As Filed Pursuant to 424(b)(3)
Registration No.# 333-258328
PROSPECTUS
INDUS REALTY TRUST, INC.
1,031,502
Shares
Common Stock
Offered by the Selling Securityholders
The
selling securityholders may offer and sell up to 1,031,502 shares in the aggregate
of common stock identified above from time to time in one or more offerings. We will not receive any proceeds from the sale of our common
stock by the selling securityholders.
The selling securityholders from time to time
may offer and sell the shares held by them directly or through agents or broker-dealers on terms to be determined at the time of sale,
as described in more detail in this prospectus.
We are organized and conduct our operations to
qualify as a real estate investment trust, or REIT, for federal income tax purposes. To assist us in complying with certain federal income
tax requirements applicable to REITs, among other purposes, our charter contains certain restrictions relating to the ownership and transfer
of our capital stock, including ownership limits of 5.5% in value or in number of shares (whichever is more restrictive) of the outstanding
shares of our common stock and 5.5% in value of the aggregate of all classes or series of our capital stock.
Our
common stock is listed on The Nasdaq Stock Market LLC, or Nasdaq, under the symbol “INDT”. On July 29,
2021, the last reported sale price of our common stock on Nasdaq was $67.99
per share.
INVESTING
IN OUR SECURITIES INVOLVES RISKS. YOU SHOULD CAREFULLY READ AND CONSIDER THE SECTION ENTITLED “RISK FACTORS”
BEGINNING ON PAGE 4 OF THIS PROSPECTUS AND ANY SIMILAR SECTION CONTAINED IN THE APPLICABLE PROSPECTUS SUPPLEMENT BEFORE INVESTING
IN OUR SECURITIES.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus.
Any representation to the contrary is a criminal offense.
The date of this prospectus is August 11,
2021.
TABLE OF CONTENTS
ABOUT
THIS PROSPECTUS
This
prospectus is part of a registration statement that we filed with the U.S. Securities and Exchange Commission, or the SEC, using
a “shelf” registration process. By using a shelf registration statement, the selling securityholders may, from time to time,
sell up to 1,031,502 shares of our common stock in one or more offerings as described
in this prospectus. We may provide a prospectus supplement containing specific information about the terms of a particular offering by
the selling securityholders. 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 or free writing prospectus may also add, update or change information
contained in or incorporated by reference into this prospectus with respect to that offering. If there is any inconsistency between the
information in or incorporated by reference into this prospectus and the applicable prospectus supplement or free writing prospectus,
you should rely on the prospectus supplement or free writing prospectus, as applicable. Before purchasing any securities, you should carefully
read this prospectus and, if applicable, any applicable prospectus supplement (and any applicable free writing prospectuses), together
with the additional information described in the section entitled “Where You Can Find More Information; Incorporation by
Reference.”
Neither we, nor the selling securityholders, have
authorized anyone to provide you with any information or to make any representations other than those contained in this prospectus and,
if applicable, any applicable prospectus supplement (and any applicable free writing prospectuses) prepared by or on behalf of us or to
which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information
that others may give you. We will not make an offer to sell these securities in any jurisdiction where the offer or sale is not permitted.
You should assume that the information appearing in this prospectus and, if applicable, any applicable prospectus supplement is accurate
only as of the date on its respective cover, that the information appearing in any applicable free writing prospectus is accurate only
as of the date of that free writing prospectus, and that any information incorporated by reference is accurate only as of the date of
the document incorporated by reference, unless we indicate otherwise. Our business, financial condition, results of operations and prospects
may have changed since those dates. This prospectus incorporates by reference, and any prospectus supplement or free writing prospectus
may contain and incorporate by reference, market data and industry statistics and forecasts that are based on independent industry publications
and other publicly available information. Although we believe these sources are reliable, we do not guarantee the accuracy or completeness
of this information and we have not independently verified this information. In addition, the market and industry data and forecasts that
may be included or incorporated by reference in this prospectus, any prospectus supplement or any applicable free writing prospectus may
involve estimates, assumptions and other risks and uncertainties and are subject to change based on various factors, including those discussed
in the section entitled “Risk Factors” contained in this prospectus and, if applicable, any applicable prospectus supplement
(and any applicable free writing prospectuses) and under similar headings in other documents that are incorporated by reference into this
prospectus. Accordingly, investors should not place undue reliance on this information.
When we refer to “INDUS,” “we,”
“our,” “us” and the “Company” in this prospectus, we mean INDUS Realty Trust, Inc., and its consolidated
subsidiaries, including INDUS RT, LP, a Maryland limited partnership, of which we are the sole general partner and to which we refer in
this prospectus as our “operating partnership” unless otherwise specified. When we refer to “you,” we mean the
potential holders of the applicable class or series of securities.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements.
All statements contained in this prospectus other than statements of historical fact, including, but not limited to, statements regarding
our business and growth strategy, our plans and objectives with respect to our operations and status as a real estate investment trust,
or a REIT, including, without limitation, expectations regarding our tax status and ability to avoid the incurrence of certain taxes and
penalties, the impacts to stockholders of our organizational structure, expectations regarding the payment of future distributions, expectations
regarding the terms of and use of any future proceeds from offerings under this Registration Statement on Form S-3, and any future
sales of securities, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,”
“continue,” “anticipate,” “intend,” “expect,” “could,” “would,”
“project,” “plan,” “potentially,” “preliminary,” “likely,” the negatives of
these terms and similar expressions are intended to identify forward-looking statements. Although INDUS believes that its plans, intentions
and expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such plans, intentions or
expectations will be achieved. The forward-looking statements made herein are based on assumptions and estimates that, while considered
reasonable by INDUS as of the date hereof, are inherently subject to significant business, economic, competitive and regulatory uncertainties
and contingencies, many of which are beyond the control of INDUS. These forward-looking statements speak only as of the respective dates
of this prospectus and INDUS’s actual results could differ materially from those anticipated in these forward-looking statements
as a result of various risks, uncertainties, assumptions and other important factors. Such factors include: risks related to the COVID-19
pandemic; adverse economic conditions and credit markets; a downturn in the commercial and residential real estate markets; risks associated
with a concentration of real estate holdings; risks associated with the acquisition or development of properties, current portfolio weaknesses
and entering new real estate markets; risks associated with competition with other parties for acquisition of properties; risks associated
with the use of third-party managers for day-to-day property management; risks relating to reliance on lease revenues; risks associated
with nonrecourse mortgage loans; risks of financing arrangements that include balloon payment obligations; risks associated with restrictive
credit facility terms and covenants; risks associated with reliance on key personnel; risks associated with failure to effectively hedge
against interest rate changes; risks related to the discontinuance of LIBOR; risks associated with volatility in the capital markets;
risks associated with increased operating expenses; potential environmental liabilities; governmental laws and regulations; inadequate
insurance coverage; risks of environmental factors; risks associated with the cost of raw materials, labor or energy costs; illiquidity
of real estate investments; risks associated with deficiencies in disclosure controls and procedures or internal control over financial
reporting; risks associated with information technology security breaches; litigation risks; risks related to the limited rights of INDUS
and its stockholders to take action against INDUS’s directors and officers; risks related to INDUS’s charter and bylaw provisions,
and Maryland law, in connection with certain acquisitions or a change of control; risks associated with charter restrictions on the ownership
and transfer of INDUS’s stock and the board of directors’ ability to issue additional shares; risks related to INDUS’s
bylaws and exclusive forum provisions; risks related to INDUS’s REIT structure, including risks associated with INDUS’s failure
to remain qualified as a REIT, taxes that INDUS and its subsidiaries may, or will, owe, INDUS’s ability to obtain capital during
unfavorable market conditions, compliance with REIT requirements, ownership limitations and prohibitions on engaging in certain transactions,
legislative or regulatory action affecting REITs, and U.S. federal tax reform; risks associated with INDUS’s distribution to stockholders
of its previously undistributed accumulated earnings and profits attributable to taxable periods ending prior to January 1, 2021
and INDUS’s ability to generate sufficient cash flows to make future distributions; risks related to issuance or sales of our common
stock; risks related to volatility of our common stock; risks of future offerings that are senior to common stock, or preferred stock
issuances; and the additional risk factors set forth in the sections entitled “Risk Factors” in our most recent Annual
Report on Form 10-K, as updated by our subsequent Quarterly Reports on Form 10-Q, and all other information contained or incorporated
by reference into this prospectus, as updated by our subsequent filings under the Securities Exchange Act of 1934, as amended, or the
Exchange Act, that may cause our actual results, performance or achievements to differ materially and adversely from those expressed or
implied by the forward-looking statements.
THE
COMPANY
We are an acquirer, developer and asset manager
of industrial/logistics real estate in select supply-constrained and high-growth markets in the United States. Although our real estate
holdings consist primarily of industrial/logistics properties, we also own a limited number of office/flex properties. We expect that
our office/flex portfolio will continue to become a smaller percentage of our total square footage as we plan to focus on the growth of
our industrial/logistics building portfolio either through the acquisition of fully or partially leased buildings, development of buildings
on land currently owned or to be acquired, or both.
On December 30, 2020, we completed an internal
merger to reincorporate in Maryland. Prior to December 31, 2020, we were known as Griffin Industrial Realty, Inc. On December 31,
2020, we changed our name to INDUS Realty Trust, Inc. after our reincorporation from Delaware to Maryland on December 30, 2020
and our decision to elect REIT status. In connection with the REIT conversion, we changed our fiscal year end from November 30 to
December 31, effective beginning with our current fiscal year, which began on January 1, 2021.
We are a Maryland corporation, and our corporate
headquarters is located at 641 Lexington Avenue, 26th Floor, New York, New York 10022 with another principal office located at 204 West
Newberry Road, Bloomfield, Connecticut 06002. Our website address is http://www.indusrt.com/. The information on our website, however,
is not, and should not be deemed to be, a part of this prospectus.
RISK
FACTORS
Investment
in any securities offered pursuant to this prospectus and, if applicable, any applicable prospectus supplement (and any applicable
free writing prospectuses) involves risks. You should carefully consider the risk factors incorporated by reference to our most recent
Annual Report on Form 10-K, as updated by our subsequent Quarterly Reports on Form 10-Q, and all other information contained
or incorporated by reference into this prospectus, as updated by our subsequent filings under the Exchange Act and the risk factors and
other information contained in any applicable prospectus supplement and any applicable free writing prospectus before acquiring any of
such securities. The occurrence of any of these risks might cause you to lose all or part of your investment in shares of our common
stock.
WHERE
YOU CAN FIND MORE INFORMATION; INCORPORATION BY REFERENCE
Available Information
We file reports, proxy statements and other information
with the SEC. The SEC maintains a website that contains reports, proxy and information statements and other information about issuers,
such as us, who file electronically with the SEC. The address of that website is http://www.sec.gov.
Our website address is http://www.indusrt.com/.
The information on our website, however, is not, and should not be deemed to be, a part of this prospectus.
This prospectus and any prospectus supplement are
part of a registration statement that we filed with the SEC and do not contain all of the information in the registration statement. The
full registration statement may be obtained from the SEC or us, as provided below. Other documents establishing the terms of shares of
our common stock are or may be filed as exhibits to the registration statement or documents incorporated by reference in the registration
statement. Statements in this prospectus or any prospectus supplement about these documents are summaries and each statement is qualified
in all respects by reference to the document to which it refers. You should refer to the actual documents for a more complete description
of the relevant matters.
Incorporation by Reference
The SEC’s rules allow us to “incorporate
by reference” information into this prospectus, which means that we can disclose important information to you by referring you to
another document filed separately with the SEC. The information incorporated by reference is deemed to be part of this prospectus, and
subsequent information that we file with the SEC will automatically update and supersede that information. Any statement contained in
this prospectus or a previously filed document incorporated by reference will be deemed to be modified or superseded for purposes of this
prospectus to the extent that a statement contained in this prospectus or a subsequently filed document incorporated by reference modifies
or replaces that statement.
This prospectus and any accompanying prospectus
supplement incorporate by reference the documents set forth below that have previously been filed with the SEC:
|
·
|
the Description of Capital Stock set forth in this Registration Statement and any amendments or reports filed with the SEC for the
purpose of further updating such description.
|
All
reports and other documents we subsequently file pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to
the termination of the offering of the securities described in this prospectus, including all such documents we may file with the
SEC after the date of the initial registration statement and prior to the effectiveness of the registration statement, but excluding any
information furnished to, rather than filed with, the SEC (including any information furnished pursuant to Items 2.02 or 7.01 of Form 8-K
or related exhibits furnished pursuant to Item 9.01 of Form 8-K), will also be incorporated by reference into this prospectus and
deemed to be part of this prospectus from the date of the filing of such reports and documents.
You may request a free copy of any of the documents
incorporated by reference in this prospectus by writing or telephoning us at the following address or telephone number:
INDUS REALTY TRUST, INC.
Attn: Corporate Secretary
641 Lexington Avenue,
New York, New York 10022
(212) 218-7910
Exhibits to the filings will not be sent,
however, unless those exhibits have specifically been incorporated by reference in this prospectus or any accompanying prospectus supplement.
USE
OF PROCEEDS
We will not receive any of the proceeds from the
sale of shares of our common stock being offered by any of the selling securityholders.
DESCRIPTION
OF CAPITAL STOCK
The following summary of the terms of the capital
stock of the Company does not purport to be complete and is subject to and qualified in its entirety by reference to the Maryland General
Corporation Law, or the MGCL, and our charter and 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 the section entitled “Where
You Can Find More Information; Incorporation by Reference.”
General
Our charter provides that we may issue up to 50,000,000
shares of common stock, $0.01 par value per share, and up to 5,000,000 share of preferred stock, $0.01 par value per share. Our charter
authorizes our board of directors, without stockholder approval, to amend our charter to increase or decrease the aggregate number of
shares of stock that we are authorized to issue or the number of authorized shares of any class or series of stock. Under Maryland law,
our stockholders generally are not liable for our debts or obligations solely as a result of their status as stockholders.
Common Stock
Distributions.
Subject to the preferential rights, if any, of holders of any class or series of our stock other than our common stock
and to the provisions of our charter relating to the restrictions on ownership and transfer of our stock, holders of our common stock
are entitled to receive distributions when authorized by our board of directors and declared by us out of assets legally available for
distribution to our stockholders and are entitled to share ratably in our assets legally available for distribution to our stockholders
in the event of our liquidation, dissolution or winding up after payment of or adequate provision for all of our known debts and liabilities.
Voting
Rights. Subject to the provisions of our charter regarding the restrictions on ownership and transfer of our stock and
except as may be otherwise specified in the terms of any class or series of common stock, each outstanding share of common stock entitles
the holder to one vote on all matters submitted to a vote of stockholders, including the election of directors, and, except as may be
provided with respect to any other class or series of our stock, the holders of shares of our common stock possess the exclusive voting
power. There is no cumulative voting in the election of directors. Consequently, the holders of a majority of the outstanding shares of
our common stock can elect all of the directors then standing for election, and the holders of the remaining shares will not be able to
elect any directors. In uncontested elections, directors are elected by the affirmative vote of a majority of the total votes cast for
and against such nominee. In contested elections, directors are elected by a plurality of all of the votes cast in the election of directors.
Under the MGCL, a Maryland corporation generally
is not entitled to dissolve, amend its charter, merge or consolidate with, or convert into, another entity, sell all or substantially
all of its assets or engage in a statutory share exchange unless the action is advised by the 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 all of the votes entitled to be cast on the matter) is specified in the corporation’s charter. Our charter
provides that these actions must be approved by a majority of all of the votes entitled to be cast on the matter.
Maryland law also permits a corporation to transfer
all or substantially all of its assets without the approval of its stockholders to an entity owned, directly or indirectly, by the corporation.
Because our operating assets are held by our operating partnership’s subsidiaries, these subsidiaries may be able to merge or transfer
all or substantially all of their assets without the approval of our stockholders.
Other
Rights. Holders of shares of our common stock have no preference, conversion, exchange, sinking fund, redemption or appraisal
rights and have no preemptive rights to subscribe for any securities of the Company. Subject to the provisions of our charter regarding
the restrictions on ownership and transfer of our stock, shares of our common stock have equal distribution, liquidation and other rights.
Power to Increase or Decrease Authorized Shares
of Common Stock, Reclassify Unissued Shares of Common Stock and Issue Additional Shares of Common Stock. Our charter authorizes our board
of directors, with the approval of a majority of the entire board and without stockholder approval, to amend our charter to increase or
decrease the aggregate number of shares of stock or the number of shares of any class or series of stock that we are authorized to issue.
In addition, our charter authorizes our board of directors to authorize the issuance from time to time of shares of our common stock.
Our charter also authorizes our board of directors
to classify and reclassify any unissued shares of our common 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 voting rights, distributions or upon liquidation, and authorize
us to issue the newly classified shares. Prior to the issuance of shares of each new class or series of stock, our board of directors
is required by Maryland law and by our charter to set, subject to the provisions of our charter regarding the restrictions on ownership
and transfer of our stock, the preferences, conversion and other rights, voting powers, restrictions, limitations as to distributions,
qualifications and terms and conditions of redemption for each class or series. Therefore, although our board of directors does not currently
intend to do so, it could authorize the issuance of shares of common stock with terms and conditions that could have the effect of delaying,
deferring or preventing a change in control or other transaction that might involve a premium price for shares of our common stock or
otherwise be in the best interests of our stockholders.
We believe that the power of our board of directors
to approve amendments to our charter to increase or decrease the number of authorized shares of stock, to authorize us to issue additional
authorized but unissued shares of common stock and to classify or reclassify unissued shares of common stock and thereafter to authorize
us to issue such classified or reclassified shares of stock provides us with increased flexibility in structuring possible future financings
and acquisitions and in meeting other needs that might arise.
Transfer
Agent and Registrar. The transfer agent and registrar for our common stock is American Stock Transfer & Trust
Company, LLC.
Listing.
Our common stock is listed on The Nasdaq Stock Market under the symbol “INDT”.
Restrictions
on Ownership and Transfer. In order for us to qualify as a REIT under the Internal Revenue Code of 1986, as amended, or
the Code, shares of our stock must be 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 qualify as 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). To qualify as a REIT, we must satisfy other requirements as well.
Our charter contains restrictions on the ownership
and transfer of our stock. Our board may, from time to time, grant waivers from these restrictions, in its sole discretion. Our charter
provides that, subject to the exceptions described below, no person or entity may own, or be deemed to own, beneficially or by virtue
of the applicable constructive ownership provisions of the Code, more than 5.5%, in value or in number of shares, whichever is more restrictive,
of the outstanding shares of our common stock (referred to as the “common stock ownership limit”) or 5.5% in value of the
outstanding shares of all classes or series of our stock (referred 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 limits.” We refer
to the person or entity that, but for operation of the ownership limits or another restriction on ownership and transfer of our stock
as described below, would beneficially own or constructively own shares of our stock in violation of such limits or restrictions and,
if appropriate in the context, a person or entity that would have been the record owner of such shares of our stock as a “prohibited
owner.”
The constructive ownership rules under the
Code are complex and may cause shares of stock owned beneficially or constructively by a group of related individuals and/or entities
to be owned beneficially or constructively by one individual or entity. As a result, the acquisition of less than 5.5%, in value or in
number of shares, whichever is more restrictive, of the outstanding shares of our common stock, or less than 5.5% in value of the outstanding
shares of all classes and series of our stock (or the acquisition by an individual or entity of an interest in an entity that owns, beneficially
or constructively, shares of our stock), could cause that individual or entity, or another individual or entity, to own beneficially or
constructively shares of our stock in excess of the ownership limits.
Our board of directors, in its sole and absolute
discretion, may exempt, prospectively or retroactively, a particular stockholder from the ownership limits or establish a different limit
on ownership (referred to as the “excepted holder limit”) if our board of directors determines that:
|
·
|
such exemption will not cause five or fewer individuals to beneficially own more than 49% in value of our outstanding stock; and
|
|
·
|
such stockholder does not and will not constructively own an interest in a tenant of ours (or a tenant of any entity owned or controlled
by us) that would cause us to own, actually or constructively, more than a 9.9% interest (as set forth in Section 856(d)(2)(B) of
the Code) in such tenant (or our board of directors determines that revenue derived from such tenant will not affect our ability to qualify
as a REIT).
|
Any violation or attempted violation of any such
representations or undertakings will result in such stockholder’s shares of stock being automatically transferred to a charitable
trust. As a condition of granting the waiver or establishing the excepted holder limit, our board of directors may 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 and absolute
discretion, in order to determine or ensure our status as a REIT and such representations and undertakings from the person requesting
the exception as our board of directors may require in its sole and absolute discretion to make the determinations above. Our board of
directors may impose such conditions or restrictions as it deems appropriate in connection with granting such a waiver or establishing
an excepted holder limit. As of the date hereof, our board has granted or intends to grant limited waivers to certain holders of our common
stock, including to certain members of the Cullman family, CM Change Industrial LP and certain advisors related to and/or funds managed
by Gabelli Funds, LLC and Monarch Alternative Capital LP, respectively.
In connection with granting a waiver of the ownership
limits or creating an excepted holder limit or at any other time, our board of directors may from time to time increase or decrease the
common stock ownership limit, the aggregate stock ownership limit or both, for all other persons, unless, after giving effect to such
increase, five or fewer individuals could beneficially own, in the aggregate, more than 49% in value of our outstanding stock or we would
otherwise fail to qualify as a REIT. A reduced ownership limit will not apply to any person or entity whose percentage ownership of our
common stock or our stock of all classes and series, as applicable, is, at the effective time of such reduction, in excess of such decreased
ownership limit until such time as such person’s or entity’s percentage ownership of our common stock or our stock of all
classes and series, as applicable, equals or falls below the decreased ownership limit, but any further acquisition of shares of our common
stock or stock of all other classes or series, as applicable, will violate the decreased ownership limit.
Our charter further prohibits:
|
·
|
any person from beneficially or constructively owning, applying certain attribution rules of the Code, shares of our stock that
could 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
|
|
·
|
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 (determined under the principles of Section 856(a)(5) of the Code).
|
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 limits or any of the other
restrictions on ownership and transfer of our stock described above, or who would have owned shares of our stock transferred to the trust
as described below, must immediately give notice to us of such event or, in the case of an attempted or proposed transaction, give us
at least 15 days’ prior written notice and provide us with such other information as we may request in order to determine the
effect of such transfer on our status as a REIT.
If any transfer of shares of our stock would result
in shares of our stock being beneficially owned by fewer than 100 persons, the transfer will be null and void and the intended transferee
will acquire no rights in the shares. In addition, if any purported transfer of shares of our stock or any other event would otherwise
result in any person violating the ownership limits or an excepted holder limit established by our board of directors, or 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, then that number of shares (rounded up to the nearest whole
share) that would cause the violation will be automatically transferred to, and held by, a trust for the exclusive benefit of one or more
charitable organizations selected by us, and the intended transferee or other prohibited owner will acquire no rights in the shares. The
automatic transfer will be effective as of the close of business on the business day prior to the date of the violative transfer or other
event that results in a transfer to the trust. If the transfer to the trust as described above is not automatically effective, for any
reason, to prevent violation of the applicable ownership limits or 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, then our charter provides that the transfer of the shares will be null and void and the intended transferee will acquire
no rights in such shares.
Shares of our stock held in the trust will be issued
and outstanding shares. The prohibited owner will not benefit economically from ownership of any shares of our stock held in the trust
and will have no rights to 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 distributions with respect to shares held in the trust for the
exclusive benefit of the charitable beneficiary of the trust. Any distribution made before we discover that the shares have been transferred
to a trust as described above must be repaid by the recipient to the trustee upon demand by us. Subject to Maryland law, effective as
of the date that the shares have been transferred to the trust, the trustee will have the authority to rescind as void any vote cast by
a prohibited owner before our discovery that the shares have been transferred to the trust and to recast the vote in accordance with the
desires of the trustee acting for the benefit of the charitable beneficiary of the trust. However, if we have already taken irreversible
corporate action, then the trustee may not rescind and recast the vote.
Shares of our stock transferred to the trustee
are deemed offered for sale to us, or our designee, at a price per share equal to the lesser of (i) the price paid by the prohibited
owner for the shares (or, in the case of a devise, gift or other transaction, the market price at the time of such devise, gift or other
transaction) and (ii) the market price on the date we accept, or our designee accepts, such offer. We may reduce the amount so payable
to the trustee by the amount of any distribution that we made to the prohibited owner before we discovered that the shares had been automatically
transferred to the trust and that are then owed by the prohibited owner to the trustee as described above, and we may pay the amount of
any such reduction to the trustee for distribution to the charitable beneficiary. We have the right to accept such offer until the trustee
has sold the shares of our stock held in the trust as discussed below. Upon a sale to us, the interest of the charitable beneficiary in
the shares sold terminates, and the trustee must distribute the net proceeds of the sale to the prohibited owner and must distribute any
distributions held by the trustee with respect to such shares to the charitable beneficiary.
If we do not buy the shares, the trustee must,
within 20 days of receiving notice from us of the transfer of shares to the trust, sell the shares to a person or entity designated
by the trustee who could own the shares without violating the ownership limits or the other restrictions on ownership and transfer of
our stock. After the 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 prohibited owner an amount equal to the lesser of (i) the price paid by the prohibited owner
for the shares (or, if the prohibited owner did not give value for the shares in connection with the event causing the shares to be held
in the trust (for example, in the case of a gift, devise or other such transaction), the market price of the shares on the day of the
event causing the shares to be held in the trust) and (ii) the sales proceeds (net of any commissions and other expenses of sale)
received by the trustee for the shares. The trustee may reduce the amount payable to the prohibited owner by the amount of any distribution
that we paid to the prohibited owner before we discovered that the shares had been automatically transferred to the trust and that are
then owed by the prohibited owner to the trustee as described above. Any net sales proceeds in excess of the amount payable to the prohibited
owner must be paid immediately to the charitable beneficiary, together with any distributions thereon. In addition, if, prior to the discovery
by us that shares of stock have been transferred to a trust, such shares of stock are sold by a prohibited owner, then such shares will
be deemed to have been sold on behalf of the trust and, to the extent that the prohibited owner received an amount for or in respect of
such shares that exceeds the amount that such prohibited owner was entitled to receive, such excess amount will be paid to the trustee
upon demand. The prohibited owner has no rights in the shares held by the trustee.
In addition, if our board of directors determines
that a transfer or other event has occurred that would violate the restrictions on ownership and transfer of our stock described above,
our board of directors may take such action as it deems advisable to refuse to give effect to or to prevent such transfer, including,
but not limited to, causing us to redeem shares of our stock, refusing to give effect to the transfer on our books or instituting proceedings
to enjoin the transfer.
Every owner of 5% or more (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 stockholder’s name and address, the number of shares of each class or series of our stock
that the stockholder beneficially owns and a description of the manner in which the shares are held. Each such owner must provide to us
in writing such additional information as we may request in order to determine the effect, if any, of the stockholder’s beneficial
ownership on our status as a REIT and to ensure compliance with the ownership limits. 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) that is holding shares
of our stock for a beneficial owner or constructive owner must, on request, provide to us such information as we may request in order
to determine our status as a REIT and to comply with the requirements of any taxing authority or governmental authority or to determine
such compliance.
Any certificates representing shares of our stock
will bear a legend referring to the restrictions on ownership and transfer of our stock described above.
These restrictions on ownership and transfer of
our stock will not apply if our board of directors determines that it is no longer in our best interests to attempt to qualify, or to
continue to qualify, as a REIT or that compliance is no longer required in order for us to qualify as a REIT.
The restrictions on ownership and transfer of our
stock described above could delay, defer or prevent a transaction or a change in control that might involve a premium price for our common
stock or otherwise be in the best interests of our stockholders.
Preferred Stock
Our charter authorizes our board of directors,
with the approval of a majority of the entire board and without stockholder approval, to amend our charter to increase or decrease the
aggregate number of shares of stock or the number of shares of any class or series of stock that we are authorized to issue. In addition,
our charter authorizes our board of directors to authorize the issuance from time to time of shares of our preferred stock.
Our charter also 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 voting rights, distributions or upon liquidation, and authorize
us to issue the newly classified shares. Prior to the issuance of shares of each new class or series, our board of directors is required
by Maryland law and by our charter to set, subject to the provisions of our charter regarding the restrictions on ownership and transfer
of our stock, the preferences, conversion and other rights, voting powers, restrictions, limitations as to distributions, qualifications
and terms and conditions of redemption for each class or series. Therefore, although our board of directors does not currently intend
to do so, it could authorize the issuance of shares of preferred stock with terms and conditions that could have the effect of delaying,
deferring or preventing a change in control or other transaction that might involve a premium price for shares of our common stock or
otherwise be in the best interests of our stockholders. No shares of preferred stock are presently outstanding, and we have no present
plans to issue any shares of preferred stock.
We believe that the power of our board of directors
to approve amendments to our charter to increase or decrease the number of authorized shares of stock, to authorize us to issue additional
authorized but unissued shares of 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 provides us with increased flexibility in structuring possible future financings
and acquisitions and in meeting other needs that might arise.
Certain Provisions Of Maryland Law And Of Our Charter And Bylaws
The following summary of certain provisions
of Maryland law and of our charter and bylaws does not purport to be complete and is subject to and qualified in its entirety by reference
to Maryland law, including the MGCL, and our charter and 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 the section entitled
“Where You Can Find More Information; Incorporation by Reference.”
Our
Board of Directors. Our board of directors currently consists of nine directors. Our charter and bylaws provide that the
number of directors constituting our board of directors may be increased or decreased only by a majority vote of our board of directors,
provided that the number of directors may not be decreased to fewer than the minimum number required under the MGCL (which is one), nor
increased to more than 15.
Subject to the terms of any class or series of
preferred stock, vacancies on our board of directors may be filled only by a majority of the remaining directors, even if the remaining
directors do not constitute a quorum, and any director elected to fill a vacancy will hold office for the remainder of the full term of
the directorship in which the vacancy occurred and until his or her successor is duly elected and qualifies.
Each of our directors is elected by our stockholders
to serve until the next annual meeting of our stockholders and until his or her successor is duly elected and qualifies. Holders of shares
of our common stock have no right to cumulative voting in the election of directors. Consequently, the holders of a majority of the outstanding
shares of our common stock may elect all of the nominees then standing for election as directors, and the holders of the remaining shares
will not be able to elect any directors. In uncontested elections, directors are elected by the affirmative vote of a majority of the
total votes cast for and against such nominee. In contested elections, directors are elected by a plurality of all of the votes cast in
the election of directors.
Removal
of Directors. Our charter provides that a director may be removed only for cause (as defined in our charter) and only by
the affirmative vote of a majority of the votes entitled to be cast generally in the election of directors. This provision, when coupled
with the exclusive power of our board of directors to fill vacancies on our board of directors, precludes stockholders from removing incumbent
directors (except for cause and upon a substantial affirmative vote) and filling the vacancies created by such removal with their own
nominees.
Business
Combinations. Under the MGCL, certain “business combinations” (including a merger, consolidation, statutory
share exchange or, in certain circumstances, an asset transfer or issuance or reclassification of equity securities) between a Maryland
corporation and an interested stockholder (defined generally as any person who beneficially owns, directly or indirectly, 10% or more
of the voting power of the corporation’s outstanding voting stock or an affiliate or associate of the corporation who, at any time
during 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) or an affiliate of such an interested stockholder are prohibited for five years after the most
recent date on which the interested stockholder became an interested stockholder. Thereafter, any such business combination must generally
be recommended by the board of directors of the corporation and approved by the affirmative vote of at least (i) 80% of the votes
entitled to be cast by holders of outstanding shares of voting stock of the corporation and (ii) two-thirds of the votes entitled
to be cast by holders 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, unless, among
other conditions, the corporation’s common stockholders receive a minimum price (as defined in the MGCL) for their shares and the
consideration is received in cash or in the same form as previously paid by the interested stockholder for its shares. A person is not
an interested stockholder under the statute if the board of directors approved in advance the transaction by which the person otherwise
would have become an interested stockholder. A corporation’s 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.
Pursuant to the statute, our board of directors
has by resolution exempted business combinations between the Company and any other person. As a result, any person described in the preceding
sentence may be able to enter into business combinations with the Company 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 holders of “control shares” of a Maryland corporation acquired in
a “control share acquisition” have no voting rights with respect to such shares except to the extent approved by the affirmative
vote of at least two-thirds of the votes entitled to be cast on the matter. Shares owned by the acquirer, an officer of the corporation
or an employee of the corporation who is also a director 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 such 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:
|
·
|
one-tenth or more, but less than one-third;
|
|
·
|
one-third or more, but less than a majority; or
|
|
·
|
a majority or more of all voting power.
|
Control shares do not include shares that the acquiring
person is then entitled to vote as a result of having previously obtained stockholder approval or shares acquired directly from the corporation.
A “control share acquisition” means the acquisition of issued and outstanding control shares, subject to certain exceptions.
A person who has made or proposes to make a control
share acquisition, upon satisfaction of certain conditions (including an undertaking to pay expenses and making an “acquiring person
statement” as described in the MGCL), may compel the board of directors to call a special meeting of stockholders to be held within
50 days of demand to consider the voting rights of the shares. If no request for a meeting is made, the corporation may itself present
the question at any stockholders meeting.
If voting rights are not approved at the meeting
or if the acquiring person does not deliver an “acquiring person statement” as required by the statute, then, subject to certain
conditions and limitations, the corporation may redeem for fair value any 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 such shares are considered and not approved, as of the date of such meeting. If voting rights for control shares are approved at a
stockholders’ meeting and the acquirer becomes entitled to vote a majority of the shares entitled to vote, all other stockholders
may exercise appraisal rights. The fair value of the shares as determined for purposes of such 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 to shares acquired in a merger, consolidation or statutory share exchange if the corporation is a party to the transaction or 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 and all acquisitions by any person of shares of our stock. This provision may be amended or eliminated
at any time in the future by our board of directors.
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 to be subject, 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 any or all of five provisions of the
MGCL that provide, respectively, for:
|
·
|
a two-thirds vote requirement for removing a director;
|
|
·
|
a requirement that the number of directors be fixed only by vote of the board of directors;
|
|
·
|
a requirement that a vacancy on the board be filled only by the remaining directors in office and (if the board is classified) for
the remainder of the full term of the class of directors in which the vacancy occurred; and
|
|
·
|
a majority requirement for the calling of a stockholder-requested special meeting of stockholders.
|
Pursuant to Subtitle 8, we have elected to provide
that vacancies on our board may be filled only by the remaining directors and that directors elected by the board to fill vacancies will
serve for the remainder of the full term of the directorship in which the vacancy occurred. Through provisions in our charter and bylaws
unrelated to Subtitle 8, we already (i) vest in the board the exclusive power to fix the number of directorships and (ii) require,
unless called by our board of directors, the written request of stockholders entitled to cast a majority of all of the votes entitled
to be cast at such a meeting to call a special meeting.
Meetings
of Stockholders. Pursuant to our bylaws, a meeting of our stockholders for the election of directors and the transaction
of any business will be held annually on a date and at the time and place set by our board of directors. 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 brought before a meeting of our stockholders must also be called by our secretary upon the written request of the
stockholders entitled to cast a majority of all the votes entitled to be cast on such matter at the meeting and containing 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
is required to prepare and deliver the notice of the special meeting.
Amendments
to Our Charter and Bylaws. Except for those amendments permitted to be made without stockholder approval under Maryland
law or our charter, our charter generally may be amended only if the amendment is first declared advisable by our board of directors and
thereafter approved by the affirmative vote of stockholders entitled to cast a majority of all of the votes entitled to be cast on the
matter.
Our board of directors has the power to adopt,
alter or repeal any provision of our bylaws and to make new bylaws. In addition, stockholders may alter, amend or repeal any provision
of our bylaws and adopt new bylaws with the approval by a majority of the votes entitled to be cast on the matter by stockholders entitled
to vote generally in the election of directors.
Forum
Selection. Our bylaws require, subject to limited exceptions, that any derivative action or proceeding brought on our behalf,
any action asserting a claim of breach of any duty owed by any of our directors, officers or other employees to us or our stockholders
and other similar actions may be brought only in specified courts in the State of Maryland. Although we believe this provision will benefit
us by limiting duplicative, costly and time-consuming litigation in multiple forums and by providing increased consistency in the application
of Maryland law in the types of lawsuits to which it applies, the provision may have the effect of discouraging lawsuits against us or
our directors, officers and other employees. This provision is intended to cover internal corporate claims and not actions arising under
the federal securities laws.
Transactions
Outside the Ordinary Course of Business. Under the MGCL, a Maryland corporation generally is not entitled to dissolve,
merge or consolidate with, or convert into, another entity, sell all or substantially all of its assets or engage in a statutory share
exchange unless the action is declared advisable by the 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
all of the votes entitled to be cast on the matter) is specified in the corporation’s charter. Our charter provides that these actions
must be approved by a majority of all of the votes entitled to be cast on the matter.
Advance
Notice of Director Nominations and New Business. Our bylaws provide that, with respect to an annual meeting of our stockholders,
nominations of individuals for election to our board of directors and the proposal of other business to be considered by our stockholders
may be made only (i) pursuant to our notice of the meeting, (ii) by or at the direction of our board of directors or (iii) by
any stockholder who was a stockholder of record at the record date set by the board of directors for the purpose of 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 (or any postponement
or adjournment thereof), who is entitled to vote at the meeting on such business or in the election of such nominee and has provided notice
to us within the time period, and containing the information and other materials, specified in the advance notice provisions of our bylaws.
With respect to special meetings of stockholders,
only the business specified in our notice of meeting may be brought before the meeting. Nominations of individuals for election to our
board of directors may be made only (i) by or at the direction of our board of directors or (ii) if the meeting has been called
for the purpose of electing directors, by any stockholder who was a stockholder of record at the record date set by the board of directors
for the purpose of 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 (or any postponement or adjournment thereof), who is entitled to vote at the meeting in the election of each
such nominee and who has provided notice to us within the time period, and containing the information and other materials, specified in
the advance notice provisions of our bylaws.
The advance notice procedures of our bylaws provide
that, to be timely, a stockholder’s notice with respect to director nominations or other proposals for an annual meeting must be
delivered to our corporate secretary at our principal executive office not earlier than the 150th day nor later than 5:00 p.m.,
Eastern Time, on the 120th day prior to the first anniversary of the date of the proxy statement for our preceding year’s annual
meeting. In the event that the date of the annual meeting is advanced or delayed by more than 30 days from the first anniversary
of the date of the preceding year’s annual meeting, to be timely, a stockholder’s notice must be delivered not earlier than
the 150th day prior to the date of the annual meeting and not later than 5:00 p.m., Eastern Time, on the close of business on
the later of the 120th day prior to the date of the annual meeting or the tenth day following the day on which public announcement
of the date of such meeting is first made.
REIT
Qualification. Our charter provides that our board of directors may authorize us to revoke or otherwise terminate our REIT
election, without approval of our stockholders, if it determines that it is no longer in our best interests to continue to qualify as
a REIT.
Effects
of Certain Provisions of Maryland Law and of Our Charter and Bylaws. Our charter and bylaws and Maryland law contain provisions
that may delay, defer or prevent a change in control or other transaction that might involve a premium price for shares of our common
stock or otherwise be in the best interests of our stockholders, including advance notice requirements for director nominations and other
stockholder proposals. Likewise, if the provision in our bylaws opting out of the control share acquisition provisions of the MGCL were
rescinded, if the resolution opting out of the business combination act was revoked or if we were to opt in to the classified board or
other provisions of Subtitle 8, these provisions of the MGCL could have similar anti-takeover effects.
Indemnification
and Limitation of Directors’ and Officers’ Liability. Maryland law permits a Maryland corporation to include
in its charter a provision limiting the liability of its directors and officers to the corporation and its stockholders for money damages,
except for liability resulting from (i) actual receipt of an improper benefit or profit in money, property or services or (ii) active
and deliberate dishonesty that is established by a final judgment and that is material to the cause of action. Our charter contains a
provision that eliminates the liability of our directors and officers 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 other capacities unless it is established that:
|
·
|
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;
|
|
·
|
the director or officer actually received an improper personal benefit in money, property or services; or
|
|
·
|
in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful.
|
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 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 by us; and
|
|
·
|
a written undertaking by or on behalf of the director or officer to repay the amount paid or reimbursed by us if it is ultimately
determined that the director or officer did not meet the standard of conduct.
|
Our charter obligates the Company 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:
|
·
|
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
|
|
·
|
any individual who, while a director or officer of the Company and at our request, serves or has served as a director, officer, partner,
trustee, member, manager, trustee, employee or agent of another corporation, REIT, 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.
|
Our charter also permits us to indemnify and advance
expenses to any person who served a predecessor of the Company in any of the capacities described above and to any employee or agent of
the Company or a predecessor of the Company.
We have entered into indemnification agreements
with our current directors and executive officers that provide for indemnification to the maximum extent permitted by Maryland law.
DESCRIPTION
OF THE PARTNERSHIP AGREEMENT AND INDUS RT, LP
A
summary of the material terms and provisions of the Agreement of Limited Partnership of INDUS RT, LP, which we refer to as the “partnership
agreement,” is set forth below. This summary is not complete and is subject to and qualified in its entirety by reference to the
applicable provisions of Maryland law and the partnership agreement. For more detail, please refer to the partnership agreement itself,
a copy of which is filed as an exhibit to the registration statement of which this prospectus is a part. For purposes of
this section, references to “we,” “our,” “us,” “our company” and the “general partner”
refer to INDUS Realty Trust, Inc., in our capacity as the general partner of our operating partnership. See the section entitled
“Where You Can Find More Information; Incorporation by Reference.”
General
Substantially all of our assets are held by, and
substantially all of our operations are conducted through, our operating partnership, either directly or through its subsidiaries. We
are the sole general partner of our operating partnership, and, as of July 29, 2021, 7,722,437
common units of partnership interests in our operating partnership, or common units, were outstanding and we owned 99% of the outstanding
common units, in each case, including common units issuable upon conversion of vested LTIP units of our operating partnership. In connection
with the conversion of INDUS Realty Trust, LLC, a limited liability company, into INDUS RT, LP, a limited partnership, we became the
general partner of our operating partnership and one of our newly formed subsidiaries, INDUS RT, LLC, was admitted as a limited
partner of our operating partnership. Our operating partnership is also authorized to issue a class of units of partnership interest
designated as LTIP Units and additional classes of units of partnership interest, each having the terms described below. The common units
are not listed on any exchange nor are they quoted on any national market system.
Provisions in the partnership agreement may delay
or make more difficult unsolicited acquisitions of us or changes in our control. These provisions could discourage third parties from
making proposals involving an unsolicited acquisition of us or change of our control, although some stockholders might consider such proposals,
if made, desirable. These provisions also make it more difficult for third parties to alter the management structure of our operating
partnership without the concurrence of our board of directors. These provisions include, among others:
|
·
|
redemption rights of limited partners and certain assignees of common units;
|
|
·
|
transfer restrictions on common units and other partnership interests;
|
|
·
|
a requirement that we may not be removed as the general partner of our operating partnership without our consent;
|
|
·
|
our ability in some cases to amend the partnership agreement and to cause our operating partnership to issue preferred partnership
interests in our operating partnership with terms that we may determine, in either case, without the approval or consent of any limited
partner; and
|
|
·
|
the right of the limited partners to consent to certain transfers of our general partnership interest (whether by sale, disposition,
statutory merger or consolidation, liquidation or otherwise).
|
Purpose, Business and Management
Our operating partnership was formed for the purpose
of conducting any business, enterprise or activity permitted by or under the Maryland Revised Uniform Limited Partnership Act, or the
Act. Our operating partnership may enter into any partnership, joint venture, business trust arrangement, limited liability company or
other similar arrangement and may own interests in any other entity engaged in any business permitted by or under the Act, subject to
any consent rights set forth in our partnership agreement.
In general, our board of directors manages the
business and affairs of our operating partnership by directing our business and affairs, in our capacity as the sole general partner of
our operating partnership. Except as otherwise expressly provided in the partnership agreement and subject to the rights of holders of
any class or series of partnership interest, all management powers over the business and affairs of our operating partnership are exclusively
vested in us, in our capacity as the sole general partner of our operating partnership. We may not be removed as the general partner of
our operating partnership, with or without cause, without our consent, which we may give or withhold in our sole and absolute discretion.
Restrictions on General Partner’s Authority
The partnership agreement prohibits us, in our
capacity as general partner, from taking any action that would make it impossible to carry out the ordinary business of our operating
partnership or performing any act that would subject a limited partner to liability as a general partner in any jurisdiction or any other
liability except as provided under the partnership agreement or under the Act. We generally may not, without the prior consent of the
partners of our operating partnership (including us), amend, modify or terminate the partnership agreement, except for certain amendments
described below that require the approval of each affected partner. We may not, in our capacity as the general partner of our operating
partnership, without the consent of a majority in interest of the limited partners (excluding us and any limited partner 50% or more of
whose equity is owned, directly or indirectly, by us):
|
·
|
take any action in contravention of an express provision or limitation of the partnership agreement;
|
|
·
|
transfer all or any portion of our general partnership interest in our operating partnership or admit any person as a successor general
partner, subject to the exceptions described in the section entitled “Description of the Partnership Agreement and INDUS RT,
LP — Transfers of Partnership Interests — Restrictions on Transfers by the General Partner”; or
|
|
·
|
voluntarily withdraw as the general partner.
|
Without the consent of each affected limited partner
or in connection with a transfer of all of our interests in our partnership in connection with a merger, consolidation or other combination
of our assets with another entity, a sale of all or substantially all of our assets or a reclassification, recapitalization or change
in our outstanding stock permitted without the consent of the limited partners as described in the section entitled “Description
of the Partnership Agreement and INDUS RT, LP — Transfers of Partnership Interests — Restrictions on Transfers
by the General Partner,” or a permitted termination transaction, we may not enter into any contract, mortgage, loan or other
agreement that expressly prohibits or restricts us or our operating partnership from performing our or its specific obligations in connection
with a redemption of units or expressly prohibits or restricts a limited partner from exercising its redemption rights in full. In addition
to any approval or consent required by any other provision of the partnership agreement, we may not, without the consent of each affected
partner, amend the partnership agreement or take any other action that would:
|
·
|
convert a limited partner interest into a general partner interest (other than as a result of our acquisition of that interest);
|
|
·
|
adversely modify in any material respect the limited liability of a limited partner;
|
|
·
|
alter the rights of any partner to receive the distributions to which such partner is entitled, or alter the allocations specified
in the partnership agreement, except to the extent permitted by the partnership agreement including in connection with the creation or
issuance of any new class or series of partnership interest or to effect or facilitate a permitted termination transaction;
|
|
·
|
alter or modify the redemption rights of holders of common units (except as permitted under the partnership agreement to effect or
facilitate a permitted termination transaction);
|
|
·
|
alter or modify the provisions governing the transfer of our general partnership interest in our operating partnership (except as
permitted under the partnership agreement to effect or facilitate a permitted termination transaction);
|
|
·
|
remove certain provisions of the partnership agreement relating to the requirements for us to qualify as a REIT or permitting us to
avoid paying tax under Sections 857 or 4981 of the Code; or
|
|
·
|
amend the provisions of the partnership agreement requiring the consent of each affected partner before taking any of the actions
described above or the related definitions specified in the partnership agreement (except as permitted under the partnership agreement
to effect or facilitate a permitted termination transaction).
|
Additional Limited Partners
We may cause our operating partnership to issue
additional units in one or more classes or series or other partnership interests and to admit additional limited partners to our operating
partnership from time to time, on such terms and conditions and for such capital contributions as we may establish in our sole and absolute
discretion, without the approval or consent of any limited partner.
The partnership agreement authorizes our operating
partnership to issue common units, LTIP Units and preferred units, and our operating partnership may issue additional partnership interests
in one or more additional classes, or one or more series of any of such classes, with such designations, preferences, conversion and other
rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption (including,
without limitation, terms that may be senior or otherwise entitled to preference over existing units) as we may determine, in our sole
and absolute discretion, without the approval of any limited partner or any other person. Without limiting the generality of the foregoing,
we may specify, as to any such class or series of partnership interest, the allocations of items of partnership income, gain, loss, deduction
and credit to each such class or series of partnership interest.
Ability to Engage in Other Businesses; Conflicts of Interest
The partnership agreement provides that we may
not conduct any business other than in connection with the ownership, acquisition and disposition of partnership interests, the management
of the business and affairs of our operating partnership, our operation as a reporting company with a class (or classes) of securities
registered under the Exchange Act, our operations as a REIT, the offering, sale, syndication, private placement or public offering of
stock, bonds, securities or other interests, financing or refinancing of any type related to our operating partnership or its assets or
activities and such activities as are incidental to those activities discussed above. In general, we must contribute any assets or funds
that we acquire to our operating partnership whether as capital contributions, loans or otherwise, as appropriate, in exchange for additional
partnership interests. We may, however, in our sole and absolute discretion, from time to time hold or acquire assets in our own name
or otherwise other than through our operating partnership so long as we take commercially reasonable measures to ensure that the economic
benefits and burdens of such property are otherwise vested in our operating partnership.
Distributions
Our operating partnership will distribute such
amounts, at such times, as we may in our sole and absolute discretion determine:
|
·
|
first, with respect to any partnership interests that are entitled to any preference in distribution, including the preferred units,
in accordance with the rights of the holders of such class(es) of partnership interest, and, within each such class, among the holders
of such class pro rata in proportion to their respective percentage interests of such class; and
|
|
·
|
second, with respect to any partnership interests that are not entitled to any preference in distribution, including the common units
and, except as described below with respect to liquidating distributions and as may be provided in any incentive award plan or any applicable
award agreement and the LTIP Units, in accordance with the rights of the holders of such class(es) of partnership interest, and, within
each such class, among the holders of each such class, pro rata in proportion to their respective percentage interests of such class.
|
Exculpation and Indemnification of General Partner
The partnership agreement provides that we are
not liable to our operating partnership or any partner for any action or omission taken in our capacity as general partner, for the debts
or liabilities of our operating partnership or for the obligations of our operating partnership under the partnership agreement, except
for liability for our fraud, willful misconduct or gross negligence, pursuant to any express indemnity we may give to our operating partnership
or in connection with a redemption as described in the section entitled “Description of the Partnership Agreement and INDUS RT,
LP — Redemption Rights of Qualifying Parties.” The partnership agreement also provides that any obligation or liability
in our capacity as the general partner of our operating partnership that may arise at any time under the partnership agreement or any
other instrument, transaction or undertaking contemplated by the partnership agreement will be satisfied, if at all, out of our assets
or the assets of our operating partnership only, and no such obligation or liability will be personally binding upon any of our directors,
stockholders, officers, employees or agents.
In addition, the partnership agreement requires
our operating partnership to indemnify us, our directors and officers, officers of our operating partnership and any other person designated
by us against any and all losses, claims, damages, liabilities, expenses (including, without limitation, attorneys’ fees and other
legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or
proceedings, whether civil, criminal, administrative or investigative, that relate to the operations of our operating partnership, unless
(i) an act or omission of the person was material to the matter giving rise to the action and either was committed in bad faith or
was the result of active and deliberate dishonesty, (ii) in the case of a criminal proceeding, the person had reasonable cause to
believe the act or omission was unlawful or (iii) such person actually received an improper personal benefit in violation or breach
of any provision of the partnership agreement. Our operating partnership must also pay or reimburse the reasonable expenses of any such
person in advance of a final disposition of the proceeding upon its receipt of a written affirmation of the person’s good faith
belief that the standard of conduct necessary for indemnification has been met and a written undertaking by or on behalf of the person
to repay any amounts paid or advanced if it is ultimately determined that the person did not meet the standard of conduct for indemnification.
Our operating partnership is not required to indemnify or advance funds to any person with respect to any action initiated by the person
seeking indemnification without our approval (except for any proceeding brought to enforce such person’s right to indemnification
under the partnership agreement) or if the person is found to be liable to our operating partnership on any portion of any claim in the
action.
Business Combinations and Dissolution of our Operating Partnership
Subject to the limitations on the transfer of our
interest in our operating partnership described in the section entitled “Description of the Partnership Agreement and INDUS RT,
LP — Transfers of Partnership Interests — Restrictions on Transfers by the General Partner,” we generally have the
exclusive power to cause our operating partnership to merge, reorganize, consolidate, sell all or substantially all of its assets or otherwise
combine its assets with another entity. We may also elect to dissolve our operating partnership without the consent of any limited partner.
However, in connection with the acquisition of properties from persons to whom our operating partnership issues common units or other
partnership interests as part of the purchase price, in order to preserve such persons’ tax deferral, our operating partnership
may contractually agree, in general, not to sell or otherwise transfer the properties for a specified period of time, or in some instances,
not to sell or otherwise transfer the properties without compensating the sellers of the properties for their loss of the tax deferral.
Redemption Rights of Qualifying Parties
Beginning 14 months after first acquiring such
common units, each limited partner and some assignees of limited partners will have the right, subject to the terms and conditions set
forth in the partnership agreement, to require our operating partnership to redeem all or a portion of the common units held by such limited
partner or assignee in exchange for a cash amount per common unit equal to the value of one share of our common stock, determined in accordance
with and subject to adjustment under the partnership agreement. Our operating partnership’s obligation to redeem common units does
not arise and is not binding against our operating partnership until the sixth business day after we receive the holder’s notice
of redemption or, if earlier, the day we notify the holder seeking redemption that we have declined to acquire some or all of the common
units tendered for redemption.
On
or before the close of business on the fifth business day after a holder of common units gives notice of redemption to us, we may, in
our sole and absolute discretion but subject to the restrictions on the ownership and transfer of our stock set forth in our charter and
described in the section entitled “Description of Capital Stock – Common Stock – Restrictions on Ownership
and Transfer,” elect to acquire some or all of the common units tendered for redemption from the tendering party in exchange
for shares of our common stock, based on an exchange ratio of one share of common stock for each common unit, subject to adjustment as
provided in the partnership agreement. The partnership agreement does not require us to register, qualify or list any shares of common
stock issued in exchange for common units with the SEC, with any state securities commissioner, department or agency, under the Securities
Act or the Exchange Act or with any stock exchange.
Transfers of Partnership Interests
Restrictions
on Transfers by Limited Partners. Until the expiration of 14 months after the date on which a limited partner acquires
a partnership interest, the limited partner generally may not directly or indirectly transfer all or any portion of such partnership interest
without our consent, which we may give or withhold in our sole and absolute discretion, except for certain permitted transfers to certain
affiliates, family members and charities, and certain pledges of partnership interests to lending institutions in connection with bona
fide loans. After the expiration of such initial holding period, the limited partner will have the right to transfer all or any portion
of its partnership interest without our consent to any person that is an “accredited investor,” within meaning set forth in
Rule 501 promulgated under the Securities Act, upon ten business days prior notice to us, subject to the satisfaction of conditions
specified in the partnership agreement, including minimum transfer requirements and our right of first refusal.
Restrictions
on Transfers by the General Partner. Except as described below, any transfer of all or any portion of our interest in our
operating partnership, whether by sale, disposition, statutory merger or consolidation, liquidation or otherwise, must be approved by
the consent of a majority in interest of the limited partners (excluding us and any limited partner 50% or more of whose equity is owned,
directly or indirectly, by us). Subject to the rights of holders of any class or series of partnership interest, we may transfer all (but
not less than all) of our general partnership interest without the consent of the limited partners in connection with a permitted termination
transaction, which is a merger, consolidation or other combination of our assets with another entity, a sale of all or substantially all
of our assets or a reclassification, recapitalization or change in any outstanding shares of our stock or other outstanding equity interests,
if:
|
·
|
in connection with such event, all of the limited partners will receive or have the right to elect to receive, for each common unit,
the greatest amount of cash, securities or other property paid to a holder of one share of our common stock (subject to adjustment in
accordance with the partnership agreement) in the transaction and, if a purchase, tender or exchange offer is made and accepted by holders
of our common stock in connection with the event, each holder of common units receives, or has the right to elect to receive, the greatest
amount of cash, securities or other property that the holder would have received if it had exercised its redemption right and received
shares of our common stock in exchange for its common units immediately before the expiration of the purchase, tender or exchange offer
and had accepted the purchase, tender or exchange offer; or
|
|
·
|
substantially all of the assets of our operating partnership will be owned by a surviving entity (which may be our operating partnership,
another limited partnership or a limited liability company) in which the limited partners of our operating partnership holding common
units immediately before the event will hold a percentage interest based on the relative fair market value of the net assets of our operating
partnership and the other net assets of the surviving entity immediately before the event, which interest will be on terms that are at
least as favorable as the terms of the common units in effect immediately before the event and as those applicable to any other limited
partners or non-managing members of the surviving entity and will include a right to redeem interests in the surviving entity for the
consideration described in the preceding bullet or cash on similar terms as those in effect with respect to the common units immediately
before the event, or, if common equity securities of the person controlling the surviving entity are publicly traded, such common equity
securities.
|
We may also transfer all (but not less than all)
of our interest in our operating partnership to an affiliate of us without the consent of any limited partner, subject to the rights of
holders of any class or series of partnership interest.
In addition, any transferee of our interest in
our operating partnership must be admitted as a general partner of our operating partnership, assume, by operation of law or express agreement,
all of our obligations as general partner under the partnership agreement, accept all of the terms and conditions of the partnership agreement
and execute such instruments as may be necessary to effectuate the transferee’s admission as a general partner.
We may not voluntarily withdraw as the general
partner of our operating partnership without the consent of a majority in interest of the limited partners (excluding us and any limited
partner 50% or more of whose equity is owned, directly or indirectly, by us) other than upon the transfer of our entire interest in our
operating partnership and the admission of our successor as a general partner of our operating partnership.
LTIP Units
Our operating partnership is authorized to issue
a class of units of partnership interest designated as “LTIP Units.” We may cause our operating partnership to issue LTIP
Units to persons who provide services to or for the benefit of our operating partnership, for such consideration or for no consideration
as we may determine to be appropriate, and we may admit such persons as limited partners of our operating partnership, without the approval
or consent of any limited partner. Further, we may cause our operating partnership to issue LTIP Units in one or more classes or series,
with such terms as we may determine, without the approval or consent of any limited partner. LTIP Units may be subject to vesting, forfeiture
and restrictions on transfer and receipt of distributions pursuant to the terms of any applicable equity-based plan and the terms of any
award agreement relating to the issuance of the LTIP Units.
Conversion
Rights. Vested LTIP Units are convertible at the option of each limited partner and some assignees of limited partners
(in each case, that hold vested LTIP Units) into common units, upon notice to us and our operating partnership, to the extent that the
capital account balance of the LTIP unitholder with respect to all of his or her LTIP Units is at least equal to our capital account balance
with respect to an equal number of common units. We may cause our operating partnership to convert vested LTIP Units eligible for conversion
into an equal number of common units at any time, upon at least 10 and not more than 60 days’ notice to the holder of the LTIP Units.
If we or our operating partnership is party to
a transaction, including a merger, consolidation, sale of all or substantially all of our assets or other business combination, as a result
of which common units are exchanged for or converted into the right, or holders of common units are otherwise entitled, to receive cash,
securities or other property (or any combination thereof), we must cause our operating partnership to convert any vested LTIP Units then
eligible for conversion into common units immediately before the transaction, taking into account any special allocations of income that
would be made as a result of the transaction. Our operating partnership must use commercially reasonable efforts to cause each limited
partner (other than a party to such a transaction or an affiliate of such a party) holding LTIP Units that will be converted into common
units in such a transaction to be afforded the right to receive the same kind and amount of cash, securities and other property (or any
combination thereof) for such common units that each holder of common units receives in the transaction.
Transfer.
Unless an applicable equity-based plan or the terms of an award agreement specify additional restrictions on transfer of LTIP Units, LTIP
Units are transferable to the same extent as common units, as described above in the section entitled “Description of the Partnership
Agreement and INDUS RT, LP — Transfers of Partnership Interests.”
Voting
Rights. Limited partners holding LTIP Units are entitled to vote together as a class with limited partners holding common
units on all matters on which limited partners holding common units are entitled to vote or consent, and may cast one vote for each LTIP
Unit so held.
Adjustment
of LTIP Units. If our operating partnership takes certain actions, including making a distribution of units on all outstanding
common units, combining or subdividing the outstanding common units into a different number of common units or reclassifying the outstanding
common units, we must adjust the number of outstanding LTIP Units or subdivide or combine outstanding LTIP Units to maintain a one-for-one
conversion ratio and economic equivalence between common units and LTIP Units.
Preferred Units
Our operating partnership is authorized to issue
preferred units. As of July 29, 2021, there are no preferred units issued or outstanding.
Preferred units rank senior to the common units and LTIP Units. Holders of series preferred units are entitled to receive preferential
cash distributions in an amount to be fixed at the time of issuance of such units. Holders of preferred units are also entitled to receive
a liquidation preference in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of our operating
partnership that are substantially similar to those of the preferred stock (but, in the case of distributions upon the liquidation, dissolution
or winding up of the affairs of our operating partnership, only to the extent consistent with a liquidation in accordance with positive
capital account balances). Preferred units are also subject to redemption by our operating partnership in connection with our reacquisition
of shares of preferred stock. See the section entitled “Description of Capital Stock – Preferred Stock.” The
preferred units are not listed on any exchange nor are they quoted on any national market system.
Conversion
Rights. Preferred units will be converted into common units in the event of a conversion of preferred stock, at the option
of holders of shares of preferred stock pursuant to the articles supplementary designating the terms of the preferred stock, as described
above in the section entitled “Description of Capital Stock – Preferred Stock.”
Transfer.
Preferred units are transferrable to the same extent as common units, as described above in the section entitled “Description
of the Partnership Agreement and INDUS RT, LP — Transfers of Partnership Interests — Restrictions on Transfers by the General
Partner.”
Voting
Rights. The general partner will not have any voting or consent rights in respect of its partnership interest represented
by the preferred units.
MATERIAL
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 REIT and the acquisition, ownership and disposition
of our capital stock. For purposes of this discussion, references to “we,” “our” and “us” mean only
INDUS Realty 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:
|
·
|
current, temporary and proposed Treasury regulations promulgated under the Code, or the Treasury Regulations;
|
|
·
|
the legislative history of the Code;
|
|
·
|
administrative interpretations and practices of the IRS; and
|
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. Potential tax reforms may result in significant changes to the
rules governing U.S. federal income taxation. New legislation, Treasury Regulations, administrative interpretations and practices
and/or court decisions may significantly and adversely affect our ability to qualify as a REIT, the U.S. federal income tax consequences
of such qualification, or the U.S. federal income tax consequences of an investment in us, including those described in this discussion.
Moreover, the law relating to the tax treatment of other entities, or an investment in other entities, could change, making an investment
in such other entities more attractive relative to an investment in a REIT. Any such changes could apply retroactively to transactions
preceding the date of the change. We have not requested, and do not plan to request, any rulings from the IRS that we qualify as a REIT,
and the statements in this prospectus are not binding on the IRS or any court. Thus, we can provide no assurance that the tax considerations
contained in this discussion will not be challenged by the IRS or will be sustained by a court if challenged by the IRS. This summary
does not discuss any state, local or non-U.S. tax consequences, or any tax consequences arising under any U.S. federal tax laws
other than U.S. federal income tax laws, associated with the purchase, ownership or disposition of our capital 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:
|
·
|
the purchase, ownership and disposition of our capital stock, including the U.S. federal, state, local, non-U.S. and
other tax consequences;
|
|
·
|
our election to be taxed as a REIT for U.S. federal income tax purposes; and
|
|
·
|
potential changes in applicable tax laws.
|
Taxation of Our Company
General.
We intend to elect to be taxed as a REIT under Sections 856 through 860 of the Code commencing with our taxable year
ending December 31, 2021. 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 the section entitled “Material U.S. Federal Income Tax Considerations – Taxation
of Our Company — Failure to Qualify” for potential tax consequences if we fail to qualify as a REIT.
Latham & Watkins LLP has acted as
our tax counsel in connection with our filing of this registration statement and our intended election to be taxed as a REIT.
Latham & Watkins LLP has previously rendered an opinion to us to the effect that,
commencing with our taxable year ending December 31, 2021, we have been organized and have operated in conformity with the
requirements for qualification and taxation as a REIT, and our proposed method of operation will enable us to continue to meet the
requirements for qualification and taxation as a REIT under the Code. It must be emphasized that this opinion was based on
various assumptions and representations as to factual matters, including representations made by us in a factual certificate
provided by one or more of our officers. In addition, this opinion was based upon our factual representations set forth in this
prospectus. Moreover, our qualification and taxation as a REIT depend upon our ability to meet the various qualification tests
imposed under the Code, which are discussed below, including through actual operating results, asset composition, distribution
levels and diversity of stock ownership, the results of which will not be reviewed by Latham & Watkins LLP. Accordingly, no
assurance can be given that our actual results of operations for any particular taxable year will satisfy those requirements.
Further, the anticipated U.S. federal income tax treatment described herein may be changed, perhaps retroactively, by
legislative, administrative or judicial action at any time. Latham & Watkins LLP has no obligation to update its opinion
subsequent to the date of such opinion.
Provided we qualify for taxation as a REIT, we
generally will not be required to pay U.S. federal corporate income taxes on our REIT taxable income that is currently distributed
to our stockholders. This treatment substantially eliminates the “double taxation” that ordinarily results from investment
in a C corporation. A C corporation is a corporation that generally is required to pay tax at the corporate level. Double taxation means
taxation once at the corporate level when income is earned and once again at the stockholder level when the income is distributed. We
will, however, be required to pay U.S. federal income tax as follows:
|
·
|
First, we will be required to pay regular U.S. federal corporate income tax on any undistributed REIT taxable income, including
undistributed capital gain.
|
|
·
|
Second, if we have (1) net income from the sale or other disposition of “foreclosure property” held primarily for
sale to customers in the ordinary course of business or (2) other nonqualifying income from foreclosure property, we will be required
to pay regular U.S. federal corporate income tax on this income. To the extent that income from foreclosure property is otherwise
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.
|
|
·
|
Third, we will be required to pay a 100% tax on any net income from prohibited transactions. Prohibited transactions are, in general,
sales or other taxable dispositions of property, other than foreclosure property, held as inventory or primarily for sale to customers
in the ordinary course of business.
|
|
·
|
Fourth, if we fail to satisfy the 75% gross income test or the 95% gross income test, as described below, but have otherwise maintained
our qualification as a REIT because certain other requirements are met, we will be required to pay a tax equal to (1) the greater
of (A) the amount by which we fail to satisfy the 75% gross income test and (B) the amount by which we fail to satisfy the 95%
gross income test, multiplied by (2) a fraction intended to reflect our profitability.
|
|
·
|
Fifth, if we fail to satisfy any of the asset tests (other than a de minimis failure of the 5% or 10% asset test), as described
below, due to reasonable cause and not due to willful neglect, and we nonetheless maintain our REIT qualification because of specified
cure provisions, we will be required to pay a tax equal to the greater of $50,000 or the U.S. federal corporate income tax rate multiplied
by the net income generated by the nonqualifying assets that caused us to fail such test.
|
|
·
|
Sixth, if we fail to satisfy any provision of the Code that would result in our failure to qualify as a REIT (other than a violation
of the gross income tests or certain violations of the asset tests, as described below) and the violation is due to reasonable cause and
not due to willful neglect, we may retain our REIT qualification but we will be required to pay a penalty of $50,000 for each such failure.
|
|
·
|
Seventh, we will be required to pay a 4% excise tax to the extent we fail to distribute during each calendar year at least the sum
of (1) 85% of our ordinary income for the year, (2) 95% of our capital gain net income for the year, and (3) any undistributed
taxable income from prior periods.
|
|
·
|
Eighth, if we sell (i) an asset we held on first day of the first taxable year for which we qualify as a REIT or (ii) any
asset that we later acquire 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 determined as of the date on which we acquired the asset, in each case, during a five-year
period beginning on the first day of the first taxable year for which we qualify as a REIT or acquire the asset, as applicable, then we
generally will be required to pay regular U.S. federal corporate income tax on the 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, determined as of the first day of the first taxable year
for which we qualify as a REIT or date on which we acquired the asset, as applicable. The results described in this paragraph with respect
to the recognition of gain assume that we and the C corporation from whom we acquire the asset will refrain from making an election to
receive different treatment under applicable Treasury Regulations. Under applicable Treasury Regulations, any gain from the sale of property
we acquired in an exchange under Section 1031 (a like-kind exchange) or Section 1033 (an involuntary conversion) of the Code
generally is excluded from the application of this built-in gains tax.
|
|
·
|
Ninth, our subsidiaries that are C corporations and are not qualified REIT subsidiaries, including our “taxable REIT subsidiaries”
described below, generally will be required to pay regular U.S. federal corporate income tax on their earnings.
|
|
·
|
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 in the section entitled “Material U.S. Federal
Income Tax Considerations – Taxation of Our Company – Penalty Tax.” In general, redetermined rents are rents from
real property that are overstated as a result of services furnished to any of our tenants by a taxable REIT subsidiary of ours. Redetermined
deductions and excess interest generally represent amounts that are deducted by a taxable REIT subsidiary of ours for amounts paid to
us that are in excess of the amounts that would have been deducted based on arm’s length negotiations. Redetermined TRS service
income generally represents income of a taxable REIT subsidiary that is understated as a result of services provided to us or on our behalf.
|
|
·
|
Eleventh, we may elect to retain and pay income tax on our net capital gain. In that case, a stockholder would include its proportionate
share of our undistributed capital gain (to the extent we make a timely designation of such gain to the stockholder) in its income, would
be deemed to have paid the tax that we paid on such gain, and would be allowed a credit for its proportionate share of the tax deemed
to have been paid, and an adjustment would be made to increase the tax basis of the stockholder in our capital stock.
|
|
·
|
Twelfth, if we fail to comply with the requirement to send annual letters to our stockholders holding at least a certain percentage
of our stock, as determined under applicable Treasury Regulations, requesting information regarding the actual ownership of our stock,
and the failure is not due to reasonable cause or is due to willful neglect, we will be subject to a $25,000 penalty, or if the failure
is intentional, a $50,000 penalty.
|
We and our subsidiaries may be subject to a variety
of taxes other than U.S. federal income tax, including payroll taxes and state and local income, property and other taxes on our
assets and operations.
Requirements
for Qualification as a REIT. The Code defines a REIT as a corporation, trust or association:
(1) that
is managed by one or more trustees or directors;
(2) that
issues transferable shares or transferable certificates to evidence its beneficial ownership;
(3) that
would be taxable as a domestic corporation, but for Sections 856 through 860 of the Code;
(4) that
is not a financial institution or an insurance company within the meaning of certain provisions of the Code;
(5) that
is beneficially owned by 100 or more persons;
(6) not
more than 50% in value of the outstanding stock of which is owned, actually or constructively, by five or fewer individuals, including
certain specified entities, during the last half of each taxable year; and
(7) that
meets other tests, described below, regarding the nature of its income and assets and the amount of its distributions.
The Code provides that conditions (1) to (4),
inclusive, must be met during the entire taxable year and that condition (5) must be met during at least 335 days of a taxable year
of 12 months, or during a proportionate part of a taxable year of less than 12 months. Conditions (5) and (6) do not apply until
after the first taxable year for which an election is made to be taxed as a REIT. For purposes of condition (6), the term “individual”
includes a supplemental unemployment compensation benefit plan, a private foundation or a portion of a trust permanently set aside or
used exclusively for charitable purposes, but generally does not include a qualified pension plan or profit sharing trust.
We
believe that we will be organized and will operate and will issue sufficient shares of our capital stock with sufficient diversity of
ownership to allow us to satisfy conditions (1) through (7), inclusive, during the relevant time periods. In addition, our charter
provides for restrictions regarding ownership and transfer of our shares that are intended to assist us in continuing to satisfy the share
ownership requirements described in conditions (5) and (6) above. A description of the share ownership and transfer restrictions
relating to our capital stock is contained in the sections entitled “Description of Capital Stock – Common
Stock – Restrictions on Ownership and Transfer” and “Description of Capital Stock – Preferred Stock –
Restrictions on Ownership and Transfer,” respectively. These restrictions, however, may not ensure that we will, in all cases,
be able to satisfy the share ownership requirements described in conditions (5) and (6) above. If we fail to satisfy these share
ownership requirements, then 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 the section entitled “Material U.S. Federal Income
Tax Considerations – Taxation of Our Company — Failure to Qualify.”
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, we plan to distribute
our earnings and profits accumulated prior to the taxable year beginning January 1, 2021 before the end of the first taxable year
for which we elect REIT status. In addition, we may not maintain our status as a REIT unless our taxable year is the calendar year. We
have a calendar taxable year.
Ownership
of Interests in Partnerships, Limited Liability Companies and Qualified REIT Subsidiaries. In the case of a REIT that is
a partner in a partnership (for purposes of this discussion, references to “partnership” include a limited liability company
treated as a partnership for U.S. federal income tax purposes, and references to “partner” include a member in such a
limited liability company), Treasury Regulations provide that the REIT will be deemed to own its proportionate share of the assets of
the partnership based on its interest in partnership capital, subject to special rules relating to the 10% asset test described below.
Also, the REIT will be deemed to be entitled to its proportionate share of the income of that entity. The assets and gross income of the
partnership retain the same character in the hands of the REIT for purposes of Section 856 of the Code, including satisfying the
gross income tests and the asset tests. Thus, to the extent our operating partnership is treated as a partnership (rather than a disregarded
entity, in which case, it will be disregarded as a separate entity from us, and we will be treated as owning all of its assets and deriving
all of its items of income) for U.S. federal income tax purposes, our pro rata share of the assets and items of income of our operating
partnership, including our operating partnership’s share of these items of any partnership or disregarded entity for U.S. federal
income tax purposes in which it owns an interest, is treated as our assets and items of income for purposes of applying the requirements
described in this discussion, including the gross income and asset tests described below. A brief summary of the rules governing
the U.S. federal income taxation of partnerships is set forth in the section entitled “Material U.S. Federal Income
Tax Considerations – Tax Aspects of Our Operating Partnership, the Subsidiary Partnerships and the Limited Liability Companies.”
We will have control of our operating partnership
and any of its subsidiary partnerships and intend to operate them in a manner consistent with the requirements for our qualification as
a REIT. If we become a limited partner or non-managing member in any partnership 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 could take an action which could cause us to fail a gross income or asset test, and that we would not
become aware of such action in time to dispose of our interest in the partnership or take other corrective action on a timely basis. In
such a case, we could fail to qualify as a REIT unless we were entitled to relief, as described below.
We may from time to time own and operate certain
properties through wholly-owned subsidiaries that we intend to be treated as “qualified REIT subsidiaries” under the Code.
A corporation (or other entity treated as a corporation for U.S. federal income tax purposes) 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 income tax requirements described in this discussion, any qualified REIT subsidiaries we own are ignored,
and all assets, liabilities and items of income, gain, loss, deduction and credit of such corporations are treated as our assets, liabilities
and items of income, gain, loss, deduction and credit. A qualified REIT subsidiary is not subject to U.S. federal income tax, and
our ownership of the stock of a qualified REIT subsidiary will not violate the restrictions on ownership of securities, as described in
the section entitled “Material U.S. Federal Income Tax Considerations – Taxation of Our Company — Asset Tests.”
Ownership
of Interests in Taxable REIT Subsidiaries. We and our operating partnership own interests in one company that will elect,
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 is not treated as holding the assets of a taxable REIT subsidiary or as receiving any income that the taxable REIT
subsidiary earns. Rather, the stock issued by the taxable REIT subsidiary is an asset in the hands of the REIT, and the REIT generally
recognizes as income the dividends, if any, that it receives from the taxable REIT subsidiary. A REIT’s ownership of securities
of a taxable REIT subsidiary is not subject to the 5% or 10% asset test described below. See the section entitled “Material
U.S. Federal Income Tax Considerations – Taxation of Our Company — Asset Tests.” Taxpayers are subject to a limitation
on their ability to deduct net business interest generally equal to 30% of adjusted taxable income, subject to certain exceptions. See
the section entitled “Material U.S. Federal Income Tax Considerations — Taxation of Our Company — Annual Distribution
Requirements.” While not certain, this provision may limit the ability of our taxable REIT subsidiaries to deduct interest,
which could increase their taxable income.
Income
Tests. We must satisfy two gross income requirements annually to maintain our qualification as a REIT. First, in each taxable
year we must derive directly or indirectly at least 75% of our gross income (excluding gross income from prohibited transactions, certain
hedging transactions and certain foreign currency gains) from investments relating to real property or mortgages on real property, including
“rents from real property,” dividends from other REITs and, in certain circumstances, interest, or certain types of temporary
investments. Second, in each taxable year we must derive at least 95% of our gross income (excluding gross income from prohibited transactions,
certain hedging transactions and certain foreign currency gains) from the real property investments described above or dividends, interest
and gain from the sale or disposition of stock or securities, or from any combination of the foregoing. For these purposes, the term “interest”
generally does not include any amount received or accrued, directly or indirectly, if the determination of all or some of the amount depends
in any way on the income or profits of any person. However, an amount received or accrued generally will not be excluded from the term
“interest” solely by reason of being based on a fixed percentage or percentages of receipts or sales.
Rents we receive from a tenant will qualify as
“rents from real property” for the purpose of satisfying the gross income requirements for a REIT described above only if
all of the following conditions are met:
|
·
|
The amount of rent is not based in whole or in part on the income or profits of any person. However, an amount we receive or accrue
generally will not be excluded from the term “rents from real property” solely because it is based on a fixed percentage or
percentages of receipts or sales or if it is based on the net income of a tenant which derives substantially all of its income with respect
to such property from subleasing of substantially all of such property, to the extent that the rents paid by the subtenants would qualify
as rents from real property if we earned such amounts directly;
|
|
·
|
Neither we nor an actual or constructive owner of 10% or more of our capital stock actually or constructively owns 10% or more of
the interests in the assets or net profits of a non-corporate tenant, or, if the tenant is a corporation, 10% or more of the total combined
voting power of all classes of stock entitled to vote or 10% or more of the total value of all classes of stock of the tenant. Rents we
receive from such a tenant that is a taxable REIT subsidiary of ours, however, will not be excluded from the definition of “rents
from real property” as a result of this condition if at least 90% of the space at the property to which the rents relate is leased
to third parties, and the rents paid by the taxable REIT subsidiary are substantially comparable to rents paid by our other tenants for
comparable space. Whether rents paid by a taxable REIT subsidiary are substantially comparable to rents paid by other tenants is determined
at the time the lease with the taxable REIT subsidiary is entered into, extended, and modified, if such modification increases the rents
due under such lease. Notwithstanding the foregoing, however, if a lease with a “controlled taxable REIT subsidiary” is modified
and such modification results in an increase in the rents payable by such taxable REIT subsidiary, any such increase will not qualify
as “rents from real property.” For purposes of this rule, a “controlled taxable REIT subsidiary” is a taxable
REIT subsidiary in which the parent REIT owns stock possessing more than 50% of the voting power or more than 50% of the total value of
the outstanding stock of such taxable REIT subsidiary;
|
|
·
|
Rent attributable to personal property, leased in connection with a lease of real property, is not greater than 15% of the total rent
received under the lease. If this condition is not met, then the portion of the rent attributable to personal property will not qualify
as “rents from real property.” To the extent that rent attributable to personal property, leased in connection with a lease
of real property, exceeds 15% of the total rent received under the lease, we may transfer a portion of such personal property to a taxable
REIT subsidiary; and
|
|
·
|
We generally may not operate or manage the property or furnish or render services to our tenants, subject to a 1% de minimis
exception and except as provided below. We may, however, perform services that are “usually or customarily rendered” in connection
with the rental of space for occupancy only and are not otherwise considered “rendered to the occupant” of the property. Examples
of these services include the provision of light, heat, or other utilities, trash removal and general maintenance of common areas. In
addition, we may employ an independent contractor from whom we derive no revenue to provide customary services to our tenants, or a taxable
REIT subsidiary (which may be wholly or partially owned by us) to provide both customary and non-customary services to our tenants, without
causing the rent we receive from those tenants to fail to qualify as “rents from real property.”
|
We generally do not intend, and, as the general
partner of our operating partnership, we do not intend to permit our operating partnership, 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 is not likely to
be treated as qualifying income for purposes of the gross income tests. We intend to structure any hedging transactions in a manner that
does not jeopardize our status as a REIT.
To the extent our taxable REIT subsidiaries pay
dividends or interest, our allocable share of such dividend or interest income will qualify under the 95%, but not the 75%, gross income
test (except that our allocable share of such interest would also qualify under the 75% gross income test to the extent the interest is
paid on a loan that is adequately secured by real property).
We will monitor the amount of the dividend and
other income from our taxable REIT subsidiaries and will take actions intended to keep this income, and any other nonqualifying income,
within the limitations of the gross income tests. Although we expect these actions will be sufficient to prevent a violation of the gross
income tests, we cannot guarantee that such actions will in all cases prevent such a violation.
If we fail to satisfy one or both of the 75% or
95% gross income tests for any taxable year, we may nevertheless qualify as a REIT for the year if we are entitled to relief under certain
provisions of the Code. We generally may make use of the relief provisions if:
|
·
|
following our identification of the failure to meet the 75% or 95% gross income tests for any taxable year, we file a schedule with
the IRS setting forth each item of our gross income for purposes of the 75% or 95% gross income tests for such taxable year in accordance
with Treasury Regulations to be issued; and
|
|
·
|
our failure to meet these tests was due to reasonable cause and not due to willful neglect.
|
It is not possible, however, to state whether in
all circumstances we would be entitled to the benefit of these relief provisions. For example, if we fail to satisfy the gross income
tests because nonqualifying income that we intentionally accrue or receive exceeds the limits on nonqualifying income, the IRS could conclude
that our failure to satisfy the tests was not due to reasonable cause. If these relief provisions do not apply to a particular set of
circumstances, we will not qualify as a REIT. See the section entitled “Material U.S. Federal Income Tax Considerations
– Taxation of Our Company — Failure to Qualify.” As discussed in the section entitled “Material
U.S. Federal Income Tax Considerations – 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 (other than any foreclosure property) held as inventory
or otherwise held primarily for sale to customers in the ordinary course of business, including our share of any such gain realized by
our operating partnership, either directly or through its subsidiary partnerships, 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. As the general partner of our operating partnership, we intend to cause our operating
partnership to hold its properties for investment with a view to long-term appreciation, to engage in the business of acquiring, developing
and owning its properties and to make occasional sales of the properties as are consistent with our investment objectives. We do not intend,
and do not intend to permit our operating partnership or its subsidiary partnerships, to enter into any sales that are prohibited transactions.
However, the IRS may successfully contend that some or all of the sales made by our operating partnership or its subsidiary partnerships
are prohibited transactions. We would be required to pay the 100% penalty tax on our allocable share of the gains resulting from any such
sales. The 100% penalty tax will not apply to gains from the sale of assets that are held through a taxable REIT subsidiary, but such
income will be subject to regular U.S. federal corporate income tax.
Penalty
Tax. Any redetermined rents, redetermined deductions, excess interest or redetermined TRS service income we generate will
be subject to a 100% penalty tax. In general, redetermined rents are rents from real property that are overstated as a result of any services
furnished to any of our tenants by a taxable REIT subsidiary of ours, redetermined deductions and excess interest represent any amounts
that are deducted by a taxable REIT subsidiary of ours for amounts paid to us that are in excess of the amounts that would have been deducted
based on arm’s length negotiations, and redetermined TRS service income is income of a taxable REIT subsidiary that is understated
as a result of services provided to us or on our behalf. Rents we receive will not constitute redetermined rents if they qualify for certain
safe harbor provisions contained in the Code.
We do not expect to be subject to this penalty
tax, although any rental or service arrangements we enter into from time to time may not satisfy the safe-harbor provisions described
above. These determinations are inherently factual, and the IRS has broad discretion to assert that amounts paid between related parties
should be reallocated to clearly reflect their respective incomes. If the IRS successfully made such an assertion, we would be required
to pay a 100% penalty tax on any overstated rents paid to us, or any excess deductions or understated income of our taxable REIT subsidiaries.
Asset
Tests. At the close of each calendar quarter of our taxable year, we must also satisfy certain tests relating to the nature
and diversification of our assets. First, at least 75% of the value of our total assets must be represented by real estate assets, cash,
cash items and U.S. government securities. For purposes of this test, the term “real estate assets” generally means real
property (including interests in real property and interests in mortgages on real property or on both real property and, to a limited
extent, personal property), shares (or transferable certificates of beneficial interest) in other REITs, any stock or debt instrument
attributable to the investment of the proceeds of a stock offering or a public offering of debt with a term of at least five years (but
only for the one-year period beginning on the date the REIT receives such proceeds), debt instruments of publicly offered REITs, and personal
property leased in connection with a lease of real property for which the rent attributable to personal property is not greater than 15%
of the total rent received under the lease.
Second, not more than 25% of the value of our total
assets may be represented by securities (including securities of taxable REIT subsidiaries), other than those securities includable in
the 75% asset test.
Third, of the investments included in the 25% asset
class, and except for certain investments in other REITs, our qualified REIT subsidiaries and taxable REIT subsidiaries, the value of
any one issuer’s securities may not exceed 5% of the value of our total assets, and we may not own more than 10% of the total vote
or value of the outstanding securities of any one issuer. Certain types of securities we may own are disregarded as securities solely
for purposes of the 10% value test, including, but not limited to, securities satisfying the “straight debt” safe harbor,
securities issued by a partnership that itself would satisfy the 75% income test if it were a REIT, any loan to an individual or an estate,
any obligation to pay rents from real property and any security issued by a REIT. In addition, solely for purposes of the 10% value test,
the determination of our interest in the assets of a partnership in which we own an interest will be based on our proportionate interest
in any securities issued by the partnership, excluding for this purpose certain securities described in the Code. From time to time we
may own securities (including debt securities) of issuers that do not qualify as a REIT, a qualified REIT subsidiary or a taxable REIT
subsidiary. We intend that our ownership of any such securities will be structured in a manner that allows us to comply with the asset
tests described above.
Fourth, not more than 20% of the value of our total
assets may be represented by the securities of one or more taxable REIT subsidiaries. We and our operating partnership own 100% of the
interests in a company that will elect, together with us, to be treated as our taxable REIT subsidiary. So long as this company qualifies
as our taxable REIT subsidiary, 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 may acquire additional interests in companies that will elect, together
with us, to be treated as our taxable REIT subsidiaries. We believe that the aggregate value of our taxable REIT subsidiaries 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 partnership or qualified REIT subsidiary) acquire securities
in the applicable issuer, and also at the close of each calendar quarter in which we increase our ownership of securities of such issuer
(including as a result of an increase in our interest in any partnership that owns such securities). For example, our indirect ownership
of securities of each issuer may increase as a result of our capital contributions to our operating partnership or as limited partners
exercise any redemption/exchange rights. Also, after initially meeting the asset tests at the close of any quarter, we will not lose our
status as a REIT for failure to satisfy the asset tests at the end of a later quarter solely by reason of changes in asset values. If
we fail to satisfy an asset test because we acquire securities or other property during a quarter (including as a result of an increase
in our interest in any partnership), we may cure this failure by disposing of sufficient nonqualifying assets within 30 days after the
close of that quarter. We intend to maintain adequate records of the value of our assets to ensure compliance with the asset tests. If
we fail to cure any noncompliance with the asset tests within the 30-day cure period, we would cease to qualify as a REIT unless we are
eligible for certain relief provisions discussed below.
Certain relief provisions may be available to us
if we discover a failure to satisfy the asset tests described above after the 30-day cure period. Under these provisions, we will be deemed
to have met the 5% and 10% asset tests if the value of our nonqualifying assets (i) does not exceed the lesser of (a) 1% of
the total value of our assets at the end of the applicable quarter or (b) $10,000,000, and (ii) we dispose of the nonqualifying
assets or otherwise satisfy such tests within (a) six months after the last day of the quarter in which the failure to satisfy the
asset tests is discovered or (b) the period of time prescribed by Treasury Regulations to be issued. For violations of any of the
asset tests due to reasonable cause and not due to willful neglect and that are, in the case of the 5% and 10% asset tests, in excess
of the de minimis exception described above, we may avoid disqualification as a REIT after the 30-day cure period by taking steps
including (i) the disposition of sufficient nonqualifying assets, or the taking of other actions, which allow us to meet the asset
tests within (a) six months after the last day of the quarter in which the failure to satisfy the asset tests is discovered or (b) the
period of time prescribed by Treasury Regulations to be issued, (ii) paying a tax equal to the greater of (a) $50,000 or (b) the
U.S. federal corporate income tax rate multiplied by the net income generated by the nonqualifying assets, and (iii) disclosing
certain information to the IRS.
Although we 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 operating partnership’s 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 each year in an amount at least equal to the sum of:
|
·
|
90% of our REIT taxable income; and
|
|
·
|
90% of our after-tax net income, if any, from foreclosure property; minus
|
|
·
|
the excess of the sum of certain items of non-cash income over 5% of our REIT taxable income.
|
For these purposes, our REIT taxable income is
computed without regard to the dividends paid deduction and our net capital gain. In addition, for purposes of this test, non-cash income
generally means income attributable to leveled stepped rents, original issue discount, cancellation of indebtedness, or a like-kind exchange
that is later determined to be taxable.
In addition, our REIT taxable income will be reduced
by any taxes we are required to pay on any gain we recognize from the disposition of any asset we acquired from a corporation that is
or has been a C corporation in a transaction in which our tax basis in the asset is less than the fair market value of the asset, in each
case determined as of the date on which we acquired the asset, within the five-year period following our acquisition of such asset, as
described in the section entitled “Material U.S. Federal Income Tax Considerations – Taxation of Our Company –
General.”
Except as provided below, a taxpayer’s deduction
for net business interest expense will generally be limited to 30% of its 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, subject to special rules applicable to partnerships. If we or any of our subsidiary partnerships (including our operating
partnership to the extent it is treated as a partnership, rather than a disregarded entity, for federal income tax purposes) 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 or any of our subsidiary partnerships that are subject to this interest expense
limitation will be eligible to make this election. If such election is made, although we or such subsidiary partnership, as applicable,
would not be subject to the interest expense limitation described above, 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 dividend limitation will not apply to distributions made by us, provided
we qualify as a “publicly offered REIT.” We believe that we will be 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 regular U.S. federal corporate income tax on the undistributed amount. We
believe that we will make timely distributions sufficient to satisfy these annual distribution requirements and to minimize our corporate
tax obligations.
We expect that our REIT taxable income will be
less than our cash flow because of depreciation and other non-cash charges included in computing REIT taxable income. Accordingly, we
anticipate that we generally will have sufficient cash or liquid assets to enable us to satisfy the distribution requirements described
above. However, from time to time, we may not have sufficient cash or other liquid assets to meet these distribution requirements due
to timing differences between the actual receipt of income and actual payment of deductible expenses, and the inclusion of income and
deduction of expenses in determining our taxable income. In addition, we may decide to retain our cash, rather than distribute it, in
order to repay debt or for other reasons. If these timing differences occur, we may borrow funds to pay dividends or pay dividends in
the form of taxable stock distributions in order to meet the distribution requirements, while preserving our cash.
Under some circumstances, we may be able to rectify
an inadvertent failure to meet the 90% distribution requirement for a year by paying “deficiency dividends” to our stockholders
in a later year, which may be included in our deduction for dividends paid for the earlier year. In that case, we may be able to avoid
being taxed on amounts distributed as deficiency dividends, subject to the 4% excise tax described below. However, we will be required
to pay interest to the IRS based upon the amount of any deduction claimed for deficiency dividends. While the payment of a deficiency
dividend will apply to a prior year for purposes of our REIT distribution requirements, it will be treated as an additional distribution
to our stockholders in the year such dividend is paid.
Furthermore, we will be required to pay a 4% excise
tax to the extent we fail to distribute during each calendar year at least the sum of 85% of our ordinary income for such year, 95% of
our capital gain net income for the year and any undistributed taxable income from prior periods. Any ordinary income and net capital
gain on which U.S. federal corporate income tax is imposed for any year is treated as an amount distributed during that year for
purposes of calculating this excise tax.
For purposes of the 90% distribution requirement
and excise tax described above, dividends declared during the last three months of the taxable year, payable to stockholders of record
on a specified date during such period and paid during January of the following year, will be treated as paid by us and received
by our stockholders on December 31 of the year in which they are declared.
Like-Kind
Exchanges. We may dispose of real property that is not held primarily for sale in transactions intended to qualify as like-kind
exchanges under the Code. Such like-kind exchanges are intended to result in the deferral of gain for U.S. federal income tax purposes.
The failure of any such transaction to qualify as a like-kind exchange could require us to pay U.S. federal income tax, possibly
including the 100% prohibited transaction tax, or deficiency dividends, depending on the facts and circumstances surrounding the particular
transaction.
Tax
Liabilities and Attributes Inherited in Connection with Acquisitions. From time to time, we or our operating partnership
may acquire other corporations or entities and, in connection with such acquisitions, we may succeed to the historical tax attributes
and liabilities of such entities. For example, if we acquire a C corporation and subsequently dispose of its assets within five years
of the acquisition, we could be required to pay the built-in gain tax described in the section entitled “Material U.S. Federal
Income Tax Considerations – Taxation of Our Company – 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) regular U.S. federal corporate
income tax on its taxable income for such taxable years. In addition, if such REIT was a C corporation at the time of the merger or acquisition,
the tax consequences described in the preceding paragraph generally would apply. If such REIT failed to qualify as a REIT for any of its
taxable years, but qualified as a REIT at the time of such merger or acquisition, and we acquired such REIT’s assets in a transaction
in which our tax basis in the assets of such REIT is determined, in whole or in part, by reference to such REIT’s tax basis in such
assets, we generally would be subject to tax on the built-in gain on each asset of such REIT as described above if we were to dispose
of the asset in a taxable transaction during the five-year period following such REIT’s requalification as a REIT, subject to certain
exceptions. Moreover, even if such REIT qualified as a REIT at all relevant times, we would similarly be liable for other unpaid taxes
(if any) of such REIT (such as the 100% tax on gains from any sales treated as “prohibited transactions” as described in the
section entitled “Material U.S. Federal Income Tax Considerations – Taxation of Our Company – 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 regular U.S. federal
corporate income tax on our taxable income. Distributions to stockholders in any year in which we fail to qualify as a REIT will not be
deductible by us. As a result, we anticipate that our failure to qualify as a REIT would reduce the cash available for distribution by
us to our stockholders. In addition, if we fail to qualify as a REIT, we will not be required to distribute any amounts to our stockholders
and all distributions to stockholders will be taxable as regular corporate dividends to the extent of our current and accumulated earnings
and profits. In such event, corporate stockholders 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. Non-corporate stockholders, including
individuals, generally may deduct up to 20% of dividends from a REIT, other than capital gain dividends and dividends treated as qualified
dividend income, for taxable years beginning before January 1, 2026 for purposes of determining their U.S. federal income tax
(but not for purposes of the 3.8% Medicare tax), subject to certain holding period requirements and other limitations. 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 Our Operating Partnership, the Subsidiary Partnerships
and the Limited Liability Companies
General.
All of our investments are held indirectly through our operating partnership. In addition, our operating partnership holds
certain of its 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 of such partnerships are allocated their shares of the items of income,
gain, loss, deduction and credit of the partnership, and are potentially required to pay tax on this income, without regard to whether
they receive a distribution from the partnership. We will include in our income our share of these partnership items for purposes of the
various gross income tests, the computation of our REIT taxable income, and the REIT distribution requirements. Moreover, for purposes
of the asset tests, we will include our pro rata share of assets held by our operating partnership (to the extent it is treated as a partnership
rather than a disregarded entity for federal income tax purposes), including its share of the assets of its subsidiary partnerships, based
on our capital interests in each such entity. See the section entitled “Material U.S. Federal Income Tax Considerations
— Taxation of Our Company — Ownership of Interests in Partnerships, Limited Liability Companies and Qualified REIT Subsidiaries.”
A disregarded entity is not treated as a separate entity for U.S. federal income tax purposes, and all assets, liabilities and items
of income, gain, loss, deduction and credit of a disregarded entity are treated as assets, liabilities and items of income, gain, loss,
deduction and credit of its parent that is not a disregarded entity for all purposes under the Code, including all REIT qualification
tests.
Entity
Classification. Our interests in our operating partnership and any subsidiary partnerships and limited liability companies
involve special tax considerations, including the possibility that the IRS might challenge the status of these entities as partnerships
or disregarded entities for U.S. federal income tax purposes. For example, an entity that would otherwise be treated as a partnership
for U.S. federal income tax purposes may nonetheless be taxable as a corporation if it is a “publicly traded partnership”
and certain other requirements are met. A partnership would be treated as a publicly traded partnership if its interests are traded on
an established securities market or are readily tradable on a secondary market or a substantial equivalent thereof, within the meaning
of applicable Treasury Regulations. We do not anticipate that our operating partnership or any subsidiary partnership will be treated
as a publicly traded partnership that is taxable as a corporation. However, if any such entity were treated as a corporation, it would
be required to pay an entity-level tax on its income. In this situation, the character of our assets and items of gross income would change
and could prevent us from satisfying the REIT asset tests and possibly the REIT income tests. See the sections entitled “Material
U.S. Federal Income Tax Considerations — Taxation of Our Company —Asset Tests” and “Material U.S. Federal
Income Tax Considerations — Taxation of Our Company — Income Tests,” respectively. This, in turn, could prevent
us from qualifying as a REIT. See the section entitled “Material U.S. Federal Income Tax Considerations – Taxation
of Our Company — 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 our operating partnership or a subsidiary treated as a partnership or disregarded entity to a corporation
might be treated as a taxable event. If so, we might incur a tax liability without any related cash payment. We believe our operating
partnership and any 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 Items 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 operating partnership and any 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, items of income, gain, loss and
deduction attributable to appreciated or depreciated property that is contributed to a partnership in exchange for an interest in the
partnership must be allocated in a manner so that the contributing partner is charged with the unrealized gain or benefits from the unrealized
loss associated with the property at the time of the contribution. The amount of the unrealized gain or unrealized loss generally is equal
to the difference between the fair market value or book value and the adjusted tax basis of the contributed property at the time of contribution
(this difference is referred to as a book-tax difference), as adjusted from time to time. These allocations are solely for U.S. federal
income tax purposes and do not affect the book capital accounts or other economic or legal arrangements among the partners.
Our operating partnership may, from time to time,
acquire interests in property in exchange for interests in our operating partnership. In that case, the tax basis of these property interests
generally will carry over to our operating partnership, notwithstanding their different book (i.e., fair market) value. The partnership
agreement requires that income and loss allocation with respect to these properties be made in a manner consistent with Section 704(c) of
the Code. Treasury Regulations issued under Section 704(c) of the Code provide partnerships with a choice of several methods
of accounting for book-tax differences. Depending on the method we choose in connection with any particular contribution, the carryover
basis of each of the contributed interests in the properties in the hands of our operating 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 our operating 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 the sections entitled
“Material U.S. Federal Income Tax Considerations — Taxation of Our Company — Requirements for Qualification as a
REIT” and “Material U.S. Federal Income Tax Considerations — Taxation of Our Company — Annual Distribution
Requirements,” respectively.
Any property acquired by our operating partnership
in a taxable transaction will initially have a tax basis equal to its fair market value, and Section 704(c) of the Code generally
will not apply.
Partnership
Audit Rules. The Bipartisan Budget Act of 2015 changed the rules applicable to U.S. federal income tax audits
of partnerships. Under these rules, 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. It is possible that these rules could result in partnerships in which we directly or indirectly invest,
including our operating partnership, 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. Investors are urged to consult their tax advisors with respect to these changes and their potential impact
on their investment in our capital stock.
Material U.S. Federal Income Tax Consequences to Holders of
Our Capital 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 capital. This discussion is limited to holders
who hold our capital stock as “capital assets” within the meaning of Section 1221 of the Code (generally, property held
for investment). This discussion does not address all U.S. federal income tax consequences relevant to a holder’s particular
circumstances, including the alternative minimum tax. In addition, except where specifically noted, it does not address consequences relevant
to holders subject to special rules, including, without limitation:
|
·
|
U.S. expatriates and former citizens or long-term residents of the United States;
|
|
·
|
U.S. holders (as defined below) whose functional currency is not the U.S. dollar;
|
|
·
|
persons holding our capital stock as part of a hedge, straddle or other risk reduction strategy or as part of a conversion transaction
or other integrated investment;
|
|
·
|
banks, insurance companies, and other financial institutions;
|
|
·
|
REITs or regulated investment companies;
|
|
·
|
brokers, dealers or traders in securities;
|
|
·
|
“controlled foreign corporations,” “passive foreign investment companies,” and corporations that accumulate
earnings to avoid U.S. federal income tax;
|
|
·
|
S corporations, partnerships or other entities or arrangements treated as partnerships for U.S. federal income tax purposes (and
investors therein);
|
|
·
|
tax-exempt organizations or governmental organizations;
|
|
·
|
persons subject to special tax accounting rules as a result of any item of gross income with respect to our capital stock being
taken into account in an applicable financial statement;
|
|
·
|
persons deemed to sell our capital stock under the constructive sale provisions of the Code; and
|
|
·
|
persons who hold or receive our capital stock pursuant to the exercise of any employee stock option or otherwise as compensation.
|
THIS DISCUSSION IS FOR INFORMATIONAL PURPOSES
ONLY AND IS NOT INTENDED AS TAX ADVICE. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL
INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR CAPITAL
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 capital stock that, for U.S. federal income tax purposes, is or is treated as:
|
·
|
an individual who is a citizen or resident of the United States;
|
|
·
|
a corporation created or organized under the laws of the United States, any state thereof, or the District of Columbia;
|
|
·
|
an estate, the income of which is subject to U.S. federal income tax regardless of its source; or
|
|
·
|
a trust that (1) is subject to the primary supervision of a U.S. court and the control of one or more “United States
persons” (within the meaning of Section 7701(a)(30) of the Code) or (2) has a valid election in effect to be treated as
a United States person for U.S. federal income tax purposes.
|
For purposes of this discussion, a “non-U.S. holder”
is any beneficial owner of our capital that is neither a U.S. holder nor an entity treated as a partnership for U.S. federal
income tax purposes.
If an entity treated as a partnership for U.S. federal
income tax purposes holds our capital stock, the tax treatment of a partner in the partnership will depend on the status of the partner,
the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding our capital
and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.
Taxation of Taxable U.S. Holders of Our Capital Stock
Distributions
Generally. Distributions out of our current or accumulated earnings and profits will be treated as dividends and, other
than with respect to capital gain dividends and certain amounts which have previously been subject to corporate level tax, as discussed
below, will be taxable to our taxable U.S. holders as ordinary income when actually or constructively received. See the section entitled
“Material U.S. Federal Income Tax Considerations – Taxation of Taxable U.S. Holders of Our Capital Stock – Tax
Rates.” 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 the section entitled “Material U.S.
Federal Income Tax Considerations – Taxation of Taxable U.S. Holders of Our Capital Stock – Tax Rates,” the
preferential rates on qualified dividend income applicable to non-corporate U.S. holders, including individuals. For purposes of
determining whether distributions to holders of our capital stock are out of our current or accumulated earnings and profits, our earnings
and profits will be allocated first to our outstanding preferred stock, if any, and then to our outstanding common stock.
To the extent that we make distributions on our
capital stock in excess of our current and accumulated earnings and profits allocable to such stock, these distributions will be treated
first as a tax-free return of capital to a U.S. holder to the extent of the U.S. holder’s adjusted tax basis in such shares
of stock. This treatment will reduce the U.S. holder’s adjusted tax basis in such shares of stock by such amount, 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 capital 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 capital stock generally is equal to the amount of cash that could have been received instead of the capital 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 capital 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 capital stock pursuant to such distribution
generally has a tax basis in such capital stock equal to the amount of cash that could have been received instead of such capital stock
as described above, and has a holding period in such capital 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:
|
·
|
include its pro rata share of our undistributed capital gain in computing its long-term capital gains in its U.S. federal income
tax return for its taxable year in which the last day of our taxable year falls, subject to certain limitations as to the amount that
is includable;
|
|
·
|
be deemed to have paid its share of the capital gains tax imposed on us on the designated amounts included in the U.S. holder’s
income as long-term capital gain;
|
|
·
|
receive a credit or refund for the amount of tax deemed paid by it;
|
|
·
|
increase the adjusted tax basis of its capital stock by the difference between the amount of includable gains and the tax deemed to
have been paid by it; and
|
|
·
|
in the case of a U.S. holder that is a corporation, appropriately adjust its earnings and profits for the retained capital gains
in accordance with Treasury Regulations to be promulgated by the IRS.
|
Passive
Activity Losses and Investment Interest Limitations. Distributions we make and gain arising from the sale or exchange of
our capital stock by a U.S. holder will not be treated as passive activity income. As a result, U.S. holders generally will
not be able to apply any “passive losses” against this income or gain. A U.S. holder generally may elect to treat capital
gain dividends, capital gains from the disposition of our capital stock and income designated as qualified dividend income, as described
in the section entitled “Material U.S. Federal Income Tax Considerations – Taxation of Taxable U.S. Holders of
Our Capital Stock – Tax Rates,” as investment income for purposes of computing the investment interest limitation, but
in such case, the holder will be taxed at ordinary income rates on such amount. Other distributions made by us, to the extent they do
not constitute a return of capital, generally will be treated as investment income for purposes of computing the investment interest limitation.
Dispositions
of Our Capital Stock. Except as described in the section entitled “Material U.S. Federal Income Tax Considerations
– Taxation of Taxable U.S. Holders of Our Capital Stock – Redemption or Repurchase by Us,” if a U.S. holder
sells or disposes of shares of our capital stock, it will recognize gain or loss for U.S. federal income tax purposes in an amount
equal to the difference between the amount of cash and the fair market value of any property received on the sale or other disposition
and the holder’s adjusted tax basis in the shares. This gain or loss, except as provided below, will be long-term capital gain or
loss if the holder has held such capital stock for more than one year. However, if a U.S. holder recognizes a loss upon the sale
or other disposition of capital stock that it has held for six months or less, after applying certain holding period rules, the loss recognized
will be treated as a long-term capital loss to the extent the U.S. holder received distributions from us which were required to be
treated as long-term capital gains.
Redemption
or Repurchase by Us. A redemption or repurchase of shares of our capital stock will be treated under Section 302 of
the Code as a distribution (and taxable as a dividend to the extent of our current and accumulated earnings and profits as described in
the section entitled “Material U.S. Federal Income Tax Considerations – Taxation of Taxable U.S. Holders of Our Capital
Stock – Distributions Generally”) unless the redemption or repurchase satisfies one of the tests set forth in Section 302(b) of
the Code and is therefore treated as a sale or exchange of the redeemed or repurchased shares. The redemption or repurchase generally
will be treated as a sale or exchange if it:
|
•
|
is “substantially disproportionate” with respect
to the U.S. holder,
|
|
•
|
results in a “complete redemption” of the U.S. holder’s
stock interest in us, or
|
|
•
|
is “not essentially equivalent to a dividend” with
respect to the U.S. holder,
|
all within the meaning of Section 302(b) of
the Code.
In determining whether any of these tests has been
met, shares of our capital stock, including common stock and other equity interests in us, considered to be owned by the U.S. holder by
reason of certain constructive ownership rules set forth in the Code, as well as shares of our capital stock actually owned by the
U.S. holder, generally must be taken into account. Because the determination as to whether any of the alternative tests of Section 302(b) of
the Code will be satisfied with respect to the U.S. holder depends upon the facts and circumstances at the time that the determination
must be made, U.S. holders are advised to consult their tax advisors to determine such tax treatment.
If a redemption or repurchase of shares of our
capital stock is treated as a distribution, the amount of the distribution will be measured by the amount of cash and the fair market
value of any property received. See the section entitled “Material U.S. Federal Income Tax Considerations – Taxation of
Taxable U.S. Holders of Our Capital Stock – Distributions Generally.” A U.S. holder’s adjusted tax basis in
the redeemed or repurchased shares generally will be transferred to the holder’s remaining shares of our capital stock, if any.
If a U.S. holder owns no other shares of our capital stock, under certain circumstances, such basis may be transferred to a related person
or it may be lost entirely. Prospective investors should consult their tax advisors regarding the U.S. federal income tax consequences
of a redemption or repurchase of our capital stock.
If a redemption or repurchase of shares of our
capital stock is not treated as a distribution, it will be treated as a taxable sale or exchange in the manner described in the section
entitled “Material U.S. Federal Income Tax Considerations – Taxation of Taxable U.S. Holders of Our Capital Stock
– Dispositions of Our Capital Stock.”
Tax
Rates. The maximum tax rate for non-corporate taxpayers for (1) long-term capital gains, including certain “capital
gain dividends,” generally is 20% (although depending on the characteristics of the assets which produced these gains and on designations
which we may make, certain capital gain dividends may be taxed at a 25% rate) and (2) “qualified dividend income” generally
is 20%. In general, dividends payable by REITs are not eligible for the reduced tax rate on qualified dividend income, except to the extent
that certain holding period requirements have been met and the REIT’s dividends are attributable to dividends received from taxable
corporations (such as its taxable REIT subsidiaries) or to income that was subject to tax at the corporate/REIT level (for example, if
the REIT distributed taxable income that it retained and paid tax on in the prior taxable year). Capital gain dividends will only be eligible
for the rates described above to the extent that they are properly designated by the REIT as “capital gain dividends.” U.S. holders
that are corporations may be required to treat up to 20% of some capital gain dividends as ordinary income. In addition, non-corporate
U.S. holders, including individuals, generally may deduct up to 20% of dividends from a REIT, other than capital gain dividends and
dividends treated as qualified dividend income, for taxable years beginning before January 1, 2026 for purposes of determining their
U.S. federal income tax (but not for purposes of the 3.8% Medicare tax), subject to certain holding period requirements and other
limitations.
Taxation of Tax-Exempt Holders of Our Capital Stock
Dividend income from us and gain arising upon a
sale of our capital 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 or supplemental unemployment benefit trusts exempt from U.S. federal income taxation under Sections 501(c)(7),
(c)(9) or (c)(17) of the Code, respectively, income from an investment in our shares will constitute UBTI unless the organization
is able to properly claim a deduction for amounts set aside or placed in reserve for specific purposes so as to offset the income generated
by its investment in our shares. These prospective investors should consult their tax advisors concerning these “set aside”
and reserve requirements.
Notwithstanding the above, however, a portion of
the dividends paid by a “pension-held REIT” may be treated as UBTI as to certain trusts that hold more than 10%, by value,
of the interests in the REIT. A REIT will not be a “pension-held REIT” if it is able to satisfy the “not closely held”
requirement without relying on the “look-through” exception with respect to certain trusts or if such REIT is not “predominantly
held” by “qualified trusts.” As a result of restrictions on ownership and transfer of our stock contained in our charter,
we do not expect to be classified as a “pension-held REIT,” and as a result, the tax treatment described above should be inapplicable
to our holders. However, because our common stock is (and, we anticipate, will continue to be) publicly traded, we cannot guarantee that
this will always be the case.
Taxation of Non-U.S. Holders of Our Capital Stock
The following discussion addresses the rules governing
U.S. federal income taxation of the purchase, ownership and disposition of our capital stock by non-U.S. holders. These rules are
complex, and no attempt is made herein to provide more than a brief summary of such rules. Accordingly, the discussion does not address
all aspects of U.S. federal income taxation and does not address other federal, state, local or non-U.S. tax consequences that
may be relevant to a non-U.S. holder in light of its particular circumstances. We urge non-U.S. holders to consult their tax
advisors to determine the impact of U.S. federal, state, local and non-U.S. income and other tax laws and any applicable tax
treaty on the purchase, ownership and disposition of shares of our capital stock, including any reporting requirements.
Distributions
Generally. Distributions (including any taxable stock distributions) that are neither attributable to gains from sales
or exchanges by us of United States real property interests, or USRPIs, nor designated by us as capital gain dividends (except as described
below) will be treated as dividends of ordinary income to the extent that they are made out of our current or accumulated earnings and
profits. Such distributions ordinarily will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate
as may be specified by an applicable income tax treaty, unless the distributions are treated as effectively connected with the conduct
by the non-U.S. holder of a trade or business within the United States (and, if required by an applicable income tax treaty, the
non-U.S. holder maintains a permanent establishment in the United States to which such dividends are attributable). Under certain
treaties, however, lower withholding rates generally applicable to dividends do not apply to dividends from a REIT. Certain certification
and disclosure requirements must be satisfied for a non-U.S. holder to be exempt from withholding under the effectively connected
income exemption. Dividends that are treated as effectively connected with a U.S. trade or business generally will not be subject
to withholding but will be subject to U.S. federal income tax on a net basis at the regular 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:
(1) a
lower treaty rate applies and the non-U.S. holder furnishes an IRS Form W-8BEN or W-8BEN-E (or other applicable documentation)
evidencing eligibility for that reduced treaty rate; or
(2) the
non-U.S. holder furnishes an IRS Form W-8ECI (or other applicable documentation) claiming that the distribution is income effectively
connected with the non-U.S. holder’s trade or business.
Distributions in excess of our current and accumulated
earnings and profits will not be taxable to a non-U.S. holder to the extent that such distributions do not exceed the adjusted tax
basis of the holder’s capital stock, but rather will reduce the adjusted tax basis of such stock. To the extent that such distributions
exceed the non-U.S. holder’s adjusted tax basis in such capital stock, they generally will give rise to gain from the sale
or exchange of such stock, the tax treatment of which is described below. However, such excess distributions may be treated as dividend
income for certain non-U.S. holders. For withholding purposes, we expect to treat all distributions as made out of our current or
accumulated earnings and profits. However, amounts withheld may be refundable if it is subsequently determined that the distribution was,
in fact, in excess of our current and accumulated earnings and profits, provided that certain conditions are met.
Capital
Gain Dividends and Distributions Attributable to a Sale or Exchange of United States Real Property Interests. Distributions
to a non-U.S. holder that we properly designate as capital gain dividends, other than those arising from the disposition of a USRPI,
generally should not be subject to U.S. federal income taxation, unless:
(1) the
investment in our capital stock is treated as effectively connected with the conduct by the non-U.S. holder of a trade or business
within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment
in the United States to which such dividends are attributable), in which case the non-U.S. holder will be subject to the same treatment
as U.S. holders with respect to such gain, except that a non-U.S. holder that is a corporation may also be subject to a branch
profits tax of up to 30%, as discussed above; or
(2) the
non-U.S. holder is a nonresident alien individual who is present in the United States for 183 days or more during the taxable year
and certain other conditions are met, in which case the non-U.S. holder will be subject to U.S. federal income tax at a rate
of 30% on the non-U.S. holder’s capital gains (or such lower rate specified by an applicable income tax treaty), which may
be offset by U.S. source capital losses of such non-U.S. holder (even though the individual is not considered a resident of
the United States), provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses.
Pursuant
to the Foreign Investment in Real Property Tax Act, or 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 rates applicable to U.S. holders, subject to any applicable alternative minimum tax and a special alternative
minimum tax in the case of nonresident alien individuals. We also will be required to withhold and to remit to the IRS 21% of any distribution
to non-U.S. holders attributable to gain from sales or exchanges by us of USRPIs. Distributions subject to FIRPTA may also be subject
to a 30% branch profits tax in the hands of a non-U.S. holder that is a corporation. The amount withheld is creditable against the
non-U.S. holder’s U.S. federal income tax liability. However, any distribution with respect to any class of stock that
is “regularly traded,” as defined by applicable Treasury Regulations, on an established securities market located in the United
States is not subject to FIRPTA, and therefore, not subject to the 21% U.S. withholding tax described above, if the non-U.S. holder
did not own more than 10% of such class of stock at any time during the one-year period ending on the date of the distribution. Instead,
such distributions generally will be treated as ordinary dividend distributions and subject to withholding in the manner described above
with respect to ordinary dividends. In addition, distributions to certain non-U.S. publicly traded shareholders that meet certain
record-keeping and other requirements, or qualified shareholders, are exempt from FIRPTA, except to the extent owners of such qualified
shareholders that are not also qualified shareholders own, actually or constructively, more than 10% of our capital stock. Furthermore,
distributions to “qualified foreign pension funds” or entities all of the interests of which are held by “qualified
foreign pension funds” are exempt from FIRPTA. Non-U.S. holders should consult their tax advisors regarding the application
of these rules.
Retention
of Net Capital Gains. Although the law is not clear on the matter, it appears that amounts we designate as retained net
capital gains in respect of our capital stock should be treated with respect to non-U.S. holders as actual distributions of capital
gain dividends. Under this approach, the non-U.S. holders may be able to offset as a credit against their U.S. federal income
tax liability their proportionate share of the tax paid by us on such retained net capital gains and to receive from the IRS a refund
to the extent their proportionate share of such tax paid by us exceeds their actual U.S. federal income tax liability. If we were
to designate any portion of our net capital gain as retained net capital gain, non-U.S. holders should consult their tax advisors
regarding the taxation of such retained net capital gain.
Sale
of Our Capital Stock. Except as described in the section entitled “Material U.S. Federal Income Tax Considerations
– Taxation of Non-U.S. Holders of Our Capital Stock – Redemption or Repurchase by Us,” gain realized
by a non-U.S. holder upon the sale, exchange or other taxable disposition of our capital stock generally will not be subject to U.S. federal
income tax unless such stock constitutes a USRPI. In general, stock of a domestic corporation that constitutes a “United States
real property holding corporation,” or USRPHC, will constitute a USRPI. We believe that we will be a USRPHC. Our capital stock will
not, however, constitute a USRPI so long as we are a “domestically controlled qualified investment entity.” A “domestically
controlled qualified investment entity” includes a REIT in which at all times during a five-year testing period less than 50% in
value of its stock is held directly or indirectly by non-United States persons, subject to certain rules. For purposes of determining
whether a REIT is a “domestically controlled qualified investment entity,” a person who at all applicable times holds less
than 5% of a class of stock that is “regularly traded” is treated as a United States person unless the REIT has actual knowledge
that such person is not a United States person. We believe, but cannot guarantee, that we are a “domestically controlled qualified
investment entity.” Because our common stock is (and, we anticipate, will continue to be) publicly traded, no assurance can be given
that we will continue to be a “domestically controlled qualified investment entity.”
Even if we do not qualify as a “domestically
controlled qualified investment entity” at the time a non-U.S. holder sells our capital stock, gain realized from the sale
or other taxable disposition by a non-U.S. holder of such capital stock would not be subject to U.S. federal income tax under
FIRPTA as a sale of a USRPI if:
(1) such
class of stock is “regularly traded,” as defined by applicable Treasury Regulations, on an established securities market such
as The Nasdaq Stock Market LLC; and
(2) such
non-U.S. holder owned, actually and constructively, 10% or less of our capital 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.
In
addition, dispositions of our capital stock by qualified shareholders are exempt from FIRPTA, except to the extent owners of such qualified
shares that are not also qualified shareholders own, actually or constructively, more than 10% of our capital stock. Furthermore,
dispositions of our capital stock by “qualified foreign pension funds” or entities all of the interests of which are held
by “qualified foreign pension funds” are exempt from FIRPTA. Non-U.S. holders should consult their tax advisors regarding
the application of these rules.
Notwithstanding the foregoing, gain from the sale,
exchange or other taxable disposition of our capital stock not otherwise subject to FIRPTA will be taxable to a non-U.S. holder if
either (a) the investment in our capital stock is treated as effectively connected with the conduct by the non-U.S. holder of
a trade or business within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder maintains
a permanent establishment in the United States to which such gain is attributable), in which case the non-U.S. holder will be subject
to the same treatment as U.S. holders with respect to such gain, except that a non-U.S. holder that is a corporation may also
be subject to the 30% branch profits tax (or such lower rate as may be specified by an applicable income tax treaty) on such gain, as
adjusted for certain items, or (b) the non-U.S. holder is a nonresident alien individual who is present in the United States
for 183 days or more during the taxable year and certain other conditions are met, in which case the non-U.S. holder will be subject
to a 30% tax on the non-U.S. holder’s capital gains (or such lower rate specified by an applicable income tax treaty), which
may be offset by U.S. source capital losses of the non-U.S. holder (even though the individual is not considered a resident
of the United States), provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses.
In addition, even if we are a domestically controlled qualified investment entity, upon disposition of our capital stock, a non-U.S. holder
may be treated as having gain from the sale or other taxable disposition of a USRPI if the non-U.S. holder (1) disposes of such
stock within a 30-day period preceding the ex-dividend date of a distribution, any portion of which, but for the disposition, would have
been treated as gain from the sale or exchange of a USRPI and (2) acquires, or enters into a contract or option to acquire, or is
deemed to acquire, other shares of that stock during the 61-day period beginning with the first day of the 30-day period described in
clause (1), unless such stock is “regularly traded” and the non-U.S. holder did not own more than 10% of the stock at
any time during the one-year period ending on the date of the distribution described in clause (1).
If gain on the sale, exchange or other taxable
disposition of our capital stock were subject to taxation under FIRPTA, the non-U.S. holder would be required to file a U.S. federal
income tax return and would be subject to regular U.S. federal income tax with respect to such gain in the same manner as a taxable
U.S. holder (subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien
individuals). In addition, if the sale, exchange or other taxable disposition of our capital stock were subject to taxation under FIRPTA,
and if shares of the applicable class of our capital stock were not “regularly traded” on an established securities market,
the purchaser of such capital stock generally would be required to withhold and remit to the IRS 15% of the purchase price.
Redemption
or Repurchase by Us. A redemption or repurchase of shares of our capital stock will be treated under Section 302 of
the Code as a distribution (and taxable as a dividend to the extent of our current and accumulated earnings and profits) unless the redemption
or repurchase satisfies one of the tests set forth in Section 302(b) of the Code and is therefore treated as a sale or exchange
of the redeemed or repurchased shares. See the section entitled “Material U.S. Federal Income Tax Considerations – Taxation
of Taxable U.S. Holders of Our Capital Stock – Redemption or Repurchase by Us.” Qualified shareholders and their owners
may be subject to different rules and should consult their tax advisors regarding the application of such rules. If the redemption
or repurchase of shares is treated as a distribution, the amount of the distribution will be measured by the amount of cash and the fair
market value of any property received. See the section entitled “Material U.S. Federal Income Tax Considerations – Taxation
of Non-U.S. Holders of Our Capital Stock – Distributions Generally.” If the redemption or repurchase of shares is not
treated as a distribution, it will be treated as a taxable sale or exchange in the manner described in the section entitled “Material
U.S. Federal Income Tax Considerations – Taxation of Non-U.S. Holders of Our Capital Stock – Sale of Our Capital Stock.”
Information Reporting and Backup Withholding
U.S. Holders.
A U.S. holder may be subject to information reporting and backup withholding when such holder receives payments on
our capital stock or 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:
|
·
|
the holder fails to furnish the holder’s taxpayer identification number, which for an individual is ordinarily his or her social
security number;
|
|
·
|
the holder furnishes an incorrect taxpayer identification number;
|
|
·
|
the applicable withholding agent is notified by the IRS that the holder previously failed to properly report payments of interest
or dividends; or
|
|
·
|
the holder fails to certify under penalties of perjury that the holder has furnished a correct taxpayer identification number and
that the IRS has not notified the holder that the holder is subject to backup withholding.
|
Backup withholding is not an additional tax. Any
amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a U.S. holder’s U.S. federal
income tax liability, provided the required information is timely furnished to the IRS. U.S. holders should consult their tax
advisors regarding their qualification for an exemption from backup withholding and the procedures for obtaining such an exemption.
Non-U.S. Holders.
Payments of dividends on our capital stock 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 distributions on our capital stock paid to the
non-U.S. holder, regardless of whether such distributions constitute a dividend or 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, subject to certain limitations. U.S. holders should consult their tax advisors regarding the effect,
if any, of these rules on their ownership and disposition of our capital 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 capital stock (subject to the proposed Treasury Regulations discussed below) gross proceeds from the sale
or other disposition of our capital stock, in each case paid to a “foreign financial institution” or a “non-financial
foreign entity” (each as defined in the Code), unless (1) the foreign financial institution undertakes certain diligence and
reporting obligations, (2) the non-financial foreign entity either certifies it does not have any “substantial United States
owners” (as defined in the Code) or furnishes identifying information regarding each substantial United States owner, or (3) the
foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a
foreign financial institution and is subject to the diligence and reporting requirements in clause (1) above, it must enter into
an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held
by certain “specified United States persons” or “United States owned foreign entities” (each as defined in the
Code), annually report certain information about such accounts, and withhold 30% on certain payments to non-compliant foreign financial
institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental
agreement with the United States governing FATCA may be subject to different rules.
Under the applicable Treasury Regulations and administrative
guidance, withholding under FATCA generally applies to payments of dividends on our capital stock. While withholding under FATCA would
have applied also to payments of gross proceeds from the sale or other disposition of stock on or after January 1, 2019, proposed
Treasury Regulations eliminate FATCA withholding on payments of gross proceeds entirely. Taxpayers generally may rely on these proposed
Treasury Regulations until final Treasury Regulations are issued. Because we may not know the extent to which a distribution is a dividend
for U.S. federal income tax purposes at the time it is made, for purposes of these withholding rules we may treat the entire
distribution as a dividend.
Prospective investors should consult their tax
advisors regarding the potential application of withholding under FATCA to their investment in our capital stock.
Other Tax Consequences
State, local and non-U.S. income tax laws
may differ substantially from the corresponding U.S. federal income tax laws, and this discussion does not purport to describe any
aspect of the tax laws of any state, local or non-U.S. jurisdiction, or any U.S. federal tax other than the income tax. You
should consult your tax advisor regarding the effect of state, local and non-U.S. tax laws with respect to our tax treatment as a
REIT and on an investment in our capital stock.
SELLING
SECURITYHOLDERS
In August 2020, we entered
into a securities purchase agreement, or the Securities Purchase Agreement, with CM Change Industrial LP, an investment entity managed
by Conversant Capital LLC (formerly known as Cambiar Management LLC), together with their affiliates, the selling securityholders. Pursuant
to the Securities Purchase Agreement, we (i) sold 504,590 additional shares of our common stock and (ii) issued a warrant to
acquire 504,590 additional shares of our common stock at an exercise price of $60.00 per share, each to the selling securityholders.
Pursuant to the Securities Purchase Agreement,
for so long as the selling securityholders own shares of our common stock constituting more than 4.9% of our common stock issued and outstanding,
the selling securityholders will have the right to designate one member to our board of directors (provided that such designee must qualify
as an independent director). Ardevan Yaghoubi currently serves as a member of our board of directors and was designated as a nominee by
the selling securityholders.
The warrant issued to the selling securityholders
expires in August 2023, and the exercise price and number of shares of our common stock issuable upon exercise of each warrant is
subject to appropriate adjustments in the event of certain stock dividends, stock splits or similar events affecting our common stock.
Under the terms of the warrant, the holder may not exercise the warrant, to the extent such conversion or exercise would cause such holder,
together with its affiliates, to beneficially own a number of shares of common stock which would exceed 9.90% (as applicable) of our then
outstanding shares of common stock following such exercise, excluding for purposes of such determination shares of common stock issuable
upon exercise of the portion of the warrant which has not been converted or exercised.
The shares of common stock
being offered by the selling securityholders are those issued to the selling securityholders and issuable to the selling securityholders
upon exercise of the warrant. We are registering the shares of common stock in order to permit the selling securityholders to offer the
shares for resale from time to time. Except for the ownership of the shares and the warrant issued pursuant to the Securities Purchase
Agreement, as well as the purchase by the selling securityholders of 333,333 shares of our common stock in a public underwritten offering
in March 2021, the selling securityholders have not had any material relationship with us within the past three years.
The table below lists the
selling securityholders and other information regarding the beneficial ownership of the shares of common stock by each of the selling
securityholders. The second column lists the number of shares of common stock beneficially owned by each selling stockholder, based on
its ownership of shares of common stock and the warrant, as of July 29, 2021, assuming
exercise of the warrant held by the selling securityholders on that date, taking account of any limitations on exercise. The third column
lists the shares of common stock being offered by this prospectus by the selling securityholders. The fourth column assumes the sale of
all of the shares offered by the selling securityholders pursuant to this prospectus.
Under the terms of the warrant,
a selling securityholder may not exercise the warrant, to the extent such conversion or exercise would cause such selling securityholder,
together with its affiliates, to beneficially own a number of shares of common stock which would exceed 9.90% (as applicable) of our then
outstanding shares of common stock following such exercise, excluding for purposes of such determination shares of common stock issuable
upon exercise of the portion of the warrant which has not been converted or exercised. The number of shares in the second column reflects
these limitations. The selling securityholders may sell all, some or none of their shares in this offering. See the section entitled “Plan
of Distribution.”
Name of Selling Securityholder
|
|
Number of Shares of
Common Stock
Owned Prior to
Offering
|
|
|
Maximum Number of
Shares of Common
Stock to be Sold
Pursuant to this
Prospectus
|
|
|
Number of Shares
of Common Stock
Owned After
Offering
|
|
CM Change Industrial LP (together with its affiliates, including Conversant Capital LLC)
|
|
|
849,088(1)
|
|
|
|
1,031,502(2)
|
|
|
|
333,333
|
|
|
(1)
|
Beneficial ownership based on a copy of a 13D/A as filed with the SEC by Conversant Capital LLC, or Conversant Capital, reporting ownership
of these shares as of March 5, 2021 and information known to the Company. Conversant Capital reports sole voting and dispositive power
with respect to 849,088 shares, excluding 515,747 shares issuable upon exercise of a warrant, or the Warrant, held by CM Change Industrial
LP, or CM Change. Conversant GP Holdings LLC, or Conversant GP, reports shared voting and dispositive power with respect to 849,088 shares,
excluding 515,747 shares issuable upon exercise of the Warrant held by CM Change. CM Change reports shared voting and dispositive power
with respect to 515,755 shares, excluding 515,747 shares issuable upon exercise of the Warrant held by CM Change. CM Change Industrial
II LP, or CM Change II, reports shared voting and dispositive power with respect to 333,333 shares, and Michael Simanovsky reports shared
voting and dispositive power with respect to 849,088 shares, excluding 515,747 shares issuable upon exercise of the Warrant held by CM
Change. Conversant Capital is an investment management company and manager of CM Change and CM Change II. Conversant GP serves as general
partner of CM Change and CM Change II. Mr. Simanovsky serves as the sole managing member of Conversant GP and Conversant Capital. The
Warrant contains restrictions on exercise such that it may not be exercised if the number of shares to be issued pursuant to such exercise
or conversion would result in the holder beneficially owning in excess of 9.90% of all of the shares of the Company’s common stock
outstanding at such time.
|
|
|
|
|
(2)
|
515,747 of these shares are issuable upon exercise of the Warrant
held by CM Change.
|
PLAN
OF DISTRIBUTION
We are registering the shares
of common stock, issued to the selling securityholders and issuable upon exercise of the warrants issued to the selling securityholders,
to permit the resale of these shares of common stock from time to time after the date of this prospectus. We will not receive any of the
proceeds from the sale by the selling securityholders of the shares of common stock. We will bear all fees and expenses incident to our
obligation to register the shares of common stock.
The selling securityholders
may sell all or a portion of the shares of common stock beneficially owned by them and offered hereby from time to time directly or through
one or more underwriters, broker-dealers or agents. If the shares of common stock are sold through underwriters or broker-dealers, the
selling securityholders will be responsible for underwriting discounts or commissions or agent’s commissions. The shares of common
stock may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices
determined at the time of sale, or at negotiated prices. These sales may be effected in transactions, which may involve crosses or block
transactions,
|
·
|
on any national securities exchange or quotation service on which the securities may be listed or quoted
at the time of sale;
|
|
·
|
in the over-the-counter market;
|
|
·
|
in transactions otherwise than on these exchanges or systems or in the over-the-counter market;
|
|
·
|
through the writing of options, whether such options are listed on an options exchange or otherwise;
|
|
·
|
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
|
|
·
|
block trades in which the broker-dealer will attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate the transaction;
|
|
·
|
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
|
|
·
|
an exchange distribution in accordance with the rules of the applicable exchange;
|
|
·
|
privately negotiated transactions;
|
|
·
|
short sales made after the date the shelf registration statement, of which this prospectus forms a part,
is declared effective by the SEC, subject to any applicable limitations on short sales contained in any agreement between a selling securityholders
and us;
|
|
·
|
sales pursuant to Rule 144 of the Securities Act;
|
|
·
|
broker-dealers may agree with the selling securityholders to sell a specified number of such shares at
a stipulated price per share;
|
|
·
|
a combination of any such methods of sale; and
|
|
·
|
any other method permitted pursuant to applicable law.
|
If the selling securityholders
effect such transactions by selling shares of common stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers
or agents may receive commissions in the form of discounts, concessions or commissions from the selling securityholders or commissions
from purchasers of the shares of common stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions
or commissions as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions
involved). In connection with sales of the shares of common stock or otherwise, the selling securityholders may enter into hedging transactions
with broker-dealers, which may in turn engage in short sales of the shares of common stock in the course of hedging in positions they
assume. The selling securityholders may also sell shares of common stock short and deliver shares of common stock covered by this prospectus
to close out short positions and to return borrowed shares in connection with such short sales. The selling securityholders may also loan
or pledge shares of common stock to broker-dealers that in turn may sell such shares.
The selling securityholders
may pledge or grant a security interest in some or all of the warrants or shares of common stock owned by them and, if they default in
the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time
to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of
the Securities Act, amending, if necessary, the list of selling securityholders to include the pledgee, transferee or other successors
in interest as selling securityholders under this prospectus. The selling securityholders also may transfer and donate the shares of common
stock in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial
owners for purposes of this prospectus.
Any broker-dealer participating
in the distribution of the shares of common stock may be deemed to be “underwriters” within the meaning of the Securities
Act, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be underwriting commissions
or discounts under the Securities Act. At the time a particular offering of the shares of common stock is made, a prospectus supplement,
if required, will be distributed which will set forth the aggregate amount of shares of common stock being offered and the terms of the
offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation
from the selling securityholders and any discounts, commissions or concessions allowed or reallowed or paid to broker-dealers.
Under the securities laws
of some states, the shares of common stock may be sold in such states only through registered or licensed brokers or dealers. In addition,
in some states the shares of common stock may not be sold unless such shares have been registered or qualified for sale in such state
or an exemption from registration or qualification is available and is complied with.
There can be no assurance
that any selling securityholders will sell any or all of the shares of common stock registered pursuant to the shelf registration statement,
of which this prospectus forms a part.
The selling securityholders
and any other person participating in such distribution will be subject to applicable provisions of the Securities Exchange Act of 1934,
as amended, or the Exchange Act, and the rules and regulations thereunder, including, without limitation, to the extent applicable,
Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the shares of common stock by the selling
securityholders and any other participating person. To the extent applicable, Regulation M may also restrict the ability of any person
engaged in the distribution of the shares of common stock to engage in market-making activities with respect to the shares of common stock.
All of the foregoing may affect the marketability of the shares of common stock and the ability of any person or entity to engage in market-making
activities with respect to the shares of common stock.
We
will pay all expenses of the registration of the shares of common stock pursuant to the Registration Rights Agreement, estimated to be
$88,565.85 in total, including, without limitation, SEC
filing fees and expenses of compliance with state securities or “blue sky” laws; provided, however, that a
selling securityholders will pay all underwriting discounts and selling commissions, if any. We will indemnify the selling securityholders
against liabilities, including some liabilities under the Securities Act, in accordance with the Registration Rights agreement, or the
selling securityholders will be entitled to contribution. We may be indemnified by the selling securityholders against civil liabilities,
including liabilities under the Securities Act, that may arise from any written information furnished to us by the selling securityholders
specifically for use in this prospectus, in accordance with the related Registration Rights Agreement, or we may be entitled to contribution.
Once sold under the shelf
registration statement, of which this prospectus forms a part, the shares of common stock will be freely tradable in the hands of persons
other than our affiliates.
LEGAL
MATTERS
Certain legal matters will be passed upon for us
by Latham & Watkins LLP, New York, New York. Certain legal matters with respect to the validity of shares of our capital stock
and certain other legal matters relating to Maryland law will be passed upon for us by Venable LLP, Baltimore, Maryland.
EXPERTS
The consolidated financial statements and the related
consolidated financial statement schedules of INDUS Realty Trust, Inc. (formerly known as Griffin Industrial Realty, Inc.) as
of November 30, 2020 and 2019 and for each of the years in the three-year period ended November 30, 2020 incorporated in this
Prospectus by reference from the INDUS Realty Trust, Inc. Annual Report on Form 10-K for the year ended November 30, 2020
have been audited by RSM US LLP, an independent registered public accounting firm, as stated in their report thereon, incorporated herein
by reference, and have been incorporated in this Prospectus and Registration Statement in reliance upon such report and upon the authority
of such firm as experts in accounting and auditing.
Griffin Industrial Realty (NASDAQ:GRIF)
Historical Stock Chart
From Aug 2024 to Sep 2024
Griffin Industrial Realty (NASDAQ:GRIF)
Historical Stock Chart
From Sep 2023 to Sep 2024