Business Context and Reporting Period
Company: Rexford Industrial Realty, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: February 28, 2017
Subject: Supplemental U.S. Federal Income Tax Considerations
This filing serves to update and replace specific sections regarding U.S. Federal Income Tax Considerations previously disclosed in the Company's Registration Statement on Form S-3 (filed April 11, 2016) and prior Form 8-K filings. The update clarifies tax liabilities associated with acquiring assets from C corporations.
Financial Metrics
The filing text does not provide a clear value for revenue, profit, cash flow, margins, debt, or liquidity. This report is strictly informational regarding tax law interpretations and does not contain financial performance data.
Material Changes
The filing supersedes and replaces the following prior disclosures:
- The "U.S. Federal Income Tax Considerations" section in Exhibit 99.1 of the Form 8-K filed on August 8, 2016.
- Specific portions of the "U.S. Federal Income Tax Considerations" in the Form S-3 Registration Statement filed on April 11, 2016.
- Specific portions of the "U.S. Federal Income Tax Considerations" in Exhibit 99.5 of the Form 8-K filed on April 11, 2016.
The primary change clarifies the application of "built-in gains tax" when the Company acquires assets from C corporations where the tax basis is less than the fair market value.
Guidance, Outlook, and Risks
Tax Liability Risks
The filing outlines specific tax risks related to asset acquisitions:
- Built-in Gains Tax: If the Company acquires an asset from a C corporation with a tax basis lower than its fair market value, and subsequently recognizes gain on the disposition of that asset within a specified period (generally five years), the Company may be required to pay tax at the highest regular corporate tax rate on the excess of fair market value over adjusted tax basis.
- Impact on Distributions: Any taxes paid as a result of such gain recognition will reduce the amount of taxable income available for distribution to stockholders.
- Exclusions: Gains from the sale of property acquired in a Section 1031 like-kind exchange or Section 1033 involuntary conversion are generally excluded from this built-in gains tax.
Key Facts for Investor Verification
- Verify the Company's current portfolio for assets acquired from C corporations in carry-over basis transactions.
- Confirm the acquisition dates of such assets to determine if they fall within the five-year "specified period" for built-in gains tax liability.
- Review the Company's projected capital gains dispositions to assess potential impacts on distributable income.
- Ensure the Company has not made elections under applicable Treasury Regulations that would alter the treatment of these gains.