Filed Pursuant to
Rule 424(b)(3)
Registration No.
333-157857
5,764,471 Common
Shares
Lexington
Realty Trust
Amended
and Restated Dividend Reinvestment and Direct Share Purchase Plan
Common
Shares of Beneficial Interest
We are
Lexington Realty Trust, a self-managed and self-administered real estate
investment trust that acquires, owns and manages a geographically diversified
portfolio of net leased office, industrial and retail properties. Our executive
offices are located at One Penn Plaza, Suite 4015, New York, New York
10019-4015, and our telephone number is (212) 692-7200.
We
established our Dividend Reinvestment Plan on September 29, 2000 and further
amended and restated such plan on January 14, 2003 and August 11, 2006, and
further amended such plan on April 5, 2007. On November 21, 2008 we
revised the Dividend Reinvestment Plan pursuant to the Amended and Restated
Dividend Reinvestment and Direct Share Purchase Plan, which we refer to as the
“plan.” This prospectus describes the plan, as it has been amended
and restated to date.
There are
two components of the plan:
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The
dividend
reinvestment component of the plan provides to holders of shares of
beneficial interest classified as common stock, par value $0.0001 per
share, or “common shares,” whom we refer to as “shareholders,” and holders
of units of limited partnership interest, or “OP units,” in any of our
four operating partnership subsidiaries, whom we refer to as
“unitholders,” a simple and convenient method to purchase common shares by
reinvesting in common shares all of the dividends or distributions (as
applicable) paid with respect to all of their common shares or OP units.
We refer to shareholders and unitholders collectively as “current
investors.”
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The
direct share
purchase component of the plan permits our current investors and
new investors to make optional cash purchases of our common shares in an
economical and convenient manner.
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The
common shares purchased for the accounts of the participants under the plan will
be purchased, at our discretion, either directly from us, or in the open market,
or through a combination of these two options.
The Bank
of New York Mellon, or a successor selected by us, is the administrator of the
plan, whom we refer to as the “administrator.”
You may
enroll in the plan either (1) online through Investor ServicesDirect® (www.bnymellon.com/shareowner/isd)
or (2) by completing and returning an enrollment card to the administrator.
Further information on enrolling in the plan is available beginning on page 4 of
this prospectus.
Our
common shares trade on the New York Stock Exchange under the symbol “LXP.” On
August 31, 2009, the last reported sale price of our common shares, as reported
on the New York Stock Exchange, was $4.66 per common share.
YOU
SHOULD BE AWARE THAT AN INVESTMENT IN OUR COMMON SHARES INVOLVES VARIOUS
RISKS. SEE “RISK FACTORS” BEGINNING ON PAGE 4 OF THIS
PROSPECTUS.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date
of this prospectus is September 4, 2009
TABLE
OF CONTENTS
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Page
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ABOUT
THIS PROSPECTUS
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1
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WHERE
YOU CAN FIND MORE INFORMATION
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1
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CAUTIONARY
STATEMENTS CONCERNING FORWARD-LOOKING INFORMATION
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2
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PROSPECTUS
SUMMARY
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3
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RISK
FACTORS
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4
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DESCRIPTION
OF THE PLAN
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5
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USE
OF PROCEEDS
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16
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PLAN
OF DISTRIBUTION
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16
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FEDERAL
INCOME TAX CONSIDERATIONS
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17
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EXPERTS
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33
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LEGAL
MATTERS
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33
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i
ABOUT
THIS PROSPECTUS
All
references to “the Company,” “we,” “our” and “us” in this prospectus mean
Lexington Realty Trust and all entities owned or controlled by us except where
it is made clear that the term means only the parent company. All references to
“the operating partnerships” in this prospectus mean, individually and
collectively, Lepercq Corporate Income Fund, L.P., Lepercq Corporate Income Fund
II, L.P. and Net 3 Acquisition L.P., which are our operating partnership
subsidiaries. The term “you” refers to a prospective participant in the
plan.
WHERE
YOU CAN FIND MORE INFORMATION
We file
annual, quarterly and special reports, proxy statements and other information
with the Securities and Exchange Commission, which is commonly referred to as
the SEC or the Commission. You may read and copy any materials that we have
filed with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. We file information
electronically with the SEC. The SEC maintains an Internet site that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the SEC. The address of the SEC’s Internet
site is http://www.sec.gov.
The SEC
allows us to “incorporate by reference” the information we file with them, 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 information that we file later with the SEC will
automatically update and supersede this information. We incorporate by reference
herein the documents listed below and all documents we subsequently file with
the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934, as amended, which is commonly referred to as the Exchange
Act:
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our
Annual Report on Form 10-K for the year ended December 31,
2008, filed with the SEC on March 2,
2009;
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our
Quarterly Reports on Form 10-Q and Form 10-Q/A for the quarter ended March
31, 2009 filed with the SEC on May 8, 2009, and the quarter ended June 30,
2009 filed with the SEC on August 7,
2009;
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our
Definitive Proxy Statement on Schedule 14A filed with the SEC on April 6,
2009;
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our
Current Reports on Form 8-K filed on January 2, 2009, February
17, 2009, April 27, 2009, June 15, 2009, June 26, 2009, August 4, 2009 and
September 1, 2009; and
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the
description of the Company’s common shares of beneficial interest, par
value $0.0001 per share, (including the description of the restrictions on
transfers of the Company’s common shares) contained in the Company’s
Registration Statement on Form S-3 (file no. 333-157858) filed
pursuant to the Securities Act of 1933, as amended, on March 11 2009,
including any amendments or reports filed to update the
description.
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To
receive a free copy of any of the documents incorporated by reference in this
prospectus (other than exhibits, unless they are specifically incorporated by
reference in the documents), write us at the following address or call us at the
telephone number listed below:
Lexington
Realty Trust
One Penn
Plaza
Suite
4015
Attention:
Investor Relations
New York,
NY 10019-4015
(212)
692-7200
This
prospectus is part of a registration statement we filed with the SEC. You should
rely only on the information or representations provided in this prospectus. We
have not authorized anyone else to provide you with different information. You
should not assume that the information in this prospectus or any supplement is
accurate as of any date other than the date of those documents.
We also
maintain a website at http://www.lxp.com through
which you can obtain copies of documents that we filed with the SEC. The
contents of that website are not incorporated by reference in or otherwise a
part of this prospectus.
1
CAUTIONARY
STATEMENTS CONCERNING FORWARD-LOOKING INFORMATION
This
prospectus and the information incorporated by reference in this prospectus
include “forward-looking statements” within the meaning of Section 27A of the
Securities Act of 1933, as amended, or the “Securities Act,” and Section 21E of
the Securities Exchange Act of 1934, as amended, or the “Exchange Act,” and as
such may involve known and unknown risks, uncertainties and other factors that
may cause our actual results, performance or achievements to be materially
different from future results, performance or achievements expressed or implied
by these forward-looking statements. Forward-looking statements, which are based
on certain assumptions and describe our future plans, strategies and
expectations, are generally identifiable by use of the words “may,” “will,”
“should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “project,” or
the negative of these words or other similar words or terms. Factors which could
have a material adverse effect on our operations and future prospects include,
but are not limited to:
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changes
in general business and economic
conditions;
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competition;
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increases
in real estate construction costs;
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changes
in interest rates;
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changes
in accessibility of debt and equity capital markets;
and
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the
other risk factors set forth in our Annual Report on Form 10-K filed on
March 2, 2009, the section entitled “Risk Factors” beginning on page 2 of
this prospectus and the other documents incorporated by reference
herein.
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These
risks and uncertainties should be considered in evaluating any forward-looking
statements contained or incorporated by reference in this prospectus. We caution
you that any forward-looking statement reflects only our belief at the time the
statement is made. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee our future
results, levels of activity, performance or achievements. Except as required by
law, we undertake no obligation to update any of the forward-looking statements
to reflect events or developments after the date of this
prospectus.
2
PROSPECTUS
SUMMARY
This
summary highlights selected information about us. Because this is a
summary, it may not contain all of the information that is important to you.
Before making a decision to invest in our common shares, you should read
carefully this entire prospectus and the documents incorporated by reference in
this prospectus, as provided in “WHERE YOU CAN FIND MORE INFORMATION” on page ii
of this prospectus, especially the “RISK FACTORS” on page 2 of this prospectus
for a discussion of factors you should carefully consider before making an
investment decision.
The
Company
We are a
self-managed and self-administered real estate investment trust, or a REIT,
formed under the laws of the State of Maryland. Our primary business is the
acquisition, ownership and management of a geographically diverse portfolio of
net leased office and industrial properties.
We
elected to be taxed as a REIT under Sections 856 through 860 of the Internal
Revenue Code of 1986, as amended, or the “Code,” commencing with our taxable
year ended December 31, 1993. If we qualify for taxation as a REIT, we generally
will not be subject to federal corporate income taxes on our net income that is
currently distributed to shareholders.
Our
principal executive offices are located at One Penn Plaza, Suite 4015, New York,
New York 10119-4015 and our telephone number is (212) 692-7200.
Summary
of the Plan
We
established our Dividend Reinvestment Plan on September 29, 2000 and further
amended and restated such plan on January 14, 2003 and August 11, 2006, and
further amended such plan on April 5, 2007. On November 21, 2008 we
revised the Dividend Reinvestment Plan pursuant to the Amended and Restated
Dividend Reinvestment and Direct Share Purchase Plan, which we refer to as the
“plan.” This prospectus describes the plan, as it has been amended
and restated to date.
The plan
is a convenient and economical common share purchase program available for
current investors to increase their holdings of our common shares and for new
investors to make an initial investment in our common shares. Current
investors can reinvest in our common shares all of the dividends or
distributions (as applicable) paid with respect to all of their common shares or
OP units. We refer to such investments as “dividend
reinvestments.” Additionally, current investors as well as new
investors may make optional cash payments, which we refer to as “optional cash
investments,” to purchase common shares pursuant to the plan. We refer to
shareholders, unitholders and new investors who enroll in the plan as
“participants.”
This
prospectus relates to authorized and unissued common shares registered for
issuance under the plan. We suggest that you read this prospectus carefully and
retain it for future reference.
3
RISK
FACTORS
Investing
in our securities involves risks and uncertainties that could affect us and our
business as well as the real estate industry generally. You should carefully
consider the risks described and discussed under the caption “Risk Factors”
included in our Annual Report on Form 10-K filed on March 2, 2009, and the risks
described below and in any other documents incorporated by reference in this
prospectus, including without limitation any updated risks included in our
subsequent periodic reports. These risk factors may be amended, supplemented or
superseded from time to time by risk factors contained in any prospectus
supplement or post-effective amendment we may file or in other reports we file
with the SEC in the future. In addition, new risks may emerge at any time and we
cannot predict such risks or estimate the extent to which they may affect our
financial performance.
Set forth
below are specific risks you should consider in connection with purchases of our
common shares under the plan.
Your
investment in the plan is not protected from losses.
Your
investment in the plan is no different from any investment in common shares held
by you. If you choose to participate in the plan, then you should recognize that
none of us, our subsidiaries and affiliates, nor the plan administrator can
assure you of a profit or protect you against loss on the common shares that you
purchase under the plan. You bear the risk of loss in value and enjoy the
benefits of gains with respect to all your common shares. You need to make your
own independent investment and participation decisions consistent with your
situation and needs. None of us, our subsidiaries and affiliates, nor the plan
administrator can guarantee liquidity in the markets, and the value and
marketability of your shares may be adversely affected by market conditions.
Your ability to liquidate or otherwise dispose of common shares in the plan is
subject to the terms of the plan and the withdrawal procedures thereunder. You
may not be able to withdraw or sell your common shares in the plan in time to
react to market conditions.
Plan
accounts are not insured or protected by the Securities Investor Protection
Corporation or any other entity and are not guaranteed by the Federal Deposit
Insurance Corporation or any government agency.
The
Company, its affiliates and the plan administrator will have limited liability
to you with respect to the plan.
Neither
we, our subsidiaries, our affiliates, nor the plan administrator will be liable
for any act, or for any failure to act, as long as we or they have made good
faith efforts to carry out the terms of the plan, as described in this
prospectus and on the forms that are designed to accompany each investment, sale
or activity.
The
purchase price for common shares purchased or sold under the plan will
vary.
The
purchase price for any common shares that you purchase or sell under the plan
will vary and cannot be predicted. You may purchase or sell common shares at a
price that is different from (more or less than) the price that you would face
if you acquired or sold shares on the open market on the Investment Date, as
defined in Question 17.
You
will not earn any interest on your dividends or cash pending
investment.
No
interest will be paid on dividends, cash or other funds held by the
administrator pending investment or disbursement.
The
market price for our common shares varies, and you should purchase common shares
for long-term investment only.
Although
our common shares are currently traded on the New York Stock Exchange, or the
NYSE, we cannot assure you that there will, at any time in the future, be an
active trading market for our common shares. Even if there is an active trading
market for our common shares, we cannot assure you that you will be able to sell
all of your common shares at one time or at a favorable price, if at all. As a
result, you should participate in the plan only if you are capable of, and
seeking, to make a long-term investment in our common shares.
You
may incur tax obligations without receiving cash with which to pay those
obligations.
If you
reinvest dividends under the plan, you will be treated for federal income tax
purposes as having received a dividend on the Investment Date, which may give
rise to a tax payment obligation without providing you with cash to pay such tax
when it becomes due. See Question 39 of the plan for a description of federal
income tax consequences of participating in the plan.
4
DESCRIPTION
OF THE PLAN
The
following questions and answers constitute the plan:
Purpose of the
Plan
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1.
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What
is the purpose of the plan?
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The plan
provides current investors with a simple and convenient method to purchase our
common shares by reinvesting in our common shares all of the dividends or
distributions (as applicable) paid with respect to all of their common shares or
OP units. The plan also provides our current investors and new
investors with the opportunity to make purchases of our common shares in an
economical and convenient manner.
The plan
is primarily intended for the benefit of long-term investors, and not for the
benefit of individuals or institutions who engage in short-term trading
activities that could cause aberrations in the overall trading volume of our
common shares. From time to time, financial intermediaries may engage in
positioning transactions in order to benefit from any discount we may offer from
the market price for common shares acquired under the plan. These transactions
may cause fluctuations in the trading volume of our common shares. We reserve
the right to modify, suspend or terminate participation in this plan by
otherwise eligible current investors in order to eliminate practices which we
determine, in our sole discretion, to be inconsistent with the purposes of the
plan.
Participation
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2.
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Who
is eligible to enroll in the plan?
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The plan
is open to current investors and new investors. A current investor
who has common shares or OP units (as applicable) registered in a name other
than his or her own, such as that of a broker, bank nominee or trustee, may
participate in the plan by (i) requesting that his or her bank, broker or
trustee transfer some or all of his or her common shares or OP units (as
applicable) into his or her own name in order to participate in the plan
directly or (ii) depositing some or all of his or her common shares with the
administrator for safekeeping.
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3.
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Are
there any restrictions on who is eligible to enroll in the plan other than
those described above?
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State Law Restrictions. Common
shares may not be available under the plan in all states. This prospectus does
not constitute an offer to sell, or a solicitation of an offer to buy, any
common shares or other securities in any state or any other jurisdiction to any
person to whom it is unlawful to make such offer in such
jurisdiction.
Foreign Law Restrictions.
Citizens or residents of countries other than the United States, its territories
and possessions should make certain that participation in the plan will not
violate local laws governing taxes, currency and exchange controls, registration
of equity securities, foreign investments and related matters.
REIT Qualification
Restrictions. We may terminate, by written notice at any time, any
participant’s individual participation in the plan if we determine, in our sole
discretion, that such participation would be in violation of the Ownership
Limit, as set forth in and defined in our Declaration of Trust. To the extent
that the reinvestment of dividends or distributions (as applicable) under the
plan would cause a participant or any other person to exceed the Ownership Limit
or otherwise violate our Declaration of Trust, such reinvestment will be void ab
initio. Any such participant will be entitled to receive cash dividends (without
interest) in lieu of such reinvestment.
Exclusion from Plan for Short-Term
Trading or Other Practices. Participants should not use the plan to
engage in short-term trading activities that could change the normal trading
volume of the common shares. If a participant does engage in short-term trading
activities, we may prevent that participant from continuing to participate in
the plan. We reserve the right to modify, suspend or terminate participation in
the plan by otherwise eligible current investors in order to eliminate practices
which we determine, in our sole discretion, to be inconsistent with the purposes
or operation of the plan or which may adversely affect the market price of our
common shares.
5
Restrictions at Our
Discretion. In addition to the restrictions described above, we reserve
the right to prevent you from participating in the plan for any other reason. We
have the sole discretion to exclude you from, or terminate your participation
in, the plan.
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4.
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How
do I enroll in the plan?
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You may
enroll in the plan (i) online through Investor ServiceDirect® (www.bnymellon.com/shareowner/isd)
or (ii) by completing an enrollment form (a copy of which may be obtained from
the administrator) and mailing it to the administrator at the address listed
below. If your common shares are registered in an account bearing more than one
name (such as joint tenants, trustees, etc.) on the books of our transfer agent,
all registered holders must sign the enrollment form. If your common shares are
registered in more than one account on the books of our transfer agent, you
should sign and return a separate enrollment form with respect to each account
you wish to have enrolled in the plan. In addition, if you are both an eligible
shareholder and an eligible unitholder, you should sign and return separate
enrollment forms for each type of security you wish to have enrolled in the
plan.
If you
are already enrolled in the plan, you need not take any further action at this
time to continue your participation in the dividend reinvestment component of
the plan. However, if you would like to make an optional cash investment through
the plan to increase your holdings of our common shares, you may return the
transaction stub from your plan statement along with your check and mail it to
the administrator in the envelope provided. Or, if you wish to make
regular monthly investments, you may authorize automatic deductions from your
bank account.
You may
obtain an enrollment form at any time by contacting the administrator
at:
The Bank
of New York Mellon
c/o BNY
Mellon Shareowner Services
P.O.
Box 358035
Pittsburgh,
PA 15252-8035
Tel:
(800) 850-3948
By
signing and returning an enrollment form for the dividend reinvestment component
of the plan, a participant will be deemed to have elected to automatically
reinvest in our common shares all of the dividends or distributions (as
applicable) paid with respect to all common shares registered in his or her name
on the books of our transfer agent (including dividends paid with respect to
common shares purchased for his or her account under the plan) or all OP units
registered in his or her name on our books.
If you
are both an eligible shareholder and an eligible unitholder, you should sign and
return separate enrollment forms for each type of security you wish to have
enrolled in the plan.
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5.
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When
may I join the plan?
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A current
investor or new investor may enroll in the plan at any time.
Participation
in the dividend reinvestment component will begin with the first dividend or
distribution (as applicable) after properly enrolling online or after receipt by
the administrator of a properly completed and executed enrollment
form. If you enroll prior to the record date for a dividend payment,
your election to reinvest dividends will begin with that dividend
payment. If you enroll on or after any such record date, reinvestment
of dividends will begin on the dividend payment date following the next record
date if you are still a shareholder of record. Dividends and distributions are
expected to be paid in January, April, July and October in each year. The record
date for dividends and distributions is generally the 30th day of the month
immediately preceding the payment date.
Participation
in the optional cash investment component will begin after properly enrolling
online or after receipt by the administrator of a properly completed and
executed enrollment form. Optional cash investments will be made as
directed by the participant at enrollment, subject to the terms of the
plan.
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Administration
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6.
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Who
administers the plan?
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The Bank
of New York Mellon, or a successor selected by us, will administer the plan for
the participants, keep records, send statements of accounts to the participants,
answer any questions the participants may have and perform other duties related
to the plan. All costs of administering the plan are paid by us. The
administrator makes all purchases of common shares for the participants’
accounts under the plan.
If you
have questions regarding the plan, please write to the administrator at the
following address:
The Bank
of New York Mellon
c/o BNY
Mellon Shareowner Services
P.O. Box
358035
Pittsburgh,
PA 15252-8035
Or call
the Administrator at:
1-800
850-3948 if you are inside the United States or Canada,
1-201-680-6578
for International telephone inquiries, or
1-800-231-5469
for the hearing impaired (TDD).
An
automated voice response system is available 24 hours a day, 7 days a
week. Customer service representatives are available from 9:00 a.m.
to 7:00 p.m., Eastern Time, Monday through Friday (except
holidays).
Include
your name, address, daytime telephone number, account key, Investor
Identification Number and reference Lexington Realty Trust on all written
correspondence.
In
addition, you may visit the BNY Mellon Shareowner Services website at www.bnymellon.com/shareowner. At
this website, you can enroll in the plan, obtain information, and perform
certain transactions on your plan account via Investor ServiceDirect®. New
investors establish a Personal Identification Number (PIN) when setting up their
account. For existing shareholders to gain access, use the 12-digit Investor
Identification Number (IID) which can be found in a bolded box on your check
stub, statement or advice to establish a PIN. In order to access your
account through ISD, you will be required to complete an account activation
process. This one-time authentication process will be used to
validate your identity in addition to your 12-digit IID and self-assigned
PIN.
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7.
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What
kind of reports will be sent to a
participant?
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As soon
as practicable after each Investment Date, a statement of account will be mailed
to each participant by the administrator. These statements will provide a record
of the cost of the common shares purchased for the participant’s account under
the plan, the number of common shares purchased pursuant to the plan and the
total number of common shares in the participant’s account as of that date.
These statements are the participants’ continuing record of current activity and
should be retained for tax purposes. In addition, each participant will receive
a copy of all communications sent to our shareholders, including any annual and
quarterly reports to shareholders, proxy statements and dividend income
information for tax reporting purposes. Participants should be aware that it is
important to retain all statements received as a fee may be incurred when
requesting that the administrator supply past history
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8.
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What
are our responsibilities and the responsibilities of the administrator
under the plan?
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In
administering the plan, neither we nor the administrator, nor any agent for
either us or them will:
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be
liable for any act done in good faith or required by applicable law, or
for any good faith omission to act, including, without limitation, any
claim of liability (i) arising out of failure to terminate a participant’s
account upon such participant’s death prior to receipt by the
administrator of notice in writing of such death, (ii) with respect to the
prices and times at which common shares are purchased or sold for a
participant, or (iii) with respect to any fluctuation in market value
before or after any purchase or sale of common shares;
or
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7
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have
any duties, responsibilities or liabilities, except as expressly set forth
in the plan.
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Since we
have delegated all responsibility for administering the plan to the
administrator, we specifically disclaim any responsibility for any of the
administrator’s actions or omissions to act in connection with the
administration of the plan. None of our trustees, officers, employees or
shareholders will have any personal liability under the plan.
We and
the administrator will be entitled to rely on completed forms and the proof of
due authority to participate in the plan without further responsibility of
investigation or inquiry.
The
administrator may resign as administrator of the plan at any time, in which case
we will appoint a successor administrator. In addition, we may replace the
administrator with a successor administrator at any time.
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9.
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What
are the responsibilities of a participant under the
plan?
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The
common shares purchased for a participant’s account under the plan may revert to
the state in which he or she lives in the event that such common shares are
deemed, under such state’s laws, to have been abandoned. For this reason,
participants should notify the administrator promptly of any change of address.
The administrator will address account statements and other communications to
each participant at the last address of record provided by him or her to the
administrator.
A
participant will have no right to draw checks or drafts against his or her
account under the plan or to instruct the administrator with respect to any
common shares or cash held in his or her account except as expressly provided
herein.
Dividends and
Distributions
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10.
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When
are dividends and distributions
paid?
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Dividends
and distributions are expected to be paid in January, April, July and
October.
We cannot
assure you that we will declare or pay dividends or that any of the operating
partnerships will make distributions in the future, and nothing contained in the
plan obligates us or the operating partnerships to do so. However, we intend to
continue qualifying as a REIT and therefore must distribute to our shareholders
a minimum of 90% of taxable income. The plan does not represent a guarantee of
future dividends or distributions.
No
interest will be paid on dividends or distributions pending reinvestment under
the terms of the plan.
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11.
|
May
a participant reinvest less than the full amount of his or her dividends
or distributions?
|
No, a
participant may only elect to reinvest all of the dividends or distributions (as
applicable) paid with respect to all of the common shares or OP units that he or
she holds.
|
12.
|
Will
a participant be credited with dividends paid in respect of common shares
purchased for his or her account under the
plan?
|
Yes. A
participant is the record holder of the common shares purchased for his or her
account under the plan, and therefore is entitled to all dividends (less any
applicable tax withholding requirements imposed on us) we pay in respect of the
common shares held in his or her account on the applicable record date. The
administrator will receive all such dividends, credit such dividends to the
participant’s account on the basis of the number of whole and fractional common
shares held in the participant’s account on the applicable record date and
automatically reinvest such dividends in additional whole and fractional common
shares for the participant’s account under the plan.
8
Cash
Investments
|
13.
|
How
can I make an initial optional cash
investment?
|
Via
online enrollment by:
|
·
|
Authorizing
one deduction (minimum of $250) from your bank
account;
|
|
·
|
Authorizing
a minimum of five monthly automatic deductions of at least $50 from your
bank account; or
|
|
·
|
Opening
your account online and sending your initial investment of $250 or
more.
|
Via
the enrollment form and:
|
·
|
Making
one payment (minimum of $250) by personal check payable to BNY
Mellon/Lexington Realty Trust; or
|
|
·
|
Authorizing
a minimum of five monthly automatic deductions of at least $50 from your
bank account.
|
|
14.
|
How
can I make an additional optional cash
investment?
|
Once you
are enrolled in the plan, you may purchase additional common shares through
optional cash investments. Optional cash investments may not be less
than $250, and the total of all optional cash investments may not exceed
$250,000 in any calendar year, unless we grant you a waiver of this
amount. There is no obligation either to make an optional cash
investment or to invest the same amount of cash for each
investment.
Check. You may make
optional monthly cash investments by sending a check to the administrator
payable to BNY
Mellon/Lexington Realty Trust. To facilitate processing of
your investment, please use the transaction stub attached to your plan
statement. Mail your investment and transaction stub to the address
specified on the stub. A $35 fee will be assessed for a check that is
returned for insufficient funds.
One-Time
and Automatic Monthly Withdrawals. If you already own common
shares and are enrolled in the plan and want to make additional monthly
purchases, you can also authorize automatic monthly deductions from your bank
account by completing the appropriate section in the enclosed enrollment form,
or by enrolling online after you access your account through Investor
ServiceDirect® at www.bnymellon.com/shareowner. This
feature enables you to make ongoing investments in an amount that is comfortable
for you, without having to write a check. The amounts you have authorized will
be withdrawn from your bank account on the 25th day of each month, or the next
succeeding business day if the 25th day falls on a weekend or
holiday. You can also make individual automatic deductions from
your bank account through Investor ServiceDirect®. You will be
responsible for all processing fees and any other costs your bank may charge in
connection with deductions from your bank account.
9
|
15.
|
May
I invest more than the plan maximum of
$250,000?
|
Yes, if
you request a waiver of this limit and we grant your waiver request. Upon
receipt of a written waiver form from an investor, we will consider waiving the
maximum investment limit. Grants of waiver requests will be made in our sole
discretion based on a variety of factors, which may include: our current and
projected capital needs, prevailing market prices of our common shares and other
securities, and general economic and market conditions.
Shares
purchased in excess of the plan maximum investment amount will be priced as
follows:
|
·
|
Investments
for which a waiver has been granted will be made subject to a “pricing
period,” which will generally consist of one (1) to fifteen (15) separate
days during which trading of our common shares is reported on the New York
Stock Exchange. Each of these separate days will be an “investment date,”
and an equal proportion of the investment amount will be invested on each
trading day during such pricing period, subject to the qualifications
listed below. The purchase price for common shares acquired on a
particular investment date will be equal to 100% (subject to change as
provided below) of the volume-weighted average price (less any applicable
discount), rounded to four decimal places, of our common shares as
reported by the New York Stock Exchange only, obtained from Bloomberg, LP
for the trading hours from 9:30 a.m. to 4:00 p.m., Eastern Time, for that
investment date. Funds for such investments must be received by the
administrator not later than the business day before the first day of the
pricing period.
|
|
·
|
We
may establish a minimum, or “threshold,” price for any pricing period that
the volume-weighted average price, rounded to four decimal places, of our
common shares must equal or exceed during each trading day of the pricing
period for investments made pursuant to a waiver
request.
|
|
·
|
If
we decide to establish a threshold price for a particular pricing period,
the threshold price for any investments made pursuant to a request for
waiver will be a stated dollar amount that the volume-weighted average
price, rounded to four decimal places, of our common shares, as reported
by the New York Stock Exchange for each trading day in the relevant
pricing period, must equal or exceed. If the threshold price is not
satisfied for a trading day in the pricing period, then that trading day
and the trading prices for that day will be excluded from the pricing
period.
|
|
·
|
We
will only establish a threshold price if common shares will be purchased
directly from us in connection with the relevant pricing period (please
see first bullet above). If we have established a threshold price with
respect to the relevant pricing period, then we will exclude from the
pricing period any trading day that the volume-weighted average price is
less than the threshold price and refund that day’s proportional
investment amount. For example, if the threshold price is not met for two
(2) of the trading days in a ten-day pricing period, then we will return
20% of the funds you submitted in connection with your waiver request,
without interest, unless we have activated the pricing period extension
feature for the pricing period, as described
below.
|
|
·
|
Neither
we nor the administrator are required to notify you that a threshold price
has been established for any pricing
period.
|
|
·
|
We
may elect to activate for any particular pricing period a pricing period
extension feature which will provide that the initial pricing period be
extended by the number of days that the threshold price is not satisfied,
subject to a maximum of five (5) trading days. If we elect to activate the
pricing period extension feature and the threshold price is satisfied for
any additional day that has been added to the initial pricing period, that
day will be included as one of the trading days for the pricing period
instead of the day on which the threshold price was not met. For example,
if the determined pricing period is fifteen (15) days, and the threshold
price is not satisfied for three (3) out of those fifteen (15) days in the
initial pricing period, and we had previously announced in the bid-waiver
form that the pricing period extension feature was activated, then the
pricing period will be automatically extended, and if the threshold price
is satisfied on the next three (3) trading days (or a subset thereof),
then those three (3) days (or subset thereof) will become investment dates
in lieu of the three (3) days on which the threshold price was not met. As
a result, because there were fifteen (15) trading days during the
initial and extended pricing period on which the threshold price was
satisfied, all of the funds that you include with your request for waiver
will be invested.
|
10
|
·
|
Newly
issued common shares purchased pursuant to a request for waiver will be
posted to participants’ accounts within three (3) business days following
the end of the applicable pricing period, or, if we elect to activate the
continuous settlement feature, within three (3) business days of each
separate investment date beginning on the first investment date in the
relevant pricing period and ending on the final investment date in the
relevant pricing period, with an equal amount being invested on each day,
subject to the qualifications set forth above. During any month when we
are proposing to grant requests for waiver for one or more investments, we
may elect to activate the continuous settlement feature for such
investments by announcing in the bid-waiver form that we will be doing so.
The purchase price of common shares acquired on each investment date will
be equal to the volume-weighted average price obtained from Bloomberg, LP
(unless such service is unavailable, in which case we will designate
another service to be utilized before the beginning of the pricing
period), rounded to four decimal places, for the trading hours from 9:30
a.m. to 4:00 p.m., Eastern Time, for each of the investment dates during
the pricing period, assuming the threshold price is met on that day, less
any discount that we may decide to offer. For each pricing period
(assuming the threshold price is met on each trading day of that pricing
period), we would have a separate settlement of each investment dates’
purchases, each based on the volume-weighted average price for the trading
day relating to each of the investment dates during the pricing
period.
|
|
·
|
Waiver
request forms and information regarding the establishment of a threshold
price, if any, may be obtained by contacting the administrator at (201)
680-5300 or waivers@bnymellon.com.
|
Common Share
Purchases
|
16.
|
What
is the source of common shares to be purchased under the
plan?
|
The
administrator will purchase common shares for the accounts of the participants
under the plan, at our discretion, either directly from us, on the open market,
or through a combination of these two options.
|
17.
|
When
will common shares be purchased?
|
Dividend Reinvestment. Common
shares purchased for the accounts of the participants under dividend
reinvestment component of the plan will be purchased on the applicable or next
(as applicable) dividend or distribution payment date.
Optional Cash Investment.
Common shares purchased for the accounts of the participants under the optional
cash investment component of the plan will be purchased, as soon as practicable
following receipt by the administrator of good funds, at least once every five
business days.
The date
that common shares are purchased is referred to as the Investment
Date.
Notwithstanding
the foregoing, neither the Company nor the administrator shall be liable when
conditions, including compliance with the rules and regulations of the SEC,
prevent the purchase of common shares or interfere with the timing of purchases.
In accordance with applicable law, funds will be returned to participants if not
used to purchase common shares: (i) within 35 days of receipt of initial or
additional cash investments; or (ii) within 30 days of the dividend date for
dividend reinvestments. A participant may withdraw any additional cash
investment by written notice received by the Plan Administrator at least two
business days prior to investment of the funds. NO INTEREST WILL ACCRUE ON ANY CASH
INVESTMENT HELD BY THE ADMINISTRATOR PRIOR TO THE DATE SUCH FUNDS ARE USED TO
PURCHASE SHARES.
11
In making
purchases for a participant's account, the administrator may commingle the
participant's funds with those of other participants in the plan.
Neither
we nor any participant has any authority or power to direct the time or the
price at which any market purchase is completed or as to the selection of a
broker or dealer through or from whom such purchases are to be
made.
|
18.
|
What
is the price of common shares purchased under the
plan?
|
Common
shares purchased directly from the Company:
When the
common shares are purchased directly from us, the price of the common shares
purchased for the accounts of the participants under the plan will be the
average of the daily high and low sales prices of our common shares on the NYSE
on the five trading days prior to the Investment Date.
We
reserve the right to offer up to a 5% discount on the price of common shares
purchased from us under the plan. If there is no trading reported in our common
shares on such dates, the purchase price per common share will be determined by
us on the basis of such market quotations or other means as we shall deem
appropriate. Under no circumstances will the purchase price per common share be
less than the current par value of the common shares. No participant shall have
any authority or power to direct the time or price at which common shares may be
purchased for their account under the plan.
Common
shares purchased on the open market:
If we opt
to purchase common shares on the open market, the price of common shares will be
the weighted average purchase price paid by the administrator for such
shares.
With
respect to purchases of common shares that the administrator makes under the
plan on the open market, the administrator, or a broker that the administrator
selects, will determine the timing, manner and terms of such purchases. When
making purchases for an account under the plan, the administrator may commingle
your funds with those of other shareholders participating in the
plan.
|
19.
|
How
will the number of common shares purchased for a participant’s account be
determined?
|
Dividend Reinvestment. The
number of common shares to be purchased for a participant’s account on each
Investment Date will be equal to the total dollar amount to be reinvested for
each participant as of that date divided by the applicable purchase price,
computed to the fourth decimal place. The total dollar amount to be reinvested
for each participant as of any Investment Date will be the sum of (a) the amount
of the dividends or distributions (as applicable) paid in respect of the common
shares or OP units (as applicable) held by the participant in his or her own
name on the applicable record date, and (b) the amount of the dividends paid in
respect of all common shares (including fractional common shares) held in his or
her account under the plan on the applicable record date.
The
amount to be reinvested will be reduced by any amount we are required to deduct
for federal tax withholding purposes. (See “Federal Income Tax Considerations”
beginning on page 16 of this prospectus.)
Optional Cash
Investments. The number of common shares to be purchased for a
participant’s account will be equal to the total dollar amount to be invested
divided by the applicable purchase price on the Investment Date, computed to the
fourth decimal place.
12
Safekeeping
Service
|
20.
|
What
is the purpose of the plan’s Safekeeping Service for certificates and how
does it work?
|
The
purpose of the plan’s Safekeeping Service is to permit participants to deposit
all certificates in their possession which represent common shares held by
participants outside of the plan with the administrator for safekeeping. Any
such certificates which are deposited with the administrator will be canceled
and deposited into the shareholder’s account in book entry form. Thereafter, the
deposited common shares will be treated in the same manner as common shares
purchased through the plan.
|
21.
|
What
are the advantages of the Safekeeping
Service?
|
The
Safekeeping Service offers two significant advantages to participants. First, it
eliminates the risk associated with loss of certificates which represent common
shares held by participants outside of the plan. Second, because common shares
deposited for safekeeping are treated in the same manner as common shares
purchased through the plan, they may be sold through the plan in a convenient
and efficient manner.
|
22.
|
How
may common share certificates be deposited with the
administrator?
|
A
participant who wishes to deposit certificates representing common shares held
by him or her outside of the plan for safekeeping should send the certificates
to the administrator with written instructions to deposit them in his or her
account under the plan. Certificates sent to the administrator should not be
endorsed. The administrator will promptly send a statement to the participant
confirming each deposit of certificates.
The
administrator recommends that certificates sent to the administrator for
safekeeping be sent by insured mail or traceable delivery service with
appropriate coverage based upon the value of the common shares represented by
those certificates.
|
23.
|
May
a participant’s common shares remain on deposit if participation in the
plan is terminated?
|
Yes. Upon
terminating his or her participation in the plan, a participant may elect to
receive all common shares held in his or her account under the plan, either in
kind or in cash. Otherwise, the administrator would continue to hold the shares
in book-entry for the former participant. (See Question 31.)
Sale of Common Shares Held
in the Plan
|
24.
|
Can
the common shares held in a participant’s account under the plan be sold
through the administrator?
|
A
participant can sell his or her common shares by submitting the appropriate
information on the transaction stub of the plan statement, by submitting a
written request to the administrator, by telephone or on-line. A
participant can instruct the administrator to sell any or all of the whole
common shares held in his or her account under the plan either when his or her
account is being terminated (see Question 31) or without terminating his or her
account. However, fractional common shares will not be sold unless all whole
common shares held in the account are sold. If all common shares (including
fractional common shares) held in a participant’s account are sold, the account
will automatically be terminated, and the participant will have to complete and
file a new enrollment form (see Question 31) in order to resume his or her
participation in the plan.
The
notification to the administrator should indicate the number of common shares
that are to be sold. The administrator will make the sale as soon as practicable
after receipt of a participant’s request, and a check for the proceeds, less any
costs to the participant (see Questions 30 and 31), will usually be sent by the
administrator on the settlement date, which will be three business days from the
date of sale. No participant will have the authority or power to direct the date
or sales price at which common shares may be sold. Therefore, a participant will
not be able to precisely time such sales through the plan and will bear the
market risk associated with fluctuations in the price of our common
shares.
Alternatively,
a participant may choose to sell his or her plan shares through a stockbroker of
choice, in which case the participant would have to request that the
administrator electronically transfer his or her common shares to the
stockbroker.
13
Issuance of
Certificates
|
25.
|
Will
certificates be issued for common shares purchased for a participant’s
account under the plan?
|
Common
shares purchased for a participant’s account under the plan will be registered
in the name of the administrator or its nominee as agent for the participant.
The number of common shares purchased for a participant’s account under the plan
will be shown on the participant’s regular statement of account. This service
protects against loss, theft or destruction of common share
certificates.
No
certificates for any number of common shares purchased for a participant’s
account under the plan will be issued to the participant unless he or she
submits a request to the administrator. Such requests will be handled by the
administrator, at no charge, normally within two business days of your
request. Any remaining whole common shares and any fractional common
shares will continue to be held in the participant’s account. Certificates for
fractional shares will not be issued under any circumstances.
Common
shares which are purchased for a participant’s account under the plan may not be
pledged, sold or otherwise transferred. If a participant wishes to pledge or
transfer such common shares, he or she must request that a certificate for such
common shares first be issued in his or her name.
|
26.
|
What
effect will a request for a certificate have on a participant’s
account?
|
All
dividends on the common shares for which a certificate is requested will
continue to be reinvested under the plan until the participant files a new
enrollment card changing his or her investment election.
Costs
|
27.
|
What
are the costs to the participants in connection with dividend
reinvestments and optional cash investments under the
plan?
|
A
participant is not required to pay any transaction fees, service fees, trading
fees or other charges in connection with the purchase of common shares for his
or her plan account under the plan.
|
28.
|
What
are the costs to the participants in connection with the plan’s
Safekeeping Service?
|
There are
no costs to participants in connection with the plan’s Safekeeping
Service.
|
29.
|
What
are the costs to a participant in connection with the sale of common
shares purchased for his or her account under the
plan?
|
The
administrator will charge a participant per share trading fees of $0.12 per
common share, transfer taxes (if any) and a transaction fee of $15.00 for each
authorization to sell common shares held in his or her account under the plan.
The amount of the trading fees and transaction fee are subject to change upon
mutual agreement of us and the administrator. In addition, a participant who
sells (or authorizes the administrator to sell) common shares acquired for his
or her account under the plan, and any agents or broker-dealers that participate
with them in any such sale, may be deemed “underwriters” within the meaning of
the Securities Act and any commissions received by them in connection with any
such sale may be deemed to be underwriting commissions or discounts under the
Securities Act.
14
Termination of Plan
Participation
|
30.
|
How
does a participant terminate participation in the
plan?
|
In order
to terminate participation in the plan, a participant must notify the
administrator by telephone, over the Internet through Investor ServiceDirect® at
www.bnymellon.com/shareowner/isd or in writing at the address set forth in the
response to Question 6. After receipt of such notice, the participant will begin
to receive his or her dividends or distributions (as applicable), as declared,
in the usual manner.
|
31.
|
What
happens when a participant terminates his or her participation in the
plan?
|
If the
notice of termination is received by the administrator at least three (3)
business days prior to the record date reinvestment of dividends or
distributions (as applicable) will cease as of the date the notice of
termination is received by the administrator. If the notice of termination is
received less than three (3) business days prior to the record date, the
termination will not become effective until after the reinvestment of any
dividends or distributions. When terminating an account, a participant may
request that the administrator issue a certificate representing all or a portion
of the whole common shares held in his or her account (see Question 25), sell
all or a portion of the whole and fractional common shares held in his or her
account (see Question 24), request that the administrator electronically
transfer his or her common shares to a stockbroker of choice, or a combination
of the foregoing. As soon as practicable after the notice of termination is
received, the administrator will send to the participant (a) a certificate for
all whole common shares held in the participant’s account (except for any such
common shares sold by the administrator at the participant’s request) and (b) a
check representing the proceeds of any sale of common shares consummated by the
administrator at the participant’s request and any uninvested dividends or
distributions (as applicable) remaining in the account and the value of any
fractional share of common shares held in the account. After a participant
terminates participation in the plan, all dividends or distributions (as
applicable) will be paid to the participant in the usual manner unless the
participant re-elects to participate in the plan.
|
32.
|
When
may a shareholder or unitholder re-elect to participate in the
plan?
|
Generally,
a shareholder or unitholder may re-enroll in the plan at any time. However, the
administrator reserves the right to reject any enrollment form on the grounds of
excessive joining and withdrawing. Such reservation is intended to minimize
unnecessary administrative expenses and to encourage use of the plan as a
long-term shareholder and unitholder investment service.
Additional
Information
|
33.
|
How
will common shares purchased for a participant’s account under the plan be
voted at shareholders’ meetings?
|
Common
shares purchased for a participant’s account under the plan will be voted as the
participant directs. Each participant will receive a proxy voting card for the
total of his or her common shares, including common shares held in his or her
account under the plan. If no instructions are received, the common shares will
not be voted. Common shares held in a participant’s account may also be voted in
person at the meeting.
|
34.
|
What
happens if we issue a stock dividend or declare a stock
split?
|
In the
event of a stock split or a stock dividend payable in common shares, the
administrator will receive and credit to each participant’s account the
applicable number of whole and fractional common shares based both on the number
of common shares held in the participant’s account under the plan and, with
respect to shareholders participating in the plan, the number of common shares
registered in the participant’s own name as of the record date for the stock
dividend or split.
15
|
35.
|
What
happens if we issue rights to purchase securities to the holders of common
shares?
|
We have
never issued rights to holders of common shares to purchase securities. However,
participation in any future rights offering will be based both on the number of
common shares held in each participant’s account under the plan and, with
respect to shareholders participating in the plan, the number of common shares
registered in the participant’s own name as of the record date for the rights
offering. Rights applicable to common shares held in a participant’s account
under the plan will be sold by the administrator and the proceeds of such sale
will be credited to the participant’s account under the plan and applied to the
purchase of common shares on the next reinvestment date. Any participant who
wishes to exercise, transfer or sell the rights applicable to the common shares
held in the participant’s account under the plan must request, prior to the
record date for the issuance of any such rights, that the common shares held in
the participant’s account under the plan be transferred from the participant’s
account and registered in the participant’s name.
|
36.
|
May
the plan be changed or
discontinued?
|
We
reserve the right to amend, modify, suspend or terminate the plan, but such
action shall have no retroactive effect that would prejudice the interests of
the participants. In the event of termination, certificates for whole common
shares held in the participants’ accounts under the plan will be delivered to
the participants together with a check for the net proceeds of the value of any
fractional common shares.
|
37.
|
What
law governs the plan?
|
The terms
and conditions of the plan and its operation shall be governed by the laws of
the State of Maryland.
|
38.
|
How
is the plan to be interpreted?
|
Any
question of interpretation arising under the plan will be determined by us, and
any such determination will be final. Any action taken by us or the
administrator to effectuate the plan in the good faith exercise of our or their
respective judgment will be binding on all participants.
|
39.
|
What
are the federal income tax consequences of participating in the
plan?
|
If you
reinvest dividends under the plan, you will be treated for federal income tax
purposes as having received a dividend on the Investment Date, which may give
rise to a tax payment obligation without providing you with cash to pay such tax
when it becomes due. New investors and current investors should consult the
general discussion under the caption “Federal Income Tax Considerations” on page
16 for a summary of federal income tax considerations related to the ownership
of our common shares.
USE
OF PROCEEDS
Proceeds
from any newly issued common shares purchased directly from us under the plan
will be available for general corporate purposes. We have no basis for
estimating either the number of common shares that will ultimately be purchased
directly from us, if any, under the plan or the prices at which such shares will
be sold.
PLAN
OF DISTRIBUTION
Except to
the extent the administrator purchases our common shares in open market
transactions, we will sell the common shares acquired under the plan directly to
the participant. The shares acquired pursuant to the plan may be resold in
market transactions on any national securities exchange on which our common
shares trade or in privately negotiated transactions. Our common shares are
currently listed on the NYSE.
We may
sell common shares through the plan to persons who, in connection with the
resale of the shares, may be considered underwriters. In connection with these
types of transactions, compliance with Regulation M under the Exchange Act would
be required. We will not give any person any rights or privileges other than
those that the person would be entitled to as a participant under the plan. We
will not enter into any agreement with any person regarding the person’s
purchase, resale or distribution of shares.
Subject
to the availability of our common shares registered for issuance under the plan,
there is no total maximum number of shares that can be issued pursuant to the
plan. A participant is not required to pay any transaction fees, service fees,
trading fees or other charges in connection with the purchase of common shares
for his or her plan account under the plan. The participant will only
have to pay fees in connection with his or her voluntary sale of shares from his
or her plan account.
16
FEDERAL
INCOME TAX CONSIDERATIONS
The
information in this section is based on the Code, existing, temporary and
proposed regulations under the Code, the legislative history of the Code,
current administrative rulings and practices of the Internal Revenue Service, or
IRS, and court decisions, all as of the date hereof. No assurance can be given
that future legislation, regulations, administrative interpretations and court
decisions will not significantly change current law or adversely affect existing
interpretations of current law. Any such change could apply retroactively to
transactions preceding the date of the change. In addition, we have not
received, and do not plan to request, any rulings from the IRS. Thus no
assurance can be provided that the statements set forth herein (which do not
bind the IRS or the courts) will not be challenged by the IRS or that such
statements will be sustained by a court if so challenged.
Federal
Income Tax Considerations Relating to the Plan
Each
participant should consult his or her personal tax advisors with specific
reference to his or her own tax situation and potential changes in the
applicable law as to all federal, state, local, foreign and other tax matters in
connection with the reinvestment of dividends or distributions in common shares
for his or her account under the plan, his or her tax basis and holding period
for common shares purchased for his or her account under the plan and the
character, amount and tax treatment of any gain or loss realized on the
disposition of common shares in his or her account under the plan. The following
is only a brief summary of some of the federal income tax considerations
applicable to the plan.
In the
case of distributions from us with respect to a shareholder’s common shares, a
shareholder enrolled in the plan will be treated for federal income tax purposes
as having received, on each Investment Date, a distribution from us equal to the
fair market value of any common shares purchased for his or her account under
the plan. Any discount in price for common shares issued by us for a
shareholder’s account under the plan will be treated as part of the distribution
received. If dividends are reinvested by purchase on the open market, a
participating shareholder’s distribution will be treated, for federal income tax
purposes, as including the participating shareholder’s allocable share of any
brokerage fees or commissions paid by us. A shareholder will also be treated as
having received any cash distributions actually received by him or her with
respect to common shares held by him or her outside of the plan.
All costs
of administering the plan, except for costs related to your voluntary sale of
common shares or withdrawal from the plan, will be paid by us. The Internal
Revenue Service (IRS) has ruled in private letter rulings that administrative
expenses are not generally treated as constructive dividends taxable to you. We
intend to take this position in respect to any administrative costs.
Nonetheless, we note that private letter rulings are not binding on the IRS and
therefore there can be no assurance that the IRS will take a similar view with
respect to our administrative expenses.
As in the
case of non-reinvested cash distributions, reinvested distributions to
shareholders under the plan are taxable as dividend income to the extent of our
current and accumulated earnings and profits. Distributions in excess of current
and accumulated earnings and profits will not be taxable to a shareholder under
the plan to the extent that such distributions do not exceed the adjusted tax
basis of his or her common shares. To the extent that such distributions exceed
the adjusted tax basis of his or her common shares, they will be included in his
or her income as capital gain.
17
The tax
basis of common shares purchased for a shareholder’s account under the plan will
be equal to the fair market value of those common shares on the applicable
Investment Date (plus the shareholder’s allocable share of brokerage fees or
commissions, if any, paid by us in connection with a purchase of common shares
on the open market). The holding period for common shares purchased for a
shareholder’s account under the plan generally will begin on the date following
the date on which the common shares are purchased for his or her account under
the plan.
With
respect to a unitholder enrolled in the plan, there is no clear legal authority
regarding the federal income tax treatment of a holder of an interest in an
operating partnership who invests cash distributions from the operating
partnership in common shares of another entity (such as us) under a dividend
reinvestment plan. Therefore, the tax treatment of a unitholder that
participates in the plan may differ from the tax treatment described above with
respect to a shareholder who invests his or her cash distributions from us in
our common shares. Unitholders should consult their own tax advisors regarding
the consequences of participating in the plan.
A
participant may recognize a gain or loss upon receipt of a cash payment upon
termination of his or her account (see Question 31) or when the common shares
held in his or her account are sold at his or her request (see Question 24).
Gain or loss may also be recognized upon the participant’s sale or disposition
of common shares received from the plan. The amount of any such gain or loss
will be the difference between the amount received for the whole or fractional
common shares and the tax basis of the common shares.
Federal
Income Tax Considerations Relating to the REIT
The
following discussion summarizes the material United States federal income tax
considerations to you as a prospective holder of our common shares and assumes
that you will hold such shares as capital assets (within the meaning of Section
1221 of the Code). The following discussion is for general information purposes
only, is not exhaustive of all possible tax considerations and is not intended
to be and should not be construed as tax advice. For example, this summary does
not give a detailed discussion of any state, local or foreign tax
considerations. In addition, this discussion is intended to address only those
federal income tax considerations that are generally applicable to all of our
shareholders. It does not discuss all of the aspects of federal income taxation
that may be relevant to you in light of your particular circumstances or to
certain types of shareholders who are subject to special treatment under the
federal income tax laws including, without limitation, regulated investment
companies, insurance companies, tax-exempt entities, financial institutions or
broker-dealers, expatriates, persons subject to the alternative minimum tax and
partnerships or other pass through entities.
PROSPECTIVE
HOLDERS OF OUR COMMON SHARES ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF INVESTING IN
OUR COMMON SHARES IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.
Taxation
of the Company
General. We
elected to be taxed as a REIT under Sections 856 through 860 of the Code,
commencing with our taxable year ended December 31, 1993. We believe that we
have been organized, and have operated, in such a manner so as to qualify for
taxation as a REIT under the Code and intend to conduct our operations so as to
continue to qualify for taxation as a REIT. No assurance, however, can be given
that we have operated in a manner so as to qualify or will be able to operate in
such a manner so as to remain qualified as a REIT. Qualification and taxation as
a REIT depend upon our ability to meet on a continuing basis, through actual
annual operating results, the required distribution levels, diversity of share
ownership and the various qualification tests imposed under the Code discussed
below, the results of which will not be reviewed by counsel. Given the highly
complex nature of the rules governing REITs, the ongoing importance of factual
determinations, and the possibility of future changes in our circumstances, no
assurance can be given that the actual results of our operations for any one
taxable year have satisfied or will continue to satisfy such
requirements.
In
connection with the initial filing of the Registration Statement of which this
prospectus is a part, Paul, Hastings, Janofsky & Walker LLP delivered an
opinion that, based on certain assumptions and factual representations that are
described in this section and in officer’s certificates provided by us, Concord
Debt Holdings LLC and Concord Debt Funding Trust (both subsidiaries in which we
indirectly hold interests), commencing with our taxable year ended December 31,
1993, we have been organized and operated in conformity with the requirements
for qualification as a REIT and our current and proposed method of operation
will enable us to continue to meet the requirements for qualification and
taxation as a REIT. It must be emphasized that this opinion is based on various
assumptions and is conditioned upon certain representations made by us, Concord
Debt Holdings LLC and Concord Debt Funding Trust as to factual matters
including, but not limited to, those set forth herein, and those concerning our
business and properties as set forth in this prospectus. An opinion of counsel
is not binding on the IRS or the courts.
18
The
following is a general summary of the Code provisions that govern the federal
income tax treatment of a REIT and its shareholders. These provisions of the
Code are highly technical and complex. This summary is qualified in its entirety
by the applicable Code provisions, Treasury Regulations and administrative and
judicial interpretations thereof, all of which are subject to change
prospectively or retroactively.
If we
qualify for taxation as a REIT, we generally will not be subject to federal
corporate income taxes on our net income that is currently distributed to
shareholders. This treatment substantially eliminates the “double taxation” (at
the corporate and shareholder levels) that generally results from investment in
a corporation. However, we will be subject to federal income tax as
follows:
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First,
we will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital
gains.
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Second,
under certain circumstances, we may be subject to the “alternative minimum
tax” on our items of tax
preference.
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Third,
if we have (a) net income from the sale or other disposition of
“foreclosure property,” which is, in general, property acquired on
foreclosure or otherwise on default on a loan secured by such real
property or a lease of such property, which is held primarily for sale to
customers in the ordinary course of business or (b) other nonqualifying
income from foreclosure property, we will be subject to tax at the highest
corporate rate on such income.
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Fourth,
if we have net income from prohibited transactions such income will be
subject to a 100% tax. Prohibited transactions are, in general, certain
sales or other dispositions of property held primarily for sale to
customers in the ordinary course of business other than foreclosure
property.
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Fifth,
if we should fail to satisfy the 75% gross income test or the 95% gross
income test (as discussed below), but nonetheless maintain our
qualification as a REIT because certain other requirements have been met,
we will be subject to a 100% tax on an amount equal to (a) the gross
income attributable to the greater of the amount by which we fail the 75%
gross income test or the amount by which 95% (90% for taxable years ending
on or prior to December 31, 2004) of our gross income exceeds the amount
of income qualifying under the 95% gross income test multiplied by (b) a
fraction intended to reflect our
profitability.
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Sixth,
if we should fail to satisfy the asset tests (as discussed below) but
nonetheless maintain our qualification as a REIT because certain other
requirements have been met and we do not qualify for a de minimis
exception, we may be subject to a tax that would be the greater of (a)
$50,000; or (b) an amount determined by multiplying the highest rate of
tax for corporations by the net income generated by the assets for the
period beginning on the first date of the failure and ending on the day we
dispose of the nonqualifying assets (or otherwise satisfy the requirements
for maintaining REIT
qualification).
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Seventh,
if we should fail to satisfy one or more requirements for REIT
qualification, other than the 95% and 75% gross income tests and other
than the asset tests, but nonetheless maintain our qualification as a REIT
because certain other requirements have been met, we may be subject to a
$50,000 penalty for each failure.
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Eighth,
if we should fail to distribute during each calendar year at least the sum
of (a) 85% of our REIT ordinary income for such year, (b) 95% of our REIT
capital gain net income for such year, and (c) any undistributed taxable
income from prior periods, we would be subject to a nondeductible 4%
excise tax on the excess of such required distribution over the amounts
actually distributed.
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Ninth,
if we acquire any asset from a C corporation (i.e., a corporation
generally subject to full corporate level tax) in a transaction in which
the basis of the asset in our hands is determined by reference to the
basis of the asset (or any other property) in the hands of the C
corporation and we do not elect to be taxed at the time of the
acquisition, we would be subject to tax at the highest corporate rate if
we dispose of such asset during the ten-year period beginning on the date
that we acquired that asset, to the extent of such property’s “built-in
gain” (the excess of the fair market value of such property at the time of
our acquisition over the adjusted basis of such property at such time) (we
refer to this tax as the “Built-in Gains
Tax”).
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Tenth,
we will incur a 100% excise tax on transactions with a taxable REIT
subsidiary that are not conducted on an arm’s-length
basis.
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Finally,
if we own a residual interest in a real estate mortgage investment
conduit, or “REMIC,” we will be taxable at the highest corporate rate on
the portion of any excess inclusion income that we derive from the REMIC
residual interests equal to the percentage of our shares that is held in
record name by “disqualified organizations.” Similar rules apply if we own
an equity interest in a taxable mortgage pool. A “disqualified
organization” includes the United States, any state or political
subdivision thereof, any foreign government or international organization,
any agency or instrumentality of any of the foregoing, any rural
electrical or telephone cooperative and any tax-exempt organization (other
than a farmer’s cooperative described in Section 521 of the Code) that is
exempt from income taxation and from the unrelated business taxable income
provisions of the Code. However, to the extent that we own a REMIC
residual interest or a taxable mortgage pool through a taxable REIT
subsidiary, we will not be subject to this tax. See the heading
“Requirements for Qualification”
below.
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Requirements for
Qualification. A REIT is a corporation,
trust or association (1) that is managed by one or more trustees or directors,
(2) the beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest, (3) that would be taxable as a
domestic corporation, but for Sections 856 through 859 of the Code, (4) that is
neither a financial institution nor an insurance company subject to certain
provisions of the Code, (5) that has the calendar year as its taxable year, (6)
the beneficial ownership of which is held by 100 or more persons, (7) during the
last half of each taxable year, not more than 50% in value of the outstanding
stock of which is owned, directly or indirectly, by five or fewer individuals
(as defined in the Code to include certain entities), and (8) that meets certain
other tests, described below, regarding the nature of its income and assets. The
Code provides that conditions (1) through (5), inclusive, must be met during the
entire taxable year and that condition (6) must be met during at least 335 days
of a taxable year of twelve (12) months, or during a proportionate part of a
taxable year of less than twelve (12) months.
We may
redeem, at our option, a sufficient number of shares or restrict the transfer
thereof to bring or maintain the ownership of the shares in conformity with the
requirements of the Code. In addition, our declaration of trust includes
restrictions regarding the transfer of our shares that are intended to assist us
in continuing to satisfy requirements (6) and (7). Moreover, if we comply with
regulatory rules pursuant to which we are required to send annual letters to our
shareholders requesting information regarding the actual ownership of our
shares, and we do not know, or exercising reasonable diligence would not have
known, whether we failed to meet requirement (7) above, we will be treated as
having met the requirement.
The Code
allows a REIT to own wholly-owned corporate subsidiaries which are “qualified
REIT subsidiaries.” The Code provides that a qualified REIT subsidiary is not
treated as a separate corporation, and all of its assets, liabilities and items
of income, deduction and credit are treated as assets, liabilities and items of
income, deduction and credit of the REIT. Thus, in applying the requirements
described herein, our qualified REIT subsidiaries will be ignored, and all
assets, liabilities and items of income, deduction and credit of such
subsidiaries will be treated as our assets, liabilities and items of income,
deduction and credit.
20
For
taxable years beginning on or after January 1, 2001, a REIT may also hold any
direct or indirect interest in a corporation that qualifies as a “taxable REIT
subsidiary,” as long as the REIT’s aggregate holdings of taxable REIT subsidiary
securities do not exceed 20% of the value of the REIT’s total assets (for
taxable years beginning after July 30, 2008, 25% of the value of the REIT’s
total assets) at the close of each quarter. A taxable REIT subsidiary is a fully
taxable corporation that generally is permitted to engage in businesses (other
than certain activities relating to lodging and health care facilities), own
assets, and earn income that, if engaged in, owned, or earned by the REIT, might
jeopardize REIT status or result in the imposition of penalty taxes on the REIT.
To qualify as a taxable REIT subsidiary, the subsidiary and the REIT must make a
joint election to treat the subsidiary as a taxable REIT subsidiary. A taxable
REIT subsidiary also includes any corporation (other than a REIT or a qualified
REIT subsidiary) in which a taxable REIT subsidiary directly or indirectly owns
more than 35% of the total voting power or value. See “Asset Tests” below. A
taxable REIT subsidiary will pay tax at regular corporate income rates on any
taxable income it earns. Moreover, the Code contains rules, including rules
requiring the imposition of taxes on a REIT at the rate of 100% on certain
reallocated income and expenses, to ensure that contractual arrangements between
a taxable REIT subsidiary and its parent REIT are at arm’s-length.
In the
case of a REIT which is a partner in a partnership, Treasury Regulations provide
that the REIT will be deemed to own its proportionate share of each of the
assets of the partnership and will be deemed to be entitled to the income of the
partnership attributable to such share for purposes of satisfying the gross
income and assets tests (as discussed below). In addition, the character of the
assets and items of gross income of the partnership will retain the same
character in the hands of the REIT. Thus, our proportionate share (based on
equity capital) of the assets, liabilities, and items of gross income of the
partnerships in which we own an interest are treated as our assets, liabilities
and items of gross income for purposes of applying the requirements described
herein. The treatment described above also applies with respect to the ownership
of interests in limited liability companies or other entities that are treated
as partnerships for tax purposes.
A
significant number of our investments are held through partnerships. If any such
partnerships were treated as an association, the entity would be taxable as a
corporation and therefore would be subject to an entity level tax on its income.
In such a situation, the character of our assets and items of gross income would
change and might preclude us from qualifying as a REIT. We believe that each
partnership in which we hold a material interest (either directly or indirectly)
is properly treated as a partnership for tax purposes (and not as an association
taxable as a corporation).
Special
rules apply to a REIT, a portion of a REIT, or a qualified REIT subsidiary that
is a taxable mortgage pool. An entity or portion thereof may be classified as a
taxable mortgage pool under the Code if:
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substantially
all of the assets consist of debt obligations or interests in debt
obligations;
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more
than 50% of those debt obligations are real estate mortgage loans or
interests in real estate mortgage loans as of specified testing
dates;
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the
entity has issued debt obligations that have two or more maturities;
and
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the
payments required to be made by the entity on its debt obligations “bear a
relationship” to the payments to be received by the entity on the debt
obligations that it holds as
assets.
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Under
Treasury Regulations, if less than 80% of the assets of an entity (or the
portion thereof) consist of debt obligations, these debt obligations are
considered not to comprise “substantially all” of its assets, and therefore the
entity would not be treated as a taxable mortgage pool.
An entity
or portion thereof that is classified as a taxable mortgage pool is generally
treated as a taxable corporation for federal income tax purposes. However, the
portion of the REIT’s assets, held directly or through a qualified REIT
subsidiary, that qualifies as a taxable mortgage pool is treated as a qualified
REIT subsidiary that is not subject to corporate income tax and therefore the
taxable mortgage pool classification does not change that treatment. The
classification of a REIT, qualified REIT subsidiary or portion thereof as a
taxable mortgage pool could, however, result in taxation of a REIT and certain
of its shareholders as described below.
21
IRS
guidance indicates that a portion of income from a taxable mortgage pool
arrangement, if any, could be treated as “excess inclusion income.” Excess
inclusion income is an amount, with respect to any calendar quarter, equal to
the excess, if any, of (i) income allocable to the holder of a REMIC residual
interest or taxable mortgage pool interest over (ii) the sum of an amount for
each day in the calendar quarter equal to the product of (a) the adjusted issue
price at the beginning of the quarter multiplied by (b) 120% of the long-term
federal rate (determined on the basis of compounding at the close of each
calendar quarter and properly adjusted for the length of such quarter). Under
the recent guidance, such income would be allocated among our shareholders in
proportion to dividends paid and, generally, may not be offset by net operating
losses of the shareholder, would be taxable to tax exempt shareholders who are
subject to the unrelated business income tax rules of the Code and would subject
non-U.S. shareholders to a 30% withholding tax (without exemption or reduction
of the withholding rate). To the extent that excess inclusion income is
allocated from a taxable mortgage pool to any disqualified organizations that
hold our shares, we may be taxable on this income at the highest applicable
corporate tax rate (currently 35%). Because this tax would be imposed on the
REIT, all of the REIT’s shareholders, including shareholders that are not
disqualified organizations, would bear a portion of the tax cost associated with
the classification of any portion of our assets as a taxable mortgage
pool.
If we own
less than 100% of the ownership interests in a subsidiary that is a taxable
mortgage pool, the foregoing rules would not apply. Rather, the subsidiary would
be treated as a corporation for federal income tax purposes and would
potentially be subject to corporate income tax. In addition, this
characterization would affect our REIT income and asset test calculations and
could adversely affect our ability to qualify as a REIT.
We have
made and in the future intend to make investments or enter into financing and
securitization transactions that may give rise to our being considered to own an
interest, directly or indirectly, in one or more taxable mortgage pools.
Prospective holders are urged to consult their own tax advisors regarding the
tax consequences of the taxable mortgage pool rules to them in light of their
particular circumstances.
Income
Tests. In order to maintain qualification as a REIT, we must
satisfy annually certain gross income requirements. First, at least 75% of our
gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived directly or indirectly from investments relating to
real property or mortgages on real property (including “rents from real
property;” gain from the sale of real property other than property held for sale
to customers in the ordinary course of business; dividends from, and gain from
the sale of shares of, other qualifying REITs; certain interest described
further below; and certain income derived from a REMIC) or from certain types of
qualified temporary investments. Second, at least 95% of our gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from income that qualifies under the foregoing 75% gross income test,
other types of dividends and interest, gain from the sale or disposition of
stock or securities and certain other specified sources. Any income from a
hedging transaction entered into after December 31, 2004 that is clearly and
timely identified and hedges indebtedness incurred or to be incurred to acquire
or carry real estate assets will not constitute gross income, rather than being
treated as qualifying or nonqualifying income, for purposes of the 95% gross
income test and, with respect to such hedging transactions entered into after
July 30, 2008, for purposes of the 75% gross income test as well. For
transactions entered into after July 30, 2008, a hedging transaction also
includes a transaction entered into to manage foreign currency risks with
respect to items of income and gain (or any property which generates such income
or gain) that would be qualifying income under the 75% or 95% gross income
tests, but only if such transaction is clearly identified before the close of
the day it was acquired, originated or entered into. In addition,
certain foreign currency gains recognized after July 30, 2008 will be excluded
from gross income for purposes of one or both of the gross income
tests.
Rents
received by us will qualify as “rents from real property” in satisfying the
gross income requirements for a REIT described above only if several conditions
are met. First, the amount of rent must not be based in whole or in part on the
income or profits of any person. However, an amount received or accrued
generally will not be excluded from the term “rents from real property” solely
by reason of being based on a fixed percentage or percentages of receipts or
sales. Second, the Code provides that rents received from a tenant will not
qualify as “rents from real property” in satisfying the gross income tests if
we, or an owner of 10% or more of our shares, actually or constructively own 10%
or more of such tenant. Third, if rent attributable to personal property, leased
in connection with a lease of real property, is greater than 15% of the total
rent received under the lease, then the portion of rent attributable to such
personal property (based on the ratio of fair market value of personal and real
property) will not qualify as “rents from real property.” Finally, in order for
rents received to qualify as “rents from real property,” we generally must not
operate or manage the property (subject to a de minimis exception as described
below) or furnish or render services to the tenants of such property, other than
through an independent contractor from whom we derive no revenue or through a
taxable REIT subsidiary. We may, however, directly perform certain services that
are “usually or customarily rendered” in connection with the rental of space for
occupancy only and are not otherwise considered “rendered to the occupant” of
the property (“Permissible Services”).
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For our
taxable years commencing on or after January 1, 1998, rents received generally
will qualify as rents from real property notwithstanding the fact that we
provide services that are not Permissible Services so long as the amount
received for such services meets a de minimis standard. The amount received for
“impermissible services” with respect to a property (or, if services are
available only to certain tenants, possibly with respect to such tenants) cannot
exceed one percent of all amounts received, directly or indirectly, by us with
respect to such property (or, if services are available only to certain tenants,
possibly with respect to such tenants). The amount that we will be deemed to
have received for performing “impermissible services” will be the greater of the
actual amounts so received or 150% of the direct cost to us of providing those
services.
We
believe that substantially all of our rental income will be qualifying income
under the gross income tests, and that our provision of services will not cause
the rental income to fail to be qualifying income under those
tests.
Generally,
interest on debt secured by a mortgage on real property or interests in real
property qualifies for purposes of satisfying the 75% gross income test
described above. However, if 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 the REIT agreed to originate or
acquire the loan, a proportionate amount 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 addition, any interest amount that is based in whole or in
part on the income or profits of any person does not qualify for purposes of the
foregoing 75% and 95% income tests except (a) amounts that are based on a fixed
percentage or percentages of receipts or sales and (b) amounts that are 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 the 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 is generally qualifying income for purposes of both
gross income tests.
If we
fail to satisfy one or both of the 75% or 95% gross income tests for any taxable
year, we may nevertheless qualify as a REIT for such year if such failure was
due to reasonable cause and not willful neglect and we file a schedule
describing each item of our gross income for such taxable year in accordance
with Treasury Regulations (and for taxable years beginning on or before October
22, 2004, any incorrect information on the schedule was not due to fraud with
intent to evade tax). It is not possible, however, to state whether in all
circumstances we would be entitled to the benefit of this relief provision. Even
if this relief provision applied, a 100% penalty tax would be imposed on the
amount by which we failed the 75% gross income test or the amount by which 95%
(90% for taxable years ending on or prior to December 31, 2004) of our gross
income exceeds the amount of income qualifying under the 95% gross income test
(whichever amount is greater), multiplied by a fraction intended to reflect our
profitability.
Subject
to certain safe harbor exceptions, any gain (including certain foreign currency
gain recognized after July 30, 2008) realized by us on the sale of any property
held as inventory or other property held primarily for sale to customers in the
ordinary course of business will be treated as income from a prohibited
transaction that is subject to a 100% penalty tax. Such prohibited transaction
income may also have an adverse effect upon our ability to qualify as a
REIT. In June 2007, we announced a restructuring of our investment
strategy, focusing on core and core plus assets. While we believe
that the dispositions of our assets pursuant to the restructuring of our
investment strategy should not be treated as prohibited transactions, and
although we intend to conduct our operations so that we will not be treated as
holding our properties for sale, whether a particular sale will be treated as a
prohibited transaction depends on all the facts and circumstances with respect
to the particular transaction. We have not sought and do not intend
to seek a ruling from the IRS regarding any
dispositions. Accordingly, there can be no assurance that the IRS
will not successfully assert a contrary position with respect to our
dispositions. If all or a significant portion of our dispositions
were treated as prohibited transactions, we would incur a significant U.S.
federal tax liability, which could have a material adverse effect on our results
of operations.
23
We will
be subject to tax at the maximum corporate rate on any income from foreclosure
property (including certain foreign currency gains and related deductions
recognized after July 30, 2008), 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 (1)
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; (2) for which the related loan was acquired by the REIT at a time when
the default was not imminent or anticipated; and (3) for which the REIT makes a
proper election to treat the property as foreclosure property. Any
gain from the sale of property for which a foreclosure property election has
been made will not be subject to the 100% tax on gains from prohibited
transactions described above, even if the property would otherwise constitute
inventory or dealer property.
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, unless a
longer extension is granted by the Secretary of the Treasury or the grace period
terminates earlier due to certain nonqualifying income or activities generated
with respect to the property.
Asset
Tests. At
the close of each quarter of our taxable year, we must also satisfy the
following tests relating to the nature of our assets. At least 75% of the value
of our total assets, including our allocable share of assets held by
partnerships in which we own an interest, must be represented by real estate
assets, stock or debt instruments held for not more than one year purchased with
the proceeds of an offering of equity securities or a long-term (at least five
years) public debt offering by us, cash, cash items (including certain
receivables) and government securities. For this purpose, real estate assets
include interests in real property, such as land, buildings, leasehold interests
in real property, stock of other corporations that qualify as REITs, and certain
kinds of mortgage-backed securities (including regular or residual interests in
a REMIC to the extent provided in the Code) and mortgage loans. In
addition, not more than 25% of our total assets may be represented by securities
other than those in the 75% asset class. Not more than 20% of the value of our
total assets (for taxable years beginning after July 30, 2008, 25% of the value
of our total assets) may be represented by securities of one or more taxable
REIT subsidiaries (as defined above under “Requirements for Qualification”).
Except for investments included in the 75% asset class, securities in a taxable
REIT subsidiary or qualified REIT subsidiary and certain partnership interests
and debt obligations, (1) not more than 5% of the value of our total assets may
be represented by securities of any one issuer (the “5% asset test”), (2) we may
not hold securities that possess more than 10% of the total voting power of the
outstanding securities of a single issuer (the “10% voting securities test”) and
(3) we may not hold securities that have a value of more than 10% of the total
value of the outstanding securities of any one issuer (the “10% value
test”).
The
following assets are not treated as “securities” held by us for purposes of the
10% value test (i) “straight debt” meeting certain requirements, unless we hold
(either directly or through our “controlled” taxable REIT subsidiaries) certain
other securities of the same corporate or partnership issuer that have an
aggregate value greater than 1% of such issuer’s outstanding securities; (ii)
loans to individuals or estates; (iii) certain rental agreements calling for
deferred rents or increasing rents that are subject to Section 467 of the Code,
other than with certain related persons; (iv) obligations to pay us amounts
qualifying as “rents from real property” under the 75% and 95% gross income
tests; (v) securities issued by a state or any political subdivision of a state,
the District of Columbia, a foreign government, any political subdivision of a
foreign government, or the Commonwealth of Puerto Rico, but only if the
determination of any payment received or accrued under the security does not
depend in whole or in part on the profits of any person not described in this
category, or payments on any obligation issued by such an entity; (vi)
securities issued by another qualifying REIT; and (vii) other arrangements
identified in Treasury Regulations (which have not yet been issued or proposed).
In addition, any debt instrument issued by a partnership will not be treated as
a “security” under the 10% value test if at least 75% of the partnership’s gross
income (excluding gross income from prohibited transactions) is derived from
sources meeting the requirements of the 75% gross income test. If the
partnership fails to meet the 75% gross income test, then the debt instrument
issued by the partnership nevertheless will not be treated as a “security” to
the extent of our interest as a partner in the partnership. Also, in looking
through any partnership to determine our allocable share of any securities owned
by the partnership, our share of the assets of the partnership, solely for
purposes of applying the 10% value test in taxable years beginning on or after
January 1, 2005, will correspond not only to our interest as a partner in the
partnership but also to our proportionate interest in certain debt securities
issued by the partnership.
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Through
our investment in Concord Debt Holdings LLC, we may hold mezzanine loans that
are secured by equity interests in a non-corporate entity that directly or
indirectly owns real property. IRS Revenue Procedure 2003-65 provides a safe
harbor pursuant to which a mezzanine loan to such a non-corporate entity, 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,
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, not all of the mezzanine loans that we hold meet
all of the requirements for reliance on this safe harbor. We have
invested, and intend to continue to invest, in mezzanine loans in a manner that
will enable us to continue to satisfy the gross income and asset
tests.
We may
also hold through our investment in Concord Debt Holdings LLC certain
participation interests, or “B-Notes,” in mortgage loans and mezzanine loans
originated by other lenders. A B-Note is an interest created in an underlying
loan by virtue of a participation or similar agreement, to which the originator
of the loan is a party, along with one or more participants. The borrower on the
underlying loan is typically not a party to the participation agreement. The
performance of a participant’s investment depends upon the performance of the
underlying loan, and if the underlying borrower defaults, the participant
typically has no recourse against the originator of the loan. The originator
often retains a senior position in the underlying loan, and grants junior
participations, which will be a first loss position in the event of a default by
the borrower. The appropriate treatment of participation interests for federal
income tax purposes is not entirely certain. We believe that we have
invested, and intend to continue to invest, in participation interests that
qualify as real estate assets for purposes of the asset tests, and that generate
interest that will be treated as qualifying mortgage interest for purposes of
the 75% gross income test, but no assurance can be given that the IRS will not
challenge our treatment of these participation interests.
We
believe that substantially all of our assets consist of (1) real properties, (2)
stock or debt investments that earn qualified temporary investment income, (3)
other qualified real estate assets, including qualifying REITs, and (4) cash,
cash items and government securities. We also believe that the value
of our securities in our taxable REIT subsidiaries will not exceed 20% of the
value of our total assets (or, beginning with our 2009 taxable year, 25% of the
value of our total assets). We may also invest in securities of other entities,
provided that such investments will not prevent us from satisfying the asset and
income tests for REIT qualification set forth above. If any interest
we hold in any REIT (including Concord Debt Funding Trust) or other category of
permissible investment described above does not qualify as such, we would be
subject to the 5% asset test and the 10% voting securities and value tests with
respect to such investment.
After
initially meeting the asset tests at the close of any quarter, we will not lose
our status as a REIT for failure to satisfy the asset tests at the end of a
later quarter solely by reason of changes in asset values (including, for
taxable years beginning after July 30, 2008, discrepancies caused solely by a
change in the foreign currency exchange rate used to value a foreign asset). If
we inadvertently fail one or more of the asset tests at the end of a calendar
quarter because we acquire securities or other property during the quarter, we
can cure this failure by disposing of sufficient nonqualifying assets within 30
days after the close of the calendar quarter in which it arose. If we were to
fail any of the asset tests at the end of any quarter without curing such
failure within 30 days after the end of such quarter, we would fail to qualify
as a REIT, unless we were to qualify under certain relief provisions enacted in
2004. Under one of these relief provisions, if we were to fail the 5% asset
test, the 10% voting securities test, or the 10% value test, we nevertheless
would continue to qualify as a REIT if the failure was due to the ownership of
assets having a total value not exceeding the lesser of 1% of our assets at the
end of the relevant quarter or $10,000,000, and we were to dispose of such
assets (or otherwise meet such asset tests) within six months after the end of
the quarter in which the failure was identified. If we were to fail to meet any
of the REIT asset tests for a particular quarter, but we did not qualify for the
relief for de minimis failures that is described in the preceding sentence, then
we would be deemed to have satisfied the relevant asset test if: (i) following
our identification of the failure, we were to file a schedule with a description
of each asset that caused the failure; (ii) the failure was due to reasonable
cause and not due to willful neglect; (iii) we were to dispose of the
non-qualifying asset (or otherwise meet the relevant asset test) within six
months after the last day of the quarter in which the failure was identified,
and (iv) we were to pay a penalty tax equal to the greater of $50,000, or the
highest corporate tax rate multiplied by the net income generated by the
non-qualifying asset during the period beginning on the first date of the
failure and ending on the date we dispose of the asset (or otherwise cure the
asset test failure). These relief provisions will be available to us in our
taxable years beginning on or after January 1, 2005, although it is not possible
to predict whether in all circumstances we would be entitled to the benefit of
these relief provisions.
25
Annual
Distribution Requirement. With respect to each
taxable year, we must distribute to our shareholders as dividends (other than
capital gain dividends) at least 90% of our taxable income. Specifically, we
must distribute an amount equal to (1) 90% of the sum of our “REIT taxable
income” (determined without regard to the deduction for dividends paid and by
excluding any net capital gain), and any after-tax net income from foreclosure
property, minus (2) the sum of certain items of “excess noncash income” such as
income attributable to leveled stepped rents, cancellation of indebtedness and
original issue discount. REIT taxable income is generally computed in the same
manner as taxable income of ordinary corporations, with several adjustments,
such as a deduction allowed for dividends paid, but not for dividends
received.
We will
be subject to tax on amounts not distributed at regular United States federal
corporate income tax rates. In addition, a nondeductible 4% excise tax is
imposed on the excess of (1) 85% of our ordinary income for the year plus 95% of
capital gain net income for the year and the undistributed portion of the
required distribution for the prior year over (2) the actual distribution to
shareholders during the year (if any). Net operating losses generated by us may
be carried forward but not carried back and used by us for 15 years (or 20 years
in the case of net operating losses generated in our tax years commencing on or
after January 1, 1998) to reduce REIT taxable income and the amount that we will
be required to distribute in order to remain qualified as a REIT. As a REIT, our
net capital losses may be carried forward for five years (but not carried back)
and used to reduce capital gains.
In
general, a distribution must be made during the taxable year to which it relates
to satisfy the distribution test and to be deducted in computing REIT taxable
income. However, we may elect to treat a dividend declared and paid after the
end of the year (a “subsequent declared dividend”) as paid during such year for
purposes of complying with the distribution test and computing REIT taxable
income, if the dividend is (1) declared before the regular or extended due date
of our tax return for such year and (2) paid not later than the date of the
first regular dividend payment made after the declaration, but in no case later
than 12 months after the end of the year. For purposes of computing the
nondeductible 4% excise tax, a subsequent declared dividend is considered paid
when actually distributed. Furthermore, any dividend that is declared by us in
October, November or December of a calendar year, and payable to shareholders of
record as of a specified date in such quarter of such year will be deemed to
have been paid by us (and received by shareholders) on December 31 of such
calendar year, but only if such dividend is actually paid by us in January of
the following calendar year.
For
purposes of complying with the distribution test for a taxable year as a result
of an adjustment in certain of our items of income, gain or deduction by the IRS
or us, we may be permitted to remedy such failure by paying a “deficiency
dividend” in a later year together with interest. Such deficiency dividend may
be included in our deduction of dividends paid for the earlier year for purposes
of satisfying the distribution test. For purposes of the nondeductible 4% excise
tax, the deficiency dividend is taken into account when paid, and any income
giving rise to the deficiency adjustment is treated as arising when the
deficiency dividend is paid.
26
The IRS
has published guidance providing temporary relief for a publicly-traded REIT to
satisfy the annual distribution requirement with distributions consisting of its
stock and at least a minimum percentage of cash. Pursuant to this IRS
guidance, a REIT may treat the entire amount of a distribution consisting of
both stock and cash as a qualifying distribution for purposes of the annual
distribution requirement provided that such distribution is declared on or after
January 1, 2008 and the following requirements are met: (1) the distribution is
made by the REIT to its shareholders with respect to its stock; (2) stock of the
REIT is publicly traded on an established securities market in the United
States; (3) the distribution is declared with respect to a taxable year ending
on or before December 31, 2009; (4) pursuant to such declaration, each
shareholder may elect to receive its proportionate share of the declared
distribution in either money or stock of the REIT of equivalent value, subject
to a limitation on the amount of money to be distributed in the aggregate to all
shareholders (the “Cash Limitation”), provided that – (a) such Cash Limitation
is not less than 10% of the aggregate declared distribution, and (b) if too many
shareholders elect to receive money, each shareholder electing to receive money
will receive a pro rata amount of money corresponding to the shareholder’s
respective entitlement under the declaration, but in no event will any
shareholder electing to receive money receive less than 10% of the shareholder’s
entire entitlement under the declaration in money; (5) the calculation of the
number of shares to be received by any shareholder will be determined, as close
as practicable to the payment date, based upon a formula utilizing market prices
that is designed to equate in value the number of shares to be received with the
amount of money that could be received instead; and (6) with respect to any
shareholder participating in a dividend reinvestment plan (“DRIP”), the DRIP
applies only to the extent that, in the absence of the DRIP, the shareholder
would have received the distribution in money under subsection
(4) above.
We
believe that we have distributed and intend to continue to distribute to our
shareholders in a timely manner such amounts sufficient to satisfy the annual
distribution requirements. However, it is possible that timing differences
between the accrual of income and its actual collection, and the need to make
nondeductible expenditures (such as capital improvements or principal payments
on debt) may cause us to recognize taxable income in excess of our net cash
receipts, thus increasing the difficulty of compliance with the distribution
requirement. In addition, excess inclusion income might be non-cash accrued
income, or “phantom” taxable income, which could therefore adversely affect our
ability to satisfy our distribution requirements. In order to meet the
distribution requirement, we might find it necessary to arrange for short-term,
or possibly long-term, borrowings.
Failure to
Qualify. Commencing with our
taxable year beginning January 1, 2005, if we were to fail to satisfy one or
more requirements for REIT qualification, other than an asset or income test
violation of a type for which relief is otherwise available as described above,
we would retain our REIT qualification if the failure was due to reasonable
cause and not willful neglect, and if we were to pay a penalty of $50,000 for
each such failure. It is not possible to predict whether in all circumstances we
would be entitled to the benefit of this relief provision. If we fail to qualify
as a REIT for any taxable year, and if certain relief provisions of the Code do
not apply, we would be subject to federal income tax (including applicable
alternative minimum tax) on our taxable income at regular corporate rates.
Distributions to shareholders in any year in which we fail to qualify will not
be deductible from our taxable income nor will they be required to be made. As a
result, our failure to qualify as a REIT would reduce the cash available for
distribution by us to our shareholders. In addition, if we fail to qualify as a
REIT, all distributions to shareholders will be taxable as ordinary income, to
the extent of our current and accumulated earnings and profits. Subject to
certain limitations of the Code, corporate distributees may be eligible for the
dividends-received deduction and shareholders taxed as individuals may be
eligible for a reduced tax rate on “qualified dividend income” from regular C
corporations.
If our
failure to qualify as a REIT is not due to reasonable cause but results from
willful neglect, we would not be permitted to elect REIT status for the four
taxable years after the taxable year for which such disqualification is
effective. In the event we were to fail to qualify as a REIT in one year and
subsequently requalify in a later year, we may elect to recognize taxable income
based on the net appreciation in value of our assets as a condition to
requalification. In the alternative, we may be taxed on the net appreciation in
value of our assets if we sell properties within ten years of the date we
requalify as a REIT under federal income tax laws.
27
Taxation
of Shareholders
As used
herein, the term “U.S. shareholder” means a beneficial owner of our common
shares who (for United States federal income tax purposes) (1) is a citizen or
resident of the United States, (2) is a corporation or other entity treated as a
corporation for federal income tax purposes created or organized in or under the
laws of the United States or of any political subdivision thereof, (3) is an
estate the income of which is subject to United States federal income taxation
regardless of its source or (4) is a trust whose administration is subject to
the primary supervision of a United States court and which has one or more
United States persons who have the authority to control all substantial
decisions of the trust or a trust that has a valid election to be treated as a
U.S. person pursuant to applicable Treasury Regulations. As used herein, the
term “non U.S. shareholder” means a beneficial owner of our common shares who is
not a U.S. shareholder or a partnership.
If a
partnership (including any entity treated as a partnership for U.S. federal
income tax purposes) is a shareholder, the tax treatment of a partner in the
partnership generally will depend upon the status of the partner and the
activities of the partnership. A shareholder that is a partnership and the
partners in such partnership should consult their own tax advisors concerning
the U.S. federal income tax consequences of acquiring, owning and disposing of
our common shares.
Taxation of
Taxable U.S. Shareholders.
As long
as we qualify as a REIT, distributions made to our U.S. shareholders out of
current or accumulated earnings and profits (and not designated as capital gain
dividends) will be taken into account by them as ordinary income and corporate
shareholders will not be eligible for the dividends-received deduction as to
such amounts. For purposes of computing our earnings and profits, depreciation
for depreciable real estate will be computed on a straight-line basis over a
40-year period. For purposes of determining whether distributions on the shares
constitute dividends for tax purposes, our earnings and profits will be
allocated first to distributions with respect to the Series B Preferred Shares,
Series C Preferred Shares, Series D Preferred Shares and all other series of
preferred shares that are equal in rank as to distributions and upon liquidation
with the Series B Preferred Shares, Series C Preferred Shares and Series D
Preferred Shares, and second to distributions with respect to our common shares.
There can be no assurance that we will have sufficient earnings and profits to
cover distributions on any common shares. Certain “qualified dividend income”
received by domestic non-corporate shareholders in taxable years prior to 2011
is subject to tax at the same tax rates as long-term capital gain (generally a
maximum rate of 15% for such taxable years). Dividends paid by a REIT generally
do not qualify as “qualified dividend income” because a REIT is not generally
subject to federal income tax on the portion of its REIT taxable income
distributed to its shareholders. Therefore, our dividends will continue to be
subject to tax at ordinary income rates, subject to two narrow exceptions. Under
the first exception, dividends received from a REIT may be treated as “qualified
dividend income” eligible for the reduced tax rates to the extent that the REIT
itself has received qualified dividend income from other corporations (such as
taxable REIT subsidiaries) in which the REIT has invested. Under the second
exception, dividends paid by a REIT in a taxable year may be treated as
qualified dividend income in an amount equal to the sum of (i) the excess of the
REIT’s “REIT taxable income” for the preceding taxable year over the
corporate-level federal income tax payable by the REIT for such preceding
taxable year and (ii) the excess of the REIT’s income that was subject to the
Built-in Gains Tax (as described above) in the preceding taxable year over the
tax payable by the REIT on such income for such preceding taxable year. We do
not expect to distribute a material amount of qualified dividend income, if
any.
Distributions
that are properly designated as capital gain dividends will be taxed as gains
from the sale or exchange of a capital asset held for more than one year (to the
extent they do not exceed our actual net capital gain for the taxable year)
without regard to the period for which the shareholder has held its shares.
However, corporate shareholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income under the Code. Capital gain
dividends, if any, will be allocated among different classes of shares in
proportion to the allocation of earnings and profits discussed
above.
Distributions
in excess of our current and accumulated earnings and profits will constitute a
non-taxable return of capital to a shareholder to the extent that such
distributions do not exceed the adjusted basis of the shareholder’s shares, and
will result in a corresponding reduction in the shareholder’s basis in the
shares. Any reduction in a shareholder’s tax basis for its shares will increase
the amount of taxable gain or decrease the deductible loss that will be realized
upon the eventual disposition of the shares. We will notify shareholders at the
end of each year as to the portions of the distributions which constitute
ordinary income, capital gain or a return of capital. Any portion of such
distributions that exceeds the adjusted basis of a U.S. shareholder’s shares
will be taxed as capital gain from the disposition of shares, provided that the
shares are held as capital assets in the hands of the U.S.
shareholder.
28
Aside
from the different income tax rates applicable to ordinary income and capital
gain dividends for noncorporate taxpayers, regular and capital gain dividends
from us will be treated as dividend income for most other federal income tax
purposes. In particular, such dividends will be treated as “portfolio” income
for purposes of the passive activity loss limitation and shareholders generally
will not be able to offset any “passive losses” against such dividends. Capital
gain dividends and qualified dividend income may be treated as investment income
for purposes of the investment interest limitation contained in Section 163(d)
of the Code, which limits the deductibility of interest expense incurred by
noncorporate taxpayers with respect to indebtedness attributable to certain
investment assets.
In
general, dividends paid by us will be taxable to shareholders in the year in
which they are received, except in the case of dividends declared at the end of
the year, but paid in the following January, as discussed above.
In
general, a U.S. shareholder will realize capital gain or loss on the disposition
of shares equal to the difference between (1) the amount of cash and the fair
market value of any property received on such disposition and (2) the
shareholder’s adjusted basis of such shares. Such gain or loss will generally be
short-term capital gain or loss if the shareholder has not held such shares for
more than one year and will be long-term capital gain or loss if such shares
have been held for more than one year. Loss upon the sale or exchange of shares
by a shareholder who has held such shares for six months or less (after applying
certain holding period rules) will be treated as long-term capital loss to the
extent of distributions from us required to be treated by such shareholder as
long-term capital gain.
We may
elect to retain and pay income tax on net long-term capital gains. If we make
such an election, you, as a holder of shares, will (1) include in your income as
long-term capital gains your proportionate share of such undistributed capital
gains (2) be deemed to have paid your proportionate share of the tax paid by us
on such undistributed capital gains and thereby receive a credit or refund for
such amount and (3) in the case of a U.S. shareholder that is a corporation,
appropriately adjust its earnings and profits for the retained capital gains in
accordance with Treasury Regulations to be promulgated by the IRS. As a holder
of shares you will increase the basis in your shares by the difference between
the amount of capital gain included in your income and the amount of tax you are
deemed to have paid. Our earnings and profits will be adjusted
appropriately.
Taxation
of Non-U.S. Shareholders.
The
following discussion is only a summary of the rules governing United States
federal income taxation of non-U.S. shareholders such as nonresident alien
individuals and foreign corporations. Prospective non-U.S. shareholders should
consult with their own tax advisors to determine the impact of federal, state
and local income tax laws with regard to an investment in shares, including any
reporting requirements.
Distributions. Distributions
that are not attributable to gain from sales or exchanges by us of “United
States real property interests” or otherwise effectively connected with the
non-U.S. shareholder’s conduct of a U.S. trade or business and that are not
designated by us as capital gain dividends will be treated as dividends of
ordinary income to the extent that they are made out of our current or
accumulated earnings and profits. Such distributions ordinarily will be subject
to a withholding tax equal to 30% of the gross amount of the distribution unless
an applicable tax treaty reduces or eliminates that tax. Certain tax treaties
limit the extent to which dividends paid by a REIT can qualify for a reduction
of the withholding tax on dividends. Our dividends that are attributable to
excess inclusion income will be subject to 30% U.S. withholding tax without
reduction under any otherwise applicable tax treaty. See “—Taxation of the
Company—Requirements for Qualification” above. Distributions in excess of our
current and accumulated earnings and profits will not be taxable to a non-U.S.
shareholder to the extent that they do not exceed the adjusted basis of the
shareholder’s shares, but rather will reduce the adjusted basis of such shares.
To the extent that such distributions exceed the adjusted basis of a non-U.S.
shareholder’s shares, they will give rise to tax liability if the non-U.S.
shareholder would otherwise be subject to tax on any gain from the sale or
disposition of his shares, as described below. If a distribution is
treated as effectively connected with the non-U.S. shareholder’s conduct of a
U.S. trade or business, the non-U.S. shareholder generally will be subject to
federal income tax on the distribution at graduated rates, in the same manner as
U.S. shareholders are taxed with respect to such distribution, and a non-U.S.
shareholder that is a corporation also may be subject to the 30% branch profits
tax with respect to the distribution.
29
For
withholding tax purposes, we are generally required to treat all distributions
as if made out of our current or accumulated earnings and profits and thus
intend to withhold at the rate of 30% (or a reduced treaty rate if applicable)
on the amount of any distribution (other than distributions designated as
capital gain dividends) made to a non-U.S. shareholder. We would not be required
to withhold at the 30% rate on distributions we reasonably estimate to be in
excess of our current and accumulated earnings and profits. If it cannot be
determined at the time a distribution is made whether such distribution will be
in excess of current and accumulated earnings and profits, the distribution will
be subject to withholding at the rate applicable to ordinary dividends. However,
the non-U.S. shareholder may seek a refund of such amounts from the IRS if it is
subsequently determined that such distribution was, in fact, in excess of our
current or accumulated earnings and profits, and the amount withheld exceeded
the non-U.S. shareholder’s United States tax liability, if any, with respect to
the distribution.
For any
year in which we qualify as a REIT, distributions to non-U.S. shareholders who
own more than 5% of our shares and that are attributable to gain from sales or
exchanges by us of United States real property interests will be taxed under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
(“FIRPTA”). Under FIRPTA, a non-U.S. shareholder is taxed as if such gain were
effectively connected with a United States business. Non-U.S. shareholders who
own more than 5% of our shares would thus be taxed at the normal capital gain
rates applicable to U.S. shareholders (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of non-resident alien
individuals). Also, distributions made to non-U.S. shareholders who own more
than 5% of our shares may be subject to a 30% branch profits tax in the hands of
a corporate non-U.S. shareholder not entitled to treaty relief or exemption. We
are required by applicable regulations to withhold 35% of any distribution that
could be designated by us as a capital gain dividend regardless of the amount
actually designated as a capital gain dividend. This amount is creditable
against the non-U.S. shareholder’s FIRPTA tax liability.
Under the
Tax Increase Prevention and Reconciliation Act of 2005 (“TIPRA”), enacted on May
17, 2006, distributions, made to REIT or regulated investment company (“RIC”)
shareholders, that are attributable to gain from sales or exchanges of United
States real property interests will retain their character as gain subject to
the rules of FIRPTA discussed above when distributed by such REIT or RIC
shareholders to their respective shareholders. This provision is effective for
taxable years beginning after December 31, 2005.
If a
non-U.S. shareholder does not own more than 5% of our shares during the one-year
period prior to a distribution attributable to gain from sales or exchanges by
us of United States real property interests, such distribution will not be
considered to be gain effectively connected with a U.S. business as long as the
class of shares continues to be regularly traded on an established securities
market in the United States. As such, a non-U.S. shareholder who does not own
more than 5% of our shares would not be required to file a U.S. Federal income
tax return by reason of receiving such a distribution. In this case, the
distribution will be treated as a REIT dividend to that non-U.S. shareholder and
taxed as a REIT dividend that is not a capital gain distribution as described
above. In addition, the branch profits tax will not apply to such distributions.
If our common shares cease to be regularly traded on an established securities
market in the United States, all non-U.S. shareholders of our common shares
would be subject to taxation under FIRPTA with respect to capital gain
distributions attributable to gain from the sale or exchange of United States
real property interests.
Dispositions. Gain
recognized by a non-U.S. shareholder upon a sale or disposition of our common
shares generally will not be taxed under FIRPTA if we are a “domestically
controlled REIT,” defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of our shares was held directly
or indirectly by non-U.S. persons. We believe, but cannot guarantee, that we
have been a “domestically controlled REIT.” However, because our shares are
publicly traded, no assurance can be given that we will continue to be a
“domestically controlled REIT.”
Notwithstanding
the general FIRPTA exception for sales of domestically controlled REIT stock
discussed above, a disposition of domestically controlled REIT stock will be
taxable if the disposition occurs in a wash sale transaction relating to a
distribution on such stock. In addition, FIRPTA taxation will apply to
substitute dividend payments received in securities lending transactions or
sale-repurchase transactions of domestically controlled REIT stock to the extent
such payments are made to shareholders in lieu of distributions that would have
otherwise been subject to FIRPTA taxation. The foregoing rules regarding wash
sales and substitute dividend payments with respect to domestically controlled
REIT stock will not apply to stock that is regularly traded on an established
securities market within the United States and held by a non-U.S. shareholder
that held five percent or less of such stock during the one-year period prior to
the related distribution. These rules are effective for distributions on and
after June 16, 2006. Prospective purchasers are urged to consult their own tax
advisors regarding the applicability of the new rules enacted under TIPRA to
their particular circumstances.
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In
addition, a non-U.S. shareholder that owns, actually or constructively, 5% or
less of a class of our shares through a specified testing period, whether or not
our shares are domestically controlled, will not be subject to tax on the sale
of its shares under FIRPTA if the shares are regularly traded on an established
securities market. If the gain on the sale of shares were to be subject to
taxation under FIRPTA, the non-U.S. shareholder would be subject to the same
treatment as U.S. shareholders with respect to such gain (subject to applicable
alternative minimum tax, special alternative minimum tax in the case of
nonresident alien individuals and possible application of the 30% branch profits
tax in the case of foreign corporations) and the purchaser would be required to
withhold and remit to the IRS 10% of the purchase price.
Gain not
subject to FIRPTA will be taxable to a non-U.S. shareholder if (1) investment in
the shares is effectively connected with the non-U.S. shareholder’s U.S. trade
or business, in which case the non-U.S. shareholder will be subject to the same
treatment as U.S. shareholders with respect to such gain, or (2) the non-U.S.
shareholder is a nonresident alien individual who was present in the United
States for 183 days or more during the taxable year and such nonresident alien
individual has a “tax home” in the United States, in which case the nonresident
alien individual will be subject to a 30% tax on the individual’s capital
gain.
Taxation
of Tax-Exempt Shareholders.
Tax-exempt
entities, including qualified employee pension and profit sharing trusts and
individual retirement accounts (“Exempt Organizations”), generally are exempt
from federal income taxation. However, they are subject to taxation on their
unrelated business taxable income (“UBTI”). While investments in real estate may
generate UBTI, the IRS has issued a published ruling to the effect that dividend
distributions by a REIT to an exempt employee pension trust do not constitute
UBTI, provided that the shares of the REIT are not otherwise used in an
unrelated trade or business of the exempt employee pension trust. Based on that
ruling, amounts distributed by us to Exempt Organizations generally should not
constitute UBTI. However, if an Exempt Organization finances its acquisition of
our shares with debt, a portion of its income from us, if any, will constitute
UBTI pursuant to the “debt-financed property” rules under the Code. In addition,
our dividends that are attributable to excess inclusion income will constitute
UBTI for most Exempt Organizations. See “—Taxation of the Company—Requirements
for Qualification” above. Furthermore, social clubs, voluntary employee benefit
associations, supplemental unemployment benefit trusts, and qualified group
legal services plans that are exempt from taxation under specified provisions of
the Code are subject to different UBTI rules, which generally will require them
to characterize distributions from us as UBTI.
In
addition, a pension trust that owns more than 10% of our shares is required to
treat a percentage of the dividends from us as UBTI (the “UBTI Percentage”) in
certain circumstances. The UBTI Percentage is our gross income derived 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 the dividends are paid. The UBTI
rule applies only if (i) the UBTI Percentage is at least 5%, (ii) we qualify as
a REIT by reason of the modification of the 5/50 Rule that allows the
beneficiaries of the pension trust to be treated as holding our shares in
proportion to their actuarial interests in the pension trust, and (iii) either
(A) one pension trust owns more than 25% of the value of our shares or (B) a
group of pension trusts individually holding more than 10% of the value of our
capital shares collectively owns more than 50% of the value of our capital
shares.
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Information
Reporting and Backup Withholding
U.S.
Shareholders.
We will
report to U.S. shareholders and the IRS the amount of dividends paid during each
calendar year, and the amount of tax withheld, if any, with respect thereto.
Under the backup withholding rules, a U.S. shareholder may be subject to backup
withholding, currently at a rate of 28%, with respect to dividends paid unless
such holder (a) is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact, or (b) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with the applicable requirements of the
backup withholding rules. A U.S. shareholder who does not provide us with its
correct taxpayer identification number also may be subject to penalties imposed
by the IRS. Amounts withheld as backup withholding will be creditable against
the shareholder’s income tax liability if proper documentation is supplied. In
addition, we may be required to withhold a portion of capital gain distributions
made to any shareholders who fail to certify their non-foreign status to
us.
Non-U.S.
Shareholders.
Generally,
we must report annually to the IRS the amount of dividends paid to a non-U.S.
shareholder, such holder’s name and address, and the amount of tax withheld, if
any. A similar report is sent to the non-U.S. shareholder. Pursuant to tax
treaties or other agreements, the IRS may make its reports available to tax
authorities in the non-U.S. shareholder’s country of residence. Payments of
dividends or of proceeds from the disposition of stock made to a non-U.S.
shareholder may be subject to information reporting and backup withholding
unless such holder establishes an exemption, for example, by properly certifying
its non-United States status on an IRS Form W-8BEN or another appropriate
version of IRS Form W-8. Notwithstanding the foregoing, backup withholding and
information reporting may apply if either we have or our paying agent has actual
knowledge, or reason to know, that a non-U.S. shareholder is a United States
person.
Backup
withholding is not an additional tax. Rather, the United States income tax
liability of persons subject to backup withholding will be reduced by the amount
of tax withheld. If withholding results in an overpayment of taxes, a refund or
credit may be obtained, provided that the required information is furnished to
the IRS.
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EXPERTS
The
consolidated financial statements and related financial statement schedule of
Lexington Realty Trust and subsidiaries included in our Annual Report on Form
10-K as of December 31, 2008 and 2007, and for each of the years in the
three-year period ended December 31, 2008, as updated by our Current Report on
Form 8-K filed on September 1, 2009, and Management’s Annual Report on Internal
Controls over Financial Reporting as of December 31, 2008, have been
incorporated by reference herein and in the Registration Statement in reliance
upon the reports of KPMG LLP, independent registered public accounting firm,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
The
financial statements of Lex-Win Concord LLC incorporated in
this Prospectus by reference to Lexington Realty
Trust’s Current Report on Form 8-K dated September 1, 2009, have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP, an
independent registered public accounting firm, given on the authority of said
firm as experts in auditing and accounting.
The
consolidated financial statements and related financial statement schedule of
Net Lease Strategic Asset Fund L.P. and subsidiaries included in our Annual
Report on Form 10-K as of December 31, 2008 and for the year then ended, have
been incorporated by reference herein and in the Registration Statement in
reliance upon the report of KPMG LLP, independent registered public accounting
firm, incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
LEGAL
MATTERS
Certain
legal matters will be passed upon for us by Paul, Hastings, Janofsky &
Walker LLP, New York, New York. Certain legal matters under Maryland law,
including the legality of the common shares covered by this prospectus, will be
passed on for us by Venable LLP, Baltimore, Maryland.
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No
dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in
or incorporated by reference in this prospectus in connection with the
offer made by this prospectus, and, if given or made, such information or
representations must not be relied upon as having been authorized by us.
This prospectus does not constitute an offer to sell, or a solicitation of
an offer to buy any security other than the common shares offered hereby,
nor does it constitute an offer to sell or a solicitation of any offer to
buy any of the common shares offered by anyone in any jurisdiction in
which such offer or solicitation is not authorized, or in which the person
making such offer or solicitation is not qualified to do so, or to any
person to whom it is unlawful to make such offer or solicitation. Neither
the delivery of this prospectus nor any sale made hereunder shall, under
any circum-stances, create any implication that the information contained
herein is correct as of any time subsequent to the date
hereof.
____________________
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Dividend
Reinvestment
and
Direct
Share Purchase Plan
LEXINGTON
REALTY TRUST
5,764,471
Common Shares of
Beneficial
Interest
PROSPECTUS
The
date of this prospectus is September 4, 2009
.
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