Filed Pursuant
to Rule 424(b)(3)
Registration No.
333-261039
PROSPECTUS SUPPLEMENT
(To Prospectus dated November 12, 2021)
2,557,644 Shares of
Common Stock
This prospectus supplement relates to
the possible resale, from time to time, by the selling stockholder named in this prospectus supplement of up to an aggregate of 2,557,644
shares of our common stock.
We are not selling any shares of common
stock under this prospectus supplement and will not receive any proceeds from the sale of shares by the selling stockholder.
Sales of shares of common stock by the
selling stockholder may occur at fixed prices, at market prices prevailing at the time of sale, at prices related to prevailing market
prices or at negotiated prices. We provide more information about how the selling stockholder may sell its shares of common stock in the
section entitled “Plan of Distribution” on page S-9. The selling stockholder may sell shares to or through underwriters,
broker-dealers or agents, who may receive compensation in the form of discounts, concessions or commissions from the selling stockholder,
the purchasers of the shares, or both.
Our common stock is traded on the New
York Stock Exchange (the “NYSE”) under the trading symbol “FBRT.” On December 21, 2023, the last reported sale
price of our common stock on NYSE was $14.39 per share.
To assist us in maintaining our qualification
as a real estate investment trust (a “REIT”), for U.S. federal income tax purposes, subject to certain exceptions, no person
may own more than 7.9% by value or number of shares, whichever is more restrictive, of our outstanding shares of common stock, or of our
outstanding capital stock. You should read the information under the section entitled “Description of Capital Stock – Restrictions
on Ownership and Transfer” in the accompanying prospectus for a description of these restrictions.
Investing in our common stock involves
certain risks. See “Risk Factors” beginning on page S-5 of this prospectus supplement and in the reports we file with the
Securities and Exchange Commission (the “SEC”) pursuant to the Securities and Exchange Act of 1934, as amended (the “Exchange
Act”), incorporated by reference in this prospectus supplement and the accompanying prospectus, to read about factors you should
consider before making an investment in our common stock.
Neither the SEC nor any state securities
commission has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying prospectus
is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this
prospectus supplement is December 22, 2023
Table of Contents
Prospectus
ABOUT THIS PROSPECTUS SUPPLEMENT
This prospectus supplement relates to
the possible resale, from time to time, by the selling stockholder named in this prospectus supplement of up to an aggregate of 2,557,644
shares of our common stock.
This document is part of a registration statement
that we filed with the Securities and Exchange Commission, or the SEC, using a “shelf” registration process and consists of
two parts. The first part is this prospectus supplement, which describes the terms of this offering and also adds to or updates the information
contained in the accompanying prospectus and the documents incorporated by reference into this prospectus supplement and the accompanying
prospectus. The second part is the accompanying prospectus, which provides more general information about our common stock and other securities
that do not pertain to this offering of common stock. To the extent that the information contained in this prospectus supplement conflicts
with any information in the accompanying prospectus or any document incorporated by reference, the information in this prospectus supplement
shall control. The information in this prospectus supplement may not contain all of the information that is important to you. You should
read this entire prospectus supplement, the accompanying prospectus and the documents incorporated by reference carefully before deciding
whether to invest in our common stock.
Throughout this prospectus supplement,
when we refer to the selling stockholder, we are referring to the selling stockholder identified in this prospectus supplement and, as
applicable, its permitted transferees or other successors-in-interest that may be identified in a prospectus supplement or, if required,
post-effective amendment to the registration statement of which this prospectus supplement is a part. The selling stockholder is offering
to sell, and seeking offers to buy, the shares of common stock only in jurisdictions where offers and sales thereof are permitted.
Unless otherwise indicated or the context
requires otherwise, references in this prospectus supplement to “the Company,” “our company,” “we,”
“us” and “our” mean Franklin BSP Realty Trust, Inc. and its consolidated subsidiaries.
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
This prospectus supplement, the accompanying
prospectus and the documents incorporated by reference herein and therein contain certain forward-looking statements, including, without
limitation, statements concerning our operations, economic performance and financial condition. These forward-looking statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
These statements include statements regarding
the intent, belief or current expectations of the Company and members of our management team, as well as the assumptions on which such
statements are based, and generally are identified by the use of words such as “may,” “will,” “seeks,”
“anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,”
“should” or similar expressions. Actual results may differ materially from those contemplated by such forward-looking statements.
Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking
statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless
required by law.
Our forward-looking statements are subject
to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to
differ materially from those indicated in these statements, and thus our investors should not place undue reliance on these statements.
We believe these factors include but are not limited to those described under the section entitled “Risk Factors” in our Annual
Report on Form 10-K for the year ended December 31, 2022, as such factors may be updated from time to time in our periodic filings with
the SEC, which are accessible on the SEC’s website at http://www.sec.gov. These factors include:
| · | our business and investment strategy; |
| · | our ability to make investments in a timely manner or on acceptable terms; |
| · | the impact of national health crises; |
| · | current credit market conditions and our ability to obtain long-term financing
for our investments in a timely manner and on terms that are consistent with what we project when we invest; |
| · | the effect of general market, real estate market, economic and political
conditions, including changing interest rate environments (and sustained high interest rates) and inflation; |
| · | our ability to make scheduled payments on our debt obligations; |
| · | our ability to generate sufficient cash flows to make distributions to
our stockholders; |
| · | our ability to generate sufficient debt and equity capital to fund additional
investments; |
| · | our ability to refinance our existing financing arrangements; |
| · | our ability to recover unpaid principal on defaulted loans; |
| · | the degree and nature of our competition; |
| · | the availability of qualified personnel; |
| · | our ability to recover or mitigate estimated losses on non-performing assets; |
| · | we may be deemed to be an investment company under the Investment Company
Act of 1940, as amended (the "Investment Company Act"), and thus subject to regulation under the Investment Company Act; |
| · | our ability to maintain our qualification as a REIT; and |
| · | other factors set forth under
the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. |
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights information
contained elsewhere in this prospectus supplement and the accompanying prospectus and in the documents we incorporate by reference. Because
it is only a summary, it does not contain all of the information that you should consider before deciding to invest in our common stock.
For a more complete understanding of our company and this offering, you should read this entire prospectus supplement and the accompanying
prospectus carefully, including information under the heading “Risk Factors” in this prospectus supplement and the information
incorporated by reference herein, including information under the heading “Risk Factors” contained in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on March 16, 2023, as well as in our other filings
with the SEC.
Overview
We are a real estate finance company that
primarily originates, acquires and manages a diversified portfolio of commercial real estate debt investments secured by properties located
within and outside the United States. We are a Maryland corporation and have made tax elections to be treated as a REIT for U.S. federal
income tax purposes since 2013. We believe that we have qualified as a REIT and we intend to continue to meet the requirements for qualification
and taxation as a REIT.
Substantially all of our business is conducted
through Benefit Street Partners Realty Operating Partnership, L.P. (the “OP”), a Delaware limited partnership. We are the
sole general partner and directly or indirectly hold all of the units of limited partner interests in the OP. One of more of our subsidiaries
are treated as taxable REIT subsidiaries (each a “TRS”) and are subject to U.S. federal, state and local income taxes.
We have no employees. Benefit Street Partners
L.L.C. serves as our advisor (“Advisor”) pursuant to an advisory agreement, dated January 19, 2018, as amended on August 18,
2021 (the “Advisory Agreement”). The Advisor, an investment adviser registered with the SEC, is a credit-focused alternative
asset management firm.
Established in 2008, the Advisor's credit
platform manages funds for institutions and high-net-worth investors across various credit funds and complementary strategies including
high yield, levered loans, private/opportunistic debt, liquid credit, structured credit and commercial real estate debt. These strategies
complement each other as they all leverage the sourcing, analytical, compliance, and operational capabilities that encompass the platform.
The Advisor manages the Company's affairs on a day-to-day basis. The Advisor receives compensation fees and reimbursements for services
related to the investment and management of the Company's assets and the operations of the Company. The advisor is a wholly-owned subsidiary
of Franklin Resources, Inc., which together with its various subsidiaries operates as “Franklin Templeton”.
The Company invests in commercial real
estate debt investments, which may include first mortgage loans, subordinated mortgage loans, mezzanine loans and participations in such
loans. The Company also originates conduit loans which the Company intends to sell through its TRS into commercial mortgage-backed securities
("CMBS") securitization transactions, and invests in real estate debt securities, such as commercial mortgage-backed securities,
commercial real estate collateralized loan obligation bonds and collateralized debt obligations. The Company also owns real estate that
was either acquired by the Company through foreclosure or deed in lieu of foreclosure, or that was purchased for investment, primarily
subject to triple net leases.
Our principal executive offices are
located at 1345 Avenue of the Americas, Suite 32A, New York, New York 10105, and our telephone number is (212) 588-6770.
The Offering
| Common stock offered by the selling stockholder |
2,557,644 shares of our common stock. |
| |
|
| Terms of the offering |
The selling stockholder
will determine when and how it will sell the common stock offered in this prospectus supplement, as described in “Plan of Distribution.” |
| |
|
| Use of Proceeds |
We will not receive any proceeds from the sale of the shares of our common stock by the selling stockholder. |
| |
|
| NYSE Symbol |
FBRT |
| |
|
| Risk Factors |
Your investment in our common stock involves substantial risks. You should read carefully the “Risk Factors” included and incorporated by reference in this prospectus supplement and the accompanying prospectus, including the risk factors incorporated by reference from our filings with the SEC. |
RISK FACTORS
Investing in our common stock involves
risks. You should carefully read and consider the risks described in the sections entitled “Item 1. Business” and “Item
1A. Risk Factors” in our most recently filed Annual Report on Form 10-K, which are incorporated by reference into this prospectus
supplement and the accompanying prospectus. You should also carefully read and consider the sections entitled “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” included in our most recently filed Annual Report on Form
10-K and Quarterly Reports on Form 10-Q and other information contained in or incorporated by reference into this prospectus supplement
and the accompanying prospectus, as well as the risks described above in “Cautionary Statement Regarding Forward-Looking Statements”,
before making a decision to invest in our common stock. Each of these risks could materially and adversely affect our business, financial
condition, results of operations, liquidity and prospects and could result in a partial or complete loss of your investment.
USE OF PROCEEDS
We will not receive any of the proceeds
from the sale or other disposition of shares of our common stock by the selling stockholder pursuant to this prospectus supplement.
We will bear the out-of-pocket costs,
expenses and fees incurred in connection with the registration of shares of our common stock pursuant to this prospectus supplement. The
selling stockholder will bear underwriting discounts, commissions, placement agent fees or other similar expenses payable with respect
to sales of shares of our common stock.
SELLING STOCKHOLDER
We are registering the resale of 2,557,644
shares of our common stock held by the selling stockholder identified below to permit it (or its donees, pledgees, transferees or other
successors-in-interest selling shares of common stock or interests in shares of common stock received after the date of this prospectus
supplement from the selling stockholder as a gift, pledge, partnership distribution or other transfer) to resell or otherwise dispose
of these shares in the manner contemplated under the section entitled “Plan of Distribution” in this prospectus supplement
(as may be supplemented and amended).
The selling stockholder may sell some,
all or none of its shares of our common stock. We do not know how long the selling stockholder will hold the shares before selling them,
and we currently have no agreements, arrangements or understandings with the selling stockholder regarding the sale or other disposition
of any of the shares. The shares covered hereby may be offered from time to time by the selling stockholder. As a result, we cannot estimate
the number of shares of common stock the selling stockholder will beneficially own after completing sales, or completing sales from time
to time, under this prospectus supplement. In addition, after the date of this prospectus supplement, the selling stockholder may have
sold, transferred or otherwise disposed of all or a portion of its shares of common stock since the date on which they provided information
for this table and as of the date of this prospectus supplement.
Beneficial ownership is determined in
accordance with the rules of the SEC and includes voting or investment power with respect to our capital stock. The information in the
table below and the footnotes thereto regarding shares of common stock to be beneficially owned after the offering assumes the sale of
all shares being offered by the selling stockholder under this prospectus supplement. All share ownership information below is provided
from information provided to the Company by the selling stockholder.
| Name of Selling Stockholder | |
Number of
Shares
of Common
Stock
Beneficially
Owned Prior
to the
Offering | | |
Maximum
Number
of Shares of
Common Stock
to
be Sold
Hereunder | | |
Number of
Shares
of Common
Stock
Beneficially
Owned After
Offering | |
| BSP Fund HoldCo (Debt Strategy) LP (1) | |
| 2,557,644 | | |
| 2,557,644 | | |
| 0 | |
| (1) | Based on information provided by the selling stockholder. BSP Fund HoldCo (Debt Strategy) LP is the
owner of the shares of common stock registered hereby. Franklin Resources, Inc. is the sole limited partner of BSP Fund HoldCo (Debt Strategy)
LP. Our Advisor, Benefit Street Partners LLC, is a wholly-owned subsidiary of Franklin Resources, Inc. |
The business address of BSP
Fund HoldCo (Debt Strategy) LP and Benefit Street Partners LLC is 9 West 57th Street, Suite 4920, New York, NY 10019, and the
business address of Franklin Resources, Inc. is One Franklin Parkway, San Mateo, CA 94403.
Relationship
and Agreements with the Selling Stockholder
The Advisor is an affiliated entity
of the selling stockholder. The Advisor manages the Company’s affairs on a day-to-day basis pursuant to the Advisory Agreement.
Please refer to our SEC filings incorporated by reference into this prospectus supplement for further description of the our relationships
and arrangements with our Advisor.
PLAN OF DISTRIBUTION
We are registering the shares of common
stock held by the selling stockholder to permit the resale of these shares of common stock by the selling stockholder from time to time
after the date of this prospectus. We will not receive any of the proceeds from the sale by the selling stockholder of the shares of our
common stock.
The selling stockholder may sell all
or a portion of the shares of common stock beneficially owned by it and offered hereby from time to time directly or through one or more
underwriters, broker-dealers or agents. If the shares of common stock are sold through underwriters or broker-dealers, the selling stockholder
will be responsible for underwriting discounts or commissions or agent’s commissions. The shares of common stock may be sold on
any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale, in the over-the-counter
market or in transactions otherwise than on these exchanges or systems or in the over-the-counter market and in one or more transactions
at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale, or at negotiated
prices. These sales may be effected in transactions, which may involve crosses or block transactions. The selling stockholder may use
any one or more of the following methods when selling shares:
| • | ordinary brokerage transactions
and transactions in which the broker-dealer solicits purchasers; |
| • | block trades in which the broker-dealer will attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate the transaction; |
| • | purchases by a broker-dealer as
principal and resale by the broker-dealer for its account; |
| • | an exchange distribution in accordance
with the rules of the applicable exchange; |
| • | privately negotiated transactions; |
| • | “at the market” or
through market makers or into an existing market for the shares; |
| • | settlement of short sales entered into after the effective date of the registration statement of which
this prospectus is a part; |
| • | broker-dealers may agree with the selling stockholder to sell a specified number of such shares at a
stipulated price per share; |
| • | the distribution of the shares
to the selling stockholder’s partners, members or shareholders; |
| • | through the writing or settlement of options or other hedging transactions, whether such options are
listed on an options exchange or otherwise; |
| • | through one or more underwritten
offerings on a firm commitment or best efforts basis; |
| • | a combination of any such methods
of sale; and |
| • | any other method permitted pursuant
to applicable law. |
The selling stockholder also may resell
all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act of 1933, as amended (the
“Securities Act”), as permitted by that rule, or Section 4(1) under the Securities Act, if available, rather than under this
prospectus supplement, provided that they meet the criteria and conform to the requirements of those provisions.
Broker-dealers engaged by the selling
stockholder may arrange for other broker-dealers to participate in sales. If the selling stockholder effects such transactions by selling
shares of common stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions
in the form of discounts, concessions or commissions from the selling stockholder or commissions from purchasers of the shares of common
stock for whom they may act as agent or to whom they may sell as principal. Such commissions will be in amounts to be negotiated, but,
except as set forth in an applicable prospectus supplement, in the case of an agency transaction will not be in excess of a customary
brokerage commission in compliance with FINRA Rule 5110.
In connection with sales of the shares
of common stock or otherwise, the selling stockholder may enter into hedging transactions with broker-dealers or other financial institutions,
which may in turn engage in short sales of the shares of common stock in the course of hedging in positions they assume. The selling stockholder
may also sell shares of common stock short and the selling stockholder may deliver shares of common stock covered by this prospectus supplement
to close out short positions and to return borrowed shares in connection with such short sales. The selling stockholder may also loan
or pledge shares of common stock to broker-dealers that in turn may sell such shares, to the extent permitted by applicable law. The selling
stockholder may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one
or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this
prospectus supplement, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus supplement
(as supplemented or amended to reflect such transaction).
The selling stockholder may, from time
to time, pledge or grant a security interest in some or all of the shares of common stock owned by them and, if a selling stockholder
defaults in the performance of its secured obligations, the pledgees or secured parties may offer and sell the shares of common stock
from time to time pursuant to this prospectus supplement or any amendment or prospectus supplement under Rule 424(b)(3) or other applicable
provision of the Securities Act, amending, if necessary, the list of selling stockholder to include the pledgee, transferee or other successors-in-interest
as a selling stockholder under this prospectus. The selling stockholder also may transfer and donate the shares of common stock in other
circumstances in which case the transferees, donees, pledgees or other successors-in-interest will be the selling beneficial owners for
purposes of this prospectus.
The selling stockholder and any broker-dealer
or agents participating in the distribution of the shares of common stock may be deemed to be “underwriters” within the meaning
of Section 2(11) of the Securities Act in connection with such sales. In such event, any commissions paid, or any discounts or concessions
allowed to, any such broker-dealer or agent and any profit on the resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. If a selling stockholder is deemed to be an “underwriter” within the meaning
of Section 2(11) of the Securities Act, it will be subject to the prospectus delivery requirements of the Securities Act and may be subject
to certain statutory liabilities of, including but not limited to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the
Exchange Act.
The selling stockholder has informed
us that it is not a registered broker-dealer and does not have any written or oral agreement or understanding, directly or indirectly,
with any person to distribute the common stock. Upon us being notified in writing by the selling stockholder that any material arrangement
has been entered into with a broker-dealer for the sale of common stock through a block trade, special offering, exchange distribution
or secondary distribution or a purchase by a broker or dealer, a prospectus supplement will be filed, if required, pursuant to Rule 424(b)
under the Securities Act, disclosing (i) the name of the selling stockholder and of the participating broker-dealer(s), (ii) the number
of shares involved, (iii) the price at which such the shares of common stock were sold, (iv) the commissions paid or discounts or concessions
allowed to such broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not conduct any investigation to verify the information
set out or incorporated by reference in this prospectus, and (vi) other facts material to the transaction.
Under the securities laws of some states,
the shares of common stock may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states
the shares of common stock may not be sold unless such shares have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with. There can be no assurance that the selling stockholder will sell
any or all of the shares of common stock registered pursuant to the registration statement, of which this prospectus forms a part. The
selling stockholder and any other person participating in such distribution will be subject to applicable provisions of the Exchange Act
and the rules and regulations thereunder, including, without limitation, Regulation M of the Exchange Act, which may limit the timing
of purchases and sales of any of the shares of common stock by the selling stockholder and any other participating person. Regulation
M may also restrict the ability of any person engaged in the distribution of the shares of common stock to engage in market-making activities
with respect to the shares of common stock. All of the foregoing may affect the marketability of the shares of common stock and the ability
of any person or entity to engage in market-making activities with respect to the shares of common stock.
We will pay all expenses of the registration
of the shares of common stock, including, without limitation, SEC filing fees and expenses of compliance with state securities or “blue
sky” laws; provided, however, that the selling stockholder will pay all underwriting discounts and selling commissions, if any,
and any legal expenses incurred by it.
LEGAL MATTERS
The validity of the securities offered by
this prospectus supplement will be passed upon for us by Hogan Lovells US LLP, Washington, D.C.
EXPERTS
The consolidated financial statements
of Franklin BSP Realty Trust, Inc. incorporated by reference in Franklin BSP Realty Trust, Inc.’s Annual Report (Form 10-K) for the year ended December 31, 2022, and the effectiveness of Franklin BSP Realty Trust, Inc.’s internal control over financial reporting
as of December 31, 2022 have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their
reports thereon, incorporated by reference therein, and incorporated herein by reference. Such consolidated financial statements
and Franklin BSP Realty Trust Inc.’s management's assessment of the effectiveness of internal control over financial reporting as
of December 31, 2022 are incorporated herein by reference in reliance upon such reports given on the authority of such firm as experts
in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Exchange Act
and, in accordance therewith, we file annual, quarterly and current reports, proxy statements and other information with the SEC. Our
SEC filings, including the registration statement associated with this prospectus and prospectus supplement, are available to you on the
SEC’s website (http://www.sec.gov), which contains reports, proxy and information statements, and other information regarding issuers
that file electronically with the SEC. We maintain a website at www.fbrtreit.com. You should not consider information on our website to
be part of this prospectus.
This prospectus supplement and the accompanying prospectus are only
part of a registration statement on Form S-3 we have filed with the SEC under the Securities Act and therefore omit some of the information
contained in the registration statement. We have also filed exhibits to the registration statement which are excluded from this prospectus
supplement and the accompanying prospectus, and you should refer to the applicable exhibit for a complete description of any statement
referring to any contract or other document.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
SEC rules allow us to incorporate information
into this prospectus by reference, which means that we can disclose important information to you by referring you to another document
filed separately with the SEC. The information incorporated by reference is deemed to be part of this prospectus supplement, except to
the extent superseded by information contained herein or by information contained in documents filed with or furnished to the SEC after
the date of this prospectus supplement. This prospectus supplement incorporates by reference the documents set forth below that have been
previously filed with the SEC:
| |
· |
our Current Reports on Form 8-K filed with the SEC on January 20, 2023, March 22, 2023, April 14, 2023, April 19, 2023, June 5, 2023, June 6, 2023 and October 3, 2023; and |
| |
· |
the description of our common stock included in our Registration Statement on Form 8-A filed on October 18, 2021, including all amendments and reports filed for the purpose of updating such description, including the description of our common stock contained in Exhibit 4.3 of our Annual Report on Form 10-K for the year ended December 31, 2022. |
We also incorporate by reference into this prospectus
supplement additional documents that we may file with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act from the date
of this prospectus supplement until we have sold all of the securities to which this prospectus supplement relates or the offering is
otherwise terminated. We are not, however, incorporating any information furnished under either Item 2.02 or Item 7.01 of any Current
Report on Form 8-K.
You may obtain copies of any of these filings
by contacting Franklin BSP Realty Trust, Inc., as described below, or through contacting the SEC or accessing its website as described
above. Documents incorporated by reference are available without charge excluding all exhibits unless an exhibit has been specifically
incorporated by reference into those documents, by requesting them in writing, by telephone or via the Internet at:
Franklin BSP Realty Trust, Inc.
1345 Avenue of the Americas,
Suite 32A
New York, New York 10105
Attn: Investor Relations
(214) 874-2339
Our reports and documents incorporated by reference
herein may also be found in the “Investor Relations” section of our website at www.fbrtreit.com. Our website and the information
contained on it or connected to it shall not be deemed to be incorporated into this prospectus or prospectus supplement or the registration
statement of which it forms a part.
PROSPECTUS
Common
Stock, Preferred Stock, Depositary Shares, Warrants, Subscription Rights, and Units
Franklin BSP Realty Trust, Inc., a Maryland corporation,
may offer, from time to time, one or more series or classes, separately or together, and in amounts, at prices and on terms to be set
forth in one or more supplements to this prospectus, the following securities:
| · | subscription rights; and |
We refer to the above securities collectively as
the “securities.” We and any selling stockholders may offer and sell the securities from time to time, and in amounts, at
prices and on terms to be set forth in one or more supplements to this prospectus. We or any of the selling stockholders may offer the
securities in any combination, separately, together or as units with other offered securities, in one or more separate series or classes
and in amounts, at prices and on terms described in one or more supplements to this prospectus.
This prospectus describes some of the general terms
and conditions that may apply to the securities and the general manner in which they may be offered. The specific terms and conditions
of any securities being offered, the net proceeds that we or any of the selling stockholders expect to receive from the sale of such securities
and the specific manner in which such securities may be offered will be provided in prospectus supplements to this prospectus. The applicable
prospectus supplement also will contain information, where applicable, about U.S. federal income tax considerations relating to, and any
listing on a securities exchange of, the securities covered by the prospectus supplement. It is important that you read both this prospectus
and the applicable prospectus supplement before you invest in any of the securities.
We or the selling stockholders may sell the offered
securities in one or more ways: directly to investors, through agents designated from time to time by them or us, or to or through underwriters
or dealers in a single offering or on a continuous or delayed basis. If any agents, underwriters or dealers are involved in the sale of
any of the securities, their names and any applicable purchase price, fee, commission or discount arrangement with, between or among them,
will be set forth, or will be calculable from the information set forth, in an accompanying prospectus supplement. For more detailed information,
see “Plan of Distribution” on page 67. No securities may be sold without delivery of this prospectus and a prospectus
supplement describing the method and terms of the offering of those securities.
Our common stock
is listed on the New York Stock Exchange (the “NYSE”) under the symbol “FBRT”. On November 11, 2021, the last
reported sale price of our common stock on the NYSE was $17.09 per share.
Investing in our securities involves risks. Before
buying our securities, you should refer to the risk factors included in our periodic reports and in the other information that we file
with the Securities and Exchange Commission (the “SEC”). See “Risk Factors” beginning on page 7
of this prospectus.
Neither the SEC nor any state securities commission
has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the
contrary is a criminal offense.
The date of this prospectus is November 12,
2021.
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement
that we filed with the SEC, utilizing a “shelf” registration process. Under this shelf registration process, we may, from
time to time, sell any combination of the securities described in this prospectus, in one or more offerings. This prospectus provides
you with a general description of the securities that we or the selling stockholders may offer and is not meant to provide a complete
description of each security. As a result, each time we or the selling stockholders offer securities, to the extent required, a prospectus
supplement will be provided, and it will be attached to this prospectus. The prospectus supplement will contain specific information about
the terms of that offering, including the specific amounts, prices and terms of the securities being offered. The prospectus supplement
may also add, update or change information contained in this prospectus. You should read both this prospectus and any prospectus supplement,
together with additional information described below under the headings “Where To Find Additional Information,” “Incorporation
of Certain Information By Reference” and any additional information you may need before making an investment decision.
You should rely only on the information provided
or incorporated by reference in this prospectus or any applicable prospectus supplement. You should rely only on the information provided
or information to which we have referred you, including any information incorporated by reference in this prospectus or any applicable
prospectus supplement. Neither we, nor the selling stockholders, have authorized anyone to provide you with different or additional information.
Neither we, nor the selling stockholders, are making an offer to sell these securities in any jurisdiction where the offer or sale of
these securities is not permitted. You should not assume that the information appearing in this prospectus, any free writing prospectus
and any applicable prospectus supplement prepared by us or the documents incorporated by reference herein or therein is accurate as of
any date other than their respective dates. our business, financial condition, liquidity, results of operations and prospects may have
changed since those dates.
You should read carefully the entire prospectus
and any applicable prospectus supplement, as well as the documents incorporated by reference in the prospectus and any applicable prospectus
supplement, which we have referred you to in “Incorporation of Certain Information by Reference” on page 4 of this
prospectus, before making an investment decision. Information incorporated by reference after the date of this prospectus may add, update
or change information contained in this prospectus. Statements contained or deemed to be incorporated by reference in this prospectus
or any applicable prospectus supplement as to the content of any contract or other document are not necessarily complete, and in each
instance we refer you to the copy of the contract or other document filed as an exhibit to a document incorporated by reference in this
prospectus or such prospectus supplement, as applicable, each such statement being qualified in all respects by such reference. Any
information in such subsequent filings and any applicable prospectus supplement that is inconsistent with this prospectus will supersede
the information in this prospectus or any earlier prospectus supplement.
Except where the context suggests otherwise, the
terms the “Company,” “we,” ‘‘us,” and ‘‘our” refer to Franklin BSP Realty
Trust, Inc., a Maryland corporation; the “OP” and “Operating Partnership” refer to Benefit Street Partners Realty
Operating Partnership, L.P., a Delaware limited partnership; and our “Advisor” refers to Benefit Street Partners L.L.C., a
Delaware limited liability company.
WHERE TO FIND ADDITIONAL INFORMATION
We have filed with the SEC a “shelf”
registration statement on Form S-3, including exhibits, schedules and amendments filed with the registration statement,
of which this prospectus is a part, under the Securities Act, with respect to the securities that may be offered by this prospectus. This
prospectus is a part of that registration statement, but does not contain all of the information in the registration statement. We have
omitted parts of the registration statement in accordance with the rules and regulations of the SEC. For further information with respect
to our company and the securities that may be offered by this prospectus, reference is made to the registration statement, including the
exhibits and schedules to the registration statement. Statements contained in this prospectus as to the contents of any contract or other
document referred to in this prospectus are not necessarily complete and, where that contract or other document has been filed as an exhibit
to the registration statement, each statement in this prospectus is qualified in all respects by the exhibit to which the reference relates.
We are subject to the informational requirements
of the Exchange Act and, in accordance therewith, we file annual, quarterly and current reports, proxy statements and other information
with the SEC. our SEC filings, including the registration statement, are available to you on the SEC’s website (http://www.sec.gov),
which contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
We maintain a website at www.fbrtreit.com. You should not consider information on our website to be part of this prospectus.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
SEC rules allow us to incorporate information into
this prospectus by reference, which means that we can disclose important information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference is deemed to be part of this prospectus, except to the extent superseded
by information contained herein or by information contained in documents filed with or furnished to the SEC after the date of this prospectus.
This prospectus incorporates by reference the documents set forth below that have been previously filed with the SEC:
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our Current Reports on Form 8-K filed on March 19, 2021, March 30, 2021, June 4, 2021, June 30, 2021, July 26, 2021, August 18, 2021, September 23, 2021, September 24, 2021, October 8, 2021, October 13, 2021 (solely with respect to Item 8.01), and October 21, 2021 (as amended on November 12, 2021); |
We also incorporate by reference into this prospectus
additional documents that we may file with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act from the date of this
prospectus until we have sold all of the securities to which this prospectus relates or the offering is otherwise terminated. We are not,
however, incorporating any information furnished under either Item 2.02 or Item 7.01 of any Current Report on Form 8-K.
You may obtain copies of any of these filings by
contacting Franklin BSP Realty Trust, Inc., as described below, or through contacting the SEC or accessing its website as described above.
Documents incorporated by reference are available without charge excluding all exhibits unless an exhibit has been specifically incorporated
by reference into those documents, by requesting them in writing, by telephone or via the Internet at:
Franklin BSP Realty Trust,
Inc.
1345 Avenue of the Americas,
Suite 32A
New York, New York 10105
Attn: Investor Relations
(214) 874-2339
Our reports and documents incorporated by reference
herein may also be found in the “Investor Relations” section of our website at www.fbrtreit.com. Our website and
the information contained on it or connected to it shall not be deemed to be incorporated into this prospectus or prospectus supplement
or the registration statement of which it forms a part.
FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act, and Section
21E of the Exchange Act.
These forward-looking statements are predictions
and generally can be identified by use of statements that include phrases such as “may,” “believe,” “expect,”
“anticipate,” “intend,” “estimate,” “project,” “target,” “goal,”
“plan,” “should,” “will,” “predict,” “potential,” “likely,” or
other words, phrases or expressions of similar import, or the negative or other words or expressions of similar meaning, and statements
regarding the results of operations and business of the Company.
These forward-looking statements are based on particular
assumptions that the Company has made in light of its industry experience, as well as its perception of historical trends, current conditions,
expected future developments and other factors that it believes are appropriate under the circumstances. The forward-looking statements
are necessarily estimates reflecting the judgment of the Company’s management and involve a number of known and unknown risks, uncertainties
and other factors which may cause actual results, performance, or achievements of the Company to be materially different from those expressed
or implied by the forward-looking statements. In addition to other factors and matters contained in this prospectus, including those disclosed
under “Risk Factors” beginning on page 7, these forward-looking statements are subject to risks, uncertainties and
other factors, including, among others:
| • |
our ability to successfully and in a timely matter reinvest the dividend, interest, principal and sales proceeds from the assets acquired in the merger with Capstead Mortgage Corporation in a manner consistent with our investment strategies; |
| • |
adverse changes in the value of the assets acquired in the merger with Capstead Mortgage Corporation prior to the time such assets are monetized and reinvested in in a manner consistent with our investment strategies; |
| • |
the outcome of litigation, including any legal proceedings that have been or may be in the future instituted against the Company; |
| • |
regulatory proceedings or inquiries; |
| • |
the impact of the COVID-19 pandemic on the operations and financial condition of the Company and its borrowers; |
| • |
general financial and economic conditions, which may be affected by government responses to the COVID-19 pandemic; |
| • |
changes in laws or regulations or interpretations of current laws and regulations that impact the Company’s business, assets or classification as a REIT; and |
| • |
other risks detailed in the “Risk Factors” section of this prospectus and/or in filings made by the Company with the SEC, including the Annual Report on Form 10-K for the year ended December 31, 2020, our Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, and other reports filed by the Company with the SEC and incorporated herein by reference. |
OUR COMPANY
We are a real estate finance company that primarily
originates, acquires and manages a diversified portfolio of commercial real estate debt investments secured by properties located within
and outside the United States. We were incorporated in Maryland on November 15, 2012 and commenced business operations on May 14, 2013.
We made a tax election to be treated as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31,
2013. We believe that we have qualified as a REIT and we intend to continue to meet the requirements for qualification and taxation as
a REIT.
We have no employees. The Advisor serves as our
advisor pursuant to an Amended and Restated Advisory Agreement, executed on January 19, 2018 and as amended August 18, 2021. The Advisor,
an investment adviser registered with the SEC, is a credit-focused alternative asset management firm.
Established in 2008, the Advisor’s credit
platform manages funds for institutions and high-net-worth investors across various credit funds and complementary strategies including
high yield, levered loans, private/opportunistic debt, liquid credit, structured credit and commercial real estate debt. These strategies
complement each other as they all leverage the sourcing, analytical, compliance, and operational capabilities that encompass the platform.
The Advisor manages the Company's affairs on a day-to-day basis. The Advisor receives compensation fees and reimbursements for services
related to the investment and management of the Company's assets and the operations of the Company. The Advisor is a wholly-owned subsidiary
of Franklin Resources, Inc., which together with its various subsidiaries operates as "Franklin Templeton”.
We invest in commercial real estate debt investments,
which may include first mortgage loans, subordinated mortgage loans, mezzanine loans and participations in such loans. We also originate
conduit loans which we intend to sell through our TRS into CMBS securitization transactions.
We also invest in commercial real estate securities
and properties. Real estate securities may include CMBS, senior unsecured debt of publicly traded REITs, debt or equity securities of
other publicly traded real estate companies and CDOs. Property investments, other than properties owned in connection with a foreclosure,
are generally subject to triple net leases.
On October 19, 2021 we completed our merger with
Capstead Mortgage Corporation (“Capstead”) and our common stock commenced trading on the NYSE. Capstead’s assets consisted
primarily of cash and residential adjustable-rate mortgage pass-through securities issued and guaranteed by government-sponsored enterprises
or by an agency of the federal government. We intend to reinvest the cash and proceeds from dividends, interest, repayments and sales
of the assets acquired from Capstead merger into our current business strategies.
Our principal executive offices are located at
1345 Avenue of the Americas, Suite 32A, New York, New York 10105, and our telephone number is (212) 588-6770.
RISK FACTORS
Investing
in any securities offered pursuant to this prospectus and the applicable prospectus supplement involves risks. You should carefully consider
any specific risks set forth under the section entitled “Risk Factors” in any applicable prospectus supplement and the risks
and uncertainties described in our Annual Report on Form 10-K for the year ended December 31, 2020 and our Quarterly Report
on Form 10-Q for the quarter ended September 30, 2021, which are incorporated by reference herein, as updated by our subsequent filings
under the Exchange Act. You should also carefully consider the other information contained or incorporated by reference in this prospectus
and any accompanying prospectus supplement, as updated by our subsequent filings under the Exchange Act, before you decide to purchase
our securities. The occurrence of any of these risks could materially and adversely affect our business, prospects, financial condition,
results of operations and cash flows, and might cause you to lose all or part of your investment in the offered securities. Some statements
in this prospectus constitute forward-looking statements. Please refer to the section entitled “Forward-Looking Statements”
for additional information regarding these forward-looking statements.
USE OF PROCEEDS
Unless otherwise described
in the applicable prospectus supplement to this prospectus used to offer specific securities, we intend to use the net proceeds from the
sale of offered securities under this prospectus for working capital and general corporate purposes, which may include, without limitation,
the repayment of outstanding indebtedness and the acquisition of our target assets in a manner consistent with our investment strategies
and investment guidelines. Until we use the net proceeds for the purposes described above, we may invest them in short-term income producing
investments, such as commercial paper, government securities or money market funds that invest in government securities and/or commercial
paper. We will not receive any proceeds from the sale of our common stock by the selling stockholders.
DESCRIPTION OF CAPITAL STOCK
The following summary description of our capital
stock does not purport to be complete and is subject to and qualified in its entirety by reference to the Maryland General Corporation
Law (“MGCL”), our Articles of Amendment and Restatement, as amended (our “Charter”),
and our Amended and Restated Bylaws (our “Bylaws”), copies of which are available from us upon request.
General
The following is a summary
of some of the terms of our capital stock, our Charter, our Bylaws, and certain provisions of the MGCL. You should read our Charter and
our Bylaws and the applicable provisions of the MGCL for complete information on our stock. The following summary is not complete and
is subject to, and qualified in its entirety by reference to, the MGCL and the provisions of our Charter and our Bylaws. Our Charter and
our Bylaws are filed as exhibits to the registration statement of which this prospectus forms a part.
Shares Authorized
Our Charter provides that
the Company may issue up to 1,000,000,000 shares of capital stock, consisting of (i) 900,000,000 shares designated as common stock, $0.01
par value per share; and (ii) 100,000,000 shares designated as preferred stock, $0.01 par value per share. Of the authorized preferred
stock, currently 20,000 shares are designated as Series C convertible preferred stock (“Series C Preferred Stock”), 20,000
shares are designated as Series D convertible preferred stock (“Series D Preferred Stock”), 10,329,039 shares are designated
as Series E cumulative redeemable preferred stock (“Series E Preferred Stock”) and 40,000,000 shares are designated as Series
F convertible preferred stock (Series F Preferred Stock”). Our Charter authorizes a majority of the Company’s board of directors
(the “Board”) to amend the charter to increase or decrease the aggregate number of authorized shares of common stock or the
number of shares of any class or series without stockholder approval.
Shares Outstanding
As of October 31, 2021, 43,951,382
shares of the Company’s common stock were outstanding, 1,400 shares of Series C Preferred Stock were outstanding, 17,950 shares
of Series D Preferred Stock were outstanding, 10,329,039 shares of Series E Preferred Stock were outstanding, and 39,733,298 shares of
Series F Preferred Stock were outstanding.
Common Stock
Pursuant to our Charter, the Company is authorized
to issue up to 900,000,000 shares of common stock. All of the outstanding shares of the Company’s common stock are fully paid and
nonassessable. The Company’s common stock is currently listed on the NYSE under the symbol “FBRT”.
Dividend Rights.
Subject to any preferential
rights of any other class or series of stock and to the provisions of our Charter regarding the restriction on the transfer of stock,
the holders of our common stock are entitled to such distributions as may be authorized from time to time by the Board out of assets legally
available therefor and declared by the Company.
Voting Rights.
Subject to our Charter restrictions on ownership
and transfer of our stock and except as may otherwise be specified in our Charter, each holder of common stock is entitled at each meeting
of stockholders to one vote per share owned by such stockholder on all matters submitted to a vote of stockholders, including the election
of directors. There is no cumulative voting in the election of the Board, which means that the holders of a majority of shares of our
outstanding stock entitled to vote generally in the election of directors can elect all of the directors then standing for election and
the holders of the remaining shares of common stock will not be able to elect any directors. In addition, on all matters submitted to
a vote of the holders of common stock of the Company, the holders of the common stock vote together as a single class with the holders
of the Series C Preferred Stock, Series D Preferred Stock and Series F Preferred Stock, with each such series of preferred stock voting
on an as-converted basis.
Liquidation Rights.
Subject to any preferential rights of any other
class or series of stock, upon our liquidation, holders of common stock are entitled to receive all assets available for distribution
to our stockholders.
Preemptive or Similar Rights.
Holders of common stock do
not have preemptive rights, which means that they will not have an automatic option to purchase any new shares that the Company may issue,
or preference, conversion, exchange, sinking fund or redemption rights. Holders of common stock will not have appraisal rights or rights
of objecting stockholders unless the Board determines that appraisal rights apply, with respect to all or any classes or series of stock,
to one or more transactions occurring after the date of such determination in connection with which holders would otherwise be entitled
to exercise appraisal rights.
Preferred Stock
Our Charter authorizes the Board, without stockholder
approval, to designate and issue one or more classes or series of preferred stock and to set or change the voting, conversion or other
rights, preferences, restrictions, limitations as to dividends or other distributions and qualifications or terms or conditions of redemption
of each class of shares so issued. Because the Board 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.
The terms of the Series C Preferred Stock, Series
D Preferred Stock, Series E Preferred Stock, and Series F Preferred Stock are summarized below. The complete terms of each class are set
forth in the Articles Supplementary applicable to each class, which have been filed as exhibits to the registration statement of which
this prospectus forms a part.
Series C Convertible Preferred Stock
The Series C Preferred Stock ranks senior to our
common stock and our Series F Preferred Stock, and on parity with the Series D Preferred Stock and the Series E Preferred Stock with respect
to priority in dividends and in the distribution of assets in the event of the liquidation, dissolution or winding-up of the Company.
The liquidation preference of each share of Series C Preferred Stock is the greater of (i) $5,000 plus accrued and unpaid dividends, and
(ii) the amount that would be received upon a conversion of the Series C Preferred Stock into the Company’s common stock.
Dividends on the Series C Preferred Stock, which
are typically declared and paid quarterly, accrue at a rate equal to the greater of (i) an annual amount equal to 4.0% of the liquidation
preference per share and (ii) the dividends that would have been paid had such share of Series C Preferred Stock been converted into a
share of common stock on the first day of such quarter, subject to proration in the event the share of Series C Preferred Stock is not
outstanding for the full quarter. Dividends are paid in arrears. Dividends will accumulate and be cumulative from the most recent date
to which dividends had been paid.
Each outstanding share of Series C Preferred Stock
shall convert into 299.2 shares of common stock (the “Conversion Rate”), subject to anti-dilution adjustments described in
the Articles Supplementary of the Series C Preferred Stock, on October 19, 2022 or, upon the election of the Company upon 10 days’
notice to the holders, on or after April 18, 2022.
In the event of the sale of all or substantially
all of the business or assets of the Company (by sale, merger, consolidation or otherwise) or the acquisition by any person of more than
50% of the total economic interests or voting power of all securities of the Company (a “Change of Control”), in each case
prior to the automatic conversion dates set forth above, each holder of Series C Preferred Stock will have the right, prior to consummation
of such transaction, to convert its Series C Preferred Stock into common stock at the Conversion Rate. In addition, in the event of a
change of control (as defined in the Articles Supplementary of the Series C Preferred Stock) of the Advisor or a Change of Control that
is not a Liquidity Event and that is related to the removal of the Advisor, both the Company and the holder shall have the right, prior
to consummation of the transaction, to require the redemption of the Series C Preferred Stock for the liquidation preference. A “Liquidity
Event” is defined as (i) the listing of the Common Stock on a national securities exchange or quotation on an electronic inter-dealer
quotation system; (ii) a merger or business combination involving the Company pursuant to which outstanding shares of Common Stock are
exchanged for securities of another company which are listed on a national securities exchange or quoted on an electronic inter-dealer
quotation system; or (iii) any other transaction or series of transaction that results in all shares of Common Stock being transferred
or exchanged for cash or securities which are listed on a national securities exchange or quoted on an electronic inter-dealer quotation
system.
Holders of the Series C Preferred Stock (voting
as a single class with holders of common stock) are entitled to vote on each matter submitted to a vote of the stockholders of the Company
upon which the holders of common stock are entitled to vote. The number of votes applicable to a share of outstanding Series C Preferred
Stock will be equal to the number of shares of common stock a share of Series C Preferred Stock could have been converted into as of the
record date set for purposes of such stockholder vote (rounded down to the nearest whole number of shares of common stock). In addition,
the affirmative vote of the holders of two-thirds of the outstanding shares of Series C Preferred Stock, voting as a single class with
other shares of parity preferred stock, is required to approve the issuance of any equity securities senior to the Series C Preferred
Stock and to take certain actions materially adverse to the holders of the Series C Preferred Stock.
Series D Preferred Stock
The Series D Preferred Stock is on parity with
the Series C Preferred Stock and Series E Preferred Stock with respect to preference on liquidation and dividend rights. The terms of
the Series D Preferred Stock are substantially the same as the terms of the Series C Preferred Stock, except that the holders of the Series
D Preferred Stock have the option to accelerate the mandatory conversion date, which is October 19, 2022, to a date no earlier than April
19, 2022.
7.50% Series E cumulative redeemable preferred stock
Maturity
The Series E Preferred Stock has no stated maturity
and is not subject to any sinking fund or mandatory redemption. Shares of the Series E Preferred Stock will remain outstanding indefinitely
unless the Company decides to redeem or otherwise repurchase them or they become convertible and are converted as described below under
“—Change of Control Conversion Right.” The Company is not required to set apart for payment the funds to redeem the
Series E Preferred Stock.
Ranking
The Series E Preferred Stock ranks, with respect
to rights to the payment of dividends and the distribution of assets upon its liquidation, dissolution or winding up:
| (1) | senior to all classes or series of our common stock, of Series F Preferred Stock and to all other equity securities issued by the
Company other than equity securities referred to in clauses (2) and (3) below; |
| (2) | on a parity with all Series C Preferred Stock, Series D Preferred Stock and all other equity securities issued by the Company with
terms specifically providing that those equity securities rank on a parity with the Series E Preferred Stock, with respect to rights to
the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up; |
| (3) | junior to all equity securities issued by the Company with terms specifically providing that those equity securities rank senior to
the Series E Preferred Stock with respect to rights to the payment of dividends and the distribution of assets upon its liquidation, dissolution
or winding up (please see the section entitled “—Limited Voting Rights” below); and |
| (4) | effectively junior to all of the Company’s existing and future indebtedness (including indebtedness convertible to its common
stock or preferred stock, if any) and to the indebtedness of its existing subsidiaries and any future subsidiaries. |
Dividends
Holders of shares of the Series E Preferred Stock
are entitled to receive, when, as and if authorized by our board of directors and declared by the Company, out of funds legally available
for the payment of dividends, cumulative cash dividends at the rate of 7.50% of the $25.00 per share liquidation preference per annum
(equivalent to $1.875 per annum per share). Dividends on the Series E Preferred Stock shall accumulate daily and be cumulative from, and
including, October 15, 2021 and shall be payable quarterly in arrears on the 15th day of each January, April, July and October (each,
a “dividend payment date”) with respect to the immediately preceding dividend period; provided that if any dividend payment
date is not a business day, as defined in the Articles Supplementary for the Series E Preferred Stock, then the dividend which would otherwise
have been payable on that dividend payment date may be paid on the next succeeding business day and no interest, additional dividends
or other sums will accumulate on the amount so payable for the period from and after that dividend payment date to that next succeeding
business day. Any dividend payable on the Series E Preferred Stock, including dividends payable for any partial dividend period, will
be computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends will be payable to holders of record as they
appear in our stock records for the Series E Preferred Stock at the close of business on the applicable record date, which shall be the
last day of the calendar quarter, whether or not a business day, immediately preceding the applicable dividend payment date (each, a “dividend
record date”).
No dividends on shares of the Series E Preferred
Stock shall be authorized by the Board or paid or set apart for payment by the Company at any time when the terms and provisions of any
agreement of the Company, including any agreement relating to its indebtedness, prohibit the authorization, payment or setting apart for
payment thereof or provide that the authorization, payment or setting apart for payment thereof would constitute a breach of the agreement
or a default under the agreement, or if the authorization, payment or setting apart for payment shall be restricted or prohibited by law.
Notwithstanding the foregoing, dividends on the
Series E Preferred Stock will accumulate whether or not the Company has earnings, whether or not there are funds legally available for
the payment of those dividends and whether or not those dividends are declared. No interest, or sum in lieu of interest, will be payable
in respect of any dividend payment or payments on the Series E Preferred Stock which may be in arrears, and holders of the Series E Preferred
Stock will not be entitled to any dividends in excess of full cumulative dividends described above. Any dividend payment made on the Series
E Preferred Stock shall first be credited against the earliest accumulated but unpaid dividend due with respect to those shares.
Unless full cumulative dividends on the Series
E Preferred Stock have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set
apart for payment for all past dividend periods, no dividends (other than in shares of common stock or in shares of any series of preferred
stock that the Company may issue ranking junior to the Series E Preferred Stock as to dividends and upon liquidation) shall be declared
or paid or set apart for payment upon shares of the Company’s common stock or preferred stock that the Company may issue ranking
junior to or on a parity with the Series E Preferred Stock as to dividends or upon liquidation. Nor shall any other distribution be declared
or made upon shares of the Company common stock or preferred stock that the Company may issue ranking junior to or on a parity with the
Series E Preferred Stock as to dividends or upon liquidation. In addition, any shares of the Company’s common stock or preferred
stock that the Company may issue ranking junior to or on a parity with the Series E Preferred Stock as to dividends or upon liquidation
shall not be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking
fund for the redemption of any such shares) by the Company (except by conversion into or exchange for the Company’s other capital
stock that it may issue ranking junior to the Series E Preferred Stock as to dividends and upon liquidation and except for transfers made
pursuant to the provisions of our Charter relating to restrictions on transfer and ownership of its capital stock). The foregoing shall
not, however, prevent the purchase or acquisition by the Company of shares of any class or series of stock pursuant to the provision of
Article V of our Charter relating to restrictions on transfer and ownership or pursuant to a purchase or exchange offer made on the same
terms to holders of all outstanding shares of the Series E Preferred Stock and any preferred stock that the Company may issue ranking
on parity with the Series E Preferred Stock as to dividends or upon liquidation.
When dividends are not paid in full (or a sum sufficient
for such full payment is not so set apart) upon the Series E Preferred Stock and the shares of any other series of preferred stock that
the Company may issue ranking on a parity as to dividends with the Series E Preferred Stock, all dividends declared upon the Series E
Preferred Stock and such other series of preferred stock shall be declared pro rata so that the amount of dividends declared per share
of the Series E Preferred Stock and such other series of preferred stock shall in all cases bear to each other the same ratio that accumulated
dividends per share on the Series E Preferred Stock and such other series of preferred stock (which shall not include any accrual in respect
of unpaid dividends for prior dividend periods if such preferred stock does not have a cumulative dividend) bear to each other. No interest,
or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series E Preferred Stock which
may be in arrears.
Liquidation Preference
In the event of the Company’s voluntary or
involuntary liquidation, dissolution or winding up, the holders of shares Series E Preferred Stock will be entitled to be paid out of
the assets the Company has legally available for distribution to its stockholders, subject to the preferential rights of the holders of
any class or series of its stock the Company may issue ranking senior to the Series E Preferred Stock with respect to the distribution
of assets upon liquidation, dissolution or winding up, a liquidation preference of $25.00 per share, plus an amount equal to any accumulated
and unpaid dividends to, but not including, the date of payment, before any distribution of assets is made to holders of the Company’s
common stock or any other class or series of its stock the Company may issue that ranks junior to the Series E Preferred Stock as to liquidation
rights.
In the event that, upon any such voluntary or involuntary
liquidation, dissolution or winding up, our available assets are insufficient to pay the amount of the liquidating distributions on all
outstanding shares of the Series E Preferred Stock and the corresponding amounts payable on all shares of other classes or series of the
Company’s capital stock that the Company may issue ranking on a parity with the Series E Preferred Stock in the distribution of
assets, then the holders of the Series E Preferred Stock and all other such classes or series of capital stock shall share ratably in
any such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled.
Holders of the Series E Preferred Stock will be
entitled to written notice of any such liquidation no fewer than 30 days and no more than 60 days prior to the payment date. After payment
of the full amount of the liquidating distributions to which they are entitled, the holders of the Series E Preferred Stock will have
no right or claim to any of the Company’s remaining assets. The consolidation or merger of the Company with or into any other corporation,
trust or entity or of any other entity with or into the Company, or the sale, lease, transfer or conveyance of all or substantially all
of the Company’s property or business, shall not be deemed to constitute a liquidation, dissolution or winding up of the Company
(although such events may give rise to the special optional redemption and contingent conversion rights described below).
In determining whether a distribution (other than
upon voluntary or involuntary liquidation), by dividend, redemption or other acquisition of shares of stock of the Company or otherwise,
is permitted under the MGCL, amounts that would be needed, if the Company were to be dissolved at the time of distribution, to satisfy
the preferential rights upon dissolution of holders of shares of the Series E Preferred Stock shall not be added to our total liabilities.
Redemption
As s provided in our Charter, the Company may purchase
or redeem shares of the Series E Preferred Stock in order to preserve its qualification as a REIT. Please see the section entitled “Restrictions
on Ownership and Transfer.”
Optional Redemption. The Company may, at
its option, upon not less than 30 nor more than 60 days’ written notice, redeem the Series E Preferred Stock, in whole or in part,
at any time or from time to time, for cash at a redemption price of $25.00 per share, plus any accumulated and unpaid dividends thereon
to, but not including, the date fixed for redemption.
Special Optional Redemption Upon Change of Control.
Upon the occurrence of a Change of Control, the Company may, at its option, upon not less than 30 nor more than 60 days’ written
notice, redeem the Series E Preferred Stock, in whole or in part, within 120 days after the first date on which such Change of Control
occurred, for cash at a redemption price of $25.00 per share, plus any accumulated and unpaid dividends thereon to, but not including,
the date fixed for redemption. If, prior to the Change of Control Conversion Date, the Company has provided notice of its election to
redeem some or all of the shares of Series E Preferred Stock (whether pursuant to our optional redemption right described above under
“—Optional Redemption” or this special optional redemption right), the holders of Series E Preferred Stock will not
have the Change of Control Conversion Right (as defined below) described below under “—Change of Control Conversion Right”
with respect to the shares called for redemption.
A “Change of Control” is deemed to
occur when, after the original issuance of the Series E Preferred Stock, the following have occurred and are continuing:
| · | the acquisition by any person, including any syndicate or group deemed to be a “person” under
Section 13(d)(3) of the Exchange Act, of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition
transaction or series of purchases, mergers or other acquisition transactions of the Company’s stock entitling that person to exercise
more than 50% of the total voting power of all our stock entitled to vote generally in the election of the Company’s directors (except
that such person will be deemed to have beneficial ownership of all securities that such person has the right to acquire, whether such
right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition); and |
| · | following the closing of any transaction referred to in the bullet point above, neither the Company nor
the acquiring or surviving entity has a class of common securities (or American Depositary Receipts representing such securities) listed
on the NYSE, the NYSE American or the Nasdaq, or listed or quoted on an exchange or quotation system that is a successor to the NYSE,
the NYSE American or Nasdaq. |
Redemption Procedures. In the event the
Company elects to redeem Series E Preferred Stock, the notice of redemption will be mailed to each holder of record of the Series E Preferred
Stock called for redemption at such holder’s address as it appears on our stock transfer records and will state the following:
| · | the number of shares of the Series E Preferred Stock to be redeemed; |
| · | the place or places where certificates (if any) for the Series E Preferred Stock are to be surrendered
for payment of the redemption price; |
| · | that dividends on the shares to be redeemed will cease to accumulate on the redemption date; |
| · | whether such redemption is being made pursuant to the provisions described above under “—Optional
Redemption” or “—Special Optional Redemption Upon Change of Control”; |
| · | if applicable, that such redemption is being made in connection with a Change of Control and, in that
case, a brief description of the transaction or transactions constituting such Change of Control; and |
| · | if such redemption is being made in connection with a Change of Control, that the holders of the shares
of the Series E Preferred Stock being so called for redemption will not be able to tender such shares of the Series E Preferred Stock
for conversion in connection with the Change of Control and that each share of the Series E Preferred Stock tendered for conversion that
is called, prior to the Change of Control Conversion Date (as defined below), for redemption will be redeemed on the related date of redemption
instead of converted on the Change of Control Conversion Date. |
If less than all of the Series E Preferred Stock
held by any holder is to be redeemed, the notice mailed to such holder shall also specify the number of shares of the Series E Preferred
Stock held by such holder to be redeemed. No failure to give such notice or any defect thereto or in the mailing thereof shall affect
the validity of the proceedings for the redemption of any shares of the Series E Preferred Stock, except as to the holder to whom notice
was defective or not given.
Holders of shares of the Series E Preferred Stock
to be redeemed shall surrender the Series E Preferred Stock at the place designated in the notice of redemption and shall be entitled
to the redemption price and any accumulated and unpaid dividends payable upon the redemption following the surrender. If notice of redemption
of any shares of the Series E Preferred Stock has been given and if the Company has irrevocably set apart for payment the funds necessary
for redemption in trust for the benefit of the holders of the shares of the Series E Preferred Stock so called for redemption, then from
and after the redemption date (unless default shall be made by the Company in providing for the payment of the redemption price plus accumulated
and unpaid dividends, if any), dividends will cease to accumulate on those shares of the Series E Preferred Stock, those shares of the
Series E Preferred Stock shall no longer be deemed outstanding and all rights of the holders of those shares will terminate, except the
right to receive the redemption price plus accumulated and unpaid dividends, if any, payable upon redemption. If any redemption date is
not a business day, then the redemption price and accumulated and unpaid dividends, if any, payable upon redemption may be paid on the
next business day and no interest, additional dividends or other sums will accumulate on the amount payable for the period from and after
that redemption date to that next business day. If less than all of the outstanding Series E Preferred Stock is to be redeemed, the Series
E Preferred Stock to be redeemed shall be selected pro rata (as nearly as may be practicable without creating fractional shares) or by
any other equitable method the Company determines but that will not result in the automatic transfer of any shares of the Series E Preferred
Stock to a trust as described under “—Restrictions on Ownership and Transfer.”
Immediately prior to any redemption of the Series
E Preferred Stock, the Company shall pay, in cash, any accumulated and unpaid dividends to, but not including, the redemption date, unless
a redemption date falls after a dividend record date and prior to the corresponding dividend payment date, in which case each holder of
the Series E Preferred Stock at the close of business on such dividend record date shall be entitled to the dividend payable on such shares
on the corresponding dividend payment date notwithstanding the redemption of such shares before such dividend payment date. Except as
provided above, the Company will make no payment or allowance for unpaid dividends, whether or not in arrears, on shares of the Series
E Preferred Stock to be redeemed.
Unless full cumulative dividends on all shares
of the Series E Preferred Stock shall have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment
thereof has been or contemporaneously is set apart for payment for all past dividend periods, no shares of the Series E Preferred Stock
shall be redeemed unless all outstanding shares of the Series E Preferred Stock are simultaneously redeemed, and the Company shall not
purchase or otherwise acquire directly or indirectly any shares of the Series E Preferred Stock (except by exchanging it for our capital
stock ranking junior to the Series E Preferred Stock as to dividends and upon liquidation); provided, however, that the foregoing shall
not prevent the purchase or acquisition by the Company of shares of the Series E Preferred Stock to preserve its REIT status or pursuant
to a purchase or exchange offer made on the same terms to holders of all outstanding shares of the Series E Preferred Stock.
Subject to applicable law, the Company may purchase
shares of the Series E Preferred Stock in the open market, by tender or by private agreement. Any shares of the Series E Preferred Stock
that the Company acquires may be retired and re-classified as authorized but unissued shares of preferred stock, without designation as
to class or series, and may thereafter be reissued as any class or series of preferred stock.
Change of Control Conversion Right
Upon the occurrence of a Change of Control, each
holder of the Series E Preferred Stock will have the right (unless, prior to the Change of Control Conversion Date, the Company has provided
notice of its election to redeem some or all of the shares of the Series E Preferred Stock held by such holder as described above under
“—Redemption—Optional Redemption” or “—Redemption—Special Optional Redemption Upon Change of
Control,” in which case such holder will have the right only with respect to shares of the Series E Preferred Stock that are not
called for redemption) to convert some or all of the shares of the Series E Preferred Stock held by such holder (the “Change of
Control Conversion Right”) on the Change of Control Conversion Date into a number of shares of the Company’s common stock
per share of the Series E Preferred Stock (the “common stock Conversion Consideration”) equal to the lesser of:
| · | (i) the quotient obtained by dividing (x) the sum of the $25.00 liquidation preference per share of the
Series E Preferred Stock plus the amount of any accumulated and unpaid dividends thereon to, but not including, the Change of Control
Conversion Date (unless the Change of Control Conversion Date is after a dividend record date and prior to the corresponding dividend
payment date for the Series E Preferred Stock, in which case no additional amount for such accumulated and unpaid dividends will be included
in this sum) by (y) the common stock Price, as defined below (such quotient, the “Conversion Rate”); and (ii) 1.44675 (the
“Share Cap”), subject to certain adjustments as described below. |
Except as set forth in the Articles Supplementary
for the Series E Preferred Stock and as otherwise required by law, the persons who are the holders of record of shares of the Series E
Preferred Stock at the close of business on a dividend record date will be entitled to receive the dividend payable on the corresponding
dividend payment date notwithstanding the conversion of those shares after such dividend record date and on or prior to such dividend
payment date and, in such case, the full amount of such dividend shall be paid on such dividend payment date to the persons who were the
holders of record at the close of business on such dividend record date. Except as provided above, the Company will make no allowance
for unpaid dividends that are not in arrears on the shares of the Series E Preferred Stock to be converted.
The Share Cap is subject to pro rata adjustments
for any share splits (including those effected pursuant to a distribution of the Company’s common stock to existing holders of its
common stock), subdivisions or combinations (in each case, a “Share Split”) with respect to our common stock as follows: the
adjusted Share Cap as the result of a Share Split will be the number of shares of the Company’s 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 the Company’s common stock outstanding immediately after giving effect to such Share Split and
the denominator of which is the number of shares of the Company’s common stock outstanding immediately prior to such Share Split.
For the avoidance of doubt, subject to the immediately
succeeding sentence, the aggregate number of shares of the Company’s common stock (or equivalent Alternative Conversion Consideration
(as defined below), as applicable) issuable or deliverable, as applicable, in connection with the exercise of the Change of Control Conversion
Right will not exceed the product of the Share Cap times the aggregate number of shares of the Series E Preferred Stock issued and outstanding
at the Change of Control Conversion Date (or equivalent Alternative Conversion Consideration, as applicable) (the “Exchange Cap”).
The Exchange Cap is subject to pro rata adjustments for any Share Splits on the same basis as the corresponding adjustment to the Share
Cap.
In the case of a Change of Control pursuant to
which our common stock is or will be converted into cash, securities or other property or assets (including any combination thereof) (the
“Alternative Form Consideration”), a holder of the Series E Preferred Stock will receive upon conversion of such shares of
the Series E Preferred Stock, the kind and amount of Alternative Form Consideration which such holder would have owned or been entitled
to receive upon the Change of Control had such holder held a number of shares of the Company’s common stock equal to the common
stock Conversion Consideration immediately prior to the effective time of the Change of Control (the “Alternative Conversion Consideration”);
the common stock Conversion Consideration or the Alternative Conversion Consideration, whichever shall be applicable to a Change of Control,
is referred to as the “Conversion Consideration”).
If the holders of the Company’s common stock
have the opportunity to elect the form of consideration to be received in the Change of Control, the consideration in respect of such
Change of Control will be deemed to be the kind and amount of consideration actually received by holders of a majority of the outstanding
shares of the Company’s common stock that made or voted for such an election (if electing between two types of consideration) or
holders of a plurality of the outstanding shares of the Company’s common stock that made or 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 the
Company’s common stock are subject, including, without limitation, pro rata reductions applicable to any portion of the consideration
payable in such Change of Control.
The Company will not issue fractional shares of
its common stock upon the conversion of the Series E Preferred Stock in connection with a Change of Control. Instead, the Company will
make a cash payment equal to the value of such fractional shares based upon the common stock Price used in determining the common stock
Conversion Consideration for such Change of Control.
Within 15 days following the occurrence of a Change
of Control, provided that the Company has not then exercised its right to redeem all shares of the Series E Preferred Stock pursuant to
the redemption provisions described above, the Company will provide to holders of the Series E Preferred Stock a notice of occurrence
of the Change of Control that describes the resulting Change of Control Conversion Right. This notice will state the following:
| · | the events constituting the Change of Control; |
| · | the date of the Change of Control; |
| · | the last date on which the holders of the Series E Preferred Stock may exercise their Change of Control
Conversion Right; |
| · | the method and period for calculating the Common Stock Price; |
| · | the Change of Control Conversion Date; |
| · | that if, prior to the Change of Control Conversion Date, the Company has provided notice of its election
to redeem all or any shares of the Series E Preferred Stock, holders will not be able to convert the shares of the Series E Preferred
Stock called 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 Conversion Right; |
| · | if applicable, the type and amount of Alternative Conversion Consideration entitled to be received per
share of the Series E Preferred Stock; |
| · | the name and address of the paying agent, transfer agent and conversion agent for the Series E Preferred
Stock; |
| · | the procedures that the holders of the Series E Preferred Stock must follow to exercise the Change of
Control Conversion Right (including procedures for surrendering shares for conversion through the facilities of a Depositary (as defined
below)), including the form of conversion notice to be delivered by such holders as described below; and |
| · | the last date on which holders of the Series E Preferred Stock may withdraw shares surrendered for conversion
and the procedures that such holders must follow to effect such a withdrawal. |
Under such circumstances, the Company also will
issue a press release containing such notice 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), and 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 the Company provides the notice described
above to the holders of the Series E Preferred Stock.
To exercise the Change of Control Conversion Right,
the holders of the Series E Preferred Stock will be required to deliver, on or before the close of business on the Change of Control Conversion
Date, the certificates (if any) representing the shares of the Series E Preferred Stock to be converted, duly endorsed for transfer (or,
in the case of any shares of the Company Series E Preferred Stock held in book-entry form through a Depositary, to deliver, on or before
the close of business on the Change of Control Conversion Date, the shares of the Company Series E Preferred Stock to be converted through
the facilities of such Depositary), together with a written conversion notice in the form provided by the Company, duly completed, to
its transfer agent. The conversion notice must state:
| · | the relevant Change of Control Conversion Date; |
| · | the number of shares of the Series E Preferred Stock to be converted; and |
| · | that the shares of the Series E Preferred Stock are to be converted pursuant to the applicable provisions
of the Series E Preferred Stock. |
The “Change of Control Conversion Date”
is the date the Series E Preferred Stock is to be converted, which will be a business day selected by the Company that is no fewer than
20 days nor more than 35 days after the date on which the Company provides the notice described above to the holders of the Series E Preferred
Stock.
The “Common Stock Price” is (i) if
the consideration to be received in the Change of Control by the holders of the Company’s common stock is solely cash, the amount
of cash consideration per share of its common stock or (ii) if the consideration to be received in the Change of Control by holders of
the Company’s common stock is other than solely cash (x) the average of the closing sale prices per share of the Company common
stock (or, if no closing sale price is reported, the average of the closing bid and ask prices per share or, if more than one in either
case, the average of the average closing bid and the average closing ask prices per share) for the ten consecutive trading days immediately
preceding, but not including, the date on which such Change of Control occurred as reported on the principal U.S. securities exchange
on which our 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 Pink OTC Markets Inc. or similar organization for the ten consecutive trading days immediately preceding, but not
including, the date on which such Change of Control occurred, if our common stock is not then listed for trading on a U.S. securities
exchange.
Holders of the Series E Preferred Stock may withdraw
any notice of exercise of a Change of Control Conversion Right (in whole or in part) by a written notice of withdrawal delivered to our
transfer agent prior to the close of business on the business day prior to the Change of Control Conversion Date. The notice of withdrawal
delivered by any holder must state:
| · | the number of withdrawn shares of the Series E Preferred Stock; |
| · | if certificated Series E Preferred Stock has been surrendered for conversion, the certificate numbers
of the withdrawn shares of the Series E Preferred Stock; and |
| · | the number of shares of the Series E Preferred Stock, if any, which remain subject to the holder’s
conversion notice. |
Notwithstanding the foregoing, if any shares of
the Series E Preferred Stock are held in book-entry form through The Depository Trust Company (“DTC”) or a similar depositary
(each, a “Depositary”), the conversion notice and/or the notice of withdrawal, as applicable, must comply with applicable
procedures, if any, of the applicable Depositary.
Series E Preferred Stock as to which the Change
of Control Conversion Right has been properly exercised and for which the conversion notice has not been properly withdrawn will be converted
into the applicable Conversion Consideration in accordance with the Change of Control Conversion Right on the Change of Control Conversion
Date, unless prior to the Change of Control Conversion Date the Company has provided notice of its election to redeem some or all of the
shares of the Series E Preferred Stock, as described above under “—Redemption—Optional Redemption” or “—Redemption—Special
Optional Redemption Upon Change of Control,” in which case only the shares of the Series E Preferred Stock properly surrendered
for conversion and not properly withdrawn that are not called for redemption will be converted as aforesaid. If the Company elects to
redeem shares of the Series E Preferred Stock that would otherwise be converted into the applicable Conversion Consideration on a Change
of Control Conversion Date, such shares of the Series E Preferred Stock will not be so converted and the holders of such shares will be
entitled to receive on the applicable redemption date the redemption price described above under “—Redemption—Optional
Redemption” or “—Redemption—Special Optional Redemption Upon Change of Control,” as applicable.
The Company will deliver all securities, cash and
any other property owing upon conversion no later than the third business day following the Change of Control Conversion Date. Notwithstanding
the foregoing, the persons entitled to receive any shares of the Company’s common stock or other securities delivered on conversion
will be deemed to have become the holders of record thereof as of the Change of Control Conversion Date.
In connection with the exercise of any Change of
Control Conversion Right, the Company will comply with all federal and state securities laws and stock exchange rules in connection with
any conversion of shares of the Series E Preferred Stock into shares of the Company’s common stock or other property. Notwithstanding
any other provision of the Series E Preferred Stock, no holder of the Series E Preferred Stock will be entitled to convert such shares
of the Series E Preferred Stock into shares of the Company’s common stock to the extent that receipt of such shares of common stock
would cause such holder (or any other person) to exceed the applicable share ownership limitations contained in our Charter. Please see
the section entitled “Restrictions on Ownership and Transfer.”
The Change of Control conversion feature may make
it more difficult for a third party to acquire the Company or discourage a party from acquiring it.
Except as provided above in connection with a Change
of Control, the Series E Preferred Stock is not convertible into or exchangeable for any other securities or property.
Limited Voting Rights
Holders of the Series E Preferred Stock do not
have any voting rights, except as set forth below.
Whenever dividends on any shares of the Series
E Preferred Stock are in arrears for six or more quarterly dividend periods, whether or not consecutive, the number of directors constituting
the Board will be automatically increased by two (if not already increased by two by reason of the election of directors by the holders
of any other class or series of the Company’s preferred stock the Company has issued or may issue upon which like voting rights
have been conferred and are exercisable and with which the Series E Preferred Stock is entitled to vote as a class with respect to the
election of those two directors), and the holders of the Series E Preferred Stock, voting as a single class with all other classes or
series of preferred stock the Company has issued or may issue upon which like voting rights have been conferred and are exercisable and
which are entitled to vote as a class with the Series E Preferred Stock in the election of those two directors will be entitled to vote
for the election of those two additional directors at a special meeting called by the Company at the request of the holders of record
of at least 25% of the outstanding shares of the Series E Preferred Stock or by the holders of any other class or series of preferred
stock upon which like voting rights have been conferred and are exercisable and which are entitled to vote as a class with the Series
E Preferred Stock in the election of those two directors (unless the request is received less than 90 days before the date fixed for the
next annual or special meeting of stockholders, in which case, such vote will be held at the earlier of the next annual or special meeting
of stockholders), and at each subsequent annual meeting until all dividends accumulated on the Series E Preferred Stock for all past dividend
periods and the then current dividend period shall have been fully paid or declared and a sum sufficient for the payment thereof set apart
for payment. In that case, the right of holders of the Series E Preferred Stock to elect any directors will cease and, unless there are
other classes or series of the Company’s preferred stock upon which like voting rights have been conferred and are exercisable,
the term of office of any directors elected by holders of the Series E Preferred Stock shall immediately terminate and the number of directors
constituting the board of directors shall be reduced accordingly. For the avoidance of doubt, in no event shall the total number of directors
elected by holders of the Series E Preferred Stock (voting together as a separate class with all other classes or series of preferred
stock the Company may issue upon which like voting rights have been conferred and are exercisable and which are entitled to vote as a
class with the Series E Preferred Stock in the election of such directors) pursuant to these voting rights exceed two.
If a special meeting is not called by the Company
within 30 days after request from the holders of the Series E Preferred Stock as described above, then the holders of record of at least
25% of the outstanding Series E Preferred Stock may designate a holder to call the meeting at our expense.
On each matter on which holders of the Series E
Preferred Stock are entitled to vote, each share of the Series E Preferred Stock will be entitled to one vote, except that when shares
of any other class or series of the Company’s preferred stock have the right to vote with the Series E Preferred Stock as a single
class on any matter, the Series E Preferred Stock and the shares of each such other class or series will have one vote for each $25.00
of liquidation preference (excluding accumulated dividends).
So long as any shares of the Series E Preferred
Stock remain outstanding, the Company will not, without the affirmative vote or consent of the holders of at least two-thirds of the shares
of the Series E Preferred Stock outstanding at the time, voting together as a single class with all series of preferred stock ranking
on a parity with the Series E Preferred Stock that the Company may issue and upon which like voting rights have been conferred and are
exercisable, given in person or by proxy, either in writing or at a meeting, (a) authorize or create, or increase the authorized or issued
amount of, any class or series of capital stock ranking senior to the Series E Preferred Stock with respect to payment of dividends or
the distribution of assets upon liquidation, dissolution or winding up or reclassify any of the Company’s authorized capital stock
into such shares, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase any such
shares; or (b) amend, alter or repeal the provisions of our Charter, whether by merger, consolidation or otherwise, so as to materially
and adversely affect any right, preference, privilege or voting power of the Series E Preferred Stock (each, an “Event”);
provided, however, with respect to the occurrence of any Event set forth in (b) above, so long as the Series E Preferred Stock remains
outstanding with the terms thereof materially unchanged, taking into account that, upon an occurrence of an Event, the Company may not
be the surviving entity, the occurrence of any such Event shall not be deemed to materially and adversely affect such rights, preferences,
privileges or voting power of holders of the Series E Preferred Stock and, provided further, that any increase in the amount of the authorized
common stock or preferred stock, including the Series E Preferred Stock, or the creation or issuance of any additional Series E Preferred
Stock or other series of preferred stock that the Company may issue, or any increase in the amount of authorized shares of such series,
in each case ranking on a parity with or junior to the Series E Preferred Stock that the Company may issue with respect to payment of
dividends or the distribution of assets upon liquidation, dissolution or winding up, shall not be deemed to materially and adversely affect
such rights, preferences, privileges or voting powers. Notwithstanding the foregoing, holders of any parity preferred stock shall not
be entitled to vote together as a class with the holders of the Series E Preferred Stock on any amendment, alteration or repeal of our
Charter unless such action affects the holders of the Series E Preferred Stock and such parity preferred stock equally.
The foregoing voting provisions will not apply
if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding
shares of the Series E Preferred Stock shall have been redeemed or called for redemption upon proper notice and sufficient funds shall
have been deposited in trust to effect such redemption.
Except as expressly stated in the Articles Supplementary
for the Series E Preferred Stock, the Series E Preferred Stock does not have any relative, participating, optional or other special voting
rights or powers and the consent of the holders thereof shall not be required for the taking of any corporate action.
Information Rights
During any period in which the Company is not subject
to Section 13 or 15(d) of the Exchange Act and any shares of the Series E Preferred Stock are outstanding, the Company will use its best
efforts to (i) transmit by mail (or other permissible means under the Exchange Act) to all holders of the Series E Preferred Stock, as
their names and addresses appear on our record books and without cost to such holders, copies of the annual reports on Form 10-K and quarterly
reports on Form 10-Q that the Company would have been required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act
if the Company were subject thereto (other than any exhibits that would have been required) and (ii) promptly, upon request, supply copies
of such reports to any holders or prospective holder of the Series E Preferred Stock. the Company will use its best effort to mail (or
otherwise provide) the information to the holders of the Series E Preferred Stock within 15 days after the respective dates by which a
periodic report on Form 10-K or Form 10-Q, as the case may be, in respect of such information would have been required to be filed with
the SEC, if the Company were subject to Section 13 or 15(d) of the Exchange Act, in each case, based on the dates on which the Company
would be required to file such periodic reports if the Company were a “non-accelerated filer” within the meaning of the Exchange
Act.
Preemptive Rights
No holders of the Series E Preferred Stock, as
holders of the Series E Preferred Stock, have any preemptive rights to purchase or subscribe for our common stock or any of its other
securities.
Book-Entry Procedures
DTC will act as securities depositary for the Series
E Preferred Stock. The Company will issue one or more fully registered global securities certificates in the name of DTC’s nominee,
Cede & Co. These certificates will represent the total aggregate number of shares of the Series E Preferred Stock. The Company will
deposit these certificates with DTC or a custodian appointed by DTC. The Company will not issue certificates to holders of the Series
E Preferred Stock for shares of the Series E Preferred Stock, unless DTC’s services are discontinued as described below.
Title to book-entry interests in the Series E Preferred
Stock will pass by book-entry registration of the transfer within the records of DTC in accordance with its procedures. Book-entry interests
in the securities may be transferred within DTC in accordance with procedures established for these purposes by DTC. Each person owning
a beneficial interest in shares of the Series E Preferred Stock must rely on the procedures of DTC and the participant through which such
person owns its interest to exercise its rights as a holder of the Series E Preferred Stock.
DTC has advised the Company that it is a limited-purpose
trust company organized under the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within
the meaning of the New York Uniform Commercial Code and a “clearing agency” registered under the provisions of Section 17A
of the Exchange Act. DTC holds securities that its participants (“Direct Participants”) deposit with DTC. DTC also facilitates
the settlement among Direct Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Direct Participants’ accounts, thereby eliminating the need for physical movement of securities
certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other
organizations. Access to the DTC system is also available to others such as securities brokers and dealers, including the underwriters,
banks and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly
(“Indirect Participants”). The rules applicable to DTC and its Direct and Indirect Participants are on file with the SEC.
When shares of the Series E Preferred Stock are
purchased within the DTC system, the purchase must be by or through a Direct Participant. The Direct Participant will receive a credit
for the Series E Preferred Stock on DTC’s records. Holders of the Series E Preferred Stock will be considered to be the “beneficial
owner” of the Series E Preferred Stock. Such beneficial ownership interest will be recorded on the Direct and Indirect Participants’
records, but DTC will have no knowledge of individual ownership. DTC’s records reflect only the identity of the Direct Participants
to whose accounts shares of the Series E Preferred Stock are credited.
Holders of the Series E Preferred Stock will not
receive written confirmation from DTC of the purchase of the Series E Preferred Stock. The Direct or Indirect Participants through whom
the Series E Preferred Stock were purchased should send such holders written confirmations providing details of the transactions, as well
as periodic statements of the holdings. The Direct and Indirect Participants are responsible for keeping an accurate account of the holdings
of their customers.
Transfers of ownership interests held through Direct
and Indirect Participants will be accomplished by entries on the books of Direct and Indirect Participants acting on behalf of the beneficial
owners.
Conveyance of notices and other communications
by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to
beneficial owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect
from time to time.
The Company understands that, under DTC’s
existing practices, in the event that the Company requests any action of the holders, or an owner of a beneficial interest in a global
security, such as a holder of the Series E Preferred Stock, desires to take any action which a holder is entitled to take under our Charter
(including the Articles Supplementary for the Series E Preferred Stock), DTC would authorize the Direct Participants holding the relevant
shares to take such action, and those Direct Participants and any Indirect Participants would authorize beneficial owners owning through
those Direct and Indirect Participants to take such action or would otherwise act upon the instructions of beneficial owners owning through
them.
Any redemption notices with respect to the Series
E Preferred Stock will be sent to Cede & Co. If less than all of the outstanding shares of the Series E Preferred Stock are being
redeemed, DTC will reduce each Direct Participant’s holdings of shares of the Series E Preferred Stock in accordance with its procedures.
In those instances where a vote is required, neither
DTC nor Cede & Co. itself will consent or vote with respect to the shares of the Series E Preferred Stock. Under its usual procedures,
DTC would mail an omnibus proxy to the Company as soon as possible after the record date. The omnibus proxy assigns Cede & Co.’s
consenting or voting rights to those Direct Participants whose accounts the shares of the Series E Preferred Stock are credited to on
the record date, which are identified in a listing attached to the omnibus proxy.
Dividends on the Series E Preferred Stock will
be made directly to DTC’s nominee (or its successor, if applicable). DTC’s practice is to credit participants’ accounts
on the relevant payment date in accordance with their respective holdings shown on DTC’s records unless DTC has reason to believe
that it will not receive payment on that payment date.
Payments by Direct and Indirect Participants to
beneficial owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts
of customers in bearer form or registered in “street name.” These payments will be the responsibility of the participant and
not of DTC, the Company or any agent of the Company.
DTC may discontinue providing its services as securities
depositary with respect to the Series E Preferred Stock at any time by giving reasonable notice to the Company. Additionally, the Company
may decide to discontinue the book-entry only system of transfers with respect to the Series E Preferred Stock. In that event, the Company
will print and deliver certificates in fully registered form for the Series E Preferred Stock. If DTC notifies the Company that it is
unwilling to continue as securities depositary, or it is unable to continue or ceases to be a clearing agency registered under the Exchange
Act and a successor depositary is not appointed by the Company within 90 days after receiving such notice or becoming aware that DTC is
no longer so registered, the Company will issue the Series E Preferred Stock in definitive form, at our expense, upon registration of
transfer of, or in exchange for, such global security.
According to DTC, the foregoing information with
respect to DTC has been provided to the financial community for informational purposes only and is not intended to serve as a representation,
warranty or contract modification of any kind.
Global Clearance and Settlement Procedures
Secondary market trading among DTC’s Participants
will occur in the ordinary way in accordance with DTC’s rules and will be settled in immediately available funds using DTC’s
Same-Day Funds Settlement System.
Listing
The Series E Preferred Stock is listed on the New
York Stock Exchange under the symbol “FBRT PRE”.
Transfer Agent and Registrar
The transfer agent and registrar for the Series
E Preferred Stock is DST Systems, Inc.
Series F Preferred Stock
The Series F Preferred Stock ranks junior to all
other outstanding classes of the Company’s preferred stock with respect to priority in dividends and in the distribution of assets
in the event of the liquidation, dissolution or winding-up of the Company. The liquidation preference of each share of Series F Preferred
Stock is $2.00.
Dividends on the Series F Preferred Stock are equal
to, and will be paid at the same time as, dividends that are authorized and declared on the Company’s common stock. The Series F
Preferred Stock ranks senior to the Company’s common stock with respect to the distribution of assets upon any liquidation, dissolution
or winding up of the Company (other than a liquidation, dissolution or winding up of the Company that results in the automatic conversion
of such Series F Preferred Stock into common stock).
Each share (or fractional share) of Series F Preferred
Stock shall automatically convert into one share of Company common stock (or equivalent fractional share, as applicable) upon the earlier
of (i) April 18, 2022, (ii) three business days prior to a liquidation, dissolution or winding up of the Company in the event that the
Company’s board of directors determines (which determination will be conclusive) that the liquidating distribution per share in
respect of such converted share of Series F Preferred Stock (or fractional share) would be in an amount in excess of the liquidation preference
of $2.00 per share or (iii) immediately prior to the effective time of a qualifying change of control, provided that the consideration
per share payable in connection with such change in control in respect of such converted share of Series F Preferred Stock (or fractional
share) is an amount in excess of the liquidation preference of $2.00.
The Series F Preferred Stock has no stated maturity
and is not redeemable.
Holders of Series F Preferred Stock (voting as
a single class with holders of Company common stock and other series of Company equity securities entitled to vote with the common stockholders)
are entitled to vote on each matter submitted to a vote of the stockholders of the Company upon which the holders of common stock are
entitled to vote. The number of votes applicable to a share of outstanding Series F Preferred Stock will be equal to the number of shares
of common stock a share of Series F Preferred Stock could have been converted into as of the record date set for purposes of such stockholder
vote (rounded down to the nearest whole number of shares of common stock). In addition, the affirmative vote of the holders of two-thirds
of the outstanding shares of Series F Preferred Stock is required to take certain actions materially adverse to the holders of the Series
F Preferred Stock.
DESCRIPTION OF DEPOSITARY SHARES
The following description contains general terms
and provisions of the depositary shares to which any prospectus supplement may relate. The particular terms of the depositary shares offered
by any prospectus supplement and the extent, if any, to which such general provisions may not apply to the depositary shares so offered
will be described in the prospectus supplement relating to such securities. For more information, please refer to the provisions of the
deposit agreement we will enter into with a depositary to be selected, our charter and the form of articles supplementary for the applicable
series of preferred stock.
General
We may, at our option, elect to offer depositary
shares rather than full shares of preferred stock. In the event such option is exercised, each of the depositary shares will represent
ownership of and entitlement to all rights and preferences of a fraction of a share of preferred stock of a specified series (including
dividend, voting, redemption and liquidation rights). The applicable fraction will be specified in a prospectus supplement. The shares
of preferred stock represented by the depositary shares will be deposited with a depositary named in the applicable prospectus supplement,
under a deposit agreement, among the Company, the depositary and the holders of the certificates evidencing depositary shares, or “depositary
receipts.” Depositary receipts will be delivered to those persons purchasing depositary shares in the offering. The depositary will
be the transfer agent, registrar and dividend disbursing agent for the depositary shares. Holders of depositary receipts agree to be bound
by the deposit agreement, which requires holders to take certain actions such as filing proof of residence and paying certain charges.
Dividends
The depositary will distribute all cash dividends
or other cash distributions received in respect of the series of preferred stock represented by the depositary shares to the record holders
of depositary receipts in proportion to the number of depositary shares owned by such holders on the relevant record date, which will
be the same date as the record date fixed by the Company for the applicable series of preferred stock. The depositary, however, will distribute
only such amount as can be distributed without attributing to any depositary share a fraction of one cent, and any balance not so distributed
will be added to and treated as part of the next sum received by the depositary for distribution to record holders of depositary receipts
then outstanding.
In the event of a distribution other than in cash,
the depositary will distribute property received by it to the record holders of depositary receipts entitled thereto, in proportion, as
nearly as may be practicable, to the number of depositary shares owned by such holders on the relevant record date, unless the depositary
determines (after consultation with the Company) that it is not feasible to make such distribution, in which case the depositary may (with
the approval of the Company) adopt any other method for such distribution as it deems equitable and appropriate, including the sale of
such property (at such place or places and upon such terms as it may deem equitable and appropriate) and distribution of the net proceeds
from such sale to such holders.
Liquidation Preference
In the event of the liquidation, dissolution or
winding up of the affairs of the Company, whether voluntary or involuntary, the holders of each depositary share will be entitled to the
fraction of the liquidation preference accorded each share of the applicable series of preferred stock as set forth in the prospectus
supplement.
Redemption
If the series of preferred stock represented by
the applicable series of depositary shares is redeemable, such depositary shares will be redeemed from the proceeds received by the depositary
resulting from the redemption, in whole or in part, of preferred stock held by the depositary. Whenever we redeem any preferred stock
held by the depositary, the depositary will redeem as of the same redemption date the number of depositary shares representing the preferred
stock so redeemed. The depositary will mail the notice of redemption promptly upon receipt of such notice from us and not less than 30
nor more than 60 days prior to the date fixed for redemption of the preferred stock and the depositary shares to the record holders of
the depositary receipts.
Voting
Promptly upon receipt of notice of any meeting
at which the holders of the series of preferred stock represented by the applicable series of depositary shares are entitled to vote,
the depositary will mail the information contained in such notice of meeting to the record holders of the depositary receipts as of the
record date for such meeting. Each such record holder of depositary receipts will be entitled to instruct the depositary as to the exercise
of the voting rights pertaining to the number of shares of preferred stock represented by such record holder’s depositary shares.
The depositary will endeavor, insofar as practicable, to vote such preferred stock represented by such depositary shares in accordance
with such instructions, and we will agree to take all action which may be deemed necessary by the depositary in order to enable the depositary
to do so. The depositary will abstain from voting any of the preferred stock to the extent that it does not receive specific instructions
from the holders of depositary receipts.
Withdrawal of Preferred Stock
Upon surrender of depositary receipts at the principal
office of the depositary, upon payment of any unpaid amount due the depositary, and subject to the terms of the deposit agreement, the
owner of the depositary shares evidenced thereby is entitled to delivery of the number of whole shares of preferred stock and all money
and other property, if any, represented by such depositary shares. Partial shares of preferred stock will not be issued. If the depositary
receipts delivered by the holder evidence a number of depositary shares in excess of the number of depositary shares representing the
number of whole shares of preferred stock to be withdrawn, the depositary will deliver to such holder at the same time a new depositary
receipt evidencing such excess number of depositary shares. Holders of preferred stock thus withdrawn will not thereafter be entitled
to deposit such shares under the deposit agreement or to receive depositary receipts evidencing depositary shares therefor.
Amendment and Termination of Deposit Agreement
The form of depositary receipt evidencing the depositary
shares and any provision of the deposit agreement may at any time and from time to time be amended by agreement between the Company and
the depositary. However, any amendment which materially and adversely alters the rights of the holders (other than any change in fees)
of depositary shares will not be effective unless such amendment has been approved by at least a majority of the depositary shares then
outstanding. No such amendment may impair the right, subject to the terms of the deposit agreement, of any owner of any depositary shares
to surrender the depositary receipt evidencing such depositary shares with instructions to the depositary to deliver to the holder of
the preferred stock and all money and other property, if any, represented thereby, except in order to comply with mandatory provisions
of applicable law.
The deposit agreement will be permitted to be terminated
by the Company upon not less than 30 days prior written notice to the applicable depositary if (i) such termination is necessary
to preserve our qualification as a REIT or (ii) a majority of each series of preferred stock affected by such termination consents
to such termination, whereupon such depositary will be required to deliver or make available to each holder of depositary receipts, upon
surrender of the depositary receipts held by such holder, such number of whole or fractional shares of preferred stock as are represented
by the depositary shares evidenced by such depositary receipts together with any other property held by such depositary with respect to
such depositary receipts. We will agree that if the deposit agreement is terminated to preserve our qualification as a REIT, then we will
use our best efforts to list the preferred stock issued upon surrender of the related depositary shares on a national securities exchange.
In addition, the deposit agreement will automatically terminate if (i) all outstanding depositary shares thereunder shall have been
redeemed, (ii) there shall have been a final distribution in respect of the related preferred stock in connection with any liquidation,
dissolution or winding-up of the Company and such distribution shall have been distributed to the holders of depositary receipts
evidencing the depositary shares representing such preferred stock or (iii) each share of the related preferred stock shall have
been converted into stock of the Company not so represented by depositary shares.
Charges of Depositary
We will pay all transfer and other taxes and governmental
charges arising solely from the existence of the depositary arrangements. We will pay charges of the depositary in connection with the
initial deposit of the preferred stock and initial issuance of the depositary shares, and redemption of the preferred stock and all withdrawals
of preferred stock by owners of depositary shares. Holders of depositary receipts will pay transfer, income and other taxes and governmental
charges and certain other charges as are provided in the deposit agreement to be for their accounts. In certain circumstances, the depositary
may refuse to transfer depositary shares, may withhold dividends and distributions and sell the depositary shares evidenced by such depositary
receipt if such charges are not paid.
Miscellaneous
The depositary will forward to the holders of depositary
receipts all reports and communications from us which are delivered to the depositary and which we are required to furnish to the holders
of the preferred stock. In addition, the depositary will make available for inspection by holders of depositary receipts at the principal
office of the depositary, and at such other places as it may from time to time deem advisable, any reports and communications received
from us which are received by the depositary as the holder of preferred stock.
Neither the depositary nor the Company assumes
any obligation or will be subject to any liability under the deposit agreement to holders of depositary receipts other than for its gross
negligence or willful misconduct. Neither the depositary nor the Company will be liable if it is prevented or delayed by law or any circumstance
beyond its control in performing its obligations under the deposit agreement. The obligations of the Company and the depositary under
the deposit agreement will be limited to performance in good faith of their duties thereunder, and they will not be obligated to prosecute
or defend any legal proceeding in respect of any depositary shares or preferred stock unless satisfactory indemnity is furnished. The
Company and the depositary may rely on written advice of counsel or accountants, on information provided by holders of the depositary
receipts or other persons believed in good faith to be competent to give such information and on documents believed to be genuine and
to have been signed or presented by the proper party or parties.
In the event the depositary shall receive conflicting
claims, requests or instructions from any holders of depositary receipts, on the one hand, and the Company, on the other hand, the depositary
shall be entitled to act on such claims, requests or instructions received from the Company.
Resignation and Removal of Depositary
The depositary may resign at any time by delivering
to us notice of its election to do so, and we may at any time remove the depositary, any such resignation or removal to take effect upon
the appointment of a successor depositary and its acceptance of such appointment. Such successor depositary must be appointed within 60
days after delivery of the notice for resignation or removal and must be a bank or trust company having its principal office in the United
States of America and having a combined capital and surplus of at least $150,000,000.
DESCRIPTION OF WARRANTS
The following description of the terms of the
warrants sets forth certain general terms and provisions of the warrants to which any prospectus supplement may relate. We may issue warrants
for the purchase of the securities described in this prospectus. Warrants may be issued independently or together with any offered securities
and may be attached to or separate from such securities. Each series of warrants will be issued under one or more warrant agreements we
will enter into with a warrant agent specified in the agreement. The warrant agent will act solely as our agent in connection with the
warrants of that series and will not assume any obligation or relationship of agency or trust for or with any holders or beneficial owners
of warrants. The following summary of certain provisions of the warrants does not purport to be complete and is subject to, and qualified
in its entirety by reference to, the provisions of the warrant agreement that will be filed with the SEC in connection with an offering
of our warrants.
A prospectus supplement relating to any series
of warrants being offered will include specific terms relating to the offering. They will include, where applicable:
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the title of the warrants; |
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the aggregate number of warrants; |
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the price or prices at which the warrants will be issued; |
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the currencies in which the price or prices of the warrants may be payable; |
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the designation, amount and terms of the offered securities purchasable upon exercise of the warrants; |
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the designation and terms of the other offered securities, if any, with which the warrants are issued and the number of warrants issued with the security; |
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if applicable, the date on and after which the warrants and the offered securities purchasable upon exercise of the warrants will be separately transferable; |
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the price or prices at which, and currency or currencies in which, the offered securities purchasable upon exercise of the warrants may be purchased; |
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the date on which the right to exercise the warrants shall commence and the date on which the right shall expire; |
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the effect of any merger, consolidation, sale or other disposition of our business on the warrant agreement and the warrants; |
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the terms of any rights to redeem or call the warrants; |
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any minimum or maximum amount of warrants that may be exercised at any one time; |
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information with respect to book-entry procedures, if any; |
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any listing of warrants on any securities exchange; |
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if appropriate, a discussion of United States federal income tax consequences; and |
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any other material term of the warrants, including terms, procedures and limitations relating to the exchange and exercise of the warrants. |
DESCRIPTION OF SUBSCRIPTION RIGHTS
The following is a general description of the
terms of the subscription rights we may issue from time to time. Particular terms of any subscription rights we offer will be described
in the prospectus supplement relating to such subscription rights.
We may issue subscription rights to purchase our
securities. These subscription rights may be issued independently or together with any other security offered hereby and may or may not
be transferable by the stockholder receiving the subscription rights in such offering. In connection with any offering of subscription
rights, we may enter into a standby arrangement with one or more underwriters or other purchasers pursuant to which the underwriters or
other purchasers may be required to purchase any securities remaining unsubscribed for after such offering.
The applicable prospectus supplement will describe
the specific terms of any offering of subscription rights for which this prospectus is being delivered, including the following:
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the price, if any, for the subscription rights; |
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the exercise price payable for our equity or debt securities upon the exercise of the subscription rights; |
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the number of subscription rights issued to each stockholder; |
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the amount of our securities that may be purchased per each subscription right; |
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the extent to which the subscription rights are transferable; |
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any other terms of the subscription rights, including the terms, procedures and limitations relating to the exchange and exercise of the subscription rights; |
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the date on which the right to exercise the subscription rights shall commence, and the date on which the subscription rights shall expire; |
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the extent to which the subscription rights may include an over-subscription privilege with respect to unsubscribed securities; and |
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if applicable, the material terms of any standby underwriting or purchase arrangement entered into by us in connection with the offering of subscription rights. |
The description in the applicable prospectus supplement
of any subscription rights we offer will not necessarily be complete and will be qualified in its entirety by reference to the applicable
subscription rights certificate or subscription rights agreement, which will be filed with the SEC if we offer subscription rights.
DESCRIPTION OF UNITS
As specified in the applicable prospectus supplement,
we may issue units consisting of one or more shares of common stock, shares of preferred stock, depositary shares, warrants, subscription
rights or any combination of such securities.
The applicable prospectus supplement will specify
the following terms of any units in respect of which this prospectus is being delivered:
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the terms of the units and of any of the common stock, preferred stock, depositary shares, warrants or subscription rights comprising the units, including whether and under what circumstances the securities comprising the units may be held or transferred separately; |
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a description of the terms of any unit agreement governing the units; |
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a description of the provisions for the payment, settlement, transfer or exchange of the units; and |
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whether the units will be issued in fully registered or global form. |
CERTAIN PROVISIONS OF THE MARYLAND GENERAL
CORPORATION LAW AND OUR CHARTER AND BYLAWS
The following summary of certain provisions
of Maryland law and of our charter and bylaws is a summary and is qualified in its entirety by reference to our charter and bylaws, copies
of which are filed as exhibits to the registration statement of which this prospectus forms a part, and by the MGCL. See “Where
To Find Additional Information.”
Our Board of Directors
Our Charter and Bylaws provide that the number
of directors we have may be established only by our board of directors. Currently, we have eight directors. Subject to the terms of any
class or series of preferred stock, vacancies on our board of directors may be filled only by a majority of the remaining directors, even
if the remaining directors do not constitute a quorum, and any director elected to fill a vacancy will hold office for the remainder of
the full term of the directorship in which the vacancy occurred and until his or her successor is duly elected and qualifies.
Each of our directors is elected by our stockholders
to serve until the next annual meeting and until his or her successor is duly elected and qualifies. Holders of shares of common stock
will have no right to cumulative voting in the election of directors. Consequently, at each annual meeting of stockholders, the holders
of a majority of the shares of common stock entitled to vote will be able to elect all of our directors at any annual meeting.
Removal of Directors
Our Charter provides that subject to the rights
of holders of one or more classes or series of Preferred Stock, any director or the entire Board may be removed from office at any time
but only for cause, and then only by the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to
be cast generally in the election of directors. For the purpose of this provision, “cause” shall mean, with respect to any
particular director, conviction of a felony or a final judgment of a court of competent jurisdiction holding that such director caused
demonstrable, material harm to the Company through bad faith or active and deliberate dishonesty.
Restrictions on Business Combinations and Change of Control Transactions
Refer to “Certain Anti-takeover Matters”
below for a discussion of provisions of our Charter and bylaws and Maryland law that may restrict business combinations and change of
control transactions.
Meetings of Stockholders
Pursuant to our Bylaws, a meeting of our stockholders
for the election of directors and the transaction of any business will be held annually on a date and at the time and place set by our
board of directors. The chairman of the board, the president, the chief executive officer, a majority of the board of directors or a majority
of the independent directors (as defined in the Charter) may call a special meeting of the stockholders. Subject to the provisions of
our Bylaws, a special meeting of our stockholders to act on any matter will also be called by our secretary upon the written request of
the stockholders entitled to cast a majority of all the votes entitled to be cast at the meeting containing the information required by
our Bylaws.
Amendment to our Charter and Bylaws
Except for amendments to the provision of our Charter
relating to the vote required to remove a director, and amendments to the vote required to amend these provisions (which must be advised
by our board of directors and approved by the affirmative vote of stockholders entitled to cast not less than two-thirds of all the votes
entitled to be cast on the matter), our Charter generally may be amended only if advised by our board of directors and approved by the
affirmative vote of stockholders entitled to cast a majority of all of the votes entitled to be cast on the matter.
The Board has the exclusive power to adopt, alter
or repeal any provision of our Bylaws and to make new Bylaws.
Advance Notice of Director Nominations and New Business
Our Bylaws provide that, with respect to an annual
meeting of stockholders, nominations of individuals for election to our board of directors and the proposal of business to be considered
by stockholders may be made only (1) pursuant to our notice of the meeting, (2) by or at the direction of our board of directors or (3)
by any stockholder who was a stockholder of record both at the time of giving of notice by the stockholder and at the time of the annual
meeting, who is entitled to vote at the meeting in the election of each individual so nominated or on any such other business and who
has complied with the advance notice provisions set forth in our Bylaws.
With respect to special meetings of stockholders,
only the business specified in our notice of meeting may be brought before the meeting. Nominations of individuals for election to our
board of directors may be made only (1) by or at the direction of our board of directors or (2) provided that the meeting has been called
for the purpose of electing directors, by a stockholder who is entitled to vote at the meeting in the election of such nominee and has
provided notice to us within the time period, and containing the information, specified by the advance notice provisions set forth in
our Bylaws.
Indemnification and Limitation of Directors’ and Officers’
Liability
Maryland law permits a Maryland corporation to
include in its Charter a provision limiting the liability of its directors and officers to the corporation and its stockholders for money
damages except for liability resulting from actual receipt of an improper benefit or profit in money, property or services or active and
deliberate dishonesty established by a final judgment and was material to the cause of action. Our Charter contains a provision that limits
the liability of our directors and officers to the maximum extent permitted by Maryland law.
The MGCL requires us (unless our Charter provides
otherwise, which our Charter does not) to indemnify a director or officer who has been successful, on the merits or otherwise, in the
defense of any proceeding to which he or she is made a party by reason of his or her service in that capacity. The MGCL permits us to
indemnify our present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable
expenses actually incurred by them in connection with any proceeding to which they may be made or threatened to be made a party by reason
of their service in those or other capacities unless it is established that:
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the act or omission of the director or officer was material to the matter giving rise to the proceeding and (1) was committed in bad faith or (2) was the result of active and deliberate dishonesty; |
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the director or officer actually received an improper personal benefit in money, property or services; or |
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in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. |
Under the MGCL, we may not indemnify a director
or officer in a suit by us or in our right in which the director or officer was adjudged liable to us or in a suit in which the director
or officer was adjudged liable on the basis that personal benefit was improperly received. A court may order indemnification if it determines
that the director or officer is fairly and reasonably entitled to indemnification, even though the director or officer did not meet the
prescribed standard of conduct, was adjudged liable to us or was adjudged liable on the basis that personal benefit was improperly received.
However, indemnification for an adverse judgment in a suit by us or in our right, or for a judgment of liability on the basis that personal
benefit was improperly received, is limited to expenses.
In addition, the MGCL permits us to advance reasonable
expenses to a director or officer upon receipt of:
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a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by us; and |
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a written undertaking by the director or officer or on the director’s or officer’s behalf to repay the amount paid or reimbursed by us if it is ultimately determined that the director or officer did not meet the standard of conduct. |
Our Charter authorizes us to obligate ourselves
and our Bylaws obligate us, to the maximum extent permitted by Maryland law in effect from time to time, to indemnify and, without requiring
a preliminary determination of the ultimate entitlement to indemnification, pay or reimburse reasonable expenses in advance of final disposition
of a proceeding to:
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any individual who is a present or former director or officer of the company; or |
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any individual who, while a director or officer of the company and at the request of the company, serves or has served as a director, officer, partner, member, manager or trustee of another corporation, real estate investment trust, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise from and against any claim or liability to which such person may become subject or which such person may incur by reason of his or her service in that capacity. |
Our Charter and Bylaws also permit us to indemnify
and advance expenses to any person who served a predecessor of ours in any of the capacities described above and any employee or agent
of our company or a predecessor of our company.
We have entered into indemnification agreements
with each of our directors and officers that provide for indemnification to the maximum extent permitted by Maryland law.
Insofar as the foregoing provisions permit indemnification
of directors, officers or persons controlling us for liability arising under the Securities Act, we have been informed that, in the opinion
of the SEC, this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
REIT qualification
Our Charter provides that our board of directors
may revoke or otherwise terminate our REIT election, without approval of our stockholders, if it determines that it is no longer in our
best interests to continue to qualify as a REIT.
Certain Anti-takeover Matters
Our Charter and our Bylaws, and the MGCL, 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 its board of directors. The Company believes 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
common stock or otherwise be in the best interest of its stockholders.
Business Combinations.
Under Maryland law, “business
combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited
for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations
include a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification
of equity securities. An interested stockholder is defined as:
| · | any person who beneficially owns, directly or indirectly, 10% or more of the voting power of the corporation’s
outstanding voting stock; or |
| · | an affiliate or associate of the corporation who, at any time within the two-year period prior to the
date in question, was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then outstanding stock of
the corporation. |
A person is not an interested stockholder under
the statute if the board of directors approved in advance the transaction by which he otherwise would have become an interested stockholder.
However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time
of approval, with any terms and conditions determined by the board of directors.
After the five-year prohibition, any business combination
between the Maryland corporation and an interested stockholder generally must be recommended by the board of directors of the corporation
and approved by the affirmative vote of at least:
| · | 80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and |
| · | two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested
stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested
stockholder. |
These super-majority vote requirements do not apply
if the corporation’s common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of
cash or other consideration in the same form as previously paid by the interested stockholder for its shares.
The statute permits various exemptions from its
provisions, including business combinations that are exempted by the board of directors before the time that the interested stockholder
becomes an interested stockholder. Pursuant to the statute, our board of directors has adopted a resolution exempting any business combination
with the Advisor or any affiliate of the Advisor. Consequently, the five-year prohibition and the super-majority vote requirements will
not apply to business combinations between the Company and the Advisor or any affiliate of the Advisor. As a result, the Advisor or any
affiliate of the Advisor may be able to enter into business combinations with the Company that may not be in the best interest of our
stockholders, without compliance with the super-majority vote requirements and the other provisions of the statute.
The business combination statute may discourage
others from trying to acquire control of the Company and increase the difficulty of consummating any offer.
Control Share Acquisitions.
Maryland law provides that control shares of a
Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by a vote of stockholders
holding two-thirds of the votes entitled to be cast on the matter, excluding “control shares”:
| · | owned by the acquiring person; |
| · | owned by the Company’s officers; and |
| · | owned by the Company’s employees who are also directors. |
“Control shares” mean voting
shares of stock which, if aggregated with all other shares of stock owned by the acquirer in respect of which the acquirer can exercise
or direct the exercise of voting power, would entitle the acquiring person to exercise voting power in electing directors within one of
the following ranges of voting power:
| · | one-tenth or more, but less than one-third of all voting power; |
| · | one-third or more, but less than a majority of all voting power; or |
| · | a majority or more of all voting power. |
Control shares do not include shares the acquiring
person is then entitled to vote as a result of having previously obtained stockholder approval. A control share acquisition occurs when,
subject to some exceptions, a person directly or indirectly acquires ownership or the power to direct the exercise of voting power (except
solely by virtue of a revocable proxy) of issued and outstanding control shares. A person who has made or proposes to make a control share
acquisition, upon satisfaction of some specific conditions, including an undertaking to pay expenses, may compel the Board to call a special
meeting of stockholders to be held within 50 days of a request to consider the voting rights of the control shares. If no request for
a meeting is made, the Company may present the question at any stockholders’ meeting.
If voting rights are not approved at the meeting
or if the acquiring person does not deliver an acquiring person statement on or before the 10th day after the control share acquisition
as required by the statute, then, subject to some conditions and limitations, the Company may acquire any or all of the control shares
(except those for which voting rights have been previously approved) for fair value determined, without regard to the absence of voting
rights for the control shares, as of the date of the last control share acquisition by the acquiror or of any meeting of stockholders
at which the voting rights of such shares are considered and not approved. If voting rights for control shares are approved at a stockholders
meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal
rights. The fair value of the shares as determined for purposes of such appraisal rights may not be less than the highest price per share
paid by the acquiror in the control share acquisition. The control share acquisition statute does not apply to shares acquired in a merger,
consolidation, or share exchange if the Company is a party to the transaction or to acquisitions approved or exempted by our Charter or
our Bylaws.
As permitted by the MGCL, our Bylaws contain a
provision exempting from the control share acquisition statute any and all acquisitions of the Company’s stock by any person. There
can be no assurance that this provision will not be amended or eliminated at any time in the future.
Subtitle 8.
Subtitle 8 of Title 3 of the MGCL permits a Maryland
corporation with a class of equity securities registered under the Exchange Act and at least three independent directors to elect to be
subject, by provision in its charter or bylaws or a resolution of its board of directors and notwithstanding any contrary provision in
the charter or bylaws, to any or all of five provisions:
| · | a two-thirds vote requirement for removing a director, |
| · | a requirement that the number of directors be fixed only by vote of the directors, |
| · | a requirement that a vacancy on the board of directors be filled only by affirmative vote of a majority of the remaining directors
in office and for the remainder of the full term of the class of directors in which the vacancy occurred, and |
| · | a majority requirement for the calling of a special meeting of stockholders. |
The Company has elected
that, except as may be provided by the Board in setting the terms of any class or series of preferred stock, any and all vacancies on
the Board may be filled only by the affirmative vote of a majority of the remaining directors in office, even if the remaining directors
do not constitute a quorum, and any director elected to fill a vacancy will serve for the remainder of the directorship in which the vacancy
occurred. Through provisions in our Charter and Bylaws unrelated to Subtitle 8, the Company already vests in the board of directors the
exclusive power to fix the number of directorships, has a two-thirds vote requirement for the removal of directors and requires the request
of stockholders entitled to cast a majority of the votes entitled to be cast to call a special meeting.
Exclusive Forum
Our Bylaws provide that, unless the Company consents
in writing to the selection of an alternative forum, the sole and exclusive forum for (a) any Internal Corporate Claim, as such term is
defined in Section 1-101(p) of the MGCL, or any successor provision thereof; (b) any derivative action or proceeding brought on behalf
of the Company; (c) any action asserting a claim of breach of any duty owed by any director or officer or other employee of the Company
to the Company or to the stockholders of the Company; (d) any action asserting a claim against the Company or any director or officer
or other employee of the Company arising pursuant to any provision of the MGCL, our Charter or our Bylaws; or (e) any action asserting
a claim against the Company or any director or officer or other employee of the Company that is governed by the internal affairs doctrine
shall be the Circuit Court for Baltimore City, Maryland, or, if that Court does not have jurisdiction, the United States District
Court for the District of Maryland, Baltimore Division. This exclusive forum provision is intended to apply to claims arising under Maryland
state law and would not apply to claims brought pursuant to the Exchange Act or Securities Act of 1933, as amended, or any other claim
for which the federal courts have exclusive jurisdiction.
Amendment of the Company’s Organizational
Documents
Except for those amendments
permitted to be made without stockholder approval, our Charter may be amended, after approval by the Board, by the affirmative vote of
a majority of the votes entitled to be cast on the matter (except for amendments of the provisions of our Charter related to removal of
directors and amendment of our Charter, which require the affirmative vote of stockholders entitled to cast at least two-thirds of all
votes entitled to be cast on the matter). Our Bylaws may be amended only by the Board.
RESTRICTIONS ON OWNERSHIP AND
TRANSFER
Restrictions on Ownership and Transfer
In order for the Company to qualify as a REIT under
the Code, the Company must meet the following criteria regarding our stockholders’ ownership of its shares:
| · | five or fewer individuals (as defined in the Code to include specified private foundations, employee benefit
plans and trusts and charitable trusts) may not own, directly or indirectly, more than 50% in value of the Company’s outstanding
shares during the last half of a taxable year, other than its first REIT taxable year; and |
| · | 100 or more persons must beneficially own our shares during at least 335 days of a taxable year of twelve
months or during a proportionate part of a shorter taxable year. |
The Company may prohibit certain acquisitions and
transfers of shares so as to ensure its initial and continued qualification as a REIT under the Code. However, there can be no assurance
that this prohibition will be effective. Because the Company believes it is essential for it to qualify as a REIT, and, once qualified,
to continue to qualify, among other purposes, pursuant to our Charter, our board of directors has established (subject to certain exceptions)
that no person may own, or be deemed to own by virtue of the attribution provisions of the Code, more than 7.9% in value of the aggregate
of its outstanding shares of stock or more than 7.9% (in value or in number of shares, whichever is more restrictive) of any class or
series of shares of its stock.
The Board, in its sole discretion, may (prospectively
or retroactively) waive this ownership limit if evidence satisfactory to our directors, including certain representations and undertakings
required by our Charter, is presented that such ownership will not then or in the future jeopardize its status as a REIT. Also, these
restrictions on transferability and ownership will not apply if our directors determine that it is no longer in its best interests to
continue to qualify as a REIT or that compliance is no longer necessary for REIT qualification.
Additionally, our Charter prohibits the transfer
or ownership of its stock if such transfer or ownership would:
| · | with respect to transfers only, result in our stock being beneficially owned by fewer than 100 persons,
determined without reference to any rules of attribution; |
| · | result in the Company being “closely held” within the meaning of Code Section 856(h) (regardless
of whether the ownership interest is held during the last half of a taxable year); |
| · | result in the Company owning, directly or indirectly, more than 9.8% of the ownership interests in any
tenant or subtenant; or |
| · | otherwise result in our disqualification as a REIT. |
Any attempted transfer of the Company’s stock
which, if effective, would result in our stock being beneficially owned by fewer than 100 persons will be null and void and the proposed
transferee will not acquire any rights in such stock. In the event of any attempted transfer of the Company’s stock which, if effective,
would result in (i) violation of the ownership limit discussed above, (ii) in its being “closely held” under Code Section
856(h), (iii) its owning (directly or indirectly) more than 9.8% of the ownership interests in any tenant or subtenant or (iv) its otherwise
failing to qualify as a REIT, then the number of shares causing the violation (rounded to the nearest whole share) will be automatically
transferred to a trust for the exclusive benefit of one or more charitable beneficiaries, and the proposed transferee will not acquire
any rights in the shares. To avoid confusion, these shares so transferred to a beneficial trust will be referred to in this prospectus
as “Excess Securities.” If the transfer of Excess Securities to a beneficial trust would not be effective for any reason to
prevent any of the above violations, then the transfer of that number of shares that would otherwise cause the violation will be null
and void and the proposed transferee will not acquire any rights in the shares. Excess Securities will remain issued and outstanding shares
and will be entitled to the same rights and privileges as all other shares of the same class or series. The proposed transferee will have
no rights with respect to the Excess Securities and will not benefit economically from the Excess Securities. The trustee of the beneficial
trust, as holder of the Excess Securities, will be entitled to receive all dividends and other distributions authorized by the board of
directors on such securities for the benefit of the charitable beneficiary. Our Charter further entitles the trustee of the beneficial
trust to vote all Excess Securities. Subject to Maryland law, the trustee will also have the authority (i) to rescind as void any vote
cast by the intended transferee prior to our discovery that the shares have been transferred to the trust and (ii) to recast the vote
in accordance with the desires of the trustee acting for the benefit of the charitable beneficiary. However, if the Company has already
taken irreversible corporate action, then the trustee will not have the authority to rescind and recast the vote.
The trustee of the beneficial trust will select
a transferee to whom the Excess Securities may be sold as long as such sale does not violate the 7.9% ownership limit or the other restrictions
on ownership and transfer. Upon sale of the Excess Securities, the intended transferee (the transferee of the Excess Securities whose
ownership would have violated the 7.9% ownership limit or the other restrictions on ownership and transfer) will receive from the trustee
of the beneficial trust the lesser of such sale proceeds, or the price per share the intended transferee paid for the Excess Securities
(or, in the case of a gift or devise to the intended transferee, the price per share equal to the market value per share on the date of
the transfer to the intended transferee). The trustee may reduce the amount payable to the intended transferee by the amount of dividends
and other distributions which have been paid to the intended transferee and are owed by the intended transferee to the trustee. The trustee
of the beneficial trust will distribute to the charitable beneficiary any amount the trustee receives in excess of the amount to be paid
to the intended transferee.
In addition, the Company has the right to purchase
any Excess Securities at the lesser of (i) the price per share paid in the transfer that created the Excess Securities (or, in the case
of a devise or gift, the market price at the time of such devise or gift) and (ii) the market price on the date the Company, or its designee,
exercise such right. the Company may reduce the amount payable to the intended transferee by the amount of dividends and other distributions
which have been paid to the intended transferee and are owed by the intended transferee to the trustee. The Company will have the right
to purchase the Excess Securities until the trustee has sold the shares. Upon a sale to the Company, the interest of the charitable beneficiary
in the shares sold will terminate and the trustee will distribute the net proceeds of the sale to the intended transferee.
Any person who (i) acquires or attempts or intends
to acquire shares in violation of the foregoing ownership limitations, or (ii) would have owned shares that resulted in a transfer to
a charitable trust, is required to give the Company immediate written notice or, in the case of a proposed or intended transaction, 15
days’ written notice. In both cases, such persons must provide to the Company such other information as the Company may request
in order to determine the effect, if any, of such transfer on our status as a REIT. The foregoing restrictions will continue to apply
until our board of directors determines it is no longer in its best interest to continue to qualify as a REIT or that compliance is no
longer required for REIT qualification.
The ownership limit does not apply to the underwriter
in a public offering of shares or to a person or persons so exempted (prospectively or retroactively) from the ownership limit by the
Company’s board of directors based upon appropriate assurances, including certain representations and undertakings required by our
Charter, that its qualification as a REIT is not jeopardized. Any person who owns more than 5% of the outstanding shares during any taxable
year will be asked to deliver written notice setting forth the name and address of such owner, the number of shares beneficially owned,
directly or indirectly, and a description of the manner in which such shares are held.
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
General
The following is a summary
of certain material U.S. federal income tax considerations relating to our qualification and taxation as a REIT and the acquisition, holding
and disposition of our capital stock that you, as a potential stockholder, may consider relevant. Because this section is a general summary,
it does not address all of the potential tax issues that may be relevant to you in light of your particular circumstances. This summary
is based on the Internal Revenue Code; current, temporary and proposed Treasury Regulations promulgated thereunder; current administrative
interpretations and practices of the IRS; and judicial decisions now in effect, all of which are subject to change (possibly with retroactive
effect) or to different interpretations.
We have not requested, and
do not plan to request, any rulings from the IRS concerning the tax treatment with respect to matters contained in this discussion and
the statements in this prospectus are not binding on the IRS or any court. Thus, we can provide no assurance that the tax considerations
contained in this summary will not be challenged by the IRS or will be sustained by a court if challenged by the IRS.
This summary of certain federal
income tax consequences applies to you only if you acquire and hold our capital stock as a “capital asset” (generally, property
held for investment within the meaning of Section 1221 of the Internal Revenue Code). This summary does not consider all of the rules
which may affect the U.S. tax treatment of your investment in our capital stock in light of your particular circumstances. For example,
except to the extent discussed under the headings “—Taxation of Holders of Our Common Stock—Taxation of Tax-Exempt Stockholders”
and “—Taxation of Holders of Our Common Stock—Taxation of Non-U.S. Stockholders,” special rules not discussed
here may apply to you if you are:
| · | a broker-dealer or a dealer in securities or currencies; |
| · | a partnership or other pass-through entity; |
| · | a bank, thrift or other financial institution; |
| · | a regulated investment company or a REIT; |
| · | a tax-exempt organization; |
| · | subject to the alternative minimum tax provisions of the Internal Revenue Code; |
| · | holding our capital stock as part of a hedge, straddle, conversion, integrated or other risk reduction
or constructive sale transaction; |
| · | holding our capital stock through a partnership or other pass-through entity; |
| · | a non-U.S. corporation, non-U.S. trust, non-U.S. estate, or an individual who is not a resident or citizen
of the United States; |
| · | a U.S. person whose “functional currency” is not the U.S. dollar; or |
If a partnership, including
any entity that is treated as a partnership for federal income tax purposes, holds our capital stock, the federal income tax treatment
of the 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 that will hold our capital stock, you should consult your tax advisor regarding the federal income tax consequences
of acquiring, holding and disposing of our capital stock by the partnership.
The rules dealing with U.S.
federal income taxation are constantly under review. No assurance can be given as to whether, when or in what form the U.S. federal income
tax laws applicable to us and our stockholders may be changed, possibly with retroactive effect. Changes to the federal tax laws and interpretations
of federal tax laws could adversely affect an investment in shares of our capital stock.
This summary generally does
not discuss any alternative minimum tax considerations or any state, local or non-U.S. tax considerations.
This summary of certain
material federal income tax consideration is for general information purposes only and is not tax advice. You are advised to consult your
tax adviser regarding the federal, state, local and foreign tax consequences of the purchase, ownership and disposition of our capital
stock.
Taxation of Franklin BSP Realty Trust, Inc.
We elected to be treated as
a REIT effective for our taxable year ended on December 31, 2013. We believe that we have been organized and have operated in a manner
to that has permitted us to qualify for taxation as a REIT from the effective date of our REIT election.
A REIT generally is not subject
to U.S. federal income tax on the “REIT taxable income” (generally, taxable income of the REIT subject to specified adjustments,
including a deduction for dividends paid and excluding net capital gain) that it distributes to shareholders, provided that the REIT meets
the annual REIT distribution requirement and the other requirements for qualification as a REIT under the Code. We believe that we are
organized and have operated, and we intend to continue to operate, in a manner so as to qualify for taxation as a REIT under the Code.
However, qualification and taxation as a REIT depend upon our ability to meet the various qualification tests imposed under the Code,
including (through our actual annual (or in some cases quarterly) operating results) requirements relating to income, asset ownership,
distribution levels and diversity of share ownership. Given the complex nature of the REIT qualification requirements, the ongoing importance
of factual determinations and the possibility of future changes in our circumstances, we cannot provide any assurances that we will be
organized or operated in a manner so as to satisfy the requirements for qualification and taxation as a REIT under the Code, or that we
will meet such requirements in the future. See “—Failure to Qualify.”
The sections of the Code that
relate to our qualification and taxation as a REIT are highly technical and complex. This discussion sets forth the material aspects of
the Code sections that govern the U.S. federal income tax treatment of a REIT and its shareholders. This summary is qualified in its entirety
by the applicable Code provisions, relevant rules and Treasury Regulations, and related administrative and judicial interpretations.
Taxation of REITs in General
As indicated above, qualification
and taxation as a REIT depends upon our ability to meet, on a continuing basis, various qualification requirements imposed upon REITs
by the Code. The material qualification requirements are summarized below under “— Requirements for Qualification —
General.” While we intend to continue to operate so that we qualify as a REIT, no assurance can be given that the IRS will not challenge
our qualification or that we will be able to operate in accordance with the REIT requirements in the future. See “— Failure
to Qualify” below.
Provided that we qualify to
be taxed as a REIT, generally we will be entitled to a deduction for dividends that we pay and therefore will not be subject to U.S. federal
corporate income tax on our REIT taxable income that currently is distributed to our stockholders. This treatment substantially eliminates
the “double taxation” at the corporate and stockholder levels that generally results from an investment in a C corporation.
A “C corporation” is a corporation that generally is required to pay tax at the corporate level. Double taxation means taxation
once at the corporate level when income is earned and once again at the stockholder level when the income, net of corporate income taxes
paid, is distributed thereto. In general, the income that we generate is taxed only at the stockholder level upon a distribution of dividends
by us to holders of our common stock. Any net operating losses, foreign tax credits and other tax attributes generated or incurred by
us generally do not pass through to our stockholders, subject to special rules for certain items such as the undistributed but designated
capital gain that we recognize.
Even if we qualify to be taxed
as a REIT, we nonetheless will be subject to U.S. federal income tax in the following circumstances:
| · | We will be taxed at regular corporate income tax rates on any undistributed “REIT taxable income,”
including undistributed net capital gain, for any taxable year. REIT taxable income is the taxable income of the REIT, subject to specified
adjustments, including a deduction for dividends paid. |
| · | If we have net income from prohibited transactions, which are, in general, sales or other dispositions
of inventory or property held primarily for sale to customers in the ordinary course of business, other than foreclosure property, such
income will be subject to a 100% tax. |
| · | If we elect to treat property that we acquire in connection with certain leasehold terminations or a foreclosure
of a mortgage loan as “foreclosure property,” we may thereby avoid (1) the 100% prohibited transactions tax on gain from a
resale of that property (if the sale otherwise would constitute a prohibited transaction); and (2) the inclusion of any income from such
property as non-qualifying income for purposes of the REIT gross income tests discussed below. Income from the sale or operation of the
property may be subject to U.S. federal corporate income tax at the highest applicable rate (currently 21%). |
| · | If we fail to satisfy the 75% gross income test or the 95% gross income test, as discussed below, but
our failure is due to reasonable cause and not due to willful neglect and we nonetheless maintain our REIT qualification because of specified
cure provisions, we will be subject to a 100% tax on an amount equal to (1) the greater of (a) the amount by which we fail the 75% gross
income test, or (b) the amount by which we fail the 95% gross income test, as the case may be, multiplied by (2) a fraction intended to
reflect our profitability. |
| · | If we violate the asset tests (other than a de minimis failure of the 5% or 10% asset test) or other requirements
applicable to REITs, as described below, but our failure is due to reasonable cause and not due to willful neglect and we nonetheless
maintain our REIT qualification because of specified cure provisions, we will be required to pay a tax equal to at least $50,000 per failure,
which, in the case of certain asset test failures, will be determined as the amount of net income generated by the assets in question
multiplied by the highest U.S. federal corporate income tax rate (currently 21%), if that amount exceeds $50,000 per failure. |
| · | If we fail to distribute during each calendar year at least the sum of (1) 85% of our REIT ordinary income
for such year, (2) 95% of our REIT capital gain net income for such year, and (3) any undistributed taxable income from prior periods
(collectively, the “required distribution”), we will be subject to a non-deductible 4% excise tax on the excess of the required
distribution over the sum of (a) the amounts that we actually distributed (taking into account excess distributions from prior years),
plus (b) retained amounts upon which we paid U.S. federal corporate income tax at the corporate level. |
| · | 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 our stockholders. |
| · | We will be subject to a 100% penalty tax on amounts we receive from, on certain expenses deducted by,
and on certain service income imputed to, a TRS if certain arrangements between us and our TRSs are not comparable to similar arrangements
among unrelated parties. |
| · | If we acquire appreciated assets from a corporation that is or has been a C corporation (or a partnership
in which a C corporation is a partner) in a transaction in which our tax basis in the assets is determined by reference to the C corporation’s
(or such partnership’s) tax basis in such assets, provided no election is made for the transaction to be taxable currently, we will
be subject to tax on such appreciation at the highest U.S. federal corporate income tax rate then applicable if we subsequently recognize
gain on a disposition of any such assets during the five-year period following the acquisition from the C corporation (or partnership). |
| · | We may elect to retain and pay U.S. federal corporate income tax on our net long-term capital gain. |
| · | The earnings of our subsidiaries that are C corporations, including our TRSs, are subject to domestic
and/or foreign corporate income tax. |
| · | If we own a residual interest in a real estate mortgage investment conduit, or REMIC, we will be taxable
at the highest corporate rate on the portion of any excess inclusion income that we derive from the REMIC residual interests equal to
the percentage of our stock that is held in record name by “disqualified organizations.” Similar rules apply to a REIT that
owns an equity interest in a taxable mortgage pool. To the extent that we own a REMIC residual interest or a taxable mortgage pool through
a TRS, we will not be subject to this tax. For a discussion of “excess inclusion income,” see “— Taxable Mortgage
Pools.” A “disqualified organization” includes: |
| o | any state or political subdivision of the United States; |
| o | any international organization; |
| o | any agency or instrumentality of any of the foregoing; |
| o | any other tax-exempt organization, other than a farmer’s cooperative described in section 521 of
the Code, that is exempt both from income taxation and from taxation under the unrelated business taxable income provisions of the Code;
and |
| o | any rural electrical or telephone cooperative. |
We do not currently intend
to hold REMIC residual interests or interests in taxable mortgage pools.
In addition, we and our subsidiaries
may be subject to a variety of taxes, including payroll taxes and state, local and foreign income, property, gross receipts and other
taxes on our assets and operations. We also could be subject to tax in other situations and on transactions not presently contemplated.
Requirements for Qualification
— General
To qualify as a REIT, we must
elect to be treated as a REIT, and we must meet various (a) organizational requirements, (b) gross income tests, (c) asset tests, and
(d) annual dividend requirements. The Code defines a REIT as a corporation, trust or association:
| (1) | that is managed by one or more trustees or directors; |
| (2) | the beneficial ownership of which is evidenced by transferable stock, or by transferable certificates
of beneficial interest; |
| (3) | that would be taxable as a domestic corporation but for Sections 856 through 860 of the Code; |
| (4) | that is neither a financial institution nor an insurance company subject to applicable provisions of the
Code; |
| (5) | the beneficial ownership of which is held by 100 or more persons; |
| (6) | during the last half of each taxable year not more than 50% in value of the outstanding stock of which
is owned, directly or indirectly, by five or fewer “individuals” (as defined in the Code to include certain entities and as
determined by applying certain attribution rules); |
| (7) | that makes an election to be taxable as a REIT, or has made this election for a previous taxable year
which has not been revoked or terminated, and satisfies all of the relevant filing and other administrative requirements established by
the IRS that must be met in order to elect and maintain REIT qualification; |
| (8) | that uses a calendar year for U.S. federal income tax purposes; |
| (9) | that meets other tests described below, including with respect to the nature of its income and assets
and the amount of its distributions; and |
| (10) | that has no earnings and profits from any non-REIT taxable year at the close of any taxable year. |
The Code provides that conditions
(1) through (4) must be met during the entire taxable year, and that condition (5) must be met during at least 335 days of a taxable year
of 12 months, or during a proportionate part of a shorter taxable year. Conditions (5) and (6) need not be met during a corporation’s
initial tax year as a REIT. For purposes of condition (6), an “individual” generally includes a supplemental unemployment
compensation benefit plan, a private foundation or a portion of a trust permanently set aside or used exclusively for charitable purposes.
However, a trust that is a qualified trust under Code Section 401(a) generally is not considered an individual, and beneficiaries of a
qualified trust are treated as holding stock of a REIT in proportion to their actual interests in the trust for purposes of condition
(6) above.
To monitor compliance with
the stock ownership requirements, we generally are required to maintain records regarding the actual ownership of our stock. To do so,
we must demand written statements each year from the record holders of 5% or more of our stock pursuant to which the record holders must
disclose the actual owners of the stock (i.e., the persons required to include our dividends in their gross income). We must maintain
a list of those persons failing or refusing to comply with this demand as part of our records. We could be subject to monetary penalties
if we fail to comply with these record-keeping requirements. If such record holder fails or refuses to comply with the demands, such record
holder will be required by Treasury regulations to submit a statement with such record holder’s tax return disclosing such record
holder’s actual ownership of our stock and other information. We have complied, and currently intend to continue to comply, with
these requirements.
We believe that we have been
organized, have operated and have issued sufficient shares of stock with sufficient diversity of ownership to allow us to satisfy conditions
(1) through (10). Our charter provides restrictions regarding the ownership and transfers of our stock, which are intended to assist us
in satisfying the stock ownership requirements described in conditions (5) and (6) above. These restrictions, however, do not ensure that
we previously have satisfied, and may not ensure that we will, in all cases, be able to continue to satisfy, such stock ownership requirements.
If we fail to satisfy these requirements, except as provided in the next sentence, our status as a REIT will terminate. If, however, we
comply with the demand and record-keeping requirements described in the previous paragraph and we do not know, or would not have known
through the exercise of reasonable diligence, that we failed to meet the requirement described in condition (6), we will be treated as
having satisfied this requirement. See “—Failure to Qualify as a REIT.”
Effect of Subsidiary Entities
Disregarded Entities and Partnerships.
An unincorporated domestic entity, such as a limited liability company, that has a single owner, 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 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, 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.
If a REIT is a partner in
a partnership, the REIT will be deemed to own its proportionate capital share of the assets of the partnership and will be deemed to be
entitled to the income of the partnership attributable to that capital share. Also, the character of the assets and gross income of the
partnership will retain the same character in the hands of the REIT for purposes of satisfying the gross income tests and the asset tests.
In addition, the assets and items of income of any partnership in which we own a direct or indirect interest include such partnership’s
share of assets and items of income of any partnership in which it owns an interest. The treatment described above also applies with respect
to the ownership of interests in limited liability companies or other entity or arrangement treated as a partnership for tax purposes.
Generally, for taxable years
beginning in 2018 or after, U.S. federal income tax audits of partnerships and the collection of any tax resulting from such audits or
other tax proceedings can result in liabilities at the partnership rather than at the partner level. Under the new rules, the partnership
itself must pay any “imputed underpayments,” consisting of delinquent taxes, interest, and penalties deemed to arise out of
an audit of the partnership, unless certain alternative methods are available and the partnership elects to utilize them. Therefore, it
is possible that any partnership in which we are a partner could be subject to, or otherwise bear the economic burden of, U.S. federal
income tax, interest, and penalties resulting from a U.S. federal income tax audit of that partnership, and as a result we may bear more
than our proportionate share of such tax, interest, and penalties.
Qualified REIT Subsidiaries. A corporation
that is a qualified REIT subsidiary, or QRS, is not treated as a corporation separate from its parent REIT. All assets, liabilities and
items of income, deduction and credit of a QRS are treated as assets, liabilities and items of income, deduction and credit of the parent
REIT. A QRS is a corporation for income tax purposes, other than a TRS (as defined below), all of the stock of which is owned by a REIT.
Thus, in applying the requirements described herein, any QRS that we own will be ignored for U.S. federal income tax purposes, 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.
Taxable REIT Subsidiaries. A TRS is an
entity that is taxable as a corporation in which a REIT owns, directly or indirectly, an equity interest, including stock, and that elects
with the REIT to be treated as a TRS under the Code. If a TRS owns, directly or indirectly, securities representing more than 35% of the
vote or value of a subsidiary corporation, that subsidiary also will be treated as a TRS. A TRS is a C corporation subject to U.S. federal
income tax at applicable corporate income tax rates. The gross income and assets of our TRSs are not attributable to us for purposes of
satisfying the REIT income and asset test requirements.
The subsidiary and the REIT
must jointly elect to treat the subsidiary as a TRS. A corporation of which a TRS directly or indirectly owns securities possessing more
than 35% of the total voting power or total value of the outstanding securities of such corporation will automatically be treated as a
TRS. We are not treated as holding the assets of a TRS or as receiving any income that the subsidiary earns. Rather, the stock issued
by a TRS to us is an asset in our hands, and we treat the distributions paid to us from such taxable subsidiary, if any, as income. This
treatment can affect our compliance with the gross income and asset tests. Because we do not include the assets and income of TRSs in
determining our compliance with the REIT Requirements, we may use such entities to undertake indirectly activities that the REIT rules
might otherwise preclude us from doing directly or through pass-through subsidiaries. Under current law, no more than 20% of the value
of a REIT’s assets may consist of stock or securities of one or more TRSs.
Income Tests
We must satisfy two gross
income requirements annually. First, at least 75% of our gross income for each taxable year, excluding gross income from sales of inventory
or dealer property in prohibited transactions, must be derived from investments relating to real property or mortgages on real property,
including “rents from real property”; dividends received from other REITs; interest income derived from mortgage loans secured
by real property; income derived from a REMIC in proportion to the real estate assets held by the REMIC, unless at least 95% of the REMIC’s
assets are real estate assets, in which case all of the income derived from the REMIC; certain income from qualified temporary investments;
and gains from the sale of real estate assets. Second, at least 95% of our gross income in each taxable year, excluding gross income from
prohibited transactions, must be derived from some combination of income that qualifies under the 75% income test described above, as
well as other dividends, interest, and gain from the sale or disposition of stock or securities, which need not have any relation to real
property. Income and gain from “hedging transactions,” as defined in “— Hedging Transactions,” that we enter
into to hedge indebtedness incurred or to be incurred to acquire or carry select commercial real estate equity investments or to hedge
certain foreign currency risks and that are clearly and timely identified as hedges will be excluded from both the numerator and the denominator
for purposes of the 75% and 95% gross income tests.
Rents received by us will
qualify as “rents from real property” in satisfying the gross income requirements described above only if several conditions
are met, including the following. If rent is partly attributable to personal property leased in connection with a lease of real property,
the portion of the total rent that is attributable to the personal property will not qualify as “rents from real property”
unless it constitutes 15% or less of the total rent received under the lease. Moreover, for rents received to qualify as “rents
from real property,” the REIT generally must not operate or manage the property or furnish or render services to the tenants of
such property, other than through an “independent contractor” from which the REIT derives no revenue or through a TRS. We
and our affiliates are permitted, however, to perform services that are “usually or customarily rendered” in connection with
the rental of space for occupancy only and are not otherwise considered rendered to the occupant of the property. In addition, we and
our affiliates may directly or indirectly provide non-customary services to tenants of properties without disqualifying all of the rent
from the property if the payment for such services does not exceed 1% of the total gross income from the property. For this purpose, the
amount received by the REIT for such service is deemed to be at least 150% of the REIT’s direct cost of providing the service. Also,
rental income will qualify as rents from real property only to the extent that we do not directly or constructively hold a 10% or greater
interest, as measured by vote or value, in the lessee’s equity.
Interest income constitutes
qualifying mortgage interest for purposes of the 75% gross income test (as described above) to the extent that the obligation is secured
by a mortgage on real property. If we receive interest income with respect to a mortgage loan that is secured by both real property and
other property, and the highest principal amount of the loan outstanding during a taxable year exceeds the fair market value of the real
property on the date that we have a binding commitment to acquire or originate the mortgage loan, the interest income will be apportioned
between the real property and the other collateral, and its income from the arrangement will qualify for purposes of the 75% gross income
test only to the extent that the interest is allocable to the real property. Even if a loan is not secured by real property or is undersecured,
the income that it generates may nonetheless qualify for purposes of the 95% gross income test.
To the extent that the terms
of a loan provide for contingent interest that is based on the cash proceeds realized upon the sale of the property securing the loan,
or a shared appreciation provision, income attributable to the participation feature will be treated as gain from sale of the underlying
property, which generally will be qualifying income for purposes of both the 75% and 95% gross income tests provided that the property
is not inventory or dealer property in the hands of the borrower or the REIT.
To the extent that a REIT
derives interest income from a mortgage loan or income from the rental of real property where all or a portion of the amount of interest
or rental income payable is contingent, such income generally will qualify for purposes of the gross income tests only if it is based
upon the gross receipts or sales, and not the net income or profits, of the borrower or lessee. This limitation does not apply, however,
where the borrower or lessee leases substantially all of its interest in the property to tenants or subtenants, to the extent that the
rental income derived by the borrower or lessee, as the case may be, would qualify as rents from real property had it been earned directly
by a REIT.
We hold certain mezzanine
loans and may originate or acquire other mezzanine loans. Mezzanine loans 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, some of our
mezzanine loans may not meet all of the requirements for reliance on the safe harbor. To the extent any mezzanine loans that we originate
or acquire 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 believe that we currently invest in mezzanine loans, and intend to continue to invest in mezzanine loans, in a manner
that will enable us to satisfy the REIT gross income and asset tests.
We may hold certain participation
interests, or “B-Notes,” in mortgage loans and mezzanine loans originated by other lenders. A B-Note is an interest created
in an underlying loan by virtue of a participation or similar agreement, to which the originator of the loan is a party, along with one
or more participants. The borrower on the underlying loan is typically not a party to the participation agreement. The performance of
a participant’s investment depends upon the performance of the underlying loan, and if the underlying borrower defaults, the participant
typically has no recourse against the originator of the loan. The originator often retains a senior position in the underlying loan, and
grants junior participations, which will be a first loss position in the event of a default by the borrower. We may acquire participations
in commercial real estate debt that we believe qualify for purposes of the REIT asset tests described below, and that interest derived
from such investments will be treated as qualifying mortgage interest for purposes of the 75% gross income test. The appropriate treatment
of participation interests for federal income tax purposes is not entirely certain, and no assurance can be given that the IRS will not
challenge our treatment of participation interests.
Many of the terms of the mortgage
loans, mezzanine loans and subordinated mortgage interests and the loans supporting the mortgage-backed securities that we hold or expect
to acquire have been modified and may in the future be modified. Under the Code, if the terms of a loan are modified in a manner constituting
a “significant modification,” such modification triggers a deemed exchange of the original loan for the modified loan. Revenue
Procedure 2014-51 provides a safe harbor pursuant to which we will not be required to redetermine the fair market value of the real property
securing a loan for purposes of the gross income and asset tests in connection with a loan modification that is: (i) occasioned by a borrower
default; or (ii) made at a time when we reasonably believe that the modification to the loan will substantially reduce a significant risk
of default on the original loan. No assurance can be provided that all of our loan modifications will qualify for the safe harbor in Revenue
Procedure 2014-51. To the extent we significantly modify loans in a manner that does not qualify for that safe harbor, we will be required
to redetermine the value of the real property securing the loan at the time it was significantly modified. In determining the value of
the real property securing such a loan, we generally will not obtain third-party appraisals but rather will rely on internal valuations.
No assurance can be provided that the IRS will not successfully challenge our internal valuations. If the terms of our mortgage loans,
mezzanine loans and subordinated mortgage interests and loans supporting our mortgage-backed securities are significantly modified in
a manner that does not qualify for the safe harbor in Revenue Procedure 2014-51 and the fair market value of the real property securing
such loans has decreased significantly, we could fail the 75% gross income test, the 75% asset test and/or the 10% value test.
We own CMBS, and expect that
the CMBS will be treated either as interests in a grantor trust or as regular interests in REMICs for U.S. federal income tax purposes
and that all interest income, original issue discount and market discount from our CMBS will be qualifying income for the 95% gross income
test. In the case of mortgage-backed securities treated as interests in grantor trusts, we would be treated as owning an undivided beneficial
ownership interest in the mortgage loans held by the grantor trust. The interest, original issue discount and market discount on such
mortgage loans would be qualifying income for purposes of the 75% gross income test to the extent that the obligation is secured by real
property. In the case of CMBS treated as interests in a REMIC, income derived from REMIC interests will generally be treated as qualifying
income for purposes of the 75% and 95% gross income tests. If less than 95% of the assets of the REMIC are real estate assets, however,
then only a proportionate part of our interest in the REMIC and income derived from the interest will qualify for purposes of the 75%
gross income test. In addition, some REMIC securitizations include embedded interest swap or cap contracts or other derivative instruments
that potentially could produce non-qualifying income for the holder of the related REMIC securities.
We believe that substantially
all of our income from our mortgage related securities generally will be qualifying income for purposes of the REIT gross income tests.
However, to the extent that we own non-REMIC collateralized mortgage obligations or other debt instruments secured by mortgage loans (rather
than by real property), or secured by non-real estate assets, or debt securities that are not secured by mortgages on real property or
interests in real property, the interest income received with respect to such securities generally will be qualifying income for purposes
of the 95% gross income test, but not the 75% gross income test. In addition, the loan amount of a mortgage loan that we own may exceed
the value of the real property securing the loan. In that case, income from the loan will be qualifying income for purposes of the 95%
gross income test, but the interest attributable to the amount of the loan that exceeds the value of the real property securing the loan
will not be qualifying income for purposes of the 75% gross income test.
We may receive distributions
from TRSs or other corporations that are not REITs. These distributions will be classified as dividend income to the extent of the earnings
and profits of the distributing corporation. Such distributions will generally constitute qualifying income for purposes of the 95% gross
income test but not the 75% gross income test. Any dividends we received from a REIT will be qualifying income for purposes of both the
75% and 95% gross income tests.
We may receive various fees
in connection with our operations. The fees will be qualifying income for purposes of both the 75% and 95% gross income tests if they
are received in consideration for entering into an agreement to make a loan secured by real property and the fees are not determined by
the borrower’s income and profits. Other fees are not qualifying income for purposes of either gross income test.
Any income or gain we derive
from instruments that hedge certain risks, such as the risk of changes in interest rates with respect to debt incurred to acquire or carry
real estate assets or certain foreign currency risks, will not be treated as income for purposes of calculating the 75% or 95% gross income
test, provided that specified requirements are met. Such requirements include the instrument is properly identified as a hedge, along
with the risk that it hedges, within prescribed time periods.
If we fail to satisfy one
or both of the 75% or 95% gross income tests for any taxable year, we may still qualify as a REIT for the year if we are entitled to relief
under applicable provisions of the Code. These relief provisions will be generally available if our failure to meet these tests was due
to reasonable cause and not due to willful neglect, we attach to our tax return a schedule of the sources of our income, and any incorrect
information on the schedule was not due to fraud with intent to evade tax. It is not possible to state whether we would be entitled to
the benefit of these relief provisions in all circumstances. If these relief provisions are inapplicable, we will not qualify as a REIT.
As discussed above under “— Taxation of REITs in General,” even where these relief provisions apply, a tax would be
imposed upon the amount by which we fail to satisfy the particular gross income test, adjusted to reflect the profitability of such gross
income.
Asset Tests
To maintain our qualification
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: (a) cash or cash items, including certain receivables, (b) government securities, (c) real
estate assets, including interests in real property, leaseholds and options to acquire real property and leaseholds, (d) interests in
mortgages on real property (including an interest in an obligation secured by a mortgage on both real property and personal property if
the fair market value of the personal property does not exceed 15% of the total fair market value of all the property securing the obligation)
or on interests in real property, (e) stock in other REITs, (f) debt instruments issued by publicly offered REITs (i.e., REITs which are
required to file annual and periodic reports with the SEC under the Exchange Act), (g) personal property leased in connection with real
property to the extent that rents attributable to such personal property do not exceed 15% of the total rent received under the lease
and are treated as “rents from real property”; and (h) investments in stock or debt instruments during the one year period
following our receipt of new capital that we raise through equity offerings or offerings of debt with at least a five year term;
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;
Third, we may not own more
than 10% of the voting power or value of any one issuer’s outstanding securities;
Fourth, no more than 20% 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; and
Sixth, for taxable years beginning
after December 31, 2015, no more than 25% of our total assets may consist of debt instruments issued by publicly offered REITs that qualify
as “real estate assets” only because of the express inclusion of “debt instruments issued by publicly offered REITs”
in the definition.
For purposes of the second
and third asset tests, the term “securities” does not include stock in another REIT, equity or debt securities of a qualified
REIT subsidiary or TRS, mortgage loans that constitute real estate assets, or equity interests in a partnership. For purposes of the 10%
value test, the term “securities” generally does not include debt securities issued by a partnership to the extent of our
interest as a partner of the partnership or 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. In addition, “straight debt” and certain other
instruments are not treated as “securities” for purposes of the 10% value test.
Taxable REIT Subsidiary. A REIT may directly
or indirectly own stock in a TRS. A TRS may be any corporation in which we directly or indirectly own stock and where both we and the
subsidiary make a joint election to treat the corporation as a TRS, in which case it is treated separately from us and will be subject
to U.S. federal corporate income taxation. Stock of a TRS is not subject to the 10% or 5% asset tests. Instead, the value of all taxable
REIT securities owned by us cannot exceed 20% of the value of our assets. We currently own one TRS.
Failure to Satisfy the Asset Tests. We
will 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. If we fail to satisfy the asset tests at the end of a calendar quarter, we will not lose our REIT status if:
| • | we satisfied the asset tests at the end of the preceding calendar quarter; and |
| • | the discrepancy between the value of our assets and the asset test requirements arose from changes in
the market values of our assets and was not wholly or partly caused by the acquisition of one or more non-qualifying assets. |
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 fail to satisfy one
or more of the asset tests for any quarter of a taxable year, we nevertheless may qualify as a REIT for such year if we qualify for relief
under certain provisions of the Code. For example, there are relief provisions that are generally available for failures of the 5% asset
test and the 10% asset tests if the failure is due to the ownership of assets that do not exceed the lesser of 1% of our total assets
or $10 million, and the failure is corrected within six months following the quarter in which it was discovered. Additionally, there are
provisions that allow a REIT that fails one or more of the asset requirements to maintain its qualification as a REIT if the failure is
due to reasonable cause and not due to willful neglect, we file a schedule with a description of each asset causing the failure in accordance
with Treasury Regulations, the failure is corrected within 6 months following the quarter in which it was discovered, and we pay a tax
consisting of the greater of $50,000 per failure and a tax computed at the highest corporate rate on the amount of net income generated
by the assets causing the failure from the date of failure until the assets are disposed of or we otherwise return to compliance with
the asset test. We may not qualify for the relief provisions in all circumstances.
Certain securities will not
cause a violation of the 10% value test described above. Such securities include instruments that constitute “straight debt.”
A security does not qualify as “straight debt” where a REIT (or a controlled TRS of the REIT) owns other securities of the
issuer of that security which do not qualify as straight debt, unless the value of those other securities constitute, in the aggregate,
1% or less of the total value of that issuer’s outstanding securities. In addition to straight debt, the following securities will
not violate the 10% value test: (i) any loan made to an individual or an estate; (ii) certain rental agreements in which one or more payments
are to be made in subsequent years (other than agreements between a REIT and certain persons related to the REIT); (iii) any obligation
to pay rents from real property; (iv) securities issued by governmental entities that are not dependent in whole or in part on the profits
of (or payments made by) a non-governmental entity; (v) any security issued by another REIT; and (vi) any debt instrument issued by a
partnership if the partnership’s income is such that the partnership would satisfy the 75% gross income test described above under
“— Income Tests.” In applying the 10% value test, a debt security issued by a partnership is not taken into account
to the extent, if any, of the REIT’s proportionate interest in that partnership.
Any interests we hold in a
REMIC are generally treated as qualifying real estate assets and income we derive from interests in REMICs is generally treated as qualifying
income for purposes of the REIT income tests described above. If less than 95% of the assets of a REMIC are real estate assets, however,
then only a proportionate part of our interest in the REMIC, and our income derived from the interest, qualifies for purposes of the REIT
asset and income tests. Where a REIT holds a “residual interest” in a REMIC from which it derives “excess inclusion
income,” the REIT will be required to either distribute the excess inclusion income or pay a tax on it (or a combination of the
two), even though the income may not be received in cash by the REIT. To the extent that distributed excess inclusion income is allocable
to a particular stockholder, the income: (i) would not be allowed to be offset by any net operating losses otherwise available to the
stockholder; (ii) would be subject to tax as unrelated business taxable income in the hands of most types of stockholders that are otherwise
generally exempt from federal income tax; and (iii) would result in the application of federal income tax withholding at the maximum rate
of 30% (and any otherwise available rate reductions under income tax treaties would not apply), to the extent allocable to most types
of foreign stockholders.
We may hold certain mezzanine
loans that do not qualify for the safe harbor in Revenue Procedure 2003-65 discussed above pursuant to which certain loans secured by
a first priority security interest in equity interests in a pass-through entity that directly or indirectly own real property will be
treated as qualifying assets for purposes of the 75% real estate asset test and therefore not be subject to the 10% vote or value test.
In addition such mezzanine loans may not qualify as “straight debt” securities or for one of the other exclusions from the
definition of “securities” for purposes of the 10% value test. We intend to continue to make any such investments in such
a manner as not to fail the asset tests described above, but there can be no assurance we will be successful in this regard.
As discussed above, we may
hold certain participation interests, including B-Notes, in mortgage loans and mezzanine loans originated by other lenders. We generally
expect to treat our participation interests in mortgage loans and mezzanine loans that qualify for safe harbor under Revenue Procedure
2003-65 as qualifying real estate assets for purposes of the REIT asset tests and interest that we derive from such investments as qualifying
mortgage interest for purposes of the 75% and 95% gross income tests discussed above. The appropriate treatment of participation interests
for U.S. federal income tax purposes is not entirely certain, however, and no assurance can be given that the IRS will not challenge our
treatment of our participation interests. In the event of a determination that such participation interests do not qualify as real estate
assets, or that the income that we derive from such participation interests does not qualify as mortgage interest for purposes of the
REIT asset and income tests, we could be subject to a penalty tax, or could fail to qualify as a REIT.
After initially meeting the
asset tests at the close of any quarter, we will not lose our qualification as a REIT for failure to satisfy the asset tests at the end
of a later quarter solely by reason of changes in asset values. If we fail to satisfy the asset tests because we acquire assets during
a quarter, we can cure this failure by disposing of sufficient non-qualifying assets within 30 days after the close of that quarter. If
we fail the 5% asset test, or the 10% vote or value asset tests at the end of any quarter and such failure is not cured within 30 days
thereafter, we may dispose of sufficient assets (generally within six months after the last day of the quarter in which our identification
of the failure to satisfy these asset tests occurred) to cure such a violation that does not exceed the lesser of 1% of our assets at
the end of the relevant quarter or $10 million. If we fail any of the other asset tests or our failure of the 5% and 10% asset tests is
in excess of the de minimis amount described above, as long as such failure was due to reasonable cause and not willful neglect, we are
permitted to avoid disqualification as a REIT, after the 30 day cure period, by taking steps including the disposition of sufficient assets
to meet the asset test (generally within six months after the last day of the quarter in which our identification of the failure to satisfy
the REIT asset test occurred) and paying a tax equal to the greater of $50,000 or the highest corporate income tax rate of the net income
generated by the non-qualifying assets during the period in which we failed to satisfy the asset test.
We expect that the commercial
real estate securities that we own generally will be qualifying assets for purposes of the 75% asset test. However, to the extent that
we own non-REMIC collateralized mortgage obligations or other debt instruments secured by mortgage loans (rather than by real property)
or secured by non-real estate assets, or debt securities issued by C corporations that are not secured by mortgages on real property,
those securities will not be qualifying assets for purposes of the 75% asset test.
We monitor compliance on an
ongoing basis. Independent appraisals will not be obtained, however, 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, including instruments issued in securitization transactions,
may not be susceptible to a precise determination, and values are subject to change in the future. Furthermore, the proper classification
of an instrument as debt or equity for federal income tax purposes may be uncertain in some circumstances, which could affect the application
of the REIT asset requirements. Accordingly, there can be no assurance that the IRS will not contend that we do not comply with one or
more of the asset tests.
Annual Distribution Requirements
In order to continue to qualify
as a REIT, we are required to distribute dividends, other than capital gain dividends, to our stockholders in an aggregate amount at least
equal to:
| (1) | 90% of our “REIT taxable income” (computed without regard to the dividends paid deduction
or our net capital gain or loss), and |
| (2) | 90% of our after-tax net income, if any, from foreclosure property, minus |
| (b) | the sum of specified items of non-cash income. |
These distributions must be
paid in the taxable year to which they relate, or in the following taxable year if declared before we timely file our tax return for the
year and if paid on or before the first regular dividend payment after such declaration. Distributions that we declare in October, November
or December of any year payable to a stockholder of record on a specified date in any of these months will be treated as both paid by
us and received by the stockholder on December 31 of the year, provided that we actually pay the distribution during January of the following
calendar year.
To the extent that we distribute
at least 90%, but less than 100%, of our “REIT taxable income,” as adjusted, we will be subject to tax at the regular corporate
tax rates on the retained portion. We may elect to retain, rather than distribute, our net long-term capital gains and pay tax on such
gains. In this case, we could elect to have our stockholders include their proportionate share of such undistributed long-term capital
gains in income and receive a corresponding credit for their share of the tax paid by us. Our stockholders would then increase the adjusted
basis of their stock by the difference between the designated amounts included in their long-term capital gains and the tax deemed paid
with respect to their shares.
To the extent that a REIT
has available net operating losses carried forward from prior tax years, such losses may reduce the amount of distributions that it must
make in order to comply with the REIT distribution requirements. Such losses, however, are not passed through to U.S. shareholders and
do not offset income of U.S. shareholders from other sources, nor would such losses affect the character of any distributions that we
make, which are generally subject to tax in the hands of U.S. shareholders to the extent that we have current or accumulated earnings
and profits.
If we fail to distribute during
each calendar year at least the sum of: (i) 85% of our REIT ordinary income for such year; (ii) 95% of our REIT capital gain net income
for such year; and (iii) any undistributed taxable income from prior periods, we would be subject to a 4% excise tax on the excess of
such required distribution over the sum of (a) the amounts actually distributed and (b) the amounts of income retained on which we have
paid corporate income tax. We intend to make timely distributions so that we are not subject to the 4% excise tax.
It is possible that, from
time-to-time, we may not have sufficient cash to meet the distribution requirements due to timing differences between the actual receipt
of cash and our inclusion of items in income for federal income tax purposes. Potential sources of non-cash taxable income include real
estate and securities that have been financed through securitization structures, such as the term-debt structure, which require some or
all of available cash flows to be used to service borrowings, loans or mortgage-backed securities we hold that have been issued at a discount
and require the accrual of taxable economic interest in advance of its receipt in cash, and distressed loans on which we may be required
to accrue taxable interest income even though the borrower is unable to make current payments in cash. In the event that such timing differences
occur, it might be necessary to arrange for short-term, or possibly long-term, borrowings to meet the distribution requirements or to
pay dividends in the form of taxable in-kind distributions of property.
Subject to certain exceptions,
we must accrue income for U.S. federal income tax purposes no later than when such income is taken into account as revenue in our financial
statements, which could create additional differences between REIT taxable income and the receipt of cash attributable to such income.
In addition, Section 162(m) of the Code places a per-employee limit of $1 million on the amount of compensation that a publicly held corporation
may deduct in any one year with respect to its chief executive officer and certain other highly compensated executive officers. Recent
changes to Section 162(m) eliminated an exception that formerly permitted certain performance-based compensation to be deducted even if
in excess of $1 million, which may have the effect of increasing our REIT taxable income. If these timing differences occur, we may need
to arrange for short-term, or possibly long-term, borrowings or need to pay dividends in the form of taxable stock dividends in order
to meet the distribution requirements.
We may be able to rectify
a failure to meet the distribution requirement for a year by paying “deficiency dividends” to our shareholders in a later
year, which may be included in our deduction for dividends paid for the earlier year. Thus, we may be able to avoid being taxed on amounts
distributed as deficiency dividends. However, we will be required to pay interest to the IRS based upon the amount of any deduction claimed
for deficiency dividends.
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 “— Income Tests”
and “— Asset Tests.”
If we fail to qualify for
taxation as a REIT in any taxable year and the relief provisions do not apply, we will be subject to tax on our taxable income at regular
corporate rates. If we fail to qualify for taxation as a REIT, we will not be required to make any distributions to shareholders, and
any distributions that are made to shareholders will not be deductible by us. As a result, our failure to qualify for taxation as a REIT
would significantly reduce the cash available for distributions by us to our shareholders. In addition, if we fail to qualify for taxation
as a REIT, all distributions to shareholders, to the extent of our current and accumulated earnings and profits, will be taxable as regular
corporate dividends. For taxable years beginning before January 1, 2026, generally U.S. shareholders that are individuals, trusts or estates
may deduct 20% of the aggregate amount of ordinary dividends distributed by us, subject to certain limitations. Alternatively, such dividends
paid to U.S. shareholders that are individuals, trusts and estates may be taxable at the preferential income tax rates (i.e., the 20%
maximum U.S. federal rate) for qualified dividends. In addition, subject to the limitations of the Code, corporate distributees may be
eligible for the dividends-received deduction,
Unless entitled to relief
under specific statutory provisions, we also will be disqualified from taxation as a REIT for the four taxable years following the year
during which qualification was lost. In addition, if we merge with another REIT and we are the “successor” to the other REIT,
the other REIT’s disqualification from taxation as a REIT would prevent us from being taxed as a REIT for the four taxable years
following the year during which the other REIT’s qualification was lost. There can be no assurance that we would be entitled to
any statutory relief. We intend to take advantage of any and all relief provisions that are available to us to cure any violation of the
requirements applicable to REITs.
Prohibited Transactions
Net income derived from a
prohibited transaction is subject to a 100% tax. The term “prohibited transaction” generally includes a sale or other disposition
of property (other than foreclosure property) that is held primarily for sale to customers in the ordinary course of a trade or business
by a REIT, by a lower-tier partnership in which the REIT holds an equity interest or by a borrower that has issued a shared appreciation
mortgage or similar debt instrument to the REIT. We conduct our operations so that no asset owned by us or our pass-through subsidiaries
will be held for sale to customers, and that a sale of any such asset will not be in the ordinary course of business. Whether property
is held “primarily for sale to customers in the ordinary course of a trade or business” depends, however, on the particular
facts and circumstances. No assurance can be given that any particular property in which we hold a direct or indirect interest will not
be treated as property held for sale to customers, or that we can comply with certain safe-harbor provisions of the Code that would prevent
such treatment. 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.
Foreclosure Property
Foreclosure property is real
property (including interests in real property) and any personal property incident to such real property: (i) that is acquired by a REIT
as the result of the REIT having bid in the property at foreclosure, or having otherwise reduced the property to ownership or possession
by agreement or process of law, after there was a default (or default was imminent) on a lease of the property or on a mortgage loan held
by the REIT and secured by the property; (ii) for which the related loan or lease was acquired by the REIT at a time when default was
not imminent or anticipated; and (iii) for which such REIT makes a proper election to treat the property as foreclosure property. REITs
generally are subject to tax at the maximum corporate rate (currently 21%) on any net income from foreclosure property, including any
gain from the disposition of the foreclosure property, other than income that would otherwise be qualifying income for purposes of the
75% gross income test. Any gain from the sale of property for which a foreclosure property election has been made will not be subject
to the 100% tax on gains from prohibited transactions described above, even if the property would otherwise constitute inventory or dealer
property in the hands of the selling REIT. We do not anticipate that we will receive any income from foreclosure property that is not
qualifying income for purposes of the 75% gross income test, but, if we do receive any such income, we intend to make an election to treat
the related property as foreclosure property.
Hedging Transactions
We expect to enter into hedging
transactions, from time-to-time, with respect to our assets or liabilities. Our hedging activities may include entering into interest
rate swaps, caps, and floors, options to purchase these items, and futures and forward contracts. To the extent that we enter into an
interest rate swap or cap contract, option, futures contract, forward rate agreement, or any similar financial instrument to hedge our
indebtedness incurred or to be incurred to acquire or carry “real estate assets,” including mortgage loans, or to hedge certain
foreign currency risks, any periodic income or gain from the disposition of that contract are disregarded for purposes of the 75% and
95% gross income tests. We are required to identify clearly any such hedging transaction before the close of the day on which it was acquired,
originated, or entered into and satisfy other identification requirements. To the extent that we hedge for other purposes, or to the extent
that a portion of our loans are not secured by “real estate assets” (as described under “— Asset Tests”)
or in other situations, the income from those transactions will likely be treated as non-qualifying income for purposes of both gross
income tests. We intend to structure any hedging transactions in a manner that does not jeopardize our status as a REIT.
Taxable Mortgage Pools
An entity, or a portion of
an entity, may be classified as a taxable mortgage pool, or TMP, under the Code if: (i) substantially all of its assets consist of debt
obligations or interests in debt obligations; (ii) more than 50% of those debt obligations are real estate mortgages or interests in real
estate mortgages as of specified testing dates; (iii) the entity has issued debt obligations (liabilities) that have two or more maturities;
and (iv) the payments required to be made by the entity on its debt obligations (liabilities) “bear a relationship” to the
payments to be received by the entity on the debt obligations that it holds as assets. Under regulations issued by the U.S. Treasury Department,
if less than 80% of the assets of an entity (or a portion of an entity) consist of debt obligations, these debt obligations are considered
not to comprise “substantially all” of its assets, and therefore the entity would not be treated as a TMP.
A TMP generally is treated
as a corporation for U.S. federal income tax purposes. However, special rules apply to a REIT, a portion of a REIT, or a QRS that is a
TMP. If a REIT owns directly, or indirectly through one or more QRSs or other entities that are disregarded as separate entities for U.S.
federal income tax purposes, 100% of the equity interests in the TMP, the TMP will be a QRS and, therefore, ignored as an entity separate
from the REIT for U.S. federal income tax purposes and would not generally affect the tax qualification of the REIT.
An investment by us in an
arrangement that is classified as a TMP will be subject to tax as a separate corporation unless we own 100% of the equity in such TMP
arrangement so that it is treated as a QRS, as discussed above. Whether an arrangement is or is not a TMP may not be susceptible to precise
determination. If an investment in which we own an interest is characterized as a TMP and thus as a separate corporation, we will satisfy
the 100% ownership requirement only so long as we own all classes of securities that for tax purposes are characterized as equity, which
is often an uncertain factual issue. Accordingly, if an investment in which we own an interest is characterized as a TMP that does not
qualify as a QRS, we may be unable to comply with the REIT asset tests that restrict our ability to own most corporations. Certain of
our securitizations have resulted in the creation of a TMP for U.S. federal income tax purposes. For such securitizations, we own 100%
of the equity interests in the TMP. As a result they are treated as QRSs and we generally are not adversely affected by the characterization
as a TMP. A portion of the REIT’s income from a TMP arrangement that is not taxed as a separate corporation, which might be non-cash
accrued income, could be treated as “excess inclusion income.” The manner in which excess inclusion income is calculated is
not clear under current law. However, as required by IRS guidance, we intend to make such determinations based on what we believe
to be a reasonable method. Under the IRS guidance, a REIT’s excess inclusion income, including any excess inclusion income
from a residual interest in a REMIC, must be allocated among its stockholders in proportion to dividends paid. A REIT is required
to notify stockholders of the amount of “excess inclusion income” allocated to them. A stockholder’s share of
excess inclusion income:
| • | cannot be offset by any net operating losses otherwise available to the shareholder; |
| • | in the case of a shareholder that is a REIT, a regulated investment company or a common trust fund or
other pass through entity, is considered excess inclusion income of such entity; |
| • | is subject to tax as unrelated business taxable income in the hands of most types of stockholders that
are otherwise generally exempt from federal income tax; |
| • | results in the application of federal income tax withholding at the maximum rate (30%), without reduction
for any otherwise applicable income tax treaty or other exemption, to the extent allocable to most types of non-U.S. shareholders; and |
| • | is taxable (at the highest corporate tax rate) to the REIT, rather than its stockholders, to the extent
allocable to the REIT’s stock held in record name by disqualified organizations (generally, tax-exempt entities not subject to unrelated
business income tax, including governmental organizations). |
Tax-exempt investors, regulated
investment company or REIT investors, non-U.S. investors and taxpayers with net operating losses should carefully consider the tax consequences
described above, and are urged to consult their tax advisors.
Cash/Income Differences
Our operating partnership
may acquire debt instruments in the secondary market for less than their principal amount. The amount of such discount will generally
be treated as a “market discount” for federal income tax purposes. It is also possible that certain debt instruments may provide
for “payment-in-kind,” or PIK, interest which could give rise to “original issue discount” for federal income
tax purposes. Moreover, we may acquire distressed debt investments that are subsequently modified by agreement with the borrower. If the
amendments to the outstanding debt are “significant modifications” under the applicable Treasury Regulations, the modified
debt may be considered to have been reissued to us in a debt-for-debt exchange with the borrower. In that event, if the debt is considered
to be “publicly traded” for federal income tax purposes, the modified debt in our hands may be considered to have been issued
with original issue discount to the extent the fair market value of the modified debt is less than the principal amount of the outstanding
debt. In the event that the debt is not considered to be “publicly-traded” for federal income tax purposes, we may be required
to recognize taxable income to the extent that the principal amount of the modified debt exceeds our cost of purchasing it. Also, certain
loans that we originate and certain previously modified debt we acquire may be considered to have been issued with the original issue
discount of the time it was modified.
In general, our operating
partnership will be required to accrue original issue discount on a debt instrument as taxable income in accordance with applicable federal
income tax rules even though no cash payments may be received on such debt instrument. With respect to market discount, although generally
our operating partnership is not required to accrue the discount annually as taxable income (absent an election to do so), interest payments
with respect to any debt incurred to purchase the investment may not be deductible and a portion of any gain realized on our operating
partnership’s disposition of the debt instrument may be treated as ordinary income rather than capital gain.
Finally, in the event that
any debt instruments acquired by our operating partnership are delinquent as to mandatory principal and interest payments, or in the event
a borrower with respect to a particular debt instrument acquired by our operating partnership encounters financial difficulty rendering
it unable to pay stated interest as due, our operating partnership may nonetheless be required to continue to recognize the unpaid interest
as taxable income. Similarly, the operating partnership may be required to accrue interest income with respect to subordinate mortgage-backed
securities at the stated rate regardless of whether corresponding cash payments are received.
Due to each of these potential
timing differences between income recognition or expense deduction and cash receipts or disbursements, there is a significant risk that
our operating partnership may recognize and allocate to us substantial taxable income in excess of cash available for distribution. In
that event, we may need to borrow funds or take other action to satisfy the REIT distribution requirements for the taxable year in which
this “phantom income” is recognized. See “— Annual Distribution Requirements.”
Tax Aspects of Investments in Partnerships
We will hold investments through
entities, including our operating partnership, that are classified as partnerships for federal income tax purposes. In general, partnerships
are “pass-through” entities that are not subject to federal income tax. Rather, partners are allocated their proportionate
shares of the items of income, gain, loss, deduction and credit of a partnership, and are potentially subject to tax on these items, without
regard to whether the partners receive a distribution from the partnership. We will include in our income our proportionate share of these
partnership items from subsidiary partnerships for purposes of the various REIT income tests and in the computation of our REIT taxable
income. Moreover, for purposes of the REIT asset tests, we will include our proportionate share of assets held by subsidiary partnerships.
See “— Effect of Subsidiary Entities — Disregarded Entities and Partnerships.” Consequently, to the extent that
we hold an equity interest in a partnership, the partnership’s assets and operations may affect our ability to qualify as a REIT,
even if we may have no control, or only limited influence, over the partnership.
Entity Classification
Investment in partnerships
involves special tax considerations, including the possibility of a challenge by the IRS of the status of any partnerships as a partnership,
as opposed to an association taxable as a corporation, for federal income tax purposes. If any of these entities were treated as
an association taxable as a corporation for federal income tax purposes, it would be subject to an entity-level tax on its income. In
such a situation, the character of our assets and items of gross income would change and could preclude us from satisfying the REIT asset
tests or the gross income tests as discussed in “— Asset Tests” and “— Income Tests,” and in turn
could prevent us from qualifying as a REIT. See “— Failure to Qualify” above for a discussion of the effect of our failure
to meet these tests for a taxable year. In addition, any change in the status of any of these partnerships for tax purposes might be treated
as a taxable event, in which case we could have taxable income that is subject to the REIT distribution requirements without receiving
any cash.
Tax Allocations with Respect to Partnership
Properties
Under the Code and the Treasury
Regulations, 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 for tax purposes in a manner such that the contributing partner is charged
with, or benefits from, 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 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”).
Such allocations are solely for federal income tax purposes and do not affect the book capital accounts or other economic or legal arrangements
among the partners.
To the extent that any of
our partnerships acquire appreciated (or depreciated) properties by way of capital contributions from its partners, allocations would
need to be made in a manner consistent with these requirements. Where a partner contributes cash to a partnership at a time that the partnership
holds appreciated (or depreciated) property, the Treasury Regulations provide for a similar allocation of any existing book-tax difference
to the other (i.e., non-contributing) partners. These rules may apply to the contribution by us to our operating partnerships of the cash
proceeds received in offerings of our stock. As a result, we could be allocated greater or lesser amounts of depreciation and taxable
income in respect of a partnership’s properties than would be the case if all of the partnership’s assets (including any contributed
assets) had a tax basis equal to their fair market values at the time of any contributions to that partnership. This could cause us to
recognize, over a period of time, taxable income in excess of cash flow from the partnership, which might adversely affect our ability
to comply with the REIT distribution requirements discussed above.
Liability is imposed on the
partnership (rather than its partners) for adjustments to reported partnership taxable income resulting from audits or other tax proceedings.
The liability can include an imputed underpayment of tax, calculated by using the highest marginal U.S. federal income tax rate, as well
as interest and penalties on such imputed underpayment of tax. Using certain rules, partnerships may be able to transfer these liabilities
to their partners. In the event any adjustments are imposed by the IRS on the taxable income reported by any subsidiary partnerships,
we intend to utilize certain rules to the extent possible to allow us to transfer any liability with respect to such adjustments to the
partners of the subsidiary partnerships who should properly bear such liability. However, there is no assurance that we will qualify under
those rules or that we will have the authority to use those rules under the operating agreements for certain of our subsidiary partnerships.
State, Local and Foreign Taxes
We may be subject to state,
local or foreign taxation in various jurisdictions, including those in which we and our subsidiaries transact business, own property or
reside. The state, local or foreign tax treatment of us may not conform to the federal income tax treatment discussed above. Any foreign
taxes incurred by us would not pass through to stockholders to be credited against their United States federal income tax liability. Prospective
investors should consult their tax advisors regarding the application and effect of state, local and foreign income and other tax laws
on an investment in our common stock.
Taxation of Holders of Our Common Stock
The following is a summary
of certain additional federal income tax considerations with respect to the ownership of our common stock.
Taxation of Taxable U.S. Shareholders
As used herein, the term “U.S.
shareholder” means a holder of our common stock that for federal income tax purposes is:
| • | a citizen or resident of the U.S.; |
| • | a corporation (including an entity treated as a corporation for federal income tax purposes) created or
organized in or under the laws of the U.S., any of its states or the District of Columbia; |
| • | an estate whose income is subject to federal income taxation regardless of its source; or |
| • | a trust if: (i) a U.S. court is able to exercise primary supervision over the administration of such trust
and one or more U.S. persons have the authority to control all substantial decisions of the trust; or (ii) it has a valid election in
place to be treated as a U.S. person. |
If a partnership, entity or
arrangement treated as a partnership for federal income tax purposes holds our common stock, the 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 that will hold our common stock, you should consult your tax advisor regarding the consequences of the purchase, ownership
and disposition of our common stock by the partnership.
Taxation of U.S. Shareholders on Distributions
on Our Capital Stock
For such time as we qualify
to be taxed as a REIT, the distributions that we make to our U.S. shareholders out of current or accumulated earnings and profits (as
determined for U.S. federal income tax purposes) that we do not designate as capital gain dividends generally will be taken into account
by such U.S. shareholders as ordinary income and will not be eligible for the dividends received deduction for corporations. With limited
exceptions, our dividends are not eligible for taxation at the preferential income tax rates (i.e., the 20% maximum U.S. federal rate)
for qualified dividends received by most U.S. shareholders that are individuals, trusts or estates from taxable C corporations. However,
for taxable years prior to January 1, 2026, generally U.S. shareholders that are individuals, trusts or estates may deduct 20% of the
aggregate amount of ordinary dividends distributed by us, subject to certain limitations. In addition, such U.S. shareholders may be taxed
at the preferential rates on dividends designated as qualified dividend income by and received from REITs, provided certain requirements
described below are met, to the extent that the dividends are attributable to:
| • | income retained by the REIT in the prior taxable year on which the REIT or a predecessor was subject to
corporate-level income tax (less the amount of tax); |
| • | qualified dividends received by the REIT during such taxable year from domestic TRSs, other taxable domestic
C corporations and certain “qualifying foreign corporations” that satisfy certain requirements (discussed below); or |
| • | income recognized in the prior taxable year from sales of “built-in gain” property acquired
by the REIT from C corporations in carryover basis transactions (less the amount of corporate tax on such income). |
A foreign corporation generally
will be a “qualifying foreign corporation” if it is incorporated in a possession of the U.S., the corporation is eligible
for benefits of an income tax treaty with the U.S. which the IRS determines is satisfactory, or the stock on which the dividend is paid
is readily tradable on an established securities market in the U.S. However, if a foreign corporation is a foreign personal holding company,
a foreign investment company or a passive foreign investment company, then it will not be treated as a qualifying foreign corporation,
and the dividends we receive from such an entity would not constitute qualified dividend income.
In addition, even if we designate
certain dividends as qualified dividend income to our stockholders, the U.S. shareholder will have to meet certain other requirements
for the dividend to qualify for taxation at capital gains rates. For example, the U.S. shareholder will only be eligible to treat the
dividend as qualifying dividend income if the U.S. shareholder is taxed at individual rates and meets certain holding requirements. In
general, to treat a particular dividend as qualified dividend income, a U.S. shareholder will be required to hold our stock for more than
60 days during the 121-day period beginning on the date which is 60 days before the date on which the stock becomes ex-dividend. Moreover,
in no case may the amount we designate as qualified dividend income exceed the amount we distribute to our stockholders as dividends with
respect to the taxable year. If we designate any portion of a dividend as qualified dividend income, a U.S. shareholder will receive an
IRS Form 1099-DIV indicating the amount that will be taxable to the U.S. shareholder as qualified dividend income.
Distributions that we designate
as capital gain dividends generally will be taxed to our U.S. shareholders as long-term capital gains, to the extent that such distributions
do not exceed our actual net capital gain for the taxable year, without regard to the period for which the U.S. shareholder that receives
such distribution has held its stock. We may elect to retain and pay taxes on some or all of our net long-term capital gains, in which
case we may elect to apply provisions of the Code that treat our U.S. shareholders as having received, solely for tax purposes, our undistributed
capital gains, and the U.S. shareholders as receiving a corresponding credit for taxes that we paid on such undistributed capital gains.
See “—Taxation of Our Company—Distribution Requirements.” U.S. shareholders will increase their adjusted tax basis
in our stock by the difference between their allocable share of such retained capital gain and their share of the tax paid by us. Corporate
U.S. shareholders may be required to treat up to 20% of some capital gain dividends as ordinary income. Long-term capital gains are generally
taxable at maximum U.S. federal rates of 20% in the case of U.S. shareholders that are individuals, trusts and estates, and 21% in the
case of U.S. shareholders that are corporations. Capital gains attributable to the sale of depreciable real property held for more than
twelve months are subject to a 25% maximum U.S. federal income tax rate for taxpayers who are taxed as individuals, to the extent of previously
claimed depreciation deductions.
Distributions in excess of
our current and accumulated earnings and profits (as determined for U.S. federal income tax purposes) generally will represent a return
of capital and will not be taxable to a U.S. shareholder to the extent that the amount of such distributions does not exceed the adjusted
basis of the U.S. shareholder’s shares in respect of which the distributions were made. Rather, the distribution will reduce the
adjusted basis of the U.S. shareholder’s shares. To the extent that such distributions exceed the adjusted basis of a U.S. shareholder’s
shares, the U.S. shareholder generally must include such distributions in income as long-term capital gain if the shares of stock have
been held for more than one year, or short-term capital gain if the shares of stock have been held for one year or less. In addition,
any dividend that we declare in October, November or December of any year and that is payable to a U.S. shareholder of record on a specified
date in any such month will be treated as received by the U.S. shareholder on December 31 of such year, provided that we actually pay
the dividend before January 31 of the following calendar year.
We will be treated as having
sufficient earnings and profits to treat as a dividend any distribution that we treat as a dividend up to the amount of the required distribution
(as defined above). As a result, U.S. shareholders may be required to treat as taxable dividends certain distributions that would otherwise
result in tax-free returns of capital.
To the extent that we have
available net operating losses and capital losses carried forward from prior tax years, such losses may reduce the amount of distributions
that we must make to comply with the REIT distribution requirements. See “—Annual Distribution Requirements.” Such losses,
however, are not passed through to U.S. shareholders and do not offset income of U.S. shareholders from other sources, nor would such
losses affect the character of any distributions that we make, which are generally subject to tax in the hands of U.S. shareholders to
the extent that we have current or accumulated earnings and profits
Participants in our dividend
reinvestment plan (“DRIP”) will be treated for tax purposes as having received a distribution equal to the fair market value
on the date of distribution of the shares received even if they purchase the shares at a discount to fair market value. As a result, participants
in our DRIP may have tax liability with respect to the deemed distribution amount, but they will not receive cash distributions to pay
such liability.
Taxation of U.S. Shareholders on the Disposition
of Our Capital Stock
If a U.S. shareholder sells
or disposes of shares of our stock, it generally will recognize gain or loss for U.S. federal income tax purposes in an amount equal to
the difference between the amount of cash and the fair market value of any property received on the sale or other disposition and the
U.S. shareholder’s adjusted tax basis in the shares of stock. In general, capital gains recognized by U.S. shareholders that are
individuals, trusts or estates upon the sale or disposition of our stock will be subject to a maximum U.S. federal income tax rate of
20% if the stock is held for more than one year, and will be taxed at ordinary income rates (up to 37% for taxable years before January
1, 2026) if the stock is held for one year or less. Gains recognized by U.S. shareholders that are corporations are subject to U.S. federal
income tax at a maximum rate of 21% whether or not such gains are classified as long-term capital gains. The IRS has the authority to
prescribe, but has not yet prescribed, Treasury regulations that would apply a capital gain tax rate of 25% (which is higher than the
long-term capital gain tax rates for non-corporate U.S. shareholders) to a portion of capital gain realized by a non-corporate U.S. shareholder
on the sale of shares of our stock that would correspond to our “unrecaptured Section 1250 gain.” U.S. shareholders should
consult with their tax advisors with respect to their capital gain tax liability.
Capital losses recognized
by a U.S. shareholder upon the disposition of our stock that was held for more than one year at the time of disposition will be considered
long-term capital losses, and are generally available only to offset capital gain income of the U.S. shareholder but not ordinary income
(except in the case of U.S. shareholders that are individuals, who may also offset up to $3,000 of ordinary income each year). In addition,
any loss upon a sale or exchange of shares of our stock by a U.S. shareholder who has held the shares for six months or less, after applying
holding period rules, will be treated as a long-term capital loss to the extent of actual or deemed distributions that we make that are
required to be treated by the U.S. shareholder as long-term capital gain.
If a U.S. shareholder recognizes
a loss upon a subsequent disposition of our stock in an amount that exceeds a prescribed threshold, it is possible that the provisions
of Treasury regulations involving “reportable transactions” could apply, with a resulting requirement to separately disclose
the loss-generating transaction to the IRS. These regulations, though directed towards “tax shelters,” are broadly written,
and apply to transactions that would not typically be considered tax shelters. The Code imposes significant penalties for failure to comply
with these requirements. U.S. shareholders should consult their tax advisors concerning any possible disclosure obligation with respect
to the receipt or disposition of our stock, or transactions that we might undertake directly or indirectly. Moreover, you should be aware
that we and other participants in transactions involving us (including our advisors) might be subject to disclosure or other requirements
pursuant to these regulations.
Distributions made by us and
gain arising from the sale or exchange by a U.S. shareholder of our stock will not be treated as passive activity income. As a result,
U.S. shareholders will not be able to apply any “passive losses” against income or gain relating to our stock. Distributions
made by us, to the extent they do not constitute a return of capital, generally will be treated as investment income for purposes of computing
the investment interest limitation. A U.S. shareholder that elects to treat capital gain dividends, qualified dividend income or capital
gains from the disposition of stock as investment income for purposes of the investment interest limitation will be taxed at ordinary
income rates on such amounts. We will notify stockholders regarding the portions of our distributions for each year that constitute ordinary
income, return of capital and qualified dividend income.
Certain U.S. shareholders
that are individuals, estates or trusts are required to pay an additional 3.8% tax on “net investment income,” (or, in the
case of an estate or trust, on “undistributed net investment income”) which includes, among other things, dividends on and
gains from the sale or other disposition of REIT stock. The temporary 20% deduction allowed by Section 199A of the Code with respect to
ordinary REIT dividends received by non-corporate taxpayers is allowed only for purposes of Chapter 1 of the Code and thus is not allowed
as a deduction allocable to such dividends for purposes of determining the amount of net investment income subject to the 3.8% net investment
income tax, which is imposed under Chapter 2A of the Code. U.S. shareholders should consult their tax advisors regarding this tax on net
investment income.
Information Reporting Requirements and Backup
Withholding
In general, information-reporting
requirements will apply to payments of distributions on our shares and payments of the proceeds of the sale of our shares to some U.S.
shareholders, unless an exception applies. Further, the payer will be required to withhold backup withholding tax on such payments at
the rate of 28% if:
| • | the payee fails to furnish a taxpayer identification number (“TIN”) to the payer or to establish
an exemption from backup withholding; |
| • | the IRS notifies the payer that the TIN furnished by the payee is incorrect; |
| • | there has been a notified payee under-reporting with respect to interest, dividends or original issue
discount described in Section 3406(c) of the Code; or |
| • | there has been a failure of the payee to certify under the penalty of perjury that the payee is not subject
to backup withholding under the Code. |
Some shareholders may be exempt
from backup withholding. Any amounts withheld under the backup withholding rules from a payment to a shareholder will be allowed as a
credit against the shareholder’s U.S. federal income tax liability and may entitle the shareholder to a refund, provided that the
required information is furnished to the IRS.
Taxation of U.S. Holders on Redemption of
Preferred Stock
The treatment of any redemption
of our preferred stock (as distinguished from a sale, exchange or other disposition) can only be determined on the basis of particular
facts as to the holder of preferred stock at the time of redemption. In general, a holder of preferred stock will recognize capital gain
or loss measured by the difference between the amount received upon the redemption and the holder of the preferred stock’s adjusted
tax basis in the preferred stock redeemed (provided the preferred stock is held as a capital asset) if such redemption (i) is “substantially
disproportionate” with respect to the U.S. holder’s interest in our stock under Section 302(b)(2) of the Code, (ii) results
in a “complete termination” of a holder’s interest in all classes of our stock under Section 302(b)(3) of the Code or
(iii) is “not essentially equivalent to a dividend” with respect to the holder under Section 302(b)(1) of the Code. In applying
these tests, there must be taken into account not only any preferred stock owned by the holder, but also such holder’s ownership
of common stock, equity shares, other series of preferred stock and any options (including stock purchase rights) to acquire any of the
foregoing. The holder also must take into account any such securities (including options) which are considered to be owned by such holder
by reason of the constructive ownership rules set forth in Sections 318 and 302(c) of the Code.
If a particular holder of
preferred stock owns (actually or constructively) none of our common stock or an insubstantial percentage of our outstanding common stock
or preferred stock, based upon current law, it is probable that the redemption of preferred stock from such a holder would be considered
“not essentially equivalent to a dividend.” However, whether a distribution is “not essentially equivalent to a dividend”
depends on all of the facts and circumstances, and a holder of preferred stock intending to rely on any of these tests at the time of
redemption should consult its tax advisor to determine their application to its particular situation.
If the redemption does not
meet any of the tests under Section 302 of the Code, then the redemption proceeds received from the preferred stock will be treated as
a distribution on the preferred stock as described under “Material U.S. Federal Income Tax Considerations—Taxation of Taxable
U.S. shareholders” and “—Taxation of Non-U.S. shareholders” in the accompanying prospectus. If the redemption
is taxed as a distribution, the holder’s adjusted tax basis in the redeemed preferred stock will be transferred to any other stockholdings
of the holder of our preferred stock. If the holder of preferred stock owns no other shares of beneficial interest in us, under certain
circumstances, such basis may be transferred to a related person, or it may be lost entirely.
Taxation of U.S. Holders on a Conversion
of Preferred Stock
Except as provided below,
(i) a U.S. shareholder generally will not recognize gain or loss upon the conversion of preferred stock into our common stock, and (ii)
a U.S. shareholder’s basis and holding period in our 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 shares of 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 a taxable 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. shareholder has
held the preferred stock for more than one year at the time of conversion. U.S. shareholders are urged to consult with their tax advisors
regarding the U.S. federal income tax consequences of any transaction by which such holder exchanges shares of our common stock received
on a conversion of preferred stock for cash or other property.
Taxation of Tax-Exempt Stockholders
Tax-exempt entities, including
qualified employee pension and profit sharing trusts and IRAs, generally are exempt from federal income taxation. However, they are subject
to taxation on their unrelated business taxable income. Dividend distributions from a REIT to an exempt employee pension trust generally
do not constitute unrelated business taxable income, provided that the exempt employee pension trust does not otherwise use the shares
of the REIT in an unrelated trade or business of the pension trust. However, if a tax-exempt stockholder were to finance its investment
in our common stock with debt, a portion of the income that it receives from us would constitute unrelated business taxable income pursuant
to the “debt-financed property” rules. In addition, dividends that are attributable to excess inclusion income, with respect
to the REMIC residual interests or taxable mortgage pools, will constitute unrelated business taxable income in the hands of most tax-exempt
stockholders. See “— Taxable Mortgage Pools.” Furthermore, 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 federal
income tax laws are subject to different unrelated business taxable income rules, which generally will require them to characterize distributions
that they receive from us as unrelated business taxable income. Finally, in certain circumstances, a qualified employee pension or profit
sharing trust that owns more than 10% of our stock is required to treat a percentage of the dividends that it receives from us as unrelated
business taxable income. Such percentage is equal to the gross income that 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 stock only if:
| • | the percentage of our dividends that the tax-exempt trust would be required to treat as unrelated business
taxable income is at least 5%; |
| |
• |
We qualify as a REIT by reason of the modification of the rule requiring that no more than 50% of our stock be owned by five or fewer individuals that allows the beneficiaries of the pension trust to be treated as holding our stock in proportion to their actuarial interests in the pension trust (see “— Taxation of Franklin BSP Realty Trust, Inc. — Requirements for Qualification — General”); and |
| • | either: (i) one pension trust owns more than 25% of the value of our stock; or (ii) a group of pension
trusts individually holding more than 10% of the value of our stock collectively owns more than 50% of the value of our stock. |
Taxation of Non-U.S. shareholders
The term “non-U.S. shareholder”
means a holder of our common stock that is not a U.S. shareholder or a partnership or an entity treated as a partnership for federal income
tax purposes. The rules governing federal income taxation of non-U.S. shareholders are complex. This section is only a summary of such
rules. Non-U.S. shareholders are urged to consult their tax advisors to determine the impact of federal, state, local and non U.S. income
tax laws on the ownership of our common stock, including any reporting requirements.
As described in the discussion
below, distributions paid by us with respect to our common shares, our preferred shares and depositary shares will be treated for U.S.
federal income tax purposes as either:
| • | ordinary income dividends; |
| • | long-term capital gain; or |
| • | return of capital distributions. |
This discussion assumes that
our shares will continue to be considered regularly traded on an established securities market for purposes of the Foreign Investment
in Real Property Tax Act of 1980, or FIRPTA, provisions described below. If our shares are no longer regularly traded on an established
securities market, the tax considerations described below would materially differ.
Ordinary Income Dividends
A distribution paid by us
to a non-U.S. shareholder will be treated as an ordinary income dividend if the distribution is payable out of our earnings and profits
and:
| • | not attributable to our net capital gain; or |
| • | the distribution is attributable to our net capital gain from the sale of U.S. Real Property Interests
(“USRPIs”), and the non-U.S. shareholder owns 10% or less of the value of our common shares at all times during the one-year
period ending on the date of the distribution. |
In general, non-U.S. shareholders
will not be considered to be engaged in a U.S. trade or business solely as a result of their ownership of our shares. In cases where the
dividend income from a non-U.S. shareholder’s investment in our shares is, or is treated as, effectively connected with the non-U.S.
shareholder’s conduct of a U.S. trade or business, the non-U.S. shareholder generally will be subject to U.S. federal income tax
at graduated rates, in the same manner as U.S. shareholders are taxed with respect to such dividends. Such income must generally be reported
on a U.S. income tax return filed by or on behalf of the non-U.S. shareholder. The income may also be subject to the 30% branch profits
tax in the case of a non-U.S. shareholder that is a corporation.
Generally, we will withhold
and remit to the IRS 30% (or lower applicable treaty rate) of dividend distributions (including distributions that may later be determined
to have been made in excess of current and accumulated earnings and profits) that could not be treated as capital gain distributions with
respect to the non-U.S. shareholder (and that are not deemed to be capital gain dividends for purposes of the FIRPTA withholding rules
described below) unless:
| • | a lower treaty rate applies and the non-U.S. shareholder files an IRS Form W-8BEN or Form W-8BEN-E, as
applicable, evidencing eligibility for that reduced treaty rate with us; or |
| • | the non-U.S. shareholder files an IRS Form W-8ECI with us claiming that the distribution is income effectively
connected with the non-U.S. shareholder’s trade or business; or |
| • | the non-U.S. shareholder is a foreign sovereign or controlled entity of a foreign sovereign and also provides
an IRS Form W-8EXP claiming an exemption from withholding under section 892 of the Code. |
Return of Capital Distributions
Unless (A) our shares constitute
a USRPI, as described in “—Dispositions of Our Shares” below, or (B) either (1) the non-U.S. shareholder’s investment
in our shares is effectively connected with a U.S. trade or business conducted by such non-U.S. shareholder (in which case the non-U.S.
shareholder will be subject to the same treatment as U.S. shareholders with respect to such gain) or (2) the non-U.S. shareholder is a
nonresident alien individual who was present in the United States for 183 days or more during the taxable year and has a “tax home”
in the United States (in which case the non-U.S. shareholder will be subject to a 30% tax on the individual’s net capital gain for
the year), distributions that we make which are not dividends out of our earnings and profits will not be subject to U.S. federal income
tax. If we cannot determine at the time a distribution is made whether or not the distribution will exceed current and accumulated earnings
and profits, the distribution will be subject to withholding at the rate applicable to dividends. The non-U.S. shareholder may seek a
refund from the IRS of any amounts withheld if it subsequently is determined that the distribution was, in fact, in excess of our current
and accumulated earnings and profits. If our shares constitute a USRPI, as described below, distributions that we make in excess of the
sum of (1) the non-U.S. shareholder’s proportionate share of our earnings and profits, and (2) the non-U.S. shareholder’s
basis in its shares, will be taxed under FIRPTA at the rate of tax, including any applicable capital gains rates, that would apply to
a U.S. shareholder of the same type (e.g., an individual or a corporation, as the case may be), and the collection of the tax will be
enforced by a refundable withholding tax at a rate of 15% of the amount by which the distribution exceeds the non-U.S. shareholder’s
share of our earnings and profits.
Capital Gain Dividends
A distribution paid by us
to a non-U.S. shareholder will be treated as long-term capital gain if the distribution is paid out of our current or accumulated earnings
and profits and:
| • | the distribution is attributable to our net capital gain (other than from the sale of USRPIs) and we timely
designate the distribution as a capital gain dividend; or |
| • | the distribution is attributable to our net capital gain from the sale of USRPIs and the non-U.S. common
shareholder owns more than 10% of the value of common shares at any point during the one-year period ending on the date on which the distribution
is paid. |
Long-term capital gain that
a non-U.S. shareholder is deemed to receive from a capital gain dividend that is not attributable to the sale of USRPIs generally will
not be subject to U.S. federal income tax in the hands of the non-U.S. shareholder unless:
| • | the non-U.S. shareholder’s investment in our shares is effectively connected with a U.S. trade or
business of the non-U.S. shareholder, in which case the non-U.S. shareholder will be subject to the same treatment as U.S. shareholders
with respect to any gain, except that a non-U.S. shareholder that is a corporation also may be subject to the 30% (or lower applicable
treaty rate) branch profits tax; or |
| • | the non-U.S. shareholder is a nonresident alien individual who is present in the United States for 183
days or more during the taxable year and has a “tax home” in the United States in which case the nonresident alien individual
will be subject to a 30% tax on his capital gains. |
Under FIRPTA, distributions
that are attributable to net capital gain from the sale by us of USRPIs and paid to a non-U.S. shareholder that owns more than 10% of
the value of our shares at any time during the one-year period ending on the date on which the distribution is paid will be subject to
U.S. tax as income effectively connected with a U.S. trade or business. The FIRPTA tax will apply to these distributions whether or not
the distribution is designated as a capital gain dividend, and, in the case of a non-U.S. shareholder that is a corporation, such distributions
also may be subject to the 30% (or lower applicable treaty rate) branch profits tax.
Any distribution paid by us
that is treated as a capital gain dividend or that could be treated as a capital gain dividend with respect to a particular non-U.S. shareholder
will be subject to special withholding rules under FIRPTA. We will withhold and remit to the IRS 21% (or, to the extent provided in Treasury
Regulations, 20%) of any distribution that could be treated as a capital gain dividend with respect to the non-U.S. shareholder, whether
or not the distribution is attributable to the sale by us of USRPIs. The amount withheld is creditable against the non-U.S. shareholder’s
U.S. federal income tax liability or refundable when the non-U.S. shareholder properly and timely files a tax return with the IRS.
Certain non-U.S. pension funds
that are “qualified foreign pension funds” as defined by Section 897(l) of the Code and certain non-U.S. publicly traded entities
that are “qualified shareholders” as defined by Section 897(k) of the Code may be entitled to exceptions to the FIRPTA tax
with respect to distributions we pay. Non-U.S. shareholders should consult with their tax advisors regarding the application of these
exceptions.
Undistributed Capital Gain
Although the law is not entirely
clear on the matter, it appears that amounts designated by us as undistributed capital gains in respect of our shares held by non-U.S.
shareholders generally should be treated in the same manner as actual distributions by us of capital gain dividends. Under this approach,
the non-U.S. shareholder would be able to offset as a credit against their U.S. federal income tax liability resulting therefrom their
proportionate share of the tax paid by us on the undistributed capital gains treated as long-term capital gains to the non-U.S. shareholder,
and generally receive from the IRS a refund to the extent their proportionate share of the tax paid by us were to exceed the non-U.S.
shareholder’s actual U.S. federal income tax liability on such long-term capital gain. If we were to designate any portion of our
net capital gain as undistributed capital gain, a non-U.S. shareholder should consult its tax advisors regarding taxation of such undistributed
capital gain.
Dispositions of Our Shares
Unless our shares constitute
a USRPI, a sale of our shares by a non-U.S. shareholder generally will not be subject to U.S. federal income taxation under FIRPTA. Generally,
subject to the discussion below regarding dispositions by “qualified shareholders” and “qualified foreign pension funds,”
with respect to any particular shareholder, our shares will constitute a USRPI only if each of the following three statements is true:
| • | Fifty percent or more of our assets on any of certain testing dates during a prescribed testing period
consist of interests in real property located within the United States, excluding for this purpose, interests in real property solely
in a capacity as creditor; |
| • | We are not a “domestically-controlled qualified investment entity.” A domestically-controlled
qualified investment entity includes a REIT, less than 50% of value of which is held directly or indirectly by non-U.S. shareholders at
all times during a specified testing period. Although we believe that we are and will remain a domestically-controlled REIT, because our
shares are publicly traded, we cannot guarantee that we are or will remain a domestically-controlled qualified investment entity; and |
| • | Either (a) our shares are not “regularly traded,” as defined by applicable Treasury Regulations,
on an established securities market; or (b) our shares are “regularly traded” on an established securities market and the
selling non-U.S. shareholder has held over 10% of our outstanding common shares any time during the five-year period ending on the date
of the sale. |
Certain non-U.S. pension funds
that are “qualified foreign pension funds” as defined by Section 897(l) of the Code and certain non-U.S. publicly traded entities
that are “qualified shareholders” as defined by Section 897(k) of the Code may be entitled to exceptions to the FIRPTA tax
with respect to the sale of our shares. Non-U.S. shareholders should consult with their tax advisors regarding the application of these
exceptions.
Specific wash sales rules
applicable to sales of shares in a domestically-controlled qualified investment entity could result in gain recognition, taxable under
FIRPTA, upon the sale of our shares even if we are a domestically-controlled qualified investment entity. These rules would apply if a
non-U.S. shareholder (1) disposes of our shares within a 30-day period preceding the ex-dividend date of a distribution, any portion of
which, but for the disposition, would have been taxable to such non-U.S. shareholder as gain from the sale or exchange of a USRPI, (2)
acquires, or enters into a contract or option to acquire, other shares of our shares during the 61-day period that begins 30 days prior
to such ex-dividend date, and (3) if our shares are “regularly traded” on an established securities market in the United States,
such non-U.S. shareholder has owned more than 10% of our outstanding shares at any time during the one-year period ending on the date
of such distribution.
If gain on the sale of our
shares were subject to taxation under FIRPTA, the non-U.S. shareholder would be required to file a U.S. federal income tax return and
would be subject to the same treatment as a U.S. shareholder with respect to such gain, subject to the applicable alternative minimum
tax and a special alternative minimum tax in the case of non-resident alien individuals, and, if our common shares were not “regularly
traded” on an established securities market, the purchaser of the shares generally would be required to withhold 15% of the purchase
price and remit such amount to the IRS.
Gain from the sale of our
shares that would not otherwise be subject to FIRPTA will nonetheless be taxable in the United States to a non-U.S. shareholder as follows:
(1) if the non-U.S. shareholder’s investment in our shares is effectively connected with a U.S. trade or business conducted by such
non-U.S. shareholder, the non-U.S. shareholder will be subject to the same treatment as a U.S. shareholder with respect to such gain,
or (2) if the non-U.S. shareholder is a nonresident alien individual who was present in the U.S. for 183 days or more during the taxable
year and has a “tax home” in the United States, the nonresident alien individual will be subject to a 30% tax on the individual’s
capital gain.
Foreign Account Tax Compliance Act
Withholding at a rate of 30%
generally will be required in certain circumstances on dividends in respect of our common stock held by or through certain foreign financial
institutions (including investment funds), unless such institution (i) enters into, and complies with, an agreement with the IRS to report,
on an annual basis, information with respect to interests in, and accounts maintained by, the institution that are owned by certain U.S.
persons and by certain non-U.S. entities that are wholly or partially owned by U.S. persons and to withhold on certain payments, or (ii)
if required under an intergovernmental agreement between the U.S. and an applicable foreign country, reports such information to its local
tax authority, which will exchange such information with the U.S. authorities. An intergovernmental agreement between the U.S. and an
applicable foreign country, or other guidance, may modify these requirements. Accordingly, the entity through which our common stock is
held will affect the determination of whether such withholding is required. Similarly, in certain circumstances, dividends in respect
of our common stock held by an investor that is a non-financial non-U.S. entity that does not qualify under certain exemptions generally
will be subject to withholding at a rate of 30%, unless such entity either (i) certifies that such entity does not have any “substantial
U.S. owners” or (ii) provides certain information regarding the entity’s “substantial U.S. owners,” which we will
in turn provide to the IRS. Under these withholding rules, the failure to comply with additional certification, information reporting
and other specified requirements could result in withholding tax being imposed on payments of dividends and sales proceeds to U.S. shareholders
who own shares of our common stock through foreign accounts or foreign intermediaries and certain non-U.S. shareholders. We will not pay
any additional amounts to stockholders in respect of any amounts withheld. Investors should consult their tax advisors regarding the possible
implications of these rules on their investment in our common stock.
Legislative or Other Actions Affecting REITs
This discussion is based upon
the provisions of the Code, the Treasury Regulations and administrative and judicial interpretations thereof, all as of the date hereof.
Those authorities may be changed, perhaps retroactively, so as to result in U.S. federal income tax consequences (including applicable
tax rates) different from those summarized herein. We cannot assure you that a change in law, including the possibility of major tax legislation
in 2021, possibly with retroactive application, will not alter significantly the tax considerations (including applicable tax rates) that
we have described herein. We have not sought and do not plan to seek any ruling from the IRS, with respect to statements made and the
conclusions reached in the discussion herein, and there can be no assurance that the IRS or a court will agree with our statements and
conclusions.
BOOK-ENTRY SECURITIES
We may issue the securities offered by means of
this prospectus in whole or in part in book-entry form, meaning that beneficial owners of the securities will not receive certificates
representing their ownership interests in the securities, except in the event the book-entry system for the securities is discontinued.
If securities are issued in book entry form, they will be evidenced by one or more global securities that will be deposited with, or on
behalf of, a depository identified in the applicable prospectus supplement relating to the securities. The Depository Trust Company is
expected to serve as depository. Unless and until it is exchanged in whole or in part for the individual securities represented thereby,
a global security may not be transferred except as a whole by the depository for the global security to a nominee of such depository or
by a nominee of such depository to such depository or another nominee of such depository or by the depository or any nominee of such depository
to a successor depository or a nominee of such successor. Global securities may be issued in either registered or bearer form and in either
temporary or permanent form. The specific terms of the depository arrangement with respect to a class or series of securities that differ
from the terms described here will be described in the applicable prospectus supplement.
Unless otherwise indicated in the applicable prospectus
supplement, we anticipate that the following provisions will apply to depository arrangements.
Upon the issuance of a global security, the depository
for the global security or its nominee will credit on its book-entry registration and transfer system the respective principal amounts
of the individual securities represented by such global security to the accounts of persons that have accounts with such depository, who
are called “participants.” Such accounts shall be designated by the underwriters, dealers or agents with respect to the securities
or by us if the securities are offered and sold directly by us. Ownership of beneficial interests in a global security will be limited
to the depository’s participants or persons that may hold interests through such participants. Ownership of beneficial interests
in the global security will be shown on, and the transfer of that ownership will be effected only through, records maintained by the applicable
depository or its nominee (with respect to beneficial interests of participants) and records of the participants (with respect to beneficial
interests of persons who hold through participants). The laws of some states require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and laws may impair the ability to own, pledge or transfer beneficial interest
in a global security.
So long as the depository for a global security
or its nominee is the registered owner of such global security, such depository or nominee, as the case may be, will be considered the
sole owner or holder of the securities represented by such global security for all purposes under the applicable instrument defining the
rights of a holder of the securities. Except as provided below or in the applicable prospectus supplement, owners of beneficial interest
in a global security will not be entitled to have any of the individual securities of the series represented by such global security registered
in their names, will not receive or be entitled to receive physical delivery of any such securities in definitive form and will not be
considered the owners or holders thereof under the applicable instrument defining the rights of the holders of the securities.
Payments of amounts payable with respect to individual
securities represented by a global security registered in the name of a depository or its nominee will be made to the depository or its
nominee, as the case may be, as the registered owner of the global security representing such securities. None of us, our officers and
board members or any trustee, paying agent or security registrar for an individual series of securities will have any responsibility or
liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the global security
for such securities or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.
We expect that the depository for a series of securities
offered by means of this prospectus or its nominee, upon receipt of any payment of principal, premium, interest, dividend or other amount
in respect of a permanent global security representing any of such securities, will immediately credit its participants’ accounts
with payments in amounts proportionate to their respective beneficial interests in the principal amount of such global security for such
securities as shown on the records of such depository or its nominee. We also expect that payments by participants to owners of beneficial
interests in such global security held through such participants will be governed by standing instructions and customary practices,
as is the case with securities held for the account of customers in bearer form or registered in “street name.” Such payments
will be the responsibility of such participants.
If a depository for a series of securities is at
any time unwilling, unable or ineligible to continue as depository and a successor depository is
not appointed by us within 90 days, we will issue individual securities of such series in exchange for the global security representing
such series of securities. In addition, we may, at any time and in our sole discretion, subject to any limitations described in the applicable
prospectus supplement relating to such securities, determine not to have any securities of such series represented by one or more global
securities and, in such event, will issue individual securities of such series in exchange for the global security or securities representing
such series of securities.
SELLING STOCKHOLDERS
Information
about selling stockholders, where applicable, will be set forth in a prospectus supplement, in a post-effective amendment or in filings
we make with the SEC under the Exchange Act that are incorporated herein by reference.
PLAN OF DISTRIBUTION
Unless
otherwise set forth in a prospectus supplement accompanying this prospectus, we or any of the selling stockholders may sell the securities
offered pursuant to this prospectus to or through one or more underwriters or dealers for public offering and sale by them, or we or the
selling stockholders may sell the securities to investors directly or through agents, which agents may be affiliated with us. Any such
underwriter, dealer or agent involved in the offer and sale of the securities will be named in the applicable prospectus supplement. We
or the selling stockholders may sell securities directly to investors on our or their own behalf in those jurisdictions where we or they
are authorized to do so. Direct sales to investors may be accomplished through subscription offerings or through subscription rights distributed
to our stockholders. In connection with subscription offerings or the distribution of subscription rights to stockholders, if all of the
underlying offered securities are not subscribed for, we or the selling stockholders may sell such unsubscribed offered securities to
third parties directly or through agents and, in addition, whether or not all of the underlying offered securities are subscribed for,
we or the selling stockholders may concurrently offer additional offered securities to third parties directly or through agents, which
agents may be affiliated with us.
The distribution of the offered securities may
be effected from time to time in one or more transactions at a fixed price or prices, which may be changed, or at market prices prevailing
at the time of sale, at prices related to such prevailing market prices at the time of sale, such as an “at the market offering,”
or at negotiated prices, any of which may represent a discount from the prevailing market price. We or the selling stockholders also may,
from time to time, authorize underwriters or dealers acting as our agents to offer and sell the securities upon the terms and conditions
set forth in the applicable prospectus supplement. In connection with the sale of offered securities, underwriters may receive compensation
from us or the selling stockholders in the form of underwriting discounts or commissions and may also receive commissions from purchasers
of offered securities for whom they may act as agent. Underwriters may sell offered securities to or through dealers, and such dealers
may receive compensation in the form of discounts, concessions or commissions from the underwriters and/or commissions from the purchasers
for whom they may act as agents.
Our securities may also be sold in one or more
of the following transactions: (a) block transactions (which may involve cross transactions) in which a broker-dealer may sell all
or a portion of such shares as agent, but may position and resell all or a portion of the block as principal to facilitate the transaction;
(b) purchases by any such broker-dealer as principal, and resale by such broker-dealer for its own account pursuant to a prospectus
supplement; (c) a special offering, an exchange distribution or a secondary distribution in accordance with applicable NYSE or other
stock exchange, quotation system or over-the-counter market rules; (d) ordinary brokerage transactions and transactions
in which any such broker-dealer solicits purchasers; (e) sales “at the market” to or through a market maker or into an
existing trading market, on an exchange or otherwise, for such shares and (f) sales in other ways not involving market makers or
established trading markets, including direct sales to purchasers.
Any underwriting compensation paid by us or the
selling stockholders to underwriters or agents in connection with the offering of the securities, and any discounts, concessions or commissions
allowed by underwriters to participating dealers, will be set forth in the applicable prospectus supplement. Dealers and agents participating
in the distribution of the securities may be deemed to be underwriters, and any discounts and commissions received by them and any profit
realized by them on resale of the securities may be deemed to be underwriting discounts and commissions under the Securities Act.
Underwriters, dealers and agents may be entitled,
under agreements entered into with us or the selling stockholders, to indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act. Any such indemnification agreements will be described in the applicable prospectus supplement.
Unless otherwise set forth in an accompanying prospectus supplement, the obligations of any underwriters to purchase any of the securities
will be subject to certain conditions precedent, and the underwriters will be obligated to purchase all of such securities, if any are
purchased.
Underwriters, dealers and agents may engage in
transactions with, or perform services for, us and our affiliates, or the selling stockholders, in the ordinary course of business.
If so indicated in the applicable prospectus supplement,
we or the selling stockholders will authorize underwriters or dealers acting as our agents to solicit offers by institutions to purchase
offered securities from us or the selling stockholders at the public offering price set forth in such prospectus supplement pursuant to
delayed delivery contracts providing for payment and delivery on the date or dates stated in such prospectus supplement. Each contract
will be for an amount not less than, and the aggregate principal amount of securities sold pursuant to contracts shall not be less nor
more than, the respective amounts stated in the applicable prospectus supplement. Institutions with which we or the selling stockholders
may make these delayed delivery contracts include commercial and savings banks, insurance companies, pension funds, investment companies,
educational and charitable institutions and others but will in all cases be subject to our approval. The obligations of any purchaser
under any such delayed delivery contract will be subject to the condition that the purchase by an institution of the securities shall
not at the time of delivery be prohibited under the laws of the jurisdiction to which the purchaser is subject. The underwriters and other
agents will not have any responsibility with regard to the validity or performance of these delayed delivery contracts.
In connection with the offering of the securities
hereby, certain underwriters, and selling group members and their respective affiliates may engage in transactions that stabilize, maintain
or otherwise affect the market price of the applicable securities. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M promulgated by the SEC pursuant to which such persons may bid for or purchase securities for
the purpose of stabilizing their market price. The underwriters in an offering of securities may also create a “short position”
for their account by selling more securities in connection with the offering than they are committed to purchase from us or the selling
stockholders. In such case, the underwriters could cover all or a portion of such short position by either purchasing securities in the
open market following completion of the offering of such securities or by exercising any over-allotment option granted to them by us or
the selling stockholders. In addition, the managing underwriter may impose “penalty bids” under contractual arrangements with
other underwriters, which means that they can reclaim from an underwriter (or any selling group member participating in the offering)
for the account of the other underwriters, the selling concession with respect to securities that are distributed in the offering but
subsequently purchased for the account of the underwriters in the open market. Any of the transactions described in this paragraph or
comparable transactions that are described in any accompanying prospectus supplement may result in the maintenance of the price of the
securities at a level above that which might otherwise prevail in the open market. None of such transactions described in this paragraph
or in an accompanying prospectus supplement are required to be taken by any underwriters and, if they are undertaken, may be discontinued
at any time.
We or the selling stockholders may sell the securities
in exchange in whole or part for consideration other than cash. This consideration may consist of services or products, whether tangible
or intangible, and including services or products we may use in our business; our outstanding debt or equity securities or one or more
of our subsidiaries; debt or equity securities or assets of other companies, including in connection with investments, joint ventures
or other strategic transactions, or acquisitions; release of claims or settlement of disputes; and satisfaction of obligations, including
obligations to make payments to distributors or other suppliers and payment of interest on outstanding obligations. We or the selling
stockholders may sell the securities as part of a transaction in which our outstanding debt or equity securities or one or more of our
subsidiaries are surrendered, converted, exercised, canceled or transferred.
Our shares of common stock are listed on the NYSE
under the symbol “FBRT.” Any new securities that we issue, other than our common stock, will be new issues of securities with
no established trading market and may or may not be listed on a national securities exchange, quotation system or over-the-counter market.
Any underwriters or agents to or through which securities are sold by us or the selling stockholders may make a market in such securities,
but such underwriters or agents will not be obligated to do so and any of them may discontinue any market making at any time without notice.
No assurance can be given as to the liquidity of or trading market for any securities sold by us.
LEGAL MATTERS
The validity
of the securities offered by means of this prospectus and certain federal income tax matters have been passed upon for us by Hogan Lovells
US LLP. Additional legal matters may be passed upon for us, any selling stockholders or any underwriters, dealers or agents, by counsel
that we will name in the applicable prospectus supplement.
EXPERTS
The consolidated
financial statements of Franklin BSP Realty Trust, Inc., (formerly Benefit Street Partners Realty Trust, Inc.) appearing in Franklin BSP
Realty Trust, Inc.'s Annual Report (Form 10-K) for the year ended December 31, 2020, have been audited by Ernst & Young LLP, independent
registered public accounting firm, as set forth in their report thereon, included therein, and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in reliance upon such report given on the authority of such firm
as experts in accounting and auditing.
The consolidated
financial statements of Capstead Mortgage Corporation at December 31, 2020 and 2019, and for each of the years ended December 31, 2020,
December 31, 2019, and December 31, 2018 incorporated by reference in Franklin BSP Realty Trust, Inc.’s Form 8-K/A filed November
12, 2021, which is incorporated by reference in this Prospectus and Registration Statement, have been audited by Ernst & Young LLP,
independent registered public accounting firm, as set forth in their report thereon, incorporated by reference therein, and incorporated
herein by reference in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
Exhibit 107
Calculation of Filing Fee Tables
424(b)(3)
(Form Type)
Franklin BSP Realty Trust, Inc.
(Exact Name of Registrant as Specified in its Charter)
Table 1: Newly Registered and Carry Forward
Securities
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Security Type |
|
Security Class Title |
|
Fee
Calculation
or Carry
Forward Rule |
|
Amount
Registered (1) |
|
Proposed
Maximum
Offering
Price Per
Unit (2)
|
|
Maximum
Aggregate
Offering
Price |
|
Fee Rate |
|
Amount of
Registration
Fee (3) |
| |
| Newly Registered Securities |
| |
|
|
|
|
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|
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|
Fees to Be
Paid
|
|
Equity |
|
Common Stock, $0.01 par value per share |
|
Rule 457(c) |
|
2,557,644 |
|
$14.16 |
|
$36,203,451 |
|
0.00014760 |
|
$5,344 |
| |
| Carry Forward Securities |
| |
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|
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|
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|
| Carry Forward Securities |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
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N/A |
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|
Total Offering Amounts |
|
|
|
$36,203,451 |
|
|
|
$5,344 |
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|
Total Fees Previously Paid |
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|
— |
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Total Fee Offsets |
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— |
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Net Fee Due |
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|
$5,344 |
| (1) |
The shares of Common Stock, par value $0.01 per share (“Common Stock”), of the registrant will be offered for resale by the selling stockholder. Pursuant to Rule 416 under the Securities Act, this registration statement also covers any additional number of shares of Common Stock issuable upon stock splits, stock dividends, or other distribution, recapitalization or similar events with respect to the shares of Common Stock being registered pursuant to this registration statement. |
| (2) |
Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(c) of the Securities Act of 1933, as amended (the “Securities Act”). The proposed maximum offering price per share and maximum aggregate offering price are calculated using the average of the high and low prices of the Common Stock as reported on the New York Stock Exchange on December 18, 2023, which date is within five business days prior to the filing of this prospectus supplement. |
| (3) |
In accordance with Rules 456(b) and 457(r) under the Securities Act of 1933, as amended, the registrant initially deferred payment of all of the registration fees for the Registration Statement on Form S-3 (Registration No. 333-261039), filed on November 12, 2021. |
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