| | Per Share | | | Total | |
Public offering price | | | $ | | | $ |
Underwriting discount | | | $ | | | $ |
Proceeds, before expenses, to us | | | $ | | | $ |
RBC Capital Markets | | | UBS Investment Bank |
| | Per Share | | | Total | |
Public offering price | | | $ | | | $ |
Underwriting discount | | | $ | | | $ |
Proceeds, before expenses, to us | | | $ | | | $ |
RBC Capital Markets | | | UBS Investment Bank |
• | our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 15, 2021, as amended by Amendment No. 1 thereto filed with the SEC on March 31, 2021; |
• | our definitive proxy statement on Schedule 14A for our 2021 Annual Meeting of Stockholders, filed with the SEC on April 26, 2021 (solely to the extent incorporated by reference into Part III of our Annual Report on Form 10-K for the year ended December 31, 2020); |
• | our Quarterly Report on Form 10-Q, for the quarter ended March 31, 2021, filed with the SEC on May 7, 2021; |
• | our Current Reports on Form 8-K filed with the SEC on March 11, 2021 (excluding Items 2.02 and 7.01 and Exhibits 99.1 and 99.2 thereto) and April 16, 2021; and |
• | The description of our shares of common stock included as Exhibit 4.2 (the “Exhibit”) to our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 15, 2021. |
(1) | Based upon the shares of common stock outstanding as of the date of this prospectus supplement. Excludes 843,326 shares of common stock reserved for issuance under our 2020 Incentive Plan as of the date of this prospectus supplement. |
• | outbreaks of disease, including the COVID-19 pandemic, and related stay-at-home orders, quarantine policies and restrictions on travel, trade and business operations; |
• | our actual or projected operating results, financial condition, cash flows and liquidity, or changes in business strategy or prospects; |
• | equity issuances by us, or share resales by our stockholders, or the perception that such issuances or resales may occur; |
• | publication of research reports about us or the real estate industry; |
• | changes in market valuations of similar companies; |
• | adverse market reaction to the level of leverage we employ; |
• | our inability to (i) refinance debt as and when required on terms favorable to us and (ii) comply with covenants contained in our debt facilities and instruments; |
• | additions to or departures of our key personnel; |
• | accounting issues; |
• | speculation in the press or investment community; |
• | our failure to meet, or the lowering of, our earnings’ estimates or those of any securities analysts; |
• | increases in market interest rates, which may lead investors to demand a higher distribution yield for our common stock and would result in increased interest expenses on our debt; |
• | failure to maintain our REIT qualification; |
• | price and volume fluctuations in the stock market generally; |
• | general market and economic conditions, including the current state of the credit and capital markets; and |
• | the realization of any of the other risk factors included or incorporated by reference in this prospectus supplement and the accompanying prospectus. |
• | the impact of the COVID-19 pandemic; |
• | general economic and business conditions, including those currently affecting our nation’s economy and real estate markets; |
• | the availability of, and costs associated with, sources of capital and liquidity; |
• | accessibility of debt and equity capital markets; |
• | general and local real estate conditions, including any changes in the value of our real estate; |
• | changes in Federal, state and local governmental laws and regulations, including laws and regulations relating to taxes and real estate and related investments; |
• | the level and volatility of interest rates; |
• | our acquisition strategy, which may not produce the cash flows or income expected; |
• | the competitive environment in which we operate, including competition that could adversely affect our ability to acquire properties and/or limit our ability to lease apartments or increase or maintain rental income; |
• | a limited number of multi-family property acquisition opportunities acceptable to us; |
• | the concentration of our multi-family properties in the Southeastern United States and Texas, which makes us more susceptible to adverse developments in those markets; |
• | risks associated with our strategy of acquiring value-add multi-family properties, which involves greater risks than more conservative strategies; |
• | the condition of Fannie Mae or Freddie Mac, which could adversely impact us; |
• | our failure to comply with laws, including those requiring access to our properties by disabled persons, which could result in substantial costs; |
• | insufficient cash flows, which could limit our ability to make required payments on our debt obligations; |
• | our ability and the ability of our joint venture partners to maintain compliance with the covenants contained in our and our joint venture partners’ debt facilities and debt instruments; |
• | impairment in the value of real estate we own; |
• | failure of property managers to properly manage properties; |
• | disagreements with, or misconduct by, joint venture partners; |
• | decreased rental rates or increasing vacancy rates; |
• | our ability to lease units in newly acquired or newly constructed multi-family properties; |
• | potential defaults on or non-renewal of leases by tenants; |
• | creditworthiness of tenants; |
• | our ability to evaluate, finance, complete and integrate acquisitions, including the Acquisition, successfully; |
• | development and acquisition risks, including rising or unanticipated costs and failure of such acquisitions and developments to perform in accordance with projections; |
• | the timing of acquisitions and dispositions; |
• | our ability to reinvest the net proceeds of dispositions into more, or as favorable, acquisition opportunities; |
• | potential natural disasters such as hurricanes, tornadoes and floods; |
• | board determinations as to timing and payment of dividends, if any, and our ability or willingness to pay future dividends; |
• | financing risks, including the risks that our cash flows from operations may be insufficient to meet required debt service obligations and we may be unable to refinance our existing debt upon maturity or obtain new financing on attractive terms or at all; |
• | lack of or insufficient amounts of insurance to cover, among other things, losses from catastrophes; |
• | our ability to maintain our qualification as a REIT; |
• | possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by us or a subsidiary owned by us or acquired by us; |
• | our dependence on information systems; |
• | risks associated with breaches of our or our joint venture partners’ information technology systems; |
• | risks associated with the stock ownership restrictions of the Code for REITs and the stock ownership limit imposed by our charter; |
• | increases in real estate taxes at properties we acquire due to such acquisitions or other factors; and |
• | the other risks described under the heading “Risk Factors” in this prospectus supplement, the accompanying prospectus, in our Annual Report, our Quarterly Report and in the other reports we file with the SEC. |
• | $130.2 million of outstanding mortgage debt at our consolidated subsidiaries with a weighted average interest rate of 4.15% and a weighted average remaining term to maturity of approximately 4.1 years, |
• | $833.9 million of outstanding mortgage debt at our unconsolidated subsidiaries with a weighted average interest rate of 3.96% and a weighted average remaining term to maturity of approximately 7.4 years, and |
• | $37.4 million outstanding under our junior subordinated notes with an interest rate of 2.21% (three-month LIBOR + 200 basis points) and maturing in 2036. |
Underwriter | | | Number of Shares |
RBC Capital Markets, LLC | | | |
UBS Securities LLC | | | |
Total | | | 2,000,000 |
| |
| | No Exercise | | | Exercise | |
Per share | | | $ | | | $ |
Total | | | $ | | | $ |
• | Short sales involve secondary market sales by the underwriters of a greater number of shares of common stock than they are required to purchase in the offering. |
• | “Covered” short sales are sales of shares in an amount up to the number of shares represented by the underwriters’ option to purchase additional shares of common stock. |
• | “Naked” short sales are sales of shares in an amount in excess of the number of shares represented by the underwriters’ option to purchase additional shares of common stock. |
• | Covering transactions involve purchases of shares either pursuant to the underwriters’ option to purchase additional shares of common stock or in the open market after the distribution has been completed in order to cover short positions. |
• | To close a naked short position, the underwriters must purchase shares in the open market after the distribution has been completed. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. |
• | To close a covered short position, the underwriters must purchase shares in the open market after the distribution has been completed or must exercise the option to purchase additional shares of common stock. In determining the source of shares to close the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the underwriters’ option to purchase additional shares of common stock. |
• | Stabilizing transactions involve bids to purchase shares so long as the stabilizing bids do not exceed a specified maximum. |
(a) | to any legal entity which is a qualified investor as defined in the Prospectus Directive; |
(b) | to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), subject to obtaining the prior consent of the relevant representative nominated by the issuer for any such offer; or |
(c) | in any other circumstances falling within Article 3(2) of the Prospectus Directive, |
• | released, issued, distributed or caused to be released, issued or distributed to the public in France; or |
• | used in connection with any offer for subscription or sale of the shares to the public in France. |
• | to qualified investors (investisseurs qualifiés) and/or to a restricted circle of investors (cercle restreint d’investisseurs), in each case investing for their own account, all as defined in, and in accordance with articles L.411-2 II, D.411-1, D.411-4, D.744-1, D.754-1 and D.764-1 of the French Code monétaire et financier; |
• | to investment services providers authorized to engage in portfolio management on behalf of third parties; or |
• | in a transaction that, in accordance with article L.411-2 I 1° or 2° or 3° of the French Code monétaire et financier and article 211-2 et seq. of the General Regulations (Règlement Général) of the Autorité des Marchés Financiers, does not constitute an offer to the public (offre au public). |
• | a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or |
• | a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except: |
• | to an institutional investor (for corporations, under Section 274 of the SFA) or to a relevant person defined in Section 275(2) of the SFA, or to any person pursuant to an offer that is made on terms that such shares, debentures and units of shares and debentures of that corporation or such rights and interest in that trust are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of securities or other assets, and further for corporations, in accordance with the conditions specified in Section 275 of the SFA; |
• | where no consideration is or will be given for the transfer; or |
• | where the transfer is by operation of law. |
(a) | you confirm and warrant that you are either: |
(i) | a “sophisticated investor” under section 708(8)(a) or (b) of the Corporations Act; |
(ii) | a “sophisticated investor” under section 708(8)(c) or (d) of the Corporations Act and that you have provided an accountant’s certificate to us which complies with the requirements of section 708(8)(c)(i) or (ii) of the Corporations Act and related regulations before the offer has been made; |
(iii) | a person associated with the company under section 708(12) of the Corporations Act; or |
(iv) | a “professional investor” within the meaning of section 708(11)(a) or (b) of the Corporations Act, and to the extent that you are unable to confirm or warrant that you are an exempt sophisticated investor, associated person or professional investor under the Corporations Act any offer made to you under this document is void and incapable of acceptance; and |
(b) | you warrant and agree that you will not offer any of the common shares for resale in Australia within 12 months of that common shares being issued unless any such resale offer is exempt from the requirement to issue a disclosure document under section 708 of the Corporations Act. |
• | Our Annual Report on Form 10-K for the fiscal year ended September 30, 2018, filed on December 10, 2018, including information incorporated by reference therein to our proxy statement/prospectus filed on January 22, 2019; |
• | Our Quarterly Report on Form 10-Q or Form 10-QT, as applicable, for the quarters ended December 31, 2018, March 31, 2019 and June 30, 2019 filed on February 8, 2019, May 9, 2019 and August 8, 2019, respectively; |
• | Our Current Reports on Form 8-K filed on December 19, 2018, February 7, 2019, March 14, 2019, April 24,2019, and June 20, 2019; and |
• | The description of our stock included in Exhibit 99.1 to our Current Report on Form 8-K filed on March 20, 2017, including any subsequent amendments and reports filed for the purpose of updating such description. |
• | general economic and business conditions, including those currently affecting our nation’s economy and real estate markets; |
• | the availability of, and costs associated with, sources of capital and liquidity; |
• | accessibility of debt and equity capital markets; |
• | general and local real estate conditions, including any changes in the value of our real estate; |
• | changes in Federal, state and local governmental laws and regulations, including laws and regulations relating to taxes and real estate and related investments; |
• | the level and volatility of interest rates; |
• | our acquisition strategy, which may not produce the cash flows or income expected; |
• | the competitive environment in which we operate, including competition that could adversely affect our ability to acquire properties and/or limit our ability to lease apartments or increase or maintain rental income; |
• | a limited number of multi-family property acquisition opportunities acceptable to us; |
• | our multi-family properties are concentrated in the Southeastern United States and Texas, which makes us more susceptible to adverse developments in those markets; |
• | risks associated with our strategy of acquiring value-add multi-family properties, which involves greater risks than more conservative strategies; |
• | the condition of Fannie Mae or Freddie Mac, which could adversely impact us; |
• | our failure to comply with laws, including those requiring access to our properties by disabled persons, which could result in substantial costs; |
• | insufficient cash flows, which could limit our ability to make required payments on our debt obligations; |
• | impairment in the value of real estate we own; |
• | failure of property managers to properly manage properties; |
• | disagreements with, or misconduct by, joint venture partners; |
• | decreased rental rates or increasing vacancy rates; |
• | our ability to lease units in newly acquired or newly constructed multi-family properties; |
• | potential defaults on or non-renewal of leases by tenants; |
• | creditworthiness of tenants; |
• | our ability to obtain financing for acquisitions; |
• | development and acquisition risks, including rising or unanticipated costs and failure of such acquisitions and developments to perform in accordance with projections; |
• | the timing of acquisitions and dispositions; |
• | our ability to reinvest the net proceeds of dispositions into more, or as favorable, acquisition opportunities; |
• | potential natural disasters such as hurricanes, tornadoes and floods; |
• | board determinations as to timing and payment of dividends, if any, and our ability or willingness to pay future dividends; |
• | financing risks, including the risks that our cash flows from operations may be insufficient to meet required debt service obligations and we may be unable to refinance our existing debt upon maturity or obtain new financing on attractive terms or at all; |
• | lack of or insufficient amounts of insurance to cover, among other things, losses from catastrophes; |
• | our ability to maintain our qualification as a REIT; |
• | possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by us or a subsidiary owned by us or acquired by us; |
• | our dependence on information systems; |
• | risks associated with breaches of our data security; |
• | risks associated with the stock ownership restrictions imposed by the Internal Revenue Code of 1986, as amended, for REITs and the stock ownership limit imposed by our charter; |
• | increases in real estate taxes at properties we acquire due to such acquisitions or other factors; and |
• | other risks detailed from time-to-time in our reports filed with the SEC. |
• | provide for a staggered board of directors consisting of three classes, with one class of directors being elected each year and each class being elected for three-year terms and until their successors are duly elected and qualify; |
• | impose restrictions on ownership and transfer of our stock (such provisions being intended to, among other purposes, facilitate our compliance with certain requirements under the Internal Revenue Code of 1986, as amended (the “Code”), relating to our qualification as a REIT under the Code); |
• | prevent our stockholders from amending the Bylaws; |
• | limit who may call special meetings of stockholders; |
• | establish advance notice and informational requirements and time limitations on any director nomination or proposal that a stockholder wishes to make at a meeting of stockholders; |
• | provide that directors may be removed only for cause and only by the vote of at least two-thirds of all votes generally entitled to be cast in the election of directors; |
• | do not permit cumulative voting in the election of our board of directors, which would otherwise permit holders of less than a majority of outstanding shares to elect one or more directors; and |
• | authorize our board of directors, without stockholder approval, to amend the Charter to increase or decrease the aggregate number of shares of our stock or the number of shares of stock of any class or series that we have authority to issue and classify or reclassify any unissued shares of common or preferred stock and set the preferences, rights and other terms of the classified or reclassified shares. |
• | “business combination” provisions that, subject to certain exceptions and limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our outstanding voting stock or an affiliate or associate of BRT who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner of 10% or more of the voting power of our then outstanding voting stock) or an affiliate thereof for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter impose two super-majority stockholder voting requirements on these combinations; |
• | “control share” provisions that provide that, subject to certain exceptions, holders of “control shares” of BRT (defined as voting shares which, when aggregated with other shares controlled by the stockholder, entitle the holder to exercise voting power in the election of directors within one of three increasing ranges) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares,” subject to certain exceptions) have no voting rights with respect to the control shares except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares; and |
• | additionally, Title 3, Subtitle 8 of the MGCL permits our board of directors, without stockholder approval and regardless of what is currently provided in the Charter or the Bylaws, to implement certain corporate governance provisions. See “Certain Provisions of Maryland Law and of our Charter and Bylaws.” |
• | any person from beneficially or constructively owning, applying certain attribution rules of the Code, shares of our stock that would result in our being “closely held” under Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year) or otherwise cause us to fail to qualify as a REIT under the Code; and |
• | any person from transferring shares of our stock if the transfer would result in shares of our stock being beneficially owned by fewer than 100 persons (determined under the principles of Section 856(a)(5) of the Code). |
• | the title of the warrants; |
• | the designation, amount and terms of the securities for which the warrants are exercisable; |
• | the designation and terms of the other securities, if any, with which the warrants are to be issued and the number of warrants issued with each other security; |
• | the price or prices at which the warrants will be issued; |
• | the aggregate number of warrants; |
• | any provisions for adjustment of the number or amount of securities receivable upon exercise of the warrants or the exercise price of the warrants; |
• | the price or prices at which the securities purchasable upon exercise of the warrants may be purchased; |
• | the date on which the right to exercise the warrants will commence, and the date on which the right will expire; |
• | if applicable, the date on and after which the warrants and the securities purchasable upon exercise of the warrants will be separately transferable; |
• | if applicable, a discussion of certain material U.S. federal income tax considerations applicable to the warrants; |
• | any other terms of the warrants, including terms, procedures and limitations relating to the redemption, exchange and exercise of the warrants; |
• | the maximum or minimum number of warrants that may be exercised at any time; and |
• | information with respect to book-entry procedures, if any. |
• | the price, if any, for the subscription rights; |
• | the exercise price payable for each common share, preferred share or other security upon the exercise of the subscription rights; |
• | the number of subscription rights issued to each securityholder; |
• | the number and terms of the common shares, preferred shares or other securities which may be purchased per each subscription right; |
• | the extent to which the subscription rights are transferable; |
• | any other terms of the subscription rights, including the terms, procedures and limitations relating to the exchange and exercise of the subscription rights; |
• | the date on which the right to exercise the subscription rights shall commence, and the date on which the subscription rights shall expire; |
• | the extent to which the subscription rights may include an over-subscription privilege with respect to unsubscribed securities; and |
• | if applicable, the material terms of any standby underwriting or purchase arrangement entered into by us in connection with the offering of subscription rights. |
• | any person who beneficially owns, directly or indirectly, 10% or more of the voting power of the corporation’s outstanding voting stock; or |
• | an affiliate or associate of the corporation who, at any time within the two-year period before the date in question, was the beneficial owner of 10% or more of the voting power of the then-outstanding voting stock of the corporation. |
• | 80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and |
• | two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom (or with whose affiliate) the business combination is to be effected or held by an affiliate or associate of the interested stockholder. |
• | a classified board; |
• | a two-thirds vote requirement for removing a director; |
• | a requirement that the number of directors be fixed only by vote of the board of directors; |
• | a requirement that a vacancy on the board 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 |
• | a majority requirement for the calling of a special meeting of shareholders. |
• | the act or omission of the director or officer was material to the matter giving rise to the proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty; |
• | the director or officer actually received an improper personal benefit in money, property or services; or |
• | in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. |
• | 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 |
• | a written undertaking by the director or officer or on the director’s or officer’s 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. |
• | any present or former director or officer of ours or Old BRT who is made or threatened to be made a party to, or witness in a proceeding by reason of his or her service in such capacity; and |
• | any individual who, while a director or officer of ours or Old BRT and at our or Old BRT’s request, serves or has served as a director, officer, trustee, member, manager, or partner of another corporation, real estate investment trust, limited liability company, partnership, joint venture, trust, employee benefit plan or any other enterprise and who is made or threatened to be made a party to, or witness in a proceeding by reason of his or her service in such capacity; |
• | in either case, from and against any claim or liability to which such person may become subject or which such person may incur by reason of his or her service in such capacity. |
• | the tax consequences to you may vary depending on your particular tax situation; |
• | you may be a person that is subject to special tax treatment or special rules under the Code (e.g., regulated investment companies, insurance companies, tax-exempt entities, financial institutions or broker-dealers, expatriates, persons subject to the alternative minimum tax and partnerships, trusts, estates or other pass through entities) that the discussion below does not address; |
• | the discussion below does not address any state, local or non-U.S. tax considerations; and |
• | the discussion below deals only with stockholders that hold shares of our capital stock as a “capital asset,” within the meaning of Section 1221 of the Code. |
• | First, we would be taxed at regular corporate rates on any of our undistributed REIT taxable income, including our undistributed net capital gains (although, to the extent so designated by us, stockholders would receive an offsetting credit against their own U.S. federal income tax liability for U.S. federal income taxes paid by us with respect to any such gains). |
• | Second, if we have (a) net income from the sale or other disposition of “foreclosure property,” which is, in general, property acquired on foreclosure or otherwise on default on a loan secured by such real property or a lease of such property, which is held primarily for sale to customers in the ordinary course of business or (b) other nonqualifying income from foreclosure property, we will be subject to tax at the highest corporate rate on such income. |
• | Third, if we have net income from prohibited transactions such income will be subject to a 100% tax. Prohibited transactions are, in general, certain sales or other dispositions of property held primarily for sale to customers in the ordinary course of business other than foreclosure property. |
• | Fourth, if we should fail to satisfy the annual 75% gross income test or 95% gross income test (as discussed below), but nonetheless maintain our qualification as a REIT under the Code because certain other requirements have been met, we will have to pay a 100% tax on an amount equal to (a) the gross income attributable to the greater of (i) 75% of our gross income over the amount of gross income that is qualifying income for purposes of the 75% test, and (ii) 95% of our gross income (90% for taxable years beginning on or before October 22, 2004) over the amount of gross income that is qualifying income for purposes of the 95% test, multiplied by (b) a fraction intended to reflect our profitability. |
• | Fifth, if we should fail to distribute during each calendar year at least the sum of (i) 85% of our REIT ordinary income for such year, (ii) 95% of our REIT capital gain net income for such year, and (iii) any undistributed taxable income required to be distributed from prior years, we would be subject to a 4% excise tax on the excess of such required distribution over the amount actually distributed by us. |
• | Sixth, if we were to acquire an asset from a corporation that is or has been a subchapter C corporation in a transaction in which the basis of the asset in our hands is determined by reference to the basis of the asset in the hands of the subchapter C corporation, and we subsequently recognize gain on the disposition of the asset within the five year period beginning on the day that we acquired the asset, |
• | Seventh, for taxable years beginning after December 31, 2000, we could be subject to a 100% tax on certain payments that we receive from one of our taxable REIT subsidiaries (“TRSs”), or on certain expenses deducted by one of our TRSs, if the economic arrangement between us, the TRS and the tenants at our properties are not comparable to similar arrangements among unrelated parties. |
• | Eighth, if we fail to satisfy a REIT asset test, as described below, during our 2005 and subsequent taxable years, due to reasonable cause and we nonetheless maintain our REIT qualification under the Code because of specified cure provisions, we will generally be required to pay a tax equal to the greater of $50,000 or the highest corporate tax rate multiplied by the net income generated by the nonqualifying assets that caused us to fail such test. |
• | Ninth, 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 REIT gross income tests or a violation of the asset tests described below) during our 2005 and subsequent taxable years and the violation is due to reasonable cause, we may retain our REIT qualification but will be required to pay a penalty of $50,000 for each such failure. |
• | Tenth, we may be required to pay monetary penalties to the IRS in certain circumstances, including if we fail to meet record-keeping requirements intended to monitor our compliance with rules relating to the composition of a REIT’s stockholders. |
• | Finally, the earnings of our lower-tier entities that are subchapter C corporations, including TRSs but excluding our QRSs (as defined below), are subject to federal corporate income tax. |
(1) | that is managed by one or more trustees or directors; |
(2) | the beneficial ownership of which is evidenced by transferable shares, or by transferable certificates of beneficial interest; |
(3) | that would otherwise be taxable as a domestic corporation, but for Sections 856 through 859 of the Code; |
(4) | that is neither a financial institution nor an insurance company to which certain provisions of the Code apply; |
(5) | the beneficial ownership of which is held by 100 or more persons; |
(6) | during the last half of each taxable year, not more than 50% in value of the outstanding capital stock of which is owned, directly or constructively, by five or fewer individuals, as defined in the Code to include certain entities; |
(7) | that uses a calendar year for federal income tax purposes and complies with the recordkeeping requirements of the federal income tax laws; and |
(8) | that meets certain other tests, described below, regarding the nature of its income and assets. |
• | First, at least 75% of our gross income, excluding gross income from prohibited transactions and certain “hedging transactions” entered into after July 30, 2008, for each taxable year must be derived directly or indirectly from investments relating to real property or mortgages on real property, including “rents from real property,” gains on the disposition of real estate, dividends paid by another REIT and interest on obligations secured by mortgages on real property or on interests in real property, or from some types of temporary investments. |
• | Second, at least 95% of our gross income, excluding gross income from prohibited transactions and, commencing with our 2005 taxable year, certain “hedging transactions,” for each taxable year must be derived from any combination of income qualifying under the 75% test and dividends, interest, and gain from the sale or disposition of stock or securities. |
• | such rent must not be based in whole or in part on the income or profits derived by any person from the property (although the rent may be based on a fixed percentage of receipts or sales); |
• | such rent may not be received or accrued, directly or indirectly, from any person if the REIT owns, directly or indirectly (including by attribution, upon the application of certain attribution rules): (i) in the case of any person which is a corporation, at least 10% of such person’s voting stock or at least 10% of the value of such person’s stock; or (ii) in the case of any person which is not a corporation, an interest of at least 10% in the assets or net profits of such person, except that under certain circumstances, rents received from a TRS will not be disqualified as “rents from real property” even if we own more than 10% of the TRS; and |
• | the portion of such rent that is attributable to personal property for a taxable year that is leased under, or in connection with, a lease of real property may not exceed 15% of the total rent received or accrued under the lease for the taxable year. |
• | the REIT has held the property for not less than two years; |
• | the aggregate capital expenditures made by the REIT, or any partner of the REIT, during the two-year period preceding the date of the sale that are includable in the basis of the property do not exceed 30% of the selling price of the property; |
• | either (1) during the year in question, the REIT did not make more than seven sales of property other than foreclosure property or sales to which Section 1033 of the Internal Revenue Code applies, (2) the aggregate adjusted bases of all such properties sold by the REIT during the year did not exceed 10% of the aggregate bases of all of the assets of the REIT at the beginning of the year or (3) for sales made after July 30, 2008, the aggregate fair market value of all such properties sold by the REIT during the year did not exceed 10% of the aggregate fair market value of all of the assets of the REIT at the beginning of the year; |
• | in the case of property not acquired through foreclosure or lease termination, the REIT has held the property for at least two years for the production of rental income; and |
• | if the REIT has made more than seven sales of non-foreclosure property during the taxable year, substantially all of the marketing and development expenditures with respect to the property were made through an independent contractor from whom the REIT derives no income. |
• | our failure to meet these tests was due to reasonable cause and not due to willful neglect; |
• | we attach a schedule of the nature and amount of each item of income to our U.S. federal income tax return; and |
• | for our 2004 and prior taxable years, the inclusion of any incorrect information on the schedule is not due to fraud with intent to evade tax. |
• | at least 75% of the value of our total assets must be represented by “real estate assets” (which also includes any property attributable to the temporary investment of new capital, but only if such property is stock or a debt instrument and only for the 1-year period beginning on the date the REIT receives such proceeds), cash and cash items (including receivables) and government securities (“75% Value Test”); |
• | not more than 25% of the value of our total assets may be represented by securities other than securities that constitute qualifying assets for purposes of the 75% Value Test; |
• | except with respect to securities of a TRS or QRS and securities that constitute qualifying assets for purposes of the 75% Value Test: |
— | not more than 5% of the value of our total assets may be represented by securities of any one issuer the “5% Value Test”); |
— | we may not hold securities possessing more than 10% of the total voting power of the outstanding securities of any one issuer (the “10% Vote Test”); |
— | we may not hold securities having a value of more than 10% of the total value of the outstanding securities of any one issuer (“10% Value Test”); |
— | not more than 20% of the value of our total assets may be represented by securities of one or more TRSs; and |
• | for tax years beginning after December 31, 2015, not more than 25% of the value of our total assets may be represented by debt instruments of publicly offered REITs unless it would otherwise be treated as a real estate asset for purposes of the 75% Value Test. |
• | If we fail to satisfy the Asset Tests at the end of a calendar quarter, we will not lose our REIT qualification if: |
— | we satisfied the Asset Tests at the end of the preceding calendar quarter; and |
— | the discrepancy between the value of our assets and the Asset Test requirements arose from changes in the market values of our assets and was not wholly or partly caused by the acquisition of one or more non-qualifying assets. |
• | the dividends are declared in October, November or December and are made payable to stockholders of record on a specified date in any of these months, and such dividends are actually paid during January of the following year; or |
• | the dividends are declared before we timely file our U.S. federal income tax return for such year, the dividends are paid in the 12-month period following the close of the year and not later than the first regular dividend payment after the declaration, and we elect on our U.S. federal income tax return for such year to have a specified amount of the subsequent dividend treated as if paid in such year. |
• | 85% of our ordinary income for such year; |
• | 95% of our capital gain net income for such year; and |
• | any undistributed taxable income required to be distributed from prior periods. |
• | a citizen or resident of the United States; |
• | a corporation (including an entity treated as a corporation for federal income tax purposes) created or organized under the laws of the United States, any of its states or the District of Columbia; |
• | an estate the income of which is subject to U.S. federal income taxation regardless of its source; or |
• | a trust if a court within the United States can exercise primary supervision over the administration of the trust, and one or more United States persons have the authority to control all substantial decisions of the trust. |
• | dividend payments; |
• | the payment of the proceeds from the sale of shares of our capital stock effected at a United States office of a broker, as long as the income associated with these payments is otherwise exempt from U.S. federal income tax, and provided that the following additional requirements are met: |
— | the payor or broker does not have actual knowledge or reason to know that you are a United States person and you have furnished to the payor or broker either (i) a valid IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable, or an acceptable substitute form upon which you certify, under penalties of perjury, that you are a non-United States person or (ii) other documentation upon which it may rely to treat the payments as made to a non-United States person in accordance with Treasury Regulations; or |
— | you otherwise establish your right to an exemption. |
• | the proceeds are transferred to an account maintained by you in the United States; |
• | the payment of proceeds or the confirmation of the sale is mailed to you at a United States address; or |
• | the sale has some other specified connection with the United States as provided in the Treasury Regulations, unless the broker does not have actual knowledge or reason to know that you are a United States person and the documentation requirements described above are met or you otherwise establish an exemption. |
• | a United States person; |
• | a controlled foreign corporation for United States tax purposes; |
• | a foreign person 50% or more of whose gross income is effectively connected with the conduct of a United States trade or business for a specified three-year period; or |
• | a foreign partnership, if at any time during its tax year: |
• | one or more of its partners are “U.S. persons,” as defined in Treasury Regulations, who in the aggregate hold more than 50% of the income or capital interest in the partnership; or |
• | such foreign partnership is engaged in the conduct of a United States trade or business; |
• | unless the broker does not have actual knowledge or reason to know that you are a United States person and the documentation requirements described above are met or you otherwise establish your right to an exemption. Backup withholding will apply if the sale is subject to information reporting and the broker has actual knowledge that you are a United States person. |
• | block transactions (which may involve crosses) and transactions on the New York Stock Exchange or any other organized market where the securities may be traded; |
• | purchases by a broker-dealer as principal and resale by the broker-dealer for its own account pursuant to a prospectus supplement; |
• | ordinary brokerage transactions and transactions in which a broker-dealer solicits purchasers; |
• | sales “at the market” to or through a market maker or into an existing trading market, on an exchange or otherwise; and |
• | sales in other ways not involving market makers or established trading markets, including direct sales to purchasers. |
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