As
filed with the Securities and Exchange Commission on March 24, 2009
Registration
No. 333-_____
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
________________________
FORM
S-3
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
REALTY
INCOME CORPORATION
(Exact
Name of Registrant as Specified in its Charter)
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Maryland
(State
or Other Jurisdiction of
Incorporation
or Organization)
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6798
(Primary
Standard Industrial
Classification
Code Number)
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33-0580106
(I.R.S.
Employer
Identification
Number)
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________________________
600
La Terraza Boulevard
Escondido,
CA 92025-3873
(760) 741-2111
(Address,
Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s
Principal Executive Offices)
Michael
R. Pfeiffer, Esq.
Realty
Income Corporation
600
La Terraza Boulevard
Escondido,
CA 92025-3873
(760) 741-2111
(Name,
Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent
for Service)
________________________
Copies to:
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William
J. Cernius, Esq.
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Eric
S. Haueter, Esq.
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David
B. Allen, Esq.
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Bradley
S. Fenner, Esq.
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Latham
& Watkins LLP
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Sidley
Austin LLP
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650
Town Center Drive, 20th
Floor
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555
California Street, 20th
Floor
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Costa
Mesa, California 92626-1925
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San
Francisco, California 94104-1715
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(714)
540-1235
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(415)
772-1200
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________________________
Approximate date of commencement of
proposed sale to the public: From time to time
after this registration statement becomes effective, as determined by market and
other conditions.
If the only securities being registered
on this Form are being offered pursuant to dividend or interest reinvestment
plans, please check the following box. ¨
If any of the securities being
registered on this Form are to be offered on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act of 1933, other than securities
offered only in connection with dividend or interest reinvestment plans, check
the following box. x
If this Form is filed to register
additional securities for an offering pursuant to Rule 462(b) under the
Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. ¨
If this Form is a post-effective
amendment filed pursuant to Rule 462(c) under the Securities Act, check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. ¨
If this Form is a registration
statement pursuant to General Instruction I.D. or a post-effective amendment
thereto that shall become effective upon filing with the Commission pursuant to
Rule 462(e) under the Securities Act, check the following box. x
If this Form is a post-effective
amendment to a registration statement filed pursuant to General Instruction I.D.
filed to register additional securities or additional classes of securities
pursuant to Rule 413(b) under the Securities Act, check the following
box. ¨
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated file” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.
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Large
accelerated filer x
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting company o
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CALCULATION
OF REGISTRATION FEE
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Title
of each class of
securities
to be registered(1)
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Amount
to be
registered(1)
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Proposed
maximum
aggregate
offering
Price(1)
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Amount
of
Registration
Fee(1)
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Debt
Securities
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Preferred
Stock, par value $1.00 per share
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Common
Stock, par value $1.00 per share
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(1)
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An
indeterminate aggregate initial offering price and number or amount of the
securities of each identified class is being registered as may from time
to time be sold at indeterminate prices. Separate consideration
may or may not be received for securities that are issuable upon
conversion of, or in exchange for, or upon exercise of, convertible or
exchangeable securities. In reliance on and in accordance with Rule 456(b)
and 457(r), the registrant is deferring payment of all of the registration
fee.
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PROSPECTUS
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REALTY
INCOME CORPORATION
Debt
Securities, Preferred Stock and Common Stock
________________________
Realty Income Corporation, a Maryland
corporation, may from time to time offer in one or more series (1) our debt
securities, (2) shares of our preferred stock, $1.00 par value per share,
or (3) shares of our common stock, $1.00 par value per share, on terms to
be determined at the time of the offering. Our debt securities, our preferred
stock and our common stock (collectively referred to as our securities), may be
offered, separately or together, in separate series, in amounts, at prices and
on terms that will be set forth in one or more prospectus supplements to this
prospectus or other offering materials.
The specific terms of the securities
with respect to which this prospectus is being delivered will be set forth in
the applicable prospectus supplement or other offering materials and will
include, where applicable:
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●
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in
the case of our debt securities, the specific title, aggregate principal
amount, currency, form (which may be registered, bearer, certificated or
global), authorized denominations, maturity, rate (or manner of
calculating the rate) and time of payment of interest, terms for
redemption at our option or repayment at the holder’s option, terms for
sinking fund payments, terms for conversion into shares of our preferred
stock or common stock, covenants and any initial public offering
price;
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●
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in
the case of our preferred stock, the specific designation, preferences,
conversion and other rights, voting powers, restrictions, limitations as
to transferability, dividends and other distributions and terms and
conditions of redemption and any initial public offering price;
and
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●
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in
the case of our common stock, any initial public offering
price.
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In
addition, the specific terms may include limitations on actual, beneficial or
constructive ownership and restrictions on transfer of the securities, in each
case as may be appropriate to preserve our status as a real estate investment
trust, or REIT, for United States federal income tax purposes. The applicable
prospectus supplement or other offering materials may also contain information,
where applicable, about United States federal income tax considerations, and any
exchange listing of the securities covered by the prospectus supplement or other
offering materials, as the case may be.
Investing in our securities involves
risks. See “Risk Factors” in our most recent Annual Report on Form
10-K, and any subsequent Quarterly Reports on Form 10-Q, which are incorporated
by reference in this prospectus.
Our common stock is traded on the New
York Stock Exchange under the symbol “O.” On March 23, 2009, the last reported
sale price of the common stock was $18.56 per share.
Our securities may be offered directly,
through agents designated from time to time by us, or to or through underwriters
or dealers. If any agents or underwriters are involved in the sale of any of our
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 or other offering materials. This prospectus may not be used to
consummate sales of the offered securities unless it is accompanied by a
prospectus supplement describing the method and terms of the offering of those
offered 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 March 24, 2009.
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All references to “Realty Income,”
“our,” “us” and “we” in this prospectus mean Realty Income Corporation and its
wholly-owned subsidiaries and other entities controlled by Realty Income
Corporation except where it is clear from the context that the term means only
the issuer, Realty Income Corporation.
This prospectus is part of an automatic
shelf registration statement that we filed with the Securities and Exchange
Commission, or the SEC, as a “well-known seasoned issuer” as defined in Rule 405
under the Securities Act of 1933, as amended, or the Securities Act, utilizing a
“shelf” registration process for the delayed offering and sale of securities
pursuant to Rule 415 under the Securities Act. Under this shelf registration
process, we may, from time to time, sell any combination of the securities
described in this prospectus in one or more offerings. This prospectus only
provides you with a general description of the securities that we may offer.
Each time we sell securities, we will provide a prospectus supplement or other
offering materials that will contain specific information about the terms of
that offering. The prospectus supplement or other offering materials may also
add, update or change information contained in this prospectus. You should read
both this prospectus and any prospectus supplement or other offering materials
together with additional information described under the heading “Where You Can
Find More Information.” If there is any inconsistency between the
information in this prospectus and any applicable prospectus supplement or other
offering materials, you should rely on the information in the applicable
prospectus supplement or other offering materials.
As allowed by SEC rules, this
prospectus does not contain all the information you can find in the registration
statement or the exhibits to the registration statement. For further
information, we refer you to the registration statement, including its exhibits
and schedules. Statements contained in this prospectus about the provisions or
contents of any contract, agreement or any other document referred to are not
necessarily complete. For each of these contracts, agreements or documents filed
as an exhibit to the registration statement, we refer you to the actual exhibit
for a more complete description of the matters involved. You should rely only on
the information contained or incorporated by reference in this prospectus and in
any supplement to this prospectus or, if applicable, any other offering
materials we may provide you. We have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. You should assume that the
information appearing in this prospectus, the accompanying prospectus supplement
or any other offering materials is accurate only as of the date on their
respective covers, and you should assume that the information appearing in any
document incorporated or deemed to be incorporated by reference in this
prospectus or any accompanying prospectus supplement is accurate only as of the
date that document was filed with the SEC. Our business, financial condition,
results of operations and prospects may have changed since those
dates.
Realty
Income Corporation, The Monthly Dividend Company®, is a
Maryland corporation organized to operate as an equity real estate investment
trust, or REIT. Our primary business objective is to generate dependable
monthly cash distributions from a consistent and predictable level of funds from
operations, or FFO, per share. Our monthly distributions are supported by
the cash flow from our portfolio of retail properties leased to regional and
national retail chains. We have in-house acquisition, leasing, legal,
retail and real estate research, portfolio management and capital markets
expertise. Over the past 40 years, Realty Income and its predecessors have been
acquiring and owning freestanding retail properties that generate rental revenue
under long-term lease agreements (primarily 15 to 20 years).
In addition, we seek to increase
distributions to common stockholders and FFO per share through both active
portfolio management and the acquisition of additional properties. Our portfolio
management focus includes:
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●Contractual
rent increases on existing
leases;
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●Rent
increases at the termination of existing leases, when market conditions
permit; and
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●The active
management of our property portfolio, including re-leasing vacant
properties, and selectively selling properties, thereby mitigating our
exposure to certain tenants and
markets.
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In acquiring additional properties, we
adhere to a focused strategy of primarily acquiring properties that
are:
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●Freestanding,
single-tenant, retail
locations;
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●Leased to
regional and national retail chains;
and
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●Leased under
long-term, net-lease
agreements.
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At December 31, 2008, we owned a
diversified portfolio:
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●Of 2,348
retail properties;
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●With an
occupancy rate of 97.0%, or 2,278 properties occupied of the 2,348
properties in the portfolio;.
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●With only 70
properties available for lease;
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●Leased to
119 different retail chains doing business in 30 separate retail
industries;
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●Located in
49 states;
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●With over
19.1 million square feet of leasable space;
and
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●With an
average leasable retail space per property of approximately 8,130 square
feet.
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Of the 2,348 properties in the
portfolio, 2,337, or 99.5%, are single-tenant, retail properties and the
remaining 11 are multi-tenant, distribution and office properties. At December
31, 2008, 2,268 of the 2,337 single-tenant properties were leased with a
weighted average remaining lease term (excluding extension options) of
approximately 11.9 years.
In addition, at December 31, 2008, our
wholly-owned taxable REIT subsidiary, Crest Net Lease, Inc. (“Crest”), had
an inventory of five properties with a carrying value of $6.0 million, which are
classified as held for sale. Crest was created to buy and sell
properties, primarily to individual investors who are involved in tax-deferred
exchanges under Section 1031 of the Internal Revenue Code of 1986, as amended
(the “Code”).
We typically acquire retail store
properties under long-term leases with retail chain store operators. These
transactions generally provide capital to owners of retail real estate and
retail chains for expansion or other corporate purposes. Our acquisition and
investment activities are concentrated in well-defined target markets and
generally focus on retail chains providing goods and services that satisfy basic
consumer needs.
Our net-lease agreements
generally:
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●Are for
initial terms of 15 to 20
years;
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●Require the
tenant to pay minimum monthly rents and property operating expenses
(taxes, insurance and maintenance);
and
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●Provide for
future rent increases based on increases in the consumer price index
(typically subject to ceilings), fixed increases, or to a lesser degree,
additional rent calculated as a percentage of the tenants’ gross sales
above a specified level.
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We commenced operations as a REIT on
August 15, 1994 through the merger of 25 public and private real estate limited
partnerships. Each of the partnerships was formed between 1970 and
1989 for the purpose of acquiring and managing long-term, net-leased
properties.
Our common stock is listed on The New
York Stock Exchange (“NYSE”) under the ticker symbol “O” with a cusip number of
756109-104. Our central index key number is 726728. Our 7.375%
Monthly Income Class D cumulative redeemable preferred stock, or Class D
preferred stock, is listed on the NYSE under the ticker symbol “OprD” with a
cusip number of 756109-609. Our 6.75% Monthly Income Class E
cumulative redeemable preferred stock, or Class E preferred stock, is listed on
the NYSE under the ticker symbol “OprE” with a cusip number of
756109-708.
Our principal executive offices are
located at 600 La Terraza Boulevard, Escondido,
California 92025-3873. Our telephone number is
(760) 741-2111.
This prospectus and the documents
incorporated by reference herein contain, and any related prospectus
supplements, other offering materials and documents deemed to be incorporated by
reference herein or therein may contain, forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended, or the Exchange Act. When used in this
prospectus, the words “estimated”, “anticipated”, “expect”, “believe”, “intend”
and similar expressions are intended to identify forward-looking statements.
These forward-looking statements are subject to risks, uncertainties, and
assumptions about Realty Income Corporation, including, among other
things:
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●Our
anticipated growth strategies;
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●Our
intention to acquire additional properties and the timing of these
acquisitions;
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●Our
intention to sell properties and the timing of these property
sales;
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●Our
intention to re-lease vacant
properties;
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●Anticipated
trends in our business, including trends in the market for long-term
net-leases of freestanding, single-tenant retail
properties;
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●Future
expenditures for development projects;
and
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●The
profitability of Crest.
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Future events and actual results,
financial and otherwise, may differ materially from the results discussed in the
forward-looking statements. In particular, some of the factors that could
cause actual results to differ materially are:
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●Our
continued qualification as a real estate investment
trust;
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●General
business and economic conditions;
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●Competition;
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●Fluctuating
interest rates;
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●Access to
debt and equity capital markets;
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●Volatility
and uncertainty in the credit markets and broader financial
markets;
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●Other risks
inherent in the real estate business including tenant defaults, potential
liability relating to environmental matters, illiquidity of real estate
investments and potential damages from natural
disasters;
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●Impairments
in the value of our real estate
assets;
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●Changes in
the tax laws of the United States of
America;
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●The outcome
of any legal proceeding to which we are a party;
and
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●Acts of
terrorism and war.
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Additional
factors that may cause risks and uncertainties include those discussed in the
sections entitled “Business”, “Risk Factors” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in our Annual Report
on Form 10-K for the fiscal year ended December 31, 2008, and also include risk
factors and other information discussed in other documents that are incorporated
or deemed to be incorporated by reference in this prospectus.
Readers are cautioned not to place
undue reliance on forward-looking statements contained or incorporated by
reference in this prospectus, which speak only as of the date of this prospectus
or the date of the incorporated document, as the case may be. We
undertake no obligation to update any information contained herein or
incorporated herein by reference or to publicly release the results of any
revisions to these forward-looking statements that may be made to reflect events
or circumstances after the date of this prospectus or to reflect the occurrence
of unanticipated events. In light of these risks and uncertainties, the
forward-looking events discussed in this prospectus and the documents
incorporated by reference herein might not occur.
Unless otherwise described in the
applicable prospectus supplement or other offering materials, we intend to use
the net proceeds from the sale of our securities for general corporate purposes,
which may include, among other things, the repayment or repurchase of our
indebtedness, the development and acquisition of additional properties and other
acquisition transactions, and the expansion and improvement of certain
properties in our portfolio.
The following table sets forth the
ratios of earnings from continuing operations to fixed charges and the ratios of
earnings from continuing operations to combined fixed charges and preferred
stock dividends for the periods shown. The ratios of earnings from continuing
operations to fixed charges were computed by dividing our earnings from
continuing operations by our fixed charges. For this purpose, earnings from
continuing operations consist of income from continuing operations before
interest expense. Fixed charges consist of interest costs (including capitalized
interest) and the amortization of debt issuance costs. In computing the ratios
of earnings from continuing operations to combined fixed charges and preferred
stock dividends, preferred stock dividends consist of dividends on our 9.375%
Class B cumulative redeemable preferred stock, or Class B preferred stock,
9.50% Class C cumulative redeemable preferred stock, or Class C preferred
stock, Class D preferred stock and Class E preferred stock, as
applicable. We redeemed our Class B preferred stock on June 6, 2004
and our Class C preferred stock on July 30, 2004. On May 27, 2004
and October 19, 2004, we issued 4,000,000 shares and 1,100,000 shares,
respectively, of our Class D preferred stock. On December 7, 2006, we
issued 8,800,000 shares of our Class E preferred stock.
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Year Ended
December 31
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2008
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2007
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2006
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2005
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2004
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Ratio
of Earnings from Continuing Operations to Fixed Charges
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2.2x
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2.9x
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2.9x
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3.0x
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3.3x
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Ratio
of Earnings from Continuing Operations to Combined Fixed Charges and
Preferred Stock Dividends
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1.8x
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2.1x
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2.4x
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2.4x
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2.6x
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General
This prospectus describes certain
general terms and provisions of our debt securities. When we offer to sell a
particular series of debt securities, we will describe the specific terms of the
series in a prospectus supplement, a pricing supplement or other offering
materials. We will also indicate in the supplement or other offering materials
whether the general terms and provisions described in this prospectus apply to a
particular series of debt securities. Our debt securities will be our direct
obligations and they may be secured or unsecured, senior or subordinated
indebtedness. We may issue our debt securities under one or more indentures and
each indenture will be dated on or before the issuance of the debt securities to
which it relates. Additionally, each indenture must be in the form filed as an
exhibit to the Registration Statement containing this prospectus or in a form
incorporated by reference to this prospectus in a post-effective amendment to
the Registration Statement or a Form 8-K. The form of indenture is subject to
any amendments or supplements that may be adopted from time to time. We will
enter into each indenture with a trustee and the trustee for each indenture may
be the same. Each indenture will be subject to, and governed by, the Trust
Indenture Act of 1939, as amended. Because this description of debt securities
is a summary, it does not contain all the information that may be important to
you. You should read all provisions of the applicable indenture and our debt
securities to assure that you have all the important information you need to
make any required decisions. Unless otherwise expressly stated or the context
otherwise requires, all references to the “Company,” “Realty Income,” “our,”
“we” and “us” and all similar references appearing under this caption
“Description of Debt Securities” mean Realty Income Corporation excluding its
subsidiaries. All other capitalized terms used, but not defined, in this section
shall have the meanings set forth in the applicable indenture.
Terms
The particular terms of any series of
our debt securities will be described in a prospectus supplement or other
offering materials. Additionally, any applicable modifications of or additions
to the general terms of our debt securities, described in this prospectus and in
the applicable indenture, will also be described in a prospectus supplement or
other offering materials. Accordingly, for a description of the terms of any
series of our debt securities, you must refer to both the prospectus supplement
or other offering materials, if any, relating to those debt securities and the
description of the debt securities set forth in this prospectus. If any
particular terms of our debt securities, described in a prospectus supplement or
other offering materials, differ from any of the terms described in this
prospectus, then those terms as set forth in the relevant prospectus supplement
or other offering materials will control.
Except as set forth in any prospectus
supplement or other offering materials, our debt securities may be issued
without limit as to aggregate principal amount, in one or more series, in each
case as established from time to time by our board of directors, a committee of
the board of directors or as set forth in the applicable indenture or one or
more supplements to that indenture. All of our debt securities of one series
need not be issued at the same time, and unless otherwise provided, a series may
be reopened for issuance of additional debt securities without the consent of
the holders of the debt securities of that series.
Each indenture will provide that we
may, but need not, designate more than one trustee for the indenture, each with
respect to one or more series of our debt securities. Any trustee under an
indenture may resign or be removed with respect to one or more series of our
debt securities, and a successor trustee may be appointed to act with respect to
that series. If two or more persons are acting as trustee to different series of
our debt securities, each trustee shall be a trustee of a trust under the
applicable indenture separate and apart from the trust administered by any other
trustee and, except as otherwise indicated in this prospectus, any action taken
by a trustee may be taken by that trustee with respect to, and only with respect
to, the one or more series of debt securities for which it is trustee under the
applicable indenture.
This summary sets forth certain general
terms and provisions of our indentures and our debt securities. For a detailed
description of a specific series of debt securities, you should consult the
prospectus supplement or other offering materials for that series. The
prospectus supplement or other offering materials will contain the following
information, to the extent applicable:
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(1)
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the
title of those debt securities;
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(2)
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the
aggregate principal amount of those debt securities and any limitation
thereon;
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(3)
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the
price (expressed as a percentage of the principal amount of those debt
securities) at which those debt securities will be issued and, if other
than the principal amount of those debt securities, the portion of the
principal amount payable upon declaration of acceleration of the maturity
thereof, or (if applicable) the
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portion
of the principal amount of those debt securities that is convertible into
common stock or preferred stock, or the method by which any convertible
portion of those debt securities shall be
determined;
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(4)
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if
those debt securities are convertible, the terms on which they are
convertible, including the initial conversion price or rate and conversion
period and, in connection with the preservation of our status as a REIT,
any applicable limitations on the ownership or transferability of the
common stock or the preferred stock into which those debt securities are
convertible;
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(5)
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the
date or dates, or the method for determining the date or dates, on which
the principal of those debt securities will be
payable;
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(6)
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the
rate or rates (which may be fixed or variable), or the method by which the
rate or rates shall be determined, at which those debt securities will
bear interest, if any;
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(7)
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the
date or dates, or the method for determining the date or dates, from which
any interest will accrue, the dates upon which that interest will be
payable, the record dates for payment of that interest, or the method by
which any of those dates shall be determined, the persons to whom that
interest shall be payable, and the basis upon which that interest shall be
calculated if other than that of a 360-day year of twelve 30-day
months;
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(8)
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the
place or places where the principal of (and premium, if any) and interest,
if any, on debt securities will be payable, where debt securities may be
surrendered for conversion, registration of transfer or exchange and where
notices or demands to or upon us relating to debt securities and the
indenture may be served;
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(9)
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the
period or periods, if any, within which, the price or prices at which, and
the terms and conditions upon which those debt securities may be redeemed,
as a whole or in part, at our
option;
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(10)
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our
obligation, if any, to redeem, repay or purchase those debt securities
pursuant to any sinking fund or analogous provision or at the option of a
holder of those debt securities, and the period or periods within which,
the price or prices at which, and the terms and conditions upon which,
those debt securities will be redeemed, repaid or purchased, as a whole or
in part, pursuant to this
obligation;
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(11)
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if
other than U.S. dollars, the currency or currencies in which those 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;
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(12)
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whether
the amount of payments of principal of (and premium, if any) or interest,
if any, on those 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 those amounts
shall be determined;
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(13)
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whether
those debt securities will be issued in certificated and/or book-entry
form, and, if in book-entry form, the identity of the depositary for those
debt securities;
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(14)
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whether
those debt securities will be in registered or bearer form 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;
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(15)
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the
applicability, if any, of the defeasance and covenant defeasance
provisions described herein or set forth in the applicable indenture, or
any modification of the indenture;
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(16)
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any
deletions from, modifications of or additions to the events of default or
our covenants with respect to those debt
securities;
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(17)
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whether
and under what circumstances we will pay any additional amounts on those
debt securities in respect of any tax, assessment or governmental charge
and, if so, whether we will have the option to redeem those debt
securities in lieu of making this
payment;
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(18)
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the
subordination provisions, if any, relating to those debt
securities;
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(19)
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the
provisions, if any, relating to any security provided for those debt
securities; and
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(20)
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any
other terms of those debt
securities.
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If the applicable prospectus supplement
provides or other offering materials provide, we may issue the debt securities
at a discount below their principal amount and provide for less than the entire
principal amount of the debt securities to be payable upon declaration of
acceleration of the maturity thereof (“Original Issue Discount Securities”). In
those cases, any material United States federal income tax, accounting and other
considerations applicable to Original Issue Discount Securities will be
described in the applicable prospectus supplement or other offering
materials.
Denominations,
Interest, Registration and Transfer
Unless otherwise described in the
applicable prospectus supplement or other offering materials, the debt
securities of any series will be issuable in denominations of $1,000 and
integral multiples of $1,000.
Unless otherwise described in the
applicable prospectus supplement or other offering materials, we will pay the
principal of (and premium, if any) and interest on any series of debt securities
at the applicable trustee’s corporate trust office, the address of which will be
set forth in the applicable prospectus supplement or other offering materials,
provided however, that unless otherwise provided in the applicable prospectus
supplement or other offering materials, we may make interest payments
(1) by check mailed to the address of the person entitled to the payment as
that address appears in the applicable register for those debt securities, or
(2) by wire transfer of funds to the person at an account maintained within
the United States.
Subject to certain limitations imposed
on 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 those debt securities at the office of any transfer agent we
designate for that purpose. In addition, subject to certain limitations imposed
on debt securities issued in book-entry form, the debt securities of any series
may be surrendered for conversion or registration of transfer thereof at the
office of any transfer agent we designate for that purpose. Every debt security
surrendered for conversion, registration of transfer or exchange shall be duly
endorsed or accompanied by a written instrument of transfer and the person
requesting that transfer must provide evidence of title and identity
satisfactory to us and the applicable transfer agent. No service charge will be
made for any registration of transfer or exchange of any debt securities, but we
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. We may at any time rescind the
designation of any transfer agent appointed with respect to the debt securities
of any series or approve a change in the location through which any transfer
agent acts, except that we will be required to maintain a transfer agent in each
place of payment for that series. We may at any time designate additional
transfer agents with respect to any series of debt securities.
Neither we nor any trustee shall be
required to:
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issue,
register the transfer of, or exchange debt securities of any series if
that debt security may be among those selected for redemption during a
period beginning at the opening of business 15 days before the
mailing or first publication, as the case may be, of notice of redemption
of those debt securities and ending at the close of business
on
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1.
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the
day of mailing of the relevant notice of redemption if the debt securities
of that series are issuable only in registered form,
or
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2.
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the
day of the first publication of the relevant notice of redemption if the
debt securities of that series are issuable in bearer form,
or
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3.
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the
day of mailing of the relevant notice of redemption if those debt
securities are issuable in both bearer and registered form and there is no
publication; or
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register
the transfer of or exchange any debt security in registered form, 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
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exchange
any debt security in bearer form selected for redemption, except in
exchange for a debt security of that series in registered form that is
simultaneously surrendered for redemption;
or
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issue,
register the transfer of, or exchange any debt security that has been
surrendered for repayment at the holder’s option, except the portion, if
any, of that debt security not to be
repaid.
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Merger,
Consolidation or Sale of Assets
Each indenture will provide that we
will not consolidate with, sell, lease or convey all or substantially all of our
assets to, or merge with or into, any person unless:
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either
we shall be the continuing entity, or the successor person (if not us)
formed by or resulting from the consolidation or merger or which shall
have received the transfer of the assets shall be a corporation organized
and existing under the laws of the United States or any State thereof and
shall expressly assume (1) our obligation to pay the principal of
(and premium, if any) and interest on all the debt securities issued under
the indenture and (2) the due and punctual performance and observance
of all the covenants and conditions contained in the indenture and in the
debt securities;
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immediately
after giving effect to the transaction and treating any indebtedness that
becomes our obligation or the obligation of any Subsidiary as a result of
the transaction as having been incurred, and treating any liens on any
property or assets of ours or any Subsidiary that are incurred, created or
assumed as a result of the transaction as having been created, incurred or
assumed, by us or the Subsidiary at the time of the transaction, no event
of default under the indenture, and no event that, after notice or the
lapse of time, or both, would become an event of default, shall have
occurred and be continuing; and
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an
officers’ certificate and legal opinion covering these conditions shall be
delivered to the trustee.
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Certain
Covenants
Existence. Except
as permitted under the heading above, entitled “—Merger, Consolidation or Sale
of Assets,” we will be required under each indenture to do or cause to be done
all things necessary to preserve and keep in full force and effect our corporate
existence, all material rights (by charter, bylaws and statute) and all material
franchises; provided, however, that we shall not be required to preserve any
right or franchise if our board of directors determines that the preservation
thereof is no longer desirable in the conduct of our business.
Maintenance of
Properties. Each indenture will require us to cause all of our
material properties used or useful in the conduct of our 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 require us
to cause to be made all necessary repairs, renewals, replacements, betterments
and improvements to those properties, as in our judgment may be necessary so
that the business carried on in connection with those properties may be properly
and advantageously conducted at all times; provided, however, that we and our
Subsidiaries shall not be prevented from selling or otherwise disposing of these
properties for value in the ordinary course of business.
Insurance. Each
indenture will require us and each of our Subsidiaries to keep in force upon all
of our properties and operations policies of insurance carried with responsible
companies in amounts and covering all risks as shall be customary in the
industry in accordance with prevailing market conditions and
availability.
Payment of Taxes and Other
Claims. Each indenture will require us to pay or discharge or
cause to be paid or discharged, before the same shall become delinquent,
(a) all taxes, assessments and governmental charges levied or imposed on
us, our income, profits or property, or any Subsidiary, its income, profits or
property and (b) all lawful claims for labor, materials and supplies that,
if unpaid, might by law become a lien upon our property or the property of any
Subsidiary; provided, however, that we shall not be required to pay or discharge
or cause to be paid or discharged any tax, assessment, charge or claim the
amount, applicability or validity of which we are contesting in good faith
through appropriate proceedings.
Provisions of Financial
Information. Whether or not we are subject to Section 13
or 15(d) of the Exchange Act, we will be required by each indenture, within
15 days after each of the respective dates by which we would have been
required to file annual reports, quarterly reports and other documents with the
SEC if we were subject to those Sections of the Exchange Act
to:
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transmit
by mail to all holders of debt securities issued under the indenture, as
their names and addresses appear in the applicable register for those debt
securities, without cost to the holders, copies of the annual reports,
quarterly reports and other documents that we would have been required to
file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act
if we were subject to those
Sections;
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file
with the applicable trustee copies of the annual reports, quarterly
reports and other documents that we would have been required to file with
the SEC pursuant to Section 13 or 15(d) of the Exchange Act if we
were subject to those Sections; and
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supply
promptly, upon written request and payment of the reasonable cost of
duplication and delivery, copies of these documents to any prospective
holder of the debt securities.
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Except as may otherwise be provided in
the prospectus supplement or other offering materials relating to any series of
debt securities, the term “Subsidiary”, as used in the indenture means any other
Person of which more than 50% of (a) the equity or other ownership
interests or (b) the total voting power of shares of capital stock or other
ownership interests entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers, trustees or general
or managing partners thereof is at the time owned by us or one or more of our
Subsidiaries or a combination thereof.
Additional
Covenants. If we make any additional covenants with respect to
any series of debt securities, those covenants will be set forth in the
prospectus supplement or other offering materials relating to those debt
securities.
Events
of Default, Notice and Waiver
Unless otherwise provided in the
applicable indenture, each indenture will provide that the following events are
“events of default” for any series of debt securities issued under
it:
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(1)
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default
for 30 days in the payment of any installment of interest on any debt
security of that series;
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(2)
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default
in the payment of the principal of (or premium, if any, on) any debt
security of that series when due, whether at stated maturity or by
declaration of acceleration, notice of redemption, notice of option to
elect repayment or otherwise;
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(3)
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default
in making any sinking fund payment as required for any debt security of
that series;
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(4)
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default
in the performance of any of our other covenants 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 that
series), which continues for 60 days after we receive written notice
from the trustee or the holders of at least 25% in principal amount of the
outstanding debt securities of that
series;
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(5)
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default
under any bond, debenture, note or other evidence of indebtedness for
money borrowed by us or any of our 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 $25,000,000 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 us or any of our 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 $25,000,000, whether the indebtedness exists at the date of the
relevant indenture or shall thereafter be created, which default shall
have resulted in the indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise have become due and
payable or which default shall have resulted in the obligation being
accelerated, without the acceleration having been rescinded or
annulled;
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(6)
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certain
events of bankruptcy, insolvency or reorganization with respect to us or
any of our Significant Subsidiaries;
or
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(7)
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any
other Event of Default provided with respect to a particular series of
debt securities.
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The
term “Significant Subsidiary” as used above has the meaning ascribed to the term
in Rule 1-02 of Regulation S-X promulgated under the Securities Act,
as the Regulation was in effect on January 1, 1996.
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 the applicable trustee or the holders of not less
than 25% in principal amount of the outstanding debt securities of that series
may declare the principal amount (or, if the debt securities of that series are
Original Issue Discount Securities or Indexed Securities, that 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 us (and to the applicable trustee if given by the holders). However,
at any time after the declaration of acceleration with respect to debt
securities of a series has been made, but before a judgment or decree for
payment of the money due has been obtained by the applicable trustee, the
holders of not less than a majority of the principal amount of the outstanding
debt securities of that series may rescind and annul the declaration and its
consequences if:
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we
shall have deposited with the applicable trustee all required payments of
the principal of (and premium, if any) and interest on the debt securities
of that series (other than principal that has become due solely as a
result of the acceleration), plus certain fees, expenses, disbursements
and advances of the applicable trustee;
and
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all
events of default, other than the nonpayment of accelerated principal (or
specified portion thereof), premium, if any, and interest with respect to
debt securities of that series, have been cured or waived as provided in
the indenture.
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Each
indenture will also provide that the holders of not less than a majority in
principal amount of the outstanding debt securities of any series may waive any
past default with respect to that series and its consequences,
except:
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a
default in the payment of the principal of (or premium, if any) or
interest on any debt security of that series;
or
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●
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a
default in respect of a covenant or provision contained in the indenture
that cannot be modified or amended without the consent of the holder of
each outstanding debt security of the series affected by the
default.
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Each indenture will require each
trustee to give notice of a default under the indenture to the holders of debt
securities within 90 days unless the default shall have been cured or
waived, subject to certain exceptions; provided, however, that the trustee may
withhold notice to the holders of any series of debt securities of any default
with respect to that series (except a default in the payment of the principal of
(or premium, if any) or interest on any debt security of that series or in the
payment of any sinking fund installment in respect of any debt security of that
series) if specified Responsible Officers of the trustee consider a withholding
to be in those holders’ interest.
Each indenture will provide that no
holders of debt securities of any series may institute any proceedings, judicial
or otherwise, with respect to the indenture or for any remedy thereunder, except
in the case of failure of the 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 that series, as well as an offer of indemnity
reasonably satisfactory to it, and no direction inconsistent with the written
request has been given to the trustee during the 60-day period by holders of a
majority in principal amount of the outstanding debt securities of that series.
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 those debt securities at the respective due
dates thereof.
Each indenture will provide that,
subject to provisions in the Trust Indenture Act of 1939 relating to its duties
in case of default, the trustee is under no obligation to exercise any of its
rights or powers under the indenture at the request or direction of any holders
of any series of the debt securities then outstanding under the indenture,
unless those holders shall have offered to the trustee reasonable security or
indemnity. The holders of not less than a majority in principal amount of the
outstanding debt securities of any series shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the trustee, or of exercising any trust or power conferred upon the trustee;
provided that the direction shall not conflict with any rule of law or the
indenture, and provided further that the trustee may refuse to follow any
direction that may involve the trustee in personal liability or that may be
unduly prejudicial to the holders of debt securities of that series not joining
in the direction to the trustee.
Within 120 days after the close of
each fiscal year, we will be required to deliver to the trustee a certificate,
signed by one of several specified officers, stating whether or not the officer
has knowledge of any default under the indenture and, if so, specifying each
default and the nature and status thereof.
Modification
of the Indenture
Modifications and amendments of any
indenture will be permitted with the consent of the holders of not less than a
majority in principal amount of all outstanding debt securities of each series
issued under the indenture affected by the modification or amendment; provided,
however, that no modification or amendment may, without the consent of the
holder of each debt security affected thereby:
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change
the stated maturity of the principal of, or any installment of principal
of, or interest (or premium, if any) on any debt
security;
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reduce
the principal amount of, or the rate or amount of interest on, or any
premium payable on redemption of any 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 of the Original
Issue Discount Security or would be provable in bankruptcy, or adversely
affect any right of repayment at the option of the holder of any debt
security (or reduce the amount of premium payable upon any
repayment);
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change
the place of payment, or the coin or currency, for payment of principal of
(or premium, if any) or interest on any debt
security;
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impair
the right to institute suit for the enforcement of any payment on or with
respect to any debt security when
due;
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●
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reduce
the above-stated percentage of outstanding debt securities of any series
necessary to modify or amend the indenture to waive compliance with
certain provisions of the indenture or certain defaults and consequences
under the indenture or to reduce the quorum or voting requirements set
forth in the indenture; or
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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 the action or to provide that certain
other provisions may not be modified or waived without the consent of the
holder of each outstanding debt security affected
thereby.
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The holders of a majority in aggregate
principal amount of outstanding debt securities of any series may, on behalf of
all holders of debt securities of that series, waive (insofar as that series is
concerned) our compliance with certain restrictive covenants in the applicable
indenture.
We, along with the trustee, shall be
permitted to modify and amend an indenture without the consent of any holder of
debt securities for any of the following purposes:
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to
evidence the succession of another person to our obligations under the
indenture;
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to
add to our covenants for the benefit of the holders of all or any series
of debt securities or to surrender any right or power conferred upon us in
the indenture;
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to
add events of default for the benefit of the holders of all or any series
of debt securities;
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to
add or change any provisions of the 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 this action shall not adversely affect the interests
of the holders of the debt securities of any series in any material
respect;
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●
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to
change or eliminate any provisions of the indenture, provided that any
such change or elimination does not apply to any outstanding debt
securities of a series created prior to the date of the amendment or
supplement that are entitled to the benefit of that
provision;
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to
secure the debt securities;
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to
establish the form or terms of debt securities of any series, including
the provisions and procedures, if applicable, for the conversion of debt
securities into common stock or preferred
stock;
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to
provide for the acceptance of appointment by a successor trustee or
facilitate the administration of the trusts under the indenture by more
than one trustee;
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to
cure any ambiguity, defect or inconsistency in the indenture or to make
any other provisions with respect to matters or questions arising under
the indenture, provided, however, that this action shall not adversely
affect the interests of holders of debt securities of any series in any
material respect; or
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to
supplement any of the provisions of the indenture to the extent necessary
to permit or facilitate defeasance, covenant defeasance and discharge of
any series of debt securities, provided, however, that this action shall
not adversely affect the interests of the holders of the debt securities
of any series in any material
respect.
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Each indenture 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 described in the indenture or whether a
quorum is present at a meeting of holders of debt securities:
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the
principal amount of an Original Issue Discount Security that shall be
deemed to be outstanding shall be the amount of the principal of that
security that would be due and payable as of the date of the determination
upon declaration of acceleration of the maturity
thereof;
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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 the 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 the debt security of the amount
determined as provided in the first bullet
above);
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the
principal amount of an Indexed Security that shall be deemed outstanding
shall be the principal face amount of the Indexed Security at original
issuance, unless otherwise provided with respect to the Indexed Security
in the applicable indenture; and
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debt
securities owned by us or any other obligor upon the debt securities or
any affiliate of ours or of the other obligor shall be
disregarded.
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Each indenture will contain provisions
for convening meetings of the holders of debt securities of a series. A meeting
may be permitted to be called at any time by the trustee, and also, upon our
request or request of the holders of at least 10% in principal amount of the
outstanding debt securities of a series, in any case upon notice given as
provided in the indenture. Except for any consent or waiver that must be given
by the holder of each debt security affected thereby, any resolution presented
at a meeting or at an 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 the 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 the 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 the indenture will be binding on all holders of debt
securities of that series. The persons holding or representing a majority in
principal amount of the outstanding debt securities of a series shall constitute
a quorum for a meeting of holders of that series; provided, however, that if any
action is to be taken at a meeting with respect to a consent or waiver that may
be given by the holders of not less than a specified percentage in principal
amount of the outstanding debt securities of that series, the persons holding or
representing the specified percentage in principal amount of the outstanding
debt securities of that series will constitute a quorum.
Notwithstanding the foregoing
provisions, each indenture 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 or other action that
the indenture expressly provides may be made, given or taken by the holders of
that series and one or more additional series: (a) there shall be no
minimum quorum requirement for the meeting and (b) the principal amount of
the outstanding debt securities of all those series that are entitled to vote in
favor of the request, demand, authorization, direction, notice, consent, waiver
or other action shall be taken into account in determining whether the request,
demand, authorization, direction, notice, consent, waiver or other action has
been made, given or taken under the indenture.
Discharge,
Defeasance and Covenant Defeasance
Unless otherwise indicated in the
applicable prospectus supplement or other offering materials, upon our request
any indenture shall cease to be of further effect with respect to any series of
debt securities issued under the indenture specified in our request (except as
to certain limited provisions of the indenture which shall survive) when either
(a) all debt securities of that series have been delivered to the trustee
for cancellation or (b) all debt securities of that series have become due
and payable or will become due and payable within one year (or are scheduled for
redemption within one year) and we have irrevocably deposited with the
applicable trustee, in trust, funds in the currency or currencies, currency unit
or units or composite currency or currencies in which those debt securities are
payable an amount sufficient to pay the entire indebtedness on those debt
securities in respect of principal (and premium, if any) and interest to the
date of the deposit (if those debt securities have become due and payable) or to
the stated maturity or redemption date, as the case may be.
Each indenture will provide that,
unless otherwise indicated in the applicable prospectus supplement or other
offering materials, we may elect either to:
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defease
and be discharged from any and all obligations with respect to any series
of debt securities (except for the obligation, if any, to pay additional
amounts in respect of certain taxes imposed on non-U.S. holders of debt
securities and the obligations to register the transfer or exchange of the
debt securities, to replace temporary or mutilated, destroyed, lost or
stolen debt securities, to maintain an office or agency in respect of the
debt securities and to hold money for payment in trust) (“defeasance”);
or
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be
released from our obligations with respect to certain covenants (which
will be described in the relevant prospectus supplement or other offering
materials) applicable to the debt securities under the applicable
indenture (which may include, subject to a limited exception, the
covenants described under “—Certain Covenants”), and any omission to
comply with these obligations shall not constitute a default or an event
of default with respect to those debt securities (“covenant
defeasance”),
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in
either case upon our irrevocable deposit with the applicable trustee, in trust,
of an amount, in the currency or currencies, currency unit or units or composite
currency or currencies in which those debt securities are payable at stated
maturity, or Government Obligations (as defined below), or both, applicable to
those debt securities that 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 those
debt securities, and any mandatory sinking fund or analogous payments on those
debt securities, on the scheduled due dates.
A trust may only be established if,
among other things, we have delivered to the applicable trustee an opinion of
counsel (as specified in the applicable indenture) to the effect that the
holders of those debt securities will not recognize income, gain or loss for
United States federal income tax purposes as a result of the defeasance or
covenant defeasance and will be subject to United States federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if the defeasance or covenant defeasance had not occurred.
Additionally, in the case of defeasance, an opinion of counsel must refer to and
be based on a ruling of the Internal Revenue Service (the “IRS”) or a change in
applicable United States federal income tax law occurring after the date of the
applicable indenture. In the event of defeasance, the holders of those debt
securities will thereafter be able to look only to the trust fund for payment of
principal (and premium, if any) and interest.
“Government Obligations” means
securities that are (a) 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 (b) obligations of a person controlled or supervised
by and acting as an agency or instrumentality of the United States of America or
the government which issued the foreign currency in which the debt securities of
that series are payable, the payment of which is unconditionally guaranteed as a
full faith and credit obligation by the United States of America or the 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 Government Obligation or
a specific payment of interest on or principal of any Government Obligation held
by a custodian for the account of the holder of a depository receipt; provided,
however, that (except as required by law) the custodian is not authorized to
make any deduction from the amount payable to the holder of the 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 the depository receipt.
Unless otherwise provided in the
applicable prospectus supplement or other offering materials, if after we have
deposited funds and/or Government Obligations to effect defeasance or covenant
defeasance with respect to debt securities of any series:
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the
holder of a debt security of that series is entitled to, and does, elect
pursuant to the applicable indenture or the terms of that debt security to
receive payment in a currency, currency unit or composite currency other
than that in which the deposit has been made in respect of that debt
security, or
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a
Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which the deposit has been
made,
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then
the indebtedness represented by that 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 that debt security as they become due
out of the proceeds yielded by converting the amount so deposited in respect of
that debt security into the currency, currency unit or composite currency in
which the debt security becomes payable as a result of the election or
Conversion Event based on the applicable market exchange rate. “Conversion
Event” means the cessation of use of:
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a
currency, currency unit or composite currency both by the government of
the country which issued the currency and for the settlement of
transactions by a central bank or other public institution of or within
the international banking community;
or
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any
currency unit or composite currency other than the ECU for the purposes
for which it was established.
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In the event we effect a covenant
defeasance with respect to any debt securities and those debt securities are
declared due and payable because of the occurrence of any event of default,
other than an event of default due to a breach of any of the covenants as to
which there has been covenant defeasance (which covenants would no longer be
applicable to those debt securities as a result of such covenant defeasance),
the cash and Government Obligations on deposit with the applicable trustee may
not be sufficient to pay amounts due on those debt securities at the time of the
acceleration resulting from the event of default. We would, however, remain
obligated to make payment of the amounts due at the time of
acceleration.
The applicable prospectus supplement or
other offering materials may further describe the provisions, if any, permitting
the 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 stock or preferred stock
will be set forth in the applicable prospectus supplement or other offering
materials relating to those debt securities. The terms will include whether the
debt securities are convertible into common stock or preferred stock, the
conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at our option or the option of the
holders, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of the debt
securities and any restrictions on conversion, including restrictions directed
at maintaining our REIT status.
Unclaimed
Payments
We will be repaid for all amounts we
pay to a paying agent or a trustee for the payment of the principal of or any
premium or interest on any debt security that remains unclaimed at the end of
two years after the principal, premium or interest has become due and payable,
and the holder of that debt security may look only to us for payment of the
principal, premium or interest.
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 or other offering materials
relating to that 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 or other offering materials
relating to that series.
We have authority to issue
200,000,000 shares of
our common stock, $1.00 par value per share. As of March 23, 2009, we had
outstanding 104,319,051 shares of our common stock.
General
The following description of our common
stock sets forth certain general terms and provisions of our common stock to
which any prospectus supplement or other offering materials may relate,
including a prospectus supplement or other offering materials providing that our
common stock will be issuable upon conversion of our debt securities or our
preferred stock. The statements below describing our common stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of our charter and bylaws. Unless otherwise expressly
stated or the context otherwise requires, all references to the “Company,”
“Realty Income,” “our,” “we” and “us” and all similar references, appearing
under this caption “Description of Common Stock” mean Realty Income Corporation
excluding its subsidiaries.
Terms
Subject to the preferential rights of
any other class or series of stock and to the provisions of our charter
regarding the restrictions on transfer of stock, holders of our common stock are
entitled to receive dividends when, as and if authorized by our board of
directors and declared by us out of assets legally available therefor. The terms
of each of our outstanding classes of preferred stock provide in general that if
we fail to declare or pay full cumulative dividends on the preferred stock of
that class for all past dividend periods and the then current dividend period,
no dividends or distributions on our common stock (other than dividends payable
in shares of common stock or other shares of our capital stock ranking junior to
the outstanding preferred stock of that class) may be declared or paid nor may
we purchase or otherwise acquire any of our common stock (except in exchange for
other capital stock ranking junior to the outstanding preferred stock of that
class and except for certain purchases of our stock for the purpose of
preserving our qualification as a REIT for United States federal and/or state
income tax purposes). If we were to experience liquidation, dissolution or
winding up, holders of our common stock would be entitled to share equally and
ratably in any assets available for distribution to them, after payment or
adequate provision for payment of our debts and other liabilities and the
preferential amounts owing with respect to our outstanding preferred stock. The
terms of our outstanding preferred stock provide in general that, in the event
of our liquidation, dissolution or winding up, the holders of that preferred
stock will be entitled to receive, out of assets legally available for
distribution to our stockholders, a liquidating distribution of $25 per share,
plus accrued and unpaid dividends, before any distribution or payment may be
made to the holders of our common stock. The terms of any additional
preferred stock we may issue in the future may also provide for restrictions or
prohibitions on the payment of dividends on, and the purchase of, our common
stock and may also provide for holders of that preferred stock to receive
preferential distributions in the event of our liquidation, dissolution or
winding up before any payments may be made on our common stock.
Subject to the provisions of our
charter regarding the restrictions on transfer of stock (See “Restrictions on
Ownership and Transfers of Stock” below), each outstanding share of our common
stock entitles the holder to one vote on all matters submitted to a vote of
stockholders, including the election of directors and, except as provided with
respect to any other class or series of stock, the holders of such shares will
possess the exclusive voting power.
Holders of our common stock do not have
cumulative voting rights in the election of directors, which means that holders
of more than 50% of all the shares of our common stock voting for the election
of directors can elect all the directors standing for election at the time if
they choose to do so, and the holders of the remaining shares cannot elect any
directors. All of our directors currently serve a one year term. Holders of
shares of common stock do not have preemptive rights, which means they have no
right under the charter, bylaws, or Maryland law to acquire any additional
shares of common stock that may be issued by us at a subsequent date. Holders of
shares of common stock have no preference, conversion, exchange, sinking fund,
or redemption rights. Under Maryland law, stockholders generally are not liable
for the corporation’s debts or obligations. All shares of common stock now
outstanding are, and additional shares of common stock offered will be when
issued, fully paid and nonassessable.
Under the Maryland General Corporation
Law, or MGCL, a Maryland corporation generally cannot dissolve, amend its
charter, merge, sell all or substantially all of its assets, engage in a share
exchange or engage in similar transactions outside the ordinary course of
business unless approved by the affirmative vote of stockholders holding at
least two-thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes entitled to be cast
on the matter) is set forth in the corporation’s charter. Our charter provides
that any such action shall be effective if approved by the affirmative vote of
holders of shares entitled to cast a majority of all the votes entitled to be
cast on the matter.
Our charter authorizes our board of
directors to reclassify any unissued shares of our common stock into other
classes or series of stock and to establish the number of shares in each class
or series and to set the preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications or terms or conditions of redemption for each such class or
series.
Maryland
Business Combination Law
Under the MGCL, certain “business
combinations” (including certain issuances of equity securities) between a
Maryland corporation and any person who beneficially owns ten percent or more of
the voting power of the corporation’s outstanding voting stock, or an affiliate
or associate of the corporation who beneficially owned ten percent or more of
the voting power at any time within the preceding two years, in each case
referred to as an interested stockholder, or an affiliate thereof, are
prohibited for five years after the most recent date on which the interested
stockholder becomes an interested stockholder. Thereafter, any such business
combination must be approved by two super-majority stockholder votes unless,
among other conditions, the corporation’s common stockholders receive a minimum
price (as defined in the MGCL) for their shares and the consideration is
received in cash or in the same form as previously paid by the interested
stockholder for its common shares. The business combination provisions of the
MGCL do not apply, however, to business combinations that are approved or
exempted by the board of directors prior to the time that the interested
stockholder becomes an interested stockholder. These provisions of the MGCL may
delay, defer or prevent a transaction or a change in control of us that might
involve a premium price for the common stock or otherwise be in the best
interests of the stockholders.
Maryland
Control Share Acquisitions Law
The MGCL provides that “control shares”
of a Maryland corporation acquired in a “control share acquisition” have no
voting rights except to the extent approved by a vote of two-thirds of the votes
entitled to be cast on the matter, excluding shares of stock owned by the
acquirer, by officers of the corporation or by employees who
are directors of the corporation. “Control shares” are shares of stock
which, if aggregated with all other such shares of stock previously acquired 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 directors within
one of the following ranges of voting power; (1) one-tenth or more but less
than one-third, (2) one-third or more but less than a majority, or
(3) a majority or more of all voting power. Control shares do not include
shares the acquiring person is then entitled to vote as a result of having
previously obtained stockholder approval. A “control share acquisition” means
the acquisition of control shares, subject to certain exceptions.
A person who has made or proposes to
make a control share acquisition, upon satisfaction of certain conditions
(including an undertaking to pay expenses), may compel the board of directors of
the corporation to call a special meeting of stockholders to be held within
50 days of demand to consider the voting rights of the shares. If no
request for a meeting is made, the corporation may itself present the question
at any stockholders 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, subject to certain conditions and
limitations, the corporation may redeem any and all of the control shares
(except those for which voting rights have previously been approved) for fair
value 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 stockholders at which the voting rights of such shares are
considered and not approved. If voting rights for control shares are approved at
a stockholders meeting and the acquiror becomes entitled to vote a majority of
the shares entitled to vote, all other stockholders may exercise appraisal
rights. The fair value of the shares as determined for purposes of such
appraisal rights may not be less than the highest price per share paid by the
acquiror in the control share acquisition.
“Control share acquisition” does not
include (1) shares acquired in a merger, consolidation or share exchange if
the corporation is a party to the transaction, or (2) acquisitions exempted
by the charter or bylaws of the corporation, adopted at any time before the
acquisition of the shares.
As permitted by the MGCL, our bylaws
contain a provision exempting us from the control share acquisition statute.
That bylaw provision states that the control share statute shall not apply to
any acquisition by any person of shares of our stock. There can be no assurance
that such provision will not be amended or eliminated by the board of directors
at any time in the future.
Restrictions
on Ownership
For us to qualify as a REIT under the
Code, not more than 50% in value of our outstanding stock may be owned, actually
or constructively, by or for five or fewer individuals (defined in the Code to
include certain entities) during the last half
of
a taxable year. To assist us in meeting this requirement and certain other
requirements relating to our tax status as a REIT, we may take certain actions
to limit the actual, beneficial or constructive ownership by a single person or
entity of our outstanding equity securities. See “Restrictions on Ownership and
Transfers of Stock” below.
Transfer
Agent
The registrar and transfer agent for
our common stock is Wells Fargo Shareowner Services.
We are authorized to issue 20,000,000
shares of preferred stock, $1.00 par value per share. As of March 23, 2009, we
had outstanding 5,100,000 shares of our Class D preferred stock and 8,800,000
shares of our Class E preferred stock.
General
The following description of our
preferred stock sets forth certain general terms and provisions of our preferred
stock to which any prospectus supplement or other offering materials may relate.
The statements below describing our preferred stock are in all respects subject
to and qualified in their entirety by reference to the applicable provisions of
our charter (including the applicable articles supplementary designating the
terms of a class or series of preferred stock) and our bylaws. You should review
the articles supplementary for the Class D preferred stock and the Class E
preferred stock, copies of which may be obtained as described below under “Where
You Can Find More Information.” As used under this caption “General Description
of Preferred Stock,” references to “Realty Income,” “our,” “we” and “us,” and
all similar references, mean Realty Income Corporation excluding its
subsidiaries, unless otherwise expressly stated or the context otherwise
requires.
Our charter authorizes our board of
directors to classify any unissued shares of preferred stock and to reclassify
any previously classified but unissued shares of any class or series. Prior to
issuance of shares of each series, our board is required by the MGCL and our
charter to set, subject to the provisions of our charter regarding the
restrictions on transfer of stock, the terms, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption for each
such series. Thus, the board could authorize the issuance of shares of preferred
stock with terms and conditions which could have the effect of delaying,
deferring or preventing a transaction or a change in control of us that might
involve a premium price for holders of our common stock or otherwise be in their
best interest. Any additional preferred stock will, when issued, be fully paid
and nonassessable and will have no preemptive rights. The following discussion
is applicable to any additional preferred stock that we may issue.
You should refer to the prospectus
supplement or other offering materials relating to the preferred stock offered
thereby for specific terms of and other information concerning the preferred
stock, including:
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(1)
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the
title of the preferred stock;
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(2)
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the
number of shares of the preferred stock offered, the liquidation
preference per share and the offering price of the preferred
stock;
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(3)
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the
dividend rate(s), period(s) and/or payment date(s), or method(s) of
calculation thereof, applicable to the preferred
stock;
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(4)
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whether
the preferred stock is cumulative or not and, if cumulative, the date from
which dividends on the preferred stock shall
accumulate;
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(5)
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the
procedures for any auction and remarketing, if any, for the preferred
stock;
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(6)
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the
provision for a sinking fund, if any, for the preferred
stock;
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(7)
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any
voting rights of the preferred
stock;
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(8)
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the
provision for redemption, if applicable, of the preferred
stock;
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(9)
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any
listing of the preferred stock on any securities
exchange;
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(10)
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the
terms and conditions, if applicable, upon which the preferred stock will
be convertible into common stock, including the conversion price (or
manner of calculation thereof);
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(11)
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a
discussion of federal income tax considerations applicable to the
preferred stock;
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(12)
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any
limitations on actual, beneficial or constructive ownership and
restrictions on transfer, in each case as may be appropriate to preserve
our REIT status;
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(13)
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the
relative ranking and preferences of the preferred stock as to dividend
rights and rights upon liquidation, dissolution or winding up of our
affairs;
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(14)
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whether
liquidation preferences on preferred stock will be counted as liabilities
of ours in determining whether distributions to junior stockholders can be
made under the MGCL;
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(15)
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any
limitations on issuance of any series or class of preferred stock ranking
senior to or on a parity with such series or class of preferred stock as
to dividend rights and rights upon liquidation, dissolution or winding up
of our affairs; and
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(16)
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any
other specific terms, preferences, rights, limitations or restrictions of
the preferred stock.
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Rank
Unless otherwise specified in the
applicable prospectus supplement or other offering materials, the preferred
stock of any series or class will rank, with respect to the payment of dividends
and the distribution of assets in the event of our liquidation, dissolution or
winding up:
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senior
to all classes or series of our common stock and to all other equity
securities issued by us other than equity securities referred to in the
two immediately following bullet
points;
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on
a parity with our outstanding Class D preferred stock and Class E
preferred stock and all other equity securities issued by us the terms of
which specifically provide that such equity securities rank on a parity
with the preferred stock of such series or class with respect to rights to
the payment of dividends and the distribution of assets in the event of
our liquidation, dissolution or winding up;
and
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junior
to all equity securities issued by us the terms of which specifically
provide that such equity securities rank senior to the preferred stock of
such series or class with respect to rights to the payment of dividends
and the distribution of assets in the event of our liquidation,
dissolution or winding up.
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For
these purposes, the term “equity securities” does not include convertible debt
securities.
Dividends
Holders of shares of our preferred
stock of each series or class shall be entitled to receive, when, as and if
authorized by our board of directors and declared by us, out of our assets
legally available for payment, cash dividends at rates and on dates as will be
set forth in the applicable prospectus supplement or other offering materials.
Each dividend shall be payable to holders of record as they appear on our stock
transfer books on the record dates as shall be fixed by our board of
directors.
Dividends on any series or class of our
preferred stock may be cumulative or noncumulative, as provided in the
applicable prospectus supplement or other offering materials. Dividends, if
cumulative, will be cumulative from and after the date set forth in the
applicable prospectus supplement or other offering materials. If our board of
directors fails to authorize a dividend payable on a dividend payment date on
any series or class of preferred stock for which dividends are noncumulative,
then the holders of such series or class of preferred stock will have no right
to receive a dividend in respect of the dividend period ending on that dividend
payment date, and we will have no obligation to pay the dividend accrued for
such period, whether or not dividends on such series or class are declared or
paid for any future period.
If any shares of preferred stock of any
series or class are outstanding, no full dividends shall be declared or
paid or set apart for payment on the preferred stock of any other series or
class ranking, as to dividends, on a parity with or junior to the preferred
stock of that series or class for any period unless:
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if
the series or class of preferred stock has a cumulative dividend, full
cumulative dividends have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof is set apart for
such payment on the preferred stock of such series or class for all past
dividend periods and the then current dividend period;
or
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if
the series or class of preferred stock does not have a cumulative
dividend, full dividends for the then current dividend period have been or
contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof is set apart for the payment on the
preferred stock of such series or
class.
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When dividends are not paid in full (or
a sum sufficient for the full payment is not set apart) upon the shares of
preferred stock of any series or class and the shares of any other series or
class of preferred stock ranking on a parity as to dividends with the preferred
stock of that series or class, then all dividends declared on shares of
preferred stock of that series or class and any other series or class of
preferred stock ranking on a parity as to dividends with that preferred stock
shall be declared pro rata so that the amount of dividends declared per share on
the preferred stock of that series or class and such other series or class of
preferred stock shall in all cases bear to each other the same ratio that
accrued and unpaid dividends per share on the shares of preferred stock of such
series or class (which shall not include any accumulation in respect of unpaid
dividends for prior dividend periods if such preferred stock does not have a
cumulative dividend) and such other series or class of preferred stock (which,
in the case of any such other series or class of preferred stock, shall not
include any accumulation in respect of unpaid dividends for prior dividend
periods if such other series or class of preferred stock does not have a
cumulative dividend) bear to each other. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on
preferred stock of such series or class that may be in arrears.
Except as provided in the immediately
preceding paragraph, unless:
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if
the series or class of preferred stock has a cumulative dividend, full
cumulative dividends on the preferred stock of such series or class have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof is set apart for payment for all past
dividend periods and the then current dividend period;
or
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if
the series or class of preferred stock does not have a cumulative
dividend, full dividends on the preferred stock of such series or class
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof is set apart for payment for the then
current dividend period,
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then
no dividends (other than in the common stock or other stock of ours ranking
junior to the preferred stock of that series or class as to dividends and as to
the distribution of assets upon liquidation, dissolution or winding up of us)
shall be declared or paid or set aside for payment nor shall any other
distribution be declared or made on the common stock or any other class or
series of stock of ours ranking junior to or on a parity with the preferred
stock of that series or class as to dividends or as to the distribution of
assets upon liquidation, dissolution or winding up of us, nor shall any shares
of the common stock or any other stock of ours ranking junior to or on a parity
with the preferred stock of that series or class as to dividends or as to the
distribution of assets upon liquidation, dissolution or winding up of us be
redeemed, purchased or otherwise acquired for any consideration (or any amounts
be paid to or made available for a sinking fund for the redemption of any shares
of any such stock) by us (except by conversion into or exchange for other stock
of ours ranking junior to the preferred stock of that series or class as to
dividends and as to the distribution of assets upon liquidation, dissolution or
winding up of us); provided, however, that the foregoing shall not prevent the
purchase or acquisition of shares of our stock to preserve our status as a REIT
for federal and/or state income tax purposes.
Any dividend payment made on shares of
a series or class of preferred stock shall first be credited against the
earliest accrued but unpaid dividend due with respect to shares of that series
or class that remains payable.
Redemption
If the applicable prospectus supplement
or other offering material so states, the shares of preferred stock will be
subject to mandatory redemption or redemption at our option, as a whole or in
part, in each case on the terms, at the times and at the redemption prices set
forth in that prospectus supplement or other offering material.
The prospectus supplement or other
offering materials relating to a series or class of preferred stock that is
subject to mandatory redemption will specify the number of shares of that
preferred stock that shall be redeemed by us in each year commencing after a
date to be specified, at a redemption price per share to be specified, together
with an amount equal to all
accumulated
and unpaid dividends thereon (which shall not, if such preferred stock does not
have a cumulative dividend, include any accumulation in respect of unpaid
dividends for prior dividend periods) to the date of redemption. The redemption
price may be payable in cash or other property, as specified in the applicable
prospectus supplement or other offering materials. If the redemption price for
preferred stock of any series or class is payable only from the net proceeds of
the issuance of our stock, the terms of that preferred stock may provide that,
if no such stock shall have been issued or, to the extent the net proceeds from
any issuance are insufficient to pay in full the aggregate redemption price then
due, that preferred stock shall automatically and mandatorily be converted into
shares of our applicable stock pursuant to conversion provisions specified in
the applicable prospectus supplement or other offering materials.
Notwithstanding the foregoing,
unless:
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if
the series or class of preferred stock has a cumulative dividend, full
cumulative dividends on all outstanding shares of such series or class of
preferred stock have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof is set apart for
payment for all past dividend periods and the then current dividend
period; or
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if
the series or class of preferred stock does not have a cumulative
dividend, full dividends on the preferred stock of that series or class
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof is set apart for payment for the then
current dividend period,
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then
no shares of that series or class of preferred stock shall be redeemed unless
all outstanding shares of preferred stock of that series or class are
simultaneously redeemed; provided, however, that the foregoing shall not prevent
the purchase or acquisition of shares of preferred stock of that series or class
to preserve our REIT status for federal and/or state income tax purposes or
pursuant to a purchase or exchange offer made on the same terms to holders of
all outstanding shares of preferred stock of that series or class.
In addition, unless:
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if
the series or class of preferred stock has a cumulative dividend, full
cumulative dividends on all outstanding shares of that series or class of
preferred stock have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof is set apart for
payment for all past dividend periods and the then current dividend
period; or
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if
the series or class of preferred stock does not have a cumulative
dividend, full dividends on the preferred stock of that series or class
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof is set apart for payment for the then
current dividend period,
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we
shall not purchase or otherwise acquire directly or indirectly any shares of
preferred stock of such series or class (except by conversion into or exchange
for stock of ours ranking junior to the preferred stock of that series or class
as to dividends and upon the distribution of assets upon liquidation,
dissolution and winding up of us); provided, however, that the foregoing shall
not prevent the purchase or acquisition of shares of preferred stock of such
series or class to preserve our REIT status for federal and/or state income tax
purposes or pursuant to a purchase or exchange offer made on the same terms to
holders of all outstanding shares of preferred stock of that series or
class.
If fewer than all the outstanding
shares of preferred stock of any series or class are to be redeemed, the number
of shares to be redeemed will be determined by us and the shares to be redeemed
shall be selected pro rata (as nearly as may be practicable without creating
fractional shares) or by any other equitable method determined by us that will
not result in the automatic transfer of any shares of preferred stock of such
series or class to a trust in order to avoid adversely affecting our REIT
status.
Notice of redemption will be mailed at
least 30, but not more than 60, days before the redemption date to each holder
of record of a share of preferred stock of any series or class to be redeemed at
the address shown on our stock transfer books. Each notice shall
state:
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The
redemption date;
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The
number of shares and series or class of the preferred stock to be
redeemed;
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The
redemption price;
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The
place or places where certificates for the
preferred stock are to be surrendered for payment of the
redemption price;
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That
dividends on the shares to be redeemed will cease to accumulate on the
redemption date; and
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The
date on which the holder’s conversion rights, if any, as to those shares
shall terminate.
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If fewer than all the shares of
preferred stock of any series or class are to be redeemed, the notice mailed to
each holder shall also specify the number of shares of preferred stock to be
redeemed from such holder and, upon redemption, a new certificate shall be
issued representing the unredeemed shares without cost to the holder thereof. If
notice of redemption of any shares of preferred stock has been given and if the
funds necessary for the redemption have been irrevocably set aside by us in
trust for the benefit of the holders of the shares of preferred stock so called
for redemption, then from and after the redemption date dividends will cease to
accrue on such shares of preferred stock, such shares of preferred stock shall
no longer be deemed outstanding and all rights of the holders of such shares
will terminate, except the right to receive the redemption price plus accrued
and unpaid dividends, if any.
Notwithstanding the foregoing and
except as otherwise may be required by law, the persons who were holders of
record of shares of any class or series of preferred stock at the close of
business on a record date for the payment of dividends will be entitled to
receive the dividend payable on the corresponding dividend payment date
notwithstanding the redemption of those shares after the record date and on or
prior to the dividend payment date or our default in the payment of the dividend
due on that dividend payment date. In that case, the amount payable on the
redemption of those shares of preferred stock will not include that dividend.
Except as provided in the preceding sentence and except to the extent that
accrued and unpaid dividends are payable as part of the redemption price, we
will make no payment or allowance for unpaid dividends, whether or not in
arrears, on shares of preferred stock called for redemption.
Subject to applicable law and the
limitation on purchases when dividends on a series or class of preferred stock
are in arrears, we may, at any time and from time to time, purchase any shares
of such series or class of preferred stock in the open market, by tender or by
private agreement.
Liquidation
Preference
Upon any voluntary or involuntary
liquidation, dissolution, or winding up of our company, the holders of each
series or class of our preferred stock shall be entitled to receive, out of our
assets legally available for distribution to our stockholders, a liquidating
distribution in the amount of the liquidation preference per share (set forth in
the applicable prospectus supplement or other offering materials) applicable to
that class or series, plus an amount equal to any accrued and unpaid dividends
to the date of payment (which shall not include any accumulation in respect of
unpaid dividends for prior dividend periods if the preferred stock of such class
or series does not have a cumulative dividend), before any distribution or
payment will be made to the holders of common stock or any other series or class
of stock ranking junior to that series or class of preferred stock in the
distribution of assets upon any liquidation, dissolution or winding up of our
company, but subject to the preferential rights of the holders of shares of any
class or series of our stock ranking senior to such series or class of preferred
stock with respect to the distribution of assets upon liquidation, dissolution
or winding up. After payment of the full amount of the liquidating distributions
to which they are entitled, the holders of that series or class of preferred
stock, as such, will have no right or claim to any of our remaining assets. If,
upon any such voluntary or involuntary liquidation, dissolution or winding up,
the assets legally available therefor are insufficient to pay the full amount of
the liquidating distributions payable on all outstanding shares of any series or
class of preferred stock and the full amount of the liquidating distributions
payable on all shares of any other classes or series of our stock ranking on a
parity with that series or class of preferred stock in the distribution of
assets upon liquidation, dissolution or winding up, then the holders of that
series or class of preferred stock and all other such classes or series of
capital stock shall share ratably in any such distribution of assets in
proportion to the full liquidating distributions to which they would otherwise
be respectively entitled.
If liquidating distributions shall have
been made in full to all holders of any series or class of preferred stock, our
remaining assets will be distributed among the holders of any other classes or
series of stock ranking junior to that series or class of preferred stock upon
liquidation, dissolution or winding up, according to their respective rights and
preferences and in each case according to their respective number of shares. For
those purposes, neither the consolidation or merger of us with or into any other
entity, nor the sale, lease, transfer or conveyance of all or substantially all
of our property or business, shall be deemed to constitute a liquidation,
dissolution or winding up of us.
Voting
Rights
Except as may be set forth in the
applicable prospectus supplement or other offering materials, whenever dividends
on any shares of preferred stock of any series or class shall be in arrears for
six or more quarterly dividend periods, whether or not consecutive, the number
of directors constituting our board of directors will be automatically increased
by two (if not already increased by two by reason of the election of directors
by the holders of any other class or series of preferred stock upon which like
voting rights have been conferred and are exercisable and with which the
preferred stock of such class or series is entitled to vote as a class with
respect to the election of those two directors) and the holders of such series
or class of preferred stock (voting separately as a class with all other classes
or series of preferred stock upon which like voting rights have been conferred
and are exercisable and which are entitled to vote as a class with such class or
series of preferred stock in the election of those two directors) will be
entitled to vote for the election of such two additional directors to our board
of directors at a special meeting called by Realty Income at the request of the
holders of record of at least 10% of the outstanding shares of such class or
series of preferred stock or by the holders of any other class or series of
preferred stock upon which like voting rights have been conferred and are
exercisable and which are entitled to vote as a class with that class or series
of preferred stock in the election of those two directors (unless the request is
received less than 90 days before the date fixed for the next annual or
special meeting of stockholders, in which case the vote will be held at the
earlier of the next annual or special meeting of stockholders), and at each
subsequent annual meeting until all dividends accumulated on the shares of
preferred stock of that class or series for all past dividend periods and the
then current dividend period shall have been fully paid or declared and a sum
sufficient for the payment thereof set aside for payment. In that case, the
right of the preferred stock of that class or series to elect those two
directors will cease and (unless there are one or more other classes or series
of preferred stock upon which like voting rights have been conferred and remain
exercisable) the term of office of the two directors will automatically
terminate and the number of directors constituting the board of directors will
be reduced accordingly. If a special meeting is not called by us within
30 days after a request as described above, then the holders of record of
at least 10% of the outstanding shares of that class or series of preferred
stock may designate a holder to call the meeting at our expense.
So long as any shares of any class or
series of preferred stock remain outstanding, we shall not, without the consent
or the affirmative vote of the holders of at least two-thirds of the shares of
such class or series of preferred stock outstanding at the time, given in person
or by proxy, either in writing or at a meeting (with such series or class of
preferred stock voting separately as a class):
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Authorize,
create or issue, or increase the number of authorized or
issued shares of, any class or series of stock ranking senior to that
series or class of preferred stock with respect to payment of dividends or
the distribution of assets on liquidation, dissolution or winding up, or
reclassify any of our authorized stock into any such shares, or create,
authorize or issue any obligation or security convertible into,
exchangeable or exercisable for, or evidencing the right to purchase, any
such shares;
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Amend,
alter or repeal any of the provisions of our charter, including the
articles supplementary for such series or class of preferred stock, so as
to materially and adversely affect any right, preference, privilege or
voting power of such series or class of preferred stock;
or
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Enter
into any share exchange that affects such series or class of preferred
stock or consolidate with or merge into any other entity, or permit any
other entity to consolidate with or merge into us, unless in each such
case described in this bullet point each share of such series or class of
preferred stock remains outstanding without a material adverse change to
its terms and rights or is converted into or exchanged for preferred stock
of the surviving or resulting entity having preferences, rights,
dividends, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption substantially
identical to and in any event without any material adverse change to those
of such series or class of preferred
stock;
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provided
that any amendment to our charter to authorize any increase in the number
of authorized shares of preferred stock or common stock or the creation or
issuance of any other class or series of preferred stock or any increase in
the number of authorized or outstanding shares of such series or class or
any other series or class of preferred stock, in each case ranking on a parity
with or junior to the preferred stock of such series or class with respect to
payment of dividends and the distribution of assets upon liquidation,
dissolution and winding up, shall not be deemed to materially and adversely
affect any right, preference, privilege or voting power of that series or class
of preferred stock.
The foregoing voting provisions will
not apply if, at or prior to the time when the act, with respect to which the
vote would otherwise be required, shall be effected, all outstanding shares of
such series or class of preferred stock shall have been redeemed or called for
redemption upon proper notice and sufficient funds shall have been irrevocably
deposited in trust to effect the redemption.
Conversion
Rights
The terms and conditions, if any, upon
which shares of any series or class of preferred stock are convertible into
shares of common stock will be set forth in the applicable prospectus supplement
or other offering materials. The terms will include the number of shares of
common stock into which the preferred stock is convertible, the conversion price
(or the manner of calculation thereof), the conversion period, provisions as to
whether conversion will be at the option of the holders of the preferred stock
or us, the events requiring an adjustment of the conversion price and provisions
affecting conversion in the event of the redemption of the preferred
stock.
Restrictions
on Ownership
For us to qualify as a REIT under the
Code, not more than 50% in value of our outstanding capital stock may be owned,
actually or constructively, by or for five or fewer individuals (defined in the
Code to include certain entities) during the last half of a taxable year. To
assist us in meeting this requirement and certain other requirements relating to
our tax status as a REIT, the articles supplementary establishing any class or
series of preferred stock will contain provisions, which will be described in
the applicable prospectus supplement or other offering materials, intended to
limit the actual, beneficial or constructive ownership by a single person or
entity of our outstanding equity securities.
Transfer
Agent
The transfer agent and registrar for
any series or class of preferred stock will be set forth in the applicable
prospectus supplement or other offering materials.
Internal
Revenue Code Requirements
To maintain our REIT status under the
Code, no more than 50% in value of our outstanding shares of stock may be owned,
actually or constructively, by or for five or fewer individuals (as defined in
the Code to include certain entities) during the last half of a taxable year. In
addition, if we, or an owner of 10% or more of our stock, actually or
constructively owns 10% or more of a tenant of ours (or a tenant of any
partnership in which we are a partner), the rent received by us (either directly
or through any such partnership) from that tenant will not be qualifying income
for purposes of the REIT gross income tests of the Code. A REIT's stock must
also be beneficially owned by 100 or more persons during at least 335 days
of a taxable year of twelve months or during a proportionate part of a shorter
taxable year.
Transfer
Restrictions in Charter
Because we expect to continue to
qualify as a REIT, our charter contains restrictions on the ownership and
transfer of our common stock which are intended to assist us in complying with
applicable Code requirements. Our charter provides that, subject to certain
specified exceptions, no person or entity may own, or be deemed to own by virtue
of the applicable constructive ownership provisions of the Code, more than 9.8%
(by number or value, whichever is more restrictive) of our outstanding shares of
common stock. We refer to these restrictions as the “ownership
limit.” The constructive ownership rules of the Code are complex, and may cause
shares of common stock owned actually or constructively by a group of related
individuals and/or entities to be constructively owned by one individual or
entity. As a result, the acquisition of less than 9.8% of the shares of common
stock (or the acquisition of an interest in an entity that owns, actually or
constructively, common stock) by an individual or entity, could nevertheless
cause that individual or entity, or another individual or entity, to
constructively own more than 9.8% of our outstanding common stock and thus
violate the ownership limit, or any other limit as provided in our charter or as
otherwise permitted by our board of directors. Our board of directors may, but
in no event is required to, exempt from the ownership limit a particular
stockholder if it determines that such ownership will not jeopardize our status
as a REIT. As a condition of such exemption, the board of directors may require
a ruling from the Internal Revenue Service or an opinion of counsel satisfactory
to it and/or undertakings or representations from the applicant with respect to
preserving our REIT status.
Our charter further prohibits
(1) any person from actually or constructively owning shares of our stock
that would result in our being “closely held” under Section 856(h) of the
Code or otherwise cause us to fail to qualify as a REIT, and (2) any person
from transferring shares of our stock if such transfer would result in shares of
our stock being beneficially owned by fewer than 100 persons (determined without
reference to any rules of attribution).
Any person who acquires or attempts to
acquire actual or constructive ownership of shares of our stock that would
violate any of the foregoing restrictions on transferability and ownership is
required to give notice to us immediately and provide us with such other
information as we may request in order to determine the effect of such transfer
on our status as a REIT. The foregoing restrictions on transferability and
ownership will not apply if our board of directors determines that it is no
longer in our best interest to attempt to qualify, or to continue to qualify, as
a REIT and such determination is approved by the holders of two-thirds of all
shares entitled to vote on the matter, as required by our charter. Except as
otherwise described above, any change in the ownership limit would require an
amendment to the charter.
Our outstanding preferred stock is
subject to transfer restrictions similar to those described under this caption
“Restrictions on Ownership and Transfers of Stock,” and we anticipate that any
class or series of preferred stock that we issue in the future will also be
subject to similar restrictions. The exact restrictions on transfer applicable
to any class or series of preferred stock we issue will be described in the
applicable prospectus supplement or other offering materials.
Effect
of Violation of Transfer Provisions
According to our charter, if any
purported transfer of common stock or any other event would result in any person
violating the ownership limit or such other limit as provided in the charter, or
as otherwise permitted by our board of directors, or result in our being
“closely held” under Section 856(h) of the Code, or otherwise cause us to
fail to qualify as a REIT, then the number of shares that would otherwise cause
such violation or result will be transferred automatically to a trust, the
beneficiary of which will be a qualified charitable organization selected by us.
Such automatic transfer shall be deemed to be effective as of the close of
business on the business day prior to the date of such violative
transfer.
Within 20 days of receiving notice
from us of the transfer of shares to the trust, the trustee of the trust (who
shall be designated by us and be unaffiliated with us and any prohibited
transferee or prohibited owner) will be required to sell such shares to a person
or entity who could own the shares without violating the ownership limit, or any
other limit as provided in our
charter
or as otherwise permitted by our board of directors, and distribute to the
prohibited transferee or prohibited owner, as applicable, an amount equal to the
lesser of the price paid by the prohibited transferee or prohibited owner for
such shares or the net sales proceeds received by the trust for such shares. In
the case of any event other than a transfer, or in the case of a transfer for no
consideration (such as a gift), the trustee will be required to sell such shares
to a qualified person or entity and distribute to the prohibited owner an amount
equal to the lesser of the market price (described in our charter) of such
shares as of the date of the event resulting in the transfer or the net sales
proceeds received by the trust for such shares. In either case, any proceeds in
excess of the amount distributable to the prohibited transferee or prohibited
owner, as applicable, will be distributed to the beneficiary. Prior to a sale of
any such shares by the trust, the trustee will be entitled to receive, in trust
for the beneficiary, all dividends and other distributions paid by us with
respect to such excess shares, and also will be entitled to exercise all voting
rights with respect to such shares.
Subject to Maryland law, effective as
of the date that such shares have been transferred to the trust, the trustee
shall have the authority (at the trustee's sole discretion) (1) to rescind
as void any vote cast by a prohibited transferee or prohibited owner, as
applicable, prior to the discovery by us that such shares have been transferred
to the trust and (2) to recast such vote in accordance with the desires of
the trustee acting for the benefit of the beneficiary. However, if we have
already taken irreversible corporate action, then the trustee shall not have the
authority to rescind and recast that vote. Any dividend or other distribution
paid to the prohibited transferee or prohibited owner (prior to the discovery by
us that such shares had been automatically transferred to a trust as described
above) will be required to be repaid to the trustee upon demand for distribution
to the beneficiary. In the event that the transfer to the trust as described
above is not automatically effective (for any reason) to prevent violation of
the ownership limit or any other limit as provided in our charter or as
otherwise permitted by our board of directors, then our charter provides that
the transfer of the excess shares will be void.
In addition, shares of our stock held
in the trust shall be deemed to have been offered for sale to us, or our
designee, at a price per share equal to the lesser of (1) the price per
share in the transaction that resulted in such transfer to the trust (or, in the
case of a devise or gift, the market price at the time of such devise or gift)
and (2) the market price on the date we or our designee, accepts such
offer. We shall have the right to accept such offer until the trustee has sold
the shares of stock held in the trust. Upon such a sale to us, the interest of
the beneficiary in the shares sold shall terminate and the trustee shall
distribute the net proceeds of the sale to the prohibited transferee or
prohibited owner.
If any purported transfer of shares of
common stock would cause us to be beneficially owned by fewer than 100 persons,
such transfer will be null and void in its entirety and the intended transferee
will acquire no rights to the stock.
All certificates representing shares of
our common stock will bear a legend referring to the restrictions described
above. The foregoing ownership limitations could delay, defer or prevent a
transaction or a change in control of Realty Income that might involve a premium
price for the common stock or otherwise be in the best interest of
stockholders.
As set forth in the Treasury
Regulations, every owner of a specified percentage (or more) of the outstanding
shares of our stock (including both common stock and preferred stock) must
file a completed questionnaire with us containing information regarding
their ownership of such shares. Under current Treasury Regulations, the
percentage will be set between 0.5% and 5.0%, depending upon the number of
record holders of our shares of stock. Under our charter, each stockholder shall
upon demand be required to disclose to us in writing such information as we may
request in order to determine the effect, if any, of such stockholder’s actual
and constructive ownership of stock on our status as a REIT and to ensure
compliance with the ownership limit, or any other limit as provided in our
charter or as otherwise permitted by our board of directors.
The
following is a general summary of certain United States federal income tax
considerations related to our REIT election and the ownership and disposition of
the securities offered by this prospectus which are anticipated to be material
to purchasers of such securities. The United States federal income
tax considerations relevant to your ownership of the securities offered by this
prospectus may be supplemented in the applicable prospectus supplement or other
offering materials that relates to those securities. Your tax
treatment will vary depending upon the terms of the specific securities that you
acquire, as well as your particular situation. This summary is for
general information only and is not tax advice.
This
summary assumes that the securities offered by this prospectus are held as
"capital assets" (generally, property held for investment within the meaning of
Section 1221 of the Code). Your tax treatment will vary depending upon your
particular situation, and this discussion does not address all the tax
consequences that may be relevant to you in light of your particular
circumstances. In addition, this discussion does not address the tax
consequences relevant to persons who receive special treatment under the United
States federal income tax law, except to the extent discussed specifically
herein. Holders receiving special treatment include, without
limitation:
● financial
institutions, banks and thrifts;
● insurance
companies;
● tax-exempt
organizations;
● "S"
corporations;
● traders in
securities that elect to mark to market;
● partnerships,
pass-through entities and persons holding our securities through a partnership
or other pass-through entity;
● holders
subject to the alternative minimum tax;
● regulated
investment companies and real estate investment trusts;
● broker-dealers
or dealers in securities or currencies;
● United
States expatriates;
● persons
holding our securities as a hedge against currency risks, as part of a
"conversion" or "integrated transaction," or as a position in a
straddle;
● non-U.S.
holders (as defined below); and
● U.S. holders
(as defined below) whose functional currency is not the United States
dollar.
When
we use the term "U.S. holder," we mean a beneficial holder of our securities
who, for United States federal income tax purposes:
● is a citizen
or resident of the United States;
● is a
corporation, partnership, limited liability company or other entity treated as a
corporation or partnership for United States federal income tax purposes created
or organized in or under the laws of the United States or of any state thereof
or in the District of Columbia unless, in the case of a partnership or limited
liability company, Treasury Regulations provide otherwise;
● is an estate
the income of which is subject to United States federal income taxation
regardless of its source; or
● 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 in place to be treated as a United States person.
If
you hold our securities and are not a U.S. holder, you are a "non-U.S.
holder."
The
information in this summary is based on:
● the
Code;
● current,
temporary and proposed Treasury Regulations promulgated under the
Code;
● the
legislative history of the Code;
● current
administrative interpretations and practices of the Internal Revenue Service
("IRS"); and
● court
decisions;
in
each case, as of the date of this prospectus. In addition, the administrative
interpretations and practices of the IRS include its practices and policies as
expressed in private letter rulings that are not binding on the IRS except with
respect to the particular taxpayers who requested and received those rulings.
Future legislation, Treasury Regulations, administrative interpretations and
practices and/or court decisions may adversely affect the tax considerations
described in this prospectus. Any change could apply retroactively to
transactions preceding the date of the change. We have not requested, and do not
plan to request, any rulings from the IRS concerning our tax treatment, and the
statements in this prospectus are not binding on the IRS or any court. Thus, we
can provide no assurance that the tax considerations contained in this summary
will not be challenged by the IRS or will be sustained by a court if challenged
by the IRS. State, local and foreign income tax laws may differ substantially
from the corresponding United States federal income tax laws, and this
discussion does not purport to describe any aspect of the tax laws of any state,
local or foreign jurisdiction.
You are urged to consult your tax
advisors regarding the tax consequences to you of:
● the acquisition, ownership and sale
or other disposition of the securities offered under this prospectus, including
the federal, state, local, foreign and other tax
consequences;
● our election to be taxed as a REIT
for United States federal income tax purposes; and
● potential changes in the applicable
tax laws.
Taxation
of Realty Income Corporation
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, 1994. We believe we have been organized and have operated in a
manner which allows us to qualify for taxation as a REIT under the Code
commencing with our taxable year ended December 31, 1994. We currently
intend to continue to be organized and operate in this manner. However, our
qualification and taxation as a REIT depend upon our ability to meet the various
qualification tests imposed under the Code, including through actual annual
operating results, asset composition, distribution levels and diversity of stock
ownership. Accordingly, no assurance can be given that we have been organized
and have operated, or will continue to be organized and operate, in a manner so
as to qualify or remain qualified as a REIT. See the section below entitled
"—Failure to Qualify."
The
sections of the Code and the corresponding Treasury Regulations that relate to
qualification and operation as a REIT are highly technical and complex. The
following sets forth the material aspects of the sections of the Code that
govern the United States federal income tax treatment of a REIT and the holders
of certain of its securities. This summary is qualified in its entirety by the
applicable Code provisions, relevant rules and regulations promulgated under the
Code, and administrative and judicial interpretations of the Code and these
rules and regulations.
Latham &
Watkins LLP has acted as our tax counsel in connection with our filing of
this prospectus and our election to be taxed as a REIT. Latham &
Watkins LLP has rendered an opinion to us to the effect that, commencing
with our taxable
year
ended December 31, 1994, we have been organized and have operated in
conformity with the requirements for qualification and taxation as a REIT under
the Code, and our proposed method of operation will enable us to continue to
meet the requirements for qualification and taxation as a REIT under the Code.
It must be emphasized that this opinion was based on various assumptions and
representations as to factual matters, including representations made by us in a
factual certificate provided by one of our officers. In addition, this opinion
was based upon our factual representations set forth in this prospectus.
Moreover, our qualification and taxation as a REIT depend upon our ability to
meet the various qualification tests imposed under the Code discussed below,
including through actual annual operating results, asset composition,
distribution levels and diversity of stock ownership, the results of which have
not been and will not be reviewed or verified by Latham &
Watkins LLP. Accordingly, no assurance can be given that our actual results
of operation for any particular taxable year have satisfied or will satisfy
those requirements. Latham & Watkins LLP has no obligation to
update its opinion subsequent to its date. See "—Failure to
Qualify".
Provided
we qualify for taxation as a REIT, we generally will not be required to pay
federal corporate income taxes on our net income that is currently distributed
to our stockholders. This treatment substantially eliminates the "double
taxation" that typically results from investment in a C corporation. A
C corporation is a corporation that generally is required to pay tax at the
corporate level. Double taxation generally means taxation that occurs once at
the corporate level when income is earned and once again at the stockholder
level when the income is distributed. We will be required to pay United States
federal income tax, however, as follows:
● first, we
will be required to pay tax at regular corporate tax rates on any undistributed
REIT taxable income, including undistributed net capital gains.
● second, we
may be required to pay the "alternative minimum tax" on our items of tax
preference under some circumstances.
● third, if we
have (a) net income from the sale or other disposition of "foreclosure
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 required to pay tax at the highest corporate rate on this income.
Foreclosure property is generally defined as property we acquired through
foreclosure or after a default on a loan secured by the property or a lease of
the property and for which an election is made.
● fourth, we
will be required to pay a 100% tax on any net income from prohibited
transactions. Prohibited transactions are, in general, sales or other taxable
dispositions of property, other than foreclosure property, held as inventory or
primarily for sale to customers in the ordinary course of business.
● fifth, if we
fail to satisfy the 75% or the 95% gross income tests, as described below, but
have otherwise maintained our qualification as a REIT because certain other
requirements are met, we will be required to pay a tax equal to (a) the
greater of (i) the amount by which 75% of our gross income exceeds the
amount qualifying under the 75% gross income test described below and
(ii) the amount by which 95% of our gross income exceeds the amount
qualifying under the 95% gross income test, multiplied by (b) a fraction
intended to reflect our profitability.
● sixth, if we
fail to satisfy any of the REIT asset tests (other than a de minimis
failure of the 5% or 10% asset tests), as described below, due to reasonable
cause and not due to willful neglect, and we nonetheless maintain our REIT
qualification because of specified cure provisions, we will be required to pay a
tax equal to the greater of $50,000 or the highest corporate tax rate multiplied
by the net income generated by the nonqualifying assets that caused us to fail
such test.
● seventh, if
we fail to satisfy any provision of the Code that would result in our failure to
qualify as a REIT (other than a violation of the REIT gross income tests or
certain violations of the asset tests described below) and the violation is due
to reasonable cause and not due to willful neglect, we may retain our REIT
qualification but will be required to pay a penalty of $50,000 for each such
failure.
● eighth, we
will be required to pay a 4% excise tax to the extent we fail to distribute
during each calendar year at least the sum of (a) 85% of our REIT ordinary
income for the year, (b) 95% of our REIT capital gain net income for the
year, and (c) any undistributed taxable income from prior
periods.
● ninth, if we
acquire any asset from a corporation which is or has been a C corporation in a
transaction in which the basis of the asset in our hands is determined by
reference to the basis of the asset in the hands of the C
corporation,
and
we subsequently recognize gain on the disposition of the asset during the
ten-year period beginning on the date on which we acquired the asset, then we
will be required to pay tax at the highest regular corporate tax rate on this
gain to the extent of the excess of (a) the fair market value of the asset
over (b) our adjusted basis in the asset, in each case determined as of the
date on which we acquired the asset. The results described in this paragraph
with respect to the recognition of such gain assume that we or the C corporation
from whom we acquire the assets will make or refrain from making the appropriate
elections under the applicable Treasury Regulations then in effect.
● tenth, we
will be subject to a 100% tax on any "redetermined rents," "redetermined
deductions" or "excess interest." In general, redetermined rents are rents from
real property that are overstated as a result of services furnished by a
"taxable REIT subsidiary" of ours to any of our tenants. Redetermined deductions
and excess interest generally represent amounts that are deducted by a taxable
REIT subsidiary of ours for amounts paid to us that are in excess of the amounts
that would have been deducted based on arm's length negotiations. See "—Penalty
Tax" below.
Requirements
for Qualification as a Real Estate Investment Trust.
The
Code defines a REIT as a corporation, trust or association:
(1)
that is managed by one or more trustees or directors;
(2)
that issues transferable shares or transferable certificates to evidence its
beneficial ownership;
(3)
that would be taxable as a domestic corporation but for special Code provisions
applicable to REITs;
(4)
that is not a financial institution or an insurance company within the meaning
of the Code;
(5)
that is beneficially owned by 100 or more persons;
(6)
not more than 50% in value of the outstanding stock of which is owned, actually
or constructively, by five or fewer individuals, including specified entities,
during the last half of each taxable year; and
(7)
that meets other tests, described below, regarding the nature of its income and
assets and the amount of its distributions.
The
Code provides that conditions (1) to (4), inclusive, must be met during the
entire taxable year and that condition (5) must be met during at least
335 days of a taxable year of twelve months, or during a proportionate part
of a taxable year of less than twelve months. Conditions (5) and
(6) do not apply until after the first taxable year for which an election
is made to be taxed as a REIT. For purposes of condition (6), the term
"individual" generally includes a supplemental unemployment compensation benefit
plan, a private foundation or a portion of a trust permanently set aside or used
exclusively for charitable purposes, but does not include a qualified pension
plan or profit sharing trust.
We
believe that we have been organized, have operated and have issued sufficient
shares of capital stock with sufficient diversity of ownership to allow us to
satisfy conditions (1) through (7), inclusive, during the relevant time
periods. In addition, our charter provides for restrictions regarding the
ownership and transfer of our shares which are intended to assist us in
continuing to satisfy the share ownership requirements described in
conditions (5) and (6) above. These stock ownership and transfer
restrictions are described in "Restrictions on Ownership and Transfers of Stock"
in this prospectus. These restrictions, however, may not ensure that we will, in
all cases, be able to satisfy the share ownership requirements described in
conditions (5) and (6) above. If we fail to satisfy these share
ownership requirements, except as provided in the next sentence, our status as a
REIT will terminate. If, however, we comply with the rules contained in the
applicable Treasury Regulations that require us to ascertain the actual
ownership of our shares, and we do not know, and would not have known through
the exercise of reasonable diligence, that we failed to meet the requirement
described in condition (6) above, we will be treated as having met this
requirement. See "—Failure to Qualify."
In
addition, we may not maintain our status as a REIT unless our taxable year is
the calendar year. We have and will continue to have a calendar taxable
year.
Ownership of Partnership and Limited Liability Company
Interests. We may from time to time own and
operate one or more properties through partnerships and limited liability
companies. Treasury Regulations generally provide that, in the case of a REIT
which is a partner in a partnership or a member in a limited liability company
that is treated as a partnership for United States federal income tax purposes,
the REIT will be deemed to own its proportionate share of the assets of the
partnership or limited liability company, as the case may be, based on its
interest in partnership capital, subject to special rules relating to the 10%
REIT asset test described below. Also, pursuant to Treasury Regulations, the
REIT will be deemed to be entitled to its proportionate share of the income of
that entity. The assets and gross income of the partnership or limited liability
company retain the same character in the hands of the REIT, including for
purposes of satisfying the gross income tests and the asset tests. In addition,
for these purposes, the assets and items of income of any partnership or limited
liability company treated as a partnership or disregarded entity for United
States federal income tax purposes in which we directly or indirectly own an
interest include such entity's share of assets and items of income of any
partnership or limited liability company in which it owns an interest. We have
included a brief summary of the rules governing the United States federal income
taxation of partnerships and limited liability companies below in "—Tax Aspects
of the Partnerships."
We
have direct or indirect control of certain partnerships and limited liability
companies and intend to continue to operate them in a manner consistent with the
requirements for our qualification as a REIT. From time to time we may be a
limited partner or non-managing member in certain partnerships and limited
liability companies. If any such partnership or limited liability company were
to take actions that could jeopardize our status as a REIT or require us to pay
tax, we could be forced to dispose of our interest in such entity. In addition,
it is possible that a partnership or limited liability company could take an
action which could cause us to fail a REIT income or asset test, and that we
would not become aware of such action in time to dispose of our interest in the
applicable entity or take other corrective action on a timely basis. In such a
case, unless we were entitled to relief, as described below, we could fail to
qualify as a REIT.
Ownership of Interests in Qualified REIT
Subsidiaries. We currently own and may from time
to time own and operate certain properties through wholly-owned subsidiaries
that we intend to be treated as "qualified REIT subsidiaries" under the Code. A
corporation will qualify as our qualified REIT subsidiary if we own 100% of the
corporation's outstanding stock and we do not elect with the corporation to
treat it as a "taxable REIT subsidiary," as described below. A qualified REIT
subsidiary is not treated as a separate corporation, and all assets, liabilities
and items of income, gain, loss, deduction and credit of a qualified REIT
subsidiary are treated as assets, liabilities and items of income, gain, loss,
deduction and credit (as the case may be) of the parent REIT for all purposes
under the Code (including all REIT qualification tests). Thus, in applying the
United States federal income tax requirements described in this prospectus, the
subsidiaries in which we own a 100% interest (other than any taxable REIT
subsidiaries) are ignored, and all assets, liabilities and items of income,
gain, loss, deduction and credit of such subsidiaries are treated as our assets,
liabilities, and items of income, gain, loss, deduction and credit. A qualified
REIT subsidiary is not required to pay United States federal income tax, and our
ownership of the stock of such a qualified REIT subsidiary does not violate the
restrictions on ownership of securities, as described below under "—Asset
Tests."
Ownership of Interests in Taxable REIT
Subsidiaries. A taxable REIT subsidiary is a
corporation other than a REIT in which a REIT directly or indirectly holds stock
and that has made a joint election with the REIT to be treated as a taxable REIT
subsidiary. A taxable REIT subsidiary also includes any corporation other than a
REIT with respect to which a taxable REIT subsidiary owns, directly or
indirectly, securities possessing more than 35% of the total voting power or
value of the outstanding securities of such corporation. Other than some
activities relating to lodging and health care facilities, a taxable REIT
subsidiary generally may engage in any business, including the provision of
customary or non-customary services to tenants of its parent REIT. A taxable
REIT subsidiary is subject to income tax as a regular C corporation. In
addition, a taxable REIT subsidiary of ours may be prevented from deducting
interest on debt that we directly or indirectly fund if certain tests regarding
the taxable REIT subsidiary's debt-to-equity ratio and interest expense are
satisfied. We currently own 100% of the stock of a taxable REIT subsidiary and
may from time to time acquire interests in additional taxable REIT subsidiaries.
Our ownership of securities of taxable REIT subsidiaries will not be subject to
the 10% or 5% asset tests described below. See "—Asset Tests."
Income Tests. We must satisfy two gross income
requirements annually to maintain our qualification as a REIT:
● first, in
each taxable year, we must derive directly or indirectly at least 75% of our
gross income, excluding gross income from prohibited transactions, certain
hedging transactions entered into after July 30, 2008, and certain foreign
currency gains recognized after July 30, 2008, from (a) investments
relating to real property or mortgages on real property, including "rents from
real property" and, in certain circumstances, interest, or (b) certain
types of temporary investments; and
● second, in
each taxable year, we must derive at least 95% of our gross income, excluding
gross income from prohibited transactions, certain designated hedges of
indebtedness, and certain foreign currency gains recognized after July 30,
2008, from (a) the real property investments described above, and
(b) dividends, interest and gain from the sale or disposition of stock or
securities, or from any combination of the foregoing.
For
these purposes, the term "interest" generally does not include any amount
received or accrued, directly or indirectly, if the determination of all or some
of the amount depends in any way on the income or profits of any person. An
amount received or accrued generally will not be excluded from the term
"interest," however, solely by reason of being based on a fixed percentage or
percentages of receipts or sales.
Rents
we receive from a tenant will qualify as "rents from real property" for the
purpose of satisfying the gross income requirements for a REIT described above
only if all of the following conditions are met:
● 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;
● we, or an
actual or constructive owner of 10% or more of our stock, must not actually or
constructively own 10% or more of the interests in the assets or net profits of
the tenant, or, if the tenant is a corporation, 10% or more of the total
combined voting power of all classes of stock entitled to vote or 10% or more of
the total value of all classes of stock of the tenant. Rents we receive from a
tenant that is a taxable REIT subsidiary of ours, however, will not be excluded
from the definition of "rents from real property" if at least 90% of the space
at the property to which the rents relate is leased to third parties, and the
rents paid by the taxable REIT subsidiary are substantially comparable to rents
paid by our other tenants for comparable space. Whether rents paid by a taxable
REIT subsidiary are substantially comparable to rents paid by other tenants is
determined at the time the lease with the taxable REIT subsidiary is entered
into, extended, and modified, if such modification increases the rents due under
such lease. Notwithstanding the foregoing, however, if a lease with a
"controlled taxable REIT subsidiary" is modified and such modification results
in an increase in the rents payable by such taxable REIT subsidiary, any such
increase will not qualify as "rents from real property." For purposes of this
rule, a "controlled taxable REIT subsidiary" is a taxable REIT subsidiary in
which we own stock possessing more than 50% of the voting power or more than 50%
of the total value of the outstanding stock of such taxable REIT
subsidiary;
● rent
attributable to personal property leased in connection with a lease of real
property must not be greater than 15% of the total rent we receive under the
lease. If this condition is not met, then the portion of the rent attributable
to personal property will not qualify as "rents from real property;"
and
● we generally
must not operate or manage our property or furnish or render services to the
tenants of the property, subject to a 1% de minimis exception and
except as provided below. 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. Examples of such services include the provision of
light, heat, or other utilities, trash removal and general maintenance of common
areas. In addition, we may employ an independent contractor from whom we derive
no revenue to provide customary services, or a taxable REIT subsidiary, which
may be wholly or partially owned by us, to provide both customary and
non-customary services, to our tenants without causing the rent we receive from
those tenants to fail to qualify as "rents from real property." Any amounts we
receive from a taxable REIT subsidiary with respect to its provision of
non-customary services will, however, be nonqualifying income under the 75%
gross income test and, except to the extent received through the payment of
dividends, the 95% gross income test.
We
generally do not intend to receive rent which fails to satisfy any of the above
conditions. Notwithstanding the foregoing, we may have taken and may in the
future take actions which fail to satisfy one or more of the above conditions to
the extent that we determine, based on the advice of our tax counsel, that those
actions will not jeopardize our tax status as a REIT.
We
believe that the aggregate amount of our nonqualifying income, from all sources,
in any taxable year will not exceed the limits on nonqualifying income under the
gross income tests. We will monitor the amount of the dividend and other income
from our taxable REIT subsidiary and will take actions intended to keep this
income, and any other nonqualifying income, within the limitations of the REIT
income tests. While we expect these actions will prevent a violation of the REIT
income tests, we cannot guarantee that such actions will in all cases prevent
such a violation. 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 the year if we are entitled to relief under certain
provisions of the Code. We generally may avail ourselves of the relief
provisions if:
● following
our identification of the failure to meet the 75% or 95% gross income test for
any taxable year, we file a schedule with the IRS setting forth each item
of our gross income for purposes of the 75% or 95% gross income test for such
taxable year in accordance with Treasury Regulations to be issued;
and
● the failure
to meet these tests was due to reasonable cause and not due to willful
neglect.
It
is not possible, however, to state whether in all circumstances we would be
entitled to the benefit of these relief provisions. For example, if we fail to
satisfy the gross income tests because nonqualifying income that we
intentionally accrue or receive exceeds the limits on nonqualifying income, the
IRS could conclude that our failure to satisfy the tests was not due to
reasonable cause. If these relief provisions do not apply to a particular set of
circumstances, we will not qualify as a REIT. As discussed above in "—Taxation
of Realty Income Corporation—General," even if these relief provisions apply,
and we retain our status as a REIT, a tax would be imposed with respect to our
nonqualifying income. We may not always be able to comply with the gross income
tests for REIT qualification despite our periodic monitoring of our
income.
Prohibited Transaction Income. Any gain that we
realize on the sale of property held as inventory or otherwise 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. Our
gain would include any gain realized by our qualified REIT subsidiaries and our
share of any gain realized by any of the partnerships or limited liability
companies in which we own an interest. This prohibited transaction income may
also adversely affect our ability to satisfy the income tests for qualification
as a REIT. Under existing law, whether property is held as inventory or
primarily for sale to customers in the ordinary course of a trade or business is
a question of fact that depends on all the facts and circumstances surrounding
the particular transaction. We intend to hold our properties for investment with
a view to long-term appreciation and to engage in the business of acquiring,
developing and owning our properties. We have made, and may in the future make,
occasional sales of the properties as are consistent with our investment
objectives. We do not intend to enter into any sales that are prohibited
transactions. The IRS may successfully contend, however, that one or more of
these sales is a prohibited transaction subject to the 100% penalty
tax.
Penalty Tax. Any redetermined rents, redetermined
deductions or excess interest we generate will be subject to a 100% penalty tax.
In general, redetermined rents are rents from real property that are overstated
as a result of any services furnished by one of our taxable REIT subsidiaries to
any of our tenants, and redetermined deductions and excess interest represent
amounts that are deducted by a taxable REIT subsidiary for amounts paid to us
that are in excess of the amounts that would have been deducted based on arm's
length negotiations. Rents we receive will not constitute redetermined rents if
they qualify for certain safe harbor provisions contained in the
Code.
We
do not believe that we have been, and do not expect to be, subject to this
penalty tax, although our rental or service arrangements may not satisfy the
safe-harbor provisions described above. These determinations are inherently
factual, and the IRS has broad discretion to assert that amounts paid between
related parties should be reallocated to clearly reflect their respective
incomes. If the IRS successfully made such an assertion, we would be required to
pay a 100% penalty tax on the excess of an arm's length fee for tenant services
over the amount actually paid.
Asset Tests. At the close of each quarter of our
taxable year, we also must satisfy four tests relating to the nature and
diversification of our assets:
● First, at
least 75% of the value of our total assets, including assets held by our
qualified REIT subsidiaries and our allocable share of the assets held by the
partnerships and limited liability companies treated as partnerships for United
States federal income tax purposes, in which we own an interest, must be
represented by real estate assets, cash, cash items and government securities.
For purposes of this test, the term "real estate assets" generally means real
property (including interests in real property and interests in mortgages on
real property) and shares (or transferable certificates of beneficial interest)
in other REITs, as well as any stock or debt instrument attributable to the
investment of the proceeds of a stock offering or a public offering of debt with
a term of at least five years, but only for the one-year period beginning on the
date the REIT receives such proceeds.
● Second, not
more than 25% of the value of our total assets may be represented by securities
other than those securities includable in the 75% asset test.
● Third, of
the investments included in the 25% asset class and except for investments in
other REITs, our qualified REIT subsidiaries and taxable REIT subsidiaries, the
value of any one issuer's securities may not exceed 5% of the value of our total
assets, and we may not own more than 10% of the total vote or value of the
outstanding securities of any one issuer except, in the case of the 10% value
test, securities satisfying the "straight debt" safe-harbor. Certain types of
securities we may own are disregarded as securities solely for purposes of the
10% value test, including, but not limited to, any loan to an individual or an
estate, any obligation to pay rents from real property and any security issued
by a REIT. In addition, commencing with our taxable year beginning
January 1, 2005, solely for the purposes of the 10% value test, the
determination of our interest in the assets of a partnership or limited
liability company in which we own an interest will be based on our proportionate
interest in any securities issued by the partnership or limited liability
company, excluding for this purpose certain securities described in the Code.
For years prior to 2001, the 10% limit applied only with respect to voting
securities of any issuer and not to the value of the securities of any
issuer.
● Fourth, not
more than 25% (20% for taxable years beginning before January 1, 2009) of
the value of our total assets may be represented by the securities of one or
more taxable REIT subsidiaries.
As
of the date of this prospectus, we own 100% of the outstanding stock of Crest.
Crest has elected, together with us, to be treated as a taxable REIT subsidiary.
So long as Crest qualifies as our taxable REIT subsidiary, we will not be
subject to the 5% asset test, the 10% voting securities limitation or the 10%
value limitation with respect to our ownership of its securities. We or Crest
may acquire securities in other taxable REIT subsidiaries in the future. We
believe that the aggregate value of our taxable REIT subsidiaries has not
exceeded and will not exceed 20% (or 25% for taxable years beginning on or after
January 1, 2009) of the aggregate value of our gross assets. With respect
to each issuer in which we currently own an interest that does not qualify as a
REIT, a qualified REIT subsidiary or a taxable REIT subsidiary, we believe that
our ownership of the securities of any such issuer has complied with the 5%
asset test, the 10% voting securities limitation, the 10% value limitation, and
the 75% asset test. No independent appraisals have been obtained to support
these conclusions. In addition, there can be no assurance that the IRS will not
disagree with our determinations of value.
The
asset tests described above must be satisfied at the close of each calendar
quarter of our taxable year in which we (directly or through our qualified REIT
subsidiaries, partnerships or limited liability companies) acquire securities in
the applicable issuer, and also at the close of each calendar quarter in which
we increase our ownership of securities of such issuer, including as a result of
increasing our interest in a partnership or limited liability company which owns
such securities, or acquiring other assets. For example, our indirect ownership
of securities of an issuer may increase as a result of our capital contributions
to, or the redemption of other partners' or members' interests in, a partnership
or limited liability company in which we have an ownership interest. 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. If we fail to satisfy
an asset test because we acquire securities or other property during a quarter
(including as a result of an increase in our interests in a partnership or
limited liability company), we may cure this failure by disposing of sufficient
nonqualifying assets within 30 days after the close of that quarter. We
believe that we have maintained and intend to maintain adequate records of the
value of our assets to ensure compliance with the asset tests. In addition, we
intend to take such actions within 30 days after the close of any quarter
as may be required to cure any noncompliance.
Certain
relief provisions may be available to us if we fail to satisfy the asset tests
described above after the 30-day cure period. Under these provisions, we will be
deemed to have met the 5% and 10% asset tests if the value of our nonqualifying
assets (i) does not exceed the lesser of (a) 1% of the total value of
our assets at the end of the applicable quarter and (b) $10,000,000 and
(ii) we dispose of the nonqualifying assets or otherwise satisfy such asset
tests within (a) six months after the last day of the quarter in which the
failure to satisfy the asset tests is discovered or (b) the time period
prescribed by Treasury Regulations to be issued. For violations of any of the
asset tests due to reasonable cause and not due to willful neglect and that are,
in the case of the 5% and 10% asset tests, in excess of the de minimis exception
described above, we may avoid disqualification as a REIT after the 30-day cure
period by taking steps including (i) the disposition of sufficient
nonqualifying assets, or the taking of other actions which allow us to meet the
asset tests within (a) six months after the last day of the quarter in
which the failure to satisfy the asset tests is discovered or (b) the time
period prescribed by Treasury Regulations to be issued, and (ii) disclosing
certain information to the IRS. In such case, we will be required to pay a tax
equal to the greater of (a) $50,000 or (b) the highest corporate tax
rate multiplied by the net income generated by the nonqualifying
assets.
Although
we believe that we have satisfied the asset tests described above and we plan to
take steps to ensure that we satisfy such tests for any quarter with respect to
which retesting is to occur, there can be no assurance that such steps will
always be successful or will not require a reduction in our overall interest in
an issuer (including in a taxable REIT
subsidiary).
If we fail to cure any noncompliance with the asset tests in a timely manner,
and the relief provisions described above are not available, we will cease to
qualify as a REIT.
Annual Distribution Requirements. To maintain our
qualification as a REIT, we are required to distribute dividends, other than
capital gain dividends, to our stockholders in an amount at least equal to the
sum of:
● 90% of our
"REIT taxable income"; and
● 90% of our
after tax net income, if any, from foreclosure property; minus
● the excess
of the sum of specified items of our non-cash income items over 5% of "REIT
taxable income" as described below.
For
these purposes, our "real estate investment trust taxable income" is computed
without regard to the dividends paid deduction and our net capital gain. In
addition, for purposes of this test, non-cash income means income attributable
to leveled stepped rents, original issue discount on purchase money debt,
cancellation of indebtedness, or a like-kind exchange that is later determined
to be taxable.
In
addition, if we dispose of any asset we acquired from a corporation which is or
has been a C corporation in a transaction in which our basis in the asset
is determined by reference to the basis of the asset in the hands of that
C corporation, within the ten-year period following our acquisition of such
asset, we would be required to distribute at least 90% of the after-tax gain, if
any, we recognized on the disposition of the asset, to the extent that gain does
not exceed the excess of (a) the fair market value of the asset over
(b) our adjusted basis in the asset, in each case, on the date we acquired
the asset.
We
generally must pay, or be treated as paying, the distributions described above
in the taxable year to which they relate. At our election, a distribution will
be treated as paid in a taxable year if it is declared before we timely file our
tax return for such year and is paid on or before the first regular dividend
payment following the declaration, provided such payment is made during the
12-month period following the close of such year. These distributions generally
are taxable to our stockholders, other than tax-exempt entities, in the year in
which paid. This is so even though these distributions relate to the prior year
for purposes of the 90% distribution requirement. The amount distributed must
not be preferential (i.e., every stockholder of the class of stock to which
a distribution is made must be treated the same as every other stockholder of
that class, and no class of stock may be treated other than according to its
dividend rights as a class). To the extent that we do not distribute all of our
net capital gain, or distribute at least 90%, but less than 100%, of our "real
estate investment trust taxable income," as adjusted, we will be required to pay
tax on the undistributed amount at regular corporate tax rates. We believe we
have made, and intend to continue to make, timely distributions sufficient to
satisfy these annual distribution requirements and to minimize our corporate tax
obligations.
We
anticipate that we will generally have sufficient cash or liquid assets to
enable us to satisfy the distribution requirements described above. However,
from time to time, we may not have sufficient cash or other liquid assets to
meet these distribution requirements because of timing differences between the
actual receipt of income and actual payment of deductible expenses, and the
inclusion of income and deduction of expenses in determining our taxable income.
If these timing differences occur, we may be required to borrow funds to pay
cash dividends or to pay dividends in the form of taxable stock dividends in
order to meet the distribution requirements.
Under
certain circumstances, we may be able to rectify an inadvertent failure to meet
the 90% distribution requirement for a year by paying "deficiency dividends" to
our stockholders in a later year, which may be included in our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid being taxed
on amounts distributed as deficiency dividends, subject to the 4% excise tax
described below. However, we will be required to pay interest to the IRS based
upon the amount of any deduction claimed for deficiency dividends.
In
addition, we will be required to pay a 4% excise tax to the extent we fail to
distribute during each calendar year at least the sum of 85% of our real estate
investment trust ordinary income for such year, 95% of our real estate
investment trust net capital gain for such year and any undistributed ordinary
income from prior periods. Any real estate investment trust taxable income and
net capital gain income on which this excise tax is imposed for any year is
treated as an amount distributed during that year for purposes of calculating
such tax.
For
purposes of the distribution requirements and excise tax described above,
dividends declared during the last three months of the calendar year payable to
stockholders of record on a specified date during such period, and paid during
January of the following year, will be treated as paid by us and received by our
stockholders on December 31 of the year in which they are
declared.
Like-Kind Exchanges. We may dispose of properties
in transactions intended to qualify as like-kind exchanges under the Code.
Like-kind exchanges are intended to result in the deferral of gain for United
States federal income tax purposes. The failure of any such transaction to
qualify as a like-kind exchange could subject us to United States federal income
tax, possibly including the 100% prohibited transaction tax, depending on the
facts and circumstances surrounding the particular transaction.
Failure
to Qualify
Specified
cure provisions are available to us in the event that we discover a violation of
a provision of the Code that would result in our failure to qualify as a REIT.
Except with respect to violations of the REIT income tests and asset tests (for
which the cure provisions are described above), and provided the violation is
due to reasonable cause and not due to willful neglect, these cure provisions
generally impose a $50,000 penalty for each violation in lieu of a loss of REIT
status.
If
we fail to qualify for taxation as a REIT in any taxable year, and the relief
provisions do not apply, we will be required to pay tax, including any
applicable alternative minimum tax, on our taxable income at regular corporate
tax rates. Distributions to our stockholders in any year in which we fail to
qualify as a REIT will not be deductible by us, and we will not be required to
distribute any amounts to our stockholders. As a result, we anticipate that our
failure to qualify as a REIT would reduce the cash available to us for
distribution to our stockholders. In addition, if we fail to qualify as a REIT,
all distributions to stockholders will be taxable as regular corporate dividends
to the extent of our current and accumulated earnings and profits. In this
event, corporate distributees may be eligible for the dividends-received
deduction. In addition, individuals may be eligible for the preferential rates
on the qualified dividend income. Unless entitled to relief under specific
statutory provisions, we will also be disqualified from taxation as a REIT for
the four taxable years following the year in which we lost our qualification. It
is not possible to state whether in all circumstances we would be entitled to
this statutory relief.
Tax
Aspects of the Partnerships
General. From time to time, we may own, directly
or indirectly, interests in various partnerships and limited liability
companies. We expect these will be treated as partnerships (or disregarded
entities) for United States federal income tax purposes. In general, entities
that are classified as partnerships (or disregarded entities) for United States
federal income tax purposes are treated as "pass-through" entities which are not
required to pay United States federal income tax. Rather, partners or members of
such entities are allocated their shares of the items of income, gain, loss,
deduction and credit of the entity, and are potentially required to pay tax on
that income without regard to whether the partners or members receive a
distribution of cash from the entity. We include in our income our allocable
share of the foregoing items for purposes of computing our REIT taxable income,
based on the applicable partnership agreement. For purposes of applying the REIT
income and asset tests, we include our pro rata share of the income generated by
and the assets held by the partnerships and limited liability companies treated
as partnerships for United States federal income tax purposes in which we own an
interest, including their shares of the income and assets of any subsidiary
partnerships and limited liability companies treated as partnerships for United
States federal income tax purposes based on our capital interests. See
"—Taxation of Realty Income Corporation."
Our
ownership interests in such partnerships and limited liability companies involve
special tax considerations, including the possibility that the IRS might
challenge the status of these entities as partnerships (or disregarded
entities), as opposed to associations taxable as corporations, for United States
federal income tax purposes. If a partnership or limited liability company in
which we own an interest, or one or more of its subsidiary partnerships or
limited liability companies, were treated as an association, it would be taxable
as a corporation and would be required to pay an entity-level tax on its income.
In this situation, the character of our assets and items of gross income would
change, and could prevent us from satisfying the REIT asset tests and/or the
REIT income tests (see "—Taxation of Realty Income Corporation—Asset Tests" and
"—Taxation of Realty Income Corporation—Income Tests"). This, in turn, could
prevent us from qualifying as a REIT. See "—Failure to Qualify" for a discussion
of the effect of our failure to meet these tests for a taxable year. In
addition, a change in the tax status of one or more of the partnerships or
limited liability companies in which we own an interest might be treated as a
taxable event. If so, we might incur a tax liability without any related cash
distributions.
We believe that these partnerships and limited liability companies will be
classified as partnerships or disregarded entities for United States federal
income tax purposes, and the remainder of the discussion under this section
"—Tax Aspects of the Partnerships" is based on such classification.
Allocations of Income, Gain, Loss and Deduction. A
partnership or limited liability company agreement will generally determine the
allocation of income and losses among partners or members. These allocations,
however, will be disregarded for tax purposes if they do not comply with the
provisions of Section 704(b) of the Code and the related Treasury
Regulations. Generally, Section 704(b) of the Code and the related Treasury
Regulations require that partnership and limited liability company allocations
respect the economic arrangement of their partners or members. If an allocation
is not recognized by the IRS for United States federal income tax purposes, the
item subject to the allocation will be reallocated according to the partners' or
members' interests in the partnership or limited liability company, as the case
may be. This reallocation will be determined by taking into account all of the
facts and circumstances relating to the economic arrangement of the partners or
members with respect to such item. The allocations of taxable income and loss in
each of the partnerships and limited liability companies in which we own an
interest are intended to comply with the requirements of Section 704(b) of
the Code and the Treasury Regulations promulgated thereunder.
Tax Allocations With Respect to the
Properties. Under Section 704(c) of the Code,
income, gain, loss and deduction attributable to appreciated or depreciated
property that is contributed to a partnership or limited liability company in
exchange for an interest in the partnership or limited liability company must be
allocated in a manner so that the contributing partner or member is charged with
the unrealized gain or benefits from the unrealized loss associated with the
property at the time of the contribution, as adjusted from time to time. The
amount of the unrealized gain or unrealized loss is generally equal to the
difference between the fair market value or book value and the adjusted tax
basis of the contributed property at the time of contribution. These allocations
are solely for United States federal income tax purposes and do not affect the
book capital accounts or other economic or legal arrangements among the partners
or members. Some of the partnerships and/or limited liability companies in which
we own an interest were formed by way of contributions of appreciated property.
The relevant partnership and/or limited liability company agreements require
that allocations be made in a manner consistent with Section 704(c) of the
Code.
United
States Federal Income Tax Considerations for Holders of Our Capital
Stock
The
following summary describes the principal United States federal income tax
consequences to you of purchasing, owning and disposing of our capital
stock. If you are considering purchasing our capital stock, you
should consult your tax advisors concerning the application of United States
federal income tax laws to your particular situation as well as any consequences
of the purchase, ownership and disposition of our capital stock arising under
the laws of any state, local or foreign taxing jurisdiction.
Taxation
of Taxable U.S. Holders Generally
Distributions Generally. Distributions out of our
current or accumulated earnings and profits, other than capital gain dividends
and certain amounts subject to corporate level taxation as discussed below, will
constitute dividends taxable to our taxable U.S. holders as ordinary income when
actually or constructively received. See "—Tax Rates" below. As long as we
qualify as a REIT, these distributions will not be eligible for the
dividends-received deduction in the case of U.S. holders that are corporations
or, except to the extent provided in "—Tax Rates" below, the preferential rates
on qualified dividend income applicable to individuals. For purposes of
determining whether distributions to holders of common stock are out of current
or accumulated earnings and profits, our earnings and profits will be allocated
first to our outstanding preferred stock and then to our outstanding common
stock.
To the extent that we make distributions on our capital stock in excess of our
current and accumulated earnings and profits, these distributions will be
treated first as a tax-free return of capital to a U.S. holder. This treatment
will reduce the adjusted tax basis which the U.S. holder has in its shares of
capital stock by the amount of the distribution, but not below zero.
Distributions in excess of our current and accumulated earnings and profits and
in excess of a U.S. holder's adjusted tax basis in its shares of capital stock
will be taxable as capital gain. Such gain will be taxable as long-term capital
gain if the shares of capital stock have been held for more than one year.
Dividends we declare in October, November or December of any year and which are
payable to a stockholder of record on a specified date in any of these months
will be treated as both paid by us and received by the stockholder on
December 31 of that year, provided we actually pay the dividend on or
before January 31 of the following year. U.S. holders may not include in
their own income tax returns any of our net operating losses or capital
losses.
Capital Gain Dividends. Dividends that we properly
designate as capital gain dividends will be taxable to our taxable U.S. holders
as a gain from the sale or disposition of a capital asset, to the extent that
such gain does not exceed our actual net capital gain for the taxable year. If
we properly designate any portion of a dividend as a "capital gain dividend"
then, except as otherwise required by law, we presently intend to allocate a
portion (the "capital gains amount") of the total capital gain dividends paid or
made available to holders of all classes of our capital stock for the year to
the holders of each class of our capital stock in proportion to the amount that
our total dividends, as determined for United States federal income tax
purposes, paid or made available to holders of such class of capital stock for
the year bears to the total dividends paid or made available for that year to
holders of all classes of our stock. In addition, except as otherwise
required by law, we will make a similar allocation with respect to any
undistributed long-term capital gains which are to be included in our
stockholders' long-term capital gains, based on the allocation of the capital
gains amount which would have resulted if those undistributed long-term capital
gains had been distributed as "capital gain dividends" by us to our
stockholders.
Retention of Net Capital Gains. We may elect to
retain, rather than distribute as a capital gain dividend, all or a portion of
our net capital gains. If we make this election, we would pay tax on our
retained net capital gains. In addition, to the extent we so elect, a U.S.
holder generally would:
● include its
pro rata share of our undistributed net capital gains in computing its long-term
capital gains in its return for its taxable year in which the last day of our
taxable year falls, subject to certain limitations as to the amount that is
includable;
● be deemed to
have paid the capital gains tax imposed on us on the designated amounts included
in the U.S. holder's long-term capital gains;
● receive a
credit or refund for the amount of tax deemed paid by it;
● increase the
adjusted basis of its capital stock by the difference between the amount of
includable gains and the tax deemed to have been paid by it; and
● in the case
of a U.S. holder 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.
Passive Activity Losses and Investment Interest
Limitations. Distributions we make and gain
arising from the sale or exchange by a U.S. holder of our capital stock will not
be treated as passive activity income. As a result, U.S. holders generally will
not be able to apply any "passive losses" against this income or gain. A U.S.
holder may elect to treat capital gain dividends, capital gains from the
disposition of capital stock and qualified dividend income as investment income
for purposes of computing the investment interest limitation, but in such case,
the stockholder will be taxed at ordinary income rates on such amount. Other
distributions made by us, to the extent they do not constitute a return of
capital, generally will be treated as investment income for purposes of
computing the investment interest limitation.
Dispositions of Our Capital Stock. If a U.S.
holder sells or disposes of shares of capital stock, except as set forth below
under “Redemption or Repurchase by Us,” it will recognize gain or loss for
United States federal income tax purposes in an amount equal to the difference
between the amount of cash and the fair market value of any property received on
the sale or other disposition and the holder's adjusted basis in the shares of
capital stock for tax purposes. This gain or loss, except as provided below,
will be long-term capital gain or loss if the holder has held such capital stock
for more than one year at the time of such sale or disposition. However, if a
U.S. holder recognizes loss upon the sale or other disposition of capital stock
that it has held for six months or less, after applying certain holding period
rules, the loss recognized will be treated as a long-term capital loss to the
extent the U.S. holder received distributions from us which were required to be
treated as long-term capital gains.
Redemption or Repurchase by
Us. A redemption or repurchase of shares of our capital stock
will be treated under Section 302 of the Code as a distribution taxable as a
dividend to the extent of our current and accumulated earnings and profits,
generally at ordinary income rates, unless the redemption or repurchase
satisfies one of the tests set forth in Section 302(b) of the Code and is
therefore treated as a sale or exchange of the redeemed or repurchased shares of
capital stock. The redemption or repurchase will be treated as a sale
or exchange if it:
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●
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is
“substantially disproportionate” with respect to the U.S.
holder;
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results
in a “complete termination” of the U.S. holder’s capital stock interest in
us; or
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●
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is
“not essentially equivalent to a dividend” with respect to the U.S.
holder,
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all
within the meaning of Section 302(b) of the Code.
In
determining whether any of these tests have been met, shares of capital stock,
including common stock and other equity interests in us, considered to be owned
by the U.S. holder by reason of certain constructive ownership rules set forth
in the Code, as well as shares of our capital stock actually owned by the U.S.
holder, must generally be taken into account. Because the
determination as to whether any of the alternative tests of Section 302(b) of
the Code will be satisfied with respect to the U.S. holder depends upon the
facts and circumstances at the time that the determination must be made, U.S.
holders are advised to consult their tax advisors to determine such tax
treatment.
If
a redemption or repurchase of shares of our capital stock is treated as a
distribution taxable as a dividend, the amount of the distribution will be
measured by the amount of cash and the fair market value of any property
received. See “—Distributions Generally.” A U.S. holder’s
adjusted basis in the redeemed or repurchased shares of the capital stock for
tax purposes will be transferred to its remaining shares of our capital stock,
if any. If a U.S. holder owns no other shares of our capital stock,
such basis may, under certain circumstances, be transferred to a related person
or it may be lost entirely.
If
a redemption or repurchase of shares of our capital stock is not treated as a
distribution taxable as a dividend, it will be treated as a taxable sale or
exchange in the manner described above under “—Dispositions of Our Capital
Stock.”
Tax
Rates
The
maximum tax rate for non-corporate taxpayers for (1) capital gains,
including certain "capital gain dividends," has generally been reduced to 15%
(although depending on the characteristics of the assets which produced these
gains and on designations which we may make, certain capital gain dividends may
be taxed at a 25% rate) and (2) "qualified dividend income" has generally
been reduced to 15%. In general, dividends payable by REITs are not eligible for
the reduced tax rate on corporate dividends, except to the extent that certain
holding requirements have been met and the REIT's dividends are attributable to
dividends received from taxable corporations (such as its taxable REIT
subsidiaries) or to income that was subject to tax at the corporate/REIT level
(for example, if it distributed taxable income that it retained and paid tax on
in the prior taxable year). In addition, dividends properly designated by the
REIT as "capital gain dividends" may be taxable to non-corporate U.S. holders at
a 15% or 25% rate. The currently applicable provisions of the United States
federal income tax laws relating to the 15% tax rate are currently scheduled to
"sunset" or revert to the provisions of prior law effective for taxable years
beginning after December 31, 2010, at which time the capital gains tax rate
will be increased to 20% and the rate applicable to dividends will be increased
to the tax rate then applicable to ordinary income.
Backup
Withholding
We
report to our U.S. holders and the IRS the amount of dividends paid during each
calendar year, and the amount of any tax withheld. Under the backup withholding
rules, a U.S. holder may be subject to backup withholding with respect to
dividends paid unless the U.S. holder is a corporation or comes within certain
other exempt categories and, when required, demonstrates this fact, or provides
a taxpayer identification number, certifies as to no loss of exemption from
backup withholding, and otherwise complies with applicable requirements of the
backup withholding rules. A U.S. holder that does not provide us with its
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Backup withholding is not an additional tax. Any amount paid as
backup withholding will be creditable against the U.S. holder's United States
federal income tax liability, provided the required information is timely
furnished to the IRS. In addition, we may be required to withhold a portion of
capital gain distributions to any stockholders who fail to certify their
non-foreign status.
Taxation
of Tax Exempt Stockholders
Dividend
income from us and gain arising upon a sale of shares of capital stock generally
will not be unrelated business taxable income to a tax-exempt stockholder,
except as described below. This income or gain will be unrelated business
taxable income, however, if a tax-exempt stockholder holds its shares of capital
stock as "debt-financed property" within the meaning of the Code or if the
shares are used in a trade or business of the tax-exempt stockholder. Generally,
debt-financed property is property the acquisition or holding of which was
financed through a borrowing by the tax-exempt stockholder.
For
tax-exempt stockholders which are social clubs, voluntary employee benefit
associations, supplemental unemployment benefit trusts or qualified group legal
services plans exempt from United States federal income taxation
under
Sections 501(c)(7),
(c)(9), (c)(17) or (c)(20) of the Code, respectively, income from an investment
in our shares of capital stock will constitute unrelated business taxable income
unless the organization is able to properly claim a deduction for amounts set
aside or placed in reserve for specific purposes so as to offset the income
generated by its investment in our shares of capital stock. These prospective
investors should consult their tax advisors concerning these "set aside" and
reserve requirements.
Notwithstanding
the above, however, a portion of the dividends paid by a "pension-held REIT" may
be treated as unrelated business taxable income as to certain trusts that hold
more than 10%, by value, of the interests in the REIT. A REIT will not be a
"pension-held REIT" if it is able to satisfy the "not closely held" requirement
without relying on the "look-through" exception with respect to certain trusts
or if such REIT is not "predominantly held" by "qualified trusts." As a result
of limitations on the transfer and ownership of shares of capital stock
contained in our charter, we do not expect to be classified as a "pension-held
REIT," and as a result, the tax treatment described in this paragraph should be
inapplicable to our stockholders. However, because our shares of capital stock
is publicly traded, we cannot guarantee that this will always be the
case.
Taxation
of Non-U.S. Holders
The
following discussion addresses the rules governing United States federal income
taxation of the ownership and disposition of our capital stock by non-U.S.
holders. These rules are complex, and no attempt is made herein to provide more
than a brief summary of such rules. Accordingly, the discussion does not address
all aspects of United States federal income taxation and does not address any
state, local or foreign tax consequences that may be relevant to a non-U.S.
holder in light of its particular circumstances. We urge non-U.S. holders to
consult their tax advisors to determine the impact of federal, state, local and
foreign income tax laws on the acquisition, ownership, and disposition of shares
of our capital stock, including any reporting requirements.
Distributions Generally. Distributions that are
neither attributable to gain from our sale or exchange of United States real
property interests nor designated by us as capital gain dividends will be
treated as dividends of ordinary income to the extent that they are made out of
our current or accumulated earnings and profits. Such distributions ordinarily
will be subject to withholding of United States federal income tax at a 30% rate
or such lower rate as may be specified by an applicable income tax treaty unless
the distributions are treated as effectively connected with the conduct by the
non-U.S. holder of a United States trade or business. Under certain treaties,
however, lower withholding rates generally applicable to dividends do not apply
to dividends from a REIT. Certain certification and disclosure requirements must
be satisfied to be exempt from withholding under the effectively connected
income exemption. Dividends that are treated as effectively connected with such
a trade or business will be subject to tax on a net basis at graduated rates, in
the same manner as dividends paid to U.S. holders are subject to tax, and are
generally not subject to withholding. Any such dividends received by a non-U.S.
holder that is a corporation may also be subject to an additional branch profits
tax at a 30% rate (applicable after deducting United States federal income taxes
paid on such effectively connected income) or such lower rate as may be
specified by an applicable income tax treaty.
For
withholding purposes, we expect to treat all distributions as made out of our
current or accumulated earnings and profits. As a result, except as otherwise
provided below, we expect to withhold United States federal income tax at the
rate of 30% on any distributions made to a non-U.S. holder unless:
● a lower
treaty rate applies and the non-U.S. holder files with us an IRS
Form W-8BEN evidencing eligibility for that reduced treaty rate;
or
● the non-U.S.
holder files an IRS Form W-8ECI with us claiming that the distribution is
income effectively connected with the non-U.S. holder's trade or
business.
However,
amounts withheld should generally be refundable if it is subsequently determined
that the distribution was, in fact, in excess of our current and accumulated
earnings and profits, provided that certain conditions are met.
Distributions
in excess of our current and accumulated earnings and profits will not be
taxable to a non-U.S. holder to the extent that such distributions do not exceed
the non-U.S. holder's adjusted basis in our capital stock, but rather will
reduce the adjusted basis of such capital stock. To the extent that these
distributions exceed a non-U.S. holder's adjusted basis in our capital stock,
they will give rise to gain from the sale or exchange of such stock. The tax
treatment of this gain is described below.
Capital Gain Dividends and Distributions Attributable to a Sale or Exchange of
United States Real Property
Interests. Distributions to a non-U.S. holder that
we properly designate as capital gain dividends, other than those arising from
the disposition of a United States real property interest, generally should not
be subject to United States federal income taxation, unless:
(1)
the investment in our capital stock is treated as effectively connected with the
non-U.S. holder's United States trade or business, in which case the non-U.S.
holder will be subject to the same treatment as U.S. holders with respect to
such gain, except that a non-U.S. holder that is a foreign corporation may also
be subject to the 30% branch profits tax, as discussed above; or
(2)
the non-U.S. holder is a nonresident alien individual who is present in the
United States for 183 days or more during the taxable year and certain
other conditions are met, in which case the nonresident alien individual will be
subject to a 30% tax on the individual's capital gains.
Pursuant
to the Foreign Investment in Real Property Act of 1980 (“FIRPTA”), distributions
to a non-U.S. holder that are attributable to gain from our sale or exchange of
“United States real property interests” (whether or not designated as capital
gain dividends) will cause the non-U.S. holder to be treated as recognizing such
gain as income effectively connected with a United States trade or business.
Non-U.S. holders would generally be taxed at the same rates applicable to U.S.
holders. We also will be required to withhold and to remit to the IRS 35% (or
15% to the extent provided in Treasury Regulations) of any distribution to a
non-U.S. holder that we designate as a capital gain dividend, or, if greater,
35% (or 15% to the extent provided in Treasury regulations) of a distribution to
the non-U.S. holder that could have been designated as a capital gain dividend.
The amount withheld is creditable against the non-U.S. holder's United States
federal income tax liability. However, any distribution with respect to any
class of stock which is regularly traded on an established securities market
located in the United States is not subject to FIRPTA, and therefore, not
subject to the 35% U.S. withholding tax described above, if the non-U.S. holder
did not own more than 5% of such class of stock at any time during the one-year
period ending on the date of the distribution. Instead, such distributions
generally will be treated in the same manner as ordinary dividend
distributions.
Retention of Net Capital Gains. Although the law
is not clear on the matter, it appears that amounts we designate as retained
capital gains in respect of the capital stock held by U.S. holders generally
should be treated with respect to non-U.S. holders in the same manner as actual
distributions by us of capital gain dividends. Under this approach, a non-U.S.
holder would be able to offset as a credit against its United States federal
income tax liability resulting from its proportionate share of the tax we pay on
such retained capital gains, and to receive from the IRS a refund to the extent
its proportionate share of such tax paid by us exceeds its actual United States
federal income tax liability.
Sale of Our Capital Stock. Gain recognized by a
non-U.S. holder upon the sale or exchange of shares of our capital stock
generally will not be subject to United States federal income taxation unless
such stock constitutes a "United States real property interest" within the
meaning of FIRPTA. Our capital stock will not constitute a "United States real
property interest" so long as we are a "domestically-controlled qualified
investment entity." A "domestically-controlled qualified investment entity"
includes a REIT in which at all times during a specified testing period less
than 50% in value of its stock is held directly or indirectly by non-U.S.
holders. We believe, but cannot guarantee, that we have been a
"domestically-controlled qualified investment entity." Even if we have been a
"domestically-controlled qualified investment entity," because our capital stock
is publicly traded, no assurance can be given that we will continue to be a
"domestically-controlled qualified investment entity."
Notwithstanding
the foregoing, gain from the sale or exchange of our capital stock not otherwise
subject to FIRPTA will be taxable to a non-U.S. holder if either (1) the
investment in our capital stock is treated as effectively connected with the
non-U.S. holder's United States trade or business or (2) the non-U.S.
holder is a nonresident alien individual who is present in the United States for
183 days or more during the taxable year and certain other conditions are
met. In addition, in general, even if we are a domestically controlled qualified
investment entity, upon disposition of shares of our capital stock (subject to
the 5% exception applicable to "regularly traded" stock described above), a
non-U.S. holder may be treated as having gain from the sale or exchange of
“United States real property interests” if the non-U.S. holder (or certain of
its affiliate or related parties) (1) disposes of our capital stock within
a 30-day period preceding the ex-dividend date of a distribution, any portion of
which, but for the disposition, would have been treated as gain from the sale or
exchange of a “United States real property interest” and (2) acquires, or
enters into a contract or option to acquire, or is deemed to acquire, other
shares of our capital stock during the 61-day period beginning with the first
day of the 30-day period described in clause (1). Non-U.S. holders should
contact their tax advisors regarding the tax consequences of any sale, exchange,
or other taxable disposition of shares of our capital stock.
Even
if we do not qualify as a "domestically-controlled qualified investment entity"
at the time a non-U.S. holder sells or exchanges shares of our capital stock,
gain arising from such a sale or exchange would not be subject to United States
taxation under FIRPTA as a sale of a "United States real property interest"
if:
(1)
our capital stock is "regularly traded," as defined by applicable Treasury
Regulations, on an established securities market such as the New York Stock
Exchange; and
(2)
such non-U.S. holder owned, actually and constructively, 5% or less of our
capital stock throughout the applicable testing period.
If gain on the sale or
exchange of shares of our capital stock were subject to taxation under FIRPTA,
the non-U.S. holder would be subject to regular United States federal income tax
with respect to such gain in the same manner as a taxable U.S. holder. In
addition, if the stock is not then traded on an established securities market,
the purchaser of shares of our capital stock would be required to withhold and
remit to the IRS 10% of the purchase price. If amounts withheld on a sale,
redemption, repurchase, or exchange of shares of our capital stock exceed the
holder's substantive tax liability resulting from such disposition, such excess
may be refunded or credited against such holder's United States federal income
tax liability, provided that the required information is provided to the IRS on
a timely basis. Amounts withheld on any such sale, exchange or other taxable
disposition of shares of our capital stock may not satisfy a non-U.S. holder's
entire tax liability under FIRPTA, and such holder remains liable for the timely
payment of any remaining tax liability.
Backup Withholding Tax and Information
Reporting. Generally, we must report annually to
the IRS the amount of dividends paid to a non-U.S. holder, such stockholder's
name and address, and the amount of tax withheld, if any. A similar report is
sent to the non-U.S. holder. Pursuant to tax treaties or other agreements, the
IRS may make its reports available to tax authorities in the non-U.S. holder's
country of residence.
Payments
of dividends or of proceeds from the disposition of shares of our capital stock
made to a non-U.S. holder may be subject to information reporting and backup
withholding unless such stockholder 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 holder is a United
States person. Backup withholding is not an additional tax. Rather, the United
States federal 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 timely furnished to the IRS.
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Taxation
of Holders of Our Debt Securities
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The
following summary describes the principal United States federal income tax
consequences to you of purchasing, owning and disposing of our debt securities.
This discussion assumes the debt securities will be issued without original
issue discount, sometimes referred to as “OID.” If one or more series of debt
securities are issued with OID, disclosure concerning the tax considerations
arising therefrom will be included with the applicable prospectus
supplement. If you are considering purchasing our debt securities,
you should consult your tax advisors concerning the application of United States
federal income tax laws to your particular situation as well as any consequences
of the purchase, ownership and disposition of our debt securities arising under
the laws of any state, local or foreign taxing jurisdiction.
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Taxable
U.S. Holders of Our Debt Securities
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Stated Interest.
U.S. holders generally must include interest on the debt securities in their
United States federal taxable income as ordinary income:
● when it
accrues, if the U.S. holder uses the accrual method of accounting for United
States federal income tax purposes; or
● when the
U.S. holder actually or constructively receives it, if the U.S. holder uses the
cash method of accounting for United States federal income tax
purposes.
If
we redeem or otherwise repurchase the debt securities, we may be obligated to
pay additional amounts in excess of stated principal and interest. Unless
otherwise provided in an applicable prospectus supplement, we intend to take the
position that the debt securities should not be treated as contingent payment
debt instruments because of this additional payment. Assuming such position is
respected, a U.S. holder would be required to include in income the amount of
any such
additional payment at the time such payment is received or accrued
in accordance with such U.S. holder's method of accounting for United States
federal income tax purposes. If the IRS successfully challenged this
position, and the debt securities were treated as contingent payment debt
instruments, U.S. holders could be required to accrue interest income at a rate
higher than the stated interest rate on the debt securities and to treat as
ordinary income, rather than capital gain, any gain recognized on a sale,
exchange or redemption of a debt security. U.S. holders are urged to
consult their tax advisors regarding the potential application to the debt
securities of the contingent payment debt instrument rules and the consequences
thereof.
Sale, Exchange or Other Taxable
Disposition of the Debt Securities.
Unless a nonrecognition provision applies, U.S. holders must recognize taxable
gain or loss on the sale, exchange, redemption, retirement or other taxable
disposition of a debt security. The amount of gain or loss equals the difference
between (i) the amount the U.S. holder receives for the debt security in
cash or other property, valued at fair market value, less the amount thereof
that is attributable to accrued but unpaid interest on the debt security (which
will be taxable as such) and (ii) the U.S. holder’s adjusted tax basis in
the debt security. A U.S. holder’s initial tax basis in a debt security
generally will equal the price the U.S. holder paid for the debt
security.
Gain
or loss generally will be long-term capital gain or loss if at the time the debt
security is disposed of it has been held for more than one year. Otherwise, it
will be short-term capital gain or loss.
Payments
attributable to accrued interest which have not yet been included in income will
be taxed as ordinary interest income. The maximum federal income tax rate on
long-term capital gain on most capital assets held by an individual is currently
15%. The United States federal income tax laws relating to this 15% tax rate are
scheduled to “sunset” or revert to provisions of prior law effective for taxable
years beginning after December 31, 2010, at which time the capital gains
tax rate will be increased to 20%. The deductibility of capital losses is
subject to limitations.
Information Reporting and Backup
Withholding. Under Section 3406 of the Code and the Treasury
Regulations thereunder, backup withholding at the applicable statutory rate may
apply when a U.S. holder receives interest payments on a debt security or
proceeds upon the sale or other disposition of a debt security. Certain holders,
including, among others, corporations, financial institutions and certain
tax-exempt organizations, are generally not subject to backup withholding. In
addition, backup withholding will not apply to a U.S. holder who provides his or
her social security or other taxpayer identification number in the prescribed
manner unless:
● the
IRS notifies us or our paying agent that the taxpayer identification number
provided is incorrect;
● the
U.S. holder fails to report interest and dividend payments received on the U.S.
holder’s tax return and the IRS notifies us or our paying agent that backup
withholding is required; or
● the
U.S. holder fails to certify under penalty of perjury that backup withholding
does not apply.
A
U.S. holder of debt securities who provides us or our paying agent with an
incorrect taxpayer identification number may be subject to penalties imposed by
the IRS. If backup withholding does apply, the U.S. holder may
request a refund of the amounts withheld or use the amounts withheld as a credit
against the U.S. holder’s United States federal income tax liability as long as
the U.S. holder timely provides the required information to the
IRS. U.S. holders should consult their tax advisors as to their
qualification for exemption from backup withholding and the procedures for
obtaining the exemption.
We
will be required to furnish annually to the IRS and to holders of debt
securities information relating to the amount of interest paid on the debt
securities, and that information reporting may also apply to payments of
proceeds from the sale of the debt securities to those holders. Some holders,
including corporations, financial institutions and certain tax-exempt
organizations, generally are not subject to information reporting.
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Non-U.S.
Holders of Our Debt Securities
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This
section applies to you if you are a non-U.S. holder of the debt securities.
Special rules may apply to certain non-U.S. holders such as “controlled
foreign corporations” and “passive foreign investment companies.” Such entities
are encouraged to consult their tax advisors to determine the United States
federal, state, local and other tax consequences that may be relevant to
them.
Payments of
Interest. Interest paid to a non-U.S. holder will not be
subject to United States federal income taxes or withholding tax if the interest
is not effectively connected with the non-U.S. holder’s conduct of a trade or
business within the United States, and the non-U.S. holder:
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● does
not actually or constructively own a 10% or greater interest in the total
combined voting power of all classes of our voting
stock;
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● is not
a controlled foreign corporation with respect to which we are a “related
person” within the meaning of Section 864(d)(4) of the
Code;
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● is not
a bank that received such debt securities on an extension of credit made
pursuant to a loan agreement entered into in the ordinary course of its
trade or business; and
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● provides
the appropriate certification as to the non-U.S. holder’s status. A
non-U.S. holder can generally meet this certification requirement by
providing a properly executed IRS Form W-8BEN or appropriate
substitute form to us or our paying agent. If the debt securities are held
through a financial institution or other agent acting on the non-U.S.
holder’s behalf, the non-U.S. holder may be required to provide
appropriate documentation to the agent. The agent will then generally be
required to provide appropriate certifications to us or our paying agent,
either directly or through other intermediaries. Special certification
rules apply to foreign partnerships, estates and trusts, and in
certain circumstances certifications as to foreign status of partners,
trust owners or beneficiaries may have to be provided to us or our paying
agent.
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If
a non-U.S. holder does not qualify for an exemption under these rules, interest
income from the debt securities may be subject to withholding tax at the rate of
30% (or lower applicable treaty rate) at the time such interest is
paid. The payment of interest effectively connected with a United
States trade or business, however, would not be subject to a 30% withholding tax
so long as the non-U.S. holder provides us or our paying agent an adequate
certification (currently on IRS Form W-8ECI), but such interest would be
subject to United States federal income tax on a net basis at the rates
applicable to United States persons generally. In addition, if the payment of
interest is effectively connected with a foreign corporation’s conduct of a
United States trade or business, that foreign corporation may also be subject to
a 30% (or lower applicable treaty rate) branch profits tax. To claim the benefit
of a tax treaty, a non-U.S. holder must provide a properly executed IRS
Form W-8BEN claiming exemption from or reduction in withholding before the
payment of interest, and a non-U.S. holder may be required to obtain a United
States taxpayer identification number and provide documentary evidence issued by
foreign governmental authorities to prove residence in the foreign
country.
Sale, Exchange or Other Taxable
Disposition of Debt Securities.
Non-U.S. holders generally will not be subject to United States federal
income tax on any amount which constitutes capital gain upon a sale, exchange,
redemption, retirement or other taxable disposition of a debt security, unless
either of the following is true:
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● the
non-U.S. holder’s investment in the debt securities is effectively
connected with the conduct of a United States trade or business and, if an
income tax treaty applies, the non-U.S. holder maintains a “permanent
establishment” in the United States to which the gain is attributable;
or
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● the
non-U.S. holder is a nonresident alien individual holding the debt
security as a capital asset, is present in the United States for 183 or
more days in the taxable year within which the sale, exchange, redemption,
retirement or other disposition takes place, and certain other
requirements are met.
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For
non-U.S. holders described in the first bullet point above, the net gain derived
from the sale, exchange, redemption, retirement or disposition of the debt
securities generally would be subject to United States federal income tax at the
rates applicable to United States persons generally (or lower applicable treaty
rate). In addition, foreign corporations may be subject to a 30% (or lower
applicable treaty rate) branch profits tax if the investment in the debt
security is effectively connected with the foreign corporation’s conduct of a
United States trade or business. Non-U.S. holders described in the second bullet
point above will be subject to a flat 30% United States federal income tax on
the gain derived from the sale, exchange, redemption, retirement or disposition
of their debt securities, which may be offset by United States source capital
losses, even though non-U.S. holders are not considered residents of the United
States.
Backup Withholding and Information
Reporting.
No backup withholding or information reporting will generally be required
with respect to interest paid to non-U.S. holders of debt securities if the
beneficial owner of the debt security provides the certification described above
in “Non-U.S. Holders of Our Debt Securities—Payments of Interest” or is an
exempt recipient and, in each case, we do not have actual knowledge or reason to
know that the beneficial owner is a United States person.
Information
reporting requirements and backup withholding tax generally will not apply to
any payments of the proceeds of the sale of a debt security effected outside the
United States by a foreign office or a foreign broker (as defined in applicable
Treasury Regulations). However, unless such broker has documentary evidence in
its records that the beneficial owner is a non-U.S. holder and certain other
conditions are met, or the beneficial owner otherwise establishes an exemption,
information reporting but not backup withholding will apply to any payment of
the proceeds of the sale of a debt security effected outside the United States
by such a broker if it:
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● is a
United States person, as defined in the
Code;
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● derives
50% or more of its gross income for certain periods from the conduct of a
trade or business in the United
States;
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● is a
controlled foreign corporation for United States federal income tax
purposes; or
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● is a
foreign partnership that, at any time during its taxable year, has 50% or
more of its income or capital interests owned by United States persons or
is engaged in the conduct of a United States trade or
business.
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Payment
of the proceeds of any sale by a non-U.S. holder of a debt security effected by
the United States office of a broker will be subject to information reporting
and backup withholding requirements, unless the holder or beneficial owner of
the debt security provides the certification described above in “Non-U.S.
Holders of Our Debt Securities—Payments of Interest” or otherwise establishes an
exemption from backup withholding.
Non-U.S.
holders of debt securities should consult their tax advisors regarding the
application of information reporting and backup withholding in their particular
situation, the availability of an exemption therefrom, and the procedure for
obtaining the exemption, if available. Any amounts withheld from payments to a
non-U.S. holder under the backup withholding rules will be allowed as a
refund or a credit against the non-U.S. holder’s United States federal income
tax liability, provided that the required information is timely furnished to the
IRS.
Other
Tax Consequences
State,
local and foreign income tax laws may differ substantially from the
corresponding United States federal income tax laws, and this discussion does
not purport to describe any aspect of the tax laws of any state, local or
foreign jurisdiction. You should consult your tax advisors regarding the effect
of state, local and foreign tax laws with respect to our tax treatment as a REIT
and on an investment in any of the securities offered under this
prospectus.
We
may sell the securities being offered by this prospectus and any accompanying
prospectus supplement or other offering materials:
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through
underwriters or dealers;
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●
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through
agents;
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●
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directly
to purchasers;
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●
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directly
to our stockholders; or
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●
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through
a combination of any such methods of
sale.
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The securities may be sold in one or
more transactions either:
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●
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at
a fixed price or prices, which may be
changed;
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●
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at
market prices prevailing at the time of
sale;
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●
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at
prices relating to prevailing market prices;
or
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●
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at
negotiated prices.
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We
will describe in a prospectus supplement or other offering materials the
particular terms of the offering of the securities, including the
following:
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●
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the
names of any underwriters or
agents;
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●
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any
underwriters’ or agents’ discounts or commissions;
and
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●
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any
securities exchanges on which the applicable securities may be
listed.
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If
we use underwriters in the sale, such underwriters will acquire the securities
for their own account. The underwriters may resell the securities in one or more
transactions, at a fixed price or prices, which may be changed, or at market
prices prevailing at the time of sale, at prices relating to prevailing market
prices or at negotiated prices.
The
securities may be offered to the public through underwriting syndicates
represented by managing underwriters or by underwriters without a syndicate. The
obligations of the underwriters to purchase the securities will be subject to
certain conditions.
We
may sell securities through agents designated by us. Any agent involved in the
offer or sale of the securities pursuant to this prospectus will be named, and
any commissions payable by us to that agent will be set forth, in the prospectus
supplement or other offering materials.
Underwriters,
dealers and agents that participate in the distribution of the securities may be
underwriters as defined in the Securities Act, and any discounts or commissions
received by them from us and any profit on the resale of the securities by them
may be treated as underwriting discounts and commissions under the Securities
Act.
We
may have agreements with the underwriters, dealers and agents to indemnify them
against certain civil liabilities, including liabilities under the Securities
Act or to contribute with respect to payments which the underwriters, dealers or
agents may be required to make. Additionally, underwriters, dealers and agents
may engage in transactions with, or perform services for, us or our subsidiaries
in the ordinary course of their businesses.
In
order to facilitate the offering of our securities, any underwriters or agents,
as the case may be, involved in the offering of such securities may engage in
transactions that stabilize, maintain or otherwise affect the price of such
securities or other securities. Specifically, the underwriters or agents, as the
case may be, may overallot in connection with the offering, creating a short
position in such securities for their own account. In addition, to cover
overallotments or to stabilize the price of the securities or of such other
securities, the underwriters or agents, as the case may be, may bid for, and
purchase, such securities in the open market. Finally, in any offering of such
securities through a syndicate of underwriters, the underwriting syndicate may
reclaim selling concessions allowed to an underwriter or a dealer for
distributing such securities in the offering if the syndicate repurchases
previously distributed securities in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the securities above independent
market levels. The underwriters or agents, as the case may be, are not required
to engage in these activities, and may end any of these activities at any time
without notice.
We
also may solicit offers to purchase securities directly from, and we may sell
securities directly to, institutional investors or others. The terms of any of
those sales, including the terms of any bidding or auction process, if utilized,
will be described in the applicable prospectus supplement or other offering
materials.
Some
or all of the securities we may sell may be new issues of securities with no
established trading market. We cannot give any assurances as to the liquidity of
the trading market for any of our securities.
The consolidated financial
statements and schedules of Realty Income Corporation and its subsidiaries
as of December 31, 2008 and 2007, and for each of the years in the
three-year period ended December 31, 2008, and management’s assessment of
the effectiveness of internal control over financial reporting as of December
31, 2008, have been incorporated by reference herein in reliance upon the
reports of KPMG LLP, independent registered public accounting firm, which
reports are incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The
validity of the securities offered hereby will be passed upon for us by Venable
LLP, Baltimore, Maryland, and Latham & Watkins LLP, Costa Mesa,
California. Latham & Watkins LLP, Los Angeles, California, has
issued an opinion to us regarding certain tax matters described under “United
States Federal Income Tax Considerations.” Sidley Austin LLP, San
Francisco, California will act as counsel for any underwriters or agents. As of
the date of this prospectus, William J. Cernius, a partner of Latham &
Watkins LLP, beneficially owns 10,465 shares of our common
stock. As of the date of this prospectus, Eric S. Haueter, a partner
of Sidley Austin LLP, beneficially owns approximately 7,132 shares of our common
stock and Paul C. Pringle, a partner of Sidley Austin LLP, beneficially owns
approximately 68,365 shares of our common stock.
Realty Income Corporation is subject
to the information reporting requirements of the Exchange Act, and in accordance
with these requirements, it files annual, quarterly and current reports, proxy
statements and other information with the SEC. Such reports, proxy statements
and other information may be inspected and copied at the SEC’s Public Reference
Room, 100 F Street, N.E., Washington, D.C. 20549. Information on the operation
of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Realty
Income Corporation’s SEC filings are available to the public at the SEC’s
website at http://www.sec.gov. You
may also inspect information that we file with The New York Stock Exchange at
the offices of The New York Stock Exchange at 20 Broad Street, New York, New
York 10005.
We
have filed with the SEC a registration statement on Form S-3 under the
Securities Act. This prospectus does not contain all of the information set
forth in the registration statement.
The address of our
internet site is http://www.realtyincome.com.
We make available free of charge on or through our internet site Realty Income
Corporation’s annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, proxy statements and
amendments to those reports and proxy statements filed or furnished pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, as soon as
reasonably practicable after we electronically file this material with, or
furnish it to, the SEC. Any internet addresses provided in this prospectus are
for informational purposes only and are not intended to be hyperlinks. In
addition, the information on our internet site is not a part of, and is not
incorporated or deemed to be incorporated by reference in, this prospectus or
any accompanying prospectus supplement or other offering materials. Accordingly,
no information in our or any of these other internet addresses is included
herein or incorporated or deemed to be incorporated by reference
herein.
We “incorporate by reference”
certain information we file with the SEC, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is an important part of this prospectus,
and any information contained in this prospectus or in any document incorporated
or deemed to be incorporated by reference in this prospectus will be deemed to
have been modified or superseded to the extent that a statement contained in
this prospectus, or in any other document we subsequently file with the SEC that
also is incorporated or deemed to be incorporated by reference in this
prospectus, modifies or supersedes the original statement. Any statement so
modified or superseded will not be deemed, except as so modified or superseded,
to be a part of this prospectus. We incorporate by reference the documents of
Realty Income Corporation listed below and any future filings made by Realty
Income Corporation with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act between the date of this prospectus and the termination of the
offering of securities described in this prospectus; provided, however, that we
are not
incorporating
by reference any documents, portions of documents, exhibits or other information
that is deemed to have been “furnished” to and not “filed” with the
SEC:
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Annual
Report of Realty Income on Form 10-K for the year ended December 31,
2008;
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●
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Current
Reports on Form 8-K filed with the SEC on January 27, 2009 and February
17, 2009; and
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●
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The
descriptions of the Class D preferred stock and the Class E preferred
stock contained in our Registration Statement on Form 8-A (File
No. 001-13374), including any subsequently filed amendments and
reports filed for the purpose of updating such
descriptions.
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You
may request a copy of the filings referred to above at no cost by writing or
telephoning us at the following address:
Realty
Income Corporation.
600
La Terraza Boulevard
Escondido,
CA 92025-3873
Attention:
Corporate Secretary
(760)
741-2111
PART
II.
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
14. Other Expenses of Issuance and
Distribution.
The following is an estimate of the
expenses, all of which are to be paid by us, to be incurred in connection with
the registration of securities registered under this registration statement. As
the amount of the securities to be issued and distributed pursuant to this
registration statement is indeterminate, the fees and expenses of such issuance
cannot be determined or estimated at this time:
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Securities
and Exchange Commission registration fee
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$
*
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Legal
fees and expenses
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$
60,000
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Accounting
fees and expenses
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$
15,000
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Miscellaneous
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$
5,000
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Total
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$
80,000
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________________________
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*
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Under
SEC Rule 456(b) and 457(r), the SEC registration fee will be paid at the
time of any particular offering of securities under the registration
statement.
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Item
15. Indemnification of Officers and
Directors.
The MGCL permits a Maryland corporation
to include in its charter a provision limiting the liability of its directors
and officers to the corporation and its stockholders for money damages except
for liability resulting from:
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actual
receipt of an improper benefit or profit in money, property or services,
or
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●
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active
and deliberate dishonesty established by a final judgment as being
material to the cause of action.
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Our
charter contains such a provision which eliminates such liability to the maximum
extent permitted by the MGCL.
Our
charter authorizes us, to the maximum extent permitted by Maryland law, to
obligate ourselves to indemnify and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to any present or former director
or officer or any individual who, while serving as one of our directors and at
our request, serves or has served another corporation, real estate investment
trust, partnership, joint venture, trust, employee benefit plan or any other
enterprise as a director, officer, partner or trustee of such corporation, real
estate investment trust, partnership, joint venture, trust, employee benefit
plan or other enterprise from and against any claim or liability to which that
person may become subject or which that person may incur by reason of his or her
status as one of our present or former directors or officers. Our bylaws
obligate us, to the maximum extent permitted by Maryland law, to indemnify and
to pay or reimburse reasonable expenses in advance of final disposition of a
proceeding to any present or former director or officer who is made or
threatened to be made a party to the proceeding by reason of his service in that
capacity or any individual who, while serving as one of our directors and at our
request, serves or has served another corporation, real estate investment trust,
partnership, joint venture, trust, employee benefit plan or any other enterprise
as a director, officer, partner or trustee of such corporation, real estate
investment trust, partnership, joint venture, trust, employee benefit plan or
other enterprise and who is made or threatened to be made a party to the
proceeding by reason of his service in that capacity. Our charter and bylaws
also permit us to indemnify and advance expenses to any person who served a
predecessor of ours in any of the capacities described above and to any employee
or agent of ours or our predecessor.
The
MGCL requires a corporation (unless its charter provides otherwise, which our
charter does not) to indemnify a director or officer who has been successful, on
the merits or otherwise, in the defense of any proceeding to which he is made or
threatened to be made a party by reason of his service in that capacity. The
MGCL permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made or threatened to be made a party by reason of their
service in those or
other
capacities unless it is established that (a) the act or omission of the
director or officer was material to the matter giving rise to the proceeding and
(i) was committed in bad faith or (ii) was the result of active and
deliberate dishonesty, (b) the director or officer actually received an
improper personal benefit in money, property or services or (c) in the case
of any criminal proceeding, the director or officer had reasonable cause to
believe that the act or omission was unlawful. However, under the MGCL, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation or for a judgment of liability on the basis that
personal benefit was improperly received, unless in either case a court orders
indemnification and then only for expenses. In addition, the MGCL permits a
corporation to advance reasonable expenses to a director or officer upon the
corporation’s receipt of (a) a written affirmation by the director or
officer of his good faith belief that he has met the standard of conduct
necessary for indemnification by the corporation and (b) a written
undertaking by him or on his behalf to repay the amount paid or reimbursed by
the corporation if it shall ultimately be determined that the standard of
conduct was not met.
We
have entered into indemnification agreements with our executive officers and
directors. The indemnification agreements require, among other matters, that we
indemnify our executive officers and directors to the fullest extent permitted
by law and advance to the executive officers and directors all related expenses,
subject to reimbursement if it is subsequently determined that indemnification
is not permitted. Under the indemnification agreements, we must also indemnify
and advance all expenses incurred by executive officers and directors seeking to
enforce their rights under the indemnification agreements and may cover
executive officers and directors under our directors’ and officers’ liability
insurance. Although the form of indemnification agreement offers substantially
the same scope of coverage afforded by law, it provides greater assurance to
directors and executive officers that indemnification will be available,
because, as a contract, it cannot be modified unilaterally in the future by our
board of directors or the stockholders to alter or eliminate the rights it
provides.
Item
16. Exhibits.
See
the Exhibit Index attached to this registration statement and incorporated
herein by reference.
Item
17. Undertakings.
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(a)
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The
undersigned registrant hereby
undertakes:
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(1)
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To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration
statement:
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(i)
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To
include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933;
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(ii)
|
To
reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in this registration
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the “Calculation of Registration Fee” table in
the effective registration statement;
and
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|
|
(iii)
|
To
include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material
change to such information in this registration
statement;
|
provided,
however, that paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this section
do not apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in reports filed with or furnished to
the Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement, or is contained in a form of prospectus filed pursuant
to Rule 424(b) that is part of the registration statement.
|
|
(2)
|
That,
for the purpose of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide
offering thereof.
|
|
|
(3)
|
To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
|
|
|
(4)
|
That,
for purposes of determining liability under the Securities Act of 1933 to
any purchaser:
|
|
|
(i)
|
Each
prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be
deemed to be part of the registration statement as of the date the filed
prospectus was deemed part of and included in the registration
statement; and
|
|
|
(ii)
|
Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or
(b)(7) as part of a registration statement in reliance on Rule 430B
relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x)
for the purpose of providing the information required by Section 10(a) of
the Securities Act of 1933 shall be deemed to be part of and included in
the registration statement as of the earlier of the date such form of
prospectus is first used after effectiveness or the date of the first
contract of sale of securities in the offering described in the
prospectus. As provided in Rule 430B, for liability purposes of
the issuer and any person that is at that date an underwriter, such date
shall be deemed to be a new effective date of the registration statement
relating to the securities in the registration statement to which that
prospectus relates, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering
thereof. Provided, however, that
no statement made in a registration statement or prospectus that is part
of the registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a
time of contract of sale prior to such effective date, supersede or modify
any statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such document
immediately prior to such effective
date.
|
|
|
(5)
|
That,
for the purpose of determining liability of the registrant under the
Securities Act of 1933 to any purchaser in the initial distribution of the
securities:
|
The
undersigned registrant undertakes that in a primary offering of securities of
the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
|
|
(i)
|
Any
preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule
424;
|
|
|
(ii)
|
Any
free writing prospectus relating to the offering prepared by or on behalf
of the undersigned registrant or used or referred to by the undersigned
registrant;
|
|
|
The
portion of any other free writing prospectus relating to the offering
containing material information about the undersigned registrant or its
securities provided by or on behalf of the undersigned
registrant; and
|
|
|
Any
other communication that is an offer in the offering made by the
undersigned registrant to the
purchaser.
|
|
(b)
|
The
undersigned registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the
registrant’s annual report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of
an employee benefit plan’s annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
|
|
(c)
|
Insofar
as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for
indemnification
|
|
|
against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection
with the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
|
|
(d)
|
The
undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act (“Act”) in
accordance with the rules and regulations prescribed by the Commission
under section 305(b)(2) of the Act.
|
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, as amended, Realty Income
Corporation certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Escondido, State of California, on the 24th day
of March, 2009.
REALTY
INCOME CORPORATION
|
By:
|
/s/
MICHAEL R. PFEIFFER
|
|||||
|
Name:
|
Michael
R. Pfeiffer
|
|||||
|
Title:
|
Executive
Vice-President, General Counsel and
Secretary
|
|||||
POWER
OF ATTORNEY
Each
person whose signature appears below hereby constitutes and appoints Michael R.
Pfeiffer as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and for his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement on Form S-3 and to file the same
with all exhibits thereto and any other documents in connection therewith, with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended, granting unto said attorney-in-fact and agent, full power and authority
to do and perform each and every act and thing necessary or desirable to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities indicated on March
24, 2009.
|
Signature
|
Title
|
||
|
/s/ THOMAS A.
LEWIS
|
Vice
Chairman of the Board of Directors and Chief Executive
Officer
|
||
|
Thomas
A. Lewis
|
|||
|
/s/
PAUL M. MEURER
Paul
M. Meurer
|
Executive
Vice President, Chief Financial Officer and Treasurer (Principal Financial
Officer)
|
||
|
/s/
GREGORY J. FAHEY
Gregory
J. Fahey
|
Vice
President, Controller (Principal Accounting Officer)
|
||
|
/s/
DONALD R. CAMERON
Donald
R. Cameron
|
Chairman
of the Board of Directors
|
||
|
/s/
KATHLEEN R. ALLEN, Ph.D.
Kathleen
R. Allen, Ph.D.
|
Director
|
|
/s/
PRIYA CHERIAN HUSKINS
Priya
Cherian Huskins
|
Director
|
||
|
/s/
ROGER P. KUPPINGER
Roger
P. Kuppinger
|
Director
|
||
|
/s/
MICHAEL D. MCKEE
Michael
D. McKee
|
Director
|
||
|
/s/
GREGORY T. MCLAUGHLIN
Gregory
T. McLaughlin
|
Director
|
||
|
/s/
RONALD L. MERRIMAN
Ronald
L. Merriman
|
Director
|
||
|
/s/
WILLARD H SMITH JR
Willard
H Smith Jr
|
Director
|
EXHIBIT
INDEX
|
Exhibit
Number
|
||
|
1.1
|
Form
of Underwriting Agreement for Debt Securities*
|
|
|
1.2
|
Form
of Underwriting Agreement for Equity Securities*
|
|
|
4.1
|
Articles
of Incorporation of the Company, as amended by amendment No. 1 dated
May 10, 2005 and amendment No. 2 dated May 10, 2005 (filed as
exhibit 3.1 to the Company’s Form 10-Q for the quarter ended June 30, 2005
and incorporated herein by reference).
|
|
|
4.2
|
Amended
and Restated Bylaws of the Company dated December 12, 2007 (filed as
exhibit 3.1 to the Company’s Form 8-K filed on December 13, 2007 and
incorporated herein by reference), as amended on May 13, 2008 (filed as
exhibit 3.1 to the Company’s Form 8-K, filed on May 14, 2008 and dated May
13, 2008 and incorporated herein by reference).
|
|
|
4.3
|
Articles
Supplementary to the Articles of Incorporation of the Company classifying
and designating the 7.375% Monthly Income Class D Cumulative Redeemable
Preferred Stock (filed as exhibit 3.8 to the Company’s Form 8-A, filed on
May 25, 2004 and incorporated herein by reference).
|
|
|
4.4
|
Articles
Supplementary to the Articles of Incorporation of the Company classifying
and designating additional shares of the 7.375% Monthly Income Class D
Cumulative Redeemable Preferred Stock (filed as exhibit 3.2 to the
Company’s Form 8-K, filed on October 19, 2004 and dated October 12, 2004
and incorporated herein by reference).
|
|
|
4.5
|
Articles
Supplementary to the Articles of Incorporation of the Company classifying
and designating the 6.75% Class E Cumulative Redeemable Preferred Stock
(filed as exhibit 3.5 to the Company’s Form 8-A, filed on December 5, 2006
and incorporated herein by reference).
|
|
|
4.6
|
Form
of common stock certificate.
|
|
|
4.7
|
Form
of Articles Supplementary for preferred stock offered
hereby.*
|
|
|
4.8
|
Form
of preferred stock certificate for preferred stock offered
hereby.*
|
|
|
4.9
|
Indenture
dated as of October 28, 1998 between the Company and The Bank of New York
(filed as exhibit 4.1 to the Company’s Form 8-K, filed on October 28, 1998
and dated October 27, 1998 and incorporated herein by
reference).
|
|
|
4.10
|
Form
of Debt Security*
|
|
5.1
|
Opinion
of Venable LLP regarding the validity of the certain of the securities
being registered.
|
|
|
5.2
|
Opinion
of Latham & Watkins LLP regarding the validity of the certain of the
securities being registered.
|
|
|
8.1
|
Opinion
of Latham & Watkins LLP regarding tax matters.
|
|
|
12.1
|
Statement
of Computation of Ratios (filed as exhibit 12.1 to Realty Income’s
Annual Report on Form 10-K for the year ended December 31, 2008
and incorporated herein by reference).
|
|
|
23.1
|
Consent
of KPMG LLP
|
|
|
23.2
|
Consent
of Venable LLP (included in Exhibit 5.1).
|
|
|
23.3
|
Consent
of Latham & Watkins LLP (included in
Exhibit 5.2).
|
|
23.4
|
Consent
of Latham & Watkins LLP (included in
Exhibit 8.1).
|
|
|
24
|
Power
of Attorney (included on signature page to the Registration
Statement).
|
|
|
25
|
Statement
of Eligibility of trustee on
Form T-1*
|
________________________
* To be filed by amendment or by a report
on Form 8-K pursuant to Regulation S-K, Item 601(b) or in accordance
with Section 305(b)(2) of the Trust Indenture Act of 1939, as amended, in
connection with the offering of the applicable offered
securities.
II-8