As filed with the Securities and Exchange Commission on May 24, 2002
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
iSTAR FINANCIAL INC.
(Exact name of Registrants as specified in its charter)
MARYLAND 95-6881527
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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1114 AVENUE OF THE AMERICAS, 27TH FLOOR
NEW YORK, NEW YORK 10036
(212) 930-9400
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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JAY SUGARMAN
CHIEF EXECUTIVE OFFICER
iSTAR FINANCIAL INC.
1114 AVENUE OF AMERICAS, 27TH FLOOR
NEW YORK, NEW YORK 10036
(212) 930-9400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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COPIES TO:
KATHLEEN L. WERNER, ESQ.
CLIFFORD CHANCE ROGERS & WELLS LLP
200 PARK AVENUE
NEW YORK, NEW YORK 10166
(212) 878-8000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box: / /
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED OFFERING PRICE(2) FEE (2)
- -------------------------------------------------- ------------ ----------------- ------------
Common Stock, par value $.001 per share ......... 984,476(1) $28,549,804.00 $2,627.00
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(1) Pursuant to Rule 416 under the Securities Act, this Registration
Statement also covers such additional shares of common stock as may
be issued to prevent dilution of the shares of common stock
registered hereby resulting from stock splits, stock dividends or
similar transactions.
(2) Pursuant to Rule 457(c) under the Securities Act of 1933, as
amended, and estimated solely for the purpose of calculating the
registration fee, the proposed maximum aggregate offering price is
equal to the average of the high and low prices of the shares of
common stock of iStar Financial Inc. on the New York Stock Exchange
on May 21, 2002.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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The information in this Prospectus is not complete and may be changed. The
Participating Securityholders may not sell these securities until the
Registration Statement filed with the Securities and Exchange Commission is
effective. This Prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any state in where the offer
or sale is not permitted prior to registration or qualification under the
securities laws of any such state.
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PROSPECTUS
iSTAR FINANCIAL INC.
SHARES OF COMMON STOCK
This prospectus relates to an aggregate of up to 984,476 shares of our
common stock. These securities may be offered and sold from time to time by the
securityholder specified in this prospectus or its successors in interest. See
"Participating Securityholder."
The shares of common stock to which this prospectus relates are issuable
to the Participating Securityholder upon the exchange of joint venture interests
held by it. We will not receive any proceeds from sales of the securities.
The Participating Securityholder may sell the common stock offered hereby
on the New York Stock Exchange or such other national securities exchange or
automated interdealer quotation system on which shares of our common stock are
then listed or quoted, through negotiated transactions or otherwise, at market
prices prevailing at the time of the sale or at negotiated prices.
Our common stock is listed and traded on the New York Stock Exchange under
the symbol "SFI." On May 21, 2002, the closing sale price of our common stock on
the NYSE was $28.93 per share.
An investment in our common stock involves risks that are described in
"RISK FACTORS" beginning on page five of this prospectus. You should read this
prospectus and any accompanying prospectus supplement together with additional
information described under the heading "Where You Can Find More Information."
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
TABLE OF CONTENTS
Page
WHERE YOU CAN FIND MORE INFORMATION..........................................3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..............................3
FORWARD-LOOKING STATEMENTS...................................................4
THE COMPANY..................................................................5
RISK FACTORS.................................................................5
USE OF PROCEEDS.............................................................11
PARTICIPATING SECURITYHOLDER................................................11
PLAN OF DISTRIBUTION........................................................12
MATERIAL FEDERAL INCOME TAX CONSEQUENCES....................................15
LEGAL MATTERS...............................................................27
EXPERTS.....................................................................27
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WHERE YOU CAN FIND MORE INFORMATION
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 450 Fifth Street, N.W.,
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 an Internet site that contains reports, proxy and information
statements and other information regarding issuers (including us) that file
electronically with the SEC. The address of that site 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.
We have filed with the SEC a registration statement on Form S-3 under the
Securities Act of 1933, as amended, with respect to the securities offered
hereby. This prospectus does not contain all the information set forth in the
registration statement, certain portions of which have been omitted as permitted
by the rules and regulations of the SEC. Statements contained in this prospectus
as to the contents of any contract or other document filed as an exhibit to the
registration statement are not necessarily complete, and in each instance,
reference is made to the copy of such contract or document so filed, each such
statement being qualified in all respects by such reference. For further
information about us and the securities, please see the registration statement
and exhibits thereto.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We are incorporating by reference in this prospectus the following
documents which we have previously filed with the Securities and Exchange
Commission under the File Number 1-10150:
(1) our Annual Report on Form 10-K for the fiscal year ended December
31, 2001;
(2) our Quarterly Report on Form 10-Q for the quarter ended March 31,
2002;
(3) our Current Report on Form 8-K dated May 20, 2002; and
(4) the description of our common stock contained in our registration
statement on Form 8-A filed on October 5, 1999, as that description has been
altered by amendments or reports filed for the purpose of updating those
descriptions.
Whenever after the date of this prospectus we file reports or documents
under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934,
as amended, 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 iStar Financial Inc., 1114 Avenue of the Americas, 27th
Floor, New York, New York 10036, attention: Investor Relations Department
(Telephone: (212) 930-9400).
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FORWARD-LOOKING STATEMENTS
We make statements in this prospectus and the documents we incorporate by
reference that are considered "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, which are usually identified by the use of words such as
"will," "anticipates," "believes," "estimates," "expects," "projects," "plans,"
"intends," "should" or similar expressions. We intend those forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Reform Act of 1995 and are
including this statement for purposes of complying with these safe harbor
provisions. These forward-looking statements reflect our current views about the
Company's plans, strategies and prospects, which are based on the information
currently available to us and on assumptions we have made. Although we believe
that our plans, intentions and expectations as reflected in or suggested by
those forward-looking statements are reasonable, we can give no assurance that
the plans, intentions or expectations will be achieved. We have listed below and
have discussed elsewhere in this prospectus some important risks, uncertainties
and contingencies which could cause the Company's actual results, performances
or achievements to be materially different from the forward- looking statements
we make in this prospectus. These risks, uncertainties and contingencies
include, but are not limited to, the following:
1. The success or failure of our efforts to implement our current business
strategy.
2. Economic conditions generally and in the commercial real estate and
finance markets specifically.
3. The performance and financial condition of borrowers and corporate
tenants.
4. The actions of our competitors and our ability to respond to those
actions.
5. The cost of our capital, which depends in part on our asset quality, the
nature of our relationships with our lenders and other capital providers,
our business prospects and outlook, and general market conditions.
6. Changes in governmental regulations, tax rates and similar matters.
7. Legislative and regulatory changes (including changes to laws governing
the taxation of REITs).
8. Other factors discussed under the heading "Risk Factors" and which may
be discussed in a prospectus supplement.
We assume no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise. In
evaluating forward-looking statements, you should consider these risks and
uncertainties, together with the other risks described from time to time in our
reports and documents filed with the SEC, and you should not place undue
reliance on those statements.
4
THE COMPANY
We are the leading publicly-traded finance company focused on the
commercial real estate industry. We provide structured financing to private and
corporate owners of real estate nationwide, including senior and junior mortgage
debt, corporate mezzanine and subordinated capital and corporate net lease
financing. Our objective is to deliver superior risk-adjusted returns on equity
to our stockholders by providing innovative and value-added financing solutions
to our customers. We are taxed as a real estate investment trust.
Our principal executive offices are located at 1114 Avenue of the
Americas, New York, New York 10036, and our telephone number is (212) 930-9400.
Our website is istarfinancial.com. Our six primary regional offices are located
in Atlanta, Boston, Dallas, Denver, Hartford and San Francisco. iStar Asset
Services, our loan servicing subsidiary, is located in Hartford, and iStar Real
Estate Services, our corporate facilities management division, is headquartered
in Atlanta.
RISK FACTORS
THIS SECTION DESCRIBES SOME, BUT NOT ALL, OF THE RISKS OF PURCHASING OUR
COMMON STOCK. YOU SHOULD CAREFULLY CONSIDER THESE RISKS, IN ADDITION TO THE
OTHER INFORMATION CONTAINED IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE,
BEFORE PURCHASING ANY OF THE SECURITIES OFFERED HEREBY. IN CONNECTION WITH THE
FORWARD-LOOKING STATEMENTS THAT APPEAR IN THIS PROSPECTUS, YOU SHOULD CAREFULLY
REVIEW THE FACTORS DISCUSSED BELOW AND THE CAUTIONARY STATEMENTS REFERRED TO IN
"FORWARD-LOOKING STATEMENTS."
WE ARE SUBJECT TO REAL ESTATE RISKS
Our real estate finance business is subject to risks, including the
following:
1. Defaults by borrowers on non-recourse loans where underlying
property values fall below the loan amount.
2. Costs and delays associated with the foreclosure process.
3. Borrower bankruptcies.
4. Possible unenforceability of loan terms, such as prepayment
provisions.
5. Acts or omissions by owners or managers of the underlying real
estate.
6. Borrower defaults on debt senior to our loans, if any.
7. Where debt senior to our loans exists, the presence of intercreditor
arrangements limiting our ability to amend our loan documents,
assign our loans, accept prepayments, exercise our remedies (through
"standstill" periods) and control decisions made in bankruptcy
proceedings relating to borrowers.
8. Lack of control over the underlying asset prior to a default.
The risks described above could impact our ability to realize on our
collateral or collect expected amounts on account of our assets. Where
applicable, these risks could also require us to expend funds in order to
protect our position as a subordinated lender. Unanticipated costs may also be
incurred by us
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after a foreclosure. Bankruptcy and borrower litigation can significantly
increase the time needed for us to acquire underlying collateral in the event
of a default, during which time the collateral may decline in value.
WE ARE SUBJECT TO RISKS RELATING TO OUR ASSET CONCENTRATION
As of March 31, 2002, the average size of our lending and leasing
investments was $24.5 million. No single investment represented more than 3.8%
of our total revenues for the fiscal quarter ended March 31, 2002. While our
asset base is diversified by product line, asset type, obligor, property type
and geographic location, it is possible that if we suffer losses on a portion of
our larger assets, our financial performance could be adversely impacted.
WE ARE SUBJECT TO RISKS RELATING TO OUR CORPORATE TENANT LEASE BUSINESS
Our corporate tenant leasing business is subject to risks, including the
following:
1. Lease expirations may result in reduced revenues if prevailing
market lease rates at the time of such expirations are less than
the contractual lease rates under the expiring leases. In
addition, if corporate tenants under expiring leases elect not to
renew their leases, we could experience long vacancy periods and
incur substantial capital expenditures in order to obtain
replacement corporate tenants. As of March 31, 2002, the
percentage of our revenues (based on total revenues for the
quarter ended March 31, 2002, annualized) that are subject to
expiring leases during each year from 2002 through 2006 is as
follows:
2002................................1.1%
2003................................3.7%
2004................................4.9%
2005................................3.2%
2006................................6.1%
2. Lease defaults by one or more significant corporate tenants or
lease terminations by corporate tenants following events of
casualty or takings by eminent domain could result in long
vacancy periods and require us to incur substantial capital
expenditures in order to obtain replacement corporate tenants.
In addition, there can be no assurance that the lease payments
received from replacement corporate tenants will be equal to the
lease payments received from the defaulting or terminating
corporate tenants. As of March 31, 2002, 13.4% of our annualized
total revenues for the quarter ended March 31, 2002, were derived
from our five largest corporate tenants.
3. Illiquidity of ownership interests in corporate facilities.
4. Risks associated with joint ventures, such as lack of full
management control over venture activities and risk of
non-performance by venture partners.
5. Possible need for significant tenant improvements, including
conversions of single tenant buildings to multi-tenant buildings.
6. Competition from newer, more updated facilities.
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Factors 1, 2 and 6 would likely have negative impacts on our net income.
Factors 3, 4 and 5 may decrease our flexibility to vary our investment strategy
promptly to respond to changes in market conditions.
BECAUSE WE MUST DISTRIBUTE A PORTION OF OUR INCOME, WE WILL CONTINUE TO NEED
ADDITIONAL DEBT AND/OR EQUITY CAPITAL TO GROW
We must distribute at least 90% of our taxable net income to our
stockholders to maintain our REIT status. As a result, those earnings will not
be available to fund investment activities. We have historically funded our
investments by borrowing from financial institutions and raising capital in the
public and private capital markets. We expect to continue to fund our
investments this way. If we fail to obtain funds from these sources, it could
limit our ability to grow, which could have a material adverse effect on the
value of our common stock. Our taxable net income has historically been lower
than the cash flow generated by our business activities, primarily because our
taxable net income is reduced by non-cash expenses, such as depreciation and
amortization. As a result, our dividend payout ratio as a percentage of free
cash flow has generally been lower than our payout ratio as a percentage of
taxable net income. Our common stock dividends for the quarter ended March 31,
2002 represented approximately 84.0% of our adjusted earnings for that quarter.
OUR GROWTH IS DEPENDENT ON LEVERAGE, WHICH MAY CREATE OTHER RISKS
Our success is dependent, in part, upon our ability to grow our assets
through the use of leverage. We currently intend to leverage our Company
primarily through secured and unsecured borrowings. Our ability to obtain the
leverage necessary for execution of our business plan will ultimately depend
upon our ability to maintain interest coverage ratios meeting market
underwriting standards that will vary according to lenders' assessments of our
creditworthiness and the terms of the borrowings.
The percentage of leverage used will vary depending on our estimate of the
stability of the Company's cash flow. To the extent that changes in market
conditions cause the cost of such financing to increase relative to the income
that can be derived from the assets originated, we may reduce the amount of our
leverage.
Leverage creates an opportunity for increased net income, but at the same
time creates risks. For example, leveraging magnifies changes in our net worth.
We will incur leverage only when there is an expectation that it will enhance
returns, although there can be no assurance that our use of leverage will prove
to be beneficial. Moreover, there can be no assurance that we will be able to
meet our debt service obligations and, to the extent that we cannot, we risk the
loss of some or all of our assets or a financial loss if we are required to
liquidate assets at a commercially inopportune time.
We and our subsidiaries are parties to agreements and debt instruments
that restrict future indebtedness and the payment of dividends, including
indirect restrictions (through, for example, covenants requiring the maintenance
of specified levels of net worth and earnings to debt service ratios) and direct
restrictions. As a result, in the event of a deterioration in our financial
condition, these agreements or debt instruments could restrict our ability to
pay dividends. Moreover, if we fail to pay dividends as required by the Internal
Revenue Code, whether as a result of restrictive covenants in our debt
instruments or otherwise, we may lose our status as a REIT. For more information
regarding the consequences of loss of REIT status, please read the risk factor
entitled "We May Be Subject to Adverse Consequences if We Fail to Qualify as a
Real Estate Investment Trust."
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WE FACE A RISK OF LIABILITY UNDER ENVIRONMENTAL LAWS
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner of real estate (including, in certain
circumstances, a secured lender that succeeds to ownership or control of a
property) may become liable for the costs of removal or remediation of certain
hazardous or toxic substances at, on, under or in its property. Those laws
typically impose cleanup responsibility and liability without regard to whether
the owner or control party knew of or was responsible for the release or
presence of such hazardous or toxic substances. The costs of investigation,
remediation or removal of those substances may be substantial. The owner or
control party of a site may be subject to common law claims by third parties
based on damages and costs resulting from environmental contamination emanating
from a site. Certain environmental laws also impose liability in connection with
the handling of or exposure to asbestos-containing materials, pursuant to which
third parties may seek recovery from owners of real properties for personal
injuries associated with asbestos-containing materials. Absent succeeding to
ownership or control of real property, a secured lender is not likely to be
subject to any of these forms of environmental liability.
CERTAIN PROVISIONS IN OUR CHARTER MAY INHIBIT A CHANGE IN CONTROL
Generally, to maintain our qualification as a REIT under the Internal
Revenue Code, not more than 50% in value of our outstanding shares of stock may
be owned, directly or indirectly, by five or fewer individuals at any time
during the last half of our taxable year. The Internal Revenue Code defines
"individuals" for purposes of the requirement described in the preceding
sentence to include some types of entities. Under our charter, no person may own
more than 9.8% of the outstanding shares of stock, with some exceptions. The
restrictions on transferability and ownership may delay, deter or prevent a
change in control or other transaction that might involve a premium price or
otherwise be in the best interest of the securityholders
Our Board of Directors is divided into two classes. Directors of each
class are chosen for two-year staggered terms. Staggered terms of directors may
reduce the possibility of a tender offer or an attempt to change control, even
though a tender offer or change in control might be in the best interest of our
securityholders Our charter authorizes our Board of Directors:
1. To cause us to issue additional authorized but unissued shares of
common or preferred stock.
2. To classify or reclassify, in one or more series, any of our
unissued preferred shares.
3. To set the preferences, rights and other terms of any classified
or reclassified securities that we issue.
ADVERSE CHANGES IN GENERAL ECONOMIC CONDITIONS CAN ADVERSELY AFFECT OUR
BUSINESS
Our success is dependent upon the general economic conditions in the
geographic areas in which a substantial number of our investments are located.
Adverse changes in national economic conditions or in the economic conditions of
the regions in which we conduct substantial business likely would have an
adverse effect on real estate values and, accordingly, our business.
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WE MAY BE SUBJECT TO ADVERSE CONSEQUENCES IF WE FAIL TO QUALIFY AS A REAL
ESTATE INVESTMENT TRUST
We intend to operate so as to qualify as a real estate investment trust
for federal income tax purposes. We have received an opinion of our legal
counsel that, based on certain assumptions and representations described in
"Material Federal Income Tax Consequences," our existing legal organization and
our actual and proposed method of operation described in this prospectus, as set
forth in our organizational documents and as represented by us to our counsel,
enable us to satisfy the requirements for qualification as a real estate
investment trust under the Internal Revenue Code in the ordinary course of our
actual and proposed operations. Investors should be aware, however, that
opinions of counsel are not binding on the Internal Revenue Service or any
court. The real estate investment trust qualification opinion only represents
the view of our counsel based on such counsel's review and analysis of existing
law, which includes no controlling precedent. Furthermore, both the validity of
the opinion and our qualification as a real estate investment trust will depend
on our continuing ability to meet various requirements concerning, among other
things, the ownership of our outstanding stock, the nature of our assets, the
sources of our income and the amount of our distributions to our stockholders.
See "Material Federal Income Tax Consequences-Taxation of the Company."
If we were to fail to qualify as a real estate investment trust for any
taxable year, we would not be allowed a deduction for distributions to our
stockholders in computing our taxable income and would be subject to federal
income tax, including any applicable minimum tax, on our taxable income at
regular corporate rates. Unless entitled to relief under certain Internal
Revenue Code provisions, we also would be disqualified from treatment as a real
estate investment trust for the four subsequent taxable years following the year
during which qualification was lost. As a result, cash available for
distribution would be reduced for each of the years involved. Furthermore, it is
possible that future economic, market, legal, tax or other considerations may
cause the Board of Directors to revoke the real estate investment trust
election. See "Material Federal Income Tax Consequences."
Even if we qualify as a real estate investment trust for federal income
tax purposes, we may be subject to certain state and local taxes on our income
and property, and may be subject to certain federal taxes. See "Material Federal
Income Tax Consequences-Taxation of the Company."
TAX-EXEMPT STOCKHOLDERS MAY BE SUBJECT TO TAXATION
The Internal Revenue Service has issued a revenue ruling in which it held
that amounts distributed by a REIT to a tax-exempt employees' pension trust do
not constitute unrelated business taxable income ("UBTI"). In general, subject
to the discussion below regarding a "pension-held REIT" and subject to the
following sentence, based upon such ruling and the statutory framework of the
Internal Revenue Code, distributions to a stockholder of a real estate
investment trust that is a tax-exempt entity should not constitute UBTI,
provided that:
1. The tax-exempt entity has not financed the acquisition of its shares
of common stock with "acquisition indebtedness" within the meaning
of the Internal Revenue Code.
2. The shares of common stock are not otherwise used in an unrelated
trade or business of the tax-exempt entity.
3. The real estate investment trust does not hold a residual interest
in a real estate mortgage investment conduit ("REMIC") within the
meaning of Section 860D of the Internal Revenue Code.
9
Although we do not intend to invest a material amount of assets in
REMICS, certain taxable income produced by REMIC residual interests may cause
our stockholders to suffer certain adverse tax consequences. See "Material
Federal Income Tax Consequences."
If any pension or other retirement trust that qualifies under Section
401(a) of the Internal Revenue Code holds more than 10% by value of the
interests in a pension-held REIT at any time during a taxable year, a portion of
the dividends paid to the qualified pension trust by such REIT may constitute
UBTI. For these purposes, a "pension-held REIT" is defined as a REIT: (1) that
would not have qualified as a REIT but for the provisions of the Internal
Revenue Code which look through such a qualified pension trust in determining
ownership of securities of the REIT; and (2) as to which at least one qualified
pension trust holds more than 25% by value of the interests of such REIT or one
or more qualified pension trusts (each owning more than a 10% interest by value
in the REIT) hold in the aggregate more than 50% by value of the interests in
such REIT.
We do not expect that we will be a pension-held REIT. However,
notwithstanding our current belief that we will not be a "pension-held REIT," no
assurance can be given that we will not become a pension-held REIT in the
future.
If we were to become a pension-held REIT in the future and were to
originate investments using debt, or otherwise were to engage in a transaction
resulting in UBTI, determined as though we were a qualified pension plan, any
qualified pension plan owning 10% or more of our shares, by value, would have a
portion of its dividend income from us taxed as UBTI. Even if we were not a
pension-held REIT, certain amounts received by a stockholder that is a
tax-exempt entity may be treated as UBTI. See "Material Federal Income Tax
Consequences."
SOFI-IV SMT HOLDINGS, L.L.C. IS A SIGNIFICANT STOCKHOLDER
SOFI-IV SMT Holdings, L.L.C. holds a significant number of shares of our
common stock. Four of the 16 members of our Board of Directors are employed by
an affiliate of SOFI-IV SMT Holdings, L.L.C. and own interests in SOFI-IV SMT
Holdings, L.L.C., as does our chairman and chief executive officer. As a result
of its ownership interest, SOFI-IV SMT Holdings, L.L.C. will have significant
influence over our affairs with respect to matters that require stockholder
approval, and its interest may conflict with our interests and the interests of
our other stockholders. In addition, members of our Board who have relationships
with SOFI-IV SMT Holdings, L.L.C. may be faced with decisions which could
create, or appear to create, potential conflicts of interest.
FUTURE SALES OF OUR COMMON STOCK BY SOFI-IV SMT HOLDINGS, L.L.C. COULD
ADVERSELY AFFECT OUR STOCK PRICE
If SOFI-IV SMT Holdings, L.L.C. were to sell a substantial number of the
shares of our common stock, the prevailing market prices for our common stock
could be adversely affected. SOFI-IV SMT Holdings, L.L.C. has pledged 25,267,462
shares of common stock owned by it under a $150.0 million margin loan that is
fully recourse to SOFI-IV SMT Holdings, L.L.C. In the event that SOFI-IV SMT
Holdings, L.L.C. were to default in the performance of its obligations under
that loan, the lender could foreclose upon those pledged shares and sell them in
the open market at any time. In addition, unless Starwood Opportunity Fund IV,
L.P. (the entity which owns SOFI-IV SMT Holdings, L.L.C.), is able to extend its
terms, it will have to begin, on February 27, 2005, distributing its investments
to its investors, selling its investments to third parties, or a combination of
the two. Any such sales or distributions could adversely affect the prevailing
market prices for our common stock.
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USE OF PROCEEDS
The Participating Securityholder will receive all of the proceeds if
and when it sells securities covered by this prospectus. See "Participating
Securityholder." We will not receive any of the proceeds.
PARTICIPATING SECURITYHOLDER
This prospectus relates to an aggregate of up to 984,476 shares of common
stock which may be sold from time to time by the Participating Securityholder.
On July 15, 1998, TriNet Corporate Realty Trust, Inc., our leasing
subsidiary, entered into a joint venture with The Prudential Insurance Company
of America to purchase and operate a property. Pursuant to the terms of the
joint venture agreement, Prudential has exercised its right to exchange its
interest in the joint venture for 984,476 shares of our common stock. We have
the right to deliver cash, instead of shares, to effectuate the exchange. In
connection with the joint venture, we agreed to file a registration statement,
of which this prospectus is a part, covering resales of the shares of common
stock which may be received on exchange of the joint venture interests.
The following chart shows, according to our records as of March 31, 2002,
the number of shares of common stock beneficially owned by the Participating
Securityholder and the number of shares of common stock that may be offered from
time to time:
SHARES OF COMMON STOCK
OWNED PRIOR TO ANY OFFERING
--------------------------- SHARES
NUMBER OF PERCENTAGE THAT MAY BE
PARTICIPATING SECURITYHOLDER SHARES OF CLASS OFFERED
- -------------------------------------------- ----------- ---------- -----------
The Prudential Insurance Company of America 984,476 1.1% 984,476
PLAN OF DISTRIBUTION
We are registering the securities on behalf of the Participating
Securityholder and we will bear all costs, expenses and fees in connection with
the registration of the securities. As used herein, "Participating
Securityholder" includes donees and pledgees selling securities received from a
named Participating Securityholder after the date of this prospectus. Brokerage
commissions and similar selling expenses, if any, attributable to the sale of
securities will be borne by the Participating Securityholder. Except as may be
set forth in any prospectus supplement, the Participating Securityholder has
advised us that it has not entered into any agreements, understandings or
arrangements with any underwriters or broker-dealers regarding the sale of their
securities, nor is there an underwriter or coordinating broker acting in
connection with the proposed sale of securities by the Participating
Securityholder.
The Participating Securityholder may effect such transactions by selling
securities directly to purchasers or to or through broker-dealers, which may act
as agents or principals. Such broker-dealers may receive compensation in the
form of discounts, concessions, or commissions from the Participating
Securityholder and/or the purchasers of securities for whom such broker-dealers
may act as agents or to whom they sell as principals, or both (which
compensation as to a particular broker-dealer might be in excess of customary
commissions).
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The Participating Securityholder and any broker-dealers that act in
connection with the sale of securities might be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act, and any commissions
received by such broker-dealers and any profit on the resale of the securities
sold by them while acting as principals might be deemed to be underwriting
discounts or commissions under the Securities Act. We have agreed to indemnify
each Participating Securityholder against certain liabilities, including
liabilities arising under the Securities Act. The Participating Securityholder
may agree to indemnify any agent, dealer or broker-dealer that participates in
transactions involving sales of the securities against certain liabilities,
including liabilities arising under the Securities Act. Brokers' commissions and
dealers' discounts, taxes and other selling expenses to be borne by the
Participating Securityholder are not expected to exceed normal selling expenses.
Because the Participating Securityholder may be deemed to be an
"underwriter" within the meaning of Section 2(11) of the Securities Act, the
Participating Securityholder will be subject to the prospectus delivery
requirements of the Securities Act, which may include delivery through the
facilities of the NYSE pursuant to Rule 153 under the Securities Act. We have
informed the Participating Securityholder that the anti-manipulative provisions
of Regulation M promulgated under the Exchange Act may apply to their sales in
the market. The registration of the securities under the Securities Act shall
not be deemed an admission by the Participating Securityholder or the Company
that the Participating Securityholder are underwriters for purposes of the
Securities Act of any securities offered pursuant to this Prospectus.
Upon the Company being notified by a Participating Securityholder that any
material arrangement has been entered into with a broker-dealer for the sale of
securities through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to Rule 424(b) under the Act,
disclosing: (1) the name of each such Participating Securityholder and of the
participating broker-dealer(s); (2) the number of securities involved; (3) the
price at which such securities were sold; (4) the commissions paid or discounts
or concessions allowed to such broker-dealer(s), where applicable; (5) that such
broker-dealer(s) did not conduct any investigation to verify the information set
out or incorporated by reference in this prospectus; and (6) other facts
material to the transaction. In addition, upon the Company being notified by a
Participating Securityholder that a donee or pledgee intends to sell more than
500 shares of common stock, a supplement to this prospectus will be filed.
The securities may be sold or distributed in a variety of ways, including:
1. Block trades (which may involve crosses) in which the broker or
dealer so engaged will attempt to sell the securities as agent but
may position and resell a portion of the block as principal to
facilitate the transaction.
2. Purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this Prospectus.
3. Exchange distributions and/or secondary distributions in
accordance with the rules of the NYSE.
4. Ordinary brokerage transactions and transactions in which the
broker solicits purchasers.
5. Sales in the over-the-counter market.
6. Through short sales of securities.
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7. Pro-rata distributions in the ordinary course of business or as
part of the liquidation and winding up of the affairs of the
Participating Securityholder.
8. Privately negotiated transactions.
The Participating Securityholder may from time to time deliver all or a
portion of the securities to cover a short sale or sales or upon the exercise,
settlement or closing of a call equivalent position or a put equivalent
position.
Under the Exchange Act and the regulations thereunder, any person engaged
in a distribution of the securities offered by this Prospectus may not
simultaneously engage in market making activities with respect to the securities
during any applicable "cooling off" periods prior to the commencement of such
distribution. In addition, and without limiting the foregoing, the Participating
Securityholder will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder including, without limitation, Rules 101,
102, 103 and 104, which provisions may limit the timing of purchases and sales
of securities by the Participating Securityholder.
Securities that qualify for sale pursuant to Rule 144 may be sold under
Rule 144 rather than pursuant to this prospectus. In addition, a Participating
Securityholder may devise, gift or otherwise transfer the securities by means
not described herein, in which event such transfer will not be pursuant to this
prospectus.
13
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING IS A SUMMARY OF THE FEDERAL INCOME TAX CONSEQUENCES
ANTICIPATED TO BE MATERIAL TO AN INVESTOR IN iSTAR FINANCIAL. THIS SUMMARY IS
BASED ON CURRENT LAW, IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE.
YOUR TAX CONSEQUENCES RELATED TO AN INVESTMENT IN iSTAR FINANCIAL MAY VARY
DEPENDING ON YOUR PARTICULAR SITUATION AND THIS DISCUSSION DOES NOT PURPORT TO
DISCUSS ALL ASPECTS OF TAXATION THAT MAY BE RELEVANT TO A HOLDER OF OUR
SECURITIES IN LIGHT OF HIS OR HER PERSONAL INVESTMENT OR TAX CIRCUMSTANCES, OR
TO HOLDERS OF OUR SECURITIES SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL
INCOME TAX LAWS, EXCEPT TO THE EXTENT DISCUSSED UNDER THE HEADINGS "--TAXATION
OF TAX-EXEMPT STOCKHOLDERS" AND "--TAXATION OF NON-U.S. STOCKHOLDERS." INVESTORS
SUBJECT TO SPECIAL TREATMENT INCLUDE, WITHOUT LIMITATION, INSURANCE COMPANIES,
FINANCIAL INSTITUTIONS, BROKER-DEALERS, TAX-EXEMPT ORGANIZATIONS, INVESTORS
HOLDING SECURITIES AS PART OF A CONVERSION TRANSACTION, OR A HEDGE OR HEDGING
TRANSACTION OR AS A POSITION IN A STRADDLE FOR TAX PURPOSES, FOREIGN
CORPORATIONS OR PARTNERSHIPS, AND PERSONS WHO ARE NOT CITIZENS OR RESIDENTS OF
THE UNITED STATES. IN ADDITION, THE SUMMARY BELOW DOES NOT CONSIDER THE EFFECT
OF ANY FOREIGN, STATE, LOCAL OR OTHER TAX LAWS THAT MAY BE APPLICABLE TO YOU AS
A HOLDER OF OUR SECURITIES.
The information in this summary is based on the Internal Revenue Code of
1986, as amended, current, temporary and proposed Treasury regulations
promulgated under the Internal Revenue Code, the legislative history of the
Internal Revenue Code, current administrative interpretations and practices of
the Internal Revenue Service, and court decisions, all as of the date of this
prospectus. The administrative interpretations and practices of the Internal
Revenue Service upon which this summary is based include its practices and
policies as expressed in private letter rulings which are not binding on the
Internal Revenue Service, except with respect to the taxpayers who requested and
received such rulings. Future legislation, Treasury regulations, administrative
interpretations and practices, and court decisions may affect the tax
consequences contained in this summary, possibly on a retroactive basis. We have
not requested, and do not plan to request, any rulings from the Internal Revenue
Service concerning our tax treatment or the tax consequences contained in this
summary, and the statements in this prospectus are not binding on the Internal
Revenue Service or a court. Thus, we can provide no assurance that the tax
consequences contained in this summary will not be challenged by the Internal
Revenue Service or sustained by a court if challenged by the Internal Revenue
Service.
YOU ARE URGED TO CONSULT YOUR TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES TO YOU OF (1) THE ACQUISITION, OWNERSHIP AND SALE OR OTHER
DISPOSITION OF OUR SECURITIES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES, (2) OUR ELECTION TO BE TAXED AS A REAL ESTATE INVESTMENT
TRUST FOR FEDERAL INCOME TAX PURPOSES AND (3) POTENTIAL CHANGES IN APPLICABLE
TAX LAWS.
TAXATION OF iSTAR FINANCIAL- 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 we have been organized and have operated in a manner which
allows us to qualify for taxation as a REIT under the Internal Revenue Code, and
we intend to continue to be organized in this manner. Our qualification and
taxation as a REIT, however, depend upon our ability to meet, through actual
annual operating results, asset
14
requirements, distribution levels, diversity of stock ownership, and the
various other qualification tests imposed under the Internal Revenue Code.
Accordingly, there can be no assurance that we have operated or will continue
to operate in a manner so as to qualify or remain qualified as a REIT. See
"--Failure to Qualify."
The sections of the Internal Revenue Code that relate to the qualification
and taxation of REITs are highly technical and complex. The following describes
the material aspects of the sections of the Internal Revenue Code that govern
the federal income tax treatment of a REIT and its stockholders. This summary is
qualified in its entirety by the applicable Internal Revenue Code provisions,
rules and regulations promulgated under the Internal Revenue Code, and
administrative and judicial interpretations of the Internal Revenue Code.
Provided we qualify for taxation as a REIT, we generally will not be
subject to federal corporate income tax on our net income that is currently
distributed to our stockholders. This treatment substantially eliminates the
"double taxation" that generally results from an investment in a corporation.
Double taxation means taxation once at the corporate level when income is earned
and once again at the stockholder level when such income is distributed. Even if
we qualify for taxation as a REIT, however, we will be subject to federal income
taxation as follows:
- We will be required to pay tax at regular corporate rates on any
undistributed REIT taxable income, including undistributed net
capital gains.
- We may be subject to the "alternative minimum tax" on items of tax
preference, if any.
- If we have (1) net income from the sale or other disposition of
"foreclosure property" which is held primarily for sale to customers
in the ordinary course of business or (2) other nonqualifying income
from foreclosure property, we will be required to pay tax at the
highest corporate rate on this income. In general, foreclosure
property is property acquired through foreclosure after a default on
a loan secured by the property or on a lease of the property.
- We will be required to pay a 100% tax on any net income from
prohibited transactions. In general, prohibited transactions are
sales or other taxable dispositions of property, other than
foreclosure property, held for sale to customers in the ordinary
course of business.
- If we fail to satisfy the 75% or 95% gross income tests, as
described below, but have maintained our qualification as a REIT, we
will be required to pay a 100% tax on an amount equal to (1) the
gross income attributable to the greater of the amount by which we
fail the 75% or 95% gross income test multiplied by (2) a fraction
intended to reflect our profitability.
- We will be required to pay a 4% excise tax on the amount by which
our annual distributions to our stockholders is less than the sum of
(1) 85% of our ordinary income for the year, (2) 95% of our real
estate investment trust capital gain net income for the year, and
(3) any undistributed taxable income from prior periods.
- If we acquire an asset from a corporation which is not a REIT in a
transaction in which the basis of the asset in our hands is
determined by reference to the basis of the asset in the hands of
the transferor corporation, and we subsequently sell the asset
within ten years, then under Treasury regulations not yet issued, we
would be required to pay tax at the highest regular corporate tax
rate on this gain to the extent (1) the fair market value of
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the asset exceeds (2) our adjusted tax basis in the asset, in each
case, determined as of the date on which we acquired the asset. The
results described in this paragraph assume that we will elect this
treatment in lieu of an immediate tax when the asset is acquired.
- 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 to the extent our stock
is held by specified tax exempt organizations not subject to tax on
unrelated business taxable income.
REQUIREMENTS FOR QUALIFICATION AS A REAL ESTATE INVESTMENT TRUST
GENERAL
The Internal Revenue Code defines a REIT as a corporation, trust or
association:
(1) that is managed by one or more trustees or directors;
(2) that issues transferable shares or transferable certificates to
its owners;
(3) that would be taxable as a regular corporation, but for its
election to be taxed as a REIT;
(4) that is not a financial institution or an insurance company under
the Internal Revenue Code;
(5) that is owned by 100 or more persons;
(6) not more than 50% in value of the outstanding stock of which is
owned, actually or constructively, by five or fewer individuals, as
defined in the Internal Revenue Code to include some entities,
during the last half of each year; and
(7) that meets other tests, described below, regarding the nature of its
income and assets, and the amount of its distributions.
The Internal Revenue Code provides that conditions (1) to (4) must be met
during the entire year and that condition (5) must be met during at least 335
days of a year of twelve months, or during a proportionate part of a shorter
taxable 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. For purposes of condition (6),
tax-exempt entities are generally treated as individuals, subject to a
"look-through" exception for pension funds.
Our Charter provides for restrictions regarding ownership and transfer of
our stock. These restrictions are intended to assist us in satisfying the share
ownership requirements described in (5) and (6) above. These restrictions,
however, may not ensure that we will, in all cases, be able to satisfy the share
ownership requirements described in (5) and (6) above. If we fail to satisfy
these share ownership requirements, our status as a REIT would terminate. If,
however, we comply with the rules contained in applicable Treasury regulations
that require us to determine the actual ownership of our shares and we do not
know, or would not have known through the exercise of reasonable diligence, that
we failed to meet the requirement described in condition (6) above, we would not
be disqualified as a REIT.
In addition, a corporation may not qualify as a REIT unless its taxable
year is the calendar year. We have and will continue to have a calendar taxable
year.
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OWNERSHIP OF A PARTNERSHIP INTEREST
The Treasury regulations provide that if we are a partner in a
partnership, we will be deemed to own our proportionate share of the assets of
the partnership, and we will be deemed to be entitled to our proportionate share
of the gross income of the partnership. The character of the assets and gross
income of the partnership generally retains the same character in our hands for
purposes of satisfying the gross income and asset tests described below.
QUALIFIED REIT SUBSIDIARIES
A "qualified REIT subsidiary" is a corporation, all of the stock of which
is owned by a REIT. Under the Internal Revenue Code, a qualified REIT subsidiary
is not treated as a separate corporation from the REIT. Rather, all of the
assets, liabilities, and items of income, deduction, and credit of the qualified
REIT subsidiary are treated as the assets, liabilities, and items of income,
deduction, and credit of the REIT for purposes of the REIT income and asset
tests described below.
INCOME TESTS
We must meet two annual gross income requirements to qualify as a REIT.
First, each year we must derive, directly or indirectly, at least 75% of our
gross income, excluding gross income from prohibited transactions, from
investments relating to real property or mortgages on real property, including
"rents from real property" and mortgage interest, or from specified temporary
investments. Second, each year we must derive at least 95% of our gross income,
excluding gross income from prohibited transactions, from investments meeting
the 75% test described above, or from dividends, interest and gain from the sale
or disposition of stock or securities. For these purposes, the term "interest"
generally does not include any interest of which the amount received depends on
the income or profits of any person. An amount will generally not be excluded
from the term "interest," however, if such amount is based on a fixed percentage
of gross receipts or sales.
Any amount includable in gross income by us with respect to a regular or
residual interest in a real estate mortgage investment conduit is generally
treated as interest on an obligation secured by a mortgage on real property for
purposes of the 75% gross income test. If, however, less than 95% of the assets
of a real estate mortgage investment conduit consist of real estate assets, we
will be treated as receiving directly our proportionate share of the income of
the real estate mortgage investment conduit, which would generally include
non-qualifying income for purposes of the 75% gross income test. In addition, if
we receive interest income with respect to a mortgage loan that is secured by
both real property and other property and the principal amount of the loan
exceeds the fair market value of the real property on the date we made the
mortgage loan, interest income on the loan will be apportioned between the real
property and the other property, which apportionment would cause us to recognize
income that is not qualifying income for purposes of the 75% gross income test.
We may make loans that have shared appreciation provisions. To the extent
interest on a loan is based on the cash proceeds from the sale or value of
property, income attributable to such provision would be treated as gain from
the sale of the secured property, which generally should qualify for purposes of
the 75% and 95% gross income tests.
We may employ, to the extent consistent with the REIT provisions of the
Code, forms of securitization of our assets under which a "sale" of an interest
in a mortgage loan occurs, and a resulting gain or loss is recorded on our
balance sheet for accounting purposes at the time of sale. In a "sale"
securitization, only the net retained interest in the securitized mortgage loans
would remain on our balance sheet. We may elect to conduct certain of our
securitization activities, including such sales,
17
through one or more taxable subsidiaries, or through qualified REIT
subsidiaries, formed for such purpose. To the extent consistent with the REIT
provisions of the Code, such entities could elect to be taxed as real estate
mortgage investment conduits or financial asset securitization investment
trusts.
Lease income we receive will qualify as "rents from real property" only if
the following conditions are met:
- the amount of lease income may not be based in whole or in part
on the income or profits of any person. "Rents from real
property" may, however, include lease income based on a fixed
percentage of receipts or sales;
- lease income received from a corporate tenant will not qualify as
"rents from real property" if the Company, or an actual or
constructive owner of 10% or more of the Company, actually or
constructively owns 10% or more of such corporate tenant;
- if lease income attributable to personal property leased in
connection with a lease of real property is greater than 15% of the
total lease income received under the lease, then the portion of
lease income attributable to personal property will not qualify as
"rents from real property"; and
- to qualify as "rents from real property," the Company generally may
not render services to corporate tenants of the property, other than
through an independent contractor from whom the Company derives no
revenue. The Company may, however, provide 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 provide a DE
MINIMIS amount of non-customary services. Finally, we may provide
certain non-customary services to corporate tenants through a
"taxable Company subsidiary," which is a taxable corporation wholly
or partly owned by the Company.
If we fail to satisfy one or both of the 75% or 95% gross income tests for
any year, we may still qualify as a REIT if we are entitled to relief under the
Internal Revenue Code. Generally, we may be entitled to relief if:
- our failure to meet the gross income tests was due to reasonable
cause and not due to willful neglect;
- we attach a schedule of the sources of our income to our federal
income tax return; and
- any incorrect information on the schedule was not due to fraud
with the intent to evade tax.
It is not possible to state whether in all circumstances we would be
entitled to rely on these relief provisions. If these relief provisions do not
apply to a particular set of circumstances, we would not qualify as a REIT. As
discussed above in "--Taxation of iStar Financial--General," even if these
relief provisions apply, and we retain our status as a REIT, a tax would be
imposed with respect to our income that does not meet the gross income tests. We
may not always be able to maintain compliance with the gross income tests for
REIT qualification despite periodically monitoring our income.
18
FORECLOSURE PROPERTY
Net income realized by us from foreclosure property would generally be
subject to tax at the maximum federal corporate tax rate (currently 35%).
Foreclosure property means real property and related personal property that (1)
is acquired by us through foreclosure following a default on a lease of such
property or a default on indebtedness owed to us that is secured by the property
and (2) for which we make an election to treat the property as foreclosure
property.
PROHIBITED TRANSACTION INCOME
Any gain realized by us on the sale of any property, other than
foreclosure property, held as inventory or otherwise held primarily for sale to
customers in the ordinary course of business will be prohibited transaction
income, and subject to a 100% penalty tax. Prohibited transaction income may
also adversely affect our ability to satisfy the gross income tests for
qualification as a REIT. Whether property is held as inventory or primarily for
sale to customers in the ordinary course of a trade or business depends on all
the facts and circumstances surrounding the particular transaction. While the
Treasury regulations provide standards which, if met, would not result in
prohibited transaction income, we may not be able to meet these standards in all
circumstances.
HEDGING TRANSACTIONS
We may enter into hedging transactions with respect to one or more of our
assets or liabilities. Our hedging transactions could take a variety of forms,
including interest rate swaps or cap agreements, options, futures contracts,
forward rate agreements, or similar financial instruments. To the extent that we
enter into hedging transactions to reduce our interest rate risk on indebtedness
incurred to acquire or carry real estate assets, any income, or gain from the
disposition of hedging transactions should be qualifying income for purposes of
the 95% gross income test, but not the 75% gross income test.
ASSET TESTS
At the close of each quarter of each year, we also must satisfy four tests
relating to our assets. First, at least 75% of the value of our total assets
must be real estate assets, cash, cash items and government securities. For
purposes of this test, real estate assets include real estate mortgages, real
property, interests in other REITs and stock or debt instruments held for one
year or less that are purchased with the proceeds of a stock offering or a
long-term public debt offering. Second, not more than 25% of our total assets
may be represented by securities, other than those securities includable in the
75% asset class. Third, not more than 20% of the value of our total assets may
be represented by securities in one or more taxable REIT subsidiaries. Fourth,
of the investments included in the 25% asset class, the value of any one
issuer's securities that we hold may not exceed 5% of the value of our total
assets, and we may not own more than 10% of the total vote or value of the
outstanding securities of any one issuer (other than, with respect to the 10%
value requirement, certain "straight debt" securities).
We expect that any real property and temporary investments that we acquire
will generally be qualifying assets for purposes of the 75% asset test, except
to the extent that less than 95% of the assets of a real estate mortgage
investment conduit in which we own an interest consists of "real estate assets."
Mortgage loans, including distressed mortgage loans, mezzanine loans, bridge
loans, and construction loans also will generally be qualifying assets for
purposes of the 75% asset test to the extent that the principal balance of each
mortgage loan does not exceed the value of the associated real property.
After meeting the asset tests at the close of any quarter, we will not
lose our status as a REIT if we fail to satisfy the asset tests at the end of a
later quarter solely by reason of changes in asset values. In
19
addition, if we fail to satisfy the asset tests because we acquire assets
during a quarter, we can cure this failure by disposing of sufficient
nonqualifying assets within 30 days after the close of that quarter.
We will monitor the status of the assets that we acquire for purposes of
the various asset tests and we will manage our portfolio in order to comply with
such tests.
ANNUAL DISTRIBUTION REQUIREMENTS
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 the
sum of (1) 90% of our "REIT taxable income" and (2) 90% of our after tax net
income, if any, from foreclosure property, minus (3) the sum of certain items of
noncash income. In general,"REIT taxable income" means taxable ordinary income
without regard to the dividends paid deduction.
We are required to distribute income in the taxable year in which it is
earned, or in the following taxable year before we timely file our tax return if
such dividend distributions are declared and paid on or before our first regular
dividend payment. Except as provided in "--Taxation of Taxable U.S.
Stockholders" below, these distributions are taxable to holders of common stock
in the year in which paid, even though these distributions relate to our prior
year for purposes of our 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," we will be subject to tax at regular
corporate tax rates.
From time to time we may not have sufficient cash or other liquid assets
to meet the above distribution requirements due to timing differences between
the actual receipt of cash and payment of expenses, and the inclusion of income
and deduction of expenses in arriving at our taxable income. If these timing
differences occur, in order to meet the REIT distribution requirements, we may
need to arrange for short-term, or possibly long-term, borrowings, or to pay
dividends in the form of taxable stock dividends.
Under certain circumstances, we may be able to rectify a failure to meet a
distribution requirement for a year by paying "deficiency dividends" to our
stockholders in a later year, which may be included in our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid being subject
to tax on amounts distributed as deficiency dividends. We will be required,
however, to pay interest based upon the amount of any deduction claimed for
deficiency dividends. In addition, we will be subject to a 4% excise tax on the
excess of the required distribution over the amounts actually distributed if we
should fail to distribute each year at least the sum of 85% of our ordinary
income for the year, 90% of our capital gain income for the year, and any
undistributed taxable income from prior periods.
RECORDKEEPING REQUIREMENTS
We are required to maintain records and request on an annual basis
information from specified stockholders. This requirement is designed to
disclose the actual ownership of our outstanding stock.
FAILURE TO QUALIFY
If we fail to qualify for taxation as a REIT in any taxable year, and the
relief provisions of the Internal Revenue Code described above do not apply, we
will be subject to tax, including any applicable alternative minimum tax, and
possibly increased state and local taxes, on our taxable income at regular
corporate rates. Such taxation would reduce the cash available for distribution
by us to our stockholders. Distributions to our stockholders in any year in
which we fail to qualify as a REIT will not be deductible by us and we will not
be required to distribute any amounts to our stockholders. If we fail to qualify
as a
20
REIT, distributions to our stockholders will be subject to tax as ordinary
income to the extent of our current and accumulated earnings and profits and,
subject to certain limitations of the Internal Revenue Code, corporate
stockholders may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, we would also be
disqualified from taxation as a REIT for the four taxable years following the
year during which we lost our qualification. It is not possible to state
whether in all circumstances we would be entitled to statutory relief.
TAXATION OF TAXABLE U.S. STOCKHOLDERS
When we use the term "U.S. stockholders," we mean a holder of shares of
our stock who is, for United States federal income tax purposes:
- a citizen or resident of the United States;
- a corporation, partnership, or other entity created or organized in
or under the laws of the United States or of any state thereof or in
the District of Columbia, unless Treasury regulations provide
otherwise;
- an estate the income of which is subject to United States federal
income taxation regardless of its source; or
- a trust whose administration is subject to the primary supervision
of a United States court and which has one or more United States
persons who have the authority to control all substantial decisions
of the trust.
DISTRIBUTIONS GENERALLY
Distributions out of our current or accumulated earnings and profits,
other than capital gain dividends will be taxable to our U.S. stockholders as
ordinary income. Provided we qualify as a REIT, our dividends will not be
eligible for the dividends received deduction generally available to U.S.
stockholders that are corporations.
To the extent that we make distributions in excess of our current and
accumulated earnings and profits, these distributions will be treated as a
tax-free return of capital to each U.S. stockholder, and will reduce the
adjusted tax basis which each U.S. stockholder has in its shares of stock by the
amount of the distribution, but not below zero. Return of capital distributions
in excess of a U.S. stockholder's adjusted tax basis in its shares will be
taxable as capital gain, provided that the shares have been held as capital
assets, and will be taxable as long-term capital gain if the shares have been
held for more than one year. Dividends we declare in October, November, or
December of any year and pay to a stockholder of record on a specified date in
any of those months will be treated as both paid by us and received by the
stockholder on December 31 of that year, provided we pay the dividend in January
of the following year. Stockholders may not include in their own income tax
returns any of our net operating losses or capital losses.
CAPITAL GAIN DISTRIBUTIONS
Distributions designated as net capital gain dividends will be taxable
to our U.S. stockholders as capital gain income. Such capital gain income
will be taxable to non-corporate U.S. stockholders at a 20% or 25% rate based
on the characteristics of the asset we sold that produced the gain. U.S.
stockholders that are corporations may be required to treat up to 20% of
certain capital gain dividends as ordinary income.
21
RETENTION OF NET CAPITAL GAINS
We may elect to retain, rather than distribute as a capital gain dividend,
our net capital gains. If we make this election, we would pay tax on such
retained capital gains. In such a case, our stockholders would generally:
- include their proportionate share of our undistributed net
capital gains in their taxable income;
- receive a credit for their proportionate share of the tax paid by
us; and
- increase the adjusted basis of their stock by the difference
between the amount of their capital gain and their share of the
tax paid by us.
PASSIVE ACTIVITY LOSSES AND INVESTMENT INTEREST LIMITATIONS
Distributions we make and gain arising from the sale or exchange by a U.S.
stockholder of our shares 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 stock. Distributions we make, to the extent they
do not constitute a return of capital, generally will be treated as investment
income for purposes of computing the investment interest limitation.
DISPOSITIONS OF STOCK
If you are a U.S. stockholder and you sell or dispose of your shares of
stock, you will recognize gain or loss for federal income tax purposes in an
amount equal to the difference between the amount of cash and the fair market
value of any property you receive on the sale or other disposition and your
adjusted tax basis in the shares of stock. This gain or loss will be capital
gain or loss if you have held the stock as a capital asset, and will be
long-term capital gain or loss if you have held the stock for more than one
year. In general, if you are a U.S. stockholder and you recognize loss upon the
sale or other disposition of stock that you have held for six months or less,
the loss you recognize will be treated as a long-term capital loss to the extent
you received distributions from us which were required to be treated as
long-term capital gains.
BACKUP WITHHOLDING
We report to our U.S. stockholders and the Internal Revenue Service the
amount of dividends paid during each calendar year, and the amount of any tax
withheld. Under the backup withholding rules, a stockholder may be subject to
backup withholding with respect to dividends paid unless the holder is a
corporation or comes within other exempt categories 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 us with his correct taxpayer
identification number or social security number may also be subject to penalties
imposed by the Internal Revenue Service. Backup withholding is not an additional
tax. Any amount paid as backup withholding will be creditable against the
stockholder's income tax liability. In addition, we may be required to withhold
a portion of capital gain distributions to any stockholders who fail to certify
their non-foreign status.
22
TAXATION OF TAX-EXEMPT STOCKHOLDERS
The Internal Revenue Service has ruled that amounts distributed as
dividends by a REIT do not constitute unrelated business taxable income when
received by a tax-exempt entity. Based on that ruling, provided that a
tax-exempt stockholder has not held its shares as "debt financed property"
within the meaning of the Internal Revenue Code and the shares are not otherwise
used in a unrelated trade or business, dividend income on our stock and income
from the sale of our stock should not be unrelated business taxable income to a
tax-exempt stockholder. Generally, debt financed property is property, the
acquisition or holding of which was financed through a borrowing by the
tax-exempt stockholder.
For tax-exempt stockholders which are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Sections
501(c)(7), (c)(9), (c)(17) and (c)(20) of the Internal Revenue Code,
respectively, income from an investment in our shares will constitute unrelated
business taxable income unless the organization is able to claim properly a
deduction for amounts set aside or placed in reserve for certain purposes so as
to offset the income generated by its investment in our shares. These
prospective investors should consult their tax advisors concerning these "set
aside" and reserve requirements.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension-held REIT" may be treated as unrelated business taxable income as to
any pension trust which:
- is described in Section 401(a) of the Internal Revenue Code;
- is tax-exempt under Section 501(a) of the Internal Revenue Code;
and
- holds more than 10%, by value, of the interests in the REIT.
Tax-exempt pension funds that are described in Section 401(a) of the
Internal Revenue Code are referred to below as "qualified trusts."
A REIT is a "pension held REIT" if:
- it 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
a qualified trust is treated, for purposes of the 5/50 rule, as
owned by the beneficiaries of the trust, rather than by the trust
itself; and
- either at least one qualified trust holds more than 25%, by value,
of the interests in the REIT, or one or more qualified trusts, each
of which owns more than 10%, by value, of the interests in the REIT,
holds in the aggregate more than 50%, by value, of the interests in
the REIT.
The percentage of any REIT dividend treated as unrelated business taxable
income is equal to the ratio of:
- the unrelated business taxable income earned by the REIT, treating
the REIT as if it were a qualified trust and therefore subject to
tax on unrelated business taxable income, to
- the total gross income of the REIT.
23
A DE MINIMIS exception applies where the percentage is less than 5% for
any year. As a result of the limitations on the transfer and ownership of stock
contained in our Charter, we do not expect to be classified as a "pension-held
REIT."
EXCESS INCLUSION INCOME:
A portion of our net income attributable to assets financed through our
STARs(SM) program (and, therefore, a portion of the dividends payable by us) may
be treated as Excess Inclusion income from a REMIC residual interest. These
amounts have historically been immaterial and we expect that they will be
immaterial in the future. Prospective stockholders should consult their own tax
advisors regarding the federal income tax consequences to them of incurring
Excess Inclusion income.
TAXATION OF NON-U.S. STOCKHOLDERS
The rules governing federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
stockholders (collectively, "Non-U.S. stockholders") are complex and no attempt
will be made herein to provide more than a summary of such rules.
PROSPECTIVE NON-U.S. STOCKHOLDERS SHOULD CONSULT THEIR TAX ADVISORS TO
DETERMINE THE IMPACT OF FOREIGN, FEDERAL, STATE, AND LOCAL INCOME TAX LAWS WITH
REGARD TO AN INVESTMENT IN OUR SECURITIES AND OF OUR ELECTION TO BE TAXED AS A
REAL ESTATE INVESTMENT TRUST INCLUDING ANY REPORTING REQUIREMENTS.
Distributions to Non-U.S. stockholders that are not attributable to gain
from sales or exchanges by us of U.S. real property interests and are not
designated by us as capital gain dividends or retained capital gains will be
treated as dividends of ordinary income to the extent that they are made out of
our current or accumulated earnings and profits. Such distributions will
generally be subject to a withholding tax equal to 30% of the distribution
unless an applicable tax treaty reduces or eliminates that tax. However, if
income from an investment in our stock 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 federal income tax at graduated rates,
in the same manner as U.S. stockholders are taxed with respect to such
distributions (and also may be subject to the 30% branch profits tax in the case
of a Non-U.S. stockholder that is a corporation). We expect to withhold U.S.
income tax at the rate of 30% on the gross amount of any distributions made to a
Non-U.S. stockholder unless (1) a lower treaty rate applies and any required
form, such as IRS Form W-8BEN, evidencing eligibility for that reduced rate is
filed by the Non-U.S. stockholder with us or (2) the Non-U.S. stockholder files
an IRS Form W-8ECI with us claiming that the distribution is effectively
connected income.
Any portion of the dividends paid to Non-U.S. stockholders that is treated
as excess inclusion income from a real estate mortgage investment conduit will
not be eligible for exemption from the 30% withholding tax or a reduced treaty
rate. In addition, if Treasury regulations are issued allocating our excess
inclusion income from non-real estate mortgage investment conduits among our
stockholders, some percentage of the our dividends would not be eligible for
exemption from the 30% withholding tax or a reduced treaty withholding tax rate
in the hands of Non-U.S. stockholders.
Distributions in excess of our current and accumulated earnings and
profits will not be taxable to a stockholder to the extent that such
distributions do not exceed the adjusted basis of the stockholder's stock, but
rather will reduce the adjusted basis of such shares. To the extent that
distributions in excess of current and accumulated earnings and profits exceed
the adjusted basis of a Non-U.S. stockholder's stock, such distributions will
give rise to tax liability if the Non-U.S. stockholder would otherwise be
subject to
24
tax on any gain from the sale or disposition of its stock, as described
below. Because it generally cannot be determined at the time a distribution
is made whether or not such distribution will be in excess of current and
accumulated earnings and profits, the entire amount of any distribution
normally will be subject to withholding at the same rate as a dividend.
However, amounts so withheld are refundable to the extent it is subsequently
determined that such distribution was, in fact, in excess of our current and
accumulated earnings and profits. We are also required to withhold 10% of any
distribution in excess of our current and accumulated earnings and profits.
Consequently, although we intend to withhold at a rate of 30% on the entire
amount of any distribution, to the extent that we do not do so, any portion
of a distribution not subject to withholding at a rate of 30% will be subject
to withholding at a rate of 10%.
For any year in which we qualify as a REIT, distributions that are
attributable to gain from sales or exchanges of a U.S. real property
interest, which includes certain interests in real property, but generally
does not include mortgage loans, will be taxed to a Non-U.S. stockholder
under the provisions of the Foreign Investment in Real Property Tax Act of
1980 ("FIRPTA"). Under FIRPTA, distributions attributable to gain from sales
of U.S. real property interests are taxed to a Non-U.S. stockholder as if
such gain were effectively connected with a U.S. business. Non-U.S.
stockholders thus would be taxed at the normal capital gain rates applicable
to U.S. stockholders (subject to applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien
individuals). Distributions subject to FIRPTA also may be subject to the 30%
branch profits tax in the hands of a Non-U.S. stockholder that is a
corporation. We are required to withhold 35% of any distribution that is
designated by us as a U.S. real property capital gains dividend. The amount
withheld is creditable against the Non-U.S. stockholder's FIRPTA tax
liability.
Gain recognized by a Non-U.S. stockholder upon a sale of our stock
generally will not be taxed under FIRPTA if we are a "domestically controlled
REIT," which is a REIT in which at all times during a specified testing period
less than 50% in value of the stock was held directly or indirectly by Non-U.S.
persons. Although we currently believe that we are a "domestically controlled
REIT," because our stock is publicly traded, no assurance can be given 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 that owns, actually
or constructively, 5% or less of our stock throughout a specified testing period
will not recognize taxable gain on the sale of his stock under FIRPTA if the
shares are traded on an established securities market.
Gain not subject to FIRPTA will be taxable to a Non-U.S. stockholder if
(1) the Non-U.S. stockholder's investment in the stock is effectively
connected with a U.S. trade or business, 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) the Non-U.S. stockholder is a nonresident alien
individual who was present in the U.S. for 183 days or more during the
taxable year and other conditions are met, in which case the nonresident
alien individual will be subject to a 30% tax on the individual's capital
gains. If the gain on the sale of the stock were to be subject to taxation
under FIRPTA, the Non-U.S. stockholder would be subject to the same treatment
as U.S. stockholders with respect to such gain (subject to applicable
alternative minimum tax, a special alternative minimum tax in the case of
nonresident alien individuals, and the possible application of the 30% branch
profits tax in the case of Non-U.S. corporations).
STATE, LOCAL AND FOREIGN TAXATION
We may be required to pay state, local and foreign taxes in various state,
local and foreign jurisdictions, including those in which we transact business
or make investments, and our stockholders may be required to pay state, local
and foreign taxes in various state, local and foreign jurisdictions, including
those in which they reside. Our state, local and foreign tax treatment may not
conform to the federal income tax consequences summarized above. In addition,
your state, local and foreign tax
25
treatment may not conform to the federal income tax consequences summarized
above. Consequently, you should consult your tax advisor regarding the effect
of state, local and foreign tax laws on an investment in our securities.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING REITS
The rules dealing with federal income taxation are constantly under review
by persons involved in the legislative process and by the Internal Revenue
Service and the U.S. Treasury Department. Changes to the tax law, which may have
retroactive application, could adversely affect us and our investors. It cannot
be predicted whether, when, in what forms, or with what effective dates, the tax
law applicable to us or our investors will be changed.
LEGAL MATTERS
Clifford Chance Rogers & Wells LLP will pass on the validity of the shares
offered by this prospectus and certain tax matters. 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.
EXPERTS
The financial statements incorporated in this Registration Statement by
reference to the Annual Report on Form 10-K for the year ended December 31, 2001
have been so incorporated in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
26
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with
the distribution by the Participating Securityholder of the shares registered
hereby, all of which the Company will pay:
SEC registration fee......................... $ 2,627
Legal fees and expenses(1)................... 10,000
Accounting fees and expenses(1).............. 8,000
Miscellaneous(1)............................. 373
--------
Total ...................................... $21,000
- ------------------
(1) Estimated
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
As permitted by the General Corporation Law of the State of Maryland
("MGCL"), our Amended and Restated Charter ("Charter") provides that an officer,
director, employee or agent of our company is entitled to be indemnified for the
expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him by reason of any action, suit or proceeding brought
against him by virtue of his acting as such officer, director, employee or
agent, provided he acted in good faith or in a manner he reasonably believed to
be in or not opposed to the best interests of our company and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful, except that in any action or suit by or in the right of
our company that person shall be indemnified only for the expenses actually and
reasonably incurred by him and, if that person shall have been adjudged to be
liable for negligence or misconduct, he shall not be indemnified unless and only
to the extent that a court of appropriate jurisdiction shall determine that such
indemnification is fair and reasonable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
EXHIBITS DESCRIPTION
5 Opinion of Clifford Chance Rogers & Wells LLP as to legality.
8 Opinion of Clifford Chance Rogers & Wells LLP as to tax matters.
23.1 Consent of Clifford Chance Rogers & Wells LLP (included in Exhibit 5).
23.2 Consent of Clifford Chance Rogers & Wells LLP (included in Exhibit 8).
23.3 Consent of PricewaterhouseCoopers LLP.
24 Powers of Attorney (included on the signature page of the
Registration Statement).
ITEM 17. UNDERTAKINGS.
(1) The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement: (i) To include any prospectus
II-1
required by Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of shares offered (if the total dollar
value of shares offered would not exceed that which was
registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in
the form of prospectus filed with the SEC pursuant to Rule
424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement; and (iii) To include any material information
with respect to the plan of distribution not previously
disclosed in the registration statement or any material
change to such information in the registration statement;
provided, however, that the undertakings set forth in
paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective
amendment by those paragraphs is contained in periodic
reports filed with or furnished to the SEC by the
registrant pursuant to Section 13 or Section 15(d) of the
Shares Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the shares offered therein, and the offering of such shares at
that time shall be deemed to be the initial bona fide offering
thereof.
(c) To remove from registration by means of a post-effective
amendment any of the shares being registered which remain
unsold at the termination of the offering.
(d) The undersigned registrant hereby further undertakes that,
for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's
annual reports pursuant to Section 13(a) or Section 15(d)
of the Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant
to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration
statement will be deemed to be a new registration statement
relating to the shares offered therein, and the offering of
such shares at that time shall be deemed to be the initial
bona fide offering thereof.
(2) The undersigned registrant further undertakes that:
(a) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the
form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrants pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Shares Act shall
be deemed to be part of this registration statement as of
the time it was declared effective.
II-2
(b) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the shares offered therein,
and the offering of such shares at that time shall be deemed
to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act of 1939 in accordance
with the rules and regulations prescribed by the Commission under Section
305(b)(2) of the Trust Indenture Act of 1939.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of iStar
Financial pursuant to the foregoing provisions, or otherwise, iStar Financial
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by iStar Financial of expenses incurred or
paid by a director, officer or controlling person of iStar Financial in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, iStar Financial will, unless in the opinion of counsel for iStar
Financial the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the city of New York, State of New York, on May
23, 2002.
iSTAR FINANCIAL INC.
By: /s/ Spencer B. Haber
----------------------------------
Name: Spencer B. Haber
Title: President and Chief Financial
Officer
II-4
POWER OF ATTORNEY
KNOW THAT ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below hereby constitutes and appoints Jay Sugarman and
Spencer B. Haber (each with full power to act alone), his or her true and
lawful attorney-in-fact and agent with full power of substitution, in the
name and on behalf of the undersigned, to do any and all acts and things and
to execute any and all instruments which said attorney and agent, may deem
necessary or advisable to enable iStar Financial Inc. (the "Registrant") to
comply with the Securities Act of 1933, and with the Securities Exchange Act
of 1934, and any rules, regulations and requirements of the Securities and
Exchange Commission in respect thereof in connection with this Registration
Statement and any and all amendments thereto or reports that the Registrant
is required to file pursuant to the requirements of federal or state shares
laws or any rules and regulations thereunder. The authority granted under
this Power of Attorney shall include, but not be limited to, the power and
authority to sign the name of the undersigned in the capacity or capacities
set forth below to a Registration Statement on Form S-3 to be filed with the
Securities and Exchange Commission, to any and all amendments (including
post-effective amendments) to that Registration Statement in respect of the
same, and to any and all instruments filed as a part of or in connection with
that Registration Statement; and each of the undersigned hereby ratifies and
confirms all that the attorney-in-fact and agent, shall lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
- -------------------------- ---------------------------------- ------------
/s/ Jay Sugarman Chairman of the Board and Chief May 23, 2002
- --------------------------- Executive Officer
Jay Sugarman
/s/ Spencer B. Haber President, Chief Financial May 23, 2002
- -------------------------- Officer and Director
Spencer B. Haber
/s/ Willis Andersen, Jr.
- -------------------------- Director May 23, 2002
Willis Andersen, Jr.
/s/ Jeffrey G. Dishner
- -------------------------- Director May 23, 2002
Jeffrey G. Dishner
/s/ Andrew L. Farkas
- -------------------------- Director May 23, 2002
Andrew L. Farkas
/s/ Madison F. Grose
- -------------------------- Director May 23, 2002
Madison F. Grose
/s/ Robert W. Holman, Jr.
- -------------------------- Director May 23, 2002
Robert W. Holman, Jr.
/s/ Robin Josephs
- -------------------------- Director May 23, 2002
Robin Josephs
II-5
/s/ Merrick R. Kleeman
- -------------------------- Director May 23, 2002
Merrick R. Kleeman
/s/ H. Cabot Lodge Executive Vice May 23, 2002
- -------------------------- President-Investments
H. Cabot Lodge and Director
/s/ Matthew J. Lustig
- -------------------------- Director May 23, 2002
Matthew J. Lustig
/s/ William M. Matthes
- -------------------------- Director May 23, 2002
William M. Matthes
/s/ John G. McDonald
- -------------------------- Director May 23, 2002
John G. McDonald
/s/ Stephen B. Oresman
- -------------------------- Director May 23, 2002
Stephen B. Oresman
/s/ George R. Puskar
- -------------------------- Director May 23, 2002
George R. Puskar
/s/ Barry S. Sternlicht
- -------------------------- Director May 23, 2002
Barry S. Sternlicht
II-6
EXHIBIT 5
LETTERHEAD OF CLIFFORD CHANCE ROGERS & WELLS LLP
May 23, 2002
iStar Financial Inc.
1114 Avenue of the Americas, 27th Floor
New York, New York 10036
Dear Sirs:
We have acted as counsel to iStar Financial Inc. in connection with a
registration statement under the Securities Act of 1933, as amended (the
"Registration Statement") relating to possible offerings from time to time by
certain stockholders of iStar Financial of iStar Financial's common stock, par
value $.001 per share (the "Securities") at various offering prices.
1. The Securities have been duly authorized and validly issued and are fully
paid and non-assessable; and none of the Securities was issued in violation of
preemptive or other similar rights of any securityholder of the Company.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to us under the caption "Legal Matters" in the
prospectus which is a part of the Registration Statement.
Very truly yours,
/s/ Clifford Chance Rogers & Wells LLP
EXHIBIT 8
LETTERHEAD OF CLIFFORD CHANCE ROGERS & WELLS LLP
May 23, 2002
iStar Financial Inc.
1114 Avenue of the Americas, 27th Floor
New York, New York 10036
Re: REIT STATUS OF ISTAR FINANCIAL INC.
Ladies and Gentlemen:
We have acted as counsel to iStar Financial Inc., a Maryland corporation (the
"Company"), in connection with the preparation and filing of a registration
statement under the Securities Act of 1933, as amended (the "Registration
Statement") relating to possible offerings from time to time by certain
stockholders of the Company of the Company's common stock, par value $.001
per share, at various offering prices. In connection therewith, you have
requested the opinion contained herein. Except as otherwise indicated, terms
used in this letter have the meanings given to them in the Registration
Statement.
In rendering the opinion expressed herein, we have examined and relied upon
such documents, records and instruments as we have deemed necessary in order
to enable us to render the opinion referred to in this letter. In our
examination of the foregoing documents, we have assumed, with your consent,
that (i) all documents reviewed by us are original documents, or true and
accurate copies of original documents, and have not been subsequently
amended, (ii) the signatures of each original document are genuine, (iii)
each party who executed the document had proper authority and capacity, (iv)
all representations and statements set forth in such documents are true and
correct, (v) all obligations imposed by any such documents on the parties
thereto have been or will be performed or satisfied in accordance with their
terms and (vi) the Company at all times has been and will continue to be
organized and operated in accordance with the terms of such documents.
For purposes of rendering the opinion stated below, we have also assumed,
with your consent, the accuracy of the representations contained in the
certificate of representations, dated May 23, 2002, provided to us by the
Company (the "Certificate"). These representations generally relate to the
operation and classification of the Company as a REIT.
Based upon and subject to the foregoing, we are of the opinion that for its
initial taxable year ended December 31, 1998, and for its taxable years ended
December 31, 1999, December 31, 2000, and December 31, 2001, the Company was
organized and has operated in conformity with the
May 23, 2002 Page 2
requirements for qualification as a REIT under the Code, and the Company's
present and proposed method of operation, as represented by the Company, will
permit the Company to continue to so qualify.
The opinion stated above represents our conclusions as to the application of
the federal income tax laws existing as of the date of this letter, and we
can give no assurance that legislative enactments, administrative changes or
court decisions may not be forthcoming that would modify or supersede our
opinion. Moreover, there can be no assurance that positions contrary to our
opinion will not be taken by the Internal Revenue Service, or that a court
considering the issues would not hold contrary to such opinion. Further, the
opinion set forth above represents our conclusions based upon the documents,
facts and representations referred to above. Any material amendments to such
documents, changes in any significant facts or inaccuracy of such
representations could affect the opinion referred to herein. Moreover, the
Company's qualification and taxation as a REIT depend upon the Company's
ability to meet, through actual operating results, requirements under the
Code regarding income, assets, distributions and diversity of stock
ownership. Because the Company's satisfaction of these requirements will
depend on future events, no assurance can be given that the actual results of
the Company's operations for any particular taxable year will satisfy the
tests necessary to qualify as or be taxed as a REIT under the Code. Although
we have made such inquiries and performed such investigations as we have
deemed necessary to fulfill our professional responsibilities as counsel, we
have not undertaken an independent investigation of all of the facts referred
to in this letter and the Certificate.
The opinion set forth in this letter: (i) is limited to those matters
expressly covered; no opinion is to be implied in respect of any other
matter; (ii) is as of the date hereof; and (iii) is rendered by us solely for
your benefit and may not be provided to or relied upon by any person or
entity other than you without our express written consent, in each instance.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to us under the caption "Legal Matters" in the
prospectus which is a part of the Registration Statement.
Very truly yours,
/s/ Clifford Chance Rogers & Wells LLP
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report dated March 1, 2002 relating to the
financial statements and financial statement schedules, which appears in iStar
Financial Inc.'s Annual Report on Form 10-K for the year ended December 31,
2001. We also consent to the references to us under the headings "Experts" in
such Registration Statement.
/s/ PricewaterhouseCoopers LLP
New York, NY
May 22, 2002
