e424b5
CALCULATION
OF REGISTRATION FEE
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Amount to be registered/ Proposed
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Title of each class of
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maximum offering price per unit/
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securities to be registered
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Proposed maximum offering price
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Amount of registration fee
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Common Stock, par value $0.01 per share
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$133,650,000
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$15,517(1)
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(1) |
This filing fee is calculated in accordance with
Rule 457(r) and relates to the Registration Statement on
Form S-3
(No. 333-161298)
filed by DiamondRock Hospitality Company on August 12, 2009.
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PROSPECTUS
SUPPLEMENT |
Filed
Pursuant to Rule 424(b)5 |
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(To
Prospectus dated August 12, 2009) |
Registration
No. 333-161298 |
11,000,000 Shares
Common Stock
DiamondRock Hospitality
Company
Common Stock
DiamondRock Hospitality Company is offering
11,000,000 shares of its common stock. Our common stock is
traded on the New York Stock Exchange under the symbol
DRH. The last reported sale price of our common
stock on the New York Stock Exchange on January 18, 2011, was
$12.54 per share.
We are organized and conduct our operations to qualify as a real
estate investment trust, or REIT, for federal income tax
purposes. To assist us in complying with certain federal income
tax requirements applicable to REITs, our charter contains
certain restrictions relating to the ownership and transfer of
our stock, including an ownership limit of 9.8% on our common
stock.
Investing in our common stock involves risks. See Risk
Factors beginning on
page S-4
of this prospectus supplement and page 10 of our Annual
Report on
Form 10-K
for the year ended December 31, 2009, as well as in the
other periodic reports we file from time to time with the
Securities and Exchange Commission, or SEC, which are
incorporated by reference herein.
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Per Share
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Total
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Price to Public
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$
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12.15
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$
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133,650,000
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Underwriting discounts and commissions
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$
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0.08
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$
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880,000
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Proceeds, before expenses, to DiamondRock Hospitality Company
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$
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12.07
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$
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132,770,000
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We have granted the underwriter a
30-day
option to purchase up to an additional 1,650,000 shares of
common stock from us at the initial public offering price less
the underwriting discount if the underwriter sells more than
11,000,000 shares of common stock in this offering.
None of the SEC, any state securities commission, or any
other regulatory body has approved or disapproved of these
securities or determined if this prospectus supplement is
truthful or complete. Any representation to the contrary is a
criminal offense.
The underwriter expects to deliver the shares on or about
January 21, 2011.
Goldman, Sachs &
Co.
The date of this prospectus supplement is January 18, 2011.
TABLE OF
CONTENTS
PROSPECTUS
SUPPLEMENT
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Page
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S-1
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S-1
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S-2
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S-4
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S-6
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S-7
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S-8
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S-16
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S-20
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S-20
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S-20
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S-21
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PROSPECTUS
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Page
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Our Company
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1
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About This Prospectus
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1
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Risk Factors
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1
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Forward-Looking Statements
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2
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Use of Proceeds
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3
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Ratio of Earnings to Combined Fixed Charges and Preferred
Dividends
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3
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Description of Capital Stock
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4
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Description of Common Stock
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4
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Description of Preferred Stock
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5
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Description of Depositary Shares
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7
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Description of Warrants
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10
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Restrictions on Ownership And Transfer
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11
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Book Entry Securities
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13
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Description of Certain Material Provisions of Maryland Law, Our
Charter and Our Bylaws
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15
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Description of the Partnership Agreement of Diamondrock
Hospitality Limited Partnership
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18
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Investment Policies
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21
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Federal Income Tax Considerations Related to Our Reit Election
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22
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Plan of Distribution
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32
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Legal Matter
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33
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Experts
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34
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Where You Can Find More Information
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34
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Incorporation of Certain Documents by Reference
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34
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S-i
ABOUT
THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part is this prospectus
supplement, which describes the specific terms of this offering.
The second part, the accompanying prospectus, gives more general
information, some of which may not apply to this offering. You
should read this entire document, including the prospectus
supplement, the accompanying prospectus and the documents
incorporated herein by reference. In the event that the
description of the offering varies between this prospectus
supplement and the accompanying prospectus, you should rely on
the information contained in this prospectus supplement. To the
extent the information included or incorporated by reference in
this prospectus supplement differs or varies from the
information included or incorporated by reference in the
accompanying prospectus, the information included or
incorporated by reference in this prospectus supplement updates
and supersedes such information.
This prospectus supplement and the accompanying prospectus
contain, or incorporate by reference, forward-looking
statements. Such forward-looking statements should be considered
together with the cautionary statements and important factors
included or referred to in this prospectus supplement, the
accompanying prospectus and the documents incorporated herein by
reference. Please see Forward-Looking Statements in
this prospectus supplement and Forward-Looking
Statements in the accompanying prospectus.
References in this prospectus to we,
our, us and our company
refer to DiamondRock Hospitality Company, including, as the
context requires, DiamondRock Hospitality Limited Partnership,
our operating partnership, as well as our other direct and
indirect subsidiaries, including our taxable REIT subsidiaries.
You should rely only on the information contained or
incorporated by reference in this prospectus supplement and the
accompanying prospectus. Neither we nor the underwriter have
authorized any other person to provide you with different or
additional information. If anyone provides you with different or
additional information, you should not rely on it. This
prospectus supplement and the accompanying prospectus are not an
offer to sell or the solicitation of an offer to buy any
securities other than the registered shares to which they
relate, nor is this prospectus supplement or the accompanying
prospectus an offer to sell or the solicitation of an offer to
buy securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such
jurisdiction. You should assume that the information contained
or incorporated by reference in this prospectus supplement and
the accompanying prospectus is accurate only as of their
respective dates. Our business, financial condition, results of
operations and prospects may have changed since those dates.
FORWARD-LOOKING
STATEMENTS
Certain statements in this prospectus supplement and the
accompanying prospectus include and incorporate by reference
forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995,
Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934.
Statements regarding estimates, projections, our business plans,
objectives, expected operating results, and the assumptions upon
which those statements are based, are forward-looking
statements. These forward-looking statements generally are
identified by the words believes,
project, expects,
anticipates, estimates,
intends, strategy, plan,
may, will, would, will
be, will continue, will likely
result, and similar expressions. Forward-looking
statements are based on current expectations and assumptions
that are subject to risks and uncertainties which may cause
actual results to differ materially from the forward-looking
statements. A detailed discussion of these and other risks and
uncertainties that could cause actual results and events to
differ materially from such forward-looking statements is
included in Item 1A Risk Factors of our Annual
Report on
Form 10-K
for the year ended December 31, 2009 and in our other
reports we file from time to time with the SEC and incorporate
by reference in this prospectus supplement. We undertake no
obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future
events or otherwise.
S-1
OUR
COMPANY
We are a lodging-focused real estate company that, as of the
date of this prospectus, owns a portfolio of 23 premium
hotels and resorts that contain 10,743 guestrooms and a senior
mortgage loan secured by another hotel. We are an owner, as
opposed to an operator, of the 23 hotels in our portfolio. As an
owner, we receive all of the operating profits or losses
generated by our hotels after we pay fees to the hotel managers,
which are based on the revenues and profitability of the hotels.
Our vision is to be the premier allocator of capital in the
lodging industry. Our mission is to deliver long-term
stockholder returns through a combination of dividends and
long-term capital appreciation. Our strategy is to utilize
disciplined capital allocation and focus on acquiring, owning,
and measured recycling of high quality, branded lodging
properties in North America with superior long-term growth
prospects in markets with high
barriers-to-entry
for new supply. In addition, we are committed to enhancing the
value of our platform by being open and transparent in our
communications with investors, monitoring our corporate overhead
and following sound corporate governance practices.
Consistent with our strategy, we continue to focus on
opportunistically investing in premium full-service hotels and,
to a lesser extent, premium urban limited-service hotels located
throughout North America. Our portfolio of 23 hotels is
concentrated in key gateway cities and in destination resort
locations. All of our owned hotels operate under a brand owned
by one of the leading global lodging brand companies (Marriott
International, Inc. (Marriott), Starwood
Hotels & Resorts Worldwide, Inc.
(Starwood) or Hilton Worldwide (Hilton)).
We differentiate ourselves from our competitors because of our
adherence to three basic principles:
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high-quality urban- and destination resort-focused branded hotel
real estate;
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conservative capital structure; and
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thoughtful asset management.
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Our properties are concentrated in five key gateway cities (New
York City, Los Angeles, Chicago, Boston and Atlanta) and in
destination resort locations (such as the U.S. Virgin
Islands and Vail, Colorado). We believe that gateway cities and
destination resorts will achieve higher long-term growth because
they are attractive business and leisure destinations. We also
believe that these locations are better insulated from new
supply due to relatively high
barriers-to-entry,
including expensive construction costs and limited prime hotel
development sites.
We believe that higher quality lodging assets create more
dynamic cash flow growth and superior long-term capital
appreciation.
In addition, a core tenet of our strategy is to leverage global
hotel brands. We strongly believe in the value of powerful
global brands because we believe that they are able to produce
incremental revenue and profits compared to similar unbranded
hotels. Dominant global hotel brands typically have very strong
reservation and reward systems and sales organizations, and all
of our owned hotels are operated under a brand owned by one of
the top global lodging brand companies (Marriott, Starwood or
Hilton) and all but three of our owned hotels are managed by the
brand company directly. Generally, we are interested in owning
hotels that are currently operated under, or can be converted
to, a globally recognized brand.
Recent
Developments
Agreement
to Purchase a New York City Hotel
On January 18, 2011, we entered into a purchase and sale
agreement to acquire, upon completion, a hotel property under
development on West 42nd Street in Times Square,
New York City. Upon completion by the third party
developer, the hotel is expected to contain approximately 250 to
300 guest rooms. The contractual purchase price will range
from approximately $112.5 million to $135 million,
depending upon the number of guest rooms, or approximately
$450,000 per guest room. If certain required permits,
approvals and consents are obtained, the number of guest rooms
could be increased to approximately 400 guest rooms, which
would result in the contractual purchase price increasing to
approximately $178 million, or $445,000 per guest
room. The purchase and sale agreement is for a fixed-price
(which varies only by total guest rooms built and the completion
date for the
S-2
hotel, and we are not assuming any construction risk (including
not assuming the risk of construction cost overruns).
The site of the to-be-developed hotel is at the intersection of
42nd Street and Broadway, directly across from the Conde
Nast building and less than one block from Bryant Park. We
believe the hotel will attract both business and leisure
travelers visiting New York City due to its location in
Times Square, as well as its close proximity to the many
businesses located near the hotel, including the Bank of America
Tower located at One Bryant Park and the Verizon Building at
1095 Avenue of the Americas. In addition, we believe this
acquisition will further our strategy of enhancing our
full-service portfolio with urban select service hotels in top
MSAs.
Upon entering into the purchase and sale agreement, we committed
to make a $20.0 million deposit. Upon the completion of
certain construction milestones, we will be required to make an
additional deposit of $5.0 million. If
certain permits, approvals and consents necessary for the
hotel to contain more than 250 guest rooms are obtained, we
will be required to make an additional deposit equal to
$45,000 per guest room for each guest room in excess of
250. All deposits will be interest bearing. We will forfeit our
deposits if we do not close on the acquisition of the hotel upon
substantial completion of construction, unless we do not close
as a result of the seller failing to meet certain conditions,
including substantial completion of the hotel within a specified
time frame and construction of the hotel within the contractual
scope.
We will submit a franchise application to one of the global
hotel operating companies and expect to brand the hotel with a
well known upscale select service brand following our
acquisition of the hotel, subject to negotiation of a
satisfactory franchise agreement. An affiliate of the
third-party developer is expected to operate the hotel upon
completion.
We currently expect that the development of the hotel will take
approximately 24 to 30 months with an anticipated opening
date in 2013. We cannot assure you that we will acquire the
hotel as our acquisition of the hotel is subject to the
satisfaction of certain closing conditions, including the
substantial completion of the hotel by the third-party
developer, construction of the hotel within the contractual
scope and other customary closing conditions. See
Risk Factors.
Acquisition
Pipeline
We have access to and are actively pursuing a pipeline of
potential acquisitions consistent with our investment strategy.
As of the date of this prospectus, we have identified and are in
various stages of either reviewing, bidding on
and/or
negotiating several potential hotel acquisition opportunities.
We cannot assure you that we will acquire any of the hotel
properties that we are currently in the process of reviewing,
bidding on
and/or
negotiating to acquire. See Risk Factors.
S-3
RISK
FACTORS
Investment in our common stock offered pursuant to this
prospectus supplement involves risks. You should carefully
consider the risk factors and other information contained in
this prospectus supplement and the accompanying prospectus, as
well as the risk factors and other information included in our
Annual Report on
Form 10-K
for the year ended December 31, 2009, which is incorporated
by reference herein, and the other information contained in, or
incorporated by reference into, this prospectus supplement and
accompanying prospectus, as updated by our subsequent filings
under the Securities Exchange Act of 1934, as amended, before
acquiring any of our common stock.
We may
not acquire any of the hotel properties in our current
acquisition pipeline.
We currently intend to use a substantial portion of the net
proceeds from this offering to acquire one or more hotel
properties in our acquisition pipeline. We cannot assure you
that we will acquire any of the hotel properties in our
acquisition pipeline because the acquisition of any hotel
property in our pipeline is subject to:
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our negotiating and executing with the seller a mutually
acceptable definitive and binding purchase and sale agreement
with respect to the hotel property;
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our ability to negotiate and execute a new management agreement
and franchise agreement, or assume the existing agreements, for
the hotel property;
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our completion of satisfactory due diligence with respect to the
hotel property; and
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satisfaction of customary closing conditions, including the
receipt of third-party consents and approvals.
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There can be no assurance that the sellers will be willing to
proceed with a transaction, that we will be able to negotiate
and execute a satisfactory definitive purchase and sale
agreement with the sellers, that we will be able to negotiate
and execute new management agreements and franchise agreements
(or assume the existing agreements), that our due diligence will
be satisfactory, or that the conditions to closing will be
satisfied.
We
have no immediate designated use for a substantial portion of
the net proceeds of this offering.
We have not yet committed a substantial portion of the net
proceeds of this offering to the acquisition of specific hotel
properties, and you will be unable to evaluate the economic
merits of investments we make with the net proceeds before
making an investment decision to purchase our common stock in
this offering. As a result, we will have broad authority to
invest a substantial portion of the net proceeds of this
offering in real estate investments that we may identify in the
future, and we may use those proceeds to make investments with
which you may not agree. In addition, our investment policies
may be amended or revised from time to time at the discretion of
our board of directors, without a vote of our stockholders.
These factors increase the uncertainty, and thus the risk, of an
investment in our common stock. Our failure to apply a
substantial portion of the net proceeds of this offering
effectively or to find suitable hotel properties to acquire in a
timely manner or on acceptable terms could result in returns
that are substantially below expectations or result in losses.
Until appropriate investments can be identified, we may invest a
substantial portion of the net proceeds of the offering in
interest-bearing short-term securities or money-market accounts
that are consistent with our intention to qualify as a REIT.
These investments are expected to provide a lower net return
than we seek to achieve from future hotel property acquisitions.
We may also use a portion of the proceeds for general working
capital purposes.
If we
are unable to acquire any of the hotel properties in our
acquisition pipeline, we may experience delays in locating and
securing attractive alternative investments.
We may not be able to acquire hotel properties in our
acquisition pipeline that we have identified, which are in
various stages of review and negotiation, including the
to-be-developed hotel that we currently have under contract to
purchase. In addition, the to-be-developed hotel that we have
entered into an agreement to acquire upon substantial completion
is not expected to be completed and acquired for approximately
24 to 30 months. If we are unable to acquire any of these
hotel properties, we may experience delays in locating and
securing attractive alternative real estate investments. In
addition, these potential acquisitions, whether or not they are
successful,
S-4
require substantial time and attention from our management. In
addition, we will incur significant expenses in connection with
our review and negotiation, including expenses for due diligence
and legal fees. To the extent we do not acquire hotel properties
that we are currently reviewing and negotiating to acquire,
these expenses will not be offset by revenues from these hotel
properties.
We
face risks associated with the development of a hotel by a
third-party developer.
We are exposed to the risks associated with the failure of the
third-party developer to complete the development, as we expect,
of the to-be-developed hotel described under Our
Company Recent Developments. These include the
risk that the third-party developer will default on its
obligations under the purchase and sale agreement with us or
default on an obligation to a lender, which may have a security
interest in the property senior to us. In either of these cases,
we may lose the opportunity to acquire the hotel and may have no
recourse to the developer. In addition, the hotel is not
expected to be opened for approximately 24 to 30 months. If we
acquire this hotel, there can be no assurance that the market
where it is located will not be experiencing a downturn when the
acquisition is completed in approximately 24 to 30 months
and the hotel may not perform as we expect.
If we
do not complete the acquisition of the to-be-developed hotel
that we have entered into an agreement to acquire upon
completion, we will have incurred substantial expenses without
our stockholders realizing the expected benefits.
If we are unable to complete the acquisition of the
to-be-developed hotel described under Our
Company Recent Developments, we may incur
significant legal, accounting and other transaction costs in
connection with this acquisition without our stockholders
realizing the expected benefits. We cannot assure you that we
will acquire this hotel because the proposed acquisition is
subject to a variety of factors, including substantial
construction completion of the hotel by the third-party
developer and construction of the hotel within the contractual
scope. In addition, even if we complete the acquisition of the
hotel, we cannot assure you that the hotel will contain more
than 250 guest rooms because the additional rooms are subject to
the receipt of required permits, approvals and consents.
S-5
THE
OFFERING
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Issuer
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DiamondRock Hospitality Company
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Common Stock Offered by Us
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11,000,000 shares(1)
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Common Stock to be Outstanding after this Offering
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165,570,543 shares(1)(2)
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NYSE Symbol
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DRH
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(1) |
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Excludes 1,650,000 shares issuable upon exercise of the
underwriters option to purchase additional shares. |
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(2) |
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Includes 154,570,543 shares of common stock outstanding as
of January 18, 2011. Excludes 1,548,698 unvested restricted
shares of our common stock issued to our executive officers and
other employees pursuant to our equity incentive plan,
4,880,173 shares available for future issuance under our
equity incentive plan and 15,306 vested deferred common stock
units outstanding as of January 18, 2011 issued pursuant to
our equity incentive plan to our non-employee directors. |
S-6
USE OF
PROCEEDS
We expect that the net proceeds from this offering will be
approximately $132.5 million after deducting underwriting
discounts and our estimated expenses of approximately $250,000
(or approximately $152.4 million if the underwriter
exercises its option to purchase additional shares in full).
We expect to contribute the net proceeds from the sale of the
common stock pursuant to this prospectus supplement to our
operating partnership. Our operating partnership will
subsequently use $20.0 million to pay the deposit required
under the purchase and sale agreement for the to-be-developed
hotel that we have under contract to purchase upon completion of
development and the remainder for investment in future
acquisitions of hotel properties or other assets in accordance
with our investment policies and for general working capital
purposes. Except as disclosed herein, we have not entered into
any definitive agreements regarding future acquisitions.
Prior to the full investment of the net proceeds in future
acquisitions, we intend to invest the net proceeds in
interest-bearing, short-term investment grade securities or
money-market accounts that are consistent with our intention to
maintain our qualification as a REIT. Such investments may
include, for example, government and government agency
certificates, interest-bearing bank deposits and mortgage loan
participations. These initial investments are expected to
provide a lower net return than we will seek to achieve from
future acquisitions. In the event the underwriter exercises any
or all of its option to purchase additional shares, we expect to
use the additional net proceeds for general corporate purposes,
which may include investment in hotel properties and other
assets consistent with our investment policies.
S-7
SUPPLEMENT
TO FEDERAL INCOME TAX CONSIDERATIONS
The following summary outlines certain U.S. federal income
tax considerations relating to an investment in our common
stock, including the federal income tax consequences under
current law that are likely to be material to a purchaser of our
common stock in this offering who is a
U.S. stockholder (as hereinafter defined) and
who will hold its shares as a capital asset. This summary does
not contain a complete discussion of the federal tax aspects of
the investment that may be important to you. Moreover, it does
not address any foreign, state or local tax consequences of an
investment in our common stock. The provisions of the Internal
Revenue Code of 1986, as amended, or the Code, concerning the
federal income tax treatment of a REIT and its stockholders are
highly technical and complex; the following discussion sets
forth only certain aspects of those provisions. This summary is
intended to provide you with general information only and is not
intended as a substitute for careful tax planning. The
discussion below assumes that you will hold our common stock as
a capital asset. We do not address the federal income tax
consequences that may be relevant to stockholders subject to
special treatment under the Code, including, without limitation,
insurance companies, regulated investment companies, financial
institutions, broker-dealers, tax-exempt or
non-U.S. investors
(except as specifically discussed below), foreign governments,
stockholders that hold our stock as a hedge, part of a straddle,
conversion transaction, or other arrangement involving more than
one position, or through a partnership or other pass-through
entity, or U.S. expatriates.
This summary is based on provisions of the Code, applicable
final and temporary Treasury Regulations, judicial decisions and
administrative rulings and practice, all in effect as of the
date of this prospectus supplement, and should not be construed
as legal advice. No assurance can be given that future
legislative or administrative changes or judicial decisions will
not affect the accuracy of the descriptions or conclusions
contained in this summary. In addition, any such changes may be
retroactive and apply to transactions entered into prior to the
date of their enactment, promulgation or release. We do not
expect to seek a ruling from the Internal Revenue Service, or
IRS, regarding any of the federal income tax issues discussed in
this prospectus supplement, and no assurance can be given that
the IRS will not challenge any of the positions we take and that
such a challenge will not succeed. Prospective purchasers
of our stock are urged to consult their own tax advisors prior
to any investment in our common stock concerning the potential
federal, state, local and foreign tax consequences of the
investment with specific reference to their own tax situations.
This summary supplements and should be read together
with the general discussion of the tax considerations relating
to our qualification as a REIT described in the accompanying
prospectus under the title Federal Income Tax
Considerations Related to Our REIT Election.
Investments
in Certain Debt Instruments
We may, from time to time, opportunistically invest in
non-performing or distressed debt secured by real estate assets
with a view to subsequently taking control of the properties.
Interest income constitutes qualifying mortgage interest for
purposes of the 75% gross income test applicable to REITs to the
extent that the obligation upon which such interest is paid is
secured by a mortgage on real property. See Federal Income
Tax Considerations Related to Our REIT Election
Qualification as a REIT Income
Tests in the accompanying prospectus for a discussion of
the gross income tests applicable to REITs. If we receive
interest income with respect to a mortgage loan that is secured
by both real property and other property, and the highest
principal amount of the loan outstanding during a taxable year
exceeds the fair market value of the real property on the date
that we committed to acquire, or agreed to modify in a manner
that is treated as an acquisition for U.S. federal income
tax purposes, the mortgage loan, then the interest income will
be apportioned between the real property and the other
collateral, and our income from the loan will qualify for
purposes of the 75% gross income test only to the extent that
the interest is allocable to the real property. For purposes of
the preceding sentence, however, under recently issued IRS
guidance we do not need to redetermine the fair market value of
real property in connection with a loan modification that is
occasioned by a default or made at a time when we reasonably
believe the modification to the loan will substantially reduce a
significant risk of default on the original loan. Even if a loan
is not secured by real property, or is undersecured, the income
that it generates may nonetheless qualify for purposes of the
95% gross income test. To the extent that we derive interest
income from a mortgage loan where all or a portion of the amount
of interest payable is contingent, such income generally will
qualify for purposes of the gross income tests only if it is
based upon the gross receipts or sales, and not the net income
or profits, of the borrower.
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In addition, if the outstanding principal balance of a mortgage
loan exceeds the fair market value of the real property securing
the loan at the time we commit to acquire, or agree to modify in
a manner that is treated as an acquisition for U.S. federal
income tax purposes, the mortgage loan, then a portion of such
loan may not be a qualifying real estate asset for purposes of
the 75% asset test applicable to REITs. See Federal Income
Tax Considerations Related to Our REIT Election
Qualification as a REIT Asset
Tests in the accompanying prospectus for a discussion of
the asset tests applicable to REITs. However, under current law
it is not clear how to determine what portion of such a loan
will be treated as a qualifying real estate asset. Under
recently issued guidance, the IRS has stated that it will not
challenge a REITs treatment of a loan as being in part a
real estate asset for purposes the 75% asset test if the REIT
treats the loan as being a real estate asset in an amount that
is equal to the lesser of the fair market value of the real
property securing the loan on the date we agreed to acquire the
loan, as described in the preceding paragraph, and the fair
market value of the loan. In addition to being a nonqualifying
asset for purposes of the 75% asset test, the nonqualifying
portion may be treated as a security for purposes of the 25%
securities test, the 5% value test, and the 10% value test
described in Federal Income Tax Considerations Related to
Our REIT Election Qualification as a
REIT Asset Tests in the accompanying
prospectus.
The application of the REIT provisions of the Code to mezzanine
loans, which are loans secured by equity interests in an entity
that directly or indirectly owns real property rather than by a
direct mortgage of the real property, is not entirely clear. A
safe harbor in IRS Revenue Procedure
2003-65
provides that if a mezzanine loan meets certain requirements
then it will be treated by the IRS as a real estate asset for
purposes of the REIT asset tests and interest income derived
from it will be treated as qualifying mortgage interest for
purposes of the 75% gross income test. However, to the extent
that mezzanine loans do not meet all of the requirements for
reliance on the safe harbor set forth in Revenue Procedure
2003-65,
such loans may not be real estate assets and the interest income
derived therefrom may not be qualifying income for purposes of
the 75% gross income test, which could adversely affect our REIT
qualification if we acquired such loans. As such, the REIT
provisions of the Code may limit our ability to acquire
mortgage, mezzanine or other loans that we might otherwise
desire to acquire.
Temporary
Reduction in the Holding Period to Avoid Tax on C Corporation
Built-in Gains
As discussed in Federal Income Tax Considerations Related
to Our REIT Election Taxation of Our Company
of the accompanying prospectus, we may be subject to a tax at
the highest regular corporate rate on the gain we recognize from
the disposition of an asset acquired from a C corporation in a
transaction in which we took the C corporations tax basis
to the extent of the appreciation in the asset at the time we
acquired it from the C corporation. In general, this tax
applies for a period of 10 years beginning with the first
day of the first taxable year that a C corporation is treated as
a REIT, or the day the property of a C corporation is
transferred to a REIT, as applicable (the recognition
period). For tax years beginning in 2011, the recognition
period is reduced to 5 years.
Taxation
of U.S. Stockholders Holding Common Stock
The term U.S. stockholder means an investor
that, for U.S. federal income tax purposes, is (i) a
citizen or resident of the United States, (ii) a
corporation or other entity treated as a corporation, created or
organized in or under the laws of the United States, any of its
states or the District of Columbia, (iii) an estate, the
income of which is subject to U.S. federal income taxation
regardless of its source, or (iv) a trust, (a) if a
court within the United States is able to exercise primary
supervision over the administration of the trust and one or more
U.S. persons have the authority to control all substantial
decisions of the trust or (b) that has a valid election in
effect under the applicable Treasury Regulations to be treated
as a U.S. person under the Code. In addition, as used
herein, the term U.S. stockholder does not include any
entity that is subject to special treatment under the Code.
Distributions by us, other than capital gain dividends, will
constitute ordinary dividends to the extent of our current or
accumulated earnings and profits as determined for federal
income tax purposes. In general, these dividends will be taxable
as ordinary income and will not be eligible for the
dividends-received deduction for corporate stockholders. Our
ordinary dividends generally will not qualify as qualified
dividend income taxed as net capital gain for
U.S. stockholders that are individuals, trusts, or estates.
However, dividends to U.S. stockholders that are
individuals, trusts, or estates generally will constitute
qualified dividend income taxed as net capital gains if the
U.S. stockholder satisfies certain holding period
requirements, we designate the dividends as qualified dividend
income and the dividends are attributable to (i) qualified
dividend income we receive from other corporations, such
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as Bloodstone TRS, Inc. and potentially certain other taxable
REIT subsidiaries, during the taxable year, or (ii) our
undistributed earnings or built-in gains taxed at the corporate
level during the preceding taxable year. The preferential
treatment of qualified dividend income is applicable for taxable
years beginning on or before December 31, 2012, unless
extended by Congress. We do not anticipate distributing a
significant amount of qualified dividend income. The discussion
in this section applies equally to distributions payable in cash
and taxable stock distributions. See Taxation of Certain
Stock Dividends below.
To the extent that we make a distribution in excess of our
current and accumulated earnings and profits (a return of
capital distribution), the distribution will be treated
first as a tax-free return of capital, reducing the tax basis in
a U.S. stockholders shares. To the extent a return of
capital distribution exceeds a U.S. stockholders tax
basis in its shares, the distribution will be taxable as capital
gain realized from the sale of such shares.
Dividends declared by us in October, November or December and
payable to a stockholder of record on a specified date in any
such month shall be treated both as paid by us and as received
by the stockholder on December 31 of the year, provided that the
dividend is actually paid by us during January of the following
calendar year.
We will be treated as having sufficient earnings and profits to
treat as a dividend any distribution up to the amount required
to be distributed in order to avoid imposition of the 4% excise
tax generally applicable to REITs if certain distribution
requirements are not met. Moreover, any deficiency dividend will
be treated as an ordinary or a capital gain dividend, as the
case may be, regardless of our earnings and profits at the time
the distribution is actually made. As a result, stockholders may
be required to treat certain distributions as taxable dividends
that would otherwise result in a tax-free return of capital.
Capital
Gain Dividends
Distributions that are properly designated as capital gain
dividends will be taxed as long-term capital gains (to the
extent they do not exceed our actual net capital gain for the
taxable year) without regard to the period for which the
stockholder has held its shares. However, corporate stockholders
may be required to treat up to 20% of certain capital gain
dividends as ordinary income. In addition,
U.S. stockholders may be required to treat a portion of any
capital gain dividend as unrecaptured Section 1250
gain, taxable at a maximum rate of 25%, if we incur such
gain. Capital gain dividends are not eligible for the
dividends-received deduction for corporations.
The REIT provisions do not require us to distribute our
long-term capital gain, and we may elect to retain and pay
income tax on our net long-term capital gains received during
the taxable year. If we so elect for a taxable year, our
stockholders would include in income as long-term capital gains
their proportionate share of such portion of our undistributed
long-term capital gains for the taxable year as we may
designate. A U.S. stockholder would be deemed to have paid
its share of the tax paid by us on such undistributed capital
gains, which would be credited or refunded to the stockholder.
The U.S. stockholders basis in its shares would be
increased by the amount of undistributed long-term capital gains
(less the capital gains tax paid by us) included in the
U.S. stockholders long-term capital gains.
Passive
Activity Loss and Investment Interest Limitations
Our distributions and gain from the disposition of our shares
will not be treated as passive activity income and, therefore,
U.S. stockholders will not be able to apply any
passive losses against such income. With respect to
non-corporate U.S. stockholders, our distributions (to the
extent they do not constitute a return of capital) that are
taxed at ordinary income rates will generally be treated as
investment income for purposes of the investment interest
limitation; however, net capital gain from the disposition of
our shares (or distributions treated as such), capital gain
dividends, and dividends taxed at net capital gains rates
generally will be excluded from investment income except to the
extent the U.S. stockholder elects to treat such amounts as
ordinary income for federal income tax purposes.
U.S. stockholders may not include on their own federal
income tax returns any of our tax losses.
Sale
or Disposition of Shares
In general, any gain or loss realized upon a taxable disposition
of shares of our common stock by a stockholder that is not a
dealer in securities will be a long-term capital gain or loss if
the shares have been held for more than one
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year and otherwise will be a short-term capital gain or loss.
However, any loss upon a sale or exchange of the shares by a
stockholder who has held such stock for six months or less
(after applying certain holding period rules) will be treated as
a long-term capital loss to the extent of our distributions or
undistributed capital gains required to be treated by such
stockholder as long-term capital gain. All or a portion of any
loss realized upon a taxable disposition of shares may be
disallowed if other shares are purchased within 30 days
before or after the disposition.
Medicare
Tax on Unearned Income
Under recently-enacted U.S. federal income tax legislation,
for taxable years beginning after December 31, 2012, a
U.S. stockholder that is an individual is subject to a 3.8%
tax on the lesser of (1) his or her net investment
income for the relevant taxable year or (2) the
excess of his or her modified gross income for the taxable year
over a certain threshold (between $125,000 and $250,000
depending on the individuals U.S. federal income tax
filing status). A similar regime applies to certain estates and
trusts. Net investment income generally would include dividends
on our stock and gain from the sale of our stock. If you are a
U.S. stockholder that is an individual, an estate or a
trust, you are urged to consult your tax advisors regarding the
applicability of this tax to your income and gains in respect of
your investment in our common stock.
Unrelated
Business Taxable Income
In
General
In general, a tax-exempt organization is exempt from federal
income tax on its income, except to the extent of its
unrelated business taxable income or UBTI, which is
defined by the Code as the gross income derived from any trade
or business which is regularly carried on by a tax-exempt entity
and unrelated to its exempt purposes, less any directly
connected deductions and subject to certain modifications. For
this purpose, the Code generally excludes from UBTI any gain or
loss from the sale or other disposition of property (other than
stock in trade or property held primarily for sale in the
ordinary course of a trade or business), dividends, interest,
rents from real property, and certain other items. However, a
portion of any such gains, dividends, interest, rents, and other
items generally is UBTI to the extent derived from debt-financed
property, based on the amount of acquisition
indebtedness with respect to such debt-financed property.
Before making an investment in shares of our common stock,
a tax-exempt stockholder should consult its own tax advisors
with regard to UBTI and the suitability of the investment in our
shares.
Distributions we make to a tax-exempt employee pension trust or
other domestic tax-exempt stockholder or gains from the
disposition of our shares held as capital assets generally will
not constitute UBTI unless the exempt organizations shares
are debt-financed property (e.g., the stockholder has borrowed
to acquire or carry its shares). This general rule may not
apply, however, to distributions to certain pension trusts that
are qualified trusts (as defined below) and that hold more than
10% (by value) of our shares. For these purposes, a qualified
trust is defined as any trust described in Section 401(a)
of the Code and exempt from tax under Section 501(a) of the
Code. If we are treated as a pension-held REIT, such
qualified trusts will be required to treat a percentage of their
dividends received from us as UBTI if we incur UBTI. We will be
treated as a pension-held REIT if (i) we would fail the
requirement that, during the last half of each taxable year, no
more than 50% in value of our stock may be owned, directly or
indirectly, by or for five or fewer individuals (the 5/50
Test) if qualified trusts were treated as
individuals for purposes of the 5/50 Test and
(ii) we are predominantly held by qualified
trusts. Stock ownership for purposes of the 5/50 Test is
determined by applying the constructive ownership provisions of
Section 544(a) of the Code, subject to certain
modifications. The term individual for purposes of
the 5/50 Test includes a private foundation, a trust providing
for the payment of supplemental unemployment compensation
benefits, and a portion of a trust permanently set aside or to
be used exclusively for charitable purposes. A qualified trust
described in Section 401(a) of the Code and exempt from tax
under Section 501(a) of the Code generally is not treated
as an individual; rather, shares held by it are treated as owned
proportionately by its beneficiaries. We will be
predominantly held by qualified trusts if either
(i) a single qualified trust holds more than 25% by value
of our stock or (ii) one or more qualified trusts, each
owning more than 10% by value of our stock, hold in the
aggregate more than 50% by value of our stock.
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In the event we are a pension-held REIT, a qualified trust
owning 10% or more of our shares should expect to recognize UBTI
as a result of its investment, and we cannot assure you that we
will never be treated as a pension-held REIT. The percentage of
any dividend received from us treated as UBTI would be equal to
the ratio of (a) the gross UBTI (less certain associated
expenses) earned by us (treating us as if we were a qualified
trust and, therefore, subject to tax on UBTI) to (b) our
total gross income (less certain associated expenses). A de
minimis exception applies where the ratio set forth in the
preceding sentence is less than 5% for any year; in that case,
no dividends are treated as UBTI. Our gross UBTI for these
purposes would include the rent we receive from Bloodstone TRS,
Inc. and, therefore, could be substantial.
Special
Issues
Social clubs, voluntary employee benefit associations,
supplemental unemployment benefit trusts, and qualified group
legal services plans that are exempt from taxation under
paragraphs (7), (9), (17), and (20), respectively, of
Section 501(c) of the Code are subject to different UBTI
rules, which generally will require them to characterize
distributions from us as UBTI.
Information
Reporting Requirements and Backup Withholding Tax
We will report to our U.S. stockholders and to the IRS the
amount of distributions paid during each calendar year, and the
amount of tax withheld, if any. Under the backup withholding
rules, a U.S. stockholder may be subject to backup
withholding at the current rate of 28% with respect to
distributions paid, unless such stockholder (i) is a
corporation or other exempt entity and, when required, proves
its status or (ii) certifies under penalties of perjury
that the taxpayer identification number the stockholder has
furnished to us is correct and the stockholder is not subject to
backup withholding and otherwise complies with the applicable
requirements of the backup withholding rules. A
U.S. stockholder that does not provide us with its correct
taxpayer identification number also may be subject to penalties
imposed by the IRS. Any amount paid as backup withholding will
be creditable against the stockholders income tax
liability.
Taxation
of
Non-U.S. Stockholders
Holding Common Stock
The rules governing U.S. federal income taxation of our
stockholders who are beneficial owners of our common stock and
who are not U.S. stockholders or entities treated as
partnerships for federal income tax purposes, such as
nonresident alien individuals, foreign corporations, and foreign
trusts and estates
(non-U.S. stockholders),
are complex. This section is only a summary of such rules.
We urge prospective
non-U.S. stockholders
to consult their own tax advisors to determine the impact of
federal, state, local and foreign income tax laws on their
ownership of our common stock, including any reporting
requirements.
Distributions
A
non-U.S. stockholder
that receives a distribution that is not attributable to gain
from our sale or exchange of United States real property
interests (as defined below) and that we do not designate
as a capital gain dividend or retained capital gain generally
will recognize ordinary income to the extent that we pay the
distribution out of our current or accumulated earnings and
profits. A withholding tax equal to 30% of the gross amount of
the distribution ordinarily will apply unless an applicable tax
treaty reduces or eliminates the tax. Under some treaties, lower
withholding rates do not apply to dividends from REITs. However,
if a distribution is treated as effectively connected with the
non-U.S. stockholders
conduct of a U.S. trade or business, the
non-U.S. stockholder
generally will be subject to federal income tax on the
distribution at graduated rates (in the same manner as
U.S. stockholders are taxed on distributions) and also may
be subject to the 30% branch profits tax in the case of a
corporate
non-U.S. stockholder.
We plan to withhold U.S. income tax at the rate of 30% on
the gross amount of any distribution paid to a
non-U.S. stockholder
that is neither a capital gain dividend nor a distribution that
is attributable to gain from the sale or exchange of
United States real property interests unless either
(i) a lower treaty rate applies and the
non-U.S. stockholder
files with us any required IRS
Form W-8
(for example, an IRS
Form W-8BEN)
evidencing eligibility for that reduced rate or (ii) the
non-U.S. stockholder
files with us an IRS
Form W-8ECI
claiming that the distribution is effectively connected income.
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A
non-U.S. stockholder
generally will not incur tax on a return of capital distribution
in excess of our current and accumulated earnings and profits
that is not attributable to the gain from our disposition of a
United States real property interest if the excess
portion of the distribution does not exceed the adjusted basis
of the
non-U.S. stockholders
common stock. Instead, the excess portion of the distribution
will reduce the adjusted basis of that common stock. However, a
non-U.S. stockholder
will be subject to tax on such a distribution that exceeds both
our current and accumulated earnings and profits and the
non-U.S. stockholders
adjusted basis in the common stock, if the
non-U.S. stockholder
otherwise would be subject to tax on gain from the sale or
disposition of its common stock, as described below. Because we
generally cannot determine at the time we make a distribution
whether the distribution will exceed our current and accumulated
earnings and profits, we normally will withhold tax on the
entire amount of any distribution at the same rate as we would
withhold on a dividend. However, a
non-U.S. stockholder
may obtain a refund of amounts that we withhold if we later
determine that a distribution in fact exceeded our current and
accumulated earnings and profits.
We may be required to withhold 10% of any distribution that
exceeds our current and accumulated earnings and profits.
Consequently, although we intend to withhold at a rate of 30% on
the entire amount of any distribution that is neither
attributable to the gain from our disposition of a United
States real property interest nor designated by us as a
capital gain dividend, to the extent that we do not do so, we
will withhold at a rate of 10% on any portion of a distribution
not subject to withholding at a rate of 30%.
Subject to the exception discussed below for 5% or smaller
holders of regularly traded classes of stock, a
non-U.S. stockholder
will incur tax on distributions that are attributable to gain
from our sale or exchange of United States real property
interests under special provisions of the Foreign
Investment in Real Property Tax Act of 1980, or FIRPTA. The term
United States real property interests includes
interests in U.S. real property and shares in
U.S. corporations at least 50% of whose assets consist of
interests in U.S. real property. Under those rules, a
non-U.S. stockholder
is taxed on distributions attributable to gain from sales of
United States real property interests as if the gain were
effectively connected with the
non-U.S. stockholders
conduct of a U.S. trade or business. A
non-U.S. stockholder
thus would be taxed on such a distribution at the normal capital
gain rates applicable to U.S. stockholders, subject to
applicable alternative minimum tax and a special alternative
minimum tax in the case of a nonresident alien individual. A
corporate
non-U.S. stockholder
not entitled to treaty relief or exemption also may be subject
to the 30% branch profits tax on such a distribution. We
generally must withhold 35% of any distribution subject to these
rules that we could designate as a capital gain distribution
(35% FIRPTA Withholding). A
non-U.S. stockholder
may receive a credit against its tax liability for the amount we
withhold.
A
non-U.S. stockholder
that owns no more than 5% of our common stock at all times
during the one-year period ending on the date of a distribution
will not be subject to 35% FIRPTA Withholding with respect to
such distribution that is attributable to gain from our sale or
exchange of United States real property interests, provided that
our common stock continues to be regularly traded on an
established securities market in the United States. Instead, any
such distributions made to such
non-U.S. stockholder
will be subject to the general withholding rules discussed
above, which generally impose a withholding tax equal to 30% of
the gross amount of each distribution (unless reduced by treaty).
Dispositions
If the gain on the sale of our common stock were taxed under
FIRPTA, a
non-U.S. stockholder
would be taxed on that gain in the same manner as
U.S. stockholders with respect to that gain, subject to
applicable alternative minimum tax, and a special alternative
minimum tax in the case of nonresident alien individuals. A
non-U.S. stockholder
generally will not incur tax under FIRPTA on a sale or other
disposition of our stock if we are a domestically
controlled qualified investment entity, which means that,
during the five-year period ending on the date of the
distribution or disposition,
non-U.S. stockholders
held, directly or indirectly, less than 50% in value of our
shares. We cannot assure you that we are or will be in the
future a domestically controlled qualified investment entity.
Alternatively, the gain from a sale of our common stock by a
non-U.S. stockholder
will not be subject to tax under FIRPTA if (i) our common
stock is considered regularly traded under applicable Treasury
Regulations on an established securities market, such as the New
York Stock Exchange, and (ii) the
non-U.S. stockholder
owned, actually or constructively, 5% or less of our common
stock at all times during a specified testing period. Since the
completion of our initial public offering, we believe our common
stock has been regularly traded on an established
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securities market. Accordingly, a
non-U.S. stockholder
should not incur tax under FIRPTA with respect to gain on a sale
of our common stock unless it owns, or has owned during the
applicable testing period, actually or constructively, more than
5% of our common stock provided that our common stock continues
to be regularly traded on an established securities market.
In addition, even if we are a domestically controlled qualified
investment entity, upon a disposition of our common stock, a
non-U.S. stockholder
may be treated as having gain from the sale or exchange of a
United States real property interest if the
non-U.S. stockholder
(i) disposes of an interest in our common stock during the
30-day
period preceding the ex-dividend date of a distribution, any
portion of which, but for the disposition, would have been
treated as gain from the sale or exchange of a United States
real property interest and (ii) directly or indirectly
acquires, enters into a contract or option to acquire, or is
deemed to acquire, other shares of our common stock within
30 days before or after such ex-dividend date. The
foregoing rule does not apply if the exception described above
for distributions to 5% or smaller holders of regularly traded
classes of stock is satisfied.
Furthermore, a
non-U.S. stockholder
generally will incur tax on gain not subject to FIRPTA if
(i) the gain is effectively connected with the
non-U.S. stockholders
U.S. trade or business, in which case the
non-U.S. stockholder
will be subject to the same treatment as U.S. stockholders
with respect to such gain, or (ii) the
non-U.S. stockholder
is a nonresident alien individual who was present in the United
States for 183 days or more during the taxable year and has
a tax home in the United States, in which case the
non-U.S. stockholder
will generally incur a 30% tax on his or her net
U.S. source capital gains.
Purchasers of our stock from a
non-U.S. stockholder
generally will be required to withhold and remit to the IRS 10%
of the purchase price unless at the time of purchase
(i) any class of our stock is regularly traded on an
established securities market in the United States (subject to
certain limits if the shares sold are not themselves part of
such a regularly traded class) or (ii) we are a
domestically controlled qualified investment entity. The
non-U.S. stockholder
may receive a credit against its tax liability for the amount
withheld.
Taxation
of Certain Stock Dividends
We have in the past and we may again in the future distribute
taxable dividends that are payable in cash and shares of our
common stock at the election of each stockholder. Under IRS
Revenue Procedure
2010-12, up
to 90% of any such taxable dividend with respect to the taxable
years 2008 through 2011 could be payable in our stock. Taxable
stockholders receiving such dividends are required to include
the full amount of the dividend as ordinary income to the extent
of our current or accumulated earnings and profits for
U.S. federal income tax purposes. As a result,
U.S. stockholders may be required to pay income taxes with
respect to such dividends in excess of the cash dividends
received. Accordingly, U.S. stockholders receiving a
distribution of our shares may be required to sell shares
received in such distribution or may be required to sell other
stock or assets owned by them, at a time that may be
disadvantageous, in order to satisfy any tax imposed on such
distribution. If a U.S. stockholder sells the stock that it
receives as a dividend in order to pay this tax, the sales
proceeds may be less than the amount included in income with
respect to the dividend, depending on the market price of our
stock at the time of the sale. With respect to certain
non-U.S. stockholders,
we may be required to withhold U.S. tax with respect to
such dividends, including in respect of all or a portion of such
dividend that is payable in stock, by withholding or disposing
of part of the shares in such distribution and using the
proceeds of such disposition to satisfy the withholding tax
imposed.
Further, while Revenue Procedure
2010-12
applies only to taxable dividends payable by us in a combination
of cash and stock with respect to the taxable years 2008 through
2011, it is unclear whether and to what extent we will be able
to pay taxable dividends in cash and stock in later years.
Moreover, various tax aspects of such a taxable cash/stock
dividend are uncertain and have not yet been addressed by the
IRS. No assurance can be given that the IRS will not impose
additional requirements in the future with respect to taxable
cash/stock dividends, including on a retroactive basis, or
assert that the requirements for such taxable cash/stock
dividends have not been met.
Recent
Changes in U.S. Federal Income Tax Withholding
Recently-enacted U.S. federal income tax legislation
imposes withholding taxes on certain types of payments made
after December 31, 2012 to foreign financial institutions
and certain other
non-U.S. entities.
The withholding tax of 30% would apply to dividends and the
gross proceeds of a disposition of our stock paid to
U.S. stockholders
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who own their stock through foreign accounts or foreign
intermediaries and certain foreign entities unless various
information reporting requirements are satisfied. For these
purposes, a foreign financial institution generally is defined
as any
non-U.S. entity
that (i) accepts deposits in the ordinary course of a
banking or similar business, (ii) is engaged in the
business of holding financial assets for the account of others,
or (iii) is engaged or holds itself out as being engaged
primarily in the business of investing, reinvesting, or trading
in securities, partnership interests, commodities, or any
interest in such assets. If payment of withholding taxes is
required,
non-U.S. stockholders
that are otherwise eligible for an exemption from, or reduction
of, U.S. withholding taxes will be required to seek a
refund from the IRS to obtain the benefit of such exemption or
reduction. We will not pay any additional amounts in respect of
any amounts withheld. Prospective investors are encouraged to
consult their tax advisors regarding the implications of this
legislation on their investment in our stock, as well as the
status of any related federal regulations and any other
legislative proposals that may pertain to ownership and
disposition of our stock.
Legislative
or other actions affecting REITs
The rules dealing with U.S. federal income taxation are
constantly under review by persons involved in the legislative
process and by the IRS and the U.S. Treasury Department. No
assurance can be given as to whether, when, or in what form, the
U.S. federal income tax laws applicable to us and our
stockholders may be enacted. Changes to the federal tax laws and
interpretations of federal tax laws could adversely affect an
investment in our common stock.
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UNDERWRITING
Subject to the terms and conditions contained in an underwriting
agreement among us and Goldman, Sachs & Co., we have agreed
to sell to the underwriter, and the underwriter has agreed to
purchase from us, 11,000,000 shares of our common stock.
The underwriter has agreed to purchase all of the shares sold
under the underwriting agreement if any of those shares are
purchased, other than those shares covered by the option to
purchase additional shares described below.
We have agreed to indemnify the underwriter and its controlling
persons against specified liabilities in connection with this
offering, including liabilities under the Securities Act, or to
contribute to payments the underwriter may be required to make
in respect of those liabilities.
The underwriter is offering the shares, subject to prior sale,
when, as and if issued to and accepted by it, subject to
approval of legal matters by counsel and other conditions. The
underwriter reserves the right to withdraw, cancel or modify
this offer and to reject orders in whole or in part.
Commissions
and Discounts
The underwriter has advised us that it proposes initially to
offer the shares to the public at the public offering price
appearing on the cover page of this prospectus supplement. After
this offering, the public offering price and other selling terms
may be changed. Sales of shares made outside of the United
States may be made by affiliates of the underwriter.
The following table shows the public offering price,
underwriting discount and proceeds before expenses to us. This
information assumes either no exercise or full exercise by the
underwriter of the option to purchase additional shares.
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Per
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Without
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With
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Share
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Option
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Option
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Public offering price
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$
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12.15
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$
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133,650,000
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$
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153,697,500
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Underwriting discount
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$
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0.08
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$
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880,000
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$
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1,012,000
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Proceeds, before expenses, to us
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$
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12.07
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$
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132,770,000
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$
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152,685,500
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The expenses of the offering, exclusive of the underwriting
discount, are estimated at approximately $250,000 and are
payable by us.
Option to
Purchase Additional Shares
We have granted a one-time option to the underwriter to purchase
up to 1,650,000 additional shares at the public offering price
listed on the cover page of this prospectus supplement, less the
underwriting discount. The underwriter may exercise this option
for 30 days from the date of this prospectus supplement.
S-16
No Sales
of Similar Securities
We and each of our directors and executive officers have agreed
not to sell or transfer any common stock, with limited
exceptions, for 45 days after the date of this prospectus
supplement without first obtaining the written consent of the
underwriter. Specifically, we and each of our directors and
executive officers have agreed, subject to certain exceptions,
not to, directly or indirectly:
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offer, pledge, sell or contract to sell any common stock;
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sell any option or contract to purchase any common stock;
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purchase any option or contract to sell any common stock;
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grant any option, right or warrant for the sale of any common
stock;
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lend or otherwise dispose of or transfer any common stock;
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enter into any swap or other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the
economic consequence of ownership of any common stock, whether
any such swap or transaction is to be settled by delivery of
common stock or other securities, in cash or otherwise; or
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file with the SEC a registration statement under the Securities
Act relating to any additional shares of common stock.
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This lockup provision applies to common stock and to securities
convertible into or exchangeable or exercisable for common
stock. The lockup applies to common stock owned now or acquired
later by the person executing the agreement or for which the
person executing the agreement later acquires the power of
disposition.
In the event that we notify the underwriter in writing that we
do not intend to proceed with this offering, if the underwriting
agreement does not become effective, or if the underwriting
agreement is terminated prior to payment for and delivery of our
common stock, the lockup provisions will be released.
New York
Stock Exchange Listing
Our common stock is listed on the New York Stock Exchange under
the symbol DRH.
Price
Stabilization and Short Positions
Until the distribution of the shares is completed, SEC rules may
limit the ability of the underwriter to bid for or purchase our
common stock. However, the underwriter may engage in
transactions that stabilize the price of our common stock, such
as bids or purchases to peg, fix or maintain that price.
If the underwriter creates a short position in the common stock
in connection with the offering, i.e., if it sells more shares
than are listed on the cover of this prospectus supplement, the
underwriter may reduce that short position by purchasing shares
in the open market. The underwriter may also elect to reduce any
short position by exercising all or part of the option to
purchase additional shares described above. Purchases of the
common stock to stabilize its price or to reduce a short
position may cause the price of the common stock to be higher
than it might be in the absence of those purchases.
Neither we nor the underwriter make any representation or
prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of our
common stock. In addition, neither we nor the underwriter make
any representation that the underwriters will engage in those
transactions or that those transactions, once commenced, will
not be discontinued without notice.
Compliance
with
Non-U.S.
Laws and Regulations
The underwriter intends to comply with all applicable laws and
regulations in each jurisdiction in which it acquires, offers,
sells or delivers shares of our common stock or has in its
possession or distributes this prospectus supplement or the
accompanying prospectus.
S-17
Other
Relationships
The underwriter and its affiliates are full service financial
institutions engaged in various activities, which may include
securities trading, commercial and investment banking, financial
advisory, investment management, investment research, principal
investment, hedging, financing and brokerage activities. The
underwriter and its affiliates have engaged in, and may in the
future engage in, investment banking, commercial banking and
other commercial dealings in the ordinary course of business
with us and our affiliates, for which they have received and may
continue to receive customary fees and commissions. An affiliate
of the underwriter in this offering acts as lender and/or agent
under our credit facility and may receive a portion of the
proceeds from this offering.
In the ordinary course of their various business activities, the
underwriter and its affiliates may make or hold a broad array of
investments and actively trade debt and equity securities (or
related derivative securities) and financial instruments
(including bank loans) for their own account and for the
accounts of their customers, and such investment and securities
activities may involve securities and/or instruments of the
issuer. The underwriter and its affiliates may also make
investment recommendations and/or publish or express independent
research views in respect of such securities or instruments and
may at any time hold, or recommend to clients that they acquire,
long and/or short positions in such securities and instruments.
Notice to
Prospective Investors in the EEA
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
Relevant Member State) an offer to the public of any
securities which are the subject of the offering contemplated by
this prospectus supplement (the Shares) may not be
made in that Relevant Member State, except that an offer to the
public in that Relevant Member State of any Shares may be made
at any time under the following exemptions under the Prospectus
Directive, if they have been implemented in that Relevant Member
State:
(a) to legal entities which are authorised or regulated to
operate in the financial markets or, if not so authorised or
regulated, whose corporate purpose is solely to invest in
securities;
(b) to any legal entity which has two or more of
(1) an average of at least 250 employees during the
last financial year; (2) a total balance sheet of more than
43,000,000 and (3) an annual net turnover of more
than 50,000,000, as shown in its last annual or
consolidated accounts;
(c) by the underwriter to fewer than 100 natural or legal
persons (other than qualified investors as defined in the
Prospectus Directive) subject to obtaining the prior consent of
the underwriter for any such offer; or
(d) in any other circumstances falling within
Article 3(2) of the Prospectus Directive,
provided that no such offer of Shares shall result in a
requirement for the publication by us or any underwriter of a
prospectus pursuant to Article 3 of the Prospectus
Directive.
Any person making or intending to make any offer of securities
within the EEA should only do so in circumstances in which no
obligation arises for us or the underwriter to produce a
prospectus for such offer. Neither we nor the underwriter have
authorized, nor do they authorize, the making of any offer of
securities through any financial intermediary, other than offers
made by the underwriter which constitute the final offering of
securities contemplated in this prospectus supplement.
For the purposes of this provision, the expression an
offer to the public in relation to any Shares in any
Relevant Member State means the communication in any form and by
any means of sufficient information on the terms of the offer
and any Shares to be offered so as to enable an investor to
decide to purchase any Shares, as the same may be varied in that
Member State by any measure implementing the Prospectus
Directive in that Member State and the expression
Prospectus Directive means Directive 2003/71/EC and
includes any relevant implementing measure in each Relevant
Member State.
Each person in a Relevant Member State who receives any
communication in respect of, or who acquires any securities
under, the offer of securities contemplated by this prospectus
supplement will be deemed to have represented, warranted and
agreed to and with us and the underwriter that:
(A) it is a qualified investor within the
meaning of the law in that Relevant Member State implementing
Article 2(1)(e) of the Prospectus Directive; and
S-18
(B) in the case of any securities acquired by it as a
financial intermediary, as that term is used in
Article 3(2) of the Prospectus Directive, (i) the
securities acquired by it in the offering have not been acquired
on behalf of, nor have they been acquired with a view to their
offer or resale to, persons in any Relevant Member State other
than qualified investors (as defined in the
Prospectus Directive), or in circumstances in which the prior
consent of the underwriter has been given to the offer or
resale; or (ii) where securities have been acquired by it
on behalf of persons in any Relevant Member State other than
qualified investors, the offer of those securities to it is not
treated under the Prospectus Directive as having been made to
such persons.
In addition, in the United Kingdom, this document is being
distributed only to, and is directed only at, and any offer
subsequently made may only be directed at persons who are
qualified investors (as defined in the Prospectus
Directive) (i) who have professional experience in matters
relating to investments falling within Article 19
(5) of the Financial Services and Markets Act 2000
(Financial Promotion) Order 2005, as amended (the
Order)
and/or
(ii) who are high net worth companies (or persons to whom
it may otherwise be lawfully communicated) falling within
Article 49(2)(a) to (d) of the Order (all such persons
together being referred to as relevant persons).
This document must not be acted on or relied on in the United
Kingdom by persons who are not relevant persons. In the United
Kingdom, any investment or investment activity to which this
document relates is only available to, and will be engaged in
with, relevant persons.
Notice to
Prospective Investors in Switzerland
The shares offered by this prospectus supplement (the
Shares) may not be publicly offered in Switzerland
and will not be listed on the SIX Swiss Exchange
(SIX) or on any other stock exchange or regulated
trading facility in Switzerland. This document has been prepared
without regard to the disclosure standards for issuance
prospectuses under art. 652a or art. 1156 of the Swiss Code of
Obligations or the disclosure standards for listing prospectuses
under art. 27 ff. of the SIX Listing Rules or the listing rules
of any other stock exchange or regulated trading facility in
Switzerland. Neither this document nor any other offering or
marketing material relating to the Shares or the offering may be
publicly distributed or otherwise made publicly available in
Switzerland.
Neither this document nor any other offering or marketing
material relating to the offering, the issuer, the Shares have
been or will be filed with or approved by any Swiss regulatory
authority. In particular, this document will not be filed with,
and the offer of Shares will not be supervised by, the Swiss
Financial Market Supervisory Authority FINMA
(FINMA), and the offer of Shares has not been and
will not be authorized under the Swiss Federal Act on Collective
Investment Schemes (CISA). The investor protection
afforded to acquirers of interests in collective investment
schemes under the CISA does not extend to acquirers of Shares.
Notice to
Prospective Investors in the Dubai International Financial
Centre
This prospectus supplement relates to an Exempt Offer in
accordance with the Offered Securities Rules of the Dubai
Financial Services Authority (DFSA). This prospectus
supplement is intended for distribution only to persons of a
type specified in the Offered Securities Rules of the DFSA. It
must not be delivered to, or relied on by, any other person. The
DFSA has no responsibility for reviewing or verifying any
documents in connection with Exempt Offers. The DFSA has not
approved this prospectus supplement nor taken steps to verify
the information set forth herein and has no responsibility for
the prospectus supplement. The securities to which this
prospectus supplement relates may be illiquid
and/or
subject to restrictions on their resale. Prospective purchasers
of the securities offered should conduct their own due diligence
on the securities. If you do not understand the contents of this
prospectus supplement you should consult an authorized financial
advisor.
Notice to
Prospective Investors in Hong Kong
The shares may not be offered or sold by means of any document
other than (i) in circumstances which do not constitute an offer
to the public within the meaning of the Companies Ordinance
(Cap.32, Laws of Hong Kong), or (ii) to professional
investors within the meaning of the Securities and Futures
Ordinance (Cap.571, Laws of Hong Kong) and any rules made
thereunder, or (iii) in other circumstances which do not result
in the document being a prospectus within the
meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong),
and no advertisement, invitation or document relating to the
shares may be issued or may be in the possession of any person
for the purpose of issue (in each case whether in Hong Kong or
elsewhere), which is directed at, or the contents of which are
likely to
S-19
be accessed or read by, the public in Hong Kong (except if
permitted to do so under the laws of Hong Kong) other than with
respect to shares which are or are intended to be disposed of
only to persons outside Hong Kong or only to professional
investors within the meaning of the Securities and Futures
Ordinance (Cap. 571, Laws of Hong Kong) and any rules made
thereunder.
Notice to
Prospective Investors in Singapore
This prospectus has not been registered as a prospectus with the
Monetary Authority of Singapore. Accordingly, this prospectus
and any other document or material in connection with the offer
or sale, or invitation for subscription or purchase, of the
shares may not be circulated or distributed, nor may the shares
be offered or sold, or be made the subject of an invitation for
subscription or purchase, whether directly or indirectly, to
persons in Singapore other than (i) to an institutional investor
under Section 274 of the Securities and Futures Act, Chapter 289
of Singapore (the SFA), (ii) to a relevant person,
or any person pursuant to Section 275(1A), and in accordance
with the conditions, specified in Section 275 of the SFA or
(iii) otherwise pursuant to, and in accordance with the
conditions of, any other applicable provision of the SFA. Where
the shares are subscribed or purchased under Section 275 by a
relevant person which is: (a) a corporation (which is not an
accredited investor) the sole business of which is to hold
investments and the entire share capital of which is owned by
one or more individuals, each of whom is an accredited investor;
or (b) a trust (where the trustee is not an accredited investor)
whose sole purpose is to hold investments and each beneficiary
is an accredited investor, shares, debentures and units of
shares and debentures of that corporation or the
beneficiaries rights and interest in that trust shall not
be transferable for 6 months after that corporation or that
trust has acquired the shares under Section 275 except: (1) to
an institutional investor under Section 274 of the SFA or to a
relevant person, or any person pursuant to Section 275(1A), and
in accordance with the conditions, specified in Section 275 of
the SFA; (2) where no consideration is given for the transfer;
or (3) by operation of law.
Notice to
Prospective Investors in Japan
The securities have not been and will not be registered under
the Financial Instruments and Exchange Law of Japan (the
Financial Instruments and Exchange Law) and each underwriter has
agreed that it will not offer or sell any securities, directly
or indirectly, in Japan or to, or for the benefit of, any
resident of Japan (which term as used herein means any person
resident in Japan, including any corporation or other entity
organized under the laws of Japan), or to others for re-offering
or resale, directly or indirectly, in Japan or to a resident of
Japan, except pursuant to an exemption from the registration
requirements of, and otherwise in compliance with, the Financial
Instruments and Exchange Law and any other applicable laws,
regulations and ministerial guidelines of Japan.
LEGAL
MATTERS
Certain legal matters will be passed upon for us by Goodwin
Procter LLP and for the underwriter by Hunton &
Williams LLP.
EXPERTS
The consolidated financial statements and schedules of
DiamondRock Hospitality Company as of December 31, 2009 and
2008 and for each of the years in the three-year period ended
December 31, 2009 and managements assessment of
internal control over financial reporting as of
December 31, 2009 have been incorporated by reference in
this prospectus supplement and the accompanying prospectus and
in the registration statement of which this prospectus
supplement and the accompanying prospectus are a part, in
reliance upon the reports of KPMG LLP, independent registered
public accounting firm, incorporated by reference herein and
upon the authority of said firm as experts in accounting and
auditing.
WHERE YOU
CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements
and other information with the SEC. Our SEC filing number
is
001-32514.
You may read and copy any document we file with the SEC at the
SECs public reference room at
S-20
100 F Street, N.E. Room 1580,
Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330
for further information about the public reference room. The SEC
also maintains a website that contains reports, proxy and
information statements and other information regarding
registrants that file electronically with the SEC at
http://www.sec.gov
. You can inspect reports and other information we file at
the offices of the NYSE, 20 Broad Street, New York, New
York 10005. In addition, we maintain a website that contains
information about us at www.drhc.com . The information
found on, or otherwise accessible through, our website is not
incorporated into, and does not form a part of, this prospectus
supplement or any other report or documents we file with or
furnish to the SEC.
We have filed with the SEC a registration statement on
Form S-3
(File
No. 333-161298),
of which this prospectus supplement is a part, including
exhibits, schedules and amendments filed with, or incorporated
by reference in, this registration statement, under the
Securities Act, with respect to the shares of our common stock
registered hereby. This prospectus supplement does not contain
all of the information set forth in the registration statement
and exhibits and schedules to the registration statement. For
further information with respect to our company and the shares
of our common stock offered hereby, reference is made to the
registration statement, including the exhibits to the
registration statement. Statements contained in this prospectus
supplement as to the contents of any contract or other document
referred to, or incorporated by reference, in this prospectus
supplement are not necessarily complete and, where that contract
is an exhibit to the registration statement, each statement is
qualified in all respects by the exhibit to which the reference
relates. Copies of the registration statement, including the
exhibits and schedules to the registration statement, may be
examined at the SECs public reference rooms at
100 F Street, N.E. Room 1580, Washington, DC
20549. Please call the SEC at
1-800-SEC-0330
for further information on the public reference rooms. Copies of
all or a portion of the registration statement can be obtained
from the public reference room of the SEC upon payment of
prescribed fees. This registration statement is also available
to you on the SECs web site,
http://www.sec.gov.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference in
this prospectus supplement certain information we file with the
SEC, which means that we may disclose important information in
this prospectus supplement by referring you to the document that
contains the information. The information incorporated by
reference is considered to be a part of this prospectus
supplement, and the information we file later with the SEC will
automatically update and supersede this information. We
incorporate by reference the documents listed below that we
filed with the SEC:
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our Annual Report on
Form 10-K
for the year ended December 31, 2009;
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our Quarterly Report on
Form 10-Q
for the quarter ended March 26, 2010;
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our Quarterly Report on
Form 10-Q
for the quarter ended June 18, 2010;
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our Quarterly Report on
Form 10-Q
for the quarter ended September 10, 2010;
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our Definitive Proxy Statement on Schedule 14A filed on
March 19, 2010;
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our Current Reports on
Form 8-K
filed on January 12, 2010; January 29, 2010;
March 9, 2010; March 29, 2010 (solely with respect to
Item 8.01 thereof); April 30, 2010; May 20, 2010;
May 25, 2010; May 27, 2010 and August 9, 2010
(solely with respect to Items 1.01 and 2.03 thereof);
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the description of our common stock, $0.01 par value per
share, contained in our Registration Statement on
Form 8-A
filed on May 25, 2005, including any amendment or report
filed for the purpose of updating such description (file number
001-32514); and
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all documents filed by us pursuant to Section 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934 from the date
of this prospectus and prior to the termination of this
offering; provided, however, that we are not incorporating by
reference any additional documents or information furnished and
not filed with the SEC.
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S-21
You may request a copy of these documents, and any exhibits we
have specifically incorporated by reference as an exhibit in
this prospectus supplement, at no cost by writing us at the
following address or calling us at the telephone number listed
below:
DiamondRock
Hospitality Company
3 Bethesda Metro Center, Suite 1500
Bethesda, MD 20814
Attention: Investor Relations
(240) 744-1150
Readers should rely on the information provided or incorporated
by reference in this prospectus supplement. Readers should not
assume that the information in this prospectus supplement is
accurate as of any date other than the date on the front cover
of the document.
S-22
Prospectus
Common Stock, Preferred Stock,
Depositary Shares and Warrants
Under this prospectus, we may offer, from time to time, in one
or more series or classes, the following securities:
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shares of our common stock;
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shares of our preferred stock;
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depositary shares representing shares of our preferred
stock; and
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warrants exercisable for our common stock, preferred stock or
depositary shares representing preferred stock.
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We refer to our common stock, preferred stock, depositary shares
and warrants collectively as the securities.
We may offer the securities separately or together, in separate
series or classes and in amounts, at prices and on terms
described in one or more supplements to this prospectus. The
applicable prospectus supplement also will contain information,
where applicable, about U.S. federal income tax
considerations relating to, and any listing on a securities
exchange of, the securities covered by the prospectus supplement.
We may offer the securities directly to investors, through
agents designated from time to time by them or us, or to or
through underwriters or dealers. For more detailed information,
see Plan of Distribution beginning on page 33.
No securities may be sold without delivery of a prospectus
supplement describing the method and terms of the offering of
those securities.
Our common stock is listed on the New York Stock Exchange, or
NYSE, under the symbol DRH.
You should read this entire prospectus, the documents that
are incorporated by reference in this prospectus and any
prospectus supplement carefully before you invest in any of
these securities.
Investing in our securities involves risks. See Risk
Factors on page 1 for risks relating to an investment
in our securities.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
This prospectus is dated August 12, 2009
TABLE OF
CONTENTS
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34
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34
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You should rely only on the information provided or incorporated
by reference in this prospectus or any applicable prospectus
supplement. We have not authorized anyone to provide you with
different or additional information. We are not making an offer
to sell these securities in any jurisdiction where the offer or
sale of these securities is not permitted. You should not assume
that the information appearing in this prospectus or any
applicable prospectus supplement or the documents incorporated
by reference herein or therein is accurate as of any date other
than their respective dates. Our business, financial condition,
results of operations and prospects may have changed since those
dates.
References in this prospectus to we,
our, us and our company
refer to DiamondRock Hospitality Company, including, as the
context requires, DiamondRock Hospitality Limited Partnership,
our operating partnership, as well as our other direct and
indirect subsidiaries, including our existing taxable REIT
subsidiaries.
OUR
COMPANY
We are a lodging focused real estate company. We are committed
to maximizing stockholder value through investing in premium
full-service hotels and, to a lesser extent, premium urban
select-service hotels located throughout the United States. We
believe we have been organized and have operated in a manner
that allows us to qualify for taxation as a real estate
investment trust, or REIT, under the Internal Revenue Code of
1986, as amended, or the Code, commencing with our taxable year
ended December 31, 2005.
Our
Structure
We were formed as a Maryland corporation in May 2004. We conduct
our business through a traditional umbrella partnership REIT, or
UPREIT, in which our hotel properties are owned by DiamondRock
Hospitality Limited Partnership, our operating partnership,
limited partnerships, limited liability companies or other
subsidiaries of our operating partnership. We are the sole
general partner of our operating partnership and currently own,
either directly or indirectly, all of the limited partnership
units of our operating partnership. In the future, we may issue
limited partnership units to third parties from time to time in
connection with acquisitions of hotel properties. In order for
the income from our hotel property investments to constitute
rents from real properties for purposes of the gross
income tests required for REIT qualification, the income we earn
cannot be derived from the operation of any of our hotels.
Therefore, we lease each of our hotel properties to a
wholly-owned subsidiary of Bloodstone TRS, Inc., a taxable REIT
subsidiary, or TRS, except for the Frenchmans
Reef & Morning Star Marriott Beach Resort, which is
owned by a United States Virgin Islands corporation that we have
elected to be treated as a TRS. As a result, we do not utilize a
lease structure for that hotel. We refer to these subsidiaries
of Bloodstone TRS, Inc. as our TRS lessees. We may form
additional TRSs and TRS lessees in the future.
Our
Principal Office
Our corporate headquarters is located at 6903 Rockledge Drive,
Suite 800, Bethesda, MD 20817. Our telephone number is
(240) 744-1150.
Our Internet address is
http://www.drhc.com.
The information found on or accessible through our website is
not incorporated into and does not constitute a part of this
prospectus or any other report or document we file with or
furnish to the Securities and Exchange Commission, or SEC.
ABOUT
THIS PROSPECTUS
This prospectus is part of a registration statement that we
filed with the SEC utilizing a shelf registration
process. This prospectus provides you with a general description
of the offered securities. Each time we sell any of the offered
securities we will provide a prospectus supplement and attach it
to this prospectus. The prospectus supplement will contain
specific information about the method and terms of that
offering. The prospectus supplement may also add, update or
change information contained in this prospectus. If there is any
inconsistency between the information in this prospectus and a
prospectus supplement, you should rely on the information in
that prospectus supplement. You should read both this prospectus
and the applicable prospectus supplement, together with any
additional information described under the heading Where
You Can Find More Information.
RISK
FACTORS
Investment in any securities offered pursuant to this prospectus
involves risks. You should carefully consider the risk factors
in this prospectus and the risk factors incorporated by
reference to our most recent Annual Report on
Form 10-K
and our subsequent Quarterly Reports on
Form 10-Q
and the other information contained in this prospectus, as
updated by our subsequent filings under the Securities Exchange
Act of 1934, as amended, or the Exchange Act, and the risk
factors and other information contained in the applicable
prospectus supplement before acquiring any of such securities.
The occurrence of any of these risks might cause you to lose all
or part of your investment in the offered securities. Please
also refer to the section below entitled Forward-Looking
Statements.
The market price of our common shares could be volatile and
could decline, resulting in a substantial or complete loss on
our common stockholders investment.
1
The market price of our common stock has been highly volatile,
and investors in our common stock may experience a decrease in
the value of their shares, including decreases unrelated to our
operating performance or prospects. In the past, securities
class action litigation has often been instituted against
companies following periods of volatility in their stock price.
This type of litigation could result in substantial costs and
divert our managements attention and resources.
FORWARD-LOOKING
STATEMENTS
We make statements in this prospectus that are forward-looking
statements within the meaning of the federal securities laws. In
particular, statements pertaining to our capital resources,
portfolio performance and results of operations contain
forward-looking statements. Likewise, all of our statements
regarding anticipated market condition and demographics are
forward-looking statements. You can identify forward-looking
statements by the use of forward-looking terminology such as
believe, expect, may,
will, should, seek,
approximately, intend, plan,
estimate or anticipate or the negative
of these words and phrases or similar words or phrases which are
predictions of or indicate future events or trends and which do
not relate solely to historical matters. You can also identify
forward-looking statements by discussions of strategy, plans,
market statistics or intentions.
Forward-looking statements involve numerous risks and
uncertainties and you should not rely on them as predictions of
future events. Forward-looking statements depend on assumptions,
data or methods that may be incorrect or imprecise and we may
not be able to realize them. The following factors, among
others, could cause actual results and future events to differ
materially from those set forth or contemplated in the
forward-looking statements:
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financing risks, including the risk of over leverage and the
corresponding risk of default on our mortgage loans and other
debt and potential inability to refinance existing indebtedness;
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adverse economic or real estate developments in our markets;
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national and local economic, business, real estate and other
market conditions;
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the degree and nature of our competition;
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increased interest rates and operating costs;
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difficulties in identifying properties to acquire;
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difficulties in completing acquisitions;
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availability of and our ability to retain qualified personnel;
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our failure to maintain our status as a REIT for federal income
tax purposes;
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changes in our business or investment strategy;
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availability, terms and deployment of capital;
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general volatility of the capital markets and the market price
of our common stock;
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environmental uncertainties and risks related to natural
disasters;
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changes in real estate and zoning laws and increases in real
property tax rates; and
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the other risk factors identified in our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008, as well as in
our other reports we file from time to time with the SEC.
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While forward-looking statements reflect our good faith beliefs,
they are not guarantees of future performance. You should
carefully consider this risk when you make an investment
decision concerning our common stock. Except to the extent
required by applicable law, we do not intend and disclaim any
obligation to publicly update or revise any forward-looking
statement or the Risk Factors to reflect changes in
underlying assumptions or factors, of new information, data or
methods, future events or other changes. For a further
discussion of these and other factors that could impact our
future results, performance or transactions, see the section
above entitled Risk Factors.
2
USE OF
PROCEEDS
Unless otherwise described in the applicable prospectus
supplement to this prospectus used to offer specific securities,
we intend to use the net proceeds from the sale of securities
under this prospectus for general corporate purposes, which may
include acquisitions of additional properties as suitable
opportunities arise, the repayment of outstanding indebtedness,
capital expenditures, the expansion, redevelopment
and/or
improvement of properties in our portfolio, working capital and
other general purposes. Pending application of cash proceeds, we
may use the net proceeds to temporarily reduce borrowings under
our revolving credit facility or we will invest the net proceeds
in interest-bearing accounts and short-term, interest-bearing
securities which are consistent with our intention to qualify as
a REIT for federal income tax purposes. Further details
regarding the use of the net proceeds of a specific series or
class of the securities will be set forth in the applicable
prospectus supplement.
RATIO OF
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED
DIVIDENDS
The following table sets forth the ratio of earnings to combined
fixed charges and preferred dividends for the periods indicated
below (in thousands).
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Period from
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May 6, 2004
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Quarter Ended
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Year Ended
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Year Ended
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Year Ended
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Year Ended
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(Inception) to
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June 19,
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December 31,
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December 31,
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December 31,
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December 31,
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December 31,
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2009
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2008
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2007
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2006
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2005
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2004
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Earnings:
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(Loss) Income from Continuing Operations Before Income Taxes
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$
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(862
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$
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43,533
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$
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68,161
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$
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37,453
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$
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(9,272
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$
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(3,700
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Fixed Charges
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11,792
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53,698
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54,514
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40,168
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19,927
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860
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Amortization of Capitalized Interest
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42
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166
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159
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77
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7
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Capitalized Interest
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(259
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(50
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(604
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(128
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Earnings
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$
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10,972
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$
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97,158
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$
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122,784
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$
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77,094
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$
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10,534
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$
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(2,840
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Fixed Charges:
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Interest Expense
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$
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11,086
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$
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50,404
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$
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51,445
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$
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36,934
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$
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17,367
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$
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773
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Portion of Rent Related to Interest
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706
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3,035
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3,019
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2,630
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2,432
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87
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Capitalized Interest
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259
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50
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604
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128
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Fixed Charges
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11,792
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53,698
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54,514
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40,168
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19,927
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860
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Preferred Stock Dividends
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Combined Fixed Charges
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$
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11,792
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$
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53,698
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$
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54,514
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$
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40,168
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$
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19,927
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$
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860
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Ratio of Earnings to Combined Fixed Charges and Preferred
Dividends
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1.8
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X
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2.3
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1.9
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X
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Deficiency
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$
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820
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$
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$
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$
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$
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9,393
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$
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3,700
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The ratio of earnings to combined fixed charges and preferred
dividends was computed by dividing earnings by combined fixed
charges and preferred dividends. For purposes of computing the
ratio of earnings to combined fixed charges and preferred
dividends, earnings have been calculated by adding fixed charges
to income (loss) before income taxes, plus amortization of
capitalized interest, minus interest capitalized. Fixed charges
consist of interest costs, whether expensed or capitalized, and
amortization of financing costs. Combined fixed charges and
preferred dividends consist of fixed charges and preferred
dividends paid or accrued for each respective period. However,
we have never issued any preferred stock, and therefore we had
no preferred dividends during any such period.
3
DESCRIPTION
OF CAPITAL STOCK
The following summary of the terms of our capital stock does
not purport to be complete and is subject to and qualified in
its entirety by reference to Maryland law and our charter and
bylaws, copies of which have been previously filed with the SEC.
See Where You Can Find More Information.
General
Our charter provides that we may issue up to
200,000,000 shares of common stock, $.01 par value per
share, and 10,000,000 shares of preferred stock,
$.01 par value per share. A majority of our board of
directors may, without any action by the stockholders, amend our
charter from time to time to increase or decrease the aggregate
number of shares of stock or the number of shares of stock of
any class or series that we have authority to issue. Under
Maryland law, stockholders generally are not liable for the
corporations debts or obligations. As of August 10,
2009, there were 110,348,122 shares of common stock
outstanding and no shares of preferred stock outstanding.
Power to
Issue Additional Shares of Common Stock and Preferred
Stock
We believe that the power of our board of directors to issue
additional authorized but unissued shares of common stock or
preferred stock and to classify or reclassify unissued shares of
common stock or preferred stock and thereafter to cause us to
issue such classified or reclassified shares of stock will
provide us with increased flexibility in structuring possible
future financings and acquisitions and in meeting other needs of
our company that might arise. The additional classes or series,
as well as the common stock, will be available for issuance
without further action by our stockholders, unless such action
is required by applicable law or the rules of any stock exchange
or automated quotation system on which our securities may be
listed or traded. Although our board of directors has no
intention at the present time of doing so, it could authorize us
to issue a class or series of common stock or preferred stock
that could have the effect of delaying, deferring or preventing
a transaction or a change in control of our company that might
involve a premium price for holders of our common stock or
otherwise be in their best interests.
Restrictions
on Ownership of Our Capital Stock
To assist us in complying with certain federal requirements
applicable to REITs, among other purposes, we have adopted
certain restrictions related to the ownership and transfer of
our stock. See Restrictions on Ownership and
Transfer. These ownership limitations could delay, defer
or prevent a transaction or a change in control that might
involve a premium price for the shares of our stock or otherwise
be in the best interest of our stockholders.
DESCRIPTION
OF COMMON STOCK
The shares of our common stock currently outstanding are listed
for trading on the NYSE. We intend to apply to the NYSE to list
the additional shares of common stock to be sold pursuant to any
prospectus supplement, and we anticipate that such shares will
be so listed.
The following description of our common stock sets forth certain
general terms and provisions of our common stock to which any
prospectus supplement may relate, including a prospectus
supplement providing that common stock will be issuable upon
conversion or exchange of our preferred stock or upon the
exercise of warrants to purchase our common stock. The
statements below describing our common stock are in all respects
subject to and qualified in their entirety by reference to the
applicable provisions of our charter and bylaws and the Maryland
General Corporate Law, or MGCL.
Subject to the preferential rights of any other class or series
of stock and to the provisions of our charter regarding the
restrictions on ownership and transfer of stock, holders of
shares of our common stock are entitled to receive dividends on
such stock if, as and when authorized by our board of directors
and declared by us out of assets legally available therefor and
to share ratably in the assets of our company legally available
for distribution to our stockholders in the event of our
liquidation, dissolution or winding up after payment of or
adequate provision for all of our known debts and liabilities.
4
Subject to the provisions of our charter regarding the
restrictions on ownership and transfer of stock, each
outstanding share of our common stock entitles the holder to one
vote on all matters submitted to a vote of stockholders,
including the election of directors and, except as provided with
respect to any other class or series of stock, the holders of
such shares will possess the exclusive voting power. There is no
cumulative voting in the election of directors, which means that
the holders of a majority of the outstanding shares of our
common stock can elect all of the directors then standing for
election and the holders of the remaining shares will generally
not be able to elect any directors.
Holders of shares of our common stock have no preference,
conversion, exchange, sinking fund or redemption rights and have
no preemptive rights, which means they do not have the right to
acquire any additional securities that we may issue at a
subsequent date. Subject to the provisions of our charter
regarding the restrictions on transfer of stock and to the power
of our board of directors to create common stock with differing
voting rights, shares of our common stock will have equal
dividend, liquidation and other rights. Holders of shares of our
common stock listed on a national securities exchange or any
automated quotation system on which our securities may be listed
or traded will not have appraisal rights.
Our charter authorizes our board of directors to reclassify any
unissued shares of common stock into other classes or series of
classes of stock and to establish the number of shares in each
class or series and to set the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends
or other distributions, qualifications or terms or conditions of
redemption for each such class or series.
Transfer
Agent and Registrar
The transfer agent and registrar of our common stock is American
Stock Transfer & Trust Company.
DESCRIPTION
OF PREFERRED STOCK
The following description sets forth certain general terms
and provisions of the preferred stock to which any prospectus
supplement may relate. This description and the description
contained in any prospectus supplement are not complete and are
in all respects subject to and qualified in their entirety by
reference to our charter, the applicable articles supplementary
that describe the terms of the related class or series of
preferred stock and our bylaws, copies of which have been
previously filed with the SEC. See Where You Can Find More
Information.
Our board of directors may authorize the issuance of up to
10,000,000 shares of preferred stock from time to time, in
one or more classes or series. Our charter authorizes our board
of directors to classify any unissued shares of preferred stock
and to reclassify any previously classified but unissued shares
of any class or series, as authorized by our board of directors.
Prior to the issuance of shares of each class or series, our
board of directors is required by the MGCL and our charter to
set, subject to the provisions of our charter regarding the
restrictions on ownership and transfer of stock, the terms,
preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other
distributions, qualifications and terms and conditions of
redemption for each such class or series. Thus, our board of
directors could authorize the issuance of a class or series of
preferred stock with terms and conditions which could have the
effect of delaying, deferring or preventing a transaction or a
change in control of our company that might involve a premium
price for holders of our common stock or otherwise be in their
best interests. In addition, our board of directors may afford
the holders of any class or series of preferred stock, powers
and rights, voting or otherwise, senior to the rights of holders
of shares of our common stock.
The prospectus supplement relating to the class or series of
preferred stock being offered thereby will describe the specific
terms of such securities, including:
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the title and stated value of such preferred stock;
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the number of shares of such preferred stock offered, the
liquidation preference per share and the offering price of such
preferred stock;
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the dividend rate(s), period(s)
and/or
payment date(s) or method(s) of calculation thereof applicable
to such preferred stock;
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whether dividends shall be cumulative or non-cumulative and, if
cumulative, the date from which dividends on such preferred
stock shall accumulate;
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the provisions for a sinking fund, if any, for such preferred
stock;
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the provisions for redemption, if applicable, of such preferred
stock;
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preemptive rights, if any;
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the terms and conditions, if applicable, upon which such
preferred stock will be convertible into our common stock,
including the conversion price (or manner of calculation
thereof) and conversion period;
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any voting rights of such preferred stock;
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the relative ranking and preferences of such preferred stock as
to dividend rights and rights upon our liquidation, dissolution
or winding up;
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any limitations on issuance of any class or series of preferred
stock ranking senior to or on a parity with such class or series
of preferred stock as to dividend rights and rights upon our
liquidation, dissolution or winding up;
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in addition to those limitations described below, any other
limitations on actual and constructive ownership and
restrictions on transfer; and
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any other specific terms, preferences, rights, limitations or
restrictions of such preferred stock.
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Additionally, the prospectus supplement relating to the class or
series of preferred stock being offered thereby will describe
any listing of such preferred stock on any securities exchange
and will provide a discussion of any material United States
federal income tax considerations applicable to such preferred
stock.
Rank
Unless otherwise specified in the prospectus supplement relating
to a particular class or series of preferred stock, the
preferred stock will, with respect to dividend rights and rights
upon our liquidation, dissolution or winding up, rank:
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senior to all classes or series of our common stock, and to all
equity securities ranking junior to such preferred stock;
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on a parity with all equity securities issued by us the terms of
which specifically provide that such equity securities rank on a
parity with the preferred stock; and
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junior to all equity securities issued by us the terms of which
specifically provide that such equity securities rank senior to
the preferred stock.
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Voting
Rights
Holders of our preferred stock generally will not have any
voting rights, except as otherwise required by law from time to
time or as indicated in the applicable prospectus supplement.
Conversion
Rights
The terms and conditions, if any, upon which shares of any class
or series of preferred stock are convertible into our common
stock will be set forth in the applicable prospectus supplement
relating thereto. Such terms will include the number of shares
of common stock into which the preferred stock is convertible,
the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be
at the option of the holders of the preferred stock or at our
option, the events requiring an adjustment of the conversion
price and provisions affecting conversion in the event of the
redemption of such preferred stock.
6
Restrictions
on Ownership and Transfer
To assist us in complying with certain federal income tax
requirements applicable to REITs, among other purposes, we have
adopted certain restrictions relating to the ownership and
transfer of our stock. The applicable prospectus supplement will
specify any additional ownership limitation relating to such
class or series. See Restrictions on Ownership and
Transfer.
Transfer
Agent
The registrar and transfer agent for a particular series of
preferred stock will be set forth in the applicable prospectus
supplement.
DESCRIPTION
OF DEPOSITARY SHARES
This section outlines some of the provisions of the deposit
agreement, the depositary shares and the depositary receipts.
This information may not be complete in all respects and is
qualified entirely by reference to the relevant deposit
agreement and depositary receipts with respect to the depositary
shares relating to any particular series of preferred stock. The
specific terms of any series of depositary shares will be
described in the prospectus supplement. If so described in the
prospectus supplement, the terms of that series of depositary
shares may differ from the general description of terms
presented below.
General
We may, at our option, elect to offer depositary shares rather
than full shares of preferred stock. Each depositary share will
represent a fractional interest of a share of a particular
series of preferred stock, as specified in the applicable
prospectus supplement. Shares of preferred stock of each series
represented by depositary shares will be deposited under a
separate deposit agreement (each, a deposit
agreement) among us, the depositary named therein and the
holders from time to time of the depositary receipts. Subject to
the terms of the applicable deposit agreement, each owner of a
depositary receipt will be entitled, in proportion to the
fractional interest of a share of a particular series of
preferred stock represented by the depositary shares evidenced
by such depositary receipt, to all the rights and preferences of
the preferred stock represented by such depositary shares
(including dividend, voting, conversion, redemption and
liquidation rights).
The depositary shares will be evidenced by depositary receipts
issued pursuant to the applicable deposit agreement. Immediately
following the issuance and delivery of the preferred stock by us
to a preferred stock depositary, we will cause such preferred
stock depositary to issue, on our behalf, the depositary
receipts. Copies of the applicable form of deposit agreement and
depositary receipt may be obtained from us upon request, and the
statements made hereunder relating to the deposit agreement and
the depositary receipts to be issued thereunder are summaries of
certain anticipated provisions thereof and do not purport to be
complete and are subject to, and qualified in their entirety by
reference to, all of the provisions of the applicable deposit
agreement and related depositary receipts.
Deposit
Agreement
The shares of the preferred stock underlying any depositary
shares will be deposited under a separate deposit agreement
between us and a bank or trust company acting as depositary with
respect to the those shares of preferred stock. The depositary
will have its principal office in the United States and have a
combined capital and surplus of at least $50,000,000. The
prospectus supplement relating to a series of depositary shares
will specify the name and address of the depositary. Under the
deposit agreement, each owner of a depositary share will be
entitled, in proportion of its fractional interest in a share of
the preferred stock underlying that depositary share, to all the
rights and preferences of that preferred stock, including
dividend, voting, redemption, conversion, exchange and
liquidation rights.
Depositary shares will be evidenced by one or more depositary
receipts issued under the deposit agreement.
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Dividends
and Other Distributions
The preferred stock depositary will distribute all cash
dividends or other cash distributions received in respect of the
preferred stock to the record holders of depositary receipts
evidencing the related depositary shares in proportion to the
number of such depositary receipts owned by such holders,
subject to certain obligations of holders to file proofs,
certificates and other information and to pay certain charges
and expenses to the preferred stock depositary.
In the event of a distribution other than in cash, the preferred
stock depositary will distribute property received by it to the
record holders of depositary receipts entitled thereto, subject
to certain obligations of holders to file proofs, certificates
and other information and to pay certain charges and expenses to
the preferred stock depositary, unless the preferred stock
depositary determines that it is not feasible to make such
distribution, in which case the preferred stock depositary may,
with our approval, sell such property and distribute the net
proceeds from such sale to such holders.
No distribution will be made in respect of any depositary share
to the extent that it represents any preferred stock which has
been converted into or exchanged for other securities before the
record date for such distribution.
Withdrawal
of Stock
Upon surrender of the depositary receipts at the corporate trust
office of the applicable preferred stock depositary (unless the
related depositary shares have previously been called for
redemption or converted into other securities), the holders
thereof will be entitled to delivery at such office, to or upon
such holders order, of the number of whole or fractional
shares of the preferred stock and any money or other property
represented by the depositary shares evidenced by such
depositary receipts. Holders of depositary receipts will be
entitled to receive whole or fractional shares of the related
preferred stock on the basis of the proportion of preferred
stock represented by each depositary share as specified in the
applicable prospectus supplement, but holders of such shares of
preferred stock will not thereafter be entitled to receive
depositary shares therefor. If the depositary receipts delivered
by the holder evidence a number of depositary shares in excess
of the number of depositary shares representing the number of
shares of preferred stock to be withdrawn, the preferred stock
depositary will deliver to such holder at the same time a new
depositary receipt evidencing such excess number of depositary
shares.
Redemption
Whenever we redeem shares of preferred stock held by the
preferred stock depositary, the preferred stock depositary will
redeem as of the same redemption date the number of depositary
shares representing shares of the preferred stock so redeemed,
provided we shall have paid in full to the preferred stock
depositary the redemption price of the preferred stock to be
redeemed plus an amount equal to any accrued and unpaid
dividends thereon to the date fixed for redemption. The
redemption price per depositary share will be equal to the
corresponding proportion of the redemption price and any other
amounts per share payable with respect to the preferred stock.
If fewer than all the depositary shares are to be redeemed, the
depositary shares to be redeemed will be selected pro rata (as
nearly as may be practicable without creating fractional
depositary shares) or by any other equitable method determined
by us that will not result in a violation of the ownership
restrictions in our charter applicable to owners of our capital
stock. See Restrictions on Ownership and Transfer.
From and after the date fixed for redemption, all dividends in
respect of the shares of preferred stock so called for
redemption will cease to accrue, the depositary shares so called
for redemption will no longer be deemed to be outstanding and
all rights of the holders of the depositary receipts evidencing
the depositary shares so called for redemption will cease,
except the right to receive any moneys payable upon such
redemption and any money or other property to which the holders
of such depositary receipts were entitled upon such redemption
and surrender thereof to the preferred stock depositary.
Liquidation
Preference
In the event of our liquidation, dissolution or winding up,
whether voluntary or involuntary, the holders of each depositary
receipt will be entitled to the fraction of the liquidation
preference accorded each share of preferred stock
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represented by the depositary shares evidenced by such
depositary receipt, as set forth in the applicable prospectus
supplement.
Voting
Rights
Upon receipt of notice of any meeting at which the holders of
the applicable preferred stock are entitled to vote, the
preferred stock depositary will mail the information contained
in such notice of meeting to the record holders of the
depositary receipts evidencing the depositary shares which
represent such preferred stock. Each record holder of depositary
receipts evidencing depositary shares on the record date (which
will be the same date as the record date for the preferred
stock) will be entitled to instruct the preferred stock
depositary as to the exercise of the voting rights pertaining to
the amount of preferred stock represented by such holders
depositary shares. The preferred stock depositary will vote the
amount of preferred stock represented by such depositary shares
in accordance with such instructions, and we will agree to take
all reasonable action which may be deemed necessary by the
preferred stock depositary in order to enable the preferred
stock depositary to do so. The preferred stock depositary will
abstain from voting the amount of preferred stock represented by
such depositary shares to the extent it does not receive
specific instructions from the holders of depositary receipts
evidencing such depositary shares. The preferred stock
depositary will not be responsible for any failure to carry out
any instruction to vote, or for the manner or effect of any such
vote made, as long as any such action or non-action is in good
faith and does not result from negligence or willful misconduct
of the preferred stock depositary.
Conversion
Rights
The depositary shares, as such, are not convertible into our
common stock or any of our other securities or property.
Nevertheless, if so specified in the applicable prospectus
supplement relating to an offering of depositary shares, the
depositary receipts may be surrendered by holders thereof to the
preferred stock depositary with written instructions to the
preferred stock depositary to instruct us to cause conversion of
the preferred stock represented by the depositary shares
evidenced by such depositary receipts into whole shares of
common stock, other shares of our preferred stock or other
shares of stock, and we have agreed that upon receipt of such
instructions and any amounts payable in respect thereof, we will
cause the conversion thereof utilizing the same procedures as
those provided for delivery of preferred stock to effect such
conversion. If the depositary shares evidenced by a depositary
receipt are to be converted in part only, a new depositary
receipt or receipts will be issued for any depositary shares not
to be converted. No fractional shares of common stock will be
issued upon conversion, and if such conversion would result in a
fractional share being issued, an amount will be paid in cash by
us equal to the value of the fractional interest based upon the
closing price of the common stock on the last business day prior
to the conversion.
Amendment
and Termination of Deposit Agreement
The form of depositary receipt evidencing the depositary shares
which represent the preferred stock and any provision of the
deposit agreement may at any time be amended by agreement
between us and the preferred stock depositary. However, any
amendment that materially and adversely alters the rights of the
holders of depositary receipts or that would be materially and
adversely inconsistent with the rights granted to the holders of
the related preferred stock will not be effective unless such
amendment has been approved by the existing holders of a
majority of the applicable depositary shares evidenced by the
applicable depositary receipts then outstanding. No amendment
shall impair the right, subject to certain exceptions in the
deposit agreement, of any holder of depositary receipts to
surrender any depositary receipt with instructions to deliver to
the holder the related preferred stock and all money and other
property, if any, represented thereby, except in order to comply
with law. Every holder of an outstanding depositary receipt at
the time any such amendment becomes effective shall be deemed,
by continuing to hold such depositary receipt, to consent and
agree to such amendment and to be bound by the deposit agreement
as amended thereby.
The deposit agreement may be terminated by us upon not less than
30 days prior written notice to the preferred stock
depositary if (i) such termination is necessary to preserve
our status as a REIT or (ii) a majority of the holders of
each series of preferred stock affected by such termination
consent to such termination, whereupon the preferred stock
depositary will deliver or make available to each holder of
depositary receipts, upon surrender of the depositary receipts
held by such holder, such number of whole or fractional shares
of preferred stock as are
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represented by the depositary shares evidenced by such
depositary receipts together with any other property held by the
preferred stock depositary with respect to such depositary
receipts. In addition, the deposit agreement will automatically
terminate if (i) all outstanding depositary shares
thereunder shall have been redeemed, (ii) there shall have
been a final distribution in respect of the related preferred
stock in connection with our liquidation, dissolution or winding
up and such distribution shall have been distributed to the
holders of depositary receipts evidencing the depositary shares
representing such preferred stock or (iii) each share of
the related preferred stock shall have been converted into our
securities not so represented by depositary shares.
Charges
of Preferred Stock Depositary
We will pay the fees and expenses of the preferred stock
depositary in connection with the performance of its duties
under the deposit agreement. Holders of depositary receipts will
be required to pay any other transfer and other taxes and
governmental charges and any other charges expressly provided
for in the deposit agreement.
Resignation
and Removal of Depositary
The preferred stock depositary may resign at any time by
delivering to us notice of its election to do so, and we may at
any time remove the preferred stock depositary, any such
resignation or removal to take effect upon the appointment of a
successor preferred stock depositary. A successor preferred
stock depositary must be appointed within 60 days after
delivery of the notice of resignation or removal and must be a
bank or trust company having its principal office in the United
States and having a combined capital and surplus of at least
$50,000,000.
Miscellaneous
The preferred stock depositary will forward to holders of
depositary receipts any reports and communications that we send
to the preferred stock depositary with respect to the related
preferred stock.
Neither the preferred stock depositary nor our company will be
liable if it is prevented from or delayed in, by law or any
circumstances beyond its control, performing its obligations
under the deposit agreement. The obligations of our company and
the preferred stock depositary under the deposit agreement will
be limited to performing their duties thereunder in good faith,
and our company and the preferred stock depositary will not be
obligated to prosecute or defend any legal proceeding in respect
of any depositary receipts, depositary shares or shares of
preferred stock represented thereby unless satisfactory
indemnity is furnished. We and the preferred stock depositary
may rely on written advice of counsel or accountants, or
information provided by persons presenting shares of preferred
stock represented thereby for deposit, holders of depositary
receipts or other persons believed in good faith to be competent
to give such information, and on documents believed in good
faith to be genuine and signed by a proper party.
In the event the preferred stock depositary shall receive
conflicting claims, requests or instructions from any holders of
depositary receipts, on the one hand, and us, on the other hand,
the preferred stock depositary shall be entitled to act on such
claims, requests or instructions received from us.
DESCRIPTION
OF WARRANTS
We may issue warrants for the purchase of our common stock,
preferred stock or depositary shares representing preferred
stock. We may issue warrants separately or together with any
other securities offered by means of this prospectus, and the
warrants may be attached to or separate from such securities.
Each series of warrants will be issued under a separate warrant
agreement (each, a warrant agreement) to be entered
into between us and a warrant agent specified therein. The
warrant agent will act solely as our agent in connection with
the warrants of such series and will not assume any obligation
or relationship of agency or trust for or with any holders or
beneficial owners of warrants.
The applicable prospectus supplement will describe the following
information, where applicable, regarding the warrants in respect
of which this prospectus is being delivered:
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the title and issuer of such warrants;
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the aggregate number of such warrants;
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the price or prices at which such warrants will be issued;
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the currencies in which the price or prices of such warrants may
be payable;
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the designation, amount and terms of the securities purchasable
upon exercise of such warrants;
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the designation and terms of the other securities with which
such warrants are issued and the number of such warrants issued
with each such security;
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if applicable, the date on and after which such warrants and the
securities purchasable upon exercise of such warrants will be
separately transferable;
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the price or prices at which and currency or currencies in which
the securities purchasable upon exercise of such warrants may be
purchased;
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the date on which the right to exercise such warrants shall
commence and the date on which such right shall expire;
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the minimum or maximum amount of such warrants which may be
exercised at any one time;
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information with respect to book-entry procedures, if any;
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any anti-dilution protections;
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a discussion of material federal income tax
considerations; and
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any other material terms of such warrants, including terms,
procedures and limitations relating to the exchange and exercise
of such warrants.
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RESTRICTIONS
ON OWNERSHIP AND TRANSFER
The following summary with respect to restrictions on
ownership and transfer of our capital stock sets forth certain
general terms and provisions of our charter to which any
prospectus supplement may relate. This summary does not purport
to be complete and is subject to and qualified in its entirety
by reference to our charter, including any articles
supplementary relating to any issuance of preferred stock
pursuant to this prospectus. A copy of our charter is filed with
the SEC. Any amendment or supplement to our charter relating to
an issuance of securities pursuant to this prospectus shall be
filed with the SEC and shall be incorporated by reference as an
exhibit to the applicable prospectus supplement. See Where
You Can Find More Information.
In order for us to qualify for and maintain our status as a REIT
under the Code, our shares of stock must be beneficially owned
by 100 or more persons during at least 335 days of a
taxable year of twelve months or during a proportionate part of
a shorter taxable year. Also, not more than 50% of the value of
the outstanding shares of stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code
to include certain entities such as qualified pension plans)
during the last half of a taxable year.
In order for us to qualify as a REIT under the Code, our
charter, subject to certain exceptions, contains restrictions on
the number of shares of our capital stock that a person may
beneficially own. Our charter provides that, subject to some
exceptions, no person may beneficially own, or be deemed to own
by virtue of the attribution provisions of the Code, more than
9.8% (in value or in number of shares, whichever is more
restrictive) of our common stock or of the value of the
aggregate outstanding shares of our capital stock (the
Ownership Limit), except that certain look
through entities, such as mutual funds, may beneficially
own up to 15% (in value or in number of shares, whichever is
more restrictive) of our common stock or of the value of the
aggregate outstanding shares of our capital stock (the
Look-Through Ownership Limit). Our board of
directors has waived this ownership limitation for certain
investors in the past. Our bylaws provide that our board of
directors will exempt any person from the Ownership Limit and
the Look-Through Ownership Limit, provided that:
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such person shall not beneficially own shares of capital stock
that would cause an individual (within the meaning
of Section 542(a)(2) of the Code, but not including a
qualified trust (as defined in Code
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Section 856(h)(3)(E)) subject to the look-through rule of
Code Section 856(h)(3)(A)(i)) to beneficially own
(i) shares of capital stock in excess of 9.8% in value of
the aggregate of the outstanding shares of our stock or
(ii) in excess of 9.8% (in value or in number of shares,
whichever is more restrictive) of the aggregate of the
outstanding shares of our common stock;
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the board of directors obtains such representations,
undertakings and agreements from such person as are reasonably
necessary to ascertain that such persons ownership of such
shares of capital stock will not now or in the future jeopardize
our ability to qualify as a REIT under the Code; and
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such person agrees that any violation or attempted violation of
any of the foregoing restrictions or any such other restrictions
that may be imposed by our board of directors will result in the
automatic transfer of the shares of stock causing such violation
to the Trust (as defined below).
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Any amendment, alteration or repeal of this provision of our
bylaws shall be valid only if approved by the affirmative vote
of a majority of votes cast by stockholders entitled to vote
generally in the election of directors.
Our charter also prohibits any person from (a) owning
shares of our capital stock if such ownership would result in
our being closely held within the meaning of
Section 856(h) of the Code, (b) transferring shares of
our capital stock if such transfer would result in our capital
stock being owned by fewer than 100 persons,
(c) owning shares of our capital stock if such ownership
would cause any of our income that would otherwise qualify as
rents from real property to fail to qualify as such, including
as a result of any of our hotel management companies failing to
qualify as eligible independent contractors under
the REIT rules and (d) owning shares of our capital stock
if such ownership would result in our failing to qualify as a
REIT for federal income tax purposes. Any person who acquires or
attempts or intends to acquire beneficial ownership of shares of
our capital stock that will or may violate any of these
restrictions on transferability and ownership will be required
to give notice immediately to us and provide us with such other
information as we may request in order to determine the effect
of such transfer on our status as a REIT.
The board of directors may require a ruling from the Internal
Revenue Service or an opinion of counsel, in either case in form
and substance satisfactory to the board of directors in its sole
discretion, in order to determine or ensure our status as a
REIT. The foregoing restrictions on transferability and
ownership will not apply if our board of directors determines
that it is no longer in the best interests of the company to
attempt to qualify, or continue to qualify, as a REIT.
If any transfer of shares of our capital stock or other event
occurs which, if effective, would result in any person
beneficially or constructively owning shares of our capital
stock in excess or in violation of the above transfer or
ownership limitations (a Prohibited Owner), then
that number of shares of our capital stock the beneficial or
constructive ownership of which otherwise would cause such
person to violate such limitations (rounded to the nearest whole
share) shall be automatically transferred to a trust (the
Trust) for the exclusive benefit of one or more
charitable beneficiaries (the Charitable
Beneficiary), and the Prohibited Owner shall not acquire
any rights in such shares. Such automatic transfer shall be
deemed to be effective as of the close of business on the
Business Day (as defined in our charter) prior to the date of
such violative transfer. Shares of stock held in the Trust shall
be issued and outstanding shares of our capital stock. The
Prohibited Owner shall not benefit economically from ownership
of any shares of stock held in the Trust, shall have no rights
to dividends or other distributions and shall not possess any
rights to vote or other rights attributable to the shares of
stock held in the Trust. The trustee of the Trust (the
Trustee) shall have all voting rights and rights to
dividends or other distributions with respect to shares of stock
held in the Trust, which rights shall be exercised for the
exclusive benefit of the Charitable Beneficiary. Any dividend or
other distribution paid prior to the discovery by us that shares
of stock have been transferred to the Trustee shall be paid by
the recipient of such dividend or distribution to the Trustee
upon demand, and any dividend or other distribution authorized
but unpaid shall be paid when due to the Trustee. Any dividend
or distribution so paid to the Trustee shall be held in trust
for the Charitable Beneficiary. The Prohibited Owner shall have
no voting rights with respect to shares of stock held in the
Trust and, subject to Maryland law, effective as of the date
that such shares of stock have been transferred to the Trust,
the Trustee shall have the authority (at the Trustees sole
discretion) (i) to rescind as void any vote cast by a
Prohibited Owner prior to the discovery by us that such shares
have been transferred to the Trust and (ii) to recast such
vote in accordance with the desires of the Trustee acting for
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the benefit of the Charitable Beneficiary. However, if we have
already taken irreversible corporate action, then the Trustee
shall not have the authority to rescind and recast such vote.
Within 20 days of receiving notice from us that shares of
our capital stock have been transferred to the Trust, the
Trustee shall sell the shares of stock held in the Trust to a
person, designated by the Trustee, whose ownership of the shares
will not violate the ownership limitations set forth in our
charter. Upon such sale, the interest of the Charitable
Beneficiary in the shares sold shall terminate and the Trustee
shall distribute the net proceeds of the sale to the Prohibited
Owner and to the Charitable Beneficiary as follows. The
Prohibited Owner shall receive the lesser of (i) the price
paid by the Prohibited Owner for the shares or, if the
Prohibited Owner did not give value for the shares in connection
with the event causing the shares to be held in the Trust (e.g.,
a gift, devise or other such transaction), the Market Price (as
defined in the charter) of such shares on the day of the event
causing the shares to be held in the Trust and (ii) the
price per share received by the Trustee from the sale or other
disposition of the shares held in the Trust. Any net sale
proceeds in excess of the amount payable to the Prohibited Owner
shall be paid immediately to the Charitable Beneficiary. If,
prior to the discovery by us that shares of stock have been
transferred to the Trust, such shares are sold by a Prohibited
Owner, then (i) such shares shall be deemed to have been
sold on behalf of the Trust and (ii) to the extent that the
Prohibited Owner received an amount for such shares that exceeds
the amount that such Prohibited Owner was entitled to receive
pursuant to the aforementioned requirement, such excess shall be
paid to the Trustee upon demand.
In addition, shares of our capital stock held in the Trust shall
be deemed to have been offered for sale to us, or our designee,
at a price per share equal to the lesser of (i) the price
per share in the transaction that resulted in such transfer to
the Trust (or, in the case of a devise or gift, the Market Price
at the time of such devise or gift) and (ii) the Market
Price on the date we, or our designee, accept such offer. We
shall have the right to accept such offer until the Trustee has
sold the shares of stock held in the Trust. Upon such a sale to
us, the interest of the Charitable Beneficiary in the shares
sold shall terminate and the Trustee shall distribute the net
proceeds of the sale to the Prohibited Owner.
In addition, until the completion of our initial public
offering, at which time our common stock became
publicly-offered securities for purposes of certain
regulations promulgated under ERISA by the U.S. Department
of Labor, or the Plan Assets Regulation, our charter limited
equity participation by benefit plan investors to
less than 25% in the aggregate so that such participation in any
class of our equity securities by such benefit plan
investors would not be deemed significant. For
such purposes, the terms benefit plan investors and
significant are determined by reference to the Plan
Assets Regulation. We believe that, under the Plan Assets
Regulation, our common stock should be considered
publicly-offered securities after our initial public
offering and therefore this 25% limitation is no longer
applicable to our common stock. However, benefit plan
investors are prohibited from owning any class of our
capital stock that does not qualify as publicly-offered
securities.
All certificates representing shares of common stock and
preferred stock, if any, will bear a legend referring to the
restrictions described above.
Each stockholder shall provide to us such information as we may
request, in good faith, in order to determine our status as a
REIT and to comply with the requirements of any taxing authority
or governmental authority or to determine such compliance.
These ownership limits could delay, defer or prevent a
transaction or a change in control of our company that might
involve a premium price for the common stock or otherwise be in
the best interests of our stockholders.
BOOK-ENTRY
SECURITIES
We may issue the securities offered by means of this prospectus
in whole or in part in book-entry form, meaning that beneficial
owners of the securities will not receive certificates
representing their ownership interests in the securities, except
in the event the book-entry system for the securities is
discontinued. If securities are issued in book-entry form, they
will be evidenced by one or more global securities that will be
deposited with, or on behalf of, a depositary identified in the
applicable prospectus supplement relating to the securities.
Unless otherwise mentioned in the prospectus supplement, the
Depository Trust Company will serve as depository. Unless
and until it is exchanged in whole or in part for the individual
securities represented thereby, a global security may not be
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transferred except as a whole by the depository for the global
security to a nominee of such depository or by a nominee of such
depository to such depository or another nominee of such
depository or by the depository or any nominee of such
depository to a successor depository or a nominee of such
successor. Global securities may be issued in either registered
or bearer form and in either temporary or permanent form. The
specific terms of the depositary arrangement with respect to a
class or series of securities that differ from the terms
described here will be described in the applicable prospectus
supplement.
Unless otherwise indicated in the applicable prospectus
supplement, we anticipate that the following provisions will
apply to depository arrangements.
Upon the issuance of a global security, the depository for the
global security or its nominee will credit on its book-entry
registration and transfer system the respective principal
amounts of the individual securities represented by such global
security to the accounts of persons that have accounts with such
depository, who are called participants. Such
accounts shall be designated by the underwriters, dealers or
agents with respect to the securities or by us if the securities
are offered and sold directly by us. Ownership of beneficial
interests in a global security will be limited to the
depositorys participants or persons that may hold
interests through such participants. Ownership of beneficial
interests in the global security will be shown on, and the
transfer of that ownership will be effected only through,
records maintained by the applicable depository or its nominee
(with respect to beneficial interests of participants) and
records of the participants (with respect to beneficial
interests of persons who hold through participants). The laws of
some states require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such
limits and laws may impair the ability to own, pledge or
transfer beneficial interest in a global security.
So long as the depository for a global security or its nominee
is the registered owner of such global security, such depository
or nominee, as the case may be, will be considered the sole
owner or holder of the securities represented by such global
security for all purposes under the applicable instrument
defining the rights of a holder of the securities. Except as
provided below or in the applicable prospectus supplement,
owners of beneficial interest in a global security will not be
entitled to have any of the individual securities of the series
represented by such global security registered in their names,
will not receive or be entitled to receive physical delivery of
any such securities in definitive form and will not be
considered the owners or holders thereof under the applicable
instrument defining the rights of the holders of the securities.
Payments of amounts payable with respect to individual
securities represented by a global security registered in the
name of a depository or its nominee will be made to the
depository or its nominee, as the case may be, as the registered
owner of the global security representing such securities. None
of us, our officers and directors or any trustee, paying agent
or security registrar for an individual series of securities
will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial
ownership interests in the global security for such securities
or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
We expect that the depository for a series of securities offered
by means of this prospectus or its nominee, upon receipt of any
payment of principal, premium, interest, dividend or other
amount in respect of a permanent global security representing
any of such securities, will immediately credit its
participants accounts with payments in amounts
proportionate to their respective beneficial interests in the
principal amount of such global security for such securities as
shown on the records of such depository or its nominee. We also
expect that payments by participants to owners of beneficial
interests in such global security held through such participants
will be governed by standing instructions and customary
practices, as is the case with securities held for the account
of customers in bearer form or registered in street
name. Such payments will be the responsibility of such
participants.
If a depository for a series of securities is at any time
unwilling, unable or ineligible to continue as depository and a
successor depository is not appointed by us within 90 days,
we will issue individual securities of such series in exchange
for the global security representing such series of securities.
In addition, we may, at any time and in our sole discretion,
subject to any limitations described in the applicable
prospectus supplement relating to such securities, determine not
to have any securities of such series represented by one or more
global securities and, in such event, will issue individual
securities of such series in exchange for the global security or
securities representing such series of securities.
14
DESCRIPTION
OF CERTAIN MATERIAL PROVISIONS
OF MARYLAND LAW, OUR CHARTER AND OUR BYLAWS
The following is a summary of certain provisions of our
charter and bylaws and Maryland law, does not purport to be
complete and is subject to and qualified in its entirety by
reference to Maryland law and our charter and bylaws, copies of
which have been previously filed with the SEC. See Where
You Can Find More Information.
Number,
Election and Removal of Directors
Our charter and bylaws provide that the number of directors may
be set only by our board of directors, but may never be less
than the minimum number required by the MGCL. Our bylaws provide
that a plurality of all the votes cast at a meeting of
stockholders duly called and at which a quorum is present shall
be sufficient to elect a director.
We have elected to be subject to the provision of Subtitle 8 of
Title 3 of the MGCL regarding the filling of vacancies on
the board of directors. Accordingly, except as may be provided
by the board of directors in setting the terms of any class or
series of preferred stock, any and all vacancies on the board of
directors may be filled only by the affirmative vote of a
majority of the remaining directors in office, even if the
remaining directors do not constitute a quorum, and any director
elected to fill a vacancy shall serve for the remainder of the
full term of the directorship in which such vacancy occurred and
until a successor is elected and qualified.
The charter provides that a director may be removed with or
without cause by the affirmative vote of holders of at least
two-thirds of the votes entitled to be cast in the election of
directors.
Charter
Amendments and Extraordinary Corporate Actions
Under the MGCL, a Maryland corporation generally cannot
dissolve, amend its charter, merge, sell all or substantially
all of its assets, engage in a share exchange or engage in
similar transactions outside the ordinary course of business
unless approved by the affirmative vote of stockholders entitled
to cast at least two-thirds of the votes entitled to be cast on
the matter unless a lesser percentage (but not less than a
majority of all of the votes entitled to be cast on the matter)
is set forth in the corporations charter. Our charter
generally provides that, if such amendment or action is declared
advisable by the board of directors and approved by at least 75%
of the continuing directors (as defined in the charter), such
amendment or action may be approved by the affirmative vote of
stockholders entitled to cast at least a majority of the votes
entitled to be cast on the matter. If such amendment or action
is declared advisable by the board of directors, but does not
receive the continuing director approval referred to above, such
amendment or action must be approved by stockholders entitled to
cast at least two-thirds of the votes entitled to be cast on the
matter.
Amendment
of Bylaws
Our bylaws provide that, with the exception of provisions in our
bylaws relating to the business combination and control share
provisions of the MGCL and the waiver of the ownership
limitations set forth in our charter, which provisions may not
be amended without stockholder approval, our board of directors
has the exclusive power to adopt, alter or repeal any provision
of the bylaws and to make new bylaws.
Business
Combinations
Under the MGCL, certain business combinations
(including a merger, consolidation, share exchange or, in
certain circumstances, an asset transfer or issuance or
reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns ten percent or
more of the voting power of the corporations shares or an
affiliate or associate of the corporation who, at any time
within the two-year period prior to the date in question, was
the beneficial owner of ten percent or more of the voting power
of the then-outstanding voting stock of the corporation (an
Interested Stockholder) or an affiliate of such an
Interested Stockholder are prohibited for five years after the
most recent date on which such Interested Stockholder becomes an
Interested Stockholder. Thereafter, any such business
combination must be recommended by the board of directors of
such corporation and approved by the affirmative vote of at
least (a) 80% of the votes entitled to be cast by holders
of outstanding shares of voting stock of the corporation and
(b) two-thirds of the votes entitled to be cast by holders
of voting stock
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of the corporation other than shares held by the Interested
Stockholder with whom (or with whose affiliate) the business
combination is to be effected or held by an affiliate or
associate of the Interested Stockholder, unless, among other
conditions, the corporations common stockholders receive a
minimum price (as defined in the MGCL) for their shares and the
consideration is received in cash or in the same form as
previously paid by the Interested Stockholder for its shares.
These provisions of the MGCL do not apply, however, to business
combinations that are approved or exempted by the board of
directors of the corporation prior to the time that the
Interested Stockholder becomes an Interested Stockholder. A
person is not an Interested Stockholder under the statute if the
board of directors approved in advance the transaction by which
he otherwise would have become an Interested Stockholder.
However, in approving a transaction, the board of directors may
provide that its approval is subject to compliance with any
terms and conditions determined by the board.
Our board of directors has adopted a resolution opting out of
the business combination provisions of the MGCL. This resolution
provides that any alteration or repeal of the resolution by the
board of directors shall be valid only if approved, at a meeting
duly called, by the affirmative vote of a majority of votes cast
by stockholders entitled to vote generally for directors and the
affirmative vote of a majority of continuing directors. Our
bylaws provide that any such alteration or repeal of the
resolution will be valid only if approved, at a meeting duly
called, by the affirmative vote of a majority of votes cast by
stockholders entitled to vote generally for directors and the
affirmative vote of a majority of continuing directors. If this
resolution is repealed, the statute may discourage others from
trying to acquire control of us and increase the difficulty of
consummating any offer.
Control
Share Acquisitions
The MGCL provides that control shares of a Maryland
corporation acquired in a control share acquisition
have no voting rights except to the extent approved by a vote of
two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror, by officers or
by directors who are employees of the corporation. Control
Shares are voting shares of stock which, if aggregated
with all other such shares of stock owned by the acquiror or in
respect of which the acquiror is able to exercise or direct the
exercise of voting power (except solely by virtue of a revocable
proxy), would entitle the acquiror to exercise voting power in
electing directors within one of the following ranges of voting
power: (i) one-tenth or more but less than one-third,
(ii) one-third or more but less than a majority, or
(iii) a majority or more of all voting power. Control
shares do not include shares the acquiring person is then
entitled to vote as a result of having previously obtained
stockholder approval. A control share acquisition
means the acquisition of control shares, subject to certain
exceptions.
A person who has made or proposes to make a control share
acquisition, upon satisfaction of certain conditions (including
an undertaking to pay expenses), may compel the board of
directors of the corporation to call a special meeting of
stockholders to be held within 50 days of demand to
consider the voting rights of the shares. If no request for a
meeting is made, the corporation may itself present the question
at any stockholders meeting.
If voting rights are not approved at the meeting or if the
acquiring person does not deliver an acquiring person statement
as required by the statute, then, subject to certain conditions
and limitations, the corporation may redeem any or all of the
control shares (except those for which voting rights have
previously been approved) for fair value determined, without
regard to the absence of voting rights for the control shares,
as of the date of the last control share acquisition by the
acquiror or of any meeting of stockholders at which the voting
rights of such shares are considered and not approved. If voting
rights for control shares are approved at a stockholders meeting
and the acquiror becomes entitled to vote a majority of the
shares entitled to vote, all other stockholders may exercise
appraisal rights. The fair value of the shares as determined for
purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control
share acquisition.
The control share acquisition statute does not apply (a) to
shares acquired in a merger, consolidation or share exchange if
the corporation is a party to the transaction or (b) to
acquisitions approved or exempted by the charter or bylaws of
the corporation.
Our bylaws contain a provision exempting from the control share
acquisition statute any and all acquisitions by any person of
shares of our capital stock. Our board of directors has the
exclusive power to amend, alter or repeal this provision of our
bylaws. There can be no assurance that such provision will not
be amended or eliminated at any time in the future.
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Subtitle
8
Subtitle 8 of Title 3 of the MGCL permits a Maryland
corporation with a class of equity securities registered under
the Exchange Act and at least three independent directors to
elect to be subject, by provision in its charter or bylaws or a
resolution of its board of directors and notwithstanding any
contrary provision in the charter or bylaws, to any or all of
five provisions:
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a classified board,
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a two-thirds vote requirement for removing a director,
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a requirement that the number of directors be fixed only by vote
of the directors,
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a requirement that a vacancy on the board be filled only by the
remaining directors and for the remainder of the full term of
the class of directors in which the vacancy occurred, and
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a majority requirement for the calling of a special meeting of
stockholders.
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Through provisions in our charter and bylaws unrelated to
Subtitle 8, we already (a) require a two-thirds vote for
the removal of any director from the board and (b) vest in
the board the exclusive power to fix the number of
directorships. Additionally, our charter provides, under
Section 3-802(b)
of the MGCL, that, except as may be provided by the board of
directors in setting the terms of any class or series of stock,
any and all vacancies on the board of directors may be filled
only by the affirmative vote of a majority of the remaining
directors in office, even if the remaining directors do not
constitute a quorum, and any director elected to fill a vacancy
shall serve for the remainder of the full term of the
directorship in which such vacancy occurred.
Advance
Notice of Director Nominations and New Business
Our bylaws provide that (a) with respect to an annual
meeting of stockholders, nominations of persons for election to
the board of directors and the proposal of business to be
considered by stockholders may be made only (i) pursuant to
our notice of the meeting, (ii) by the board of directors
or (iii) by a stockholder who is entitled to vote at the
meeting and has complied with the advance notice procedures set
forth in the bylaws and (b) with respect to special
meetings of stockholders, only the business specified in our
notice of meeting may be brought before the meeting of
stockholders and nominations of persons for election to the
board of directors may be made only (i) pursuant to our
notice of the meeting, (ii) by the board of directors or
(iii) provided that the board of directors has determined
that directors shall be elected at such meeting, by a
stockholder who is entitled to vote at the meeting and has
complied with the advance notice provisions set forth in the
bylaws.
Anti-takeover
Effect of Certain Provisions of Maryland Law and of the Charter
and Bylaws
If the applicable board resolution is repealed, the business
combination provisions and, if the applicable provision in the
bylaws is rescinded, the control share acquisition provisions of
the MGCL, the provisions of the charter relating to removal of
directors and the advance notice provisions of the bylaws, among
others, could delay, defer or prevent a transaction or a change
in control of our company that might involve a premium price for
holders of our common stock or otherwise be in their best
interests.
17
DESCRIPTION
OF THE PARTNERSHIP AGREEMENT OF
DIAMONDROCK HOSPITALITY LIMITED PARTNERSHIP
The following is a summary of the material terms of the
agreement of limited partnership of our operating partnership,
which we refer to as the Partnership Agreement. This summary
does not purport to be complete and is subject to and qualified
in its entirety by reference to the Partnership Agreement, a
copy of which we have previously filed with the SEC. See
Where You Can Find More Information. Because, and so
long as, we own all of the partnership interests in our
operating partnership, we will be able to amend the Partnership
Agreement of our operating partnership and we may, from time to
time, modify the agreement so that it varies from the
description set forth herein.
Management
of the Operating Partnership
DiamondRock Hospitality Limited Partnership is a Delaware
limited partnership that was formed on May 26, 2004. As
sole general partner of the operating partnership, we exercise
exclusive and complete responsibility and discretion in our
operating partnerships
day-to-day
management and control. We can cause our operating partnership
to enter into certain major transactions including acquisitions,
developments and dispositions of properties and refinancings of
existing indebtedness. Currently, our wholly-owned subsidiary,
DiamondRock Hospitality, LLC is the only limited partner of our
operating partnership. Generally, limited partners may not
transact business for, or participate in the management
activities or decisions of, our operating partnership, except as
provided in the Partnership Agreement and as required by
applicable law. Certain restrictions under the Partnership
Agreement restrict our ability to engage in a business
combination as more fully described in
Extraordinary Transactions below.
In the event of any conflict in the duties owed by us to our
stockholders under applicable law and the fiduciary duties owed
by us, as general partner of our operating partnership, to the
limited partners, we may act in the best interests of our
stockholders without violating our fiduciary duties to the
limited partners or being liable for any resulting breach of our
duties to the limited partners.
The Partnership Agreement provides that our operating
partnership is empowered to do any and all acts and things for
the furtherance and accomplishment of our business, including
all activities pertaining to the acquisition and operation of
our properties, provided that our operating partnership shall
not take, and will refrain from taking, any action which, in our
judgment could adversely affect our ability to qualify as a REIT.
Removal
of the General Partners; Transfer of the General Partners
Interest
The Partnership Agreement provides that the limited partners may
not remove us as general partner of the operating partnership.
We may not transfer any of our interests as a general or limited
partner in the operating partnership except (i) in
connection with certain extraordinary transactions as described
below; (ii) if the limited partners holding more than 50%
of the units held by limited partners (other than limited
partnership units held by us) consent to such transfer; or
(iii) to certain of our affiliates.
Amendments
of the Partnership Agreement
Amendments to the Partnership Agreement may only be proposed by
us as general partner. Generally, the Partnership Agreement may
be amended with our approval and the approval of the limited
partners holding a majority of all outstanding limited partner
units (including limited partner units held by us). Certain
amendments that would, among other things, convert a limited
partners interest into a general partners interest,
modify the limited liability of a limited partner in a manner
adverse to such limited partner, alter the rights of a partner
to receive distributions or allocations, alter or modify the
redemption right of a partner in a manner adverse to such
partner, or cause the termination of the partnership prior to
the time set forth in the Partnership Agreement must be approved
by each partner that would be adversely affected by such
amendment.
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Notwithstanding the foregoing, we will have the power, without
the consent of the limited partners, to amend the Partnership
Agreement as may be required to:
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add to our obligations or surrender any right or power granted
to us or any of our affiliates for the benefit of the limited
partners;
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reflect the admission, substitution, termination or withdrawal
of partners in accordance with the Partnership Agreement;
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set forth and reflect in the Partnership Agreement the
designations, rights, powers, duties and preferences of the
holders of any additional partnership units issued pursuant to
the Partnership Agreement;
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reflect a change that is of an inconsequential nature and does
not adversely affect the limited partners in any material
respect, or to cure any ambiguity, correct or supplement any
provision in the Partnership Agreement not inconsistent with law
or with other provisions, or make other changes with respect to
matters arising under the Partnership Agreement that will not be
inconsistent with law or with the provisions of the Partnership
Agreement; or
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satisfy any requirements, conditions, or guidelines contained in
any order, directive, opinion, ruling or regulation of a federal
or state agency or contained in federal or state law.
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Certain provisions affecting our rights and duties as general
partner (e.g., restrictions relating to certain extraordinary
transactions involving us or the operating partnership) may not
be amended without the approval of a majority of the limited
partnership units (excluding limited partnership units held by
us).
Redemption Rights
Under the current partnership agreement, limited partners have
the right, commencing on or after the first anniversary of the
issuance of the units to the limited partners, to require our
operating partnership to redeem all or a portion of their units
for cash or, at our option, shares of common stock on a
one-for-one
basis, subject to adjustment in the event of stock splits, stock
dividends, issuance of stock rights, specified extraordinary
distributions and similar events. The cash redemption amount per
unit is based on the market price of our common stock at the
time of redemption. We presently anticipate that we would elect
to issue shares of our common stock in exchange for units in
connection with each redemption request, rather than having our
operating partnership redeem the units for cash. With each
redemption or exchange, we would increase our percentage
ownership interest in our operating partnership. Limited
partners who hold units may exercise this redemption right from
time to time, in whole or in part, subject to certain
limitations, unless delivery of shares of common stock to a
limited partner pursuant to the redemption right would be
prohibited by our charter or prohibited by federal or state
securities laws or regulations. At this time, no limited
partnership units have been issued (other than to us), and that
we may issue limited partnership units with rights, preferences
and privileges different from those described in this paragraph
or in this registration statement of which this prospectus is a
part.
Issuance
of Additional Units, Common Stock or Convertible
Securities
As sole general partner, we have the ability to cause our
operating partnership to issue additional partnership units to
the partners (including to us). These additional units may be
issued in one or more classes, or one or more series of any of
such classes, with such designations, preferences, rights,
powers and duties as we may determine in our sole and absolute
discretion. In addition, we may issue additional shares of our
common stock or rights, options, warrants or convertible or
exchangeable securities, but only if it causes our operating
partnership to issue, to us, partnership units or rights,
options, warrants or convertible or exchangeable securities of
the operating partnership having designations, preferences and
other rights, so that the economic interests of the operating
partnerships units issued are substantially similar to the
securities that we have issued. Unless expressly granted by the
operating partnership, no limited partner will have preemptive,
preferential or similar rights with respect to additional
capital contributions to the operating partnership or the
issuance or sale of any partnership units.
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Tax
Matters
As the general partner, we are the tax matters partner of our
operating partnership and, as such, have authority to make tax
elections under the Code on behalf of our operating partnership.
Extraordinary
Transactions
The Partnership Agreement provides that we may not generally
engage in any merger, consolidation, or other combination with
any other person or sale of all or substantially all of our
assets, or any reclassification, recapitalization or change of
outstanding shares of our common stock or adopt a plan of
liquidation and dissolution (an extraordinary
transaction) unless the holders of units will receive, or
have the opportunity to receive, at least the same consideration
per unit as holders of our common stock receive per share of
common stock in the transaction. If holders of units will not be
treated in this manner in connection with a proposed
extraordinary transaction, we cannot engage in such a
transaction unless limited partners (other than us) holding more
than 50% of the units held by limited partners vote to approve
the extraordinary transaction.
We may also engage in an extraordinary transaction without the
consent or approval of the limited partners if we engage in a
merger, or other combination of assets with another entity and:
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substantially all of the assets of the surviving entity are held
directly or indirectly by the operating partnership or another
limited partnership or limited liability company which is the
surviving partnership of a merger, consolidation or combination
of assets with the operating partnership;
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the rights, preferences and privileges of such unit holders in
the surviving partnership are at least as favorable as those in
effect immediately prior to the consummation of the transaction
and as those applicable to any other limited partners or
non-managing members of the surviving partnership; and
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the limited partners may exchange their units in the surviving
partnership for either the same consideration per unit as
holders of our common stock receive per share of common stock in
the transaction, or if the ultimate controlling person of the
surviving partnership has common equity securities, at an
exchange ratio based on the relative fair market value of those
securities and our common stock.
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Term
The operating partnership will continue in full force and effect
until 2104, or until sooner dissolved in accordance with the
terms of the Partnership Agreement or as otherwise provided by
law.
Exculpation
and Indemnification of the General Partner
The Partnership Agreement generally provides that we will incur
no liability to the operating partnership or any limited partner
for losses sustained or liabilities incurred as a result of
errors in judgment or mistakes of fact or law or of any act or
omission unless we acted in bad faith and the act or omission
was material to the matter giving rise to the loss or liability.
In addition, we are not responsible for any misconduct or
negligence on the part of our agents, provided we appointed our
agents in good faith. We may consult with legal counsel,
accountants, appraisers, management consultants, investment
bankers and other consultants and advisors, and any action we
may take or omit to take in reliance upon the opinion of such
persons, as to matters that we reasonably believe to be within
such persons professional or expert competence, shall be
conclusively presumed to have been done or omitted in good faith
and in accordance with such opinion. The Partnership Agreement
also provides for indemnification of us, our directors and
officers, limited partners and such other persons as we may from
time to time designate against any losses, claims, damages,
judgments, penalties, fines, settlements and reasonable expenses
actually incurred by such person in connection with the
preceding unless it is established that:
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the act or omission of the indemnitee was material to the matter
giving rise to the proceeding and either was committed in bad
faith or was the result of active and deliberate dishonesty;
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the indemnitee actually received an improper personal benefit in
money, property or services; or
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in the case of any criminal proceeding, the indemnitee had
reasonable cause to believe that the act or omission was
unlawful.
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INVESTMENT
POLICIES
The following is a discussion of our investment policies. These
policies may be amended or revised from time to time at the
discretion of our board of directors, without a vote of our
stockholders. Any change to any of these policies by our board,
however, would be made only after a thorough review and analysis
of that change, in light of then-existing business and other
circumstances, and then only if, in the exercise of its business
judgment, our board of directors believes that a change is in
our and our stockholders best interests. We cannot assure
you that our investment objectives will be attained.
Investments
in Real Estate or Interests in Real Estate
We are a lodging-focused real estate company that owns premium
hotels and resorts, located throughout the United States. We
conduct our business through a traditional umbrella partnership
REIT, or UPREIT, in which our hotels are owned by subsidiaries
of our operating partnership. We are the sole general partner of
our operating partnership and currently own, either directly or
indirectly, all of the limited partnership units of our
operating partnership. We seek to invest in assets primarily for
current income generation; however, during the current
recession, our corporate goals and objectives are focused on
preserving and enhancing our liquidity. In general, our primary
investment objectives are to:
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enhance stockholder value over time by generating strong
risk-adjusted returns on invested capital;
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pay distributions to our stockholders, where such distributions
do not conflict with our liquidity strategy; and
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achieve long-term appreciation in the value of our hotel
property investments through innovative investment management
strategies, such as rebranding, renovating and repositioning our
hotels.
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There are no limitations on the amount or percentage of our
total assets that may be invested in any one hotel property.
Additionally, no limits have been set on the concentration of
investments in any one location or by brand, type of market or
other limits. Furthermore, other than the financial covenants
under our corporate credit facility or property-level debt,
there are no limitations on the number of mortgages that may be
placed on any one piece of property.
Additional criteria with respect to our hotel property
investments is described in our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008 under the
caption Our Business.
Investments
in Real Estate Mortgages, Structured Financings and Other
Lending Policies
We have no current intention of investing in loans secured by
properties or making loans to persons. However, we do not have a
policy limiting our ability to invest in loans secured by
properties or to make loans to other persons. In the future, we
may acquire first mortgages on hotel properties and invest in
other mortgage-related instruments such as subordinated or
mezzanine loans to hotel owners and operators. In addition, we
may invest in hotel properties and lease them back to their
existing owners. We may also consider offering purchase money
financing in connection with the sale of properties where the
provision of that financing will increase the value to be
received by us for the property sold. We may make loans to joint
ventures in which we may participate in the future. However, we
do not intend to engage in significant lending activities. Any
such lending or financing activities would be subject to
restrictions applicable to REITs.
Investments
in Securities of or Interests in Persons Primarily Engaged in
Real Estate Activities and Other Issuers
Generally, we do not expect to engage in any significant
investment activities with other entities, although we may
consider joint venture investments with other investors. We may
also invest in the securities of other issuers in connection
with acquisitions of indirect interests in hotel properties
(normally general or limited partnership units in special
purpose partnerships owning properties). We may in the future
acquire some, all or substantially all of the securities or
assets of other REITs or similar entities where that investment
would be consistent with our investment policies and the REIT
qualification requirements. There are no limitations on the
amount or percentage of our total assets that may be invested in
any one issuer, other than those imposed by the gross income and
asset tests that we
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must satisfy to qualify as a REIT. However, we do not anticipate
investing in other issuers of securities for the purpose of
exercising control or acquiring any investments primarily for
sale in the ordinary course of business or holding any
investments with a view to making short-term profits from their
sale. In any event, we do not intend that our investments in
securities will require us to register as an investment
company under the Investment Company Act of 1940, and we
intend to divest securities before any registration would be
required.
We do not intend to engage in trading, underwriting, agency
distribution or sales of securities of other issuers.
FEDERAL
INCOME TAX CONSIDERATIONS RELATED TO OUR REIT ELECTION
The following summary outlines certain U.S. federal income
tax considerations related to our REIT status which we
anticipate to be material to holders of our securities. This
summary does not attempt to address any aspects of federal
income taxation that may be relevant to your ownership of our
securities. Instead, the material federal income tax
considerations relating to your ownership and sale or other
disposition of our securities will be provided in the applicable
prospectus supplement that relates to those securities. Your tax
treatment will vary depending upon the terms of the specific
securities that you acquire, as well as your particular
situation. Moreover, this summary does not address any foreign,
state, or local tax consequences of our election to be taxed as
a REIT. The provisions of the Code concerning the federal income
tax treatment of a REIT are highly technical and complex; the
following discussion sets forth only certain aspects of those
provisions. This summary is intended to provide you with general
information only and is not intended as a substitute for careful
tax planning.
This summary is based on provisions of the Code, applicable
final and temporary Treasury Regulations, judicial decisions,
and administrative rulings and practice, all in effect as of the
date of this prospectus, and should not be construed as legal
advice. No assurance can be given that future legislative or
administrative changes or judicial decisions will not affect the
accuracy of the descriptions or conclusions contained in this
summary. In addition, any such changes may be retroactive and
apply to transactions entered into prior to the date of their
enactment, promulgation or release. We do not expect to seek a
ruling from the Internal Revenue Service, or IRS, regarding any
of the federal income tax issues discussed in this prospectus,
and no assurance can be given that the IRS will not challenge
any of the positions we take and that such a challenge will not
succeed. Prospective purchasers of our securities are
urged to consult their own tax advisors prior to any investment
in our securities concerning the potential federal, state,
local, and foreign tax consequences of the investment with
specific reference to their own tax situations. Prospective
purchasers also are urged to refer to the applicable prospectus
supplement for any amendments or changes to this summary.
Except as otherwise noted, references in this discussion of
Federal Income Tax Considerations Related to Our REIT
Election to we, our,
us and our company refer to DiamondRock
Hospitality Company and not our taxable REIT subsidiaries.
Taxation
of Our Company
We have elected to be taxed as a REIT starting with the calendar
year ended December 31, 2005 and for subsequent taxable
years. We decided to be taxed as a C corporation for 2004 and
defer the REIT election until 2005. Beginning January 1,
2005, we believe we have qualified as a REIT, and except as
otherwise noted, the following discussion assumes that we
qualify as a REIT effective January 1, 2005.
In connection with this filing, we will receive an opinion of
Goodwin Procter LLP that, commencing with our taxable year ended
December 31, 2005, we have been organized and operated in
conformity with the requirements for qualification and taxation
as a REIT under the Code and our current and proposed ownership
and operations will allow us to satisfy the requirements for
qualification and taxation as a REIT under the Code for
subsequent taxable years. The opinion of Goodwin Procter LLP
will be based on various assumptions and on our representations
to Goodwin Procter LLP concerning our current and continuing
organization, our prior, current and proposed ownership and
operations, and our stockholders current and future
relationships with our hotel management companies, and other
matters relating to our ability to qualify as a REIT. The
opinion will be expressly conditioned upon the accuracy of such
assumptions and representations, which Goodwin Procter LLP will
not verify. Moreover, our qualification and taxation as a REIT
will depend upon our ability to meet, through actual annual
operating
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results, distribution levels, diversity of stock ownership and
the absence of prohibited relationships with our hotel
management companies, the various and complex REIT qualification
tests imposed under the Code, the results of which will not be
reviewed or verified by Goodwin Procter LLP. See
Qualification as a REIT below.
Accordingly, no assurance can be given that we will in fact
satisfy such requirements. The opinion of Goodwin Procter LLP
will be based upon current law, which is subject to change
either prospectively or retroactively. Changes in applicable law
could modify the conclusions expressed in the opinion. Moreover,
unlike a ruling from the IRS, an opinion of Goodwin Procter LLP
is not binding on the IRS, and no assurance can be given that
the IRS could not successfully challenge our status as a REIT.
If we qualify as a REIT, we generally will be allowed to deduct
dividends paid to our stockholders, and, as a result, we
generally will not be subject to federal income tax on that
portion of our ordinary income or net capital gain that we
currently distribute to our stockholders. We expect to make
distributions to our stockholders on a regular basis as
necessary to avoid material federal income tax and to comply
with the REIT requirements. See Qualification
as a REIT Annual Distribution Requirements
below.
Notwithstanding the foregoing, even if we qualify for taxation
as a REIT, we nonetheless may be subject to federal income tax
in certain circumstances, including the following:
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We will be required to pay federal income tax on our
undistributed taxable income, including net capital gain;
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We may be subject to the alternative minimum tax;
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We may be subject to tax at the highest corporate rate on
certain income from foreclosure property (generally,
property acquired by reason of default on a lease or
indebtedness held by us);
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We will be subject to a 100% federal income tax on net income
from prohibited transactions (generally, certain
sales or other dispositions of property, sometimes referred to
as dealer property, held primarily for sale to
customers in the ordinary course of business) unless such
property has been held by us for two years (four years if such
property was sold before July 30, 2008) and certain
other requirements are satisfied or the gain is realized in a
TRS;
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If we fail to satisfy the 75% gross income test or the 95% gross
income test (discussed below), but nonetheless maintain our
qualification as a REIT pursuant to certain relief provisions,
we will be subject to a 100% federal income tax on the greater
of (i) the amount by which we fail the 75% gross income
test or (ii) the amount by which we fail the 95% gross
income test, multiplied by a fraction intended to reflect our
profitability;
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If we fail to satisfy any of the asset tests, other than the 5%
or the 10% asset tests that qualify under the De Minimis
Exception, and the failure qualifies under the General
Exception, as described below under
Qualification as a REIT Asset
Tests, then we will have to pay an excise tax equal to the
greater of (i) $50,000 and (ii) an amount determined
by multiplying the net income generated during a specified
period by the assets that caused the failure by the highest
federal income tax applicable to corporations;
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If we fail to satisfy any REIT requirements other than the
income test or asset test requirements, described below under
Qualification as a REIT Income
Tests and Qualification as a
REIT Asset Tests, respectively, and we qualify
for a reasonable cause exception, then we will have to pay a
penalty equal to $50,000 for each such failure;
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We will be subject to a 4% excise tax if certain distribution
requirements are not satisfied;
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Because we were a C corporation for our taxable year ended
December 31, 2004, we generally will be subject to a
corporate-level tax on a taxable disposition of any appreciated
asset we hold as of the effective date of our REIT election,
which was January 1, 2005. Specifically, if we dispose of a
built-in-gain
asset in a taxable transaction prior to tenth anniversary of the
effective date of our REIT election, we would be subject to tax
at the highest regular corporate rate (currently 35%) on the
lesser of the gain recognized and the assets
built-in-gain;
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If we dispose of an asset acquired by us from a C corporation in
a transaction in which we took the C corporations tax
basis in the asset, we may be subject to tax at the highest
regular corporate rate on the appreciation inherent in such
asset as of the date of acquisition by us;
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We will be required to pay a 100% tax on any redetermined rents,
redetermined deductions, and excess interest. In general,
redetermined rents are rents from real property that are
overstated as a result of services furnished to any of our
non-TRS tenants by one of our TRSs. Redetermined deductions and
excess interest generally represent amounts that are deducted by
a TRS lessee or other TRS for amounts paid to us that are in
excess of the amounts that would have been deducted based on
arms-length negotiations; and
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Income earned by our TRS lessees, Bloodstone TRS, Inc. and
certain other TRSs will be subject to tax at regular corporate
rates.
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No assurance can be given that the amount of any such federal
income taxes will not be substantial. We note that the assets we
acquired during 2004 were acquired on or after October 27,
2004, and we do not believe the
built-in
gain in such assets as of January 1, 2005 was material.
Accordingly, we do not expect to be subject to significant
corporate tax liabilities if we decide to sell an asset we
acquired in 2004 within the
10-year
period following the effective date of our REIT election.
Qualification
as a REIT
In
General
The REIT provisions of the Code apply to a domestic corporation,
trust, or association (i) that is managed by one or more
trustees or directors, (ii) the beneficial ownership of
which is evidenced by transferable shares or by transferable
certificates of beneficial interest, (iii) that properly
elects to be taxed as a REIT, (iv) that is neither a
financial institution nor an insurance company, (v) that
uses a calendar year for federal income tax purposes and
complies with applicable recordkeeping requirements, and
(vi) that meets the additional requirements discussed below.
Ownership
Tests
Commencing with our second REIT taxable year, which was the
calendar year ended December 31, 2006, (i) the
beneficial ownership of our common stock must be held by 100 or
more persons during at least 335 days of a
12-month
taxable year (or during a proportionate part of the taxable year
of less than 12 months) for each of our taxable years and
(ii) during the last half of each taxable year, no more
than 50% in value of our stock may be owned, directly or
indirectly, by or for five or fewer individuals (the 5/50
Test). Stock ownership for purposes for the 5/50 Test is
determined by applying the constructive ownership provisions of
Section 544(a) of the Code, subject to certain
modifications. The term individual for purposes of
the 5/50 Test includes a private foundation, a trust providing
for the payment of supplemental unemployment compensation
benefits, and a portion of a trust permanently set aside or to
be used exclusively for charitable purposes. A qualified trust
described in Section 401(a) of the Code and exempt from tax
under Section 501(a) of the Code generally is not treated
as an individual; rather, shares held by it are treated as owned
proportionately by its beneficiaries. However, if
(i) treating qualified trusts as individuals would cause us
to fail the 5/50 Test and (ii) we are predominantly
held by qualified trusts, we will be treated as a
pension-held REIT. We will be predominantly
held by qualified trusts if either (i) a single
qualified trust holds more than 25% by value of our stock or
(ii) one or more qualified trusts, each owning more than
10% by value of our stock, hold in the aggregate more than 50%
by value of our stock. In the event we are a pension held REIT,
a qualified trust owning 10% or more of our shares should expect
to recognize UBTI as a result of its investment. We cannot
assure you that we will never be treated as a pension held REIT.
Before making an investment in shares of our common stock, a
tax-exempt stockholder should consult its own tax advisors with
regard to UBTI and the suitability of the investment in our
stock.
We believe we have issued sufficient common stock to satisfy the
above ownership requirements. In addition, our charter restricts
ownership and transfers of our stock that would violate these
requirements, although these restrictions may not be effective
in all circumstances to prevent a violation. We will be deemed
to have satisfied the
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5/50 Test for a particular taxable year if we have complied with
all the requirements for ascertaining the ownership of our
outstanding stock in that taxable year and have no reason to
know that we have violated the 5/50 Test.
Income
Tests
In order to maintain qualification as a REIT, we must annually
satisfy two gross income requirements:
1) First, at least 75% of our gross income (excluding gross
income from prohibited transactions and certain other income and
gains as described below) for each taxable year must be derived,
directly or indirectly, from investments relating to real
property or mortgages on real property or from certain types of
temporary investments (or any combination thereof). Qualifying
income for the purposes of this 75% gross income test generally
includes: (a) rents from real property, (b) interest
on debt secured by mortgages on real property or on interests in
real property, (c) dividends or other distributions on, and
gain from the sale of, shares in other REITs, (d) gain from
the sale of real estate assets (other than gain from prohibited
transactions), (e) income and gain derived from foreclosure
property, and (f) income from certain types of temporary
investments; and
2) Second, in general, at least 95% of our gross income
(excluding gross income from prohibited transactions and certain
other income and gains as described below) for each taxable year
must be derived from the real property investments described
above and from other types of dividends and interest, gain from
the sale or disposition of stock or securities that are not
dealer property, or any combination of the above.
For purposes of the 75% and the 95% gross income tests, we are
treated as receiving our proportionate share of our operating
partnerships gross income.
If we fail to satisfy one or both of the 75% or the 95% gross
income tests, we may nevertheless qualify as a REIT for a
particular year if we are entitled to relief under certain
provisions of the Code. Those relief provisions generally will
be available if our failure to meet such tests is due to
reasonable cause and not due to willful neglect and we file a
schedule describing each item of our gross income for such
year(s) in accordance with the applicable Treasury Regulations.
It is not possible, however, to state whether in all
circumstances we would be entitled to the benefit of these
relief provisions. As discussed above in
Taxation of Our Company, even if these
relief provisions were to apply, we would be subject to federal
income tax with respect to our excess net income.
Foreclosure property. Foreclosure property is
real property (including interests in real property) and any
personal property incident to such real property (1) that
is acquired by a REIT as a result of the REIT having bid in the
property at foreclosure, or having otherwise reduced the
property to ownership or possession by agreement or process of
law, after there was a default (or default was imminent) on a
lease of the property or a mortgage loan held by the REIT and
secured by the property, (2) for which the related loan or
lease was made, entered into or acquired by the REIT at a time
when default was not imminent or anticipated and (3) for
which such REIT makes an election to treat the property as
foreclosure property. REITs generally are subject to tax at the
maximum corporate rate (currently 35%) on any net income from
foreclosure property, including any gain from the disposition of
the foreclosure property, other than income that would otherwise
be qualifying income for purposes of the 75% gross income test.
Any gain from the sale of property for which a foreclosure
property election has been made will not be subject to the 100%
tax on gains from prohibited transactions described above, even
if the property is held primarily for sale to customers in the
ordinary course of a trade or business.
Hedging transactions. We may enter into
hedging transactions with respect to one or more of our assets
or liabilities. Hedging transactions could take a variety of
forms, including interest rate swaps or cap agreements, options,
futures contracts, forward rate agreements or similar financial
instruments. Except to the extent as may be provided by future
Treasury Regulations, any income from a hedging transaction
which is clearly identified as such before the close of the day
on which it was acquired, originated or entered into, including
gain from the disposition or termination of such a transaction,
will not constitute gross income for purposes of the 95% and 75%
gross income tests, provided that the hedging transaction is
entered into after July 30, 2008 (i) in the normal
course of our business primarily to manage risk of interest rate
or price changes or currency fluctuations with respect to
indebtedness incurred or to be incurred by us to acquire or
carry real estate assets or (ii) primarily to manage the
risk of currency fluctuations with respect to any item of income
or gain that would be qualifying income under the 75% or 95%
income tests (or any property which generates such income or
gain). To the extent we enter into other types of
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hedging transactions, the income from those transactions is
likely to be treated as non-qualifying income for purposes of
both the 75% and 95% gross income tests. Prior to July 30,
2008, the rules applicable to hedging transactions were more
restrictive. We intend to structure any hedging transactions in
a manner that does not jeopardize our ability to qualify as a
REIT.
Foreign Currency Gains. In addition to the
Frenchmans Reef & Morning Star Marriott Beach
Resort, we may acquire other properties located outside of the
United States in the future, through a taxable REIT subsidiary
or otherwise. We do not have any foreign currency gains in
connection with our investment in Frenchmans
Reef & Morning Star Marriott Beach Resort. Any foreign
currency gains recognized after July 30, 2008, to the
extent attributable to specified assets or items of qualifying
income or gain for purposes of the 75% or 95% gross income test,
generally will not constitute gross income for purposes of the
applicable test, and therefore will be exempt from such test,
provided we do not deal in or engage in substantial and regular
trading in securities, which we do not intend to do.
Hotels
Operating revenues from our hotels are not qualifying income for
purposes of either the 75% or the 95% gross income test.
Accordingly, in order for us to generate qualifying income with
respect to our hotel investments under the REIT rules, we must
master-lease our hotels. Specifically, our operating partnership
has formed a subsidiary, Bloodstone TRS, Inc., that has elected
to be treated as our TRS and may, in the future, form other
subsidiaries that elect to be treated as our TRSs. Bloodstone
TRS, Inc. has formed subsidiaries (each a TRS
lessee) that master-lease hotels from the operating
partnership (or subsidiaries of the operating partnership). We
expect to form additional TRS lessees (under Bloodstone TRS,
Inc. or other of our TRSs) as we acquire additional properties.
In certain instances we may own a hotel through a TRS. For
example, we have elected to treat DiamondRock Frenchmans
Owner, Inc., through which we hold the Frenchmans
Reef & Morning Star Marriott Beach Resort, as a TRS
and we may hold other
non-U.S. investments
through TRSs. One or more hotel management companies will manage
the hotels leased to each TRS lessee or owned by a TRS. We also
may lease a hotel to an unrelated lessee.
In general, rent paid by a related party tenant, such as a TRS
lessee, is not qualifying rents from real property
for purposes of the REIT gross income tests, but rent paid by a
TRS lessee to our operating partnership with respect to a lease
of a qualified lodging facility from the operating
partnership can be qualifying rents from real property under the
REIT rules as long as such TRS lessee does not directly or
indirectly operate or manage any hotel or provide rights to any
brand name under which any hotel is operated. Instead, the hotel
must be operated on behalf of the TRS lessee by a person who
qualifies as an eligible independent contractor,
defined as an independent contractor who is, or is
related to a person who is, actively engaged in the trade or
business of operating qualified lodging facilities
for any person unrelated to us and the TRS lessee. See
Investments in Taxable REIT Subsidiaries
below for a further discussion of the issue and a discussion of
the definition of an independent contractor and the
qualification of Marriott (or another hotel management company)
as an eligible independent contractor. A
qualified lodging facility is a hotel, motel, or
other establishment more than one-half of the dwelling units in
which are used on a transient basis, provided that wagering
activities are not conducted at or in connection with such
facility by any person who is engaged in the business of
accepting wagers and who is legally authorized to engage in such
business at or in connection with such facility. A
qualified lodging facility includes customary
amenities and facilities operated as part of, or associated
with, the lodging facility as long as such amenities and
facilities are customary for other properties of a comparable
size and class owned by other unrelated owners. We believe that
our hotels are qualified lodging facilities. Rent paid by a TRS
lessee that failed to qualify as rents from real property under
the REIT rules would be non-qualifying income for purposes of
the REIT gross income tests.
Two other limitations may affect our ability to treat rent paid
by a TRS lessee or other lessee as qualifying rents from real
property under the REIT rules. If the rent attributable to
personal property leased by the TRS lessee (or other lessee) in
connection with a lease of real property is greater than 15% of
the total rent under the lease, then the portion of the rent
attributable to such personal property will not qualify as rents
from real property. Also, an amount received or accrued will not
qualify as rents from real property for purposes of either the
75% or the 95% gross income test if it is based in whole or in
part on the income or profits derived by any person from such
property. However, an amount received or accrued will not be
excluded from rents from real property solely by reason of
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being based on a fixed percentage or percentages of receipts or
sales. To comply with the limitation on rents attributable to
personal property, a TRS lessee may acquire furnishings,
equipment,
and/or
personal property used in hotel, at least to the extent that
they exceed this 15% limit. To comply with the prohibition on
rent based on net income, the leases will provide that each TRS
lessee is obligated to pay our operating partnership a minimum
base rent together with a gross percentage rent, at rates
intended to equal market rental rates.
In addition, rent paid by a TRS lessee or other lessee that
leases a hotel from our operating partnership will constitute
rents from real property for purposes of the REIT gross income
tests only if the lease is respected as a true lease for federal
income tax purposes and is not treated as a service contract,
joint venture, or some other type of arrangement. The
determination of whether a lease is a true lease depends upon an
analysis of all the surrounding facts and circumstances. We
believe that the leases with our TRS lessees should be treated
as true leases. However, that there are no controlling
regulations, published administrative rulings, or judicial
decisions involving leases with terms substantially similar to
the leases between our operating partnership and the TRS lessees
that discuss whether the leases constitute true leases for
federal income tax purposes. Thus, there can be no assurance
that the IRS will not assert a contrary position and that a
court will not sustain such a challenge. If any leases between
our operating partnership and a TRS lessee are re-characterized
as service contracts or partnership agreements, rather than as
true leases, part or all of the payment that we receive from
such TRS lessee would not be considered rent or would otherwise
fail the various requirements for qualification as rents from
real property.
Finally, for rents received by or attributed to us to qualify as
rents from real property, we generally must not furnish or
render any services to tenants, other than through a TRS or an
independent contractor from whom we derive no income, except
that we and our operating partnership may directly provide
services that are usually or customarily rendered in
connection with the rental of properties for occupancy only, or
are not otherwise considered rendered to the occupant for
his convenience. Neither we nor our operating partnership
provides, or intends to provide, any services to our TRSs, TRS
lessees or any other tenants.
We believe that, for purposes of both the 75% and the 95% gross
income tests, our operating partnerships investments in
hotels generally give rise to qualifying income in the form of
rents from real property, and that gains on the sales of the
hotels will also constitute qualifying income. However, no
assurance can be given that either the rents or the gains will
constitute qualifying income. In that case, we may not be able
to satisfy either the 75% or the 95% gross income test and, as a
result, could lose our REIT status.
We hold the Frenchmans Reef & Morning Star
Marriott Beach Resort through a Cayman Islands corporation that
holds a U.S. Virgin Islands corporation that we have
elected to be treated as our TRS. In the case of hotels owned,
rather than leased, by a TRS, dividends paid by such TRS out of
its earnings and gains from the sale of stock of such a TRS
would not be qualifying income for purposes of the 75% gross
income test, although such dividends and gains would be
qualifying income for purposes of the 95% gross income test.
Asset
Tests
At the close of each quarter of our taxable year, we must also
satisfy four tests relating to the nature of our assets. First,
real estate assets, cash and cash items, and government
securities must represent at least 75% of the value of our total
assets. Second, not more than 25% of our total assets may be
represented by securities other than those in the 75% asset
class. Third, of the investments that are not included in the
75% asset class and that are not securities of our TRS lessees
or other TRSs, (i) the value of any one issuers
securities owned by us may not exceed 5% of the value of our
total assets and (ii) we may not own more than 10% by vote
or by value of any one issuers outstanding securities. For
purposes of the 10% value test, debt instruments issued by a
partnership are not classified as securities to the
extent of our interest as a partner in such partnership (based
on our proportionate share of the partnerships equity
interests and certain debt securities) or if at least 75% of the
partnerships gross income, excluding income from
prohibited transactions, is qualifying income for purposes of
the 75% gross income test. For purposes of the 10% value test,
the term securities also does not include debt
securities issued by another REIT, certain straight
debt securities (for example, qualifying debt securities
of a corporation of which we own no more than a de minimis
amount of equity interest), loans to individuals or estates, and
accrued obligations to pay rent. Fourth, securities of our TRS
lessees or other TRSs cannot represent more than 25% (20% for
taxable years beginning before July 31, 2008) of our
total assets. Although we believe that we have met and intend to
continue to
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meet these asset tests, no assurance can be given that we will
be able to do so. For purposes of these asset tests, we are
treated as holding our proportionate share of our operating
partnerships assets.
We will monitor the status of our assets for purposes of the
various asset tests and will endeavor to manage our portfolio in
order to comply at all times with such tests. If we fail to
satisfy the asset tests at the end of a calendar quarter, we
will not lose our REIT status if one of the following exceptions
applies:
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We satisfied the asset tests at the end of the preceding
calendar quarter, and the discrepancy between the value of our
assets and the asset test requirements arose from changes in the
market values of our assets and was not wholly or partly caused
by the acquisition of one or more non-qualifying assets; or
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We eliminate any discrepancy within 30 days after the close
of the calendar quarter in which it arose.
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Moreover, if we fail to satisfy the asset tests at the end of a
calendar quarter during a taxable year, we will not lose our
REIT status if one of the following additional exceptions
applies:
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De Minimis Exception: The failure is due to a
violation of the 5% or 10% asset tests referenced above and is
de minimis (meaning that the failure is one that
arises from our ownership of assets the total value of which
does not exceed the lesser of 1% of the total value of our
assets at the end of the quarter in which the failure occurred
and $10 million), and we either dispose of the assets that
caused the failure or otherwise satisfy the asset tests within
6 months after our identification of the failure; or
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General Exception: All of the following
requirements are satisfied: (i) the failure is not due to a
de minimis violation of the 5% or 10% asset tests
(as defined above), (ii) the failure is due to reasonable
cause and not willful neglect, (iii) we file a schedule in
accordance with Treasury Regulations providing a description of
each asset that caused the failure, (iv) we either dispose
of the assets that caused the failure or otherwise satisfy the
asset tests within 6 months after the last day of the
quarter in which our identification of the failure occurred, and
(v) we pay an excise tax as described above in
Taxation of Our Company.
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Annual
Distribution Requirements
In order to qualify as a REIT, we must distribute dividends
(other than capital gain dividends) to our stockholders in an
amount at least equal to (A) the sum of (i) 90% of our
REIT taxable income (determined without regard to
the dividends paid deduction and by excluding any net capital
gain) and (ii) 90% of the net income (after tax), if any,
from foreclosure property, minus (B) the sum of certain
items of non-cash income. We generally must pay such
distributions in the taxable year to which they relate, or in
the following taxable year if declared before we timely file our
tax return for such year and if paid on or before the first
regular dividend payment after such declaration. We may satisfy
our distribution requirement in part by paying a taxable stock
dividend.
To the extent that we do not distribute all of our net capital
gain and REIT taxable income, we will be subject to tax on the
undistributed amount at corporate capital gains and ordinary tax
rates, respectively. Furthermore, if we should fail to
distribute during each calendar year at least the sum of
(i) 85% of our ordinary income for such year, (ii) 95%
of our capital gain net income for such year, and (iii) any
undistributed ordinary income and capital gain net income from
prior periods, we will be subject to a 4% nondeductible excise
tax on the excess of such required distribution over the amounts
actually distributed.
Under certain circumstances, we may be able to rectify a failure
to meet the distribution requirement for a year by paying
deficiency dividends to our stockholders in a later
year that may be included in our deduction for dividends paid
for the earlier year. Thus, we may be able to avoid being taxed
on amounts distributed as deficiency dividends; however, we will
be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.
In addition, dividends we pay must not be preferential. If a
dividend is preferential, it will not qualify for the dividends
paid deduction. To avoid paying preferential dividends, we must
treat every stockholder of the class of stock with respect to
which we make a distribution the same as every other stockholder
of that class, and we must not treat any class of stock other
than according to its dividend rights as a class.
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We may retain and pay income tax on net long-term capital gains
we received during the tax year. To the extent we so elect,
(i) each stockholder must include in its income (as
long-term capital gains) its proportionate share of our
undistributed long-term capital gains, (ii) each
stockholders basis in its shares of our stock is increased
by the included amount of the undistributed long-term capital
gains, and (iii) each stockholder is deemed to have paid,
and receives a credit for, its proportionate share of the tax
paid by us on the undistributed long-term capital gains.
To qualify as a REIT, we may not have, at the end of any taxable
year, any undistributed earnings and profits accumulated in any
non-REIT taxable year. Our non-REIT earnings and profits include
any earnings and profits we accumulated before the effective
date of our REIT election, which was January 1, 2005. We
distributed sufficient earnings and profits before
December 31, 2005 to eliminate any non-REIT earnings and
profits, which distributions were in addition to distributions
we were required to make to satisfy the 90% distribution test
(as discussed above) and avoid incurring tax on our
undistributed income.
Failure
to Qualify
If we fail to qualify as a REIT and such failure is not an asset
test or income test failure, we generally will be eligible for a
relief provision if the failure is due to reasonable cause and
not willful neglect and we pay a penalty of $50,000 with respect
to such failure.
If we fail to qualify for taxation as a REIT in any taxable year
and no relief provisions apply, we generally will be subject to
tax (including any applicable alternative minimum tax) on our
taxable income at regular corporate rates. Distributions to our
stockholders in any year in which we fail to qualify as a REIT
will not be deductible by us nor will they be required to be
made. In such event, to the extent of current or accumulated
earnings and profits, all distributions to our stockholders will
be taxable as dividend income. Subject to certain limitations in
the Code, corporate stockholders may be eligible for the
dividends received deduction, and individual, trust and estate
stockholders may be eligible to treat the dividends received
from us as qualified dividend income taxable as net capital
gains, under the provisions of Section 1(h)(11) of the
Code, through the end of 2010. Unless entitled to relief under
specific statutory provisions, we also will be ineligible to
elect REIT status again prior to the fifth taxable year
following the first year in which we failed to qualify as a REIT
under the Code.
Our qualification as a REIT for federal income tax purposes will
depend on our continuing to meet the various requirements
summarized above governing the ownership of our outstanding
shares, the nature of our assets, the sources of our income, and
the amount of our distributions to our stockholders. Although we
intend to operate in a manner that will enable us to comply with
such requirements, there can be no certainty that such intention
will be realized. In addition, because the relevant laws may
change, compliance with one or more of the REIT requirements may
become impossible or impracticable for us.
Qualified
REIT Subsidiaries and Disregarded Entities
If we own a corporate subsidiary that is a qualified REIT
subsidiary (QRS), or if we or our operating
partnership own 100% of the membership interests in a limited
liability company or other unincorporated entity that does not
elect to be treated as a corporation for federal income tax
purposes, the separate existence of the QRS, limited liability
company or other unincorporated entity generally will be
disregarded for federal income tax purposes. Generally, a QRS is
a corporation, other than a TRS, all of the stock of which is
owned by a REIT. A limited liability company or other
unincorporated entity 100% owned by a single member that does
not elect to be treated as a corporation for federal income tax
purposes generally is disregarded as an entity separate from its
owner for federal income tax purposes. All assets, liabilities,
and items of income, deduction, and credit of the QRS or
disregarded entity will be treated as assets, liabilities, and
items of income, deduction, and credit of its owner. If we own a
QRS or a disregarded entity, neither will be subject to federal
corporate income taxation, although such entities may be subject
to state and local taxation in some states.
Taxation
of the Operating Partnership
Our operating partnership currently is a disregarded entity
because we own 100% of the interests in it, directly or through
other disregarded entities. If we admit other limited partners,
our operating partnership will be treated as a partnership for
tax purposes, as described below.
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Under the Code, a partnership is not subject to federal income
tax, but is required to file a partnership tax information
return each year. In general, the character of each
partners share of each item of income, gain, loss,
deduction, credit, and tax preference is determined at the
partnership level. Each partner is then allocated a distributive
share of such items in accordance with the partnership agreement
and is required to take such items into account in determining
the partners income. Each partner includes such amount in
income for any taxable year of the partnership ending within or
with the taxable year of the partner, without regard to whether
the partner has received or will receive any cash distributions
from the partnership. Cash distributions, if any, from a
partnership to a partner generally are not taxable unless and to
the extent they exceed the partners basis in its
partnership interest immediately before the distribution. Any
amounts in excess of such tax basis will generally be treated as
a sale of such partners interest in the partnership.
If and when our operating partnership becomes taxable as a
partnership, rather than a disregarded entity, we generally will
be treated for federal income tax purposes as contributing our
properties to the operating partnership at such time. If our
properties are appreciated at such time, we could recognize a
smaller share of tax depreciation, and a larger share of tax
gain on sale, from such properties subsequent to that deemed
contribution, as compared to our percentage interest in the
operating partnership. This deemed contribution also could
trigger tax gain in some circumstances, but we expect to
structure the admission of outside partners in a manner that
should avoid any such gain.
As noted above, for purposes of the REIT income and asset tests,
we are treated as holding or receiving our proportionate share
of our operating partnerships income and assets,
respectively. We control, and intend to continue to control, our
operating partnership and intend to operate it consistently with
the requirements for our qualification as a REIT.
We may use our operating partnership to acquire hotels in
exchange for operating partnership units, in order to permit the
sellers of such properties to defer recognition of their tax
gain. In such a transaction, our initial tax basis in the hotels
acquired generally will be less than the purchase price of the
hotels. Consequently, our depreciation deductions for such
properties may be less, and our tax gain on a sale of such
properties may be more, than the deductions or gain,
respectively, that we would have if we acquired these properties
in taxable transactions. In addition, we may issue equity
compensation to employees in the form of interests in our
operating partnership that provides for capital gain treatment
to the employees but does not generate a corresponding deduction
for our operating partnership.
The discussion above assumes that our operating partnership will
be treated as a partnership for federal income tax
purposes once it is no longer treated as a disregarded entity.
Generally, a domestic unincorporated entity such as our
operating partnership with two or more partners is treated as a
partnership for federal income tax purposes unless it
affirmatively elects to be treated as a corporation. However,
certain publicly traded partnerships are treated as
corporations for federal income tax purposes. Once our operating
partnership is no longer a disregarded entity for federal income
tax purposes, we intend to comply with one or more exceptions
from treatment as a corporation under the publicly traded
partnership rules. Failure to qualify for such an exception
would prevent us from qualifying as a REIT.
Investments
in Taxable REIT Subsidiaries
We and each subsidiary intended to qualify as a TRS have made
(or will make, as applicable) a joint election for such
subsidiary to be treated as our taxable REIT subsidiary. A
domestic TRS (or a foreign TRS with income from a
U.S. business) pays federal, state, and local income taxes
at the full applicable corporate rates on its taxable income
prior to payment of any dividends. Thus, for example, Bloodstone
TRS, Inc. generally will pay U.S. corporate tax on key
money and yield support when it is paid, notwithstanding the
treatment of key money and yield support payments for accounting
purposes. A TRS owning or leasing a hotel outside of the U.S.,
such as DiamondRock Frenchmans Owner, Inc., may pay
foreign taxes. The taxes owed by our TRSs could be substantial.
To the extent that our TRSs are required to pay federal, state,
local, or foreign taxes, the cash available for distribution by
us will be reduced accordingly.
A TRS is permitted to engage in certain kinds of activities that
cannot be performed directly by us without jeopardizing our REIT
status. A TRS is subject to limitations on the deductibility of
payments made to us which
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could materially increase its taxable income and also is subject
to prohibited transaction taxes on certain other payments made,
directly or indirectly, to us. We will be subject to a 100% tax
on the amounts of any rents from real property, deductions, or
excess interest received from a TRS that would be reduced
through reapportionment under Section 482 of the Code in
order to more clearly reflect the income of the TRS. In
particular, this 100% tax would apply to our share of any rent
paid by a TRS lessee that was determined to be in excess of a
market rate rent.
As discussed above in Qualification as a
REIT Income Tests, Bloodstone TRS, Inc.,
through our TRS lessees, leases qualified lodging facilities
from our operating partnership (or its affiliates) and a TRS may
own hotels (such as DiamondRock Frenchmans Owner, Inc.
that owns Frenchmans Reef & Morning Star
Marriott Beach Resort). However, a TRS may not directly or
indirectly operate or manage any hotel or provide rights to any
brand name under which any hotel is operated. Specifically,
rents paid by a TRS lessee can qualify as rents from real
property only so long as the property is operated and managed on
behalf of the TRS lessee by an eligible independent
contractor, which is a person (or entity) that satisfies
the following requirements: (i) such person is, or is
related to a person who is, actively engaged in the trade or
business of operating qualified lodging facilities for any
person unrelated to us or the TRS lessee; (ii) such person
does not own, directly or indirectly, more than 35% of our
stock; and (iii) not more than 35% of such person is owned,
directly or indirectly, by one or more persons owning 35% or
more of our stock. For purposes of determining whether these
ownership limits are satisfied, actual ownership as well as
constructive ownership under the rules of Section 318 of
the Code (with certain modifications) is taken into account. For
example, (a) interests owned by a partnership are also
treated as owned proportionately by its partners,
(b) interests held by a partner with a 25% or greater share
of partnership capital interests or profits interests are also
treated as owned by the partnership, (c) interests held by
a 10% or greater stockholder are also treated as held by the
corporation, and (d) interests held by a corporation are
also treated as held by a 10% or greater stockholder (in the
proportion that such stockholders stock bears to all the
stock of the corporation). However, if any class of our stock or
the stock of a person attempting to qualify as an eligible
independent contractor is regularly traded on an established
securities market, only persons who own, directly or indirectly,
more than 5% of such class of stock shall be taken into account
as owning any of the stock of such class for purposes of
applying the 35% limitation described in clause (iii)
above. In addition, the IRS has ruled to the effect that an
advisor or similar fiduciary to a REIT cannot also qualify as an
eligible independent contractor with respect to the REIT.
Each TRS lessee (and any other of our TRSs that owns an interest
in our hotels) has hired (or will hire) a hotel management
company that we believe qualifies as an eligible independent
contractor to manage and operate the hotels leased by (or owned
through) the TRS. We believe that Marriott has qualified, and
Marriott intends to continue to qualify, as an eligible
independent contractor. In that regard, constructive ownership
under Section 318 of the Code resulting, for example, from
relationships between Marriott and our other stockholder could
impact Marriotts ability to satisfy the applicable
ownership limit. Because of the broad scope of the attribution
rules of Section 318 of the Code, it is possible that not
all prohibited relationships will be identified and avoided. The
existence of such a relationship would disqualify Marriott (or
another hotel management company) as an eligible independent
contractor, which would in turn disqualify us as a REIT. Our
charter restricts ownership and transfer of our shares in a
manner intended to facilitate continuous qualification of
Marriott (or another hotel management company) as an eligible
independent contractor, but no assurances can be given that such
transfer and ownership restrictions have or will ensure that
Marriott (or another hotel management company), in fact, has
been or will be an eligible independent contractor. As noted
above, Goodwin Procter LLPs opinion as to REIT
qualification is based upon our representations and covenants as
to the absence of such relationships. Marriotts failure to
qualify as an eligible independent contractor does not give us
the right to terminate the management agreement.
State,
Local, and Foreign Tax
We may be subject to state, local and foreign tax in states,
localities and foreign countries in which we do business or own
property. The tax treatment applicable to us and our
stockholders in such jurisdictions may differ from the federal
income tax treatment described above.
Stockholders should consult the applicable prospectus
supplement, as well as their own tax advisers, for further
information about federal, state, local, and other tax
consequences of investing in the securities offered by the
applicable prospectus supplement.
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PLAN OF
DISTRIBUTION
We may sell the securities offered by means of this prospectus
domestically or abroad, in one or more transactions, including
block transactions and transactions on the NYSE or on a delayed
or continuous basis:
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through underwriters or dealers;
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through agents;
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directly to one or more purchasers, including our affiliates;
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directly to stockholders;
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through a combination of any of these methods of sales; or
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in any manner, as provided in the applicable prospectus
supplement.
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In addition, we may issue the securities as a dividend or
distribution to our existing securities holders. The prospectus
supplement relating to the offer and sale of such securities
will include:
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the name or names of any underwriters, dealers or agents and the
amounts of securities underwritten or purchased by each of them;
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the initial public offering price of the securities and the
proceeds to us and any discounts, commissions, or concessions
allowed or reallowed or paid to dealers; and
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any securities exchange on which the securities may be issued.
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The securities may be sold at (i) a fixed price or prices
which may be changed, (ii) market prices prevailing at the
time of sale, (iii) prices related to the prevailing market
prices at the time of sale, or (iv) negotiated prices. The
consideration may be cash or another form negotiated by the
parties.
If we use underwriters for a sale of securities, the securities
will be acquired by the underwriters for their own account and
may be resold from time to time in one or more transactions. The
securities may be offered to the public through underwriting
syndicates represented by managing underwriters, or directly by
the underwriters. Generally, the underwriters obligation
to purchase the securities will be subject to certain conditions
precedent. The underwriters will be obligated to purchase all of
the securities if they purchase any of the securities. In
connection with the sale of securities, underwriters may receive
compensation from us or from purchasers of securities for whom
the underwriters may acts as agents. Their compensation may be
in the form of discounts, concessions or commissions.
Underwriters may sell the securities to or through dealers, and
such dealers may receive compensation in the form of discounts,
concessions or commissions (which may be changed from time to
time) from the underwriters
and/or from
the purchasers for whom they act as agent.
We may agree to sell the securities to an underwriter for a
delayed public offering and may further agree to adjustments
before the public offering to the underwriters purchase
price for the securities based on changes in the market value of
the securities.
Offers to purchase the securities may be solicited by agents
designated by us from time to time. Any such agent involved in
the offer or sale of securities will be set forth in the
prospectus supplement, and any commission payable by us to such
agent will be set forth in the prospectus supplement. Unless
otherwise indicated in the prospectus supplement, any such agent
will be acting on a best efforts basis for the period of its
appointment. Any such agent may be deemed to be an underwriter,
as that term is defined in the Securities Act, of the securities
so offered and sold.
Offers to purchase securities may be solicited directly by us
and sales thereof may be made by us directly to institutional
investors or others. The terms of any such sales, including the
terms of any bidding or auction prices, if utilized, will be
described in the proxy supplement related thereto.
We may from time to time engage a firm to act as our agent for
one or more offerings of our securities. We sometimes refer to
this agent as our offering agent. If we reach
agreement with an offering agent with respect to a
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specific offering, including the number of securities and any
minimum price below which sales may not be made, than the
offering agent will try to sell such securities on the agreed
terms. The offering agent could make sales in privately
negotiated transactions or any other method permitted by law,
including sales deemed to be an
at-the-market
offering as defined in Rule 415 promulgated under the
Securities Act, including sales made directly on the NYSE, or
sales made to or through a market maker other than on an
exchange. The offering agent will be deemed to be an
underwriter within the meaning of the Securities Act
with respect to any sales effected through an at the
market offering.
If so indicated in a prospectus supplement, we will authorize
agents, underwriters or dealers to solicit offers by certain
institutional investors to purchase offered securities for
payment and delivery on a future date specified in such
prospectus supplement. There may be limitations on the minimum
amount which may be purchased by any such institutional investor
or on the portion of the aggregate principal amount of the
particular offered securities which may be sold pursuant to such
arrangements. Institutional investors to which such offers may
be made, when authorized, include commercial and savings banks,
insurance companies, pension funds, investment companies,
educational and charitable institutions and such other
institutions as may be approved by us. The obligations of any
purchaser under these contracts will be subject to the condition
that the purchase of the offered securities shall not at the
time of delivery be prohibited under the laws of the
jurisdiction to which the purchaser is subject.
Unless we specify otherwise in the applicable prospectus
supplement, any series of securities issued hereunder will be a
new issue with no established trading market (other than our
common stock, which is listed on the NYSE). If we sell any
shares of our common stock pursuant to a prospectus supplement,
such shares will be listed on the NYSE, subject to official
notice of issuance. We may elect to list any other securities
issued hereunder on any exchange, but we are not obligated to do
so. Any underwriters or agents to or through whom such
securities are sold by us for public offering and sale may make
a market in such securities, but such underwriters or agents
will not be obligated to do so and may discontinue any market
making at any time without notice. We cannot assure you as to
the liquidity of the trading market for any such securities.
To facilitate the offering of securities, certain persons
participating in the offering may engage in transactions that
stabilize, maintain or otherwise affect the price of the
securities. This may include over-allotments or short sales of
the securities, which involves the sale by persons participating
in the offering of more securities than we sold to them. In
these circumstances these persons would cover the
over-allotments or short positions by making purchases in the
open market or by exercising their over-allotment option. In
addition, these persons may stabilize or maintain the prices of
the securities by bidding for or purchasing securities in the
open market or by imposing penalty bids whereby selling
concessions allowed to dealers participating in the offering may
be reclaimed if securities sold by them are repurchased in
connection with stabilization transactions. The effect of these
transactions may be to stabilize or maintain the market price of
the securities at a level above that which might otherwise
prevail in the open market. These transactions may be
discontinued at any time.
Underwriters, dealers and agents participating in the
distribution of the offered securities may be deemed to be
underwriters, and any discounts or commissions received by them
and any profit realized by them upon the resale of the offered
securities may be deemed to be underwriting discounts and
commissions, under the Securities Act. If such dealers or agents
were deemed to be underwriters, they may be subject to statutory
liabilities under the Securities Act. Underwriters, dealers and
agents may be entitled, under agreements entered into with us,
to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act.
Certain of the underwriters, dealers or agents and their
affiliates and associates may engage in transactions with and
perform services for us in the ordinary course of their business
for which they receive compensation.
LEGAL
MATTERS
The validity of the securities offered hereby will be passed
upon for us by Goodwin Procter
llp. Goodwin
Procter llp has
also issued an opinion to us regarding certain tax matters
described under Federal Income Tax Considerations Related
to Our REIT Election.
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EXPERTS
The consolidated financial statements and schedule of
DiamondRock Hospitality Company as of December 31, 2008 and
2007, and for each of the years in the three-year period ended
December 31, 2008, and managements assessment of the
effectiveness of internal control over financial reporting as of
December 31, 2008 have been incorporated by reference
herein and in the registration statement in reliance upon the
reports of KPMG LLP, independent registered public accounting
firm, incorporated by reference herein, and upon the authority
of said firm as experts in accounting and auditing.
WHERE YOU
CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements
and other information with the SEC. You may read and copy any
document we file with the SEC at the SECs public reference
room at 100 F Street, N.E. Room 1580,
Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330
for further information about the public reference room. The SEC
also maintains a website that contains reports, proxy and
information statements and other information regarding
registrants that file electronically with the SEC at
http://www.sec.gov.
You can inspect reports and other information we file at the
offices of the NYSE, 20 Broad Street, New York, NY 10005.
In addition, we maintain a website that contains information
about us at www.drhc.com. The information found on, or otherwise
accessible through, our website is not incorporated into, and
does not form a part of, this prospectus or any other report or
documents we file with or furnish to the SEC.
We have filed with the SEC a shelf registration
statement on
Form S-3
under the Securities Act relating to the securities that may be
offered by this prospectus. This prospectus is a part of that
registration statement, but does not contain all of the
information in the registration statement. We have omitted parts
of the registration statement in accordance with the rules and
regulations of the SEC. For more detail about us and any
securities that may be offered by this prospectus, you may
examine the registration statement on
Form S-3
and the exhibits filed with it at the locations listed in the
previous paragraph.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference in
this prospectus certain information we file with the SEC, which
means that we may disclose important information in this
prospectus by referring you to the document that contains the
information. The information incorporated by reference is
considered to be a part of this prospectus, and the information
we file later with the SEC will automatically update and
supersede this information. We incorporate by reference the
documents listed below that we filed with the SEC:
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our Annual Report on
Form 10-K
for the year ended December 31, 2008;
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our Quarterly Report on
Form 10-Q
for the quarter ended March 27, 2009;
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our Quarterly Report on
Form 10-Q
for the quarter ended June 19, 2009;
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our Definitive Proxy Statement on Schedule 14A filed on
March 4, 2009, as amended by additional definitive proxy
materials filed on March 6, 2009;
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our Current Reports on
Form 8-K
filed on April 15, 2009 and July 27, 2009;
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The description of our common stock, $0.01 par value per
share, contained in our Registration Statement on
Form 8-A
filed on May 25, 2005, including any amendment or report
filed for the purpose of updating such description (file number
001-32514); and
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all documents filed by us with the SEC pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act from
the date of this prospectus and prior to the termination of the
offering of the underlying securities; provided, however, that
we are not incorporating by reference any additional documents
or information furnished and not filed with the SEC.
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You may request a copy of these documents, and any exhibits we
have specifically incorporated by reference as an exhibit in
this prospectus, at no cost by writing us at the following
address or calling us at the telephone number listed below or
via the Internet at the website listed below:
DiamondRock
Hospitality Company
6903 Rockledge Drive, Suite 800
Bethesda, MD 20817
Attention: Investor Relations
(240) 744-1150
Internet Website: www.dhrc.com
Readers should rely on the information provided or incorporated
by reference in this prospectus or in the applicable supplement
to this prospectus. Readers should not assume that the
information in this prospectus and the applicable supplement is
accurate as of any date other than the date on the front cover
of the document.
The information contained on our website does not constitute a
part of this prospectus, and our website address supplied above
is intended to be an inactive textual reference only and not an
active hyperlink.
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DiamondRock Hospitality
Company
11,000,000 Shares
Common Stock
PROSPECTUS SUPPLEMENT
January 18, 2011
Goldman, Sachs &
Co.