Client Update December 22, 2015 4 ï‚· Taxable REIT Subsidiary Limitation. The Act reduces the percentage of the value of a REIT’s assets that may consist of taxable REIT subsidiaries from 25% to 20%. ï‚· Preferential Dividends. The Act repeals the preferential dividend rule for publicly offered REITs and authorizes the Secretary of the Treasury to provide a remedy for private REITs to cure distributions that fail to comply with the preferential dividend requirement. ï‚· Prohibited Transaction Safe Harbor. In general, REITs are subject to a tax of 100% of the net income derived from prohibited transactions, which are intended to cover sales of inventory such as condo sales.

The Act alters certain of the safe harbors that allow a REIT to avoid such tax in a manner that provides additional flexibility to satisfy the safe harbors. ï‚· Increased Flexibility to Hedge. The Act expands an existing exclusion from the REIT “income tests” that applies to income earned from certain hedging transactions with respect to foreign currency and indebtedness to acquire or carry real property, which should provide REITs with more flexibility to engage in hedging transactions. *** Please do not hesitate to contact us with any questions. www.debevoise.com .