and net proceeds of public or private equity or debt offerings. There can be no assurance
that we would be able to obtain the funds necessary to meet our obligations from these sources on acceptable terms or at all.
The notes are
structurally subordinated to the claims of our subsidiaries creditors and our subsidiaries preferred equity holders.
Because the notes are
not guaranteed by our subsidiaries, the notes are effectively subordinated in right of payment to all of our subsidiaries existing and future liabilities. As a result, in the event of a bankruptcy, liquidation, dissolution, reorganization or
similar proceeding with respect to any of our subsidiaries, the holders of any indebtedness of that subsidiary will be entitled to obtain payment of that indebtedness from the assets of that subsidiary before the holders of any of our general
unsecured obligations, including the notes. At September 30, 2017, our subsidiaries had approximately $498 million of total secured and unsecured debt outstanding (excluding net unamortized premium and debt issuance costs), all of which
was effectively senior to the notes. If any of our subsidiaries issues preferred equity in the future, the preferred equity will be effectively senior to the notes. At this time, none of our subsidiaries has any outstanding preferred equity or plans
to issue any preferred equity.
The notes are unsecured and are effectively subordinated to our secured indebtedness.
Because the notes are unsecured, they are effectively subordinated to any of our secured indebtedness to the extent of the value of the assets securing the
indebtedness. The indenture permits us and our subsidiaries to incur additional secured indebtedness,
provided that
certain conditions are satisfied. Consequently, in the event of a bankruptcy, liquidation, dissolution, reorganization or
similar proceeding with respect to our company, the holders of any secured indebtedness will be entitled to proceed against the collateral that secures the secured indebtedness prior to that collateral being available for satisfaction of any amounts
owed under the notes. At September 30, 2017, we had approximately $493 million (excluding net unamortized premium and debt issuance costs) of secured debt outstanding, all of which was effectively senior to the notes to the extent of the
value of the securing collateral.
An active public trading market for the notes may not be maintained.
Although we do not intend to apply for listing of the notes on any securities exchange or on any automated dealer quotation system, a trading market currently
exists for the $300 million aggregate principal amount of the notes we previously issued. The underwriters have advised us that they currently intend to continue to make a market in the notes, but they are not obligated to do so and may cease
market-making activities at any time without notice. No assurance can be given as to the liquidity of the trading markets for the notes or that an active public market for the notes will be maintained. If an active public trading market for the
notes is not maintained, the market price and liquidity of the notes may be adversely affected.
S-5
The liquidity of any market for the notes will depend upon various factors, including:
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the number of holders of the notes;
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the interest of securities dealers in making a market for the notes;
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the overall market for debt securities;
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our financial performance and prospects; and
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the prospects for companies in our industry generally.
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If the notes are traded after their initial issuance,
they may trade at a discount from their initial offering price, depending upon prevailing interest rates and other factors, including those listed above.
Enactment of a Tax Reform Bill could have a negative effect on holders of the notes or us.
On November 16, 2017, the U.S. House of Representatives passed the Tax Cuts and Jobs Act (H.R. 1), and on December 2, 2017, the U.S. Senate passed a
revised version of the Tax Cuts and Jobs Act (together with any amended versions, the Tax Reform Bills). Either of the Tax Reform Bills, or any likely compromise version of the Tax Reform Bills, would make significant changes to the
United States income tax rules applicable to both individuals and entities, including corporations. There is significant uncertainty as to the likelihood, timing, or details of any Tax Reform Bill being enacted and the impact of any such Tax Reform
Bill on us or an investment in the notes. You should consult with your tax advisor with respect to the status of the Tax Reform Bills and any other regulatory or administrative developments and proposals and their potential effect on your investment
in the notes.
S-6
USE OF PROCEEDS
The net proceeds to us from the issuance and sale of the notes offered by this prospectus supplement are estimated to be approximately
$ million after deducting the underwriting discount and other estimated expenses of this offering payable by us (but excluding accrued interest paid by
purchasers of the notes of approximately $ million). We intend to use these net proceeds to redeem all of our outstanding 5.90% Notes due 2020 and for
general corporate purposes. Pending application of the net proceeds, we may invest the net proceeds in short-term income-producing investments or may use the net proceeds to temporarily repay amounts outstanding under our revolving credit facility.
As of September 30, 2017, 5.90% Notes due 2020 with an aggregate principal amount of $150 million were outstanding. In addition to the payment
of outstanding principal amount and accrued but unpaid interest, redemption of the 5.90% Notes due 2020 will be subject to a make-whole premium in the aggregate amount of approximately $12 million. The 5.90% Notes due 2020 are scheduled to mature on
April 1, 2020.
Our $800 million revolving credit facility matures on April 20, 2020, subject to two
six-month
extensions at our option. LIBOR loans outstanding under our revolving credit facility bear interest at seven day, one month, three month or six month LIBOR, at our election, plus a spread of 82.5
basis points, subject to adjustment based on our credit rating. In addition, we have an option (subject to the approval of the lenders under our revolving credit facility) to increase our revolving credit facility through an accordion feature to
$1.5 billion. As of September 30, 2017, we had $41.5 million outstanding under our revolving credit facility ($56.0 million as of December 6, 2017).
Affiliates of certain of the underwriters may be beneficial owners of some of our 5.90% Notes due 2020. Any such affiliates will receive pro rata portions of
the net proceeds from this offering used to redeem our 5.90% Notes due 2020. Affiliates of certain of the underwriters are lenders under our revolving credit facility and will receive a pro rata portion of the net proceeds used to repay amounts
outstanding under our revolving credit facility. See Underwriting (Conflicts of Interest) Conflicts of Interest.
S-7
DESCRIPTION OF NOTES
The following description of the particular terms of the notes offered hereby supplements the description of the general terms and provisions of debt
securities set forth in the accompanying prospectus under the caption Description of Debt Securities. Certain terms used in this prospectus supplement are defined in that section of the accompanying prospectus.
General
We are offering
$ aggregate principal amount of notes. The 2027 Notes will mature on July 15, 2027 (unless redeemed prior to such date in accordance with their terms).
The notes offered hereby will be an additional issuance of our outstanding 3.25% Notes due 2027, $300,000,000 aggregate principal amount of which were originally issued on June 23, 2017. The terms of the notes offered hereby, other than their issue
date, initial interest accrual date, initial interest payment date and issue price, will be identical to the terms of and will be part of the same series as the $300,000,000 aggregate principal amount of these outstanding 3.25% Notes due 2027.
However, for U.S. federal income tax purposes the notes offered hereby will be deemed to have the same issue date and issue price as the existing notes. The notes offered hereby will have the same CUSIP number as the currently outstanding notes and
will trade interchangeably with such notes immediately upon settlement. Upon consummation of this offering, the aggregate principal amount outstanding of our notes of this series, including the notes offered hereby, will be
$ .
We will pay interest on the notes semi-annually in
arrears at an annual rate of 3.25% on January 15 and July 15 of each year, beginning on January 15, 2018, to the registered holders of the notes on the preceding January 1 and July 1. Interest will be computed and paid on the
basis of a
360-day
year consisting of twelve
30-day
months. If any interest payment date, redemption date or maturity date falls on a day that is not a business day, the
payment will be made on the next succeeding business day, and no interest shall accrue on the amount of interest due on such date for the period from and after such interest payment date, redemption date or maturity date to the next succeeding
business day.
The notes offered hereby will be issued only in registered form in denominations of $2,000 and integral multiples of $1,000 in excess
thereof.
The defeasance and covenant defeasance provisions of the indenture apply to the notes. The notes are not entitled to the benefit of any sinking
fund.
The indenture does not limit the aggregate principal amount of the securities that may be issued thereunder, and securities may be issued
thereunder from time to time in one or more separate series up to the aggregate principal amount from time to time authorized by us for each series. We may from time to time without the consent of existing holders create and issue further notes
having the same terms and conditions as the notes, except for the issue date, the issue price and, if applicable, the initial interest payment date and the initial interest accrual date. Additional notes issued in this manner will be consolidated
and form a single series with, the previously outstanding notes. We also may issue from time to time other series of debt securities under the indenture consisting of notes or other unsecured evidences of indebtedness.
Ranking
The notes are our senior
unsecured obligations and rank
pari passu
, or equally, with all of our other unsecured and unsubordinated indebtedness. The notes are effectively subordinated to the prior claims of each secured mortgage lender to any specific property that
secures such lenders mortgage and to all of the unsecured indebtedness of our subsidiaries. At September 30, 2017, we had outstanding approximately $493 million (excluding net unamortized premium and debt issuance costs) of secured
indebtedness, which was issued by our subsidiaries and is collateralized by all or parts of 13 properties, and which ranks senior to the notes to the extent of the securing collateral and is also structurally senior to the notes, approximately
$5 million (excluding net unamortized debt issuance costs) of unsecured indebtedness issued by our subsidiaries, which is structurally senior to the notes, and approximately $2,711 million of unsecured indebtedness (excluding net
unamortized discount and debt issuance costs), which ranks equally with the notes.
Optional Redemption
The notes are
redeemable at any time at our option, in whole or in part. If the notes are redeemed before April 15, 2027 (three months prior to the stated maturity date) (the Par Call Date), the redemption price will be equal to the greater of
(1) 100% of the principal amount of the notes being redeemed, or (2) as determined by the Quotation Agent (as defined below), the sum of the present values of the remaining scheduled payments of principal and interest (not including any
portion of such payments of interest accrued to the applicable redemption date) on the notes to be redeemed, assuming that such notes matured, and that interest on such notes was payable on, the Par Call Date, discounted to such redemption date on a
semi-annual basis (assuming a
360-day
year consisting of twelve
30-day
months) at the Adjusted Treasury Rate (as defined below) plus 20 basis points (0.20%), plus, in
each case, accrued and unpaid interest thereon to, but excluding, the redemption date. If the notes are redeemed on or after the Par Call Date, the redemption price will be equal to 100% of the principal amount of the notes being redeemed plus
accrued and unpaid interest thereon to, but excluding, the redemption date.
S-8
As used herein:
Adjusted Treasury Rate
means, with respect to any redemption date, the rate per year equal to the semi-annual equivalent yield to maturity
of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date.
Comparable Treasury Issue
means the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the
remaining term of the notes to be redeemed (assuming for this purpose that such notes matured on the Par Call Date) that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of
corporate debt securities of comparable maturity to the remaining term of such notes.
Comparable Treasury Price
means, with respect to
any redemption date, (1) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations, or (2) if the trustee obtains fewer than five
such Reference Treasury Dealer Quotations, the average of all such Quotations.
Quotation Agent
means the Reference Treasury Dealer
appointed by us.
Reference Treasury Dealer
means each of (1) Citigroup Global Markets Inc., Deutsche Bank Securities Inc., J.P.
Morgan Securities LLC and Wells Fargo Securities, LLC and their respective successors;
provided, however,
that if any of the Reference Treasury Dealers ceases to be a primary U.S. Government securities dealer, or a Primary Treasury Dealer, we
will substitute therefor another Primary Treasury Dealer; and (2) any three other Primary Treasury Dealers selected by us.
Reference
Treasury Dealer Quotations
means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by us, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a
percentage of its principal amount) quoted in writing to the trustee by such Reference Treasury Dealer at 5:00 p.m., New York City time, on the third business day preceding such redemption date.
Notice of any redemption of the notes will be mailed at least 15 days but not more than 60 days before the redemption date to each holder of the notes to be
redeemed. Unless we default in payment of the redemption price, on and after the redemption date, interest will cease to accrue on the notes or portions thereof called for redemption.
Covenants
Limitations on
Incurrence of Debt
.
The notes provide that we will not, and will not permit any subsidiary to, incur any Debt if, immediately after giving effect to the incurrence of such Debt and the application of the proceeds thereof, the
aggregate principal amount of all of our and our subsidiaries outstanding Debt on a consolidated basis determined in accordance with generally accepted accounting principles is greater than 60% of the sum of (without duplication)
(1) Total Assets as of the end of the calendar quarter covered in our Annual Report on Form
10-K
or Quarterly Report on Form
10-Q,
as the case may be, most recently
filed with the SEC (or, if such filing is not permitted under the Exchange Act, with the trustee) prior to the incurrence of such additional Debt and (2) the purchase price of any real estate assets or mortgages receivable acquired, and the
amount of any securities offering proceeds received (to the extent such proceeds were not used to acquire real estate assets or mortgages receivable or used to reduce Debt), by us or any subsidiary since the end of such calendar quarter, including
those proceeds obtained in connection with the incurrence of such additional Debt.
In addition to the foregoing limitation on the incurrence of Debt, the
notes provide that we will not, and will not permit any subsidiary to, incur any Debt secured by any mortgage, lien, charge, pledge, encumbrance or security interest of any kind upon any of our or any of our subsidiaries property if,
immediately after giving effect to the incurrence of such Debt and the application of the proceeds thereof, the aggregate principal amount of all of our and our subsidiaries outstanding Debt on a consolidated basis which is secured by any
mortgage, lien, charge, pledge, encumbrance or security interest on our or our subsidiaries property is greater than 40% of the sum of (without duplication) (1) Total Assets as of the end of the calendar quarter covered in our Annual
Report on Form
10-K
or Quarterly Report on Form
10-Q,
as the case may be, most recently filed with the SEC (or, if such filing is not
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permitted under the Exchange Act, with the trustee) prior to the incurrence of such additional Debt and (2) the purchase price of any real estate assets or mortgages receivable acquired, and
the amount of any securities offering proceeds received (to the extent such proceeds were not used to acquire real estate assets or mortgages receivable or used to reduce Debt), by us or any subsidiary since the end of such calendar quarter,
including those proceeds obtained in connection with the incurrence of such additional Debt;
provided that
for purposes of this limitation, the amount of obligations under capital leases shown as a liability on our consolidated balance sheet
shall be deducted from Debt and from Total Assets.
Furthermore, the notes also provide that we will not, and will not permit any subsidiary to, incur any
Debt if the ratio of Consolidated Income Available for Debt Service to the Annual Debt Service Charge for the four consecutive fiscal quarters most recently ended prior to the date on which such additional Debt is to be incurred shall have been less
than 1.5 to 1, on an unaudited pro forma basis after giving effect thereto and to the application of the proceeds therefrom, and calculated on the assumption that: (1) such Debt and any other Debt incurred by us and our subsidiaries since the
first day of such four-quarter period and the application of the proceeds therefrom, including to refinance other Debt, had occurred at the beginning of such period; (2) the repayment or retirement of any other Debt by us and our subsidiaries
since the first day of such four-quarter period had been repaid or retired at the beginning of such period (except that, in making such computation, the amount of Debt under any revolving credit facility shall be computed based upon the average
daily balance of such Debt during such period); (3) in the case of Acquired Debt or Debt incurred in connection with any acquisition since the first day of such four-quarter period, the related acquisition had occurred as of the first day of
such period, with the appropriate adjustments with respect to such acquisition being included in such unaudited pro forma calculation; and (4) in the case of any acquisition or disposition by us or our subsidiaries of any asset or group of
assets since the first day of such four-quarter period, whether by merger, stock purchase or sale, or asset purchase or sale, such acquisition or disposition or any related repayment of Debt had occurred as of the first day of such period, with the
appropriate adjustments with respect to such acquisition or disposition being included in such unaudited pro forma calculation.
Maintenance of
Unencumbered Total Asset Value
.
The notes provide that we, together with our subsidiaries, will at all times maintain an Unencumbered Total Asset Value in an amount not less than 150% of the aggregate outstanding principal amount of
all our and our subsidiaries unsecured Debt, taken as a whole.
Insurance
.
The notes provide that we will, and will cause each
of our subsidiaries to, maintain insurance with financially sound and reputable insurance companies against such risks and in such amounts as is customarily maintained by persons engaged in similar businesses or as may be required by applicable law,
and that we will from time to time deliver to the Administrative Agent (as defined in our credit agreement dated as of July 7, 2011, as amended) upon its request a detailed list, together with copies of all policies of the insurance then in
effect, stating the names of the insurance companies, the amounts and rates of the insurance, the dates of the expiration thereof and the properties and risks covered thereby.
As used herein:
Acquired Debt
means Debt of
a person (1) existing at the time such person becomes a subsidiary or (2) assumed in connection with the acquisition of assets from such person, in each case, other than Debt incurred in connection with, or in contemplation of, such person
becoming a subsidiary or such acquisition. Acquired Debt shall be deemed to be incurred on the date of the related acquisition of assets from any person or the date the acquired person becomes a subsidiary.
Annual Debt Service Charge
as of any date means the maximum amount which is payable in any period for interest on, and original issue
discount of, our and our subsidiaries Debt and the amount of dividends which are payable in respect of any Disqualified Stock.
Capital
Stock
means, with respect to any person, any capital stock (including preferred stock), shares, interests, participations or other ownership interests (however designated) of such person and any rights (other than debt securities
convertible into or exchangeable for corporate stock), warrants or options to purchase any thereof.
Consolidated Income Available for Debt
Service
for any period means our and our subsidiaries Funds from Operations plus amounts which have been deducted for interest on our and our subsidiaries Debt.
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Debt
means any of our or any of our subsidiaries indebtedness, whether or not
contingent, in respect of (without duplication) (1) borrowed money evidenced by bonds, notes, debentures or similar instruments, (2) indebtedness secured by any mortgage, pledge, lien, charge, encumbrance or any security interest existing
on property owned by us or any subsidiary, (3) the reimbursement obligations, contingent or otherwise, in connection with any letters of credit actually issued or amounts representing the balance deferred and unpaid of the purchase price of any
property or services, except any such balance that constitutes an accrued expense or trade payable, or all conditional sale obligations or obligations under any title retention agreement, (4) the principal amount of all of our or any of our
subsidiaries obligations with respect to redemption, repayment or other repurchase of any Disqualified Stock or (5) any lease of property by us or any subsidiary as lessee which is reflected on our consolidated balance sheet as a
capitalized lease in accordance with generally accepted accounting principles to the extent, in the case of items of indebtedness under (1) through (3) above, that any such items (other than letters of credit) would appear as a liability
on our consolidated balance sheet in accordance with generally accepted accounting principles, and also includes, to the extent not otherwise included, any obligation of us or any subsidiary to be liable for, or to pay, as obligor, guarantor or
otherwise (other than for purposes of collection in the ordinary course of business or for the purposes of guaranteeing the payment of all amounts due and owing pursuant to leases to which we are a party and have assigned our interest,
provided
that
such assignee of ours is not in default of any amounts due and owing under such leases), Debt of another person (other than us or any subsidiary) (it being understood that Debt shall be deemed to be incurred by us or any subsidiary whenever
we or such subsidiary shall create, assume, guarantee or otherwise become liable in respect thereof).
Disqualified Stock
means, with
respect to any person, any Capital Stock of such person which by the terms of such Capital Stock (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable), upon the happening of any event or
otherwise (1) matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, (2) is convertible into or exchangeable or exercisable for Debt or Disqualified Stock or (3) is redeemable at the option of the
holder thereof, in whole or in part, in each case on or prior to the stated maturity of the notes.
Funds from Operations
for any
period means income available to common shareholders before depreciation and amortization of real estate assets and before extraordinary items less gain on sale of real estate.
Total Assets
as of any date means the sum of (1) our and all of our subsidiaries Undepreciated Real Estate Assets and
(2) all of our and our subsidiaries other assets determined in accordance with generally accepted accounting principles (but excluding goodwill).
Undepreciated Real Estate Assets
as of any date means the cost (original cost plus capital improvements) of our and our subsidiaries
real estate assets on such date, before depreciation and amortization determined on a consolidated basis in accordance with generally accepted accounting principles.
Unencumbered Total Asset Value
as of any date means the sum of (a) those Undepreciated Real Estate Assets not encumbered by any
mortgage, lien, charge, pledge or security interest and (b) all of our and our subsidiaries other assets on a consolidated basis determined in accordance with generally accepted accounting principles (but excluding intangibles and
accounts receivable), in each case which are unencumbered by any mortgage, lien, charge, pledge or security interest;
provided, however
, that in determining Unencumbered Total Asset Value for purposes of the covenant set forth above in
Maintenance of Unencumbered Total Asset Value, all investments by us and any subsidiary in unconsolidated joint ventures, unconsolidated limited partnerships, unconsolidated limited liability companies and other unconsolidated
entities accounted for financial reporting purposes using the equity method of accounting in accordance with U.S. generally accepted accounting principles shall be excluded from Unencumbered Total Asset Value.
See Description of Debt Securities Certain Covenants in the accompanying prospectus for a description of additional covenants applicable to
us.
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Default Provisions
Events of Default.
The notes are subject to the following events of default:
1. A default in the payment of any interest or any additional amounts on any debt security of that series or of any coupon appertaining thereto when it becomes
due and payable, if the default continues for a period of 30 days.
2. A default in the payment of the principal of (or premium, if any, on) any debt
security of that series at its maturity (upon acceleration, optional or mandatory redemption, required purchase or otherwise).
3. A default in the deposit
of any sinking fund payment as required by the terms of any debt security of that series.
4. A default in the performance, or a breach, of any covenant or
agreement by us under the applicable indenture (other than a default in the performance, or a breach of a covenant or agreement which is specifically dealt with in clause (1) through (7) hereof) if such default or breach continues for
a period of 60 days after written notice has been given, by registered or certified mail:
(a) to us by the trustee; or
(b) to us and the trustee by the holders of at least 25% in aggregate principal amount of the outstanding debt securities of the series.
5. The occurrence of one or more defaults under any bond, debenture, note or other evidence of indebtedness for money borrowed by us (including obligations
under leases required to be capitalized on the balance sheet of the lessee under generally accepted accounting principles 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 (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 such indebtedness now exists or shall hereafter be created, if the default has resulted in such
indebtedness becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable or in the acceleration of such obligations, without such acceleration having been rescinded or annulled.
6. The entry by a court of competent jurisdiction under any applicable bankruptcy law that:
(a) is for relief against us or any of our significant subsidiaries in an involuntary case,
(b) appoints a receiver in respect of us or any of our significant subsidiaries or for all or substantially all of the property of any of us; or
(c) orders our liquidation or the liquidation of any of our significant subsidiaries, and the order or decree remains unstayed and in effect for 90 days.
7. We or any of our significant subsidiaries do any of the following:
(a) commence a voluntary case or proceeding under any applicable bankruptcy law;
(b) consent to the entry of a decree or order for relief in respect of us or any of our significant subsidiaries in an involuntary case or proceeding under any
applicable bankruptcy law;
(c) consent to the appointment of a receiver in respect of us or any of our significant subsidiaries for all or substantially
all of our or its property; or
(d) makes a general assignment for the benefit of our creditors or the creditors of any of our significant subsidiaries.
Book-Entry Form
We have established a depositary
arrangement with The Depository Trust Company, or the Depositary, with respect to the notes, the terms of which are summarized below. Upon issuance, each of the notes offered hereby will be represented by a single Global Security (as defined in the
indenture) and will be deposited with, or on behalf of, the Depositary and will be registered in the name of the Depositary or a nominee of the Depositary. No Global Security may be transferred except as a whole by a nominee of the Depositary to the
Depositary or to another nominee of the Depositary, or by the Depositary or such nominee to a successor of the Depositary or a nominee of such successor.
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As long as the Depositary or its nominee is the registered owner of a Global Security, the Depositary or its
nominee, as the case may be, will be the sole Holder (as defined in the indenture) of the notes for all purposes under the indenture. Except as otherwise provided in this section, the Beneficial Owners (as defined in the indenture) of the Global
Security representing the notes will not be entitled to receive physical delivery of certificated notes and will not be considered the Holders thereof for any purpose under the indenture, and no Global Security representing such notes shall be
exchangeable or transferable. Accordingly, each Beneficial Owner must rely on the procedures of the Depositary and, if such Beneficial Owner is not a Participant (as defined below), on the procedures of the Participant through which such Beneficial
Owner owns its interest in order to exercise any rights of a Holder under such Global Security or the indenture. The laws of some jurisdictions require that certain purchasers of securities take physical delivery of such securities in certificated
form. Such laws may impair the ability to transfer beneficial interests in a Global Security representing the notes.
The Global Security representing the
notes offered hereby will be exchangeable for certificated notes of like tenor and terms and of differing authorized denominations aggregating a like principal amount, only if (1) the Depositary notifies us that it is unwilling or unable to
continue as Depositary for the Global Security or the Depositary ceases to be a clearing agency registered under the Exchange Act (if so required by applicable law or regulation) and, in each case, a successor Depositary is not appointed by us
within 90 days after we receive such notice or become aware of such unwillingness, inability or ineligibility, (2) we, in our discretion, determine that the Global Security shall be exchangeable for certificated notes or (3) there shall
have occurred and be continuing an Event of Default (as defined in the indenture) under the indenture with respect to the notes and Beneficial Owners representing a majority in aggregate principal amount of the notes represented by the Global
Security advise the Depositary to cease acting as depositary. Upon any such exchange, the certificated notes shall be registered in the names of the Beneficial Owners of the Global Security representing the notes, which names shall be provided by
the Depositarys relevant Participants (as identified by the Depositary) to the registrar.
The information below concerning the Depositary and the
Depositarys system has been furnished by the Depositary, and we take no responsibility for the accuracy thereof. The Depositary acts as securities depository for the notes. The notes offered hereby will be issued as fully registered securities
registered in the name of Cede & Co. (the Depositarys partnership nominee). One fully registered Global Security will be issued for the notes offered hereby, in the aggregate principal amount of such issue, and will be deposited with
the Depositary.
The Depositary is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the
meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of
Section 17A of the Exchange Act. The Depositary holds securities that its participants, or Participants, deposit with the Depositary. The Depositary also facilitates the settlement among Participants of securities transactions, such as
transfers and pledges, in deposited securities through electronic computerized book-entry changes in Participants accounts, thereby eliminating the need for physical movement of securities certificates. Direct participants of the Depositary,
or Direct Participants, include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. The Depositary is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation, or
DTCC. DTCC is owned by the users of its regulated subsidiaries. Access to the Depositarys system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly, or Indirect Participants. The rules applicable to the Depositary and its Participants are on file with the SEC.
Purchases of notes under the Depositarys system must be made by or through Direct Participants, which will receive a credit for such notes on the
Depositarys records. The ownership interest of each actual purchaser of each note represented by a Global Security, or Beneficial Owner, is in turn to be recorded on the Direct Participants and Indirect Participants records.
Beneficial Owners will not receive written confirmation from the Depositary of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their
holdings, from the Direct Participants or Indirect Participants through which such Beneficial Owner entered into the transaction. Transfers of ownership interests in a Global Security representing the notes are to be accomplished by entries made on
the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners of a Global Security representing the notes will not receive certificated notes representing their ownership interests therein, except in the event that use of the
book-entry system for such notes is discontinued.
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To facilitate subsequent transfers, the Global Security representing the notes which is deposited with, or on
behalf of, the Depositary are registered in the name of the Depositarys partnership nominee, Cede & Co. The deposit of a Global Security with, or on behalf of, the Depositary and its registration in the name of Cede & Co.
effects no change in beneficial ownership. The Depositary has no knowledge of the actual Beneficial Owners of the Global Security representing the notes; the Depositarys records reflect only the identity of the Direct Participants to whose
accounts such notes are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by the Depositary to Direct Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.
Neither the Depositary nor Cede & Co. will consent or vote with respect to the Global Security representing the notes. Under its usual procedures,
the Depositary mails an Omnibus Proxy to us as soon as possible after the applicable record date. The Omnibus Proxy assigns Cede & Co.s consenting or voting rights to those Direct Participants to whose accounts the notes are credited
on the applicable record date (identified in a listing attached to the Omnibus Proxy).
Principal, premium, if any, and/or interest payments on the Global
Security representing the notes offered hereby will be made to the Depositary. The Depositarys practice is to credit Direct Participants accounts on the applicable payment date in accordance with their respective holdings shown on the
Depositarys records unless the Depositary has reason to believe that it will not receive payment on such date. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of the Depositary, the trustee or us, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal, premium, if any, and/or interest to the Depositary is the responsibility of us or the trustee, disbursement of such payments to Direct Participants shall be the responsibility
of the Depositary, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct Participants and Indirect Participants.
If applicable, redemption notices shall be sent to Cede & Co. If less than all of the notes are being redeemed, the Depositarys practice is to
determine by lot the amount of the interest of each Direct Participant to be redeemed.
The Depositary may discontinue providing its services as
securities depository with respect to the notes at any time by giving reasonable notice to the trustee or us. Under such circumstances, in the event that a successor securities depository is not obtained, certificated notes are required to be
printed and delivered. We may decide to discontinue use of the system of book-entry transfers through the Depositary (or a successor securities depository). In that event, certificated notes will be printed and delivered.
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ADDITIONAL MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
For a discussion of the material federal income tax issues that you may consider relevant relating to our taxation as a REIT, see Material Federal Income
Tax Considerations beginning on page 28 of the accompanying prospectus, as modified by the discussion below under Recent Proposed and Enacted Legislation and Regulations Affecting Taxation of Our Company. For a general
discussion of the material U.S. federal income tax considerations applicable to the acquisition, ownership and disposition of the notes, see below under Taxation of Holders of the Notes. These discussions apply only to initial
beneficial owners of the notes who purchase notes in this offering at their public offering price and who hold the notes as capital assets (generally property held for investment) within the meaning of Section 1221 of the Internal Revenue Code
of 1986, as amended (the Code). These discussions are based on the Code, income tax regulations promulgated thereunder, judicial decisions, published positions of the Internal Revenue Service (IRS) and other applicable
authorities, all as in effect as of the date hereof and all of which are subject to change, possibly with retroactive effect. These discussions are general in nature and are not exhaustive of all possible tax considerations, nor do they address any
state, local or foreign tax considerations or any U.S. tax considerations (e.g., estate, generation-skipping, or gift tax) other than U.S. federal income tax considerations, that may be applicable to particular holders. These discussions do not
address all the tax consequences that may be relevant to specific holders in light of their particular circumstances (including holders that are directly or indirectly related to us) or to holders subject to special treatment under the Code, such as
financial institutions, brokers, dealers in securities and commodities, insurance companies, certain former U.S. citizens or long-term residents, regulated investment companies, real estate investment trusts,
tax-exempt
organizations, controlled foreign corporations, passive foreign investment companies, persons subject to the alternative minimum tax, U.S. persons whose functional currency is not the U.S. dollar,
persons that are, or that hold their notes through, partnerships or other pass-through entities, or persons that hold notes as part of a straddle, hedge, conversion, synthetic security or constructive sale transaction for U.S. federal income tax
purposes. Except as specifically provided below with respect to
Non-U.S.
Holders (as defined below), these discussions are limited to beneficial owners of notes that are U.S. Holders.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE U.S. FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF THE ACQUISITION,
OWNERSHIP AND DISPOSITION OF THE NOTES.
Recent Proposed and Enacted Legislation and Regulations Affecting Taxation of Our Company
This discussion supplements and updates the discussion contained in the prospectus under the heading Material Federal Income Tax Considerations,
and supersedes such discussion to the extent inconsistent with such discussion. As supplemented and updated by this summary, investors should review the discussion in the prospectus under the heading Material Federal Income Tax
Considerations for a more detailed summary of the federal income tax consequences of our election to be subject to federal income tax as a REIT.
Potential U.S. Tax Reform Legislation
On
November 16, 2017, the U.S. House of Representatives passed its version of a Tax Reform Bill, the Tax Cuts and Jobs Act (H.R. 1), and on December 2, 2017, the U.S. Senate passed a revised version of the Tax Reform Bill. Either of the Tax
Reform Bills, or any likely compromise version of the Tax Reform Bills, would make significant changes to the United States income tax rules applicable to both individuals and entities, including corporations. Whether a Tax Reform Bill as currently
written or as subsequently amended will be enacted and its impact on the tax treatment described herein is uncertain. Holders should consult with their tax advisors with respect to the status of the Tax Reform Bills and any other regulatory or
administrative developments and proposals and their potential effect on an investment in the notes.
Path Act Modification of Certain Rules
Applicable to REITs
On December 18, 2015, President Obama signed into law the Consolidated Appropriations Act, 2016, an omnibus spending
bill, with a division referred to as the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act). The PATH Act modified a number of important rules regarding the taxation of REITs and their shareholders, including, among others,
the following rules described below. The rules in the PATH Act were enacted with different effective dates, some of which are retroactive. Prospective investors should consult their tax advisors regarding the implications of the PATH Act.
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Reduction in
Built-in
Gains Period.
For taxable years
beginning in 2015 and later, the
built-in
gains period (i.e., the period during which gains from the sale or disposition of property acquired by a REIT from a C corporation in a
tax-free
merger or other carryover basis transaction is subject to C corporation tax) is reduced from ten years to five years. Subsequent to the enactment of the PATH Act the IRS issued temporary Treasury
regulations that extended the
built-in
gains period with respect to REITs from five years back to ten years, applicable to acquisitions of assets in which a REITs basis in an asset is
determined by reference to the basis of the assets in the hands of the transferor C corporation that occur on or after August 8, 2016 and on or before February 17, 2017. Pursuant to recently finalized Treasury regulations, the five-year
recognition period applies to transactions that occur after February 17, 2017, and taxpayers may also apply the five-year recognition period to transactions that occurred on or after August 8, 2016 and on or before February 17,
2017.
Reduction in Permissible Holdings of the Securities of Taxable REIT Subsidiaries.
For taxable years beginning after
2017, the percentage of our total assets that may be represented by securities of one or more taxable REIT subsidiaries is reduced from 25% to 20%.
Prohibited Transaction Safe Harbors
. We are subject to a 100% tax on net income from prohibited transactions, i.e., sales of dealer
property (other than foreclosure property). These rules also contain safe harbors under which certain sales of real estate assets will not be treated as prohibited transactions. Included among the requirements for the
pre-PATH
Act safe harbors is that (I) we do not make more than seven sales of property (subject to specified exceptions) during the taxable year at issue, (II) the aggregate adjusted bases (as determined
for purposes of computing earnings and profits) of property (other than excepted property) sold during the taxable year does not exceed 10% of the aggregate bases in our assets as of the beginning of the taxable year, or (III) the fair market
value of property (other than excepted property) sold during the taxable year does not exceed 10% of the fair market value of our total assets as of the beginning of the taxable year. If we rely on clause (II) or (III), substantially all of the
marketing and certain development expenditures with respect to the properties sold must be made through an independent contractor. The PATH Act made the following changes to these safe harbors:
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For taxable years beginning after December 18, 2015, clauses (II) and (III) are liberalized to permit us to sell properties with an aggregate adjusted basis (or fair market value) of up to 20% of the aggregate
bases in (or fair market value of) our assets as long as the 10% standard is satisfied on average over the three-year period comprised of the taxable year at issue and the two immediately preceding taxable years.
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For taxable years beginning after 2015, if we rely on clauses (II) or (III), marketing and development expenditures made through a taxable REIT subsidiary, as well as those made through an independent contractor,
are included in the substantially all test described above.
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TRS Operation of Foreclosure Property.
For taxable
years beginning after 2015, a taxable REIT subsidiary may operate property on which we have made a foreclosure property election without loss of foreclosure property status.
Modification to Preferential Dividend Rules.
For distributions in taxable years beginning after 2014, the preferential dividend rules do not
apply to publicly offered REITs. A publicly offered REIT means a REIT that is required to file annual and periodic reports with the Securities and Exchange Commission under the Securities Exchange Act of 1934. We are a
publicly offered REIT.
Limitations on Designation of Dividends by REITs.
The aggregate amount of dividends that we may designate as
qualified dividend income or as capital gain dividends with respect to any taxable year beginning after 2015 cannot exceed the dividends actually paid by us during such year. In addition, the Secretary of the Treasury is authorized to prescribe
regulations or other guidance requiring proportionality of the designation of particular types of dividends.
Debt Instruments of
Publicly Offered REITs and Mortgages Treated as Real Estate Assets.
The PATH Act provides that debt instruments issued by publicly offered REITs (as defined above) are treated as real estate assets for purposes of the 75% asset
test. Income from such debt instruments is qualifying income for purposes of the 95% gross income test, but is not qualifying income for purposes of the 75% gross income test, unless they would otherwise be treated as real estate
assets. Under a new asset test, not more than 25% of the value of our assets can consist of debt instruments of publicly offered REITs unless they would otherwise be treated as real estate assets. These provisions are effective for taxable
years beginning after 2015.
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Asset and Income Test Clarification Regarding Ancillary Personal Property.
Rent attributable to
personal property which is leased under, or in connection with, a lease of real property, is treated as rents from real property for purposes of the 95% and 75% gross income tests if the rent attributable to the personal property for the taxable
year does not exceed 15% of the total rent for the year for such real and personal property. The PATH Act extends this treatment to the 75% asset test by providing that, for taxable years beginning after 2015, personal property leased in
connection with a lease of real property is treated as a real estate asset for purposes of the 75% asset test to the extent that rent attributable to such personal property meets the 15% test described above. In addition, for taxable years
beginning after 2015, debt secured by a mortgage on both real and personal property qualifies as a real estate asset for purposes of the 75% asset test, and interest on such debt is qualifying income for purposes of both the 95% and 75% gross income
tests, if the fair market value of the personal property securing the debt does not exceed 15% of the total fair market value of all property securing the debt.
Hedging Provisions.
Income from hedging transactions that hedge certain REIT liabilities and currency risks is disregarded in applying the gross
income tests. The PATH Act provides that for taxable years beginning after 2015, certain income from hedging transactions entered into to hedge existing hedging positions after any portion of the hedged indebtedness or property is disposed of will
also be disregarded for purposes of the 95% and 75% gross income tests.
Modification of REIT Earnings and Profits Calculation.
The PATH Act
modified the special earnings and profits rules in the Code to ensure that shareholders, for taxable years after 2015, will not be treated as receiving taxable dividends from us that exceed our earnings and profits.
Treatment of Certain Services Provided by Taxable REIT Subsidiaries.
For taxable years beginning after 2015, a 100% excise tax is imposed on
redetermined TRS service income, which is income of a taxable REIT subsidiary attributable to services provided to, or on behalf of, us and which would otherwise be increased on distribution, apportionment, or allocation under the Code
(i.e., as a result of a determination that the income was not arms length), except to the extent income is attributable to services provided to a tenant (which were already subject to a 100% excise tax).
Exceptions from FIRPTA for Certain REIT Stock Gains and Distributions.
On or after December 18, 2015, the disposition of stock of a
publicly traded REIT is not treated, under the Foreign Investment in Real Property Tax Act (FIRPTA), as a United States real property interest in the hands of a person who has not held more than 10% (increased from 5% under prior law) of
the stock of such REIT during the applicable testing period. Similarly, on or after December 18, 2015, a distribution by a publicly traded REIT is not treated, under FIRPTA, as gain from the disposition of a United States real property interest
for a person who has not held more than 10% (increased from 5% under prior law) of the stock of such REIT during the applicable testing period.
Stock of
a REIT held (directly or through partnerships) by a qualified shareholder will not be a United States real property interest, and capital gain dividends from such a REIT will not be treated as gain from the sale of a United States real
property interest, unless a person (other than a qualified shareholder) that holds an interest (other than an interest solely as a creditor) in such qualified shareholder owns, taking into account applicable constructive ownership rules, more than
10% of the stock of the REIT (an applicable investor). If the qualified shareholder has such an applicable investor, gains and REIT distributions allocable to the portion of REIT stock held by the qualified shareholder indirectly owned
through the qualified shareholder by the applicable investor will be treated as gains from the sale of United States real property interests. For these purposes, a qualified shareholder is a foreign person that is in a treaty
jurisdiction and satisfies certain publicly traded requirements, is a qualified collective investment vehicle, and maintains records on the identity of certain 5% owners. A qualified collective investment vehicle is a foreign
person that is eligible for a reduced withholding rate with respect to ordinary REIT dividends even if such person holds more than 10% of the REITs stock, a publicly traded partnership that is a withholding foreign partnership that would be a
United States real property holding corporation if it were a United States corporation, or is designated as a qualified collective investment vehicle by the Secretary of the Treasury and is either fiscally transparent within the meaning of the Code
or required to include dividends in its gross income but entitled to a deduction for distributions to its investors. Finally, capital gain dividends and
non-dividend
redemption and liquidating distributions to
a qualified shareholder that are not allocable to an applicable investor will be treated as ordinary dividends. These changes apply to dispositions and distributions on or after December 18, 2015.
S-17
Determination of Domestically Controlled REIT Status.
In determining whether we are domestically
controlled for purposes of the exception to FIRPTA for dispositions of domestically controlled REIT stock, we may presume that holders of less than 5% of a class of stock regularly traded on an established securities market in the United States are
U.S. persons throughout the testing period, except to the extent that we have actual knowledge to the contrary. In addition, the PATH Act provides that any stock in a REIT held by another REIT that is publicly traded will be treated as held by a
non-U.S.
person unless the other REIT is domestically controlled, in which case the stock will be treated as held by a U.S. person. Finally, any stock in a REIT held by another REIT that is not publicly traded will
only be treated as held by a U.S. person to the extent that U.S. persons hold (or are treated as holding under the new rules) the other REITs stock. These provisions were effective as of December 18, 2015.
FIRPTA Exception for Interests Held by Foreign Retirement or Pension Funds.
Qualified foreign pension funds and entities that are
wholly owned by a qualified foreign pension fund are exempted from FIRPTA and FIRPTA withholding. For these purposes, a qualified foreign pension fund is any trust, corporation, or other organization or arrangement if (i) it was
created or organized under foreign law, (ii) it was established to provide retirement or pension benefits to participants or beneficiaries that are current or former employees (or persons designated by such employees) of one or more employers
in consideration for services rendered, (iii) it does not have a single participant or beneficiary with a right to more than 5% of its assets or income, (iv) it is subject to government regulation and provides annual information reporting
about its beneficiaries to the relevant tax authorities in the country in which it is established or operates, and (v) under the laws of the country in which it is established or operates, either contributions to such fund which would otherwise
be subject to tax under such laws are deductible or excluded from the gross income of such fund or taxed at a reduced rate, or taxation of any investment income of such fund is deferred or such income is taxed at a reduced rate. This provision is
effective for dispositions and distributions occurring after December 18, 2015.
Increase in Rate of FIRPTA Withholding.
For sales of
United States real property interests occurring after February 16, 2016, the FIRPTA withholding rate for dispositions of United States real property interests and certain distributions increases from 10% to 15%.
Bipartisan Budget Act Alteration of Rules Concerning Liability for Partnership Audit Adjustments
On November 2, 2015, President Obama signed into law the Bipartisan Budget Act of 2015 (the Budget Act). Among other things, the Budget Act
changed the rules applicable to federal income tax audits of partnerships (including partnerships in which we are a partner) and the collection of any tax resulting from such audits or other tax proceedings. Under the new rules, the partnership
itself must pay any imputed underpayments, consisting of delinquent taxes, interest, and penalties deemed to arise out of an audit of the partnership, unless certain alternative methods are available and the partnership elects to utilize
them.
The new rule generally does not apply to audits of taxable years beginning before January 1, 2018. The Treasury has recently issued proposed
regulations providing details of the new audit provisions. However, the timing and content of final regulations remains uncertain. Therefore, it is not clear at this time what effect this new legislation will have on us or our partnerships. However,
it is possible that in the future, we and/or any partnership in which we are a partner could be subject to, or otherwise bear the economic burden of, federal income tax, interest, and penalties resulting from a federal income tax audit as a result
of the changes enacted by the Budget Act.
Revenue Procedure Issued Concerning Elective Cash/Share Dividends
The IRS recently issued a revenue procedure applicable to publicly offered REITs that will treat distributions that, at the election of each shareholder, are
paid partly in cash and partly in shares as dividends that satisfy the REIT annual distribution requirement and qualify for the dividends paid deduction for federal income tax purposes. We have no current intention to make such an elective
cash/shares distribution, but in the event of such a distribution we expect to structure it so as to comply with the revenue procedure.
S-18
Taxation of Holders of the Notes
For purposes of this discussion, a U.S. Holder means a beneficial owner of a note that, for U.S. federal income tax purposes, is
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a citizen or individual resident of the United States;
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a corporation (including an entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;
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an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or
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a trust if (a) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial
decisions of the trust, or (b) it has a valid election in place to be treated as a United States person.
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If an entity or arrangement
treated as a partnership for U.S. federal income tax purposes is a holder of a note, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships that hold
notes (and partners in such partnerships) should consult their tax advisors as to the particular U.S. federal income tax consequences applicable to them.
A
Non-U.S.
Holder means any beneficial owner of a note that is neither a U.S. Holder nor an entity or
arrangement treated as a partnership for U.S. federal income tax purposes.
Qualified Reopening of Notes
For U.S. federal income tax purposes, we currently intend to treat the notes offered hereby as being issued in a qualified reopening of the
currently outstanding 3.25% Notes due 2027 (the existing notes). For U.S. federal income tax purposes, debt instruments issued in a qualified reopening are deemed to be part of the same issue as the original debt instruments. Under the
treatment described in this paragraph, the notes offered hereby will have the same issue date and the same issue price as the existing notes for U.S. federal income tax purposes. The issue price of the existing notes was $990.83 per $1,000 face
amount and the issue date of the existing notes was June 23, 2017. The remainder of this discussion assumes the correctness of the treatment described in this paragraph.
U.S. Holders
Pre-Acquisition
Accrued Interest on the Notes.
A portion of the price paid for the notes is attributable
to the amount of interest accrued from June 23, 2017
(pre-acquisition
accrued interest). To the extent a portion of a U.S. Holders purchase price is allocable to
pre-acquisition
accrued interest, a portion of the first stated interest payment equal to the amount of such
pre-acquisition
accrued interest may be treated as a nontaxable
return of such
pre-acquisition
accrued interest to the U.S. Holder. If so, the amount treated as a return of
pre-acquisition
accrued interest will reduce a U.S.
Holders adjusted tax basis in the note by a corresponding amount. You should consult your own tax advisors regarding the tax treatment of
pre-acquisition
accrued interest.
Stated Interest on the Notes.
A U.S
.
Holder generally will be required to include stated interest earned on the notes (other than
pre-acquisition
accrued interest) as ordinary income when received or accrued in accordance with the U.S. Holders regular method of tax accounting to the extent such interest is qualified stated
interest. Stated interest is qualified stated interest if it is unconditionally payable in cash at least annually. The stated interest on the notes will be qualified stated interest.
OID and Issue Price of the Notes.
A debt instrument generally has original issue discount, or OID, if its stated redemption price at
maturity exceeds its issue price by an amount that is equal to or greater than a statutory
de minimis
amount. A debt instruments stated redemption price at maturity includes all principal and interest payable over the
term of the debt instrument, other than qualified stated interest. The issue price of the existing notes was the first price at which a substantial amount of the existing notes were sold to the public (excluding bond houses, brokers, or similar
persons or organizations acting in the capacity of underwriters, placement agents, or wholesalers).
S-19
The stated redemption price of the existing notes at maturity did not exceed their issue price by more than the
statutory
de minimis
amount. Accordingly, the existing notes do not have OID. As discussed above, under the qualified reopening rules the issue price of the notes offered hereby will be deemed to be the same as the issue price of the existing
notes. As a result, the notes will also not have OID.
Market Discount
. If a note is purchased at a price (excluding any amounts that are
treated as pre-acquisition accrued interest as described above under Pre-Acquisition Accrued Interest on the Notes) that is less than its principal amount, the U.S. Holder will be treated as having acquired the note at a market
discount unless the amount of this market discount is less than a
de minimis
amount (generally 0.25% of the principal amount of the note multiplied by the number of remaining whole years to maturity of the note). Under the market
discount rules, the U.S. Holder will be required to treat any gain on the sale, exchange, redemption, retirement, or other taxable disposition of a note, or any appreciation in a note in the case of certain nontaxable dispositions, such as a gift,
as ordinary income to the extent of the market discount which has not previously been included in income and which is treated as having accrued on the note at the time of the disposition. In addition, the U.S. Holder may be required to defer, until
the maturity of the note or earlier taxable disposition, the deduction of all or a portion of the interest expense on any indebtedness incurred or continued to purchase or carry the note. Any market discount will be considered to accrue ratably
during the period from the date of acquisition to the maturity date of the note, unless the U.S. Holder elects to accrue the market discount on a constant yield method. In addition, the U.S. Holder may elect to include market discount in income
currently as it accrues, on either a ratable or constant yield method, in which case the rule described above regarding deferral of interest deductions will not apply. This election to include market discount in income currently, once made, applies
to all market discount obligations acquired by the U.S. Holder during or after the first taxable year to which the election applies and may not be revoked without the consent of the IRS. You should consult with your tax advisor regarding these
elections.
Amortizable Bond Premium.
If a note is purchased at a price in excess of such notes stated principal amount (excluding any
amounts that are treated as
pre-acquisition
accrued interest as described above under
Pre-Acquisition
Accrued Interest on the Notes), a U.S. Holder will have
bond premium with respect to that note in an amount equal to such excess. A U.S. Holder generally may elect to amortize bond premium using the constant yield method over the remaining term of the note and may offset stated interest income otherwise
required to be included in respect of the note during any taxable year by the amortized amount of bond premium for the taxable year. However, because we may call the notes under certain circumstances at a price in excess of their stated principal
amount, such amortization may be reduced and/or deferred.
A U.S. Holders election to amortize bond premium on a constant yield
method, once made, will also apply to all other debt obligations with bond premium (other than obligations the interest on which is excludible from gross income) that a U.S. Holder holds at the beginning of or acquires in or after the first taxable
year to which the election applies and may not be revoked without the consent of the IRS. If a U.S. Holder does not elect to amortize the bond premium, the bond premium will decrease the gain or increase the loss such holder would otherwise
recognize on the disposition of the note. You should consult your own tax advisors with respect to the rules relating to amortizable bond premium and the application to your particular circumstances.
Sale, Exchange, Redemption, or Other Taxable Disposition of the Notes.
Unless a
non-recognition
provision applies, upon the sale, exchange, redemption or other taxable disposition of a note, a U.S. Holder will generally recognize capital gain or loss equal to the difference (if any) between the amount realized (other than amounts attributable
to accrued but unpaid stated interest, which will be taxable as ordinary income to the extent not previously included in income) and such U.S. Holders adjusted tax basis in the note. The U.S. Holders adjusted tax basis in a note
generally will be the purchase price for the note, increased by any market discount included in income in respect of the note, and reduced by the amount of any payments previously received by the U.S. Holder (other than qualified stated interest)
and any amortized bond premium. Except to the extent of any accrued market discount not previously included in income, such gain or loss will be treated as long-term capital gain or loss if the note was held for more than one year at the time of
disposition. Long-term capital gain recognized by certain
non-corporate
U.S. Holders generally will be subject to a preferential tax rate. Subject to limited exceptions, capital losses cannot be used to offset
a U.S. Holders ordinary income.
Unearned Income Medicare Contribution
.
Certain U.S. Holders that are individuals, estates or
trusts are subject to a 3.8% Medicare tax on all or a portion of their net investment income, which may include all or a portion of their interest and net gains from the sale or other disposition of the notes. If you are a U.S. Holder
that is an individual, estate or trust, you should consult your tax advisors regarding the applicability of the Medicare tax to your income and gains in respect of your investment in the notes.
U.S. Holders Holding Notes Through Foreign Accounts or Intermediaries.
U.S. Holders holding their notes through foreign accounts or
intermediaries should refer to
Non-U.S.
HoldersFATCA Regime below.
Information Reporting and Backup Withholding
.
In general, information reporting will apply to a U.S. Holder (other than an exempt
recipient, including a corporation and certain other persons who, when required, demonstrate their exempt status) with respect to:
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any payments made of principal of, premium, if any, and interest on, the notes; and
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payment of the proceeds of a sale or other disposition of the notes.
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In addition, backup
withholding at the applicable statutory rate may apply to such amounts if a U.S. Holder fails to provide a correct taxpayer identification number certified under penalties of perjury or otherwise comply with applicable requirements of the
backup withholding rules. A U.S. Holder that does not provide its correct taxpayer identification number also may be subject to penalties imposed by the IRS.
S-20
Any backup withholding is not an additional tax and may be refunded or credited against the U.S. Holders
U.S. federal income tax liability, provided that the required information is timely provided to the IRS.
Non-U.S.
Holders
The rules governing the U.S. federal income taxation of
Non-U.S.
Holders are complex and no attempt will be made herein
to provide more than a summary of such rules. Prospective
Non-U.S.
Holders should consult their tax advisors to determine the impact of federal, state, local and other tax laws with regard to an investment in
the notes.
Interest on the Notes.
Subject to the rules described below under Information Reporting and Backup
Withholding and FATCA Regime, a
Non-U.S.
Holder generally will not be subject to U.S. federal income or withholding tax on payments of interest on a note, provided that:
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the
Non-U.S.
Holder is not
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a direct or indirect owner of 10% or more of our voting stock;
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a controlled foreign corporation related to us through stock ownership; or
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a bank whose receipt of interest on a note is pursuant to a loan agreement entered into in the ordinary course of business;
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such interest payments are not effectively connected with the conduct by the
Non-U.S.
Holder of a trade or business within the United States; and
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we or our paying agent receives certain information from the
Non-U.S.
Holder (or a financial institution that holds the notes on behalf of the
Non-U.S.
Holder in the ordinary course of its trade or business) certifying that such holder is a
Non-U.S.
Holder.
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A
Non-U.S.
Holder that is not exempt from tax under these rules generally will be subject to U.S. federal income tax
withholding at a rate of 30% unless:
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the income is effectively connected with the conduct of a U.S. trade or business (and, if required by an applicable tax treaty, the income is attributable to a permanent establishment maintained in the United States by
such
Non-U.S.
Holder); or
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the
Non-U.S.
Holder is entitled to the benefits of an applicable income tax treaty that provides for a lower rate of, or exemption from, withholding tax.
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Except to the extent provided by an applicable tax treaty, interest on a note that is effectively connected with the conduct by a
Non-U.S.
Holder of a trade or business in the United States (and, if required by an applicable tax treaty, the interest is attributable to a permanent establishment maintained in the United States by such
Non-U.S.
Holder) generally will be subject to U.S. federal income tax on a net basis at the rates applicable to U.S. persons. A
Non-U.S.
Holder that is treated as a
corporation for U.S. federal income tax purposes may also be subject to a branch profits tax, which is generally imposed on a foreign corporation on the actual or deemed repatriation from the United States of effectively connected earnings and
profits, at a 30% rate (subject to reduction or elimination under an applicable tax treaty). If interest is subject to U.S. federal income tax on a net basis in accordance with the rules described in the second preceding sentence, payments of such
interest will not be subject to U.S. withholding tax so long as the
Non-U.S.
Holder provides us or the paying agent with an appropriate IRS Form (generally, IRS Form
W-8ECI).
To claim the benefit of a reduced rate of, or exemption from, the 30% withholding tax under an income tax treaty, the
Non-U.S.
Holder must timely provide the
appropriate, properly executed IRS form (generally, IRS Form
W-8BEN
in the case of an individual and IRS Form
W-8BEN-E
in the
case of an entity). These forms may be required to be periodically updated.
S-21
Sale, Exchange, Redemption, or Other Taxable Disposition of the Notes.
Subject to the rules
described below under Information Reporting and Backup Withholding and FATCA Regime, a
Non-U.S.
Holder generally will not be subject to U.S. federal income or withholding
tax on gain from the sale, exchange, redemption or other taxable disposition of a note unless:
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such gain is 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 tax treaty, is
attributable to a permanent establishment maintained in the United States by the
Non-U.S.
Holder); or
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such
Non-U.S.
Holder is an individual who is present in the United States for 183 days or more in the taxable year of disposition and meets certain other requirements.
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Except to the extent provided by an applicable tax treaty, gain from the sale or disposition of a note that is effectively connected with
the conduct by the
Non-U.S.
Holder of a trade or business in the United States (and, if required by an applicable tax treaty, the gain is attributable to a permanent establishment maintained in the United
States by such
Non-U.S.
Holder) generally will be subject to U.S. federal income tax on a net basis at the rates applicable to U.S. persons. A
Non-U.S.
Holder that is
treated as a corporation for U.S. federal income tax purposes may also be subject to the branch profits tax described above. If such gains are realized by a
Non-U.S.
Holder who is an individual present in the
United States for 183 days or more in the taxable year, then, except to the extent otherwise provided by an applicable income tax treaty, such individual generally will be subject to U.S. federal income tax at a rate of 30% on the amount by
which capital gains from U.S. sources (including gains from the sale or other disposition of the notes) exceed capital losses allocable to U.S. sources. Any amount attributable to accrued but unpaid interest on the notes will generally be treated in
the same manner as payments of interest made to such
Non-U.S.
Holder, as described above under Interest on the Notes.
Non-U.S.
Holders should consult
their tax advisors on the treatment of any accrued but unpaid interest on the notes.
Information Reporting and Backup Withholding.
Payments
to a
Non-U.S.
Holder of interest on a note generally will be reported to the IRS and to the
Non-U.S.
Holder. Copies of applicable IRS information returns may be made
available, under the provisions of a specific tax treaty or agreement, to the tax authorities of the country in which the
Non-U.S.
Holder resides. Additional information reporting and backup withholding
generally will not apply to payments of interest with respect to which either the requisite certification that the
Non-U.S.
Holder is not a U.S. person for U.S. federal income tax purposes, as described under
the heading Interest on the Notes above, has been received or an exemption has otherwise been established provided that neither we nor our paying agent have actual knowledge or reason to know that the
Non-U.S.
Holder is a U.S. person or that the conditions of any other exemption are not, in fact, satisfied.
As a
general matter, backup withholding and information reporting will not apply to a payment of the proceeds of a sale of a note effected at a foreign office of a foreign broker. Information reporting (but not backup withholding) will apply, however, to
a payment of the proceeds of a sale of a note by a foreign office of a broker that:
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derives 50% or more of its gross income for a specified three-year period from the conduct of a trade or business in the U.S.;
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is a controlled foreign corporation (a foreign corporation controlled by certain U.S. shareholders) for U.S. tax purposes;
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is a foreign partnership, if at any time during its tax year more than 50% of its income or capital interests are held by U.S. persons or if it is engaged in the conduct of a trade or business in the U.S.; or
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is a U.S. branch of a foreign bank or insurance company that is treated as a U.S. person,
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unless the broker
has documentary evidence in its records that the holder or beneficial owner is a
Non-U.S.
Holder and certain other conditions are met, or the holder otherwise establishes an exemption. Payment of the proceeds
of a sale of a note effected at a U.S. office of a broker is subject to both backup withholding and information reporting unless the holder certifies under penalty of perjury that the holder is a
Non-U.S.
Holder, or otherwise establishes an exemption; provided that, in either case, neither we nor any withholding agent knows or has reason to know that the holder is a United States person or that the conditions of any other exemptions are in fact not
satisfied.
Any backup withholding is not an additional tax and may be refunded or credited against the
Non-U.S.
Holders U.S. federal income tax liability, provided that the required information is timely provided to the IRS.
S-22
FATCA Regime
.
Under sections 1471 through 1474 of the Code, Treasury regulations and related
guidance (commonly referred to as FATCA), a 30% U.S. withholding tax will be imposed in certain circumstances on payments of (i) interest on the notes and (ii) gross proceeds from a sale or other disposition of the notes (which
includes redemption and retirement of the notes) occurring after December 31, 2018. In the case of payments made to a foreign financial institution (such as a bank, a broker, an investment fund or, in certain cases, a holding
company), as a beneficial owner or as an intermediary, this tax generally will be imposed, subject to certain exceptions, unless such institution (i) has agreed to (and does) comply with the requirements of an agreement with the United States
(an FFI Agreement) or (ii) is required by (and does comply with) applicable foreign law enacted in connection with an intergovernmental agreement between the United States and a foreign jurisdiction (an IGA) to, among
other things, collect and provide to the U.S. tax authorities or other relevant tax authorities certain information regarding U.S. account holders of such institution and, in either case, such institution provides the withholding agent with a
certification as to its FATCA status. In the case of payments made to a foreign entity that is not a financial institution (as a beneficial owner), the tax generally will be imposed, subject to certain exceptions, unless such entity provides the
withholding agent with a certification as to its FATCA status and, in certain cases, identifies any substantial U.S. owner (generally, any specified U.S. person that directly or indirectly owns more than a specified percentage of such
entity). If a note is held through a foreign financial institution that has agreed to comply with the requirements of an FFI Agreement or is subject to similar requirements under applicable foreign law enacted in connection with an IGA, such foreign
financial institution (or, in certain cases, a person paying amounts to such foreign financial institution) generally will be required, subject to certain exceptions, to withhold tax on payments made to (i) a person (including an individual)
that fails to provide any required information or documentation or (ii) a foreign financial institution that has not agreed to comply with the requirements of an FFI Agreement and is not subject to similar requirements under applicable foreign
law enacted in connection with an IGA. If we determine withholding is appropriate with respect to the payments of interest on the notes or payments in retirement or redemption of the notes, we will withhold tax at the applicable statutory rate, and
we will not pay any additional amounts in respect of such withholding. Under certain circumstances, a holder may be eligible for refunds or credits of such withheld taxes. Prospective investors should consult with their own tax advisors regarding
the possible implications of FATCA on their investment in the notes.
S-23
UNDERWRITING (CONFLICTS OF INTEREST)
We intend to offer the notes offered hereby through the underwriters named below, for whom Deutsche Bank Securities, Inc., Goldman Sachs & Co. LLC,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC are acting as representatives. Subject to the terms and conditions stated in an underwriting agreement and a related pricing agreement, each dated the date of
this prospectus supplement, each underwriter named below has severally agreed to purchase, and we have agreed to sell to that underwriter, the principal amount of the notes listed opposite its name below.
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Underwriter
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Principal
Amount of
Notes
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Deutsche Bank Securities, Inc.
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$
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Goldman Sachs & Co. LLC
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Merrill Lynch, Pierce, Fenner & Smith
Incorporated
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Wells Fargo Securities, LLC
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Total
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$
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The underwriters have agreed to purchase all of the principal amount of the notes shown in the above table if any of the notes
are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the nondefaulting underwriters may be increased or the underwriting agreement may be terminated.
The notes are offered by the underwriters, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by
counsel for the underwriters and other conditions. The underwriters reserve the right to withdraw, cancel or modify the offer and to reject orders in whole or in part.
We estimate that the expenses of this offering payable by us, excluding the underwriting discount, will be approximately $400,000.
We expect to deliver the notes against payment for the notes on or about the date specified in the next to last paragraph of the cover page of this prospectus
supplement.
Reopening
The notes will
be a further issuance of, are fungible with and are consolidated and form a single series with, our outstanding 3.25% Notes due 2027, $300 million aggregate principal amount of which were originally issued on June 23, 2017. The 2027 Notes will be a
new issue of securities with no established trading market. The notes will not be listed on any securities exchange or included in any automated quotation system. We have been advised by the underwriters that the underwriters intend to make a market
in each series of the notes, but they are not obligated to do so and may discontinue market making at any time without notice. No assurance can be given as to the liquidity of any trading markets for the notes.
Commissions and Discounts
The notes sold
by the underwriters to the public will initially be offered at the public offering prices set forth on the cover of this prospectus supplement and may be offered to certain dealers at these prices less a concession not in excess of
% of the aggregate principal amount of notes. The underwriters may allow, and those dealers may reallow, a discount not in excess of % of the aggregate principal amount of the notes to certain other
dealers. After the initial offering, the public offering price and other selling terms may be changed.
The following table shows the underwriting discount
that we are to pay to the underwriters in connection with this offering (expressed as a percentage of the principal amount of the notes).
S-24
Price Stabilization and Short Positions
In connection with this offering, the representatives, on behalf of the underwriters, may purchase and sell notes in the open market. These transactions may
include overallotment, syndicate covering transactions and stabilizing transactions. Overallotment involves syndicate sales of notes in excess of the principal amount of notes to be purchased by the underwriters in this offering, which creates a
syndicate short position. Syndicate covering transactions involve purchases of the notes in the open market after the distribution has been completed in order to cover syndicate short positions. Stabilizing transactions consist of certain bids or
purchases of notes made for the purpose of preventing or retarding a decline in the market price of the notes while this offering is in progress.
The
underwriters also may impose penalty bids. Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when the representatives, in covering syndicate short positions or making stabilizing purchases, repurchase notes
originally sold by that syndicate member.
Any of these activities may have the effect of preventing or retarding a decline in the market price of the
notes. They may also cause the price of the notes to be higher than the price that otherwise would exist in the open market in the absence of these transactions. The underwriters may conduct these transactions in the
over-the-counter
market or otherwise. If the underwriters commence any of these transactions, they may discontinue them at any time.
Extended Settlement
We expect to deliver
the notes against payment for the notes on or about the settlement date specified on the cover page of this prospectus supplement, which will be the tenth business day following the date of the pricing of the notes. Under Rule 15c6-1 of the Exchange
Act, trades in the secondary market generally are required to settle in two business days, unless the parties to a trade expressly agree otherwise. Accordingly, purchasers who wish to trade the notes before the second business day prior to the
settlement date specified on the cover page of this prospectus supplement will be required to specify alternative settlement arrangements to prevent a failed settlement.
Conflicts of Interest
Affiliates of
certain of the underwriters may be beneficial owners of some of our 5.90% Notes due 2020. Any such affiliates will receive pro rata portions of the net proceeds from this offering used to redeem our 5.90% Notes due 2020.
Affiliates of certain of the underwriters are lenders under our revolving credit facility and will receive a pro rata portion of the net proceeds used to
repay amounts outstanding under our revolving credit facility. Nonetheless, in accordance with Rule 5121 of the Financial Industry Regulatory Authority Inc., the appointment of a qualified independent underwriter is not necessary in connection with
this offering because, as a REIT, we are excluded from that requirement.
Other Relationships
Certain of the underwriters and their affiliates have engaged in, and may in the future engage in, investment banking, commercial banking and other commercial
dealings in the ordinary course of business with us or our affiliates.
In addition, in the ordinary course of their business activities, certain of the
underwriters and their 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 or our affiliates. Certain of the underwriters or their affiliates that have a lending relationship with us routinely hedge or
may hedge their credit exposure to us consistent with their customary risk management policies. Typically, such underwriters and their affiliates would hedge such credit exposure by entering into transactions which consist of either the purchase of
credit default swaps or the creation of short positions in our securities, including potentially the notes offered hereby. Any such credit default swaps or short positions could adversely affect future trading prices of the notes offered hereby. The
underwriters or their 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.
Indemnity
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make because of any of those liabilities.
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Selling Restrictions
Notice to Prospective Investors in the United Kingdom
The communication of this prospectus supplement, the accompanying prospectus and any other document or materials relating to the issue of the notes offered
hereby is not being made, and such documents and/or materials have not been approved, by an authorized person for the purposes of section 21 of the United Kingdoms Financial Services and Markets Act 2000, as amended (the FSMA).
Accordingly, such documents and/or materials are not being distributed to, and must not be passed on to, the general public in the United Kingdom. This prospectus supplement and the accompanying prospectus are only being distributed to, and are only
directed at, (1) persons who are outside the United Kingdom or (2) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the
Order) or (3) high net worth companies and other entities falling within Article 49(2)(a) to (d) of the Order or (4) any other persons to whom it may otherwise lawfully be communicated under the Order (each such
person being referred to as a relevant person). The notes are only available to, and any investment or investment activity to which this prospectus supplement and the accompanying prospectus relate will be engaged in only with, relevant
persons. Any person who is not a relevant person should not act or rely on this prospectus supplement or the accompanying prospectus or any of their contents.
Any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) in connection with the issue or sale of the
notes may only be communicated or caused to be communicated in circumstances in which Section 21(1) of the FSMA does not apply to Federal Realty Investment Trust.
All applicable provisions of the FSMA must be complied with in respect to anything done by any person in relation to the notes in, from or otherwise involving
the United Kingdom.
Notice to Prospective Investors in the European Economic Area
This document is not a prospectus for the purposes of the Prospectus Directive. In relation to each Member State of the European Economic Area which has
implemented the Prospectus Directive (each, a Relevant Member State), with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State, no offer of the notes which are the subject of
the offering contemplated by this prospectus supplement and the accompanying prospectus to the public may be made in that Relevant Member State other than:
(a) to any legal entity which is a qualified investor as defined in the Prospectus Directive;
(b) to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), subject to obtaining the prior consent
of the representatives for any such offer; or
(c) in any other circumstances falling within Article 3(2) of the Prospectus Directive;
provided that no such offer of notes shall require Federal Realty Investment Trust or any underwriter to publish a prospectus pursuant to Article 3 of the
Prospectus Directive.
For the purposes of this provision, the expression an offer of notes to the public in relation to any notes in any
Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the notes to be offered so as to enable an investor to decide to purchase or subscribe for the notes, as the same may
be varied in that Member State by any measure implementing the Prospectus Directive in that Member State.
This prospectus supplement and accompanying
prospectus have been prepared on the basis that any offer of notes in any Relevant Member State will be made pursuant to an exemption under the Prospectus Directive from the requirement to publish a prospectus for offers of notes. Accordingly any
person making or intending to make an offer in that Relevant Member State of notes which are the subject of the offering contemplated in this prospectus supplement and the accompanying prospectus may only do so in circumstances in which no
obligation arises for Federal Realty Investment Trust or any of the underwriters to publish a prospectus pursuant to Article 3 of the Prospectus Directive in relation to such offer. Neither Federal Realty Investment Trust nor the underwriters have
authorized, nor do they authorize, the making of any offer of notes in circumstances in which an obligation arises for Federal Realty Investment Trust or the underwriters to publish a prospectus for such offer. The expression Prospectus
Directive means Directive 2003/71/EC (as amended, including by Directive 2010/73/EU), and includes any relevant implementing measure in the Relevant Member State.
S-26
Federal Realty Investment Trust does not intend to offer the notes in any Member State other than the United
Kingdom.
Notice to Prospective Investors in Canada
The notes may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument
45-106
Prospectus Exemptions
or subsection 73.3(1) of the
Securities Act
(Ontario), and are permitted clients, as defined in National Instrument 31-103
Registration Requirements, Exemptions and Ongoing Registrant Obligations
.
Any resale of the notes must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus
supplement and the accompanying prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities
legislation of the purchasers province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchasers province or territory for particulars of these rights or consult with a legal
advisor.
Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of
National Instrument 33-105
Underwriting Conflicts
(NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
S-27
EXPERTS
The audited consolidated financial statements, schedules and managements assessment of the effectiveness of internal control over financial reporting
incorporated by reference in this prospectus supplement and elsewhere in the registration statement have been so incorporated by reference in reliance upon the reports of Grant Thornton LLP, independent registered public accountants, upon the
authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
The legality of the notes offered by this prospectus supplement will be passed upon for us by Pillsbury Winthrop Shaw Pittman LLP, Washington, DC. In
addition, the descriptions of material U.S. federal income tax considerations contained herein under Additional Material U.S. Federal Income Tax Considerations and in the accompanying prospectus under Material Federal Income Tax
Considerations are, to the extent that they constitute matters of law, summaries of legal matters or legal conclusions, based upon the opinion of Pillsbury Winthrop Shaw Pittman LLP, Washington, DC. Sidley Austin LLP, New York, New York, will
act as counsel to the underwriters.
S-28
PROSPECTUS
Debt Securities, Common Shares, Preferred Shares, Depositary Shares and Warrants
We may from time to time offer, in one or more series, separately or together, the following:
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our debt securities, which may be either senior debt securities or subordinated debt securities;
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our common shares of beneficial interest;
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our preferred shares of beneficial interest;
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our preferred shares of beneficial interest represented by depositary receipts; and
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warrants to purchase our common or preferred shares.
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Our common shares are listed on the New
York Stock Exchange under the symbol FRT.
We will offer our securities in amounts, at prices and on terms to be determined at
the time we offer such securities. When we sell a particular series of securities, we prepare a prospectus supplement describing the offering and the terms of that series of securities. Such terms may include limitations on direct or beneficial
ownership and restrictions on transfer of our securities being offered that we believe are appropriate to preserve our status as a real estate investment trust for federal income tax purposes.
The applicable prospectus supplement will also contain information, where applicable, about certain United States federal income tax
considerations relating to the securities covered by such prospectus supplement.
We may offer our securities directly, through agents we
may designate from time to time, 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. None of our securities may be sold without delivery of the applicable prospectus supplement describing the method
and terms of the offering of such class or series of the securities.
Investing in
our securities involves risks. See
Risk Factors
on page 3 of this prospectus.
Neither the
Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is May 8, 2015.
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the Securities and Exchange Commission, or the SEC, using a
shelf registration process. Under this shelf process, we may sell any combination of the securities described in this prospectus either separately or in units, in one or more offerings. Our prospectus provides you with a general
description of these securities. Each time we sell securities, we will provide a prospectus supplement that will contain specific information about all of the terms of that offering. Our prospectus supplement may also add, update or change
information contained in this prospectus. Before purchasing any securities, you should read both this prospectus and the applicable prospectus supplement and any applicable free writing prospectus, together with additional information described
under the heading Where You Can Find More Information.
References to we, us, our or
ours refer to Federal Realty Investment Trust and its directly or indirectly owned subsidiaries, unless the context otherwise requires. The term you refers to a prospective investor.
FORWARD-LOOKING STATEMENTS
This prospectus contains and incorporates forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, or the Securities Act, Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the Private Securities Litigation Reform Act of 1995. Also, documents that we incorporate by reference into
this prospectus, including documents that we subsequently file with the SEC, will contain forward-looking statements. When we refer to forward-looking statements or information, sometimes we use words such as may, will,
could, should, plans, intends, expects, believes, estimates, anticipates and continues. The risk factors in this prospectus and in any
prospectus supplement describe risks that may affect these statements but are not all-inclusive, particularly with respect to possible future events. Many things can happen that can cause actual results to be different from those we describe. Given
these uncertainties, readers are cautioned not to place undue reliance on these forward-looking statements. We also make no promise to update any of the forward-looking statements, or to publicly release the results if we revise any of them.
1
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed information and consolidated financial statements and notes thereto
contained elsewhere in or incorporated by reference into this prospectus.
The Trust
We are an equity real estate investment trust, or REIT, specializing in the ownership, management, and redevelopment of high quality retail
and mixed-use properties located primarily in densely populated and affluent communities in strategically selected metropolitan markets in the Northeast and Mid-Atlantic regions of the United States, as well as in California. As of
March 31, 2015, we owned or had a majority interest in community and neighborhood shopping centers and mixed-use properties which are operated as 90 predominantly retail real estate projects comprising approximately 20.7 million square
feet. In total, the real estate projects were 95.4% leased and 94.5% occupied at March 31, 2015. A joint venture in which we own a 30% interest owned six retail real estate projects totaling approximately 0.8 million square feet as of
March 31, 2015. In total, the joint venture properties in which we own an interest were 85.8% leased and 85.4% occupied at March 31, 2015. We have paid quarterly dividends to our shareholders continuously since our founding in 1962 and
have increased our dividends per common share for 47 consecutive years.
We operate in a manner intended to enable us to qualify as a REIT
pursuant to provisions of the Internal Revenue Code of 1986, as amended, or the Code.
We were founded in 1962 as a REIT under the laws of
the District of Columbia and re-formed as a real estate investment trust in the state of Maryland in 1999. Our principal executive offices are located at 1626 East Jefferson Street, Rockville, Maryland 20852. Our telephone number is
(301) 998-8100. Our website address is
www.federalrealty.com
. The information contained on our website is not a part of this prospectus and is not incorporated herein by reference.
Ratios of Earnings to Combined Fixed Charges and Preferred Share Dividends
The following table sets forth our historical ratios of earnings to fixed charges and preferred share dividends for the periods indicated:
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For the Three Months
Ended March 31,
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For the Years Ended December 31,
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2015
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2014
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2013
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2012
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2011
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2010
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Ratio of earnings to fixed charges
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2.5
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2.1
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1.9
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2.0
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2.1
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2.0
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Ratio of earnings to combined fixed charges and preferred share dividends
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2.4
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2.1
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1.9
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2.0
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2.1
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2.0
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The ratio of earnings to fixed charges is computed by dividing earnings by fixed charges. In computing the
ratio of earnings to fixed charges: (a) earnings consist of income from continuing operations before income or loss from equity investees plus distributed income of equity investees and fixed charges (excluding capitalized interest) less
noncontrolling interests of subsidiaries with no fixed charges; and (b) fixed charges consist of interest expense including amortization of debt premiums and discounts and issuance costs (including capitalized interest), prepayment charges and
the estimated portion of rents payable by us representing interest.
The ratio of earnings to combined fixed charges and preferred share
dividends is computed by dividing earnings by the total of fixed charges and preferred share dividends. In computing the ratio of earnings to combined fixed charges and preferred share dividends: (a) earnings consist of income from continuing
operations before income or loss from equity investees plus distributed income of equity investees and fixed charges (excluding capitalized interest) less noncontrolling interests of subsidiaries with no fixed charges; (b) fixed charges consist
of interest expense including amortization of debt premiums and discounts and issuance costs (including capitalized interest), prepayment charges and the estimated portion of rents payable by us representing interest; and (c) preferred share
dividends consist of preferred share dividends and preferred share redemption costs.
2
RISK FACTORS
Investing in our securities involves a high degree of risk. Before making an investment decision, please consider the risks described under
the caption Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, on file with the SEC, which is incorporated herein by reference, in addition to any risks and additional information included in
this prospectus, in an applicable prospectus supplement and in any subsequent filing with the SEC that is incorporated herein by reference. The risks and uncertainties we have described are those we believe to be the principal risks that could
affect us, our business or our industry, and which could result in a material adverse impact on our financial condition, results of operation or the market price of our securities. However, additional risks and uncertainties not currently known to
us or that we currently deem immaterial may affect our business operations and the market price of our securities.
USE OF PROCEEDS
Unless otherwise specified in the applicable prospectus supplement, we will use the net proceeds from the sale of
securities for one or more of the following:
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acquisition of additional properties;
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funding our development and redevelopment pipeline;
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redemption of preferred shares; and
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working capital and general corporate purposes.
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DESCRIPTION OF DEBT SECURITIES
We will prepare and distribute a prospectus supplement that describes the specific terms of the debt securities. In this section of the
prospectus, we describe the general terms we expect all debt securities to have. We also identify some of the specific terms that will be described in a prospectus supplement. Although we expect that any debt securities we offer with this prospectus
will have the general terms we describe in this section, our debt securities may have terms that are different from or inconsistent with the general terms we describe here. Therefore, you should read the prospectus supplement carefully.
General Terms of Debt Securities
Unless
we say otherwise in a prospectus supplement, debt securities we offer through this prospectus:
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will be our general, direct and unsecured obligations; and
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may be either senior debt securities or subordinated debt securities.
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Senior debt securities
will rank equally with all of our other unsecured and unsubordinated obligations. Subordinated debt securities will be subordinate and junior in right of payment to all of our present and future senior debt in the manner we describe in a prospectus
supplement.
We may incur additional debt, subject to limitations in the agreements governing our credit and other debt facilities and
other notes we may have issued.
Unless we say otherwise in a prospectus supplement:
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debt securities we offer through this prospectus will not limit the amount of other debt that we may incur;
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you will not have any protection if we engage in a highly leveraged transaction, a restructuring, a transaction involving a change in control, or a merger or similar transaction that may adversely affect holders of the
debt securities; and
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we will not list the debt securities on any securities exchange.
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The Indentures
Any debt securities we offer through this prospectus will be issued under one or more indentures, including the senior indenture between us and
U.S. Bank National Association, successor to Wachovia Bank National Association, formerly First Union National Bank, as trustee. We have filed with the SEC the senior indenture that is an exhibit to the registration statement that includes this
prospectus. The senior indenture describes the general terms of senior debt securities we may issue. The general terms of any subordinated debt securities that we may issue will be included in a subordinated indenture, which will also include
additional terms describing the subordination provisions of these securities. The senior indenture is subject to the Trust Indenture Act of 1939, as amended.
Unless we say otherwise in a prospectus supplement, each indenture does not or will not include all the terms of debt securities we may issue
through this prospectus. If we issue debt securities through this prospectus, our Board of Trustees, or any committee thereof, will establish the additional terms for each series of debt securities. The additional terms will be either established
pursuant to, and set forth in, a supplemental indenture, or established pursuant to a resolution of our Board of Trustees, or any committee thereof, and set forth in an officers certificate. Each indenture describes or will describe the
additional terms that may be established and we summarize the additional terms that may be established under Additional Terms of Debt Securities, below.
We have summarized the provisions of the senior indenture and any subordinated indenture that we may enter into below. The summary is not
complete. You should read the senior indenture and any other indenture that we may enter into for provisions that may be important to you. The extent, if any, to which the provisions of the base senior indenture or any other base indenture that we
may enter into apply to particular debt securities will be described in the prospectus supplement relating to those securities. You should read the prospectus supplement for more information regarding any particular issuance of debt securities.
4
Additional Terms of Debt Securities
As described above, the terms of a particular series of debt securities we offer through this prospectus will be established by our Board of
Trustees, or any committee thereof, when we issue the series. We will describe the terms of the series in a prospectus supplement. Unless we say otherwise in a prospectus supplement, each indenture provides or will provide that the terms that may be
established include the following:
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Title.
The title of the debt securities offered.
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Amount.
Any limit upon the total principal amount of the series of debt securities offered.
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Maturity.
The date or dates on which the principal of and premium, if any, on the offered debt securities will mature or the method of determining such date or dates.
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Interest Rate.
The rate or rates (which may be fixed or variable) at which the offered debt securities will bear interest, if any, or the method of calculating such rate or rates.
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Interest Accrual.
The date or dates from which interest will accrue or the method by which such date or dates will be determined.
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Interest Payment Dates.
The date or dates on which interest will be payable and the record date or dates to determine the persons who will receive payment, and the basis upon which interest shall be
calculated if other than that of a 360-day year of twelve 30-day months.
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Place of Payment.
The place or places where principal of, premium, if any, and interest, on the offered debt securities will be payable or at which the offered debt securities may be surrendered for
registration of transfer or exchange.
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Optional Redemption.
The period or periods within which, the price or prices at which, the currency or currencies (if other than in U.S. dollars), including currency unit or units, in which, and the
other terms and conditions upon which, the offered debt securities may be redeemed, in whole or in part, at our option, if we have that option.
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Mandatory Redemption.
The obligation, if any, we have to redeem or repurchase the offered debt securities pursuant to any sinking fund or similar provisions or upon the happening of a specified event
or at the option of a holder; and the period or periods within which, the price or prices at which, the currency or currencies (if other than in U.S. dollars), including currency unit or units, in which, and the other terms and conditions upon
which, such offered debt securities shall be redeemed or purchased, in whole or in part.
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Denominations.
The denominations in which the offered debt securities are authorized to be issued.
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Currency.
The currency or currency unit in which the offered debt securities may be denominated and/or the currency or currencies, including currency unit or units, in which principal of, premium, if
any, and interest, if any, on the offered debt securities will be payable and whether we or the holders of the offered debt securities may elect to receive payments in respect of the offered debt securities in a currency or currency unit other than
that in which the offered debt securities are stated to be payable.
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Indexed Principal.
If the amount of principal of, or premium, if any, or interest on, the offered debt securities may be determined with reference to an index or pursuant to a formula or other method,
the manner in which such amounts will be determined.
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Payment on Acceleration.
If other than the principal amount, the amount which will be payable upon declaration of the acceleration of the maturity or the method by which such portion shall be
determined.
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Special Rights.
Provisions, if any, granting special rights to the holders of the offered debt securities if certain specified events occur.
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Modifications to Indentures.
Any addition to, or modification or deletion of, any event of default or any of the covenants specified in the indenture with respect to the offered debt securities.
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Tax Gross-Up.
The circumstances, if any, under which we will pay additional amounts on the offered debt securities held by non-U.S. persons for taxes, assessments or similar charges.
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Registered or Bearer Form.
Whether the offered debt securities will be issued in registered or bearer form or both.
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Dates of Certificates.
The date as of which any offered debt securities in bearer form and any temporary global security representing outstanding securities are dated, if other than the
original issuance date of the offered debt securities.
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Forms.
The forms of the securities and interest coupons, if any, of the series.
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Registrar and Paying Agent.
If other than the trustee under the applicable indenture, the identity of the registrar and any paying agent for the offered debt securities.
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Defeasance.
Any means of defeasance or covenant defeasance that may be specified for the offered debt securities.
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Global Securities.
Whether the offered debt securities are to be issued in whole or in part in the form of one or more temporary or permanent global securities and, if so, the identity
of the depositary or its nominee, if any, for the global security or securities and the circumstances under which beneficial owners of interests in the global security may exchange those interests for certificated debt securities to be registered in
the names of or to be held by the beneficial owners or their nominees.
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Documentation.
If the offered debt securities may be issued or delivered, or any installment of principal or interest may be paid, only upon receipt of certain certificates or other
documents or satisfaction of other conditions in addition to those specified in the applicable indenture, the form of those certificates, documents or conditions.
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Payees.
If other than as provided in the applicable indenture, the person to whom any interest on any registered security of the series will be payable and the manner in which, or the
person to whom, any interest on any bearer securities of the series will be payable.
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Definitions.
Any definitions for the offered debt securities of that series that are different from or in addition to the definitions included in the applicable indenture, including,
without limitation, the definition of unrestricted subsidiary to be used for such series.
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Subordination.
In the case of any subordinated indenture that we may enter into, the relative degree to which the offered debt securities shall be senior to or junior to other debt
securities, whether currently outstanding or to be offered in the future, and to other debt, in right of payment.
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Guarantees.
Whether the offered debt securities are guaranteed and, if so, the identity of the guarantors and the terms of the offered guarantees (including whether and the extent to
which the guarantees are subordinated to other debt of the guarantors).
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Conversion.
The terms, if any, upon which the offered debt securities may be converted or exchanged into or for our common shares, preferred shares or other securities or property,
including, without limitation, the initial conversion price or rate, the conversion period, any adjustment of the applicable conversion price and any requirements relative to the reservation of such shares for purposes of conversion.
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Restrictions.
Any restrictions on the registration, transfer or exchange of the offered debt securities.
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Other Terms.
Any other terms not inconsistent with the terms of the applicable indenture pertaining to the offered debt securities or which may be required or advisable under U.S. laws
or regulations or advisable, as we determine, in connection with marketing of securities of the series.
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Form of Securities and Related
Matters
Registered or Bearer Form.
Debt securities may be offered in either registered or bearer form.
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If the debt securities are in registered form, we may treat the person named in the register as the owner of the debt securities for all purposes, including payment, exchange and transfer.
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If we issue debt securities in bearer form, we will issue those debt securities only to non-U.S. persons and may treat the bearer of the securities as the owner for all purposes, including payment, exchange and
transfer. If we issue debt securities in bearer form, we will describe special offering restrictions and material U.S. federal income tax considerations relating to the offered debt securities in a prospectus supplement.
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6
Denominations.
Unless we say otherwise in a prospectus supplement, we will
issue debt securities in denominations of:
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U.S. $1,000 (or multiples of $1,000) if we issue the debt securities in registered form; and
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U.S. $5,000 (or multiples of $5,000) if we issue debt securities in bearer form.
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Payment Currencies and Indexed Securities.
We may offer debt securities for which:
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the purchase price is payable in a currency other than U.S. dollars;
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the securities are denominated in a currency other than U.S. dollars; or
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the principal or interest of, or any other amount due on, the offered debt securities in a currency other than U.S. dollars.
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The other currency may be a currency unit composed of various currencies. Payments on debt securities may also be based on an index.
Payment, Transfer and Exchange.
Unless we say otherwise in a prospectus supplement, the office for paying principal,
interest and other amounts on the debt securities is U.S. Bank National Association, 214 North Tryon Street, 27
th
Floor, Charlotte, North Carolina 28202. We will notify you of any
change in the offices location. At our option, however, we may make any interest payments on debt securities issued in registered form by:
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mailing checks to you at the address as it appears in the applicable register for the series of debt securities; or
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wire transfer of immediately available funds to an account you maintain located in the United States.
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Unless we say otherwise in a prospectus supplement, we will pay interest to the person whose name is in the register at the close of business
on the regular record date for such interest.
Unless we say otherwise in a prospectus supplement, payment of interest on bearer
securities may be made by transfer to an account you maintain with a bank located outside the United States.
Unless we say otherwise in a
prospectus supplement, you may transfer or exchange debt securities issued in registered form at an office or agency that we designate. You may transfer or exchange debt securities without service charge, although we may require you to pay any
related tax or other governmental charge.
Global Securities
We may issue debt securities of a series in the form of one or more fully registered global securities. Each registered global security will:
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be registered in the name of a depositary or a nominee for the depositary;
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be deposited with the depositary or nominee or a custodian therefor; and
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bear a legend regarding the restrictions on exchanges and registration of transfer and any such other appropriate matters.
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Global securities may be issued in either registered or bearer form and in either temporary or permanent form. The specific terms and
procedures, including the specific terms of the depositary arrangement, with respect to any portion of a series of debt securities will be described in a prospectus supplement.
Certain Covenants
Unless we say
otherwise in a prospectus supplement, each indenture contains or will contain the following covenants. Any additional material covenants applicable to any series of debt securities will be set forth in a prospectus supplement.
Existence.
Except as permitted under Consolidation, Merger or Sale of Assets, we will do or cause to be done
all things necessary to preserve and keep in full force and effect our corporate existence, rights (charter and statutory) and franchises; provided, however, we are not required to preserve any right or franchise if we determine that the
preservation of the right or franchise is no longer desirable in the conduct of our business.
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Maintenance of Properties.
We will cause all of our material properties used
or useful in the conduct of our business to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and
improvements of our material properties to be made, all as in our judgment may be necessary so that the business carried on at, or in connection with, our material properties may be properly and advantageously conducted at all times.
Payment of Taxes and Other Claims.
We will pay or discharge or cause to be paid or discharged, before they shall become
delinquent:
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all taxes, assessments and governmental charges levied or imposed upon us or upon our income, profits or property, and
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all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon our property;
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provided, however, that we shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith.
Provision of Financial
Information.
Whether or not we are subject to Section 13 or 15(d) of the Exchange Act, we will, within 15 days of 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 so subject:
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transmit by mail to all holders of debt securities, as their names and addresses appear in the register, without cost to such 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 Section 13 or 15(d);
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file with the 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 Section 13 or 15(d); and
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promptly, upon written request and payment of the reasonable cost of duplication and delivery, supply copies of those documents to any prospective holder.
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Consolidation, Merger or Sale of Assets
We may consolidate with, or sell, lease or convey all or substantially all of our assets, or merge with or into any other corporation,
association, partnership, company or business trust, each of which we refer to herein as an entity, provided that we satisfy all of the following conditions:
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we must be the continuing entity, or
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the surviving entity must be an entity duly organized and validly existing under U.S. laws, any state or the District of Columbia, and the surviving entity must assume, by a supplemental indenture in a form reasonably
satisfactory to the trustee, all obligations under the applicable debt securities and the related indenture;
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immediately after giving effect to such transactions, no default or event of default under the debt securities shall have occurred and be continuing; and
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we or the surviving entity has delivered, or caused to be delivered, to the trustee, in form and substance reasonably satisfactory to the trustee, an officers certificate and an opinion of counsel, each to the
effect that each consolidation, merger, transfer, sale, assignment, lease or other transaction and the supplemental indenture relating to such transaction comply with the provisions of the applicable indenture and that all conditions precedent
provided for in the indenture relating to the transaction have been met.
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Subordination
Generally.
Unless we say otherwise in a prospectus supplement, the payment of principal, premium, if any, and interest on
subordinated debt securities will be subordinated, or junior, to the prior payment in full of all or any of our present and future senior debt. This means that we must pay all present and future senior debt before we pay amounts due to
holders of subordinated debt securities if we liquidate, dissolve, reorganize or go through a similar process. After making these payments, we may not have sufficient assets remaining to pay the amounts due to holders of subordinated debt securities
or equity securities.
Unless we say otherwise in a prospectus supplement, senior debt will be defined as the principal of and interest
on, or substantially similar payments to be made by us in respect of, the following, whether outstanding at the date of execution of any subordinated indenture or thereafter incurred, created or assumed:
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indebtedness for money borrowed or represented by purchase-money obligations;
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indebtedness evidenced by notes, debentures, or bonds, or other securities issued under the provisions of an indenture, fiscal agency agreement or other instrument;
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our obligations as lessee under leases of property whether made as part of any sale and leaseback transaction to which we are a party or otherwise;
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indebtedness of partnerships and joint ventures which is included in our consolidated financial statements;
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indebtedness, obligations and liabilities of others in respect of which we are liable, contingently or otherwise, for payment or advances of money or property, or as guarantor, endorser or otherwise, or which we have
agreed to purchase or otherwise acquire; and
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any binding commitment to fund any real estate investment or to fund any investment in any entity making a real estate investment, in each case other than
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any such indebtedness, obligation or liability of a type described or referred to in the bullets above as to which, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is
provided that such indebtedness, obligation or liability is not superior in right of payment to the subordinated debt securities or ranks pari passu with the subordinated debt securities;
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any such indebtedness, obligation or liability which is subordinated to our indebtedness to substantially the same extent as or to a greater extent than the subordinated debt securities are subordinated to our
indebtedness; and
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the subordinated debt securities.
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Unless we say otherwise in a prospectus supplement, there
will be no restrictions in any subordinated indenture upon the creation of additional senior debt.
Payment Blockage for Payment
Defaults.
Unless we say otherwise in a prospectus supplement, if we have defaulted in the payment of any senior debt, we may not:
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pay any principal, premium, if any, or interest on subordinated debt securities; or
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purchase, redeem, defease, or otherwise acquire any subordinated debt securities.
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This
prohibition will not affect any payment we have already made to defease debt securities, as described under Defeasance or Covenant Defeasance of Indentures, below.
We must resume payment on our subordinated debt securities, and make any payments we have missed, when one of the following has occurred:
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the senior debt has been discharged or paid in full;
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the holders of senior debt have waived payment; or
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the payment default has otherwise been cured or ceased to exist.
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Payment Blockage for Non-Payment Defaults.
Unless we say otherwise in a
prospectus supplement, we will also be prohibited from paying any amounts or distributing any assets if:
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we have defaulted on senior debt in a way that does not involve a failure to pay amounts but accelerates payment; and
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we and the trustee for the subordinated debt securities have received written notice of this default.
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Unless we say otherwise in a prospectus supplement, we will be required to suspend payments and distributions on our subordinated debt
securities starting when we receive notice of the applicable default. We may resume payments on our subordinated debt securities, and make any payments we have missed, upon the earliest of:
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the date that is 179 days after receipt of notice (unless we have previously been required to pay all amounts owing on the applicable senior debt);
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the date the default and all other similar defaults as to which notice has been given shall have been cured, waived or shall have ceased to exist;
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the date the applicable senior debt (and all other senior debt as to which notice has been given) shall have been discharged or paid in full; and
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the date on which we or the trustee receives written notice from the representative of holders of senior debt or the holders of at least a majority of the senior debt terminating the blockage period.
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Any number of notices of non-payment defaults may be given, but during any 365-day consecutive period only one blockage period may commence,
and the period may not exceed 179 days. No non-payment default with respect to senior debt that existed or was continuing on the date a blockage period for our subordinated debt securities commenced may be made the basis of another blockage period
for those securities whether or not within a period of 365 consecutive days, unless at least 90 consecutive days have elapsed since the default was cured or waived.
Default Provisions
Events of
Default.
Unless we say otherwise in a prospectus supplement, each of the following is an event of default as to any of our senior or subordinated debt securities:
1. A default in the payment of any interest or any additional amounts on any debt security of that series or of any coupon appertaining
thereto when it becomes due and payable, if the default continues for a period of 30 days.
2. A default in the payment of the
principal of (or premium, if any, on) any debt security of that series at its maturity (upon acceleration, optional or mandatory redemption, required purchase or otherwise).
3. A default in the deposit of any sinking fund payment as required by the terms of any debt security of that series.
4. A default in the performance, or a breach, of any covenant or agreement by us under the applicable indenture (other than a default in
the performance, or a breach of a covenant or agreement which is specifically dealt with in clause (1) through (8) hereof) if such default or breach continues for a period of 60 days after written notice has been given, by
registered or certified mail:
(a) to us by the trustee; or
(b) to us and the trustee by the holders of at least 25% in aggregate principal amount of the outstanding debt securities of the series.
5. The occurrence of one or more defaults under any bond, debenture, note or other evidence of indebtedness for money borrowed by us
(including obligations under leases required to be capitalized on the balance sheet of the lessee under generally accepted accounting principles 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 (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 such indebtedness now exists or shall hereafter be created, if the default has
resulted in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable or in the acceleration of such obligations, without such acceleration having been rescinded or
annulled.
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6. The entry by a court of competent jurisdiction under any applicable bankruptcy law that:
(a) is for relief against us or any of our significant subsidiaries in an involuntary case,
(b) appoints a receiver in respect of us or any of our significant subsidiaries or for all or substantially all of the property of any of
us; or
(c) orders our liquidation or the liquidation of any of our significant subsidiaries, and the order or decree remains
unstayed and in effect for 90 days.
7. We or any of our significant subsidiaries do any of the following:
(a) commence a voluntary case or proceeding under any applicable bankruptcy law;
(b) consent to the entry of a decree or order for relief in respect of us or any of our significant subsidiaries in an involuntary case
or proceeding under any applicable bankruptcy law;
(c) consent to the appointment of a receiver in respect of us or any of our
significant subsidiaries for all or substantially all of our or its property; or
(d) makes a general assignment for the benefit of
our creditors or the creditors of any of our significant subsidiaries.
8. Any other event of default provided with respect to the
debt securities of that series.
Waiver of Default.
Unless we say otherwise in a prospectus supplement, holders of not
less than a majority of the debt securities of a series may waive any past default except for:
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a default on any provision that requires the consent of all holders to modify.
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Acceleration of Payment.
Unless we say otherwise in a prospectus supplement, each indenture provides or will provide that
if an event of default occurs and continues, the trustee or the holders of not less than 25% in aggregate principal amount of the debt securities of the applicable series outstanding may declare all unpaid principal of, premium, if any, and accrued
interest on, all the debt securities of the applicable series to be due and payable immediately by a notice given in writing to us (and to the trustee if given by the holders of the debt securities of the applicable series). The trustee may, then,
at its discretion, proceed to protect and enforce the rights of the holders of the applicable debt securities by appropriate judicial proceeding.
Waiver of Acceleration.
Unless we say otherwise in a prospectus supplement, each indenture provides or will provide that,
after a declaration of acceleration, but before a judgment or decree for payment of the money due has been obtained by the trustee, the holders of a majority in aggregate principal amount of the debt securities, by written notice to us and the
trustee, may rescind and annul such declaration if:
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we have paid, or deposited with the trustee a sum sufficient to pay:
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all overdue interest and any additional amounts payable on all outstanding debt securities of the applicable series and any related coupons,
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the principal of and premium, if any, on any debt securities of the applicable series which have become due other than by such declaration of acceleration, plus interest thereon at the rate borne by the debt securities,
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to the extent that payment of such interest is lawful, interest upon overdue interest at the rate borne by the debt securities, and
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all sums paid or advanced by the trustee under the indenture and the reasonable compensation, expenses, disbursements and advances of the trustee, its agents and counsel; and
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all events of default, other than the non-payment of principal of the debt securities which have become due solely by such declaration of acceleration, have been cured or waived.
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Notices of Default.
Unless we say otherwise in a prospectus supplement, we are
required to deliver to the trustee, on or before a date not more than 120 days after the end of each fiscal year, a certificate of compliance with the indenture, and, in the event of any noncompliance, specifying such noncompliance, including
whether or not any default has occurred. The trustee is required to give notice to the holders of debt securities within 90 days of a default under the applicable indenture unless such default shall have been cured or waived; provided, however, that
the trustee may withhold notice to the holders of any series of debt securities of any default with respect to such series (except a default in the payment of the principal of, and premium, if any, or interest on or any additional amounts with
respect to any debt security of such series or in the payment of any sinking fund installment in respect of any debt security of such series) if the trustee considers such withholding to be in the interest of the holders.
Limitation on Suits.
Unless we say otherwise in a prospectus supplement, each indenture provides or 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 unless the trustee has failed to act for a period of 60 days after it has received a written
request to institute proceedings in respect of an event of default from the holders of not less than 25% in aggregate principal amount of the debt securities of the applicable series outstanding together with an offer of indemnity from such holders
that is reasonably satisfactory to the trustee and the trustee has received no direction inconsistent with such written request during such 60-day period from the holders of a majority in aggregate principal amount of the debt securities of the
applicable series outstanding. 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 such debt securities at the
respective due dates of the securities.
Obligations of Trustee.
Unless we say otherwise in a prospectus supplement,
the trustee is under no obligation to exercise any of the rights or powers vested in it by the indenture at the request or direction of any of the holders of the debt securities unless they shall have offered to the trustee security or indemnity
satisfactory to the trustee against the costs, expenses and liabilities that might be incurred thereby.
The Trust Indenture Act limits
the trustee, should it become a creditor of ours or of any guarantor, from obtaining payment of claims in certain cases or realizing certain property received by it in respect of those claims, as security or otherwise. The trustee is permitted to
engage in certain other transactions as long as, if it acquires any conflicting interest and an event of default occurs, it either cures the conflict or resigns as trustee.
For information regarding the acceleration of a portion of the principal amount of any original issue discount securities on the occurrence of
an event of default, please read the prospectus supplement relating to the issuance of those securities.
Defeasance or Covenant Defeasance of
Indenture
Unless we say otherwise in a prospectus supplement, we will be able to discharge our obligations under debt securities at
any time by taking the actions described below. The discharge of all obligations using this process is known as defeasance. If we defease debt securities, all obligations under the series of debt securities that is defeased will be
deemed to have been discharged, except for:
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the rights of holders of outstanding debt securities to receive, solely from funds deposited for this purpose, payments in respect of the principal of, premium, if any, and interest on those debt securities when the
payments are due;
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the obligations with respect to the debt securities concerning issuing temporary debt securities, registration of debt securities, mutilated, destroyed, lost or stolen debt securities, and the maintenance of an office
or agency for payment and money for security payments held in trust;
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the rights, powers, trusts, duties and immunities of the trustee; and
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the defeasance provisions of the indenture.
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We will also be able to free ourselves from
certain covenants that are described in an indenture by taking the actions described below. The discharge of obligations using this process is known as covenant defeasance. If we defease covenants under debt securities, then certain
events (not including non-payment, enforceability of any guarantee, bankruptcy and insolvency events) described under Events of Default will no longer constitute an event of default with respect to the debt securities.
Unless we say otherwise in a prospectus supplement, in order to exercise either defeasance or covenant defeasance as to the outstanding debt
securities of a series:
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we must irrevocably deposit with the trustee, in trust, for the benefit of the holders of the debt securities of
the applicable series, an amount in (i) currency, currencies or currency units in which those debt securities are then specified as payable at maturity, (ii) government obligations (as defined in the applicable indenture) or (iii) any
combination thereof, as will be
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sufficient, without consideration of reinvestment of principal and interest, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification
thereof delivered to the trustee, to pay and discharge the principal of, premium, if any, and interest on the debt securities of the applicable series on the stated maturity of such principal or installment of principal or interest and any mandatory
sinking fund payments;
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in the case of defeasance, we will deliver to the trustee an opinion of counsel confirming that either:
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we have received from, or there has been published by, the Internal Revenue Service a ruling, or
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since the date of execution of the indenture, there has been a change in the applicable federal income tax law,
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the effect of either being that the holders of the outstanding debt securities of the applicable series will not recognize income, gain or
loss for federal income tax purposes as a result of such defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred;
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in the case of covenant defeasance, we will deliver to the trustee an opinion of counsel to the effect that the holders of the debt securities of the applicable series will not recognize income, gain or loss for federal
income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred;
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no default, event of default or event which with notice or lapse of time or both would become an event of default shall have occurred and be continuing on the date of such deposit or insofar as clause 6 or 7 of
Default Provisions Events of Default is concerned, at any time during the period ending on the 91st day after the date of deposit;
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the defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, the indenture or any other material agreement or instrument to which we are a party or by which we are
bound;
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we will deliver to the trustee an officers certificate and an opinion of counsel, each stating that all conditions precedent provided for that relate to either the defeasance or the covenant defeasance, as the
case may be, have been met; and
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we will deliver to the trustee an opinion of counsel to the effect that either (i) as a result of the deposit pursuant to the first bullet in this paragraph and the election to defease, registration is not required
under the Investment Company Act of 1940, as amended, with respect to the trust funds representing the deposit, or (ii) all necessary registrations under the Investment Company Act have been effected.
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Modifications and Amendments
Unless we
say otherwise in a prospectus supplement, we and the trustee may modify and amend either indenture with the consent of the holders of a majority in aggregate principal amount of the outstanding debt securities of all series affected by the
modification or amendment; provided, however, that no modification or amendment may, without the consent of the holder of each outstanding debt security of all series affected by the modification or amendment:
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change the stated maturity of the principal of, or any installment of interest on, any debt security;
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reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption thereof, or change any obligation of ours to pay additional amounts under the indenture, except as
contemplated in the indenture, or reduce the amount of the principal of an original issue discount security that would be due and payable upon a declaration of acceleration of the maturity thereof or the amount thereof provable in bankruptcy;
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adversely affect any right of repayment at the option of the holder of any series of outstanding debt security;
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change the place of repayment where, or the currency, currency unit or composite currency in which, the principal or premium, if any, of any debt security or the interest thereon is payable;
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impair the right to institute suit for the enforcement of any such payment after the stated maturity of the debt security (or in the case of redemption, on or after the redemption date);
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reduce the percentage in principal amount of outstanding debt securities of any series for which the consent of the holders is required for any such supplemental indenture, or for any waiver of compliance with certain
provisions of the indenture or certain defaults, or reduce the requirements for quorum or voting as provided in the indenture; or
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modify any of the provisions that relate to supplemental indentures and that require the consent of holders, that relate to the waiver of past defaults, that relate to the waiver of certain covenants, except to increase
the percentage in principal amount of outstanding debt securities required to take such actions or to provide that certain other provisions of the indenture cannot be modified or waived without the consent of the holder of each debt security
affected thereby.
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Unless we say otherwise in a prospectus supplement, we and the trustee may modify and amend either
indenture without the consent of the holders if the modification or amendment does only the following:
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evidences the succession of another person to us and the assumption by any such successor of any covenants under the indenture and in the debt securities of any series;
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adds to our covenants for the benefit of the holders of all or any series of debt securities or surrenders any of our rights or powers;
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adds any additional event of default for the benefit of the holders of all or any series of debt securities;
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secures the debt securities of any series;
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adds or changes any provisions to the extent necessary to provide that bearer securities may be registrable as to principal, to change or eliminate any restrictions on the payment of principal of or any premium or
interest on bearer securities, to permit bearer securities to be issued in exchange for registered securities or bearer of securities of other authorized denominations, or to permit or facilitate the issuance of securities in uncertificated form,
provided that any such action shall not adversely affect the interests of the holders of any series of outstanding debt securities in any material respect;
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changes or eliminates any provision affecting only debt securities not yet issued;
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establishes the form or terms of debt securities of any series not yet issued;
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evidences and provides for successor trustees or adds or changes any provisions of the indenture to the extent necessary to permit or facilitate the appointment of a separate trustee or trustees for specific series of
debt securities;
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cures any ambiguity, corrects or supplements any provisions which may be defective or inconsistent with any other provision, or makes 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 no such modification or amendment may adversely affect the interest of holders of debt securities of any series then outstanding in any material respect;
or
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supplements any provision of the indenture to such extent as shall be necessary to permit the facilitation of defeasance and discharge of any series of debt securities; provided, however, that any such action may not
adversely affect the interest of holders of debt securities of any series then outstanding in any material respect.
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The
holders of a majority in aggregate principal amount of the debt securities of a series outstanding may waive compliance with certain restrictive covenants and provisions of either indenture with respect to that series.
Original Issue Discount
We may issue
debt securities under either indenture for less than their stated principal amount. Such securities may be treated as original issue discount securities, and they may be subject to special tax consequences. In addition, some debt
securities that are offered and sold at their stated principal amount may, under certain circumstances, be treated as issued at an original issue discount for federal income tax purposes. We will describe the federal income tax consequences and
other special consequences applicable to securities treated as original issue discount securities in the prospectus supplement relating to such securities. Original issue discount security generally means any debt security that:
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does not provide for the payment of interest prior to maturity; or
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is issued at a price lower than its face value and provides that upon redemption or acceleration of its stated maturity an amount less than its principal amount shall become due and payable.
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Notices
Unless we say otherwise in a
prospectus supplement, we will send notices to holders of debt securities by mail to the holders address as it appears in the register.
Governing Law
Unless we say otherwise in
a prospectus supplement, each indenture and the debt securities will be governed by the laws of the State of New York.
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
We are a Maryland REIT. Your rights as a shareholder are governed by the Code of
Maryland, including Title 8 of the Corporations and Associations Article, or Maryland REIT Law, our declaration of trust, our bylaws and the articles supplementary with respect to our Series 1 preferred shares. The following summary of the material
terms, rights and preferences of the shares of beneficial interest is not complete and is subject to and qualified in its entirety by reference to the laws of the State of Maryland, including Maryland REIT law, our declaration of trust, bylaws and
the articles supplementary with respect to our Series 1 preferred shares.
Authorized Shares
Our declaration of trust allows us to issue up to 100,000,000 common shares of beneficial interest, par value $0.01 per share, and 15,000,000
preferred shares of beneficial interest, par value $0.01 per share. As of May 4, 2015, we had issued and outstanding 68,682,443 common shares, and 399,896 preferred shares, which are designated as 5.417% Series 1 Cumulative Convertible
Preferred Shares, which we refer to as the Series 1 preferred shares.
Authority of the Board of Trustees Relating to
Authorization and Classification of Shares.
Our declaration of trust allows our Board of Trustees to take the following actions without approval by you or any shareholder:
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classify or reclassify any authorized but unissued common shares or preferred shares into one or more classes or series of shares of beneficial interest;
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amend the declaration of trust to change the total number of shares of beneficial interest authorized; and
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amend the declaration of trust to change the authorized number of shares of any class or series of shares of beneficial interest.
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If there are any laws or stock exchange rules which require us to obtain shareholder approval in order for us to take these actions, however,
we will contact you and other shareholders to solicit that approval.
We believe that the power of the Board of Trustees to issue
additional shares of beneficial interest will provide us with greater flexibility in structuring possible future financings and acquisitions and in meeting other future needs. Although the Board of Trustees does not currently intend to do so, it has
the ability to issue a class or series of beneficial shares that could have the effect of delaying or preventing a change of our control that might involve a premium price for holders of our common shares or otherwise be favorable to them.
Common Shares
All common shares offered
through this prospectus will be duly authorized, fully paid and nonassessable. As a shareholder, you will be entitled to receive distributions, or dividends, on the shares you own if the Board of Trustees authorizes a dividend to the holders of our
common shares out of our legally available assets. Your right to receive those dividends may be affected, however, by the preferential rights of the Series 1 preferred shares or any other class or series of shares of beneficial interest and the
provisions of our declaration of trust regarding
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restrictions on the transfer of shares of beneficial interest. For example, you may not receive dividends if no funds are available for distribution after we pay dividends to holders of preferred
shares. In the event of our liquidation, dissolution or winding up, holders of our common shares will be entitled to share pro rata in all of our assets remaining after payment or provision for all of our debts and other liabilities and preferential
amounts owing in respect of our Series 1 preferred shares and any other shares of beneficial interest having a priority over our common shares in the event of our liquidation, dissolution or winding up. As noted above under Authorized
Shares, our outstanding Series 1 preferred shares rank prior to our common shares with respect to the payment of dividends and as to the distribution of assets in the event of our liquidation, dissolution or winding up.
Voting Rights.
Each outstanding common share owned by a shareholder entitles that holder to one vote on all matters submitted to
a vote of common shareholders, including the election of trustees. The right to vote is subject to the provisions of our declaration of trust regarding the restriction of the transfer of shares of beneficial interest, which we describe under
Restrictions on Ownership and Transfer, below. There is no cumulative voting in the election of trustees, which means that, under Maryland law and our bylaws, the holders of a plurality of all of the votes cast at a meeting
of shareholders duly called and at which a quorum is present can elect a trustee. The holders of the remaining shares will not be able to elect any trustees.
As a holder of a common share, you will not have any right to:
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convert your shares into any other security;
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have any funds set aside for future payments;
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require us to repurchase your shares; or
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purchase any of our securities, if other securities are offered for sale, other than as a member of the general public.
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Subject to the terms of our declaration of trust regarding the restrictions on transfer of shares of beneficial interest, each common share
has the same dividend, distribution, liquidation and other rights as each other common share.
According to the terms of our declaration
of trust and bylaws, and Maryland law, all matters submitted to the shareholders for approval, except for those matters listed below, are approved if a majority of all the votes cast at a meeting of shareholders duly called and at which a quorum is
present are voted in favor of approval. The following matters require approval other than by a majority of all votes cast:
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the election of trustees (which requires a plurality of all the votes cast at a meeting of our shareholders at which a quorum is present), provided, however, that if any trustee does not receive a majority of all the
votes cast where the number of nominees is the same as the number of trustees to be elected, such trustee shall tender his or her resignation within five business days after certification of the vote and such resignation shall be acted upon by our
Board of Trustees within sixty days of such certification;
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the removal of trustees (which requires the affirmative vote of the holders of two-thirds of the number of shares outstanding and entitled to vote on such a matter if the removal is approved or recommended by a vote of
at least two-thirds of the Board of Trustees or the affirmative vote of the holders of not less than 80% of the number of shares then outstanding and entitled to vote on such matter if the removal is not approved or recommended by a vote of at least
two-thirds of the Board of Trustees);
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the amendment of our declaration of trust by shareholders (which requires the affirmative vote of two-thirds of all votes entitled to be cast on the matter only if the amendment was not approved by a unanimous vote of
the Board of Trustees, but requires the affirmative vote of only a majority of votes entitled to be cast on the matter if the amendment was approved by a unanimous vote of the Board of Trustees);
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our termination, winding up of affairs and liquidation (which requires, after approval by a majority of the entire Board of Trustees, the affirmative vote of two-thirds of all the votes entitled to be cast on the
matter); and
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our merger or consolidation with another entity or sale of all or substantially all of our property (which requires the approval of the Board of Trustees and an affirmative vote of two-thirds of all the votes entitled
to be cast on the matter).
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Our declaration of trust permits the Board of Trustees to revoke our election to be taxed as a
REIT under the Code or to determine that compliance with any restriction or limitations on ownership and transfers of shares set forth in the declaration of trust is no longer required in order for us to qualify as a REIT. Our declaration of trust
also permits the Board of Trustees to amend the declaration of trust from time to time, without approval by you or the other shareholders, to:
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qualify as a real estate investment trust under Maryland REIT law or the Code; or
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to increase or decrease the authorized aggregate number of shares and number of authorized shares of any class or series.
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In addition, any provision of our bylaws may be adopted, altered or repealed either by our Board of Trustees, subject to certain limitations
contained in our bylaws, without any action by the shareholders or by the shareholders at any meeting of shareholders called for that purpose, by the affirmative vote of holders of not less than a majority of the shares then outstanding and entitled
to vote.
Preemptive Rights.
Under the declaration of trust, no holder of shares of beneficial interest has any preemptive
rights to subscribe to any issuance of additional shares. The board of trustees, in classifying or reclassifying any unissued shares of beneficial interest, however, has the right to grant holders of shares preemptive rights to purchase or subscribe
for additional shares of beneficial interest or other securities.
Stock Exchange Listing.
The common shares are traded on
the New York Stock Exchange under the trading symbol FRT.
Transfer Agent and Registrar.
The transfer agent and
registrar for the common shares is American Stock Transfer & Trust Company, LLC, New York, New York.
Series 1 Preferred Shares
In March 2007, we issued 399,896 Series 1 preferred shares and we filed articles supplementary to our declaration of trust setting forth the
terms of the Series 1 preferred shares. Below is a brief description of the terms of the Series 1 preferred shares, which is subject to and qualified in its entirety by reference to the articles supplementary.
Rank.
The Series 1 preferred shares rank prior to the common shares with respect to the payment of dividends and the
distribution of assets upon our liquidation, dissolution or winding up. Our declaration of trust provides that, unless full cumulative dividends on all outstanding Series 1 preferred shares and any other class or series of our shares of beneficial
interest ranking, as to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up, on a parity with the Series 1 preferred shares, or Parity Shares, shall have been declared and paid or declared and set
apart for payment for all past dividend periods, then no dividends, other than dividends paid solely in common shares, or options, warrants or rights to subscribe for or purchase common shares, or any other shares of beneficial interest which rank
junior to the Series 1 preferred shares with respect to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up, or Junior Shares, shall be declared or paid or set apart for payment on the common
shares nor shall any Junior Shares be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of common shares made for purposes of any employee incentive or benefit plan of ours) for any consideration by
us, directly or indirectly (except by conversion into or exchange for shares of Junior Shares).
Dividends.
Each
Series 1 preferred share is entitled to receive, when, as and if authorized by our Board of Trustees out of funds legally available for that purpose, cumulative preferential dividends payable in cash at a rate of 5.417% of the liquidation price
of $25, which is equivalent to $1.35425 per annum.
Liquidation Preference.
In the event of our liquidation, dissolution or
winding up, the holders of Series 1 preferred shares shall be entitled to receive $25 per share, plus all accrued and unpaid dividends, before any distribution shall be made with respect to the common shares.
Voting Rights.
The Series 1 preferred shares shall have no voting rights.
Conversion Rights.
Subject to other applicable provisions within the articles supplementary for the Series 1 preferred
shares, from the date of issuance, the Series 1 preferred shares shall be convertible, at the option of each
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holder, into a number of fully paid and nonassessable common shares determined by dividing (A) the product obtained by multiplying (i) the number of Series 1 preferred shares being
converted by (ii) liquidation price; by (B) the option conversion price as in effect immediately prior to the close of business on the option conversion date.
Transfer Agent and Registrar.
The transfer agent and registrar for the Series 1 preferred shares is American Stock
Transfer & Trust Company, LLC, New York, New York.
Preferred Shares
In addition to the Series 1 preferred shares, the terms of which are described above, we may issue one or more series of preferred shares. The
following is a general description of the preferred shares that we may offer from time to time. The particular terms of the preferred shares being offered and the extent to which such general provisions may apply will be set forth in the applicable
prospectus supplement.
General.
Preferred shares may be offered and sold from time to time, in one or more series, as
authorized by the Board of Trustees. The Board of Trustees is authorized by Maryland law and our declaration of trust to set for each series the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to
distributions, qualifications and terms or conditions of redemption. The Board of Trustees has the power to set preferences, powers and rights, voting or other terms of preferred shares that are senior to, or better than, the rights of holders of
common shares or other classes or series of preferred shares. The offer and sale of preferred shares could have the effect of delaying or preventing a change of our control that might involve a premium price for holders of our common shares or
otherwise be favorable to them.
Terms.
You should refer to the prospectus supplement relating to the offering of any
preferred shares for specific terms, including the following terms:
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the title of those preferred shares;
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the number of preferred shares offered and the offering price of those preferred shares;
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the dividend rate(s), period(s), amounts and/or payment date(s) or method(s) of calculation of any of those terms that apply to those preferred shares;
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the date from which dividends on those preferred shares will accumulate, if applicable;
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the terms and amount of a sinking fund, if any, for the purchase or redemption of those preferred shares;
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the redemption rights, including conditions, time(s) and the redemption price(s), if applicable, of those preferred shares;
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the voting rights, if any, of those preferred shares;
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any listing of those preferred shares on any securities exchange;
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the terms and conditions, if applicable, upon which those preferred shares will be convertible into common shares or any of our other securities, including the conversion price or rate (or manner of calculation
thereof);
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the relative ranking and preference of those preferred shares as to dividend rights and rights upon liquidation, dissolution or the winding up of our affairs;
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any limitations on issuance of any series of preferred shares ranking senior to or on a parity with that series of preferred shares as to dividend rights and rights upon liquidation, dissolution or the winding up of our
affairs;
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the procedures for any auction and remarketing, if any, for those preferred shares;
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any other specific terms, preferences, rights, limitations or restrictions of those preferred shares;
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a discussion of any additional federal income tax consequences applicable to those preferred shares; and
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any limitations on direct or beneficial ownership and restrictions on transfer in addition to those described in Restrictions on Ownership and Transfer, in each case as may be appropriate to preserve
our status as a REIT.
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The terms of any preferred shares we issue through this prospectus will be set forth in articles
supplementary to our declaration of trust. We will file the articles supplementary as an exhibit to the registration statement that includes this prospectus, or as an exhibit to a filing with the SEC that is incorporated by reference into this
prospectus. The description of preferred shares in any prospectus supplement will not describe all of the terms of the preferred shares in detail. You should read the applicable articles supplementary for a complete description of all of the terms.
Rank.
Unless we say otherwise in a prospectus supplement, the preferred shares offered through that supplement will, with
respect to dividend rights and rights upon our liquidation, dissolution or winding up, rank:
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senior to all classes or series of our common shares, and to all other equity securities ranking junior to those preferred shares;
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on a parity with all of our equity securities ranking on a parity with the preferred shares; and
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junior to all of our equity securities ranking senior to the preferred shares.
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For purposes
of this description of our preferred shares, the term equity securities does not include convertible debt securities that we may offer from time to time.
Dividends.
Subject to any preferential rights of any outstanding shares or series of shares and to the provisions of our
declaration of trust regarding ownership of shares in excess of the ownership limitation described below under Restrictions on Ownership and Transfer, our preferred shareholders are entitled to receive dividends, when and as
authorized by our Board of Trustees, out of legally available funds.
Redemption.
If we provide for a redemption right in a
prospectus supplement, the preferred shares offered through that supplement will be subject to mandatory redemption or redemption at our option, in whole or in part, in each case upon the terms, at the times and at the redemption prices set forth in
that supplement.
Liquidation Preference.
As to any liquidation preference applicable to preferred shares offered through
this prospectus, the applicable supplement shall provide that, upon the voluntary or involuntary liquidation, dissolution or winding up of our affairs, the holders of those preferred shares shall receive, before any distribution or payment shall be
made to the holders of any other class or series of shares ranking junior to those preferred shares in our distribution of assets upon any liquidation, dissolution or winding up, and after payment or provision for payment of our debts and other
liabilities, out of our assets legally available for distribution to shareholders, liquidating distributions in the amount of any liquidation preference per share (set forth in the applicable supplement), plus an amount, if applicable, equal to all
distributions accrued and unpaid thereon (not including any accumulation in respect of unpaid distributions for prior distribution periods if those preferred shares do not have a cumulative distribution). After payment of the full amount of the
liquidating distributions to which they are entitled, the holders of those preferred shares will have no right or claim to any of our remaining assets. In the event that, upon our voluntary or involuntary liquidation, dissolution or winding up, the
legally available assets are insufficient to pay the amount of the liquidating distributions on all of those outstanding preferred shares and the corresponding amounts payable on all of our shares of other classes or series of equity security
ranking on a parity with those preferred shares in the distribution of assets upon liquidation, dissolution or winding up, then the holders of those preferred shares and all other such classes or series of equity security shall share ratably in any
such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled.
If the liquidating distributions are made in full to all holders of preferred shares entitled to receive those distributions prior to any
other classes or series of equity security ranking junior to the preferred shares upon our liquidation, dissolution or winding up, then our remaining assets shall be distributed among the holders of those junior classes or series of equity shares,
in each case according to their respective rights and preferences and their respective number of shares.
Voting Rights.
Unless otherwise indicated in the applicable supplement, holders of preferred shares we issue in the future will not have any voting rights, except as may be required by applicable law or any applicable rules and regulations of the New York Stock
Exchange.
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Conversion Rights.
The terms and conditions, if any, upon which any series of
preferred shares is convertible into common shares will be set forth in the prospectus supplement relating to the offering of those preferred shares. These terms typically will include:
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the number of common shares into which the preferred shares are convertible;
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the conversion price or rate (or manner of calculation thereof);
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provisions as to whether conversion will be at the option of the holders of the preferred shares or at our option;
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the events requiring an adjustment of the conversion price; and
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provisions affecting conversion in the event of the redemption of that series of preferred shares.
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Transfer Agent and Registrar.
We will identify the transfer agent and registrar for any additional series of preferred shares
issued through this prospectus in a prospectus supplement.
Depositary Shares
General.
We may issue receipts for depositary shares, each of which will represent a fractional interest of a share of a
particular series of preferred shares. We will deposit the preferred shares of any series represented by depositary shares with a depositary under a deposit agreement. We will identify the depositary in a prospectus supplement. Subject to the terms
of the deposit agreement, if you own a depositary share, you will be entitled, in proportion to the fraction of the preferred share represented by your depositary share, to all of the rights and preferences to which you would be entitled if you
owned the preferred share represented by your depositary share directly (including dividend, voting, redemption, conversion, subscription and liquidation rights).
The depositary shares will be represented by depositary receipts issued pursuant to the applicable deposit agreement. Immediately following
the issuance and delivery of our preferred shares to the depositary, we will cause the depositary to issue, on our behalf, the depositary receipts. Upon request, we will provide you with copies of the applicable form of deposit agreement and
depositary receipt.
Dividends and Other Provisions.
If you are a record holder (as defined below) of depositary
receipts and we pay a cash dividend or other cash distribution with respect to the preferred share represented by your depositary share, the depositary will distribute all cash dividends or other cash distributions it receives in respect of the
preferred shares represented by your depositary receipts in proportion to the number of depositary shares you owned on the record date for that dividend or distribution.
If we make a distribution in a form other than cash, the depositary will distribute the property it receives to you and all other record
holders of depositary receipts in an equitable manner, unless the depositary determines that it is not feasible to do so. If the depositary decides it cannot feasibly distribute the property, it may sell the property and distribute the net proceeds
from the sale to you and the other record holders. The amount the depositary distributes in any of the foregoing cases may be reduced by any amounts that we or the depositary is required to withhold on account of taxes.
A record holder is a person who holds depositary receipts on the record date for any dividend, distribution or other action. The
record date for depositary shares will be the same as the record date for the preferred shares represented by those depositary receipts.
Withdrawal of Preferred Shares.
If you surrender your depositary receipts, the depositary will be required to deliver
certificates to you evidencing the number of preferred shares represented by those receipts (but only in whole shares). If you deliver depositary receipts representing a number of depositary shares that is greater than the number of whole shares to
be withdrawn, the depositary will deliver to you, at the same time, a new depositary receipt evidencing the fractional shares.
Redemption of Depositary Shares.
If we redeem a series of preferred shares represented by depositary receipts, the depositary
will redeem depositary shares from the proceeds it receives after redemption of the preferred shares. The redemption price per depositary share will equal the applicable fraction of the redemption price per share payable with respect to that series
of preferred shares. If fewer than all the depositary shares are to be redeemed, the depositary will select shares to be redeemed by lot, pro rata or by any other equitable method it may determine. After the date fixed for redemption, the depositary
shares called for redemption will no longer be outstanding. All rights of the holders of those depositary shares will cease, except the right to receive the redemption price that the holders of the depositary shares were entitled to receive upon
redemption. Payments will be made when holders surrender their depositary receipts to the depositary.
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Voting the Preferred Shares.
When the depositary receives notice of any meeting at
which the holders of preferred shares are entitled to vote, the depositary will mail information contained in the notice to you as a record holder of the depositary shares relating to the preferred shares. As a record holder of the depositary shares
on the record date (which will be the same date as the record date for the preferred shares), you will be entitled to instruct the depositary as to how you would like your votes to be exercised. The depositary will endeavor, insofar as practicable,
to vote the number of preferred shares represented by your depositary shares in accordance with your instructions. We will agree to take all reasonable action that the depositary may deem necessary to enable the depositary to do this. If you do not
send specific instructions the depositary will not vote the preferred shares represented by your depositary shares.
Liquidation
Preference.
In the event of our liquidation, dissolution or winding up, whether voluntary or involuntary, you will be entitled, as a record holder of depositary shares, to the fraction of the liquidation preference accorded each applicable
preferred share, as has been set forth in a prospectus supplement.
Conversion of Preferred Shares.
Our depositary shares,
as such, are not convertible into common shares or any of our other securities or property. Nevertheless, if so specified in a prospectus supplement, the depositary receipts may be surrendered by their holders to the depositary with written
instructions to the depositary to instruct us to cause conversion of the preferred shares represented by the depositary shares into whole common or preferred shares, as the case may be. We will agree that, upon receipt of this type of instructions
and any amounts payable, we will convert the depositary shares using the same procedures as those provided for delivery of preferred shares to effect such conversion. If the depositary shares are to be converted in part only, one or more new
depositary receipts will be issued for any depositary shares not to be converted. No fractional common shares will be issued upon conversion, and if such conversion will result in issuance of a fractional share, we will pay an amount of cash equal
to the value of the fractional interest based upon the closing price of the common shares on the last business day prior to the conversion.
Amendment and Termination of the Deposit Agreement.
We and the depositary may amend the form of depositary receipt and any
provision of the deposit agreement at any time. However, any amendment which materially and adversely alters your rights as a holder of depositary shares will not be effective unless the holders of at least a majority of the depositary shares then
outstanding approve the amendment. The deposit agreement will only terminate if:
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we redeem all outstanding depositary shares;
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we make a final distribution in respect of the preferred shares to which the depositary shares and agreement relate, including in connection with any liquidation, dissolution or winding up and the distribution has been
distributed to the holders of depositary shares; or
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each preferred share to which the depositary shares and agreement relate shall have been converted into shares of beneficial interest not represented by depositary shares.
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Resignation and Removal of Depositary.
The depositary may resign at any time by delivering a notice to us of its election to do
so. Additionally, we may remove the depositary at any time. Any resignation or removal will take effect when we appoint a successor depositary and the successor accepts the appointment. We must appoint a successor depositary within 60 days after
delivery of the notice of resignation or removal. A successor depositary must be a bank or trust company having its principal office in the U.S. and having a combined capital and surplus of at least $50 million.
Charges of Depositary.
We will pay all transfer and other taxes and governmental charges arising solely from the existence of
the depositary arrangements. We will pay charges of the depositary in connection with the initial deposit of the preferred shares and issuance of depositary receipts, all withdrawals of preferred shares by owners of the depositary shares and any
redemption of the preferred shares. You will pay other transfer and other taxes, governmental charges and other charges expressly provided for in the deposit agreement.
Miscellaneous.
The depositary will forward to you all reports and communications from us that we are required, or otherwise
determine, to furnish to the holders of the preferred shares. The holders of depositary receipts shall have the right to inspect the transfer books of the depositary and the list of holders of depositary receipts as provided in the applicable
deposit agreement or as required by law.
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Neither we nor the depositary will be liable under the deposit agreement to you other than for
the depositarys gross negligence, willful misconduct or bad faith. Neither we nor the depositary will be obligated to prosecute or defend any legal proceeding in respect of any depositary shares or preferred shares unless satisfactory
indemnity is furnished. We and the depositary may rely upon written advice of counsel or accountants, or upon information provided by persons presenting preferred shares for deposit, holders of depositary receipts or other persons believed to be
competent and on documents believed to be genuine.
Restrictions on Ownership and Transfer
Restrictions on ownership and transfer of shares are important to ensure that we meet certain conditions under the Code to qualify as a REIT.
For example, the Code contains the following requirements.
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No more than 50% in value of a REITs shares may be owned, actually or constructively (based on attribution rules in the Code), by five or fewer individuals during the last half of a taxable year or a proportionate
part of a shorter taxable year, which we refer to as the 5/50 Rule. Under the Code, individuals include certain tax-exempt entities except that qualified domestic pension funds are not generally treated as individuals.
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If a REIT, or an owner of 10% or more of a REIT, is treated as owning 10% or more of a tenant of the REITs property, the rent received by the REIT from the tenant will not be qualifying income for
purposes of the REIT gross income tests of the Code.
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A REITs stock or beneficial interests must be owned by 100 or more persons during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year.
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In order to maintain our qualification as a REIT, our declaration of trust, subject to certain exceptions described below, provides that no
person may own, or be deemed to own by virtue of the attribution provisions of the Code, more than 9.8% (in value or in number of shares, whichever is more restrictive) of the outstanding common shares or more than 9.8% in value of our outstanding
capital stock. In this prospectus, the term ownership limitation is used to describe this provision of our declaration of trust.
Any transfer of shares will be null and void, and the intended transferee will acquire no rights in such shares if the transfer:
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results in any person owning, directly or indirectly, shares in excess of the ownership limitation;
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results in the shares being owned by fewer than 100 persons (determined without reference to any rules of attribution);
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results in our being closely held (within the meaning of Section 856(h) of the Code);
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causes us to own, directly or constructively, 10% or more of the ownership interests in a tenant of our real property (within the meaning of Section 856(d)(2)(B) of the Code); or
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otherwise results in our failure to qualify as a REIT.
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Automatic Transfer of Shares to
Trust
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With certain exceptions described below, if any purported transfer of shares would violate any of the restrictions described in the immediately preceding paragraph, then the transfer will be null and void, and
those shares will be designated as shares-in-trust and transferred automatically to a charitable trust. The transfer to the trust is effective as of the end of the business day before the purported transfer of such shares. The record
holder of the shares that are designated as shares-in-trust must deliver those shares to us for registration in the name of the trust. We will designate a trustee who is not affiliated with us. The beneficiary of the trust will be one or more
charitable organizations named by us.
Any shares-in-trust remain issued and outstanding shares and are entitled to the same rights and
privileges as all other shares of the same class or series. The trust receives all dividends and distributions on the shares-in-trust and holds such dividends and distributions in trust for the benefit of the beneficiary. The trustee votes all
shares-in-trust. The trustee shall also designate a permitted transferee of the shares-in-trust. The permitted transferee must purchase the shares-in-trust for valuable consideration and acquire the shares-in-trust without resulting in the transfer
being null and void.
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The record holder with respect to shares-in-trust must pay the trust any dividends or
distributions received by such record holder that are attributable to any shares-in-trust if the record date for those shares-in-trust was on or after the date that such shares became shares-in-trust. Upon sale or other disposition of the
shares-in-trust to a permitted transferee, the record holder generally will receive from the trustee, the lesser of:
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the price per share, if any, paid by the record holder for the shares; or
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if no amount was paid for such shares (e.g., if such shares were received through a gift or devise),
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the price per share equal to the market price (which is calculated as defined in our declaration of trust) on the date the shares were received, or
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the price per share received by the trustee from the sale of such shares-in-trust.
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Any
amounts received by the trustee in excess of the amounts paid to the record owner will be distributed to the beneficiary. Unless sooner sold to a permitted transferee, upon our liquidation, dissolution or winding up, the record owner generally will
receive from the trustee its share of the liquidation proceeds but in no case more than the price per share paid by the record owner or, in the case of a gift or devise, the market price per share on the date such shares were received by the trust.
The shares-in-trust will be offered for sale to us, or our designee, at a price per share equal to the lesser of the price per share in
the transaction that created the shares-in-trust (or, in the case of a gift or devise, the market price per share on the date of such transfer) or the market price per share on the date that we, or our designee, accepts such offer. We may accept
such offer until the trustee has sold the shares-in-trust as provided above.
Any person who acquires or attempts to acquire shares which
would be null and void under the restrictions described above, or any person who owned common shares or preferred shares that were transferred to a trust, must both give us immediate written notice of such event and provide us such other information
as requested in order to determine the effect, if any, of such transfer on our status as a REIT.
If a shareholder owns more than 5% of
the outstanding common shares or preferred shares, then the shareholder must notify us of its share ownership by January 30 of each year.
The ownership limitation generally does not apply to the acquisition of shares by an underwriter that participates in a public offering of
such shares. In addition, the Board of Trustees may exempt a person from the ownership limitation under certain circumstances and conditions. The restrictions on ownership and transfer described in this section of this prospectus will continue to
apply until the Board of Trustees determines that it is no longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT.
The Board of Trustees has agreed to exempt from the ownership limitation BlackRock, Inc., or BlackRock, for itself, its subsidiaries and on
behalf of investment funds and accounts for whom BlackRock acts as manager or investment advisor with respect to ownership of our equity shares. The Board of Trustees approved an exemption for BlackRock which permits BlackRock and its subsidiaries
and investment funds and accounts combined, to the extent they comprise a group under SEC rules, to own up to 15.0% of our outstanding equity or common shares. BlackRock and each of its subsidiaries and investment funds and accounts will remain
individually subject to the ownership limitation. The exemption will terminate upon at least 30 days notice given by us, with such notice not to be given before April 30, 2015.
The Board of Trustees has also agreed to exempt from the ownership limitation Cohen & Steers Capital Management, Inc., or
Cohen & Steers, for itself, its affiliates and on behalf of the mutual funds and institutional investor client accounts it advises with respect to ownership of our common shares. The Board of Trustees approved an exemption for
Cohen & Steers which permits Cohen & Steers and its affiliates and mutual funds and investor client accounts, combined, to own up to 15.0% of our outstanding common shares. The exemption will expire upon prior notice given by us to
Cohen & Steers in the event its mutual funds and investor client accounts no longer own at least 7.0% of our common shares for 180 days in any calendar year.
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The ownership limitation could have the effect of delaying, deferring or preventing a transaction
or a change in our control that might involve a premium price for the common shares or preferred shares or otherwise be in the best interest of our shareholders. All certificates representing shares will bear a legend referring to the restrictions
described above.
Warrants
Warrants
.
We may issue warrants for the purchase of common or preferred shares. If we offer warrants, we
will describe the terms in a prospectus supplement. Warrants may be offered independently, together with other securities offered by any prospectus supplement, or through a dividend or other distribution to shareholders and may be attached to or
separate from other securities. Warrants may be issued under a written warrant agreement to be entered into between us or the holder or beneficial owner, or we could issue warrants pursuant to a written warrant agreement with a warrant agent
specified in a prospectus supplement. A warrant agent would act solely as our agent in connection with the warrants of a particular series and would not assume any obligation or relationship of agency or trust for or with any holders or beneficial
owners of such warrants.
The following are some of the warrant terms that could be described in a prospectus supplement:
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the title of the warrant;
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the aggregate number of warrants;
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the price or prices at which the warrant will be issued;
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the designation, number and terms of the preferred shares or common shares that may be purchased on exercise of the warrant;
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the date, if any, on and after which the warrant and the related securities will be separately transferable;
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the price at which each security purchasable on exercise of the warrant may be purchased;
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the dates on which the right to purchase the securities purchasable on exercise of the warrant will begin and end;
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the minimum or maximum number of securities that may be purchased at any one time;
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any anti-dilution protection;
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information with respect to book-entry procedures, if any;
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a discussion of certain federal income tax considerations; and
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any other warrant terms, including terms relating to transferability, exchange or exercise of the warrant.
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Certain Provisions of Maryland Law and our Declaration of Trust and Bylaws
The following summary of certain provisions of the Maryland General Corporation Law and our declaration of trust and bylaws is not complete.
You should read the Maryland General Corporation Law and our declaration of trust and bylaws for more complete information.
The following
provisions, together with the ability of the Board of Trustees to increase the number of authorized shares, in the aggregate or by class, and to issue preferred shares without further shareholder action, the transfer restrictions described under
Restrictions on Ownership and Transfer and the supermajority voting rights described under Common Shares Voting Rights, may delay or frustrate the removal of incumbent trustees or the completion of
transactions that would be beneficial, in the short term, to our shareholders. The provisions may also discourage or make more difficult a merger, tender offer, other business combination or proxy contest, the assumption of control by a holder of a
large block of our securities or the removal of incumbent management, even if these events would offer our shareholders a premium price on their securities or otherwise be favorable to the interests of our shareholders.
Business Combinations
.
Applicable Maryland law, as set forth in the Maryland General Corporation Law, limits our
ability to enter into business combinations and other corporate transactions, including a merger, consolidation, share exchange, or, in certain circumstances, an asset transfer or issuance of equity securities when the combination is
between us and an interested shareholder (as defined below) or an affiliate of an interested shareholder. An interested shareholder is:
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any person who beneficially owns 10% or more of the voting power of our outstanding voting shares; or
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any of our affiliates that beneficially owned, directly or indirectly, 10% or more of the voting power of our outstanding voting shares at any time within two years immediately prior to the applicable date in question.
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We may not engage in a business combination with an interested shareholder or any of its affiliates for five years after
the interested shareholder becomes an interested shareholder. This prohibition does not apply to business combinations involving us that are exempted by the Board of Trustees before the interested shareholder becomes an interested shareholder.
We may engage in business combinations with an interested shareholder if at least five years have passed since the person became an interested
shareholder, but only if the transaction is:
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recommended by our Board of Trustees; and
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80% of our outstanding shares entitled to vote; and
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two-thirds of our outstanding shares entitled to vote that are not held by the interested shareholder or any of its affiliates.
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Shareholder approval will not be required if our common shareholders receive a minimum price (as defined in the statute) for their shares and
our shareholders receive cash or the same form of consideration as the interested shareholder paid for its shares.
Control Share
Acquisitions.
Our bylaws exempt acquisitions of our shares of beneficial interest by any person from control share acquisition requirements discussed below. With the approval of our Board of Trustees, and of shareholders holding
at least a majority of shares outstanding and entitled to vote on the matter, however, we could modify or eliminate the exemption in the future. If the exemption were eliminated, control share acquisitions would be subject to the
following provisions.
The Maryland General Corporation Law provides that control shares of a Maryland REIT acquired in a
control share acquisition have no voting rights unless two-thirds of the shareholders (excluding shares owned by the acquirer and by the officers and trustees who are employees of the Maryland REIT) approve their voting rights.
Control Shares are shares that, if added to all other shares previously acquired, would entitle that person to exercise voting
power, in electing trustees, within one of the following ranges of voting power:
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one-tenth or more but less than one-third;
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one-third or more but less than a majority, or
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a majority or more of all voting power.
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Control shares do not include shares the acquiring
person is entitled to vote with shareholder approval. A control share acquisition means the acquisition of control shares, subject to certain exceptions.
If this provision becomes applicable to us, a person who has made or proposes to make a control share acquisition could, under certain
circumstances, compel our Board of Trustees to call a special meeting of shareholders to consider the voting rights of the control shares. We could also present the question at any shareholders meeting on our own.
If this provision becomes applicable to us, subject to certain conditions and limitations, we would be able to redeem any or all control
shares. If voting rights for control shares were approved at a shareholders meeting and the acquirer were entitled to vote a majority of the shares entitled to vote, all other shareholders could exercise appraisal rights and exchange their
shares for a fair value as defined by statute.
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Duties of Trustees
.
Under Maryland law, there is a presumption
that the act of a trustee satisfies the required standard of care. An act of a trustee relating to or affecting an acquisition or a potential acquisition of control is not subject under Maryland law to a higher duty or greater scrutiny than is
applied to any other act of a trustee.
Number of Trustees.
The number of trustees may be increased or decreased pursuant to
the bylaws, provided that the total number of trustees may not be less than five or more than 10. Under Maryland law and our declaration of trust, trustees are elected for one-year terms.
Removal of Trustees
.
Under the declaration of trust, and subject to the rights of any holders of preferred
shares, our trustees may remove a trustee with cause, as defined in our declaration of trust, by the vote of all the other trustees or the shareholders may remove a trustee, with or without cause, at any meeting of shareholders called for that
purpose, either by:
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the affirmative vote of the holders of two-thirds of the number of shares outstanding and entitled to vote on that matter if the removal is approved or recommended by a vote of at least two-thirds of the Board of
Trustees; or
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the affirmative vote of the holders of not less than 80% of the number of shares then outstanding and entitled to vote on that matter if the removal is not approved or recommended by a vote of at least two-thirds of the
Board of Trustees.
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Vacancies on the Board of Trustees
.
The bylaws provide that, subject
to the rights of any holders of preferred shares, any vacancy on the Board of Trustees, including a vacancy created by an increase in the number of trustees, may be filled by vote of a majority of the remaining trustees, or, if the trustees fail to
act, at a meeting called for that purpose by the vote of a majority of the shares entitled to vote on the matter. Each trustee so elected shall serve for the unexpired term of the trustee he is replacing.
Meetings of Shareholders
.
Our bylaws provide for an annual meeting of shareholders, to be held in May after
delivery of the annual report to shareholders, to elect individuals to the Board of Trustees and transact such other business as may properly be brought before the meeting. Special meetings of shareholders may be called by our Chairman of the Board
of Trustees, Chief Executive Officer, President or by one-third of the Board of Trustees, and shall be called at the request in writing of the holders of 25% of all votes entitled to be cast at the meeting.
Our declaration of trust provides that any action required or permitted to be taken at a meeting of shareholders may be taken without a
meeting, if a majority of shares entitled to vote on the matter (or such larger proportion as shall be required to take the action) consent to the action in writing and the written consents are filed with the records of the meetings of shareholders.
Advance Notice for Shareholder Nominations and Shareholder New Business Proposals
.
Our bylaws require
advance written notice for shareholders to nominate a trustee or bring other business before a meeting of shareholders. For an annual meeting, to nominate a trustee or bring other business before a meeting of shareholders, a shareholder must deliver
notice to our Secretary not later than the close of business on the 120
th
day prior to the first anniversary of the date of the proxy statement relating to the preceding years annual meeting.
If the date of the annual meeting is changed by more than 30 days from the date of the preceding years meeting or if we did not hold an annual meeting the preceding year, notice must be delivered within a reasonable time before we begin to
print and mail our proxy materials.
For a special meeting, to nominate a trustee, a shareholder must deliver notice to our Secretary not
earlier that the close of business on the 120
th
day prior to the special meeting and not later than the close of business on the later of the
90
th
day prior to the special meeting or the 10
th
day following the date on which public announcement is first made of the special meeting.
Nominations for elections to the Board of Trustees may be made at a special meeting by shareholders of record both at the time of giving of notice of the special meeting and at the time of the special meeting and who are entitled to vote at the
special meeting and who complied with the notice procedures in our bylaws only (a) pursuant to the notice of special meeting, (b) by or at the direction of the Board of Trustees or (c) if the Board of Trustees has determined that
trustees shall be elected at the special meeting.
The postponement or adjournment of an annual or special meeting to a later date or time
shall not commence any new time periods for the giving of notice as described above. Our bylaws contain detailed requirements for the contents of shareholder notices of trustee nominations and new business proposals.
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Shareholder Liability and Indemnification.
Under Maryland law, you will not be
personally liable for any obligation of ours solely because you are a shareholder. Under our declaration of trust, our shareholders are not liable for our debts or obligations by reason of being a shareholder and will not be subject to any personal
liability, in tort, contract or otherwise, to any person in connection with our property or affairs by reason of being a shareholder. Under our bylaws, our shareholders shall have similar indemnification and expense advancement rights as our
trustees and officers.
In some jurisdictions other than Maryland, however, with respect to tort claims, contractual claims where
shareholder liability is not negated by the express terms of the contract, claims for taxes and certain statutory liabilities, our shareholders may be personally liable to the extent that those claims are not satisfied by us. In addition, common law
theories of piercing the corporate veil may be used to impose liability on shareholders in certain instances.
Limitation of Liability of Trustees and Officers.
Our declaration of trust, to the maximum extent permitted under Maryland law
in effect from time to time with respect to liability of trustees and officers of a REIT, provides that no trustee or officer of ours shall be liable to us or to any shareholder for money damages. The Maryland General Corporation Law provides that
we may restrict or limit the liability of trustees or officers for money damages except to the extent:
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it is proved that the trustee or officer actually received an improper benefit or profit in money, property or services; or
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a judgment or other final adjudication adverse to the person is entered in a proceeding based on a finding that the persons action, or failure to act, was material to the cause of action adjudicated and was the
result of active and deliberate dishonesty.
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Our declaration of trust provides that neither amendment nor repeal or any
provision of our declaration of trust, nor adoption of any other provision, shall apply to or affect in any respect the applicability of such limitation of liability with respect to any act or failure to act which occurred prior to such amendment,
repeal or adoption.
Indemnification of Directors and Officers.
Our declaration of trust permits us to indemnify and advance
expenses to, to the maximum extent permitted by Maryland law in effect from time to time, any individual who is a present or former trustee or officer of ours or to any individual who, while a trustee of ours, serves or has served as a director,
officer, partner, trustee, employee or agent of another REIT, corporation partnership, joint venture, trust, employee benefit plan or any other enterprise, in connection with any claim or liability to which such person may become subject or which
such person may incur by reason of such status.
Our bylaws require us to indemnify: (a) any trustee, officer or former trustee or
officer, including any individual who, while a trustee or officer at our express request, serves or served for another REIT, corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or any other enterprise as
a director, officer, shareholder, manager, member, partner or trustee of such entity, who has been successful, on the merits or otherwise, in the defense of a proceeding to which he or she was made a party by reason of service in such capacity,
against reasonable expenses incurred by him or her in connection with the proceeding; and (b) any trustee or officer or any former trustee or officer against any claim or liability to which he or she may become subject by reason of such status
unless it is established that: (i) his or her act or omission was material to the matter giving rise to the proceeding and was committed in bad faith or was the result of active and deliberative dishonesty; (ii) he or she actually received
an improper personal benefit in money, property or services; or (iii) in the case of a criminal proceeding, he or she had reasonable cause to believe that his or her act or omission was unlawful. In addition, our bylaws require us, without
requiring a preliminary determination of the ultimate entitlement to indemnification, to pay or reimburse expenses incurred by a trustee, officer or former trustee or officer made a party to a proceeding by reason of such status, provided that we
have received from any such trustee or officer an affirmation and written undertaking as required by our bylaws. Our bylaws provide that neither amendment nor repeal or any provision of our bylaws, nor adoption of any other provision, shall apply to
or affect in any respect the applicability of such indemnification and expense advancement rights with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption.
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MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following section summarizes the material federal income tax issues that you may consider relevant relating to our taxation as a REIT
under the Code, and the acquisition, ownership, and disposition of our common, preferred, and depositary shares. If we offer one or more additional series of common shares or preferred shares, debt securities, depositary shares, or warrants to
purchase debt or equity securities, the prospectus supplement would include information about additional material U.S. federal income tax considerations to holders of any of the offered securities.
Because this section is a summary, it does not address all of the tax issues that may be important to you. For example, the discussion of the
tax treatment of our shareholders addresses only common or preferred shares held as capital assets (generally property held for investment) within the meaning of Section 1221 of the Code. This discussion is based on current law and does not
purport to deal with all aspects of U.S. federal income taxation that may be relevant to a prospective shareholder in light of its particular circumstances. In addition, this section does not address the tax issues that may be important to certain
types of shareholders that are subject to special treatment under the federal income tax laws, such as financial institutions, brokers, dealers in securities and commodities, insurance companies, former U.S. citizens or long-term residents,
regulated investment companies, real estate investment trusts, tax-exempt organizations (except to the extent discussed in Taxation of Tax-Exempt U.S. Shareholders below), controlled foreign corporations, passive foreign
investment companies, persons that acquire shares in connection with employment or other performance of personal services, persons subject to the alternative minimum tax, persons that are, or that hold their shares through, partnerships or other
pass-through entities, persons whose functional currency is not the U.S. dollar, persons that hold shares as part of a straddle, hedge, conversion, synthetic security or constructive sale transaction for U.S. federal income tax purposes, persons
that purchase or sell shares as part of a wash sale for tax purposes, or non-U.S. individuals and foreign corporations (except to the extent discussed in Taxation of Non-U.S. Shareholders below). In addition, this discussion is
general in nature and is not exhaustive of all possible tax considerations, nor does it address any aspect of state, local or foreign taxation or any U.S. federal tax other than the income tax and, only to the extent specifically provided herein,
certain excise taxes potentially applicable to REITs.
This summary is based upon the Code, the regulations of the U.S. Department of
Treasury (Treasury) promulgated thereunder and judicial and administrative rulings now in effect, all of which are subject to change or differing interpretations, possibly with retroactive effect.
If a partnership, including an entity or arrangement that is treated as a partnership for U.S. federal income tax purposes, is a beneficial
owner of our shares, the treatment of the partnership, and partners in the partnership, will generally depend on the status of the partner and the activities of the partnership. Partnerships holding shares, and partners in such partnerships, should
consult their tax advisors with regard to the U.S. federal income tax treatment of an investment in our shares.
PROSPECTIVE INVESTORS
SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES TO THEM OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR COMMON OR PREFERRED SHARES, OUR ELECTION TO BE TAXED AS A REIT AND THE
EFFECT OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
Taxation of the Company
The statements in this section are based on the current federal income tax laws governing our qualification as a REIT. We cannot assure you
that new laws, interpretations of laws or court decisions, any of which may take effect retroactively, will not cause any statement in this section to be inaccurate.
We elected to be taxed as a REIT under the federal income tax laws when we filed our 1962 federal income tax return. We have been organized
and have operated in a manner intended to qualify as a REIT and we intend to continue to operate in that manner. This section discusses the laws governing the federal income tax treatment of a REIT and its shareholders. These laws are highly
technical and complex.
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In the opinion of our tax counsel, Pillsbury Winthrop Shaw Pittman LLP, (i) we qualified as
a REIT under Sections 856 through 860 of the Code with respect to each of our taxable years ended through December 31, 2014; and (ii) we are organized in conformity with the requirements for qualification as a REIT under the Code and our
current method of operation and ownership will enable us to meet the requirements for qualification and taxation as a REIT for the current taxable year and for future taxable years, provided that we have operated and continue to operate in
accordance with various assumptions and factual representations made by us concerning our diversity of share ownership, business, properties and operations. We may not, however, have met or continue to meet such requirements. You should be aware
that opinions of counsel are not binding on the Internal Revenue Service (IRS) or any court. Our qualification as a REIT depends on our ability to meet, on a continuing basis, certain qualification tests set forth in the federal tax
laws. Those qualification tests involve the percentage of income that we earn from specified sources, the percentage of our assets that fall within certain categories, the diversity of the ownership of our shares, and the percentage of our earnings
that we distribute. We describe the REIT qualification tests in more detail below. Pillsbury Winthrop Shaw Pittman LLP will not monitor our compliance with the requirements for REIT qualification on an ongoing basis. Accordingly, our actual
operating results may not satisfy the qualification tests. Pillsbury Winthrop Shaw Pittman LLPs opinion does not foreclose the possibility that we may have to use one or more of the REIT savings provisions described below, which would require
us to pay an excise or penalty tax (which could be material) in order for us to maintain our REIT qualification. For a discussion of the tax treatment of us and our shareholders if we fail to qualify as a REIT, see Requirements for REIT
Qualification Failure to Qualify.
As a REIT, we generally will not be subject to federal income tax on the taxable income
that we distribute to our shareholders. The benefit of that tax treatment is that it avoids the double taxation (i.e., at both the corporate and shareholder levels) that generally results from owning shares in a subchapter C corporation.
However, we will be subject to federal tax in the following circumstances:
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we will pay federal income tax on taxable income (including net capital gain) that we do not distribute to our shareholders during, or within a specified time period after, the calendar year in which the income is
earned;
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we may be subject to the alternative minimum tax on any items of tax preference that we do not distribute or allocate to our shareholders;
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we will pay income tax at the highest corporate rate on (i) net income from the sale or other disposition of property acquired through foreclosure or after a default on a loan secured by the property or a lease of
the property (foreclosure property) that we hold primarily for sale to customers in the ordinary course of business and (ii) other non-qualifying income from foreclosure property;
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we will pay a 100% tax on net income from certain sales or other dispositions of property (other than foreclosure property) that we hold primarily for sale to customers in the ordinary course of business
(prohibited transactions);
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our subsidiaries that are C corporations, including our taxable REIT subsidiaries, generally will be required to pay federal corporate income tax on their earnings;
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we will pay a 100% excise tax on transactions with a taxable REIT subsidiary that are not conducted on an arms-length basis;
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if we fail to satisfy the 75% gross income test or the 95% gross income test (as described below under Requirements for REIT Qualification Income Tests), but nonetheless continue to qualify
as a REIT because we meet certain other requirements, we will pay a 100% tax on (i) the gross income attributable to the greater of the amount by which we fail, respectively, the 75% or 95% gross income test, multiplied, in either case, by
(ii) a fraction intended to reflect our profitability;
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if we fail, in more than a de minimis fashion, to satisfy one or more of the asset tests for any quarter of a taxable year, but nonetheless continue to qualify as a REIT because we qualify under certain relief
provisions, we may be required to pay a tax of the greater of $50,000 or a tax computed at the highest corporate rate on the amount of net income generated by the assets causing the failure from the date of failure until the assets are disposed of
or we otherwise return to compliance with the asset test;
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if we fail to satisfy one or more of the requirements for REIT qualification (other than the income tests or the asset tests), we nevertheless may avoid termination of our REIT election in such year if the failure is
due to reasonable cause and not due to willful neglect, but we would also be required to pay a penalty of $50,000 for each failure to satisfy the REIT qualification requirements;
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if we fail to distribute during a calendar year at least the sum of (i) 85% of our REIT ordinary income for such year, (ii) 95% of our REIT capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, we will pay a nondeductible 4% excise tax on the excess of such required distribution over (A) the amount we actually distributed, plus (B) retained amounts on which corporate-level tax was
paid by us;
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we may be required to pay monetary penalties to the IRS in certain circumstances, including if we fail to meet record-keeping requirements intended to monitor our compliance with the rules relating to the composition of
a REITs shareholders;
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we may elect to retain and pay income tax on our net long-term capital gain; or
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if we acquire any asset from a C corporation (i.e., a corporation generally subject to full corporate-level tax) in a merger or other transaction in which we acquire a carryover basis in the asset (i.e.,
basis determined by reference to the C corporations basis in the asset (or another asset)) and no election is made for the transaction to be taxable on a current basis, then if we recognize gain on the sale or disposition of such asset during
the 10-year period after we acquire such asset, we will pay tax at the highest regular corporate rate applicable on the lesser of (i) the amount of gain that we recognize at the time of the sale or disposition and (ii) the amount of gain
that we would have recognized if we had sold the asset at the time we acquired the asset.
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Requirements for REIT Qualification
To qualify as a REIT, we must meet the following requirements:
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we are managed by one or more trustees or directors;
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our beneficial ownership is evidenced by transferable shares, or by transferable certificates of beneficial interest;
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we would be taxable as a domestic corporation, but for Sections 856 through 860 of the Code;
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we are neither a financial institution nor an insurance company subject to certain provisions of the Code;
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at least 100 persons are beneficial owners of our shares or ownership certificates;
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not more than 50% in value of our outstanding shares or ownership certificates is owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) during the last half of
any taxable year (the 5/50 Rule);
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we elect to be a REIT (or have made such election for a previous taxable year) and satisfy all relevant filing and other administrative requirements established by the IRS that must be met to elect and maintain REIT
status;
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we use a calendar year for federal income tax purposes and comply with the record keeping requirements of the Code and the related regulations of the Treasury; and
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we meet certain other qualification tests, described below, regarding the nature of our income and assets and the amount of our distributions to shareholders.
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We must meet requirements 1 through 4 during our entire taxable year and must meet requirement 5 during at least 335 days of a taxable year of
12 months, or during a proportionate part of a taxable year of less than 12 months. If we comply with all the requirements for ascertaining the ownership of our outstanding shares in a taxable year and have no reason to know that we violated
the 5/50 Rule, we will be deemed to have satisfied the 5/50 Rule for such taxable year. For purposes of determining share ownership under the 5/50 Rule, an individual generally includes a supplemental unemployment compensation benefits
plan, a private foundation, or a portion of a trust permanently set aside or used exclusively for charitable purposes. An individual, however, generally does not include a trust that is a qualified employee pension or profit sharing
trust under Code Section 401(a), and beneficiaries of such a trust will be treated as holding our shares in proportion to their actuarial interests in the trust for purposes of the 5/50 Rule.
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We believe we have issued sufficient shares with sufficient diversity of ownership to satisfy
requirements 5 and 6 set forth above. In addition, our declaration of trust restricts the ownership and transfer of our shares so that we should continue to satisfy requirements 5 and 6. The provisions of our declaration of trust restricting the
ownership and transfer of our shares are described in Description of Shares of Beneficial OwnershipRestrictions on Ownership and Transfer.
We currently have several direct corporate subsidiaries and may have additional corporate subsidiaries in the future. A corporation that is a
qualified REIT subsidiary is not treated as a corporation separate from its parent REIT. All assets, liabilities, and items of income, deduction, and credit of a qualified REIT subsidiary are treated as assets, liabilities, and items of
income, deduction, and credit of the REIT. A qualified REIT subsidiary is a corporation, all of the capital stock of which is owned by the parent REIT, unless we and the subsidiary have jointly elected to have it treated as a taxable REIT
subsidiary, in which case it is treated separately from us and will be subject to federal corporate income taxation. Thus, in applying the requirements described herein, any qualified REIT subsidiary of ours will be ignored, and all assets,
liabilities, and items of income, deduction, and credit of such subsidiary will be treated as our assets, liabilities, and items of income, deduction, and credit. We believe all of our direct corporate subsidiaries are qualified REIT subsidiaries,
except for those that would qualify as taxable REIT subsidiaries or subsidiary REITs. Accordingly, our qualified REIT subsidiaries are not subject to federal corporate income taxation, though they may be subject to state and local taxation.
An unincorporated domestic entity, such as a partnership or limited liability company, that has a single beneficial owner generally is not
treated as an entity separate from its owner for federal income tax purposes. Similar to a qualified REIT subsidiary, all assets, liabilities, and items of income, deduction, and credit of such a disregarded entity are treated as assets,
liabilities, and items of income, deduction, and credit of the owner. An unincorporated domestic entity, such as a partnership or a limited liability company, with two or more beneficial owners is generally treated as a partnership for federal
income tax purposes. A REIT is treated as owning its proportionate share of the assets of any partnership (which includes any limited liability company treated as a partnership) in which it is a partner and as earning its allocable share of the
gross income of the partnership for purposes of the applicable REIT qualification tests. Thus, our proportionate share of the assets and items of income of any partnership (or limited liability company treated as a partnership) in which we have
acquired or will acquire an interest, directly or indirectly, are treated as our assets and gross income for purposes of applying the various REIT qualification requirements. Our proportionate share is generally determined, for these purposes, based
on our percentage interest in partnership equity capital, subject to special rules relating to the 10% asset test described below.
Income Tests.
We must satisfy two gross income tests annually to maintain our qualification as a REIT:
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At least 75% of our gross income (excluding gross income from prohibited transactions, cancellation of indebtedness, certain real estate liability hedges, and certain foreign currency hedges entered into, and certain
recognized real estate foreign exchange gains) for each taxable year must consist of defined types of income that we derive, directly or indirectly, from investments relating to real property or mortgages on real property or qualified temporary
investment income (the 75% gross income test). Qualifying income for purposes of the 75% gross income test includes rents from real property, interest on debt secured by mortgages on real property or on interests in real
property, gain from the sale of real estate assets, and dividends or other distributions on and gain from the sale of shares in other REITs; and
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At least 95% of our gross income (excluding gross income from prohibited transactions, cancellation of indebtedness, certain real estate liability hedges, and certain foreign currency hedges entered into, and certain
recognized passive foreign exchange gains) for each taxable year must consist of income that is qualifying income for purposes of the 75% gross income test, dividends, other types of interest, gain from the sale or disposition of stock or
securities, or any combination of the foregoing (the 95% gross income test).
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The following paragraphs discuss the specific application of these tests to us.
Rental Income
. Our primary source of income derives from leasing properties. There are various limitations on whether rent
that we receive from real property that we own and lease to tenants will qualify as rents from real property (which is qualifying income for purposes of the 75% and 95% gross income tests) under the REIT tax rules:
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If the rent is based, in whole or in part, on the income or profits of any person although, generally, rent may be based on a fixed percentage or percentages of receipts or sales, the rent will not qualify as
rents from real property. Our leases provide for either fixed rent, sometimes with scheduled escalations, or a fixed minimum rent and a percentage of gross receipts in excess of some threshold. We have not entered into any lease based in
whole or part on the net income of any person and on an ongoing basis will use our best efforts to avoid entering into such arrangements unless, in either instance, we have determined or we determine in our discretion that such arrangements will not
jeopardize our status as a REIT;
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Except in certain limited circumstances involving taxable REIT subsidiaries, if we or someone who owns 10% or more of our shares owns 10% or more of a tenant from whom we receive rent, the tenant is deemed a
related party tenant, and the rent paid by the related party tenant will not qualify as rents from real property. Our ownership and the ownership of a tenant is determined based on direct, indirect and constructive ownership.
The constructive ownership rules generally provide that if 10% or more in value of our shares are owned, directly or indirectly, by or for any person, we are considered as owning the shares owned, directly or indirectly, by or for such person. The
applicable attribution rules, however, are highly complex and difficult to apply, and we may inadvertently enter into leases with tenants who, through application of such rules, will constitute related party tenants. In such event, rent
paid by the related party tenant will not qualify as rents from real property, which may jeopardize our status as a REIT. We believe that we have not leased property to any related party tenant, except where we may rent to certain
taxable REIT subsidiaries as described below, or where we have determined in our discretion that the rent received from such related party tenant is not material and will not jeopardize our status as a REIT. On an ongoing basis, we will use our best
efforts not to rent any property to a related party tenant (taking into account the applicable constructive ownership rules), unless we determine in our discretion that the rent received from such related party tenant will not jeopardize our status
as a REIT;
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In the case of certain rent from a taxable REIT subsidiary which would, but for this exception, be considered rent from a related party tenant, the space leased to the taxable REIT subsidiary must be part of a property
at least 90% of which is rented to persons other than taxable REIT subsidiaries and related party tenants, and the amounts of rent paid to us by the taxable REIT subsidiary must be substantially comparable to the rents paid by such other persons for
comparable space. On an ongoing basis we use and will use our best efforts to ensure that all space leased to our taxable REIT subsidiaries meets these conditions, unless we determine in our discretion that the related party rent received from a
taxable REIT subsidiary will not jeopardize our status as a REIT;
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If the rent attributable to any personal property leased in connection with a lease of property is more than 15% of the total rent received under the lease, all of the rent attributable to the personal property will
fail to qualify as rents from real property. In general, we have not leased a significant amount of personal property under our current leases. If any incidental personal property has been leased, we believe that rent under each lease
from the personal property has been no more than 15% of total rent from that lease, and on an ongoing basis we will use our best efforts to avoid leasing personal property in connection with a future lease except where rent from the personal
property is no more than 15% of total rent from that lease, unless, in either instance, we have determined or we determine in our discretion that the amount of disqualified rent attributable to the personal property will not jeopardize our status as
a REIT;
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In general, if we furnish or render services to our tenants, other than through a taxable REIT subsidiary or an independent contractor who is adequately compensated and from whom we do not derive revenue,
the income received from the tenants may not be deemed rents from real property. We may provide services directly, if the services are usually or customarily rendered in connection with the rental of space for occupancy only
and are not otherwise considered to be provided for the tenants convenience. In addition, we may render directly a de minimis amount of non-customary services to the tenants of a property without disqualifying the income as
rents from real property, as long as our income from the services does not exceed 1% of our income from the related property. We believe that we have not provided services to leased properties that have caused rents to be disqualified as
rents from real property, and on an ongoing basis in the future, we will use our best efforts to determine in our discretion that any services provided will not cause rents to be disqualified as rents from real property, or unless, in either
instance, we have determined or we determine in our discretion that the amount of disqualified rent resulting from such services will not jeopardize our status as a REIT.
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Based on, and subject to, the foregoing, we believe that rent from our leases should generally
qualify as rents from real property for purposes of the 75% and 95% gross income tests, except in amounts that should not jeopardize our status as a REIT. As described above, however, the IRS may assert successfully a contrary position
and, therefore, prevent us from qualifying as a REIT.
Interest.
For purposes of the gross income tests, 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. If a loan contains a provision that entitles us to a percentage of the
borrowers gain upon the sale of the real property securing the loan or a percentage of the appreciation in the propertys value as of a specific date, income attributable to that loan provision will be treated as gain from the sale of the
property securing the loan, which generally is qualifying income for purposes of both gross income tests.
We may from time to time hold
mortgage debt. Interest on debt secured by a mortgage on real property or on interests in real property, including, for this purpose, discount points, prepayment penalties, loan assumption fees, and late payment charges that are not compensation for
services, generally is qualifying income for purposes of the 75% gross income test. However, in the case of acquisition of an existing loan, if the loan is secured by real property and other property and the highest principal amount of the loan
outstanding during a taxable year exceeds the fair market value of the real property securing the loan as of the date we agreed to acquire the loan, then a portion of the interest income from such loan will not be qualifying income for purposes of
the 75% gross income test, but will be qualifying income for purposes of the 95% gross income test. The portion of the interest income that will not be qualifying income for purposes of the 75% gross income test will be equal to the portion of the
principal amount of the loan that is not secured by real property that is, the amount by which the loan principal exceeds the value of the real estate that is security for the loan as of the date we agreed to acquire the loan.
Dividends.
Our share of any dividends received from any corporation (including any taxable REIT subsidiary, but excluding any
REIT) in which we own an equity interest will qualify for purposes of the 95% gross income test but not for purposes of the 75% gross income test. Our share of any dividends received from any other REIT in which we own an equity interest will be
qualifying income for purposes of both gross income tests.
Tax on Income From Property Acquired in Foreclosure.
We will be
subject to tax at the maximum corporate rate on any income from foreclosure property (other than income that would be qualifying income for purposes of the 75% gross income test), less expenses directly connected to the production of such income.
However, gross income from foreclosure property will qualify under the 75% and 95% gross income tests.
Foreclosure property
is any real property (including interests in real property) and any personal property incident to such real property:
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that is acquired by a REIT at a foreclosure sale, or having otherwise become the owner or in possession of the property by agreement or process of law, after a default (or imminent default) on a lease of such property
or on a debt owed to the REIT secured by the property;
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for which the related loan was acquired by the REIT at a time when default was not imminent or anticipated; and
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for which the REIT makes a proper election to treat the property as foreclosure property.
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REIT will not be considered to have foreclosed on a property where it takes control of the property as a mortgagee-in-possession and cannot receive any profit or sustain any loss except as a creditor of the mortgagor. Generally, property acquired as
described above ceases to be foreclosure property on the earlier of:
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the last day of the third taxable year following the taxable year in which the REIT acquired the property (or longer if an extension is granted by the Secretary of the Treasury);
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the first day on which a lease is entered into with respect to such property that, by its terms, will give rise to income that does not qualify under the 75% gross income test or any amount is received or accrued,
directly or indirectly, pursuant to a lease entered into on or after such day that will give rise to income that does not qualify under the 75% gross income test;
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the first day on which any construction takes place on such property (other than completion of a building, or any other improvement, where more than 10% of the construction of such building or other improvement was
completed before default became imminent); or
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the first day that is more than 90 days after the day on which such property was acquired by the REIT and the property is used in a trade or business that is conducted by the REIT (other than through an independent
contractor from whom the REIT itself does not derive or receive any income).
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Tax on Prohibited Transactions.
A REIT will incur a 100% tax on net income (taking into account foreign currency gains and losses) derived from any prohibited transaction. A prohibited transaction generally is a sale or other disposition of property (other
than foreclosure property) that the REIT holds primarily for sale to customers in the ordinary course of a trade or business. The prohibited transaction rules do not apply to property held by a taxable REIT subsidiary of a REIT. We believe that none
of our assets (other than certain assets held through our taxable REIT subsidiaries) are held for sale to customers and that a sale of any such asset would not be in the ordinary course of our business. Whether a REIT holds an asset primarily
for sale to customers in the ordinary course of a trade or business depends, however, on the facts and circumstances in effect from time to time, including those related to a particular asset.
The Code provides a safe harbor that, if met by us, allows us to avoid being treated as engaged in a prohibited transaction. In order to meet
the safe harbor, (i) we must have held the property for at least 2 years (and, in the case of property which consists of land or improvements not acquired through foreclosure, we must have held the property for 2 years for the production of
rental income), (ii) we must not have made aggregate expenditures includible in the basis of the property during the 2-year period preceding the date of sale that exceed 30% of the net selling price of the property, and (iii) during the
taxable year the property is disposed of, we must not have made more than 7 property sales or, alternatively, the aggregate adjusted basis or fair market value of all of the properties sold by us during the taxable year must not exceed 10% of the
aggregate adjusted basis or 10% of the fair market value, respectively, of all of our assets as of the beginning of the taxable year. If the 7 sale limitation in (iii) above is not satisfied, substantially all of the marketing and development
expenditures with respect to the property must be made through an independent contractor from whom we do not derive or receive any income. We believe we have complied with the terms of the safe harbor provision and we will attempt to comply with the
terms of the safe harbor in the future, except where we determine in our discretion that a particular transaction will avoid prohibited transaction treatment regardless of the safe harbor. We may fail to comply with the safe-harbor provision and may
sell or dispose of property that could be characterized as property held primarily for sale to customers in the ordinary course of a trade or business.
Tax and Deduction Limits on Certain Transactions with Taxable REIT Subsidiaries.
A REIT will incur a 100% tax on certain
transactions between a REIT and a taxable REIT subsidiary to the extent the transactions are not on an arms-length basis. In addition, under certain circumstances the interest paid by a taxable REIT subsidiary to the REIT may not be deductible by
the taxable REIT subsidiary. We believe that none of the transactions we have had with our taxable REIT subsidiaries will give rise to the 100% tax and that none of our taxable REIT subsidiaries will be subject to the interest deduction limits.
Hedging Transactions.
Except to the extent provided by Treasury regulations, any income we derive from a hedging transaction
(which may include entering into interest rate swaps, caps, and floors, options to purchase these items, and futures and forward contracts) which is clearly identified as such as specified in the Code and Treasury regulations, including gain from
the sale or disposition of such a transaction, will not constitute gross income for purposes of either the 75% or 95% gross income test, and therefore will be exempt from these tests, but only to the extent that the transaction hedges indebtedness
incurred or to be incurred by us to acquire or carry real estate assets or is entered into primarily to manage the risk of foreign currency fluctuations with respect to qualifying income under the 75% or 95% gross income test. Income from any
hedging transaction not described above will likely be treated as nonqualifying for both the 75% and 95% gross income tests.
Like-Kind Exchanges.
We may dispose of properties 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 federal income tax purposes. The failure of any such transaction to qualify as a like-kind exchange could require us to pay federal income tax, possibly including the 100%
prohibited transaction tax, depending on the facts and circumstances surrounding the particular transaction.
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Relief from Consequences of Failing to Meet Income Tests.
If we fail to
satisfy one or both of the 75% and 95% gross income tests for any taxable year, we nevertheless may qualify as a REIT for such year if we qualify for relief under certain provisions of the Code. Those relief provisions generally will be available if
our failure to meet such tests is due to reasonable cause and not due to willful neglect, and we file a schedule of the sources of our income in accordance with regulations prescribed by the Treasury. We may not qualify for the relief provisions in
all circumstances. In addition, as discussed above in Taxation of the Company, even if the relief provisions apply, we would incur a 100% tax on gross income to the extent we fail the 75% or 95% gross income test (whichever
amount is greater), multiplied by a fraction intended to reflect our profitability.
Asset Tests.
To maintain our
qualification as a REIT, we also must satisfy the following asset tests at the close of each quarter of each taxable year:
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At least 75% of the value of our total assets must consist of cash or cash items (including certain receivables and money market funds), U.S. government securities, real estate assets, or qualifying
temporary investments (the 75% asset test).
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Real estate assets include interests in real property, interests in mortgages on real property and stock in other REITs. We believe that our properties qualify as real estate assets.
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Interests in real property include an interest in mortgage loans or land and improvements thereon, such as buildings or other inherently permanent structures (including items that are structural components
of such buildings or structures), a leasehold of real property, and an option to acquire real property (or a leasehold of real property).
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Qualifying temporary investments are investments in stock or debt instruments during the one-year period following our receipt of new capital that we raise through equity or long-term (at least five-year) debt
offerings.
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For investments not included in the 75% asset test, (A) the value of our interest in any one issuers securities (which does not include our equity ownership of other REITs, any taxable REIT subsidiary, or any
qualified REIT subsidiary) may not exceed 5% of the value of our total assets (the 5% asset test), (B) we may not own more than 10% of the voting power or value of any one issuers outstanding securities (which does not include
our equity ownership in other REITs, any taxable REIT subsidiary, or any qualified REIT subsidiary (the 10% asset test), (C) the value of our securities in one or more taxable REIT subsidiaries may not exceed 25% of the value of our
total assets, and (D) no more than 25% of the value of our total assets may consist of the securities of taxable REIT subsidiaries and our assets that are not qualifying assets for purposes of the 75% asset test. For purposes of the 10% asset
test that relates to value, the following are not treated as securities: (i) loans to individuals and estates, (ii) securities issued by REITs, (iii) accrued obligations to pay rent; (iv) certain debt meeting the definition of
straight debt if neither we nor a taxable REIT subsidiary that we control hold more than 1% of the issuers securities that do not qualify as straight debt, and (v) debt issued by a partnership if the partnership
meets the 75% gross income test with respect to its own gross income. In addition, solely for purposes of the 10% asset test that relates to value, the determination of our interest in the assets of a partnership in 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.
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We intend to select future investments so as to comply with the asset tests.
As described above, we may from time to time hold mortgage debt. Mortgage loans will generally qualify as real estate assets for purposes of
the 75% asset test to the extent that they are secured by real property. However, if a loan is secured by real property and other property and the highest principal amount of a loan outstanding during a taxable year exceeds the fair market value of
the real property securing the loan as of the date we agreed to acquire the loan, then a portion of such loan likely will not be a qualifying real estate asset. Under current law, it is not clear how to determine what portion of such a loan will be
treated as a real estate asset. Under recently issued guidance, the IRS has stated that it will not challenge a REITs treatment of a loan as being, in part, a real estate asset for purposes of the 75% asset test if the REIT treats the loan as
being a qualifying real estate asset in an amount equal to the lesser of (i) the greater of (a) the current fair market value of the real property securing the loan or (b) the fair market value of such property on the date the REIT
acquires the loan, or (ii) the fair market value of the loan.
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If we fail to satisfy the asset tests at the end of a calendar quarter, we would not lose our
REIT status if (i) we satisfied the asset tests at the close of the preceding calendar quarter and (ii) the discrepancy between the value of our assets and the asset test requirements arose from changes in the market values of our assets
and was not wholly or partly caused by the acquisition of one or more non-qualifying assets. If we did not satisfy the condition described in clause (ii) of the preceding sentence, we still could avoid disqualification as a REIT by eliminating
any discrepancy within 30 days after the close of the calendar quarter in which the discrepancy arose.
Relief from Consequences of
Failing to Meet Asset Tests.
If we fail to satisfy one or more of the asset tests for any quarter of a taxable year, we nevertheless may qualify as a REIT for such year if we qualify for relief under certain provisions of the Code.
Those relief provisions are available for failures of the 5% asset test and the 10% asset test if (i) the failure is due to the ownership of assets that do not exceed the lesser of 1% of our total assets or $10 million, and (ii) the
failure is corrected or we otherwise return to compliance with the applicable asset test within 6 months following the quarter in which it was discovered. In addition, should we fail to satisfy any of the asset tests other than failures addressed in
the previous sentence, we may nevertheless qualify as a REIT for such year if (i) the failure is due to reasonable cause and not due to willful neglect, (ii) we file a schedule with a description of each asset causing the failure in
accordance with regulations prescribed by the Treasury, (iii) the failure is corrected or we otherwise return to compliance with the asset tests within 6 months following the quarter in which the failure was discovered, and (iv) we pay a
tax consisting of the greater of $50,000 or a tax computed at the highest corporate rate on the amount of net income generated by the assets causing the failure from the date of failure until the assets are disposed of or we otherwise return to
compliance with the asset tests. We may not qualify for the relief provisions in all circumstances.
Distribution
Requirements.
Each taxable year, we must distribute dividends (other than capital gain dividends and deemed distributions of retained capital gain) to our shareholders in an aggregate amount at least equal to (1) the sum of 90% of
(A) our REIT taxable income (computed without regard to the dividends paid deduction and our net capital gain) and (B) our net income (after tax), if any, from foreclosure property, minus (2) certain items of non-cash
income.
We generally must pay such distributions in the taxable year to which they relate, or in the following taxable year if we
(i) declare a dividend in one of the last three months of the calendar year to which the dividend relates which is payable to shareholders of record as determined in one of such months, and pay the distribution during January of the following
taxable year, or (ii) declare the distribution before we timely file our federal income tax return for such year and pay the distribution on or before the first regular dividend payment date after such declaration.
We will pay federal income tax at regular corporate rates on taxable income (including net capital gain) that we do not distribute to
shareholders. Furthermore, we will incur a 4% nondeductible excise tax if we fail to distribute during a calendar year (or, in the case of distributions with declaration and record dates falling in the last three months of the calendar year, by the
end of January following such calendar year) at least the sum of (1) 85% of our REIT ordinary income for such year, (2) 95% of our REIT capital gain income for such year, and (3) any undistributed taxable income from prior periods.
The excise tax is on the excess of such required distribution over the amounts we actually distributed. We may elect to retain and pay income tax on the net long-term capital gain we receive in a taxable year. See Taxation of
Taxable U.S. Shareholders. For purposes of the 4% excise tax, we will be treated as having distributed any such retained amount. We have made, and we intend to continue to make, timely distributions sufficient to satisfy the annual
distribution requirements.
It is possible that, from time to time, we may experience timing differences between (1) the actual
receipt of income and actual payment of deductible expenses and (2) the inclusion of that income and deduction of such expenses in arriving at our REIT taxable income. For example, we may not deduct recognized capital losses from our REIT
taxable income. Further, it is possible that, from time to time, we may be allocated a share of partnership net capital gain attributable to the sale of depreciated property that exceeds our allocable share of cash attributable to that sale. As a
result of the foregoing, we may have less cash than is necessary to distribute taxable income sufficient to avoid corporate income tax and the excise tax imposed on certain undistributed income or even to meet the 90% distribution requirement. In
such a situation, we may need to borrow funds, issue preferred shares or additional common shares to raise the cash necessary to make required distributions or, if possible, pay taxable dividends of our shares or debt securities.
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We may satisfy the 90% distribution requirement with taxable distributions of our shares or debt
securities. The IRS has issued private letter rulings to other REITs treating certain distributions that are paid partly in cash and partly in shares as dividends that would satisfy the REIT annual distribution requirement and qualify for the
dividends paid deduction for federal income tax purposes. Those rulings may be relied upon only by taxpayers to whom they were issued, but we could request a similar ruling from the IRS. In addition, the IRS previously issued a revenue procedure
authorizing publicly traded REITs to make elective cash/share dividends, but that revenue procedures effectiveness has expired and does not apply to our current and future taxable years. Accordingly, it is unclear whether and to what extent we
will be able to make taxable dividends payable in cash and shares. We have no current intention to make a taxable dividend payable in our shares or debt securities.
Under certain circumstances, we may be able to correct a failure to meet the distribution requirement for a year by paying deficiency
dividends to our shareholders in a later year. We may include such deficiency dividends in our deduction for dividends paid for the earlier year. Although we may be able to avoid income tax on amounts distributed as deficiency dividends, we will be
required to pay interest to the IRS based upon the amount of any deduction we take for deficiency dividends.
Record Keeping
Requirements.
We must maintain certain records in order to qualify as a REIT. In addition, to avoid a monetary penalty, we must request on an annual basis certain information from our shareholders designed to disclose the actual
ownership of our outstanding shares. We have complied, and intend to continue to comply, with such requirements.
Relief from Other
Failures of the REIT Qualification Provisions.
If we fail to satisfy one or more of the requirements for REIT qualification (other than the income tests or the asset tests), we nevertheless may avoid termination of our REIT election in
such year if the failure is due to reasonable cause and not due to willful neglect and we pay a penalty of $50,000 for each failure to satisfy the REIT qualification requirements. We may not qualify for this relief provision in all circumstances.
Failure to Qualify.
If we fail to qualify as a REIT in any taxable year, and no relief provision applied, we would be
subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. In calculating our taxable income in a year in which we fail to qualify as a REIT, we would not be able to deduct
amounts paid out to shareholders and we would not be required to distribute any amounts to shareholders in such year. In such event, to the extent of our current and accumulated earnings and profits, all distributions to shareholders would be
taxable as ordinary income. Any such dividends should, however, be qualified dividend income, which is taxable at long-term capital gain rates for individual shareholders who satisfy certain holding period requirements. See
Taxation of Taxable U.S. Shareholders Current Tax Rates. Furthermore, subject to certain limitations of the Code, corporate shareholders might be eligible for the dividends received deduction. Unless we qualified for
relief under specific statutory provisions, we also would be disqualified from taxation as a REIT for the four taxable years following the year during which we ceased to qualify as a REIT. We cannot predict whether in all circumstances we would
qualify for such statutory relief.
Taxation of Taxable U.S. Shareholders
As used herein, the term taxable U.S. shareholder means a taxable beneficial owner of our common or preferred shares that for U.S.
federal income tax purposes is:
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a citizen or resident of the United States;
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a corporation (including an entity treated as a corporation for federal income tax purposes) created or organized in or under the laws of the United States, any of its states or the District of Columbia;
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an estate whose income is subject to U.S. federal income taxation regardless of its source; or
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a trust if (A) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or
(B) it has a valid election in effect to be treated as a U.S. person.
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For U.S. federal income tax purposes, holders of depositary share receipts will be treated as if
they held the equivalent fraction of the underlying preferred shares. Accordingly, the discussion below with respect to the consequences of holding our preferred shares applies equally to holders of depositary receipts.
Dividends and Other Taxable U.S. Shareholder Distributions.
As long as we qualify as a REIT, a taxable U.S. shareholder
must take into account distributions on our common or preferred shares out of our current and accumulated earnings and profits (and that we do not designate as capital gain dividends or retained long-term capital gain) as ordinary income. Such
distributions will not qualify for the dividends received deduction generally available to corporations. In addition, dividends paid to taxable U.S. shareholders generally will not qualify for the maximum 20% tax rate for qualified dividend
income.
In determining the extent to which a distribution constitutes a dividend for U.S. federal income tax purposes, our earnings
and profits will be allocated first to distributions with respect to our preferred shares and then to distributions with respect to our common shares. If, for any taxable year, we elect to designate as capital gain dividends any portion of the
distributions paid for the year to our shareholders, the portion of the amount so designated (not in excess of our net capital gain for the year) that will be allocable to the holders of each class or series of preferred shares will be the amount so
designated, multiplied by a fraction, the numerator of which will be the total dividends (within the meaning of the Code) paid to the holders of such class or series of preferred shares for the year and the denominator of which will be the total
dividends paid to the holders of all classes of our shares for the year. The remainder of the designated capital gain dividends will be allocable to holders of our common shares.
A taxable U.S. shareholder will recognize distributions that we designate as capital gain dividends as long-term capital gain (to the extent
they do not exceed our actual net capital gain for the taxable year) without regard to the period for which the taxable U.S. shareholder has held its common or preferred shares. See Capital Gains and Losses below. Subject to
certain limitations, we will designate whether our capital gain dividends are taxable at the usual capital gains rate or at the higher rate applicable to depreciation recapture. A corporate taxable U.S. shareholder, however, may be required to treat
up to 20% of certain capital gain dividends as ordinary income.
We may elect to retain and pay income tax on the net long-term capital
gain that we receive in a taxable year. In that case, a taxable U.S. shareholder would be taxed on its proportionate share of our undistributed long-term capital gain. The taxable U.S. shareholder would receive a credit or refund for its
proportionate share of the tax we paid. The taxable U.S. shareholder would increase the basis in its shares by the amount of its proportionate share of our undistributed long-term capital gain, minus its share of the tax we paid.
A taxable U.S. shareholder will not incur tax on a distribution to the extent it exceeds our current and accumulated earnings and profits if
such distribution does not exceed the adjusted basis of the taxable U.S. shareholders common or preferred shares. Instead, such distribution in excess of earnings and profits will reduce the adjusted basis of such common or preferred shares.
To the extent a distribution exceeds both our current and accumulated earnings and profits and the taxable U.S. shareholders adjusted basis in its common or preferred shares, the taxable U.S. shareholder will recognize long-term capital gain
(or short-term capital gain if the shares have been held for one year or less), assuming the shares are a capital asset in the hands of the taxable U.S. shareholder. In addition, if we declare a distribution in October, November, or December of any
year that is payable to a taxable U.S. shareholder of record on a specified date in any such month, such distribution shall be treated as both paid by us and received by the taxable U.S. shareholder on December 31 of such year, provided that we
actually pay the distribution during January of the following calendar year. We will notify taxable U.S. shareholders after the close of our taxable year as to the portions of the distributions attributable to that year that constitute return of
capital, ordinary income or capital gain dividends.
Taxation of Taxable U.S. Shareholders on the Disposition of Our
Shares.
In general, a taxable U.S. shareholder must treat any gain or loss realized upon a taxable disposition of our common or preferred shares as long-term capital gain or loss if the taxable U.S. shareholder has held the shares for
more than one year and otherwise as short-term capital gain or loss. A taxable U.S. shareholder will generally realize gain or loss in an amount equal to the difference between the sum of the fair market value of any property and the amount of cash
received in such disposition and the taxable U.S. shareholders adjusted tax basis. A taxable U.S. shareholders adjusted tax basis generally will equal the taxable U.S. shareholders acquisition cost, increased by the excess of net
capital gains deemed distributed to the taxable U.S. shareholder (discussed above) less tax deemed paid on such gains and reduced by any returns of capital. However, a taxable U.S. shareholder must treat any loss upon a sale or exchange
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of common or preferred shares held by such shareholder for six months or less (after applying certain holding period rules) as a long-term capital loss to the extent of capital gain dividends and
other distributions from us that such taxable U.S. shareholder treats as long-term capital gain.
Capital Gains and
Losses.
A taxpayer generally must hold a capital asset for more than one year for gain or loss derived from its sale or exchange to be treated as long-term capital gain or loss. The highest marginal individual income tax rate on
ordinary income significantly exceeds the maximum tax rate on long-term capital gain applicable to non-corporate taxpayers. The maximum tax rate on long-term capital gain from the sale or exchange of Section 1250 property (i.e.,
depreciable real property) is, to the extent that such gain would have been treated as ordinary income if the property were Section 1245 property, higher than the maximum long-term capital gain rate otherwise applicable. With respect to
distributions that we designate as capital gain dividends and any retained capital gain that is deemed to be distributed, we may designate (subject to certain limits) whether such a distribution is taxable to our non-corporate shareholders at the
lower or higher rate. A taxable U.S. shareholder required to include retained long-term capital gains in income will be deemed to have paid, in the taxable year of the inclusion, its proportionate share of the tax paid by us in respect of such
undistributed net capital gains. Taxable U.S. shareholders subject to these rules will be allowed a credit or a refund, as the case may be, for the tax deemed to have been paid by such shareholders. Taxable U.S. shareholders will increase their
basis in their shares by the difference between the amount of such includible gains and the tax deemed paid by the taxable U.S. shareholder in respect of such gains. In addition, the characterization of income as capital gain or ordinary income may
affect the deductibility of capital losses. A non-corporate taxpayer may generally deduct capital losses not offset by capital gains against its ordinary income only up to a maximum annual amount of $3,000. A non-corporate taxpayer may carry forward
unused capital losses indefinitely. A corporate taxpayer must pay tax on its net capital gain at ordinary corporate rates. A corporate taxpayer can deduct capital losses only to the extent of capital gains, with unused losses being carried back
three years and forward five years.
Redemption of Preferred Shares for Cash.
The treatment accorded to any redemption
by us for cash (as distinguished from a sale, exchange or other disposition) of preferred shares can only be determined on the basis of particular facts as to each holder at the time of redemption. As stated above, in general a taxable U.S.
shareholder of preferred shares will recognize capital gain or loss measured by the difference between the amount received upon the redemption and such holders adjusted tax basis in the preferred shares redeemed (provided the preferred shares
are held as a capital asset) if such redemption (i) results in a complete termination of the holders interest in all classes of our shares under Section 302(b)(3) of the Code, (ii) is substantially
disproportionate with respect to the holders interest in our shares under Section 302(b)(2) of the Code (which will not be the case if only preferred shares are redeemed, since they generally do not have voting rights), or
(iii) is not essentially equivalent to a dividend with respect to the holder of preferred shares under Section 302(b)(1) of the Code. In applying these tests, there must be taken into account not only the preferred shares owned
by the taxable U.S. shareholder, but also such holders ownership of our common shares and any other options (including share purchase rights) to acquire any of the foregoing. The holder of preferred shares also must take into account any such
securities (including options) which are considered to be owned by such holder by reason of the constructive ownership rules set forth in Sections 318 and 302(c) of the Code.
If a particular taxable U.S. shareholder of preferred shares owns (actually or constructively) none of our common shares or an insubstantial
percentage of our outstanding common shares, then based upon current law, it is probable that the redemption of preferred shares from such a holder would be considered not essentially equivalent to a dividend. However, whether a dividend
is not essentially equivalent to a dividend depends on all of the facts and circumstances, and a taxable U.S. shareholder of preferred shares intending to rely on any of these tests at the time of redemption should consult the
holders own tax advisor to determine their application to the holders particular situation. If the redemption does not meet any of the tests under Section 302 of the Code, then the redemption proceeds received from the preferred
shares will be treated as a distribution on the preferred shares. If the redemption is taxed as a dividend, the taxable U.S. shareholders adjusted tax basis in the preferred shares will be transferred to any other shares held by the holder. If
the holder of preferred shares owns none of our other shares, under certain circumstances, such basis may be transferred to a related person, or it may be lost entirely.
Under proposed Treasury regulations, if any portion of the amount received by a taxable U.S. shareholder on a redemption of our preferred
shares is treated as a distribution with respect to our shares but not as a taxable dividend, then such portion will be allocated to all shares held by the taxable U.S. shareholder just before the redemption on a pro rata, share-by-share, basis. The
amount applied to each share will first reduce the taxable U.S.
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shareholders basis in that share and any excess after the basis is reduced to zero will result in taxable gain. If the holder has different basis in its shares, then the amount allocated
could reduce some of the basis in certain shares while reducing all the basis and giving rise to taxable gain in others. Thus the taxable U.S. shareholder could have gain even if the holders basis in all its shares exceeded such portion. The
proposed Treasury regulations permit the transfer of basis in the redeemed shares of the preferred shares to the taxable U.S. shareholders remaining, unredeemed preferred shares (if any), but not to any other class of shares held (directly or
indirectly) by the taxable U.S. shareholder. Instead, any unrecovered basis in the preferred shares would be treated as a deferred loss to be recognized when certain conditions are satisfied. The proposed Treasury regulations would be effective for
transactions that occur after the date the regulations are published as final Treasury regulations. There can, however, be no assurance as to whether, when and in what particular form such proposed Treasury regulations will ultimately be finalized.
We urge you to consult your tax advisor concerning the treatment of a cash redemption of our preferred shares.
Redemption or
Conversion of Preferred Shares to Common Shares.
Assuming that preferred shares will not be redeemed or converted at a time when there are distributions in arrears, in general, no gain or loss will be recognized for U.S. federal income
tax purposes upon the redemption or conversion of our preferred shares at the option of the holder solely into common shares. The basis that a taxable U.S. shareholder will have for U.S. federal income tax purposes in the common shares received will
be equal to the adjusted basis the holder had in the preferred shares so redeemed or converted and, provided that the preferred shares were held as a capital asset, the holding period for the common shares received will include the holding period
for the preferred shares redeemed or converted. A holder, however, will generally recognize gain or loss on the receipt of cash in lieu of a fractional common share in an amount equal to the difference between the amount of cash received and the
holders adjusted basis in such fractional share.
If a redemption or conversion occurs when there is a dividend arrearage on the
preferred shares and the fair market value of the common shares exceeds the issue price of the preferred shares, a portion of the common shares received might be treated as a dividend distribution taxable as ordinary income.
If, pursuant to the terms of a class of preferred shares, a taxable U.S. shareholder receives alternative consideration such as cash,
securities or other property or assets (including any combination thereof) in lieu of common shares in connection with the conversion of the taxable U.S. shareholders preferred shares, the tax treatment of the receipt of any such other
consideration will depend on the nature of the consideration and the structure of the transaction that gives rise to the right to receive such alternative consideration, and it may be a taxable exchange. Taxable U.S. shareholders converting their
preferred shares should consult their tax advisors regarding the U.S. federal income tax consequences of any such conversion and of the ownership and disposition of the consideration received upon any such conversion.
Adjustments to Conversion Price.
Under Section 305 of the Code, holders of preferred shares may be deemed to have
received a constructive distribution of shares that is taxable as a dividend where the conversion ratio is adjusted to reflect a cash or property distribution with respect to the common shares into which it is convertible. An adjustment to the
conversion price made pursuant to a
bona fide
, reasonable adjustment formula that has the effect of preventing dilution of the interest of the holders, however, will generally not be considered to result in a constructive distribution of
shares. Certain of the possible adjustments that may be provided in issuances of our preferred shares may not qualify as being pursuant to a
bona fide
, reasonable adjustment formula. In such a case, if a nonqualifying adjustment were made,
the holders of preferred shares might be deemed to have received a taxable stock dividend.
Passive Activity and Investment Income
Limitations.
Distributions from us and gain from the disposition of our common or preferred shares will not be treated as passive activity income and, therefore, taxable U.S. shareholders will not be able to apply any passive activity losses
against such income. Dividends from us (to the extent they do not constitute a return of capital or capital gain dividends) and, on an elective basis, capital gain dividends and gain from the disposition of common or preferred shares generally will
be treated as investment income for purposes of the investment income limitation.
Medicare Tax on Unearned Income.
Certain
taxable U.S. shareholders who are individuals, estates or trusts are subject to a 3.8% Medicare tax on all or a portion of their net investment income, which may include all or a portion of their dividends on our common or preferred
shares and net gains from the taxable disposition of their shares. Taxable U.S. shareholders that are individuals, estates or trusts should consult their tax advisors regarding the applicability of the Medicare tax to any of their income or gains in
respect of our common or preferred shares.
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Current Tax Rates.
The maximum tax rate on the long-term capital gains of
domestic non-corporate taxpayers is 20%. The maximum tax rate on qualified dividend income is the same as the capital gains rate, and is substantially lower than the maximum rate on ordinary income. Because, as a REIT, we are not
generally subject to tax on the portion of our REIT taxable income or capital gains distributed to our shareholders, our distributions are not generally eligible for the tax rate on qualified dividend income. As a result, our ordinary REIT
distributions are taxed at the higher tax rates applicable to ordinary income. However, with respect to non-corporate taxpayers, the lower qualified dividend income/capital gains tax rate (at a maximum of 20%) does generally apply to:
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a shareholders long-term capital gain, if any, recognized on the disposition of our shares;
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distributions we designate as long-term capital gain dividends (except to the extent attributable to real estate depreciation, in which case the 25% tax rate applies);
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distributions attributable to dividends we receive from non-REIT corporations (including our taxable REIT subsidiaries); and
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distributions to the extent attributable to income upon which we have paid corporate tax (for example, the tax we would pay if we distributed less than all of our taxable REIT income).
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In general, to qualify for the reduced tax rate on qualified dividend income, a shareholder must hold our shares for more than 60 days during
the 121-day period beginning on the date that is 60 days before the date on which our shares become ex-dividend.
Information
Reporting and Backup Withholding.
Taxable U.S. shareholders that are exempt recipients (such as corporations) generally will not be subject to U.S. backup withholding and related information reporting on payments of
dividends on, and the proceeds from the disposition of, our common or preferred shares unless, when required, they fail to demonstrate their status as exempt recipients. In general, we will report to our other shareholders and to the IRS the amount
of distributions we pay during each calendar year, and the amount of tax we withhold, if any. Under the backup withholding rules, a shareholder may be subject to backup withholding (currently at the rate of 28%) with respect to dividends unless such
holder (1) is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact, or (2) provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with the applicable requirements of the backup withholding rules. A shareholder who does not provide us with its correct taxpayer identification number also may be subject to penalties imposed by the IRS. In addition, we may be
required to withhold a portion of capital gain distributions to any shareholders who fail to certify their non-foreign status to us. Backup withholding is not an additional tax and may be credited against a shareholders regular U.S. federal
income tax liability or refunded by the IRS provided that the shareholder provides the required information to the IRS in a timely manner.
Taxation of
Tax-Exempt U.S. Shareholders
Tax-exempt entities, including qualified employee pension and profit sharing trusts and individual
retirement accounts and annuities (exempt organizations), generally are exempt from federal income taxation. However, they are subject to taxation on their unrelated business taxable income (UBTI). While many investments in
real estate generate UBTI, the IRS has issued a published ruling that dividend distributions from a REIT to an exempt employee pension trust do not constitute UBTI, provided that the exempt employee pension trust does not otherwise use the shares of
the REIT in an unrelated trade or business of the pension trust. Based on that ruling, amounts that we distribute to exempt organizations generally should not constitute UBTI. However, if an exempt organization were to finance its acquisition of
shares with debt, a portion of the income that they receive from us would constitute UBTI pursuant to the debt-financed property rules. Furthermore, social clubs, voluntary employee benefit associations, supplemental unemployment benefit
trusts and qualified group legal services plans that are exempt from taxation under paragraphs (7), (9), (17), and (20), respectively, of Code Section 501(c) are subject to different UBTI rules, which generally will require them to characterize
distributions that they receive from us as 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.
Finally, in certain circumstances, a qualified employee pension or profit sharing trust that owns more than 10% of our shares is required to treat a percentage of
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the dividends that it receives from us as UBTI (the UBTI Percentage). The UBTI Percentage is equal to the gross income we derive from an unrelated trade or business (determined as if
we were a pension trust) divided by our total gross income for the year in which we pay the dividends. The UBTI rule applies to a pension trust holding more than 10% of our shares only if:
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the UBTI Percentage is at least 5%;
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we qualify as a REIT by reason of the modification of the 5/50 Rule that allows the beneficiaries of the pension trust to be treated as holding our shares in proportion to their actuarial interests in the pension trust;
and
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we are a pension-held REIT (i.e., either (1) one pension trust owns more than 25% of the value of our shares or (2) a group of pension trusts individually holding more than 10% of the value of our
shares collectively owns more than 50% of the value of our shares).
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Tax-exempt entities will be subject to the rules
described above, under the heading Taxation of Taxable U.S. Shareholders concerning the inclusion of our designated undistributed net capital gains in the income of our shareholders. Thus, such entities will, after satisfying
filing requirements, be allowed a credit or refund of the tax deemed paid by such entities in respect of such includible gains.
Taxation of Non-U.S.
Shareholders
The rules governing U.S. federal income taxation of non-U.S. shareholders (defined below) are complex. This section is
only a summary of such rules. We urge non-U.S. shareholders to consult their tax advisors to determine the impact of the U.S. federal, state, and local income tax laws on ownership of our common or preferred shares, including any reporting
requirements. As used herein, the term non-U.S. shareholder means any taxable beneficial owner of our shares (other than a partnership or entity that is treated as a partnership for U.S. federal income tax purposes) that is not a taxable
U.S. shareholder or exempt organization.
Ordinary Dividends.
A non-U.S. shareholder that receives a distribution that
is not attributable to gain from our sale or exchange of U.S. real property interests (as defined below) and that we do not designate as a capital gain dividend or retained capital gain will recognize ordinary income to the extent that
we pay such distribution out of our current and accumulated earnings and profits. A withholding tax equal to 30% of the gross amount of the distribution ordinarily will apply to such distribution unless an applicable tax treaty reduces or eliminates
the tax. Under some treaties, however, rates below 30% that are applicable to ordinary income dividends from U.S. corporations may not apply to ordinary income dividends from a REIT or may apply only if the REIT meets certain additional conditions.
However, if a distribution is treated as effectively connected with the non-U.S. shareholders conduct of a U.S. trade or business (and, if required by an applicable income tax treaty, attributable to a U.S. permanent establishment maintained
by the non-U.S. shareholder), the non-U.S. shareholder generally will be subject to federal income tax on the distribution at graduated rates, in the same manner as taxable U.S. shareholders are taxed with respect to such distributions (and also may
be subject to the 30% branch profits tax in the case of a non-U.S. shareholder that is a non-U.S. corporation unless the tax is reduced or eliminated by an applicable income tax treaty). We plan to withhold U.S. income tax at the rate of 30% on the
gross amount of any such distribution paid to a non-U.S. shareholder unless (i) a lower treaty rate applies and the non-U.S. shareholder timely provides an IRS Form W-8BEN or W-8BEN-E to us evidencing eligibility for that reduced rate, or
(ii) the non-U.S. shareholder timely provides an IRS Form W-8ECI to us claiming that the distribution is effectively connected income.
Return of Capital
. A non-U.S. shareholder will not incur tax on a distribution to the extent it exceeds our current and
accumulated earnings and profits if such distribution does not exceed the adjusted basis of its common or preferred shares. Instead, such distribution in excess of earnings and profits will reduce the adjusted basis of such shares. A non-U.S.
shareholder will be subject to tax to the extent a distribution exceeds both our current and accumulated earnings and profits and the adjusted basis of its common or preferred shares, if the non-U.S. shareholder otherwise would be subject to tax on
gain from the sale or disposition of its shares, as described below. Because we generally cannot determine at the time we make a distribution whether or not the distribution will exceed our current and accumulated earnings and profits, we normally
will withhold tax on the entire amount of any distribution just as we would withhold on a dividend. However, a non-U.S. shareholder may obtain a refund of amounts that we withhold if we later determine that a distribution in fact exceeded our
current and accumulated earnings and profits.
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If we are treated as a United States real property holding corporation, we will be
required to withhold 10% of any distribution that exceeds our current and accumulated earnings and profits. Consequently, although we intend to withhold at a rate of 30% on the entire amount of any distribution, to the extent we do not do so, we may
withhold at a rate of 10% on any portion of a distribution not subject to withholding at a rate of 30%.
Capital Gain
Dividends.
Provided that a particular class of our shares is regularly traded on an established securities market in the United States, and the non-U.S. shareholder does not own more than 5% of the shares of such class at
any time during the one-year period preceding the distribution, then amounts distributed with respect to those shares that are designated as capital gains from our sale or exchange of U.S. real property interests (defined below) are treated as
ordinary dividends taxable as described above under Ordinary Dividends.
If the foregoing exception does not apply, for
example because the non-U.S. shareholder owns more than 5% of the relevant class of our shares, or because our shares are not regularly traded on an established securities market, the non-U.S. shareholder will incur tax on distributions that are
attributable to gain from our sale or exchange of U.S. real property interests under the provisions of the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA). The term U.S. real property interests includes certain
interests in real property and stock in corporations at least 50% of whose assets consists of interests in real property, but excludes mortgage loans and mortgage-backed securities. Under FIRPTA, a non-U.S. shareholder is taxed on distributions
attributable to gain from sales of U.S. real property interests as if such gain were effectively connected with a U.S. business of the non-U.S. shareholder. A non-U.S. shareholder thus would be taxed on such a distribution at the normal capital gain
rates applicable to taxable U.S. shareholders (subject to applicable alternative minimum tax and a special alternative minimum tax in the case of a nonresident alien individual). A corporate non-U.S. shareholder may also be subject to the 30% branch
profits tax unless the tax is reduced or eliminated by an applicable income tax treaty. We must withhold 35% of any distribution that we could designate as a capital gain dividend. However, if we make a distribution and later designate it as a
capital gain dividend, then (although such distribution may be taxable to a non-U.S. shareholder) it is not subject to withholding under FIRPTA. Instead, we must make-up the 35% FIRPTA withholding from distributions made after the designation, until
the amount of distributions withheld at 35% equals the amount of the distribution designated as a capital gain dividend. A non-U.S. shareholder may receive a credit against its FIRPTA tax liability for the amount we withhold.
Distributions to a non-U.S. shareholder that we designate at the time of distribution as capital gain dividends which are not attributable to
or treated as attributable to our disposition of a U.S. real property interest generally will not be subject to U.S. federal income taxation, except as described below under Sale of Shares.
Retention of Net Capital Gains.
Although the law is not clear on the matter, it appears that amounts we designate as retained
capital gains in respect of our shares held by shareholders generally should be treated with respect to non-U.S. shareholders in the same manner as actual distributions by us of capital gain dividends. Under this approach, a non-U.S. shareholder
would be able to offset as a credit against its U.S. federal income tax liability resulting from its proportionate share of the tax paid by us on such retained capital gains, and to receive from the IRS a refund to the extent of the non-U.S.
shareholders proportionate share of such tax paid by us exceeds its actual U.S. federal income tax liability, provided that the non-U.S. shareholder furnishes required information to the IRS on a timely basis. If we were to designate any
portion of our net capital gain as retained net capital gain, a non-U.S. shareholder should consult its tax advisor regarding the taxation of such retained net capital gain.
Sale of Shares
. A non-U.S. shareholder generally will not incur tax under FIRPTA on gain from the sale of its common or
preferred shares as long as we are a domestically controlled REIT. A domestically controlled REIT is a REIT in which at all times during a specified testing period non-U.S. persons held, directly or indirectly, less than 50%
in value of our shares. We anticipate that we will continue to be a domestically controlled REIT, but there is no assurance that we will continue to be so. However, even if we are not, or cease to be, a domestically controlled REIT, a non-U.S.
shareholder that owns, actually or constructively, 5% or less of a class of our of outstanding shares at all times during a specified testing period will not incur tax under FIRPTA on a sale of such shares if shares of such class are regularly
traded on an established securities market. If neither of these exceptions were to apply, the gain on the sale of the common or preferred shares would be taxed under FIRPTA, in which case a non-U.S. shareholder would be required to file a U.S.
federal income tax return and would be taxed in generally the same manner as taxable U.S. shareholders with respect to such gain (subject to applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien
individuals), and if the shares sold were not regularly traded on an established securities market or we were not a domestically-controlled REIT, the purchaser of the shares may be required to withhold and remit to the IRS 10% of the purchase price.
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A non-U.S. shareholder will incur tax on gain not subject to FIRPTA if (1) the gain is
effectively connected with the non-U.S. shareholders U.S. trade or business (and, if required by an applicable income tax treaty, is attributable to a U.S. permanent establishment maintained by the non-U.S. shareholder), in which case the
non-U.S. shareholder will be subject to the same treatment as taxable U.S. shareholders with respect to such gain, or (2) the non-U.S. shareholder is a nonresident alien individual who was present in the U.S. for 183 days or more during the
taxable year, in which case the non-U.S. shareholder will incur a 30% tax on his capital gains. Capital gains dividends not subject to FIRPTA will be subject to similar rules. A non-U.S. shareholder that is treated as a corporation for U.S. federal
income tax purposes and has effectively connected income (as described in the first point above) may also, under certain circumstances, be subject to an additional branch profits tax, which is generally imposed on a foreign corporation on the deemed
repatriation from the United States of effectively connected earnings and profits, at a 30% rate, unless the rate is reduced or eliminated by an applicable income tax treaty.
Wash Sales.
In general, special wash sale rules apply if a shareholder owning more than 5% of our common or preferred shares
avoids a taxable distribution of gain recognized from the sale or exchange of U.S. real property interests by selling our shares before the ex-dividend date of the distribution and then, within a designated period, enters into an option or contract
to acquire shares of the same or a substantially identical class of our shares. If a wash sale occurs, then the seller/repurchaser will be treated as having gain recognized from the sale or exchange of U.S. real property interests in the same amount
as if the avoided distribution had actually been received. Non-U.S. shareholders should consult their own tax advisors on the special wash sale rules that apply to non-U.S. shareholders.
Information Reporting and Backup Withholding.
We must report annually to the IRS and to each non-U.S. shareholder the
amount of distributions paid to such holder and the tax withheld with respect to such distributions, regardless of whether withholding was required. Copies of the information returns reporting such distributions and withholding may also be made
available to the tax authorities in the country in which the non-U.S. shareholder resides under the provisions of an applicable income tax treaty.
Backup withholding (currently at the rate of 28%) and additional information reporting will generally not apply to distributions to a non-U.S.
shareholder provided that the non-U.S. shareholder certifies under penalty of perjury that the shareholder is a non-U.S. shareholder, or otherwise establishes an exemption. Notwithstanding the foregoing, backup withholding may apply if either we or
our paying agent has actual knowledge, or reason to know, that the holder is a U.S. person that is not an exempt recipient. As a general matter, backup withholding and information reporting will not apply to a payment of the proceeds of a sale of
common or preferred shares effected at a foreign office of a foreign broker. Information reporting (but not backup withholding) will apply, however, to a payment of the proceeds of a sale of common or preferred shares by a foreign office of a broker
that:
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derives 50% or more of its gross income for a specified three-year period from the conduct of a trade or business in the U.S.;
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is a controlled foreign corporation (generally, a foreign corporation controlled by stockholders that are United States persons) for U.S. tax purposes; or
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that is a foreign partnership, if at any time during its tax year more than 50% of its income or capital interests are held by U.S. persons or if it is engaged in the conduct of a trade or business in the U.S.,
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unless the broker has documentary evidence in its records that the holder or beneficial owner is a non-U.S. shareholder and
certain other conditions are met, or the shareholder otherwise establishes an exemption. Payment of the proceeds of a sale of common or preferred shares effected at a U.S. office of a broker is subject to both backup withholding and information
reporting unless the shareholder certifies under penalty of perjury that the shareholder is a non-U.S. shareholder, or otherwise establishes an exemption. Backup withholding is not an additional tax, and may be credited against a non-U.S.
shareholders U.S. federal income tax liability or refunded to the extent excess amounts are withheld, provided that the required information is timely supplied to the IRS.
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Reporting and Withholding on Foreign Financial Accounts.
Certain foreign financial
institutions and non-financial foreign entities are subject to a 30% U.S. federal withholding tax on dividends on our common or preferred shares unless (i) in the case of a foreign financial institution (which term generally includes investment
funds), such institution enters into an agreement with the U.S. government (unless alternative procedures apply pursuant to an applicable intergovernmental agreement between the United States and the relevant foreign government) to withhold on
certain payments and to collect and provide to the U.S. tax authorities substantial information regarding U.S. account holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account
holders that are foreign entities with U.S. owners) and to withhold on certain payments, and (ii) in the case of a non-financial foreign entity, such entity provides the withholding agent with a certification identifying any direct and indirect
U.S. owners of the entity. In addition, if such disclosure requirements are not satisfied, withholding at a 30% rate on gross proceeds from the sale or other disposition of our common or preferred shares by such foreign financial institutions and
non-financial foreign entities will generally begin after December 31, 2016 (or such other date as may be specified in guidance issued by the U.S. Treasury Department). Under certain circumstances, a non-U.S. shareholder might be eligible for
refunds or credits of such taxes. Prospective investors should consult their tax advisors regarding the possible implications of these withholding provisions on the acquisition, ownership and disposition of our common or preferred shares. We will
not pay any additional amounts in respect of any amounts withheld.
Other Tax Considerations
State and Local Taxes.
We and/or you may be subject to state and local tax in various states and localities, including those
states and localities in which we or you transact business, own property or reside. The state and local tax treatment in such jurisdictions may differ from the federal income tax treatment described above. Consequently, you should consult your tax
advisors regarding the effect of state and local tax laws upon an investment in our securities.
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PLAN OF DISTRIBUTION
We may sell the securities being offered by this prospectus in one or more of the following ways from time to time: (1) through
underwriters or dealers; (2) through agents; (3) in at the market offerings to or through a market maker or into an existing trading market or securities exchange or otherwise; (4) directly to purchasers or shareholders,
(5) through a combination of any of these methods of sale or (6) through any other legally available means. In addition, the sales will be made at market prices prevailing at the time of sale, at prices related to such prevailing market
prices, at a fixed price or prices, which may be changed or at negotiated prices. We will identify any underwriter, dealer or agent involved in the offer and sale of securities, and any applicable commissions, discounts and other items constituting
compensation to such underwriters, dealers or agents, in a prospectus supplement.
The methods by which we may distribute securities
include:
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a block trade (which may involve crosses) in which the dealer so engaged will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction;
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purchases by a dealer as principal and resale by such dealer for its account pursuant to this prospectus or any prospectus supplement;
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ordinary broker transactions and transactions in which the broker solicits purchasers; or
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any other legally available means.
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Unless we say otherwise in a prospectus supplement, the
obligations of any underwriters to purchase securities will be subject to certain conditions and the underwriters will be obligated to purchase all of the applicable securities if any are purchased. If a dealer is used in a sale, we may sell the
securities to the dealer as principal. The dealer may then resell the securities to the public at varying prices to be determined by the dealer at the time of resale.
In connection with the sale of securities, underwriters or agents may receive compensation (in the form of discounts, concessions or
commissions) from us or from purchasers of securities for whom they may act as agents. Underwriters may sell securities to or through dealers, and such dealers may receive compensation in the form of discounts, concessions or commissions, that may
be in excess of those customary in the types of transactions involved, from the underwriters and/or commissions from the purchasers for whom they may act as agents. Underwriters, dealers and agents that participate in the distribution of securities
may be deemed to be underwriters as that term is defined in the Securities Act, and any discounts or commissions received by them from us and any profits on the resale of the securities by them may be deemed to be underwriting discounts and
commissions under the Securities Act. We will identify any such underwriter or agent, and we will describe any such compensation we pay, in the related prospectus supplement.
Underwriters, dealers and agents may be entitled, under agreements with us, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act.
If we tell you in a prospectus supplement, we will authorize agents and
underwriters to solicit offers by certain specified institutions or other persons to purchase securities at the public offering price set forth in the prospectus supplement pursuant to delayed delivery contracts providing for payment and delivery on
a specified date in the future. Institutions with whom such contracts may be made include commercial and savings banks, insurance companies, pension funds, investment companies, educational and charitable institutions, and other institutions but
shall in all cases be subject to our approval. Such contracts will be subject only to those conditions set forth in the prospectus supplement and the prospectus supplement will set forth the commission payable for solicitation of such contracts. The
obligations of any purchaser under any such contract will be subject to the condition that the purchase of the securities shall not be prohibited at the time of delivery under the laws of the jurisdiction to which the purchaser is subject. The
underwriters and other agents will not have any responsibility in respect of the validity or performance of such contracts.
The
securities may or may not be listed on a national securities exchange or traded in the over-the-counter market (other than the common shares, which are quoted on the New York Stock Exchange). No assurance can be given as to the liquidity of the
trading market for any such securities.
If underwriters or dealers are used in the sale, until the distribution of the securities is
completed, SEC rules may limit the ability of any such underwriters and selling group members to bid for and purchase the securities. As an
46
exception to these rules, representatives of any underwriters are permitted to engage in certain transactions that stabilize the price of the securities. Such transactions may consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the securities. If the underwriters create a short position in the securities in connection with the offerings (in other words, if they sell more securities than are set forth
on the cover page of the prospectus supplement) the representatives of the underwriters may reduce that short position by purchasing securities in the open market. The representatives of the underwriters may also elect to reduce any short position
by exercising all or part of any over-allotment option described in the prospectus supplement. The representatives of the underwriters may also impose a penalty bid on certain underwriters and selling group members. This means that if the
representatives purchase securities in the open market to reduce the underwriters short position or to stabilize the price of the securities, they may reclaim the amount of the selling concession from the underwriters and selling group members
who sold those securities as part of the offering. In general, purchases of a security for the purpose of stabilization or to reduce a short position could cause the price of the security to be higher than it might be in the absence of such
purchases. The imposition of a penalty bid might also have an effect on the price of the securities to the extent that it discourages resales of the securities. We make no representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of the securities. In addition, the representatives of any underwriters may determine not to engage in such transactions and such transactions, once commenced, may be discontinued without
notice.
Certain of the underwriters or agents and their affiliates may engage in transactions with and perform services for us or our
affiliates in the ordinary course of their respective businesses.
LEGAL MATTERS
The validity of the offered securities and the accuracy of the discussion under Material Federal Income Tax Considerations
contained in this prospectus will be passed upon for us by Pillsbury Winthrop Shaw Pittman LLP, Washington D.C. If any portion of the offered securities is distributed in an underwritten offering or through agents, certain legal matters may be
passed upon for any agents or underwriters by counsel for such agents or underwriters identified in the applicable prospectus supplement.
EXPERTS
The financial statements and managements assessment of the effectiveness of internal control over financial reporting incorporated by
reference in this prospectus and elsewhere in the registration statement have been so incorporated by reference in reliance upon the reports of Grant Thornton LLP, independent registered public accountants, upon the authority of said firm as experts
in accounting and auditing in giving said reports.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings are available to the
public at the SECs website at
www.sec.gov
. You may also read and copy any document we file at the SECs Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the operating rules and procedures for the Public Reference Room. Reports, proxy statements and other information concerning Federal Realty Investment Trust may also be inspected at the offices of the New York Stock Exchange, which
are currently located at 20 Broad Street, New York, NY 10005.
The SEC allows us to incorporate by reference the information
we file with them, which means we can disclose important information to you by referring you to those documents. The information we incorporate by reference is an important part of this prospectus, and all information that we will later file with
the SEC will automatically update and supersede this information. Any statement contained in this prospectus or a 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 in any subsequently filed document that also is or is deemed to be incorporated by reference in this prospectus, modifies or supersedes that statement. Any statement so modified or
superseded will not be deemed, except as so modified or superseded, to constitute a part of this prospectus. We incorporate by reference the documents listed below as well as any future documents that are deemed to be filed with the SEC
under Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act (File No. 1-07533) from the date of this prospectus until the termination of the offering of the securities described in this prospectus or the expiration of the registration
statement.
47
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Our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, filed with the SEC on February 10, 2015;
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Our Definitive Proxy Statement for our 2015 Annual Meeting of Shareholders, filed with the SEC on March 27, 2015;
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Our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2015, filed with the SEC on May 7, 2015;
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Our Current Reports on Form 8-K filed with the SEC on February 10, 2015 (with disclosures under Item 5.02) and March 17, 2015; and
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Description of our common shares contained in the Registration Statement on Form 8-A/A, filed with the SEC on June 6, 2002.
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We have filed with the SEC a registration statement, of which this prospectus is a part, with respect to the securities to be offered by this
prospectus. This prospectus and any accompanying prospectus supplement do not contain all of the information set forth in the registration statement and its exhibits and schedules, certain parts of which are omitted as permitted by the rules and
regulations of the SEC. For further information with respect to us or the securities offered by this prospectus, please review the registration statement and its exhibits and schedules. Statements contained in this prospectus and any accompanying
prospectus supplement regarding the contents of any contract or other document are not necessarily complete and, in each instance, we refer you to the copy of the contract or document filed as an exhibit to the registration statement. Each of these
statements is qualified in its entirety by this reference.
Copies of our SEC filings are available at no cost at our website,
www.federalrealty.com
. In addition, you may request a copy of any report or document incorporated by reference in this prospectus, except the exhibits, unless such exhibits are specifically incorporated by reference in this prospectus or in
those documents, at no cost. Any such request may be made by writing or by telephone and shall be directed to the following address:
Federal Realty Investment Trust
1626 East Jefferson Street
Rockville, Maryland 20852
Attention: Investor Relations
(301) 998-8100
You should rely
only on the information in our prospectus, any prospectus supplement and the documents that are incorporated by reference. We have not authorized anyone else to provide you with different information. We are not offering these securities in any
state or jurisdiction where the offer is prohibited by law. You should not assume that the information in this prospectus, any prospectus supplement or any incorporated document is accurate as of any date other than the date of the document.
48
$
3.25% Notes due 2027
PROSPECTUS SUPPLEMENT
BofA Merrill
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December , 2017
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