EFTA01384997

with the year of re-characterization. Alternatively, the amount of our REIT taxable income could be recalculated which could cause us to fail one or both of the income tests. Mx Aspects of Our Operating Partnership In General. We will own all or substantially all of our assets through our operating partnership, and our operating partnership in turn may own a substantial portion of its assets through interests in various partnerships and limited liability companies. Except in the case of subsidiaries that have elected REIT or erns status, we expect that our operating partnership and its partnership and limited liability company subsidiaries will be treated as partnerships or disregarded entities for U.S. federal income tax purposes. In general, entities that are classified as partnerships for U.S. federal income tax purposes are treated as "pass-through" entities that are not required to pay U.S. federal income taxes. Rather, partners or members of such entities arc allocated their share of the items of income, gain, loss, deduction and credit of the entity and are potentially required to pay tax on that income without regard to whether the partners or members receive a distribution of cash from the entity. We will include in our income our allocable share of the foregoing items of our operating partnership for purposes of computing our REIT taxable income, based on the applicable operating agreement. For purposes of applying the REIT income and asset tests, we will include our pro rata share of the income generated by and the assets held by our operating partnership, including our operating partnership's share of the income and assets of any subsidiary partnerships and limited liability companies treated as partnerships for U.S. federal income tax purposes, based on our capital interests in such entities. See "—Ownership of Partnership Interests and Disregarded Subsidiaries by a REIT." Our ownership interests in such subsidiaries involve special tax emnsiderations, including the possibility that the IRS might challenge the status of these entities as partnerships or disregarded entities, as opposed to associations taxable as corporations, for U.S. federal income tax purposes. If our operating partnership or one or more of its subsidiary partnerships or limited liability companies intended to be taxed as partnerships were treated as an association, it would be taxable as a corporation and would be subject to U.S. federal income taxes on its income. In that case, the character of the entity and its income would change for purposes of the asset and income tests applicable to REIM and could prevent us from satisfying these tests. See "—Asset Tests Applicable to REIM" and "—Income Tests Applicable to REIM." This, in turn, could prevent us from qualifying as a REIT. Sec "—Failure to Qualify as a REIT" for a discussion of the effect of our failure to meet these tests for a taxable year. We believe that our operating partnership and other subsidiary partnerships and limited liability companies that do not elect REIT or TRS status have been and/or will be classified as partnerships or disregarded entities for U.S. federal income tax purposes. and the remainder of the discussion under this section "—elbx Aspects of Our Operating Partnership" is based on such classification. Although a domestic unincorporated entity is generally treated as a partnership (if it has more than one owner) or a disregarded entity (if it has a single owner) for U.S. federal income tax purposes, in certain situations such an entity may be treated as a corporation for U.S. federal income tax purposes, including if the entity is a "publicly traded partnership" that does not qualify for an exemption based on the character of its income. A partnership is a "publicly traded partnership" under Section 7704 of the Code if: • interests in the partnership are traded on an established securities market; or • interests in the partnership are readily tradable on a "secondary market" or the "substantial equivalent" of a secondary market. 224 CONFIDENTIAL - PURSUANT TO FED. R. CRIM P 6(e) DI3-SDNY-0085787 CONFIDENTIAL SDNY_GM_00231971 EFTA01384997