Unassociated Document
Filed
Pursuant to Rule 424(b)(2)
Registration
Statement No. 333-158215
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PROSPECTUS
SUPPLEMENT
(To
prospectus dated April 7, 2009)
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Up
to 375,000
ONE LIBERTY PROPERTIES,
INC.
Shares
of Common Stock
We have
declared a quarterly dividend on shares of our common stock, $1.00 par value,
of $0.22 per share, payable to our stockholders of record at the
close of business on December 22, 2009. This represents an aggregate dividend of
approximately $2,456,000. The dividend is expected to be paid on
January 25, 2010.
Each
stockholder may elect to receive the dividend in cash or shares of our common
stock, except that we will limit the aggregate amount of cash payable to 10% of
the total amount (the “Cash Limitation”), or approximately $245,600, of the
dividend (other than cash payable in lieu of fractional shares). If
stockholder elections would result in the payment of cash in excess of the Cash
Limitation, we will allocate the cash among stockholders as described herein
under “Effect of Cash Limitations,” and pay the remaining portion in shares of
our common stock. We will pay cash in lieu of issuing any fractional shares, but
cash paid in lieu of fractional shares will not count toward the Cash
Limitation. To the extent a stockholder receives the dividend entirely in
shares of our common stock, the stockholder’s relative ownership interest in our
shares will increase compared to stockholders who receive the dividend in cash
or a combination of cash and shares of our common stock. If a stockholder
receives the dividend entirely in cash, the stockholder’s relative ownership
interest in our shares will decrease compared to stockholders who receive the
dividend in shares of our common stock or a combination of cash and shares of
our common stock. Consequently, our future earnings per share will be
lower than it would be if we had not declared the dividend, as our earnings will
be spread over an increased number of shares.
Shares of
our common stock are listed on the New York Stock Exchange, or the NYSE, under
the symbol “OLP.” The market value per common share for purposes of the
dividend will be the average of the volume weighted trading prices of shares of
our common stock on the NYSE on January 13, 14 and 15, 2010. As a
result, on the payment date, the value of the shares and/or cash delivered in
the dividend may be more or less than $0.22 per share.
This
prospectus supplement relates to the issuance of shares of our common stock in
the dividend. We are offering up to 375,000 shares of our common
stock, which amount has been approved for listing on the NYSE, upon notice of
issuance. The actual number of shares that will be issued in the dividend
will depend on the average of the volume weighted trading prices of shares of
our common stock on the NYSE on January 13, 14 and 15, 2010. If
stockholder elections would result in payment of the Cash Limitation, based on
the closing price of shares of our common stock on December 21, 2009, then the
number of shares issued would be approximately 262,000 shares.
If you
want to elect payment in cash or shares of our common stock, complete and sign
the enclosed election form and deliver it to American Stock Transfer &
Trust Company, LLC, our transfer agent, no later than 5:00 P.M., Eastern
Time, on January 13, 2010. If the transfer agent does not receive a valid
election from you by that time, the dividend will be paid to you in shares of
our common stock.
If you
hold shares through a bank, broker or nominee, please contact such bank, broker
or nominee and inform them of the election they should make on your
behalf.
Before making your election, you are
urged to carefully read the risk factors included in our Annual Report on
Form 10-K for the year ended December 31, 2008, as amended,
incorporated herein by reference thereto.
The
aggregate market value of our outstanding common stock held by non-affiliates is
approximately $66.8 million based on a price of $8.98 per share, representing
the last reported sale price of our common stock on the New York Stock Exchange
on December 1, 2009. We have offered shares with an aggregate market
value of approximately $12.7 million pursuant to General Instruction I.B.6. of
Form S-3 during the prior 12 calendar month period that ends on and includes the
date of this prospectus supplement. Of that amount, shares with an
aggregate market value of approximately $6.3 million have been sold (not
including shares from the current offering).
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus
supplement or prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
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The
date of this prospectus supplement is December 22,
2009.
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Page
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Prospectus
Supplement
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ABOUT
THIS PROSPECTUS SUPPLEMENT
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S-1
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FORWARD-LOOKING
STATEMENTS
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S-1
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RISK
FACTORS
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S-1
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REASON
FOR THE DIVIDEND
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S-2
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THE
ELECTION
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S-2
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EFFECT
OF CASH LIMITATION
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S-3
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EFFECT
OF OWNERSHIP LIMITATION
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S-4
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FEDERAL
INCOME TAX CONSIDERATIONS
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S-4
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LEGAL
MATTERS
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S-24
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INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
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S-24
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WHERE
YOU CAN FIND MORE INFORMATION
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S-24
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Prospectus
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ABOUT
THIS PROSPECTUS
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2
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WHERE
YOU CAN FIND MORE INFORMATION
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3
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WHO
WE ARE
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4
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SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
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5
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RISK
FACTORS
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5
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USE
OF PROCEEDS
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5
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DESCRIPTION
OF SECURITIES
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5
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PROVISIONS
OF MARYLAND LAW AND OF OUR CHARTER AND BYLAWS
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7
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FEDERAL
INCOME TAX CONSIDERATIONS
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12
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IMPORTANCE
OF OBTAINING PROFESSIONAL TAX ADVICE
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26
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PLAN
OF DISTRIBUTION
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26
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LEGAL
MATTERS
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28
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EXPERTS
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28
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This
document is in two parts. The first part is this prospectus supplement, which
describes the terms of the dividend and also adds to, updates or supersedes
information contained in the accompanying prospectus and the documents
incorporated by reference into the accompanying prospectus. The second part is
the accompanying prospectus, which gives more general information, some of which
may not apply to the dividend. To the extent the information contained in
this prospectus supplement differs or varies from the information contained in
the accompanying prospectus or any document incorporated by reference, the
information in this prospectus supplement shall control.
In
this prospectus supplement, unless otherwise stated or the context otherwise
requires, the terms “OLP,” “we,” “us,” “our” and other similar terms refer to
the consolidated business of One Liberty Properties, Inc. and all of its
subsidiaries. The term “you” refers to a stockholder.
You should rely only on the
information contained in or incorporated by reference in this prospectus
supplement and the accompanying prospectus. We have not authorized anyone to
provide you with information that is different from that contained or
incorporated by reference in this prospectus supplement or the accompanying
prospectus. The offering of shares of our common stock in the dividend may be
restricted by law in certain non-U.S. jurisdictions. This prospectus
supplement is not an offer to sell nor does it seek an offer to buy any shares
of our common stock in any jurisdiction where the offer or sale is not
permitted. Elections made by any person in such a jurisdiction may be deemed
invalid.
FORWARD-LOOKING
STATEMENTS
This
prospectus supplement, the accompanying prospectus and other documents we file
with the Securities and Exchange Commission (the “SEC”) contain forward-looking
statements that are based on current expectations, estimates, forecasts and
projections about us, our future performance, the industries in which we
operate, our beliefs and our management’s assumptions. In addition,
other written or oral statements that constitute forward-looking statements may
be made by or on behalf of us. Words such as “expects,”
“anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,”
“seeks,” “estimates,” variations of such words and similar expressions are
intended to identify such forward-looking statements. These
statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions that are difficult to
predict. Therefore, actual outcomes and results may differ materially
from what is expressed or forecasted in such forward-looking
statements. Except as required under the federal securities laws and
the rules and regulations of the SEC, we do not have any intention or obligation
to update publicly any forward-looking statements after the distribution of this
prospectus, whether as a result of new information, future events, changes in
assumptions, or otherwise.
Before
you invest in any of our securities, in addition to the other information in
this prospectus supplement and the accompanying prospectus, you should carefully
consider the risk factors under the heading “Risk Factors” contained in Part I,
Item 1A in our most recent Annual Report on Form 10-K, as amended, and any risk
factors disclosed under the heading “Risk Factors” in Part II, Item 1A in any
Quarterly Report on Form 10-Q that we file after our most recent Annual Report
on Form 10-K, which are incorporated by reference into this prospectus
supplement and the accompanying prospectus, as the same may be updated from time
to time by our future filings under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”).
The
risks and uncertainties we describe are not the only ones we are facing.
Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also impair our business or operations. Any
adverse effect on our business, financial condition or operating results could
result in a decline in the value of the securities and the loss of all or part
of your investment.
We are
taxed as a real estate investment trust, or REIT, for U.S. federal income tax
purposes. In order to qualify as a REIT and avoid corporate-level income and
excise taxes, we have historically distributed to our stockholders each year all
of our “taxable income,” as determined for U.S. federal income tax
purposes. For the quarterly dividend historically paid by us
in January of each year, we are paying a dividend in an aggregate amount of
$0.22 per share or approximately $2,456,000. The cash election option for the
dividend is being provided in order to assure that the dividend is treated as a
qualified REIT dividend eligible for the dividends paid deduction for U.S.
federal income tax purposes.
You may
elect to receive the dividend in the form of cash by choosing the cash option in
the accompanying election form, subject to the Cash Limitation and the ownership
limitation described below.
To the
extent you receive the dividend entirely in shares of our common stock, your
relative ownership interest in our common stock will increase compared to
stockholders that receive the dividend in cash or a combination of cash and
shares of our common stock. If you receive the dividend entirely in cash, your
relative ownership interest in our common stock will decrease compared to
stockholders that receive the dividend in shares of our common stock or a
combination of cash and shares of our common stock. The dividend will
result in an increased number of shares outstanding. Consequently, our
future earnings per share will be lower than it would be if we had not declared
the dividend, as our earnings will be spread over an increased number of
shares.
We will
pay cash in lieu of issuing any fractional shares, but cash paid in lieu of
fractional shares will not count toward the Cash Limitation.
To elect
to receive your dividend in cash, please complete and sign the accompanying
election form and either fax or mail it to the transfer agent in the enclosed
envelope as soon as possible. For your election to be effective, the
election form must be received by the transfer agent no later than
5:00 p.m., Eastern Time, on January 13, 2010. Your election is irrevocable.
The method of delivery of the election form is at the option and risk of the
stockholder making the election, and the delivery will be deemed made only when
actually received by the transfer agent. In all cases, sufficient time should be
allowed to ensure timely delivery. The submission of an election form with
respect to the dividend will constitute the electing stockholder’s
representation and warranty that such stockholder has full power and authority
to make such election.
For any
given share of common stock, an election with respect to the dividend may be
made only by the holder of record of that share at the close of business on
December 22, 2009, which is the record date for the dividend.
If your
shares are held in the name of a bank, broker or other nominee, please promptly
inform such bank, broker or nominee of the election they should make on your
behalf.
Your election may be limited by
certain cash and ownership limitations, as described below, and you may not
receive cash or shares of our common stock to the extent these limitations
require that a different allocation be made to you. We will pay cash in lieu of
issuing any fractional shares.
If you do
not (or your bank, broker or nominee does not on your behalf) timely return a
properly completed election form, we will pay your dividend in shares of our
common stock, subject to the ownership limitation described below.
All
questions as to the validity, form, eligibility (including time of receipt) and
acceptance by us of any dividend election form will be resolved by us, in our
sole discretion, and our determination as to the resolution of any such
questions shall be final and binding on all parties. We reserve the absolute
right to reject, at our sole discretion, any and all election forms determined
by us not to be in proper form, not timely received, ineligible or otherwise
invalid or the acceptance of which may, in the opinion of our counsel, be
unlawful. We also reserve the absolute right to waive any defect or irregularity
in the election form submitted by any particular stockholder, whether or not
similar defects or irregularities are waived in the case of other stockholders.
No valid election will be deemed to have been made until all defects and
irregularities have been cured or waived to our satisfaction. Neither we nor the
transfer agent nor any other person will be under any duty to give notification
of any defects or irregularities in election forms or incur any liability for
failure to give any such notification. Our interpretation of the terms and
conditions of the dividend will be final and binding.
All
shares of our common stock issued in the dividend will be issued only in
book-entry form. On or about January 25, 2010, the transfer agent will issue and
mail to each of our stockholders of record who is receiving shares of our common
stock in connection with the dividend, a statement listing the number of shares
of our common stock credited to such stockholder’s book-entry account and a
check or direct deposit for any cash to which such stockholder is entitled
(including, if applicable, cash in lieu of fractional shares) in the dividend.
For each of those stockholders who hold through a bank, broker or other nominee,
the shares of our common stock and cash to which such stockholder is entitled in
the dividend will be delivered by the transfer agent to such stockholder’s bank,
broker or other nominee. The bank, broker or other nominee will then allocate
the shares and cash into such stockholder’s individual account. All cash
payments to which a stockholder is entitled in the dividend will be rounded to
the nearest penny.
Completed
election forms should be delivered to our transfer agent, American Stock
Transfer & Trust Company, LLC, no later than 5:00 P.M., Eastern
Time, on January 13, 2010, in the enclosed envelope in accordance with the
following delivery instructions:
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By
Regular Mail:
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By
Facsimile:
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American
Stock Transfer & Trust Company
6201
15th Avenue
Brooklyn,
NY 11219-9821
Attn:
Operations Center
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American
Stock Transfer & Trust Company
(718)
765-8722
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If you
are a stockholder of record and need additional information about completing the
election form or other matters relating to the dividend, please contact the
transfer agent, at 1-800-937-5449.
If your
shares are held through a bank, broker or nominee, please contact such bank,
broker or nominee if you have any questions or need additional information about
the dividend or the election they may make on your behalf.
EFFECT
OF CASH LIMITATION
The total
amount of cash payable in the dividend is limited to 10% of the total dividend,
or approximately $245,600, not including any cash payments in lieu of fractional
shares. Although highly unlikely, if a sufficient number of
stockholders do not return their election card, all stockholders who elect cash
will receive their entire dividend in cash in accordance with their
elections. If satisfying all stockholder elections would result in
the payment of cash in excess of the Cash Limitation, then the total amount of
cash will be allocated on a pro rata basis among those stockholders who elected
cash. As a result, if you elected to receive the dividend in the form of cash,
you would not receive the entire dividend in the form of cash. Instead, you
would receive a portion in cash and the remainder in shares of our common stock,
valued based on the average of the volume weighted trading prices of shares of
our common stock on the NYSE on January 13, 14 and 15, 2010 (subject to the
ownership limitation described below and the payment of cash in lieu of any
fractional shares).
All cash
payments to which a stockholder is entitled will be rounded to the nearest
penny.
EFFECT
OF OWNERSHIP LIMITATION
Subject
to certain exceptions and provisions specified in our Articles of Amendment and
Restatement, as amended, no person or entity may own, or be deemed to own by
virtue of the attribution rules of the Internal Revenue Code, more than
9.9% in total number of shares or value of the outstanding shares of any class
or series of our shares of common or preferred stock. Our board of
directors may increase or decrease this limitation, provided any decrease may
only be made prospectively as to subsequent holders (other than a decrease as a
result of a retroactive change in the existing law that would require a decrease
to retain REIT status), in which case such decrease shall be effective
immediately. Prior to any modification in ownership limit, the board
of directors may require opinions of counsel, affidavits, undertakings or
agreements as it deems necessary or advisable to determine or ensure our REIT
status.
The
ownership limitation will apply to the dividend. Therefore, if you elect to
receive shares of our common stock and your receipt of shares of our common
stock would cause you to exceed the ownership limitation, you will receive cash
to the extent required to bring you within the ownership limitation. If you
elect to receive shares of our common stock and they are issued to you in
violation of the ownership limitation, all of the remedies applicable and
available under the ownership limitation, under our Articles of Amendment and
Restatement, as amended, or under the Internal Revenue Code will apply to those
shares of our common stock. For a more detailed description of the
ownership limitation and the remedies applicable thereunder, see “Provisions of
Maryland Law and of our Charter and Bylaws─Restrictions on Ownership and
Transfer” in the accompanying prospectus.
FEDERAL
INCOME TAX CONSIDERATIONS
The
following discussion supersedes and replaces the discussion of tax
considerations contained in the accompanying prospectus under the heading
“Federal Income Tax Considerations.”
The
following discussion describes certain of the material U.S. federal income tax
considerations relating to our taxation as a REIT under the Internal Revenue
Code (the “Code”), and the ownership and disposition of shares of our common
stock.
Because
this summary is only intended to address certain of the material U.S. federal
income tax considerations relating to the ownership and disposition of shares of
our common stock, it may not contain all of the information that may be
important to you. As you review this discussion, you should keep in mind
that:
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the
tax consequences to you may vary depending on your particular tax
situation;
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you
may be a person that is subject to special tax treatment or special
rules under the Code (e.g., regulated
investment companies, insurance companies, tax-exempt entities, financial
institutions or broker-dealers, expatriates, persons subject to the
alternative minimum tax and partnerships, trusts, estates or other pass
through entities) that the discussion below does not
address;
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the
discussion below does not address any state, local or non-U.S. tax
considerations; and
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the
discussion below deals only with stockholders that hold shares of our
common stock as a “capital asset,” within the meaning of Section 1221
of the Code.
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WE
URGE YOU TO CONSULT WITH YOUR OWN TAX ADVISORS REGARDING THE SPECIFIC TAX
CONSEQUENCES TO YOU OF ACQUIRING, OWNING AND SELLING SHARES OF OUR COMMON STOCK,
INCLUDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF ACQUIRING,
OWNING AND SELLING SHARES OF OUR COMMON STOCK IN YOUR PARTICULAR CIRCUMSTANCES
AND POTENTIAL CHANGES IN APPLICABLE LAWS.
The
information contained in this section is based on the Code, final, temporary and
proposed Treasury Regulations promulgated thereunder, the legislative history of
the Code, current administrative interpretations and practices of the Internal
Revenue Service (the “IRS”) (including in private letter rulings and other
non-binding guidance issued by the IRS), as well as court decisions all as of
the date hereof. No assurance can be given that future legislation, Treasury
Regulations, administrative interpretations and court decisions will not
significantly change current law or adversely affect existing interpretations of
current law, or that any such change would not apply retroactively to
transactions or events preceding the date of the change. We have not
obtained, and do not intend to obtain, any rulings from the IRS concerning the
U.S. federal income tax treatment of the matters discussed below.
Furthermore, neither the IRS nor any court is bound by any of the statements set
forth herein and no assurance can be given that the IRS will not assert any
position contrary to statements set forth herein or that a court will not
sustain such position.
Taxation of One
Liberty Properties, Inc. as a REIT
Sonnenschein
Nath & Rosenthal LLP (“Sonnenschein”), which has acted as our tax counsel,
has reviewed the following discussion and is of the opinion that it fairly
summarizes the material U.S. federal income tax considerations relevant to our
status as a REIT under the Code and to investors in shares of our common stock.
The following summary of certain U.S. federal income tax considerations is based
on current law, is for general information only, and is not intended to be (and
is not) tax advice.
It
is the opinion of Sonnenschein that we have been organized and operated in
conformity with the requirements for qualification and taxation as a REIT under
the Code, commencing with our taxable year ended December 31, 1983, through
and including our taxable year ended December 31, 2008, and that our
current and proposed method of operation will enable us to continue to meet the
requirements for qualification and taxation as a REIT under the Code. We must
emphasize that this opinion of Sonnenschein is based on various
assumptions, certain representations and statements made by us as to factual
matters and is conditioned upon such assumptions, representations and statements
being accurate and complete. Sonnenschein is not aware of any facts or
circumstances that are not consistent with these representations, assumptions
and statements. Potential purchasers of shares of our common stock should
be aware, however, that opinions of counsel are not binding upon the IRS or any
court. In general, our qualification and taxation as a REIT depends upon
our ability to satisfy, through actual operating results, distribution,
diversity of share ownership, and other requirements imposed under the Code,
none of which has been, or will be, reviewed by
Sonnenschein. Accordingly, while we intend to continue to qualify to
be taxed as a REIT under the Code no assurance can be given that the actual
results of our operations for any particular taxable year has satisfied, or will
satisfy, the requirements for REIT qualification.
Commencing
with our taxable year ended December 31, 1983, we elected to be taxed as a
REIT under the Code. We believe that commencing with our taxable year ended
December 31, 1983, we have been organized and have operated in such a
manner so as to qualify as a REIT under the Code, and we intend to continue to
operate in such a manner. However, we cannot assure you that we will, in fact,
continue to operate in such a manner or continue to so qualify as a REIT under
the Code.
If
we qualify for taxation as a REIT under the Code, we generally will not be
subject to a corporate-level tax on our net income that we distribute currently
to our stockholders. This treatment substantially eliminates the “double
taxation” (i.e., a
corporate-level tax and stockholder-level tax) that generally results from
investment in a regular subchapter C corporation. However, we will be subject to
U.S. federal income tax as follows:
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First,
we would be taxed at regular corporate rates on any of our undistributed
REIT taxable income, including our undistributed net capital gains
(although, to the extent so designated by us, stockholders would receive
an offsetting credit against their own U.S. federal income tax liability
for U.S. federal income taxes paid by us with respect to any such
gains).
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Second,
under certain circumstances, we may be subject to the “corporate
alternative minimum tax” on our items of tax
preference.
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Third,
if we have (a) net income from the sale or other disposition of
“foreclosure property,” which is, in general, property acquired on
foreclosure or otherwise on default on a loan secured by such real
property or a lease of such property, which is held primarily for sale to
customers in the ordinary course of business or (b) other
nonqualifying income from foreclosure property, we will be subject to tax
at the highest corporate rate on such
income.
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Fourth,
if we have net income from prohibited transactions such income will be
subject to a 100% tax. Prohibited transactions are, in general, certain
sales or other dispositions of property held primarily for sale to
customers in the ordinary course of business other than foreclosure
property.
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Fifth,
if we should fail to satisfy the annual 75% gross income test or 95% gross
income test (as discussed below), but nonetheless maintain our
qualification as a REIT under the Code because certain other requirements
have been met, we will have to pay a 100% tax on an amount equal to
(a) the gross income attributable to the greater of (i) 75% of
our gross income over the amount of gross income that is qualifying income
for purposes of the 75% test, and (ii) 95% of our gross income (90%
for taxable years beginning on or before October 22, 2004) over the
amount of gross income that is qualifying income for purposes of the 95%
test, multiplied by (b) a fraction intended to reflect our
profitability.
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Sixth,
if we should fail to distribute during each calendar year at least the sum
of (i) 85% of our REIT ordinary income for such year, (ii) 95%
of our REIT capital gain net income for such year, and (iii) any
undistributed taxable income required to be distributed from prior years,
we would be subject to a 4% excise tax on the excess of such required
distribution over the amount actually distributed by
us.
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Seventh,
if we were to acquire an asset from a corporation that is or has been a
subchapter C corporation in a transaction in which the basis of the asset
in our hands is determined by reference to the basis of the asset in the
hands of the subchapter C corporation, and we subsequently recognize gain
on the disposition of the asset within the ten-year period beginning on
the day that we acquired the asset, then we will have to pay tax on the
built-in gain at the highest regular corporate rate. The results described
in this paragraph assume that no election will be made under Treasury
Regulations Section 1.337(d)-7 for the subchapter C corporation to be
subject to an immediate tax when the asset is
acquired.
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Eighth,
for taxable years beginning after December 31, 2000, we could be
subject to a 100% tax on certain payments that we receive from one of our
taxable REIT subsidiaries, (“TRSs”), or on certain expenses deducted by
one of our TRSs, if the economic arrangement between us, the TRS and the
tenants at our properties are not comparable to similar arrangements among
unrelated parties.
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Ninth,
if we fail to satisfy a REIT asset test, as described below, during our
2005 and subsequent taxable years, due to reasonable cause and we
nonetheless maintain our REIT qualification under the Code because of
specified cure provisions, we will generally be required to pay a tax
equal to the greater of $50,000 or the highest corporate tax rate
multiplied by the net income generated by the nonqualifying assets that
caused us to fail such test.
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Tenth,
if we fail to satisfy any provision of the Code that would result in our
failure to qualify as a REIT (other than a violation of the REIT gross
income tests or a violation of the asset tests described below) during our
2005 and subsequent taxable years and the violation is due to reasonable
cause, we may retain our REIT qualification but will be required to pay a
penalty of $50,000 for each such
failure.
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Eleventh,
we may be required to pay monetary penalties to the IRS in certain
circumstances, including if we fail to meet record-keeping requirements
intended to monitor our compliance with rules relating to the
composition of a REIT’s
stockholders.
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Finally,
the earnings of our lower-tier entities that are subchapter C
corporations, including TRSs but excluding our QRSs (as defined below),
are subject to federal corporate income
tax.
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In
addition, we may be subject to a variety of taxes, including payroll taxes and
state, local and foreign income, property and other taxes on our assets and
operations. We could also be subject to tax in situations and on
transactions not presently contemplated.
Requirements for
REIT Qualification—In General
To
qualify as a REIT under the Code, we must elect to be treated as a REIT and must
satisfy the annual gross income tests, the quarterly asset tests, distribution
requirements, diversity of share ownership and other requirements imposed under
the Code. In general, the Code defines a REIT as a corporation, trust or
association:
(1) that
is managed by one or more trustees or directors;
(2) the
beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest;
(3)
that would otherwise be taxable as a domestic corporation, but for Sections 856
through 859 of the Code;
(4) that
is neither a financial institution nor an insurance company to which certain
provisions of the Code apply;
(5) the
beneficial ownership of which is held by 100 or more persons;
(6) during
the last half of each taxable year, not more than 50% in value of the
outstanding stock of which is owned, directly or constructively, by five or
fewer individuals, as defined in the Code to include certain
entities;
(7) that
uses a calendar year for federal income tax purposes and complies with the
recordkeeping requirements of the federal income tax laws; and
(8) that
meets certain other tests, described below, regarding the nature of its income
and assets.
The Code
provides that the requirements (1)-(4), (7) and (8) above must be met
during the entire taxable year and that requirements (5) and (6) above
do not apply to the first taxable year for which a REIT election is made and,
thereafter, requirement (5) must be met during at least 335 days of a
taxable year of 12 months, or during a proportionate part of a taxable year of
less than 12 months. For purposes of requirement (6) above, generally
(although subject to certain exceptions that should not apply with respect to
us), any stock held by a trust described in Section 401(a) of the Code
and exempt from tax under Section 501(a) of the Code is treated as not
held by the trust itself but directly by the trust beneficiaries in proportion
to their actuarial interests in the trust.
We
believe that we have satisfied the requirements above for REIT qualification. In
addition, our charter currently includes restrictions regarding the ownership
and transfer of shares of our common stock, which restrictions are intended to
assist us in satisfying some of these requirements (and, in particular
requirements (5) and (6) above). The ownership and transfer
restrictions pertaining to shares of our common stock are described in the
prospectus under the heading “Description of Securities” and
“Provisions of Maryland Law and of our Charter and Bylaws─Restrictions on
Ownership and Transfer.”
In
applying the REIT gross income and asset tests, all of the assets, liabilities
and items of income, deduction and credit of a corporate subsidiary of a REIT
that is a “qualified REIT subsidiary” (as defined in
Section 856(i)(2) of the Code) (“QRS”) are treated as the assets,
liabilities and items of income, deduction and credit of the REIT itself.
Moreover, the separate existence of a QRS is disregarded for U.S. federal income
tax purposes and the QRS is not subject to U.S. federal corporate income tax
(although it may be subject to state and local tax in some states and
localities). In general, a QRS is any corporation if all of the stock of such
corporation is held by the REIT, except that it does not include any corporation
that is TRS of the REIT. Thus, for U.S. federal income tax purposes, our QRSs
are disregarded, and all assets, liabilities and items of income, deduction and
credit of these QRSs are treated as OLP’s assets, liabilities and items of
income, deduction and credit.
A
TRS is any corporation in which a REIT directly or indirectly owns stock,
provided that the REIT and that corporation make a joint election to treat that
corporation as a TRS. The election can be revoked at any time as long as the
REIT and the TRS revoke such election jointly. In addition, if a TRS holds,
directly or indirectly, more than 35% of the securities of any other corporation
other than a REIT (by vote or by value), then that other corporation is also
treated as a TRS. A TRS is subject to U.S. federal income tax at regular
corporate rates (currently a maximum rate of 35%), and may also be subject to
state and local tax. Any dividends paid or deemed paid to us by any one of our
TRSs will also be taxable, either (1) to us to the extent the dividend is
retained by us, or (2) to our stockholders to the extent the dividends
received from the TRS are paid to our stockholders. We may hold more than 10% of
the stock of a TRS without jeopardizing our qualification as a REIT
notwithstanding the rule described below under “REIT Asset Tests” that
generally precludes ownership of more than 10% of any issuer’s securities.
However, as noted below, in order to qualify as a REIT, the securities of all of
our TRSs in which we have invested either directly or indirectly may not
represent more than 20% (25% for our 2009 taxable year and thereafter) of the
total value of our assets. We expect that the aggregate value of all of our
interests in TRSs will represent less than 20% (25% for our 2009 taxable year
and thereafter) of the total value of our assets; however, we cannot assure that
this will always be true.
A
TRS may generally engage in any business including the provision of customary or
non-customary services to tenants of its parent REIT, which, if performed by the
REIT itself, could cause rents received by the REIT to be disqualified as “rents
from real property.” However, a TRS may not directly or indirectly operate or
manage any hotels or health care facilities or provide rights to any brand name
under which any hotel or health care facility is operated, unless such rights
are provided to an “eligible independent contractor” to operate or manage a
hotel if such rights are held by the TRS as a franchisee, licensee, or in a
similar capacity and such hotel is either owned by the TRS or leased to the TRS
by its parent REIT. However, for taxable years beginning after
July 30, 2008, a TRS may provide rights to a brand name under which a
health care facility is operated, if such rights are provided to an “eligible
independent contractor” to operate or manage the health care facility and such
health care facility is either owned by the TRS or leased to the TRS by its
parent REIT. A TRS will not be considered to operate or manage a qualified
health care property or a qualified lodging facility solely because the TRS
(i) directly or indirectly possesses a license, permit, or similar
instrument enabling it to do so, or (ii) employs individuals working at
such facility or property located outside the U.S., but only if an “eligible
independent contractor” is responsible for the daily supervision and direction
of such individuals on behalf of the TRS pursuant to a management agreement or
similar service contract However, the Code contains several provisions
which address the arrangements between a REIT and its TRSs which are intended to
ensure that a TRS recognizes an appropriate amount of taxable income and is
subject to an appropriate level of federal income tax. For example, a TRS is
limited in its ability to deduct interest payments made to the REIT. In
addition, a REIT would be subject to a 100% penalty on some payments that it
receives from a TRS, or on certain expenses deducted by the TRS if the economic
arrangements between the REIT, the REIT’s tenants and the TRS are not comparable
to similar arrangements among unrelated parties. We have several TRSs and
will endeavor to structure any arrangement between ourselves, our TRSs and our
tenants so as to minimize the risk of disallowance of interest expense
deductions or of the 100% penalty being imposed. Notwithstanding, however, it
cannot be assured that the IRS would not challenge any such
arrangement.
Also,
a REIT that is a partner in a partnership is deemed to own its proportionate
share of each of the assets of the partnership and is deemed to be entitled to
income of the partnership attributable to such proportionate share. For purposes
of Section 856 of the Code, the interest of a REIT in the assets of a
partnership of which it is a partner is determined in accordance with the REIT’s
capital interest in the partnership and the character of the assets and items of
gross income of the partnership retain the same character in the hands of the
REIT. For example, if the partnership holds any property primarily for sale to
customers in the ordinary course of its trade or business, the REIT is treated
as holding its proportionate share of such property primarily for such purpose.
Thus, our proportionate share (based on our capital interest) of the assets,
liabilities and items of income of any partnership in which we are a partner,
will be treated as our assets, liabilities and items of income for purposes of
applying the requirements described in this section. For purposes of the 10%
Value Test (described under “REIT Asset Tests” below) our proportionate share is
based on our proportionate interest in the equity interests and certain debt
securities issued by a partnership. Also, actions taken by the
partnerships can affect our ability to satisfy the REIT gross income and asset
tests and the determination of whether we have net income from a prohibited
transaction. For purposes of this section any reference to “partnership” shall
refer to and include any partnership, limited liability company, joint venture
and other entity or arrangement that is treated as a partnership for federal
income tax purposes, and any reference to “partner” shall refer to and include a
partner, member, joint venturer and other beneficial owner of any such
partnership, limited liability company, joint venture and other entity or
arrangement.
REIT Gross Income Tests:
In order to maintain our qualification as a REIT under the Code, we
must satisfy, on an annual basis, two gross income tests.
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First,
at least 75% of our gross income, excluding gross income from prohibited
transactions and certain “hedging transactions” entered into after
July 30, 2008, for each taxable year must be derived directly or
indirectly from investments relating to real property or mortgages on real
property, including “rents from real property,” gains on the disposition
of real estate, dividends paid by another REIT and interest on obligations
secured by mortgages on real property or on interests in real property, or
from some types of temporary
investments.
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Second,
at least 95% of our gross income, excluding gross income from prohibited
transactions and, commencing with our 2005 taxable year, certain “hedging
transactions,” for each taxable year must be derived from any combination
of income qualifying under the 75% test and dividends, interest, and gain
from the sale or disposition of stock or
securities.
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For
this purpose the term “rents from real property” includes: (a) rents from
interests in real property; (b) charges for services customarily furnished
or rendered in connection with the rental of real property, whether or not such
charges are separately stated; and (c) rent attributable to personal
property which is leased under, or in connection with, a lease of real property,
but only if the rent attributable to such personal property for the taxable year
does not exceed 15% of the total rent for the taxable year attributable to both
the real and personal property leased under, or in connection with, such lease.
For purposes of (c), the rent attributable to personal property is equal to that
amount which bears the same ratio to total rent for the taxable year as the
average of the fair market values of the personal property at the beginning and
at the end of the taxable year bears to the average of the aggregate fair market
values of both the real property and the personal property at the beginning and
at the end of such taxable year.
However,
in order for rent received or accrued, directly or indirectly, with respect to
any real or personal property, to qualify as “rents from real property,” the
following conditions must be satisfied:
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such
rent must not be based in whole or in part on the income or profits
derived by any person from the property (although the rent may be based on
a fixed percentage of receipts or
sales);
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such
rent may not be received or accrued, directly or indirectly, from any
person if the REIT owns, directly or indirectly (including by attribution,
upon the application of certain attribution rules): (i) in the case
of any person which is a corporation, at least 10% of such person’s voting
stock or at least 10% of the value of such person’s stock; or (ii) in
the case of any person which is not a corporation, an interest of at least
10% in the assets or net profits of such person, except that under certain
circumstances, rents received from a TRS will not be disqualified as
“rents from real property” even if we own more than 10% of the TRS;
and
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the
portion of such rent that is attributable to personal property for a
taxable year that is leased under, or in connection with, a lease of real
property may not exceed 15% of the total rent received or accrued under
the lease for the taxable
year.
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In
addition, all amounts (including rents that would otherwise qualify as “rents
from real property”) received or accrued during a taxable year directly or
indirectly by a REIT with respect to a property, will constitute “impermissible
tenant services income” (and, thus, will not qualify as “rents from real
property”) if the amount received or accrued directly or indirectly by the REIT
for: (x) noncustomary services furnished or rendered by the REIT to tenants
of the property; or (y) managing or operating the property ((x) and
(y) collectively, “Impermissible Services”) exceeds 1% of all amounts
received or accrued during such taxable year directly or indirectly by the REIT
with respect to the property. For this purpose, however, the following services
and activities are not treated as Impermissible Services: (i) services
furnished or rendered, or management or operation provided, through an
independent contractor from whom the REIT itself does not derive or receive any
income or through a TRS; and (ii) services usually or customarily rendered
in connection with the rental of space for occupancy (such as, for example, the
furnishing of heat and light, the cleaning of public entrances, and the
collection of trash), as opposed to services rendered primarily to a tenant for
the tenant’s convenience. If the amount treated as being received or accrued for
Impermissible Services does not exceed the 1% threshold, then only the amount
attributable to the Impermissible Services (and not, for example, all tenant
rents received or accrued that otherwise qualify as “rents from real property”)
will fail to qualify as “rents from real property.” For purposes of the 1%
threshold, the amount that we will be deemed to have received for performing
Impermissible Services will be the greater of the actual amounts so received or
150% of the direct cost to us of providing those services.
Interest
income constitutes qualifying mortgage interest for purposes of the 75% gross
income test (as described above) to the extent that the obligation is secured by
a mortgage on real property. If we receive interest income with respect to a
mortgage loan that is secured by both real property and other property, and the
highest principal amount of the loan outstanding during a taxable year exceeds
the fair market value of the real property on the date that we have a binding
commitment to acquire or originate the mortgage loan, the interest income will
be apportioned between the real property and the other collateral, and its
income from the arrangement will qualify for purposes of the 75% gross income
test only to the extent that the interest is allocable to the real property.
Even if a loan is not secured by real property, or is undersecured, the income
that it generates may nonetheless qualify for purposes of the 95% gross income
test.
To
the extent that the terms of a loan provide for contingent interest that is
based on the cash proceeds realized upon the sale of the property securing the
loan (a “shared appreciation provision”), income attributable to the
participation feature will be treated as gain from sale of the underlying
property, which generally will be qualifying income for purposes of both the 75%
and 95% gross income tests provided that the property is not inventory or dealer
property in the hands of the borrower or the REIT.
To
the extent that a REIT derives interest income from a mortgage loan or income
from the rental of real property where all or a portion of the amount of
interest or rental income payable is contingent, such income generally will
qualify for purposes of the gross income tests only if it is based upon the
gross receipts or sales, and not the net income or profits, of the borrower or
lessee. This limitation does not apply, however, where the borrower or lessee
leases substantially all of 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.
From time
to time, we may enter into hedging transactions with respect to one or more of
our assets or liabilities. Prior to our 2005 taxable year, any periodic income
or gain from the disposition of any financial instrument for transactions to
hedge indebtedness we incurred to acquire or carry “real estate assets” was
qualifying income for purposes of the 95% gross income test, but not the 75%
gross income test. To the extent we hedged in other situations, it is not
entirely clear how the income from those transactions should have been treated
for the gross income tests. Commencing with our 2005 taxable year, income
and gain from “hedging transactions” will be excluded from gross income for
purposes of the 95% gross income test, but not the 75% gross income test.
For hedging transactions entered into after July 30, 2008, income and gain
from “hedging transactions” will be excluded from gross income for purposes of
both the 75% and 95% gross income tests. For this purpose, a “hedging
transaction” means either (1) any transaction entered into in the normal
course of our trade or business primarily to manage the risk of interest rate,
price changes, or currency fluctuations with respect to borrowings made or to be
made, or ordinary obligations incurred or to be incurred, to acquire or carry
real estate assets or (2) for transactions entered into after July 30,
2008, any transaction entered into primarily to manage the risk of currency
fluctuations with respect to any item of income or gain that would be qualifying
income under the 75% or 95% gross income test (or any property which generates
such income or gain). We will be required to clearly identify any such hedging
transaction before the close of the day on which it was acquired, originated, or
entered into and to satisfy other identification requirements. We intend to
structure any hedging transactions in a manner that does not jeopardize our
status as a REIT under the Code.
A
REIT will incur a 100% tax on the net income derived from any sale or other
disposition of property, other than foreclosure property, that the REIT holds
primarily for sale to customers in the ordinary course of a trade or
business. We believe that none of our assets are held primarily for sale
to customers and that a sale of any of our assets will not be in the ordinary
course of our business. Whether a REIT holds an asset “primarily for sale
to customers in the ordinary course of a trade or business” depends, however, on
the facts and circumstances in effect from time to time, including those related
to a particular asset. A safe harbor to the characterization of the sale
of property by a REIT as a prohibited transaction and the 100% prohibited
transaction tax is available if the following requirements are met:
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the
REIT has held the property for not less than four years (or, for sales
made after July 30, 2008, two
years);
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the
aggregate capital expenditures made by the REIT, or any partner of the
REIT, during the four-year period (or, for sales made after July 30,
2008, two-year period) preceding the date of the sale that are includable
in the basis of the property do not exceed 30% of the selling price of the
property;
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either
(1) during the year in question, the REIT did not make more than
seven sales of property other than foreclosure property or sales to which
Section 1033 of the Internal Revenue Code applies, (2) the
aggregate adjusted bases of all such properties sold by the REIT during
the year did not exceed 10% of the aggregate bases of all of the assets of
the REIT at the beginning of the year or (3) for sales made after
July 30, 2008, the aggregate fair market value of all such properties
sold by the REIT during the year did not exceed 10% of the aggregate fair
market value of all of the assets of the REIT at the beginning of the
year;
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in
the case of property not acquired through foreclosure or lease
termination, the REIT has held the property for at least four years (or,
for sales made after July 30, 2008, two years) for the production of
rental income; and
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if
the REIT has made more than seven sales of non-foreclosure property during
the taxable year, substantially all of the marketing and development
expenditures with respect to the property were made through an independent
contractor from whom the REIT derives no
income.
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We
will attempt to comply with the terms of safe-harbor provision in the federal
income tax laws prescribing when an asset sale will not be characterized as a
prohibited transaction. We cannot assure you, however, that we can comply
with the safe-harbor provision or that we will avoid owning property that may be
characterized as property that we hold “primarily for sale to customers in the
ordinary course of a trade or business.” The 100% tax will not apply to
gains from the sale of property that is held through a TRS or other taxable
corporation, although such income will be taxed to such corporation at regular
corporate income tax rates.
We have
not in the past owned and do not intend to acquire in the future investments in
foreign countries. However, to the extent that we or our subsidiaries
hold or acquire investments in foreign countries, taxes that we pay in foreign
jurisdictions may not be passed through to, or used by, our stockholders as a
foreign tax credit or otherwise. Any foreign investments may also generate
foreign currency gains and losses. Certain foreign currency gains
recognized after July 30, 2008 will be excluded from gross income for
purposes of one or both of the gross income tests. “Real estate foreign
exchange gain” will be excluded from gross income for purposes of the 75% and
the 95% gross income tests. Real estate foreign exchange gain generally
includes foreign currency gain attributable to any item of income or gain that
is qualifying income for purposes of the 75% gross income test, foreign currency
gain attributable to the acquisition or ownership of (or becoming or being the
obligor under) obligations secured by mortgages on real property or interests in
real property and certain foreign currency gains attributable to certain
“qualified business units” of a REIT. “Passive foreign exchange gain” will
be excluded from gross income only for purposes of the 95% gross income
test. Passive foreign exchange gain generally includes real estate foreign
exchange gain as described above, and also includes foreign currency gain
attributable to any item of income or gain that is qualifying income for
purposes of the 95% gross income test and foreign currency gain attributable to
the acquisition or ownership of (or becoming or being the obligor under)
obligations secured by mortgages on real property or interests in real
property. Because passive foreign exchange gain includes real estate
foreign exchange gain, real estate foreign exchange gain is excluded from gross
income for purposes of both the 75% and 95% gross income tests. These
exclusions for real estate foreign exchange gain and passive foreign exchange
gain do not apply to any foreign currency gain derived from dealing, or engaging
in substantial and regular trading, in securities. Such gain is treated as
nonqualifying income for purposes of both the 75% and 95% gross income
tests.
Notwithstanding
the foregoing, for taxable years beginning after June 30, 2008, the
Secretary of the Treasury may determine that any item of income or gain not
otherwise qualifying for purposes of the 75% and 95% gross income tests may be
considered as not constituting gross income for purposes of those tests, and
that any item of income or gain that otherwise constitutes nonqualifying income
may be considered as qualifying income for purposes of such tests.
If
we fail to satisfy either or both of the 75% or 95% gross income tests for any
taxable year, we may nevertheless qualify as a REIT for that year pursuant to a
special relief provision of the Code which may be available to us
if:
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our
failure to meet these tests was due to reasonable cause and not due to
willful neglect;
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we
attach a schedule of the nature and amount of each item of income to our
U.S. federal income tax return;
and
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for
our 2004 and prior taxable years, the inclusion of any incorrect
information on the schedule is not due to fraud with intent to evade
tax.
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We cannot
state whether in all circumstances, if we were to fail to satisfy either of the
gross income tests, we would still be entitled to the benefit of this relief
provision. Even if this relief provision were to apply, we would nonetheless be
subject to a 100% tax on the gross income attributable to the greater of
(1) the amount by which we fail the 75% gross income test and (2) the
amount by which 95% (or 90% for our 2004 and prior taxable years) of our income
exceeds the amount of qualifying income under the 95% gross income test, in each
case, multiplied by a fraction intended to reflect our
profitability.
REIT Asset
Tests: At the close of each quarter of our taxable
year, we must also satisfy the following tests relating to the nature and
diversification of our assets (collectively, the “Asset Tests”):
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at
least 75% of the value of our total assets must be represented by “real
estate assets” (which also includes any property attributable to the
temporary investment of new capital, but only if such property is stock or
a debt instrument and only for the 1-year period beginning on the date the
REIT receives such proceeds), cash and cash items (including receivables)
and government securities (“75% Value
Test”);
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not
more than 25% of the value of our total assets may be represented by
securities other than securities that constitute qualifying assets for
purposes of the 75% Value
Test;
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except
with respect to securities of a TRS or QRS and securities that constitute
qualifying assets for purposes of the 75% Value
Test:
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not
more than 5% of the value of our total assets may be represented by
securities of any one issuer (the “5% Value
Test”);
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we
may not hold securities possessing more than 10% of the total voting power
of the outstanding securities of any one issuer (the “10% Vote
Test”);
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we
may not hold securities having a value of more than 10% of the total value
of the outstanding securities of any one issuer (“10% Value Test”);
and
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not
more than 20% (25% for our 2009 taxable year and thereafter) of the value
of our total assets may be represented by securities of one or more
TRSs.
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After
initially meeting the Asset Tests at the close of any quarter of our taxable
year, we would not lose our status as a REIT under the Code for failure to
satisfy these tests at the end of a later quarter solely by reason of changes in
asset values. If the failure to satisfy the Asset Tests results from an
acquisition of securities or other property during a quarter, we can cure the
failure by disposing of a sufficient amount of non-qualifying assets within 30
days after the close of that quarter. We intend to maintain adequate records of
the value of our assets to facilitate compliance with the Asset Tests and to
take such other actions within 30 days after the close of any quarter as
necessary to cure any noncompliance.
In
applying the Asset Tests, we are treated as owning all of the assets held by any
of our QRSs and our proportionate share of the assets held by the
partnerships.
For
purposes of the 5% Value Test, the 10% Vote Test or 10% Value Test, the term
“securities” does not include shares in another REIT, equity or debt securities
of a QRS or TRS, mortgage loans that constitute real estate assets, or equity
interests in a partnership. Securities, for purposes of the Asset Tests,
may include debt that we hold in other issuers. However, the Code specifically
provides that the following types of debt will not be taken into account as
securities for purposes of the 10% Value Test: (1) securities that meet the
“straight debt” safe harbor; (2) loans to individuals or estates;
(3) obligations to pay rents from real property; (4) rental agreements
described in Section 467 of the Code (other than such agreements with
related party tenants); (5) securities issued by other REITs; (6) debt
issued by partnerships that derive at least 75% of their gross income from
sources that constitute qualifying income for purposes of the 75% gross income
test; (7) any debt not otherwise described in this paragraph that is issued
by a partnership, but only to the extent of our interest as a partner in the
partnership; (8) certain securities issued by a state, the District of
Columbia, a foreign government, or a political subdivision of any of the
foregoing, or the Commonwealth of Puerto Rico; and (9) any other
arrangement described in future Treasury Regulations. For purposes of the
10% Value Test, our proportionate share of the assets of a partnership is our
proportionate interest in any securities issued by the partnership, without
regard to the securities described in (6) and (7) above.
For
taxable years beginning after July 30, 2008, for purposes of the 75% Value
Test, cash includes any foreign currency used by the REIT or its qualified
business unit as its “functional currency” (as defined in section 985(b) of
the Internal Revenue Code), provided that the foreign currency (a) is held
by the REIT or its qualified business unit in the normal course of activities
which give rise to qualifying income under the 75% or 95% gross income tests or
which are related to acquiring or holding assets described in section
856(c)(4) of the Internal Revenue Code and (b) is not held in
connection with dealing, or engaging in substantial and regular trading, in
securities.
Based
on our regular quarterly asset tests, we believe that we have not violated any
of the Asset Tests. However, we cannot provide any assurance that the IRS would
concur with our beliefs in this regard.
If
we fail to satisfy the Asset Tests at the end of a calendar quarter, we will not
lose our REIT qualification if:
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we
satisfied the Asset Tests at the end of the preceding calendar quarter;
and
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the
discrepancy between the value of our assets and the Asset Test
requirements arose from changes in the market values of our assets and was
not wholly or partly caused by the acquisition of one or more
non-qualifying assets.
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If
we did not satisfy the condition described in the second item above, we still
could avoid disqualification by eliminating any discrepancy within 30 days after
the close of the calendar quarter in which it arose.
If
at the end of any calendar quarter commencing with our 2005 taxable year, we
violate the 5% Value Test or the 10% Vote or Value Tests described above, we
will not lose our REIT qualification if (1) the failure is de minimis (up
to the lesser of 1% of our assets or $10 million) and (2) we dispose of
assets or otherwise comply with the Asset Tests within six months after the last
day of the quarter in which we identify such failure. In the event of a
failure of any of the Asset Tests (other than de minimis failures described in
the preceding sentence), as long as the failure was due to reasonable cause and
not to willful neglect, we will not lose our REIT status if we (1) dispose
of assets or otherwise comply with the Asset Tests within six months after the
last day of the quarter in which we identify the failure, (2) we file a
description of each asset causing the failure with the Internal Revenue Service
and (3) pay a tax equal to the greater of $50,000 or 35% of the net income
from the nonqualifying assets during the period in which we failed to satisfy
the Asset Tests.
REIT Distribution
Requirements: To qualify for taxation as a REIT, we
must, each year, make distributions (other than capital gain distributions) to
our stockholders in an amount at least equal to (1) the sum of:
(A) 90% of our “REIT taxable income,” computed without regard to the
dividends paid deduction and our net capital gain, and (2) 90% of the net
income, after tax, from foreclosure property, minus (2) the sum of certain
specified items of noncash income. In addition, if we were to dispose of any
asset acquired from a subchapter C corporation in a “carryover basis”
transaction within ten years of the acquisition, we would be required to
distribute at least 90% of the after-tax “built-in gain” recognized on the
disposition of such asset.
We must
pay dividend distributions in the taxable year to which they relate. Dividends
paid in the subsequent year, however, will be treated as if paid in the prior
year for purposes of the prior year’s distribution requirement if one of the
following two sets of criteria are satisfied:
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the
dividends are declared in October, November or December and are
made payable to stockholders of record on a specified date in any of these
months, and such dividends are actually paid during January of the
following year; or
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the
dividends are declared before we timely file our U.S. federal income tax
return for such year, the dividends are paid in the 12-month period
following the close of the year and not later than the first regular
dividend payment after the declaration, and we elect on our U.S. federal
income tax return for such year to have a specified amount of the
subsequent dividend treated as if paid in such
year.
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Even if
we satisfy our distribution requirements for maintaining our REIT status, we
will nonetheless be subject to a corporate-level tax on any of our net capital
gain or REIT taxable income that we do not distribute to our stockholders. In
addition, we will be subject to a 4% excise tax to the extent that we fail to
distribute during any calendar year (or by the end of January of the
following calendar year in the case of distributions with declaration and record
dates falling in the last 3 months of the calendar year) an amount at least
equal to the sum of:
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85%
of our ordinary income for such
year;
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95%
of our capital gain net income for such year;
and
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any
undistributed taxable income required to be distributed from prior
periods.
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As
discussed below, we may retain, rather than distribute, all or a portion of our
net capital gains and pay the tax on the gains and may elect to have our
stockholders include their proportionate share of such undistributed gains as
long-term capital gain income on their own income tax returns and receive a
credit for their share of the tax paid by us. For purposes of the 4% excise tax
described above, any such retained gains would be treated as having been
distributed by us.
We
intend to make timely distributions sufficient to satisfy our annual
distribution requirements for REIT qualification under the Code and which are
eligible for the dividends-paid deduction.
We
expect that our cash flow will exceed our REIT taxable income due to the
allowance of depreciation and other non-cash deductions allowed in computing
REIT taxable income. Accordingly, in general, we anticipate that we should have
sufficient cash or liquid assets to enable us to satisfy the 90% distribution
requirement for REIT qualification under the Code. It is possible, however, that
we, from time to time, may not have sufficient cash or other liquid assets to
meet this requirement or to distribute an amount sufficient to enable us to
avoid income and/or excise taxes. In such event, we may find it necessary to
arrange for borrowings to raise cash or, if possible, make taxable stock
dividends in order to make such distributions. In addition, pursuant to
recently-issued Revenue Procedure 2009-15, we are also permitted to make taxable
distributions of our shares (in lieu of cash) if (i) any such distribution
is declared with respect to a taxable year ending on or before December 31,
2009, and (ii) each of our stockholders is permitted to elect to receive
its entire entitlement under such declaration in either money or shares of
equivalent value subject to a limitation in the amount of money to be
distributed in the aggregate; provided that (1) the amount of money that we
set aside for distribution is not less than 10% of the aggregate distribution so
declared, and (2) if too many of our stockholders elect to receive money, a
pro rata amount of money will be distributed to each such stockholder electing
to receive money, but in no event will any such stockholder receive less than
its entire entitlement under such declaration. It is our intent that this
dividend comply with Revenue Procedure 2009-15.
In
the event that we are subject to an adjustment to our REIT taxable income (as
defined in Section 860(d)(2) of the Code) resulting from an adverse
determination by either a final court decision, a closing agreement between us
and the IRS under Section 7121 of the Code, or an agreement as to tax
liability between us and an IRS district director, we may be able to rectify any
resulting failure to meet the 90% distribution requirement by paying “deficiency
dividends” to stockholders that relate to the adjusted year but that are paid in
a subsequent year. To qualify as a deficiency dividend, we must make the
distribution within ninety days of the adverse determination and we also must
satisfy other procedural requirements. If we satisfy the statutory requirements
of Section 860 of the Code, a deduction is allowed for any deficiency
dividend subsequently paid by us to offset an increase in our REIT taxable
income resulting from the adverse determination. We, however, must pay statutory
interest on the amount of any deduction taken for deficiency dividends to
compensate for the deferral of the tax liability.
Recordkeeping Requirements:
We must maintain certain records in order to qualify as a
REIT. In addition, to avoid a monetary penalty, we must request on an
annual basis information from certain of our stockholders designed to disclose
the actual ownership of our outstanding shares of common stock. We have
complied, and we intend to continue to comply, with these
requirements.
Failure to Qualify as a
REIT: Commencing with our 2005 taxable year, if we
would otherwise fail to qualify as a REIT under the Code because of a violation
of one of the requirements described above, our qualification as a REIT will not
be terminated if the violation is due to reasonable cause and not willful
neglect and we pay a penalty tax of $50,000 for the violation. The immediately
preceding sentence does not apply to violations of the gross income tests
described above or a violation of the asset tests described above each of which
have specific relief provisions that are described above.
If
we fail to qualify for taxation as a REIT under the Code in any taxable year,
and the relief provisions do not apply, we will have to pay tax, including any
applicable alternative minimum tax, on our taxable income at regular corporate
rates. We will not be able to deduct distributions to stockholders in any year
in which we fail to qualify, nor will we be required to make distributions to
stockholders. In this event, to the extent of current and accumulated earnings
and profits, all distributions to stockholders will be taxable to the
stockholders as dividend income (which may be subject to tax at preferential
rates) and corporate distributees may be eligible for the dividends received
deduction if they satisfy the relevant provisions of the Code. Unless entitled
to relief under specific statutory provisions, we will also be disqualified from
taxation as a REIT for the four taxable years following the year during which
qualification was lost. We might not be entitled to the statutory relief
described in the preceding paragraph in all circumstances.
Taxation of U.S.
Stockholders
When we
refer to the term U.S. Stockholders, we mean a holder of shares of our common
stock that is, for U.S. federal income tax purposes:
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a
citizen or resident of the United
States;
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a
corporation (including an entity treated as a corporation for federal
income tax purposes) created or organized under the laws of the United
States, any of its states or the District of
Columbia;
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an
estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
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a
trust if a court within the United States can exercise primary supervision
over the administration of the trust, and one or more United States
persons have the authority to control all substantial decisions of the
trust.
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If
a partnership, entity or arrangement treated as a partnership for federal income
tax purposes holds shares of 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 holding shares of our common stock, you should consult your tax
advisor regarding the consequences of the ownership and disposition of shares of
our common stock by the partnership.
Distributions
Generally: For any taxable year for which we qualify for taxation
as a REIT under the Code, amounts distributed to taxable U.S. Stockholders will
be taxed as discussed below.
As
long as we qualify as a REIT, distributions made by us out of our current or
accumulated earnings and profits, and not designated as capital gain dividends,
will constitute dividends taxable to our taxable U.S. Stockholders as ordinary
income. A U.S. Stockholder taxed at individual rates will generally not be
entitled to the reduced tax rate applicable to certain types of dividends except
with respect to the portion of any distribution (a) that represents income
from dividends received from a non-REIT corporation in which we own shares (but
only if such dividends would be eligible for the lower rate on dividends if paid
by the corporation to its individual stockholders), or (b) that is equal to
our REIT taxable income (taking into account the dividends paid deduction
available to us) for our previous taxable year less any taxes paid by us during
the previous taxable year, provided that certain holding period and other
requirements are satisfied at both the REIT and individual stockholder level.
U.S. Stockholders taxed at individual rates should consult their own tax
advisors to determine the impact of tax rates on dividends received from us.
Distributions of this kind will not be eligible for the dividends received
deduction in the case of U.S. Stockholders that are corporations.
Distributions
made by us that we properly designate as capital gain dividends will be taxable
to U.S. Stockholders as gain from the sale of a capital asset held for more than
one year, to the extent that they do not exceed our actual net capital gain for
the taxable year, without regard to the period for which a U.S. Stockholder has
held his shares of our common stock. The highest marginal individual income tax
rate is currently 35%. However, the maximum tax rate on long-term capital
gain applicable to U.S. Stockholders taxed at individual rates is 15% (through
2010). The maximum tax rate on long-term capital gain from the sale or exchange
of “Section 1250 property,” or depreciable real property, is 25% computed
on the lesser of the total amount of the gain or the accumulated
Section 1250 depreciation. Thus, with certain limitations, capital
gain dividends received by U.S. Stockholders taxed at individual rates may be
eligible for preferential rates of taxation, and the tax rate differential
between capital gain and ordinary income may be significant. We will
generally designate our capital gain dividends as either 15% or 25% rate
distributions. In addition, the characterization of income as
capital gain or ordinary income may affect the deductibility of capital
losses. U.S. Stockholders taxed at individual rates may generally deduct
capital losses not offset by capital gains against their ordinary income only up
to a maximum annual amount of $3,000. Such taxpayers may carry forward unused
capital losses indefinitely. A corporate U.S. Stockholder must generally pay tax
on its net capital gain at ordinary corporate rates. A corporate U.S.
Stockholder may generally deduct capital losses only to the extent of capital
gains, with unused losses being carried back three years and forward five
years. Finally, U.S. Stockholders that are corporations may be required to
treat up to 20% of certain capital gain dividends as ordinary
income.
To
the extent that we make distributions, not designated as capital gain dividends,
in excess of our current and accumulated earnings and profits, these
distributions will be treated first as a tax-free return of capital to each U.S.
Stockholder. Thus, these distributions will reduce the adjusted basis which the
U.S. Stockholder has in its shares for tax purposes by the amount of the
distribution, but not below zero. Distributions in excess of a U.S.
Stockholder’s adjusted basis in its shares will be taxable as capital gains,
provided that the shares have been held as a capital asset. For purposes of
determining the portion of distributions on separate classes of shares that will
be treated as dividends for U.S. federal income tax purposes, current and
accumulated earnings and profits will be allocated to distributions resulting
from priority rights of preferred shares before being allocated to other
distributions.
Dividends
declared by us in October, November, or December of any year and payable to
a 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 that year, provided that we actually pay the dividend on or before
January 31 of the following calendar year. Stockholders may not include in
their own income tax returns any of our net operating losses or capital
losses.
U.S.
Stockholders holding shares at the close of our taxable year will be required to
include, in computing their long-term capital gains for the taxable year in
which the last day of our taxable year falls, the amount that we designate in a
written notice mailed to our stockholders. We may not designate amounts in
excess of our undistributed net capital gain for the taxable year. Each U.S.
Stockholder required to include the designated amount in determining the U.S.
Stockholder’s long-term capital gains will be deemed to have paid, in the
taxable year of the inclusion, the tax paid by us in respect of the
undistributed net capital gains. U.S. Stockholders to whom these
rules apply will be allowed a credit or a refund, as the case may be, for
the tax they are deemed to have paid. U.S. Stockholders will increase their
basis in their shares by the difference between the amount of the includible
gains and the tax deemed paid by the stockholder in respect of these
gains.
Passive Activity Loss and Investment
Interest Limitations: Distributions from us and gain
from the disposition of our shares will not be treated as passive activity
income and, therefore, a U.S. Stockholder will not be able to offset any of this
income with any passive losses of the stockholder from other activities.
Dividends received by a U.S. Stockholder from us generally will be treated as
investment income for purposes of the investment interest limitation. Net
capital gain from the disposition of shares of our shares or capital gain
dividends generally will be excluded from investment income unless the
stockholder elects to have the gain taxed at ordinary income rates.
Sale/Other Taxable Disposition of
Shares of our Common Stock: In general, a U.S.
Stockholder who is not a dealer in securities will recognize gain or loss on its
sale or other taxable disposition of our shares equal to the difference between
the amount of cash and the fair market value of any other property received in
such sale or other taxable disposition and the stockholder’s adjusted basis in
said shares at such time. This gain or loss will be a capital gain or loss if
the shares have been held by the U.S. Stockholder as a capital asset. The
applicable tax rate will depend on the stockholder’s holding period in the asset
(generally, if an asset has been held for more than one year it will produce
long-term capital gain) and the stockholder’s tax bracket. The IRS has the
authority to prescribe, but has not yet prescribed, regulations that would apply
a capital gain tax rate of 25% (which is generally higher than the 15% long-term
capital gain tax rates in effect through 2010 for stockholders taxed at
individual rates) to a portion of capital gain realized by a non-corporate
stockholder on the sale of REIT stock that would correspond to the REIT’s
“unrecaptured Section 1250 gain.” U.S. Stockholders should consult with
their tax advisors with respect to their capital gain tax liability. A corporate
U.S. Stockholder will be subject to tax at a maximum rate of 35% on capital gain
from the sale of shares of our common stock held for more than 12 months. In
general, any loss recognized by a U.S. Stockholder upon the sale or other
disposition of shares that have been held for six months or less, after applying
the holding period rules, will be treated as a long-term capital loss, to the
extent of distributions received by the U.S. Stockholder from us that were
required to be treated as long-term capital gains.
Stockholders
should consult with their own tax advisors with respect to their capital gain
tax liability in respect of distributions received from us and gains recognized
upon the sale or other disposition of shares of shares of our common
stock.
Treatment of Tax-Exempt
Stockholders: Based upon published rulings by the IRS,
distributions by us to a U.S. Stockholder that is a tax-exempt entity generally
should not constitute “unrelated business taxable income” (“UBTI”), provided
that the tax-exempt entity has not financed the acquisition of its shares with
“acquisition indebtedness,” within the meaning of the Code, and the shares are
not otherwise used in an unrelated trade or business of the tax-exempt entity.
Similarly, income from the sale of shares of our common stock will not
constitute UBTI, provided that the tax-exempt entity has not financed the
acquisition of its shares with “acquisition indebtedness” and the shares are not
otherwise used in an unrelated trade or business of the tax-exempt
entity.
For
tax-exempt U.S. Stockholders which are social clubs, voluntary employee benefit
associations, supplemental unemployment benefit trusts, and qualified group
legal services plans, exempt from federal income taxation under Code Sections
501(c)(7), (9), (17) and (20), respectively, income from an investment in shares
of our common stock generally will constitute UBTI unless the organization is
able to properly deduct amounts set aside or placed in reserve for certain
purposes so as to offset the income generated by its shares of shares of our
common stock. Such prospective investors should consult their own tax advisors
concerning these “set-aside” and reserve requirements.
Notwithstanding
the above, however, a portion of the dividends paid by a “pension-held REIT” is
treated as UBTI as to any trust which (i) is described in
Section 401(a) of the Code, (ii) is tax-exempt under
Section 501(a) of the Code and (iii) holds more than 10% (by
value) of the interests in the REIT. Tax-exempt pension funds that are described
in Section 401(a) of the Code and exempt from tax under
Section 501(a) of the Code are referred to below as “qualified
trusts.”
A
REIT is a “pension-held REIT” if (i) it would not have qualified as a REIT
under the Code but for the fact that Section 856(h)(3) of the Code
provides that stock owned by qualified trusts shall be treated, for purposes of
the “not closely held” requirement, as owned by the beneficiaries of the trust
(rather than by the trust itself), (ii) the percentage of the REIT’s
dividends that the tax-exempt trust must treat as UBTI is at least 5%, and
(iii) either (a) at least one such qualified trust holds more than 25%
(by value) of the interests in the REIT or (b) one or more such qualified
trusts, each of whom owns more than 10% (by value) of the interests in the REIT,
hold in the aggregate more than 50% (by value) of the interests in the REIT. The
percentage of any REIT dividend treated as UBTI is equal to the ratio of
(i) the gross income of the REIT from unrelated trades or businesses,
determined as though the REIT were a qualified trust, less direct expenses
related to this gross income, to (ii) the total gross income of the REIT,
less direct expenses related to the total gross income. The provisions requiring
qualified trusts to treat a portion of REIT distributions as UBTI will not apply
if the REIT is able to satisfy the “not closely held” requirement without
relying upon the “look-through” exception with respect to qualified trusts. We
do not expect to be classified as a “pension-held REIT.”
The
rules described above under the heading “Taxation of U.S. Stockholders”
concerning the inclusion of our designated undistributed net capital gains in
the income of its stockholders will apply to tax-exempt entities. Thus,
tax-exempt entities will be allowed a credit or refund of the tax deemed paid by
these entities in respect of the includible gains.
Certain U.S. Federal Income Tax
Consequences of the Dividend to United States Stockholders: Each
stockholder must include the sum of the value of the shares of our common stock
and the amount of cash, if any, received pursuant to the dividend in its gross
income as dividend income to the extent that such stockholder’s share of the
dividend is made out of its share of the portion of our current and accumulated
earnings and profits allocable to the dividend. For this purpose, the amount of
the dividend paid in shares of our common stock will be equal to the amount of
cash that could have been received instead of the shares of our common stock. A
stockholder that receives shares of our common stock pursuant to the dividend
would have a tax basis in such shares equal to the amount of cash that could
have been received instead of such shares as described above, and the holding
period in such shares would begin on the day following the payment date for the
dividend.
The
dividend will not be eligible for the dividends received deduction available to
U.S. stockholders that are domestic corporations but not S corporations. Such
corporate holders should also consider the possible effects of section 1059 of
the Code, which reduces a corporate holder’s basis in its shares, but not below
zero, by the non-taxed portion of an extraordinary dividend, where the holder
has not held such shares for more than two years before the dividend
announcement date. Corporate stockholders should also consider the effect of the
corporate alternative minimum tax, which imposes a maximum tax rate of 20% on a
corporation’s alternative minimum taxable income for the taxable year and which
is calculated without regard to the dividends received deduction.
For
certain U.S. stockholders, the dividend may be an “extraordinary dividend.” An
“extraordinary dividend” is a dividend that is equal to at least 10% of a
stockholder’s adjusted basis in its shares of our common stock. A U.S.
stockholder that receives an extraordinary dividend and later sells its
underlying shares at a loss will be treated as realizing a long-term capital
loss, regardless of its holding period in its shares, to the extent of the
extraordinary dividend.
Special Tax
Considerations For Non-U.S. Stockholders
Taxation of Non-U.S.
Stockholders: The rules governing U.S. federal
income taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign stockholders (collectively, “Non-U.S.
Stockholders”) are complex, and no attempt will be made herein to provide more
than a limited summary of such rules. Prospective Non-U.S. Stockholders should
consult with their tax advisors to determine the impact of U.S. federal, state
and local income tax laws with regard to an investment in shares of our common
stock, including any reporting requirements.
Distributions
by us to a Non-U.S. Stockholder that are neither attributable to gain from sales
or exchanges by us of United States real property interests (“USPRIs”) (as
defined below) nor designated by us as capital gain dividends will be treated as
dividends of ordinary income to the extent that they are made out of our current
or accumulated earnings and profits. Such distributions will ordinarily be
subject to a withholding tax equal to 30% of the gross amount of the
distribution unless an applicable tax treaty reduces that tax. Under certain
treaties, lower withholding rates generally applicable to dividends do not apply
to dividends from a REIT. However, if income from the investment in shares of
our common stock is treated as effectively connected with the Non-U.S.
Stockholder’s conduct of a U.S. trade or business or is attributable to a
permanent establishment that the Non-U.S. Stockholder maintains in the United
States (if that is required by an applicable income tax treaty as a condition
for subjecting the Non-U.S. Stockholder to U.S. taxation on a net income basis)
the Non-U.S. Stockholder generally will be subject to tax at graduated rates, in
the same manner as U.S. Stockholders are taxed with respect to such income and
is generally not subject to withholding. Any such effectively connected
distributions received by a Non-U.S. Stockholder that is a corporation may also
be subject to an additional branch profits tax at a 30% rate or such lower rate
as may be specified by an applicable income tax treaty. We expect to withhold
U.S. income tax at the rate of 30% on the gross amount of any dividends paid to
a Non-U.S. Stockholder, other than dividends treated as attributable to gain
from sales or exchanges of U.S. real property interests and capital gain
dividends, paid to a Non-U.S. Stockholder, unless (a) a lower treaty rate
applies and the required form evidencing eligibility for that reduced rate is
submitted to us or the appropriate withholding agent or (b) the Non-U.S.
Stockholder submits an IRS Form W-8 ECI (or a successor form) to us or the
appropriate withholding agent claiming that the distributions are effectively
connected with the Non-U.S. Stockholder’s conduct of a U.S. trade or business
and, in either case, other applicable requirements were met.
Distributions
in excess of our current and accumulated earnings and profits will not be
taxable to a Non-U.S. Stockholder to the extent that they do not exceed the
adjusted basis of the Non-U.S. Stockholder’s shares, but rather will reduce the
adjusted basis of such shares. For FIRPTA (defined below) withholding purposes
(discussed below) such distribution will be treated as consideration for the
sale or exchange of shares. To the extent that such distributions exceed the
adjusted basis of a Non-U.S. Stockholder’s shares, these distributions will give
rise to tax liability if the Non-U.S. Stockholder would otherwise be subject to
tax on any gain from the sale or disposition of its shares, as described below.
If it cannot be determined at the time a distribution is made whether or not
such distribution will be in excess of current and accumulated earnings and
profits, the distribution will be subject to withholding at the rate applicable
to dividends. However, the Non-U.S. Stockholder may seek a refund of such
amounts from the IRS if it is subsequently determined that such distribution
was, in fact, in excess of our current and accumulated earnings and
profits.
Distributions
to a Non-U.S. Stockholder that are designated by us at the time of distribution
as capital gain dividends (other than those arising from the disposition of a
USRPI) generally will not be subject to U.S. federal income taxation unless
(i) investment in the shares is effectively connected with the Non-U.S.
Stockholder’s U.S. trade or business, in which case the Non-U.S. Stockholder
will be subject to the same treatment as a U.S. Stockholder with respect to such
gain (except that a corporate Non-U.S. Stockholder may also be subject to the
30% branch profits tax, as discussed above), or (ii) the Non-U.S.
Stockholder is a nonresident alien individual who is present in the United
States for 183 days or more during the taxable year and has a “tax home” in the
United States, in which case such stockholder will be subject to a 30% tax on
his or her capital gains.
For
any year in which we qualify as a REIT, distributions that are attributable to
gain from sales or exchanges by us of USRPIs will be taxed to a Non-U.S.
Stockholder under the provisions of the Foreign Investment in Real Property Tax
Act of 1980 (“FIRPTA”). A USRPI includes certain interests in real property and
stock in corporations at least 50% of whose assets consist of interests in real
property. Under FIRPTA, these distributions are taxed to a Non-U.S.
Stockholder as if such gain were effectively connected with a U.S. business.
Thus, Non-U.S. Stockholders would be taxed at the normal capital gain rates
applicable to U.S. Stockholders (subject to applicable alternative minimum tax
and a special alternative minimum tax in the case of nonresident alien
individuals). Also, distributions subject to FIRPTA may be subject to a 30%
branch profits tax in the hands of a corporate Non-U.S. Stockholder not entitled
to treaty relief or exemption. We are required by applicable Treasury
Regulations to withhold 35% of any distribution to a Non-U.S. Stockholder that
could be designated by us as a capital gain dividend. This amount is creditable
against the Non-U.S. Stockholder’s U.S. federal income tax liability. We or any
nominee (e.g., a broker
holding shares in street name) may rely on a certificate of Non-U.S. Stockholder
status on IRS Form W-8 to determine whether withholding is required on
gains realized from the disposition of U.S. real property interests. A U.S.
Stockholder who holds shares on behalf of a Non-U.S. Stockholder will bear the
burden of withholding, provided that we have properly designated the appropriate
portion of a distribution as a capital gain dividend.
Capital
gain distributions to Non-U.S. Stockholders that are attributable to our sale of
real property will be treated as ordinary dividends rather than as gain from the
sale of a USRPI, as long as (1) shares of our common stock continue to
treated as being “regularly traded” on an established securities market in the
United States and (2) the Non-U.S. stockholder did not own more than 5% of
shares of our common stock at any time during the one-year period preceding the
distribution. As a result, Non-U.S. stockholders owning 5% or less of
shares of our common stock generally will be subject to withholding tax on such
capital gain distributions in the same manner as they are subject to withholding
tax on ordinary dividends. If shares of our common stock cease to be
regularly traded on an established securities market in the United States or the
Non-U.S. stockholder owned more than 5% of shares of our common stock at any
time during the one-year period preceding the distribution, capital gain
distributions that are attributable to our sale of real property would be
subject to tax under FIRPTA, as described in the preceding paragraph. If a
Non-U.S. stockholder disposes of shares of our common stock during the 30-day
period preceding the ex-dividend date of any dividend payment, and such Non-U.S.
stockholder (or a person related to such Non-U.S. stockholder) acquires or
enters into a contract or option to acquire shares of our common stock within 61
days of the first day of such 30-day period described above, and any portion of
such dividend payment would, but for the disposition, be treated as a USRPI
capital gain to such Non-U.S. stockholder under FIRPTA, then such Non-U.S.
stockholder shall be treated as having USRPI capital gain in an amount that, but
for the disposition, would have been treated as USRPI capital gain.
Gain
recognized by a Non-U.S. Stockholder upon a sale of stock of a REIT generally
will not be taxed under FIRPTA if the REIT is a “domestically-controlled REIT”
(generally, a REIT in which at all times during a specified testing period less
than 50% in value of its stock is held directly or indirectly by foreign
persons). Since it is currently anticipated that we will be a
“domestically-controlled REIT,” a Non-U.S. Stockholder’s sale of shares of our
common stock should not be subject to taxation under FIRPTA. However, because
shares of our common stock are publicly-traded, no assurance can be given that
we will continue to be a “domestically-controlled REIT.” Notwithstanding the
foregoing, gain from the sale of shares of our common stock that is not subject
to FIRPTA will be taxable to a Non-U.S. Stockholder if (i) the Non-U.S.
Stockholder’s investment in the shares is “effectively connected” with the
Non-U.S. Stockholder’s U.S. trade or business, in which case the Non-U.S.
Stockholder will be subject to the same treatment as a U.S. Stockholder with
respect to such gain (a Non-U.S. Stockholder that is a foreign corporation may
also be subject to a 30% branch profits tax, as discussed above), or
(ii) the Non-U.S. Stockholder is a nonresident alien individual who was
present in the United States for 183 days or more during the taxable year and
has a “tax home” in the United States, in which case the nonresident alien
individual will be subject to a 30% tax on the individual’s capital gains. If
the gain on the sale of shares were to be subject to taxation under FIRPTA, the
Non-U.S. Stockholder would be subject to the same treatment as a U.S.
Stockholder with respect to such gain (subject to applicable alternative minimum
tax, possible withholding tax and a special alternative minimum tax in the case
of nonresident alien individuals).
If
we are not, or cease to be, a “domestically-controlled REIT,” whether gain
arising from the sale or exchange of shares by a Non-U.S. Stockholder would be
subject to United States taxation under FIRPTA as a sale of a USRPI will depend
on whether any class of our shares is “regularly traded” (as defined by
applicable Treasury Regulations) on an established securities market (e.g., the New York Stock
Exchange), as is the case with shares of our common stock, and on the size of
the selling Non-U.S. Stockholder’s interest in us. In the case where we are not,
or cease to be, a “domestically-controlled REIT” and any class of our shares is
“regularly traded” on an established securities market at any time during the
calendar year, a sale of shares of that class by a Non-U.S. Stockholder will
only be treated as a sale of a USRPI (and thus subject to taxation under FIRPTA)
if such selling stockholder beneficially owns (including by attribution) more
than 5% of the total fair market value of all of the shares of such class at any
time during the five-year period ending either on the date of such sale or other
applicable determination date. To the extent we have one or more classes of
shares outstanding that are “regularly traded,” but the Non-U.S. Stockholder
sells shares of a class of our shares that is not “regularly traded,” the sale
of shares of such class would be treated as a sale of a USRPI under the
foregoing rule only if the shares of such latter class acquired by the
Non-U.S. Stockholder have a total net market value on the date they are acquired
that is greater than 5% of the total fair market value of the “regularly traded”
class of our shares having the lowest fair market value (or with respect to a
nontraded class of our shares convertible into a “regularly traded” market value
on the date of acquisition of the total fair market value of the “regularly
traded” class into which it is convertible). If gain on the sale or exchange of
shares were subject to taxation under FIRPTA, the Non-U.S. Stockholder would be
subject to regular United States income tax with respect to such gain in the
same manner as a U.S. Stockholder (subject to any applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien
individuals); provided, however, that deductions otherwise allowable will be
allowed as deductions only if the tax returns were filed within the time
prescribed by law. In general, the purchaser of the shares would be required to
withhold and remit to the IRS 10% of the amount realized by the seller on the
sale of such shares.
Certain U.S. Federal Income Tax
Consequences of the Dividend to Non-United States Stockholders: The
following discussion is applicable to non-U.S. stockholders that did not own
more than 5% of shares of our common stock at any time during the one-year
period ending on the payment date of the dividend.
A
non-U.S. holder of shares of our common stock will treat the amount of the
dividend as ordinary income.
For
non-U.S. stockholders, the dividend will be subject to withholding of United
States federal income tax on a gross basis at a 30% rate or such lower rate as
may be specified by an applicable income tax treaty, unless it is treated as
effectively connected with the conduct by the non-U.S. stockholder of a United
States trade or business. Certain certification and disclosure requirements must
be satisfied for the stockholder to be exempt from withholding under the
effectively connected income exemption. If the dividend is effectively connected
with such a trade or business, a non-U.S. stockholder will be subject to tax on
the dividend on a net basis (that is, after allowance of deductions) at
graduated rates and generally will not be subject to withholding. A non-U.S.
stockholder that is a corporation may also be subject to an additional branch
profits tax on the dividend at a 30% rate or such lower rate as may be specified
by an applicable income tax treaty.
Generally,
information reporting will apply to the payment of the dividend, and backup
withholding at the rate of 28% may apply, unless the payee certifies that it is
not a U.S. person or otherwise establishes an exemption.
Information
Reporting Requirements and Backup Withholding Tax
U.S.
Stockholders: We will report to our U.S. Stockholders
and the IRS the amount of dividends paid during each calendar year, and the
amount of tax withheld, if any. Under the backup withholding rules, backup
withholding may apply to a U.S. Stockholder with respect to dividends paid
unless the U.S. Stockholder (a) is a corporation or comes within certain
other exempt categories and, when required, demonstrates this fact, or
(b) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. The IRS may also impose penalties
on a U.S. Stockholder that does not provide us with its correct taxpayer
identification number. A U.S. Stockholder may credit any amount paid as backup
withholding against the stockholder’s income tax liability. In addition, we may
be required to withhold a portion of capital gain distributions to any U.S.
Stockholder who fails to certify to us its non-foreign status.
Non-U.S.
Stockholders: If you are a Non-U.S. Stockholder, you
are generally exempt from backup withholding and information reporting
requirements with respect to:
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the
payment of the proceeds from the sale of shares of our common stock
effected at a United States office of a
broker,
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as long
as the income associated with these payments is otherwise exempt from U.S.
federal income tax, and:
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the
payor or broker does not have actual knowledge or reason to know that you
are a United States person and you have furnished to the payor or
broker:
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a
valid IRS Form W-8BEN or an acceptable substitute form upon which you
certify, under penalties of perjury, that you are a non-United States
person, or
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other
documentation upon which it may rely to treat the payments as made to a
non-United States person in accordance with Treasury Regulations,
or
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you
otherwise establish your right to an
exemption.
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Payment
of the proceeds from the sale of shares of our common stock effected at a
foreign office of a broker generally will not be subject to information
reporting or backup withholding. However, a sale of shares of our common stock
that is effected at a foreign office of a broker will be subject to information
reporting and backup withholding if:
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the
proceeds are transferred to an account maintained by you in the United
States;
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the
payment of proceeds or the confirmation of the sale is mailed to you at a
United States address; or
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the
sale has some other specified connection with the United States as
provided in the Treasury
Regulations,
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unless
the broker does not have actual knowledge or reason to know that you are a
United States person and the documentation requirements described above are met
or you otherwise establish an exemption.
In
addition, a sale of shares of our common stock will be subject to information
reporting if it is effected at a foreign office of a broker that
is:
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a
United States person;
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a
controlled foreign corporation for United States tax
purposes;
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a
foreign person 50% or more of whose gross income is effectively connected
with the conduct of a United States trade or business for a specified
three-year period; or
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a
foreign partnership, if at any time during its tax
year:
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one
or more of its partners are “U.S. persons,” as defined in Treasury
Regulations, who in the aggregate hold more than 50% of the income or
capital interest in the partnership;
or
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such
foreign partnership is engaged in the conduct of a United States trade or
business,
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unless
the broker does not have actual knowledge or reason to know that you are a
United States person and the documentation requirements described above are met
or you otherwise establish your right to an exemption. Backup withholding will
apply if the sale is subject to information reporting and the broker has actual
knowledge that you are a United States person.
You
generally may obtain a refund of any amounts withheld under the backup
withholding rules that exceed your income tax liability by filing a refund
claim with the IRS.
State and Local
Tax
We
and our stockholders may be subject to state and local tax in various states and
localities, including those in which we or they transact business, own property
or reside. Our tax treatment and that of our stockholders in such jurisdictions
may differ from the U.S. federal income tax treatment described above.
Consequently, prospective stockholders should consult their own tax advisors
regarding the effect of state and local tax laws on an investment in shares of
our common stock.
Legal
matters, including tax matters, relating to this prospectus supplement, have
been passed upon for us by Sonnenschein Nath & Rosenthal
LLP.
The
consolidated financial statements of One Liberty Properties, Inc. appearing in
One Liberty Properties, Inc.’s Annual Report (Form 10-K/A) for the year ended
December 31, 2008 (including the schedule appearing therein), and the
effectiveness of One Liberty Properties, Inc.’s internal control over financial
reporting as of December 31, 2008, have been audited by Ernst & Young LLP,
independent registered public accounting firm, as set forth in their reports
thereon, included therein, and incorporated herein by reference. Such
consolidated financial statements 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 file
annual, quarterly and current reports, proxy statements and other information
with the Securities and Exchange Commission, or the Commission. Our filings with
the Commission are available to the public on the Internet at the Commission’s
website at http://www.sec.gov. You may also read and copy any document that we
file with the Commission at its Public Reference Room, 100 F Street, N.E.,
Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further
information on the Public Reference Room and its copy charges.
The
information incorporated by reference herein is an important part of this
prospectus supplement. Any statement contained in a document which is
incorporated by reference in this prospectus supplement is automatically updated
and superseded if information contained in a subsequent filing or in this
prospectus supplement, or information that we later file with the Commission
prior to the termination of this offering, modifies or replaces this
information. The following documents filed with the Commission are incorporated
by reference into this prospectus supplement, except for any document or portion
thereof “furnished” to the Commission:
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our
Annual Report on Form 10-K for the year ended December 31, 2008, filed on
March 13, 2009, and Amendment No. 1 to the Form 10-K, filed on March 31,
2009;
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our
Quarterly Reports on Form 10-Q for the quarters ended March 31, 2009,
June 30, 2009 and September 30,
2009;
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our
Current Reports on Form 8-K, filed on March 16, 2009, April 7, 2009, April
8, 2009, April 27, 2009, May 6, 2009, June 4, 2009, June 24, 2009, July
20, 2009, September 11, 2009, September 29, 2009, October 19, 2009,
October 26, 2009, October 29, 2009, December 14, 2009 and December
17, 2009; and
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all
documents that we file with the Commission pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), after the date of this prospectus supplement and
prior to the termination of this
offering.
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To
receive a free copy of any of the documents incorporated by reference in this
prospectus supplement (other than exhibits, unless they are specifically
incorporated by reference in the documents), write us at the following address
or call us at the telephone number listed below:
ONE
LIBERTY PROPERTIES, INC.
60
Cutter Mill Road
Suite 303
Great
Neck, New York 11021
Attention:
Mark H. Lundy
(516)
466-3100
We
maintain an internet website at http://www.onelibertyproperties.com. We
are not incorporating by reference in this prospectus supplement any material
from our website. The reference to our website is an inactive textual
reference to the uniform resource locator (URL) and is for your reference
only.
PROSPECTUS
ONE
LIBERTY PROPERTIES, INC.
Common
Stock
$50,000,000
We may sell, from time to time, shares
of our common stock, par value $1.00 per share, in one or more offerings up to a
total dollar amount of $50,000,000.
Our common stock is listed for trading
on the New York Stock Exchange under the trading symbol “OLP.”
We will
offer our securities in amounts, at prices and on the terms to be determined at
the time we offer the securities. We will provide specific terms of
these securities in prospectus supplements to this prospectus. We are
organized and conduct our operations so as to qualify as a real estate
investment trust, or REIT, for federal income tax purposes. The
specific terms of the securities may include limitations on actual, beneficial
or constructive ownership and restrictions on the transfer of the securities
that may be appropriate to preserve our status as a REIT.
The securities may be offered on a
delayed or continuous basis directly by us, through agents, underwriters or
dealers as designated from time to time, through a combination of these methods
or through any other method provided in the applicable prospectus
supplement. If any underwriters are involved in the sale of the
securities, the names of such underwriters and any applicable commissions or
discounts will be set forth in a prospectus supplement. For
additional information on the methods of sale of the securities, you should
refer to the section entitled “Plan of Distribution” in this
prospectus. You should read this prospectus and the applicable
prospectus supplement carefully before you invest.
Investing in our securities involves
risks. Before buying our securities, you should refer to the risk
factors included in our periodic reports, in prospectus supplements relating to
specific offerings and in other information that we file with the Securities and
Exchange Commission. See “Risk Factors” on page 6.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of
these securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date
of this prospectus is April 7, 2009
TABLE
OF CONTENTS
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ABOUT
THIS PROSPECTUS
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2
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WHERE
YOU CAN FIND MORE INFORMATION
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3
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WHO
WE ARE
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4
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SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
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5
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RISK
FACTORS
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5
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USE
OF PROCEEDS
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5
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DESCRIPTION
OF SECURITIES
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6
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PROVISIONS
OF MARYLAND LAW AND OF OUR CHARTER AND BYLAWS
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7
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FEDERAL
INCOME TAX CONSIDERATIONS
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12
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IMPORTANCE
OF OBTAINING PROFESSIONAL TAX ADVICE
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26
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PLAN
OF DISTRIBUTION
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26
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LEGAL
MATTERS
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28
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EXPERTS
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28
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ABOUT
THIS PROSPECTUS
This
prospectus is part of a registration statement that we filed with the Securities
and Exchange Commission (the “SEC”), utilizing a “shelf” registration process,
which allows us to sell common stock from time to time in one or more offerings
up to an aggregate public offering price of $50,000,000.
This
prospectus only provides you with a general description of the securities we may
offer. Each time we sell securities, we will provide a supplement to
this prospectus that will contain specific information about the terms of the
securities offered, including the amount, the price and the terms determined at
the time of the offering. The prospectus supplement may also add to,
update or change information contained in this prospectus. Before
purchasing any securities, you should carefully read both this prospectus and
any supplement, together with additional information described under the heading
“Where You Can Find More Information.”
You
should rely only on the information contained or incorporated by reference in
this prospectus and any prospectus supplement or amendment. We have
not authorized any other person to provide you information different from that
contained in this prospectus or incorporated by reference in this prospectus or
any prospectus supplement or amendment. You should assume that the
information appearing in this prospectus or any applicable prospectus supplement
or the documents incorporated by reference herein or therein is accurate only as
of the date on the cover page. Our business, financial condition,
results of operations and prospects may have changed since that
date.
In this
prospectus, references to “OLP”, “Company,” “we,” “us,” “our,” and “registrant”
refer to One Liberty Properties, Inc. and all our subsidiaries. The
phrase “this prospectus” refers to this prospectus and the applicable prospectus
supplement, unless the context otherwise requires. References to
“securities” refer to the common stock offered by this prospectus, unless we
specify or the context indicates or requires otherwise.
We file
annual, quarterly and special reports, proxy statements and other information
with the SEC. Our electronic filings with the SEC are available to
the public on the Internet at the SEC’s web site at http://www.sec.gov. You
may also read and copy any document we file with the SEC at the SEC’s Public
Reference Room located at 100 F Street, N.E., Washington,
DC 20549. Please call the SEC at 800-SEC-0330 for more
information about their public reference room and their copy
charges.
The SEC
allows us to “incorporate by reference” the information we file with the SEC,
which means that we can disclose information to you by referring you to those
documents. Any information that we refer to in this manner is
considered part of this prospectus. Any information that we file with
the SEC after the date of this prospectus will automatically update and
supersede the information contained in this prospectus.
We are
incorporating by reference the following documents that we have previously filed
with the SEC (Commission File No. 001-09279), except for any document or portion
thereof “furnished” to the SEC:
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Our
Annual Report on Form 10-K for the year ended December 31, 2008, filed on
March 13, 2009, and Amendment No. 1 to the Form 10-K, filed on March 31,
2009;
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Our
Current Report on Form 8-K, filed on March 16,
2009;
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The
description of our shares contained in our Registration Statement on Form
8-A, filed on January 5, 2004, pursuant to Section 12(g) of the Exchange
Act, as amended, and the description set forth in the final prospectus
supplement filed pursuant to Rule 424(b)(2) on October 28, 2003, which is
incorporated therein by reference, including any amendment or report filed
for the purpose of updating such
description.
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All
documents and reports filed by us with the SEC (other than Current Reports on
Form 8-K furnished pursuant to Item 2.02 or Item 7.01 of Form 8-K, unless
otherwise indicated therein) pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), after the
date of this prospectus and prior to the termination of this offering shall be
deemed incorporated by reference in this prospectus and shall be deemed to be a
part of this prospectus from the date of filing of such documents and
reports. Any statement in a document incorporated or deemed to be
incorporated by reference in this prospectus shall be deemed to be modified or
superseded for purposes of this prospectus to the extent that a statement in
this prospectus or in any subsequently filed document or report incorporated or
deemed to be incorporated by reference in this prospectus modifies or supersedes
such statement. Any such statement so modified or superseded shall
only be deemed to constitute a part of this prospectus as it is so modified or
superseded.
We will
provide without charge to each person, including any beneficial owner, to whom
this prospectus is delivered, upon written or oral request of such person, a
copy of any or all of the documents incorporated by reference in this prospectus
other than exhibits, unless such exhibits specifically are incorporated by
reference into such documents or this prospectus.
Requests
for such documents should be addressed in writing or by telephone to: Mark H.
Lundy, Secretary, One Liberty Properties, Inc., 60 Cutter Mill Road, Great
Neck, N.Y. 11021 or 516-466-3100.
WHO
WE ARE
We are a
self-administered and self-managed real estate investment trust, also known as a
REIT. We were incorporated under the laws of the State of Maryland on
December 20, 1982. We acquire, own and manage a geographically
diversified portfolio of retail (including furniture and office supply stores),
industrial, office, flex, health and fitness and other properties, a substantial
portion of which are under long-term leases. Substantially all of our leases are
“net leases,” under which the tenant is typically responsible for real estate
taxes, insurance and ordinary maintenance and repairs. As of December
31, 2008, we owned 79 properties, three of which are vacant, and one of which is
a 50% tenancy in common interest, and participated in five joint ventures that
own five properties, one of which is vacant. Our properties and the
properties owned by our joint ventures are located in 29 states and have an
aggregate of approximately 6.1 million square feet of space (including
approximately 106,000 square feet of space at the property in which we own a
tenancy in common interest and approximately 1.5 million square feet of space at
properties owned by the joint ventures in which we participate).
As a
result of a severe national economic recession during 2008, which is continuing
into 2009, consumer confidence and retail spending have declined and may
continue to decline. Approximately 55% of the rental income that is
payable to us in 2009 under leases existing at December 31, 2008, including
rental income payable on our tenancy in common interest and excluding any rental
income from five properties formerly leased by Circuit City Stores, Inc.
(hereinafter “2009 contractual rental income”) will be derived from rent paid by
retail tenants. If the financial problems of our retail tenants
continue or deteriorate further, our revenues could decline significantly and
our real estate expenses could increase. During the fourth quarter of
2008, we recorded an impairment charge of $5.2 million relating to three
properties that were leased to Circuit City Stores, Inc. (hereinafter “Circuit
City”). Circuit City filed for protection under Federal bankruptcy
laws in November 2008 and has rejected all of its leases on our
properties. To the extent that our other retail tenants are adversely
affected by the recession and reduced consumer spending, our portfolio may be
further adversely effected.
Our 2009
contractual rental income will be approximately $42 million. In 2009,
we expect that our share of the rental income payable to our five joint ventures
which own properties will be approximately $1.4 million. On December
31, 2008, the occupancy rate of properties owned by us was 97.5% based on square
footage (including the property in which we own a tenancy in common interest and
the properties formerly leased to Circuit City) and the occupancy rate of
properties owned by our joint ventures was 99.5% based on square
footage. The weighted average remaining term of the leases in our
portfolio, including our tenancy in common interest (excluding the properties
formerly leased to Circuit City), is 9.4 years and 10.7 years for the leases at
properties owned by our joint ventures.
The
address and phone number of our principal executive office is 60 Cutter Mill
Road, Great Neck, N.Y. 11021 and 516-466-3100.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus and other documents we file with the SEC contain forward-looking
statements that are based on current expectations, estimates, forecasts and
projections about us, our future performance, the industries in which we
operate, our beliefs and our management’s assumptions. In addition,
other written or oral statements that constitute forward-looking statements may
be made by or on behalf of us. Words such as “expects,”
“anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,”
“seeks,” “estimates,” variations of such words and similar expressions are
intended to identify such forward-looking statements. These
statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions that are difficult to
predict. Therefore, actual outcomes and results may differ materially
from what is expressed or forecasted in such forward-looking
statements. Except as required under the federal securities laws and
the rules and regulations of the SEC, we do not have any intention or obligation
to update publicly any forward-looking statements after the distribution of this
prospectus, whether as a result of new information, future events, changes in
assumptions, or otherwise.
RISK
FACTORS
Before
you invest in any of our securities, in addition to the other information in
this prospectus and the applicable prospectus supplement, you should carefully
consider the risk factors under the heading “Risk Factors” contained in Part I,
Item 1A in our most recent Annual Report on Form 10-K and any risk factors
disclosed under the heading “Risk Factors” in Part II, Item 1A in any Quarterly
Report on Form 10-Q that we file after our most recent Annual Report on Form
10-K, which are incorporated by reference into this prospectus and the
applicable prospectus supplement, as the same may be updated from time to time
by our future filings under the Exchange Act.
The risks
and uncertainties we describe are not the only ones facing our Company.
Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also impair our business or operations. Any
adverse effect on our business, financial condition or operating results could
result in a decline in the value of the securities and the loss of all or part
of your investment.
USE
OF PROCEEDS
Unless
otherwise indicated in the applicable prospectus supplement, we anticipate that
the net proceeds from the sale of the securities that we may offer under this
prospectus will be used for general corporate purposes. General
corporate purposes may include repayment of debt, capital expenditures and any
other purposes that we may specify in the applicable prospectus
supplement. In addition, we may use all or a portion of any net
proceeds to acquire real property as part of our regular business. If
a material part of the net proceeds is used to repay indebtedness, we will set
forth the interest rate and maturity of such indebtedness in a prospectus
supplement, as required.
We will
have significant discretion in the use of any net proceeds. Investors
will be relying on the judgment of our management regarding the application of
the proceeds from any sale of the securities. We may invest the net
proceeds temporarily until we use them for their stated purpose.
DESCRIPTION
OF SECURITIES
The
following paragraphs constitute a summary as of the date of this prospectus and
do not purport to be a complete description of our securities. The
following paragraphs are qualified in their entirety by our Articles of
Incorporation, as amended and restated, our Bylaws, as amended, and Maryland
law. For a complete description of our securities, we refer you to
our Articles of Incorporation, as amended and restated, and our Bylaws, as
amended, each of which is incorporated by reference in this prospectus and any
accompanying prospectus supplement.
General
Our
Articles of Incorporation, as amended and restated, which we refer to herein as
our “charter,” provides that we may issue up to 37,500,000 shares of capital
stock, consisting of 25,000,000 shares of common stock, par value $1.00 per
share, and 12,500,000 shares of preferred stock, par value $1.00 per
share. As of March 31, 2009, 10,175,345 shares of common stock
(including 213,625 shares awarded under restricted stock grants subject to
vesting conditions) and no shares of preferred stock were
outstanding.
Common
Stock
Subject
to the preferential rights of any other shares or series of capital stock,
holders of shares of our common stock are entitled to receive distributions on
such shares if, as and when authorized and declared by our board of directors
out of assets legally available and to share ratably in our assets legally
available for distribution to our stockholders in the event of our liquidation,
dissolution or winding-up after payment of, or adequate provision for, all known
debts and liabilities.
Each
outstanding share of our common stock entitles the holder to one vote on all
matters submitted to a vote of stockholders, including the election of
directors. There is no cumulative voting in the election of
directors, which means that the holders of a majority of the outstanding shares
of our common stock, voting as one class, can elect all of the directors then
standing for election and the holders of the remaining shares of our common
stock will not be able to elect any directors. Holders of shares of
common stock have no preference, conversion, sinking fund, redemption, exchange
or preemptive rights to subscribe for any of our securities.
Our board
of directors is authorized by our charter to take such action, in addition to
the other provisions contained in the charter, as it deems necessary or
advisable, to protect the Company and the interests of shareholders by
preserving our status as a REIT. The charter authorizes our board of
directors to refuse or prevent a transfer of shares of our common stock to any
person whose acquisition of such shares would, in the opinion of our board of
directors, result in our disqualification as a REIT. In addition, any
transfer of our common stock that, if effective, results in a shareholder owning
shares in excess of the ownership limit set forth in our charter, or in our
shares of common stock being owned by less than 100 persons or results in the
Company being “closely held” shall be void from the date of the
transfer.
Pursuant
to the Maryland General Corporation Law (the “MGCL”), a corporation generally
cannot (except under and in compliance with specifically enumerated provisions
of the MGCL) dissolve, amend its charter, merge, sell all or substantially all
of its assets, engage in a share exchange or engage in similar transactions
outside the ordinary course of business unless approved by the affirmative vote
of stockholders holding at least two-thirds of the shares entitled to vote on
the matter, unless a lesser percentage (but not less than a majority of all of
the votes entitled to be cast on the matter) is set forth in the corporation’s
charter. Our charter provides for approval of any such action by a
majority of the votes entitled to be cast in the matter, except that an
amendment to our charter changing the rights, privileges or preferences of any
class or series of outstanding stock must be approved by not less than
two-thirds of the outstanding shares of such class or series of
stock.
Preferred
Stock
Our
charter authorizes us to issue up to 12,500,000 shares of preferred stock, par
value $1.00 per share. As of the date of this prospectus, no
preferred stock is outstanding.
If we
issue preferred stock, the shares we issue will be fully paid and
non-assessable. Prior to the issuance of a new series of preferred
stock, we will file, with the State Department of Assessments and Taxation of
Maryland, Articles of Amendment that will become part of our charter and that
will set forth the terms of the new series including:
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the
title and stated value;
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the
number of shares offered, liquidation preference and offering
price;
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the
dividend rate, if any, and, if applicable, the dividend periods and
payment dates;
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the
date on which dividends, if any, begin to accrue, and, if applicable,
accumulate;
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any
auction and remarketing procedures;
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any
retirement or sinking fund requirement;
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the
terms and conditions of any redemption right;
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the
terms and conditions of any conversion or exchange
right;
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any
listing of the offered shares on any securities
exchange;
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any
voting rights;
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the
relative ranking and preferences of the preferred shares as to dividends,
liquidation, dissolution or winding up;
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any
limitations on issuances of any other series of preferred stock ranking
senior to or on a parity with the series of preferred stock as to
dividends, liquidation, dissolution or winding up;
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any
limitations on direct or beneficial ownership and restrictions on
transfer; and
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any
other specific terms, preferences, rights, limitations or restrictions,
including any restrictions on the repurchases or redemption of shares by
us while there is any arrearage in the payment of applicable dividends or
sinking fund installments.
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PROVISIONS
OF MARYLAND LAW AND OF OUR CHARTER AND BYLAWS
Restrictions
on Ownership and Transfer
In order
for OLP to qualify as a REIT under the Internal Revenue Code of 1986, as amended
(the “Code”), not more than 50% in value of our outstanding shares may be owned,
directly or indirectly, by five or fewer individuals (defined in the Code to
include certain entities such as qualified pension plans) during the last half
of a taxable year and shares must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of twelve months (or during a
proportionate part of a shorter taxable year).
Because
our board of directors determined that it is important for us to continue to
qualify as a REIT, our charter was amended in 2005 (after approval by our
shareholders), to restrict, subject to certain exceptions, the number of shares
that a person may own. These provisions are designed to safeguard us
against an inadvertent loss of REIT status.
Pursuant
to our charter, as amended in 2005, (i) any stockholder who beneficially owned a
total amount or value in excess of 9.9% of our stock on June 14, 2005 was
prohibited from beneficially owning in excess of a total amount or value of our
stock that may cause the Company to violate such provisions of the Code relating
to REITs, and (ii) any other person was restricted from beneficially owning a
total amount or value of 9.9% or more of any class or series of common stock and
preferred stock of the Company. Pursuant to the attribution rules
under the Code, Fredric H. Gould, chairman of our board of directors, is our
only stockholder that beneficially owned in excess of 9.9% of our capital stock
on June 14, 2005. Therefore, except as limited by the Code and the
rules and regulations promulgated thereunder, or as our board of directors may
otherwise require, Mr. Gould is the only person permitted to own and acquire
shares of our capital stock, directly or indirectly, in excess of 9.9% of total
amount or value.
The stock
ownership rules under the Code are complex and may cause the outstanding shares
of stock owned by a group of related individuals or entities to be deemed to be
beneficially owned by one individual or entity. Specific attribution
rules apply in determining whether an individual or entity owns any class or
series of common stock or preferred stock of the Company. Under these
rules, any shares owned by a corporation, partnership, estate or trust are
deemed to be owned proportionately by such entities’ stockholders, partners, or
beneficiaries. Furthermore, an individual stockholder is deemed to
own any shares that are owned, directly or indirectly, by that stockholders’
brothers and sisters, spouse, parents or other ancestors, and children or other
descendants. In addition, a stockholder is deemed to own any shares
that he can acquire by exercising options.
As a
result of these attribution rules, even though a stockholder may own less than
9.9% of a class of outstanding shares, that individual or entity may be deemed
to beneficially own 9.9% or more of the class of outstanding stock, which would
subject the individual or entity to the ownership limitations contained in our
charter. The charter provides that any attempt to acquire or transfer
shares of common stock or preferred stock and any resulting transfer thereof
which would result in a stockholder owning an amount that equals or exceeds the
ownership limit without the consent of the board of directors shall be null and
void.
In the
event that the board of directors or its designees determines in good faith that
a prohibited transfer has taken place or is intended, the board or its designee
is authorized to take any action it deems advisable to void or to prevent the
transfer. These actions include, among other things, refusing to give
effect to the transfer on the books of the Company, instituting legal
proceedings to enjoin the transfer, redeeming the shares purported to be
transferred for an amount which may be less than the price the stockholder paid
for such shares, and transferring the shares by operation of law to a charitable
trust. In the event the shares are transferred to a charitable trust,
any dividends on such shares shall inure to such charitable trust and the
trustee of such charitable trust shall be entitled to all voting rights with
respect to such shares.
OLP’s
board of directors may increase or decrease the ownership limits, provided any
decrease may only be made prospectively. Prior to modification of the
ownership limit, OLP’s board may require such opinions of counsel, affidavits,
undertakings or agreements as it may deem necessary or advisable in order to
determine or ensure our status as a REIT.
Neither
the ownership restrictions nor the ownership limit will be removed automatically
even if the REIT provisions of the Code are changed so as no longer to contain
any ownership concentration limitation or if the ownership concentration
limitation is increased. Except as described above, any change in the
ownership restrictions would require an amendment to OLP’s
charter. Amendments to OLP’s charter generally require the
affirmative vote of holders owning not less than a majority of the outstanding
shares entitled to vote thereon. In addition to preserving OLP’s status as a
REIT, the ownership restrictions and the ownership limit may have the effect of
precluding an acquisition of control of OLP without the approval of its board of
directors.
The
ownership limit could have the effect of delaying, deferring or preventing a
transaction or a change in control of OLP that might involve a premium price for
the common shares or otherwise be in the best interest of OLP’s
stockholders.
Classification
of Our Board of Directors, Vacancies and Removal of Directors
Our
charter provides that our board of directors is divided into three
classes. Directors of each class serve for terms of three years each,
with the terms of each class beginning in different years. We
currently have 10 directors. Two of the classes consist of three
directors, and the third class consists of four directors.
At each
annual meeting of our stockholders, successors of the class of directors whose
term expires at that meeting are elected for a three-year term and the directors
in the other two classes continue in office. A classified board may
delay, defer or prevent a change in control or other transaction that might
involve a premium over the then prevailing market price for our common stock or
other attributes that our stockholders may consider desirable. In
addition, a classified board could prevent stockholders who do not agree with
the policies of our board of directors from replacing a majority of the board of
directors for two years, except in the event of removal for cause.
Our
bylaws provide that any vacancy on our board may be filled by action of a
majority of the board. A director elected by the board to fill a
vacancy will hold office until the next annual meeting of stockholders or until
his successor is elected and qualified. Our charter provides that our
stockholders may only remove an incumbent director for cause, at a meeting of
the stockholders duly called and at which a quorum is present, upon an
affirmative vote of the majority of all of the outstanding shares entitled to
vote thereon.
Indemnification
Our
charter and our bylaws obligate us to indemnify our directors and officers to
the maximum extent permitted by Maryland law. The MGCL permits a
corporation to indemnify its present and former directors and officers against
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by them in connection with any proceeding to which they may be a party
by reason of their service in those or other capacities, unless it is
established that (1) the act or omission of the director or officer was material
to the matter giving rise to the proceeding and (a) was committed in bad faith,
or (b) was the result of active and deliberate dishonesty, or (2) the director
or officer actually received an improper personal benefit in money, property or
services, or (3) in the case of any criminal proceeding, the director or officer
had reasonable cause to believe that the act or omission was
unlawful.
Limitation
of Liability
The MGCL
permits the charter of a Maryland corporation to include a provision limiting
the liability of its directors and officers to the corporation and its
stockholders for money damages, except to the extent that (1) it is proved that
the person actually received an improper benefit or profit in money, property or
services, or (2) a judgment or other final adjudication is entered in a
proceeding based on a finding that the person’s action, or failure to act, was
the result of active and deliberate dishonesty and was material to the cause of
action adjudicated in the proceeding. Our charter provides for the
elimination of the liability of our directors and officers to us or our
stockholders for money damages to the maximum extent permitted by Maryland law
from time to time.
Maryland
Business Combination Act
Pursuant
to Article IX of our charter, we have expressly elected not to be subject to, or
governed by, the MGCL’s requirements for “business combinations” between a
Maryland corporation and “interested stockholders.”
Maryland
Control Share Acquisition Act
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 stockholder vote. Two-thirds of the shares eligible to vote
(excluding all interested shares) must vote in favor of granting the “control
shares” voting rights. “Control shares” are voting shares which, if
aggregated with all other shares previously acquired by the acquiring person, or
in respect of which the acquiring person is able to exercise or direct the
exercise of voting power, other than by revocable proxy, would entitle the
acquiring person to exercise voting power of at least 10% of the voting power in
electing directors.
Control
shares do not include shares of stock the acquiring person is entitled to vote
as a result of having previously obtained stockholder approval. A
“control share acquisition” means the acquisition of control shares, subject to
certain exceptions.
If a
person who has made (or proposes to make) a control share acquisition satisfies
certain conditions (including agreeing to pay expenses), that person may compel
our board of directors to call a special meeting of stockholders to be held
within 50 days to consider the voting rights of the shares. If that
person makes no request for a meeting, we have the option to present the
question at any stockholders’ meeting.
If voting
rights are not approved at a meeting of stockholders, we may redeem any or all
of the control shares (except those for which voting rights have previously been
approved) for fair value. We will determine the fair value of the
shares, without regard to voting rights, as of the date of either:
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the
last control share acquisition by the acquiring person;
or
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any
meeting where stockholders considered and did not approve voting rights of
the control shares.
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If voting
rights for control shares are approved at a stockholders’ meeting and the
acquiror becomes entitled to vote a majority of the shares of stock entitled to
vote, all other stockholders may exercise appraisal rights. This
means that you would be able to cause us to redeem your stock for fair
value. Under the MGCL, the fair value may not be less than the
highest price per share paid in the control share
acquisition. Furthermore, certain limitations otherwise applicable to
the exercise of appraisal rights would not apply in the context of a control
share acquisition.
The
control share acquisition statute would not apply to shares acquired in a
merger, consolidation or share exchange if we were a party to the
transaction.
Our
bylaws exempt any acquisition by Gould Investors L.P. of our equity securities
from the provisions of the control share acquisition statute. This
section of our bylaws may not be amended or repealed without the written consent
of Gould Investors L.P. or approval of the holders of at least two-thirds of the
outstanding shares of our capital stock.
The
control share acquisition statute could have the effect of discouraging offers
to acquire us and of increasing the difficulty of consummating any such offers,
even if our acquisition would be in our stockholders’ best
interests.
Amendment
to Our Charter
Our
charter may be amended by the vote of a majority of the shares entitled to vote,
except that no amendment changing the terms or rights of any class or series of
outstanding stock, by classification, re-classification or otherwise, will be
valid unless such amendment is authorized by not less than two-thirds of the
outstanding voting shares of such class or series of stock.
Amendment
to Our Bylaws
Our board
of directors has the power to alter, modify or repeal any of our bylaws and to
make new bylaws, except that our board may not alter, modify or repeal (1) any
bylaws made by stockholders; (2) Section 11 of Article II of our bylaws
governing the Gould Investors L.P. exemption from the control share acquisition
statute; (3) Section 17 of Article III of our bylaws that governs our investment
policies and restrictions; or (4) Section 18 of Article III of our bylaws that
governs management arrangements.
In
addition, our stockholders have the power to alter, modify or repeal any of our
bylaws and to make new bylaws by majority vote; however at least two-thirds of
the holders of outstanding shares of any preferred stock must vote in favor of
any amendment which changes the rights, privileges or preferences of such
preferred stock, and the vote of at least two-thirds of the holders of our
outstanding shares of capital stock is needed to amend or repeal the Gould
Investors L.P. exemption from the control share acquisition statute, as
discussed above under “Maryland Control Share Acquisition Act”.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors and officers pursuant to the foregoing provisions or
otherwise, we have been advised that, although the validity and scope of the
governing statute has not been tested in court, in the opinion of the SEC, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In addition, state securities laws may limit
indemnification.
FEDERAL
INCOME TAX CONSIDERATIONS
This
section summarizes certain U.S. federal income tax issues that you, as a
prospective investor, may consider relevant. Because this section is a summary,
it does not address all of the tax issues that may be important to you. In
addition, this section does not address the tax issues that may be important to
certain types of prospective investors that are subject to special treatment
under U.S. federal income tax laws, including, without limitation, insurance
companies, tax-exempt organizations (except to the extent discussed in “Taxation
of Tax-Exempt Stockholders,” below), financial institutions or broker-dealers,
and non-U.S. individuals and foreign corporations (except to the extent
discussed in “Taxation of Non-U.S. Stockholders,” below).
The
statements in this section are based on current U.S. federal income tax laws. We
cannot assure you that new laws, interpretations of law, or court decisions, any
of which may have retroactive effect, will not cause one or more statements in
this section to be inaccurate.
We have
not requested and do not intend to request a ruling from the Internal Revenue
Service (“IRS”) as to our current status as a REIT. However, we have
received an opinion from Sonnenschein Nath & Rosenthal LLP (“Sonnenschein”)
stating that we have been organized and have operated in conformity with the
requirements for qualification and taxation as a REIT under the Code for the
taxable year ended December 31, 2008, and that our organization and proposed
method of operation will enable us to continue to meet the requirements for
qualification and taxation as a REIT under the Code. It must be
emphasized that Sonnenschein’s opinion is based on various assumptions and on
our representations concerning our organization and operations, including
representations regarding the nature of our assets and the conduct and method of
operation of our business, and it cannot be relied upon if any of those
assumptions and representations later prove incorrect. Moreover,
continued qualification and taxation as a REIT depends upon our ability to meet,
through actual annual operating results, distribution levels and diversity of
stock ownership, as well as the other various qualification tests imposed under
the Code, the results of which will not be reviewed by
Sonnenschein. Accordingly, no assurance can be given that the actual
results of our operations will satisfy such requirements. Additional information
regarding the risks associated with our failure to qualify as a REIT are set
forth under the caption “Risk Factors” above. The opinion of
Sonnenschein is based upon current law, which is subject to change either
prospectively or retroactively. Changes in applicable law could modify the
conclusions expressed in its opinion. Moreover, unlike a tax ruling
(which we will not seek), an opinion of counsel is not binding on the IRS, and
no assurance can be given that the IRS will not or could not successfully
challenge our status as a REIT.
WE URGE
YOU TO CONSULT YOUR OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO
YOU OF INVESTING IN OUR COMMON STOCK AND OF OUR ELECTION TO BE TAXED AS A REIT.
SPECIFICALLY, YOU SHOULD CONSULT YOUR OWN TAX ADVISOR REGARDING THE FEDERAL,
STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH INVESTMENT AND
ELECTION AND REGARDING POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
Taxation
We
elected to be taxed as a REIT under the U.S. federal income tax laws beginning
with our taxable year ended December 31, 1983. We believe that we have operated
in a manner qualifying us as a REIT since our election and intend to operate in
a manner that will preserve that qualification. This section discusses the laws
governing the U.S. federal income tax treatment of a REIT and its stockholders.
These laws are highly technical and complex.
Our
qualification as a REIT depends on our ability to meet, on a continuing basis,
qualification tests set forth in the U.S. federal tax laws. Those qualification
tests involve the percentage of income that we earn from specified sources, the
percentages of our assets that fall within specified categories, the diversity
of our stock ownership and the percentage of our earnings that we distribute. We
describe the REIT qualification tests in more detail below. For a discussion of
the tax treatment of us and our stockholders if we fail to qualify as a REIT,
see “Failure to Qualify,” below.
If we
qualify as a REIT, we generally will not be subject to U.S. federal income tax
on the taxable income that we distribute to our stockholders. The benefit of
that tax treatment is that it avoids the “double taxation” (i.e., taxation at
both the corporate and stockholder levels) that generally results from owning
stock in a “C” corporation. However, we will be subject to U.S. federal tax in
the following circumstances:
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We
will pay U.S. federal income tax on taxable income, including net capital
gain, that we do not distribute to stockholders during, or within a
specified time period after, the calendar year in which the income is
earned.
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We
may be subject to the “alternative minimum tax” on any items of tax
preference that we do not distribute or allocate to
stockholders.
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We
will pay income tax at the highest corporate rate
on:
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net
income from the sale or other disposition of property acquired through
foreclosure that we hold primarily for sale to customers in the ordinary
course of business; and
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other
non-qualifying income from the property discussed
above.
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We
will pay a 100% tax on net income from sales or other dispositions of
property, other than foreclosure property, that we hold primarily for sale
to customers in the ordinary course of
business.
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If
we fail to satisfy the 75% gross income test or the 95% gross income test,
as described below under “Income Tests,” and nonetheless continue to
qualify as a REIT because we meet other requirements, we will pay a 100%
tax on the gross income attributable to the greater of the amounts by
which we fail the 75% and 95% gross income tests, respectively, multiplied
by a fraction intended to reflect our
profitability.
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If
we fail to distribute during a calendar year at least the sum
of:
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85%
of our REIT ordinary income for the
year;
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95%
of our REIT capital gain net income for the year;
and
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any
undistributed taxable income from earlier periods;
then
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we
will pay a 4% excise tax on the excess of the required distribution over
the amount we actually distributed.
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We
may elect to retain and pay income tax on our net long-term capital
gain.
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We
will be subject to a 100% excise tax on transactions with a taxable REIT
subsidiary that are not conducted on an arm's-length
basis.
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If
we acquire any asset from a “C” corporation (or any other corporation that
generally is subject to full corporate-level tax) in a merger or other
transaction in which we acquire a basis in the asset that is determined by
reference either to the “C” corporation's basis in the asset or to the
basis of another asset (a “conversion transaction”), we will pay tax at
the highest regular corporate rate applicable if we recognize any net
built-in gain on the sale or disposition of such asset during the 10-year
period after we acquire such asset
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Requirements
for Qualification
A REIT is
an entity that meets each of the following requirements:
1. It
is managed by trustees or directors.
2. Its
beneficial ownership is evidenced by transferable shares, or by transferable
certificates of beneficial interest.
3. It
would be taxable as a domestic “C” corporation, but for the REIT provisions of
the U.S. federal income tax laws.
4. It
is neither a financial institution nor an insurance company subject to special
provisions of the U.S. federal income tax laws.
5. At
least 100 persons are beneficial owners of its shares or ownership
certificates.
6. Not
more than 50% in value of its outstanding shares or ownership certificates is
owned, directly or indirectly, by five or fewer individuals, which the U.S.
federal income tax laws define to include certain entities, during the last half
of any taxable year.
7. It
elects to be a REIT, or has made such election for a previous taxable year, and
satisfies all relevant filing and other administrative requirements established
by the IRS that must be met to elect and maintain REIT status.
8. It
meets certain other qualification tests, described below, regarding the nature
of its income and assets.
We must
meet requirements 1 through 4 during our entire taxable year and must meet
requirement 5 during at least 335 days of a taxable year of 12 months, or during
a proportionate part of a taxable year of less than 12 months. If we
comply with all the applicable requirements for ascertaining the ownership of
our outstanding shares in a taxable year and have no reason to know that we
violated requirement 6, we will be deemed to have satisfied requirement 6 for
that taxable year. For purposes of determining share ownership under requirement
6, an “individual” generally includes a supplemental unemployment compensation
benefits plan, a private foundation, or a portion of a trust permanently set
aside or used exclusively for charitable purposes. An “individual,” however,
generally does not include a trust that is a qualified employee pension or
profit sharing trust under the U.S. federal income tax laws, and beneficiaries
of such a trust will be treated as holding our shares in proportion to their
actuarial interests in the trust for purposes of requirement 6. We
have issued sufficient shares of common stock with sufficient diversity of
ownership to satisfy requirements 5 and 6. In addition, our charter restricts
certain ownership and transfer of the shares of common stock so that we should
continue to satisfy these requirements. Provisions of our charter are
discussed in greater detail above under “Provisions of Maryland Law and of our
Charter and Bylaws”.
A
corporation that is a “qualified REIT subsidiary” is not treated as a
corporation separate from its parent REIT. All assets, liabilities and items of
income, deduction and credit of a “qualified REIT subsidiary” are treated as
assets, liabilities and items of income, deduction and credit of the parent
REIT. A “qualified REIT subsidiary” is a corporation, all of the capital stock
of which is owned by the REIT and for which no election has been made to treat
such corporation as a “taxable REIT subsidiary.” We own certain of
our properties through subsidiaries. Each of our subsidiaries
qualifies as a “qualified REIT subsidiary” under U.S. federal income tax
law. Accordingly, for U.S. federal income tax purposes, our
subsidiaries are ignored as separate entities, and all of their assets,
liabilities and items of income, deduction and credit are treated as our assets,
liabilities and items of income, deduction and credit.
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 an entity treated as 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. Thus, our proportionate share of the
assets, liabilities and items of income of any partnership or joint venture or
limited liability company that is treated as a partnership for U.S. federal
income tax purposes in which we have acquired or will acquire an interest,
directly or indirectly (a “subsidiary partnership”), will be treated as our
assets and gross income for purposes of applying the various REIT qualification
tests. We own membership interests in five joint
ventures. We are also owners of a 50% interest in a property as
tenants in common with a group of investors. Accordingly, our
proportionate share of the assets, liabilities and items of income of the joint
ventures and the tenancy in common will be treated as our assets and gross
income for purposes of applying the various REIT qualification tests discussed
in this section.
A REIT
may own up to 100% of the stock of a “taxable REIT subsidiary” (“TRS”). A TRS
may earn income that would not be qualifying income if earned directly by the
parent REIT. Both the subsidiary and the REIT must jointly elect to treat the
subsidiary as a TRS. A TRS will pay income tax at regular corporate rates on any
income that it earns. In addition, the TRS rules limit the deductibility of
interest paid or accrued by a TRS to its parent REIT to assure that the TRS is
subject to an appropriate level of corporate taxation. Further, the rules impose
a 100% excise tax on transactions between a TRS and its parent REIT (or the
REIT's tenants) that are not conducted on an arm's-length basis. We
do not currently have any TRSs, but cannot foreclose the possibility of the
formation of one or more TRSs in future taxable years.
Income
Tests
We must
satisfy two gross income tests annually to maintain our qualification as a REIT.
First, at least 75% of our gross income for each taxable year must consist of
specific types of income that we derive, directly or indirectly, from
investments relating to real property or mortgages on real property or qualified
temporary investment income. Qualifying income for purposes of this 75% gross
income test generally includes:
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rents
from real property;
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interest
on debt secured by mortgages on real property, or on interests in real
property;
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dividends
or other distributions on, and gain from the sale of, shares in other
REITs;
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gain
from the sale of real estate
assets;
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abatements
and refunds of taxes on real property;
and
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income
and gain from foreclosure property.
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Second,
in general, at least 95% of our gross income for each taxable year must consist
of income that is qualifying income for purposes of the 75% gross income test,
other types of interest and dividends, gain from the sale or disposition of
stock or securities, income from certain interest rate hedging contracts, or any
combination of the foregoing. Gross income from sales of property held primarily
for sale to customers in the ordinary course of business is excluded from both
the numerator and the denominator in both income tests. The following paragraphs
discuss the specific application of the gross income tests to us.
A REIT
will incur a 100% tax on the net income derived from any “prohibited
transaction,” which is a sale or other disposition of property, other than
foreclosure property, that the REIT holds primarily for sale to customers in the
ordinary course of a trade or business. We believe that none of our assets are
held primarily for sale to customers and that a sale of any of our assets would
not be in the ordinary course of our business. Whether a REIT holds
an asset “primarily for sale to customers in the ordinary course of a trade or
business” depends, however, on the facts and circumstances in effect from time
to time, including those related to a particular asset. Nevertheless, we will
attempt to comply with the terms of safe-harbor provisions in the U.S. federal
income tax laws prescribing when an asset sale will not be characterized as a
prohibited transaction. We cannot assure you, however, that we can comply with
the safe-harbor provisions or that we will avoid owning property that may be
characterized as property that we hold “primarily for sale to customers in the
ordinary course of a trade or business.”
While
income from foreclosure property qualifies for purposes of satisfying the 75%
and 95% gross income tests, we will be subject to tax at the maximum corporate
rate on any income from such foreclosure property, other than any portion of
such income that otherwise would be qualifying income for purposes of the 75%
gross income test, less expenses directly connected with the production of that
income. “Foreclosure property” is any real property, including interests in real
property, and any personal property incident to such real property:
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that
is acquired by a REIT as a result of the REIT having bid on such property
at foreclosure, or having otherwise reduced such property to ownership or
possession by agreement or process of law, after there was a default (or
default was imminent) on a lease of such property or on indebtedness that
such property secured;
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for
which the related loan was acquired by the REIT at a time when the default
was not imminent or anticipated;
and
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for
which the REIT makes a proper election to treat the property as
foreclosure property.
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However,
a REIT will not be considered to have foreclosed on a property where the REIT
takes control of the property as a mortgagee-in-possession and cannot receive
any profit or sustain any loss except as a creditor of the mortgagor. Property
generally ceases to be foreclosure property at the end of the third taxable year
following the taxable year in which the REIT acquired the property, or longer if
an extension is granted by the Secretary of the Treasury. This grace period
terminates and foreclosure property ceases to be foreclosure property on the
first day:
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on
which a lease is entered into for the property that, by its terms, will
give rise to income that does not qualify for purposes of the 75% gross
income test, or any amount is received or accrued, directly or indirectly,
pursuant to a lease entered into on or after such day that will give rise
to income that does not qualify for purposes of the 75% gross income
test;
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on
which any construction takes place on the property, other than completion
of a building or any other improvement, where more than 10% of the
construction was completed before default became imminent;
or
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which
is more than 90 days after the day on which the REIT acquired the property
and the property is used in a trade or business which is conducted by the
REIT, other than through an independent contractor from whom the REIT
itself does not derive or receive any
income.
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We have
no foreclosure property as of the date of this prospectus.
Rent that
we receive from real property that we own and lease to tenants will qualify as
“rents from real property,” which is qualifying income for purposes of both the
75% and 95% gross income tests, only if each of the following conditions is
met:
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The
rent must not be based, in whole or in part, on the income or profits of
any person, but may be based on a fixed percentage or percentages of
receipts or sales;
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Neither
we nor any direct or indirect owner of 10% or more of our shares may own,
actually or constructively, 10% or more of a tenant from whom we receive
rent (other than a TRS). Rent we receive from a TRS will qualify as “rents
from real property” if at least 90% of the leased space of the property is
rented to persons other than TRSs and 10%-owned tenants and the amount of
rent paid by the TRS is substantially comparable to the rent paid by the
other tenants of the property for comparable
space;
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Not
all of the rent received under a lease of real property will qualify as
“rents from real property” if the rent attributable to the personal
property leased in connection with such lease is more than 15% of the
total rent received under the lease. If rent attributable to the personal
property leased is more than 15% of the total rent received, none of the
rent allocable to the personal property will be considered “rents from
real property” for purposes of the 75% and 95% gross income tests. The
allocation of rent between real and personal property is based on the
relative fair market values of the real and personal property;
and
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We
generally must not operate or manage our real property or furnish or
render services to our tenants, other than through an independent
contractor who is adequately compensated and from whom we do not derive
revenue. However, we need not provide services through an independent
contractor, but instead may provide services directly, if the services are
“usually or customarily rendered” in connection with the rental of space
for occupancy only and are not considered to be provided for the tenant’
convenience. In addition, we may provide a minimal amount of
“noncustomary” services to the tenants of a property, other than through
an independent contractor, as long as our income from the services does
not exceed 1% of our income from the related property. Further, we may own
up to 100% of the stock of a TRS. A TRS generally can provide customary
and noncustomary services to our tenants without tainting our rental
income.
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We
believe that the rents we receive meet all of these conditions.
If we
fail to satisfy one or both of the gross income tests for any taxable year, we
nevertheless may qualify as a REIT for that year if we qualify for relief under
certain provisions of the U.S. federal income tax laws. Those relief provisions
generally will be available if:
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our
failure to meet such tests is due to reasonable cause and not due to
willful neglect;
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we
attach a schedule of the sources of our income to our tax return;
and
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any
incorrect information on such schedule is not due to fraud with intent to
evade tax.
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We cannot
predict, however, whether in any relevant circumstance we would qualify for the
relief provisions referenced above. In addition, as discussed above in “Federal
Income Tax Considerations -- Taxation,” even if the relief provisions apply, we
would incur a 100% tax on the gross income attributable to the greater of the
amounts by which we fail the 75% and 95% gross income tests, respectively,
multiplied by a fraction intended to reflect our profitability.
Asset
Tests
To
maintain our qualification as a REIT, we also must satisfy two asset tests at
the end of each quarter of each taxable year. First, at least 75% of the value
of our total assets must consist of:
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interests
in real property, including leaseholds and options to acquire real
property and leaseholds;
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interests
in mortgages on real property;
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stock
in other REITs; and
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investments
in stock or debt instruments during the one-year period following our
receipt of new capital that we raise through equity offerings or offerings
of debt featuring at least a five-year
term.
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Under the
second asset test, except for (1) securities in the 75% asset class, (2)
securities in a TRS or qualified REIT subsidiary, and (3) certain partnership
interests and certain debt obligations:
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not
more than 5% of the value of our total assets may be represented by
securities of any one issuer; and
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we
may not own securities that possess more than 10% of the total voting
power of the outstanding securities of any one issuer; and we may not own
securities that have a value of more than 10% of the total value of the
outstanding securities of any one
issuer.
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In
addition, not more than 25% of the value of our total assets may be represented
by securities of one or more TRSs.
We
believe that our existing assets are qualifying assets for purposes of the
aforementioned asset tests. We also believe that any additional real property
that we acquire, loans that we extend and temporary investments that we make
generally will be qualifying assets for purposes of such asset tests. We will monitor the
status of our acquired assets for purposes of the various asset tests and will
endeavor to 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:
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we
satisfied the asset tests at the end of the preceding calendar quarter;
and
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the
discrepancy between the value of our assets and the asset test
requirements arose from changes in the market values of our assets and was
not wholly or partly caused by the acquisition of one or more
non-qualifying assets.
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If we did
not satisfy the condition described in the second item, above, we still could
avoid disqualification by eliminating any discrepancy within 30 days after the
close of the calendar quarter in which it arose.
Although
we own no TRSs currently, we may own up to 100% of the stock of one or more TRSs
in the future. TRSs can perform activities unrelated to the businesses of our
tenants, such as third-party management, development, and other independent
business activities, as well as provide services to our tenants. Should such an
entity be organized, we and the relevant subsidiary must elect for the
subsidiary to be treated as a TRS. A corporation of which a TRS directly or
indirectly owns more than 35% of the voting power or value of the stock will
automatically be treated as a TRS itself. The deductibility of interest paid or
accrued by a TRS to us is limited to assure that the TRS is subject to an
appropriate level of corporate taxation. Further, there is a 100% excise tax on
transactions between a TRS and us or our tenants that are not conducted on an
arm's-length basis. We may not own more than 10% of the voting power or value of
the stock of a taxable subsidiary that is not treated as a TRS. As noted above,
no more than 25% of our assets can consist of securities of TRSs.
Distribution
Requirements
Each
taxable year, we must distribute dividends, other than capital gain dividends
and deemed distributions of retained capital gain, to our stockholders in an
aggregate amount at least equal to:
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the
sum of (1) 90% of our "REIT taxable income," computed without regard to
the dividends paid deduction and our net capital gain or loss; and (2) 90%
of our after-tax net income, if any, from foreclosure property;
minus
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the
sum of certain items of non-cash
income.
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We must
pay such distributions in the taxable year to which they relate, or in the
following taxable year if we declare the distribution before we timely file our
U.S. federal income tax return for the year and pay the distribution on or
before the first regular dividend payment date after such
declaration.
We will
pay U.S. federal income tax on taxable income, including net capital gain, that
we do not distribute to stockholders. Furthermore, if we fail to distribute
during a calendar year, or by the end of January following the calendar year in
the case of distributions with declaration and record dates falling in the last
three-months of the calendar year, at least the sum of:
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85%
of our REIT ordinary income for such
year;
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95%
of our REIT capital gain net income for such year;
and
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any
undistributed taxable income from prior periods,
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we have
made, and we intend to continue to make, timely distributions sufficient to
satisfy the foregoing annual distribution requirements.
We will
incur a 4% nondeductible excise tax on the excess of such required distribution
over the amounts we actually distributed. We may elect to retain and pay income
tax on the net long-term capital gain we receive in a taxable year. See “Federal
Income Tax Considerations - Taxation of Taxable U.S. Stockholders,” below. If we
so elect, we will be treated as having distributed any such retained amount for
purposes of the 4% excise tax described above.
It is
possible that, from time to time, we may experience timing differences between:
(1) the actual receipt of income and actual payment of deductible expenses; and
(2) the inclusion of that income and the deduction of such expenses in arriving
at our REIT taxable income. As a result of the foregoing, we may have
less cash than is necessary to distribute all of our taxable income and thereby
avoid corporate income tax and the 4% excise tax imposed on certain
undistributed income. In such a situation, we may need to borrow
funds or issue additional shares of our stock to achieve the liquidity necessary
to make the required distributions.
Under
certain circumstances, we may be able to correct a failure to meet the
distribution requirement for a year by paying "deficiency dividends" to our
stockholders in a later year. We may include such deficiency dividends in our
deduction for dividends paid for the earlier year. Although we may be able to
avoid income tax on amounts distributed as deficiency dividends, we will be
required to pay interest to the IRS based upon the amount of any deduction we
take for deficiency dividends.
Recordkeeping
Requirements
We must
maintain certain records in order to qualify as a REIT. In addition, to avoid a
monetary penalty, we must request information from certain of our stockholders
on an annual basis designed to disclose the actual ownership of our outstanding
shares. We have complied, and we intend to continue to comply, with these
requirements.
Failure
to Qualify
If we
fail to qualify as a REIT in any taxable year, and no relief provision is
available, we would be subject to U.S. federal income tax, any applicable
alternative minimum tax, and state and local taxes in states where we are doing
business, on our taxable income at regular corporate rates. In calculating our
taxable income in a year in which we fail to qualify as a REIT, we would not be
able to deduct amounts paid out to stockholders. Moreover, we would not be
required to distribute any amounts to stockholders in that year. In such event,
to the extent of our current and accumulated earnings and profits, all
distributions to stockholders would be taxable to them as dividend income. Under
such circumstances and subject to certain limitations of the U.S. federal income
tax laws, corporate stockholders might be eligible for the dividends received
deduction and individual stockholders may be able to treat the dividends as
qualified dividend income taxable at the reduced income tax rate of 15% or less
on such dividends for tax years beginning before 2011. Unless we
qualified for relief under specific statutory provisions, we also would be
disqualified from being taxed as a REIT for the four taxable years following the
year during which we ceased to qualify as a REIT. We cannot predict
whether, under any applicable circumstances, we would qualify for any available
statutory relief if we ever fail to qualify as a REIT.
Taxation
of Taxable U.S. Stockholders
As long
as we qualify as a REIT, a taxable "U.S. stockholder" must take into account as
ordinary income distributions made out of our current or accumulated earnings
and profits that we do not designate as capital gain dividends or retained
long-term capital gain. A corporate U.S. stockholder will not qualify for the
dividends received deduction generally available to corporations with respect to
such distributions. The term "U.S. stockholder" means a holder of our common
stock that, for U.S. federal income tax purposes, is:
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a
citizen or resident of the U.S.;
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an
entity created or organized under the laws of the U.S. or of a political
subdivision of the U.S.;
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an
estate whose income is includible in gross income for U.S. federal income
tax purposes regardless of its source;
or
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any
trust with respect to which:
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a
U.S. court is able to exercise primary supervision over its
administration;
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and
one or more U.S. persons have the authority to control all of its
substantial decisions; or
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it
has a valid election in effect under applicable Treasury regulations to be
treated as a U.S. person.
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A U.S.
stockholder generally will recognize and be taxed on distributions that we
designate as capital gain dividends as long-term capital gain without regard to
the period for which the U.S. stockholder has held our common stock. A corporate
U.S. stockholder, however, may be required to treat up to 20% of certain capital
gain dividends as ordinary income.
We may
elect to retain and pay income tax on the net long-term capital gain that we
receive in a taxable year. In that case, a U.S. stockholder would be taxed on
its proportionate share of our undistributed long-term capital gain. The U.S.
stockholder would, however, receive a credit or refund for its proportionate
share of the tax we paid. The U.S. stockholder would increase the basis in its
shares of our common stock by the amount of its proportionate share of our
undistributed long-term capital gain, minus its share of the tax we
paid.
A U.S.
stockholder will not incur tax on a distribution in excess of our current and
accumulated earnings and profits if the distribution does not exceed the
adjusted tax basis of the U.S. stockholder's shares of our common stock.
Instead, the distribution will reduce the adjusted tax basis of such shares of
our common stock in the U.S. stockholder's hands. A U.S. stockholder will
recognize and pay tax on a distribution in excess of both our current and
accumulated earnings and profits and such stockholder's adjusted tax basis in
its shares of common stock as long-term capital gain, or short-term capital gain
if the shares of our common stock have been held by the stockholder for one year
or less, assuming such shares of common stock are a capital asset in the hands
of the U.S. stockholder. For purposes of determining whether a distribution is
made out of our current or accumulated earnings and profits, our earnings and
profits will be allocated first to dividends on our preferred stock (if any are
issued) and then to dividends on our common stock. In addition, if we
declare a distribution in October, November or December of any year that is
payable to a U.S. stockholder of record on a specific date in any such
month, such distribution may be treated as both paid by us and
received by the U.S. stockholder on December 31 of such year, provided that we
actually pay the distribution during January of the following calendar
year.
Stockholders
may not include in their individual income tax returns any of our net operating
losses or capital losses. Instead, these losses are generally carried over by us
for potential offset against our future income. Taxable distributions from us
and gain from the disposition of the shares of our common stock will not be
treated as passive activity income and, therefore, stockholders generally will
not be able to apply any "passive activity losses," such as losses from certain
types of limited partnerships in which the stockholder is a limited partner,
against such income. In addition, taxable distributions from us and gain from
the disposition of shares of our common stock generally will be treated as
investment income for purposes of the investment interest limitations. We will
notify stockholders after the close of each taxable year as to the portions of
the distributions attributable to that year that constitute ordinary income,
return of capital and capital gain.
Taxation
of U.S. Stockholders on the Disposition of Our Common Stock
In
general, a U.S. stockholder who is not a dealer in securities must treat any
gain or loss realized upon a taxable disposition of his or her shares of our
common stock as long-term capital gain or loss if the U.S. stockholder has held
the shares of common stock for more than one year, and otherwise as short-term
capital gain or loss. However, a U.S. stockholder must treat any loss upon a
sale or exchange of shares of our common stock held by such stockholder for
six-months or less as a long-term capital loss to the extent of capital gain
dividends and other distributions from us that such U.S. stockholder treats as
long-term capital gain. All or a portion of any loss that a U.S. stockholder
realizes upon a taxable disposition of the shares of our common stock may be
disallowed if the U.S. stockholder purchases other shares of common stock within
30 days before or after the disposition.
Capital
Gains and Losses
The U.S.
federal tax rate differential between long-term capital gain and ordinary income
for non-corporate taxpayers may be significant. A taxpayer generally must hold a
capital asset for more than one year for gain or loss derived from the sale or
exchange of such asset to be treated as long-term capital gain or loss. The
highest marginal individual income tax rate on ordinary income for the 2008 tax
year is 35%. The maximum tax rate on long-term capital gain applicable to
non-corporate taxpayers is 15% for sales and exchanges of assets held for more
than one year and occurring before 2011. The maximum tax rate on
long-term capital gain from the sale or exchange of "section 1250 property," or
depreciable real property, is 25% to the extent that such gain would have been
treated as ordinary income if the property were "section 1245 property." With
respect to distributions that we designate as capital gain dividends and any
retained capital gain that we are deemed to distribute, we may designate whether
such a distribution is taxable to our non-corporate stockholders at a 15%, or
25% rate. In addition, the characterization of income as capital gain or
ordinary income may affect the deductibility of capital losses. A non-corporate
taxpayer may deduct capital losses not offset by capital gains against its
ordinary income only up to a maximum annual amount of $3,000. A non-corporate
taxpayer may carry forward unused capital losses indefinitely. A corporate
taxpayer must pay tax on its net capital gain at ordinary corporate rates. A
corporate taxpayer can deduct capital losses only to the extent of capital
gains, with unused losses being carried back three years and forward five
years.
Information
Reporting Requirements and Backup Witholding
We will
report to our stockholders and to the IRS the amount of distributions we pay
during each calendar year, and the amount of tax we withhold, if any. Under the
backup withholding rules, a stockholder may be subject to backup withholding at
a rate of 28% in 2008 with respect to distributions unless the
holder:
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is
a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact;
or
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provides
a taxpayer identification number, certifies as to no loss of exemption
from backup withholding, and otherwise complies with the applicable
requirements of the backup withholding
rules.
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A
stockholder who does not provide us with its correct taxpayer identification
number also may be subject to penalties imposed by the IRS. Any amount paid as
backup withholding will be creditable against the stockholder's income tax
liability. In addition, we may be required to withhold a portion of capital gain
distributions to any stockholders who fail to certify their non-foreign status
to us. For a discussion of the backup withholding rules as applied to non-U.S.
stockholders, see "Certain Federal Income Tax Consequences - Taxation of
Non-U.S. Stockholders," below.
Taxation
of Tax-Exempt Stockholders
Tax-exempt
entities, including qualified employee pension and profit sharing trusts and
individual retirement accounts, generally are exempt from U.S. federal income
taxation. However, they are subject to taxation on their unrelated business
taxable income. While many investments in real estate generate unrelated
business taxable income, the IRS has issued a ruling that dividend distributions
from a REIT to an exempt employee pension trust do not constitute unrelated
business taxable income so long as the exempt employee pension trust does not
otherwise use the shares of the REIT in an unrelated trade or business of the
pension trust. Based on that ruling, amounts that we distribute to tax-exempt
stockholders generally should not constitute unrelated business taxable income.
However, if a tax-exempt stockholder were to finance its acquisition of shares
of 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. 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 U.S. 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 shares (by value) must
treat a percentage of the dividends that it receives as unrelated business
taxable income. Such percentage is equal to the gross income we would be deemed
to 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. This rule applies to a pension trust holding more than 10% of our
shares (by value) only if:
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the
percentage of our dividends that the tax-exempt trust must treat as
unrelated business taxable income is at least
5%;
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we
qualify as a REIT by reason of the modification of the rule requiring that
no more than 50% of our shares be owned by five or fewer individuals that
allows the beneficiaries of the pension trust to be treated as holding our
shares in proportion to their actuarial interests in the pension trust;
and
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one
pension trust owns more than 25% of the value of our shares;
or
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a
group of pension trusts individually holding more than 10% of the value of
our shares collectively owns more than 50% of the value of our
shares.
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Taxation
of Non-U.S. Stockholders
The rules
governing U.S. federal income taxation of nonresident alien individuals, foreign
corporations, foreign partnerships, and other foreign stockholders are complex.
This section is only a summary of such rules. WE URGE NON-U.S. STOCKHOLDERS TO
CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE IMPACT OF U.S. FEDERAL, STATE,
AND LOCAL INCOME TAX LAWS (AS WELL AS THE TAX LAWS OF THEIR HOME JURISDICTIONS)
ON OWNERSHIP OF SHARES OF COMMON STOCK, INCLUDING ANY REPORTING
REQUIREMENTS.
A
non-U.S. stockholder that receives a distribution that is not attributable to
gain from our sale or exchange of U.S. real property interests, as defined
below, and that we do not designate as a capital gain dividend or retained
capital gain, will recognize ordinary income to the extent that we pay the
distribution out of our current or accumulated earnings and profits. A
withholding tax equal to 30% of the gross amount of the distribution ordinarily
will apply unless an applicable tax treaty reduces or eliminates the tax.
However, if a distribution is treated as effectively connected with the non-U.S.
stockholder's conduct of a U.S. trade or business, the non-U.S. stockholder
generally will be subject to U.S. federal income tax on the distribution at
graduated rates, in the same manner as U.S. stockholders are taxed on
distributions, and also may be subject to the 30% branch profits tax in the case
of a non-U.S. stockholder that is a non-U.S. corporation. We plan to withhold
U.S. income tax at the rate of 30% on the gross amount of any distribution paid
to a non-U.S. stockholder unless either:
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a
lower treaty rate applies and the non-U.S. stockholder files an IRS Form
W-8BEN evidencing eligibility for that reduced rate with us;
or
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the
non-U.S. stockholder files an IRS Form W-8ECI with us claiming that the
distribution is effectively connected
income.
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A
non-U.S. stockholder will not incur tax on a distribution that is in excess of
our current and accumulated earnings and profits if the distribution does not
exceed the adjusted basis of its shares of our common stock. Instead, the
distribution will reduce the adjusted basis of such non-U.S. stockholder in
those shares of common stock. A non-U.S. stockholder will be subject to tax on a
distribution that exceeds both our current and accumulated earnings and profits
and the adjusted basis of its shares of our common stock if the non-U.S.
stockholder otherwise would be subject to tax on gain from the sale or
disposition of its shares of our common stock, as described below. Because we
generally cannot determine at the time we make a distribution whether or not the
distribution will exceed our current and accumulated earnings and profits, we
normally will withhold tax on the entire amount of any distribution at the same
rate as we would withhold on a dividend. However, a non-U.S. stockholder may
obtain a refund from the IRS of amounts that we withhold if we later determine
that a distribution, in fact, exceeded our current and accumulated earnings and
profits.
We must
withhold 10% of any distribution to a non-U.S. stockholder that exceeds our
current and accumulated earnings and profits. Consequently, although we intend
to withhold at a rate of 30% on the entire amount of any distribution, to the
extent that we do not do so, we will withhold at a rate of 10% on any portion of
a distribution not subject to withholding at a rate of 30%.
For any
year in which we qualify as a REIT, a non-U.S. stockholder will incur tax on
distributions that are attributable to gain from our sale or exchange of "U.S.
real property interests" under special provisions of the U.S. federal income tax
laws known as "FIRPTA." The term "U.S. real property interests" includes
interests in U.S. real property and shares in corporations at least 50% of whose
assets consists of interests in U.S. real property. Under those rules, a
non-U.S. stockholder is taxed on distributions attributable to gain from sales
of U.S. real property interests as if the gain were effectively connected with a
U.S. business of the non-U.S. stockholder. A non-U.S. stockholder thus would be
taxed on this distribution at the normal capital gain rates applicable to U.S.
stockholders, subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of a nonresident alien individual. A
non-U.S. corporate stockholder not entitled to treaty relief or exemption also
may be subject to the 30% branch profits tax on such a distribution. We must
withhold 35% of any distribution to a non-U.S. stockholder that we could
designate as a capital gain dividend. A non-U.S. stockholder may receive a
credit against its U.S. tax liability for the amount we withhold.
A
non-U.S. stockholder generally will not incur tax under FIRPTA on gain from the
sale of our stock as long as at all times, non-U.S. persons hold, directly or
indirectly, less than 50% in value of our outstanding shares. We cannot assure
you that that test will be met at all times or at any specific time. However, a
non-U.S. stockholder that owned, actually or constructively, 5% or less of the
shares of our common stock at all times during a specified testing period will
not incur tax under FIRPTA if the shares of common stock are "regularly traded"
on an established securities market. To the extent that our common stock will be
regularly traded on an established securities market, a non-U.S. stockholder
will not incur tax under FIRPTA unless it owns more than 5% of our common stock.
If the gain on the sale of the shares of our common stock were taxed under
FIRPTA, a non-U.S. stockholder would be taxed on that gain in the same manner as
U.S. stockholders subject to applicable alternative minimum tax, a special
alternative minimum tax in the case of nonresident alien individuals, and the
possible application of the 30% branch profits tax in the case of non-U.S.
corporations. Furthermore, a non-U.S. stockholder generally will incur tax on
gain not subject to FIRPTA if:
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the
gain is effectively connected with the non-U.S. stockholder's U.S. trade
or business, in which case the non-U.S. stockholder will be subject to the
same tax treatment as U.S. stockholders with respect to such gain;
or
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the
non-U.S. stockholder 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 U.S., in which case the non-U.S. stockholder will incur a 30% tax
on his or her capital gains.
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State
and Local Taxes
We and/or
our stockholders may be subject to taxation by various states and localities,
including those in which we or a stockholder transacts business, owns property
or resides. The state and local tax treatment may differ from the U.S. federal
income tax treatment described above. Consequently, stockholders should consult
their own tax advisors regarding the effect of state and local tax laws upon an
investment in the shares of our common stock.
IMPORTANCE
OF OBTAINING PROFESSIONAL TAX ADVICE
THE TAX
DISCUSSION SET FORTH ABOVE IS FOR GENERAL INFORMATION ONLY. TAX CONSEQUENCES MAY
VARY BASED UPON THE PARTICULAR CIRCUMSTANCES OF EACH INVESTOR. PROSPECTIVE
INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE U.S.
FEDERAL, STATE AND LOCAL AND APPLICABLE FOREIGN TAX CONSEQUENCES OF AN
INVESTMENT IN OUR COMMON STOCK.
PLAN
OF DISTRIBUTION
These
securities may be sold directly by us, through dealers or agents designated from
time to time, or to or through underwriters or may be sold directly by us for
consideration consisting of goods and property, including real property, or
through a combination of these methods. The prospectus supplement
with respect to the securities being offered will set forth the terms of the
offering, including the names of the underwriters, dealers or agents, if any,
the purchase price of the securities, our net proceeds, any underwriting
discounts and other items constituting underwriters' compensation, public
offering price and any discounts or concessions allowed or reallowed or paid to
dealers and any securities exchanges on which such securities may be
listed. These securities may also be offered by us to our
stockholders in lieu of dividends.
If
underwriters are used in an offering, we will execute an underwriting agreement
with such underwriters and will specify the name of each underwriter and the
terms of the transaction (including any underwriting discounts and other terms
constituting compensation of the underwriters and any dealers) in a prospectus
supplement. If an underwriting syndicate is used, the managing
underwriter(s) will be specified on the cover of the prospectus
supplement. If underwriters are used in the sale, the offered
securities will be acquired by the underwriters for their own accounts and may
be resold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. Any public offering price and any discounts or
concessions allowed or reallowed or paid to dealers may be changed from time to
time. Unless otherwise set forth in the prospectus supplement, the
obligations of the underwriters to purchase the offered securities will be
subject to conditions precedent and the underwriters will be obligated to
purchase all of the offered securities if any are purchased.
If
dealers are used in an offering, we will sell the securities to the dealers as
principals. The dealers may resell the securities to the public at
varying prices, which they determine at the time of resale. The names
of the dealers and the terms of the transaction will be specified in a
prospectus supplement.
The
securities may be sold directly by us or through agents we
designate. If agents are used in an offering, the names of the agents
and the terms of the agency will be specified in a prospectus
supplement. Unless otherwise indicated in a prospectus supplement,
the agents will act on a best-efforts basis for the period of their
appointment.
Dealers
and agents named in a prospectus supplement may be deemed to be underwriters
(within the meaning of the Securities Act) of the securities described
therein. In addition, we may sell the securities directly to
institutional investors or others who may be deemed to be underwriters within
the meaning of the Securities Act with respect to any resales
thereof.
Underwriters,
dealers and agents, may be entitled to indemnification by us against specific
civil liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments which the underwriters or agents may be
required to make in respect thereof, under underwriting or other
agreements. The terms of any indemnification provisions will be set
forth in a prospectus supplement. Certain underwriters, dealers or
agents and their associates may engage in transactions with and perform services
for us in the ordinary course of business.
If so
indicated in a prospectus supplement, we will authorize underwriters or other
persons acting as our agents to solicit offers by institutional investors to
purchase securities pursuant to contracts providing for payment and delivery on
a future date. We may enter contracts with commercial and savings
banks, insurance companies, pension funds, investment companies, educational and
charitable institutions and other institutional investors. The
obligations of any institutional investor will be subject to the condition that
its purchase of the offered securities will not be illegal at the time of
delivery. The underwriters and other agents will not be responsible
for the validity or performance of contracts.
Any
common stock sold pursuant to a prospectus supplement will be eligible for
trading on the New York Stock Exchange, subject to official notice of
issuance. Any underwriters to whom securities are sold by us for
public offering and sale may make a market in the securities, but such
underwriters will not be obligated to do so and may discontinue any market
making at any time without notice.
LEGAL
MATTERS
The
validity of the common stock offered pursuant to this prospectus have been
passed upon by Sonnenschein Nath & Rosenthal LLP.
EXPERTS
The
consolidated financial statements of One Liberty Properties, Inc. appearing in
One Liberty Properties, Inc.’s Annual Report (Form 10-K/A) for the year ended
December 31, 2008 (including a schedule appearing therein), 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.