As Filed Withfiled with the Securities and Exchange Commission on July 19, 2005
April 3, 2015
Registration No. 333-_________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
ACADIA REALTY TRUST
(Exact Name
(Exact name of Registrantregistrant as Specifiedspecified in Its Charter)
Maryland 23-2715194
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Identification Number)
Organization)
its charter)
 | | |
| Maryland (State of Organization) | 23-2715194 (I.R.S. Employer Identification No.) |
1311 Mamaroneck Avenue, Suite 260
White Plains, NYNew York 10605
(Address, Including Zip Code,
(914) 288-8100
(Address, including zip code, and Telephone Number, Including Area Code,telephone number, including area code, of Registrant's Principal Executive Offices)
registrant’s principal executive offices)
Kenneth F. Bernstein With copies to:
President and Chief Executive Officer Mark Schonberger, Esq.
Acadia Realty Trust Paul, Hastings, Janofsky & Walker LLP
1311 Mamaroneck Avenue, Suite 260 75 East 55th Street
White Plains, New York 10605
(914) 288-8100
(Name, address, including zip code, and telephone number, including area code, of agent for service):
Copies to:
Mark Schonberger, Esq.
Goodwin Procter LLP
620 Eighth Avenue
New York, New York 10022
(914) 288-8100 NY 10018
(212) 318-6000
(Name, Address, Including Zip Code, and
Telephone Number, Including Area Code,813-8800
Approximate Date of Agent For Service)
Approximate dateCommencement of commencement of proposed saleProposed Sale to the public:Public: From time to time after the effective date of this Registration Statement.
---------------
Statement becomes effective.
If the only securities being registered on this Formform are being offered pursuant to dividend or interest reinvestment plans, please check the following box. /_/
box:o
If any of the securities being registered on this Formform are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. /X/
box:x
If this Formform is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. /_/
o
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. /_/
o
If delivery ofthis form is a registration statement pursuant to General Instruction I.D or a post-effective amendment thereto that shall become effective upon filing with the prospectus is expected to be madeCommission pursuant to Rule 434, please check the following box. /_/
If this Registration Statement also covers suchForm is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D filed to register additional securities as may
hereinafter be offered or issued to prevent dilution resulting from share split,
share dividends, recapitalization or certain other capital adjustments.
(2) Estimated solely for the purposeadditional classes of calculating the amount of the
registration feesecurities pursuant to Rule 457(h) of413(b) under the Securities Act, check the following box.o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| | | | |||
| Large accelerated filerx | Accelerated filero | Non-accelerated filero | Smaller reporting companyo | |||
| (Do not check if a smaller reporting company) | ||||||
CALCULATION OF REGISTRATION FEE
| | | | | ||||||||||||
| Title of each class of securities to be registered | Amount to be registered(1)(2) | Proposed maximum offering price per unit(3) | Proposed maximum aggregate offering price(4) | Amount of registration fee(4) | ||||||||||||
| Shares of beneficial interest classified as common shares, par value $.001 per share | 3,078,217 | $ | 34.71 | $ | 54,734,581 | $ | 6,361 | |||||||||
| (1) | Represents the maximum number of common shares that may be issuable upon exchange of common units of limited partnership interest, or “Common OP Units,” in Acadia Realty Limited Partnership, by certain holders of such Common OP Units. |
| (2) | Pursuant to Rule 416, the common shares offered hereby shall also be deemed to cover such additional shares as may hereafter be offered or issued with respect to the shares registered hereby resulting from stock splits, stock dividends, recapitalizations or similar capital adjustments. |
| (3) | Estimated solely for the purposes of calculating the registration fee pursuant to Rule 457(a), and, in accordance with Rule 457(c), is based upon the average of the high and low reported sale prices of our common shares on the New York Stock Exchange on April 1, 2015. |
| (4) | As discussed below, pursuant to Rule 415(a)(6), this prospectus includes 1,501,306 unsold common shares that have been previously registered. Accordingly, the registration fee due in connection with this prospectus relates to the additional 1,576,911 common shares registered hereby. |
Pursuant to Rule 415(a)(6), the common shares registered pursuant to this prospectus include 1,501,306 unsold common shares previously registered on our prospectus supplements dated April 15, 2013, March 27, 2014 and November 13, 2014 and an accompanying prospectus to our registration statement on Form S-3 that we filed with the Securities and Exchange Commission on April 6, 2012 under File No. 333-180607, which we collectively refer to as the “Prior Prospectuses.” The registration fee in connection with the registration of such unsold common shares on the basis ofPrior Prospectuses has previously been paid and will continue to be applied to such unsold securities. $6,361 is being paid herewith in connection with the average of the high and low prices of the Company'sadditional 1,576,911 common shares as
reported by the New York Stock Exchange on July 18, 2005, which was within five
business days of the filing of the initial Registration Statement.
registered hereby.
The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant will file a further amendment which specifically states that this Registration Statement will thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement will become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. AThese securities may not be sold until the registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomesCommission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdictionstate where the offer or sale is not permitted.
PROSPECTUS
250,000 COMMON SHARES OF BENEFICIAL INTEREST OF
ACADIA REALTY TRUST
We are
PRELIMINARY — SUBJECT TO COMPLETION — DATED APRIL 3, 2015
3,078,217
![[GRAPHIC MISSING]](https://capedge.com/proxy/S-3/0001144204-15-021189/logo_acadiarealtytrust.jpg){kind=logo}
Acadia Realty Trust ("Acadia" or
Common Shares of Beneficial Interest
This prospectus relates to the "Company"), a statutory
real estate investment trust formed under the laws of the State of Maryland. Our
common shares of beneficial interest ("Common Shares") which are the subject of
this prospectus may be offeredoffer and soldsale, from time to time, by the person listed
underholders, or “OP unit holders,” of common units of limited partnership interest, or “Common OP Units,” in Acadia Realty Limited Partnership, a Delaware limited partnership and our operating partnership, or the "Selling Shareholder" section“Operating Partnership,” named herein, of up to 3,078,217 common shares of beneficial interest, par value $0.001 per share, of Acadia Realty Trust that may be issued to such OP unit holders in exchange for an equal number of Common OP Units, subject to certain adjustments. Up to 162,730 of such common shares relate to potential earn-out compensation that may be paid to the OP unit holders as described herein. The OP unit holders may only offer our common shares if they exercise their right to exchange any or all of their Common OP Units for common shares. The registration for resale of our common shares covered by this prospectus.
prospectus satisfies our contractual obligation to do so, but does not necessarily mean that any of the OP unit holders will exercise their rights to exchange some or all of the Common OP Units for common shares.
The Selling ShareholderOP unit holders will act independently in making decisions with respect to the timing, manner and size of each sale or non-sale related transfer. The OP unit holders may sell its Common Shares directly or
indirectlythese shares in one or more transactions on any stock exchange or stock market on
which the Common Shares may be listed at the time of the sale, in privately
negotiated transactions, or through a combination of such methods. These sales
may be at fixed prices (which may be changed), at market pricesprice for our common shares prevailing at the time of sale, at pricesa price related to suchthe prevailing market pricesprice, a negotiated price or at
negotiated prices.such other price as the OP unit holders determine from time to time. See “Plan of Distribution.” Our Common Shares are listedcommon shares trade on the New York Stock Exchange under the symbol "AKR."“AKR.” On July 18, 2005,April 2, 2015, the last reportedclosing sale price forof our Common
Sharescommon shares was $18.93$34.87 per share.
This prospectus has been prepared
To assist us in preserving our status as a real estate investment trust (“REIT”) for Federal income tax purposes, among other purposes, our declaration of trust imposes certain restrictions on the purposeownership of registering the
Common Shares which are the subjectour common shares. See “Restrictions on Ownership Transfers and Takeover Defense Provisions.”
Investing in our securities involves risks. Please refer to “Risk Factors” beginning on page 2 of this prospectus underas well as the risk factors contained in our filings with the Securities Act
to allowand Exchange Commission, which are incorporated by reference in this prospectus, for future sales by the Selling Shareholder to the public. The Selling
Shareholder may sell Common Shares directly to purchasers or through brokers or
dealers, which may act as agents or principals, or pursuant to a distribution by
one or more underwriters on a firm commitment or best efforts basis. Such
brokers or dealers may receive compensationdiscussion of risk factors that you should consider before investing in the form of commissions,
discounts or concessions from the Selling Shareholder and/or purchasers of the
Common Shares, or both (which compensation as to a particular broker or dealer
may be in excess of customary commissions). In connection with such sales, the
Selling Shareholder and any participating broker or dealer may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commissions
they receive and the proceeds of any sale of Common Shares may be deemed to be
underwriting discounts and commissions under the Securities Act. our securities.
We will not receive any proceeds from the sale by the OP unit holders of the Common Shares bycommon shares. We will pay all expenses of the Selling
Shareholder. See "Planregistration of Distribution," herein.
---------------
Investing in our Common Shares involves various risks. In considering
whether to purchase our Common Shares, you should carefully consider the matters
discussed under "Risk Factors" beginning on page 3 of this prospectus.
---------------
common shares and certain other expenses.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined whetherpassed upon the adequacy or accuracy of this prospectus is truthful or complete.prospectus. Any representation to the contrary is a criminal offence.
This prospectus does not constitute an offer to sell securities in any
state to any person to whom it is unlawful to make such offer in such state.
offense.
The date of this prospectus is , 2005.
TABLE OF PROCEEDS................................................................3
SELLING SHAREHOLDER............................................................3
CONTENTS
PROSPECTUS SUMMARY
About This summary highlightsProspectus
This prospectus is part of a registration statement that we filed with the Securities and Exchange Commission (the “SEC”) using a “shelf” registration process or continuous offering process. Under this shelf registration process, we are registering 3,078,217 common shares for sale, from time to time, by OP unit holders that may offer such common shares owned by them. This prospectus provides you with a general description of the common shares that may be offered by OP unit holders. We may also file, from time to time, a prospectus supplement or an amendment to the registration statement of which this prospectus forms a part containing additional information included elsewhere in about us and/or incorporated by referenceOP unit holders and the terms of the offering of the common shares. That prospectus supplement or amendment may include additional risk factors or other special considerations applicable to the common shares. Any prospectus supplement or amendment may also add, update or supersede information in this prospectus. It mayIf there is any supplement or amendment, you should rely on the information in that prospectus supplement or amendment.
This prospectus does not contain all of the information included in the registration statement. For further information, we refer you to the registration statement and any amendments to such registration statement, including its exhibits. Statements contained in this prospectus about the provisions or contents of any agreement or other document are not necessarily complete. If the SEC’s rules and regulations require that is importantan agreement or document be filed as an exhibit to you. the registration statement, please see that agreement or document for a complete description of these matters.
You should read the following summarythis prospectus together with additional information described below under the more detailed information included orheading “Where You Can Find More Information” on page 34 of this prospectus. Information incorporated by reference with the SEC after the date of this prospectus, or information included in any prospectus supplement or an amendment to the registration statement of which this prospectus forms a part, may add, update or supersede information in this prospectus including risk factors regarding our business andor any prospectus supplement. You should not assume that the Common Shares being offered hereby.
Ininformation in this prospectus we referor any prospectus supplement is accurate as of any date other than the date on the front of each document.
All references to Acadia together with its subsidiaries
(unless the context otherwise requires) as "we," "us," "our," or "our Company."
Our Company
Overview
We are“Company,” “we” and “us” in this prospectus means Acadia Realty Trust, a Maryland real estate investment trust ("REIT"(the “Trust”) formed on March 4, 1993. , and all entities owned or controlled by us, except where it is clear that the term means only the Trust. The term “you” refers to a prospective purchaser.
Our Company
We are a fully integrated self-managed and
self-administered equity REIT focused on the ownership, acquisition, redevelopment and management of neighborhood and community shopping centers. All
of our assets are held by, and all of our operations are conducted through,
Acadia Realty Limited Partnership, a Delaware limited partnership, and its
majority-owned subsidiaries. We refer to Acadia Realty Limited Partnership and
its majority-owned subsidiaries as the "Operating Partnership" throughout this
prospectus.
As of the date of this prospectus, we controlled 98% of the Operating
Partnership as the sole general partner. As the general partner, we are entitled
to share,high-quality retail properties located primarily in proportion to our percentage interest,high-barrier-to-entry, supply-constrained, densely-populated metropolitan areas in the cash distributions
and profits and losses of the Operating Partnership. The limited partners
represent entities or individuals who contributed their interests in certain
properties or partnerships to the Operating Partnership in exchange for common
or preferred units of limited partnership interest, which we refer to as "OP
Units." The common OP Units are exchangeable for our Common Shares on a
one-for-one basis, subject to adjustment for certain events.
As of the date of this prospectus, we operate 69 properties which we
own or have an ownership interest in, consisting of 64 neighborhood and
community shopping centers, one shopping center under development, one enclosed
mall, one mixed-use property (retail/residential) and two multifamily
properties, all of which are located in the Northeast, Mid-Atlantic and Midwest
regions of the United States and, in total, comprise approximately 9.6 million
square feet.States. Our primary business objective is to acquire and manage commercial retail properties that will provide cash for distributions to our shareholders while also creating the potential for capital appreciation to enhance investor returns. Currently,
All of our assets are held by, and all of our operations are conducted through, the primary conduitOperating Partnership and entities in which the Operating Partnership owns an interest. As of December 31, 2014, the Trust controlled 95% of the Operating Partnership as the sole general partner. As the general partner, the Trust is entitled to share, in proportion to its percentage interest, in the cash distributions and profits and losses of the Operating Partnership. The limited partners primarily represent entities or individuals that contributed their interests in certain properties or entities to the Operating Partnership in exchange for common or preferred units of limited partnership interest (“Common OP Units” or “Series A Preferred OP Units”, respectively, and collectively, “OP Units”) and employees who have been awarded restricted Common OP Units as long-term incentive compensation (“LTIP Units”). Limited partners holding Common OP and LTIP Units are generally entitled to exchange their units on a one-for-one basis for our acquisition programcommon shares, subject to certain adjustments. This structure is through a
joint venture, Acadia Strategic Opportunity Fund II, LLC ("Fund II"), which we
and six institutional investors formed on June 15, 2004. The investors have
committed $240 million. We have committed an additional $60 million of investor
capitalreferred to the venture and are entitled to receive standard management,
construction and leasing fees with respect to properties acquired by the joint
venture. In addition, we are entitled to an asset management fee equal to 1.5%
of the capital committed as well as an incentive payment of 20% after the return
of all investor capital with an 8% preferred return. As of the date of this
prospectus, Fund II has invested in approximately $66.8 million of properties
and we and the investors have contributed equity to Fund II in the amount of
$9.8 million and $39.0 million, respectively. Total expected costs to complete
these projects are estimated between $135.0 and at $143.0 million.
Our Common Shares are traded on the New York Stock Exchange under the
symbol "AKR."
Tax Status
We have elected to be treated as aumbrella partnership REIT, for federal income tax
purposes. This treatment permits us to deduct dividend distributions to our
shareholders for federal income tax purposes, thus effectively eliminating the
"double taxation" that generally results when a corporation earns income and
distributes that income to its shareholders by way of dividends. In order to
maintain our status as a REIT, we must comply with a number of
1
requirements under federal income tax law. See "Risk Factors" and "Federal
Income Tax Considerations" beginning on pages 3 and 12, respectively, of this
prospectus.
or “UPREIT”.
Our Offices
Our principal executive offices are located at 1311 Mamaroneck Avenue, Suite 260, White Plains, NYNew York 10605 and our telephone number is (914) 288-8100.
Recent Developments
On May 16, 2005, we closed on a $65 million line of credit with Bank of
America, N.A. which is collateralized by five of our properties. Outstanding
amounts under the facility, which has an initial term of five years, bear
interest at LIBOR plus 1.3%. To date, we have drawn a total of $32.0 million
under this facility.
On July 7, 2005, we sold the Berlin Shopping Center, located in Berlin,
New Jersey, for a gross sales price of $5.75 million. Simultaneously, we
acquired a shopping center located on Staten Island, New York, for $15.8
million. The shopping center, which totals 60,000 square feet, is subject to a
ground lease of 23 years and is improved with a supermarket and drug store as
well as 13,000 square feet of shop space.
Declaration of Dividends
On May 18, 2005, our board of trustees declared a quarterly dividend of
$0.1725 per share payable on July 15, 2005 to common shareholders and holders of
common OP Units of record as of June 30, 2005.
Securities That May Be Offered
This prospectus relates to the offer and sale from time to time by the
person listed under the "Selling Shareholder" section of this prospectus of up
to 250,000 Common Shares which may be issued upon exchange of common OP Units
held by the Selling Shareholder. We are registering the Common Shares covered by
this prospectus to satisfy our obligations under a registration rights agreement
with the Selling Shareholder.
We will not receive any cash proceeds from the sale of our Common
Shares by the Selling Shareholder.
Risk Factors
Investing in our Common Shares involves various risks. In considering
whether to purchase our Common Shares, you should carefully consider the matters
discussed under "Risk Factors" beginning on page 3 of this prospectus.
2
RISK FACTORS
Investing in our securities involves risks and uncertainties that could affect us and our business as well as the real estate industry generally. Please seeBefore you invest in our securities, in addition to the other information in this prospectus and any applicable prospectus supplement, you should carefully consider the risk factors describedunder the heading “Risk Factors” contained in Part I, Item 1A in our most recent Annual Report on Form 10-K, for the year ended December
31, 2004, which is incorporated by reference into this prospectus. Much of the
business information as wellprospectus, as the financial and operational data contained insame may be updated from time to time by our risk factors is updated in our periodic reports, which are also incorporated
by reference into this prospectus. Although we have tried to discuss key
factors, please be aware that other risks may prove to be important infuture filings under the future. NewSecurities Exchange Act of 1934, as amended (the “Exchange Act”). In addition, new risks may emerge at any time and we cannot predict such risks or estimate the extent to which they may affect our financial performance. Before
purchasing our securities, you should carefully consider theThese risks discussed in
our Annual Report on Form 10-K for the year ended December 31, 2004 and the
other information in this prospectus, as well as the documents incorporated by
reference herein. Each of the risks described could result in a decrease in the value of our securities and your purchase thereof.
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING INFORMATION
This prospectus and the information incorporated by reference in this prospectus include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Exchange Act. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “project,” or the negative of these words or other similar words or terms. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:
These risks and uncertainties should be considered in evaluating any forward-looking statements contained or incorporated by reference in this prospectus. We caution you that any forward-looking statement reflects only our belief at the time the statement is made. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee our future results, levels of activity, performance or achievements. Except as required by law, we undertake no obligation to update any of the forward-looking statements to reflect subsequent events or developments.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the Common Sharescommon shares which may be sold pursuant to this prospectus for the account of the Selling
Shareholder.OP unit holders. All such proceeds, net of brokerage commissions, if any, will be received by the Selling Shareholder.OP unit holders. See "Selling“Selling Shareholder," below, and "Plan
of Distribution,"” beginning on page 4 of this prospectus.
SELLING SHAREHOLDER
This prospectus covers offers and sales from time to time by the
Selling Shareholder of up to 250,000 Common Shares which may be issued to the
Selling Shareholder upon exchange of common OP Units held by the Selling
Shareholder. Under Rule 416 of the Securities Act, the Selling Shareholder may
also offer and sell Common Shares issued to the Selling Shareholder as a result
of, among other events, stock splits, stock dividends and similar events that
affect the number of Common Shares held by the Selling Shareholder.
The following table sets forth certain information as to the beneficial
ownership of our Common Shares as of June 30 2005 for the Selling Shareholder:
DESCRIPTION OF OUR COMMON SHARES
The following descriptionsummary of the material terms and provisions of our Common Sharescommon shares does not purport to be complete and is qualified in its entirety by referencesubject to the detailed provisions of our declaration of trust and our bylaws, each as supplemented, amended or restated, each of which is incorporated by reference into this prospectus. You should carefully read each of these documents in order to fully understand the terms and restated,provisions of our common shares. For information on incorporation by reference, and how to obtain copies of which are exhibits tothese documents, see the registration statement of which this prospectus is a part. See "Available
Information"section entitled “Where You Can Find More Information” on page 2234 of this prospectus.
General
Under our declaration of trust, we have authority tomay issue 100,000,000 Common Shares,shares of beneficial interest, which may consist of common shares, par value $0.001 per share.share, or such other types or classes of securities of the Company as the trustees may create and authorize from time to time. All Common Shares,common shares offered hereby, when issued, arewill be duly authorized, fully paid and nonassessable. This means that once the full price for the shares has been paid at the time of issuance, and consequently that any holder of such shares will not later be required to pay us any additional money for the same. As of MarchDecember 31, 2005, 31,394,210 Common Shares2014, 68,109,287 common shares were issued and outstanding, as were 642,255 common3,663,644 Common OP Units, which are convertible into the same number of Common Shares.
In addition, 2,212our common shares (subject to anti-dilution adjustments).
A total of 188 Series A Preferred OP Units were issued atoutstanding as of December 31, 2014, with a pricestated value of $1,000 per Unit to certain selling shareholders on November 16, 1999.unit. These Series A Preferred OP Units are convertible into commonCommon OP Units at a conversion
price ofbased on the stated value divided by $7.50, per Unit and are entitled to a preferred quarterly distribution of the greater of (a) $22.50 per Series A Preferred OP Unit (9% annually) or (b) the quarterly distribution attributable to a Series A Preferred OP Unit if such unit were converted into a Common OP Unit. A total of 1,580
Other than the common shares, the Common OP Units, and the Series A Preferred OP Units were outstanding as of March 31, 2005, following the conversion of 632
Series A Preferred OP Units during 2003.
On January 27, 2004, 4,000 Series B Preferred OP Units were issued in
connection with the acquisition of the rights to provide asset management,
leasing, disposition, development and construction services for an existing
portfolio of retail properties from Klaff Realty, L.P. ("Klaff"). These Units
have a stated value of $1,000 per Unit and are entitled to a quarterly preferred
distribution of the greater of (i) $13.00 (5.2% annually) per Unit or (ii) the
quarterly distribution attributable to a Preferred OP Unit if such Unit were
converted into a common OP Unit. The Series B Preferred OP Units are convertible
into common OP Units based on the stated value of $1,000 divided by $12.82 at
any time. Additionally, the holder of the Series B Preferred OP Units may redeem
them at par for either cash or common OP Units (at our option) after the earlier
of the third anniversary of their issuance, or the occurrence of certain events,
including a change in control of our Company. Finally, after the fifth
anniversary of the issuance, we may redeem the Series B Preferred OP Units and
convert them into common OP Units at market value as of the redemption date. In
response to a subsequent request from Klaff, our Board of Trustees approved a
waiver on February 24, 2004 which allows Klaff to redeem 1,500 Series B
Preferred OP Units at any time. Klaff has not redeemed any Series B Units, as of the date of this Form S-3 filing.
Effective February 15, 2005,prospectus, we acquired the balance of Klaff's rights
to provide the above referenced services and certain potential future revenue
streams. In consideration for this transaction, we issued 250,000 restricted
Common OP Units to Klaff. These Units have a stated value of $16.00 per unit and
are convertible into our Common Shares on a one-for-one basis after a five year
lock-up period. The Common Shares issuable upon conversion of these Common OP
Units are the subject of this prospectus.
no other securities outstanding.
Our Common Sharescommon shares have equal dividend, liquidation and other rights, and have no preference, exchange or appraisal rights, except for any appraisal
rights provided by Maryland law.rights. Holders of our Common Sharescommon shares have no conversion, sinking fund or redemption rights, or preemptive rights to subscribe for any of our securities.
Distributions
Holders of our Common Shares maycommon shares are entitled to receive distributions out of assets that we can legally use to pay distributions, when and if they are authorized and declared by our board of trustees. Each common shareholder sharestrustees and declared by us, and to share ratably in the
same proportion as other common shareholders out of theour assets that we canare legally useavailable for distribution to pay distributions after we pay or make adequate provision for all
of our known debts and liabilitiesshareholders in the event we are liquidated, dissolved or our affairs are wound up.
6
Voting Rights
Holders of Common Sharescommon shares have the power to vote on all matters presented to our shareholders, including the election of trustees, except as otherwise provided by Maryland law. Our declaration of trust prohibits us from merging with or consolidating into another entity where we are not the surviving entity, or selling all or substantially all of our assets, without the approval of the holders of not less than two-thirds of the outstanding shares that are entitled to vote on such matters. Holders of Common Sharescommon shares are entitled to one vote per share.
share on all matters upon which shareholders are entitled to vote.
There is no cumulative voting in the election of our trustees, which means that holders of more than 50% of the Common Sharescommon shares voting for the election of trustees can elect all of the trustees if they choose to do so and the holders of the remaining shares cannot elect any trustees. See “Certain Provisions of Maryland Law and Our Declaration of Trust and Bylaws” beginning on page 7 of this prospectus.
Restrictions on Ownership and Transfer
To qualify as a REIT under the Internal Revenue Code of 1986, as amended, or the Code, we must satisfy certain ownership requirements that may limit the ownership and transferability of our common shares. Our declaration of trust contains provisions intended to assist us in satisfying these requirements. See “Restrictions on Ownership Transfers and Takeover Defense Provisions” beginning on page 4 of this prospectus.
Transfer Agent and Registrar
The transfer agent and registrar for our common shares is American Stock Transfer & Trust Company, which has an address at 40 Wall Street, New York, NY 10005.
RESTRICTIONS ON OWNERSHIP TRANSFERS AND TAKEOVER DEFENSE PROVISIONS
This summary does not purport to be complete and is qualified in its entirety by reference to our declaration of trust and bylaws, each as supplemented, amended or restated, the Code, and Maryland law. See “Where You Can Find More Information” on page 34 of this prospectus.
Declaration of Trust
Restrictions on Ownership and Transfer of Our Shares. To qualify as a REIT under the Code, we must satisfy certain ownership requirements. Specifically, not more than 50% in value of our outstanding Common Sharescommon shares may be owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code of 1986 to include certain entities) during the last half of a taxable year, and the Common Sharescommon shares must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of twelve months or during a proportionate part of a shorter taxable year. We must also satisfy certain income requirements
In order to maintain our
REIT status. One such requirement isensure that at least 75% of our company's gross
income for each calendar year must consist of rents from real property and
income from certain other real property investments. This is complicated by the
fact that the rents received by the operating partnership will not qualify as
rents from real property if we own, actually or constructively, 10% or more of
the ownership interests in our lessees, within the meaning of section
856(d)(2)(B) of the Internal Revenue Code of 1986, as amended. See "Federal
Income Tax Considerations--General" beginning on page 12 of this prospectus.
Because our board of trustees believes it is essential for us to continue to qualify as a REIT under the Code, our declaration of trust contains provisions aimed atintended to assist us in satisfying the requirements described above. In regard to the ownership requirements, the declaration of trust provides thatprohibits any person from owning, directly or indirectly (by virtue of (i) the attribution rules of the Code or (ii) being a beneficial owner, as defined in Rule 13d-3 promulgated under the Exchange Act) more than 9.8% in value or number of the issued and outstanding shares of any class or series of our shares of beneficial interest, subject to certain exceptions, no person may own, or be deemed to own by virtue of the attribution
provisions of the Internal Revenue Code of 1986, more than 4% of our outstanding
Common Shares.exceptions. The Trusteestrustees may waive this 4% limitation if evidence
satisfactory to them or our tax counsel is presented that such ownership will not jeopardize our status as a REIT. As a condition of such waiver, the Trusteestrustees may require opinions of counsel satisfactory to them and/or an undertaking from the applicant with respect to preserving our REIT status.
The trustees of Mark Centers Trust waivedstatus under the 4% ownership limitation
in August, 1998 when certain affiliates of RD Capital, Inc. received shares in
consideration of their contribution to Mark Center Limited Partnership. On two
subsequent occasions, our trustees permitted investors owing in excess of 4% of
the Trust's outstanding shares to acquire additional shares through open market
purchases transacted during specified three-month windows.
In addition, ourCode.
Our declaration of trust also provides that any purported transfer or issuance of any class or series of our shares of beneficial interest or our securities transferableconvertible into such shares whichthat would (i) violate the 4%9.8% limitation described above, (ii) result in shares being owned by fewer than 100 persons for purposes of the REIT provisions of the Internal Revenue Code, of 1986, (iii) result in our Company being "closely held"
with“closely held” within the meaning of Section 856(h) of the Internal Revenue Code, of 1986, or (iv) otherwise jeopardize our REIT status under the Internal Revenue Code (including
a transfer which would cause us to own, actually or constructively, 9.8% or more
of the ownership interests in one of our lessees) will be null and void ab
initio (fromand the beginning). proposed transferee will not acquire any rights in the shares.
Moreover, Common Sharesshares of beneficial interest transferred, or proposed to be transferred, in contravention of the 9.8% limitation described above or in a manner that would otherwise jeopardize our status as a REIT will be subject to purchase by us at a price equal to the lesser of (i) the price stipulated in the challenged
transaction and (ii) the fair market value of such shares (determined in accordance with the rules set forth in our declaration of trust). AllFrom and after the date fixed for purchase, and so long as payment of the purchase price for the shares to be redeemed shall have been made or duly provided for, the holder of any shares in violation of the 9.8% limitation described above so called for purchase shall cease to be entitled to dividends, distributions, voting rights and other benefits with respect to such shares, excepting only the right to payment of the purchase price. Any dividend or distribution paid to a proposed transferee on such shares prior to the discovery by the Trust that such shares have been transferred in violation 9.8% limitation described above shall be repaid to us upon demand.
Any certificates representingevidencing the Common Sharescommon shares bear a legend referring to the restrictions described above.
7
The ownership limitations described above could have the effect of delaying, deferring or preventing a takeover or other transaction in which holders of some, or a majority, of Common Sharescommon shares might receive a premium for their shares over the then prevailing market price or which such holders might believe to be otherwise in their best interest.
Transfer Agent
Maryland Law
Control Share Acquisitions. The Maryland General Corporation Law (“MGCL”), as applicable to Maryland REITs, provides that a holder of “control shares” of a Maryland REIT acquired in a “control share acquisition” has no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter, excluding shares of beneficial interest owned by the acquiror, by officers or by trustees who are employees of the REIT. “Control shares” are voting shares of beneficial interest which, if aggregated with all other such shares of beneficial interest 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 trustees within one of the following ranges of voting power: (i) one-tenth or more but less than one-third, (ii) one-third or more but less than a majority, or (iii) 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 shareholder approval. A “control share acquisition” means the acquisition of control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon satisfaction of certain conditions (including an undertaking to pay expenses), may compel the board of trustees of the REIT to call a special meeting of shareholders to be held within 50 days of demand to consider the voting rights of the shares. If no request for a meeting is made, the REIT may itself present the question at any shareholders meeting.
If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then, subject to certain conditions and Registrarlimitations, the REIT 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 the last control share acquisition by the acquiror or, if a meeting of shareholders is held at which the voting rights of such shares are considered and not approved, as of the date of the meeting. If voting rights for control shares are approved at a shareholders meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other shareholders 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.
The control share acquisition statute does not apply (a) to shares acquired in a merger, consolidation or share exchange if the REIT is a party to the transaction or (b) to acquisitions approved or exempted by the declaration of trust or bylaws of the REIT.
Our bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions by any person of our Company’s shares of beneficial interest. There can be no assurance that this provision will not be amended or eliminated at any time in the future, and may be amended or eliminated with retroactive effect.
Business Combinations. Under the MGCL, as applicable to Maryland REITs, certain “business combinations” (including a merger, consolidation, share exchange or, in certain circumstances, an asset transfer agentor issuance or reclassification of equity securities) between a Maryland REIT and registrarany person who beneficially owns ten percent or more of the voting power of the REIT’s shares or an affiliate of the REIT who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner of ten percent or more of the voting power of the then-outstanding voting shares of beneficial interest of the REIT (an “Interested Shareholder”) or an affiliate thereof are prohibited for five years after the most recent date on which the Interested Shareholder becomes an Interested Shareholder. Thereafter, any such business combination must be recommended by the board of trustees of such REIT and approved by the affirmative vote of at least (a) 80% of the votes entitled to be cast by holders of outstanding voting shares of beneficial interest of the REIT and (b) two-thirds of the votes entitled to be cast by holders of voting shares of the REIT other than shares held by the Interested Shareholder with whom (or with whose affiliate) the business combination is to be effected, unless, among other conditions, the REIT’s common shareholders 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 Shareholder for its shares.
These provisions of the MGCL do not apply, however, to business combinations that are approved or exempted by the board of trustees of the REIT prior to the time that the Interested Shareholder becomes an Interested Shareholder. A person is not an Interested Shareholder under the statute if the board of trustees
approved in advance the transaction by which he otherwise would have become an Interested Shareholder. The board of trustees may provide that its approval is subject to compliance with any terms and conditions determined by the board.
We have not elected to opt-out of the business combination statute. The business combination statute may have effect of inhibiting a third party from making an acquisition proposal for us or of delaying, deferring or preventing a change of control of us under circumstances that otherwise could provide our Common Sharesshareholders with the opportunity to realize a premium over the then-current market price or that our shareholders may otherwise believe is American
Stock Transfer & Trust Companyin their best interests.
Subtitle 8. Subtitle 8 of Title 3 of the MGCL permits a Maryland REIT with a class of equity securities registered under the Exchange Act and at least three independent trustees to elect to be subject, by provision in its declaration of trust or bylaws or a resolution of its board of trustees and notwithstanding any contrary provision in the declaration of trust or bylaws, to any or all of five provisions of the MGCL, which has an addressprovide for:
Through provisions in our declaration of trust and bylaws unrelated to Subtitle 8, we already (a) require the affirmative vote of at 40 Wall Street, New York,
NY 10005.
Declarationleast two-thirds of Trustthe votes entitled to be cast generally in the election of trustees to remove a trustee from our board of trustees, (b) vest in our board of trustees the exclusive power to fix the number of trustees, (c) vest in our board of trustees the exclusive power to fill vacancies and Bylaw Provisions(d) require, unless called by our chairman of our board of trustees, our chief executive officer, our president or our board of trustees, the written request of shareholders entitled to cast not less than 40% of all the votes entitled to be cast at such a meeting to call a special meeting. We have not elected to create a classified board. In the future, our board of trustees may elect, without shareholder approval, to create a classified board or elect to be subject to any of the other provisions of Subtitle 8.
CERTAIN PROVISIONS OF MARYLAND LAW AND
OUR DECLARATION OF TRUST AND BYLAWS
This summary does not purport to be complete and Certain Provisionsis qualified in its entirety by reference to our declaration of Maryland Law
trust and bylaws, each as supplemented, amended or restated. See “Where You Can Find More Information” on page 34 of this prospectus.
Number of Trustees; Election of Trustees, Removal of Trustees, the Filling of Vacancies.Vacancies. Our declaration of trust provides that the board of trustees will consist of not less than two nor more than fifteen persons, and that the number of trustees will be set by the trustees then in office. Our board currently consists of sevensix trustees, each of whom serves until the next annual meeting of shareholders and until his successor is duly elected and qualified. Electionqualifies. Each trustee shall be elected by the vote of each trustee requires the approvalmajority of the votes cast by the holders of common shares at a meeting duly called at which a quorum is present; provided that if the number of nominees exceeds the number of trustees to be elected, the trustees shall be elected by the vote of a plurality of the votes cast by the holders of Common Shares in personcommon shares at a meeting duly called at which a quorum is present. A majority of the votes cast means that the number of shares voted “for” a nominee must exceed 50% of the sum of the votes cast “for” plus the votes cast “against” or by proxy at our annual
meeting.“withheld” with respect to that nominee. If a nominee that is already serving as a trustee is not elected, such trustee shall offer to tender his or her resignation to the board of trustees. The nominating and corporate governance committee will make a recommendation to the board of trustees has a nominating committee. on whether to accept or reject the resignation, or whether other action should be taken.
Our bylaws providedeclaration of trust provides that the shareholders may, at any time, remove any trustee, with or without cause, by the affirmative vote of a majoritytwo-thirds of all the votes entitled to be cast ongenerally in the matter and may elect a successor to fill any resulting vacancy for
the balanceelection of the term of the removed trustee.trustees. Any vacancy (including a vacancy created by an increase in the number of trustees) will be filled, at any regular
meeting or at any special meeting called for that purpose, by a majority of the trustees.
trustees remaining in office. Any trustee elected to fill a vacancy will serve for the remainder of the full term of the trusteeship in which the vacancy occurred and until his or her successor is duly elected and qualifies.
Limitation of Liability and Indemnification of Trustees and Officers.Officers. Our bylaws and declaration of trust authorizeauthorizes and our company,bylaws obligate us, to the maximum extent permitted under Maryland law, to indemnify itsour trustees and officers in their capacity as such. Section 8-301(15) of the Corporations and Associations Article of the Annotated Code of Maryland General Corporation Law
("MGCL") permits a Maryland REIT to indemnify or advance expenses to trustees and officers to the same extent as is permitted for directors and officers of a Maryland corporation under the MGCL. The MGCL requires a Maryland corporation (unless its charter provides otherwise, which our declaration of trust 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 Maryland 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 threatened to be made, a party by reason of their service in those or other capacities unless it is established that (a) the act or omission of the director or officer was material to the matter giving rise to the proceeding and (i) was committed in bad faith or (ii) was the result of active and deliberate dishonesty, (b) the director or officer actually received an improper personal benefit in money, property or services or (c) in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. However, 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 a 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 corporation'scorporation’s receipt of a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by the corporation and a written undertaking by such director or officer or on his or her behalf to repay the amount paid or reimbursed by the corporation if it shallis ultimately be determined that the standard of conduct was not met.
Our declaration of trust authorizes us, and our bylaws require us, to the maximum extent permitted by Maryland law, to indemnify (i) any present or former trustee or officer or (ii) any individual who, while serving as our trustee and at our request, serves or has served another corporation, real estate investment trust, partnership, limited liability company, joint venture, trust, employee benefit plan or any other enterprise as a director, officer, partner, member, manager, or trustee, 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 or capacities, and to pay or reimburse his or her reasonable expenses in advance of final disposition of such a proceeding.
Our bylaws also permit us, subject to the approval of our board of trustees, to indemnify and advance expenses to any person who served asa predecessor of ours in any of the capacities described above and to any employee or agent of usour Company or a predecessor of us.
our Company.
In addition to the above, we have purchased and maintain insurance on behalf of all of our trustees and executive officers against liability asserted against or incurred by them in their official capacities with us, whether or not we are required or have the power to indemnify them against the same liability.
8
Business Combinations. Section 8-301(14)
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to trustees, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the MGCL permits a Maryland
REITSEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Advance Notice of Trustee Nominations and New Business. Our bylaws provide that (a) with respect to enteran annual meeting of shareholders, nominations of individuals for election to aour board of trustees and the proposal of other business combination (including a merger, consolidation,
share exchange or, in certain circumstances, an asset transfer or issuance or
reclassification of equity securities) on the same terms as a Maryland
corporation under the MGCL. Under the MGCL, certain business combinations
between a Maryland corporation and any person who beneficially owns 10% or moreto be considered by shareholders may be made only (i) pursuant to our Company’s notice of the voting powermeeting, (ii) by or at the direction of such corporation's shares, or an affiliate of such
corporation who, at any time within the two-year period prior to the date in
question, was the beneficial owner of 10% or more of the voting power of the
then-outstanding voting shares of such corporation (an "Interested Stockholder")
or an affiliate thereof, are prohibited for five years after the most recent
date on which the Interested Stockholder becomes an Interested Stockholder.
Thereafter, any such business combination must be recommended by the board of directorstrustees or (iii) by a shareholder who is a shareholder of such corporation and approvedrecord both at the time of giving of notice by the affirmative vote ofshareholder and at least
(a) 80%the time of the votes entitled to be cast by holders of outstanding shares of
voting stock of such corporation and (b) two-thirds of the votes entitled to be
cast by holders of shares of voting stock of such corporation other than the
shares held by the Interested Stockholder with whom (or with whose affiliate)
the business combinationmeeting who is to be effected, unless, among other conditions, the
corporation's common shareholders 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.
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 by a vote of two-thirds of the votes
entitled to be cast on the matter, excluding shares owned by the acquirer, by
officers or by directors who are employees of the corporation. "Control Shares"
are voting shares of stock which, if aggregated with all other such shares of
stock previously acquired by the acquirer, or in respect of which the acquirer
is able to exercise or direct the exercise of voting power (except solely by
virtue of a revocable proxy), would entitle the acquirer to exercise voting
power in electing directors within one of the following ranges of voting power:
(i) one-tenth or more but less than one-third, (ii) one-third or more but less
than a majority, or (iii) a majority or more of all voting power. Control Shares
do not include shares which the acquiring person is then entitled to vote as a
resultat the meeting and has complied with the advance notice procedures set forth in the bylaws and (b) with respect to special meetings of having previously obtained stockholder approval. A "control share
acquisition" meansshareholders, only the acquisitionbusiness specified in our Company’s notice of control shares, subject
meeting may be brought before the meeting of shareholders and nominations of individuals for election 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 board of directorstrustees may be made only (i) by or at the direction of the corporation to callboard of trustees or (ii) provided that the board of trustees has determined that trustees shall be elected at such meeting, by a special meetingshareholder who is a shareholder of stockholders to be held within 50 daysrecord both at the time of demand to considergiving of notice by the voting rightsshareholder and at the time of the shares. If no request for a meeting who is made, the
corporation may itself present the question at any stockholders meeting.
If voting rights are not approvedentitled to vote at the meeting or ifand has complied with 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 the
last control share acquisition by the acquirer or of any meeting of stockholders
at which the voting rights of such shares are considered and not approved. If
voting rights for control shares are approved at a stockholders meeting and the
acquirer becomes entitled to vote a majority of the shares entitled to vote, all
other stockholders may exercise appraisal rights. The fair value of the shares
as determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquireradvance notice provisions set forth in the control share acquisition,
and certain limitations and restrictions otherwise applicable to the exercise of
dissenters' rights do not apply in the context of a control share acquisition.
The foregoing does not apply to shares acquired in a merger,
consolidation or share exchange, if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the charter or bylaws of
the corporation. Pursuant to the MGCL, we have exempted control share
acquisitions involving our trustees and employees and any person approved by our
trustees in their sole discretion.
bylaws.
Amendments to Ourour Declaration of Trust.Trust. In general, the declaration of trust may be amended by the affirmative vote or written consent of the holders of not less than a majority of the Common Sharescommon shares then outstanding and entitled to vote thereon. However, amendments with respect to certain provisions relating to the ownership requirements, reorganizations and certain mergers or consolidations or the sale of substantially all of our assets, require the affirmative vote or written consent of the holders of not less than two-thirds of the Common Sharescommon shares then outstanding and entitled to vote thereon. The Trustees
of our company,Our trustees, by a two-thirds vote, may amend the
9
the Trusteesour trustees to allow us to qualify and continue to qualify as a REIT.
Dissolution
Termination of Our CompanyOperations or itsour REIT Status.Status. The declaration of trust permits the termination and the discontinuation of our operations by the affirmative vote of the holders of not less than a majoritytwo-thirds of the outstanding shares entitled to vote at a meeting of shareholders called for that purpose. In addition, the declaration of trust permits the Trusteestrustees to terminate our REIT status at any time.
Anti-Takeover Effect of Certain Provisions of Maryland Law and of the Declaration of Trust.Trust. The limitation on ownership and transfer of Common Sharesshares of beneficial interest set forth in our declaration of trust as well as the provisions of the MGCL dealing with
business combinations and control share acquisitions could have the effect of discouraging offers to acquire our Companyus or of hampering the consummation of a contemplated acquisition. RESTRICTIONS ON TRANSFERS OF CAPITAL SHARES AND ANTI-TAKEOVER PROVISIONS
Maryland Law
Maryland law includes certain other provisions which may also
discourage a change in controlSee “Restrictions on Ownership Transfers and Takeover Defense Provisions” beginning on page 5 of management. Maryland law providesthis prospectus.
Forum Selection Clause. Our bylaws provide that, unless we consent in writing to the selection of an exemption applies, we may not engage inalternative forum, the sole and exclusive forum for (a) any "business combination" with an
"interested shareholder"derivative action or proceeding brought on our behalf, (b) any action asserting a claim of breach of any duty owed by us or by any of our trustees or officers or other employees to us or to our shareholders, (c) any action asserting a claim against us or any affiliate of an interested shareholder for a
period of five years after the interested shareholder became an interested
shareholder, and thereafter may not engage in a business combination with such
interested shareholder unless the combination is recommended by our board of
trustees and approved by the affirmative vote of at least (i) 80%or officers or other employees arising pursuant to any provision of the votes
entitled to be cast by the holders of all of our outstanding voting shares, and
(ii) 66 2/3% of the votes entitled to be cast by all holders of outstanding
voting shares other than voting shares held by the interested shareholder. An
"interested shareholder" is defined, in essence, as any person owning
beneficially, directly or indirectly, 10% or more of the outstanding voting
shares of a Maryland real estate investment trust. The voting requirements do
not apply at any time to business combinations with an interested shareholder or
its affiliates if approved by our board of trustees prior to the time the
interested shareholder first became an interested shareholder. Additionally, if
the business combination involves the receipt of consideration by our
shareholders in exchange for Common Shares that satisfies certain "fair price"
conditions, such supermajority voting requirements do not apply.
As an additional anti-takeover defense, Maryland law permits
publicly-held Maryland statutory real estate investment trusts ("REITs") to
elect to be governed by all or any part of Maryland law provisions relating to
unsolicited takeovers. The election to be governed by one or more of these
provisions can be made by a publicly held Maryland REIT in itsLaw, the MGCL or our declaration of trust or bylaws ("charter documents") or by resolution adopted by its board(d) any action asserting a claim against us or any of our trustees so long as the REIT has at least three trustees who, at the time of
electing to be subject to the provisions, are notor officers or other employees ofthat is governed by the REIT, areinternal affairs doctrine shall be, in each case, the Circuit Court for Baltimore City, Maryland, or, if that Court does not persons seeking to acquire control ofhave jurisdiction, the REIT, are not trustees,
officers, affiliates or associates of any person seeking to acquire control, and
were not nominated or designated as trustees by a person seeking to acquire
control. Our charter documents do not contain any such provisions.
If the charter documents do not already contain these provisions, the
REIT may adopt one or more by a board resolution or a bylaw amendment, following
which it must file articles supplementary to its declaration of trust with the
Maryland State Department of Assessments and Taxation. Shareholder approval is
not requiredUnited States District Court for the filingDistrict of these articles supplementary. Our board of
trustees has not passed any such resolution or by-law amendment and we have not
filed such articles supplementary.
Maryland, law permits a REIT to elect to be subject to all or any
portion of the following provisions, notwithstanding any contrary provisions in
the REIT's charter documents:
Classified Board: The REIT may divide its board into three classes
which, to the extent possible, will have the same number of trustees, the terms
of which will expire at the third annual meeting of shareholders after the
election of each class, with the first class term expiring one year after
adoption, the second class term expiring two years later, and the third class
term expiring three years later;
10
Two-thirds Shareholder Vote to Remove Trustees Only for Cause: The
shareholders may remove any trustee only by the affirmative vote of at least
two-thirds of all votes entitled to be cast by the shareholders generally in the
election of trustees, but a trustee may not be removed without cause;
Size of Board Fixed by Vote of Board: The number of trustees will be
fixed only by resolution of the board, but the number cannot be less than three
trustees;
Board Vacancies Filled by the Board for the Remaining Term: Vacancies
that result from an increase in the size of the board, or the death,
resignation, or removal of a trustee, may be filled only by the affirmative vote
of a majority of the remaining trustees even if they do not constitute a quorum.
Trustees elected to fill vacancies will hold office for the remainder of the
full term of the class of trustees in which the vacancy occurred, as opposed to
until the next annual meeting of shareholders, and until a successor is elected
and qualified; and
Shareholder Calls of Special Meetings: Special meetings of shareholders
may be called by the secretary of the REIT only upon the written request of
shareholders entitled to cast at least a majority of all votes entitled to be
cast at the meeting and only in accordance with procedures set out in the
Maryland General Corporation Law.
We have not elected to be subject to any of the foregoing provisions.
11
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
You are advised to assume that the information in this prospectus is
accurate only as of their respective dates.
The following discussion summarizesdescribes certain of the material U.S. federal income tax considerations relating to youour taxation as a prospective holderREIT under the Code, and the ownership and disposition of our common shares. Paul, Hastings,
Janofsky & Walker LLP has acted as our tax counsel, has reviewed
Because this summary and is only intended to address certain of the opinion that the discussion contained herein fairly summarizes thematerial U.S. federal income tax considerations that are likelyrelating to be material to a holderthe ownership and disposition of our Common Shares. However,common shares, it may not contain all of the followinginformation that may be important to you. As you review this discussion, you should keep in mind that:
We urge you to consult with your own tax advisors regarding the specific tax consequences to you of acquiring, owning and selling our common shares, including the federal, state, local and foreign tax considerations. In addition, this discussion is intended to address only those
federal income tax considerations that are generally applicable to allconsequences of acquiring, owning and selling our security holders. It does not discuss all of the aspects of federal income
taxation that may be relevant to youcommon shares in light of your particular circumstances or to certain types of security holders who are subject to special treatment
under the federal income tax laws including, without limitation, insurance
companies, tax-exempt entities (except as discussedand potential changes in " - Taxation of
Tax-Exempt Shareholders"), financial institutions or broker-dealers, foreign
corporations and persons who are not citizens or residents of the United States
(except as discussed in " - Taxation of Non-U.S. Shareholders").
applicable laws.
The information contained in this section is based on the Internal Revenue Code, of 1986, as amended, which is referred to as the Code, existing,final, temporary and proposed regulations under the Code,Treasury Regulations promulgated thereunder, the legislative history of the Code, current administrative rulingsinterpretations and practices of the IRSInternal Revenue Service (the “IRS”) (including in private letter rulings and other non-binding guidance issued by the IRS), as well as court decisions all as of the date hereof. No assurance can be given that future legislation, regulations,Treasury Regulations, administrative interpretations and court decisions will not significantly change current law or adversely affect existing interpretations of current law. Anylaw, or that any such change couldwould not apply retroactively to transactions or events preceding the date of the change. In addition, weWe have not received,obtained, and do not planintend to request,obtain, any rulings from the IRS concerning ourthe U.S. federal income tax treatment. Thus no
assurance can be provided thattreatment of the matters discussed below. Furthermore, neither the IRS nor any court is bound by any of the statements set forth herein (which do not
bindand no assurance can be given that the IRS or the courts) will not be challenged by the IRSassert any position contrary to statements set forth herein or that such
statements will be sustained by a court if so challenged.
EACH PROSPECTIVE PURCHASER OF SHARES IS ADVISED TO CONSULT WITH HIS OR
HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND SALE OF SHARES OF AN ENTITY ELECTING TO BE TAXED AS A
REIT, INCLUDING THE FEDERAL, STATE, LOCAL AND FOREIGN AND OTHER TAX CONSEQUENCES
OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
will not sustain such position.
Taxation of our Company
General. We elected to be taxedAcadia Realty Trust as a REIT under Sections 856 through
860
Seyfarth Shaw LLP, which has acted as our tax counsel, has reviewed the following discussion and is of the Code, commencing withopinion that it fairly summarizes the material U.S. federal income tax considerations relevant to our taxable year ended December 31, 1993. We
believe that we have been organized, and have operated, in such a manner so as
to qualify for taxationstatus as a REIT under the Code and intend to conduct our
operations so as to continue to qualify for taxation as a REIT. No assurance,
however, can be given that we have operated in a manner so as to qualify or will
be able to operate in such a manner so as to remain qualified as a REIT.
Qualification and taxation as a REIT depend upon our ability to meet on a
continuing basis, through actual annual operating results, the required
distribution levels, diversity of share ownership and the various qualification
tests imposed under the Code discussed below, the results of which will not be
reviewed by counsel. Given the highly complex nature of the rules governing
REITs, the ongoing importance of factual determinations, and the possibility of
future changesinvestors in our circumstances, no assurance cancommon shares. The following summary of certain U.S. federal income tax considerations is based on current law, is for general information only, and is not intended to be given that the actual
results of our operations for any one taxable year have satisfied or will
continue to satisfy such requirements.
In(and is not) tax advice.
It is the opinion of Paul, Hastings, Janofsky & WalkerSeyfarth Shaw LLP based on
certain assumptions and our factual representations that are described in this
section and in an officer's certificate, commencing with our taxable year ended
December 31, 1999 , we have been organized and operated in conformity with the requirements for qualification and taxation as a REIT under the Code, commencing with our taxable year ended December 31, 2001, the Company qualified and will qualify to be taxed as a REIT pursuant to sections 856 through 860 of the Code, and that our current and proposed method of operation will enable us to continue to meet the requirements for qualification and taxation as a REIT. ItREIT under the Code. We must be emphasizedemphasize that this opinion of Seyfarth Shaw LLP is based on various assumptions, and is conditioned upon certain representations and statements made by us as to factual matters including, butand is conditioned upon such assumptions, representations and statements being accurate and complete. Seyfarth Shaw LLP is not 12
limited to, those set forth herein,aware of any facts or circumstances that are not consistent with these representations, assumptions and those concerningstatements. Potential purchasers of our business and
properties as set forth in this prospectus. An opinioncommon shares should be aware, however, that opinions of counsel isare not binding onupon the IRS or the courts.
The following isany court. In general, our qualification and taxation as a general summaryREIT depends upon our ability to satisfy, through actual operating results, distribution, diversity of share ownership, and other requirements imposed under the Code, provisions that govern
the federal income tax treatmentnone of which has been, or will be, reviewed by Seyfarth Shaw LLP. Accordingly, while we intend to continue to qualify to be taxed as a REIT and its shareholders. These
provisions ofunder the Code are highly technicalno assurance can be given that the actual results of our operations for any particular taxable year has satisfied, or will satisfy, the requirements for REIT qualification.
Commencing with our taxable year ended December 31, 1993, we elected to be taxed as a REIT under the Code. We believe that commencing with our taxable year ended December 31, 1993, we have been organized and complex. This summary is
qualifiedhave operated in its entirety bysuch a manner so as to qualify as a REIT under the applicable Code, provisions, Treasury
Regulations and administrative and judicial interpretations thereof, all of
which are subjectwe intend to change prospectivelycontinue to operate in such a manner. However, we cannot assure you that we will, in fact, continue to operate in such a manner or retroactively.
continue to so qualify as a REIT under the Code.
If we qualify for taxation as a REIT under the Code, we generally will not be subject to federal corporate income taxesa corporate-level tax on our net income that iswe distribute currently distributed to our shareholders. This treatment substantially eliminates the "double
taxation" (at the corporate“double taxation” (i.e., a corporate-level tax and shareholder levels)shareholder-level tax) that generally results from investment in a regular subchapter C corporation. However, we will be subject to U.S. federal income tax as follows:
o
| of business or (b) other nonqualifying income from foreclosure property, we will be subject to tax at the highest corporate rate on such income. |
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.
In addition, we may be subject to a variety of taxes, including payroll taxes and state, local and foreign income, property and other taxes on our assets and operations. We could also be subject to tax at the highest
corporate rate if we dispose of such asset during the 10-year period
beginning on the date that we acquired that asset, to the extent of
such property's "built-in gain" (the excess of the fair market value of
such property at the time of our acquisition over the adjusted basis of
such property at such time). We refer to this tax as the "Built-In
Gains Tax."
o Tenth, we will incur a 100% excise taxin situations and on transactions with a taxable
REIT subsidiary that are not conducted on an arm's-length basis.
presently contemplated.
Requirements for Qualification. A REIT isQualification—In General
To qualify as a REIT under the Code, we must elect to be treated as a REIT and must satisfy the annual gross income tests, the quarterly asset tests, distribution requirements, diversity of share ownership and other requirements imposed under the Code. In general, the Code defines a REIT as a corporation, trust or association association:
(1) that is managed by one or more trustees or directors, directors;
(2) the beneficial ownership of which is evidenced by transferable shares, or by transferable certificates of beneficial interest, interest;
(3) that would otherwise be taxable as a domestic corporation, but for Sections 856 through 859 of the Code, Code;
(4) that is neither a financial institution nor an insurance company subject to which certain provisions of the Code apply;
(5) that has the calendar year as its taxable year, (6) the beneficial ownership of which is held by 100 or more persons, (7)persons;
(6) during the last half of each taxable year, (after the first REIT taxable year) not more than 50% in value of the outstanding sharesstock of which is owned, directly or indirectly,constructively, by five or fewer individuals, (asas defined in the Code to include certain entities) (the "5/50 Rule"),entities;
(7) that uses a calendar year for U.S. federal income tax purposes and complies with the recordkeeping requirements of the U.S. federal income tax laws; and
(8) that meets certain other tests, described below, regarding the nature of its income and assets.
The Code provides that conditionsthe requirements (1) through (5)-(4), inclusive,(7) and (8) above must be met during the entire taxable year and that conditionrequirements (5) and (6) above do not apply to the first taxable year for which a REIT election is made and, thereafter, requirement (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 (other than the first yearmonths. For purposes of requirement (6) above, generally (although subject to certain exceptions that should not apply with respect to us), any stock held by a REIT).
We may redeem, at our option, a sufficient number of shares or restrict
the transfer thereof to bring or maintain the ownershiptrust described in Section 401(a) of the sharesCode and exempt from tax under Section 501(a) of the Code is treated as not held by the trust itself but directly by the trust beneficiaries in conformity withproportion to their actuarial interests in the trust.
We believe that we have satisfied the requirements of the Code.above for REIT qualification. In addition, our declaration of
trustcharter currently includes restrictions regarding the ownership and transfer of our common shares, thatwhich restrictions are intended to assist us in continuing to satisfysatisfying some of these requirements (and, in particular requirements (5) and (6) above). The ownership and (7).
Moreover, if we comply with regulatory rules pursuant to which we are required
to send annual letterstransfer restrictions pertaining to our shareholders requesting information regardingcommon shares are described in the actual ownership of our shares,prospectus under the heading “Restrictions on Ownership and we do not know, or exercising reasonable
diligence would not have known, whether we failed to meet requirement (7) above,
we will be treated as having metTransfers and Takeover Defense Provisions.”
In applying the requirement. See "See "Description of Our
Common Shares"REIT gross income and "Restrictions on Transfers of Capital Shares and
Anti-Takeover Provisions" beginning on pages 9 and 13, respectively, of this
prospectus.
The Code allows a REIT to own wholly-owned subsidiaries which are
"qualified REIT subsidiaries." The Code provides that a qualified REIT
subsidiary is not treated as a separate corporation, andasset tests, all of itsthe assets, liabilities and items of income, deduction and credit of a corporate subsidiary of a REIT that is a “qualified REIT subsidiary” (as defined in Section 856(i)(2) of the Code) (“QRS”) are treated as the assets, liabilities and items of income, deduction and credit of the REIT itself. Moreover, the separate existence of a QRS is disregarded for U.S. federal income tax purposes and the QRS is not subject to U.S. federal corporate income tax (although it may be subject to state and local tax in some states and localities). In general, a QRS is any corporation if all of its stock is held by the REIT, except that it does not include any corporation that is a TRS of the REIT. Thus, in
applying the requirements described herein,for U.S. federal income tax purposes, our qualified REIT subsidiaries will
be ignored,QRSs are disregarded, and all assets, liabilities and items of income, deduction and credit of such subsidiaries will bethese QRSs are treated as our assets, liabilities and items of income, deduction and credit.
A TRS is any corporation in which a REIT may also hold any directdirectly or indirect interest in a corporationindirectly owns stock, provided that qualifies as a "taxable REIT subsidiary", as long as the REIT's aggregate
holdings of taxable REIT subsidiary securities do not exceed 20% of the value of
the REIT's total assets. A taxable REIT subsidiary is a fully taxable
corporation that generally is permitted to engage in businesses, own assets, and
earn income that, if engaged in, owned, or earned by the REIT might jeopardize
REIT status or result in the imposition of penalty taxes on the REIT. To qualify
as a taxable REIT subsidiary, the subsidiary and the REIT mustthat corporation make a joint election to treat the subsidiarythat corporation as a taxableTRS. The election can be revoked at any time as long as the REIT subsidiary. A taxable REIT
subsidiary also includes any corporation (other thanand the TRS revoke such election jointly. In addition, if a REIT) in which a taxable
REIT subsidiaryTRS holds, directly or indirectly, owns more than 35% of the total voting
powersecurities of any other corporation other than a REIT (by vote or value. See "-- Asset Tests" below.by value), then that other corporation is also treated as a TRS. A taxable REIT subsidiary will payTRS is subject to U.S. federal income tax at regular corporate income rates (currently a maximum rate of 35%), and may also be subject to state and local tax. Any dividends paid or deemed paid to us by any one of our TRSs will also be taxable, either (1) to us to the extent the dividend is retained by us, or (2) to our shareholders to the extent the dividends received from the TRS are paid to our shareholders. We
may hold more than 10% of the stock of a TRS without jeopardizing our qualification as a REIT under the Code notwithstanding the rule described below under “REIT Asset Tests” that generally precludes ownership of more than 10% of any issuer’s securities. However, as noted below, in order to qualify as a REIT, the securities of all of our TRSs in which we have invested either directly or indirectly may not represent more than 25% of the total value of our assets. We expect that the aggregate value of all of our interests in TRSs will represent less than 25% of the total value of our assets; however, we cannot assure that this will always be true.
A TRS may generally engage in any business including the provision of customary or non-customary services to tenants of its parent REIT, which, if performed by the REIT itself, could cause rents received by the REIT to be disqualified as “rents from real property.” However, a TRS may not directly or indirectly operate or manage any hotels or health care facilities or provide rights to any brand name under which any hotel or health care facility is operated, unless such rights are provided to an “eligible independent contractor” to operate or manage a hotel or health care facility if such rights are held by the TRS as a franchisee, licensee, or in a similar capacity and such hotel or health care facility is either owned by the TRS or leased to the TRS by its parent REIT. A TRS will not be considered to operate or manage a qualified health care property or a qualified lodging facility solely because the TRS (i) directly or indirectly possesses a license, permit, or similar instrument enabling it to do so, or (ii) employs individuals working at such facility or property located outside the U.S., but only if an “eligible independent contractor” is responsible for the daily supervision and direction of such individuals on any taxable income it earns. Moreover,behalf of the TRS pursuant to a management agreement or similar service contract. Additionally, the Code contains rules, including rules requiringseveral provisions which address the imposition of taxes onarrangements between a REIT at the rate of 100% on certain reallocated income and expenses,its TRSs which are intended to ensure that contractuala TRS recognizes an appropriate amount of taxable income and is subject to an appropriate level of U.S. federal income tax. For example, a TRS is limited in its ability to deduct interest payments made to the REIT. In addition, a REIT would be subject to a 100% penalty on some payments that it receives from a TRS, or on certain expenses deducted by the TRS if the economic arrangements between a taxablethe REIT, subsidiarythe REIT’s tenants and its parent
REITthe TRS are at arm's-length.
14
Innot comparable to similar arrangements among unrelated parties. We have several TRSs and will endeavor to structure any arrangement between ourselves, our TRSs and our tenants so as to minimize the caserisk of disallowance of interest expense deductions or of the 100% penalty being imposed. However, there can be no assurance that the IRS would not challenge any such arrangement.
Also, a REIT whichthat is a partner in a partnership Treasury
Regulations provide that the REIT will beis deemed to own its proportionate share of each of the assets of the partnership and will beis deemed to be entitled to
the income of the partnership attributable to such proportionate share. In addition,For purposes of Section 856 of the Code, the interest of a REIT in the assets of a partnership of which it is a partner is determined in accordance with the REIT’s capital interest in the partnership and the character of the assets and items of gross income of the partnership will retain the same character in the hands of the REIT. For example, if the partnership holds any property primarily for sale to customers in the ordinary course of its trade or business, the REIT is treated as holding its proportionate share of such property primarily for purposes of Section 856such purpose. Thus, our proportionate share (based on our capital interest) of the Code,assets, liabilities and items of income of any partnership in which we are a partner, including satisfying the gross income and assets tests (as discussed
below). Thus,Operating Partnership (and our proportionateindirect share of the assets, liabilities and items of gross income of the partnerships in which we own an interest areeach lower-tier partnership), will be treated as our assets, liabilities and items of gross income for purposes of applying the requirements described herein.in this section. For purposes of the 10% Value Test (described under “REIT Asset Tests” below) our proportionate share is based on our proportionate interest in the equity interests and certain debt securities issued by a partnership. Also, actions taken by the Operating Partnership or other lower-tier partnerships can affect our ability to satisfy the REIT gross income and asset tests and the determination of whether we have net income from a prohibited transaction. For purposes of this section any reference to “partnership” will refer to and include any partnership, limited liability company, joint venture and other entity or arrangement that is treated as a partnership for U.S. federal income tax purposes, and any reference to “partner” will refer to and include a partner, member, joint venturer and other beneficial owner of any such partnership, limited liability company, joint venture and other entity or arrangement.
REIT Gross Income Tests.Tests: In order to maintain our qualification as a REIT under the Code, we must satisfy, annually certainon an annual basis, two gross income requirements. tests.
| 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. |
For taxable years beginning
on or after October 23, 2004, income from certain hedging transactions that is
clearly and timely identified and that hedges indebtedness incurred or to be
incurred to acquire or carry real estate assets will not constitute gross income
(rather than being treated as qualifying or nonqualifying income) for purposes
ofthis purpose the 95% gross income test.
Rents received by us will qualify as "rentsterm “rents from real property"property” includes: (a) rents from interests in satisfyingreal property; (b) charges for services customarily furnished or rendered in connection with the gross income requirements forrental of real property, whether or not such charges are separately stated; and (c) rent attributable to personal property which is leased under, or in connection with, a REIT described abovelease of real property, but only if the rent attributable to such personal property for the taxable year does not exceed 15% of the total rent for the taxable year attributable to both the real and personal property leased under, or in connection with, such lease. For purposes of (c), the rent attributable to personal property is equal to that amount which bears the same ratio to total rent for the taxable year as the average of the fair market values of the personal property at the beginning and at the end of the taxable year bears to the average of the aggregate fair market values of both the real property and the personal property at the beginning and at the end of such taxable year.
However, in order for rent received or accrued, directly or indirectly, with respect to any real or personal property, to qualify as “rents from real property,” the following conditions are met:
o First, the amount ofmust be satisfied:
In addition, all amounts (including rents that would otherwise qualify as “rents from real property”) received or accrued during a taxable year directly or indirectly by a REIT with respect to such
personala property, will constitute “impermissible tenant services income” (and, thus, will not qualify as "rents“rents from real property."
o Finally, in order for rentsproperty”) if the amount received or accrued directly or indirectly by the REIT for: (x) noncustomary services furnished or rendered by the REIT to qualify as "rents from real
property," we generally must not operatetenants of the property; or manage(y) managing or operating the property (subject to a de minimis exception as described below)((x) and (y) collectively, “Impermissible Services”) exceeds 1% of all amounts received or furnishaccrued during such taxable year directly or render servicesindirectly by the REIT with respect to the tenants of such property, other thanproperty. For this purpose, however, the following services and activities are not treated as Impermissible Services: (i) services furnished or rendered, or management or operation provided, through an independent contractor from whom wethe REIT itself does not derive no revenueor receive any income or through a taxable REIT subsidiary. We may, however, directly perform certainTRS; and (ii) services that are "usuallyusually or customarily rendered"rendered in connection with the rental of space for occupancy (such as, for example, the furnishing of heat and light, the cleaning of public entrances, and the collection of trash), as opposed to services rendered primarily to a tenant for the tenant’s convenience. If the amount treated as being received or accrued for Impermissible Services does not exceed the 1% threshold, then only and are not otherwise considered
"renderedthe amount attributable to the occupant"Impermissible Services (and not, for example, all tenant rents received or accrued that otherwise qualify as “rents from real property”) will fail to qualify as “rents from real property.” For purposes of the property ("Permissible Services").
Rents received generally will qualify as rents from real property
notwithstanding1% threshold, the fact that we provide services that are not Permissible
Services so long as the amount received for such services meets a de minimis
standard. The amount received for "impermissible services" with respect to a
property (or, if services are available only to certain tenants, possibly with
respect to such tenants) cannot exceed one percent of all amounts received,
directly or indirectly, by us with respect to such property (or, if services are
available only to certain tenants, possibly with respect to such tenants). The amount that we will be deemed to have received for performing "impermissible
services"Impermissible Services will be the greater of the actual amounts so received or 150% of the direct cost to us of providing those services.
We (through the Operating Partnership and other affiliated entities) provide some services at our properties, which services we believe do not constitute Impermissible Services or, otherwise, do not cause any rents or other amounts received that otherwise qualify as “rents from real property” to fail to so qualify. If we or the Operating Partnership or other affiliated entities were to consider offering services in the future which could cause any such rents or other amounts to fail to qualify as “rents from real property” then we would endeavor to arrange for such services to be provided through one or more independent contractors and/or TRSs or, otherwise, in such a manner so as to minimize the risk of such services being treated as Impermissible Services.
In addition, we (through the Operating Partnership and other affiliated entities) receive or may receive fees for property management and administrative services provided with respect to certain properties not owned, either directly or indirectly, entirely by us and/or the Operating Partnership. These fees do not constitute qualifying income for purposes of either the 75% gross income test or 95% gross income test. We (through the Operating Partnership and other affiliated entities) also receive or may receive other types of income that do not constitute qualifying income for purposes of either of these two gross income tests. We believe that our share of the aggregate amount of these fees and other non-qualifying income so received or accrued has not caused us to fail to satisfy either of the gross income tests. We anticipate that we will continue to receive or accrue a certain amount of non-qualifying fees and other income. In the event that our share of the amount of such fees and other income could jeopardize our ability to satisfy these gross income tests, then we would endeavor to arrange for the services in respect of which such fees and other income are received to be provided by one or more independent contractors and/or TRSs or, otherwise, in such manner so as to minimize the risk of failing either of the gross income tests.
Interest income constitutes qualifying mortgage interest for purposes of the 75% gross income test (as described above) to the extent that the obligation is secured by a mortgage on real property. If we receive interest income with respect to a mortgage loan that is secured by both real property and other property, and the highest principal amount of the loan outstanding during a taxable year exceeds the fair market value of the real property on the date that we have a binding commitment to acquire or originate the mortgage loan, the interest income will be apportioned between the real property and the other collateral, and its income from the arrangement will qualify for purposes of the 75% gross income test only to the extent that the interest is allocable to the real property. Even if a loan is not secured by real property, or is undersecured, the income that it generates may nonetheless qualify for purposes of the 95% gross income test.
To the extent that the terms of a loan provide for contingent interest that is based on the cash proceeds realized upon the sale of the property securing the loan (a “shared appreciation provision”), income attributable to the participation feature will be treated as gain from sale of the underlying property, which generally will be qualifying income for purposes of both the 75% and 95% gross income tests provided that the property is not inventory or dealer property in the hands of the borrower or the REIT.
To the extent that a REIT derives interest income from a mortgage loan or income from the rental of real property where all or a portion of the amount of interest or rental income payable is contingent, such income generally will qualify for purposes of the gross income tests only if it is based upon the gross receipts or sales, and not the net income or profits, of the borrower or lessee. This limitation does not apply, however, where the borrower or lessee leases substantially all of ourits interest in the property to tenants or subtenants, to the extent that the rental income derived by the borrower or lessee, as the case may be, would qualify as rents from real property had it been earned directly by a REIT.
We and our affiliates or subsidiaries have or may originate and acquire mezzanine loans, which are loans secured by equity interests in an entity that directly or indirectly owns real property, rather than by a direct mortgage of such real property. Revenue Procedure 2003-65 provides a safe harbor pursuant to which a mezzanine loan, if it meets each of the requirements contained in the Revenue Procedure, will be treated by the IRS as a real estate asset for purposes of the REIT asset tests described in the section entitled “REIT Asset Tests,” and interest derived from it will be treated as qualifying mortgage interest for purposes of the 75% gross income test. Although the Revenue Procedure provides a safe harbor on which REITs may rely, it does not prescribe rules of substantive tax law. Moreover, not all of the mezzanine loans in which we invest meet or will meet each of the requirements for reliance on this safe harbor. To the extent that mezzanine loans do not qualify for the safe harbor described above, the interest income from such loans will be qualifying income for purposes
of the 95% gross income test, but there is a risk that such interest income will not be qualifying income for purposes of the 75% gross income test and that such loans will not constitute real estate assets for purposes of the REIT asset tests. We have invested, and will continue to invest, in mezzanine loans in a manner that will enable us to continue to satisfy the REIT gross income and asset tests.
From time to time, we may enter into hedging transactions with respect to one or more of our assets or liabilities. Income and gain from “hedging transactions” will be excluded from gross income for purposes of both the 75% and 95% gross income tests. For this purpose, a “hedging transaction” means either (1) any transaction entered into in the normal course of our trade or business primarily to manage the risk of interest rate, price changes, or currency fluctuations with respect to borrowings made or to be made, or ordinary obligations incurred or to be incurred, to acquire or carry real estate assets or (2) any transaction entered into primarily to manage the risk of currency fluctuations with respect to any item of income or gain that would be qualifying income under the 75% or 95% gross income test (or any property which generates such income or gain). We will be required to clearly identify any such hedging transaction before the close of the day on which it was acquired, originated, or entered into and to satisfy other identification requirements. We intend to structure any hedging transactions in a manner that does not jeopardize our status as a REIT under the Code.
A REIT will incur a 100% tax on the net income derived from any sale or other disposition of property, other than foreclosure property, that the REIT holds primarily for sale to customers in the ordinary course of a trade or business. We believe that none of our assets are held primarily for sale to customers and that a sale of any of our assets will not be in the ordinary course of our business. Whether a REIT holds an asset “primarily for sale to customers in the ordinary course of a trade or business” depends, however, on the facts and circumstances in effect from time to time, including those related to a particular asset. A safe harbor to the characterization of the sale of property by a REIT as a prohibited transaction and the 100% prohibited transaction tax is available if the following requirements are met:
We will attempt to comply with the terms of safe-harbor provision in the U.S. federal income tax laws prescribing when an asset sale will not be characterized as a prohibited transaction. We cannot assure you, however, that we can comply with the safe-harbor provision or that we will avoid owning property that may be characterized as property that we hold “primarily for sale to customers in the ordinary course of a trade or business.” The 100% tax will not apply to gains from the sale of property that is held through a TRS or other taxable corporation, although such income will be taxed to such corporation at regular corporate income tax rates.
We will be subject to tax at the maximum corporate rate on any income from foreclosure property, which includes certain foreign currency gains and related deductions, other than income that otherwise would be qualifying income for purposes of the 75% gross income test, less expenses directly connected with the production of that income. However, gross income from foreclosure property will qualify under the 75% and
95% gross income tests. Foreclosure property is any real property, including interests in real property, and any personal property incident to such real property:
Property generally ceases to be foreclosure property at the end of the third taxable year following the taxable year in which the REIT acquired the property, or longer if an extension is granted by the Secretary of the Treasury. However, this grace period terminates and foreclosure property ceases to be foreclosure property on the first day:
To the extent that we or our subsidiaries hold or acquire investments in foreign countries, taxes that we pay in foreign jurisdictions may not be passed through to, or used by, our shareholders as a foreign tax credit or otherwise. Any foreign investments may also generate foreign currency gains and losses. Certain foreign currency gains will be excluded from gross income for purposes of one or both of the gross income tests. “Real estate foreign exchange gain” will be excluded from gross income for purposes of the 75% and the 95% gross income tests. Real estate foreign exchange gain generally includes foreign currency gain attributable to any item of income or gain that is qualifying income for purposes of the 75% gross income test, foreign currency gain attributable to the acquisition or ownership of (or becoming or being the obligor under) obligations secured by mortgages on real property or interests in real property and certain foreign currency gains attributable to certain “qualified business units” of a REIT. “Passive foreign exchange gain” will be excluded from gross income only for purposes of the 95% gross income test. Passive foreign exchange gain generally includes real estate foreign exchange gain as described above, and also includes foreign currency gain attributable to any item of income or gain that is qualifying income for purposes of the 95% gross income test and foreign currency gain attributable to the acquisition or ownership of (or becoming or being the obligor under) obligations. Because passive foreign exchange gain includes real estate foreign exchange gain, real estate foreign exchange gain is excluded from gross income for purposes of both the 75% and 95% gross income tests. These exclusions for real estate foreign exchange gain and passive foreign exchange gain do not apply to any foreign currency gain derived from dealing, or engaging in substantial and regular trading, in securities. Such gain is treated as nonqualifying income for purposes of both the 75% and 95% gross income tests.
Notwithstanding the foregoing, the Secretary of the Treasury may determine that any item of income or gain not otherwise qualifying for purposes of the 75% and 95% gross income tests may be considered as not constituting gross income for purposes of those tests, and that our provisionany item of services will not cause the rental income to fail toor gain that otherwise constitutes nonqualifying income may be considered as qualifying income under
thosefor purposes of such tests.
15
If we fail to satisfy oneeither or both of the 75% or 95% gross income tests for any taxable year, we may nevertheless qualify as a REIT for suchthat year if
suchpursuant to a special relief provision of the Code which may be available to us if:
We cannot state whether in all circumstances, if we were to fail to satisfy either of the gross income tests, we would still be entitled to the benefit of this relief provision. Even if this relief provision applied,were to apply, we would nonetheless be subject to a 100% penalty tax would be
imposed on the gross income attributable to the greater of (1) the amount by which we fail the 75% gross income test orand (2) the amount by which 95% (90% for taxable years beginning on or
before October 22, 2004) of our gross income exceeds the amount of qualifying income
qualifying under the 95% gross income test, multiplied, in each case, multiplied by a fraction intended to reflect our profitability.
Subject to certain safe harbor exceptions, any gain realized by us on
the sale of any property held as inventory or other property held primarily for
sale to customers in the ordinary course of business will be treated as income
from a prohibited transaction that is subject to a 100% penalty tax. Such
prohibited transaction income may also have an adverse effect upon our ability
to satisfy the 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 with respect to the particular transaction.
REIT Asset Tests.Tests: At the close of each quarter of our taxable year, we must also satisfy the following tests relating to the nature and diversification of our assets. Atassets (collectively, the “Asset Tests”):
After initially meeting the asset testsAsset Tests at the close of any quarter of our taxable year, we willwould not lose our status as a REIT under the Code for failure to satisfy the assetthese tests at the end of a later quarter solely by reason of changes in asset values. If the failure to satisfy the Asset Tests results from an acquisition of securities or other property during a quarter, we 16
inadvertently fail one or morecan cure the failure by disposing of a sufficient amount of non-qualifying assets within 30 days after the close of that quarter. We intend to maintain adequate records of the value of our assets to facilitate compliance with the Asset Tests and to take such other actions within 30 days after the close of any quarter as necessary to cure any noncompliance.
In applying the Asset Tests, we are treated as owning all of the assets held by any of our QRSs and our proportionate share of the assets held by the Operating Partnership (including the Operating Partnership’s share of the assets held by any lower-tier partnership in which the Operating Partnership holds a direct or indirect interest).
For purposes of the 5% Value Test, the 10% Vote Test or 10% Value Test, the term “securities” does not include shares in another REIT, equity or debt securities of a QRS or TRS, mortgage loans that constitute real estate assets, or equity interests in a partnership. Securities, for purposes of the Asset Tests, may include debt that we hold in other issuers. However, the Code specifically provides that the following types of debt will not be taken into account as securities for purposes of the 10% Value Test: (1) securities that meet the “straight debt” safe harbor; (2) loans to individuals or estates; (3) obligations to pay rents from real property; (4) rental
agreements described in Section 467 of the Code (other than such agreements with related party tenants); (5) securities issued by other REITs; (6) debt issued by partnerships that derive at least 75% of their gross income from sources that constitute qualifying income for purposes of the 75% gross income test; (7) any debt not otherwise described in this paragraph that is issued by a partnership, but only to the extent of our interest as a partner in the partnership; (8) certain securities issued by a state, the District of Columbia, a foreign government, or a political subdivision of any of the foregoing, or the Commonwealth of Puerto Rico; and (9) any other arrangement described in future Treasury Regulations. For purposes of the 10% Value Test, our proportionate share of the assets of a partnership is our proportionate interest in any securities issued by the partnership, without regard to the securities described in (6) and (7) above.
For purposes of the 75% Value Test, cash includes any foreign currency used by the REIT or its qualified business unit as its “functional currency” (as defined in section 985(b) of the Code), provided that the foreign currency (a) is held by the REIT or its qualified business unit in the normal course of activities which give rise to qualifying income under the 75% or 95% gross income tests or which are related to acquiring or holding assets described in section 856(c)(4) of the Code and (b) is not held in connection with dealing, or engaging in substantial and regular trading, in securities
Based on our regular quarterly asset tests, we believe that we have not violated any of the Asset Tests. However, we cannot provide any assurance that the IRS would concur with our beliefs in this regard.
If we fail to satisfy the Asset Tests at the end of a calendar quarter, because we acquire securitieswill not lose our REIT qualification if:
If we can cure this failuredid not satisfy the condition described in the second item above, we still could avoid disqualification by disposing of sufficient nonqualifying assetseliminating any discrepancy within 30 days after the close of the calendar quarter in which it arose.
If we were to
fail any of the asset tests at the end of any quarter without curing such
failure within 30 days after the end of suchcalendar quarter we would fail to qualify
as a REIT, unless we were to qualify under certain recently enacted relief
provisions. Under one of these relief provisions, if we were to failviolate the 5% value test, the 10% vote testValue Test or the 10% value test,Vote or Value Tests described above, we nevertheless would
continue to qualify as awill not lose our REIT qualification if (1) the failure was dueis de minimis (up to the ownership of assets
having a total value not exceeding the lesser of 1% of our assets at the end of
the relevant quarter or $10,000,000,$10 million) and (2) we were to dispose of such assets (oror otherwise meet such asset tests) within six months aftercomply with the end of the quarter
in which the failure was identified. If we were to fail to meet any of the REIT
asset tests for a particular quarter, but we did not qualify for the relief for
de minimis failures that is described in the preceding sentence, then we would
be deemed to have satisfied the relevant asset test if: (i) following our
identification of the failure, we were to file a schedule with a description of
each asset that caused the failure; (ii) the failure was due to reasonable cause
and not due to willful neglect; (iii) we were to dispose of the non-qualifying
asset (or otherwise meet the relevant asset test)Asset Tests within six months after the last day of the quarter in which we identify such failure. In the event of a failure of any of the Asset Tests (other than de minimis failures described in the preceding sentence), as long as the failure was identified,due to reasonable cause and (iv)not to willful neglect, we were towill not lose our REIT status if we (1) dispose of assets or otherwise comply with the Asset Tests within six months after the last day of the quarter in which we identify the failure, (2) we file a description of each asset causing the failure with the IRS and (3) pay a penalty tax equal to the greater of $50,000 or the highest corporate tax
rate multiplied by35% of the net income generated byfrom the nonqualifying assetassets during the period beginning onin which we failed to satisfy the first date of the failure and ending on the date we
dispose of the asset (or otherwise cure the asset test failure). These relief
provisions will be available to us in our taxable years beginning on or after
January 1, 2005, although it is not possible to predict whether in all
circumstances we would be entitled to the benefit of these relief provisions.
AnnualAsset Tests.
REIT Distribution Requirement. With respect to each taxable year,Requirements: To qualify for taxation as a REIT, we must, distribute to our shareholders as dividendseach year, make distributions (other than capital gain dividends)distributions) to our shareholders in an amount at least equal to (1) the sum of: (A) 90% of our “REIT taxable income. Specifically, we must distribute
an amount equal to (1) 90% of the sum of our "REIT taxable income" (determinedincome,” computed without regard to the deduction for dividends paid deduction and by excluding anyour net capital gain)gain, and any after-tax(2) 90% of the net income, after tax, from foreclosure property, minus (2) the sum of certain specified items of "excess noncash income"income.
We must pay dividend distributions in the taxable year to which they relate. Dividends paid in the subsequent year, however, will be treated as if paid in the prior year for purposes of the prior year’s distribution requirement if one of the following two sets of criteria are satisfied:
| 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. |
In certain circumstances, relevant Treasury Regulations provide that if we give an option to each of our stockholders to receive a distribution either in cash or shares of equivalent value, distributions of stock pursuant to an election by stockholders to receive stock may be taxable to such stockholders and such distribution of stock may be treated as income attributabledistributions for purposes of our distribution requirements. Any such taxable stock distributions may be limited pursuant to leveled stepped rents, cancellationapplicable guidance by the IRS.
Even if we satisfy our distribution requirements for maintaining our REIT status, we will nonetheless be subject to a corporate-level tax on any of indebtedness and original issue
discount.our net capital gain or REIT taxable income is generally computed in the same manner as
taxable income of ordinary corporations, with several adjustments, such as a
deduction allowed for dividends paid, butthat we do not for dividends received.
Wedistribute to our shareholders. In addition, we will be subject to tax on amounts not distributed at regular United
States federal corporate income tax rates. In addition, a 4% nondeductible
excise tax is imposed onto the excessextent that we fail to distribute during any calendar year (or by the end of (1) January of the following calendar year in the case of distributions with declaration and record dates falling in the last 3 months of the calendar year) an amount at least equal to the sum of:
As discussed below, we may retain, rather than distribute, all or a portion of our net capital gains and pay the requiredtax on the gains and may elect to have our shareholders include their proportionate share of such undistributed gains as long-term capital gain income on their own income tax returns and receive a credit for their share of the tax paid by us. For purposes of the 4% excise tax described above, any such retained gains would be treated as having been distributed by us.
We intend to make timely distributions sufficient to satisfy our annual distribution requirements for REIT qualification under the Code and which are eligible for the prior year over (2)dividends-paid deduction. In this regard, the actualpartnership agreement of the Operating Partnership authorizes us, as the general partner of the Operating Partnership, to cause the Operating Partnership to make distributions to us, as the general partner of the Operating Partnership, necessary to satisfy the payment of distributions to our shareholders which will enable us to satisfy the annual REIT distribution to shareholders during the year (if any). Net operating losses
generated by us may be carried forward (but not carried back) and used by us for
15 years (or 20 years in the case of net operating losses generated inrequirements.
We expect that our tax
years commencing on or after January 1, 1998) to reducecash flow will exceed our REIT taxable income due to the allowance of depreciation and the amount that we will be required to distribute in order to remain qualified
as a REIT. As a REIT, our net capital losses may be carried forward for five
years (but not carried back) and used to reduce capital gains.
In general, a distribution must be made during the taxable year to
which it relates to satisfy the distribution test and to be deductedother non-cash deductions allowed in computing REIT taxable income. However,Accordingly, in general, we may elect to treat a dividend
declared and paid after the end of the year (a "subsequent declared dividend")
as paid during such year for purposes of complying with the distribution test
and computing REIT taxable income, if the dividend is (1) declared before the
regular or extended due date of our tax return for such year and (2) paid not
later than the date of the first regular dividend payment made after the
declaration, but in no case later than 12 months after the end of the year. For
purposes of computing the 4% nondeductible excise tax, a subsequent declared
dividend is considered paid when actually distributed. Furthermore, any dividend
that is declared by us in October, November or December of a calendar year, and
payable to shareholders of record as of a specified date in such quarter of such
year will be deemed to have been paid by us (and received by shareholders) on
December 31 of such calendar year, but only if such dividend is actually paid by
us in January of the following calendar year.
For purposes of complying with the distribution test for a taxable year
as a result of an adjustment in certain of our items of income, gain or
deduction by the IRS, we may be permitted to remedy such failure by paying a
"deficiency dividend" in a later year together with interest and a penalty. Such
deficiency dividend may be included in our deduction of dividends paid for the
earlier year for purposes of satisfying the distribution test. For purposes
17
of the 4% excise tax, the deficiency dividend is taken into account when paid,
and any income giving rise to the deficiency adjustment is treated as arising
when the deficiency dividend is paid.
We believeanticipate that we should have distributed and intendsufficient cash or liquid assets to continue to
distribute to our shareholders in a timely manner such amounts sufficientenable us to satisfy the annual90% distribution requirements. However, itrequirement for REIT qualification under the Code. It is possible, however, that timing differences between the accrual of income and its actual collection, and
the needwe, from time to make non-deductible expenditures (such as capital improvementstime, may not have sufficient cash or principal payments on debt) may causeother liquid assets to meet this requirement or to distribute an amount sufficient to enable us to recognize taxableavoid income in excess
of our net cash receipts, thus increasing the difficulty of compliance with the
distribution requirement.and/or excise taxes. In order to meet the distribution requirement,such event, we mightmay find it necessary to arrange for short-term,borrowings to raise cash or, possibly long-term,
borrowings.
if possible, make taxable share dividends in order to make such distributions.
In the event that we are subject to an adjustment to our REIT taxable income (as defined in Section 860(d)(2) of the Code) resulting from an adverse determination by either a final court decision, a closing agreement between us and the IRS under Section 7121 of the Code, or an agreement as to tax liability between us and an IRS district director, we may be able to rectify any resulting failure to meet the 90% distribution requirement by paying “deficiency dividends” to shareholders that relate to the adjusted year but that are paid in a subsequent year. To qualify as a deficiency dividend, we must make the distribution within ninety days of the adverse determination and we also must satisfy other procedural requirements. If we satisfy the statutory requirements of Section 860 of the Code, a deduction is allowed for any deficiency dividend subsequently paid by us to offset an increase in our REIT taxable income resulting from the adverse determination. We, however, must pay statutory interest on the amount of any deduction taken for deficiency dividends to compensate for the deferral of the tax liability.
Recordkeeping Requirements: We must maintain certain records in order to qualify as a REIT. In addition, to avoid a monetary penalty, we must request on an annual basis information from our shareholders designed to disclose the actual ownership of our outstanding shares of beneficial interest. We have complied, and we intend to continue to comply, with these requirements.
Failure to Qualify. Under recently enacted law, ifQualify as a REIT: f we were towould otherwise fail to satisfy one or more requirements forqualify as a REIT qualification, other than an asset or
income testunder the Code because of a violation of a type for which relief is otherwise available asone of the requirements described above, we would retain our qualification as a REIT qualificationunder the Code will not be terminated if the failure wasviolation is due to reasonable cause and not willful neglect and if we were to pay a penalty tax of $50,000 for the violation. The immediately preceding sentence does not apply to violations of the gross income tests described above or a violation of the asset tests described above each such failure. This newof which have specific relief provision will be available to us
in our taxable years beginning on or after January 1, 2005, although it is not
possible to predict whether in all circumstances we would be entitled to the
benefit of this relief provision.
provisions that are described above.
If we fail to qualify for taxation as a REIT forunder the Code in any taxable year, and if certainthe relief provisions of the Code do not apply, we would be subjectwill have to federal
incomepay tax, (includingincluding any applicable alternative minimum tax)tax, on our taxable income at regular corporate rates. DistributionsWe will not be able to deduct distributions to shareholders in any year in which we fail to qualify, will not be deductible by us nor will theywe be required to be
made. As a result, our failuremake distributions to qualify as a REIT would reduce the cash
available for distribution by us to our shareholders. In addition, if we failthis event, to qualify as a REIT,the extent of current and accumulated earnings and profits, all distributions to shareholders will be taxable as ordinary
income, to the extent of our current and accumulated earnings and profits, whichshareholders as dividend income (which may be eligible for long-term capital gains rates with respect to domestic
noncorporate shareholders if certain holding periods are met and, subject to certain limitations of the Code,tax at preferential rates) and corporate distributees may be eligible for the dividends-received deduction.
If our failuredividends received deduction if they satisfy the relevant provisions of the Code. Unless entitled to qualifyrelief under specific statutory provisions, we will also be disqualified from taxation as a REIT is not due to reasonable cause but
results from willful neglect, we would not be permitted to elect REIT status for the four taxable years afterfollowing the taxable year forduring which such disqualification is
effective. Inqualification was lost. We might not be entitled to the eventstatutory relief described in the preceding paragraph in all circumstances.
Taxation of U.S. Shareholders
When we wererefer to fail to qualify asthe term “U.S. Shareholders,” we mean a REIT in one year and
subsequently requalify in a later year, we might be required to recognize
taxable income based on the net appreciation in valueholder of our assets as a
condition to requalification. In the alternative, we may be taxed on the net
appreciation in value of our assets if we sell properties within ten years of
the date we requalify as a REIT undercommon shares that is, for U.S. federal income tax laws.
Taxation of Taxable U.S. Shareholders
As used herein, the term "U.S. shareholder" means a holder of shares
who (for United States federal income tax purposes) (1) is purposes:
If a partnership, entity or a trust that has
a valid election to bearrangement treated as a partnership for U.S. personfederal income tax purposes holds our common shares, the U.S. federal income tax treatment of a partner in effect.
the partnership will generally depend on the status of the partner and the activities of the partnership. If you are a partner in a partnership holding our common shares, you should consult your tax advisor regarding the consequences of the ownership and disposition of our common shares by the partnership.
Distributions Generally: For any taxable year for which we qualify for taxation as a REIT under the Code, amounts distributed to taxable U.S. Shareholders will be taxed as discussed below.
As long as we qualify as a REIT, distributions made to our U.S.
shareholdersby us out of our current or accumulated earnings and profits, (andand not designated as capital gain dividends)dividends, will constitute dividends taxable to our taxable U.S. Shareholders as ordinary income. A U.S. Shareholder taxed at individual rates will generally not be takenentitled to the reduced tax rate applicable to certain types of dividends except with respect to the portion of any distribution (a) that represents income from dividends received from a non-REIT corporation in which we own shares (but only if such dividends would be eligible for the lower rate on dividends if paid by the corporation to its individual shareholders), or (b) that is equal to our REIT taxable income (taking into account the dividends paid deduction available to us) for our previous taxable year less any taxes paid by them as
ordinary incomeus during the previous taxable year, provided that certain holding period and corporate shareholdersother requirements are satisfied at both the REIT and individual shareholder level. U.S. Shareholders taxed at individual rates should consult their own tax advisors to determine the impact of tax rates on dividends received from us. Distributions of this kind will not be eligible for the dividends-received deduction as to such amounts. For purposes of computing our
earnings and profits, depreciation for depreciable real estate will be computed
on a straight-line basis over a 40-year period.
Under the Jobs and Growth Tax Relief Reconciliation Act of 2003,
certain "qualified dividend income," received by domestic non-corporate
shareholders in taxable years 2003 through 2008, is subject to tax at the same
tax rates as long-term capital gain (generally, under the legislation, a maximum
rate of 15% for such taxable years). Dividends paid by a REIT generally would
not qualify under the legislation, because a REIT is not generally subject
18
to federal income tax on the portion of its REIT taxable income distributed to
its shareholders, and therefore will continue to be subject to tax at ordinary
income rates (generally, a maximum rate of 35% for taxable years 2003 through
2008), subject to two narrow exceptions. Under the first exception, dividends received from a REIT may be treated as "qualified dividend income" eligible for
the reduced tax rates to the extent that the REIT itself has received qualified
dividend income from other corporations (such as taxable REIT subsidiaries) in
which the REIT has invested. Under the second exception, dividends paid by a
REIT in a taxable year may be treated as qualified dividend income in an amount
equal to the sum of (i) the excess of the REIT's "REIT taxable income" for the
preceding taxable year over the corporate-level federal income tax payable by
the REIT for such preceding taxable year and (ii) the excess of the REIT's
income that was subject to the Built-In Gains Tax (as described above)deduction in the preceding taxable year over the tax payable by the REIT on such income for such
preceding taxable year.
Distributionscase of U.S. Shareholders that are corporations.
Distributions made by us that we properly designateddesignate as capital gain dividends will be taxedtaxable to U.S. Shareholders as gainsgain from the sale or exchange of a capital asset held for more than one year, (toto the extent that they do not exceed our actual net capital gain for the taxable year)year, without regard to the period for which the shareholdera U.S. Shareholder has held his common shares. The highest marginal individual income tax rate is currently 39.6%. However, the
maximum tax rate on long-term capital gain applicable to U.S. Shareholders taxed at individual rates is 20%. The maximum tax rate on long-term capital gain from the sale or exchange of “Section 1250 property,” or depreciable real property, is 25% computed on the lesser of the total amount of the gain or the accumulated Section 1250 depreciation. Thus, with certain limitations, capital gain dividends received by U.S. Shareholders taxed at individual rates may be eligible for preferential rates of taxation, and the tax rate differential between capital gain and ordinary income may be significant. In addition, as described below under “Medicare Tax,” Distributions may be subject to the 3.8% Medicare tax. We will generally designate our capital gain dividends as either 20% or 25% rate distributions. In addition, the characterization of income as capital gain or ordinary income may affect the deductibility of capital losses. U.S. Shareholders taxed at individual rates may generally deduct capital losses not offset by capital gains against their ordinary income only up to a maximum annual amount of $3,000. Such taxpayers may carry forward unused capital losses indefinitely. A corporate U.S. Shareholder must generally pay tax on its shares. However,net capital gain at ordinary corporate shareholdersrates. A corporate U.S. Shareholder may generally deduct capital losses only to the extent of capital gains, with unused losses being carried back three years and forward five years. Finally, U.S. Shareholders that are corporations may be required to treat up to 20% of certain capital gain dividends as ordinary income.
To the extent that we make distributions, not designated as capital gain dividends, in excess of our current and accumulated earnings and profits, these distributions will be treated first as a tax-free return of capital to each U.S. Shareholder. Thus, these distributions will reduce the adjusted basis which the U.S. Shareholder has in its shares for tax purposes by the amount of the distribution, but not below zero. Distributions in excess of a U.S. Shareholder’s adjusted basis in its shares will be taxable as capital gains, provided that the shares have been held as a capital asset. For purposes of determining the portion of distributions on separate classes of shares that will be treated as dividends for U.S. federal income tax purposes, current and accumulated earnings and profits will be allocated to distributions resulting from priority rights of preferred shares before being allocated to other distributions.
Dividends declared by us in October, November, or December of any year and payable to a shareholder of record on a specified date in any of these months will be treated as both paid by us and received by the shareholder on December 31 of that year, provided that we actually pay the dividend on or before January 31 of the following calendar year. Shareholders may not include in their own income tax returns any of our net operating losses or capital losses.
U.S. Shareholders holding shares at the close of our taxable year will be required to include, in computing their long-term capital gains for the taxable year in which the last day of our taxable year falls, the amount that we designate in a written notice mailed to our shareholders. We may not designate amounts in excess of our undistributed net capital gain for the taxable year. Each U.S. Shareholder required to include the designated amount in determining the U.S. Shareholder’s long-term capital gains will be deemed to have paid, in the taxable year of the inclusion, the tax paid by us in respect of the undistributed net capital gains. U.S. Shareholders to whom these rules apply will be allowed a credit or a refund, as the case may be, for the tax they are deemed to have paid. U.S. Shareholders will increase their basis in their shares by the difference between the amount of the includible gains and the tax deemed paid by the shareholder in respect of these gains.
Passive Activity Loss and Investment Interest Limitations: Distributions from us and gain from the disposition of our shares will not be treated as passive activity income and, therefore, a U.S. Shareholder will not be able to offset any of this income with any passive losses of the shareholder from other activities. Dividends received by a U.S. Shareholder from us generally will be treated as investment income for purposes of the investment interest limitation. Net capital gain from the disposition of our shares or capital gain dividends generally will be excluded from investment income unless the shareholder elects to have the gain taxed at ordinary income rates.
Sale/Other Taxable Disposition of Common Shares: In general, a U.S. Shareholder who is not a dealer in securities will recognize gain or loss on its sale or other taxable disposition of our shares equal to the difference between the amount of cash and the fair market value of any other property received in such sale or other taxable disposition and the shareholder’s adjusted basis in said shares at such time. This gain or loss will be a capital gain or loss if the shares have been held by the U.S. Shareholder as a capital asset. The applicable tax rate will depend on the shareholder’s holding period in the asset (generally, if an asset has been held for more than one year it will
produce long-term capital gain) and the shareholder’s tax bracket. The IRS has the authority to prescribe, but has not yet prescribed, regulations that would apply a capital gain tax rate of 25% (which is generally higher than the 20% long-term capital gain tax rates in effect for shareholders taxed at individual rates) to a portion of capital gain realized by a non-corporate shareholder on the sale of REIT stock that would correspond to the REIT’s “unrecaptured Section 1250 gain.” In addition, as described below under “Medicare Tax,” capital gains may be subject to the 3.8% Medicare tax. U.S. Shareholders should consult with their tax advisors with respect to their capital gain tax liability. A corporate U.S. Shareholder will be subject to tax at a maximum rate of 35% on capital gain from the sale of our common shares held for more than 12 months. In general, any loss recognized by a U.S. Shareholder upon the sale or other disposition of shares that have been held for six months or less, after applying the holding period rules, will be treated as a long-term capital loss, to the extent of distributions received by the U.S. Shareholder from us that were required to be treated as long-term capital gains.
Shareholders should consult with their own tax advisors with respect to their capital gain tax liability in respect of distributions received from us and gains recognized upon the sale or other disposition of shares of our common shares.
Treatment of Tax-Exempt Shareholders: Based upon published rulings by the IRS, distributions by us to a U.S. Shareholder that is a tax-exempt entity generally should not constitute “unrelated business taxable income” (“UBTI”), provided that the tax-exempt entity has not financed the acquisition of its shares with “acquisition indebtedness,” within the meaning of the Code, and the shares are not otherwise used in an unrelated trade or business of the tax-exempt entity. Similarly, income from the sale of our common shares will not constitute UBTI, provided that the tax-exempt entity has not financed the acquisition of its shares with “acquisition indebtedness” and the shares are not otherwise used in an unrelated trade or business of the tax-exempt entity.
Tax-exempt U.S. Shareholders which are social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts, and qualified group legal services plans, exempt from U.S. federal income taxation under Code Sections 501(c)(7), (9), (17) and (20), respectively, are subject to different UBTI rules, which generally require such stockholders to characterize distributions that we make as UBTI. Such prospective investors should consult their own tax advisors concerning these “set-aside” and reserve requirements.
Notwithstanding the above, however, a portion of the dividends paid by a “pension-held REIT” is treated as UBTI as to any trust which (i) is described in Section 401(a) of the Code, (ii) is tax-exempt under Section 501(a) of the Code and (iii) holds more than 10% (by value) of the interests in the REIT. Tax-exempt pension funds that are described in Section 401(a) of the Code and exempt from tax under Section 501(a) of the Code are referred to below as “qualified trusts.”
A REIT is a “pension-held REIT” if (i) it would not have qualified as a REIT under the Code.
Code but for the fact that Section 856(h)(3) of the Code provides that stock owned by qualified trusts will be treated, for purposes of the “not closely held” requirement, as owned by the beneficiaries of the trust (rather than by the trust itself), (ii) the percentage of the REIT’s dividends that the tax-exempt trust must treat as UBTI is at least 5%, and (iii) either (a) at least one such qualified trust holds more than 25% (by value) of the interests in the REIT or (b) one or more such qualified trusts, each of whom owns more than 10% (by value) of the interests in the REIT, hold in the aggregate more than 50% (by value) of the interests in the REIT. The percentage of any REIT dividend treated as UBTI is equal to the ratio of (i) the gross income of the REIT from unrelated trades or businesses, determined as though the REIT were a qualified trust, less direct expenses related to this gross income, to (ii) the total gross income of the REIT, less direct expenses related to the total gross income. The provisions requiring qualified trusts to treat a portion of REIT distributions as UBTI will not apply if the REIT is able to satisfy the “not closely held” requirement without relying upon the “look-through” exception with respect to qualified trusts. We do not expect to be classified as a “pension-held REIT.”
The rules described above under the heading “Taxation of U.S. Shareholders” concerning the inclusion of our designated undistributed net capital gains in the income of its shareholders will apply to tax-exempt entities. Thus, tax-exempt entities will be allowed a credit or refund of the tax deemed paid by these entities in respect of the includible gains.
Medicare Tax. A U.S. Shareholder that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from such tax, is subject to a 3.8% tax on the lesser of (1) the U.S. Shareholder’s
“net investment income” for the relevant taxable year and (2) the excess of the U.S. Shareholder’s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals will be between $125,000 and $250,000, depending on the individual’s circumstances). A U.S. Shareholder’s net investment income will generally include its dividend income and its net gains from the disposition of common shares, unless such dividend income or net gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading activities). If you are a U.S. Shareholder that is an individual, estate or trust, you are urged to consult your tax advisors regarding the applicability of the Medicare tax to your income and gains in respect of your investment in the common shares.
Special Tax Considerations For Non-U.S. Shareholders
Taxation of Non-U.S. Shareholders: The rules governing U.S. federal income taxation of nonresident alien individuals, foreign corporations, foreign partnerships and other foreign shareholders (collectively, “Non-U.S. Shareholders”) are complex, and no attempt will be made herein to provide more than a limited summary of such rules. Prospective Non-U.S. Shareholders should consult with their tax advisors to determine the impact of U.S. federal, state and local income tax laws with regard to an investment in our common shares, including any reporting requirements.
Distributions by us to a Non-U.S. Shareholder that are neither attributable to gain from sales or exchanges by us of United States real property interests (“USPRIs”) nor designated by us as capital gain dividends 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 will ordinarily be subject to a withholding tax equal to 30% of the gross amount of the distribution unless an applicable tax treaty reduces that tax. Under certain treaties, lower withholding rates generally applicable to dividends do not apply to dividends from a REIT. However, if income from the investment in our common shares is treated as effectively connected with the Non-U.S. Shareholder’s conduct of a U.S. trade or business or is attributable to a permanent establishment that the Non-U.S. Shareholder maintains in the United States (if that is required by an applicable income tax treaty as a condition for subjecting the Non-U.S. Shareholder to U.S. taxation on a net income basis) the Non-U.S. Shareholder generally will be subject to tax at graduated rates, in the same manner as U.S. Shareholders are taxed with respect to such income and is generally not subject to withholding. Any such effectively connected distributions received by a Non-U.S. Shareholder that is a corporation may also be subject to an additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. We expect to withhold U.S. income tax at the rate of 30% on the gross amount of any dividends paid to a Non-U.S. Shareholder, other than dividends treated as attributable to gain from sales or exchanges of U.S. real property interests and capital gain dividends, paid to a Non-U.S. Shareholder, unless (a) a lower treaty rate applies and the required form evidencing eligibility for that reduced rate is submitted to us or the appropriate withholding agent or (b) the Non-U.S. Shareholder submits an IRS Form W-8 ECI (or a successor form) to us or the appropriate withholding agent claiming that the distributions are effectively connected with the Non-U.S. Shareholder’s conduct of a U.S. trade or business and, in either case, other applicable requirements were met.
The Foreign Account Tax Compliance Act (“FATCA”) will require withholding at a rate of 30% on dividends in respect of, and, effective after December 31, 2016, gross proceeds from the sale of, our common shares held by or through certain foreign financial institutions (including investment funds), unless such institution enters into an agreement with the Secretary of the Treasury (or unless alternative procedures apply pursuant to an applicable intergovernmental agreement between the United States and the relevant foreign government) to report, on an annual basis, information with respect to shares in, and accounts maintained by, the institution to the extent such shares or accounts are held by certain United States persons or by certain non-U.S. entities that are wholly or partially owned by United States persons. Accordingly, the entity through which our common shares are held will affect the determination of whether such withholding is required. Similarly, dividends in respect of, and gross proceeds from the sale of, our common shares held by an investor that is a non-financial non-U.S. entity will be subject to withholding at a rate of 30%, unless such entity either (i) certifies to us that such entity does not have any “substantial United States owners” or (ii) provides certain information regarding the entity’s “substantial United States owners,” which we will in turn provide to the Secretary of the Treasury (or unless alternative procedures apply pursuant to an applicable intergovernmental agreement between the United States and the relevant foreign government). Foreign investors are encouraged to consult with their tax advisers regarding the possible implications of these rules on their investment in our common shares.
Distributions in excess of our current and accumulated earnings and profits will constitute a non-taxable return of capitalnot be taxable to a shareholderNon-U.S. Shareholder to the extent that such distributionsthey do not exceed the adjusted basis of the shareholder'sNon-U.S. Shareholder’s shares, andbut rather will result in a corresponding reduction inreduce the shareholder'sadjusted basis in theof such shares. Any reduction in a shareholder's tax basis
for its shares will increase the amount of taxable gain or decrease the
deductible loss thatFor FIRPTA (defined below) withholding purposes (discussed below) such distribution will be realized upontreated as consideration for the eventual dispositionsale or exchange of shares. To the shares. We will notify shareholders at the end of each year as to the portions
of the distributions which constitute ordinary income, capital gain or a return
of capital. Any portion ofextent that such distributions that exceedsexceed the adjusted basis of a U.S. shareholder'sNon-U.S. Shareholder’s shares, these distributions will give rise to tax liability if the Non-U.S. Shareholder would otherwise be subject to tax on any gain from the sale or disposition of its shares, as described below. If it cannot be determined at the time a distribution is made whether or not such distribution will be taxedin excess of current and accumulated earnings and profits, the distribution will be subject to withholding at the rate applicable to dividends. However, the Non-U.S. Shareholder may seek a refund of such amounts from the IRS if it is subsequently determined that such distribution was, in fact, in excess of our current and accumulated earnings and profits.
Distributions to a Non-U.S. Shareholder that are designated by us at the time of distribution as capital gain dividends (other than those arising from the disposition of shares, provided thata USRPI) generally will not be subject to U.S. federal income taxation unless (i) investment in the shares is effectively connected with the Non-U.S. Shareholder’s U.S. trade or business, in which case the Non-U.S. Shareholder will be subject to the same treatment as a U.S. Shareholder with respect to such gain (except that a corporate Non-U.S. Shareholder may also be subject to the 30% branch profits tax, as discussed above), or (ii) the Non-U.S. Shareholder is a nonresident alien individual who is present in the United States for 183 days or more during the taxable year and has a “tax home” in the United States, in which case such shareholder will be subject to a 30% tax on his or her capital gains.
For any year in which we qualify as a REIT, distributions that are heldattributable to gain from sales or exchanges by us of USRPIs will be taxed to a Non-U.S. Shareholder under the provisions of the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”). A USRPI includes certain interests in real property and stock in corporations at least 50% of whose assets consist of interests in real property. Under FIRPTA, these distributions are taxed to a Non-U.S. Shareholder as if such gain were effectively connected with a U.S. business. Thus, Non-U.S. Shareholders would be taxed at the normal capital assetsgain rates applicable to U.S. Shareholders (subject to applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals). Also, distributions subject to FIRPTA may be subject to a 30% branch profits tax in the hands of a corporate Non-U.S. Shareholder not entitled to treaty relief or exemption. We are required by applicable Treasury Regulations to withhold 35% of any distribution to a Non-U.S. Shareholder that could be designated by us as a capital gain dividend. This amount is creditable against the Non-U.S. Shareholder’s U.S. shareholder.
Asidefederal income tax liability. We or any nominee (e.g., a broker holding shares in street name) may rely on a certificate of Non-U.S. Shareholder status on IRS Form W-8 to determine whether withholding is required on gains realized from the different income tax rates applicable to ordinary income
anddisposition of U.S. real property interests. A U.S. Shareholder who holds shares on behalf of a Non-U.S. Shareholder will bear the burden of withholding, provided that we have properly designated the appropriate portion of a distribution as a capital gain dividends, regular and capitaldividend.
Capital gain dividends from usdistributions to Non-U.S. Shareholders that are attributable to our sale of real property will be treated as ordinary dividends rather than as gain from the sale of a USRPI, as long as (1) our common shares continue to be treated as being “regularly traded” on an established securities market in the United States and (2) the Non-U.S. shareholder did not own more than 5% of our common shares at any time during the one-year period preceding the distribution. As a result, Non-U.S. shareholders owning 5% or less of our common shares generally will be subject to withholding tax on such capital gain distributions in the same manner as they are subject to withholding tax on ordinary dividends. If our common shares cease to be regularly traded on an established securities market in the United States or the Non-U.S. shareholder owned more than 5% of our common shares at any time during the one-year period preceding the distribution, capital gain distributions that are attributable to our sale of real property would be subject to tax under FIRPTA, as described in the preceding paragraph. If a Non-U.S. shareholder disposes of our common shares during the 30-day period preceding the ex-dividend date of any dividend incomepayment, and such Non-U.S. shareholder (or a person related to such Non-U.S. shareholder) acquires or enters into a contract or option to acquire our common shares within 61 days of the first day of such 30-day period described above, and any portion of such dividend payment would, but for most other federal income tax purposes. In
particular,the disposition, be treated as USRPI capital gain to such dividendsNon-U.S. shareholder under FIRPTA, then such Non-U.S. shareholder will be treated as "portfolio" incomehaving USRPI capital gain in an amount that, but for purposesthe disposition, would have been treated as USRPI capital gain.
Gain recognized by a Non-U.S. Shareholder upon a sale of the passive activity loss limitation and shareholdersstock of a REIT generally will not be able
to offset any "passive losses" against such dividends. Dividendstaxed under FIRPTA if the REIT is a “domestically-controlled REIT” (generally, a REIT in which at all times during a specified testing period less than 50% in value of its stock is held directly or indirectly by foreign persons). Since it is currently anticipated that we will be treated
as investment income for purposesa “domestically-controlled REIT,” a Non-U.S. Shareholder’s sale of our common shares should not be subject to taxation under FIRPTA. However, because our common shares are publicly-traded, no assurance can be given that we will continue to be a “domestically-controlled REIT.” Notwithstanding the investment interest limitation
contained in Section 163(d)foregoing, gain from the sale of the Code, which limits the deductibility of
interest expense incurred by noncorporate taxpayers with respectour common shares that is not subject to indebtedness
attributable to certain investment assets.
In general, dividends paid by usFIRPTA will be taxable to shareholdersa Non-U.S. Shareholder if (i) the Non-U.S. Shareholder’s investment in the yearshares is “effectively connected” with the Non-U.S. Shareholder’s U.S. trade or business, in which they are received, exceptcase the Non-U.S. Shareholder will be subject to the same treatment as a U.S. Shareholder with respect to such gain (a Non-U.S. Shareholder that is a foreign corporation may also be subject to a 30% branch profits tax, as discussed above), or (ii) the Non-U.S. Shareholder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year and has a “tax home” in the United States, in which case the nonresident alien individual will be subject to a 30% tax on the individual’s capital gains. If the gain on the sale of shares were to be subject to taxation under FIRPTA, the Non-U.S. Shareholder would be subject to the same treatment as a U.S. Shareholder with respect to such gain (subject to applicable alternative minimum tax, possible withholding tax and a special alternative minimum tax in the case of dividends declared at the
end of the year, but paid in the following January, as discussed above.
In general,nonresident alien individuals).
If we are not, or cease to be, a domestic shareholder will realize capital“domestically-controlled REIT,” whether gain or loss on
the disposition of shares equal to the difference between (1) the amount of cash
and the fair market value of any property received on such disposition and (2)
the shareholder's adjusted basis of such shares. Such gain or loss will
generally be short-term capital gain or loss if the shareholder has not held
such shares for more than one year and will be long-term capital gain or loss if
such shares have been held for more than one year. Loss uponarising from the sale or exchange of shares by a shareholder who has held suchNon-U.S. Shareholder would be subject to United States taxation under FIRPTA as a sale of a USRPI will depend on whether any class of our shares for six monthsis “regularly traded” (as defined by applicable Treasury Regulations) on an established securities market (e.g., the New York Stock Exchange), as is the case with our common shares, and on the size of the selling Non-U.S. Shareholder’s interest in us. In the case where we are not, or less (after applying certain holding period rules)cease to be, a “domestically-controlled REIT” and any class of our shares is “regularly traded” on an established securities market at any time during the calendar year, a sale of shares of that class by a Non-U.S. Shareholder will only be treated as long-term
capital lossa sale of a USRPI (and thus subject to taxation under FIRPTA) if such selling shareholder beneficially owns (including by attribution) more than 5% of the total fair market value of all of the shares of such class at any time during the five-year period ending either on the date of such sale or other applicable determination date. To the extent we have one or more classes of shares outstanding that are “regularly traded,” but the Non-U.S. Shareholder sells shares of a class of our shares that is not “regularly traded,” the sale of shares of such class would be treated as a sale of a USRPI under the foregoing rule only if the shares of such latter class acquired by the Non-U.S. Shareholder have a total net market value on the date they are acquired that is greater than 5% of the total fair market value of the “regularly traded” class of our shares having the lowest fair market value (or with respect to a nontraded class of our shares convertible into a “regularly traded” market value on the date of acquisition of the total fair market value of the “regularly traded” class into which it is convertible). If gain on the sale or exchange of shares were subject to taxation under FIRPTA, the Non-U.S. Shareholder would be subject to regular United States income tax with respect to such gain in the same manner as a U.S. Shareholder (subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals); provided, however, that deductions otherwise allowable will be allowed as deductions only if the tax returns were filed within the time prescribed by law. In general, the purchaser of the shares would be required to withhold and remit to the extentIRS 10% of distributions from us required to be treatedthe amount realized by such shareholder as long-term capital gain.
We may elect to retain and pay income taxthe seller on net long-term capital
gains. If we make such an election, you, as a holder of shares, will (1) include
in your income as long-term capital gains your proportionate sharethe sale of such undistributed capital gainsshares.
Information Reporting Requirements and (2) be deemed to have paid your proportionate
share of the tax paid by us on such undistributed capital gains and thereby
receive a credit or refund for such amount. As a holder of shares you will
increase the basis in your shares by the difference between the amount of
capital gain included in your income and the amount of tax you are deemed to
have paid. Our earnings and profits will be adjusted appropriately.
19
Backup Withholding Tax
U.S. Shareholders: We will report to our domestic shareholdersU.S. Shareholders and the IRS the amount of dividends paid during each calendar year, and the amount of tax withheld, if any, with respect thereto.any. Under the backup withholding rules, a shareholder may
be subject to backup withholding may apply to a U.S. Shareholder with respect to dividends paid unless such
holderthe U.S. Shareholder (a) is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact, or (b) provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding, and otherwise complies with the applicable requirements of the backup withholding rules. A shareholder whoThe IRS may also impose penalties on a U.S. Shareholder that does not provide us with its correct taxpayer identification number alsonumber. A U.S. Shareholder may be subject to penalties imposed by the IRS.
Amounts withheldcredit any amount paid as backup withholding will be creditable against the shareholder'sshareholder’s income tax liability. In addition, we may be required to withhold a portion of capital gain distributions to any U.S. Shareholder who fails to certify to us its non-foreign status.
Non-U.S. Shareholders: If you are a Non-U.S. Shareholder, you are generally exempt from backup withholding and information reporting requirements with respect to:
as long as the income associated with these payments is otherwise exempt from U.S. federal income tax, and:
Payment of the proceeds from the sale of common shares effected at a foreign office of a broker generally will not be subject to us. See "-- Taxationinformation reporting or backup withholding. However, a sale of Non-U.S.
Shareholders" below. Additional issues may arise pertainingcommon shares that is effected at a foreign office of a broker will be subject to information reporting and backup withholding with respectif:
unless the broker does not have actual knowledge or reason to know that you are a United States person and not designated by us as
capital gains dividends will be treated as dividendsthe documentation requirements described above are met or you otherwise establish an exemption.
In addition, a sale of ordinary income to the
extent that they are made out of our current or accumulated earnings and
profits. Such distributions ordinarilycommon shares will be subject to a withholding tax
equal to 30% of the gross amount of the distribution unless an applicable tax
treaty reduces or eliminates that tax. Certain tax treaties limit the extent to
which dividends paid by a REIT can qualify for a reduction of the withholding
tax on dividends. Distributions in excess of our current and accumulated
earnings and profits will not be taxable to a non-U.S. shareholder to the extent
that they do not exceed the adjusted basis of the shareholder's shares, but
rather will reduce the adjusted basis of such shares. To the extent that such
distributions exceed the adjusted basis of a non-U.S. shareholder's shares, they
will give rise to tax liability if the non-U.S. shareholder would otherwise be
subject to tax on any gain from the sale or disposition of his shares, as
described below.
For withholding tax purposes, we are generally required to treat all
distributions as if made out of our current or accumulated earnings and profits
and thus intend to withhold at the rate of 30% (or a reduced treaty rate if
applicable) on the amount of any distribution (other than distributions
designated as capital gain dividends) made to a non-U.S. shareholder. We would
not be required to withhold at the 30% rate on distributions we reasonably
estimate to be in excess of our current and accumulated earnings and profits. If
it cannot be determined at the time a distribution is made whether such
distribution will be in excess of current and accumulated earnings and profits,
the distribution will be subject to withholding at the rate applicable to
ordinary dividends. However, the non-U.S. shareholder may seek from the IRS a
refund of such amounts from the IRSinformation reporting if it is subsequently determinedeffected at a foreign office of a broker that such
distribution was, in fact, in excess of our current or accumulated earnings and
profits, and the amount withheld exceeded the non-U.S. shareholder'sis:
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.
You generally may obtain a refund of any amounts withheld under the backup withholding rules that exceed your income tax liability by filing a refund claim with the IRS.
Tax Aspects of the Operating Partnership
General: The Operating Partnership holds substantially all of our capital
shares.
21
Other Tax Considerations
Entity Classification. A significant number of our investmentsinvestments. In general, partnerships are held
through partnerships. If any such partnerships were treated as an association,
the entity would be taxable as a corporation and therefore would be“pass-through” entities that are not subject to an entity level tax on its income. In such a situation,U.S. federal income tax. Rather, partners are allocated their proportionate shares of the character of our
assets and items of income, gain, loss, deduction and credit of their partnership, and are potentially subject to tax thereon, without regard to whether distributions are made to them by the partnership.
We include in our income our proportionate share of these Operating Partnership items (including our proportionate share of such items attributable to partnerships in which the Operating Partnership owns a direct or indirect interest) for purposes of the various REIT gross income would changetests and might preclude us from
qualifying asin the computation of its REIT taxable income. Moreover, for purposes of the REIT Asset Tests, we include our proportionate share of assets held by the Operating Partnership and by partnerships in which the Operating Partnership owns a REIT.
direct or indirect interest.
We believe that each partnership in which we hold a materialan interest (either directly or indirectly) is properly treated as a partnership for tax purposes (andand not as an association taxable as a corporation).
corporation. If for any reason the Operating Partnership were taxable as a corporation, rather than as a partnership, for U.S. federal income tax purposes, we likely would not be able to qualify as a REIT unless we qualified for certain relief provisions. In addition, any change in the Operating Partnership’s status for tax purposes might be treated as a taxable event, in which case we might incur tax liability without any related cash distribution. Further, items of income and deduction of the Operating Partnership would not pass through to its partners, and its partners would be treated as shareholders for tax purposes. Consequently, the Operating Partnership would be required to pay income tax at corporate rates on its net income, and distributions to its partners would constitute dividends that would not be deductible in computing the Operating Partnership’s taxable income.
Tax Allocations with Respectrespect to Contributed Properties (Effects of Section 704(c) of the Properties. WhenCode): Pursuant to Section 704(c) of the Code, 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 such that the partnershipcontributing 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 is generally takes a carryover basis in that property for tax purposes equal to the adjusted basis of the contributing partner in the property, rather
than a basis equal todifference between the fair market value of the contributed property at the time of contribution (thisand the adjusted tax basis of the property at such time (said difference, is referredthe “Book-Tax Difference”). Additionally, upon the occurrence of certain events (including but not limited to as "Book-Tax Difference")the issuance of additional interests in the partnership), a partnership may adjust the Section 704(b) book basis of its assets to reflect their then-current fair market values, thereby creating additional Book-Tax Differences under Section 704(c). Special
rules underThese allocations are solely for U.S. federal income tax purposes and do not affect the economic or legal arrangements among the partners. The Operating Partnership was formed by way of, and has since formation received, contributions of appreciated property (including interests in partnerships that have appreciated property) and has adjusted the Section 704(b) book basis of its assets. Consequently, in accordance with Section 704(c) of the Code and the Operating Partnership’s partnership agreement, the Operating Partnership makes allocations to its partners in a manner consistent with Section 704(c) of the Code and the Treasury Regulations thereunder
require special allocationsthereunder.
In general, those partners who have contributed to the Operating Partnership property (including interests in partnerships that own property) that has a fair market value in excess of income, gain, loss and deduction with respect to
contributed property, which tend to eliminatebasis at the Book-Tax Difference over the
depreciable livestime of such property, but which may not always entirely eliminate
the Book-Tax Difference on an annual basis or with respect to a specific taxable
transaction such as a sale. Thus, the carryover basis of the contributed
properties in the hands of the partnership could cause us (i) to becontribution have been allocated lower amounts of depreciation and other deductions for tax purposes than would have been the case if such allocations were made pro rata. In addition, in the event of the disposition of any such property, all taxable income and gain attributable to such property’s Book-Tax Difference generally will be allocated to the contributing partners, and we generally will be allocated only our share (and on a pro rata basis) of any capital gain attributable to post-contribution appreciation, if any. The foregoing allocations would tend to eliminate a property’s Book-Tax Difference over the Operating Partnership’s life. However, the special allocation rules of Section 704(c) of the Code do not always entirely eliminate a property’s Book-Tax Difference and could prolong a noncontributing partner’s Book-Tax Difference with respect to such property. Thus, the carryover basis of a contributed property in the hands of the Operating Partnership may cause us if all properties were to be allocated: (a) lower tax depreciation and other deductions than our economic or book depreciation and other deductions allocable to us; and/or (b) more taxable income or gain upon a sale of the property than the economic or book income or gain allocable to us as a result of the sale. Such differing tax allocations may cause us to recognize taxable income or gain in excess of cash proceeds, which might adversely affect our ability to comply with the REIT distribution requirements.
Treasury Regulations under Section 704(c) of the Code provide partnerships with a choice of several methods of accounting for Book-Tax Differences (e.g., the “traditional method,” the “traditional method with curative allocations,” and the “remedial method”). Some of these methods could prolong the period required to eliminate the Book-Tax Difference as compared to other permissible methods (or could, in fact, result in a portion of the Book-Tax Difference to remain unaccounted for). The Operating Partnership’s partnership agreement
provides for the use of the “traditional method” for accounting for Book-Tax Differences, unless otherwise determined by us, as the general partner of the Operating Partnership, and the contributing partner. As a result of this determination, distributions to our shareholders could be comprised of more taxable income than would otherwise be the case. With respect to any purchased property that is not “replacement property” in a tax-free like-kind exchange under Section 1031 of the Code, such property initially would have a tax basis equal to theirits fair market value atand Section 704(c) of the timeCode would not apply.
Basis in Partnership Interests in the Operating Partnership: Our adjusted tax basis in our interest in the Operating Partnership generally equals the amount of cash and the basis of any other property contributed by us to the Operating Partnership (1) increased by our allocable share of the income and indebtedness of the Operating Partnership, and (2) decreased (but not below zero) by: (a) our allocable share of losses of the Operating Partnership; (b) the amount of cash and adjusted basis of property distributed by the Operating Partnership to us; and (c) the reduction in our allocable share of the Operating Partnership’s indebtedness.
If the allocation of our distributive share of the Operating Partnership’s losses exceeds the adjusted tax basis of our partnership interest in the Operating Partnership, the recognition of such excess losses would be deferred to the extent that we have adjusted tax basis in our interest in the Operating Partnership. To the extent that the Operating Partnership’s distributions, or any decrease in our allocable share of indebtedness (such decreases being considered a constructive cash distribution to the partners), exceeds our adjusted tax basis in our interest in the Operating Partnership, such excess distributions (including such constructive distributions) will constitute taxable income to us. Such taxable income would normally be characterized as capital gain, and if our interest in the Operating Partnership has been held for longer than the long-term capital gain holding period (currently more than one year), such distributions and constructive distributions would constitute long-term capital gain income.
Sale of the Properties: Our distributive share of any gain realized by the Operating Partnership on its sale of any property held by it as inventory or primarily for sale to customers in the ordinary course of its trade or business would be treated as income from a prohibited transaction that is subject to a 100% penalty tax. Prohibited transaction income may also have an adverse effect on our ability to satisfy the REIT gross income tests. Under existing law, whether the Operating Partnership holds its property as inventory or primarily for sale to customers in the ordinary course of its trade or business is a question of fact that depends on all the facts and circumstances with respect to the particular transaction. The Operating Partnership intends to hold its properties for investment with a view to long-term appreciation, to engage in the business of acquiring, developing, owning, renting and otherwise operating the properties, were contributedand to make such occasional sales of the properties, including peripheral land, as are consistent with the Operating Partnership’s investment objectives.
State and Local Tax
We and our shareholders may be subject to state and local tax in various states and localities, including those in which we or they transact business, own property or reside. Our tax treatment and that of our shareholders in such jurisdictions may differ from the U.S. federal income tax treatment described above. Consequently, prospective shareholders should consult their own tax advisors regarding the effect of state and local tax laws on an investment in our common shares.
SELLING SHAREHOLDERS
Information about any additional selling shareholders or additional common shares sold by such additional or existing selling shareholders may be added to this prospectus pursuant to a prospectus supplement, subject to the Securities Act.
On February 28, 2012, the Operating Partnership issued 105,243 Common OP Units to some of the OP unit holders listed below pursuant to a contribution agreement that had been entered into on January 12, 2012 in connection with the Operating Partnership’s acquisition from I.S. Country Club Estates Limited Partnership (an entity owned by some of the OP unit holders) of certain real estate property.
On December 27, 2013, the Operating Partnership issued 1,233,333 Common OP Units to some of the OP unit holders listed below pursuant to a contribution agreement that had been entered into on December 5, 2013 in connection with the Operating Partnership’s acquisition from One Hudson Park Associates Limited Liability Company (an entity owned by some of the OP unit holders) of certain real estate property. In addition, pursuant to the contribution agreement, we may also issue up to a maximum of 162,730 additional common shares related to potential Common OP Units (the “Earn-Out Units”) the Operating Partnership may be required to issue if certain conditions are met. None of the Earn-Out Units have been issued as of the date of this prospectus, and some or all of the Earn-Out Units may never be issued.
On August 21, 2014, the Operating Partnership issued 1,415,336 Common OP Units to some of the OP unit holders listed below pursuant to a contribution agreement that had been entered into on June 26, 2014 in connection with the Operating Partnership’s acquisition from Slam It, LLC (an OP unit holder and an affiliate of an OP unit holder) of certain real estate property.
On December 4, 2014, the Operating Partnership issued 161,575 Common OP Units to one of the OP unit holders listed below pursuant to a contribution agreement that had been entered into on October 27, 2014 in connection with the Operating Partnership’s acquisition from Gelman 840 LLC (an OP unit holder) of an interest as a tenant in common of certain real estate property.
Concurrently with the closing of each of the four transactions described above and the issuances of the initial 2,915,487 Common OP Units, we entered into a registration rights agreement with each of I.S. Country Club Estates Limited Partnership, One Hudson Park Associates Limited Liability Company, Slam It, LLC, Elliot Meisel and Gelman 840 LLC pursuant to which we agreed to file a registration statement registering the resale of the common shares that may be issuable upon exchange of the Common OP Units (including the Earn-Out Units, if any, in the case of the transaction with One Hudson Park Associates Limited Liability Company). Pursuant to the limited partnership agreement of our Operating Partnership, holders of Common OP Units may exchange their Common OP Units for our common shares on a one-for-one basis, subject to adjustment as set forth in such limited partnership agreement.
The following table presents information about the beneficial ownership of our common shares by the OP unit holders based on 68,640,881 common shares outstanding and 3,912,928 Common OP Units outstanding as of March 23, 2015. The information presented regarding the OP unit holders is based upon representations made by the OP unit holders to us. Beneficial ownership is determined in accordance with the rules of the SEC and, in general, shareholders having voting or investment power with respect to a security are beneficial owners of that security. Unless otherwise indicated, to our knowledge, the OP unit holders listed in the table below have sole voting and investment power with respect to their Common OP Units (and any common shares received in exchange for such Common OP Units).
The following table was prepared assuming that the OP unit holders (i) elect to cause us to exchange their Common OP Units and we issue common shares in satisfaction of such exchange request, (ii) possiblysell or otherwise distribute all of the common shares beneficially owned by such OP unit holders that are registered for resale by us, and (iii) do not own and will not acquire any common shares. Additionally, the following table was prepared assuming that the OP unit holders that have been issued their Common OP Units in connection with the Operating Partnership’s transaction with One Hudson Park Associates Limited Liability Company will be issued the Earn-Out Units on a pro rata basis in accordance with the number of Common OP Units such OP unit holders held before any assignments to other persons, although none of those additional 162,730 Earn-Out Units have yet been issued and some of them may never be issued. Further, because the OP unit holders may from time to time
sell or otherwise distribute all, some or none of the shares covered by this prospectus and beneficially owned by them, no estimate can be made of the aggregate number of such shares that are to be allocated taxable gainoffered hereby or that will be owned by the OP unit holders upon completion of any sale to which this prospectus relates. None of the OP unit holders is an affiliate of the Company or the Operating Partnership.
As described in note (1) below, the percentage ownership reflected for each selling OP unit holder in the eventbelow table is equal to a fraction, the numerator of a
salewhich is equal to the Common OP Units owned by the OP unit holder (including any Earn-Out Units) and the denominator of such contributed properties in excesswhich is equal to the sum of (i) the economic or book income
allocated to usnumber of common shares outstanding as a result of such sale.
22
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
ThisMarch 23, 2015, (ii) the number of Common OP Units as of March 23, 2015 but not covered under this prospectus and (iii) the information incorporated hereinCommon OP Units owned by reference
contain certain statementsthe OP unit holder (including any Earn-Out Units).
| | | | | | |||||||||||||||
| | | | | | |||||||||||||||
| OP Unit Holder Name | Number of Shares and Common OP Units Beneficially Owned Prior to the Offering | Percentage of Shares and Common OP Units Beneficially Owned Prior to the Offering(1) | Number of Shares Offered Hereby(2) | Number of Shares and Common OP Units Beneficially Owned Following the Offering(3) | Percentage of Shares and Common OP Units Beneficially Owned Following the Offering(1)(3) | |||||||||||||||
| I.S. Corporation(4) | 1,052 | * | 1,052 | — | — | |||||||||||||||
| Maple Leaf Properties LLLP(4) | 25,311 | * | 25,311 | — | — | |||||||||||||||
| Daniel Smokler(4) | 3,273 | * | 3,273 | — | — | |||||||||||||||
| Kevin Smokler(4) | 3,273 | * | 3,273 | — | — | |||||||||||||||
| Smokler Family Limited Partnership I(4) | 1,270 | * | 1,270 | — | — | |||||||||||||||
| Smokler Family Limited Partnership II(4) | 4,543 | * | 4,543 | — | — | |||||||||||||||
| Smokler Family Limited Partnership III(4) | 1,270 | * | 1,270 | — | — | |||||||||||||||
| Carol S. Smokler Family Trust u/a/d 08/23/07(4) | 46,307 | * | 46,307 | — | — | |||||||||||||||
| Lenstrohm Family Trust u/a/d 01/21/05(4) | 18,944 | * | 18,944 | — | — | |||||||||||||||
| Robert Abrams(5) | 698,032 | * | 698,032 | — | — | |||||||||||||||
| Richard Hertz(5) | 213,678 | * | 213,678 | — | — | |||||||||||||||
| LMSD Associates, LP(5) | 232,678 | * | 232,678 | — | — | |||||||||||||||
| The 1999 Daniel A. Abramson Family Trust(5) | 20,116 | * | 20,116 | — | — | |||||||||||||||
| Deborah Kirby(5) | 20,116 | * | 20,116 | — | — | |||||||||||||||
| Harvey S. Feuerstein(5) | 40,230 | * | 40,230 | — | — | |||||||||||||||
| Mendelson Family Trust(5) | 40,230 | * | 40,230 | — | — | |||||||||||||||
| Paul R. Herman(5) | 32,969 | * | 32,969 | — | — | |||||||||||||||
| Arnold Spellun(5) | 38,786 | * | 38,786 | — | — | |||||||||||||||
| Lifetime Trust F/B/O Jessica Diamond(5) | 10,057 | * | 10,057 | — | — | |||||||||||||||
| Lifetime Trust F/B/O Nancy Diamond(5) | 10,057 | * | 10,057 | — | — | |||||||||||||||
| Lifetime Trust F/B/O Lloyd Sherman(5) | 10,057 | * | 10,057 | — | — | |||||||||||||||
| Lifetime Trust F/B/O Louis Sherman(5) | 10,057 | * | 10,057 | — | — | |||||||||||||||
| Santa Fe Community Foundation(6) | 2,000 | * | 2,000 | — | — | |||||||||||||||
| Mayo Clinic(6) | 17,000 | * | 17,000 | — | — | |||||||||||||||
| Slam It, LLC(7) | 1,380,000 | 1.9 | % | 1,380,000 | — | — | ||||||||||||||
| Elliot Meisel(7) | 35,336 | * | 35,336 | — | — | |||||||||||||||
| Gelman 840 LLC(8) | 161,575 | * | 161,575 | — | — | |||||||||||||||
| TOTAL: | 3,078,217 | 4.2 | % | 3,078,217 | — | — | ||||||||||||||
| * | Represents less than 1% of our outstanding common shares. |
| (1) | For purposes of computing the percentage of outstanding common shares and Common OP Units held by each beneficial owner named above, the common shares and Common OP Units (including, any Earn-Out Units) owned by such person is included in the total number of outstanding common shares but is not included in the total number of outstanding common shares for the purpose of computing the percentage ownership of any other beneficial owner (with the exception of determining the total percentage owned by all of the OP unit holders named above). |
| (2) | These common shares represent the common shares that the OP unit holders may acquire upon presentation of Common OP Units for exchange. Such exchange may occur at any time. |
| (3) | Assumes that all common shares offered by this prospectus will be sold by the OP unit holders. |
| (4) | The OP unit holder received the Common OP Units noted above in connection with the Operating Partnership’s transaction with I.S. Country Club Estates Limited Partnership. |
| (5) | The OP unit holder received the Common OP Units noted above in connection with the Operating Partnership’s transaction with One Hudson Park Associates Limited Liability Company. |
| (6) | The OP unit holder received the Common OP Units noted above by an assignment from Richard Hertz, whose total Common OP Units have been reduced accordingly. |
| (7) | The OP unit holder received the Common OP Units noted above in connection with the Operating Partnership’s transaction with Slam It, LLC. |
| (8) | The OP unit holder received the Common OP Units noted above in connection with the Operating Partnership’s transaction with Gelman 840 LLC. |
PLAN OF DISTRIBUTION
The common shares covered by this prospectus may be offered and other written material and oral statements madesold from time to time in one or more transactions by us do not relate strictly to historical or current facts.
As such, they are considered "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These forward-looking
statements are not historical facts, but rather are based on our current
expectations, estimates and projections about our industry, beliefs and
assumptions. Words suchOP unit holders. The term “OP unit holder” as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates" and similar expressions are intended to
identify forward-looking statements. These statements are not guarantees of
future performance and are subject to risks, uncertainties and other factors,
some of which are beyond our control, are difficult to predict and could cause
actual results to differ materially from those expressed or forecasted in the
forward-looking statements. These risks and uncertainties are described in "Risk
Factors" and elsewhereit is used in this prospectus. We caution you not to place undue
reliance on these forward-looking statements, which reflect our view onlyprospectus includes pledgees, donees, transferees or other successors-in-interest selling common shares received from the OP unit holders as ofpledgor, donor, borrower or in connection with other non-sale-related transfers after the respective date of this prospectus. This prospectus may also be used by transferees of such persons, including broker-dealers or other transferees who borrow or purchase the shares to settle or close out short sales of common shares. To the extent required, this prospectus may be amended and supplemented from time to time to describe a specific plan of distribution.
The OP unit holders will act independently of us in making decisions with respect to the timing, manner and size of each sale or non-sale related transfer. The common shares may be sold by one or more of the following methods of sale, at the market price for our common shares prevailing at the time of sale, a price related to the prevailing market price, a negotiated price or such other price as the OP unit holders determine from time to time:
The OP unit holders may enter into hedging transactions with broker-dealers in connection with distributions of the common shares or otherwise. In such transactions, broker-dealers or other financial institutions may engage in short sales of the shares in the course of hedging the positions they assume with the OP unit holders. The OP unit holders may also sell shares short and redeliver the shares to close out such short positions. The OP unit holders may also enter into option or other transactions with broker-dealers which require the delivery to the broker-dealer of the shares. The broker-dealer may then resell or otherwise transfer such shares pursuant to this prospectus. The OP unit holders may also pledge or loan the shares to a broker-dealer. The broker-dealer may sell the shares so loaned, or upon a default the broker-dealer may sell the pledged shares pursuant to this prospectus. In addition, any shares that qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this prospectus.
Expenses and Indemnification
We will not receive any proceeds from the sale of the common shares by the OP unit holders, but we have agreed to pay all registration expenses incurred in connection with the registration of the shares, including all registration and filing fees, exchange listing fees, printing expenses, fees and expenses of our legal counsel and the reasonable fees and expenses of one counsel selected by the selling shareholders (up to a maximum of $25,000), fees and expenses of our accountants, state Blue Sky fees and expenses, and the expense of any special audits incident to or required by any such registration. We have also agreed to indemnify the selling shareholders, each of its directors and officers and each other person, if any, who controls such selling shareholders against certain losses, claims, damages and liabilities arising under the securities laws. The selling shareholders have agreed to indemnify us, our officers, directors and each other person who controls us, against certain losses, claims, damages and liabilities arising from information provided by the selling shareholders for use in this prospectus or other dates which are specified
herein.
LEGAL MATTERS
The validity ofany accompanying prospectus supplement, including liabilities under the securities has beenlaws.
We have no obligation to pay any underwriting discounts or selling commissions attributable to the sale by the OP unit holders of our common shares.
LEGAL MATTERS
Legal matters, excluding tax matters, relating to this prospectus, will be passed upon for us by Berliner,
Corcoran & Rowe L.L.P., Washington, DC.
EXPERTS
Ernst & Young,Goodwin Procter llp, New York, New York. The legal matters described under “Material United States Federal Income Tax Considerations” beginning on page 9 of this prospectus will be passed upon for us by Seyfarth Shaw LLP, New York, New York. Certain matters of Maryland law, including the legality of the securities covered by this prospectus, will be passed upon for us by Venable LLP, Baltimore, Maryland.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The consolidated financial statements and schedules as of December 31, 2014 and 2013 and for each of the years in the three-year period ended December 31, 2014 and the effectiveness of internal control over financial reporting as of December 31, 2014 incorporated by reference in this prospectus have been so incorporated in reliance on the reports of BDO USA, LLP, an independent registered public accounting firm, has
audited our consolidated financialincorporated herein by reference, given on the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements includedand other information with the SEC. Our filings with the SEC are available to the public on the Internet at the SEC’s website at http://www.sec.gov. You may also read and copy any document that we file with the SEC at its Public Reference Room, 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room and its copy charges.
The information incorporated by reference herein is an important part of this prospectus. Any statement contained in a document which is incorporated by reference in this prospectus is automatically updated and superseded if information contained in a subsequent filing or in this prospectus, or information that we later file with the SEC prior to the termination of this offering, modifies or replaces this information. The following documents filed with the SEC are incorporated by reference into this prospectus, except for any document or portion thereof “furnished” to the SEC:
To receive a free copy of these filings (not includingany of the documents incorporated by reference in this prospectus (other than exhibits, to such
documents unless the exhibitsthey are specifically incorporated by reference in the information contained in this prospectus)documents), at no cost, by writing or telephoningwrite us at the following address:
Acadia Realty Trust
address or call us at the telephone number listed below:
ACADIA REALTY TRUST
1311 Mamaroneck Avenue
Suite 260
White Plains, New York 10605
Attn:
Attention: Robert Masters
Telephone requests may be directed to
(914) 288-8100.
This prospectus is part of a registration statement we filed with the
Commission. You should rely only on the information or representations provided
in this prospectus. 288-8100
We have authorized no one to provide you with different
information.maintain an Internet website at http://www.acadiarealty.com. We are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the informationincorporating by reference in this prospectus any material from our website. The reference to our website is accurate as of any date other than the date on the front of the
document.
Statements contained in this prospectus asan inactive textual reference to the contentsuniform resource locator (URL) and is for your reference only. Information on our website is not and will not be deemed to be a part of any
contract or document are not necessarily complete and in each instance reference
is made to the copy of that contract or document filed as an exhibit to the
registration statement or as an exhibit to another filing, each such statement
being qualified in all respects by such reference and the exhibits and schedules
thereto.
24
250,000 COMMON SHARESthis prospectus.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimatedOther Expenses of Issuance and Distribution.
Set forth below are the expenses, other than underwriting discounts and commissions, to be incurred by the registrant in connection with the offeringissuance and distribution of the securities being registered. All amounts set forth below are as follows:
Securitiesestimated.
| | |||
| SEC Registration Fee | $ | 6,361 | ||
| New York Stock Exchange Fees | 0 | |||
| Transfer Agent Fees | 0 | |||
| Legal Fees and Expenses | 30,000 | |||
| Printing Expenses | 5,000 | |||
| Accounting Fees and Expenses | 3,000 | |||
| Miscellaneous | 2,000 | |||
| Total | $ | 46,361 | ||
Item 15.Indemnification of Directors and Exchange Commission registration fee..... $ 557.89
Accounting fees and expenses............................ 5,000.00
Legal fees and expenses................................. 5,000.00
Miscellaneous........................................... 5,000.00
------------
TOTAL $ 15,557.89
============
Item 15. INDEMNIFICATION OF TRUSTEES AND OFFICERS
The Company's bylaws andOfficers.
Our declaration of trust authorizeauthorizes and our bylaws obligate us, to the Company, to
themaximum extent permitted under Maryland law, to indemnify itsour trustees and officers in their capacity as such. Section 8-301(15) of the Corporations and Associations Article of the Annotated Code of Maryland General Corporation
Law ("MGCL") permits a Maryland REIT to indemnify or advance expenses to trustees and officers to the same extent as is permitted for directors and officers of a Maryland corporation under the MGCL. The MGCL requires a Maryland corporation (unless its charter provides otherwise, which the Company'sour declaration of trust does not) to indemnify a director or officer who has been successful, on the merits or otherwise, for reasonable expenses incurred in the defense of any proceeding to which he is made, or threatened to be made, a party by reason of his or her service in that capacity. The MGCL permits a Maryland 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 threatened to be made, a party by reason of their service in those or other capacities unless it is established that (a) the act or omission of the director or officer was material to the matter giving rise to the proceeding and (i) was committed in bad faith or (ii) was the result of active and deliberate dishonesty, (b) the director or officer actually received an improper personal benefit in money, property or services or (c) in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. However, 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 the
officer or director shall have been adjudged to be liable to the Company or that a 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 corporation'scorporation’s receipt of a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by the corporation and a written undertaking by such director or officer or on his or her behalf to repay the amount paid or reimbursed by the corporation if it shallis ultimately be determined that the standard of conduct was not met.
The Company's
Our declaration of trust authorizes us, and our bylaws require us, to the maximum extent permitted by Maryland law, to indemnify (i) any present or former trustee or officer or (ii) any individual who, while serving as our trustee and at our request, serves or has served another corporation, real estate investment trust, partnership, limited liability company, joint venture, trust, employee benefit plan or any other enterprise as a director, officer, partner, member, manager, or trustee, 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 or capacities, and to pay or reimburse his or her reasonable expenses in advance of final disposition of such a proceeding.
Our bylaws also permit the Company,us, subject to the approval of itsour board of trustees, to indemnify and advance expenses to any person who served as a predecessor of the Companyours in any of the capacities described above and to any employee or agent of theour Company or a predecessor of theour Company.
II-1
In addition to the above, the Company haswe have purchased and maintainsmaintain insurance on behalf of all of itsour trustees and executive officers against liability asserted against or incurred by them in their official capacities with the Company,us, whether or not the Company iswe are required or hashave the power to indemnify them against the same liability.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to trustees, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Item 16. EXHIBITS
Exhibits.
| | |
| Exhibit No. | Exhibit | |
| 4.1 | Form of Common Share Certificate (incorporated by reference to the Company’s Registration | |
| 5.1 | Opinion of | |
| 8.1 | Opinion of | |
| 23.1 | Consent of | |
| 23.2 | Consent of | |
| 23.3 | Consent of | |
| 24.1 | Power of Attorney (included on signature |
| † | Filed herewith |
| * | Incorporated by reference |
Item 17. UNDERTAKINGS
The Company hereby undertakes:Undertakings.
A. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement;
statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
Act;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high andend of the estimated maximum offering range may be reflected in the form of a
prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20%20 percent change in the maximum aggregate offering price set forth in the "Calculation“Calculation of Registration Fee"Fee” table in the effective registration statement; and
statement.
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; Provided,provided, however, that paragraphs (1)(i), (ii) and (1)(ii)(iii) above do not apply if
the registration statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the CommissionSEC by the registrant pursuant to Sectionsection 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.
II-2
(2) That, for the purpose of determining any liability under the Securities Act, of 1933, each such post-effective amendment shallwill be deemed to be a new registration statement relating to the securities offeringoffered therein, and the offering of such securities at that time shallwill be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
The
II-2
(4) That, for the purpose of determining liability under the Securities Act to any purchaser:
(i) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) will be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
(ii) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 will be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date will be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time will be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.
(5) That, for the purpose of determining liability of the registrant under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned registrant hereby undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(6) That, for purposes of determining any liability under the Securities Act, of 1933, each filing of the registrant'sregistrant’s annual report, pursuant to Sectionsection 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan'splan’s annual report pursuant to Sectionsection 15(d) of the Securities Exchange Act of
1934)Act) that is incorporated by reference in the registration statement shallwill be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shallwill be deemed to be the initial bona fide offering thereof.
(7) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers andor persons controlling persons of the registrant pursuant to the foregoing provisions, referred to in Item 15 of this
Registration Statement, or otherwise, the registrant has been advisedinformed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question as to
II-3
whether such indemnification by it is against public policy as expressed in the act,Securities Act and will be governed by the final adjudication of such issue.
II-3
(8) That:
(i) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act will be deemed to be part of this registration statement as of the time it was declared effective; and
(ii) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus will be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time will be deemed to be the initial bona fide offering thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act, of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of White Plains, State of New York, on this 19th day of
July, 2005.
April 3, 2015.
ACADIA REALTY TRUST
A Maryland real estate investment trust
(Registrant)
By: /s/
| By: | /s/ Kenneth F. Bernstein Kenneth F. Bernstein President and Chief Executive Officer |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned whose signatures appear below hereby constitute and appoint Kenneth F. Bernstein ----------------------------
Kenneth F. Bernstein
President and Chief Executive Officer
Each person whose signature appears below hereby constitutes and appoints
Kenneth F. Bernstein, hisJon Grisham their true and lawful attorney-in-factattorneys-in-fact and agent, with full power of substitution and resubstitution, for himthem and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement (or any registration statement, forand to file the same, offering that is to be effective upon filing pursuant to Rule 462(b)
under the Securities Act of 1933) and to cause the same to be filed, with all exhibits thereto, and other documents in connection therewith, with the SecuritiesSEC, granting unto said attorneys-in-fact and Exchange Commission, hereby granting to said attorney-in-factagents, and agenteach of them, full power and authority to do and perform each and every act and thing whatsoever requisite or desirableand necessary to be done in and about the premises,connection therewith, as fully to all intents and purposes as the undersignedhe or she might or could do in person, hereby ratifying and confirming all acts and things that said attorney-in-factattorneys-in-fact and agent,agents, or itsany of them, or their or his or her substitutes or substitute, may lawfully do or cause to be done by virtue hereof. This Power of Attorney may be signed in several counterparts.
Pursuant to the requirements of the Securities Act, of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
date indicated:
| | | ||
| Signature | Title | Date | ||
| /s/ Kenneth F. Bernstein Kenneth F. Bernstein | Chief Executive Officer, President and (Principal Executive Officer) | April 3, 2015 | ||
| /s/ Jonathan W. Grisham Jonathan W. Grisham | Senior Vice President and Chief Financial (Principal Financial Officer) | April 3, 2015 | ||
| /s/ Richard Hartmann Richard Hartmann | Senior Vice President and Chief Accounting Officer (Principal | April 3, 2015 | ||
| /s/ Douglas Crocker II Douglas Crocker II | Trustee | April 3, 2015 | ||
| /s/ Lorrence T. Kellar Lorrence T. Kellar | Trustee | April 3, 2015 | ||
| /s/ Wendy Luscombe Wendy Luscombe | Trustee | April 3, 2015 | ||
| /s/ William T. Spitz William T. Spitz | Trustee | April 3, 2015 | ||
| /s/ Lee S. Wielansky Lee S. Wielansky | Trustee | April 3, 2015 |
II-5
EXHIBIT INDEX TO EXHIBITS
ACADIA REALTY TRUST
-------------------
| | |
| Exhibit No. | Exhibit | |
| 4.1 | Form of Common Share Certificate (incorporated by reference to the Company’s Registration | |
| 5.1 | Opinion of | |
| 8.1 | Opinion of | |
| 23.1 | Consent of | |
| 23.2 | Consent of | |
| 23.3 | Consent of | |
| 24.1 | Power of Attorney (included on signature |
| † | Filed herewith |
| * | Incorporated by reference |
II-6