Common use of Income Tests Clause in Contracts

Income Tests. For each taxable year, a REIT must satisfy certain income tests under IRC §856(c). (1) at least 75 percent of a REIT’s gross income (excluding gross income from prohibited transactions and hedging transactions described in IRC §856(c)(5)(G) entered into after July 30, 2008) must consist of rents from real property, interest on obligations secured by mortgages on real property or on interests in real property, gain from the sale of real property that was not held primarily for sale to customers in the ordinary course of business, dividends from other REITs and gain from the sale of REIT shares, refunds and abatements of real property taxes, income and gain from foreclosure property, loan commitment and certain other fees, qualified temporary investment income (as that term is defined in IRC §856(c)(5)(D)) and gain from the sale of certain other property; and (2) at least 95 percent of a REIT’s gross income (excluding gross income from prohibited transactions and hedging transactions described in IRC §856(c)(5)(G)(i) for taxable years beginning on or after January 1, 2006 and hedging transactions described in IRC §856(c)(5)(G)(ii) entered into after July 30, 2008) must consist of items that would be includible in (1) above, and dividends, interest and gain from the sale or other disposition of stocks or securities. 1 See e.g., Priv. Ltr. Ruls. 9430022 (April 29, 1994) (excess shares deemed transferred to a charity) and 8921067 (February 28, 1989). For purposes of applying the income and the asset tests, the Company is treated as owning directly the assets and receiving the income of (i) any subsidiary (exclusive of any “taxable REIT subsidiary” as such term is defined in IRC §856(l)) of the Company in which: (a) with respect to all taxable years beginning on or before August 5, 1997, the Company has owned 100 percent of the stock at all times during the period of such subsidiary’s existence, and (b) with respect to all taxable years beginning after August 5, 1997, the Company owns, or has owned, 100 percent of such subsidiary (a “Qualified REIT Subsidiary” or “QRS”), (ii) each of any partnership (within the meaning of (and including any limited liability company or other entity classified as a partnership for federal income tax purposes) IRC §7701(a)(2) and the regulations promulgated thereunder) in which the Company or any QRS has held an interest, directly or indirectly (a “Subsidiary Partnership”)2, and (iii) any limited liability company (which has not elected to be classified as a corporation for federal income tax purposes) all of the interests in which are held by the Company, any QRS, or any Subsidiary Partnership directly, and/or indirectly through one or more other such limited liability companies (a “Disregarded LLC”).3 Based upon this “look through” approach, the rents received by the Company will qualify as “rents from real property” for the 75 percent test provided they are rents from interests in real property, charges for services customarily furnished or rendered in connection with the rental of real property and rent attributable to personal property which is leased under, or in connection with, a lease of real property, but only if the rent attributable to such personal property for the taxable year does not exceed 15 percent of the total rent, for both real and personal property, for the taxable year. Specifically excluded from the definition of rents from real property is (1) rent determined on the basis, in whole or part, of any person’s income or profits from the property (exclusive of rent based on a fixed percentage or percentages of receipts or sales); (2) rent received, directly or indirectly, from a tenant in which the REIT has an ownership interest (directly or indirectly) of 10 percent or more; and (3) for tax years beginning on or before August 5, 1997, rent from real property if the REIT furnishes or renders certain services to a tenant or manages or operates such property other than through an independent contractor from which the REIT receives no income (exclusive of any amount if such amount would be excluded from unrelated business taxable income under IRC §512(b)(3) if received by an organization described in IRC §511(a)(2)), and for tax years beginning after August 5, 1997, any “impermissible tenant service income” (as that term is defined in IRC §856(d)(7)). The Company has represented that it has satisfied both of the income tests outlined above for each taxable year since January 1, 1987. It has also represented that it intends to take all necessary measures within its control to ensure that it meets such tests during each of its future taxable years. In addition, the Company has represented that it qualified as a REIT for federal income tax purposes from January 1, 1987 through December 31, 2005. 2 In the case of a REIT which is a partner in a partnership, as defined in IRC §7701(a)(2) and the regulations thereunder, the REIT will be deemed to own its proportionate share of each of the assets of the partnership and will be deemed to be entitled to the income of the partnership attributable to such share. For purposes of IRC §856, the interest of a partner in the partnership’s assets shall be determined in accordance with his capital interest in the partnership. The character of the various assets in the hands of the partnership and items of gross income of the partnership shall retain the same character in the hands of the partners for all purposes of IRC §856. Treas. Reg. §1.856-3(g). 3 Solely for purposes of applying the 10 percent value test in taxable years beginning on or after January 1, 2005, in looking through any partnership to determine the REIT’s allocable share of any securities owned by the partnership, the REIT’s share of the assets of the partnership will correspond not only to the REIT’s interest as a partner in the partnership but also to the REIT’s proportionate interest in certain debt securities issued by the partnership. See IRC §856(m)(3) as added by the American Jobs Creation Act of 2004. For taxable years beginning before January 1, 2005, if the Company fails to meet either income test (1) or (2) above, it may still qualify as a REIT in such taxable year if it reports the source and nature of each item of its gross income in its federal income tax return for such year, the inclusion of any incorrect information in its return is not due to fraud with intent to evade tax and the failure to meet such tests is due to reasonable cause and not to willful neglect. Under a relief provision enacted on October 22, 2004 as part of the American Jobs Creation Act of 2004, for taxable years beginning on or after January 1, 2005, a REIT may continue to qualify as a REIT if following the Company’s identification of a failure to satisfy one or both of the income tests for any taxable year, a description of each item of its gross income that qualifies for the tests is set forth in a schedule for such taxable year filed in accordance with Treasury Regulations, and such failure is due to reasonable cause and not due to willful neglect. Under both relief provisions, the Company would be subject to a tax of 100 percent based on the excess non-qualifying income. The Company has represented that if it fails to meet the requirements of either IRC §§856(c)(2) or (c)(3) (or both) in any taxable year, it intends to avail itself of the provisions of IRC §856(c)(6) (whereby it will be considered to have satisfied the requirements of such paragraphs) if such failure is due to reasonable cause and not due to willful neglect.

Income Tests. For each taxable year, a REIT must satisfy certain income tests under IRC §856(c). (1) at least 75 percent of a REIT’s gross income (excluding gross income from prohibited transactions and hedging transactions described in IRC §856(c)(5)(G) entered into after July 30, 2008) must consist of rents from real property, interest on obligations secured by mortgages on real property or on interests in real property, gain from the sale of real property that was not held primarily for sale to customers in the ordinary course of business, dividends from other REITs and gain from the sale of REIT shares, refunds and abatements of real property taxes, income and gain from foreclosure property, loan commitment and certain other fees, qualified temporary investment income (as that term is defined in IRC §856(c)(5)(D)) and gain from the sale of certain other property; and (2) at least 95 percent of a REIT’s gross income (excluding gross income from prohibited transactions and hedging transactions described in IRC §856(c)(5)(G)(i) for taxable years beginning on or after January 1, 2006 2005 and hedging transactions described in IRC §856(c)(5)(G)(ii) entered into after July 30, 2008) must consist of items that would be includible in (1) above, and dividends, interest and gain from the sale or other disposition of stocks or securities. 1 See e.g., Priv. Ltr. Ruls. 9430022 (April 29, 1994) (excess shares deemed transferred to a charity) and 8921067 (February 28, 1989). For purposes of applying the income and the asset tests, the Company is treated as owning directly the assets and receiving the income of (i) any subsidiary (exclusive of any “taxable REIT subsidiary” as such term is defined in IRC §856(l)) of the Company in which: (a) with respect to all taxable years beginning on or before August 5, 1997, the Company has owned 100 percent of the stock at all times during the period of such subsidiary’s existence, and (b) with respect to all taxable years beginning after August 5, 1997, the Company owns, or has owned, 100 percent of such subsidiary (a “Qualified REIT Subsidiary” or “QRS”), (ii) each of any partnership (within the meaning of (and including any limited liability company or other entity classified as a partnership for federal income tax purposes) IRC §7701(a)(2) and the regulations promulgated thereunder) in which the Company or any QRS has held an interest, directly or indirectly (a “Subsidiary Partnership”)2, and (iii) any limited liability company (which has not elected to be classified as a corporation for federal income tax purposes) all of the interests in which are held by the Company, any QRS, or any Subsidiary Partnership directly, and/or indirectly through one or more other such limited liability companies (a “Disregarded LLC”).3 Based upon this “look through” approach, the rents received by the Company will qualify as “rents from real property” for the 75 percent test provided they are rents from interests in real property, charges for services customarily furnished or rendered in connection with the rental of real property and rent attributable to personal property which is leased under, or in connection with, a lease of real property, but only if the rent attributable to such personal property for the taxable year does not exceed 15 percent of the total rent, for both real and personal property, for the taxable year. Specifically excluded from the definition of rents from real property is (1) rent determined on the basis, in whole or part, of any person’s income or profits from the property (exclusive of rent based on a fixed percentage or percentages of receipts or sales); (2) rent received, directly or indirectly, from a tenant in which the REIT has an ownership interest (directly or indirectly) of 10 percent or more; and (3) for tax years beginning on or before August 5, 1997, rent from real property if the REIT furnishes or renders certain services to a tenant or manages or operates such property other than through an independent contractor from which the REIT receives no income (exclusive of any amount if such amount would be excluded from unrelated business taxable income under IRC §512(b)(3) if received by an organization described in IRC §511(a)(2)), and for tax years beginning after August 5, 1997, any “impermissible tenant service income” (as that term is defined in IRC §856(d)(7)). The Company has represented that it has satisfied both of the income tests outlined above for each taxable year since January 1, 1987. It has also represented that it intends to take all necessary measures within its control to ensure that it meets such tests during each of its future taxable years. In addition, the Company has represented that it qualified as a REIT for federal income tax purposes from January 1, 1987 through December 31, 2004. For taxable years beginning before January 1, 2005. , if the Company fails to meet either income test (1) or (2) above, it may still qualify as a REIT in such taxable year if it reports the source and nature of each item of its gross income in its federal income tax return for such year, the inclusion of any incorrect information in its return is not due to fraud with intent to evade tax and 2 In the case of a REIT which is a partner in a partnership, as defined in IRC §7701(a)(2) and the regulations thereunder, the REIT will be deemed to own its proportionate share of each of the assets of the partnership and will be deemed to be entitled to the income of the partnership attributable to such share. For purposes of IRC §856, the interest of a partner in the partnership’s assets shall be determined in accordance with his capital interest in the partnership. The character of the various assets in the hands of the partnership and items of gross income of the partnership shall retain the same character in the hands of the partners for all purposes of IRC §856. Treas. Reg. §1.856-3(g). 3 Solely for purposes of applying the 10 percent value test in taxable years beginning on or after January 1, 2005, in looking through any partnership to determine the REIT’s allocable share of any securities owned by the partnership, the REIT’s share of the assets of the partnership will correspond not only to the REIT’s interest as a partner in the partnership but also to the REIT’s proportionate interest in certain debt securities issued by the partnership. See IRC §856(m)(3) as added by the American Jobs Creation Act of 2004. For taxable years beginning before January 1, 2005, if the Company fails to meet either income test (1) or (2) above, it may still qualify as a REIT in such taxable year if it reports the source and nature of each item of its gross income in its federal income tax return for such year, the inclusion of any incorrect information in its return is not due to fraud with intent to evade tax and the failure to meet such tests is due to reasonable cause and not to willful neglect. Under a relief provision enacted on October 22, 2004 as part of the American Jobs Creation Act of 2004, for taxable years beginning on or after January 1, 2005, a REIT may continue to qualify as a REIT if following the Company’s identification of a failure to satisfy one or both of the income tests for any taxable year, a description of each item of its gross income that qualifies for the tests is set forth in a schedule for such taxable year filed in accordance with Treasury Regulations, and such failure is due to reasonable cause and not due to willful neglect. Under both relief provisions, the Company would be subject to a tax of 100 percent based on the excess non-qualifying income. The Company has represented that if it fails to meet the requirements of either IRC §§856(c)(2) or (c)(3) (or both) in any taxable year, it intends to avail itself of the provisions of IRC §856(c)(6) (whereby it will be considered to have satisfied the requirements of such paragraphs) if such failure is due to reasonable cause and not due to willful neglect.

Income Tests. For each taxable year, a REIT must satisfy certain income tests under IRC §856(c). (1) at least 75 percent of a REIT’s gross income (excluding gross income from prohibited transactions and hedging transactions described in IRC §856(c)(5)(G) entered into after July 30, 2008) must consist of rents from real property, interest on obligations secured by mortgages on real property or on interests in real property, gain from the sale of real property that was not held primarily for sale to customers in the ordinary course of business, dividends from other REITs and gain from the sale of REIT shares, refunds and abatements of real property taxes, income and gain from foreclosure property, loan commitment and certain other fees, qualified temporary investment income (as that term is defined in IRC §856(c)(5)(D)) and gain from the sale of certain other property; and (2) at least 95 percent of a REIT’s gross income (excluding gross income from prohibited transactions and hedging transactions described in IRC §856(c)(5)(G)(i) for taxable years beginning on or after January 1, 2006 2005 and hedging transactions described in IRC §856(c)(5)(G)(ii) entered into after July 30, 2008) must consist of items that would be includible in (1) above, and dividends, interest and gain from the sale or other disposition of stocks or securities. 1 See e.g., Priv. Ltr. Ruls. 9430022 (April 29, 1994) (excess shares deemed transferred to a charity) and 8921067 (February 28, 1989). For purposes of applying the income and the asset tests, the Company is treated as owning directly the assets and receiving the income of (i) any subsidiary (exclusive of any “taxable REIT subsidiary” as such term is defined in IRC §856(l)) of the Company in which: (a) with respect to all taxable years beginning on or before August 5, 1997, the Company has owned 100 percent of the stock at all times during the period of such subsidiary’s existence, and (b) with respect to all taxable years beginning after August 5, 1997, the Company owns, or has owned, 100 percent of such subsidiary (a “Qualified REIT Subsidiary” or “QRS”), (ii) each of any partnership (within the meaning of (and including any limited liability company or other entity classified as a partnership for federal income tax purposes) IRC §7701(a)(2) and the regulations promulgated thereunder) in which the Company or any QRS has held an interest, directly or indirectly (a “Subsidiary Partnership”)2, and (iii) any limited liability company (which has not elected 2 In the case of a REIT which is a partner in a partnership, as defined in IRC §7701(a)(2) and the regulations thereunder, the REIT will be deemed to own its proportionate share of each of the assets of the partnership and will be deemed to be entitled to the income of the partnership attributable to such share. For purposes of IRC §856, the interest of a partner in the partnership’s assets shall be determined in accordance with his capital interest in the partnership. The character of the various assets in the hands of the partnership and items of gross income of the partnership shall retain the same character in the hands of the partners for all purposes of IRC §856. Treas. Reg. §1.856-3(g). to be classified as a corporation for federal income tax purposes) all of the interests in which are held by the Company, any QRS, or any Subsidiary Partnership directly, and/or indirectly through one or more other such limited liability companies (a “Disregarded LLC”).3 Based upon this “look through” approach, the rents received by the Company will qualify as “rents from real property” for the 75 percent test provided they are rents from interests in real property, charges for services customarily furnished or rendered in connection with the rental of real property and rent attributable to personal property which is leased under, or in connection with, a lease of real property, but only if the rent attributable to such personal property for the taxable year does not exceed 15 percent of the total rent, for both real and personal property, for the taxable year. Specifically excluded from the definition of rents from real property is (1) rent determined on the basis, in whole or part, of any person’s income or profits from the property (exclusive of rent based on a fixed percentage or percentages of receipts or sales); (2) rent received, directly or indirectly, from a tenant in which the REIT has an ownership interest (directly or indirectly) of 10 percent or more; and (3) for tax years beginning on or before August 5, 1997, rent from real property if the REIT furnishes or renders certain services to a tenant or manages or operates such property other than through an independent contractor from which the REIT receives no income (exclusive of any amount if such amount would be excluded from unrelated business taxable income under IRC §512(b)(3) if received by an organization described in IRC §511(a)(2)), and for tax years beginning after August 5, 1997, any “impermissible tenant service income” (as that term is defined in IRC §856(d)(7)). The Company has represented that it has satisfied both of the income tests outlined above for each taxable year since January 1, 1987. It has also represented that it intends to take all necessary measures within its control to ensure that it meets such tests during each of its future taxable years. In addition, the Company has represented that it qualified as a REIT for federal income tax purposes from January 1, 1987 through December 31, 2005. 2 In the case of a REIT which is a partner in a partnership, as defined in IRC §7701(a)(2) and the regulations thereunder, the REIT will be deemed to own its proportionate share of each of the assets of the partnership and will be deemed to be entitled to the income of the partnership attributable to such share. For purposes of IRC §856, the interest of a partner in the partnership’s assets shall be determined in accordance with his capital interest in the partnership. The character of the various assets in the hands of the partnership and items of gross income of the partnership shall retain the same character in the hands of the partners for all purposes of IRC §856. Treas. Reg. §1.856-3(g). 3 Solely for purposes of applying the 10 percent value test in taxable years beginning on or after January 1, 2005, in looking through any partnership to determine the REIT’s allocable share of any securities owned by the partnership, the REIT’s share of the assets of the partnership will correspond not only to the REIT’s interest as a partner in the partnership but also to the REIT’s proportionate interest in certain debt securities issued by the partnership. See IRC §856(m)(3) as added by the American Jobs Creation Act of 2004. For taxable years beginning before January 1, 2005, if the Company fails to meet either income test (1) or (2) above, it may still qualify as a REIT in such taxable year if it reports the source and nature of each item of its gross income in its federal income tax return for such year, the inclusion of any incorrect information in its return is not due to fraud with intent to evade tax and the failure to meet such tests is due to reasonable cause and not to willful neglect. Under a relief provision enacted on October 22, 2004 as part of the American Jobs Creation Act of 2004, for taxable years beginning on or after January 1, 2005, a REIT may continue to qualify as a REIT if following the Company’s identification of a failure to satisfy one or both of the income tests for any taxable year, a description of each item of its gross income that qualifies for the tests is set forth in a schedule for such taxable year filed in accordance with Treasury Regulations, and such failure is due to reasonable cause and not due to willful neglect. Under both relief provisions, the Company would be subject to a tax of 100 percent based on the excess non-qualifying income. The Company has represented that if it fails to meet the requirements of either IRC §§856(c)(2) or (c)(3) (or both) in any taxable year, it intends to avail itself of the provisions of IRC §856(c)(6) (whereby it will be considered to have satisfied the requirements of such paragraphs) if such failure is due to reasonable cause and not due to willful neglect.

Income Tests. For each taxable year, a REIT must satisfy certain income tests under IRC §856(c). (1) at least 75 percent of a REIT’s gross income (excluding gross income from prohibited transactions and hedging transactions described in IRC §856(c)(5)(G) entered into after July 30, 2008) must consist of rents from real property, interest on obligations secured by mortgages on real property or on interests in real property, gain from the sale of real property that was not held primarily for sale to customers in the ordinary course of business, dividends from other REITs and gain from the sale of REIT shares, refunds and abatements of real property taxes, income and gain from foreclosure property, loan commitment and certain other fees, qualified temporary investment income (as that term is defined in IRC §856(c)(5)(D)) and gain from the sale of certain other property; and (2) at least 95 percent of a REIT’s gross income (excluding gross income from prohibited transactions and hedging transactions described in IRC §856(c)(5)(G)(i) for taxable years beginning on or after January 1, 2006 2005 and hedging transactions described in IRC §856(c)(5)(G)(ii) entered into after July 30, 2008) must consist of items that would be includible in (1) above, and dividends, interest and gain from the sale or other disposition of stocks or securities. 1 See e.g., Priv. Ltr. Ruls. 9430022 (April 29, 1994) (excess shares deemed transferred to a charity) and 8921067 (February 28, 1989). For purposes of applying the income and the asset tests, the Company is treated as owning directly the assets and receiving the income of (i) any subsidiary (exclusive of any “taxable REIT subsidiary” as such term is defined in IRC §856(l)) of the Company in which: (a) with respect to all taxable years beginning 1 See e.g., Priv. Ltr. Ruls. 9430022 (April 29, 1994) (excess shares deemed transferred to a charity) and 8921067 (February 28, 1989). Cousins Properties Incorporated Xxxxxxx Xxxxx & Co. Xxxxxxx Lynch, Pierce, Xxxxxx & Xxxxx Incorporated Xxxxxx Xxxxxxx & Co. Incorporated X.X. Xxxxxx Securities Inc. September [___], 2009 Page 9 on or before August 5, 1997, the Company has owned 100 percent of the stock at all times during the period of such subsidiary’s existence, and (b) with respect to all taxable years beginning after August 5, 1997, the Company owns, or has owned, 100 percent of such subsidiary (a “Qualified REIT Subsidiary” or “QRS”), (ii) each of any partnership (within the meaning of (and including any limited liability company or other entity classified as a partnership for federal income tax purposes) IRC §7701(a)(2) and the regulations promulgated thereunder) in which the Company or any QRS has held an interest, directly or indirectly (a “Subsidiary Partnership”)2, and (iii) any limited liability company (which has not elected to be classified as a corporation for federal income tax purposes) all of the interests in which are held by the Company, any QRS, or any Subsidiary Partnership directly, and/or indirectly through one or more other such limited liability companies (a “Disregarded LLC”).3 Based upon this “look through” approach, the rents received by the Company will qualify as “rents from real property” for the 75 percent test provided they are rents from interests in real property, charges for services customarily furnished or rendered in connection with the rental of real property and rent attributable to personal property which is leased under, or in connection with, a lease of real property, but only if the rent attributable to such personal property for the taxable year does not exceed 15 percent of the total rent, for both real and personal property, for the taxable year. Specifically excluded from the definition of rents from real property is (1) rent determined on the basis, in whole or part, of any person’s income or profits from the property (exclusive of rent based on a fixed percentage or percentages of receipts or sales); (2) rent received, directly or indirectly, from a tenant in which the REIT has an ownership interest (directly or indirectly) of 10 percent or more; and (3) for tax years beginning on or before August 5, 1997, rent from real property if the REIT furnishes or renders certain services to a tenant or manages or operates such property other than through an independent contractor from which the REIT receives no income (exclusive of any amount if such amount would be excluded from unrelated business taxable income under IRC §512(b)(3) if received by an organization described in IRC §511(a)(2)), and for tax years beginning after August 5, 1997, any “impermissible tenant service income” (as that term is defined in IRC §856(d)(7)). The Company has represented that it has satisfied both of the income tests outlined above for each taxable year since January 1, 1987. It has also represented that it intends to take all necessary measures within its control to ensure that it meets such tests during each of its future taxable years. In addition, the Company has represented that it qualified as a REIT for federal income tax purposes from January 1, 1987 through December 31, 2005. 2 In the case of a REIT which is a partner in a partnership, as defined in IRC §7701(a)(2) and the regulations thereunder, the REIT will be deemed to own its proportionate share of each of the assets of the partnership and will be deemed to be entitled to the income of the partnership attributable to such share. For purposes of IRC §856, the interest of a partner in the partnership’s assets shall be determined in accordance with his capital interest in the partnership. The character of the various assets in the hands of the partnership and items of gross income of the partnership shall retain the same character in the hands of the partners for all purposes of IRC §856. Treas. Reg. §1.856-3(g). 3 Solely for purposes of applying the 10 percent value test in taxable years beginning on or after January 1, 2005, in looking through any partnership to determine the REIT’s allocable share of any securities owned by the partnership, the REIT’s share of the assets of the partnership will correspond not only to the REIT’s interest as a partner in the partnership but also to the REIT’s proportionate interest in certain debt securities issued by the partnership. See IRC §856(m)(3) as added by the American Jobs Creation Act of 2004. Cousins Properties Incorporated Xxxxxxx Xxxxx & Co. Xxxxxxx Lynch, Pierce, Xxxxxx & Xxxxx Incorporated Xxxxxx Xxxxxxx & Co. Incorporated X.X. Xxxxxx Securities Inc. September [___], 2009 Page 10 has represented that it qualified as a REIT for federal income tax purposes from January 1, 1987 through December 31, 2001. For taxable years beginning before January 1, 2005, if the Company fails to meet either income test (1) or (2) above, it may still qualify as a REIT in such taxable year if it reports the source and nature of each item of its gross income in its federal income tax return for such year, the inclusion of any incorrect information in its return is not due to fraud with intent to evade tax and the failure to meet such tests is due to reasonable cause and not to willful neglect. Under a relief provision enacted on October 22, 2004 as part of the American Jobs Creation Act of 2004, for taxable years beginning on or after January 1, 2005, a REIT may continue to qualify as a REIT if following the Company’s identification of a failure to satisfy one or both of the income tests for any taxable year, a description of each item of its gross income that qualifies for the tests is set forth in a schedule for such taxable year filed in accordance with Treasury Regulations, and such failure is due to reasonable cause and not due to willful neglect. Under both relief provisions, the Company would be subject to a tax of 100 percent based on the excess non-qualifying income. The Company has represented that if it fails to meet the requirements of either IRC §§856(c)(2) or (c)(3) (or both) in any taxable year, it intends to avail itself of the provisions of IRC §856(c)(6) (whereby it will be considered to have satisfied the requirements of such paragraphs) if such failure is due to reasonable cause and not due to willful neglect.

Income Tests. For each taxable year, a REIT must satisfy certain income tests under IRC §856(c). (1) at least 75 percent of a REIT’s gross income (excluding gross income from prohibited transactions and hedging transactions described in IRC §856(c)(5)(G) entered into after July 30, 2008) must consist of rents from real property, interest on obligations secured by mortgages on real property or on interests in real property, gain from the sale of real property that was not held primarily for sale to customers in the ordinary course of business, dividends from other REITs and gain from the sale of REIT shares, refunds and abatements of real property taxes, income and gain from foreclosure property, loan commitment and certain other fees, qualified temporary investment income (as that term is defined in IRC §856(c)(5)(D)) and gain from the sale of certain other property; and (2) at least 95 percent of a REIT’s gross income (excluding gross income from prohibited transactions and hedging transactions described in IRC §856(c)(5)(G)(i) for taxable years beginning on or after January 1, 2006 and hedging transactions described in IRC §856(c)(5)(G)(ii) entered into after July 30, 2008) must consist of items that would be includible in (1) above, and dividends, interest and gain from the sale or other disposition of stocks or securities. 1 See e.g., Priv. Ltr. Ruls. 9430022 (April 29, 1994) (excess shares deemed transferred to a charity) and 8921067 (February 28, 1989). For purposes of applying the income and the asset tests, the Company is treated as owning directly the assets and receiving the income of (i) any subsidiary (exclusive of any “taxable REIT subsidiary” as such term is defined in IRC §856(l)) of the Company in which: (a) with respect to all taxable years beginning on or before August 5, 1997, the Company has owned 100 percent of the stock at all times during the period of such subsidiary’s existence, and (b) with respect to all taxable years beginning after August 5, 1997, the Company owns, or has owned, 100 percent of such subsidiary (a “Qualified REIT Subsidiary” or “QRS”), (ii) each of any partnership (within the meaning of (and including any limited liability company or other entity classified as a partnership for federal income tax purposes) IRC §7701(a)(2) and the regulations promulgated thereunder) in which the Company or any QRS has held an interest, directly or indirectly (a “Subsidiary Partnership”)2, and (iii) any limited liability company (which has not elected to be classified as a corporation for federal income tax purposes) all of the interests in which are held by the Company, any QRS, or any Subsidiary Partnership directly, and/or indirectly through one or more other such limited liability companies (a “Disregarded LLC”).3 Based upon this “look through” approach, the rents received by the Company will qualify as “rents from real property” for the 75 percent test provided they are rents from interests in real property, charges for services customarily furnished or rendered in connection with the rental of real property and rent attributable to personal property which is leased under, or in connection with, a lease of real property, but only if the rent attributable to such personal property for the taxable year does not exceed 15 percent of the total rent, for both real and personal property, for the taxable year. Specifically excluded from the definition of rents from real property is (1) rent determined on the basis, in whole or part, of any person’s income or profits from the property (exclusive of rent based on a fixed percentage or percentages of receipts or sales); (2) rent received, directly or indirectly, from a tenant in which the REIT has an ownership interest (directly or indirectly) of 10 percent or more; and (3) for tax years beginning on or before August 5, 1997, rent from real property if the REIT furnishes or renders certain services to a tenant or manages or operates such property other than through an independent contractor from which the REIT receives no income (exclusive of any amount if such amount would be excluded from unrelated business taxable income under IRC §512(b)(3) if received by an organization described in IRC §511(a)(2)), and for tax years beginning after August 5, 1997, any “impermissible tenant service income” (as that term is defined in IRC §856(d)(7)). The Company has represented that it has satisfied both of the income tests outlined above for each taxable year since January 1, 1987. It has also represented that it intends to take all necessary measures within its control to ensure that it meets such tests during each of its future taxable years. In addition, the Company has represented that it qualified as a REIT for federal income tax purposes from January 1, 1987 through December 31, 2005. 2 In the case of a REIT which is a partner in a partnership, as defined in IRC §7701(a)(2) and the regulations thereunder, the REIT will be deemed to own its proportionate share of each of the assets of the partnership and will be deemed to be entitled to the income of the partnership attributable to such share. For purposes of IRC §856, the interest of a partner in the partnership’s assets shall be determined in accordance with his capital interest in the partnership. The character of the various assets in the hands of the partnership and items of gross income of the partnership shall retain the same character in the hands of the partners for all purposes of IRC §856. Treas. Reg. §1.856-3(g). 3 Solely for purposes of applying the 10 percent value test in taxable years beginning on or after January 1, 2005, in looking through any partnership to determine the REIT’s allocable share of any securities owned by the partnership, the REIT’s share of the assets of the partnership will correspond not only to the REIT’s interest as a partner in the partnership but also to the REIT’s proportionate interest in certain debt securities issued by the partnership. See IRC §856(m)(3) as added by the American Jobs Creation Act of 2004. (3) if received by an organization described in IRC §511(a)(2)), and for tax years beginning after August 5, 1997, any “impermissible tenant service income” (as that term is defined in IRC §856(d)(7)). The Company has represented that it has satisfied both of the income tests outlined above for each taxable year since January 1, 1987. It has also represented that it intends to take all necessary measures within its control to ensure that it meets such tests during each of its future taxable years. In addition, the Company has represented that it qualified as a REIT for federal income tax purposes from January 1, 1987 through December 31, 2005. For taxable years beginning before January 1, 2005, if the Company fails to meet either income test (1) or (2) above, it may still qualify as a REIT in such taxable year if it reports the source and nature of each item of its gross income in its federal income tax return for such year, the inclusion of any incorrect information in its return is not due to fraud with intent to evade tax and the failure to meet such tests is due to reasonable cause and not to willful neglect. Under a relief provision enacted on October 22, 2004 as part of the American Jobs Creation Act of 2004, for taxable years beginning on or after January 1, 2005, a REIT may continue to qualify as a REIT if following the Company’s identification of a failure to satisfy one or both of the income tests for any taxable year, a description of each item of its gross income that qualifies for the tests is set forth in a schedule for such taxable year filed in accordance with Treasury Regulations, and such failure is due to reasonable cause and not due to willful neglect. Under both relief provisions, the Company would be subject to a tax of 100 percent based on the excess non-qualifying income. The Company has represented that if it fails to meet the requirements of either IRC §§856(c)(2) or (c)(3) (or both) in any taxable year, it intends to avail itself of the provisions of IRC §856(c)(6) (whereby it will be considered to have satisfied the requirements of such paragraphs) if such failure is due to reasonable cause and not due to willful neglect.