Filed
Pursuant to Rule 424(b)(5)
Registration
No. 333-157858
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9,500,000
Shares
Lexington
Realty Trust
Shares
of Beneficial Interest Classified as Common Stock
We are offering 9,500,000 shares of beneficial interest classified as
common stock, par value $0.0001 per share, which we refer to as common shares.
Our common shares are listed on the New York Stock Exchange under the symbol
“LXP.” On March 25, 2010, the last reported sale price of our common
shares on the New York Stock Exchange was $6.90 per share.
Investing in our common shares
involves risks. See the risk factors set forth in our Annual Report on Form 10-K
for the year ended December 31, 2009 and filed with the Securities and Exchange
Commission on March 1, 2010 and the information under “Risk Factors” on page S-4
of this prospectus supplement for a discussion of factors you should carefully
consider before deciding to purchase our common shares.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of
these securities or determined if this prospectus supplement or the accompanying
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
We have granted the underwriter a 30-day
option to purchase up to an additional 1,425,000 common shares from us to cover
over-allotments.
The underwriter
has agreed to purchase the common shares from us at a price of $6.486 per share,
which will result in net proceeds to us, before deducting expenses related to
this offering, of approximately $61.6 million assuming no exercise of the
over-allotment option granted to the underwriter, and approximately $70.9
million assuming full exercise of the over-allotment option.
The underwriter proposes to offer the common
shares from time to time for sale in negotiated transactions or otherwise at
market prices prevailing at the time of sale at prices related to such
prevailing prices or otherwise.
Delivery
of the common shares will be made on or about March 31, 2010.
Wells
Fargo Securities
The date of this
prospectus supplement is March 26, 2010.
TABLE
OF CONTENTS
Page
Prospectus Supplement
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ABOUT
THIS PROSPECTUS SUPPLEMENT
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S-ii
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CAUTIONARY
STATEMENTS CONCERNING FORWARD-LOOKING INFORMATION
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S-ii
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PROSPECTUS
SUPPLEMENT SUMMARY
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S-1
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THE
OFFERING
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S-2
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CAPITALIZATION
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S-3
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RISK
FACTORS
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S-4
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USE
OF PROCEEDS
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S-4
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DESCRIPTION
OF OUR COMMON SHARES
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S-4
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DESCRIPTION
OF OUR DEBT SECURITIES
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S-5
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RESTRICTIONS
ON TRANSFERS OF CAPITAL SHARES AND ANTI-TAKEOVER
PROVISIONS
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S-6
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ADDITIONAL
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
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S-6
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UNDERWRITING
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S-6
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LEGAL
MATTERS
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S-11
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EXPERTS
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S-11
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WHERE
YOU CAN FIND MORE INFORMATION
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S-11
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Prospectus
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ABOUT
THIS PROSPECTUS
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1
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CAUTIONARY
STATEMENTS CONCERNING FORWARD-LOOKING INFORMATION
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1
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OUR
COMPANY
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2
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RISK
FACTORS
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2
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USE
OF PROCEEDS
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2
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RATIOS
OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED CHARGES
AND
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PREFERRED SHARE
DIVIDENDS
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2
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DESCRIPTION
OF OUR COMMON SHARES
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3
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DESCRIPTION
OF OUR PREFERRED SHARES
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4
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DESCRIPTION
OF OUR DEBT SECURITIES
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10
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DESCRIPTION
OF DEPOSITARY SHARES
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22
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DESCRIPTION
OF WARRANTS
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25
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DESCRIPTION
OF SUBSCRIPTION RIGHTS
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25
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DESCRIPTION
OF UNITS
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26
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RESTRICTIONS
ON TRANSFERS OF CAPITAL STOCK AND ANTI-TAKEOVER PROVISIONS
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26
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UNITED
STATES FEDERAL INCOME TAX CONSIDERATIONS
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30
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PLAN
OF DISTRIBUTION
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44
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LEGAL
MATTERS
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47
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EXPERTS
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47
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WHERE
YOU CAN FIND MORE INFORMATION
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48
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S-i
You should rely only on the
information contained or incorporated by reference into this prospectus
supplement and the accompanying prospectus. We have not, and the underwriter has
not, authorized anyone to provide you with different information. If anyone
provides you with different or additional information, you should not rely on
it. We are not, and the underwriter is not, making an offer to sell these
securities in any state where the offer or sale is not permitted. You should not
assume that the information contained or incorporated by reference in this
prospectus supplement or the accompanying prospectus is accurate as of any date
other than their respective dates. Our business, financial condition, results of
operations and prospects may have changed since those dates.
This document is in two parts. The first part is this prospectus
supplement, which adds to and updates information contained in the accompanying
prospectus and the documents incorporated by reference into the accompanying
prospectus. The second part is the accompanying prospectus, which gives more
general information, some of which may not apply to this offering of common
shares. This prospectus supplement adds, updates and changes information
contained in the accompanying prospectus and the information incorporated by
reference. To the extent the information contained in this prospectus supplement
differs or varies from the information contained in the accompanying prospectus
or any document incorporated by reference, the information in this prospectus
supplement shall control.
All references to “we,”
“our” and “us” in this prospectus supplement 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. The term “you” refers to a prospective
investor.
This prospectus supplement and the information incorporated by reference in
this prospectus supplement 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 economic conditions generally and the real estate market
specifically;
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adverse developments with respect to our tenants;
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impairments in the value of our real estate investments;
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legislative/regulatory changes including changes to laws governing the taxation
of REITs;
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any material legal proceedings;
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availability of debt and equity capital;
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interest rates;
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competition;
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supply and demand for properties in our current and proposed market areas;
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policies and guidelines applicable to REITs; and
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the other factors described under the heading “Risk Factors” beginning on page
S-4 of this prospectus supplement.
These risks and uncertainties should be
considered in evaluating any forward-looking statements contained or
incorporated by reference in this prospectus supplement. 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 supplement.
S-ii
PROSPECTUS
SUPPLEMENT 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 supplement, the
accompanying prospectus and the documents incorporated by reference in this
prospectus supplement and the accompanying prospectus, as provided in “Where You
Can Find More Information” on page S-11 of this prospectus supplement,
especially the risk factors set forth in our Annual Report on Form 10-K for the
year ended December 31, 2009 and filed with the Securities and Exchange
Commission, or the Commission, on March 1, 2010 and the information under the
caption “Risk Factors” on page S-4 of this prospectus supplement for a
discussion of factors you should carefully consider before deciding to purchase
our common shares. Unless otherwise indicated, all financial and property
information is presented as of, or for, December 31, 2009.
The Company
We are a self-managed and self-administered
real estate investment trust, or 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, industrial and retail
properties. Substantially all of these properties are subject to triple net or
similar leases, where the tenant bears all or substantially all of the costs
and/or cost increases for real estate taxes, utilities, insurance and ordinary
repairs. In addition, we acquire and hold investments in loan assets and debt
securities related to real estate.
As of December 31, 2009, we had ownership interests in approximately 210
consolidated real estate properties, located in 40 states and the Netherlands
and containing an aggregate of approximately 38.3 million square feet of space,
approximately 91.5% of which was leased. In 2009, 2008 and 2007, no
tenant/guarantor represented greater than 10% of our annual base rental
revenue.
In addition to our shares of beneficial
interests, par value $0.0001 per share, classified as common stock, which we
refer to as common shares, we have the following three outstanding classes of
beneficial interests classified as preferred stock, which we refer to as
preferred shares: (1) 8.05% Series B Cumulative Redeemable Preferred Stock,
which we refer to as our Series B Preferred Shares, (2) 6.50% Series C
Cumulative Convertible Preferred Stock, which we refer to as our Series C
Preferred Shares and (3) 7.55% Series D Cumulative Redeemable Preferred Stock,
which we refer to as our Series D Preferred Shares. Our common shares, Series B
Preferred Shares, Series C Preferred Shares and Series D Preferred Shares are
traded on the New York Stock Exchange, or NYSE, under the symbols “LXP”, “LXP
pb”, “LXP pc” and “LXP pd”, respectively.
We elected to be taxed as a REIT under
Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, which
we refer to as 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 taxable 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.
We maintain a web site at www.lxp.com. We have not
incorporated by reference into this prospectus supplement or the accompanying
prospectus the information in, or that can be accessed through, our web site,
and you should not consider it to be a part of this prospectus supplement or the
accompanying prospectus.
S-1
THE
OFFERING
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Common
shares offered by Lexington Realty Trust
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9,500,000
shares (1)
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Common
shares to be outstanding after this offering
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131,496,422
shares (1)(2)
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Use
of
proceeds
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We
expect that the net proceeds to us from this offering will be
approximately $61.5 million after deducting the estimated offering
expenses payable by us. We expect to use all of the net
proceeds for general corporate purposes, including to repay
indebtedness. See “Use of Proceeds” on page S-4 of this
prospectus supplement.
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Risk
factors
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See
the risk factors set forth in our Annual Report on Form 10-K for the year
ended December 31, 2009 and filed with the Commission on March 1, 2010 and
the information under “Risk Factors” on page S-4 of this prospectus
supplement for a discussion of factors you should carefully consider
before deciding to purchase our common shares.
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New
York Stock Exchange
symbol
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LXP
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__________________________________________
(1)
We have granted the underwriter a 30-day option to purchase up to
1,425,000 additional common shares at the price of $6.486 per
share less the amount of any distributions or dividends declared
or paid by us on the 9,500,000 common shares initially purchased by the
underwriter.
(2)
Based on common shares issued and outstanding as of March 25, 2010. Does
not include (i) an aggregate of approximately 5,389,232 common shares
issuable, as of the date of this prospectus supplement, upon the exchange
of outstanding units of limited partnership interest in our operating
partnership subsidiaries; (ii) approximately 5,099,507 common shares
issuable, as of the date of this prospectus supplement, upon the
conversion of our outstanding Series C Preferred Shares (based on the
current conversion rate of 2.4339 common shares per $50.00 liquidation
preference); (iii) common shares issuable, as of the date of this
prospectus supplement, upon the exchange of outstanding options to
purchase common shares granted to our employees; and (iv) common shares,
if any, issuable, at our option, upon exchange of our 5.45% Exchangeable
Guaranteed Notes due 2027 or our 6.00% Convertible Guaranteed Notes due
2030.
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S-2
CAPITALIZATION
The following table sets forth our capitalization as
of December 31, 2009. This table should be read in conjunction with our
consolidated financial statements and the notes thereto incorporated by
reference into this prospectus supplement. See “Where You Can Find More
Information” in this prospectus supplement.
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December
31, 2009
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As
reported
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(in
thousands)
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Debt:
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Mortgages
and notes payable
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$ | 1,857,909 | ||
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Exchangeable
notes payable
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85,709 | |||
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Trust
preferred securities
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129,120 | |||
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Total
debt
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2,072,738 | |||
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Noncontrolling
interest
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88,567 | |||
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Shareholders’
equity:
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Common
shares of beneficial interest, par value $0.0001 per share; issued and
outstanding: 121,943,258
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12 | |||
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Preferred
shares; issued and outstanding: 11,455,200
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327,867 | |||
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Accumulated
distributions in excess of net income
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(870,862 | ) | ||
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Additional
paid-in-capital
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1,750,979 | |||
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Accumulated
other comprehensive income
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673 | |||
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Total shareholders’
equity
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1,208,669 | |||
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Total
capitalization
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$ | 3,369,974 | ||
S-3
RISK
FACTORS
Investing in our common shares
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 for the year ended December 31, 2009 and filed with the
Commission on March 1, 2010, and in any other documents incorporated by
reference in this prospectus supplement. 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 Commission 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.
This offering will be highly
dilutive, and there may be future dilution of our common shares.
This offering will have a highly dilutive effect on our expected
earnings per share for the year ending December 31, 2010, as we have 121,996,422
common shares outstanding as of March 25, 2010. Additionally, subject to the
45-day lock-up period restrictions described in “Underwriting,” we are not
restricted from issuing in the future additional common shares or preferred
shares, including any securities that are convertible into or exchangeable for,
or that represent the right to receive, common shares or preferred shares or any
substantially similar securities. The market price of our common shares could
decline as a result of sales of a large number of our common shares in the
market after this offering or the perception that such sales could occur.
We may change the dividend
policy for our common shares in the future.
We currently expect to pay aggregate annual dividends of $0.40 per
share with respect to the 2010 taxable year which approximates our expected
taxable income. However, the decision to declare and pay dividends on our common
shares in the future, as well as the timing, amount and composition of any such
future dividends, will be at the sole discretion of our Board of Trustees in
light of conditions then existing, including our earnings, financial condition,
capital requirements, debt maturities, the availability of debt and equity
capital, applicable REIT and legal restrictions and the general overall economic
conditions and other factors. The actual dividend payable will be determined by
our Board of Trustees based upon the circumstances at the time of declaration
and the actual dividend payable may vary from such expected amounts. Any change
in our dividend policy could have a material adverse effect on the market price
of our common shares.
The trading price of our
common shares has been, and may continue to be, subject to significant
fluctuations.
Since January 1, 2008, the closing sale price of our common shares
on the New York Stock Exchange has ranged from $17.22 to $2.01 per share. The
market price of our common shares may fluctuate in response to company-specific
and securities market events and developments including those described in this
“Risk Factors” section and otherwise described in or incorporated by reference
in this prospectus supplement and the accompanying prospectus. In addition, the
amount of our indebtedness may impact investor demand for our common shares,
which could have a material effect on the market price of our common shares.
We
expect that the net proceeds to us from this offering will be approximately
$61.5 million after deducting the estimated offering expenses payable by us
assuming
no exercise of the over-allotment option granted to the underwriter, and
approximately $70.7 million assuming full exercise of the over-allotment
option. We expect to use all of
the net proceeds for general corporate purposes, including the repayment of
indebtedness.
We will have significant
discretion in the use of the net proceeds. The net proceeds may be
invested temporarily in interest-bearing accounts and short-term
interest-bearing securities that are consistent with our qualification as a REIT
until other uses can be identified.
For a description of our common shares, see
‘‘Description of our Common Shares” in the accompanying
prospectus.
S-4
The following
is a summary of the material terms of our 6.00% Convertible Guaranteed Notes due
2030. For a summary of the material terms and provisions of our debt
securities in general, see “Description of Our Debt Securities” beginning on
page 10 of the accompanying prospectus.
6.00% Convertible Guaranteed
Notes Due 2030
In January and February 2010, we issued an aggregate amount of
$115.0 million in 6.00% Convertible Guaranteed Notes due 2030, or the Notes. The
Notes, which mature on January 15, 2030, are unsecured obligations of us and the
guarantors, and the interest on the Notes, at the rate of 6.00% per year, is
payable semi-annually on January 15 and July 15 of each year, beginning on July
15, 2010.
Holders of the Notes may convert the Notes at the current
conversion rate for each $1,000 principal amount of the Notes of 141.1383 of our
common shares, payable in cash, our common shares or a combination of cash and
our common shares, at our option, prior to the close of business on the second
business day prior to the stated maturity date at any time on or after January
15, 2029 and also under the following circumstances:
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Conversion Upon Satisfaction
of Market Price Condition. A holder may surrender any of its Notes
for conversion during any calendar quarter (and only during such calendar
quarter), if, and only if, the closing sale price of the common shares for
at least 20 trading days (whether or not consecutive) in the period of 30
consecutive trading days ending on the last trading day of the preceding
calendar quarter as determined by us is more than 130% of the conversion
price per common share in effect on the applicable trading
day;
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·
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Conversion Upon Satisfaction
of Trading Price Condition. A holder may surrender any of its Notes
for conversion during the five consecutive trading-day period following
any five consecutive trading-day period in which the trading price per
$1,000 principal amount of Notes (as determined following a reasonable
request by a holder of the Notes) was less than 98% of the product of the
closing sale price of the common shares multiplied by the applicable
conversion rate;
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·
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Conversion Upon Notice of
Redemption. A holder may surrender for conversion any of the Notes
called for redemption at any time prior to the close of business on the
second business day prior to the redemption date, even if the Notes are
not otherwise convertible at such
time;
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·
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Conversion if Common Shares
Are Not Listed. A holder may surrender any of its Notes for
conversion at any time beginning on the first business day after the
common shares have ceased to be listed on a U.S. national or regional
securities exchange for a 30 consecutive trading-day period;
and
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·
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Conversion Upon Specified
Transactions. A holder may surrender any of its Notes for
conversion if we engage in certain specified corporate transactions,
including a change in control (as defined in the Notes). Holders
converting Notes in connection with certain change in control transactions
occurring prior to January 15, 2017 may be entitled to receive additional
common shares as a “make whole
premium.”
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We may not redeem any Notes prior to January 15, 2017, except to preserve
our status as a real estate investment trust. After that time, we may redeem the
Notes, in whole or in part, for cash equal to 100% of the principal amount of
the Notes plus any accrued and unpaid interest (including additional interest,
if any) to, but not including, the redemption date.
Holders of the Notes may require us to repurchase their Notes, in
whole or in part (in principal amounts of $1,000 and integrals thereof) on
January 15, 2017, January 15, 2020 and January 15, 2025 for cash equal to 100%
of the principal amount of the Notes to be repurchased plus any accrued and
unpaid interest (including additional interest, if any) to, but not including,
the repurchase date.
Subject to the terms of the Indenture and the Notes, upon certain
events of default, including, but not limited to, (i) default by us in the
delivery when due of the conversion value, on the terms set forth in the
Indenture and the Notes, upon exercise of a holder’s conversion right in
accordance with the Indenture and the continuation of such default for 10 days
and (ii) our failure to provide notice of the occurrence of a change of control
when required under the Indenture, and such failure continues for 5 business
days, the trustee or the holders of not less than 25% in principal amount of the
outstanding Notes may declare the principal and accrued and unpaid interest on
all of the Notes to be due and payable immediately by written notice to us (and
to the trustee if given by the holders). Upon certain events of bankruptcy,
insolvency or reorganization, or court appointment of a receiver, liquidator or
trustee of us, our operating partnerships, or any other significant subsidiary,
the principal (or such portion thereof) of and accrued and unpaid interest on
all of the Notes will become and be immediately due and payable without any
declaration or other act on the part of the trustee or any holders.
S-5
In addition, the Notes are cross-defaulted with certain of our
recourse indebtedness.
For a summary
of other restrictions on transfers of our capital shares, see ‘‘Restrictions on
Transfers of Capital Stock and Anti-Takeover Provisions’’ in the accompanying
prospectus.
The following
is a summary of certain additional United States federal income tax
considerations with respect to the ownership of our common shares. For
additional information, see “United States Federal Income Tax Considerations,”
beginning on page 30 of the accompanying prospectus.
Recent
Legislation
President Obama recently signed into law the Hiring Incentives to
Restore Employment (HIRE) Act of 2010, which will impose on non-U.S. persons
that are entities certain increased certification requirements and information
reporting related to U.S. accounts or ownership. In the event of
noncompliance with the revised requirements, a 30% U.S. withholding tax could be
imposed on payments to such non-U.S. persons of dividends and sales proceeds in
respect of our common shares. If payment of U.S. withholding taxes is
required, non-U.S. persons that are otherwise eligible for an exemption from, or
a reduction of, U.S. withholding tax with respect to dividends and sale proceeds
will be required to seek a refund from the Internal Revenue Service to obtain
the benefit of such exemption or reduction. We will not pay any additional
amounts to non-U.S. shareholders in respect of any amounts withheld. Such
provisions will generally apply to payments made after December 31, 2012.
It cannot be predicted in what form this legislation will be further
implemented. Prospective investors should consult their own tax advisors
regarding this new legislation.
Subject to the terms and conditions stated in the underwriting
agreement dated the date of this prospectus supplement, Wells Fargo Securities,
LLC, as underwriter, has agreed to purchase, and we have agreed to sell to the
underwriter, all of the common shares in this offering.
The underwriting agreement provides that the obligation of the
underwriter to purchase the shares included in this offering is subject to
approval of certain legal matters by counsel and to other conditions. The
underwriter is obligated to purchase the 9,500,000 common shares sold under
the underwriting agreement if it purchases any of the shares.
The underwriter has agreed to purchase the 9,500,000 common shares
offered by this prospectus supplement at a price of $6.486 per share, resulting
in aggregate proceeds to us of approximately $61.6 million, before
deducting estimated transaction costs payable by us, of $150,000 assuming
no exercise of the over-allotment option granted to the underwriter, and
approximately $70.9 million assuming full exercise of the over-allotment
option.
If the underwriter sells more shares than the total number of
shares offered in this offering, we have granted to the underwriter an option,
exercisable for 30 days from the date of this prospectus supplement, to purchase
up to 1,425,000 additional common shares at the price of $6.486 per
share less the amount of any distributions or dividends declared
or paid by us on the 9,500,000 common shares initially purchased by the
underwriter. The underwriter may exercise the option solely for the
purpose of covering over-allotments, if any, in connection with this
offering. Any common shares issued or sold under the option will be issued
and sold on the same terms and conditions as the other common shares that are
the subject of this offering.
We have agreed to indemnify the underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribute to payments the underwriter may be required to make in respect
of those liabilities. The underwriter proposes to offer the common shares
offered by this prospectus supplement from time to time in one or more
transactions (which may include block transactions) to purchasers directly,
through agents, or through brokers in brokerage transactions on the New York
Stock Exchange or to dealers in negotiated transactions or otherwise, or in a
combination of such methods of sale, at market prices prevailing at the time of
sale, at prices related to prevailing market prices or at negotiated prices. The
common shares will not be sold on or through the facilities of a national
securities exchange except through a market maker. The underwriter may sell
common shares to or through broker-dealers who may receive compensation in the
form of underwriting discounts, concessions or commissions from the underwriter
and/or the purchasers of the common shares for whom they may act as agents. In
connection with the sale of the common shares, the underwriter may be deemed to
have received compensation from us in the form of underwriting discounts, and
the underwriter also may receive commissions from the purchasers of the common
shares for whom it acts as agent. The underwriter and any broker-dealers that
participate with the underwriter in the distribution of the common shares may be
deemed to be underwriters, and any discounts or commissions received by them and
any profit on the resale of the common shares by them may be deemed to be
underwriting discounts or commissions.
S-6
We estimate that our total expenses for this offering will be
approximately $150,000.
Sales Of Similar
Securities
We, and our executive officers and trustees, have agreed not to
pledge, sell or otherwise transfer any common shares for 45 days after the date
of this prospectus supplement without first obtaining the written consent of
Wells Fargo Securities, LLC, subject to certain exceptions. Specifically, we
have each agreed not to directly or indirectly:
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·
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offer,
pledge, sell, or contract to sell any common
shares;
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·
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sell
any option or contract to purchase any common
shares;
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|
·
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purchase
any option or contract to sell any common
shares;
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|
·
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grant
any option, right or warrant to purchase any common
shares;
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·
|
otherwise
dispose of or transfer any common shares;
or
|
|
·
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enter
into any swap or other agreement that transfers, in whole or in part, the
economic consequence of ownership of any common shares whether any such
swap or transaction is to be settled by delivery of shares or other
securities, in cash or
otherwise.
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This lock-up agreement applies to common shares and to securities
convertible into or exchangeable or exercisable for or repayable with common
shares.
Stock Exchange
Listing
Our common shares are currently listed on the New York Stock
Exchange under the symbol ‘‘LXP’’.
Price Stabilization And
Short Positions
In connection with the offering, the underwriter may purchase and
sell shares in the open market. Purchases and sales in the open market may
include short sales, purchases to cover short positions, which may include
purchases pursuant to the over-allotment option, and stabilizing
purchases.
|
·
|
Short
sales involve secondary market sales by the underwriter of a greater
number of shares than they are required to purchase in the
offering.
|
|
o
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“Covered”
short sales are sales of shares in an amount up to the number of shares
represented by the underwriter’s over-allotment
option.
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S-7
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o
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“Naked”
short sales are sales of shares in an amount in excess of the number of
shares represented by the underwriter’s over-allotment
option.
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|
·
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Covering
transactions involve purchases of shares either pursuant to the
over-allotment option or in the open market after the distribution has
been completed in order to cover short
positions.
|
|
o
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To
close a naked short position, the underwriter must purchase shares in the
open market after the distribution has been completed. A naked
short position is more likely to be created if the underwriter is
concerned that there may be downward pressure on the price of the shares
in the open market after pricing that could adversely affect investors who
purchase in the offering.
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|
o
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To
close a covered short position, the underwriter must purchase shares in
the open market after the distribution has been completed or must exercise
the over-allotment option. In determining the source of shares
to close the covered short position, the underwriter will consider, among
other things, the price of shares available for purchase in the open
market as compared to the price at which they may purchase shares through
the over-allotment option.
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|
o
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Stabilizing
transactions involve bids to purchase shares so long as the stabilizing
bids do not exceed a specified
maximum.
|
Purchases
to cover short positions and stabilizing purchases, as well as other purchases
by the underwriter for its own account, may have the effect of preventing or
retarding a decline in the market price of the shares. They may also cause the
price of the shares to be higher than the price that would otherwise exist in
the open market in the absence of these transactions. The underwriter may
conduct these transactions on the New York Stock Exchange, in the
over-the-counter market or otherwise. If the underwriter commences any of these
transactions, it may discontinue them at any time.
Other
Relationships
The underwriter and its affiliates have engaged in, and may in the
future engage in, investment banking and other commercial dealings in the
ordinary course of business with us. The underwriter and its affiliates have
received customary fees and commissions for these transactions. An affiliate of
the underwriter, Wells Fargo Bank, National Association, is a lender under our
secured credit facility. In addition, affiliates of the underwriter are
the lenders and servicers of certain of our first mortgages. To the extent
that we use the net proceeds of this offering to reduce outstanding indebtedness
under our secured credit facility or certain of our first mortgages, such
lenders and servicers may benefit from such repayment. In addition, as of
December 31, 2009, certain affiliates of the underwriter were tenants in certain
of our properties.
Sales Outside the United
States
No action has been taken in any jurisdiction (except in the United
States) that would permit a public offering of the common shares, or the
possession, circulation or distribution of this prospectus supplement, the
accompanying prospectus or any other material relating to us or the common
shares in any jurisdiction where action for that purpose is required.
Accordingly, the common shares may not be offered or sold, directly or
indirectly, and none of this prospectus supplement, the accompanying prospectus
or any other offering material or advertisements in connection with the common
shares may be distributed or published, in or from any country or jurisdiction
except in compliance with any applicable rules and regulations of any such
country or jurisdiction.
The underwriter may arrange to sell common shares offered hereby in
certain jurisdictions outside the United States, either directly or through
affiliates, where they are permitted to do so. In that regard, Wells Fargo
Securities, LLC may arrange to sell shares in certain jurisdictions through an
affiliate, Wells Fargo Securities International Limited, or WFSIL. WFSIL
is a wholly-owned indirect subsidiary of Wells Fargo & Company and an
affiliate of Wells Fargo Securities, LLC. WFSIL is a U.K. incorporated
investment firm regulated by the Financial Services Authority. Wells Fargo
Securities is the trade name for certain corporate and investment banking
services of Wells Fargo & Company and its affiliates, including Wells Fargo
Securities, LLC and WFSIL.
S-8
European Economic
Area
In relation to each member state of the European Economic Area that
has implemented the Prospectus Directive (each, a relevant member state), with
effect from and including the date on which the Prospectus Directive is
implemented in that relevant member state (the relevant implementation date), an
offer of common shares described in this prospectus supplement may not be made
to the public in that relevant member state prior to the publication of a
prospectus in relation to the common shares that has been approved by the
competent authority in that relevant member state or, where appropriate,
approved in another relevant member state and notified to the competent
authority in that relevant member state, all in accordance with the Prospectus
Directive, except that, with effect from and including the relevant
implementation date, an offer of securities may be offered to the public in that
relevant member state at any time:
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·
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to
legal entities which are authorized or regulated to operate in the
financial markets or, if not so authorized or regulated, whose corporate
purpose is solely to invest in
securities;
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·
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to
any legal entity that has two or more of (a) an average of at least 250
employees during the last financial year; (b) a total balance sheet of
more than €43,000,000; and (c) an annual net turnover of more than
€50,000,000, as shown in its last annual or consolidated
accounts;
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·
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to
fewer than 100 natural or legal persons (other than qualified investors as
defined in the Prospectus Directive) subject to obtaining the prior
consent of the underwriters; or
|
|
·
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in
any other circumstances that do not require the publication of a
prospectus pursuant to Article 3 of the Prospectus
Directive;
|
provided that no such offer of common shares shall require us or
any underwriter to publish a prospectus pursuant to Article 3 of the Prospective
Directive.
Each purchaser of common shares described in this prospectus
supplement located within a relevant member state will be deemed to have
represented, acknowledged and agreed that it is a “qualified investor” within
the meaning of Article 2(1)(e) of the Prospectus Directive.
For purposes of this provision, the expression an “offer to the
public” in any relevant member state means the communication in any form and by
any means of sufficient information on the terms of the offer and the securities
to be offered so as to enable an investor to decide to purchase or subscribe the
securities, as the expression may be varied in that member state by any measure
implementing the Prospectus Directive in that member state, and the expression
“Prospectus Directive” means Directive 2003/71/EC and includes any relevant
implementing measure in each relevant member state.
France
This prospectus has not been prepared in the context of a public
offering of securities in France (appel public à l’épargne)
within the meaning of Article L.411-1 and seq. of the French Code monétaire et financier and
Articles 211-1 and seq. of the Autorité des marchés
financiers, or AMF, regulations and has therefore not been submitted to
the AMF for prior approval or otherwise. The common shares have not been offered
or sold and will not be offered or sold, directly or indirectly, to the public
in France and neither this prospectus nor any other offering material relating
to the common shares has been distributed or caused to be distributed or will be
distributed or caused to be distributed to the public in France, except only to
persons licensed to provide the investment service of portfolio management for
the account of third parties and/or to “qualified investors” (as
defined in Article L.411-2, D.411-1 and D.411-2 of the French Code monétaire et financier)
and/or to a limited circle of investors (as defined in Article L.411-2, D.411-4
of the French Code monétaire
et financier) on the condition that no such prospectus nor any other
offering material relating to the common shares shall be delivered by then to
any person nor reproduced (in whole or in part). Such “qualified investors” are
notified that they must act in that connection for their own account in
accordance with the terms set out by Article L.411-2 of the French Code monétaire et financier and by
Article 211-4 of the AMF regulations and may not re-transfer, directly or
indirectly, the common shares in France, other than in compliance with
applicable laws and regulations and in particular those relating to a public
offering (which are, in particular, embodied in Articles L.411-1, L.412-1 and
L.621-8 and seq. of the French Code monétaire et
financier).
S-9
Germany
This document has not been prepared in accordance with the
requirements for a securities or sales prospectus under the German Securities
Prospectus Act (Wertpapierprospektgesetz),
the German Sales Prospectus Act (Verkaufsprospektgesetz), or
the German Investment Act (Investmentgesetz). Neither
the German Federal Financial Services Supervisory Authority (Bundesanstalt fur
Finanzdienstleistungsaufsicht—BaFin) nor any other German authority has
been notified of the intention to distribute the common shares in Germany.
Consequently, the common shares may not be distributed in Germany by way of
public offering, public advertisement or in any similar manner AND THIS DOCUMENT
AND ANY OTHER DOCUMENT RELATING TO THE OFFERING, AS WELL AS INFORMATION OR
STATEMENTS CONTAINED THEREIN, MAY NOT BE SUPPLIED TO THE PUBLIC IN GERMANY OR
USED IN CONNECTION WITH ANY OFFER FOR SUBSCRIPTION OF THE UNITS TO THE PUBLIC IN
GERMANY OR ANY OTHER MEANS OF PUBLIC MARKETING. The common shares are being
offered and sold in Germany only to qualified investors which are referred to in
Section 3, paragraph 2 no. 1, in connection with Section 2, no. 6, of the German
Securities Prospectus Act, Section 8f paragraph 2 no. 4 of the German Sales
Prospectus Act, and in Section 2 paragraph 11 sentence 2 no. 1 of the German
Investment Act. This document is strictly for use of the person who has received
it. It may not be forwarded to other persons or published in Germany.
Switzerland
This document does not constitute a prospectus within the meaning
of Art. 652a of the Swiss Code of Obligations. The common shares may not be sold
directly or indirectly in or into Switzerland except in a manner which will not
result in a public offering within the meaning of the Swiss Code of Obligations.
Neither this document nor any other offering materials relating to the common
shares may be distributed, published or otherwise made available in Switzerland
except in a manner which will not constitute a public offer of the common shares
in Switzerland.
United Kingdom
In addition, the underwriter: (a) has only communicated or caused
to be communicated and will only communicate or cause to be communicated any
invitation or inducement to engage in investment activity (within the meaning of
Section 21 of the Financial Services and Markets Act 2000 (the “FSMA”) received
by it in connection with the issue or sale of common shares in circumstances in
which Section 21(1) of the FSMA does not apply to us, and (b) has complied and
will comply with all applicable provisions of the FSMA with respect to anything
done by it in relation to the shares in, from or otherwise involving the United
Kingdom.
Without limitation to the other restrictions referred to herein,
this prospectus supplement is directed only at (1) persons outside the United
Kingdom; (2) persons having professional experience in matters relating to
investments who fall within the definition of “investment professionals” in
Article 19(5) of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005; or (3) high net worth bodies corporate, unincorporated
associations and partnerships and trustees of high value trusts as described in
Article 49(2) of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005. Without limitation to the other restrictions referred to
herein, any investment or investment activity to which this prospectus
supplement relates is available only to, and will be engaged in only with, such
persons, and persons within the United Kingdom who receive this communication
(other than persons who fall within (2) or (3) above) should not rely or act
upon this communication.
S-10
The validity of the common shares offered as well as the legal
matters described under “Additional United States Federal Income Tax
Considerations” on page S-6 of this prospectus supplement will be passed upon
for us by Paul, Hastings, Janofsky & Walker LLP, New York, New York. Legal
matters relating to this offering will be passed upon for the underwriters by
Hunton & Williams LLP. Certain matters of Maryland law will be passed upon
for us by Venable LLP.
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, 2009 and 2008, and for each of the
years in the three-year period ended December 31, 2009, and Management’s Annual
Report on Internal Controls over Financial Reporting as of December 31, 2009,
have been incorporated by reference herein 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 consolidated financial statements of Lex-Win Concord LLC
incorporated in this Prospectus Supplement by reference to the Annual Report on
Form 10-K of Lexington Realty Trust for the year ended December 31, 2009, have
been audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, whose report thereon (which contains an explanatory paragraph
relating to Lex-Win Concord LLC's ability to continue as a going concern as
described in Note 3 to the financial statements) is incorporated herein.
Such financial statements have been so incorporated in reliance on the report of
such 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 included in our Annual
Report on Form 10-K as of December 31, 2009 and for the year then ended, have
been incorporated by reference herein 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.
We file annual, quarterly and current reports, proxy statements and
other information with the Commission. Our filings with the Commission are
available to the public on the Internet at the Commission’s website at
http://www.sec.gov. You may also read and copy any document that we file with
the Commission at its Public Reference Room, 100 F Street, N.E., Washington,
D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further information
on the Public Reference Room and its copy charges.
The information incorporated by reference herein is an important
part of this prospectus supplement. Any statement contained in a document which
is incorporated by reference in this prospectus supplement is automatically
updated and superseded if information contained in a subsequent filing or in
this prospectus supplement, or information that we later file with the
Commission prior to the termination of this offering, modifies or replaces this
information. The following documents filed with the Commission are incorporated
by reference into this prospectus supplement, except for any document or portion
thereof “furnished” to the Commission:
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·
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our
Annual Report on Form 10-K for the year ended December 31, 2009, filed
with the Commission on March 1,
2010;
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·
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our
Current Reports on Form 8-K filed on January 11, 2010, January 20, 2010
(other than the information set forth in Item 8.01), January 26, 2010, and
February 4, 2010;
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·
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our
definitive proxy statement filed April 6, 2009;
and
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·
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all
documents that we file with the Commission pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), after the date of this prospectus supplement and prior to
the termination of this offering.
|
S-11
To receive a free copy of any of the documents incorporated by
reference in this prospectus supplement (other than exhibits, unless they
are specifically incorporated by reference in the documents), write us at the
following address or call us at the telephone number listed below:
Lexington Realty Trust
One Penn Plaza
Suite 4015
New York, New York 10119-4015
Attention: Investor Relations
(212) 692-7200
One Penn Plaza
Suite 4015
New York, New York 10119-4015
Attention: Investor Relations
(212) 692-7200
We also maintain a website at http://www.lxp.com through
which you can obtain copies of documents that we filed with the Commission. The
contents of that website are not incorporated by reference in or otherwise a
part of this prospectus supplement or the accompanying prospectus.
S-12
$500,000,000
Lexington
Realty Trust
Common
Shares of Beneficial Interest
Preferred
Shares of Beneficial Interest
Debt
Securities
Depositary
Shares
Warrants
Subscription
Rights
Units
We are Lexington Realty Trust, a
self-managed and self-administered real estate investment trust formed under the
laws of the State of Maryland. This prospectus relates to the public
offer and sale by us of one or more series or classes of (i) shares of
beneficial interest classified as common stock, par value $0.0001 per share, or
“common shares,” (ii) shares of beneficial interest classified as preferred
stock, par value $0.0001 per share, or “preferred shares,” (iii) senior or
subordinated debt securities, (iv) depositary shares, (v) warrants, (vi)
subscription rights and (vii) units. The aggregate public offering
price of the common shares, preferred shares, debt securities, depositary
shares, warrants, subscription rights and units covered by this prospectus,
which we refer to collectively as the securities, will not exceed $500,000,000
(or its equivalent based on the exchange rate at the time of
sale). The securities may be offered, separately or together, in
separate classes or series, in amounts, at prices and on terms to be determined
at the time of the offering and set forth in one or more supplements to this
prospectus.
The specific terms of the securities
will be set forth in the applicable prospectus supplement. Such
specific terms may include limitations on direct or beneficial ownership and
restrictions on transfer of the securities, in each case as may be consistent
with our declaration of trust or otherwise appropriate to preserve our status as
a real estate investment trust for federal income tax purposes. See
“Restrictions on Transfers of Capital Stock and Anti-Takeover Provisions”
beginning on page 27 of this prospectus.
The applicable prospectus supplement
will also contain information, where appropriate, about the risk factors and
federal income tax considerations relating to, and any listing on a securities
exchange of, the securities covered by that prospectus supplement.
We may offer the securities directly,
through agents designated by us from time to time, or to or through underwriters
or dealers. If any agents or underwriters are involved in the sale of
any of the securities, their names, and any applicable purchase price, fee,
commission or discount arrangement between or among them will be set forth or
will be calculable from the information set forth in the applicable prospectus
supplement. See “Plan of Distribution.” No securities may
be sold without delivery of a prospectus supplement describing the method and
terms of the offering of those securities.
Our common shares, 8.05% Series B
Cumulative Redeemable Preferred Stock, or Series B Preferred Shares, 6.50%
Series C Cumulative Convertible Preferred Stock, or Series C Preferred Shares,
and 7.55% Series D Cumulative Redeemable Preferred Stock, or Series D Preferred
Shares, are traded on the New York Stock Exchange under the symbols “LXP”,
“LXP_pb”, “LXP_pc” and “LXP_pd”, respectively.
Investing
in our securities involves risks. In our filings with the Securities
and Exchange Commission, which are incorporated by reference in this prospectus,
we identify and discuss risk factors that you should consider before investing
in our securities.
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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CAUTIONARY
STATEMENTS CONCERNING FORWARD-LOOKING INFORMATION
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1
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|
OUR
COMPANY
|
2
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|
RISK
FACTORS
|
2
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|
USE
OF PROCEEDS
|
2
|
|
RATIOS
OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED SHARE DIVIDENDS
|
2
|
|
DESCRIPTION
OF OUR COMMON SHARES
|
3
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DESCRIPTION
OF OUR PREFERRED SHARES
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4
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DESCRIPTION
OF OUR DEBT SECURITIES
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10
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DESCRIPTION
OF DEPOSITARY SHARES
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22
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DESCRIPTION
OF WARRANTS
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25
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DESCRIPTION
OF SUBSCRIPTION RIGHTS
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25
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DESCRIPTION
OF UNITS
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26
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RESTRICTIONS
ON TRANSFERS OF CAPITAL STOCK AND ANTI-TAKEOVER PROVISIONS
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26
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UNITED
STATES FEDERAL INCOME TAX CONSIDERATIONS
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30
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PLAN
OF DISTRIBUTION
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44
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LEGAL
MATTERS
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47
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EXPERTS
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47
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WHERE
YOU CAN FIND MORE INFORMATION
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48
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ABOUT
THIS PROSPECTUS
This prospectus is part of a
registration statement that we filed with the Securities and Exchange
Commission, which we refer to as the SEC, using a “shelf” registration process
or continuous offering process. Under this shelf registration process, we may,
from time to time, sell the securities described in this prospectus in one or
more offerings. This prospectus provides you with a general description of the
securities that may be offered by us. We may also file, from time to time, a
prospectus supplement or an amendment to the registration statement of which
this prospectus forms a part containing additional information about us and the
terms of the offering of the securities. That prospectus supplement or amendment
may include additional risk factors or other special considerations applicable
to the securities. Any prospectus supplement or amendment may also add, update
or change information in this prospectus. If there is any supplement or
amendment, you should rely on the information in that prospectus supplement or
amendment.
This prospectus and any accompanying
prospectus supplement do not contain all of the information included in the
registration statement. For further information, we refer you to the
registration statement and any amendments to such registration statement,
including its exhibits. Statements contained in this prospectus and any
accompanying prospectus supplement about the provisions or contents of any
agreement or other document are not necessarily complete. If the SEC’s rules and
regulations require that an agreement or document be filed as an exhibit to the
registration statement, please see that agreement or document for a complete
description of these matters.
You should read both this prospectus
and any prospectus supplement together with additional information described
below under the heading “Where You Can Find More Information.” Information
incorporated by reference with the SEC after the date of this prospectus, or
information included in any prospectus supplement or an amendment to the
registration statement of which this prospectus forms a part, may add, update or
change information in this prospectus or any prospectus supplement. If
information in these subsequent filings, prospectus supplements or amendments is
inconsistent with this prospectus or any prospectus supplement, the information
incorporated by reference or included in the subsequent prospectus supplement or
amendment will supersede the information in this prospectus or any earlier
prospectus supplement. You should not assume that the information in this
prospectus or any prospectus supplement is accurate as of any date other than
the date on the front of each document.
All references to the “Company,” “we”
and “us” in this prospectus means Lexington Realty Trust and all entities owned
or controlled by us except where it is clear that the term means only the parent
company. The term “you” refers to a prospective investor.
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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·
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increases
in real estate construction costs;
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·
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changes
in interest rates;
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·
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changes
in accessibility of debt and equity capital markets;
and
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·
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the
other risk factors set forth in our Annual Report on Form 10-K filed on
March 2, 2009, and in any other documents incorporated by reference in
this prospectus, including without limitation any updated risks included
in our subsequent periodic reports.
|
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.
1
OUR
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. Substantially all of our properties are subject to triple
net leases, which are generally characterized as leases in which the tenant
bears all or substantially all of the costs and cost increases for real estate
taxes, utilities, insurance and ordinary repairs and maintenance.
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.
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 for the year ended December 31, 2008, filed on March 2,
2009, 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
Commission 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.
USE
OF PROCEEDS
Unless otherwise described in the
applicable prospectus supplement, we intend to use the net proceeds from our
sale of the securities for general corporate purposes, which may include the
repayment of outstanding indebtedness, the improvement of certain properties
already in our portfolio or the acquisition of additional
properties.
RATIOS
OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED SHARE DIVIDENDS
The following table sets forth our
historical ratios of earnings to fixed charges and earnings to combined fixed
charges and preferred share dividends for the periods indicated:
|
Year
Ended December 31,
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||||||||||||||||||||
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2008
|
2007
|
2006
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2005
|
2004
|
||||||||||||||||
|
Ratio
of Earnings to Fixed Charges
|
1.24 | N/A | (1) | 1.12 | 1.46 | 1.74 | ||||||||||||||
|
Ratio
of Earnings to Combined Fixed Charges and Preferred Share
Dividends
|
1.06 | N/A | (2) | N/A | (2) | 1.12 | 1.46 | |||||||||||||
_________________
(1) Ratio
is less than 1.0, deficit of $45,296 existed at December 31,
2007.
(2) Ratio
is less than 1.0, deficit of $72,029 and $8,621 existed at December 31,
2007 and 2006, respectively.
The ratios of earnings to fixed charges
were computed by dividing earnings by fixed charges. The ratios of
earnings to combined fixed charges and preferred share dividends were computed
by dividing earnings by the sum of fixed charges and preferred share
dividends. For these purposes, earnings consist of income (loss)
before benefit (provision) for income taxes, noncontrolling interest,
equity in earnings of non-consolidated entities, gains on sale of
properties-affiliate and discontinued operations, plus fixed charges (excluding
capitalized interest) and cash received from joint ventures. Fixed
charges consist of interest expense (including capitalized interest)
and the amortization of debt issuance costs.
Including
debt satisfaction (gains) charges in the calculations results in ratios of
earnings to fixed charges for the years ended December 31, 2008, 2006, 2005 and
2004 of 1.39, 1.12, 1.50 and 1.74, respectively.
Including
debt satisfaction (gains) charges in the calculations results in ratios of
earnings to combined fixed charges and preferred dividends for the years ended
December 31, 2008, 2005 and 2004 of 1.09, 1.13 and 1.45,
respectively.
2
DESCRIPTION
OF OUR COMMON SHARES
The following summary of the material
terms and provisions of our common shares does not purport to be complete and is
subject to the detailed provisions of our declaration of trust and our By-Laws,
each as supplemented, amended or restated, each of which is incorporated by
reference into this prospectus. You should carefully read each of
these documents in order to fully understand the terms and provisions of our
common shares. For information on incorporation by reference, and how
to obtain copies of these documents, see the section entitled “Where You Can
Find More Information” on page 48 of this prospectus.
General
Under our declaration of trust, we have
the authority to issue up to 1,000,000,000 shares of beneficial interest, par
value $0.0001 per share, of which 400,000,000 shares are classified as common
shares, 500,000,000 are classified as excess stock, or excess shares, and
100,000,000 shares are classified as preferred shares.
Terms
Subject to the preferential rights of
any other shares or series of equity securities and to the provisions of our
declaration of trust regarding excess shares, holders of our common shares are
entitled to receive dividends on our common shares if, as and when authorized by
our board of trustees and declared by the Company out of assets legally
available therefor and to share ratably in those of our assets legally available
for distribution to our shareholders in the event that we liquidate, dissolve or
wind up, after payment of, or adequate provision for, all of our known debts and
liabilities and the amount to which holders of any class of shares classified or
reclassified or having a preference on distributions in liquidation, dissolution
or winding up have a right.
Subject to the provisions of our
declaration of trust regarding excess shares, each outstanding common share
entitles the holder to one vote on all matters submitted to a vote of
shareholders, including the election of trustees and, except as otherwise
required by law or except as otherwise provided in our declaration of trust with
respect to any other class or series of shares, the holders of our common shares
will possess exclusive voting power. There is no cumulative voting in
the election of trustees, which means that the holders of a majority of our
outstanding common shares can elect all of the trustees then standing for
election, and the holders of the remaining common shares will not be able to
elect any trustees.
Holders of our common shares have no
conversion, sinking fund, redemption rights or preemptive rights to subscribe
for any of our securities.
We furnish our shareholders with annual
reports containing audited consolidated financial statements and an opinion
thereon expressed by an independent public accounting firm.
Subject to the provisions of our
declaration of trust regarding excess shares, all of our common shares will have
equal dividend, distribution, liquidation and other rights and will generally
have no preference, appraisal or exchange rights.
Pursuant to Maryland statutory law
governing real estate investment trusts organized under Maryland law, a real
estate investment trust generally cannot amend its declaration of trust or merge
unless approved by the affirmative vote of shareholders holding at least
two-thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes entitled to be cast
on the matter) is set forth in our declaration of trust. Our
declaration of trust provides that those actions, with the exception of certain
amendments to our declaration of trust for which a higher vote requirement has
been set, will be valid and effective if authorized by holders of a majority of
the total number of shares of all classes outstanding and entitled to vote
thereon.
3
Restrictions
on Ownership
For the Company to qualify as a REIT
under the Internal Revenue Code of 1986, as amended (which is commonly referred
to as the Code), not more than 50% in value of its outstanding capital shares
may be owned, directly or indirectly, by five or fewer individuals (as defined
in the Code to include certain entities) during the last half of a taxable
year. To assist the Company in meeting this requirement, the Company
may take certain actions to limit the beneficial ownership, directly or
indirectly, by a single person of the Company's outstanding equity
securities. See “Restrictions on Transfers of Capital Stock and
Anti-Takeover Provisions” beginning on page 27 of this
prospectus.
Transfer
Agent
The
transfer agent and registrar for our common shares is BNY Mellon Shareowner
Services.
DESCRIPTION
OF OUR PREFERRED SHARES
The following summary of the material
terms and provisions of our preferred shares does not purport to be complete and
is subject to the detailed provisions of our declaration of trust (including any
applicable articles supplementary, amendment or annex to our declaration of
trust designating the terms of a series of preferred shares) and our By-Laws,
each as supplemented, amended or restated, each of which is incorporated by
reference into this prospectus. You should carefully read each of
these documents in order to fully understand the terms and provisions of our
preferred shares. For information on incorporation by reference, and
how to obtain copies of these documents, see the section entitled “Where You Can
Find More Information” on page 48 of this prospectus.
General
Under our declaration of trust, we have
the authority to issue up to 100,000,000 preferred
shares, of which 3,160,000 shares are classified as Series B Preferred Shares,
3,100,000 shares are classified as Series C Preferred Shares, and 8,000,000
shares are classified as Series D Preferred Shares.
Subject to limitations prescribed by
Maryland law and our declaration of trust, our board of trustees is authorized
to fix the number of shares constituting each series of preferred shares and the
terms, preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms or
conditions of redemption. The preferred shares will, when issued
against payment therefor, be fully paid and nonassessable and will not be
subject to preemptive rights. Our board of trustees could
authorize the issuance of preferred shares with terms and conditions that could
have the effect of discouraging a takeover or other transaction that holders of
common shares might believe to be in their best interests or in which holders of
common shares might receive a premium for their common shares over the
then-current market price of their shares.
Terms
Reference is made to the applicable
prospectus supplement relating to the preferred shares offered thereby for
specific terms, including:
(1) the title
and stated value of the preferred shares;
(2) the
number of preferred shares offered, the liquidation preference per share and the
offering price of the preferred shares;
(3) the
dividend rate(s), period(s) and/or payment date(s) or method(s) of calculation
thereof applicable to the preferred shares;
(4) the date
from which dividends on the preferred shares shall accumulate, if
applicable;
(5) the
provisions for a sinking fund, if any, for the preferred shares;
4
(6) the
provisions for redemption, if applicable, of the preferred shares;
(7) any
listing of the preferred shares on any securities exchange;
(8) the terms
and conditions, if applicable, upon which the preferred shares will be
convertible into common shares, including the conversion price (or manner of
calculation thereof);
(9) a
discussion of federal income tax considerations applicable to the preferred
shares;
(10) the
relative ranking and preferences of the preferred shares as to dividend rights
and rights upon our liquidation, dissolution or winding-up of our
affairs;
(11) any
limitations on issuance of any series of preferred shares ranking senior to or
on a parity with the preferred shares as to dividend rights and rights upon our
liquidation, dissolution or winding-up of our affairs;
(12) any
limitations on direct or beneficial ownership of our securities and restrictions
on transfer of our securities, in each case as may be appropriate to preserve
our status as a REIT; and
(13) any other
specific terms, preferences, rights, limitations or restrictions of the
preferred shares.
Rank
Unless otherwise specified in the
applicable prospectus supplement, the preferred shares rank, with respect to
dividend rights and rights upon our liquidation, dissolution or winding-up, and
allocation of our earnings and losses: (i) senior to all classes or series of
our common shares, and to all equity securities ranking junior to the preferred
shares; (ii) on a parity with all equity securities issued by us the terms of
which specifically provide that such equity securities rank on a parity with the
preferred shares; and (iii) junior to all equity securities issued by us the
terms of which specifically provide that such equity securities rank senior to
the preferred shares. As used in this prospectus, the term “equity
securities” does not include convertible debt securities.
Dividends
Subject to any preferential rights of
any outstanding securities or series of securities, the holders of preferred
shares will be entitled to receive dividends, when, as and if declared by our
board of trustees, out of assets legally available for
payment. Dividends will be paid at such rates and on such dates as
will be set forth in the applicable prospectus supplement. Dividends
will be payable to the holders of record of preferred shares as they appear on
our share transfer books on the applicable record dates fixed by our board of
trustees. Dividends on any series of our preferred shares may be
cumulative or non-cumulative, as provided in the applicable prospectus
supplement.
Redemption
If so provided in the applicable
prospectus supplement, the preferred shares offered thereby will be subject to
mandatory redemption or redemption at our option, as a whole or in part, in each
case upon the terms, at the times and at the redemption prices set forth in such
prospectus supplement.
Liquidation
Preference
Upon any voluntary or involuntary
liquidation, dissolution or winding-up of our affairs, and before any
distribution or payment shall be made to the holders of any common shares or any
other class or series of shares ranking junior to our preferred shares, the
holders of our preferred shares shall be entitled to receive, after payment or
provision for payment of our debts and other liabilities, out of our assets
legally available for distribution to shareholders, liquidating distributions in
the amount of the liquidation preference per share, if any, set forth in the
applicable prospectus supplement, plus an amount equal to all dividends accrued
and unpaid thereon (which shall not include any accumulation in respect of
unpaid noncumulative dividends for prior dividend periods). After
payment of the full amount of the liquidating distributions to which they are
entitled, the holders of preferred shares will have no right or claim to any of
our remaining assets. In the event that, upon any such voluntary or
involuntary liquidation, dissolution or winding-up of our affairs, the legally
available assets are insufficient to pay the amount of the liquidating
distributions on all of our outstanding preferred shares and the corresponding
amounts payable on all of our other outstanding equity securities ranking on a
parity with the preferred shares in the distribution of assets upon our
liquidation, dissolution or winding-up of our affairs, then the holders of our
preferred shares and the holders of such other outstanding equity securities
shall share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.
5
If liquidating distributions are made
in full to all holders of our preferred shares, our remaining assets shall be
distributed among the holders of any other classes or series of equity
securities ranking junior to the preferred shares in the distribution of assets
upon our liquidation, dissolution or winding-up of our affairs, according to
their respective rights and preferences and in each case according to their
respective number of shares.
If we consolidate or merge with or
into, or sell, lease or convey all or substantially all of our property or
business to, any corporation, trust or other entity, such transaction shall not
be deemed to constitute a liquidation, dissolution or winding-up of our
affairs.
Voting
Rights
Unless otherwise from time to time
required by law, or as otherwise indicated in the applicable prospectus
supplement, holders of our preferred shares will not have any voting
rights.
Conversion
Rights
The terms and conditions, if any, upon
which our preferred shares are convertible into common shares will be set forth
in the applicable prospectus supplement. Such terms will include the
number of common shares into which the preferred shares are convertible, the
conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
preferred shares or at our option, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such preferred shares.
Restrictions
on Ownership
For us to qualify as a REIT under the
Code, not more than 50% in value of our outstanding capital shares may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code to
include certain entities) during the last half of a taxable year. To
assist us in meeting this requirement, we may take certain actions to limit the
beneficial ownership, directly or indirectly, by a single person of our
outstanding equity securities, including any series of our preferred
shares. Therefore, the applicable amendment or annex to our
declaration of trust designating the terms of a series of preferred shares may
contain provisions restricting the ownership and transfer of such preferred
shares. The applicable prospectus supplement will specify any
additional ownership limitation relating to the preferred shares being offered
thereby. See “Restrictions on Transfers of Capital Stock and
Anti-Takeover Provisions” beginning on page [*] of this prospectus.
Transfer
Agent
The transfer agent and registrar for
our Series B Preferred Shares, Series C Preferred Shares and Series D Preferred
Shares is BNY Mellon Shareowner Services. The transfer agent and
registrar for our other series of preferred shares will be set forth in the
applicable prospectus supplement.
6
Terms
of Our 8.05% Series B Cumulative Redeemable Preferred Stock
General. In June 2003, we
sold 3,160,000 Series B Preferred Shares. The Series B Preferred
Shares are not convertible into our common shares and are listed on the New York
Stock Exchange under the symbol “LXP_pb.”
Dividends. The holders of
the Series B Shares are entitled to receive cumulative cash dividends at a rate
of 8.05% of the $25.00 liquidation preference per year (equivalent to $2.0125
per year per share).
Liquidation Preference. If we liquidate,
dissolve or wind-up, holders of our Series B Preferred Shares will have the
right to receive $25.00 per share, plus accrued and unpaid dividends (whether or
not declared) to and including the date of payment before any payments are made
to the holders of our common shares and any other capital shares ranking junior
to the Series B Preferred Shares as to liquidation rights. The rights
of the holders of the Series B Preferred Shares to receive their liquidation
preference will be subject to the proportionate rights of the Series C Preferred
Shares, Series D Preferred Shares and each other series or class of our capital
shares ranking, as to liquidation rights, on a parity with the Series B
Preferred Shares.
Redemption. We may, at our
option, redeem the Series B Preferred Shares, in whole or in part, at any time
and from time to time, for cash equal to $25.00 per share, plus any accrued and
unpaid dividends, if any, to and including the date of redemption.
Conversion. The Series B
Preferred Shares are not convertible into, or exchangeable for, any other
property or securities, except that we may exchange shares of the Series B
Preferred Shares for shares of excess stock in order to ensure that we remain a
qualified REIT for federal income tax purposes.
Rank. With respect to
the payment of dividends and amounts upon liquidation, dissolution or winding
up, the Series B Preferred Shares rank (i) senior to all classes or series of
our common shares and to all equity securities ranking junior to our Series B
Preferred Shares, (ii) on a parity with our Series C Preferred Shares, Series D
Preferred Shares and all equity securities issued by us the terms of which
specifically provide that such equity securities rank on a parity with our
Series B Preferred Shares, and (iii) junior to all equity securities issued by
us the terms of which specifically provide that such equity securities rank
senior to our Series B Preferred Shares.
Voting Rights. Holders of the
Series B Preferred Shares generally have no voting rights. However,
if we do not pay dividends on the Series B Preferred Shares for six or more
quarterly periods (whether or not consecutive), the holders of the Series B
Preferred Shares voting together as a class with the holders of Series C
Preferred Shares, Series D Preferred Shares and all other classes or series of
our equity securities ranking on parity with the Series B Preferred Shares which
are entitled to similar voting rights, will be entitled to vote at the next
annual meeting of our shareholders for the election of two additional trustees
to serve on our board of trustees until all unpaid cumulative dividends have
been paid or declared and set apart for payment. The holders of
Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares
and all other classes or series of our equity securities ranking on parity with
the Series B Preferred Shares which are entitled to similar voting rights will
vote in proportion to the liquidation preference of $25.00 (i.e., one vote for
each Series B Preferred Share; two votes for each Series C Preferred Share; one
vote for each Series D Preferred Share).
Terms
of Our 6.50% Series C Cumulative Convertible Preferred Stock
General. In December 2004
and January 2005, we sold an aggregate 3,100,000 Series C Preferred
Shares. The Series C Preferred Shares are convertible into our common
shares and are listed on the New York Stock Exchange under the symbol
“LXP_pc.” As of the date of this prospectus, 2,095,200 Series C
Preferred Shares remain outstanding.
Dividends. The holders of
the Series C Shares are entitled to receive cumulative cash dividends at a rate
of 6.50% of the $50.00 liquidation preference per year (equivalent to $3.25 per
year per share).
Liquidation Preference. If we liquidate,
dissolve or wind-up, holders of our Series C Preferred Shares will have the
right to receive $50.00 per share, plus accrued and unpaid dividends (whether or
not declared) to and including the date of payment before any payments are made
to the holders of our common shares and any other capital shares ranking junior
to the Series C Preferred Shares as to liquidation rights. The rights
of the holders of the Series C Preferred Shares to receive their liquidation
preference will be subject to the proportionate rights of the Series B Preferred
Shares, Series D Preferred Shares and each other series or class of our capital
shares ranking, as to liquidation rights, on a parity with the Series C
Preferred Shares.
7
Redemption. We may not redeem
the Series C Preferred Shares unless necessary to preserve our status as a
REIT.
Conversion Rights. The Series C
Preferred Shares may be converted by the holder, at its option, into our common
shares initially at a conversion rate of 1.8643 common shares per $50.00
liquidation preference, which is equivalent to an initial conversion price of
approximately $26.82 per common share (subject to adjustment in certain
events). As of the date of this prospectus conversion rate is
2.3589 common shares per $50.00 liquidation preference.
Company
Conversion Option. On or after
November 16, 2009, we may, at our option, cause the Series C Preferred Shares to
be automatically converted into that number of common shares that are
issuable at the then prevailing conversion rate (the “Company Conversion
Option”). We may exercise our conversion right only if, for twenty
(20) trading days within any period of thirty (30) consecutive trading days
(including the last trading day of such period), the closing price of our common
shares equals or exceeds 125% of the then prevailing conversion price of the
Series C Preferred Shares.
Settlement. Upon conversion
(pursuant to a voluntary conversion or the Company Conversion Option) we may
choose to deliver the conversion value to
investors in cash, our common shares, or a combination of cash and our common
shares.
We can elect at any time
to obligate ourselves to satisfy solely in cash the portion of the conversion
value that is equal to 100% of the liquidation preference amount of the
Series C Preferred Shares, with any remaining amount of the conversion value to
be satisfied in cash, common shares or a combination of cash and common shares.
If we elect to do so, we will notify holders at any time that we intend to
settle in cash the portion of the conversion value that is equal to the
liquidation preference amount of the Series C Preferred Shares (referred to as
the ‘‘liquidation preference conversion settlement election’’). This
notification, once provided to holders, will be irrevocable and will apply to
future conversions of the Series C Preferred Shares even if the shares cease to
be convertible but subsequently become convertible again.
Payment
of Dividends Upon Conversion. Upon any
conversion, a holder of such converted Series C Preferred Shares will not
receive any cash payment representing accrued and unpaid dividends on the Series
C Preferred Shares, whether or not in arrears, except in certain
circumstances, including upon the exercise of the Company Conversion Option if
the conversion date in connection therewith is after the record date for payment
of dividends and before the corresponding dividend payment date. Upon the
exercise of the Company Conversion Option, a holder of such converted
Series C Preferred Shares will receive a cash payment for all unpaid
dividends in arrears.
Conversion Rate
Adjustments. The conversion
rate is subject to adjustment upon the occurrence of certain events, including
if we distribute in any quarter to all or substantially all holders
of our common shares, any cash, including quarterly cash dividends (subject to
adjustment), in excess of approximately $0.35 per common
share.
Fundamental Change. Upon the
occurrence of certain fundamental changes in the Company, a holder may require
us to purchase for cash all or part of its Series C Preferred Shares at a price
equal to 100% of their liquidation preference plus accrued and unpaid dividends,
if any, up to, but not including, the fundamental change purchase
date.
8
If a
holder elects to convert its Series C Preferred Shares in connection with
certain fundamental changes that occur on or prior to November 15, 2014, we will
in certain circumstances increase the conversion rate by a number of additional
common shares upon conversion or, in lieu thereof, we may in certain
circumstances elect to adjust the conversion rate and related conversion
obligation so that the Series C Preferred Shares are convertible into shares of
the acquiring or surviving company.
Rank. With respect to
the payment of dividends and amounts upon liquidation, dissolution or winding
up, the Series C Preferred Share rank (i) senior to all classes or series of our
common shares and to all equity securities ranking junior to our Series C
Preferred Shares, (ii) on a parity with our Series B Preferred Shares, Series D
Preferred Shares and all equity securities issued by us the terms of which
specifically provide that such equity securities rank on a parity with our
Series C Preferred Shares, and (iii) junior to all equity securities issued by
us the terms of which specifically provide that such equity securities rank
senior to our Series C Preferred Shares.
Voting
Rights. Holders of the
Series C Preferred Shares generally have no voting rights. However,
if we do not pay dividends on the Series C Preferred Shares for six or more
quarterly periods (whether or not consecutive), the holders of the Series C
Preferred Shares voting together as a class with the holders of Series B
Preferred Shares, Series D Preferred Shares and all other classes or series of
our equity securities ranking on parity with the Series C Preferred Shares which
are entitled to similar voting rights, will be entitled to vote at the next
annual meeting of our shareholders for the election of two additional trustees
to serve on our board of trustees until all unpaid cumulative dividends have
been paid or declared and set apart for payment. The holders of
Series C Preferred Shares, Series B Preferred Shares, Series D Preferred Shares
and all other classes or series of our equity securities ranking on parity with
the Series C Preferred Shares which are entitled to similar voting rights will
vote in proportion to the liquidation preference of $25.00 (i.e., two votes for
each Series C Preferred Share; one vote for each Series B Preferred Share; one
vote for each Series D Preferred Share).
Terms
of Our 7.55% Series D Cumulative Redeemable Preferred Shares
General. On February 14,
2007 and February 20, 2007, we sold an aggregate of 6,200,000 Series D Preferred
Shares. The Series D Preferred Shares are listed on the NYSE under
the symbol “LXP_pd”.
Dividends. The holders of
the Series D Preferred Shares are entitled to receive cumulative cash dividends
at a rate of 7.55% per year of the $25.00 liquidation preference (equivalent to
$1.8875 per year per share).
Liquidation
Preference. If we liquidate,
dissolve or wind-up, the holders of our Series D Preferred Shares will have the
right to receive $25.00 per share, plus accrued and unpaid dividends to the date
of payment (whether or not declared), before any distribution or payment may be
made to holders of our common shares and any other capital shares ranking junior
to the Series D Preferred Shares as to liquidation rights. The rights
of the holders of the Series D Preferred Shares to receive their liquidation
preference will be subject to the proportionate rights of the Series B Preferred
Shares and the Series C Preferred Shares and each other series or class of our
capital shares ranking, as to liquidation rights, on parity with the Series D
Preferred Shares.
Redemption. We may not redeem
the Series D Preferred Shares prior to February 14, 2012, except in limited
circumstances relating to the preservation of our status as a REIT or a
de-listing pursuant to a change of control. On or after February 14,
2012, we may, at our option, redeem the Series D Preferred Shares, in
whole or in part, at
any time or from time to time, for cash equal to $25.00 per share, plus any
accrued and unpaid dividends (whether or not declared) to and including the date
of redemption.
Conversion. The Series D Preferred
Shares are not convertible into, or exchangeable for, any other property or
securities, except that we may exchange shares of the Series D Preferred Shares
for shares of excess stock in order to ensure that we remain a qualified REIT
for federal income tax purposes.
Rank. With respect to
payment of dividends and amounts upon liquidation, dissolution or winding up,
the Series D Preferred Shares rank (i) senior to all classes or series of our
common shares and to all equity securities ranking junior to our Series D
Preferred Shares, (ii) on parity with our Series B Preferred Shares, Series C
Preferred Shares and all equity securities issued by us the terms of which
specifically provide that such equity securities rank on parity with our Series
D Preferred Shares, and (iii) junior to all equity securities issued by us the
terms of which specifically provide that such equity securities rank senior to
our Series D Preferred Shares.
9
Voting
Rights. Holders of the
Series D Preferred Shares will generally have no voting rights. However, if we
are in arrears on dividends on the Series D Preferred Shares for six or more
quarterly periods, whether or not consecutive, the holders of the Series D
Preferred Shares, voting together as a class with the holders of our Series B
Preferred Shares, Series C Preferred Shares and all other classes or series of
our equity securities ranking on parity with the Series D Preferred Shares which
are entitled to similar voting rights, will be entitled to vote at the next
annual meeting of our shareholders for the election of two additional trustees
to serve on our board of trustees until all unpaid cumulative dividends have
been paid or declared and set apart for payment. The holders of Series D
Preferred Shares, Series B Preferred Shares, Series C Preferred Shares and all
other classes or series of our equity securities ranking on parity with the
Series D Preferred Shares which are entitled to similar voting rights will vote
in proportion to the liquidation preference of $25.00 (i.e., one vote for each
Series D Preferred Share; one vote for each Series B Preferred Share; two votes
for each Series C Preferred Share). In addition, the affirmative vote
of at least two-thirds of the Series D Preferred Shares, voting together as a
class with the holders of our Series B Preferred Shares, Series C Preferred
Shares and all other classes or series of our equity securities ranking on
parity with the Series D Preferred Shares which are entitled to similar voting
rights, is required for us to authorize, create or increase capital shares
ranking senior to the Series D Preferred Shares or to amend our declaration of
trust in a manner that materially and adversely affects the rights of the Series
D Preferred Shares.
DESCRIPTION
OF OUR DEBT SECURITIES
We will issue our debt securities under
one or more separate indentures between us and a trustee that we will name in
the applicable supplement to this prospectus. A form of the indenture
is attached as an exhibit to the registration statement of which this prospectus
is a part. Following its execution, the indenture will be filed with
the SEC and incorporated by reference in the registration statement of which
this prospectus is a part.
The following summary describes certain
material terms and provisions of the indenture and our debt
securities. This summary is not complete and is subject to, and is
qualified in its entirety by reference to, the provisions of the indenture. When
we offer to sell a particular series of debt securities, we will describe the
specific terms of the series in the applicable supplement to this
prospectus. You should read the indenture for more details regarding
the provisions we describe below and for other provisions that may be important
to you. For information on incorporation by reference, and how to obtain a copy
of the indenture, see the section entitled “Where You Can Find More Information”
on page [*] of this prospectus.
General
The debt securities will be direct
obligations of the Company, which may be secured or unsecured and may be either
senior debt securities (“Senior Securities”) or subordinated debt securities
(“Subordinated Securities”). The debt securities will be issued under
one or more indentures in the form filed as an exhibit to the Registration
Statement of which this prospectus is a part (the “Form of
Indenture”). As provided in the Form of Indenture, the specific terms
of any Debt Security issued pursuant to an indenture will be set forth in one or
more Supplemental Indentures, each dated as of a date of or prior to the
issuance of the debt securities to which it relates (the “Supplemental
Indentures” and each a “Supplemental Indenture”). Senior Securities
and Subordinated Securities may be issued pursuant to separate indentures
(respectively, a “Senior Indenture” and a “Subordinated Indenture”), in each
case between the Company and a trustee (an “Indenture Trustee”), which may be
the same Indenture Trustee, subject to such amendments or supplements as may be
adopted from time to time. The Senior Indenture and the Subordinated
Indenture, as amended or supplemented from time to time, are sometimes
hereinafter referred to collectively as the “Indentures.” The Indentures will be
subject to and governed by the Trust Indenture Act of 1939, as
amended. The statements made under this heading relating to the debt
securities and the Indentures are summaries of the provisions thereof, do not
purport to be complete and are qualified in their entirety by reference to the
Indentures and such debt securities.
Capitalized terms used herein and not
defined shall have the meanings assigned to them in the applicable
Indenture.
10
Terms
The indebtedness represented by the
Senior Securities will rank equally with all other unsecured and unsubordinated
indebtedness of the Company. The indebtedness represented by
Subordinated Securities will be subordinated in right of payment to the prior
payment in full of the Senior Debt of the Company as described under
“—Subordination.” The particular terms of the debt securities offered
by a prospectus supplement will be described in the applicable prospectus
supplement, along with any applicable federal income tax considerations unique
to such debt securities. Accordingly, for a description of the terms
of any series of debt securities, reference must be made to both the prospectus
supplement relating thereto and the description of the debt securities set forth
in this prospectus.
Except as set forth in any prospectus
supplement, the debt securities may be issued without limits as to aggregate
principal amount, in one or more series, in each case as established from time
to time by the Company or as set forth in the applicable Indenture or in one or
more Supplemental Indentures. All debt securities of one series need
not be issued at the same time and, unless otherwise provided, a series may be
reopened, without the consent of the holders of the debt securities of such
series, for issuance of additional debt securities of such series.
The Form of Indenture provides that the
Company may, but need not, designate more than one Indenture Trustee thereunder,
each with respect to one or more series of debt securities. Any
Indenture Trustee under an Indenture may resign or be removed with respect to
one or more series of debt securities and a successor Indenture Trustee may be
appointed to act with respect to such series. If two or more persons
are acting as Indenture Trustee with respect to different series of debt
securities, each such Indenture Trustee shall be an Indenture Trustee of a trust
under the applicable Indenture separate and apart from the trust administered by
any other Indenture Trustee, and, except as otherwise indicated herein, any
action described herein to be taken by each Indenture Trustee may be taken by
each such Indenture Trustee with respect to, and only with respect to, the one
or more series of debt securities for which it is Indenture Trustee under the
applicable Indenture.
The following summaries set forth
certain general terms and provisions of the Indentures and the debt
securities. The prospectus supplement relating to the series of debt
securities being offered will contain further terms of such debt securities,
including the following specific terms:
(1) The title
of such debt securities and whether such debt securities are secured or
unsecured or Senior Securities or Subordinated Securities;
(2) The
aggregate principal amount of such debt securities and any limit on such
aggregate principal amount;
(3) The price
(expressed as a percentage of the principal amount thereof) at which such debt
securities will be issued and, if other than the principal amount thereof, the
portion of the principal amount thereof payable upon declaration of the maturity
thereof, or (if applicable) the portion of the principal amount of such debt
securities that is convertible into common shares or preferred shares, or the
method by which any such portion shall be determined;
(4) If
convertible, the terms on which such debt securities are convertible, including
the initial conversion price or rate and the conversion period and any
applicable limitations on the ownership or transferability of the common shares
or preferred shares receivable on conversion;
(5) The date
or dates, or the method for determining such date or dates, on which the
principal of such debt securities will be payable;
(6) The rate
or rates (which may be fixed or variable), or the method by which such rate or
rates shall be determined, at which such debt securities will bear interest, if
any;
(7) The date
or dates, or the method for determining such date or dates, from which any such
interest will accrue, the dates on which any such interest will be payable, the
record dates for such interest payment dates, or the method by which such dates
shall be determined, the persons to whom such interest shall be payable, and the
basis upon which interest shall be calculated if other than that of a 360-day
year of twelve 30-day months;
11
(8) The place
or places where the principal of (and premium, if any) and interest, if any, on
such debt securities will be payable, where such debt securities may be
surrendered for conversion or registration of transfer or exchange and where
notices or demands to or upon the Company with respect to such debt securities
and the applicable Indenture may be served;
(9) The
period or periods, if any, within which, the price or prices at which and the
other terms and conditions upon which such debt securities may, pursuant to any
optional or mandatory redemption provisions, be redeemed, as a whole or in part,
at the option of the Company;
(10) The
obligation, if any, of the Company to redeem, repay or purchase such debt
securities pursuant to any sinking fund or analogous provision or at the option
of a holder thereof, and the period or periods within which, the price or prices
at which and the other terms and conditions upon which such debt securities will
be redeemed, repaid or purchased, as a whole or in part, pursuant to such
obligation;
(11) If other
than U.S. dollars, the currency or currencies in which such debt securities are
denominated and payable, which may be a foreign currency or units of two or more
foreign currencies or a composite currency or currencies, and the terms and
conditions relating thereto;
(12) Whether
the amount of payments of principal of (and premium, if any) or interest, if
any, on such debt securities may be determined with reference to an index,
formula or other method (which index, formula or method may, but need not, be
based on a currency, currencies, currency unit or units, or composite currency
or currencies) and the manner in which such amounts shall be
determined;
(13) Whether
such debt securities will be issued in certificated or book-entry form and, if
so, the identity of the depository for such debt securities;
(14) Whether
such debt securities will be in registered or bearer form or both and, if in
registered form, the denominations thereof if other than $1,000 and any integral
multiple thereof and, if in bearer form, the denominations thereof and terms and
conditions relating thereto;
(15) The
applicability, if any, of the defeasance and covenant defeasance provisions
described herein or set forth in the applicable Indenture, or any modification
thereof;
(16) Whether
and under what circumstances the Company will pay any additional amounts on such
debt securities in respect of any tax, assessment or governmental charge and, if
so, whether the Company will have the option to redeem such debt securities in
lieu of making such payment;
(17) Any
deletions from, modifications of or additions to the events of default or
covenants of the Company, to the extent different from those described herein or
set forth in the applicable Indenture with respect to such debt securities, and
any change in the right of any Trustee or any of the holders to declare the
principal amount of any of such debt securities due and payable;
(18) The
provisions, if any, relating to the security provided for such debt securities;
and
(19) Any other
terms of such debt securities not inconsistent with the provisions of the
applicable Indenture.
12
If so provided in the applicable
prospectus supplement, the debt securities may be issued at a discount below
their principal amount and provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
(“Original Issue Discount Securities”). In such cases, any special
U.S. federal income tax, accounting and other considerations applicable to
Original Issue Discount Securities will be described in the applicable
prospectus supplement.
Except as may be set forth in any
prospectus supplement, neither the debt securities nor the Indenture will
contain any provisions that would limit the ability of the Company to incur
indebtedness or that would afford holders of debt securities protection in the
event of a highly leveraged or similar transaction involving the Company or in
the event of a change of control, regardless of whether such indebtedness,
transaction or change of control is initiated or supported by the Company, any
affiliate of the Company or any other party. However, certain
restrictions on ownership and transfers of the common shares and preferred
shares are designed to preserve the Company’s status as a REIT and, therefore,
may act to prevent or hinder a change of control. See “Restrictions
on Transfers of Capital Stock and Anti-Takeover Provisions” beginning on page 34
of this prospectus. Reference is made to the applicable prospectus
supplement for information with respect to any deletions from, modifications of,
or additions to, the events of default or covenants of the Company that are
described below, including any addition of a covenant or other provision
providing event risk or similar protection.
Denomination,
Interest, Registration and Transfer
Unless otherwise described in the
applicable prospectus supplement, the debt securities of any series will be
issuable in denominations of $1,000 and integral multiples thereof.
Unless otherwise specified in the
applicable prospectus supplement, the principal of (and applicable premium, if
any) and interest on any series of debt securities will be payable at the
corporate trust office of the applicable Indenture Trustee, the address of which
will be stated in the applicable prospectus supplement; provided, however, that,
at the option of the Company, payment of interest may be made by check mailed to
the address of the person entitled thereto as it appears in the applicable
register for such debt securities or by wire transfer of funds to such person at
an account maintained within the United States.
Subject to certain limitations imposed
upon debt securities issued in book-entry form, the debt securities of any
series will be exchangeable for any authorized denomination of other debt
securities of the same series and of a like aggregate principal amount and tenor
upon surrender of such debt securities at the corporate trust office of the
applicable Indenture Trustee or at the office of any transfer agent designated
by the Company for such purpose. In addition, subject to certain
limitations imposed upon debt securities issued in book-entry form, the debt
securities of any series may be surrendered for conversion or registration of
transfer or exchange thereof at the corporate trust office of the applicable
Indenture Trustee or at the office of any transfer agent designated by the
Company for such purpose. Every Debt Security surrendered for
conversion, registration of transfer or exchange must be duly endorsed or
accompanied by a written instrument of transfer, and the person requesting such
action must provide evidence of title and identity satisfactory to the
applicable Indenture Trustee or transfer agent. No service charge
will be made for any registration of transfer or exchange of any debt
securities, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith. If
the applicable prospectus supplement refers to any transfer agent (in addition
to the applicable Indenture Trustee) initially designated by the Company with
respect to any series of debt securities, the Company may at any time rescind
the designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, except that the Company will be
required to maintain a transfer agent in each place of payment for such
series. The Company may at any time designate additional transfer
agents with respect to any series of debt securities.
Neither the Company nor any Indenture
Trustee shall be required (i) to issue, register the transfer of or exchange
debt securities of any series during a period beginning at the opening of
business 15 days before the day of mailing of a notice of redemption of any debt
securities that may be selected for redemption and ending at the close of
business on the day of such mailing; (ii) to register the transfer of or
exchange any Debt Security, or portion thereof, so selected for redemption, in
whole or in part, except the unredeemed portion of any Debt Security being
redeemed in part; or (iii) to issue, register the transfer of or exchange any
Debt Security that has been surrendered for repayment at the option of the
holder, except the portion, if any, of such Debt Security not to be so
repaid.
13
Merger,
Consolidation or Sale of Assets
The Indentures will provide that the
Company may, without the consent of the holders of any outstanding debt
securities, consolidate with, or sell, lease or convey all or substantially all
of its assets to, or merge with or into, any other entity provided that (a)
either the Company shall be the continuing entity, or the successor entity (if
other than the Company) formed by or resulting from any such consolidation or
merger or which shall have received the transfer of such assets, is organized
under the laws of any domestic jurisdiction and assumes the Company’s
obligations to pay principal of (and premium, if any) and interest on all of the
debt securities and the due and punctual performance and observance of all of
the covenants and conditions contained in each Indenture; (b) immediately after
giving effect to such transaction and treating any indebtedness that becomes an
obligation of the Company or any subsidiary as a result thereof as having been
incurred by the Company or such subsidiary at the time of such transaction, no
event of default under the Indentures, and no event which, after notice or the
lapse of time, or both, would become such an event of default, shall have
occurred and be continuing; and (c) an officers’ certificate and legal opinion
covering such conditions shall be delivered to each Indenture
Trustee.
Certain
Covenants
Existence. Except
as permitted under “—Merger, Consolidation or Sale of Assets,” the Indentures
will require the Company to do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence, rights (by
declaration of trust, by-laws and statute) and franchises; provided, however,
that the Company will not be required to preserve any right or franchise if its
board of trustees determines that the preservation thereof is no longer
desirable in the conduct of its business by appropriate
proceedings.
Maintenance of
Properties. The Indentures will require the Company to cause
all of its material properties used or useful in the conduct of its business or
the business of any subsidiary to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and will
cause to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Company may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, however, that the Company and
its subsidiaries shall not be prevented from selling or otherwise disposing of
their properties for value in the ordinary course of business.
Insurance. The
Indentures will require the Company to cause each of its and its subsidiaries’
insurable properties to be insured against loss or damage with insurers of
recognized responsibility and, if described in the applicable prospectus
supplement, having a specified rating from a recognized insurance rating
service, in such amounts and covering all such risks as shall be customary in
the industry in accordance with prevailing market conditions and
availability.
Payment of Taxes and Other
Claims. The Indentures will require the Company to pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any subsidiary or upon the income, profits or property of the
Company or any subsidiary and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Company or any subsidiary; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith.
Provision of Financial
Information. Whether or not the Company is subject to Section
13 or 15(d) of the Exchange Act, the Indentures will require the Company, within
15 days of each of the respective dates by which the Company would have been
required to file annual reports, quarterly reports and other documents with the
Commission if the Company were so subject, (i) to file with the applicable
Indenture Trustee copies of the annual reports, quarterly reports and other
documents that the Company would have been required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act if the Company were subject
to such Sections and (ii) to supply, promptly upon written request and payment
of the reasonable cost of duplication and delivery, copies of such documents to
any prospective holder.
Additional
Covenants. Any additional covenants of the Company with
respect to any series of debt securities will be set forth in the prospectus
supplement relating thereto.
14
Events
of Default, Notice and Waiver
Unless
otherwise provided in the applicable prospectus supplement, each Indenture will
provide that the following events are “Events of Default” with respect to any
series of debt securities issued thereunder (i) default for 30 days in the
payment of any installment of interest on any Debt Security of such series; (ii)
default in the payment of principal of (or premium, if any, on) any Debt
Security of such series at its maturity; (iii) default in making any sinking
fund payment as required for any Debt Security of such series; (iv) default in
the performance or breach of any other covenant or warranty of the Company
contained in the Indenture (other than a covenant added to the Indenture solely
for the benefit of a series of debt securities issued thereunder other than such
series), continued for 60 days after written notice as provided in the
applicable Indenture; (v) a default under any bond, debenture, note or other
evidence of indebtedness for money borrowed by the Company or any of its
subsidiaries (including obligations under leases required to be capitalized on
the balance sheet of the lessee under generally accepted accounting principles
but not including any indebtedness or obligations for which recourse is limited
to property purchased) in an aggregate principal amount in excess of $30,000,000
or under any mortgage, indenture or instrument under which there may be issued
or by which there may be secured or evidenced any indebtedness for money
borrowed by the Company or any its subsidiaries (including such leases, but not
including such indebtedness or obligations for which recourse is limited to
property purchased) in an aggregate principal amount in excess of $30,000,000,
whether such indebtedness exists on the date of such Indenture or shall
thereafter be created, with such obligations being accelerated and not rescinded
or annulled; (vi) certain events of bankruptcy, insolvency or reorganization, or
court appointment of a receiver, liquidator or trustee of the Company or any
Significant Subsidiary of the Company; and (vii) any other event of default
provided with respect to a particular series of debt securities. The
term “Significant Subsidiary” has the meaning ascribed to such term in
Regulation S-X promulgated under the Securities Act.
If an
event of default under any Indenture with respect to debt securities of any
series at the time outstanding occurs and is continuing, then in every such case
the applicable Indenture Trustee or the holders of not less than 25% in
principal amount of the debt securities of that series will have the right to
declare the principal amount (or, if the debt securities of that series are
Original Issue Discount Securities or indexed securities, such portion of the
principal amount as may be specified in the terms thereof) of all the debt
securities of that series to be due and payable immediately by written notice
thereof to the Company (and to the applicable Indenture Trustee if given by the
holders). However, at any time after such a declaration of
acceleration with respect to debt securities of such series (or of all debt
securities then outstanding under any Indenture, as the case may be) has been
made, but before a judgment or decree for payment of the money due has been
obtained by the applicable Indenture Trustee, the holders of not less than a
majority in principal amount of outstanding debt securities of such series (or
of all debt securities then outstanding under the applicable Indenture, as the
case may be) may rescind and annul such declaration and its consequences if (i)
the Company shall have deposited with the applicable Indenture Trustee all
required payments of the principal of (and premium, if any) and interest on the
debt securities of such series (or of all debt securities than outstanding under
the applicable Indenture, as the case may be), plus certain fees, expenses,
disbursements and advances of the applicable Indenture Trustee and (ii) all
events of default, other than the non-payment of accelerated principal (or
specified portion thereof), with respect to debt securities of such series (or
of all debt securities then outstanding under the applicable Indenture, as the
case may be) have been cured or waived as provided in such
Indenture. The Indentures will also provide that the holders of not
less than a majority in principal amount of the outstanding debt securities of
any series (or of all debt securities then outstanding under the applicable
Indenture, as the case may be) may waive any past default with respect to such
series and its consequences, except a default (x) in the payment of the
principal of (or premium, if any) or interest on any Debt Security of such
series or (y) in respect of a covenant or provision contained in the applicable
Indenture that cannot be modified or amended without the consent of the holder
of each outstanding Debt Security affected thereby.
The
Indentures will require each Indenture Trustee to give notice to the holders of
debt securities within 90 days of a default under the applicable Indenture
unless such default shall have been cured or waived; provided, however, that
such Indenture Trustee may withhold notice to the holders of any series of debt
securities of any default with respect to such series (except a default in the
payment of the principal of (or premium, if any) or interest on any Debt
Security of such series or in the payment of any sinking fund installment in
respect to any Debt Security of such series) if specified responsible officers
of such Indenture Trustee consider such withholding to be in the interest of
such holders.
15
The
Indentures will provide that no holder of debt securities of any series may
institute any proceeding, judicial or otherwise, with respect to such Indenture
or for any remedy thereunder, except in the case of failure of the applicable
Indenture Trustee, for 60 days, to act after it has received a written request
to institute proceedings in respect of an event of default from the holders of
not less than 25% in principal amount of the outstanding debt securities of such
series, as well as an offer of indemnity reasonably satisfactory to
it. This provision will not prevent, however, any holder of debt
securities from instituting suit for the enforcement of payment of the principal
of (and premium, if any) and interest on such debt securities at the respective
due dates thereof.
The
Indentures will provide that, subject to provisions in each Indenture relating
to its duties in case of default, an Indenture Trustee will be under no
obligation to exercise any of its rights or powers under an Indenture at the
request or direction of any holders of any series of debt securities then
outstanding under such Indenture, unless such holders shall have offered to the
Indenture Trustee thereunder reasonable security or indemnity. The
holders of not less than a majority in principal amount of the outstanding debt
securities of any series (or of all debt securities then outstanding under an
Indenture, as the case may be) shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the
applicable Indenture Trustee, or of exercising any trust or power conferred upon
such Indenture Trustee. However, an Indenture Trustee may refuse to
follow any direction which is in conflict with any law or the applicable
Indenture, which may involve such Indenture Trustee in personal liability or
which may be unduly prejudicial to the holders of debt securities of such series
not joining therein.
Within
120 days after the close of each fiscal year, the Company will be required to
deliver to each Indenture Trustee a certificate, signed by one of several
specified officers of the Company, stating whether or not such officer has
knowledge of any default under the applicable Indenture and, if so, specifying
each such default and the nature and status thereof.
Modification
of the Indentures
Modifications
and amendments of an Indenture will be permitted to be made only with the
consent of the holders of not less than a majority in principal amount of all
outstanding debt securities issued under such Indenture affected by such
modification or amendment; provided, however, that no such modification or
amendment may, without the consent of the holder of each such Debt Security
affected thereby, (i) change the stated maturity of the principal of, or any
installment of interest (or premium, if any) on, any such Debt Security; (ii)
reduce the principal amount of, or the rate or amount of interest on, or any
premium payable on redemption of, any such Debt Security, or reduce the amount
of principal of an Original Issue Discount Security that would be due and
payable upon declaration of acceleration of the maturity thereof or would be
provable in bankruptcy, or adversely affect any right of repayment of the holder
of any such Debt Security; (iii) change the place of payment, or the coin or
currency, for payment of principal of, premium, if any, or interest on any such
Debt Security; (iv) impair the right to institute suit for the enforcement of
any payment on or with respect to any such Debt Security; (v) reduce the
above-stated percentage of outstanding debt securities of any series necessary
to modify or amend the applicable Indenture, to waive compliance with certain
provisions thereof or certain defaults and consequences thereunder or to reduce
the quorum or voting requirements set forth in the applicable Indenture; or (vi)
modify any of the foregoing provisions or any of the provisions relating to the
waiver of certain past defaults or certain covenants, except to increase the
required percentage to effect such action or to provide that certain other
provisions may not be modified or waived without the consent of the holder of
such Debt Security.
The
holders of a majority in aggregate principal amount of the outstanding debt
securities of each series may, on behalf of all holders of debt securities of
that series, waive, insofar as that series is concerned, compliance by the
Company with certain restrictive covenants of the applicable
Indenture.
Modifications
and amendments of an Indenture will be permitted to be made by the Company and
the respective Indenture Trustee thereunder without the consent of any holder of
debt securities for any of the following purposes: (i) to evidence the
succession of another person to the Company as obligor under such Indenture;
(ii) to add to the covenants of the Company for the benefit of the holders of
all or any series of debt securities or to surrender any right or power
conferred upon the Company in such Indenture; (iii) to add events of default for
the benefit of the holders of all or any series of debt securities; (iv) to add
or change any provisions of an Indenture to facilitate the issuance of, or to
liberalize certain terms of, debt securities in bearer form, or to permit or
facilitate the issuance of debt securities in uncertificated form; provided that
such action shall not adversely affect the interest of the holders of the debt
securities of any series in any material respect; (v) to change or eliminate any
provisions of an Indenture; provided that any such change or elimination shall
be effective only when there are no debt securities outstanding of any series
created prior thereto which are entitled to the benefit of such provision; (vi)
to secure the debt securities; (vii) to establish the form or terms of debt
securities of any series, including the provisions and procedures, if
applicable, for the conversion of such debt securities into common shares or
preferred shares; (viii) to provide for the acceptance of appointment by a
successor Indenture Trustee or facilitate the administration of the trusts under
an Indenture by more than one Indenture Trustee; (ix) to cure any ambiguity,
defect or inconsistency in an Indenture; provided that such action shall not
adversely affect the interests of holders of debt securities of any series
issued under such Indenture; or (x) to supplement any of the provisions of an
Indenture to the extent necessary to permit or facilitate defeasance and
discharge of any series of such debt securities; provided that such action shall
not adversely affect the interests of the holders of the outstanding debt
securities of any series.
16
The
Indentures will provide that, in determining whether the holders of the
requisite principal amount of outstanding debt securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of holders of debt
securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of any Debt Security denominated in a foreign currency that shall be deemed
outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
debt securities of the amount determined as provided in (i) above), (iii) the
principal amount of an indexed security that shall be deemed outstanding shall
be the principal face amount of such indexed security at original issuance,
unless otherwise provided with respect to such indexed security pursuant to such
Indenture, and (iv) debt securities owned by the Company or any other obligor
upon the debt securities or an affiliate of the Company or of such other obligor
shall be disregarded.
The
Indentures will contain provisions for convening meetings of the holders of debt
securities of a series issued thereunder. A meeting may be called at
any time by the applicable Indenture Trustee, and also, upon request by the
Company or the holders of at least 25% in principal amount of the outstanding
debt securities of such series, in any such case upon notice given as provided
in such Indenture. Except for any consent that must be given by the
holder of each Debt Security affected by certain modifications and amendments of
an Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present may be adopted by the affirmative vote
of the holders of a majority in principal amount of the outstanding debt
securities of that series; provided, however, that, except as referred to above,
any resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
holders of a specified percentage, which is less than a majority, in principal
amount of the outstanding debt securities of a series may be adopted at a
meeting or adjourned meeting duly reconvened at which a quorum is present by the
affirmative vote of the holders of such specified percentage in principal amount
of the outstanding debt securities of that series. Any resolution
passed or decision taken at any meeting of holders of debt securities of any
series duly held in accordance with an Indenture will be binding on all holders
of debt securities of that series. The quorum at any meeting called
to adopt a resolution, and at any reconvened meeting, will be persons holding or
representing a majority in principal amount of the outstanding debt securities
of a series; provided, however, that if any action is to be taken at such
meeting with respect to a consent or waiver which may be given by the holders of
not less than a specified percentage in principal amount of the outstanding debt
securities of a series, the persons holding or representing such specified
percentage in principal amount of the outstanding debt securities of such series
will constitute a quorum.
Notwithstanding
the foregoing provisions, the Indentures will provide that if any action is to
be taken at a meeting of holders of debt securities of any series with respect
to any request, demand, authorization, direction, notice, consent, waiver and
other action that such Indenture expressly provides may be made, given or taken
by the holders of a specified percentage in principal amount of all outstanding
debt securities affected thereby, or of the holders of such series and one or
more additional series; (i) there shall be no minimum quorum requirement for
such meeting, and (ii) the principal amount of the outstanding debt securities
of such series that vote in favor of such request, demand, authorization,
direction, notice, consent, waiver or other action shall be taken into account
in determining whether such request, demand, authorization, direction, notice,
consent, waiver or other action has been made, given or taken under such
Indenture.
17
Subordination
Unless
otherwise provided in the applicable prospectus supplement, Subordinated
Securities will be subject to the following subordination
provisions.
Upon any
distribution to creditors of the Company in a liquidation, dissolution or
reorganization, the payment of the principal of and interest on any Subordinated
Securities will be subordinated to the extent provided in the applicable
Indenture in right of payment to the prior payment in full of all Senior Debt
(as defined below), but the obligation of the Company to make payments of the
principal of and interest on such Subordinated Securities will not otherwise be
affected. No payment of principal or interest will be permitted to be
made on Subordinated Securities at any time if a default on Senior Debt exists
that permits the holders of such Senior Debt to accelerate its maturity and the
default is the subject of judicial proceedings or the Company receives notice of
the default. After all Senior Debt is paid in full and until the
Subordinated Securities are paid in full, holders will be subrogated to the
rights of holders of Senior Debt to the extent that distributions otherwise
payable to holders have been applied to the payment of Senior
Debt. The Subordinated Indenture will not restrict the amount of
Senior Indebtedness or other indebtedness of the Company and its
subsidiaries. As a result of these subordination provisions in the
event of a distribution of assets upon insolvency, holders of Subordinated
Indebtedness may recover less, ratably, than senior creditors of the
Company.
Senior
Debt will be defined in the applicable Indenture as the principal of and
interest on, or substantially similar payments to be made by the Company in
respect of, the following, whether outstanding at the date of execution of the
applicable Indenture or thereafter incurred, created or assumed: (i)
indebtedness of the Company for money borrowed or represented by purchase-money
obligations, (ii) indebtedness of the Company evidenced by notes, debentures, or
bonds, or other securities issued under the provisions of an indenture, fiscal
agency agreement or other agreement, (iii) obligations of the Company as lessee
under leases of property either made as part of any sale and leaseback
transaction to which the Company is a part or otherwise, (iv) indebtedness of
partnerships and joint ventures which is included in the consolidated financial
statements of the Company, (v) indebtedness obligations and liabilities of
others in respect of which the Company is liable contingently or otherwise to
pay or advance money or property or as guarantor, endorser or otherwise or which
the Company has agreed to purchase or otherwise acquire, and (vi) any binding
commitment of the real estate investment, in each case other than (a) any such
indebtedness, obligation or liability referred to in clauses (i) through (vi)
above as to which, in the instrument creating or evidencing the same pursuant to
which the same is outstanding, it is provided that such indebtedness, obligation
or liability is not superior in right of payment to the Subordinated Securities
or ranks pari passu with the Subordinated Securities, (b) any such indebtedness
obligation or liability which is subordinated to indebtedness of the Company to
substantially the same extent as or to a greater extent than the Subordinated
Securities are subordinated, and (c) the Subordinated
Securities. There will not be any restriction in any Indenture
relating to Subordinated Securities upon the creation of additional Senior
Debt.
If this
prospectus is being delivered in connection with a series of Subordinated
Securities, the accompanying prospectus supplement or the information
incorporated herein by reference will set forth the approximate amount of Senior
Debt outstanding as of the end of the Company’s most recent fiscal
quarter.
Discharge,
Defeasance and Covenant Defeasance
Unless
otherwise indicated in the applicable prospectus supplement, the Company will be
permitted, at its option, to discharge certain obligations to holders of any
series of debt securities issued under any Indenture that have not already been
delivered to the applicable Indenture Trustee for cancellation and that either
have become due and payable or will become due and payable within one year (or
scheduled for redemption within one year) by irrevocably depositing with the
applicable Indenture Trustee, in trust, funds in such currency or currencies,
currency unit or units or composite currency or currencies in which such debt
securities are payable in an amount sufficient to pay the entire indebtedness on
such debt securities with respect to principal (and premium, if any) and
interest to the date of such deposit (if such debt securities have become due
and payable) or to the stated maturity or redemption date, as the case may
be.
The
Indentures will provide that, unless otherwise indicated in the applicable
prospectus supplement, the Company may elect either (i) to defease and be
discharged from any and all obligations (except for the obligation to pay
additional amounts, if any, upon the occurrence of certain events of tax
assessment or governmental charge with respect to payments on such debt
securities and the obligations to register the transfer or exchange of such debt
securities, to replace temporary or mutilated, destroyed, lost or stolen debt
securities, to maintain an office or agency in respect of such debt securities,
to hold moneys for payment in trust and, with respect to Subordinated debt
securities which are convertible or exchangeable, the right to convert or
exchange) with respect to such debt securities (“defeasance”) or (ii) to be
released from its obligations with respect to such debt securities under the
applicable Indenture ( being the restrictions described under “—Certain
Covenants”) or, if provided in the applicable prospectus supplement, its
obligations with respect to any other covenant, and any omission to comply with
such obligations shall not constitute an event of default with respect to such
debt securities (“covenant defeasance”), in either case upon the irrevocable
deposit by the Company with the applicable Indenture Trustee, in trust, of an
amount in such currency or currencies, currency unit or units or composite
currency or currencies in which such debt securities are payable at stated
maturity, or Government Obligations (as defined below), or both, applicable to
such debt securities, which through the scheduled payment of principal and
interest in accordance with their terms will provide money in an amount
sufficient to pay the principal of (and premium, if any) and interest on such
debt securities, and any mandatory sinking fund or analogous payments thereon,
on the scheduled due dates therefor.
18
Such a
trust will only be permitted to be established if, among other things, the
Company has delivered to the applicable Indenture Trustee an opinion of counsel
(as specified in the applicable Indenture) to the effect that the holders of
such debt securities will not recognize income, gain or loss for U.S. federal
income tax purposes as a result of such defeasance or covenant defeasance and
will be subject to U.S. federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such defeasance or
covenant defeasance had not occurred, and such opinion of counsel, in the case
of defeasance, will be required to refer to and be based upon a ruling received
from or published by the Internal Revenue Service or a change in applicable
United States federal income tax law occurring after the date of the
Indenture. In the event of such defeasance, the holders of such debt
securities would thereafter be able to look only to such trust fund for payment
of principal (and premium, if any) and interest.
“Government
Obligations” means securities that are (i) direct obligations of the United
States of America or the government which issued the foreign currency in which
the debt securities of a particular series are payable, for the payment of which
its full faith and credit is pledged, or (ii) obligations of a person controlled
or supervised by and acting as an agency or instrumentality of the United States
of America or such government which issued the foreign currency in which the
debt securities of such series are payable, the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America or such other government, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt; provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt.
Unless
otherwise provided in the applicable prospectus supplement, if after the Company
has deposited funds and/or Government Obligations to effect defeasance or
covenant defeasance with respect to debt securities of any series, (i) the
holder of a Debt Security of such series is entitled to, and does, elect
pursuant to the applicable Indenture or the terms of such Debt Security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or
(ii) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security will be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium, if any) and interest on such Debt Security as they become due out
of the proceeds yielded by converting the amount so deposited in respect of such
Debt Security into the currency, currency unit or composite currency in which
such Debt Security becomes payable as a result of such election or such
cessation of usage based on the applicable market exchange
rate. “Conversion Event” means the cessation of use of (a) a
currency, currency unit or composite currency both by the government of the
country which issued such currency and for the settlement of transactions by a
central bank or other public institutions of or within the international banking
community, (b) the ECU both within the European Monetary System and for the
settlement of transactions by public institutions of or within the European
Communities, or (c) any currency unit or composite currency other than the ECU
for the purposes for which it was established. Unless otherwise
provided in the applicable prospectus supplement, all payments of principal of
(and premium, if any) and interest on any Debt Security that is payable in a
foreign currency that ceases to be used by its government of issuance shall be
made in U.S. dollars.
19
If the
Company effects covenant defeasance with respect to any debt securities and such
debt securities are declared due and payable because of the occurrence of any
event of default other than the event of default described in clause (iv) under
“—Events of Default, Notice and Waiver” with respect to specified sections of an
Indenture (which sections would no longer be applicable to such debt securities)
or described in clause (vii) under “—Events of Default, Notice and Waiver” with
respect to any other covenant as to which there has been covenant defeasance,
the amount in such currency, currency unit or composite currency in which such
debt securities are payable, and Government Obligations on deposit with the
applicable Indenture Trustee, will be sufficient to pay amounts due on such debt
securities at the time of their stated maturity but may not be sufficient to pay
amounts due on such debt securities at the time of the acceleration resulting
from such event of default. However, the Company would remain liable
to make payment of such amounts due at the time of acceleration.
The
applicable prospectus supplement may further describe the provisions, if any,
permitting such defeasance or covenant defeasance, including any modifications
to the provisions described above, with respect to the debt securities of or
within a particular series.
Conversion
Rights
The terms
and conditions, if any, upon which the debt securities are convertible into
common shares or preferred shares will be set forth in the applicable prospectus
supplement relating thereto. Such terms will include whether such
debt securities are convertible into common shares or preferred shares, the
conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders or the
Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such debt
securities and any restrictions on conversion, including restrictions directed
at maintaining the Company’s REIT status.
Payment
Unless
otherwise specified in the applicable prospectus supplement, the principal of
(and applicable premium, if any) and interest on any series of debt securities
will be payable at the corporate trust office of the Indenture Trustee, the
address of which will be stated in the applicable prospectus supplement;
provided that, at the option of the Company, payment of interest may be made by
check mailed to the address of the person entitled thereto as it appears in the
applicable register for such debt securities or by wire transfer of funds to
such person at an account maintained within the United States.
All
moneys paid by the Company to a paying agent or an Indenture Trustee for the
payment of the principal of or any premium or interest on any Debt Security
which remain unclaimed at the end of one year after such principal, premium or
interest has become due and payable will be repaid to the Company, and the
holder of such Debt Security thereafter may look only to the Company for payment
thereof.
Global
Securities
The debt
securities of a series may be issued in whole or in part in the form of one or
more global securities (the “Global Securities”) that will be deposited with, or
on behalf of, a depositary identified in the applicable prospectus supplement
relating to such series. Global Securities may be issued in either
registered or bearer form and in either temporary or permanent
form. The specific terms of the depositary arrangement with respect
to a series of debt securities will be described in the applicable prospectus
supplement relating to such series.
20
5.45%
Exchangeable Notes due 2027
In 2007,
The Lexington Master Limited Partnership, one of our former operating
partnerships, issued an aggregate amount of $450.0 million in 5.45% Exchangeable
Guaranteed Notes due 2027, or the “Notes.” The Lexington Master Limited
Partnership was merged with and into us on December 31, 2008, and we assumed all
of the obligations under the indenture dated as of January 29, 2007, as
supplemented by supplemental indentures dated as of January 29, 2007, March 9,
2007, June 19, 2007 and December 31, 2008 between us, certain subsidiary
guarantors and U.S. Bank, National Association, as trustee, which governs the
Notes. As of June 30, 2009, $134.4 million original principal
amount of the Notes were outstanding.
The
Notes, which mature on January 15, 2027, are unsecured obligations of us and the
guarantors, and the interest on the Notes, at the rate of 5.45% per year, is
payable semi-annually on January 15 and July 15 of each year, beginning on July
15, 2007.
Holders
of the Notes may exchange the Notes at the current exchange rate for each $1,000
principal amount of the Notes of 49.6681 of our common shares, payable in
cash or, if the exchange value is greater than a specified principal return, in
cash with respect to the amount equal to that principal return, and with respect
to any portion in excess of the principal return, cash, our common shares or a
combination of cash and our common shares, at our option, prior to the close of
business on the second business day prior to the stated maturity date at any
time on or after January 15, 2026 and also under the following
circumstances:
(a) Exchange Upon Satisfaction of
Market Price Condition. A holder may surrender any of its Notes for
exchange during any calendar quarter (and only during such calendar quarter),
if, and only if, the closing sale price of the common shares for at least 20
trading days (whether or not consecutive) in the period of 30 consecutive
trading days ending on the last trading day of the preceding calendar quarter as
determined by us is more than 125% of the exchange price per common share in
effect on the applicable trading day;
(b) Exchange Upon Satisfaction of
Trading Price Condition. A holder may surrender any of its Notes for
exchange during the five consecutive trading-day period following any five
consecutive trading-day period in which the trading price per $1,000 principal
amount of Notes (as determined following a reasonable request by a holder of the
Notes) was less than 98% of the product of the closing sale price of the common
shares multiplied by the applicable exchange rate;
(c) Exchange Upon Notice of
Redemption. A holder may surrender for exchange any of the Notes called
for redemption at any time prior to the close of business on the second business
day prior to the redemption date, even if the Notes are not otherwise
exchangeable at such time.
(d) Exchange if Common Shares Are
Not Listed. A holder may surrender any of its Notes for exchange at any
time beginning on the first business day after the common shares have ceased to
be listed on a U.S. national or regional securities exchange for a 30
consecutive trading-day period.
(e) Exchange Upon Specified
Transactions. A holder may surrender any of its Notes for exchange if we
engage in certain specified corporate transactions, including a change in
control (as defined in the Notes). Holders exchanging Notes in connection with
certain change in control transactions occurring prior to January 20, 2012 may
be entitled to receive additional common shares as a “make whole
premium.”
We may
not redeem any Notes prior to January 20, 2012, except to preserve our status as
a real estate investment trust. After that time, we may redeem the Notes, in
whole or in part, for cash equal to 100% of the principal amount of the Notes
plus any accrued and unpaid interest (including additional interest, if any) to,
but not including, the redemption date.
Holders
of the Notes may require us to repurchase their Notes, in whole or in part (in
principal amounts of $1,000 and integrals thereof) on January 20, 2012, January
15, 2017 and January 15, 2022 for cash equal to 100% of the principal amount of
the Notes to be repurchased plus any accrued and unpaid interest (including
additional interest, if any) to, but not including, the repurchase
date.
Subject
to the terms of the Indenture and the Notes, upon certain events of default,
including, but not limited to, (i) default by us in the delivery when due of the
exchange value, on the terms set forth in the Indenture and the Notes, upon
exercise of a holder’s exchange right in accordance with the Indenture and the
continuation of such default for 10 days and (ii) our failure to provide notice
of the occurrence of a change of control when required under the Indenture, and
such failure continues for 5 business days, the trustee or the holders of not
less than 25% in principal amount of the outstanding Notes may declare the
principal and accrued and unpaid interest on all of the Notes to be due and
payable immediately by written notice to us (and to the trustee if given by the
holders). Upon certain events of bankruptcy, insolvency or reorganization, or
court appointment of a receiver, liquidator or trustee of us, our operating
partnerships, or any other significant subsidiary, the principal (or such
portion thereof) of and accrued and unpaid interest on all of the Notes will
become and be immediately due and payable without any declaration or other act
on the part of the trustee or any holders.
In
addition, the Notes are cross-defaulted with certain of our
indebtedness.
21
DESCRIPTION
OF DEPOSITARY SHARES
The following description contains
general terms and provisions of the depositary shares to which any prospectus
supplement may relate. The particular terms of the depositary shares offered by
any prospectus supplement and the extent, if any, to which such general
provisions may not apply to the depositary shares so offered will be described
in the prospectus supplement relating to such debt securities. For more
information, please refer to the provisions of the deposit agreement we will
enter into with a depositary to be selected, our declaration, including the form
of articles supplementary for the applicable series of preferred
shares.
General
We may, at our option, elect to offer
depositary shares rather than full preferred shares. In the event
such option is exercised, each of the depositary shares will represent ownership
of and entitlement to all rights and preferences of a fraction of a preferred
share of a specified series (including dividend, voting, redemption and
liquidation rights). The applicable fraction will be specified in a prospectus
supplement. The preferred shares represented by the depositary shares will be
deposited with a depositary named in the applicable prospectus supplement, under
a deposit agreement, among us, the depositary and the holders of the
certificates evidencing depositary shares, or depositary receipts. Depositary
receipts will be delivered to those persons purchasing depositary shares in the
offering. The depositary will be the transfer agent, registrar and dividend
disbursing agent for the depositary shares. Holders of depositary receipts agree
to be bound by the deposit agreement, which requires holders to take certain
actions such as filing proof of residence and paying certain
charges.
Dividends
The depositary will distribute all cash
dividends or other cash distributions received in respect of the series of
preferred shares represented by the depositary shares to the record holders of
depositary receipts in proportion to the number of depositary shares owned by
such holders on the relevant record date, which will be the same date as the
record date fixed by us for the applicable series of preferred shares. The
depositary, however, will distribute only such amount as can be distributed
without attributing to any depositary share a fraction of one cent, and any
balance not so distributed will be added to and treated as part of the next sum
received by the depositary for distribution to record holders of depositary
receipts then outstanding.
In the event of a distribution other
than in cash, the depositary will distribute property received by it to the
record holders of depositary receipts entitled thereto, in proportion, as nearly
as may be practicable, to the number of depositary shares owned by such holders
on the relevant record date, unless the depositary determines (after
consultation with us) that it is not feasible to make such distribution, in
which case the depositary may (with our approval) adopt any other method for
such distribution as it deems equitable and appropriate, including the sale of
such property (at such place or places and upon such terms as it may deem
equitable and appropriate) and distribution of the net proceeds from such sale
to such holders.
22
Liquidation
Preference
In the event of the liquidation,
dissolution or winding up of the affairs of the Company, whether voluntary or
involuntary, the holders of each depositary share will be entitled to the
fraction of the liquidation preference accorded each share of the applicable
series of preferred shares as set forth in the prospectus
supplement.
Redemption
If the series of preferred shares
represented by the applicable series of depositary shares is redeemable, such
depositary shares will be redeemed from the proceeds received by the depositary
resulting from the redemption, in whole or in part, of preferred shares held by
the depositary. Whenever we redeem any preferred shares held by the depositary,
the depositary will redeem as of the same redemption date the number of
depositary shares representing the preferred shares so redeemed. The depositary
will mail the notice of redemption promptly upon receipt of such notice from us
and not less than 30 nor more than 60 days prior to the date fixed for
redemption of the preferred shares and the depositary shares to the record
holders of the depositary receipts.
Voting
Promptly upon receipt of notice of any
meeting at which the holders of the series of preferred shares represented by
the applicable series of depositary shares are entitled to vote, the depositary
will mail the information contained in such notice of meeting to the record
holders of the depositary receipts as of the record date for such meeting. Each
such record holder of depositary receipts will be entitled to instruct the
depositary as to the exercise of the voting rights pertaining to the number of
preferred shares represented by such record holder’s depositary shares. The
depositary will endeavor, insofar as practicable, to vote such preferred shares
represented by such depositary shares in accordance with such instructions, and
we will agree to take all action which may be deemed necessary by the depositary
in order to enable the depositary to do so. The depositary will abstain from
voting any of the preferred shares to the extent that it does not receive
specific instructions from the holders of depositary receipts.
Withdrawal
of Preferred Shares
Upon surrender of depositary receipts
at the principal office of the depositary, upon payment of any unpaid amount due
the depositary, and subject to the terms of the deposit agreement, the owner of
the depositary shares evidenced thereby is entitled to delivery of the number of
whole preferred shares and all money and other property, if any, represented by
such depositary shares. Fractional preferred shares will not be issued. If the
depositary receipts delivered by the holder evidence a number of depositary
shares in excess of the number of depositary shares representing the number of
whole preferred shares to be withdrawn, the depositary will deliver to such
holder at the same time a new depositary receipt evidencing such excess number
of depositary shares. Holders of preferred shares thus withdrawn will not
thereafter be entitled to deposit such shares under the deposit agreement or to
receive depositary receipts evidencing depositary shares therefor.
Amendment
and Termination of Deposit Agreement
The form of depositary receipt
evidencing the depositary shares and any provision of the deposit agreement may
at any time and from time to time be amended by agreement between us and the
depositary. However, any amendment which materially and adversely alters the
rights of the holders (other than any change in fees) of depositary shares will
not be effective unless such amendment has been approved by the holders of at
least a majority of the depositary shares then outstanding. No such amendment
may impair the right, subject to the terms of the deposit agreement, of any
owner of any depositary shares to surrender the depositary receipt evidencing
such depositary shares with instructions to the depositary to deliver to the
holder of preferred shares and all money and other property, if any, represented
thereby, except in order to comply with mandatory provisions of applicable
law.
The deposit agreement will be permitted
to be terminated by us upon not less than 30 days prior written notice to the
applicable depositary if (i) such termination is necessary to preserve our
qualification as a REIT or (ii) a majority of each series of preferred shares
affected by such termination consents to such termination, whereupon such
depositary will be required to deliver or make available to each holder of
depositary receipts, upon surrender of the depositary receipts held by such
holder, such number of whole or fractional preferred shares as are represented
by the depositary shares evidenced by such depositary receipts together with any
other property held by such depositary with respect to such depositary receipts.
We will agree that if the deposit agreement is terminated to preserve our
qualification as a REIT, then we will use our best efforts to list the preferred
shares issued upon surrender of the related depositary shares on a national
securities exchange. In addition, the deposit agreement will automatically
terminate if (i) all outstanding depositary shares thereunder shall have been
redeemed, (ii) there shall have been a final distribution in respect of the
related preferred shares in connection with any liquidation, dissolution or
winding up of Lexington Realty Trust and such distribution shall have been
distributed to the holders of depositary receipts evidencing the depositary
shares representing such preferred shares or (iii) each preferred share shall
have been converted into shares of Lexington Realty Trust not so represented by
depositary shares.
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Charges
of Depositary
We will pay all transfer and other
taxes and governmental charges arising solely from the existence of the
depositary arrangements. We will pay charges of the depositary in connection
with the initial deposit of the preferred shares and initial issuance of the
depositary shares, and redemption of the preferred shares and all withdrawals of
preferred shares by owners of depositary shares. Holders of depositary receipts
will pay transfer, income and other taxes and governmental charges and certain
other charges as are provided in the deposit agreement to be for their accounts.
In certain circumstances, the depositary may refuse to transfer depositary
shares, may withhold dividends and distributions and sell the depositary shares
evidenced by such depositary receipt if such charges are not paid.
Miscellaneous
The depositary will forward to the
holders of depositary receipts all reports and communications from us which are
delivered to the depositary and which we are required to furnish to the holders
of the preferred shares. In addition, the depositary will make available for
inspection by holders of depositary receipts at the principal office of the
depositary, and at such other places as it may from time to time deem advisable,
any reports and communications received from us which are received by the
depositary as the holder of preferred shares.
Neither we nor the depositary assumes
any obligation or will be subject to any liability under the deposit agreement
to holders of depositary receipts other than for its negligence or willful
misconduct. Neither we nor the depositary will be liable if it is prevented or
delayed by law or any circumstance beyond its control in performing its
obligations under the deposit agreement. The obligations of the Company and the
depositary under the deposit agreement will be limited to performance in good
faith of their duties thereunder, and they will not be obligated to prosecute or
defend any legal proceeding in respect of any depositary shares or preferred
shares unless satisfactory indemnity is furnished. We and the depositary may
rely on written advice of counsel or accountants, on information provided by
holders of the depositary receipts or other persons believed in good faith to be
competent to give such information and on documents believed to be genuine and
to have been signed or presented by the proper party or parties. In
the event the depositary shall receive conflicting claims, requests or
instructions from any holders of depositary receipts, on the one hand, and we,
on the other hand, the depositary shall be entitled to act on such claims,
requests or instructions received from us.
Resignation
and Removal of Depositary
The depositary may resign at any time
by delivering to us notice of its election to do so, and we may at any time
remove the depositary, any such resignation or removal to take effect upon the
appointment of a successor depositary and its acceptance of such appointment.
Such successor depositary must be appointed within 60 days after delivery of the
notice for resignation or removal and must be a bank or trust company having its
principal office in the United States of America and having a combined capital
and surplus of at least $150,000,000.
24
DESCRIPTION
OF WARRANTS
We may issue warrants for the purchase
of debt or equity securities described in this prospectus.
Warrants
may be issued independently or together with any offered securities and may be
attached to or separate from such securities. Each series of warrants will be
issued under a separate warrant agreement we will enter into with a warrant
agent specified in the agreement. The warrant agent will act solely as our agent
in connection with the warrants of that series and will not assume any
obligation or relationship of agency or trust for or with any holders or
beneficial owners of warrants.
A prospectus supplement relating to any
series of warrants being offered will include specific terms relating to the
offering. They will include, where applicable:
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the
title of the warrants;
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the
aggregate number of warrants;
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the
price or prices at which the warrants will be
issued;
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the
currencies in which the price or prices of the warrants may be
payable;
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the
designation, amount and terms of the offered securities purchasable upon
exercise of the warrants;
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the
designation and terms of the other offered securities, if any, with which
the warrants are issued and the number of warrants issued with the
security;
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if
applicable, the date on and after which the warrants and the offered
securities purchasable upon exercise of the warrants will be separately
transferable;
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the
price or prices at which, and currency or currencies in which, the offered
securities purchasable upon exercise of the warrants may be
purchased;
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the
date on which the right to exercise the warrants shall commence and the
date on which the right shall
expire;
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the
minimum or maximum amount of the warrants which may be exercised at any
one time;
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information
with respect to book-entry procedures, if
any;
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any
listing of warrants on any securities
exchange;
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if
appropriate, a discussion of federal income tax consequences;
and
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any
other material term of the warrants, including terms, procedures and
limitations relating to the exchange and exercise of the
warrants.
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DESCRIPTION
OF SUBSCRIPTION RIGHTS
The following is a general description
of the terms of the subscription rights we may issue from time to time.
Particular terms of any subscription rights we offer will be described in the
prospectus supplement relating to such subscription rights.
We may issue subscription rights to
purchase our common shares. These subscription rights may be issued
independently or together with any other security offered hereby and may or may
not be transferable by the shareholder receiving the subscription rights in such
offering. In connection with any offering of subscription rights, we
may enter into a standby arrangement with one or more underwriters or other
purchasers pursuant to which the underwriters or other purchasers may be
required to purchase any securities remaining unsubscribed for after such
offering.
The applicable prospectus supplement
will describe the specific terms of any offering of subscription rights for
which this prospectus is being delivered, including the following:
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the
price, if any, for the subscription
rights;
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the
exercise price payable for each common share upon the exercise of the
subscription rights;
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the
number of subscription rights issued to each
shareholder;
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the
number and terms of the common shares which may be purchased per each
subscription right;
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the
extent to which the subscription rights are
transferable;
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any
other terms of the subscription rights, including the terms, procedures
and limitations relating to the exchange and exercise of the subscription
rights;
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the
date on which the right to exercise the subscription rights shall
commence, and the date on which the subscription rights shall
expire;
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the
extent to which the subscription rights may include an over-subscription
privilege with respect to unsubscribed securities;
and
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if
applicable, the material terms of any standby underwriting or purchase
arrangement entered into by us in connection with the offering of
subscription rights.
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The description in the applicable
prospectus supplement of any subscription rights we offer will not necessarily
be complete and will be qualified in its entirety by reference to the applicable
subscription rights certificate or subscription rights agreement, which will be
filed with the SEC if we offer subscription rights.
25
DESCRIPTION
OF UNITS
As specified in the applicable
prospectus supplement, we may issue units consisting of one or more common
shares, preferred shares, debt securities, subscription rights, depositary
shares, warrants or any combination of such securities.
The applicable prospectus supplement
will specify the following terms of any units in respect of which this
prospectus is being delivered:
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the
terms of the units and of any of the common shares, preferred shares, debt
securities, warrants, subscription rights or depositary shares comprising
the units, including whether and under what circumstances the securities
comprising the units may be traded
separately;
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a
description of the terms of any unit agreement governing the units;
and
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a
description of the provisions for the payment, settlement, transfer or
exchange of the units.
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RESTRICTIONS
ON TRANSFERS OF CAPITAL STOCK AND ANTI-TAKEOVER PROVISIONS
Restrictions
Relating To REIT Status
For us to
qualify as a REIT under the Code, among other things, not more than 50% in value
of the outstanding shares of our capital stock may be owned, directly or
indirectly, by five or fewer individuals (defined in the Code to include certain
entities) during the last half of a taxable year, and such shares of our capital
stock must be beneficially owned by 100 or more persons during at least 335 days
of a taxable year of 12 months or during a proportionate part of a shorter
taxable year (in each case, other than the first such year). To
assist us in continuing to remain a qualified REIT, our declaration of trust,
subject to certain exceptions, provides that no holder may own, or be deemed to
own by virtue of the attribution provisions of the Code, more than 9.8% of our
equity shares, defined as common shares or preferred shares. We refer
to this restriction as the Ownership Limit. Our board of trustees may
exempt a person from the Ownership Limit if evidence satisfactory to our board
of trustees is presented that the changes in ownership will not then or in the
future jeopardize our status as a REIT. Any transfer of equity shares
or any security convertible into equity shares that would create a direct or
indirect ownership of equity shares in excess of the Ownership Limit or that
would result in our disqualification as a REIT, including any transfer that
results in the equity shares being owned by fewer than 100 persons or results in
us being “closely held” within the meaning of Section 856(h) of the Code, will
be null and void, and the intended transferee will acquire no rights to such
equity shares. The foregoing restrictions on transferability and
ownership will not apply if our board of trustees determines that it is no
longer in our best interests to attempt to qualify, or to continue to qualify,
as a REIT.
Equity
shares owned, or deemed to be owned, or transferred to a shareholder in excess
of the Ownership Limit, will automatically be exchanged for an equal number of
excess shares that will be transferred, by operation of law, to us as trustee of
a trust for the exclusive benefit of the transferees to whom such shares of our
capital stock may be ultimately transferred without violating the Ownership
Limit. While the excess shares are held in trust, they will not be
entitled to vote, they will not be considered for purposes of any shareholder
vote or the determination of a quorum for such vote and, except upon
liquidation, they will not be entitled to participate in dividends or other
distributions. Any dividend or distribution paid to a proposed
transferee of excess shares prior to our discovery that equity shares have been
transferred in violation of the provisions of our declaration of trust will be
repaid to us upon demand. The excess shares are not treasury shares,
but rather constitute a separate class of our issued and outstanding
shares. The original transferee-shareholder may, at any time the
excess shares are held by us in trust, transfer the interest in the trust
representing the excess shares to any individual whose ownership of the equity
shares exchanged into such excess shares would be permitted under our
declaration of trust, at a price not in excess of the price paid by the original
transferee-shareholder for the equity shares that were exchanged into excess
shares, or, if the transferee-shareholder did not give value for such shares, a
price not in excess of the market price (as determined in the manner set forth
in our declaration of trust) on the date of the purported
transfer. Immediately upon the transfer to the permitted transferee,
the excess shares will automatically be exchanged for equity shares of the class
from which they were converted. If the foregoing transfer
restrictions are determined to be void or invalid by virtue of any legal
decision, statute, rule or regulation, then the intended transferee of any
excess shares may be deemed, at our option, to have acted as an agent on our
behalf in acquiring the excess shares and to hold the excess shares on our
behalf.
26
In
addition to the foregoing transfer restrictions, we will have the right, for a
period of 90 days during the time any excess shares are held by us in trust, to
purchase all or any portion of the excess shares from the original
transferee-shareholder for the lesser of the price paid for the equity shares by
the original transferee-shareholder or the market price (as determined in the
manner set forth in our declaration of trust) of the equity shares on the date
we exercise our option to purchase. The 90-day period begins on the
date on which we receive written notice of the transfer or other event resulting
in the exchange of equity shares for excess shares.
Each
shareholder will be required, upon demand, to disclose to us in writing any
information with respect to the direct, indirect and constructive ownership of
beneficial interests as our board of trustees deems necessary to comply with the
provisions of the Code applicable to REITs, to comply with the requirements of
any taxing authority or governmental agency or to determine any such
compliance.
This
Ownership Limit may have the effect of precluding an acquisition of control
unless our board of trustees determines that maintenance of REIT status is no
longer in our best interests.
Authorized
Capital
Under our declaration of trust, we have
authority to issue up to 1,000,000,000 shares of beneficial interest, par value
$0.0001 per share, of which 400,000,000 shares are classified as common shares,
500,000,000 shares are classified as excess stock and 100,000,000 shares are
classified as preferred shares. We may issue such shares (other than
reserved shares) from time to time in the discretion of our board of trustees to
raise additional capital, acquire assets, including additional real properties,
redeem or retire debt or for any other business purpose. In addition, the
undesignated preferred shares may be issued in one or more additional classes or
series with such designations, preferences and relative, participating, optional
or other special rights including, without limitation, preferential dividend or
voting rights, and rights upon liquidation, as will be fixed by our board of
trustees. Our board of trustees is authorized to classify and reclassify any of
our unissued shares of our beneficial interest by setting or changing, in any
one or more respects, the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption of such shares. This authority includes, without
limitation, subject to the provisions of our declaration of trust, authority to
classify or reclassify any unissued shares into a class or classes of preferred
shares, preference shares, special shares or other shares, and to divide and
reclassify shares of any class into one or more series of that
class.
In some
circumstances, the issuance of preferred shares, or the exercise by our board of
trustees of its right to classify or reclassify shares, could have the effect of
deterring individuals or entities from making tender offers for our common
shares or seeking to change incumbent management.
Maryland
Law
Business
Combinations. Under Maryland
law, “business combinations” between a Maryland real estate investment trust and
an interested shareholder or an affiliate of an interested shareholder are
prohibited for five years after the most recent date on which the interested
shareholder becomes an interested shareholder. These business combinations
include a merger, consolidation, share exchange, or, in circumstances specified
in the statute, an asset transfer or issuance or reclassification of equity
securities. An interested shareholder is defined as:
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any
person who beneficially owns ten percent or more of the voting power of
the trust’s shares; or
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an
affiliate or associate of the trust who, at any time within the two-year
period prior to the date in question, was the beneficial owner of ten
percent or more of the voting power of the then outstanding voting shares
of the trust.
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A person
is not an interested shareholder under the statute if the board of trustees
approved in advance the transaction by which he otherwise would have become an
interested shareholder. However, in approving a transaction, the board of
trustees may provide that its approval is subject to compliance, at or after the
time of approval, with any terms or conditions determined by the
board.
After the
five-year prohibition, any business combination between the Maryland real estate
investment trust and an interested shareholder generally must be recommended by
the board of trustees of the trust and approved by the affirmative vote of at
least:
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eighty
percent of the votes entitled to be cast by holders of outstanding voting
shares of the trust; and
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two-thirds
of the votes entitled to be cast by holders of voting shares of the trust
other than shares held by the interested shareholder with whom or with
whose affiliate the business combination is to be effected or held by an
affiliate or associate of the interested
shareholder.
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These
super-majority vote requirements do not apply if the trust’s common shareholders
receive a minimum price, as defined under Maryland law, for their shares in the
form of cash or other consideration in the same form as previously paid by the
interested shareholder for its shares.
The
statute permits various exemptions from its provisions, including business
combinations that are exempted by the board of trustees prior to the time that
the interested shareholder becomes an interested shareholder.
Our board
of trustees has exempted Vornado Realty Trust and its affiliates, to a limited
extent, from these restrictions.
The
business combination statute may discourage others from trying to acquire
control of us and increase the difficulty of consummating any
offer.
Control Share
Acquisitions. Maryland law
provides that control shares of a Maryland real estate investment trust acquired
in a control share acquisition have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the
matter. Shares owned by the acquiror, by officers or by employees who
are trustees of the trust are excluded from shares entitled to vote on the
matter. Control Shares are voting shares which, if aggregated with all other
shares owned by the acquiror or in respect of which the acquiror is able to
exercise or direct the exercise of voting power (except solely by virtue of a
revocable proxy), would entitle the acquiror to exercise voting power in
electing trustees within one of the following ranges of voting
power:
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one-tenth
or more but less than one-third;
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one-third
or more but less than a majority;
or
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a
majority or more of all voting
power.
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Control
shares do not include shares the acquiring person is then entitled to vote as a
result of having previously obtained shareholder approval. A control share
acquisition means the acquisition of control shares, subject to certain
exceptions.
A person
who has made or proposes to make a control share acquisition may compel the
board of trustees of the trust to call a special meeting of shareholders to be
held within 50 days of demand to consider the voting rights of the shares. The
right to compel the calling of a special meeting is subject to the satisfaction
of certain conditions, including an undertaking to pay the expenses of the
meeting. If no request for a meeting is made, the trust may itself present the
question at any shareholders meeting.
If voting
rights are not approved at the meeting or if the acquiring person does not
deliver an acquiring person statement as required by the statute, then the trust
may redeem for fair value any or all of the control shares, except those for
which voting rights have previously been approved. The right of the trust to
redeem control shares is subject to certain conditions and limitations. Fair
value is determined, without regard to the absence of voting rights for the
control shares, as of the date of the last control share acquisition by the
acquiror or of any meeting of shareholders at which the voting rights of the
shares are considered and not approved. If voting rights for control shares are
approved at a shareholders meeting and the acquirer becomes entitled to vote a
majority of the shares entitled to vote, all other shareholders may exercise
appraisal rights. The fair value of the shares as determined for purposes of
appraisal rights may not be less than the highest price per share paid by the
acquiror in the control share acquisition.
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The
control share acquisition statute does not apply (a) to shares acquired in a
merger, consolidation or share exchange if the trust is a party to the
transaction or (b) to acquisitions approved or exempted by the declaration of
trust or by-laws of the trust.
Our
by-laws contain a provision exempting from the control share acquisition statute
any and all acquisitions by any person of our shares. There can be no assurance
that this provision will not be amended or eliminated at any time in the
future.
Certain Elective
Provisions of Maryland Law. Publicly-held Maryland statutory
real estate investment trusts (“Maryland REITs”) may elect to be governed by all
or any part of Maryland law provisions relating to extraordinary actions and
unsolicited takeovers. The election to be governed by one or more of
these provisions can be made by a Maryland REIT in its declaration of trust or
bylaws (“charter documents”) or by resolution adopted by its board of trustees
so long as the Maryland REIT has at least three trustees who, at the time of
electing to be subject to the provisions, are not:
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officers
or employees of the Maryland REIT;
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persons
seeking to acquire control of the Maryland
REIT;
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trustees,
officers, affiliates or associates of any person seeking to acquire
control; or
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nominated
or designated as trustees by a person seeking to acquire
control.
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Articles
supplementary must be filed with the Maryland State Department of Assessments
and Taxation if a Maryland REIT elects to be subject to any or all of the
provisions by board resolution or bylaw amendment. Shareholder
approval is not required for the filing of these articles
supplementary.
The
Maryland law provides that a Maryland REIT can elect to be subject to all or any
portion of the following provisions, notwithstanding any contrary provisions
contained in that Maryland REIT’s existing charter documents:
Classified
Board: The Maryland REIT may divide its board into three
classes which, to the extent possible, will have the same number of trustees,
the terms of which will expire at the third annual meeting of shareholders after
the election of each class;
Two-thirds Shareholder Vote to
Remove Trustees: The shareholders may remove any trustee only by the
affirmative vote of at least two-thirds of all votes entitled to be cast by the
shareholders generally in the election of trustees;
Size of Board Fixed by Vote of
Board: The number of trustees will be fixed only by resolution
of the board;
Board Vacancies Filled by the Board
for the Remaining Term: Vacancies that result from an increase
in the size of the board, or the death, resignation, or removal of a trustee,
may be filled only by the affirmative vote of a majority of the remaining
trustees even if they do not constitute a quorum. Trustees elected to
fill vacancies will hold office for the remainder of the full term of the class
of trustees in which the vacancy occurred, as opposed to until the next annual
meeting of shareholders, and until a successor is elected and qualified;
and
Shareholder Calls of Special
Meetings: Special meetings of shareholders may be called by
the secretary of the Maryland REIT only upon the written request of shareholders
entitled to cast at least a majority of all votes entitled to be cast at the
meeting and only in accordance with procedures set out in the Maryland General
Corporation Law.
We have
not elected to be governed by these specific provisions. However, our
declaration of trust and/or by-laws, as applicable, already provide for an 80%
shareholder vote to remove trustees and then only for cause, and that the number
of trustees may be determined by a resolution of our Board, subject to a minimum
number. In addition, we can elect to be governed by any or all of the
provisions of the Maryland law at any time in the future.
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UNITED
STATES FEDERAL INCOME TAX CONSIDERATIONS
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.
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. 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.
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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.
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.
32
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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·
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substantially
all of the assets consist of debt obligations or interests in debt
obligations;
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·
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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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·
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the
entity has issued debt obligations that have two or more maturities;
and
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·
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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.
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.
33
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”).
34
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.
35
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.
36
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.
37
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.
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.
38
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.
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.
39
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.
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.
40
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.
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.
41
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.
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.
42
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.
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.
43
PLAN
OF DISTRIBUTION
This
prospectus relates to the initial issuance by us of securities described in this
prospectus.
General
We may sell the securities being
offered by this prospectus in one or more of the following ways from time to
time:
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through
underwriters or dealers;
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through
agents;
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in
“at the market offerings” to or through a market maker or into an existing
trading market, or a securities exchange or
otherwise;
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directly
to purchasers; or
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·
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through
a combination of any of these methods of
sale.
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A distribution of the securities
offered by this prospectus may also be effected through the issuance of
derivative securities, including without limitation, warrants, subscriptions,
exchangeable securities, forward delivery contracts and the writing of options.
In addition, the manner in which we may sell some or all of the securities
covered by this prospectus includes, without limitation, through:
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·
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a
block trade in which a broker-dealer will attempt to sell as agent, but
may position or resell a portion of the block, as principal, in order to
facilitate the transaction;
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·
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purchases
by a broker-dealer, as principal, and resale by the broker-dealer for its
account;
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ordinary
brokerage transactions and transactions in which a broker solicits
purchasers; or
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privately
negotiated transactions.
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We may also enter into hedging
transactions. For example, we may:
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enter
into transactions with a broker-dealer or affiliate thereof in connection
with which such broker-dealer or affiliate will engage in short sales of
the common shares pursuant to this prospectus, in which case such
broker-dealer or affiliate may use common shares received from us to close
out its short positions;
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·
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sell
securities short and redeliver such shares to close out our short
positions;
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enter
into option or other types of transactions that require us eholder to
deliver common shares to a broker-dealer or an affiliate thereof, who will
then resell or transfer the common shares under this prospectus;
or
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·
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loan
or pledge the common shares to a broker-dealer or an affiliate thereof,
who may sell the loaned shares or, in an event of default in the case of a
pledge, sell the pledged shares pursuant to this
prospectus.
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In addition, we may enter into
derivative or hedging transactions with third parties, or sell securities not
covered by this prospectus to third parties in privately negotiated
transactions. In connection with such a transaction, the third parties may sell
securities covered by and pursuant to this prospectus and an applicable
prospectus supplement or pricing supplement, as the case may be. If so, the
third party may use securities borrowed from us or others to settle such sales
and may use securities received from us to close out any related short
positions. We may also loan or pledge securities covered by this prospectus and
an applicable prospectus supplement to third parties, who may sell the loaned
securities or, in an event of default in the case of a pledge, sell the pledged
securities pursuant to this prospectus and the applicable prospectus supplement
or pricing supplement, as the case may be.
44
A prospectus supplement with respect to
each series of securities will state the terms of the offering of the
securities, including:
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the
terms of the offering;
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the
name or names of any underwriters or agents and the amounts of securities
underwritten or purchased by each of them, if
any;
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the
public offering price or purchase price of the securities and the net
proceeds to be received by us r from the
sale;
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any
delayed delivery arrangements;
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the
terms of any subscription rights;
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any
initial public offering price;
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any
underwriting discounts or agency fees and other items constituting
underwriters’ or agents’
compensation;
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any
discounts or concessions allowed or reallowed or paid to dealers;
and
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·
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any
securities exchange on which the securities may be
listed.
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The offer and sale of the securities
described in this prospectus by us, the underwriters or the third parties
described above may be effected from time to time in one or more transactions,
including privately negotiated transactions, either:
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at
a fixed price or prices, which may be
changed;
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at
market prices prevailing at the time of sale, including in “at the market
offerings”;
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at
prices related to the prevailing market prices;
or
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at
negotiated prices.
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Underwriting
Compensation
Any public offering price and any fees,
discounts, commissions, concessions or other items constituting compensation
allowed or reallowed or paid to underwriters, dealers, agents or remarketing
firms may be changed from time to time. Underwriters, dealers, agents and
remarketing firms that participate in the distribution of the offered securities
may be ‘‘underwriters’’ as defined in the Securities Act. Any discounts or
commissions they receive from us and any profits they receive on the resale of
the offered securities may be treated as underwriting discounts and commissions
under the Securities Act. We will identify any underwriters, agents or dealers
and describe their fees, commissions or discounts in the applicable prospectus
supplement or pricing supplement, as the case may be.
Underwriters
and Agents
If underwriters are used in a sale,
they will acquire the offered securities for their own account. The
underwriters may resell the offered securities in one or more transactions,
including negotiated transactions. We may offer the securities to the public
either through an underwriting syndicate represented by one or more managing
underwriters or through one or more underwriter(s). The underwriters in any
particular offering will be identified in the applicable prospectus supplement
or pricing supplement, as the case may be.
Unless otherwise specified in
connection with any particular offering of securities, the obligations of the
underwriters to purchase the offered securities will be subject to certain
conditions contained in an underwriting agreement that we will enter into with
the underwriters at the time of the sale to them. The underwriters will be
obligated to purchase all of the securities of the series offered if any of the
securities are purchased, unless otherwise specified in connection with any
particular offering of securities. Any initial offering price and any discounts
or concessions allowed, reallowed or paid to dealers may be changed from time to
time.
45
We may designate agents to sell the
offered securities. Unless otherwise specified in connection with any particular
offering of securities, the agents will agree to use their best efforts to
solicit purchases for the period of their appointment. We may also sell the
offered securities to one or more remarketing firms, acting as principals for
their own accounts or as agents for us. These firms will remarket the offered
securities upon purchasing them in accordance with a redemption or repayment
pursuant to the terms of the offered securities. A prospectus supplement or
pricing supplement, as the case may be, will identify any remarketing firm and
will describe the terms of its agreement, if any, with us and its
compensation.
In connection with offerings made
through underwriters or agents, we may enter into agreements with such
underwriters or agents pursuant to which we receive our outstanding securities
in consideration for the securities being offered to the public for cash. In
connection with these arrangements, the underwriters or agents may also sell
securities covered by this prospectus to hedge their positions in these
outstanding securities, including in short sale transactions. If so, the
underwriters or agents may use the securities received from us under these
arrangements to close out any related open borrowings of
securities.
Dealers
We may sell the offered securities to
dealers as principals. We may negotiate and pay dealers’ commissions, discounts
or concessions for their services. The dealer may then resell such securities to
the public either at varying prices to be determined by the dealer or at a fixed
offering price agreed to with us at the time of resale. Dealers engaged by us
may allow other dealers to participate in resales.
Direct
Sales
We may choose to sell the offered
securities directly to multiple purchasers or a single purchaser. In this case,
no underwriters or agents would be involved.
Institutional
Purchasers
We may authorize agents, dealers or
underwriters to solicit certain institutional investors to purchase offered
securities on a delayed delivery basis pursuant to delayed delivery contracts
providing for payment and delivery on a specified future date. The applicable
prospectus supplement or pricing supplement, as the case may be, will provide
the details of any such arrangement, including the offering price and
commissions payable on the solicitations.
We may enter into such delayed
contracts only with institutional purchasers that we approve. These institutions
may include commercial and savings banks, insurance companies, pension funds,
investment companies and educational and charitable institutions.
Subscription
Offerings
Direct sales to investors or our
shareholders may be accomplished through subscription offerings or through
shareholder subscription rights distributed to shareholders. In connection with
subscription offerings or the distribution of shareholder subscription rights to
shareholders, if all of the underlying securities are not subscribed for, we may
sell any unsubscribed securities to third parties directly or through
underwriters or agents. In addition, whether or not all of the underlying
securities are subscribed for, we may concurrently offer additional securities
to third parties directly or through underwriters or agents. If securities are
to be sold through shareholder subscription rights, the shareholder subscription
rights will be distributed as a dividend to the shareholders for which they will
pay no separate consideration. The prospectus supplement with respect to the
offer of securities under shareholder subscription rights will set forth the
relevant terms of the shareholder subscription rights, including:
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whether
common shares, preferred shares, or warrants for those securities will be
offered under the shareholder subscription
rights;
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the
number of those securities or warrants that will be offered under the
shareholder subscription rights;
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the
period during which and the price at which the shareholder subscription
rights will be exercisable;
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the
number of shareholder subscription rights then
outstanding;
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any
provisions for changes to or adjustments in the exercise price of the
shareholder subscription rights;
and
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any
other material terms of the shareholder subscription
rights.
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46
Indemnification;
Other Relationships
We may agree to indemnify underwriters,
dealers, agents and remarketing firms against civil liabilities, including
liabilities under the Securities Act and to make contribution to them in
connection with those liabilities. Underwriters, dealers, agents and remarketing
firms, and their affiliates, may engage in transactions with, or perform
services for us and our affiliates, in the ordinary course of business,
including commercial banking transactions and services.
Market
Making, Stabilization and Other Transactions
Each series of securities will be a new
issue of securities and will have no established trading market other than our
common shares and preferred shares which are listed on the NYSE. Any common
shares sold pursuant to a prospectus supplement will be listed on the NYSE,
subject to official notice of issuance. Any underwriters to whom we sell
securities for public offering and sale may make a market in the securities, but
such underwriters will not be obligated to do so and may discontinue any market
making at any time without notice. The securities, other than the common shares,
may or may not be listed on a national securities exchange, and any such listing
if pursued will be described in the applicable prospectus
supplement.
To facilitate the offering of the
securities, certain persons participating in the offering may engage in
transactions that stabilize, maintain, or otherwise affect the price of the
securities. This may include over-allotments or short sales of the securities,
which involves the sale by persons participating in the offering of more
securities than we sold to them. In these circumstances, these persons would
cover the over-allotments or short positions by making purchases in the open
market or by exercising their over-allotment option. In addition, these persons
may stabilize or maintain the price of the securities by bidding for or
purchasing securities in the open market or by imposing penalty bids, whereby
selling concessions allowed to dealers participating in the offering may be
reclaimed if securities sold by them are repurchased in connection with
stabilization transactions. The effect of these transactions may be to stabilize
or maintain the market price of the securities at a level above that which might
otherwise prevail in the open market. These transactions may be discontinued at
any time.
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 securities covered by this prospectus, will
be passed on for us by Venable LLP.
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 to this
Prospecuts 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.
47
WHERE
YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current
reports, proxy statements and other information with the SEC. Our filings with
the SEC are available to the public on the Internet at the SEC’s website at
http://www.sec.gov. You may also read and copy any document that we file with
the SEC at its Public Reference Room, 100 F Street, N.E., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for further information on the
Public Reference Room and its copy charges.
The information incorporated by
reference herein is an important part of this prospectus. Any statement
contained in a document which is incorporated by reference in this prospectus is
automatically updated and superseded if information contained in a subsequent
filing or in this prospectus, or information that we later file with the SEC
prior to the termination of this offering, modifies or replaces this
information. The following documents filed with the SEC are incorporated by
reference into this prospectus, except for any document or portion thereof
“furnished” to the SEC:
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our
Annual Report on Form 10-K for the year ended December 31, 2008, filed
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;
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our
Form 8-B filed on August 10, 1994;
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our
Form 8-A filed on December 8, 2004, June 17, 2003 and February 14, 2007;
and
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all
documents that we file with the SEC pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), after the date of this prospectus and prior to the termination of
this offering.
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To receive a free copy of any of the
documents incorporated by reference in this prospectus (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,
New York 10119-4015
(212)
692-7200
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.
48
9,500,000
Shares
Shares
of Beneficial Interest Classified as Common Stock
_________________________
Prospectus
Supplement
March 26,
2010
_________________________
Wells
Fargo Securities