424B5: Prospectus filed pursuant to Rule 424(b)(5)
Published on November 4, 2010
Filed
Pursuant to Rule 424(b)(5)
Registration
No. 333-170097
PROSPECTUS
SUPPLEMENT
(To
Prospectus Dated October 22, 2010)
28,740,000
Shares Remaining Under
40,000,000
Share Controlled Equity Offering
We have
entered into a sales agreement with Cantor Fitzgerald & Co. relating to
shares of our common stock offered by this prospectus supplement and the
accompanying prospectus. The program initially related to 40,000,000
shares of common stock and, as of the date of this prospectus supplement,
28,740,000 shares of our common stock remain unsold. In accordance
with the terms of the sales agreement, we may offer and sell up to the remaining
28,740,000 shares of our common stock from time to time through Cantor
Fitzgerald & Co., as our agent for the offer and sale of the shares of
common stock.
Our
common stock is listed on the New York Stock Exchange under the symbol
“MFA.” The last reported sale price of our common stock on the New
York Stock Exchange on November 3, 2010 was $7.95 per share.
Sales of
shares of our common stock, if any, under this prospectus supplement and the
accompanying prospectus may be made in negotiated transactions or transactions
that are deemed to be “at the market offerings” as defined in Rule 415 under the
Securities Act of 1933, as amended (or the Securities Act), including sales made
directly on the New York Stock Exchange or sales made to or through a market
maker other than on an exchange.
Cantor
Fitzgerald & Co. will be entitled to compensation of up to 2.5% of the gross
sales price per share for any shares of common stock sold under the sales
agreement. In connection with the sale of the shares of common stock
on our behalf, Cantor Fitzgerald & Co. may be deemed to be an “underwriter”
within the meaning of the Securities Act and the compensation of Cantor
Fitzgerald & Co. may be deemed to be underwriting commissions or
discounts.
Investing
in our common stock involves certain risks. Before buying any shares,
you should read the discussion of material risks of investing in our common
stock under the caption “Risk Factors” on page S-3 of this prospectus supplement
and beginning on page 5 of our annual report on Form 10-K for the fiscal year
ended December 31, 2009 and on page 47 in our quarterly report on Form 10-Q for
the fiscal quarter ended March 31, 2010, which are each incorporated by
reference into the accompanying prospectus, and in our periodic reports and
other information that we file from time to time with the Securities and
Exchange Commission (or SEC).
Neither
the SEC nor any state securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this prospectus supplement
or the accompanying prospectus. Any representation to the contrary is
a criminal offense.
Cantor
Fitzgerald & Co.
The date
of this prospectus supplement is November 4, 2010.
TABLE
OF CONTENTS
Page
Prospectus
Supplement
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ABOUT
THIS PROSPECTUS SUPPLEMENT
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S-1
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FORWARD-LOOKING
STATEMENTS
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S-2
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RISK
FACTORS
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S-3
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USE
OF PROCEEDS
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S-3
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PLAN
OF DISTRIBUTION
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S-3
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LEGAL
MATTERS
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S-4
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EXPERTS
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S-4
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|
Prospectus
|
|
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ABOUT
THIS PROSPECTUS
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1
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FORWARD-LOOKING
STATEMENTS
|
2
|
|
MFA
FINANCIAL, INC.
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3
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RATIOS
OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
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4
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USE
OF PROCEEDS
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5
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DESCRIPTION
OF COMMON STOCK AND PREFERRED STOCK
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6
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DESCRIPTION
OF DEPOSITARY SHARES
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10
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DESCRIPTION
OF WARRANTS
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12
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CERTAIN
PROVISIONS OF MARYLAND LAW AND OF OUR CHARTER AND BYLAWS
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13
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MATERIAL
U.S. FEDERAL INCOME TAX CONSIDERATIONS
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18
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PLAN
OF DISTRIBUTION
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38
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LEGAL
MATTERS
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40
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EXPERTS
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41
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INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
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42
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INFORMATION
WE FILE
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43
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ABOUT
THIS PROSPECTUS SUPPLEMENT
The
following information is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
the accompanying prospectus or incorporated by reference into the accompanying
prospectus. We encourage you to read this prospectus supplement and
the accompanying prospectus, as well as the information which is incorporated by
reference into the accompanying prospectus, in their entireties. You
should carefully consider the risks identified in our annual report on Form 10-K
for the fiscal year ended December 31, 2009 and our quarterly report on Form
10-Q for the fiscal quarter ended March 31, 2010, which are incorporated by
reference into the accompanying prospectus, before making an investment decision
to purchase shares of our common stock. All references to “we,”
“our,” “us” or “the company” in this prospectus supplement and the accompanying
prospectus mean MFA Financial, Inc.
You
should rely only on the information contained in, or incorporated by reference
into, this prospectus supplement and the accompanying prospectus. We
have not, and Cantor Fitzgerald & Co. has 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. We are not, and Cantor Fitzgerald & Co. is not, making an
offer to sell these securities in any jurisdiction where the offer or sale is
not permitted. You should assume that the information appearing in
this prospectus supplement, the accompanying prospectus and the documents
incorporated therein by reference is accurate only as of its respective date or
dates or on the date or dates which are specified in these
documents. Our business, financial condition, results of operations
and prospects may have changed since those dates.
S-1
FORWARD-LOOKING
STATEMENTS
This
prospectus supplement and the accompanying prospectus contain or incorporate by
reference certain “forward-looking statements” within the meaning of Section 27A
of the Securities Act of 1933, as amended (or the Securities Act), and Section
21E of the Securities Exchange Act of 1934, as amended (or the Exchange
Act). When used, statements which are not historical in nature,
including those containing words such as "believe," "expect," "anticipate,"
"estimate," "plan," "continue," "intend," "should," "may" and similar
expressions, are intended to identify forward-looking statements and, as such,
may involve known and unknown risks, uncertainties and assumptions.
These
forward-looking statements are subject to various risks and uncertainties,
including, but not limited to, those relating to:
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changes
in interest rates and the market value of our mortgage-backed securities
(or MBS);
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changes
in the prepayment rates on the mortgage loans securing our
MBS;
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our
ability to use borrowings to finance our
assets;
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implementation
of or changes in government regulations or programs affecting our
business;
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our
ability to maintain our qualification as a real estate investment trust
(or a REIT) for federal income tax
purposes;
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our
ability to maintain our exemption from registration under the Investment
Company Act of 1940, as amended;
and
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risks
associated with investing in real estate assets, including changes in
business conditions and the general
economy.
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These and
other risks, uncertainties and factors, including those identified in this
prospectus supplement, in our annual report on Form 10-K for the fiscal year
ended December 31, 2009, in our quarterly report on Form 10-Q for the fiscal
quarter ended March 31, 2010 and in our periodic reports and other information
that we file from time to time with the Securities and Exchange Commission (or
SEC), could cause our actual results to differ materially from those projected
in any forward-looking statements we make. All forward-looking
statements speak only as of the date they are made, and we do not undertake, and
specifically disclaim, any obligation to update or revise any forward-looking
statements to reflect events or circumstances occurring after the date of such
statements.
S-2
RISK
FACTORS
An
investment in our common stock involves risks. Before acquiring any
shares of our common stock offered pursuant to this prospectus supplement, you
should carefully consider, among other factors, the risks referred to in the
section of this prospectus supplement entitled “Forward-Looking Statements” and
those set forth under the captions “Item 1A. Risk Factors” and “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations” (or similar captions) in our most recent annual report on Form 10-K
and under the captions “Item 1A. Risk Factors” and “Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations” (or
similar captions) in our most recent quarterly report on Form 10-Q, which
reports are incorporated herein by reference. In the future, you
should also carefully consider the disclosures relating to the risks of an
investment in the Company contained in the reports or documents we subsequently
file under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, which reports
and documents will deemed to be incorporated by reference into the accompanying
prospectus upon their filing, and in our periodic reports and other information
that we file from time to time with the SEC. (See “Incorporation of
Certain Documents by Reference” and “Forward-Looking Statements” in the
accompanying prospectus.)
USE
OF PROCEEDS
We intend
to use the net proceeds from any sales of shares of common stock offered by this
prospectus supplement and the accompanying prospectus to acquire additional
assets consistent with our investment policy and for general corporate purposes,
which may include, among other things, the repayment of our repurchase
agreements.
PLAN
OF DISTRIBUTION
We
entered into a controlled equity offering sales agreement with Cantor Fitzgerald
& Co. on December 12, 2008, under which we may issue and sell an aggregate
amount of up to 40,000,000 shares of our common stock from time to time through
Cantor Fitzgerald & Co. as our agent. As of the date of this
prospectus supplement, 28,740,000 shares of our common stock remain unsold under
the program. The sales agreement was filed as exhibit 1.1
to our current report on 8-K filed with the Securities and Exchange Commission
on December 12, 2008, incorporated by reference in this prospectus
supplement.
Upon
written instructions from us, Cantor Fitzgerald & Co. will use its
commercially reasonable efforts consistent with its sales and trading practices
to solicit offers to purchase shares of our common stock under the terms and
subject to the conditions set forth in the sales agreement. Cantor
Fitzgerald & Co.’s solicitation will continue until we instruct Cantor
Fitzgerald & Co. to suspend the solicitations and offers. We will
instruct Cantor Fitzgerald & Co. as to the amount of common stock to be sold
by Cantor Fitzgerald & Co. We may instruct Cantor Fitzgerald
& Co. not to sell common stock if the sales cannot be effected at or above
the price designated by us in any instruction. We or Cantor
Fitzgerald & Co. may suspend the offering of common stock upon proper notice
and subject to other conditions.
Cantor
Fitzgerald & Co. will provide written confirmation to us no later than the
opening of the trading day on the New York Stock Exchange following the trading
day in which shares of our common stock are sold under the sales
agreement. Each confirmation will include the number of shares sold
on the preceding day, the net proceeds to us and the compensation payable by us
to Cantor Fitzgerald & Co. in connection with the sales.
We will
pay Cantor Fitzgerald & Co. commissions for its services in acting as agent
in the sale of common stock. Cantor Fitzgerald & Co. will be
entitled to compensation of up to 2.5% of the gross sales price per share for
any shares of common stock sold under the sales agreement. We
estimate that the total expenses for the offering, excluding compensation
payable to Cantor Fitzgerald & Co. under the terms of the sales agreement,
will be approximately $150,000.
Settlement
for sales of common stock will occur on the third business day following the
date on which any sales are made, or on some other date that is agreed upon by
us and Cantor Fitzgerald & Co. in connection with a particular transaction,
in return for payment of the net proceeds to us. There is no
arrangement for funds to be received in an escrow, trust or similar
arrangement.
S-3
In
connection with the sale of the common stock on our behalf, Cantor Fitzgerald
& Co. may, and will with respect to sales effected in an “at the market
offering,” be deemed to be an “underwriter” within the meaning of the Securities
Act, and the compensation of Cantor Fitzgerald & Co. may be deemed to be
underwriting commissions or discounts. We have agreed to provide
indemnification and contribution to Cantor Fitzgerald & Co. against certain
civil liabilities, including liabilities under the Securities Act. We
have also agreed to reimburse Cantor Fitzgerald & Co. for other specified
expenses.
The
offering of shares of our common stock pursuant to the sales agreement will
terminate upon the earlier of (1) the sale of all common stock subject to the
agreement, whether by Cantor Fitzgerald & Co. or any other agent pursuant to
an “at the market offering” or (2) termination of the sales
agreement. The sales agreement may be terminated by us in our sole
discretion at any time by giving notice to Cantor Fitzgerald & Co. Cantor
Fitzgerald & Co. may terminate the sales agreement under the circumstances
specified in the sales agreement and in its sole discretion at any time
following a period of twelve months from the date of the sales agreement by
giving notice to us.
In no
event will the maximum discount to be received by any FINRA member in connection
with this offering exceed 8.0%. The maximum reimbursement to any
FINRA member for bona fide due diligence expenses incurred in connection with
this offering will not exceed 0.5%.
LEGAL
MATTERS
The
validity of the securities offered pursuant to this prospectus supplement will
be passed upon for us by Clifford Chance US LLP, New York, New
York. Certain legal matters in connection with this offering will be
passed upon for Cantor Fitzgerald & Co. by DLA Piper LLP (US), New York, New
York.
EXPERTS
Ernst
& Young LLP, independent registered public accounting firm, has audited our
consolidated financial statements included in our annual report on Form 10-K for
the year ended December 31, 2009 and the effectiveness of our internal control
over financial reporting as of December 31, 2009, as set forth in their reports
which are incorporated by reference into the accompanying prospectus and
elsewhere in the registration statement. Our financial statements are
incorporated by reference in reliance on Ernst & Young LLP’s report, given
on their authority as experts in accounting and auditing.
S-4
PROSPECTUS
MFA
FINANCIAL, INC.
Common
Stock
Preferred
Stock
Depositary
Shares
and
Warrants
___________________
We may
from time to time offer our common stock, preferred stock (which we may issue in
one or more series), depositary shares representing shares of our preferred
stock or warrants entitling the holders to purchase our common stock, preferred
stock or depositary shares. We will determine when we sell
securities, the amounts of securities we will sell and the prices and other
terms on which we will sell them. We may sell securities to or
through underwriters, through agents or directly to purchasers.
We will
describe in a prospectus supplement, which we will deliver with this prospectus,
the terms of particular securities which we offer in the future. We
may describe the terms of those securities in a term sheet which will precede
the prospectus supplement.
In each
prospectus supplement, we will include the following information:
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The
names of the underwriters or agents, if any, through which we will sell
the securities.
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The
proposed amount of securities, if any, which the underwriters will
purchase.
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The
compensation, if any, of those underwriters or
agents.
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The
public offering price of the
securities.
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Information
about securities exchanges, electronic communications networks or
automated quotation systems on which the securities will be listed or
traded.
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Any
other material information about the offering and sale of the
securities.
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NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED THAT THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
October
22, 2010
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CONTENTS
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Page
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ABOUT
THIS PROSPECTUS
|
1
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|
FORWARD-LOOKING
STATEMENTS
|
2
|
|
MFA
FINANCIAL, INC.
|
3
|
|
RATIOS
OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK
DIVIDENDS
|
4
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|
USE
OF PROCEEDS
|
5
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DESCRIPTION
OF COMMON STOCK AND PREFERRED STOCK
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6
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DESCRIPTION
OF DEPOSITARY SHARES
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10
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DESCRIPTION
OF WARRANTS
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12
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CERTAIN
PROVISIONS OF MARYLAND LAW AND OF OUR CHARTER AND BYLAWS
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13
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MATERIAL
U.S. FEDERAL INCOME TAX CONSIDERATIONS
|
18
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PLAN
OF DISTRIBUTION
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38
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LEGAL
MATTERS
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40
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EXPERTS
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41
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INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
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42
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INFORMATION
WE FILE
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43
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- -
This
prospectus is part of a shelf registration statement. Under this
shelf registration statement, we may sell any combination of our common stock,
preferred stock, depositary shares representing shares of our preferred stock or
warrants entitling the holders to purchase our common stock, preferred stock or
depositary shares in one or more offerings. This prospectus provides
you with a general description of the securities we may offer. Each
time we sell securities, we will provide a prospectus supplement that will
contain specific information about the terms of that offering. The
prospectus supplement may add, update or change information contained in this
prospectus. Before you buy any of our securities, it is important for
you to consider the information contained in this prospectus and any prospectus
supplement together with additional information described under the heading
"Incorporation of Certain Documents By Reference."
- 1
- -
This
prospectus contains or incorporates by reference certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933,
as amended (or the Securities Act), and Section 21E of the Securities
Exchange Act of 1934, as amended (or the Exchange Act). When used,
statements which are not historical in nature, including those containing words
such as "believe," "expect," "anticipate," "estimate," "plan," "continue,"
"intend," "should," "may" and similar expressions, are intended to identify
forward-looking statements and, as such, may involve known and unknown risks,
uncertainties and assumptions.
These
forward-looking statements are subject to various risks and uncertainties,
including, but not limited to, those relating to:
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·
|
changes
in interest rates and the market value of our mortgage-backed securities
(or MBS);
|
|
·
|
changes
in the prepayment rates on the mortgage loans securing our
MBS;
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·
|
our
ability to borrow to finance our
assets;
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·
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implementation
of or changes in government regulations or programs affecting our
business;
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·
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our
ability to maintain our qualification as a real estate investment trust
(or a REIT) for federal income tax
purposes;
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our
ability to maintain our exemption from registration under the Investment
Company Act of 1940, as amended;
and
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risks
associated with investing in real estate assets, including changes in
business conditions and the general
economy.
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These and
other risks, uncertainties and factors, including those identified in our annual
report on Form 10-K for the fiscal year ended December 31, 2009 and any
subsequent report incorporated in this registration statement by reference, or
which may be discussed in a prospectus supplement, could cause our actual
results to differ materially from those projected in any forward-looking
statements we make. All forward-looking statements speak only as of
the date they are made and we do not undertake, and specifically disclaim, any
obligation to update or revise any forward-looking statements to reflect events
or circumstances occurring after the date of such statements.
- 2
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We are a
self-advised REIT primarily engaged in the business of investing, on a leveraged
basis, in residential MBS that are issued or guaranteed as to principal and/or
interest by a federally chartered corporation, such as Fannie Mae or Freddie
Mac, or any agency of the U.S. Government, such as Ginnie Mae, and residential
MBS not guaranteed by any U.S. Government agency or any federally chartered
corporation. Our principal business objective is to generate net
income for distribution to our stockholders resulting from the difference
between the interest and other income we earn on our investments and the
interest expense we pay on the borrowings that we use to finance our leveraged
investments and our operating costs.
Our
principal executive offices are located at 350 Park Avenue, 21st Floor, New
York, New York 10022, and our telephone number is 212-207-6400. Our website is
www.mfa-reit.com. The
information on our website is not, and should not be interpreted to be, part of
this prospectus.
- 3
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Six
Months
Ended
June
30,
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Years
Ended December 31,
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2010
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2009
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2008
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2007
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2006
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2005
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Ratio
of earnings to fixed charges and preferred stock dividends(1)
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2.61x
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2.09x
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1.11x
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1.07x
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0.98x
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0.99x
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______________________
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(1)
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The
ratios of earnings to fixed charges and preferred stock dividends were
computed by dividing earnings by the sum of fixed charges and preferred
stock dividends. For this purpose, earnings consist of net
income from continuing operations and fixed charges. Fixed
charges consist of our interest expense and estimated interest within
rental expense.
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Except as
may be set forth in a particular prospectus supplement, we will add the net
proceeds from sales of securities to our general corporate funds, which we may
use for new investments, to repay indebtedness or for other general corporate
purposes.
- 5
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The
following description of the terms of our stock is only a
summary. This summary is not complete and is qualified by the
provisions of our charter and bylaws, and the Maryland General Corporation Law,
or MGCL. See "Incorporation Of Certain Documents By
Reference."
General
Our
charter provides that we may issue up to 500 million shares of capital
stock, all with a par value of $0.01 per share. As of September 30,
2010, 370 million of these authorized shares were classified as common stock, 5
million shares were classified as preferred stock and 125 million shares were
classified as excess stock. As of September 30, 2010, we had
280,913,622 shares of common stock and 3.8 million shares of 8.50% Series A
Cumulative Redeemable Preferred Stock and no shares of excess stock
outstanding.
Pursuant
to our charter, the board of directors of our company (or our board) is
authorized to classify and reclassify any unissued shares of our capital stock,
to provide for the issuance of shares in other classes or series (including
preferred stock in one or more series), to establish the number of shares in
each class or series and to fix the preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemption of each
class or series. Under Maryland law, stockholders are generally not
liable for our debts or obligations.
Common
Stock
All
shares of our common stock offered hereby will be duly authorized, validly
issued, fully paid and non-assessable. Holders of our common stock
will be entitled to receive distributions on their shares of common stock if, as
and when our board authorizes and we declare distributions out of legally
available funds. However, rights to distributions may be subordinated
to the rights of holders of our preferred stock, when preferred stock is issued
and outstanding, or subject to the provisions of our charter regarding the
restrictions on ownership and transfer of shares of stock. See
"—Restrictions on Ownership and Transfer" below. In the event of our
liquidation, dissolution or winding up, each outstanding share of our common
stock will entitle its holder to a proportionate share of the assets that remain
after we pay our liabilities and any preferential distributions owed to
preferred stockholders.
Holders
of our common stock are entitled to one vote for each share on all matters
submitted to a vote of the common stockholders. There is no
cumulative voting in the election of directors, which means that the holders of
a majority of the outstanding shares of common stock can elect all of the
directors then standing for election, and the holders of the remaining shares
will not be able to elect any directors.
Holders
of shares of our common stock have no preference, conversion, sinking fund,
redemption or exchange rights or any preemptive rights to subscribe for any of
our securities and generally have no appraisal rights. Subject to the
provisions of our charter regarding the restrictions on ownership and transfer
of shares of stock, all shares of our common stock have equal dividend,
distribution, liquidation and other rights.
Under the
MGCL, a Maryland corporation generally cannot dissolve, amend its charter, merge
with another entity, sell all or substantially all of its assets or engage in
similar transactions outside the ordinary course of business unless approved by
the affirmative vote of stockholders entitled to cast at least two-thirds of the
votes entitled to be cast 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 these
matters (other than certain amendments to the provisions of our charter related
to our board, consideration of non-stockholder constituencies, indemnification,
exculpation, advance notice of stockholder proposals and the charter amendment
section) may be approved by the affirmative vote of the holders of a majority of
the total number of shares of all classes outstanding and entitled to vote
thereon.
Our
charter grants our board the power to authorize the issuance of additional
authorized but unissued shares of common stock and preferred
stock. Our board may also classify or reclassify unissued shares of
common stock or preferred stock and authorize their issuance.
- 6
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We
believe that these powers of our board provide increased flexibility in
structuring possible future financings and acquisitions and in meeting other
needs which might arise. Although our board does not intend to do so
at the present time, it could authorize the issuance of a class or series that
could delay, defer or prevent a change of control or other transaction that
might involve a premium price for the common stock or otherwise be in the best
interest of our stockholders.
Preferred
Stock
We may
issue preferred stock in one or more classes or series with any rights and
preferences which may be authorized by our board. The preferred
stock, when issued, will be duly authorized, validly issued, fully paid and
non-assessable. Because our board has the power to establish the
preferences, powers and rights of each series of preferred stock, our board may
afford the holders of any series of preferred stock preferences, powers and
rights, voting or otherwise, senior to the rights of the holders of our common
stock.
On
September 30, 2010, there were 3.8 million shares of our 8.50% Series A
Cumulative Redeemable Preferred Stock outstanding. A description of
our 8.50% Series A Cumulative Redeemable Preferred Stock is set forth in our
Articles Supplementary, dated April 22, 2004, filed on Form 8-A with the U.S.
Securities and Exchange Commission (or the SEC) on April 23, 2004, and is
incorporated herein by reference.
The
rights, preferences, privileges and restrictions of each series of preferred
stock will be fixed by the articles supplementary relating to such
series. We will distribute a prospectus supplement with regard to
each series of preferred stock. The prospectus supplement, relating
to each such series, will specify the terms of the preferred stock, as
follows:
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the
title and stated par value of the preferred
stock;
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the
number of shares offered, the liquidation preference per share and the
offering price per share of the preferred
stock;
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the
dividend rate(s), period(s) and payment date(s) or method(s) of
calculation applicable to the preferred
stock;
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the
date from which dividends on the preferred stock will accumulate, if
applicable;
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the
voting rights, if applicable, of the preferred
stock;
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the
provision for a sinking fund, if any, for the preferred
stock;
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the
provision for or any restriction on redemption or repurchase, if
applicable, of the preferred stock;
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any
listing of the preferred stock on any securities
exchange;
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the
terms and provisions, if any, upon which the preferred stock will be
convertible into common stock, including the conversion price (or manner
of calculation) and conversion
period;
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a
discussion of certain material U.S. federal income tax considerations
applicable to the preferred stock;
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the
relative ranking and preferences of the preferred stock as to dividend
rights and rights upon the liquidation, dissolution or winding-up of our
affairs;
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any
limitation on issuance of any series of preferred stock ranking senior to
or on a parity with the series of preferred stock as to dividend rights
and rights upon the liquidation, dissolution or winding-up of our
affairs;
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any
limitations on direct or beneficial ownership and restrictions on transfer
of the preferred stock, in each case as may be appropriate to, among other
purposes, preserve our qualification as a REIT;
and
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any
other specific terms, preference rights, limitations or restrictions of
the preferred stock.
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Restrictions
on Ownership and Transfer
In order
for us to qualify as a REIT, our stock must be beneficially owned by 100 or more
persons for at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year. Also, not more than 50%
of the value of the outstanding shares of our stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Internal Revenue
Code of 1986, as amended (or the Code), to include certain exempt entities)
during the last half of a taxable year.
Our
charter provides that, subject to certain exceptions, no stockholder or "group"
(as defined in Section 13(d)(3) of the Exchange Act) may own, or be deemed
to own by virtue of the attribution provisions of the Code, more than 9.8% of
the number or value of the outstanding shares of our capital stock (or the
Ownership Limit). Our board may waive the Ownership Limit if it is
presented with evidence satisfactory to it that the waiver will not jeopardize
our qualification as a REIT. As a condition to any such waiver, our
board may require opinions of counsel satisfactory to it and must receive an
undertaking from the applicant with respect to preserving our REIT
qualification. The Ownership Limit will not apply if our board
determines that it is no longer in our best interests to continue to qualify as
a REIT.
If shares
of common stock and/or preferred stock in excess of the Ownership Limit, or
shares which would cause us to be beneficially owned by fewer than 100 persons
or cause us to become "closely held" under Section 856(h) of the Code, are
issued or transferred to any person, the issuance or transfer shall be void as
to the number of shares in violation of such restrictions and the intended
transferee will acquire no rights to such shares of common stock and/or
preferred stock. Shares issued or transferred that would cause any
stockholder (or a Prohibited Owner) to own more than the Ownership Limit or
cause us to become "closely held" under Section 856(h) of the Code will
automatically be converted into an equal number of shares of excess
stock. All excess stock will be automatically transferred, without
action by the Prohibited Owner, to a trust for the exclusive benefit of one or
more charitable beneficiaries that we select, and the Prohibited Owner will not
acquire any rights in the shares of excess stock. Such automatic
transfer shall be deemed to be effective as of the close of business on the day
prior to the date of the transfer causing a violation. The trustee of
the trust shall be appointed by us and must be independent of us and the
Prohibited Owner. The Prohibited Owner shall have no right to receive
dividends or other distributions with respect to, or be entitled to vote, any
shares of excess stock held in the trust. Any dividend or other
distribution paid prior to the discovery by us that excess stock has been
transferred to the trust must be paid by the recipient of the dividend or
distribution to the trustee upon demand for the benefit of the charitable
beneficiary, and any dividend or other distribution authorized but unpaid shall
be paid when due to the trust. The trust shall have all dividend and
voting rights with respect to the shares of excess stock held in the trust,
which rights shall be exercised for the exclusive benefit of the charitable
beneficiary. Any dividend or distribution so paid to the trust shall
be held in trust for the charitable beneficiary.
Within 20
days of receipt of our notice that excess stock has been transferred to the
trust, the trustee will sell the excess stock held in the trust to a person,
designated by the trustee, whose ownership of the shares will not violate the
ownership limitations set forth in our charter. Upon such sale, any
interest of the charitable beneficiary in the excess stock sold shall terminate
and the trustee shall distribute the net proceeds of the sale to the Prohibited
Owner and to the charitable beneficiary as follows. The Prohibited
Owner shall receive the lesser of (a) the price paid by the Prohibited
Owner for the excess stock or, if the Prohibited Owner did not give value for
the excess stock in connection with the event causing the excess stock to be
held in the trust (e.g., a gift, devise or other such transaction), the Market
Price (as defined in our charter) of the excess stock on the day of the event
causing the excess stock to be held in the trust, and (b) the price per
share received by the trustee from the sale or other disposition of the excess
stock held in the trust. Any net sale proceeds in excess of the
amount payable to the Prohibited Owner will be paid immediately to the
charitable beneficiary. If, prior to our discovery that excess stock
has been transferred to the trust, the excess stock is sold by a Prohibited
Owner, then the excess stock will be deemed to have been sold on behalf of the
trust and, to the extent that the Prohibited Owner received an amount for the
excess stock that exceeds the amount that such Prohibited Owner was entitled to
receive pursuant to the aforementioned requirement, the excess shall be paid to
the trustee upon demand.
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The
Ownership Limit provision will not be automatically removed even if the REIT
provisions of the Code are changed so as to no longer contain any ownership
concentration limitation or if the ownership concentration is
increased. Any change in the Ownership Limit would require an
amendment to our charter. Such an amendment will require the
affirmative vote of the holders of a majority of the outstanding shares of
common stock and any other class of capital stock with such voting
rights. In addition to preserving our qualification as a REIT, the
Ownership Limit may have the effect of precluding an acquisition of control of
our company without the approval of our board.
To the
extent our shares of stock are certificated, all certificates representing
shares of our common stock or preferred stock will refer to the restrictions
described above.
Any
person who acquires or attempts or intends to acquire shares of our stock in
violation of any of the foregoing restrictions on transferability and ownership
will be required to give written notice immediately to us and provide us with
such other information as we may request in order to determine the effect of
such transfer on our qualification as a REIT.
All
persons who own, directly or by virtue of the attribution provisions of the
Code, 5% or more of our outstanding shares of stock (or such other percentage at
the time prescribed by the Code or the regulations promulgated thereunder) must
file a written statement with us containing the information specified in our
charter within 30 days after January 1 of each year. In addition,
each stockholder must upon demand disclose to us such information as we deem
necessary in order to determine our qualification as a REIT and to ensure
compliance with the Ownership Limit.
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock and preferred stock is BNY
Mellon Shareowner Services, 480 Washington Boulevard, Jersey City, NJ
07310-1900. Its telephone number is 866-249-2610 and its website is
www.bnymellon.com/shareowner/isd.
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We may
issue depositary receipts representing interests in shares of a particular
series of preferred stock, which are called depositary shares. We
will deposit the shares of preferred stock of a series which is the subject of
depositary shares with a depositary, which will hold that preferred stock for
the benefit of the holders of the depositary shares, in accordance with a
deposit agreement between the depositary and us. The holders of
depositary shares will be entitled to all of the rights and preferences of the
shares of preferred stock to which the depositary shares relate, including
dividend, voting, conversion, redemption and liquidation rights, to the extent
of their interests in that preferred stock.
While the
deposit agreement relating to a particular series of preferred stock may have
provisions applicable solely to that series of preferred stock, all deposit
agreements relating to preferred stock we issue will include the following
provisions:
Dividends and Other
Distributions. Each time we pay a cash dividend or make any
other type of cash distribution with regard to preferred stock held by a
depositary, the depositary will distribute the dividend or other distribution to
the holders of depositary shares in proportion to the depositary shares held by
each of them. If there is a distribution of property other than cash,
the depositary either will distribute the property to the holders of depositary
shares in proportion to the depositary shares held by each of them, or the
depositary will, if we approve, sell the property and distribute the net
proceeds to the holders of the depositary shares in proportion to the depositary
shares held by them.
Withdrawal of Preferred
Stock. A holder of depositary shares will be entitled to
receive, upon surrender of depositary receipts representing depositary shares,
the number of whole or fractional shares of the applicable series of preferred
stock, and any money or other property, to which the depositary shares
relate.
Redemption of Depositary
Shares. Whenever we redeem shares of preferred stock held by a
depositary, the depositary will be required to redeem, on the same redemption
date, depositary shares constituting, in total, the number of shares of
preferred stock held by the depositary which we redeem, subject to the
depositary's receiving the redemption price of those shares of preferred
stock. If fewer than all the depositary shares relating to a series
are to be redeemed, the depositary shares to be redeemed will be selected by lot
or by another method we determine to be equitable.
Voting. Any time
we send a notice of meeting or other materials relating to a meeting to the
holders of a series of preferred stock to which depositary shares relate, we
will provide the depositary with sufficient copies of those materials so they
can be sent to all holders of record of the applicable depositary shares, and
the depositary will send those materials to the holders of record of the
depositary shares on the record date for the meeting. The depositary
will solicit voting instructions from holders of depositary shares and will vote
or not vote the preferred stock to which the depositary shares relate in
accordance with those instructions.
Liquidation
Preference. Upon our liquidation, dissolution or winding up,
the holder of each depositary share will be entitled to what the holder of the
depositary share would have received if the holder had owned the number of
shares (or fraction of a share) of preferred stock which is represented by the
depositary share.
Conversion. If
shares of a series of preferred stock are convertible into common stock or other
of our securities or property, holders of depositary shares relating to that
series of preferred stock will, if they surrender depositary receipts
representing depositary shares and appropriate instructions to convert them,
receive the shares of common stock or other securities or property into which
the number of shares (or fractions of shares) of preferred stock to which the
depositary shares relate could at the time be converted.
Amendment and Termination of a
Deposit Agreement. We and the depositary may amend a deposit
agreement, except that an amendment which materially and adversely affects the
rights of holders of depositary shares, or would be materially and adversely
inconsistent with the rights granted to the holders of the preferred stock to
which they relate, must be approved by holders of at least two-thirds of the
outstanding depositary shares. No amendment will impair the right of
a holder of depositary shares to surrender the depositary receipts evidencing
those depositary shares and receive the preferred stock to which they relate,
except as required to comply with law. We may terminate a deposit
agreement with the consent of holders of a majority of the depositary shares to
which it relates. Upon termination of a deposit agreement, the
depositary will make the whole or fractional shares of preferred stock to which
the depositary shares issued under the deposit agreement relate available to the
holders of those depositary shares. A deposit agreement will
automatically terminate if:
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all
outstanding depositary shares to which it relates have been redeemed or
converted; or
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the
depositary has made a final distribution to the holders of the depositary
shares issued under the deposit agreement upon our liquidation,
dissolution or winding up.
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Miscellaneous. There
will be provisions: (1) requiring the depositary to forward to holders of
record of depositary shares any reports or communications from us which the
depositary receives with respect to the shares of preferred stock to which the
depositary shares relate; (2) regarding compensation of the depositary;
(3) regarding resignation of the depositary; (4) limiting our
liability and the liability of the depositary under the deposit agreement
(usually to failure to act in good faith, gross negligence or willful
misconduct); and (5) indemnifying the depositary against certain possible
liabilities.
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Each
issue of warrants will be the subject of a warrant agreement which will contain
the terms of the warrants. We will distribute a prospectus supplement
with regard to each issue of warrants. Each prospectus supplement
will describe, as to the warrants to which it relates:
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the
securities which may be purchased by exercising the warrants (which may be
common stock, preferred stock, depositary shares or units consisting of
two or more of those types of
securities);
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the
exercise price of the warrants (which may be wholly or partly payable in
cash or wholly or partly payable with other types of
consideration);
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the
period during which the warrants may be
exercised;
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any
provision adjusting the securities which may be purchased on exercise of
the warrants and the exercise price of the warrants in order to prevent
dilution or otherwise;
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the
place or places where warrants can be presented for exercise or for
registration of transfer or exchange;
and
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any
other material terms of the
warrants.
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The
following description of the terms of our stock and of certain provisions of
Maryland law is only a summary. This summary is not complete and is
qualified by the provisions of our charter and bylaws, and the
MGCL. See "Incorporation Of Certain Documents By
Reference."
Classification
of Our Board
Our
bylaws provide that the number of directors may be established by our board but
may not be fewer than the minimum number permitted by the MGCL nor more than
fifteen. Any vacancy may be filled, at any regular meeting or at any
special meeting called for that purpose, only by a majority of the remaining
directors. Any director elected to fill a vacancy by our board serves
for the remainder of the full term of the class of directors in which the
vacancy occurred and until his or her successor is elected and
qualifies.
Pursuant
to our charter, our board is divided into three classes of
directors. Directors of each class serve for three-year terms and
each year one class of directors will be elected by the
stockholders. The number of directors in each class and the
expiration of the current term of each class term is as follows:
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Class
I
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3
Directors
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Expires
2011
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Class
II
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3
Directors
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Expires
2012
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Class
III
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3
Directors
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Expires
2013
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We
believe that the classification of our board helps to assure the continuity and
stability of our business strategies and policies as determined by our
board. Common stockholders have no right to cumulative voting in the
election of directors, which means that the holders of a majority of the
outstanding shares of common stock can elect all of the directors then standing
for election, and the holders of the remaining shares will not be able to elect
any directors.
The
classified board provision of our charter could have the effect of making the
replacement of incumbent directors more time-consuming and
difficult. At least two annual meetings of stockholders, instead of
one, will generally be required to effect a change in a majority of our
board. Thus, the classified board provision could increase the
likelihood that incumbent directors will retain their positions. The
staggered terms of directors may delay, defer or prevent a tender offer or an
attempt to change control of our company, even though the tender offer or change
in control might be in the best interest of our stockholders.
Removal
of Directors
Our
charter provides that a director may be removed only for cause and only by the
affirmative vote of at least 80% of the votes entitled to be cast in the
election of directors. This provision, when coupled with the
exclusive power of our board to fill vacant directorships, precludes
stockholders from removing incumbent directors except for cause and by a
substantial affirmative vote and filing the vacancies created by the removal
with their own nominees.
Business
Combinations
Under
Maryland law, "business combinations" between a Maryland corporation and an
interested stockholder or an affiliate of an interested stockholder are
prohibited for five years after the most recent date on which the interested
stockholder becomes an interested stockholder. These business
combinations include a merger, consolidation, share exchange, or, in
circumstances specified in the statute, an asset transfer or issuance or
reclassification of equity securities. An interested stockholder is
defined as:
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any
person who beneficially owns ten percent or more of the voting power of
the corporation's outstanding voting stock;
or
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an
affiliate or associate of the corporation who, at any time within the
two-year period immediately prior to the date in question, was the
beneficial owner of ten percent or more of the voting power of the then
outstanding stock of the
corporation.
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A person
is not an interested stockholder under the statute if our board approved in
advance the transaction by which he or she otherwise would have become an
interested stockholder. However, in approving a transaction, our
board may provide that its approval is subject to compliance, at or after the
time of approval, with any terms and conditions determined by our
board.
After the
five-year prohibition, any business combination between the Maryland corporation
and an interested stockholder generally must be recommended by our board of the
corporation and approved by the affirmative vote of at least:
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80%
of the votes entitled to be cast by holders of outstanding shares of
voting stock of the corporation;
and
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two-thirds
of the votes entitled to be cast by holders of voting stock of the
corporation other than shares held by the interested stockholder with whom
or with whose affiliate the business combination is to be effected or held
by an affiliate or associate of the interested
stockholder.
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These
super-majority vote requirements do not apply if the corporation's common
stockholders receive a minimum price, as defined under Maryland law, for their
shares in the form of cash or other consideration in the same form as previously
paid by the interested stockholder for its shares.
The
business combination statute may discourage others from trying to acquire
control of us and increase the difficulty of consummating any
offer.
Control
Share Acquisitions
Maryland
law provides that holders of 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. Shares owned by the acquiror, by officers or by directors who
are employees of the corporation are excluded from shares entitled to vote on
the matter. Control shares are voting shares of stock which, if
aggregated with all other shares of stock owned by the acquiror or in respect of
which the acquiror is able to exercise or direct the exercise of voting power
(except solely by virtue of a revocable proxy), would entitle the acquiror to
exercise voting power in electing directors within one of the following ranges
of voting power:
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one-tenth
or more but less than one-third;
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one-third
or more but less than a majority;
or
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a
majority or more of all voting
power.
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Control
shares do not include shares the acquiring person is then entitled to vote as a
result of having previously obtained 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 may compel our
board 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. The right to compel the calling of a special meeting is
subject to the satisfaction of certain conditions, including an undertaking to
pay the expenses of the meeting. If no request for a meeting is made,
the 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 the
corporation may redeem for fair value any or all of the control shares, except
those for which voting rights have previously been approved. The
right of the corporation to redeem control shares is subject to certain
conditions and limitations. Fair value is determined, without regard
to the absence of voting rights for the control shares, as of the date of the
last control share acquisition by the acquiror or of any meeting of stockholders
at which the voting rights of the 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
appraisal rights may not be less than the highest price per share paid by the
acquiror in the control share acquisition.
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The
control share acquisition statute does not apply (a) to shares acquired in
a merger, consolidation or share exchange if the corporation is a party to the
transaction, or (b) to acquisitions approved or exempted by the charter or
bylaws of the corporation. Our bylaws contain a provision exempting
from the control share acquisition statute any and all acquisitions by any
person of shares of our stock. There can be no assurance that this
provision will not be amended or eliminated at any time in the
future.
Subtitle
8
Subtitle
8 of Title 3 of the MGCL permits a Maryland corporation with a class of equity
securities registered under the Exchange Act and at least three independent
directors to elect to be subject, by provision in its charter or bylaws or a
resolution of its board of directors and notwithstanding any contrary provision
in the charter or bylaws, to any or all of five provisions:
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a
classified board;
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a
two-thirds vote requirement for removing a
director;
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a
requirement that the number of directors be fixed only by vote of the
directors;
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a
requirement that a vacancy on the board be filled only by the remaining
directors in office and for the remainder of the full term of the class of
directors in which the vacancy occurred;
and
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a
majority requirement for the calling of a special meeting of
stockholders.
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Without
our having elected to be subject to Subtitle 8, our charter and bylaws already
(1) provide for a classified board, (2) require the affirmative vote of the
holders of at least 80% of the votes entitled to be cast in the election of
directors for the removal of any director from our board, which removal will be
allowed only for cause, (3) vest in our board the exclusive power to fix the
number of directorships and (4) require, unless called by our Chairman of the
Board, Chief Executive Officer or President or our board, the written request of
stockholders entitled to cast not less than a majority of all votes entitled to
be cast at such a meeting to call a special meeting. In addition, we
have elected to be subject to the Subtitle 8 provision that requires a vacancy
on our board to be filled only by the remaining directors in office and for the
remainder of the full term of the class of directors in which the vacancy
occurred.
Meetings
of Stockholders
Pursuant
to our bylaws, a meeting of our stockholders for the election of directors and
the transaction of any business will be held annually. In addition,
our Chairman of our Board, Chief Executive Officer, President or our board may
call a special meeting of our stockholders. Subject to the provisions
of our bylaws, a special meeting of our stockholders will also be called by our
Secretary upon the written request of the stockholders entitled to cast not less
than a majority of all the votes entitled to be cast at the
meeting.
Limitation
and Indemnification of Directors’ and Officers’ Liability
Maryland
law 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 (a) actual
receipt of an improper benefit or profit in money, property or services or (b)
active and deliberate dishonesty established by a final judgment and which is
material to the cause of action. Our charter contains such a
provision which eliminates directors' and officers' liability to the maximum
extent permitted by Maryland law.
Our
charter obligates us, to the maximum extent permitted by Maryland law, to
indemnify any director or officer or any individual who, while a director or
officer of our company and at the request of our company, serves or has served
another entity, from and against any claim or liability to which that individual
may become subject or which that individual may incur by reason of his or her
status as a director or officer of our company and to pay or reimburse his or
her reasonable expenses in advance of final disposition of a
proceeding. The charter also permits our company to indemnify and
advance expenses to any employee or agent of our company.
Maryland
law requires a corporation (unless its charter provides otherwise, which our
charter does not) to indemnify a director or officer who has been successful in
the defense of any proceeding to which he or she is made or threatened to be
made a party by reason of his or her service in that
capacity. Maryland law 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 Maryland law, 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, Maryland law permits a
corporation to advance reasonable expenses to a director or officer only upon
the corporation's receipt of (a) a written affirmation by the director or
officer of his or her good faith belief that he or she has met the standard of
conduct necessary for indemnification by the corporation and (b) a written
undertaking by him or her or on his or her behalf to repay the amount paid or
reimbursed by the corporation if it is ultimately determined that the standard
of conduct was not met.
Amendment
to Our Charter
Our
charter may be amended only by the affirmative vote of the holders of not less
than a majority of all of the votes entitled to be cast on the matter; provided,
however, that certain amendments related to our board, consideration of
non-stockholder constituencies, indemnification, exculpation, advance notice of
stockholder proposals and the charter amendment section require the affirmative
vote of not less than 80% of all the votes entitled to be cast on such
matters.
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Dissolution
of Our Company
Our
dissolution must be declared advisable by a majority of our entire board and
approved by the affirmative vote of the holders of not less than a majority of
all of the votes entitled to be cast on the matter.
Advance
Notice of Director Nominations and New Business
Our
charter provides that, with respect to annual meetings, timely notice of
stockholder business proposals and stockholder nominees for directors must be
received in accordance with the bylaws. The bylaws provide that with
respect to an annual meeting of stockholders, nominations of individuals for
election to our board and the proposal of other business to be considered by
stockholders may be made only pursuant to our notice of the meeting, by our
board or by a stockholder who has complied with the advance notice procedures of
the bylaws. With respect to special meetings of stockholders,
proposals of business to be considered by stockholders may be made only pursuant
to our notice of the meeting, by our board or by a stockholder who has complied
with the advance notice provisions of the bylaws.
Anti-takeover
Effect of Certain Provisions of Maryland Law and of Our Charter and
Bylaws
The
business combination provisions and the control share acquisition provisions of
Maryland law, the provisions of our charter on classification of our board and
removal of directors and the advance notice provisions of our bylaws could
delay, defer or prevent a transaction or a change in control of our company that
might involve a premium price for holders of common stock or otherwise be in
their best interest.
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The
following is a summary of the material U.S. federal income tax considerations
relating to our qualification and taxation as a REIT and the acquisition,
holding, and disposition of our capital stock. For purposes of this
section, references to "we," "our," "us" or "our company" mean only MFA
Financial, Inc. and not our subsidiaries or other lower-tier entities, except as
otherwise indicated. This summary is based upon the Internal Revenue
Code, the regulations promulgated by the U.S. Treasury Department (or the
Treasury regulations), current administrative interpretations and practices of
the Internal Revenue Service (or IRS) (including administrative interpretations
and practices expressed in private letter rulings which are binding on the IRS
only with respect to the particular taxpayers who requested and received those
rulings) and judicial decisions, all as currently in effect and all of which are
subject to differing interpretations or to change, possibly with retroactive
effect. No assurance can be given that the IRS would not assert, or
that a court would not sustain, a position contrary to any of the tax
consequences described below. No advance ruling has been or will be
sought from the IRS regarding any matter discussed in this
summary. The summary is also based upon the assumption that the
operation of our company, and of its subsidiaries and other lower-tier and
affiliated entities, will, in each case, be in accordance with its applicable
organizational documents. This summary is for general information
only, and does not purport to discuss all aspects of U.S. federal income
taxation that may be important to a particular stockholder in light of its
investment or tax circumstances or to stockholders subject to special tax rules,
such as:
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U.S.
expatriates;
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persons
who mark-to-market our capital
stock;
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subchapter
S corporations;
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U.S.
stockholders (as defined below) whose functional currency is not the U.S.
dollar;
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financial
institutions;
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insurance
companies;
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broker-dealers;
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regulated
investment companies (or RICs);
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trusts
and estates;
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holders
who receive our capital stock through the exercise of employee stock
options or otherwise as
compensation;
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persons
holding our capital stock as part of a "straddle," "hedge," "conversion
transaction," "synthetic security" or other integrated
investment;
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persons
subject to the alternative minimum tax provisions of the Internal Revenue
Code;
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persons
holding their interest through a partnership or similar pass-through
entity;
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persons
holding a 10% or more (by vote or value) beneficial interest in us; and,
except to the extent discussed
below:
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tax-exempt
organizations; and
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non-U.S.
stockholders (as defined below).
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This
summary assumes that stockholders will hold our capital stock as capital assets,
which generally means as property held for investment.
THE U.S.
FEDERAL INCOME TAX TREATMENT OF HOLDERS OF OUR CAPITAL STOCK DEPENDS IN SOME
INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF
U.S. FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE
AVAILABLE. IN ADDITION, THE TAX CONSEQUENCES OF HOLDING OUR CAPITAL
STOCK TO ANY PARTICULAR STOCKHOLDER WILL DEPEND ON THE STOCKHOLDER'S PARTICULAR
TAX CIRCUMSTANCES. YOU ARE URGED TO CONSULT YOUR TAX ADVISOR
REGARDING THE U.S. FEDERAL, STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX
CONSEQUENCES TO YOU, IN LIGHT OF YOUR PARTICULAR INVESTMENT OR TAX
CIRCUMSTANCES, OF ACQUIRING, HOLDING, AND DISPOSING OF OUR CAPITAL
STOCK.
Taxation
of Our Company—General
We have
elected to be taxed as a REIT under Sections 856 through 860 of the Internal
Revenue Code, commencing with our taxable year ended December 31,
1998. We believe that we have been organized and operated in a manner
that allows us to qualify for taxation as a REIT under the Internal Revenue
Code, and we intend to continue to be organized and operate in such a
manner.
In the
opinion of Clifford Chance US LLP, our counsel, commencing with our taxable year
ended December 31, 1998, we have been organized and 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 so
qualify. Clifford Chance US LLP's opinion relies, with respect to all
taxable periods beginning prior to January 1, 2002, solely on an opinion issued
by Kutak Rock LLP, which previously served as our counsel. It must be
emphasized that Clifford Chance US LLP's opinion is based and conditioned upon
certain assumptions and representations made by us as to factual matters
(including our representations concerning our income and properties and the
past, present, and future conduct of our business operations as set forth in
this prospectus and factual certificates provided by our
management). The opinion is expressed as of the date of this
prospectus and Clifford Chance US LLP has no obligation to advise of any
subsequent change in the matters stated, represented or assumed or any
subsequent change in the applicable law. Moreover, our qualification
and taxation as a REIT depends upon our ability to meet, through actual annual
operating results, distribution levels and diversity of stock ownership, the
various requirements imposed under the Internal Revenue Code as discussed below,
the results of which will not be reviewed by Clifford Chance US
LLP. Accordingly, no assurance can be given that the actual results
of our operation for any one taxable year have satisfied or will satisfy such
requirements. See "—Failure to Qualify." An opinion of
counsel is not binding on the IRS, and no assurance can be given that the IRS
will not challenge our qualification as a REIT.
Taxation
of REITs in General
As
indicated above, qualification and taxation as a REIT depends upon our ability
to meet, on a continuing basis, various qualification requirements imposed upon
REITs by the Internal Revenue Code. The material qualification
requirements are summarized below, under "—Requirements for Qualification as a
REIT." While we believe that we have operated and intend to continue
to operate so that we qualify as a REIT, no assurance can be given that the IRS
will not challenge our qualification as a REIT or that we will be able to
operate in accordance with the REIT requirements in the future. See
"—Failure to Qualify."
Provided
that we qualify as a REIT, we will generally be entitled to a deduction for
dividends that we pay and, therefore, will not be subject to U.S. federal
corporate income tax on our net income that is currently distributed to our
stockholders. This treatment substantially eliminates the "double
taxation" at the corporate and stockholder levels that results generally from
investment in a corporation. Rather, income generated by a REIT
generally is taxed only at the stockholder level, upon a distribution of
dividends by the REIT.
For tax
years through 2010, stockholders who are individual U.S. stockholders (as
defined below) are generally taxed on corporate dividends at a maximum rate of
15% (the same as long-term capital gains), thereby substantially reducing,
though not completely eliminating, the double taxation that has historically
applied to corporate dividends.
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With
limited exceptions, however, dividends received by individual U.S. stockholders
from us or from other entities that are taxed as REITs will continue to be taxed
at rates applicable to ordinary income, which will be as high as 35% through
2010.
Net
operating losses, foreign tax credits and other tax attributes of a REIT
generally do not pass through to the stockholders of the REIT, subject to
special rules for certain items, such as capital gains, recognized by
REITs. See "—Taxation of Taxable U.S. Stockholders."
Even if
we qualify for taxation as a REIT, however, we will be subject to U.S. federal
income taxation as follows:
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We
will be taxed at regular corporate rates on any undistributed income,
including undistributed net capital
gains.
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We
may be subject to the "alternative minimum tax" on our items of tax
preference, if any.
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If
we have net income from prohibited transactions, which are, in general,
sales or other dispositions of property held primarily for sale to
customers in the ordinary course of business, other than foreclosure
property, such income will be subject to a 100% tax. See
"—Prohibited Transactions" and "—Foreclosure Property"
below.
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If
we elect to treat property that we acquire in connection with a
foreclosure of a mortgage loan or from certain leasehold terminations as
"foreclosure property," we may thereby avoid (a) the 100% tax on gain
from a resale of that property (if the sale would otherwise constitute a
prohibited transaction) and (b) the inclusion of any income from such
property not qualifying for purposes of the REIT gross income tests
discussed below, but the income from the sale or operation of the property
may be subject to corporate income tax at the highest applicable rate
(currently 35%).
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If
we fail to satisfy the 75% gross income test or the 95% gross income test,
as discussed below, but nonetheless maintain our qualification as a REIT
because other requirements are met, we will be subject to a 100% tax on an
amount equal to (a) the greater of (1) the amount by which we
fail the 75% gross income test or (2) the amount by which we fail the
95% gross income test, as the case may be, multiplied by (b) a
fraction intended to reflect our
profitability.
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If
we fail to satisfy any of the REIT asset tests, as described below, other
than a failure of the 5% or 10% REIT asset tests that do not exceed a
statutory de
minimis amount as described more fully below, but our failure is
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 (currently 35%) of the net income generated by
the nonqualifying assets during the period in which we failed to satisfy
the asset tests.
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If
we fail to satisfy any provision of the Internal Revenue Code that would
result in our failure to qualify as a REIT (other than a gross income or
asset test requirement) and the violation is due to reasonable cause, we
may retain our REIT qualification but we will be required to pay a penalty
of $50,000 for each such failure.
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If
we fail to distribute during each calendar year at least the sum of
(a) 85% of our REIT ordinary income for such year, (b) 95% of
our REIT capital gain net income for such year and (c) any
undistributed taxable income from prior periods (or the required
distribution), we will be subject to a 4% excise tax on the excess of the
required distribution over the sum of (1) the amounts actually
distributed (taking into account excess distributions from prior years),
plus (2) retained amounts on which income tax is paid at the
corporate level.
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We
may be required to pay monetary penalties to the IRS in certain
circumstances, including if we fail to meet record-keeping requirements
intended to monitor our compliance with rules relating to the composition
of our stockholders, as described below in "—Requirements for
Qualification as a REIT."
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A
100% excise tax may be imposed on some items of income and expense that
are directly or constructively paid between us and any taxable REIT
subsidiaries (or TRSs) we may own if and to the extent that the IRS
successfully adjusts the reported amounts of these
items.
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If
we acquire appreciated assets from a corporation that is not a REIT in a
transaction in which the adjusted tax basis of the assets in our hands is
determined by reference to the adjusted tax basis of the assets in the
hands of the non-REIT corporation, we will be subject to tax on such
appreciation at the highest corporate income tax rate then applicable if
we subsequently recognize gain on a disposition of any such assets during
the 10-year period following their acquisition from the non-REIT
corporation. The results described in this paragraph assume
that the non-REIT corporation will not elect, in lieu of this treatment,
to be subject to an immediate tax when the asset is acquired by
us.
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We
will generally be subject to tax on the portion of any excess inclusion
income derived from an investment in residual interests in real estate
mortgage investment conduits (or REMICs) to the extent our stock is held
by specified tax-exempt organizations not subject to tax on unrelated
business taxable income. To the extent that we own a REMIC
residual interest through a TRS, we will not be subject to this
tax. For a discussion of excess inclusion income, see "—Excess
Inclusion Income."
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We
may elect to retain and pay income tax on our net long-term capital
gain. In that case, a stockholder would include its
proportionate share of our undistributed long-term capital gain (to the
extent we make a timely designation of such gain to the stockholder) in
its income, would be deemed to have paid the tax that we paid on such
gain, and would be allowed a credit for its proportionate share of the tax
deemed to have been paid, and an adjustment would be made to increase the
stockholder's basis in our capital
stock.
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We
may have subsidiaries or own interests in other lower-tier entities that
are subchapter C corporations, the earnings of which could be subject to
U.S. federal corporate income tax.
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In
addition, we may be subject to a variety of taxes other than U.S. federal income
tax, including payroll taxes and state, local, and foreign income, franchise
property and other taxes. We could also be subject to tax in
situations and on transactions not presently contemplated.
Requirements
for Qualification as a REIT
The
Internal Revenue Code defines a REIT as a corporation, trust or
association:
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(1)
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that
is managed by one or more trustees or
directors;
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(2)
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the
beneficial ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial
interest;
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(3)
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that
would be taxable as a domestic corporation but for the special Internal
Revenue Code provisions applicable to
REITs;
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(4)
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that
is neither a financial institution nor an insurance company subject to
specific provisions of the Internal Revenue
Code;
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(5)
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the
beneficial ownership of which is held by 100 or more persons during at
least 335 days of a taxable year of 12 months, or during a proportionate
part of a taxable year of less than 12
months;
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(6)
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in
which, during the last half of each taxable year, not more than 50% in
value of the outstanding stock is owned, directly or indirectly, by five
or fewer "individuals" (as defined in the Internal Revenue Code to include
specified entities);
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(7)
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which
meets other tests described below, including with respect to the nature of
its income and assets and the amount of its distributions;
and
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(8)
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that
makes an election to be a REIT for the current taxable year or has made
such an election for a previous taxable year that has not been terminated
or revoked.
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The
Internal Revenue Code provides that conditions (1) through (4) must be met
during the entire year. Conditions (5) and (6) do not apply to the
first taxable year for which an election is made to be taxed as a
REIT.
We
believe that we currently satisfy conditions (1) through (8)
above. In addition, our charter provides for restrictions regarding
ownership and transfer of our capital stock. These restrictions are
intended to assist us in satisfying the share ownership requirements described
in (5) and (6) above. To maintain compliance with the share ownership
requirements, we are generally required to maintain records regarding the actual
ownership of our shares. To do so, we must demand written statements
each year from the record holders of significant percentages of our stock, in
which the record holders are to disclose the actual owners of the shares (i.e.,
the persons required to include in gross income the dividends paid by
us). A list of those persons failing or refusing to comply with this
demand must be maintained as part of our records. Failure by us to
comply with these record-keeping requirements could subject us to monetary
penalties. If we satisfy these requirements and have no reason to
know that condition (6) is not satisfied, we will be deemed to have satisfied
such condition. A stockholder that fails or refuses to comply with
the demand is required by Treasury regulations to submit a statement with its
tax return disclosing the actual ownership of the shares and other
information.
In
addition, a corporation generally may not elect to become a REIT unless its
taxable year is the calendar year. We satisfy this
requirement.
Effect
of Subsidiary Entities
Ownership
of Partnership Interests
In the
case of a REIT that is a partner in a partnership, Treasury regulations provide
that the REIT is deemed to own its proportionate share of the partnership's
assets and to earn its proportionate share of the partnership's gross income
based on its pro rata
share of capital interests in the partnership for purposes of the asset and
gross income tests applicable to REITs, as described below. However,
solely for purposes of the 10% value test, described below, the determination of
a REIT's interest in partnership assets will be based on the REIT's
proportionate interest in any securities issued by the partnership, excluding
for these purposes, certain excluded securities as described in the Internal
Revenue Code. In addition, the assets and gross income of the
partnership generally are deemed to retain the same character in the hands of
the REIT. Thus, our proportionate share of the assets and items of
income of partnerships in which we own an equity interest is treated as assets
and items of income of our company for purposes of applying the REIT
requirements described below. Consequently, to the extent that we
directly or indirectly hold a preferred or other equity interest in a
partnership, the partnership's assets and operations may affect our ability to
qualify as a REIT, even though we may have no control or only limited influence
over the partnership.
Disregarded
Subsidiaries
If a REIT
owns a corporate subsidiary that is a "qualified REIT subsidiary," that
subsidiary is disregarded for U.S. federal income tax purposes, and all assets,
liabilities and items of income, deduction and credit of the subsidiary are
treated as assets, liabilities and items of income, deduction and credit of the
REIT itself, including for purposes of the gross income and asset tests
applicable to REITs, as summarized below. A qualified REIT subsidiary
is any corporation, other than a TRS, that is wholly-owned by a REIT, by other
disregarded subsidiaries or by a combination of the two. Single
member limited liability companies that are wholly-owned by a REIT are also
generally disregarded as separate entities for U.S. federal income tax purposes,
including for purposes of the REIT gross income and asset
tests. Disregarded subsidiaries, along with partnerships in which we
hold an equity interest, are sometimes referred to herein as "pass-through
subsidiaries."
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In the
event that a disregarded subsidiary ceases to be wholly-owned by us (for
example, if any equity interest in the subsidiary is acquired by a person other
than us or another disregarded subsidiary of us), the subsidiary's separate
existence would no longer be disregarded for U.S. federal income tax
purposes. Instead, it would
have multiple owners and would be treated as either a partnership or a taxable
corporation. Such an event could, depending on the circumstances,
adversely affect our ability to satisfy the various asset and gross income tests
applicable to REITs, including the requirement that REITs generally may not own,
directly or indirectly, more than 10% of the value or voting power of the
outstanding securities of another corporation. See "—Asset Tests" and
"—Gross Income Tests."
Taxable
REIT Subsidiaries
A REIT is
not treated as holding the assets of a TRS or other taxable subsidiary
corporation or as receiving any income that the subsidiary
earns. Rather, the stock issued by the subsidiary is an asset in the
hands of the REIT, and the REIT generally recognizes as income the dividends, if
any, that it receives from the subsidiary. This treatment can affect
the gross income and asset test calculations that apply to the REIT, as
described below. Because a parent REIT does not include the assets
and income of such subsidiary corporations in determining the parent's
compliance with the REIT requirements, such entities may be used by the parent
REIT to undertake indirectly activities that the REIT rules might otherwise
preclude it from doing directly or through pass-through subsidiaries or render
commercially unfeasible (for example, activities that give rise to certain
categories of income such as non-qualifying hedging income or inventory
sales). If dividends are paid to us by one or more TRSs we may own
then a portion of the dividends that we distribute to stockholders who are taxed
at individual rates generally will be eligible for taxation at preferential
qualified dividend income tax rates rather than at ordinary income
rates. See "—Taxation of Taxable U.S. Stockholders" and "—Annual
Distribution Requirements."
Certain
restrictions imposed on TRSs are intended to ensure that such entities will be
subject to appropriate levels of U.S. federal income taxation. First,
a TRS may not deduct interest payments made in any year to an affiliated REIT to
the extent that such payments exceed, generally, 50% of the TRS's adjusted
taxable income for that year (although the TRS may carry forward to, and deduct
in, a succeeding year the disallowed interest amount if the 50% test is
satisfied in that year). In addition, if amounts are paid to a REIT
or deducted by a TRS due to transactions between a REIT, its tenants and/or the
TRS, that exceed the amount that would be paid to or deducted by a party in an
arm's-length transaction, the REIT generally will be subject to an excise tax
equal to 100% of such excess.
We had
made a TRS election with respect to our ownership interest in Retirement Centers
Corporation (or RCC), which election was effective, for U.S. federal income tax
purposes, as of March 30, 2002. During the time RCC was our TRS,
we and RCC engaged in certain transactions pursuant to which RCC made interest
and other payments to us. We believe that such transactions were
entered into at arm's length. However, no assurance can be given that
any such payments would not result in the limitation on interest deductions or
100% excise tax provisions being applicable to us and RCC. We,
together with RCC, revoked RCC's election to be a TRS on January 2,
2003. As a result, effective January 2, 2003, RCC became a
qualified REIT subsidiary.
Gross
Income Tests
In order
to maintain our qualification as a REIT, we annually must satisfy two gross
income tests. First, at least 75% of our gross income for each
taxable year, excluding gross income from sales of inventory or dealer property
in "prohibited transactions" and certain hedging and foreign currency
transactions, must be derived from investments relating to real property or
mortgages on real property, including "rents from real property," dividends
received from and gains from the disposition of other Shares of REITs, interest
income derived from mortgage loans secured by real property (including certain
types of MBS), and gains from the sale of real estate assets, as well as income
from certain kinds of temporary investments. Second, at least 95% of
our gross income in each taxable year, excluding gross income from prohibited
transactions and certain hedging and foreign currency transactions, must be
derived from some combination of income that qualifies under the 75% income test
described above, as well as other dividends, interest, and gain from the sale or
disposition of stock or securities, which need not have any relation to real
property.
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For
purposes of the 75% and 95% gross income tests, a REIT is deemed to have earned
a proportionate share of the income earned by any partnership, or any limited
liability company treated as a partnership for U.S. federal income tax purposes,
in which it owns an interest, which share is determined by reference to its
capital interest in such entity, and is deemed to have earned the income earned
by any qualified REIT subsidiary.
Interest
Income
Interest
income constitutes qualifying mortgage interest for purposes of the 75% gross
income test to the extent that the obligation is secured by a mortgage on real
property. If we receive interest income with respect to a mortgage
loan that is secured by both real property and other property and the highest
principal amount of the loan outstanding during a taxable year exceeds the fair
market value of the real property on the date that we acquired the mortgage
loan, the interest income will be apportioned between the real property and the
other property, and our income from the arrangement will qualify for purposes of
the 75% gross income test only to the extent that the interest is allocable to
the real property. Even if a loan is not secured by real property or
is undersecured, the income that it generates may nonetheless qualify for
purposes of the 95% gross income test.
To the
extent that the terms of a loan provide for contingent interest that is based on
the cash proceeds realized upon the sale of the property securing the loan (or a
shared appreciation provision), income attributable to the participation feature
will be treated as gain from sale of the underlying property, which generally
will be qualifying income for purposes of both the 75% and 95% gross income
tests, provided that the
property is not inventory or dealer property in the hands of the borrower or
us.
To the
extent that we derive interest income from a loan where all or a portion of the
amount of interest payable is contingent, such income generally will qualify for
purposes of the gross income tests only if it is based upon the gross receipts
or sales and not the net income or profits of any person. This
limitation does not apply, however, to a mortgage loan where the borrower
derives substantially all of its income from the property from the leasing of
substantially all of its interest in the property to tenants, to the extent that
the rental income derived by the borrower would qualify as rents from real
property had it been earned directly by us.
Any
amount includible in our gross income with respect to a regular or residual
interest in a REMIC generally is treated as interest on an obligation secured by
a mortgage on real property. If, however, less than 95% of the assets
of a REMIC consists of real estate assets (determined as if we held such
assets), we will be treated as receiving directly our proportionate share of the
income of the REMIC.
We
believe that the interest, original issue discount, and market discount income
that we receive from our mortgage related securities generally will be
qualifying income for purposes of both gross income tests. However,
to the extent that we own non-REMIC collateralized mortgage obligations or other
debt instruments secured by mortgage loans (rather than by real property) or
secured by non-real estate assets, or debt securities that are not secured by
mortgages on real property or interests in real property, the interest income
received with respect to such securities generally will be qualifying income for
purposes of the 95% gross income test, but not the 75% gross income
test. In addition, the loan amount of a mortgage loan that we own may
exceed the value of the real property securing the loan. In that
case, a portion of the income from the loan will be qualifying income for
purposes of the 95% gross income test, but not the 75% gross income
test.
Dividend
Income
We may
indirectly receive distributions from TRSs or other corporations that are not
REITs or qualified REIT subsidiaries. These distributions will be
classified as dividend income to the extent of the earnings and profits of the
distributing corporation. Such distributions will generally
constitute qualifying income for purposes of the 95% gross income test, but not
under the 75% gross income test. Any dividends received by us from a
REIT will be qualifying income in our hands for purposes of both the 95% and 75%
gross income tests.
Foreign
Investments
To the
extent that we hold or acquire foreign investments, such as CMBS denominated in
foreign currencies, such investments may generate foreign currency gains and
losses. “Real estate foreign exchange gain” is excluded from the
calculation of the 75% and 95% gross income tests and other “passive foreign
exchange gain” is excluded from the calculation of the 95% gross income
test. “Real estate foreign exchange gain” means (i) foreign currency
gain attributable (without duplication) to (A) an item of income or gain to
which the 75% gross income test applies, (B) the acquisition or ownership of
obligations secured by mortgages on real property or on interests in real
property, or (C) becoming or being the obligor under obligations secured by
mortgages on real property or interests in real property, or (ii) foreign
currency gain attributable to certain “qualified business units” of a
REIT. “Passive foreign exchange gain” is (without duplication) real
estate foreign exchange gain, foreign currency gain attributable to an item of
income or gain to which the 95% gross income test applies, foreign currency gain
attributable to the acquisition or ownership of obligations, or foreign currency
gain attributable to becoming or being the obligor under
obligations.
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Hedging
Transactions
We may
enter into hedging transactions with respect to one or more of our assets or
liabilities. Hedging transactions could take a variety of forms,
including interest rate swap agreements, interest rate cap agreements, options,
futures contracts, forward rate agreements or similar financial
instruments. Except to the extent provided by Treasury regulations,
any income from a hedging transaction we enter into (1) in the normal course of
our business primarily to manage risk of interest rate or price changes or
currency fluctuations with respect to borrowings made or to be made, or ordinary
obligations incurred or to be incurred, to acquire or carry real estate assets,
which is clearly identified as specified in Treasury regulations before the
close of the day on which it was acquired, originated, or entered into,
including gain from the sale or disposition of such a transaction, and (2)
primarily to manage risk of currency fluctuations with respect to any item of
income or gain that would be qualifying income under the 75% or 95% income tests
which is clearly identified as such before the close of the day on which it was
acquired, originated, or entered into, will not constitute gross income for
purposes of the 75% or 95% gross income tests. Real estate liability
hedging transactions entered into on or before July 30, 2008, however, will
likely generate non-qualifying income for purposes of the 75% gross income test,
and foreign currency hedges entered into on or before July 30, 2008 will likely
generate non-qualifying income for purposes of both the 75% and 95% gross income
tests. Moreover, to the extent that we enter into other types of
hedging transactions, the income from those transactions is likely to be treated
as non qualifying income for purposes of both of the 75% and 95% gross income
tests. We intend to structure any hedging transactions in a manner
that does not jeopardize our qualification as a REIT.
Rents
from Real Property
To the
extent that we own real property or interests therein, rents we receive qualify
as "rents from real property" in satisfying the gross income tests described
above, only if several conditions are met, including the
following. If rent attributable to personal property leased in
connection with real property is greater than 15% of the total rent received
under any particular lease, then all of the rent attributable to such personal
property will not qualify as rents from real property. The
determination of whether an item of personal property constitutes real or
personal property under the REIT provisions of the Internal Revenue Code is
subject to both legal and factual considerations and is therefore subject to
different interpretations.
In
addition, in order for rents received by us to qualify as "rents from real
property," the rent must not be based in whole or in part on the income or
profits of any person. However, an amount will not be excluded from
rents from real property solely by being based on a fixed percentage or
percentages of sales or if it is based on the net income of a tenant which
derives substantially all of its income with respect to such property from
subleasing of substantially all of such property, to the extent that the rents
paid by the subtenants would qualify as rents from real property, if earned
directly by us. Moreover, for rents received to qualify as "rents
from real property," we generally must not operate or manage the property or
furnish or render certain services to the tenants of such property, other than
through an "independent contractor" who is adequately compensated and from which
we derive no income or through a TRS. We are permitted, however, to
perform 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. In addition, we may directly or
indirectly provide non-customary services to tenants of our properties without
disqualifying all of the rent from the property if the payment for such services
does not exceed 1% of the total gross income from the property. In
such a case, only the amounts for non-customary services are not treated as
rents from real property and the provision of the services does not disqualify
the related rent.
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Rental
income will qualify as rents from real property only to the extent that we do
not directly or constructively own, (1) in the case of any tenant which is
a corporation, stock possessing 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
shares of all classes of stock of such tenant, or (2) in the case of any
tenant which is not a corporation, an interest of 10% or more in the assets or
net profits of such tenant.
Failure
to Satisfy the Gross Income Tests
We intend
to monitor our sources of income, including any non-qualifying income received
by us, so as to ensure our compliance with the gross income tests. If
we fail to satisfy one or both of the 75% or 95% gross income tests for any
taxable year, we may still qualify as a REIT for the year if we are entitled to
relief under applicable provisions of the Internal Revenue
Code. These relief provisions will generally be available if the
failure of our company to meet these tests was due to reasonable cause and not
due to willful neglect and, following the identification of such failure, we set
forth a description of each item of our gross income that satisfies the gross
income tests in a schedule for the taxable year filed in accordance with the
Treasury regulation. It is not possible to state whether we would be
entitled to the benefit of these relief provisions in all
circumstances. If these relief provisions are inapplicable to a
particular set of circumstances involving us, we will not qualify as a
REIT. As discussed above under "—Taxation of REITs in General," even
where these relief provisions apply, a tax would be imposed upon the profit
attributable to the amount by which we fail to satisfy the particular gross
income test.
Asset
Tests
We, at
the close of each calendar quarter, must also satisfy four tests relating to the
nature of our assets. First, at least 75% of the value of our total
assets must be represented by some combination of "real estate assets," cash,
cash items, U.S. government securities and, under some circumstances, stock or
debt instruments purchased with new capital. For this purpose, real
estate assets include interests in real property, such as land, buildings,
leasehold interests in real property, stock of other corporations that qualify
as REITs and certain kinds of MBS and mortgage loans. Regular or
residual interest in REMICs are generally treated as a real estate
asset. If, however, less than 95% of the assets of a REMIC consists
of real estate assets (determined as if we held such assets), we will be treated
as owning our proportionate share of the assets of the REMIC. Assets
that do not qualify for purposes of the 75% test are subject to the additional
asset tests described below. Second, the value of any one issuer's
securities owned by us may not exceed 5% of the value of our gross
assets. Third, we may not own more than 10% of any one issuer's
outstanding securities, as measured by either voting power or
value. Fourth, the aggregate value of all securities of TRSs held by
us may not exceed 20% of the value of our gross assets.
The 5%
and 10% asset tests do not apply to securities of TRSs and qualified REIT
subsidiaries. The 10% value test does not apply to certain "straight
debt" and other excluded securities, as described in the Internal Revenue Code,
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, (a) a REIT's interest as a partner in a
partnership is not considered a security for purposes of applying the 10% value
test; (b) any debt instrument issued by a partnership (other than straight
debt or other excluded security) will not be considered a security issued by the
partnership if at least 75% of the partnership's gross income is derived from
sources that would qualify for the 75% REIT gross income test; and (c) any
debt instrument issued by a partnership (other than straight debt or other
excluded security) will not be considered a security issued by the partnership
to the extent of the REIT's interest as a partner in the
partnership.
For
purposes of the 10% value test, "straight debt" means a written unconditional
promise to pay on demand on a specified date a sum certain in money if
(i) the debt is not convertible, directly or indirectly, into stock,
(ii) the interest rate and interest payment dates are not contingent on
profits, the borrower's discretion, or similar factors other than certain
contingencies relating to the timing and amount of principal and interest
payments, as described in the Internal Revenue Code and (iii) in the case
of an issuer which is a corporation or a partnership, securities that otherwise
would be considered straight debt will not be so considered if we, and any of
our "controlled taxable.
We
currently own 100% of RCC. RCC elected to be taxed as a REIT for its
taxable year ended December 31, 2001 and jointly elected, together with us,
to be treated as a TRS effective as of March 30, 2002. On
January 2, 2003, we, together with RCC, revoked RCC's election to be
treated as a TRS. As a result, effective January 2, 2003, RCC
became a qualified REIT subsidiary. We believe that RCC met all of
the requirements for taxation as a REIT with respect to its taxable year ended
December 31, 2001 and as a TRS commencing as of March 30, 2002 through
January 2, 2003; however, the sections of the Code that relate to
qualification as a REIT are highly technical and complex and there are certain
requirements that must be met in order for RCC to have qualified as a TRS
effective March 30, 2002. Since RCC was and we believe has been
subject to taxation as a REIT or a TRS, as the case may be, at the close of each
quarter of our taxable years beginning with our taxable year ended
December 31, 2001, until such time RCC became a qualified REIT subsidiary,
we believe that our ownership interest in RCC did not cause us to fail to
satisfy the 10% value test. In addition, we believe that we have at
all times prior to October 1, 2002 owned less than 10% of the voting
securities of RCC. No assurance, however, can be given that RCC in
fact qualified as a REIT for its taxable year ended December 31, 2001 or as
a TRS as of March 30, 2002, that the non-voting preferred stock of RCC
owned by us would not be deemed to be "voting stock" for purposes of the asset
tests or, as a result of any of the foregoing, that we have qualified or will
continue to qualify as a REIT.
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After
initially meeting the asset tests at the close of any quarter, we will not lose
our qualification 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 the asset tests because we acquire securities during a quarter,
we can cure this failure by disposing of sufficient non-qualifying assets within
30 days after the close of that quarter. If we fail the 5% asset
test, or the 10% vote or value asset tests at the end of any quarter and such
failure is not cured within 30 days thereafter, we may dispose of sufficient
assets (generally within six months after the last day of the quarter in which
our identification of the failure to satisfy these asset tests occurred) to cure
such a violation that does not exceed the lesser of 1% of our assets at the end
of the relevant quarter or $10,000,000. If we fail any of the other
asset tests or our failure of the 5% and 10% asset tests is in excess of the
de minimis amount
described above, as long as such failure was due to reasonable cause and not
willful neglect, we are permitted to avoid disqualification as a REIT, after the
30-day cure period, by taking steps including the disposition of sufficient
assets to meet the asset test (generally within six months after the last day of
the quarter in which our identification of the failure to satisfy the REIT asset
test occurred) and paying a tax equal to the greater of $50,000 or the highest
corporate income tax rate (currently 35%) of the net income generated by the
non-qualifying assets during the period in which we failed to satisfy the asset
test.
We expect
that the assets and mortgage related securities that we own generally will be
qualifying assets for purposes of the 75% asset test. We believe that
our holdings of securities and other assets will be structured in a manner that
will comply with the foregoing REIT asset requirements and intend to monitor
compliance on an ongoing basis. Moreover, values of some assets may
not be susceptible to a precise determination and are subject to change in the
future. Furthermore, the proper classification of an instrument as
debt or equity for U.S. federal income tax purposes may be uncertain in some
circumstances, which could affect the application of the REIT asset
tests. Accordingly, there can be no assurance that the IRS will not
contend that our interests in subsidiaries or in the securities of other issuers
(including REIT issuers) cause a violation of the REIT asset tests.
In
addition, we have entered into and we intend to continue to enter into
repurchase agreements under which we nominally sell certain of our assets to a
counterparty and simultaneously enter into an agreement to repurchase the sold
assets. We believe that we have been and will continue to be treated
for U.S. federal income tax purposes as the owner of the assets that are the
subject of any such agreement notwithstanding that we may transfer record
ownership of the assets to the counterparty during the term of the
agreement. It is possible, however, that the IRS could assert that we
did not own the assets during the term of the repurchase agreement, in which
case we could fail to qualify as a REIT.
Annual
Distribution Requirements
In order
to qualify as a REIT, we are required to distribute dividends, other than
capital gain dividends, to our stockholders in an amount at least equal
to:
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(a)
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the
sum of:
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90%
of our "REIT taxable income" (computed without regard to our deduction for
dividends paid and our net capital gains);
and
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90%
of the net income (after tax), if any, from foreclosure property (as
described below); minus
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(b)
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the
sum of specified items of non-cash income that exceeds a percentage of our
income.
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These
distributions must be paid in the taxable year to which they relate or in the
following taxable year if such distributions are declared in October, November
or December of the taxable year, are payable to stockholders of record on a
specified date in any such month and are actually paid before the end of January
of the following year. Such distributions are treated as both paid by
us and received by each stockholder on December 31 of the year in which they are
declared. In addition, at our election, a distribution for a taxable
year may be declared before we timely file our tax return for the year and be
paid with or before the first regular dividend payment after such declaration,
provided that such payment is made during the 12-month period following the
close of such taxable year. These distributions are taxable to our
stockholders in the year in which paid, even though the distributions relate to
our prior taxable year for purposes of the 90% distribution
requirement.
In order
for distributions to be counted towards our distribution requirement and to give
rise to a tax deduction by us, they must not be "preferential
dividends." A dividend is not a preferential dividend if it is pro rata among all
outstanding shares of stock within a particular class and is in accordance with
the preferences among different classes of stock as set forth in the
organizational documents.
To the
extent that we distribute at least 90%, but less than 100%, of our "REIT taxable
income," as adjusted, we will be subject to tax at ordinary corporate tax rates
on the retained portion. In addition, we may elect to retain, rather
than distribute, our net long-term capital gains and pay tax on such
gains. In this case, we could elect to have our stockholders include
their proportionate share of such undistributed long-term capital gains in
income and receive a corresponding credit for their proportionate share of the
tax paid by us. Our stockholders would then increase the adjusted
basis of their stock in us by the difference between the designated amounts
included in their long-term capital gains and the tax deemed paid with respect
to their proportionate shares.
If we
fail to distribute during each calendar year at least the sum of (a) 85% of
our REIT ordinary income for such year, (b) 95% of our REIT capital gain
net income for such year, other than the capital gain net income which we elect
to retain and pay tax on for that year, and (c) any undistributed taxable
income from prior periods, we will be subject to a 4% nondeductible excise tax
on the excess of such required distribution over the sum of (x) the amounts
actually distributed (taking into account excess distributions from prior
periods) and (y) the amounts of income retained on which we have paid
corporate income tax. We intend to make timely distributions so that
we are not subject to the 4% excise tax.
It is
possible that we, from time to time, may not have sufficient cash to meet the
distribution requirements due to timing differences between (a) the actual
receipt of cash and (b) the inclusion of items in income by us for U.S.
federal income tax purposes. In the event that such timing
differences occur, in order to meet the distribution requirements, it might be
necessary to arrange for short-term, or possibly long-term, borrowings or to pay
dividends in the form of taxable in-kind distributions of property.
We may be
able to rectify a failure to meet the distribution requirements for a year by
paying "deficiency dividends" to stockholders in a later year, which may be
included in our deduction for dividends paid for the earlier year. In
this case, we may be able to avoid losing our qualification as a REIT or being
taxed on amounts distributed as deficiency dividends. However, we
will be required to pay interest and a penalty based on the amount of any
deduction taken for deficiency dividends.
To
satisfy the distribution requirement and to prevent the imposition of entity
level tax on any retained net income, from time to time, we may declare taxable
dividends payable in cash or our common stock at the election of each
stockholder, where the aggregate amount of cash to be distributed in such
dividend may be limited to 10% or more of the aggregate amount of such
dividend. Under IRS Revenue Procedure 2010-12, such dividends, to the
extent made with respect to any of our taxable years ending on or before
December 31, 2011, will satisfy the REIT requirements if up to 90% of the
taxable dividend is payable in our shares and other requirements are
met. In such case, for U.S. federal income tax purposes, the amount
of the dividend paid in stock would be equal to the amount of cash that could
have been received instead of stock.
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Recordkeeping
Requirements
We are
required to maintain records and request on an annual basis information from
specified stockholders. These requirements are designed to assist us
in determining the actual ownership of our outstanding stock and maintaining our
qualifications as a REIT.
Excess
Inclusion Income
If we
acquire a residual interest in a REMIC, we may realize excess inclusion
income. If we are deemed to have issued debt obligations having two
or more maturities, the payments on which correspond to payments on mortgage
loans owned by us, such arrangement will be treated as a taxable mortgage pool
for U.S. federal income tax purposes and, as a result, we may also realize
excess inclusion income. If all or a portion of our company is
treated as a taxable mortgage pool or we own a residual interest in a REMIC, our
qualification as a REIT generally should not be impaired; however, a portion of
our REIT taxable income may be characterized as excess inclusion income and
allocated to our stockholders. Any excess inclusion
income:
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could
not be offset by net operating losses of a
stockholder;
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in
the case of a stockholder that is a REIT, a RIC, a common trust fund or
other pass-through entity, would be considered excess inclusion income of
such entity and such entity will be subject to tax at the highest
corporate tax rate on any excess inclusion income allocated to their
owners that are disqualified
organizations;
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would
be subject to tax as unrelated business taxable income to a tax-exempt
holder;
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would
be subject to the application of the U.S. federal income tax withholding
(without reduction pursuant to any otherwise applicable income tax treaty)
with respect to amounts allocable to non-U.S. stockholders;
and
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would
be taxable (at the highest corporate tax rates) to us, rather than our
stockholders, to the extent allocable to our stock held in record name by
disqualified organizations (generally, tax-exempt entities not subject to
unrelated business income tax, including governmental
organizations). Nominees or other broker/dealers who hold our
stock on behalf of disqualified organizations are subject to this tax on
the portion of our excess inclusion income allocable to the capital stock
held on behalf of disqualified
organizations.
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The
manner in which excess inclusion income would be allocated among shares of
different classes of stock is not clear under the current
law. Tax-exempt investors, RIC or REIT investors, foreign investors,
and taxpayers with net operating losses should consult with their tax advisors
with respect to excessive inclusion income.
Prohibited
Transactions
Net
income derived from a prohibited transaction is subject to a 100%
tax. The term "prohibited transaction" generally includes a sale or
other disposition of property (other than foreclosure property) that is held
primarily for sale to customers, in the ordinary course of a trade or business
by a REIT, by a lower-tier partnership in which the REIT holds an equity
interest or by a borrower that has issued a shared appreciation mortgage or
similar debt instrument to the REIT. We intend to conduct our
operations so that no asset owned by us or our pass-through subsidiaries will be
held for sale to customers, and that a sale of any assets owned by us directly
or through a pass-through subsidiary will not be in the ordinary course of
business. However, whether property is held "primarily for sale to
customers in the ordinary course of a trade or business" depends on the
particular facts and circumstances. No assurance can be given that
any particular asset in which we hold a direct or indirect interest will not be
treated as property held for sale to customers or that certain safe-harbor
provisions of the Internal Revenue Code that prevent such treatment will
apply. The 100% tax will not apply to gains from the sale of property
that is held through a TRS or other taxable corporation, although such income
will be subject to tax in the hands of the corporation at regular corporate
income tax rates.
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The Code
provides a safe harbor that, if met, allows us to avoid being treated as engaged
in a prohibited transaction. In order to meet the safe harbor, among
other things, (i) we must have held the property for at least 2 years
(and, in the case of property which consists of land or improvements not
acquired through foreclosure, we must have held the property for 2 years
for the production of rental income) and (ii) during the taxable year the
property is disposed of, we must not have made more than 7 property sales or,
alternatively, the aggregate adjusted basis or fair market value of all of the
properties sold by us during the taxable year must not exceed 10% of the
aggregate adjusted basis or 10% of the fair market value, respectively, of all
of our assets as of the beginning of the taxable year.
Foreclosure
Property
Foreclosure
property is real property and any personal property incident to such real
property (1) that is acquired by a REIT as a result of the REIT having bid
on the property at foreclosure or having otherwise reduced the property to
ownership or possession by agreement or process of law after there was a default
(or default was imminent) on a lease of the property or a mortgage loan held by
the REIT and secured by the property, (2) for which the related loan or
lease was acquired by the REIT at a time when default was not imminent or
anticipated and (3) for which such REIT makes a proper election to treat
the property as foreclosure property. REITs generally are subject to
tax at the maximum corporate rate (currently 35%) on any net income from
foreclosure property, including any gain from the disposition of the foreclosure
property, other than income that would otherwise be qualifying income for
purposes of the 75% gross income test. Any gain from the sale of
property for which a foreclosure property election has been made will not be
subject to the 100% tax on gains from prohibited transactions described above,
even if the property would otherwise constitute inventory or dealer property in
the hands of the selling REIT. We do not anticipate that we will
receive any income from foreclosure property that is not qualifying income for
purposes of the 75% gross income test, but, if we do receive any such income, we
intend to elect to treat the related property as foreclosure
property.
Failure
to Qualify
In the
event that we violate a provision of the Internal Revenue Code that would result
in our failure to qualify as a REIT, specified relief provisions will be
available to us to avoid such disqualification if (1) the violation is due
to reasonable cause and not due to willful neglect, (2) we pay a penalty of
$50,000 for each failure to satisfy the provision and (3) the violation
does not include a violation under the gross income or asset tests described
above (for which other specified relief provisions are
available). This cure provision reduces the instances that could lead
to our disqualification as a REIT for violations due to reasonable
cause. If we fail to qualify for taxation as a REIT in any taxable
year and none of the relief provisions of the Internal Revenue Code apply, we
will be subject to tax, including any applicable alternative minimum tax, on our
taxable income at regular corporate rates. Distributions to our
stockholders in any year in which we are not a REIT will not be deductible by
us, nor will they be required to be made. In this situation, to the
extent of current and accumulated earnings and profits, and, subject to
limitations of the Internal Revenue Code, distributions to our stockholders will
generally be taxable in the case of our stockholders who are individual U.S.
stockholders (as defined below), at a maximum rate of 15%, and dividends in the
hands of our corporate U.S. stockholders may be eligible for the dividends
received deduction. Unless we are entitled to relief under the
specific statutory provisions, we will also be disqualified from re-electing to
be taxed as a REIT for the four taxable years following a year during which
qualification was lost. It is not possible to state whether, in all
circumstances, we will be entitled to statutory relief.
Taxation
of Taxable U.S. Stockholders
This
section summarizes the taxation of U.S. stockholders that are not tax-exempt
organizations. For these purposes, a U.S. stockholder is a beneficial
owner of our capital stock that for U.S. federal income tax purposes
is:
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a
citizen or resident of the U.S.;
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a
corporation (including an entity treated as a corporation for U.S. federal
income tax purposes) created or organized in or under the laws of the U.S.
or of a political subdivision thereof (including the District of
Columbia);
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an
estate whose income is subject to U.S. federal income taxation regardless
of its source; or
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any
trust if (1) a U.S. court is able to exercise primary supervision
over the administration of such trust and one or more U.S. persons have
the authority to control all substantial decisions of the trust or
(2) it has a valid election in place to be treated as a U.S.
person.
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If an
entity or arrangement treated as a partnership for U.S. federal income tax
purposes holds our stock, the U.S. federal income tax treatment of a partner
generally will depend upon the status of the partner and the activities of the
partnership. A partner of a partnership holding our capital stock
should consult its own tax advisor regarding the U.S. federal income tax
consequences to the partner of the acquisition, ownership and disposition of our
stock by the partnership.
Distributions
Provided
that we qualify as a REIT, distributions made to our taxable U.S. stockholders
out of our current and accumulated earnings and profits, and not designated as
capital gain dividends, will generally be taken into account by them as ordinary
dividend income and will not be eligible for the dividends received deduction
for corporations. In determining the extent to which a distribution
with respect to our capital stock constitutes a dividend for U.S. federal income
tax purposes, our earnings and profits will be allocated first to distributions
with respect to our preferred stock, if any, and then to our common
stock. Dividends received from REITs are generally not eligible to be
taxed at the preferential qualified dividend income rates applicable to
individual U.S. stockholders who receive dividends from taxable subchapter C
corporations.
In
addition, distributions from us that are designated as capital gain dividends
will be taxed to U.S. stockholders as long-term capital gains, to the extent
that they do not exceed the actual net capital gain of our company for the
taxable year, without regard to the period for which the U.S. stockholder has
held its stock. To the extent that we elect under the applicable
provisions of the Internal Revenue Code to retain our net capital gains, U.S.
stockholders will be treated as having received, for U.S. federal income tax
purposes, our undistributed capital gains as well as a corresponding credit for
taxes paid by us on such retained capital gains. U.S. stockholders
will increase their adjusted tax basis in our capital stock by the difference
between their allocable share of such retained capital gain and their share of
the tax paid by us. Corporate U.S. stockholders may be required to
treat up to 20% of some capital gain dividends as ordinary
income. Long-term capital gains are generally taxable at maximum
federal rates of 15% (through 2010) in the case of U.S. stockholders who are
individuals, and 35% for corporations. Capital gains attributable to
the sale of depreciable real property held for more than 12 months are subject
to a 25% maximum U.S. federal income tax rate for individual U.S. stockholders
who are individuals, to the extent of previously claimed depreciation
deductions.
Distributions
in excess of our current and accumulated earnings and profits will not be
taxable to a U.S. stockholder to the extent that they do not exceed the adjusted
tax basis of the U.S. stockholder's shares in respect of which the distributions
were made, but rather will reduce the adjusted tax basis of these
shares. To the extent that such distributions exceed the adjusted tax
basis of an individual U.S. stockholder's shares, they will be included in
income as long-term capital gain, or short-term capital gain if the shares have
been held for one year or less. In addition, any dividend declared by
us in October, November or December of any year and payable to a U.S.
stockholder of record on a specified date in any such month will be treated as
both paid by us and received by the U.S. stockholder on December 31 of such
year, provided that the dividend is actually paid by us before the end of
January of the following calendar year.
With
respect to U.S. stockholders who are taxed at the rates applicable to
individuals, we may elect to designate a portion of our distributions paid to
such U.S. stockholders as "qualified dividend income." A portion of a
distribution that is properly designated as qualified dividend income is taxable
to non-corporate U.S. stockholders as capital gain, provided that the U.S.
stockholder has held the capital stock with respect to which the distribution is
made for more than 60 days during the 121-day period beginning on the date that
is 60 days before the date on which such capital stock became ex-dividend with
respect to the relevant distribution. The maximum amount of our
distributions eligible to be designated as qualified dividend income for a
taxable year is equal to the sum of:
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(a)
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the
qualified dividend income received by us during such taxable year from
non-REIT C corporations (including any TRS in which we may own an
interest);
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(b)
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the
excess of any "undistributed" REIT taxable income recognized during the
immediately preceding year over the U.S. federal income tax paid by us
with respect to such undistributed REIT taxable income;
and
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(c)
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the
excess of any income recognized during the immediately preceding year
attributable to the sale of a built-in-gain asset that was acquired in a
carry-over basis transaction from a non-REIT C corporation over the U.S.
federal income tax paid by us with respect to such built-in
gain.
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Generally,
dividends that we receive will be treated as qualified dividend income for
purposes of (a) above if the dividends are received from a domestic C
corporation (other than a REIT or a RIC), any TRS we may form, or a "qualifying
foreign corporation" and specified holding period requirements and other
requirements are met.
To the
extent that we have available net operating losses and capital losses carried
forward from prior tax years, such losses may reduce the amount of distributions
that must be made in order to comply with the REIT distribution
requirements. See "—Taxation of Our Company" and "—Annual
Distribution Requirements." Such losses, however, are not passed
through to U.S. stockholders and do not offset income of U.S. stockholders from
other sources, nor do they affect the character of any distributions that are
actually made by us, which are generally subject to tax in the hands of U.S.
stockholders to the extent that we have current or accumulated earnings and
profits.
Dispositions
of Our Capital Stock
In
general, a U.S. stockholder will realize gain or loss upon the sale, redemption
or other taxable disposition of our capital stock in an amount equal to the
difference between the sum of the fair market value of any property and the
amount of cash received in such disposition and the U.S. stockholder's adjusted
tax basis in the capital stock at the time of the disposition. In
general, a U.S. stockholder's adjusted tax basis will equal the U.S.
stockholder's acquisition cost, increased by the excess of net capital gains
deemed distributed to the U.S. stockholder (discussed above) less tax deemed
paid on it and reduced by returns of capital. In general, capital
gains recognized by individuals and other non-corporate U.S. stockholders upon
the sale or disposition of shares of our capital stock will be subject to a
maximum U.S. federal income tax rate of 15% for taxable years through 2010, if
our capital stock is held for more than 12 months, and will be taxed at ordinary
income rates (of up to 35% through 2010) if our capital stock is held for 12
months or less. Gains recognized by U.S. stockholders that are
corporations are subject to U.S. federal income tax at a maximum rate of 35%,
whether or not classified as long-term capital gains. The IRS has the
authority to prescribe, but has not yet prescribed, regulations that would apply
a capital gain tax rate of 25% (which is generally higher than the long-term
capital gain tax rates for non-corporate holders) to a portion of capital gain
realized by a non-corporate holder on the sale of REIT stock or depositary
shares that would correspond to the REIT's "unrecaptured Section 1250
gain."
Holders
are advised to consult with their tax advisors with respect to their capital
gain tax liability. Capital losses recognized by a U.S. stockholder
upon the disposition of our capital stock held for more than one year at the
time of disposition will be considered long-term capital losses, and are
generally available only to offset capital gain income of the U.S. stockholder
but not ordinary income (except in the case of individuals, who may offset up to
$3,000 of ordinary income each year). In addition, any loss upon a
sale or exchange of shares of our capital stock by a U.S. stockholder who
has held the shares for six months or less, after applying holding period rules,
will be treated as a long-term capital loss to the extent of distributions
received from us that were required to be treated by the U.S. stockholder
as long-term capital gain.
As
discussed above in "—Annual Distribution Requirements," we may satisfy our
distribution requirements by declaring a taxable stock dividend. If
we were to make such a taxable distribution of shares of our stock, stockholders
would be required to include the full amount of such distribution into
income. As a result, a stockholder may be required to pay tax with
respect to such dividends in excess of cash received. Accordingly,
stockholders receiving a distribution of our shares may be required to sell
shares received in such distribution or may be required to sell other stock or
assets owned by them, at a time that may be disadvantageous, in order to satisfy
any tax imposed on such distribution. If a stockholder sells the
shares it receives as a dividend in order to pay such tax, the sale proceeds may
be less than the amount included in income with respect to the dividend,
depending on the market price of shares of our stock at the time of
sale. Moreover, in the case of a taxable distribution of shares of
our stock with respect to which any withholding tax is imposed on a stockholder,
we may have to withhold or dispose of part of the shares in such distribution
and use such withheld shares or the proceeds of such disposition to satisfy the
withholding tax imposed.
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Medicare
Tax on Unearned Income
The
Health Care and Reconciliation Act of 2010 requires certain U.S. stockholders
that are individuals, estates or trusts to pay an additional 3.8% tax on, among
other things, dividends on and capital gains from the sale or other disposition
of stock for taxable years beginning after December 31, 2012. U.S. stockholders
should consult their tax advisors regarding the effect, if any, of this
legislation on their ownership and disposition of our common stock.
Passive
Activity Losses and Investment Interest Limitations
Distributions
made by us and gain arising from the sale or exchange by a U.S. stockholder of
our capital stock will not be treated as passive activity income. As
a result, U.S. stockholders will not be able to apply any "passive losses"
against income or gain relating to our capital stock. 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. A U.S. stockholder that elects to treat capital
gain dividends, capital gains from the disposition of stock or qualified
dividend income as investment income for purposes of the investment interest
limitation will be taxed at ordinary income rates on such amounts.
Taxation
of Tax-Exempt U.S. Stockholders
U.S.
tax-exempt entities, including qualified employee pension and profit sharing
trusts and individual retirement accounts, generally are exempt from U.S.
federal income taxation. However, they are subject to taxation on
their unrelated business taxable income, which we refer to in this prospectus as
UBTI. While many investments in real estate may generate UBTI, the
IRS has ruled that dividend distributions from a REIT to a tax-exempt entity do
not constitute UBTI. Based on that ruling, and provided that
(1) a tax-exempt U.S. stockholder has not held our capital stock as "debt
financed property" within the meaning of the Internal Revenue Code (i.e., where
the acquisition or holding of the property is financed through a borrowing by
the tax-exempt stockholder), (2) our capital stock is not otherwise used in
an unrelated trade or business and (3) we do not hold an asset that gives
rise to "excess inclusion income" (see "—Effect of Subsidiary Entities," and
"—Excess Inclusion Income"), distributions from us and income from the sale of
our capital stock generally should not give rise to UBTI to a tax-exempt U.S.
stockholder.
Tax-exempt
U.S. stockholders that are social clubs, voluntary employee benefit
associations, supplemental unemployment benefit trusts, and qualified group
legal services plans exempt from U.S. federal income taxation under Sections
501(c)(7), (c)(9), (c)(17) and (c)(20) of the Internal Revenue Code,
respectively, are subject to different UBTI rules, which generally will require
them to characterize distributions from us as UBTI.
In
certain circumstances, a pension trust (1) that is described in
Section 401(a) of the Internal Revenue Code, (2) is tax exempt under
Section 501(a) of the Internal Revenue Code, and (3) that owns more
than 10% of our stock could be required to treat a percentage of the dividends
from us as UBTI if we are a "pension-held REIT." We will not be a
pension-held REIT unless (1) either (A) one pension trust owns more
than 25% of the value of our stock, or (B) a group of pension trusts, each
individually holding more than 10% of the value of our stock, collectively owns
more than 50% of such stock; and (2) we would not have qualified as a REIT
but for the fact that Section 856(h)(3) of the Internal Revenue Code
provides that stock owned by such trusts shall be treated, for purposes of the
requirement that not more than 50% of the value of the outstanding stock of a
REIT is owned, directly or indirectly, by five or fewer "individuals" (as
defined in the Internal Revenue Code to include certain entities), as owned by
the beneficiaries of such trusts. Certain restrictions on ownership
and transfer of our stock should generally prevent a tax-exempt entity from
owning more than 10% of the value of our stock, or us from becoming a
pension-held REIT.
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Tax-exempt
U.S. stockholders are urged to consult their tax advisors regarding the U.S.
federal, state, local and foreign tax consequences of owning our
stock.
Taxation
of Non-U.S. Stockholders
The
following is a summary of certain U.S. federal income tax consequences of the
acquisition, ownership and disposition of our capital stock applicable to
non-U.S. stockholders of our capital stock. For purposes of this
summary, a non-U.S. stockholder is a beneficial owner of our capital stock that
is not a U.S. stockholder or an entity that is treated as a partnership for U.S.
federal income tax purposes. The discussion is based on current law
and is for general information only. It addresses only selective and
not all aspects of U.S. federal income taxation.
Ordinary
Dividends
The
portion of dividends received by non-U.S. stockholders payable out of our
earnings and profits that are not attributable to gains from sales or exchanges
of U.S. real property interests and which are not effectively connected with a
U.S. trade or business of the non-U.S. stockholder will generally be subject to
U.S. federal withholding tax at the rate of 30%, unless reduced or eliminated by
an applicable income tax treaty. Under some treaties, however, lower
rates generally applicable to dividends do not apply to dividends from
REITs. In addition, any portion of the dividends paid to non-U.S.
stockholders that are treated as excess inclusion income will not be eligible
for exemption from the 30% withholding tax or a reduced treaty
rate.
In
general, non-U.S. stockholders will not be considered to be engaged in a U.S.
trade or business solely as a result of their ownership of our
stock. In cases where the dividend income from a non-U.S.
stockholder's investment in our capital stock is, or is treated as, effectively
connected with the non-U.S. stockholder's conduct of a U.S. trade or business,
the non-U.S. stockholder generally will be subject to U.S. federal income tax at
graduated rates, in the same manner as U.S. stockholders are taxed with respect
to such dividends, and may also be subject to the 30% branch profits tax on the
income after the application of the income tax in the case of a non-U.S.
stockholder that is a corporation.
Non-Dividend
Distributions
Unless
(A) our capital stock constitutes a U.S. real property interest (or USRPI)
or (B) either (1) if the non-U.S. stockholder's investment in our
capital stock is effectively connected with a U.S. trade or business conducted
by such non-U.S. stockholder (in which case the non-U.S. stockholder will be
subject to the same treatment as U.S. stockholders with respect to such gain) or
(2) if the non-U.S. stockholder is a nonresident alien individual who was
present in the United States for 183 days or more during the taxable year and
has a "tax home" in the United States (in which case the non-U.S. stockholder
will be subject to a 30% tax on the individual's net capital gain for the year),
distributions by us which are not dividends out of our earnings and profits will
not be subject to U.S. federal income tax. If it cannot be determined
at the time at which a distribution is made whether or not the distribution will
exceed current and accumulated earnings and profits, the distribution will be
subject to withholding at the rate applicable to dividends. However,
the non-U.S. stockholder may seek a refund from the IRS of any amounts withheld
if it is subsequently determined that the distribution was, in fact, in excess
of our current and accumulated earnings and profits. If our capital
stock constitutes a USRPI, as described below, distributions by us in excess of
the sum of our earnings and profits plus the non-U.S. stockholder's adjusted tax
basis in our capital stock will be taxed under the Foreign Investment in Real
Property Tax Act of 1980 (or FIRPTA) at the rate of tax, including any
applicable capital gains rates, that would apply to a U.S. stockholder of the
same type (e.g., an individual or a corporation, as the case may be), and the
collection of the tax will be enforced by a refundable withholding at a rate of
10% of the amount by which the distribution exceeds the stockholder's share of
our earnings and profits.
Capital
Gain Dividends
Under
FIRPTA, a distribution made by us to a non-U.S. stockholder, to the extent
attributable to gains from dispositions of USRPIs held by us directly or through
pass-through subsidiaries (or USRPI capital gains), will be considered
effectively connected with a U.S. trade or business of the non-U.S. stockholder
and will be subject to U.S. federal income tax at the rates applicable to U.S.
stockholders, without regard to whether the distribution is designated as a
capital gain dividend. In addition, we will be required to withhold
tax equal to 35% of the amount of capital gain dividends to the extent the
dividends constitute USRPI capital gains. Distributions subject to
FIRPTA may also be subject to a 30% branch profits tax in the hands of a
non-U.S. holder that is a corporation. However, the 35% withholding
tax will not apply to any capital gain dividend with respect to any class of our
stock which is regularly traded on an established securities market located in
the United States if the non-U.S. stockholder did not own more than 5% of such
class of stock at any time during the taxable year. Instead any
capital gain dividend will be treated as a distribution subject to the rules
discussed above under "—Taxation of Non-U.S. Stockholders—Ordinary
Dividends." Also, the branch profits tax will not apply to such a
distribution. A distribution is not a USRPI capital gain if we held
the underlying asset solely as a creditor, although the holding of a shared
appreciation mortgage loan would not be solely as a creditor. Capital
gain dividends received by a non-U.S. stockholder from a REIT that are not USRPI
capital gains are generally not subject to U.S. federal income or withholding
tax, unless either (1) if the non-U.S. stockholder's investment in our
capital stock is effectively connected with a U.S. trade or business conducted
by such non-U.S. stockholder (in which case the non-U.S. stockholder will be
subject to the same treatment as U.S. stockholders with respect to such gain) or
(2) if the non-U.S. stockholder is a nonresident alien individual who was
present in the United States for 183 days or more during the taxable year and
has a "tax home" in the United States (in which case the non-U.S. stockholder
will be subject to a 30% tax on the individual's net capital gain for the
year).
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Dispositions
of Our Capital Stock
Unless
our capital stock constitutes a USRPI, a sale of the stock by a non-U.S.
stockholder generally will not be subject to U.S. federal income taxation under
FIRPTA. The stock will not be treated as a USRPI if less than 50% of
our assets throughout a prescribed testing period consist of interests in real
property located within the United States, excluding, for this purpose,
interests in real property solely in a capacity as a creditor. We do
not expect that more than 50% of our assets will consist of interests in real
property located in the United States.
In
addition, our capital stock will not constitute a USRPI if we are a
"domestically controlled REIT." A domestically controlled REIT is a
REIT in which, at all times during a specified testing period, less than 50% in
value of its outstanding stock is held directly or indirectly by non-U.S.
stockholders. We believe we are, and we expect to continue to be, a
domestically controlled REIT and, therefore, the sale of our capital stock
should not be subject to taxation under FIRPTA. However, because our
stock is widely held, we cannot assure our investors that we are or will remain
a domestically controlled REIT. Even if we do not qualify as a
domestically controlled REIT, a non-U.S. stockholder's sale of our capital stock
nonetheless will generally not be subject to tax under FIRPTA as a sale of a
USRPI, provided that (a) our capital stock owned is of a class that is
"regularly traded," as defined by the applicable Treasury regulation, on an
established securities market, and (b) the selling non-U.S. stockholder
owned, actually or constructively, 5% or less of our outstanding stock of that
class at all times during a specified testing period.
If gain
on the sale of our capital stock were subject to taxation under FIRPTA, the
non-U.S. stockholder would be subject to the same treatment as a U.S.
stockholder with respect to such gain, subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of non-resident alien
individuals, and the purchaser of the stock could be required to withhold 10% of
the purchase price and remit such amount to the IRS.
Gain from
the sale of our capital stock that would not otherwise be subject to FIRPTA will
nonetheless be taxable in the United States to a non-U.S. stockholder in two
cases: (a) if the non-U.S. stockholder's investment in our capital stock is
effectively connected with a U.S. trade or business conducted by such non-U.S.
stockholder, the non-U.S. stockholder will be subject to the same treatment as a
U.S. stockholder with respect to such gain, or (b) if the non-U.S.
stockholder is a nonresident alien individual who was present in the United
States for 183 days or more during the taxable year and has a "tax home" in the
United States, the nonresident alien individual will be subject to a 30% tax on
the individual's capital gain.
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Withholding
on Payments to Certain Foreign Entities
Under the
Hiring Incentives to Restore Employment Act (enacted in March 2010), certain
payments made after December 2012 to “foreign financial institutions” and
certain other non-U.S. entities may be subject to withholding at a rate of 30%
on certain types of income, including dividends on and gains from the sale or
other disposition of REIT shares. Non-U.S. shareholders should
consult their tax advisors regarding the effect, if any, of this legislation on
their ownership and disposition of their common shares held with or through a
financial institution or other foreign entity. See “—Legislation
Relating to Foreign Accounts.”
Backup
Withholding and Information Reporting
We will
report to our U.S. stockholders 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. stockholder may be subject to backup
withholding with respect to dividends paid unless the holder comes within an
exempt category and, when required, demonstrates this fact or provides a
taxpayer identification number or social security 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. stockholder that
does not provide his or her correct taxpayer identification number or social
security number may also be subject to penalties imposed by the
IRS. Backup withholding is not an additional tax. In
addition, we may be required to withhold a portion of capital gain distribution
to any U.S. stockholder who fails to certify their non-foreign
status.
We must
report annually to the IRS and to each non-U.S. stockholder the amount of
dividends paid to such holder and the tax withheld with respect to such
dividends, regardless of whether withholding was required. Copies of
the information returns reporting such dividends and withholding may also be
made available to the tax authorities in the country in which the non-U.S.
stockholder resides under the provisions of an applicable income tax
treaty. A non-U.S. stockholder may be subject to backup withholding
unless applicable certification requirements are met.
Payment
of the proceeds of a sale of our capital stock within the United States is
subject to both backup withholding and information reporting unless the
beneficial owner certifies under penalties of perjury that it is a non-U.S.
stockholder (and the payor does not have actual knowledge or reason to know that
the beneficial owner is a U.S. person) or the holder otherwise establishes an
exemption. Payment of the proceeds of a sale of our capital stock
conducted through certain U.S. related financial intermediaries is subject to
information reporting (but not backup withholding) unless the financial
intermediary has documentary evidence in its records that the beneficial owner
is a non-U.S. stockholder and specified conditions are met or an exemption is
otherwise established.
Any
amounts withheld under the backup withholding rules may be allowed as a refund
or a credit against such holder's U.S. federal income tax liability provided the
required information is furnished to the IRS.
Legislation
Relating to Foreign Accounts
The
Hiring Incentives to Restore Employment Act (enacted in March 2010) may impose
withholding taxes on certain types of payments made to "foreign financial
institutions" and certain other non-U.S. entities. Under this
legislation, the failure to comply with additional certification, information
reporting and other specified requirements could result in withholding tax being
imposed on payments of dividends and sales proceeds to U.S. stockholders (as
defined in the Registration Statement) who own shares of our common stock
through foreign accounts or foreign intermediaries and certain non-U.S.
stockholders. The legislation imposes a 30% withholding tax on
dividends on, and gross proceeds from the sale or other disposition of, our
common stock paid to a foreign financial institution or to a foreign entity
other than a financial institution, unless (i) the foreign financial institution
undertakes certain diligence and reporting obligations or (ii) the foreign
entity that is not a financial institution either certifies it does not have any
substantial United States owners or furnishes identifying information regarding
each substantial United States owner. If the payee is a foreign
financial institution, it must enter into an agreement with the United States
Treasury requiring, among other things, that it undertake to identify accounts
held by certain United States persons or United States-owned foreign entities,
annually report certain information about such accounts, and withhold 30% on
payments to account holders whose actions prevent it from complying with these
reporting and other requirements. The legislation would apply to
payments made after December 31, 2012. Prospective investors should
consult their tax advisors regarding this legislation.
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State,
Local and Foreign Taxes
We and
our stockholders may be subject to state, local or foreign taxation in various
jurisdictions, including those in which it or they transact business, own
property or reside. We own interests in properties located in several
jurisdictions, and may be required to file tax returns in certain of those
jurisdictions. The state, local or foreign tax treatment of our
company and our stockholders may not conform to the U.S. federal income tax
treatment discussed above. Any foreign taxes incurred by us would not
pass through to stockholders as a credit against their U.S. federal income tax
liability. Prospective stockholders should consult their tax advisors
regarding the application and effect of state, local and foreign income and
other tax laws on an investment in our company's capital stock.
Sunset
of Reduced Tax Rate Provisions
Several
of the tax considerations described in the accompanying prospectus under the
heading “Material U.S. Federal Income Tax Considerations” are subject to a
sunset provision. The sunset provisions generally provide that for
taxable years beginning after December 31, 2010, certain provisions that are
currently in the Code will revert back to a prior version of those
provisions. These provisions include provisions related to the
reduced maximum U.S. federal income tax rate for long-term capital gains of 15%
(rather than 20%) for taxpayers taxed at individual rates, the application of
the 15% U.S. federal income tax rate for qualified dividend income, and certain
other tax rate provisions described herein. The impact of this
reversion generally is not discussed herein. Consequently,
prospective stockholders are urged to consult their tax advisors regarding the
effect of sunset provisions on an investment in our common stock.
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We may
sell the securities offered by this prospectus to one or more underwriters for
public offering and sale by them or we may sell the securities to investors
directly or through agents. Any underwriter or agent involved in the
offer and sale of the securities will be named in the applicable prospectus
supplement.
Underwriters
may offer and sell the securities at a fixed price or prices, which may be
changed, related to the prevailing market prices at the time of sale or at
negotiated prices. We also may, from time to time, authorize
underwriters acting as agents to offer and sell the securities to purchasers
upon the terms and conditions set forth in the applicable prospectus
supplement. In connection with the sale of securities, underwriters
may be deemed to have received compensation from us in the form of underwriting
discounts or commissions and may also receive commissions from purchasers of
securities for whom they may act as agent. Underwriters may sell
securities to or through dealers and the dealers may receive compensation in the
form of discounts, concessions or commissions from the underwriters and/or
commissions from the purchasers for whom they may act as agent.
Securities
may also be sold in one or more of the following transactions: (a) block
transactions (which may involve crosses) in which a broker-dealer may sell all
or a portion of the securities as agent but may position and resell all or a
portion of the block as principal to facilitate the transaction;
(b) purchases by a broker-dealer as principal and resale by the
broker-dealer for its own account pursuant to a prospectus supplement;
(c) a special offering, an exchange distribution or a secondary
distribution in accordance with applicable New York Stock Exchange or other
stock exchange rules; (d) ordinary brokerage transactions and transactions
in which a broker-dealer solicits purchasers; (e) sales "at the market" to
or through a market maker or into an existing trading market, on an exchange or
otherwise, for shares; and (f) sales in other ways not involving market
makers or established trading markets, including direct sales to
purchasers. Broker-dealers may also receive compensation from
purchasers of these securities which is not expected to exceed that customary in
the types of transactions involved.
Any
underwriting compensation paid by us to underwriters or agents in connection
with the offering of securities, and any discounts, concessions or commissions
allowed by underwriters to participating dealers, will be set forth in the
applicable prospectus supplement. Underwriters, dealers and agents
participating in the distribution of the securities may be deemed to be
underwriters, and any discounts and commissions received by them and any profit
realized by them on resale of the securities may be deemed to be underwriting
discounts and commissions, under the Securities Act. Underwriters,
dealers and agents may be entitled, under agreements entered into with us, to
indemnification against and contribution toward civil liabilities, including
liabilities under the Securities Act.
Any
securities issued hereunder (other than capital stock) will be new issues of
securities with no established trading market. Any underwriters or
agents to or through whom such securities are sold by us for public offering and
sale may make a market in such securities, but such underwriters or agents will
not be obligated to do so and may discontinue any market making at any time
without notice. We cannot assure you as to the liquidity of the
trading market for any such securities.
In
connection with the offering of the securities described in this prospectus and
an accompanying prospectus supplement, certain underwriters and selling group
members and their respective affiliates, may engage in transactions that
stabilize, maintain or otherwise affect the market price of the security being
offered. These transactions may include stabilization transactions
effected in accordance with Rule 104 of Regulation M promulgated by
the SEC pursuant to which these persons may bid for or purchase securities for
the purpose of stabilizing their market price.
The
underwriters in an offering of these securities may also create a "short
position" for their account by selling more equity securities in connection with
the offering than they are committed to purchase from us. In that
case, the underwriters could cover all or a portion of the short position by
either purchasing the securities in the open market following completion of the
offering or by exercising any over-allotment option granted to them by
us. In addition, the managing underwriter may impose "penalty bids"
under contractual arrangements with other underwriters, which means that they
can reclaim from an underwriter (or any selling group member participating in
the offering) for the account of the other underwriters, the selling concession
for the securities that is distributed in the offering but subsequently
purchased for the account of the underwriters in the open market. Any
of the transactions described in this paragraph or comparable transactions that
are described in any accompanying prospectus supplement may result in the
maintenance of the price of our securities at a level above that which might
otherwise prevail in the open market. None of the transactions
described in this paragraph or in an accompanying prospectus supplement are
required to be taken by any underwriters and, if they are undertaken, may be
discontinued at any time.
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Any
underwriters and their affiliates may be customers of, engage in transactions
with and perform services for us and our subsidiaries in the ordinary course of
business.
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Clifford
Chance US LLP, New York, New York, will pass upon the validity of the securities
we are offering by this prospectus. If the validity of any securities
is also passed upon by counsel for the underwriters of an offering of those
securities, that counsel will be named in the prospectus supplement relating to
that offering.
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Ernst
& Young LLP, independent registered public accounting firm, has audited our
consolidated financial statements included in our annual report on Form 10-K for
the year ended December 31, 2009 and the effectiveness of our internal control
over financial reporting as of December 31, 2009, as set forth in their reports
which are incorporated by reference in this prospectus and elsewhere in the
registration statement. Our financial statements are incorporated by
reference in reliance on Ernst & Young LLP's reports, given on their
authority as experts in accounting and auditing.
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We are
incorporating by reference in this prospectus the following documents which we
have previously filed with the SEC under the File Number 1-13991:
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(1)
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Our
Annual Report on Form 10-K for fiscal year ended December 31,
2009.
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(2)
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Our
Quarterly Reports on Form 10-Q for the quarters ended March 31, 2010 and
June 30, 2010.
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(3)
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Our
Definitive Proxy Statement dated April 6,
2010.
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(4)
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Our
Current Reports on Form 8-K dated January 5, 2010, March 5, 2010, May
10, 2010, May 26, 2010, June 8, 2010 and September 20,
2010.
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(5)
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The
description of the shares of capital stock contained in the Registration
Statement on Form 8-A filed on March 26, 1998, including all
amendments and reports filed for the purpose of updating such
description.
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(6)
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The
description of the shares of our 8.50% Series A Cumulative Redeemable
Preferred Stock contained on Form 8-A filed on April 23,
2004.
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Whenever
after the date of this prospectus we file reports or documents under
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act those reports and
documents will be deemed to be part of this prospectus from the time they are
filed. If anything in a report or document we file after the date of
this prospectus changes anything in it, this prospectus will be deemed to be
changed by that subsequently filed report or document beginning on the date the
report or document is filed.
We will
provide to each person to whom a copy of this prospectus is delivered a copy of
any or all of the information that has been incorporated by reference in this
prospectus, but not delivered with this prospectus. We will provide
this information at no cost to the requestor upon written or oral request
addressed to MFA Financial, Inc., 350 Park Avenue, 21st Floor,
New York, New York 10022, attention: Investor Relations Department (Telephone:
212-207-6400).
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We file
annual, quarterly and current reports, proxy statements and other materials with
the SEC. The public may read and copy any materials we file with the
SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C.
20549. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains a website that contains reports, proxy and information statements and
other information regarding issuers (including us) that file electronically with
the SEC. The address of that website is http://www.sec.gov.
Reports,
proxy statements and other information we file also can be inspected at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
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