DESCRIPTION OF PREFERRED STOCK
The specific terms of a particular class or series of preferred stock will be described in the prospectus supplement relating to that class or series,
including a prospectus supplement providing that preferred stock may be issuable upon the exercise of warrants the company issues. The description of preferred stock set forth below and the description of the terms of a particular class or series of
preferred stock set forth in the applicable prospectus supplement do not purport to be complete and are qualified in their entirety by reference to the articles supplementary relating to that class or series.
General
The companys charter provides that
it may issue up to 110 million shares of preferred stock, $0.01 par value per share, or preferred stock. The companys charter authorizes its board of directors to amend its charter from time to time without stockholder approval to
increase or decrease the number of authorized shares of preferred stock. As of March 13, 2020, 8,050,000 shares of the companys series C preferred stock, 10,000,000 shares of the companys series G preferred stock, 10,000,000 shares
of the companys series I preferred stock, 8,000,000 shares of the companys series J preferred stock, 8,400,000 shares of the companys series K preferred stock and 13,800,000 shares of the companys series L preferred stock
were issued and outstanding. No other shares of the companys preferred stock are currently outstanding.
The companys charter authorizes its
board of directors to classify any unissued shares of preferred stock and to reclassify any previously classified but unissued shares of any series into other classes or series of stock. Prior to the issuance of shares of each class or series, the
companys board of directors is required by the MGCL and the companys charter to set, subject to the provisions of the companys charter regarding the restrictions on transfers of stock, the terms, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each such class or series. Thus, the companys board of directors could authorize the issuance of
shares of preferred stock with terms and conditions which could have the effect of delaying, deferring or preventing a transaction or a change of control of the company that might involve a premium price for holders of the common stock or otherwise
be in their best interest.
The preferences and other terms of the preferred stock of each class or series will be fixed by the articles supplementary
relating to such class or series. A prospectus supplement, relating to each class or series, will describe the terms of the preferred stock, including, where applicable, the following:
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the title and stated value of such preferred stock; |
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the number of shares of such preferred stock offered, the liquidation preference per share and the offering price
of such preferred stock; |
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the dividend rate(s), period(s), and/or payment date(s) or method(s) of calculation thereof applicable to such
preferred stock; |
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whether such preferred stock is cumulative or not and, if cumulative, the date from which dividends on such
preferred stock shall accumulate; |
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the provision for a sinking fund, if any, for such preferred stock; |
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the provision for redemption, if applicable, of such preferred stock; |
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any listing of such preferred stock on any securities exchange; |
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preemptive rights, if any; |
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the terms and conditions, if applicable, upon which such preferred stock will be converted into the common stock,
including the conversion price (or manner of calculation thereof); |
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a discussion of additional material U.S. federal income tax consequences, if any, applicable to an investment in
such preferred stock; |
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any limitations on actual and constructive ownership and restrictions on transfer; |
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the relative ranking and preferences of such preferred stock as to dividend rights and rights upon liquidation,
dissolution or winding up of the affairs of the company; |
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any limitations on issuance of any class or series of preferred stock ranking senior to or on a parity with such
class or series of preferred stock as to dividend rights and rights upon liquidation, dissolution or winding up of the affairs of the company; |
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any voting rights of such preferred stock; and |
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any other specific terms, preferences, rights, limitations or restrictions of such preferred stock.
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Rank
Unless otherwise
specified in the applicable prospectus supplement, the preferred stock will, with respect to dividend rights and rights upon liquidation, dissolution or winding up of the company, rank: (i) senior to all classes or series of the common stock,
and to any other class or series of the companys stock expressly designated as ranking junior to the preferred stock; (ii) on parity with any class or series of the companys stock expressly designated as ranking on parity with the
preferred stock; and (iii) junior to any other class or series of the companys stock expressly designated as ranking senior to the preferred stock.
Conversion Rights
The terms and conditions, if
any, upon which any shares of any class or series of preferred stock are convertible into common stock will be described in the applicable prospectus supplement relating thereto. Such terms will include the number of shares of the common stock into
which the shares of preferred stock are convertible, the conversion price (or manner of calculation thereof), the conversion period, provisions as to whether conversion will be at the option of the holders of such class or series of preferred stock,
the events requiring an adjustment of the conversion price and provisions affecting conversion in the event of the redemption of such class or series of preferred stock.
Power to Increase or Decrease Authorized Stock and Issue Additional Shares of Preferred Stock
The companys board of directors has the power to amend the companys charter from time to time without stockholder approval to increase or decrease
the number of authorized shares of preferred stock, to issue additional authorized but unissued shares of the companys preferred stock and to classify or reclassify unissued shares of the companys preferred stock into other classes or
series of stock and thereafter to cause us to issue such classified or reclassified shares of stock. Subject to the limited rights of holders of the companys series C preferred stock, series G preferred stock, series I preferred stock, series
J preferred stock, series K preferred stock and series L preferred stock and each other parity class or series of preferred stock, voting together as a single class, to approve certain issuances of senior classes or series of stock, the additional
classes or series will be available for issuance without further action by the companys stockholders, unless stockholder consent is required by applicable law or the rules of any stock exchange or automated quotation system on which the
companys securities may be listed or traded. Although the companys board of directors does not intend to do so, it could authorize the company to issue a class or series that could, depending upon the terms of the particular class or
series, delay, defer or prevent a transaction or a change of control of the company that might involve a premium price for the companys stockholders or otherwise be in their best interest.
Restrictions on Ownership and Transfer
To assist
the company in complying with certain U.S. federal income tax requirements applicable to REITs, the company has adopted certain restrictions relating to the ownership and transfer of the companys series C
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preferred stock, series G preferred stock, series I preferred stock, series J preferred stock, series K preferred stock and series L preferred stock. The company expects to adopt similar
restrictions with respect to any class or series offered pursuant to this prospectus under the articles supplementary for each such class or series. The applicable prospectus supplement will specify any additional ownership limitation relating to
such class or series. See Restrictions on Ownership and Transfer.
6.625% Series C Cumulative Redeemable Perpetual Preferred Stock
General
The companys board of directors
approved articles supplementary, a copy of which has been previously filed with the SEC and which is incorporated by reference as an exhibit to the registration statement of which this prospectus is a part, creating the series C preferred stock as a
series of the companys preferred stock, designated as the 6.625% Series C Cumulative Redeemable Perpetual Preferred Stock. The following description of the series C preferred stock is qualified in its entirety by reference to such articles
supplementary and the companys charter. The series C preferred stock is validly issued, fully paid and nonassessable
The series C preferred stock
is currently listed on the NYSE as DLR Pr C.
Ranking
The series C preferred stock ranks, with respect to dividend rights and rights upon the companys liquidation, dissolution or winding-up:
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senior to all classes or series of the common stock and to any other class or series of stock expressly
designated as ranking junior to the series C preferred stock; |
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on parity with any class or series of stock expressly designated as ranking on parity with the series C preferred
stock, including the companys series G preferred stock, series I preferred stock, series J preferred stock, series K preferred stock and series L preferred stock; and |
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junior to any other class or series of stock expressly designated as ranking senior to the series C preferred
stock. |
Dividend Rate and Payment Date
Holders of series C preferred stock are entitled to receive cumulative cash dividends on the series C preferred stock from and including the date of original
issue, payable quarterly in arrears on or about the last calendar day of March, June, September and December of each year at the rate of 6.625% per annum of the $25.00 liquidation preference per share (equivalent to an annual amount of $1.65625 per
share). Dividends on the series C preferred stock will accrue whether or not the company has earnings, whether or not there are funds legally available for the payment of such dividends and whether or not such dividends are authorized or declared.
Liquidation Preference
In the event of a
liquidation, dissolution or winding up, holders of the series C preferred stock will have the right to receive $25.00 per share, plus accrued and unpaid dividends (whether or not earned or declared) up to but excluding the date of payment, before
any payment is made to holders of the common stock and any other class or series of stock ranking junior to the series C preferred stock as to liquidation rights. The rights of holders of series C preferred stock to receive their liquidation
preference will be subject to the proportionate rights of any other class or series of stock ranking on parity with the series C preferred stock as to liquidation.
Optional Redemption
The series C preferred stock
may not be redeemed prior to May 15, 2021, except in limited circumstances to preserve the companys status as a REIT and pursuant to the special optional redemption right described below.
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On and after May 15, 2021, the series C preferred stock will be redeemable at the companys option, in
whole or in part at any time or from time to time, for cash at a redemption price of $25.00 per share, plus accrued and unpaid dividends (whether or not authorized or declared) up to but excluding the redemption date. However, unless full cumulative
dividends on the series C preferred stock for all past dividend periods have been, or contemporaneously are, paid or an amount in cash sufficient for the payment thereof is set apart, no shares of series C preferred stock may be redeemed; provided,
that the foregoing restriction does not prevent the company from taking action necessary to preserve its status as a REIT. Any partial redemption will be on a pro rata basis.
Special Optional Redemption
Upon the occurrence
of a Change of Control (as defined below), the company may, at its option, redeem the series C preferred stock, in whole or in part within 120 days after the first date on which such Change of Control occurred, by paying $25.00 per share, plus any
accrued and unpaid dividends to, but not including, the date of redemption. If, prior to the Change of Control Conversion Date (as defined below), the company exercises any of its redemption rights relating to the series C preferred stock (whether
its optional redemption right or its special optional redemption right), the holders of series C preferred stock will not have the conversion right described below.
A Change of Control is when, after the original issuance of the series C preferred stock, the following have occurred and are continuing:
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the acquisition by any person, including any syndicate or group deemed to be a person under
Section 13(d)(3) of the Exchange Act, of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions of stock of the company
entitling that person to exercise more than 50% of the total voting power of all stock of the company entitled to vote generally in the election of the companys directors (except that such person will be deemed to have beneficial ownership of
all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition); and |
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following the closing of any transaction referred to in the bullet point above, neither the company nor the
acquiring or surviving entity has a class of common securities (or American Depositary Receipts representing such securities) listed on the NYSE, the NYSE Amex Equities, or the NYSE Amex, or the NASDAQ Stock Market, or NASDAQ, or listed or quoted on
an exchange or quotation system that is a successor to the NYSE, the NYSE Amex or NASDAQ. |
No Maturity, Sinking Fund or Mandatory
Redemption
The series C preferred stock has no stated maturity date and the company is not required to redeem the series C preferred stock at any
time. Accordingly, the series C preferred stock will remain outstanding indefinitely, unless the company decides, at its option, to exercise its redemption right or, under circumstances where the holders of the series C preferred stock have a
conversion right, such holders decide to convert the series C preferred stock into common stock. The series C preferred stock is not subject to any sinking fund.
Voting Rights
Holders of series C preferred stock
generally have no voting rights. However, if the company is in arrears on dividends on the series C preferred stock for six or more quarterly periods, whether or not consecutive, holders of the series C preferred stock (voting together as a class
with the holders of all other classes or series of parity preferred stock upon which like voting rights have been conferred and are exercisable) will be entitled to vote at a special meeting called upon the written request of at least 10% of such
holders or at the next annual meeting of stockholders and each subsequent annual meeting of stockholders for the election of two additional directors to serve on the companys board of directors until all accumulated dividends with respect to
the series C preferred
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stock and any other class or series of parity preferred stock have been fully paid. In addition, the company may not make certain material and adverse changes to the terms of the series C
preferred stock without the affirmative vote of the holders of at least two-thirds of the outstanding shares of series C preferred stock and all other shares of any class or series ranking on parity with the
series C preferred stock that are entitled to similar voting rights (voting together as a single class).
Conversion
Upon the occurrence of a Change of Control, each holder of series C preferred stock will have the right (unless, prior to the Change of Control Conversion
Date, the company has provided or provides notice of its election to redeem the series C preferred stock) to convert some or all of the series C preferred stock held by such holder on the date the series C preferred stock is to be converted, which
we refer to as the Change of Control Conversion Date, into a number of shares of common stock per share of series C preferred stock to be converted equal to the lesser of:
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the quotient obtained by dividing (i) the sum of the $25.00 liquidation preference plus the amount of any
accrued and unpaid dividends to, but not including, the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a record date for a series C preferred stock dividend payment and prior to the corresponding series C
preferred stock dividend payment date, in which case no additional amount for such accrued and unpaid dividends will be included in this sum) by (ii) the Common Stock Price (as defined below); and |
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0.6389035 (i.e., the Share Cap), subject to certain adjustments; |
subject, in each case, to provisions for the receipt of alternative consideration as described in the articles supplementary relating to the series C
preferred stock.
The Common Stock Price will be (i) if the consideration to be received in the Change of Control by the holders of
common stock is solely cash, the amount of cash consideration per share of common stock, (ii) if the consideration to be received in the Change of Control by holders of common stock is other than solely cash, the average of the closing price
per share of common stock on the ten consecutive trading days immediately preceding, but not including, the effective date of such Change of Control and (iii) if there is not a readily determinable closing price for the common stock, the fair
market value of such other consideration received in the Change of Control per share of common stock as determined by the companys board or a committee thereof.
If, prior to the Change of Control Conversion Date, the company has provided or provides a redemption notice, whether pursuant to its special optional
redemption right in connection with a Change of Control or its optional redemption right, holders of series C preferred stock will not have any right to convert the series C preferred stock into shares of the common stock in connection with the
Change of Control and any shares of series C preferred stock selected for redemption that have been tendered for conversion will be redeemed on the related date of redemption instead of converted on the Change of Control Conversion Date.
Except as provided above in connection with a Change of Control, the series C preferred stock is not convertible into or exchangeable for any other securities
or property.
Transfer Agent and Registrar
The transfer agent and registrar for the series C preferred stock is American Stock Transfer & Trust Company, LLC.
5.875% Series G Cumulative Redeemable Preferred Stock
General
The companys board of directors and
a duly authorized committee thereof approved articles supplementary, a copy of which has been previously filed with the SEC and which is incorporated by reference as an exhibit to the
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registration statement of which this prospectus is a part, creating the series G preferred stock as a series of the companys preferred stock, designated as the 5.875% Series G Cumulative
Redeemable Preferred Stock. The series G preferred stock is validly issued, fully paid and nonassessable.
The series G preferred stock is currently
listed on the NYSE as DLR Pr G.
Ranking
The series G preferred stock ranks, with respect to dividend rights and rights upon the companys liquidation, dissolution or winding-up:
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senior to all classes or series of the common stock and to any other class or series of the companys stock
expressly designated as ranking junior to the series G preferred stock; |
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on parity with any class or series of the companys stock expressly designated as ranking on parity with the
series G preferred stock, including the companys series C preferred stock, series I preferred stock, series J preferred stock, series K preferred stock and series L preferred stock; and |
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junior to any other class or series of the companys stock expressly designated as ranking senior to the
series G preferred stock. |
Dividend Rate and Payment Date
Holders of series G preferred stock are entitled to receive cumulative cash dividends on the series G preferred stock from and including the date of original
issue, payable quarterly in arrears on or about the last calendar day of March, June, September and December of each year, at the rate of 5.875% per annum of the $25.00 liquidation preference per share (equivalent to an annual amount of $1.46875 per
share). Dividends on the series G preferred stock will accrue whether or not the company has earnings, whether or not there are funds legally available for the payment of such dividends and whether or not such dividends are authorized or declared.
Liquidation Preference
In the event of a
liquidation, dissolution or winding up, holders of the series G preferred stock will have the right to receive $25.00 per share, plus accrued and unpaid dividends (whether or not earned or declared) up to but excluding the date of payment, before
any payment is made to holders of the common stock and any other class or series of stock ranking junior to the series G preferred stock as to liquidation rights. The rights of holders of series G preferred stock to receive their liquidation
preference will be subject to the proportionate rights of any other class or series of the companys stock ranking on parity with the series G preferred stock as to liquidation.
Optional Redemption
The series G preferred stock
is redeemable at the companys option, in whole or in part at any time or from time to time, for cash at a redemption price of $25.00 per share, plus accrued and unpaid dividends (whether or not authorized or declared) up to but excluding the
redemption date. However, unless full cumulative dividends on the series G preferred stock for all past dividend periods have been, or contemporaneously are, paid or an amount in cash sufficient for the payment thereof is set apart, no shares of
series G preferred stock may be redeemed unless all outstanding shares of series G preferred stock are simultaneously redeemed; provided, that the foregoing restriction does not prevent the company from taking action necessary to preserve the
companys status as a REIT. Any partial redemption will be on a pro rata basis.
Special Optional Redemption
Upon the occurrence of a Change of Control (as defined below), the company may, at its option, redeem the series G preferred stock, in whole or in part within
120 days after the first date on which such Change of Control
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occurred, by paying $25.00 per share, plus any accrued and unpaid dividends to, but not including, the date of redemption. If, prior to the Change of Control Conversion Date (as defined below),
the company exercises any of its redemption rights relating to the series G preferred stock (whether its optional redemption right or its special optional redemption right), the holders of series G preferred stock will not have the conversion right
described below.
A Change of Control is when, after the original issuance of the series G preferred stock, the following have occurred and
are continuing:
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the acquisition by any person, including any syndicate or group deemed to be a person under
Section 13(d)(3) of the Exchange Act, of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions of stock of the company
entitling that person to exercise more than 50% of the total voting power of all stock of the company entitled to vote generally in the election of the companys directors (except that such person will be deemed to have beneficial ownership of
all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition); and |
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following the closing of any transaction referred to in the bullet point above, neither the company nor the
acquiring or surviving entity has a class of common securities (or American Depositary Receipts representing such securities) listed on the NYSE, the NYSE Amex or NASDAQ or listed or quoted on an exchange or quotation system that is a successor to
the NYSE, the NYSE Amex or NASDAQ. |
No Maturity, Sinking Fund or Mandatory Redemption
The series G preferred stock has no stated maturity date and the company is not required to redeem the series G preferred stock at any time. Accordingly, the
series G preferred stock will remain outstanding indefinitely, unless the company decides, at its option, to exercise its redemption right or, under circumstances where the holders of the series G preferred stock have a conversion right, such
holders decide to convert the series G preferred stock into common stock. The series G preferred stock is not subject to any sinking fund.
Voting
Rights
Holders of series G preferred stock generally have no voting rights. However, if the company is in arrears on dividends on the series G
preferred stock for six or more quarterly periods, whether or not consecutive, holders of the series G preferred stock (voting together as a class with the holders of all other classes or series of parity preferred stock upon which like voting
rights have been conferred and are exercisable) will be entitled to vote at a special meeting called upon the written request of at least 10% of such holders or at the companys next annual meeting of stockholders and each subsequent annual
meeting of stockholders for the election of two additional directors to serve on the companys board of directors until all unpaid dividends with respect to the series G preferred stock and any other class or series of parity preferred stock
have been paid or declared and a sum sufficient for the payment thereof set aside for payment. In addition, the company may not make certain material and adverse changes to the terms of the series G preferred stock without the affirmative vote of
the holders of at least two-thirds of the outstanding shares of series G preferred stock and all other shares of any class or series ranking on parity with the series G preferred stock that are entitled to
similar voting rights (voting together as a single class).
Conversion
Upon the occurrence of a Change of Control, each holder of series G preferred stock will have the right (unless, prior to the Change of Control Conversion
Date, the company has provided or provides notice of its election to redeem the series G preferred stock) to convert some or all of the series G preferred stock held by such holder on the date the series G preferred stock is to be converted, which
we refer to as the Change of Control Conversion
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Date, into a number of shares of the common stock per share of series G preferred stock to be converted equal to the lesser of:
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the quotient obtained by dividing (i) the sum of the $25.00 liquidation preference plus the amount of any
accrued and unpaid dividends to, but not including, the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a record date for a series G preferred stock dividend payment and prior to the corresponding series G
preferred stock dividend payment date, in which case no additional amount for such accrued and unpaid dividends will be included in this sum) by (ii) the Common Stock Price (as defined below); and |
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0.7532 (i.e., the Share Cap), subject to certain adjustments; |
subject, in each case, to provisions for the receipt of alternative consideration as described in the articles supplementary relating to the Series G
preferred stock.
The Common Stock Price will be (i) if the consideration to be received in the Change of Control by the holders of the
common stock is solely cash, the amount of cash consideration per share of the common stock or (ii) if the consideration to be received in the Change of Control by holders of the common stock is other than solely cash (x) the average of
the closing sale prices per share of the common stock (or, if no closing sale price is reported, the average of the closing bid and ask prices or, if more than one in either case, the average of the average closing bid and the average closing ask
prices) for the ten consecutive trading days immediately preceding, but not including, the effective date of the Change of Control as reported on the principal U.S. securities exchange on which the common stock is then traded, or (y) the
average of the last quoted bid prices for the common stock in the over-the-counter market as reported by OTC Markets Group Inc. or similar organization for the ten
consecutive trading days immediately preceding, but not including, the effective date of the Change of Control, if the common stock is not then listed for trading on a U.S. securities exchange.
If, prior to the Change of Control Conversion Date, the company has provided or provides a redemption notice, whether pursuant to its special optional
redemption right in connection with a Change of Control or its optional redemption right, holders of series G preferred stock will not have any right to convert the series G preferred stock into shares of the common stock in connection with the
Change of Control and any shares of series G preferred stock selected for redemption that have been tendered for conversion will be redeemed on the related date of redemption instead of converted on the Change of Control Conversion Date.
Except as provided above in connection with a Change of Control, the series G preferred stock is not convertible into or exchangeable for any other securities
or property.
Transfer Agent and Registrar
The transfer agent and registrar for the series G preferred stock is American Stock Transfer & Trust Company, LLC.
6.350% Series I Cumulative Redeemable Preferred Stock
General
The companys board of directors and
a duly authorized committee thereof approved articles supplementary, a copy of which has been previously filed with the SEC and which is incorporated by reference as an exhibit to the registration statement of which this prospectus is a part,
creating the series I preferred stock as a series of the companys preferred stock, designated as the 6.350% Series I Cumulative Redeemable Preferred Stock. The series I preferred stock is validly issued, fully paid and nonassessable.
The series I preferred stock is currently listed on the NYSE as DLR Pr I.
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Ranking
The series I preferred stock ranks, with respect to dividend rights and rights upon the companys liquidation, dissolution or winding-up:
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senior to all classes or series of the common stock and to any other class or series of the companys stock
expressly designated as ranking junior to the series I preferred stock; |
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on parity with any class or series of the companys stock expressly designated as ranking on parity with the
series I preferred stock, including the companys series C preferred stock, series G preferred stock, series J preferred stock, series K preferred stock and series L preferred stock; and |
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junior to any other class or series of the companys stock expressly designated as ranking senior to the
series I preferred stock. |
Dividend Rate and Payment Date
Holders of series I preferred stock are entitled to receive cumulative cash dividends on the series I preferred stock from and including the date of original
issue, payable quarterly in arrears on or about the last calendar day of March, June, September and December of each year, at the rate of 6.350% per annum of the $25.00 liquidation preference per share (equivalent to an annual amount of $1.5875 per
share). Dividends on the series I preferred stock will accrue whether or not the company has earnings, whether or not there are funds legally available for the payment of such dividends and whether or not such dividends are authorized or declared.
Liquidation Preference
In the event of a
liquidation, dissolution or winding up, holders of the series I preferred stock will have the right to receive $25.00 per share, plus accrued and unpaid dividends (whether or not earned or declared) up to but excluding the date of payment, before
any payment is made to holders of the common stock and any other class or series of stock ranking junior to the series I preferred stock as to liquidation rights. The rights of holders of series I preferred stock to receive their liquidation
preference will be subject to the proportionate rights of any other class or series of the companys stock ranking on parity with the series I preferred stock as to liquidation.
Optional Redemption
The series I preferred stock
may not be redeemed prior to August 24, 2020, except in limited circumstances to preserve the companys status as a REIT and pursuant to the special optional redemption right described below. On and after August 24, 2020, the series I
preferred stock will be redeemable at the companys option, in whole or in part at any time or from time to time, for cash at a redemption price of $25.00 per share, plus accrued and unpaid dividends (whether or not authorized or declared) up
to but excluding the redemption date. However, unless full cumulative dividends on the series I preferred stock for all past dividend periods have been, or contemporaneously are, paid or an amount in cash sufficient for the payment thereof is set
apart by the company, no shares of series I preferred stock may be redeemed unless all outstanding shares of series I preferred stock are simultaneously redeemed; provided, that the foregoing restriction does not prevent the company from taking
action necessary to preserve the companys status as a REIT. Any partial redemption will be on a pro rata basis.
Special Optional Redemption
Upon the occurrence of a Change of Control (as defined below), the company may, at its option, redeem the series I preferred stock, in whole or in
part within 120 days after the first date on which such Change of Control occurred, by paying $25.00 per share, plus any accrued and unpaid dividends to, but not including, the date of redemption. If, prior to the Change of Control Conversion Date
(as defined below), the company exercises any of its redemption rights relating to the series I preferred stock (whether its optional redemption right or its special optional redemption right), the holders of series I preferred stock will not have
the conversion right described below.
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A Change of Control is when, after the original issuance of the series I preferred stock, the
following have occurred and are continuing:
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the acquisition by any person, including any syndicate or group deemed to be a person under
Section 13(d)(3) of the Exchange Act, of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions of stock of the company
entitling that person to exercise more than 50% of the total voting power of all stock of the company entitled to vote generally in the election of the companys directors (except that such person will be deemed to have beneficial ownership of
all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition); and |
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following the closing of any transaction referred to in the bullet point above, neither the company nor the
acquiring or surviving entity has a class of common securities (or American Depositary Receipts representing such securities) listed on the NYSE, the NYSE Amex or NASDAQ or listed or quoted on an exchange or quotation system that is a successor to
the NYSE, the NYSE Amex or NASDAQ. |
No Maturity, Sinking Fund or Mandatory Redemption
The series I preferred stock has no stated maturity date and the company is not required to redeem the series I preferred stock at any time. Accordingly, the
series I preferred stock will remain outstanding indefinitely, unless the company decides, at its option, to exercise its redemption right or, under circumstances where the holders of the series I preferred stock have a conversion right, such
holders decide to convert the series I preferred stock into common stock. The series I preferred stock is not subject to any sinking fund.
Voting
Rights
Holders of series I preferred stock generally have no voting rights. However, if the company is in arrears on dividends on the series I
preferred stock for six or more quarterly periods, whether or not consecutive, holders of the series I preferred stock (voting together as a class with the holders of all other classes or series of parity preferred stock upon which like voting
rights have been conferred and are exercisable) will be entitled to vote at a special meeting called upon the written request of at least 10% of such holders or at the companys next annual meeting of stockholders and each subsequent annual
meeting of stockholders for the election of two additional directors to serve on the companys board of directors until all unpaid dividends with respect to the series I preferred stock and any other class or series of parity preferred stock
have been paid or declared and a sum sufficient for the payment thereof set aside for payment. In addition, the company may not make certain material and adverse changes to the terms of the series I preferred stock without the affirmative vote of
the holders of at least two-thirds of the outstanding shares of series I preferred stock and all other shares of any class or series ranking on parity with the series I preferred stock that are entitled to
similar voting rights (voting together as a single class).
Conversion
Upon the occurrence of a Change of Control, each holder of series I preferred stock will have the right (unless, prior to the Change of Control Conversion
Date, the company has provided or provides notice of its election to redeem the series I preferred stock) to convert some or all of the series I preferred stock held by such holder on the date the series I preferred stock is to be converted, which
we refer to as the Change of Control Conversion Date, into a number of shares of the common stock per share of series I preferred stock to be converted equal to the lesser of:
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the quotient obtained by dividing (i) the sum of the $25.00 liquidation preference plus the amount of any
accrued and unpaid dividends to, but not including, the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a record date for a series I preferred stock dividend
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payment and prior to the corresponding series I preferred stock dividend payment date, in which case no additional amount for such accrued and unpaid dividends will be included in this sum) by
(ii) the Common Stock Price (as defined below); and |
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0.76231 (i.e., the Share Cap), subject to certain adjustments; |
subject, in each case, to provisions for the receipt of alternative consideration as described in the articles supplementary relating to the Series I
preferred stock.
The Common Stock Price will be (i) if the consideration to be received in the Change of Control by the holders of the
common stock is solely cash, the amount of cash consideration per share of the common stock or (ii) if the consideration to be received in the Change of Control by holders of the common stock is other than solely cash (x) the average of
the closing sale prices per share of the common stock (or, if no closing sale price is reported, the average of the closing bid and ask prices or, if more than one in either case, the average of the average closing bid and the average closing ask
prices) for the ten consecutive trading days immediately preceding, but not including, the effective date of the Change of Control as reported on the principal U.S. securities exchange on which the common stock is then traded, or (y) the
average of the last quoted bid prices for the common stock in the over-the-counter market as reported by OTC Markets Group Inc. or similar organization for the ten
consecutive trading days immediately preceding, but not including, the effective date of the Change of Control, if the common stock is not then listed for trading on a U.S. securities exchange.
If, prior to the Change of Control Conversion Date, the company has provided or provides a redemption notice, whether pursuant to its special optional
redemption right in connection with a Change of Control or its optional redemption right, holders of series I preferred stock will not have any right to convert the series I preferred stock into shares of the common stock in connection with the
Change of Control and any shares of series I preferred stock selected for redemption that have been tendered for conversion will be redeemed on the related date of redemption instead of converted on the Change of Control Conversion Date.
Except as provided above in connection with a Change of Control, the series I preferred stock is not convertible into or exchangeable for any other securities
or property.
Transfer Agent and Registrar
The transfer agent and registrar for the series I preferred stock is American Stock Transfer & Trust Company, LLC.
5.250% Series J Cumulative Redeemable Preferred Stock
General
The companys board of directors and
a duly authorized committee thereof approved articles supplementary, a copy of which has been previously filed with the SEC and which is incorporated by reference as an exhibit to the registration statement of which this prospectus is a part,
creating the series J preferred stock as a series of the companys preferred stock, designated as the 5.250% Series J Cumulative Redeemable Preferred Stock. The series J preferred stock is validly issued, fully paid and nonassessable.
The series J preferred stock is currently listed on the NYSE as DLR Pr J.
Ranking
The series J preferred stock ranks, with
respect to dividend rights and rights upon the companys liquidation, dissolution or winding-up:
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senior to all classes or series of the common stock and to any other class or series of the companys stock
expressly designated as ranking junior to the series J preferred stock; |
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on parity with any class or series of the companys stock expressly designated as ranking on parity with the
series J preferred stock, including the companys series C preferred stock, series G preferred stock, series I preferred stock, series K preferred stock and series L preferred stock; and |
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junior to any other class or series of the companys stock expressly designated as ranking senior to the
series J preferred stock. |
Dividend Rate and Payment Date
Holders of series J preferred stock are entitled to receive cumulative cash dividends on the series J preferred stock from and including the date of original
issue, payable quarterly in arrears on or about the last calendar day of March, June, September and December of each year, at the rate of 5.250% per annum of the $25.00 liquidation preference per share (equivalent to an annual amount of $1.3125 per
share). Dividends on the series J preferred stock will accrue whether or not the company has earnings, whether or not there are funds legally available for the payment of such dividends and whether or not such dividends are authorized or declared.
Liquidation Preference
In the event of a
liquidation, dissolution or winding up, holders of the series J preferred stock will have the right to receive $25.00 per share, plus accrued and unpaid dividends (whether or not earned or declared) up to but excluding the date of payment, before
any payment is made to holders of the common stock and any other class or series of stock ranking junior to the series J preferred stock as to liquidation rights. The rights of holders of series J preferred stock to receive their liquidation
preference will be subject to the proportionate rights of any other class or series of stock ranking on parity with the series J preferred stock as to liquidation.
Optional Redemption
The series J preferred stock
may not be redeemed prior to August 7, 2022, except in limited circumstances to preserve the companys status as a REIT and pursuant to the special optional redemption right described below. On and after August 7, 2022, the series J
preferred stock will be redeemable at the companys option, in whole or in part at any time or from time to time, for cash at a redemption price of $25.00 per share, plus accrued and unpaid dividends (whether or not authorized or declared) up
to but excluding the redemption date. However, unless full cumulative dividends on the series J preferred stock for all past dividend periods have been, or contemporaneously are, paid or an amount in cash sufficient for the payment thereof is set
apart, no shares of series J preferred stock may be redeemed unless all outstanding shares of series J preferred stock are simultaneously redeemed; provided, that the foregoing restriction does not prevent the company from taking action necessary to
preserve the companys status as a REIT. Any partial redemption will be on a pro rata basis.
Special Optional Redemption
Upon the occurrence of a Change of Control (as defined below), the company may, at its option, redeem the series J preferred stock, in whole or in part within
120 days after the first date on which such Change of Control occurred, by paying $25.00 per share, plus any accrued and unpaid dividends to, but not including, the date of redemption. If, prior to the Change of Control Conversion Date (as defined
below), the company exercises any of its redemption rights relating to the series J preferred stock (whether its optional redemption right or its special optional redemption right), the holders of series J preferred stock will not have the
conversion right described below.
A Change of Control is when, after the original issuance of the series J preferred stock, the following
have occurred and are continuing:
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the acquisition by any person, including any syndicate or group deemed to be a person under
Section 13(d)(3) of the Exchange Act, of beneficial ownership, directly or indirectly, through a |
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purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions of stock of the company entitling that person to exercise more than 50% of the
total voting power of all stock of the company entitled to vote generally in the election of the companys directors (except that such person will be deemed to have beneficial ownership of all securities that such person has the right to
acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition); and |
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following the closing of any transaction referred to in the bullet point above, neither the company nor the
acquiring or surviving entity has a class of common securities (or American Depositary Receipts representing such securities) listed on the NYSE, the NYSE Amex or NASDAQ or listed or quoted on an exchange or quotation system that is a successor to
the NYSE, the NYSE Amex or NASDAQ. |
No Maturity, Sinking Fund or Mandatory Redemption
The series J preferred stock has no stated maturity date and the company is not required to redeem the series J preferred stock at any time. Accordingly, the
series J preferred stock will remain outstanding indefinitely, unless the company decides, at its option, to exercise its redemption right or, under circumstances where the holders of the series J preferred stock have a conversion right, such
holders decide to convert the series J preferred stock into common stock. The series J preferred stock is not subject to any sinking fund.
Voting
Rights
Holders of series J preferred stock generally have no voting rights. However, if the company is in arrears on dividends on the series J
preferred stock for six or more quarterly periods, whether or not consecutive, holders of the series J preferred stock (voting together as a class with the holders of all other classes or series of parity preferred stock upon which like voting
rights have been conferred and are exercisable) will be entitled to vote at a special meeting called upon the written request of at least 10% of such holders or at the companys next annual meeting of stockholders and each subsequent annual
meeting of stockholders for the election of two additional directors to serve on the companys board of directors until all unpaid dividends with respect to the series J preferred stock and any other class or series of parity preferred stock
have been paid or declared and a sum sufficient for the payment thereof set aside for payment. In addition, the company may not make certain material and adverse changes to the terms of the series J preferred stock without the affirmative vote of
the holders of at least two-thirds of the outstanding shares of series J preferred stock and all other shares of any class or series ranking on parity with the series J preferred stock that are entitled to
similar voting rights (voting together as a single class).
Conversion
Upon the occurrence of a Change of Control, each holder of series J preferred stock will have the right (unless, prior to the Change of Control Conversion
Date, the company has provided or provides notice of its election to redeem the series J preferred stock) to convert some or all of the series J preferred stock held by such holder on the date the series J preferred stock is to be converted, which
we refer to as the Change of Control Conversion Date, into a number of shares of common stock per share of series J preferred stock to be converted equal to the lesser of:
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the quotient obtained by dividing (i) the sum of the $25.00 liquidation preference plus the amount of any
accrued and unpaid dividends to, but not including, the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a record date for a series J preferred stock dividend payment and prior to the corresponding series J
preferred stock dividend payment date, in which case no additional amount for such accrued and unpaid dividends will be included in this sum) by (ii) the Common Stock Price (as defined below); and |
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0.42521 (i.e., the Share Cap), subject to certain adjustments; |
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subject, in each case, to provisions for the receipt of alternative consideration as described in the articles
supplementary relating to the Series J preferred stock.
The Common Stock Price will be (i) if the consideration to be received in the
Change of Control by the holders of common stock is solely cash, the amount of cash consideration per share of common stock or (ii) if the consideration to be received in the Change of Control by holders of common stock is other than solely
cash (x) the average of the closing sale prices per share of the common stock (or, if no closing sale price is reported, the average of the closing bid and ask prices or, if more than one in either case, the average of the average closing bid
and the average closing ask prices) for the ten consecutive trading days immediately preceding, but not including, the effective date of the Change of Control as reported on the principal U.S. securities exchange on which the common stock is then
traded, or (y) the average of the last quoted bid prices for the companys common stock in the over-the-counter market as reported by OTC Markets Group Inc. or
similar organization for the ten consecutive trading days immediately preceding, but not including, the effective date of the Change of Control, if the common stock is not then listed for trading on a U.S. securities exchange.
If, prior to the Change of Control Conversion Date, the company has provided or provides a redemption notice, whether pursuant to its special optional
redemption right in connection with a Change of Control or its optional redemption right, holders of series J preferred stock will not have any right to convert the series J preferred stock into shares of the common stock in connection with the
Change of Control and any shares of series J preferred stock selected for redemption that have been tendered for conversion will be redeemed on the related date of redemption instead of converted on the Change of Control Conversion Date.
Except as provided above in connection with a Change of Control, the series J preferred stock is not convertible into or exchangeable for any other securities
or property.
Transfer Agent and Registrar
The transfer agent and registrar for the series J preferred stock is American Stock Transfer & Trust Company, LLC.
5.850% Series K Cumulative Redeemable Preferred Stock
General
The companys board of directors and a
duly authorized committee thereof approved articles supplementary, a copy of which has been previously filed with the SEC and which is incorporated by reference as an exhibit to the registration statement of which this prospectus is a part, creating
the series K preferred stock as a series of DLRs preferred stock, designated as the 5.850% Series K Cumulative Redeemable Preferred Stock. The series K preferred stock is validly issued, fully paid and nonassessable.
The series K preferred stock is currently listed on the NYSE as DLR Pr K.
Ranking
The series K preferred stock ranks, with
respect to dividend rights and rights upon the companys liquidation, dissolution or winding-up:
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senior to all classes or series of the common stock and to any other class or series of stock expressly
designated as ranking junior to the series K preferred stock; |
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on parity with any class or series of stock expressly designated as ranking on parity with the series K preferred
stock, including the companys series C preferred stock, series G preferred stock, series I preferred stock, series J preferred stock and series L preferred stock; and |
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junior to any other class or series of stock expressly designated as ranking senior to the series K preferred
stock. |
Dividend Rate and Payment Date
Holders of series K preferred stock are entitled to receive cumulative cash dividends on the series K preferred stock from and including the date of original
issue, payable quarterly in arrears on or about the last calendar day of March, June, September and December of each year, at the rate of 5.850% per annum of the $25.00 liquidation preference per share (equivalent to an annual amount of $1.4625 per
share). Dividends on the series K preferred stock will accrue whether or not the company has earnings, whether or not there are funds legally available for the payment of such dividends and whether or not such dividends are authorized or declared.
Liquidation Preference
In the event of a
liquidation, dissolution or winding up, holders of the series K preferred stock will have the right to receive $25.00 per share, plus accrued and unpaid dividends (whether or not earned or declared) up to but excluding the date of payment, before
any payment is made to holders of the common stock and any other class or series of stock ranking junior to the series K preferred stock as to liquidation rights. The rights of holders of series K preferred stock to receive their liquidation
preference will be subject to the proportionate rights of any other class or series of stock ranking on parity with the series K preferred stock as to liquidation.
Optional Redemption
The series K preferred stock
may not be redeemed prior to March 13, 2024, except in limited circumstances to preserve the companys status as a REIT and pursuant to the special optional redemption right described below. On and after March 13, 2024, the series K
preferred stock will be redeemable at the companys option, in whole or in part at any time or from time to time, for cash at a redemption price of $25.00 per share, plus accrued and unpaid dividends (whether or not authorized or declared) up
to but excluding the redemption date. However, unless full cumulative dividends on the series K preferred stock for all past dividend periods have been, or contemporaneously are, paid or an amount in cash sufficient for the payment thereof is set
apart, no shares of series K preferred stock may be redeemed unless all outstanding shares of series K preferred stock are simultaneously redeemed; provided, that the foregoing restriction does not prevent the company from taking action necessary to
preserve its status as a REIT. Any partial redemption will be on a pro rata basis.
Special Optional Redemption
Upon the occurrence of a Change of Control (as defined below), the company may, at its option, redeem the series K preferred stock, in whole or in part within
120 days after the first date on which such Change of Control occurred, by paying $25.00 per share, plus any accrued and unpaid dividends to, but not including, the date of redemption. If, prior to the Change of Control Conversion Date (as defined
below), the company exercises any of its redemption rights relating to the series K preferred stock (whether its optional redemption right or its special optional redemption right), the holders of series K preferred stock will not have the
conversion right described below.
A Change of Control is when, after the original issuance of the series K preferred stock, the following
have occurred and are continuing:
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the acquisition by any person, including any syndicate or group deemed to be a person under
Section 13(d)(3) of the Exchange Act, of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions of stock of the company
entitling that person to exercise more than 50% of the total voting power of all stock of the company entitled to vote generally in the election of the companys directors |
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(except that such person will be deemed to have beneficial ownership of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable
only upon the occurrence of a subsequent condition); and |
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following the closing of any transaction referred to in the bullet point above, neither the company nor the
acquiring or surviving entity has a class of common securities (or American Depositary Receipts representing such securities) listed on the NYSE, the NYSE Amex or NASDAQ or listed or quoted on an exchange or quotation system that is a successor to
the NYSE, the NYSE Amex or NASDAQ. |
No Maturity, Sinking Fund or Mandatory Redemption
The series K preferred stock has no stated maturity date and the company is not required to redeem the series K preferred stock at any time. Accordingly, the
series K preferred stock will remain outstanding indefinitely, unless the company decides, at its option, to exercise its redemption right or, under circumstances where the holders of the series K preferred stock have a conversion right, such
holders decide to convert the series K preferred stock into common stock. The series K preferred stock is not subject to any sinking fund.
Voting
Rights
Holders of series K preferred stock generally have no voting rights. However, if the company is in arrears on dividends on the series K
preferred stock for six or more quarterly periods, whether or not consecutive, holders of the series K preferred stock (voting together as a class with the holders of all other classes or series of parity preferred stock upon which like voting
rights have been conferred and are exercisable) will be entitled to vote at a special meeting called upon the written request of at least 10% of such holders or at the next annual meeting of stockholders and each subsequent annual meeting of
stockholders for the election of two additional directors to serve on the companys board until all unpaid dividends with respect to the series K preferred stock and any other class or series of parity preferred stock have been paid or declared
and a sum sufficient for the payment thereof set aside for payment. In addition, the company may not make certain material and adverse changes to the terms of the series K preferred stock without the affirmative vote of the holders of at least two-thirds of the outstanding shares of series K preferred stock and all other shares of any class or series ranking on parity with the series K preferred stock that are entitled to similar voting
rights (voting together as a single class).
Conversion
Upon the occurrence of a Change of Control, each holder of series K preferred stock will have the right (unless, prior to the Change of Control Conversion
Date, the company has provided or provides notice of its election to redeem the series K preferred stock) to convert some or all of the series K preferred stock held by such holder on the date the series K preferred stock is to be converted, whichwe
refer to as the Change of Control Conversion Date, into a number of shares of common stock per share of series K preferred stock to be converted equal to the lesser of:
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the quotient obtained by dividing (i) the sum of the $25.00 liquidation preference plus the amount of any
accrued and unpaid dividends to, but not including, the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a record date for a series K preferred stock dividend payment and prior to the corresponding series K
preferred stock dividend payment date, in which case no additional amount for such accrued and unpaid dividends will be included in this sum) by (ii) the Common Stock Price (as defined below); and |
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0.43611 (i.e., the Share Cap), subject to certain adjustments; |
subject, in each case, to provisions for the receipt of alternative consideration as described in the articles supplementary relating to the Series K
preferred stock.
The Common Stock Price will be (i) if the consideration to be received in the Change of Control by the holders of
common stock is solely cash, the amount of cash consideration per share of common stock or (ii) if the
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consideration to be received in the Change of Control by holders of common stock is other than solely cash (x) the average of the closing sale prices per share of the common stock (or, if no
closing sale price is reported, the average of the closing bid and ask prices or, if more than one in either case, the average of the average closing bid and the average closing ask prices) for the ten consecutive trading days immediately preceding,
but not including, the effective date of the Change of Control as reported on the principal U.S. securities exchange on which the common stock is then traded, or (y) the average of the last quoted bid prices for the companys common stock
in the over-the-counter market as reported by OTC Markets Group Inc. or similar organization for the ten consecutive trading days immediately preceding, but
not including, the effective date of the Change of Control, if the common stock is not then listed for trading on a U.S. securities exchange.
If, prior
to the Change of Control Conversion Date, the company has provided or provides a redemption notice, whether pursuant to its special optional redemption right in connection with a Change of Control or its optional redemption right, holders of series
K preferred stock will not have any right to convert the series K preferred stock into shares of the common stock in connection with the Change of Control and any shares of series K preferred stock selected for redemption that have been tendered for
conversion will be redeemed on the related date of redemption instead of converted on the Change of Control Conversion Date.
Except as provided above in
connection with a Change of Control, the series K preferred stock is not convertible into or exchangeable for any other securities or property.
Transfer Agent and Registrar
The transfer agent
and registrar for the series K preferred stock is American Stock Transfer & Trust Company, LLC.
5.200% Series L Cumulative Redeemable
Preferred Stock
General
The companys
board of directors and a duly authorized committee thereof approved articles supplementary, a copy of which has been previously filed with the SEC and which is incorporated by reference as an exhibit to the registration statement of which this
prospectus is a part, creating the series L preferred stock as a series of the companys preferred stock, designated as the 5.200% Series L Cumulative Redeemable Preferred Stock. The series L preferred stock is validly issued, fully paid and
nonassessable.
The series L preferred stock is currently listed on the NYSE as DLR Pr L.
Ranking
The series L preferred stock ranks, with
respect to dividend rights and rights upon the companys liquidation, dissolution or winding-up:
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senior to all classes or series of the common stock and to any other class or series of stock expressly
designated as ranking junior to the series L preferred stock; |
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on parity with any class or series of stock expressly designated as ranking on parity with the series L preferred
stock, including the companys series C preferred stock, series G preferred stock, series I preferred stock, series J preferred stock and series K preferred stock; and |
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junior to any other class or series of stock expressly designated as ranking senior to the series L preferred
stock. |
Dividend Rate and Payment Date
Holders of series L preferred stock are entitled to receive cumulative cash dividends on the series L preferred stock from and including the date of original
issue, payable quarterly in arrears on or about the last calendar day
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of March, June, September and December of each year, at the rate of 5.200% per annum of the $25.00 liquidation preference per share (equivalent to an annual amount of $1.30 per share).
Dividends on the series L preferred stock will accrue whether or not the company has earnings, whether or not there are funds legally available for the payment of such dividends and whether or not such dividends are authorized or declared.
Liquidation Preference
In the event of a
liquidation, dissolution or winding up, holders of the series L preferred stock will have the right to receive $25.00 per share, plus accrued and unpaid dividends (whether or not earned or declared) up to but excluding the date of payment, before
any payment is made to holders of the common stock and any other class or series of stock ranking junior to the series L preferred stock as to liquidation rights. The rights of holders of series L preferred stock to receive their liquidation
preference will be subject to the proportionate rights of any other class or series of stock ranking on parity with the series L preferred stock as to liquidation.
Optional Redemption
The series L preferred stock
may not be redeemed prior to October 10, 2024, except in limited circumstances to preserve the companys status as a REIT and pursuant to the special optional redemption right described below. On and after October 10, 2024, the series
L preferred stock will be redeemable at the companys option, in whole or in part at any time or from time to time, for cash at a redemption price of $25.00 per share, plus accrued and unpaid dividends (whether or not authorized or declared) up
to but excluding the redemption date. However, unless full cumulative dividends on the series L preferred stock for all past dividend periods have been, or contemporaneously are, paid or an amount in cash sufficient for the payment thereof is set
apart, no shares of series L preferred stock may be redeemed unless all outstanding shares of series L preferred stock are simultaneously redeemed; provided, that the foregoing restriction does not prevent the company from taking action necessary to
preserve its status as a REIT. Any partial redemption will be on a pro rata basis.
Special Optional Redemption
Upon the occurrence of a Change of Control, (as defined below) the company may, at its option, redeem the series L preferred stock, in whole or in part within
120 days after the first date on which such Change of Control occurred, by paying $25.00 per share, plus any accrued and unpaid dividends to, but not including, the date of redemption. If, prior to the Change of Control Conversion Date (as defined
below), the company exercises any of its redemption rights relating to the series L preferred stock (whether its optional redemption right or its special optional redemption right), the holders of series L preferred stock will not have the
conversion right described below.
A Change of Control is when, after the original issuance of the series L preferred stock, the following
have occurred and are continuing:
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the acquisition by any person, including any syndicate or group deemed to be a person under
Section 13(d)(3) of the Exchange Act, of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions of stock of the company
entitling that person to exercise more than 50% of the total voting power of all stock of the company entitled to vote generally in the election of the companys directors (except that such person will be deemed to have beneficial ownership of
all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition); and |
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following the closing of any transaction referred to in the bullet point above, neither the company nor the
acquiring or surviving entity has a class of common securities (or American Depositary Receipts representing such securities) listed on the NYSE, the NYSE Amex or NASDAQ or listed or quoted on an exchange or quotation system that is a successor to
the NYSE, the NYSE Amex or NASDAQ. |
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No Maturity, Sinking Fund or Mandatory Redemption
The series L preferred stock has no stated maturity date and the company is not required to redeem the series L preferred stock at any time. Accordingly, the
series L preferred stock will remain outstanding indefinitely, unless the company decides, at its option, to exercise its redemption right or, under circumstances where the holders of the series L preferred stock have a conversion right, such
holders decide to convert the series L preferred stock into common stock. The series L preferred stock is not subject to any sinking fund.
Voting
Rights
Holders of series L preferred stock generally have no voting rights. However, if the company is in arrears on dividends on the series L
preferred stock for six or more quarterly periods, whether or not consecutive, holders of the series L preferred stock (voting together as a class with the holders of all other classes or series of parity preferred stock upon which like voting
rights have been conferred and are exercisable) will be entitled to vote at a special meeting called upon the written request of at least 10% of such holders or at the next annual meeting of stockholders and each subsequent annual meeting of
stockholders for the election of two additional directors to serve on the companys board of directors until all unpaid dividends with respect to the series L preferred stock and any other class or series of parity preferred stock have been
paid or declared and a sum sufficient for the payment thereof set aside for payment. In addition, the company may not make certain material and adverse changes to the terms of the series L preferred stock without the affirmative vote of the holders
of at least two-thirds of the outstanding shares of series L preferred stock and all other shares of any class or series ranking on parity with the series L preferred stock that are entitled to
similar voting rights (voting together as a single class).
Conversion
Upon the occurrence of a Change of Control, each holder of series L preferred stock will have the right (unless, prior to the Change of Control Conversion
Date, the company has provided or provides notice of its election to redeem the series L preferred stock) to convert some or all of the series L preferred stock held by such holder on the date the series L preferred stock is to be converted, which
we refer to as the Change of Control Conversion Date, into a number of shares of common stock per share of series L preferred stock to be converted equal to the lesser of:
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the quotient obtained by dividing (i) the sum of the $25.00 liquidation preference plus the amount of any
accrued and unpaid dividends to, but not including, the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a record date for a series L preferred stock dividend payment and prior to the corresponding series L
preferred stock dividend payment date, in which case no additional amount for such accrued and unpaid dividends will be included in this sum) by (ii) the Common Stock Price (as defined below); and |
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0.38518 (i.e., the Share Cap), subject to certain adjustments; |
subject, in each case, to provisions for the receipt of alternative consideration as described in the articles supplementary relating to the Series L
preferred stock.
The Common Stock Price will be (i) if the consideration to be received in the Change of Control by the holders of
common stock is solely cash, the amount of cash consideration per share of common stock or (ii) if the consideration to be received in the Change of Control by holders of common stock is other than solely cash (x) the average of the
closing sale prices per share of the common stock (or, if no closing sale price is reported, the average of the closing bid and ask prices or, if more than one in either case, the average of the average closing bid and the average closing ask
prices) for the ten consecutive trading days immediately preceding, but not including, the effective date of the Change of Control as reported on the principal U.S. securities exchange on which the common stock is then traded, or (y) the
average of the last quoted bid prices for the companys
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common stock in the over-the-counter market as reported by OTC Markets Group Inc. or similar organization
for the ten consecutive trading days immediately preceding, but not including, the effective date of the Change of Control, if the common stock is not then listed for trading on a U.S. securities exchange.
If, prior to the Change of Control Conversion Date, the company has provided or provides a redemption notice, whether pursuant to its special optional
redemption right in connection with a Change of Control or its optional redemption right, holders of series L preferred stock will not have any right to convert the series L preferred stock into shares of the common stock in connection with the
Change of Control and any shares of series L preferred stock selected for redemption that have been tendered for conversion will be redeemed on the related date of redemption instead of converted on the Change of Control Conversion Date.
Except as provided above in connection with a Change of Control, the series L preferred stock is not convertible into or exchangeable for any other securities
or property.
Transfer Agent and Registrar
The
transfer agent and registrar for the series L preferred stock is American Stock Transfer & Trust Company, LLC.
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DESCRIPTION OF DEBT SECURITIES AND RELATED GUARANTEES
The following is a description of the general terms and provisions of our operating partnerships debt securities and related guarantees by Digital
Realty Trust, Inc., if applicable. When our operating partnership offers to sell a particular series of debt securities, we will describe the specific terms of the series in a supplement to this prospectus, including the terms of any related
guarantees by Digital Realty Trust, Inc. and the terms, if any, on which a series of debt securities may be convertible into or exchangeable for other securities. We will also indicate in the prospectus supplement whether the general terms and
provisions described in this prospectus apply to a particular series of debt securities. To the extent the information contained in the prospectus supplement differs from this summary description, you should rely on the information in the prospectus
supplement.
The debt securities may be offered in the form of either senior debt securities or subordinated debt securities. Unless otherwise specified
in a prospectus supplement, the debt securities will be the direct, unsecured obligations of Digital Realty Trust, L.P., and will rank equally in right of payment with all of Digital Realty Trust, L.P.s other unsecured and unsubordinated
indebtedness. The debt securities that are sold may be exchangeable for and/or convertible into common stock or any of the other securities that may be sold under this prospectus.
Unless otherwise specified in a prospectus supplement, the debt securities will be issued under an indenture between us and Wells Fargo Bank, National
Association, as trustee, or the trustee. We have summarized select portions of the indenture below. The summary is not complete. We have filed the indenture as an exhibit to the registration statement of which this prospectus is a part, and you
should read the indenture and our debt securities carefully for provisions that may be important to you. Capitalized terms used in the summary and not defined in this prospectus have the meaning specified in the indenture.
General
The terms of each series of debt securities will
be established by or pursuant to a resolution of the companys board of directors and set forth or determined in the manner provided in an officers certificate or by a supplemental indenture. The particular terms of each series of debt
securities will be described in a prospectus supplement relating to such series, including any pricing supplement.
Unless otherwise specified in a
prospectus supplement, the indenture will designate Wells Fargo Bank, National Association as the trustee for the indenture with respect to one or more series of our operating partnerships debt securities and related guarantees of our company,
if applicable. Wells Fargo Bank, National Association, or any other specified trustee, may resign or be removed with respect to one or more series of our debt securities, and a successor trustee may be appointed to act with respect to that series.
Unless otherwise specified in a supplement to this prospectus, the debt securities will be our operating partnerships direct, unsecured obligations
and will rank equally with all of its other unsecured and unsubordinated indebtedness, and may be fully and unconditionally guaranteed by the company. We can issue an unlimited amount of our operating partnerships debt securities under the
indenture that may be in one or more series with the same or various maturities, at par, at a premium, or at a discount. We will set forth in a prospectus supplement, including any pricing supplement, relating to any series of debt securities being
offered, the aggregate principal amount and the following terms of such series of debt securities, to the extent applicable:
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the title of the series (which shall distinguish the debt securities of that particular series from the debt
securities of any other series); |
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the price or prices (expressed as a percentage of the principal amount thereof) at which the debt securities of
the series will be issued; |
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any limit on the aggregate principal amount of the debt securities of the series that may be authenticated and
delivered under the indenture (except for debt securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other debt securities of the series pursuant to the indenture); |
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the date or dates on which the principal of the debt securities of the series is payable; |
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the rate or rates (which may be fixed or variable) per annum or, if applicable, the method used to determine such
rate or rates (including, but not limited to, any commodity, commodity index, stock exchange index or financial index) at which the debt securities of the series shall bear interest, if any, the date or dates from which such interest, if any, shall
accrue, the date or dates on which interest, if any, shall commence and be payable and any regular record date for the interest payable on any interest payment date; |
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the place or places where principal of, and premium, if any, and interest, if any, on the debt securities shall
be payable and the method of such payment, if by wire transfer, mail or other means, and the place or places where debt securities may be surrendered for registration of transfer or exchange and where notices or demands to or upon us relating to
debt securities and the indenture may be served; |
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if applicable, the period or periods within which, the price or prices at which and the terms and conditions upon
which the debt securities of the series may be redeemed, in whole or in part, at our option; |
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the obligation, if any, by us to redeem or purchase the debt securities of the series pursuant to any sinking
fund or analogous provisions or at the option of a holder thereof and the period or periods within which, the price or prices at which, the currency or currencies in which and the other terms and conditions upon which debt securities of the series
shall be redeemed or purchased, in whole or in part, pursuant to such obligation; |
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the dates, if any, on which and the price or prices at which the debt securities of the series will be
repurchased by us at the option of the holders thereof and other detailed terms and provisions of such repurchase obligations; |
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if other than denominations of $1,000 and any integral multiple thereof, the denominations in which the debt
securities shall be issuable; |
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the forms of the debt securities of the series and whether the debt securities will be issuable as global
securities; |
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if other than the principal amount thereof, the portion of the principal amount of the debt securities of the
series that shall be payable upon declaration of acceleration of the maturity thereof pursuant to the indenture; |
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the currency of denomination of the debt securities of the series, which may be in U.S. dollars or any foreign
currency; |
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the designation of the currency, currencies or currency units in which payment of the principal of, and premium,
if any, and interest, if any, on, the debt securities of the series will be made; |
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if payments of principal of, and premium, if any, and interest, if any, on, the debt securities of the series are
to be made in one or more currencies or currency units other than that or those in which such debt securities are denominated, the manner in which the exchange rate with respect to such payments will be determined; |
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the manner in which the amounts of payment of principal of, premium, if any, or interest, if any, on the debt
securities of the series will be determined, if such amounts may be determined by reference to an index based on a currency or currencies or by reference to a commodity, commodity index, stock exchange index or financial index;
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the provisions, if any, relating to any security provided for the debt securities of the series or the
guarantees, if any, thereof; |
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any addition to, change in or deletion from the events of default that apply to any debt securities of the series
and any change in the right of the trustee or the requisite holders of such debt securities to declare the principal amount thereof due and payable pursuant to the indenture; |
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any addition to or change in the covenants described in this prospectus or in the indenture with respect to the
debt securities of the series; |
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the depositaries, interest rate calculation agents, exchange rate calculation agents or other agents, if any,
with respect to the debt securities of the series, if other than as described in this prospectus or the indenture; |
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the provisions, if any, relating to conversion of any debt securities of the series, including if applicable, the
conversion price, the conversion period, the securities or other property into which such debt securities will be convertible, provisions as to whether conversion will be mandatory, at the option of the holders thereof or at our option, the events
requiring an adjustment of the conversion price and provisions affecting conversion if such debt securities are redeemed; |
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whether the debt securities of the series will be senior debt securities or subordinated debt securities and, if
applicable, the subordination terms thereof; |
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whether the debt securities of the series are entitled to the benefits of a guarantee pursuant to the indenture,
the terms of such guarantee and whether any such guarantee is made on a senior or subordinated basis and, if applicable, the subordination terms of any such guarantee; |
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a discussion of additional material U.S. federal income tax consequences, if any, applicable to an investment in
such debt securities; and |
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any other terms of the debt securities of the series (which terms may supplement, modify or delete any provision
of the indenture insofar as it applies to such series). |
In addition, the indenture does not limit our operating partnerships
ability to issue convertible or subordinated debt securities. Any conversion or subordination provisions of a particular series of debt securities will be set forth in the officers certificate or supplemental indenture related to that series
of debt securities and will be described in the relevant prospectus supplement. Such terms may include provisions for conversion, either mandatory, at the option of the holder or at our option, in which case the number of shares of common stock,
cash or other securities to be received by the holders of debt securities would be calculated as of a time and in the manner stated in the prospectus supplement.
We may issue debt securities of our operating partnership that provide for an amount less than their stated principal amount to be due and payable upon
declaration of acceleration of their maturity pursuant to the terms of the indenture. We will provide you with information on the other special considerations applicable to any such debt securities in the applicable prospectus supplement.
If we denominate the purchase price of any of our operating partnerships debt securities in a foreign currency or currencies or a foreign currency unit
or units, or if the principal of and premium, if any, and interest, if any, on any series of debt securities is payable in a foreign currency or currencies or a foreign currency unit or units, we will provide you with information on the
restrictions, elections, specific terms and other information with respect to that issue of debt securities and such foreign currency or currencies or foreign currency unit or units in the applicable prospectus supplement.
Transfer and Exchange
Each debt security will be
represented by either one or more global securities registered in the name of The Depository Trust Company, as depositary, or a nominee (we will refer to any debt security represented by a
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global debt security as a book-entry debt security), or a certificate issued in definitive registered form (we will refer to any debt security represented by a certificated security
as a certificated debt security) as set forth in the applicable prospectus supplement. Except as set forth under the heading Global Debt Securities and Book-Entry System below, book-entry debt securities will not be issuable
in certificated form.
Certificated Debt Securities
You may transfer or exchange certificated debt securities at any office we designate for this purpose in accordance with the terms of the indenture. No service
charge will be made for any transfer or exchange of certificated debt securities, but we may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection with a transfer or exchange.
You may effect the transfer of certificated debt securities and the right to receive the principal of, and premium and interest on, certificated debt
securities only by surrendering the certificate representing those certificated debt securities and either reissuance by us or the trustee of the certificate to the new holder or the issuance by us or the trustee of a new certificate to the new
holder.
Global Debt Securities and Book-Entry System
Each global debt security representing book-entry debt securities will be deposited with, or on behalf of, the depositary, and registered in the name of the
depositary or a nominee of the depositary.
We will require the depositary to agree to follow the following procedures with respect to book-entry debt
securities.
Ownership of beneficial interests in book-entry debt securities will be limited to persons who have accounts with the depositary for the
related global debt security, which we refer to as participants, or persons who may hold interests through participants. Upon the issuance of a global debt security, the depositary will credit, on its book-entry registration and transfer system, the
participants accounts with the respective principal amounts of the book-entry debt securities represented by such global debt security beneficially owned by such participants. The accounts to be credited will be designated by any dealers,
underwriters or agents participating in the distribution of the book-entry debt securities. Ownership of book-entry debt securities will be shown on, and the transfer of such ownership interests will be effected only through, records maintained by
the depositary for the related global debt security (with respect to interests of participants) and on the records of participants (with respect to interests of persons holding through participants). The laws of some states may require that certain
purchasers of securities take physical delivery of such securities in definitive form. These laws may impair the ability to own, transfer or pledge beneficial interests in book-entry debt securities.
So long as the depositary for a global debt security, or its nominee, is the registered owner of that global debt security, the depositary or its nominee, as
the case may be, will be considered the sole owner or holder of the book-entry debt securities represented by such global debt security for all purposes under the indenture. Except as described below, beneficial owners of book-entry debt securities
will not be entitled to have securities registered in their names, will not receive or be entitled to receive physical delivery of a certificate in definitive form representing securities and will not be considered the owners or holders of those
securities under the indenture. Accordingly, each person beneficially owning book-entry debt securities must rely on the procedures of the depositary for the related global debt security and, if such person is not a participant, on the procedures of
the participant through which such person owns its interest, to exercise any rights of a holder under the indenture.
We understand, however, that under
existing industry practice, the depositary will authorize the persons on whose behalf it holds a global debt security to exercise certain rights of holders of debt securities, and the indenture provides that we, the trustee and our respective agents
will treat as the holder of a debt security the persons specified in a written statement of the depositary with respect to that global debt security for purposes of obtaining any consents or directions required to be given by holders of the debt
securities pursuant to the indenture.
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We will make payments of principal of, and premium and interest on, book-entry debt securities to the depositary
or its nominee, as the case may be, as the registered holder of the related global debt security. We, the trustee and any other agent of ours or agent of the trustee will not have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in a global debt security or for maintaining, supervising or reviewing any records relating to beneficial ownership interests.
We expect that the depositary, upon receipt of any payment of principal of, and premium or interest on, a global debt security, will immediately credit
participants accounts with payments in amounts proportionate to the respective amounts of book-entry debt securities held by each participant as shown on the records of such depositary. We also expect that payments by participants to owners of
beneficial interests in book-entry debt securities held through those participants will be governed by standing customer instructions and customary practices, as is now the case with the securities held for the accounts of customers registered in
street name, and will be the responsibility of those participants.
We will issue certificated debt securities in exchange for each global
debt security if the depositary is at any time unwilling or unable to continue as depositary or ceases to be a clearing agency registered under the Exchange Act and a successor depositary registered as a clearing agency under the Exchange Act is not
appointed by us within 90 days. In addition, we may at any time and in our sole discretion determine not to have the book-entry debt securities of any series represented by one or more global debt securities and, in that event, will issue
certificated debt securities in exchange for the global debt securities of that series. Any certificated debt securities issued in exchange for a global debt security will be registered in such name or names as the depositary shall instruct the
trustee. We expect that such instructions will be based upon directions received by the depositary from participants with respect to ownership of book-entry debt securities relating to such global debt security.
We have obtained the foregoing information concerning the depositary and the depositarys book-entry system from sources we believe to be reliable, but
we take no responsibility for the accuracy of this information.
No Protection in the Event of a Change of Control
Unless we state otherwise in the applicable prospectus supplement, the debt securities will not contain any provisions that may afford holders of the debt
securities protection in the event we have a change in control or in the event of a highly leveraged transaction (whether or not such transaction results in a change in control) that could adversely affect holders of debt securities.
Covenants
We will set forth in the applicable prospectus
supplement any restrictive covenants applicable to any issue of debt securities.
Consolidation, Merger and Sale of Assets
Digital Realty Trust, L.P. and Digital Realty Trust, Inc. may consolidate with, or sell, lease or convey all or substantially all of their respective assets
to, or merge with or into, any other entity, provided that the following conditions are met:
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Digital Realty Trust, L.P. or Digital Realty Trust, Inc., as the case may be, shall be the continuing entity, or
the successor entity (if other than Digital Realty Trust, L.P. or Digital Realty Trust, Inc., as the case may be) formed by or resulting from any consolidation or merger or which shall have received the transfer of assets shall expressly assume
payment of the principal of and interest on all of the debt securities and the due and punctual performance and observance of all of the covenants and conditions in the indenture; |
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immediately after giving effect to the transaction, no Event of Default under the indenture, and no event which,
after notice or the lapse of time, or both, would become an Event of Default, shall have occurred and be continuing; and |
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an officers certificate and legal opinion covering these conditions shall be delivered to the trustee.
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Events of Default
Event of
default means, with respect to any series of debt securities, any of the following:
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default in the payment of any interest upon any debt security of that series when it becomes due and payable, and
continuance of that default for a period of 30 days (unless the entire amount of the payment is deposited by us with the trustee or with a paying agent prior to the expiration of the 30-day period);
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default in the payment of principal of or premium on any debt security of that series when due and payable;
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default in the performance or breach of any other covenant or warranty by us in the indenture (other than a
covenant or warranty that has been included in the indenture solely for the benefit of a series of debt securities other than that series), which default continues uncured for a period of 60 days after we receive written notice of such default from
the trustee or we and the trustee receive written notice of such default from the holders of not less than a majority in principal amount of the outstanding debt securities of that series as provided in the indenture; |
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certain events of bankruptcy, insolvency or reorganization of our company; and |
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any other event of default provided with respect to debt securities of that series that is described in the
applicable prospectus supplement accompanying this prospectus. |
No event of default with respect to a particular series of debt
securities (except as to certain events of bankruptcy, insolvency or reorganization) necessarily constitutes an event of default with respect to any other series of debt securities. The occurrence of an event of default may constitute an event of
default under our bank credit agreements in existence from time to time. In addition, the occurrence of certain events of default or an acceleration under the indenture may constitute an event of default under certain of our other indebtedness
outstanding from time to time.
If an event of default with respect to debt securities of any series at the time outstanding occurs and is continuing,
then the trustee or the holders of not less than 25% of the principal amount of the outstanding debt securities of that series may, by a notice in writing to us (and to the trustee if given by the holders), declare to be due and payable immediately
the principal (or, if the debt securities of that series are discount securities, that portion of the principal amount as may be specified in the terms of that series) of, and accrued and unpaid interest, if any, on all debt securities of that
series. In the case of an event of default resulting from certain events of bankruptcy, insolvency or reorganization, the principal (or such specified amount) of and accrued and unpaid interest, if any, on all outstanding debt securities will become
and be immediately due and payable without any declaration or other act on the part of the trustee or any holder of outstanding debt securities. At any time after a declaration of acceleration with respect to debt securities of any series has been
made, but before a judgment or decree for payment of the money due has been obtained by the trustee, the holders of a majority in principal amount of the outstanding debt securities of that series may rescind and annul the acceleration if all events
of default, other than the non-payment of accelerated principal and interest, if any, with respect to debt securities of that series, have been cured or waived as provided in the indenture. We refer you to the
prospectus supplement relating to any series of debt securities that are discount securities for the particular provisions relating to acceleration of a portion of the principal amount of such discount securities upon the occurrence of an event of
default.
The indenture provides that the trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request
of any holder of outstanding debt securities, unless the trustee receives indemnity
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satisfactory to it against any loss, liability or expense. Subject to certain rights of the trustee, the holders of a majority in principal amount of the outstanding debt securities of any series
will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee or exercising any trust or power conferred on the trustee with respect to the debt securities of that series.
No holder of any debt security of any series will have any right to institute any proceeding, judicial or otherwise, with respect to the indenture or for the
appointment of a receiver or trustee, or for any remedy under the indenture, unless:
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that holder has previously given to the trustee written notice of a continuing event of default with respect to
debt securities of that series, and |
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the holders of at least a majority in principal amount of the outstanding debt securities of that series have
made written request, and offered reasonable indemnity, to the trustee to institute the proceeding as trustee, and the trustee has not received from the holders of a majority in principal amount of the outstanding debt securities of that series a
direction inconsistent with that request and has failed to institute the proceeding within 60 days. |
Notwithstanding the foregoing, the
holder of any debt security will have an absolute and unconditional right to receive payment of the principal of, premium and any interest on that debt security on or after the due dates expressed in that debt security and to institute suit for the
enforcement of payment.
The indenture requires us, within 120 days after the end of our fiscal year, to furnish to the trustee a statement as to
compliance with the indenture. The indenture provides that the trustee may withhold notice to the holders of debt securities of any series of any default or event of default (except in payment on any debt securities of that series) with respect to
debt securities of that series if it in good faith determines that withholding notice is in the interest of the holders of those debt securities.
Modification and Waiver
We may modify and amend the
indenture with the consent of the holders of at least a majority in principal amount of the outstanding debt securities of each series affected by the modifications or amendments. We may not make any modification or amendment without the consent of
the holders of each affected debt security then outstanding if that amendment will:
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reduce the amount of debt securities whose holders must consent to an amendment or waiver, |
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reduce the rate of or extend the time for payment of interest (including default interest) on any debt security,
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reduce the principal of or premium on or change the fixed maturity of any debt security or reduce the amount of,
or postpone the date fixed for, the payment of any sinking fund or analogous obligation with respect to any series of debt securities, |
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reduce the principal amount of discount securities payable upon acceleration of maturity, |
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waive a default in the payment of the principal of or premium or interest on any debt security (except a
rescission of acceleration of the debt securities of any series by the holders of at least a majority in aggregate principal amount of the then outstanding debt securities of that series and a waiver of the payment default that resulted from such
acceleration), |
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make the principal of or premium or interest on any debt security payable in currency other than that stated in
the debt security, |
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make any change to certain provisions of the indenture relating to, among other things, the right of holders of
debt securities to receive payment of the principal of and premium and interest on those debt |
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securities and to institute suit for the enforcement of any such payment and to waivers or amendments, or |
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waive a redemption payment with respect to any debt security. |
Except for certain specified provisions, the holders of at least a majority in principal amount of the outstanding debt securities of any series may on behalf
of the holders of all debt securities of that series waive our compliance with provisions of the indenture. The holders of a majority in principal amount of the outstanding debt securities of any series may on behalf of the holders of all the debt
securities of such series waive any past default under the indenture with respect to that series and its consequences, except a default in the payment of the principal of, or premium or any interest on, any debt security of that series; provided,
however, that the holders of a majority in principal amount of the outstanding debt securities of any series may rescind an acceleration and its consequences, including any related payment default that resulted from the acceleration.
Defeasance of Debt Securities and Certain Covenants in Certain Circumstances
Legal Defeasance
The indenture provides that,
unless otherwise provided by the terms of the applicable series of debt securities, we may be discharged from any and all obligations in respect of the debt securities of any series (except for certain obligations to register the transfer or
exchange of debt securities of such series, to replace stolen, lost or mutilated debt securities of such series, and to maintain paying agencies and certain provisions relating to the treatment of funds held by paying agents). We will be so
discharged upon the deposit with the trustee, in trust, of money and/or U.S. government obligations or, in the case of debt securities denominated in a single currency other than U.S. dollars, foreign government obligations, that, through the
payment of interest and principal in accordance with their terms, will provide money in an amount sufficient in the opinion of a nationally recognized firm of independent public accountants to pay and discharge each installment of principal, premium
and interest on and any mandatory sinking fund payments in respect of the debt securities of that series on the stated maturity of those payments in accordance with the terms of the indenture and those debt securities.
This discharge may occur only if, among other things, we have delivered to the trustee an opinion of counsel stating that we have received from, or there has
been published by, the United States Internal Revenue Service, or IRS, a ruling or, since the date of execution of the indenture, there has been a change in the applicable U.S. federal income tax law, in either case to the effect that, and based
thereon such opinion shall confirm that, the holders of the outstanding debt securities of that series will not recognize income, gain or loss for U.S. federal income tax purposes as a result of the deposit, defeasance and discharge and will be
subject to U.S. federal income tax on the same amounts and in the same manner and at the same times as would have been the case if the deposit, defeasance and discharge had not occurred.
Defeasance of Certain Covenants
The indenture
provides that, unless otherwise provided by the terms of the applicable series of debt securities, upon compliance with certain conditions:
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we may omit to comply with the covenant described under the heading Consolidation, Merger and Sale of
Assets and certain other covenants set forth in the indenture, as well as any additional covenants that may be set forth in the applicable prospectus supplement, and |
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any omission to comply with those covenants will not constitute a default or an event of default with respect to
the debt securities of that series, or covenant defeasance. |
The conditions include:
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depositing with the trustee money and/or U.S. government obligations or, in the case of debt securities
denominated in a single currency other than U.S. dollars, foreign government obligations, that, through |
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the payment of interest and principal in accordance with their terms, will provide money in an amount sufficient in the opinion of a nationally recognized firm of independent public accountants
to pay and discharge each installment of principal of, premium and interest on and any mandatory sinking fund payments in respect of the debt securities of that series on the stated maturity of those payments in accordance with the terms of the
indenture and those debt securities, and |
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delivering to the trustee an opinion of counsel to the effect that the holders of the debt securities of that
series will not recognize income, gain or loss for U.S. federal income tax purposes as a result of the deposit and related covenant defeasance and will be subject to U.S. federal income tax on the same amounts and in the same manner and at the same
times as would have been the case if the deposit and related covenant defeasance had not occurred. |
Covenant Defeasance and Events
of Default
In the event we exercise our option to effect covenant defeasance with respect to any series of debt securities and the debt securities
of that series are declared due and payable because of the occurrence of any event of default, the amount of money and/or U.S. government obligations or foreign government obligations on deposit with the trustee will be sufficient to pay amounts due
on the debt securities of that series at the time of their stated maturity but may not be sufficient to pay amounts due on the debt securities of that series at the time of the acceleration resulting from the event of default. In such a case, we
would remain liable for those payments.
Foreign Government Obligations means, with respect to debt securities of any series that are
denominated in a currency other than U.S. dollars:
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direct obligations of the government that issued or caused to be issued such currency for the payment of which
obligations its full faith and credit is pledged which are not callable or redeemable at the option of the issuer thereof, or |
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obligations of a person controlled or supervised by or acting as an agency or instrumentality of that government
the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by that government which are not callable or redeemable at the option of the issuer thereof. |
Governing Law
The indenture and the debt securities will
be governed by, and construed in accordance with, the laws of the State of New York without regard to conflict of law principles that would result in the application of any law other than the law of the State of New York.
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RESTRICTIONS ON OWNERSHIP AND TRANSFER
The following summary with respect to restrictions on ownership and transfer of Digital Realty Trust, Inc.s stock sets forth certain general terms
and provisions of the companys charter documents to which any prospectus supplement may relate. This summary does not purport to be complete and is subject to and qualified in its entirety by reference to the companys charter documents,
as amended and supplemented from time to time, including any articles supplementary relating to any issuance of preferred stock pursuant to this prospectus. Copies of the companys existing charter documents are filed with the SEC and are
incorporated by reference as exhibits to the registration statement of which this prospectus is a part. Any amendment or supplement to the companys charter documents relating to an issuance of securities pursuant to this prospectus shall be
filed with the SEC and shall be incorporated by reference as an exhibit to the applicable prospectus supplement. See Where You Can Find More Information.
In order for the company to qualify as a REIT under the Internal Revenue Code of 1986, as amended, or the Code, the companys stock must be beneficially
owned by 100 or more persons during at least 335 days of a taxable year of 12 months (other than the first year for which an election to be a REIT has been made) or during a proportionate part of a shorter taxable year. Also, not more than 50% of
the value of the outstanding shares of stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities such as qualified pension plans) during the last half of a taxable year (other than
the first year for which an election to be a REIT has been made).
The companys charter contains restrictions on the ownership and transfer of the
common stock, preferred stock and capital stock that are intended to assist the company in complying with these requirements and continuing to qualify as a REIT. The relevant sections of the companys charter provide that, subject to the
exceptions described below, no person or entity may beneficially own, or be deemed to own by virtue of the applicable constructive ownership provisions of the Code, more than 9.8% (by value or by number of shares, whichever is more restrictive) of
the outstanding shares of the common stock or of any series of preferred stock, or more than 9.8% of the value of the companys outstanding capital stock. The company refers to these restrictions as the common stock ownership limit,
the preferred stock ownership limit and the aggregate stock ownership limit, respectively. A person or entity that becomes subject to one of the ownership limits by virtue of a violative transfer that results in a transfer to
a trust, as set forth below, is referred to as a purported beneficial transferee if, had the violative transfer been effective, the person or entity would have been a record owner and beneficial owner or solely a beneficial owner of the
common stock, any series of the companys preferred stock, or the companys capital stock, as applicable, or is referred to as a purported record transferee if, had the violative transfer been effective, the person or entity
would have been solely a record owner of the common stock, any series of the companys preferred stock, or the companys capital stock, as applicable.
The constructive ownership rules under the Code are complex and may cause stock owned actually or constructively by a group of related individuals and/or
entities to be owned constructively by one individual or entity. As a result, the acquisition of less than 9.8% of the common stock or any series of the companys preferred stock or less than 9.8% of the value of the companys outstanding
capital stock (or the acquisition of an interest in an entity that owns, actually or constructively, the companys capital stock) by an individual or entity could, nevertheless, cause that individual or entity, or another individual or entity,
to own constructively more than 9.8% of the companys outstanding common stock or a series of the companys preferred stock or capital stock, as applicable, and thereby subject such stock to the applicable ownership limit.
The companys board of directors may, in its sole discretion waive, prospectively or retroactively, the common stock ownership limit or aggregate stock
ownership limit with respect to the beneficial ownership of a particular stockholder if it determines that such waiver will not cause any individuals beneficial ownership of shares of the companys capital stock to violate the aggregate
stock ownership limit and that any exemption from the applicable ownership limit will not jeopardize the companys status as a REIT.
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The companys board of directors may, in its sole discretion waive, prospectively or retroactively, the
common stock ownership limit or aggregate stock ownership limit with respect to the constructive ownership of a particular stockholder if it determines that such stockholder does not and will not own, actually or constructively, an interest in a
tenant of the company (or a tenant of any entity owned in whole or in part by the company) that would cause the company to own, actually or constructively, more than a 9.8% interest (as set forth in Section 856(d)(2)(B) of the Code) in such
tenant or that any such ownership would not cause the company to fail to qualify as a REIT under the Code.
The companys board of directors may
also, in its sole discretion waive, prospectively or retroactively, the preferred stock ownership limit with respect to a particular stockholder if it determines that such waiver will not: (1) cause any individuals beneficial ownership of
shares of the companys capital stock to violate the aggregate stock ownership limit, or (2) jeopardize the companys status as a REIT.
As
a condition of the companys waiver, the companys board of directors may require an opinion of counsel or IRS ruling satisfactory to the companys board of directors, and/or representations or undertakings from the applicant with
respect to preserving the companys REIT status.
In connection with a waiver of an ownership limit or at any other time, the companys board of
directors may increase the applicable ownership limit for one or more persons and decrease the applicable ownership limit for all other persons and entities; provided, however, that the decreased ownership limit will not be effective for any person
or entity whose percentage ownership in the common stock, any series of the companys preferred stock or capital stock, as applicable, exceeds the decreased ownership limit until such time as such person or entitys percentage ownership
equals or falls below the decreased ownership limit; but any further acquisition of the companys common, preferred or capital stock, as applicable, in excess of such percentage ownership will be in violation of the applicable ownership limit.
Additionally, the new ownership limit, as applicable, may not allow five or fewer stockholders to beneficially own more than 49% in value of the companys outstanding capital stock.
The companys charter further prohibits:
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any person from beneficially or constructively owning shares of the companys stock that would result in our
being closely held under Section 856(h) of the Code or otherwise cause the company to fail to qualify as a REIT; and |
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any person from transferring shares of the companys capital stock if such transfer would result in shares
of the companys stock being beneficially owned by fewer than 100 persons (determined without reference to any rules of attribution). |
Any person who acquires or attempts or intends to acquire beneficial or constructive ownership of shares of the companys stock that will or may violate
any of the foregoing restrictions on transferability and ownership will be required to give notice immediately to the company and provide the company with such other information as it may request in order to determine the effect of such transfer on
the companys status as a REIT. The foregoing provisions on transferability and ownership will not apply if the companys board of directors determines that it is no longer in the companys best interests to attempt to qualify, or to
continue to qualify, as a REIT.
Pursuant to the companys charter, if any purported transfer of the companys stock or any other event would
otherwise result in any person violating the ownership limits or such other limit as established by the companys board of directors or would result in the company being closely held under Section 856(h) of the Code or
otherwise failing to qualify as a REIT, then that number of shares in excess of the applicable ownership limit or causing us to be closely held or otherwise to fail to qualify as a REIT (rounded up to the nearest whole share) will be
automatically transferred to, and held by, a trust for the exclusive benefit of one or more charitable organizations selected by the company and the intended transferee will acquire no rights in such shares. The automatic transfer will be effective
as of the close of business on the business day prior to the date of the
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violative transfer or other event that results in the transfer to the trust. Any dividend or other distribution paid to the purported record transferee that are owed by the purported record
transferee to the trust as described above, must be repaid to the trustee upon demand for distribution to the beneficiary of the trust, and the trustee may reduce the amount payable to the purported record transferee upon the sale of the shares
transferred to the trustee (as described below) by the amount of any such dividends or other distributions which have not been repaid to the trustee. If the transfer to the trust as described above is not automatically effective, for any reason, to
prevent a violation of the applicable ownership limit or the companys being closely held or otherwise failing to qualify as a REIT, then the companys charter provides that the transfer of the shares in excess of the ownership
limit will be void. If any transfer would result in shares of the companys stock being beneficially owned by fewer than 100 persons, then any such purported transfer will be void and of no force or effect and the intended transferee will
acquire no rights in the shares.
Shares of the companys stock transferred to the trustee are deemed offered for sale to the company, or the
companys designee, at a price per share equal to the lesser of (1) the price paid by the purported record transferee for the shares (or, if the event which resulted in the transfer to the trust did not involve a purchase of such shares of
the companys stock at market price, the last sales price reported on the NYSE on the trading day immediately preceding the day of the event which resulted in the transfer of such shares of the companys stock to the trust) and
(2) the market price on the date the company, or its designee, accepts such offer. The company may reduce the amount payable to the purported record transferee by the amount of dividends and distributions which have been paid to the purported
record transferee and are owed by the purported record transferee to the trustee. The company will pay the amount of such reduction to the trustee for the benefit of the charitable beneficiary. The company has the right to accept such offer until
the trustee has sold the shares of the companys stock held in the trust pursuant to the clauses discussed below. Upon a sale to the company, the interest of the charitable beneficiary in the shares sold terminates and the trustee must
distribute the net proceeds of the sale to the purported record transferee and any dividends or other distributions held by the trustee with respect to such stock will be paid to the charitable beneficiary.
If the company does not buy the shares, the trustee must, within 20 days of receiving notice from the company 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 common stock ownership limit or the preferred stock ownership limit, as applicable, and the aggregate stock ownership limit or such other limit as
established by the companys board of directors. After that, the trustee must distribute to the purported record transferee an amount equal to the lesser of (1) the price paid by the purported record transferee or owner for the shares (or,
if the event which resulted in the transfer to the trust did not involve a purchase of such shares at market price, the last sales price reported on the NYSE on the trading day immediately preceding the day of the event which resulted in the
transfer of such shares of the companys stock to the trust) and (2) the sales proceeds (net of commissions and other expenses of sale) received by the trustee for the shares. The trustee may reduce the amount payable to the purported
record transferee by the amount of dividends and distributions which have been paid to the purported record transferee and are owed by the purported record transferee to the trustee. Any net sales proceeds in excess of the amount payable to the
purported record transferee will be immediately paid to the charitable beneficiary, together with any dividends or other distributions thereon. In addition, if prior to discovery by the company that shares of the companys stock have been
transferred to a trust, such shares of stock are sold by a purported record transferee, then such shares shall be deemed to have been sold on behalf of the trust and to the extent that the purported record transferee received an amount for or in
respect of such shares that exceeds the amount that such purported record transferee was entitled to receive, such excess amount shall be paid to the trustee upon demand. The purported beneficial transferee or purported record transferee has no
rights in the shares held by the trustee.
The trustee will be designated by the company and will be unaffiliated with the company and with any purported
record transferee or purported beneficial transferee. Prior to the sale of any shares in excess of the common stock ownership limit, the preferred stock ownership limit or the aggregate stock ownership limit by the trust, the trustee will receive,
in trust for the beneficiary, all dividends and other distributions paid by the company with
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respect to the shares in excess of the applicable ownership limit, and may also exercise all voting rights with respect to such shares.
Subject to Maryland law, effective as of the date that the shares have been transferred to the trust, the trustee will have the authority, at the
trustees sole discretion:
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to rescind as void any vote cast by a purported record transferee prior to the companys discovery that the
shares have been transferred to the trust; and |
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to recast the vote in accordance with the desires of the trustee acting for the benefit of the beneficiary of the
trust. |
However, if the company has already taken irreversible corporate action, then the trustee may not rescind and recast the vote.
In addition, if the companys board of directors or other permitted designees determine in good faith that a proposed transfer would violate the
restrictions on ownership and transfer of the companys stock set forth in the companys charter, the companys board of directors or other permitted designees will take such action as it deems or they deem advisable to refuse to give
effect to or to prevent such transfer, including, but not limited to, causing the company to redeem shares of common stock or preferred stock, refusing to give effect to the transfer on the companys books or instituting proceedings to enjoin
the transfer.
Any beneficial owner or constructive owner of shares of the companys stock and any person or entity (including the stockholder of
record) who is holding shares of the companys stock for a beneficial owner must, on request, provide the company with a completed questionnaire containing the information regarding the ownership of such shares, as set forth in the applicable
Treasury Regulations. In addition, any person or entity that is a beneficial owner or constructive owner of shares of the companys stock and any person or entity (including the stockholder of record) who is holding shares of the companys
stock for a beneficial owner or constructive owner shall, on request, be required to disclose to the company in writing such information as the company may request in order to determine the effect, if any, of such stockholders actual and
constructive ownership of shares of the companys stock on the companys status as a REIT and to ensure compliance with the common stock ownership limit, the preferred stock ownership limit and the aggregate stock ownership limit, or as
otherwise permitted by the companys board of directors.
All certificates representing shares of the companys common stock and preferred stock
bear a legend referring to the restrictions described above.
These restrictions on ownership and transfer could delay, defer or prevent a transaction or
a change of control of the company that might involve a premium price for the companys stock or otherwise be in the best interest of the companys stockholders.
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DESCRIPTION OF THE PARTNERSHIP AGREEMENT OF DIGITAL REALTY TRUST,
L.P.
The following is only a summary of certain terms and provisions of the Nineteenth Amended and Restated Agreement of Limited Partnership of
Digital Realty Trust, L.P., as amended, which we refer to as the partnership agreement, and is subject to, and qualified in its entirety by, the partnership agreement, a copy of which is filed as an exhibit to the registration statement of which
this prospectus is a part.
Voting Rights
Under
the partnership agreement, Digital Realty Trust, Inc., as the operating partnerships sole general partner, exercises exclusive and complete responsibility and discretion in the operating partnerships day-to-day management and control, can cause the operating partnership to enter into major transactions including acquisitions, dispositions and refinancings, subject to certain limited exceptions, and may
not be removed as general partner by the limited partners. The limited partners do not have voting rights relating to the operating partnerships operation and management, except in connection with matters, as described more fully below,
involving amendments to the partnership agreement and transfers of the general partners interest.
The limited partners expressly acknowledged that
Digital Realty Trust, Inc., as the operating partnerships general partner, is acting for the benefit of the operating partnership, its limited partners and Digital Realty Trust, Inc.s stockholders collectively. Neither Digital Realty
Trust, Inc. nor its board of directors is under any obligation to give priority to the separate interests of the limited partners or Digital Realty Trust, Inc.s stockholders in deciding whether to cause the operating partnership to take or
decline to take any actions. If there is a conflict between the interests of Digital Realty Trust, Inc.s stockholders on one hand and the operating partnerships limited partners on the other, Digital Realty Trust, Inc. will endeavor in
good faith to resolve the conflict in a manner not adverse to either Digital Realty Trust, Inc.s stockholders or the operating partnerships limited partners; provided, however, that for so long as Digital Realty Trust, Inc. owns a
controlling interest in the operating partnership, any conflict that cannot be resolved in a manner not adverse to either Digital Realty Trust, Inc.s stockholders or the operating partnerships limited partners will be resolved in favor
of Digital Realty Trust, Inc.s stockholders. Digital Realty Trust, Inc. is not liable under the partnership agreement to the operating partnership or to any partner for monetary damages for losses sustained, liabilities incurred, or benefits
not derived by limited partners in connection with such decisions, provided, that it has acted in good faith.
Transferability of Interests
Except in connection with a transaction described in Termination Transactions below, Digital Realty Trust, Inc., as general partner, may not
voluntarily withdraw from, or transfer or assign all or any portion of its interest in, the operating partnership without the consent of the holders of a majority of the limited partnership interests. Any transfer of units by the limited partners,
except to immediate family members, to a trust for the benefit of a charitable beneficiary, to a lending institution as collateral for a bona fide loan or to an affiliate or member of such limited partner, will be subject to a right of first refusal
by Digital Realty Trust, Inc. All transfers must be made only to accredited investors as defined under Rule 501 of the Securities Act.
Amendments to the Partnership Agreement
Amendments to
the partnership agreement may be proposed by Digital Realty Trust, Inc., as general partner, or by limited partners owning at least 25% of the units held by limited partners.
Generally, the partnership agreement may not be amended, modified or terminated without the approval of limited partners (other than limited partners 50% or
more of whose equity is owned, directly or indirectly, by Digital Realty Trust, Inc. as general partner) holding a majority of all outstanding units held by limited partners.
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As general partner, Digital Realty Trust, Inc. has the power to unilaterally make certain amendments to the
partnership agreement without obtaining the consent of the limited partners as may be required to:
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add to Digital Realty Trust, Inc.s obligations as general partner or surrender any right or power granted
to it as general partner for the benefit of the limited partners; |
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reflect the issuance of additional units or the admission, substitution, termination or withdrawal of partners in
accordance with the partnership agreement; |
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set forth or amend the designations, rights, powers, duties and preferences of the holders of any additional
units issued in accordance with the partnership agreement; |
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reflect a change of an inconsequential nature that does not adversely affect the limited partners in any material
respect, or cure any ambiguity, correct or supplement any provisions of the partnership agreement not inconsistent with law or with other provisions of the partnership agreement, or make other changes concerning matters under the partnership
agreement that will not otherwise be inconsistent with the partnership agreement or law; |
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satisfy any requirements, conditions or guidelines of federal or state law; |
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reflect changes that are reasonably necessary for Digital Realty Trust, Inc., as general partner, to maintain its
status as a REIT; or |
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modify the manner in which capital accounts are computed. |
Amendments that would, among other things, convert a limited partners interest into a general partners interest, modify the limited liability of a
limited partner, alter a partners right to receive any distributions or allocations of profits or losses, adversely alter or modify the redemption rights or alter the protections of the limited partners in connection with termination
transactions described below must be approved by each limited partner that would be adversely affected by such amendment.
In addition, without the
written consent of a majority of the units held by limited partners (other than limited partners 50% or more of whose equity is owned, directly or indirectly, by Digital Realty Trust, Inc. as general partner), Digital Realty Trust, Inc., as general
partner, may not do any of the following:
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take any action in contravention of an express prohibition or limitation contained in the partnership agreement;
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perform any act that would subject a limited partner to liability as a general partner in any jurisdiction or any
liability not contemplated in the partnership agreement; |
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enter into any contract, mortgage, loan or other agreement that prohibits or restricts, or has the effect of
prohibiting or restricting, the ability of a limited partner to exercise its redemption/exchange rights explained below; |
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enter into or conduct any business other than in connection with its role as the operating partnerships
general partner and its operation as a REIT; |
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acquire an interest in real or personal property other than through the operating partnership;
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withdraw from the operating partnership or transfer any portion of its general partnership interest; or
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be relieved of its obligations under the partnership agreement following any permitted transfer of its general
partnership interest. |
Distributions to Unitholders
The partnership agreement provides that holders of common units are entitled to receive quarterly distributions of available cash on a pro rata basis in
accordance with their respective percentage interests. Digital Realty Trust,
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Inc., as the sole holder of the operating partnerships series C preferred units, series G preferred units, series I preferred units, series J preferred units, series K preferred units and
series L preferred units receives distributions from the operating partnership with respect to such preferred units in order to make the distributions to series C preferred stockholders, series G preferred stockholders, series I preferred
stockholders, series J preferred stockholders, series K preferred stockholders and series L preferred stockholders of Digital Realty Trust, Inc.
Redemption/Exchange Rights
Limited partners have the
right to require the operating partnership to redeem part or all of their units for cash based upon the fair market value of an equivalent number of shares of Digital Realty Trust, Inc. common stock at the time of the redemption. Alternatively,
Digital Realty Trust, Inc. may elect to acquire those units in exchange for shares of Digital Realty Trust, Inc. common stock. Digital Realty Trust, Inc.s acquisition will be on a
one-for-one basis, subject to adjustment in the event of stock splits, stock dividends, issuances of stock rights, specified extraordinary distributions and similar
events. Digital Realty Trust, Inc. presently anticipates that it will elect to issue shares of its common stock in exchange for units in connection with each redemption request, rather than having the operating partnership redeem the units for cash.
With each redemption or exchange, Digital Realty Trust, Inc.s percentage ownership interest in the operating partnership increases. Limited partners who hold units may exercise this redemption right from time to time, in whole or in part,
except when, as a consequence of shares of Digital Realty Trust, Inc. common stock being issued, any persons actual or constructive stock ownership would exceed Digital Realty Trust, Inc.s ownership limits, or any other limit as provided
in its charter or as otherwise determined by its board of directors.
In addition, if the number of units delivered by a limited partner for redemption
would, if exchanged for common stock, exceed 9.8% of Digital Realty Trust, Inc.s outstanding common stock and $50.0 million in gross value (based on a unit value equal to the trailing ten-day daily
price of Digital Realty Trust, Inc. common stock) and Digital Realty Trust, Inc. is eligible to file a registration statement on Form S-3 under the Securities Act, then it may also elect to redeem the units
with the proceeds from a public offering or private placement of its common stock. In the event it elects this option, Digital Realty Trust, Inc. may require the other limited partners also to elect whether or not to participate. If it does so, any
limited partner who does not elect to participate will not be permitted to redeem units for the subsequent 12 months, subject to limited exceptions. Participating limited partners will receive on the redemption date the lesser of the cash the
operating partnership would otherwise be required to pay for such units or the net proceeds per share in the public offering, but will have a limited opportunity to withdraw their units from the redemption immediately prior to the pricing of the
public offering. Except as described above, a limited partner is not entitled to redeem common units, either for cash or shares of Digital Realty Trust, Inc. common stock, if exchanging the common units for shares of Digital Realty Trust, Inc.
common stock would violate the ownership limits set forth in Digital Realty Trust, Inc.s charter.
Partnership Right to Call Limited Partner
Interests
At any time a limited partner owns fewer than 20,000 units or if a limited partner owns (i) partnership units that were granted as
profits interest units to such limited partner on or after September 21, 2018 and/or (ii) partnership units that were acquired by such limited partner as a result of the conversion of profits interest units that were granted to such
limited partner on or after September 21, 2018, then at any time following the second anniversary of the date on which such limited partner ceases to provide services to the operating partnership, the general partner shall have the right, but
not the obligation, from time to time to redeem all outstanding units owned by such limited partner.
Issuance of Additional Common Units, Preferred
Units, Common Stock, Preferred Stock or Convertible Securities
As the operating partnerships sole general partner, Digital Realty Trust, Inc.
has the ability to cause the operating partnership to issue additional units representing general and limited partnership interests. These additional units may include preferred limited partnership units. In addition, Digital Realty Trust, Inc. may
issue
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additional shares of its common stock or convertible securities, but only if it causes the operating partnership to issue to it partnership interests or rights, options, warrants or convertible
or exchangeable securities of the operating partnership having designations, preferences and other rights, so that the economic interests of the operating partnerships interests issued are substantially similar to the economic interests of the
securities that Digital Realty Trust, Inc. has issued.
Tax Matters
Digital Realty Trust, Inc. is the operating partnerships partnership representative for U.S. federal income tax purposes and, as such, it has
authority under the Code to handle tax audits and other proceedings on the operating partnerships behalf. Further, as the operating partnerships general partner, Digital Realty Trust, Inc. generally has the authority to make tax
elections under the Code on the operating partnerships behalf.
Allocations of Net Income and Net Losses to Partners
The operating partnerships net income will generally be allocated to Digital Realty Trust, Inc. to the extent of the accrued preferred return on its
preferred units, and then to Digital Realty Trust, Inc., as general partner, and the limited partners in accordance with the respective percentage interests in the common units issued by the operating partnership. Net loss will generally be
allocated to Digital Realty Trust, Inc., as general partner, and the limited partners in accordance with the respective common percentage interests in the operating partnership until the limited partners capital is reduced to zero and any
remaining net loss would be allocated to Digital Realty Trust, Inc. However, in some cases, losses may be disproportionately allocated to partners who have guaranteed our debt. The allocations described above are subject to special allocations
relating to depreciation deductions and to compliance with the provisions of Sections 704(b) and 704(c) of the Code and the associated Treasury Regulations.
In addition, Digital Realty Trust, Inc. may from time to time issue long-term incentive units, which are also referred to as profits interest units, to
persons who provide services to the company for such consideration or for no consideration as it may determine to be appropriate, and admit such persons as limited partners. The long-term incentive units are similar to the operating
partnerships common units in many respects and rank pari passu with the operating partnerships common units as to the payment of regular and special periodic or other distributions except liquidating distributions. The long-term
incentive units may be subject to vesting requirements. Initially, long-term incentive units do not have full parity with common units with respect to liquidating distributions. If such parity is reached, vested long-term incentive units may be
converted into an equal number of common units of the operating partnership at any time, and thereafter enjoy all the rights of common units of the operating partnership, including redemption rights.
In order to achieve full parity with common units, long-term incentive units must be fully vested and the holders capital account balance in respect of
such long-term incentive units must be equal to the capital account balance of a holder of an equivalent number of common units. The capital account balance attributable to each common unit is generally expected to be the same, in part because of
the amount credited to a partners capital account upon their contribution of property to the operating partnership, and in part because the partnership agreement provides, in most cases, that allocations of income, gain, loss and deduction
(which will adjust the partners capital accounts) are to be made to the common units on a proportionate basis. As a result, with respect to a number of long-term incentive units, it is possible to determine the capital account balance of an
equivalent number of common units by multiplying the number of long-term incentive units by the capital account balance with respect to a common unit.
A
partners initial capital account balance is equal to the amount the partner paid (or contributed to the operating partnership) for its units and is subject to subsequent adjustments, including with respect to the partners share of
income, gain or loss of the operating partnership. Because a holder of long-term incentive units generally will not pay for the long-term incentive units, the initial capital account balance attributable to such long-term incentive
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units will be zero. However, the operating partnership is required to allocate income, gain, loss and deduction to the partners capital accounts in accordance with the terms of the
partnership agreement, subject to applicable Treasury Regulations. The partnership agreement provides that holders of long-term incentive units will receive special allocations of gain in the event of a sale or hypothetical sale of
assets of the operating partnership prior to the allocation of gain to Digital Realty Trust, Inc. or other limited partners with respect to their common units. The amount of such allocation will, to the extent of any such gain, be equal to the
difference between the capital account balance of a holder of long-term incentive units attributable to such units and the capital account balance attributable to an equivalent number of common units. If and when such gain allocation is fully made,
a holder of long-term incentive units will have achieved full parity with holders of common units. To the extent that, upon an actual sale or a hypothetical sale of the operating partnerships assets as described above, there is not
sufficient gain to allocate to a holders capital account with respect to long-term incentive units, or if such sale or hypothetical sale does not occur, such units will not achieve parity with common units.
The term hypothetical sale refers to circumstances that are not actual sales of the operating partnerships assets but that require certain
adjustments to the value of the operating partnerships assets and the partners capital account balances. Specifically, the partnership agreement provides that, from time to time, in accordance with applicable Treasury Regulations, the
operating partnership will adjust the value of its assets to equal their respective fair market values, and adjust the partners capital accounts, in accordance with the terms of the partnership agreement, as if the operating partnership sold
its assets for an amount equal to their value. Times for making such adjustments generally include the liquidation of the operating partnership, the acquisition of an additional interest in the operating partnership by a new or existing partner in
exchange for more than a de minimis capital contribution, the distribution by the operating partnership to a partner of more than a de minimis amount of partnership property as consideration for an interest in the operating partnership, in
connection with the grant of an interest in the operating partnership (other than a de minimis interest) as consideration for the performance of services to or for the benefit of the operating partnership (including the grant of a long-term
incentive unit), the issuance by the operating partnership of certain noncompensatory options, the acquisition of a partnership interest upon the exercise of a noncompensatory option and at such other times as may be desirable or required to comply
with the Treasury Regulations.
The operating partnership may also from time to time issue class C profits interest units, or class C units, or class D
profits interest units, or class D units, to persons who provide services to it for such consideration or for no consideration as it may determine to be appropriate. If all applicable performance and other vesting conditions are satisfied with
respect to a class C unit or a class D unit, the class C unit or class D unit, as applicable, will be treated in the same manner as the long-term incentive units issued by the operating partnership. Class C units and class D units are not
entitled to quarterly distributions prior to the satisfaction of all applicable performance conditions. In addition, the operating partnership may issue class D units that are subject to performance vesting, which generally receive quarterly per-unit distributions equal to ten percent of the distributions made with respect to an equivalent number of common units. Class C units and class D units, other than class D units that are not performance
vested, are subject to the same conditions as other long-term incentive units with respect to achieving full parity with common units.
Operations
The partnership agreement provides that Digital Realty Trust, Inc., as general partner, will determine in its discretion and distribute available cash
on a quarterly basis, pro rata in accordance with the partners percentage interests. Available cash is the operating partnerships net operating cash flow plus the reduction of any reserves and minus principal payment on debt and capital
expenditures, investments in any entity, and increase in reserves or working capital accounts and any amounts paid in redemption of limited partner interests.
The partnership agreement provides that the operating partnership will assume and pay when due, or reimburse Digital Realty Trust, Inc. for payment of all
costs and expenses relating to the operating partnerships operations, or for the operating partnerships benefit.
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Termination Transactions
The partnership agreement provides that Digital Realty Trust, Inc. may not engage in any merger, consolidation or other combination with or into another
person, sale of all or substantially all of its assets or any reclassification or any recapitalization or change in outstanding shares of its common stock, which we refer to as a termination transaction, unless in connection with a termination
transaction:
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it obtains the consent of the holders of at least 35% of the operating partnerships common units and
long-term incentive units (including units held by it), and |
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all limited partners will receive, or have the right to elect to receive, for each common unit an amount of
cash, securities or other property equal to the product of: |
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the number of shares of Digital Realty Trust, Inc. common stock into which each unit is then exchangeable, and
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the greatest amount of cash, securities or other property paid to the holder of one share of Digital Realty
Trust, Inc. common stock in consideration of one share of Digital Realty Trust, Inc. common stock in connection with the termination transaction, |
provided that, if, in connection with a termination transaction, a purchase, tender or exchange offer is made to and accepted by the holders of more than 50%
of the outstanding shares of Digital Realty Trust, Inc. common stock, each holder of common units will receive, or will have the right to elect to receive, the greatest amount of cash, securities or other property which such holder would have
received had it exercised its redemption right and received shares of Digital Realty Trust, Inc. common stock in exchange for its common units immediately prior to the expiration of such purchase, tender or exchange offer and accepted such purchase,
tender or exchange offer; or
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the following conditions are met: |
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substantially all of the assets of the surviving entity are held directly or indirectly by the operating
partnership or another limited partnership or limited liability company which is the surviving partnership of a merger, consolidation or combination of assets with the operating partnership; |
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the holders of common units and long-term incentive units own a percentage interest of the surviving partnership
based on the relative fair market value of the operating partnerships net assets and the other net assets of the surviving partnership immediately prior to the consummation of this transaction; |
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the rights, preferences and privileges of such unit holders in the surviving partnership are at least as
favorable as those in effect immediately prior to the consummation of the transaction and as those applicable to any other limited partners or non-managing members of the surviving partnership; and
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the limited partners may exchange their interests in the surviving partnership for either the consideration
available to the limited partners pursuant to paragraph (A) in this section, or the right to redeem their common units for cash on terms equivalent to those in effect with respect to their common units immediately prior to the consummation of
the transaction, or, if the ultimate controlling person of the surviving partnership has publicly traded common equity securities, shares of those common equity securities, at an exchange ratio based on the relative fair market value of those
securities and Digital Realty Trust, Inc. common stock. |
Term
The operating partnership will continue in full force and effect until December 31, 2104, or until sooner dissolved in accordance with the operating
partnerships terms or as otherwise provided by law.
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Indemnification and Limitation of Liability
To the extent permitted by applicable law, the partnership agreement indemnifies Digital Realty Trust, Inc., as general partner, and its officers, directors,
employees, agents and any other persons it may designate from and against any and all claims arising from the operating partnerships operations in which any indemnitee may be involved, or is threatened to be involved, as a party or otherwise,
unless it is established that:
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the act or omission of the indemnitee was material to the matter giving rise to the proceeding and either was
committed in bad faith, constituted fraud or was the result of active and deliberate dishonesty; |
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the indemnitee actually received an improper personal benefit in money, property or services; or
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in the case of any criminal proceeding, the indemnitee had reasonable cause to believe that the act or omission
was unlawful. |
Similarly, Digital Realty Trust, Inc., as the operating partnerships general partner, and its officers, directors,
agents or employees, are not liable or accountable to the operating partnership for losses sustained, liabilities incurred or benefits not derived as a result of errors in judgment or mistakes of fact or law or any act or omission so long as Digital
Realty Trust, Inc. acted in good faith.
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MATERIAL PROVISIONS OF MARYLAND LAW AND OF THE CHARTER AND BYLAWS OF
DIGITAL REALTY TRUST, INC.
The following summary of certain provisions of Maryland law and of Digital Realty Trust, Inc.s charter and bylaws
does not purport to be complete and is subject to and qualified in its entirety by reference to Maryland law and the companys charter and bylaws, copies of which are exhibits to the registration statement of which this prospectus is a part.
See Where You Can Find More Information.
The Companys Board of Directors
The companys bylaws provide that the number of directors of the company may be established by the companys board of directors but may not be fewer
than the minimum number permitted under the MGCL or more than 15. Except as may be provided by the companys board of directors in setting the terms of any class or series of stock, any vacancy may be filled only by a vote of a majority of the
remaining directors, even if the remaining directors do not constitute a quorum. Any director elected to fill a vacancy shall serve for the remainder of the full term of the directorship in which the vacancy occurred and until a successor is elected
and qualifies.
Each of the companys directors is elected by the companys common stockholders to serve until the next annual meeting and until
their successors are duly elected and qualify. Holders of shares of the companys common stock will have no right to cumulative voting in the election of directors. Consequently, at each annual meeting of stockholders, the holders of a majority
of the shares of the common stock will be able to elect all of the companys directors. Additionally, in the event that the company is in arrears on dividends on the companys series C preferred stock, series G preferred stock, series I
preferred stock, series J preferred stock, series K preferred stock or series L preferred stock for six or more quarterly periods, whether or not consecutive, holders of the companys series C preferred stock, series G preferred stock, series I
preferred stock, series J preferred stock, series K preferred stock or series L preferred stock as the case may be, voting as a single class with all other series of preferred stock upon which like voting rights have been conferred and are
exercisable, will have the right to elect two additional directors to the companys board for a limited time.
Removal of Directors
The companys charter provides that a director may be removed only for cause (as defined in the companys charter) and only by the affirmative vote
of stockholders entitled to cast at least two-thirds of the votes entitled to be cast generally in the election of directors. This provision, when coupled with the exclusive power of the companys board
of directors to fill vacant directorships, precludes stockholders from (1) removing incumbent directors except upon the existence of cause for removal and a substantial affirmative vote and (2) filling the vacancies created by such removal
with their own nominees. In addition, any director elected to the companys board by the holders of the companys preferred stock may only be removed by a vote of preferred stockholders.
Business Combinations
Under the MGCL, certain
business combinations (including a merger, consolidation, share exchange or, in certain circumstances, an asset transfer or issuance or reclassification of equity securities) between a Maryland corporation and any interested stockholder,
or an affiliate of such an interested stockholder, are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. Maryland law defines an interested stockholder as any person who
beneficially owns, directly or indirectly, 10% or more of the voting power of the corporations outstanding voting stock or an affiliate or associate of the corporation who, at any time within the
two-year period prior to the date in question, was the beneficial owner of, directly or indirectly, 10% or more of the voting power of the then outstanding stock of the corporation. 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. The companys board of directors may provide that its approval is
subject to compliance with any terms and conditions determined by it.
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After such five-year period, any such business combination must be recommended by the board of directors of such
corporation and approved by the affirmative vote of at least (1) 80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation and (2) 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 by an affiliate or associate of the interested
stockholder, unless, among other conditions, the corporations 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.
These provisions of the MGCL do not apply, however, to business combinations that are approved or exempted by a
board of directors prior to the time that the interested stockholder becomes an interested stockholder. Pursuant to the statute, the companys board of directors has by resolution opted out of the business combination provisions of the MGCL
and, consequently, the five-year prohibition and the supermajority vote requirements will not apply to business combinations between us and any interested stockholder of the company. As a result, anyone who later becomes an interested stockholder
may be able to enter into business combinations with the company that may not be in the best interest of the companys stockholders without compliance by the company with the super-majority vote requirements and the other provisions of the
statute. The company cannot assure you that its board of directors will not opt to be subject to such business combination provisions in the future.
Control Share Acquisitions
The MGCL provides that
control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved at a special meeting by the affirmative vote of stockholders entitled to cast two-thirds of the votes entitled to be cast on the matter, excluding shares of stock in a corporation in respect of which any of the following persons is entitled to exercise or direct the exercise of the voting
power of shares of stock of the corporation in the election of directors: (1) a person who makes or proposes to make a control share acquisition, (2) an officer of the corporation or (3) an employee of the corporation who is also a
director of the corporation. Control shares are voting shares of stock which, if aggregated with all other such shares of stock previously acquired by the acquiror or in respect of which the acquiror is able to exercise or direct the
exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquiror to exercise voting power in electing directors within one of the following ranges of voting power:
(1) one-tenth or more but less than one-third, (2) one-third or more but less than a majority, or (3) a majority
or more of all voting power. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A control share acquisition means the acquisition of 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), may compel the companys 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 control shares. If
no request for a meeting is made, the corporation may itself present the question at any stockholders meeting.
If voting rights of control shares
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 any or all of the control shares
(except those for which voting rights have previously been approved) for fair value determined, without regard to the absence of voting rights for the control shares, as of the date of any meeting of stockholders at which the voting rights of such
shares are considered and not approved or, if no such meeting is held, as of the date of the last control share acquisition by the acquiror. If voting rights for control shares are approved at a stockholders meeting and the acquiror becomes
entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of such appraisal rights may not be less than the highest price per share paid
by the acquiror in the control share acquisition.
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The control share acquisition statute does not apply (1) to shares acquired in a merger, consolidation or
share exchange if the corporation is a party to the transaction or (2) to acquisitions approved or exempted by the charter or bylaws of the corporation.
The companys bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions by any person of the
companys stock. The company cannot provide you any assurance that its board of directors will not amend or eliminate this provision at any time in the future.
Subtitle 8
Title 3, Subtitle 8 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 of (1) a classified board of directors, (2) a two-thirds vote requirement for removing a director, (3) a requirement that
the number of directors be fixed only by vote of the directors, (4) a requirement that a vacancy on the board of directors be filled only by the remaining directors and for the remainder of the full term of the class of directors in which the
vacancy occurred, or (5) a majority requirement for the calling of a stockholder-requested special meeting of stockholders. Pursuant to Subtitle 8, the company has elected to provide that vacancies on its board of directors may be filled only
by the remaining directors and for the remainder of the full term of the directorship in which the vacancy occurred. Through provisions in the companys charter and bylaws unrelated to Subtitle 8, the company already requires a two-thirds vote for the removal of any director from the board of directors, vests in the board of directors the exclusive power to fix the number of directorships and requires, unless called by the chairman of the
companys board of directors, or the companys president, chief executive officer or board of directors, the written request of stockholders entitled to cast a majority of all the votes entitled to be cast on any matter that may be
properly considered at a meeting of stockholders to call a special meeting to act on such matter.
Amendments to the Companys Charter and Bylaws
The companys charter generally may be amended only if such amendment is declared advisable by the companys board of directors and approved
by the affirmative vote of stockholders entitled to cast a majority of all of the votes entitled to be cast on the matter. In the case of an amendment that would materially and adversely affect the companys series C preferred stock, series G
preferred stock, series I preferred stock, series J preferred stock, series K preferred stock or series L preferred stock, the consent of the holders of two-thirds of the outstanding shares of the
companys series C preferred stock, series G preferred stock, series I preferred stock, series J preferred stock, series K preferred stock or series L preferred stock, as the case may be, voting as a single class with all other classes or
series of preferred stock ranking on parity with respect to the payment of dividends and distribution of assets upon the companys liquidation and upon which like voting rights have been conferred is also required. However, the companys
charters provisions regarding removal of directors and the vote required for certain amendments may be amended only if such amendment is declared advisable by the companys board of directors and approved by the affirmative vote of
stockholders entitled to cast not less than two-thirds of all the votes entitled to be cast on the matter. The companys board of directors has the power to adopt, alter or repeal any provision of the
companys bylaws or to make new bylaws. Additionally, a stockholder or group of up to ten stockholders who have continuously owned 3% of the companys common stock for at least three years and who have met certain other requirements set
forth in the companys bylaws may propose amendments to the bylaws. Any such proposed amendment must be approved by the affirmative vote of stockholders entitled to cast a majority of all votes entitled to be cast on the matter.
Transactions Outside the Ordinary Course of Business
The
company may not merge with or into another company, convert to another entity, sell all or substantially all of its assets, engage in a share exchange or engage in similar transactions outside the ordinary course of business
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unless the transaction is declared advisable by the companys board of directors and approved by the affirmative vote of stockholders entitled to cast a majority of all of the votes entitled
to be cast on the matter. In the case of any such transaction that would materially and adversely affect the companys series C preferred stock, series G preferred stock, series I preferred stock, series J preferred stock, series K preferred
stock or series L preferred stock, the company will also require the consent of the holders of two-thirds of the outstanding shares of the companys series C preferred stock, series G preferred stock,
series I preferred stock, series J preferred stock, series K preferred stock or series L preferred stock, as the case may be, voting as a single class with all other classes or series of preferred stock ranking on parity with respect to the payment
of dividends and distribution of assets upon the companys liquidation and upon which like voting rights have been conferred, provided, however, that if, upon the occurrence of such a transaction, series C preferred stock, series G
preferred stock, series I preferred stock, series J preferred stock, series K preferred stock or series L preferred stock, as the case may be, remains outstanding with materially unchanged terms, taking into account that the company may not be the
surviving entity, then the transaction will not be deemed to materially and adversely affect the companys series C preferred stock, series G preferred stock, series I preferred stock, series J preferred stock, series K preferred stock or
series L preferred stock. Furthermore, the companys charter expressly provides that the consent of series G, series I, series J, series K or series L preferred stockholders is not required for a transaction if, pursuant to such a transaction,
series G, series I, series J, series K and series L preferred stockholders receive the greater of the full trading price of the series G preferred stock, series I preferred stock, series J preferred stock, series K preferred stock or series L
preferred stock, as the case may be, on the date of the transaction or the liquidation preference.
Dissolution of the Company
The dissolution of the company must be declared advisable by a majority of the companys entire board of directors and approved by the affirmative vote of
stockholders entitled to cast a majority of all of the votes entitled to be cast on the matter.
Advance Notice of Director Nominations and New
Business
The companys bylaws provide that:
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with respect to an annual meeting of stockholders, nominations of individuals for election to the companys
board of directors and the proposal of business to be considered by stockholders may be made only: |
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pursuant to the companys notice of the meeting; |
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by or at the direction of the companys board of directors; or |
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by a stockholder who is 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 annual meeting, at the time of giving the advance notice required by the companys bylaws and at the time of the meeting (and any postponement or adjournment thereof), who is entitled to vote
at the meeting in the election of each individual so nominated or any such other business and who has complied with the advance notice procedures set forth in the companys bylaws; and |
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with respect to special meetings of stockholders, only the business specified in the companys notice of
meeting may be brought before the meeting of stockholders and nominations of individuals for election to the companys board of directors may be made only: |
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by or at the direction of the companys board of directors; or |
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provided that the special meeting has been called in accordance with the bylaws for the purpose of electing
directors, by a stockholder who is a stockholder of record at the record date set by the Board of Directors for the purpose of determining stockholders entitled to vote at the annual
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meeting, at the time of giving the advance notice required by the companys bylaws and at the time of the meeting (and any postponement or adjournment thereof), who is entitled to vote at
the meeting and in the election of each individual so nominated who has complied with the advance notice provisions set forth in the companys bylaws. |
The advance notice procedures of the companys bylaws provide that, to be timely, a stockholders notice with respect to director nominations or
proposals for an annual meeting must be delivered to the companys corporate secretary at the companys principal executive office not earlier than the 150th day nor later than 5:00 p.m., Pacific Time, on the 120th day prior to the first
anniversary of the date of the proxy statement for the companys preceding years annual meeting. If 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
years annual meeting, to be timely, a stockholders notice must be delivered not earlier than the 150th day prior to the date of such annual meeting and not later than 5:00 p.m., Pacific time, on the later of the 120th day prior to
the date of such annual meeting, as originally convened, or the tenth day following the day on which public announcement of the date of such meeting is first made.
Proxy Access
The companys bylaws contain proxy
access provisions which permit any stockholder or group of up to 20 shareholders owning at least 3% of the companys outstanding shares of common stock continuously for at least three years to nominate and include up to a specified number of
director nominees in the companys proxy materials for an annual meeting of shareholders. The maximum number of stockholder nominees permitted under these proxy access provisions shall not exceed 20% of the total number of directors in office
as of the last day on which a stockholder nomination may be delivered.
Under such proxy access provisions, a stockholders written notice of
nominations of individuals for election to the companys board of directors to be included in the companys proxy statement for an annual meeting must be delivered to the secretary of the company at the companys principal executive
offices not earlier than the 150th day nor later than 5:00 p.m., Pacific Time, on the 120th day prior to the anniversary of the date of the proxy statement for the preceding years annual meeting of stockholders. Neither the postponement or
adjournment of an annual meeting, nor the public disclosure of such postponement or adjournment, commences a new time period for the giving of a stockholders written notice.
Anti-takeover Effect of Certain Provisions of Maryland Law and of the Companys Charter and Bylaws
The provisions of the companys charter on removal of directors and the advance notice provisions of the bylaws could delay, defer or prevent a
transaction or a change of control of the company that might involve a premium price for holders of the companys common stock or otherwise be in their best interest. Likewise, if the companys board of directors were to opt in to the
business combination provisions of the MGCL or the provisions of Title 3, Subtitle 8 of the MGCL not already applicable to the company, or if the provision in the bylaws opting out of the control share acquisition provisions of the MGCL were
rescinded, these provisions of the MGCL could have similar anti-takeover effects.
Ownership Limit
The companys charter provides that no person or entity may beneficially own, or be deemed to own by virtue of the applicable constructive ownership
provisions of the Code, more than 9.8% (by value or by number of shares, whichever is more restrictive) of the outstanding shares of the companys common stock or any series of preferred stock or more than 9.8% of the value of the
companys outstanding capital stock. The company refers to these restrictions as the ownership limits. For a fuller description of this restriction and the constructive ownership rules, see Restrictions on Ownership and
Transfer.
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Indemnification and Limitation of Directors and Officers Liability
The MGCL 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 actual receipt of an improper benefit or profit in money, property or services or active and deliberate dishonesty established by a final judgment as being material to the cause of
action. The companys charter contains such a provision which eliminates such liability to the maximum extent permitted by Maryland law.
The MGCL
requires a corporation (unless its charter provides otherwise, which the companys 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 or threatened to be made a party by reason of his or her service in that capacity. The MGCL permits a corporation to indemnify its 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 are threatened to be made a party by reason of their service in those or other capacities unless it is established that:
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the act or omission of the director or officer was material to the matter giving rise to the proceeding, and:
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was committed in bad faith; or |
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was the result of active and deliberate dishonesty; |
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the director or officer actually received an improper personal benefit in money, property or services; or
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in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or
omission was unlawful. |
However, under the MGCL, a Maryland corporation may not indemnify for an adverse judgment in a suit by or in the
right of the corporation or for a judgment of liability on the basis that personal benefit was improperly received, unless in either case a court orders indemnification and then only for expenses. In addition, the MGCL permits a corporation to
advance reasonable expenses to a director or officer upon the corporations receipt of:
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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 the corporation; and |
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a written undertaking by the director or officer or on the directors or officers behalf to repay the
amount paid or reimbursed by the corporation if it is ultimately determined that the director or officer did not meet the standard of conduct. |
The companys charter authorizes the company to obligate it and the companys bylaws obligate it, to the maximum extent permitted by Maryland law in
effect from time to time, to indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, pay or reimburse reasonable expenses in advance of final disposition of a proceeding to:
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any present or former director or officer who is made or threatened to be made a party to the proceeding by
reason of his or her service in that capacity; or |
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any individual who, while a director or officer of the company and at the companys request, serves or has
served at another corporation, REIT, partnership, joint venture, trust, limited liability company, employee benefit plan or any other enterprise as a director, officer, partner, trustee, member or manager and who is made or threatened to be made a
party to the proceeding by reason of his or her service in that capacity. |
The rights to indemnification and advance of expenses
provided by the companys charter and bylaws shall vest immediately upon election of a director or officer.
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The companys charter and bylaws also permit the company 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.
The partnership agreement provides that the company, as general partner, and the companys officers and directors are indemnified to the fullest extent
permitted by law. See Description of the Partnership Agreement of Digital Realty Trust, L.P.Indemnification and Limitation of Liability. The company has also entered into indemnification agreements with each of its executive
officers and directors that obligate the company to indemnify them to the maximum extent permitted by Maryland law.
Insofar as the foregoing provisions
permit indemnification of directors, officers or persons controlling us for liability arising under the Securities Act, we have been informed that in the opinion of the SEC, this indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
Exclusive Forum
The companys bylaws provide that, unless the company consents in writing to the selection of an alternative forum, the Circuit Court for Baltimore City,
Maryland, or, if that Court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division, will be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the
company, (b) any action asserting a claim of breach of any duty owed by any director or officer or other employee of the company to the company or to the stockholders of the company, (c) any action asserting a claim against the company or
any director or officer or other employee of the company arising pursuant to any provision of the MGCL or the companys charter or bylaws, or (d) any action asserting a claim against the company or any director or officer or other employee
of the company that is governed by the internal affairs doctrine.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of certain material U.S. federal income tax considerations regarding our companys election to be taxed as a REIT, the
exercise of redemption rights with respect to the common units, and the acquisition, ownership or disposition of our capital stock or the operating partnerships debt securities. Supplemental U.S. federal income tax considerations relevant to
holders of the securities offered by this prospectus may be provided in the prospectus supplement that relates to those securities. For purposes of this discussion, references to we, our and us mean only Digital
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:
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the Internal Revenue Code of 1986, as amended, or the Code; |
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current, temporary and proposed Treasury regulations promulgated under the Code (the Treasury
Regulations); |
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the legislative history of the Code; |
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administrative interpretations and practices of the Internal Revenue Service, or the IRS; and
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in each case, as of the date of this prospectus. In addition, the administrative interpretations and practices of the IRS include its practices and policies
as expressed in private letter rulings that are not binding on the IRS except with respect to the particular taxpayers who requested and received those rulings. The sections of the Code and the corresponding Treasury Regulations that relate to
qualification and taxation as a REIT are highly technical and complex. The following discussion sets forth certain material aspects of the sections of the Code that govern the U.S. federal income tax treatment of a REIT and its stockholders and the
holders of the operating partnerships debt securities. 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 the operating partnerships debt
securities, or our election to be taxed as a REIT.
You are urged to consult your tax advisor regarding the tax consequences to you of:
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the exercise of redemption rights with respect to the common units; |
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the purchase, ownership and disposition of our capital stock or the operating partnerships debt
securities, including the U.S. federal, state, local, non-U.S. and other tax consequences; |
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our election to be taxed as a REIT for U.S. federal income tax purposes; and |
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potential changes in applicable tax laws. |
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Tax Consequences of the Exercise of Redemption Rights
If you are a holder of common units and you exercise your right to require our operating partnership to redeem all or part of your common units, and we elect
to acquire some or all of your common units in exchange for our common stock, the exchange will be a taxable transaction. You generally will recognize gain in an amount equal to the value of our common stock that you receive, plus the amount of
liabilities of the operating partnership allocable to your common units being exchanged, less your tax basis in those common units. The recognition of any loss may be subject to a number of limitations set forth in the Code. The character of any
gain or loss as capital or ordinary, or any gain as recapture gain under Section 1250 of the Code, will depend on the nature of the assets of the operating partnership at the time of the exchange. The tax treatment of any redemption of your
common units by the operating partnership in exchange for cash may be similar, depending on your circumstances.
Taxation of Our Company
General. We have elected to be taxed as a REIT under Sections 856 through 860 of the Code commencing with our taxable year ended
December 31, 2004. We believe that we have been organized and have operated in a manner that has allowed us to qualify for taxation as a REIT under the Code commencing with such taxable year, and we intend to continue to be organized and
operate in this manner. However, qualification and taxation as a REIT depend upon our ability to meet the various qualification tests imposed under the Code, including through actual operating results, asset composition, distribution levels and
diversity of stock ownership. Accordingly, no assurance can be given that we have been organized and have operated, or will continue to be organized and operate, in a manner so as to qualify or remain qualified as a REIT. See Failure to
Qualify for potential tax consequences if we fail to qualify as a REIT.
Latham & Watkins LLP has acted as our tax counsel in connection
with this prospectus and our election to be taxed as a REIT. Latham & Watkins LLP has rendered an opinion to us, as of the date of this prospectus, to the effect that, commencing with our taxable year ended December 31, 2004, we have
been organized and have operated in conformity with the requirements for qualification and taxation as a REIT under the Code, and our proposed method of operation will enable us to continue to meet the requirements for qualification and taxation as
a REIT under the Code. It must be emphasized that this opinion was based on various assumptions and representations as to factual matters, including representations made by us in a factual certificate provided by one 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 have not been and 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 have satisfied or will satisfy those requirements. Further, the anticipated U.S. federal income tax treatment described herein may be changed, perhaps
retroactively, by legislative, administrative or judicial action at any time. Latham & Watkins LLP has no obligation to update its opinion subsequent to the date of such opinion.
Provided we qualify for taxation as a REIT, we generally will not be required to pay U.S. federal corporate income taxes on our REIT taxable income that is
currently distributed to our stockholders. This treatment substantially eliminates the double taxation that ordinarily results from investment in a C corporation. A C corporation is a corporation that generally is required to pay tax at
the corporate level. Double taxation means taxation once at the corporate level when income is earned and once again at the stockholder level when the income is distributed. We will, however, be required to pay U.S. federal income tax as follows:
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First, we will be required to pay regular U.S. federal corporate income tax on any undistributed REIT taxable
income, including undistributed capital gain. |
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Second, if we have (1) net income from the sale or other disposition of foreclosure property
held primarily for sale to customers in the ordinary course of business or (2) other nonqualifying income |
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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. |
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Third, we will be required to pay a 100% tax on any net income from prohibited transactions. Prohibited
transactions are, in general, sales or other taxable dispositions of property, other than foreclosure property, held as inventory or primarily for sale to customers in the ordinary course of business. |
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Fourth, if we fail to satisfy the 75% gross income test or the 95% gross income test, as described below, but
have otherwise maintained our qualification as a REIT because certain other requirements are met, we will be required to pay a tax equal to (1) the greater of (A) the amount by which we fail to satisfy the 75% gross income test and
(B) the amount by which we fail to satisfy the 95% gross income test, multiplied by (2) a fraction intended to reflect our profitability. |
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Fifth, if we fail to satisfy any of the asset tests (other than a de minimis failure of the 5% or 10% asset
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. |
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Sixth, if we fail to satisfy any provision of the Code that would result in our failure to qualify as a REIT
(other than a violation of the gross income tests or certain violations of the asset tests, as described below) and the violation is due to reasonable cause and not due to willful neglect, we may retain our REIT qualification but we will be required
to pay a penalty of $50,000 for each such failure. |
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Seventh, we will be required to pay a 4% excise tax to the extent we fail to distribute during each calendar year
at least the sum of (1) 85% of our ordinary income for the year, (2) 95% of our capital gain net income for the year, and (3) any undistributed taxable income from prior periods. |
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Eighth, if we acquire any asset from a corporation that is or has been a C corporation in a transaction in which
our tax basis in the asset is less than the fair market value of the asset, in each case determined as of the date on which we acquired the asset, and we subsequently recognize gain on the disposition of the asset during the five-year period
beginning on the date on which we acquired the asset, then we generally will be required to pay regular U.S. federal corporate income tax on this gain to the extent of the excess of (1) the fair market value of the asset over (2) our
adjusted tax basis in the asset, in each case determined as of the date on which we acquired the asset. The results described in this paragraph with respect to the recognition of gain assume that the C corporation will refrain from making an
election to receive different treatment under applicable Treasury Regulations on its tax return for the year in which we acquire the asset from the C corporation. Under applicable Treasury Regulations, any gain from the sale of property we acquired
in an exchange under Section 1031 (a like-kind exchange) or Section 1033 (an involuntary conversion) of the Code generally is excluded from the application of this built-in gains tax.
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Ninth, our subsidiaries that are C corporations, including our taxable REIT subsidiaries described
below, generally will be required to pay regular U.S. federal corporate income tax on their earnings. |
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Tenth, we will be required to pay a 100% tax on any redetermined rents, redetermined
deductions, excess interest, or redetermined TRS service income, as described below under Penalty Tax. In general, redetermined rents are rents from real property that are overstated as a result of
services furnished to any of our tenants by a taxable REIT subsidiary of ours. Redetermined deductions and excess interest generally represent amounts that are deducted by a taxable REIT subsidiary of ours for amounts paid to us that are in excess
of the amounts that would have been deducted based on arms length negotiations. Redetermined TRS service income generally represents income of a taxable REIT subsidiary that is understated as a result of services provided to us or on our
behalf. |
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Eleventh, we may elect to retain and pay income tax on our net capital gain. In that case, a stockholder would
include its proportionate share of our undistributed 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. |
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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.
We own
properties in other countries, which impose taxes on our operations within their jurisdictions. To the extent possible, we will structure our activities to minimize our non-U.S. tax liability. However, there
can be no assurance that we will be able to eliminate our non-U.S. tax liability or reduce it to a specified level. Furthermore, as a REIT, both we and our stockholders will derive little or no benefit from
foreign tax credits arising from those non-U.S. taxes.
Requirements for Qualification as a REIT.
The Code defines a REIT as a corporation, trust or association:
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that is managed by one or more trustees or directors; |
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that issues transferable shares or transferable certificates to evidence its beneficial ownership;
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that would be taxable as a domestic corporation, but for Sections 856 through 860 of the Code;
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that is not a financial institution or an insurance company within the meaning of certain provisions of the
Code; |
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that is beneficially owned by 100 or more persons; |
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not more than 50% in value of the outstanding stock of which is owned, actually or constructively, by five or
fewer individuals, including certain specified entities, during the last half of each taxable year; and |
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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 have been
organized and have operated in a manner that has allowed us, and will continue to allow us, to satisfy conditions (1) through (7), inclusive, during the relevant time periods. In addition, our charter provides for restrictions regarding
ownership and transfer of our shares that are intended to assist us in continuing to satisfy the share ownership requirements described in conditions (5) and (6) above. A description of the share ownership and transfer restrictions relating to
our capital stock is contained in the discussion in this prospectus under the heading Restrictions on Ownership and Transfer. These restrictions, however, do not
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ensure that we have previously satisfied, and may not ensure that we will, in all cases, be able to continue to satisfy, the share ownership requirements described in conditions (5) and (6)
above. If we fail to satisfy these share ownership requirements, 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 Failure to Qualify.
In addition, we may not maintain our status as a REIT unless our taxable year is the calendar
year. We have and will continue to have a calendar taxable year.
Ownership of Interests in Partnerships, Limited Liability Companies and Qualified
REIT Subsidiaries. In the case of a REIT that is a partner in a partnership (for purposes of this discussion, references to partnership include a limited liability company treated as a partnership for U.S. federal income tax
purposes, and references to partner include a member in such a limited liability company), Treasury Regulations provide that the REIT will be deemed to own its proportionate share of the assets of the partnership based on its interest in
partnership capital, subject to special rules relating to the 10% asset test described below. Also, the REIT will be deemed to be entitled to its proportionate share of the income of that entity. The assets and gross income of the partnership retain
the same character in the hands of the REIT for purposes of Section 856 of the Code, including satisfying the gross income tests and the asset tests. Thus, our pro rata share of the assets and items of income of our operating partnership,
including our operating partnerships 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 below in Tax Aspects of Our
Operating Partnership and its Subsidiary Partnerships and Limited Liability Companies.
We have control of our operating partnership and most 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 corporations 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 below under Asset Tests.
Ownership of
Interests in Taxable REIT Subsidiaries. We, through our operating partnership, own interests in companies that have elected, together with us, to be treated as our taxable REIT subsidiaries and we may acquire
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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 REITs ownership of securities of a taxable REIT subsidiary is not subject to the 5% or 10% asset test described below. See Asset
Tests. For taxable years beginning after December 31, 2017, taxpayers are subject to a limitation on their ability to deduct net business interest generally equal to 30% of adjusted taxable income, subject to certain exceptions. See
Annual Distribution Requirements. While not certain, this provision may limit the ability of our taxable REIT subsidiaries to deduct interest, which could increase their taxable income.
Ownership of Interests in Subsidiary REITs. We may acquire direct or indirect interests in one or more entities that have elected or will elect
to be taxed as REITs under the Code (each, a Subsidiary REIT). A Subsidiary REIT is subject to the various REIT qualification requirements and other limitations described herein that are applicable to us. If a Subsidiary REIT were to
fail to qualify as a REIT, then (i) that Subsidiary REIT would become subject to U.S. federal income tax and (ii) the Subsidiary REITs failure to qualify could have an adverse effect on our ability to comply with the REIT income and
asset tests, and thus could impair our ability to qualify as a REIT unless we could avail ourselves of certain relief provisions.
Income
Tests. We must satisfy two gross income requirements annually to maintain our qualification as a REIT. First, in each taxable year we must derive directly or indirectly at least 75% of our gross income (excluding gross income from prohibited
transactions, certain hedging transactions and certain foreign currency gains) from investments relating to real property or mortgages on real property, including rents from real property, dividends from other REITs and, in certain
circumstances, interest, or certain types of temporary investments. Second, in each taxable year we must derive at least 95% of our gross income (excluding gross income from prohibited transactions, certain hedging transactions, and certain foreign
currency gains) from the real property investments described above or dividends, interest and gain from the sale or disposition of stock or securities, or from any combination of the foregoing. For these purposes, the term interest
generally does not include any amount received or accrued, directly or indirectly, if the determination of all or some of the amount depends in any way on the income or profits of any person. However, an amount received or accrued generally will not
be excluded from the term interest solely by reason of being based on a fixed percentage or percentages of receipts or sales.
Rents we
receive from a tenant will qualify as rents from real property for the purpose of satisfying the gross income requirements for a REIT described above only if all of the following conditions are met:
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The amount of rent is not based in whole or in part on the income or profits of any person. However, an amount we
receive or accrue generally will not be excluded from the term rents from real property solely because it is based on a fixed percentage or percentages of receipts or sales; |
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Neither we nor an actual or constructive owner of 10% or more of our capital stock actually or constructively
owns 10% or more of the interests in the assets or net profits of a non-corporate tenant, or, if the tenant is a corporation, 10% or more of the total combined voting power of all classes of stock entitled to
vote or 10% or more of the total value of all classes of stock of the tenant. Rents we receive from such a tenant that is a taxable REIT subsidiary of ours, however, will not be excluded from the definition of rents from real property as
a result of this condition if at least 90% of the space at the |
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property to which the rents relate is leased to third parties, and the rents paid by the taxable REIT subsidiary are substantially comparable to rents paid by our other tenants for comparable
space. Whether rents paid by a taxable REIT subsidiary are substantially comparable to rents paid by other tenants is determined at the time the lease with the taxable REIT subsidiary is entered into, extended, and modified, if such modification
increases the rents due under such lease. Notwithstanding the foregoing, however, if a lease with a controlled taxable REIT subsidiary is modified and such modification results in an increase in the rents payable by such taxable REIT
subsidiary, any such increase will not qualify as rents from real property. For purposes of this rule, a controlled taxable REIT subsidiary is a taxable REIT subsidiary in which the parent REIT owns stock possessing more than
50% of the voting power or more than 50% of the total value of the outstanding stock of such taxable REIT subsidiary; |
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Rent attributable to personal property, leased in connection with a lease of real property, is not greater than
15% of the total rent received under the lease. If this condition is not met, then the portion of the rent attributable to personal property will not qualify as rents from real property. To the extent that rent attributable to personal
property, leased in connection with a lease of real property, exceeds 15% of the total rent received under the lease, we may transfer a portion of such personal property to a taxable REIT subsidiary; and |
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We generally may not operate or manage the property or furnish or render services to our tenants, subject to a 1%
de minimis exception and except as provided below. We may, however, perform services that are usually or customarily rendered in connection with the rental of space for occupancy only and are not otherwise considered rendered to
the occupant of the property. Examples of these services include the provision of light, heat, or other utilities, trash removal, general maintenance of common areas, interconnection services and certain basic server services that do not
require logical access to our tenants equipment. 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. Any amounts
we receive from a taxable REIT subsidiary with respect to the taxable REIT subsidiarys provision of non-customary services will, however, be nonqualifying income under the 75% gross income test and,
except to the extent received through the payment of dividends, the 95% gross income test. |
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
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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.
We have investments in entities located outside the United States and from time to time may invest in additional entities or properties located
outside the United States, through a taxable REIT subsidiary or otherwise. These acquisitions could cause us to incur foreign currency gains or losses. Any foreign currency gains, to the extent attributable to specified items of qualifying income or
gain, or specified qualifying assets, however, generally will not constitute gross income for purposes of the 75% and 95% gross income tests, and therefore will be excluded from these tests.
To the extent our taxable REIT subsidiaries pay dividends or interest, our allocable share of such dividend or interest income will qualify under the 95%, but
not the 75%, gross income test (except that our allocable share of such interest would also qualify under the 75% gross income test to the extent the interest is paid on a loan that is adequately secured by real property).
We will monitor the amount of the dividend and other income from our taxable REIT subsidiaries and will take actions intended to keep this income, and any
other nonqualifying income, within the limitations of the gross income tests. Although we expect these actions will be sufficient to prevent a violation of the gross income tests, we cannot guarantee that such actions will in all cases prevent such
a violation.
If we fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year, we may nevertheless qualify as a REIT for the
year if we are entitled to relief under certain provisions of the Code. We generally may make use of the relief provisions if:
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following our identification of the failure to meet the 75% or 95% gross income tests for any taxable year, we
file a schedule with the IRS setting forth each item of our gross income for purposes of the 75% or 95% gross income tests for such taxable year in accordance with Treasury Regulations to be issued; and |
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our failure to meet these tests was due to reasonable cause and not due to willful neglect.
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It is not possible, however, to state whether in all circumstances we would be entitled to the benefit of these relief provisions. For
example, if we fail to satisfy the gross income tests because nonqualifying income that we intentionally accrue or receive exceeds the limits on nonqualifying income, the IRS could conclude that our failure to satisfy the tests was not due to
reasonable cause. If these relief provisions do not apply to a particular set of circumstances, we will not qualify as a REIT. See Failure to Qualify below. As discussed above in 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
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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 arms 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.
From time to time, our taxable REIT subsidiaries provide services to our tenants. We believe we have set, and we intend to set in the future, any fees
paid to our taxable REIT subsidiaries for such services at arms length rates, although the fees paid 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 issuers 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
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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% (25% for taxable years beginning after July 30, 2008 and before January 1, 2018) of the value of our total assets may be
represented by the securities of one or more taxable REIT subsidiaries. We, through our operating partnership, own interests in companies that have elected, together with us, to be treated as our taxable REIT subsidiaries, and we may acquire
securities in additional taxable REIT subsidiaries in the future. So long as each of these companies qualifies as a taxable REIT subsidiary of ours, we will not be subject to the 5% asset test, the 10% voting securities limitation or the 10% value
limitation with respect to our ownership of the securities of such companies. We believe that the aggregate value of our taxable REIT subsidiaries has not exceeded, and in the future will not exceed, 20% (25% for taxable years beginning after
July 30, 2008 and before January 1, 2018) of the aggregate value of our gross assets. We generally do not obtain independent appraisals to support these conclusions. In addition, there can be no assurance that the IRS will not disagree
with our determinations of value.
Fifth, not more than 25% of the value of our total assets may be represented by debt instruments of publicly offered
REITs to the extent those debt instruments would not be real estate assets but for the inclusion of debt instruments of publicly offered REITs in the meaning of real estate assets, as described above (e.g., a debt instrument issued by a publicly
offered REIT that is not secured by a mortgage on real property).
The asset tests must be satisfied at the close of each calendar quarter of our taxable
year in which we (directly or through 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 will 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 believe that we have maintained, and we intend to maintain, adequate records of the value of our assets to ensure compliance with the asset tests. If we
fail to cure any noncompliance with the asset tests within the 30-day cure period, we would cease to qualify as a REIT unless we are eligible for certain relief provisions discussed below.
Certain relief provisions may be available to us if we discover a failure to satisfy the asset tests described above after the
30-day cure period. Under these provisions, we will be deemed to have met the 5% and 10% asset tests if the value of our nonqualifying assets (i) does not exceed the lesser of (a) 1% of the total value of
our assets at the end of the applicable quarter or (b) $10,000,000, and (ii) we dispose of the nonqualifying assets or otherwise satisfy such tests within (a) six months after the last day of the quarter in which the failure to satisfy the
asset tests is discovered or (b) the period of time prescribed by Treasury Regulations to be issued. For violations of any of the asset tests due to reasonable cause and not due to willful neglect and that are, in the case of the 5% and 10%
asset tests, in excess of the de minimis exception described above, we may avoid disqualification as a REIT after the 30-day cure period by taking steps including (i) the disposition of sufficient
nonqualifying assets, or the taking of other actions, which allow us to meet the asset tests within (a) six months after the last day of the quarter in which the failure to satisfy the asset tests is discovered or (b) the period of time
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
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income tax rate multiplied by the net income generated by the nonqualifying assets, and (iii) disclosing certain information to the IRS.
Although we believe we have satisfied the asset tests described above and plan to take steps to ensure that we satisfy such tests for any quarter with respect
to which retesting is to occur, there can be no assurance that we will always be successful, or will not require a reduction in our operating partnerships overall interest in an issuer (including in a taxable REIT subsidiary). If we fail to
cure any noncompliance with the asset tests in a timely manner, and the relief provisions described above are not available, we would cease to qualify as a REIT.
Annual Distribution Requirements. To maintain our qualification as a REIT, we are required to distribute dividends, other than capital gain
dividends, to our stockholders in an amount at least equal to the sum of:
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90% of our REIT taxable income; and |
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90% of our after-tax net income, if any, from foreclosure property; minus
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the excess of the sum of certain items of non-cash income over 5% of our
REIT taxable income. |
For these purposes, our REIT taxable income is computed without regard to the dividends
paid deduction and our net capital gain. In addition, for purposes of this test, non-cash income generally means income attributable to leveled stepped rents, original issue discount, cancellation of
indebtedness, or a like-kind exchange that is later determined to be taxable.
In addition, our REIT taxable income will be reduced by any
taxes we are required to pay on any gain we recognize from the disposition of any asset we acquired from a corporation that is or has been a C corporation in a transaction in which our tax basis in the asset is less than the fair market value of the
asset, in each case determined as of the date on which we acquired the asset, within the five-year period following our acquisition of such asset, as described above under General.
For taxable years beginning after December 31, 2017, and except as provided below, a taxpayers 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. If we or
any of our subsidiary partnerships (including our operating partnership) 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 preferentiali.e., every stockholder of the class of stock to which a distribution is made must be treated the same as every other stockholder of that class, and no class of stock may be treated other than according to
its dividend rights as a class. This preferential dividend limitation will not apply to distributions made by us, provided we qualify as a publicly offered REIT. We believe that we are, and expect we will continue to be, a publicly
offered REIT. However, Subsidiary REITs we may own from time to time may not be publicly
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offered REITs. To the extent that we do not distribute all of our net capital gain, or distribute at least 90%, but less than 100%, of our REIT taxable income, as adjusted, we will be
required to pay regular U.S. federal corporate income tax on the undistributed amount. We believe that we have made, and we intend to continue to make, timely distributions sufficient to satisfy these annual distribution requirements and to minimize
our corporate tax obligations. In this regard, the partnership agreement of our operating partnership authorizes us, as the general partner of our operating partnership, to take such steps as may be necessary to cause our operating partnership to
distribute to its partners an amount sufficient to permit us to meet these distribution requirements and to minimize our corporate tax obligation.
We
expect that our REIT taxable income will be less than our cash flow because of depreciation and other non-cash charges included in computing REIT taxable income. Accordingly, we anticipate that we generally
will have sufficient cash or liquid assets to enable us to satisfy the distribution requirements described above. However, from time to time, we may not have sufficient cash or other liquid assets to meet these distribution requirements due to
timing differences between the actual receipt of income and actual payment of deductible expenses, and the inclusion of income and deduction of expenses in determining our taxable income. In addition, we may decide to retain our cash, rather than
distribute it, in order to repay debt or for other reasons. If these timing differences occur, we may borrow funds to pay dividends or pay dividends in the form of taxable stock distributions in order to meet the distribution requirements, while
preserving our cash.
Under some circumstances, we may be able to rectify an inadvertent failure to meet the 90% distribution requirement for a year by
paying deficiency dividends to our stockholders in a later year, which may be included in our deduction for dividends paid for the earlier year. In that case, we may be able to avoid being taxed on amounts distributed as deficiency
dividends, subject to the 4% excise tax described below. However, we will be required to pay interest to the IRS based upon the amount of any deduction claimed for deficiency dividends. While the payment of a deficiency dividend will apply to a
prior year for purposes of our REIT distribution requirements, it will be treated as an additional distribution to our stockholders in the year such dividend is paid.
Furthermore, we will be required to pay a 4% excise tax to the extent we fail to distribute during each calendar year at least the sum of 85% of our ordinary
income for such year, 95% of our capital gain net income for the year and any undistributed taxable income from prior periods. Any ordinary income and net capital gain on which corporate income tax is imposed for any year is treated as an amount
distributed during that year for purposes of calculating this excise tax.
For purposes of the 90% distribution requirement and excise tax described
above, dividends declared during the last three months of the taxable year, payable to stockholders of record on a specified date during such period and paid during January of the following year, will be treated as paid by us and received by our
stockholders on December 31 of the year in which they are declared.
Like-Kind Exchanges. We may dispose of real property that is not
held primarily for sale in transactions intended to qualify as like-kind exchanges under the Code. Such like-kind exchanges are intended to result in the deferral of gain for U.S. federal income tax purposes. The failure of any such transaction to
qualify as a like-kind exchange could require us to pay U.S. federal income tax, possibly including the 100% prohibited transaction tax, or deficiency dividends, depending on the facts and circumstances surrounding the particular transaction.
Tax Liabilities and Attributes Inherited in Connection with Acquisitions. From time to time, we 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 above under General. In addition, in order to qualify as a REIT, at the end of any taxable year, we must not
have any earnings and profits accumulated in a non-REIT year. As a result, if we acquire a C corporation, we must distribute the corporations earnings and profits accumulated prior to the
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acquisition before the end of the taxable year in which we acquire the corporation. We also could be required to pay the acquired entitys 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 REITs 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 REITs
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 REITs requalification as a REIT, subject to certain exceptions. Moreover, even if such REIT qualified as a REIT at all relevant times, we would similarly be liable for other unpaid taxes (if any) of such REIT
(such as the 100% tax on gains from any sales treated as prohibited transactions as described above under Prohibited Transaction Income).
Furthermore, after our acquisition of another corporation or entity, the asset and income tests will apply to all of our assets, including the assets we
acquire from such corporation or entity, and to all of our income, including the income derived from the assets we acquire from such corporation or entity. As a result, the nature of the assets that we acquire from such corporation or entity and the
income we derive from those assets may have an effect on our tax status as a REIT.
Failure to Qualify. If we discover a violation of a
provision of the Code that would result in our failure to qualify as a REIT, certain specified cure provisions may be available to us. Except with respect to violations of the gross income tests and asset tests (for which the cure provisions are
described above), and provided the violation is due to reasonable cause and not due to willful neglect, these cure provisions generally impose a $50,000 penalty for each violation in lieu of a loss of REIT status. If we fail to satisfy the
requirements for taxation as a REIT in any taxable year, and the relief provisions do not apply, we will be required to pay regular U.S. federal corporate income tax, including any applicable alternative minimum tax for taxable years beginning
before January 1, 2018, on our taxable income. Distributions to stockholders in any year in which we fail to qualify as a REIT will not be deductible by us. As a result, we anticipate that our failure to qualify as a REIT would reduce the cash
available for distribution by us to our stockholders. In addition, if we fail to qualify as a REIT, we will not be required to distribute any amounts to our stockholders and all distributions to stockholders will be taxable as regular corporate
dividends to the extent of our current and accumulated earnings and profits. In such event, corporate 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 after December 31, 2017 and 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 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 and its Subsidiary Partnerships and 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.
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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, including its share of the assets of its subsidiary partnerships, based on our capital interests in
each such entity. See Taxation of Our CompanyOwnership of Interests in Partnerships, Limited Liability Companies and Qualified REIT Subsidiaries. A disregarded entity is not treated as a separate entity for U.S. federal
income tax purposes, and all assets, liabilities and items of income, gain, loss, deduction and credit of a disregarded entity are treated as assets, liabilities and items of income, gain, loss, deduction and credit of its parent that is not a
disregarded entity (e.g., our operating partnership) for all purposes under the Code, including all REIT qualification tests.
Entity
Classification. Our interests in our operating partnership and its 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 will 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 of its subsidiary partnerships will be treated as a publicly traded partnership that is
taxable as a corporation. However, if any such entity were treated as a corporation, it would be required to pay an entity-level tax on its income. In this situation, the character of our assets and items of gross income would change and could
prevent us from satisfying the REIT asset tests and possibly the REIT income tests. See Taxation of Our CompanyAsset Tests and Income Tests. This, in turn, could prevent us from qualifying as a REIT. See
Taxation of Our CompanyFailure 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 each of its subsidiary partnerships and limited liability
companies are and will continue to be treated as partnerships or disregarded entities for U.S. federal income tax purposes.
Allocations of Income,
Gain, Loss and Deduction. The operating partnership agreement generally provides that items of operating income will be allocated to us to the extent of the accrued preferred return on our preferred units and then to the holders of common
units in proportion to the number of common units held by each such unitholder. Items of operating loss will generally be allocated first to the holders of common units in proportion to the number of common units held, and then to us with respect to
our preferred units. Certain limited partners may, from time to time, guarantee debt of our operating partnership, indirectly through an agreement to make capital contributions to our operating partnership under limited circumstances. As a result of
these guaranties or contribution agreements, and notwithstanding the foregoing discussion of allocations of income and loss of our operating partnership to holders of units, such limited partners could under limited circumstances be allocated a
disproportionate amount of net loss upon a liquidation of our operating partnership, which net loss would have otherwise been allocable to us. In addition, the partnership agreement further provides that holders of long-term incentive units, class C
units and class D units may be entitled to receive special allocations of gain in the event of a sale or hypothetical sale of assets of our operating partnership prior to the allocation of gain to holders of common units. This special allocation of
gain is intended to enable the holders of long-term incentive units, class C units and class D units to convert such units into common units.
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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.
Appreciated property was contributed to our operating partnership in exchange for interests in our operating partnership in connection with the
formation transactions. In addition, 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 the operating partnership, notwithstanding their different book (i.e., fair market) value. The partnership agreement requires that income and loss allocations 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 (i) 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 (ii) 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 (ii) above might cause us or the other partners to recognize taxable income in excess of cash proceeds in the event of a sale or other disposition of property, which might adversely affect our
ability to comply with the REIT distribution requirements. See Taxation of Our CompanyRequirements for Qualification as a REIT and Annual Distribution Requirements.
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 the new rules (which are generally effective for taxable years beginning after December 31, 2017), among other changes and subject to certain exceptions, any audit adjustment
to items of income, gain, loss, deduction, or credit of a partnership (and any partners distributive share thereof) is determined, and taxes, interest, or penalties attributable thereto are assessed and collected, at the partnership level.
Although it is uncertain how certain aspects of these new rules will be implemented, it is possible that they could result in partnerships in which we directly or indirectly invest, 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.
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Material U.S. Federal Income Tax Consequences to Holders of Our Capital Stock and the Operating
Partnerships Debt Securities
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 stock or the operating partnerships debt securities. This discussion is limited to holders who hold shares of our capital stock or the operating partnerships debt securities as capital
assets within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax consequences relevant to a holders particular circumstances. In addition,
except where specifically noted, it does not address consequences relevant to holders subject to special rules, including, without limitation:
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banks, insurance companies, and other financial institutions; |
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tax-exempt organizations or governmental organizations;
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S corporations, partnerships or other entities or arrangements treated as partnerships for U.S. federal income
tax purposes (and investors therein); |
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persons who hold or receive our capital stock pursuant to the exercise of any employee stock option or otherwise
as compensation; |
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persons subject to the alternative minimum tax; |
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REITs or regulated investment companies; |
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controlled foreign corporations, passive foreign investment companies, and corporations
that accumulate earnings to avoid U.S. federal income tax; |
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brokers, dealers or traders in securities; |
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U.S. expatriates and former citizens or long-term residents of the United States; |
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persons holding our capital stock or the operating partnerships debt securities as part of a hedge,
straddle or other risk reduction strategy or as part of a conversion transaction or other integrated investment; |
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persons subject to special tax accounting rules as a result of any item of gross income with respect to our
common stock being taken into account in an applicable financial statement (as defined in the Code); |
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persons deemed to sell our capital stock or the operating partnerships debt securities under the
constructive sale provisions of the Code; or |
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U.S. holders (as defined below) whose functional currency is not the U.S. dollar. |
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 OR THE OPERATING PARTNERSHIPS DEBT SECURITIES ARISING UNDER OTHER
U.S. FEDERAL TAX LAWS (INCLUDING ESTATE AND GIFT TAX LAWS), UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
For purposes of this discussion, a U.S. holder is a beneficial owner of shares of our capital stock or the operating partnerships debt
securities that, for U.S. federal income tax purposes, is or is treated as:
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an individual who is a citizen or resident of the United States; |
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a corporation created or organized under the laws of the United States, any state thereof, or the District of
Columbia; |
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an estate the income of which is subject to U.S. federal income tax regardless of its source; or
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a trust that (1) is subject to the primary supervision of a U.S. court and the control of one or more
United States persons (within the meaning of Section 7701(a)(30) of the Code) or (2) has a valid election in effect to be treated as a United States person for U.S. federal income tax purposes. |
For purposes of this discussion, a non-U.S. holder is any beneficial owner of our capital stock or the
operating partnerships debt securities that is neither a U.S. holder nor an entity treated as a partnership for U.S. federal income tax purposes.
If an entity treated as a partnership for U.S. federal income tax purposes holds shares of our capital stock or the operating partnerships debt
securities, the tax treatment of a partner in the partnership generally will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding shares of our
capital stock or the operating partnerships debt securities and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.
Taxation of Taxable U.S. Holders of Our Capital Stock
Distributions Generally. Distributions out of our current or accumulated earnings and profits will be treated as dividends and, other than with
respect to capital gain dividends and certain amounts which have previously been subject to corporate level tax, as discussed below, will be taxable to our taxable U.S. holders as ordinary income when actually or constructively received. See
Tax Rates below. As long as we qualify as a REIT, these distributions will not be eligible for the dividends-received deduction in the case of U.S. holders that are corporations or, except to the extent described in Tax
Rates below, the preferential rates on qualified dividend income applicable to non-corporate U.S. holders, including individuals. For purposes of determining whether distributions to holders of our
capital stock are out of our current or accumulated earnings and profits, our earnings and profits will be allocated first to our outstanding preferred stock 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. holders adjusted tax basis in such shares of stock. This treatment will reduce the U.S.
holders adjusted tax basis in such shares 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. holders 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 distributions (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
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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:
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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; |
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be deemed to have paid its share of the capital gains tax imposed on us on the designated amounts included in the
U.S. holders income as long-term capital gain; |
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receive a credit or refund for the amount of tax deemed paid by it; |
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increase the adjusted tax basis of its capital stock by the difference between the amount of includable gains and
the tax deemed to have been paid by it; and |
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in the case of a U.S. holder that is a corporation, appropriately adjust its earnings and profits for the
retained capital gains in accordance with Treasury Regulations to be promulgated by the IRS. |
Passive Activity Losses and
Investment Interest Limitations. Distributions we make and gain arising from the sale or exchange by a U.S. holder of our capital stock will not be treated as passive activity income. As a result, U.S. holders generally will not be able to
apply any passive losses against this income or gain. A U.S. holder generally may elect to treat capital gain dividends, capital gains from the disposition of our capital stock and income designated as qualified dividend income, as
described in Tax Rates below, as investment income for purposes of computing the investment interest limitation, but in such case, the holder will be taxed at ordinary income rates on such amount. Other distributions made by us, to
the extent they do not constitute a return of capital, generally will be treated as investment income for purposes of computing the investment interest limitation.
Dispositions of Our Capital Stock. Except as described below under Taxation of Taxable U.S. Holders of Our Capital StockRedemption
or Repurchase by Us, if a U.S. holder sells or disposes of shares of our capital
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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 holders adjusted tax basis in the shares. This gain or loss, except as provided below, will be long-term capital gain or loss if the holder has held such capital stock for more than one year. However, if a
U.S. holder recognizes a loss upon the sale or other disposition of capital stock that it has held for six months or less, after applying certain holding period rules, the loss recognized will be treated as a long-term capital loss to the extent the
U.S. holder received distributions from us which were required to be treated as long-term capital gains.
Redemption or Repurchase by Us. A
redemption or repurchase of shares of our capital stock will be treated under Section 302 of the Code as a distribution (and taxable as a dividend to the extent of our current and accumulated earnings and profits as described above under
Distributions 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:
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is substantially disproportionate with respect to the U.S. holder; |
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results in a complete redemption of the U.S. holders stock interest in us; or
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is not essentially equivalent to a dividend with respect to the U.S. holder, |
all within the meaning of Section 302(b) of the Code.
In
determining whether any of these tests has been met, shares of our capital stock, including common stock and other equity interests in us, considered to be owned by the U.S. holder by reason of certain constructive ownership rules set forth in the
Code, as well as shares of our capital stock actually owned by the U.S. holder, generally must be taken into account. Because the determination as to whether any of the alternative tests of Section 302(b) of the Code will be satisfied with
respect to the U.S. holder depends upon the facts and circumstances at the time that the determination must be made, U.S. holders are advised to consult their tax advisors to determine such tax treatment.
If a redemption or repurchase of shares of our capital stock is treated as a distribution, the amount of the distribution will be measured by the amount of
cash and the fair market value of any property received. See Distributions Generally. A U.S. holders adjusted tax basis in the redeemed or repurchased shares generally will be transferred to the holders 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 under Dispositions of Our Capital Stock.
Tax Rates. The maximum tax rate for non-corporate taxpayers for (1) long-term capital gains,
including certain capital gain dividends, generally is 20% (although depending on the characteristics of the assets which produced these gains and on designations which we may make, certain capital gain dividends may be taxed at a 25%
rate) and (2) qualified dividend income generally is 20%. In general, dividends payable by REITs are not eligible for the reduced tax rate on qualified dividend income, except to the extent that certain holding period requirements have
been met and the REITs 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,
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including individuals, generally may deduct up to 20% of dividends from a REIT, other than capital gain dividends and dividends treated as qualified dividend income, for taxable years beginning
after December 31, 2017 and before January 1, 2026 for purposes of determining their U.S. federal income tax (but not for purposes of the 3.8% Medicare tax), subject to certain limitations.
Taxation of Tax-Exempt Holders of Our Capital Stock
Dividend income from us and gain arising upon a sale of shares of our capital stock generally should not be unrelated business taxable income, or UBTI, to a tax-exempt holder, except as described 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 stock is (and, we anticipate, will continue to be) publicly traded, we cannot guarantee
that this will always be the case.
Taxation of Non-U.S. Holders of Our Capital Stock
The following discussion addresses the rules governing U.S. federal income taxation of the acquisition, ownership and disposition of our capital stock by non-U.S. holders. These rules are complex, and no attempt is made herein to provide more than a brief summary of such rules. Accordingly, the discussion does not address all aspects of U.S. federal income taxation
and does not address other federal, state, local or non-U.S. tax consequences that may be relevant to a non-U.S. holder in light of its particular circumstances. We urge
non-U.S. holders to consult their tax advisors to determine the impact of U.S. federal, state, local and non-U.S. income and other tax laws and any applicable tax treaty
on the 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
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but will be subject to U.S. federal income tax on a net basis at the regular graduated rates, in the same manner as dividends paid to U.S. holders are subject to U.S. federal income tax. Any such
dividends received by a non-U.S. holder that is a corporation may also be subject to an additional branch profits tax at a 30% rate (applicable after deducting U.S. federal income taxes paid on such
effectively connected income) or such lower rate as may be specified by an applicable income tax treaty.
Except as otherwise provided below, we expect to
withhold U.S. federal income tax at the rate of 30% on any distributions made to a non-U.S. holder unless:
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a lower treaty rate applies and the non-U.S. holder furnishes an IRS
Form W-8BEN or W-8BEN-E (or other applicable documentation) evidencing eligibility for that reduced treaty rate; or
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the non-U.S. holder furnishes an IRS Form W-8ECI (or other applicable documentation) claiming that the distribution is income effectively connected with the non-U.S. holders trade or business.
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Distributions in excess of our current and accumulated earnings and profits will not be taxable to a
non-U.S. holder to the extent that such distributions do not exceed the adjusted tax basis of the holders capital stock, but rather will reduce the adjusted tax basis of such stock. To the extent that
such distributions exceed the non-U.S. holders 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:
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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 |
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the non-U.S. holder is a nonresident alien individual who is present in
the United States for 183 days or more during the taxable year and certain other conditions are met, in which case the non-U.S. holder will be subject to U.S. federal income tax at a rate of 30% on the non-U.S. holders capital gains (or such lower rate specified by an applicable income tax treaty), which may be offset by U.S. source capital losses of such non-U.S.
holder (even though the individual is not considered a resident of the United States), provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses.
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Pursuant to the Foreign Investment in Real Property Tax Act, which is referred to as FIRPTA, distributions to a non-U.S. holder that are attributable to gain from sales or exchanges by us of USRPIs, whether or not designated as capital gain dividends, will cause the non-U.S. holder to
be treated as recognizing such gain as income effectively connected with a U.S. trade or business. Non-U.S. holders generally would be taxed at the regular graduated rates applicable to U.S. holders, subject
to any applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals. We also will be required to withhold and to remit to the IRS 21% 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. holders U.S. federal income tax liability. However, any distribution
with respect to any class of stock that is regularly
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traded, as defined by applicable Treasury Regulations, on an established securities market located in the United States is not subject to FIRPTA, and therefore, not subject to the 21% U.S.
withholding tax described above, if the non-U.S. holder did not own more than 10% of such class of stock at any time during the one-year period ending on the date of the
distribution. Instead, such distributions generally will be treated as ordinary dividend distributions and subject to withholding in the manner described above with respect to ordinary dividends. In addition, distributions to certain non-U.S. publicly traded shareholders that meet certain record-keeping and other requirements (qualified shareholders) are exempt from FIRPTA, except to the extent owners of such qualified shareholders
that are not also qualified shareholders own, actually or constructively, more than 10% of our capital stock. Furthermore, distributions to qualified foreign pension funds or entities all of the interests of which are held by
qualified foreign pension funds are exempt from FIRPTA. Non-U.S. holders should consult their tax advisors regarding the application of these rules.
Retention of Net Capital Gains. Although the law is not clear on the matter, it appears that amounts we designate as retained net capital gains
in respect of our capital stock should be treated with respect to non-U.S. holders as actual distributions of capital gain dividends. Under this approach, the non-U.S.
holders may be able to offset as a credit against their U.S. federal income tax liability their proportionate share of the tax paid by us on such retained net capital gains and to receive from the IRS a refund to the extent their proportionate share
of such tax paid by us exceeds their actual U.S. federal income tax liability. If we were to designate any portion of our net capital gain as retained net capital gain, non-U.S. holders should consult their
tax advisors regarding the taxation of such retained net capital gain.
Sale of Our Capital Stock. Except as described below under
Redemption or Repurchase by Us, gain realized by a non-U.S. holder upon the sale, exchange or other taxable disposition of our capital stock generally will not be subject to U.S. federal
income tax unless such stock constitutes a USRPI. In general, stock of a domestic corporation that constitutes a United States real property holding corporation, or USRPHC, will constitute a USRPI. We believe that we are a USRPHC. Our
capital stock will not, however, constitute a USRPI so long as we are a domestically controlled qualified investment entity. A domestically controlled qualified investment entity includes a REIT in which at all times during a
five-year testing period less than 50% in value of its stock is held directly or indirectly by non-United States persons, subject to certain rules. For purposes of determining whether a REIT is a
domestically controlled qualified investment entity, a person who at all applicable times holds less than 5% of a class of stock that is regularly traded is treated as a United States person unless the REIT has actual
knowledge that such person is not a United States person. We believe, but cannot guarantee, that we are a domestically controlled qualified investment entity. Because our 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:
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such class of capital stock is regularly traded, as defined by applicable Treasury Regulations, on
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such non-U.S. holder owned, actually and constructively, 10% or less of
such class of 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. holders holding period. |
In addition, dispositions of our capital stock by qualified shareholders are exempt from FIRPTA, except to the extent owners of such qualified shareholders
that are not also qualified shareholders own, actually or constructively, more than 10% of our capital stock. Furthermore, dispositions of our capital stock by qualified foreign pension funds or entities all of the interests of which are
held by qualified foreign pension funds are exempt from FIRPTA. Non-U.S. holders should consult their tax advisors regarding the application of these rules.
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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. holders 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 class of stock is regularly traded and the non-U.S. holder did not own more than 10% of the stock at any time during the one-year
period ending on the date of the distribution described in clause (1).
If gain on the sale, exchange or other taxable disposition of our capital stock
were subject to taxation under FIRPTA, the non-U.S. holder would be required to file a U.S. federal income tax return and would be subject to regular U.S. federal income tax with respect to such gain in the
same manner as a taxable U.S. holder (subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals). In addition, if the sale, exchange or other taxable disposition of our
capital stock were subject to taxation under FIRPTA, and if shares of the applicable class of our capital stock were not regularly traded on an established securities market, the purchaser of such capital stock generally would be
required to withhold and remit to the IRS 15% of the purchase price.
Redemption or Repurchase by Us. A redemption or repurchase of shares
of our capital stock will be treated under Section 302 of the Code as a distribution (and taxable as a dividend to the extent of our current and accumulated earnings and profits) unless the redemption or repurchase satisfies one of the tests
set forth in Section 302(b) of the Code and is therefore treated as a sale or exchange of the redeemed or repurchased shares. See Taxation of Taxable U.S. Holders of Our Capital StockRedemption or Repurchase by Us.
Qualified shareholders and their owners may be subject to different rules, and should consult their tax advisors regarding the application of such rules. If the redemption or repurchase of shares is treated as a distribution, the amount of the
distribution will be measured by the amount of cash and the fair market value of any property received. See Taxation of Non-U.S. Holders of Our Capital StockDistributions Generally
above. If the redemption or repurchase of shares is not treated as a distribution, it will be treated as a taxable sale or exchange in the manner described above under Sale of Our Capital Stock.
Taxation of Holders of the Operating Partnerships Debt Securities
The following summary describes the material U.S. federal income tax consequences of acquiring, owning and disposing of debt securities issued by the operating
partnership. This discussion assumes the debt securities will be issued with less than a statutory de minimis amount of original issue discount for U.S. federal income tax purposes. In addition, this discussion is limited to persons purchasing the
debt securities for cash at original issue and at their original issue price within the meaning of Section 1273 of the Code (i.e., the first price at which a substantial amount of the debt securities is sold to the public for cash).
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U.S. Holders
Payments of Interest. Interest on a debt security generally will be taxable to a U.S. holder as ordinary income at the time such interest is
received or accrued, in accordance with such U.S. holders method of accounting for U.S. federal income tax purposes.
Sale or Other Taxable
Disposition. A U.S. holder will recognize gain or loss on the sale, exchange, redemption, retirement or other taxable disposition of a debt security. The amount of such gain or loss generally will be equal to the difference between the
amount received for the debt security in cash or other property valued at fair market value (less amounts attributable to any accrued but unpaid interest, which will be taxable as interest to the extent not previously included in income) and the
U.S. holders adjusted tax basis in the debt security. A U.S. holders adjusted tax basis in a debt security generally will be equal to the amount the U.S. holder paid for the debt security. Any gain or loss generally will be capital gain
or loss, and will be long-term capital gain or loss if the U.S. holder has held the debt security for more than one year at the time of such sale or other taxable disposition. Otherwise, such gain or loss will be short-term capital gain or loss.
Long-term capital gains recognized by certain non-corporate U.S. holders, including individuals, generally will be taxable at reduced rates. The deductibility of capital losses is subject to limitations.
Non-U.S. Holders
Payments of Interest. Interest paid on a debt security to a non-U.S. holder that is not effectively
connected with the non-U.S. holders conduct of a trade or business within the United States generally will not be subject to U.S. federal income tax or withholding, provided that:
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the non-U.S. holder does not, actually or constructively, own 10% or more
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the non-U.S. holder is not a controlled foreign corporation related to
the operating partnership through actual or constructive stock ownership; and |
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either (1) the non-U.S. holder certifies in a statement provided to
the applicable withholding agent under penalties of perjury that it is not a United States person and provides its name and address; (2) a securities clearing organization, bank or other financial institution that holds customers
securities in the ordinary course of its trade or business and holds the debt security on behalf of the non-U.S. holder certifies to the applicable withholding agent under penalties of perjury that it, or the
financial institution between it and the non-U.S. holder, has received from the non-U.S. holder a statement under penalties of perjury that such holder is not a United
States person and provides the applicable withholding agent with a copy of such statement; or (3) the non-U.S. holder holds its debt security directly through a qualified intermediary (within
the meaning of the applicable Treasury Regulations) and certain conditions are satisfied. |
If a
non-U.S. holder does not satisfy the requirements above, such non-U.S. holder will be subject to withholding tax of 30%, subject to a reduction in or an exemption from
withholding on such interest as a result of an applicable tax treaty. To claim such entitlement, the non-U.S. holder must provide the applicable withholding agent with a properly executed IRS Form W-8BEN or W-8BEN-E (or other applicable documentation) claiming a reduction in or exemption from withholding tax under the benefit of
an income tax treaty between the United States and the country in which the non-U.S. holder resides or is established.
If interest paid to a non-U.S. holder is effectively connected with the
non-U.S. holders conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder maintains a
permanent establishment in the United States to which such interest is attributable), the non-U.S. holder will be exempt from the U.S. federal withholding tax described above. To claim the exemption, the non-U.S. holder must furnish to the applicable withholding agent a valid IRS Form W-8ECI, certifying that interest paid on a debt security is not subject to withholding tax
because it is effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States.
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Any such effectively connected interest generally will be subject to U.S. federal income tax at the regular
graduated rates. A non-U.S. holder that is a corporation may also be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively
connected interest, as adjusted for certain items.
The certifications described above must be provided to the applicable withholding agent prior to the
payment of interest and must be updated periodically. Non-U.S. holders that do not timely provide the applicable withholding agent with the required certification, but that qualify for a reduced rate under an
applicable income tax treaty, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. Non-U.S. holders should consult their tax advisors regarding their entitlement to benefits under any
applicable income tax treaty.
Sale or Other Taxable Disposition. A non-U.S. holder will not be
subject to U.S. federal income tax on any gain realized upon the sale, exchange, redemption, retirement or other taxable disposition of a debt security (such amount excludes any amount allocable to accrued and unpaid interest, which generally will
be treated as interest and may be subject to the rules discussed above in Taxation of Holders of the Operating Partnerships Debt SecuritiesNon-U.S. HoldersPayments of
Interest) unless:
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the gain is effectively connected with the non-U.S. holders conduct
of a trade or business within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such gain is
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the non-U.S. holder is a nonresident alien individual present in the
United States for 183 days or more during the taxable year of the disposition and certain other requirements are met. |
Gain described in
the first bullet point above generally will be subject to U.S. federal income tax on a net income basis at the regular graduated rates. A non-U.S. holder that is a corporation also may be subject to a branch
profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected gain, as adjusted for certain items.
Gain described in the second bullet point above will be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable
income tax treaty), which may be offset by U.S. source capital losses of the non-U.S. holder (even though the individual is not considered a resident of the United States), provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses.
Non-U.S. holders should consult their tax advisors regarding any applicable income tax treaties that may provide for different rules.
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 the operating partnerships debt securities or proceeds from the sale or other taxable disposition of such stock or debt securities (including a redemption or retirement of a debt security). Certain U.S. holders are exempt
from backup withholding, including corporations and certain tax-exempt organizations. A U.S. holder will be subject to backup withholding if such holder is not otherwise exempt and:
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the holder fails to furnish the holders taxpayer identification number, which for an individual is
ordinarily his or her social security number; |
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the holder furnishes an incorrect taxpayer identification number; |
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the applicable withholding agent is notified by the IRS that the holder previously failed to properly report
payments of interest or dividends; or |
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the holder fails to certify under penalties of perjury that the holder has furnished a correct taxpayer
identification number and that the IRS has not notified the holder that the holder is subject to backup withholding. |
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. holders U.S. federal income tax liability, provided the required information is timely furnished to the
IRS. U.S. holders should consult their tax advisors regarding their qualification for an exemption from backup withholding and the procedures for obtaining such an exemption.
Non-U.S. Holders. Payments of dividends on our capital stock or interest on the operating
partnerships debt securities generally will not be subject to backup withholding, provided the applicable withholding agent does not have actual knowledge or reason to know the holder is a United States person and the holder either certifies
its non-U.S. status, such as by furnishing a valid IRS Form W-8BEN, W-8BEN-E or W-8ECI, or otherwise establishes an exemption. However, information returns are required to be filed with the IRS in connection with any dividends on our capital stock or interest on the operating partnerships
debt securities paid to the non-U.S. holder, regardless of whether any tax was actually withheld. In addition, proceeds of the sale or other taxable disposition of such stock or debt securities (including a
retirement or redemption of a debt security) within the United States or conducted through certain U.S.-related brokers generally will not be subject to backup withholding or information reporting, if the applicable withholding agent receives the
certification described above and does not have actual knowledge or reason to know that such holder is a United States person, or the holder otherwise establishes an exemption. Proceeds of a disposition of such stock or debt securities conducted
through a non-U.S. office of a non-U.S. broker generally will not be subject to backup withholding or information reporting.
Copies of information returns that are filed with the IRS may also be made available under the provisions of an applicable treaty or agreement to the tax
authorities of the country in which the non-U.S. holder resides or is established.
Backup withholding is not an
additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a non-U.S. holders U.S. federal income tax liability, provided the required
information is timely furnished to the IRS.
Medicare Contribution Tax on Unearned Income
Certain U.S. holders that are individuals, estates or trusts are required to pay an additional 3.8% tax on, among other things, dividends on stock, interest on
debt obligations, and capital gains from the sale or other disposition of stock or debt obligations, subject to certain limitations. U.S. holders should consult their tax advisors regarding the effect, if any, of these rules on their ownership and
disposition of our capital stock or the operating partnerships debt securities.
Additional Withholding Tax on Payments Made to Foreign Accounts
Withholding taxes may be imposed under Sections 1471 to 1474 of the Code (such sections commonly referred to as the Foreign Account Tax Compliance
Act, or FATCA) on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be
imposed on dividends on our capital stock, interest on the operating partnerships debt securities, or (subject to the proposed Treasury Regulations discussed below) gross proceeds from the sale or other disposition of our capital stock or the
operating partnerships debt securities, in each case paid to a foreign financial institution or a non-financial foreign entity (each as defined in the Code), unless (1) the
foreign financial institution undertakes certain diligence and reporting obligations, (2) the non-financial foreign entity either certifies it does not have any substantial United States
owners (as defined in the Code) or furnishes identifying information regarding each substantial United States owner, or (3) the foreign financial institution or non-financial foreign entity
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otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in clause (1) above, it must
enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain specified United States persons or United States owned foreign entities
(each as defined in the Code), annually report certain information about such accounts, and withhold 30% on certain payments to non-compliant foreign financial institutions and certain other account holders.
Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules.
Under the applicable Treasury Regulations and administrative guidance, withholding under FATCA generally applies to payments of dividends on our capital stock
or interest on the operating partnerships debt securities. While withholding under FATCA would have applied also to payments of gross proceeds from the sale or other disposition of stock or debt securities 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.
Prospective investors should consult their tax advisors regarding the potential application of withholding under FATCA to their investment in our capital
stock or the operating partnerships debt securities.
Other Tax Consequences
State, local and non-U.S. income tax laws may differ substantially from the corresponding U.S. federal income tax laws,
and this discussion does not purport to describe any aspect of the tax laws of any state, local or non-U.S. jurisdiction, or any U.S. federal tax other than income tax. You should consult your tax advisor
regarding the effect of state, local and non-U.S. tax laws with respect to our tax treatment as a REIT and on an investment in our capital stock or our operating partnerships debt securities.
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