Question
From: (redacted)
Sent: Wednesday, October 04, 2006 2:05 PM
To: Verne, S. Michael
Subject: RealtyExemptions
Hi Mike.
I hope all is well.
I am analyzing whether X's acquisition of interestsin a REIT would be exempt under 802.4 and the realty exemptions. In doing so, Ineed some guidance on whether the assets described below would be consideredexempt or not.
(1) The REIT leases (under triple net or double netleases) restaurants and retail space to third parties. In some cases, the REITholds only the the underlying land and leases such land under triple net leasesto tenants who own the improvements thereon. Would all realty (whether land andimprovements or just land) leased by the REIT under triple or double net leasesto third parties be exempt?
(2) The REIT also holds "dark stores" -- landand vacant buildings. Would "dark stores" be exempt underunproductive real property so long as the abandoned buildings weren't inoperation in the last 12 months and did not generate revenues of $5 million inthe last 36 months preceding X's acquisition of interests in the REIT? What ifthe REIT intends to demolish the buildings and build new realty projects on theland? Would the property be exempt as unproductive real property regardless ofwhether the buildings were in operation in the last 12 months, regardless ofthe level of revenues attributable to the property in the last 36 months, andregardless of whether the REIT has actually demolished the building or takensteps to demolish the building when X acquires interests in the REIT?
(3) The REIT ownsa title company that underwrites title policies for realty sold by the REIT tothird parties. Would this company be exempt?
(4) The REIT is a non-possessor jobber for some of itstenants and buys on paper supplies (inventory) needed by such third-partytenants and re-sells those supplies to the third-party tenants under contracts.Would these contracts be considered exempt?
(5) I assume that all office space leased by the REITfrom a third party for its own offices (and the related personal property usedtherein) would be exempt.
(6)To the extent that the REIT developsrealty for its own ownership or with the intent to sell to a third party, Iassume all such development projects would be exempt regardless of whether theprojects involve restaurants, retail, gas stations, office buildings, hotels,etc...
(7) The REIT derives income from "third party netlease servicing" -- or providing services to third party lessors to helpthem find lessees. Would this be exempt activity?
(8) The REIT owns mails and controls (under me H K Act)entities (hereafter the "Tenants") that lease space in theREIT-controlled malls and in malls not controlled by the REIT. Some of theTenants contract with a third party (under a management agreement) for thethird party to manage and operate the rented space as either a restaurant,retail establishment, or entertainment venue. I understand that when suchTenants sublease the space to third parties to operate the space, theactivities of such Tenants would be exempt. Is this also the case if theTenants contract with a third party to manage the space?
(9) The REIT owns an entity that rents kiosks andportable retail carts in REIT-controlled malls and other malls. Would thisentity be engaged in exempt activity?
(10) The REIT ownsan entity that rents shopping carts to customers in REIT-controlled malls andother malls and operates a wishing well (in which people contribute coins) inREIT controlled mails and other mails. Would these activities be exempt?
(11) The REIT has advertising income for ads and otherpromotional materials placed by third parties in malls that the REIT controlsunder the HSR Act. Would such income be considered exempt? Would it be exemptif it were derived from ad placement in malls not controlled by the REIT?
(12) The REIT buyselectricity at wholesale and sells it at retail to its tenants in malls. Italso derives revenues from trash removal at mails, vending machines at mails,gift card activities at malls, and telephone services provided at malls. Iunderstand that such revenue sources would be incidental to the ownership andleasing of the malls and would therefore be considered exempt. Is that correct?What if the REIT earns such revenues at mails it does not control under the HSRAct (such as third party malls it operates)? If such revenues would not beexempt, and the REIT owns 40% consider only 60% of such revenues non-exempt?