Filed
Pursuant to Rule 424(b)(5)
Registration
No. 333-251779
PROSPECTUS
SUPPLEMENT
(To
Prospectus dated April 27, 2021)
Presidio
Property Trust, Inc.
1,000,000
shares of Series A Common Stock
Pre-Funded
Warrants to Purchase 1,000,000 shares of Series A Common Stock
(and
the shares of Series A Common Stock underlying the Pre-Funded Warrants)
We
are offering 1,000,000 shares of our Series A Common Stock, par value $0.01 per share (the “Common Stock” or “Series
A Common Stock”), pursuant to this prospectus supplement and accompanying prospectus. We are also offering to purchasers whose
purchase of shares of Common Stock in this offering would otherwise result in the purchaser, together with its affiliates and certain
related parties, beneficially owning more than 9.99% of our outstanding Common Stock immediately following the consummation of this offering,
pre-funded warrants to purchase up to 1,000,000 shares of Common Stock (the “Pre-Funded Warrants”), in lieu of shares of
Common Stock pursuant to this prospectus supplement and accompanying prospectus. Each share of Common Stock and accompanying Pre-Funded
Warrant are being sold together at a combined offering price of $4.99. The Pre-Funded Warrants will be immediately exercisable at a nominal
exercise price of $0.01 and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full. This prospectus
also relates to the shares of Common Stock issuable upon exercise of any Pre-Funded Warrants sold in this offering (the “Pre-Funded
Warrant Shares”).
In
a concurrent private placement, we are also selling to the purchasers warrants to purchase up to 2,000,000 shares (“Warrant Shares”)
of our Common Stock (“Common Stock Warrants”). Each share of Common Stock and accompanying Common Stock Warrant are being
sold together at a combined offering price of $5.00. The Common Stock Warrants will have an exercise price of $5.50 per share, will be
exercisable upon issuance and will expire five years from the date of an issuance. The Common Stock Warrants and the Warrant Shares are
not being registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the registration statement
of which this prospectus supplement and the accompanying base prospectus form a part and are not being offered pursuant to this prospectus
supplement and the accompanying base prospectus. The Common Stock Warrants and the Warrant Shares are being offered pursuant to an exemption
from the registration requirements of the Securities Act provided in Section 4(a)(2) of the Securities Act and/or Regulation D promulgated
thereunder.
The
sales of the shares of Common Stock, the Pre-Funded Warrants, the Warrants, Pre-Funded Warrant Shares and the Warrant Shares have been
made in accordance with a Securities Purchase Agreement, dated as of July 12, 2021, by and among us and the purchaser named therein (the
“Securities Purchase Agreement”).
We
have retained A.G.P./Alliance Global Partners to act as placement agent (the “Placement Agent”) in connection with this offering.
The Placement Agent has agreed to use its reasonable best efforts to sell the securities offered by this prospectus supplement and the
accompanying prospectus. The Placement Agent is not purchasing or selling any shares offered by this prospectus supplement and the accompanying
base prospectus. See “Plan of Distribution” beginning on page S-19 of this prospectus supplement for more information regarding
these arrangements.
Our
Common Stock is listed on The Nasdaq Capital Market under the symbol “SQFT.” On July 9, 2021, the last reported sale price
of our Common Stock on The Nasdaq Capital Market was $5.13 per share.
As
of July 13, 2021, the aggregate market value of our outstanding Common Stock held by non-affiliates was approximately $39.7
million which was calculated based on approximately 8.9 million shares of outstanding Common Stock held by non-affiliates,
and on a per share price of $4.46, the closing sale price of our Common Stock on July 13, 2021. During the 12 calendar
month period that ends on, and includes, the date of this prospectus supplement (but excluding this offering), we have not offered
or sold any securities pursuant to General Instruction I.B.6 of Form S-3.
Investing
in our securities involves a high degree of risk. See “Risk Factors” beginning on page S-11 of this
prospectus supplement, on page 6 of the accompanying prospectus and under similar headings in the documents incorporated by reference
into this prospectus supplement and the accompanying base prospectus.
Neither
the U.S. Securities and Exchange Commission, or the Commission, nor any state securities commission has approved or disapproved of these
securities, or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
|
|
Per
Share
|
|
|
Total(2)
|
|
Public
offering price
|
|
$
|
5.00
|
|
|
$
|
10,000,000
|
|
Placement
Agent Fees(1)
|
|
$
|
0.35
|
|
|
$
|
699,300
|
|
Proceeds,
before expenses, to us
|
|
$
|
4.64
|
|
|
$
|
9,290,700
|
|
|
(1)
|
We
have agreed to pay the Placement Agent (i) a cash placement fee equal to 7% of the gross proceeds in this offering and (ii) non-accountable
expenses of $100,000; however, the Placement Agent shall credit the Company $25,000 on the closing date. In addition, the Company
will issue the Placement Agent warrants to purchase up to 80,000 shares (the “Placement Agent Warrant Shares”)
of Series A Common Stock, representing 4.0% of the Series A Common Stock and shares of Series A Common Stock issuable upon
exercise of the Pre-Funded Warrant sold in this offering. For additional information on the Placement Agent’s fees and
expense reimbursement, see “Plan of Distribution” beginning on page S-19 of this prospectus supplement. In addition,
we have agreed to pay a $50,000 advisory fee to The Benchmark Company, LLC which is also not included in this table.
|
|
(2)
|
Includes
the proceeds from the issuance of Pre-Funded Warrants.
|
Delivery
of the shares of Common Stock, the Pre-Funded Warrants and the Pre-Funded Warrant Shares being offered pursuant to this prospectus supplement
and the accompanying prospectus is expected to be made on or about July 14, 2021, subject to customary closing conditions.
Placement
Agent
A.G.P.
The
date of this prospectus is July 12, 2021.
TABLE
OF CONTENTS
PROSPECTUS
ABOUT
THIS PROSPECTUS SUPPLEMENT
On
December 29, 2020, we filed with the Securities and Exchange Commission, or SEC, a registration statement on Form S-3 (File No. 333-251779)
utilizing a “shelf” registration process relating to the securities described in this prospectus supplement, which registration
statement was declared by the SEC effective on April 27, 2021. Under this shelf registration process, we were able to offer and sell,
either individually or in combination, in one or more offerings, any of the securities described in the accompanying prospectus, for
total gross proceeds of up to $200,000,000.
This
prospectus supplement and the accompanying prospectus are part of a registration statement that we filed with the SEC utilizing a “shelf”
registration process. This document is in two parts. The first part is this prospectus supplement, which describes the specific terms
of this offering and the securities offered hereby and also adds to and updates information contained in the accompanying prospectus
and the documents incorporated by reference into this prospectus supplement and the accompanying prospectus. The second part, the accompanying
base prospectus, gives more general information and disclosure about the securities we may offer from time to time, some of which does
not apply to this offering. When we refer to the prospectus, we are referring to both parts combined, and when we refer to the accompanying
prospectus, we are referring to the base prospectus.
If
the description of this offering varies between this prospectus supplement and the accompanying prospectus, you should rely on the information
in this prospectus supplement. This prospectus supplement, the accompanying prospectus, any free writing prospectus and the documents
incorporated into each by reference include important information about us and the securities being offered and other information you
should know before investing. You should read this prospectus supplement and the accompanying prospectus together with the additional
information described under the heading, “Where You Can Find More Information” and “Incorporation of Certain Information
by Reference” in this prospectus supplement and the accompanying prospectus before investing in our securities.
Any
statement made in this prospectus or in a document incorporated or deemed to be incorporated by reference into this prospectus will be
deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in this prospectus supplement
or in any other subsequently filed document that is also incorporated by reference into 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.
You
should rely only on the information contained in or incorporated by reference in this prospectus supplement, the accompanying prospectus
and any free writing prospectus. Neither we nor the Placement Agent have authorized anyone to provide you with information that
is different from the foregoing. If anyone provides you with different or inconsistent information, you should not rely on it. We further
note that the representations, warranties and covenants made by us in any agreement that is filed as an exhibit to any document that
is incorporated by reference herein were made solely for the benefit of the parties to such agreement, including, in some cases, for
the purpose of allocating risk among the parties to such agreements, and should not be deemed to be a representation, warranty or covenant
to you. Moreover, such representations, warranties or covenants were accurate only as of the date when made. Accordingly, such representations,
warranties and covenants should not be relied on as accurately representing the current state of our affairs. You should not assume that
the information contained in this prospectus supplement, the accompanying prospectus, any free writing prospectus or incorporated by
reference in this prospectus supplement or the accompanying prospectus is accurate as of any date other than the date of such document.
Our business, financial condition, results of operations and prospects may have changed since those dates.
We
are offering to sell, and seeking offers to buy, securities, offered by this prospectus supplement only in jurisdictions where offers
and sales are permitted. The distribution of this prospectus supplement and the accompanying prospectus and the offering of our securities,
offered by this prospectus supplement in certain jurisdictions may be restricted by law. Persons outside the United States who come into
possession of this prospectus supplement and the accompanying prospectus must inform themselves about, and observe any restrictions relating
to, the offering of our securities, and the distribution of this prospectus supplement and the accompanying prospectus outside the United
States. This prospectus supplement and the accompanying prospectus do not constitute, and may not be used in connection with, an offer
to sell, or a solicitation of an offer to buy, any of our securities, offered by this prospectus supplement and the accompanying prospectus
by any person in any jurisdiction in which it is unlawful for such person to make such an offer or solicitation.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus and any accompanying prospectus supplement and the documents incorporated by reference herein include forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21B of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical fact contained or incorporated by reference in this prospectus are forward-looking statements. The
words “believe,” “may” “will,” “estimate,” “continue,” “anticipate,”
“intend,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements.
We have based these forward-looking statements on our current expectations and projections about future events and financial trends that
we believe may affect our financial condition, results of operations, business strategy, business prospectus, growth strategy and liquidity.
These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions and our actual results
could differ materially from those anticipated in forward-looking statements for many reasons, including the factors described in the
section entitled “Risk Factors” below and in the sections entitled “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operation” in our filings with the SEC.
The
forward-looking statements speak as of the date on which they are made and are not guarantees of future performance. Actual results or
developments may differ materially from the expectations expressed or implied in the forward-looking statements, and we undertake no
obligation to update any such statements. You should not place undue reliance on these forward-looking statements.
You
should carefully read the factors described in the “Risk Factors” section of any prospectus supplement or other offering
material, as well as any risks described in the documents incorporated by reference into this prospectus for a description of certain
risks that could, among other things, cause our actual results to differ from these forward-looking statements. You should understand
that it is not possible to predict or identify all such factors and that this list should not be considered a complete statement of all
potential risks and uncertainties. You should also realize that if the assumptions we have made prove inaccurate or if unknown risks
or uncertainties materialize, actual results could vary materially from the views and estimates included or incorporated by reference
in this prospectus. Except as required by law, we are under no obligation, and we do not intend, to update any forward-looking statement,
whether as result of new information, future events or otherwise.
PROSPECTUS
SUPPLEMENT SUMMARY
This
summary does not contain all of the information that you should consider before investing in our securities. You should read this entire
prospectus supplement and the accompanying prospectus carefully, including the financial statements and other information incorporated
by reference in this prospectus supplement and the accompanying prospectus, before making an investment decision. In addition, please
read the “Risk Factors” section of this prospectus supplement beginning on page S-11 and the risk factors incorporated by
reference herein.
Our
Company
We
are an internally managed, diversified real estate investment trust (“REIT”). We invest in a multi-tenant portfolio of commercial
real estate assets comprised of office, industrial, and retail properties and model homes leased back to the homebuilder located primarily
in the western United States. As of March 31, 2021, the Company owned or had an equity interest in:
|
●
|
Nine
office buildings and one industrial property (“Office/Industrial Properties”), which totals approximately 867,744 rentable
square feet;
|
|
|
|
|
●
|
Three
retail shopping centers (“Retail Properties”), which total approximately 110,552 rentable square feet; and
|
|
|
|
|
●
|
106
Model Homes (“Model Homes” or “Model Home Properties”) leased back on a triple-net basis to homebuilders
that are owned by six affiliated limited partnerships and one wholly-owned corporation.
|
Our
commercial portfolio is located primarily in North Dakota and Colorado, with two properties located in Southern California, and we are
currently considering new commercial property acquisitions in a variety of additional markets across the United States. Our commercial
property tenant base is highly diversified and consists of approximately 187 individual commercial tenants with an average remaining
lease term of approximately 2.3 years as of March 31, 2021. As of March 31, 2021, one commercial tenant represented more than 5.0% of
our annualized base rent, while our ten largest tenants represented approximately 28.83% of our annualized base rent. In addition, our
commercial property tenant base has limited exposure to any single industry.
In
addition, we also own interests, through our subsidiaries and affiliated limited partnerships, in model homes primarily located in Texas
and Florida. As of March 31, 2021, there were 106 such model homes. We purchase model homes from established residential home builders
and lease them back to the same home builders on a triple-net basis.
Our
main objective is to maximize long-term stockholder value through the acquisition, management, leasing and selective redevelopment of
high-quality office and industrial properties. We focus on regionally dominant markets across the United States which we believe have
attractive growth dynamics driven in part by important economic factors such as strong office-using employment growth; net in-migration
of a highly educated workforce; a large student population; the stability provided by healthcare systems, government or other large institutional
employer presence; low rates of unemployment; and lower cost of living versus gateway markets. We seek to maximize returns through investments
in markets with limited supply, high barriers to entry, and stable and growing employment drivers. Our model home portfolio supports
the objective of maximizing stockholder value by focusing on purchasing new single-family model homes and leasing them back to experienced
homebuilders. We operate the model home portfolio in markets where we can diversify by geography, builder size, and model home purchase
price.
Our
co-founder, Chairman, President and Chief Executive Officer is Jack K. Heilbron, a 40-year veteran in real estate investing, including
eight years with Excel Realty Trust, Inc. (“Excel REIT”), previously an NYSE-listed retail REIT, and one of its predecessor
companies, The Investors Realty Trust (“IRT”), prior to founding our company. Together with our former Chief Financial Officer
and Treasurer, Kenneth W. Elsberry, Mr. Heilbron founded both our company and Clover Income and Growth REIT, Inc. (“Clover REIT”),
a private REIT focused on retail mixed-use properties. During Mr. Heilbron’s tenure at Excel REIT, IRT and Clover REIT, Mr. Heilbron
oversaw the investment of substantial real estate assets and saw Clover REIT liquidate at a substantial gain to investors. Our model
home division is led by Larry G. Dubose, a pioneer in the industry who has over 30 years of experience acquiring, financing, managing,
and operating model home sale-leaseback transactions with builders throughout the nation. Our senior management team also includes Gary
M. Katz, Adam Sragovicz, and Ed Bentzen, each of whom has approximately 20 years or more of diverse experience in various aspects of
real estate, including both commercial and residential, management, acquisitions, finance and dispositions in privately-held and publicly
traded companies. We believe this industry experience and depth of relationships provides us with a significant advantage in sourcing,
evaluating, underwriting and managing our investments.
Our
Current Portfolio
Our
commercial portfolio currently consists of 13 properties located in Southern California, Colorado, and North Dakota, and 106 model home
properties located in six states, with the majority located in Texas and Florida. This geographical clustering enables us to minimize
operating costs and leverage efficiencies by managing a number of properties utilizing minimal overhead and staff.
Commercial
Portfolio
As
of March 31, 2021, our commercial real estate portfolio consisted of the following properties:
Property
Location ($ in 000s)
|
|
Sq.
Ft.
|
|
|
Date
Acquired
|
|
|
Year
Property Constructed
|
|
|
Purchase
Price (1)
|
|
|
Occupancy
|
|
|
Percent
Ownership
|
|
|
Mortgage
Outstanding
|
|
Office/Industrial
Properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
Office Park, Colorado Springs, CO (2)(5)
|
|
|
49,864
|
|
|
|
07/08
|
|
|
|
2000
|
|
|
|
10,126
|
|
|
|
97.7
|
%
|
|
|
100
|
%
|
|
|
2,968
|
|
Genesis
Plaza, San Diego, CA (3)(5)
|
|
|
57,807
|
|
|
|
08/10
|
|
|
|
1989
|
|
|
|
10,000
|
|
|
|
74.7
|
%
|
|
|
76.4
|
%
|
|
|
6,249
|
|
Dakota
Center, Fargo, ND
|
|
|
119,434
|
|
|
|
05/11
|
|
|
|
1982
|
|
|
|
9,575
|
|
|
|
86.0
|
%
|
|
|
100
|
%
|
|
|
9,844
|
|
Grand
Pacific Center, Bismarck, ND
|
|
|
93,058
|
|
|
|
04/14
|
|
|
|
1976
|
|
|
|
5,350
|
|
|
|
74.2
|
%
|
|
|
100
|
%
|
|
|
3,709
|
|
Arapahoe
Service Center II, Centennial, CO
|
|
|
79,023
|
|
|
|
12/14
|
|
|
|
2000
|
|
|
|
11,850
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
7,891
|
|
West
Fargo Industrial, West Fargo, ND
|
|
|
150,030
|
|
|
|
08/15
|
|
|
|
1998/2005
|
|
|
|
7,900
|
|
|
|
82.0
|
%
|
|
|
100
|
%
|
|
|
4,234
|
|
300
N.P., West Fargo, ND
|
|
|
34,517
|
|
|
|
08/15
|
|
|
|
1922
|
|
|
|
3,850
|
|
|
|
72.8
|
%
|
|
|
100
|
%
|
|
|
2,263
|
|
One
Park Centre, Westminster, CO
|
|
|
69,174
|
|
|
|
08/15
|
|
|
|
1983
|
|
|
|
9,150
|
|
|
|
84.8
|
%
|
|
|
100
|
%
|
|
|
6,358
|
|
Highland
Court, Centennial, CO (2) (4)
|
|
|
93,536
|
|
|
|
08/15
|
|
|
|
1984
|
|
|
|
13,050
|
|
|
|
64.5
|
%
|
|
|
84.5
|
%
|
|
|
6,237
|
|
Shea
Center II, Highlands Ranch, CO
|
|
|
121,301
|
|
|
|
12/15
|
|
|
|
2000
|
|
|
|
25,325
|
|
|
|
91.2
|
%
|
|
|
100
|
%
|
|
|
17,682
|
|
Total
Office/Industrial Properties
|
|
|
867,744
|
|
|
|
|
|
|
|
|
|
|
$
|
106,176
|
|
|
|
80
|
%
|
|
|
|
|
|
$
|
67,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
Properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
World
Plaza, San Bernardino, CA
|
|
|
55,810
|
|
|
|
09/07
|
|
|
|
1974
|
|
|
|
7,650
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
5,777
|
|
Union
Town Center, Colorado Springs, CO
|
|
|
44,042
|
|
|
|
12/14
|
|
|
|
2003
|
|
|
|
11,212
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
8,279
|
|
Research
Parkway, Colorado Springs, CO
|
|
|
10,700
|
|
|
|
08/15
|
|
|
|
2003
|
|
|
|
2,850
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
1,747
|
|
Total
Retail Properties
|
|
|
110,552
|
|
|
|
|
|
|
|
|
|
|
$
|
21,712
|
|
|
|
100
|
%
|
|
|
|
|
|
|
15,803
|
|
Total
Commercial Properties
|
|
|
978,296
|
|
|
|
|
|
|
|
|
|
|
$
|
127,888
|
|
|
|
82.4
|
%
|
|
|
|
|
|
|
83,238
|
|
|
(1)
|
Prior
to January 1, 2009, “Purchase Price” includes our acquisition related costs and expenses for the purchase of the property.
After January 1, 2009, acquisition related costs and expenses were expensed when incurred.
|
|
(2)
|
These
properties were held for sale as of March 31, 2021, and both were sold in May 2021.
|
|
(3)
|
Genesis
Plaza is owned by two tenants-in-common, each of which 57% and 43%, respectively, and we beneficially own an aggregate of 76.4%.
|
|
(4)
|
Highland
Court is owned by two tenants-in-common, each of which 60% and 40%, respectively, and we beneficially own an aggregate of 84.5%.
|
|
(5)
|
One
of the four buildings that comprise this property was sold in December 2020. The remaining three buildings were sold in May 2021.
|
Model
Home Portfolio
Our
model home division utilizes newly-built single family model homes as an investment vehicle. Our model home division purchases model
homes from, and leases them back to, homebuilders as commercial tenants on a triple-net basis. These triple-net investments in which
the commercial homebuilders bear the expenses of operations, maintenance, real estate taxes and insurance (in addition to defraying monthly
mortgage payments), alleviate significant cost and risk normally associated with holding single family homes for speculative sale or
for lease to residential tenants.
The
following is a summary of our model home portfolio as of March 31, 2021:
|
|
No.
of
|
|
|
Aggregate
|
|
|
Approximate
%
of
Square
|
|
|
Current
Base Annual
|
|
|
Approximate
of Aggregate % Annual
|
|
Geographic
Region
|
|
Properties
|
|
|
Square
Feet
|
|
|
Feet
|
|
|
Rent
|
|
|
Rent
|
|
Southwest
|
|
|
91
|
|
|
|
273,227
|
|
|
|
87.8
|
%
|
|
$
|
2,635,404
|
|
|
|
84.8
|
%
|
Southeast
|
|
|
11
|
|
|
|
25,120
|
|
|
|
8.1
|
%
|
|
$
|
292,140
|
|
|
|
9.4
|
%
|
Midwest
|
|
|
2
|
|
|
|
6,602
|
|
|
|
2.1
|
%
|
|
$
|
99,276
|
|
|
|
3.2
|
%
|
Northeast
|
|
|
2
|
|
|
|
6,153
|
|
|
|
2.0
|
%
|
|
$
|
80,844
|
|
|
|
2.6
|
%
|
Total
|
|
|
106
|
|
|
|
311,102
|
|
|
|
100
|
%
|
|
$
|
3,107,664
|
|
|
|
100
|
%
|
Our
Investment Approach
Our
Commercial Property Investment Approach
We
acquire high-quality commercial properties in overlooked and/or underserved markets, where we believe we can create long-term stockholder
value. Our potential commercial investments are extensively reviewed based on several characteristics, including:
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Market
Research. We invest in properties within regionally dominant markets that we believe to be overlooked. We analyze potential markets
for the key indicators that we feel will provide us higher risk adjusted returns. These indicators may include a net in-migration
of highly educated workers, business friendly governmental policies, large university populations, accessible healthcare systems
and available housing. We believe this quantitative approach will result in property acquisitions in markets with substantially higher
demand for high quality commercial real estate.
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Real
Estate Enhancement. We typically acquire properties where we believe market demand is such that values can be significantly enhanced
through repositioning strategies, such as upgrading common areas and tenant spaces, re-tenanting and leasing vacant space. We expect
that these strategies will increase rent and occupancy while enhancing long-term value.
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Portfolio
Management. We believe our target markets have benefited from substantial economic growth, which provides us with opportunities
to achieve long-term value and ultimately sell properties and recycle capital into properties offering a higher risk-adjusted return.
We have achieved substantial returns in the past from the operation, repositioning, and sale of properties. We continue to actively
manage our properties to maximize the opportunity to recycle capital.
|
Our
Model Home Property Investment Approach
Model
homes are single-family homes constructed by builders for the purpose of showcasing floor plans, elevations, optional features, and workmanship
when marketing the development where the homes are located. Each model home is designed to be held for a minimum lease term (usually
three years), after which the model home is listed for sale at the estimated fair market value. Our model home business operates independently
in Houston, Texas, with minimal time commitment by senior management. We seek to purchase model homes, at a 5% to 10% discount, that
have a likelihood of appreciation within the expected three-year term of the lease, and anticipate unlevered pro forma returns over 8%
during our holding period and expected lease term. Our model home leaseback agreements are triple-net, requiring the homebuilder/tenant
to pay all operating expenses. We seek model homes in a variety of locations, a variety of price ranges, and from a variety of builders
and developers to diversify the risk from economic conditions that may adversely affect a particular development or location.
During
the three months ended March 31, 2021, we disposed of 12 model homes for approximately $4.9 million and recognized a gain of approximately
$0.4 million. During the year ended December 31, 2020, we sold 46 model homes for approximately $18.1 million and recognized a gain of
approximately $1.6 million. During the year ended December 31, 2019, we sold 41 model homes for approximately $14.6 million and recognized
a gain of approximately $1.2 million. We believe that our model home business provides incentives to builders by allowing them to redeploy
capital, use sales proceeds to pay down lines of credit, accelerate their internal rate of return calculations, improve margins and inventory
turnover, and provides diversification of their risk.
Our
Growth Strategy
Our
principal business objective is to provide attractive risk-adjusted returns to our stockholders through a combination of (i) sustainable
and increasing rental income and cash flow that generates reliable, increasing dividends and (ii) potential long-term appreciation in
the value of our properties and securities. Our primary strategy to achieve our business objective is to invest in, own and manage a
diverse multi-tenant portfolio of high-quality commercial properties in promising regionally dominant markets, which we believe will
drive higher tenant retention and occupancy.
Our
Commercial Property Growth Strategy
We
intend to grow our commercial portfolio by acquiring high-quality properties in our target markets. We may selectively invest in industrial,
office, retail, triple net and other properties where we believe we can achieve higher risk-adjusted returns for our stockholders. We
expect that our extensive broker and seller relationships will benefit our acquisition activities and help set us apart from competing
buyers. In addition, we continue to actively manage our portfolio of commercial properties and continue to redeploy capital through the
opportunistic sale of certain commercial properties.
We
typically purchase properties at what we believe to be a discount to the replacement value of the property. We seek to enhance the value
of these properties through active asset management where we believe we can increase occupancy and rent. We typically achieve this growth
through value-added investments in these properties, such as common area renovations, enhancement of amenities, improved mechanical systems,
and other value-enhancing investments. We generally will not invest in ground-up development as we believe our target markets’
rental rates are below those needed to justify new construction.
Our
Model Home Growth Strategy
We
intend to purchase model homes that are in the “move-up market” and in the first-time homebuyer market. The purchase of model
homes will be from builders that have sufficient assets to fulfill their lease obligations and with model homes that offer a good opportunity
for appreciation upon their sale. Sales proceeds from model homes will typically be reinvested to acquire new model homes.
Our
Pipeline
Our
pipeline is comprised of approximately 25 properties under review, with projected purchase prices of between $5 and $25 million for each
property. Our pipeline’s overall composition is 40% triple-net, 20% medical office, 15% model home, 15% necessity-based retail,
and 10% industrial.
Our
Competitive Strengths
We
believe that our management team’s extensive public REIT and general real estate experience distinguishes us from many other public
and private real estate companies. Specifically, our competitive strengths include, among others:
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Experienced
Senior Management Team. Our senior management team has over 75 combined years of experience with public-reporting companies,
including real estate experience with a number of other publicly traded companies and institutional investors. We are the third REIT
to be co-founded by our CEO, providing us with core real estate experience in addition to substantial public market experience. We
have operated as a publicly-reporting company since 2009.
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Investment
Focus. We believe that our focus on attractive regionally dominant markets provides higher risk-adjusted returns than other public
REITs and institutional investors which are focused on gateway markets and major metropolitan areas, as our target markets provide
less competition resulting in higher initial returns and greater opportunities to enhance value through institutional quality asset
management.
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Nimble
Management Execution. Our principal focus is on acquiring commercial properties offering immediate yield, combined with identifiable
value-creation opportunities. We operate in niche geographies, targeting acquisitions valued at between $10 million and $30 million
in order to limit competition from larger, better capitalized buyers focused on core markets. We continue to identify and execute
these types and sizes of transactions efficiently, which we believe provides us an advantage over other institutional investors,
including larger REITs that focus on larger properties or portfolios in more competitively marketed investment transactions.
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Extensive
Broker and Seller Relationships. Our senior management team has developed extensive broker and seller relationships, which remain
vital to our acquisition efforts. Of our 11 acquisitions since 2014, eight of these transactions were procured either off-market
or through brokers with whom we have a historical relationship. We expect these relationships, as well as our ability to establish
such relationships in new markets, to provide valuable access to an acquisition pipeline.
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Our
REIT Status
We
elected to be taxed as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 2001. To continue to
be taxed as a REIT, we must satisfy numerous organizational and operational requirements, including a requirement that we distribute
at least 90% of our REIT taxable income to our stockholders, as defined in the Code and calculated on an annual basis. As a REIT, we
are generally not subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify for taxation
as a REIT in any year, our income will be taxed at regular corporate rates, and we may be precluded from qualifying for treatment as
a REIT for the four-year period following our failure to qualify. Even though we qualify as a REIT for federal income tax purposes, we
may still be subject to state and local taxes on our income and property and to federal income and excise taxes on our undistributed
income. For more information, please see “U.S. Federal Income Tax Considerations.”
Distribution
Policy
We
plan to distribute at least 90% of our annual REIT taxable income to our stockholders in order to maintain our status as a REIT.
We
intend to declare quarterly distributions. To be able to pay such dividends, our goal is to generate cash distributions from operating
cash flow and proceeds from the sale of properties. During 2020, 2019 and 2018, we declared distributions of approximately $1.0 million
each year. However, we cannot provide any assurance as to the amount or timing of future distributions. For example, our distributions
were suspended for the periods from the third quarter of 2017 through the third quarter of 2018 and from the second quarter of 2019 through
the third quarter of 2020.
To
the extent that we make distributions in excess of our earnings and profits, as computed for federal income tax purposes, these distributions
will represent a return of capital, rather than a dividend, for federal income tax purposes. Distributions that are treated as a return
of capital for federal income tax purposes generally will not be taxable as a dividend to a U.S. stockholder, but will reduce the stockholder’s
basis in its shares (but not below zero) and therefore can result in the stockholder having a higher gain upon a subsequent sale of such
shares. Return of capital distributions in excess of a stockholder’s basis generally will be treated as gain from the sale of such
shares for federal income tax purposes.
We
provide each of our stockholders a statement detailing distributions paid during the preceding year and their characterization as ordinary
income, capital gain or return of capital. During the year ended December 31, 2020, all dividends were non-taxable as they were considered
return of capital to the stockholders. During the year ended December 31, 2019, all dividends were taxable as they were considered capital
gain to the stockholders.
Organizational
Structure
The
following chart summarizes our current ownership structure:
Corporate
Information
We
were incorporated in the State of California on September 28, 1999 under the name NetREIT, and in June 2010, we reincorporated as a Maryland
corporation. In October 2017, we changed our name to “Presidio Property Trust, Inc.” Our executive offices are located at
4995 Murphy Canyon Road, Suite 300, San Diego, California 92123. Our telephone number is (760) 471-8536. We maintain an internet website
at www.presidiopt.com. Information on, or accessible through, our website is not a part of, and is not incorporated into, this
prospectus or the registration statement of which it forms a part.
The
Offering
Issuer
|
|
Presidio
Property Trust, Inc., a Maryland corporation
|
|
|
|
Common
stock outstanding as of the date of this prospectus supplement
|
|
9,508,363
shares of Series A Common Stock, par value $0.01 per share (the “Common Stock”)
|
|
|
|
Number
of Shares of Common Stock being offered
|
|
1,000,000
shares of Common Stock
|
|
|
|
Pre-Funded
Warrants Offered
|
|
We
are offering Pre-Funded Warrants to purchase up to 1,000,000 shares of Common Stock to certain purchasers whose purchase of shares
of Common Stock in this offering would otherwise result in the purchaser, together with its affiliates and certain related parties,
beneficially owning more than 9.99% of our outstanding Common Stock. Each Pre-Funded Warrant is exercisable for one share of our
Common Stock. The purchase price of each Pre-Funded Warrant is equal to the price at which the share of Common Stock is being sold
to the public in this offering, minus $0.01, and the exercise price of each Pre-Funded Warrant is $0.01 per share. Each share of
Common Stock and accompanying Pre-Funded Warrant are being sold together at a combined offering price of $4.99. The Pre-Funded Warrants
will be immediately exercisable and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full.
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|
|
|
Common
stock to be outstanding immediately after this offering
|
|
10,508,363
shares of Common Stock (excluding shares of Common Stock issuable upon exercise of the Pre-Funded Warrants, the Common Stock Warrants
and the Placement Agent Warrants).
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|
|
|
Use
of proceeds
|
|
The
gross proceeds from our sale of securities in this offering will be approximately $10,000,000, before deducting Placement Agent fees
and other estimated offering expenses payable by us. We currently expect to use the net proceeds for working capital and for other
general corporate purposes, including to potentially acquire additional properties. See “Use of Proceeds” on pg. S-15
of this prospectus supplement.
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|
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|
Concurrent
Private Placement
|
|
In
a concurrent private placement, we are also selling to the purchasers of shares of our Common Stock and Pre-Funded Warrants in this
offering Common Stock Warrants to purchase an aggregate of 2,000,000 shares (“Warrant Shares”) of our Common Stock.
Each share of Common Stock and accompanying Common Stock Warrant are being sold together at a combined offering price of $5.00. The
Common Stock Warrants will have an exercise price of $5.50 per share, will be exercisable upon issuance and will expire five years
from the date of an issuance. The Common Stock Warrants and the Warrant Shares are not being registered under the Securities Act
of 1933, as amended (the “Securities Act”), pursuant to the registration statement of which this prospectus supplement
and the accompanying base prospectus form a part and are not being offered pursuant to this prospectus supplement and the accompanying
base prospectus. The Common Stock Warrants and the Warrant Shares are being offered pursuant to an exemption from the registration
requirements of the Securities Act provided in Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder.
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|
|
|
Risk
Factors
|
|
Investing
in our Common Stock involves a high degree of risk. See “Risk Factors” beginning on page S-11 of this prospectus supplement
and page 3 of the accompanying prospectus and in our SEC filings, which are incorporated by reference herein, to read about the risks
you should consider before purchasing our securities.
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|
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|
Listing
|
|
Our
Common Stock is listed on Nasdaq under the symbol “SQFT.”
|
The
numbers of our Common Stock above (a) that are currently outstanding and (b) that will be outstanding immediately after this offering
as shown above excludes:
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●
|
Common
Stock Warrants to purchase up to 2,000,000 shares of Series A Common Stock at an exercise price of $5.50 per share;
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|
|
|
|
●
|
Pre-Funded
Warrants to purchase up to 1,000,000 shares of Series A Common Stock at an exercise price of $0.01 per share; and
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|
|
|
|
●
|
80,000
shares of Common Stock issuable upon exercise of warrants (“Placement Agent Warrants”) to be issued to the Placement
Agent as part of this offering at an exercise price of $6.25 per share.
|
RISK
FACTORS
An
investment in our securities involves a high degree of risk. Before deciding to invest in our securities, you should carefully consider
the risks described in the prospectus. In addition, you should carefully consider the other information in our Annual Report on Form
10-K and other documents that are incorporated by reference into this prospectus. See “Where You Can Find More Information”
and “Incorporation of Certain Information by Reference.” The risks and uncertainties referred to in this Prospectus including
the risk factors incorporated by reference herein are not the only risks and uncertainties that we face. Additional risks and uncertainties
not presently known to us or that we currently deem immaterial may also impair our business operations. If any of these risks actually
occurs, our business, financial condition and results of operations could be materially adversely affected. In that case, you may lose
all or part of your investment in our securities.
Risks
Related to this Offering and an Investment in Our Company Generally
Our
management team may invest or spend the proceeds of this offering in ways with which you may not agree or in ways which may not yield
a significant return.
Our
management will have broad discretion over the use of proceeds from this offering. The net proceeds from this offering will be used primarily
for working capital and general corporate purposes, including to potentially acquire additional properties. Our management will
have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment
decision, to assess whether the proceeds are being used appropriately. The net proceeds may be used for corporate purposes that do not
increase our operating results or enhance the value of our Series A Common Stock. The failure of our management to use these funds effectively
could have a material adverse effect on our business, cause the market price of our Series A Common Stock to decline and potentially
impair the operation and expansion of our business. Pending their use, we may invest the net proceeds from this offering in short-term,
investment-grade, interest-bearing instruments and U.S. government securities. These investments may not yield a favorable return to
our stockholders.
We
could be prevented from paying cash dividends on the Series A Common Stock due to prescribed legal requirements.
Holders
of shares of Series A Common Stock will not receive dividends on such shares unless authorized by our Board of Directors and declared
by us. Under Maryland law, cash dividends on stock may only be paid if, after giving effect to the dividends, our total assets exceed
our total liabilities and we are able to pay our indebtedness as it becomes due in the ordinary course of business. Unless we operate
profitably, our ability to pay cash dividends on the Series A Common Stock may be negatively impacted. Our business may not generate
sufficient cash flow from operations to enable us to pay dividends on the Series A Common Stock when payable. Further, even if we meet
the applicable solvency tests under Maryland law to pay cash dividends on the Series A Common Stock described above, we may not have
sufficient cash to pay dividends on the Series A Common Stock.
Furthermore,
no dividends on Series A Common Stock shall be authorized by our Board of Directors or paid, declared or set aside for payment by us
at any time when the authorization, payment, declaration or setting aside for payment would be unlawful under Maryland law or any other
applicable law. Holders of the Series D Preferred Stock will be entitled to receive cumulative cash dividends at a rate of 9.375% per
annum of the $25.00 per share liquidation preference (equivalent to $2.34375 per annum per share). We will not pay dividends on our Common
Stock, unless and until, we pay the required dividend to our Series D Preferred Stock holders.
Our
bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland,
or, if that court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division, will
be the sole and exclusive forum for certain actions, which could limit our stockholders’ ability to obtain a favorable
judicial forum for disputes with the Company.
Our
bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland,
or, if that court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division, will
be the sole and exclusive forum for (a) any derivative action or proceeding brought on our behalf, (b) any action asserting a claim of
breach of any duty owed by any of our directors, officers or other employees to us or to our stockholders, (c) any action asserting a
claim against us or any of our directors, officers or other employees arising pursuant to any provision of the MGCL or our charter or
bylaws or (d) any action asserting a claim against us or any of our directors, officers or other employees that is governed by the internal
affairs doctrine. This forum selection provision in our bylaws may limit our stockholders’ ability to obtain a favorable judicial
forum for disputes with us or any our directors, officers or other employees.
If
the Series A Common Stock is delisted from Nasdaq, the ability to transfer or sell shares of the Series A Common Stock may be limited
and the market value of the Series A Common Stock will likely be materially adversely affected.
Our
Series A Common Stock does not contain provisions that are intended to protect investors if our Series A Common Stock is delisted from
Nasdaq. If the Series A Common Stock is delisted from Nasdaq, investors’ ability to transfer or sell shares of the Series A Common
Stock will be limited and the market value of the Series A Common Stock will likely be materially adversely affected. Moreover, since
the Series A Common Stock has no stated maturity date, investors may be forced to hold shares of the Series A Common Stock indefinitely
while receiving stated dividends thereon when, as and if authorized by our Board of Directors and paid by us with no assurance as to
ever receiving the liquidation value thereof.
Market
interest rates may have an effect on the value of the Series A Common Stock.
One
of the factors that will influence the price of the Series A Common Stock will be the distribution yield on the Series A Common Stock
(as a percentage of the market price of the Series A Common Stock) relative to market interest rates. An increase in market interest
rates, which are currently at low levels relative to historical rates, may lead prospective purchasers of the Series A Common Stock to
expect a higher distribution yield (and higher interest rates would likely increase our borrowing costs and potentially decrease funds
available for distribution payments). Thus, higher market interest rates could cause the market price of the Series A Common Stock to
decrease and reduce the amount of funds that are available and may be used to make distribution payments.
In
the event of a liquidation, you may not receive the full amount of your liquidation preference.
In
the event of our liquidation, the proceeds will be used first to repay indebtedness and then to pay holders of shares of any class or
series of our stock ranking senior to the Series A Common Stock as to liquidation, including our 9.375% Series D Cumulative Redeemable
Perpetual Preferred Stock, $0.01 par value per share (the “Series D Preferred Stock”), in an amount of each holder’s
liquidation preference and accrued and unpaid distributions through the date of payment, prior to any payment being made to holders of
our Series A Common Stock. In the event we have insufficient funds to make payments in full to holders of the shares of the Series A
Common Stock and any other class or series of our stock ranking on parity with the Series A Common Stock as to liquidation, such funds
will be distributed ratably among such holders and such holders may not realize the full amount of their liquidation preference.
The
market price of the Series A Common Stock could be substantially affected by various factors.
The
market price of the Series A Common Stock could be subject to wide fluctuations in response to numerous factors. The price of the Series
A Common Stock that will prevail in the market after this offering may be higher or lower than the offering price depending on many factors,
some of which are beyond our control and may not be directly related to our operating performance.
These
factors include, but are not limited to, the following:
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●
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prevailing
interest rates, increases in which may have an adverse effect on the market price of the Series A Common Stock;
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|
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●
|
trading
prices of similar securities;
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|
|
|
|
●
|
our
history of timely dividend payments;
|
|
|
|
|
●
|
the
annual yield from dividends on the Series A Common Stock as compared to yields on other financial instruments;
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|
|
|
|
●
|
general
economic and financial market conditions;
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●
|
government
action or regulation;
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●
|
the
financial condition, performance and prospects of us and our competitors;
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●
|
changes
in financial estimates or recommendations by securities analysts with respect to us or our competitors in our industry;
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●
|
our
issuance of additional preferred equity or debt securities;
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|
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|
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●
|
actual
or anticipated variations in quarterly operating results of us and our competitors;
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|
|
|
|
●
|
actual
or anticipated variations in our quarterly results of operations or distributions, including as a result of the recent COVID-19 pandemic
and its impact on our business, financial condition, results of operations and cash flows;
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|
|
|
|
●
|
changes
in our FFO, earnings estimates or recommendations by securities analysts;
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●
|
publication
of research reports about us or the real estate industry generally;
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●
|
the
extent of investor interest;
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|
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●
|
publication
of research reports about us or the real estate industry;
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|
|
|
|
●
|
increases
in market interest rates that lead purchasers of our shares to demand a higher yield;
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|
|
|
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●
|
changes
in market valuations of similar companies;
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|
|
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●
|
strategic
decisions by us or our competitors, such as acquisitions, divestments, spin-offs, joint ventures, strategic investments or changes
in business strategy;
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●
|
the
reputation of REITs generally and the reputation of REITs with portfolios similar to ours;
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●
|
the
attractiveness of the securities of REITs in comparison to securities issued by other entities (including securities issued by other
real estate companies);
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●
|
adverse
market reaction to any additional debt that we incur or acquisitions that we make in the future;
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●
|
additions
or departures of key management personnel;
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●
|
future
issuances by us of our common stock or other equity securities;
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●
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actions
by institutional or activist stockholders;
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●
|
speculation
in the press or investment community;
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●
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the
realization of any of the other risk factors presented in this prospectus; and
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●
|
general
market and economic conditions.
|
As
a result of these and other factors, investors who purchase the Series A Common Stock in this offering may experience a decrease, which
could be substantial and rapid, in the market price of the Series A Common Stock, including decreases unrelated to our operating performance
or prospects.
If
a substantial number of shares become available for sale and are sold in a short period of time, the market price of our Series A Common
Stock could decline.
A
large volume of sales of shares of our Series A Common Stock could further decrease the prevailing market price of such shares and could
impair our ability to raise additional capital through the sale of equity securities in the future. Even if sales of a substantial number
of shares of our Series A Common Stock are not effectuated, the perception of the possibility of these sales could depress the market
price for such shares and have a negative effect on our ability to raise capital in the future.
Upon
completion of this offering, we will have 10,508,363 shares of Series A Common Stock outstanding (excluding shares of Common Stock
issuable upon exercise of the Pre-Funded Warrants, the Common Stock Warrants and the Placement Agent Warrants). If our stockholders
sell substantial amounts of our Series A Common Stock in the public market following this offering, the market price of our Series A
Common Stock could decrease significantly. The perception in the public market that our stockholders might sell shares of Series A Common
Stock could also depress our market price. A decline in the price of shares of our Series A Common Stock might impede our ability to
raise capital through the issuance of additional shares of our Series A Common Stock or other equity securities and could result in a
decline in the value of the shares of our Series A Common Stock purchased in this offering.
Broad
market fluctuations could negatively impact the market price of our Series A Common Stock.
Stock
market price and volume fluctuations could affect the market price of many companies in industries similar or related to ours and that
have been unrelated to these companies’ operating performance. These fluctuations could reduce the market price of our Series A
Common Stock. Furthermore, our results of operations and prospects may be below the expectations of public market analysts and investors
or may be lower than those of companies with comparable market capitalizations. Either of these factors could lead to a material decline
in the market price of our Series A Common Stock.
The
market price of our Series A Common Stock could be adversely affected by our level of cash distributions.
The
market’s perception of our growth potential and our current and potential future cash distributions, whether from operations, sales
or refinancings, as well as the real estate market value of the underlying assets, may cause our Series A Common Stock to trade at prices
that differ from our net asset value per share. If we retain operating cash flow for investment purposes, working capital reserves or
other purposes, these retained funds, while increasing the value of our underlying assets, may not correspondingly increase the market
price of our Series A Common Stock. Our failure to meet the market’s expectations with regard to future earnings and cash distributions
likely would adversely affect the market price of our Series A Common Stock.
Future
offerings of debt, which would be senior to our Series A Common Stock upon liquidation, and any preferred equity securities that may
be issued and be senior to our Series A Common Stock for purposes of dividend distributions or upon liquidation, may adversely affect
the market price of our Series A Common Stock.
In
the future, we may seek additional capital and commence offerings of debt or preferred equity securities, including medium-term notes,
senior or subordinated notes and preferred stock. Upon liquidation, holders of our debt securities and shares of preferred stock, including
our Series D Preferred Stock, and lenders with respect to other borrowings will receive distributions of our available assets prior to
the holders of our Common Stock. Future shares of preferred stock, if issued, could have a preference on liquidating distributions or
dividend payments that could limit our ability to pay a dividend or make another distribution to the holders of our Common Preferred.
Our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, and consequently,
we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future
offerings reducing the market price of our Common Stock and diluting their stock holdings in us.
A
future issuance of stock could dilute the value of our Series A Common Stock.
We
may sell additional shares of Series A Common Stock, or securities convertible into or exchangeable for such shares, in subsequent public
or private offerings. Upon completion of this offering, there will be 10,508,363 shares of our Series A Common Stock (excluding
shares of Common Stock issuable upon exercise of the Pre-Funded Warrants, the Common Stock Warrants and the Placement Agent Warrants)
and 920,000 shares of our Series D Preferred Stock issued and outstanding. Those shares outstanding do not include the potential
issuance, as of the date of this prospectus, of approximately 616,000 shares of our Series A Common Stock that will be available for
future issuance under our 2017 Incentive Award Plan as of the completion of this offering. Future issuance of any new shares could cause
further dilution in the value of our outstanding shares of Series A Common Stock. We cannot predict the size of future issuances of our
Series A Common Stock, or securities convertible into or exchangeable for such shares, or the effect, if any, that future issuances and
sales of shares of our Series A Common Stock will have on the market price of our Series A Common Stock. Sales of substantial amounts
of our Series A Common Stock, or the perception that such sales could occur, may adversely affect prevailing market prices of our Series
A Common Stock.
USE
OF PROCEEDS
We
expect to receive net proceeds of approximately $9.1 million from this offering, after deducting estimated offering expenses payable
by us (including the approximately $4.6 million of net proceeds from the issuance of Pre-Funded Warrants and
the Common Stock Warrants to be issued in the concurrent private placement).
We
intend to use the net proceeds for working capital and other general corporate purposes, including to potentially acquire additional
properties.
DIVIDEND
PAYMENTS AND POLICY
Dividend
Payments
We
seek to pay cash dividends to our common stockholders. The following is a summary of dividends declared per share for the years ended
December 31, 2020 and 2019:
|
|
2020
|
|
|
2019
|
|
|
|
Cash
Dividend
|
|
|
Cash
Dividend
|
|
March 31
|
|
$
|
—
|
|
|
$
|
—
|
|
June
30
|
|
|
—
|
|
|
|
0.12
|
|
September 30
|
|
|
—
|
|
|
|
—
|
|
December 31
|
|
|
0.10
|
|
|
|
—
|
|
Total
|
|
$
|
0.10
|
|
|
$
|
0.12
|
|
Dividend
Policy
We
plan to pay at least 90% of our annual REIT Taxable Income to our stockholders in order to maintain our status as a REIT. We intend to
continue to declare dividends, however, we cannot provide any assurance as to the amount or timing of future dividends. Our goal is to
make cash dividend distributions out of our operating cash flow and proceeds from the sale of properties. During 2020, we paid dividends
of approximately $1.0 million related to 2020. During 2019, dividends were declared in December 2019 and paid in January 2020 of approximately
$1.1 million.
To
the extent that we make dividends in excess of our earnings and profits, as computed for federal income tax purposes, these dividends
will represent a return of capital, rather than a dividend, for federal income tax purposes. Dividends that are treated as a return of
capital for federal income tax purposes generally will not be taxable as a dividend to a U.S. stockholder, but will reduce the stockholder’s
basis in its shares (but not below zero) and therefore can result in the stockholder having a higher gain upon a subsequent sale of such
shares. Return of capital dividends in excess of a stockholder’s basis generally will be treated as gain from the sale of such
shares for federal income tax purposes.
We
provide each of our stockholders a statement detailing dividends paid during the preceding year and their characterization as ordinary
income, capital gain or return of capital annually. During the year ended December 31, 2020, all dividends were non-taxable as they were
considered return of capital to the stockholders. During the year ended December 31, 2019, all dividends were taxable as they were considered
capital gain to the stockholders.
CAPITALIZATION
The
following table sets forth the historical combined cash and cash equivalents and capitalization of Presidio Property Trust, Inc. as of
March 31, 2021 as follows:
|
●
|
on
an actual basis;
|
|
|
|
|
●
|
on
a pro forma basis to reflect the sale in June 2021 of 920,000 shares of Series D Preferred
Stock and the application of the estimated net proceeds of approximately $20.5 million derived
thereby. We paid all of the expenses of the offering including underwriting discounts and
commissions, legal, accounting, printing filing fees and other direct costs.; and
|
|
|
|
|
●
|
on
a pro forma as adjusted basis, reflecting the issuance of 2,000,000 shares of Series A Common Stock offered by this prospectus, at
$5.00 per share, assuming net proceeds of approximately $9.1 million, after deducting Placement Agent fees and estimated offering
expenses payable by us (including approximately $4.6 million of net proceeds from the issuance of Pre-Funded Warrants and the
Common Stock Warrants to be issued in the concurrent private placement).
|
You
should read this table in conjunction with “Use of Proceeds,” “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our financial statements and related notes appearing elsewhere in this prospectus.
|
|
As
of
March
31, 2021
|
|
|
|
Historical
|
|
|
Pro
Forma
|
|
|
Pro
Forma As Adjusted (1)
|
|
Cash
and cash equivalents
|
|
$
|
6,985,381
|
|
|
$
|
27,484,010
|
|
|
$
|
36,549,210
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
notes payable, net
|
|
|
108,685,181
|
|
|
|
108,685,181
|
|
|
|
108,685,181
|
|
Note
payable, net
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
Debt
|
|
$
|
108,685,181
|
|
|
$
|
108,685,181
|
|
|
$
|
108,685,181
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock, $0.01 par value per share; 1,000,000 shares authorized; no shares issued and outstanding actual; 920,000 shares issued
and outstanding pro forma and pro forma as adjusted (liquidation preference $25.00 per share)
|
|
|
—
|
|
|
|
9,200
|
|
|
|
9,200
|
|
Series
A Common Stock, $0.01 par value per share; 100,000,000 shares authorized; 9,508,363 shares issued and outstanding, actual;
9,508,363 shares issued and outstanding, pro forma; 11,508,363 shares issued and outstanding, pro forma as adjusted
|
|
|
95,038
|
|
|
|
95,038
|
|
|
|
115,038
|
|
Additional
paid-in capital
|
|
|
156,463,146
|
|
|
|
176,952,575
|
|
|
|
185,997,775
|
|
Dividends
in excess of accumulated losses
|
|
|
(125,334,982
|
|
|
|
(125,334,982
|
)
|
|
|
(125,334,982
|
)
|
Total
stockholders’ equity before noncontrolling interest
|
|
|
31,223,202
|
|
|
|
51,721,831
|
|
|
|
60,787,031
|
|
Noncontrolling
interest
|
|
|
13,611,298
|
|
|
|
13,611,298
|
|
|
|
13,611,298
|
|
Total
equity
|
|
|
44,834,500
|
|
|
|
65,333,129
|
|
|
|
74,398,329
|
|
Total
Capitalization
|
|
$
|
153,519,681
|
|
|
$
|
174,018,310
|
|
|
$
|
183,083,510
|
|
|
(1)
|
Includes
an assumption that Pre-Funded Warrants to purchase 1,000,000
shares of Series A Common Stock are exercised, and no Common Stock Warrants and no Placement Agent Warrants are exercised.
|
DILUTION
If
you invest in our securities, your interest will be diluted to the extent of the difference between the offering price per share of Common
Stock you pay and the pro forma as adjusted net tangible book value per share of our Common Stock immediately after the completion of
this offering.
Our
historical net tangible book value as of March 31, 2021, was approximately $23.5 million or $2.48 per share of Common Stock. Our historical
net tangible book value per share represents our total tangible assets less our total liabilities, divided by the shares of Common Stock
outstanding as of March 31, 2021.
After
giving effect to the issuance of 2,000,000 shares of Common Stock (including 1,000,000 shares of Common Stock offered by this
prospectus at a public offering price of $5.00 per share, and assuming Pre-Funded Warrants to purchase 1,000,000 shares of Common
Stock are exercised) and after deducting the estimated Placement Agent fees and estimated offering expenses payable by us,
our pro forma as adjusted net tangible book value at March 31, 2021 would have been approximately $32.66 million, or $2.84 per
share of Common Stock. This amount represents an increase in historical net tangible book value of $0.36 per share to existing stockholders
and an immediate dilution of $2.16 per share to new investors purchasing the shares of Common Stock in this offering.
Public
offering price per share of Series A Common Stock
|
|
$
|
|
|
|
|
5.00
|
|
Net tangible book
value per share of common stock as of March 31, 2021
|
|
|
2.48
|
|
|
|
|
|
Increase
in net tangible book value per share attributable to new investors
|
|
|
0.36
|
|
|
|
|
|
Pro
forma as adjusted net tangible book value per share after giving effect to this offering
|
|
|
|
|
|
|
2.84
|
|
Dilution
per share to new investors
|
|
$
|
|
|
|
|
2.16
|
|
DESCRIPTION
OF SECURITIES
Common
Stock
See
“Description of Securities We May Offer – Common Stock” on page 11 of the accompanying prospectus for a description
of the material terms of our Common Stock.
Pre-Funded
Warrants
The
following summary of certain terms and provisions of the Pre-Funded Warrants that are being offered hereby is not complete and is subject
to, and qualified in its entirety by, the provisions of the Pre-Funded Warrant, the form of which is filed as an exhibit to our
Current Report on Form 8-K filed with the SEC on July 14, 2021. Prospective investors should carefully review the
terms and provisions of the form of Pre-Funded Warrant for a complete description of the terms and conditions of the Pre-Funded Warrants.
Duration
and Exercise Price. The Pre-Funded Warrants will be immediately exercisable at a nominal exercise price of $0.01 and may be exercised
at any time until all of the Pre-Funded Warrants are exercised in full.
Exercisability.
The
Pre-Funded Warrants are exercisable, at the option of each holder, in whole or in part, by delivering to us a duly executed exercise
notice accompanied by payment in full for the number of shares of our Common Stock purchased upon such exercise (except in the case of
a cashless exercise as discussed below). Purchasers of the Pre-Funded Warrants in this offering may elect to deliver their exercise notice
following the pricing of the offering and prior to the issuance of the Pre-Funded Warrants at closing to have their Pre-Funded Warrants
exercised immediately upon issuance and receive shares of Common Stock underlying the Pre-Funded Warrants upon closing of this offering.
A holder (together with its affiliates) may not exercise any portion of the Pre-Funded Warrant to the extent that the holder would beneficially
or constructively own either a total number of shares of (i) Common Stock in excess of the Common Stock Ownership Limit (as defined and
determined in accordance with our charter) or (ii) Capital Stock (as defined in our charter) in excess of the Aggregate Stock Ownership
Limit (as defined and determined in accordance with our charter), or otherwise cause the Company to fail to qualify as a REIT (as defined
in our charter), unless the Company’s Board of Directors has, in its sole discretion, granted the holder a waiver from the stock
ownership limitations set forth in our charter. For more information, please see “Description of Securities We May Offer –
Restrictions on Ownership and Transfer” in the accompanying prospectus. No fractional shares of Common Stock will be issued in
connection with the exercise of a Pre-Funded Warrant. In lieu of fractional shares, we will pay a cash adjustment in respect of such
final fraction in an amount equal to such fraction multiplied by the exercise price of the Pre-Funded Warrants or round up to the next
whole share.
Cashless
Exercise. In lieu of making the cash payment otherwise contemplated to be made to us upon exercise of a Pre-Funded Warrant in payment
of the aggregate exercise price, the holder may elect instead to receive upon such exercise (either in whole or in part) the net number
of shares of Common Stock determined according to a formula set forth in the Pre-Funded Warrants.
Transferability.
Subject to applicable laws, a Pre-Funded Warrant may be transferred at the option of the holder upon surrender of the Pre-Funded Warrant
to us together with the appropriate instruments of transfer.
Exchange
Listing. There is no trading market available for the Pre-Funded Warrants on any securities exchange or nationally recognized trading
system. We do not intend to list the Pre-Funded Warrants on any securities exchange or nationally recognized trading system.
Right
as a Stockholder. Except as otherwise provided in the Pre-Funded Warrants or by virtue of such holder’s ownership of shares
of our Common Stock, the holders of the Pre-Funded Warrants do not have the rights or privileges of holders of our Common Stock, including
any voting rights, until they exercise their Pre-Funded Warrants.
Fundamental
Transaction. In the event of a fundamental transaction, as described in the Pre-Funded Warrants and generally including any reorganization,
recapitalization or reclassification of our Common Stock, the sale, transfer or other disposition of all or substantially all of our
properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding Common
Stock, or any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding Common Stock, the
holders of the Pre-Funded Warrants will be entitled to receive upon exercise of the Pre-Funded Warrants the kind and amount of securities,
cash or other property that the holders would have received had they exercised the Pre-Funded Warrants immediately prior to such fundamental
transaction.
PRIVATE
PLACEMENT TRANSACTION
In
a concurrent private placement, we are issuing selling to the purchasers of Common Stock and Pre-Funded Warrants in this offering, the
Common Stock Warrants to purchase an aggregate of 2,000,000 shares of our Common Stock.
Warrants
The
following summary of certain terms and provisions of the Common Stock Warrants that are being offered in a concurrent private placement
is not complete and is subject to, and qualified in its entirety by, the provisions of the Common Stock Warrant, the form of which is filed as an exhibit to our Current Report on Form 8-K filed with the SEC on July 14, 2021. Prospective investors should
carefully review the terms and provisions of the form of the Common Stock Warrant for a complete description of the terms and conditions
of the Warrants.
Duration
and Exercise Price. Each share of Common Stock and accompanying Common Stock Warrant are being sold together at a combined offering
price of $5.00. The Common Stock Warrants will have an exercise price of $5.50 per share, will be exercisable upon issuance and will
expire five years from the date of an issuance. The exercise price and number of shares of Common Stock issuable upon exercise is subject
to appropriate adjustment in the event of stock dividends, stock splits, reorganizations or similar events affecting our Common Stock
and the exercise price.
Exercisability.
The Warrants are exercisable, at the option of each holder, in whole or in part, by delivering to us a duly executed exercise notice
accompanied by payment in full for the number of shares of our Common Stock purchased upon such exercise (except in the case of a cashless
exercise as discussed below). Purchasers of the Warrants in this offering may elect to deliver their exercise notice following the pricing
of the offering and prior to the issuance of the Warrants at closing to have their Warrants exercised immediately upon issuance and receive
shares of Common Stock underlying the Warrants upon closing of this offering. A holder (together with its affiliates) may not exercise
any portion of the Common Stock Warrant to the extent that the holder would beneficially or constructively own either a total number
of shares of (i) Common Stock in excess of the Common Stock Ownership Limit (as defined and determined in accordance with our charter)
or (ii) Capital Stock (as defined in our charter) in excess of the Aggregate Stock Ownership Limit (as defined and determined in accordance
with our charter), or otherwise cause the Company to fail to qualify as a REIT (as defined in our charter), unless the Company’s
Board of Directors has, in its sole discretion, granted the holder a waiver from the stock ownership limitations set forth in our charter.
For more information, please see “Description of Securities We May Offer – Restrictions on Ownership and Transfer”
in the accompanying prospectus. No fractional shares of Common Stock will be issued in connection with the exercise of a Common Stock
Warrant. In lieu of fractional shares, we will pay a cash adjustment in respect of such final fraction in an amount equal to such fraction
multiplied by the exercise price of the Common Stock Warrants or round up to the next whole share.
Cashless
Exercise. In lieu of making the cash payment otherwise contemplated to be made to us upon exercise of a Warrant in payment of the
aggregate exercise price, the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of shares
of Common Stock determined according to a formula set forth in the Warrants.
Transferability.
Subject to applicable laws, a Warrant may be transferred at the option of the holder upon surrender of the Warrant to us together with
the appropriate instruments of transfer.
Exchange
Listing. There is no trading market available for the Warrants on any securities exchange or nationally recognized trading system.
We do not intend to list the Warrants on any securities exchange or nationally recognized trading system.
Right
as a Stockholder. Except as otherwise provided in the Warrants or by virtue of such holder’s ownership of shares of our Common
Stock, the holders of the Warrants do not have the rights or privileges of holders of our Common Stock, including any voting rights,
until they exercise their Warrants.
Fundamental
Transaction. In the event of a fundamental transaction, as described in the Warrants and generally including any reorganization,
recapitalization or reclassification of our Common Stock, the sale, transfer or other disposition of all or substantially all of our
properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding Common
Stock, or any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding Common Stock, the
holders of the Warrants will be entitled to receive upon exercise of the Warrants the kind and amount of securities, cash or other property
that the holders would have received had they exercised the Warrants immediately prior to such fundamental transaction. Additionally,
as more fully described in the Warrant, in the event of certain fundamental transactions, the holders of Warrants will be entitled to
receive consideration in an amount equal to the Black Scholes value of the warrants on the date of consummation of such transaction.
PLAN
OF DISTRIBUTION
Alliance
Global Partners (“A.G.P.”) has agreed to act as placement agent in connection with this offering. The Placement Agent
is not purchasing or selling any of the shares of Common Stock or Pre-Funded Warrants offered by this prospectus supplement, but will
use its reasonable best efforts to arrange for the sale of the securities offered by this prospectus supplement. We have entered into
a securities purchase agreement directly with the investors in connection with this offering. The securities purchase agreement contains
customary representations, warranties and covenants. The offering is expected to close on or about July 14, 2021, subject to customary
closing conditions. A.G.P. Partners is also acting as Placement Agent for the private placement transaction and is being paid a fee related
to the placement of the Common Stock Warrants.
This
is a brief summary of the material provisions of the securities purchase agreement and does not purport to be a complete statement of
its terms and conditions. A copy of the form of the securities purchase agreement with the investors is included as an exhibit to a Current
Report on Form 8-K to be filed by the Company with the SEC in connection with this offering and is incorporated by reference into the
registration statement of which this prospectus supplement is part.
Fees
and Expenses
We
have agreed to pay the Placement Agent a fee equal to 7% of the gross proceeds from the Common Stock sold in this offering sold by the
Placement Agent.
The
following table shows the per share of Common Stock and total fees we will pay to the Placement Agent in connection with the sale of
the Common Stock offered pursuant to this prospectus supplement and the accompanying prospectus.
|
|
Per
Share
|
|
|
Total(2)
|
|
Public
offering price
|
|
$
|
5.00
|
|
|
$
|
10,000,000
|
|
Placement
Agent Fees(1)
|
|
$
|
0.35
|
|
|
$
|
699,300
|
|
Proceeds,
before expenses, to us
|
|
$
|
4.64
|
|
|
$
|
9,290,700
|
|
|
(1)
|
We
have agreed to pay the Placement Agent (i) a cash placement fee equal to 7% of the gross proceeds in this offering and (ii) non-accountable
expenses of $100,000; however, the Placement Agent shall credit the Company $25,000 on the closing date. In addition, the Company
will issue the Placement Agent warrants to purchase up to 80,000 shares of Series A Common Stock, representing 4.0% of the Series
A Common Stock and shares of Series A Common Stock issuable upon exercise of the Pre-Funded Warrant sold in this offering. In addition,
we have agreed to pay a $50,000 advisory fee to The Benchmark Company, LLC which is also not included in this table.
|
|
(2)
|
Includes
the proceeds from the issuance of Pre-Funded Warrants.
|
Indemnification
We
have agreed to indemnify the Placement Agent and other specified persons against certain civil liabilities, including liabilities under
the Securities Act and the Exchange Act, and to contribute to payments that the Placement Agent may be required to make in respect of
such liabilities.
Lock-Ups
We
have agreed that, subject to certain exceptions, without the prior written consent of the Placement Agent, we will not, for a period
of 90 days following the date of this prospectus supplement, offer or contract to sell any of our shares of Common Stock or Common Stock
equivalents.
LEGAL
MATTERS
Certain
legal matters in connection with the sale of the Common Stock offered hereby will be passed upon for us by Ellenoff Grossman & Schole
LLP, New York, New York . Certain matters of Maryland law will be passed upon for us by Venable LLP, Baltimore, Maryland.
Sheppard, Mullin, Richter & Hampton LLP, New York, New York, has acted as counsel for the Placement Agent in connection with certain
matters relating to this offering.
EXPERTS
The
consolidated financial statements of Presidio Property Trust, Inc. and its subsidiaries (formerly NetREIT, Inc. and Subsidiaries) as
of December 31, 2020 and 2019 and the related financial statement schedule, incorporated by reference in this prospectus, have been audited
by Baker Tilly, LLP, (which effective as of November 1, 2020, merged with Squar Milner LLP), an independent registered public accounting
firm, as stated in their reports incorporated by reference herein. Such financial statements and financial statement schedule have been
so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.
WHERE
YOU CAN FIND MORE INFORMATION
As
required by the Securities Act, we filed a registration statement relating to the securities offered by this prospectus supplement and
the accompanying prospectus with the SEC. This prospectus supplement and the accompanying prospectus are a part of that registration
statement, which includes additional information.
You
can read our SEC filings, including the registration statement, over the internet at the SEC’s website at www.sec.gov. We
also make this information available on the investors’ relations section of our website at www.presidiopt.com. Information
on, or accessible through, our website is not part of, and is not incorporated into, this prospectus or the registration statement of
which it forms a part.
Government
Filings
We
file annual and other reports with the SEC. You may read and copy any document that we file and obtain copies at prescribed rates from
the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling 1 (800) SEC-0330. The SEC maintains a website (http://www.sec.gov) that contains reports, proxy
and information statements and other information regarding issuers that file electronically with the SEC. Further information about our
Company is available on our website at www.presidiopt.com. The information on our website, however, is not, and should not be,
deemed to be a part of this prospectus supplement.
INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
The
SEC allows us to incorporate by reference into this prospectus supplement much of the information we file with the SEC, which means that
we can disclose important information to you by referring you to those publicly available documents. The information that we incorporate
by reference is considered to be part of this prospectus supplement and the accompanying prospectus. Because we are incorporating by
reference future filings with the SEC, this prospectus supplement and the accompanying prospectus are continually updated and those future
filings may modify or supersede some of the information included or incorporated in this prospectus supplement and the accompanying prospectus.
This means that you must look at all of the SEC filings that we incorporate by reference to determine if any of the statements in this
prospectus supplement or the accompanying prospectus or in any document previously incorporated by reference have been modified or superseded.
This prospectus supplement and the accompanying prospectus incorporate by reference the documents listed below and any future filings
we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act (in each case, other than those documents or the portions
of those documents not deemed to be filed) until the offering of the securities under the registration statement is terminated or completed:
|
●
|
our
Annual Report on Form
10-K for the fiscal year ended December 31, 2020, filed with the SEC on March 30, 2021;
|
|
|
|
|
●
|
our
Quarterly Report on Form
10-Q for the quarter ended March 31, 2021, filed with the SEC on May 10, 2021;
|
|
|
|
|
●
|
our
Current Reports on Form 8-K filed with the SEC on January
22, 2021, January
29, 2021, February
3, 2021, February
11, 2021, February
17, 2021, February
22, 2021, February
24, 2021, March
3, 2021, March
9, 2021, March
17, 2021, March
30, 2021, May
25, 2021, May
26, 2021, May
27, 2021, June
15, 2021, June
17, 2021, June
24, 2021 and July 14, 2021;
|
|
|
|
|
●
|
our
definitive proxy statement on Schedule
14A for 2021 Annual Meeting of Stockholders filed with the SEC on April 13, 2021; and
|
|
|
|
|
●
|
the
description of our Series A Common Stock set forth in the registration statement on Form
8-A registering our Series A Common Stock under Section 12 of the Exchange Act, which
was filed with the SEC on October 2, 2020, including any amendments or reports filed for
purposes of updating such description.
|
You
may request a copy of these filings, at no cost, by writing us at the following address:
Presidio
Property Trust, Inc.
4995
Murphy Canyon Road, Suite 300
San
Diego, CA 92123
Attn:
Chief Accounting Officer
Prospectus
PRESIDIO
PROPERTY TRUST, INC.
$200,000,000
SERIES
A COMMON STOCK
PREFERRED
STOCK
PURCHASE
CONTRACTS
WARRANTS
SUBSCRIPTION
RIGHTS
DEPOSITARY
SHARES
DEBT
SECURITIES
UNITS
We
may offer and sell from time to time, in one or more series, any one of the following securities of Presidio Property Trust, Inc. (“Presidio”
or the “Company”), for total gross proceeds of up to $200,000,000:
|
●
|
Series
A Common Stock;
|
|
|
|
|
●
|
preferred
stock;
|
|
|
|
|
●
|
purchase
contracts;
|
|
|
|
|
●
|
warrants
to purchase our securities;
|
|
|
|
|
●
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subscription
rights to purchase any of the foregoing securities;
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depositary
shares;
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debt
securities (which may be senior or subordinated, convertible or non-convertible, secured or unsecured); and
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units
comprised of the foregoing securities.
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We
may offer and sell these securities separately or together, in one or more series or classes and in amounts, at prices and on terms described
in one or more offerings. We may offer securities through underwriting syndicates managed or co-managed by one or more underwriters or
dealers, through agents or directly to purchasers. The prospectus supplement for each offering of securities will describe in detail
the plan of distribution for that offering. For general information about the distribution of securities offered, please see “Plan
of Distribution” in this prospectus.
Presidio’s
Series A Common Stock is traded on the Nasdaq Capital Market under the symbol “SQFT.” If we decide to seek a listing of any
other class or series of common stock, any preferred stock, purchase contracts, warrants, subscription rights, depositary shares,
debt securities or units offered by this prospectus, the related prospectus supplement will disclose the exchange or market on which
the securities will be listed, if any, or where we have made an application for listing, if any.
As
of April 9, 2021, the aggregate market value of our outstanding voting and non-voting common equity held by non-affiliates was approximately
$34.7 million, based on an aggregate of 9,895,051 shares of Series A Common Stock outstanding, of which 9,326,388 shares were held by
non-affiliates, and a per share price of $3.72, the closing price of our Series A Common Stock on April 9, 2021, as reported on the Nasdaq
Capital Market. Pursuant to General Instruction I.B.6 of Form S-3, in no event will we sell securities in a public primary offering with
a value exceeding more than one-third of our public float in any 12-month period so long as our public float remains below $75.0 million.
We have not sold any securities pursuant to General Instruction I.B.6 of Form S-3 during the 12 calendar months prior to and including
the date of this prospectus.
Investing
in our securities involves certain risks. You should carefully read and consider the section entitled “Risk Factors”
on page 4 and the risk factors included in our periodic reports filed with the Securities and Exchange Commission and, if any, in
the relevant prospectus supplement. We urge you to carefully read this prospectus and the applicable prospectus supplement, together
with the documents we incorporate by reference, before making your investment decision.
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 April 27, 2021.
TABLE
OF CONTENTS
ABOUT
THIS PROSPECTUS
This
prospectus is part of a registration statement on Form S-3 that we filed with the Securities and Exchange Commission, or SEC, utilizing
a “shelf” registration process. Under this shelf registration process, we may offer and sell, either individually or in combination,
in one or more offerings, any of the securities described in this prospectus, for total gross proceeds of up to $200,000,000. This prospectus
provides you with a general description of the securities we may offer. Each time we offer securities under this prospectus, we will
provide a prospectus supplement to this prospectus that will contain more specific information about the terms of that offering. We may
also authorize one or more free writing prospectuses to be provided to you that may contain material information relating to these offerings.
The prospectus supplement and any related free writing prospectus that we may authorize to be provided to you may also add, update or
change any of the information contained in this prospectus or in the documents that we have incorporated by reference into this prospectus.
In this prospectus, unless the context indicates otherwise, the terms “Presidio,” “Company,” “we,”
“us,” and “our” refer to Presidio Property Trust, Inc., a Maryland corporation.
We
urge you to read carefully this prospectus, any applicable prospectus supplement and any free writing prospectuses we have authorized
for use in connection with a specific offering, together with the information incorporated herein by reference as described under the
heading “Incorporation of Certain Information by Reference,” before investing in any of the securities being offered. You
should rely only on the information contained in, or incorporated by reference into, this prospectus and any applicable prospectus supplement,
along with the information contained in any free writing prospectuses we have authorized for use in connection with a specific offering.
We have not authorized anyone to provide you with different or additional information. This prospectus is an offer to sell only the securities
offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so.
The
information appearing in this prospectus, any applicable prospectus supplement or any related free writing prospectus is accurate only
as of the date on the front of the document and any information we have incorporated by reference is accurate only as of the date of
the document incorporated by reference, regardless of the time of delivery of this prospectus, any applicable prospectus supplement or
any related free writing prospectus, or any sale of a security.
This
prospectus contains summaries of certain provisions contained in some of the documents described herein, but reference is made to the
actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of some
of the documents referred to herein have been filed, will be filed or will be incorporated by reference as exhibits to the registration
statement of which this prospectus is a part, and you may obtain copies of those documents as described below under the section entitled
“Where You Can Find More Information.”
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus and any accompanying prospectus supplement and the documents incorporated by reference herein include forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21B of the Securities Exchange Act of 1934, as amended,
or the Exchange Act. All statements other than statements of historical fact contained or incorporated by reference in this prospectus
are forward-looking statements. The words “believe,” “may” “will,” “estimate,” “continue,”
“anticipate,” “intend,” “expect” and similar expressions, as they relate to us, are intended to identify
forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events
and financial trends that we believe may affect our financial condition, results of operations, business strategy, business prospectus,
growth strategy and liquidity. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and
assumptions and our actual results could differ materially from those anticipated in forward-looking statements for many reasons, including
the factors described in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operation” in our most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q filed with
the SEC.
The
forward-looking statements speak as of the date made and are not guarantees of future performance. Actual results or developments may
differ materially from the expectations expressed or implied in the forward-looking statements, and we undertake no obligation to update
any such statements. You should not place undue reliance on these forward-looking statements.
You
should carefully read the factors described in the “Risk Factors” section of any prospectus supplement or other offering
material, as well as any risks described in the documents incorporated by reference into this prospectus for a description of certain
risks that could, among other things, cause our actual results to differ from these forward-looking statements. You should understand
that it is not possible to predict or identify all such factors and that this list should not be considered a complete statement of all
potential risks and uncertainties. You should also realize that if the assumptions we have made prove inaccurate or if unknown risks
or uncertainties materialize, actual results could vary materially from the views and estimates included or incorporated by reference
in this prospectus.
ABOUT
PRESIDIO PROPERTY TRUST, INC.
Overview
We
are an internally managed, diversified real estate investment trust (“REIT”). As of December 31, 2020, our portfolio consisted
of approximately 1,114,518 square feet (which we refer to as “sf”) comprised of 10 office properties, one industrial property
and four retail properties, which we refer to collectively as our commercial portfolio. Our commercial portfolio currently consists of
properties located in Southern California, Colorado, and North Dakota, and we are currently considering new commercial property acquisitions
in a variety of additional markets across the United States. Our commercial property tenant base is diversified, which helps limit our
exposure to any single industry in which our tenants operate. As of December 31, 2020, our tenant base consisted of 192 individual commercial
tenants with an average remaining lease term of approximately 2.9 years. As of December 31, 2020, no commercial tenant represented more
than approximately 7% of our annualized base rent, and our ten largest tenants represented approximately 28.88% of our annualized base
rent.
In
addition, we also own interests, through our subsidiaries and affiliated limited partnerships, in model homes primarily located in Texas
and Florida. As of December 31, 2020, there were 118 such model homes. We purchase model homes from established residential home builders
and lease them back to the same home builders on a triple-net basis.
Our
main objective is to maximize long-term stockholder value through the acquisition, management, leasing and selective redevelopment of
high-quality commercial properties. We focus on regionally dominant markets across the United States which we believe have attractive
growth dynamics driven in part by important economic factors such as strong office-using employment growth; net in-migration of a highly
educated workforce; a large student population; the stability provided by healthcare systems, government or other large institutional
employer presence; low rates of unemployment; and lower cost of living versus gateway markets. We seek to maximize returns through investments
in markets with limited supply, high barriers to entry, and stable and growing employment drivers. Our model home portfolio supports
the objective of maximizing stockholder value by focusing on purchasing new single-family model homes and leasing them back to experienced
homebuilders. We operate the model home portfolio in markets where we believe that there may be potential for price appreciation, and
we can diversify by geography, builder size, model home purchase price and type of homebuyer.
Our
co-founder, Chairman, President and Chief Executive Officer is Jack K. Heilbron, a 40-year veteran in real estate investing, including
eight years with Excel Realty Trust, Inc. (“Excel REIT”), previously an NYSE-listed retail REIT, and one of its predecessor
companies, The Investors Realty Trust (“IRT”), prior to founding our company. Together with our former Chief Financial Officer
and Treasurer, Kenneth W. Elsberry, Mr. Heilbron founded both our company and Clover Income and Growth REIT, Inc. (“Clover REIT”),
a private REIT focused on retail mixed-use properties. During Mr. Heilbron’s tenure at Excel REIT, IRT and Clover REIT, Mr. Heilbron
oversaw the investment of substantial real estate assets and saw Clover REIT liquidate at a substantial gain to investors. Our model
home division is led by Larry G. Dubose, a pioneer in the industry who has over 30 years of experience acquiring, financing, managing,
and operating model home sale-leaseback transactions with builders throughout the nation. Our senior management team also includes Gary
M. Katz, Ann T. Nguyen, and Adam Sragovicz, each of whom has approximately 20 years or more of diverse experience in various aspects
of real estate, including both commercial and residential, management, acquisitions, finance and dispositions in privately-held and publicly
traded companies. We believe this industry experience and depth of relationships provides us with a significant advantage in sourcing,
evaluating, underwriting and managing our investments.
Our
Current Portfolio
Our
commercial portfolio currently consists of 15 properties located in Southern California, Colorado, and North Dakota, and approximately
118 model home properties located in six states, with the majority located in Texas and Florida as of December 31, 2020. This geographical
clustering enables us to minimize operating costs and leverage efficiencies by managing a number of properties utilizing minimal overhead
and staff. Our model home division utilizes newly-built single family model homes as an investment vehicle. Our model home division purchases
model homes from, and leases them back to, homebuilders as commercial tenants on a triple-net basis. These triple-net investments in
which the commercial homebuilders bear the expenses of maintenance, real estate taxes and insurance (in addition to defraying monthly
mortgage payments), alleviate significant cost and risk normally associated with holding single family homes for speculative sale or
for lease to residential tenants.
Our
Investment Approach
Our
Commercial Property Investment Approach
We
acquire high-quality commercial properties in overlooked and/or underserved markets, where we believe we can create long-term stockholder
value. Our potential commercial investments are extensively reviewed based on several characteristics, including:
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Market
Research. We invest in properties within regionally dominant markets that we believe to be overlooked. We analyze potential markets
for the key indicators that we feel will provide us higher risk adjusted returns. These indicators may include a net in-migration
of highly educated workers, business friendly governmental policies, large university populations, accessible healthcare systems
and available housing. We believe this quantitative approach will result in property acquisitions in markets with substantially higher
demand for high quality commercial real estate.
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Real
Estate Enhancement. We typically acquire properties where we believe market demand is such that values can be significantly enhanced
through repositioning strategies, such as upgrading common areas and tenant spaces, re-tenanting and leasing vacant space. We expect
that these strategies will increase rent and occupancy while enhancing long-term value.
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Portfolio
Management. We believe our target markets have benefited from substantial economic growth, which provides us with opportunities
to achieve long-term value and ultimately sell properties and recycle capital into properties offering a higher risk-adjusted return.
We have achieved substantial returns in the past from the operation, repositioning, and sale of properties. We continue to actively
manage our properties to maximize the opportunity to recycle capital.
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Our
Model Home Property Investment Approach
Model
homes are single-family homes constructed by builders for the purpose of showcasing floor plans, elevations, optional features, and workmanship
when marketing the development where the homes are located. Each model home is designed to be held for a minimum lease term (usually
three years), after which the model home is listed for sale at the estimated fair market value. We seek to purchase model homes at a
discount from their appraised value that have a likelihood of appreciation within the expected three-year term of the lease. Our model
home leaseback agreements are triple-net, requiring the homebuilder/tenant to pay all operating expenses. We seek model homes in a variety
of locations, a variety of price ranges, and from a variety of builders and developers to diversify the risk from economic conditions
that may adversely affect a particular development or location.
Our
Growth Strategy
Our
principal business objective is to provide attractive risk-adjusted returns to our stockholders through a combination of (i) sustainable
and increasing rental income and cash flow that generates reliable, increasing dividends and (ii) potential long-term appreciation
in the value of our properties and common stock. Our primary strategy to achieve our business objective is to invest in, own and manage
a diverse multi-tenant portfolio of high-quality commercial properties in promising regionally dominant markets, which we believe will
drive higher tenant retention and occupancy.
Our
Commercial Property Growth Strategy
We
intend to grow our commercial portfolio by acquiring high-quality properties in our target markets. We may selectively invest in industrial,
office, retail, triple net and other properties where we believe we can achieve higher risk-adjusted returns for our stockholders. We
expect that our extensive broker and seller relationships will benefit our acquisition activities and help set us apart from competing
buyers. In addition, we continue to actively manage our portfolio of commercial properties and continue to redeploy capital through the
opportunistic sale of certain commercial properties.
We
typically purchase properties at what we believe to be a discount to the replacement value of the property. We seek to enhance the value
of these properties through active asset management where we believe we can increase occupancy and rent. We typically achieve this growth
through value-added investments in these properties, such as common area renovations, enhancement of amenities, improved mechanical systems,
and other value-enhancing investments. We generally will not invest in ground-up development as we believe our target markets’
rental rates are below those needed to justify new construction.
Our
Model Home Growth Strategy
We
intend to purchase model homes that are in the “move-up market” and in the first-time or entry-level homebuyer market.
The purchase of model homes will be from builders that have sufficient assets to fulfill their lease obligations and with model homes
that offer a good opportunity for appreciation upon their sale. Sales proceeds from model homes will typically be reinvested to acquire
new model homes.
Our
Competitive Strengths
We
believe that our management team’s extensive public REIT and general real estate experience distinguishes us from many other public
and private real estate companies. Specifically, our competitive strengths include, among others:
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Experienced
Senior Management Team. Our senior management team has over 75 combined years of experience with public-reporting companies,
including real estate experience with a number of other publicly traded companies and institutional investors. We are the third REIT
to be co-founded by our CEO, providing us with core real estate experience in addition to substantial public market experience. We
have operated as a publicly-reporting company since 2009 and a publicly traded company on the Nasdaq stock exchange since the
fourth quarter of 2020.
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Investment
Focus. We believe that our focus on attractive regionally dominant markets provides higher risk-adjusted returns than other public
REITs and institutional investors which are focused on gateway markets and major metropolitan areas, as our target markets provide
less competition resulting in higher initial returns and greater opportunities to enhance value through institutional quality asset
management.
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Nimble
Management Execution. Our principal focus is on acquiring commercial properties offering immediate yield, combined with identifiable
value-creation opportunities. We operate in niche geographies, targeting acquisitions valued at between $10 million and $30 million
in order to limit competition from larger, better capitalized buyers focused on core markets. We continue to identify and execute
these types and sizes of transactions efficiently, which we believe provides us an advantage over other institutional investors,
including larger REITs that focus on larger properties or portfolios in more competitively marketed investment transactions.
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Extensive
Broker and Seller Relationships. Our senior management team has developed extensive broker and seller relationships, which remain
vital to our acquisition efforts. Of our 11 acquisitions since 2014, eight of these transactions were procured either off-market or
through brokers with whom we have a historical relationship. We expect these relationships, as well as our ability to establish such
relationships in new markets, to provide valuable access to an acquisition pipeline.
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Our
REIT Status
We
elected to be taxed as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 2000. To continue
to be taxed as a REIT, we must satisfy numerous organizational and operational requirements, including a requirement that we distribute
at least 90% of our REIT taxable income to our stockholders, as defined in the Code and calculated on an annual basis. As a REIT, we
are generally not subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify for taxation
as a REIT in any year, our income will be taxed at regular corporate rates, and we may be precluded from qualifying for treatment as
a REIT for the four-year period following our failure to qualify. Even though we qualify as a REIT for federal income tax purposes, we
may still be subject to state and local taxes on our income and property and to federal income and excise taxes on our undistributed
income. For more information, please see “U.S. Federal Income Tax Considerations.”
Distribution
Policy
We
plan to distribute at least 90% of our annual REIT taxable income to our stockholders in order to maintain our status as a REIT.
We
intend to declare quarterly distributions. To be able to pay such dividends, our goal is to generate cash distributions from operating
cash flow and proceeds from the sale of properties. During 2020, 2019 and 2018, we declared distributions of approximately $1.0 million
each year. In the first quarter of 2021, we paid distributions of approximately $1.0 million. However, we cannot
provide any assurance as to the amount or timing of future distributions. For example, our distributions were suspended for the periods
from the third quarter of 2017 through the third quarter of 2018 and from the second quarter of 2019 through the third quarter of
2020.
To
the extent that we make distributions in excess of our earnings and profits, as computed for federal income tax purposes, these distributions
will represent a return of capital, rather than a dividend, for federal income tax purposes. Distributions that are treated as a return
of capital for federal income tax purposes generally will not be taxable as a dividend to a U.S. stockholder, but will reduce the stockholder’s
basis in its shares (but not below zero) and therefore can result in the stockholder having a higher gain upon a subsequent sale of such
shares. Return of capital distributions in excess of a stockholder’s basis generally will be treated as gain from the sale of such
shares for federal income tax purposes.
We
provide each of our stockholders a statement detailing distributions paid during the preceding year and their characterization as ordinary
income, capital gain or return of capital. For the years ended December 31, 2020 and 2019, distributions were reported as a distribution
of taxable earnings and a return of capital to the stockholders.
RISK
FACTORS
Investing
in our securities involves a high degree of risk. Before deciding whether to invest in our securities, you should carefully consider
the risk factors we describe in any prospectus supplement and in any related free writing prospectus for a specific offering of securities,
as well as those incorporated by reference into this prospectus or such prospectus supplement. You should also carefully consider
other information contained and incorporated by reference in this prospectus and any applicable prospectus supplement, including our
financial statements and the related notes thereto incorporated by reference in this prospectus, especially the information in the section
titled “Risk Factors” from our most recent Annual Report on Form 10-K, which was filed with the SEC on March 30, 2021. The
risks and uncertainties described in the applicable prospectus supplement and our other filings with the SEC incorporated by reference
herein are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently consider immaterial
may also adversely affect us. If any of the described risks occur, our business, financial condition or results of operations could be
materially harmed. In such case, the value of our securities could decline and you may lose all or part of your investment.
USE
OF PROCEEDS
Unless
otherwise indicated in a prospectus supplement, we expect the net proceeds from the sale of the securities will be used for the working
capital and for other general corporate purposes, potentially including the pay down of corporate debt. We may also use a portion of
the net proceeds to acquire or invest in real estate assets, businesses, products and technologies that are complementary to our
business, but we currently have no commitments or agreements relating to any of these types of transactions.
PLAN
OF DISTRIBUTION
We
may sell the securities from time to time to or through underwriters or dealers, through agents, or directly to one or more purchasers.
A distribution of the securities offered by this prospectus may also be effected through the issuance of derivative securities, including
without limitation, preferred stock, purchase contracts, warrants, subscription rights and depositary shares. In addition, the manner
in which we may sell some or all of the securities covered by this prospectus includes, without limitation, through:
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a
block trade in which a broker-dealer will attempt to sell as agent, but may position or resell a portion of the block, as principal,
in order to facilitate the transaction;
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purchases
by a broker-dealer, as principal, and resale by the broker-dealer for its account; or
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ordinary
brokerage transactions and transactions in which a broker solicits purchasers.
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A
prospectus supplement or supplements with respect to each series of securities will describe the terms of the offering, including, to
the extent applicable:
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the
terms of the offering;
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the
name or names of the underwriters or agents and the amounts of securities underwritten or purchased by each of them, if any;
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the
public offering price or purchase price of the securities or other consideration therefor, and the proceeds to be received by us from
the sale;
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any
delayed delivery requirements;
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any
over-allotment options under which underwriters may purchase additional securities from us;
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any
underwriting discounts or agency fees and other items constituting underwriters’ or agents’ compensation;
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any
discounts or concessions allowed or re-allowed or paid to dealers; and
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any
securities exchange or market on which the securities may be listed.
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The
offer and sale of the securities described in this prospectus by us, the underwriters or the third parties described above may be effected
from time to time in one or more transactions, including privately negotiated transactions, either:
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at
a fixed price or prices, which may be changed;
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in
an “at the market” offering within the meaning of Rule 415(a)(4) of the Securities Act;
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at
prices related to such prevailing market prices; or
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Only
underwriters named in the prospectus supplement will be underwriters of the securities offered by the prospectus supplement.
Underwriters
and Agents; Direct Sales
If
underwriters are used in a sale, they will acquire the offered securities for their own account and may resell the offered securities
from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices
determined at the time of sale. We may offer the securities to the public through underwriting syndicates represented by managing underwriters
or by underwriters without a syndicate.
Unless
the prospectus supplement states otherwise, the obligations of the underwriters to purchase the securities will be subject to the conditions
set forth in the applicable underwriting agreement. Subject to certain conditions, the underwriters will be obligated to purchase all
of the securities offered by the prospectus supplement, other than securities covered by any over-allotment option. Any public offering
price and any discounts or concessions allowed or re-allowed or paid to dealers may change from time to time. We may use underwriters
with whom we have a material relationship. We will describe in the prospectus supplement, naming the underwriter, the nature of any such
relationship.
We
may sell securities directly or through agents we designate from time to time. We will name any agent involved in the offering and sale
of securities, and we will describe any commissions we will pay the agent in the prospectus supplement. Unless the prospectus supplement
states otherwise, our agent will act on a best-efforts basis for the period of its appointment.
We
may authorize agents or underwriters to solicit offers by certain types of institutional investors to purchase securities from us at
the public offering price set forth in the prospectus supplement pursuant to delayed delivery contracts providing for payment and delivery
on a specified date in the future. We will describe the conditions to these contracts and the commissions we must pay for solicitation
of these contracts in the prospectus supplement.
Dealers
We
may sell the offered securities to dealers as principals. The dealer may then resell such securities to the public either at varying
prices to be determined by the dealer or at a fixed offering price agreed to with us at the time of resale.
Institutional
Purchasers
We
may authorize agents, dealers or underwriters to solicit certain institutional investors to purchase offered securities on a delayed
delivery basis pursuant to delayed delivery contracts providing for payment and delivery on a specified future date. The applicable prospectus
supplement or other offering materials, as the case may be, will provide the details of any such arrangement, including the offering
price and commissions payable on the solicitations.
We
will enter into such delayed contracts only with institutional purchasers that we approve. These institutions may include commercial
and savings banks, insurance companies, pension funds, investment companies and educational and charitable institutions.
Indemnification;
Other Relationships
We
may provide agents, underwriters, dealers and remarketing firms with indemnification against certain civil liabilities, including liabilities
under the Securities Act, or contribution with respect to payments that the agents or underwriters may make with respect to these liabilities.
Agents, underwriters, dealers and remarketing firms, and their affiliates, may engage in transactions with, or perform services for,
us in the ordinary course of business. This includes commercial banking and investment banking transactions.
Market-Making;
Stabilization and Other Transactions
There
is currently no market for any of the offered securities, other than the Series A Common Stock of Presidio, which is listed on the Nasdaq
Capital Market. If the offered securities are traded after their initial issuance, they may trade at a discount from their initial offering
price, depending upon prevailing interest rates, the market for similar securities and other factors. While it is possible that an underwriter
could inform us that it intends to make a market in the offered securities, such underwriter would not be obligated to do so, and any
such market-making could be discontinued at any time without notice. Therefore, no assurance can be given as to whether an active trading
market will develop for the offered securities. We have no current plans for listing of the preferred stock, purchase contracts, warrants,
subscription rights, depositary shares, debt securities or units on any securities exchange or quotation system; any such listing with
respect to any particular securities will be described in the applicable prospectus supplement or other offering materials, as the case
may be.
Any
underwriter may engage in over-allotment, stabilizing transactions, short-covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. Over-allotment involves sales in excess of the offering size, which create a short position. Stabilizing transactions
permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum price. Syndicate-covering
or other short-covering transactions involve purchases of the securities, either through exercise of the over-allotment option or in
the open market after the distribution is completed, to cover short positions. Penalty bids permit the underwriters to reclaim a selling
concession from a dealer when the securities originally sold by the dealer are purchased in a stabilizing or covering transaction to
cover short positions. Those activities may cause the price of the securities to be higher than it would otherwise be. If commenced,
the underwriters may discontinue any of the activities at any time.
Any
underwriters or agents that are qualified market makers on the Nasdaq Capital Market may engage in passive market making transactions
in our Series A Common Stock on the Nasdaq Capital Market in accordance with Regulation M under the Exchange Act, during the business
day prior to the pricing of the offering, before the commencement of offers or sales of our Series A Common Stock. Passive market makers
must comply with applicable volume and price limitations and must be identified as passive market makers. In general, a passive market
maker must display its bid at a price not in excess of the highest independent bid for such security; if all independent bids are lowered
below the passive market maker’s bid, however, the passive market maker’s bid must then be lowered when certain purchase
limits are exceeded. Passive market making may stabilize the market price of the securities at a level above that which might otherwise
prevail in the open market and, if commenced, may be discontinued at any time.
Fees
and Commissions
We
will disclose the fees to be paid to any underwriter, dealer or agent in the prospectus supplement for any takedown. If any conflict
of interest exists between the issuer and an underwriter, dealer or agent participating in an offering of securities under this prospectus,
the offering will be conducted in compliance with FINRA Rule 5121.
DESCRIPTION
OF SECURITIES WE MAY OFFER
General
This
prospectus describes the general terms of our stock and other securities we may offer. The following description is not complete and
may not contain all the information you should consider before investing in our stock or other securities. For a more detailed description
of these securities, you should read the applicable provisions of the Maryland General Corporation Law (the “MGCL”), our charter and
our bylaws. Copies of our charter and bylaws have been filed with the SEC and are incorporated by reference as exhibits to the registration
statement of which this prospectus is a part. See “Where You Can Find More Information.” When we offer to sell a particular
series of these securities, we will describe the specific terms of the series in a supplement to this prospectus. Accordingly, for a
description of the terms of any series of securities, you must refer to both the prospectus supplement relating to that series and the
description of the securities described in this prospectus. To the extent the information contained in the prospectus supplement differs
from this summary description, you should rely on the information in the prospectus supplement.
Our
charter authorizes us to issue up to 110,001,000 shares of stock, consisting of (i) 109,001,000 shares of common stock, $0.01 par
value per share, of which 100,000,000 are classified as shares of Series A Common Stock, 1,000 are classified as shares of Series B Common
Stock and 9,000,000 are classified as shares of Series C Common Stock, and (ii) 1,000,000 shares of preferred stock, $0.01 par value
per share. As of April 9, 2021, there were approximately 9,895,051 shares of Series A Common Stock issued and outstanding and no shares
of any other class or series of stock issued and outstanding.
Common
Stock
The
shares of Series C Common Stock have identical preferences, rights, voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemption to the shares of Series A Common Stock. As of April 9, 2021, no
shares of Series C Common Stock were issued and outstanding.
All
shares of our Series A Common Stock offered hereby will be duly authorized, validly issued, fully paid and nonassessable. Subject to
the restrictions on ownership and transfer of our stock discussed below under the caption “—Restrictions on Ownership and
Transfer” and the voting rights of holders of outstanding shares of any other class or series of our stock, holders of our common
stock are entitled to one vote for each share held of record on all matters on which stockholders are entitled to vote generally, including
the election or removal of directors, and, except as provided with respect to any other class or series of our stock, the holders of
shares of our common stock possess exclusive voting power. Directors are elected by a plurality of the votes cast at the meeting in which
directors are being elected. Under our charter, voting for the election of directors will be cumulative if, prior to commencement of
the voting, a stockholder gives us notice of his, her or its intention to cumulate votes. If any stockholder gives such a notice,
then every stockholder will be entitled to such rights, in which case, each stockholder may cumulate his, her or its total votes and
cast all of his, her or its votes for any one or a combination of director nominees. In cumulative voting, the total votes entitled
to be cast by a stockholder equals the number of director nominees multiplied by the number of shares of common stock that such stockholder
is entitled to vote.
Holders
of our common stock are entitled to receive dividends or other distributions as and when authorized by our Board of Directors and declared
by us out of assets legally available for the payment of dividends. Upon our liquidation, dissolution or winding up and after payment
in full of all amounts required to be paid to creditors and to the holders of outstanding shares of any other class or series of our
stock having liquidation preferences senior to our common stock, if any, the holders of our common stock will be entitled to share ratably
in our remaining assets legally available for distribution. Holders of our common stock do not have preemptive, subscription, redemption
or conversion rights. There are no sinking fund provisions applicable to the common stock. Holders of our Series A Common Stock
generally have no appraisal rights under the MGCL as long as the shares are listed on a national securities exchange. All shares of our
common stock have equal dividend and liquidation rights. The rights, powers, preferences and privileges of holders of our common stock
are subject to those of the holders of any shares of our preferred stock or any other class or series of stock that we may authorize
and issue in the future and to the restrictions on ownership and transfer of our stock described below under the caption “—Restrictions
on Ownership and Transfer.”
Under
the MGCL, a Maryland corporation generally cannot amend its charter, consolidate, merge, convert, sell all or substantially all of its
assets, engage in a share exchange or dissolve unless the action is advised by its Board of Directors and approved by the affirmative
vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter unless a lesser percentage (but
not less than a majority of the votes entitled to be cast on the matter) is set forth in the corporation’s charter. As permitted
by Maryland law, our charter provides that a merger, consolidation, share exchange, dissolution or sale of substantially all of our assets
may be approved by the affirmative vote of stockholders entitled to cast a majority of all of the votes entitled to be cast on the matter.
In addition, because many of our operating assets are held by our subsidiaries, these subsidiaries may be able to merge or sell all or
substantially all of their assets without the approval of our stockholders.
Power
to Reclassify and Issue Stock
Our
charter authorizes our Board of Directors to classify and reclassify any unissued shares of our preferred stock into other classes or
series of stock, including one or more classes or series of stock that have priority over our common stock with respect to dividends
or upon liquidation, or have voting rights and other rights that differ from the rights of the common stock, and authorizes us to issue
the newly classified shares. Before authorizing the issuance of shares of any new class or series, our Board of Directors must set, subject
to the provisions in our charter relating to the restrictions on ownership and transfer of our stock, the preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions
of redemption for each class or series of stock. These actions may be taken without the approval of holders of our common stock unless
such approval is required by applicable law, the terms of any other class or series of our stock or the rules of any stock exchange or
automated quotation system on which any of our stock is listed or traded.
We
believe that the power of our Board of Directors to authorize us to issue additional authorized but unissued shares of common stock or
preferred stock and to classify or reclassify unissued shares of preferred stock and thereafter to authorize us to issue such classified
or reclassified shares of stock will provide us with increased flexibility in structuring possible future financings and acquisitions
and in meeting other needs that might arise.
Restrictions
on Ownership and Transfer
In
order for us to qualify as a REIT for U.S. federal income tax purposes, our stock must be beneficially owned by 100 or more persons during
at least 335 days of a taxable year of 12 months (other than the first year for which an election to be a REIT has been made)
or during a proportionate part of a shorter taxable year. Also, not more than 50% of the value of the outstanding shares of our
stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities such as
private foundations) during the last half of a taxable year (other than the first year for which an election to be a REIT has been made).
Our
charter contains restrictions on the ownership and transfer of our stock that are intended to, among other purposes, assist us in complying
with these requirements and qualifying as a REIT. Subject to the exceptions described below, no person or entity may beneficially
own, or be deemed to own by virtue of the applicable constructive ownership provisions of the Code, more than 9.8% (in value or by number
of shares, whichever is more restrictive) of our aggregate outstanding shares of common stock, which we refer to as the “common
stock ownership limit,” or 9.8% in value of our aggregate outstanding shares of stock, which we refer to as the “aggregate
stock ownership limit.” We refer to the common stock ownership limit and the aggregate stock ownership limit, collectively, as
the “ownership limit.”
The
constructive ownership rules under the Code are complex and may cause stock owned actually or constructively by a group of related individuals
and/or entities to be owned constructively by one individual or entity. As a result, the acquisition of less than 9.8% of our aggregate
outstanding shares of common stock or 9.8% of our aggregate outstanding shares of stock, or the acquisition of an interest in an entity
that owns our stock, could, nevertheless, cause the acquirer or another individual or entity to own our stock in excess of the ownership
limit.
Our
Board of Directors may, upon receipt of such representations and undertakings reasonably necessary to make such a determination, and
in its sole discretion, prospectively or retroactively, establish a different limit on ownership, or an excepted holder limit, for a
particular stockholder if the stockholder’s ownership in excess of the ownership limit would not result in our being “closely
held” under Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a
taxable year) or otherwise failing to qualify as a REIT. As a condition of granting a waiver of the ownership limit or creating
an excepted holder limit, our Board of Directors may, but is not required to, require an opinion of counsel or a ruling from the IRS,
in either case in form and substance satisfactory to our Board of Directors in its sole discretion, as it may deem necessary or advisable
to determine or ensure our status as a REIT and may impose such other conditions or restrictions as it deems appropriate.
Our
Board of Directors may increase the ownership limit from time to time.
Our
charter also prohibits:
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any
person from beneficially or constructively owning shares of our stock that would result in our being “closely held” under
Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year)
or otherwise cause us to fail to qualify as a REIT; and
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subject
to certain exceptions relating to transactions through the facilities of the NYSE or any other national securities exchange or automated
inter-dealer quotation system, any person from transferring shares of our stock if the transfer would result in shares of our stock
being beneficially owned by fewer than 100 persons.
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Any
person who acquires or attempts or intends to acquire beneficial or constructive ownership of shares of our stock that will or may violate
the ownership limit or any of the other restrictions on ownership and transfer of our stock, and any person who is the intended transferee
of shares of our stock that are transferred to a trust for the benefit of one or more charitable beneficiaries described below, must
give immediate written notice of such an event or, in the case of a proposed or attempted transfer, give at least 15 days’
prior written notice to us and provide us with such other information as we may request in order to determine the effect of the transfer
on our status as a REIT. The provisions of our charter relating to the restrictions on ownership and transfer of our stock will
not apply if the Board of Directors determines that it is no longer in our best interests to continue to qualify as a REIT and, upon
receipt of a recommendation to that effect from the Board of Directors, the holders of shares of common stock, by a vote of a majority
of the votes entitled to be cast on the matter, determine that we shall revoke or otherwise terminate our REIT election. The holders
of shares of common stock, upon receipt of a recommendation from the Board of Directors, may also determine that compliance with any
of the restrictions set forth above is no longer required in order for us to qualify as a REIT and cause us to amend the charter to remove
any such restriction or limitation.
Any
attempted transfer of our stock that, if effective, would result in our stock being beneficially owned by fewer than 100 persons will
be null and void. Any attempted transfer of our stock that, if effective, would result in a violation of the ownership limit (or
other limit established by our charter or our Board of Directors), our being “closely held” under Section 856(h) of
the Code (without regard to whether the ownership interest is held during the last half of a taxable year) or our otherwise failing to
qualify as a REIT will cause the number of shares causing the violation (rounded to the nearest whole share) to be transferred automatically
to a trust for the benefit of a charitable beneficiary, and the proposed transferee will not acquire any rights in the shares. The
automatic transfer will be effective as of the close of business on the business day before the date of the attempted transfer or other
event that resulted in a transfer to the trust. If the transfer to the trust as described above would not be effective, for any
reason, to prevent a violation of the applicable restrictions on ownership and transfer of our stock, then the attempted transfer that,
if effective, would have resulted in a violation of the ownership limit (or other limit established by our charter or our Board of Directors),
our being “closely held” under Section 856(h) of the Code (without regard to whether the ownership interest is held
during the last half of a taxable year) or our otherwise failing to qualify as a REIT will be null and void.
Shares
of our stock held in the trust will be issued and outstanding shares. The proposed transferee will not benefit economically from
ownership of any shares of our stock held in the trust and will have no rights to dividends or other distributions and no rights to vote
or other rights attributable to the shares of our stock held in the trust. The trustee of the trust will exercise all voting rights
and receive all dividends and other distributions with respect to shares held in the trust for the exclusive benefit of the charitable
beneficiary of the trust. Any dividend or other distribution paid before we discover that the shares have been transferred to a
trustee as described above must be repaid by the recipient to the trustee upon demand and any dividend or other distribution authorized
but unpaid must be paid when due to the trustee. Subject to Maryland law, effective as of the date that the shares have been transferred
to the trustee, the trustee will have the authority, at the trustee’s sole discretion, (i) to rescind as void any vote cast
by a proposed transferee before our discovery that the shares have been transferred to the trustee and (ii) to recast the vote in
accordance with the desires of the trustee acting for the benefit of the charitable beneficiary. However, if we have already taken
irreversible corporate action, then the trustee may not rescind or recast the vote.
Within
20 days of receiving notice from us of a transfer of shares to the trust, the trustee must sell the shares to a person, designated by
the trustee who would be permitted to own the shares without violating the ownership limit or the other restrictions on ownership and
transfer of our stock in our charter. Upon such sale of the shares, the interest of the charitable beneficiary in the shares transferred
to the trust will terminate and the trustee must distribute to the proposed transferee an amount equal to the lesser of:
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the
price paid by the proposed transferee for the shares (or, if the proposed transferee did not give value in connection with the transfer
or other event that resulted in the transfer to the trust (e.g., a gift, devise or other such transaction), the market price (as
such term is defined in the charter) of the shares on the day of the event that resulted in the transfer of such shares to the trust);
and
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the
price per share received by the trustee from the sale or other disposition of the shares held in the trust.
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Any
net proceeds in excess of the amount payable to the proposed transferee must be immediately paid to the charitable beneficiary. If
the shares are sold by the proposed transferee before we discover that they have been transferred to the trust, the shares will be deemed
to have been sold on behalf of the trust and the proposed transferee must pay to the trustee, upon demand, the amount, if any, that the
proposed transferee received in excess of the amount that the proposed transferee would have received had the shares been sold by the
trustee.
Shares
of our stock held in the trust will be deemed to be offered for sale to us, or our designee, at a price per share equal to the lesser
of:
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the
price per share in the transaction that resulted in the transfer to the trust (or, in the case of a devise or gift, the market price
at the time of such devise or gift); and
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the
market price on the date we accept, or our designee accepts, such offer.
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We
may accept the offer until the trustee has otherwise sold the shares of our stock held in the trust. Upon a sale to us, the interest
of the charitable beneficiary in the shares sold will terminate and the trustee must distribute the net proceeds of the sale to the proposed
transferee and distribute any dividends or other distributions held by the trustee with respect to the shares to the charitable beneficiary.
Every
person who beneficially owns of more than 5% (or such lower percentage as required by the Code or the regulations promulgated thereunder)
of our stock, within 30 days after the end of each taxable year, must give us written notice stating the person’s name and
address, the number of shares of each class and series of our stock that the person beneficially owns and a description of the manner
in which the shares are held. Each such owner also must provide us with any additional information that we request in order to determine
the effect, if any, of the person’s beneficial ownership on our status as a REIT and to ensure compliance with the aggregate stock
ownership limit. In addition, any person or entity that is a beneficial owner or constructive owner of shares of our stock and any
person or entity (including the stockholder of record) who is holding shares of our stock for a beneficial owner or constructive owner
must disclose to us in writing such information as we may request, in good faith, in order to determine our status as a REIT or to comply,
or determine our compliance, with the requirements of any governmental or taxing authority and to ensure compliance with the aggregate
stock ownership limit.
If
our Board of Directors authorizes any of our shares to be represented by certificates, the certificates will bear a legend referring
to the restrictions described above.
These
restrictions on ownership and transfer of our stock could delay, defer or prevent a transaction or a change of control of us that might
involve a premium price for our common stock or otherwise be in the best interests of our stockholders.
Transfer
Agent and Registrar
The
transfer agent and registrar for our common and preferred stock is Direct Transfer, LLC.
Purchase
Contracts
We
may issue purchase contracts, representing contracts obligating holders to purchase from us, and us to sell to the holders, a specific
or varying number of common stock, preferred stock, warrants, depositary shares, debt securities or any combination of the foregoing,
at a future date or dates. Alternatively, the purchase contracts may obligate us to purchase from holders, and obligate holders to sell
to us, a specific or varying number of common stock, preferred stock, warrants, depositary shares, debt securities, or any combination
of the foregoing. The price of the securities and other property subject to the purchase contracts may be fixed at the time the purchase
contracts are issued or may be determined by reference to a specific formula set forth in the purchase contracts. The purchase contracts
may be issued separately or as a part of a unit that consists of (a) a purchase contract and (b) one or more of the other securities
that may be sold by us pursuant to this prospectus, debt obligations of third parties (including U.S. Treasury securities) or any combination
of the foregoing, which may secure the holders’ obligations to purchase the securities under the purchase contract. The purchase
contracts may require us to make periodic payments to the holders or require the holders to make periodic payments to us. These payments
may be unsecured or prefunded and may be paid on a current or on a deferred basis. The purchase contracts may require holders to secure
their obligations under the contracts in a manner specified in the applicable prospectus supplement.
We
will file as exhibits to the registration statement of which this prospectus is a part, or will incorporate by reference from a current
report on Form 8-K that we file with the SEC, forms of the purchase contracts and purchase contract agreement, if any. The applicable
prospectus supplement will describe the terms of any purchase contracts in respect of which this prospectus is being delivered, including,
to the extent applicable, the following:
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whether
the purchase contracts obligate the holder or us to purchase or sell, or both purchase and sell, the securities subject to purchase
under the purchase contract, and the nature and amount of each of those securities, or the method of determining those amounts;
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whether
the purchase contracts are to be prepaid or not;
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whether
the purchase contracts are to be settled by delivery, or by reference or linkage to the value, performance or level of the securities
subject to purchase under the purchase contract;
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any
acceleration, cancellation, termination or other provisions relating to the settlement of the purchase contracts; and
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whether
the purchase contracts will be issued in fully registered or global form.
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Warrants
We
may issue additional warrants to purchase our securities or other rights, including rights to receive payment in cash or securities based
on the value, rate or price of one or more specified commodities, currencies, securities or indices, or any combination of the foregoing.
Warrants may be issued independently or together with any other securities and may be attached to, or separate from, such securities.
To the extent warrants that we issue are to be publicly-traded, each series of such warrants will be issued under a separate warrant
agreement to be entered into between us and a warrant agent.
We
will file as exhibits to the registration statement of which this prospectus is a part, or will incorporate by reference from a current
report on Form 8-K that we file with the SEC, forms of the warrant and warrant agreement, if any. The prospectus supplement relating
to any warrants that we may offer will contain the specific terms of the warrants and a description of the material provisions of the
applicable warrant agreement, if any. These terms may include the following:
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the
title of the warrants;
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the
price or prices at which the warrants will be issued;
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the
designation, amount and terms of the securities or other rights for which the warrants are exercisable;
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the
designation and terms of the other securities, if any, with which the warrants are to be issued and the number of warrants issued
with each other security;
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the
aggregate number of warrants;
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any
provisions for adjustment of the number or amount of securities receivable upon exercise of the warrants or the exercise price of
the warrants;
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the
price or prices at which the securities or other rights purchasable upon exercise of the warrants may be purchased;
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if
applicable, the date on and after which the warrants and the securities or other rights purchasable upon exercise of the warrants
will be separately transferable;
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a
discussion of any material U.S. federal income tax considerations applicable to the exercise of the warrants;
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the
date on which the right to exercise the warrants will commence, and the date on which the right will expire;
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the
maximum or minimum number of warrants that may be exercised at any time;
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information
with respect to book-entry procedures, if any; and
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any
other terms of the warrants, including terms, procedures and limitations relating to the exchange and exercise of the warrants.
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Exercise
of Warrants. Each warrant will entitle the holder of warrants to purchase the amount of securities or other rights, at the
exercise price stated or determinable in the prospectus supplement for the warrants. Warrants may be exercised at any time up to the
close of business on the expiration date shown in the applicable prospectus supplement, unless otherwise specified in such prospectus
supplement. After the close of business on the expiration date, if applicable, unexercised warrants will become void. Warrants may be
exercised in the manner described in the applicable prospectus supplement. When the warrant holder makes the payment and properly completes
and signs the warrant certificate at the corporate trust office of the warrant agent, if any, or any other office indicated in the prospectus
supplement, we will, as soon as possible, forward the securities or other rights that the warrant holder has purchased. If the warrant
holder exercises less than all of the warrants represented by the warrant certificate, we will issue a new warrant certificate for the
remaining warrants.
Subscription
Rights
We
may issue rights to purchase our securities. The rights may or may not be transferable by the persons purchasing or receiving the rights.
In connection with any rights offering, we may enter into a standby underwriting or other arrangement with one or more underwriters or
other persons pursuant to which such underwriters or other persons would purchase any offered securities remaining unsubscribed for after
such rights offering. In connection with a rights offering to holders of our capital stock a prospectus supplement will be distributed
to such holders on the record date for receiving rights in the rights offering set by us.
We
will file as exhibits to the registration statement of which this prospectus is a part, or will incorporate by reference from a current
report on Form 8-K that we file with the SEC, forms of the subscription rights, standby underwriting agreement or other agreements, if
any. The prospectus supplement relating to any rights that we offer will include specific terms relating to the offering, including,
among other matters:
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the
date of determining the security holders entitled to the rights distribution;
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the
aggregate number of rights issued and the aggregate amount of securities purchasable upon exercise of the rights;
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the
conditions to completion of the rights offering;
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the
date on which the right to exercise the rights will commence and the date on which the rights will expire; and
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any
applicable federal income tax considerations.
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Each
right would entitle the holder of the rights to purchase the principal amount of securities at the exercise price set forth in the applicable
prospectus supplement. Rights may be exercised at any time up to the close of business on the expiration date for the rights provided
in the applicable prospectus supplement. After the close of business on the expiration date, all unexercised rights will become void.
Holders
may exercise rights as described in the applicable prospectus supplement. Upon receipt of payment and the rights certificate properly
completed and duly executed at the corporate trust office of the rights agent, if any, or any other office indicated in the prospectus
supplement, we will, as soon as practicable, forward the securities purchasable upon exercise of the rights. If less than all of
the rights issued in any rights offering are exercised, we may offer any unsubscribed securities directly to persons other than stockholders,
to or through agents, underwriters or dealers or through a combination of such methods, including pursuant to standby underwriting arrangements,
as described in the applicable prospectus supplement.
Depositary
Shares
General.
We may offer fractional shares of preferred stock, rather than full shares of preferred stock. If we decide to offer fractional
shares of our preferred stock, we will issue receipts for depositary shares. Each depositary share will represent a fraction of a share
of a particular series of our preferred stock, and the applicable prospectus supplement will indicate that fraction. The shares of preferred
stock represented by depositary shares will be deposited under a deposit agreement between us and a depositary that is a bank or trust
company that meets certain requirements and is selected by us. The depositary will be specified in the applicable prospectus supplement.
Each owner of a depositary share will be entitled to all of the rights and preferences of the preferred stock represented by the depositary
share. The depositary shares will be evidenced by depositary receipts issued pursuant to the deposit agreement. Depositary receipts will
be distributed to those persons purchasing the fractional shares of our preferred stock in accordance with the terms of the offering.
We will file as exhibits to the registration statement of which this prospectus is a part, or will incorporate by reference from a current
report on Form 8-K that we file with the SEC, forms of the deposit agreement, form of articles supplementary of underlying preferred
stock, form of depositary receipts and any other related agreements.
Dividends
and Other Distributions. The depositary will distribute all cash dividends or other cash distributions received by it in respect
of the preferred stock to the record holders of depositary shares relating to such preferred shares in proportion to the number of
depositary shares held on the relevant record date.
In
the event of a distribution other than in cash, the depositary will distribute securities or property received by it to the record holders
of depositary shares in proportion to the number of depositary shares held on the relevant record date, unless the depositary determines
that it is not feasible to make such distribution. In that case, the depositary may make the distribution by such method as it deems
equitable and practicable. One such possible method is for the depositary to sell the securities or property and then distribute the
net proceeds from the sale as provided in the case of a cash distribution.
Redemption
of Depositary Shares. Whenever we redeem the preferred stock, the depositary will redeem a number of depositary shares
representing the same number of shares of preferred stock so redeemed. If fewer than all of the depositary shares are to be redeemed,
the depositary shares to be redeemed will be selected by lot, pro rata or by any other equitable method as the depositary may determine.
Voting
of Underlying Shares. Upon receipt of notice of any meeting at which the holders of our preferred stock of any series are entitled
to vote, the depositary will mail the information contained in the notice of the meeting to the record holders of the depositary shares
relating to that series of preferred stock. Each record holder of the depositary shares on the record date will be entitled to instruct
the depositary as to the exercise of the voting rights represented by the number of shares of preferred stock underlying the holder’s
depositary shares. The depositary will endeavor, to the extent it is practical to do so, to vote the number of whole shares of preferred
stock underlying such depositary shares in accordance with such instructions. We will agree to take all actions that the depositary may
deem reasonably necessary in order to enable the depositary to do so. To the extent the depositary does not receive specific instructions
from the holders of depositary shares relating to such preferred shares, it will abstain from voting such shares of preferred stock.
Withdrawal
of Shares. Upon surrender of depositary receipts representing any number of whole shares at the depositary’s office, unless
the related depositary shares previously have been called for redemption, the holder of the depositary shares evidenced by the depositary
receipts will be entitled to delivery of the number of whole shares of the related series of preferred stock and all money and other
property, if any, underlying such depositary shares. However, once such an exchange is made, the preferred stock cannot thereafter be
redeposited in exchange for depositary shares. Holders of depositary shares will be entitled to receive whole shares of the related series
of preferred stock on the basis set forth in the applicable prospectus supplement. If the depositary receipts delivered by the holder
evidence a number of depositary shares representing more than the number of whole shares of preferred stock of the related series to
be withdrawn, the depositary will deliver to the holder at the same time a new depositary receipt evidencing the excess number of depositary
shares.
Amendment
and Termination of Depositary Agreement. The form of depositary receipt evidencing the depositary shares and any provision
of the applicable depositary agreement may at any time be amended by agreement between us and the depositary. We may, with the consent
of the depositary, amend the depositary agreement from time to time in any manner that we desire. However, if the amendment would materially
and adversely alter the rights of the existing holders of depositary shares, the amendment would need to be approved by the holders of
at least a majority of the depositary shares then outstanding.
The
depositary agreement may be terminated by us or the depositary if:
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all
outstanding depositary shares have been redeemed; or
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there
has been a final distribution in respect of the shares of preferred stock of the applicable series in connection with our liquidation,
dissolution or winding up and such distribution has been made to the holders of depositary receipts.
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Resignation
and Removal of Depositary. The depositary may resign at any time by delivering to us notice of its election to do so. We may
remove a depositary at any time. Any resignation or removal will take effect upon the appointment of a successor depositary and its acceptance
of appointment.
Charges
of Depositary. We will pay all transfer and other taxes and governmental charges arising solely from the existence of any depositary
arrangements. We will pay all charges of each depositary in connection with the initial deposit of the preferred shares of any series,
the initial issuance of the depositary shares, any redemption of such preferred shares and any withdrawals of such preferred shares by
holders of depositary shares. Holders of depositary shares will be required to pay any other transfer taxes.
Notices. Each
depositary will forward to the holders of the applicable depositary shares all notices, reports and communications from us which are
delivered to such depositary and which we are required to furnish the holders of the preferred stock represented by such depositary shares.
Miscellaneous.
The depositary agreement may contain provisions that limit our liability and the liability of the depositary to the holders of depositary
shares. Both the depositary and we are also entitled to an indemnity from the holders of the depositary shares prior to bringing, or
defending against, any legal proceeding. We or any depositary may rely upon written advice of counsel or accountants, or information
provided by persons presenting preferred shares for deposit, holders of depositary shares or other persons believed by us to be competent
and on documents believed by us or them to be genuine.
Debt
Securities
As
used in this prospectus, the term “debt securities” means the debentures, notes, bonds and other evidences of indebtedness
that we may issue from time to time. The debt securities will either be senior debt securities, senior subordinated debt or subordinated
debt securities. We may also issue convertible debt securities. Debt securities issued under an indenture (which we refer to herein as
an Indenture), which are contracts entered into between us and a trustee to be named therein. We will file as exhibits to the registration
statement of which this prospectus is a part, or will incorporate by reference from a current report on Form 8-K that we file with
the SEC, the Indenture, if applicable, and form of debt securities. We may issue debt securities and incur additional indebtedness other
than through the offering of debt securities pursuant to this prospectus. It is likely that convertible debt securities will not be issued
under an Indenture.
In
the event that any series of debt securities will be subordinated to other indebtedness that we have outstanding or may incur, the terms
of the subordination will be set forth in the prospectus supplement relating to the subordinated debt securities.
We
may issue debt securities from time to time in one or more series, in each case with the same or various maturities, at par or at a discount.
Unless indicated in a prospectus supplement, we may issue additional debt securities of a particular series without the consent of the
holders of the debt securities of such series outstanding at the time of the issuance. Any such additional debt securities, together
with all other outstanding debt securities of that series, will constitute a single series of debt securities under the applicable Indenture
and will be equal in ranking.
Should
an Indenture relate to unsecured indebtedness, in the event of a bankruptcy or other liquidation event involving a distribution of assets
to satisfy our outstanding indebtedness or an event of default under a loan agreement relating to secured indebtedness of our company
or its subsidiaries, the holders of such secured indebtedness, if any, would be entitled to receive payment of principal and interest
prior to payments on the unsecured indebtedness issued under an Indenture.
Each
prospectus supplement will describe the terms relating to the specific series of debt securities. These terms will include some or all
of the following:
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the
title of debt securities and whether the debt securities are senior or subordinated;
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any
limit on the aggregate principal amount of debt securities of such series;
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the
percentage of the principal amount at which the debt securities of any series will be issued;
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the
ability to issue additional debt securities of the same series;
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the
purchase price for the debt securities and the denominations of the debt securities;
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the
specific designation of the series of debt securities being offered;
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the
maturity date or dates of the debt securities and the date or dates upon which the debt securities are payable and the rate or rates
at which the debt securities of the series shall bear interest, if any, which may be fixed or variable, or the method by which such
rate shall be determined;
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the
basis for calculating interest;
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the
date or dates from which any interest will accrue or the method by which such date or dates will be determined;
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the
duration of any deferral period, including the period during which interest payment periods may be extended;
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whether
the amount of payments of principal of (and premium, if any) or interest on the debt securities may be determined with reference to
any index, formula or other method, such as one or more currencies, commodities, equity indices or other indices, and the manner of
determining the amount of such payments;
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the
dates on which we will pay interest on the debt securities and the regular record date for determining who is entitled to the interest
payable on any interest payment date;
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the
place or places where the principal of (and premium, if any) and interest on the debt securities will be payable, where any securities
may be surrendered for registration of transfer, exchange or conversion, as applicable, and notices and demands may be delivered to
or upon us pursuant to the applicable Indenture;
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the
rate or rates of amortization of the debt securities;
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any
terms for the attachment to the debt securities of warrants, options or other rights to purchase or sell our securities;
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if
the debt securities will be secured by any collateral and, if so, a general description of the collateral and the terms and provisions
of such collateral security, pledge or other agreements;
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if
we possess the option to do so, the periods within which and the prices at which we may redeem the debt securities, in whole or in
part, pursuant to optional redemption provisions, and the other terms and conditions of any such provisions;
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our
obligation or discretion, if any, to redeem, repay or purchase debt securities by making periodic payments to a sinking fund or through
an analogous provision or at the option of holders of the debt securities, and the period or periods within which and the price or
prices at which we will redeem, repay or purchase the debt securities, in whole or in part, pursuant to such obligation, and the other
terms and conditions of such obligation;
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the
terms and conditions, if any, regarding the option or mandatory conversion or exchange of debt securities;
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the
period or periods within which, the price or prices at which and the terms and conditions upon which any debt securities of the series
may be redeemed, in whole or in part at our option and, if other than by a board resolution, the manner in which any election by us
to redeem the debt securities shall be evidenced;
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any
restriction or condition on the transferability of the debt securities of a particular series;
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the
portion, or methods of determining the portion, of the principal amount of the debt securities which we must pay upon the acceleration
of the maturity of the debt securities in connection with any event of default;
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the
currency or currencies in which the debt securities will be denominated and in which principal, any premium and any interest will
or may be payable or a description of any units based on or relating to a currency or currencies in which the debt securities will
be denominated;
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provisions,
if any, granting special rights to holders of the debt securities upon the occurrence of specified events;
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any
deletions from, modifications of or additions to the events of default or our covenants with respect to the applicable series of debt
securities, and whether or not such events of default or covenants are consistent with those contained in the applicable Indenture;
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any
limitation on our ability to incur debt, redeem stock, sell our assets or other restrictions;
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the
application, if any, of the terms of the applicable Indenture relating to defeasance and covenant defeasance (which terms are described
below) to the debt securities;
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what
subordination provisions will apply to the debt securities;
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the
terms, if any, upon which the holders may convert or exchange the debt securities into or for our securities or property;
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whether
we are issuing the debt securities in whole or in part in global form;
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any
change in the right of the trustee or the requisite holders of debt securities to declare the principal amount thereof due and payable
because of an event of default;
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the
depositary for global or certificated debt securities, if any;
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any
material federal income tax consequences applicable to the debt securities, including any debt securities denominated and made payable,
as described in the prospectus supplements, in foreign currencies, or units based on or related to foreign currencies;
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any
right we may have to satisfy, discharge and defease our obligations under the debt securities, or terminate or eliminate restrictive
covenants or events of default in the Indentures, by depositing money or U.S. government obligations with the trustee of the Indentures;
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the
names of any trustees, depositories, authenticating or paying agents, transfer agents or registrars or other agents with respect to
the debt securities;
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to
whom any interest on any debt security shall be payable, if other than the person in whose name the security is registered, on the
record date for such interest, the extent to which, or the manner in which, any interest payable on a temporary global debt security
will be paid;
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if
the principal of or any premium or interest on any debt securities is to be payable in one or more currencies or currency units other
than as stated, the currency, currencies or currency units in which it shall be paid and the periods within and terms and conditions
upon which such election is to be made and the amounts payable (or the manner in which such amount shall be determined);
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the
portion of the principal amount of any debt securities which shall be payable upon declaration of acceleration of the maturity of
the debt securities pursuant to the applicable Indenture;
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if
the principal amount payable at the stated maturity of any debt security of the series will not be determinable as of any one or more
dates prior to the stated maturity, the amount which shall be deemed to be the principal amount of such debt securities as of any
such date for any purpose, including the principal amount thereof which shall be due and payable upon any maturity other than the
stated maturity or which shall be deemed to be outstanding as of any date prior to the stated maturity (or, in any such case, the
manner in which such amount deemed to be the principal amount shall be determined); and
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any
other specific terms of the debt securities, including any modifications to the events of default under the debt securities and any
other terms which may be required by or advisable under applicable laws or regulations.
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Unless
otherwise specified in the applicable prospectus supplement, we do not anticipate the debt securities will be listed on any securities
exchange. Holders of the debt securities may present registered debt securities for exchange or transfer in the manner described in the
applicable prospectus supplement. Except as limited by the applicable Indenture, we will provide these services without charge, other
than any tax or other governmental charge payable in connection with the exchange or transfer.
Debt
securities may bear interest at a fixed rate or a variable rate as specified in the prospectus supplement. In addition, if specified
in the prospectus supplement, we may sell debt securities bearing no interest or interest at a rate that at the time of issuance is below
the prevailing market rate, or at a discount below their stated principal amount. We will describe in the applicable prospectus supplement
any special federal income tax considerations applicable to these discounted debt securities.
We
may issue debt securities with the principal amount payable on any principal payment date, or the amount of interest payable on any interest
payment date, to be determined by referring to one or more currency exchange rates, commodity prices, equity indices or other factors.
Holders of such debt securities may receive a principal amount on any principal payment date, or interest payments on any interest payment
date, that are greater or less than the amount of principal or interest otherwise payable on such dates, depending upon the value on
such dates of applicable currency, commodity, equity index or other factors. The applicable prospectus supplement will contain information
as to how we will determine the amount of principal or interest payable on any date, as well as the currencies, commodities, equity indices
or other factors to which the amount payable on that date relates and certain additional tax considerations.
Units
We
may issue units consisting of any combination of the other types of securities offered under this prospectus in one or more series. We
may evidence each series of units by unit certificates that we may issue under a separate agreement. We may enter into unit agreements
with a unit agent. Each unit agent, if any, may be a bank or trust company that we select. We will indicate the name and address of the
unit agent, if any, in the applicable prospectus supplement relating to a particular series of units. Specific unit agreements, if any,
will contain additional important terms and provisions. We will file as an exhibit to the registration statement of which this prospectus
is a part, or will incorporate by reference from a current report that we file with the SEC, the form of unit and the form of each unit
agreement, if any, relating to units offered under this prospectus.
If
we offer any units, certain terms of that series of units will be described in the applicable prospectus supplement, including, without
limitation, the following, as applicable
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the
title of the series of units;
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identification
and description of the separate constituent securities comprising the units;
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the
price or prices at which the units will be issued;
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the
date, if any, on and after which the constituent securities comprising the units will be separately transferable;
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a
discussion of certain United States federal income tax considerations applicable to the units; and
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any
other material terms of the units and their constituent securities.
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CERTAIN
PROVISIONS OF MARYLAND LAW AND OUR CHARTER AND BYLAWS
The
following summary of certain provisions of the MGCL and of our charter and bylaws does not purport to be complete and is subject to,
and qualified in its entirety by reference to, our charter and bylaws, copies of which are incorporated by reference as exhibits to the
registration statement of which this prospectus is a part, and to the MGCL. See “Where You Can Find More Information.”
Election
and Removal of Directors
Our
charter and bylaws provide that the number of our directors may be established by a majority of our entire Board of Directors but may
not be fewer than six nor more than eleven, unless approved by stockholders entitled to cast a majority of all the votes entitled to
be cast on the matter. Directors are elected by a plurality of all the votes cast in the election of directors. Under our charter, voting
for the election of directors will be cumulative if, prior to commencement of the voting, a stockholder gives us notice of his, her or
its intention to cumulate votes. If any stockholder gives such a notice, then every stockholder will be entitled to such rights,
in which case, each stockholder may cumulate his, her or its total votes and cast all of his, her or its votes for any one or a combination
of director nominees. In cumulative voting, the total votes entitled to be cast by a stockholder equals the number of director nominees
multiplied by the number of shares of common stock that such stockholder is entitled to vote.
Our
charter provides that any vacancy on our Board of Directors may be filled by the affirmative vote of a majority of the Board of Directors,
even if the remaining directors do not constitute a quorum of the Board of Directors, and any vacancy created by the removal of a director
may be filled only by the vote of the holders of a majority of our shares of common stock. Any director elected to fill a vacancy will
serve until the next annual meeting of the stockholders and until his or her successor is elected and qualifies.
Our
charter provides that any director or the entire Board of Directors may be removed at any time, with or without cause, by the affirmative
vote of the holders of a majority of our shares of common stock, except that, no director may be removed when the votes cast against
the removal would be sufficient to elect the director if voted cumulatively in accordance with our charter.
Amendment
to Charter and Bylaws
Except
as described herein and as provided in the MGCL, amendments to our charter must be advised by our Board of Directors and approved by
the affirmative vote of our stockholders entitled to cast a majority of all of the votes entitled to be cast on the matter.
Our
bylaws may be amended by our Board of Directors or by the affirmative vote of our stockholders entitled to cast a majority of all of
the votes entitled to be cast on the matter by stockholders entitled to vote generally in the election of directors. Our Board of Directors
may not amend provisions of bylaws that would change any rights with respect to any outstanding class of common stock by reducing the
amount payable thereon upon our liquidation, or diminishing or eliminating any voting rights pertaining thereto, unless such amendment
was also approved by two-thirds of the outstanding shares of such class. In addition, our Board of Directors may adopt a bylaw or an
amendment to a bylaw changing the authorized number of directors only for the purpose of fixing our exact number of directors. Any change
to the bylaws made by the stockholders may not be altered by the directors prior to the next annual meeting of stockholders.
Business
Combinations
Under
the MGCL, certain “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of
an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested
stockholder. These business combinations include a merger, consolidation, share exchange, and, in circumstances specified in the statute,
an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:
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any
person who beneficially owns 10% or more of the voting power of the corporation’s outstanding voting stock; or
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an
affiliate or associate of the corporation who, at any time within the two-year period immediately prior to the date in question, was
the beneficial owner of 10% or more of the voting power of the then outstanding stock of the corporation.
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A
person is not an interested stockholder under the MGCL if the corporation’s Board of Directors approved in advance the transaction
by which the person otherwise would have become an interested stockholder. In approving the transaction, the Board of Directors may provide
that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the Board of
Directors.
After
the five-year prohibition, any business combination between the Maryland corporation and an interested stockholder generally must be
recommended by the corporation’s Board of Directors and approved by the affirmative vote of at least:
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80%
of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and
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two-thirds
of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation other than shares held by the
interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate
of the interested stockholder.
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These
super-majority vote requirements do not apply if the corporation’s common stockholders receive a minimum price, as defined under
the MGCL, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder
for its shares.
The
MGCL permits various exemptions from its provisions, including business combinations that are exempted by the Board of Directors before
the time that the interested stockholder becomes an interested stockholder. Pursuant to the statute, our Board of Directors has by resolution
exempted business combinations between us and any other person, provided that the business combination is first approved by our Board
of Directors (including a majority of our directors who are not affiliates or associates of such person). Consequently, the five-year
prohibition and the supermajority vote requirements will not apply to a business combination between us and any other person if the Board
of Directors has first approved the combination. As a result, any person described in the preceding sentence may be able to enter into
business combinations with us that may not be in the best interests of our stockholders, without compliance with the supermajority vote
requirements and other provisions of the statute. We cannot assure you that our Board of Directors will not amend or repeal this resolution
in the future.
Control
Share Acquisitions
The
MGCL provides that a holder of control shares of a Maryland corporation acquired in a control share acquisition has no voting rights
with respect to the control shares except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter.
Shares owned by the acquirer, by officers or by employees who are directors of the corporation are excluded from shares entitled to vote
on the matter. Control shares are voting shares of stock that, if aggregated with all other shares of stock owned by the acquirer or
in respect of which the acquirer is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy),
would entitle the acquirer to exercise voting power in electing directors within one of the following ranges of voting power:
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one-tenth
or more but less than one-third;
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one-third
or more but less than a majority; or
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a
majority or more of all voting power.
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Control
shares do not include shares the acquirer is then entitled to vote as a result of having previously obtained stockholder approval. A
control share acquisition means the acquisition of control shares, subject to certain exceptions.
A
person who has made or proposes to make a control share acquisition may compel the Board of Directors of the corporation to call a special
meeting of stockholders to be held within 50 days of demand to consider the voting rights of the shares. The right to compel the
calling of a special meeting is subject to the satisfaction of certain conditions, including an undertaking to pay the expenses of the
meeting. If no request for a meeting is made, the corporation may itself present the question at any stockholders meeting.
If
voting rights are not approved at the meeting or if the acquirer does not deliver an acquiring person statement as required by the statute,
then the corporation may, subject to certain limitations and conditions, redeem for fair value any or all of the control shares, except
those for which voting rights have previously been approved. Fair value is determined, without regard to the absence of voting rights
for the control shares, as of the date of the last control share acquisition by the acquirer or, if a meeting of stockholders is held
at which the voting rights of the shares are considered and not approved, as of the date of the meeting. If voting rights for control
shares are approved at a stockholders meeting and the acquirer becomes entitled to exercise or direct the exercise of a majority of the
voting power, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of appraisal
rights may not be less than the highest price per share paid by the acquirer in the control share acquisition.
The
control share acquisition statute does not apply (a) to shares acquired in a merger, consolidation or share exchange if the corporation
is a party to the transaction or (b) to acquisitions approved or exempted by the charter or bylaws of the corporation.
Our
bylaws contain a provision exempting from the control share acquisition statute any acquisition by any person of shares of our stock.
Subtitle
8
Subtitle
8 of Title 3 of the MGCL permits a Maryland corporation with a class of equity securities registered under the Exchange Act and at least
three independent directors to elect, by provision in its charter or bylaws or a resolution of its Board of Directors and notwithstanding
any contrary provision in the charter or bylaws, to be subject to any or all of five provisions, including:
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a
classified Board of Directors;
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a
two-thirds vote requirement for removing a director;
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a
requirement that the number of directors be fixed only by vote of the Board of Directors;
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a
requirement that a vacancy on the Board of Directors be filled only by a vote of the remaining directors in office and for the remainder
of the full term of the class of directors in which the vacancy occurred and until a successor is elected and qualifies; and
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a
majority requirement for the calling of a stockholder-requested special meeting of stockholders.
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We
have not elected to be subject to any of the provisions of Subtitle 8, including the provisions that would permit us to classify our
Board of Directors or increase the vote required to remove a director without stockholder approval. Through provisions in our charter
and bylaws unrelated to Subtitle 8, we (1) vest in our Board of Directors the exclusive power to fix the number of directors and
(2) require, unless called by our Chairman, our Chief Executive Officer, our President or our Board of Directors, the request of
stockholders entitled to cast not less than a majority of all the votes entitled to be cast at the meeting to call a special meeting
of stockholders.
Special
Meetings of Stockholders
Pursuant
to our bylaws, our Chairman, our Chief Executive Officer, our President or our Board of Directors may call a special meeting of our stockholders.
Subject to the provisions of our bylaws, a special meeting of our stockholders to act on any matter that may properly be considered by
our stockholders will also be called by our secretary upon the written request of stockholders entitled to cast a majority of all the
votes entitled to be cast at the meeting on such matter, accompanied by the information required by our bylaws. Our secretary will inform
the requesting stockholders of the reasonably estimated cost of preparing and delivering the notice of meeting (including our proxy materials),
and the requesting stockholder must pay such estimated cost before our secretary may prepare and deliver the notice of the special meeting.
Stockholder
Action by Written Consent
The
MGCL generally provides that, unless the charter of the corporation authorizes stockholder action by less than unanimous consent, stockholder
action may be taken by consent in lieu of a meeting only if it is given by all stockholders entitled to vote on the matter. Our charter
and our bylaws provide that stockholder action may be taken without a meeting if a consent, setting forth the action so taken, is given
by stockholders entitled to cast not less than the minimum number of votes that would be necessary to authorize or take the action at
a stockholders meeting.
Advance
Notice of Director Nomination and New Business
Our
bylaws provide that nominations of individuals for election as directors and proposals of business to be considered by stockholders at
any annual meeting may be made only (1) pursuant to our notice of the meeting, (2) by or at the direction of our Board of Directors
or (3) by any stockholder who was a stockholder of record at the record date set by the Board of Directors for determining stockholders
entitled to vote at the meeting, at the time of giving the notice required by our bylaws and at the time of the meeting, who is entitled
to vote at the meeting in the election of each individual so nominated or on such other proposed business and who has complied with the
advance notice procedures of our bylaws. Stockholders generally must provide notice to our secretary not earlier than the 150th day
or later than the close of business on the 120th day before the first anniversary of the date the proxy statement for the preceding
year’s annual meeting.
Only
the business specified in the notice of the meeting may be brought before a special meeting of our stockholders. Nominations of individuals
for election as directors at a special meeting of stockholders may be made only (1) by or at the direction of our Board of Directors,
(2) by a stockholder that has requested that a special meeting be called for the purpose of electing directors in compliance with
our bylaws or (3) if the special meeting has been called in accordance with our bylaws for the purpose of electing directors, by
a stockholder who is a stockholder of record at the record date set by the Board of Directors for determining stockholders entitled to
vote at the meeting, at the time of giving the notice required by our bylaws and at the time of the special meeting, who is entitled
to vote at the meeting in the election of each individual so nominated and who has complied with the advance notice procedures of our
bylaws. Stockholders generally must provide notice to our secretary not earlier than the 120th day before such special meeting and
not later than the later of the close of business on the 90th day before the special meeting or the tenth day after the first public
announcement of the date of the special meeting and the nominees of our Board of Directors to be elected at the meeting.
A
stockholder’s notice must contain certain information specified by our bylaws.
Effect
of Certain Provisions of Maryland Law and our Charter and Bylaws
The
restrictions on ownership and transfer of our stock discussed under the caption “Description of Securities We May Offer—Restrictions
on Ownership and Transfer” prevent any person from acquiring more than 9.8% (in value or by number of shares, whichever is more
restrictive) of our outstanding shares of common stock or 9.8% in value of our outstanding shares of stock without the approval of our
Board of Directors. These provisions as well as the business combination provisions of the MGCL may delay, defer or prevent a change
in control of us.
Further,
our Board of Directors has the power to classify and reclassify any unissued shares of our preferred stock into other classes or series
of stock, and to authorize us to issue the newly classified shares, as discussed under the captions “Description of Securities
We May Offer—Common Stock” and “—Power to Reclassify and Issue Stock,” and could authorize the issuance
of shares of a class or series of stock, including a class or series of preferred stock, that could have the effect of delaying, deferring
or preventing a change in control of us. These actions may be taken without the approval of holders of our common stock unless such approval
is required by applicable law, the terms of any other class or series of our stock or the rules of any stock exchange or automated quotation
system on which any of our stock is listed or traded. We believe that the power of our Board of Directors to classify or reclassify unissued
shares of our preferred stock and thereafter to cause us to issue such shares of stock will provide us with increased flexibility in
structuring possible future financings and acquisitions and in meeting other needs which might arise.
Our
charter and bylaws also provide that the number of directors may be established only by a majority of our entire Board of Directors,
which prevents our stockholders from increasing the number of our directors and filling any vacancies created by such increase with their
own nominees. The provisions of our bylaws discussed above under the captions “—Special Meetings of Stockholders” and
“—Advance Notice of Director Nomination and New Business” require stockholders seeking to call a special meeting, nominate
an individual for election as a director or propose other business at an annual or special meeting to comply with certain notice and
information requirements. We believe that these provisions will help to assure the continuity and stability of our business strategies
and policies as determined by our Board of Directors and promote good corporate governance by providing us with clear procedures for
calling special meetings, information about a stockholder proponent’s interest in us and adequate time to consider stockholder
nominees and other business proposals. However, these provisions, alone or in combination, could make it more difficult for our stockholders
to remove incumbent directors or fill vacancies on our Board of Directors with their own nominees and could delay, defer or prevent a
change in control, including a proxy contest or tender offer that might involve a premium price for our common stockholders or otherwise
be in the best interest of our stockholders.
Exclusive
Forum
Our
bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland,
or, if that court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division, will
be the sole and exclusive forum for (a) any derivative action or proceeding brought on our behalf, (b) any action asserting
a claim of breach of any duty owed by any of our directors, officers or other employees to us or to our stockholders, (c) any action
asserting a claim against us or any of our directors, officers or other employees arising pursuant to any provision of the MGCL or our
charter or bylaws or (d) any action asserting a claim against us or any of our directors, officers or other employees that is governed
by the internal affairs doctrine.
Limitation
of Liability and Indemnification of Directors and Officers
Maryland
law permits us to include a provision in our charter limiting the liability of our directors and officers to us and our stockholders
for money damages, except for liability resulting from (a) actual receipt of an improper benefit or profit in money, property or
services or (b) active and deliberate dishonesty that is established by a final judgment and which is material to the cause of action.
Our charter contains a provision that eliminates our directors’ and officers’ liability to the maximum extent permitted by
Maryland law.
The
MGCL requires us (unless our charter provides otherwise, which our charter does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to which he or she is made a party by reason of his or her service
in that capacity. The MGCL permits us to indemnify our present and former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made or threatened
to be made a party by reason of their service in those or certain other capacities unless it is established that:
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the
act or omission of the director or officer was material to the matter giving rise to the proceeding and (a) was committed in
bad faith or (b) was the result of active and deliberate dishonesty;
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the
director or officer actually received an improper personal benefit in money, property or services; or
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in
the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful.
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Under
the MGCL, we may not indemnify a director or officer in a suit by us or in our right in which the director or officer was adjudged liable
to us or in a suit in which the director or officer was adjudged liable on the basis that personal benefit was improperly received. A
court may order indemnification if it determines that the director or officer is fairly and reasonably entitled to indemnification, even
though the director or officer did not meet the prescribed standard of conduct or was adjudged liable on the basis that personal benefit
was improperly received. However, indemnification for an adverse judgment in a suit by us or in our right, or for a judgment of liability
on the basis that personal benefit was improperly received, is limited to expenses.
In
addition, the MGCL permits us to advance reasonable expenses to a director or officer upon our receipt of (a) a written affirmation
by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification
and (b) a written undertaking by him or her or on his or her behalf to repay the amount paid or reimbursed if it is ultimately determined
that the standard of conduct was not met.
Our
charter authorizes us to obligate ourselves, and our bylaws obligate us, to the maximum extent permitted by Maryland law in effect from
time to time, to indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to:
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any
present or former director or officer who is made or threatened to be made a party to, or witness in, a proceeding by reason of his
or her service in that capacity; or
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any
individual who, while a director or officer of our company and at our request, serves or has served as a director, officer, partner,
trustee, member or manager of another corporation, real estate investment trust, limited liability company, partnership, joint venture,
trust, employee benefit plan or any other enterprise and who is made or threatened to be made a party to, or witness in, the proceeding
by reason of his or her service in that capacity.
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Our
charter and bylaws also permit us to indemnify and advance expenses to any individual who served any of our predecessors in any of the
capacities described above and any employee or agent of us or any of our predecessors.
We
have entered into an indemnification agreement with each of our directors and executive officers that provides for indemnification to
the maximum extent permitted by Maryland law. Insofar as indemnification for liabilities arising under the Securities Act may be permitted
to directors or executive officers, we have been informed that in the opinion of the SEC such indemnification is against public policy
and is therefore unenforceable.
FORMS
OF SECURITIES
Each
security may be represented either by a certificate issued in definitive form to a particular investor or by one or more global securities
representing the entire issuance of securities. Certificated securities in definitive form and global securities will be issued in registered
form. Definitive securities name you or your nominee as the owner of the security, and in order to transfer or exchange these securities
or to receive payments other than interest or other interim payments, you or your nominee must physically deliver the securities to the
trustee, registrar, paying agent or other agent, as applicable. Global securities name a depositary or its nominee as the owner of the
debt securities, warrants or units represented by these global securities. The depositary maintains a computerized system that will reflect
each investor’s beneficial ownership of the securities through an account maintained by the investor with its broker/dealer, bank,
trust company or other representative, as we explain more fully below.
Registered
Global Securities
We
may issue the securities in the form of one or more fully registered global securities that will be deposited with a depositary or its
nominee identified in the applicable prospectus supplement and registered in the name of that depositary or nominee. In those cases,
one or more registered global securities will be issued in a denomination or aggregate denominations equal to the portion of the aggregate
principal or face amount of the securities to be represented by registered global securities. Unless and until it is exchanged in whole
for securities in definitive registered form, a registered global security may not be transferred except as a whole by and among the
depositary for the registered global security, the nominees of the depositary or any successors of the depositary or those nominees.
The
specific terms of the depositary arrangement with respect to any securities to be represented by a registered global security will be
described in the prospectus supplement relating to those securities. We anticipate that the following provisions will apply to all depositary
arrangements.
Ownership
of beneficial interests in a registered global security will be limited to persons, called participants, that have accounts with the
depositary or persons that may hold interests through participants. Upon the issuance of a registered global security, the depositary
will credit, on its book-entry registration and transfer system, the participants’ accounts with the respective principal or face
amounts of the securities beneficially owned by the participants. Any dealers, underwriters or agents participating in the distribution
of the securities will designate the accounts to be credited. Ownership of beneficial interests in a registered global security will
be shown on, and the transfer of ownership interests will be effected only through, records maintained by the depositary, with respect
to interests of participants, and on the records of participants, with respect to interests of persons holding through participants.
The laws of some states may require that some purchasers of securities take physical delivery of these securities in definitive form.
These laws may impair your ability to own, transfer or pledge beneficial interests in registered global securities.
So
long as the depositary, or its nominee, is the registered owner of a registered global security, that depositary or its nominee, as the
case may be, will be considered the sole owner or holder of the securities represented by the registered global security for all purposes
under the applicable indenture, warrant agreement or unit agreement.
Except
as described below, owners of beneficial interests in a registered global security will not be entitled to have the securities represented
by the registered global security registered in their names, will not receive or be entitled to receive physical delivery of the securities
in definitive form and will not be considered the owners or holders of the securities under the applicable indenture, warrant agreement
or unit agreement. Accordingly, each person owning a beneficial interest in a registered global security must rely on the procedures
of the depositary for that registered global security and, if that person is not a participant, on the procedures of the participant
through which the person owns its interest, to exercise any rights of a holder under the applicable indenture, warrant agreement or unit
agreement. We understand that under existing industry practices, if we request any action of holders or if an owner of a beneficial interest
in a registered global security desires to give or take any action that a holder is entitled to give or take under the applicable indenture,
warrant agreement or unit agreement, the depositary for the registered global security would authorize the participants holding the relevant
beneficial interests to give or take that action, and the participants would authorize beneficial owners owning through them to give
or take that action or would otherwise act upon the instructions of beneficial owners holding through them.
Payments
to holders with respect to securities represented by a registered global security registered in the name of a depositary or its nominee
will be made to the depositary or its nominee, as the case may be, as the registered owner of the registered global security. None of
the Company, the trustees, the warrant agents, the unit agents or any other agent of the Company, agent of the trustees, the warrant
agents or unit agents will have any responsibility or liability for any aspect of the records relating to payments made on account of
beneficial ownership interests in the registered global security or for maintaining, supervising or reviewing any records relating to
those beneficial ownership interests.
We
expect that the depositary for any of the securities represented by a registered global security, upon receipt of any payment of principal,
premium, interest or other payment or distribution to holders of that registered global security, will immediately credit participants’
accounts in amounts proportionate to their respective beneficial interests in that registered global security as shown on the records
of the depositary. We also expect that payments by participants to owners of beneficial interests in a registered global security held
through participants will be governed by standing customer instructions and customary practices, as is now the case with the securities
held for the accounts of customers or registered in “street name,” and will be the responsibility of those participants.
If
the depositary for any of these securities represented by a registered global security is at any time unwilling or unable to continue
as depositary or ceases to be a clearing agency registered under the Exchange Act and a successor depositary registered as a clearing
agency under the Exchange Act is not appointed by us within 90 days, we will issue securities in definitive form in exchange for the
registered global security that had been held by the depositary. Any securities issued in definitive form in exchange for a registered
global security will be registered in the name or names that the depositary gives to the relevant trustee, warrant agent, unit agent
or other relevant agent of ours or theirs. It is expected that the depositary’s instructions will be based upon directions received
by the depositary from participants with respect to ownership of beneficial interests in the registered global security that had been
held by the depositary.
U.S.
FEDERAL INCOME TAX CONSIDERATIONS
The
following is a general summary of certain material U.S. federal income tax considerations regarding our election to be taxed as a real
estate investment trust (“REIT”) and this offering of our Series A Preferred Stock, which we refer to in this discussion
as our “common stock.” For purposes of this discussion, references to “we,” “our” and “us”
mean only Presidio Property Trust, Inc. and do not include any of its subsidiaries, except as otherwise indicated. This summary is for
general information only and is not tax advice. The information in this summary is based on:
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current,
temporary and proposed Treasury regulations promulgated under the Code (the “Treasury Regulations”);
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the
legislative history of the Code;
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administrative
interpretations and practices of the IRS; and
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in
each case, as of the date of this prospectus. In addition, the administrative interpretations and practices of the IRS include its practices
and policies as expressed in private letter rulings that are not binding on the IRS except with respect to the particular taxpayers who
requested and received those rulings. The sections of the Code and the corresponding Treasury Regulations that relate to qualification
and taxation as a REIT are highly technical and complex. The following discussion sets forth certain material aspects of the sections
of the Code that govern the U.S. federal income tax treatment of a REIT and its stockholders. This summary is qualified in its entirety
by the applicable Code provisions, Treasury Regulations promulgated under the Code, and administrative and judicial interpretations thereof.
Future legislation, Treasury Regulations, administrative interpretations and practices and/or court decisions may adversely affect the
tax considerations contained in this discussion. Any such change could apply retroactively to transactions preceding the date of the
change. We have not requested, and do not plan to request, any rulings from the IRS that we qualify as a REIT, and the statements in
this prospectus are not binding on the IRS or any court. Thus, we can provide no assurance that the tax considerations contained in this
discussion will not be challenged by the IRS or will be sustained by a court if challenged by the IRS. This summary does not discuss
any state, local or non-U.S. tax consequences, or any tax consequences arising under any U.S. federal tax laws other than U.S. federal
income tax laws, associated with the purchase, ownership or disposition of our common stock, or our election to be taxed as a REIT.
You
are urged to consult your tax advisor regarding the tax consequences to you of:
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the
purchase, ownership or disposition of our common stock, including the U.S. federal, state, local, non-U.S. and other tax consequences;
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our
election to be taxed as a REIT for U.S. federal income tax purposes; and
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potential
changes in applicable tax laws.
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Taxation
of Our Company
General.
We elected to be taxed as a REIT under Sections 856 through 860 of the Code commencing with our taxable year ended December 31,
2000. We believe that we have been organized and have operated in a manner that has allowed us to qualify for taxation as a REIT under
the Code commencing with such taxable year, and we intend to continue to be organized and operate in this manner. However, qualification
and taxation as a REIT depend upon our ability to meet the various qualification tests imposed under the Code, including through actual
operating results, asset composition, distribution levels and diversity of stock ownership. Accordingly, no assurance can be given that
we have been organized and have operated, or will continue to be organized and operate, in a manner so as to qualify or remain qualified
as a REIT. See “—Failure to Qualify” for potential tax consequences if we fail to qualify as a REIT.
Ellenoff
Grossman & Schole LLP (“EGS”) has acted as our tax counsel in connection with this registration statement. EGS will
render an opinion to us to the effect that, for our taxable year ending December 31, 2020, we have been organized and have operated
in conformity with the requirements for qualification and taxation as a REIT under the Code, and our proposed method of operation will
enable us to continue to meet the requirements for qualification and taxation as a REIT under the Code. It must be emphasized that this
opinion will be based on various assumptions and representations as to factual matters, including representations made by us in a factual
certificate provided by one or more of our officers. In addition, this opinion will be based upon our factual representations set forth
in this prospectus. Moreover, our qualification and taxation as a REIT depend upon our ability to meet the various qualification tests
imposed under the Code, which are discussed below, including through actual operating results, asset composition, distribution levels
and diversity of stock ownership, the results of which have not been and will not be reviewed by EGS. Accordingly, no assurance can be
given that our actual results of operation for any particular taxable year have satisfied or will satisfy those requirements. Further,
the anticipated U.S. federal income tax treatment described herein may be changed, perhaps retroactively, by legislative, administrative
or judicial action at any time. EGS has no obligation to update its opinion subsequent to the date of such opinion.
Provided
we qualify for taxation as a REIT, we generally will not be required to pay U.S. federal corporate income taxes on our REIT taxable income
that is currently distributed to our stockholders. This treatment substantially eliminates the “double taxation” that ordinarily
results from investment in a C corporation. A C corporation is a corporation that generally is required to pay tax at the corporate
level. Double taxation means taxation once at the corporate level when income is earned and once again at the stockholder level when
the income is distributed. We will, however, be required to pay U.S. federal income tax as follows:
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First,
we will be required to pay regular U.S. federal corporate income tax on any undistributed REIT taxable income, including undistributed
net capital gains.
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Second,
if we have (1) net income from the sale or other disposition of “foreclosure property” held primarily for sale
to customers in the ordinary course of business or (2) other nonqualifying income from foreclosure property, we will be required
to pay tax at the highest corporate rate on this income. To the extent that income from foreclosure property is otherwise qualifying
income for purposes of the 75% gross income test, this tax is not applicable. Subject to certain other requirements, foreclosure property
generally is defined as property we acquired through foreclosure or after a default on a loan secured by the property or a lease of
the property.
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Third,
we will be required to pay a 100% tax on any net income from prohibited transactions. Prohibited transactions are, in general, sales
or other taxable dispositions of property, other than foreclosure property, held as inventory or primarily for sale to customers
in the ordinary course of business.
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Fourth,
if we fail to satisfy the 75% gross income test or the 95% gross income test, as described below, but have otherwise maintained our
qualification as a REIT because certain other requirements are met, we will be required to pay a tax equal to (1) the greater
of (A) the amount by which we fail to satisfy the 75% gross income test and (B) the amount by which we fail to satisfy the
95% gross income test, multiplied by (2) a fraction intended to reflect our profitability.
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Fifth,
if we fail to satisfy any of the asset tests (other than a de minimis failure of the 5% or 10% asset tests), as described
below, due to reasonable cause and not due to willful neglect, and we nonetheless maintain our REIT qualification because of specified
cure provisions, we will be required to pay a tax equal to the greater of $50,000 or the highest corporate tax rate multiplied by
the net income generated by the nonqualifying assets that caused us to fail such test.
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Sixth,
if we fail to satisfy any provision of the Code that would result in our failure to qualify as a REIT (other than a violation of the
gross income tests or certain violations of the asset tests, as described below) and the violation is due to reasonable cause and
not due to willful neglect, we may retain our REIT qualification but we will be required to pay a penalty of $50,000 for each such
failure.
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Seventh,
we will be required to pay a 4% excise tax to the extent we fail to distribute during each calendar year at least the sum of (1) 85%
of our ordinary income for the year, (2) 95% of our capital gain net income for the year, and (3) any undistributed taxable
income from prior periods.
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Eighth,
if we acquire any asset from a corporation that is or has been a C corporation in a transaction in which our tax basis in the asset
is less than the fair market value of the asset, in each case determined as of the date on which we acquired the asset, and we subsequently
recognize gain on the disposition of the asset during a period that is generally five years beginning on the date on which we acquired
the asset, then we generally will be required to pay tax at the highest regular corporate tax rate on this gain to the extent of the
excess of (1) the fair market value of the asset over (2) our adjusted tax basis in the asset, in each case determined as
of the date on which we acquired the asset. The results described in this paragraph with respect to the recognition of gain assume
that the C corporation will refrain from making an election to receive different treatment under applicable Treasury Regulations on
its tax return for the year in which we acquire the asset from the C corporation. Under applicable Treasury Regulations, any gain
from the sale of property we acquired in an exchange under Section 1031 (a like-kind exchange) or Section 1033 (an involuntary
conversion) of the Code generally is excluded from the application of this built-in gains tax.
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Ninth,
our subsidiaries that are C corporations, including our “taxable REIT subsidiaries” described below, generally will
be required to pay U.S. federal corporate income tax on their earnings.
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Tenth,
we will be required to pay a 100% tax on any “redetermined rents,” “redetermined deductions,” “excess
interest” or “redetermined TRS service income,” as described below under “ —Penalty Tax.” In
general, redetermined rents are rents from real property that are overstated as a result of services furnished to any of our tenants
by a taxable REIT subsidiary of ours. Redetermined deductions and excess interest generally represent amounts that are deducted by
a taxable REIT subsidiary of ours for amounts paid to us that are in excess of the amounts that would have been deducted based
on arm’s length negotiations. Redetermined TRS service income generally represents income of a taxable REIT subsidiary that
is understated as a result of services provided to us or on our behalf.
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Eleventh,
we may elect to retain and pay income tax on our net capital gain. In that case, a stockholder would include its proportionate share
of our undistributed net capital gain (to the extent we make a timely designation of such gain to the stockholder) in its income,
would be deemed to have paid the tax that we paid on such gain, and would be allowed a credit for its proportionate share of the tax
deemed to have been paid, and an adjustment would be made to increase the tax basis of the stockholder in our common stock.
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Twelfth,
if we fail to comply with the requirement to send annual letters to our stockholders requesting information regarding the actual ownership
of our stock, and the failure is not due to reasonable cause or due to willful neglect, we will be subject to a $25,000 penalty, or
if the failure is intentional, a $50,000 penalty.
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We
and our subsidiaries may be subject to a variety of taxes other than U.S. federal income tax, including payroll taxes and state and local
income, property and other taxes on our assets and operations.
Requirements
for Qualification as a REIT. The Code defines a REIT as a corporation, trust or association:
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(1)
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that
is managed by one or more trustees or directors;
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(2)
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that
issues transferable shares or transferable certificates to evidence its beneficial ownership;
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(3)
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that
would be taxable as a domestic corporation, but for Sections 856 through 860 of the Code;
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(4)
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that
is not a financial institution or an insurance company within the meaning of certain provisions of the Code;
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(5)
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that
is beneficially owned by 100 or more persons;
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(6)
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not
more than 50% in value of the outstanding stock of which is owned, actually or constructively, by five or fewer individuals, including
certain specified entities, during the last half of each taxable year; and
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(7)
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that
meets other tests, described below, regarding the nature of its income and assets and the amount of its distributions.
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The
Code provides that conditions (1) to (4), inclusive, must be met during the entire taxable year and that condition (5) must
be met during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months.
For purposes of condition (6), the term “individual” includes a supplemental unemployment compensation benefit plan, a private
foundation or a portion of a trust permanently set aside or used exclusively for charitable purposes, but generally does not include
a qualified pension plan or profit sharing trust.
We
believe that we have been organized and have operated in a manner that has allowed us, and will continue to allow us, and we believe
we will issue sufficient shares of our common stock with sufficient diversity of ownership pursuant to this offering of our common stock
to allow us, to satisfy conditions (1) through (7) inclusive, during the relevant time periods. In addition, our charter provides
for restrictions regarding ownership and transfer of our shares that are intended to assist us in continuing to satisfy the share ownership
requirements described in conditions (5) and (6) above. A description of the share ownership and transfer restrictions relating
to our common stock is contained in the discussion in this prospectus under the heading “Description of Capital Stock—Restrictions
on Ownership and Transfer.” These restrictions, however, do not ensure that we have previously satisfied, and may not ensure that
we will, in all cases, be able to continue to satisfy, the share ownership requirements described in conditions (5) and (6) above.
If we fail to satisfy these share ownership requirements, except as provided in the next sentence, our status as a REIT will terminate.
If, however, we comply with the rules contained in applicable Treasury Regulations that require us to ascertain the actual ownership
of our shares and we do not know, or would not have known through the exercise of reasonable diligence, that we failed to meet the requirement
described in condition (6) above, we will be treated as having met this requirement. See “—Failure to Qualify.”
In
addition, we may not maintain our status as a REIT unless our taxable year is the calendar year. We have and will continue to have a
calendar taxable year.
Ownership
of Interests in Partnerships, Limited Liability Companies and Qualified REIT Subsidiaries. In the case of a REIT that is a partner
in a partnership or a member in a limited liability company treated as a partnership for U.S. federal income tax purposes, Treasury Regulations
provide that the REIT will be deemed to own its proportionate share of the assets of the partnership or limited liability company, as
the case may be, based on its interest in partnership capital, subject to special rules relating to the 10% asset test described below.
Also, the REIT will be deemed to be entitled to its proportionate share of the income of that entity. The assets and gross income of
the partnership or limited liability company retain the same character in the hands of the REIT for purposes of Section 856 of the
Code, including satisfying the gross income tests and the asset tests. Thus, our pro rata share of the assets and items of income of
any partnership or limited liability company treated as a partnership for U.S. federal income tax purposes, including such partnership’s
or limited liability company’s share of these items of any partnership or limited liability company treated as a partnership or
disregarded entity for U.S. federal income tax purposes in which it owns an interest, would be treated as our assets and items of income
for purposes of applying the requirements described in this discussion, including the gross income and asset tests described below. For
purposes of the REIT qualification tests, the treatment of our ownership of partnerships or limited liability companies treated as disregarded
entities for U.S. federal income tax purposes is generally the same as described below with respect to qualified REIT subsidiaries. A
brief summary of the rules governing the U.S. federal income taxation of partnerships and limited liability companies is set forth below
in “—Tax Aspects of the Subsidiary Partnerships and Limited Liability Companies.”
We
have control of certain subsidiary partnerships and limited liability companies and intend to operate them in a manner consistent with
the requirements for our qualification as a REIT. If we are or become a limited partner or non-managing member in any partnership or
limited liability company and such entity takes or expects to take actions that could jeopardize our status as a REIT or require us to
pay tax, we may be forced to dispose of our interest in such entity. In addition, it is possible that a partnership or limited liability
company could take an action which could cause us to fail a gross income or asset test, and that we would not become aware of such action
in time to dispose of our interest in the partnership or limited liability company or take other corrective action on a timely basis.
In that case, we could fail to qualify as a REIT unless we were entitled to relief, as described below.
We
may from time to time own and operate certain properties through wholly-owned subsidiaries that we intend to be treated as “qualified
REIT subsidiaries” under the Code. A corporation will qualify as our qualified REIT subsidiary if we own 100% of the corporation’s
outstanding stock and do not elect with the subsidiary to treat it as a “taxable REIT subsidiary,” as described below. A
qualified REIT subsidiary is not treated as a separate corporation, and all assets, liabilities and items of income, gain, loss, deduction
and credit of a qualified REIT subsidiary are treated as assets, liabilities and items of income, gain, loss, deduction and credit of
the parent REIT for all purposes under the Code, including all REIT qualification tests. Thus, in applying the U.S. federal tax requirements
described in this discussion, any qualified REIT subsidiaries we own are ignored, and all assets, liabilities and items of income, gain,
loss, deduction and credit of such corporations are treated as our assets, liabilities and items of income, gain, loss, deduction and
credit. A qualified REIT subsidiary is not subject to U.S. federal income tax, and our ownership of the stock of a qualified REIT subsidiary
will not violate the restrictions on ownership of securities, as described below under “—Asset Tests.”
Ownership
of Interests in Taxable REIT Subsidiaries. We own an interest in an entity that has elected, together with us, to be treated
as our taxable REIT subsidiary, and we may acquire securities in additional taxable REIT subsidiaries in the future. A taxable REIT subsidiary
is a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) other than a REIT in which a REIT directly
or indirectly holds stock, and that has made a joint election with such REIT to be treated as a taxable REIT subsidiary. If a taxable
REIT subsidiary owns more than 35% of the total voting power or value of the outstanding securities of another corporation, such other
corporation will also be treated as a taxable REIT subsidiary. Other than some activities relating to lodging and health care facilities,
a taxable REIT subsidiary may generally engage in any business, including the provision of customary or non-customary services to tenants
of its parent REIT. A taxable REIT subsidiary is subject to U.S. federal income tax as a regular C corporation. A REIT’s ownership
of securities of a taxable REIT subsidiary is not subject to the 5% or 10% asset test described below. See “—Asset Tests.”
Income
Tests. We must satisfy two gross income requirements annually to maintain our qualification as a REIT. First, in each taxable
year we must derive directly or indirectly at least 75% of our gross income (excluding gross income from prohibited transactions, certain
hedging transactions and certain foreign currency gains) from investments relating to real property or mortgages on real property, including
“rents from real property,” dividends from other REITs and, in certain circumstances, interest, or certain types of temporary
investments. Second, in each taxable year we must derive at least 95% of our gross income (excluding gross income from prohibited transactions,
certain hedging transactions and certain foreign currency gains) from the real property investments described above or dividends, interest
and gain from the sale or disposition of stock or securities, or from any combination of the foregoing. For these purposes, the term
“interest” generally does not include any amount received or accrued, directly or indirectly, if the determination of all
or some of the amount depends in any way on the income or profits of any person. However, an amount received or accrued generally will
not be excluded from the term “interest” solely by reason of being based on a fixed percentage or percentages of receipts
or sales.
Rents
we receive from a tenant will qualify as “rents from real property” for the purpose of satisfying the gross income requirements
for a REIT described above only if all of the following conditions are met:
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The
amount of rent is not based in whole or in part on the income or profits of any person. However, an amount we receive or accrue generally
will not be excluded from the term “rents from real property” solely because it is based on a fixed percentage or
percentages of receipts or sales;
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Neither
we nor an actual or constructive owner of 10% or more of our capital stock actually or constructively owns 10% or more of the interests
in the assets or net profits of a non-corporate tenant, or, if the tenant is a corporation, 10% or more of the total combined voting
power of all classes of stock entitled to vote or 10% or more of the total value of all classes of stock of the tenant. Rents we receive
from such a tenant that is a taxable REIT subsidiary of ours, however, will not be excluded from the definition of “rents from
real property” as a result of this condition if at least 90% of the space at the property to which the rents relate is
leased to third parties, and the rents paid by the taxable REIT subsidiary are substantially comparable to rents paid by our other
tenants for comparable space. Whether rents paid by a taxable REIT subsidiary are substantially comparable to rents paid by other
tenants is determined at the time the lease with the taxable REIT subsidiary is entered into, extended, and modified, if such modification
increases the rents due under such lease. Notwithstanding the foregoing, however, if a lease with a “controlled taxable REIT
subsidiary” is modified and such modification results in an increase in the rents payable by such taxable REIT subsidiary,
any such increase will not qualify as “rents from real property.” For purposes of this rule, a “controlled
taxable REIT subsidiary” is a taxable REIT subsidiary in which the parent REIT owns stock possessing more than 50% of the
voting power or more than 50% of the total value of the outstanding stock of such taxable REIT subsidiary;
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Rent
attributable to personal property, leased in connection with a lease of real property, is not greater than 15% of the total rent received
under the lease. If this condition is not met, then the portion of the rent attributable to personal property will not qualify as
“rents from real property.” To the extent that rent attributable to personal property, leased in connection with
a lease of real property, exceeds 15% of the total rent received under the lease, we may transfer a portion of such personal property
to a taxable REIT subsidiary; and
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We
generally may not operate or manage the property or furnish or render services to our tenants, subject to a 1% de minimis exception
and except as provided below. We may, however, perform services that are “usually or customarily rendered” in connection
with the rental of space for occupancy only and are not otherwise considered “rendered to the occupant” of the property.
Examples of these services include the provision of light, heat, or other utilities, trash removal and general maintenance of common
areas. In addition, we may employ an independent contractor from whom we derive no revenue to provide customary services to our tenants,
or a taxable REIT subsidiary (which may be wholly or partially owned by us) to provide both customary and non-customary services
to our tenants without causing the rent we receive from those tenants to fail to qualify as “rents from real property.”
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We
generally do not intend to take actions we believe will cause us to fail to satisfy the rental conditions described above. However, we
may intentionally fail to satisfy some of these conditions to the extent we determine, based on the advice of our tax counsel, that the
failure will not jeopardize our tax status as a REIT. In addition, with respect to the limitation on the rental of personal property,
we generally have not obtained appraisals of the real property and personal property leased to tenants. Accordingly, there can be no
assurance that the IRS will not disagree with our determinations of value.
Income
we receive that is attributable to the rental of parking spaces at the properties generally will constitute rents from real property
for purposes of the gross income tests if certain services provided with respect to the parking spaces are performed by independent contractors
from whom we derive no revenue, either directly or indirectly, or by a taxable REIT subsidiary, and certain other conditions are met.
We believe that the income we receive that is attributable to parking spaces will meet these tests and, accordingly, will constitute
rents from real property for purposes of the gross income tests.
From
time to time, we may enter into hedging transactions with respect to one or more of our assets or liabilities. Our hedging activities
may include entering into interest rate swaps, caps, and floors, options to purchase these items, and futures and forward contracts.
Income from a hedging transaction, including gain from the sale or disposition of such a transaction, that is clearly identified as a
hedging transaction as specified in the Code will not constitute gross income under, and thus will be exempt from, the 75% and 95% gross
income tests. The term “hedging transaction,” as used above, generally means (A) any transaction we enter into in the
normal course of our business primarily to manage risk of (1) interest rate changes or fluctuations with respect to borrowings made
or to be made by us to acquire or carry real estate assets, or (2) currency fluctuations with respect to an item of qualifying income
under the 75% or 95% gross income test or any property which generates such income and (B) new transactions entered into to hedge
the income or loss from prior hedging transactions, where the property or indebtedness which was the subject of the prior hedging transaction
was extinguished or disposed of. To the extent that we do not properly identify such transactions as hedges or we hedge with other types
of financial instruments, the income from those transactions will not be treated as qualifying income for purposes of the gross income
tests. We intend to structure any hedging transactions in a manner that does not jeopardize our status as a REIT.
To
the extent our taxable REIT subsidiaries pay dividends or interest, our allocable share of such dividend or interest income will qualify
under the 95%, but not the 75%, gross income test (except to the extent the interest is paid on a loan that is adequately secured by
real property).
We
will monitor the amount of the dividend and other income from our taxable REIT subsidiaries and will take actions intended to keep this
income, and any other nonqualifying income, within the limitations of the gross income tests. Although we expect these actions will be
sufficient to prevent a violation of the gross income tests, we cannot guarantee that such actions will in all cases prevent such a violation.
If
we fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year, we may nevertheless qualify as a REIT for the
year if we are entitled to relief under certain provisions of the Code. We generally may make use of the relief provisions if:
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following
our identification of the failure to meet the 75% or 95% gross income tests for any taxable year, we file a schedule with the IRS
setting forth each item of our gross income for purposes of the 75% or 95% gross income tests for such taxable year in accordance
with Treasury Regulations to be issued; and
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our
failure to meet these tests was due to reasonable cause and not due to willful neglect.
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It
is not possible, however, to state whether in all circumstances we would be entitled to the benefit of these relief provisions. For example,
if we fail to satisfy the gross income tests because nonqualifying income that we intentionally accrue or receive exceeds the limits
on nonqualifying income, the IRS could conclude that our failure to satisfy the tests was not due to reasonable cause. If these relief
provisions do not apply to a particular set of circumstances, we will not qualify as a REIT. See “—Failure to Qualify”
for potential tax consequences if we fail to qualify as a REIT. As discussed above in “—Taxation of Our Company—General,”
even if these relief provisions apply, and we retain our status as a REIT, a tax would be imposed with respect to our nonqualifying income.
We may not always be able to comply with the gross income tests for REIT qualification despite periodic monitoring of our income.
Prohibited
Transaction Income. Any gain that we realize on the sale of property held as inventory or otherwise held primarily for sale to
customers in the ordinary course of business, either directly or through any qualified REIT subsidiaries, subsidiary partnerships or
limited liability companies, will be treated as income from a prohibited transaction that is subject to a 100% penalty tax, unless certain
safe harbor exceptions apply. This prohibited transaction income may also adversely affect our ability to satisfy the gross income tests
for qualification as a REIT. Under existing law, whether property is held as inventory or primarily for sale to customers in the ordinary
course of a trade or business is a question of fact that depends on all the facts and circumstances surrounding the particular transaction.
We do not intend, and we do not intend to permit our qualified REIT subsidiaries or subsidiary partnerships or limited liability companies,
to enter into any sales that are prohibited transactions. However, the IRS may successfully contend that some or all of the sales made
by us, our qualified REIT subsidiaries or our subsidiary partnerships or limited liability companies are prohibited transactions. We
would be required to pay the 100% penalty tax on our allocable share of the gains resulting from any such sales. The 100% penalty tax
will not apply to gains from the sale of assets that are held through a taxable REIT subsidiary, but such income will be subject to regular
U.S. federal corporate income tax.
Penalty
Tax. Any redetermined rents, redetermined deductions, excess interest or redetermined TRS service income we generate will be
subject to a 100% penalty tax. In general, redetermined rents are rents from real property that are overstated as a result of any services
furnished to any of our tenants by a taxable REIT subsidiary of ours, redetermined deductions and excess interest represent any amounts
that are deducted by a taxable REIT subsidiary of ours for amounts paid to us that are in excess of the amounts that would have been
deducted based on arm’s length negotiations, and redetermined TRS service income is income of a taxable REIT subsidiary that is
understated as a result of services provided to us or on our behalf. Rents we receive will not constitute redetermined rents if they
qualify for certain safe harbor provisions contained in the Code.
We
do not believe we have been, and do not expect to be, subject to this penalty tax, although any rental or service arrangements we enter
into from time to time may not satisfy the safe-harbor provisions described above. These determinations are inherently factual, and the
IRS has broad discretion to assert that amounts paid between related parties should be reallocated to clearly reflect their respective
incomes. If the IRS successfully made such an assertion, we would be required to pay a 100% penalty tax on any overstated rents paid
to us, or any excess deductions or understated income of our taxable REIT subsidiaries.
Asset
Tests. At the close of each calendar quarter of our taxable year, we must also satisfy certain tests relating to the nature and
diversification of our assets. First, at least 75% of the value of our total assets must be represented by real estate assets, cash,
cash items and U.S. government securities. For purposes of this test, the term “real estate assets” generally means real
property (including interests in real property and interests in mortgages on real property and, to a limited extent, personal property),
shares (or transferable certificates of beneficial interest) in other REITs, any stock or debt instrument attributable to the investment
of the proceeds of a stock offering or a public offering of debt with a term of at least five years (but only for the one-year period
beginning on the date the REIT receives such proceeds), debt instruments of publicly offered REITs, and personal property leased in connection
with a lease of real property for which the rent attributable to personal property is not greater than 15% of the total rent received
under the lease.
Second,
not more than 25% of the value of our total assets may be represented by securities (including securities of taxable REIT subsidiaries),
other than those securities includable in the 75% asset test.
Third,
of the investments included in the 25% asset class, and except for certain investments in other REITs, our qualified REIT subsidiaries
and taxable REIT subsidiaries, the value of any one issuer’s securities may not exceed 5% of the value of our total assets, and
we may not own more than 10% of the total vote or value of the outstanding securities of any one issuer except, in the case of the 10%
value test, securities satisfying the “straight debt” safe-harbor or securities issued by a partnership that itself would
satisfy the 75% income test if it were a REIT. Certain types of securities we may own are disregarded as securities solely for purposes
of the 10% value test, including, but not limited to, any loan to an individual or an estate, any obligation to pay rents from real property
and any security issued by a REIT. In addition, solely for purposes of the 10% value test, the determination of our interest in the assets
of a partnership or limited liability company in which we own an interest will be based on our proportionate interest in any securities
issued by the partnership or limited liability company, excluding for this purpose certain securities described in the Code. From time
to time we may own securities (including debt securities) of issuers that do not qualify as a REIT, a qualified REIT subsidiary or a
taxable REIT subsidiary. We intend that our ownership of any such securities will be structured in a manner that allows us to comply
with the asset tests described above.
Fourth,
not more than 20% of the value of our total assets may be represented by the securities of one or more taxable REIT subsidiaries. We
own an interest in an entity that has elected, together with us, to be treated as our taxable REIT subsidiary, and we may acquire securities
in additional taxable REIT subsidiaries in the future. So long as each of these companies qualifies as a taxable REIT subsidiary of ours,
we will not be subject to the 5% asset test, the 10% voting securities limitation or the 10% value limitation with respect to our ownership
of the securities of such companies. We believe that the aggregate value of our taxable REIT subsidiaries has not exceeded, and in the
future will not exceed, 20% of the aggregate value of our gross assets. We generally do not obtain independent appraisals to support
these conclusions. In addition, there can be no assurance that the IRS will not disagree with our determinations of value.
Fifth,
not more than 25% of the value of our total assets may be represented by debt instruments of publicly offered REITs to the extent those
debt instruments would not be real estate assets but for the inclusion of debt instruments of publicly offered REITs in the meaning of
real estate assets, as described above (e.g., a debt instrument issued by a publicly offered REIT that is not secured by a mortgage on
real property).
The
asset tests must be satisfied at the close of each calendar quarter of our taxable year in which we (directly or through any qualified
REIT subsidiary, partnership or limited liability company) acquire securities in the applicable issuer, and also at the close of each
calendar quarter in which we increase our ownership of securities of such issuer (including as a result of an increase in our interest
in any partnership or limited liability company that owns such securities). For example, our indirect ownership of securities of each
issuer may increase as a result of our capital contributions to, or the redemption of other partners’ or members’ interests
in, a partnership or limited liability company in which we have an ownership interest. Also, after initially meeting the asset tests
at the close of any quarter, we will not lose our status as a REIT for failure to satisfy the asset tests at the end of a later quarter
solely by reason of changes in asset values. If we fail to satisfy an asset test because we acquire securities or other property during
a quarter (including as a result of an increase in our interest in any partnership or limited liability company), we may cure this failure
by disposing of sufficient nonqualifying assets within 30 days after the close of that quarter. We believe that we have maintained, and
we intend to maintain, adequate records of the value of our assets to ensure compliance with the asset tests. If we fail to cure any
noncompliance with the asset tests within the 30-day cure period, we would cease to qualify as a REIT unless we are eligible for certain
relief provisions discussed below.
Certain
relief provisions may be available to us if we discover a failure to satisfy the asset tests described above after the 30-day cure period.
Under these provisions, we will be deemed to have met the 5% and 10% asset tests if the value of our nonqualifying assets (i) does
not exceed the lesser of (a) 1% of the total value of our assets at the end of the applicable quarter or (b) $10,000,000, and
(ii) we dispose of the nonqualifying assets or otherwise satisfy such tests within (a) nine months after the last day of the
quarter in which the failure to satisfy the asset tests is discovered or (b) the period of time prescribed by Treasury Regulations
to be issued. For violations of any of the asset tests due to reasonable cause and not due to willful neglect and that are, in the case
of the 5% and 10% asset tests, in excess of the de minimis exception described above, we may avoid disqualification as a REIT
after the 30-day cure period by taking steps including (i) the disposition of sufficient nonqualifying assets, or the taking of
other actions, which allow us to meet the asset tests within (a) nine months after the last day of the quarter in which the failure
to satisfy the asset tests is discovered or (b) the period of time prescribed by Treasury Regulations to be issued, (ii) paying
a tax equal to the greater of (a) $50,000 or (b) the highest corporate tax rate multiplied by the net income generated by the
nonqualifying assets, and (iii) disclosing certain information to the IRS.
Although
we believe we have satisfied the asset tests described above and plan to take steps to ensure that we satisfy such tests for any quarter
with respect to which retesting is to occur, there can be no assurance that we will always be successful, or will not require a reduction
in our overall interest in an issuer (including in a taxable REIT subsidiary). If we fail to cure any noncompliance with the asset tests
in a timely manner, and the relief provisions described above are not available, we would cease to qualify as a REIT.
Annual
Distribution Requirements. To maintain our qualification as a REIT, we are required to distribute dividends, other than capital
gain dividends, to our stockholders in an amount at least equal to the sum of:
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90%
of our REIT taxable income; and
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90%
of our after-tax net income, if any, from foreclosure property; minus
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the
excess of the sum of certain items of non-cash income over 5% of our REIT taxable income.
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For
these purposes, our REIT taxable income is computed without regard to the dividends paid deduction and our net capital gain. In addition,
for purposes of this test, non-cash income generally means income attributable to leveled stepped rents, original issue discount, cancellation
of indebtedness, or a like-kind exchange that is later determined to be taxable.
In
addition, our REIT taxable income will be reduced by any taxes we are required to pay on any gain we recognize from the disposition of
any asset we acquired from a corporation that is or has been a C corporation in a transaction in which our tax basis in the asset is
less than the fair market value of the asset, in each case determined as of the date on which we acquired the asset, within a period
that is generally five years following our acquisition of such asset, as described above under “—General.”
Under
the 2017 Tax Legislation, for taxable years beginning after December 31, 2017, our deduction for net business interest expense will
generally be limited to 30% of our taxable income, as adjusted for certain items of income, gain, deduction or loss. Any business interest
deduction that is disallowed due to this limitation may be carried forward to future taxable years. If we are subject to this interest
expense limitation, our REIT taxable income for a taxable year may be increased. Taxpayers that conduct certain real estate businesses
may elect not to have this interest expense limitation apply to them, provided that they use an alternative depreciation system to depreciate
certain property. We believe that we will be eligible to make this election. If we make this election, although we would not be subject
to the interest expense limitation described above, our depreciation deductions may be reduced and, as a result, our REIT taxable income
for a taxable year may be increased.
We
generally must pay, or be treated as paying, the distributions described above in the taxable year to which they relate. At our election,
a distribution will be treated as paid in a taxable year if it is declared before we timely file our tax return for such year and paid
on or before the first regular dividend payment after such declaration, provided such payment is made during the 12-month period following
the close of such year. These distributions are treated as received by our stockholders in the year in which they are paid. This is so
even though these distributions relate to the prior year for purposes of the 90% distribution requirement. In order to be taken into
account for purposes of our distribution requirement, except as provided below, the amount distributed must not be preferential—i.e.,
every stockholder of the class of stock to which a distribution is made must be treated the same as every other stockholder of that class,
and no class of stock may be treated other than according to its dividend rights as a class. This preferential limitation will not apply
to distributions made by us, provided we qualify as a “publicly offered REIT.” We believe that we are, and expect we will
continue to be, a publicly offered REIT. To the extent that we do not distribute all of our net capital gain, or distribute at least
90%, but less than 100%, of our REIT taxable income, as adjusted, we will be required to pay tax on the undistributed amount at regular
corporate tax rates.
We
believe that we have made, and we intend to continue to make, timely distributions sufficient to satisfy these annual distribution requirements
and to minimize our corporate tax obligations. However, from time to time, we may not have sufficient cash or other liquid assets to
meet these distribution requirements due to timing differences between the actual receipt of income and actual payment of deductible
expenses, and the inclusion of income and deduction of expenses in determining our taxable income. In addition, we may decide to retain
our cash, rather than distribute it, in order to repay debt or for other reasons. If these timing differences occur, we may borrow funds
to pay dividends or pay dividends in the form of taxable stock distributions in order to meet the distribution requirements, while preserving
our cash.
Under
some circumstances, we may be able to rectify an inadvertent failure to meet the 90% distribution requirement for a year by paying “deficiency
dividends” to our stockholders in a later year, which may be included in our deduction for dividends paid for the earlier year.
In that case, we may be able to avoid being taxed on amounts distributed as deficiency dividends, subject to the 4% excise tax described
below. However, we will be required to pay interest to the IRS based upon the amount of any deduction claimed for deficiency dividends.
While the payment of a deficiency dividend will apply to a prior year for purposes of our REIT distribution requirements, it will be
treated as an additional distribution to our stockholders in the year such dividend is paid. In addition, if a dividend we have paid
is treated as a preferential dividend, in lieu of treating the dividend as not counting toward satisfying the 90% distribution requirement,
the IRS may provide a remedy to cure such failure if the IRS determines that such failure is (or is of a type that is) inadvertent or
due to reasonable cause and not due to willful neglect.
Furthermore,
we will be required to pay a 4% excise tax to the extent we fail to distribute during each calendar year at least the sum of 85% of our
ordinary income for such year, 95% of our capital gain net income for the year and any undistributed taxable income from prior periods.
Any ordinary income and net capital gain on which corporate income tax is imposed for any year is treated as an amount distributed during
that year for purposes of calculating this excise tax.
For
purposes of the 90% distribution requirement and excise tax described above, dividends declared during the last three months of the taxable
year, payable to stockholders of record on a specified date during such period and paid during January of the following year, will be
treated as paid by us and received by our stockholders on December 31 of the year in which they are declared.
Like-Kind
Exchanges. We may dispose of real property that is not held primarily for sale in transactions intended to qualify as like-kind
exchanges under the Code. Such like-kind exchanges are intended to result in the deferral of gain for U.S. federal income tax purposes.
The failure of any such transaction to qualify as a like-kind exchange could require us to pay U.S. federal income tax, possibly including
the 100% prohibited transaction tax, depending on the facts and circumstances surrounding the particular transaction.
Tax
Liabilities and Attributes Inherited in Connection with Acquisitions. From time to time, we may acquire other corporations or
entities and, in connection with such acquisitions, we may succeed to the historical tax attributes and liabilities of such corporations
or entities. For example, if we acquire a C corporation and subsequently dispose of its assets within five years of the acquisition,
we could be required to pay the built-in gain tax described above under “—General.” In addition, in order to qualify
as a REIT, at the end of any taxable year, we must not have any earnings and profits accumulated in a non-REIT year. As a result, if
we acquire a C corporation, we must distribute the corporation’s earnings and profits accumulated prior to the acquisition
before the end of the taxable year in which we acquire the corporation. We also could be required to pay the acquired entity’s
unpaid taxes even though such liabilities arose prior to the time we acquired the entity.
Moreover,
we may from time to time acquire other REITs through a merger or acquisition. If any such REIT failed to qualify as a REIT for any of
its taxable years, such REIT would be liable for (and we, as the surviving corporation in the merger or acquisition, would be obligated
to pay) U.S. federal income tax on its taxable income at regular rates, and if the merger or acquisition is a transaction in which our
tax basis in the assets of such REIT is less than the fair market value of the assets determined at the time of the merger or acquisition,
we would be subject to tax on the built-in gain on each asset of such REIT as described above if we were to dispose of the asset in a
taxable transaction during the five-year period following the merger or acquisition. Moreover, even if such REIT qualified as a REIT
at all relevant times, we would similarly be liable for other unpaid taxes (if any) of such REIT (such as the 100% tax on gains from
any sales treated as “prohibited transactions” as described above under “—Prohibited Transaction Income”).
Furthermore,
after our acquisition of another corporation or entity, the asset and income tests will apply to all of our assets, including the assets
we acquire from such corporation or entity, and to all of our income, including the income derived from the assets we acquire from such
corporation or entity. As a result, the nature of the assets that we acquire from such corporation or entity and the income we derive
from those assets may have an effect on our tax status as a REIT.
Failure
to Qualify. If we discover a violation of a provision of the Code that would result in our failure to qualify as a REIT, certain
specified cure provisions may be available to us. Except with respect to violations of the gross income tests and asset tests (for which
the cure provisions are described above), and provided the violation is due to reasonable cause and not due to willful neglect, these
cure provisions generally impose a $50,000 penalty for each violation in lieu of a loss of REIT status. If we fail to satisfy the requirements
for taxation as a REIT in any taxable year, and the relief provisions do not apply, we will be required to pay tax on our taxable income
at regular corporate rates. Distributions to stockholders in any year in which we fail to qualify as a REIT will not be deductible by
us. As a result, we anticipate that our failure to qualify as a REIT would reduce the cash available for distribution by us to our stockholders.
In addition, if we fail to qualify as a REIT, we will not be required to distribute any amounts to our stockholders, and all distributions
to stockholders will be taxable as regular corporate dividends to the extent of our current and accumulated earnings and profits. In
such event, corporate distributees may be eligible for the dividends-received deduction. In addition, non-corporate stockholders, including
individuals, may be eligible for the preferential tax rates on qualified dividend income. Under the 2017 Tax Legislation, non-corporate
stockholders, including individuals, generally may deduct 20% of dividends from a REIT, other than capital gain dividends and dividends
treated as qualified dividend income, for taxable years beginning after December 31, 2017 and before January 1, 2026. If we
fail to qualify as a REIT, such stockholders may not claim this deduction with respect to dividends paid by us. Unless entitled to relief
under specific statutory provisions, we would also be ineligible to elect to be treated as a REIT for the four taxable years following
the year for which we lose our qualification. It is not possible to state whether in all circumstances we would be entitled to this statutory
relief.
Tax
Aspects of the Subsidiary Partnerships and Limited Liability Companies
General.
We hold investments indirectly through subsidiary partnerships and limited liability companies that we believe are and will continue
to be treated as partnerships or disregarded entities for U.S. federal income tax purposes. In general, entities that are treated as
partnerships or disregarded entities for U.S. federal income tax purposes are “pass-through” entities which are not required
to pay U.S. federal income tax. Rather, partners or members of such entities are allocated their shares of the items of income, gain,
loss, deduction and credit of the partnership or limited liability company, and are potentially required to pay tax on this income, without
regard to whether they receive a distribution from the partnership or limited liability company. We will include in our income our share
of these partnership and limited liability company items for purposes of the various gross income tests, the computation of our REIT
taxable income, and the REIT distribution requirements. Moreover, for purposes of the asset tests, we will include our pro rata share
of assets held by our subsidiary partnerships and limited liability companies based on our capital interests in each such entity. See
“—Taxation of Our Company.”
Entity
Classification. Our interests in our subsidiary partnerships and limited liability companies involve special tax considerations,
including the possibility that the IRS might challenge the status of these entities as partnerships or disregarded entities. For example,
an entity that would otherwise be treated as a partnership for U.S. federal income tax purposes may nonetheless be taxable as a corporation
if it is a “publicly traded partnership” and certain other requirements are met. A partnership or limited liability company
would be treated as a publicly traded partnership if its interests are traded on an established securities market or are readily tradable
on a secondary market or a substantial equivalent thereof, within the meaning of applicable Treasury Regulations. We do not anticipate
that any subsidiary partnership or limited liability company will be treated as a publicly traded partnership that is taxable as a corporation.
However, if any such entity were treated as a corporation, it would be required to pay an entity-level tax on its income. In this situation,
the character of our assets and items of gross income would change and could prevent us from satisfying the REIT asset tests and possibly
the REIT income tests. See “—Taxation of Our Company—Asset Tests” and “—Income Tests.” This,
in turn, could prevent us from qualifying as a REIT. See “—Failure to Qualify” for a discussion of the effect of our
failure to meet these tests. In addition, a change in the tax status of a subsidiary partnership or limited liability company to a corporation
might be treated as a taxable event. If so, we might incur a tax liability without any related cash payment. We believe each of the subsidiary
partnerships and limited liability companies are and will continue to be treated as partnerships or disregarded entities for U.S. federal
income tax purposes.
Allocations
of Income, Gain, Loss and Deduction. A partnership agreement (or, in the case of a limited liability company treated as a partnership
for U.S. federal income tax purposes, the limited liability company agreement) generally will determine the allocation of income and
loss among partners. These allocations, however, will be disregarded for tax purposes if they do not comply with the provisions of Section 704(b)
of the Code and the Treasury Regulations thereunder. Generally, Section 704(b) of the Code and the Treasury Regulations thereunder
require that partnership allocations respect the economic arrangement of the partners. If an allocation of partnership income or loss
does not comply with the requirements of Section 704 (b) of the Code and the Treasury Regulations thereunder, the item subject
to the allocation will be reallocated in accordance with the partners’ interests in the partnership. This reallocation will be
determined by taking into account all of the facts and circumstances relating to the economic arrangement of the partners with respect
to such item. The allocations of taxable income and loss of our subsidiaries that are treated as partnerships for U.S. federal income
tax purposes are intended to comply with the requirements of Section 704(b) of the Code and the Treasury Regulations thereunder.
Tax
Allocations with Respect to the Properties. Under Section 704(c) of the Code, income, gain, loss and deduction attributable
to appreciated or depreciated property that is contributed to a partnership (including a limited liability company treated as a partnership
for U.S. federal income tax purposes) in exchange for an interest in the partnership, must be allocated in a manner so that the contributing
partner is charged with the unrealized gain or benefits from the unrealized loss associated with the property at the time of the contribution.
The amount of the unrealized gain or unrealized loss generally is equal to the difference between the fair market value or book value
and the adjusted tax basis of the contributed property at the time of contribution (this difference is referred to as a book-tax difference),
as adjusted from time to time. These allocations are solely for U.S. federal income tax purposes and do not affect the book capital accounts
or other economic or legal arrangements among the partners.
If
a subsidiary of ours that is treated as a partnership for U.S. federal income tax purposes acquires interests in property in exchange
for interests in such partnership, the tax basis of these property interests generally will carry over to such partnership, notwithstanding
their different book (i.e., fair market) value. Treasury Regulations issued under Section 704(c) of the Code provide partnerships
(including limited liability companies treated as partnerships for U.S. federal income tax purposes) with a choice of several methods
of accounting for book-tax differences. Depending on the method chosen in connection with any particular contribution, the carryover
basis of each of the contributed interests in the properties in the hands of the partnership (1) could cause us to be allocated
lower amounts of depreciation deductions for tax purposes than would be allocated to us if any of the contributed properties were to
have a tax basis equal to its respective fair market value at the time of the contribution and (2) could cause us to be allocated
taxable gain in the event of a sale of such contributed interests or properties in excess of the economic or book income allocated to
us as a result of such sale, with a corresponding benefit to the other partners in the partnership. An allocation described in clause
(2) above might cause us or the other partners to recognize taxable income in excess of cash proceeds in the event of a sale or
other disposition of property, which might adversely affect our ability to comply with the REIT distribution requirements. See “—Taxation
of Our Company—Requirements for Qualification as a REIT” and “—Annual Distribution Requirements.”
Any
property acquired by the partnership in a taxable transaction will initially have a tax basis equal to its fair market value, and Section 704(c)
of the Code generally will not apply.
Partnership
Audit Rules. The Bipartisan Budget Act of 2015 changes the rules applicable to U.S. federal income tax audits of partnerships.
Under the new rules (which are generally effective for taxable years beginning after December 31, 2017), among other changes and
subject to certain exceptions, any audit adjustment to items of income, gain, loss, deduction, or credit of a partnership (and any partner’s
distributive share thereof) is determined, and taxes, interest, or penalties attributable thereto are assessed and collected, at the
partnership level. Although it is uncertain how certain aspects of these rules will be implemented, it is possible that they could result
in partnerships in which we directly or indirectly invest being required to pay additional taxes, interest and penalties as a result
of an audit adjustment, and we, as a direct or indirect partner of these partnerships, could be required to bear the economic burden
of those taxes, interest, and penalties even though we, as a REIT, may not otherwise have been required to pay additional corporate-level
taxes as a result of the related audit adjustment. The changes created by these new rules are sweeping and, in many respects, dependent
on the promulgation of future regulations or other guidance by the U.S. Department of the Treasury. Investors are urged to consult
their tax advisors with respect to these changes and their potential impact on their investment in our common stock.
Material
U.S. Federal Income Tax Consequences to Holders of Our Common Stock
The
following discussion is a summary of the material U.S. federal income tax consequences to you of purchasing, owning and disposing of
our common stock. This discussion is limited to holders who hold our common stock as a “capital asset” within the meaning
of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income
tax consequences relevant to a holder’s particular circumstances. In addition, except where specifically noted, it does not address
consequences relevant to holders subject to special rules, including, without limitation:
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U.S.
expatriates and former citizens or long-term residents of the United States;
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persons
subject to the alternative minimum tax;
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U.S.
holders (as defined below) whose functional currency is not the U.S. dollar;
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persons
holding our common stock as part of a hedge, straddle or other risk reduction strategy or as part of a conversion transaction or other
integrated investment;
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banks,
insurance companies, and other financial institutions;
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REITs
or regulated investment companies;
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brokers,
dealers or traders in securities;
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“controlled
foreign corporations,” “passive foreign investment companies,” and corporations that accumulate earnings
to avoid U.S. federal income tax;
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S
corporations, partnerships or other entities or arrangements treated as partnerships for U.S. federal income tax purposes (and investors
therein);
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tax-exempt
organizations or governmental organizations;
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persons
subject to special tax accounting rules as a result of any item of gross income with respect to our common stock being taken into
account in an applicable financial statement;
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persons
deemed to sell our common stock under the constructive sale provisions of the Code; and
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persons
who hold or receive our common stock pursuant to the exercise of any employee stock option or otherwise as compensation.
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THIS
DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT INTENDED AS TAX ADVICE. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT
TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK ARISING UNDER OTHER U.S. FEDERAL TAX LAWS (INCLUDING ESTATE AND GIFT TAX LAWS), UNDER THE
LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
For
purposes of this discussion, a “U.S. holder” is a beneficial owner of our common stock that, for U.S. federal income tax
purposes, is or is treated as:
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an
individual who is a citizen or resident of the United States;
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a
corporation created or organized 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 subject to U.S. federal income tax regardless of its source; or
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a
trust that (1) is subject to the primary supervision of a U.S. court and the control of one or more “United States persons” (within
the meaning of Section 7701(a)(30) of the Code) or (2) has a valid election in effect to be treated as a United States person
for U.S. federal income tax purposes.
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For
purposes of this discussion, a “non-U.S. holder” is any beneficial owner of our common stock that is neither a U.S. holder
nor an entity treated as a partnership for U.S. federal income tax purposes.
If
an entity treated as a partnership for U.S. federal income tax purposes holds our common stock, the tax treatment of a partner in the
partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner
level. Accordingly, partnerships holding our common stock and the partners in such partnerships should consult their tax advisors regarding
the U.S. federal income tax consequences to them.
Taxation
of Taxable U.S. Holders of Our Common Stock
Distributions
Generally. Distributions out of our current or accumulated earnings and profits will be treated as dividends and, other than
with respect to capital gain dividends and certain amounts which have previously been subject to corporate level tax, as discussed below,
will be taxable to our taxable U.S. holders as ordinary income when actually or constructively received. See “—Tax Rates”
below. As long as we qualify as a REIT, these distributions will not be eligible for the dividends-received deduction in the case of
U.S. holders that are corporations or, except to the extent described in “—Tax Rates” below, the preferential rates
on qualified dividend income applicable to non-corporate U.S. holders, including individuals. Under the 2017 Tax Legislation, non-corporate
U.S. holders, including individuals, generally may deduct 20% of dividends from a REIT, other than capital gain dividends and dividends
treated as qualified dividend income, for taxable years beginning after December 31, 2017 and before January 1, 2026. For purposes
of determining whether distributions to holders of our capital stock are out of our current or accumulated earnings and profits, our
earnings and profits will be allocated first to our outstanding preferred stock, if any, and then to our outstanding common stock.
To
the extent that we make distributions on our common stock in excess of our current and accumulated earnings and profits allocable to
such stock, these distributions will be treated first as a tax-free return of capital to a U.S. holder. This treatment will reduce the
U.S. holder’s adjusted tax basis in such shares of stock by the amount of the distribution, but not below zero. Distributions in
excess of our current and accumulated earnings and profits and in excess of a U.S. holder’s adjusted tax basis in its shares will
be taxable as capital gain. Such gain will be taxable as long-term capital gain if the shares have been held for more than one year.
Dividends we declare in October, November, or December of any year and which are payable to a holder of record on a specified date in
any of these months will be treated as both paid by us and received by the holder on December 31 of that year, provided we actually
pay the dividend on or before January 31 of the following year. U.S. holders may not include in their own income tax returns any
of our net operating losses or capital losses.
U.S.
holders that receive taxable stock distributions, including distributions partially payable in our common stock and partially payable
in cash, would be required to include the full amount of the distribution (i.e., the cash and the stock portion) as a dividend
(subject to limited exceptions) to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes,
as described above. The amount of any distribution payable in our common stock generally is equal to the amount of cash that could have
been received instead of the common stock. Depending on the circumstances of a U.S. holder, the tax on the distribution may exceed the
amount of the distribution received in cash, in which case such U.S. holder would have to pay the tax using cash from other sources.
If a U.S. holder sells the common stock it received in connection with a taxable stock distribution in order to pay this tax and the
proceeds of such sale are less than the amount required to be included in income with respect to the stock portion of the distribution,
such U.S. holder could have a capital loss with respect to the stock sale that could not be used to offset such income. A U.S. holder
that receives common stock pursuant to such distribution generally has a tax basis in such common stock equal to the amount of cash that
could have been received instead of such common stock as described above, and has a holding period in such common stock that begins on
the day immediately following the payment date for the distribution.
Capital
Gain Dividends. Dividends that we properly designate as capital gain dividends will be taxable to our taxable U.S. holders as
a gain from the sale or disposition of a capital asset held for more than one year, to the extent that such gain does not exceed our
actual net capital gain for the taxable year and may not exceed our dividends paid for the taxable year, including dividends paid the
following year that are treated as paid in the current year. U.S. holders that are corporations may, however, be required to treat up
to 20% of certain capital gain dividends as ordinary income. If we properly designate any portion of a dividend as a capital gain dividend,
then, except as otherwise required by law, we presently intend to allocate a portion of the total capital gain dividends paid or made
available to holders of all classes of our capital stock for the year to the holders of each class of our capital stock in proportion
to the amount that our total dividends, as determined for U.S. federal income tax purposes, paid or made available to the holders of
each such class of our capital stock for the year bears to the total dividends, as determined for U.S. federal income tax purposes, paid
or made available to holders of all classes of our capital stock for the year. In addition, except as otherwise required by law, we will
make a similar allocation with respect to any undistributed long-term capital gains which are to be included in our stockholders’
long-term capital gains, based on the allocation of the capital gain amount which would have resulted if those undistributed long-term
capital gains had been distributed as “capital gain dividends” by us to our stockholders.
Retention
of Net Capital Gains. We may elect to retain, rather than distribute as a capital gain dividend, all or a portion of our net
capital gains. If we make this election, we would pay tax on our retained net capital gains. In addition, to the extent we so elect,
our earnings and profits (determined for U.S. federal income tax purposes) would be adjusted accordingly, and a U.S. holder generally
would:
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include
its pro rata share of our undistributed net capital gains in computing its long-term capital gains in its return for its taxable year
in which the last day of our taxable year falls, subject to certain limitations as to the amount that is includable;
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be
deemed to have paid its share of the capital gains tax imposed on us on the designated amounts included in the U.S. holder’s
income as long-term capital gain;
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receive
a credit or refund for the amount of tax deemed paid by it;
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increase
the adjusted tax basis of its common stock by the difference between the amount of includable gains and the tax deemed to have been
paid by it; and
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in
the case of a U.S. holder that is a corporation, appropriately adjust its earnings and profits for the retained capital gains in accordance
with Treasury Regulations to be promulgated by the IRS.
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Passive
Activity Losses and Investment Interest Limitations. Distributions we make and gain arising from the sale or exchange by a U.S.
holder of our common stock will not be treated as passive activity income. As a result, U.S. holders generally will not be able to apply
any “passive losses” against this income or gain. A U.S. holder generally may elect to treat capital gain dividends, capital
gains from the disposition of our common stock and income designated as qualified dividend income, as described in “—Tax
Rates” below, as investment income for purposes of computing the investment interest limitation, but in such case, the holder will
be taxed at ordinary income rates on such amount. Other distributions made by us, to the extent they do not constitute a return of capital,
generally will be treated as investment income for purposes of computing the investment interest limitation.
Participation
in the Dividend Reinvestment Plan. U.S. holders who elect to participate in the Dividend Reinvestment Plan generally will be
treated as having received a distribution equal to the fair market value of the common stock acquired (without reduction for any withholding
taxes). The distribution will be taxed to such U.S. holder as described above in this discussion. In addition, there is a risk that some
or all of the 5% discount from the price per share paid for the common stock so acquired will be taxable as income to such U.S. holder.
A U.S. holder’s tax basis in the common stock so acquired will equal the fair market value of the common stock on the date of acquisition,
and the holding period for such common stock will begin on the day following the date of such acquisition. Participants in the Dividend
Reinvestment Plan should consult their tax advisers concerning the particular tax consequences to them of participating in the Dividend
Reinvestment Plan.
Dispositions
of Our Common Stock. If a U.S. holder sells or disposes of shares of our common stock, it will recognize gain or loss for U.S.
federal income tax purposes in an amount equal to the difference between the amount of cash and the fair market value of any property
received on the sale or other disposition and the holder’s adjusted tax basis in the shares. This gain or loss, except as provided
below, will be long-term capital gain or loss if the holder has held such common stock for more than one year. However, if a U.S. holder
recognizes a loss upon the sale or other disposition of common stock that it has held for nine months or less, after applying certain
holding period rules, the loss recognized will be treated as a long-term capital loss to the extent the U.S. holder received distributions
from us which were required to be treated as long-term capital gains.
Tax
Rates. The maximum tax rate for non-corporate taxpayers for (1) long-term capital gains, including certain “capital
gain dividends,” generally is 20% (although depending on the characteristics of the assets which produced these gains and on designations
which we may make, certain capital gain dividends may be taxed at a 25% rate) and (2) “qualified dividend income” generally
is 20%. In general, dividends payable by REITs are not eligible for the reduced tax rate on qualified dividend income, except to the
extent that certain holding period requirements have been met and the REIT’s dividends are attributable to dividends received from
taxable corporations (such as its taxable REIT subsidiaries) or to income that was subject to tax at the corporate/REIT level (for example,
if the REIT distributed taxable income that it retained and paid tax on in the prior taxable year). Capital gain dividends will only
be eligible for the rates described above to the extent that they are properly designated by the REIT as “capital gain dividends.”
In addition, U.S. holders that are corporations may be required to treat up to 20% of some capital gain dividends as ordinary income.
Taxation
of Tax-Exempt Holders of Our Common Stock
Dividend
income from us and gain arising upon a sale of shares of our common stock generally should not be unrelated business taxable income,
or UBTI, to a tax-exempt holder, except as described below. This income or gain will be UBTI, however, to the extent a tax-exempt holder
holds its shares as “debt-financed property” within the meaning of the Code. Generally, “debt-financed property”
is property the acquisition or holding of which was financed through a borrowing by the tax-exempt holder.
For
tax-exempt holders that are social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts, or qualified
group legal services plans exempt from U.S. federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) or (c)(20) of the Code,
respectively, income from an investment in our shares will constitute UBTI unless the organization is able to properly claim a deduction
for amounts set aside or placed in reserve for specific purposes so as to offset the income generated by its investment in our shares.
These prospective investors should consult their tax advisors concerning these “set aside” and reserve requirements.
Notwithstanding
the above, however, a portion of the dividends paid by a “pension-held REIT” may be treated as UBTI as to certain trusts
that hold more than 10%, by value, of the interests in the REIT. A REIT will not be a “pension-held REIT” if it is able to
satisfy the “not closely held” requirement without relying on the “look-through” exception with respect to certain
trusts or if such REIT is not “predominantly held” by “qualified trusts. “ As a result of restrictions on ownership
and transfer of our stock contained in our charter, we do not expect to be classified as a “pension-held REIT,” and as a
result, the tax treatment described above should be inapplicable to our holders. However, because our common stock will be publicly traded
upon completion of this offering of our common stock (and, we anticipate, will continue to be publicly traded), we cannot guarantee that
this will always be the case.
Taxation
of Non-U.S. Holders of Our Common Stock
The
following discussion addresses the rules governing U.S. federal income taxation of the acquisition, ownership and disposition of our
common stock by non-U.S. holders. These rules are complex, and no attempt is made herein to provide more than a brief summary of such
rules. Accordingly, the discussion does not address all aspects of U.S. federal income taxation and does not address other federal, state,
local or non-U.S. tax consequences that may be relevant to a non-U.S. holder in light of its particular circumstances. We urge non-U.S.
holders to consult their tax advisors to determine the impact of U.S. federal, state, local and non-U.S. income and other tax laws and
any applicable tax treaty on the purchase, ownership and disposition of shares of our common stock, including any reporting requirements.
Distributions
Generally. Distributions (including any taxable stock distributions) that are neither attributable to gains from sales or exchanges
by us of United States real property interests, or USRPIs, nor designated by us as capital gain dividends (except as described below)
will be treated as dividends of ordinary income to the extent that they are made out of our current or accumulated earnings and profits.
Such distributions ordinarily will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may be specified
by an applicable income tax treaty, unless the distributions are treated as effectively connected with the conduct by the non-U.S. holder
of a trade or business within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder maintains a
permanent establishment in the United States to which such dividends are attributable). Under certain treaties, however, lower withholding
rates generally applicable to dividends do not apply to dividends from a REIT. Certain certification and disclosure requirements must
be satisfied for a non-U.S. holder to be exempt from withholding under the effectively connected income exemption. Dividends that are
treated as effectively connected with a U.S. trade or business generally will not be subject to withholding but will be subject to U.S.
federal income tax on a net basis at the regular graduated rates, in the same manner as dividends paid to U.S. holders are subject to
U.S. federal income tax. Any such dividends received by a non-U.S. holder that is a corporation may also be subject to an additional
branch profits tax at a 30% rate (applicable after deducting U.S. federal income taxes paid on such effectively connected income) or
such lower rate as may be specified by an applicable income tax treaty.
Except
as otherwise provided below, we expect to withhold U.S. federal income tax at the rate of 30% on any distributions made to a non-U.S.
holder unless:
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(1)
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a
lower treaty rate applies and the non-U.S. holder furnishes an IRS Form W-8BEN or W-8BEN-E (or other applicable documentation) evidencing
eligibility for that reduced treaty rate; or
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the
non-U.S. holder furnishes an IRS Form W-8ECI (or other applicable documentation) claiming that the distribution is income effectively
connected with the non-U.S. holder’s trade or business.
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Distributions
in excess of our current and accumulated earnings and profits will not be taxable to a non-U.S. holder to the extent that such distributions
do not exceed the adjusted tax basis of the holder’s common stock, but rather will reduce the adjusted tax basis of such stock.
To the extent that such distributions exceed the non-U.S. holder’s adjusted tax basis in such common stock, they generally will
give rise to gain from the sale or exchange of such stock, the tax treatment of which is described below. However, recent legislation
may cause such excess distributions to be treated as dividend income for certain non-U.S. holders. For withholding purposes, we expect
to treat all distributions as made out of our current or accumulated earnings and profits. However, amounts withheld may be refundable
if it is subsequently determined that the distribution was, in fact, in excess of our current and accumulated earnings and profits, provided
that certain conditions are met.
Capital
Gain Dividends and Distributions Attributable to a Sale or Exchange of United States Real Property Interests. Distributions to
a non-U.S. holder that we properly designate as capital gain dividends, other than those arising from the disposition of a USRPI, generally
should not be subject to U.S. federal income taxation, unless:
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the
investment in our common stock is treated as effectively connected with the conduct by the non-U.S. holder of a trade or business
within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment
in the United States to which such dividends are attributable), in which case the non-U.S. holder will be subject to the same treatment
as U.S. holders with respect to such gain, except that a non-U.S. holder that is a corporation may also be subject to a branch profits
tax of up to 30%, as discussed above; or
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the
non-U.S. holder is a nonresident alien individual who is present in the United States for 183 days or more during the taxable year
and certain other conditions are met, in which case the non-U.S. holder will be subject to U.S. federal income tax at a rate of 30%
on the non-U.S. holder’s capital gains (or such lower rate specified by an applicable income tax treaty), which may be offset
by U.S. source capital losses of such non-U.S. holder (even though the individual is not considered a resident of the United States),
provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses.
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Pursuant
to the Foreign Investment in Real Property Tax Act, which is referred to as “FIRPTA,” distributions to a non-U.S. holder
that are attributable to gain from sales or exchanges by us of USRPIs, whether or not designated as capital gain dividends, will cause
the non-U.S. holder to be treated as recognizing such gain as income effectively connected with a U.S. trade or business. Non-U.S. holders
generally would be taxed at the regular graduated rates applicable to U.S. holders, subject to any applicable alternative minimum tax
and a special alternative minimum tax in the case of nonresident alien individuals. We also will be required to withhold and to remit
to the IRS 21% (or 20% to the extent provided in applicable Treasury Regulations) of any distribution to non-U.S. holders attributable
to gain from sales or exchanges by us of USRPIs. Distributions subject to FIRPTA may also be subject to a 30% branch profits tax in the
hands of a non-U.S. holder that is a corporation. The amount withheld is creditable against the non-U.S. holder’s U.S. federal
income tax liability. However, any distribution with respect to any class of stock that is “regularly traded,” as defined
by applicable Treasury Regulations, on an established securities market located in the United States is not subject to FIRPTA, and therefore,
not subject to the 21% U.S. withholding tax described above, if the non-U.S. holder did not own more than 10% of such class of stock
at any time during the one-year period ending on the date of the distribution. Instead, such distributions generally will be treated
as ordinary dividend distributions and subject to withholding in the manner described above with respect to ordinary dividends. In addition,
distributions to certain non-U.S. publicly traded stockholders that meet certain record-keeping and other requirements (“qualified
shareholders”) are exempt from FIRPTA, except to the extent owners of such qualified shareholders that are not also qualified shareholders
own, actually or constructively, more than 10% of our capital stock. Furthermore, distributions to “qualified foreign pension funds”
or entities all of the interests of which are held by “qualified foreign pension funds” are exempt from FIRPTA. Non-U.S.
holders should consult their tax advisors regarding the application of these rules.
Retention
of Net Capital Gains. Although the law is not clear on the matter, it appears that amounts we designate as retained net capital
gains in respect of our common stock should be treated with respect to non-U.S. holders as actual distributions of capital gain dividends.
Under this approach, the non-U.S. holders may be able to offset as a credit against their U.S. federal income tax liability their proportionate
share of the tax paid by us on such retained net capital gains and to receive from the IRS a refund to the extent their proportionate
share of such tax paid by us exceeds their actual U.S. federal income tax liability. If we were to designate any portion of our net capital
gain as retained net capital gain, non-U.S. holders should consult their tax advisors regarding the taxation of such retained net capital
gain.
Participation
in the Dividend Reinvestment Plan. Non-U.S. holders who elect to participate in the Dividend Reinvestment Plan will generally
have the tax consequences described above under “—Taxation of Taxable U.S. Holders of Our Common Stock – Participation
in the Dividend Reinvestment Plan,” except that the tax consequences of the resulting distribution will be as described above under
this section entitled “—Taxation of Non-U.S. Holders of Our Common Stock.”
Sale
of Our Common Stock. Gain realized by a non-U.S. holder upon the sale, exchange or other taxable disposition of our common stock
generally will not be subject to U.S. federal income tax unless such stock constitutes a USRPI. In general, stock of a domestic corporation
that constitutes a “United States real property holding corporation,” or USRPHC, will constitute a USRPI. We believe that
we are a USRPHC. Our common stock will not, however, constitute a USRPI so long as we are a “domestically controlled qualified
investment entity.” A “domestically controlled qualified investment entity” includes a REIT in which at all times during
a five-year testing period less than 50% in value of its stock is held directly or indirectly by non-United States persons, subject to
certain rules. For purposes of determining whether a REIT is a “domestically controlled qualified investment entity,” a person
who at all applicable times holds less than 5% of a class of stock that is “regularly traded” is treated as a United States
person unless the REIT has actual knowledge that such person is not a United States person. We believe, but cannot guarantee, that we
are a “domestically controlled qualified investment entity.” Because our common stock will be publicly traded upon completion
of this offering of our common stock (and, we anticipate, will continue to be publicly traded), no assurance can be given that we will
continue to be a “domestically controlled qualified investment entity.”
Even
if we do not qualify as a “domestically controlled qualified investment entity” at the time a non-U.S. holder sells our common
stock, gain realized from the sale or other taxable disposition by a non-U.S. holder of such common stock would not be subject to U.S.
federal income tax under FIRPTA as a sale of a USRPI if:
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(1)
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our
common stock is “regularly traded,” as defined by applicable Treasury Regulations, on an established securities market
such as Nasdaq; and
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(2)
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such
non-U.S. holder owned, actually and constructively, 10% or less of our common stock throughout the shorter of the five-year period
ending on the date of the sale or other taxable disposition or the non-U.S. holder’s holding period.
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In
addition, dispositions of our common stock by qualified shareholders are exempt from FIRPTA, except to the extent owners of such qualified
shareholders that are not also qualified shareholders own, actually or constructively, more than 10% of our capital stock. Furthermore,
dispositions of our common stock by “qualified foreign pension funds” or entities all of the interests of which are held
by “qualified foreign pension funds” are exempt from FIRPTA. Non-U.S. holders should consult their tax advisors regarding
the application of these rules.
Notwithstanding
the foregoing, gain from the sale, exchange or other taxable disposition of our common stock not otherwise subject to FIRPTA will be
taxable to a non-U.S. holder if either (a) the investment in our common stock is treated as effectively connected with the conduct
by the non-U.S. holder of a trade or business within the United States (and, if required by an applicable income tax treaty, the non-U.S.
holder maintains a permanent establishment in the United States to which such gain is attributable), in which case the non-U.S. holder
will be subject to the same treatment as U.S. holders with respect to such gain, except that a non-U.S. holder that is a corporation
may also be subject to the 30% branch profits tax (or such lower rate as may be specified by an applicable income tax treaty) on such
gain, as adjusted for certain items, or (b) the non-U.S. holder is a nonresident alien individual who is present in the United States
for 183 days or more during the taxable year and certain other conditions are met, in which case the non-U.S. holder will be subject
to a 30% tax on the non-U.S. holder’s capital gains (or such lower rate specified by an applicable income tax treaty), which may
be offset by U.S. source capital losses of the non-U.S. holder (even though the individual is not considered a resident of the United
States), provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses. In addition, even
if we are a domestically controlled qualified investment entity, upon disposition of our common stock, a non-U.S. holder may be treated
as having gain from the sale or other taxable disposition of a USRPI if the non-U.S. holder (1) disposes of such stock within a
30-day period preceding the ex-dividend date of a distribution, any portion of which, but for the disposition, would have been treated
as gain from the sale or exchange of a USRPI and (2) acquires, or enters into a contract or option to acquire, or is deemed to acquire,
other shares of that stock during the 61-day period beginning with the first day of the 30-day period described in clause (1), unless
such stock is “regularly traded” and the non-U.S. holder did not own more than 10% of the stock at any time during the one-year
period ending on the date of the distribution described in clause (1).
If
gain on the sale, exchange or other taxable disposition of our common stock were subject to taxation under FIRPTA, the non-U.S. holder
would be required to file a U.S. federal income tax return and would be subject to regular U.S. federal income tax with respect to such
gain in the same manner as a taxable U.S. holder (subject to any applicable alternative minimum tax and a special alternative minimum
tax in the case of nonresident alien individuals). In addition, if the sale, exchange or other taxable disposition of our common stock
were subject to taxation under FIRPTA, and if shares of our common stock were not “regularly traded” on an established securities
market, the purchaser of such common stock generally would be required to withhold and remit to the IRS 15% of the purchase price.
Information
Reporting and Backup Withholding
U.S.
Holders. A U.S. holder may be subject to information reporting and backup withholding when such holder receives payments on our
common stock or proceeds from the sale or other taxable disposition of such stock. Certain U.S. holders are exempt from backup withholding,
including corporations and certain tax-exempt organizations. A U.S. holder will be subject to backup withholding if such holder is not
otherwise exempt and:
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the
holder fails to furnish the holder’s taxpayer identification number, which for an individual is ordinarily his or her social
security number;
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the
holder furnishes an incorrect taxpayer identification number;
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the
applicable withholding agent is notified by the IRS that the holder previously failed to properly report payments of interest or dividends;
or
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the
holder fails to certify under penalties of perjury that the holder has furnished a correct taxpayer identification number and that
the IRS has not notified the holder that the holder is subject to backup withholding.
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Backup
withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit
against a U.S. holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS. U.S.
holders should consult their tax advisors regarding their qualification for an exemption from backup withholding and the procedures for
obtaining such an exemption.
Non-U.S.
Holders. Payments of dividends on our common stock generally will not be subject to backup withholding, provided the applicable
withholding agent does not have actual knowledge or reason to know the holder is a United States person and the holder either certifies
its non-U.S. status, such as by furnishing a valid IRS Form W-8BEN, W-8BEN-E or W-8ECI, or otherwise establishes an exemption. However,
information returns are required to be filed with the IRS in connection with any dividends on our common stock paid to the non-U.S. holder,
regardless of whether any tax was actually withheld. In addition, proceeds of the sale or other taxable disposition of such stock within
the United States or conducted through certain U.S.-related brokers generally will not be subject to backup withholding or information
reporting, if the applicable withholding agent receives the certification described above and does not have actual knowledge or reason
to know that such holder is a United States person, or the holder otherwise establishes an exemption. Proceeds of a disposition of such
stock conducted through a non-U.S. office of a non-U.S. broker generally will not be subject to backup withholding or information reporting.
Copies
of information returns that are filed with the IRS may also be made available under the provisions of an applicable treaty or agreement
to the tax authorities of the country in which the non-U.S. holder resides or is established.
Backup
withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit
against a non-U.S. holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS.
Medicare
Contribution Tax on Unearned Income
Certain
U.S. holders that are individuals, estates or trusts are required to pay an additional 3.8% tax on, among other things, dividends on
stock and capital gains from the sale or other disposition of stock. U.S. holders should consult their tax advisors regarding the effect,
if any, of these rules on their ownership and disposition of our common stock.
Additional
Withholding Tax on Payments Made to Foreign Accounts
Withholding
taxes may be imposed under Sections 1471 to 1474 of the Code (such sections commonly referred to as the Foreign Account Tax Compliance
Act, or FATCA) on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically,
a 30% withholding tax may be imposed on dividends on our common stock paid to a “foreign financial institution” or a “non-financial
foreign entity” (each as defined in the Code), unless (1) the foreign financial institution undertakes certain diligence and
reporting obligations, (2) the non-financial foreign entity either certifies it does not have any “substantial United States
owners” (as defined in the Code) or furnishes identifying information regarding each substantial United States owner, or (3) the
foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is
a foreign financial institution and is subject to the diligence and reporting requirements in clause (1) above, it must enter into
an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain
“specified United States persons” or “United States owned foreign entities” (each as defined in the Code),
annually report certain information about such accounts, and withhold 30% on certain payments to non-compliant foreign financial institutions
and certain other account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with
the United States governing FATCA may be subject to different rules.
Under
the applicable Treasury Regulations and administrative guidance, withholding under FATCA generally applies to payments of dividends on
our common stock. Because we may not know the extent to which a distribution is a dividend for U.S. federal income tax purposes at the
time it is made, for purposes of these withholding rules we may treat the entire distribution as a dividend.
Prospective
investors should consult their tax advisors regarding the potential application of withholding under FATCA to their investment in our
common stock.
Other
Tax Consequences
State,
local and non-U.S. income tax laws may differ substantially from the corresponding U.S. federal income tax laws, and this discussion
does not purport to describe any aspect of the tax laws of any state, local or non-U.S. jurisdiction, or any U.S. federal tax other than
the income tax. You should consult your tax advisor regarding the effect of state, local and non-U.S. tax laws with respect to our tax
treatment as a REIT and on an investment in our common stock.
LEGAL
MATTERS
Certain
legal matters relating to this offering will be passed upon for us by Ellenoff Grossman & Schole LLP, New York, New York. Certain
matters of Maryland law will be passed upon for us by Venable LLP, Baltimore, Maryland. If legal matters in connection with offerings
made by this prospectus are passed on by counsel for the underwriters, dealers or agents, if any, that counsel will be named in the applicable
prospectus supplement.
EXPERTS
The
financial statements of Presidio Property Trust, Inc. as of December 31, 2020 and 2019 and for each of the years in the two-year period
ended December 31, 2020 are incorporated in this prospectus by reference from the Presidio Property Trust, Inc. Annual Report on Form
10-K for the year ended December 31, 2020 and have been audited by Baker Tilly US, LLP (which effective as of November 1, 2020, merged
with Squar Milner LLP), an independent registered public accounting firm, as stated in their report thereon, incorporated herein by reference,
and have been incorporated by reference in this prospectus and registration statement in reliance upon such report and upon the authority
of such firm as experts in accounting and auditing.
WHERE
YOU CAN FIND MORE INFORMATION
We
file annual, reports quarterly and special reports, proxy statements and other information with the SEC. You can read our SEC filings,
including this registration statement, over the internet at the SEC’s website at www.sec.gov. We also make this information available
on the investors’ relations section of our website at www.presidiopt.com. Information on, or accessible through, our website is
not part of, and is not incorporated into, this prospectus or the registration statement of which it forms a part.
INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
We
are “incorporating by reference” in this prospectus certain documents we file with the SEC, which means that we can disclose
important information to you by referring you to those documents. The information in the documents incorporated by reference is considered
to be part of this prospectus. Statements contained in documents that we file with the SEC and that are incorporated by reference in
this prospectus will automatically update and supersede information contained in this prospectus, including information in previously
filed documents or reports that have been incorporated by reference in this prospectus, to the extent the new information differs from
or is inconsistent with the old information. We have filed or may file the following documents with the SEC and they are incorporated
herein by reference as of their respective dates of filing.
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our
Annual Report on Form
10-K for the fiscal year ended December 31, 2020, filed with the SEC on March 30, 2021;
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our
Current Reports on Form 8-K filed with the SEC on January
22, 2021, January
29, 2021, February
3, 2021, February
11, 2021, February
17, 2021, February
22, 2021, February
24, 2021, March
3, 2021, March
9, 2021, and March
17, 2021, and
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the
description of our Series A Common Stock set forth in the registration statement on Form
8-A registering our Series A Common Stock under Section 12 of the Exchange Act, which was filed with the SEC on October 2,
2020, including any amendments or reports filed for purposes of updating such description.
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All
documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus and before
the termination or completion of this offering of our securities shall be deemed to be incorporated by reference in this prospectus and
to be a part of it from the filing dates of such documents, except in each case for information contained in any such filing where we
indicate that such information is being furnished and is not to be considered “filed” under the Securities Exchange Act of
1934, as amended.
Any
statement contained in a document incorporated or deemed to be incorporated by reference in this prospectus shall be deemed modified,
superseded or replaced for purposes of this prospectus to the extent that a statement contained in this prospectus, or in any subsequently
filed document that also is deemed to be incorporated by reference in this prospectus, modifies, supersedes or replaces such statement.
Any statement so modified, superseded or replaced shall not be deemed, except as so modified, superseded or replaced, to constitute a
part of this prospectus. None of the information that we disclose under Items 2.02 or 7.01 of any Current Report on Form 8-K or any corresponding
information, either furnished under Item 9.01 or included as an exhibit therein, that we may from time to time furnish to the SEC
will be incorporated by reference into, or otherwise included in, this prospectus, except as otherwise expressly set forth in the relevant
document. Subject to the foregoing, all information appearing in this prospectus is qualified in its entirety by the information appearing
in the documents incorporated by reference.
Documents
incorporated by reference are available from us without charge, excluding all exhibits unless we have specifically incorporated by reference
the exhibit in this prospectus. You may obtain documents incorporated by reference in this prospectus by requesting them in writing or
by telephone from:
Presidio
Property Trust, Inc.
4995
Murphy Canyon Road, Suite 300
San
Diego, CA 92123
Attention: Chief Accounting Officer
Telephone:
(760) 471-8536
46
Presidio
Property Trust, Inc.
PROSPECTUS
SUPPLEMENT
Placement
Agent
Alliance
Global Partners
July
12, 2021
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