Common use of Asset Tests Clause in Contracts

Asset Tests. At the close of each calendar quarter of its taxable year, the Company must also satisfy the following five tests relating to the nature of its assets. For purposes of each of these tests, the Company’s assets are deemed to include the assets of any disregarded subsidiary and its share of the assets of any subsidiary partnership, such as the Operating Partnership. • At least 75% of the value of the Company’s total assets must be represented by some combination of “real estate assets,” cash or cash items, including certain receivables and, in certain circumstances, foreign currencies, 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 corporations that qualify as REITs, some kinds of mortgage-backed securities and mortgage loans, and debt instruments issued by publicly offered REITs, personal property leased in connection with a lease of real property to the extent that rent attributable to such personal property meets the 15% test described under “— Income Tests” above to qualify as “rents from real property” for purposes of the 75% gross income test, and debt secured by a mortgage on both real and personal property if the fair market value of the personal property securing the debt does not exceed 15% of the total fair market value of all property securing the debt. • The aggregate value of all securities of TRSs the Company holds may not exceed 20% of the value of its total assets. • The aggregate value of all debt instruments the Company holds of publicly offered REITs, to the extent such debt instruments are not secured by real property or interests in real property (and, therefore, would not qualify as “real estate assets” but for having been issued by publicly offered REITs), may not exceed more than 25% of the value of its total assets. • The value of any one issuer’s securities owned by the Company may not exceed 5% of the value of its assets. This asset test does not apply to securities of TRSs or to any security that qualifies as a “real estate asset.” • The Company may not own more than 10% of any one issuer’s outstanding securities, as measured by either voting power or value. This asset test does not apply to securities of TRSs or to any security that qualifies as a “real estate asset.” In addition, solely for purposes of the 10% value test, certain types of securities, including certain “straight debt” securities, are disregarded. No securities issued by a corporation or partnership will qualify as “straight debt” if the Company owns (or a TRS in which the Company owns a greater than 50% interest, as measured by vote or value, owns) other securities of such issuer that represent more than 1% of the total value of all securities of such issuer. Debt instruments issued by a partnership that do not qualify as “straight debt” are (1) not subject to the 10% value test to the extent of the Company’s interest as a partner in that partnership and (2) completely excluded from the 10% value test if at least 75% of the partnership’s gross income (excluding income from “prohibited transactions”) consists of income qualifying under the 75% gross income test. In addition, the 10% value test does not apply to (1) any loan made to an individual or an estate, (2) certain rental agreements in which one or more payments are to be made in subsequent years (other than agreements between the Company and certain persons related to it), (3) any obligation to pay rents from real property,

Asset Tests. At the close of each calendar quarter of its taxable year, the Company we must also satisfy the following five tests relating to the nature of its our assets. For purposes of each of these testsFirst, the Company’s assets are deemed to include the assets of any disregarded subsidiary and its share of the assets of any subsidiary partnership, such as the Operating Partnership. • At at least 75% of the value of the Company’s our total assets must be represented by some combination of “real estate assets,” cash or cash, cash items, including certain receivables and, in certain circumstances, foreign currencies, U.S. government securities, and, under some circumstances, stock or debt instruments purchased with new capital. For this purpose, “real estate assets” assets include interests in real property, such as land, buildings, leasehold interests in real property, stock of corporations that qualify as other REITs, some interests in mortgages secured by real property or by interests in real property, certain kinds of mortgage-mortgage- backed securities and mortgage loans, and and, for taxable years beginning after 2015, debt instruments issued by publicly offered REITs, personal property leased interests in connection with a lease of obligations secured by both real property to the extent that rent attributable to such personal property meets the 15% test described under “— Income Tests” above to qualify as “rents from real property” for purposes of the 75% gross income test, and debt secured by a mortgage on both real and personal property if the fair market value of the personal property securing the debt does not exceed 15% of the total fair market value securing such mortgage, and personal property to the extent income from such personal property is treated as “rents from real property” because the personal property is rented in connection with a rental of all real property securing the debt. • The aggregate value of all securities of TRSs the Company holds may not exceed 20and constitutes less than 15% of the value aggregate property rented. Assets that do not qualify for purposes of its total assets. • The aggregate value of all debt instruments the Company holds of publicly offered REITs, 75% test are subject to the extent such debt instruments are not secured by real property or interests in real property (andadditional asset tests described below. Second, therefore, would not qualify as “real estate assets” but for having been issued by publicly offered REITs), may not exceed more than 25% of the value of its total assets. • The value of any one issuer’s securities owned by the Company us may not exceed 5% of the value of its our total assets. This asset test does not apply to securities of TRSs or to any security that qualifies as a “real estate asset.” • The Company Third, we may not own more than 10% of any one issuer’s outstanding securities, as measured by either voting power or value. This Fourth, the aggregate value of all securities of any TRSs held by us may not exceed 20% (25% for taxable years prior to 2018) of the value of our total assets. Fifth, the aggregate value of debt instruments issued by publicly offered REITs held by us that are not otherwise secured by real property may not exceed 25% of the value of our total assets. The 5% and 10% asset tests described above do not apply to securities of TRSs, qualified REIT subsidiaries or securities that are “real estate assets” for purposes of the 75% gross asset test described above. The 10% value test does not apply to securities of TRSs certain “straight debt” and other excluded securities, as described in the Code including, but not limited to, any loan to an individual or estate, any obligation to pay rents from real property and any security that qualifies as issued by a “real estate asset.” REIT. In addition, solely for purposes of applying the 10% value test, certain types of securities, including certain “straight debt” securities, are disregarded. No securities issued by a corporation or partnership will qualify as “straight debt” if the Company owns (or a TRS in which the Company owns a greater than 50% interest, as measured by vote or value, owns) other securities of such issuer that represent more than 1% of the total value of all securities of such issuer. Debt instruments issued by a partnership that do not qualify as “straight debt” are (1) not subject to the 10% value test to the extent of the Companya REIT’s interest as a partner in that a partnership and is not considered a security issued by the partnership; (2) completely any debt instrument issued by a partnership (other than straight debt or another excluded from security) will not be considered a security issued by the 10% value test partnership if at least 75% of the partnership’s gross income (excluding gross income from “prohibited transactions”) consists is derived from sources that would qualify for the 75% REIT gross income test; and (3) any debt instrument issued by a partnership (other than straight debt or another 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 or on a specified date a sum certain in money if (i) 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 Code and (iii) in the case of an issuer that 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 REIT subsidiaries,” as defined in the Code, hold any securities of the corporate or partnership issuer which (a) are not straight debt or other excluded securities (prior to the application of this rule), and (b) have an aggregate value greater than 1% of the issuer’s outstanding securities (including, for the purposes of a partnership issuer, its interest as a partner in the partners). The asset tests must be satisfied at the close of each calendar quarter of our taxable year in which we acquire securities in the applicable issuer, and also at the close of each calendar quarter in which we increase our ownership of securities of such issuer. If we fail to satisfy an asset test because we acquire securities or other property during a quarter, we may cure this failure by disposing of sufficient nonqualifying assets within 30 days after the close of that quarter. If we fail to cure any noncompliance with the asset tests within the 30 day cure period, we would cease to qualify as a REIT unless we are eligible for certain relief provisions discussed below. We believe that our holdings of securities and other assets will comply with the foregoing REIT asset requirements, and we intend to monitor compliance with such tests on an ongoing basis. There can be no assurance, however, that we will be successful in this effort. Moreover, the values of some of our assets, including the securities of SSG TRS and any other TRSs, or other nonpublicly traded investments, 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 qualifying under 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 successfully contend that our assets do not meet the requirements of the REIT asset tests. Certain relief provisions may be available to us if we discover a failure to satisfy the asset tests described above after the 30-day cure period. Under these provisions, we will be deemed to have met the 5% and 10% asset tests if the value of our nonqualifying assets (i) does not exceed the lesser of (a) 1% of the total value of our assets at the end of the applicable quarter or (b) $10 million and (ii) we dispose of the nonqualifying assets or otherwise satisfy such tests within (a) six months after the last day of the quarter in which the failure to satisfy the asset tests is discovered or (b) the period of time prescribed by Treasury Regulations to be issued. For violations of any of the asset tests due to reasonable cause and not due to willful neglect and that are, in the case of the 5% and 10% asset tests, in excess of the de minimis exception described above, we may avoid disqualification as a REIT after the 30 day cure period by taking steps including (i) the disposition of sufficient nonqualifying assets, or the taking of other actions, which allow us to meet the asset tests within (a) six months after the last day of the quarter in which the failure to satisfy the asset tests is discovered or (b) the period of time prescribed by Treasury Regulations to be issued, (ii) paying a tax equal to the greater of (a) $50,000 or (b) the highest corporate tax rate multiplied by the net income generated by the nonqualifying assets, and (iii) disclosing certain information to the IRS. We believe that our holdings of securities and other assets comply with the foregoing REIT asset requirements, and we intend to monitor compliance with such tests on an ongoing basis. There can be no assurance, however, that we will be successful in this effort. In particular, in prior years our satisfaction of the 75% gross income testasset test described above was based in part on our ownership of stock of certain publicly traded REITs. In additionAlthough we are not aware of any failure, the 10% value test does not apply to (1) any loan made to an individual or an estate, (2) certain rental agreements in which if one or more payments of those REITs was not properly treated as a REIT for U.S. federal income tax purposes, such treatment could have caused us to fail the 75% gross asset test. As described above, we have held and may continue to hold interests in certain publicly traded REITs. We do not generally independently investigate the REIT qualification of such REITs, but rather generally rely on statements made by such REITs in their public filings. In the event that one or more of the publicly traded REITs in which we invest was not properly treated as a REIT for U.S. federal income tax purposes, the shares of such company would not constitute a qualifying asset for purposes of the 75% gross asset test, in which case we could fail to satisfy one or more of the REIT gross asset tests. If we fail to cure any noncompliance with the asset tests in a timely manner, and the relief provisions described above are not available, we would cease to be made in subsequent years (other than agreements between the Company and certain persons related to it), (3) any obligation to pay rents from real property,qualify as a REIT.

Asset Tests. At the close of each calendar quarter of its taxable yearquarter, the Company we must also satisfy the following five tests relating to the nature and diversification of its our assets. For purposes of each of these the asset tests, a REIT is not treated as owning the Company’s assets are deemed to include the assets stock of a qualified REIT subsidiary, an equity interest in any entity treated as a partnership for U.S. federal income tax purposes, or an equity interest in any entity that is disregarded subsidiary and as separate from its owner for U.S. federal income tax purposes (a “disregarded entity”). Instead, a REIT is treated as owning its proportionate share of the assets of any subsidiary partnership, held by such as the Operating Partnershipentity. • At least 75% of the value of the Company’s our total assets must be represented by some combination of “real estate assets,” cash, cash or cash items, including certain receivables and, in certain circumstances, foreign currencies, items and U.S. government securities, and, under some circumstances, stock or debt instruments purchased with new capital. For purposes of this purposetest, “real estate assets” assets include interests in real property, such as land, land and buildings, leasehold interests in real property, stock of other corporations that qualify as REITs, some kinds types of mortgage-backed securities securities, mortgage loans on real property or on interests in real property, property attributable to the temporary investment of new capital (but only if such property is stock or a debt instrument and mortgage loansonly for the one-year period beginning on the date we receive such capital), and: (i) personal property leased in connection with real property to the extent that rents attributable to such personal property are treated as “rents from real property,” and (ii) debt instruments issued by publicly offered REITs, personal property leased in connection with a lease of real property to the extent . Assets that rent attributable to such personal property meets the 15% test described under “— Income Tests” above to do not qualify as “rents from real property” for purposes of the 75% gross income test, and debt secured by a mortgage on both real and personal property if asset test are subject to the fair market value of the personal property securing the debt does not exceed 15% of the total fair market value of all property securing the debtadditional asset tests described below. • The aggregate value of all securities of TRSs the Company holds may not exceed 20% of the value of its total assets. • The aggregate value of all debt instruments the Company holds of publicly offered REITs, to the extent such debt instruments are not secured by real property or interests in real property (and, therefore, would not qualify as “real estate assets” but for having been issued by publicly offered REITs), may not exceed Not more than 25% of our total assets may be represented by securities other than those described in the value of its total assetsfirst bullet above. • The Except for securities described in the first bullet above and securities in qualified REIT subsidiaries and taxable REIT subsidiaries, the value of any one issuer’s securities owned by the Company us may not exceed 5% of the value of its our total assets. This asset test does not apply to • Except for securities of TRSs or to any security that qualifies as a “real estate asset.” • The Company described in the first bullet above and securities in qualified REIT subsidiaries and taxable REIT subsidiaries, we may not own more than 10% of any one issuer’s outstanding voting securities. • Except for securities described in the first bullet above and securities in qualified REIT subsidiaries and taxable REIT subsidiaries, and certain types of indebtedness that are not treated as securities for purposes of this test, as measured discussed below, we may not own more than 10% of the total value of the outstanding securities of any one issuer. • Real estate assets include debt instruments issued by either voting power publicly offered REITs to the extent not secured by real property or valueinterests in real property, but the value of such debt instruments cannot exceed 25% of the value of our total assets. This asset • Not more than 20% (25% for calendar quarters beginning prior to the calendar quarter ended March 31, 2018) of the value of our total assets may be represented by the securities of one or more taxable REIT subsidiaries. The 10% value test does not apply to securities certain “straight debt” and other excluded securities, as described in the Code, including (1) loans to individuals or estates; (2) obligations to pay rent from real property; (3) rental agreements described in Section 467 of TRSs or to the Code; (4) any security that qualifies issued by other REITs; (5) certain securities issued by a state, the District of Columbia, a foreign government, or a political subdivision of any of the foregoing, or the Commonwealth of Puerto Rico; and (6) any other arrangement as a “real estate asset.” determined by the IRS. In addition, solely (1) a REIT’s interest as a partner in a partnership is not considered a security for purposes of the 10% value test, certain types of securities, including certain “straight debt” securities, are disregarded. No securities issued by a corporation or partnership will qualify as “straight debt” if the Company owns ; (or a TRS in which the Company owns a greater than 50% interest, as measured by vote or value, owns2) other securities of such issuer that represent more than 1% of the total value of all securities of such issuer. Debt instruments any debt instrument issued by a partnership that do (other than straight debt or other excluded security) will not qualify as “straight debt” are (1) not subject to be considered a security issued by the 10% value test to the extent of the Company’s interest as a partner in that partnership and (2) completely excluded from the 10% value test if at least 75% of the partnership’s gross income (excluding income is derived from “prohibited transactions”) consists of income qualifying under sources that would qualify for the 75% gross income test; and (3) any debt instrument issued by a partnership (other than straight debt or other excluded security) will not be considered a security issued by a partnership to the extent of the REIT’s interest as a partner in the partnership. For purposes of the 10% value test, debt will meet the “straight debt” safe harbor if (1) neither us, nor any of our controlled taxable REIT subsidiaries (i.e., taxable REIT subsidiaries more than 50% of the vote or value of the outstanding stock of which is directly or indirectly owned by us), own any securities not described in the preceding paragraph that have an aggregate value greater than one percent of the issuer’s outstanding securities, as calculated under the Code, (2) the debt is a written unconditional promise to pay on demand or on a specified date a sum certain in money, (3) the debt is not convertible, directly or indirectly, into stock, and (4) the interest rate and the interest payment dates of the debt are not contingent on the borrower’s profits, the borrower’s discretion or similar factors. However, contingencies regarding time of payment and interest are permissible for purposes of qualifying as a straight debt security if either (1) such contingency does not have the effect of changing the effective yield of maturity, as determined under the Code, other than a change in the annual yield to maturity that does not exceed the greater of (i) 5% of the annual yield to maturity and (ii) 0.25%, or (2) neither the aggregate issue price nor the aggregate face amount of the issuer’s debt instruments held by the REIT exceeds $1,000,000 and not more than 12 months of unaccrued interest can be required to be prepaid thereunder. In addition, debt will not be disqualified from being treated as “straight debt” solely because the time or amount of payment is subject to a contingency upon a default or the exercise of a prepayment right by the issuer of the debt, provided that such contingency is consistent with customary commercial practice. We believe that the assets that we hold and intend to hold will satisfy the foregoing asset test requirements. However, we have not and will not obtain independent appraisals to support our conclusions as to the value of our assets. Moreover, the value of some assets may not be susceptible to a precise determination. As a result, there can be no assurance that the IRS will not contend that our ownership of assets violates one or more of the asset tests applicable to REITs in which case we might not satisfy the 75% asset test and the other asset tests and could fail to qualify as a REIT. The failure to satisfy the 5% asset test, or the 10% vote or value test asset tests can be remedied even after the 30- day cure period under certain circumstances. Specifically, if we fail these 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 apply 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 disposing 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), paying a tax equal to the greater of $50,000 and the highest corporate income tax rate of the net income generated by the non-qualifying assets during the period in which we failed to satisfy the asset test, and filing in accordance with applicable Treasury Regulations a schedule with the IRS that describes the assets that caused us to fail to satisfy the asset test(s). We intend to take advantage of any and all relief provisions that are available to us to cure any violation of the asset tests applicable to REITs. In certain circumstances, utilization of such provisions could result in us being required to pay an excise or penalty tax, which could be significant in amount. To qualify as a REIT, we are required to distribute dividends, other than capital gain dividends, to our shareholders each year in an amount at least equal to: • the sum of: (1) any loan made 90% of our “REIT taxable income,” computed without regard to an individual or an estate, the dividends-paid deduction and our net capital gain; and (2) certain rental agreements 90% of our after-tax net income, if any, from foreclosure property; minus • the sum of specified items of non-cash income. For purposes of this test, non-cash income means income attributable to leveled stepped rents, original issue discount included in our taxable income without the receipt of a corresponding payment, cancellation of indebtedness or a like-kind exchange that is later determined to be taxable. We generally must make dividend distributions in the taxable year to which one or more payments are to they relate. Dividend distributions may be made in subsequent years the following year in two circumstances. First, if we declare a dividend in October, November, or December of any year with a prospective record date in one of these months and pay the dividend on or before January 31 of the following year, such distributions are treated as both paid by us and received by each shareholder on December 31 of the year in which they are declared. Second, distributions (“858 spill-over dividends”) may be made in the following year if (A) the distributions are (i) declared before we timely file our tax return for the prior year, (ii) distributed within the 12-month period following the close of the prior taxable year to which they relate back, and (iii) distributed with or before the “first regular dividend payment” after such declaration, and (B) we elect in our tax return to have a specified dollar amount of such dividend (or dividends) treated as if paid in the prior year. The maximum dollar amount that we may elect to treat as an 858 spill-over dividend is the amount by which the earnings and profits for the taxable year exceed the total amount of distributions out of such earnings and profits that were actually made during the taxable year to which they relate back. These distributions are taxable to our shareholders in the year in which paid, even though the distributions relate to our prior taxable year for purposes of the 90% distribution requirement. To the extent that we do not distribute all of our net capital gain or distribute at least 90%, but less than 100%, of our “REIT taxable income,” as adjusted, we will be required to pay tax on that amount at regular corporate tax rates. We believe that we have made, and we intend to continue to make, timely distributions to satisfy these annual distribution requirements. In certain circumstances, 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 for our shareholders to include their proportionate share of such undistributed long-term capital gains in income, and to receive a corresponding credit for their share of the tax that we paid. Our shareholders would then increase their adjusted basis of their shares by the difference between (1) the amounts of capital gain dividends that we designated and that they included in their taxable income, minus (2) the tax that we paid on their behalf with respect to that income. To the extent that in the future we may have available net operating losses carried forward from prior taxable years, such losses may reduce the amount of distributions that we must make in order to comply with the REIT distribution requirements. Such losses, however, (1) will generally not affect the character, in the hands of our shareholders, of any distributions that are actually made as ordinary dividends or capital gains; and (2) cannot be passed through or used by our shareholders. See “— Taxation of U.S. Shareholders — Taxation of Taxable U.S. Shareholders — Distributions Generally.” 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 (ordinary and capital gain) from all prior periods, we would be subject to a non-deductible 4% excise tax on the excess of such required distribution over the sum of (x) the amounts “actually distributed,” and (y) the amounts of income we retained and on which we paid corporate income tax. We expect that our REIT taxable income (determined before our deduction for dividends paid) will be less than our cash flow because of depreciation and other than agreements non-cash charges included in computing REIT taxable income. Accordingly, we anticipate that we will generally have enough cash or liquid assets to enable us to satisfy the distribution requirements described above. However, from time to time, we may not have sufficient cash or other liquid assets to meet these distribution requirements due to timing differences between the Company actual receipt of income and actual payment of deductible expenses, and the inclusion of income and deduction of expenses in arriving at our taxable income. If these timing differences occur, we may need to arrange for short-term, or possibly long-term, borrowings or need to pay dividends in the form of taxable dividends in order to meet the distribution requirements. Furthermore, under amendments to Section 451 of the Code made by H.R. 1, subject to certain exceptions, we must accrue income for U.S. federal income tax purposes no later than when such income is taken into account as revenue in our financial statements, which could create additional differences between REIT taxable income and the receipt of cash attributable to such income. In addition, Section 162(m) of the Code places a per-employee limit of $1 million on the amount of compensation that a publicly held corporation may deduct in any one year with respect to its chief executive officer and certain persons related other highly compensated executive officers. Amendments to it)Section 162(m) made by H.R. 1 eliminated an exception that formerly permitted certain performance based compensation to be deducted even if in excess of $1 million, (3) any obligation which may have the effect of increasing our REIT taxable income. We may be able to rectify a failure to meet the distribution requirement for a year by paying “deficiency dividends” to our shareholders in a later year, which may be included in our deduction for dividends paid for the earlier year. Thus, we may be able to avoid being taxed on amounts distributed as deficiency dividends. However, we will be required to pay rents from real property,interest to the IRS based upon the amount of any deduction claimed for deficiency dividends.