EFTA01384993.pdf

beginning with our taxable year ended December 31, 2012 and that our intended manner of operations will enable us to continue to meet the requirements for qualification and taxation as a REIT for U.S. federal income tax purposes. For our taxable years ended December 31, 2109 through December 31, 2011, we were taxed as a regular C corporation; however, we did not incur any amount of U.S. federal income tax during those periods. In connection with this offering, we have received an opinion of our tax counsel, Goodwin Procter LLP, to the effect that (i) commencing with our taxable year ended December 31, 2012, we have been organized and operated in conformity with the requirements for qualification and taxation as a REIT under the Code and (ii) our prior, current and proposed ownership and method of operation as represented by management have enabled and will enable us to satisfy the requirements for qualification and taxation as a REIT under the Code for subsequent taxable years. This opinion is based on representations made by us as to certain factual matters relating to our prior and intended and expected organization, our past and contemplated future ownership, the valuation of our shares and our prior and intended and expected manner of operation. Goodwin Procter LLP has not verified and will not verify those representations, and their opinion assumes that such representations and covenants are accurate and complete, that we have been owned, organized and operated and will continue to be owned and organized and will continue to operate in accordance with such representations and that we will take no action inconsistent with our status as a REIT. In addition, this opinion is based on the law existing and in effect as of its date and will not cover subsequent periods. Our qualification and taxation as a REIT will depend on our ability to meet on a continuing basis. through actual operating results, asset composition, distribution levels, diversity of share ownership and various other qualification tests imposed under the Code discussed below. Goodwin Procter LLP has not reviewed and will not review our compliance with these tests on a continuing basis. Accordingly, the opinion of our tax counsel does not guarantee our ability to qualify as or remain qualified as a REIT, and no assurance can be given that we have satisfied and will satisfy such tests for our taxable year ended December 31, 2012 or for any subsequent period. Also, the opinion of Goodwin Procter LLP is not binding on the IRS, or any court, and could be subject to modification or withdrawal based on future legislative, judicial or administrative changes to U.S. federal income tax laws, any of which could be applied retroactively. Goodwin Procter LLP has no obligation to advise us or the holders of our stock of any subsequent change in the matters addressed in its opinion, the factual representations or assumptions on which the conclusions in the opinion are based, or of any subsequent change in applicable law. So long as we qualify for taxation as a REIT, we generally will be entitled to a deduction for dividends that we pay and therefore will not be subject to U.S. federal income tax on our net income that we distribute currently to our stockholders. This treatment substantially eliminates "double taxation" (that is, taxation at both the corporate and stockholder levels) that generally results from an investment in a corporation. However, even if we qualify for taxation as a REIT, we will be subject to U.S. federal income tax as follows: • We will be taxed at regular corporate rates on any undistributed "REIT taxable income." REIT taxable income is the taxable income of the REIT subject to specified adjustments, including a deduction for dividends paid. • Under some circumstances, we may be subject to the "alternative minimum tax" on our items of tax preference, including any deductions of net operating losses. • If we have net income from the sale or other disposition of "foreclosure property" that is held primarily for sale to customers in the ordinary course of business, or other nonqualifying income from foreclosure property, we will be subject to tax at the highest corporate rate on this income. • We will be subject to a 100% tax on net income from "prohibited transactions." In general, prohibited transactions are sales or other dispositions of property (i) of any kind that is properly 211 CONFIDENTIAL - PURSUANT TO FED. R. CRIM P 6(e) DB-SDNY-0085774 CONFIDENTIAL SDNY_GM_00231958 EFTA01384993