Filed Pursuant to Rule 424(b)(5)
Registration No. 333-269624
PROSPECTUS SUPPLEMENT
(To prospectus dated February 7, 2023)
$300,000,000
Common Stock
________________________________________
We have entered into separate equity distribution agreements with
Wells Fargo Securities, LLC, BofA Securities, Inc., BTIG, LLC,
Jefferies LLC, J.P. Morgan Securities LLC, Regions Securities LLC,
TD Securities (USA) LLC and Truist Securities, Inc., each a “sales
agent” and collectively the “sales agents,” relating to shares of
our common stock offered by this prospectus supplement and the
accompanying prospectus.
In accordance with the terms of the equity distribution agreements,
we may offer and sell shares of common stock having an aggregate
offering price of up to $300 million from time to time through or
to the sales agents.
Our common stock is listed on the New York Stock Exchange (“NYSE”)
under the symbol “HIW.”
The last reported sale price of our common stock on the NYSE on
February 7, 2023 was $29.84 per share.
Sales of the shares of our common stock, if any, under this
prospectus supplement and the accompanying prospectus may be made
by means of ordinary brokers’ transactions on the NYSE or otherwise
at market prices prevailing at the time of sale, at prices related
to prevailing market prices or at negotiated prices (which may
include block trades).
Subject to the terms and conditions of the equity distribution
agreements, each sales agent will use its commercially reasonable
efforts consistent with its normal trading and sales practices to
sell the common stock on our behalf.
Our common stock to which this prospectus supplement relates will
be sold through only one sales agent on any given day.
Each sales agent will receive from us a commission equal to 1.5% of
the gross sales price of all shares sold through it as sales agent
under the applicable equity distribution agreement.
Under the terms of the equity distribution agreements, we may also
sell our common stock to each of the sales agents, as principal for
its own respective account, at a price agreed upon at the time of
sale.
If we sell our common stock to any sales agent as principal, we
will enter into a separate terms agreement with the sales agent,
setting forth the terms of such transaction, and we will describe
the agreement in a separate prospectus supplement or pricing
supplement.
To preserve our status as a real estate investment trust (“REIT”)
for U.S. federal income tax purposes, among other reasons, we
impose restrictions on the ownership and transfer of our common
stock.
See “Description of Common Stock—Ownership Limitations and
Restrictions on Transfers” in the accompanying
prospectus.
________________________________________
Investing in our common stock involves risks.
Before investing in our common stock, you should carefully read and
consider the information under “Risk Factors” on page S-2 of this
prospectus supplement.
________________________________________
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 the
accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal
offense.
________________________________________
|
|
|
|
|
|
|
|
|
|
|
|
|
Wells Fargo Securities |
BofA Securities |
BTIG |
Jefferies |
|
J.P. Morgan |
Regions Securities LLC |
TD Securities |
Truist Securities |
The date of this prospectus supplement is February 8,
2023.
TABLE OF CONTENTS
Prospectus Supplement
Page
|
|
|
|
|
|
|
Prospectus Supplement Summary |
S-1 |
|
Risk Factors |
S-2
|
|
Disclosure Regarding Forward-Looking Statements |
S-2
|
|
Use of Proceeds |
S-4
|
|
Plan of Distribution |
S-5
|
|
Legal Matters |
S-6
|
|
Experts |
S-6
|
|
Incorporation of Certain Documents by Reference |
S-7
|
|
Where You Can Find More Information |
S-7
|
Prospectus
|
|
|
|
|
|
|
Prospectus Summary |
1
|
|
Risk Factors |
2
|
|
Disclosure Regarding Forward-Looking Statements |
2
|
|
Use of Proceeds |
4
|
|
Description of Common Stock |
5
|
|
Description of Preferred Stock |
9
|
|
Description of Depositary Shares |
14
|
|
Description of Debt Securities |
17
|
|
Material U.S. Federal Income Tax Considerations |
28
|
|
Selling Stockholders |
52
|
|
Plan of Distribution |
53
|
|
Legal Matters |
56
|
|
Experts |
56
|
|
Where You Can Find More Information |
56
|
_______________________________
You should rely only on the information contained or incorporated
by reference in this prospectus supplement and the accompanying
prospectus and any written communication from us or the sales
agents specifying the final terms of any offering. Neither we nor
the sales agents have authorized anyone else to provide you with
additional or different information. If anyone provides you with
additional or different information, you should not rely on it. We
are not, and the sales agents are not, making an offer to sell
these securities in any jurisdiction where the offer or sale of
these securities is not permitted. You should assume that the
information appearing in this prospectus supplement and the
accompanying prospectus, as well as information we previously filed
with the Securities and Exchange Commission (“SEC”) and
incorporated by reference, is only accurate as of the date of the
front cover of this prospectus supplement or accompanying
prospectus or as of the date given in the incorporated document, as
applicable. Our business, financial condition, liquidity, results
of operations and prospects may have changed since that
date.
PROSPECTUS SUPPLEMENT SUMMARY
This summary only highlights the more detailed information
appearing elsewhere in this prospectus supplement, the accompanying
prospectus or incorporated by reference herein or therein. It may
not contain all of the information that is important to you. You
should carefully read the entire prospectus supplement, the
accompanying prospectus and the documents incorporated by reference
herein and therein before deciding whether to invest in our
securities.
Unless otherwise indicated or the context requires otherwise, in
this prospectus supplement references to “we,” “us,” and “our”
refer to Highwoods Properties, Inc., a Maryland corporation (the
“Company”), and its consolidated subsidiaries, including Highwoods
Realty Limited Partnership, a North Carolina limited partnership,
which we refer to in this prospectus supplement as the “Operating
Partnership.”
About this Prospectus Supplement
This document is in two parts. The first part is this prospectus
supplement, which describes certain terms of this offering and
other matters relating to us. The second part, the accompanying
prospectus, gives more general information about us and the
securities we may offer from time to time, some of which does not
apply to the shares of common stock we are currently offering
hereunder. It is important for you to read and consider all
information contained in this prospectus supplement, the
accompanying prospectus and the information incorporated by
reference herein and therein before making your investment
decision. You should also read and consider the information in the
documents we have referred you to in “Incorporation of Certain
Documents by Reference” and “Where You Can Find More Information”
in this prospectus supplement. The information incorporated by
reference is considered part of this prospectus supplement and the
accompanying prospectus, and information we later file with the SEC
may automatically update and supersede this
information.
To the extent any inconsistency or conflict exists between the
information included or incorporated by reference in this
prospectus supplement and the information included or incorporated
by reference in the accompanying prospectus, the information
included or incorporated by reference in this prospectus supplement
updates and supersedes the information in the accompanying
prospectus.
Highwoods Properties, Inc.
Highwoods Properties, Inc., headquartered in Raleigh, is a
publicly-traded REIT. The Company is a fully-integrated office REIT
that owns, develops, acquires, leases and manages properties
primarily in the best business districts (BBDs) of Atlanta,
Charlotte, Dallas, Nashville, Orlando, Raleigh, Richmond and Tampa.
Our common stock is traded on the NYSE under the symbol
“HIW.”
The Company conducts its activities through the Operating
Partnership. At December 31, 2022, we owned all of the preferred
partnership interests in the Operating Partnership and 104.8
million, or 97.8%, of the common partnership interests in the
Operating Partnership. Limited partners owned the remaining 2.4
million common partnership interests.
The Company was incorporated in Maryland in 1994. Our executive
offices are located at 150 Fayetteville Street, Suite 1400,
Raleigh, NC 27601 and our telephone number is (919) 872-4924. Our
website is www.highwoods.com.
The information found on or accessible through our website is not
incorporated into and does not constitute a part of this prospectus
supplement, the accompanying prospectus or any other report or
document we file with or furnish to the SEC.
Additional information regarding the Company is set forth in
documents on file with the SEC and incorporated by reference in
this prospectus supplement and the accompanying prospectus, as
described below under the sections entitled “Incorporation of
Certain Documents by Reference” and “Where You Can Find More
Information.”
RISK FACTORS
Investing in our common stock involves a high degree of risk. You
should carefully consider the risk factors described in our most
recent Annual Report on Form 10-K, as such risk factors may be
amended, updated or modified periodically in our subsequent reports
filed with the SEC, as well as other information set forth in this
prospectus supplement, the accompanying prospectus and the
documents incorporated by reference herein and therein before
making an investment decision with respect to our common stock.
Additional risks and uncertainties not currently known to us or
that we currently deem to be immaterial may also materially
adversely affect us. The risks described could affect our business,
financial condition or results of operations. In such a case, you
may lose all or part of your original investment. Please also refer
to the section entitled “Disclosure Regarding Forward-Looking
Statements.”
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus supplement, the accompanying prospectus and the
information incorporated by reference into this prospectus
supplement and the accompanying prospectus contain certain
“forward-looking statements” within the meaning of the safe harbor
from civil liability provided for such statements by the Private
Securities Litigation Reform Act of 1995 (set forth in Section 27A
of the Securities Act of 1933, as amended (the “Securities Act”)
and Section 21E of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)). Such statements include, in particular,
statements about our plans, strategies and prospects. You can
identify forward-looking statements by our use of forward-looking
terminology such as “may,” “will,” “expect,” “anticipate,”
“estimate,” “continue” or other similar words. Our forward-looking
statements reflect our current views about our plans, intentions
and expectations, which are based on the information currently
available to us and on assumptions we have made. Although we
believe that our plans, intentions and expectations reflected in or
suggested by such forward-looking statements are reasonable, we
cannot assure you that our plans, intentions or expectations will
be achieved. When considering such forward-looking statements, you
should keep in mind important factors that could cause our actual
results to differ materially from those contained in any
forward-looking statement, including the following:
•the
financial condition of our customers could
deteriorate;
•our
assumptions regarding potential losses related to customer
financial difficulties could prove incorrect;
•counterparties
under our debt instruments, particularly our revolving credit
facility, may attempt to avoid their obligations thereunder, which,
if successful, would reduce our available liquidity;
•we
may not be able to lease or re-lease second generation space,
defined as previously occupied space that becomes available for
lease, quickly or on as favorable terms as old leases;
•we
may not be able to lease newly constructed buildings as quickly or
on as favorable terms as originally anticipated;
•we
may not be able to complete development, acquisition, reinvestment,
disposition or joint venture projects as quickly or on as favorable
terms as anticipated;
•development
activity in our existing markets could result in an excessive
supply relative to customer demand;
•our
markets may suffer declines in economic and/or office employment
growth;
•unanticipated
increases in interest rates could increase our debt service
costs;
•unanticipated
increases in operating expenses could negatively impact our
operating results;
•natural
disasters and climate change could have an adverse impact on our
cash flow and operating results;
•we
may not be able to meet our liquidity requirements or obtain
capital on favorable terms to fund our working capital needs and
growth initiatives or repay or refinance outstanding debt upon
maturity; and
•we
could lose key executive officers.
This list of risks and uncertainties, however, is not intended to
be exhaustive. You should also review the other cautionary
statements we make under the caption “Risk Factors” in our most
recent Annual Report on Form 10-K, incorporated by reference
herein, as amended, updated or modified in subsequent filings with
the SEC. Given these uncertainties, you should not place undue
reliance on forward-looking statements. Except as required by law,
we undertake no obligation to publicly release the results of any
revisions to these forward-looking statements to reflect any future
events or circumstances or to reflect the occurrence of
unanticipated events.
USE OF PROCEEDS
We intend to use the net proceeds from the sale of the shares that
we may offer under this prospectus supplement and the accompanying
prospectus, after deducting commissions and estimated offering
expenses, to fund our property acquisitions and development
activity, repay or repurchase outstanding debt (including amounts
outstanding from time to time under our $750 million revolving
credit facility), repurchase or redeem outstanding preferred equity
and for working capital and other general corporate
purposes.
As of December 31, 2022, there was $392.0 million outstanding under
our revolving credit facility and $0.1 million of outstanding
letters of credit. The interest rate on our revolving credit
facility was converted from LIBOR plus 90 basis points to SOFR plus
a related spread adjustment of 10 basis points and a borrowing
spread of 85 basis points, based on current credit ratings. The
annual facility fee is 20 basis points. Our revolving credit
facility is scheduled to mature in March 2025. Assuming no defaults
have occurred, we have an option to extend the maturity of our
revolving credit facility for two additional six-month
periods.
Affiliates of Wells Fargo Securities, LLC, BofA Securities, Inc.,
J.P. Morgan Securities LLC, Regions Securities LLC, TD Securities
(USA) LLC and Truist Securities, Inc. are lenders under our
revolving credit facility and certain of our term loans. To the
extent that we use any of the net proceeds from this offering to
repay borrowings outstanding under our revolving credit facility or
term loans, such affiliates will receive their proportionate share
of any amount of our revolving credit facility or term loan that is
repaid with the net proceeds from this offering. See “Plan of
Distribution.”
PLAN OF DISTRIBUTION
We have entered into separate equity distribution agreements with
the sales agents relating to the offer and sale of shares of our
common stock having an aggregate offering price of up to
$300
million from time to time through the sales agents. Sales of the
shares of our common stock, if any, under this prospectus
supplement and the accompanying prospectus may be made by means of
ordinary brokers’ transactions on the NYSE or otherwise at market
prices prevailing at the time of sale, at prices related to
prevailing market prices or at negotiated prices (which may include
block trades).
Subject to the terms and conditions of the applicable equity
distribution agreement, upon its acceptance of written instructions
from us, each sales agent will use its commercially reasonable
efforts consistent with its normal trading and sales practices to
sell the common stock on our behalf. We will instruct each sales
agent as to the amount of common stock to be sold by it. We may
instruct the sales agents not to sell common stock if the sales
cannot be effected at or above the price designated by us in any
instruction. Our common stock sold pursuant to the equity
distribution agreements will be sold through only one of the sales
agents on any given day. We or the sales agents may suspend the
offering of common stock upon proper notice and subject to other
conditions.
For its service as sales agent in connection with the sale of
shares of our common stock that may be offered hereby, we will pay
each sales agent an aggregate fee of 1.5% of the gross sales price
per share for any shares sold by it acting as our sales agent. The
remaining sales proceeds, after deducting any transaction fees,
transfer taxes or similar taxes or fees imposed by any
governmental, regulatory, or self-regulatory organization in
connection with the sales, will equal our net proceeds for the sale
of such shares. In the event we engage a sales agent for a sale of
shares that would constitute a “distribution” within the meaning of
Regulation M under the Exchange Act, we and the sales agent will
agree to compensation that is customary for the sales agent with
respect to such transaction. We estimate that the total expenses of
the offering payable by us, excluding discounts and commissions
payable to the sales agents under the equity distribution
agreements, will be approximately $150,000.
Each sales agent will provide written confirmation to us following
the close of trading on the NYSE each day in which shares of common
stock are sold by it for us under the applicable equity
distribution agreement. Each confirmation will include the number
of shares sold on such day, the aggregate gross sales proceeds of
the shares, the aggregate net proceeds (as described above) to us
and the aggregate compensation payable by us to the sales agent
with respect to such sales.
Settlement for sales of common stock will occur, unless the parties
agree otherwise, on the second business day following the date on
which any sales were made in return for payment of the proceeds to
us net of compensation paid by us to the sales agents. There is no
arrangement for funds to be received in an escrow, trust or similar
arrangement.
We will deliver to the NYSE copies of this prospectus supplement
and the accompanying prospectus pursuant to the rules of the NYSE.
Unless otherwise required, we will report at least quarterly the
number of shares of common stock sold through the sales agents
under the equity distribution agreements, the net proceeds to us
and the compensation paid by us to the sales agents in connection
with the sales of our common stock.
Under the terms of the equity distribution agreements, we also may
sell shares to each of the sales agents, as principal for its own
respective account, at a price agreed upon at the time of sale. If
we sell shares to any sales agent, as principal, we will enter into
a separate terms agreement with the sales agent setting forth the
terms of such transaction, and we will describe the agreement in a
separate prospectus supplement or pricing supplement.
In connection with the sale of the common stock on our behalf, the
sales agents may be deemed to be an “underwriter” within the
meaning of the Securities Act, and the compensation paid to the
sales agents may be deemed to be underwriting commissions or
discounts. We have agreed in the equity distribution agreements to
provide indemnification and contribution to the sales agents
against certain civil liabilities, including liabilities under the
Securities Act.
We have determined that our shares of common stock are
“actively-traded securities” excepted from the requirements of Rule
101 of Regulation M under the Exchange Act by Rule 101(c)(1) under
that Act. If a sales agent or we have reason to believe that the
exemptive provisions set forth in Rule 101(c)(1) of Regulation M
under the Exchange Act are not satisfied, that party will promptly
notify the other and sales of our common stock under the equity
distribution agreements will be suspended until that or other
exemptive provisions have been satisfied in the judgment of the
sales agents and us.
The offering of our common stock pursuant to the equity
distribution agreements will terminate upon the earlier of (1) the
sale of common stock having an aggregate offering price of up to
$300 million and (2) the termination of all of the equity
distribution agreements, pursuant to their terms, by either the
sales agents or us. Each equity distribution agreement may be
terminated by the applicable sales agent or us at any
time.
Other Relationships
Affiliates of Wells Fargo Securities, LLC, BofA Securities, Inc.,
J.P. Morgan Securities LLC, Regions Securities LLC, TD Securities
(USA) LLC and Truist Securities, Inc. are lenders under our $750
million unsecured revolving credit facility and certain of our term
loans. In connection with their participation in our revolving
credit facility and term loans, such affiliates receive customary
fees, and to the extent that we use any of the net proceeds from
this offering to repay borrowings under our revolving credit
facility or term loans, such affiliates will receive their
proportionate share of any amount of our revolving credit facility
or term loans that is repaid with the net proceeds from this
offering.
In the ordinary course of their business, the sales agents and/or
their affiliates have in the past performed, and may continue to
perform, investment banking, commercial banking, treasury
management, deposit account, broker dealer, lending, financial
advisory or other services for us for which they have received, or
may receive, separate fees.
In addition, in the ordinary course of their business activities,
the sales agents and their affiliates may make or hold a broad
array of investments and actively trade debt and equity securities
(or related derivative securities) and financial instruments
(including bank loans) for their own account and for the accounts
of their customers. Such investments and securities activities may
involve securities and/or instruments of ours or our affiliates.
The sales agents and their affiliates may also make investment
recommendations and/or publish or express independent research
views in respect of such securities or financial instruments and
may hold, or recommend to clients that they acquire, long and/or
short positions in such securities and instruments.
LEGAL MATTERS
The validity of the shares of common stock offered hereby is being
passed upon for us by DLA Piper LLP (US). The statements under the
caption “Material U.S. Federal Income Tax Considerations” in the
prospectus accompanying this prospectus supplement as they relate
to U.S. federal income tax matters have been reviewed by Vinson
& Elkins LLP, which has opined as to certain federal income tax
matters relating to the Company. Certain legal matters in
connection with this offering will be passed upon for the sales
agents by Baker Botts L.L.P.
EXPERTS
The financial statements, and the related financial statement
schedule, of Highwoods Properties, Inc. incorporated by reference
in this prospectus supplement, and the effectiveness of Highwoods
Properties, Inc.’s internal control over financial reporting have
been audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as stated in their reports. Such
financial statements and financial statement schedule are
incorporated by reference in reliance upon the reports of such firm
given upon their authority as experts in accounting and
auditing.
The financial statements, and the related financial statement
schedule, of Highwoods Realty Limited Partnership incorporated by
reference in this prospectus supplement, have been audited by
Deloitte & Touche LLP, an independent registered public
accounting firm, as stated in their report. Such financial
statements and financial
statement schedule are incorporated by reference in reliance upon
the report of such firm given upon their authority as experts in
accounting and auditing.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
SEC rules permit us to “incorporate by reference” the information
contained in documents that we file with the SEC, which means that
we can disclose important information to you by referring you to
those documents. The information incorporated by reference is
considered to be part of this prospectus supplement and supersedes
information incorporated by reference that we filed with the SEC
prior to the date of this prospectus supplement. Information that
we file in the future with the SEC automatically will update and
supersede, as appropriate, the information contained in this
prospectus supplement and in the documents previously filed with
the SEC and incorporated by reference into this prospectus
supplement. We incorporate by reference the documents listed below
and any future filings we will make with the SEC under Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act (excluding any
information that is deemed to have been “furnished” and not “filed”
with the SEC) on or after the date of this prospectus supplement
but before the end of the offering made under this prospectus
supplement:
•the
description of our common stock included in our Registration
Statement on Form 8-A dated May 16, 1994, including any
amendments and reports filed for the purpose of updating such
description.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Investor Relations
Highwoods Properties, Inc.
150 Fayetteville Street, Suite 1400
Raleigh, NC 27601
Telephone: (919) 872-4924
We also maintain a website at www.highwoods.com at which there is
additional information about our business, but the contents of that
website are not incorporated by reference into, and are not
otherwise a part of, this prospectus supplement or any accompanying
prospectus.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Exchange
Act, and, in accordance therewith, we file annual, quarterly and
current reports, proxy statements and other information with the
SEC. Our SEC filings are available to the public through the SEC’s
website at http://www.sec.gov.
We have filed with the SEC a “shelf” registration statement on Form
S-3, including exhibits filed with the registration statement. This
prospectus supplement and accompanying prospectus do not contain
all of the information in the registration statement. We have
omitted parts of the registration statement from this prospectus
supplement and the accompanying prospectus in accordance with the
rules and regulations of the SEC. For more detail about us and any
securities that may be offered by this prospectus supplement and
accompanying prospectus, you may examine the registration statement
on Form S-3 and the exhibits filed with it at the locations listed
in the previous paragraph.
Highwoods Properties, Inc.
Common Stock
Preferred Stock
Depositary Shares
Guarantees
Highwoods Realty Limited Partnership
Debt Securities
______________
We or any selling stockholder may offer, issue and sell from time
to time, together or separately, the securities described in this
prospectus. Highwoods Properties, Inc. may offer and sell common
stock, preferred stock, depositary shares and guarantees of debt
securities issued by Highwoods Realty Limited Partnership.
Highwoods Realty Limited Partnership may offer and sell debt
securities.
This prospectus describes some of the general terms that may apply
to these securities. The specific terms of any securities to be
offered will be described in a supplement to this prospectus. You
should read this prospectus and any applicable prospectus
supplement carefully before you invest. We also may authorize one
or more free writing prospectuses to be provided to you in
connection with the offering. The prospectus supplement and any
applicable free writing prospectus also may add, update or change
information contained or incorporated in this
prospectus.
We or any selling stockholder may offer and sell these securities
to or through one or more underwriters, dealers or agents, or
directly to purchasers, on a continuous or delayed basis. The
prospectus supplement for each offering of securities will describe
the plan of distribution for that offering. For general information
about the distribution of securities offered, see “Plan of
Distribution” in this prospectus. The prospectus supplement also
will set forth the price to the public of the securities and the
net proceeds that we expect to receive from the sale of such
securities. We will not receive any of the proceeds from the sale
of securities by any selling stockholder.
Our common stock is listed on the New York Stock Exchange (“NYSE”)
under the symbol “HIW.” On February 6, 2023, the last reported
sales price of our common stock on the NYSE was $29.99 per
share.
To preserve our status as a real estate investment trust (“REIT”)
for U.S. federal income tax purposes, among other reasons, we
impose restrictions on the ownership and transfer of our common
stock. See “Description of Common Stock-Ownership Limitations and
Restrictions on Transfers” in this prospectus.
______________
You should carefully read and consider the risk factors included on
page
2
of this prospectus and in our periodic reports and other
information that we file with the Securities and Exchange
Commission before you invest in our securities.
______________
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 February 7, 2023.
TABLE OF CONTENTS
Page
|
|
|
|
|
|
|
Prospectus Summary |
|
|
Risk Factors |
2
|
|
Disclosure Regarding Forward-Looking Statements |
2
|
|
Use of Proceeds |
4
|
|
Description of Common Stock |
5
|
|
Description of Preferred Stock |
9
|
|
Description of Depositary Shares |
14
|
|
Description of Debt Securities |
17
|
|
Material U.S. Federal Income Tax Considerations |
28
|
|
Selling Stockholders |
52
|
|
Plan of Distribution |
53
|
|
Legal Matters |
56
|
|
Experts |
56
|
|
Where You Can Find More Information |
56
|
You should rely only on the information contained, or incorporated
by reference, in this prospectus, the applicable prospectus
supplement or any applicable free writing prospectus prepared by
us. Neither we nor any of our affiliates have authorized any other
person to provide you with different or additional information. If
anyone provides you with different or additional information, you
should not rely on it. We are not making an offer to sell or
soliciting an offer to buy securities in any jurisdiction where
such an offer or sale is not permitted. You should assume that the
information contained, or incorporated by reference, in this
prospectus, the applicable prospectus supplement and any applicable
free writing prospectus prepared by us is accurate only as of the
respective dates of such documents or on the date or dates which
are specified in those documents. Our business, financial
condition, liquidity, results of operations and prospects may have
changed since those dates. We may only use this prospectus to sell
the securities if it is accompanied by a prospectus
supplement.
PROSPECTUS SUMMARY
This summary only highlights the more detailed information
appearing elsewhere in this prospectus or incorporated by reference
in this prospectus. It may not contain all of the information that
is important to you. You should carefully read the entire
prospectus and the documents incorporated by reference in this
prospectus before deciding whether to invest in our
securities.
Unless otherwise indicated or the context requires otherwise, in
this prospectus and any prospectus supplement hereto references to
“we,” “us,” and “our” refer to Highwoods Properties, Inc., a
Maryland corporation (the “Company”), and its consolidated
subsidiaries, including Highwoods Realty Limited Partnership, a
North Carolina limited partnership, which we refer to in this
prospectus as the “Operating Partnership.”
About this Prospectus
This prospectus is part of an automatic “shelf” registration
statement that we have filed with the Securities and Exchange
Commission (the “SEC”). By using a shelf registration statement, we
or any selling stockholder to be named in a prospectus supplement
may sell, at any time and from time to time, in one or more
offerings, any combination of the securities described in this
prospectus. The exhibits to our registration statement contain the
full text of certain contracts and other important documents we
have summarized in this prospectus. Since these summaries may not
contain all the information that you may find important in deciding
whether to purchase the securities we or any selling stockholder to
be named in a prospectus supplement may offer, you should review
the full text of these documents. The registration statement and
the exhibits can be obtained from the SEC as indicated under the
section entitled “Where You Can Find More
Information.”
This prospectus only provides you with a general description of the
securities we or any selling stockholder may offer. Each time we or
any selling stockholder sell securities, we will provide a
prospectus supplement that contains specific information about the
terms of those securities. The prospectus supplement also may add,
update or change information contained in this prospectus. If there
is an inconsistency between the information in this prospectus and
any prospectus supplement, you should rely on the information in
the prospectus supplement. You should read carefully both this
prospectus and any prospectus supplement together with the
additional information described below under the section entitled
“Where You Can Find More Information.”
The Company and the Operating Partnership
Highwoods Properties, Inc., headquartered in Raleigh, is a
publicly-traded REIT. The Company is a fully-integrated office REIT
that owns, develops, acquires, leases and manages properties
primarily in the best business districts (BBDs) of Atlanta,
Charlotte, Dallas, Nashville, Orlando, Raleigh, Richmond and Tampa.
Our common stock is traded on the NYSE under the symbol
“HIW.”
The Company conducts its activities through the Operating
Partnership. At December 31, 2022, the Company owned all of the
preferred partnership interests in the Operating Partnership and
104.8 million, or 97.8%, of the common partnership interests in the
Operating Partnership. Limited partners owned the remaining 2.4
million common partnership interests. Generally, the Operating
Partnership is obligated to redeem each common partnership interest
at the request of the holder thereof for cash equal to the value of
one share of the Company’s common stock based on the average of the
market price for the 10 trading days immediately preceding the
notice date of such redemption, provided that the Company, at its
option, may elect to acquire any such common partnership interests
presented for redemption for cash or one share of the Company’s
common stock. The common partnership interests owned by the Company
are not redeemable.
The Company was incorporated in Maryland in 1994. The Operating
Partnership was formed in North Carolina in 1994. Our executive
offices are located at 150 Fayetteville Street, Suite 1400,
Raleigh, North Carolina 27601, and our telephone number is (919)
872-4924. Our website is www.highwoods.com. The information found
on or accessible through our website is not incorporated into and
does not constitute a part of this prospectus, any applicable
prospectus supplement or any other report or document we file with
or furnish to the SEC.
RISK FACTORS
Investing in our securities involves risks. Before purchasing the
securities offered by this prospectus you should consider carefully
the risk factors incorporated by reference in this prospectus from
our most recent Annual Report on Form 10-K, as well as the risks,
uncertainties and additional information (i) set forth in our
subsequent SEC reports on Forms 10-K, 10-Q and 8-K and in the other
documents incorporated by reference in this prospectus that we file
with the SEC after the date of this prospectus and which are deemed
incorporated by reference in this prospectus, and (ii) contained in
any applicable prospectus supplement. For a description of these
reports and documents, and information about where you can find
them, see “Where You Can Find More Information.” The risks and
uncertainties we discuss in this prospectus and in the documents
incorporated by reference in this prospectus are those that we
currently believe may materially affect our company. Additional
risks not presently known, or currently deemed immaterial, also
could materially and adversely affect our business, financial
condition, results of operations, and prospects.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the applicable prospectus supplement, including
the documents that are incorporated by reference herein, contain
certain “forward-looking statements” within the meaning of the safe
harbor from civil liability provided for such statements by the
Private Securities Litigation Reform Act of 1995 (set forth in
Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”) and Section 21E of the Securities Exchange Act of
1934, as amended (the “Exchange Act”)). Such statements include, in
particular, statements about our plans, strategies and prospects.
You can identify forward-looking statements by our use of
forward-looking terminology such as “may,” “will,” “expect,”
“anticipate,” “estimate,” “continue” or other similar words. Our
forward-looking statements reflect our current views about our
plans, intentions and expectations, which are based on the
information currently available to us and on assumptions we have
made. Although we believe that our plans, intentions and
expectations reflected in or suggested by such forward-looking
statements are reasonable, we cannot assure you that our plans,
intentions or expectations will be achieved. When considering such
forward-looking statements, you should keep in mind important
factors that could cause our actual results to differ materially
from those contained in any forward-looking statement, including
the following:
•the
financial condition of our customers could
deteriorate;
•our
assumptions regarding potential losses related to customer
financial difficulties could prove incorrect;
•counterparties
under our debt instruments, particularly our revolving credit
facility, may attempt to avoid their obligations thereunder, which,
if successful, would reduce our available liquidity;
•we
may not be able to lease or re-lease second generation space,
defined as previously occupied space that becomes available for
lease, quickly or on as favorable terms as old leases;
•we
may not be able to lease newly constructed buildings as quickly or
on as favorable terms as originally anticipated;
•we
may not be able to complete development, acquisition, reinvestment,
disposition or joint venture projects as quickly or on as favorable
terms as anticipated;
•development
activity in our existing markets could result in an excessive
supply relative to customer demand;
•our
markets may suffer declines in economic and/or office employment
growth;
•unanticipated
increases in interest rates could increase our debt service
costs;
•unanticipated
increases in operating expenses could negatively impact our
operating results;
•natural
disasters and climate change could have an adverse impact on our
cash flow and operating results;
•we
may not be able to meet our liquidity requirements or obtain
capital on favorable terms to fund our working capital needs and
growth initiatives or repay or refinance outstanding debt upon
maturity; and
•the
Company could lose key executive officers.
This list of risks and uncertainties, however, is not intended to
be exhaustive. You should also review the other cautionary
statements we make under the caption “Risk Factors” in our most
recent Annual Report on Form 10-K, incorporated by reference
herein, as amended, updated or modified in subsequent filings with
the SEC. Given these uncertainties, you should not place undue
reliance on forward-looking statements. Except as required by law,
we undertake no obligation to publicly release the results of any
revisions to these forward-looking statements to reflect any future
events or circumstances or to reflect the occurrence of
unanticipated events.
USE OF PROCEEDS
Unless otherwise specified in the applicable prospectus supplement,
we intend to use the net proceeds from the sale of securities
offered by us to provide additional funds for general corporate
purposes, including funding our acquisition and development
activity, the repayment or refinancing of outstanding debt, working
capital and other general purposes. Any specific allocation of the
net proceeds of an offering of securities will be determined at the
time of such offering and will be described in the applicable
prospectus supplement.
We will not receive any of the proceeds of the sale by any selling
stockholder of the securities covered by this
prospectus.
DESCRIPTION OF COMMON STOCK
The following summary of the material terms of our common stock
does not purport to be complete and is subject to and qualified in
its entirety by reference to Maryland law and to our charter and
bylaws, copies of which are filed as exhibits to the registration
statement of which this prospectus forms a part. See “Where You Can
Find More Information.”
General
The Company is authorized under its charter to issue 200 million
shares of its common stock. Each outstanding share of common stock
entitles the holder to one vote on all matters presented to
stockholders for a vote. Unless applicable law requires otherwise,
and except in limited circumstances as our charter may provide with
respect to any series of preferred stock that the Company may
issue, the holders of common stock will possess exclusive voting
power. See “-Ownership Limitations and Restrictions on
Transfers.”
All shares of common stock issued will be duly authorized, fully
paid and non-assessable. Distributions may be paid to the holders
of common stock if and when declared by the Company’s board of
directors out of legally available funds. The Company intends to
continue to pay quarterly dividends.
Under Maryland law, stockholders are generally not liable for the
Company’s debts or obligations. If the Company is liquidated,
subject to the right of any holders of preferred stock to receive
preferential distributions, each outstanding share of common stock
will participate pro rata in any remaining assets.
Holders of common stock have no conversion, sinking fund or
redemption rights or preemptive rights. A conversion feature
permits a stockholder to convert shares to a different security,
such as debt or preferred stock. A redemption right permits a
stockholder to redeem such holder’s shares (for cash or other
securities) at some point in the future. Sometimes a redemption
right is paired with an obligation of the company to create an
account into which such company must deposit money into to fund the
redemption (i.e., a sinking fund). Preemptive rights are rights
granted to stockholders to subscribe for their pro rata percentage
of any other securities we may offer in the future.
The common stock is currently listed for trading on the NYSE. The
Company will apply to the NYSE to list any additional shares of
common stock that the Company offers and sells pursuant to a
prospectus supplement.
The transfer agent and registrar for our common stock is EQ
Shareowner Services.
Ownership Limitations and Restrictions on Transfers
To maintain its REIT qualification, not more than 50% in value of
the Company’s outstanding stock may be owned directly or indirectly
by five or fewer individuals (including certain entities treated as
individuals for these purposes) during the last half of a taxable
year and at least 100 persons must beneficially own its outstanding
stock for at least 335 days per 12-month taxable year (or during a
proportionate part of a shorter taxable year). To help ensure that
the Company meets these tests, among other reasons, the Company’s
charter provides that no person or entity may directly or
constructively own more than 9.8% in value of the Company’s issued
and outstanding capital stock, without obtaining a written waiver
from the board of directors. For purposes of this provision,
corporations, partnerships, “groups” within the meaning of Section
13(d)(3) of the Exchange Act and other entities are treated as
single persons. The board of directors has discretion to waive this
ownership limit if the board receives evidence that ownership in
excess of the limit will not jeopardize the Company’s REIT
status.
The restrictions on transferability and ownership will not apply if
the board of directors and the stockholders holding two-thirds of
the Company’s outstanding shares of capital stock determine that it
is no longer in the Company’s best interest to be a REIT. The
Company has no current intention to seek to change its REIT tax
status.
All certificates representing shares of common stock bear a legend
referring to the restrictions described above.
Holders of more than 5% (or such lower percentage as required by
the Internal Revenue Code of 1986, as amended (the “Code”), or the
regulations promulgated thereunder) of the Company’s common stock
or preferred stock must file a written response to the Company’s
request for stock ownership information, which will be mailed no
later than January 30th of each year. This notice should contain
the holder’s name and address, the number of shares of common stock
or preferred stock such holder owns and a description of how such
holder holds the shares. In addition, such holders will be required
to disclose in writing any other information that the Company needs
in order to determine the effect of such holder’s ownership on the
Company’s status as a REIT.
These ownership limitations could have the effect of precluding a
third party from obtaining control over the Company unless the
Company’s board of directors and our stockholders determine that
maintaining REIT status is no longer desirable.
Limitations of Liability and Indemnification of Directors and
Officers
Maryland General Corporation Law and the Company’s charter
exculpate each director and officer in actions by the Company or by
stockholders in derivative actions from liability unless the
director or officer has received an improper personal benefit in
money, property or services or has acted dishonestly, as
established by a final judgment of a court.
The charter also provides that the Company will indemnify a present
or former director or officer against expense or liability in an
action to the fullest extent permitted by Maryland law. Maryland
law permits a corporation to indemnify its present and former
directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses they incur in connection
with any proceeding to which they are a party because of their
service as an officer, director or other similar capacity. However,
Maryland law prohibits indemnification if it is established
that:
•the
act or omission of the director or officer was material to the
matter giving rise to the proceeding and was committed in bad faith
or was the result of active and deliberate dishonesty;
•the
director or officer actually received an improper personal benefit
in money, property or services; or
•in
the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was
unlawful.
We believe that the exculpation and indemnification provisions in
the charter help induce qualified individuals to agree to serve as
officers and directors of the Company by providing a degree of
protection from liability for alleged mistakes in making decisions
and taking actions. You should be aware, however, that these
provisions in the Company’s charter and Maryland law give you a
more limited right of action than you otherwise would have in the
absence of such provisions. We also maintain a policy of directors’
and officers’ liability insurance covering certain liabilities
incurred by our directors and officers in connection with the
performance of their duties.
The above indemnification provisions could operate to indemnify
directors, officers or other persons who exert control over the
Company against liabilities arising under the Securities Act.
Insofar as the above provisions may allow that type of
indemnification, we have been informed that, in the SEC’s opinion,
such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
Business Combinations
Pursuant to the Company’s charter and Maryland law, the Company
cannot merge into or consolidate with another corporation or enter
into a statutory share exchange transaction in which the Company is
not the surviving entity or sell all or substantially all of its
assets unless the board of directors adopts a resolution declaring
the proposed transaction advisable and a majority of the
stockholders voting together as a single class approve the
transaction. Maryland law prohibits stockholders from taking action
by written consent unless all stockholders consent in writing. The
practical effect of this limitation is that any action required or
permitted to be taken by the Company’s stockholders may only be
taken if it is properly brought before an annual or special meeting
of stockholders. The Company’s bylaws further provide that in order
for a stockholder to properly bring any matter before a meeting,
the stockholder must comply with requirements regarding advance
notice. The foregoing provisions could have the effect of delaying
until the next annual meeting stockholder actions that the holders
of a majority of the Company’s outstanding voting securities favor.
These provisions may also discourage another person from making a
tender offer for the Company’s common stock, because such person or
entity, even if it acquired a majority of the Company’s outstanding
voting securities, would likely be able to take action as a
stockholder, such as electing new directors or approving a merger,
only at a duly called stockholders meeting.
Maryland law also establishes special requirements with respect to
business combinations between Maryland corporations and interested
stockholders unless exemptions apply. Among other things, the law
prohibits for five years a merger and other similar transactions
between a company and an interested stockholder and requires a
supermajority vote for such transactions after the end of the
five-year period. The Company’s charter contains a provision
exempting the Company from the Maryland business combination
statute. However, we cannot assure you that this charter provision
will not be amended or repealed at any point in the
future.
Control Share Acquisitions
Maryland General Corporation Law also provides that control shares
of a Maryland corporation acquired in a control share acquisition
have no voting rights except to the extent approved by a vote of
two-thirds of the votes entitled to be cast on the matter,
excluding shares owned by the acquirer or by officers or employee
directors. The control share acquisition statute does not apply to
shares acquired in a merger, consolidation or share exchange if the
corporation is a party to the transaction, or to acquisitions
approved or exempted by the corporation’s charter or bylaws. The
Company’s bylaws contain a provision exempting from the control
share acquisition statute any stock acquired by any person.
However, we cannot assure you that this bylaw provision will not be
amended or repealed at any point in the future.
Maryland Unsolicited Takeovers Act
Subtitle 8 of Title 3 of the Maryland General Corporation Law
permits a Maryland corporation with a class of equity securities
registered under the Exchange Act, and at least three independent
directors to elect to be subject, by provision in its charter or
bylaws or a resolution of its board of directors and
notwithstanding any contrary provision in the charter or bylaws, to
any or all of five provisions:
•a
classified board;
•a
two-thirds vote requirement for removing a
director;
•a
requirement that the number of directors be fixed only by vote of
directors;
•a
requirement that a vacancy on the board be filled only by the
remaining directors and for the remainder of the full term of the
directorship in which the vacancy occurred; and
•a
majority requirement for the calling of a special meeting of
stockholders.
Through provisions in our charter and bylaws unrelated to Subtitle
8, we:
•provide
that directors may only be removed for cause by the affirmative
vote of two-thirds vote of the Company’s outstanding common
stock;
•vest
in the board the exclusive power to fix the number of
directorships; and
•provide
that unless called by our president or the chairman of our board of
directors, a special meeting of stockholders may only be called by
our president or the chairman of our board of directors upon the
written request of the stockholders entitled to cast not less than
a majority of all the votes entitled to be cast at the
meeting.
Vacancies and Removal of Directors
Pursuant to our charter, each member of our board of directors is
elected by our stockholders to serve until the next annual meeting
of stockholders and until his or her successor is duly elected and
qualifies. A director may only be removed for cause by the
affirmative vote of two-thirds vote of the Company’s outstanding
common stock.
Our charter and bylaws provide that a majority of the directors or
the stockholders may fill any vacancy on the board of directors.
However, under Maryland law, only the board of directors can fill
vacancies though the charter and bylaws provide otherwise. In
addition, our bylaws provide that only the board of directors may
increase or decrease the number of persons serving on the board of
directors. These provisions preclude stockholders from removing
incumbent directors, except for cause and upon a substantial
affirmative vote, and filling the vacancies created by such removal
with their own nominees until the next annual meeting of
stockholders.
Meetings of Stockholders
Special meetings of stockholders may be called only by our
president or the chairman of our board of directors, or, in the
case of a stockholder requested special meeting, by our president
or the chairman of our board of directors upon the written request
of the holders of common stock entitled to cast not less than a
majority of all votes entitled to be cast at such meeting. Only
matters set forth in the notice of the special meeting may be
considered and acted upon at such a meeting.
Amendment of Charter and Bylaws
Except as set forth below, the Company’s charter can be amended
only by the affirmative vote of holders of not less than a majority
of the outstanding shares of common stock. However, the provisions
in the charter relating to the removal of directors and
preservation of the Company’s REIT status may only be amended by
the affirmative vote of holders of not less than two-thirds of the
outstanding shares of common stock.
The Company’s bylaws provide that stockholders have the power to
amend or repeal any bylaws or to make new bylaws, and that the
Board of Directors shall have the power to do the same, except that
the Board of Directors shall not alter or repeal certain sections
of the bylaws, including the section governing amendments to the
bylaws or any sections of the bylaws that has been adopted by the
stockholders.
Operating Partnership Agreement
Upon a change in control of the Company, the partnership agreement
of the Operating Partnership requires certain acquirers to maintain
an umbrella partnership real estate investment trust structure with
terms at least as favorable to the limited partners as are
currently in place. For instance, in certain transactions, the
acquirer would be required to preserve the limited partner’s right
to continue to hold tax-deferred partnership interests that are
redeemable for capital stock of the acquirer. Some change of
control transactions involving the Company could require the
approval of two-thirds of the limited partners of the Operating
Partnership (other than the Company). These provisions may make a
change of control transaction involving the Company more
complicated and therefore might decrease the likelihood of such a
transaction occurring, even if such a transaction would be in the
best interest of the Company’s stockholders.
DESCRIPTION OF PREFERRED STOCK
General
The Company is authorized under its charter to issue 50 million
shares of preferred stock in one or more series and with rights,
preferences, privileges and restrictions that the board of
directors may fix or designate without any further vote or action
by the Company’s stockholders. As of December 31, 2022, 28,821
8.625% Series A Cumulative Redeemable Preferred Shares were issued
and outstanding.
Terms
When the Company issues preferred stock, it will be fully paid and
non-assessable. The preferred stock will not have any preemptive
rights.
Articles supplementary that will become part of the Company’s
charter will reflect the specific terms of any new series of
preferred stock offered. The applicable articles supplementary will
be filed with the SEC and incorporated by reference as an exhibit
to the registration statement of which this prospectus is a part. A
prospectus supplement will describe these specific terms,
including:
•the
title and stated value;
•the
number of shares, liquidation preference and offering
price;
•the
dividend rate, dividend periods and payment dates;
•the
date on which dividends begin to accrue or accumulate;
•any
auction and remarketing procedures;
•any
retirement or sinking fund requirement;
•the
price and the terms and conditions of any redemption
right;
•any
listing on any securities exchange;
•the
price and the terms and conditions of any conversion or exchange
right;
•whether
interests will be represented by depositary shares;
•any
voting rights;
•the
relative ranking and preferences as to dividends, liquidation,
dissolution or winding up;
•any
limitations on issuing any 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;
•any
limitations on direct or beneficial ownership and restrictions on
transfer;
•any
additional material U.S. federal income tax considerations not
addressed herein; and
•any
other specific terms, preferences, rights, limitations or
restrictions.
Rank
Unless otherwise described in the prospectus supplement, the
preferred stock will have the following ranking as to dividends,
liquidation, dissolution or winding up:
•senior
to the Company’s common stock and to all other equity securities
ranking junior to the preferred stock;
•on
a parity with all equity securities issued by the Company which by
their terms rank on a parity with the preferred stock;
and
•junior
to all equity securities, not including convertible debt
securities, issued by the Company which by their terms rank senior
to the preferred stock.
Dividends
If declared by the Company’s board of directors, preferred
stockholders will be entitled to receive cash dividends at the rate
set forth in the prospectus supplement. The Company will pay
dividends to stockholders of record on the record date fixed by the
Company’s board of directors.
The prospectus supplement will specify whether dividends on any
series of preferred stock are cumulative or non-cumulative. If
dividends are cumulative, they will be cumulative from the date set
forth in the prospectus supplement. If dividends are non-cumulative
and the Company’s board of directors does not declare a dividend
payable on a dividend payment date, then the holders of that series
will have no right to receive a dividend, and the Company will have
no obligation to pay an accrued dividend later for the missed
dividend period, whether or not the board of directors declares
dividends on the series on any future date.
If any preferred stock is outstanding, the Company will not declare
or pay dividends on, or redeem, purchase or otherwise acquire any
shares of, its common stock or any capital stock ranking junior to
a series of preferred stock, other than dividends paid in or
conversions or exchanges for common stock or other capital stock
junior to the preferred stock, unless the Company has declared and
paid full cumulative dividends for all past dividend periods or
declared and reserved funds for payment before or at the same time
as the declaration and payment on the junior series.
When the Company does not pay dividends on shares from more than
one series of preferred stock ranking in parity as to dividends in
full (or the Company has not reserved a sufficient sum for full
payment), all of these dividends will be declared pro rata so that
the amount of dividends declared per share in each series will in
all cases bear the same ratio of accrued dividends owed. These pro
rata payments per share will not include interest, nor will they
include any accumulated unpaid dividends from prior periods if the
dividends in question are non-cumulative.
Redemption
If specified in the prospectus supplement, the Company will have
the right to redeem all or any part of the preferred stock in each
series at its option, or the preferred stock will be subject to
mandatory redemption. The redemption price may be payable in cash
or other property.
If the series of preferred stock is subject to mandatory
redemption, the prospectus supplement will specify:
•the
number of shares the Company will redeem in each year;
•the
date after which the Company may or must commence the redemption;
and
•the
redemption price per share, which will include all accrued and
unpaid dividends other than non-cumulative dividends for prior
dividend periods.
The Company will not redeem less than all of a series of preferred
stock, or purchase or acquire any shares of a series of preferred
stock, other than conversions or exchanges for common stock or
other capital stock junior to the preferred stock,
unless:
•if
the series of preferred stock has cumulative dividends, the Company
has declared and paid full cumulative dividends for all past and
current dividend periods for this series or declared and reserved
funds for payment; or
•if
the series of preferred stock does not have cumulative dividends,
the Company has declared and paid full dividends for the current
dividend period or declared and reserved funds for
payment.
The Company may, however, purchase or acquire preferred stock of
any series to preserve its status as a REIT or pursuant to an offer
made on the same terms to all holders of preferred stock of that
series.
If the Company redeems fewer than all outstanding shares of
preferred stock of any series, it will determine the number of
shares to be redeemed and whether it will redeem shares pro rata by
shares held or shares requested to be redeemed or by lot in a
manner determined by the Company.
The Company will mail redemption notices at least 30 days, but not
more than 60 days, before the redemption date to each holder of
record of a series of preferred stock to be redeemed at the address
shown on the share transfer books. Each notice will
state:
•the
redemption date;
•the
number of shares and series of the preferred stock to be
redeemed;
•the
redemption price;
•the
place to surrender certificates for payment of the redemption
price;
•that
dividends on the shares redeemed will cease to accrue on the
redemption date; and
•the
date upon which any conversion rights will terminate.
If the Company redeems fewer than all outstanding shares of a
series of preferred stock, the notice will also specify the number
of shares the Company will redeem from each holder. If the Company
gives notice of redemption and has set aside sufficient funds
necessary for the redemption in trust for the benefit of stock it
will redeem, then dividends will thereafter cease to accrue and all
rights of the holders of the shares will terminate, except the
right to receive the redemption price.
Liquidation Preference
If the Company liquidates, dissolves or winds up its affairs, then
holders of each series of preferred stock will receive out of the
Company’s legally available assets a liquidating distribution in
the amount of the liquidation preference per share for that series
as specified in the prospectus supplement, plus an amount equal to
all dividends accrued and unpaid, but not including amounts from
prior periods for non-cumulative dividends, before the Company
makes any distributions to holders of its common stock or any other
capital stock ranking junior to the preferred stock. Once holders
of outstanding preferred stock receive their respective liquidating
distributions, they will have no right or claim to any of the
Company’s remaining assets. In the event that the Company’s assets
are not sufficient to pay the full liquidating distributions to the
holders of all outstanding preferred stock and all other classes or
series of its capital stock ranking on a parity with its preferred
stock, then the Company will distribute its assets to those holders
in proportion to the full liquidating distributions to which they
would otherwise have received.
After the Company has paid liquidating distributions in full to all
holders of its preferred stock, it will distribute its remaining
assets among holders of any other capital stock ranking junior to
the preferred stock according to their respective rights and
preferences and number of shares. For this purpose, a consolidation
or merger of the Company with any other corporation or entity, or a
sale of all or substantially all of the Company’s property or
business, does not constitute a liquidation, dissolution or winding
up of the Company’s affairs.
Voting Rights
Holders of preferred stock will not have any voting rights, except
as set forth below or in the prospectus supplement or as otherwise
required by law.
Whenever the Company has not paid dividends on any shares of
preferred stock for six or more consecutive quarterly periods, the
holders of such shares may vote, separately as a class with all
other series of preferred stock on which the Company has not paid
dividends, for the election of two additional directors of the
Company. In this event, the Company’s board of directors will be
increased by two directors. The holders of record of at least 10%
of any series of preferred stock on which the Company has not paid
dividends may call a special meeting to elect these additional
directors unless the Company receives the request less than 90 days
before the date of the next annual or special meeting of
stockholders. Whether or not the holders call a special meeting,
the holders of a series of preferred stock on which the Company has
not paid dividends may vote for the additional directors at the
next annual meeting of stockholders and at each subsequent annual
meeting until:
•if
the series of preferred stock has a cumulative dividend, the
Company has fully paid all unpaid dividends on the shares for the
past dividend periods and the then current dividend period, or the
Company has declared the unpaid dividends and set apart a
sufficient sum for their payment; or
•if
the series of preferred stock does not have a cumulative dividend,
the Company has fully paid four consecutive quarterly dividends, or
the Company has declared the dividends and set apart a sufficient
sum for their payment.
Unless the prospectus supplement provides otherwise, the Company
cannot take any of the following actions without the affirmative
vote of holders of at least two-thirds of the outstanding shares of
each series of preferred stock:
•authorize,
create or increase the authorized or issued amount of any class or
series of capital stock ranking senior to the series of preferred
stock as to dividends or liquidation distributions;
•reclassify
any authorized capital stock into shares ranking senior to the
series of preferred stock as to dividends or liquidation
distributions;
•issue
any obligation or security convertible into or evidencing the right
to purchase any share ranking senior to the series of preferred
stock as to dividends or liquidation distributions; or
•amend,
alter or repeal any provision of the Company’s charter, whether by
merger, consolidation or other event, in a manner that materially
and adversely affects any right, preference, privilege or voting
power of the preferred stock.
For these purposes, the following events do not materially and
adversely affect a series of preferred stock:
•an
increase in the amount of the authorized shares of preferred
stock;
•the
creation or issuance of any other series of preferred stock;
or
•an
increase in the amount of authorized shares of the series of
preferred stock or any other series of preferred stock ranking the
same as or junior to such series as to dividends and liquidation
distributions.
The holders of a series of preferred stock will have no voting
rights, however, if the Company redeems or calls for redemption all
outstanding shares of the series and deposits sufficient funds in a
trust to effect the redemption on or before the time the act occurs
requiring the vote.
Conversion Rights
If any series of preferred stock is convertible into common stock,
the prospectus supplement will describe the following
terms:
•the
number of shares of common stock into which the shares of preferred
stock are convertible;
•the
conversion price or manner by which the Company will calculate the
conversion price;
•the
conversion period;
•whether
conversion will be at the option of the holders of the preferred
stock or the Company;
•any
events requiring an adjustment of the conversion price;
and
•provisions
affecting conversion in the event of the redemption of the series
of preferred stock.
Stockholder Liability
Maryland law provides that no stockholder, including holders of
preferred stock, will be personally liable for the Company’s acts
and obligations and that the Company’s funds and property are the
only recourse for its acts or obligations.
Restrictions On Ownership; Change of Control
Provisions
As discussed above under “Description of Common Stock-Ownership
Limitations and Restrictions on Transfers,” for the Company to
qualify as a REIT, not more than 50% in value of its outstanding
capital stock may be owned, directly or indirectly, by five or
fewer individuals during the last half of a taxable year. As a
result, the Company’s charter provides generally that no holder may
beneficially own more than 9.8% of the Company’s issued and
outstanding capital stock. Accordingly, the articles supplementary
designating the terms of each series of preferred stock may contain
provisions restricting the ownership and transfer of the preferred
stock. The prospectus supplement will specify any additional
ownership limitation relating to a series of preferred
stock.
For a discussion of provisions in the Company’s charter that may
have the effect of delaying, deferring or preventing a change of
control of the Company, see the section titled “Description of
Common Stock” and the subsections titled “Business Combinations,”
“Maryland Unsolicited Takeovers Act,” “Vacancies and Removal of
Directors,” and “Operating Partnership Agreement.”
Transfer Agent
The prospectus supplement will identify the transfer agent for the
preferred stock.
DESCRIPTION OF DEPOSITARY SHARES
General
The Company may issue depositary shares, each of which would
represent a fractional interest of a share of a particular series
of preferred stock. The Company will deposit shares of preferred
stock represented by depositary shares under a separate deposit
agreement among the Company, a preferred stock depositary and the
holders of the depositary shares. Subject to the terms of the
deposit agreement, each owner of a depositary share will possess,
in proportion to the fractional interest of a share of preferred
stock represented by the depositary share, all the rights and
preferences of the preferred stock represented by the depositary
shares.
Depositary receipts will evidence the depositary shares issued
pursuant to the deposit agreement. Immediately after the Company
issues and delivers preferred stock to a preferred stock
depositary, the preferred stock depositary will issue the
depositary receipts.
Dividends and Other Distributions
The depositary will distribute all cash dividends on the preferred
stock to the record holders of the depositary shares. Holders of
depositary shares generally must file proofs, certificates and
other information and pay charges and expenses of the depositary in
connection with distributions.
If a distribution on the preferred stock is other than in cash and
it is feasible for the depositary to distribute the property it
receives, the depositary will distribute the property to the record
holders of the depositary shares. If such a distribution is not
feasible and the Company approves, the depositary may sell the
property and distribute the net proceeds from the sale to the
holders of the depositary shares.
Withdrawal of Stock
Unless the Company has previously called the underlying preferred
stock for redemption or the holder of the depositary shares has
converted such shares, a holder of depositary shares may surrender
them at the corporate trust office of the depositary in exchange
for whole or fractional shares of the underlying preferred stock
together with any money or other property represented by the
depositary shares. Once a holder has exchanged the depositary
shares, the holder may not redeposit the preferred stock and
receive depositary shares again. If a depositary receipt presented
for exchange into preferred stock represents more shares of
preferred stock than the number to be withdrawn, the depositary
will deliver a new depositary receipt for the excess number of
depositary shares.
Redemption of Depositary Shares
Whenever the Company redeems shares of preferred stock held by a
depositary, the depositary will redeem the corresponding amount of
depositary shares. The redemption price per depositary share will
be equal to the applicable fraction of the redemption price and any
other amounts payable with respect to the preferred stock. If the
Company intends to redeem less than all of the underlying preferred
stock, the Company and the depositary will select the depositary
shares to be redeemed as nearly pro rata as practicable without
creating fractional depositary shares or by any other equitable
method determined by the Company that preserves its REIT
status.
On the redemption date:
•all
dividends relating to the shares of preferred stock called for
redemption will cease to accrue;
•the
Company and the depositary will no longer deem the depositary
shares called for redemption to be outstanding; and
•all
rights of the holders of the depositary shares called for
redemption will cease, except the right to receive any money
payable upon the redemption and any money or other property to
which the holders of the depositary shares are entitled upon
redemption.
Voting of the Preferred Stock
When a depositary receives notice regarding a meeting at which the
holders of the underlying preferred stock have the right to vote,
it will mail that information to the holders of the depositary
shares. Each record holder of depositary shares on the record date
may then instruct the depositary to exercise its voting rights for
the amount of preferred stock represented by that holder’s
depositary shares. The depositary will vote in accordance with
these instructions. The depositary will abstain from voting to the
extent it does not receive specific instructions from the holders
of depositary shares. A depositary will not be responsible for any
failure to carry out any instruction to vote, or for the manner or
effect of any vote, as long as any action or non-action is in good
faith and does not result from negligence or willful misconduct of
the depositary.
Liquidation Preference
In the event of the Company’s liquidation, dissolution or winding
up, a holder of depositary shares will receive the fraction of the
liquidation preference accorded each share of underlying preferred
stock represented by the depositary share.
Conversion of Preferred Stock
Depositary shares will not themselves be convertible into common
stock or any other securities or property of the Company. However,
if the underlying preferred stock is convertible, holders of
depositary shares may surrender them to the depositary with written
instructions to convert the preferred stock represented by their
depositary shares into whole shares of common stock, other shares
of the Company’s preferred stock or other shares of stock, as
applicable. Upon receipt of these instructions and any amounts
payable in connection with a conversion, the Company will convert
the preferred stock using the same procedures as those provided for
delivery of preferred stock. If a holder of depositary shares
converts only part of its depositary shares, the depositary will
issue a new depositary receipt for any depositary shares not
converted. The Company will not issue fractional shares of common
stock upon conversion. If a conversion will result in the issuance
of a fractional share, the Company will pay an amount in cash equal
to the value of the fractional interest based upon the closing
price of the common stock on the last business day prior to the
conversion.
Amendment and Termination of a Deposit Agreement
The Company and the depositary may amend any form of depositary
receipt evidencing depositary shares and any provision of a deposit
agreement. However, unless the existing holders of at least
two-thirds of the applicable depositary shares then outstanding
have approved the amendment, the Company and the depositary may not
make any amendment that:
•would
materially and adversely alter the rights of the holders of
depositary shares; or
•would
be materially and adversely inconsistent with the rights granted to
the holders of the underlying preferred stock.
Subject to exceptions in the deposit agreement and except in order
to comply with the law, no amendment may impair the right of any
holders of depositary shares to surrender their depositary shares
with instructions to deliver the underlying preferred stock and all
money and other property represented by the depositary shares.
Every holder of outstanding depositary shares at the time any
amendment becomes effective who continues to hold the depositary
shares will be deemed to consent and agree to the amendment and to
be bound by the amended deposit agreement.
The Company may terminate a deposit agreement upon not less than 30
days’ prior written notice to the depositary if:
•the
termination is necessary to preserve the Company’s REIT status;
or
•a
majority of each series of preferred stock affected by the
termination consents to the termination.
Upon a termination of a deposit agreement, holders of the
depositary shares may surrender their depositary shares and receive
in exchange the number of whole or fractional shares of preferred
stock and any other property represented by the depositary shares.
If the Company terminates a deposit agreement to preserve its
status as a REIT, then the Company will use its best efforts to
list the preferred stock issued upon surrender of the related
depositary shares on a national securities exchange.
In addition, a deposit agreement will automatically terminate
if:
•the
Company has redeemed all underlying preferred stock subject to the
agreement;
•a
final distribution of the underlying preferred stock in connection
with any liquidation, dissolution or winding up has occurred, and
the depositary has distributed the distribution to the holders of
the depositary shares; or
•each
share of the underlying preferred stock has been converted into
other capital stock of the Company not represented by depositary
shares.
Charges of a Preferred Stock Depositary
The Company will pay all transfer and other taxes and governmental
charges arising in connection with a deposit agreement. In
addition, the Company will generally pay the fees and expenses of a
depositary in connection with the performance of its duties.
However, holders of depositary shares will pay the fees and
expenses of a depositary for any duties requested by the holders
that the deposit agreement does not expressly require the
depositary to perform.
Resignation and Removal of Depositary
A depositary may resign at any time by delivering to the Company
notice of its election to resign. The Company may also remove a
depositary at any time. Any resignation or removal will take effect
upon the appointment of a successor depositary. The Company will
appoint a successor depositary within 60 days after delivery of the
notice of resignation or removal. The successor must be a bank or
trust company with its principal office in the United States and
have a combined capital and surplus of at least $50
million.
Miscellaneous
The depositary will forward to the holders of depositary shares any
reports and communications from the Company with respect to the
underlying preferred stock.
Neither the depositary nor the Company will be liable if any law or
any circumstances beyond their control prevent or delay them from
performing their obligations under a deposit agreement. The
obligations of the Company and a depositary under a deposit
agreement will be limited to performing their duties in good faith
and without negligence (in the case of any action or inaction in
the voting of preferred stock represented by depositary shares),
gross negligence or willful misconduct. Neither the Company nor a
depositary must prosecute or defend any legal proceeding with
respect to any depositary shares or the underlying preferred stock
unless they are furnished with satisfactory indemnity.
The Company and any depositary may rely on the written advice of
counsel or accountants, or information provided by persons
presenting shares of preferred stock for deposit, holders of
depositary shares or other persons they believe in good faith to be
competent, and on documents they believe in good faith to be
genuine and signed by a proper party.
In the event a depositary receives conflicting claims, requests or
instructions from the Company and any holders of depositary shares,
the depositary will be entitled to act on the claims, requests or
instructions received from the Company.
Depositary
The prospectus supplement will identify the depositary for the
depositary shares.
Listing of the Depositary Shares
The prospectus supplement will specify whether or not the
depositary shares will be listed on any securities
exchange.
DESCRIPTION OF DEBT SECURITIES
Unless otherwise specified in an accompanying prospectus
supplement, the Operating Partnership’s debt securities will be
issued under an indenture, dated as of December 1, 1996, between
the Operating Partnership, the Company and U.S. Bank Trust Company,
National Association (as successor in interest to First Union
National Bank of North Carolina), as trustee. We have filed the
indenture with the SEC. The Trust Indenture Act of 1939 governs the
indenture. The following description summarizes only the material
provisions of the indenture. Accordingly, you should read the
indenture because it, and not this description, defines your rights
as holders of debt securities issued by the Operating
Partnership.
General
The debt securities will be direct, unsecured obligations of the
Operating Partnership and will rank equally with all other
unsecured and unsubordinated debt of the Operating Partnership. The
Operating Partnership may issue debt securities in one or more
series without limit as to aggregate principal amount. The board of
directors of the Company, as sole general partner of the Operating
Partnership, will determine the terms of the debt securities. All
debt securities of one series need not be issued at the same time
and a series may generally be reopened for additional issuances,
without the consent of the holders of the debt securities of the
series.
If any debt securities rate below investment grade at the time of
issuance, they will be fully and unconditionally guaranteed by the
Company as to payment of principal, interest and any premium. The
debt securities will be effectively subordinated to the prior
claims of each secured mortgage lender to any specific property
that secures such lender’s mortgage.
The indenture provides that there may be more than one trustee,
each with respect to one or more series of debt securities. Any
trustee under the indenture may resign or be replaced with a
successor trustee. Except as otherwise described in this
prospectus, any action by a trustee may be taken only with respect
to the debt securities for which it is trustee under the
indenture.
A prospectus supplement will describe the specific terms of any
debt securities the Operating Partnership offers,
including:
•the
title of the debt securities;
•the
aggregate principal amount of the debt securities;
•the
price at which the Operating Partnership will issue the debt
securities;
•the
date on which the Operating Partnership will pay the principal of
the debt securities;
•the
fixed or variable rate at which the debt securities will bear
interest, or the method to determine the interest
rate;
•the
date from which interest will accrue or how such date will be
determined;
•the
basis upon which the Operating Partnership will calculate interest
on the debt securities if other than a 360-day year of twelve
30-day months;
•the
timing and manner of making principal, interest and any premium
payments on the debt securities;
•the
place where you may serve notices about the debt securities and the
indenture, if other than as described in this
prospectus;
•the
portion of the principal amount of the debt securities payable upon
acceleration, if it is other than the full principal
amount;
•whether
and under what conditions the Operating Partnership or the holders
may redeem the debt securities;
•any
sinking fund or similar provisions;
•the
currency in which the Operating Partnership will pay the principal,
interest and any premium payments on the debt securities, if other
than U.S. dollars;
•the
events of default or covenants of the debt securities, if they are
different from or in addition to those described in this
prospectus;
•whether
the Operating Partnership will issue the debt securities in
certificated or book-entry form;
•whether
the Operating Partnership will issue the debt securities in
registered or bearer form and their denominations if other than
$1,000 for registered form or $5,000 for bearer form;
•whether
the defeasance and covenant defeasance provisions described in this
prospectus apply to the debt securities or are different in any
manner;
•whether
or not the debt securities are guaranteed by the
Company;
•whether
and under what circumstances the Operating Partnership will pay
additional amounts on the debt securities for any tax, assessment
or governmental charge and, if so, whether the Operating
Partnership will have the option to redeem the debt securities
instead of paying these amounts;
•whether
the debt securities will be listed on a securities
exchange;
•the
material U.S. federal income tax considerations applicable to the
debt securities; and
•any
other terms of the debt securities.
Some debt securities may provide for less than the entire principal
amount to be payable upon acceleration of their maturity, which we
refer to as “original issue discount securities.” The prospectus
supplement will describe any material U.S. federal income tax,
accounting and other considerations applicable to original issue
discount securities.
Guarantees
The Company will fully and unconditionally guarantee the payment of
principal, interest and any premium on any of the Operating
Partnership’s debt securities rated below investment grade at the
time of issuance. The Company will also guarantee any sinking fund
payments on debt securities rated below investment grade. In
addition, the Company may also guarantee debt securities rated
investment grade.
Denominations, Interest, Registration and Transfer
Unless otherwise described in the prospectus supplement, the
Operating Partnership will issue debt securities in denominations
of:
•$1,000
if they are in registered form;
•$5,000
if they are in bearer form; or
•any
denomination if they are in global form.
Unless otherwise specified in the prospectus supplement, the
principal, interest and any premium on debt securities will be
payable at the corporate trust office of the trustee. However, the
Operating Partnership may choose to pay interest by check mailed to
the address of the registered holder or by wire transfer of funds
to the holder at an account maintained within the United
States.
If any interest date or a maturity date falls on a day that is not
a business day, the required payment will be made on the next
business day as if it were made on the date the payment was due and
no interest will accrue on the amount so payable for the period
from and after such interest payment date or such maturity date, as
the case may be. For purposes of the indenture, a “business day” is
any day, other than a Saturday or Sunday, on which banking
institutions in New York City are open for business.
Subject to limitations imposed upon debt securities issued in
book-entry form, you may exchange debt securities for different
denominations of the same series or surrender debt securities for
transfer at the corporate trust office of the trustee. Every debt
security surrendered for transfer or exchange must be duly endorsed
or accompanied by a written instrument of transfer. The Operating
Partnership will not require the holder to pay any service charge
for any transfer or exchange, but the trustee or the Operating
Partnership may require the holder to pay any applicable tax or
other governmental charge.
Neither the Operating Partnership nor the trustee is required
to:
•issue,
transfer or exchange any debt security if the debt security may be
among those selected for redemption during a 15-day period prior to
the date of selection;
•transfer
or exchange any registered security selected for redemption in
whole or in part, except, in the case of a registered security to
be redeemed in part, the portion not to be redeemed;
•exchange
any bearer security selected for redemption except that the holder
may exchange the bearer security for a registered security of that
series if the holder simultaneously surrenders the registered
security for redemption; or
•issue,
transfer or exchange any debt security that the holder surrenders
for repayment.
Merger, Consolidation or Sale of Assets
Neither the Operating Partnership nor the Company may consolidate
with, or sell, lease or convey all or substantially all of its
assets to, or merge into, any other entity, unless:
•the
successor entity formed by such consolidation or into which the
Operating Partnership or the Company is merged or which received
the transfer of assets expressly assumes payment of the principal,
interest and any premium on the debt securities and the due and
punctual performance and observance of all of the covenants and
conditions contained in the indenture;
•immediately
after giving effect to the transaction, no event of default under
the indenture, and no event which, after notice or the lapse of
time, would become an event of default, has occurred and is
continuing; and
•the
Operating Partnership and the Company each deliver to the trustee
an officer’s certificate and legal opinion covering these
conditions.
Financial and Operating Covenants
Limitations on Incurrence of Debt.
The Operating Partnership will not directly or indirectly incur any
Debt (as defined below), other than subordinate intercompany Debt,
if, after giving effect to the incurrence of the additional Debt,
the aggregate principal amount of all outstanding Debt of the
Operating Partnership and its subsidiaries on a consolidated basis
determined in accordance with GAAP (as defined below) is greater
than 60% of (i) the Operating Partnership’s Total Assets (as
defined below) as of the end of the calendar quarter covered in the
Operating Partnership’s Annual Report on Form 10-K or Quarterly
Report on Form 10-Q, as the case may be, most recently filed with
the SEC prior to the incurrence of such additional Debt and (ii)
the increase in Total Assets from the end of such quarter
including, without limitation, any increase in Total Assets
resulting from the incurrence of such additional Debt (such
increase together with the Operating Partnership’s Total Assets,
the “Adjusted Total Assets”).
In addition, the Operating Partnership will not directly or
indirectly incur any secured Debt if, after giving effect to the
incurrence of the additional secured Debt, the aggregate principal
amount of all outstanding secured Debt of the Operating Partnership
and its subsidiaries on a consolidated basis determined in
accordance with GAAP is greater than 40% of the Operating
Partnership’s Adjusted Total Assets.
The Operating Partnership will also not directly or indirectly
incur any Debt if the ratio of Consolidated Income Available for
Debt Service to the Annual Service Charge (in each case as defined
below) for the four most recent fiscal quarters would have been
less than 1.5 to 1.0 on a pro forma basis after giving effect to
the incurrence of the Debt and to the application of the proceeds
from the Debt. In making this calculation, it is assumed
that:
•the
new Debt and any other Debt incurred by the Operating Partnership
or its subsidiaries since the first day of the four-quarter period
and the application of the proceeds from the new Debt, including to
refinance other Debt, had occurred at the beginning of the
period;
•the
repayment or retirement of any other Debt by the Operating
Partnership or its subsidiaries since the first day of the
four-quarter period had been repaid or retired at the beginning of
the period (except that the amount of Debt under any revolving
credit facility is computed based upon the average daily balance of
that Debt during the period);
•the
income earned on any increase in Adjusted Total Assets since the
end of the four-quarter period had been earned, on an annualized
basis, during the period; and
•in
the case of any acquisition or disposition by the Operating
Partnership or any subsidiary of any assets since the first day of
the four-quarter period, the acquisition or disposition or any
related repayment of Debt had occurred as of the first day of the
period with the appropriate adjustments with respect to the
acquisition or disposition being included in the pro forma
calculation.
For purposes of the foregoing provisions regarding the limitation
on the incurrence of Debt, Debt is deemed to be “incurred” by the
Operating Partnership and its subsidiaries on a consolidated basis
whenever the Operating Partnership and its subsidiaries on a
consolidated basis create, assume, guarantee or otherwise become
liable in respect of the Debt.
Maintenance of Total Unencumbered Assets.
The Operating Partnership must maintain Total Unencumbered Assets
(as defined below) of at least 150% of the aggregate outstanding
principal amount of all outstanding Unsecured Debt.
Existence.
Except as described above under “-Merger, Consolidation or Sale of
Assets,” the Operating Partnership and the Company must preserve
and keep in full force and effect their existence, rights and
franchises. However, neither the Operating Partnership nor the
Company are required to preserve any right or franchise if it
determines that its preservation is no longer desirable in the
conduct of its business and that its loss is not disadvantageous in
any material respect to the holders of the debt
securities.
Maintenance of Properties.
The Operating Partnership must maintain all of its material
properties in good condition, repair and working order, supply all
properties with all necessary equipment and make all necessary
repairs, renewals, replacements and improvements necessary so that
we may properly and advantageously conduct our business at all
times. However, the Operating Partnership may sell its properties
for value in the ordinary course of business.
Insurance.
The Operating Partnership must keep all of its insurable properties
insured against loss or damage at least equal to their then full
insurable value with financially sound and reputable insurance
companies.
Payment of Taxes and Other Claims.
Each of the Operating Partnership and the Company must pay, before
they become delinquent:
•all
taxes, assessments and governmental charges levied or imposed upon
it or any subsidiary or upon its income, profits or properties or
that of any subsidiary; and
•all
lawful claims for labor, materials and supplies that, if unpaid,
might by law become a lien upon any property of the Operating
Partnership, the Company or any subsidiaries.
However, the Operating Partnership and the Company are not required
to pay any tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by
appropriate proceedings.
Provision of Financial Information.
Holders of debt securities will be provided with copies of the
annual reports and quarterly reports of the Operating Partnership.
Whether or not the Operating Partnership is subject to Section 13
or 15(d) of the Exchange Act, and for so long as any debt
securities are outstanding, the Operating Partnership will, to the
extent permitted under the Exchange Act, be required to file with
the SEC the annual reports, quarterly reports and other documents
that the Operating Partnership would have been required to file
with the SEC pursuant to such Section 13 or 15(d) if the Operating
Partnership were so subject, such documents to be filed with the
SEC on or prior to the respective dates by which the Operating
Partnership would have been required so to file such documents if
the Operating Partnership were so subject. The Operating
Partnership will also in any event (x) within 15 days of each such
required filing date (i) transmit by mail to all holders of debt
securities, without cost to such holders, copies of the annual
reports and quarterly reports which the Operating
Partnership
would have been required to file with the SEC pursuant to Section
13 or 15(d) of the Exchange Act if the Operating Partnership were
subject to such sections and (ii) file with the trustee copies of
the annual reports, quarterly reports and other documents that the
Operating Partnership would have been required to file with the SEC
pursuant to Section 13 or 15(d) of the Exchange Act if the
Operating Partnership were subject to such Sections and (y) if
filing such documents by the Operating Partnership with the SEC is
not permitted under the Exchange Act, promptly upon written request
and payment of the reasonable cost of duplication and delivery,
supply copies of such documents to any prospective holder of the
debt securities.
Use of Capitalized Terms.
As used in this prospectus:
“Annual
Service Charge”
as of any date means the amount that is expensed in any 12-month
period for interest on Debt.
“Consolidated
Income Available for Debt Service”
for any period means Consolidated Net Income (as defined below) of
the Operating Partnership and its subsidiaries (i) plus amounts
which have been deducted for (a) interest on Debt of the Operating
Partnership and its subsidiaries, (b) provision for taxes of the
Operating Partnership and its subsidiaries based on income, (c)
amortization of debt discount, (d) depreciation and amortization,
(e) the effect of any noncash charge resulting from a change in
accounting principles in determining Consolidated Net Income for
such period, (f) amortization of deferred charges, (g) provisions
for or realized losses on properties and (h) charges for early
extinguishment of debt and (ii) less amounts that have been
included for gains on properties.
“Consolidated
Net Income”
for any period means the amount of consolidated net income (or
loss) of the Operating Partnership and its subsidiaries for such
period determined on a consolidated basis in accordance with
GAAP.
“Debt”
means any indebtedness, whether or not contingent, in respect of
(i) borrowed money evidenced by bonds, notes, debentures or similar
instruments, (ii) indebtedness secured by any mortgage, pledge,
lien, charge, encumbrance or any security interest existing on
property, (iii) the reimbursement obligations, contingent or
otherwise, in connection with any letters of credit actually issued
or amounts representing the balance deferred and unpaid of the
purchase price of any property except any such balance that
constitutes an accrued expense or trade payable or (iv) any lease
of property which would be reflected on a consolidated balance
sheet as a capitalized lease in accordance with GAAP, in the case
of items of indebtedness under (i) through (iii) above to the
extent that any such items (other than letters of credit) would
appear as a liability on a consolidated balance sheet in accordance
with GAAP, and also includes, to the extent not otherwise included,
any obligation to be liable for, or to pay, as obligor, guarantor
or otherwise (other than for purposes of collection in the ordinary
course of business), indebtedness of another person.
“GAAP”
means U.S. Generally Accepted Accounting Principles.
“Total
Assets”
as of any date means the sum of (i) the Undepreciated Real Estate
Assets and (ii) all other assets of the Operating Partnership and
its subsidiaries on a consolidated basis determined in accordance
with GAAP (but excluding intangibles and accounts
receivable).
“Total
Unencumbered Assets”
means the sum of (i) those Undepreciated Real Estate Assets not
subject to an encumbrance and (ii) all other assets of the
Operating Partnership and its subsidiaries not subject to an
encumbrance determined in accordance with GAAP (but excluding
intangibles and accounts receivable);
provided,
however,
that all investments by the Operating Partnership and its
subsidiaries in unconsolidated joint ventures, unconsolidated
limited partnerships, unconsolidated limited liability companies
and other unconsolidated entities are excluded from the calculation
of Total Unencumbered Assets to the extent that such investments
would have otherwise been included.
“Undepreciated
Real Estate Assets”
as of any date means the cost (original cost plus capital
improvements) of real estate assets of the Operating Partnership
and its subsidiaries on such date, before depreciation and
amortization, determined on a consolidated basis in accordance with
GAAP.
“Unsecured
Debt”
means Debt of the Operating Partnership or any subsidiary that is
not secured by any mortgage, lien, charge, pledge or security
interest of any kind upon any of the properties owned by the
Operating Partnership or any of its subsidiaries.
Events of Default, Notice and Waiver
The following are events of default with respect to any series of
debt securities issued under the indenture:
•default
for 30 days in the payment of any installment of interest on any
debt security of the series;
•default
in the payment of the principal or any premium on any debt security
of the series at its maturity;
•default
in making any sinking fund payment as required for any debt
security of the series;
•default
in the performance of any other covenant contained in the
indenture, other than covenants that do not apply to the series,
and the default continues for 60 days after notice;
•default
in the payment of an aggregate principal amount exceeding
$5,000,000 of any recourse debt, including any recourse secured
debt, if the default occurred after the expiration of any
applicable grace period and resulted in the acceleration of the
maturity of the debt, but only if such debt is not discharged or
such acceleration is not rescinded or annulled within 10 days after
notice as provided in the indenture; and
•any
other event of default provided with respect to that particular
series of debt securities.
If any such event of default occurs and continues, the trustee or
the holders of at least 25% in principal amount of the outstanding
debt securities of that series may declare the principal amount of
all of the debt securities of that series to be due and payable
immediately by written notice to us. If the debt securities of that
series are original issue discount securities or indexed
securities, the prospectus supplement will describe the portion of
the principal amount required to make the declaration. If this
happens and the Operating Partnership thereafter cures the default,
the holders of at least a majority in principal amount of
outstanding debt securities of that series can void the
acceleration.
The indenture also provides that the principal amount of all debt
securities of that series would be due and payable automatically
upon the bankruptcy, insolvency or reorganization, or court
appointment of a receiver, liquidator or trustee of the Operating
Partnership, the Company or any significant subsidiary or any of
their respective property.
The indenture also provides that the holders of at least a majority
in principal amount of the outstanding debt securities of a series
may waive any past default with respect to that series, except a
default in payment or a default of a covenant or other indenture
provision that can only be modified with the consent of the holder
of each outstanding debt security affected.
The indenture provides that no holders of any series may institute
any judicial or other proceedings with respect to the indenture or
for any remedy under the indenture, except in the case of failure
of the trustee to act for 60 days after it has received a written
request to institute proceedings for an event of default from the
holders of at least 25% in principal amount of the outstanding debt
securities of that series and an offer of indemnity reasonably
satisfactory to it. However, this provision will not prevent any
holder from instituting suit for the enforcement of any payment due
on the debt securities.
Subject to provisions in the indenture relating to its duties in
case of default, the trustee is under no obligation to exercise any
of its rights or powers under the indenture at the request or
direction of any holders, unless the holders offer to the trustee
reasonable security or indemnity. The holders of at least a
majority in principal amount of the outstanding debt securities of
a series (or of all debt securities then outstanding under the
indenture, if applicable) have the right to direct the time, method
and place of conducting any proceeding for any remedy available to
the trustee. However, the trustee may refuse to follow any
direction that:
•is
in conflict with any law or the indenture;
•may
subject the trustee to personal liability; or
•may
be unduly prejudicial to the holders not joining in the
direction.
Within 120 days after the end of each year, the Operating
Partnership must deliver to the trustee an officer’s certificate
certifying that no defaults have occurred under the indenture. The
trustee must give notice to the holders of debt securities within
90 days of a default unless the default has been cured or waived.
However, if the trustee considers it to be in the interest of the
holders, the trustee may withhold notice of any default except a
payment default.
Modification of the Indenture
Modifications and amendments of the indenture may only be made with
the consent of least a majority in principal amount of all
outstanding debt securities or series of outstanding debt
securities affected by the modification or amendment.
However, holders of each of the debt securities affected by the
modification must consent to modifications that have the following
effects:
•change
the stated maturity of the principal, interest or premium on any
debt security;
•reduce
the principal amount of, or the rate or amount of interest on, or
any premium payable on redemption of, any debt security, or
adversely affect any right of repayment of the holder of any debt
security;
•change
the place or currency for payment of principal, interest or premium
on any debt security;
•impair
the right to institute suit for the enforcement of any payment on
any debt security;
•reduce
the percentage of outstanding debt securities of a series necessary
to modify or amend the indenture, waive compliance with provisions
of the indenture or defaults and consequences under the indenture
or reduce the quorum or voting requirements set forth in the
indenture;
•adversely
modify or affect the terms and conditions of the obligations of the
Company with respect to any of its guarantees; or
•modify
any of the provisions discussed above or any of the provisions
relating to the waiver of past defaults or covenants, except to
increase the required percentage to take the action or to provide
that other provisions may not be modified or waived without the
consent of the holder.
The indenture provides that the holders of at least a majority in
principal amount of a series of outstanding debt securities may
waive compliance by the Operating Partnership or the Company with
covenants relating to that series.
The Operating Partnership, the Company and the trustee can modify
the indenture without the consent of any holder for any of the
following purposes:
•to
evidence the succession of another person to the Operating
Partnership as obligor or the Company as guarantor;
•to
add to the covenants of the Operating Partnership or the Company
for the benefit of the holders or to surrender any right or power
conferred upon the Operating Partnership or the
Company;
•to
add events of default for the benefit of the holders;
•to
add or change any provisions of the indenture to facilitate the
issuance of, or to liberalize the terms of, debt securities in
bearer form, or to permit or facilitate the issuance of debt
securities in uncertificated form, so long as it does not
materially adversely affect the interests of any of the
holders;
•to
change or eliminate any provision of the indenture, so long as any
such change or elimination becomes effective only when there are no
debt securities outstanding of any series previously created which
are entitled to the benefit of those provisions;
•to
secure the debt securities;
•to
establish the form or terms of debt securities of any
series;
•to
provide for the acceptance of appointment by a successor trustee to
facilitate the administration of the trusts under the indenture by
more than one trustee;
•to
cure any ambiguity, defect or inconsistency in the indenture, so
long as the action does not materially adversely affect the
interests of any of the holders; or
•to
supplement any of the provisions of the indenture to the extent
necessary to permit or facilitate defeasance and discharge of any
series, so long as the action does not materially adversely affect
the interests of any of the holders.
In addition, with respect to guaranteed securities, the Company
may, without the consent of any holder, directly or indirectly
assume the payment of the principal, interest and any premium on
the guaranteed securities and the performance of every covenant of
the indenture that must be performed by the Operating
Partnership.
Upon any assumption, the Company will succeed to the Operating
Partnership under the indenture and the Operating Partnership will
be released from all obligations and covenants with respect to the
guaranteed securities. To effect any assumption, the Company
must:
•deliver
to the trustee an officer’s certificate and an opinion of counsel
stating that the guarantee and all other covenants of the Company
in the indenture remain in full force and effect;
•deliver
to the trustee an opinion of independent counsel that the holders
of guaranteed securities will have no federal tax consequences as a
result of the assumption; and
•if
any debt securities are then listed on the NYSE, ensure that those
debt securities will not be delisted as a result of the
assumption.
The indenture provides that in determining whether the holders of
the requisite principal amount of outstanding debt securities of a
series have given any request, demand, authorization, direction,
notice, consent or waiver or whether a quorum is present at a
meeting of holders of debt securities:
•the
principal amount of an original issue discount security that is
deemed to be outstanding is the amount of its principal that would
be due and payable as of the date of determination upon declaration
of acceleration of maturity;
•the
principal amount of a debt security denominated in a foreign
currency that is deemed outstanding is the U.S. dollar equivalent
of the principal amount, determined on the issue date for the debt
security;
•the
principal amount of an indexed security that is deemed outstanding
is the principal face amount of the indexed security at original
issuance, unless otherwise provided with respect to the indexed
security; and
•debt
securities that are directly or indirectly owned by the Operating
Partnership or the Company are disregarded.
Voting
The indenture contains provisions for convening meetings of the
holders of debt securities of a series. The trustee, the Operating
Partnership, the Company or the holders of at least 10% in
principal amount of the outstanding debt securities of a series may
call a meeting in any such case upon notice as provided in the
indenture. Except for any consent that the holder of each debt
security affected by modifications and amendments of the indenture
must give, the affirmative vote of the holders of a majority in
principal amount of the outstanding debt securities of that series
will be sufficient to adopt any resolution presented at a meeting
at which a quorum is present. However, except as referred to above,
any resolution with respect to any request, demand, authorization,
direction, notice, consent, waiver or other action that may be
made, given or taken by the holders of a specified percentage less
than a majority in principal amount of the outstanding debt
securities of a series may be adopted at a meeting at which a
quorum is present only by the affirmative vote of the holders of
the specified percentage. Any resolution passed or decision taken
at any meeting of holders duly held in accordance with the
indenture will be binding on all holders of debt securities of that
series. The quorum at any meeting will be persons holding or
representing a majority in principal amount of the outstanding debt
securities of a series. However, if any action is to be taken at a
meeting with respect to a consent or waiver that may be given by
the holders of not less than a specified percentage in principal
amount of the outstanding debt securities of a series, the persons
holding or representing that specified percentage will constitute a
quorum.
Discharge, Defeasance and Covenant Defeasance
The Operating Partnership may discharge obligations to holders of
any series of debt securities that have not already been delivered
to the trustee for cancellation and that either have become due and
payable or will become due and payable within one year or scheduled
for redemption within one year by irrevocably depositing with the
trustee, in trust, funds sufficient to pay the principal, interest
and any premium on the series to the stated maturity or redemption
date.
As long as the holders of the debt securities will not recognize
any resulting income, gain or loss for federal income tax purposes,
the Operating Partnership may elect either:
•to
defease and discharge itself and the Company from all of their
obligations with respect to the debt securities, which we refer to
as “defeasance”; or
•to
release itself and the Company from their obligations under
particular sections of the indenture, which we refer to as
“covenant defeasance.”
In order to make a defeasance election, the Operating Partnership
or the Company must irrevocably deposit with the trustee, in trust,
a sufficient amount to pay the principal, interest and any premium
on the debt securities, and any mandatory sinking fund or analogous
payments on the debt securities, on the scheduled due dates. The
deposit may be either an amount in the currency in which the debt
securities are payable at stated maturity, or government
obligations, or a combination of both.
Any such trust may only be established if, among other things, we
have delivered an opinion of counsel to the trustee stating that
the holders of the debt securities will not recognize income, gain
or loss for U.S. federal income tax purposes as a result of the
defeasance or covenant defeasance and will be subject to U.S.
federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such defeasance or
covenant defeasance had not occurred.
If the Operating Partnership elects covenant defeasance with
respect to the debt securities and the debt securities are declared
due and payable because of the occurrence of any event of default
still applicable to the debt securities, the amounts deposited with
the trustee may not be sufficient to pay amounts due on the debt
securities at the time of the acceleration resulting from the event
of default. If this occurs, the Operating Partnership will remain
liable to make payment of these amounts due at the time of
acceleration.
The prospectus supplement may further describe any provisions
permitting defeasance or covenant defeasance with respect to the
debt securities of a particular series.
No Conversion Rights
The debt securities will not be convertible into or exchangeable
for any capital stock of the Company or equity interests in the
Operating Partnership.
No Personal Liability
No past, present or future officer, director, stockholder or
partner of the Company, the Operating Partnership or any successor
thereof shall have any liability for any obligation or agreement of
the Operating Partnership contained under the debt securities, the
indenture or other debt obligations. Each holder of debt securities
by accepting such debt securities waives and releases all such
liability. The waiver and release are part of the consideration for
the issuance of the debt securities.
Book-Entry System
Except as otherwise set forth in the prospectus supplement, the
debt securities of a series will be issued in the form of one or
more fully registered global securities which will be deposited
with or on behalf of the Depository Trust Company (“DTC”), or the
depository, and will be registered in the name of DTC or its
nominee. The global security may not be transferred except as a
whole by a nominee of the depository to the depository or to
another nominee of the depository, or by the depository or another
nominee of the depository to a successor of the depository or a
nominee of a successor to the depository.
So long as the depository or its nominee is the registered holder
of a global security, the depository or its nominee, as the case
may be, will be the sole owner of the debt securities represented
thereby for all purposes under the indenture. Except as otherwise
provided below, the beneficial owners of the global security or
securities representing debt securities will not be entitled to
receive physical delivery of certificated notes and will not be
considered the registered holders thereof for any purpose under the
indenture, and no global security representing debt securities
shall be exchangeable or transferable. Accordingly, each beneficial
owner must rely on the procedures of the depository and, if that
beneficial owner is not a participant, on the procedures of the
participant through which that beneficial owner owns its interest
in order to exercise any rights of a registered holder under the
indenture. The laws of some jurisdictions require that certain
purchasers of securities take physical delivery of securities in
certificated form. These limits and laws may impair the ability to
transfer beneficial interests in a global security representing
debt securities.
Each global security representing debt securities will be
exchangeable for certificated notes of like tenor and terms and of
differing authorized denominations in a like aggregate principal
amount, only if:
•the
depository notifies us that it is unwilling or unable to continue
as the depository for the global securities or we become aware that
the depository has ceased to be a clearing agency registered as
such under the Exchange Act and, in any such case we fail to
appoint a successor to the depository within 60 calendar
days;
•we,
in our sole discretion, determine that the global securities shall
be exchangeable for certificated notes; or
•an
event of default has occurred and is continuing with respect to the
debt securities under the indenture.
Upon any such exchange, the certificated notes will be registered
in the names of the beneficial owners of the global security or
securities representing debt securities, which names shall be
provided by the depository’s relevant participants to the
trustee.
The depository is a limited-purpose trust company organized under
the New York Banking Law, a “banking organization” within the
meaning of the New York Banking Law, a member of the Federal
Reserve System, a “clearing corporation” within the meaning of the
New York Uniform Commercial Code, and a “clearing agency”
registered pursuant to the provisions of Section 17A of the
Exchange Act. The depository holds securities that its participants
deposit with the depository. The depository also facilitates the
settlement among participants of securities transactions, such as
transfers and pledges, in deposited securities through electronic
computerized book-entry changes in participants’ accounts, thereby
eliminating the need for physical movement of securities
certificates. Direct participants of the depository include
securities brokers and dealers (including the agents), banks, trust
companies, clearing corporations and certain other organizations.
The depository is owned by a number of its direct participants and
by the New York Stock Exchange, Inc., the NYSE MKT LLC, and the
Financial Industry Regulatory Authority, Inc. Access to the
depository’s system is also available to others, such as securities
brokers and dealers, banks and trust companies, that clear through
or maintain a custodial relationship with a direct participant,
either directly or indirectly, referred to as “indirect
participants.” The rules applicable to the depository and its
participants are on file with the SEC.
Purchases of debt securities under the depository’s system must be
made by or through direct participants, which will receive a credit
for the debt securities on the depository’s records. The ownership
interest of each actual purchaser of each note represented by a
global security, referred to as a “beneficial owner,” is in turn to
be recorded on the records of direct participants and indirect
participants. Beneficial owners will not receive written
confirmation from the depository of their purchase, but beneficial
owners are expected to receive written confirmations providing
details of the transaction, as well as periodic statements of their
holdings, from the direct participants or indirect participants
through which such beneficial owner entered into the transaction.
Transfers of ownership interests in a global security representing
debt securities are to be accomplished by entries made on the books
of participants acting on behalf of beneficial owners. Beneficial
owners of a global security representing debt securities will not
receive certificated notes representing their ownership interests
therein, except in the event that use of the book-entry system for
the debt securities is discontinued.
All global securities representing debt securities which are
deposited with, or on behalf of, the depository are registered in
the name of the depository’s nominee, Cede & Co. to facilitate
subsequent transfers. The deposit of global securities with, or on
behalf of, the depository and their registration in the name of
Cede & Co. effect no change in beneficial ownership. The
depository has no knowledge of the actual beneficial owners of the
global securities representing the book-entry debt securities. The
depository’s records reflect only the identity of the direct
participants to whose accounts such debt securities are credited,
which may or may not be the beneficial owners. The participants
will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by the depository to
direct participants, by direct participants to indirect
participants, and by direct participants and indirect participants
to beneficial owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in
effect from time to time.
Neither the depository nor Cede & Co. will consent or vote with
respect to the global securities representing the debt securities.
Under its usual procedures, the depository mails an omnibus proxy
to a company as soon as possible after the applicable record date.
The omnibus proxy assigns Cede & Co.’s consenting or voting
rights to those direct participants to whose accounts the debt
securities are credited on the applicable record date, identified
in a listing attached to the omnibus proxy.
Principal, premium, if any, and/or interest, if any, payments on
the global securities representing the debt securities will be made
to Cede & Co., or such other nominee as may be requested by an
authorized representative of DTC. The depository’s practice is to
credit direct participants’ accounts on the applicable payment date
in accordance with their respective holdings shown on the
depository’s records unless the depository has reason to believe
that it will not receive payment on such
date. Payments by participants to beneficial owners will be
governed by standing instructions and customary practices, as is
the case with securities held for the accounts of customers in
bearer form or registered in “street name,” and will be the
responsibility of such participant and not of the depository, the
trustee or us, subject to any statutory or regulatory requirements
as may be in effect from time to time. Payment of principal,
premium, if any, and/or interest, if any, to the depository is the
responsibility of us and the trustee, disbursement of such payments
to direct participants shall be the responsibility of the
depository, and disbursement of such payments to the beneficial
owners shall be the responsibility of direct participants and
indirect participants.
If applicable, redemption notices shall be sent to DTC. If less
than all of debt securities are being redeemed, the depository’s
practice is to determine by lot the amount of the interest of each
direct participant in such issue to be redeemed.
A beneficial owner shall give notice of any option to elect to have
its debt securities repaid by us, through its participant, to the
trustee, and shall effect delivery of such debt securities by
causing the direct participant to transfer the participant’s
interest in the global security or securities representing such
book-entry debt securities, on the depository’s records, to the
trustee. The requirement for physical delivery of book-entry debt
securities in connection with a demand for repayment will be deemed
satisfied when the ownership rights in the global security or
securities representing such book-entry debt securities are
transferred by direct participants on the depository’s
records.
The depository may discontinue providing its services as securities
depository with respect to the debt securities at any time by
giving reasonable notice to us or the trustee. Under such
circumstances, in the event that a successor securities depository
is not obtained, certificated notes are required to be printed and
delivered.
We may decide to discontinue use of the system of book-entry
transfers through the depository or a successor securities
depository. In that event, certificated notes will be printed,
authenticated and delivered.
The information in this section concerning the depository and the
depository’s system has been obtained from sources that we believe
to be reliable, but neither we nor the trustee takes any
responsibility for the accuracy thereof.
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
This section summarizes the material U.S. federal income tax
considerations that you, as a securityholder, may consider
relevant. Because this section is a summary, it does not address
all aspects of taxation that may be relevant to particular
securityholders in light of their personal investment or tax
circumstances, or to certain types of securityholders that are
subject to special treatment under the federal income tax laws,
such as:
•insurance
companies;
•tax-exempt
organizations (except to the extent discussed in “-Taxation of
Tax-Exempt Stockholders” below);
•financial
institutions or broker-dealers;
•non-U.S.
individuals and foreign corporations (except to the extent
discussed in “-Taxation of Non-U.S. Stockholders”
below);
•U.S.
expatriates;
•persons
who mark-to-market our securities;
•subchapter
S corporations;
•U.S.
stockholders (as defined below) whose functional currency is not
the U.S. dollar;
•regulated
investment companies and REITs;
•trusts
and estates;
•holders
who receive our securities through the exercise of employee stock
options or otherwise as compensation;
•persons
holding our shares as part of a “straddle,” “hedge,” “conversion
transaction,” “synthetic stock” or other integrated
investment;
•persons
subject to the alternative minimum tax provisions of the
Code;
•persons
subject to special tax accounting rules as a result of their use of
applicable financial statements within the meaning of Section
451(b)(3) of the Code; and
•persons
holding a 10% or more (by vote or value) beneficial interest in our
securities.
This summary assumes that securityholders hold securities as
capital assets for federal income tax purposes, which generally
means property held for investment.
The statements in this section are based on the current federal
income tax laws, are for general information purposes only and are
not tax advice. We cannot assure you that new laws, interpretations
of law, or court decisions, any of which may take effect
retroactively, will not cause any statement in this section to be
inaccurate. Even if there is no change in applicable law, no
assurance can be provided that the statements made in the following
discussion, which do not bind the Internal Revenue Service (“IRS”)
or the courts, will not be challenged by the IRS or will be
sustained by a court if so challenged.
WE URGE YOU TO CONSULT YOUR TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES TO YOU OF THE PURCHASE, OWNERSHIP AND SALE OF OUR
SECURITIES AND OF OUR ELECTION TO BE TAXED AS A REIT. SPECIFICALLY,
YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE U.S. FEDERAL,
STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE,
OWNERSHIP, SALE AND ELECTION, AND REGARDING POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
Taxation of Our Company
We elected to be taxed as a REIT under the federal income tax laws
commencing with our taxable year ended December 31, 1994. We
believe that, commencing with such taxable year, we have been
organized and have operated in such a manner as to qualify for
taxation as a REIT under the Code, and we intend to continue to be
organized and to operate in such a manner. However, we cannot
assure you that we have operated or will operate in a manner so as
to qualify or remain qualified as a REIT. Qualification as a REIT
depends on our continuing to satisfy numerous asset, income, share
ownership and distribution tests described below, the satisfaction
of which depends, in part, on our operating results. The sections
of the Code relating to qualification and operation as a REIT, and
the federal income taxation of a REIT and its stockholders, are
highly technical and complex. The following discussion sets forth
only the material aspects of those sections. This summary is
qualified in its entirety by the applicable Code provisions and the
related rules and regulations.
In the opinion of Vinson & Elkins LLP, we qualified to be taxed
as a REIT for our taxable years ended December 31, 2006 through
December 31, 2022, and our organization and current and proposed
method of operation will enable us to continue to qualify as a REIT
for our taxable year ending December 31, 2023 and thereafter.
Investors should be aware that Vinson & Elkins LLP’s opinion is
based upon customary assumptions, is conditioned upon certain
representations made by us as to factual matters, including
representations regarding the nature of our properties and the
future conduct of our business, and is not binding upon the IRS or
any court. In addition, Vinson & Elkins LLP's opinion is based
on existing federal income tax law governing qualification as a
REIT, which is subject to change, either prospectively or
retrospectively, and speaks as of the date issued. Moreover, our
continued qualification and taxation as a REIT depend upon our
ability to meet on a continuing basis, through actual annual
operating results, certain qualification tests set forth in the
federal tax laws. Those qualification tests involve the percentage
of income that we earn from specified sources, the percentage of
our assets that falls within specified categories, the diversity of
our share ownership, and the percentage of our earnings that we
distribute. Vinson & Elkins LLP will not review our compliance
with those tests on a continuing basis. Accordingly, no assurance
can be given that the actual results of our operations for any
particular taxable year will satisfy such requirements. Vinson
& Elkins LLP's opinion does not foreclose the possibility that
we may have to use one or more of the REIT savings provisions
discussed below, which could require us to pay an excise or penalty
tax (which could be material) in order for us to maintain our REIT
qualification. For a discussion of the tax consequences of our
failure to qualify as a REIT, see “-Failure to
Qualify.”
If we qualify as a REIT, we generally will not be subject to
federal income tax on the taxable income that we distribute to our
stockholders. The benefit of that tax treatment is that it avoids
the “double taxation,” or taxation at both the corporate and
stockholder levels, that generally results from owning stock in a
corporation. However, we will be subject to federal tax in the
following circumstances:
•We
will pay federal income tax on any taxable income, including
undistributed 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.
•We
will pay income tax at the highest U.S. federal corporate income
tax rate on:
•net
income from the sale or other disposition of property acquired
through foreclosure or after a default on a lease of the property
(“foreclosure property”) that we hold primarily for sale to
customers in the ordinary course of business, and
•other
non-qualifying income from foreclosure property.
•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.
•If
we fail to satisfy one or both of the 75% gross income test or the
95% gross income test, as described below under “-Gross Income
Tests,” and nonetheless continue to qualify as a REIT because we
meet other requirements, we will pay a 100% tax on:
•the
gross income attributable to the greater of the amount by which we
fail the 75% gross income test or the 95% gross income test, in
either case, multiplied by
•a
fraction intended to reflect our profitability.
•If
we fail to distribute during a calendar year at least the sum of
(i) 85% of our REIT ordinary income for the year,
(ii) 95% of our REIT capital gain net income for the year, and
(iii) any undistributed taxable income required to be
distributed from earlier periods, we will pay a 4% nondeductible
excise tax on the excess of the required distribution over the
amount we actually distributed.
•We
may elect to retain and pay income tax on our net long-term capital
gain. In that case, a U.S. stockholder would be taxed on its
proportionate share of our undistributed long-term capital gain (to
the extent that we made a timely designation of such gain to the
stockholders) and would receive a credit or refund for its
proportionate share of the tax we paid.
•We
will be subject to a 100% excise tax on transactions with a taxable
REIT subsidiary (“TRS”) that are not conducted on an arm’s-length
basis.
•If
we fail any of the asset tests, other than a de minimis failure of
the 5% asset test, the 10% vote test or the 10% value test, as
described below under “- Asset Tests,” as long as the failure
was due to reasonable cause and not to willful neglect, we file a
description of each asset that caused such failure with the IRS,
and we dispose of the assets or otherwise comply with the asset
tests within six months after the last day of the quarter in which
we identify such failure, we will pay a tax equal to the greater of
$50,000 or the highest U.S, federal corporate income tax rate
applicable on the net income from the nonqualifying assets during
the period in which we failed to satisfy the asset
tests.
•If
we fail to satisfy one or more requirements for REIT qualification,
other than the gross income tests and the asset tests, and such
failure is due to reasonable cause and not to willful neglect, we
will be required to pay a penalty of $50,000 for each such
failure.
•If
we acquire any asset from a C corporation, or a corporation that
generally is subject to full corporate-level tax, in a merger or
other transaction in which we acquire a basis in the asset that is
determined by reference either to the C corporation’s basis in the
asset or to another asset, we will pay income tax at the highest
U.S. federal corporate income tax rate applicable if we recognize
gain on the sale or disposition of the asset during the 5-year
period after we acquire the asset provided no election is made for
the transaction to be taxable on a current basis. The amount of
gain on which we will pay tax is the lesser of:
a.the
amount of gain that we recognize at the time of the sale or
disposition, and
b.the
amount of gain that we would have recognized if we had sold the
asset at the time we acquired it.
•We
may be required to pay monetary penalties to the IRS in certain
circumstances, including if we fail to meet record-keeping
requirements intended to monitor our compliance with rules relating
to the composition of a REIT’s stockholders, as described below in
“- Recordkeeping Requirements.”
•The
earnings of our lower-tier entities that are subchapter C
corporations, including TRSs, will be subject to U.S, federal
corporate income tax.
In addition, notwithstanding our status as a REIT, we may also have
to pay certain state and local income taxes, because not all states
and localities treat REITs in the same manner that they are treated
for federal income tax purposes. Moreover, as further described
below, domestic TRSs will be subject to U.S. federal, state and
local corporate income tax on their taxable income.
Requirements for Qualification
To qualify as a REIT, we must elect to be treated as a REIT and
must meet the following requirements, relating to our organization,
sources of income, nature of assets and distributions.
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
securities or by transferable certificates of beneficial
interest;
3.that
would be taxable as a domestic corporation but for application of
the REIT provisions of the federal income tax laws;
4.that
is neither a financial institution nor an insurance company subject
to special provisions of the Code;
5.that
has at least 100 persons as beneficial owners (determined without
reference to any rules of attribution);
6.during
the last half of each taxable year, not more than 50% in value of
the outstanding securities of which is owned, directly or
indirectly, through the application of certain attribution rules,
by five or fewer individuals (as defined in the Code to include
certain entities), which we refer to as the five or fewer
requirement;
7.which
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.that
uses the calendar year as its taxable year and complies with the
recordkeeping requirements of the federal income tax laws;
and
9.that
satisfies the income tests, the asset tests, and the distribution
tests, described below.
The Code provides that REITs must satisfy all of the first four,
the eighth (if applicable) and the ninth preceding requirements
during the entire taxable year. REITs must satisfy the fifth
requirement during at least 335 days of a taxable year of 12 months
or during a proportionate part of a taxable year of less than 12
months. For purposes of determining securities ownership under the
sixth requirement, an “individual” generally includes a
supplemental unemployment compensation benefits plan, a private
foundation, or a portion of a trust permanently set aside or used
for charitable purposes. An “individual,” however, generally does
not include a trust that is a qualified employee pension or profit
sharing trust under the federal income tax laws, and beneficiaries
of such a trust will be treated as holding our securities in
proportion to their actuarial interests in the trust for purposes
of the sixth requirement above. We will be treated as having met
the sixth requirement if we comply with certain Treasury
Regulations for ascertaining the ownership of our securities for
such year and if we did not know (or after the exercise of
reasonable diligence would not have known) that the sixth condition
was not satisfied for such year. Our charter currently includes
restrictions regarding ownership and transfers of our stock that,
among other things, assist us in continuing to satisfy the fifth
and sixth of these requirements. See “Description of Common Stock -
Ownership Limitations and Restrictions on Transfer.”
Qualified REIT
Subsidiaries. If a REIT owns a corporate subsidiary that is a
“qualified REIT subsidiary,” the separate existence of that
subsidiary from its parent REIT will be disregarded for federal
income tax purposes. Generally, a qualified REIT subsidiary is a
corporation, other than a TRS, all of the capital stock of which is
owned by the REIT. All assets, liabilities and items of income,
deduction and credit of the qualified REIT subsidiary will be
treated as assets, liabilities and items of income, deduction and
credit of the REIT itself for purposes of applying the requirements
herein. Our qualified REIT subsidiaries will not be subject to U.S.
federal corporate income taxation, although they may be subject to
state and local taxation in some states.
Other Disregarded Entities and Partnerships.
An unincorporated domestic entity, such as a partnership or limited
liability company that has a single owner, generally is not treated
as an entity separate from its parent for federal income tax
purposes. An unincorporated domestic entity with two or more owners
is generally treated as a partnership for federal income tax
purposes. In the case of a REIT that is a partner in a partnership,
the REIT is deemed to own its proportionate share of the assets of
the partnership and to earn its proportionate share of the
partnership's gross income for purposes of the applicable REIT
qualification tests. The character of the assets and gross income
of the partnership retain the same character in the hands of the
REIT for purposes of the gross income and asset tests. Thus, our
proportionate share of the assets, liabilities and items of income
of the Operating Partnership (including the Operating Partnership's
share of the assets, liabilities and items of income with respect
to any partnership in which it holds an interest), is treated as
our assets, liabilities and items of income for purposes of
applying the requirements described herein. For purposes of the 10%
value test (see “-Asset Tests”), our proportionate share is based
on our proportionate interest in the equity interests and certain
debt securities issued by the partnership. For all of the other
asset and income tests, our proportionate share is based on our
proportionate interest in the capital of the partnership. Our
proportionate share of the assets, liabilities, and items of income
of any partnership, joint venture, or limited liability company
that is treated as a partnership for federal income tax purposes in
which we acquire an equity interest, directly or indirectly, will
be treated as our assets and gross income for purposes of applying
the various REIT qualification requirements.
We have control of the Operating Partnership and generally intend
to control any subsidiary partnerships and limited liability
companies, and we intend to operate them in a manner consistent
with the requirements for our qualification as a REIT.
We may from time to time be a limited partner or non-managing
member in some of our partnerships and limited liability companies.
If a partnership or limited liability company in which we own an
interest takes or expects to take actions that could jeopardize our
status as a REIT or require us to pay tax, we may be forced to
dispose of our interest in such entity. In addition, it is possible
that a partnership or limited liability company could take an
action which could cause us to fail a gross income or asset test,
and that we would not become aware of such action in time to
dispose of our interest in the partnership or limited liability
company or take other corrective action on a timely basis. In that
case, we could fail to qualify as a REIT unless we were entitled to
relief, as described below.
Taxable REIT Subsidiaries.
A REIT may own up to 100% of the securities of one or more TRSs. A
TRS is a fully taxable corporation that may earn income that would
not be qualifying income if earned directly by the parent REIT. The
subsidiary and the REIT must jointly elect to treat the subsidiary
as a TRS. A corporation of which a TRS directly or indirectly owns
more than 35% of the voting power or value of the securities will
automatically be treated as a TRS. We are not treated as holding
the assets of a TRS or as receiving any income that the subsidiary
earns. Rather, the securities issued by a TRS to us is an asset in
our hands, and we will treat the distributions paid to us from such
TRS, if any, as dividend income. This treatment can affect our
compliance with the gross income and asset tests. Additionally, we
may, from time to time, also dispose of an unwanted asset through a
TRS as necessary or convenient to avoid the 100% tax on income from
prohibited transactions. Because we do not include the assets and
income of our TRSs in determining our compliance with the REIT
requirements, we may use such entities to undertake indirectly
activities that the REIT rules might otherwise preclude us from
doing directly or through pass-through subsidiaries. Overall, no
more than 20% of the value of a REIT's assets may consist of stock
or securities of one or more TRSs.
A domestic 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.
A TRS may not directly or indirectly operate or manage any health
care facilities or lodging facilities or provide rights to any
brand name under which any health care facility or lodging facility
is operated. A TRS is not considered to operate or manage a
“qualified health care property” or “qualified lodging facility”
solely because the TRS directly or indirectly possesses a license,
permit, or similar instrument enabling it to do so.
Rent that we receive from a TRS will qualify as “rents from real
property” as long as (i) at least 90% of the leased space in the
property is leased to persons other than TRSs and related party
tenants, and (ii) the amount paid by the TRS to rent space at the
property is substantially comparable to rents paid by other tenants
of the property for comparable space, as described in further
detail below under “-Gross Income Tests-Rents from Real Property.”
If we lease space to a TRS, we will seek to comply with these
requirements.
We currently have one TRS, Highwoods Services, Inc., through which
we hold certain assets that that are either non-qualifying assets
for purposes of the REIT asset tests, or which we believe could
potentially trigger the prohibited transaction tax on disposition
if held directly by us and through which we perform certain
services.
Gross Income Tests
We must satisfy two gross income tests annually to maintain our
qualification as a REIT. First, at least 75% of our gross income
for each taxable year must consist of defined types of income that
we derive, directly or indirectly, from investments relating to
real property or mortgages on real property or qualified temporary
investment income. Qualifying income for purposes of that 75% gross
income test generally includes:
a.rents
from real property;
b.interest
on debt secured by mortgages on real property, or on interests in
real property;
c.dividends
or other distributions on, and gain from the sale of, shares in
other REITs;
d.gain
from the sale of real estate assets (excluding gain from the sale
of a debt instrument issued by a “publicly offered REIT” (ie., a
REIT that is required to file annual and periodic reports with the
SEC under the Exchange Act) to the extent not secured by real
property or an interest in real property) not held for sale to
customers;
e.income
and gain derived from foreclosure properties; and
f.income
derived from the temporary investment in stock and debt investments
purchased with the proceeds from the issuance of our stock or a
public offering of our debt with a maturity date of at least five
years and that we receive during the one-year period beginning on
the date on which we received such new capital.
Second, in general, at least 95% of our gross income for each
taxable year must consist of income that is qualifying income for
purposes of the 75% gross income test, other types of interest and
dividends, gain from the sale or disposition of shares or
securities, or any combination of these. Gross income from our sale
of property that we hold primarily for sale to customers in the
ordinary course of business is excluded from both the numerator and
the denominator in both gross income tests. In addition, income and
gain from “hedging transactions” that we enter into to hedge
indebtedness incurred or to be incurred to acquire or carry real
estate assets and that are clearly and timely identified as such
will be excluded from both the numerator and the denominator for
purposes of the 75% and 95% gross income tests. In addition,
certain foreign currency gains will be excluded from gross income
for purposes of one or both of the gross income tests. See
“- Foreign Currency Gain” below. The following paragraphs
discuss the specific application of the gross income tests to
us.
Rents from Real Property. Rent
that we receive from our real property will qualify as “rents from
real property,” which is qualifying income for purposes of the 75%
and 95% gross income tests, only if the following conditions are
met:
First, the amount of rent must not be based in whole or in part on
the income or profits of any person but can be based on a fixed
percentage of gross receipts or gross sales, provided that such
percentage (i) is fixed at the time the lease is entered into, (ii)
is not renegotiated during the term of the lease in a manner that
has the effect of basing percentage rent on income or profits, and
(iii) conforms with normal business practice.
Second, we must not own, actually or constructively, 10% or more of
the securities or the assets or net profits of any lessee (a
“related party tenant”), other than a TRS. The constructive
ownership rules generally provide that, if 10% or more in value of
our securities are owned, directly or indirectly, by or for any
person, we are considered as owning the securities owned, directly
or indirectly, by or for such person.
As described above, we may own up to 100% of the securities of one
or more TRSs. Under an exception to the related party rent rules,
rent that we receive from a TRS will qualify as “rents from real
property” as long as (i) at least 90% of the leased space in the
property is leased to persons other than TRSs and related-party
tenants, and (ii) the amount paid by the TRS to rent space at the
property is substantially comparable to rents paid by other tenants
of the property for comparable space. The “substantially
comparable” requirement must be satisfied when the lease is entered
into, when it is extended, and when the lease is modified, if the
modification increases the rent paid by the TRS. If the requirement
that at least 90% of the leased space in the related property is
rented to unrelated tenants is met when a lease is entered into,
extended, or modified, such requirement will continue to be met as
long as there is no increase in the space leased to any TRS or
related party tenant. Any increased rent attributable to a
modification of a lease with a TRS in which we own directly or
indirectly more than 50% of the voting power or value of the
securities will not be treated as “rents from real
property.”
Third, “rents from real property” excludes rent attributable to
personal property except where such personal property is leased in
connection with a lease of real property and the rent attributable
to such personal property is less than or equal to 15% of the total
rent received under the lease. The rent attributable to personal
property under a lease is the amount that bears the same ratio to
total rent under the lease for the taxable year as the average of
the fair market values of the leased 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 and personal
property covered by the lease at the beginning and at the end of
such taxable year.
Finally, amounts that are attributable to services furnished or
rendered in connection with the rental of real property, whether or
not separately stated, will not constitute “rents from real
property” unless such services are customarily provided in the
geographic area. Customary services that are not considered to be
provided to a particular tenant (e.g., furnishing heat and light,
the cleaning of public entrances, and the collection of trash) can
be provided directly by us. Where, on the other hand, such services
are provided primarily for the convenience of the tenants or are
provided to such tenants, such services must be provided by an
independent contractor from whom we do not receive any income or a
TRS. Non-customary services that are not performed by an
independent contractor or TRS in accordance with the applicable
requirements will result in impermissible tenant service income to
us to the extent of the income earned (or deemed earned) with
respect to such services. If the impermissible tenant service
income (valued at not less than 150% of our direct cost of
performing such services) exceeds 1% of our total income from a
property, all of the income from that property will fail to qualify
as rents from real property. If the total amount of impermissible
tenant services does not exceed 1% of our total income from the
property, the services will not cause the rent paid by tenants of
the property to fail to qualify as rents from real property, but
the impermissible tenant services income will not qualify as “rents
from real property.”
We do not currently charge and do not anticipate charging rent that
is based in whole or in part on the income or profits of any person
(unless based on a fixed percentage or percentages of gross
receipts or gross sales, as is permitted). We also do not
anticipate receiving rent from related party tenants.
The Operating Partnership does provide certain services with
respect to our properties. We believe that the services with
respect to our properties that are and will be provided directly
are usually or customarily rendered in connection with the rental
of space for occupancy only and are not otherwise considered
rendered to particular tenants and, therefore, that the provision
of such services will not cause rents received with respect to the
properties to fail to qualify as rents from real property. Services
with respect to the properties that we believe may not be provided
by us or the Operating Partnership directly without jeopardizing
the qualification of rent as “rents from real property” are and
will be performed by independent contractors or TRSs.
If a portion of the rent that we receive from a property does not
qualify as “rents from real property” because the rent attributable
to personal property exceeds 15% of the total rent for a taxable
year, the portion of the rent that is attributable to personal
property will not be qualifying income for purposes of either the
75% or 95% gross income test. Thus, if such rent attributable to
personal property, plus any other income that is nonqualifying
income for purposes of the 95% gross income test, during a taxable
year exceeds 5% of our gross income during the year, we would lose
our REIT qualification. If, however, the rent from a particular
property does not qualify as “rents from real property” because
either (i) the rent is considered based on the income or profits of
the related lessee, (ii) the lessee either is a related party
tenant or fails to qualify for the exception to the related party
tenant rule for qualifying TRSs or (iii) we furnish noncustomary
services to the tenants of the property, or manage or operate the
property, other than through a qualifying independent contractor or
a TRS, none of the rent from that property would qualify as “rents
from real property.” In that case, we might lose our REIT
qualification because we would be unable to satisfy either the 75%
or 95% gross income test.
In addition to the rent, the lessees are required to pay certain
additional charges. To the extent that such additional charges
represent reimbursements of amounts that we are obligated to pay to
third parties, such as a lessee's proportionate share of a
property's operational or capital expenses, such charges generally
will qualify as “rents from real property.” To the extent such
additional charges represent penalties for nonpayment or late
payment of such amounts, such charges should qualify as “rents from
real property.” However, to the extent that late charges do not
qualify as “rents from real property,” they instead will be treated
as interest that qualifies for the 95% gross income
test.
Fee Income.
We may, directly or indirectly, receive fees for property
management and brokerage and leasing services provided with respect
to some properties not owned entirely by the Operating Partnership.
These fees, to the extent paid with respect to the portion of these
properties not owned, directly or indirectly, by us, will not
qualify under the 75% gross income test or the 95% gross income
test. The Operating Partnership also may receive other types of
income with respect to the properties it owns that will not qualify
for either of these tests. We believe, however, that the aggregate
amount of these fees and other non-qualifying income in any taxable
year will not cause us to exceed the limits on non-qualifying
income under either the 75% gross income test or the 95% gross
income test.
Interest. The
term “interest” generally does not include any amount received or
accrued, directly or indirectly, if the determination of such
amount depends in whole or in part on the income or profits of any
person. However, interest generally includes the
following:
a.an
amount that is based on a fixed percentage or percentages of gross
receipts or gross sales; and
b.an
amount that is based on the income or profits of a debtor, as long
as the debtor derives substantially all of its income from the real
property securing the debt from leasing substantially all of its
interest in the property, and only to the extent that the amounts
received by the debtor would be qualifying “rents from real
property” if received directly by a REIT.
If a loan contains a provision that entitles a REIT to a percentage
of the borrower’s gain upon the sale of the real property securing
the loan or a percentage of the appreciation in the property’s
value as of a specific date, income attributable to that loan
provision will be treated as gain from the sale of the property
securing the loan, which generally is qualifying income for
purposes of both gross income tests.
We may invest opportunistically from time to time in mortgage debt
and mezzanine loans. Interest on debt secured by a mortgage on real
property or on interests in real property, including, for this
purpose, discount points, prepayment penalties, loan assumption
fees, and late payment charges that are not compensation for
services, generally is qualifying income for purposes of the 75%
gross income test. However, if a loan is secured by real property
and other property and the highest
principal amount of a loan outstanding during a taxable year
exceeds the fair market value of the real property securing the
loan as of the date we agreed to acquire the loan or on the date we
modify the loan (if the modification is treated as
“significant” for tax purposes), a portion of the interest income
from such loan will not be qualifying income for purposes of the
75% gross income test, but will be qualifying income for purposes
of the 95% gross income test. In the case of a loan that is secured
by both real and personal property, if the fair market value of
such personal property does not exceed 15% of the total fair market
value of all such property securing the loan, then the personal
property securing the loan will be treated as real property for
purposes of determining whether the interest on such loan is
qualifying interest for purposes of the 75% gross income test. The
portion of the interest income that will not be qualifying income
for purposes of the 75% gross income test will be equal to the
portion of the principal amount of the loan that is not secured by
real property - that is, the amount by which the loan exceeds
the value of the real estate that is security for the loan. For
purposes of this paragraph, however, under IRS guidance we do not
need to redetermine the fair market value of the real property in
connection with a loan modification that is occasioned by a
borrower default or made at a time when we reasonably believe the
modification to the loan will substantially reduce a significant
risk of default on the original loan.
Mezzanine loans are loans secured by equity interests in an entity
that directly or indirectly owns real property, rather than by a
direct mortgage of the real property. IRS Revenue Procedure 2003-65
provides a safe harbor pursuant to which a mezzanine loan, if it
meets each of the requirements contained in the Revenue Procedure,
will be treated by the IRS as a real estate asset for purposes of
the REIT asset tests described below, and interest derived from it
will be treated as qualifying mortgage interest for purposes of the
75% gross income test. Although the Revenue Procedure provides a
safe harbor on which taxpayers may rely, it does not prescribe
rules of substantive tax law. Moreover, we anticipate that the
mezzanine loans we would originate or acquire typically will not
meet all of the requirements for reliance on this safe harbor. We
intend to invest in mezzanine loans in manner that will enable us
to continue to satisfy the gross income and asset
tests.
Dividends. Our
share of any dividends received from any corporation (including any
TRS, but excluding any REIT) in which we own an equity interest
will qualify for purposes of the 95% gross income test but not for
purposes of the 75% gross income test. Our share of any dividends
received from any other REIT in which we own an equity interest, if
any, will be qualifying income for purposes of both gross income
tests.
Prohibited Transactions. A
REIT will incur a 100% tax on the net income (including foreign
currency gain) derived from any sale or other disposition of
property, other than foreclosure property, that the REIT holds
primarily for sale to customers in the ordinary course of a trade
or business. We believe that none of our assets will be 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:
a.the
REIT has held the property for not less than two
years;
b.the
aggregate expenditures made by the REIT, or any partner of the
REIT, during the two-year period preceding the date of the sale
that are includable in the basis of the property do not exceed 30%
of the selling price of the property;
c.either
(i) during the year in question, the REIT did not make more
than seven sales of property other than foreclosure property or
sales to which Section 1033 of the Code applies, (ii) 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, (iii) 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, (iv) (a) the aggregate adjusted bases of all such properties
sold by the REIT during the year did not exceed 20% of the
aggregate adjusted bases of all property of the REIT at the
beginning of the year and (b) the 3-year average percentage of
properties sold by the REIT compared to all the REIT’s properties
(measured by adjusted bases) taking into account the current and
two prior years did not exceed 10% or (v) (a) the aggregate fair
market value of all such properties sold by the REIT during the
year did not exceed 20% of the aggregate fair market value of all
property of the REIT at the beginning of the year and (b) the
3-year average percentage of properties sold by the REIT compared
to all the REIT’s properties (measured by fair market value) taking
into account the current and two prior years did not exceed
10%;
d.in
the case of property not acquired through foreclosure or lease
termination, the REIT has held the property for at least two years
for the production of rental income; and
e.if
the REIT has made more than seven sales of non-foreclosure property
during the taxable year, substantially all of the marketing and
development expenditures with respect to the property were made
through an independent contractor from whom the REIT derives no
income, or, a TRS.
We will attempt to comply with the terms of the safe-harbor
provision in the U.S. federal income tax laws prescribing when an
asset sale will not be characterized as a prohibited transaction.
We cannot assure you, however, that we can comply with the
safe-harbor provision or that we will avoid owning property that
may be characterized as property that we hold “primarily for sale
to customers in the ordinary course of a trade or business.” The
100% tax will not apply to gains from the sale of property that is
held through a TRS or other taxable corporation, although such
income will be taxed to the corporation at regular U.S, federal
corporate income tax rates.
Additionally, we may dispose of properties in transactions intended
to qualify as like-kind exchanges under the Code. Such like-kind
exchanges are intended to result in the deferral of gain for
federal income tax purposes. The failure of any such transaction to
qualify as a like-kind exchange could subject us to federal income
tax, possibly including the 100% prohibited transaction tax,
depending on the facts and circumstances surrounding the particular
transaction.
Foreclosure Property. We
will be subject to U.S. federal income tax at the maximum corporate
income tax rate on any income from foreclosure property, which
includes certain foreign currency gains and related deductions,
other than income that otherwise would be qualifying income for
purposes of the 75% gross income test, less expenses directly
connected with the production of that income. However, gross income
from foreclosure property will qualify under the 75% and 95% gross
income tests. Foreclosure property is any real property, including
interests in real property, and any personal property incident to
such real property:
a.that
is acquired by a REIT as the result of the REIT having bid on such
property at foreclosure, or having otherwise reduced such property
to ownership or possession by agreement or process of law, after
there was a default or default was imminent on a lease of such
property or on indebtedness that such property
secured;
b.for
which the related loan was acquired by the REIT at a time when the
default was not imminent or anticipated; and
c.for
which the REIT makes a proper election to treat the property as
foreclosure property.
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. However, this grace period terminates and foreclosure
property ceases to be foreclosure property on the first
day:
d.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;
e.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
f.which
is more than 90 days after the day on which the REIT acquired
the property and the property is used in a trade or business which
is conducted by the REIT, other than through an independent
contractor from whom the REIT itself does not derive or receive any
income or a TRS.
Hedging Transactions. From
time to time, we or the Operating Partnership may enter into
hedging transactions with respect to one or more of our assets or
liabilities. Our hedging activities may include entering into
interest rate swaps, caps, and floors, options to purchase such
items, and futures and forward contracts. Income and gain from
“hedging transactions” will be excluded from gross income for
purposes of both the 75% and 95% gross income tests. A “hedging
transaction” means (i) any transaction entered into in the
normal course of our or the Operating Partnership’s trade or
business primarily to manage the risk of interest rate changes,
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, (ii) 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) or (iii) any
transaction entered into to “offset” a
transaction described in (i) or (ii) if a portion of the hedged
indebtedness is extinguished or the related property disposed of.
We are required to clearly identify any such hedging transaction
before the close of the day on which it was acquired or entered
into and to satisfy other identification requirements. We intend to
structure any hedging transactions in a manner that does not
jeopardize our qualification as a REIT.
Cancellation of Debt Income.
From time to time, we and our subsidiaries may recognize
cancellation of debt income in connection with repurchasing debt at
a discount. Cancellation of debt income is excluded from gross
income for purposes of both the 75% and 95% gross income
tests.
Foreign Currency Gain. Certain
foreign currency gains will be excluded from gross income for
purposes of one or both of the gross income tests. “Real estate
foreign exchange gain” will be excluded from gross income for
purposes of the 75% and 95% gross income tests. Real estate foreign
exchange gain generally includes foreign currency gain attributable
to any item of income or gain that is qualifying income for
purposes of the 75% gross income test, foreign currency gain
attributable to the acquisition or ownership of (or becoming or
being the obligor under) obligations secured by mortgages on real
property or on interests in real property and certain foreign
currency gain attributable to certain “qualified business units” of
a REIT. “Passive foreign exchange gain” will be excluded from gross
income for purposes of the 95% gross income test. Passive foreign
exchange gain generally includes real estate foreign exchange gain
as described above, and also includes foreign currency gain
attributable to any item of income or gain that is qualifying
income for purposes of the 95% gross income test and foreign
currency gain attributable to the acquisition or ownership of (or
becoming or being the obligor under) obligations. These exclusions
for real estate foreign exchange gain and passive foreign exchange
gain do not apply to any certain foreign currency gain derived from
dealing, or engaging in substantial and regular trading, in
securities. Such gain is treated as nonqualifying income for
purposes of both the 75% and 95% gross income tests.
Failure to Satisfy Gross Income Tests. If
we fail to satisfy one or both of the gross income tests for any
taxable year, we nevertheless may qualify as a REIT for that year
if we qualify for relief under certain provisions of the federal
income tax laws. Those relief provisions are available
if:
a.our
failure to meet those tests is due to reasonable cause and not to
willful neglect; and
b.following
such failure for any taxable year, we file a schedule of the
sources of our income in accordance with regulations prescribed by
the Secretary of the U.S. Treasury.
We cannot predict, however, whether in all circumstances we would
qualify for the relief provisions. In addition, as discussed above
in “- Taxation of Our Company,” even if the relief provisions
apply, we would incur a 100% tax on the gross income attributable
to the greater of the amount by which we fail the 75% gross income
test or the 95% gross income test multiplied, in either case, by a
fraction intended to reflect our profitability.
Asset Tests
To qualify as a REIT, we also must satisfy the following asset
tests at the end of each quarter of each taxable year.
First, at least 75% of the value of our total assets must consist
of:
a.cash
or cash items, including certain receivables and money market funds
and, in certain circumstances, foreign currencies;
b.government
securities;
c.interests
in real property, including leaseholds and options to acquire real
property and leaseholds, and personal property to the extent such
personal property is leased in connection with real property and
rents attributable to such personal property are treated as “rents
from real property” as a result of such rents not exceeding 15% of
the total rent attributable to personal property and real property
under such lease;
d.interests
in mortgage loans secured by real property;
e.stock
in other REITs and debt instruments issued by “publicly offered
REITs”; and
f.investments
in stock or debt instruments during the one-year period following
our receipt of new capital that we raise through equity offerings
or public offerings of debt with at least a five-year
term.
Second, of our investments not included in the 75% asset class, the
value of our interest in any one issuer’s securities may not exceed
5% of the value of our total assets (the “5% asset
test”).
Third, of our investments not included in the 75% asset class, we
may not own more than 10% of the voting power of any one issuer’s
outstanding securities(the “10% vote test”), or 10% of the total
value of any one issuer’s outstanding securities (the “10% value
test”).
Fourth, no more than 20% of the value of our total assets may
consist of the securities of one or more TRSs.
Fifth, no more than 25% of the value of our total assets may
consist of the securities of TRSs and other non-TRS taxable
entities and other assets that are not qualifying assets for
purposes of the 75% asset test, or the 25% securities
test.
Sixth, no more than 25% of the value of our total assets may
consist of debt instruments issued by “publicly offered REITs” to
the extent not secured by real property or interests in real
property.
For purposes of the 5% asset test, the 10% vote test and the 10%
value test, the term “securities” does not include shares in
another REIT, debt of a “publicly offered REIT”, equity or debt
securities of a qualified REIT subsidiary or TRS, mortgage loans
that constitute real estate assets, or equity interests in a
partnership. The term “securities,” however, generally includes
debt securities issued by a partnership or another REIT (other than
a “publicly offered REIT”), except that for purposes of the 10%
value test, the term “securities” does not include:
a.“Straight
debt” securities, which is defined as a written unconditional
promise to pay on demand or on a specified date a sum certain in
money if (i) the debt is not convertible, directly or
indirectly, into equity, and (ii) the interest rate and
interest payment dates are not contingent on profits, the
borrower’s discretion or similar factors. “Straight debt”
securities do not include any securities issued by a partnership or
a corporation in which we or any controlled TRS (i.e., a TRS in
which we own directly or indirectly more than 50% of the voting
power or value of the stock) hold non-“straight debt” securities
that have an aggregate value of more than 1% of the issuer’s
outstanding securities. However, “straight debt” securities include
debt subject to the following contingencies:
•a
contingency relating to the time of payment of interest or
principal, as long as either (i) there is no change to the
effective yield of the debt obligation, other than a change to the
annual yield that does not exceed the greater of 0.25% or 5% of the
annual yield, or (ii) neither the aggregate issue price nor
the aggregate face amount of the issuer’s debt obligations held by
us exceeds $1 million and no more than 12 months of
unaccrued interest on the debt obligations can be required to be
prepaid; and
•a
contingency relating to the time or amount of payment upon a
default or prepayment of a debt obligation, as long as the
contingency is consistent with customary commercial
practice;
b.Any
loan to an individual or an estate;
c.Any
“section 467 rental agreement,” other than an agreement
with a related party tenant;
d.Any
obligation to pay “rents from real property”;
e.Certain
securities issued by governmental entities;
f.Any
security issued by a REIT;
g.Any
debt instrument issued by an entity treated as a partnership for
federal income tax purposes in which we are a partner to the extent
of our proportionate interest in the equity and debt securities of
the partnership; and
h.Any
debt instrument issued by an entity treated as a partnership for
federal income tax purposes not described in the preceding bullet
points if at least 75% of the partnership’s gross income, excluding
income from prohibited transactions, is qualifying income for
purposes of the 75% gross income test described above in
“- Gross Income Tests.”
For purposes of the 10% value test, our proportionate share of the
assets of a partnership is our proportionate interest in any
securities issued by the partnership, without regard to the
securities described in the last two bullet points
above.
As described above, we may, on an opportunistic basis, invest in
mortgage loans and mezzanine loans. Although we expect that our
investments in mezzanine loans will generally be treated as real
estate assets, we anticipate that the mezzanine loans in which we
invest may not meet all the requirements of the safe harbor in IRS
Revenue Procedure 2003-65. Thus no assurance can be provided that
the IRS will not challenge our treatment of mezzanine loans as real
estate assets. Additionally, we expect that any investments in
mortgage loans will generally be treated as real estate assets.
However, for purposes of the asset tests, if the outstanding
principal balance of a mortgage loan exceeds the fair market value
of the real property (including, for loans secured by real property
and personal property where the fair market value of the personal
property is less than 15% of the total fair market value of all
such property, such personal property) securing the loan, a portion
of such loan likely will not be a qualifying real estate asset. We
intend to invest in mortgage loans and mezzanine loans in a manner
that will enable us to continue to satisfy the asset and gross
income test requirements.
We will monitor the status of our assets for purposes of the
various asset tests and will manage our portfolio in order to
comply at all times with such tests. If we fail to satisfy the
asset tests at the end of a calendar quarter, we will not lose our
REIT qualification if:
•we
satisfied the asset tests at the end of the preceding calendar
quarter; and
•the
discrepancy between the value of our assets and the asset test
requirements arose from changes in the market values of our assets
and was not wholly or partly caused by the acquisition of one or
more non-qualifying assets.
If we did not satisfy the condition described in the second item
above, we still could avoid disqualification by eliminating any
discrepancy within 30 days after the close of the calendar
quarter in which it arose.
In the event that we violate the 5% asset test, the 10% vote test
or the 10% value test described above, we will not lose our REIT
qualification if (i) the failure is de minimis (up to the
lesser of 1% of our assets or $10 million) and (ii) 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
(i) 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, (ii) we file a description of each asset
causing the failure with the IRS and (3) pay a tax equal to
the greater of $50,000 or the highest corporate tax rate multiplied
by the net income from the nonqualifying assets during the period
in which we failed to satisfy the asset tests.
We believe that the assets that we hold will satisfy the foregoing
asset test requirements. However, we have not obtained and will not
obtain independent appraisals to support our conclusions as to the
value of our assets and securities, or the real estate collateral
for the mortgage or mezzanine loans that support any mortgage or
mezzanine loans. Moreover, the values of some assets may not be
susceptible to a precise determination. As a result, there can be
no assurance that the IRS will not contend that our ownership of
assets violates one or more of the asset tests applicable to
REITs.
Distribution Requirements
Each taxable year, we must distribute dividends, other than capital
gain dividends and deemed distributions of retained capital gain,
to our stockholders in an aggregate amount at least equal
to:
•the
sum of
•90%
of our “REIT taxable income,” computed without regard to the
dividends paid deduction and our net capital gain or
loss; and
•90%
of our after-tax net income, if any, from foreclosure property,
minus
•the
excess of the sum of certain items of non-cash income over 5% of
our “REIT taxable income.”
We must pay such distributions in the taxable year to which they
relate, or in the following taxable year if either (i) we
declare the distribution before we timely file our federal income
tax return for the year and pay the distribution on or before the
first regular dividend payment date after such declaration or
(ii) we declare the distribution in October, November or
December of the taxable year, payable to stockholders of record on
a specified day in any such month, and we actually pay the dividend
before the end of January of the following year. The distributions
under clause (i) are taxable to the stockholders in the year
in which paid, and the distributions in clause (ii) are
treated as paid on December 31st of the prior taxable
year to the extent of our
earnings and profits. In both instances, these distributions relate
to our prior taxable year for purposes of the 90% distribution
requirement.
To the extent we are not a “publicly offered REIT,” in order for
our distributions to be counted as satisfying the annual
distribution requirement for REITs and to provide us with the
REIT-level tax deduction, such distributions must not have been
“preferential dividends.” A dividend is not a preferential dividend
if that distribution is (i) pro rata among all outstanding shares
within a particular class and (ii) in accordance with the
preferences among different classes of shares as set forth in our
organizational documents. We currently are, and expect to continue
to be, a “publicly offered REIT.”
We will pay 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:
i.85%
of our REIT ordinary income for such year,
ii.95%
of our REIT capital gain income for such
year, and
iii.any
undistributed taxable income from prior periods,
we will incur a 4% nondeductible excise tax on the excess of such
required distribution over the amounts we actually
distribute.
We may elect to retain and pay income tax on the net long-term
capital gain we receive in a taxable year. If we so elect, we will
be treated as having distributed any such retained amount for
purposes of the 4% nondeductible excise tax described above. We
intend to make timely distributions sufficient to satisfy the
annual distribution requirements and to avoid corporate income tax
and the 4% nondeductible excise tax.
It is possible that, from time to time, we may experience timing
differences between the actual receipt of income and actual payment
of deductible expenses and the inclusion of that income and
deduction of such expenses in arriving at our REIT taxable income.
For example, we may not deduct recognized capital losses from our
“REIT taxable income.” Further, it is possible that, from time to
time, we may be allocated a share of net capital gain attributable
to the sale of depreciated property that exceeds our allocable
share of cash attributable to that sale.
In addition, a taxpayer’s net interest expense deduction may be
limited to 30% of the sum of adjusted taxable income, business
interest and certain other amounts. Adjusted taxable income does
not include items of income or expense not allocable to a trade or
business, business interest or expense, the deduction for qualified
business income or net operating losses. Disallowed interest
expense is carried forward indefinitely (subject to special rules
for partnerships). A “real property trade or business” may elect
out of this interest limit so long as it uses a 40-year recovery
period for nonresidential real property, a 30-year recovery period
for residential real property and a 20-year recovery period for
related improvements for purposes of determining depreciation
deductions. For this purpose, a real property trade or business is
any real property development, redevelopment, construction,
reconstruction, acquisition, conversion, rental, operating,
management, leasing or brokerage trade or business. We believe this
definition encompasses our business and thus will allow us the
option of electing out of the limits on interest deductibility
should we determine it is prudent to do so.
As a result of the foregoing, we may have less cash than is
necessary to distribute taxable income sufficient to avoid
corporate income tax and the excise tax imposed on certain
undistributed income or even to meet the 90% distribution
requirement. In such a situation, we may need to borrow funds or,
if possible, pay taxable dividends of our stock or debt
securities.
We may satisfy the REIT annual distribution requirements by making
taxable distributions of our stock or debt securities. The IRS has
issued Revenue Procedure 2017-45 authorizing “publicly offered
REITs” to pay dividends in cash or stock, at the shareholder’s
election. Pursuant to Revenue Procedure 2017-45, the IRS will treat
the distribution of stock pursuant to an elective cash/stock
dividend as a distribution of property under Section 301 of the
Code (i.e., a dividend), as long as at least 20% of the total
dividend is available in cash and certain other parameters detailed
in the Revenue Procedure are satisfied. We currently are, and
expect to continue to be, a “publicly offered REIT.” Although we
currently do not intend to make taxable dividends payable in cash
and stock, if in the future we choose to pay dividends in our
stock, our stockholders may be required to pay tax in excess of the
cash that they receive.
Under certain circumstances, we may be able to correct a failure to
meet the distribution requirement for a year by paying “deficiency
dividends” to our stockholders in a later year. We may include such
deficiency dividends in our deduction
for dividends paid for the earlier year. Although we may be able to
avoid income tax on amounts distributed as deficiency dividends, we
will be required to pay interest to the IRS based upon the amount
of any deduction we take for deficiency dividends.
Recordkeeping Requirements
We must maintain certain records in order to qualify as a REIT. In
addition, to avoid a monetary penalty, we must request on an annual
basis information from our stockholders designed to disclose the
actual ownership of our outstanding stock. We intend to comply with
these requirements.
Failure to Qualify
If we fail to satisfy one or more requirements for REIT
qualification, other than the gross income tests and the asset
tests (for which the cure provisions are described above), we could
avoid disqualification if our failure is due to reasonable cause
and not to willful neglect and we pay a penalty of $50,000 for each
such failure. In addition, there are relief provisions for a
failure of the gross income tests and asset tests, as described in
“- Gross Income Tests” and “- Asset Tests.”
If we fail to qualify as a REIT in any taxable year, and no relief
provision applies, we would be subject to federal income tax 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. In
fact, we would not be required to distribute any amounts to
stockholders in that year. In such event, to the extent of our
current and accumulated earnings and profits, all distributions to
stockholders would be taxable as dividend income. Subject to
certain limitations, corporate stockholders might be eligible for
the dividends received deduction and stockholders taxed at
individual rates may be eligible for a reduced federal income tax
rate on such dividends. Unless we qualified for relief under
specific statutory provisions, we also would be disqualified from
taxation as a REIT for the four taxable years following the year
during which we ceased to qualify as a REIT. We cannot predict
whether in all circumstances we would qualify for such statutory
relief.
Taxation of Taxable U.S. Stockholders
As used herein, the term “U.S. stockholder” means a beneficial
owner of our stock that for federal income tax purposes
is:
•a
citizen or resident of the United States;
•a
corporation (including an entity treated as a corporation for
federal income tax purposes) created or organized in or under the
laws of the United States, any of its states or the District of
Columbia;
•an
estate whose income is subject to federal income taxation
regardless of its source; or
•any
trust if (i) a U.S. court is able to exercise primary
supervision over the administration of such trust and one or more
U.S. persons have the authority to control all substantial
decisions of the trust or (ii) it has a valid election in
place to be treated as a U.S. person.
If a partnership, entity or arrangement treated as a partnership
for federal income tax purposes holds our 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 our stock, you are
urged to consult your tax advisor regarding the consequences of the
ownership and disposition of our stock by the
partnership.
As long as we qualify as a REIT, a taxable U.S. stockholder
must generally take into account as ordinary income distributions
made out of our current or accumulated earnings and profits that we
do not designate as capital gain dividends or retained long-term
capital gain. For purposes of determining whether a distribution is
made from our current or accumulated earnings and profits, our
earnings and profits will be allocated first to our preferred stock
dividends, if any, and then to our common stock dividends.
Individuals, trusts and estates generally are entitled to a
deduction in an amount equal to 20% of the “qualified REIT
dividends” (i.e., REIT dividends other than capital gain dividends
and portions of REIT dividends designated as “qualified dividend
income,” which in each case are already eligible for capital gain
tax rates) they receive. The deduction for qualified REIT dividends
is not subject to the wage and property basis limits that apply to
other types of “qualified business income.” However, to qualify for
this deduction, the U.S. stockholder receiving such dividends must
hold the dividend-paying REIT stock for at least 46 days (taking
into account certain special holding period rules) of the 91-day
period beginning 45 days
before the stock becomes ex-dividend and cannot be under an
obligation to make related payments with respect to a position in
substantially similar or related property. Without further
legislation, this deduction will sunset after 2025.
A U.S. stockholder will not qualify for the dividends received
deduction generally available to corporations. Additionally,
because we are not generally subject to federal income tax on the
portion of our REIT taxable income distributed to our stockholders
(see “-Taxation of Our Company” above), our dividends generally
will not be eligible for the reduced federal income tax rate on
“qualified dividend income” (generally, dividends paid by domestic
C corporations and certain qualified foreign corporations to U.S.
stockholders that are taxed at individual rates). As a result, our
ordinary REIT dividends will be taxed at the higher tax rate
applicable to ordinary income. The maximum income tax rate for
qualified dividend income received by U.S. stockholders taxed at
individual rates is currently 20%, plus the 3.8% Medicare tax on
net investment income, if applicable. By contrast, the maximum
federal income tax rates on ordinary income and REIT dividend
income are currently 37% and 29.6%, respectively, plus the 3.8%
Medicare tax on net investment income, if applicable.
However, the reduced federal income tax rate for qualified dividend
income will apply to our ordinary REIT dividends, if any, that are
(i) attributable to dividends received by us from non-REIT
corporations, such as our TRS and (ii) attributable to income upon
which we have paid U.S. federal corporate income tax (e.g., to the
extent that we distribute less than 100% of our taxable income). In
general, to qualify for the reduced tax rate on qualified dividend
income, a stockholder must hold our stock for more than 60 days
during the 121-day period beginning on the date that is 60 days
before the date on which our stock becomes ex-dividend.
Individuals, trusts and estates whose income exceeds certain
thresholds are also subject to an additional 3.8% Medicare tax on
dividends received from us. U.S. stockholders are urged to consult
their tax advisors regarding the implications of the additional
Medicare tax resulting from an investment in our
stock.
A U.S. stockholder generally will take into account as
long-term capital gain any distributions that we designate as
capital gain dividends without regard to the period for which the
U.S. stockholder has held our stock. We generally will
designate our capital gain dividends as either 20% or 25% rate
distributions. See “-Capital Gains and Losses.” A corporate
U.S. stockholder, however, may be required to treat up to 20%
of certain capital gain dividends as ordinary income.
We may elect to retain and pay income tax on the net long-term
capital gain that we receive in a taxable year. In that case, to
the extent that we designate such amount in a timely notice to such
stockholder, a U.S. stockholder would be taxed on its
proportionate share of our undistributed long-term capital gain.
The U.S. stockholder would receive a credit for its
proportionate share of the tax we paid. The U.S. stockholder
would increase the basis in its stock by the amount of its
proportionate share of our undistributed long-term capital gain,
minus its share of the tax we paid.
A U.S. stockholder will not incur tax on a distribution in
excess of our current and accumulated earnings and profits if the
distribution does not exceed the adjusted basis of the
U.S. stockholder’s stock. Instead, the distribution will
reduce the adjusted basis of such stock. A U.S. stockholder
will recognize a distribution in excess of both our current and
accumulated earnings and profits and the U.S. stockholder’s
adjusted tax basis in his or her stock as long-term capital gain,
or short-term capital gain if the stock has been held for one year
or less, assuming the stock is a capital asset in the hands of the
U.S. stockholder. In addition, if we declare a distribution in
October, November or December of any year that is payable to a
U.S. stockholder of record on a specified date in any such
month, such distribution shall be treated as both paid by us and
received by the U.S. stockholder on December 31 of such year
to the extent of our earnings and profits for 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 our stock will not be treated as passive
activity income and, therefore, stockholders generally will not be
able to apply any “passive activity losses,” such as losses from
certain types of limited partnerships in which the stockholder is a
limited partner, against such income. In addition, taxable
distributions from us and gain from the disposition of our stock
generally will be treated as investment income for purposes of the
investment interest limitations. We will notify stockholders after
the close of our taxable year as to the portions of the
distributions attributable to that year that constitute ordinary
income, return of capital and capital gain.
Taxation of U.S. Stockholders on the Disposition of Our
Stock
A U.S. stockholder who is not a dealer in securities must
generally treat any gain or loss realized upon a taxable
disposition of our stock as long-term capital gain or loss if the
U.S. stockholder has held our stock for more than one year and
otherwise as short-term capital gain or loss. In general, a
U.S. stockholder will realize gain or loss in an amount equal
to the difference between the sum of the fair market value of any
property and the amount of cash received in such disposition and
the U.S. stockholder’s adjusted tax basis. A stockholder’s
adjusted tax basis generally will equal the U.S. stockholder’s
acquisition
cost, increased by the excess of net capital gains deemed
distributed to the U.S. stockholder (discussed above) less tax
deemed paid on such gains and reduced by any returns of capital.
However, a U.S. stockholder must treat any loss upon a sale or
exchange of stock held by such stockholder for six months or less
as a long-term capital loss to the extent of capital gain dividends
and any other actual or deemed distributions from us that such
U.S. stockholder treats as long-term capital gain. All or a
portion of any loss that a U.S. stockholder realizes upon a
taxable disposition of our stock may be disallowed if the
U.S. stockholder purchases other stock within 30 days
before or after the disposition.
Taxation of U.S. Stockholders on a Conversion of Our Preferred
Stock
Except as provided below, (i) a U.S. stockholder
generally will not recognize gain or loss upon the conversion of
preferred stock into our common stock, and (ii) a
U.S. stockholder’s basis and holding period in our common
stock received upon conversion generally will be the same as those
of the converted preferred stock (but the basis will be reduced by
the portion of adjusted tax basis allocated to any fractional share
exchanged for cash). Any common stock received in a conversion that
are attributable to accumulated and unpaid dividends on the
converted preferred stock will be treated as a distribution that is
potentially taxable as a dividend. Cash received upon conversion in
lieu of a fractional share generally will be treated as a payment
in a taxable exchange for such fractional share, and gain or loss
will be recognized on the receipt of cash in an amount equal to the
difference between the amount of cash received and the adjusted tax
basis allocable to the fractional share deemed exchanged. This gain
or loss will be long-term capital gain or loss if the
U.S. stockholder has held our preferred stock for more than
one year at the time of conversion. U.S. stockholders are urged to
consult with their tax advisors regarding the federal income tax
consequences of any transaction by which such holder exchanges
shares received on a conversion of preferred stock for cash or
other property.
Taxation of U.S. Stockholders on a Redemption of Our Preferred
Stock
A redemption of our preferred stock will be treated under
Section 302 of the Code as a distribution that is taxable as
dividend income (to the extent of our current or accumulated
earnings and profits), unless the redemption satisfies certain
tests set forth in Section 302(b) of the Code enabling the
redemption to be treated as a sale of the preferred stock (in which
case the redemption will be treated in the same manner as a sale
described above in “- Taxation of U.S. Stockholders on
the Disposition of Our Stock”). The redemption will satisfy such
tests if it (i) is “substantially disproportionate” with
respect to the U.S. stockholder’s interest in our stock,
(ii) results in a “complete termination” of the
U.S. stockholder’s interest in all of our classes of stock or
(iii) is “not essentially equivalent to a dividend” with
respect to the stockholder, all within the meaning of
Section 302(b) of the Code. In determining whether any of
these tests have been met, stock considered to be owned by the
holder by reason of certain constructive ownership rules set forth
in the Code, as well as stock actually owned, generally must be
taken into account. Because the determination as to whether any of
the three alternative tests of Section 302(b) of the Code
described above will be satisfied with respect to any particular
U.S. stockholder of our preferred stock depends upon the facts
and circumstances at the time that the determination must be made,
prospective investors are urged to consult their tax advisors to
determine such tax treatment. If a redemption of preferred stock
does not meet any of the three tests described above, the
redemption proceeds will be treated as a taxable as a dividend, as
described above “- Taxation of Taxable
U.S. Stockholders.” In that case, a U.S. stockholder’s
adjusted tax basis in the redeemed preferred stock will be
transferred to such U.S. stockholder’s remaining stock
holdings in us. If the U.S. stockholder does not retain any of
our stock, such basis could be transferred to a related person that
holds our stock or it may be lost.
Under previously proposed Treasury regulations, if any portion of
the amount received by a U.S. stockholder on a redemption of
any class of our preferred stock were treated as a distribution
with respect to our stock but not as a taxable dividend, then such
portion would be allocated to all shares of the redeemed class of
stock held by the redeemed stockholder just before the redemption
on a pro-rata, share-by-share, basis. The amount applied to each
share would first reduce the redeemed U.S. stockholder’s basis in
that share and any excess after the basis is reduced to zero would
result in taxable gain. If the redeemed stockholder had different
bases in its stock, then the amount allocated could reduce some of
the basis in certain shares while reducing all the basis and giving
rise to taxable gain in others. Thus, the redeemed U.S. stockholder
could have gain even if such U.S. stockholder’s basis in all its
stock of the redeemed class exceeded such portion.
The previously proposed Treasury regulations would permit the
transfer of basis in the redeemed preferred stock to the redeemed
U.S. stockholder’s remaining, unredeemed preferred stock of the
same class (if any), but not to any other class of stock held
(directly or indirectly) by the redeemed U.S. stockholder. Instead,
any unrecovered basis in the redeemed preferred stock would be
treated as a deferred loss to be recognized when certain conditions
are satisfied. On March 28, 2019, these proposed regulations
were withdrawn. As a result, the treatment governing adjustments to
the basis of a U.S. holder’s preferred stock with respect to
amounts treated as a distribution with respect to preferred stock,
but not as a dividend, as well as the treatment of the basis of any
unredeemed shares, may be less certain.
Capital Gains and Losses
A taxpayer generally must hold a capital asset for more than one
year for gain or loss derived from its sale or exchange to be
treated as long-term capital gain or loss. The highest marginal
individual U.S. federal income tax rate currently is 37%. The
maximum U.S. federal income tax rate on long-term capital gain
applicable to taxpayers taxed at individual rates is 20% for sales
and exchanges of assets held for more than one year. The maximum
U.S. federal income tax rate on long-term capital gain from the
sale or exchange of “Section 1250 property,” or depreciable real
property, is 25%, which applies to the lesser of the total amount
of the gain or the accumulated depreciation on the Section 1250
property. In addition, individuals, estates or trusts whose income
exceeds certain thresholds are also subject to a 3.8% Medicare tax
on gain from the sale of our stock.
With respect to distributions that we designate as capital gain
dividends and any retained capital gain that we are deemed to
distribute, we generally may designate whether such a distribution
is taxable to our stockholders taxed at individual rates at a 20%
or 25% rate. Thus, the tax rate differential between capital gain
and ordinary income for those taxpayers may be significant. In
addition, the characterization of income as capital gain or
ordinary income may affect the deductibility of capital losses. A
non-corporate taxpayer may deduct capital losses not offset by
capital gains against its ordinary income only up to a maximum
annual amount of $3,000 ($1,500 for married individuals filing
separate returns). A non-corporate taxpayer may carry forward
unused capital losses indefinitely. A corporate taxpayer must pay
tax on its net capital gain at ordinary U.S. federal corporate
income tax rates. A corporate taxpayer may deduct capital losses
only to the extent of capital gains, with unused losses being
carried back three years and forward five years.
Taxation of Tax-Exempt Stockholders
Tax-exempt entities, including qualified employee pension and
profit sharing trusts and individual retirement accounts, generally
are exempt from federal income taxation. However, they are subject
to taxation on their unrelated business taxable income (“UBTI”).
Although many investments in real estate generate UBTI, the IRS has
issued a ruling that dividend distributions from a REIT to an
exempt employee pension trust do not constitute UBTI so long as the
exempt employee pension trust does not otherwise use the stock
interest in the REIT in an unrelated trade or business of the
pension trust. Based on that ruling, amounts that we distribute to
tax-exempt stockholders generally should not constitute UBTI.
However, if a tax-exempt stockholder were to finance its
acquisition of our stock with debt, a portion of the income that it
receives from us would constitute UBTI pursuant to the
“debt-financed property” rules. Moreover, social clubs, voluntary
employee benefit associations, supplemental unemployment benefit
trusts and qualified group legal services plans that are exempt
from taxation under special provisions of the federal income tax
laws are subject to different UBTI rules, which generally will
require them to characterize distributions that they receive from
us as UBTI. Finally, in certain circumstances, a qualified employee
pension or profit sharing trust that owns more than 10% of our
stock must treat a percentage of the dividends that it receives
from us as UBTI. Such percentage is equal to the gross income we
derive from an unrelated trade or business, determined as if we
were a pension trust, divided by our total gross income for the
year in which we pay the dividends. That rule applies to a pension
trust holding more than 10% of our stock only if:
•the
percentage of our dividends that the tax-exempt trust must treat as
UBTI is at least 5%;
•we
qualify as a REIT by reason of the modification of the rule
requiring that no more than 50% of our stock be owned by five or
fewer individuals that allows the beneficiaries of the pension
trust to be treated as holding our stock in proportion to their
actuarial interests in the pension trust; and
•either:
•one
pension trust owns more than 25% of the value of our
stock; or
•a
group of pension trusts individually holding more than 10% of the
value of our stock collectively owns more than 50% of the value of
our stock.
Taxation of Non-U.S. Stockholders
The term “non-U.S. stockholder” means a beneficial owner of
our stock that is not a U.S. stockholder or a partnership (or
entity or arrangement treated as a partnership for federal income
tax purposes). The rules governing federal income taxation of
nonresident alien individuals, foreign corporations, foreign
partnerships, and other foreign stockholders are complex. This
section is only a summary of such rules.
We
urge non-U.S. stockholders to consult their tax advisors to
determine
the impact of federal, state, and local income tax laws on the
purchase, ownership
and sale of our stock, including any reporting
requirements.
A non-U.S. stockholder that receives a distribution that is
not attributable to gain from our sale or exchange of a “United
States real property interest,” or USRPI, as defined below, and
that we do not designate as a capital gain dividend or retained
capital gain will recognize ordinary income to the extent that we
pay such distribution out of our current or accumulated earnings
and profits. A withholding tax equal to 30% of the gross amount of
the distribution ordinarily will apply to such distribution unless
an applicable tax treaty reduces or eliminates the tax. However, if
a distribution is treated as effectively connected with the
non-U.S. stockholder’s conduct of a U.S. trade or
business (conducted through a U.S. permanent establishment, where
applicable), the non-U.S. stockholder generally will be
subject to federal income tax on the distribution at graduated
rates, in the same manner as U.S. stockholders are taxed with
respect to such distribution, and a non-U.S. stockholder that
is a corporation also may be subject to the 30% branch profits tax
with respect to that distribution. We plan to withhold
U.S. income tax at the rate of 30% on the gross amount of any
such distribution paid to a non-U.S. stockholder
unless:
•a
lower treaty rate applies and the non-U.S. stockholder files
an IRS Form W-8BEN or IRS Form W-BEN-E, as applicable,
evidencing eligibility for that reduced rate with us;
•the
non-U.S. stockholder files an IRS Form W-8ECI with us
claiming that the distribution is effectively connected income;
or
•the
distribution is treated as attributable to a sale of a USRPI under
FIRPTA (discussed below).
A non-U.S. stockholder will not incur tax on a distribution in
excess of our current and accumulated earnings and profits if the
excess portion of such distribution does not exceed the adjusted
basis of its stock. Instead, the excess portion of such
distribution will reduce the adjusted basis of such stock. A
non-U.S. stockholder will be subject to tax on a distribution
that exceeds both our current and accumulated earnings and profits
and the adjusted basis of its stock, if the
non-U.S. stockholder otherwise would be subject to tax on gain
from the sale or disposition of its stock, as described below.
Because we generally cannot determine at the time we make a
distribution whether the distribution will exceed our current and
accumulated earnings and profits, we normally will withhold tax on
the entire amount of any distribution at the same rate as we would
withhold on a dividend. However, by filing a U.S. tax return, a
non-U.S. stockholder may claim a refund of amounts that we
withhold if we later determine that a distribution in fact exceeded
our current and accumulated earnings and profits. We must withhold
15% of any distribution that exceeds our current and accumulated
earnings and profits. Consequently, although we intend to withhold
at a rate of 30% on the entire amount of any distribution, to the
extent that we do not do so, we will withhold at a rate of 15% on
any portion of a distribution not subject to withholding at a rate
of 30%.
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 a USRPI under the Foreign Investment in
Real Property Act of 1980 (“FIRPTA”). A USRPI includes certain
interests in real property and stock in certain corporations at
least 50% of whose assets consist of USRPIs (“United States real
property holding corporations,” or “USRPHCs”). Under FIRPTA,
subject to exceptions discussed below, a non-U.S. stockholder is
taxed on distributions attributable to gain from sales of USRPIs as
if such gain were effectively connected with a U.S. business of the
non-U.S. stockholder. A non-U.S. stockholder thus would be taxed on
such a distribution at the normal capital gains rates applicable to
U.S. stockholders, subject to applicable alternative minimum tax
and a special alternative minimum tax in the case of a nonresident
alien individual. A non-U.S. corporate stockholder not entitled to
treaty relief or exemption also may be subject to the 30% branch
profits tax on such a distribution. We would be required to
withhold 21% of any distribution that we could designate as a
capital gain dividend. A non-U.S. stockholder may receive a credit
against its tax liability for the amount we withhold.
However, capital gain distributions on our stock 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 (i) the applicable class of our stock is regularly traded
on an established securities market in the United States and (ii)
the non-U.S. stockholder did not own more than 10% of that
class of stock at any time during the one-year period preceding the
distribution. As a result, non-U.S. stockholders owning 10% or
less of a regularly traded class of our 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. We believe our common stock currently is treated as
regularly traded on an established securities market in the United
States. If the applicable class of stock is not regularly traded on
an established securities market in the United States or the
non-U.S. stockholder owned more than 10% of the applicable
class of 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. Moreover, if a
non-U.S. stockholder disposes of the stock during the 30-day
period preceding the ex-dividend date of a dividend, 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 the stock within 61 days of the first day of
the 30-day period described above, and any portion of such dividend
payment would, but for the disposition, be treated as a USRPI
capital gain to such non-U.S. stockholder, then
such
non-U.S. stockholder shall be treated as having USRPI capital
gain in an amount that, but for the disposition, would have been
treated as USRPI capital gain.
Although the law is not clear on the matter, it appears that
amounts we designate as retained capital gains in respect of our
stock held by U.S. stockholders generally should be treated
with respect to non-U.S. stockholders in the same manner as
actual distributions by us of capital gain dividends. Under this
approach, a non-U.S. stockholder would be able to offset as a
credit against its federal income tax liability resulting from its
proportionate share of the tax paid by us on such retained capital
gains, and to receive from the IRS a refund to the extent of the
non-U.S. stockholder’s proportionate share of such tax paid by
us exceeds its actual federal income tax liability, provided that
the non-U.S. stockholder furnishes required information to the
IRS on a timely basis.
Non-U.S. stockholders could incur tax under FIRPTA with respect to
gain realized upon a disposition of our stock if we are a USRPHC
during a specified testing period. If at least 50% of a REIT’s
assets are USRPIs, then the REIT will be a USRPHC. We believe that
we are and will continue to be a USRPHC based on our asset mix and
investment strategy. However, despite our status as a USRPHC, a
non-U.S. stockholder generally would not incur tax under FIRPTA on
gain from the sale of our stock if we are a “domestically
controlled qualified investment entity.” A domestically controlled
qualified investment entity includes a REIT in which, at all times
during a specified testing period, less than 50% in value of its
stock are held directly or indirectly by non-U.S. stockholders. We
believe that we currently are a domestically controlled qualified
investment entity, but because our common stock is publicly traded,
we cannot assure you that we are or will be a domestically
controlled qualified investment entity in the future. If the
applicable class of our stock is regularly traded on an established
securities market, an additional exception to the tax under FIRPTA
is available with respect to that class of stock, even if we do not
qualify as a domestically controlled qualified investment entity at
the time the non-U.S. stockholder sells the stock. Under that
exception, the gain from such a sale by such a non-U.S. stockholder
will not be subject to tax under FIRPTA if:
•the
applicable class of our stock is treated as being regularly traded
under applicable U.S. Treasury regulations on an established
securities market; and
•the
non-U.S. stockholder owned, actually or constructively, 10% or
less of the applicable class of our stock at all times during a
specified testing period.
As noted above, we believe that our common stock is currently
treated as being regularly traded on an established securities
market.
If the gain on the sale of our stock were taxed under FIRPTA, a
non-U.S. stockholder would be taxed on that gain in the same
manner as U.S. stockholders, subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals. Furthermore, a
non-U.S. stockholder generally will incur tax on gain not
subject to FIRPTA if:
•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 treatment as
U.S. stockholders with respect to such
gain; or
•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 United States, in which
case the non-U.S. stockholder will incur a 30% tax on his or
her capital gains.
Qualified Shareholders.
Subject to the exception discussed below, any distribution to a
“qualified shareholder” who holds REIT stock directly or indirectly
(through one or more partnerships) will not be subject to U.S. tax
as income effectively connected with a U.S. trade or business and
thus will not be subject to special withholding rules under FIRPTA.
While a “qualified shareholder” will not be subject to FIRPTA
withholding on REIT distributions, certain investors of a
“qualified shareholder” (i.e., non-U.S. persons who hold interests
in the “qualified shareholder” (other than interests solely as a
creditor), and hold more than 10% of the stock of such REIT
(whether or not by reason of the investor’s ownership in the
“qualified shareholder”)) may be subject to FIRPTA
withholding.
In addition, a sale of our stock by a “qualified shareholder” who
holds such shares directly or indirectly (through one or more
partnerships) will not be subject to federal income taxation under
FIRPTA. As with distributions, certain investors of a “qualified
shareholder” (i.e., non-U.S. persons who hold interests in the
“qualified shareholder” (other than interests solely as a
creditor), and hold more than 10% of the stock of such REIT
(whether or not by reason of the investor’s ownership in the
“qualified shareholder”)) may be subject to FIRPTA withholding on a
sale of our shares.
A “qualified shareholder” is a foreign person that (i) either is
eligible for the benefits of a comprehensive income tax treaty
which includes an exchange of information program and whose
principal class of interests is listed and regularly traded on one
or more recognized stock exchanges (as defined in such
comprehensive income tax treaty), or is a foreign partnership that
is created or organized under foreign law as a limited partnership
in a jurisdiction that has an agreement for the exchange of
information with respect to taxes with the United States and has a
class of limited partnership units representing greater than 50% of
the value of all the partnership units that is regularly traded on
the NYSE or NASDAQ markets, (ii) is a qualified collective
investment vehicle (defined below), and (iii) maintains records on
the identity of each person who, at any time during the foreign
person’s taxable year, is the direct owner of 5% or more of the
class of interests or units (as applicable) described in (i),
above.
A qualified collective investment vehicle is a foreign person that
(i) would be eligible for a reduced rate of withholding under the
comprehensive income tax treaty described above, even if such
entity holds more than 10% of the stock of such REIT, (ii) is
publicly traded, is treated as a partnership under the Code, is a
withholding foreign partnership, and would be treated as a “United
States real property holding corporation” if it were a domestic
corporation, or (iii) is designated as such by the Secretary of the
Treasury and is either (a) fiscally transparent within the meaning
of Section 894 of the Code, or (b) required to include dividends in
its gross income, but is entitled to a deduction for distributions
to its investors.
Qualified Foreign Pension Funds.
Any distribution to a “qualified foreign pension fund” (or an
entity all of the interests of which are held by a “qualified
foreign pension fund”) who holds REIT stock directly or indirectly
(through one or more partnerships) will not be subject to U.S. tax
as income effectively connected with a U.S. trade or business and
thus will not be subject to special withholding rules under FIRPTA.
In addition, a sale of our stock by a “qualified foreign pension
fund” that holds such shares directly or indirectly (through one or
more partnerships) will not be subject to federal income taxation
under FIRPTA.
A qualified foreign pension fund is any trust, corporation, or
other organization or arrangement (i) which is created or organized
under the law of a country other than the United States, (ii) which
is established to provide retirement or pension benefits to
participants or beneficiaries that are current or former employees
(or persons designated by such employees) of one or more employers
in consideration for services rendered, (iii) which does not have a
single participant or beneficiary with a right to more than 5% of
its assets or income, (iv) which is subject to government
regulation and provides annual information reporting about its
beneficiaries to the relevant tax authorities in the country in
which it is established or operates, and (v) with respect to which,
under the laws of the country in which it is established or
operates, (a) contributions to such organization or arrangement
that would otherwise be subject to tax under such laws are
deductible or excluded from the gross income of such entity or
taxed at a reduced rate, or (b) taxation of any investment income
of such organization or arrangement is deferred or such income is
taxed at a reduced rate.
FATCA Withholding
A U.S. withholding tax at a 30% rate will be imposed on dividends
paid on our stock received by certain non-U.S. stockholders if
certain disclosure requirements related to U.S. accounts or
ownership are not satisfied. If payment of withholding taxes is
required, non-U.S. stockholders that are otherwise eligible for an
exemption from, or reduction of, U.S. withholding taxes with
respect to such dividends will be required to seek a refund from
the IRS to obtain the benefit of such exemption or reduction. We
will not pay any additional amounts in respect of any amounts
withheld.
Information Reporting Requirements and Backup Withholding,
Shares Held Offshore
We will report to our stockholders and to the IRS the amount of
distributions we pay during each calendar year, and the amount of
tax we withhold, if any. Under the backup withholding rules, a
stockholder may be subject to backup withholding at a rate of 24%
with respect to distributions unless the holder:
•is
a corporation or qualifies for certain other exempt categories and,
when required, demonstrates this fact; or
•provides
a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with the
applicable requirements of the backup withholding
rules.
A stockholder who does not provide us with its correct taxpayer
identification number also may be subject to penalties imposed by
the IRS. Any amount paid as backup withholding will be creditable
against the stockholder’s income tax liability. In addition, we may
be required to withhold a portion of capital gain distributions to
any stockholders who fail to certify their non-foreign status to
us.
Backup withholding will generally not apply to payments of
dividends made by us or our paying agents, in their capacities as
such, to a non-U.S. stockholder provided that the
non-U.S. stockholder furnishes to us or our paying agent the
required certification as to its non-U.S. status, such as
providing a valid IRS Form W-8BEN-E, W-8BEN or W-8ECI, or
certain other requirements are met. Notwithstanding the foregoing,
backup withholding may apply if either we or our paying agent has
actual knowledge, or reason to know, that the holder is a
U.S. person that is not an exempt recipient. Payments of the
net proceeds from a disposition or a redemption effected outside
the U.S. by a non-U.S. stockholder made by or through a
foreign office of a broker generally will not be subject to
information reporting or backup withholding. However, information
reporting (but not backup withholding) generally will apply to such
a payment if the broker has certain connections with the
U.S. unless the broker has documentary evidence in its records
that the beneficial owner is a non-U.S. stockholder and
specified conditions are met or an exemption is otherwise
established. Payment of the net proceeds from a disposition by a
non-U.S. stockholder of our stock made by or through the
U.S. office of a broker is generally subject to information
reporting and backup withholding unless the
non-U.S. stockholder certifies under penalties of perjury that
it is not a U.S. person and satisfies certain other
requirements, or otherwise establishes an exemption from
information reporting and backup withholding.
Backup withholding is not an additional tax. Any amounts withheld
under the backup withholding rules may be refunded or credited
against the stockholder’s federal income tax liability if certain
required information is furnished to the IRS. Stockholders are
urged consult their tax advisors regarding application of backup
withholding to them and the availability of, and procedure for
obtaining an exemption from, backup withholding.
A U.S. withholding tax at a 30% rate will be imposed on
dividends paid on our stock received by U.S. stockholders who
own their stock through foreign accounts or foreign intermediaries
if certain disclosure requirements related to U.S. accounts or
ownership are not satisfied. We will not pay any additional amounts
in respect of any amounts withheld.
Other Tax Consequences
Tax Aspects of Our Investments in the Operating Partnership and
Subsidiary Partnerships.
The following discussion summarizes certain material U.S. federal
income tax considerations applicable to our direct or indirect
investment in the Operating Partnership and any subsidiary
partnerships or limited liability companies we form or acquire that
are treated as partnerships for federal income tax purposes, each
individually referred to as a “Partnership” and, collectively, as
“Partnerships.” The following discussion does not cover state or
local tax laws or any federal tax laws other than income tax
laws.
Classification as Partnerships.
We are entitled to include in our income our distributive share of
each Partnership’s income and to deduct our distributive share of
each Partnership’s losses only if such Partnership is classified
for federal income tax purposes as a partnership (or an entity that
is disregarded for federal income tax purposes if the entity has
only one owner or member), rather than as a corporation or an
association taxable as a corporation. An organization with at least
two owners or members will be classified as a partnership, rather
than as a corporation, for federal income tax purposes if
it:
•is
treated as a partnership under the Treasury regulations relating to
entity classification (the “check-the-box regulations”);
and
•is
not a “publicly traded” partnership.
Under the check-the-box regulations, an unincorporated entity with
at least two owners or members may elect to be classified either as
an association taxable as a corporation or as a partnership. If
such an entity does not make an election, it generally will be
treated as a partnership for federal income tax purposes. We intend
that each Partnership will be classified as a partnership for
federal income tax purposes (or else a disregarded entity where
there are not at least two separate beneficial
owners).
A publicly traded partnership is a partnership whose interests are
traded on an established securities market or are readily tradable
on a secondary market (or a substantial equivalent). A publicly
traded partnership is generally treated as a corporation for
federal income tax purposes, but will not be so treated if, for
each taxable year beginning after December 31, 1987 in which it was
classified as a publicly traded partnership, at least 90% of the
partnership’s gross income consisted of specified passive income,
including real property rents (which includes rents that would be
qualifying income for purposes of the 75% gross income test, with
certain modifications that make it easier for the rents to qualify
for the 90% passive income exception), gains from the sale or other
disposition of real property, interest and dividends (the “90%
passive income exception”).
Treasury regulations, referred to as PTP regulations, provide
limited safe harbors from treatment as a publicly traded
partnership. Pursuant to one of those safe harbors (the “private
placement exclusion”), interests in a partnership will not be
treated as readily tradable on a secondary market or the
substantial equivalent thereof if (i) all interests in the
partnership were issued in a transaction or transactions that were
not required to be registered under the Securities Act of 1933, as
amended and (ii) the partnership does not have more than 100
partners at any time during the partnership’s taxable year. For the
determination of the number of partners in a partnership, a person
owning an interest in a partnership, grantor trust, or S
corporation that owns an interest in the partnership is treated as
a partner in the partnership only if (i) substantially all of the
value of the owner’s interest in the entity is attributable to the
entity’s direct or indirect interest in the partnership and (ii) a
principal purpose of the use of the entity is to permit the
partnership to satisfy the 100-partner limitation. Each Partnership
(other than the Operating Partnership, which has more than 100
partners) should qualify for the private placement
exclusion.
The Operating Partnership does not qualify for the private
placement exclusion. Another safe harbor under the PTP regulations
provides that so long as the sum of the percentage interests in
partnership capital or profits transferred during the taxable year
of the partnership does not exceed two percent of the total
interests in the partnership capital or profits, interests in the
partnership will not be treated as readily tradable on a secondary
market or the substantial equivalent thereof. For purposes of
applying the two percent threshold, “private transfers,” transfers
made under certain redemption or repurchase agreements, and
transfers made through a “qualified matching service” are ignored.
While we believe that the Operating Partnership satisfies the
conditions of this safe harbor, we cannot assure you that the
Operating Partnership has or will continue to meet the conditions
of this safe harbor in the future. Consequently, while units of the
Operating Partnership are not and will not be traded on an
established securities market, and while the exchange rights of
limited partners of the Operating Partnership are restricted by the
agreement of limited partnership in ways that we believe, taking
into account all of the facts and circumstances, prevent the
limited partners from being able to buy, sell or exchange their
limited partnership interests in a manner such that the limited
partnership interests would be considered “readily tradable on a
secondary market or the substantial equivalent thereof” under the
PTP regulations, no complete assurance can be provided that the IRS
will not successfully assert that the Operating Partnership is a
publicly traded partnership.
As noted above, a publicly traded partnership will be treated as a
corporation for federal income tax purposes unless at least 90% of
such partnership's gross income for each taxable year in which the
partnership is a publicly traded partnership consists of
“qualifying income” under Section 7704 of the Code. “Qualifying
income” under Section 7704 of the Code includes interest,
dividends, real property rents, gains from the disposition of real
property, and certain income or gains from the exploitation of
natural resources. In addition, qualifying income under Section
7704 of the Code generally includes any income that is qualifying
income for purposes of the 95% gross income test applicable to
REITs. We believe the Operating Partnership has satisfied the 90%
qualifying income test under Section 7704 of the Code in each year
since its formation and will continue to satisfy that exception in
the future. Thus, we believe the Operating Partnership has not and
will not be taxed as a corporation.
There is one significant difference, however, regarding rent
received from related party tenants under the REIT gross income
tests and the 90% qualifying income exception. For a REIT, rent
from a tenant does not qualify as rents from real property if the
REIT and/or one or more actual or constructive owners of 10% or
more of the REIT actually or constructively own 10% or more of the
tenant. Under Section 7704 of the Code, rent from a tenant is not
qualifying income if a partnership and/or one or more actual or
constructive owners of 5% or more of the partnership actually or
constructively own 10% or more of the tenant. Accordingly, we will
need to monitor compliance with both the REIT rules and the
publicly traded partnership rules.
We have not requested, and do not intend to request, a ruling from
the IRS that the Operating Partnership or any other Partnerships
will be classified as a partnership (or disregarded entity, if the
entity has only one owner or member) for federal income tax
purposes. If for any reason a Partnership were taxable as a
corporation, rather than as a partnership, for federal income tax
purposes, we would not be able to qualify as a REIT. See “-Gross
Income Tests” and “-Asset Tests.” In addition, any change in a
Partnership's status for tax purposes might be treated as a taxable
event, in which case we might incur tax liability without any
related cash distribution. See “-Distribution Requirements.”
Further, items of income and deduction of such Partnership would
not pass through to its partners, and its partners would be treated
as stockholders for tax purposes. Consequently, such Partnership
would be required to pay income tax at corporate rates on its net
income, and distributions to its partners would constitute
dividends that would not be deductible in computing such
Partnership's taxable income.
Income Taxation of the Partnerships and Their Partners
Partners, Not the Partnerships, Subject to Tax.
A partnership is not a taxable entity for federal income tax
purposes. We will therefore take into account our allocable share
of each Partnership's income, gains, losses, deductions, and
credits for each taxable year of the Partnership ending with or
within our taxable year, even if we receive no distribution from
the Partnership for that year or a distribution less than our share
of taxable income. Similarly, even if we receive a distribution,
it
may not be taxable if the distribution does not exceed our adjusted
tax basis in our interest in the Partnership. However, the tax
liability for adjustments to a partnership’s tax returns made as a
result of an audit by the IRS will be imposed on the Partnership
itself in certain circumstances absent an election to the
contrary.
Partnership Allocations.
Although a partnership agreement generally will determine the
allocation of income and losses among partners, allocations will be
disregarded for tax purposes if they do not comply with the
provisions of the federal income tax laws governing partnership
allocations. If an allocation is not recognized for federal income
tax purposes, the item subject to the allocation will be
reallocated in accordance with the partners' interests in the
partnership, which will be determined by taking into account all of
the facts and circumstances relating to the economic arrangement of
the partners with respect to such item. Each Partnership's
allocations of taxable income, gain, and loss are intended to
comply with the requirements of the federal income tax laws
governing partnership allocations.
Tax Allocations With Respect to Contributed
Properties.
Income, gain, loss, and deduction attributable to (i) appreciated
or depreciated property that is contributed to a partnership in
exchange for an interest in the partnership or (ii) property
revalued on the books of a partnership must be allocated in a
manner such that the contributing partner is charged with, or
benefits from, respectively, the unrealized gain or unrealized loss
associated with the property at the time of the contribution. The
amount of such unrealized gain or unrealized loss, referred to as
“built-in gain” or “built-in loss,” is generally equal to the
difference between the fair market value of the contributed or
revalued property at the time of contribution or revaluation and
the adjusted tax basis of such property at that time, referred to
as a “book-tax difference”. Such allocations are solely for federal
income tax purposes and do not affect the book capital accounts or
other economic or legal arrangements among the partners. The
Operating Partnership has acquired and may acquire appreciated
property in exchange for limited partnership interests. We have a
carryover, rather than a fair market value, basis in such
contributed assets equal to the basis of the contributors in such
assets, resulting in a book-tax difference. As a result of that
book-tax difference, we have a lower adjusted basis with respect to
that portion of the Operating Partnership's assets than we would
have with respect to assets having a tax basis equal to fair market
value at the time of acquisition. This results in lower
depreciation deductions with respect to the portion of the
Operating Partnership's assets attributable to such contributions,
which could cause us to be allocated tax gain in excess of book
gain in the event of a property disposition.
The U.S. Treasury Department has issued regulations requiring
partnerships to use a “reasonable method” for allocating items with
respect to which there is a book-tax difference and outlining
several reasonable allocation methods. Unless we as general partner
select a different method, the Operating Partnership will use the
traditional method for allocating items with respect to which there
is a book-tax difference. As a result, the carryover basis of
assets in the hands of the Operating Partnership in contributed
property causes us to be allocated lower amounts of depreciation
deductions for tax purposes than would be allocated to us if all of
our assets were to have a tax basis equal to their fair market
value at the time of the contribution, and a sale of that portion
of the Operating Partnership's properties which have a carryover
basis could cause us to be allocated taxable gain in excess of the
economic or book gain allocated to us as a result of such sale,
with a corresponding benefit to the contributing partners. As a
result of the foregoing allocations, we may recognize taxable
income in excess of cash proceeds in the event of a sale or other
disposition of property, which might adversely affect our ability
to comply with the REIT distribution requirements and may result in
a greater portion of our distributions being taxed as dividends,
instead of a tax-free return of capital or capital
gains.
Basis in Partnership Interest.
Our adjusted tax basis in any partnership interest we own generally
will be:
•the
amount of cash and the basis of any other property we contribute to
the partnership;
•increased
by our allocable share of the partnership’s income (including
tax-exempt income) and our allocable share of indebtedness of the
partnership; and
•reduced,
but not below zero, by our allocable share of the partnership's
loss, the amount of cash and the basis of property distributed to
us, and constructive distributions resulting from a reduction in
our share of indebtedness of the partnership.
Loss allocated to us in excess of our basis in a partnership
interest will not be taken into account until we again have basis
sufficient to absorb the loss. A reduction of our share of
partnership indebtedness will be treated as a constructive cash
distribution to us, and will reduce our adjusted tax basis.
Distributions, including constructive distributions, in excess of
the basis of our partnership interest will constitute taxable
income to us. Such distributions and constructive distributions
normally will be characterized as long-term capital
gain.
Sale of a Partnership's Property.
Generally, any gain realized by a Partnership on the sale of
property held for more than one year will be long-term capital
gain, except for any portion of the gain treated as depreciation or
cost recovery recapture. Any gain or loss recognized by a
Partnership on the disposition of contributed or revalued
properties will be allocated first to the partners who contributed
the properties or who were partners at the time of revaluation, to
the extent of their built-in gain or loss on those properties for
federal income tax purposes. The partners' built-in gain or loss on
contributed or revalued properties is the difference between the
partners' proportionate share of the book value of those properties
and the partners' tax basis allocable to those properties at the
time of the contribution or revaluation. Any remaining gain or loss
recognized by the Partnership on the disposition of contributed or
revalued properties, and any gain or loss recognized by the
Partnership on the disposition of other properties, will be
allocated among the partners in accordance with their percentage
interests in the Partnership.
Our share of any Partnership gain from the sale of inventory or
other property held primarily for sale to customers in the ordinary
course of the Partnership's trade or business will be treated as
income from a prohibited transaction subject to a 100% tax. Income
from a prohibited transaction may have an adverse effect on our
ability to satisfy the gross income tests for REIT status. See
“-Gross Income Tests.” We do not presently intend to acquire or
hold, or to allow any Partnership to acquire or hold, any property
that is likely to be treated as inventory or property held
primarily for sale to customers in the ordinary course of our, or
the Partnership's, trade or business.
Partnership Audit Rules
Under the rules applicable to U.S. federal income tax audits of
partnerships, any IRS audit adjustments to items of income, gain,
loss, deduction or credit of a partnership (and any partner’s
distributive share thereof) are determined, and taxes, interest or
penalties attributable thereto are assessed and collected, at the
partnership level. Any such audit adjustments could result in the
Operating Partnership or any other partnerships in which we
directly or indirectly invest being required to pay additional
taxes, interest and penalties as a result of an audit adjustment,
and we, as a direct or indirect partner of those partnerships,
could be required to bear the economic burden of those taxes,
interest and penalties even though we, as a REIT, may not otherwise
have been required to pay additional corporate-level taxes as a
result of the related audit adjustment. Investors are urged to
consult their tax advisors regarding these partnership audit
provisions and their potential impact on their investment in our
securities.
Legislative or Other Actions Affecting REITs
The present federal income tax treatment of REITs may be modified,
possibly with retroactive effect, by legislative, judicial or
administrative action at any time. The REIT rules are constantly
under review by persons involved in the legislative process and by
the IRS and the U.S. Treasury Department which may result in
statutory changes as well as revisions to regulations and
interpretations. Additionally, several of the tax considerations
described herein are currently under review and are subject to
change. Prospective securityholders are urged to consult with their
tax advisors regarding the effect of potential changes to the
federal tax laws on an investment in our securities.
State, Local and Foreign Taxes
We and/or you may be subject to taxation by various states,
localities and foreign jurisdictions, including those in which we
or a securityholder transacts business, owns property or resides.
The state, local and foreign tax treatment may differ from the
federal income tax treatment described above. Consequently, you are
urged to consult your tax advisors regarding the effect of state,
local and foreign tax laws upon an investment in our
securities.
SELLING STOCKHOLDERS
Information about selling stockholders of Highwoods Properties,
Inc., where applicable, will be set forth in a prospectus
supplement, in a post-effective amendment or in filings we make
with the SEC which are incorporated into this prospectus by
reference.
PLAN OF DISTRIBUTION
We or any selling stockholder may sell the securities offered by
this prospectus from time to time in one or more transactions,
including without limitation:
•through
underwriting syndicates represented by one or more managing
underwriters;
•to
or through underwriters or dealers;
•through
agents;
•directly
to one or more purchasers;
•in
a rights offering;
•in
“at the market” offerings, within the meaning of Rule 415(a)(4) of
the Securities Act to or through a market maker or into an existing
trading market on an exchange or otherwise;
•in
block trades;
•through
a combination of any of these methods; or
•through
any other method permitted by applicable law and described in a
prospectus supplement.
In addition, we may issue the securities as a dividend or
distribution to our existing stockholders or other
securityholders.
The prospectus supplement with respect to any offering of
securities will include the following information:
•the
terms of the offering;
•the
names of any underwriters, dealers or agents;
•the
name or names of any managing underwriter or
underwriters;
•the
purchase price or initial public offering price of the
securities;
•the
net proceeds from the sale of the securities;
•any
delayed delivery arrangements;
•any
underwriting discounts, commissions and other items constituting
underwriters’ compensation;
•any
discounts or concessions allowed or reallowed or paid to
dealers;
•any
commissions paid to agents; and
•any
securities exchange on which the securities may be
listed.
Any initial public offering price, discounts or concessions allowed
or reallowed or paid to dealers may be changed from time to time.
The distribution of the offered securities may be effected from
time to time in one or more transactions:
•at
a fixed price or prices, which may be changed;
•at
market prices prevailing at the time of sale;
•at
prices related to prevailing market prices; or
•at
negotiated prices.
Sale through Underwriters or Dealers
If underwriters are used in the sale, the underwriters may resell
the securities 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. Underwriters
may offer securities to the public either through underwriting
syndicates represented by one or more managing underwriters or
directly by one or more firms acting as underwriters. Unless we
inform you otherwise in the applicable prospectus supplement, the
obligations of the underwriters to purchase the securities will be
subject to certain conditions, and the underwriters will be
obligated to purchase all of the offered securities if they
purchase any of them. The underwriters may change from time to time
any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers.
In connection with the sale of the securities, underwriters may
receive compensation from us or from purchasers of the securities,
for whom they may act as agents, in the form of discounts,
concessions or commissions. Underwriters may sell the securities to
or through dealers, and these dealers may receive compensation in
the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they
may act as agents, which is not expected to exceed that customary
in the types of transactions involved. Underwriters, dealers and
agents that participate in the distribution of the securities may
be deemed to be underwriters, and any discounts or commissions they
receive from us, and any profit on the resale of the securities
they realize may be deemed to be underwriting discounts and
commissions, under the Securities Act. The prospectus supplement
will identify any underwriter or agent and will describe any
compensation they receive from us.
Underwriters could make sales in privately negotiated transactions
and/or any other method permitted by law, including sales deemed to
be an “at-the-market” offering, sales made directly on the NYSE,
the existing trading market for our shares of common stock, or
sales made to or through a market maker other than on an exchange.
The name of any such underwriter or agent involved in the offer and
sale of our securities, the amounts underwritten, and the nature of
its obligations to take our securities will be described in the
applicable prospectus supplement.
Unless otherwise specified in the prospectus supplement, each
series of the securities will be a new issue with no established
trading market, other than the common stock, which is currently
listed on the NYSE. We currently intend to list any shares of
common stock sold pursuant to this prospectus on the NYSE. We may
elect to list any series of preferred stock, depositary shares or
debt securities on an exchange, but are not obligated to do so. It
is possible that one or more underwriters may make a market in a
series of the securities, but underwriters will not be obligated to
do so and may discontinue any market making at any time without
notice. Therefore, we can give no assurance about the liquidity of
the trading market for any of the securities.
Under agreements we may enter into, we may indemnify underwriters,
dealers and agents who participate in the distribution of the
securities against certain liabilities, including liabilities under
the Securities Act, or contribute with respect to payments that the
underwriters, dealers or agents may be required to
make.
To facilitate the offering of securities, certain persons
participating in the offering may engage in transactions that
stabilize, maintain, or otherwise affect the price of the
securities. This may include over-allotments or short sales of the
securities, which involve the sale by persons participating in the
offering of more securities than we sold to them. In these
circumstances, these persons would cover such over-allotments or
short positions by making purchases in the open market or by
exercising their over-allotment option, if any. In addition, these
persons may stabilize or maintain the price of the securities by
bidding for or purchasing securities in the open market or by
imposing penalty bids, whereby selling concessions allowed to
dealers participating in the offering may be reclaimed if
securities sold by them are repurchased in connection with
stabilization transactions. The effect of these transactions may be
to stabilize or maintain the market price of the securities at a
level above that which might otherwise prevail in the open market.
These transactions may be discontinued at any time.
From time to time, we may engage in transactions with these
underwriters, dealers and agents in the ordinary course of
business. Underwriters have from time to time in the past provided,
and may from time to time in the future provide, investment banking
services to us for which they have in the past received, and may in
the future receive, customary fees.
Direct Sales and Sales through Agents
We may sell the securities directly. In this case, no underwriters
or agents would be involved. We also may sell the securities
through agents designated by us from time to time. In the
applicable prospectus supplement, we will name any agent involved
in the offer or sale of the offered securities, and we will
describe any commissions payable to the agent. Unless
we
inform you otherwise in the applicable prospectus supplement, any
agent will agree to use its commercially reasonable efforts to
solicit purchases for the period of its appointment.
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 sale of those securities. We
will describe the terms of any sales of these securities in the
applicable prospectus supplement.
Remarketing Arrangements
Securities also may be offered and sold, if so indicated in the
applicable prospectus supplement, in connection with a remarketing
upon their purchase, in accordance with a redemption or repayment
pursuant to their terms, or otherwise, by one or more remarketing
firms, acting as principals for their own accounts or as agents for
us. Any remarketing firm will be identified and the terms of its
agreements, if any, with us and its compensation will be described
in the applicable prospectus supplement.
Delayed Delivery Contracts
If indicated in the applicable prospectus supplement, we may
authorize agents, underwriters or dealers to solicit offers from
certain types of institutions to purchase securities from us at the
public offering price under delayed delivery contracts. These
contracts would provide for payment and delivery on a specified
date in the future. The contracts would be subject only to those
conditions described in the applicable prospectus supplement. The
applicable prospectus supplement will describe the commission
payable for solicitation of those contracts.
LEGAL MATTERS
The validity of the securities offered hereby has been passed upon
for us by DLA Piper LLP (US). In addition, the statements under the
caption “Material U.S. Federal Income Tax Considerations” as they
relate to U.S. federal income tax matters have been reviewed by
Vinson & Elkins LLP, which has opined as to certain U.S.
federal income tax matters relating to the Company.
EXPERTS
The financial statements, and the related financial statement
schedule, of Highwoods Properties, Inc. incorporated by reference
in this prospectus, and the effectiveness of Highwoods Properties,
Inc.’s internal control over financial reporting have been audited
by Deloitte & Touche LLP, an independent registered public
accounting firm, as stated in their reports. Such financial
statements and financial statement schedule are incorporated by
reference in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
The financial statements, and the related financial statement
schedule, of Highwoods Realty Limited Partnership incorporated by
reference in this prospectus, have been audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as
stated in their report. Such financial statements and financial
statement schedule are incorporated by reference in reliance upon
the report of such firm given upon their authority 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 SEC. Our SEC filings are available to
the public through the SEC’s website at www.sec.gov.
This prospectus is part of a registration statement that we have
filed with the SEC. The SEC allows us to “incorporate by reference”
the information contained in documents that we file with the SEC,
which means that we can disclose important information to you by
referring you to those documents. The information incorporated by
reference is considered to be part of this prospectus, and later
information that we file with the SEC will automatically update and
supersede this information. We incorporate by reference the
documents listed below and any future documents filed with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
(excluding any information that is deemed to have been “furnished”
and not “filed” with the SEC) on or after the date of this
prospectus but before the end of any offering made under this
prospectus:
•the
description of the Company’s common stock included in the Company’s
Registration Statement on Form 8-A dated May 16, 1994, including
any amendments and reports filed for the purpose of updating such
description.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Investor Relations
Highwoods Properties, Inc.
150 Fayetteville Street, Suite 1400
Raleigh, North Carolina 27601
Telephone: (919) 872-4924
We also maintain a website at www.highwoods.com at which there is
additional information about our business, but the contents of that
website are not incorporated by reference into, and are not
otherwise a part of, this prospectus, any accompanying prospectus
supplement or any applicable free writing prospectus or
incorporated into any other filing that we submit to the
SEC.
$300,000,000
Common Stock
________________________________________
PROSPECTUS SUPPLEMENT
________________________________________
February 8, 2023
Wells Fargo Securities
BofA Securities
BTIG
Jefferies
J.P. Morgan
Regions Securities LLC
TD Securities
Truist Securities
Highwoods Properties (NYSE:HIW)
Historical Stock Chart
Von Mär 2023 bis Apr 2023
Highwoods Properties (NYSE:HIW)
Historical Stock Chart
Von Apr 2022 bis Apr 2023
