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TABLE OF
CONTENTS
Table of
Contents
Filed pursuant to Rule 424(b)(5)
Registration No. 333-234663
PROSPECTUS

Series E Redeemable Preferred Stock and Series M
Redeemable Preferred Stock
Maximum of 20,000,000 Shares in Primary Offering
Maximum of 8,000,000 Shares Pursuant to Dividend Reinvestment
Plan
(Liquidation preference $25.00 per share of Series E
Redeemable Preferred Stock or
Series M Redeemable Preferred Stock)
We
are offering a maximum of 20,000,000 shares of our Series E
Redeemable Preferred Stock, par value $0.01 per share (the
"Series E Preferred Stock"), or our Series M Redeemable
Preferred Stock, par value $0.01 per share (the "Series M
Preferred Stock") (collectively, the "Preferred Stock") in our
primary offering at a public offering price of $25.00 per share. We
are also offering up to 8,000,000 shares of Series E Preferred
Stock or Series M Preferred Stock pursuant to a dividend
reinvestment plan (the "DRP") at $25.00 per share. We reserve the
right to reallocate the shares of Series E Preferred Stock or
Series M Preferred Stock we are offering between our primary
offering and the DRP. This prospectus also covers the shares of our
common stock that may be issuable upon redemption of the
Series E Preferred Stock or Series M Preferred Stock sold
pursuant to our primary offering and issued pursuant to the
DRP.
The
Preferred Stock ranks senior to our common stock with respect to
payment of dividends and distribution of amounts upon liquidation,
dissolution or winding up of our affairs. Subject to the provisions
of our charter regarding the restrictions on transfer and ownership
of stock, each outstanding share of the Preferred Stock entitles
the holder to one vote on all matters submitted to a vote of
stockholders, including the election of directors. In addition,
holders of the Preferred Stock will have additional voting rights
if we fail to pay dividends on the Preferred Stock for 18 or more
monthly periods (whether or not consecutive) and under certain
other circumstances.
Our
common stock trades on the New York Stock Exchange (the "NYSE")
under the symbol "BHR." On February 24, 2020, the last
reported sale price of our common stock on the NYSE was $8.15 per
share. There is no established trading market for the Preferred
Stock, and we do not expect a market to develop. We do not intend
to apply for a listing of the Preferred Stock on any national
securities exchange.
We
impose certain restrictions on the ownership and transfer of our
capital stock. You should read the information under the section
entitled "Restrictions on Ownership and Transfer" in this
prospectus for a description of these restrictions.
Investing
in our securities involves risks. The Preferred Stock has not been
rated and investors will be subject to the risks associated with
investing in non-rated securities. You should carefully read and
consider "Risk Factors" on page 25 of this prospectus and in
our most recent Annual Report on Form 10-K, as updated by our
subsequent filings under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), which are incorporated by reference,
and in any applicable prospectus supplement, before investing in
our securities.
Neither
the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or
passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal
offense.
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Public Offering
Price
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Selling
Commissions(3)(4)(5)
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Dealer
Manager Fee(3)(4)
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Proceeds,
Before Expenses, to Us
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Primary offering(1)
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Series E Preferred Stock, per share
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$25.00 |
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$1.75 |
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$0.75 |
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$22.50 |
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Series M Preferred Stock, per share
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$25.00 |
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$0.00 |
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$0.75 |
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$24.25 |
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Total maximum
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$500,000,000 |
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$35,000,000 |
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$15,000,000 |
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$450,000,000(2) |
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DRP(1)
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Series E Preferred Stock, per share
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$25.00 |
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$0.00 |
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$0.00 |
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$25.00 |
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Series M Preferred Stock, per share
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$25.00 |
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$0.00 |
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$0.00 |
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$25.00 |
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Total maximum
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$200,000,000 |
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$0.00 |
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$0.00 |
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$200,000,000 |
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- (1)
- We reserve the right
to reallocate shares of the Preferred Stock between our primary
offering and the DRP.
- (2)
- Assumes the maximum
of $500,000,000 is sold in our primary offering and is composed
solely of shares of Series E Preferred Stock.
- (3)
- Selling commissions
and the dealer manager fee in respect of the Series E
Preferred Stock will equal up to 7.0% and 3.0%, respectively, of
aggregate gross proceeds from the Series E Preferred Stock in
our primary offering. No selling commissions are paid in respect of
the Series M Preferred Stock. The dealer manager fee in
respect of the Series M Preferred Stock will equal up to 3.0%
of aggregate gross proceeds from the Series M Preferred Stock
in our primary offering. We or our affiliates also may provide
permissible forms of non-cash compensation to registered
representatives of our dealer manager and to broker-dealers that
are members of the Financial Industry Regulatory
Authority, Inc. ("FINRA") and authorized by our dealer manager
to sell the Preferred Stock ("participating broker-dealers"). The
value of such items will be considered underwriting compensation in
connection with this offering. Pursuant to FINRA
Rule 2310(b)(4)(B)(ii), the combined selling commissions,
dealer manager fee, investment banking fee and such non-cash
compensation for this offering will not exceed 10.0% of the
aggregate gross proceeds of this offering (excluding proceeds from
shares to be sold through the DRP) ("FINRA's 10% cap"). No selling
commissions or dealer manager fee will be paid with respect to
shares of Preferred Stock sold pursuant to the DRP.
- (4)
- Our dealer manager
may reallow all or a portion of its selling commissions
attributable to a participating broker-dealer. In addition, our
dealer manager also may reallow a portion of its dealer manager fee
earned on the proceeds raised by a participating broker-dealer to
such participating broker-dealer as a non-accountable marketing
fee. The amount of the reallowance to any participating
broker-dealer will be determined by the dealer manager.
- (5)
- To the extent a
participating broker-dealer reduces its selling commissions below
7.0%, the public offering price per share of Series E
Preferred Stock will be decreased by an amount equal to such
reduction. See "Plan of Distribution."
The
dealer manager of this offering, Ashford Securities LLC
("Ashford Securities"), is an affiliate of Ashford Hospitality
Advisors LLC ("Ashford Advisor"). The dealer manager is not
required to sell any specific number of shares or dollar amount of
the Preferred Stock, but will use its "reasonable best efforts" to
sell the shares of Preferred Stock offered. The minimum permitted
purchase is generally $5,000, but purchases of less than $5,000 may
be made in the discretion of the dealer manager. We may sell up to
20,000,000 shares of the Preferred Stock in our primary offering by
February 21, 2022, which may be extended through
February 21, 2023, in our sole discretion. If we extend the
offering period beyond February 21, 2022, we will supplement
this prospectus accordingly. We may terminate our primary offering
at any time or may offer shares of the Preferred Stock pursuant to
a new registration statement, including a follow-on registration
statement.
We
will sell the Preferred Stock through Depository Trust Company
("DTC") settlement ("DTC Settlement") or, under special
circumstances, through Direct Registration System settlement ("DRS
Settlement"). See the section entitled "Plan of Distribution" in
this prospectus for a description of these settlement
methods.
Ashford
Securities LLC,
as Dealer
Manager
The
date of this prospectus is February 25, 2020
Table of
Contents
TABLE OF CONTENTS
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ABOUT THIS PROSPECTUS
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ii |
MARKET AND INDUSTRY DATA AND FORECASTS
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iii |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
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iii |
PROSPECTUS SUMMARY
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1 |
RISK FACTORS
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25 |
ESTIMATED USE OF PROCEEDS
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31 |
DESCRIPTION OF THE SERIES E PREFERRED
STOCK
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34 |
DESCRIPTION OF THE SERIES M PREFERRED
STOCK
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46 |
DESCRIPTION OF CAPITAL STOCK
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58 |
RESTRICTIONS ON OWNERSHIP AND TRANSFER
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62 |
MATERIAL PROVISIONS OF MARYLAND LAW AND OF OUR
CHARTER AND BYLAWS
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65 |
PARTNERSHIP AGREEMENT
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71 |
MATERIAL U.S. FEDERAL INCOME TAX
CONSIDERATIONS
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76 |
INVESTMENT BY TAX EXEMPT ENTITIES AND ERISA
CONSIDERATIONS
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111 |
DIVIDEND REINVESTMENT PLAN
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116 |
PLAN OF DISTRIBUTION
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124 |
LEGAL MATTERS
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129 |
EXPERTS
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129 |
WHERE YOU CAN FIND MORE INFORMATION
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130 |
INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE
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130 |
We
have not authorized any dealer, salesperson or other person to give
any information or to make any representation other than those
contained or incorporated by reference in this prospectus. You must
not rely upon any information or representation not contained or
incorporated by reference in this prospectus. This prospectus does
not constitute an offer to sell or the solicitation of an offer to
buy any securities other than the registered securities to which it
relates, nor does this prospectus constitute 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 not assume that the
information contained in this prospectus is accurate on any date
subsequent to the date set forth on its front cover or that any
information we have incorporated by reference is correct on any
date subsequent to the date of the document incorporated by
reference, even though this prospectus is delivered or securities
are sold on a later date.
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ABOUT THIS PROSPECTUS
This prospectus
is part of a registration statement on Form S-3 that we have
filed with the Securities and Exchange Commission (the "SEC"). The
exhibits to our registration statement and documents incorporated
by reference contain the full text of certain contracts and other
important documents that we have summarized in this prospectus or
that we may summarize in any amendment or prospectus supplement.
Since these summaries may not contain all the information that you
may find important in deciding whether to purchase the securities
we offer, you should review the full text of these
documents.
The
registration statement and the exhibits and other documents can be
obtained from the SEC as indicated under the sections entitled
"Where You Can Find More Information" and "Incorporation of Certain
Information By Reference."
When used in
this prospectus, the terms "our company," "we," "us," or "our"
refer to Braemar Hotels & Resorts Inc., a Maryland
corporation, and, as the context may require, its consolidated
subsidiaries, including Braemar Hospitality Limited Partnership, a
Delaware limited partnership, which we refer to as our "Operating
Partnership." Additionally, other terms that we use throughout this
prospectus are defined as follows:
- •
- "Ashford Trust" means
Ashford Hospitality Trust, Inc., a Maryland corporation, and,
as the context may require, its consolidated subsidiaries,
including Ashford Hospitality Limited Partnership, a Delaware
limited partnership and Ashford Trust's operating
partnership.
- •
- "Code" means the
Internal Revenue Code of 1986, as amended.
- •
- "High RevPAR," for
purposes of our investment strategy, means RevPAR of at least twice
the then current U.S. average RevPAR for all hotels as determined
by Smith Travel Research.
- •
- "Partnership
Agreement" means the Third Amended and Restated Agreement of
Limited Partnership of our Operating Partnership, dated
March 7, 2017, and all amendments thereto.
- •
- "Premier" means
Premier Project Management LLC, a Maryland limited liability
company and a subsidiary of Ashford Advisor.
- •
- "REIT" means a real
estate investment trust, as defined in Section 856(a) of the
Code.
- •
- "Remington Lodging"
means Remington Lodging and Hospitality LLC, together with its
affiliates, a property management company owned by
Ashford Inc.
- •
- "RevPAR" means
revenue per available room and is calculated by multiplying average
daily rate by the average daily occupancy. RevPAR is one of the
commonly used measures within the hotel industry to evaluate hotel
operations. RevPAR does not include revenues from food and beverage
sales, parking, telephone or other non-rooms revenues generated by
the property. Although RevPAR does not include these ancillary
revenues, it is generally considered the leading indicator of core
revenues for many hotels. We also use RevPAR to compare the results
of our hotels between periods and to analyze results of our
comparable hotels (comparable hotels represent hotels we have owned
for the entire period).
- •
- "TRS" means a taxable
REIT subsidiary. Our "TRSs" refers to our taxable REIT
subsidiaries, including Braemar TRS Corporation, a Delaware
corporation, and its subsidiaries, together with the two taxable
REIT subsidiaries that lease our two hotels held in a consolidated
joint venture and are wholly owned by the joint
venture.
References to
websites included in this prospectus are intended to be inactive
textual references only, and the information on such websites is
not incorporated by reference into this prospectus.
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MARKET AND INDUSTRY DATA AND
FORECASTS
Market data and
industry forecasts and projections used in this prospectus and
documents incorporated by reference have been obtained from
third-party sources, which data and forecasts are publicly
available for free or upon payment as part of a subscription
service. None of such data and forecasts was prepared specifically
for us. No third-party source that has prepared such information
has reviewed or passed upon our use of the information in this
prospectus or documents incorporated by reference, and no
third-party source is quoted or summarized in this prospectus as an
expert. Furthermore, these sources generally state that the
information they provide has been obtained from sources believed to
be reliable but that the accuracy and completeness of the
information are not guaranteed. The forecasts and projections are
based on industry surveys and the preparers' experience in the
industry, and there can be no assurance that any of the forecasts
or projections will be achieved. The quantitative information may
be derived from estimates and subjective judgments and may be
subject to limited audit and validation procedures. We believe that
the surveys and market research others have performed are reliable,
but we have not independently investigated or verified this
information.
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This prospectus
and the documents incorporated herein by reference, together with
other statements and information publicly disseminated by us,
contain certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Exchange Act, that
are subject to risks and uncertainties. We intend such
forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995 and include this statement
for purposes of complying with these safe harbor provisions. These
forward-looking statements include, among others, statements about
the terms and size of this offering, the use of proceeds from this
offering, and possible, estimated or assumed future results of our
business, financial condition, liquidity, results of operations,
plans and objectives. Forward-looking statements are generally
identifiable by use of forward-looking terminology such as "may,"
"will," "should," "potential," "intend," "expect," "anticipate,"
"estimate," "approximately," "believe," "could," "project,"
"predict," or other similar words or expressions. Additionally,
statements regarding the following subjects are forward-looking by
their nature:
- •
- our business and
investment strategy;
- •
- our projected
operating results and dividend rates;
- •
- our ability to obtain
future financing arrangements;
- •
- our understanding of
our competition;
- •
- market trends;
- •
- projected capital
expenditures;
- •
- anticipated
acquisitions or dispositions; and
- •
- the impact of
technology on our operations and business.
Such
forward-looking statements are based on our beliefs, assumptions
and expectations of our future performance, taking into account all
information currently known to us. These beliefs, assumptions and
expectations can change as a result of many potential events or
factors, not all of which are known to us. If a change occurs, our
business, financial condition, liquidity, results of operations,
plans, and other objectives may vary materially from those
expressed in our forward-looking statements. You should carefully
consider this risk when you make an investment decision
concerning
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our securities.
Additionally, the following factors could cause actual results to
vary from our forward-looking statements:
- •
- the factors discussed
in this prospectus and in the documents incorporated herein by
reference, including those set forth in our most recent Annual
Report on Form 10-K under the sections entitled "Risk
Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business," and "Properties,"
as updated in our subsequent Quarterly Reports on Form 10-Q
and other filings under the Exchange Act;
- •
- general and economic
business conditions affecting the lodging and travel
industry;
- •
- general volatility of
the capital markets and the market price of our common and
preferred stock;
- •
- changes in our
business or investment strategy;
- •
- availability, terms
and deployment of capital;
- •
- unanticipated
increases in financing and other costs, including a rise in
interest rates;
- •
- availability of
qualified personnel to Ashford Advisor and certain of its
affiliates;
- •
- changes in our
industry and the market in which we operate, interest rates, or
local economic conditions;
- •
- the degree and nature
of our competition;
- •
- actual and potential
conflicts of interest with Ashford Trust, Ashford Advisor,
Ashford Inc., our executive officers and our non-independent
director;
- •
- changes in personnel
of Ashford Advisor and certain of its affiliates or the lack of
availability of qualified personnel;
- •
- changes in
governmental regulations, accounting rules, tax rates and similar
matters;
- •
- legislative and
regulatory changes, including changes to the Code, and related
rules, regulations and interpretations governing the taxation of
REITs; and
- •
- limitations imposed
on our business and our ability to satisfy complex rules in order
for us to qualify as a REIT for U.S. federal income tax
purposes.
When
considering forward-looking statements, you should keep in mind the
risk factors and other cautionary statements in this prospectus and
in the documents incorporated by reference herein. The matters
summarized under "Risk Factors" and elsewhere in this prospectus
and in the documents incorporated by reference herein could cause
our actual results and performance to differ significantly from
those contained in our forward-looking statements. Accordingly, we
cannot guarantee future results or performance. Readers are
cautioned not to place undue reliance on any of these
forward-looking statements, which reflect our views as of the date
of this prospectus. Furthermore, we do not intend to update any of
our forward-looking statements after the date of this prospectus to
conform these statements to actual results and performance, except
as may be required by applicable law.
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PROSPECTUS SUMMARY
The
following summary highlights information contained elsewhere or
incorporated by reference in this prospectus. It may not contain
all of the information that is important to you. Before making a
decision to invest in the Preferred Stock, you should read
carefully this entire prospectus and the documents incorporated by
reference herein, including the sections entitled "Risk Factors" in
this prospectus and our most recent Annual Report on
Form 10-K, as updated by our subsequent filings under the
Exchange Act, which are incorporated by reference in this
prospectus. This summary is qualified in its entirety by the more
detailed information and financial statements, including the notes
thereto, appearing elsewhere or incorporated by reference in this
prospectus.
Our Company
We are an
externally advised Maryland corporation formed in April 2013. We
became a public company on November 19, 2013. We invest
primarily in High RevPAR luxury hotels and resorts. High RevPAR,
for purposes of our investment strategy, means RevPAR of at least
twice the then-current U.S. national average RevPAR for all hotels
as determined by Smith Travel Research. Two times the U.S. national
average was $172 for the year ended December 31, 2018. We have
elected to be taxed as a REIT under the Code, beginning with our
short taxable year ended December 31, 2013. We conduct our
business and own substantially all of our assets through our
Operating Partnership.
We operate in
the direct hotel investment segment of the hotel lodging industry.
As of December 31, 2019, we owned interests in 13 hotel
properties in six states, the District of Columbia and
St. Thomas, U.S. Virgin Islands with 3,722 total rooms, or
3,487 net rooms, excluding those attributable to our joint venture
partner. The hotel properties in our current portfolio are
predominantly located in U.S. urban markets and resort locations
with favorable growth characteristics resulting from multiple
demand generators. We own 11 of our hotel properties directly, and
the remaining two hotel properties through an investment in a
majority-owned consolidated entity.
We are advised
by Ashford Advisor, a subsidiary of Ashford Inc., through an
advisory agreement. All of the hotel properties in our portfolio
are currently asset-managed by Ashford Advisor. We do not have any
employees. All of the services that might be provided by employees
are provided to us by Ashford Advisor. Ashford Advisors' management
team has over 98 years of combined hospitality
experience.
We do not
operate any of our hotel properties directly; instead, we employ
hotel management companies to operate them for us under management
contracts. Remington Lodging, which is owned by Ashford Inc.,
manages three of our hotel properties and third-party management
companies manage the remaining 10 hotel properties.
Ashford Inc.
also provides other products and services to us or our hotel
properties through certain entities in which Ashford Inc. has
an ownership interest. These products and services include, but are
not limited to project management services, debt placement
services, audio visual services, real estate advisory services,
insurance claims services, hypoallergenic premium rooms, watersport
activities, travel/transportation services and mobile key
technology. Ashford Inc. embraces five guiding principles:
ethical, innovative, profitable, engaging and tenacious.
Recent Developments
On
October 24, 2019, we provided notice to Accor Management
US Inc. of the breach of its responsibilities under the
management agreement for the Sofitel Chicago Magnificent Mile. On
November 7, 2019, Accor Management US Inc. filed a
complaint and summons in the Supreme Court of the State of New
York, New York County, seeking a declaratory judgment that no
breach has occurred. On January 6, 2020, we filed a complaint
and summons in the Supreme Court of the State of
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New York, New York
County seeking damages and a declaration regarding our right to
terminate the management agreement. We intend to take legal action
to assert our rights under the management agreement.
Our Investment and Growth Strategies
Our principal
business objectives are to generate attractive returns on our
invested capital and long-term growth in cash flow to maximize
total returns to our stockholders. To achieve our objectives, we
pursue the following strategies:
Focused Investment Strategy
Our strategy is
to invest in premium branded and high-quality independent luxury
hotels and resorts that are anticipated to generate RevPAR at least
twice the average RevPAR for the U.S. lodging industry, as
determined by Smith Travel Research, and are located predominantly
in North America.
We intend to
concentrate our investments in markets where we believe there are
significant growth opportunities, taking into consideration the
risk of additional supply. In determining anticipated RevPAR for a
particular asset, we may take into account forecasts and other
considerations, including without limitation, conversions or
repositioning of assets, capital plans, brand changes and other
factors which may reasonably be forecasted to raise RevPAR after
stabilization. Stabilization with respect to a hotel, after the
completion of an initiative, such as a capital plan, conversion or
change of brand name or change of the business mix or other
operating characteristics, is generally expected to occur within 12
to 24 months after the completion of the related renovation,
repositioning or brand change.
In connection
with this investment strategy, we frequently evaluate opportunities
to acquire additional hotel properties, either through direct
ownership, joint ventures, partnership participations or similar
arrangements. We may use cash or debt or issue equity securities,
common units or other securities in our Company, our Operating
Partnership or our other subsidiaries as currency for a
transaction. Some or all of these acquisitions, if completed, may
be material to our company, individually or in the aggregate. We
may, from time to time, be party to letters of intent, term sheets
and other non-binding agreements relating to potential
acquisitions. We cannot assure you that we will enter into
definitive acquisition agreements with respect to any potential
acquisitions.
Active Asset Management Strategy
We rely on
Ashford Advisor to asset-manage the hotel properties in our
portfolio and will rely on Ashford Advisor to asset manage any
hotel properties we may acquire in the future, to help maximize the
operating performance, cash flow and value of each hotel. Asset
management is intended to include actively "managing" the property
managers and holding them accountable to drive top line and
bottom-line operating performance. Ashford Advisor aims to achieve
this goal by benchmarking each asset's performance compared to
similar hotel properties within our portfolio. Ashford Advisor also
closely monitors all hotel operating expenses, as well as
third-party vendor and service contracts. If expense levels are not
commensurate with the property revenues, Ashford Advisor works with
the property manager to implement cost cutting initiatives. Ashford
Advisor is also very active in evaluating and proposing improved
strategies for the sales, marketing and revenue management
initiatives of the property manager as well as its ability to drive
ancillary hotel revenues (for example, spa, food and beverage,
parking, and Internet). In addition to supervising and directing
the property managers, Ashford Advisor works with the brands and
management companies to negotiate favorable franchise agreement and
property management agreement terms. Ashford Advisor also actively
participates in brand advisory committee meetings to provide
feedback and input on new hotel brand initiatives. We believe that
our strong asset management process of focusing on revenue
optimization and expense management helps to ensure that each hotel
is being operated to our and our franchisors' standards,
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that our hotel
properties are being adequately maintained in order to preserve the
value of the asset and the safety of the hotel to customers, and
that our property managers are maximizing revenue and enhancing
operating margins.
Disciplined Capital Allocation Strategy
We intend to
pursue a disciplined capital allocation strategy as it relates to
the acquisition, operation, disposition and financing of assets in
our portfolio and those that we may acquire in the future. Ashford
Advisor utilizes its extensive industry experience and capital
markets expertise to influence the timing of capital deployment and
recycling, and we may selectively sell hotel properties that are no
longer consistent with our investment strategy or as to which
returns appear to have been maximized. To the extent we sell hotel
properties, we generally intend to redeploy the capital into
investment opportunities that we believe will achieve higher
returns or buy back our common stock or other
securities.
Our Hotel Properties
We own 11 of
our hotel properties directly, and the remaining two hotel
properties through an investment in a majority-owned consolidated
entity. Eight of the 13 hotel properties in our portfolio operate
under premium brands affiliated with Marriott
International, Inc. ("Marriott") and Hilton
Worldwide, Inc. ("Hilton"). One hotel property is managed by
Hyatt Hotels Corporation ("Hyatt"), one hotel property is managed
by Accor Business and Leisure Management, LLC ("Accor"), and
three hotel properties are managed by Remington Lodging, a property
management company owned by Ashford Inc.
The following
table presents certain information related to our hotel properties
as of December 31, 2019:
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Hotel Property
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Location |
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Service Type |
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Total
Rooms |
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%
Owned |
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Owned
Rooms |
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Fee Simple Properties
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Capital Hilton
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Washington, D.C. |
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Full |
|
|
550 |
|
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75 |
% |
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413 |
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Seattle Marriott Waterfront
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Seattle, WA |
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Full |
|
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361 |
|
|
100 |
% |
|
361 |
|
The Notary Hotel(1)
|
|
Philadelphia, PA |
|
Full |
|
|
499 |
|
|
100 |
% |
|
499 |
|
San Francisco Courtyard Downtown(2)
|
|
San
Francisco, CA |
|
Select |
|
|
410 |
|
|
100 |
% |
|
410 |
|
Chicago Sofitel Magnificent Mile
|
|
Chicago, IL |
|
Full |
|
|
415 |
|
|
100 |
% |
|
415 |
|
Pier House Resort
|
|
Key
West, FL |
|
Full |
|
|
142 |
|
|
100 |
% |
|
142 |
|
Ritz-Carlton, St. Thomas(3)
|
|
St. Thomas, USVI |
|
Full |
|
|
180 |
|
|
100 |
% |
|
180 |
|
Park Hyatt Beaver Creek
|
|
Beaver Creek, CO |
|
Full |
|
|
190 |
|
|
100 |
% |
|
190 |
|
Hotel Yountville
|
|
Yountville, CA |
|
Full |
|
|
80 |
|
|
100 |
% |
|
80 |
|
Ritz-Carlton, Sarasota
|
|
Sarasota, FL |
|
Full |
|
|
266 |
|
|
100 |
% |
|
266 |
|
Ritz-Carlton, Lake Tahoe
|
|
Truckee, CA |
|
Full |
|
|
170 |
|
|
100 |
% |
|
170 |
|
Ground Lease Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hilton La Jolla Torrey Pines(4)
|
|
La
Jolla, CA |
|
Full |
|
|
394 |
|
|
75 |
% |
|
296 |
|
Bardessono Hotel(5)
|
|
Yountville, CA |
|
Full |
|
|
65 |
|
|
100 |
% |
|
65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
3,722 |
|
|
|
|
|
3,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- On July 17,
2019, we announced the opening of The Notary Hotel (previously
known as the "Philadelphia Courtyard").
- (2)
- Announced plan to
convert to Autograph Collection. On July 11, 2019, we
announced the planned opening of The Clancy, which will be a
full-service hotel.
3
Table of
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- (3)
- Due to the impact
from hurricanes Irma and Maria, the Ritz-Carlton, St. Thomas
was closed for renovation until November 22, 2019, when the
hotel was reopened. Approximately 176 of the 180 total rooms were
available upon reopening. The hotel had 180 total rooms in service
prior to the hurricanes and as of the date of this prospectus, all
180 rooms are in service.
- (4)
- The ground lease
expires in 2067.
- (5)
- The initial ground
lease expires in 2065. The ground lease contains two 25-year
extension options, at our election.
Certain Agreements
Pursuant to our
advisory agreement, Ashford Advisor acts as our advisor,
responsible for implementing our investment strategies and
decisions and the management of our day-to-day operations, subject
to the supervision and oversight of our board of directors. We rely
on Ashford Advisor to provide, or obtain on our behalf, the
personnel and services necessary for us to conduct our business,
and we have no employees of our own.
Pursuant to the
terms of our advisory agreement, Ashford Advisor and its affiliates
provide us with our management team, along with appropriate support
personnel as Ashford Advisor deems reasonably necessary. Ashford
Advisor and its affiliates are not obligated to dedicate any of
their respective employees exclusively to us, nor are Ashford
Advisor, its affiliates or any of their employees obligated to
dedicate any specific portion of its or their time to our business
except as necessary to perform the service required of them in
their capacity as our advisor. Ashford Advisor is at all times
subject to the supervision and oversight of our board of directors.
So long as Ashford Advisor is our advisor, our governing documents
require us to include two persons designated by Ashford Advisor as
candidates for election as director at any stockholder meeting at
which directors are to be elected. Such nominees may be executive
officers of our advisor. If the size of our board of directors is
increased at any time to more than seven directors, Ashford
Advisor's right to nominate shall be increased by such number of
directors as shall be necessary to maintain the ratio of directors
nominated by Ashford Advisor to the directors otherwise nominated,
as nearly as possible (rounding to the next larger whole number),
equal to the ratio that would have existed if our board of
directors consisted of seven members. Our advisory agreement
requires Ashford Advisor to manage our business affairs in
conformity with the policies and the guidelines that are approved
and monitored by our board of directors. Additionally, Ashford
Advisor must refrain from taking any action that would
(i) adversely affect our status as a REIT, (ii) subject
us to regulation under the Investment Company Act of 1940, as
amended, (iii) knowingly and intentionally violate any law,
rule or regulation of any governmental body or agency having
jurisdiction over us, (iv) violate any of the rules or
regulations of any exchange on which our securities are listed or
(v) violate our charter, bylaws or resolutions of our board of
directors, all as in effect from time to time.
Enhanced Return Funding Program Agreement
On
January 15, 2019, we entered into the Enhanced Return Funding
Program Agreement (the "ERFP Agreement") with Ashford Inc. and
Ashford Advisor. Pursuant to the terms of the ERFP Agreement,
Ashford Advisor will provide funding to facilitate the acquisition
of hotel properties by our Operating Partnership that are
recommended by Ashford Advisor, in an aggregate amount of up to
$50 million (subject to increase to up to $100 million by
mutual agreement). Each funding will equal 10% of the property
acquisition price and will be made either at the time of the
property acquisition or at any time generally within the two-year
period following the date of such acquisition, in exchange for
furniture, fixtures & equipment for use at the acquired
property or any other property owned by our Operating
Partnership.
4
Table of
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Premier Master Project Management Agreement
Ashford Inc.,
through Premier, provides us with project management services,
including construction management, interior design, architectural
oversight, and the purchasing, expediting, warehousing
coordination, freight management and supervision of installation of
furniture, fixtures & equipment, and related
services.
Hotel Management Agreements
We do not
operate any of our hotel properties directly; instead we employ
hotel management companies to operate them for us under management
agreements. Ashford Inc. (indirectly through Remington
Lodging) provides us with property management services at three
hotel properties owned by us. The remaining ten of our hotel
properties are operated pursuant to a hotel management agreement
with one of four brand hotel management companies. Each hotel
management company receives a base management fee and is also
eligible to receive an incentive management fee if hotel operating
income, as defined in the respective management agreement, exceeds
certain thresholds. The incentive management fee is generally
calculated as a percentage of hotel operating income after we have
received a priority return on our investment in the
hotel.
None of our
hotel properties operate under franchise agreements. The hotel
management agreements with Marriott, Hilton, Hyatt and Accor allow
ten of our hotel properties to operate under the Marriott, Hilton,
Hyatt or Sofitel brand names, as applicable, and provide benefits
typically associated with franchise agreements and licenses,
including, among others, the use of the Courtyard, Marriott,
Ritz-Carlton, Hilton, Hyatt or Sofitel, as applicable, reservation
system and guest loyalty and reward program. Any intellectual
property and trademarks of Marriott, Hilton, Hyatt or Accor, as
applicable, are exclusively owned and controlled by the applicable
property manager or an affiliate of such manager which grants the
manager rights to use such intellectual property or trademarks with
respect to the applicable hotel.
The
Ritz-Carlton, St. Thomas is subject to a License and Royalty
Agreement (the "Royalty Agreement"), which allows us to use the
Ritz-Carlton brand for 50 years with Marriott having two
10-year extension options. The Royalty Agreement is coterminous
with the management agreement for the Ritz-Carlton,
St. Thomas. In connection with our ability to use the
Ritz-Carlton brand, we are obligated to pay a royalty fee of 2.6%
of gross revenues and an incentive royalty of 20% of operating
profit in excess of owner's priority.
Our Financing Strategy
As of
September 30, 2019, our property-level indebtedness was
approximately $1.1 billion, with a weighted average interest
rate of 4.3% per annum. As of September 30, 2019, 100% of our
mortgage debt is variable rate debt. We intend to continue to use
variable-rate debt or a mix of fixed and variable-rate debt as we
see fit, and we may, if appropriate, enter into interest rate
hedges.
We intend to
finance our long-term growth and liquidity needs with operating
cash flow, equity issuances of both common and preferred stock,
joint ventures, a revolving line of credit and secured and
unsecured debt financings having staggered maturities. We target
leverage of 45% net debt to gross assets. We define net debt as the
outstanding principal amount of our consolidated indebtedness, less
cash, cash equivalents, marketable securities, restricted cash and
amounts due from third-party hotel managers. We may also issue
common units in our Operating Partnership to acquire properties
from
5
Table of
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sellers who seek a
tax-deferred transaction. In addition, we may from time to time
receive additional capital from our advisor pursuant to the ERFP
Agreement.
We may utilize
Lismore Capital LLC, a subsidiary of Ashford Inc., or
other entities in which Ashford Inc. has an interest, to
provide debt placement services, which otherwise would be provided
by third parties, for property-level debt financings. The services
provided by these entities include access to their deep industry
contacts to achieve competitive terms in the market, due diligence
support and assistance in completing the financing
transaction.
We may use the
proceeds from any borrowings for working capital, consistent with
industry practice, to:
- •
- purchase interests in
partnerships or joint ventures;
- •
- finance the
origination or purchase of debt investments; or
- •
- finance acquisitions,
expand, redevelop or improve existing properties, or develop new
properties or other uses.
Corporate Information
Our principal
executive offices are located at 14185 Dallas Parkway,
Suite 1100, Dallas, Texas 75254. Our telephone number is
(972) 490-9600. Our website is www.bhrreit.com. The information
found on or accessible through our website is not incorporated
into, and does not form a part of, this prospectus or any
other report or document that we file with or furnish to the SEC.
We have included our website address in this prospectus as an
inactive textual reference and do not intend it to be an active
link to our website.
6
Table of
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The Offering
|
|
|
Issuer |
|
Braemar
Hotels & Resorts Inc. |
Preferred Stock offered by us |
|
A maximum of 20,000,000 shares of
Series E Preferred Stock or Series M Preferred Stock
will be offered through our dealer manager in our primary offering
on a reasonable-best-efforts basis at $25.00 per share, unless
discounted prices are available as described in the "Plan of
Distribution" section of this prospectus. We are also offering up
to 8,000,000 shares of Series E Preferred Stock or
Series M Preferred Stock pursuant to the DRP at $25.00 per
share. |
|
|
The Series E Preferred Stock and the
Series M Preferred Stock offered hereby have similar
characteristics, including, but not limited to, rank, stated value,
liquidation preferences and voting rights; however, differences
include, but are not limited to, dividend rates and redemption
options, all as summarized below. |
|
|
See the section entitled "Description of the
Series E Preferred Stock" and "Description of the
Series M Preferred Stock" in this prospectus for further
discussion of this topic. We reserve the right to reallocate the
shares of Preferred Stock we are offering between our primary
offering and the DRP. |
Offering objectives |
|
With respect to our preferred stockholders, our
principal business objectives are to (i) provide investors a
sustainable and attractive level of income through the payment of
preferential monthly dividends, and (ii) to provide greater
assurance of the preservation and return of investor capital
through the offering of securities senior to our common
stock. |
Series E Preferred Stock offered by
us |
|
Ranking. The Series E Preferred Stock
ranks (i) senior to all classes or series of our common stock
and future junior securities, (ii) on a parity with each
series of our outstanding preferred stock, including the 5.50%
Series B Cumulative Convertible Preferred Stock, par value
$0.01 per share (the "Series B Preferred Stock"), the 8.25%
Series D Cumulative Preferred Stock, par value $0.01 per share
(the "Series D Preferred Stock"), and the Series M
Preferred Stock and with any future parity securities, and
(iii) junior to any future senior securities (none of which
are currently outstanding) and to all our existing and future
indebtedness, with respect to the payment of dividends and rights
upon our liquidation, dissolution or winding up of our
affairs. |
|
|
Stated Value. Each share of Series E Preferred
Stock will have a "Stated Value" of $25.00, as set forth in the
articles supplementary setting forth the rights, preferences and
limitations of the Series E Preferred Stock (the
"Series E Articles Supplementary"). |
7
Table of
Contents
|
|
|
|
|
Dividends. Holders of Series E Preferred
Stock are entitled to receive, when and as authorized by our board
of directors and declared by us out of legally available funds,
cumulative cash dividends on each share of Series E Preferred
Stock at an annual rate of 6.5% of the Stated Value (equivalent to
an annual dividend rate of $1.625 per share). We expect to
authorize and declare dividends on the shares of Series E
Preferred Stock on a monthly basis, payable on the 15th day of
each month (or if such payment date is not a business day, on the
next succeeding business day), unless our results of operations,
our general financial condition, general economic conditions,
applicable provisions of Maryland law or other factors make it
imprudent to do so. Dividends will be payable in arrears to holders
of record as they appear on our records at the close of business on
the last business day of each month immediately preceding the
applicable dividend payment date. The timing and amount of such
dividends will be determined by our board of directors, in its sole
discretion, and may vary from time to time. |
|
|
Redemption at the Option of
Holders. Except as noted below, a holder will
have the right to require us to redeem any or all of such
holder's shares of Series E Preferred Stock at a redemption
price equal to 100% of the Stated Value, less a redemption fee,
plus an amount equal to any accrued but unpaid dividends (whether
or not authorized or declared) to, but not including, the date
fixed for redemption. |
|
|
The redemption fee shall be equal to: |
|
|
•
beginning on the "date of original issuance" of the shares
to be redeemed: 8%;
|
|
|
•
beginning on the second anniversary from the "date of
original issuance" of the shares to be redeemed: 5%; and
|
|
|
•
beginning on the third anniversary from the "date of original
issuance" of the shares to be redeemed: 0%.
|
|
|
For so long as our common stock is listed on a
national securities exchange, if a holder of shares of
Series E Preferred Stock causes us to redeem such shares of
Series E Preferred Stock, we have the right, in our sole
discretion, to pay the redemption price in cash or in equal value
of shares of our common stock or any combination thereof,
based on the closing price per share of our common stock for the
single trading day prior to the date of redemption. |
|
|
For purposes of this "Redemption at the Option of
Holders" provision, the "date of original issuance" of the shares
to be redeemed will mean the earliest date that any shares of
Series E Preferred Stock were issued to any investor during
the calendar quarter in which the shares to be redeemed were
issued. |
8
Table of
Contents
|
|
|
|
|
For purposes of this
"Redemption at the Option of Holders" provision, where the shares
of Preferred Stock to be redeemed were acquired by the holder
pursuant to the DRP (such shares, "DRP Shares"), the "date of
original issuance" of such DRP Shares shall be deemed to be the
same as the "date of original issuance" of the underlying shares of
Preferred Stock pursuant to which such DRP Shares are directly or
indirectly attributable (such shares, "Underlying Shares"), and
such DRP Shares shall be subject to the same redemption fee to
which the Underlying Shares would be subject if submitted for
redemption hereunder. |
|
|
Our ability to redeem shares of Series E
Preferred Stock in cash may be limited to the extent that we do not
have sufficient funds available, taking into account such reserves
and other considerations as our board of directors may determine in
its sole discretion, to fund such cash redemption. In addition,
aggregate redemptions by holders of Preferred Stock pursuant to
this "Redemption at the Option of Holders" provision, will be
subject to the following redemption limits: (i) no more than
2% of the outstanding Preferred Stock will be redeemed per calendar
month; (ii) no more than 5% of the outstanding Preferred Stock
will be redeemed per fiscal quarter; and (iii) no more than
20% of the outstanding Preferred Stock will be redeemed per fiscal
year. See "Description of the Series E Preferred
Stock—Redemption at the Option of Holders." |
|
|
Optional Redemption Following Death or
Disability of a Holder. Subject to the requirements below, we
will redeem shares of Series E Preferred Stock held by a
natural person upon his or her death or upon suffering a qualifying
disability at a redemption price equal to 100% of the Stated Value,
plus an amount equal to any accrued but unpaid dividends (whether
or not authorized or declared) to, but not including, the date
fixed for redemption. No redemption fees shall apply to such
redemptions. |
|
|
In order to redeem shares on the terms described
above upon the death or qualifying disability of a holder, the
following conditions must be met: |
|
|
•
the deceased or disabled holder must be the sole holder or the
beneficiary of a trust or an individual retirement account ("IRA")
or other retirement or profit-sharing plan that is a holder or, in
the case of shares owned by spouses who are joint registered
holders (or holders by tenants in the entirety), the deceased or
disabled may be one of the spouses;
|
9
Table of
Contents
|
|
|
|
|
•
in the case of the disability of a holder:
|
|
|
•
such disability must meet the requirements of
Section 72(m)(7) of the Code (i.e., the individual must
be unable to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment that
can be expected to result in death or to be of a long continued and
indefinite duration);
|
|
|
•
such determination of disability must be made by the U.S.
governmental agency responsible for reviewing the disability
retirement benefits that the holder could be eligible to
receive;
|
|
|
•
the condition causing the disability shall have occurred after
the date that the holder became a holder of Series E Preferred
Stock; and
|
|
|
•
the condition causing the disability shall have occurred before
the holder reached full retirement age, which is the age at which
workers can claim full Social Security retired-worker
benefits;
|
|
|
•
the redemption request must be received by the company within
12 months after the death or disability of the holder;
and
|
|
|
•
in the case of the death of a holder, the redemption request
must be made by a recipient of the shares through bequest or
inheritance or, in the case of the death of a beneficiary of a
trust, by the trustee of the trust or, in the case of shares owned
by spouses who are joint registered holders (or holders by tenants
in the entirety), the request may be made by the surviving
spouse.
|
|
|
For so long as our common stock is listed on a
national securities exchange, we have the right, in our sole
discretion, to pay the redemption price in cash or in equal value
of shares of our common stock or any combination thereof, based on
the closing price per share of our common stock for the single
trading day prior to the date of redemption. Our ability to redeem
shares of Series E Preferred Stock in cash may be limited to
the extent that we do not have sufficient funds available, taking
into account such reserves and other considerations as our board of
directors may determine in its sole discretion, to fund such cash
redemption. Although death and disability redemptions will not be
subject to the 2%/5%/20% limits described above, death and
disability redemptions will count toward such limits when applied
to other redemptions at the option of the holder. See "Description
of the Series E Preferred Stock—Optional Redemption Following
Death or Disability of a Holder." |
10
Table of
Contents
|
|
|
|
|
Optional
Redemption by the Company. After three years from the "date of
original issuance" of the shares of Series E Preferred Stock
to be redeemed, we will have the right (but not the obligation) to
redeem such shares of Series E Preferred Stock, in whole or in
part, at a redemption price equal to 100% of the Stated Value, plus
an amount equal to any accrued but unpaid dividends (whether or not
authorized or declared) to, but not including, the date fixed for
redemption. For so long as our common stock is listed on a national
securities exchange, if we choose to redeem any shares of
Series E Preferred Stock, we have the right, in our sole
discretion, to pay the redemption price in cash or in equal value
of shares of our common stock or any combination thereof, based on
the closing price per share of our common stock for the single
trading day prior to the date of redemption. |
|
|
For purposes of this "Optional Redemption by the
Company" provision, the "date of original issuance" of the shares
to be redeemed will mean the earliest date that any shares of
Series E Preferred Stock were issued to any investor during
the calendar quarter in which the shares to be redeemed were
issued. As a result, depending upon how late in a calendar quarter
you purchased your shares, we may have the ability to redeem your
shares even if they have been outstanding for slightly less than
three years. |
|
|
For purposes of this "Optional Redemption by the
Company" provision, where the shares of Preferred Stock to be
redeemed are DRP Shares, the "date of original issuance" of such
DRP Shares shall be deemed to be the same as the "date of original
issuance" of the Underlying Shares, and such DRP Shares shall
become subject to optional redemption by us hereunder on the same
date and terms as the Underlying Shares. |
|
|
Special Optional Redemption by the
Company. Upon
the occurrence of a Change of Control (as defined below), we will
have the right (but not the obligation) to redeem the outstanding
shares of Series E Preferred Stock, in whole or in part,
within 120 days after the first date on which such Change of
Control occurred, in cash at a redemption price equal to 100% of
the Stated Value, plus an amount equal to any accrued but unpaid
dividends (whether or not authorized or declared) to, but not
including, the date fixed for redemption. If, prior to the
Series E Change of Control Conversion Date (as defined below),
we have provided or provide notice of redemption with respect to
the Series E Preferred Stock (whether pursuant to our optional
redemption right or our special optional redemption right), the
holders of Series E Preferred Stock will not have the
conversion right described below. |
11
Table of
Contents
|
|
|
|
|
A "Change of Control"
is when the following have occurred and are continuing: |
|
|
•
the acquisition by any person, including any syndicate or group
deemed to be a "person" under Section 13(d)(3) of the Exchange
Act, of beneficial ownership, directly or indirectly, through a
purchase, merger or other acquisition transaction or series of
purchases, mergers or other acquisition transactions of shares of
our company entitling that person to exercise more than 50% of the
total voting power of all shares of our company entitled to vote
generally in elections of directors (except that such person will
be deemed to have beneficial ownership of all securities that such
person has the right to acquire, whether such right is currently
exercisable or is exercisable only upon the occurrence of a
subsequent condition); and
|
|
|
•
following the closing of any transaction referred to in the
bullet point above, neither we nor the acquiring or surviving
entity has a class of common securities (or American Depositary
Receipts ("ADRs") representing such securities) listed on the NYSE,
the NYSE American or the NASDAQ Stock Market ("NASDAQ") or listed
or quoted on an exchange or quotation system that is a successor to
the NYSE, the NYSE American or NASDAQ.
|
|
|
Conversion Rights. Upon the occurrence of a Change of
Control, each holder of Series E Preferred Stock will have the
right, at such holder's option, unless, prior to the Series E
Change of Control Conversion Date, we have provided or provide
notice of our election to redeem the Series E Preferred Stock,
to convert some or all of the shares of Series E Preferred
Stock held by such holder on the Series E Change of Control
Conversion Date into a number of shares of our common stock. The
number of shares of common stock to be issued per share of
Series E Preferred Stock to be converted will equal to the
lesser of: |
|
|
•
the quotient obtained by dividing (i) the sum of the
Stated Value plus an amount equal to any accrued and unpaid
dividends (whether or not authorized or declared) to, but not
including, the Series E Change of Control Conversion Date
(unless the Series E Change of Control Conversion Date is
after a dividend record date for the Series E Preferred Stock
and prior to the corresponding Series E Preferred Stock
dividend payment date, in which case no additional amount for such
accrued and unpaid dividend will be included in this sum) by
(ii) the Common Stock Price (as defined below); and
|
|
|
•
5.69476 (the "Series E Share Cap"), subject to certain
adjustments;
|
12
Table of
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|
|
|
|
|
subject, in each
case, to provisions for the receipt of alternative consideration as
described in this prospectus. |
|
|
If, prior to the Series E Change of Control
Conversion Date, we have provided or provide notice of our election
to redeem the Series E Preferred Stock, whether pursuant to
our optional redemption right or our special optional redemption
right, holders of Series E Preferred Stock will not have any
right to convert the Series E Preferred Stock in connection
with the Series E Change of Control Conversion Right (as
defined below) and any shares of Series E Preferred Stock
subsequently selected for redemption that have been tendered for
conversion will be redeemed on the related date of redemption
instead of converted on the Series E Change of Control
Conversion Date. |
|
|
For definitions of "Series E Change of Control
Conversion Right," "Series E Change of Control Conversion
Date" and "Common Stock Price" and for a description of the
adjustments and provisions for the receipt of alternative
consideration that may be applicable to the Series E Change of
Control Conversion Right, see "Description of the Series E
Preferred Stock—Conversion Rights." |
|
|
Liquidation. Upon any voluntary or involuntary
liquidation, dissolution or winding up of our affairs, the holders
of the Series E Preferred Stock will have the right to receive
the Stated Value, plus an amount equal to any accrued but unpaid
dividends (whether or not declared) to, but not including, the date
of payment, before any distribution or payment is made to the
holders of our common stock or any other class or series of capital
stock ranking junior to the Series E Preferred Stock. The
rights of the holders of the Series E Preferred Stock to
receive the Stated Value will be subject to the rights of holders
of our debt, holders of any equity securities ranking senior in
liquidation preference to the Series E Preferred Stock (none
of which are currently outstanding) and the proportionate rights of
holders of each other series or class of our equity securities
ranked on a parity with the Series E Preferred Stock,
including the Series B Preferred Stock, the Series D
Preferred Stock and the Series M Preferred Stock. |
13
Table of
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|
|
|
|
|
Voting
Rights. Subject to the provisions of our
charter regarding the restrictions on transfer and ownership of
stock, each outstanding share of the Series E Preferred Stock
entitles the holder to one vote on all matters submitted to a vote
by the holders of our common stock, including the election of
directors. Except as provided with respect to any other class or
series of stock and the special voting rights described below, the
holders of our common stock, the Series E Preferred Stock and
the Series M Preferred Stock (voting together as a single
class) possess exclusive voting power. There is no cumulative
voting in the election of our board of directors. In an uncontested
election, directors are elected by a majority of the votes cast by
the holders of the outstanding shares of our common stock, the
Series E Preferred Stock and the Series M Preferred Stock
(voting together as a single class), meaning that a director is
elected if the candidate received more votes "for" than the votes
"against," without consideration of abstentions, votes withheld and
broker non-votes. In a contested election (where there are more
candidates for election than seats to be filled), directors are
elected by a plurality of the votes cast. |
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In addition, whenever dividends on the Series E
Preferred Stock are in arrears for 18 or more monthly periods
(whether or not consecutive), the holders of such shares (voting
together as a single class with all other shares of any class or
series of shares ranking on a parity with the Series E
Preferred Stock which are entitled to similar voting rights, if
any) will be entitled to vote for the election of two additional
directors to serve on our board of directors until all dividends in
arrears on the outstanding shares of the Series E Preferred
Stock have been paid and dividends for the current monthly dividend
period have been paid in full. In addition, the issuance of future
senior stock or certain charter amendments, whether by merger,
consolidation or other business combination or otherwise materially
adversely affecting the rights of holders of Series E
Preferred Stock cannot be made without the affirmative vote or
consent of holders of at least 662/3% of
the outstanding shares of Series E Preferred Stock and shares
of any class or series of preferred stock entitled to vote on such
matters, if any, voting as a single class. |
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Eligibility to
Purchase. Except as noted below, shares of
Series E Preferred Stock are available for purchase in this
offering only through participating broker-dealers and are not
suitable for wrap accounts. See "Plan of Distribution—Compensation
of Dealer Manager and Participating Broker-Dealers." |
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Series M
Preferred Stock offered by us |
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Ranking. The Series M Preferred Stock ranks
(i) senior to all classes or series of our common stock and
future junior securities, (ii) on a parity with each series of
our outstanding preferred stock, including the Series B
Preferred Stock, the Series D Preferred Stock and the
Series E Preferred Stock and with any future parity
securities, and (iii) junior to any future senior securities
(none of which are currently outstanding) and to all our existing
and future indebtedness, with respect to the payment of dividends
and rights upon our liquidation, dissolution or winding up of our
affairs. |
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Stated Value. Each share of Series M Preferred
Stock will have a "Stated Value" of $25.00, as set forth in the
articles supplementary setting forth the rights, preferences and
limitations of the Series M Preferred Stock (the
"Series M Articles Supplementary"). |
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Dividends. Holders of Series M Preferred
Stock are entitled to receive, when and as authorized by our board
of directors and declared by us out of legally available funds,
cumulative cash dividends on each share of Series M Preferred
Stock at an annual rate of 7.0% of the Stated Value (equivalent to
an annual dividend rate of $1.75 per share). Beginning one year
from the "date of original issuance" of each share of Series M
Preferred Stock, and on each one-year anniversary thereafter for
such Series M Preferred Stock, the dividend rate will increase
by 0.10% per annum for such share; provided, however, that the dividend rate
for any share of Series M Preferred Stock shall not exceed
7.5% per annum. We expect to authorize and declare dividends on the
shares of Series M Preferred Stock on a monthly basis, payable
on the 15th day of each month (or if such payment date is not
a business day, on the next succeeding business day), unless our
results of operations, our general financial condition, general
economic conditions, applicable provisions of Maryland law or other
factors make it imprudent to do so. Dividends will be payable in
arrears to holders of record as they appear on our records at the
close of business on the last business day of each month
immediately preceding the applicable dividend payment date. The
timing and amount of such dividends will be determined by our board
of directors, in its sole discretion, and may vary from time to
time. |
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For purposes of the 0.10% per annum dividend rate
increase in this "Dividends" provision, the "date of original
issuance" of the shares of Series M Preferred Stock will mean
the earliest date that any shares of Series M Preferred Stock
were issued to any investor during the calendar quarter in which
the shares were issued. |
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Redemption at
the Option of Holders. Except as noted below, a holder will
have the right to require us to redeem any or all of such holder's
shares of Series M Preferred Stock at a redemption price equal
to 100% of the Stated Value, less a redemption fee, plus an amount
equal to any accrued but unpaid dividends (whether or not
authorized or declared) to, but not including, the date fixed for
redemption. |
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The redemption fee shall be equal to: |
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beginning on the "date of original issuance" of the shares to
be redeemed: 1.5%; and
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•
beginning on the first anniversary from the "date of original
issuance" of the shares to be redeemed: 0%.
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For so long as our common stock is listed on a
national securities exchange, if a holder of shares of
Series M Preferred Stock causes us to redeem such shares of
Series M Preferred Stock, we have the right, in our sole
discretion, to pay the redemption price in cash or in equal value
of shares of our common stock or any combination thereof, based on
the closing price per share of our common stock for the single
trading day prior to the date of redemption. |
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For purposes of this "Redemption at the Option of
Holders" provision, the "date of original issuance" of the shares
to be redeemed will mean the earliest date that any shares of
Series M Preferred Stock were issued to any investor during
the calendar quarter in which the shares to be redeemed were
issued. |
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For purposes of this "Redemption at the Option of
Holders" provision, where the shares of Preferred Stock to be
redeemed are DRP Shares, the "date of original issuance" of such
DRP Shares shall be deemed to be the same as the "date of original
issuance" of the Underlying Shares, and such DRP Shares shall be
subject to the same redemption fee to which the Underlying Shares
would be subject if submitted for redemption hereunder. |
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Our ability to redeem
shares of Series M Preferred Stock in cash may be limited to
the extent that we do not have sufficient funds available, taking
into account such reserves and other considerations as our board of
directors may determine in its sole discretion, to fund such cash
redemption. In addition, aggregate redemptions by holders of
Preferred Stock pursuant to this "Redemption at the Option of
Holders" provision, will be subject to the following redemption
limits: (i) no more than 2% of the outstanding Preferred Stock
will be redeemed per calendar month; (ii) no more than 5% of
the outstanding Preferred Stock will be redeemed per fiscal
quarter; and (iii) no more than 20% of the outstanding
Preferred Stock will be redeemed per fiscal year. See "Description
of the Series M Preferred Stock—Redemption at the Option of
Holders." |
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Optional Redemption Following Death or
Disability of a Holder. Subject to the requirements below, we
will redeem shares of Series M Preferred Stock held by a
natural person upon his or her death or upon suffering a qualifying
disability at a redemption price equal to 100% of the Stated Value,
plus an amount equal to any accrued but unpaid dividends (whether
or not authorized or declared) to, but not including, the date
fixed for redemption. No redemption fees shall apply to such
redemptions. |
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In order to redeem shares on the terms described
above upon the death or qualifying disability of a holder, the
following conditions must be met: |
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•
the deceased or disabled must be the sole holder or the
beneficiary of a trust or an IRA or other retirement or
profit-sharing plan that is a holder or, in the case of shares
owned by spouses who are joint registered holders (or holders by
tenants in the entirety), the deceased or disabled may be one of
the spouses;
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•
in the case of the disability of a holder:
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•
such disability must meet the requirements of
Section 72(m)(7) of the Code (i.e., the individual must
be unable to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment that
can be expected to result in death or to be of a long continued and
indefinite duration);
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•
such determination of disability must be made by the U.S.
governmental agency responsible for reviewing the disability
retirement benefits that the holder could be eligible to
receive;
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•
the condition causing the disability shall have occurred after
the date that the holder became a holder of Series M Preferred
Stock; and
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•
the condition causing the disability shall have occurred before
the holder reached full retirement age, which is the age at which
workers can claim full Social Security retired-worker
benefits;
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•
the redemption request must be received by the company within
12 months after the death or disability of the holder;
and
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•
in the case of the death of a holder, the redemption request
must be made by a recipient of the shares through bequest or
inheritance or, in the case of the death of a beneficiary of a
trust, by the trustee of the trust or, in the case of shares owned
by spouses who are joint registered holders (or holders by tenants
in the entirety), the request may be made by the surviving
spouse.
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For so long as our common stock is listed on a
national securities exchange, we have the right, in our sole
discretion, to pay the redemption price in cash or in equal value
of shares of our common stock or any combination thereof, based on
the closing price per share of our common stock for the single
trading day prior to the date of redemption. Our ability to redeem
shares of Series M Preferred Stock in cash may be limited to
the extent that we do not have sufficient funds available, taking
into account such reserves and other considerations as our board of
directors may determine in its sole discretion, to fund such cash
redemption. Although death and disability redemptions will not be
subject to the 2%/5%/20% limits described above, death and
disability redemptions will count toward such limits when applied
to other redemptions at the option of the holder. See "Description
of the Series M Preferred Stock—Optional Redemption Following
Death or Disability of a Holder." |
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Optional
Redemption by the Company. After three years from the "date of
original issuance" of the shares of Series M Preferred Stock
to be redeemed, we will have the right (but not the obligation) to
redeem such shares of Series M Preferred Stock, in whole or in
part, at a redemption price equal to 100% of the Stated Value, plus
an amount equal to any accrued but unpaid dividends (whether or not
authorized or declared) to, but not including, the date fixed for
redemption. For so long as our common stock is listed on a national
securities exchange, if we choose to redeem any shares of
Series M Preferred Stock, we have the right, in our sole
discretion, to pay the redemption price in cash or in equal value
of shares of our common stock or any combination thereof, based on
the closing price per share of our common stock for the single
trading day prior to the date of redemption. |
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For purposes of this "Optional Redemption by the
Company" provision, the "date of original issuance" of the shares
to be redeemed will mean the earliest date that any shares of
Series M Preferred Stock were issued to any investor during
the calendar quarter in which the shares to be redeemed were
issued. As a result, depending upon how late in a calendar quarter
you purchased your shares, we may have the ability to redeem your
shares even if they have been outstanding for slightly less than
three years. |
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For purposes of this "Optional Redemption by the
Company" provision, where the shares of Series M Preferred
Stock to be redeemed are DRP Shares, the "date of original
issuance" of such DRP Shares shall be deemed to be the same as the
"date of original issuance" of the Underlying Shares, and such DRP
Shares shall become subject to optional redemption by us hereunder
on the same date and terms as the Underlying Shares. |
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Special Optional Redemption by the
Company. Upon
the occurrence of a Change of Control, we will have the right (but
not the obligation) to redeem the outstanding shares of
Series M Preferred Stock, in whole or in part, within
120 days after the first date on which such Change of Control
occurred, in cash at a redemption price equal to 100% of the Stated
Value, plus an amount equal to any accrued but unpaid dividends
(whether or not authorized or declared) to, but not including, the
date fixed for redemption. If, prior to the Series M Change of
Control Conversion Date (as defined below), we have provided or
provide notice of redemption with respect to the Series M
Preferred Stock (whether pursuant to our optional redemption right
or our special optional redemption right), the holders of
Series M Preferred Stock will not have the conversion right
described below. |
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Conversion
Rights. Upon
the occurrence of a Change of Control, each holder of Series M
Preferred Stock will have the right, at such holder's option,
unless, prior to the Series M Change of Control Conversion
Date, we have provided or provide notice of our election to redeem
the Series M Preferred Stock, to convert some or all of the
shares of Series M Preferred Stock held by such holder on the
Series M Change of Control Conversion Date into a number of
shares of our common stock. The number of shares of common stock to
be issued per share of Series M Preferred Stock to be
converted will be equal to the lesser of: |
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the quotient obtained by dividing (i) the sum of the
Stated Value, plus an amount equal to any accrued and unpaid
dividends (whether or not authorized or declared) to, but not
including, the Series M Change of Control Conversion Date
(unless the Series M Change of Control Conversion Date is
after a dividend record date for the Series M Preferred Stock
and prior to the corresponding Series M Preferred Stock
dividend payment date, in which case no additional amount for such
accrued and unpaid dividend will be included in this sum) by
(ii) the Common Stock Price (as defined below); and
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•
5.69476 (the "Series M Share Cap"), subject to certain
adjustments;
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subject, in each case, to provisions for the receipt
of alternative consideration as described in this
prospectus. |
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If, prior to the Series M Change of Control
Conversion Date, we have provided or provide notice of our election
to redeem the Series M Preferred Stock, whether pursuant to
our optional redemption right or our special optional redemption
right, holders of Series M Preferred Stock will not have any
right to convert the Series M Preferred Stock in connection
with the Series M Change of Control Conversion Right and any
shares of Series M Preferred Stock subsequently selected for
redemption that have been tendered for conversion will be redeemed
on the related date of redemption instead of converted on the
Series M Change of Control Conversion Date. |
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For definitions of "Series M Change of Control
Conversion Right" and "Series M Change of Control Conversion
Date" and for a description of the adjustments and provisions for
the receipt of alternative consideration that may be applicable to
the Series M Change of Control Conversion Right, see
"Description of the Series M Preferred Stock—Conversion
Rights." |
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Liquidation. Upon any voluntary or involuntary
liquidation, dissolution or winding up of our affairs, the holders
of the Series M Preferred Stock will have the right to receive
the Stated Value, plus an amount equal to any accrued but unpaid
dividends (whether or not declared) to, but not including, the date
of payment, before any distribution or payment is made to the
holders of our common stock or any other class or series of capital
stock ranking junior to the Series M Preferred Stock. The
rights of the holders of the Series M Preferred Stock to
receive the Stated Value will be subject to the rights of holders
of our debt, holders of any equity securities ranking senior in
liquidation preference to the Series M Preferred Stock (none
of which are currently outstanding) and the proportionate rights of
holders of each other series or class of our equity securities
ranked on a parity with the Series M Preferred Stock,
including the Series B Preferred Stock, the Series D
Preferred Stock and the Series E Preferred Stock. |
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Voting Rights. Subject to the provisions of our
charter regarding the restrictions on transfer and ownership of
stock, each outstanding share of the Series M Preferred Stock
entitles the holder to one vote on all matters submitted to a vote
by the holders of our common stock, including the election of
directors. Except as provided with respect to any other class or
series of stock and the special voting rights described below, the
holders of our common stock, the Series E Preferred Stock and
the Series M Preferred Stock (voting together as a single
class) possess exclusive voting power. There is no cumulative
voting in the election of our board of directors. In an uncontested
election, directors are elected by a majority of the votes cast by
the holders of the outstanding shares of our common stock, the
Series E Preferred Stock and the Series M Preferred Stock
(voting together as a single class), meaning that a director is
elected if the candidate received more votes "for" than the votes
"against," without consideration of abstentions, votes withheld and
broker non-votes. In a contested election (where there are more
candidates for election than seats to be filled), directors are
elected by a plurality of the votes cast. |
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In addition, whenever
dividends on the Series M Preferred Stock are in arrears for
18 or more monthly periods (whether or not consecutive), the
holders of such shares (voting together as a single class with all
other shares of any class or series of shares ranking on a parity
with the Series M Preferred Stock which are entitled to
similar voting rights, if any) will be entitled to vote for the
election of two additional directors to serve on our board of
directors until all dividends in arrears on the outstanding shares
of the Series M Preferred Stock have been paid and dividends
for the current monthly dividend period have been paid in full. In
addition, the issuance of future senior stock or certain charter
amendments, whether by merger, consolidation or other business
combination or otherwise, materially adversely affecting the rights
of holders of Series M Preferred Stock cannot be made without
the affirmative vote or consent of holders of at least
662/3% of the outstanding shares of
Series M Preferred Stock and shares of any class or series of
preferred stock entitled to vote on such matters, if any, voting as
a single class. |
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Eligibility to
Purchase. Except as noted below, shares of
Series M Preferred Stock are available for purchase in this
offering only through certain registered investment advisors and
through participating broker-dealers who have agreed to make
Series M Preferred Stock available to clients who pay the
broker-dealer a fee based on assets under management. See "Plan of
Distribution—Compensation of Dealer Manager and Participating
Broker-Dealers." |
Dividend Reinvestment Plan |
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Our transfer agent, Computershare Trust
Company, N.A., will administer the DRP for holders of the Preferred
Stock, pursuant to which holders may elect to have all, but not
less than all, of their dividends automatically reinvested in
additional shares of the Series E Preferred Stock or
the Series M Preferred Stock, as applicable, at a price of
$25.00 per share. Holders of Series E Preferred Stock and
holders of Series M Preferred Stock will receive Series E
DRP Shares and Series M DRP Shares, respectively. Holders who
do not so elect will receive their dividends in cash. See "Dividend
Reinvestment Plan" in this prospectus for additional information
regarding the DRP. |
Capital stock to be outstanding after this
offering |
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32,885,217 shares of common stock(1) |
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5,031,473 shares of Series B Preferred
Stock |
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1,600,000 shares of Series D Preferred
Stock |
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28,000,000 shares of Series E Preferred
Stock and/or Series M Preferred Stock (assuming the maximum
offering of 20,000,000 shares of Preferred Stock in our primary
offering and 8,000,000 shares of Preferred Stock in the
DRP) |
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Estimated use of
proceeds |
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Assuming we issue
only shares of Series E Preferred Stock and in an amount equal
to the maximum offering amount in our primary offering and no sales
pursuant to the DRP, we estimate that we will receive net proceeds
from the primary offering of approximately $442.5 million
after deducting estimated offering expenses, including selling
commissions and the dealer manager fee, of approximately
$57.5 million. Assuming we issue only shares of Series M
Preferred Stock and in an amount equal to the maximum offering
amount in our primary offering and no sales pursuant to the DRP, we
estimate that we will receive net proceeds from the primary
offering of approximately $477.5 million after deducting
estimated offering expenses, including the dealer manager fee of
approximately $22.5 million. Assuming the sale of the maximum
offering amount in our primary offering consisting of 80% of shares
of Series E Preferred Stock and 20% of shares of Series M
Preferred Stock and assuming no sales pursuant to the DRP, we
estimate that we will receive net proceeds from the primary
offering of approximately $449.5 million after deducting
estimated offering expenses, including selling commissions and the
dealer manager fee of approximately $50.5 million. We are not
making any representations as to the actual outcome of this
offering. As of the date of this prospectus, we have issued no
shares of Series E Preferred Stock or Series M Preferred
Stock in this offering. |
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We intend to use the net proceeds from this offering
for general corporate purposes, including, without limitation,
repayment of debt or other maturing obligations, financing future
hotel-related investments, redemption of outstanding shares of
preferred stock, capital expenditures and working capital. See the
section entitled "Estimated Use of Proceeds" in this
prospectus. |
NYSE |
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Our common stock is listed on the NYSE under the
trading symbol "BHR," the Series B Preferred Stock is listed
on the NYSE under the symbol "BHRPrB" and the Series D
Preferred Stock is listed on the NYSE under the symbol
"BHRPrD." There is no established public
trading market for the offered shares of Preferred Stock, and we do
not expect a market to develop. We do not intend to apply for a
listing of the Preferred Stock on any national securities
exchange. |
- (1)
- This number excludes
(i) shares of common stock that may be issued upon redemption
of the Preferred Stock offered hereby, shares of common stock that
may be issued upon conversion of the Series B Preferred Stock
and shares of common stock that may be issued upon a Change of
Control under the terms of the Preferred Stock issued hereby and
the Series B Preferred Stock and the Series D Preferred
Stock, (ii) 1,600,000 shares of common stock reserved for
future issuance to Ashford Advisor under the Advisor Equity
Incentive Plan, (iii) 823,983 shares of common stock reserved
for issuance to our directors, executive officers and other Ashford
Advisor employees under the 2013 Equity Incentive Plan,
(iv) 3,921,476 shares of common stock reserved for issuance
upon redemption of common units of our Operating Partnership; and
(v) any shares of common stock we may issue to Ashford Advisor
in payment of any portion of the incentive fee.
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Capital Structure
The Preferred
Stock ranks senior to our common stock and on a parity with the
Series B Preferred Stock and the Series D Preferred Stock
with respect to both the payment of dividends and distribution of
amounts upon liquidation, dissolution or winding up of our affairs.
Our board of directors may authorize the issuance and sale of
additional shares of preferred stock from time to time, including
additional shares of Preferred Stock.
Determination of Offering Price
The offering
price of the Preferred Stock and the related selling commissions
and dealer manager fees have been determined pursuant to
discussions between us and our dealer manager, which is an
affiliate of Ashford Advisor, based upon our financial condition
and the conditions of the securities markets at the time of this
offering. Because the offering price is not based upon any
independent valuation, the offering price may not be indicative of
the price that you would receive upon the sale of the Preferred
Stock in a hypothetical liquid market.
However, for
the purpose of allowing the dealer manager and the participating
broker-dealers to comply with FINRA Rule 2310(b)(5) and to
participate in the distribution of this offering of Preferred
Stock, we have agreed that annually we will provide a per share
estimate of the value of the Preferred Stock in the annual report
to stockholders filed pursuant to Section 13(a) of the
Exchange Act.
Covered Security
The term
"covered security" applies to securities exempt from state
registration because of their oversight by federal authorities and
national-level regulatory bodies pursuant to Section 18 of the
Securities Act. Generally, securities listed on national exchanges
are the most common type of covered security exempt from state
registration. A non-traded security also can be a covered security
if it has a seniority greater than or equal to other securities
from the same issuer that are listed on a national exchange, such
as the NYSE. The Preferred Stock is a covered security because it
is senior to our common stock and therefore is exempt from state
registration. See "Risk Factors—Risks Related to This
Offering—Investors in the Preferred Stock will not enjoy the
protections afforded by registration of this offering under state
securities laws."
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RISK FACTORS
An
investment in our securities involves significant risks. Prior to
making a decision about investing in our securities, and in
consultation with your own financial, tax and legal advisors, you
should carefully consider, among other matters, the following risk
factors related to this offering, as well as the other risk factors
incorporated by reference in this prospectus, from our most recent
Annual Report on Form 10-K, subsequent Quarterly Reports on
Form 10-Q and Current Reports on Form 8-K under the
headings "Risk Factors" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations," as applicable,
and other filings we may make from time to time with the
SEC.
Risks Related to This Offering
There is no public market for the Preferred Stock, and we do not
expect one to develop.
There is no
public market for the Preferred Stock offered in this offering, and
we currently have no plan to list these securities on a securities
exchange or to include these shares for quotation on any national
securities market. Additionally, our charter contains restrictions
on the ownership and transfer of our securities, and these
restrictions may inhibit your ability to sell the Preferred Stock
promptly or at all. If you are able to sell the Preferred Stock,
you may only be able to sell them at a substantial discount from
the price you paid. Therefore, you should purchase the Preferred
Stock only as a long-term investment.
The Preferred Stock is subordinated in right of payment to our
existing and future debt, and your interests could be diluted by
the issuance of additional preferred stock, including additional
shares of Preferred Stock, and by other
transactions.
As of
September 30, 2019, our total indebtedness was approximately
$1.1 billion, and we may incur significant additional debt to
finance future acquisition activities. The Preferred Stock is
subordinated in right of payment to all of our existing and future
debt. Our existing secured revolving credit facility restricts, and
our future debt may include restrictions on, our ability to pay
dividends to preferred stockholders in the event of a default under
the debt facilities. Our charter currently authorizes the issuance
of up to 80,000,000 shares of preferred stock in one or more
series. Other than the voting rights as described under
"Description of the Series E Preferred Stock—Voting Rights"
and "Description of the Series M Preferred Stock—Voting
Rights," the terms of the Preferred Stock do not restrict our
ability to authorize or issue shares of a class or series of
preferred stock with rights to distributions or upon liquidation
that are on parity with or senior to the Preferred Stock or to
incur additional indebtedness. The issuance of additional preferred
stock on parity with or senior to the Preferred Stock would dilute
the interests of the holders of the Preferred Stock, and any
issuance of preferred stock senior to the Preferred Stock or of
additional indebtedness could affect our ability to pay dividends
on, redeem or pay the liquidation preference on the Preferred
Stock. Other than the redemption rights afforded to holders of the
Preferred Stock as described under "Description of the
Series E Preferred Stock—Redemption at the Option of Holders"
and "Description of the Series M Preferred Stock—Redemption at
the Option of Holders" and other than the voting rights as
described under "Description of the Series E Preferred
Stock—Voting Rights" and "Description of the Series M
Preferred Stock—Voting Rights" below, none of the provisions
relating to the Preferred Stock relate to or limit our indebtedness
or afford the holders of the Preferred Stock protection in the
event of a highly leveraged or other transaction, including a
merger or the sale, lease or conveyance of all or substantially all
our assets or business, that might adversely affect the holders of
the Preferred Stock.
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The change of control conversion feature may not adequately
compensate you, and the change of control conversion and redemption
features of the Preferred Stock may make it more difficult for a
party to take over our company or discourage a party from taking
over our company.
Upon the
occurrence of a change of control in which our common stock and the
common securities of the acquiring or surviving entity are not
listed on the NYSE, the NYSE American or NASDAQ, holders of the
Preferred Stock will generally have the right to convert some or
all of their Preferred Stock into shares of our common stock, and
under these circumstances we will also have a special optional
redemption right to redeem the Preferred Stock. See "Description of
the Series E Preferred Stock—Conversion Rights" and
"—Special
Optional Redemption by the Company" and "Description of the
Series M Preferred Stock—Conversion Rights" and
"—Special
Optional Redemption by the Company." Upon such a conversion, the
holders will be limited to a maximum number of shares of our common
stock equal to the Series E Share Cap or Series M Share
Cap, as applicable, multiplied by the number of shares of Preferred
Stock converted. If the Common Stock Price is less than $4.39
(which is approximately 50% of the per-share closing sale price of
our common stock reported on the NYSE on January 22, 2020),
subject to adjustment, the holders will receive a maximum of
5.69476 shares of our common stock per share of Preferred Stock,
which may result in a holder receiving value that is less than the
Stated Value of the Preferred Stock and accrued but unpaid
dividends. In addition, those features of the Preferred Stock may
have the effect of inhibiting a third party from making an
acquisition proposal for our company or of delaying, deferring or
preventing a change of control of our company that could provide
the holders of our common stock and Preferred Stock with the
opportunity to realize a premium over the then-current market price
or that stockholders may otherwise believe is in their best
interests.
Dividends on our preferred stock, including the Preferred Stock,
are discretionary. We cannot guarantee that we will be able to pay
dividends in the future or what the actual dividends will be for
any future period.
Future
dividends on our preferred stock, including the Preferred Stock,
will be declared at the discretion of our board of directors and
will depend on, among other things, our results of operations, cash
flow from operations, financial condition and capital requirements,
any debt service requirements and any other factors our board of
directors deems relevant. Accordingly, we cannot guarantee that we
will be able to make cash dividends on our Preferred Stock or what
the actual dividends will be for any future period. However, until
we declare and pay (or set apart for payment) the full cumulative
dividends on the Preferred Stock for all past dividend periods, our
ability to make dividends and other distributions on our common
stock (including redemptions) will be limited by the terms of the
Preferred Stock.
The Preferred Stock has not been rated.
The Preferred
Stock has not been rated by any nationally recognized statistical
rating organization, which may negatively affect its value and your
ability to sell such shares. No assurance can be given, however,
that one or more rating agencies might not independently determine
to issue such a rating or that such a rating, if issued, would not
adversely affect the value of the Preferred Stock. In addition, we
may elect in the future to obtain a rating of the Preferred Stock,
which could adversely impact the value of the Preferred Stock.
Ratings only reflect the views of the rating agency or agencies
issuing the ratings and such ratings could be revised downward or
withdrawn entirely at the discretion of the issuing rating agency
if in its judgment circumstances so warrant. Any such downward
revision or withdrawal of a rating could have an adverse effect on
the value of the Preferred Stock.
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In the event you exercise your option to redeem Preferred Stock,
our ability to redeem such shares of Preferred Stock may be subject
to certain restrictions and limits.
Our ability to
redeem shares of Preferred Stock in cash may be limited to the
extent that we do not have sufficient funds available, taking into
account such reserves and other considerations as our board of
directors may determine in its sole discretion, to fund such cash
redemption. Further, our obligation to redeem any of the shares of
Preferred Stock submitted for redemption in cash may be restricted
by law. In addition, aggregate optional redemptions by holders of
the Preferred Stock will be subject to the following redemption
limits: (i) no more than 2% of the outstanding Preferred Stock
will be redeemed per calendar month; (ii) no more than 5% of
the outstanding Preferred Stock will be redeemed per fiscal
quarter; and (iii) no more than 20% of the outstanding
Preferred Stock will be redeemed per fiscal year. See "Description
of the Series E Preferred Stock—Redemption at the Option of
Holders" and "Description of the Series M Preferred
Stock—Redemption at the Option of Holders" for more
information.
Shares of Preferred Stock may be redeemed for shares of common
stock, which rank junior to the Preferred Stock with respect to
dividends and upon liquidation, dissolution or winding up of our
affairs.
Subject to
certain redemption fees and limits, beginning on the "date of
original issuance" (as defined above), the holders of shares of
Preferred Stock may require us to redeem such shares. For so long
as our common stock is listed on a national securities exchange, we
may opt to pay the redemption price in shares of our common stock.
The rights of the holders of shares of Preferred Stock rank senior
to the rights of the holders of shares of our common stock as to
dividends and payments upon liquidation, dissolution or winding up
of our affairs. Unless full cumulative dividends on our shares of
Preferred Stock for all past dividend periods have been declared
and paid (or set apart for payment), we will not declare or pay
dividends with respect to any shares of our common stock for any
period. Upon liquidation, dissolution or winding up of our affairs,
the holders of shares of the Preferred Stock are entitled to
receive a liquidation preference of the Stated Value, plus all
accrued but unpaid dividends, prior and in preference to any
distribution to the holders of shares of our common stock or any
other class of our equity securities junior to the Preferred
Stock.
If we redeem
your shares of Preferred Stock for common stock, you will be
subject to the risks of ownership of common stock. Please see our
most recent Annual Report on Form 10-K, which is incorporated
herein by reference, for a list of risks associated with our
company, our operations and ownership of our common stock.
Ownership of the Preferred Stock will not give you the rights of
holders of our common stock. Until and unless you receive shares of
our common stock upon redemption, you will have only those rights
applicable to holders of the Preferred Stock.
The Preferred Stock will bear a risk of early redemption by
us.
We will have
the ability to voluntarily redeem the outstanding shares of
Preferred Stock after three years from the "date of original
issuance" (as defined above) of such shares of Preferred Stock.
Beginning at that time, we will have the right to redeem, at our
option, the outstanding shares of Preferred Stock, in whole or in
part, at a redemption price equal to the Stated Value per share,
plus any accrued and unpaid dividends (whether or not authorized or
declared) to, but not including, the date fixed for redemption. It
is likely that we would choose to exercise our optional redemption
right when prevailing interest rates have declined, which would
adversely affect your ability to reinvest your proceeds from the
redemption in a comparable investment with an equal or greater
yield to the yield on the Preferred Stock had the Preferred Stock
not been redeemed. We may elect to exercise our partial redemption
right on multiple occasions.
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The amount of your liquidation preference is fixed and you will
have no right to receive any greater payment regardless of the
circumstances.
The payment due
upon any voluntary or involuntary liquidation, dissolution or
winding up of our affairs is fixed at the Stated Value, plus an
amount equal to any accrued and unpaid dividends (whether or not
authorized or declared) to, but not including, the date of payment.
Upon any liquidation, dissolution or winding up of our affairs, and
after payment of the liquidating distribution has been made in full
to the holders of Preferred Stock, you will have no right or claim
to, or to receive, our remaining assets.
Upon the sale of any hotel properties, holders of Preferred Stock
do not have a priority over holders of our common stock regarding
return of capital.
Holders of the
Preferred Stock do not have a right to receive a return of capital
prior to holders of our common stock upon the sale of any of our
hotel properties. Depending on the price at which any such property
is sold, it is possible that holders of our common stock will
receive a return of capital prior to the holders of the Preferred
Stock being redeemed, provided that full cumulative dividends have
been paid in full to holders of Preferred Stock for all past
dividend periods. Such distributions to holders of our common stock
could increase the risk that we will be unable to return the Stated
Value to holders of the Preferred Stock upon the liquidation,
dissolution or winding up of our affairs.
We established the offering price and other terms for the Preferred
Stock pursuant to discussions between us and our dealer manager; as
a result, the actual value of your investment may be substantially
less than what you pay.
The offering
price of the Preferred Stock and the related selling commissions
and dealer manager fees have been determined pursuant to
discussions between us and our dealer manager, which is an
affiliate of Ashford Advisor, based upon our financial condition
and the perceived demand for non-traded preferred stock issued by
real estate investment trusts and sold primarily through
independent broker-dealers. Because the offering price is not based
upon any independent valuation, such as the amount that a
firm-commitment underwriter is willing to pay for the securities to
be issued, the offering price may not be indicative of the price
that you would receive upon the sale of the Preferred Stock in a
hypothetical liquid market. We have issued two classes of listed
preferred stock that are on parity with the Preferred Stock offered
hereby (but differ from each other and from the Preferred Stock in
a number of ways). The yields paid on such listed preferred stock,
based on trading prices immediately prior to the date of this
prospectus, are higher than the yield offered on the Series E
Preferred Stock and higher than the initial yield on the
Series M Preferred Stock.
We intend to use the net proceeds from this offering to fund future
investments and for other general corporate and working capital
purposes, but this offering is not conditioned upon the closing of
properties in our current pipeline and we will have broad
discretion to determine alternative uses of
proceeds.
As described
under "Estimated Use of Proceeds," we intend to use the net
proceeds from this offering for general corporate purposes,
including, without limitation, repayment of debt or other maturing
obligations, financing future hotel-related investments, redemption
of outstanding shares of preferred stock, capital expenditures and
working capital. This offering will not be conditioned upon the
closing of definitive agreements to acquire or invest in any
properties. We will have broad discretion in the application of the
net proceeds from this offering, and holders of the Preferred Stock
will not have the opportunity as part of their investment decision
to assess whether the net proceeds are being used appropriately.
Because of the number and variability of factors that will
determine our use of the net proceeds from this offering, their
ultimate use may result in investments that are not accretive to
our results from operations.
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Our ability to pay dividends and redeem shares of Preferred Stock
may be limited by the requirements of Maryland
law.
Our ability to
pay dividends and redeem shares of the Preferred Stock is limited
by the laws of Maryland. Under applicable Maryland law, a Maryland
corporation generally may not make a distribution or redeem stock
if, after giving effect to the distribution or redemption, the
corporation would not be able to pay its debts as the debts become
due in the usual course of business, or the corporation's total
assets would be less than the sum of its total liabilities plus,
unless the corporation's charter provides otherwise, the amount
that would be needed, if the corporation were dissolved at the time
of the distribution, to satisfy the preferential rights upon
dissolution of stockholders whose preferential rights are superior
to those receiving the distribution. The terms of the Series B
Preferred Stock require, but the terms of the Series D
Preferred Stock, the Series E Preferred Stock and the
Series M Preferred Stock do not require, that the liquidation
preference of this series be included in this computation.
Accordingly, we generally may not make a distribution on the
Preferred Stock or redeem shares of Preferred Stock if, after
giving effect to the distribution or redemption, we would not be
able to pay our debts as they become due in the usual course of
business or our total assets would be less than the sum of our
total liabilities plus, unless the terms of such class or series
provide otherwise, the amount that would be needed to satisfy the
preferential rights upon dissolution of the holders of shares of
any class or series of preferred stock then outstanding, if any,
with preferences senior to those of the Preferred Stock, plus the
liquidation preference of our Series B Preferred
Stock.
Investors in the Preferred Stock will not enjoy the protections
afforded by registration of this offering under state securities
laws.
The Preferred
Stock is a covered security because it is senior to our listed
common stock and therefore is exempt from state registration. As a
result, investors will not receive the possible protection afforded
by the review of this offering by various state regulators nor the
protections afforded by the substantive requirements of the states
with respect to public offerings of non-traded real estate
investment trusts.
The dealer manager's relationship with us may cause a conflict of
interest and may hinder the dealer manager's performance of its due
diligence obligations.
In connection
with the offering, we will enter into a dealer manager agreement
with Ashford Securities, an affiliate of Ashford Advisor that will
receive selling commissions and a dealer manager fee, all or a
portion of which it may re-allow to other dealers, in connection
with this offering. As dealer manager, Ashford Securities has
certain obligations under the federal securities laws to undertake
a due diligence investigation with respect to the parties involved
in this offering, including Ashford Advisor. Ashford Securities'
affiliation with Ashford Advisor and the contribution agreement
among Ashford Advisor, Ashford Trust and us may cause a conflict of
interest for Ashford Securities in carrying out its due diligence
obligations. The absence of an independent due diligence review by
Ashford Securities may increase the risk and uncertainty you face
as a potential investor in our shares.
Also, we,
Ashford Advisor and Ashford Trust have entered into a contribution
agreement to provide funds to Ashford Advisor to fund the
formation, registration and ongoing funding needs of Ashford
Securities. As a result, Ashford Securities' operation and
management may be influenced or affected by conflicts of interest
arising out of its relationship with us, Ashford Advisor and
Ashford Trust. Finally, the agreements with us and our related
parties, including Ashford Securities, are not arm's-length
agreements and may not be as favorable to investors as if the
parties were operating at arm's-length.
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Your ownership of Preferred Stock is subject to the ownership
limits contained in our charter.
Our charter
contains 9.8% ownership limits that may be waived by our board of
directors. For the purpose of preserving our REIT qualification,
our charter prohibits direct or constructive ownership by any
person of more than:
- •
- 9.8% of the lesser of
the total number or value of the outstanding shares of our common
stock; or
- •
- 9.8% of the lesser of
the total number or value of the outstanding shares of any class or
series of our preferred stock.
These ownership
limits are applied separately to ownership of our common stock, the
Series E Preferred Stock and the Series M Preferred
Stock. Our charter's constructive ownership rules are complex and
may cause stock owned actually or constructively by a group of
related individuals and/or entities to be deemed to be
constructively owned by one individual or entity. As a result, the
acquisition of less than 9.8% of any class of our capital stock by
an individual or entity could nevertheless cause that individual or
entity to own constructively in excess of 9.8% of that class of
capital stock, and thus be subject to our charter's ownership
limit. Any attempt to own or transfer shares of the Series E
Preferred Stock, the Series M Preferred Stock or common stock
in excess of the ownership limit without the consent of our board
of directors will be void and could result in the shares being
automatically transferred to a charitable trust.
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ESTIMATED USE OF PROCEEDS
The tables
below sets forth our estimated net proceeds from this offering,
assuming that (i) we sell the maximum of 20,000,000 shares of
Preferred Stock in our primary offering at the public offering
price of $25.00 per share for maximum gross offering proceeds of
$500 million, and (ii) we do not sell any shares of the
Preferred Stock pursuant to the DRP as follows:
- •
- the first table below
assumes sales in our primary offering are composed solely of shares
of Series E Preferred Stock;
- •
- the second table
below assumes sales in our primary offering are composed solely of
shares of Series M Preferred Stock; and
- •
- the third table below
assumes sales in our primary offering are composed of 80% shares of
Series E Preferred Stock and 20% shares of Series M
Preferred Stock.
The footnotes at the
end of the third table below apply to all three tables. We are not
making any representations as to the actual outcome of this
offering. As of the date of this prospectus, we have issued no
shares of Series E Preferred Stock or Series M Preferred
Stock in this offering. For more information regarding the fees
payable by us in this offering, see "Plan of Distribution" in this
prospectus.
Estimated Net Proceeds of Primary Offering
100% Series E Preferred Stock and 0% Series M Preferred
Stock
|
|
|
|
|
|
|
|
|
|
Maximum Offering |
|
|
|
Amount |
|
Percent |
|
Gross offering proceeds
|
|
$ |
500,000,000 |
|
|
100.0 |
% |
Offering expenses:
|
|
|
|
|
|
|
|
Selling commissions(1)
|
|
$ |
35,000,000 |
|
|
7.0 |
% |
Dealer manager fee(1)
|
|
$ |
15,000,000 |
|
|
3.0 |
% |
Other offering expenses(2)
|
|
$ |
7,500,000 |
|
|
1.5 |
% |
|
|
|
|
|
|
|
|
Estimated net proceeds
|
|
$ |
442,500,000 |
|
|
88.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0% Series E Preferred Stock and 100%
Series M Preferred Stock
|
|
|
|
|
|
|
|
|
|
Maximum Offering |
|
|
|
Amount |
|
Percent |
|
Gross offering proceeds
|
|
$ |
500,000,000 |
|
|
100.0 |
% |
Offering expenses:
|
|
|
|
|
|
|
|
Selling commissions(1)
|
|
$ |
0 |
|
|
0.0 |
% |
Dealer manager fee(1)
|
|
$ |
15,000,000 |
|
|
3.0 |
% |
Other offering expenses(2)
|
|
$ |
7,500,000 |
|
|
1.5 |
% |
|
|
|
|
|
|
|
|
Estimated net proceeds
|
|
$ |
477,500,000 |
|
|
95.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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80% Series E Preferred Stock and 20%
Series M Preferred Stock
|
|
|
|
|
|
|
|
|
|
Maximum Offering |
|
|
|
Amount |
|
Percent |
|
Gross offering proceeds
|
|
$ |
500,000,000 |
|
|
100.0 |
% |
Offering expenses:
|
|
|
|
|
|
|
|
Selling commissions(1)
|
|
$ |
28,000,000 |
|
|
5.6 |
% |
Dealer manager fee(1)
|
|
$ |
15,000,000 |
|
|
3.0 |
% |
Other offering expenses(2)
|
|
$ |
7,500,000 |
|
|
1.5 |
% |
|
|
|
|
|
|
|
|
Estimated net proceeds
|
|
$ |
449,500,000 |
|
|
89.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- Assumes selling
commissions and the dealer manager fee in respect of the
Series E Preferred Stock will equal 7.0% and 3.0%,
respectively, of aggregate gross proceeds from the Series E
Preferred Stock in our primary offering. No selling commissions are
paid in respect of the Series M Preferred Stock. Assumes the
dealer manager fee in respect of the Series M Preferred Stock
will equal 3.0% of aggregate gross proceeds from the Series M
Preferred Stock in our primary offering. All or a portion of
selling commissions and/or of the dealer manager fee may be
reallowed to participating broker-dealers. See the "Plan of
Distribution" section of this prospectus for a description of these
commissions and fees. We or our affiliates also may provide
permissible forms of non-cash compensation to registered
representatives of our dealer manager and the participating
broker-dealers, including gifts. In no event shall such gifts
exceed an aggregate value of$100 per annum per registered
representative or be pre-conditioned on achievement of a sales
target. The value of such items will be considered underwriting
compensation in connection with this offering. The combined selling
commissions, dealer manager fee, investment banking fee and such
non-cash compensation for this offering will not exceed FINRA's
10.0% cap.
- (2)
- Includes all expenses
(other than selling commissions and the dealer manager fee) to be
paid by us or on our behalf in connection with the qualification
and registration of this offering and the marketing and
distribution of the Preferred Stock, including, without limitation,
expenses for printing and amending registration statements or
supplementing prospectuses, mailing and distributing costs, all
advertising and marketing expenses (including costs incurred for
travel, meals and lodging for employees to attend retail seminars
hosted by broker-dealers or bona fide training or educational
meetings hosted by us), charges of transfer agents, registrars and
experts, and fees, expenses and taxes related to the filing,
registration and qualification, as necessary, of the sale of the
Preferred Stock under federal and state laws, including taxes and
fees and accountants' and attorneys' fees. Subject to the cap on
issuer expenses described below, we also will reimburse our dealer
manager for reimbursements it may make to participating
broker-dealers for bona fide due diligence expenses presented on
detailed and itemized invoices. We do not expect such offering
expenses to exceed 1.5% of gross offering proceeds, though the
amount of such expenses may exceed the expected amount, as long as
such expenses would not cause the cumulative selling commissions,
dealer manager fee and issuer organization and offering expenses
paid by us to exceed 15% of gross offering proceeds. All
organization and offering expenses, including selling commissions
and the dealer manager fee, are not expected to exceed 11.5% of the
aggregate gross proceeds of this offering, though the amount of
such expenses may exceed the expected amount.
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We will
contribute the net proceeds from the sale of the Preferred Stock
from this offering to our Operating Partnership in exchange for
preferred partnership units in our Operating Partnership having the
same rights and preferences as the Series E Preferred Stock
(the "Series E Preferred Units") and the Series M
Preferred Stock (the "Series M Preferred Units"), as
applicable.
We intend to
use the net proceeds from this offering for general corporate
purposes, including, without limitation, repayment of debt or other
maturing obligations, financing future hotel-related investments,
redemption of outstanding shares of preferred stock, capital
expenditures and working capital. Pending any such uses, we may
invest the net proceeds from the sale of any securities offered
pursuant to this prospectus in short-term investments. These
initial investments are expected to provide a lower net return than
we will seek to achieve from our target assets.
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DESCRIPTION OF THE SERIES E PREFERRED
STOCK
Our
board of directors has created out of the authorized and unissued
shares of our preferred stock, a series of redeemable preferred
stock, designated as the Series E Preferred Stock. The
following is a brief description of the terms of the Series E
Preferred Stock. The description of the Series E Preferred
Stock contained herein does not purport to be complete and is
qualified in its entirety by reference to the Series E
Articles Supplementary, which have been filed with the SEC and are
incorporated by reference as an exhibit to the registration
statement, of which this prospectus is a part.
General
Our board of
directors has created out of the authorized and unissued shares of
our preferred stock a series of redeemable preferred stock
designated as the "Series E Redeemable Preferred Stock." Up to
20,000,000 shares of the Series E Preferred Stock or the
Series M Preferred Stock are being offered in our primary
offering pursuant to this prospectus and up to 8,000,000 shares of
the Series E Preferred Stock or Series M Preferred Stock
are being offered pursuant to the DRP.
Ranking
The
Series E Preferred Stock ranks, with respect to the payment of
dividends and rights upon our liquidation, dissolution or winding
up of our affairs:
- •
- prior or senior to
all classes or series of our common stock and any other class or
series of equity securities, if the holders of Series E
Preferred Stock are entitled to the receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up
in preference or priority to the holders of shares of such class or
series;
- •
- on a parity with the
Series B Preferred Stock, the Series D Preferred Stock
and the Series M Preferred Stock, and any other class or
series of our equity securities issued in the future if, pursuant
to the specific terms of such class or series of equity securities,
the holders of such class or series of equity securities and the
Series E Preferred Stock are entitled to the receipt of
dividends and of amounts distributable upon liquidation,
dissolution or winding up in proportion to their respective amounts
of accrued and unpaid dividends per share or liquidation
preferences, without preference or priority one over the
other;
- •
- junior to any class
or series of our equity securities if, pursuant to the specific
terms of such class or series, the holders of such class or series
are entitled to the receipt of dividends or amounts distributable
upon liquidation, dissolution or winding up in preference or
priority to the holders of the Series E Preferred Stock (none
of which are currently outstanding); and
- •
- junior to all our
existing and future debt indebtedness.
The term "equity
securities" does not include convertible debt securities, which
will rank senior to the Series E Preferred Stock prior to
conversion.
We will
contribute the net proceeds from the sale of the Series E
Preferred Stock from this offering to our Operating Partnership in
exchange for the Series E Preferred Units having the same
rights and preferences as the Series E Preferred Stock. Our
Operating Partnership will be required to make all required
dividend payments on the Series E Preferred Units prior to any
distribution of cash or assets to the holders of common partnership
units or to the holders of any other equity interest of our
Operating Partnership, except for any other series of preferred
units ranking on a parity with the Series E Preferred Units as
to distributions and liquidation, and any preferred units ranking
senior to the Series E Preferred Units as to distributions and
liquidations that we may issue, and except for dividends required
to enable us to maintain our qualification as a REIT.
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Stated Value
Each share of
Series E Preferred Stock will have a "Stated Value" of $25.00
as set forth in the Series E Articles
Supplementary.
Dividends
Holders of
Series E Preferred Stock are entitled to receive, when and as
authorized by our board of directors and declared by us out of
legally available funds, cumulative cash dividends on each share of
Series E Preferred Stock at an annual rate of 6.5% of the
Stated Value (equivalent of an annual dividend rate of $1.625 per
share). We expect to authorize and declare dividends on the shares
of Series E Preferred Stock on a monthly basis, payable on the
15th day of each month (or if such payment date is not a
business day, on the next succeeding business day), unless our
results of operations, our general financial condition, general
economic conditions, applicable provisions of Maryland law or other
factors make it imprudent to do so. Dividends will be payable in
arrears to holders of record as they appear on our records at the
close of business on the last business day of each month
immediately preceding the applicable dividend payment date.
Dividends payable on the Series E Preferred Stock for any
dividend period (as defined below) (including any dividend period
during which any shares of Series E Preferred Stock shall be
redeemed) will be computed on the basis of twelve 30-day months and
a 360-day year.
Dividends
payable on each share of Series E Preferred Stock will begin
accruing on, and will be cumulative from, the first day of the
dividend period during which such share of Series E Preferred
Stock was originally issued. Each subsequent dividend will begin
accruing on, and will be cumulative from, the end of the most
recent dividend period for which a dividend has been paid on each
such share of Series E Preferred Stock. The term "dividend
period" means the respective periods commencing on, and including,
the first day of each month of each year and ending on, and
including, the day preceding the first day of the next succeeding
dividend period (other than the dividend period during which any
shares of Series E Preferred Stock shall be redeemed, which
shall end on, and include, the day preceding the redemption date
with respect to the shares of Series E Preferred Stock being
redeemed). The timing and amount of such dividends will be
determined by our board of directors, in its sole discretion, and
may vary from time to time.
Holders of our
shares of Series E Preferred Stock are not entitled to any
dividend in excess of full cumulative dividends on our shares of
Series E Preferred Stock. Except as set forth in the
Series E Articles Supplementary, unless full cumulative
dividends on our shares of Series E Preferred Stock for all
past dividend periods have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof
is set apart for payment, we will not:
- •
- declare and pay or
declare and set apart for payment dividends and we will not declare
and make any other distribution of cash or other property (other
than dividends or distributions paid in shares of stock ranking
junior to the Series E Preferred Stock as to the dividend
rights or rights upon our liquidation, dissolution or winding up of
our affairs, and options, warrants or rights to purchase such
shares), directly or indirectly, on or with respect to any shares
of our common stock or any class or series of our stock ranking
junior to or on parity with the Series E Preferred Stock as to
dividend rights or rights upon our liquidation, dissolution or
winding up of our affairs for any period; or
- •
- except by conversion
into or exchange for shares of stock ranking junior to the
Series E Preferred Stock as to dividend rights or rights upon
our liquidation, dissolution or winding up of our affairs, or
options, warrants or rights to purchase such shares, redeem,
purchase or otherwise acquire (other than a redemption, purchase or
other acquisition of common stock made for purposes of an employee
incentive or benefit plan) for any consideration, or pay or make
available any monies for a sinking fund for the redemption of, any
common stock or any class or
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series of our stock
ranking junior to or on parity with the Series E Preferred
Stock as to dividend rights or rights upon our liquidation,
dissolution or winding up of our affairs.
To the extent
necessary to preserve our status as a REIT, the foregoing sentence,
however, will not prohibit declaring or paying or setting apart for
payment any dividend or other distribution on the common
stock.
Redemption at the Option of Holders
Except as noted
below, a holder will have the right to require us to redeem any or
all of such holder's shares of Series E Preferred Stock at a
redemption price equal to 100% of the Stated Value, less a
redemption fee, plus an amount equal to any accrued but unpaid
dividends (whether or not authorized or declared) to, but not
including, the date fixed for redemption.
The redemption
fee shall be equal to:
- •
- beginning on the
"date of original issuance" of the shares to be redeemed:
8%;
- •
- beginning on the
second anniversary from the "date of original issuance" of the
shares to be redeemed: 5%; and
- •
- beginning on the
third anniversary from the "date of original issuance" of the
shares to be redeemed: 0%.
For so long as
our common stock is listed on a national securities exchange, if a
holder of shares of Series E Preferred Stock causes us to
redeem such shares of Series E Preferred Stock, we have the
right, in our sole discretion, to pay the redemption price in cash
or in equal value of shares of our common stock or any combination
thereof, based on the closing price per share of our common stock
for the single trading day prior to the date of
redemption.
For purposes of
this "Redemption at the Option of Holders" provision, the "date of
original issuance" of the shares to be redeemed will mean the
earliest date that any shares of Series E Preferred Stock were
issued to any investor during the calendar quarter in which the
shares to be redeemed were issued.
For purposes of
this "Redemption at the Option of Holders" provision, where the
shares of Preferred Stock to be redeemed are DRP shares, the "date
of original issuance" of such DRP Shares shall be deemed to be the
same as the "date of original issuance" of the Underlying Shares,
and such DRP Shares shall be subject to the same redemption fee to
which the Underlying Shares would be subject if submitted for
redemption hereunder.
Our ability to
redeem shares of Series E Preferred Stock in cash may be
limited to the extent that we do not have sufficient funds
available, taking into account such reserves and other
considerations as our board of directors may determine in its sole
discretion, to fund such cash redemption. Further, our obligation
to redeem any of the shares of Series E Preferred Stock
submitted for redemption in cash may be restricted by
law.
In addition,
aggregate optional redemptions by holders of the Preferred Stock
will be subject to the following redemption limits: (i) no
more than 2% of the outstanding Preferred Stock will be redeemed
per calendar month; (ii) no more than 5% of the outstanding
Preferred Stock will be redeemed per fiscal quarter; and
(iii) no more than 20% of the outstanding Preferred Stock will
be redeemed per fiscal year.
Redemptions at
the option of the company (described above) will not count toward
the 2%/5%/20% limits applied to optional redemptions by holders of
the Preferred Stock. Optional redemptions following death or
disability of a holder (described below) will count toward the
2%/5%/20% limits but will not be subject to such limits.
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If, after
applying these redemption limits, a holder would own less than one
share of Series E Preferred Stock, all of such holder's shares
of Series E Preferred Stock will be redeemed. Otherwise, all
redemption amounts will be rounded down such that after giving
effect to any redemption, no holder is left owning a fractional
share. For example, if after applying the redemption limits, an
investor would own 2.5 shares, we will redeem 0.5 fewer shares from
such holder so that the holder is left owning three shares. If,
after applying these redemption limits, the number of shares of
Series E Preferred Stock to be redeemed is less than the
number of shares of Series E Preferred Stock submitted for
redemption by a holder, the excess shares of Series E
Preferred Stock will remain subject to redemption in future periods
until the earlier of (i) all shares of Series E Preferred
Stock submitted by such holder for redemption have been redeemed,
or (ii) such holder delivers to us a written notice of
withdrawal stating the number of withdrawn shares of Series E
Preferred Stock and the number of shares of Series E Preferred
Stock, if any, which remain subject to redemption.
Optional Redemption Following Death or Disability of a
Holder
Subject to the
requirements below, we will redeem shares of Series E
Preferred Stock held by a natural person upon his or her death or
upon suffering a qualifying disability at a redemption price equal
to 100% of the Stated Value, plus an amount equal to any accrued
but unpaid dividends (whether or not authorized or declared) to,
but not including, the date fixed for redemption. No redemption
fees shall apply to such redemptions.
In order to
redeem shares on the terms described above upon the death or
qualifying disability of a holder, the following conditions must be
met:
- •
- the deceased or
disabled must be the sole holder or the beneficiary of a trust or
an IRA or other retirement or profit-sharing plan that is a holder
or, in the case of shares owned by spouses who are joint registered
holders (or holders by tenants in the entirety), the deceased or
disabled may be one of the spouses;
- •
- in the case of the
disability of a holder:
- •
- such disability must
meet the requirements of Section 72(m)(7) of the Code
(i.e., the individual must be unable to engage in any
substantial gainful activity by reason of any medically
determinable physical or mental impairment that can be expected to
result in death or to be of a long continued and indefinite
duration);
- •
- such determination of
disability must be made by the U.S. governmental agency responsible
for reviewing the disability retirement benefits that the holder
could be eligible to receive;
- •
- the condition causing
the disability shall have occurred after the date that the holder
became a holder of Series M Preferred Stock; and
- •
- the condition causing
the disability shall have occurred before the holder reached full
retirement age, which is the age at which workers can claim full
Social Security retired-worker benefits;
- •
- the redemption
request must be received by the company within 12 months after
the death or disability of the holder; and
- •
- in the case of the
death of a holder, the redemption request must be made by a
recipient of the shares through bequest or inheritance or, in the
case of the death of a beneficiary of a trust, by the trustee of
the trust or, in the case of shares owned by spouses who are joint
registered holders (or holders by tenants in the entirety), the
request may be made by the surviving spouse.
For so long as
our common stock is listed on a national securities exchange, we
have the right, in our sole discretion, to pay the redemption price
in cash or in equal value of shares of our common
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stock or any
combination thereof, based on the closing price per share of our
common stock for the single trading day prior to the date of
redemption. Our ability to redeem shares of Series E Preferred
Stock in cash may be limited to the extent that we do not have
sufficient funds available, taking into account such reserves and
other considerations as our board of directors may determine in its
sole discretion, to fund such cash redemption. Further, our
obligation to redeem any of the shares of Series E Preferred
Stock submitted for redemption in cash may be restricted by law.
Although death and disability redemptions will not be subject to
the 2%/5%/20% limits described above, death and disability
redemptions will count toward such limits when applied to other
redemptions at the option of the holder.
Optional Redemption by the Company
After three
years from the "date of original issuance" of the shares of
Series E Preferred Stock to be redeemed, we will have the
right (but not the obligation) to redeem such shares of
Series E Preferred Stock, in whole or in part, at a redemption
price equal to 100% of the Stated Value, plus an amount equal to
any accrued but unpaid dividends (whether or not authorized or
declared) to, but not including, the date fixed for
redemption.
For so long as
our common stock is listed on a national securities exchange, if we
choose to redeem any shares of Series E Preferred Stock, we
have the right, in our sole discretion, to pay the redemption price
in cash or in equal value of our common stock, based on the closing
price per share of our common stock for the single trading day
prior to the date of redemption.
For purposes of
this "Optional Redemption by the Company" provision, the "date of
original issuance" of the shares to be redeemed will mean the
earliest date that any shares of Series E Preferred Stock were
issued to any investor during the calendar quarter in which the
shares to be redeemed were issued. As a result, depending upon how
late in a calendar quarter you purchased your shares, we may have
the ability to redeem your shares even if they have been
outstanding for slightly less than three years.
For purposes of
this "Optional Redemption by the Company" provision, where the
shares of Series E Preferred Stock to be redeemed are DRP
Shares, the "date of original issuance" of such DRP Shares shall be
deemed to be the same as the "date of original issuance" of the
Underlying Shares, and such DRP Shares shall become subject to
optional redemption by us hereunder on the same date and terms as
the Underlying Shares.
We may exercise
our redemption right by delivering a written notice thereof to all
the holders of the shares of Series E Preferred Stock to be
redeemed. A notice of redemption shall be irrevocable. Each such
notice will state the date on which the redemption by us shall
occur, which date will be not less than 30 days nor more than
60 days following the notice date.
Special Optional Redemption by the Company
Upon the
occurrence of a Change of Control, we will have the right (but not
the obligation) to redeem the outstanding shares of Series E
Preferred Stock, in whole or in part, within 120 days after
the first date on which such Change of Control occurred, in cash at
a redemption price equal to 100% of the Stated Value, plus an
amount equal to any accrued but unpaid dividends (whether or not
authorized or declared) to, but not including, the date fixed for
redemption. If, prior to the Series E Change of Control
Conversion Date, we have provided or provide notice of redemption
with respect to the Series E Preferred Stock (whether pursuant
to our optional redemption right or our special optional redemption
right), the holders of Series E Preferred Stock will not have
the conversion right described below under "—Conversion
Rights."
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We will mail to
you, if you are a record holder of the Series E Preferred
Stock, a notice of redemption no fewer than 30 days nor more
than 60 days before the redemption date. We will send the
notice to your address shown on our share transfer books. A failure
to give notice of redemption or any defect in the notice or in its
mailing will not affect the validity of the redemption of any
Series E Preferred Stock except as to the holder to whom
notice was defective. Each notice will state the
following:
- •
- the redemption
date;
- •
- the redemption
price;
- •
- the number of shares
of Series E Preferred Stock to be redeemed;
- •
- that the
Series E Preferred Stock is being redeemed pursuant to our
special optional redemption right in connection with the occurrence
of a Change of Control and a brief description of the transaction
or transactions constituting such Change of Control;
- •
- that the holders of
the Series E Preferred Stock to which the notice relates will
not be able to tender such Series E Preferred Stock for
redemption in connection with the Change of Control and each share
of Series E Preferred Stock tendered for redemption that is
selected, prior to the Series E Change of Control Conversion
Date, for redemption will be redeemed on the related date of
redemption instead of redeemed on the Series E Change of
Control Conversion Date; and
- •
- that dividends on the
Series E Preferred Stock to be redeemed will cease to accrue
on the redemption date.
If we redeem
fewer than all of the outstanding shares of Series E Preferred
Stock, the notice of redemption mailed to each stockholder will
also specify the number of shares of Series E Preferred Stock
that we will redeem from each stockholder.
If we have
given a notice of redemption and have set aside sufficient funds
for the redemption in trust for the benefit of the holders of the
Series E Preferred Stock called for redemption, then from and
after the redemption date, those shares of Series E Preferred
Stock will be treated as no longer being outstanding, no further
dividends will accrue and all other rights of the holders of those
shares of Series E Preferred Stock will terminate. The holders
of those shares of Series E Preferred Stock will retain their
right to receive the redemption price for their shares and any
accrued and unpaid dividends through, but not including, the
redemption date.
If a redemption
date falls after a dividend record date and on or prior to the
corresponding dividend payment date, each holder of Series E
Preferred Stock at the close of business on a dividend record date
will be entitled to receive the dividend payable on such shares on
the corresponding payment date notwithstanding the redemption of
such shares of Series E Preferred Stock between such record
date and the corresponding payment date and each holder of
Series E Preferred Stock that surrenders such shares on such
redemption date will be entitled to the dividends accruing after
the end of the applicable dividend period up to, but excluding, the
redemption date. Except as provided above, we will make no payment
or allowance for unpaid dividends, whether or not in arrears, on
Series E Preferred Stock for which a notice of redemption has
been given.
A "Change of
Control" is when, after the original issuance of the Series E
Preferred Stock, the following have occurred and are
continuing:
- •
- the acquisition by
any person, including any syndicate or group deemed to be a
"person" under Section 13(d)(3) of the Exchange Act, of
beneficial ownership, directly or indirectly, through a purchase,
merger or other acquisition transaction or series of purchases,
mergers or other acquisition transactions of shares of our company
entitling that person to exercise more than
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50% of the total
voting power of all shares of our company entitled to vote
generally in elections of directors (except that such person will
be deemed to have beneficial ownership of all securities that such
person has the right to acquire, whether such right is currently
exercisable or is exercisable only upon the occurrence of a
subsequent condition); and
- •
- following the closing
of any transaction referred to in the bullet point above, neither
we nor the acquiring or surviving entity has a class of common
securities (or ADRs representing such securities) listed on the
NYSE, the NYSE American or NASDAQ or listed or quoted on an
exchange or quotation system that is a successor to the NYSE, the
NYSE American or NASDAQ.
Conversion Rights
Upon the
occurrence of a Change of Control, each holder of Series E
Preferred Stock will have the right at such holder's option,
unless, prior to the Series E Change of Control Conversion
Date, we have provided or provide notice of our election to redeem
the Series E Preferred Stock as described under "—Optional
Redemption by the Company" or "—Special Optional Redemption by the
Company," to convert some or all of the Series E Preferred
Stock held by such holder (the "Series E Change of Control
Conversion Right") on the Series E Change of Control
Conversion Date into a number of shares of our common stock. The
number of shares of common stock to be issued per share of
Series E Preferred Stock to be converted (the "Series E
Common Stock Conversion Consideration") will be equal to the lesser
of:
- •
- the quotient obtained
by dividing (i) the sum of the Stated Value, plus an amount
equal to any accrued and unpaid dividends (whether or not
authorized or declared) to, but not including, the Series E
Change of Control Conversion Date (unless the Series E Change
of Control Conversion Date is after a dividend record date for the
Series E Preferred Stock and prior to the corresponding
Series E Preferred Stock dividend payment date, in which case
no additional amount for such accrued and unpaid dividend will be
included in this sum) by (ii) the Common Stock Price;
and
- •
- the Series E
Share Cap.
The
Series E Share Cap is subject to pro rata adjustments for any
share splits (including those effected pursuant to a distribution
of our common stock), subdivisions or combinations (in each case, a
"Share Split") with respect to our common stock as follows: the
adjusted Series E Share Cap as the result of a Share Split
will be the number of shares of our common stock that is equivalent
to the product obtained by multiplying (i) the Series E
Share Cap in effect immediately prior to such Share Split by
(ii) a fraction, the numerator of which is the number of
shares of our common stock outstanding after giving effect to such
Share Split and the denominator of which is the number of shares of
our common stock outstanding immediately prior to such Share
Split.
For the
avoidance of doubt, subject to the immediately succeeding sentence,
the aggregate number of shares of our common stock (or equivalent
Series E Alternative Conversion Consideration (as defined
below), as applicable) issuable in connection with the exercise of
the Series E Change of Control Conversion Right (or equivalent
Series E Alternative Conversion Consideration, as applicable)
will not exceed 159,453,303 shares in total (or equivalent
Series E Alternative Conversion Consideration, as applicable)
(the "Series E Exchange Cap"). The Series E Exchange Cap
is subject to pro rata adjustments for any Share Splits on the same
basis as the corresponding adjustment to the Series E Share
Cap.
In the case of
a Change of Control pursuant to which our common stock will be
converted into cash, securities or other property or assets
(including any combination thereof) (the "Alternative Form
Consideration"), a holder of Series E Preferred Stock will
receive upon conversion of such Series E
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Preferred Stock the
kind and amount of Alternative Form Consideration which such holder
of Series E Preferred Stock would have owned or been entitled
to receive upon the Change of Control had such holder of
Series E Preferred Stock held a number of shares of our common
stock equal to the Series E Common Stock Conversion
Consideration immediately prior to the effective time of the Change
of Control (the "Series E Alternative Conversion
Consideration," and the Series E Common Stock Conversion
Consideration or the Series E Alternative Conversion
Consideration, as may be applicable to a Change of Control, is
referred to as the "Series E Conversion
Consideration").
If the holders
of our common stock have the opportunity to elect the form of
consideration to be received in the Change of Control, the
consideration that the holders of the Series E Preferred Stock
will receive will be the form and proportion of the aggregate
consideration elected by the holders of our common stock who
participate in the determination (based on the weighted average of
elections) and will be subject to any limitations to which all
holders of our common stock are subject, including, without
limitation, pro rata reductions applicable to any portion of the
consideration payable in the Change of Control.
We will not
issue fractional shares of common stock upon the conversion of the
Series E Preferred Stock. In lieu of fractional shares,
holders will be entitled to receive the cash value of such
fractional shares based on the Common Stock Price.
Within
15 days following the occurrence of a Change of Control, we
will provide to holders of Series E Preferred Stock a notice
of the occurrence of the Change of Control that describes the
resulting Series E Change of Control Conversion Right. This
notice will state the following:
- •
- the events
constituting the Change of Control;
- •
- the date of the
Change of Control;
- •
- the last date on
which the holders of Series E Preferred Stock may exercise
their Series E Change of Control Conversion Right;
- •
- the method and period
for calculating the Common Stock Price;
- •
- the Series E
Change of Control Conversion Date;
- •
- that if, prior to the
Series E Change of Control Conversion Date, we have provided
or provide notice of our election to redeem all or any portion of
the Series E Preferred Stock, holders will not be able to
convert Series E Preferred Stock and such shares will be
redeemed on the related redemption date, even if such shares have
already been tendered for conversion pursuant to the Series E
Change of Control Conversion Right;
- •
- if applicable, the
type and amount of Series E Alternative Conversion
Consideration entitled to be received per share of Series E
Preferred Stock;
- •
- the name and address
of the paying agent and the conversion agent; and
- •
- the procedures that
the holders of Series E Preferred Stock must follow to
exercise the Series E Change of Control Conversion
Right.
We will issue a
press release for publication on the Dow Jones &
Company, Inc., Business Wire, PR Newswire or Bloomberg
Business News (or, if these organizations are not in existence at
the time of issuance of the press release, such other news or press
organization as is reasonably calculated to broadly disseminate the
relevant information to the public), or post a notice on our
website, in any event prior to the opening of business on the first
business day following any date on which we provide the notice
described above to the holders of Series E Preferred
Stock.
To exercise the
Series E Change of Control Conversion Right, the holders of
Series E Preferred Stock will be required to deliver, on or
before the close of business on the Series E Change of
Control
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Conversion Date, the
certificates evidencing the Series E Preferred Stock, to the
extent such shares are certificated, to be converted, duly endorsed
for transfer, together with a written conversion notice completed,
to our transfer agent. The conversion notice must state:
- •
- the relevant
Series E Change of Control Conversion Date;
- •
- the number of shares
of Series E Preferred Stock to be converted; and
- •
- that the
Series E Preferred Stock is to be converted pursuant to the
applicable provisions of the Series E Preferred
Stock.
The
"Series E Change of Control Conversion Date" is the date the
Series E Preferred Stock is to be converted, which will be a
business day that is no fewer than 20 days nor more than
35 days after the date on which we provide the notice
described above to the holders of Series E Preferred
Stock.
"Common Stock
Price" means: (i) the amount of cash consideration per share
of common stock, if the consideration to be received in the Change
of Control by the holders of our common stock is solely cash; or
(ii) the average of the closing prices for our common stock on
the NYSE for the 10 consecutive trading days immediately
preceding, but not including, the effective date of the Change of
Control or, if our common stock is no longer listed or quoted on an
exchange, the fair market value of our common stock, if the
consideration to be received in the Change of Control by the
holders of our common stock is other than solely cash.
Holders of
Series E Preferred Stock may withdraw any notice of exercise
of a Series E Change of Control Conversion Right (in whole or
in part) by a written notice of withdrawal delivered to our
transfer agent prior to the close of business on the business day
prior to the Series E Change of Control Conversion Date. The
notice of withdrawal must state:
- •
- the number of
withdrawn shares of Series E Preferred Stock;
- •
- if certificated
Series E Preferred Stock has been issued, the certificate
numbers of the withdrawn shares of Series E Preferred Stock;
and
- •
- the number of shares
of Series E Preferred Stock, if any, which remain subject to
the conversion notice.
Notwithstanding
the foregoing, if the Series E Preferred Stock is held in
global form, the conversion notice and/or the notice of withdrawal,
as applicable, must comply with applicable procedures of
DTC.
Series E
Preferred Stock as to which the Series E Change of Control
Conversion Right has been properly exercised and for which the
conversion notice has not been properly withdrawn will be converted
into the applicable Series E Conversion Consideration in
accordance with the Series E Change of Control Conversion
Right on the Series E Change of Control Conversion Date,
unless prior to the Series E Change of Control Conversion Date
we have provided or provide notice of our election to redeem such
Series E Preferred Stock, whether pursuant to our optional
redemption right or our special optional redemption right. If we
elect to redeem Series E Preferred Stock that would otherwise
be converted into the applicable Series E Conversion
Consideration on a Series E Change of Control Conversion Date,
such Series E Preferred Stock will not be so converted and the
holders of such shares will be entitled to receive on the
applicable redemption date the Stated Value, plus an amount equal
to any accrued but unpaid dividends (whether or not authorized or
declared) to, but not including, the date fixed for redemption, in
accordance with our optional redemption right or special optional
redemption right. See "—Optional Redemption by the Company" and
"—Special Optional Redemption by the Company" above.
We will deliver
amounts owing upon conversion no later than the third business day
following the Series E Change of Control Conversion
Date.
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In connection
with the exercise of any Series E Change of Control Conversion
Right, we will comply with all federal and state securities laws
and stock exchange rules in connection with any conversion of
Series E Preferred Stock into shares of our common stock.
Notwithstanding any other provision of the Series E Preferred
Stock, no holder of Series E Preferred Stock will be entitled
to convert such Series E Preferred Stock for shares of our
common stock to the extent that receipt of such common stock would
cause such holder (or any other person) to exceed the share
ownership limits contained in our charter and the Series E
Articles Supplementary, unless we provide an exemption from this
limitation for such holder. See "—Restrictions on Ownership"
below.
The Change of
Control conversion and redemption features of the Series E
Preferred Stock may make it more difficult for a party to take over
our company or discourage a party from taking over our company. See
"Risk Factors—Risks Related to This Offering—The change of control
conversion feature may not adequately compensate you, and the
change of control conversion and redemption features of the
Preferred Stock may make it more difficult for a party to take over
our company or discourage a party from taking over our
company."
Liquidation Preference
Upon any
voluntary or involuntary liquidation, dissolution or winding up of
our affairs, before any distribution or payment is made to the
holders of our common stock or any other class or series of capital
stock ranking junior to the Series E Preferred Stock, the
holders of the Series E Preferred Stock will have the right to
receive, out of our assets legally available for distribution to
our stockholders, after payment or provision for our debts and
other liabilities, a liquidation preference equal to the Stated
Value, plus an amount equal to any accrued but unpaid dividends
(whether or not declared) to, but not including, the date of
payment. The rights of the holders of the Series E Preferred
Stock to receive the Stated Value will be subject to the rights of
holders of our debt, holders of any equity securities ranking
senior in liquidation preference to the Series E Preferred
Stock (none of which are currently outstanding) and the
proportionate rights of holders of each other series or class of
our equity securities ranked on a parity with the Series E
Preferred Stock, including the Series B Preferred Stock, the
Series D Preferred Stock, and the Series M Preferred
Stock.
After payment
of the full amount of the liquidating distributions to which they
are entitled, the holders of the Series E Preferred Stock will
have no right or claim to any of our remaining assets. Our
consolidation or merger with or into any other corporation, trust
or other entity, the consolidation or merger of any other
corporation, trust or entity with or into us, the sale or transfer
of any or all our assets or business, or a statutory share exchange
will not be deemed to constitute a liquidation, dissolution or
winding up of our affairs.
In determining
whether a distribution (other than upon voluntary or involuntary
liquidation), by dividend, redemption or other acquisition of
shares of our stock or otherwise, is permitted under the Maryland
General Corporation Law (the "MGCL"), amounts that would be needed,
if we were to be dissolved at the time of distribution, to satisfy
the preferential rights upon dissolution of holders of the
Series E Preferred Stock will not be added to our total
liabilities.
Voting Rights
Subject to the
provisions of our charter regarding the restrictions on transfer
and ownership of stock, each outstanding share of the Series E
Preferred Stock entitles the holder to one vote on all matters
submitted to a vote by the holders of our common stock, including
the election of directors. Except as provided with respect to any
other class or series of stock and the special voting rights
described below, the holders of our common stock, the Series E
Preferred Stock and the Series M Preferred Stock (voting
together as a single class) possess exclusive voting power. There
is no
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cumulative voting in
the election of our board of directors. In an uncontested election,
directors are elected by a majority of the votes cast by the
holders of the outstanding shares of our common stock, the
Series E Preferred Stock and the Series M Preferred Stock
(voting together as a single class), meaning that a director is
elected if the candidate received more votes "for" than the votes
"against," without consideration of abstentions, votes withheld and
broker non-votes. In a contested election (where there are more
candidates for election than seats to be filled), directors are
elected by a plurality of the votes cast.
If and whenever
dividends on any shares of Series E Preferred Stock or any
series or class of parity stock shall be in arrears for 18 or more
monthly periods (whether or not consecutive), the number of
directors then constituting our board of directors shall be
increased by two and the holders of such shares (voting together as
a single class with all other shares of any class or series of
shares ranking on a parity with the Series E Preferred Stock
which are entitled to similar voting rights, if any) will be
entitled to vote for the election of the two additional directors
at any annual meeting of stockholders or at a special meeting of
the holders of the Series E Preferred Stock and of any other
voting preferred stock called for that purpose. We must call such
special meeting upon the request of the holders of record of 10% or
more of the Series E Preferred Stock. Whenever dividends in
arrears on outstanding shares of Series E Preferred Stock
shall have been paid and dividends thereon for the current monthly
dividend period shall have been paid in full, then the right of the
holders of the Series E Preferred Stock to elect such
additional two directors shall cease and, if all dividends have
been paid in full on all other shares of voting preferred stock,
the terms of office of such directors shall terminate and the
number of directors constituting the board of directors shall be
reduced accordingly.
The affirmative
vote or consent of at least 662/3% of the
votes entitled to be cast by the holders of the outstanding shares
of Series E Preferred Stock and the holders of all other
classes or series of preferred stock entitled to vote on such
matters, if any, voting as a single class, in addition to any other
vote required by the charter or Maryland law, will be required to:
(i) authorize the creation of, the increase in the authorized
amount of, or the issuance of any shares of any class of stock
ranking senior to the Series E Preferred Stock or any security
convertible into shares of any class of such senior stock or
(ii) amend, alter or repeal any provision of, or add any
provision to, our charter, including the Series E Articles
Supplementary, whether by merger, consolidation or other business
combination or otherwise, if such action would materially adversely
affect the voting powers, rights or preferences of the holders of
the Series E Preferred Stock. Neither (i) an amendment of
our charter to authorize, create, or increase the authorized amount
of junior stock or any shares of any class of parity stock,
including additional Series E Preferred Stock nor
(ii) any merger, consolidation or other business combination,
so long as the Series E Preferred Stock remains outstanding
with the terms thereof materially unchanged, taking into account
that upon the occurrence of such event, we may not be the surviving
entity, shall be deemed to materially adversely affect the powers,
rights or preferences of the holders of Series E Preferred
Stock. For the avoidance of doubt, if any amendment, alteration,
repeal, merger or consolidation described above would adversely
affect one or more but not all classes or series of our outstanding
preferred stock, then only the classes or series of our preferred
stock adversely affected and entitled to vote on such matter shall
vote as a class in lieu of all other classes or series of our
preferred stock. Subject to the general voting rights described
above, such vote of the holders of Series E Preferred Stock as
described above shall be required if provision is made to redeem
all Series E Preferred Stock at or prior to the time such
amendment, alteration or repeal is to take effect, or when the
issuance of any such shares or convertible securities is to be
made, as the case may be.
With respect to
the exercise of the above described voting rights, each share of
Series E Preferred Stock shall have one vote per share, except
that when any other class or series of preferred stock
shall
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have the right to vote
with the Series E Preferred Stock as a single class, then the
Series E Preferred Stock and such other class or series shall
have one vote per $25.00 of stated liquidation
preference.
Restrictions on Ownership
For us to
maintain our qualification as a REIT under the Code, our shares of
capital stock must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of 12 months
(or during a proportionate part of a shorter taxable year). Also,
not more than 50% in value of our outstanding shares of capital
stock may be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include certain entities)
during the last half of a taxable year. Furthermore, if any
stockholder or group of stockholders of any lessee of our hotels,
owns, actually or constructively, 10% or more of our shares of
capital stock, such lessee could become a related-party tenant of
ours, which likely would result in the loss of our qualification as
a REIT. To ensure that we will comply with those share ownership
rules, our charter contains provisions that restrict the ownership
and transfer of our shares of capital stock. With certain
exceptions, our charter prohibits direct or constructive ownership
by any person of more than 9.8% (in value or number of shares,
whichever is more restrictive) of the outstanding shares of our
common stock, or, with respect to any class or series of shares of
preferred stock, 9.8% (in value or number of shares, whichever is
more restrictive) of the outstanding shares of such class or series
of preferred stock, including the Series E Preferred Stock.
See "Restrictions on Ownership and Transfer" in this prospectus for
additional discussion.
Transfer Agent and Registrar
The transfer
agent and registrar for the Series E Preferred Stock is
Computershare Trust Company, N.A.
Listing
The shares of
Series E Preferred Stock are not listed on an exchange, and we
do not intend to apply to have any such shares listed on an
exchange in the future.
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DESCRIPTION OF THE SERIES M PREFERRED
STOCK
Our
board of directors has created out of the authorized and unissued
shares of our preferred stock, a series of redeemable preferred
stock, designated as the Series M Preferred Stock. The
following is a brief description of the terms of the Series M
Preferred Stock. The description of the Series M Preferred
Stock contained herein does not purport to be complete and is
qualified in its entirety by reference to the Series M
Articles Supplementary, which have been filed with the SEC and are
incorporated by reference as an exhibit to the registration
statement, of which this prospectus is a part.
General
Our board of
directors has created out of the authorized and unissued shares of
our preferred stock a series of redeemable preferred stock
designated as the "Series M Redeemable Preferred Stock." Up to
20,000,000 shares of the Series E Preferred Stock or the
Series M Preferred Stock are being offered in our primary
offering pursuant to this prospectus and up to 8,000,000 shares of
the Series E Preferred Stock or Series M Preferred Stock
are being offered pursuant to the DRP.
Ranking
The
Series M Preferred Stock ranks, with respect to the payment of
dividends and rights upon our liquidation, dissolution or winding
up of our affairs:
- •
- prior or senior to
all classes or series of our common stock and any other class or
series of equity securities, if the holders of Series M
Preferred Stock are entitled to the receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up
in preference or priority to the holders of shares of such class or
series;
- •
- on a parity with the
Series B Preferred Stock, the Series D Preferred Stock
and the Series E Preferred Stock, and any other class or
series of our equity securities issued in the future if, pursuant
to the specific terms of such class or series of equity securities,
the holders of such class or series of equity securities and the
Series M Preferred Stock are entitled to the receipt of
dividends and of amounts distributable upon liquidation,
dissolution or winding up in proportion to their respective amounts
of accrued and unpaid dividends per share or liquidation
preferences, without preference or priority one over the
other;
- •
- junior to any class
or series of our equity securities if, pursuant to the specific
terms of such class or series, the holders of such class or series
are entitled to the receipt of dividends or amounts distributable
upon liquidation, dissolution or winding up in preference or
priority to the holders of the Series M Preferred Stock (none
of which are currently outstanding); and
- •
- junior to all our
existing and future debt indebtedness.
The term "equity
securities" does not include convertible debt securities, which
will rank senior to the Series M Preferred Stock prior to
conversion.
We will
contribute the net proceeds from the sale of the Series M
Preferred Stock from this offering to our Operating Partnership in
exchange for the Series M Preferred Units having the same
rights and preferences as the Series M Preferred Stock. Our
Operating Partnership will be required to make all required
dividend payments on the Series M Preferred Units prior to any
distribution of cash or assets to the holders of common partnership
units or to the holders of any other equity interest of our
Operating Partnership, except for any other series of preferred
units ranking on a parity with the Series M Preferred Units as
to distributions and liquidation, and any preferred units ranking
senior to the Series M Preferred Units as to distributions and
liquidations that we may issue, and except for dividends required
to enable us to maintain our qualification as a REIT.
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Stated Value
Each share of
Series M Preferred Stock will have a "Stated Value" of $25.00
as set forth in the Series M Articles
Supplementary.
Dividends
Holders of
Series M Preferred Stock are entitled to receive, when and as
authorized by our board of directors and declared by us out of
legally available funds, cumulative cash dividends on each share of
Series M Preferred Stock at an annual rate of 7.0% of the
Stated Value (equivalent of an annual dividend rate of $1.25 per
share). Beginning one year from the "date of original issuance" of
each share of Series M Preferred Stock, and on each one
year-anniversary thereafter for such Series M Preferred Stock,
the dividend rate will increase by 0.10% per annum for such
share; provided, however,
that the dividend rate for any share of Series M Preferred
Stock shall not exceed 7.5% per annum. We expect to authorize and
declare dividends on the shares of Series M Preferred Stock on
a monthly basis, payable on the 15th day of each month (or if
such payment date is not a business day, on the next succeeding
business day), unless our results of operations, our general
financial condition, general economic conditions, applicable
provisions of Maryland law or other factors make it imprudent to do
so. Dividends will be payable in arrears to holders of record as
they appear on our records at the close of business on the last
business day of each month immediately preceding the applicable
dividend payment date. Dividends payable on the Series M
Preferred Stock for any dividend period (as defined below)
(including any dividend period during which any shares of
Series M Preferred Stock shall be redeemed) will be computed
on the basis of twelve 30-day months and a 360-day year.
Dividends
payable on each share of Series M Preferred Stock will begin
accruing on, and will be cumulative from, the first day of the
dividend period during which such share of Series M Preferred
Stock was originally issued. Each subsequent dividend will begin
accruing on, and will be cumulative from, the end of the most
recent dividend period for which a dividend has been paid on each
such share of Series M Preferred Stock. The term "dividend
period" means the respective periods commencing on, and including,
the first day of each month of each year and ending on, and
including, the day preceding the first day of the next succeeding
dividend period (other than the dividend period during which any
shares of Series M Preferred Stock shall be redeemed, which
shall end on, and include, the day preceding the redemption date
with respect to the shares of Series M Preferred Stock being
redeemed). The timing and amount of such dividends will be
determined by our board of directors, in its sole discretion, and
may vary from time to time.
For purposes of
the 0.10% per annum dividend rate increase in this "Dividends"
section, the "date of original issuance" of the shares of
Series M Preferred Stock will mean the earliest date that any
shares of Series M Preferred Stock were issued to any investor
during the calendar quarter in which the shares to be redeemed were
issued.
Holders of our
shares of Series M Preferred Stock are not entitled to any
dividend in excess of full cumulative dividends on our shares of
Series M Preferred Stock. Except as set forth in the
Series M Articles Supplementary, unless full cumulative
dividends on our shares of Series M Preferred Stock for all
past dividend periods have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof
is set apart for payment, we will not:
- •
- declare and pay or
declare and set apart for payment dividends and we will not declare
and make any other distribution of cash or other property (other
than dividends or distributions paid in shares of stock ranking
junior to the Series M Preferred Stock as to the dividend
rights or rights upon our liquidation, dissolution or winding up of
our affairs, and options, warrants or rights to purchase such
shares), directly or indirectly, on or with respect to any shares
of our common stock or any class or series of our stock ranking
junior to or on parity with the
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Series M
Preferred Stock as to dividend rights or rights upon our
liquidation, dissolution or winding up of our affairs for any
period; or
- •
- except by conversion
into or exchange for shares of stock ranking junior to the
Series M Preferred Stock as to dividend rights or rights upon
our liquidation, dissolution or winding up of our affairs, or
options, warrants or rights to purchase such shares, redeem,
purchase or otherwise acquire (other than a redemption, purchase or
other acquisition of common stock made for purposes of an employee
incentive or benefit plan) for any consideration, or pay or make
available any monies for a sinking fund for the redemption of, any
common stock or any class or series of our stock ranking junior to
or on parity with the Series M Preferred Stock as to dividend
rights or rights upon our liquidation, dissolution or winding up of
our affairs.
To the extent
necessary to preserve our status as a REIT, the foregoing sentence,
however, will not prohibit declaring or paying or setting apart for
payment any dividend or other distribution on the common
stock.
Redemption at the Option of Holders
Except as noted
below, a holder will have the right to require us to redeem any or
all of such holder's shares of Series M Preferred Stock at a
redemption price equal to 100% of the Stated Value, less a
redemption fee, plus an amount equal to any accrued but unpaid
dividends (whether or not authorized or declared) to, but not
including, the date fixed for redemption.
The redemption
fee shall be equal to:
- •
- beginning on the
"date of original issuance" of the shares to be redeemed: 1.5%;
and
- •
- beginning on the
first anniversary from the "date of original issuance" of the
shares to be redeemed: 0%.
For so long as
our common stock is listed on a national securities exchange, if a
holder of shares of Series M Preferred Stock causes us to
redeem such shares of Series M Preferred Stock, we have the
right, in our sole discretion, to pay the redemption price in cash
or in equal value of shares of our common stock or any combination
thereof, based on the closing price per share of our common stock
for the single trading day prior to the date of
redemption.
For purposes of
this "Redemption at the Option of Holders" provision, the "date of
original issuance" of the shares to be redeemed will mean the
earliest date that any shares of Series M Preferred Stock were
issued to any investor during the calendar quarter in which the
shares to be redeemed were issued.
For purposes of
this "Redemption at the Option of Holders" provision, where the
shares of Preferred Stock to be redeemed are DRP shares, the "date
of original issuance" of such DRP Shares shall be deemed to be the
same as the "date of original issuance" of the Underlying Shares,
and such DRP Shares shall be subject to the same redemption terms
to which the Underlying Shares would be subject if submitted for
redemption hereunder.
Our ability to
redeem shares of Series M Preferred Stock in cash may be
limited to the extent that we do not have sufficient funds
available, taking into account such reserves and other
considerations as our board of directors may determine in its sole
discretion, to fund such cash redemption. Further, our obligation
to redeem any of the shares of Series M Preferred Stock
submitted for redemption in cash may be restricted by
law.
In addition,
aggregate optional redemptions by holders of the Preferred Stock
will be subject to the following redemption limits: (i) no
more than 2% of the outstanding Preferred Stock will be redeemed
per calendar month; (ii) no more than 5% of the outstanding
Preferred Stock will be
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redeemed per fiscal
quarter; and (iii) no more than 20% of the outstanding
Preferred Stock will be redeemed per fiscal year.
Redemptions at
the option of the company (described above) will not count toward
the 2%/5%/20% limits applied to optional redemptions by holders of
the Series M Preferred Stock. Optional redemptions following
death or disability of a holder (described below) will count toward
the 2%/5%/20% limits but will not be subject to such
limits.
If, after
applying these redemption limits, a holder would own less than one
share of Series M Preferred Stock, all of such holder's shares
of Series M Preferred Stock will be redeemed. Otherwise, all
redemption amounts will be rounded down such that after giving
effect to any redemption, no holder is left owning a fractional
share. For example, if after applying the redemption limits, an
investor would own 2.5 shares, we will redeem 0.5 fewer shares from
such holder so that the holder is left owning three shares. If,
after applying these redemption limits, the number of shares of
Series M Preferred Stock to be redeemed is less than the
number of shares of Series M Preferred Stock submitted for
redemption by a holder, the excess shares of Series M
Preferred Stock will remain subject to redemption in future periods
until the earlier of (i) all shares of Series M Preferred
Stock submitted by such holder for redemption have been redeemed,
or (ii) such holder delivers to us a written notice of
withdrawal stating the number of withdrawn shares of Series M
Preferred Stock and the number of shares of Series M Preferred
Stock, if any, which remain subject to redemption.
Optional Redemption Following Death or Disability of a
Holder
Subject to the
requirements below, we will redeem shares of Series M
Preferred Stock held by a natural person upon his or her death or
upon suffering a qualifying disability at a redemption price equal
to 100% of the Stated Value, plus an amount equal to any accrued
but unpaid dividends (whether or not authorized or declared) to,
but not including, the date fixed for redemption. No redemption
fees shall apply to such redemptions.
In order to
redeem shares on the terms described above upon the death or
qualifying disability of a holder, the following conditions must be
met:
- •
- the deceased or
disabled must be the sole holder or the beneficiary of a trust or
an IRA or other retirement or profit-sharing plan that is a holder
or, in the case of shares owned by spouses who are joint registered
holders (or holders by tenants in the entirety), the deceased or
disabled may be one of the spouses;
- •
- in the case of the
disability of a stockholder:
- •
- such disability must
meet the requirements of Section 72(m)(7) of the Code
(i.e., the individual must be unable to engage in any
substantial gainful activity by reason of any medically
determinable physical or mental impairment that can be expected to
result in death or to be of a long continued and indefinite
duration);
- •
- such determination of
disability must be made by the U.S. governmental agency responsible
for reviewing the disability retirement benefits that the holder
could be eligible to receive;
- •
- the condition causing
the disability shall have occurred after the date that the holder
became a holder of Series M Preferred Stock; and
- •
- the condition causing
the disability shall have occurred before the holder reached full
retirement age, which is the age at which workers can claim full
Social Security retired-worker benefits;
- •
- the redemption
request must be received by the company within 12 months after
the death or disability of the holder; and
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- •
- in the case of the
death of a holder, the redemption request must be made by a
recipient of the shares through bequest or inheritance or, in the
case of the death of a beneficiary of a trust, by the trustee of
the trust or, in the case of shares owned by spouses who are joint
registered holders (or holders by tenants in the entirety), the
request may be made by the surviving spouse.
For so long as
our common stock is listed on a national securities exchange, we
have the right, in our sole discretion, to pay the redemption price
in cash or in equal value of shares of our common stock or any
combination thereof, based on the closing price per share of our
common stock for the single trading day prior to the date of
redemption.
Our ability to
redeem shares of Series M Preferred Stock in cash may be
limited to the extent that we do not have sufficient funds
available, taking into account such reserves and other
considerations as our board of directors may determine in its sole
discretion, to fund such cash redemption. Further, our obligation
to redeem any of the shares of Series M Preferred Stock
submitted for redemption in cash may be restricted by law. Although
death and disability redemptions will not be subject to the
2%/5%/20% limits described above, death and disability redemptions
will count toward such limits when applied to other redemptions at
the option of the holder.
Optional Redemption by the Company
After three
years from the "date of original issuance" of the shares of
Series M Preferred Stock to be redeemed, we will have the
right (but not the obligation) to redeem such shares of
Series M Preferred Stock, in whole or in part, at a redemption
price equal to 100% of the Stated Value, plus an amount equal to
any accrued but unpaid dividends (whether or not authorized or
declared) to, but not including, the date fixed for
redemption.
For so long as
our common stock is listed on a national securities exchange, if we
choose to redeem any shares of Series M Preferred Stock, we
have the right, in our sole discretion, to pay the redemption price
in cash or in equal value of our common stock, based on the closing
price per share of our common stock for the single trading day
prior to the date of redemption.
For purposes of
this "Optional Redemption by the Company" provision, the "date of
original issuance" of the shares to be redeemed will mean the
earliest date that any shares of Series M Preferred Stock were
issued to any investor during the calendar quarter in which the
shares to be redeemed were issued. As a result, depending upon how
late in a calendar quarter you purchased your shares, we may have
the ability to redeem your shares even if they have been
outstanding for slightly less than three years.
For purposes of
this "Optional Redemption by the Company" provision, where the
shares of Series M Preferred Stock to be redeemed are DRP
Shares, the "date of original issuance" of such DRP Shares shall be
deemed to be the same as the "date of original issuance" of the
Underlying Shares, and such DRP Shares shall become subject to
optional redemption by us hereunder on the same date and terms as
the Underlying Shares.
We may exercise
our redemption right by delivering a written notice thereof to all
the holders of the shares of Series M Preferred Stock to be
redeemed. A notice of redemption shall be irrevocable. Each such
notice will state the date on which the redemption by us shall
occur, which date will be not less than 30 days nor more than
60 days following the notice date.
Special Optional Redemption by the Company
Upon the
occurrence of a Change of Control, we will have the right (but not
the obligation) to redeem the outstanding shares of Series M
Preferred Stock, in whole or in part, within 120 days after
the first date on which such Change of Control occurred, in cash at
a redemption price equal to 100% of the Stated Value, plus an
amount equal to any accrued but unpaid dividends (whether or
not
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authorized or
declared) to, but not including, the date fixed for redemption. If,
prior to the Series M Change of Control Conversion Date, we
have provided or provide notice of redemption with respect to the
Series M Preferred Stock (whether pursuant to our optional
redemption right or our special optional redemption right), the
holders of Series M Preferred Stock will not have the
conversion right described below under "—Conversion
Rights."
We will mail to
you, if you are a record holder of the Series M Preferred
Stock, a notice of redemption no fewer than 30 days nor more
than 60 days before the redemption date. We will send the
notice to your address shown on our share transfer books. A failure
to give notice of redemption or any defect in the notice or in its
mailing will not affect the validity of the redemption of any
Series M Preferred Stock except as to the holder to whom
notice was defective. Each notice will state the
following:
- •
- the redemption
date;
- •
- the redemption
price;
- •
- the number of shares
of Series M Preferred Stock to be redeemed;
- •
- that the
Series M Preferred Stock is being redeemed pursuant to our
special optional redemption right in connection with the occurrence
of a Change of Control and a brief description of the transaction
or transactions constituting such Change of Control;
- •
- that the holders of
the Series M Preferred Stock to which the notice relates will
not be able to tender such Series M Preferred Stock for
redemption in connection with the Change of Control and each share
of Series M Preferred Stock tendered for redemption that is
selected, prior to the Series M Change of Control Conversion
Date, for redemption will be redeemed on the related date of
redemption instead of redeemed on the Series M Change of
Control Conversion Date; and
- •
- that dividends on the
Series M Preferred Stock to be redeemed will cease to accrue
on the redemption date.
If we redeem
fewer than all of the outstanding shares of Series M Preferred
Stock, the notice of redemption mailed to each stockholder will
also specify the number of shares of Series M Preferred Stock
that we will redeem from each stockholder.
If we have
given a notice of redemption and have set aside sufficient funds
for the redemption in trust for the benefit of the holders of the
Series M Preferred Stock called for redemption, then from and
after the redemption date, those shares of Series M Preferred
Stock will be treated as no longer being outstanding, no further
dividends will accrue and all other rights of the holders of those
shares of Series M Preferred Stock will terminate. The holders
of those shares of Series M Preferred Stock will retain their
right to receive the redemption price for their shares and any
accrued and unpaid dividends through, but not including, the
redemption date.
If a redemption
date falls after a dividend record date and on or prior to the
corresponding dividend payment date, each holder of Series M
Preferred Stock at the close of business on a dividend record date
will be entitled to receive the dividend payable on such shares on
the corresponding payment date notwithstanding the redemption of
such shares of Series M Preferred Stock between such record
date and the corresponding payment date and each holder of
Series M Preferred Stock that surrenders such shares on such
redemption date will be entitled to the dividends accruing after
the end of the applicable dividend period up to, but excluding, the
redemption date. Except as provided above, we will make no payment
or allowance for unpaid dividends, whether or not in arrears, on
Series M Preferred Stock for which a notice of redemption has
been given.
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A "Change of
Control" is when, after the original issuance of the Series M
Preferred Stock, the following have occurred and are
continuing:
- •
- the acquisition by
any person, including any syndicate or group deemed to be a
"person" under Section 13(d)(3) of the Exchange Act, of
beneficial ownership, directly or indirectly, through a purchase,
merger or other acquisition transaction or series of purchases,
mergers or other acquisition transactions of shares of our company
entitling that person to exercise more than 50% of the total voting
power of all shares of our company entitled to vote generally in
elections of directors (except that such person will be deemed to
have beneficial ownership of all securities that such person has
the right to acquire, whether such right is currently exercisable
or is exercisable only upon the occurrence of a subsequent
condition); and
- •
- following the closing
of any transaction referred to in the bullet point above, neither
we nor the acquiring or surviving entity has a class of common
securities (or ADRs representing such securities) listed on the
NYSE, the NYSE American or NASDAQ or listed or quoted on an
exchange or quotation system that is a successor to the NYSE, the
NYSE American or NASDAQ.
Conversion Rights
Upon the
occurrence of a Change of Control, each holder of Series M
Preferred Stock will have the right at such holder's option,
unless, prior to the Series M Change of Control Conversion
Date, we have provided or provide notice of our election to redeem
the Series M Preferred Stock as described under "—Optional
Redemption by the Company" or "—Special Optional Redemption by the
Company," to convert some or all of the Series M Preferred
Stock held by such holder (the "Series M Change of Control
Conversion Right") on the Series M Change of Control
Conversion Date into a number of shares of our common stock. The
number of shares of common stock to be issued per share of
Series M Preferred Stock to be converted (the "Series M
Common Stock Conversion Consideration") will be equal to the lesser
of:
- •
- the quotient obtained
by dividing (i) the sum of the Stated Value, plus an amount
equal to any accrued and unpaid dividends (whether or not
authorized or declared) to, but not including, the Series M
Change of Control Conversion Date (unless the Series M Change
of Control Conversion Date is after a dividend record date for the
Series M Preferred Stock and prior to the corresponding
Series M Preferred Stock dividend payment date, in which case
no additional amount for such accrued and unpaid dividend will be
included in this sum) by (ii) the Common Stock Price;
and
- •
- the Series M
Share Cap.
The
Series M Share Cap is subject to pro rata adjustments for any
Share Splits with respect to our common stock as follows: the
adjusted Series M Share Cap as the result of a Share Split
will be the number of shares of our common stock that is equivalent
to the product obtained by multiplying (i) the Series M
Share Cap in effect immediately prior to such Share Split by
(ii) a fraction, the numerator of which is the number of
shares of our common stock outstanding after giving effect to such
Share Split and the denominator of which is the number of shares of
our common stock outstanding immediately prior to such Share
Split.
For the
avoidance of doubt, subject to the immediately succeeding sentence,
the aggregate number of shares of our common stock (or equivalent
Series M Alternative Conversion Consideration (as defined
below), as applicable) issuable in connection with the exercise of
the Series M Change of Control Conversion Right (or equivalent
Series M Alternative Conversion Consideration, as applicable)
will not exceed 159,453,303 shares in total (or equivalent
Series M Alternative Conversion Consideration, as applicable)
(the "Series M Exchange Cap"). The Series M Exchange Cap
is subject
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to pro rata
adjustments for any Share Splits on the same basis as the
corresponding adjustment to the Series M Share Cap.
In the case of
a Change of Control pursuant to which our common stock will be
converted into Alternative Form Consideration, a holder of
Series M Preferred Stock will receive upon conversion of such
Series M Preferred Stock the kind and amount of Alternative
Form Consideration which such holder of Series M Preferred
Stock would have owned or been entitled to receive upon the Change
of Control had such holder of Series M Preferred Stock held a
number of shares of our common stock equal to the Series M
Common Stock Conversion Consideration immediately prior to the
effective time of the Change of Control (the "Series M
Alternative Conversion Consideration," and the Series M Common
Stock Conversion Consideration or the Series M Alternative
Conversion Consideration, as may be applicable to a Change of
Control, is referred to as the "Series M Conversion
Consideration").
If the holders
of our common stock have the opportunity to elect the form of
consideration to be received in the Change of Control, the
consideration that the holders of the Series M Preferred Stock
will receive will be the form and proportion of the aggregate
consideration elected by the holders of our common stock who
participate in the determination (based on the weighted average of
elections) and will be subject to any limitations to which all
holders of our common stock are subject, including, without
limitation, pro rata reductions applicable to any portion of the
consideration payable in the Change of Control.
We will not
issue fractional shares of common stock upon the conversion of the
Series M Preferred Stock. In lieu of fractional shares,
holders will be entitled to receive the cash value of such
fractional shares based on the Common Stock Price.
Within
15 days following the occurrence of a Change of Control, we
will provide to holders of Series M Preferred Stock a notice
of the occurrence of the Change of Control that describes the
resulting Series M Change of Control Conversion Right. This
notice will state the following:
- •
- the events
constituting the Change of Control;
- •
- the date of the
Change of Control;
- •
- the last date on
which the holders of Series M Preferred Stock may exercise
their Series M Change of Control Conversion Right;
- •
- the method and period
for calculating the Common Stock Price;
- •
- the Series M
Change of Control Conversion Date;
- •
- that if, prior to the
Series M Change of Control Conversion Date, we have provided
or provide notice of our election to redeem all or any portion of
the Series M Preferred Stock, holders will not be able to
convert Series M Preferred Stock and such shares will be
redeemed on the related redemption date, even if such shares have
already been tendered for conversion pursuant to the Series M
Change of Control Conversion Right;
- •
- if applicable, the
type and amount of Series M Alternative Conversion
Consideration entitled to be received per share of Series M
Preferred Stock;
- •
- the name and address
of the paying agent and the conversion agent; and
- •
- the procedures that
the holders of Series M Preferred Stock must follow to
exercise the Series M Change of Control Conversion
Right.
We will issue a
press release for publication on the Dow Jones &
Company, Inc., Business Wire, PR Newswire or Bloomberg
Business News (or, if these organizations are not in existence at
the time of issuance of the press release, such other news or press
organization as is reasonably calculated to broadly disseminate the
relevant information to the public), or post a notice on our
website, in any
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event prior to the
opening of business on the first business day following any date on
which we provide the notice described above to the holders of
Series M Preferred Stock.
To exercise the
Series M Change of Control Conversion Right, the holders of
Series M Preferred Stock will be required to deliver, on or
before the close of business on the Series M Change of Control
Conversion Date, the certificates evidencing the Series M
Preferred Stock, to the extent such shares are certificated, to be
converted, duly endorsed for transfer, together with a written
conversion notice completed, to our transfer agent. The conversion
notice must state:
- •
- the relevant
Series M Change of Control Conversion Date;
- •
- the number of shares
of Series M Preferred Stock to be converted; and
- •
- that the
Series M Preferred Stock is to be converted pursuant to the
applicable provisions of the Series M Preferred
Stock.
The
"Series M Change of Control Conversion Date" is the date the
Series M Preferred Stock is to be converted, which will be a
business day that is no fewer than 20 days nor more than
35 days after the date on which we provide the notice
described above to the holders of Series M Preferred
Stock.
Holders of
Series M Preferred Stock may withdraw any notice of exercise
of a Series M Change of Control Conversion Right (in whole or
in part) by a written notice of withdrawal delivered to our
transfer agent prior to the close of business on the business day
prior to the Series M Change of Control Conversion Date. The
notice of withdrawal must state:
- •
- the number of
withdrawn shares of Series M Preferred Stock;
- •
- if certificated
Series M Preferred Stock has been issued, the certificate
numbers of the withdrawn shares of Series M Preferred Stock;
and
- •
- the number of shares
of Series M Preferred Stock, if any, which remain subject to
the conversion notice.
Notwithstanding
the foregoing, if the Series M Preferred Stock is held in
global form, the conversion notice and/or the notice of withdrawal,
as applicable, must comply with applicable procedures of
DTC.
Series M
Preferred Stock as to which the Series M Change of Control
Conversion Right has been properly exercised and for which the
conversion notice has not been properly withdrawn will be converted
into the applicable Series M Conversion Consideration in
accordance with the Series M Change of Control Conversion
Right on the Series M Change of Control Conversion Date,
unless prior to the Series M Change of Control Conversion Date
we have provided or provide notice of our election to redeem such
Series M Preferred Stock, whether pursuant to our optional
redemption right or our special optional redemption right. If we
elect to redeem Series M Preferred Stock that would otherwise
be converted into the applicable Series M Conversion
Consideration on a Series M Change of Control Conversion Date,
such Series M Preferred Stock will not be so converted and the
holders of such shares will be entitled to receive on the
applicable redemption date the Stated Value, plus an amount equal
to any accrued but unpaid dividends (whether or not authorized or
declared) to, but not including, the date fixed for redemption, in
accordance with our optional redemption right or special optional
redemption right. See "—Optional Redemption by the Company" and
"—Special Optional Redemption by the Company" above.
We will deliver
amounts owing upon conversion no later than the third business day
following the Series M Change of Control Conversion
Date.
In connection
with the exercise of any Series M Change of Control Conversion
Right, we will comply with all federal and state securities laws
and stock exchange rules in connection with any
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conversion of
Series M Preferred Stock into shares of our common stock.
Notwithstanding any other provision of the Series M Preferred
Stock, no holder of Series M Preferred Stock will be entitled
to convert such Series M Preferred Stock for shares of our
common stock to the extent that receipt of such common stock would
cause such holder (or any other person) to exceed the share
ownership limits contained in our charter and the Series M
Articles Supplementary, unless we provide an exemption from this
limitation for such holder. See "—Restrictions on Ownership"
below.
The Change of
Control conversion and redemption features of the Series M
Preferred Stock may make it more difficult for a party to take over
our company or discourage a party from taking over our company. See
"Risk Factors—Risks Related to this Offering—The change of control
conversion feature may not adequately compensate you, and the
change of control conversion and redemption features of the
Preferred Stock may make it more difficult for a party to take over
our company or discourage a party from taking over our
company."
Liquidation Preference
Upon any
voluntary or involuntary liquidation, dissolution or winding up of
our affairs, before any distribution or payment is made to the
holders of our common stock or any other class or series of capital
stock ranking junior to the Series M Preferred Stock, the
holders of the Series M Preferred Stock will have the right to
receive, out of our assets legally available for distribution to
our stockholders, after payment or provision for our debts and
other liabilities, a liquidation preference equal to the Stated
Value, plus an amount equal to any accrued but unpaid dividends
(whether or not declared) to, but not including, the date of
payment. The rights of the holders of the Series M Preferred
Stock to receive the Stated Value will be subject to the rights of
holders of our debt, holders of any equity securities ranking
senior in liquidation preference to the Series M Preferred
Stock (none of which are currently outstanding) and the
proportionate rights of holders of each other series or class of
our equity securities ranked on a parity with the Series M
Preferred Stock, including the Series B Preferred Stock, the
Series D Preferred Stock, and the Series E Preferred
Stock.
After payment
of the full amount of the liquidating distributions to which they
are entitled, the holders of the Series M Preferred Stock will
have no right or claim to any of our remaining assets. Our
consolidation or merger with or into any other corporation, trust
or other entity, the consolidation or merger of any other
corporation, trust or entity with or into us, the sale or transfer
of any or all our assets or business, or a statutory share exchange
will not be deemed to constitute a liquidation, dissolution or
winding up of our affairs.
In determining
whether a distribution (other than upon voluntary or involuntary
liquidation), by dividend, redemption or other acquisition of
shares of our stock or otherwise, is permitted under the MGCL,
amounts that would be needed, if we were to be dissolved at the
time of distribution, to satisfy the preferential rights upon
dissolution of holders of the Series M Preferred Stock will
not be added to our total liabilities.
Voting Rights
Subject to the
provisions of our charter regarding the restrictions on transfer
and ownership of stock, each outstanding share of the Series M
Preferred Stock entitles the holder to one vote on all matters
submitted to a vote by the holders of our common stock, including
the election of directors. Except as provided with respect to any
other class or series of stock and the special voting rights
described below, the holders of our common stock, the Series E
Preferred Stock and the Series M Preferred Stock (voting
together as a single class) possess exclusive voting power. There
is no cumulative voting in the election of our board of directors.
In an uncontested election, directors are elected by a majority of
the votes cast by the holders of the outstanding shares of our
common stock,
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the Series E
Preferred Stock and the Series M Preferred Stock (voting
together as a single class), meaning that a director is elected if
the candidate received more votes "for" than the votes "against,"
without consideration of abstentions, votes withheld and broker
non-votes. In a contested election (where there are more candidates
for election than seats to be filled), directors are elected by a
plurality of the votes cast.
If and whenever
dividends on any shares of Series M Preferred Stock or any
series or class of parity stock shall be in arrears for 18 or more
monthly periods (whether or not consecutive), the number of
directors then constituting our board of directors shall be
increased by two and the holders of such shares (voting together as
a single class with all other shares of any class or series of
shares ranking on a parity with the Series M Preferred Stock
which are entitled to similar voting rights, if any) will be
entitled to vote for the election of the two additional directors
at any annual meeting of stockholders or at a special meeting of
the holders of the Series M Preferred Stock and of any other
voting preferred stock called for that purpose. We must call such
special meeting upon the request of the holders of record of 10% or
more of the Series M Preferred Stock. Whenever dividends in
arrears on outstanding shares of Series M Preferred Stock
shall have been paid and dividends thereon for the current monthly
dividend period shall have been paid in full, then the right of the
holders of the Series M Preferred Stock to elect such
additional two directors shall cease and, if all dividends have
been paid in full on all other shares of voting preferred stock,
the terms of office of such directors shall terminate and the
number of directors constituting the board of directors shall be
reduced accordingly.
The affirmative
vote or consent of at least 662/3% of the
votes entitled to be cast by the holders of the outstanding shares
of Series M Preferred Stock and the holders of all other
classes or series of preferred stock entitled to vote on such
matters, if any, voting as a single class, in addition to any other
vote required by the charter or Maryland law, will be required to:
(i) authorize the creation of, the increase in the authorized
amount of, or the issuance of any shares of any class of stock
ranking senior to the Series M Preferred Stock or any security
convertible into shares of any class of such senior stock or
(ii) amend, alter or repeal any provision of, or add any
provision to, our charter, including the Series M Articles
Supplementary, whether by merger, consolidation or other business
combination or otherwise, if such action would materially adversely
affect the voting powers, rights or preferences of the holders of
the Series M Preferred Stock. Neither (i) an amendment of
our charter to authorize, create, or increase the authorized amount
of junior stock or any shares of any class of parity stock,
including additional Series M Preferred Stock nor
(ii) any merger, consolidation or other business combination,
so long as the Series M Preferred Stock remains outstanding
with the terms thereof materially unchanged, taking into account
that upon the occurrence of such event, we may not be the surviving
entity, shall be deemed to materially adversely affect the powers,
rights or preferences of the holders of Series M Preferred
Stock. For the avoidance of doubt, if any amendment, alteration,
repeal, merger or consolidation described above would adversely
affect one or more but not all classes or series of our outstanding
preferred stock, then only the classes or series of our preferred
stock adversely affected and entitled to vote on such matter shall
vote as a class in lieu of all other classes or series of our
preferred stock. Subject to the general voting rights described
above, such vote of the holders of Series M Preferred Stock as
described above shall be required if provision is made to redeem
all Series M Preferred Stock at or prior to the time such
amendment, alteration or repeal is to take effect, or when the
issuance of any such shares or convertible securities is to be
made, as the case may be.
With respect to
the exercise of the above described voting rights, each share of
Series M Preferred Stock shall have one vote per share, except
that when any other class or series of preferred stock shall have
the right to vote with the Series M Preferred Stock as a
single class, then the Series M Preferred Stock and such other
class or series shall have one vote per $25.00 of stated
liquidation preference.
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Restrictions on Ownership
For us to
maintain our qualification as a REIT under the Code, our shares of
capital stock must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of 12 months
(or during a proportionate part of a shorter taxable year). Also,
not more than 50% in value of our outstanding shares of capital
stock may be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include certain entities)
during the last half of a taxable year. Furthermore, if any
stockholder or group of stockholders of any lessee of our hotels,
owns, actually or constructively, 10% or more of our shares of
capital stock, such lessee could become a related-party tenant of
ours, which likely would result in the loss of our qualification as
a REIT. To ensure that we will comply with those share ownership
rules, our charter contains provisions that restrict the ownership
and transfer of our shares of capital stock. With certain
exceptions, our charter prohibits direct or constructive ownership
by any person of more than 9.8% (in value or number of shares,
whichever is more restrictive) of the outstanding shares of our
common stock, or, with respect to any class or series of shares of
preferred stock, 9.8% (in value or number of shares, whichever is
more restrictive) of the outstanding shares of such class or series
of preferred stock, including the Series M Preferred Stock.
See "Restrictions on Ownership and Transfer" in this prospectus for
additional discussion.
Transfer Agent and Registrar
The transfer
agent and registrar for the Series M Preferred Stock is
Computershare Trust Company, N.A.
Listing
The shares of
Series M Preferred Stock are not listed on an exchange, and we
do not intend to apply to have any such shares listed on an
exchange in the future.
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DESCRIPTION OF CAPITAL STOCK
The
following is a description of the material terms and provisions of
our common stock and preferred stock. It may not contain all the
information that is important to you. You can access complete
information by referring to our charter and our bylaws, as amended,
copies of which are filed with the SEC and incorporated by
reference as exhibits to the registration statement of which this
prospectus is a part.
General
We were formed
under the laws of the State of Maryland. Rights of our stockholders
are governed by the MGCL, our charter and our bylaws. Our charter
authorizes the issuance of up to 250,000,000 shares of common stock
and 80,000,000 shares of preferred stock. As of January 7,
2020, we had issued and outstanding 32,885,217 shares of common
stock, 5,031,473 shares of the Series B Preferred Stock and
1,600,000 shares of the Series D Preferred Stock. We have
authorized 10,000,000 shares of the Series C Preferred Stock,
but no shares of Series C Preferred Stock were issued and
outstanding. Our board of directors, without any action by our
stockholders, may amend our charter to increase or decrease the
aggregate number of shares of our common stock or the number of
shares of our stock of any class or series. In addition, our
charter authorizes our board of directors to classify or reclassify
any unissued shares of any series.
Common Stock
Subject to the
preferential rights of any other class or series of stock and to
the provisions of the charter regarding the restrictions on
transfer of stock, holders of shares of our common stock are
entitled to receive dividends on such stock when, as and if
authorized by our board of directors out of assets or funds legally
available therefor and declared by us 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 known
debts and liabilities of our company, including the preferential
rights on liquidation or dissolution of any class or classes of
preferred stock.
Subject to the
provisions of our charter regarding the restrictions on transfer
and ownership 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. Except as
provided with respect to any other class or series of stock, the
holders of our common stock, the Series E Preferred Stock and
the Series M Preferred Stock (voting together as a single
class) possess exclusive voting power. There is no cumulative
voting in the election of our board of directors. In an uncontested
election, directors are elected by a majority of the votes cast by
the holders of the outstanding shares of our common stock, the
Series E Preferred Stock and the Series M Preferred Stock
(voting together as a single class), meaning that a director is
elected if the candidate received more votes "for" than the votes
"against," without consideration of abstentions, votes withheld and
broker non-votes. In a contested election (where there are more
candidates for election than seats to be filled), directors are
elected by a plurality of the votes cast.
Holders of
shares of our common stock have no preference, conversion,
exchange, sinking fund, or redemption, have no preemptive rights to
subscribe for any securities of our company, and generally have no
appraisal rights so long as our common stock is listed on a
national securities exchange and except in very limited
circumstances involving a merger where our stock is converted into
any
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consideration other
than stock of the successor in the merger and in which our
directors, officers, and 5% or greater stockholders receive
different consideration than stockholders generally. Subject to the
provisions of our charter regarding the restrictions on transfer
and ownership of stock, shares of our common stock have equal
dividend, liquidation and other rights.
Under the MGCL,
a Maryland corporation generally cannot dissolve, amend its
charter, merge, consolidate, transfer all or substantially all of
its assets, engage in a statutory share exchange or engage in
similar transactions outside the ordinary course of business unless
declared advisable by the board of directors and approved by the
affirmative vote of stockholders holding at least two-thirds of the
shares entitled to vote 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 corporation's charter. Our
charter provides for the affirmative vote of stockholders holding
at least a majority of the shares entitled to be cast to approve
each of these matters, except that two-thirds of all votes are
required to amend the provisions of our charter regarding
restrictions on the transfer and ownership of our stock. Because
operating assets may be held by a corporation's subsidiaries, as in
our situation, a subsidiary of a corporation may be able to merge
or transfer all of its assets without a vote of our
stockholders.
Our charter
authorizes our board of directors to reclassify any unissued shares
of our 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.
Preferred Stock
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 series. Prior to issuance of shares of each
series, our board of directors is required by the MGCL and our
charter to set the terms, preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption
for each such series. Thus, our board of directors could authorize
the issuance of shares of preferred stock with terms and conditions
that could have the effect of delaying, deterring or preventing a
transaction or a change of control of our company that might
involve a premium price for holders of our common stock or that
stockholders believe may be in their best interests.
As of
January 7, 2020, there were 5,031,473 shares of the
Series B Preferred Stock, with a liquidation preference of
$25.00 per share, issued and outstanding. We pay cumulative
dividends on the Series B Preferred Stock, when and as
authorized by our board of directors, at a rate of 5.50% per annum
of the $25.00 liquidation preference per share (equivalent to the
fixed annual rate of $1.375 per share). Dividends on the
Series B Preferred Stock are payable quarterly in arrears on
or about the 15th day of January, April, July and October of
each year. Whenever dividends on any shares of Series B
Preferred Stock are in arrears for six or more quarterly dividend
periods, whether or not consecutive, the dividend rate will
increase to 7.50% per annum until all accumulated, accrued but
unpaid dividends on the Series B Preferred Stock have been
paid in full, at which time the dividend rate will revert to 5.50%
per annum. The Series B Preferred Stock ranks senior to all
classes or series of our common stock and future junior securities,
on a parity with each series of our outstanding preferred stock
(including the Series D Preferred Stock, the Series E
Preferred Stock and the Series M Preferred Stock) and with any
future parity securities and junior to future senior securities and
to all of our existing and future indebtedness, with respect to the
payment of dividends and the distribution of amounts upon
liquidation, dissolution or winding up of our affairs. Generally,
we are not permitted to redeem the Series B Preferred Stock
prior to June 11, 2020, except in limited circumstances
relating to
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our ability to qualify
as a REIT and in certain other circumstances related to a change of
control (as defined in the articles supplementary for the
Series B Preferred Stock). Each outstanding share of
Series B Preferred Stock will be convertible at any time at
the option of the holder into that number of whole shares of our
common stock at an initial conversion price equal to $18.70. In
addition, at any time, if the common stock equals or exceeds 110%
of the applicable conversion price for 45 consecutive trading
days, we have the option to mandatorily convert all or part of the
Series B Preferred Stock into common stock at the then
applicable conversion ratio, subject to a make-whole payment (as
described in the articles supplementary for the Series B
Preferred Stock). If we do not exercise our right to redeem the
Series B Preferred Stock upon such a change of control, the
holders of Series B Preferred Stock have the right to convert
some or all of their shares into a number of shares of our common
stock based on a defined formula subject to a cap. The
Series B Preferred Stock has no stated maturity and is not
subject to mandatory redemption or any sinking fund. Holders of
shares of the Series B Preferred Stock will generally have no
voting rights, except for limited voting rights if we fail to pay
dividends for six or more quarterly periods (whether or not
consecutive) and in certain other circumstances, including the
exclusive right to vote on any amendment, alteration or repeal of
the provisions of our charter or the terms of the Series B
Preferred Stock that would alter only the contract rights set forth
in our charter of the Series B Preferred Stock.
As of
January 7, 2020, there were 1,600,000 shares of the
Series D Preferred Stock, with a liquidation preference of
$25.00 per share, issued and outstanding. We pay cumulative
dividends on the Series D Preferred Stock, when and as
authorized by our board of directors, at a rate of 8.25% per annum
of the $25.00 liquidation preference per share (equivalent to the
fixed annual rate of $2.0625 per share). Dividends on the
Series D Preferred Stock are payable quarterly in arrears on
or about the 15th day of January, April, July and October of
each year. The Series D Preferred Stock ranks senior to all
classes or series of our common stock and future junior securities,
on a parity with each series of our outstanding preferred stock
(the Series B Preferred Stock, the Series E Preferred
Stock and the Series M Preferred Stock) and with any future
parity securities and junior to future senior securities and to all
of our existing and future indebtedness, with respect to the
payment of dividends and the distribution of amounts upon
liquidation, dissolution or winding up of our affairs. Generally,
we are not permitted to redeem the Series D Preferred Stock
prior to November 20, 2023, except in limited circumstances
relating to our ability to qualify as a REIT and in certain other
circumstances related to a change of control (as defined in the
articles supplementary for the Series D Preferred Stock). If
we do not exercise our right to redeem the Series D Preferred
Stock upon such a change of control, the holders of Series D
Preferred Stock have the right to convert some or all of their
shares into a number of shares of our common stock based on a
defined formula subject to a cap. The Series D Preferred Stock
has no stated maturity and is not subject to mandatory redemption
or any sinking fund. Holders of shares of the Series D
Preferred Stock will generally have no voting rights, except for
limited voting rights if we fail to pay dividends for six or more
quarterly periods (whether or not consecutive) and in certain other
circumstances, including the exclusive right to vote on any
amendment, alteration or repeal of the provisions of our charter or
the terms of the Series D Preferred Stock that would alter
only the contract rights set forth in our charter of the
Series D Preferred Stock.
Restrictions on Ownership and Transfer
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 capital stock. See "Restrictions on
Ownership and Transfer."
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Transfer Agent
The transfer
agent and registrar for our common stock, the Series B
Preferred Stock and the Series D Preferred Stock is
Computershare Trust Company, N.A.
Listing
Our common
stock is listed on the NYSE under the symbol "BHR," the
Series B Preferred Stock is listed on the NYSE under the
symbol "BHRPrB" and the Series D Preferred Stock is listed on
the NYSE under the symbol "BHRPrD." The shares of the Series E
Preferred Stock and Series M Preferred Stock are not listed on
an exchange, and we do not intend to apply to have any such shares
listed on an exchange in the future.
Power to Increase Authorized Stock and Issue Additional
Shares
We believe that
the power of our board of directors, without stockholder approval,
to amend our charter to increase the aggregate number of authorized
shares of common stock and preferred stock, to issue additional
authorized but unissued shares of our common stock and preferred
stock and to classify or reclassify unissued shares of our common
stock and preferred stock and thereafter to issue such classified
or reclassified shares provides us with flexibility in structuring
possible future financings and acquisitions and in meeting other
needs which might arise. The additional classes or series, as well
as the additional authorized shares of common stock or preferred
stock, are available for issuance without further action by our
stockholders, unless stockholder approval is required by applicable
law or the rules of the NYSE or any other stock exchange or
automated quotation system on which our securities may be listed or
traded. Although our board of directors does not currently intend
to do so, it could authorize us to issue an additional class or
series of stock that could, depending upon the terms of the
particular class or series, delay, deter or prevent a transaction
or a change of control of our company, even if such transaction or
change of control involves a premium price for our stockholders or
our stockholders believe that such transaction or change of control
may be in their best interests.
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RESTRICTIONS ON OWNERSHIP AND
TRANSFER
The
following summary with respect to restrictions on ownership and
transfer of our stock sets forth certain general terms and
provisions of our charter. This summary does not purport to be
complete and is subject to and qualified in its entirety by
reference to our charter, as amended and supplemented from time to
time, including any articles supplementary relating to any class or
series of preferred stock offered pursuant to this prospectus. A
copy of our existing charter is filed with the SEC and is
incorporated by reference as an exhibit to the registration
statement of which this prospectus is a part. See "Where You Can
Find More Information."
In order for us
to qualify as a REIT under the Code, not more than 50% of the value
of the outstanding shares of our stock may be owned, actually or
constructively, by five or fewer individuals (as defined in the
Code to include certain entities) during the last half of a taxable
year (other than the first year for which an election to be a REIT
has been made by us). In addition, if we, or one or more owners
(actually or constructively) of 10% or more of the outstanding
shares of our capital stock, actually or constructively own 10% or
more of a tenant of ours (or a tenant of any partnership in which
we are a partner), other than a TRS, the rent received by us
(either directly or through any such partnership) from such tenant
will not be qualifying income for purposes of the REIT gross income
tests of the Code. Our stock must also be beneficially owned by 100
or more persons during at least 335 days of a taxable year of
12 months or during a proportionate part of a shorter taxable
year.
Our charter
contains restrictions on the ownership and transfer of our capital
stock that are intended to assist us in complying with these
requirements and continuing to qualify as a REIT. The relevant
sections of our charter provide that, subject to the exceptions
described below, no person or persons acting as a group may own, or
be deemed to own by virtue of the attribution provisions of the
Code, more than (i) 9.8% of the lesser of the total number or
value of the outstanding shares of our common stock or
(ii) 9.8% of the lesser of the total number or value of the
outstanding shares of any class or series of our preferred stock or
any other stock of our company. We refer to this restriction as the
"ownership limit."
The ownership
attribution rules under the Code are complex and may cause stock
owned actually or constructively by a group of related individuals
and/or entities to be owned constructively by one individual or
entity. As a result, the acquisition of less than 9.8% of our
capital stock (or the acquisition of an interest in an entity that
owns, actually or constructively, our capital stock) by an
individual or entity, could, nevertheless cause that individual or
entity, or another individual or entity, to own constructively in
excess of 9.8% of our outstanding common stock or a class of our
preferred stock and thereby subject the common stock or preferred
stock to the ownership limit.
Our board of
directors may, in its sole discretion, waive the ownership limit
with respect to one or more stockholders who would not be treated
as "individuals" for purposes of the Code if it determines that
such ownership will not cause any "individual's" beneficial
ownership of shares of our capital stock to violate the ownership
limit and that any exemption from the ownership limit will not
jeopardize our status as a REIT (for example, by causing any tenant
of ours to be considered a "related party tenant" for purposes of
the REIT qualification rules).
As a condition
of any waiver, our board of directors may require an opinion of
counsel or an Internal Revenue Service private letter ruling
satisfactory to our board of directors, and/or representations or
undertakings from the applicant with respect to preserving our REIT
status.
In connection
with the waiver of the ownership limit or at any other time, our
board of directors may decrease the ownership limit for all other
persons and entities; provided, however, that the decreased
ownership limit will not be effective for any person or entity
whose percentage ownership in our capital stock is in excess of
such decreased ownership limit until such time as such person or
entity's percentage of our capital stock equals or falls below the
decreased ownership limit (unless the
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decrease is as a
result of a retroactive change in existing law, in which case such
change shall be effective immediately), but any further acquisition
of our capital stock in excess of such percentage ownership of our
capital stock will be in violation of the ownership limit.
Additionally, the new ownership limit may not allow five or fewer
"individuals" (as defined for purposes of the REIT ownership
restrictions under the Code) to beneficially own more than 49.5% of
the value of our outstanding capital stock.
Our charter
provisions further prohibit:
- •
- any person from
actually or constructively owning shares of our capital stock that
would result in us being "closely held" under Section 856(h)
of the Code (without regard to whether the ownership interest is
held during the last half of the taxable year);
- •
- any person from
transferring shares of our capital stock if such transfer would
result in shares of our stock being beneficially owned by fewer
than 100 persons (determined without reference to any rules of
attribution);
- •
- any person from
beneficially or constructively owning our stock to the extent such
beneficial or constructive ownership would cause us to
constructively own ten percent or more of the ownership interests
in a tenant (other than a TRS) of our real property within the
meaning of Section 856(d)(2)(B) of the Code; or
- •
- any person from
beneficially or constructively owning or transferring our stock if
such ownership or transfer would otherwise cause us to fail to
qualify as a REIT under the Code, including, but not limited to, as
a result of any hotel management companies failing to qualify as
"eligible independent contractors" under the REIT
rules.
Any person who
acquires or attempts or intends to acquire beneficial or
constructive ownership of shares of our common stock that will or
may violate any of the foregoing restrictions on transferability
and ownership is 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 foregoing provisions on transferability and ownership will not
apply if our board of directors determines that it is no longer in
our best interests to attempt to qualify, or to continue to
qualify, as a REIT.
Pursuant to our
charter, if any purported transfer of our capital stock or any
other event would otherwise result in any person violating the
ownership limits or the other restrictions in our charter, then any
such purported transfer will be void and of no force or effect with
respect to the purported transferee or owner (collectively referred
to hereinafter as the "purported owner") as to that number of
shares in excess of the ownership limit (rounded up to the nearest
whole share). The number of shares in excess of the ownership limit
will be automatically transferred to, and held by, a trust for the
exclusive benefit of one or more charitable organizations selected
by us. The trustee of the trust will be designated by us and must
be unaffiliated with us or with any purported owner. The automatic
transfer will be effective as of the close of business on the
business day prior to the date of the violative transfer or other
event that results in a transfer to the trust. Any dividend or
other distribution paid to the purported owner, prior to our
discovery that the shares had been automatically transferred to a
trust as described above, must be repaid to the trustee upon demand
for distribution to the beneficiary of the trust and all dividends
and other distributions paid by us with respect to such "excess"
shares prior to the sale by the trustee of such shares shall be
paid to the trustee for the beneficiary. If the transfer to the
trust as described above is not automatically effective, for any
reason, to prevent violation of the applicable ownership limit,
then our charter provides that the transfer of the excess shares
will be void. Subject to Maryland law, effective as of the date
that such excess shares have been transferred to the trust, the
trustee shall have the authority (at the trustee's sole discretion
and subject to applicable law) (i) to rescind as void any vote
cast by a purported owner prior to our discovery that such shares
have been transferred to the trust and (ii) to recast such
vote in accordance with the
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desires of the trustee
acting for the benefit of the beneficiary of the trust, provided
that if we have already taken irreversible action, then the trustee
shall not have the authority to rescind and recast such
vote.
Shares of our
capital stock transferred to the trustee are deemed offered for
sale to us, or our designee, at a price per share equal to the
lesser of (i) the price paid by the purported owner for the
shares (or, if the event which resulted in the transfer to the
trust did not involve a purchase of such shares of our capital
stock at market price, the market price on the day of the event
which resulted in the transfer of such shares of our capital stock
to the trust) and (ii) the market price on the date we, or our
designee, accept(s) such offer. We have the right to accept such
offer until the trustee has sold the shares of our capital stock
held in the trust pursuant to the clauses discussed below. Upon a
sale to us, the interest of the charitable beneficiary in the
shares sold terminates and the trustee must distribute the net
proceeds of the sale to the purported owner and any dividends or
other distributions held by the trustee with respect to such
capital stock will be paid to the charitable
beneficiary.
If we do not
buy the shares, the trustee must, within 20 days of receiving
notice from us of the transfer of shares to the trust, sell the
shares to a person or entity designated by the trustee who could
own the shares without violating the ownership limits. After that,
the trustee must distribute to the purported owner an amount equal
to the lesser of (i) the net price paid by the purported owner
for the shares (or, if the event which resulted in the transfer to
the trust did not involve a purchase of such shares at market
price, the market price on the day of the event which resulted in
the transfer of such shares of our capital stock to the trust) and
(ii) the net sales proceeds received by the trust for the
shares. Any proceeds in excess of the amount distributable to the
purported owner will be distributed to the charitable
beneficiary.
Our charter
also provides that "Benefit Plan Investors" (as defined in our
charter) may not hold, individually or in the aggregate, 25% or
more of the value of any class or series of shares of our capital
stock to the extent such class or series does not constitute
"Publicly Offered Securities" (as defined in our
charter).
All persons who
own, directly or by virtue of the attribution provisions of the
Code, more than 5% (or such other percentage as provided in the
regulations promulgated under the Code) of the lesser of the number
or value of the shares of our outstanding capital stock must give
written notice to us within 30 days after the end of each
calendar year. In addition, each stockholder will, upon demand, be
required to disclose to us in writing such information with respect
to the direct, indirect and constructive ownership of shares of our
stock as our board of directors deems reasonably necessary to
comply with the provisions of the Code applicable to a REIT, to
comply with the requirements or any taxing authority or
governmental agency or to determine any such compliance.
All
certificates representing shares of our capital stock bear a legend
referring to the restrictions described above.
These ownership
limits could delay, deter or prevent a transaction or a change of
control of our company that might involve a premium price over the
then-prevailing market price for the holders of some, or a
majority, of our outstanding shares of common stock or which such
holders might believe to be otherwise in their best
interest.
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MATERIAL PROVISIONS OF MARYLAND LAW AND OF OUR
CHARTER AND BYLAWS
The
following is a summary of material provisions of Maryland law and
of our charter and bylaws. The summary is qualified in its entirety
by reference to the MGCL, our charter and bylaws. Copies of our
charter and bylaws are filed with the SEC and incorporated by
reference as exhibits to the registration statement of which this
prospectus is a part. See "Where You Can Find More
Information."
The Board of Directors
Our bylaws
provide that the number of directors of our company may be
established by our board of directors but may not be fewer than the
minimum number permitted under the MGCL and not more than 15. Our
charter provides that a director may be removed only for cause and
only upon the affirmative vote of a majority of the votes entitled
to be cast in the election of directors. Under our charter, cause
means, with respect to any particular director, conviction of a
felony or a final judgment of court of competent jurisdiction
holding that such director caused demonstrable, material harm to us
through bad faith or active deliberate dishonesty.
Pursuant to our
charter, members of our board of directors serve one year terms and
until their successors are elected and qualified. Holders of shares
of our stock have no right to cumulative voting in the election of
directors. Consequently, at each annual meeting of stockholders at
which our board of directors is elected, all of the members of our
board of directors will be elected if the votes cast for such
directors exceed the votes cast against such directors (with
abstentions and broker non-votes not counted as votes for or
against a nominee's election), provided that a plurality voting
standard will be applicable in the case of a contested election.
Pursuant to our charter, for so long as Ashford Advisor serves as
our external advisor, we are required to include two persons
designated by Ashford Advisor as candidates for election as
director at any stockholder meeting at which directors are
elected.
Business Combinations
Maryland law
prohibits "business combinations" between a corporation and an
interested stockholder or an affiliate of an interested stockholder
for five years after the most recent date on which the interested
stockholder becomes an interested stockholder. These business
combinations include, in circumstances specified in the statute,
certain mergers, consolidations, statutory share exchanges, certain
transfers of assets, certain stock issuances or transfers, certain
liquidation plans, and certain reclassifications, in each case
involving interested stockholders or their affiliates as asset
transfer or issuance or reclassification of equity securities.
Maryland law defines an interested stockholder of a corporation
as:
- •
- any person who
beneficially owns 10% or more of the voting power of the voting
stock of the corporation; 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
10% or more of the voting power of the then-outstanding voting
stock of the corporation.
A person is not
an interested stockholder if the board of directors approves in
advance the transaction by which the person otherwise would have
become an interested stockholder. However, in approving the
transaction, the board of directors may provide that its approval
is subject to compliance, at or after the time of approval, with
any terms and conditions determined by the board of
directors.
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After the
five-year prohibition, any business combination between a
corporation and an interested stockholder generally must be
recommended by the board of directors and approved by the
affirmative vote of at least:
- •
- 80% of the votes
entitled to be cast by holders of the then-outstanding shares of
common stock, voting together as a single group; and
- •
- two-thirds of the
votes entitled to be cast by holders of the common stock other than
shares held by the interested stockholder with whom or with whose
affiliate the business combination is to be effected or shares held
by an affiliate or associate of the interested
stockholder.
These
super-majority vote requirements do not apply if certain fair price
requirements set forth in the MGCL are satisfied.
The statute
permits various exemptions from its provisions, including business
combinations that are approved by the board of directors before the
time that the interested stockholder becomes an interested
stockholder.
Our charter
includes a provision opting out of the business
combination/moratorium provisions of the MGCL. Consequently, the
five-year moratorium and the super-majority vote/fair price
requirements will not apply to business combinations between us and
any interested stockholder of ours unless we later amend our
charter, with stockholder approval, to modify or eliminate this
provision.
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 at a special meeting by the affirmative vote of
two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock in a corporation in respect of which any
of the following persons is entitled to exercise or direct the
exercise of the voting power of shares of stock of the corporation
in the election of directors: (i) a person who makes or
proposes to make a control share acquisition, (ii) an officer
of the corporation or (iii) an employee of the corporation who
is also a director of the corporation. "Control shares" are voting
shares of stock which, if aggregated with all other such shares of
stock previously acquired 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, directly or indirectly, by any person of ownership, or
the power to direct the exercise of voting power with respect to,
issued and outstanding 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 our board of directors 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
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exercise the appraisal
rights provided by the MGCL. 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 to (i) shares
acquired in a merger, consolidation or share exchange if the
corporation is a party to the transaction or (ii) acquisitions
approved or exempted by the charter or bylaws of the corporation at
any time prior to the acquisition of the shares.
Our charter
contains a provision exempting from the control share acquisition
statute any and all acquisitions by any person of our common stock.
Consequently, the control share acquisitions statute will not apply
unless we later amend our charter, with stockholder approval, to
modify or eliminate this provision.
MGCL Title 3, 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, notwithstanding
any contrary provision in the charter or bylaws, to any or all of
the following five provisions: a classified board; a two-thirds
stockholder vote requirement for removal of a director; a
requirement that the number of directors be fixed only by vote of
the directors; a requirement that a vacancy on the board of
directors 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 a requirement that the holders of at least a
majority of all votes entitled to be cast request a special meeting
of stockholders. Through provisions in our charter and bylaws
unrelated to Subtitle 8, we already require that the number of
directors be fixed only by our board of directors and require,
unless called by the Chairman of our board of directors, our
president or chief executive officer or a majority of our board of
directors, the written request of stockholders entitled to cast not
less than a majority of all votes entitled to be cast at such
meeting to call a special meeting. Our board of directors has
adopted a resolution that makes an election prohibiting us from
making any of the elections permitted by Subtitle 8 unless such
election is first approved by a stockholder vote.
Amendment to Our Charter and Bylaws
Our charter may
be amended only if declared advisable by the board of directors and
approved by the affirmative vote of the holders of at least a
majority of all of the votes entitled to be cast on the matter,
except that two-thirds of all votes are required to amend the
provisions of our charter regarding restrictions on the transfer
and ownership of our stock. As permitted by the MGCL, our charter
contains a provision permitting our directors, without any action
by our stockholders, to amend the charter to increase or decrease
the aggregate number of shares of stock of any class or series that
we have authority to issue. Our charter provides that our board of
directors has the exclusive power to adopt, alter or repeal any
provision of our bylaws and make new bylaws.
Dissolution of Our Company
The dissolution
of our company must be declared advisable by the board of directors
and approved by the affirmative vote of the holders of not less
than a majority of all of the votes entitled to be cast on the
matter.
Special Meetings of Stockholders
Special
meetings of stockholders may be called only by our board of
directors, the chairman of our board of directors, our chief
executive officer or, in the case of a stockholder requested
special meeting, by our secretary upon the written request of the
holders of common stock entitled to cast not
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less than a majority
of all votes entitled to be cast at such meeting. Only matters set
forth in the notice of the special meeting may be considered and
acted upon at such a meeting.
Advance Notice of Director Nominations and New
Business
Our bylaws
provide that:
- •
- with respect to an
annual meeting of stockholders, the only business to be considered
and the only proposals to be acted upon, including nominations of
persons for election to our board of directors, will be those
properly brought before the annual meeting:
- •
- pursuant to our
notice of the meeting;
- •
- by, or at the
direction of, our board of directors; or
- •
- by a stockholder who
is entitled to vote at the meeting and has complied with the
advance notice procedures set forth in our bylaws;
- •
- with respect to a
special meeting of stockholders, only the business specified in our
company's notice of meeting may be brought before the meeting of
stockholders; and
- •
- with respect to a
special meeting of stockholders, nominations of persons for
election to our board of directors may be made only:
- •
- by, or at the
direction of, our board of directors; or
- •
- by a stockholder who
is entitled to vote at the meeting and has complied with the
advance notice provisions set forth in our bylaws.
Generally, in
accordance with our bylaws, a stockholder seeking to nominate a
director or bring other business before our annual meeting of
stockholders must deliver a notice to our secretary not less than
90 days nor more than 120 days prior to the first
anniversary of the date of mailing of the notice for the prior
year's annual meeting of stockholders. For a stockholder seeking to
nominate a candidate for our board of directors, the notice must
include all information regarding the nominee that would be
required in connection with the solicitation for the election of
such nominee, including name, address, occupation and number of
shares held. For a stockholder seeking to propose other business,
the notice must include a description of the proposed business, the
reasons for the proposal and other specified matters.
No Stockholder Rights Plan
We do not have,
and we do not intend to adopt, a stockholder rights plan unless our
stockholders approve in advance the adoption of a plan. If our
board of directors adopts a plan for our company, we will submit
the stockholder rights plan to our stockholders for a ratification
vote within 12 months of adoption, without which the plan will
terminate.
Anti-Takeover Effect of Certain Provisions of Maryland Law and of
Our Charter and Bylaws
The provisions
restricting ownership and transfer of our stock in our charter, as
well as the advance notice provisions of our bylaws could delay,
deter or prevent a transaction or a change of control of our
company that might involve a premium price for holders of our
common stock or that stockholders otherwise believe may be in their
best interest. In addition, our board of directors has the power to
increase the aggregate number of authorized shares and classify and
reclassify any unissued shares of our stock into other classes or
series of stock, and to authorize us to issue the newly classified
shares, and could authorize the issuance of shares of common stock
or another class or series of stock, including a class or series of
preferred stock, that could have the effect of delaying, deterring,
or preventing a transaction or a change of control of us. See
"Restrictions on Ownership and Transfer"
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and "Description of
Capital Stock—Power to Increase Authorized Stock and Issue
Additional Shares." Further, our charter and bylaws also provide
that the number of directors may be established only by our board
of directors, which prevents our stockholders from increasing the
number of our directors and filling any vacancies created by such
increase with their own nominees.
If our charter
were to be amended to avail the corporation of the business
combination provisions of the MGCL or to remove or modify the
provision in the charter opting out of the control share
acquisition provisions of the MGCL, or if our stockholders approve
any election under the provisions of Title 3, Subtitle 8, these
provisions of the MGCL could have similar anti-takeover
effects.
Indemnification and Limitation of Directors' and Officers'
Liability
Our charter and
the Partnership Agreement provide for indemnification of our
officers and directors against liabilities to the fullest extent
permitted by Maryland law, as amended from time to time.
Maryland law
requires a corporation (unless its charter provides otherwise,
which our charter does not) to indemnify a director or officer who
has been successful, on the merits or otherwise, in the defense of
any proceeding to which he or she is made a party by reason of his
or her service in that capacity. Maryland law permits a corporation
to indemnify its present and former directors and officers, among
others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a party by reason of their
service in those or other capacities unless it is established
that:
- •
- an act or omission of
the director or officer was material to the matter giving rise to
the proceeding and:
- •
- was committed in bad
faith; or
- •
- was the result of
active and deliberate dishonesty;
- •
- the director or
officer actually received an improper personal benefit in money,
property or services; or
- •
- in the case of any
criminal proceeding, the director or officer had reasonable cause
to believe that the act or omission was unlawful.
However, under
Maryland law, a Maryland corporation may not indemnify for an
adverse judgment in a suit by or in the right of the corporation
(other than for expenses incurred in a successful defense of such
an action) or for a judgment of liability on the basis that
personal benefit was improperly received. In addition, Maryland law
permits a corporation to advance reasonable expenses to a director
or officer upon the corporation's receipt of:
- •
- a written affirmation
by the director or officer of his good faith belief that he or she
has met the standard of conduct necessary for indemnification by
the corporation; and
- •
- a written undertaking
by the director or on the director's behalf to repay the amount
paid or reimbursed by the corporation if it is ultimately
determined that the director did not meet the standard of
conduct.
Maryland law
permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to
the corporation and its stockholders for money damages except for
liability resulting from actual receipt of an improper benefit or
profit in money, property or services or active and deliberate
dishonesty established by a final judgment as being material to the
cause of action. Our charter contains such a provision which
eliminates such liability to the maximum extent permitted by
Maryland law. These limitations of liabilities do not apply to
liabilities arising under the
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federal securities
laws and do not generally affect the availability of equitable
remedies such as injunctive relief or rescission.
Our bylaws
obligate us, to the fullest extent permitted by Maryland law in
effect from time to time, to indemnify and, without requiring a
preliminary determination of the ultimate entitlement to
indemnification, pay or reimburse reasonable expenses in advance of
final disposition of a proceeding to:
- •
- any present or former
director or officer who is made a party to the proceeding by reason
of his or her service in that capacity; or
- •
- any individual who,
while a director or officer of our company and at our request,
serves or has served another corporation, real estate investment
trust, partnership, joint venture, trust, employee benefit plan or
any other enterprise as a director, officer, partner or trustee and
who is made a party to the proceeding by reason of his or her
service in that capacity.
We have entered
into indemnification agreements with our directors and executive
officers that obligate us to indemnify our directors and executive
officers, and advance expenses as described above.
Our bylaws also
obligate us, to the fullest extent permitted by Maryland law in
effect from time to time, to indemnify and advance expenses to any
person who served a predecessor of ours in any of the capacities
described above. Subject to the approval of our board of directors,
we are also obligated, to the fullest extent permitted by Maryland
law in effect from time to time, and to such further extent as we
shall deem appropriate under the circumstances, to indemnify and
advance expenses to any employee or agent of our company or a
predecessor of our company.
The Partnership
Agreement provides that we, as the general partner, and our
officers and directors are indemnified to the fullest extent
permitted by law. See "Partnership Agreement—Exculpation and
Indemnification of the General Partner."
Insofar as the
foregoing provisions permit indemnification of directors, officers
or persons controlling us for liability arising under the
Securities Act, we have been informed that in the opinion of the
SEC, this indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
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PARTNERSHIP AGREEMENT
Management
Our Operating
Partnership has been organized as a Delaware limited partnership.
One of our wholly owned subsidiaries is the sole general partner of
this partnership, and one of our subsidiaries holds limited
Partnership Units in this partnership. As of January 7, 2020,
we owned, through wholly owned subsidiaries, approximately 87.9% of
the partnership interests in our Operating Partnership and the
limited partners of our Operating Partnership owned the remaining
approximately 12.1% of the partnership interests in our Operating
Partnership on a fully diluted basis. In the future, we may issue
additional interests in our Operating Partnership to third
parties.
Pursuant to the
Partnership Agreement, we, as the sole managing member of the
general partner, generally have full, exclusive and complete
responsibility and discretion in the management, operation and
control of the partnership, including the ability to cause the
partnership to enter into certain major transactions, including
acquisitions, developments and dispositions of properties,
borrowings and refinancings of existing indebtedness. No limited
partner may take part in the operation, management or control of
the business of our Operating Partnership by virtue of being a
holder of limited Partnership Units.
Our subsidiary
may not be removed as general partner of the partnership. Upon the
bankruptcy or dissolution of the general partner, the general
partner shall be deemed to be removed automatically.
The limited
partners of our Operating Partnership have agreed that in the event
of a conflict in the fiduciary duties owed (i) by us to our
stockholders and (ii) by us, as general partner of our
Operating Partnership, to those limited partners, we may act in the
best interests of our stockholders without violating our fiduciary
duties to the limited partners of our Operating Partnership or
being liable for any resulting breach of our duties to the limited
partners.
Transferability of Interests
The Partnership
Agreement provides that we may not transfer our interest as a
general partner (including by sale, disposition, merger or
consolidation) except:
- •
- in connection with a
merger of our Operating Partnership, a sale of substantially all of
the assets of our Operating Partnership or other transaction in
which the limited partners receive a certain amount of cash,
securities or property; or
- •
- in connection with a
merger of us or the general partner into another entity, if the
surviving entity contributes substantially all its assets to our
Operating Partnership and assumes the duties of the general partner
under the Partnership Agreement.
The Partnership
Agreement prohibits the sale, assignment, transfer, pledge or
disposition of all or any portion of the Partnership Units held by
limited partners without our consent, which we may give or withhold
in our sole discretion. However, an individual partner may donate
his units to his immediate family or a trust wholly owned by his
immediate family, without our consent. The Partnership Agreement
contains other restrictions on transfer if, among other things,
that transfer:
- •
- would cause us to
fail to comply with the REIT rules under the Code; or
- •
- would cause our
Operating Partnership to become a publicly traded partnership under
the Code.
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Capital Contributions
The Partnership
Agreement provides that if the partnership requires additional
funds at any time in excess of funds available to the partnership
from borrowing or capital contributions, we may borrow such funds
from a financial institution or other lender and lend such funds to
the partnership. Under the Partnership Agreement, we will be
obligated to contribute the proceeds of any offering of stock as
additional capital to our Operating Partnership. Our Operating
Partnership is authorized to cause the partnership to issue
partnership interests for less than fair market value if we
conclude in good faith that such issuance is in both the
partnership's and our best interests.
The Partnership
Agreement provides that we may make additional capital
contributions, including properties, to the partnership in exchange
for additional Partnership Units. If we contribute additional
capital to the partnership and receive additional partnership
interests for such capital contribution, our percentage interests
will be increased on a proportionate basis based on the amount of
such additional capital contribution and the value of the
partnership at the time of such contributions. Conversely, the
percentage interests of the other limited partners will be
decreased on a proportionate basis. In addition, if we contribute
additional capital to the partnership and receive additional
partnership interests for such capital contribution, the capital
accounts of the partners will be adjusted upward or downward to
reflect any unrealized gain or loss attributable to our properties
as if there were an actual sale of such properties at the fair
market value thereof. Limited partners have no preemptive right to
make additional capital contributions.
Our Operating
Partnership could also issue preferred partnership interests in
connection with the acquisitions of property or otherwise. Any such
preferred partnership interests have priority over common
partnership interests with respect to distributions from the
partnership, including the partnership interests that our wholly
owned subsidiaries own.
Redemption Rights
Under the
Partnership Agreement, we have granted to each limited partner
holding common units (other than our subsidiary) the right to
redeem its common units. This right may be exercised at the
election of a limited partner by giving us written notice, subject
to some limitations. The purchase price for the common units to be
redeemed will equal the fair market value of our common stock. The
purchase price for the common units may be paid in cash, or, in our
discretion, by the issuance by us of a number of shares of our
common stock equal to the number of common units with respect to
which the rights are being exercised. However, no limited partner
will be entitled to exercise its redemption rights to the extent
that the issuance of common stock to the redeeming partner would be
prohibited under our charter or, if after giving effect to such
exercise, would cause any person to own, actually or
constructively, more than 9.8% of our common stock, unless such
ownership limit is waived by us in our sole discretion. The common
units issued to the limited partners generally may be redeemed at
any time after the first anniversary of their issuance.
In all cases,
however, no limited partner may exercise the redemption right for
fewer than 2,000 partnership units or, if a limited partner holds
fewer than 2,000 Partnership Units, all of the Partnership Units
held by such limited partner.
Certain of our
executive officers may elect to receive a special class of
Partnership Units in our Operating Partnership referred to as LTIP
Units pursuant to the Second Amended and Restated 2013 Equity
Incentive Plan. LTIP Units vest over a number of years and whether
vested or not, generally receive the same treatment as common units
of our Operating Partnership, with the key difference being, at the
time of the award, LTIP Units do not have full economic parity with
common units but can achieve such parity over time. The LTIP Units
will achieve parity with the common units upon the sale or deemed
sale of all or substantially all of the assets of the partnership
at a time when our stock is trading at some level in excess of the
price it was trading on the date of the LTIP Unit
issuance.
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More specifically,
LTIP Units will achieve full economic parity with common units in
connection with (i) the actual sale of all or substantially
all of the assets of our Operating Partnership or (ii) the
hypothetical sale of such assets, which results from a capital
account revaluation, as defined in the Partnership Agreement, for
our Operating Partnership. A capital account revaluation generally
occurs whenever there is an issuance of additional partnership
interests or the redemption of partnership interests. If a sale, or
deemed sale as a result of a capital account revaluation, occurs at
a time when our Operating Partnership's assets have sufficiently
appreciated, the LTIP Units will achieve full economic parity with
the common units. However, in the absence of sufficient
appreciation in the value of the assets of our Operating
Partnership at the time a sale or deemed sale occurs, full economic
parity would not be reached. If such parity is reached, vested LTIP
Units become convertible into an equal number of common units and
at that time, the holder will have the redemption rights described
above. Until and unless such parity is reached, the LTIP Units are
not redeemable.
As of
January 7, 2020, the aggregate number of shares of common
stock issuable upon exercise of the redemption rights by holders of
common units is 3,921,476. The number of shares of common stock
issuable upon exercise of the redemption rights will be adjusted to
account for share splits, mergers, consolidations or similar pro
rata share transactions.
Conversion Rights
The holders of
the LTIP Units will have the right to convert vested LTIP Units
into ordinary common units on a one-for-one basis at any time after
such LTIP Units have achieved economic parity with the common
units. As of January 7, 2020, there were 616,010 LTIP Units
outstanding, including those eligible for vesting upon satisfaction
of certain performance criteria, approximately 455,959 of which
have reached full economic parity with, and, upon vesting will be
convertible into, the common units. No other limited partners have
any conversion rights.
Operations
The Partnership
Agreement requires the partnership be operated in a manner that
enables us to satisfy the requirements for being classified as a
REIT, to minimize any excise tax liability imposed by the Code and
to ensure that the partnership will not be classified as a
"publicly traded partnership" taxable as a corporation under
Section 7704 of the Code.
In addition to
the administrative and operating costs and expenses incurred by the
partnership, the partnership pays all of our administrative costs
and expenses. These expenses are treated as expenses of the
partnership and generally include:
- •
- all expenses relating
to our continuity of existence;
- •
- all expenses relating
to offerings and registration of securities;
- •
- all expenses
associated with the preparation and filing of any of our periodic
reports under federal, state or local laws or regulations;
- •
- all expenses
associated with our compliance with laws, rules and regulations
promulgated by any regulatory body; and
- •
- all of our other
operating or administrative costs incurred in the ordinary course
of its business on behalf of the partnership.
Distributions
The Partnership
Agreement provides that the partnership will make cash
distributions in amounts and at such times as determined by us in
our sole discretion, to us and other limited partners in accordance
with the respective percentage interests of the partners in the
partnership.
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Upon
liquidation of the partnership, after payment of, or adequate
provisions for, debts and obligations of the partnership, including
any partner loans, any remaining assets of the partnership will be
distributed to us and the other limited partners with positive
capital accounts in accordance with the respective positive capital
account balances of the partners.
Allocations
Profits and
losses of our Operating Partnership (including depreciation and
amortization deductions) for each fiscal year generally are
allocated to us and the other limited partners in accordance with
the respective percentage interests of the partners in the
partnership. All of the foregoing allocations are subject to
compliance with the provisions of Sections 704(b) and 704(c)
of the Code and Treasury regulations promulgated
thereunder.
Amendments
Generally, we,
as sole managing member of the sole general partner of our
Operating Partnership, may amend the Partnership Agreement without
the consent of any limited partner to clarify the Partnership
Agreement, to make changes of an inconsequential nature, to reflect
the admission, substitution or withdrawal of limited partners, to
reflect the issuance of additional partnership interests or if, in
the opinion of counsel, necessary or appropriate to satisfy the
Code with respect to partnerships or REITs or federal or state
securities laws. However, any amendment which alters or changes the
distribution or redemption rights of a limited partner (other than
a change to reflect the seniority of any distribution or
liquidation rights of any preferred units issued in accordance with
the Partnership Agreement), changes the method for allocating
profits and losses, imposes any obligation on the limited partners
to make additional capital contributions or adversely affects the
limited liability of the limited partners requires the consent of
holders of at least two-thirds of the limited Partnership Units.
Other amendments require approval of the general partner and
holders of 50% of the limited Partnership Units.
In addition,
the Partnership Agreement may be amended, without the consent of
any limited partner, in the event that we or any of our
subsidiaries engages in a merger or consolidation with another
entity and immediately after such transaction the surviving entity
contributes to our Operating Partnership substantially all of the
assets of such surviving entity and the surviving entity agrees to
assume our subsidiary's obligation as general partner of the
partnership. In such case, the surviving entity will amend the
Partnership Agreement to arrive at a new method for calculating the
amount a limited partner is to receive upon redemption or
conversion of a Partnership Unit (such method to approximate the
existing method as much as possible).
Exculpation and Indemnification of the General
Partner
The Partnership
Agreement provides that neither the general partner, nor any of its
directors and officers will be liable to the partnership or to any
of its partners as a result of errors in judgment or mistakes of
fact or law or of any act or omission, if the general partner acted
in good faith.
In addition,
the Partnership Agreement requires our Operating Partnership to
indemnify and hold the general partner and its directors, officers
and any other person it designates, harmless from and against any
and all claims arising from operations of our Operating Partnership
in which any such indemnitee may be involved, or is threatened to
be involved, as a party or otherwise, or in which any indemnitee
may be subpoenaed or otherwise requested to provide documents,
testimony or information, unless it is established that:
- •
- the act or omission
of the indemnitee was material to the matter giving rise to the
proceeding and 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
- •
- in the case of any
criminal proceeding, the indemnitee had reasonable cause to believe
that the act or omission was unlawful.
The Partnership
Agreement requires our Operating Partnership advance an indemnitee
all reasonable expenses (including without limitation attorneys'
fees, costs, expenses and disbursements) incurred by an indemnitee
who is a party to or is otherwise involved in, or is subpoenaed or
otherwise requested to provide documents, testimony or information
in connection with, any civil, criminal, administrative or
arbitrative action, suit, inquiry, investigation or proceeding in
advance of the final disposition of such action, suit, inquiry,
investigation or proceeding upon receipt by our Operating
Partnership of (i) a written affirmation by the indemnitee of
the indemnitee's good faith belief that the standard of conduct
necessary for indemnification by our Operating Partnership under
the Partnership Agreement has been met, and (ii) a written
undertaking by or on behalf of the indemnitee to repay the amount
if it shall ultimately be determined that the standard of conduct
has not been met. Each such advancement of expenses shall be made
within five business days after the receipt by our Operating
Partnership of a written request for advancement of
expenses.
No indemnitee
may subject any partner of our Operating Partnership to personal
liability with respect to this indemnification obligation as this
indemnification obligation will be satisfied solely out of the
assets of the partnership.
Term
The partnership
has a perpetual life, unless dissolved upon:
- •
- the general partner's
bankruptcy or dissolution or withdrawal (unless the limited
partners elect to continue the partnership);
- •
- the passage of
90 days after the sale or other disposition of all or
substantially all the assets of the partnership;
- •
- the redemption of all
Partnership Units (other than those held by us, if any); or
- •
- an election by us in
our capacity as the sole owner of the general partner.
Tax Matters
The general
partner is the partnership representative of our Operating
Partnership. We have the authority to make tax elections under the
Code on behalf of the partnership. The net income or net loss of
our Operating Partnership is generally allocated to us and the
limited partners in accordance with our and their respective
percentage interests in the partnership, subject to compliance with
the provisions of the Code.
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MATERIAL U.S. FEDERAL INCOME TAX
CONSIDERATIONS
The following
discussion is a summary of the material federal income tax
considerations associated with our qualification and taxation as a
REIT and the acquisition, ownership, and disposition of our shares
of common stock and preferred stock, including the Series E
Preferred Stock and the Series M Preferred Stock. The
discussion does not address (i) U.S. federal taxes other than
income taxes, or (ii) state, local or non-U.S. taxes. The
discussion also does not address all aspects of taxation that may
be relevant to particular investors in light of their personal
investment or tax circumstances, or to certain types of investors
that are subject to special treatment under the federal income tax
laws, such as:
- •
- insurance
companies;
- •
- financial
institutions or broker-dealers;
- •
- tax-exempt
organizations (except to the limited extent discussed in "—Taxation
of Tax-Exempt Stockholders");
- •
- passive foreign
investment companies or controlled foreign corporations;
- •
- persons who are not
citizens or residents of the United States (except to the limited
extent discussed in "—Taxation of Non-U.S. Holders of
Stock");
- •
- investors who hold or
will hold our capital stock as part of a "straddle," "hedge,"
"conversion transaction," "synthetic security" or other integrated
investment;
- •
- investors subject to
federal alternative minimum tax;
- •
- investors that have a
principal place of business or "tax home" outside the United
States;
- •
- investors whose
functional currency is not the United States dollar;
- •
- U.S.
expatriates;
- •
- investors subject to
special rules under Code Section 892;
- •
- persons who
mark-to-market our capital stock;
- •
- subchapter S
corporations;
- •
- trusts and
estates;
- •
- regulated investment
companies and REITs; and
- •
- persons who receive
our capital stock through the exercise of employee stock options or
otherwise as compensation.
If a partnership,
entity or arrangement treated as a partnership for U.S. federal
income tax purposes holds our capital stock, the federal income tax
treatment of a partner in the partnership will generally depend on
the status of the partner and the activities of the partnership. If
you are a partnership holding our capital stock, you should consult
your tax advisor regarding the consequences to the partnership and
its partners of the purchase, ownership and disposition of our
capital stock by the partnership.
This summary
assumes that stockholders will hold our capital stock as capital
assets.
The statements
of law in this discussion are based on current provisions of the
Code, existing, temporary and final Treasury regulations
thereunder, and current administrative rulings and court decisions.
No assurance can be given that future legislative, judicial, or
administrative actions or decisions, which may be retroactive in
effect, will not affect the accuracy of any statements in this
prospectus with respect to the transactions entered into or
contemplated prior to the effective date of
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such changes. Except
for the private letter ruling we received on October 17, 2019
with respect to the eligible independent contractor status of
certain subsidiaries of Ashford Inc., we have not received any
rulings from the IRS concerning our qualification as a REIT. No
assurance can be given that the IRS would not assert, or that a
court would not sustain, a position contrary to any tax
consequences described below.
We urge you to
consult your own tax advisor regarding the specific tax
consequences to you of ownership of the Securities and of our
election to be taxed as a REIT. Specifically, we urge you to
consult your own tax advisor regarding the federal, state, local,
foreign, and other tax consequences of such ownership and election
and regarding potential changes in applicable tax laws.
Taxation of Our Company
We have elected
to be taxed as a REIT under the federal income tax laws commencing
with our short taxable year ended December 31, 2013. We
believe that, commencing with such taxable year, we have been
organized and operated in such a manner as to qualify for taxation
as a REIT under the Code, and we intend to continue to operate in
such a manner, but no assurance can be given that we will operate
in a manner so as to continue to qualify as a REIT. Additionally,
under applicable Treasury Regulations, if Ashford Trust failed to
qualify as a REIT in any of its 2009 through 2013 taxable years,
unless Ashford Trust's failure to qualify as a REIT was subject to
relief as described below under "—Failure to Qualify," we would be
prevented from electing to qualify as a REIT prior to the fifth
calendar year following the year in which Ashford Trust failed to
qualify. This section discusses the laws governing the federal
income tax treatment of a REIT and its investors. These laws are
highly technical and complex.
In connection
with this prospectus, Locke Lord LLP will issue an opinion to
us to the effect that, commencing with our short taxable year ended
December 31, 2013 through December 31, 2019, we have been
organized and operated in conformity with the requirements for
qualification as a REIT, and our current and proposed method of
operation will enable us to continue to meet the requirements for
qualification and taxation as a REIT under the Code for our taxable
year ending December 31, 2020 and thereafter. Locke
Lord LLP's opinion will be based upon customary assumptions,
will be conditioned upon the accuracy of certain representations
made by us as to factual matters, including representations
regarding the nature of our properties and the prior and future
conduct of our business, and is not binding upon the IRS or any
court. In addition, Locke Lord LLP's opinion is based on
existing federal income tax law governing qualification as a REIT
as of the date of the opinion, which is subject to change either
prospectively or retroactively.
Moreover, our
continued qualification and taxation as a REIT depend upon our
ability to meet on a continuing basis, through actual annual
operating results, certain qualification tests set forth in the
federal tax laws. Those qualification tests include the percentage
of income that we earn from specified sources, the percentage of
our assets that falls within specified categories, the diversity of
our share ownership, and the percentage of our earnings that we
distribute. While Locke Lord LLP will have reviewed those
matters in connection with its opinion, Locke Lord will not review
our compliance with those tests on a continuing basis. Accordingly,
no assurance can be given that the actual results of our operation
for any particular taxable year will satisfy such requirements.
Locke Lord LLP's opinion will not foreclose the possibility
that we may have to use one or more REIT savings provisions
discussed below, which could require us to pay an excise or penalty
tax (which could be material) in order for us to maintain our REIT
qualification. For a discussion of the tax consequences of our
failure to qualify as a REIT, see "—Failure to Qualify."
If we qualify
as a REIT, we generally will not be subject to federal income tax
on the taxable income that we distribute to our stockholders. The
benefit of that tax treatment is that it avoids the "double
taxation," or taxation at both the corporate and stockholder
levels, that generally results from
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owning stock in a
corporation. However, we will be subject to federal tax in the
following circumstances:
- •
- We will pay federal
income tax at regular corporate rates on taxable income, including
net capital gain, that we do not distribute to our stockholders
during, or within a specified time period after, the calendar year
in which the income is earned.
- •
- Under certain
circumstances and for taxable years beginning before
January 1, 2018, we may be subject to the alternative minimum
tax on items of tax preference.
- •
- We will pay income
tax at the highest corporate rate on (1) net income from the
sale or other disposition of property acquired through foreclosure
("foreclosure property") that we hold primarily for sale to
customers in the ordinary course of business and (2) other
non-qualifying income from foreclosure property.
- •
- We will pay a 100%
tax on net income from sales or other dispositions of property,
other than foreclosure property, that we hold primarily for sale to
customers in the ordinary course of business.
- •
- If we fail to satisfy
the 75% gross income test or the 95% gross income test, as
described below under "—Income Tests," and nonetheless continue to
qualify as a REIT because we meet other requirements, we will pay a
100% tax on (1) the gross income attributable to the greater
of the amount by which we fail the 75% and 95% gross income tests,
multiplied by (2) a fraction intended to reflect our
profitability.
- •
- If we fail to
distribute during a calendar year at least the sum of (1) 85%
of our REIT ordinary income for such year, (2) 95% of our REIT
capital gain net income for such year, and (3) any
undistributed taxable income from prior periods, we will pay a 4%
nondeductible excise tax on the excess of this required
distribution over the sum of the amount we actually distributed,
plus any retained amounts on which income tax has been paid at the
corporate level.
- •
- We may elect to
retain and pay income tax on our net long-term capital gain. In
that case, a U.S. holder (as defined below under "—Taxation of
Taxable U.S. Holders of Stock") would be taxed on its proportionate
share of our undistributed long-term capital gain (to the extent
that a timely designation of such gain is made by us to the
stockholder) and would receive a credit or refund for its
proportionate share of the tax we paid.
- •
- If we acquire any
asset from a C corporation, or a corporation that generally is
subject to full corporate-level tax, in a merger or other
transaction in which we acquire a basis in the asset that is
determined by reference to the C corporation's basis in the asset,
we will pay tax at the highest regular corporate rate applicable if
we recognize gain on the sale or disposition of such asset during a
specified period after we acquire such asset. The amount of gain on
which we will pay tax generally is the lesser of: (1) the
amount of gain that we recognize at the time of the sale or
disposition; or (2) the amount of gain that we would have
recognized if we had sold the asset at the time we acquired the
asset.
- •
- We will incur a 100%
excise tax on certain transactions with a TRS that are not
conducted on an arm's-length basis and we will incur such 100%
excise tax if it is determined that we have been undercharged for
certain services provided by a TRS.
- •
- If we fail to satisfy
certain asset tests, described below under "—Asset Tests" and
nonetheless continue to qualify as a REIT because we meet certain
other requirements, we will be subject to a tax of the greater of
$50,000 or at the highest corporate rate on the income generated by
the non-qualifying assets.
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- •
- We may be subject to
a $50,000 tax for each failure if we fail to satisfy certain REIT
qualification requirements, other than income tests or asset tests,
and the failure is due to reasonable cause and not willful
neglect.
In addition,
notwithstanding our qualification as a REIT, we may also have to
pay certain state and local income taxes, because not all states
and localities treat REITs in the same manner that they are treated
for federal income tax purposes. Moreover, as further described
below, any TRS in which we own an interest will be subject to
federal and state corporate income tax on its taxable
income.
Requirements for REIT Qualification
A REIT is a
corporation, trust, or association that meets the following
requirements:
- 1.
- it is managed by one
or more trustees or directors;
- 2.
- its beneficial
ownership is evidenced by transferable shares or by transferable
certificates of beneficial interest;
- 3.
- it would be taxable
as a domestic corporation but for the REIT provisions of the
federal income tax laws;
- 4.
- it is neither a
financial institution nor an insurance company subject to special
provisions of the federal income tax laws;
- 5.
- at least 100 persons
are beneficial owners of its shares or ownership certificates;
- 6.
- no more than 50% in
value of its outstanding shares or ownership certificates is owned,
directly or indirectly, by five or fewer individuals, as defined in
the federal income tax laws to include certain entities, during the
last half of each taxable year;
- 7.
- it elects to be a
REIT, or has made such election for a previous taxable year, and
satisfies all relevant filing and other administrative requirements
established by the IRS that must be met to elect and maintain REIT
status;
- 8.
- it uses a calendar
year for federal income tax purposes and complies with the
recordkeeping requirements of the federal income tax laws;
- 9.
- it meets certain
other qualification tests, described below, regarding the nature of
its income and assets and the amount of its distributions; and
- 10.
- it has no earnings
and profits from any non-REIT taxable year at the close of any
taxable year.
We must meet
requirements 1 through 4, 7, 8 and 9 during our entire taxable
year, must meet requirement 10 at the close of each taxable year
and must meet requirement 5 during at least 335 days of a
taxable year of 12 months, or during a proportionate part of a
taxable year of less than 12 months. If we comply with all the
requirements for ascertaining the ownership of our outstanding
shares in a taxable year and have no reason to know that we
violated requirement 6, we will be deemed to have satisfied
requirement 6 for such taxable year. For purposes of determining
share ownership under requirement 6, an "individual" generally
includes a supplemental unemployment compensation benefits plan, a
private foundation, or a portion of a trust permanently set aside
or used exclusively for charitable purposes. An "individual,"
however, generally does not include a trust that is a qualified
employee pension or profit sharing trust under the federal income
tax laws, and beneficiaries of such a trust will be treated as
holding shares of our stock in proportion to their actuarial
interests in the trust for purposes of requirement 6. Requirements
5 and 6 applied to us beginning with our taxable year ended
December 31, 2014.
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After the
issuance of common stock pursuant to the spin-off, we had issued
sufficient common stock with enough diversity of ownership to
satisfy requirements 5 and 6 set forth above. In addition, our
charter restricts the ownership and transfer of our stock so that
we should continue to satisfy requirements 5 and 6. The provisions
of our charter restricting the ownership and transfer of the stock
are described in "Restrictions on Ownership and Transfer." These
restrictions, however, may not ensure that we will, in all cases,
be able to satisfy such stock ownership requirements. If we fail to
satisfy these stock ownership requirements, our qualification as a
REIT may terminate.
If we comply
with regulatory rules pursuant to which we are required to send
annual letters to holders of our stock requesting information
regarding the actual ownership of our stock, and we do not know, or
exercising reasonable diligence would not have known, whether we
failed to meet requirement 6 above, we will be treated as having
met the requirement.
In addition, we
must satisfy all relevant filing and other administrative
requirements established by the IRS that must be met to elect and
maintain REIT qualification.
Qualified REIT Subsidiaries
A corporation
that is a "qualified REIT subsidiary" is not treated as a
corporation separate from its parent REIT. All assets, liabilities,
and items of income, deduction, and credit of a "qualified REIT
subsidiary" are treated as assets, liabilities, and items of
income, deduction, and credit of the REIT. A "qualified REIT
subsidiary" is a corporation, other than a TRS, all of the capital
stock of which is owned by the REIT. Thus, in applying the
requirements described in this section, any "qualified REIT
subsidiary" that we own will be ignored, and all assets,
liabilities, and items of income, deduction, and credit of that
subsidiary will be treated as our assets, liabilities, and items of
income, deduction, and credit. Similarly, any wholly-owned limited
liability company or certain wholly-owned partnerships that we own
will be disregarded, and all assets, liabilities and items of
income, deduction and credit of such limited liability company will
be treated as ours.
Other Disregarded Entities and Partnerships
An
unincorporated domestic entity, such as a partnership or limited
liability company that has a single owner, generally is not treated
as an entity separate from its parent for federal income tax
purposes. An unincorporated domestic entity with two or more owners
is generally treated as a partnership for federal income tax
purposes. In the case of a REIT that is a partner in a partnership
that has other partners, the REIT is treated as owning its
proportionate share of the assets of the partnership and as earning
its allocable share of the gross income of the partnership for
purposes of the applicable REIT qualification tests. For purposes
of the 10% value test (as described below under "—Asset Tests"),
our proportionate share is based on our proportionate interest in
the equity interests and certain debt securities issued by the
partnership. For all of the other asset and income tests, our
proportionate share is based on our proportionate interest in the
capital interests in the partnership. Our proportionate share of
the assets, liabilities, and items of income of our operating
partnership and of any other partnership, joint venture, or limited
liability company that is treated as a partnership for federal
income tax purposes in which we own or will acquire an interest,
directly or indirectly (each, a "Partnership" and, together, the
"Partnerships"), are treated as our assets and gross income for
purposes of applying the various REIT qualification
requirements.
We may in the
future acquire interests in partnerships and limited liability
companies that are joint ventures in which we do not own general
partner or managing member interests. If a partnership or limited
liability company in which we own an interest takes or expects to
take actions that could jeopardize our qualification as a REIT or
require us to pay tax, we may be forced to dispose of our interest
in such entity. In addition, it is possible that a partnership or
limited liability company could take an action which could cause us
to fail a REIT gross income or asset test, and that we would
not
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become aware of such
action in time to dispose of our interest in the partnership or
limited liability company or take other corrective action on a
timely basis. In that case, we could fail to qualify as a REIT
unless we are able to qualify for a statutory REIT "savings"
provision, which may require us to pay a significant penalty tax to
maintain our REIT qualification.
Taxable REIT Subsidiaries
Subject to
restrictions on the value of TRS securities held by the REIT, a
REIT is permitted to own up to 100% of the stock of one or more
TRSs. A TRS is a fully taxable corporation and is required to pay
regular U.S. federal income tax, and state and local income tax
where applicable, as a non-REIT "C" corporation. In addition, a
taxable REIT subsidiary may be prevented from deducting interest on
debt funded directly or indirectly by us if certain tests are not
satisfied, as described below in "—Interest Deduction Limitation."
The TRS and the REIT must jointly elect to treat the subsidiary as
a TRS. A corporation of which a TRS directly or indirectly owns
more than 35% of the voting power or value of the stock will be
automatically treated as a TRS. A TRS may not directly or
indirectly operate or manage any hotels or health care facilities
or provide rights to any brand name under which any hotel or health
care facility is operated but is permitted to lease hotels from a
related REIT as long as the hotels are operated on behalf of the
TRS by an "eligible independent contractor." Overall, no more than
25% (20% with respect to taxable years beginning after
December 31, 2017) of the value of a REIT's assets may consist
of TRS securities. A timely election has been made with respect to
each of our TRSs. Each of our hotel properties is leased by one of
our TRSs, except that the Ritz Carlton St. Thomas hotel is
owned by one of our TRSs. Additionally, we may form or acquire one
or more additional TRSs in the future. See the separate section
entitled "Taxable REIT Subsidiaries."
Income Tests
We must satisfy
two gross income tests annually to maintain our qualification as a
REIT. First, at least 75% of our gross income for each taxable year
must consist of defined types of income that we derive, directly or
indirectly, from investments relating to real property or mortgages
on real property or qualified temporary investment income.
Qualifying income for purposes of that 75% gross income test
generally includes:
- •
- rents from real
property;
- •
- interest on debt
secured by mortgages on real property or on interests in real
property;
- •
- dividends or other
distributions on, and gain from the sale of, shares in other
REITs;
- •
- gain from the sale of
real estate assets;
- •
- income derived from
the temporary investment of new capital or "qualified temporary
investment income," that is attributable to the issuance of our
stock or a public offering of our debt with a maturity date of at
least five years and that we receive during the one-year period
beginning on the date on which we received such new capital;
and
- •
- income and gain
derived from foreclosure property, as defined below under
"—Foreclosure Property."
Second, in
general, at least 95% of our gross income for each taxable year
must consist of income that is qualifying income for purposes of
the 75% gross income test, other types of dividends and interest,
gain from the sale or disposition of stock or securities, or any
combination of these. Gross income from our sale of any property
that we hold primarily for sale to customers in the ordinary course
of business and cancellation of indebtedness, or COD, income is
excluded from both income tests. Certain foreign currency gains
will be excluded from gross income for purposes of one or both
of
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the gross income
tests, as discussed below in "—Foreign Currency Gain." In addition,
income and gain from "hedging transactions," as defined in the
section below entitled "—Hedging Transactions," that we enter into
will be excluded from both the numerator and the denominator for
purposes of the 95% gross income test and the 75% gross income
test. Rules similar to those applicable to income from "hedging
transactions" apply to income arising from transactions that we
enter into primarily to manage risk of currency fluctuations with
respect to any item of income or gain included in the computation
of the 95% income test or the 75% income test (or any property
which generates such income or gain). The following paragraphs
discuss the specific application of the gross income tests to
us.
Rents from Real Property
Rent that we
receive from real property that we own and lease to tenants will
qualify as "rents from real property," which is qualifying income
for purposes of the 75% and 95% gross income tests, only if the
following conditions are met:
- •
- First, the rent must
not be based, in whole or in part, on the income or profits of any
person but may be based on a fixed percentage or percentages of
gross receipts or gross sales.
- •
- Second, neither we
nor a direct or indirect owner of 10% or more of our shares of
stock may own, actually or constructively, 10% or more of a tenant,
other than a TRS, from whom we receive rent. If the tenant is a TRS
either (i) at least 90% of the property is leased to unrelated
tenants and the rent paid by the TRS is substantially comparable to
the rent paid by the unrelated tenants for comparable space or
(ii) the TRS leases a qualified lodging facility or qualified
health care property and engages an "eligible independent
contractor" to operate such facility or property on its
behalf.
- •
- Third, if the rent
attributable to personal property leased in connection with a lease
of real property exceeds 15% of the total rent received under the
lease, then the portion of rent attributable to that personal
property will not qualify as "rents from real property." If rent
attributable to personal property leased in connection with a lease
of real property is 15% or less of the total rent received under
the lease, then the rent attributable to personal property will
qualify as rents from real property.
- •
- Fourth, we generally
must not operate or manage our real property or furnish or render
services to our tenants, other than through an "independent
contractor" who is adequately compensated, from whom we do not
derive revenue, and who does not, directly or through its
stockholders, own more than 35% of our shares of stock, taking into
consideration the applicable ownership attribution rules. However,
we need not provide services through an "independent contractor,"
but instead may provide services directly to our tenants, if the
services are "usually or customarily rendered" in the geographic
area in connection with the rental of space for occupancy only and
are not considered to be provided for the tenants' convenience. In
addition, we may provide a minimal amount of "non-customary"
services to the tenants of a property, other than through an
independent contractor, as long as our income from the services
(valued at not less than 150% of our direct cost of performing such
services) does not exceed 1% of our income from the related
property. Furthermore, we may own up to 100% of the stock of a TRS
which may provide customary and noncustomary services to our
tenants without tainting our rental income from the related
properties. See "—Taxable REIT Subsidiaries."
Pursuant to
percentage leases, our TRSs lease each of our properties (other
than the Ritz Carlton, St. Thomas hotel, which is owned by one
of our TRSs). The percentage leases provide that our TRSs are
obligated to pay to the Partnerships (1) a minimum base rent
plus percentage rent based on gross revenue and
(2) "additional charges" or other expenses, as defined in the
leases. Percentage rent is
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calculated by
multiplying fixed percentages by revenues for each of the hotels.
Both base rent and the thresholds in the percentage rent formulas
may be adjusted for inflation.
In order for
the base rent, percentage rent, and additional charges to
constitute "rents from real property," the percentage leases must
be respected as true leases for federal income tax purposes and not
treated as service contracts, joint ventures, or some other type of
arrangement. The determination of whether the percentage leases are
true leases depends on an analysis of all the surrounding facts and
circumstances. In making such a determination, courts have
considered a variety of factors, including the
following:
- •
- the property owner's
expectation of receiving a pre-tax profit from the lease;
- •
- the intent of the
parties;
- •
- the form of the
agreement;
- •
- the degree of control
over the property that is retained by the property owner, or
whether the lessee has substantial control over the operation of
the property or is required simply to use its best efforts to
perform its obligations under the agreement;
- •
- the extent to which
the property owner retains the risk of loss with respect to the
property, or whether the lessee bears the risk of increases in
operating expenses or the risk of damage to the property or the
potential for economic gain or appreciation with respect to the
property;
- •
- the lessee will be
obligated to pay, at a minimum, substantial base rent for the
period of use of the properties under the lease; and
- •
- the lessee will stand
to incur substantial losses or reap substantial gains depending on
how successfully it, through the property managers, who work for
the lessees during the terms of the leases, operates the
properties.
In addition, federal
income tax law provides that a contract that purports to be a
service contract or a partnership agreement will be treated instead
as a lease of property if the contract is properly treated as such,
taking into account all relevant factors, including whether or
not:
- •
- the service recipient
is in physical possession of the property;
- •
- the service recipient
controls the property;
- •
- the service recipient
has a significant economic or possessory interest in the property,
or whether the property's use is likely to be dedicated to the
service recipient for a substantial portion of the useful life of
the property, the recipient shares the risk that the property will
decline in value, the recipient shares in any appreciation in the
value of the property, the recipient shares in savings in the
property's operating costs, or the recipient bears the risk of
damage to or loss of the property;
- •
- the service provider
bears the risk of substantially diminished receipts or
substantially increased expenditures if there is nonperformance
under the contract;
- •
- the service provider
uses the property concurrently to provide significant services to
entities unrelated to the service recipient; and
- •
- the total contract
price substantially exceeds the rental value of the property for
the contract period.
Since the
determination of whether a service contract should be treated as a
lease is inherently factual, the presence or absence of any single
factor will not be dispositive in every case.
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We believe that
our percentage leases will be treated as true leases for federal
income tax purposes. Such belief is based, in part, on the
following facts:
- •
- the Partnerships, on
the one hand, and our TRSs, on the other hand, intend for their
relationship to be that of a lessor and lessee, and such
relationship is documented by lease agreements;
- •
- our TRSs have the
right to the exclusive possession, use, and quiet enjoyment of the
hotels during the term of the percentage leases;
- •
- our TRSs bear the
cost of, and are responsible for, day-to-day maintenance and repair
of the hotels and generally dictate how the hotels are operated,
maintained, and improved;
- •
- our TRSs bear all of
the costs and expenses of operating the hotels, including the cost
of any inventory used in their operation, during the term of the
percentage leases, other than, in certain cases, real estate
taxes;
- •
- our TRSs benefit from
any savings in the costs of operating the hotels during the term of
the percentage leases;
- •
- our TRSs generally
indemnify the Partnerships against all liabilities imposed on the
Partnerships during the term of the percentage leases by reason of
(1) injury to persons or damage to property occurring at the
hotels, (2) our TRSs' use, management, maintenance, or repair
of the hotels, (3) any environmental liability caused by acts
or grossly negligent failures to act of our TRSs, (4) taxes
and assessments in respect of the hotels that are the obligations
of our TRSs, or (5) any breach of the percentage leases or of
any sublease of a hotel by our TRSs;
- •
- our TRSs are
obligated to pay, at a minimum, substantial base rent for the
period of use of the hotels;
- •
- our TRSs stand to
incur substantial losses or reap substantial gains depending on how
successfully they operate the hotels;
- •
- the Partnerships
cannot use the hotels concurrently to provide significant services
to entities unrelated to our TRSs;
- •
- the total contract
price under the percentage leases does not substantially exceed the
rental value of the hotels for the term of the percentage
leases;
- •
- each lease, at the
time we entered into it enabled the tenant to derive a meaningful
profit, after expenses and taking into account the risks associated
with the lease, from the operation of the hotels during the term of
its leases (and we expect that each lease, at any time it is
subsequently renewed or extended, will do the same); and
- •
- upon termination of
each lease, the applicable hotel is expected to have a substantial
remaining useful life and substantial remaining fair market
value.
Investors
should be aware that there are no controlling Treasury regulations,
published rulings, or judicial decisions involving leases with
terms substantially the same as the percentage leases that discuss
whether such leases constitute true leases for federal income tax
purposes. If the percentage leases are characterized as service
contracts or partnership agreements, rather than as true leases,
part or all of the payments that the Partnerships receive from our
TRSs may not be considered rent or may not otherwise satisfy the
various requirements for qualification as "rents from real
property." In that case, we likely would not be able to satisfy
either the 75% or 95% gross income test and, as a result, would
lose our REIT status.
As described
above, in order for the rent received by us to constitute "rents
from real property," several other requirements must be satisfied.
One requirement is that the percentage rent must not be
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based in whole or in
part on the income or profits of any person. The percentage rent,
however, will qualify as "rents from real property" if it is based
on percentages of gross receipts or gross sales and the
percentages:
- •
- are fixed at the time
the percentage leases are entered into;
- •
- are not renegotiated
during the term of the percentage leases in a manner that has the
effect of basing percentage rent on income or profits; and
- •
- conform with normal
business practice.
More generally,
the percentage rent will not qualify as "rents from real property"
if, considering the percentage leases and all the surrounding
circumstances, the arrangement does not conform with normal
business practice, but is in reality used as a means of basing the
percentage rent on income or profits. Since the percentage rent is
based on fixed percentages of the gross revenues from the hotels
that are established in the percentage leases, and we believe (and
have represented to Locke Lord LLP in connection with its
opinion) that the percentages (1) will not be renegotiated
during the terms of the percentage leases in a manner that has the
effect of basing the percentage rent on income or profits and
(2) conform with normal business practice, the percentage rent
should not be considered based in whole or in part on the income or
profits of any person. Furthermore, we anticipate (and have
represented to Locke Lord LLP in connection with its opinion)
that, with respect to other hotel properties that we acquire in the
future, we will not charge rent for any property that is based in
whole or in part on the income or profits of any person, except by
reason of being based on a fixed percentage of gross receipts or
gross sales, as described above.
Another
requirement for qualification of our rent as "rents from real
property" is that we must not own, actually or constructively, 10%
or more of the stock of any corporate lessee or 10% or more of the
assets or net profits of any non-corporate lessee (a "related party
tenant") other than a TRS. All of our hotels are leased to TRSs. In
addition, our charter prohibits transfers of our stock that would
cause us to own actually or constructively, 10% or more of the
ownership interests in any non-TRS lessee. Based on the foregoing,
we should never own, actually or constructively, 10% or more of any
lessee other than a TRS. However, because the constructive
ownership rules are broad and it is not possible to monitor
continually direct and indirect transfers of our stock, no absolute
assurance can be given that such transfers or other events of which
we have no knowledge will not cause us to own constructively 10% or
more of a lessee (or a subtenant, in which case only rent
attributable to the subtenant is disqualified) other than a TRS at
some future date.
As described
above, we may own up to 100% of the capital stock of one or more
TRSs. A TRS is a fully taxable corporation that generally may
engage in any business, including the provision of customary or
noncustomary services to tenants of its parent REIT, except that a
TRS may not directly or indirectly operate or manage any lodging
facilities or health care facilities or provide rights to any brand
name under which any lodging or health care facility is operated,
unless such rights are provided to an "eligible independent
contractor" to operate or manage a lodging or health care facility
if such rights are held by the TRS as a franchisee, licensee, or in
a similar capacity and such hotel is either owned by the TRS or
leased to the TRS by its parent REIT. A TRS will not be considered
to operate or manage a qualified lodging facility solely because
the TRS directly or indirectly possesses a license, permit, or
similar instrument enabling it to do so. Additionally, a TRS that
employs individuals working at a qualified lodging facility outside
the United States will not be considered to operate or manage a
qualified lodging facility located outside of the United States, as
long as an "eligible independent contractor" is responsible for the
daily supervision and direction of such individuals on behalf of
the TRS pursuant to a management agreement or similar service
contract. However, rent that we receive from a TRS with respect to
any property will qualify as "rents from real property" as long as
the property is a "qualified lodging facility" and such property is
operated on behalf of the TRS by a person from whom we derive no
income who is adequately compensated, who does not, directly
or
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through its
stockholders, own more than 35% of our shares, taking into account
certain ownership attribution rules, and 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 (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, unless wagering activities are 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. See "—Taxable REIT Subsidiaries."
Our TRSs have
engaged third-party hotel managers that qualify as "eligible
independent contractors" to operate the related hotels on behalf of
such TRS lessees.
A third
requirement for qualification of our rent as "rents from real
property" is that the rent attributable to the personal property
leased in connection with the lease of a hotel must not be greater
than 15% of the total rent received under the lease. The rent
attributable to the personal property contained in a hotel is the
amount that bears the same ratio to total rent for the taxable year
as the average of the fair market values of the personal property
at the beginning and at the end of the taxable year bears to the
average of the aggregate fair market values of both the real and
personal property contained in the hotel at the beginning and at
the end of such taxable year (the "personal property ratio"). With
respect to each hotel, we believe either that the personal property
ratio is less than 15% or that any income attributable to excess
personal property will not jeopardize our ability to qualify as a
REIT. There can be no assurance, however, that the IRS would not
challenge our calculation of a personal property ratio or that a
court would not uphold such assertion. If such a challenge were
successfully asserted, we could fail to satisfy the 95% or 75%
gross income test and thus lose our REIT status.
A fourth
requirement for qualification of our rent as "rents from real
property" is that, other than within the 1% de minimis exception
described above (i.e., we may provide a minimal amount of
"non-customary" services to the tenants of a property, other than
through an independent contractor, as long as our income from the
services does not exceed 1% of our income from the related
property) and other than through a TRS, we cannot furnish or render
noncustomary services to the tenants of our hotels, or manage or
operate our hotels, other than through an independent contractor
who is adequately compensated and from whom we do not derive or
receive any income. Provided that the percentage leases are
respected as true leases, we should satisfy that requirement,
because the Partnerships will not perform any services other than
customary services for our TRSs. Furthermore, we have represented
that, with respect to other hotel properties that we acquire in the
future, we will not perform noncustomary services for our
TRSs.
If a portion of
our rent from a hotel does not qualify as "rents from real
property" because the rent attributable to personal property
exceeds 15% of the total rent for a taxable year, the portion of
the rent that is attributable to personal property will not be
qualifying income for purposes of either the 75% or 95% gross
income test. Thus, if such rent attributable to personal property,
plus any other income that is nonqualifying income for purposes of
the 95% gross income test, during a taxable year exceeds 5% of our
gross income during the year, we would lose our REIT status. If,
however, the rent from a particular hotel does not qualify as
"rents from real property" because either (1) the percentage
rent is considered based on the income or profits of the related
lessee, (2) the lessee is a related party tenant other than a
TRS, or (3) we furnish noncustomary services to the tenants of
the hotel, or manage or operate the hotel, other than through a
qualifying independent contractor or a TRS, none of the rent from
that hotel would qualify as "rents from real property." In that
case, we likely would be unable to satisfy either the 75% or 95%
gross income test and, as a result, would lose our REIT status.
However, in either situation, we may still qualify as a REIT if the
relief described below under "—Failure to Satisfy Gross Income
Tests" is available to us.
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In addition to
the rent, our TRSs are required to pay to the Partnerships certain
additional charges. To the extent that such additional charges
represent either (1) reimbursements of amounts that the
Partnerships are obligated to pay to third parties or
(2) penalties for nonpayment or late payment of such amounts,
such charges should qualify as "rents from real property." However,
to the extent that such charges represent interest that is accrued
on the late payment of the rent or additional charges, such charges
will not qualify as "rents from real property," but instead should
be treated as interest that qualifies for the 95% gross income
test.
Interest
The term
"interest," as defined for purposes of both the 75% and 95% gross
income tests, generally does not include any amount received or
accrued, directly or indirectly, if the determination of such
amount depends in whole or in part on the income or profits of any
person. However, interest generally includes the following:
(i) an amount that is based on a fixed percentage or
percentages of receipts or sales, and (ii) an amount that is
based on the income or profits of a debtor, as long as the debtor
derives substantially all of its income from the real property
securing the debt from leasing substantially all of its interest in
the property, and only to the extent that the amounts received by
the debtor would be qualifying "rents from real property" if
received directly by a REIT. Furthermore, to the extent that
interest from a loan that is based on the residual cash proceeds
from the sale of the property securing the loan constitutes a
"shared appreciation provision," income attributable to such
participation feature will be treated as gain from the sale of the
secured property.
Dividends
Our share of
any dividends received from any corporation (including any TRS, but
excluding any REIT) in which we own an equity interest will qualify
for purposes of the 95% gross income test but not for purposes of
the 75% gross income test. Our share of any dividends or other
distributions received from any other REIT in which we own an
equity interest will be qualifying income for purposes of both
gross income tests.
COD Income
From
time-to-time, we and our subsidiaries may recognize cancellation of
indebtedness income ("COD income") in connection with repurchasing
debt at a discount. COD income is excluded from gross income for
purposes of both the 95% gross income test and the 75% gross income
test.
Foreign Currency Gain
Certain foreign
currency gains will be excluded from gross income for purposes of
one or both of the gross income tests. "Real estate foreign
exchange gain" is excluded from gross income for purposes of the
75% gross income test. Real estate foreign exchange gain generally
includes foreign currency gain attributable to any item of income
or gain that is qualifying income for purposes of the 75% gross
income test, foreign currency gain attributable to the acquisition
or ownership of (or becoming or being the obligor under)
obligations secured by mortgages on real property or on interest in
real property and certain foreign currency gain attributable to
certain "qualified business units" of a REIT. "Passive foreign
exchange gain" is excluded from gross income for purposes of the
95% gross income test. Passive foreign exchange gain generally
includes real estate foreign exchange gain as described above, and
also includes foreign currency gain attributable to any item of
income or gain that is qualifying income for purposes of the 95%
gross income test and foreign currency gain attributable to the
acquisition or ownership of (or becoming or being the obligor
under) obligations. Because passive foreign exchange gain includes
real estate foreign exchange gain, real estate foreign exchange
gain is excluded from gross income for purposes of both the 75% and
95% gross income tests. These exclusions for real estate foreign
exchange gain and passive foreign exchange gain do not apply
to
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foreign currency gain
derived from dealing, or engaging in substantial and regular
trading, in securities. Such gain is treated as nonqualifying
income for purposes of both the 75% and 95% gross income
tests.
Prohibited Transactions
A REIT will
incur a 100% tax on the net income (including foreign currency
gain) derived from any sale or other disposition of property, other
than foreclosure property, that the REIT holds primarily for sale
to customers in the ordinary course of a trade or business. Whether
a REIT holds an asset "primarily for sale to customers in the
ordinary course of a trade or business" depends on the facts and
circumstances in effect from time to time, including those related
to a particular asset. We believe that none of the assets owned by
the Partnerships is held primarily for sale to customers and that a
sale of any such asset would not be to a customer in the ordinary
course of the owning entity's business. There are safe-harbor
provisions in the federal income tax laws prescribing when an asset
sale will not be characterized as a prohibited transaction. We
cannot provide assurance, however, that we can comply with such
safe-harbor provisions or that the Partnerships will avoid owning
property that may be characterized as property held "primarily for
sale to customers in the ordinary course of a trade or
business."
Foreclosure Property
We will be
subject to tax at the maximum corporate rate on any income
(including foreign currency gain) from foreclosure property, other
than income that would be qualifying income for purposes of the 75%
gross income test, less expenses directly connected with the
production of such income. However, gross income from such
foreclosure property will qualify for purposes of the 75% and 95%
gross income tests. "Foreclosure property" is any real property,
including interests in real property, and any personal property
incident to such real property:
- •
- that is acquired by a
REIT as the result of such REIT having bid on such property at
foreclosure, or having otherwise reduced such property to ownership
or possession by agreement or process of law, after there was a
default or default was imminent on a lease of such property or on
an indebtedness that such property secured;
- •
- for which the related
loan or lease was acquired by the REIT at a time when the REIT had
no intent to evict or foreclose or the REIT did not know or have
reason to know that default would occur; and
- •
- for which such REIT
makes a proper election to treat such property as foreclosure
property.
However, a REIT
will not be considered to have foreclosed on a property where the
REIT takes control of the property as a mortgagee-in-possession and
cannot receive any profit or sustain any loss except as a creditor
of the mortgagor. Property generally ceases to be foreclosure
property with respect to a REIT at the end of the third taxable
year following the taxable year in which the REIT acquired such
property, or longer if an extension is granted by the Secretary of
the Treasury. The foregoing grace period is terminated and
foreclosure property ceases to be foreclosure property on the first
day:
- •
- on which a lease is
entered into with respect to such property that, by its terms, will
give rise to income that does not qualify for purposes of the 75%
gross income test or any amount is received or accrued, directly or
indirectly, pursuant to a lease entered into on or after such day
that will give rise to income that does not qualify for purposes of
the 75% gross income test;
- •
- on which any
construction takes place on such property, other than completion of
a building, or any other improvement, where more than 10% of the
construction of such building or other improvement was completed
before default became imminent; or
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- •
- which is more than
90 days after the day on which such property was acquired by
the REIT and the property is used in a trade or business which is
conducted by the REIT, other than through an independent contractor
from whom the REIT itself does not derive or receive any income or,
for taxable years beginning after December 31, 2015, through a
TRS.
As a result of
the rules with respect to foreclosure property, if a lessee
defaults on its obligations under a percentage lease, we terminate
the lessee's leasehold interest, and we are unable to find a
replacement lessee for the hotel within 90 days of such
foreclosure, gross income from hotel operations conducted by us
from such hotel would cease to qualify for the 75% and 95% gross
income tests unless we are able to hire an independent contractor
or, for taxable years beginning after December 31, 2015, use a
TRS to manage and operate the hotel. In such event, we might be
unable to satisfy the 75% and 95% gross income tests and, thus,
might fail to qualify as a REIT.
Hedging Transactions
From time to
time, we may enter into hedging transactions with respect to one or
more of our assets or liabilities. Our hedging activities may
include entering into interest rate swaps, caps, floors, options to
purchase such items, futures and forward contracts. To the extent
that we enter into hedging transactions, income arising from
"clearly identified" hedging transactions that are entered into by
the REIT in the normal course of business, either directly or
through certain subsidiary entities, to manage the risk of interest
rate movements, price changes, or currency fluctuations with
respect to borrowings or obligations incurred or to be incurred by
the REIT to acquire or carry real estate assets is excluded from
the 95% income test and the 75% income test. In general, for a
hedging transaction to be "clearly identified," (A) the
transaction must be identified as a hedging transaction before the
end of the day on which it is entered into, and (B) the items
or risks being hedged must be identified "substantially
contemporaneously" with the hedging transaction, meaning that the
identification of the items or risks being hedged must generally
occur within 35 days after the date the transaction is entered
into. Rules similar to those applicable to income from hedging
transactions, discussed above, apply to income arising from
transactions that are entered into by the REIT primarily to manage
risk of currency fluctuations with respect to any item of income or
gain included in the computation of the 95% income test or the 75%
income test (or any property which generates such income or gain).
In addition, for taxable years ending after December 31, 2015,
similar rules apply to income from positions that primarily manage
risk with respect to a prior hedge entered into by a REIT in
connection with the extinguishment or disposal (in whole or in
part) of the liability or asset related to such prior hedge, to the
extent the new position qualifies as a hedge or would so qualify if
the hedge position were ordinary property. We intend to structure
any hedging transactions in a manner that does not jeopardize our
status as a REIT. The REIT income and asset rules may limit our
ability to hedge loans or securities acquired as
investments.
We may enter
into derivative transactions to protect against risks not
specifically associated with debt incurred to acquire qualified
REIT assets. The REIT provisions of the Code limit our income and
assets in each year from such derivative transactions. Failure to
comply with the asset or income limitations within the REIT
provisions of the Code could result in penalty taxes or loss of our
REIT status. We may contribute non-qualifying derivatives into our
TRSs to preserve our REIT status, which may result in any income
from such transactions being subject to federal income
taxation.
Failure to Satisfy Gross Income Tests
If we fail to
satisfy one or both of the gross income tests for any taxable year,
we nevertheless may qualify as a REIT for such year if we qualify
for relief under certain provisions of the federal income tax laws.
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
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- •
- following our
identification of the failure to meet one or both gross income
tests for a taxable year, a description of each item of our gross
income included in the 75% or 95% gross income tests is set forth
in a schedule for such taxable year filed as specified by Treasury
regulations.
We cannot predict,
however, whether in all circumstances we would qualify for the
relief provisions. In addition, as discussed above in "—Taxation of
Our Company," even if the relief provisions apply, we would incur a
100% tax on the gross income attributable to the greater of the
amounts by which we fail the 75% and 95% gross income tests,
multiplied by a fraction intended to reflect our
profitability.
Asset Tests
To maintain our
qualification as a REIT, we also must satisfy the following asset
tests at the close of each quarter of each taxable year:
- •
- First, at least 75%
of the value of our total assets must consist of:
- •
- cash or cash items,
including certain receivables;
- •
- government
securities;
- •
- interests in real
property, including leaseholds and options to acquire real property
and leaseholds;
- •
- interests in
mortgages on real property or, for taxable years beginning after
December 31, 2015, on interests in real property;
- •
- for taxable years
beginning after December 31, 2015, interests in mortgages on
both real and personal property where the fair market value of such
personal property does not exceed 15% of the total fair market
value of all such property;
- •
- for taxable years
beginning after December 31, 2015, personal property to the
extent that rents attributable to such personal property are
treated as rents from real property under the income test, as
discussed above under "—Rents From Real Property;"
- •
- stock in other
REITs;
- •
- for taxable years
beginning after December 31, 2015, debt issued by publicly
offered REITs; and
- •
- investments in stock
or debt instruments during the one-year period following our
receipt of new capital that we raise through equity offerings or
offerings of debt with at least a five-year term.
- •
- Second, except with
respect to a TRS, of our investments not included in the 75% asset
class, the value of our interest in any one issuer's securities may
not exceed 5% of the value of our total assets.
- •
- Third, except with
respect to a TRS, of our investments not included in the 75% asset
class, we may not own more than 10% of the voting power or value of
any one issuer's outstanding securities (the "10% vote test" or the
"10% value test," respectively).
- •
- Fourth, no more than
20% (25% with respect to our taxable years beginning before
January 1, 2018) of the value of our total assets may consist
of the securities of one or more TRSs.
- •
- Fifth, for taxable
years beginning after December 31, 2015, no more than 25% of
the value of our total assets may consist of certain debt issued by
publicly offered REITs.
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For purposes of
the second and third asset tests, the term "securities" does not
include stock in another REIT, equity or debt securities of a
qualified REIT subsidiary or TRS, or equity interests in a
partnership. For purposes of the 10% value test, the term
"securities" does not include:
- •
- "Straight debt"
securities, which is defined as a written unconditional promise to
pay on demand or on a specified date a sum certain in money if
(i) the debt is not convertible, directly or indirectly, into
stock, and (ii) the interest rate and interest payment dates
are not contingent on profits, the borrower's discretion, or
similar factors. "Straight debt" securities do not include any
securities issued by a partnership or a corporation in which we or
any controlled TRS (i.e., a TRS in which we own directly or
indirectly more than 50% of the voting power or value of the stock)
hold non-"straight debt" securities that have an aggregate value of
more than 1% of the issuer's outstanding securities. However,
"straight debt" securities include debt subject to the following
contingencies:
- •
- a contingency
relating to the time of payment of interest or principal, as long
as either (i) there is no change to the effective yield of the
debt obligation, other than a change to the annual yield that does
not exceed the greater of 0.25% or 5% of the annual yield, or
(ii) neither the aggregate issue price nor the aggregate face
amount of the issuer's debt obligations held by us exceeds
$1 million and no more than 12 months of unaccrued
interest on the debt obligations can be required to be prepaid;
and
- •
- a contingency
relating to the time or amount of payment upon a default or
prepayment of a debt obligation, as long as the contingency is
consistent with customary commercial practice.
- •
- Any loan to an
individual or an estate.
- •
- Any "section 467
rental agreement," other than an agreement with a related party
tenant.
- •
- Any obligation to pay
"rents from real property."
- •
- Certain securities
issued by governmental entities.
- •
- Any security issued
by a REIT.
- •
- Any debt instrument
of an entity treated as a partnership for federal income tax
purposes to the extent of our interest as a partner in the
partnership.
- •
- Any debt instrument
of an entity treated as a partnership for federal income tax
purposes not described in the preceding bullet points if at least
75% of the partnership's gross income, excluding income from
prohibited transactions, is qualifying income for purposes of the
75% gross income test described above in "—Income
Tests."
For purposes of
the 10% value test, our proportionate share of the assets of a
partnership is our proportionate interest in any securities issued
by the partnership, without regard to the securities described in
the last two bullet points above.
We monitor the
status of our assets for purposes of the various asset tests and
seek to manage our assets to comply at all times with such tests.
There can be no assurances, however, that we will be successful in
this effort. In this regard, to determine our compliance with these
requirements, we need to estimate the value of the real estate
securing our mortgage loans at various times. In addition, we have
to value our investment in our other assets to ensure compliance
with the asset tests. Although we seek to be prudent in making
these estimates, there can be no assurances that the IRS might not
disagree with these determinations and assert that a different
value is applicable, in which case we might not satisfy the 75% and
the other asset tests and would fail to qualify as a
REIT.
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If we fail to
satisfy the asset tests at the end of a calendar quarter, we will
not lose our REIT qualification if:
- •
- 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.
If we did not
satisfy the condition described in the second item, above, we still
could avoid disqualification by eliminating any discrepancy within
30 days after the close of the calendar quarter in which it
arose.
If we violate
the second or third asset tests described above at the end of any
calendar quarter, we will not lose our REIT qualification if
(i) the failure is de minimis (up to the lesser of 1% of our
assets or $10 million) and (ii) we dispose of assets or
otherwise comply with the asset tests within six months after the
last day of the quarter in which we identified such failure. In the
event of a more than de minimis failure of any of the asset tests,
as long as the failure was due to reasonable cause and not to
willful neglect, we will not lose our REIT qualification if we
(i) dispose of assets or otherwise comply with the asset tests
within six months after the last day of the quarter in which we
identified such failure, (ii) file a schedule with the
IRS describing the assets that caused such failure in accordance
with regulations promulgated by the Secretary of Treasury and
(iii) pay a tax equal to the greater of $50,000 or the highest
rate of federal corporate income tax of the net income from the
nonqualifying assets during the period in which we failed to
satisfy the asset tests.
Distribution Requirements
Each taxable
year, we must distribute dividends, other than capital gain
dividends and deemed distributions of retained capital gain, to our
stockholders in an aggregate amount at least equal to:
- •
- the sum of
(1) 90% of our "REIT taxable income," computed without regard
to the dividends paid deduction and our net capital gain, and
(2) 90% of our after-tax net income, if any, from foreclosure
property; minus
- •
- the sum of certain
items of non-cash income.
We must pay
such distributions in the taxable year to which they relate, or in
the following taxable year if we declare the distribution before we
timely file our federal income tax return for such year and pay the
distribution on or before the first regular dividend payment date
after such declaration. Any dividends declared in the last three
months of the taxable year, payable to stockholders of record on a
specified date during such period, will be treated as paid on
December 31 of such year if such dividends are distributed
during January of the following year.
We will pay
federal income tax on taxable income, including net capital gain,
that we do not distribute to our stockholders. Furthermore, if we
fail to distribute during a calendar year, or by the end of January
following such calendar year in the case of distributions with
declaration and record dates falling in the last three months of
the calendar year, at least the sum of:
- •
- 85% of our REIT
ordinary income for such year;
- •
- 95% of our REIT
capital gain income for such year; and
- •
- any undistributed
taxable income from prior periods,
we will incur a 4%
nondeductible excise tax on the excess of such required
distribution over the amounts we actually distributed. We may elect
to retain and pay income tax on the net long-term capital gain we
receive in a taxable year. See "—Taxation of Taxable U.S. Holders
of Stock—
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Distributions." If we
so elect, we will be treated as having distributed any such
retained amount for purposes of the 4% excise tax described above.
We intend to make timely distributions sufficient to satisfy the
annual distribution requirements.
It is possible
that, from time to time, we may experience timing differences
between (1) the actual receipt of income and actual payment of
deductible expenses, and (2) the inclusion of that income and
deduction of such expenses in arriving at our REIT taxable income.
For example, under some of the percentage leases, the percentage
rent is not due until after the end of the calendar quarter. In
that case, we still would be required to recognize as income the
excess of the percentage rent over the base rent paid by the lessee
in the calendar quarter to which such excess relates. In addition,
we may not deduct recognized net capital losses from our "REIT
taxable income." Further, it is possible that, from time to time,
we may be allocated a share of net capital gain attributable to the
sale of depreciated property that exceeds our allocable share of
cash attributable to that sale. Furthermore, generally for taxable
years beginning after December 31, 2017, subject to certain
exceptions, generally we must accrue income for U.S. federal income
tax purposes no later than the time when such income is taken into
account as revenue in our financial statements, which could create
additional differences between REIT taxable income and the receipt
of cash attributable to such income. As a result of the foregoing,
we may have less cash than is necessary to distribute all of our
taxable income and thereby avoid corporate income tax and the
excise tax imposed on certain undistributed income. In such a
situation, we may need to borrow funds or issue additional common
or preferred shares.
We may satisfy
the REIT annual distribution requirements by making taxable
distributions of our stock. The IRS has issued private letter
rulings to other REITs treating certain distributions that are paid
partly in cash and partly in stock as dividends that would satisfy
the REIT annual distribution requirement and qualify for the
dividends paid deduction for federal income tax purposes. Those
rulings may be relied upon only by taxpayers to whom they were
issued, but we could request a similar ruling from the IRS.
Accordingly, it is unclear whether and to what extent we will be
able to make taxable dividends payable in cash and stock. We
currently do not intend to pay taxable dividends payable in cash
and stock.
For taxable
years beginning on or before December 31, 2014, in order for
distributions to be counted towards our distribution requirement
and to give rise to a tax deduction by us, they must not be
"preferential dividends." A dividend is not a preferential dividend
if it is pro rata among all outstanding shares of stock within a
particular class and is in accordance with the preferences among
different classes of stock as set forth in the organizational
documents. For taxable years beginning after December 31,
2014, preferential dividends are generally not excluded from our
distribution requirement.
Under certain
circumstances, we may be able to correct a failure to meet the
distribution requirement for a year by paying "deficiency
dividends" to our stockholders in a later year. We may include such
deficiency dividends in our deduction for dividends paid for the
earlier year. Although we may be able to avoid income tax on
amounts distributed as deficiency dividends, we will be required to
pay interest to the IRS based upon the amount of any deduction we
take for deficiency dividends.
Interest Deduction Limitation
Commencing in
taxable years beginning after December 31, 2017, the
deductibility of net interest expense paid or accrued on debt
properly allocable to a trade or business is limited to 30% of
"adjusted taxable income," subject to certain exceptions. Any
deduction in excess of the limitation is carried forward and may be
used in a subsequent year, subject to the 30% limitation. Adjusted
taxable income is determined without regard to certain deductions,
including those for net interest expense, net operating loss
carryforwards and, for taxable years beginning before
January 1, 2022, depreciation, amortization and depletion.
Provided the taxpayer makes a timely election (which is
irrevocable), the
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30% limitation does
not apply to a trade or business involving real property
development, redevelopment, construction, reconstruction, rental,
operation, acquisition, conversion, disposition, management,
leasing or brokerage, within the meaning of
Section 469(c)(7)(C) of the Code. We have made this election
and as a consequence, depreciable real property (including certain
improvements) held by us must be depreciated under the alternative
depreciation system under the Code, which is generally less
favorable than the generally applicable system of depreciation
under the Code. If the election is determined not to be available
with respect to all or certain of our business activities, the new
interest deduction limitation could result in us having more REIT
taxable income and thus increase the amount of distributions we
must make to comply with the REIT requirements and avoid incurring
corporate level tax. Similarly, the limitation could cause our TRSs
to have greater taxable income and thus potentially greater
corporate tax liability.
Recordkeeping Requirements
To avoid a
monetary penalty, we must request on an annual basis information
from our stockholders designed to disclose the actual ownership of
our outstanding shares of stock. We intend to comply with such
requirements.
Failure to Qualify
If we fail to
satisfy one or more requirements for REIT qualification, other than
the gross income tests and the asset tests, we could avoid
disqualification if our failure is due to reasonable cause and not
to willful neglect and we pay a penalty of $50,000 for each such
failure. In addition, there are relief provisions for a failure of
the gross income tests and asset tests, as described in "—Income
Tests" and "—Asset Tests."
If we were to
fail to qualify as a REIT in any taxable year, and no relief
provision applied, we would be subject to federal income tax on our
taxable income at regular corporate rates and any applicable
alternative minimum tax (for taxable years beginning before
January 1, 2018). In calculating our taxable income in a year
in which we failed to qualify as a REIT, we would not be able to
deduct amounts paid out to stockholders. In fact, we would not be
required to distribute any amounts to stockholders in such year. In
such event, to the extent of our current and accumulated earnings
and profits, all distributions to stockholders would be taxable as
regular corporate dividends. If we fail to qualify as a REIT, for
taxable years beginning after December 31, 2017 and before
January 1, 2026, U.S. holders that are individuals, trusts or
estates would not be able to deduct 20% of the aggregate amount of
ordinary dividends distributed by us, subject to certain
limitations. Subject to certain limitations of the federal income
tax laws, corporate stockholders might be eligible for the
dividends received deduction and individual and certain
non-corporate trust and estate stockholders may be eligible for a
reduced maximum U.S. federal income tax rate of 20% on such
dividends. Unless we qualified for relief under specific statutory
provisions, we also would be disqualified from taxation as a REIT
for the four taxable years following the year during which we
ceased to qualify as a REIT. We cannot predict whether in all
circumstances we would qualify for such statutory
relief.
Taxation of Taxable U.S. Holders of Stock
The term "U.S.
holder" means a holder of our capital stock that for U.S. federal
income tax purposes is a "U.S. person." A U.S. person
means:
- •
- a citizen or resident
of the United States;
- •
- a corporation
(including an entity treated as a corporation for U.S. federal
income tax purposes) created or organized in or under the laws of
the United States, any of its states, or the District of
Columbia;
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- •
- an estate whose
income is subject to U.S. federal income taxation regardless of its
source; or
- •
- any trust if
(1) a U.S. court is able to exercise primary supervision over
the administration of such trust and one or more U.S. persons have
the authority to control all substantial decisions of the trust or
(2) it has a valid election in place to be treated as a U.S.
person.
Distributions
As long as we
qualify as a REIT, (1) a taxable U.S. holder of our capital
stock must report as ordinary income distributions that are made
out of our current or accumulated earnings and profits and that we
do not designate as capital gain dividends or retained long-term
capital gain, and (2) a corporate U.S. holder of our capital
stock will not qualify for the dividends received deduction
generally available to corporations. In addition, dividends paid to
an individual U.S. holder generally will not qualify for the
reduced rate of tax applicable to "qualified dividend income."
Qualified dividend income generally includes dividends from most
U.S. corporations but does not generally include REIT dividends. As
a result, our ordinary REIT dividends generally will continue to be
taxed at the tax rate applicable to ordinary income. However, for
taxable years beginning before January 1, 2026, generally U.S.
holders that are individuals, trusts or estates may deduct 20% of
the aggregate amount of ordinary dividends distributed by us,
subject to certain limitations. Notwithstanding the preceding, the
tax rate for qualified dividend income will apply to our ordinary
REIT dividends, if any, that are (1) attributable to dividends
received by us from non-REIT corporations, such as our TRSs, and
(2) attributable to income upon which we have paid corporate
federal income tax (e.g., to the extent that we distribute
less than 100% of our taxable income). In general, to qualify for
the reduced tax rate on qualified dividend income, a U.S. holder
must hold our stock for more than 60 days during the 121-day
period beginning on the date that is 60 days before the date
on which our stock becomes ex-dividend.
A U.S. holder
generally will report distributions that we designate as capital
gain dividends as long-term capital gain without regard to the
period for which the U.S. holder has held our stock. A corporate
U.S. holder, however, may be required to treat up to 20% of certain
capital gain dividends as ordinary income.
We may elect to
retain and pay federal income tax on the net long-term capital gain
that we receive in a taxable year. In that case, a U.S. holder
would be taxed on its proportionate share of our undistributed
long-term capital gain, to the extent that we designate such amount
in a timely notice to such holder. The U.S. holder would receive a
credit or refund for its proportionate share of the tax we paid.
The U.S. holder would increase the basis in its stock by the amount
of its proportionate share of our undistributed long-term capital
gain, minus its share of the tax we paid.
To the extent
that we make a distribution in excess of our current and
accumulated earnings and profits, such distribution will not be
taxable to a U.S. holder to the extent that it does not exceed the
adjusted tax basis of the U.S. holder's stock. Instead, such
distribution will reduce the adjusted tax basis of such stock. To
the extent that we make a distribution in excess of both our
current and accumulated earnings and profits and the U.S. holder's
adjusted tax basis in its stock, such U.S. holder will recognize
long-term capital gain, or short-term capital gain if the stock has
been held for one year or less. The IRS has ruled that if total
distributions for two or more classes of stock are in excess of
current and accumulated earnings and profits, dividends must be
treated as having been distributed to those stockholders having a
priority under the corporate charter before any distribution to
stockholders with lesser priority. If we declare a dividend in
October, November, or December of any year that is payable to a
U.S. holder of record on a specified date in any such month, such
dividend shall be treated as both paid by us and received by the
U.S. holder on December 31 of such year, if we actually pay
the dividend during January of the following calendar
year.
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U.S. holders
may not include in their individual income tax returns any of our
net operating losses or capital losses. Instead, we would carry
over such losses for potential offset against our future income
generally, provided that our deduction for any net operating loss
carryforwards arising from losses we sustain in taxable years
beginning after December 31, 2017 is limited to 80% of our
REIT taxable income (determined without regard to the deduction for
dividends paid). Taxable distributions from us and gain from the
disposition of our stock will not be treated as passive activity
income, and, therefore, U.S. holders generally will not be able to
apply any "passive activity losses," such as losses from certain
types of limited partnerships in which the U.S. holder is a limited
partner, against such income. In addition, taxable distributions
from us and gain from the disposition of the stock generally will
be treated as investment income for purposes of the investment
interest limitations.
We will notify
stockholders after the close of our taxable year as to the portions
of the distributions attributable to that year that constitute
ordinary income, return of capital, and capital gain.
Disposition of Capital Stock; Redemption of the Preferred
Stock
Subject to the
discussion below regarding Code Section 302, in general, a
U.S. holder who is not a dealer in securities must treat any gain
or loss realized upon a taxable disposition of our capital stock as
long-term capital gain or loss if the U.S. holder has held the
stock for more than one year and otherwise as short-term capital
gain or loss. However, a U.S. holder must treat any loss upon a
sale or exchange of stock held by such U.S. holder for six months
or less as a long-term capital loss to the extent of any actual or
deemed distributions from us that such U.S. holder previously has
characterized as long-term capital gain. All or a portion of any
loss that a U.S. holder realizes upon a taxable disposition of the
stock may be disallowed if the U.S. holder purchases the same type
of stock within 30 days before or after the
disposition.
A redemption of
the Preferred Stock for cash will be treated under Section 302
of the Code as a dividend subject to tax at ordinary income tax
rates (to the extent of our current or accumulated earnings and
profits), unless the redemption satisfies certain tests set forth
in Section 302(b) of the Code enabling the redemption to be
treated as a sale or exchange of the stock. The redemption will
satisfy such test if it (i) is "substantially
disproportionate" with respect to the holder, (ii) results in
a "complete termination" of the holder's stock interest in our
company, or (iii) is "not essentially equivalent to a
dividend" with respect to the holder, all within the meaning of
Section 302(b) of the Code. In determining whether any of
these tests have been met, shares considered to be owned by the
holder by reason of certain constructive ownership rules set forth
in the Code, as well as shares actually owned, must generally be
taken into account. Because the determination as to whether any of
the alternative tests of Section 302(b) of the Code is
satisfied with respect to any particular holder of the Preferred
Stock will depend upon the facts and circumstances as of the time
the determination is made, prospective investors are advised to
consult their own tax advisors to determine the appropriate tax
treatment. If a redemption of the Preferred Stock for cash is
treated as a distribution that is taxable as a dividend, the amount
of the distribution would be measured by the amount of cash and the
fair market value of any property received by the U.S. holder. The
U.S. holder's adjusted tax basis in such redeemed Preferred Stock
would be transferred to the holder's remaining stockholdings in our
company. If, however, the U.S. holder has no remaining
stockholdings in our company and does not take certain actions to
ensure that the redemption is not treated as a distribution that is
taxable as a dividend, such basis may, under certain circumstances,
be transferred to a related person or it may be lost
entirely.
If a redemption
of shares of the Preferred Stock for cash is not treated as a
distribution, it will be treated as a taxable sale or exchange in
the manner described above.
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If a U.S.
holder's Preferred Stock is redeemed for shares of common stock,
the U.S. holder would not recognize gain or loss (except in respect
of any common stock received that is attributable to accrued but
unpaid dividends, which would be taxed as a dividend as described
under "Distributions") and the U.S. holder's basis in the common
stock received would be the same as the U.S. holder's basis in the
redeemed Preferred Stock. A U.S. holder's holding period in the
common stock received would include its holding period in the
redeemed Preferred Stock.
Conversion of Convertible Preferred Stock
Conversion Solely for Common Stock
A U.S. holder
generally will not recognize any gain or loss in respect of the
receipt of common stock upon the conversion of convertible
preferred stock, except to the extent of common stock received on
account of accrued and unpaid dividends that have not previously
been included in income as described below. The adjusted tax basis
of common stock received on conversion will equal the adjusted tax
basis of the convertible preferred stock converted (reduced by the
portion of adjusted tax basis allocated to any fractional share of
common stock exchanged for cash and subject to downward adjustment,
if any, described below), and the holding period of such common
stock received on conversion will generally include the period
during which the converted preferred stock was held prior to
conversion.
Cash received
in lieu of a fractional shares of common stock will generally be
treated as a payment in a taxable exchange for such fractional
shares of common stock, and gain or loss will generally be
recognized in an amount equal to the difference between the amount
of cash received and the portion of the U.S. holder's adjusted tax
basis allocable to the fractional shares of common
stock.
We expect to
take the position that any accumulated and unpaid dividends paid
upon conversion of convertible preferred stock will be includable
in income in the manner described under "—Distributions" above.
Alternatively, such payment may be treated as having been made in
connection with a recapitalization of our stock, in which case a
U.S. holder generally would not recognize loss, but would recognize
gain (which, under certain circumstances, would be includable in
income in the manner described under "—Disposition of Capital
Stock; Redemption of the Preferred Stock" above), if any, on
convertible preferred stock so converted, in an amount equal to the
lesser of the amount of (i) the cash received or
(ii) gain realized (i.e., the excess, if any, of the fair
market value of the common stock received plus the cash received,
over the adjusted basis in the convertible preferred stock
converted). Prospective investors should consult their tax advisors
regarding the tax treatment of accumulated and unpaid dividends
paid upon conversion.
Conversion for Part Common Stock and Part Cash
We may make an
additional cash payment to a holder upon a conversion of certain
convertible preferred stock representing future dividends, for
example as described above under "Description of Capital
Stock—Preferred Stock—Series B Preferred Stock." Accordingly,
upon a conversion, a holder may receive solely common stock or a
combination of cash and common stock. Any cash or common stock
received on account of accrued and unpaid dividends that have not
previously been included in income will be taxed as described above
in "—Conversion Solely for Common Stock." However, other than with
respect to such cash or common stock received on account of accrued
and unpaid dividends, in the event that we deliver common stock and
cash upon a conversion of convertible preferred stock, the U.S.
federal income tax treatment of the conversion is uncertain. U.S.
holders should consult their tax advisors regarding the
consequences of such a conversion. It is possible that the
conversion could be treated as a single recapitalization or as a
conversion in part and a taxable redemption in part, as briefly
discussed below.
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Treatment as a Recapitalization
If we pay a
combination of cash and common stock in exchange for convertible
preferred stock upon conversion, the exchange may be treated as a
recapitalization. In such case, the U.S. holder would recognize
gain (but not loss) in an amount equal to the lesser of
(i) the excess (if any) of (A) the amount of cash (not
including cash received in lieu of fractional shares) and the fair
market value of common stock received (treating fractional shares
as received for this purpose) in the exchange over (B) such
U.S. holder's adjusted tax basis in the convertible preferred
stock, and (ii) the amount of cash received upon conversion
(other than cash received in lieu of fractional shares, which would
be treated as described above in "—Conversion Solely for Common
Stock"). Notwithstanding the foregoing, any common stock received
on account of accrued and unpaid dividends that has not previously
been included in income will be treated as a dividend. Any gain
recognized should be treated as capital gain except to the extent
it has the effect of a distribution of a dividend. If the exchange
has the effect of the distribution of a dividend, then the gain
recognized upon the exchange, as determined above, will be treated
as a dividend to the extent of the U.S. holder's ratable share of
our earnings and profits. The remainder of the gain will be a
capital gain and will be long-term if the holding period exceeds
one year. For purposes of determining whether a U.S. holder's gain
will be treated as a dividend, stock (including our common stock)
owned by such U.S. holder actually and constructively through
attribution rules, will be taken into account.
The tax basis
of the shares of common stock received upon a recapitalization
(including any basis allocable to any fractional share a U.S.
holder is treated as exchanging as described above in "—Conversion
Solely for Common Stock") would equal the adjusted tax basis of the
convertible preferred stock that was converted, reduced by the
amount of any cash received (other than cash received in lieu of a
fractional share), and increased by the amount of gain, if any,
recognized (other than with respect to a fractional share). A U.S.
holder's holding period for shares of common stock would include
the period during which the U.S. holder held the convertible
preferred stock.
Alternative Treatment as Part Conversion and Part
Redemption
If the
conversion of convertible preferred stock into cash and common
stock were not treated as a single recapitalization, the conversion
could be treated as in part a conversion into common stock and
in part a separate redemption of the remaining convertible
preferred stock surrendered in the conversion. In that event, the
portion converted into common stock would be treated as described
above in "—Conversion Solely for Common Stock." The portion
converted into cash would be treated as described above in
"—Disposition of Capital Stock; Redemption of the Preferred
Stock."
Adjustment of Conversion Rate of Convertible Preferred
Stock
Under certain
circumstances, adjustments (or failure to make adjustments) to the
conversion rate of convertible preferred stock may result in
constructive distributions under Section 305(c) of the Code to
the U.S. holders of such convertible preferred stock or other
stockholders includable in income in the manner described under
"—Distributions" above, if and to the extent that certain
adjustments (or failure to make adjustments) in the conversion rate
increase the proportionate interest of a stockholder in our
earnings and profits. Thus, under certain circumstances, a U.S.
holder may recognize income in the event of a constructive
distribution even though they may not receive any cash or property.
Under proposed regulations, such constructive distributions, if
any, would generally be deemed to occur on the date adjustments to
the conversion rate are made in accordance with the terms of such
convertible preferred stock.
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Capital Gains and Losses
A taxpayer
generally must hold a capital asset for more than one year for gain
or loss derived from its sale or exchange to be treated as
long-term capital gain or loss. In general, a U.S. holder will
realize gain or loss in an amount equal to the difference between
the sum of the fair market value of any property and the amount of
cash received in such disposition and the U.S. holder's adjusted
tax basis. A U.S. holder's adjusted tax basis generally will equal
the U.S. holder's acquisition cost, increased by the excess of net
capital gains deemed distributed to the U.S. holder (discussed
above) less tax deemed paid on such gains and reduced by any
returns of capital. In general, the maximum federal income tax rate
on long-term capital gain applicable to non-corporate taxpayers is
20% for sales and exchanges of assets held for more than one year.
The maximum federal income tax rate on long-term capital gain from
the sale or exchange of "section 1250 property," or
depreciable real property, is 25% to the extent that such gain, not
otherwise treated as ordinary, would have been treated as ordinary
income if the property were "section 1245 property." With
respect to distributions that we designate as capital gain
dividends and any retained capital gain that we are deemed to
distribute, we generally may designate whether such a distribution
is taxable to our non-corporate stockholders at a 20% or 25%
federal income tax rate. In addition, the characterization of
income as capital gain or ordinary income may affect the
deductibility of capital losses. A non-corporate taxpayer may
deduct capital losses not offset by capital gains against its
ordinary income only up to a maximum annual amount of $3,000. A
non-corporate taxpayer may carry forward unused capital losses
indefinitely. A corporate taxpayer must pay federal income tax on
its net capital gain at ordinary corporate federal income tax
rates. A corporate taxpayer may deduct capital losses only to the
extent of capital gains, with unused losses being carried back
three years and forward five years.
Medicare Tax
A U.S. holder
that is an individual or estate, or a trust that does not fall into
a special class of trusts that is exempt from such tax, will be
subject to a 3.8% tax on the lesser of (1) the U.S. holder's
"net investment income" for the relevant taxable year and
(2) the excess of the U.S. holder's modified adjusted gross
income for the taxable year over a certain threshold. Net
investment income generally includes dividend income and net gains
from the disposition of stock, unless such dividend income or net
gains are derived in the ordinary course of the conduct of a trade
or business (other than a trade or business that consists of
certain passive or trading activities). With respect to ordinary
REIT dividends received by non-corporate taxpayers, the temporary
20% deduction described above is allowed only for regular income
tax purposes and thus is apparently not allowed as a deduction
allocable to such dividends for purposes of determining the amount
of net investment income subject to the 3.8% Medicare tax. A U.S.
holder that is an individual, estate or trust, should consult its
tax advisor regarding the applicability of the Medicare tax to its
income and gains in respect of its investment in our capital
stock.
Information Reporting Requirements and Backup
Withholding
We will report
to our stockholders and to the IRS the amount of distributions we
pay during each calendar year and the amount of tax we withhold, if
any. Under the backup withholding rules, a U.S. holder may be
subject to backup withholding at the rate of 24% with respect to
distributions unless such holder:
- •
- comes within certain
exempt categories and, when required, demonstrates this fact;
or
- •
- provides a taxpayer
identification number, certifies as to no loss of exemption from
backup withholding, and otherwise complies with the applicable
requirements of the backup withholding rules.
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A U.S. holder
who 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
U.S. holder's income tax liability. In addition, we may be required
to withhold a portion of capital gain distributions to any U.S.
holders who fail to certify their non-foreign status to us. See
"—Taxation of Non-U.S. Holders of Stock."
Taxation of Tax-Exempt Stockholders
Tax-exempt
entities, including qualified employee pension and profit sharing
trusts and IRAs, generally are exempt from federal income taxation.
However, they are subject to taxation on their unrelated business
taxable income. While many investments in real estate generate
unrelated business taxable income, the IRS has issued a published
ruling that dividend distributions from a REIT to an exempt
employee pension trust do not constitute unrelated business taxable
income, provided that the exempt employee pension trust does not
otherwise use the shares of the REIT in an unrelated trade or
business of the pension trust. Based on that ruling, amounts that
we distribute to tax-exempt stockholders generally should not
constitute unrelated business taxable income. However, if a
tax-exempt stockholder were to finance its acquisition of our stock
with debt, a portion of the income that it receives from us would
constitute unrelated business taxable income pursuant to the
"debt-financed property" rules. Furthermore, certain entities that
are exempt from taxation under special provisions of the federal
income tax laws are subject to different unrelated business taxable
income rules, which generally will require them to characterize
distributions that they receive from us as unrelated business
taxable income. Finally, if we are a "pension-held REIT," a
qualified employee pension or profit sharing trust that owns more
than 10% of our shares of stock is required to treat a percentage
of the dividends that it receives from us as unrelated business
taxable income. That percentage is equal to the gross income that
we derive from an unrelated trade or business, determined as if we
were a pension trust, divided by our total gross income for the
year in which we pay the dividends. That rule applies to a pension
trust holding more than 10% of our shares of stock only
if:
- •
- the percentage of our
dividends that the tax-exempt trust would be required to treat as
unrelated business taxable income is at least 5%;
- •
- we qualify as a REIT
by reason of the modification of the rule requiring that no more
than 50% of our stock be owned by five or fewer individuals that
allows the beneficiaries of the pension trust to be treated as
holding our stock in proportion to their actuarial interests in the
pension trust (see "—Taxation of Our Company—Requirements for
Qualification"); and
- •
- either (1) one
pension trust owns more than 25% of the value of our stock or
(2) a group of pension trusts individually holding more than
10% of the value of our stock collectively owns more than 50% of
the value of our stock.
Although there
can be no assurance that we will not become one in the future, we
do not believe that our Company is currently a pension-held
REIT.
Taxation of Non-U.S. Holders of Stock
The rules
governing U.S. federal income taxation of non-U.S. holders of our
capital stock are complex. A "non-U.S. holder" means a holder that
is not a U.S. holder, as defined above, and is not an entity
treated as a partnership for U.S. federal income tax purposes. We
urge non-U.S. holders to consult their tax advisors to determine
the impact of federal, state, and local income tax laws on
ownership of our capital stock, including any reporting
requirements.
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Distributions
The portion of
a distribution that is received by a non-U.S. holder that we do not
designate as a capital gain dividend and that is payable out of our
current or accumulated earnings and profits, as well as any other
payment that is treated as a dividend as described above under
"Taxation of Taxable U.S. Holders of Stock," will be subject to
U.S. income tax withholding at the rate of 30% on the gross amount
of any such distribution paid unless either:
- •
- a lower treaty rate
applies and the non-U.S. holder files an IRS Form W-8BEN or
W-8BEN-E evidencing eligibility for that reduced rate with us;
or
- •
- the non-U.S. holder
files an IRS Form W-8ECI with us claiming that the
distribution is effectively connected income.
If a
distribution is treated as effectively connected with the non-U.S.
holder's conduct of a U.S. trade or business, the non-U.S. holder
generally will be subject to federal income tax on the distribution
at graduated rates, in the same manner as U.S. holders are taxed
with respect to such distributions. A non-U.S. holder that is a
corporation also may be subject to the 30% branch profits tax with
respect to a distribution treated as effectively connected with its
conduct of a U.S. trade or business, unless reduced or eliminated
by a tax treaty.
Except as
described in the following paragraph, a non-U.S. holder will not
incur tax on a distribution in excess of our current and
accumulated earnings and profits if the excess portion of such
distribution does not exceed the adjusted basis of its stock.
Instead, the excess portion of such distribution will reduce the
adjusted basis of such stock. A non-U.S. holder will be subject to
tax on a distribution that exceeds both our current and accumulated
earnings and profits and the adjusted basis of its stock, if the
non-U.S. holder otherwise would be subject to tax on gain from the
sale or disposition of its stock, as described below. If we cannot
determine at the time we make a distribution whether or not the
distribution will exceed our current and accumulated earnings and
profits, we will treat the entire amount of any distribution as a
taxable dividend. However, a non-U.S. holder 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.
If our stock
constitutes a United States real property interest, as defined
below, unless (1) we are a "domestically-controlled qualified
investment entity," as defined below, (2) the distribution is
with respect to a class of our stock regularly traded on an
established securities market located in the United States and is
made to a non-U.S. holder that did not own more than 10% of such
class of stock at any time during the one-year period ending on the
date of distribution or (3) the distribution is with respect
to stock held by a "qualified shareholder," including stock held
indirectly through one or more partnerships (to the extent not held
by an "applicable investor"), the distribution will give rise to
gain from the sale or exchange of such stock, the tax treatment of
which is described below and, we must withhold 15% of any
distribution that exceeds our current and accumulated earnings and
profits. A "qualified shareholder" is generally defined as a
foreign person that (i) is eligible for benefits of an income
tax treaty with the United States and the principal class of
interests of which is listed and regularly traded on one or more
recognized stock exchanges, or is a foreign partnership that is
created or organized under foreign law as a limited partnership in
a jurisdiction that has an agreement for the exchange of
information with respect to taxes with the United States and has a
class of limited partnership units which is regularly traded on the
New York Stock Exchange or NASDAQ Stock Market and such class of
limited partnership units' value is greater than 50% of the value
of all the partnership units; (ii) is a "qualified collective
investment vehicle," and (iii) maintains records on the
identity of each person who, at any time during the foreign
person's taxable year, holds directly 5% or more of the class of
interest described in clause (i) above. The benefits of the
qualified shareholder exception do not apply to the extent of the
ownership in that shareholder of an "applicable investor,"
generally defined as a more than 10% owner of the REIT on a
look-through basis, taking into account
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all interests held by
such applicable investor in the REIT. Any distribution to a
qualified shareholder shall not be treated as an effectively
connected income distribution to the extent that stock held by such
qualified shareholder is not treated as a United States real
property interest as provided in an exception described in this
section. Consequently, although we intend to withhold at a rate of
30% on the entire amount of any distribution, to the extent that we
do not do so, we may withhold at a rate of 15% on any portion of a
distribution not subject to withholding at a rate of
30%.
For any year in
which we qualify as a REIT, a non-U.S. holder (other than certain
qualified foreign pension funds) may incur tax on distributions
that are attributable (or deemed so attributable pursuant to
applicable Treasury regulations) to gain from our sale or exchange
of "United States real property interests" under special provisions
of the federal income tax laws referred to as "FIRPTA." The term
"United States real property interests" includes certain interests
in real property and stock in corporations at least 50% of whose
assets consists of interests in real property. Under those rules, a
non-U.S. holder is taxed on distributions attributable (or deemed
attributable) to gain from sales of United States real property
interests as if such gain were effectively connected with a United
States business of the non-U.S. holder. A non-U.S. holder thus
would be taxed on such a distribution at the normal rates,
including applicable capital gains rates, applicable to U.S.
holders, subject to applicable alternative minimum tax and a
special alternative minimum tax in the case of a nonresident alien
individual. A non-U.S. corporate holder not entitled to treaty
relief or exemption also may be subject to the 30% branch profits
tax on such a distribution. Except as described below with respect
to regularly traded stock, we must withhold 21% of any distribution
that we could designate as a capital gain dividend. A non-U.S.
holder may receive a credit against its tax liability for the
amount we withhold. Any distribution with respect to any class of
stock which is regularly traded on an established securities market
located in the United States, will not be treated as gain
recognized from the sale or exchange of a United States real
property interest if the non-U.S. holder did not own more than 10%
of such class of stock at any time during the one-year period
preceding the date of the distribution. As a result, non-U.S.
holders generally will be subject to withholding tax on such
capital gain distributions in the same manner as they are subject
to withholding tax on ordinary dividends.
Our common
stock has been regularly traded on an established securities market
in the United States since the completion of the spin-off. Certain
classes of our preferred stock are currently traded on an
established securities market in the United States. The shares of
Series E Preferred Stock and Series M Preferred Stock
will not be publicly traded. If our common stock or any class of
our preferred stock, as applicable, is not regularly traded on an
established securities market in the United States or the non-U.S.
holder owned more than 10% of such class of stock at any time
during the one-year period preceding the date of the distribution,
capital gain distributions that are attributable to our sale of
real property would be subject to tax under FIRPTA, as described
above unless otherwise excepted. Moreover, if a non-U.S. holder
owning more than 5% of a class of our stock disposes of such stock
during the 30-day period preceding the ex-dividend date of a
dividend, and such non-U.S. holder (or a person related to such
non-U.S. holder) acquires or enters into a contract or option to
acquire our capital stock within 61 days of the first day of
the 30-day period described above, and any portion of such dividend
payment would, but for the disposition, be treated as a United
States real property interest capital gain to such non-U.S. holder,
then such non-U.S. holder will be treated as having United States
real property interest capital gain in an amount that, but for the
disposition, would have been treated as United States real property
interest capital gain.
Any
distribution that is made by a REIT that would otherwise be subject
to FIRPTA because the distribution is attributable to the
disposition of a United States real property interest will retain
its character as FIRPTA income when distributed to any regulated
investment company or other REIT, and will be treated as if it were
from the disposition of a United States real property interest by
that regulated investment company or other REIT.
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Disposition of Capital Stock; Redemption of the Preferred
Stock
Except as
discussed below, gain on a sale of our capital stock by a non-U.S.
holder generally will not be subject to U.S. taxation.
Subject to the
exceptions described in this section, non-U.S. holders (other than
certain qualified foreign pension funds) could incur tax under
FIRPTA with respect to gain realized upon a disposition of shares
of a class of our capital stock if shares of such class of our
capital stock are United States real property interests. Generally,
shares of a United States real property holding corporation are
United States real property interests. If at least 50% of a REIT's
assets are United States real property interests, then the REIT
will be a United States real property holding corporation. We
anticipate that we will be a United States real property holding
corporation based on our investment strategy. However, even if we
are a United States real property holding corporation, shares of
our capital stock will not be treated as United States real
property interests and a non-U.S. holder generally will not incur
tax under FIRPTA with respect to gain realized upon a disposition
of shares of our capital stock as long as we are a
"domestically-controlled qualified investment entity." A
domestically-controlled qualified investment entity includes a REIT
in which, at all times during a specified testing period, less than
50% in value of its shares are held directly or indirectly by
non-U.S. holders.
We cannot
assure you that that test will be met. However, even if we are not
a domestically controlled qualified investment entity, shares of
our common stock or a class of preferred stock, as applicable, will
not be treated as United States real property interests and a
non-U.S. holder generally will not incur tax under FIRPTA with
respect to gain realized upon a disposition of shares of our common
stock or such class of preferred stock, as applicable, if such
non-U.S. holder owned, actually or constructively, 10% or less of
our common stock or such class of preferred stock, as applicable,
at all times during a specified testing period if the common stock
or such class of preferred stock, as applicable, is "regularly
traded" on an established securities market, or, if such non-U.S.
holder is a "qualified shareholder" (to the extent not allocable to
an applicable investor). As noted above, our common stock has been
regularly traded on an established securities market since
immediately following the separation and distribution. The
Preferred Stock is not currently regularly traded on an established
securities market in the United States. If the sale, exchange or
other taxable disposition of our capital stock were subject to
taxation under FIRPTA, and if shares of the applicable class of our
capital stock were not "regularly traded" on an established
securities market, the purchaser of such capital stock would be
required to withhold and remit to the IRS 15% of the purchase
price. If the gain on the sale of the stock were taxed under
FIRPTA, a non-U.S. holder would be taxed in the same manner as U.S.
holders with respect to such gain, subject to applicable
alternative minimum tax and a special alternative minimum tax in
the case of nonresident alien individuals. Furthermore, a non-U.S.
holder generally will incur tax on gain not subject to FIRPTA if
(1) the gain is effectively connected with the non-U.S.
holder's U.S. trade or business, in which case the non-U.S. holder
will be subject to the same treatment as U.S. holders with respect
to such gain, or (2) the non-U.S. holder is a nonresident
alien individual who was present in the U.S. 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. holder will incur a 30% tax on
his capital gains.
If we are a
domestically controlled qualified investment entity and a non-U.S.
holder disposes of our stock during the 30-day period preceding a
dividend payment, and such non-U.S. holder (or a person related to
such non-U.S. holder) acquires or enters into a contract or option
to acquire our stock within 61 days of the first day of the
30-day period described above, and any portion of such dividend
payment would, but for the disposition, be treated as a United
States real property interest capital gain to such non-U.S. holder,
then such non-U.S. holder shall be treated as having United States
real property interest capital gain in an amount that, but for the
disposition, would have been treated as United States real property
interest capital gain.
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A redemption of
shares of the Preferred Stock for cash will be treated under
Section 302 of the Code as a distribution (and taxable as a
dividend to the extent of our current and accumulated earnings and
profits) unless the redemption satisfies one of the tests set forth
in Section 302(b) of the Code and is therefore treated as a
sale or exchange of the redeemed shares. See "—Taxable U.S. Holders
of Stock—Disposition of Capital Stock; Redemption of the Preferred
Stock." If a redemption of shares of the Preferred Stock for cash
is treated as a distribution, the amount of the distribution will
be measured by the amount of cash and the fair market value of any
property received. See "—Distributions" above. If a redemption of
shares of the Preferred Stock for cash is not treated as a
distribution, it will be treated as a taxable sale or exchange in
the manner described above. Non-U.S. holders may be able to get a
refund of such withholding taxes by filing a U.S. tax
return.
If a non-U.S.
holder's Preferred Stock is redeemed for shares of common stock,
the non-U.S. holder would not recognize gain or loss (except in
respect of any common stock received that is attributable to
accrued but unpaid dividends, which would be taxed as a dividend as
described under "Distributions") and the non-U.S. holder's basis in
the common stock received would be the same as the non-U.S.
holder's basis in the redeemed Preferred Stock. A non-U.S. holder's
holding period in the common stock received would include its
holding period in the redeemed Preferred Stock.
Conversion of Convertible Preferred Stock
As a general
rule, a non-U.S. holder will not recognize any gain or loss upon
the conversion of the convertible preferred stock, except
(i) to the extent of common stock received on account of
accrued and unpaid dividends that has not previously been included
in income, and other amounts received that are treated as dividends
as described above under "—Taxable U.S. Holders of Stock—Conversion
of Convertible Preferred Stock," each of which will be taxed as
described above under "—Distributions," and (ii) with respect
to any cash received in lieu of a fractional share and other
amounts treated as being received in redemption of the convertible
preferred stock as described above under "—Taxable U.S. Holders of
Stock—Conversion of Convertible Preferred Stock," each which will
be taxed as described above under "—Disposition of Capital Stock;
Redemption of the Preferred Stock."
Any accumulated
and unpaid dividends paid upon conversion of a convertible
Preferred Stock will be includable in income as a distribution in
the manner described above under "—Distributions." Accordingly, we
will withhold on any accumulated and unpaid dividends that are paid
to a non-U.S. holder in the manner described above under
"—Distributions." Prospective investors should consult their tax
advisors regarding the tax treatment of accumulated and unpaid
dividends paid upon conversion.
Adjustment of Conversion Rate of Convertible Preferred
Stock
As described
above under "—Taxable U.S. Holders of Stock—Adjustment of
Conversion Rate of Convertible Preferred Stock," adjustments in the
conversion rate (or failures to adjust the conversion rate) that
increase the proportionate interest of a non-U.S. holder in our
earning and profits could result in deemed distributions to the
Non-U.S. holder that are taxed as described above under
"—Distributions." U.S. federal withholding tax due with respect to
such distributions may be set off against subsequent payments on
the convertible Preferred Stock.
Information Reporting Requirements and Backup
Withholding
Generally,
information reporting will apply to payments of distributions on
our stock, and backup withholding may apply, unless the payee
certifies that it is not a U.S. person or otherwise establishes an
exemption.
The payment of
the proceeds from the disposition of our stock to or through the
U.S. office of a U.S. or foreign broker will be subject to
information reporting and, possibly, backup withholding
unless
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the non-U.S. holder
certifies as to its non-U.S. status or otherwise establishes an
exemption, provided that the broker does not have actual knowledge
that the non-U.S. holder is a U.S. person or that the conditions of
any other exemption are not, in fact, satisfied. The proceeds of
the disposition by a non-U.S. holder of our stock to or through a
foreign office of a broker generally will not be subject to
information reporting or backup withholding. However, if the broker
is a U.S. person, a controlled foreign corporation for U.S. federal
income tax purposes or a foreign person 50% or more of whose gross
income from all sources for specified periods is from activities
that are effectively connected with a U.S. trade or business,
information reporting generally will apply unless the broker has
documentary evidence as to the non-U.S. holder's foreign status and
has no actual knowledge to the contrary. Any amount withheld under
the backup withholding rules from a payment to a non-U.S. holder
will be allowed as a credit against such non-U.S. holder's U.S.
federal income tax liability (which might entitle such non-U.S.
holder to a refund), provided that the required information is
furnished to the IRS.
Applicable
Treasury Regulations provide presumptions regarding the status of
stockholders when payments to the stockholders cannot be reliably
associated with appropriate documentation provided to the payer.
Because the application of these Treasury Regulations varies
depending on the stockholder's particular circumstances, you are
urged to consult your tax advisor regarding the information
reporting requirements applicable to you.
Foreign Accounts Tax Compliance Act Withholding
Pursuant to the
Foreign Account Tax Compliance Act ("FATCA"), foreign financial
institutions (which include most foreign hedge funds, private
equity funds, mutual funds, securitization vehicles and any other
investment vehicles) and certain other foreign entities must comply
with registration and information reporting rules with respect to
their U.S. account holders and investors or be subject to a
withholding tax on U.S.-source payments made to them (whether
received as a beneficial owner or as an intermediary for another
party). A foreign financial institution or other foreign entity
that does not comply with the FATCA registration and reporting
requirements will generally be subject to a new 30% withholding tax
on "withholdable payments." For this purpose, withholdable payments
generally include payments of interest, dividends and other fixed
or determinable annual or periodical gains, profits and income from
sources within the U.S. ("FDAP Income"), or gross proceeds from the
sale of any property of a type which can produce interest or
dividends from sources within the U.S. ("Gross Proceeds"). The
FATCA withholding tax applies even if the payment would otherwise
not be subject to U.S. nonresident withholding tax
(e.g., because it is capital gain). These rules generally
apply to payments of FDAP Income. While these rules would have
originally included the payment made on or after January 1,
2019 of Gross Proceeds, proposed Treasury Regulations provide that
such payments of Gross Proceeds (other than amounts treated as FDAP
Income) do not constitute withholdable payments. Taxpayers may rely
generally on these proposed Treasury Regulations until they are
revoked or final Treasury Regulations are issued. We will not pay
additional amounts in respect of amounts withheld. Investors should
consult their tax advisors regarding FATCA.
Tax Aspects of Our Investments in the Partnerships
The following
discussion summarizes certain federal income tax considerations
applicable to our direct or indirect investments in the
Partnerships. The discussion does not cover state or local tax laws
or any federal tax laws other than income tax laws.
Classification as Partnerships
We are entitled
to include in our income our distributive share of each
Partnership's income and to deduct our distributive share of each
Partnership's losses only if such Partnership is classified for
federal income tax purposes as a partnership (or an entity that is
disregarded for federal income tax purposes if the entity has only
one owner or member), rather than as a corporation or an
association
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taxable as a
corporation. An organization with at least two owners or members
will be classified as a partnership, rather than as a corporation,
for federal income tax purposes if it:
- •
- is treated as a
partnership under Treasury regulations relating to entity
classification (the "check-the-box regulations"); and
- •
- is not a
"publicly-traded" partnership.
Under the
check-the-box regulations, an unincorporated entity with at least
two owners or members may elect to be classified either as an
association taxable as a corporation or as a partnership. If such
an entity fails to make an election, it generally will be treated
as a partnership for federal income tax purposes. Each Partnership
intends to be classified as a partnership (or an entity that is
disregarded for federal income tax purposes if the entity has only
one owner or member) for federal income tax purposes, and no
Partnership will elect to be treated as an association taxable as a
corporation under the check-the-box regulations.
A
publicly-traded partnership is a partnership whose interests are
traded on an established securities market or are readily tradable
on a secondary market or the substantial equivalent thereof. A
publicly-traded partnership will not, however, be treated as a
corporation for any taxable year if 90% or more of the
partnership's gross income for such year consists of certain
passive-type income, including real property rents (which includes
rents that would be qualifying income for purposes of the 75% gross
income test, with certain modifications that make it easier for the
rents to qualify for the 90% passive income exception), gains from
the sale or other disposition of real property, interest, and
dividends (the "90% passive income exception").
Treasury
regulations (the "PTP regulations") provide limited safe harbors
from the definition of a publicly-traded partnership. Pursuant to
one of those safe harbors (the "private placement exclusion"),
interests in a partnership will not be treated as readily tradable
on a secondary market or the substantial equivalent thereof if
(1) all interests in the partnership were issued in a
transaction or transactions that were not required to be registered
under the Securities Act, and (2) the partnership does not
have more than 100 partners at any time during the partnership's
taxable year. In determining the number of partners in a
partnership, a person owning an interest in a partnership, grantor
trust, or S corporation that owns an interest in the partnership is
treated as a partner in such partnership only if
(1) substantially all of the value of the owner's interest in
the entity is attributable to the entity's direct or indirect
interest in the partnership and (2) a principal purpose of the
use of the entity is to permit the partnership to satisfy the
100-partner limitation. We anticipate that each Partnership will
qualify for the private placement exclusion.
We have not
requested, and do not intend to request, a ruling from the IRS that
the Partnerships will be classified as partnerships (or disregarded
entities, if the entity has only one owner or member) for federal
income tax purposes. If for any reason a Partnership were taxable
as a corporation, rather than as a partnership or a disregarded
entity, for federal income tax purposes, we likely would not be
able to qualify as a REIT. See "—Taxation of Our Company—Income
Tests" and "—Asset Tests." In addition, any change in a
Partnership's status for tax purposes might be treated as a taxable
event, in which case we might incur tax liability without any
related cash distribution. See "—Taxation of Our
Company—Distribution Requirements." Further, items of income and
deduction of such Partnership would not pass through to its
partners, and its partners would be treated as stockholders for tax
purposes. Consequently, such Partnership would be required to pay
income tax at corporate rates on its net income, and distributions
to its partners would not be deductible in computing such
Partnership's taxable income.
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Income Taxation of the Partnerships and Their
Partners
Partners, Not the Partnerships, Subject to Tax
A partnership
is not a taxable entity for federal income tax purposes. Rather, we
are required to take into account our allocable share of each
Partnership's income, gains, losses, deductions, and credits for
any taxable year of such Partnership ending within or with our
taxable year, without regard to whether we have received or will
receive any distribution from such Partnership. Under partnership
audit rules that are effective for tax years beginning in 2018,
unless a partnership elects otherwise, taxes arising from audit
adjustments are required to be paid by the entity rather than by
its partners or members. We will have the authority to utilize, and
intend to utilize, any exceptions available under such audit rules
(including any changes) and Treasury Regulations so that the
partners, to the fullest extent possible, rather than the
partnership itself, will be liable for any taxes arising from audit
adjustments to the issuing entity's taxable income. It is unclear
to what extent these elections will be available to the partnership
and how any such elections may affect the procedural rules
available to challenge any audit adjustment that would otherwise be
available in the absence of any such elections. Prospective
investors are urged to consult with their tax advisors regarding
the possible effect of the new rules.
Partnership Allocations
Although a
partnership agreement generally will determine the allocation of
income, gains, losses, deductions, and credits among partners, such
allocations will be disregarded for federal income tax purposes if
they do not comply with the provisions of the federal income tax
laws governing partnership allocations. If an allocation is not
recognized for federal income tax purposes, the item subject to the
allocation will be reallocated in accordance with the partners'
interests in the partnership, which will be determined by taking
into account all of the facts and circumstances relating to the
economic arrangement of the partners with respect to such item.
Each Partnership's allocations of taxable income, gains, losses,
deductions, and credits are intended to comply with the
requirements of the federal income tax laws governing partnership
allocations.
Tax Allocations with Respect to Partnership
Properties
Income, gain,
loss, and deduction attributable to appreciated or depreciated
property that is contributed to a partnership in exchange for an
interest in the partnership must be allocated in a manner such that
the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated
with the property at the time of the contribution (the "704(c)
Allocations"). The amount of the unrealized gain or unrealized loss
("built-in gain" or "built-in loss") is generally equal to the
difference between the fair market value of the contributed
property at the time of contribution and the adjusted tax basis of
such property at the time of contribution (a "book-tax
difference"). Any property purchased for cash initially will have
an adjusted tax basis equal to its fair market value, resulting in
no book-tax difference. A book-tax difference generally is
decreased on an annual basis as a result of depreciation deductions
to the contributing partner for book purposes but not for tax
purposes. The 704(c) Allocations are solely for federal income tax
purposes and do not affect the book capital accounts or other
economic or legal arrangements among the partners. In connection
with the separation and distribution, appreciated property was
acquired by our operating partnership or one of its subsidiaries in
exchange for common units. Our operating partnership has a
carryover, rather than a fair market value, adjusted tax basis in
such contributed assets equal to the adjusted tax basis of the
contributors in such assets, resulting in a book-tax difference. As
a result of that book-tax difference, we will have a lower adjusted
tax basis with respect to that portion of our operating
partnership's assets than we would have with respect to assets
having a tax basis equal to fair market value at the time of
acquisition. This will result in lower depreciation deductions with
respect to the portion of our operating partnership's assets
attributable to such contributions, which could cause us to be
allocated tax gain in excess of book gain in the event of a
property disposition.
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The U.S.
Treasury Department has issued regulations requiring partnerships
to use a "reasonable method" for allocating items with respect to
which there is a book-tax difference and outlining several
reasonable allocation methods. We have elected to use the
"traditional method" to account for book-tax differences. Under the
traditional method, the carryover basis of contributed properties
in the hands of our operating partnership (1) could cause us
to be allocated lower amounts of depreciation deductions for tax
purposes than would be allocated to us if all contributed
properties were to have a tax basis equal to their fair market
value at the time of the contribution and (2) in the event of
a sale of such properties, could cause us to be allocated taxable
gain in excess of the economic or book gain allocated to us as a
result of such sale, with a corresponding benefit to the
contributing partners. An allocation described in (2) above
might cause us to recognize taxable income in excess of cash
proceeds in the event of a sale or other disposition of property,
which may adversely affect our ability to comply with the REIT
distribution requirements and may result in a greater portion of
our distributions being taxed as dividends.
Basis in Partnership Interest
Our adjusted
tax basis in our partnership interest in a Partnership (including
our operating partnership) generally is equal to:
- •
- the amount of cash
and the basis of any other property contributed by us to such
Partnership;
- •
- increased by our
allocable share of such Partnership's income and gains and our
allocable share of indebtedness of such Partnership; and
- •
- reduced, but not
below zero, by our allocable share of such Partnership's losses,
deductions and credits and the amount of cash distributed to us,
and by constructive distributions resulting from a reduction in our
share of indebtedness of such Partnership.
If the
allocation of our distributive share of a Partnership's loss would
reduce the adjusted tax basis of our partnership interest in such
Partnership below zero, the recognition of such loss will be
deferred until such time as the recognition of such loss would not
reduce our adjusted tax basis below zero. To the extent that a
Partnership's distributions, or any decrease in our share of the
indebtedness of such Partnership, which is considered a
constructive cash distribution to the partners, reduce our adjusted
tax basis below zero, such distributions will constitute taxable
income to us. Such distributions and constructive distributions
normally will be characterized as long-term capital
gain.
Depreciation Deductions Available to our Operating
Partnership
To the extent
that our operating partnership acquires its hotels in exchange for
cash, its initial basis in such hotels for federal income tax
purposes generally was or will be equal to the purchase price paid
by our operating partnership. Our operating partnership's initial
basis in hotels acquired in exchange for units in our operating
partnership should be the same as the transferor's basis in such
hotels on the date of acquisition by our operating partnership.
Although the law is not entirely clear, our operating partnership
generally will depreciate such depreciable hotel property for
federal income tax purposes over the same remaining useful lives
and under the same methods used by the transferors. Our operating
partnership's tax depreciation deductions will be allocated among
the partners in accordance with their respective interests in our
operating partnership, except to the extent that our operating
partnership is required under the federal income tax laws governing
partnership allocations to use a method for allocating tax
depreciation deductions attributable to contributed properties that
results in our receiving a disproportionate share of such
deductions.
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Internal Revenue Service Examinations
Under the
Bipartisan Budget Act of 2015, Congress revised the rules
applicable to U.S. federal income tax audits of partnerships (such
as certain of our subsidiaries) and the collection of any tax
resulting from any such audits or other tax proceedings, generally
for taxable years beginning after December 31, 2017. Under the
new rules, the partnership itself may be liable for a hypothetical
increase in partner-level taxes (including interest and penalties)
resulting from an adjustment of partnership tax items on audit,
regardless of changes in the composition of the partners (or their
relative ownership) between the year under audit and the year of
the adjustment. The new rules also include an elective alternative
method under which the additional taxes resulting from the
adjustment are assessed from the affected partners, subject to a
higher rate of interest than otherwise would apply. Many questions
remain as to how the new rules will apply, especially with respect
to partners that are REITs. These rules could increase the U.S.
federal income tax, interest, and/or penalties otherwise borne by
us in the event of a U.S. federal income tax audit of a subsidiary
partnership.
Sale of a Partnership's Property
Generally, any
gain realized by us or a Partnership on the sale of property held
for more than one year will be long-term capital gain, except for
any portion of such gain that is treated as depreciation or cost
recovery recapture. Any gain or loss recognized by a Partnership on
the disposition of contributed properties will be allocated first
to the partners who contributed such properties to the extent of
their built-in gain or loss on those properties for federal income
tax purposes. The partners' built-in gain or loss on such
contributed properties will equal the difference between the
partners' proportionate share of the book value of those properties
and the partners' tax basis allocable to those properties at the
time of the contribution. Any remaining gain or loss recognized by
the Partnership on the disposition of the contributed properties,
and any gain or loss recognized by the Partnership on the
disposition of the other properties, will be allocated among the
partners in accordance with their respective percentage interests
in the Partnership.
Our share of
any gain realized by a Partnership on the sale of any property held
by the Partnership as inventory or other property held primarily
for sale to customers in the ordinary course of the Partnership's
trade or business will be treated as income from a prohibited
transaction that is subject to a 100% penalty tax. Such prohibited
transaction income also may have an adverse effect upon our ability
to satisfy the income tests for REIT status. See "—Taxation of Our
Company—Income Tests." We, however, do not presently intend to
acquire or hold or to allow any Partnership to acquire or hold any
property that represents inventory or other property held primarily
for sale to customers in the ordinary course of our or such
Partnership's trade or business.
Taxable REIT Subsidiaries
We own 100% of
the stock of more than one TRS, one of which has multiple
subsidiaries (at least one of which is a TRS), and an indirect
interest in another TRS that has TRS subsidiaries. A TRS is a fully
taxable corporation for which a TRS election is properly made and
is required to pay regular U.S. federal income tax, and state and
local income tax where applicable, as a non-REIT "C" corporation.
In addition, a taxable REIT subsidiary may be prevented from
deducting interest on debt funded directly or indirectly by us if
certain tests are not satisfied, as described below in "—Interest
Deduction Limitation." A TRS may lease hotels from us under certain
circumstances, provide services to our tenants, and perform
activities unrelated to our tenants, such as third-party
management, development, and other independent business activities.
A corporation of which a TRS directly or indirectly owns more than
35% of the voting power or value of the stock will automatically be
treated as a TRS. Overall, no more than 25% (20% with respect to
taxable years beginning after December 31, 2017) of the value
of our assets may consist of the securities of TRSs.
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A TRS may not
directly or indirectly operate or manage any hotels or health care
facilities or provide rights to any brand name under which any
hotel or health care facility is operated. However, rents received
by us from a TRS pursuant to a hotel lease will qualify as "rents
from real property" as long as the hotel is operated on behalf of
the TRS by a person who satisfies the following
requirements:
- •
- 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 and the TRS;
- •
- such person does not
own, directly or indirectly, more than 35% of our stock;
- •
- no more than 35% of
such person is owned, directly or indirectly, by one or more
persons owning 35% or more of our stock; and
- •
- we do not directly or
indirectly derive any income from such person.
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, unless wagering activities are 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.
The TRS rules
limit the deductibility of interest paid or accrued by a TRS to us
to assure that the TRS is subject to an appropriate level of
corporate taxation. Further, the rules impose a 100% excise tax on
certain transactions between a TRS and us or our tenants that are
not conducted on an arm's-length basis. We intend that all of our
transactions with any TRS that we form will be conducted on an
arm's-length basis, but there can be no assurance that we will be
successful in this regard.
We have formed
and made a timely election with respect to each of our TRSs, which
lease each of our properties not owned by a TRS. Additionally, we
may form or acquire additional TRSs in the future.
State and Local Taxes
We and/or you
may be subject to state and local tax in various states and
localities, including those states and localities in which we or
you transact business, own property, or reside. The state and local
tax treatment in such jurisdictions may differ from the federal
income tax treatment described above. Consequently, you should
consult your own tax advisor regarding the effect of state and
local tax laws upon an investment in our capital stock.
Legislative or Other Actions Affecting REITs
The present
federal income tax treatment of REITs may be modified, possibly
with retroactive effect, by legislative, judicial or administrative
action at any time. The REIT rules are constantly under review by
persons involved in the legislative process and by the IRS and the
U.S. Treasury Department which may result in statutory changes as
well as revisions to regulations and interpretations. Additionally,
several of the tax considerations described herein are currently
under review and are subject to change. Prospective stockholders
are urged to consult with their own tax advisors regarding the
effect of potential changes to the federal tax laws on an
investment in our capital stock.
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INVESTMENT BY TAX EXEMPT ENTITIES AND ERISA
CONSIDERATIONS
General
The following
is a summary of certain additional considerations associated with
an investment in the Preferred Stock by tax-qualified pension,
stock-bonus or profit-sharing plans, employee benefit plans
described in Section 3(3) and subject to Title I of ERISA,
annuities described in Section 403(a) or (b) of the Code,
an IRA or annuity described in Sections 408 or 408A of the
Code, an Archer MSA described in Section 220(d) of the Code, a
health savings account described in Section 223(d) of the
Code, or a Coverdell education savings account described in
Section 530 of the Code, which are referred to in this section
as "Plans" and "IRAs," as applicable. This summary is based on
provisions of ERISA and the Code, including amendments thereto
through the date of this prospectus, and relevant regulations and
opinions issued by the Department of Labor and the IRS through the
date of this prospectus. We cannot assure you that adverse tax
decisions or legislative, regulatory or administrative changes that
would significantly modify the statements expressed herein will not
occur. Any such changes may apply to transactions entered into
prior to the date of their enactment.
In considering
an investment in the Preferred Stock, those involved with making
such an investment decision should consider applicable provisions
of the Code and ERISA. Although each of ERISA and the Code issues
discussed below may not apply to all Plans and IRAs, individuals
involved with making investment decisions with respect to Plans and
IRAs should carefully review the rules and exceptions described
below, and determine their applicability to their situation. This
discussion should not be considered legal or tax advice and
prospective investors are encouraged to consult their own legal and
tax advisors on these matters.
In general,
individuals making investment decisions with respect to Plans and
IRAs should, at a minimum, consider:
- •
- whether the
investment is in accordance with the documents and instruments
governing such Plan or IRA;
- •
- whether the
investment satisfies the prudence and diversification and other
fiduciary requirements of ERISA, if applicable;
- •
- whether the
investment will result in unrelated business taxable income to the
Plan or IRA (see the section entitled "Material U.S. Federal Income
Tax Considerations—Taxation of Tax-Exempt Stockholders");
- •
- whether there is
sufficient liquidity for the Plan or IRA, considering the minimum
and other distribution requirements under the Code and the
liquidity needs of such Plan or IRA, after taking this investment
into account;
- •
- the need to value the
assets of the Plan or IRA annually or more frequently; and
- •
- whether the
investment would constitute or give rise to a non-exempt prohibited
transaction under ERISA or the Code, if applicable.
Additionally,
individuals making investment decisions with respect to Plans and
IRAs must remember that ERISA requires that the assets of an
employee benefit plan must generally be held in trust.
Minimum and Other Distribution Requirements—Plan
Liquidity
Potential Plan
or IRA investors who intend to purchase shares of the Preferred
Stock should consider the limited liquidity of such an investment
as it relates to the minimum distribution requirements under the
Code, if applicable, and as it relates to other distributions (such
as, for example, cash out distributions) that may be required under
the terms of the Plan or IRA from time to time. If the shares are
held in an IRA or Plan and mandatory or other distributions are
required to be
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made to the
participant or beneficiary of such IRA or Plan, pursuant to the
Code, then this could require that a distribution of the shares be
made in kind to such participant or beneficiary or that a rollover
of such shares be made to an IRA or other plan, which may not be
permissible under the terms and provisions of the IRA or Plan. Even
if permissible, a distribution of shares in kind to a participant
or beneficiary of an IRA or Plan must be included in the taxable
income of the recipient for the year in which the shares are
received at the then current fair market value of the shares, even
though there would be no corresponding cash distribution with which
to pay the income tax liability arising because of the distribution
of shares. The fair market value of any such distribution-in-kind
can be only an estimated value per share if no public market for
the shares then exists. Further, there can be no assurance that
such estimated value could actually be realized by a stockholder
because estimates do not necessarily indicate the price at which
the shares could be sold. Also, for distributions subject to
mandatory income tax withholding under Section 3405 or other
tax-withholding provisions of the Code, the trustee of a Plan may
have an obligation, even in situations involving in-kind
distributions of shares, to liquidate a portion of the in-kind
shares distributed in order to satisfy such withholding
obligations, although there might be no market for such shares.
There also may be similar state or local tax withholding or other
tax obligations that should be considered.
Annual or More Frequent Valuation Requirement
Fiduciaries of
Plans are generally required to determine the fair market value of
the assets of such Plans on at least an annual basis and,
sometimes, as frequently as quarterly. If the fair market value of
any particular asset is not readily ascertainable, the fiduciary is
required to make a good faith determination of that asset's value.
Also, a trustee or custodian of an IRA must provide an IRA
participant and the IRS with a statement of the value of the IRA
each year. However, currently, neither the IRS nor the Department
of Labor has promulgated regulations definitively specifying how
"fair market value" should be determined in all
circumstances.
It is not
expected that a public market for the Preferred Stock will develop.
To assist fiduciaries of Plans subject to the annual reporting
requirements of ERISA and IRA trustees or custodians to prepare
reports relating to an investment in the Preferred Stock, we intend
to provide reports of our annual determinations of the current
estimated share value to those fiduciaries (including IRA trustees
and custodians) who identify themselves to us and request the
reports. We anticipate that we will provide annual reports of our
determination of value to Plan fiduciaries after the end of each
calendar year.
There can be no
assurance, however, with respect to any estimate of value that we
prepare, that:
- •
- our stockholders
would be able to realize estimated net asset values if they were to
attempt to sell their shares, because no public market for the
Preferred Stock exists or is likely to develop; or
- •
- that the value, or
method used to establish value, would comply with ERISA, the Code
or applicable state tax law requirements described
above.
Fiduciary Obligations—Prohibited Transactions
Any person
identified as a "fiduciary" with respect to a Plan has duties and
obligations under ERISA as discussed herein. For purposes of ERISA,
any person who exercises any authority or control with respect to
the management or disposition of the assets of a Plan is considered
to be a fiduciary of such Plan. Further, many transactions between
a Plan or an IRA and a "party-in-interest" or a "disqualified
person" with respect to such Plan or IRA are prohibited by ERISA
and/or the Code. ERISA also requires generally that the assets of
Plans be held in trust.
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If our
properties and other assets were deemed to be assets of a Plan or
IRA, referred to herein as "plan assets," our directors would, and
employees of our affiliates might be deemed to be, fiduciaries of
any Plans or IRAs investing as stockholders. If this were to occur,
certain contemplated transactions between us and our directors and
employees of our affiliates could be deemed to be "prohibited
transactions." Additionally, ERISA's fiduciary standards applicable
to investments by Plans would extend to our directors and possibly
employees of our affiliates as Plan fiduciaries with respect to
investments made by us.
Plan Assets—Definition
With the
passage of the Pension Protection Act of 2006 (the "PPA"),
Section 3(42) of ERISA now defines "plan assets" in accordance
with Department of Labor regulations with certain express
exceptions. A Department of Labor regulation, referred to in this
discussion as the "Plan Asset Regulation," as modified or deemed to
be modified by the express exceptions noted in the PPA, provides
guidelines as to whether, and under what circumstances, the
underlying assets of an entity will be deemed to constitute "plan
assets." Under the Plan Asset Regulation, the assets of an entity
in which a Plan or IRA makes an equity investment generally will be
deemed to be assets of such Plan or IRA unless the entity satisfies
one of the exceptions to this general rule. We believe that we will
satisfy one or both of the exceptions that require that the
investment be one of the following:
- •
- in "publicly offered
securities," defined generally as interests that are "freely
transferable," "widely held" and registered with the SEC; or
- •
- in an entity in which
equity participation by "benefit plan investors" is not
significant.
Publicly Offered Securities Exemption
As noted above,
if a Plan acquires "publicly offered securities," the assets of the
issuer of the securities will not be deemed to be "plan assets"
under the Plan Asset Regulation. The definition of publicly offered
securities requires that such securities be "widely held," "freely
transferable" and satisfy registration requirements under federal
securities laws.
Under the Plan
Asset Regulation, a class of securities will meet the registration
requirements under federal securities laws if they are
(i) part of a class of securities registered under
section 12(b) or 12(g) of the Exchange Act, or (ii) part
of an offering of securities to the public pursuant to an effective
registration statement under the Securities Act and the class of
securities of which such security is a part is registered under the
Exchange Act within 120 days (or such later time as may be
allowed by the SEC) after the end of the fiscal year of the issuer
during which the offering of such securities to the public
occurred. We anticipate that we will meet the registration
requirements under the Plan Asset Regulation. Also under the Plan
Asset Regulation, a class of securities will be "widely held" if it
is held by 100 or more persons independent of the issuer. We
anticipate that this requirement will be met.
Although the
Preferred Stock is intended to satisfy the registration
requirements under this definition, and we expect that our
securities will be "widely-held," the "freely transferable"
requirement must also be satisfied in order for us to qualify for
the "publicly offered securities" exception.
The Plan Asset
Regulation provides that "whether a security is" "freely
transferable' is a factual question to be determined on the basis
of all relevant facts and circumstances." Our shares are subject to
certain restrictions on transferability typically found in REITs,
and are intended to ensure that we continue to qualify for U.S.
federal income tax treatment as a REIT. The Plan Asset Regulation
provides, however, that where the minimum investment in a public
offering of securities is $10,000 or less, the presence of a
restriction on transferability intended to prohibit transfers that
would result in a termination or reclassification of the entity for
U.S. federal or state tax purposes will not ordinarily affect a
determination that such securities are "freely transferable." The
minimum investment in the
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Preferred Stock is
less than $10,000. Thus, the restrictions imposed in order to
maintain our status as a REIT should not prevent the shares from
being deemed "freely transferable." Therefore, we anticipate that
we will meet the "publicly offered securities" exception, although
there are no assurances that we will qualify for this
exception.
Plan Assets—Not Significant Investment Exception
The Plan Asset
Regulation provides that equity participation in an entity by
benefit plan investors is "significant" if at any time 25% or more
of the value of any class of equity interests is held by benefit
plan investors. A "benefit plan investor" is defined to mean an
employee benefit plan subject to Part 4 of Subtitle B of Title
I of ERISA, any plan to which Section 4975 of the Code applies
and any entity whose underlying assets include plan assets by
reason of a plan's investment in such entity. Until such time that
we meet the "publicly offered securities" exception with respect to
any class of the Preferred Stock, we intend to restrict ownership
of such class held by benefit plan investors to an aggregate value
of less than 25% and thus qualify for the exception for investments
in which equity participation by benefit plan investors is not
significant. To that end, participating broker-dealers have agreed
not to submit any subscription or order for shares in a class of
Preferred Stock until after we have provided notice that the shares
of such class of Preferred Stock are held by more than 100 persons.
We intend to obtain similar assurances from registered investment
advisers before accepting subscriptions or orders from their
clients.
Consequences of Holding Plan Assets
If our
underlying assets were treated by the Department of Labor as "plan
assets," our management would be treated as fiduciaries with
respect to each Plan or IRA stockholder, and an investment in the
Preferred Stock might expose the fiduciaries of the Plan or IRA to
co-fiduciary liability under ERISA for any breach by our management
of the fiduciary duties mandated under ERISA. Further, if our
assets are deemed to be "plan assets," an investment by a Plan or
IRA in the Preferred Stock might be deemed to result in an
impermissible commingling of "plan assets" with other
property.
If our
management or affiliates were treated as fiduciaries with respect
to Plan or IRA stockholders, the prohibited transaction
restrictions of ERISA and/or the Code would apply to any
transaction involving our assets. These restrictions could, for
example, require that we avoid transactions with entities that are
affiliated with our affiliates or us or restructure our activities
in order to obtain an administrative exemption from the prohibited
transaction restrictions. Alternatively, we might have to provide
Plan or IRA stockholders with the opportunity to sell their shares
of the Preferred Stock to us.
Prohibited Transactions
Generally, both
ERISA and the Code prohibit Plans and IRAs from engaging in certain
transactions involving "plan assets" with specified parties, such
as sales or exchanges or leasing of property, loans or other
extensions of credit, furnishing goods or services, or transfers
to, or use of, "plan assets." The specified parties are referred to
as "parties-in-interest" under ERISA and as "disqualified persons"
under the Code. These definitions generally include "persons
providing services" to the Plan or IRA, as well as employer
sponsors of the Plan or IRA, fiduciaries and certain other
individuals or entities affiliated with the foregoing.
A person
generally is a fiduciary with respect to a Plan or IRA for these
purposes if, among other things, the person has discretionary
authority or control with respect to "plan assets" or provides
investment advice for a fee with respect to "plan assets." Under
Department of Labor regulations, a person will be deemed to be
providing investment advice if that person renders advice as to
the
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advisability of
investing in our shares, and that person regularly provides
investment advice to the Plan or IRA pursuant to a mutual agreement
or understanding that such advice will serve as the primary basis
for investment decisions, and that the advice will be
individualized for the Plan or IRA based on its particular needs.
The Department of Labor has proposed regulations that, if
finalized, may broaden the circumstances under which the individual
or entity may become a fiduciary as a result of providing
investment advice. Thus, if we are deemed to hold "plan assets,"
our management could be characterized as fiduciaries with respect
to such assets, and each would be deemed to be a party-in-interest
under ERISA and a disqualified person under the Code with respect
to investing Plans and IRAs. Whether or not we are deemed to hold
"plan assets," if we or our affiliates are affiliated with a Plan
or IRA investor, we might be a disqualified person or
party-in-interest with respect to such Plan or IRA investor,
potentially resulting in a prohibited transaction merely upon
investment by such Plan or IRA in the Preferred Stock.
Prohibited Transactions—Consequences
ERISA forbids
Plans from engaging in non-exempt prohibited transactions.
Fiduciaries of a Plan that allow a non-exempt prohibited
transaction to occur will breach their fiduciary responsibilities
under ERISA, and may be liable for any damage sustained by the
Plan, as well as civil (and criminal, if the violation was willful)
penalties. If it is determined by the Department of Labor or the
IRS that a non-exempt prohibited transaction has occurred, any
disqualified person or party-in-interest involved with the
prohibited transaction would be required to reverse or unwind the
transaction and, for a Plan, compensate the Plan for any loss
resulting therefrom. Additionally, the Code requires that a
disqualified person involved with a non-exempt prohibited
transaction involving a Plan or, in some circumstances, an IRA must
pay an excise tax equal to a percentage of the "amount involved" in
the transaction for each year in which the transaction remains
uncorrected. The percentage is generally 15%, but is increased to
100% if the non-exempt prohibited transaction is not corrected
promptly. In addition, if an IRA engages in a non-exempt prohibited
transaction in which the IRA owner is a party, the tax-exempt
status of the IRA may be lost.
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DIVIDEND REINVESTMENT PLAN
We have adopted
the DRP that allows you the opportunity to purchase, through
reinvestment of your dividends, additional shares of Preferred
Stock.
Description of the DRP
Who is eligible to participate in the DRP?
Existing
holders of Preferred Stock are eligible to participate in the DRP.
If you own shares of Preferred Stock that are registered in someone
else's name (for example, a bank, broker, or trustee) and you want
to participate in the DRP, you may be able to arrange for that
person to handle the reinvestment of dividends through the DRP on
your behalf. If not, then in order to participate in the DRP, your
shares of Preferred Stock should be withdrawn from "street name" or
other form of registration and should be registered in your own
name. Alternatively, your broker or bank may offer a separate
program that allows you to participate in a plan without having to
withdraw your shares of Preferred Stock from "street name." Your
bank or broker may charge fees to participate in that
program.
Who is the administrator of the DRP?
Computershare
Trust Company, N.A. (the "Administrator") administers the DRP.
Certain administrative support will be provided to the
Administrator by its designated affiliates. If you have questions
regarding the DRP, please write to the Administrator at the
following address: Computershare Trust Company, N.A.,
P.O. Box 505013, Louisville, KY 40233-5013 or call the
Administrator at 1-877-282-1168. An automated voice response system
is available 24 hours a day, 7 days a week. Customer
service representatives are available from 8:00 a.m. to
8:00 p.m., Eastern Time, Monday through Friday (except
holidays). In addition, you may visit the Administrator's website
at www.computershare.com/investor. At
this website, you can enroll in the DRP, obtain information, and
perform certain transactions on your DRP account. See
"Administration" for more information regarding the administration
of the DRP.
What are the benefits of the DRP?
- •
- The DRP provides you
with the opportunity to automatically reinvest dividends paid on
all, but not less than all, of your shares of Preferred Stock
(including shares of Preferred Stock held in your DRP account), in
additional shares of Preferred Stock without payment of any fees or
other charges to the extent shares of Preferred Stock are purchased
directly from us pursuant to the DRP.
- •
- You may purchase
fractional shares of Preferred Stock under the DRP, which means you
may fully reinvest all dividends. Dividends on fractional shares,
as well as on whole shares, also can be reinvested in additional
shares of Preferred Stock, which will be credited to your DRP
account.
- •
- You will receive a
transaction statement confirming the details of each transaction
that you make.
What are the disadvantages of the DRP?
- •
- We will not pay you
any interest on dividends held by the Administrator before the
investment date.
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- •
- The dividends you
reinvest under the DRP will generally be taxable to you to the
extent of our earnings and profits and may give rise to a liability
for the payment of income tax without providing you with the
corresponding cash to pay the tax when due.
How does an existing holder of shares of Preferred Stock
participate in the DRP?
Enrollment is
available online through www.computershare.com/investor.
Alternatively, you may enroll by completing an enrollment form and
mailing it to the Administrator. Your participation in the DRP will
begin promptly after your enrollment is received;
provided,
however, that the first
dividend payable with respect to newly issued shares of Preferred
Stock pursuant to our primary offering will be paid in cash, with
subsequent dividends reinvested pursuant to the DRP. Once you
enroll, your participation continues automatically for as long as
you wish to participate in the DRP.
You may change
your dividend reinvestment election at any time online
through www.computershare.com/investor, by
telephone or by notifying the Administrator in writing prior to the
record date for that dividend. If your request is received after
the record date, then your dividend will be paid in cash by check
or automatic deposit to a U.S. bank account that you designate and
your initial dividend reinvestment will commence with the following
dividend will be changed only for subsequent dividend payments. The
record date will typically be approximately 15 days in advance
of the dividend payment date.
You may, of
course, choose not to reinvest any of your dividends, in which case
the Administrator will remit any such dividends to you by check or
automatic deposit to a U.S. bank account that you
designate.
As
an existing holder of shares of Preferred Stock, what are my
investment options under the DRP?
Once enrolled
in the DRP, you may elect to reinvest all, but not less than all,
of your dividends in additional shares of Preferred Stock. Pursuant
to the DRP, holders of Series E Preferred Stock and holders of
Series M Preferred Stock will receive Series E DRP Shares
and Series M DRP Shares, respectively.
When are funds invested under the DRP?
The investment
date for reinvested dividends will be the dividend payment date
(generally, the 15th day of each month). No interest will be
paid on funds held by the Administrator pending investment. Shares
will be purchased directly from us.
Who pays the fees and other expenses?
We will pay all
fees or other charges on shares of Preferred Stock purchased
through the DRP.
What are the federal income tax consequences of participating in
the DRP?
The following
is a summary of the federal income tax consequences of
participation in the DRP as of the date of this prospectus.
However, this summary does not reflect every situation that could
result from participation in the DRP, is for general information
only and does not constitute tax advice. Therefore, we advise you
to consult your tax and other advisors for information about your
specific situation. This summary does not address the tax
implications of your ownership of shares of Preferred Stock,
including the effect of distributions made in respect of such
shares.
The information
in this section is based on the Code, existing, temporary and
proposed regulations under the Code, the legislative history of the
Code, current administrative rulings and practices of the Internal
Revenue Service ("IRS"), and court decisions, all as of the date
hereof. We cannot assure you that new laws, interpretations of law
or court decisions, any of which may take effect retroactively,
will
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not cause any
statement in this section to be inaccurate. No assurance can be
given that the IRS would not assert, or that a court would not
sustain, a position contrary to any of the tax consequences
described below. We have not sought and will not seek an advance
ruling from the IRS regarding any matter in this
prospectus.
Although the
federal income tax treatment of dividend reinvestment plans is not
entirely clear, it is expected that stockholders participating in
the DRP will be treated for federal income tax purposes as having
received, on the date such dividends are reinvested, a distribution
equal to the fair market value of any shares of Preferred Stock
purchased under the DRP. Consequently, dividends reinvested in the
DRP may give rise to a tax payment obligation without the
corresponding cash to pay such tax when it becomes due. The total
amount of cash and other distributions will be reported to
stockholders and to the IRS on the appropriate tax form shortly
after the end of each year. The tax basis of shares of Preferred
Stock acquired under the DRP will be equal to the fair market value
of the shares on the date such stock is purchased under the DRP
plus any brokerage costs paid by the stockholder. A stockholder's
holding period for Preferred Stock acquired under the DRP generally
will begin on the day after the date on which the Preferred Stock
is credited to the stockholder's account.
Our
distributions to stockholders constitute dividends for federal
income tax purposes up to the amount of our positive current and
accumulated earnings and profits (as determined for federal income
tax purposes) and, to that extent, will be taxable as ordinary
income (except to the extent that we designate any portion of such
dividend as either: (i) a "capital gain" dividend; or
(ii) in the case of stockholders taxed at individual rates who
satisfy certain holding period requirements, as "qualified dividend
income" pursuant to applicable federal income tax rules). To the
extent that we make a distribution in excess of our current and
accumulated earnings and profits, such distribution will be treated
first as a tax-free return of capital to the extent of a
stockholder's adjusted tax basis in the Preferred Stock and, to the
extent in excess of the stockholder's basis, will be taxable as a
gain realized from the sale of the stockholder's Preferred Stock.
Distributions to corporate stockholders, including amounts taxable
as dividends to corporate stockholders, will generally not be
eligible for the corporate dividends-received deduction.
You will not
recognize gain or loss for federal income tax purposes upon your
receipt of certificates for shares previously credited to your DRP
account. However, you will generally recognize gain or loss when
you sell or exchange shares received from the DRP or when a
fractional share interest is liquidated. Such gain or loss will
equal the difference between the amount that you receive for such
shares or such fractional share interest and your tax basis in such
shares or such fractional share interest.
We or the
Administrator may be required to deduct as "backup withholding"
twenty-four percent (24%) of all dividends paid to you, regardless
of whether such dividends are reinvested pursuant to the DRP. You
are subject to backup withholding if: (i) you have failed
properly to furnish us and the Administrator with your correct tax
identification number ("TIN"); (ii) the IRS or a broker
notifies us or the Administrator that the TIN furnished by you is
incorrect; (iii) the IRS or a broker notifies us or the
Administrator that backup withholding should be commenced because
you failed to properly report dividends paid to you; or
(iv) when required to do so, you fail to certify, under
penalties of perjury, that you are not subject to backup
withholding. Backup withholding amounts will be withheld from
dividends before such dividends are reinvested under the DRP.
Therefore, if you are subject to backup withholding, dividends to
be reinvested under the DRP will be reduced by the backup
withholding amount.
If you are a
foreign stockholder, you need to provide the required federal
income tax certifications to establish your status as a foreign
stockholder so that the foregoing backup withholding does not apply
to you. You also need to provide the required certifications if you
wish to claim the benefit of exemptions from federal income tax
withholding or reduced withholding rates under a treaty
or
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convention entered
into between the United States and your country of residence. If
you are a foreign stockholder whose dividends are subject to
federal income tax withholding, the appropriate amount will be
withheld and the balance in shares of Preferred Stock will be
credited to your account.
All costs of
administering the DRP will be paid by us. Consistent with the
conclusion reached by the IRS in a private letter ruling issued to
another REIT, we intend to take the position that these costs do
not constitute a distribution which is either taxable to you or
which would reduce your basis in your shares. However, since the
private letter ruling was not issued to us, we have no legal right
to rely on its conclusions. Thus, it is possible that the IRS might
view your share of the costs as constituting a taxable dividend to
you and/or a dividend which reduces the basis in your Preferred
Stock. For this or other reasons, we may in the future take a
different position with respect to the costs of administering the
DRP.
The foregoing
is intended only as a general discussion of the current federal
income tax consequences of participation in the DRP and may not be
applicable to certain participants, such as tax-exempt entities.
You should consult your tax and other professional advisors
regarding the foreign, federal, state and local income tax
consequences (including the effects of any changes in applicable
law or interpretations thereof) of your individual participation in
the DRP or the disposal of shares acquired pursuant to the
DRP.
Purpose
The purpose of
the DRP is to provide a convenient and economical way for holders
of shares of Preferred Stock to invest all, but not less than all,
of their dividends in additional shares of Preferred
Stock.
Eligibility of Existing Holders of Preferred Stock
If you are a
current holder of record of shares of Preferred Stock, you may
participate in the DRP unless receipt of shares of Preferred Stock
through the DRP would cause you to exceed the 9.8% ownership limit
in our charter. See "Restrictions on Ownership and Transfer" for
more information. Eligible holders of shares of Preferred Stock may
enroll in the DRP online through www.computershare.com/investor.
Alternatively, you may enroll by completing an enrollment form and
delivering it to the Administrator.
If you own
shares of Preferred Stock that are registered in someone else's
name (for example, a bank, broker or trustee) and you want to
participate in the DRP, you may be able to arrange for that person
to handle the reinvestment of your dividends. If not, your shares
of Preferred Stock should be withdrawn from "street name" or other
form of registration and should be registered in your own name.
Alternatively, your broker or bank may offer a program that allows
you to participate in a plan without having to withdraw your shares
of Preferred Stock from "street name."
Administration
Computershare
Trust Company, N.A. administers the DRP. Certain administrative
support will be provided to the Administrator by its designated
affiliates.
You can enroll
in the DRP, obtain information and perform certain transactions on
your DRP account online via the Administrator's Investor
Center.
To visit the
Administrator's website: www.computershare.com/investor
You can contact
the Administrator's stockholder relations department toll-free at:
1-877-282-1168
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An automated
voice response system is available 24 hours a day, 7 days
a week. Customer service representatives are available from
8:00 a.m. to 8:00 p.m., Eastern Time, Monday through
Friday (except holidays).
You may write
to the Administrator at the following address:
Computershare Trust Company, N.A.
P.O. Box 505013
Louisville, KY 40233-5013
For
overnight packages:
Computershare Trust Company, N.A.
Attn: Alternative Investments
462 S. 4th Street suite 1600
Louisville, KY 40202
Please include
a reference to Braemar Hotels & Resorts Series E
Preferred Stock or Series M Preferred Stock in all
correspondence.
Purchases and Pricing of Shares of Preferred Stock
With respect to
reinvested dividends, the market price for purchases of shares of
Preferred Stock directly from us will be $25.00 per share, and the
investment date will be the dividend payment date for the month.
Dividend payment dates generally occur on the 15th day of each
month. Your account will be credited with a full and fractional
number of shares of Preferred Stock, equal to the total amount to
be invested by you, divided by the applicable purchase price per
share.
There are no
fees or other charges on shares of Preferred Stock purchased
through the DRP.
Participation
Any eligible
holder of shares of Preferred Stock may enroll in the DRP online
through www.computershare.com/investor.
Alternatively, you may enroll in the DRP by completing an
enrollment form and returning it to the Administrator at address
set forth above.
If the
Administrator receives your enrollment form by the record date for
the payment of the next dividend (approximately 15 days in
advance of the dividend payment date), that dividend will be
invested in additional shares of Preferred Stock for your DRP
account; provided, however,
that the first dividend payable with respect to newly issued shares
of Preferred Stock pursuant to our primary offering will be paid in
cash, with subsequent dividends reinvested pursuant to the DRP. If
the enrollment form is received in the period after any dividend
record date, that dividend will be paid by check or automatic
deposit to a U.S. bank account that you designate and your initial
dividend reinvestment will commence with the following
dividend.
By enrolling in
the DRP, you direct the Administrator to apply all, but not less
than all, dividends to the purchase of additional shares of
Preferred Stock in accordance with the DRP's terms and conditions.
Unless otherwise instructed, the Administrator will thereafter
automatically reinvest all, but not less than all, dividends
declared on shares of Preferred Stock held under the DRP. If you
want to discontinue the reinvestment of all dividends paid on your
shares of Preferred Stock, you must provide notice to the
Administrator. See "Administration" for information on how to
contact the Administrator.
Cost
We will pay all
fees, the annual cost of administration and, unless provided
otherwise in the DRP, all other charges incurred in connection with
the purchase of shares of Preferred Stock acquired under the DRP,
if any.
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Date for Investment of Funds under the DRP
For reinvested
dividends, the investment date will be the dividend payment date
for the month (generally, the 15th day of each month);
provided,
however, that the first
dividend payable with respect to newly issued shares of Preferred
Stock pursuant to our primary offering will be paid in cash, with
subsequent dividends reinvested pursuant to the DRP. No interest
will be paid on funds held by the Administrator pending
investment.
Number of Shares of Preferred Stock to be Purchased for the
Participant
The number of
shares of Preferred Stock purchased under the DRP will depend on
the amount of your dividend. Shares of Preferred Stock purchased
under the DRP will be credited to your account. Both full and
fractional shares will be purchased.
We are offering
up to 8,000,000 shares of Preferred Stock for sale under the DRP.
We cannot assure you there will be enough shares of Preferred Stock
to meet the requirements under the DRP. If we do not have a
sufficient number of registered shares of Preferred Stock to meet
the DRP requirements during any month, the portion of any
reinvested dividends received by the Administrator but not invested
in shares of Preferred Stock under the DRP will be returned to
participants without interest.
There is no
special limitation on the cumulative number of shares of Preferred
Stock that may be purchased under the DRP. However, purchases under
the DRP are subject to the general restrictions contained in our
charter that prohibit purchases of shares of Preferred Stock that
could disqualify us as a REIT. See "Restrictions on Ownership and
Transfer" for more information.
Source of Shares of Preferred Stock Purchased Under the
DRP
Shares of
Preferred Stock purchased under the DRP will come from our
authorized but unissued shares of Preferred Stock.
Method for Changing DRP Election
You may change
your DRP election at any time online through www.computershare.com/investor, by
telephone or by notifying the Administrator in writing. See
"Administration" for information on how to contact the
Administrator. To be effective with respect to a particular
dividend, any such change must be received by the Administrator
prior to the record date for such dividend.
Withdrawal by Participant
You may
discontinue the reinvestment of your dividends at any time by
providing written or telephone notice to the Administrator.
Alternatively, you may change your dividend election online
through www.computershare.com/investor.
See "Administration" for information on how to contact the
Administrator. If the Administrator receives your notice of
withdrawal prior to the record date for the payment of the next
dividend, the Administrator, in its sole discretion, will
distribute such dividends in cash. If the request is received after
the record date for the payment of the next dividend, then that
dividend will be reinvested. However, all subsequent dividends will
be paid out in cash on all balances. The Administrator will
continue to hold your shares of Preferred Stock in your DRP
account.
Generally, an
eligible holder of shares of Preferred Stock may again become a
participant in the DRP. However, we reserve the right to reject the
enrollment of a previous participant in the DRP on grounds of
excessive joining and termination. This reservation is intended to
minimize administrative expense and to encourage use of the DRP as
a long-term investment service.
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Stock Certificates and Safekeeping
Shares of
Preferred Stock that you acquire under the DRP will be maintained
in your DRP account in non-certificated form. This protects your
shares of Preferred Stock against loss, theft or accidental
destruction and also provides a convenient way for you to keep
track of your shares of Preferred Stock.
Reports to Participants
Statements of
your account activity will be sent to you after each transaction,
which will simplify your record keeping. Each DRP account statement
will show the amount invested, the purchase price and the number of
shares of Preferred Stock purchased. The statement will include
specific cost-basis information in accordance with applicable law.
Please notify the Administrator promptly either in writing, by
telephone or through the Internet if your address changes. In
addition, you will receive copies of the same communications sent
to all other holders of shares of Preferred Stock, if any. You also
will receive any IRS information returns, if required. Please
retain all account statements for your records. The statements
contain important tax and other information.
Responsibilities under the DRP
We, the
Administrator and any agent will not be liable in administering the
DRP for any act done in good faith, or for any omission to act in
good faith, including, without limitation, any claim of liability
arising out of failure to terminate a participant's account upon
that participant's death prior to the receipt of notice in writing
of such death. Nor are we, the Administrator or any agent liable
for any act done or not done in good faith regarding the purchase
of shares or the prices at which the purchases are done at. Since
we have delegated all responsibility for administering the DRP to
the Administrator, we specifically disclaim any responsibility for
any of its actions or inactions in connection with the
administration of the DRP.
You should
recognize that neither we, the Administrator, nor any agent can
assure you of a profit or protect you against a loss on shares of
Preferred Stock purchased under the DRP.
Interpretation and Regulation of the DRP
We reserve the
right to interpret and regulate the DRP.
Suspension, Modification or Termination of the DRP
We reserve the
right to suspend, modify or terminate the DRP at any time.
Participants will be notified of any suspension, modification or
termination of the DRP. Upon our termination of the DRP any whole
book-entry shares owned will continue to be credited to a
participant's account unless specifically requested
otherwise.
Miscellaneous
Effect of Stock Dividend, Stock Split or Rights
Offering
Any shares of
Preferred Stock we distribute as a stock dividend on shares of
Preferred Stock credited to your account under the DRP, or upon any
split of such shares of Preferred Stock, will be credited to your
account. Stock dividends or splits distributed on all other shares
of Preferred Stock held by you and registered in your own name will
be mailed directly to you.
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Effect of Transfer of All Shares of Preferred Stock in
Participant's Name
If you dispose
of all shares of Preferred Stock registered in your name, but do
not give notice of withdrawal to the Administrator, the
Administrator will continue to reinvest the dividends on any shares
of Preferred Stock held in your account under the DRP until the
Administrator is otherwise notified. See "Withdrawal by
Participant" for more information on how to withdraw from the
DRP.
Voting of Participant's Shares of Preferred Stock Held under the
DRP
Shares of
Preferred Stock credited to your account under the DRP will be
voted in accordance with your instructions. If you are a
participant in the DRP and are not a holder of record of shares of
Preferred Stock in your own name, you will be furnished with a form
of proxy covering the shares of Preferred Stock credited to your
account under the DRP. If you are a participant in the DRP and are
the holder of record of shares of Preferred Stock in your own name,
your proxy will be deemed to include shares of Preferred Stock, if
any, credited to your account under the DRP, and the shares of
Preferred Stock held under the DRP will be voted in the same manner
as the shares of Preferred Stock registered in your own name. If a
proxy is not returned, none of your shares of Preferred Stock will
be voted unless you vote in person. If you want to vote in person
at a meeting of stockholders, a proxy for shares of Preferred Stock
credited to your account under the DRP may be obtained upon written
request received by the Administrator at least 15 days before
the meeting.
Pledging of Participant's Shares of Preferred Stock Held under the
DRP
You may not
pledge any shares of Preferred Stock that you hold in your DRP
account. Any pledge of shares of Preferred Stock in a DRP account
is null and void. If you wish to pledge shares of Preferred Stock,
you must first withdraw those shares of Preferred Stock from the
DRP.
Limitation of Liability
The DRP
provides that neither we nor the Administrator, nor any independent
agent, will be liable in administering the DRP for any act done in
good faith or any omission to act in good faith in connection with
the DRP. This limitation includes, but is not limited to, any
claims of liability relating to:
- •
- the failure to
terminate your DRP account upon your death prior to receiving
written notice of your death;
- •
- the purchase prices
reflected in your DRP account or the dates of purchases of
Preferred Stock under the DRP; or
- •
- any loss or
fluctuation in the market value of shares of Preferred Stock after
the purchase of shares of Preferred Stock under the
DRP.
The foregoing
limitation of liability does not represent a waiver of any rights
you may have under applicable securities laws.
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PLAN OF DISTRIBUTION
General
We are offering
up to a maximum of 20,000,000 shares of the Series E Preferred
Stock or Series M Preferred Stock in our primary offering,
through our dealer manager, on a "reasonable best efforts" basis,
which means that the dealer manager is only required to use its
good faith efforts and reasonable diligence to sell the Preferred
Stock and has no firm commitment or obligation to purchase any
specific number or dollar amount of the Preferred Stock. We are
also offering up to 8,000,000 shares of Series E Preferred
Stock or Series M Preferred Stock pursuant to the DRP. We
reserve the right to reallocate the shares we are offering between
our primary offering and the DRP. No selling commissions or dealer
manager fee will be paid with respect to shares of the Preferred
Stock sold pursuant to the DRP.
Our primary
offering is scheduled to terminate by February 21, 2022. Under
rules promulgated by the SEC, in some circumstances we could
continue our primary offering until as late as February 21,
2023, in our sole discretion. If we decide to continue our primary
offering beyond February 21, 2022, we will supplement this
prospectus accordingly, if required. We may terminate our primary
offering at any time or may offer shares of Preferred Stock
pursuant to a new registration statement, including a follow-on
registration statement.
We intend to
sell shares of the Preferred Stock using two closing services
provided by DTC. The first service is DTC Settlement and the second
service is DRS Settlement. Investors purchasing shares of the
Preferred Stock through DTC Settlement will coordinate with their
registered representatives to pay the full purchase price for their
shares of Preferred Stock by the settlement date, and such payments
will not be held in escrow. Investors who are permitted to utilize
the DRS Settlement method will complete and sign subscription
agreements, which will be delivered to the escrow agent, UMB Bank,
National Association. In addition, such investors will pay the full
purchase price for their shares of Preferred Stock to the escrow
agent (as set forth in the subscription agreement), to be held in
trust for the investors' benefit pending release to us as described
herein. See "—Settlement Procedures" for a description of the
closing procedures with respect to each of the closing
methods.
Our dealer
manager, Ashford Securities, will be a securities broker-dealer
registered with the SEC and a member firm of FINRA. Our dealer
manager is indirectly owned by Ashford Advisor, our Advisor, which
shares management personnel with our dealer manager and us. See
"Prospectus Summary—Certain Agreements—Advisory Agreement" for a
discussion of Ashford Advisor. Our dealer manager is a recently
formed company with no prior operating history. This offering will
be the first offering conducted by our dealer manager. The
principal business of our dealer manager will be to sell the shares
registered in this offering and shares to be sold in future
offerings by us or other entities advised by Ashford Advisor, if
any. The principal business address of our dealer manager is
14185 Dallas Parkway, Suite 780, Dallas, Texas
75254.
Compensation of Dealer Manager and Participating
Broker-Dealers
We will pay to
our dealer manager selling commissions of up to 7.0% of the gross
offering proceeds from sales of the Series E Preferred Stock
in our primary offering. There will be no selling commissions paid
for the sale of shares of Series M Preferred Stock. We will
also pay to our dealer manager up to 3.0% of the gross offering
proceeds from sales of the Series E Preferred Stock and
Series M Preferred Stock in our primary offering as
compensation for acting as dealer manager. As dealer manager,
Ashford Securities will manage, direct and supervise its associated
persons who will be wholesalers in connection with the offering.
The combined selling commission, dealer manager fee and any other
amounts deemed to be underwriting compensation in connection with
this offering will not exceed 10% of the gross offering proceeds
from our primary offering pursuant to FINRA's 10% cap.
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Neither our
dealer manager nor its affiliates will directly or indirectly
compensate any person engaged by a potential investor for
investment advice as an inducement for such investment advisor to
advise favorably for an investment in Preferred Stock unless such
person is a registered broker-dealer or associated with such a
broker-dealer. We will not pay referral or similar fees to any
accountants, attorneys or other persons in connection with the
distribution of the Preferred Stock.
Prior to the
formation of our dealer manager, Ashford Inc. engaged Robert
A. Stanger & Co., Inc. ("Stanger") to provide
certain investment banking services to assist Ashford Inc. in
the formation, organization, and business plan development for a
subsidiary broker-dealer capable of marketing preferred securities.
Stanger receives ongoing fees related to the performance of these
services and all or a portion of these fees, which will not exceed
$1,370,000 in total, may be considered in connection with or
related to the distribution of this offering, and thus be
considered underwriting compensation subject to FINRA's 10%
cap.
We expect our
dealer manager to authorize other participating broker-dealers to
sell the Preferred Stock. Our dealer manager may reallow all or a
portion of its selling commissions attributable to a participating
broker-dealer. Our dealer manager may also reallow a portion of its
dealer manager fee earned on the proceeds raised by a participating
broker-dealer to such participating broker-dealer as a marketing
fee. The amount of the marketing fee to be reallowed to any
participating broker-dealer will be determined by the dealer
manager based on such factors as:
- •
- the volume of sales
estimated to be made by the participating broker-dealer; and
- •
- the participating
broker-dealer's agreement to provide one or more of the following
services:
- •
- providing internal
marketing support personnel and marketing communications vehicles
to assist the dealer manager in the promotion of this
offering;
- •
- responding to
investors' inquiries concerning monthly statements, valuations,
distribution rates, tax information, annual reports, redemption
rights and procedures, our financial status and the markets in
which we have invested;
- •
- assisting investors
with redemptions; and
- •
- providing other
services requested by investors from time to time and maintaining
the technology necessary to service investors.
Our dealer
manager provides services to us, which include conducting
broker-dealer seminars, holding informational meetings and
providing information and answering any questions concerning this
offering. We pay our dealer manager a dealer manager fee of up to
3.0% of the price per share of Preferred Stock sold in our primary
offering. In addition to re-allowing a portion of this dealer
manager fee to the participating broker-dealers as a marketing fee,
the dealer manager fee will also be used for certain costs that
FINRA includes in the 10% underwriting compensation limit, such as
the cost of the following activities:
- •
- travel and
entertainment expenses;
- •
- compensation of our
dealer manager's employees in connection with wholesaling
activities;
- •
- expenses incurred in
coordinating broker-dealer seminars and meetings;
- •
- wholesaling expense
reimbursements paid by our dealer manager or its affiliates to
other entities;
- •
- the national and
regional sales conferences of our participating
broker-dealers;
- •
- training and
education meetings for registered representatives of our
participating broker-dealers; and
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- •
- permissible forms of
non-cash compensation to registered representatives of our
participating broker-dealers, such as logo apparel items and gifts
that do not exceed an aggregate value of $100 per annum per
registered representative and that are not pre-conditioned on
achievement of a sales target (including, but not limited to,
seasonal gifts).
Shares of
Series E Preferred Stock are generally available for purchase
in this offering only through participating broker-dealers and are
not suitable for wrap accounts. However, as part of our "friends
and family" program, we may also sell shares of Series E
Preferred Stock directly to any of our directors and officers, both
current and retired, and their family members, as well as
affiliates of Ashford Advisor and its directors, officers and
employees, both current and retired, and their family members,
entities owned substantially by such individuals, affiliated
entities, and, if approved by our management, joint venture
partners, consultants, service providers and business associates
and family members thereof. There will be no selling commissions or
dealer manager fees paid by us in connection with any such sales.
As a result, the public offering price per share of Series E
Preferred Stock sold in our "friends and family" program will be
decreased by an amount equal to the discount. The net proceeds to
us will not be affected by reducing the compensation payable in
connection with such sales. "Friends and family" program investors
will be expected to hold their Series E Preferred Stock for
investment and not with a view towards distribution.
In the event we
enter into a participating broker-dealer agreement calling for a
selling commission of less than 7.0% or a dealer manager fee of
less than 3.0%, we intend to file a Current Report on
Form 8-K, which will be incorporated into this prospectus by
reference, reflecting the selling commission and dealer manager fee
that will be paid on sales to customers of such participating
broker-dealer. The net proceeds to us will not be affected by
reducing the compensation payable in connection with such
sales.
In addition,
with respect to any sale of shares of Series M Preferred
Stock, the dealer manager may waive all or a portion of the dealer
manager fee. If the dealer manager reduces its dealer manager fee,
the investor's purchase price will be correspondingly reduced.
Therefore, our net proceeds will not be affected by such
reduction.
Selling
commissions and the dealer manager fee for purchases of more than
$5 million are negotiable. Selling commissions and the dealer
manager fee paid will in all cases be the same for the same level
of sales, and once a price is negotiated with the initial purchaser
this will be the price for all purchases at that volume. In the
event of a sale of more than $5 million, we will file a
Current Report on Form 8-K, which will be incorporated by
reference in this prospectus, to include:
- •
- the aggregate amount
of the sale;
- •
- the price per share
paid by the purchaser; and
- •
- a statement that
other similar investors wishing to purchase at that volume of
securities will pay the same price for that volume of
securities.
Shares of
Series M Preferred Stock are generally available for purchase
in this offering only (i) through certain registered
investment advisors, (ii) through participating broker-dealers
that have agreed to make Series M Preferred Stock available to
clients who pay the broker-dealer a fee based on assets under
management, and (iii) other categories of investors that we
name in an amendment or supplement to this prospectus.
In addition,
shares of Series M Preferred Stock may be purchased by
participating broker-dealers for their own account, their
retirement plans, their representatives and their family members,
IRAs and the qualified plans of their representatives, provided
that such purchases are 90 days after our registration
statement is declared effective by the SEC. Such persons will be
expected to hold their
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Series M
Preferred Stock purchased as stockholders for investment and not
with a view towards distribution.
As used herein,
we consider a family member to be a spouse, parent, child, sibling,
cousin, mother- or father-in-law, son- or daughter-in-law or
brother- or sister-in-law or a trust for the benefit of such
persons.
Before making
your investment decision, please consult with your broker-dealer or
investment advisor regarding your account type and the series of
Preferred Stock you may be eligible to purchase.
The table below
sets forth the nature and estimated amount of all selling
commissions and dealer manager fees which are viewed as
"underwriting compensation" by FINRA, assuming we sell all the
shares of Series E Preferred Stock offered in our primary
offering, sell no shares of Series M Preferred Stock, and
reallocate no DRP shares to Series E Preferred
Stock.
|
|
|
|
|
Selling commissions (maximum)
|
|
$ |
35,000,000 |
|
Dealer manager fee (maximum)
|
|
$ |
15,000,000 |
|
|
|
|
|
|
Total(1)
|
|
$ |
50,000,000 |
|
- (1)
- We or our affiliates
also may provide permissible forms of non-cash compensation to
registered representatives of our dealer manager and to
participating broker-dealers. The value of such items will be
considered underwriting compensation in connection with this
offering. Pursuant to FINRA Rule 2310(b)(4)(B)(ii), the
combined selling commissions, dealer manager fee, investment
banking fee (described above) and such non-cash compensation for
this offering will not exceed FINRA's 10% cap.
To the extent
permitted by law and our charter, we will indemnify the
participating broker-dealers and the dealer manager against certain
civil liabilities, including certain liabilities arising under the
Securities Act and liabilities arising from breaches of our
representations and warranties contained in the dealer manager
agreement. However, the SEC takes the position that indemnification
against liabilities arising under the Securities Act is against
public policy and is not enforceable.
We will pay
directly and/or reimburse Ashford Advisor for actual expenses
incurred in connection with this offering. Subject to the cap on
issuer expenses described below, we also will pay directly (or
reimburse our dealer manager for reimbursements it may make to
participating broker-dealers) for bona fide due diligence expenses
presented on detailed and itemized invoices. The total amount of
underwriting compensation from any source in connection with this
offering, including selling commissions and dealer manager fees
paid or reimbursed by us or Ashford Advisor, will not exceed
FINRA's 10% cap. The aggregate of all organization and offering
expenses under this offering, including selling commissions, dealer
manager fees and investment banking fees will be capped at 15% of
the aggregate gross proceeds of this offering (the "15%
cap").
Subject to the
15% cap described above, we will be responsible for the expenses of
issuance and distribution of the Preferred Stock in this offering,
including registration fees, printing expenses and our legal and
accounting fees, which we estimate will total approximately
$7.5 million (excluding selling commissions, dealer manager
fees and investment banking fees).
The dealer
manager agreement may be terminated by us or the dealer manager
upon 60 days written notice.
Settlement Procedures
If your
broker-dealer uses DTC Settlement, then you can place an order for
the purchase of Preferred Stock through your broker-dealer. A
broker-dealer using this service will have an account with DTC in
which your funds are placed to facilitate the anticipated
semi-monthly closing cycle.
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Orders will be
executed by your broker-dealer electronically and you must
coordinate with your registered representative to pay the full
purchase price of the Preferred Stock by the settlement date, which
depends on when you place the order during the semi-monthly
settlement cycle and can be anywhere from 1 to 20 days after
the date of your order. This purchase price will not be held in
escrow. We reserve the right to reject any order in whole or in
part.
You may also
have the option to elect to use DRS Settlement. If you elect to use
DRS Settlement, you should complete and sign a subscription
agreement similar to the one filed as an exhibit to the
registration statement of which this prospectus is a part, which is
available from your registered representative and which will be
delivered to the escrow agent. In connection with a DRS Settlement
subscription, you should pay the full purchase price of the shares
of Preferred Stock to the escrow agent as set forth in the
subscription agreement. Subscribers may not withdraw funds from the
escrow account. Subscriptions will be effective upon our
acceptance, and we reserve the right to reject any subscription in
whole or in part.
We have the
sole right to:
- •
- determine and change
the number and timing of closings, including the right to change
the number and timing of closings after communicating the
anticipated closing timing to participating broker-dealers;
- •
- limit the total
amount of Preferred Stock sold by all participating broker-dealers
per closing;
- •
- limit the total
amount of Preferred Stock sold by any one participating
broker-dealer per closing; and
- •
- limit the total
number of shares of Preferred Stock sold by any one participating
broker-dealer.
Irrespective of
whether you purchase the shares of Preferred Stock using DTC
Settlement or DRS Settlement, by accepting the shares of Preferred
Stock you will be deemed to have accepted the terms of our
charter.
Subject to
compliance with Rule 15c2-4 of the Exchange Act, in connection
with purchases using DRS Settlement, our dealer manager or the
broker-dealers participating in this offering promptly will deposit
any checks received from subscribers in an escrow account
maintained by UMB Bank, National Association by the end of the next
business day following receipt of the subscriber's subscription
documents and check. In certain circumstances where the
subscription review procedures are more lengthy than customary or
pursuant to a participating broker-dealer's internal supervising
review procedures, a subscriber's check will be transmitted by the
end of the next business day following receipt by the review office
of the dealer, which will then be promptly deposited by the end of
the next business day following receipt by the review office. Any
subscription payments received by the escrow agent will be
deposited into a special non-interest bearing account in our name
until such time as we have accepted or rejected the subscription
and will be held in trust for your benefit, pending our acceptance
of your subscription. If any subscription agreement solicited by
the participating broker-dealer is rejected by our dealer manager
or us, then the subscription agreement and check will be returned
to the rejected subscriber within 10 business days from the date of
rejection. You will receive a confirmation of your purchase
subsequent to a closing. We generally will admit stockholders on a
semi-monthly basis (expected to occur on the
1st and the 15th day of each month
(or if any such closing date is not a business day, on the next
succeeding business day)).
In recommending
to a potential investor the purchase of shares of the Preferred
Stock, each participating broker-dealer must have reasonable
grounds to believe, on the basis of information obtained from the
potential investor concerning his or her investment objectives,
other investments, financial situation and needs, and any other
information known by the participating broker-dealer, that the
potential investor is or will be in a financial position
appropriate to enable the potential investor to
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realize to a
significant extent the benefits described in the prospectus; the
potential investor has a fair market net worth sufficient to
sustain the risks inherent in the program, including loss of
investment and lack of liquidity; and the program is otherwise
suitable for the potential investor. In making this determination,
the participating broker-dealer will rely on relevant information
provided by the investor, including information as to the
investor's age, investment objectives, investment experience,
investment time horizon, income, net worth, financial situation and
needs, tax status, other investments, liquidity needs, risk
tolerance and other pertinent information. You should be aware that
the participating broker-dealer will be responsible for determining
whether this investment is appropriate for your portfolio. However,
you are required to represent and warrant in the subscription
agreement or, if placing an order through your registered
representative not through a subscription agreement in connection
with a DTC Settlement, to the registered representative, that you
have received a copy of this prospectus. Our dealer manager and
each participating broker-dealer shall maintain records of the
information used to determine that an investment in the Preferred
Stock is suitable and appropriate for an investor. These records
are required to be maintained for a period of at least six
years.
Minimum Purchase Requirements
For your
initial investment in the Preferred Stock, you must invest at least
$5,000, or such lesser amounts in the discretion of our dealer
manager.
LEGAL MATTERS
Certain legal
matters regarding the validity of the securities offered hereby and
certain matters of Maryland Law have been passed upon for us by DLA
Piper LLP (US). Certain U.S. federal income tax matters have
been passed upon by Locke Lord LLP.
EXPERTS
The
consolidated financial statements of Braemar Hotels &
Resorts Inc. (formerly Ashford Hospitality Prime, Inc.)
at December 31, 2018 and 2017, and for each of the three years
in the period ended December 31, 2018, appearing in Braemar
Hotels & Resorts Inc.'s (formerly Ashford Hospitality
Prime, Inc.'s) Annual Report on Form 10-K for the year
ended December 31, 2018 have been audited by BDO
USA, LLP, independent registered public accounting firm, as
set forth in its report thereon, included therein and incorporated
herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given
on the authority of such firm as an expert in accounting and
auditing.
The
consolidated financial statements of Ashford Inc. at
December 31, 2018 and 2017, and for each of the three years in
the period ended December 31, 2018, incorporated by reference
in Braemar Hotels & Resorts Inc.'s (formerly Ashford
Hospitality Prime, Inc.'s) Annual Report on Form 10-K for
the year ended December 31, 2018 have been audited by BDO
USA, LLP, independent registered public accounting firm, as
set forth in its report thereon, included therein and incorporated
herein by reference. Such financial statements are incorporated
herein by reference in reliance upon such report given on the
authority of such firm as an expert in accounting and
auditing.
The financial
statements of the Ritz-Carlton Sarasota Resort as of and for the
year ended December 31, 2017 filed as an exhibit to our
Current Report on Form 8-K/A, filed with the SEC on
June 20, 2018 have been audited by Squar Milner LLP,
independent auditors, as set forth in its report thereon, included
therein and incorporated herein by reference. Such financial
statements are incorporated herein by reference in reliance upon
such report given on the authority of such firm as an expert in
accounting and auditing.
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WHERE YOU CAN FIND MORE
INFORMATION
We file annual,
quarterly, and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the
public over the internet at the SEC's web site at
www.sec.gov. Our SEC
filings are also available by accessing our website at
www.bhrreit.com;
however, the information located on, or accessible from, our
website is not, and should not be deemed to be, part of this
prospectus or incorporated into any other filing that we submit to
the SEC.
Statements
contained in this prospectus as to the contents of any contract or
other document are not necessarily complete, and in each instance
reference is made to the copy of that contract or other document
filed as an exhibit to the registration statement, each such
statement being qualified in all respects by that reference and the
exhibits and schedules thereto. For further information about us
and the securities offered by this prospectus, you should refer to
the registration statement and such exhibits and schedules which
may be obtained from the SEC at its principal office in Washington,
DC upon payment of any fees prescribed by the SEC.
INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE
We are
incorporating certain information about us that we have filed with
the SEC by reference in this prospectus, which means that we are
disclosing important information to you by referring you to those
documents. We are also incorporating by reference in this
prospectus information that we file with the SEC after the date of
the initial registration statement and prior to the effectiveness
of the registration statement. The information we incorporate by
reference is an important part of this prospectus, and later
information that we file with the SEC automatically will update and
supersede the information we have included in or incorporated into
this prospectus.
The documents
listed below have been filed by us under the Exchange Act with the
SEC and are incorporated by reference in this
prospectus:
- •
- our Annual Report on
Form 10-K for the year ended December 31, 2018, filed
with the SEC on March 8, 2019, as amended by Amendment
No. 1 thereto, filed with the SEC on
April 30, 2019;
- •
- our Quarterly Reports
on Form 10-Q for the quarterly periods ended March 31,
2019, filed with the SEC on
May 8, 2019, June 30, 2019, filed with the SEC on
August 6, 2019, and September 30, 2019, filed with
the SEC on
November 6, 2019;
- •
- our Current Reports
on Form 8-K filed with the SEC on
April 4, 2018 (as amended by the Current Report on
Form 8-K/A filed with the SEC on
June 20, 2018),
January 18, 2019,
April 18, 2019,
August 1, 2019,
October 28, 2019,
December 4, 2019,
January 24, 2020,
February 18, 2020, and
February 24, 2020;
- •
- the description of
our common stock included in our Current Report on
Form 8-K filed on January 21, 2014;
- •
- the description of
the Series B Preferred Stock contained in our registration
statement on
Form 8-A, filed with the SEC on April 29, 2016,
including any amendments and reports filed for the purpose of
updating such description; and
- •
- the description of
the Series D Preferred Stock contained in our registration
statement on
Form 8-A, filed with the SEC on November 20, 2018,
including any amendments and reports filed for the purpose of
updating such description.
All documents
that we file (but not those that we furnish) with the SEC pursuant
to Sections 15(a), 13(c), 14 or 15(d) of the Exchange Act
after the date of the initial registration statement of which this
prospectus is a part and prior to the effectiveness of the
registration statement shall be deemed to be incorporated by
reference into this prospectus and will automatically update
and
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supersede the
information in this prospectus, and any previously filed documents.
All documents that we file (but not those that we furnish) with the
SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act on or after the date of this prospectus and prior to
the termination of the offering of any securities covered by this
prospectus shall be deemed to be incorporated by reference into
this prospectus and will automatically update and supersede the
information in this prospectus and any previously filed
documents.
We are not,
however, incorporating by reference any documents or portions
thereof, whether specifically listed above or filed in the future,
that are not deemed "filed" with the SEC, including any information
furnished pursuant to Items 2.02 or 7.01 of Form 8-K or
certain exhibits furnished pursuant to Item 9.01 of
Form 8-K.
Copies of all
documents which are incorporated by reference in this prospectus
(not including the exhibits to such information, unless such
exhibits are specifically incorporated by reference) will be
provided without charge to each person, including any beneficial
owner of the securities offered by this prospectus, to whom this
prospectus is delivered, upon written or oral request. Requests
should be directed to Braemar Hotels & Resorts, Inc.,
14185 Dallas Parkway, Suite 1100, Dallas, Texas 75254,
Attention: Robert G. Haiman (telephone number:
(972) 490-9600). You also may obtain copies of these filings,
at no cost, by accessing our website at www.bhrreit.com; however, the
information located on, or accessible from, our website is not, and
should not be deemed to be, part of this prospectus or incorporated
into any other filing that we submit to the SEC.
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Series E Redeemable Preferred Stock and Series M
Redeemable
Preferred Stock Maximum of 20,000,000 Shares in Primary Offering
Maximum of 8,000,000 Shares Pursuant to Dividend Reinvestment
Plan
Liquidation Preference $25.00 per share of Series E
Redeemable
Preferred Stock or Series M Redeemable Preferred
Stock
PROSPECTUS
Ashford Securities LLC,
as Dealer Manager
February 25, 2020
You
should rely only on the information contained in this prospectus.
No dealer, salesperson or other person is authorized to make any
representations other than those contained in this prospectus, and,
if given or made, such information and representations must not be
relied upon. This prospectus is not an offer to sell nor is it
seeking an offer to buy these securities in any jurisdiction where
the offer or sale is not permitted. The information contained in
this prospectus is accurate only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or any sale
of these securities. You should not assume that the delivery of
this prospectus or that any sale made pursuant to this prospectus
implies that the information contained in this prospectus will
remain fully accurate and correct as of any time subsequent to the
date of this prospectus.
Braemar Hotels and Resorts (NYSE:BHR)
Historical Stock Chart
From Dec 2020 to Jan 2021
Braemar Hotels and Resorts (NYSE:BHR)
Historical Stock Chart
From Jan 2020 to Jan 2021