DESCRIPTION
OF CAPITAL STOCK
We
were incorporated under the laws of the state of Maryland. The rights of our stockholders are governed by Maryland law as well
as our charter and bylaws. The following summary of our capital stock does not purport to be complete and is subject to and qualified
in its entirety by reference to Maryland law and to our charter (including the applicable articles supplementary designating the
terms of a class or series of preferred stock) and bylaws, copies of which are filed as exhibits to the registration statement
of which this prospectus forms a part. See “Where You Can Find More Information.”
General
Our
charter provides that we may issue up to 750,000,000 shares of common stock, $0.01 par value per share, and 250,000,000 shares
of preferred stock, $0.01 par value per share.
Of
our 750,000,000 authorized shares of common stock, 747,509,582 shares have been classified as Class A Common Stock, $0.01 par value
per share (the “Class A common stock”), 804,605 shares have been classified as Class B-1 Common Stock, $0.01 par value
per share, 804,605 shares have been classified as Class B-2 Common Stock, $0.01 par value per share, 804,605 shares have been
classified as Class B-3 Common Stock, $0.01 par value per share, and 76,603 shares have been classified as Class C common stock,
$0.01 par value per share (the “Class C common stock”). The Class A common stock is listed on the NYSE American under
the symbol “BRG.” As of the date of this prospectus, there were issued and outstanding 27,416,320 shares of Class A
common stock, and 76,603 shares of Class C common stock. No other shares of any class or series of common stock is issued and
outstanding.
Of
our 250,000,000 authorized shares of preferred stock, as of the date of this prospectus, 5,153,540 shares are classified as 8.250%
Series A Cumulative Redeemable Preferred Stock (the “Series A Preferred Stock”); 1,087,663 shares are classified as
Series B Redeemable Preferred Stock (the “Series B Preferred Stock”); 3,972,095 shares are classified as 7.625% Series C
Cumulative Redeemable Preferred Stock (the “Series C Preferred Stock”); 3,923,736 shares are classified as 7.125% Series
D Cumulative Preferred Stock (the “Series D Preferred Stock”); and 31,948,638 shares
are classified as the Series T Redeemable Preferred Stock (the “Series T Preferred Stock”). In addition, we may issue
Warrants in connection with our Series B Preferred Stock that are exercisable for up to an aggregate of 24,500,000 shares of our
Class A common stock. The Series C Preferred Stock and Series D Preferred Stock are each listed on the NYSE American under the
symbols “BRG-PrC,” and “BRG-PrD,” respectively. Currently no market exists for the Series B Preferred Stock,
the Warrants, or the Series T Preferred Stock and we do not expect a market to develop. We currently have no plan to list the Series
B Preferred Stock, the Warrants, or the Series T Preferred Stock on any national securities exchange or to include such shares for
quotation on any national securities market. Subject to the preferential rights of any holders
of preferred stock, our charter authorizes our board of directors, with the approval of a majority of the directors and without any
action by stockholders, to amend our charter from time to time to increase or decrease the aggregate number of authorized shares of
stock or the number of shares of stock of any class or series that we have authority to issue. As of the date of this prospectus, we
have 412,416 shares of Series B Preferred Stock, 2,295,845 shares of Series C Preferred Stock, 2,774,338 shares of Series D
Preferred Stock and 13,623,714 shares of Series T Preferred Stock issued and outstanding. On December 20, 2019, we made the
final issuance of Series B Preferred Stock pursuant to our continuous offering of Series B Preferred Stock, and on February 11,
2020, the board formally approved the termination of the Series B Preferred Stock offering. On February 26, 2021, we redeemed all of
the outstanding shares of our Series A Preferred Stock. Such redeemed shares of Series A Preferred Stock returned to the status of
authorized but unissued shares of preferred stock without designation as to series or class. Under Maryland law, stockholders are
not generally liable for our debts or obligations.
As
of the date of this prospectus, there were outstanding: (a) 6,310,126 units of limited partnership
interest in our Operating Partnership (the “OP Units”), which may, subject to certain limitations, be redeemed for cash or,
at our option, exchanged for shares of our Class A common stock on a one-for-one basis; and (b) 5,036,018 units of a special class of
partnership interest in our Operating Partnership (the “LTIP Units”), of which (i) 2,531,573 have
vested, (ii) 274,091 will vest at the end of the applicable one-year period that commenced upon issuance, (iii) 563,921 will vest ratably
on an annual basis over the applicable three-year period that commenced upon issuance, (iv) 1,358,089 will
vest at the end of the applicable three-year period that commenced upon issuance, subject to certain performance-based vesting formulas,
and (v) 308,344 will vest ratably on an annual basis over the applicable five-year period that commenced
upon issuance. Upon vesting and reaching capital account equivalency with the OP Units held by us, LTIP Units may convert to OP Units,
and may then be settled in shares of our Class A common stock. In addition, the 76,603 shares of our Class C common stock issued as Internalization
consideration may be converted, or automatically convert, in certain circumstances to shares of our Class A common stock on a one-for-one
basis. Finally, the 495,644 outstanding Warrants issued in connection with our Series B Preferred Stock are exercisable for up to an
aggregate of 9,912,880 shares of our Class A common stock at exercise prices ranging from $10.00 to $15.89 per share. The Warrants are
exercisable one year after the date of issuance and expire four years after the date of issuance. Other than those described above, there
are no outstanding rights of any other kind in respect of our Class A common stock.
Our
charter also contains a provision permitting our board of directors, by resolution, to classify or reclassify any unissued common
stock or preferred stock into one or more classes or series of stock and establish the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other distributions, qualifications, or terms or conditions of redemption
of any such stock, subject to certain restrictions, including the express terms of any class or series of stock outstanding at
the time, such as the Preferred Stock Restrictions (as defined above). We believe that the power to classify or reclassify unissued
shares of stock and thereafter issue the classified or reclassified shares provides us with increased flexibility in structuring
possible future financings and acquisitions and in meeting other needs that might arise.
Our
charter and bylaws contain certain provisions that could make it more difficult to acquire control of the company by means of
a tender offer, a proxy contest or otherwise. These provisions are expected to discourage certain types of coercive takeover practices
and inadequate takeover bids and to encourage persons seeking to acquire control of the company to negotiate first with our board
of directors. We believe that these provisions increase the likelihood that proposals initially will be on more attractive terms
than would be the case in their absence and facilitate negotiations that may result in improvement of the terms of an initial
offer that might involve a premium price for our capital stock or otherwise be in the best interest of our stockholders. See the
section entitled “Risk Factors” included elsewhere in this prospectus.
Common
Stock
Subject
to the preferential rights of our Series B Preferred Stock, our Series C Preferred Stock, our Series D Preferred Stock and our
Series T Preferred Stock, and any other class or series of preferred stock and any preferential rights of any other class or series
of stock and to the provisions of our charter regarding the restrictions on the ownership and transfer of stock, the holders of
our common stock are entitled to receive distributions authorized by our board of directors and declared by us out of legally
available funds after payment of, or provision for, full cumulative distributions on and any required redemptions of shares of
our Series B Preferred Stock, our Series C Preferred Stock, our Series D Preferred Stock and our Series T Preferred Stock, and
any other preferred stock then outstanding, and, upon our liquidation or dissolution, are entitled to share ratably in the distributable
assets of our company remaining after satisfaction of the prior preferential rights of any preferred stock and the satisfaction
of all of our debts and liabilities. Holders of our common stock do not have preference, conversion, exchange, sinking fund, or
redemption rights or preemptive rights to subscribe for any of our securities, and generally have no appraisal rights.
Subject
to the restrictions on ownership and transfer of stock contained in our charter and except as may otherwise be specified in our
charter, each share of our Class A common stock will have one vote per share on all matters voted on by common stockholders, including
the election of directors, and each share of our Class C common stock will have fifty votes per share on each matter on which
holders of Class A common stock are entitled to vote. Because stockholders do not have cumulative voting rights, holders of a
majority of the outstanding shares of common stock can elect our entire board of directors. Generally, the affirmative vote of
a majority of all votes cast is necessary to take stockholder action, except that a plurality of all the votes cast at a meeting
at which a quorum is present is sufficient to elect a director, and except as set forth in the next paragraph.
Under
Maryland law, a Maryland corporation generally cannot dissolve, amend its charter, merge, convert, sell all or substantially all
of its assets, engage in a share exchange or engage in similar transactions outside the ordinary course of business, unless approved
by the affirmative vote of stockholders holding at least two-thirds of the shares entitled to vote on the matter. However, a Maryland
corporation may provide in its charter for approval of these matters by a lesser percentage, but not less than a majority of all
of the votes entitled to be cast on the matter. Our charter provides for a majority vote in these situations. Our charter further
provides that any or all of our directors may be removed from office at any time, but only for cause, and then only by the affirmative
vote of at least a majority of the votes entitled to be cast generally in the election of directors. For these purposes, “cause”
means, with respect to any particular director, conviction of a felony or final judgment of a court of competent jurisdiction
holding that such director caused demonstrable material harm to us through bad faith or active and deliberate dishonesty.
Each
stockholder entitled to vote on a matter may do so at a meeting in person or by proxy directing the manner in which he or she
desires that his or her vote be cast or without a meeting by a consent in writing or by electronic transmission. Any proxy must
be received by us prior to the date on which the vote is taken. Pursuant to Maryland law and our bylaws and subject in all respects
to the terms of any outstanding shares of preferred stock, if no meeting is held, 100% of the stockholders must consent in writing
or by electronic transmission to take effective action on behalf of our company, unless the action is advised, and submitted to
the stockholders for approval, by our board of directors, in which case such action may be approved by the consent in writing
or by electronic transmission of stockholders entitled to cast not less than the minimum number of votes that would be necessary
to authorize or take the action at a meeting of stockholders.
Preferred
Stock
Our
charter authorizes our board of directors, without further stockholder action, to provide for the issuance of up to 250,000,000
shares of preferred stock, in one or more classes or series, with such terms, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption,
as our board of directors may approve, subject to the Preferred Stock Restrictions.
If
any preferred stock is publicly offered, the terms and conditions of such preferred stock, including any convertible preferred
stock, will be set forth in articles supplementary and described in a prospectus supplement relating to the issuance of such preferred
stock, if such preferred stock is registered. Because our board of directors has the power to establish the preferences and rights
of each class or series of preferred stock, it may afford the holders of any series or class of preferred stock preferences, powers,
and rights senior to the rights of holders of common stock or other preferred stock, subject to the Preferred Stock Restrictions.
If we ever authorize, create and issue additional preferred stock with a distribution preference over common stock or preferred
stock, payment of any distribution preferences of new outstanding preferred stock would reduce the amount of funds available for
the payment of distributions on the common stock and junior preferred stock. Further, holders of preferred stock are normally
entitled to receive a preference payment if we liquidate, dissolve, or wind up before any payment is made to the common stockholders,
likely reducing the amount common stockholders and junior preferred stockholders, if any, would otherwise receive upon such an
occurrence. In addition, under certain circumstances, the issuance of additional preferred stock may delay, prevent, render more
difficult or tend to discourage the following:
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a
merger, tender offer, or proxy contest;
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the
assumption of control by a holder of a large block of our securities; or
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the
removal of incumbent management.
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Also,
subject to the Preferred Stock Restrictions, our board of directors, without stockholder approval, may issue additional preferred
stock with voting and conversion rights that could adversely affect the holders of common stock or preferred stock.
Series
B Redeemable Preferred Stock
We
are currently authorized to issue up to 1,225,000 shares of our Series B Preferred Stock, which may be issued in Units, with each
Unit consisting of one share of Series B Preferred Stock and one Warrant to purchase up to 20 shares of our Class A common stock.
The
following is a brief description of the terms of our Series B Preferred Stock. The description of our Series B Preferred Stock
contained herein does not purport to be complete and is qualified in its entirety by reference to the Articles Supplementary for
our Series B Preferred Stock (the “Series B Articles Supplementary”), which have been filed with the SEC and are incorporated
by reference as an exhibit to the registration statement, of which this prospectus is a part.
Rank.
Our
Series B Preferred Stock ranks, with respect to dividend rights and rights upon our liquidation, winding-up or dissolution:
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senior
to all classes or series of our common stock, and to any other class or series of our
capital stock issued in the future unless the terms of that capital stock expressly provide
that it ranks senior to, or on parity with, the Series B Preferred Stock;
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on
parity with any class or series of our capital stock, the terms of which expressly provide
that it will rank on parity with the Series B Preferred Stock, including the Series C
Preferred Stock, the Series D Preferred Stock and the Series T Preferred Stock; and
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junior
to any other class or series of our capital stock, the terms of which expressly provide
that it will rank senior to the Series B Preferred Stock, none of which exists on the
date hereof, and subject to payment of or provision for our debts and other liabilities.
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Investors
in the Series B Preferred Stock should note that, subject to the Cetera Side Letter (as hereinafter defined), holders of our Series
B Preferred Stock do not have a right to receive a return of capital prior to holders of our common stock upon the individual
sale of a property. To provide protection to the holders of the Series B Preferred Stock, the Cetera Side Letter restricts us
from selling an asset if the sale would cause us to fail to meet a dividend coverage ratio of no less than 1.1:1 based on the
ratio of our adjusted funds from operations to dividends required to be paid to holders of our Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock and Series T Preferred Stock for the two most recent quarters, subject to our ability
to maintain status as a REIT for U.S. federal income tax purposes, as further described herein. Depending on the price at which
such property is sold, it is possible that holders of our common stock will receive a return of capital prior to the holders of
our Series B Preferred Stock, provided that any accrued but unpaid dividends have been paid in full to holders of Series B Preferred
Stock. It is also possible that holders of common stock will receive additional distributions from the sale of a property (in
excess of their capital attributable to the asset sold) before the holders of Series B Preferred Stock receive a return of their
capital. See “Description of Capital Stock — Series B Redeemable Preferred Stock — Cetera Side Letter.”
Stated
Value.
Each
share of Series B Preferred Stock has an initial “Stated Value” of $1,000, subject to appropriate adjustment in relation
to certain events, such as recapitalizations, stock dividends, stock splits, stock combinations, reclassifications or similar
events affecting our Series B Preferred Stock, as set forth in the Series B Articles Supplementary.
Dividends.
Subject
to the preferential rights of the holders of any class or series of our capital stock ranking senior to our Series B Preferred
Stock, if any such class or series is authorized in the future, the holders of Series B Preferred Stock are entitled to receive,
when and as authorized by our board of directors and declared by us out of legally available funds, cumulative cash dividends
on each share of Series B Preferred Stock at an annual rate of six percent (6%) of the Stated Value. Dividends on each share of
Series B Preferred Stock will begin accruing on, and will be cumulative from, the date of issuance or the end of the most recent
dividend period for which dividends on the Series B Preferred Stock have been paid; provided, however, that any
such dividend may vary among holders of Series B Preferred Stock and may be prorated with respect to any shares of Series B Preferred
Stock that were outstanding less than the total number of days in the dividend period immediately preceding the applicable dividend
payment date, with the amount of any such prorated dividend being computed on the basis of the actual number of days in such dividend
period during which such shares of Series B Preferred Stock were outstanding. We expect to authorize and declare dividends on
the Series B Preferred Stock on a quarterly basis, payable monthly on the 5th day of the month (or if such day is not a business
day, on the next succeeding business day, with the same force and effect as if made on such date) to holders of record at the
close of business on the 25th day of the prior month, unless our results of operations, our general financing conditions, general
economic conditions, applicable provisions of Maryland law or other factors make it imprudent or impermissible to do so. The timing
and amount of such dividends will be determined by our board of directors, in its sole discretion, and may vary from time to time.
Dividends
will accrue and be paid on the basis of a 360-day year consisting of twelve 30-day months. Dividends on the Series B Preferred
Stock will accrue whether or not (i) we have earnings, (ii) there are funds legally available for the payment of such dividends
and (iii) such dividends are authorized by our board of directors or declared by us. Accrued dividends on the Series B Preferred
Stock will not bear interest.
Holders
of our shares of Series B Preferred Stock are not entitled to any dividend in excess of full cumulative dividends on our shares
of Series B Preferred Stock. Unless full cumulative dividends on our shares of Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series T Preferred Stock for all past dividend periods have been or contemporaneously are declared
and paid in full or declared and a sum sufficient for the payment thereof in full is set apart for payment, we will not:
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declare
and pay or declare and set apart for payment dividends or declare and make any other
distribution of cash or other property (other than dividends or distributions paid in
shares of stock ranking junior to the Series B Preferred Stock as to the dividend rights
or rights on our liquidation, winding-up or dissolution, and options, warrants or rights
to purchase such shares), directly or indirectly, on or with respect to any shares of
our common stock or any class or series of our stock ranking junior to or on parity with
the Series B Preferred Stock as to dividend rights or rights on our liquidation, winding-up
or dissolution for any period; or
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except
by conversion into or exchange for shares of stock ranking junior to the Series B Preferred
Stock as to dividend rights or rights on our liquidation, winding-up or dissolution,
or options, warrants or rights to purchase such shares, redeem, purchase or otherwise
acquire (other than a redemption, purchase or other acquisition of common stock made
for purposes of an employee incentive or benefit plan) for any consideration, or pay
or make available any monies for a sinking fund for the redemption of, any common stock
or any class or series of our stock ranking junior to or on parity with the Series B
Preferred Stock as to dividend rights or rights on our liquidation, winding-up or dissolution.
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To
the extent necessary to preserve our status as a REIT, the foregoing sentence, however, will not prohibit declaring or paying
or setting apart for payment any dividend or other distribution on our common stock or redeeming, purchasing or acquiring such
stock.
Holders
of our Series B Preferred Stock are not eligible to participate in the company’s dividend reinvestment plan.
Redemption
at Option of Holders.
Beginning
on the date of original issuance of the shares of Series B Preferred Stock to be redeemed, holders will have the right to require
the company to redeem such shares of Series B Preferred Stock at a redemption price equal to the Stated Value, initially $1,000
per share, less a 13.0% redemption fee, plus an amount equal to all accrued but unpaid dividends through and including the date
of redemption.
Beginning
one year from the date of original issuance of the shares of Series B Preferred Stock to be redeemed, holders will have the right
to require the company to redeem such shares of Series B Preferred Stock at a redemption price equal to the Stated Value, initially
$1,000 per share, less a 10% redemption fee, plus an amount equal to all accrued but unpaid dividends through and including the
date of redemption.
Beginning
three years from the date of original issuance of the shares of Series B Preferred Stock to be redeemed, holders will have the
right to require the company to redeem such shares of Series B Preferred Stock at a redemption price equal to the Stated Value,
initially $1,000 per share, less a 5% redemption fee, plus an amount equal to all accrued but unpaid dividends through and including
the date of redemption.
Beginning
four years from the date of original issuance of the shares of Series B Preferred Stock to be redeemed, holders will have the
right to require the company to redeem such shares of Series B Preferred Stock at a redemption price equal to the Stated Value,
initially $1,000 per share, less a 3% redemption fee, plus an amount equal to all accrued but unpaid dividends through and including
the date of redemption.
Beginning
five years from the date of original issuance of the shares of Series B Preferred Stock to be redeemed, holders will have the
right to require the company to redeem such shares of Series B Preferred Stock at a redemption price equal to 100% of the Stated
Value, initially $1,000 per share, plus an amount equal to all accrued but unpaid dividends through and including the date of
redemption.
If
a holder of Series B Preferred Stock causes the company to redeem such shares of Series B Preferred Stock, we have the right,
in our sole discretion, to pay the redemption price in cash or in equal value of shares of our Class A common stock, calculated
based on the closing price per share of our Class A common stock for the single trading day prior to the redemption.
However,
our ability to redeem shares of Series B Preferred Stock in cash may be limited to the extent that we do not have sufficient funds
available to fund such cash redemption. Further, our obligation to redeem any of the shares of Series B Preferred Stock submitted
for redemption in cash may be restricted by Maryland law.
Optional
Redemption or Repurchase Following Death of a Holder.
Subject
to restrictions, beginning on the date of original issuance and ending two years thereafter, we will redeem,
and beginning on the second anniversary of the date of original issuance and ending three years thereafter, we will repurchase
without payment of a repurchase fee, shares of Series B Preferred Stock held by a natural person
upon his or her death at the written request of the holder’s estate at a redemption or repurchase price equal to the Stated
Value, plus an amount equal to all accrued and unpaid dividends thereon through and including the date of redemption or repurchase;
provided, however, that our obligation to repurchase any of the shares of Series B Preferred Stock is limited to
the extent that the terms and provisions of any agreement to which we are a party prohibits such repurchase or provides that such
repurchase would constitute a breach thereof or a default thereunder. If a holder of Series B Preferred Stock, or a
holder’s estate upon death of a holder, causes us to redeem or repurchase (as applicable) such shares of Series B
Preferred Stock, we have the right, in our sole discretion, to pay the redemption or repurchase
price in cash or in equal value of shares of our Class A common stock, calculated based on the closing price per share
of our Class A common stock for the single trading day prior to the date of redemption or repurchase. Our ability to redeem or
repurchase shares of Series B Preferred Stock in cash may be limited to the extent that we do not have sufficient funds available
to fund such cash redemption or repurchase. Further, our obligation to redeem or repurchase any of the shares of Series B Preferred
Stock submitted for redemption or repurchase in cash may be restricted by Maryland law.
Optional
Redemption by the Company.
Beginning
two years from the date of issuance of shares of Series B Preferred Stock, we will have the right (but not the obligation) to
redeem any or all such shares of Series B Preferred Stock. We will redeem such shares of Series B Preferred Stock to be redeemed
at a redemption price equal to 100% of the Stated Value per share of Series B Preferred Stock (initially, $1,000 per share), plus
an amount equal to any accrued but unpaid dividends. We have the right, in our sole discretion, to pay the redemption price in
cash or in equal value of shares of our Class A common stock, calculated based on the closing price per share of our Class A common
stock for the single trading day prior to the redemption, in exchange for the Series B Preferred Stock so redeemed.
We
may exercise our redemption right by delivering a written notice thereof to the holders of all, but not less than all, of the
shares of Series B Preferred Stock to be redeemed; provided, that we may, in our sole discretion (subject to certain restrictions
set forth in the Series B Articles Supplementary), designate all or any portion of such shares of Series B Preferred Stock as
subject to redemption pursuant to any such notice. Each such notice will include (i) the date on which the redemption shall occur,
which date will be no fewer than 14 days following the notice date; (ii) the price at which the redemption shall occur; (iii)
the total number of shares of Series B Preferred Stock to be redeemed; and (iv) such other information as required pursuant to
the Series B Articles Supplementary. In addition, if fewer than all of the shares of Series B Preferred Stock held by any holder
are to be redeemed, the notice will specify the number of shares of Series B Preferred Stock held by such holder to be redeemed
(or the method for determining that number).
Change
of Control Redemption by the Company.
Upon
the occurrence of a Change of Control (as defined below), we will be required to redeem all outstanding shares of the Series B
Preferred Stock in whole within 60 calendar days after the first date on which such Change of Control occurred, in cash at a redemption
price of $1,000 per share, plus an amount equal to all accrued and unpaid dividends (whether or not authorized or declared), if
any, to and including the redemption date; provided, however, that if the Maryland law solvency tests prohibit us from paying
the full redemption price in cash, then we will pay such portion as would otherwise violate the solvency tests in shares of our
Class A common stock to holders of the Series B Preferred Stock on a pro rata basis, calculated based on the closing price per
share of our Class A common stock for the single trading day prior to the redemption. Further, our obligation to redeem any of
the shares of the Series B Preferred Stock in cash may be restricted by Maryland law.
We
will mail to record holders of the Series B Preferred Stock a notice of redemption no fewer than 14 days before the redemption
date. We will send the notice to your address shown on our stock transfer books. A failure to give notice of redemption or any
defect in the notice or in its mailing will not affect the validity of the redemption of any Series B Preferred Stock except as
to the holder to whom notice was defective. Each notice will state the following:
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the
number of shares of Series B Preferred Stock to be redeemed;
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DTC’s
procedures for book entry transfer of Series B Preferred Stock for payment of the redemption
price;
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that
dividends on the shares of Series B Preferred Stock to be redeemed will cease to accrue
on such redemption date;
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that
payment of the redemption price and an amount equal to any accrued and unpaid dividends
will be made upon book entry transfer of such Series B Preferred Stock in compliance
with DTC’s procedures; and
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that
the Series B Preferred Stock is being redeemed pursuant to our mandatory redemption in
connection with the occurrence of a Change of Control and a brief description of the
transaction or transactions constituting such Change of Control.
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If
we have given a notice of redemption and have set apart sufficient funds for the redemption in trust for the benefit of the holders
of the Series B Preferred Stock called for redemption with irrevocable instructions regarding the payment of the redemption price,
then from and after the redemption date, those shares of Series B Preferred Stock will be treated as no longer being outstanding,
no further dividends will accrue and all rights of the holders of those shares of Series B Preferred Stock will terminate. The
holders of those shares of Series B Preferred Stock will retain their right to receive the redemption price for their shares and
an amount equal to all accrued and unpaid dividends, if any, to and including the redemption date, without interest.
The
holders of Series B Preferred Stock at the close of business on a dividend record date will be entitled to receive the dividend
payable with respect to the Series B Preferred Stock on the corresponding payment date notwithstanding the redemption of the Series
B Preferred Stock between such record date and the corresponding payment date or our default in the payment of the dividend due.
Except as provided above, we will make no payment or allowance for unpaid dividends, whether or not in arrears, on Series B Preferred
Stock to be redeemed.
For
purposes of the Series B Preferred Stock, a “Change of Control” is when, after the original issuance of the Series
B Preferred Stock, any of the following has occurred and is continuing:
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a
“person” or “group” within the meaning of Section 13(d) of the
Exchange Act other than our company, its subsidiaries, and its and their employee benefit
plans, has become the direct or indirect “beneficial owner,” as defined in
Rule 13d-3 under the Exchange Act, of our Voting Stock (i.e., our common equity representing
more than 50% of the total voting power of all outstanding shares of our common equity
that are entitled to vote generally in the election of directors); provided, that notwithstanding
the foregoing, such a transaction will not be deemed to involve a Change of Control if
(i) we become a direct or indirect wholly-owned subsidiary of a holding company and (ii)
the direct or indirect holders of the Voting Stock of such holding company immediately
following that transaction are substantially the same as the holders of our Voting Stock
immediately prior to that transaction;
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consummation
of any share exchange, consolidation or merger of our company or any other transaction
or series of transactions pursuant to which our Class A common stock will be converted
into cash, securities or other property, (1) other than any such transaction where the
shares of our Class A common stock outstanding immediately prior to such transaction
constitute, or are converted into or exchanged for, a majority of the common stock of
the surviving person or any direct or indirect parent company of the surviving person
immediately after giving effect to such transaction, and (2) expressly excluding any
such transaction preceded by our company’s acquisition of the capital stock of
another company for cash, securities or other property, whether directly or indirectly
through one of our subsidiaries, as a precursor to such transaction; or
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Series
B Continuing Directors cease to constitute at least a majority of our board of directors.
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“Series
B Continuing Director” means a director who either was a member of our board of directors on February 24, 2016 or who becomes
a member of our board of directors subsequent to that date and whose appointment, election or nomination for election by our stockholders
was duly approved by a majority of the continuing directors on our board of directors at the time of such approval, either by
a specific vote or by approval of the proxy statement issued by our company on behalf of our board of directors in which such
individual is named as nominee for director.
Liquidation
Preference.
Upon
any voluntary or involuntary liquidation, dissolution or winding-up of our affairs, before any distribution or payment shall be
made to holders of our common stock or any other class or series of capital stock ranking junior to our shares of Series B Preferred
Stock, the holders of shares of Series B Preferred Stock will be entitled to be paid out of our assets legally available for distribution
to our stockholders, after payment or provision for our debts and other liabilities, a liquidation preference equal to the Stated
Value per share, plus an amount equal to any accrued and unpaid dividends (whether or not declared) to and including the date
of payment, without interest, pari passu with the holders of shares of any other class or series of our capital ranking on parity
with the Series B Preferred Stock, including our Series C Preferred Stock, our Series D Preferred Stock and our Series T Preferred
Stock as to the liquidation preference and accrued but unpaid dividends they are entitled to receive.
After
payment of the full amount of the liquidating distributions to which they are entitled, the holders of our shares of Series B
Preferred Stock will have no right or claim to any of our remaining assets. Our consolidation or merger with or into any other
corporation, trust or other entity, the consolidation or merger of any other corporation, trust or entity with or into us, the
sale or transfer of any or all our assets or business, or a statutory share exchange will not be deemed to constitute a liquidation,
dissolution or winding-up of our affairs.
In
determining whether a distribution (other than upon voluntary or involuntary liquidation), by dividend, redemption or other acquisition
of shares of our stock or otherwise, is permitted under the Maryland General Corporation Law (the “MGCL”) amounts
that would be needed, if we were to be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution
of holders of the Series B Preferred Stock will not be added to our total liabilities.
Voting
Rights.
Our
Series B Preferred Stock has no voting rights, except as set forth in the Cetera Side Letter (as hereinafter defined). See “—Cetera
Side Letter” below.
Exchange
Listing.
We
do not plan on making an application to list the shares of our Series B Preferred Stock on the NYSE American, any other national
securities exchange or any other nationally recognized trading system. Our Class A common stock and our Series C Preferred Stock
and Series D Preferred Stock are listed on the NYSE American.
Cetera
Side Letter
On
February 6, 2017, we entered into a side letter agreement with Cetera Financial Group, Inc., or Cetera, on behalf of itself and
its affiliated broker dealers who have been engaged to offer and sell the Series B Preferred Stock (the “Cetera Side Letter”),
to provide certain additional protections to the holders of Series B Preferred Stock (the “Series B Holders”), in
addition to those provided under our charter.
The
following description of the Cetera Side Letter is a summary and is qualified in its entirety by the terms set forth in the Cetera
Side Letter, a copy of which has been filed with the SEC and incorporated by reference as an exhibit to the registration statement
of which this prospectus is a part.
Dividend
Coverage Ratio
Under
the terms of the Cetera Side Letter, we have agreed, for so long as shares of Series B Preferred Stock remain outstanding, to
maintain a Dividend Coverage Ratio (as defined below) of not less than 1.1:1 (the “Series B Coverage Requirement”),
as of the end of each calendar quarter. Within five business days following the filing of our Quarterly Report on Form 10-Q or
Annual Report on Form 10-K, as applicable, for such calendar quarter (each, a “Testing Date”), we must deliver a written
certificate to Cetera (i) certifying and demonstrating by calculation that we met the Series B Coverage Requirement as of the
end of the applicable calendar quarter and (ii) certifying that we are reasonably expected to maintain the Dividend Coverage Ratio
for the subsequent calendar quarter based solely on information known to our Chief Executive Officer, Chief Accounting Officer
and Chief Financial Officer, as applicable, as of such Testing Date. If we are not able to make both of these certifications,
then following such Testing Date, we will not be permitted to issue any additional preferred stock other than stock ranking junior
to the Series B Preferred Stock with respect to any other distributions or liquidation rights upon voluntary or involuntary liquidation,
dissolution or winding up of our affairs, or Junior Stock, nor to make any voluntary distributions on shares of our common stock
or any other class of Junior Stock (except as required to maintain our qualification as a REIT for U.S. federal income tax purposes)
until and unless the Series B Coverage Requirement is certified in a subsequent certificate.
For
purposes of the Cetera Side Letter, the “Dividend Coverage Ratio” equals: (A) our Adjusted Funds from Operations (“AFFO”),
calculated in accordance with commonly accepted industry standards and further adjusted to add back the expense of all preferred
dividends, for the two most recent quarters, plus the sum of: (1) the product of (a)(i) unrestricted cash on our balance sheet
as reflected in our Quarterly Report on Form 10-Q or Annual Report on Form 10-K, as applicable, filed at such Testing Date (the
“Current Filing”), minus (ii) an amount equal to the greater of $5,000,000 or 5.0% of the amount in subclause (i)
(provided, if such calculation would cause the amount to be negative, it will instead be equal to zero), multiplied by (b) a 5.0%
annualized rate of return over such quarterly period, and (2) the product of (a)(i) unrestricted cash on our balance sheet as
reflected in the quarterly filing filed immediately preceding the Current Filing, minus (ii) an amount equal to the greater of
$5,000,000 or 5.0% of the amount in subclause (i) (provided, if such calculation would cause the amount to be negative, it will
instead be equal to zero), multiplied by (b) a 5.0% annualized rate of return over such quarterly period; over (B) the amount
of preferred dividends required to be distributed, for such quarter, to (x) the Series B Holders, (y) the holders of any class
or series of our capital stock the terms of which expressly provide that it ranks on parity with the Series B Preferred Stock
as to payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up (the “Parity Preferred
Stock”), and (z) the holders of any class or series of “Senior Stock”.
Voting
Rights
For
so long as any shares of Series B Preferred Stock remain outstanding and subject to be called for redemption, in addition to any
other vote or consent of stockholders required by our charter, the affirmative vote or consent of a majority of the votes cast
by the Series B Holders and by holders of Voting Preferred Stock (together, the “Parity Holders”), voting together
as a single class, at a meeting at which a majority of the outstanding shares of Parity Preferred Stock are present, in person
or by proxy, will be required to (a) authorize, create or issue, or increase the number of authorized or issued shares of, any
class or series of Senior Stock, (b) reclassify any authorized shares of our capital stock into Senior Stock, or (c) create, authorize
or issue any obligation or security convertible into or evidencing the right to purchase Senior Stock (collectively, the “Parity
Preferred Voting Right”). Each share of Series B Preferred Stock is entitled to one vote per $1,000.00 of liquidation preference,
and each share of Parity Preferred Stock is entitled to one vote per $1,000.00 of liquidation preference. The Series B Holders
otherwise have no voting rights.
At
any time when the Parity Preferred Voting Right applies, a proper officer of the company must call or cause to be called a special
meeting of the Parity Holders by mailing or causing to be mailed to such Parity Holders a notice of such special meeting to be
held not fewer than ten (10) nor more than forty-five (45) days after the date such notice is given. The record date for determining
Parity Holders of the Parity Preferred Stock entitled to notice of and to vote at such special meeting will be the close of business
on the third business day preceding the day on which such notice is mailed. Notice of all meetings at which Series B Holders shall
be entitled to vote will be given to such Series B Holders at their addresses as they appear in our transfer records, and to Cetera
at the address specified in the Cetera Side Letter.
Further
Protections
For
so long as any shares of Series B Preferred Stock remain outstanding, we have agreed as follows: (1) neither we, the Operating
Partnership, nor any controlled subsidiary thereof may take any corporate action that restricts our ability to redeem Series B
Preferred Stock with shares of the our Class A common stock, or that is intended to or that could be reasonably expected to cause
the rights of the Series B Holders under the Cetera Side Letter to be terminated or materially, adversely affected; and (2) we
will not sell an asset if such sale would cause us to fail to meet the Series B Coverage Requirement, unless such sale is reasonably
necessary for us to maintain our qualification as a REIT for U.S. federal income tax purposes, as determined by a majority of
our independent directors.
Class
A Common Stock Warrants for Series B Preferred Stock
The
following is a brief summary of the Warrants associated with our Series B Preferred Stock and is subject to, and qualified in
its entirety by, the terms set forth in the Warrant Agreement (as defined below) and global warrant certificate filed with the
SEC and incorporated by reference as exhibits to the registration statement, of which this prospectus is a part.
Warrant
Agreement.
The
Warrants to be issued in connection with our Series B Preferred Stock will be governed by a warrant agreement (the “Warrant
Agreement”). The Warrants will be issued either in certificated form or by “book-entry” form, in either case
to DTC, and evidenced by one or more global warrants. Those investors who own beneficial interests in a global warrant do so through
participants in DTC’s system, and the rights of these indirect owners will be governed solely by the Warrant Agreement and
the applicable procedures and requirements of the DTC. The Warrants may be exercised by the holders of beneficial interest in
the Warrants by delivering to the warrant agent, through a broker who is a DTC participant, prior to the expiration of such Warrants,
a duly signed exercise notice and payment of the exercise price for the shares of our Class A common stock for which such Warrants
are being exercised, as described in more detail below.
Exercisability.
Holders
may exercise the Warrants at any time beginning one year from the date of issuance, and ending at 5:00 p.m., New York time, on
the date that is the fourth anniversary of such date of issuance. The Warrants are exercisable, at the option of each holder,
in whole, but not in part, by delivering to the warrant agent a duly executed exercise notice accompanied by payment in full for
the number of shares of our Class A common stock purchased upon such exercise (except in the case of a cashless exercise in the
circumstances discussed below). Each Warrant is exercisable for 20 shares of our Class A common stock (subject to adjustment,
as discussed below). A holder of Warrants does not have the right to exercise any portion of a Warrant to the extent that, after
giving effect to the issuance of shares of our Class A common stock upon such exercise, the holder (together with its affiliates
and any other persons acting as a group together with such holder or any of its affiliates) would beneficially or constructively
own in excess of 9.8% in value of the shares of our capital stock outstanding or in excess of 9.8% (in value or number of shares,
whichever is more restrictive) of the shares of our common stock outstanding, in each case, immediately after giving effect to
the issuance of shares of our Class A common stock upon exercise of the Warrant.
Cashless
Exercise.
The
holder may satisfy its obligation to pay the exercise price upon the exercise of its Warrant on a cashless basis in accordance
with the terms of the Warrant Agreement. When exercised on a cashless basis, a portion of the Warrant is cancelled in payment
of the purchase price payable in respect of the number of shares of our Class A common stock purchasable upon such exercise. Any
Warrant that is outstanding on the termination date of the Warrant will be automatically terminated.
Exercise
Price.
The
exercise price of the Class A common stock purchasable upon exercise of the Warrants equals a 20% premium to the current market
price per share of our Class A common stock on the date of issuance of such Warrant, subject to a minimum exercise price of $10.00
per share. The current market price will be determined using the volume weighted average price per share of our Class A common
stock for the 20 trading days immediately prior to the date of the issuance of the Warrant. The exercise price and the number
of shares of our Class A common stock issuable upon exercise of the Warrants is subject to appropriate adjustment from time to
time in relation to the following events or actions in respect of the company: (i) we declare a dividend or make a distribution
on our outstanding Class A common stock in Class A common stock; (ii) we subdivide or reclassify our outstanding Class A common
stock into a greater number of shares of our Class A common stock; (iii) we combine or reclassify our outstanding Class A common
stock into a smaller number of shares of our Class A common stock; or (iv) we enter into any transaction whereby the outstanding
shares of our Class A common stock are at any time changed into or exchanged for a different number or kind of shares or other
securities of the company or of another entity through reorganization, merger, consolidation, liquidation or recapitalization.
Transferability.
Subject
to applicable law, the Warrants may be transferred at the option of the holder upon surrender of the Warrants with the appropriate
instruments of transfer.
Exchange
Listing.
We
do not plan on making an application to list the Warrants on the NYSE American, any other national securities exchange or other
nationally recognized trading system. Our Class A common stock and our Series C Preferred Stock and Series D Preferred Stock are
listed on the NYSE American.
Rights
as Stockholder.
Except
as otherwise provided in the Warrants or by virtue of such holder’s ownership of shares of our Class A common stock, the
holders of the Warrants will not have the rights or privileges of holders of our Class A common stock, including any voting rights,
until they exercise their Warrants.
Fractional
Shares.
No
fractional shares of Class A common stock will be issued upon the exercise of the Warrants. Rather, we shall, at our election,
either pay a cash adjustment in respect of such fraction in an amount equal to such fraction multiplied by the exercise price
or round up the number of shares of Class A common stock to be issued to the nearest whole number.
Series
C Cumulative Redeemable Preferred Stock
The
following is a brief description of the terms of our Series C Preferred Stock. The description of our Series C Preferred Stock
contained herein does not purport to be complete and is qualified in its entirety by reference to the Articles Supplementary classifying
shares of our preferred stock as shares of Series C Preferred Stock (the “Series C Articles Supplementary”), which
have been filed with the SEC and are incorporated by reference as an exhibit to the registration statement, of which this prospectus
is a part.
Rank.
The
Series C Preferred Stock ranks, with respect to priority of dividend payments and rights upon voluntary or involuntary liquidation,
dissolution or winding up of our affairs:
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senior
to all classes or series of our common stock, and to any other class or series of our
capital stock issued in the future, unless the terms of that capital stock expressly
provide that it ranks senior to, or on parity with, the Series C Preferred Stock;
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on
parity with any class or series of our capital stock, the terms of which expressly provide
that it will rank on parity with the Series C Preferred Stock, including the Series B
Preferred Stock , Series D Preferred Stock and Series T Preferred Stock; and
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junior
to any other class or series of our capital stock, the terms of which expressly provide
that it will rank senior to the Series C Preferred Stock, none of which exists on the
date hereof.
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Dividends.
Subject
to the preferential rights of the holders of any class or series of our capital stock ranking senior to the Series C Preferred
Stock with respect to priority of dividend payments, holders of shares of the Series C Preferred Stock are entitled to receive
cumulative cash dividends on the Series C Preferred Stock when, as and if authorized by our board of directors and declared by
us from and including the date of original issue or the first day following the end of the most recent dividend period for which
dividends on the Series C Preferred Stock have been paid, payable quarterly in arrears on each January 5th, April 5th, July 5th
and October 5th of each year. Holders of shares of Series C Preferred Stock will not be entitled to receive dividends paid on
any dividend payment date if such shares were not issued and outstanding on the record date for such dividend. From the date of
original issue to, but not including, July 19, 2023, we will pay cumulative cash dividends at the rate of 7.625% per annum of
the $25.00 liquidation preference per share of the Series C Preferred Stock (equivalent to the fixed annual amount of $1.90625
per share of the Series C Preferred Stock (the “Series C Initial Rate”). Commencing July 19, 2023, we will pay cumulative
cash dividends at an annual dividend rate of the Series C Initial Rate increased by 2.0% of the liquidation preference per annum,
or $0.50 per annum, which will increase by an additional 2.0% of the liquidation preference per annum, or $0.50 per annum, on
each subsequent anniversary thereafter, subject to a maximum annual dividend rate of 14.0%. The first dividend on the Series C
Preferred Stock, paid on October 5, 2016, was a pro rata dividend from and including the original issue date to and including
September 30, 2016, in the amount of $0.39184 per share.
Dividends
on the Series C Preferred Stock will accrue and be cumulative from the end of the most recent dividend period for which dividends
on the Series C Preferred Stock have been paid, or if no dividends have been paid, from and including the date of original issuance.
Dividends on the Series C Preferred Stock will accrue whether or not (i) we have earnings, (ii) there are funds legally available
for the payment of such dividends and (iii) such dividends are authorized by our board of directors or declared by us. Accrued
dividends on the Series C Preferred Stock will not bear interest. If we fail to pay or set apart for payment any dividend within
three (3) business days after the payment date for such dividend, the then-current dividend rate will increase following the payment
date by an additional 2.0% of the $25.00 stated liquidation preference, or $0.50 per annum, until we pay the dividend, subject
to our ability to cure the failure.
Liquidation
Preference.
If
we liquidate, dissolve or wind up, holders of shares of the Series C Preferred Stock will have the right to receive $25.00 per
share of the Series C Preferred Stock, plus an amount equal to all accrued but unpaid dividends (whether or not authorized or
declared) to and including the date of payment, but without interest, before any distribution or payment is made to holders of
our common stock and any other class or series of capital stock ranking junior to the Series C Preferred Stock as to rights upon
our liquidation, dissolution or winding up.
The
rights of holders of shares of the Series C Preferred Stock to receive their liquidation preference will be subject to the proportionate
rights of holders of shares of any other class or series of our capital stock ranking on parity with the Series C Preferred Stock,
including our Series B Preferred Stock, our Series D Preferred Stock and our Series T Preferred Stock, as to rights upon our liquidation,
dissolution or winding up, junior to the rights of any class or series of our capital stock expressly designated as having liquidation
preferences ranking senior to the Series C Preferred Stock, and subject to payment of or provision for our debts and other liabilities.
After
payment of the full amount of the liquidating distributions to which they are entitled, the holders of our shares of Series C
Preferred Stock will have no right or claim to any of our remaining assets. Our consolidation or merger with or into any other
corporation, trust or other entity, the consolidation or merger of any other corporation, trust or entity with or into us, the
sale or transfer of any or all our assets or business, or a statutory share exchange will not be deemed to constitute a liquidation,
dissolution or winding-up of our affairs.
In
determining whether a distribution (other than upon voluntary or involuntary liquidation), by dividend, redemption or other acquisition
of shares of our stock or otherwise, is permitted under the MGCL amounts that would be needed, if we were to be dissolved at the
time of distribution, to satisfy the preferential rights upon dissolution of holders of the Series C Preferred Stock will not
be added to our total liabilities.
Redemption
at Option of Holders.
Commencing
on July 20, 2023, the holders of the Series C Preferred Stock may, at their option, elect to cause us to redeem their shares at
a redemption price of $25.00 per share, plus an amount equal to all accrued but unpaid dividends, if any, to and including the
redemption date, in cash or in shares of our Class A common stock, or any combination thereof, at our option; provided, a holder
shall not have any right of redemption with respect to any shares of Series C Preferred Stock being called for redemption pursuant
to our Series C Preferred Stock Optional Redemption by the Company, our Series C Preferred Stock Special Optional Redemption,
or our Series C Preferred Stock Mandatory Redemption for Asset Coverage, each as described below, to the extent we have delivered
notice of our intent to redeem on or prior to the date of delivery of the holder’s notice to redeem.
Such
redemptions of Series C Preferred Stock will be payable either in cash, in shares of our Class A common stock, or any combination
thereof, at our option. If we elect to redeem some or all of the Series C Preferred Stock held by such redeeming holder in shares
of our Class A common stock, the number of shares of our Class A common stock per share of Series C Preferred Stock to be issued
will be equal to the quotient obtained by dividing (i) the sum of the $25.00 liquidation preference plus an amount equal to all
accrued but unpaid dividends to and including the redemption date (unless the redemption date is after a record date for a Series
C Preferred Stock dividend payment and prior to the corresponding Series C Preferred Stock dividend payment date, in which case
no additional amount for such accrued but unpaid dividend will be included in this sum) by (ii) the Common Stock Price (as defined
below). Upon the redemption of Series C Preferred Stock for shares of our Class A common stock, we will not issue fractional shares
of our Class A common stock but will instead pay the cash value of such fractional shares.
The
“Common Stock Price” will be (x) the volume weighted average of the closing sales price per share of our Class A common
stock (or, if no closing sale price is reported, the volume weighted average of the closing bid and ask prices or, if more than
one in either case, the volume weighted average of the volume weighted average closing bid and the volume weighted average closing
ask prices) for the ten (10) consecutive trading days immediately preceding, but not including, the Holder Redemption Date as
reported on the NYSE American or the principal U.S. securities exchange on which our Class A common stock is then traded, or (y)
the average of the last quoted bid prices for our common stock in the over-the-counter market as reported by OTC Markets Group,
Inc. or similar organization for the ten (10) consecutive trading days immediately preceding, but not including, the Holder Redemption
Date, if our Class A common stock is not then listed for trading on a U.S. securities exchange.
The
Holder Redemption Date will be (i) the 5th day of the month (or, if such day is not a business day, the next succeeding business
day) following the holder’s notice to redeem if such notice occurs on or before the 25th day of the month, or (ii) the 5th
day of the second month (or, if such day is not a business day, the next succeeding business day) following the holder’s
notice to redeem if the holder’s notice occurs after the 25th day of the month.
Series
C Preferred Stock Mandatory Redemption for Asset Coverage.
If
we fail to maintain asset coverage of at least 200% calculated by determining the percentage value of (1) our total assets plus
accumulated depreciation minus our total liabilities and indebtedness as reported in our financial statements prepared in accordance
with GAAP (exclusive of the book value of any Redeemable and Term Preferred Stock (as defined herein)), over (2) the aggregate
liquidation preference, plus an amount equal to all accrued but unpaid dividends, of our outstanding Series C Preferred Stock,
and any other outstanding shares of term preferred stock or preferred stock providing for a fixed mandatory redemption date or
maturity date (which shall not include our Series B Preferred Stock, our Series D Preferred Stock or our Series T Preferred Stock)
(collectively referred to herein as “Redeemable and Term Preferred Stock”) on the last business day of any calendar
quarter (the “Asset Coverage Ratio”), and such failure is not cured by the close of business on the date that is 30
calendar days following the filing date of our Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as applicable, for
that quarter (the “Asset Coverage Cure Date”), then we will be required to redeem, within 90 calendar days of the
Asset Coverage Cure Date, shares of Redeemable and Term Preferred Stock, which may include Series C Preferred Stock, at least
equal to the lesser of (1) the minimum number of shares of Redeemable and Term Preferred Stock that will result in us having an
Asset Coverage Ratio of at least 200% and (2) the maximum number of shares of Redeemable and Term Preferred Stock that can be
redeemed solely out of funds legally available for such redemption. In connection with any redemption for failure to maintain
such Asset Coverage Ratio, we may, in our sole option, redeem any shares of Redeemable and Term Preferred Stock we select, including
on a non-pro rata basis. We may elect not to redeem any Series C Preferred Stock to cure such failure as long as we cure our failure
to meet the Asset Coverage Ratio by or on the Asset Coverage Cure Date. We may also, in our sole option within such time period,
redeem such additional number of shares of Redeemable and Term Preferred Stock that will result in an Asset Coverage Ratio up
to and including 285%.
If
shares of Series C Preferred Stock are to be redeemed for failure to maintain the Asset Coverage Ratio, such shares will be redeemed
solely in cash at a redemption price equal to $25.00 per share plus an amount equal to all accrued but unpaid dividends, if any,
on such shares (whether or not declared) to and including the redemption date.
Series
C Preferred Stock Optional Redemption by the Company.
Generally,
we may not redeem the Series C Preferred Stock prior to July 19, 2021, except in limited circumstances relating to maintaining
our qualification as a REIT, complying with our Asset Coverage Ratio, and the Series C Preferred Stock Special Optional Redemption
provision described below. On and after July 19, 2021, we may, at our option, upon not fewer than 30 and not more than 60 days’
written notice, redeem the Series C Preferred Stock, in whole or in part, at any time or from time to time, solely for cash at
a redemption price of $25.00 per share, plus an amount equal to all accrued but unpaid dividends (whether or not authorized or
declared) to and including the date fixed for redemption, without interest, to the extent we have funds legally available for
that purpose. Any partial redemption will be on a pro rata basis.
Series
C Preferred Stock Special Optional Redemption.
Upon
the occurrence of a Change of Control/Delisting (as defined below), we may, at our option, redeem the Series C Preferred Stock,
in whole or in part within 120 days after the first date on which such Change of Control/Delisting occurred, solely in cash at
a redemption price of $25.00 per share, plus an amount equal to any accrued but unpaid dividends to, and including, the redemption
date.
For
purposes of the Series C Preferred Stock, a “Change of Control/Delisting” is when, after the original issuance of
the Series C Preferred Stock, any of the following has occurred and is continuing:
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a
“person” or “group” within the meaning of Section 13(d) of the
Exchange Act other than our company, its subsidiaries, and its and their employee benefit
plans, has become the direct or indirect “beneficial owner,” as defined in
Rule 13d-3 under the Exchange Act, of our common equity representing more than 50% of
the total voting power of all outstanding shares of our common equity that are entitled
to vote generally in the election of directors (“Voting Stock”); provided,
that notwithstanding the foregoing, such a transaction will not be deemed to involve
a Change of Control/Delisting if (i) we become a direct or indirect wholly-owned subsidiary
of a holding company and (ii) the direct or indirect holders of the Voting Stock of such
holding company immediately following that transaction are substantially the same as
the holders of our Voting Stock immediately prior to that transaction;
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consummation
of any share exchange, consolidation or merger of the company or any other transaction
or series of transactions pursuant to which the common stock will be converted into cash,
securities or other property, other than any such transaction where the common stock
outstanding immediately prior to such transaction constitutes, or is converted into or
exchanged for, a majority of the common stock of the surviving person or any direct or
indirect parent company of the surviving person immediately after giving effect to such
transaction;
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any
sale, lease or other transfer in one transaction or a series of transactions of all or
substantially all of the consolidated assets of the company and its subsidiaries, taken
as a whole, to any person other than one of the Company’s subsidiaries;
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the
company’s stockholders approve any plan or proposal for the liquidation or dissolution
of the company;
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our
Class A common stock ceases to be listed or quoted on a national securities exchange
in the United States; or
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Continuing
Directors cease to constitute at least a majority of our board of directors.
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For
purposes of the Series C Preferred Stock, “Continuing Director” means a director who either was a member of our board
of directors on October 21, 2015 or who becomes a member of our board of directors subsequent to that date and whose appointment,
election or nomination for election by our stockholders was duly approved by a majority of the continuing directors on our board
of directors at the time of such approval, either by a specific vote or by approval of the proxy statement issued by the company
on behalf of our board of directors in which such individual is named as nominee for director.
Redemption
at Option of Holders Upon a Change of Control/Delisting.
If
a Change of Control/Delisting occurs at any time the Series C Preferred Stock is outstanding, then each holder of shares of Series
C Preferred Stock will have the right, at such holder’s option, to require us to redeem for cash any or all of such holder’s
shares of Series C Preferred Stock, on a date specified by us (the “Series C Change of Control/Delisting Redemption Date”)
that can be no earlier than 30 days and no later than 60 days following the date of delivery of the Series
C Change of Control/Delisting Company Notice (as defined below), at a redemption price equal to 100%
of the liquidation preference of $25.00 per share, plus an amount equal to all accrued but unpaid dividends (whether or not authorized
or declared), to and including such date; provided, a holder shall not have any right of redemption with respect to any shares
of Series C Preferred Stock being called for redemption pursuant to our Series C Preferred Stock Optional Redemption by the company
or our Series C Preferred Stock Special Optional Redemption to the extent we have delivered notice of our intent to redeem on
or prior to the date of delivery of the Series C Change of Control/Delisting Company Notice.
On
or before the 20th calendar day after the occurrence of a Change of Control/Delisting, we will mail to record holders
of the Series C Preferred Stock a notice (the “Change of Control/Delisting Company Notice”), sent in accordance with
the DTC’s procedures, of the occurrence of such Change of Control/Delisting and of the redemption right at the option of
the holders arising as a result thereof. We will send the notice to your address shown on our stock transfer books. A failure
to give notice of redemption or any defect in the notice or in its mailing will not affect the validity of the redemption of any
Series C Preferred Stock except as to the holder to whom notice was defective. Each Change of Control/Delisting Company Notice
will state the following:
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the
events causing a Change of Control/Delisting;
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the
date of the Change of Control/Delisting;
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the
last date on which a holder of Series C Preferred Stock may exercise the redemption right
pursuant to the Change of Control/Delisting;
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the
name and address of the redemption and paying agent; and
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the
procedures that holders must follow to require us to purchase their Series C Preferred
Stock.
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Redemption
of Series C Preferred Stock shall be made, at the option of the holder thereof, upon:
(i) delivery
by such holder to the redemption and paying agent of a duly completed notice (the “Change of Control/Delisting Redemption
Notice”) in compliance with DTC’s procedures, prior to the close of business on the business day immediately
preceding the redemption date; and
(ii) book-entry
transfer of the Series C Preferred Stock in compliance with the procedures of DTC, such transfer being a condition to receipt
by the holder of the redemption price therefor.
Any
holder delivering a Change of Control/Delisting Redemption Notice to the redemption and paying agent shall have the right to withdraw,
in whole or in part, such Change of Control/Delisting Redemption Notice at any time prior to the close of business on the business
day immediately preceding the redemption date by delivery of a written notice of withdrawal to the redemption and paying agent
in accordance with the Change of Control/Delisting Company Notice and with the DTC’s procedures, and specifying the number
of shares of Series C Preferred Stock with respect to which such notice of withdrawal is being submitted.
If
we have given a Change of Control/Delisting Company Notice and have set apart sufficient funds for the redemption in trust for
the benefit of the holders of the Series C Preferred Stock who have tendered and not withdrawn a Change of Control/Delisting Redemption
Notice, then from and after the redemption date, those shares of Series C Preferred Stock will be treated as no longer being outstanding,
no further dividends will accrue and all other rights of the holders of those shares of Series C Preferred Stock will terminate.
The holders of those shares of Series C Preferred Stock will retain their right to receive the redemption price for their shares
and an amount equal to all accrued and unpaid dividends, if any, to and including the redemption date, without interest.
We
will not be required to make a redemption in connection with a Change of Control/Delisting if a third party makes such an offer
in a manner, at the times and otherwise in compliance with the requirements for an offer made by us and the third party redeems
all Series C Preferred Stock properly tendered and not withdrawn under its offer.
The
holders of Series C Preferred Stock at the close of business on a dividend record date will be entitled to receive the dividend
payable with respect to the Series C Preferred Stock on the corresponding payment date notwithstanding the redemption of the Series
C Preferred Stock between such record date and the corresponding payment date or our default in the payment of the dividend due.
Except as provided above, we will make no payment or allowance for unpaid dividends, whether or not in arrears, on Series C Preferred
Stock to be redeemed.
Limited
Voting Rights.
Holders
of shares of the Series C Preferred Stock will generally have no voting rights. However, if dividends on the Series C Preferred
Stock are in arrears for each of six or more consecutive quarterly periods, the number of directors on our board of directors
will automatically be increased by two, and holders of shares of the Series C Preferred Stock and the holders of all other classes
or series of Voting Preferred Stock, including our Series D Preferred Stock and Series T Preferred Stock (voting together as a
single class) will be entitled to vote, at a special meeting called upon the written request of the holders of at least 20% of
such stock or at our next annual meeting and at each subsequent annual meeting of stockholders, for the election of two additional
directors to serve on our board of directors (the “Preferred Directors”), until all accrued and unpaid dividends with
respect to the Series C Preferred Stock and the other Parity Preferred Stock (including our Series B Preferred Stock, our Series
D Preferred Stock and our Series T Preferred Stock) have been paid in full or declared and a sum sufficient for the payment thereof
in full set apart for payment. The Preferred Directors will be elected by a plurality of the votes cast in the election. For the
avoidance of doubt, the board of directors shall not be permitted to fill the vacancies on the board of directors as a result
of the failure of 20% of the holders of Voting Preferred Stock to deliver such written request for the election of the Preferred
Directors.
So
long as any shares of Series C Preferred Stock remain outstanding, in addition to any other vote or consent of stockholders required
by our charter, we will not, without the affirmative vote or consent of the holders of at least two-thirds of the outstanding
shares of Series C Preferred Stock voting together as a single class with the other Parity Preferred Stock upon which like voting
rights have been conferred, authorize, create or issue, or increase the number of authorized or issued shares of, any class or
series of capital stock ranking senior to the Series C Preferred Stock with respect to payment of dividends or the distribution
of assets upon our liquidation, dissolution or winding up, or reclassify any of our authorized capital stock into such capital
stock, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase such capital
stock.
In
addition, so long as any shares of Series C Preferred Stock remain outstanding, we will not, without the affirmative vote or consent
of the holders of at least two-thirds of the outstanding shares of Series C Preferred Stock, amend, alter or repeal our charter,
including the terms of the Series C Preferred Stock, whether by merger, consolidation, transfer or conveyance of substantially
all of our assets or otherwise, so as to materially and adversely affect any right, preference, privilege or voting power of the
Series C Preferred Stock, except that with respect to the occurrence of any of the events set forth above, so long as the Series
C Preferred Stock remains outstanding with the terms of the Series C Preferred Stock materially unchanged, taking into account
that, upon the occurrence of an event set forth above, we may not be the surviving entity, the occurrence of such event will not
be deemed to materially and adversely affect the rights, preferences, privileges or voting power of the Series C Preferred Stock,
and in such case such holders will not have any voting rights with respect to the events set forth above; provided, further, that
with respect to any such amendment, alteration or repeal that equally affects the terms of the Series C Preferred Stock and the
other Voting Preferred Stock, the affirmative vote or consent of the holders of two-thirds of the shares of Series C Preferred
Stock and the other Voting Preferred Stock (voting together as a single class) will be required. Furthermore, if holders of shares
of the Series C Preferred Stock will receive the greater of the full trading price of the Series C Preferred Stock on the date
of an event set forth above or the $25.00 per share liquidation preference pursuant to the occurrence of any of the events set
forth above or pursuant to a special optional redemption by us or a redemption at the option of the holder upon a Change of Control/Delisting,
then such holders shall not have any voting rights with respect to the events set forth above.
In
addition, and in circumstances other than the voting issues addressed in the paragraph above, so long as any shares of Series
C Preferred Stock remain outstanding, the holders of shares of Series C Preferred Stock also will have the exclusive right to
vote on any amendment, alteration or repeal of our charter, including the terms of the Series C Preferred Stock, that would alter
only the contract rights, as expressly set forth in our charter, of the Series C Preferred Stock, and the holders of any other
classes or series of our capital stock will not be entitled to vote on such an amendment, alteration or repeal, with any such
amendment requiring the affirmative vote or consent of holders of two-thirds of the Series C Preferred Stock issued and outstanding
at the time. With respect to any amendment, alteration or repeal of our charter, including the terms of the Series C Preferred
Stock, that equally affects the terms of the Series C Preferred Stock and the other Voting Preferred Stock, so long as any shares
of Series C Preferred Stock remain outstanding, the holders of shares of Series C Preferred Stock and the other Voting Preferred
Stock (voting together as a single class), also will have the exclusive right to vote on any such amendment, alteration or repeal
of our charter, including the terms of the Series C Preferred Stock, that would alter only the contract rights, as expressly set
forth in our charter, of the Series C Preferred Stock and such other classes or series of preferred stock, and the holders of
any other classes or series of our capital stock will not be entitled to vote on such an amendment, alteration or repeal.
Holders
of shares of Series C Preferred Stock will not be entitled to vote with respect to any increase in the total number of authorized
shares of our common stock or preferred stock, any issuance or increase in the number of authorized shares of Series C Preferred
Stock or the creation or issuance of any other class or series of capital stock, or any issuance or increase in the number of
authorized shares of any class or series of capital stock, in each case ranking on parity with or junior to the Series C Preferred
Stock with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up.
Series
D Cumulative Preferred Stock
.
The following is a brief description of the terms of our Series D Preferred Stock. The description of our Series D Preferred
Stock contained herein does not purport to be complete and is qualified in its entirety by reference to the Articles
Supplementary classifying shares of our preferred stock as shares of Series D Preferred Stock (the “Series D Articles
Supplementary”), which have been filed with the SEC and are incorporated by reference as an exhibit to the registration
statement, of which this prospectus is a part.
Rank.
The
Series D Preferred Stock ranks, with respect to priority of dividend payments and rights upon voluntary or involuntary liquidation,
dissolution or winding up of our affairs:
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senior
to all classes or series of our common stock, and to any other class or series of our
capital stock issued in the future, unless the terms of that capital stock expressly
provide that it ranks senior to, or on parity with, the Series D Preferred Stock;
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on
parity with any class or series of our capital stock, the terms of which expressly provide
that it will rank on parity with the Series D Preferred Stock, including the Series B
Preferred Stock, the Series C Preferred Stock and the Series T Preferred Stock; and
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junior
to any other class or series of our capital stock, the terms of which expressly provide
that it will rank senior to the Series D Preferred Stock, none of which exists on the
date hereof.
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Dividends.
Subject
to the preferential rights of the holders of any class or series of our capital stock ranking senior to the Series D Preferred
Stock with respect to priority of dividend payments, holders of shares of the Series D Preferred Stock are entitled to receive
cumulative cash dividends on the Series D Preferred Stock when, as and if authorized by our board of directors and declared by
us from and including the date of original issue or the first day following the end of the most recent dividend period for which
dividends on the Series D Preferred Stock have been paid, payable quarterly in arrears on each January 5th April 5th
July 5th and October 5th of each year. Holders of shares of Series D Preferred Stock will not be entitled
to receive dividends paid on any dividend payment date if such shares were not issued and outstanding on the record date for such
dividend. From the date of original issue, we will pay cumulative cash dividends at the rate of 7.125% per annum of the $25.00
liquidation preference per share of the Series D Preferred Stock (equivalent to the fixed annual amount of $1.78125 per share
of the Series D Preferred Stock). The first dividend payable on the Series D Preferred Stock, paid on January 5, 2017, was a pro
rata dividend from and including the original issue date to and including December 31, 2016, in the amount of $0.3859 per share.
Dividends
will accrue and be paid on the basis of a 360-day year consisting of twelve 30-day months. Dividends on the Series D Preferred
Stock will accrue and be cumulative from the end of the most recent dividend period for which dividends have been paid, or if
no dividends have been paid, from the date of original issue. Dividends on the Series D Preferred Stock will accrue whether or
not (i) we have earnings, (ii) there are funds legally available for the payment of such dividends and (iii) such dividends are
authorized by our board of directors or declared by us. Accrued dividends on the Series D Preferred Stock will not bear interest.
Liquidation
Preference.
If
we liquidate, dissolve or wind up, holders of shares of the Series D Preferred Stock will have the right to receive $25.00 per
share of the Series D Preferred Stock, plus an amount equal to all accrued but unpaid dividends (whether or not authorized or
declared) to and including the date of payment, but without interest, before any distribution or payment is made to holders of
our common stock and any other class or series of capital stock ranking junior to the Series D Preferred Stock as to rights upon
our liquidation, dissolution or winding up.
The
rights of holders of shares of the Series D Preferred Stock to receive their liquidation preference will be subject to the proportionate
rights of shares of any other class or series of our capital stock ranking on parity with the Series D Preferred Stock, including
our Series B Preferred Stock, Series C Preferred Stock and Series T Preferred Stock, as to rights upon our liquidation, dissolution
or winding up, junior to the rights of any class or series of our capital stock expressly designated as having liquidation preferences
ranking senior to the Series D Preferred Stock, and subject to payment of or provision for our debts and other liabilities.
After
payment of the full amount of the liquidating distributions to which they are entitled, the holders of our shares of Series D
Preferred Stock will have no right or claim to any of our remaining assets. Our consolidation or merger with or into any other
corporation, trust or other entity, the consolidation or merger of any other corporation, trust or entity with or into us, the
sale or transfer of any or all our assets or business, or a statutory share exchange will not be deemed to constitute a liquidation,
dissolution or winding-up of our affairs.
In
determining whether a distribution (other than upon voluntary or involuntary liquidation), by dividend, redemption or other acquisition
of shares of our stock or otherwise, is permitted under the MGCL amounts that would be needed, if we were to be dissolved at the
time of distribution, to satisfy the preferential rights upon dissolution of holders of the Series D Preferred Stock will not
be added to our total liabilities.
Series
D Preferred Stock Optional Redemption by the Company.
Generally,
we may not redeem the Series D Preferred Stock prior to October 13, 2021, except in limited circumstances relating to maintaining
our qualification as a REIT and the Series D Preferred Stock Special Optional Redemption provision described below. On and after
October 13, 2021, we may, at our option, redeem the Series D Preferred Stock in whole or in part, at any time or from time to
time, solely for cash at a redemption price of $25.00 per share, plus an amount equal to all accrued but unpaid dividends (whether
or not authorized or declared), if any, to and including the redemption date. Any partial redemption will be on a pro rata basis
(as nearly as practicable without creating fractional shares), by lot or by any other equitable method, subject in all cases to
our ownership and transfer restrictions.
Series
D Preferred Stock Special Optional Redemption.
Upon
the occurrence of a Change of Control/Delisting (as defined below), we may, at our option, redeem the Series D Preferred Stock,
in whole or in part within 120 days after the first date on which such Change of Control/Delisting occurred, solely in cash at
a redemption price of $25.00 per share, plus an amount equal to any accrued but unpaid dividends to, and including, the redemption
date. For purposes of the Series D Preferred Stock, the terms “Change of Control/Delisting” and “Continuing
Director” are defined as set forth above under “—Series C Cumulative Redeemable Preferred Stock”; provided,
that a Change of Control/Delisting will be deemed to have occurred with respect to the Series D Preferred Stock only where the
triggering event has occurred and is continuing after the original issuance of the Series D Preferred Stock.
If,
prior to the Change of Control/Delisting Conversion Date (as hereinafter defined), we have provided or provide notice of our election
to redeem the Series D Preferred Stock (whether pursuant to our Series D Preferred Stock Optional Redemption by the Company or
our Series D Preferred Stock Special Optional Redemption), the holders of Series D Preferred Stock will not be permitted to exercise
the Change of Control/Delisting Conversion Right described below with respect to the shares of Series D Preferred Stock subject
to such notice.
Conversion
Right Upon a Change of Control/Delisting.
If
a Change of Control/Delisting occurs at any time the Series D Preferred Stock is outstanding (unless, prior to the Change of Control/Delisting
Conversion Date, we have provided or provide notice of our election to redeem the Series D Preferred Stock in whole or in part,
whether pursuant to our Series D Preferred Stock Optional Redemption by the Company or our Series D Preferred Stock Special Optional
Redemption), then each holder of shares of Series D Preferred Stock will have the right, at such holder’s option, to convert
any or all of such holder’s shares of Series D Preferred Stock (the “Change of Control/Delisting Conversion Right”),
on a date specified by us that can be no earlier than 30 days and no later than 60 days following the date of delivery of the
Change of Control/Delisting Company Notice (as defined below) (the “Change of Control/Delisting Conversion Date”),
into a number of shares of Class A common stock per share of Series D Preferred Stock to be converted (the “Class A Common
Stock Conversion Consideration”), equal to the lesser of:
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the
quotient obtained by dividing (i) the sum of (x) the liquidation preference amount of
$25.00 per share of Series D Preferred Stock, plus (y) any accrued but unpaid dividends
(whether or not declared) to and including the Change of Control/Delisting Conversion
Date (unless the Change of Control/Delisting Conversion Date is after a record date for
the payment of a Series D Preferred Stock dividend for which dividends have been declared
and prior to the corresponding Series D Preferred Stock dividend payment date, in which
case no additional amount for such accrued but unpaid dividend will be included in this
sum and such declared dividend will instead be paid, on such dividend payment date, to
the holder of record of the Series D Preferred Stock to be converted as of 5:00 p.m.
New York City time, on such record date) by (ii) the Class A Common Share Price (as defined
below); and
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4.15973
(the “Share Cap”), subject to certain adjustments;
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subject,
in each case, to provisions for the receipt of Alternative Form Consideration (as defined below).
The
Share Cap is subject to pro rata adjustments for any share splits (including those effected pursuant to a distribution of our
Class A common stock), subdivisions or combinations (in each case, a Share Split) with respect to our Class A common stock as
follows: the adjusted Share Cap as the result of a Share Split will be the number of Class A common stock that is equivalent to
the product obtained by multiplying (i) the Share Cap in effect immediately prior to such Share Split by (ii) a fraction, the
numerator of which is the number of shares of our Class A common stock outstanding after giving effect to such Share Split and
the denominator of which is the number of shares of our Class A common stock outstanding immediately prior to such Share Split.
In
the case of a Change of Control/Delisting pursuant to which our Class A common stock will be converted into any combination of
cash, securities or other property or assets (the “Alternative Form Consideration”), a holder of Series D Preferred
Stock will receive upon conversion of such Series D Preferred Stock the kind and amount of Alternative Form Consideration that
such holder would have owned or to which that holder would have been entitled to receive upon the Change of Control/Delisting
had such holder held a number of shares of Class A common stock equal to the Class A Common Stock Conversion Consideration immediately
prior to the effective time of the Change of Control/Delisting (the “Alternative Conversion Consideration”), and the
Class A Common Stock Conversion Consideration or the Alternative Conversion Consideration, as may be applicable to a Change of
Control/Delisting, is referred to as the “Conversion Consideration.”
If
the holders of our Class A common stock have the opportunity to elect the form of consideration to be received in the Change of
Control/Delisting, the Conversion Consideration will be deemed to be the kind and amount of consideration actually received by
holders of a majority of our Class A common stock that voted for such an election (if electing between two types of consideration)
or holders of a plurality of our Class A common stock that voted for such an election (if electing between more than two types
of consideration), as the case may be, and will be subject to any limitations to which all holders of our Class A common stock
are subject, including, without limitation, pro rata reductions applicable to any portion of the consideration payable in the
Change of Control/Delisting.
Within
15 days following the occurrence of a Change of Control/Delisting, we will provide to holders of Series D Preferred Stock a notice
of occurrence of the Change of Control/Delisting that describes the resulting Change of Control/Delisting Conversion Right (the
“Change of Control/Delisting Company Notice”), which will state the following:
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the
events constituting Change of Control/Delisting;
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the
date of the Change of Control/Delisting;
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the
last date and time by which the holders of Series D Preferred Stock may exercise their
Change of Control/Delisting Conversion Right;
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the
method and period for calculating the Class A Common Share Price;
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the
Change of Control/Delisting Conversion Date;
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that
if, prior to the Change of Control/Delisting Conversion Date, we have provided or provide
notice of our election to redeem all or any portion of the Series D Preferred Stock,
holders will not be able to convert the shares of Series D Preferred Stock designated
for redemption and such shares will be redeemed on the related redemption date, even
if such shares have already been tendered for conversion pursuant to the Change of Control/Delisting
Conversion Right;
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if
applicable, the type and amount of Alternative Conversion Consideration entitled to be
received per share of Series D Preferred Stock;
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the
name and address of the paying agent and the conversion agent; and
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the
procedures that the holders of Series D Preferred Stock must follow to exercise the Change
of Control/Delisting Conversion Right.
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We
will issue a press release for publication on Dow Jones & Company, Inc., Business Wire, PR Newswire or Bloomberg Business
News (or, if these organizations are not in existence at the time of issuance of the press release, such other news or press organization
as is reasonably calculated to broadly disseminate the relevant information to the public), or post a notice on our website, in
any event prior to the opening of business on the first business day following any date on which we provide the notice described
above to the holders of Series D Preferred Stock.
To
exercise the Change of Control/Delisting Conversion Right, the holders of Series D Preferred Stock will be required to deliver,
on or before the close of business on the Change of Control/Delisting Conversion Date, the certificates (if any) or book entries
representing Series D Preferred Stock to be converted, duly endorsed for transfer (if certificates are delivered), together with
a completed written conversion notice to our transfer agent. The conversion notice must state:
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the
relevant Change of Control/Delisting Conversion Date;
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the
number of shares of Series D Preferred Stock to be converted; and
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that
the Series D Preferred Stock is to be converted pursuant to the Change of Control/Delisting
Conversion Right held by holders of Series D Preferred Stock.
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Holders
of shares of Series D Preferred Stock may withdraw any notice of exercise of a Change of Control/Delisting Conversion Right (in
whole or in part) by a written notice of withdrawal delivered to the transfer agent prior to 5:00 p.m., New York City time, on
the business day prior to the Change of Control/Delisting Conversion Date. The notice of withdrawal must state:
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the
number of withdrawn shares of Series D Preferred Stock;
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if
certificated shares of Series D Preferred Stock have been issued, the certificate numbers
of the withdrawn shares of Series D Preferred Stock; and
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the
number of shares of Series D Preferred Stock, if any, which remain subject to the conversion
notice.
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Notwithstanding
the foregoing, if the shares of Series D Preferred Stock are held in global form, the notice of withdrawal must comply with applicable
DTC procedures.
We
will not issue fractional shares of Class A common stock upon the conversion of the Series D Preferred Stock. Instead, we will
pay the cash value of any fractional share otherwise due, computed on the basis of the applicable Class A Common Share Price.
The
“Class A Common Share Price” will be (i) if the consideration to be received in the Change of Control/Delisting by
the holders of our Class A common stock is solely cash, the amount of cash consideration per share of Class A common stock, or
(ii) if the consideration to be received in the Change of Control/Delisting by holders of our Class A common stock is other than
solely cash, (x) the average of the closing sale prices per share of our Class A common stock (or, if no closing sale price is
reported, the average of the closing bid and ask prices or, if more than one in either case, the average of the average closing
bid and the average closing ask prices) for the 10 consecutive trading days immediately preceding, but not including, the effective
date of the Change of Control/Delisting as reported on the principal U.S. securities exchange on which our Class A common stock
is then traded, or (y) if our Class A common stock is not then listed for trading on a U.S. securities exchange, the average of
the last quoted bid prices for our Class A common stock in the over-the-counter market as reported by OTC Markets Group, Inc.
or similar organization for the 10 consecutive trading days immediately preceding, but not including, the effective date of the
Change of Control/Delisting.
Limited
Voting Rights.
Holders
of shares of the Series D Preferred Stock will generally have no voting rights. However, if dividends on the Series D Preferred
Stock are in arrears for each of six or more consecutive quarterly periods, the number of directors on our board of directors
will automatically be increased by two, and holders of shares of the Series D Preferred Stock and the holders of all other classes
or series of Voting Preferred Stock, including our Series C Preferred Stock and Series T Preferred Stock (voting together as a
single class) will be entitled to vote, at a special meeting called upon the written request of the holders of at least 20% of
such stock or at our next annual meeting and at each subsequent annual meeting of stockholders, for the election of two additional
directors to serve on our board of directors (the “Preferred Directors”), until all accrued and unpaid dividends with
respect to the Series D Preferred Stock and the other Parity Preferred Stock (including our Series B Preferred Stock, Series C
Preferred Stock and Series T Preferred Stock) have been paid in full or declared and a sum sufficient for the payment thereof
in full set apart for payment. The Preferred Directors will be elected by a plurality of the votes cast in the election. For the
avoidance of doubt, the board of directors shall not be permitted to fill the vacancies on the board of directors as a result
of the failure of the holders of 20% of Voting Preferred Stock to deliver such written request for the election of the Preferred
Directors.
So
long as any shares of Series D Preferred Stock remain outstanding, in addition to any other vote or consent of stockholders required
by our charter, we will not, without the affirmative vote or consent of the holders of at least two-thirds of the outstanding
shares of Series D Preferred Stock voting together as a single class with the other Parity Preferred Stock upon which like voting
rights have been conferred, authorize, create or issue, or increase the number of authorized or issued shares of, any class or
series of capital stock ranking senior to the Series D Preferred Stock with respect to payment of dividends or the distribution
of assets upon our liquidation, dissolution or winding up, or reclassify any of our authorized capital stock into such capital
stock, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase such capital
stock.
In
addition, so long as any shares of Series D Preferred Stock remain outstanding, we will not, without the affirmative vote or consent
of the holders of at least two-thirds of the outstanding shares of Series D Preferred Stock, amend, alter or repeal our charter,
including the terms of the Series D Preferred Stock, whether by merger, consolidation, transfer or conveyance of substantially
all of our assets or otherwise, so as to materially and adversely affect any right, preference, privilege or voting power of the
Series D Preferred Stock, except that with respect to the occurrence of any of the events set forth above, so long as the Series
D Preferred Stock remains outstanding with the terms of the Series D Preferred Stock materially unchanged, taking into account
that, upon the occurrence of an event set forth above, we may not be the surviving entity, the occurrence of such event will not
be deemed to materially and adversely affect the rights, preferences, privileges or voting power of the Series D Preferred Stock,
and in such case such holders will not have any voting rights with respect to the events set forth above; provided, further, that
with respect to any such amendment, alteration or repeal that equally affects the terms of the Series D Preferred Stock and the
other Voting Preferred Stock, the affirmative vote or consent of the holders of two-thirds of the shares of Series D Preferred
Stock and the other Voting Preferred Stock (voting together as a single class) will be required. Furthermore, if holders of shares
of the Series D Preferred Stock will receive the greater of the full trading price of the Series D Preferred Stock on the date
of an event set forth above or the $25.00 per share liquidation preference pursuant to the occurrence of any of the events set
forth above or pursuant to a special optional redemption by us or a redemption at the option of the holder upon a Change of Control/Delisting,
then such holders shall not have any voting rights with respect to the events set forth above.
In
addition, and in circumstances other than the voting issues addressed in the paragraph above, so long as any shares of Series
D Preferred Stock remain outstanding, the holders of shares of Series D Preferred Stock also will have the exclusive right to
vote on any amendment, alteration or repeal of our charter, including the terms of the Series D Preferred Stock, that would alter
only the contract rights, as expressly set forth in our charter, of the Series D Preferred Stock, and the holders of any other
classes or series of our capital stock will not be entitled to vote on such an amendment, alteration or repeal, with any such
amendment requiring the affirmative vote or consent of holders of two-thirds of the Series D Preferred Stock issued and outstanding
at the time. With respect to any amendment, alteration or repeal of our charter, including the terms of the Series D Preferred
Stock, that equally affects the terms of the Series D Preferred Stock and the other Voting Preferred Stock, so long as any shares
of Series D Preferred Stock remain outstanding, the holders of shares of Series D Preferred Stock and the other Voting Preferred
Stock (voting together as a single class), also will have the exclusive right to vote on any such amendment, alteration or repeal
of our charter, including the terms of the Series D Preferred Stock, that would alter only the contract rights, as expressly set
forth in our charter, of the Series D Preferred Stock and such other classes or series of preferred stock, and the holders of
any other classes or series of our capital stock will not be entitled to vote on such an amendment, alteration or repeal.
Holders
of shares of Series D Preferred Stock will not be entitled to vote with respect to any increase in the total number of authorized
shares of our common stock or preferred stock, any issuance or increase in the number of authorized shares of Series D Preferred
Stock or the creation or issuance of any other class or series of capital stock, or any issuance or increase in the number of
authorized shares of any class or series of capital stock, in each case ranking on parity with or junior to the Series D Preferred
Stock with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up.
Series
T Redeemable Preferred Stock
The
following is a brief description of the terms of our Series T Preferred Stock. The description of our Series T Preferred Stock
contained herein does not purport to be complete and is qualified in its entirety by reference to the Articles Supplementary classifying
shares of our preferred stock as shares of Series T Preferred Stock (the “Series T Articles Supplementary”), which
have been filed with the SEC and are incorporated by reference as exhibits to the registration statement of which this prospectus
is a part.
Rank.
Our Series T Preferred Stock ranks, with respect to dividend rights and rights upon our liquidation, winding-up or dissolution:
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senior
to all classes or series of our common stock, and to any other class or series of our
capital stock issued in the future unless the terms of that capital stock expressly provide
that it ranks senior to, or on parity with, the Series T Preferred Stock;
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on
parity with any class or series of our capital stock, the terms of which expressly provide
that it will rank on parity with the Series T Preferred Stock, including the Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock; and
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junior
to any other class or series of our capital stock, the terms of which expressly provide
that it will rank senior to the Series T Preferred Stock, none of which exists on the
date hereof, and subject to payment of or provision for our debts and other liabilities.
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Investors
in the Series T Preferred Stock should note that holders of our Series T Preferred Stock do not have a right to receive a return
of capital prior to holders of our common stock upon the individual sale of a property. To provide protection to the holders of
the Series T Preferred Stock, our charter restricts us from selling an asset if the sale would cause us to fail to meet a dividend
coverage ratio of no less than 1.1:1 based on the ratio of our core funds from operations to dividends required to be paid to
holders of our Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series T Preferred Stock
for the two most recent quarters, subject to our ability to maintain status as a REIT for U.S. federal income tax purposes. Subject
to the provisions of our charter and depending on the price at which such property is sold, it is possible that holders of our
common stock will receive a return of capital prior to the holders of our Series T Preferred Stock being redeemed, provided that
any accrued but unpaid cash dividends have been paid in full to holders of Series T Preferred Stock. Holders of common stock will
also receive additional distributions from the sale of a property (in excess of their capital attributable to the asset sold)
before the holders of Series T Preferred Stock receive a return of their capital.
Stated
Value. Each share of Series T Preferred Stock has an initial “Stated Value” of $25.00, subject to appropriate
adjustment in relation to certain events as set forth in the Series T Articles Supplementary.
Dividends.
Subject to the preferential rights of the holders of any class or series of our capital stock ranking senior to our Series
T Preferred Stock, if any such class or series is authorized in the future, the holders of Series T Preferred Stock are entitled
to receive, when and as authorized by our board of directors and declared by us out of legally available funds, the following.
1. Series
T Cash Dividends. Cumulative cash dividends on each share of Series T Preferred Stock at an annual rate of 6.15% of the Stated
Value (each, a “Series T Cash Dividend”). We expect Series T Cash Dividends will be authorized and declared on a quarterly
basis, payable monthly on the 5th day of the month to holders of record on the 25th day of the prior month (or if such payment
date or record date is not a business day, on the immediately preceding business day, with the same force and effect as if made
on such date), unless our results of operations, our general financing conditions, general economic conditions, applicable provisions
of Maryland law or other factors make it imprudent to do so.
The
initial Series T Cash Dividend payable on each share of Series T Preferred Stock will begin accruing on, and will be cumulative
from, the date of original issuance of such share of Series T Preferred Stock. Each subsequent Series T Cash Dividend will begin
accruing on, and will be cumulative from, the end of the most recent Series T Cash Dividend period for which a Series T Cash Dividend
has been paid on each such share of Series T Preferred Stock. For the avoidance of doubt, any such Series T Cash Dividend may
vary among holders of Series T Preferred Stock and may be prorated with respect to any shares of Series T Preferred Stock that
were outstanding less than the total number of days in the Series T Cash Dividend period immediately preceding the applicable
dividend payment date, with the amount of any such prorated dividend being computed on the basis of the actual number of days
in such dividend period during which such shares of Series T Preferred Stock were outstanding.
2. Annual
Series T Stock Dividends. Annual stock dividends, each at an annual rate of 0.2% of the Stated Value, for each of the
first five years from and including the later of (i) the year 2020 or (ii) the year of original issuance of each such
share of Series T Preferred Stock, payable in shares of Series T Preferred Stock (each, an “Annual Series T Stock Dividend”).
We
expect Annual Series T Stock Dividends will be authorized and declared on an annual basis, payable annually on the 29th
day of December to eligible holders of record at the close of business on the 24th day of December of each such year
(or if such payment date or record date is not a business day, on the immediately preceding business day, with the same force
and effect as if made on such date), unless our results of operations, our general financing conditions, general economic conditions,
applicable provisions of Maryland law or other factors make it imprudent to do so.
Annual
Series T Stock Dividends will accrue and be cumulative on a monthly basis, from the end of the most recent Annual Series T Stock
Dividend period for which an Annual Series T Stock Dividend has been paid on each such share of Series T Preferred Stock. For
the avoidance of doubt, any such Annual Series T Stock Dividend may vary among holders of Series T Preferred Stock and may be
prorated with respect to any shares of Series T Preferred Stock that were outstanding less than the total number of months in
the Annual Series T Stock Dividend period to which the applicable dividend payment date relates, with the amount of any such prorated
dividend being computed on the basis of the actual number of months during such dividend period in which such shares of Series
T Preferred Stock were at any time outstanding.
The
timing and amount of dividends on the Series T Preferred Stock will be determined by our board of directors, in its sole discretion,
and may vary from time to time. All such dividends will accrue and be paid on the basis of a 360-day year consisting of twelve
30-day months. Dividends on the Series T Preferred Stock will accrue whether or not (i) we have earnings, (ii) there are funds
legally available for the payment of such dividends and (iii) such dividends are authorized by our board of directors or declared
by us. Accrued dividends on the Series T Preferred Stock will not bear interest.
Holders
of our shares of Series T Preferred Stock are not entitled to any dividend in excess of full cumulative dividends on our shares
of Series T Preferred Stock. Unless full cumulative dividends on our shares of Series T Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock for all past dividend periods have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof in full is set apart for payment, we will not:
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declare
and pay or declare and set apart for payment dividends or declare and make any other
distribution of cash or other property (other than dividends or distributions paid in
shares of stock ranking junior to the Series T Preferred Stock as to the dividend rights
or rights on our liquidation, winding-up or dissolution, and options, warrants or rights
to purchase such shares), directly or indirectly, on or with respect to any shares of
our common stock or any class or series of our stock ranking junior to or on parity with
the Series T Preferred Stock as to dividend rights or rights on our liquidation, winding-up
or dissolution for any period; or
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except
by conversion into or exchange for shares of stock ranking junior to the Series T Preferred
Stock as to dividend rights or rights on our liquidation, winding-up or dissolution,
or options, warrants or rights to purchase such shares, redeem, purchase or otherwise
acquire (other than a redemption, purchase or other acquisition of common stock made
for purposes of an employee incentive or benefit plan) for any consideration, or pay
or make available any monies for a sinking fund for the redemption of, any common stock
or any class or series of our stock ranking junior to or on parity with the Series T
Preferred Stock as to dividend rights or rights on our liquidation, winding-up or dissolution.
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To
the extent necessary to preserve our status as a REIT, the foregoing sentence, however, will not prohibit declaring or paying
or setting apart for payment any dividend or other distribution on our common stock or any class or series of our stock ranking
junior to or on parity with the Series T Preferred Stock as to dividend rights or rights on our liquidation, winding-up or dissolution
for any period.
Holders
of shares of our Series T Preferred Stock are not eligible to participate in the company’s dividend reinvestment plan for
its Class A common stock. However, holders of shares of our Series T Preferred Stock may participate in the company’s Series
T Preferred Stock Dividend Reinvestment Plan, through which they may reinvest all, but not less than all, of their Series T Cash
Dividends in additional shares of our Series T Preferred Stock.
Redemption
at Option of Holders. Holders will have the right to require the company to redeem shares of Series T Preferred
Stock at a redemption price equal to the Stated Value, initially $25.00 per share, less a redemption fee, plus an amount equal
to any accrued but unpaid cash dividends; provided, that shares of Series T Preferred Stock acquired by the holder pursuant to
the Series T DRIP (as hereinafter defined) shall not be subject to a redemption fee.
The
redemption fee shall be equal to:
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Beginning
on the date of original issuance of the shares to be redeemed: 12%
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Beginning
one year from the date of original issuance of the shares to be redeemed: 9%
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Beginning
two years from the date of original issuance of the shares to be redeemed: 6%
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Beginning
three years from the date of original issuance of the shares to be redeemed: 3%
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Beginning
four years from the date of original issuance of the shares to be redeemed: 0%.
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For
purposes of this “Redemption at Option of Holders” provision, where the shares of Series T Preferred Stock to be redeemed
were acquired by the holder pursuant to an Annual Series T Stock Dividend (such shares, “ASTSD Shares”), the “date
of original issuance” of such ASTSD Shares shall be deemed to be the same as the date of original issuance of the underlying
shares of Series T Preferred Stock pursuant to which such ASTSD Shares are directly or indirectly attributable (such shares, “ASTSD
Underlying Series T Shares”), and such ASTSD Shares shall be subject to the same redemption fee to which such ASTSD Underlying
Series T Shares would be subject if submitted for simultaneous redemption hereunder.
If
a holder of shares of Series T Preferred Stock causes the company to redeem such shares of Series T Preferred Stock, we have the
right, in our sole discretion, to pay the redemption price in cash or in equal value of shares of our Class A common stock, based
on the closing price per share of our Class A common stock for the single trading day prior to the date of redemption.
Our
ability to redeem shares of Series T Preferred Stock in cash may be limited to the extent that we do not have sufficient funds
available to fund such cash redemption. Further, our obligation to redeem any of the shares of Series T Preferred Stock submitted
for redemption in cash may be restricted by Maryland law. No redemptions of shares of Series T Preferred Stock will be made in
cash at such time as the terms and provisions of any agreement to which we are a party prohibits such redemption or provides that
such redemption would constitute a breach thereof or a default thereunder.
Optional
Redemption Following Death of a Holder. Subject to restrictions, beginning on the date of original issuance and ending
five years thereafter, we will redeem shares of Series T Preferred Stock held by a natural person upon his or her death, including
shares held through a revocable grantor trust, or an IRA or other retirement or profit-sharing plan, at the written request of
the holder’s estate, the recipient of such shares through bequest or inheritance, or, in the case of a revocable grantor
trust, the trustee of such trust, who shall have the sole ability to request redemption on behalf of the trust. If spouses are
joint registered holders of shares of Series T Preferred Stock, the written request to redeem such shares may be made upon the
death of either spouse. We must receive such written request within one year after the death of the holder. If the holder is not
a natural person, such as a trust (other than a revocable grantor trust) or a partnership, corporation or similar legal entity,
the right of redemption upon death shall be subject to the approval of company management in its sole discretion. We will redeem
such shares of Series T Preferred Stock at a redemption price equal to the Stated Value, plus an amount equal to accrued but unpaid
cash dividends thereon through and including the date of redemption. Upon any such redemption request, we have the right, in our
sole discretion, to pay the redemption price in cash or in equal value of shares of our Class A common stock, based on the closing
price per share of our Class A common stock for the single trading day prior to the date of redemption. Our ability to redeem
shares of Series T Preferred Stock in cash may be limited to the extent that we do not have sufficient funds available to fund
such cash redemption. Further, our obligation to redeem any of the shares of Series T Preferred Stock submitted for redemption
in cash may be restricted by Maryland law. No redemptions of shares of Series T Preferred Stock will be made in cash at such time
as the terms and provisions of any agreement to which we are a party prohibits such redemption or provides that such redemption
would constitute a breach thereof or a default thereunder.
For
purposes of this “Optional Redemption Following Death of a Holder” provision, when the shares of Series T Preferred
Stock to be redeemed were acquired by the holder pursuant to either (i) the Series T DRIP or (ii) an Annual Series T Stock Dividend
(such shares, “DRIP/ASTSD Shares”), the “date of original issuance” of such DRIP/ASTSD Shares shall be
deemed to be the same as the date of original issuance of the underlying shares of Series T Preferred Stock pursuant to which
such DRIP/ASTSD Shares are directly or indirectly attributable (such shares, “DRIP/ASTSD Underlying Series T Shares”).
Optional
Redemption by the Company. Beginning two years from the date of original issuance of the shares of Series T Preferred
Stock to be redeemed, we will have the right to redeem any or all shares of our Series T Preferred Stock. We will redeem such
shares of Series T Preferred Stock at a redemption price equal to 100% of the Stated Value per share of Series T Preferred Stock,
plus an amount equal to any accrued but unpaid cash dividends. We have the right, in our sole discretion, to pay the redemption
price in cash or in equal value of shares of our Class A common stock, based on the closing price per share of our Class A common
stock for the single trading day prior to the date of the redemption, in exchange for the Series T Preferred Stock.
For
purposes of this “Optional Redemption by the Company” provision, where the shares of Series T Preferred Stock to be
redeemed are DRIP/ASTSD Shares, the “date of original issuance” of such DRIP/ASTSD Shares shall be deemed to be the
same as the date of original issuance of the DRIP/ASTSD Underlying Series T Shares, and such DRIP/ASTSD Shares shall become subject
to optional redemption by the company hereunder on the same date as the DRIP/ASTSD Underlying Series T Shares.
We
may exercise our redemption right by delivering a written notice thereof to all, but not less than all, of the holders of the
shares of Series T Preferred Stock to be redeemed. A notice of redemption shall be irrevocable. Each such notice will state the
date on which the redemption by us shall occur, which date will be no less than seven (7) days following the notice date.
Change
of Control Redemption by the Company. Upon the occurrence of a Change of Control (as defined below), we will be
required to redeem all outstanding shares of the Series T Preferred Stock in whole within 60 days after the first date on which
such Change of Control occurred, in cash at a redemption price of $25.00 per share, plus an amount equal to all accrued
but unpaid cash dividends, if any, to and including the redemption date; provided, however, that if the Maryland law solvency
tests prohibit us from paying the full redemption price in cash, then we will pay such portion as would otherwise violate the
solvency tests in shares of our Class A common stock to holders of the Series T Preferred Stock on a pro rata basis, based on
the closing price per share of our Class A common stock for the single trading day prior to the date of redemption. Further, our
obligation to redeem any of the shares of Series T Preferred Stock in cash may be restricted by Maryland law. No redemptions of
shares of Series T Preferred Stock will be made in cash at such time as the terms and provisions of any agreement to which we
are a party prohibits such redemption or provides that such redemption would constitute a breach thereof or a default thereunder.
We
will mail to you, if you are a record holder of the Series T Preferred Stock, a notice of redemption no fewer than seven days
before the redemption date. We will send the notice to your address shown on our stock transfer books. A failure to give notice
of redemption or any defect in the notice or in its mailing will not affect the validity of the redemption of any Series T Preferred
Stock except as to the holder to whom notice was defective. Each notice will state the following:
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the
number of shares of Series T Preferred Stock to be redeemed;
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DTC’s
procedures for book entry transfer of Series T Preferred Stock for payment of the redemption price;
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that
dividends on the shares of Series T Preferred Stock to be redeemed will cease to accrue on such redemption date;
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that
payment of the redemption price and an amount equal to any accrued but unpaid dividends will be made upon book entry transfer
of such Series T Preferred Stock in compliance with DTC’s procedures; and
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that
the Series T Preferred Stock is being redeemed pursuant to our mandatory redemption in connection with the occurrence of a Change
of Control and a brief description of the transaction or transactions constituting such Change of Control.
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If
we have given a notice of redemption and have set apart sufficient funds for the redemption in trust for the benefit of the holders
of the Series T Preferred Stock called for redemption, then from and after the redemption date, those shares of Series T Preferred
Stock will be treated as no longer being outstanding, no further dividends will accrue and all other rights of the holders of
those shares of Series T Preferred Stock will terminate. The holders of those shares of Series T Preferred Stock will retain their
right to receive the redemption price for their shares and an amount equal to all accrued but unpaid cash dividends, if any, to
and including the redemption date, without interest.
The
holders of Series T Preferred Stock at the close of business on a dividend record date will be entitled to receive the dividend
payable with respect to the Series T Preferred Stock on the corresponding payment date notwithstanding the redemption of the Series
T Preferred Stock between such record date and the corresponding payment date or our default in the payment of the dividend due.
Except as provided above, we will make no payment or allowance for unpaid cash dividends, whether or not in arrears, on Series
T Preferred Stock to be redeemed.
For
purposes of the Series T Preferred Stock, “Change of Control” is when, after the original issuance of the Series T
Preferred Stock, any of the following has occurred and is continuing:
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a
“person” or “group” within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), other than our company, its subsidiaries, and its and their employee benefit plans, has become
the direct or indirect “beneficial owner,” as defined in Rule 13d-3 under the Exchange Act, of our common equity representing
more than 50% of the total voting power of all outstanding shares of our common equity that are entitled to vote generally in
the election of directors (“Voting Stock”); provided, that notwithstanding the foregoing, such a transaction will
not be deemed to involve a Change of Control if (i) we become a direct or indirect wholly-owned subsidiary of a holding
company and (ii) the direct or indirect holders of the Voting Stock of such holding company immediately following that transaction
are substantially the same as the holders of our Voting Stock immediately prior to that transaction;
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consummation
of any share exchange, consolidation or merger of our company or any other transaction or series of transactions pursuant to which
our Class A common stock will be converted into cash, securities or other property, (1) other than any such transaction where
the shares of our Class A common stock outstanding immediately prior to such transaction constitute, or are converted into or
exchanged for, a majority of the common stock of the surviving person or any direct or indirect parent company of the surviving
person immediately after giving effect to such transaction, and (2) expressly excluding any such transaction preceded by our company’s
acquisition of the capital stock of another company for cash, securities or other property, whether directly or indirectly through
one of our subsidiaries, as a precursor to such transaction; or
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Series
T Continuing Directors cease to constitute at least a majority of our board of directors.
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For
purposes of the Series T Preferred Stock, “Series T Continuing Director” means a director who either was a member
of our board of directors on November 13, 2019 or who becomes a member of our board of directors subsequent to that date and whose
appointment, election or nomination for election by our stockholders was duly approved by a majority of the continuing directors
on our board of directors at the time of such approval, either by a specific vote or by approval of the proxy statement issued
by our company on behalf of our board of directors in which such individual is named as nominee for director.
Liquidation
Preference. Upon any voluntary or involuntary liquidation, dissolution or winding-up of our affairs, before any distribution
or payment shall be made to holders of our common stock or any other class or series of capital stock ranking junior to our shares
of Series T Preferred Stock, the holders of shares of Series T Preferred Stock will be entitled to be paid out of our assets legally
available for distribution to our stockholders, after payment or provision for our debts and other liabilities, a liquidation
preference equal to the Stated Value per share, plus an amount equal to any accrued but unpaid cash dividends (whether or not
declared) to and including the date of payment, pari passu with the holders of shares of any other class or series of our capital
stock ranking on parity with the Series T Preferred Stock, including the Series B Preferred Stock, Series C Preferred Stock, and
Series D Preferred Stock, as to the liquidation preference and accrued but unpaid dividends they are entitled to receive.
After
payment of the full amount of the liquidating distributions to which they are entitled, the holders of our shares of Series T
Preferred Stock will have no right or claim to any of our remaining assets. Our consolidation or merger with or into any other
corporation, trust or other entity, the consolidation or merger of any other corporation, trust or entity with or into us, the
sale or transfer of any or all our assets or business, or a statutory share exchange will not be deemed to constitute a liquidation,
dissolution or winding-up of our affairs.
In
determining whether a distribution (other than upon voluntary or involuntary liquidation), by dividend, redemption or other acquisition
of shares of our stock or otherwise, is permitted under the MGCL, amounts that would be needed, if we were to be dissolved at
the time of distribution, to satisfy the preferential rights upon dissolution of holders of the Series T Preferred Stock will
not be added to our total liabilities.
Voting
Rights. Our Series T Preferred Stock generally has no voting rights, except as set forth below.
So
long as any shares of Series T Preferred Stock remain outstanding, the holders of shares of Series T Preferred Stock will have
the exclusive right to vote on any amendment, alteration or repeal of our charter, including the terms of the Series T Preferred
Stock, that would alter only the contract rights, as expressly set forth in our charter, of the Series T Preferred Stock, and
the holders of any other classes or series of our capital stock will not be entitled to vote on such an amendment, alteration
or repeal, with any such amendment requiring the affirmative vote or consent of holders of two-thirds of the Series T Preferred
Stock issued and outstanding at the time.
In
addition, holders of shares of Series T Preferred Stock and of any other Voting Preferred Stock, voting together as a single class,
will also have the exclusive right to vote on any amendment, alteration or repeal of our charter, including the terms of the Series
T Preferred Stock, that would alter only the contract rights, as expressly set forth in our charter, of the Series T Preferred
Stock and such other Voting Preferred Stock, with any such action requiring the affirmative vote or consent of holders of shares
of Series T Preferred Stock and such other Voting Preferred Stock entitled to cast two-thirds of all votes entitled to be cast
on the matter, with each holder of Series T Preferred Stock and such other Voting Preferred Stock entitled to one vote for each
$25.00 in liquidation preference. As of December 31, 2020, the other Voting Preferred Stock in the foregoing matter includes the
Series C Preferred Stock, and the Series D Preferred Stock. The holders of any other classes or series of our capital stock will
not be entitled to vote on such an amendment, alteration or repeal.
Further,
so long as any shares of Series T Preferred Stock remain outstanding, the holders of shares of Series T Preferred Stock will also
have the right to vote to (a) authorize, create or issue, or increase the number of authorized or issued shares of, any class
or series of our capital stock ranking senior to the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock
or Series T Preferred Stock with respect to dividend rights and rights upon our liquidation, dissolution or winding up (any such
senior stock, the “Senior Stock”), (b) reclassify any authorized shares of our capital stock into Senior Stock, or
(c) create, authorize or issue any obligation or security convertible into, or evidencing the right to purchase, Senior Stock.
Any such action will require the following:
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(1)
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Pursuant
to the Articles Supplementary for the Series T Preferred Stock, the affirmative vote
or consent of holders of (i) Series T Preferred Stock, and (ii) any other Voting Preferred
Stock, entitled to cast a majority of all votes collectively entitled to be cast by such
holders, voting together as a single class, with each holder thereof entitled to one
vote for each $25.00 in liquidation preference;
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(2)
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Pursuant
to the respective articles supplementary establishing and setting forth the terms, rights,
preferences and limitations of each of the Series C Preferred Stock and the Series D
Preferred Stock, the affirmative vote or consent of holders of (i) Series C Preferred
Stock, (ii) Series D Preferred Stock, and (iii) any future Parity Preferred Stock (“Future
Parity Preferred Stock”) upon which like voting rights have been conferred, entitled
to cast two-thirds of all votes collectively entitled to be cast by the holders thereof,
voting together as a single class, with each such holder entitled to one vote for each
$25.00 in liquidation preference; and
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(3)
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Pursuant
to the terms of our side letter agreement with Cetera Financial Group, Inc. on behalf
of itself and its affiliated broker dealers in connection with the offer and sale of
our Series B Preferred Stock (the “Cetera Side Letter”), the affirmative
vote of a majority of the votes cast by holders of (i) Series B Preferred Stock,
(ii) Series C Preferred Stock, (iii) Series D Preferred Stock, (iv) Series T Preferred
Stock, and (v) any Future Parity Preferred Stock, voting together as a single class,
with each such holder entitled to one vote for each $1,000.00 in liquidation preference.
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Holders
of shares of Series T Preferred Stock will not be entitled to vote with respect to any increase in the total number of authorized
shares of our common stock or preferred stock, any issuance or increase in the number of authorized shares of Series T Preferred
Stock or the creation or issuance of any other class or series of capital stock, or any increase in the number of authorized shares
of any class or series of capital stock, in each case ranking on parity with or junior to the Series T Preferred Stock with respect
to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up.
Except
as described above, holders of shares of Series T Preferred Stock will not have any voting rights with respect to, and the consent
of the holders of shares of Series T Preferred Stock is not required for, the taking of any corporate action, regardless of the
effect that such corporate action may have upon the powers, preferences, voting power or other rights or privileges of the Series
T Preferred Stock.
Dividend
Coverage Ratio. For so long as any shares of Series T Preferred Stock remain outstanding, the company will maintain
a Dividend Coverage Ratio (as defined below) of not less than 1.1:1 (the “Series T Coverage Requirement”) as of the
end of each calendar quarter. If the Dividend Coverage Ratio is below the Series T Coverage Requirement as reflected in a Current
Filing (as defined below), then on and after the date of such Current Filing and until and unless the Series T Coverage Requirement
has been met, the company shall not (i) issue any additional shares of Parity Preferred Stock, nor (ii) make any voluntary distributions
on shares of Class A common stock or any other class or series of our capital stock other than stock that, pursuant to its express
terms, ranks junior to the Series T Preferred Stock with respect to any other distributions or liquidation rights upon voluntary
or involuntary liquidation, dissolution or winding up of our affairs (“Junior Stock”); in either case, other than
distributions required to maintain our qualification as a REIT for tax purposes.
For
purposes of the Series T Coverage Requirement, the Dividend Coverage Ratio shall equal the quotient of: (A) our Core Funds from
Operations, or CFFO (as more fully defined below), as set forth in our Quarterly Report on Form 10-Q or Annual Report on Form
10-K, as applicable and including any amendment thereof, filed during the most recent quarter (the “Current Filing”),
and further adjusted to add back the expense of all preferred dividends, for the two most recent quarters, plus the sum of: (1)
the product of (a)(i) unrestricted cash on our balance sheet as reflected in the Current Filing, minus (ii) an amount equal to
the greater of $5,000,000 or 5.0% of the amount in subclause (1)(a)(i) (provided, if such calculation would cause the
amount to be negative, it will instead be equal to zero), multiplied by (b) a 5.0% annualized rate of return over such quarterly
period, and (2) the product of (a)(i) unrestricted cash on our balance sheet as reflected in the filing filed immediately
preceding the Current Filing, minus (ii) an amount equal to the greater of $5,000,000 or 5.0% of the amount in subclause
(2)(a)(i) (provided, if such calculation would cause the amount to be negative, it will instead be equal to zero), multiplied
by (b) a 5.0% annualized rate of return over such quarterly period; over (B) the amount of preferred dividends required to be
distributed to the Series T Holders and any (x) Parity Preferred Stock, or (y) any preferred stock the terms of which expressly
provide that it ranks senior to the Series T Preferred Stock with respect to any other distributions or liquidation rights upon
voluntary or involuntary liquidation, dissolution or winding up of our affairs for such quarters without any breach, default or
deferral with respect to any such distributions.
For
purposes of the Series T Coverage Requirement, CFFO means our Core Funds from Operations, as set forth in our Current Filing;
provided that such amount is calculated in a manner substantially consistent with the manner in which CFFO was calculated in our
Quarterly Report on Form 10-Q filed for the third quarter of 2019 or in a manner otherwise calculated in accordance with commonly
accepted industry practices at the time of the Current Filing (the “CFFO Calculation Standard”). Notwithstanding the
foregoing, if we do not report CFFO in a Current Filing, either in response to industry practice or as required by the Securities
and Exchange Commission or other regulatory body, CFFO for such applicable period will be calculated in a manner consistent with
the manner in which CFFO was calculated in the last periodic filing in which CFFO was (a) included and (b) calculated in a manner
consistent with the CFFO Calculation Standard.
So
long as any shares of Series T Redeemable Preferred Stock remain outstanding, we will not sell an asset if such sale would
cause us to fail to meet the Coverage Requirement, with CFFO for such purposes determined on a reasonable pro forma basis
to adjust for the effect of disposing of the subject property, unless such sale is reasonably necessary for us to maintain our
qualification as a REIT for U.S. federal income tax purposes, as determined by a majority of our independent directors.
Exchange
Listing. We do not plan on making an application to list the shares of our Series T Redeemable Preferred
Stock on the NYSE American, any other national securities exchange or any other nationally recognized trading system.
Restrictions
on Ownership and Transfer
In
order for us to maintain our qualification as a REIT under the federal tax laws, we must meet several requirements concerning
the ownership of our outstanding capital stock. Specifically, no more than 50% in value of our outstanding shares of capital stock
may be owned, directly or indirectly, by five or fewer individuals (as defined in the U.S. federal income tax laws to include
specified private foundations, employee benefit plans and trusts, and charitable trusts) during the last half of any taxable year,
other than our first REIT taxable year. Moreover, our outstanding shares of capital stock must be beneficially owned by 100 or
more persons during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year,
other than our first REIT taxable year.
Because
our board of directors believes it is essential for our company to qualify and continue to qualify as a REIT and for other corporate
purposes, our charter, subject to the exceptions described below, provides that no person may own, or be deemed to own by virtue
of the attribution provisions of the U.S. federal income tax laws, more than 9.8% of:
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the
total value of the aggregate of the outstanding shares of our capital stock; or
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the
total value or number (whichever is more restrictive) of the aggregate of the outstanding
shares of our common stock.
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For
purposes of this calculation, Warrants treated as held by a person will be deemed to have been exercised. However, unless our
board of directors decides to apply a different interpretation of our charter, Warrants held by unrelated persons will not be
deemed to be exercised. As a result of this treatment, shares that could be received upon an exercise of a Warrant held by an
investor will be included in both the numerator and the denominator when calculating how many shares an investor may own without
violating the 9.8% ownership limits. In addition, the articles supplementary establishing each of the Series A Preferred Stock,
the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and the Series T Preferred Stock (respectively)
provide that generally no person may own, or be deemed to own by virtue of the attribution provisions of the Code, either more
than 9.8% in value or in number of shares, whichever is more restrictive, of the aggregate of the outstanding shares of Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series T Preferred Stock (as
applicable). We refer to these limitations regarding the ownership of our shares collectively as the “9.8% Ownership Limitation.”
Further, our charter provides for certain circumstances where our board of directors may exempt (prospectively or retroactively)
a person from the 9.8% Ownership Limitation and establish or increase an excepted holder limit for such person. Subject to certain
conditions, our board of directors may also increase the 9.8% Ownership Limitation for one or more persons and decrease the 9.8%
Ownership Limitation for all other persons.
To
assist us in preserving our status as a REIT, among other purposes, our charter also contains limitations on the ownership and
transfer of shares of capital stock that would:
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result
in our capital stock being beneficially owned by fewer than 100 persons, determined without
reference to any rules of attribution;
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result
in our company being “closely held” under the U.S. federal income tax laws;
and
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cause
our company to own, actually or constructively, 9.8% or more of the ownership interests
in a tenant of our real property, under the U.S. federal income tax laws or otherwise
fail to qualify as a REIT.
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Any
attempted transfer of our stock which, if effective, would result in our stock being beneficially owned by fewer than 100 persons
will be null and void, with the intended transferee acquiring no rights in such shares of stock. If any transfer of our stock
occurs which, if effective, would result in any person owning shares in violation of the other limitations described above (including
the 9.8% Ownership Limitation), then that number of shares the ownership of which otherwise would cause such person to violate
such limitations, rounded up to the nearest whole share, will automatically result in such shares being designated as shares-in-
trust and transferred automatically to a trust effective on the close of business on the business day before the purported transfer
of such shares. We will designate the trustee, but it will not be affiliated with our company. The beneficiary of the trust will
be one or more charitable organizations that are named by our company. If the transfer to the trust would not be effective for
any reason to prevent a violation of the limitations on ownership and transfer, then the transfer of that number of shares that
otherwise would cause the violation will be null and void, with the intended transferee acquiring no rights in such shares.
Shares-in-trust
will remain shares of issued and outstanding capital stock and will be entitled to the same rights and privileges as all other
stock of the same class or series but the intended transferee will acquire no rights in those shares. The trustee will receive
all dividends and other distributions on the shares-in-trust and will hold such dividends or other distributions in trust for
the benefit of the beneficiary. Any dividend or other distribution paid prior to our discovery that shares of stock have been
transferred to the trustee will be paid by the recipient to the trustee upon demand. Any dividend or other distribution authorized
but unpaid will be paid when due to the trustee. The trustee will vote all shares-in-trust and, subject to Maryland law, effective
as of the date that the shares-in-trust were transferred to the trustee, the trustee will have the authority to rescind as void
any vote cast by the proposed transferee prior to our discovery that the shares have been transferred to the trust and to recast
the vote in accordance with the desires of the trustee acting for the benefit of the beneficiary. However, if we have already
taken irreversible corporate action, then the trustee will not have the authority to rescind and recast the vote.
Within
20 days of receiving notice from us that shares of our stock have been transferred to the trust, the trustee will sell the shares
to a person designated by the trustee whose ownership of the shares will not violate the above ownership limitations. Upon the
sale, the interest of the beneficiary in the shares sold will terminate and the trustee will distribute the net proceeds of the
sale to the record holder of the shares that are designated as shares-in-trust (the “Prohibited Owner”), and to the
beneficiary as follows. The Prohibited Owner generally will receive from the trust the lesser of:
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the
price per share such Prohibited Owner paid for the shares of capital stock that were
designated as shares-in-trust or, in the case of a gift or devise, the market price per
share on the date of the event causing such transfer; or
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the
price per share received by the trust from the sale of such shares-in-trust, net of any
commissions and other expenses of sale.
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The
trustee may reduce the amount payable to the Prohibited Owner by the amount of dividends and other distributions that have been
paid to the Prohibited Owner and are owed by the Prohibited Owner to the trustee. The trust will distribute to the beneficiary
any amounts received by the trust in excess of the amounts to be paid to the Prohibited Owner. If, prior to our discovery that
shares of our stock have been transferred to the trust, the shares are sold by the proposed transferee, then the shares will be
deemed to have been sold on behalf of the trust and, to the extent that the Prohibited Owner received an amount for the shares
that exceeds the amount the Prohibited Owner was entitled to receive, the excess shall be paid to the trustee upon demand.
In
addition, the shares-in-trust will be deemed to have been offered for sale to us, or our designee, at a price per share equal
to the lesser of:
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the
price per share in the transaction that created such shares-in-trust or, in the case
of a gift or devise, the market price per share on the date of such gift or devise; or
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the
market price per share on the date that we, or our designee, accepts such offer.
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We
may reduce the amount payable to the Prohibited Owner by the amount of dividends and other distributions that have been paid to
the Prohibited Owner and are owed by the Prohibited Owner to the trustee. We may pay the amount of such reduction to the trustee
for the benefit of the beneficiary.
“Market
price” on any date means the closing price for our stock on such date. The “closing price” refers to the last
sale price, regular way as reported by the primary securities exchange or market on which our stock is then listed or quoted for
trading. If our stock is not so listed or quoted at the time of determination of the market price, our board of directors will
determine the market price.
If
you acquire or attempt or intend to acquire shares of our capital stock in violation of the foregoing restrictions, or if you
owned common or preferred stock that was transferred to a trust, then we will require you to give us immediate written notice
of such event or, in the case of a proposed or attempted transaction, at least 15 days written notice, and to provide us with
such other information as we may request in order to determine the effect, if any, of such transfer on our status as a REIT.
If
you own, directly or indirectly, 5% or more, or such lower percentages as required under the U.S. federal income tax laws, of
our outstanding shares of stock, then you must, upon request following the end of each taxable year, provide to us a written statement
or affidavit stating your name and address, the number of shares of capital stock owned directly or indirectly, and a description
of how such shares are held. In addition, each direct or indirect stockholder must provide to us such additional information as
we may request in order to determine the effect, if any, of such ownership on our qualification as a REIT and to ensure compliance
with the 9.8% Ownership Limitation.
The
9.8% Ownership Limitation generally will not apply to the acquisition of shares of capital stock by an underwriter that participates
in a public offering of such shares. In addition, our board of directors, upon receipt of a ruling from the Internal Revenue Service
(the “IRS”) or an opinion of counsel and upon such other conditions as our board of directors may direct, including
the receipt of certain representations and undertakings required by our charter, may exempt (prospectively or retroactively) a
person from the ownership limit and establish or increase an excepted holder limit for such person. The 9.8% Ownership Limitation
will continue to apply until our board of directors determines that it is no longer in the best interests of our company to attempt
to qualify, or to continue to qualify, as a REIT or that compliance is no longer required for REIT qualification.
All
certificates, if any, representing our common or preferred stock, will bear a legend referring to the restrictions described above
or a legend that we will furnish a full statement about these restrictions on request and without charge.
The
ownership limit in our charter may have the effect of delaying, deferring or preventing a takeover or other transaction or change
in control of our company that might involve a premium price for your shares or otherwise be in your interest as a stockholder.
Distributions
During
certain periods of our operations, we have funded distributions from sources other than cash flow from operations, such as from
offering proceeds, borrowings and the sale of assets to the extent distributions exceeded our earnings or cash flows from operations,
and may do so in the future if we are unable to make distributions with our cash flows from our operations. Generally, our policy
is to pay distributions from cash flow from operations. Further, because we may receive income from interest or rents at various
times during our fiscal year and because we may need cash flow from operations during a particular period to fund capital expenditures
and other expenses, we expect that from time to time, we will declare distributions in anticipation of cash flow that we expect
to receive during a later period and we will pay these distributions in advance of our actual receipt of these funds. We may fund
such distributions from third party borrowings, offering proceeds, or sale proceeds. To the extent we invest in development or
redevelopment projects or in properties that have significant capital requirements, these properties will not immediately generate
operating cash flow, and although we intend to structure many of these investments under our Invest-to-Own strategy to provide
for income to us during the development stage, our ability to make distributions may be negatively impacted.
Subject
to the preferential rights of holders of our Series B Preferred Stock, our Series C Preferred Stock, our Series D Preferred Stock,
our Series T Preferred Stock and any other class or series of stock, our board of directors intends to authorize, and we intend
to declare, dividends on our Class A common stock and our Class C common stock quarterly, in arrears. The record date and payment
date will be as determined by our board of directors in their sole discretion; however, we expect such dividends to also be payable
quarterly, in arrears. Distributions will be paid to stockholders as of the record dates for the periods selected by the directors.
We
are required to make distributions sufficient to satisfy the requirements for qualification as a REIT for tax purposes. Generally,
distributed income will not be taxable to us under the Code if we distribute at least 90% of our REIT taxable income, computed
without regard to the dividends paid deduction and our net capital gain or loss.
Distributions
are authorized at the discretion of our board of directors, in accordance with our earnings, cash flow, anticipated cash flow
and general financial condition and subject in all cases to requirements under Maryland law. The board’s discretion will
be directed, in substantial part, by its intention to cause us to continue to qualify as a REIT.
Many
of the factors that can affect the availability and timing of cash distributions to stockholders are beyond our control, and a
change in any one factor could adversely affect our ability to pay future distributions. There can be no assurance that future
cash flow will support distributions at the rate that such distributions are paid in any particular distribution period.
Under
Maryland law, we may issue our own securities as stock dividends in lieu of making cash distributions to stockholders. We may
issue securities as stock dividends in the future.
MATERIAL
U.S. FEDERAL INCOME TAX CONSIDERATIONS
This
section summarizes the material U.S. federal income tax considerations that you, as a securityholder, may consider relevant in
connection with the purchase, ownership and disposition of our securities. Vinson & Elkins L.L.P. has acted as our special
tax counsel, has reviewed this summary, and is of the opinion that the discussion contained herein is accurate in all material
respects. Because this section is a summary, it does not address all aspects of taxation that may be relevant to particular securityholders
in light of their personal investment or tax circumstances, or to certain types of securityholders that are subject to special
treatment under the U.S. federal income tax laws, such as:
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tax-exempt
organizations (except to the limited extent discussed in “— Taxation of Tax-Exempt
Stockholders” below);
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financial
institutions or broker-dealers;
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non-U.S.
individuals and foreign corporations (except to the limited extent discussed in “—
Taxation of Non-U.S. Stockholders” below);
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persons
who mark-to-market our securities;
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subchapter
S corporations;
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U.S.
stockholders (as defined below) whose functional currency is not the U.S. dollar;
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regulated
investment companies and REITs;
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holders
who receive our securities through the exercise of employee stock options or otherwise
as compensation;
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persons
holding our securities as part of a “straddle,” “hedge,” “conversion
transaction,” “synthetic security” or other integrated investment;
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persons
subject to the alternative minimum tax provisions of the Code; and
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persons
subject to special tax accounting rules as a result of their use of applicable financial
statements (within the meaning of Section 451(b)(3) of the Code); and
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persons
holding our securities through a partnership or similar pass-through entity.
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This
summary assumes that securityholders hold shares as capital assets for U.S. federal income tax purposes, which generally means
property held for investment.
The
statements in this section are not intended to be, and should not be construed as, tax advice. The statements in this section
are based on the Code, final, temporary and proposed Treasury Regulations, the legislative history of the Code, current administrative
interpretations and practices of the IRS, and court decisions. The reference to IRS interpretations and practices includes the
IRS practices and policies endorsed in private letter rulings, which are not binding on the IRS except with respect to the taxpayer
that receives the ruling. In each case, these sources are relied upon as they exist on the date of this discussion. Future legislation,
Treasury Regulations, administrative interpretations and court decisions could change the current law or adversely affect existing
interpretations of current law on which the information in this section is based. Any such change could apply retroactively. We
have not received any rulings from the IRS concerning our qualification as a REIT. Accordingly, even if there is no change in
the applicable law, no assurance can be provided that the statements made in the following discussion, 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.
WE
URGE YOU TO CONSULT YOUR TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO YOU OF THE PURCHASE, OWNERSHIP AND SALE OF OUR
SECURITIES AND OF OUR ELECTION TO BE TAXED AS A REIT. SPECIFICALLY, YOU ARE URGED TO CONSULT YOUR TAX ADVISOR REGARDING THE U.S.
FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION, AND REGARDING POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
Taxation
of our Company
We
elected to be taxed as a REIT under the U.S. federal income tax laws commencing with our taxable year ended December 31, 2010.
We believe that we have been organized and have operated so as to qualify us as a REIT commencing with our taxable year ended
December 31, 2010, and intend to continue to so operate. This section discusses the laws governing the U.S. federal income tax
treatment of a REIT and its securityholders. These laws are highly technical and complex.
In
the opinion of Vinson & Elkins L.L.P., we qualified to be taxed as a REIT under the U.S. federal income tax laws for our taxable
years ended December 31, 2010 through December 31, 2020, and our organization and current and proposed method of operation will
enable us to continue to qualify as a REIT for our taxable year ending December 31, 2021 and in the future. Investors should be
aware that Vinson & Elkins L.L.P.’s opinion is based upon customary assumptions, is conditioned upon certain representations
made by us as to factual matters, including representations regarding the nature of our assets, the conduct of our business, and
the value of our common stock, is not binding upon the IRS or any court, and speaks as of the date issued. In addition, Vinson
& Elkins L.L.P.’s opinion is based on existing U.S. federal income tax law governing qualification as a REIT, which
is subject to change either prospectively or retroactively.
Moreover,
our qualification and taxation as a REIT depends upon our ability to meet on a continuing basis, through actual results, certain
qualification tests set forth in the U.S. federal tax laws. Those qualification tests involve the percentage of income that we
earn from specified sources, the percentage of our assets that falls within specified categories, the diversity of our capital
stock ownership, and the percentage of our earnings that we distribute. Vinson & Elkins L.L.P. will not review our compliance
with those tests on a continuing basis. Accordingly, no assurance can be given that our actual results of operations for any particular
taxable year will satisfy such requirements. Vinson & Elkins L.L.P.’s opinion does not foreclose the possibility that
we may have to use one or more of the REIT savings provisions described below, which could require us to pay an excise or penalty
tax (which could be material) in order for us to maintain our REIT qualification. For a discussion of the tax consequences of
our failure to qualify as a REIT, see “— Failure to Qualify.”
As
long as we qualify as a REIT, we generally will not be subject to U.S. federal income tax on the taxable income that we distribute
to our stockholders. The benefit of that tax treatment is that it avoids the “double taxation,” or taxation at both
the corporate and stockholder levels, that generally applies to distributions by a corporation to its stockholders. However, even
if we qualify as a REIT, we will nonetheless be subject to U.S. federal tax in the following circumstances:
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We
will pay U.S. federal income tax on any taxable income, including net capital gain, that
we do not distribute to stockholders during, or within a specified time period after,
the calendar year in which the income is earned.
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For
taxable years beginning before January 1, 2018, we may be subject to the “alternative
minimum tax” on any items of tax preference that we do not distribute or allocate
to our stockholders.
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We
will pay income tax at the highest U.S. federal corporate income tax rate on:
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net
income from the sale or other disposition of property acquired through foreclosure (“foreclosure
property”) that we hold primarily for sale to customers in the ordinary course
of business, and
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other
non-qualifying income from foreclosure property.
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We
will pay a 100% tax on our net income from sales or other dispositions of property, other
than foreclosure property, that we hold primarily for sale to customers in the ordinary
course of business.
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If
we fail to satisfy one or both of the 75% gross income test or the 95% gross income test,
as described below under “— Gross Income Tests,” and nonetheless continue
to qualify as a REIT because we meet other requirements, we will pay a 100% tax on the
gross income attributable to the greater of the amount by which we fail the 75% gross
income test or the 95% gross income test, in either case, multiplied by a fraction intended
to reflect our profitability.
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If
we fail to distribute during a calendar year at least the sum of (1) 85% of our REIT
ordinary income for the year, (2) 95% of our REIT capital gain net income for the year,
and (3) any undistributed taxable income required to be distributed from earlier periods,
we will pay a 4% nondeductible excise tax on the excess of the required distribution
over the amount we actually distributed.
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We
may elect to retain and pay income tax on our net long-term capital gain. In that case,
a stockholder would be taxed on its proportionate share of our undistributed long-term
capital gain (to the extent that we made a timely designation of such gain to the stockholder)
and would receive a credit or refund for its proportionate share of the tax we paid.
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We
will be subject to a 100% excise tax on some payments we receive (or on certain expenses
deducted by any taxable REIT subsidiary (“TRS”) we form in the future, and
effective for taxable years beginning after December 31, 2015, on income imputed to our
TRS for services rendered to or on behalf of us), if arrangements among us, our tenants,
and our TRSs do not reflect arm’s-length terms.
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If
we fail to satisfy any of the asset tests, other than a de minimis failure of
the 5% asset test, the 10% vote test or the 10% value test, as described below under
“— Asset Tests,” as long as the failure was due to reasonable cause
and not to willful neglect, we file a description of each asset that caused such failure
with the IRS, and we dispose of the assets causing the failure or otherwise comply with
the asset tests within six months after the last day of the quarter in which we identify
such failure, we will pay a tax equal to the greater of $50,000 or the highest U.S. federal
corporate income tax rate then applicable to U.S. corporations (35% for taxable years
beginning on or before December 31, 2017, and 21% after that date) on the net income
from the nonqualifying assets during the period in which we failed to satisfy the asset
tests.
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If
we fail to satisfy one or more requirements for REIT qualification, other than the gross
income tests and the asset tests, and such failure is due to reasonable cause and not
to willful neglect, we will be required to pay a penalty of $50,000 for each such failure.
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If
we acquire any asset from a C corporation, or a corporation that generally is subject
to full corporate-level tax, in a merger or other transaction in which we acquire a basis
in the asset that is determined by reference either to the C corporation’s basis
in the asset or to another asset, we will pay tax at the highest applicable regular U.S.
federal corporate income tax rate applicable if we recognize gain on the sale or disposition
of the asset during the 5-year period after we acquire the asset provided no election
is made for the transaction to be taxable on a current basis. The amount of gain on which
we will pay tax is the lesser of:
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the
amount of gain that we recognize at the time of the sale or disposition, and
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the
amount of gain that we would have recognized if we had sold the asset at the time we
acquired it.
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We
may be required to pay monetary penalties to the IRS in certain circumstances, including
if we fail to meet record-keeping requirements intended to monitor our compliance with
rules relating to the composition of a REIT’s stockholders, as described below
in “— Recordkeeping Requirements.”
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The
earnings of our lower-tier entities that are subchapter C corporations, including any
TRSs we form in the future, will be subject to U.S. federal corporate income tax.
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In
addition, notwithstanding our qualification as a REIT, we may also have to pay certain state and local income taxes because not
all states and localities treat REITs in the same manner that they are treated for U.S. federal income tax purposes. Moreover,
as further described below, any TRSs we form in the future will be subject to U.S. federal, state and local corporate income tax
on their taxable income.
Requirements
for Qualification
A
REIT is a corporation, trust, or association that meets each of the following requirements:
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1.
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It
is managed by one or more trustees or directors.
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2.
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Its
beneficial ownership is evidenced by transferable shares, or by transferable certificates
of beneficial interest.
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3.
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It
would be taxable as a domestic corporation, but for the REIT provisions of the U.S. federal
income tax laws.
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4.
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It
is neither a financial institution nor an insurance company subject to special provisions
of the U.S. federal income tax laws.
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5.
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At
least 100 persons are beneficial owners of its shares or ownership certificates.
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6.
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Not
more than 50% in value of its outstanding shares or ownership certificates is owned,
directly or indirectly, by five or fewer individuals, which the Code defines to include
certain entities, during the last half of any taxable year.
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7.
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It
elects to be a REIT, or has made such election for a previous taxable year, and satisfies
all relevant filing and other administrative requirements established by the IRS that
must be met to elect and maintain REIT status.
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8.
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It
meets certain other qualification tests, described below, regarding the nature of its
income and assets and the distribution of its income.
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9.
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It
uses a calendar year for U.S. federal income tax purposes and complies with the recordkeeping
requirements of the U.S. federal income tax laws.
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10.
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It
has not been a party to a spin-off transaction that is tax-deferred under section 355
of the Code during the applicable period.
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We
must meet requirements 1 through 4, 8 and 9 during our entire taxable year and must meet requirement 5 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. If we comply with all
the requirements for ascertaining the ownership of our outstanding shares in a taxable year and have no reason to know that we
violated requirement 6, we will be deemed to have satisfied requirement 6 for that taxable year. For purposes of determining stock
ownership under requirement 6, an “individual” generally includes a supplemental unemployment compensation benefits
plan, a private foundation, or a portion of a trust permanently set aside or used exclusively for charitable purposes. An “individual,”
however, generally does not include a trust that is a qualified employee pension or profit sharing trust under the U.S. federal
income tax laws, and beneficiaries of such a trust will be treated as holding our shares in proportion to their actuarial interests
in the trust for purposes of requirement 6.
Our
charter provides restrictions regarding the transfer and ownership of shares of our capital stock. See “Description of Capital
Stock — Restrictions on Ownership and Transfer.” We believe that we have issued sufficient stock with sufficient diversity
of ownership to allow us to satisfy requirements 5 and 6 above. The restrictions in our charter are intended (among other things)
to assist us in continuing to satisfy requirements 5 and 6 above. These restrictions, however, may not ensure that we will, in
all cases, be able to satisfy such share ownership requirements. If we fail to satisfy these share ownership requirements, our
qualification as a REIT may terminate.
Qualified
REIT Subsidiaries
A
corporation that is a “qualified REIT subsidiary” is not treated as a corporation separate from its parent REIT. All
assets, liabilities, and items of income, deduction, and credit of a “qualified REIT subsidiary” are treated as assets,
liabilities, and items of income, deduction, and credit of the REIT. A “qualified REIT subsidiary” is a corporation,
other than a TRS, all of the stock of which is owned by the REIT. Thus, in applying the requirements described herein, any “qualified
REIT subsidiary” that we own will be ignored, and all assets, liabilities, and items of income, deduction, and credit of
such subsidiary will be treated as our assets, liabilities, and items of income, deduction, and credit.
Other
Disregarded Entities and Partnerships
An
unincorporated domestic entity, such as a partnership or limited liability company that has a single owner for U.S. federal income
tax purposes, generally is not treated as an entity separate from its owner for U.S. federal income tax purposes. An unincorporated
domestic entity with two or more owners for U.S. federal income tax purposes is generally treated as a partnership for U.S. federal
income tax purposes. In the case of a REIT that is a partner in a partnership that has other partners, the REIT is treated as
owning its proportionate share of the assets of the partnership and as earning its allocable share of the gross income of the
partnership for purposes of the applicable REIT qualification tests. Our proportionate share for purposes of the 10% value test
(see “— Asset Tests”) is based on our proportionate interest in the equity interests and certain debt securities
issued by the partnership. For all of the other asset and income tests, our proportionate share is based on our proportionate
interest in the capital interests in the partnership. Our proportionate share of the assets, liabilities, and items of income
of any partnership, joint venture, or limited liability company that is treated as a partnership for U.S. federal income tax purposes
in which we acquire an equity interest, directly or indirectly, will be treated as our assets and gross income for purposes of
applying the various REIT qualification requirements.
We
own limited partner or non-managing member interests in partnerships and limited liability companies that are joint ventures,
and we intend to acquire similar interests in the future. If a partnership or limited liability company in which we own an interest
takes or expects to take actions that could jeopardize our qualification as a REIT or require us to pay tax, we may be forced
to dispose of our interest in such entity. In addition, it is possible that a partnership or limited liability company could take
an action which could cause us to fail a gross income or asset test, and that we would not become aware of such action in time
to dispose of our interest in the partnership or limited liability company or take other corrective action on a timely basis.
In that case, we could fail to qualify as a REIT unless we were able to qualify for a statutory REIT “savings” provision,
which could require us to pay a significant penalty tax to maintain our REIT qualification.
Taxable
REIT Subsidiaries
A
REIT may own up to 100% of the shares of one or more TRSs. A TRS is a fully taxable corporation that may earn income that would
not be qualifying income if earned directly by the parent REIT. The subsidiary and the REIT must jointly elect to treat the subsidiary
as a TRS. A corporation (other than a REIT) of which a TRS directly or indirectly owns more than 35% of the voting power or value
of the securities will automatically be treated as a TRS. We will not be treated as holding the assets of a TRS or as receiving
any income that the TRS earns. Rather, the stock issued by a TRS to us will be an asset in our hands, and we will treat the distributions
paid to us from such TRS, if any, as income to the extent of the TRS’s earnings and profits. This treatment may affect our
compliance with the gross income and asset tests. Because we will not include the assets and income of TRSs in determining our
compliance with the REIT requirements, we may use such entities to undertake activities indirectly, such as earning fee income,
that the REIT rules might otherwise preclude us from doing directly or through pass-through subsidiaries. Overall, no more than
20% (25% for taxable years beginning on or before December 31, 2017) of the value of a REIT’s assets may consist of stock
or securities of one or more TRSs.
A
TRS pays income tax at regular corporate rates on any income that it earns. In addition, the TRS rules limit the deductibility
of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate
taxation. For example, deductions are disallowed for business interest expense (even if paid to third parties) in excess of the
sum of a taxpayer’s business interest income and 30% (adjusted, in the absence of an election otherwise, to 50% for the
2020 taxable year under the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”)) of the adjusted
taxable income of the business, which is its taxable income computed without regard to business interest income or expense, net
operating losses (“NOLs”) or the pass-through income deductions (and for taxable years before 2022, excludes depreciation
and amortization). Such limitations may also impact the amount of U.S. federal income tax paid by a TRS. Further, the rules impose
a 100% excise tax on certain transactions between a TRS and its parent REIT or the REIT’s tenants that are not conducted
on an arm’s-length basis.
A
TRS may not directly or indirectly operate or manage any health care facilities or lodging facilities or provide rights to any
brand name under which any health care facility or lodging facility is operated. A TRS is not considered to operate or manage
a “qualified health care property” or “qualified lodging facility” solely because the TRS directly or
indirectly possesses a license, permit, or similar instrument enabling it to do so.
Rent
that we receive from a TRS will qualify as “rents from real property” as long as (1) at least 90% of the leased space
in the property is leased to persons other than TRSs and related-party tenants, and (2) the amount paid by the TRS to rent space
at the property is substantially comparable to rents paid by other tenants of the property for comparable space, as described
in further detail below under “— Gross Income Tests — Rents from Real Property.” If we lease space to
a TRS in the future, we will seek to comply with these requirements.
Gross
Income Tests
We
must satisfy two gross income tests annually to maintain our qualification as a REIT. First, at least 75% of our gross income
for each taxable year must consist of defined types of income that we derive, directly or indirectly, from investments relating
to real property or mortgages on real property or qualified temporary investment income. Qualifying income for purposes of the
75% gross income test generally includes:
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rents
from real property;
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interest
on debt secured by mortgages on real property, or on interests in real property;
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dividends
or other distributions on, and gain from the sale of, shares in other REITs;
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gain
from the sale of a real estate asset (effective for taxable years beginning after December
31, 2015, excluding gain from the sale of a debt instrument issued by a “publicly
offered REIT” (i.e., a REIT required to file periodic and annual reports with the
SEC under the Exchange Act) to the extent not secured by real property or an interest
in real property) not held for sale to customers;
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income
and gain derived from foreclosure property;
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amounts
(other than amounts the determination of which depends in whole or in part on the income
or profits of any person) received or accrued as consideration for entering into agreements
to make loans secured by mortgages on real property or interests in real property or
to purchase or lease real property (including interests in real property and interests
in mortgages on real property); and
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income
derived from the temporary investment of new capital that is attributable to the issuance
of our stock or a public offering of our debt with a maturity date of at least five years
and that we receive during the one-year period beginning on the date on which we received
such new capital.
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Second,
in general, at least 95% of our gross income for each taxable year must consist of income that is qualifying income for purposes
of the 75% gross income test, other types of interest and dividends, gain from the sale or disposition of shares or securities,
or any combination of these; however, effective for taxable years beginning after December 31, 2015, for purposes of the 95% gross
income test, gain from the sale of “real estate assets” includes gain from the sale of a debt instrument issued by
a “publicly offered REIT.” Cancellation of indebtedness income (“COD income”) and gross income from our
sale of property that we hold primarily for sale to customers in the ordinary course of business are excluded from both the numerator
and the denominator in both gross income tests. In addition, income and gain from “hedging transactions” that we enter
into to hedge indebtedness incurred or to be incurred to acquire or carry real estate assets and that are clearly and timely identified
as such will be excluded from both the numerator and the denominator for purposes of the 75% and 95% gross income tests. Finally,
certain foreign currency gains will be excluded from gross income for purposes of one or both of the gross income tests. See “—
Foreign Currency Gain.” The following paragraphs discuss the specific application of the gross income tests to us.
Rents
from Real Property
Rent
that we receive, including as a result of our ownership of preferred or common equity interests in a partnership that owns rental
properties, from our real property will qualify as “rents from real property,” which is qualifying income for purposes
of the 75% and 95% gross income tests, only if the following conditions are met:
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First,
the rent must not be based, in whole or in part, on the income or profits of any person,
but may be based on a fixed percentage or percentages of receipts or sales.
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Second,
neither we nor a direct or indirect owner of 10% or more of our stock may own, actually
or constructively, 10% or more of a tenant from whom we receive rent, other than a TRS.
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Third,
if the rent attributable to personal property leased in connection with a lease of real
property is 15% or less of the total rent received under the lease, then the rent attributable
to personal property will qualify as rents from real property. The allocation of rent
between real and personal property is based on the relative fair market values of the
real and personal property. However, if the 15% threshold is exceeded, the rent attributable
to personal property will not qualify as rents from real property.
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Fourth,
we generally must not operate or manage our real property or furnish or render services
to our tenants, other than through an “independent contractor” who is adequately
compensated and from whom we do not derive revenue. However, we need not provide services
through an “independent contractor,” but instead may provide services directly
to our tenants, if the services are “usually or customarily rendered” in
connection with the rental of space for occupancy only and are not considered to be provided
for the tenants’ convenience. In addition, we may provide a minimal amount of “noncustomary”
services to the tenants of a property, other than through an independent contractor,
as long as our income from the services (valued at not less than 150% of our direct cost
of performing such services) does not exceed 1% of our income from the related property.
Furthermore, we may own up to 100% of the stock of a TRS which may provide customary
and noncustomary services to our tenants without tainting our rental income from the
related properties.
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If
a portion of the rent that we receive from a property does not qualify as “rents from real property” because the rent
attributable to personal property exceeds 15% of the total rent for a taxable year, the portion of the rent that is attributable
to personal property will not be qualifying income for purposes of either the 75% or 95% gross income test. Thus, if such rent
attributable to personal property, plus any other income that is nonqualifying income for purposes of the 95% gross income test,
during a taxable year exceeds 5% of our gross income during the year, we would lose our REIT qualification. If, however, the rent
from a particular property does not qualify as “rents from real property” because either (1) the rent is considered
based on the income or profits of the related tenant, (2) the tenant either is a related party tenant or fails to qualify for
the exceptions to the related party tenant rule for qualifying TRSs or (3) we furnish noncustomary services to the tenants of
the property, or manage or operate the property, other than through a qualifying independent contractor or a TRS, none of the
rent from that property would qualify as “rents from real property.”
Our
Operating Partnership and its subsidiaries generally lease substantially all our properties to tenants’ that are individuals.
Our leases typically have a term of at least one year and require the tenant to pay fixed rent. We do not anticipate leasing significant
amounts of personal property pursuant to our leases. Moreover, we do not currently perform any services other than customary ones
for our tenants, unless such services are provided through independent contractors or a TRS. Accordingly, we believe that our
leases generally produce rent that qualifies as “rents from real property” for purposes of the 75% and 95% gross income
tests.
In
addition to the rent, the tenants may be required to pay certain additional charges. To the extent that such additional charges
represent reimbursements of amounts that we are obligated to pay to third parties, such charges generally will qualify as “rents
from real property.” To the extent such additional charges represent penalties for nonpayment or late payment of such amounts,
such charges should qualify as “rents from real property.” However, to the extent that late charges do not qualify
as “rents from real property,” they instead will be treated as interest that qualifies for the 95% gross income test.
Interest
Interest
income generally constitutes qualifying mortgage interest for purposes of the 75% gross income test to the extent that the obligation
upon which such interest is paid is secured by a mortgage on real property (and, for taxable years beginning after December 31,
2015, a mortgage on an interest in real property). Except as provided in the following sentence, if we receive interest income
with respect to a mortgage loan that is secured by both real and other property, and the highest principal amount of the loan
outstanding during a taxable year exceeds the fair market value of the real property on the date that we acquired or originated
the mortgage loan, the interest income will be apportioned between the real property and the other collateral, and our income
from the arrangement will qualify for purposes of the 75% gross income test only to the extent that the interest is allocable
to the real property. For taxable years beginning after December 31, 2015, in the case of real estate mortgage loans secured by
both real and personal property, if the fair market value of such personal property does not exceed 15% of the total fair market
value of all property securing the loan, then the personal property securing the loan will be treated as real property for purposes
of determining whether the mortgage is qualifying under the 75% asset test and as producing interest income that qualifies for
purposes of the 75% gross income test.
The
term “interest” generally does not include any amount received or accrued, directly or indirectly, if the determination
of such amount depends in whole or in part on the income or profits of any person. However, interest generally includes the following:
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an
amount that is based on a fixed percentage or percentages of receipts or sales; and
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an
amount that is based on the income or profits of a debtor, as long as the debtor derives
substantially all of its income from the real property securing the debt from leasing
substantially all of its interest in the property, and only to the extent that the amounts
received by the debtor would be qualifying “rents from real property” if
received directly by a REIT.
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If
a loan contains a provision that entitles a REIT to a percentage of the borrower’s gain upon the sale of the real property
securing the loan or a percentage of the appreciation in the property’s value as of a specific date, income attributable
to that loan provision will be treated as gain from the sale of the property securing the loan, which generally is qualifying
income for purposes of both gross income tests.
In
connection with development projects, we may originate mezzanine loans, which are loans secured by equity interests in an entity
that directly or indirectly owns real property, rather than by a direct mortgage of the real property. In Revenue Procedure 2003-65,
the IRS established a safe harbor under which loans secured by a first priority security interest in ownership interests in a
partnership or limited liability company owning real property will be treated as real estate assets for purposes of the REIT asset
tests described below, and interest derived from those loans will be treated as qualifying income for both the 75% and 95% gross
income tests, provided several requirements are satisfied. Although Revenue Procedure 2003-65 provides a safe harbor on which
taxpayers may rely, it does not prescribe rules of substantive tax law. Moreover, we anticipate that our mezzanine loans typically
will not meet all of the requirements for reliance on the safe harbor. To the extent any mezzanine loans that we originate do
not qualify for the safe harbor described above, the interest income from the loans will be qualifying income for purposes of
the 95% gross income test, but there is a risk that such interest income will not be qualifying income for purposes of the 75%
gross income test. We intend to invest in mezzanine loans in a manner that will enable us to continue to satisfy the REIT gross
income and asset tests.
Dividends
Our
share of any dividends received from any corporation (including any TRS, but excluding any REIT) in which we own an equity interest
will qualify for purposes of the 95% gross income test but not for purposes of the 75% gross income test. Our share of any dividends
received from any other REIT in which we own an equity interest, if any, will be qualifying income for purposes of both gross
income tests.
Prohibited
Transactions
A
REIT will incur a 100% tax on the net income (including foreign currency gain) derived from any sale or other disposition of property,
other than foreclosure property, that the REIT holds primarily for sale to customers in the ordinary course of a trade or business.
We believe that none of our properties have been or will be held primarily for sale to customers and that all prior sales of our
properties were not, and a sale of any of our properties in the future will not be in the ordinary course of our business. However,
there can be no assurance that the IRS would not disagree with that belief. Whether a REIT holds a property “primarily for
sale to customers in the ordinary course of a trade or business” depends on the facts and circumstances in effect from time
to time, including those related to a particular property. A safe harbor to the characterization of the sale of property that
is a real estate asset by a REIT as a prohibited transaction and the 100% prohibited transaction tax is available if the following
requirements are met:
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the
REIT has held the property for not less than two years;
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the
aggregate expenditures made by the REIT, or any partner of the REIT, during the two-year
period preceding the date of the sale that are includable in the adjusted basis of the
property do not exceed 30% of the selling price of the property;
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either
(1) during the year in question, the REIT did not make more than seven sales of property
other than foreclosure property or sales to which Section 1033 of the Code applies, or
(2) the aggregate adjusted bases of all such properties sold by the REIT during the year
did not exceed 10% of the aggregate bases of all of the assets of the REIT at the beginning
of the year, or (3) the aggregate fair market value of all such properties sold by the
REIT during the year did not exceed 10% of the aggregate fair market value of all of
the assets of the REIT at the beginning of the year, or (4) effective for taxable years
beginning after December 31, 2015, the aggregate adjusted basis of property sold during
the year is 20% or less of the aggregate adjusted basis of all of our assets as of the
beginning of the taxable year and the aggregate adjusted basis of property sold during
the 3-year period ending with the year of sale is 10% or less of the aggregate tax basis
of all of our assets as of the beginning of each of the three taxable years ending with
the year of sale; or (5) effective for taxable years beginning after December 31, 2015,
the fair market value of property sold during the year is 20% or less of the aggregate
fair market value of all of our assets as of the beginning of the taxable year and the
fair market value of property sold during the 3-year period ending with the year of sale
is 10% or less of the aggregate fair market value of all of our assets as of the beginning
of each of the three taxable years ending with the year of sale;
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in
the case of property not acquired through foreclosure or lease termination, the REIT
has held the property for at least two years for the production of rental income; and
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if
the REIT has made more than seven sales of non-foreclosure property during the taxable
year, substantially all of the marketing and development expenditures with respect to
the property were made through an independent contractor from whom the REIT derives no
income or, effective for taxable years beginning after December 31, 2015, through any
of our TRSs.
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We
will attempt to comply with the terms of the safe-harbor provisions in the U.S. federal income tax laws prescribing when a property
sale will not be characterized as a prohibited transaction. However, not all of our prior sales of properties have qualified for
the safe-harbor provisions. In addition, we cannot assure you that we can comply with the safe-harbor provisions or that we have
avoided and will avoid owning property that may be characterized as property that we hold “primarily for sale to customers
in the ordinary course of a trade or business.” The 100% tax will not apply to gains from the sale of property that is held
through a TRS or other taxable corporation, although such income will be taxed to the corporation at regular corporate income
tax rates.
Fee
Income
Fee
income generally will not be qualifying income for purposes of both the 75% and 95% gross income tests. Any fees earned by a TRS
will not be included for purposes of the gross income tests.
Foreclosure
Property
We
will be subject to tax at the maximum U.S. federal corporate income tax rate on any income from foreclosure property, which includes
certain foreign currency gains and related deductions, other than income that otherwise would be qualifying income for purposes
of the 75% gross income test, less expenses directly connected with the production of that income. However, gross income from
foreclosure property will qualify under the 75% and 95% gross income tests. Foreclosure property is any real property, including
interests in real property, and any personal property incident to such real property:
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that
is acquired by a REIT as the result of the REIT having bid on such property at foreclosure,
or having otherwise reduced such property to ownership or possession by agreement or
process of law, after there was a default or when default was imminent on a lease of
such property or on indebtedness that such property secured;
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for
which the related loan was acquired by the REIT at a time when the default was not imminent
or anticipated; and
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for
which the REIT makes a proper election to treat the property as foreclosure property.
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However,
a REIT will not be considered to have foreclosed on a property where the REIT takes control of the property as a mortgagee-in-possession
and cannot receive any profit or sustain any loss except as a creditor of the mortgagor. Property generally ceases to be foreclosure
property at the end of the third taxable year (or, with respect to qualified health care property, the second taxable year) following
the taxable year in which the REIT acquired the property, or longer if an extension is granted by the Secretary of the Treasury.
However, this grace period terminates and foreclosure property ceases to be foreclosure property on the first day:
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on
which a lease is entered into for the property that, by its terms, will give rise to
income that does not qualify for purposes of the 75% gross income test, or any amount
is received or accrued, directly or indirectly, pursuant to a lease entered into on or
after such day that will give rise to income that does not qualify for purposes of the
75% gross income test;
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on
which any construction takes place on the property, other than completion of a building
or any other improvement, where more than 10% of the construction was completed before
default became imminent; or
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which
is more than 90 days after the day on which the REIT acquired the property and the property
is used in a trade or business which is conducted by the REIT, other than through an
independent contractor from whom the REIT itself does not derive or receive any income
or, as effective for taxable years beginning after December 31, 2015, through a TRS.
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Hedging
Transactions
From
time to time, we or our Operating Partnership may enter into hedging transactions with respect to one or more of our assets or
liabilities. Our hedging activities may include entering into interest rate swaps, caps, and floors, options to purchase such
items, and futures and forward contracts. Income and gain from “hedging transactions” will be excluded from gross
income for purposes of both the 75% and 95% gross income tests provided we satisfy the indemnification requirements discussed
below. A “hedging transaction” means either (1) any transaction entered into in the normal course of our or our Operating
Partnership’s trade or business primarily to manage the risk of interest rate, price changes, or currency fluctuations with
respect to borrowings made or to be made, or ordinary obligations incurred or to be incurred, to acquire or carry real estate
assets and (2) any transaction entered into primarily to manage the risk of currency fluctuations with respect to any item of
income or gain that would be qualifying income under the 75% or 95% gross income test (or any property which generates such income
or gain). Effective for taxable years beginning after December 31, 2015, if we have entered into a qualifying hedging transaction
as described above (an “Original Hedge”) and a portion of the hedged indebtedness is extinguished or property is disposed
of and in connection with such extinguishment or disposition we enter into a new “clearly identified” hedging transaction
that would counteract the Original Hedge (a “Counteracting Hedge”), income from the Original Hedge and income from
the Counteracting Hedge (including gain from the disposition of the Original Hedge and the Counteracting Hedge) will not be treated
as gross income for purposes of the 95% and 75% gross income tests. We are required to clearly identify any such hedging transaction
before the close of the day on which it was acquired, originated, or entered into and to satisfy other identification requirements.
We intend to structure any hedging transactions in a manner that does not jeopardize our qualification as a REIT.
COD
Income
From
time-to-time, we and our subsidiaries may recognize COD income in connection with repurchasing debt at a discount. COD income
is excluded from gross income for purposes of both the 95% gross income test and the 75% gross income test.
Foreign
Currency Gain
Certain
foreign currency gains will be excluded from gross income for purposes of one or both of the gross income tests. “Real estate
foreign exchange gain” will be excluded from gross income for purposes of the 75% and 95% gross income tests. Real estate
foreign exchange gain generally includes foreign currency gain attributable to any item of income or gain that is qualifying income
for purposes of the 75% gross income test, foreign currency gain attributable to the acquisition or ownership of (or becoming
or being the obligor under) obligations secured by mortgages on real property or an interest in real property and certain foreign
currency gain attributable to certain “qualified business units” of a REIT. “Passive foreign exchange gain”
will be excluded from gross income for purposes of the 95% gross income test. Passive foreign exchange gain generally includes
real estate foreign exchange gain as described above, and also includes foreign currency gain attributable to any item of income
or gain that is qualifying income for purposes of the 95% gross income test and foreign currency gain attributable to the acquisition
or ownership of (or becoming or being the obligor under) obligations. These exclusions for real estate foreign exchange gain and
passive foreign exchange gain do not apply to any certain foreign currency gain derived from dealing, or engaging in substantial
and regular trading, in securities. Such gain is treated as nonqualifying income for purposes of both the 75% and 95% gross income
tests.
Failure
to Satisfy Gross Income Tests.
If
we fail to satisfy one or both of the gross income tests for any taxable year, we nevertheless may qualify as a REIT for that
year if we qualify for relief under certain provisions of the U.S. federal income tax laws. Those relief provisions are available
if:
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our
failure to meet those tests is due to reasonable cause and not to willful neglect; and
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following
such failure for any taxable year, we file a schedule of the sources of our income in
accordance with regulations prescribed by the Secretary of the U.S. Treasury.
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We
cannot predict, however, whether in all circumstances we would qualify for the relief provisions. In addition, as discussed above
in “— Taxation of Our Company,” even if the relief provisions apply, we would incur a 100% tax on the gross
income attributable to the greater of the amount by which we fail the 75% gross income test or the 95% gross income test multiplied,
in either case, by a fraction intended to reflect our profitability.
Asset
Tests
To
qualify as a REIT, we also must satisfy the following asset tests at the end of each quarter of each taxable year. First, at least
75% of the value of our total assets must consist of:
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cash
or cash items, including certain receivables and money market funds and, in certain circumstances,
foreign currencies;
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interests
in real property, including leaseholds and options to acquire real property and leaseholds;
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interests
in mortgage loans secured by real property;
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investments
in stock or debt instruments during the one-year period following our receipt of new
capital that we raise through equity offerings or public offerings of debt with at least
a five-year term; and
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effective
for taxable years beginning after December 31, 2015: (i) personal property leased in
connection with real property to the extent that rents attributable to such personal
property are treated as “rents from real property,” and (ii) debt instruments
issued by “publicly offered REITs.”
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Second,
of our investments not included in the 75% asset class, the value of our interest in any one issuer’s securities may not
exceed 5% of the value of our total assets (the “5% asset test”).
Third,
of our investments not included in the 75% asset class, we may not own more than 10% of the voting power of any one issuer’s
outstanding securities or 10% of the value of any one issuer’s outstanding securities (respectively, the “10% vote
test” and the “10% value test”).
Fourth,
no more than 20% (25% for taxable years beginning on or before December 31, 2017) of the value of our total assets may consist
of the securities of one or more TRSs.
Fifth,
no more than 25% of the value of our total assets may consist of the securities of TRSs and other non-TRS taxable subsidiaries
and other assets that are not qualifying assets for purposes of the 75% asset test (the “25% securities test”).
Effective
for taxable years beginning after December 31, 2015, not more than 25% of the value of our total assets may be represented by
debt instruments issued by publicly offered REITs to the extent not secured by real property or interests in real property.
For
purposes of the 5% asset test, the 10% vote test, the 10% value test and the 25% securities test, the term “securities”
does not include shares in another REIT, debt of “publicly offered REITs”, equity or debt securities of a qualified
REIT subsidiary or TRS, mortgage loans that constitute real estate assets, or equity interests in a partnership. The term “securities,”
however, generally includes debt securities issued by a partnership or another REIT (other than a “publicly offered REIT”),
except that for purposes of the 10% value test, the term “securities” does not include:
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“Straight
debt” securities, which is defined as a written unconditional promise to pay on
demand or on a specified date a sum certain in money if (1) the debt is not convertible,
directly or indirectly, into equity, and (2) the interest rate and interest payment dates
are not contingent on profits, the borrower’s discretion, or similar factors. “Straight
debt” securities do not include any securities issued by a partnership or a corporation
in which we or any controlled TRS (i.e., a TRS in which we own directly or indirectly
more than 50% of the voting power or value of the stock) hold non-“straight debt”
securities that have an aggregate value of more than 1% of the issuer’s outstanding
securities. However, “straight debt” securities include debt subject to the
following contingencies:
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a
contingency relating to the time of payment of interest or principal, as long as either
(1) there is no change to the effective yield of the debt obligation, other than a change
to the annual yield that does not exceed the greater of 0.25% or 5% of the annual yield,
or (2) neither the aggregate issue price nor the aggregate face amount of the issuer’s
debt obligations held by us exceeds $1 million and no more than 12 months of unaccrued
interest on the debt obligations can be required to be prepaid; and
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a
contingency relating to the time or amount of payment upon a default or prepayment of
a debt obligation, as long as the contingency is consistent with customary commercial
practice.
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Any
loan to an individual or an estate;
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Any
“Section 467 rental agreement,” other than an agreement with a related party
tenant;
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Any
obligation to pay “rents from real property”;
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Certain
securities issued by governmental entities;
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Any
security issued by a REIT;
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Any
debt instrument issued by an entity treated as a partnership for U.S. federal income
tax purposes in which we are a partner to the extent of our proportionate interest in
the equity and debt securities of the partnership; and
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Any
debt instrument issued by an entity treated as a partnership for U.S. federal income
tax purposes not described in the preceding bullet points if at least 75% of the partnership’s
gross income, excluding income from prohibited transactions, is qualifying income for
purposes of the 75% gross income test described above in “— Gross Income
Tests.”
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For
purposes of the 10% value test, our proportionate share of the assets of a partnership is our proportionate interest in any securities
issued by the partnership, without regard to the securities described in the last two bullet points above.
We
believe that our holdings of assets comply with the foregoing asset tests, and we intend to monitor compliance on an ongoing basis.
However, independent appraisals have not been obtained to support our conclusions as to the value of our assets or the value of
any particular security or securities. Moreover, values of some assets may not be susceptible to a precise determination, and
values are subject to change in the future. As described above, Revenue Procedure 2003-65 provides a safe harbor pursuant to which
certain mezzanine loans secured by a first priority security interest in ownership interests in a partnership or limited liability
company will be treated as qualifying assets for purposes of the 75% asset test (and therefore, are not subject to the 5% asset
test, the 10% vote test and the 10% value test). See “— Gross Income Tests.” Although we anticipate that our
mezzanine loans typically will not qualify for that safe harbor, we believe our mezzanine loans should be treated as qualifying
assets for the 75% asset test or should be excluded from the definition of securities for purposes of the 10% vote test and the
10% value test. We intend to make mezzanine loans only to the extent such loans will not cause us to fail the asset tests described
above.
We
will continue to monitor the status of our assets for purposes of the various asset tests and will manage our portfolio in order
to comply at all times with such tests. However, there is no assurance that we will not inadvertently fail to comply with such
tests. If we fail to satisfy the asset tests at the end of a calendar quarter, we will not lose our REIT qualification if:
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we
satisfied the asset tests at the end of the preceding calendar quarter; and
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the
discrepancy between the value of our assets and the asset test requirements arose from
changes in the market values of our assets and was not wholly or partly caused by the
acquisition of one or more non-qualifying assets.
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If
we did not satisfy the condition described in the second item, above, we still could avoid disqualification by eliminating any
discrepancy within 30 days after the close of the calendar quarter in which it arose.
If
we violate the 5% asset test, the 10% vote test or the 10% value test described above at the end of any quarter of each taxable
year, we will not lose our REIT qualification if (1) the failure is de minimis (up to the lesser of 1% of our assets or
$10 million) and (2) we dispose of assets causing the failure or otherwise comply with the asset tests within six months after
the last day of the quarter in which we identify such failure. In the event of a failure of any of the asset tests (other than
de minimis failures described in the preceding sentence), as long as the failure was due to reasonable cause and not to
willful neglect, we will not lose our REIT qualification if we (1) dispose of assets causing the failure or otherwise comply with
the asset tests within six months after the last day of the quarter in which we identify such failure, (2) file a description
of each asset causing the failure with the IRS and (3) pay a tax equal to the greater of $50,000 or 21% (35% for taxable years
beginning before January 1, 2018) of the net income from the assets causing the failure during the period in which we failed to
satisfy the asset tests.
Distribution
Requirements
Each
taxable year, we must distribute dividends, other than capital gain dividends and deemed distributions of retained capital gain,
to our stockholders in an aggregate amount at least equal to the sum of:
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90%
of our “REIT taxable income,” computed without regard to the dividends paid
deduction and our net capital gain or loss, and
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90%
of our after-tax net income, if any, from foreclosure property, minus
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the
excess of the sum of certain items of non-cash income over 5% of our REIT taxable income
computed without regard to the dividends paid deduction and our net capital gain.
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We
must pay such distributions in the taxable year to which they relate, or in the following taxable year if either we (1) declare
the distribution before we timely file our U.S. federal income tax return for the year, pay the distribution on or before the
first regular dividend payment date after such declaration and elect in our tax return to have a specified dollar amount of such
distribution treated as if paid during the prior year or (2) declare the distribution in October, November or December of the
taxable year, payable to stockholders of record on a specified day in any such month, and we actually pay the dividend before
the end of January of the following year. The distributions under clause (1) are taxable to the stockholders in the year in which
paid, and the distributions in clause (2) are treated as paid on December 31st of the prior taxable year to the extent of our
earnings and profits. In both instances, these distributions relate to our prior taxable year for purposes of the 90% distribution
requirement.
We
will pay U.S. federal income tax on taxable income, including net capital gain, that we do not distribute to stockholders. Furthermore,
if we fail to distribute during a calendar year, or by the end of January following the calendar year in the case of distributions
with declaration and record dates falling in the last three months of the calendar year, at least the sum of:
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85%
of our REIT ordinary income for such year,
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95%
of our REIT capital gain net income for such year, and
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any
undistributed taxable income (ordinary and capital gain) from all prior periods,
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then,
we will incur a 4% nondeductible excise tax on the excess of such required distribution over the amounts we actually distribute.
In making this calculation, the amount that a REIT is treated as having “actually distributed” during the current
taxable year is both the amount distributed during the current year and the amount by which the distributions during the prior
year exceeded its taxable income and capital gain for that prior year (the prior year calculation uses the same methodology so,
in determining the amount of the distribution in the prior year, one looks back to the year before and so forth).
If
we are not treated as a “publicly offered REIT,” in order for distributions to be counted as satisfying the annual
distribution requirements for REITs, and to provide us with a REIT-level tax deduction, the distributions must not be “preferential
dividends.” A dividend is not a preferential dividend if the distribution is (1) pro rata among all outstanding shares of
stock within a particular class, and (2) in accordance with the preferences among different classes of stock as set forth in our
organizational documents. The preferential dividend rule does not apply to “publicly offered REITs.” Currently, we
are a “publicly offered REIT.” We may elect to retain and pay income tax on the net long-term capital gain we receive
in a taxable year. If we so elect, we will be treated as having distributed any such retained amount for purposes of the 4% nondeductible
excise tax described above. We intend to make timely distributions sufficient to satisfy the annual distribution requirements
and to avoid U.S. federal corporate income tax and the 4% nondeductible excise tax.
Limitations
on Deductions
It
is possible that, from time to time, we may experience timing differences between the actual receipt of income and actual payment
of deductible expenses and the inclusion of that income and deduction of such expenses in arriving at our REIT taxable income.
Additionally, we may not deduct recognized capital losses from our “REIT taxable income.” Further, from time to time,
we may be allocated a share of net capital gain attributable to the sale of depreciated property that exceeds our allocable share
of cash attributable to that sale. We generally will be required to recognize certain amounts as income no later than the time
such amounts are reflected on certain financial statements.
Additionally,
beginning with 2018, the Tax Cuts and Jobs Act (“TCJA”) generally limits a taxpayer’s net interest expense deduction
to 30% (adjusted, in the absence of an election otherwise, to 50% for non-partnership entities for their 2019 and 2020 taxable
years and for partnerships for their 2020 taxable years under the CARES Act) of the sum of adjusted taxable income, business interest,
and certain other amounts. Adjusted taxable income does not include items of income or expense not allocable to a trade or business,
business interest or expense, the deduction for qualified business income, NOLs, and for years prior to 2022, deductions for depreciation,
amortization, or depletion. Under the CARES Act, a taxpayer may elect to use its adjusted taxable income from its 2019 taxable
year for purposes of calculating its limitation in its 2020 taxable year. For partnerships, the interest deduction limit is applied
at the partnership level, subject to certain adjustments to the partners for unused deduction limitation at the partnership level.
Disallowed interest expense is carried forward indefinitely (subject to special rules for partnerships, including, under the CARES
Act, the ability for a partner allocated disallowed interest with respect to the partnership’s 2019 taxable year to deduct
50% of such amounts in its 20202 taxable year).
The
TCJA allows a real property trade or business to elect out of this interest limit so long as it uses a 40-year recovery period
for nonresidential real property, a 30-year recovery period for residential real property, and a 20-year recovery period for related
improvements described below. For this purpose, a real property trade or business is any real property development, redevelopment,
construction, reconstruction, acquisition, conversion, rental, operating, management, leasing, or brokerage trade or business.
We believe this definition encompasses our business and thus will allow us the option of electing out of the limits on interest
deductibility should we determine it is prudent to do so.
For
taxpayers that do not use the TCJA’s real property trade or business exception to the business interest deduction limits,
the TCJA maintains the current 39-year and 27.5-year straight line recovery periods for nonresidential real property and residential
rental property, respectively, and provides that tenant improvements for such taxpayers are subject to a general 15-year recovery
period. Also, the TCJA temporarily allows 100% expensing of certain new or used tangible property through 2022, phasing out at
20% for each following year (with an election available for 50% expensing of such property if placed in service during the first
taxable year ending after September 27, 2017). The changes apply, generally, to property acquired after September 27, 2017, and
placed in service after September 27, 2017.
Finally,
NOL provisions were modified by the TCJA. The TCJA limits the NOL deduction to 80% of taxable income (before the deduction). It
also generally eliminates NOL carrybacks for individuals and non-REIT corporations (NOL carrybacks did not apply to REITs under
prior law), but allows indefinite NOL carryforwards. The new NOL rules apply to losses arising in taxable years beginning in 2018.
As
a result of the foregoing, we may have less cash than is necessary to distribute all of our taxable income and thereby avoid corporate
income tax and the excise tax imposed on certain undistributed income, or even to meet the 90% distribution requirement. In such
a situation, we may need to borrow funds or, if possible, pay taxable dividends of our capital stock or debt securities.
Elective
Cash/Stock Dividends
We
may satisfy the 90% distribution test with taxable distributions of our stock or debt securities. On August 11, 2017, the IRS
issued Revenue Procedure 2017-45 authorizing elective cash/stock dividends to be made by “publicly offered REITs.”
Pursuant to Revenue Procedure 2017- 45, effective for distributions declared on or after August 11, 2017, the IRS will treat the
distribution of stock pursuant to an elective cash/stock dividend as a distribution of property under Section 301 of the Code
(i.e., a dividend), as long as at least 20% of the total dividend is available in cash and certain other parameters detailed in
the Revenue Procedure are satisfied. On May 4, 2020, the IRS issued Revenue Procedure 2020-19, which temporarily reduced (through
the end of 2020) that minimum amount of the distribution that must be available in cash to 10%. Although we have not current intention
of paying dividends in our own stock, if in the future we choose to pay dividends in our own stock, our stockholder may be required
to pay tax in excess of the cash that they receive.
Under
certain circumstances, we may be able to correct a failure to meet the distribution requirement for a year by paying “deficiency
dividends” to our stockholders in a later year. We may include such deficiency dividends in our deduction for dividends
paid for the earlier year. Although we may be able to avoid income tax on amounts distributed as deficiency dividends, we will
be required to pay interest to the IRS based upon the amount of any deduction we take for deficiency dividends.
Recordkeeping
Requirements
We
must maintain certain records in order to qualify as a REIT. In addition, to avoid a monetary penalty, we must request on an annual
basis information from our stockholders designed to disclose the actual ownership of our outstanding stock. We intend to comply
with these requirements.
Failure
to Qualify
If
we fail to satisfy one or more requirements for REIT qualification, other than the gross income tests and the asset tests, we
could avoid disqualification if our failure is due to reasonable cause and not to willful neglect and we pay a penalty of $50,000
for each such failure. In addition, there are relief provisions for a failure of the gross income tests and asset tests, as described
in “— Gross Income Tests” and “— Asset Tests.”
If
we fail to qualify as a REIT in any taxable year, and no relief provision applies, we would be subject to U.S. federal income
tax and, for taxable years beginning before January 1, 2018, any applicable alternative minimum tax on our taxable income at regular
U.S. federal corporate income tax rates, plus potential penalties and/or interest. In calculating our taxable income in a year
in which we fail to qualify as a REIT, we would not be able to deduct amounts paid out to stockholders. In fact, we would not
be required to distribute any amounts to stockholders in that year. In such event, to the extent of our current and accumulated
earnings and profits, distributions to stockholders generally would be taxable as ordinary dividend income. Subject to certain
limitations of the U.S. federal income tax laws, corporate stockholders might be eligible for the dividends received deduction
and domestic non-corporate stockholders might be eligible for the reduced U.S. federal income tax rate of up to 20% on such dividends.
Unless we qualified for relief under specific statutory provisions, we also would be disqualified from taxation as a REIT for
the four taxable years following the year during which we ceased to qualify as a REIT. We cannot predict whether in all circumstances
we would qualify for such statutory relief.
Taxation
of Taxable U.S. Stockholders
As
used herein, the term “U.S. stockholder” means a beneficial owner of shares of our stock that for U.S. federal income
tax purposes is:
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a
citizen or resident of the United States;
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a
corporation (including an entity treated as a corporation for U.S. federal income tax
purposes) created or organized in or under the laws of the United States, any of its
states or the District of Columbia;
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an
estate whose income is subject to U.S. federal income taxation regardless of its source;
or
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any
trust if (1) a court is able to exercise primary supervision over the administration
of such trust and one or more U.S. persons (as defined in Section 7701(a)(30) of the
Code) have the authority to control all substantial decisions of the trust or (2) it
has a valid election in place to be treated as a U.S. person.
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If
a partnership, entity or arrangement treated as a partnership for U.S. federal income tax purposes holds our stock, the U.S. federal
income tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of
the partnership. If you are a partner in a partnership holding our stock, you should consult your tax advisor regarding the consequences
of the ownership and disposition of our stock by the partnership.
As
long as we qualify as a REIT, a taxable U.S. stockholder must generally take into account as ordinary income distributions made
out of our current or accumulated earnings and profits that we do not designate as capital gain dividends or retained long-term
capital gain. For purposes of determining whether a distribution is made out of our current or accumulated earnings and profits,
our earnings and profits will be allocated first to our preferred stock dividends and then to our common stock dividends. Under
the TCJA, individuals, trusts, and estates generally may deduct 20% of the “qualified REIT dividends” (i.e., REIT
dividends other than capital gain dividends and portions of REIT dividends designated as qualified dividend income, which in each
case are already eligible for capital gain tax rates) they receive. The deduction for qualified REIT dividends is not subject
to the wage and property basis limits that apply to other types of “qualified business income” under the TCJA. However,
to qualify for this deduction, the U.S. stockholder receiving such dividends must hold the dividend-paying REIT stock for at least
46 days (taking into account certain special holding period rules) of the 91-day period beginning 45 days before the stock becomes
ex-dividend and cannot be under an obligation to make related payments with respect to a position in substantially similar or
related property. The 20% deduction for qualified REIT dividends results in a maximum 29.6% U.S. federal income tax rate on ordinary
REIT dividends, not including the 3.8% Medicare tax, discussed below. As with the other individual income tax changes in the TCJA,
the deduction provisions were effective beginning in 2018. Without further legislation, the deduction would sunset after 2025.
A
U.S. stockholder will not qualify for the dividends received deduction generally available to corporations. In addition, dividends
paid to a U.S. stockholder generally will not qualify for the 20% tax rate for “qualified dividend income.” The maximum
tax rate for qualified dividend income received by U.S. stockholders taxed at individual rates is currently 20%, plus the 3.8%
Medicare tax on net investment income, if applicable. The maximum tax rate on qualified dividend income is lower than the maximum
tax rates on ordinary income and REIT dividend income, which are currently 37% and 29.6%, respectively. Qualified dividend income
generally includes dividends paid by domestic C corporations and certain qualified foreign corporations to U.S. stockholders that
are taxed at individual rates. Because we are not generally subject to U.S. federal income tax on the portion of our REIT taxable
income distributed to our stockholders (See — “Taxation of Our Company” above), our dividends generally will
not be eligible for the 20% rate on qualified dividend income. However, under the TCJA, REIT dividends constitute “qualified
business income,” and thus a 20% deduction is available to individual taxpayers with respect to such dividends, resulting
in a maximum U.S. federal tax rate of 29.6%, not including the 3.8% Medicare tax.
A
U.S. stockholder generally will recognize distributions that we designate as capital gain dividends as long-term capital gain
without regard to how long the U.S. stockholder has held our stock. We generally will designate our capital gain dividends as
either 20% or 25% U.S. federal income tax rate distributions. See “— Capital Gains and Losses.” A corporate
U.S. stockholder, however, may be required to treat up to 20% of certain capital gain dividends as ordinary income.
We
may elect to retain and pay income tax on the net long-term capital gain that we recognize in a taxable year. In that case, to
the extent that we designate such amount in a timely notice to such stockholder, a U.S. stockholder would be taxed on its proportionate
share of our undistributed long-term capital gain. The U.S. stockholder would receive a credit for its proportionate share of
the tax we paid. The U.S. stockholder would increase the basis in its stock by the amount of its proportionate share of our undistributed
long-term capital gain, minus its share of the tax we paid.
A
U.S. stockholder will not incur tax on a distribution in excess of our current and accumulated earnings and profits if the distribution
does not exceed the adjusted basis of the U.S. stockholder’s stock. Instead, the distribution will reduce the adjusted basis
of such stock. A U.S. stockholder will recognize a distribution in excess of both our current and accumulated earnings and profits
and the U.S. stockholder’s adjusted basis in his or her stock as long-term capital gain, or short-term capital gain if the
shares of the stock have been held for one year or less, assuming the shares of stock are a capital asset in the hands of the
U.S. stockholder. In addition, if we declare a distribution in October, November, or December of any year that is payable to a
U.S. stockholder of record on a specified date in any such month, such distribution shall be treated as both paid by us and received
by the U.S. stockholder on December 31 of such year, provided that we actually pay the distribution during January of the following
calendar year.
U.S.
stockholders may not include in their individual income tax returns any of our net operating losses or capital losses. Instead,
these losses are generally carried over by us for potential offset against our future income. Taxable distributions from us and
gain from the disposition of our stock will not be treated as passive activity income and, therefore, stockholders generally will
not be able to apply any “passive activity losses,” such as losses from certain types of limited partnerships in which
the U.S. stockholder is a limited partner, against such income. In addition, taxable distributions from us and gain from the disposition
of our stock generally will be treated as investment income for purposes of the investment interest limitations. We will notify
U.S. stockholders after the close of our taxable year as to the portions of the distributions attributable to that year that constitute
ordinary income, return of capital and capital gain.
Effective
for distributions in taxable years beginning after December 31, 2015, the aggregate amount of dividends that we may designate
as “capital gain dividends” or “qualified dividends” with respect to any taxable year may not exceed the
dividends paid by us with respect to such year, including dividends that are paid in the following year and if made with or before
the first regular dividend payment after such declaration) are treated as paid with respect to such year.
Certain
U.S. stockholders who are individuals, estates or trusts and whose income exceeds certain thresholds are required to pay a 3.8%
Medicare tax. The Medicare tax applies to, among other things, dividends and other income derived from certain trades or business
and net gains from the sale or other disposition of property, such as our capital stock, subject to certain exceptions. Our dividends
and any gain from the disposition of our stock generally are the type of gain that is subject to the Medicare tax.
Taxation
of U.S. Stockholders on the Disposition of Our Stock
A
U.S. stockholder who is not a dealer in securities must generally treat any gain or loss realized upon a taxable disposition of
our stock as long-term capital gain or loss if the U.S. stockholder has held our stock for more than one year and otherwise as
short-term capital gain or loss. In general, a U.S. stockholder will realize gain or loss in an amount equal to the difference
between the sum of the fair market value of any property and the amount of cash received in such disposition and the U.S. stockholder’s
adjusted tax basis. A stockholder’s adjusted tax basis generally will equal the U.S. stockholder’s acquisition cost,
increased by the excess of net capital gains deemed distributed to the U.S. stockholder (discussed above) less tax deemed paid
on such gains and reduced by any returns of capital. However, a U.S. stockholder must treat any loss upon a sale or exchange of
common stock held by such stockholder for six months or less as a long-term capital loss to the extent of capital gain dividends
and any other actual or deemed distributions from us that such U.S. stockholder treats as long-term capital gain. All or a portion
of any loss that a U.S. stockholder realizes upon a taxable disposition of our stock may be disallowed if the U.S. stockholder
purchases other shares of our stock within 30 days before or after the disposition.
Taxation
of U.S. Stockholders on a Conversion of Our Preferred Stock
Except
as provided below, (i) a U.S. stockholder generally will not recognize gain or loss upon the conversion of preferred stock into
our Class A common stock, and (ii) a U.S. stockholder’s basis and holding period in our Class A common stock received upon
conversion generally will be the same as those of the converted preferred stock (but the basis will be reduced by the portion
of adjusted tax basis allocated to any fractional share exchanged for cash). Any of our Class A common stock received in a conversion
that are attributable to accumulated and unpaid dividends on the converted preferred stock will be treated as a distribution that
is potentially taxable as a dividend. Cash received upon conversion in lieu of a fractional share generally will be treated as
a payment in exchange for such fractional share, and gain or loss will be recognized on the receipt of cash in an amount equal
to the difference between the amount of cash received and the adjusted tax basis allocable to the fractional share deemed exchanged.
This gain or loss will be long- term capital gain or loss if the U.S. stockholder has held our preferred stock for more than one
year at the time of conversion. U.S. stockholders are urged to consult with their tax advisors regarding the U.S. federal income
tax consequences of any transaction by which such holder exchanges stock received on a conversion of preferred stock for cash
or other property.
Taxation
of U.S. Stockholders on a Redemption of Our Preferred Stock
A
redemption of our preferred stock will be treated under Section 302 of the Code as a distribution that is taxable at ordinary
U.S. federal income tax rates as a as dividend (to the extent of our current or accumulated earnings and profits), unless the
redemption satisfies certain tests set forth in Section 302(b) of the Code enabling the redemption to be treated as a sale of
the preferred stock (in which case the redemption will be treated in the same manner as a sale described above under “—Taxation
of U.S. Stockholders on the Disposition of Our Stock”). The redemption will satisfy such tests if it: (1) is “substantially
disproportionate” with respect to the U.S. stockholder’s interest in our stock; (2) results in a “complete termination”
of the U.S. stockholder’s interest in all our classes of our stock; or (3) is “not essentially equivalent to a dividend”
with respect to the stockholder, all within the meaning of Section 302(b) of the Code. In determining whether any of these tests
have been met, stock considered to be owned by the U.S. stockholder by reason of certain constructive ownership rules set forth
in the Code, as well as stock actually owned, generally must be taken into account. Because the determination as to whether any
of the three alternative tests of Section 302(b) of the Code described above will be satisfied with respect to any particular
U.S. stockholder of the preferred stock depends upon the facts and circumstances at the time that the determination must be made,
prospective investors are urged to consult their tax advisors to determine such tax treatment. If a redemption of our preferred
stock does not meet any of the three tests described above, the redemption proceeds will be treated as a distribution, as described
above under “— Taxation of Taxable U.S. Stockholders.” In that case, a U.S. stockholder’s adjusted tax
basis in the redeemed preferred stock will be transferred to such U.S. stockholder’s remaining stock holdings in us. If
the U.S. stockholder does not retain any of our stock, such basis could be transferred to a related person that holds our stock
or it may be lost.
Under
previously proposed Treasury Regulations, if any portion of the amount received by a U.S. stockholder on a redemption of any class
of our preferred stock is treated as a distribution with respect to our stock but not as a taxable dividend, then such portion
will be allocated to all stock of the redeemed class held by the redeemed stockholder just before the redemption on a pro-rata,
share-by-share, basis. The amount applied to each share will first reduce the redeemed U.S. stockholder’s basis in that
stock and any excess after the basis is reduced to zero will result in taxable gain. If the redeemed stockholder has different
bases in its stock, then the amount allocated could reduce some of the basis in certain stock while reducing all the basis and
giving rise to taxable gain in others. Thus, the redeemed U.S. stockholder could have gain even if such U.S. stockholder’s
basis in all its stock of the redeemed class exceeded such portion.
The
proposed Treasury Regulations permit the transfer of basis in the redeemed preferred stock to the redeemed U.S. stockholder’s
remaining, unredeemed preferred stock of the same class (if any), but not to any other class of stock held (directly or indirectly)
by the redeemed U.S. stockholder. Instead, any unrecovered basis in the redeemed preferred stock would be treated as a deferred
loss to be recognized when certain conditions are satisfied. As of March 28, 2019, these proposed regulations have been withdrawn.
As a result, the treatment governing adjustments to the basis of a U.S. holder’s preferred stock with respect to amounts
treated as a distribution with respect to preferred stock, but not as a dividend, as well as the treatment of the basis of any
unredeemed shares, may be less certain.
Capital
Gains and Losses
A
taxpayer generally must hold a capital asset for more than one year for gain or loss derived from its sale or exchange to be treated
as long-term capital gain or loss. The highest marginal U.S. federal individual income tax rate currently is 37% (39.6% for the
taxable years beginning on or before December 31, 2017). The maximum U.S. federal income tax rate on long-term capital gain applicable
to non-corporate taxpayers is 20%. The maximum tax rate on long-term capital gain from the sale or exchange of “Section
1250 property,” or depreciable real property, is 25%, to the extent that such gain would have been treated as ordinary income
if the property were “Section 1245 property.” Individuals, trusts, and estates whose income exceeds certain thresholds
are also subject to a 3.8% Medicare tax on gain from the sale of our common stock.
With
respect to distributions that we designate as capital gain dividends and any retained capital gain that we are deemed to distribute,
we generally may designate whether such a distribution is taxable to our non-corporate stockholders at a 20% or 25% rate. Thus,
the tax rate differential between capital gain and ordinary income for those taxpayers may be significant. In addition, the characterization
of income as capital gain or ordinary income may affect the deductibility of capital losses. A non-corporate taxpayer may deduct
capital losses not offset by capital gains against its ordinary income only up to a maximum annual amount of $3,000 ($1,500 for
married individuals filing separate returns). A non-corporate taxpayer may carry forward unused capital losses indefinitely. A
corporate taxpayer must pay tax on its net capital gain at ordinary U.S. federal corporate income tax rates. A corporate taxpayer
may deduct capital losses only to the extent of capital gains, with unused losses being carried back three years and forward five
years.
Taxation
of Tax-Exempt Stockholders
Tax-exempt
entities, including qualified employee pension and profit sharing trusts and individual retirement accounts, generally are exempt
from U.S. federal income taxation. However, they are subject to taxation on their unrelated business taxable income (“UBTI”).
Although many investments in real estate generate UBTI, the IRS has issued a ruling that dividend distributions from a REIT to
an exempt employee pension trust do not constitute UBTI so long as the exempt employee pension trust does not otherwise use the
shares of the REIT in an unrelated trade or business of the pension trust. Based on that ruling, amounts that we distribute to
tax-exempt stockholders generally should not constitute UBTI. However, if a tax-exempt stockholder were to finance (or be deemed
to finance) its acquisition of our stock with debt, a portion of the income that it receives from us would constitute UBTI pursuant
to the “debt-financed property” rules. Moreover, social clubs, voluntary employee benefit associations, supplemental
unemployment benefit trusts and qualified group legal services plans that are exempt from taxation under special provisions of
the U.S. federal income tax laws are subject to different UBTI rules, which generally will require them to characterize distributions
that they receive from us as UBTI. Finally, in certain circumstances, a qualified employee pension or profit sharing trust that
owns more than 10% of our capital stock must treat a percentage of the dividends that it receives from us as UBTI. Such percentage
is equal to the gross income we derive from an unrelated trade or business, determined as if we were a pension trust, divided
by our total gross income for the year in which we pay the dividends. That rule applies to a pension trust holding more than 10%
of our capital stock only if:
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the
percentage of our dividends that the tax-exempt trust must treat as UBTI is at least
5%;
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we
qualify as a REIT by reason of the modification of the rule requiring that no more than
50% of our capital stock be owned by five or fewer individuals that allows the beneficiaries
of the pension trust to be treated as holding our capital stock in proportion to their
actuarial interests in the pension trust; and either:
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one
pension trust owns more than 25% of the value of our capital stock; or
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a
group of pension trusts individually holding more than 10% of the value of our capital
stock collectively owns more than 50% of the value of our capital stock.
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Tax-exempt
U.S. stockholders are urged to consult with their tax advisors regarding the U.S. federal, state and local tax consequences of
owning our stock.
Taxation
of Non-U.S. Stockholders
The
term “non-U.S. stockholder” means a beneficial owner of our stock that is not a U.S. stockholder, a partnership (or
entity treated as a partnership for U.S. federal income tax purposes) or a tax-exempt stockholder. The rules governing U.S. federal
income taxation of nonresident alien individuals, foreign corporations, foreign partnerships, and other foreign stockholders are
complex. This section is only a summary of such rules. We urge non-U.S. stockholders to consult their tax advisors to determine
the impact of federal, state, and local income tax laws on the purchase, ownership and sale of our stock, including any reporting
requirements.
Distributions
A
non-U.S. stockholder that receives a distribution that is not attributable to gain from our sale or exchange of a “United
States real property interest” (“USRPI”), as defined below, and that we do not designate as a capital gain dividend
or retained capital gain will recognize ordinary income to the extent that we pay such distribution out of our current or accumulated
earnings and profits. A withholding tax equal to 30% of the gross amount of the distribution ordinarily will apply to such distribution
unless an applicable tax treaty reduces or eliminates the tax. However, if a distribution is treated as effectively connected
with the non- U.S. stockholder’s conduct of a U.S. trade or business, the non-U.S. stockholder generally will be subject
to U.S. federal income tax on the distribution at graduated rates, in the same manner as U.S. stockholders are taxed on distributions,
and a non-U.S. stockholder that is a corporation also may be subject to the 30% branch profits tax with respect to that distribution.
We plan to withhold U.S. income tax at the rate of 30% on the gross amount of any such distribution paid to a non-U.S. stockholder
unless either:
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a
lower treaty rate applies and the non-U.S. stockholder files an W-8BEN or IRS Form W-8BEN-E,
as applicable, evidencing eligibility for that reduced rate with us;
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the
non-U.S. stockholder files an IRS Form W-8ECI with us claiming that the distribution
is effectively connected income; or
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the
distribution is treated as attributable to a sale of a USRPI under FIRPTA (discussed
below).
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A
non-U.S. stockholder will not incur tax on a distribution in excess of our current and accumulated earnings and profits if the
excess portion of such distribution does not exceed the adjusted basis of its stock. Instead, the excess portion of such distribution
will reduce the adjusted basis of such stock. A non-U.S. stockholder will be subject to tax on a distribution that exceeds both
our current and accumulated earnings and profits and the adjusted basis of its stock, if the non-U.S. stockholder otherwise would
be subject to tax on gain from the sale or disposition of its stock, as described below. We must withhold 15% of any distribution
that exceeds 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 the extent that we do not do so, we will withhold at a rate of 15% on any portion of
a distribution not subject to withholding at a rate of 30%. Because we generally cannot determine at the time we make a distribution
whether the distribution will exceed our current and accumulated earnings and profits, we normally will withhold tax on the entire
amount of any distribution at the same rate as we would withhold on a dividend. However, by filing a U.S. tax return, a non-U.S.
stockholder may claim a refund of amounts that we withhold if we later determine that a distribution in fact exceeded our current
and accumulated earnings and profits.
For
any year in which we qualify as a REIT, a non-U.S. stockholder may incur tax on distributions that are attributable to gain from
our sale or exchange of a USRPI under the Foreign Investment in Real Property Tax Act of 1980, or FIRPTA. A USRPI includes certain
interests in real property and stock in corporations at least 50% of whose assets consist of interests in real property. Under
FIRPTA, a non-U.S. stockholder is taxed on distributions attributable to gain from sales of USRPIs as if such gain were effectively
connected with a U.S. business of the non-U.S. stockholder. A non-U.S. stockholder thus would be taxed on such a distribution
at the normal capital gains rates applicable to U.S. stockholders, subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of a nonresident alien individual. A non-U.S. corporate stockholder not entitled to treaty
relief or exemption also may be subject to the 30% branch profits tax on such a distribution.
However,
subject to the discussion below regarding distributions to “qualified shareholders” and “qualified foreign pension
funds,” under FIRPTA, if the applicable class of our stock is regularly traded on an established securities market in the
United States, capital gain distributions on that class of stock that are attributable to our sale of a USRPI will be treated
as ordinary dividends rather than as gain from the sale of a USRPI, as long as the non-U.S. stockholder did not own more than
10% of the applicable class of our stock at any time during the one-year period preceding the distribution. In such a case, non-U.S.
stockholders generally will be subject to withholding tax on such capital gain distributions in the same manner as they are subject
to withholding tax on ordinary dividends.
We
believe that our Class A common stock, Series C Preferred Stock and Series D Preferred Stock are regularly traded on an established
securities market in the United States, but that our Series B Preferred Stock and Series T Preferred Stock are not. With respect
to any class of our stock that is not regularly traded on an established securities market in the United States, subject to the
discussion below regarding distributions to “qualified shareholders” and “qualified foreign pension funds,”
capital gain distributions that are attributable to our sale of USRPIs will be subject to tax under FIRPTA, as described above.
In such case, we must withhold 21% of any distribution that we could designate as a capital gain dividend. A non-U.S. stockholder
may receive a credit against its tax liability for the amount we withhold. Moreover, if a non-U.S. stockholder disposes of our
stock during the 30-day period preceding a dividend payment, and such non-U.S. stockholder (or a person related to such non-U.S.
stockholder) acquires or enters into a contract or option to acquire our common stock within 61 days of the first day of the 30-day
period described above, and any portion of such dividend payment would, but for the disposition, be treated as a USRPI capital
gain to such non-U.S. stockholder, then such non-U.S. stockholder shall be treated as having USRPI capital gain in an amount that,
but for the disposition, would have been treated as USRPI capital gain.
A
U.S. withholding tax at a 30% rate applies to dividends paid to certain non-U.S. stockholders if certain disclosure requirements
related to U.S. accounts or ownership are not satisfied. If payment of withholding taxes is required, non-U.S. stockholders that
are otherwise eligible for an exemption from, or reduction of, U.S. withholding taxes with respect of such dividends will be required
to seek a refund from the IRS to obtain the benefit or such exemption or reduction. We will not pay any additional amounts in
respect of any amounts withheld.
Qualified
Shareholders
Subject
to the exception discussed below, any distribution on or after December 18, 2015 to a “qualified shareholder” who
holds REIT stock directly or indirectly (through one or more partnerships) will not be subject to U.S. tax as income effectively
connected with a U.S. trade or business and thus will not be subject to special withholding rules under FIRPTA. While a “qualified
shareholder” will not be subject to FIRPTA withholding on REIT distributions, certain investors of a “qualified shareholder”
(i.e., non-U.S. persons who hold interests in the “qualified shareholder” (other than interests solely as a creditor),
and hold more than 10% of REIT stock (whether or not by reason of the investor’s ownership in the “qualified shareholder”))
may be subject to FIRPTA withholding.
A
“qualified shareholder” is a foreign person that (i) either is eligible for the benefits of a comprehensive income
tax treaty which includes an exchange of information program and whose principal class of interests is listed and regularly traded
on one or more recognized stock exchanges (as defined in such comprehensive income tax treaty), or is a foreign partnership that
is created or organized under foreign law as a limited partnership in a jurisdiction that has an agreement for the exchange of
information with respect to taxes with the United States and has a class of limited partnership units representing greater than
50% of the value of all the partnership units that is regularly traded on the NYSE or NASDAQ markets, (ii) is a qualified collective
investment vehicle (defined below), and (iii) maintains records on the identity of each person who, at any time during the foreign
person’s taxable year, is the direct owner of 5% or more of the class of interests or units (as applicable) described in
(i), above.
A
qualified collective investment vehicle is a foreign person that (i) would be eligible for a reduced rate of withholding under
the comprehensive income tax treaty described above, even if such entity holds more than 10% of the stock of such REIT, (ii) is
publicly traded, is treated as a partnership under the Code, is a withholding foreign partnership, and would be treated as a United
States real property holding corporation (“USRPHC”) if it were a domestic corporation, or (iii) is designated as such
by the Secretary of the Treasury and is either (a) fiscally transparent within the meaning of section 894 of the Code, or (b)
required to include dividends in its gross income, but is entitled to a deduction for distributions to its investors.
Qualified
Foreign Pension Funds
Any
distribution on or after December 18, 2015 to a “qualified foreign pension fund” or an entity all of the interests
of which are held by a “qualified foreign pension fund” who holds REIT stock directly or indirectly (through one or
more partnerships) will not be subject to U.S. tax as income effectively connected with a U.S. trade or business and thus will
not be subject to the withholding rules under FIRPTA.
A
qualified foreign pension fund is any trust, corporation, or other organization or arrangement (A) which is created or organized
under the law of a country other than the United States, (B) which is established to provide retirement or pension benefits to
participants or beneficiaries that are current or former employees (or persons designated by such employees) of one or more employers
in consideration for services rendered, (C) which does not have a single participant or beneficiary with a right to more than
5% of its assets or income, (D) which is subject to government regulation and provides annual information reporting about its
beneficiaries to the relevant tax authorities in the country in which it is established or operates, and (E) with respect to which,
under the laws of the country in which it is established or operates, (i) contributions to such organization or arrangement that
would otherwise be subject to tax under such laws are deductible or excluded from the gross income of such entity or taxed at
a reduced rate, or (ii) taxation of any investment income of such organization or arrangement is deferred or such income is taxed
at a reduced rate.
Dispositions
Non-U.S.
stockholders could incur tax under FIRPTA with respect to gain realized upon a disposition of our stock if we are a USRPHC during
a specified testing period, subject to the discussion below regarding distributions to “qualified shareholders” and
“qualified foreign pension funds.” If at least 50% of a REIT’s assets are USRPIs, then the REIT will be a USRPHC.
We believe that we are, and that we will continue to be, a USRPHC based on our investment strategy. However, even if we are a
USRPHC, a non-U.S. stockholder generally would not incur tax under FIRPTA on gain from the sale of our stock if we are a “domestically
controlled qualified investment entity.”
A
“domestically controlled qualified investment entity” includes a REIT in which, at all times during a specified testing
period, less than 50% in value of its shares are held directly or indirectly by non-U.S. stockholders. We cannot assure you that
this test will be met.
If
the applicable class of our stock is regularly traded on an established securities market, an additional exception to the tax
under FIRPTA will be available with respect to a non-U.S. stockholder’s disposition of such stock, even if we do not qualify
as a domestically controlled qualified investment entity at the time the non-U.S. stockholder sells such stock. Under this additional
exception, the gain from such a sale by such a non-U.S. stockholder will not be subject to tax under FIRPTA if (1) the applicable
class of our stock is treated as being regularly traded under applicable Treasury Regulations on an established securities market
and (2) the non-U.S. stockholder owned, actually or constructively, 10% or less of that class of stock at all times during a specified
testing period. As noted above, we believe that our Class A common stock, Series C Preferred Stock and Series D Preferred Stock
are regularly traded on an established securities market, but that our Series B Preferred Stock and Series T Preferred Stock are
not.
On
or after December 18, 2015, a sale of our shares by:
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a
“qualified shareholder” or
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a
“qualified foreign pension fund”
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who
holds our shares directly or indirectly (through one or more partnerships) will not be subject to U.S. federal income taxation
under FIRPTA. While a “qualified shareholder” will not be subject to FIRPTA withholding upon sale of our shares, certain
investors of a “qualified shareholder” (i.e., non-U.S. persons who hold interests in the “qualified shareholder”,
(other than interests solely as a creditor), that hold more than 10% of REIT stock (whether or not by reason of the investor’s
ownership in the “qualified shareholder”)) may be subject to FIRPTA withholding.
If
the gain on the sale of shares of our stock were taxed under FIRPTA, a non-U.S. stockholder would be taxed on that gain in the
same manner as U.S. stockholders, subject to applicable alternative minimum tax and a special alternative minimum tax in the case
of nonresident alien individuals. In addition, distributions that are subject to tax under FIRPTA also may be subject to a 30%
branch profits tax when made to a non-U.S. stockholder treated as a corporation (under U.S. federal income tax principles) that
is not otherwise entitled to treaty exemption. Finally, if we are not a domestically controlled qualified investment entity at
the time our stock is sold and the non-U.S. stockholder does not qualify for the exemptions described in the preceding paragraph,
under FIRPTA the purchaser of shares of our stock also may be required to withhold 15% of the purchase price and remit this amount
to the IRS on behalf of the selling non-U.S. stockholder.
With
respect to individual non-U.S. stockholders, even if not subject to FIRPTA, capital gains recognized from the sale of shares of
our stock will be taxable to such non-U.S. stockholder if he or she is a non-resident alien individual who is present in the United
States for 183 days or more during the taxable year and some other conditions apply, in which case the non-resident alien individual
may be subject to a U.S. federal income tax on his or her U.S. source capital gain.
A
U.S. withholding tax at a 30% rate will be imposed on proceeds from the sale of our stock received after December 31, 2018 by
certain non-U.S. stockholders if certain disclosure requirements related to U.S. accounts or ownership are not satisfied. If payment
of withholding taxes is required, non-U.S. stockholders that are otherwise eligible for an exemption from, or reduction of, U.S.
withholding taxes with respect of such proceeds will be required to seek a refund from the IRS to obtain the benefit or such exemption
or reduction. We will not pay any additional amounts in respect of any amounts withheld.
Conversion
of Preferred Stock
So
long our preferred stock does not constitute a USRPI under FIRPTA, the tax consequences to a non-U.S. stockholder of the conversion
of our preferred stock into Class A common stock will generally be the same as those described above for a U.S. stockholder. If
our preferred stock does constitute a USRPI, the conversion of our preferred stock into our common stock may be a taxable exchange
for a non-U.S. stockholder. However, even if our preferred stock does constitute a USRPI, provided our Class A common stock also
constitutes a USRPI, a non-U.S. stockholder generally will not recognize gain or loss upon a conversion of our preferred stock
into our Class A common stock so long as certain FIRPTA-related reporting requirements are satisfied. If our preferred stock does
constitute a USRPI and such requirements are not satisfied, however, a conversion will be treated as a taxable exchange of our
preferred stock for our Class A common stock. Such a deemed taxable exchange will be subject to tax under FIRPTA at the rate of
tax, including any applicable capital gains rates, that would apply to a U.S. stockholder of the same type (e.g., an individual
or a corporation, as the case may be) on the excess, if any, of the fair market value of such non-U.S. stockholder’s common stock
received over such non-U.S. stockholder’s adjusted basis in its preferred stock. Collection of such tax will be enforced by a
refundable withholding tax at a rate of 15% of the value of the common stock. Non-U.S. stockholders are urged to consult their
tax advisors regarding the U.S. federal income tax consequences of any transaction by which such stockholder exchanges shares
received on a conversion of our preferred stock for cash or other property.
Redemption
of Preferred Stock
For
a discussion of the treatment of a redemption of our preferred stock for a non-U.S. stockholder, see “—Taxation of
U.S. Stockholders on a Redemption of Our Preferred Stock.”
Information
Reporting Requirements and Withholding
We
will report to our stockholders and to the IRS the amount of distributions we pay during each calendar year, and the amount of
tax we withhold, if any. Under the backup withholding rules, a stockholder may be subject to backup withholding at a rate of 24%
with respect to distributions unless the stockholder:
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is
a corporation or qualifies for certain other exempt categories and, when required, demonstrates
this fact; or
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provides
a taxpayer identification number, certifies as to no loss of exemption from backup withholding,
and otherwise complies with the applicable requirements of the backup withholding rules.
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stockholder who does not provide us with its correct taxpayer identification number also may be subject to penalties imposed by
the IRS. Any amount paid 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 to any stockholders who fail to certify their non-foreign
status to us.
Backup
withholding will generally not apply to payments of dividends made by us or our paying agents, in their capacities as such, to
a non-U.S. stockholder provided that the non-U.S. stockholder furnishes to us or our paying agent the required certification as
to its non-U.S. status, such as providing a valid IRS Form W- 8BEN, W-8BEN-E or W-8ECI, or certain other requirements are met.
Notwithstanding the foregoing, backup withholding may apply if either we or our paying agent has actual knowledge, or reason to
know, that the holder is a U.S. person that is not an exempt recipient. Payments of the proceeds from a disposition or a redemption
effected outside the U.S. by a non-U.S. stockholder made by or through a foreign office of a broker generally will not be subject
to information reporting or backup withholding. However, information reporting (but not backup withholding) generally will apply
to such a payment if the broker has certain connections with the U.S. unless the broker has documentary evidence in its records
that the beneficial owner is a non-U.S. stockholder and specified conditions are met or an exemption is otherwise established.
Payment of the proceeds from a disposition by a non-U.S. stockholder of our stock made by or through the U.S. office of a broker
is generally subject to information reporting and backup withholding unless the non-U.S. stockholder certifies under penalties
of perjury that it is not a U.S. person and satisfies certain other requirements, or otherwise establishes an exemption from information
reporting and backup withholding.
Backup
withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or credited against
the stockholder’s U.S. federal income tax liability if certain required information is furnished to the IRS. Stockholders
should consult their tax advisors regarding application of backup withholding to them and the availability of, and procedure for
obtaining an exemption from, backup withholding.
A
U.S. withholding tax at a 30% rate applies to dividends received by U.S. stockholders who own our stock through foreign accounts
or foreign intermediaries if certain disclosure requirements related to U.S. accounts or ownership are not satisfied. In addition,
if those disclosure requirements are not satisfied, a U.S. withholding tax at a 30% rate will be imposed on proceeds from the
sale of our stock received after December 31, 2018 by U.S. stockholders who own our stock through foreign accounts or foreign
intermediaries. In addition, we may be required to withhold a portion of capital gain distributions to any U.S. stockholders who
fail to certify their non-foreign status to us. We will not pay any additional amounts in respect of amounts withheld.
Other
Tax Consequences
Tax
Aspects of Our Investments in Our Operating Partnership and Subsidiary Partnerships
The
following discussion summarizes certain U.S. federal income tax considerations applicable to our direct or indirect investments
in our Operating Partnership and any subsidiary partnerships or limited liability companies that we form or acquire (each individually
a “Partnership” and, collectively, the “Partnerships”). The discussion does not cover state or local tax
laws or any U.S. federal tax laws other than income tax laws.
Classification
as Partnerships
We
are entitled to include in our income our distributive share of each Partnership’s income and to deduct our distributive
share of each Partnership’s losses only if such Partnership is classified for U.S. federal income tax purposes as a partnership
(or an entity that is disregarded for U.S. federal income tax purposes if the entity is treated as having only one owner or member
for U.S. federal income tax purposes) rather than as a corporation or an association taxable as a corporation. An unincorporated
entity with at least two owners or members will be classified as a partnership, rather than as a corporation, for U.S. federal
income tax purposes if it:
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is
treated as a partnership under the Treasury Regulations relating to entity classification
(the “check-the-box regulations”); and
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is
not a “publicly-traded partnership.”
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Under
the check-the-box regulations, an unincorporated entity with at least two owners or members may elect to be classified either
as an association taxable as a corporation or as a partnership. If such an entity fails to make an election, it generally will
be treated as a partnership (or an entity that is disregarded for U.S. federal income tax purposes if the entity is treated as
having only one owner or member for U.S. federal income tax purposes) for U.S. federal income tax purposes. We intend for our
Operating Partnership to be classified as a partnership for U.S. federal income tax purposes and will not cause our Operating
Partnership to elect to be treated as an association taxable as a corporation under the check-the-box regulations.
A
publicly-traded partnership is a partnership whose interests are traded on an established securities market or are readily tradable
on a secondary market or the substantial equivalent thereof. A publicly-traded partnership will not, however, be treated as a
corporation for any taxable year if, for each taxable year beginning after December 31, 1987 in which it was classified as a publicly-traded
partnership, 90% or more of the partnership’s gross income for such year consists of certain passive-type income, including
real property rents, gains from the sale or other disposition of real property, interest, and dividends (the “90% passive
income exception”). Treasury Regulations provide limited safe harbors from the definition of a publicly-traded partnership.
Pursuant to one of those safe harbors (the “private placement exclusion”), interests in a partnership will not be
treated as readily tradable on a secondary market or the substantial equivalent thereof if (1) all interests in the partnership
were issued in a transaction or transactions that were not required to be registered under the Securities Act, and (2) the partnership
does not have more than 100 partners at any time during the partnership’s taxable year. In determining the number of partners
in a partnership, a person owning an interest in a partnership, grantor trust, or S corporation that owns an interest in the partnership
is treated as a partner in such partnership only if (1) substantially all of the value of the owner’s interest in the entity
is attributable to the entity’s direct or indirect interest in the partnership and (2) a principal purpose of the use of
the entity is to permit the partnership to satisfy the 100-partner limitation. Each Partnership in which we own an interest currently
qualifies for the private placement exclusion.
We
have not requested and do not intend to request a ruling from the IRS that our Operating Partnership will be classified as a partnership
for U.S. federal income tax purposes. If for any reason our Operating Partnership were taxable as a corporation, rather than as
a partnership, for U.S. federal income tax purposes, we likely would not be able to qualify as a REIT unless we qualified for
certain relief provisions. See “— Gross Income Tests” and “— Asset Tests.” In addition, any
change in a Partnership’s status for tax purposes might be treated as a taxable event, in which case we might incur tax
liability without any related cash distribution. See “— Distribution Requirements.” Further, items of income
and deduction of such Partnership would not pass through to its partners, and its partners would be treated as stockholders for
tax purposes. Consequently, such Partnership would be required to pay tax at U.S. federal corporate income tax rates on its net
income, and distributions to its partners would constitute dividends that would not be deductible in computing such Partnership’s
taxable income.
Income
Taxation of the Partnerships and their Partners
Partners,
Not the Partnerships, Subject to Tax
A
partnership is not a taxable entity for U.S. federal income tax purposes. Rather, we are required to take into account our allocable
share of each Partnership’s income, gains, losses, deductions, and credits for any taxable year of such Partnership ending
within or with our taxable year, without regard to whether we have received or will receive any distribution from such Partnership.
Nonetheless, for the taxable years beginning after December 31, 2017, a partnership is liable for paying tax assessed pursuant
to an audit adjustment unless the partnership elects to pass through such adjustments to its partners.
Partnership
Allocations
Although
a partnership agreement generally will determine the allocation of income and losses among partners, such allocations will be
disregarded for tax purposes if they do not comply with the provisions of the U.S. federal income tax laws governing partnership
allocations. If an allocation is not recognized for U.S. federal income tax purposes, the item subject to the allocation will
be reallocated in accordance with the partners’ interests in the partnership, which will be determined by taking into account
all of the facts and circumstances relating to the economic arrangement of the partners with respect to such item. Each Partnership’s
allocations of taxable income, gain, and loss are intended to comply with the requirements of the U.S. federal income tax laws
governing partnership allocations.
Tax
Allocations With Respect to Partnership Properties
Income,
gain, loss, and deduction attributable to appreciated or depreciated property that is contributed to a partnership in exchange
for an interest in the partnership must be allocated in a manner such that the contributing partner is charged with, or benefits
from, respectively, the unrealized gain or unrealized loss associated with the property at the time of the contribution. The amount
of the unrealized gain or unrealized loss (“built-in gain” or “built-in loss”) is generally equal to the
difference between the fair market value of the contributed property at the time of contribution and the adjusted tax basis of
such property at the time of contribution (a “book-tax difference”). Any property purchased for cash initially will
have an adjusted tax basis equal to its fair market value, resulting in no book- tax difference.
Allocations
with respect to book-tax differences are solely for U.S. federal income tax purposes and do not affect the book capital accounts
or other economic or legal arrangements among the partners. The U.S. Treasury Department has issued regulations requiring partnerships
to use a “reasonable method” for allocating items with respect to which there is a book-tax difference and outlining
several reasonable allocation methods. Under certain available methods, the carryover basis of contributed properties in the hands
of our Operating Partnership (1) could cause us to be allocated lower amounts of depreciation deductions for tax purposes than
would be allocated to us if all contributed properties were to have a tax basis equal to their fair market value at the time of
the contribution and (2) in the event of a sale of such properties, could cause us to be allocated taxable gain in excess of the
economic or book gain allocated to us as a result of such sale, with a corresponding benefit to the contributing partners. An
allocation described in (2) above might cause us to recognize taxable income in excess of cash proceeds in the event of a sale
or other disposition of property, which might adversely affect our ability to comply with the REIT distribution requirements and
may result in a greater portion of our distributions being taxed as dividends. We have not yet decided what method will be used
to account for book-tax differences.
Sale
of a Partnership’s Property
Generally,
any gain realized by a Partnership on the sale of property held by the Partnership for more than one year will be long-term capital
gain, except for any portion of such gain that is treated as depreciation or cost recovery recapture. Under Section 704(c) of
the Code, any gain or loss recognized by a Partnership on the disposition of contributed properties will be allocated first to
the partners of the Partnership who contributed such properties to the extent of their built-in gain or loss on those properties
for U.S. federal income tax purposes. The partners’ built-in gain or loss on such contributed properties will equal the
difference between the partners’ proportionate share of the book value of those properties and the partners’ tax basis
allocable to those properties at the time of the contribution as reduced for any decrease in the “book-tax difference.”
See “— Income Taxation of the Partnerships and their Partners — Tax Allocations With Respect to Partnership
Properties.” Any remaining gain or loss recognized by the Partnership on the disposition of the contributed properties,
and any gain or loss recognized by the Partnership on the disposition of the other properties, will be allocated among the partners
in accordance with their respective percentage interests in the Partnership.
Our
share of any gain realized by a Partnership on the sale of any property held by the Partnership as inventory or other property
held primarily for sale to customers in the ordinary course of the Partnership’s trade or business will be treated as income
from a prohibited transaction that is subject to a 100% penalty tax. Such prohibited transaction income also may have an adverse
effect upon our ability to satisfy the income tests for REIT qualification. See “— Gross Income Tests.” We do
not presently intend to acquire or hold or to allow any Partnership to acquire or hold any property that represents inventory
or other property held primarily for sale to customers in the ordinary course of our or such Partnership’s trade or business.
Partnership
Audit Rules
The
Bipartisan Budget Act of 2015 changes the rules applicable to U.S. federal income tax audits of partnerships. Under the new rules
(which are generally effective for taxable years beginning after December 31, 2017), among other changes and subject to certain
exceptions, any audit adjustment to items of income, gain, loss, deduction or credit of a partnership (and any partner’s
distributive share thereof) is determined, and taxes, interest or penalties attributable thereto are assessed and collected, at
the partnership level. Although it is uncertain how these new rules will be implemented, it is possible that they could result
in partnerships in which we directly or indirectly invest being required to pay additional taxes, interest and penalties as a
result of an audit adjustment, and we, as a direct or indirect partner of those partnerships, could be required to bear the economic
burden of those taxes, interest and penalties even though we, as a REIT, may not otherwise have been required to pay additional
corporate-level taxes as a result of the related audit adjustment. The changes created by these new rules are sweeping and in
many respects dependent on the promulgation of future regulations or other guidance by the U.S. Treasury Department. Investors
are urged to consult their tax advisors with respect to these changes and their potential impact on their investment in our securities.
Legislative
or Other Actions Affecting REITs
The
present U.S. federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative, judicial
or administrative action at any time, which could affect the U.S. federal income tax treatment of an investment in our securities.
The REIT rules are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury
Department which may result in statutory changes as well as revisions to regulations and interpretations. Additionally, several
of the tax considerations described herein are currently under review and are subject to change. Prospective securityholders are
urged to consult with their tax advisors regarding the effect of potential changes to the U.S. federal tax laws on an investment
in our securities.
State
and Local Taxes
We
and/or you may be subject to taxation by various states and localities, including those in which we or a stockholder transacts
business, owns property or resides. The state and local tax treatment may differ from the U.S. federal income tax treatment described
above. Consequently, you should consult your tax advisors regarding the effect of state and local tax laws upon an investment
in our securities.