FORM 8-A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
For Registration of Certain Classes of Securities
Pursuant to Section 12(b) or (g) of
The Securities Exchange Act of 1934
Public Storage, Inc.
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(Exact name of registrant as specified in its charter)
California 95-3551121
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(State of incorporation (IRS Employer
or organization) Identification No.)
701 Western Avenue, Glendale, California 91201-2397
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(Address of principal executive offices) (Zip Code)
If this Form relates to the registration of a class of debt securities and is
effective upon filing pursuant to General Instruction A.(c)(1), please check the
following box. [__]
If this Form relates to the registration of a class of debt securities and is to
become effective simultaneously with the effectiveness of a concurrent
registration statement under the Securities Act of 1933 pursuant to General
Instruction A.(c)(2), please check the following box. [__]
If this Form relates to the registration of a class of securities pursuant to
Section 12(b) of the Exchange Act and is effective pursuant to General
Instruction A.(c), please check the following box. [X]
If this Form relates to the registration of a class of securities pursuant to
Section 12(g) of the Exchange Act and is effective pursuant to General
Instruction A.(d), please check the following box. [__]
Securities Act registration statement file number to which this Form relates:
_______________ (if applicable).
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
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Depositary Shares Each New York Stock Exchange, Inc.
Representing 1/1,000 of a
Share of Equity Stock,
Series A, par value $.01
per share
Securities to be registered pursuant to Section 12(g) of the Act:
N/A
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(Title of class)
ITEM 1. Description of Registrant's Securities to be Registered.
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General and Initial Issuance of Equity Stock, Series A
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Under our articles of incorporation, our board of directors is
authorized without further shareholder action to provide for the issuance of up
to 200,000,000 shares of equity stock, in one or more series, with such rights
as are set forth in resolutions providing for the issue of equity stock adopted
by our board of directors. At November 15, 1999, we had outstanding 4,514,544
shares of equity stock.
Prior to issuance, our board of directors will adopt resolutions
creating the Equity Stock, Series A (the "Equity Stock"). When issued, the
Equity Stock will be fully paid and nonassessable, will not be subject to any
sinking fund or other obligation of Public Storage, Inc. (the "Company") to
repurchase or retire the Equity Stock, and will have no preemptive rights.
BankBoston, N.A. will be the transfer agent and dividend disbursing
agent for the Equity Stock.
Each depositary share represents 1/1,000 of a share of Equity Stock. The
shares of the Equity Stock will be deposited with BankBoston, N.A., as
depositary, under a deposit agreement among the Company, the depositary and the
holders from time to time of the depositary receipts issued by the depositary
under the deposit agreement. The depositary receipts will evidence the
depositary shares. Subject to the terms of the deposit agreement, each holder of
a depositary receipt evidencing a depositary share will be entitled,
proportionately, to all the rights and preferences of, and subject to all of the
limitations of, the interest in the Equity Stock represented by the depositary
share (including dividend, voting, redemption and liquidation rights).
The initial issuance of the depositary shares representing the Equity
Stock will be to holders of our Common Stock, $.10 par value (the "Common
Stock") in connection with a special distribution. The holders will have the
option of receiving cash instead of the depositary shares. The fair market value
of the depositary shares on the date of declaration of the special distribution
(November 4, 1999) was determined by our board of directors, based on advice
from a financial advisor, to be $20 per share (equivalent to $20,000 per share
of Equity Stock). The value of the depositary share distributions reflects a
close to 5% premium over the amount of the corresponding cash elections. That
bargain spread is intended to pass on to participating shareholders the
estimated underwriting and other costs that we would otherwise expect to have
incurred if we had issued those shares directly to the public.
On the date of the payment of the special distribution (January 14,
2000), our board of directors, based on advice from the financial advisor, will
update its determination of the value of the depositary shares. In the absence
of significant changes in general market conditions or other circumstances,
neither of which is anticipated, the determined value is expected to continue to
be $20 per depositary share (equivalent to $20,000 per share of Equity Stock).
In that case, the distribution will be .0325 depositary shares per share of
Common Stock (representing $.65 worth of depositary shares). In the unexpected
event that our board of directors determines that the value of the depositary
shares has changed as of the date of payment, the number of depositary shares,
as well as the number of shares of Equity Stock, to be issued will be adjusted
as necessary to maintain a value of $.65 worth of depositary shares to be
distributed per share of Common Stock. It is not expected that any adjustments
to the number of depositary shares to be distributed or the number of shares of
Equity Stock to be issued will be required.
Immediately following our issuance of the Equity Stock, we will deposit
the Equity Stock with the depositary, which will then issue and deliver the
depositary receipts to us. We will, in turn, deliver the depositary receipts to
those shareholders who do not elect cash in connection with the special
distribution. Depositary receipts will be issued evidencing only whole
depositary shares.
We have applied to list the depositary shares on the New York Stock
Exchange. The Equity Stock will not be listed and we do not expect that there
will be any trading market for the Equity Stock except as represented by the
depositary shares.
Equity Stock
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The following is a brief description of the terms of the Equity Stock
which does not purport to be complete and is subject to and qualified in its
entirety by reference to the certificate of determination of the Equity Stock,
the form of which is filed as an exhibit to this registration statement.
Ranking
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With respect to the payment of dividends and amounts upon liquidation,
the Equity Stock will rank junior to our outstanding preferred stock and any
other shares of preferred stock issued by us, and will rank on a parity with our
outstanding common stock and any other equity stock issued by us that ranks on a
parity with our Common Stock.
Dividends
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Each holder of shares of Equity Stock will receive, when and as declared
by our board of directors from our assets legally available for payment, cash
dividends payable when and if paid on our Common Stock at the rate of five
thousand times the per share dividends on our Common Stock (equivalent to five
times in the case of a depositary share), but not more than $2,450 per year per
share of Equity Stock (equivalent to $2.45 per year per depositary share),
subject to adjustment in certain circumstances. Dividends on the shares of
Equity Stock will be non-cumulative and will be payable to holders of record as
they appear on our stock register on the respective record dates, not less than
15 or more than 45 days preceding the respective payment dates, as may be fixed
by our board of directors. We intend to pay dividends quarterly beginning on
March 31, 2000 (with the payment on that date being based pro rata on the number
of days from the original issuance of the Equity Stock). After full dividends on
the Equity Stock have been paid or declared and funds set aside for payment for
the then current year, the holders of shares of Equity Stock will not receive
any further dividends with respect to that year.
Unless dividends on all our outstanding preferred stock and any other
shares of preferred stock issued by us have been or contemporaneously are paid
in full for the latest dividend period ending contemporaneously with or prior to
the end of the period for which a dividend is to be paid on the shares of Equity
Stock and for all prior dividend periods, we will pay no dividend or other
distribution on the shares of Equity Stock for that period.
Unless full dividends on our outstanding preferred stock and any other
shares of preferred stock issued by us have been paid for all past dividend
periods, we and our subsidiaries may not redeem, repurchase or otherwise acquire
for any consideration (nor may we or they pay or make available any moneys for a
sinking fund for the redemption of) any shares of Equity Stock except by
conversion into or exchange for shares of capital stock issued by us ranking
junior to the preferred stock as to dividends and upon liquidation.
Our revolving credit facility with a commercial bank restricts our
ability to pay distributions in excess of "Funds from Operations" for the prior
four fiscal quarters less scheduled principal payments and less capital
expenditures. Funds from operations is defined in the loan agreement generally
as net income before gain on sale of real estate, extraordinary loss on early
retirement of debt and deductions for depreciation, amortization and non-cash
charges. Our management believes that this restriction will not impede our
ability to pay in full the dividends on the Equity Stock.
Conversion Rights
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Except as indicated below, the Equity Stock will not be convertible into
shares of any other class or series of our capital stock.
If we fail to qualify as a REIT for federal income tax purposes, the
Equity Stock is convertible at any time thereafter at the option of the holder
into shares of our Common Stock at a conversion rate of 956 shares of our Common
Stock for each share of Equity Stock (equivalent to .956 shares of our Common
Stock for each depositary share), subject to adjustment in certain
circumstances.
Liquidation Rights
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If we voluntarily or involuntarily liquidate, dissolve or wind up our
affairs, holders of Equity Stock will not be entitled to receive any payment in
respect of their shares until we pay the full respective liquidation preference
in respect of our outstanding preferred stock and any other shares of preferred
stock issued by us.
After we pay the full respective liquidation preferences in respect of
all preferred stock, holders of the Equity Stock will participate with holders
of our Common Stock and holders of our similarly ranked equity stock in our
remaining assets on the basis that a share of Equity Stock receives 1,000 times
the amount allocated in respect of a share of Common Stock (equivalent to one
time in the case of a depositary share), but not to exceed $24,500 per share of
Equity Stock (equivalent to $24.50 per depositary share), subject to adjustment
in certain circumstances.
For purposes of liquidation rights, our consolidation or merger with or
into any other corporation or corporations or a sale of all or substantially all
of our assets is not our liquidation, dissolution or winding up.
Redemption
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Except in certain circumstances relating to our qualification as a REIT,
we may not redeem the shares of Equity Stock prior to March 31, 2005. On and
after March 31, 2005, at any time or from time to time, we may redeem the shares
of Equity Stock in whole or in part at our option at a cash redemption price of
$24,500 per share of Equity Stock (equivalent to $24.50 per depositary share).
The redemption price of the Equity Stock may be paid solely from the sale
proceeds of other common stock or from retained cash and not from any other
source. For purposes of the preceding sentence, "common stock" means our Common
Stock, par value $.10, equity stock or other rights or options to purchase any
of the foregoing (other than debt securities or preferred stock convertible or
exchangeable for common stock).
If we redeem shares of Equity Stock between a dividend record date and a
dividend payment date, the cash redemption price will be $24,500 per share of
Equity Stock (equivalent to $24.50 per depositary share) per share plus the
amount of the declared and unpaid dividend.
If fewer than all the outstanding shares of Equity Stock are to be
redeemed, the number of shares to be redeemed will be determined by our board of
directors, and the shares will be redeemed pro rata from the holders of record
of the shares in proportion to the number of shares held by holders (with
adjustments to avoid redemption of fractional shares) or by lot in a manner
determined by our board of directors.
Notice of redemption of the Equity Stock will be given by publication in
a newspaper of general circulation in the County of Los Angeles and the City of
New York, such publication to be made once a week for two successive weeks
commencing not less than 30 nor more than 60 days prior to the redemption date.
A similar notice will be mailed by us, postage prepaid, not less than 30 or more
than 60 days prior to the redemption date, addressed to the respective holders
of record of shares of Equity Stock to be redeemed at their respective addresses
as they appear on our stock transfer records. Each notice will state: (1) the
redemption date; (2) the number of shares of Equity Stock to be redeemed; (3)
the redemption price per share of Equity Stock; (4) the place or places where
certificates for the Equity Stock are to be surrendered for payment of the
redemption price; and (5) that dividends on the shares of Equity Stock to be
redeemed will cease to accrue on such redemption date. If fewer than all the
shares of Equity Stock held by any holder are to be redeemed, the notice mailed
to the holder will also specify the number of shares of Equity Stock to be
redeemed from the holder. In order to facilitate the redemption of shares of
Equity Stock, our board of directors may fix a record date for the determination
of shares of Equity Stock to be redeemed of not less than 30 nor more than 60
days prior to the date fixed for redemption.
Notice having been given as provided above, from and after the date
specified for redemption, unless we default in providing funds for the payment
of the redemption price on that date, all dividends on the Equity Stock called
for redemption will cease. From and after the redemption date, unless we
default, all rights of the holders of the Equity Stock as our stockholders,
except the right to receive the redemption price (but without interest), will
cease. Upon surrender in accordance with such notice of the certificates
representing these shares (properly endorsed or assigned for transfer, if our
board of directors so requires and the notice so states), the redemption price
set forth above will be paid out of our funds. If fewer than all the shares
represented by any certificate are redeemed, a new certificate will be issued
representing the unredeemed shares without cost to the holder.
Subject to applicable law, we may, at any time and from time to time,
purchase any depositary shares representing shares of Equity Stock in the open
market, by tender or by private agreement.
Adjustments
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If we divide or combine the Common Stock into a greater or smaller
number of shares or pay a dividend in shares of Common Stock, the outstanding
shares of Equity Stock will (1) be divided or combined in the same proportion as
the Common Stock or (2) receive the same proportionate dividend in shares of
Equity Stock. In that case, however, the per share amounts specified for
computing dividends per quarter or per year, the maximum liquidation
distribution and the redemption price will be adjusted so that the respective
total for all outstanding shares of the Equity Stock is the same after as it was
before the event causing the adjustments.
Voting Rights
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Holders of Equity Stock are entitled to vote on all matters presented to
holders of the Common Stock for a vote and vote together as one class with
holders of the Common Stock and other series of equity stock that share voting
rights with the Equity Stock. Each outstanding share of Equity Stock entitles
the holder to 100 votes (equivalent to one-tenth (1/10) of a vote per depositary
share), except that under California law he or she, together with holders of the
Common Stock and other series of equity stock that share voting rights with the
Equity Stock, has cumulative voting rights in electing our board of directors.
Cumulative voting means that each holder of Equity Stock is entitled to cast as
many votes as there are directors to be elected multiplied by 100 times the
number of shares of Equity Stock registered in its name (equivalent to one-tenth
(1/10) the number of depositary shares registered in his or her name). A holder
of Equity Stock may cumulate the votes for directors by casting all of the votes
for one candidate or by distributing the votes among as many candidates as he or
she chooses.
No consent or approval of the holders of shares of the Equity Stock will
be required for the issuance from our authorized but unissued equity stock of
other shares of any series of equity stock ranking on a parity with the Equity
Stock as to payment of dividends and distribution of assets, including other
shares of Equity Stock.
Ownership Limitations
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To qualify as a REIT under the Internal Revenue Code of 1986, as amended
(the "Code"), no more than 50% in value of our outstanding shares of capital
stock may be owned, directly or constructively under the applicable attribution
rules of the Code, by five or fewer individuals (as defined in the Code to
include certain entities) during the last half of a taxable year. In order to
maintain our qualification as a REIT, our articles of incorporation restrict the
number of shares of capital stock that any shareholder may own.
In a series of transactions among Public Storage Management, Inc. and
its affiliates (collectively, "Public Storage Management"), culminating in the
November 16, 1995 merger of Public Storage Management into Storage Equities,
Inc., Storage Equities became self-administered and self-managed, acquired
substantially all of Public Storage Management's United States real estate
interests and was renamed "Public Storage, Inc."
Our articles of incorporation and bylaws provide that, subject to
certain exceptions, no holder may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than (A) 2.0% of the outstanding shares
of our common stock and (B) 9.9% of the outstanding shares of each class or
series of shares of our preferred stock or equity stock and that all shares of
stock be imprinted with a legend setting forth that restriction. Our articles of
incorporation provide, however, that no person will be deemed to exceed the
ownership limit solely by reason of the beneficial ownership of shares of any
class of stock to the extent that those shares of stock were beneficially owned
by the person (including B. Wayne Hughes, our chief executive officer, and
members of his family) after the merger with Public Storage Management. Thus,
this limitation does not affect the ownership of common stock held by the Hughes
family at the time of the merger. The ownership limitation is intended to
preserve our REIT status in view of the Hughes family's substantial ownership
interest in us. We cannot provide any assurance, however, that this ownership
limit will enable us to satisfy the requirement that a REIT not be "closely
held" within the meaning of Section 856(h) of the Code for any given taxable
year.
Our articles of incorporation and bylaws provide that our board of
directors, in its sole and absolute discretion, may grant exceptions to the
ownership limits, so long as (A) our board has determined that we would not be
"closely held" within the meaning of Section 856(h) of the Code (without regard
to whether the event in question takes place during the second half of a taxable
year) and would not otherwise fail to qualify as a REIT, after giving effect to
an acquisition by an excepted person of beneficial ownership of the maximum
amount of capital stock permitted as a result of the exception to be granted,
and taking into account the existing and permitted ownership by other persons of
stock (taking into account any other exceptions granted) and (B) the excepted
persons provide to our board representations and undertakings as our board may
require. In any case, no holder may own or acquire, either directly, indirectly
or constructively under the applicable attribution rules of the Code, any shares
of any class of capital stock if the ownership or acquisition (1) would cause
more than 50% in value of our outstanding capital stock to be owned, either
directly or constructively, under the applicable attribution rules of the Code,
by five or fewer individuals (as defined in the Code to include certain
tax-exempt entities, other than, in general, qualified domestic pension funds),
(2) would result in our stock being beneficially owned by less than 100 persons
(determined without reference to any rules of attribution), or (3) would
otherwise result in our failing to qualify as a REIT.
Our articles of incorporation and bylaws generally provide that if any
holder of capital stock purports to transfer shares to a person or there is a
change in our capital structure, and either the transfer or the change in
capital structure would result in our failing to qualify as a REIT, or the
transfer or the change in capital structure would cause the transferee to hold
shares in excess of the applicable ownership limit, then the shares causing the
violation will be automatically transferred to a trust for the benefit of a
designated charitable beneficiary. The purported transferee of those shares will
have no right to receive dividends or other distributions with respect to them
and will have no right to vote the shares. Any dividends or other distributions
paid to the purported transferee prior to our discovery that the shares have
been transferred to a trust will be paid to the trustee of the trust for the
benefit of the charitable beneficiary upon demand. The trustee will designate a
transferee of those shares so long as the shares would not violate the
restrictions on ownership or transfer in our articles of incorporation in the
hands of the designated transferee. Upon the sale of the shares, the purported
transferee will receive out of any proceeds remaining after payment of expenses
of the charitable trust and us the lesser of (A)(1) the price per share the
purported transferee paid for the stock in the purported transfer that resulted
in the transfer of the shares to the trust, or (2) if the transfer or other
event that resulted in the transfer of the shares to the trust was not a
transaction in which the purported transferee gave full value for the shares, a
price per share equal to the market price on the date of the purported transfer
or other event that resulted in the transfer of the shares to the trust and (B)
the price per share received by the trustee from the sale or other disposition
of the shares held in the trust. Each purported transferee will be deemed to
have waived any claims the purported transferee may have against the trustee and
us arising from the disposition of the shares, except for claims arising from
the trustee's or our gross negligence, willful misconduct, or failure to make
payments when required by our articles of incorporation.
In addition, our bylaws provide our board of directors with the power to
prevent the transfer of shares of capital stock or to redeem shares of capital
stock if the board of directors determines in good faith that the action is
necessary to preserve our status as a REIT.
Depositary Shares
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The following is a brief description of the terms of the depositary
shares which does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the provisions of the deposit agreement (including
the form of depositary receipt), which is filed as an exhibit to this
registration statement.
Dividends
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The depositary will distribute all cash dividends or other cash
distributions received in respect of the Equity Stock to the record holders of
depositary receipts in proportion to the number of depositary shares owned by
such holders on the relevant record date, which will be the same date as the
record date fixed by us for the Equity Stock. In the event that the calculation
of such amount to be paid results in an amount which is a fraction of one cent,
the amount the depositary shall distribute to such record holder shall be
rounded to the next highest whole cent.
In the event of a distribution other than in cash, the depositary will
distribute property received by it to the record holders of depositary receipts
entitled thereto, in proportion, as nearly as may be practicable, to the number
of depositary shares owned by such holders on the relevant record date, unless
the depositary determines (after consultation with us) that it is not feasible
to make such distribution, in which case the depositary may (with our approval)
adopt any other method for such distribution as it deems equitable and
appropriate, including the sale of such property (at such place or places and
upon such terms as it may deem equitable and appropriate) and distribution of
the net proceeds from such sale to such holders.
Conversion Rights
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If we fail to qualify as a REIT for federal income tax purposes, the
depositary shares are convertible at any time thereafter at the option of the
holder into shares of our Common Stock on the same terms and conditions as the
Equity Stock held by the depositary, except that the conversion rate for the
depositary shares will be equal to the conversion rate for the Equity Stock
divided by 1,000 (equivalent to .956 shares of our Common Stock for each
depositary share), subject to adjustment in certain circumstances. Cash will be
paid in lieu of fractional shares of Common Stock.
Liquidation Preference
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In the event of our liquidation, dissolution or winding up of our
affairs, whether voluntary or involuntary, the holders of each depositary share
will be entitled to 1/1,000th of the liquidation preference accorded each share
of the Equity Stock.
Redemption
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Whenever we redeem any Equity Stock held by the depositary, the
depositary will redeem as of the same redemption date the number of depositary
shares representing the Equity Stock so redeemed. The depositary will publish a
notice of redemption of the depositary shares containing the same type of
information and in the same manner as our notice of redemption and will mail the
notice of redemption promptly upon receipt of such notice from us and not less
than 30 nor more than 60 days prior to the date fixed for redemption of the
Equity Stock and the depositary shares to the record holders of the depositary
receipts. In case less than all the outstanding depositary shares are to be
redeemed, the depositary shares to be so redeemed will be determined pro rata or
by lot in a manner determined by the board of directors.
Voting
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Promptly upon receipt of notice of any meeting at which the holders of
the Equity Stock are entitled to vote, the depositary will mail the information
contained in such notice of meeting to the record holders of the depositary
receipts as of the record date for the meeting. Each record holder of depositary
receipts will be entitled to instruct the depositary as to the exercise of the
voting rights pertaining to the number of shares of Equity Stock represented by
the record holder's depositary shares. The depositary will endeavor, insofar as
practicable, to vote the Equity Stock represented by such depositary shares in
accordance with the instructions, and we will agree to take all action which may
be deemed necessary by the depositary in order to enable the depositary to do
so. The depositary will abstain from voting any of the Equity Stock to the
extent that it does not receive specific instructions from the holders of
depositary receipts.
Withdrawal of Equity Stock
--------------------------
Upon surrender of depositary receipts at the principal office of the
depositary, upon payment of any unpaid amount due the depositary, and subject to
the terms of the deposit agreement, the owner of the depositary shares evidenced
thereby is entitled to delivery of the number of whole shares of Equity Stock
and all money and other property, if any, represented by such depositary shares.
Partial shares of Equity Stock will not be issued. If the depositary receipts
delivered by the holder evidence a number of depositary shares in excess of the
number of depositary shares representing the number of whole shares of Equity
Stock to be withdrawn, the depositary will deliver to such holder at the same
time a new depositary receipt evidencing the excess number of depositary shares.
Holders of Equity Stock thus withdrawn will not be entitled to deposit those
shares under the deposit agreement or to receive depositary receipts evidencing
depositary shares therefor.
Amendment and Termination of Deposit Agreement
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The form of depositary receipt evidencing the depositary shares and any
provision of the deposit agreement may at any time and from time to time be
amended by agreement between us and the depositary. However, any amendment that
materially and adversely alters the rights of the holders (other than any change
in fees) of depositary shares will not be effective unless such amendment has
been approved by the holders of at least a majority of the depositary shares
then outstanding. No such amendment may impair the right, subject to the terms
of the deposit agreement, of any owner of any depositary shares to surrender the
depositary receipt evidencing the depositary shares with instructions to the
depositary to deliver to the holder the Equity Stock and all money and other
property, if any, represented thereby, except in order to comply with mandatory
provisions of applicable law. The deposit agreement may be terminated by us or
the depositary only if (1) all outstanding depositary shares have been redeemed
or (2) there has been a final distribution in respect of the Equity Stock in
connection with our dissolution and the final distribution has been made to all
the holders of depositary shares.
Charges of Depositary
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We will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. We will pay
charges of the depositary in connection with the initial deposit of the Equity
Stock and the initial issuance of the depositary shares, and redemption of the
Equity Stock and all withdrawals of Equity Stock by owners of depositary shares.
Holders of depositary receipts will pay transfer, income and other taxes and
governmental charges and certain other charges as are provided in the deposit
agreement to be for their accounts. In certain circumstances, the depositary may
refuse to transfer depositary shares, may withhold dividends and distributions
and sell the depositary shares evidenced by such depositary receipt if such
charges are not paid.
Miscellaneous
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The depositary will forward to the holders of depositary receipts all
reports and communications from us which are delivered to the depositary and
which we are required to furnish to the holders of the Equity Stock. In
addition, the depositary will make available for inspection by holders of
depositary receipts at the principal office of the depositary, and at any other
places as it may from time to time deem advisable, any reports and
communications which are received by the depositary as the holder of Equity
Stock.
Neither the depositary nor any depositary's agent (as defined in the
deposit agreement), nor the registrar (as defined in the deposit agreement) nor
the Company assumes any obligation or will be subject to any liability under the
deposit agreement to holders of depositary receipts other than for its gross
negligence, willful misconduct or bad faith. Neither the depositary, any
depositary's agent, the registrar nor the Company will be liable if it is
prevented or delayed by law or any circumstance beyond its control in performing
its obligations under the deposit agreement. The Company and the depositary are
not obligated to prosecute or defend any legal proceeding in respect of any
depositary shares, depositary receipts or Equity Stock unless reasonably
satisfactory indemnity is furnished. The Company and the depositary may rely on
written advice of counsel or accountants, on information provided by holders of
depositary receipts or other persons believed in good faith to be competent to
give such information and on documents believed to be genuine and to have been
signed or presented by the proper party or parties.
Resignation and Removal of Depositary
-------------------------------------
The depositary may resign at any time by delivering to us notice of its
election to do so, and we may at any time remove the depositary, any such
resignation or removal to take effect upon the appointment of a successor
depositary and its acceptance of such appointment. The successor depositary must
be appointed within 60 days after delivery of the notice for resignation or
removal and must be a bank or trust company having its principal office in the
United States of America and having a combined capital and surplus of at least
$150,000,000.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain federal income tax
considerations relating to us and to your acquisition, ownership and disposition
of the depositary shares. The following discussion, which is not exhaustive of
all possible tax considerations, does not give a detailed description of any
state, local, or foreign tax considerations. Nor does it discuss all of the
aspects of federal income taxation that may be relevant to a prospective
shareholder in light of his or her particular circumstances or to certain types
of shareholders (including insurance companies, tax-exempt entities, financial
institutions or broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) who are subject to special treatment
under federal income tax laws. The information in this section is based on the
Code, current, temporary and proposed treasury regulations, the legislative
history of the Code, current administrative interpretations and practices of the
IRS (including its practices and policies as endorsed in private letter rulings,
which are not binding on the IRS except with respect to the taxpayer that
receives such a ruling), and court decisions, all as of the date hereof. No
assurance can be given that future legislation, treasury regulations,
administrative interpretations and court decisions will not significantly change
current law or adversely affect existing interpretations of current law. Any
such change could apply retroactively to transactions preceding the date of the
change. We have not requested and do not plan to request any rulings from the
IRS concerning the special distribution and the tax treatment of the Company.
Thus, no assurance can be provided that the statements below (which do not bind
the IRS or the courts) will not be challenged by the IRS or will be sustained by
a court if so challenged.
EACH SHAREHOLDER IS ADVISED TO CONSULT HIS OR HER TAX ADVISOR, REGARDING
THE TAX CONSEQUENCES TO HIM OR HER OF THE ACQUISITION, OWNERSHIP AND SALE OF THE
SECURITIES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH ACQUISITION, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
Taxation of the Special Distributions and Holders of Depositary Shares
- ----------------------------------------------------------------------
The federal income tax rules applicable to REITs impose a 4% excise tax
if a REIT does not meet certain minimum distribution requirements. After taking
into account regular distributions in 1999 on our common and preferred stock, we
estimate we need an additional distribution to avoid liability for that excise
tax in 1999. The special distribution is intended to meet the applicable
distribution requirement.
The special distribution has been structured so that our shareholders
have an election to obtain cash, in order to ensure that the special
distribution will be treated as a taxable distribution that will be deductible
to us. You will be taxable on the distribution if you are subject to income tax.
The distribution, payable to shareholders of record on November 15, 1999, will
be taxable to you in 1999, even though it will not be paid until January 14,
2000, and it will be taxable whether you elect to receive depositary shares or
cash. Shareholders who receive cash will be taxable on the amount of cash
received, and shareholders who receive depositary shares will be taxable on the
value of the shares received. We will report the value of the distributed
depositary shares to the IRS as $.65 of value of depositary shares distributed
per share of our Common Stock, appropriately adjusted to reflect any cash
received with respect to fractional depositary shares.
Owners of the depositary shares will be treated for federal income tax
purposes as if they were owners of the Equity Stock represented by the
depositary shares. Accordingly, those owners will take into account, for federal
income tax purposes, income and deductions to which they would be entitled if
they were holders of such Equity Stock.
Whenever the Company redeems any Equity Stock held by the depositary,
the depositary will redeem as of the same redemption date the number of
depositary shares representing the Equity Stock so redeemed. The treatment to a
holder of depositary shares accorded to any redemption by the Company (as
distinguished from a sale, exchange or other disposition) of Equity Stock held
by the depositary and corresponding redemption of depositary shares can only be
determined on the basis of particular facts as to the holder of depositary
shares at the time of redemption. In general, a holder of depositary shares will
recognize capital gain or loss measured by the difference between the amount
received upon the redemption and the adjusted tax basis of the holder in the
depositary shares redeemed (provided the depositary shares are held as a capital
asset) if such redemption (1) results in a "complete termination" of a holder's
interest in all classes of stock of the Company under Section 302(b)(3) of the
Code, or (2) is "not essentially equivalent to a dividend" with respect to the
holder under Section 302(b)(1) of the Code. In applying these tests, there must
be taken into account not only any depositary shares owned by the holder, but
also such holder's ownership of Common Stock, other series of preferred stock
and any options (including stock purchase rights) to acquire any of the
foregoing. The holder also must take into account any such securities (including
options) that are considered to be owned by such holder by reason of the
constructive ownership rules set forth in Sections 318 and 302(c) of the Code.
If a particular holder of depositary shares owns (actually or
constructively) no shares of Common Stock of the Company or an insubstantial
percentage of the outstanding shares of Common Stock of the Company, based upon
current law, it is probable that the redemption of depositary shares from such a
holder would be considered "not essentially equivalent to a dividend." However,
whether a distribution is "not essentially equivalent to a dividend" depends on
all of the facts and circumstances, and a holder of depositary shares intending
to rely on any of these tests at the time of redemption should consult its own
tax adviser to determine how the tests apply to its particular situation.
If the redemption does not meet any of the tests under Section 302 of
the Code, then the redemption proceeds received from the depositary shares will
be treated as a distribution on the depositary shares as described under
"Taxation of U.S. Shareholders Holding Depositary Shares," below. If the
redemption is taxed as a dividend, the adjusted tax basis of the holder in the
depositary shares will be transferred to any other stockholdings of the holder
in the Company. If the holder of depositary shares owns no other stockholdings
in the Company, under certain circumstances, such basis may be transferred to a
related person, or it may be lost entirely.
Taxation of the Company
- -----------------------
General. We elected to be taxed as a REIT under Sections 856 through 860
of the Code commencing with our taxable year ended December 31, 1981. We believe
that we have been organized and operated in a manner so as to qualify as a REIT,
and we intend to continue to operate in such a manner. So long as we qualify for
taxation as a REIT, we generally will not be subject to federal corporate income
taxes on net income that we distribute currently to shareholders. However, we
will be subject to federal income tax in the following circumstances. First, we
will be taxed at regular corporate rates on any undistributed REIT taxable
income, including undistributed net capital gains. Second, under certain
circumstances, we may be subject to the "alternative minimum tax" on items of
tax preference. Third, if we have (1) net income from the sale or other
disposition of "foreclosure property" (which is, in general, property acquired
by foreclosure or otherwise on default of a lease or a loan secured by the
property) which is held primarily for sale to customers in the ordinary course
of business or (2) other nonqualifying income from foreclosure property, it will
be subject to tax at the highest corporate rate on such income. Fourth, if we
have net income from prohibited transactions (which are, in general, certain
sales or other dispositions of property (other than foreclosure property) held
primarily for sale to customers in the ordinary course of business), such income
will be subject to a 100% tax. Fifth, if we fail to satisfy the 75% gross income
test or the 95% gross income test (as discussed below), and have nonetheless
maintained our qualification as a REIT because certain other requirements have
been met, we will be subject to a 100% tax on the net income attributable to the
greater of the amount by which we fail the 75% or 95% gross income test. Sixth,
if we fail to distribute during each calendar year at least the sum of (1) 85%
of our REIT ordinary income for such year, (2) 95% of our REIT capital gain net
income for such year, and (3) any undistributed taxable income from prior
periods, we would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. Seventh, if we acquire or
have acquired any asset from a taxable C corporation in a transaction in which
the basis of the asset in the acquiror's hands is determined by reference to the
basis of the asset (or any other asset) in the hands of the C corporation (such
as in the case of our 1995 merger with Public Storage Management) and the
acquiror recognizes gain on the disposition of such asset during the 10 year
period beginning on the date on which such asset was acquired by it, then to the
extent of such asset's "Built-In Gain" (i.e., the excess of (a) the fair market
value of such asset at the time of its acquisition by us over (b) the adjusted
basis in such asset, determined at the time of such acquisition), such gain will
be subject to tax at the highest regular corporate rate applicable, pursuant to
treasury regulations that have yet to be promulgated. The results described
above with respect to the recognition of Built-In Gain assume that the Company
made an election pursuant to Notice 88-19 with respect to any such acquisition.
Public Storage Management was taxable as a regular C corporation. After the
merger with Public Storage Management, the Company elected to be subject to the
Built-In Gain rules of Notice 88-19.
Requirements for Qualification. The Code defines a REIT as a
corporation, trust or association (1) that is managed by one or more trustees or
directors, (2) the beneficial ownership of which is evidenced by transferable
shares of stock, or by transferable certificates of beneficial interest, (3)
that would be taxable as a domestic corporation, but for Sections 856 through
859 of the Code, (4) that is neither a financial institution nor an insurance
company subject to certain provisions of the Code, (5) the beneficial ownership
of which is held by 100 or more persons, (6) that during the last half of each
taxable year not more than 50% in value of the outstanding stock of which is
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities), (7) that makes an election to be taxable as a
REIT, or has made such election for a previous taxable year which has not been
revoked or terminated, and satisfies all relevant filing and other
administrative requirements established by the IRS that must be met in order to
elect and maintain REIT status; (8) that uses a calendar year for federal income
tax purposes and complies with recordkeeping requirements of the Code and
regulations promulgated thereunder; and (9) that meets certain other tests,
described below, regarding the nature of its income and assets and the amount of
its distributions. The Code provides that conditions (1) through (4), inclusive,
must be met during the entire taxable year and that condition (5) must be met
during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months. For purposes of
determining stock ownership under condition (6), a supplemental unemployment
compensation benefits plan, a private foundation or a portion of a trust
permanently set aside or used exclusively for charitable purposes generally is
considered an individual. However, a trust that is a qualified trust under Code
section 401(a) generally is not considered an individual and beneficiaries of
such trust are treated as holding shares of a REIT in proportion to their
actuarial interests in such trust for purposes of condition (6).
In connection with condition (6), a REIT is required to send annual
letters to its shareholders requesting information regarding the actual
ownership of shares. For our taxable years commencing on or after January 1,
1998, if we comply with the annual letters requirement and do not know, or
exercising reasonable diligence would not have known, whether we failed to meet
requirement (6) above, we will be treated as having met the requirement. Our
articles of incorporation contain restrictions regarding the transfer of our
capital stock that are intended to assist us in continuing to satisfy the stock
ownership requirements described in conditions (5) and (6). The ownership
restrictions in our articles of incorporation and bylaws generally prohibit the
actual or constructive ownership of more than 2% of the outstanding shares of
common stock (excluding the interest held by the Hughes family) or more than
9.9% of the outstanding shares of each class or series of shares of preferred
stock or equity stock, unless an exception is established by the board of
directors. The restrictions provide that if, at any time, for any reason, those
ownership limitations are violated or more than 50% in value of our outstanding
stock otherwise would be considered owned by five or fewer individuals, then a
number of shares of stock necessary to cure the violation will automatically and
irrevocably be transferred from the person causing the violation to a designated
charitable beneficiary. See "Description of Common Stock and Class B Common
Stock--Ownership Limitations." At the time of the merger with Public Storage
Management, to further assist us in meeting the ownership restrictions, the
Hughes family entered into an agreement with us for the benefit of the Company
and certain designated charitable beneficiaries providing that if, at any time,
for any reason, more than 50% in value of our outstanding stock otherwise would
be considered owned by five or fewer individuals, then a number of shares of our
common stock owned by Wayne Hughes necessary to cure such violation would
automatically and irrevocably be transferred to a designated charitable
beneficiary.
The REIT protective provisions of our articles and the agreement with
the Hughes family are modeled after certain arrangements that the IRS has ruled
in private letter rulings will preclude a REIT from being considered to violate
the ownership restrictions so long as the arrangements are enforceable as a
matter of state law and the REIT seeks to enforce them as and when necessary.
There can be no assurance, however, that the IRS might not seek to take a
different position with respect to the Company (a private letter ruling is
legally binding only with respect to the taxpayer to whom it was issued and we
will not seek a private ruling on this or any other issue) or contend that we
failed to enforce these various arrangements. Accordingly, there can be no
assurance that these arrangements necessarily will preserve our REIT status. We
believe, however, that we have issued and outstanding sufficient shares with
sufficient diversity of ownership to allow us to satisfy the REIT ownership
requirements.
A REIT is not permitted to have at the end of any taxable year any
undistributed earnings and profits that are attributable to a "C corporation"
taxable year. As a result of the 1995 merger with Public Storage Management and
the 1999 merger with Storage Trust Realty, the Company succeeded to various tax
attributes of those entities and their predecessors, including any undistributed
C corporation earnings and profits. We do not believe that we have acquired any
undistributed "C corporation earnings and profits." However, neither of these
entities nor the Company has sought an opinion of counsel or outside accountants
to the effect that we did not acquire any "C corporation earnings and profits."
There can be no assurance that the IRS would not contend otherwise on a
subsequent audit. It appears that we could keep from being disqualified as a
REIT by using "deficiency dividend" procedures to distribute any such acquired
"C corporation" earnings and profits. In order to use this procedure, an
affected REIT would have to make an additional distribution to its shareholders
(in addition to distributions made for purposes of satisfying the normal REIT
distribution requirements), within 90 days of the IRS determination. In
addition, the REIT would have to pay to the IRS an interest charge on 50% of the
acquired C corporation earnings and profits that were not distributed prior to
the end of the REIT's taxable year in which they were acquired. If we were
deemed to have acquired C corporation earnings and profits, there can be no
assurance, however, that the IRS would not take the position either that the
procedure is not available at all (in which case we would fail to qualify as a
REIT) or, alternatively, that even if the procedure is available, we cannot
qualify as a REIT for our taxable year in which the earnings and profits were
acquired, but we could qualify as a REIT for subsequent taxable years.
Income Tests. In order to maintain qualification as a REIT, we must
satisfy certain gross income requirements, which are applied on an annual basis.
For purposes of applying these income tests, a REIT is considered to earn a
proportionate share of the income of any partnership in which it holds a
partnership interest. First, at least 75% of our gross income (excluding gross
income from prohibited transactions) for each taxable year must be derived
directly or indirectly from investments relating to real property or mortgages
on real property (including "rents from real property" and, in certain
circumstances, interest) or from certain types of temporary investments. Second,
at least 95% of our gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived from the same items which
qualify under the 75% income test, and from dividends, interest and gain from
the sale or disposition of stock or securities, or from any combination of the
foregoing.
Rents that we receive will qualify as "rents from real property" in
satisfying the gross income requirements described above only if several
conditions are met. First, the amount of rent must not be based in whole or in
part on the income or profits of any person. However, an amount received or
accrued generally will not be excluded from the term "rents from real property"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales. We anticipate that none of our annual gross income will be
attributable to rents that are based in whole or in part on the income of any
person (excluding rents based on a percentage of receipts or sales, which, as
described above, are permitted). Second, the Code provides that rents received
from a tenant will not qualify as "rents from real property" if the Company, or
an owner of 10% or more of the Company, directly or constructively owns 10% or
more of such tenant. We do not anticipate that we will receive material amounts
of income from such related party tenants. Third, if rent attributable to
personal property, leased in connection with a lease of real property, is
greater than 15% of the total rent received under the lease, then the portion of
rent attributable to such personal property will not qualify as "rents from real
property." We do not anticipate deriving rent attributable to personal property
leased in connection with real property that exceeds 15% of the total rents.
Finally, for rents to qualify as "rents from real property," we generally must
not operate or manage the property or furnish or render services to tenants,
other than through an "independent contractor" that is adequately compensated
and from whom we derive no revenue. The "independent contractor" requirement,
however, does not apply to the extent the services we provide are "usually or
customarily rendered" in connection with the rental of space for occupancy only
and are not otherwise considered "rendered to the occupant." Any services with
respect to certain properties that we believe may not be provided by us directly
without jeopardizing the qualification of rent as "rents from real property"
will be performed by "independent contractors."
For our taxable years commencing on or after January 1, 1998, rents
received generally will qualify as rents from real property even if we were to
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 cannot exceed 1% of all
amounts received, directly or indirectly, by the Company with respect to such
property. In computing any such amounts, the amount that we would be deemed to
have received for performing "impermissible services" will be the greater of the
actual amount so received or 150% of the direct cost to us of providing those
services. If the impermissible service income exceeds 1% of our total income
from a property, then all of the income from that property will fail to qualify
as rents from real property.
In connection with the merger with Public Storage Management, the
Company and the various other owners of mini-warehouses and business parks for
which we performed management activities entered into an agreement with PSCC,
Inc. under which PSCC provides the owners and the Company certain administrative
and cost-sharing services in connection with the operation of the properties and
the performance of certain administrative functions. The services include the
provision of corporate office space and certain equipment, personnel required
for the operation and maintenance of the properties, and corporate or
partnership administration. Each of the owners and the Company pay PSCC directly
for services rendered by PSCC in connection with the administrative and cost
sharing agreement. That payment is separate from and in addition to the
compensation paid to us under the management agreement for the management of the
properties owned by the owners. At the time of the merger with Public Storage
Management, we received a private letter ruling from the IRS to the effect that
the reimbursements and other payments made to PSCC by the owners will not be
treated as our revenues for purposes of the 95% test.
We own substantially all of the economic interest in Pickup & Delivery
(the portable self-storage business). The income from that business would be
nonqualifying income to us and the business is conducted by a limited
partnership between the Company and a subsidiary of PS Orangeco, Inc. (the
"Lock/Box Company"). The share of gross income of that business attributable to
our partnership interest, when combined with our other nonqualifying income,
must be less than 5% of our total gross revenues. We anticipate that we will be
able to continue to satisfy both the 95% and 75% gross income tests.
If we fail to satisfy one or both of the 75% or 95% gross income tests
for any taxable year, we may nevertheless qualify as a REIT for such year if we
are entitled to relief under certain provisions of the Code. It is not possible,
however, to state whether in all circumstances we would be entitled to the
benefit of these relief provisions. Even if these relief provisions were to
apply, however, a 100% tax would be imposed with respect to the "excess net
income" attributable to the failure to satisfy the 75% and 95% gross income
tests.
Asset Tests. At the close of each quarter of our taxable year, we must
satisfy three tests relating to the nature of our assets. For purposes of
applying these asset tests, a REIT is considered to own a proportionate share of
the assets of any partnership in which it holds a partnership interest. First,
at least 75% of the value of our total assets must be represented by real estate
assets. Our real estate assets include, for this purpose, stock or debt
instruments held for less than one year purchased with the proceeds of a stock
offering, or long-term (at least five years) debt offering of the Company, cash,
cash items and government securities. Second, not more than 25% of our total
assets may be represented by securities other than those in the 75% asset class.
Third, of the investments included in the 25% asset class, the value of any one
issuer's securities owned by us may not exceed 5% of the value of our total
assets, and, except for REITs or "qualified REIT subsidiaries," we may not own
more than 10% of any one issuer's outstanding voting securities.
We believe that we satisfy the asset tests. In this regard, however, the
value of our interest in the Lock/Box Company (including the Lock/Box Company's
interest in Pickup & Delivery) may not exceed 5% of the value of our total
assets and the 10% voting stock prohibition precludes us from controlling the
operations of the Lock/Box Company (in which we own 95% of the equity in the
form of non-voting stock and the Hughes family owns 5% of the equity but 100% of
the voting stock), Pickup & Delivery (a subsidiary of the Lock/Box Company) or
PSCC (in which we own a less than 10% voting interest) and may preclude us from
exercising our rights of first refusal with respect to the corporations owning
the Canadian operations and the reinsurance business. See "--Proposed Changes to
REIT Qualification Requirements" below for a discussion of proposals that, if
enacted, might affect Public Storage's ability to derive economic benefits from
the activities of the Lock/Box Company and Pickup & Delivery.
After initially meeting the asset tests at the close of any quarter, we
will not lose our status as a REIT for failure to satisfy the 25% or 5% asset
tests at the end of a later quarter solely by reason of changes in the relative
values of our assets. If the failure to satisfy the 25% or 5% asset tests
results from an acquisition of securities or other property during a quarter,
the failure can be cured by disposition of sufficient nonqualifying assets
within 30 days after the close of that quarter. We intend to maintain adequate
records of the value of our assets to ensure compliance with the asset tests and
to take any available actions within 30 days after the close of any quarter as
may be required to cure any noncompliance with the 25% or 5% asset tests. If we
fail to cure noncompliance with the asset tests within such time period, we
would cease to qualify as a REIT.
Certain Partnership Interests. In the merger with Public Storage
Management and in other transactions, we have acquired interests in various
partnerships that own and operate properties. For purposes of satisfying the
REIT asset and gross income tests, we will be treated as if we directly own a
proportionate share of each of the assets of these partnerships. For these
purposes, under current treasury regulations our interest in each of the
partnerships must be determined in accordance with our "capital interest" in the
partnership.
The ownership of these partnership interests creates several issues
regarding our satisfaction of the 95% gross income test. First, we earn property
management fees from these partnerships. Existing treasury regulations do not
address the treatment of management fees derived by a REIT from a partnership in
which the REIT holds a partnership interest, but the IRS has issued a number of
private letter rulings holding that the portion of the management fee that
corresponds to the REIT's interest in the partnership in effect is disregarded
in applying the 95% gross income test where the REIT holds a "substantial"
interest in the partnership. We disregard the portion of management fees derived
from partnerships in which we are a partner that corresponds to our interest in
these partnerships in determining the amount of our nonqualifying income. There
can be no assurance, however, that the IRS would not take a contrary position
with respect to the Company, either rejecting the approach set forth in the
private letter rulings mentioned above or contending that our situation is
distinguishable from those addressed in the private letter rulings (for example,
arguing that we do not have a "substantial" interest in the partnerships).
Second, we acquired interests in certain of these partnerships that
entitle us to a percentage of profits (either from operations, or upon a sale,
or both) in excess of the percentage of total capital originally contributed to
the partnership with respect to such interest. Existing treasury regulations do
not specifically address how our "capital interest" in partnerships of this type
should be determined. This determination is relevant because it affects both the
percentage of the gross rental income of the partnership that is considered
gross rental income (or qualifying income) to us and the percentage of the
management fees paid to us that is disregarded in determining our nonqualifying
income. For example, if we take the position that we have a 25% "capital
interest" in a partnership (because we would receive 25% of the partnership's
assets upon a sale and liquidation) but the IRS determines we only have a 1%
"capital interest" (because the original holder of our interest only contributed
1% of the total capital contributed to the partnership), our share of the
qualifying income from the partnership would be reduced and the portion of the
management fee from the partnership that would be treated as nonqualifying
income would be increased, thereby adversely affecting our ability to satisfy
the 95% gross income test. In determining our "capital interest" in the various
partnerships, we determine the percentage of the partnership's assets that would
be distributed to us if those assets were sold and distributed among the
partners in accordance with the applicable provisions of the partnership
agreements. There can be no assurance, however, that the IRS will agree with
this methodology and not contend that another, perhaps less favorable, method
must be used for purposes of determining our "capital interests," which could
adversely affect our ability to satisfy the 95% gross income test.
Annual Distribution Requirements. In order to qualify as a REIT, we are
required to distribute dividends (other than capital gain dividends) to our
shareholders in an amount at least equal to (1) the sum of (a) 95% of our "REIT
taxable income" (computed without regard to the dividends paid deduction and our
net capital gain) and (b) 95% of the net income (after tax), if any, from
foreclosure property, minus (2) the sum of certain items of non-cash income. In
addition, if we dispose of any Built-In Gain Asset during the 10 year period
beginning on the date we acquired that asset, we will be required, pursuant to
Treasury Regulations that have not yet been promulgated, to distribute at least
95% of the Built-In Gain (after tax), if any, recognized on the disposition of
such asset. See "--General" above for a discussion of "Built-In Gain Assets."
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before we timely file our tax return for
such year and if paid on or before the first regular dividend payment date after
such declaration.
To the extent that we do not distribute all of our net capital gain or
distribute at least 95%, but less than 100%, of our "REIT taxable income," as
adjusted, we will be subject to tax at regular ordinary and capital gain
corporate tax rates. We may elect to require the shareholders to include our
undistributed net capital gains in their income by designating, in a written
notice to shareholders, those amounts as undistributed capital gains in respect
of our shareholders' shares. If we make such an election, the shareholders will
(1) include in their income as capital gains their proportionate share of such
undistributed capital gains and (2) be deemed to have paid their proportionate
share of the tax paid by us on such undistributed capital gains and thereby
receive a credit or refund for such amount. A shareholder will increase the
basis in its common shares by the difference between the amount of capital gain
included in its income and the amount of the tax that we are deemed to have paid
on the shareholder's behalf. Our earnings and profits will be adjusted
appropriately. For a more detailed description of the tax consequences to a
shareholder of such a designation, see "--Taxation of U.S. Shareholders Holding
Depositary Shares."
In addition, if we should fail to distribute during each calendar year
at least the sum of (1) 85% of our REIT ordinary income for such year, (2) 95%
of our REIT capital gain income for such year, and (3) any undistributed taxable
income from prior periods, we would be subject to a 4% excise tax on the excess
of such required distribution over the sum of amounts actually distributed
during the calendar year by us and the amount, if any, on which we paid income
tax for such year.
In years prior to 1990, we made distributions in excess of our REIT
taxable income. During 1990, we reduced our distribution to our shareholders. As
a result, distributions paid by the Company in 1990 were less than 95% of our
REIT taxable income for 1990. We have satisfied the REIT distribution
requirements for 1990 through 1998 by attributing distributions in 1991 through
1999 to the prior year's taxable income, and we expect to satisfy the
distribution requirement for 1999 by attributing distributions in 2000 to the
1999 taxable income. We may be required, over each of the next several years, to
make distributions after the close of a taxable year and to attribute those
distributions to the prior year, but shareholders will be treated for federal
income tax purposes as having received such distributions in the taxable years
in which they were actually made. The extent to which we will be required to
attribute distributions to the prior year will depend on our operating results
and the level of distributions as determined by the board of directors. As noted
above, reliance on subsequent year distributions could cause us to be subject to
an excise tax. We intend to comply with the 85% distribution requirement in an
effort to minimize any excise tax.
We intend to make timely distributions sufficient to satisfy our annual
distribution requirements. It is expected that our REIT taxable income will be
less than our cash flow due to the allowance of depreciation and other non-cash
charges in computing REIT taxable income. Accordingly, we anticipate that we
will generally have sufficient cash or liquid assets to enable us to satisfy the
distribution requirements described above. It is possible, however, that the
Company, from time to time, may not have sufficient cash or other liquid assets
to meet these distribution requirements due to timing differences between (1)
the actual receipt of income and actual payment of deductible expenses and (2)
the inclusion of such income and deduction of such expenses in arriving at our
taxable income, or due to the need to make nondeductible payments, such as
principal payments on any indebtedness we may have. If such circumstances occur,
in order to meet the distribution requirements, we may find it necessary to
arrange for short-term, or possibly long-term, borrowings or to pay dividends in
the form of taxable stock dividends.
Under certain circumstances, we may be able to rectify a failure to meet
the distribution requirement for a year by paying "deficiency dividends" to
shareholders in a later year, which may be included in our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid being taxed
on amounts distributed as deficiency dividends; however, we will be required to
pay interest based upon the amount of any deduction taken for deficiency
dividends.
Recordkeeping Requirements. Pursuant to applicable Treasury Regulations,
we must comply with certain recordkeeping requirements to qualify for taxation
as a REIT.
Failure of the Company to Qualify as a REIT. For any taxable year that
we fail to qualify as a REIT, we would be taxed at the usual corporate rates on
all of our taxable income. Those taxes would reduce the amount of cash available
to us for distribution to our shareholders or for reinvestment. Distributions to
shareholders in any year in which we fail to qualify as a REIT will not be
deductible and will not be required to be made. In addition, if we fail to
qualify as a REIT, all distributions to shareholders will be taxed as ordinary
income, to the extent of our current and accumulated earnings and profits, and,
subject to certain limitations of the Code, corporate distributees may be
eligible for the dividends received deduction.
Unless certain relief provisions apply, our election to be treated as a
REIT will terminate automatically if we fail to meet the qualification
requirements described above and we will not be eligible to elect REIT status
again until the fifth taxable year that begins after the first year for which
our election was terminated (or revoked). If we lose our REIT status, but later
qualify and elect to be taxed as a REIT again, we may face significant adverse
tax consequences.
Taxation of U.S. Shareholders Holding Depositary Shares
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As used below, the term "U.S. Shareholder" means a holder of depositary
shares who (for United States federal income tax purposes) (1) is a citizen or
resident of the United States, (2) is a corporation, partnership, or other
entity created or organized in or under the laws of the United States or any
political subdivision thereof, (3) is an estate the income of which is subject
to United States federal income taxation regardless of its source or (4) is a
trust the administration of which is subject to the primary supervision of a
United States court and which has one or more United States persons who have the
authority to control all substantial decisions of the trust. Notwithstanding the
preceding sentence, to the extent provided in regulations, certain trusts in
existence on August 20, 1996, and treated as United States persons prior to such
date that elect to continue to be treated as United States persons, shall also
be considered U.S. Shareholders.
Distributions by the Company. As long as we qualify as a REIT,
distributions made to our taxable U.S. Shareholders (and not designated as
capital gain dividends) will generally be taxable to such shareholders as
ordinary income to the extent of our current or accumulated earnings and
profits. For purposes of determining whether distributions on shares of common
stock are out of current or accumulated earnings and profits, our earnings and
profits will be allocated first to shares of preferred stock and second to
shares of common stock. There can be no assurance that we will have sufficient
earnings and profits to cover distributions on any shares of preferred stock.
Such distributions will not be eligible for the dividends received deductions in
the case of shareholders that are corporations. Dividends declared during the
last quarter of a calendar year and actually paid during January of the
immediately following calendar year generally are treated as if received by the
shareholders on December 31 of the calendar year during which they were
declared.
Distributions designated by us as capital gain dividends generally will
be taxed as gain from the sale or exchange of a capital asset held for more than
one year (to the extent that the distributions do not exceed our actual net
capital gain for the taxable year) without regard to the period for which the
shareholder has held its stock. Corporate shareholders however, may be required
to treat up to 20% of certain capital gain dividends as ordinary income.
Shareholders may not include in their individual income tax returns any
net operating losses or capital losses of the Company. Instead, such losses
would be carried over by us for potential offset against future income (subject
to certain limitations). Distributions made by us and gain arising from the sale
or exchange by a holder of depositary shares will not be treated as passive
activity income, and, as a result, holders of depositary shares generally will
not be able to apply any "passive losses" against such income or gain.
Shareholders also may be required to take into account, for purposes of
computing their individual alternative minimum tax liability, certain tax
preference items of the Company. In addition, taxable distributions from the
Company generally will be treated as investment income for purposes of the
investment interest limitations. Capital gain dividends and capital gain from
the disposition of shares, including distributions treated as such, however,
will be treated as investment income for purposes of the investment interest
limitation only if the U.S. Shareholder so elects, in which case such capital
gains will be taxed at ordinary income rates. We will notify shareholders after
the close of our taxable year as to the portions of distributions attributable
to that year that constitute ordinary income, return of capital and capital
gain.
Distributions in excess of current or accumulated earnings and profits
will not be taxable to a 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 U.S. Shareholder's shares, they will be included in income
as capital gains, assuming the shares are a capital asset in the hands of the
U.S. Shareholder.
For our taxable years commencing on or after January 1, 1998, we may
elect to require the holders of stock to include our undistributed net long-term
capital gains in their income. If we make such an election, the holders of stock
will (1) include in their income as long-term capital gains their proportionate
share of such undistributed capital gains and (2) be deemed to have paid their
proportionate share of the tax paid by us on such undistributed capital gains
and thereby receive a credit or refund for such amount. A holder of stock will
increase the basis in its stock by the difference between the amount of capital
gain included in its income and the amount of the tax it is deemed to have paid.
Our earnings and profits will be adjusted appropriately. With respect to such
long-term capital gain of a taxable domestic shareholder that is an individual
or an estate or trust, the IRS has authority to issue regulations that could
apply the special tax rate applicable to sales of depreciable real property by
an individual or an estate or trust to the portion of the long-term capital
gains of an individual or an estate or trust attributable to deductions for
depreciation taken with respect to depreciable real property.
Sales of Shares. In general, a U.S. Shareholder will realize gain or
loss on the disposition of depositary 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 be capital gain or loss if the shares have been held as a capital
asset. In the case of a taxable U.S. Shareholder who is an individual or an
estate or trust, such gain or loss will be long-term capital gain or loss, and
such long-term capital gain shall be subject to the maximum capital gain rate of
20%. In the case of a taxable U.S. Shareholder that is a corporation, such gain
or loss will be long-term capital gain or loss if such shares have been held for
more than one year and any such capital gain shall be subject to the maximum
capital gain rate of 35%. Loss upon a sale or exchange of shares by a
shareholder who has held such shares for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss to the
extent of distributions from the Company required to be treated by such
shareholder as long-term capital gain.
Taxpayer Relief Act and IRS Restructuring Act Changes to Capital Gain
Taxation. The Taxpayer Relief Act of 1997 (the "Taxpayer Relief Act") altered
the taxation of capital gain income. Under the Taxpayer Relief Act, individuals,
trusts and estates that hold certain investments for more than 18 months may be
taxed at a maximum long-term capital gain rate of 20% on the sale or exchange of
those investments. Individuals, trusts and estates that hold certain assets for
more than one year but not more than 18 months may be taxed at a maximum
long-term capital gain rate of 28% on the sale or exchange of those investments.
The Taxpayer Relief Act also provides a maximum rate of 25% for "unrecaptured
Section 1250 gain" for individuals, trusts and estates, special rules for
"qualified 5-year gain" and other changes to prior law. The IRS Restructuring
Act of 1998, however, reduced the holding period requirement established by the
Taxpayer Relief Act for the application of the 20% and 25% capital gain tax
rates to 12 months from 18 months for sales of capital gain assets after
December 31, 1997 and thus eliminated the 28% rate. The Taxpayer Relief Act
allows the IRS to prescribe regulations on how the Taxpayer Relief Act's capital
gain rates will apply to sales of capital assets by "pass-through entities,"
including REITs, such as the Company, and to sales of interests in "pass-through
entities." Shareholders are urged to consult with their own tax advisors with
respect to the rules contained in the Taxpayer Relief Act and the IRS
Restructuring Act.
On November 10, 1997, the IRS issued IRS Notice 97-64, which provides
generally that REITs such as the Company may classify portions of their
designated capital-gain dividends as (1) a 20% rate gain distribution (which
would be taxed as long-term capital gain in the 20% group), (2) an unrecaptured
Section 1250 gain distribution (which would be taxed as long-term capital gain
in the 25% group), or (3) a 28% rate gain distribution (which would be taxed as
long-term capital gain in the 28% group). (If no designation is made, the entire
designated capital gain dividend will be treated as a 28% rate gain
distribution.) IRS Notice 97-64 provides that a REIT must determine the maximum
amounts that it may designate as 20% and 25% rate capital gain dividends by
performing the computation required by the Code as if the REIT were an
individual whose ordinary income were subject to a marginal tax rate of at least
28%. The Notice further provides that designations made by the REIT will only be
effective to the extent that they comply with Revenue Ruling 89-81, which
requires that distributions made to different classes of shares be composed
proportionately of dividends of a particular type. Although Notice 97-64 will
apply to sales of capital gain assets after July 28, 1997 and before January 1,
1998, it is expected that the IRS will issue clarifying guidance, most likely
applying the same principles set forth in Notice 97-64, regarding a REIT's
designation of capital gain dividends in light of the changed holding period
requirements.
Backup Withholding. We will report to our domestic shareholders and the
IRS the amount of dividends paid during each calendar year, and the amount of
tax withheld, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 31% with respect to dividends paid
unless such holder (a) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact, or (b) provides a
taxpayer identification number and certifies as to no loss of exemption from
backup withholding. Amounts withheld as backup withholding will be creditable
against the stockholder's income tax liability. In addition, we may be required
to withhold a portion of capital gain distributions made to any shareholders who
fail to certify their non-foreign status to the Company. See "--Taxation of
Non-U.S. Shareholders" below.
Taxation of Tax-Exempt Shareholders. As a general rule, amounts
distributed to a tax-exempt entity by a corporation do not constitute "unrelated
business taxable income" ("UBTI"), and thus our distributions to a stockholder
that is a tax-exempt entity generally should not constitute 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.
However, distributions by a REIT to a tax-exempt employee's pension trust that
owns more than 10% of the REIT will be treated as UBTI in an amount equal to the
percentage of gross income of the REIT that is derived from an "unrelated trade
or business" (determined as if the REIT were a pension trust) divided by the
gross income of the REIT for the year in which the dividends are paid. This rule
only applies, however, if (1) the percentage of gross income of the REIT that is
derived from an unrelated trade or business for the year in which the dividends
are paid is at least 5%, (2) the REIT qualifies as a REIT only because the
pension trust is not treated as a single individual for purposes of the
"five-or-fewer rule" (see "--Taxation of the Company--Requirements for
Qualification" above), and (3) (A) one pension trust owns more than 25 percent
of the value of the REIT or, (B) a group of pension trusts individually holding
more than 10 percent of the value of the REIT collectively own more than 50
percent of the value of the REIT. We currently do not expect that this rule will
apply.
Taxation of Non-U.S. Shareholders
- ---------------------------------
The rules governing U.S. federal income taxation of non-U.S.
Shareholders are complex, and the following discussion is intended only as a
summary of such rules. Prospective non-U.S. Shareholders should consult with
their tax advisors to determine the impact of federal, state, local and foreign
income tax laws on an investment in the Company, including any reporting
requirements.
Distributions by the Company. Distributions to a non-U.S. Shareholder
that are not attributable to gain from sales or exchanges by the Company of U.S.
real property interests and not designated by us as capital gain dividends will
generally be subject to tax as ordinary income to the extent of our current or
accumulated earnings and profits as determined for U.S. federal income tax
purposes. Such distributions will generally be subject to a withholding tax
equal to 30% of the gross amount of the distribution, unless reduced by an
applicable tax treaty or unless such dividends are treated as effectively
connected with a United States trade or business. If the amount distributed
exceeds a non-U.S. Shareholder's allocable share of such earnings and profits,
the excess will be treated as a tax-free return of capital to the extent of such
non-U.S. Shareholder's adjusted basis in the stock. To the extent that such
distributions exceed the adjusted basis of a non-U.S. Shareholder's stock, such
distributions will generally be subject to tax if such non-U.S. Shareholder
would otherwise be subject to tax on any gain from the sale or disposition of
its stock, as described below.
For withholding tax purposes, we currently are 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. Under
regulations generally effective for distributions on or after January 1, 1999,
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. As a result of a legislative change made by the Small
Business Job Protection Act of 1996, under current law, it appears that we will
be required to withhold 10% of any distribution to a non-U.S. Shareholder in
excess of our current and accumulated earnings and profits. Consequently,
although we intend to withhold at a rate of 30% on the entire amount of any
distribution to a non-U.S. Shareholder (or lower applicable treaty rate), to the
extent we do not do so, any portion of such a distribution not subject to
withholding at a rate of 30% (or lower applicable treaty rate) will be subject
to withholding at a rate of 10%. However, the non-U.S. Shareholder may seek a
refund of such amounts from the IRS if it subsequently determined 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's United
States tax liability, if any, with respect to the distribution.
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 a United States real property interest) generally will not be
subject to United States federal income taxation, unless (1) the investment in
the stock is effectively connected with the non-U.S. Shareholder's United States
trade or business, in which case the non-U.S. Shareholder will be subject to the
same treatment as U.S. Shareholders with respect to such gain (except that a
shareholder that is a foreign corporation may also be subject to the 30% branch
profits tax) or (2) 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 certain other requirements are met, in which case the nonresident alien
individual will be subject to a 30% tax on the individual's capital gains.
Under the Foreign Investment in Real Property Tax Act ("FIRPTA"),
distributions to a non-U.S. Shareholder that are attributable to gain from sales
or exchanges by the Company of United States real property interests (whether or
not designated as a capital gain dividend) will be taxed to a non-U.S.
Shareholder at the normal capital gains rates applicable to domestic
shareholders (subject to 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 non-U.S. Shareholder that
is a corporation and that is not entitled to treaty relief or exemption. We are
required by applicable FIRPTA Treasury Regulations to withhold 35% of any such
distribution that is or could be designated by us as a capital gain dividend.
That amount is creditable against the non-U.S. Shareholder's United States
FIRPTA tax liability.
Even if we do not qualify or cease to be a domestically controlled REIT,
gain arising from the sale or exchange by a non-U.S. Shareholder of stock would
still not be subject to U.S. taxation under FIRPTA as a sale of a United States
real property interest if (1) the class or series of shares being sold is
"regularly traded," as defined by applicable Treasury Regulations, on an
established securities market such as the New York Stock Exchange, and (2) the
selling non-U.S. Shareholder owned 5% or less of the value of the outstanding
class or series of shares being sold throughout the five-year period ending on
the date of the sale or exchange.
If gain on the sale or exchange of stock 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 taxable U.S.
Shareholder, subject to any applicable alternative minimum tax, a special
alternative minimum tax in the case of nonresident alien individuals and the
possible application of the 30% branch profits tax in the case of foreign
corporations. The purchaser of the stock would be required to withhold and remit
to the IRS 10% of the purchase price.
Although the law is not entirely clear on the matter, it appears that
amounts designated by us pursuant to the Taxpayer Relief Act as undistributed
capital gains in respect of shares of stock (see "Taxation of U.S. Shareholders
Holding Depositary Shares" above) would be treated with respect to non-U.S.
Shareholders in the manner outlined in the preceding paragraph for actual
distributions by us of capital gain dividends. Under that approach, the non-U.S.
Shareholders would be able to offset as a credit against their United States
federal income tax liability resulting therefrom their proportionate share of
the tax paid by us on such undistributed capital gains (and to receive from the
IRS a refund to the extent their proportionate share of such tax paid by us were
to exceed their actual United States federal income tax liability).
Sale of Depositary Shares. Gain recognized by a non-U.S. Shareholder
upon a sale of its stock will generally not be subject to tax under FIRPTA if we
are a "domestically controlled REIT," which is defined generally as a REIT in
which at all times during a specified testing period less than 50% in value of
its shares were held directly or indirectly by non-U.S. persons. Because only a
minority of the shareholders are non-U.S. Shareholders, we expect to qualify as
a "domestically controlled REIT." Accordingly, a non-U.S. Shareholder should not
be subject to U.S. tax on gains recognized upon disposition of stock, provided
that such gain is not effectively connected with the conduct of a United States
trade or business and, in the case of an individual shareholder, such holder is
not present in the United States for 183 days or more during the year of sale
and certain other requirements are met.
Backup Withholding Tax and Information Reporting. Backup withholding tax
(which generally is a withholding tax imposed at a rate of 31% on certain
payments to persons that fail to furnish certain information under the United
States information reporting requirements) and information reporting will
generally not apply to distributions paid to non-U.S. Shareholders outside the
United States that are treated as (1) dividends subject to the 30% (or lower
treaty rate) withholding tax discussed above, (2) capital gain dividends, or (3)
distributions attributable to gain from the sale or exchange by the Company of
United States real property interests. As a general matter, backup withholding
and information reporting will not apply to a payment of the proceeds of a sale
of stock by or through a foreign office of a foreign broker. Information
reporting (but not backup withholding) will apply, however, to a payment of the
proceeds of a sale of stock by a foreign office of a broker that (a) is a United
States person, (b) derives 50% or more of its gross income for certain periods
from the conduct of a trade or business in the United States or (c) is a
"controlled foreign corporation" (generally a foreign corporation controlled by
United States shareholders) for United States tax purposes, unless the broker
has documentary evidence in its records that the holder is a non-U.S.
Shareholder and certain other conditions are met, or the shareholder otherwise
establishes an exemption. Payment to or through a United States office of a
broker of the proceeds of a sale of stock is subject to both backup withholding
and information reporting unless the shareholder certifies under penalty of
perjury that the shareholder is a non-U.S. Shareholder, or otherwise establishes
an exemption. A non-U.S. Shareholder may obtain a refund of any amounts withheld
under the backup withholding rules by filing the appropriate claim for refund
with the IRS.
The United States Treasury Department has finalized regulations
regarding the withholding and information reporting rules discussed above. In
general, these regulations do not alter the substantive withholding and
information reporting requirements but unify certification procedures and forms
and clarify and modify reliance standards. These regulations generally are
anticipated to be effective for payments made after December 31, 2000, subject
to certain transition rules. Valid withholding certificates that are held on
December 31, 1999, will remain valid until the earlier of December 31, 2000, or
the date of the expiration of the certificate under rules currently in effect,
unless otherwise invalidated due to changes in the circumstances of the person
whose name is on such certificate. A non-U.S. Shareholder should consult its
advisor regarding the effect of the new treasury regulations.
Proposed Changes to REIT Qualification Requirements
- ---------------------------------------------------
A number of legislative proposals have been made in 1999 that, if
adopted, would affect REITs. For example, the tax relief bill that was passed by
Congress but vetoed by the President in September of 1999 included proposals
intended to ease the current restrictions on a REIT's ability to own the stock
of taxable companies, and those proposals have been reintroduced in subsequent
proposed legislation. The proposals would allow REITs to own up to 100% of the
stock of certain "taxable REIT subsidiaries" ("TRSs"). Under current law, a REIT
generally may not own more than 10% of the voting securities of other issuers
(such as the Lock/Box Company, see "Taxation of the Company - Asset Tests"
above). An important effect of this proposed change is that TRSs would be
permitted to offer noncustomary services to the tenants of the REIT (such
services can be provided under current law only by "independent contractors"
from which the REIT cannot earn any income). TRSs also would be able to engage
in other income producing activities that are now typically undertaken by REITs
only through entities in which a REIT may have a substantial economic interest,
but is limited to a 10% or less voting interest (such as the Lock/Box Company).
Certain limitations are also proposed to prevent income shifting between a REIT
and its TRSs, in an effort to ensure that TRSs would in fact be taxable on the
income that they earn. Under current law, a REIT cannot own securities of any
single issuer with a value in excess of 5% of the value of all assets of the
REIT. The proposals also would relax this limitation, so that a REIT could own a
TRS (or TRSs), so long as the aggregate value of the TRSs, when combined with
all other nonREIT assets, did not exceed 25% (or 20% in the more recent
proposals) of the value of all assets of the REIT.
Other provisions in that have generally been included in these bills and
are targeted at REITs include: (1) a reduction in the size of a REIT's required
annual dividends-paid deduction to 90% of REIT taxable income (from the current
95%) (a change that seems likely to have limited effect, given that REITs
typically seek to have a dividends-paid deduction equal to 100% of their income,
so as to avoid paying taxes on any undistributed portion), (2) limitations on
"closely held" REITs, (3) provisions directed at other segments of the REIT
industry, principally the lodging and health-care sectors, and (4) various other
technical changes. The REIT provisions of these proposals generally would affect
taxable years beginning after December 31, 2000.
It is presently uncertain whether any proposal regarding REIT
subsidiaries will be enacted or, if enacted, what the terms, including the
effective date, of such proposal will be.
State and Local Taxes
- ---------------------
The tax treatment of the Company and our shareholders in states having
taxing jurisdiction over them may differ from the federal income tax treatment.
Accordingly, no discussion of state taxation of the Company and our shareholders
is provided nor is any representation made as to our tax status in such states.
All investors should consult their tax advisors as to the treatment of the
Company under the respective state tax laws applicable to them.
ITEM 2. Exhibits.
---------
I. The following exhibits are being filed with the copies of this Form
8-A filed with the New York Stock Exchange, Inc. and the Securities and Exchange
Commission:
1. Form of Deposit Agreement.
2. Certificate of Determination.
3. Form of Cash Election Certificate.
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized.
(Registrant) PUBLIC STORAGE, INC.
By: /S/ SARAH HASS
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Sarah Hass
Vice President
Date: November 22, 1999