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SEC Filings

424B2
 filed this Form 424B2 on 12/06/2017
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In administrative pronouncements spanning several decades and most recently in proposed Treasury regulations, the IRS has concluded that “interests in real property” properly include intangibles such as voting rights and goodwill that derive their value from and are inseparable from real property and real property rental revenues. Consistent with this prior administrative practice as well as the proposed Treasury regulations, we have received a private letter ruling from the IRS that our intangible assets (including goodwill) derived from our real property are also “interests in real property.” Accordingly, we believe that the portions of our intangible assets determined by our board of directors to be derived from and inseparable from our real property and our rental business are and will remain “interests in real property” and “real estate assets” for purposes of Section 856 of the Code.

Further, although there can be no assurance in this regard, we believe that our loans that are intended to be mortgages on real property for purposes of the REIT income and asset tests described below have in fact so qualified and will continue to qualify, to the extent that those loans are directly secured by real property or are indirectly and ultimately secured by real property, pursuant to IRS guidance articulated in Revenue Ruling 80-280.

Income Tests. There are two gross income requirements for REIT qualification and taxation:

 

   

At least 75% of our gross income for each taxable year (excluding gross income from specified hedging transactions and specified foreign currency gains, gross income from prohibited transactions, and other items excluded pursuant to the IRS’s administrative authority) must be derived from investments relating to real property, including “rents from real property,” interest and gain from mortgages on real property or on interests in real property, gain from the sale or other disposition of real property other than dealer property, qualified temporary investment income, or amounts that so qualify pursuant to an exercise of the IRS’s administrative authority.

 

   

At least 95% of our gross income for each taxable year (excluding gross income from specified hedging transactions and specified foreign currency gains, gross income from prohibited transactions, and other items excluded pursuant to the IRS’s administrative authority) must be derived from a combination of items of real property income that satisfy the 75% gross income test described above, dividends, interest, gains from the sale or disposition of stock, securities or real property, or amounts that so qualify pursuant to an exercise of the IRS’s administrative authority.

Although we will use our best efforts to ensure that the income generated by our investments will be of a type that satisfies both the 75% and 95% gross income tests, there can be no assurance in this regard.

In order to qualify as “rents from real property” under Section 856 of the Code, several requirements must be met:

 

   

The amount of rent received generally must not be based on the income or profits of any person, but may be based on a fixed percentage or percentages of receipts or sales.

 

   

With respect to various obligations of ours that we pass through to our tenants, such as ground rents and property taxes, the passed-through amounts paid by our tenants are generally considered additional rental income received by us. We have received a private letter ruling from the IRS to the effect that, so long as the passed-through amounts are actually paid over to our own obligees, otherwise qualifying amounts we receive from our tenants that include passed-through amounts will be treated in full as qualifying under the 75% and 95% gross income tests, even if the passed-through amounts are based on income or profits from the property.

 

   

Rents do not qualify if the REIT owns 10% or more by vote or value of stock of the tenant (or 10% or more of the interests in the assets or net profits of the tenant, if the tenant is not a corporation), whether directly or after application of attribution rules. While we do not intend to lease or license property to any party if rents from that property would not qualify as “rents from real property,” application of the 10% ownership rule is dependent upon complex attribution rules and circumstances that may be beyond

 

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