forms3.htm
As
filed with the Securities and Exchange Commission on November 13,
2009
Registration
No. 333—
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
S-3
REGISTRATION
STATEMENT UNDER
THE
SECURITIES ACT OF 1933
HERSHA
HOSPITALITY TRUST
(Exact
Name of Registrant as Specified in its Charter)
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Maryland
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251811499
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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44
Hersha Drive
Harrisburg,
Pennsylvania 17102
(717)
236-4400
(Address,
Including Zip Code, and Telephone Number, including Area Code, of Registrant’s
Principal Executive Offices)
Ashish
R. Parikh
Chief
Financial Officer
44
Hersha Drive
Harrisburg,
Pennsylvania 17102
(717)
236-4400
(Name,
Address, Including Zip Code, and Telephone Number, including Area Code, of Agent
for Service)
Copies
to:
Cameron
N. Cosby, Esq.
James
S. Seevers, Jr., Esq.
Hunton
& Williams LLP
Riverfront
Plaza, East Tower
951
E. Byrd Street
Richmond,
Virginia 23219-4074
Tel:
(804) 788-8200
Fax:
(804) 788-8218
Approximate date of commencement of
proposed sale to the public: From time to time after the
effective date of this registration statement.
If the
only securities being registered on this Form are being offered pursuant to
dividend or interest reinvestment plans, please check the following
box. £
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. R
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act of 1933, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. £
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. £
If this
Form is a registration statement pursuant to General Instruction I.D. or a
post-effective amendment thereto that shall become effective upon filing with
the Commission pursuant to Rule 462(e) under the Securities Act, check the
following box. £
If this
Form is a post-effective amendment to a registration statement filed pursuant to
General Instruction I.D. filed to register additional securities or additional
classes of securities pursuant to Rule 413(b) under the Securities Act, check
the following box. £
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one): Large accelerated
filer £ Accelerated
filer R Non-accelerated
filer £ Smaller
reporting company £
CALCULATION
OF REGISTRATION FEE
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Title
of Each Class of Securities To Be Registered
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Amount
Being
Registered(1)
(2)
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Proposed
Maximum
Offering
Price Per Unit(1)
(2)
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Proposed
Maximum
Aggregate
Offering Price(1)
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Amount
of
Registration
Fee
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Class
A common shares of beneficial interest, $0.01 par value
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Preferred
shares of beneficial interest, $0.01 par value
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Depositary
shares(3)
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Warrants(4)
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Units
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Total
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$500,000,000(2)
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$27,900
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(1)
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Omitted
in accordance with General Instruction II.D of Form S-3 under the
Securities Act of 1933, as amended, or the Securities Act. Any
securities registered hereunder may be sold separately or as units with
other securities registered
hereunder.
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(2)
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The
registrant is registering an indeterminate principal amount, liquidation
amount or number of each identified class of securities up to a proposed
maximum offering price of $500,000,000, which may from time to time be
issued at indeterminate prices. The registrant has estimated
the proposed maximum offering price solely for purpose of determining
the
registration fee in accordance with Rule 457(o) under the Securities
Act. The registrant is also registering an indeterminate
principal amount, liquidation amount or number of identified classes of
securities as may be issued upon conversion or exchange of any depository
shares, warrants or preferred shares that provide for conversion or
exchange into other securities. No separate consideration will
be received for common shares that are issued upon exchange or conversion
of depository shares, warrants or preferred shares. In
addition, pursuant to Rule 416 promulgated under the Securities Act, the
securities being registered hereunder include such indeterminate number of
common shares and preferred shares as may be issuable with respect to the
securities being registered hereunder as a result of any share dividend,
share split or similar
transactions.
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(3)
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Each
depositary share will be issued under a deposit agreement, will represent
an interest in a fractional share or multiple shares of preferred shares
and will be evidenced by a depositary
receipt.
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(4)
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Includes
warrants to purchase common shares and preferred
shares.
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The
registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
Pursuant
to Rule 415(a)(6) under the Securities Act, the securities covered by the
registrant’s prior registration statement on Form S-3 (SEC File No. 333-138038),
or the prior registration statement, may continue to be offered and sold by the
registrant until the earlier of the effective date of this registration
statement or 180 days after the third anniversary of the initial effective date
of the prior registration statement.
Preliminary
Prospectus
Subject
to Completion, Dated November 13, 2009
The
information in this prospectus is not complete and may be changed. We may not
sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is neither an
offer to sell these securities nor a solicitation of an offer to buy these
securities in any jurisdiction where the offer or sale is not
permitted.
PROSPECTUS
$500,000,000
HERSHA
HOSPITALITY TRUST
Class
A Common Shares of Beneficial Interest
Preferred
Shares of Beneficial Interest
Depositary
Shares
Warrants
Units
Hersha
Hospitality Trust intends to offer and sell, from time to time, in one or more
series or classes, the securities described in this prospectus. The
total offering price of these securities will not exceed $500,000,000, in the
aggregate. The securities may be offered separately or together in
any combination and as separate series. We will provide the specific
terms of any securities we may offer in a supplement to this
prospectus. You should read carefully this prospectus and any
applicable prospectus supplement before deciding to invest in these
securities.
We may
offer and sell these securities through one or more underwriters, dealers and
agents, or directly to purchasers, on a continuous or delayed
basis. If any underwriters, dealers or agents are involved in the
sale of any securities, their names, and any applicable purchase price, fee,
commission or discount arrangement between or among them will be set forth or
will be calculable from the information set forth in the applicable prospectus
supplement.
Our
common shares are listed on the New York Stock Exchange, or the NYSE, under the
symbol “HT.” The closing sale price of our common shares on the NYSE
on November 12, 2009, was $2.56 per share.
Investing
in our securities involves risks. Before investing in our securities,
you should carefully read and consider the information appearing under “Risk
Factors” beginning on page 1 of this prospectus.
Neither
the SEC nor any state securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date
of this prospectus is , 2009
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You
should rely only on the information contained or incorporated by reference in
this prospectus and any applicable prospectus supplements. We have
not authorized anyone to provide you with information different from that
contained or incorporated by reference in this prospectus or any applicable
prospectus supplement. No dealer, salesperson or other person is
authorized to give any information or to represent anything not contained or
incorporated by reference in this prospectus or any applicable prospectus
supplement. You must not rely on any unauthorized information or
representation. We are offering to sell only the securities described
in this prospectus or any applicable prospectus supplement only under
circumstances and in jurisdictions where it is lawful to do so. You
should assume that the information in this prospectus or any applicable
prospectus supplement is accurate only as of the date on the front of the
document and that any information incorporated by reference is accurate only as
of the date of the document containing the incorporated
information. Our business, financial condition, results of operations
and prospects may have changed since that date.
This
prospectus is part of a registration statement that we filed with the SEC under
the Securities Act using a “shelf” registration process. Under this
shelf registration process, we may sell, from time to time, in one or more
offerings, any combination of the securities described in this
prospectus.
This
prospectus provides you with a general description of the securities we may
offer from time to time. Each time we offer for sale securities under
this prospectus, we will provide a prospectus supplement that contains specific
information about the terms of the securities we are offering as well as other
information. The prospectus supplement may also add, update or change
information contained in this prospectus. This prospectus, together
with any applicable prospectus supplements, includes or incorporates by
reference all material information relating to the offering of the securities
described herein.
Please read carefully both this prospectus and any applicable prospectus
supplements together with the information described below under “Where You Can
Obtain More Information.”
The SEC
allows us to incorporate by reference information that we file with it, which
means that we can disclose important information to you by referring you to
those documents. The information incorporated by reference is
considered to be a part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this
information. See “Incorporation of Certain Documents By
Reference.”
All brand
names, trademarks and service marks appearing in this prospectus are the
property of their respective owners. This prospectus and any
applicable prospectus supplements, as well as the information incorporated by
reference in those documents, may contain registered trademarks owned or
licensed to companies other than us, including, but not limited to, Comfort
Inn®, Courtyard® by Marriott®, Fairfield Inn®, Fairfield Inn® by Marriott®, Four
Points by Sheraton®, Hampton Inn® Hawthorne Suites®, Hilton®, Hilton Garden
Inn®, Hilton Hotels®, Holiday Inn®, Holiday Inn Express®, Homewood Suites®,
Homewood Suites by Hilton®, Hyatt Summerfield Suites®, Mainstay Suites®,
Marriott®, Marriott Hotels & Resorts®, Residence Inn®, Residence Inn® by
Marriott®, Sleep Inn® Springhill Suites® and Springhill Suites by
Marriott®. None of the owners or licensees of any trademarks
contained or incorporated by reference in this prospectus or any applicable
prospectus supplement or any of their respective present and future owners,
subsidiaries, affiliates, officers, directors, agents or employees are in any
way participating in or endorsing the offering of the securities described in
this prospectus or any applicable prospectus supplement, and none of them shall
in any way be deemed an issuer or underwriter of these securities or have any
liability or responsibility for any financial statements or other financial
information contained or incorporated by reference in this prospectus or any
applicable prospectus supplement.
This
prospectus, including the information we have incorporated by reference,
contains forward-looking statements within the meaning of the federal securities
laws. These statements include statements about our plans, strategies
and prospects and involve known and unknown risks that are difficult to
predict. Therefore, our actual results, performance or achievements
may differ materially from those expressed in or implied by these
forward-looking statements. In some cases, you can identify
forward-looking statements by the use of words such as “may,” “could,” “expect,”
“intend,” “plan,” “seek,” “anticipate,” “believe,” “estimate,” “predict,”
“forecast,” “potential,” “continue,” “likely,” “will,” “would” and variations of
these terms and similar expressions, or the negative of these terms or similar
expressions. You should not place undue reliance on forward-looking
statements. Factors that may cause our actual results to differ
materially from our current expectations include, but are not limited
to:
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financing
risks, including the risk of leverage and the corresponding risk of
default on our mortgage loans and other debt and potential inability to
refinance or extend the maturity of existing
indebtedness;
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the
depth and duration of the current economic
downturn;
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levels
of spending in the business, travel and leisure industries, as well as
consumer confidence;
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declines
in occupancy, average daily rate and revenue per available room and other
hotel operating metrics;
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hostilities,
including future terrorist attacks, or fear of hostilities that affect
travel;
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financial
condition of, and our relationships with, our joint venture partners,
third-party property managers, franchisors and hospitality joint venture
partners;
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the
degree and nature of our
competition;
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increased
interest rates and operating costs;
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risks
associated with potential acquisitions, including the ability to ramp up
and stabilize newly acquired hotels with limited or no operating history,
and dispositions of hotel
properties;
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risks
associated with our development loan portfolio, including the ability of
borrowers to repay outstanding principal and accrued interest at
maturity;
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availability
of and our ability to retain qualified
personnel;
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our
failure to maintain our qualification as a real estate investment trust,
or REIT, under the Internal Revenue Code of 1986, as amended, or the
Code;
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changes
in our business or investment
strategy;
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availability,
terms and deployment of capital;
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general
volatility of the capital markets and the market price of our common
shares;
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environmental
uncertainties and risks related to natural
disasters;
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changes
in real estate and zoning laws and increases in real property tax rates;
and
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the
factors referenced or incorporated by reference in this prospectus
supplement or the accompanying prospectus under the heading “Risk
Factors.”
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These
factors are not necessarily all of the important factors that could cause our
actual results, performance or achievements to differ materially from those
expressed in or implied by any of our forward-looking
statements. Other unknown or unpredictable factors, many of which are
beyond our control, also could harm our results, performance or
achievements.
All
forward-looking statements contained in this prospectus, including the
information we have incorporated by reference, are expressly qualified in their
entirety by the cautionary statements set forth
above. Forward-looking statements speak only as of the date they are
made, and we do not undertake or assume any obligation to update publicly any of
these statements to reflect actual results, new information or future events,
changes in assumptions or changes in other factors affecting forward-looking
statements, except to the extent required by applicable laws. If we
update one or more forward-looking statements, no inference should be drawn that
we will make additional updates with respect to those or other forward-looking
statements.
Unless
the context otherwise requires, references in this prospectus to:
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“our
company,” “we,” “us” and “our” mean Hersha Hospitality Trust and its
consolidated subsidiaries, including Hersha Hospitality Limited
Partnership, taken as a whole;
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“HHLP”
and “our operating partnership” mean Hersha Hospitality Limited
Partnership;
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“common
shares” mean our Class A common shares of beneficial interest, $0.01 par
value per share;
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“preferred
shares” mean our preferred shares of beneficial interest, $0.01 par value
per share; and
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“you”
refers to a potential investor in the securities described in this
prospectus.
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Hersha
Hospitality Trust is a self-advised, Maryland statutory real estate investment
trust that was organized in 1998. We completed our initial public
offering in January 1999. Our common shares are traded on the NYSE
under the symbol “HT.” We invest primarily in institutional grade
hotels in central business districts, primary suburban office markets and stable
destination and secondary markets in the Northeastern United States and select
markets on the West Coast. Our primary strategy is to continue to
acquire high quality, upscale, mid-scale and extended-stay hotels in
metropolitan markets with high barriers to entry in the Northeastern United
States and other markets with similar characteristics. We are
structured as a REIT for federal income tax purposes.
As of
September 30, 2009, our portfolio consisted of 56 wholly owned limited and full
service properties and 17 limited and full service properties owned through
joint venture investments. Of the 17 limited and full service properties owned
through our investments in joint ventures, two are consolidated with us for
financial reporting purposes. These 73 properties, with a total of 9,294
rooms, are located in Arizona, California, Connecticut, Delaware, Maryland,
Massachusetts, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island
and Virginia and operate under leading brands, including, but not limited to,
Comfort Inn®, Courtyard® by Marriott®, Fairfield Inn®, Fairfield Inn® by
Marriott®, Four Points by Sheraton®, Hampton Inn® Hawthorne Suites®, Hilton®,
Hilton Garden Inn®, Hilton Hotels®, Holiday Inn®, Holiday Inn Express®, Homewood
Suites®, Homewood Suites by Hilton®, Hyatt Summerfield Suites®, Mainstay
Suites®, Marriott®, Marriott Hotels & Resorts®, Residence Inn®, Residence
Inn® by Marriott®, Sleep Inn® Springhill Suites® and Springhill Suites by
Marriott®. In addition, several of our hotels operate as independent
boutique hotels.
In
addition, as of September 30, 2009, we had made $47,990,000 in first mortgage
and mezzanine loans to hotel developers and owners to enable such entities to
construct hotels and conduct related improvements on specific hotel projects at
interest rates ranging from 10% to 20%. We bear economic risks
through these development loans. In many instances, we maintain a first right of
refusal or first right of offer to purchase the hotels for which we have
provided development loan financing. We intend to continue to acquire hotels
from these entities if approved by our independent trustees.
We own
our hotels and our joint venture investments through our operating partnership,
for which we serve as general partner. Our hotels are managed by
qualified independent management companies, including, among others, Hersha
Hospitality Management, L.P., or HHMLP, a private management company owned by
certain of our trustees, officers and other third party investors. We
lease all of our wholly-owned hotels to 44 New England Management Company, or 44
New England, our wholly-owned taxable REIT subsidiary, or TRS. Each
of the hotels that we own through a joint venture investment is leased to
another TRS that is owned by the respective joint venture or an entity owned in
part by 44 New England.
Our
principal executive office is located at 44 Hersha Drive, Harrisburg,
Pennsylvania 17102. Our telephone number is (717)
236-4400.
Investing
in our securities involves a high degree of risk. Before making a
decision to invest in our securities, you should carefully consider the risks
described below and the risks described under “Risk Factors” in our most recent
Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q, as
well as the other information contained or incorporated by reference in this
prospectus or in any applicable prospectus supplement. These risks
and uncertainties are not the only ones facing us. Additional risks
and uncertainties that we are unaware of, or that we currently deem immaterial,
also may become important factors that affect us. See “Incorporation
of Certain Documents by Reference” and “Where You Can Obtain More Information”
below.
We
may change our distribution policy for our common shares in the
future.
In the
past we have reduced the quarterly distribution paid to our shareholders, and we
may reduce the quarterly distribution paid to our shareholders in the
future. The decision to declare and pay distributions on our common
shares in the future, as well as the timing, amount and composition of any such
future distributions, will be at the sole discretion of our board of trustees
and will depend on our earnings, funds from operations, liquidity, financial
condition, capital requirements, contractual prohibitions or other limitations
under our indebtedness and preferred shares, the annual distribution
requirements under the REIT provisions of the Code, state law and such other
factors as our board of trustees deems relevant. Any change in our
distribution policy could have a material adverse effect on the market price of
our common shares.
The
market price of our common shares could be volatile and could decline, resulting
in a substantial or complete loss of our common shareholders’
investment.
The stock
markets, including the NYSE, which is the exchange on which we list our common
shares, have experienced significant price and volume
fluctuations. As a result, the market price of our common shares
could be similarly volatile, and investors in our common shares may experience a
decrease in the value of their shares, including decreases unrelated to our
operating performance or prospects. The price of our common shares
could be subject to wide fluctuations in response to a number of factors,
including:
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our
operating performance and the performance of other similar
companies;
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actual
or anticipated differences in our operating
results;
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changes
in our revenues or earnings estimates or recommendations by securities
analysts;
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publication
of research reports about us or our industry by securities
analysts;
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additions
and departures of key personnel;
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strategic
decisions by us or our competitors, such as acquisitions, divestments,
spin-offs, joint ventures, strategic investments or changes in business
strategy;
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the
passage of legislation or other regulatory developments that adversely
affect us or our industry;
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speculation
in the press or investment
community;
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actions
by institutional shareholders;
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changes
in accounting principles;
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general
market conditions, including factors unrelated to our
performance.
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In the
past, securities class action litigation has often been instituted against
companies following periods of volatility in their stock price. This
type of litigation could result in substantial costs and divert our management’s
attention and resources.
Future
sales of our common shares or securities convertible into or exchangeable or
exercisable for our commons shares could depress the market price of our common
shares.
We cannot
predict whether future sales of our common shares or securities convertible into
or exchangeable or exercisable for our commons shares or the availability of
these securities for resale in the open market will decrease the market price of
our common shares. Sales of a substantial number of these securities
in the public market, including sales up to 11,909,587 of our common shares
effected by Real Estate Investment Group L.P., or REIG, and certain other
selling shareholders affiliated with REIG in the public market from time to time
(as further described under “Strategic Investor” below), or upon the redemption
of units of limited partnership interest in our operating partnership, or
limited partnership units, held by the limited partners of our operating
partnership (other than us and our subsidiaries) or the perception that these
sales might occur, may cause the market price of our common shares to decline
and you could lose all or a portion of your investment.
Future
issuances of our common shares or other securities convertible into or
exchangeable or exercisable for our common shares, including, without
limitation, partnership units in our operating partnership in connection with
property, portfolio or business acquisitions and issuances of equity-based
awards to participants in our 2008 Equity Incentive Plan, could have an adverse
effect on the market price of our common shares. Future issuances of
these securities also could adversely affect the terms upon which we obtain
additional capital through the sale of equity securities. In
addition, future sales or issuances of our common shares may be dilutive to
existing shareholders.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND
PREFERRED SHARE DIVIDENDS
The
following table sets forth the ratio of earnings to combined fixed charges and
preferred share dividends for the nine months ended September 30, 2009, and for
each of the last five fiscal years.
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Nine
Months
Ended
September
30,
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Ratio
of earnings to combined fixed charges and preferred share
dividends
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* |
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* |
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1.2X |
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1.1X |
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1.2X |
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1.6X |
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*
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For
the nine months ended September 30, 2009, combined fixed charges and
preferred share dividends exceeded earnings by approximately $32.4
million. For the year ended December 31, 2008, combined fixed
charges and preferred share dividends exceeded earnings by approximately
$16.0 million.
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The ratio
of earnings to combined fixed charges and preferred share dividends was computed
by dividing earnings by the sum of fixed charges and preferred share dividends.
For these purposes, earnings have been calculated by adding pre-tax income or
loss from continuing operations (before income or loss from equity investees),
fixed charges (excluding interest capitalized), amortization of capitalized
interest, extraordinary items and preferred share dividends. Fixed
charges consist of interest costs, whether expensed or capitalized, amortization
of line of credit fees and amortization of interest rate caps and swap
agreements. Preferred share dividends consist of the amount of
pre-tax earnings that is required to pay the dividends on our outstanding
preferred shares.
Unless
indicated otherwise in a prospectus supplement, we expect to use the net
proceeds from the sale of the securities for general corporate purposes,
including, but not limited to, repaying existing indebtedness; acquiring or
developing additional hotel properties, including through joint ventures and
strategic partnerships; renovating, expanding and improving our existing hotel
properties; and investing in hotel development projects by providing a variety
of financing arrangements to developers. Further details regarding
the use of the net proceeds of a specific series or class of the securities will
be set forth in the prospectus supplement related to those securities or in our
periodic or current reports incorporated by reference in this
prospectus.
The
following is only a summary of some of the rights of shareholders that may be
important to you. The description of our shares of beneficial interest set forth
below describes certain general terms and provisions of our shares of beneficial
interest. The following description does not purport to be complete and is
qualified in its entirety by reference to our declaration of trust and our
bylaws. See “Where You Can Obtain More Information.”
Overview
Our
amended and restated declaration of trust, as amended and supplemented, or our
declaration of trust, provides that we may issue up to 150,000,000 Class A
common shares of beneficial interest, $0.01 par value per share, 1,000,000 Class
B common shares of beneficial interest, $0.01 par value per share, and
29,000,000 preferred shares of beneficial interest, $0.01 par value per
share. As of September 30, 2009, 56,473,120 Class A common shares
were issued and outstanding, no Class B common shares were issued and
outstanding, 2,400,000 preferred shares designated as 8.00% Series A cumulative
redeemable preferred shares, or Series A preferred shares, were issued and
outstanding, 8,701,810 Class A common shares were reserved for issuance upon
redemption of units of limited partnership interest in our operating
partnership, or limited partnership units, held by the limited partners (other
than us and our subsidiaries) and 1,678,364 Class A common shares were available
for future issuance under our 2008 Equity Incentive Plan.
Our
common shares currently trade on the NYSE under the symbol “HT,” and our Series
A preferred shares currently trade on the NYSE under the symbol “HT
PrA.” The transfer agent for these shares is American Stock Transfer
& Trust Company. Our common shares and our Series A preferred
shares are subject to certain restrictions on ownership and transfer which were
adopted for the purpose of enabling us to preserve our status as a
REIT. For a description of these restrictions, see
“Restrictions on Ownership and Transfer” below.
As
permitted by the Maryland statute governing real estate investment trusts formed
under the laws of that state, which is referred to as the Maryland REIT Law, our
declaration of trust contains a provision permitting our board of trustees,
without any action by our shareholders, to amend our declaration of trust to
increase or decrease the aggregate number of shares of beneficial interest or
the number of shares of any class of shares of beneficial interest that we have
authority to issue. Maryland law and our declaration of trust provide
that none of our shareholders is personally liable for any of our debts, claims,
demands, judgments or obligations solely by reason of that shareholder’s status
as a shareholder.
Common
Shares
Upon
issuance, common shares being offered pursuant to this prospectus will be
duly authorized, validly issued, fully paid and nonassessable.
Voting
Rights of Common Shares
Subject
to the provisions of our declaration of trust regarding the restrictions on the
transfer and ownership of shares of beneficial interest, each outstanding common
share entitles the holder to one vote on all matters submitted to a vote of
shareholders, including the election of trustees. Except as may be
provided with respect to any other class or series of our shares of beneficial
interest, including our Series A preferred shares, only holders of our common
shares possess voting rights. There is no cumulative voting in the
election of trustees, which means that, subject to certain voting rights of our
Series A preferred shares, the holders of a plurality of the outstanding common
shares, voting as a single class, can elect all of the trustees then standing
for election.
Under the
Maryland REIT Law, a real estate investment trust’s declaration of trust may
permit the trustees by a two-thirds vote to amend the declaration of trust from
time to time to qualify as a REIT under the Code without the affirmative vote or
written consent of the shareholders. Our declaration of trust permits
such action by a majority vote of the trustees. See “Certain
Provisions of Maryland Law, Our Declaration of Trust and Bylaws” below for more
information about voting rights of owners of our common shares.
Dividends,
Liquidation and Other Rights
Holders
of our common shares are entitled to receive dividends when authorized by our
board of trustees out of assets legally available for the payment of
dividends. They also are entitled to share ratably in our assets
legally available for distribution to our shareholders in the event of our
liquidation, dissolution or winding up, after payment of or adequate provision
for all of our known debts and liabilities. These rights are subject
to the preferential rights of any other class or series of our shares that may
be created and to the provisions of our declaration of trust regarding
restrictions on transfer of our shares.
Except as
described under “Strategic Investor” below, the holders of our common shares
have no preference, conversion, exchange, sinking fund, redemption or appraisal
rights and have no preemptive rights to subscribe for any additional common
shares. Subject to the restrictions on transfer of shares contained
in our declaration of trust and to the ability of the board of trustees to
create common shares with differing voting rights, all common shares will have
equal dividend, liquidation and other rights.
Preferred
Shares
We may
offer and sell preferred shares from time to time, in one or more series
(including additional Series A preferred shares), as authorized by our board of
trustees. Upon issuance, all preferred shares being offered by this
prospectus will be duly authorized, validly issued, fully paid and
nonassessable. Our declaration of trust authorizes our board of trustees
to classify any unissued preferred shares and to reclassify any previously
classified but unissued preferred shares of any series from time to time in one
or more series, as authorized by our board of trustees. Prior to
issuance of shares of each series, our board of trustees is required by the
Maryland REIT Law and our declaration of trust to set for each such series,
subject to the provisions of our declaration of trust regarding the restriction
on ownership and transfer of shares of beneficial interest, 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. Our board of trustees
could authorize the issuance of preferred shares with terms and conditions that
could have the effect of delaying, deterring or preventing a transaction or a
change in control that might involve a premium price for holders of common
shares or otherwise be in their best interest.
The
prospectus supplement governing the offering of any preferred shares will
describe the specific terms of such securities, including:
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the
title and stated value of the preferred
shares;
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the
number of preferred shares offered and the offering price of the preferred
shares;
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the
dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation of any of those terms that apply to the preferred
shares;
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the
date from which dividends on the preferred shares will accumulate, if
applicable;
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the
terms and amount of a sinking fund, if any, for the purchase or redemption
of the preferred shares;
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the
redemption rights, including conditions and the redemption price(s), if
applicable, of the preferred
shares;
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any
listing of the preferred shares on any securities
exchange;
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the
terms and conditions, if applicable, upon which the preferred shares will
be convertible into common shares or any of our other securities,
including the conversion price or rate (or manner of calculation
thereof);
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the
relative ranking and preference of the preferred shares as to dividend
rights and rights upon liquidation, dissolution or the winding up of our
affairs;
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any
limitations on issuance of any series of preferred shares ranking senior
to or on a parity with that series of preferred shares as to dividend
rights and rights upon liquidation, dissolution or the winding up of our
affairs;
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the
procedures for any auction and remarketing, if any, for the preferred
shares;
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any
other specific terms, preferences, rights, limitations or restrictions of
the preferred shares;
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a
discussion of federal income tax consequences applicable to the preferred
shares; and
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any
limitations on direct or beneficial ownership and restrictions on transfer
in addition to those described in “Restrictions on Ownership and
Transfer,” in each case as may be appropriate to preserve our status as a
real estate investment trust.
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The terms
of any preferred shares we issue through this prospectus will be set forth in an
articles supplementary or amendment to our declaration of trust. We
will file the articles supplementary or amendment as an exhibit to the
registration statement that includes this prospectus, or as an exhibit to a
filing with the SEC that is incorporated by reference into this prospectus. The
description of preferred shares in any prospectus supplement will not describe
all of the terms of the preferred shares in detail. You should read
the applicable articles supplementary or amendment to our declaration of trust
for a complete description of all of the terms.
Rank
Unless
otherwise indicated in the applicable prospectus supplement, the preferred
shares offered through that supplement will, with respect to dividend rights and
rights upon our liquidation, dissolution or winding up, rank:
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senior
to all classes or series of our common shares, and to all other equity
securities ranking junior to those preferred shares;
and
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on
a parity with all of our equity securities ranking on a parity with the
preferred shares; and junior to all of our equity securities ranking
senior to the preferred shares.
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The term
“equity securities” does not include convertible debt securities.
Dividends
Subject
to any preferential rights of any outstanding shares or series of shares,
including the Series A preferred shares, and to the provisions of our
declaration of trust regarding ownership of shares in excess of the ownership
limitation described below under “Restrictions on Ownership and Transfer,” our
preferred shareholders are entitled to receive dividends, when and as authorized
by our board of trustees, out of legally available funds.
Redemption
If we
provide for a redemption right in a prospectus supplement, the preferred shares
offered through that supplement will be subject to mandatory redemption or
redemption at our option, in whole or in part, in each case upon the terms, at
the times and at the redemption prices set forth in that
supplement.
Liquidation
Preference
As to any
preferred shares offered through this prospectus, the applicable supplement
shall provide that, upon the voluntary or involuntary liquidation, dissolution
or winding up of our affairs, the holders of those preferred shares shall
receive, before any distribution or payment shall be made to the holders of any
other class or series of shares ranking junior to those preferred shares in our
distribution of assets upon any liquidation, dissolution or winding up, and
after payment or provision for payment of our debts and other liabilities, out
of our assets legally available for distribution to shareholders, liquidating
distributions in the amount of any liquidation preference per share (set forth
in the applicable supplement), plus an amount, if applicable, equal to all
distributions accrued and unpaid thereon (not including any accumulation in
respect of unpaid distributions for prior distribution periods if those
preferred shares do not have a cumulative distribution). After payment of the
full amount of the liquidating distributions to which they are entitled, the
holders of those preferred shares will have no right or claim to any of our
remaining assets. In the event that, upon our voluntary or involuntary
liquidation, dissolution or winding up, the legally available assets are
insufficient to pay the amount of the liquidating distributions on all of those
outstanding preferred shares and the corresponding amounts payable on all of our
shares of other classes or series of equity security ranking on a parity with
those preferred shares in the distribution of assets upon liquidation,
dissolution or winding up, then the holders of those preferred shares and all
other such classes or series of equity security shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
If the
liquidating distributions are made in full to all holders of preferred shares
entitled to receive those distributions prior to any other classes or series of
equity security ranking junior to the preferred shares upon our liquidation,
dissolution or winding up, then our remaining assets shall be distributed among
the holders of those junior classes or series of equity shares, in each case
according to their respective rights and preferences and their respective number
of shares.
Voting
Rights
Unless
otherwise indicated in the applicable supplement, holders of our preferred
shares will not have any voting rights, except as may be required by applicable
law or any applicable rules and regulations of the NYSE.
Conversion
Rights
The terms
and conditions, if any, upon which any series of preferred shares is convertible
into common shares will be set forth in the prospectus supplement relating to
the offering of those preferred shares. These terms typically will
include:
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the
number of common shares into which the preferred shares are
convertible;
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the
conversion price (or manner of calculation
thereof);
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provisions
as to whether conversion will be at the option of the holders of the
preferred shares or at our option;
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the
events requiring an adjustment of the conversion price;
and
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provisions
affecting conversion in the event of the redemption of that series of
preferred shares.
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Series
A Preferred Shares
The
Series A preferred shares generally provide for the following rights,
preferences and obligations:
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Dividend
Rights. The Series A preferred shares accrue a
cumulative cash dividend at an annual rate of 8.00% on the $25.00 per
share liquidation preference, equivalent to a fixed annual amount of $2.00
per share per year.
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Liquidation
Rights. Upon any voluntary or involuntary liquidation,
dissolution or winding up of our company, the holders of Series A
preferred shares will be entitled to receive a liquidation preference of
$25.00 per share, plus an amount equal to all accrued and unpaid dividends
to the date of payment, before any payment or distribution will be made or
set aside for holders of any junior shares, including our common
shares.
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Redemption
Provisions. The Series A preferred shares are not
redeemable prior to August 5, 2010, except in certain limited
circumstances relating to our ability to qualify as a REIT. On
and after August 5, 2010, the Series A preferred shares may be redeemed
for cash at our option, in whole or in part, at any time and from time to
time, at a redemption price equal to $25.00 per share plus an amount equal
to all accrued and unpaid dividends to and including the date fixed for
redemption. The Series A preferred shares have no stated
maturity and are not subject to any sinking fund or mandatory redemption
provisions.
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Voting
Rights. Holders of Series A preferred shares generally
have no voting rights, except as required by law. However, if
we fail to pay dividends on any Series A preferred shares for six or more
quarterly periods, whether or not consecutive, the holders of the Series A
preferred shares will be entitled to elect two directors to serve on our
board of trustees until all dividends accumulated on the Series A
preferred shares have been fully paid or declared and a sum sufficient for
the payment thereof set aside for payment. In addition, the
issuance of senior shares or certain changes to the terms of the Series A
preferred shares that would be materially adverse to the rights of holders
of Series A preferred shares cannot be made without the affirmative vote
of holders of at least 66 2/3 % of the outstanding Series A preferred
shares and shares of any class or series of shares ranking on a parity
with the Series A preferred shares which are entitled to similar voting
rights, if any, voting as a single
class.
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Conversion and Preemptive
Rights. The Series A preferred shares are not
convertible or exchangeable for any of our other securities or property,
and holders of our Series A preferred shares have no preemptive rights to
subscribe for any securities of our
company.
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Classification
or Reclassification of Common Shares or Preferred Shares
Our
declaration of trust authorizes our board of trustees to classify or reclassify
any unissued common shares or preferred shares into one or more classes or
series of shares of beneficial interest by setting or changing the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or distributions, qualifications or terms or conditions of redemption
of such new class or series of shares of beneficial interest.
We may,
at our option, elect to offer depositary shares rather than full preferred
shares. Each depositary share will represent ownership and
entitlement to all rights and preferences of a fraction of a preferred share of
a specified series (including dividend, redemption, liquidation and voting
rights). We will specify the applicable fraction in a prospectus
supplement governing the offering of any depositary shares. We will
deposit with a depositary named in a prospectus supplement governing the
offering of any depositary shares the preferred shares represented by the
depositary shares, under a deposit agreement, among us, the depositary and the
holders from time to time of the certificates evidencing depositary shares, or
depositary receipts. Depositary receipts will be delivered to those
persons purchasing depositary shares in the offering. The depositary
will be the transfer agent, registrar and dividend disbursing agent for the
depositary shares.
Dividends
and Distributions
The
depositary will distribute all cash dividends or other cash distributions
received in respect of the series of preferred shares represented by the
depositary shares to the record holders of depositary receipts in proportion to
the number of depositary shares owned by the holders on the relevant record
date, which will be the same date as the record date fixed by us for the
applicable series of preferred shares. The depositary, however, will distribute
only such amount as can be distributed without attributing to any depositary
share a fraction of one cent, and any balance not so distributed will be added
to and treated as part of the next sum received by the depositary for
distribution to record holders of depositary receipts then
outstanding.
If a
distribution is other than in cash, the depositary will distribute property it
receives to the record holders of depositary receipts entitled thereto, in
proportion, as nearly as may be practicable, to the number of depositary shares
owned by the holders on the relevant record date, unless the depositary
determines (after consultation with us) that it is not feasible to make such
distribution, in which case the depositary may (with our approval) adopt any
other method for such distribution as it deems equitable and appropriate,
including the sale of such property (at such place or places and upon such terms
as it may deem equitable and appropriate) and distribution of the net proceeds
from such sale to the holders.
Withdrawal
of Preferred Shares
Upon
surrender of depositary receipts at the principal office of the depositary and
payment of any unpaid amount due the depositary, and subject to the terms of the
deposit agreement, the owner of the depositary shares evidenced by the
depositary receipts is entitled to delivery of the number of whole preferred
shares and all money and other property, if any, represented by such depositary
shares. Fractional preferred shares will not be issued. If
the depositary receipts delivered by the holder evidence a number of depositary
shares in excess of the number of depositary shares representing the number of
whole preferred shares to be withdrawn, the depositary will deliver to such
holder at the same time a new depositary receipt evidencing such excess number
of depositary shares. Holders of preferred shares thus withdrawn will
not thereafter be entitled to deposit such shares under the deposit agreement or
to receive depositary receipts evidencing depositary shares
therefor.
Liquidation
Preference
In the
event of the liquidation, dissolution or winding up of the affairs of the
Company, whether voluntary or involuntary, the holders of each depositary share
will be entitled to the fraction of the liquidation preference accorded each
share of the applicable series of preferred shares as set forth in the
prospectus supplement.
Redemption
If the
series of preferred shares represented by the applicable series of depositary
shares is redeemable, such depositary shares will be redeemed from the proceeds
received by the depositary resulting from the redemption, in whole or in part,
of preferred shares held by the depositary. Whenever we redeem any preferred
shares held by the depositary, the depositary will redeem as of the same
redemption date the corresponding number of depositary shares representing the
preferred shares so redeemed. The depositary will mail the notice of
redemption promptly upon receipt of such notice from us and not less than 30 nor
more than 90 days prior to the date fixed for redemption of the preferred shares
and the depositary shares to the record holders of the depositary
receipts.
Voting
Rights
Promptly
upon receipt of notice of any meeting at which the holders of the series of
preferred shares represented by the applicable series of depositary shares are
entitled to vote, the depositary will mail the information contained in such
notice of meeting to the record holders of the depositary receipts as of the
record date for such meeting. Each record holder of depositary
receipts will be entitled to instruct the depositary as to the exercise of the
voting rights pertaining to the number of preferred shares represented by that
record holder’s depositary shares. The depositary will, to the extent
practicable, vote the preferred shares represented by the depositary shares in
accordance with the instructions, and we will agree to take all action which may
be deemed necessary by the depositary in order to enable the depositary to do
so. The depositary will abstain from voting any of the preferred shares to the
extent that it does not receive specific instructions from the holders of
depositary receipts. The depositary will not be responsible for any
failure to carry out any instruction to vote so long as any such action or
inaction is in good faith and does not result from negligence or willful
misconduct of the depositary.
Conversion
Rights
If we
specify in a prospectus supplement governing any depositary shares that the
depositary shares are convertible into our common shares or any of our other
securities or property, the holders of depositary receipts may surrender them to
the depositary with written instructions to instruct us to cause the conversion
of the preferred shares represented by the depositary shares evidenced by such
depositary receipts into whole shares of common shares or other shares of our
preferred shares. Upon receipt of such instructions and any amounts
payable related to the conversion, we will cause the conversion of the
depositary shares using the same procedures as those provided for delivery of
preferred shares to effect the conversion. If the depositary shares
evidenced by depositary receipt are to be converted in part only, a new
depositary receipt or receipts will be issued for any depositary shares not to
be converted. We will not issue fractional shares of our common
shares upon conversion, and if such conversion would result in a fractional
share being issued, we will pay an amount in cash equal to the value of the
fractional interest based upon the closing price of our common shares on the
last business day prior to the conversion.
Amendment
and Termination of Deposit Agreement
We and
the depositary may agree from time to time to amend the form of depositary
receipt evidencing the depositary shares and any provision of the deposit
agreement between us and the depositary. However, the holders of at
least a majority of the depositary shares then outstanding must approve any
amendment that materially and adversely alters the rights of those holders
(other than any change in fees). No amendment may impair the right,
subject to the terms of the deposit agreement, of any owner of any depositary
shares to surrender the depositary receipt evidencing the depositary shares with
instructions to the depositary to deliver to the holder of preferred shares and
all money and other property, if any, represented thereby, except in order to
comply with mandatory provisions of applicable law.
We will
be permitted to terminate the deposit agreement upon not less than 30 days’
prior written notice to the depositary if (i) the termination is necessary to
preserve our qualification as a REIT under the Code or (ii) a majority of each
series of preferred shares affected by the termination consents to it, at which
time the depositary will be required to deliver or make available to each holder
of depositary receipts, upon surrender of the depositary receipts held by each
holder, that number of whole or fractional preferred shares as are represented
by the depositary shares evidenced by those depositary receipts together with
any other property held by such depositary with respect to those depositary
receipts. We will agree that if we terminate the deposit agreement to preserve
our qualification as a REIT under the Code, then we will use our best efforts to
list the preferred shares issued upon surrender of the related depositary shares
on a national securities exchange. In addition, the deposit agreement will
automatically terminate if (i) all outstanding depositary shares under the
agreement have been redeemed, (ii) there has been a final distribution in
respect of the related preferred shares in connection with any liquidation,
dissolution or winding up of Hersha Hospitality Trust and such distribution
shall have been distributed to the holders of depositary receipts evidencing the
depositary shares representing the preferred shares or (iii) each preferred
share has been converted into shares of Hersha Hospitality Trust not so
represented by depositary shares.
Charges
of Depositary
We will
pay all transfer and other taxes and governmental charges arising solely from
the existence of the depositary arrangements. We will pay charges of the
depositary in connection with the initial deposit of the preferred shares, the
initial issuance of the depositary shares, the redemption of the preferred
shares and all withdrawals of preferred shares by owners of depositary shares.
Holders of depositary receipts will pay transfer, income and other taxes and
governmental charges and certain other charges specified in the deposit
agreement to be for their accounts. In certain circumstances, the depositary may
refuse to transfer depositary shares, may withhold dividends and distributions
and may sell the depositary shares evidenced by such depositary receipt if the
charges are not paid.
Miscellaneous
The
depositary will forward to the holders of depositary receipts all reports and
communications from us that we deliver to the depositary and that we are
required to furnish to the holders of the preferred shares. In addition, the
depositary will make available for inspection by holders of depositary receipts
at the principal office of the depositary, and at such other places as it may
from time to time deem advisable, any reports and communications it receives
from us in its capacity as the holder of preferred shares. Neither we nor the
depositary assumes any obligation, nor will we be subject to any liability under
the deposit agreement, to holders of depositary receipts other than for either
of our negligence or willful misconduct. Neither we nor the
depositary will be liable if either of us is prevented or delayed by law or any
circumstance beyond our respective control in performing our respective
obligations under the deposit agreement. Ours and the depositary’s
obligations under the deposit agreement will be limited to performance in good
faith of our respective duties thereunder, and neither of us will be obligated
to prosecute or defend any legal proceeding in respect of any depositary shares
or preferred shares unless satisfactory indemnity is furnished. We and the
depositary may rely on written advice of counsel or accountants, on information
provided by holders of the depositary receipts or other persons believed in good
faith to be competent to give such information and on documents believed to be
genuine and to have been signed or presented by the proper party or parties. In
the event the depositary shall receive conflicting claims, requests or
instructions from any holders of depositary receipts, on the one hand, and we,
on the other hand, the depositary shall be entitled to act on such claims,
requests or instructions received from us.
Resignation
and Removal of Depositary
The
depositary may resign at any time by delivering to us notice of its election to
do so, and we may at any time remove the depositary. Any such
resignation or removal will take effect upon the appointment of a successor
depositary and its acceptance of such appointment. Any successor
depositary must be appointed within 60 days after delivery of the notice for
resignation or removal and must be a bank or trust company having its principal
office in the United States of America and having a combined capital and surplus
of at least $150,000,000.
Restrictions
on Ownership and Transfer
In order
to enable us to preserve our status as a REIT, we may take certain actions to
restrict ownership and transfer of our outstanding securities, including any
depositary shares. The prospectus supplement related to the offering
of any depositary shares will specify any additional ownership limitation
relating to the warrants being offered thereby. For a description of these
restrictions, see “Restrictions on Ownership and Transfer” below.
We may
issue warrants for the purchase of common shares or preferred
shares. Warrants may be issued independently or together with any
securities and may be attached to or separate from the
securities. Each series of warrants will be issued under a separate
warrant agreement to be entered into between us and a warrant agent specified in
the prospectus supplement governing the offering of any warrants.
The agent
for warrants will act solely for us in connection with warrants of the series
and will not assume any obligation or relationship of agency or trust for or
with any holders or beneficial owners of warrants.
The
prospectus supplement governing the issuance of any series of warrants will
include specific terms relating to the offering, including, if
applicable:
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the
title of the warrants;
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the
aggregate number of warrants;
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the
price or prices at which the warrants will be
issued;
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the
currencies in which the price or prices of the warrants may be
payable;
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the
designation, amount and terms of the offered securities purchasable upon
exercise of the warrants;
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the
designation and terms of the other offered securities, if any, with which
the warrants are issued and the number of warrants issued with the
security;
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if
applicable, the date on and after which the warrants and the offered
securities purchasable upon exercise of the warrants will be separately
transferable;
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the
price or prices at which, and currency or currencies in which, the offered
securities purchasable upon exercise of the warrants may be
purchased;
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the
date on which the right to exercise the warrants shall commence and the
date on which the right shall
expire;
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the
minimum or maximum amount of the warrants which may be exercised at any
one time;
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information
with respect to book-entry procedures, if
any;
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any
listing of warrants on any securities
exchange;
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if
appropriate, a discussion of federal income tax consequences applicable to
the warrants; and
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any
other material term of the warrants, including terms, procedures and
limitations relating to the exchange and exercise of the
warrants.
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Additionally,
in order to enable us to preserve our status as a REIT, we may take certain
actions to restrict ownership and transfer of our outstanding securities,
including any warrants. The prospectus supplement related to the
offering of any warrants will specify any additional ownership limitation
relating to the warrants being offered thereby. For a description of these
restrictions, see “Restrictions on Ownership and Transfer” below.
We may
issue units consisting of one or more common shares, preferred shares,
depositary shares, warrants or any combination of such securities.
The
prospectus supplement governing the issuance of any units will specify the
following terms in respect of which this prospectus is being
delivered:
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the
terms of the units and of any of the common shares, preferred shares,
depositary shares or warrants constituting the units, including whether
and under what circumstances the securities comprising the units may be
traded separately;
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the
terms of any unit agreement governing the
units;
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if
appropriate, a discussion of federal income tax consequences applicable to
the units; and
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the
provisions for the payment, settlement, transfer or exchange of the
units.
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Additionally,
in order to enable us to preserve our status as a REIT, we may take certain
actions to restrict ownership and transfer of our outstanding securities,
including any units. The prospectus supplement related to the
offering of any units will specify any additional ownership limitation relating
to the units being offered thereby. For a description of these restrictions, see
“Restrictions on Ownership and Transfer” below.
LEGAL OWNERSHIP OF SECURITIES
We can
issue securities in registered form or in the form of one or more global
securities. We describe global securities in greater detail below. We refer to
those persons who have securities registered in their own names on the books
that we or any applicable trustee maintain for this purpose as the “holders” of
those securities. These persons are the legal holders of the securities. We
refer to those persons who, indirectly through others, own beneficial interests
in securities that are not registered in their own names, as “indirect holders”
of those securities. As we discuss below, indirect holders are not legal
holders, and investors in securities issued in book-entry form or in street name
will be indirect holders.
Book-Entry
Holders
We may
issue securities in book-entry form only, as we will specify in the applicable
prospectus supplement. This means securities may be represented by one or more
global securities registered in the name of a financial institution that holds
them as depositary on behalf of other financial institutions that participate in
the depositary’s book-entry system. These participating institutions, which are
referred to as participants, in turn, hold beneficial interests in the
securities on behalf of themselves or their customers.
Only the
person in whose name a security is registered is recognized as the holder of
that security. Securities issued in global form will be registered in the name
of the depositary or its participants. Consequently, for securities issued in
global form, we will recognize only the depositary as the holder of the
securities, and we will make all payments on the securities to the depositary.
The depositary passes along the payments it receives to its participants, which
in turn pass the payments along to their customers who are the beneficial
owners. The depositary and its participants do so under agreements they have
made with one another or with their customers; they are not obligated to do so
under the terms of the securities.
As a
result, investors in a book-entry security will not own securities directly.
Instead, they will own beneficial interests in a global security, through a
bank, broker or other financial institution that participates in the
depositary’s book-entry system or holds an interest through a participant. As
long as the securities are issued in global form, investors will be indirect
holders, and not holders, of the securities.
Street
Name Holders
We may
terminate a global security or issue securities in non-global form. In these
cases, investors may choose to hold their securities in their own names or in
“street name.” Securities held by an investor in street name would be registered
in the name of a bank, broker or other financial institution that the investor
chooses, and the investor would hold only a beneficial interest in those
securities through an account he or she maintains at that
institution.
For
securities held in street name, we will recognize only the intermediary banks,
brokers and other financial institutions in whose names the securities are
registered as the holders of those securities, and we will make all payments on
those securities to them. These institutions pass along the payments they
receive to their customers who are the beneficial owners, but only because they
agree to do so in their customer agreements or because they are legally required
to do so. Investors who hold securities in street name will be indirect holders,
not holders, of those securities.
Legal
Holders
Our
obligations run only to the legal holders of the securities. We do
not have obligations to investors who hold beneficial interests in global
securities, in street name or by any other indirect means. This will
be the case whether an investor chooses to be an indirect holder of a security
or has no choice because we are issuing the securities only in global
form. For example, once we make a payment or give a notice to the
holder, we have no further responsibility for the payment or notice even if that
holder is required, under agreements with depositary participants or customers
or by law, to pass it along to the indirect holders but does not do
so. Whether and how the holders contact the indirect holders is up to
the holders.
Special
Considerations for Indirect Holders
If you
hold securities through a bank, broker or other financial institution, either in
book-entry form or in street name, you should check with your own institution to
find out:
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how
it handles securities payments and
notices;
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whether
it imposes fees or charges;
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how
it would handle a request for the holders’ consent, if ever
required;
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whether
and how you can instruct it to send you securities registered in your own
name so you can be a holder, if that is permitted in the
future;
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how
it would exercise rights under the securities if there were a default or
other event triggering the need for holders to act to protect their
interests; and
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if
the securities are in book-entry form, how the depositary’s rules and
procedures will affect these
matters.
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Global
Securities
A global
security is a security held by a depositary that represents one or any other
number of individual securities. Generally, all securities represented by the
same global securities will have the same terms.
Each
security issued in book-entry form will be represented by a global security that
we deposit with and register in the name of a financial institution or its
nominee that we select. The financial institution that we select for this
purpose is called the depositary. Unless we specify otherwise in the applicable
prospectus supplement, The Depository Trust Company, New York, New York, or DTC,
will be the depositary for all securities issued in book-entry
form.
A global
security may not be transferred to or registered in the name of anyone other
than the depositary, its nominee or a successor depositary, unless special
termination situations arise. We describe those situations below under “—
Special Situations When a Global Security Will Be Terminated.” As a result of
these arrangements, the depositary, or its nominee, will be the sole registered
owner and holder of all securities represented by a global security, and
investors will be permitted to own only beneficial interests in a global
security. Beneficial interests must be held by means of an account with a
broker, bank or other financial institution that in turn has an account with the
depositary or with another institution that does. Thus, an investor whose
security is represented by a global security will not be a holder of the
security, but only an indirect holder of a beneficial interest in the global
security.
If the
prospectus supplement for a particular security indicates that the security will
be issued in global form only, then the security will be represented by a global
security at all times unless and until the global security is terminated. If
termination occurs, we may issue the securities through another book-entry
clearing system or decide that the securities may no longer be held through any
book-entry clearing system.
Special
Considerations for Global Securities
As an
indirect holder, an investor’s rights relating to a global security will be
governed by the account rules of the investor’s financial institution and of the
depositary, as well as general laws relating to securities transfers. We do not
recognize an indirect holder as a holder of securities and instead deal only
with the depositary that holds the global security.
If
securities are issued only in the form of a global security, an investor should
be aware of the following:
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An
investor cannot cause the securities to be registered in his or her name,
and cannot obtain non-global certificates for his or her interest in the
securities, except in the special situations we describe
below;
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An
investor will be an indirect holder and must look to his or her own bank
or broker for payments on the securities and protection of his or her
legal rights relating to the securities, as we describe under “— Ownership
of Securities” above;
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An
investor may not be able to sell interests in the securities to some
insurance companies and to other institutions that are required by law to
own their securities in non-book-entry
form;
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An
investor may not be able to pledge his or her interest in a global
security in circumstances where certificates representing the securities
must be delivered to the lender or other beneficiary of the pledge in
order for the pledge to be
effective;
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The
depositary’s policies, which may change from time to time, will govern
payments, transfers, exchanges and other matters relating to an investor’s
interest in a global security. We and any applicable trustee have no
responsibility for any aspect of the depositary’s actions or for its
records of ownership interests in a global security. We and the trustee
also do not supervise the depositary in any
way;
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The
depositary may, and we understand that DTC will, require that those who
purchase and sell interests in a global security within its book-entry
system use immediately available funds, and your broker or bank may
require you to do so as well; and
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Financial
institutions that participate in the depositary’s book-entry system, and
through which an investor holds its interest in a global security, may
also have their own policies affecting payments, notices and other matters
relating to the securities. There may be more than one financial
intermediary in the chain of ownership for an investor. We do not monitor
and are not responsible for the actions of any of those
intermediaries.
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Special
Situations when a Global Security will be Terminated
In a few
special situations described below, the global security will terminate and
interests in it will be exchanged for physical certificates representing those
interests. After that exchange, the choice of whether to hold securities
directly or in street name will be up to the investor. Investors must consult
their own banks or brokers to find out how to have their interests in securities
transferred to their own name, so that they will be direct holders. We have
described the rights of holders and street name investors
above.
The
global security will terminate when the following special situations
occur:
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if
the depositary notifies us that it is unwilling, unable or no longer
qualified to continue as depositary for that global security and we do not
appoint another institution to act as depositary within 90
days;
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if
we notify any applicable trustee that we wish to terminate that global
security; or
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if
an event of default has occurred with regard to securities represented by
that global security and has not been cured or
waived.
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The
prospectus supplement may also list additional situations for terminating a
global security that would apply only to the particular series of securities
covered by the prospectus supplement. When a global security terminates, the
depositary, and not we or any applicable trustee, is responsible for deciding
the names of the institutions that will be the initial direct
holders.
Our
declaration of trust, subject to certain exceptions described below, provides
that no person may own, or be deemed to own by virtue of the attribution
provisions of the Code, more than 9.9% of the number of outstanding common
shares of any class or series of common shares or the number of outstanding
preferred shares of any class or series of preferred shares. For this
purpose, a person includes a “group” and a “beneficial owner” as those terms are
used for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended, or the Exchange Act. Any transfer of common or preferred
shares that would result in any person owning, directly or indirectly, common or
preferred shares in excess of the ownership limitation, result in the common and
preferred shares being owned by fewer than 100 persons (determined without
reference to any rules of attribution), result in our being “closely held”
within the meaning of Section 856(h) of the Code, or cause us to own, actually
or constructively, 10% or more of the ownership interests in a tenant (other
than a TRS) of our or our partnership’s real property, within the meaning of
Section 856(d)(2)(B) of the Code, will be null and void, and the intended
transferee will acquire no rights in such common or preferred
shares.
Subject
to certain exceptions described below, any common shares or preferred shares the
purported transfer of which would result in a violation of any of the
limitations described above will be designated as “shares-in-trust” and
transferred automatically to a trust effective on the day before the purported
transfer of such common shares or preferred shares. The record holder
of the common or preferred shares that are designated as shares-in-trust will be
required to submit such number of common shares or preferred shares to us for
registration in the name of the trust. The trustee will be designated
by us, but will not be affiliated with us. The beneficiary of a trust
will be one or more charitable organizations that are named by us.
Shares-in-trust
will remain issued and outstanding common shares or preferred shares and will be
entitled to the same rights and privileges as all other shares of the same class
or series. The trust will receive all dividends and distributions on
the shares-in-trust and will hold such dividends or distributions in trust for
the benefit of the beneficiary. The trust will vote all
shares-in-trust. The trust will designate a permitted transferee of
the shares-in-trust, provided that the permitted transferee purchases such
shares-in-trust for valuable consideration and acquires such shares-in-trust
without such acquisition resulting in a transfer to another trust.
The
prohibited owner with respect to shares-in-trust will be required to repay to
the record holder the amount of any dividends or distributions received by the
prohibited owner that are attributable to any shares-in-trust and the record
date of which was on or after the date that such shares became
shares-in-trust. The prohibited owner generally will receive from the
record holder the lesser of the price per share such prohibited owner paid for
the common shares or preferred shares that were designated as shares-in-trust
(or, in the case of a gift or devise, the market price (as defined below) per
share on the date of such transfer), or the price per share received by the
record holder from the sale of such shares- in-trust. Any amounts
received by the record holder in excess of the amounts to be paid to the
prohibited owner will be distributed to the beneficiary.
The
shares-in-trust will be deemed to have been offered for sale to us, or its
designee, at a price per share equal to the lesser of the price per share in the
transaction that created such shares-in-trust (or, in the case of a gift or
devise, the market price per share on the date of such transfer), or the market
price per share on the date that we, or our designee, accepts such
offer. We will have the right to accept such offer for a period of 90
days after the later of the date of the purported transfer which resulted in
such shares-in-trust, or the date we determine in good faith that a transfer
resulting in such shares-in-trust occurred.
“Market
price” on any date means the average of the last quoted sale price as reported
by the NYSE for the five consecutive trading days ending on such
date. “Trading day” means a day on which the applicable principal
national securities exchange on which the securities are listed or admitted to
trading is open for the transaction of business or, if the securities are not
listed or admitted to trading on any national securities exchange, means any day
other than a Saturday, a Sunday or a day on which banking institutions in the
State of New York are authorized or obligated by law or executive order to
close.
Any
person who acquires or attempts to acquire common or preferred shares in
violation of the foregoing restrictions, or any person who owned common or
preferred shares that were transferred to a trust, will be required to give
written notice immediately to us of such event and provide us with such other
information as we may request in order to determine the effect, if any, of such
transfer on our status as a REIT.
All
persons who own, directly or indirectly, more than 5% (or such lower percentages
as required pursuant to regulations under the Code) of the outstanding common
and preferred shares must, within 30 days after December 31 of each year,
provide to us a written statement or affidavit stating the name and address of
such direct or indirect owner, the number of common and preferred shares owned
directly or indirectly, and a description of how such shares are
held. In addition, each direct or indirect shareholder shall provide
to us such additional information as we may request in order to determine the
effect, if any, of such ownership on our status as a REIT and to ensure
compliance with the ownership limitation.
The
ownership limitation generally does not apply to the acquisition of common or
preferred shares by an underwriter that participates in a public offering of
such shares.
In
addition, the trustees, upon receipt of advice of counsel or other evidence
satisfactory to the trustees, in their sole and absolute discretion, may, in
their sole and absolute discretion, exempt a person from the ownership
limitation under certain circumstances. The foregoing restrictions
continue to apply until the trustees determine that it is no longer in our best
interests to attempt to qualify, or to continue to qualify, as a REIT and there
is an affirmative vote of two-thirds of the number of common and preferred
shares entitled to vote on such matter at a regular or special meeting of our
shareholders.
All
certificates representing common or preferred shares bear a legend referring to
the restrictions described above.
The
restrictions on ownership and transfer described above could have the effect of
delaying, deterring or preventing a change in control or other transaction in
which holders of some, or a majority, of our common shares might receive a
premium for their shares over the then-prevailing market price or which such
holders might believe to be otherwise in their best interest.
CERTAIN PROVISIONS OF MARYLAND LAW,
OUR
DECLARATION OF TRUST AND BYLAWS
The
following description of certain provisions of Maryland law and of our
declaration of trust and bylaws is only a summary. For a complete
description, we refer you to Maryland law, our declaration of trust and our
bylaws. Copies of our declaration of trust and our bylaws are
incorporated by reference as exhibits to this registration
statement.
Classification
of Our Board of Trustees
Our
bylaws provide that the number of our trustees may be established by our board
of trustees but may not be fewer than three nor more than nine. As of
the date of this prospectus, we have nine trustees. The trustees may
increase or decrease the number of trustees by a vote of at least 80% of the
members of our board of trustees, provided that the number of trustees shall
never be less than the number required by Maryland law and that the tenure of
office of a trustee shall not be affected by any decrease in the number of
trustees. Any vacancy will be filled, including a vacancy created by
an increase in the number of trustees, at any regular meeting or at any special
meeting called for that purpose, by a majority of the remaining trustees or, if
no trustees remain, by a majority of our shareholders.
Pursuant
to our declaration of trust, our board of trustees is divided into two classes
of trustees. Trustees of each class are chosen for two-year terms and
each year one class of trustees will be elected by the
shareholders. We believe that classification of our board of trustees
helps to assure the continuity and stability of our business strategies and
policies as determined by the trustees. Holders of common shares have
no right to cumulative voting in the election of trustees.
The
classification of our board of trustees could have the effect of making the
replacement of incumbent trustees more time consuming and
difficult. The staggered terms of trustees may delay, defer or
prevent a tender offer or an attempt to change control in us or other
transaction that might involve a premium price for holders of common shares that
might be in the best interest of the shareholders.
Removal
of Trustees
Our
declaration of trust provides that a trustee may be removed, with or without
cause, upon the affirmative vote of at least two-thirds of the votes entitled to
be cast in the election of trustees. This provision, when coupled
with the provision in our bylaws authorizing our board of trustees to fill
vacant trusteeships, may preclude shareholders from removing incumbent trustees,
except upon a substantial affirmative vote, and filling the vacancies created by
such removal with their own nominees.
Business
Combinations
Maryland
law prohibits “business combinations” between us and an interested shareholder
or an affiliate of an interested shareholder for five years after the most
recent date on which the interested shareholder becomes an interested
shareholder. These business combinations include a merger,
consolidation, share exchange, or, in circumstances specified in the statute, an
asset transfer or issuance or reclassification of equity
securities. Maryland law defines an interested shareholder
as:
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any
person who beneficially owns 10% or more of the voting power of our
shares; or
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an affiliate
or associate of ours 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 our then outstanding voting
shares.
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A person
is not an interested shareholder if our board of trustees approved in advance
the transaction by which the person otherwise would have become an interested
shareholder.
After the
five-year prohibition, any business combination between us and an interested
shareholder generally must be recommended by our board of trustees and approved
by the affirmative vote of at least:
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80%
of the votes entitled to be cast by holders of our then outstanding shares
of beneficial interest; and
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two-thirds
of the votes entitled to be cast by holders of our voting shares other
than shares held by the interested shareholder with whom or with whose
affiliate the business combination is to be effected or shares held by an
affiliate or associate of the interested
shareholder.
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These
super-majority vote requirements do not apply if our common shareholders receive
a minimum price, as defined under Maryland law, for their shares in the form of
cash or other consideration in the same form as previously paid by the
interested shareholder for its shares.
The
statute permits various exemptions from its provisions, including business
combinations that are approved or exempted by our board of trustees before the
time that the interested shareholder becomes an interested
shareholder. Pursuant to a resolution adopted by our board of
trustees, REIG’s ownership of our securities is exempt from the Maryland
business combination statute.
The
provisions of the business combination statute could delay, deter or prevent a
change of control or other transaction in which holders of our equity securities
might receive a premium for their shares above then-current market prices or
which such shareholders otherwise might believe to be in their best
interests.
Control
Share Acquisitions
Maryland
law provides that “control shares” of a Maryland real estate investment trust
acquired in a “control share acquisition” have no voting rights unless approved
by a vote of two-thirds of the votes entitled to be cast on the
matter. Shares owned by the acquiror, or by officers or by trustees
who are employees of the Maryland real estate investment trust are excluded from
the shares entitled to vote on the matter. “Control shares” are
voting shares which, if aggregated with all other shares previously acquired by
the acquiring person, or in respect of which the acquiring person is able to
exercise or direct the exercise of voting power (except solely by virtue of a
revocable proxy), would entitle the acquiring person to exercise voting power in
electing trustees within one of the following ranges of voting
power:
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one-tenth
or more but less than one-third;
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one-third
or more but less than a majority;
or
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a
majority or more of all voting
power.
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Control
shares do not include shares the acquiring person is then entitled to vote as a
result of having previously obtained shareholder approval. A “control
share acquisition” means the acquisition of control shares, subject to certain
exceptions.
A person
who has made or proposes to make a control share acquisition may compel the
board of trustees of a Maryland real estate investment trust to call a special
meeting of shareholders to be held within 50 days of demand to consider the
voting rights of the shares. The right to compel the calling of a
special meeting is subject to the satisfaction of certain conditions, including
an undertaking to pay the expenses of the meeting. If no request for
a meeting is made, the Maryland real estate investment trust may present the
question at any shareholders’ meeting.
If voting
rights are not approved at the shareholders’ meeting or if the acquiring person
does not deliver the statement required by Maryland law, then, subject to
certain conditions and limitations, the Maryland real estate investment trust
may redeem any or all of the control shares, except those for which voting
rights have previously been approved, for fair value. Fair value is
determined without regard to the absence of voting rights for the control shares
and as of the date of the last control share acquisition or of any meeting of
shareholders at which the voting rights of the shares were considered and not
approved. If voting rights for control shares are approved at a
shareholders’ meeting and the acquiror may then vote a majority of the shares
entitled to vote, then all other shareholders may exercise appraisal
rights. The fair value of the shares for purposes of these 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 shares acquired in a merger, consolidation or share exchange
if we are a party to the transaction, nor does it apply to acquisitions approved
or exempted by our declaration of trust or bylaws.
Our
bylaws contain a provision exempting from the control share acquisition act any
and all acquisitions by any person of our shares. There can be no
assurance that this provision will not be amended or eliminated at any time in
the future.
Merger,
Amendment of Declaration of Trust
Under the
Maryland REIT Law, a Maryland real estate investment trust generally cannot
amend its declaration of trust or merge unless approved by the affirmative vote
of shareholders 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 the
votes entitled to be cast on the matter) is set forth its declaration of trust
subject to the terms of any other class or series of shares of beneficial
interest. In accordance with Maryland REIT Law, our declaration of
trust allows our merger or consolidation or sale or disposition of all or
substantially all of our assets if our board of trustees declares such action
advisable and if a majority of shareholders entitled to vote on the matter
approves the action. Our declaration of trust provides for approval
by a majority of all the votes entitled to be cast on the matter in all
situations permitting or requiring action by the shareholders except with
respect to:
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our
intentional disqualification as a REIT or revocation of our election to be
taxed as a REIT (which requires the affirmative vote of two-thirds of the
number of common shares entitled to vote on such matter at a meeting of
our shareholders);
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the
election of trustees (which requires a plurality of all the votes cast at
a meeting of our shareholders at which a quorum is
present);
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the
removal of trustees (which requires the affirmative vote of the holders of
two-thirds of our outstanding voting
shares);
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the
amendment or repeal of certain designated sections of our declaration of
trust (which require the affirmative vote of two-thirds of the outstanding
shares entitled to vote on such
matters);
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the
amendment of our declaration of trust by shareholders (which requires the
affirmative vote of a majority of votes entitled to be cast on the matter,
except under certain circumstances specified in our declaration of trust
that require the affirmative vote of two-thirds of all the votes entitled
to be cast on the matter); and
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our
termination (which requires the affirmative vote of two-thirds of all the
votes entitled to be cast on the
matter).
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Under the
Maryland REIT Law, a declaration of trust may permit the trustees by a
two-thirds vote to amend the declaration of trust from time to time to qualify
as a REIT under the Code or the Maryland REIT Law without the affirmative vote
or written consent of the shareholders. Our declaration of trust
permits such action by a majority vote of the trustees. As permitted
by the Maryland REIT Law, our declaration of trust contains a provision
permitting our trustees, without any action by our shareholders, to amend our
declaration of trust to increase or decrease the aggregate number of shares of
beneficial interest or the number of shares of any class of shares of beneficial
interest that we have authority to issue.
Limitation
of Liability and Indemnification
Our
declaration of trust limits the liability of our trustees and officers for money
damages, except for liability resulting from:
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actual
receipt of an improper benefit or profit in money, property or services;
or
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a
final judgment based upon a finding of active and deliberate dishonesty by
the trustees or others that was material to the cause of action
adjudicated.
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Our
declaration of trust authorizes us, to the maximum extent permitted by Maryland
law, to indemnify, and to pay or reimburse reasonable expenses to, any of our
present or former trustees or officers or any individual who, while a trustee or
officer and at our request, serves or has served another entity, employee
benefit plan or any other enterprise as a trustee, director, officer, partner or
otherwise. The indemnification covers any claim or liability against
the person. Our bylaws and Maryland law require us to indemnify each
trustee 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 to us.
Maryland
law permits a Maryland real estate investment trust to indemnify its present and
former trustees and officers against liabilities and reasonable expenses
actually incurred by them in any proceeding unless:
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the
act or omission of the trustee or officer was material to the matter
giving rise to the proceeding; and
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was
committed in bad faith; or
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was
the result of active and deliberate dishonesty;
or
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the
trustee or officer actually received an improper personal benefit in
money, property or services; or
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in
a criminal proceeding, the trustee or officer had reasonable cause to
believe that the act or omission was
unlawful.
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Maryland
law prohibits us from indemnifying our present and former trustees and officers
for an adverse judgment in a derivative action or for a judgment of liability on
the basis that personal benefit was improperly received, unless in either case a
court orders indemnification and then only for expenses. Our bylaws
and Maryland law require us, as a condition to advancing expenses in certain
circumstances, to obtain:
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a
written affirmation by the trustee or officer of his or her good faith
belief that he or she has met the standard of conduct necessary for
indemnification; and
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a
written undertaking to repay the amount reimbursed if the standard of
conduct is not met.
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Term
and Termination
Our
declaration of trust provides for us to have a perpetual
existence. Pursuant to our declaration of trust, and subject to the
provisions of any class or series of our shares of beneficial interest then
outstanding and the approval by a majority of the entire board of trustees, our
shareholders, at any meeting thereof, by the affirmative vote of two-thirds of
all of the votes entitled to be cast on the matter, may approve our
termination.
Meetings
of Shareholders
Under our
bylaws, annual meetings of shareholders are to be held in May of each year or at
a date and time as determined by our board of trustees in accordance with our
bylaws. Special meetings of shareholders may be called only by the
chairman of our board of trustees, our president or one-third of the trustees
then in office, or by our secretary upon the written request of the shareholders
entitled to cast not less 25% of all the 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 Trustee Nominations and New Business
Our
bylaws provide that, with respect to an annual meeting of shareholders,
nominations of persons for election to our board of trustees and the proposal of
business to be considered by shareholders at the annual meeting may be made
only:
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pursuant
to our notice of the meeting;
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by
or at the direction of our board of trustees;
or
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by
a shareholder who was a shareholder of record at the time of the provision
of notice who is entitled to vote at the meeting and has complied with the
advance notice procedures set forth in our
bylaws.
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With
respect to special meetings of shareholders, only the business specified in our
notice of meeting may be brought before the meeting of shareholders and
nominations of persons for election to our board of trustees may be made
only:
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pursuant
to our notice of the meeting;
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by
or at the direction of our board of trustees;
or
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provided
that our board of trustees has determined that trustees shall be elected
at such meeting, by a shareholder who was a shareholder of record at the
time of the provision of notice who is entitled to vote at the meeting and
has complied with the advance notice provisions set forth in our
bylaws.
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The
purpose of requiring shareholders to give advance notice of nominations and
other proposals is to afford our board of trustees the opportunity to consider
the qualifications of the proposed nominees or the advisability of the other
proposals and, to the extent considered necessary by our board of trustees, to
inform shareholders and make recommendations regarding the nominations or other
proposals. The advance notice procedures also permit a more orderly
procedure for conducting our shareholder meetings. Although the
bylaws do not give our board of trustees the power to disapprove timely
shareholder nominations and proposals, they may have the effect of precluding a
contest for the election of trustees or proposals for other action if the proper
procedures are not followed, and of discouraging or deterring a third party from
conducting a solicitation of proxies to elect its own slate of trustees to our
board of trustees or to approve its own proposal.
Possible
Anti-Takeover Effect of Certain Provisions of Maryland Law and of Our
Declaration of Trust and Bylaws
The
business combination provisions and, if the applicable exemption in our bylaws
is rescinded, the control share acquisition provisions applicable under Maryland
law, the provisions of our declaration of trust on classification of our board
of trustees, removal of trustees, restrictions on the ownership and transfer of
shares of beneficial interest and the advance notice provisions of our bylaws
could have the effect of delaying, deferring or preventing a transaction or a
change in control that might involve a premium price for holders of the common
shares or otherwise be in their best interest.
The
following is a summary of the material terms of the amended and restated
agreement of limited partnership, or the partnership agreement, of Hersha
Hospitality Limited Partnership, our operating partnership. This
summary is not complete. For more detail, you should refer to the
partnership agreement itself, a copy of which is incorporated by reference as an
exhibit to the registration statement of which this prospectus is a
part. For purposes of this section, references to “we,” “us,” and
“our company” refer only to Hersha Hospitality Trust.
Management
Hersha
Hospitality Limited Partnership, our operating partnership, is organized as a
Virginia limited partnership. As of September 30, 2009, we owned an
86.4% interest, including a 1.0% general partnership interest, and the other
limited partners owned a 13.6% interest in our operating partnership. As the
sole general partner of our operating partnership, we have, subject to certain
protective rights of limited partners described below, full, exclusive and
complete responsibility and discretion in the management and control of our
operating partnership, including the ability to cause our operating partnership
to enter into certain major transactions, including acquisitions, dispositions,
refinancings and selection of lessees, and to cause changes in our operating
partnership’s line of business and distribution policies. In general,
we may amend the partnership agreement without the consent of the limited
partners. However, any amendment to the partnership agreement that
would:
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adversely
affect certain redemption or conversion rights of the limited
partners;
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adversely
affect the rights of the limited partners to receive distributions payable
to them;
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alter
our operating partnership’s allocation of profit and loss to the limited
partners; or
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impose
any obligation to make additional capital contributions upon the limited
partners
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requires
the affirmative vote of the holders of a majority of the limited partnership
units, excluding those held by us and our subsidiaries. As the sole
general partner of our operating partnership, we may also, without the consent
of the limited partners, approve a merger, consolidation or similar corporate
transaction the result of which is a change in control of our operating
partnership.
Transferability
of Interests
In
general, we may not voluntarily withdraw as the general partner of our operating
partnership or assign our general partnership interest in our operating
partnership. We may, however, enter into a merger, consolidation or
similar corporate transaction the result of which is a transfer of or change in
the general partner if:
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we
receive the consent of the holders of a majority of the limited
partnership units, excluding those held by us and our
subsidiaries;
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the
contemplated transaction results in the limited partners receiving
property in an amount equal to the amount they would have received had
they exercised their redemption rights immediately prior to such
transaction; or
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our
successor contributes substantially all of its assets to the partnership
in return for a general partnership interest in the
partnership.
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With
certain limited exceptions, the limited partners may not transfer their limited
partnership units, in whole or in part, without our written consent, which
consent we may withhold in our sole discretion. We may not consent to
any transfer that would cause the partnership to be treated as an association
taxable as a corporation (other than a qualified REIT subsidiary within the
meaning of Section 856(i) of the Code), would adversely affect our ability to
continue to qualify as a REIT for federal income tax purposes, would subject us
to any additional taxes under Sections 857 or 4981 of the Code or would be
effected through an “established securities market” or a “secondary market” (or
the substantial equivalent thereof) within the meaning of Section 7704 of the
Code.
Capital
Contributions
If we
determine that it is in the best interests of our operating partnership to
provide for additional funds for any operating partnership purpose, the
partnership agreement provides that we may cause our operating partnership to
obtain additional funds from outside borrowings. In addition, we may elect to
provide the additional funds, either directly or through a subsidiary, to our
operating partnership through loans or otherwise.
We will
transfer the proceeds of any offering of our shares of beneficial interest to
our operating partnership as an additional capital contribution. Our operating
partnership will be deemed to have paid simultaneously the underwriting
discounts, selling commissions and other costs associated with the
offering. We are authorized to cause our operating partnership to
issue additional operating partnership interests, in the form of operating
partnership units, for less than fair market value if we have concluded in good
faith that such issuance is in both our operating partnership’s and our best
interests. If we contribute additional capital to our operating
partnership, we will receive additional operating partnership units, and our
percentage interest will be increased on a proportionate basis based upon the
amount of any additional capital contribution and the value of the assets of our
operating partnership at the time of the contribution. Conversely,
the percentage interests of the other limited partners will be decreased on a
proportionate basis in the event of an additional capital contribution by
us.
In
addition, if we contribute additional capital to our operating partnership, we
will revalue the property of our operating partnership to its fair market value
(as determined by us) and the capital accounts of the partners will be adjusted
to reflect the manner in which the unrealized gain or loss inherent in such
property (that has not been reflected in the capital accounts previously) would
be allocated among the partners under the terms of the partnership agreement if
there were a taxable disposition of such property for such fair market value on
the date of the revaluation.
Our
operating partnership could issue preferred partnership interests, in the form
of preferred partnership units, in connection with the acquisition of property
or otherwise. Preferred partnership units could have priority over
classes or series of outstanding operating partnership units with respect to
distribution rights and rights upon liquidation, dissolution or winding
up.
Redemption
Rights
Subject
to certain limitations and exceptions, the limited partners of our operating
partnership, other than us and our subsidiaries, have the right to cause our
operating partnership to redeem their limited partnership units for cash equal
to the market value of an equivalent number of our common shares, or, at our
option, we may purchase their limited partnership units by issuing one common
share for each limited partnership unit redeemed. The market value of
the limited partnership units for this purpose will equal the average of the
daily sale price of our common shares on the NYSE for the
ten-consecutive-trading-day period immediately preceding the date that the
limited partner provides notice of redemption. If we do not exercise
our option to purchase the limited partnership units by issuing our common
shares, then the limited partner may make a written demand that we redeem the
units for common shares. Notwithstanding the foregoing, a limited
partner will not be entitled to exercise its redemption rights to the extent
that the issuance of common shares to the redeeming limited partner
would:
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result
in any person owning, directly or indirectly, common shares in excess of
the ownership limitation as per our declaration of
trust;
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result
in the shares of our beneficial interest being owned by fewer than 100
persons (determined without reference to any rules of
attribution);
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result
in our being “closely held” within the meaning of Section 856(h) of the
Code;
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cause
any person who operates property on behalf of any of our TRSs, as defined
in Section 856(l) of the Code, which property is a “qualified lodging
facility” within the meaning of Section 856(d)(9)(D) of the Code that is
leased to such TRS, to fail to qualify as an “eligible independent
contractor” within the meaning of Section 856(d)(9)(A) of the Code with
respect to such TRS;
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cause
us to own, actually or constructively, 10% or more of the ownership
interests in a tenant (other than a TRS) of ours or our operating
partnership’s real property, within the meaning of Section 856(d)(2)(B) of
the Code; or
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cause
the acquisition of common shares by such redeeming limited partner to be
“integrated” with any other distribution of common shares for purposes of
complying with the Securities Act.
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The
redemption rights may be exercised by a limited partner at any time after one
year following the issuance of the limited partnership units, unless otherwise
agreed by us. In all cases, however:
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each
limited partner may not exercise the redemption right for fewer than 1,000
limited partnership units or, if such limited partner holds fewer than
1,000 limited partnership units, all of the limited partnership units held
by such limited partner;
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each
limited partner may not exercise the redemption right for more than the
number of limited partnership units that would, upon redemption, result in
such limited partner or any other person owning, directly or indirectly,
common shares in excess of the ownership limitation;
and
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each
limited partner may not exercise the redemption right more than two times
annually.
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Operations
The
partnership agreement requires that our operating partnership be operated in a
manner that enables us to satisfy the requirements for being classified as a
REIT, to avoid any federal income or excise tax liability imposed by the Code
(other than any federal income tax liability associated with our retained
capital gains), and to ensure that our operating partnership will not be
classified as a “publicly traded partnership” for purposes of Section 7704 of
the Code.
In
addition to the administrative and operating costs and expenses incurred by our
operating partnership, our operating partnership will pay all of our
administrative costs and expenses and these expenses will be treated as expenses
of our operating partnership. Our expenses generally
include:
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all
expenses relating to our continuity of
existence;
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all
expenses relating to offerings and registration of
securities;
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all
expenses associated with the preparation and filing of any of our periodic
reports under federal, state or local laws or
regulations;
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all
expenses associated with our compliance with laws, rules and regulations
promulgated by any regulatory body;
and
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all
of our other operating or administrative costs incurred in the ordinary
course of its business on behalf of our operating
partnership.
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The
company expenses, however, do not include any of our administrative and
operating costs and expenses incurred that are attributable to hotel properties
that are owned by us directly.
Distributions
The
partnership agreement provides that our operating partnership will distribute
cash from operations (including net sale or refinancing proceeds, but excluding
net proceeds from the sale of our operating partnership’s property in connection
with the liquidation of our operating partnership) on a quarterly (or, at our
election, more frequent) basis, in amounts determined by us in our sole
discretion, to us and the limited partners in accordance with their respective
percentage interests in our operating partnership.
The
partnership agreement provides that upon a liquidation of our operating
partnership after payment of, or adequate provision for, debts and obligations
of our operating partnership, including any partner loans, any remaining assets
of our operating partnership will be distributed to us and the limited partners
with positive capital accounts in accordance with their respective positive
capital account balances.
Allocations
Net
profit of our operating partnership for any fiscal year or other applicable
period will be allocated in the following order and priority:
(a) first,
to us as the general partner in respect of our Series A preferred partnership
units to the extent that net loss previously allocated to us pursuant to clause
(iii) below for all prior fiscal years or other applicable periods exceeds net
profit previously allocated to us as the general partner in respect of our
Series A preferred partnership units for all prior fiscal years or other
applicable periods;
(b) second,
to us as the general partner and the limited partners in proportion to our
respective percentage interests to the extent that net loss previously allocated
to such partners pursuant to clause (ii) below for all prior fiscal years or
other applicable periods exceeds net profit previously allocated to such
partners pursuant to this clause (b) for all prior fiscal years or other
applicable periods;
(c) third,
to us as the general partner in respect of our Series A preferred partnership
units until we have been allocated net profit equal to the excess of (x) the
cumulative amount of distributions we have received for all fiscal years or
other applicable period to the date of redemption, to the extent such Series A
preferred partnership units are redeemed during such period, over (y) the
cumulative net profit allocated to us as the general partner in respect of our
Series A preferred partnership units for all prior fiscal years or other
applicable periods; and
(d) thereafter,
to the partners holding partnership units (other than Series A preferred
partnership units) in accordance with their respective percentage
interests.
Net loss
of our operating partnership for any fiscal year or other applicable period will
be allocated in the following order and priority:
(i) first,
to the partners holding partnership units (other than Series A preferred
partnership units) in accordance with their respective percentage interests to
the extent of net profit previously allocated to such partners pursuant to
clause (d) above for all prior fiscal years or other applicable period exceeds
net loss previously allocated to such partners pursuant to this clause (i) for
all prior fiscal years or other applicable periods;
(ii)
second, to us as the general partner and the limited partners in proportion to
our respective percentage interests until the adjusted capital account of each
partner with respect to the partner’s partnership units is reduced to zero;
and
(iii)
thereafter, to us as the general partner in respect of our Series A preferred
partnership units, until our adjusted capital account with respect to our Series
A preferred partnership units is reduced to zero.
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.
Fiduciary
Responsibilities
Our
trustees and officers have duties under applicable Maryland law to manage us in
a manner consistent with the best interests of our shareholders. At the same
time, we, as the general partner of our operating partnership, have fiduciary
duties to manage our operating partnership in a manner beneficial to our
operating partnership and its partners. Our duties, as general partner to our
operating partnership and its limited partners, therefore, may come into
conflict with the duties of our trustees and officers to our shareholders. We
will be under no obligation to give priority to the separate interests of the
limited partners of our operating partnership or our shareholders in deciding
whether to cause our operating partnership to take or decline to take any
actions.
The
limited partners of our operating partnership have expressly acknowledged that
as the general partner of our operating partnership, we are acting for the
benefit of our operating partnership, the limited partners and our shareholders
collectively. In the event of a conflict between the interests of our
shareholders and the interests of our limited partners, we will endeavor in good
faith to resolve the conflict in a manner that is not adverse to either our
shareholders or the limited partners; however, for so long as we own a
controlling interest in our operating partnership, any conflict between the
interests of our shareholders and the interests of the limited partners that we
cannot resolved in a manner that is not adverse to either our shareholders or
the limited partners will be resolved in favor of our
shareholders.
Term
The
partnership will continue until December 31, 2050, or until sooner dissolved
upon:
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our
bankruptcy, dissolution or withdrawal (unless the limited partners elect
to continue the partnership);
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the
sale or other disposition of all or substantially all the assets of the
partnership;
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the
redemption of all operating partnership units (other than those held by
us, if any); or
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an
election by us as the general
partner.
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Tax
Matters
Pursuant
to the partnership agreement, we are the tax matters partner of the partnership
and, as such, have authority to handle tax audits and to make tax elections
under the Code on behalf of the partnership.
Overview
REIG is a
Bermuda limited partnership that is majority-owned and indirectly controlled by
IRSA Inversiones y Representaciones Sociedad Anónima, or IRSA, a publicly-traded
Argentine company whose global depositary shares are listed on the NYSE under
the symbol “IRS.” Tyrus S.A., a stock
corporation organized under the laws of the Republic of Uruguay and a wholly
owned subsidiary of IRSA, is the sole general partner and majority limited
partner of REIG. On August 4, 2009,
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we
issued and sold 5,700,000 of our common shares to REIG in a registered
direct offering; and
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we
granted REIG an option to purchase up to 5,700,000 common
shares pursuant to the investor rights and option agreement we
entered into with REIG and IRSA in connection with our August 2009
registered direct offering.
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In
connection with the August 2009 registered direct offering, we also entered into
a series of agreements with REIG and IRSA, including, among others, a purchase
agreement, an investor rights and option agreement, a trustee designation
agreement and a registration rights agreement. Each of the agreements
we entered into with REIG is described below, along with further information
regarding REIG’s ownership of our common shares.
Purchase
Agreement
Pursuant
to the purchase agreement, REIG purchased 5,700,000 common shares from us at a
price of $2.50 per share. We agreed
to indemnify REIG and its affiliates against certain claims or losses for the
periods specified in the purchase agreement, including losses under the
Securities Act and losses resulting from our breach of the representations and
warranties contained in the purchase agreement.
Investor
Rights and Option Agreement; Preemptive Rights
Pursuant
to the investor rights and option agreement, we granted REIG an option to
purchase an additional 5,700,000 common shares from us at an exercise price of
$3.00 per share, subject to certain adjustments. REIG’s purchase
option is exercisable, in whole or in part, at any time prior to August 4,
2014. If at any time after August 4, 2011, the closing price for our
common shares on the NYSE exceeds $5.00 for 20 consecutive trading days, we have
the right, exercisable at any time thereafter, to call in and cancel REIG’s
purchase option in exchange for the issuance of common shares with an aggregate
value equal to the volume weighted average price per common share for the 20
trading days prior to our exercise of the call option, less the then-current
exercise price of REIG’s purchase option, multiplied by the number of common
shares remaining under REIG’s purchase option. To extent REIG
exercises its purchase option or we exercise our call option, we expect to issue
the common shares to REIG in one or more transactions exempt from the
registration requirements of the Securities Act.
We also
granted REIG preemptive rights under the investor rights and option agreement.
If at any time after August 4, 2009, we make any public or private offering of
common shares, preferred shares, options, convertible or exchangeable debt
securities or other equity security (other than equity securities issued
pursuant to a stock incentive, stock compensation, employee stock purchase or
other similar plans or arrangements or as consideration for the acquisition of
properties), we are required to give REIG an opportunity to acquire the equity
security we are proposing to offer to other investors on the same terms and at
the same price. The preemptive rights are exercisable by REIG only to
the extent it continues to own at least a “5% qualifying ownership interest” in
our common shares, which, as defined in the investor rights and option
agreement, means beneficial ownership (as determined pursuant to Rule 13d-3
under the Exchange Act) by REIG or any of its affiliates of at least 5% of our
common shares (excluding common shares issued after the date of the investor
rights and option agreement upon redemption of limited partnership units held at
any time at or prior to such redemption by our trustees or officers or the
entities they control or of which they beneficially own of 100% of the
outstanding equity securities). The number of equity securities that
REIG will be entitled to purchase in any offering will be equal to the product
of:
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the
total number of equity securities we are proposing to offer, multiplied
by
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a
fraction, the numerator of which is the number of common shares held by
REIG, and the denominator of which is the number of common shares then
outstanding.
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Trustee
Designation Agreement
We also
entered into a trustee designation agreement with REIG and IRSA, pursuant to
which we appointed Eduardo S. Elsztain, Chairman and Chief Executive Officer of
IRSA, to our board of trustees as a Class II trustee upon completion of the
August 2009 registered direct offering. The trustee designation
agreement also permits IRSA to designate one of two non-voting observers to
attend any meeting of our board of trustees if Mr. Elsztain is unable to
attend. For so long as REIG beneficially owns (as determined pursuant
to Rule 13d-3 under the Exchange Act) at least 10% of our outstanding common
shares, we will recommend to our shareholders the election of Mr. Elsztain or a
qualified replacement to our board of trustees.
Registration
Rights Agreement
We are
obligated to file a shelf registration statement to register the resale by REIG
of up to 11,909,587 of our common shares, including up to 5,700,000 common
shares issuable upon the exercise of the option described above. The
registration rights agreement also grants REIG the right to participate in
certain primary underwritten offerings of our common shares, subject to
customary cutbacks and other conditions, and the right to require our
participation in underwritten offerings conducted by it. In the
registration rights agreement, we agreed to indemnify REIG and certain of its
affiliates, as well as any underwriters participating in the distribution of the
registrable shares (as defined in the registration rights agreement), against
various liabilities, including liabilities under the Securities
Act.
Exemption
from our Ownership Limitations
In
connection with the August 2009 registered direct offering, our board of
trustees exempted REIG from the ownership limitation, provided that (1) REIG
does not beneficially or constructively own (each as defined in our declaration
of trust) more than 24% of our outstanding common shares, (2) as a result of
such exemption, no individual (as defined in the Code to include certain
entities) will beneficially or constructively own more than 9.9% of our
outstanding common shares, (3) REIG does not constructively own 10% or more of
certain of our joint venture partners and (4) as a result of such exemption,
none of the “eligible independent contractors” that have been engaged by our
TRSs to operate our hotels will fail to qualify as such.
FEDERAL INCOME TAX CONSEQUENCES OF OUR STATUS AS A REIT
This
section summarizes the current material federal income tax consequences to our
Company and to our shareholders generally resulting from the treatment of our
Company as a REIT that you, as a holder of our securities, may consider
relevant. Because this section is a summary, it does not address all
of the potential tax issues that may be relevant to you in light of your
particular circumstances. In addition, this section does not address
the tax issues that may be relevant to certain types of holders of our
securities that are subject to special treatment under the federal income tax
laws, such as:
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tax-exempt
organizations (except to the limited extent discussed in “—Taxation of
Tax-Exempt Shareholders” below);
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financial
institutions or broker-dealers;
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non-U.S.
individuals and foreign corporations (except to the limited extent
discussed in “—Taxation of Non-U.S. Shareholders”
below);
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persons
who mark-to-market our common
shares;
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subchapter
S corporations;
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U.S.
shareholders (as defined below) whose functional currency is not the U.S.
dollar;
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regulated
investment companies and REITs;
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holders
who receive our common shares through the exercise of employee stock
options or otherwise as
compensation;
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persons
holding our common shares as part of a “straddle,” “hedge,” “conversion
transaction,” “synthetic security” or other integrated
investment;
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persons
subject to the alternative minimum tax provisions of the
Code;
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persons
holding our common shares through a partnership or similar pass-through
entity; and
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persons
holding a 10% or more (by vote or value) beneficial interest in our
capital shares.
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This
summary assumes that shareholders hold shares as capital assets for federal
income tax purposes, which generally means property held for
investment.
The
statements in this section and the opinion of Hunton & Williams LLP,
described below, are based on the current federal income tax laws governing
qualification as a REIT. We cannot assure you that new laws,
interpretations of law or court decisions, any of which may take effect
retroactively, will not cause any statement in this section to be
inaccurate.
We
urge you to consult your own tax advisor regarding the specific tax consequences
to you of investing in our shares of beneficial interest and of our election to
be taxed as a REIT. Specifically, you should consult your own tax
advisor regarding the federal, state, local, foreign and other tax consequences
of such investment and election, and regarding potential changes in applicable
tax laws.
Taxation
of Our Company
We
elected to be taxed as a REIT under the federal income tax laws beginning with
our taxable year ended December 31, 1999. We believe that we have
operated in a manner qualifying us as a REIT since our election and intend to
continue to so operate. This section discusses the laws governing the
federal income tax treatment of a REIT and its shareholders. These
laws are highly technical and complex.
In the
opinion of Hunton & Williams LLP, we qualified to be taxed as a REIT under
the federal income tax laws for our taxable years ended December 31, 2006
through December 31, 2008, and our organization and current and proposed method
of operation will enable us to continue to qualify as a REIT for our taxable
year ending December 31, 2009 and in the future. You should be aware
that Hunton & Williams LLP’s opinion is based on existing federal income tax
law governing qualification as a REIT, which is subject to change, possibly on a
retroactive basis, is not binding on the Internal Revenue Service, or IRS, or
any court, and speaks of the date issued. In addition, Hunton &
Williams LLP’s opinion is based on customary assumptions and is conditioned upon
certain representations made by us as to factual matters, including
representations regarding the nature of our assets and the future conduct of our
business, all of which are described in the opinion. Moreover, our
continued qualification and taxation as a REIT depends on our ability to meet,
on a continuing basis, through actual operating results, certain qualification
tests in the federal income tax laws. Those qualification tests
involve the percentage of our income that we earn from specified sources, the
percentages of our assets that fall within specified categories, the diversity
of our share ownership and the percentage of our earnings that we
distribute. While Hunton & Williams LLP has reviewed those
matters in connection with the foregoing opinion, Hunton & Williams LLP will
not review our compliance with those tests on a continuing
basis. Accordingly, no assurance can be given that the actual results
of our operations for any particular taxable year will satisfy such
requirements. 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 shareholders. The benefit of
that tax treatment is that it avoids the “double taxation,” or taxation at both
the corporate and shareholder levels, that generally results from owning shares
in a corporation. However, we will be subject to federal tax in the
following circumstances:
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We
will pay federal income tax on any taxable income, including undistributed
net capital gain, that we do not distribute to shareholders during, or
within a specified time period after, the calendar year in which the
income is earned.
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We
may be subject to the “alternative minimum tax” on any items of tax
preference including any deductions of net operating
losses.
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We
will pay income tax at the highest corporate rate
on:
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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
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other
non-qualifying income from foreclosure
property.
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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.
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If
we fail to satisfy one or both of 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 the gross income attributable to
the greater of the amount by which we fail the 75% gross income test or
the 95% gross income test, multiplied, in either case, by a fraction
intended to reflect our
profitability.
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If
we fail to distribute during a calendar year at least the sum of (1) 85%
of our REIT ordinary income for the year, (2) 95% of our REIT capital gain
net income for the year, and (3) any undistributed taxable income required
to be distributed from earlier periods, we will pay a 4% nondeductible
excise tax on the excess of the required distribution over the amount we
actually distributed.
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We
may elect to retain and pay income tax on our net long-term capital
gain. In that case, a U.S. shareholder would be taxed on its
proportionate share of our undistributed long-term capital gain (to the
extent that we made a timely designation of such gain to the shareholders)
and would receive a credit or refund for its proportionate share of the
tax we paid.
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We
will be subject to a 100% excise tax on transactions with a TRS that are
not conducted on an arm’s-length
basis.
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In
the event of a failure of any of the asset tests other than a de minimis
failure of the 5% asset test or the 10% vote or value test, as described
below under “—Asset Tests,” as long as the failure was due to reasonable
cause and not to willful neglect, we file a description of each asset that
caused such failure with the IRS, and we dispose of the assets or
otherwise comply with the asset tests within six months after the last day
of the quarter in which we identify such failure, we will pay a tax equal
to the greater of $50,000 or 35% of the net income from the nonqualifying
assets during the period in which we failed to satisfy the asset
tests.
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In
the event we fail to satisfy one or more requirements for REIT
qualification, other than the gross income tests and the asset tests, and
such failure is due to reasonable cause and not willful neglect, we will
be required to pay a penalty of $50,000 for each such
failure.
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If
we acquire any asset from a subchapter 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 either to the C corporation’s basis in the asset
or to another asset, we will pay tax at the highest regular corporate rate
applicable if we recognize gain on the sale or disposition of the asset
during the 10-year period after we acquire the asset provided no election
is made for the transaction to be taxable on a current
basis. The amount of gain on which we will pay tax is the
lesser of:
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the
amount of gain that we recognize at the time of the sale or disposition;
and
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the
amount of gain that we would have recognized if we had sold the asset at
the time we acquired it.
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We
may be required to pay monetary penalties to the IRS in certain
circumstances, including if we fail to meet record-keeping requirements
intended to monitor our compliance with rules relating to the composition
of a REIT’s shareholders, as described below in “—Recordkeeping
Requirements.”
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The
earnings of our lower-tier entities that are subchapter C corporations,
including TRSs, are subject to federal corporate income
tax.
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In
addition, we may be subject to a variety of taxes, including payroll taxes and
state, local and foreign income, property and other taxes on our assets and
operations. We could also be subject to tax in situations and on
transactions not presently contemplated.
Requirements
for Qualification
A REIT is
a corporation, trust, or association that meets each of the following
requirements:
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1.
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It
is managed by one or more trustees or
directors.
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2.
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Its
beneficial ownership is evidenced by transferable shares, or by
transferable certificates of beneficial
interest.
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3.
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It
would be taxable as a domestic corporation, but for the REIT provisions of
the federal income tax laws.
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4.
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It
is neither a financial institution nor an insurance company subject to
special provisions of the federal income tax
laws.
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5.
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At
least 100 persons are beneficial owners of its shares or ownership
certificates.
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6.
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Not
more than 50% in value of its outstanding shares or ownership certificates
is owned, directly or indirectly, by five or fewer individuals, which the
Code defines to include certain entities, during the last half of any
taxable year.
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7.
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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.
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8.
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It
meets certain other qualification tests, described below, regarding the
nature of its income and assets and the amount of its distributions to
shareholders.
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9.
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It
uses a calendar year for federal income tax purposes and complies with the
recordkeeping requirements of the federal income tax
laws.
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We must
meet requirements 1 through 4, 7, 8 and 9 during our entire 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 that 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 our shares in proportion to their actuarial interests in the trust for
purposes of requirement 6. We believe we have issued sufficient
common shares with sufficient diversity of ownership to satisfy requirements 5
and 6. In addition, our declaration of trust restricts the ownership
and transfer of our shares of beneficial interest so that we should continue to
satisfy these requirements.
A
corporation that is a “qualified REIT subsidiary” (i.e., a corporation that is
100% owned by a REIT and with respect to which no TRS election has been made) 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. Thus, in applying the requirements
described herein, any “qualified REIT subsidiary” that we own will be ignored,
and all assets, liabilities, and items of income, deduction and credit of such
subsidiary will be treated as our assets, liabilities, and items of income,
deduction and credit.
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. Thus, our proportionate share of
the assets, liabilities and items of income of our operating partnership and any
other partnership, joint venture, or limited liability company that is treated
as a partnership for federal income tax purposes in which we have acquired or
will acquire an interest, directly or indirectly (a “subsidiary partnership”),
will be treated as our assets and gross income for purposes of applying the
various REIT qualification requirements. For purposes of the 10%
value test (described in “—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.
A REIT
may own up to 100% of the shares of one or more TRSs. A TRS is a
fully taxable corporation that may earn income that would not be qualifying
income if earned directly by the parent REIT. However, 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, unless such rights are provided to an “eligible independent
contractor” to operate or manage a hotel 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. Beginning with our
2009 taxable year, 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, beginning with our 2009 taxable year, a TRS that
employs individuals working at a qualified health care property or qualified
lodging facility located outside of the United States will not be considered to
operate or manage such property or facility, 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. The subsidiary and the REIT must jointly elect to
treat the subsidiary as a TRS. Additionally, 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. We are not treated
as holding the assets of a TRS or as receiving any income that the subsidiary
earns. Rather, the stock issued by a TRS to us is an asset in our
hands, and we treat the distributions paid to us from such taxable subsidiary,
if any, as income. A TRS will pay income tax at regular corporate
rates on any income that it earns. In addition, the TRS rules limit
the deductibility of interest paid or accrued by a TRS to its parent REIT to
assure that the TRS is subject to an appropriate level of corporate
taxation. Further, the rules impose a 100% excise tax on transactions
between a TRS and its parent REIT or the REIT’s tenants that are not conducted
on an arm’s-length basis. We lease all of our hotels to
TRSs. We lease all of our wholly owned hotels to 44 New England, a
TRS owned by our operating partnership. All of our hotels owned
by joint ventures are leased (1) to joint ventures, in which we hold equity
interests through a TRS, or (2) to a TRS wholly owned or substantially owned by
the joint venture. We have formed several TRSs in connection with the
financing of certain of our hotels. Those TRSs own a 1% general
partnership interest in the partnerships that own those hotels. See
“—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:
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rents
from real property;
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interest
on debt secured by mortgages on real property, or on interests in real
property;
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dividends
or other distributions on, and gain from the sale of, shares in other
REITs;
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gain
from the sale of real estate assets;
and
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income
derived from the temporary investment of new capital that is attributable
to the issuance of our shares 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.
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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 interest and dividends, gain from the sale or disposition of
shares or securities, or any combination of these. Gross income from
our sale of property that we hold primarily for sale to customers in the
ordinary course of business is excluded from both the numerator and the
denominator in both income tests. In addition, commencing with our
2005 taxable year, income and gain from “hedging transactions,” as defined in
“—Hedging Transactions,” that are clearly and timely identified as such are
excluded from both the numerator and the denominator for purposes of the 95%
gross income test, but not the 75% gross income test. Income and gain
from “hedging transactions” entered into after July 30, 2008 that are clearly
and timely identified as such will also be excluded from both the numerator and
the denominator for purposes of the 75% gross income test. In
addition, certain foreign currency gains recognized after July 30, 2008 will be
excluded from gross income for purposes of one or both of the gross income
tests. See “—Foreign Currency Gain.” The following
paragraphs discuss the specific application of the gross income tests to
us.
Rents from Real
Property. Rent that we receive from our real property 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:
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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
receipts or sales.
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Second,
neither we nor a direct or indirect owner of 10% or more of our shares may
own, actually or constructively, 10% or more of a tenant from whom we
receive rent other than a TRS. If the tenant is a TRS, such TRS
may not directly or indirectly operate or manage the related
property. Instead, the property must be operated on behalf of
the TRS by a person who qualifies as an “independent contractor” and who
is, or is related to a person who is, actively engaged in the trade or
business of operating lodging facilities for any person unrelated to us
and the TRS. See “—Taxable REIT
Subsidiaries.”
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Third,
if the 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. However, if the 15% threshold is
exceeded, the rent attributable to personal property will not qualify as
rents from real property.
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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 and from whom we do not derive
revenue. 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
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 “noncustomary” 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 for the related
properties. See “—Taxable REIT
Subsidiaries.”
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Pursuant
to percentage leases, our TRS lessees lease the land, buildings, improvements,
furnishings and equipment comprising our hotels, for terms ranging from five
years to 20 years, with options to renew for terms of five years at the
expiration of the initial lease term. We lease one hotel to a joint
venture in which we own our interest through a TRS, pursuant to a lease
providing for rent based on payments under related financing, set at fixed
rates, which are not based in whole or in part on the income on profits of any
person. The percentage leases with our TRS lessees provide that the
lessees are obligated to pay (1) the greater of a minimum base rent or
percentage rent and (2) “additional charges” or other expenses, as defined in
the leases. Percentage rent is calculated by multiplying fixed
percentages by gross room revenues and gross food and beverage revenues for each
of the hotels. Both base rent and the thresholds in the percentage
rent formulas are adjusted for inflation. Base rent and percentage
rent accrue and are due monthly or quarterly.
In order
for the base rent, percentage rent, fixed rent and additional charges to
constitute “rents from real property,” the percentage and other 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 and other
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:
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the
intent of the parties;
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the
form of the agreement;
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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;
and
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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.
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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:
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the
service recipient is in physical possession of the
property;
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the
service recipient controls the
property;
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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;
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the
service provider bears the risk of substantially diminished receipts or
substantially increased expenditures if there is nonperformance under the
contract;
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the
service provider uses the property concurrently to provide significant
services to entities unrelated to the service recipient;
and
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the
total contract price substantially exceeds the rental value of the
property for the contract period.
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Since the
determination 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.
We
believe that our percentage and other leases will be treated as true leases for
federal income tax purposes. Such belief is based, in part, on the
following facts:
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we
and the lessees intend for our relationship to be that of a lessor and
lessee and such relationship is documented by lease
agreements;
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the
lessees have the right to the exclusive possession, use and quiet
enjoyment of the hotels during the term of the percentage
leases;
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the
lessees bear the cost of, and are responsible for, day-to-day maintenance
and repair of the hotels, other than the cost of maintaining underground
utilities, structural elements and capital improvements, and generally
dictate how the hotels are operated, maintained and
improved;
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the
lessees generally bear 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;
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the
lessees benefit from any savings in the cost of operating the hotels
during the term of the percentage
leases;
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the
lessees generally have indemnified us against all liabilities imposed on
us during the term of the percentage leases by reason of (1) injury to
persons or damage to property occurring at the hotels, (2) the lessees’
use, management, maintenance or repair of the hotels, (3) any
environmental liability caused by acts or grossly negligent failures to
act of the lessees, (4) taxes and assessments in respect of the hotels
that are the obligations of the lessees or (5) any breach of the
percentage leases or of any sublease of a hotel by the
lessees;
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the
lessees are obligated to pay substantial fixed rent for the period of use
of the hotels;
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the
lessees stand to incur substantial losses or reap substantial gains
depending on how successfully they operate the
hotels;
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we
cannot use the hotels concurrently to provide significant services to
entities unrelated to the lessees;
and
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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.
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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 our operating partnership and its
subsidiaries receive from the lessees 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 unless we qualify for relief, as described below under “—Failure to
Satisfy Gross Income Tests”.
As
described above, in order for the rent that we receive to constitute “rents from
real property,” several other requirements must be satisfied. One
requirement is that the percentage rent must not be 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
receipts or sales and the percentages:
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are
fixed at the time the percentage leases are entered
into;
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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
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conform
with normal business practice.
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More
generally, 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 revenue from the hotels that are established in the percentage leases,
and we have represented 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 have
represented 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 revenues, as described above.
Second,
we must not own, actually or constructively, 10% or more of the shares or the
assets or net profits of any lessee (a “related party tenant”) other than a
TRS. The constructive ownership rules generally provide that, if 10%
or more in value of our shares is owned, directly or indirectly, by or for any
person, we are considered as owning the shares owned, directly or indirectly, by
or for such person. We do not own any shares or any assets or net
profits of any lessee directly or indirectly, other than our indirect ownership
of our TRS lessees. We currently lease all of our hotels to TRS
lessees, and intend to lease any hotels we acquire in the future to a
TRS. Our declaration of trust prohibits transfers of our shares that
would cause us to own actually or constructively, 10% or more of the ownership
interests in a non-TRS lessee. Based on the foregoing, we should
never own, actually or constructively, 10% or more of any lessee other than a
TRS. Furthermore, we have represented that, with respect to other
hotel properties that we acquire in the future, we will not rent any property to
a related party tenant (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 shares, 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 shares of one or more
TRSs. A TRS is a fully taxable corporation that is permitted to lease
hotels from the related REIT as long as it does 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, unless
such rights are provided to an “eligible independent contractor” to operate or
manage a hotel 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. Beginning with our 2009 taxable year, 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, beginning with our
2009 taxable year, a TRS that employs individuals working at a qualified health
care property or qualified lodging facility located outside of the United States
will not be considered to operate or manage such property or facility, 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 will qualify as “rents from real property” as long as the property is
operated on behalf of the TRS by an “independent contractor” who is adequately
compensated, who does not, directly or through its shareholders, 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.”
We have
formed several TRSs to lease our hotels. We lease all of our wholly
owned hotels to 44 New England, a TRS owned by our operating
partnership. HHMLP, an “eligible independent contractor,” or other
management companies that qualify as eligible independent contractors, manage
those hotels. All of our hotels owned by joint ventures are leased
(1) to the joint venture, in which we hold our equity interest through a TRS, or
(2) to a TRS wholly owned or substantially owned by the joint
venture. Those hotels are operated and managed by HHMLP or other
hotel managers that qualify as “eligible independent contractors.” We
have represented that, with respect to properties that we lease to our TRSs in
the future, each such TRS will engage an “eligible independent contractor” to
manage and operate the hotels leased by such TRS.
Third,
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 rent 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 75% or 95% gross income test and thus
potentially lose our REIT status.
Fourth,
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. 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 connection with the rental of
space for occupancy only and are not considered to be provided for the tenants’
convenience. Provided that the percentage leases are respected as
true leases, we should satisfy that requirement, because we do not perform any
services other than customary ones for the lessees. In addition, we
may provide a minimal amount of “noncustomary” 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. Finally, we may own up to 100% of the shares of one or more
TRSs, which may provide noncustomary services to our tenants without tainting
our rents from the related hotels. We will not perform any services
other than customary ones for our lessees, unless such services are provided
through independent contractors or 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 the lessee of the property
to the extent that the provision of such services would jeopardize our REIT
status.
If a
portion of the rent that we receive 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
qualification. 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
either is a related party tenant or fails to qualify for the exception to the
related party tenant rule for qualifying TRSs (including as a result of a hotel
management company engaged by our TRS lessees to operate our hotels failing to
qualify as an eligible independent contractor) 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
might lose our REIT qualification because we would be unable to satisfy either
the 75% or 95% gross income test. In addition to the rent, the
lessees are required to pay certain additional charges. To the extent
that such additional charges represent either (1) reimbursements of amounts that
we are obligated to pay to third parties, such as a lessee’s proportionate share
of a property’s operational or capital expenses, 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 do not qualify as
“rents from real property,” they instead will be treated as interest that
qualifies for the 95% gross income test.
Interest. The term
“interest” 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:
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an
amount that is based on a fixed percentage or percentages of receipts or
sales; and
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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.
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If a loan
contains a provision that entitles a REIT to a percentage of the borrower’s gain
upon the sale of the real property securing the loan or a percentage of the
appreciation in the property’s value as of a specific date, income attributable
to that loan provision will be treated as gain from the sale of the property
securing the loan, which generally is qualifying income for purposes of both
gross income tests.
From time
to time, we have made mortgage loans in connection with the development of hotel
properties. Our loans are directly secured by an interest in real
property, and we believe that the income from those mortgage loans is qualifying
income for purposes of both gross income tests. We make mezzanine
loans that are not secured by a direct interest in real
property. Rather, those mezzanine loans likely are secured by
ownership interests in an entity owning real property. In Revenue
Procedure 2003-65, the IRS established a safe harbor under which loans secured
by a first priority security interest in an ownership interest in a partnership
or limited liability company owning real property will be treated by the IRS as
a real estate asset for purposes of the REIT asset tests described below, and
interest derived from those loans will be treated as qualifying income for both
the 75% and 95% gross income tests, provided several requirements are
satisfied. Although the Revenue Procedure provides a safe harbor on
which taxpayers may rely, it does not prescribe rules of substantive tax
law. Moreover, our mezzanine loans typically do not meet all of the
requirements for reliance on this safe harbor. We have made and will
make mezzanine loans in a manner that we believe will enable us to continue to
satisfy the REIT gross income and asset tests. Any loan fees that we
receive in making a loan, other than commitment fees for a mortgage loan, will
not be qualifying income for purposes of the 75% and the 95% gross income
tests.
Prohibited
Transactions. A REIT will incur a 100% tax on the net income
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. We believe that none of our assets are
held primarily for sale to customers and that a sale of any of our assets will
not be in the ordinary course of our business. Whether a REIT holds
an asset “primarily for sale to customers in the ordinary course of a trade or
business” depends, however, on the facts and circumstances in effect from time
to time, including those related to a particular asset. A safe harbor
to the characterization of the sale of property by a REIT as a prohibited
transaction and the 100% prohibited transaction tax is available if the
following requirements are met:
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the
REIT has held the property for not less than two years (or, for sales made
on or before July 30, 2008, four
years);
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the
aggregate expenditures made by the REIT, or any partner of the REIT,
during the two-year period (or, for sales made on or before July 30, 2008,
four-year period) preceding the date of the sale that are includable in
the basis of the property do not exceed 30% of the selling prince of the
property;
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either
(1) during the year in question, the REIT did not make more than seven
sales of property other than foreclosure property or sales to which
Section 1033 of the Code applies, (2) the aggregate adjusted bases of all
such properties sold by the REIT during the year did not exceed 10% of the
aggregate bases of all of the assets of the REIT at the beginning of the
year or (3) for sales made after July 30, 2008, the aggregate fair market
value of all such properties sold by the REIT during the year did not
exceed 10% of the aggregate fair market value of all of the assets of the
REIT at the beginning of the year;
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in
the case of property not acquired through foreclosure or lease
termination, the REIT has held the property for at least two years (or,
for sales made on or before July 30, 2008, four years) for the production
of rental income; and
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if
the REIT has made more than seven sales of non-foreclosure property during
the taxable year, substantially all of the marketing and development
expenditures with respect to the property were made through an independent
contractor from whom the REIT derives no
income.
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We will
attempt to comply with the terms of safe-harbor provision in the federal income
tax laws prescribing when an asset sale will not be characterized as a
prohibited transaction. We cannot assure you, however, that we can
comply with the safe-harbor provision or that we will avoid owning property that
may be characterized as property that we hold “primarily for sale to customers
in the ordinary course of a trade or business.” The 100% tax will not
apply to gains from the sale of property that is held through a TRS or other
taxable corporation, although such income will be taxed to the corporation at
regular corporate income tax rates.
Foreclosure
Property. We will be subject to tax at the maximum corporate
rate on any income from foreclosure property, which includes certain foreign
currency gains and related deductions recognized subsequent to July 30, 2008,
other than income that otherwise would be qualifying income for purposes of the
75% gross income test, less expenses directly connected with the production of
that income. However, gross income from foreclosure property will
qualify under 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:
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that
is acquired by a REIT as the result of the 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
indebtedness that such property
secured;
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for
which the related loan was acquired by the REIT at a time when the default
was not imminent or anticipated;
and
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for
which the REIT makes a proper election to treat the property as
foreclosure property.
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We have
no foreclosure property as of the date of this prospectus. Property
generally ceases to be foreclosure property at the end of the third taxable year
following the taxable year in which the REIT acquired the property, or longer if
an extension is granted by the Secretary of the Treasury. However,
this grace period terminates and foreclosure property ceases to be foreclosure
property on the first day:
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on
which a lease is entered into for the 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;
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on
which any construction takes place on the property, other than completion
of a building or any other improvement, where more than 10% of the
construction was completed before default became imminent;
or
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which
is more than 90 days after the day on which the REIT acquired the property
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.
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Hedging
Transactions. From time to time, we or our operating
partnership 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, and floors, options to purchase such
items, and futures and forward contracts. Prior to our 2005 taxable
year, any periodic income or gain from the disposition of any financial
instrument for those or similar transactions to hedge indebtedness we or our
operating partnership incurred to acquire or carry “real estate assets” was
qualifying income for purposes of the 95% gross income test, but not the 75%
gross income test. To the extent that we or our operating partnership
hedged with other types of financial instruments, or in other situations, it is
not entirely clear how the income from those transactions should have been
treated for the gross income tests. Commencing with our 2005 taxable
year, income and gain from “hedging transactions” is excluded from gross income
for purposes of the 95% gross income test, but not the 75% gross income
test. For hedging transactions entered into after July 30, 2008,
income and gain from “hedging transactions” will be excluded from gross income
for purposes of both the 75% and 95% gross income tests. A “hedging
transaction” means either (1) any transaction entered into in the normal course
of our or our operating partnership’s trade or business primarily to manage the
risk of interest rate, price changes, or currency fluctuations with respect to
borrowings made or to be made, or ordinary obligations incurred or to be
incurred, to acquire or carry real estate assets and (2) for transactions
entered into after July 30, 2008, any transaction entered into primarily to
manage the risk of currency fluctuations with respect to any item of income or
gain that would be qualifying income under the 75% or 95% gross income test (or
any property which generates such income or gain). We are required to
clearly identify any such hedging transaction before the close of the day on
which it was acquired, originated, or entered into and to satisfy other
identification requirements. We intend to structure any hedging
transactions in a manner that does not jeopardize our qualification as a
REIT.
Foreign Currency
Gain. Certain foreign currency gains recognized after July 30,
2008 will be excluded from gross income for purposes of one or both of the gross
income tests. “Real estate foreign exchange gain” will be 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” will be 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) debt
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 any certain 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.
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 that year
if we qualify for relief under certain provisions of the federal income tax
laws. Prior to our 2005 taxable year, those relief provisions
generally were available if:
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our
failure to meet such tests was due to reasonable cause and not due to
willful neglect;
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we
attached a schedule of the sources of our income to our tax return;
and
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any
incorrect information on the schedule was not due to fraud with intent to
evade tax.
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Commencing
with our 2005 taxable year, those relief provisions are available
if:
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our
failure to meet those tests is due to reasonable cause and not to willful
neglect; and
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following
such failure for any taxable year, we file a schedule of the sources of
our income with the IRS.
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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 amount by which we fail the 75%
gross income test or the 95% gross income test multiplied, in each case, 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 end of each quarter of each taxable year. First, at
least 75% of the value of our total assets must consist of:
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cash
or cash items, including certain
receivables;
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interests
in real property, including leaseholds and options to acquire real
property and leaseholds;
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interests
in mortgages on real property;
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shares
in other REITs; and
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investments
in shares or debt instruments during the one-year period following our
receipt of new capital that we raise through equity offerings or public
offerings of debt with at least a five-year
term.
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Second,
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 (the “5% asset test”).
Third, 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 or value test”).
Fourth,
no more than 25% of the value of our total assets (or, prior to our 2009 taxable
year, 20% of the value of our total assets) may consist of the securities of one
or more TRSs.
Fifth, no
more than 25% of the value of our total assets may consist of the securities of
TRSs and other non-TRS taxable subsidiaries and other assets that are not
qualifying assets for purposes of the 75% asset test.
For
purposes of the 5% asset test and the 10% vote or value test, the term
“securities” does not include shares in another REIT, equity or debt securities
of a qualified REIT subsidiary or TRS, mortgage loans that constitute real
estate assets, or equity interests in a partnership. The term
“securities,” however, generally includes debt securities issued by a
partnership or another REIT, except that for purposes of the 10% value test, the
term “securities” does not include:
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“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 shares, 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 TRS in which we own more than 50% of the
voting power or value of the shares 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:
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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
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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.
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Any
loan to an individual or an estate.
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Any
“section 467 rental agreement,” other than an agreement with a related
party tenant.
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Any
obligation to pay “rents from real
property.”
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Certain
securities issued by governmental
entities.
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Any
security issued by a REIT.
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Any
debt instrument issued by an entity treated as a partnership for federal
income tax purposes in which we are a partner to the extent of our
proportionate interest in the equity and debt securities of the
partnership.
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Any
debt instrument issued by 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.”
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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
believe that our existing hotels and mortgage loans are qualifying assets for
purposes of the 75% asset test. We also believe that any additional
real property that we acquire and temporary investments that we make generally
will be qualifying assets for purposes of the 75% asset test. As
described above under “—Income Tests,” Revenue Procedure 2003-65 provides a safe
harbor pursuant to which certain mezzanine loans secured by a first priority
security interest in ownership interests in a partnership or limited liability
company will be treated as qualifying assets for purposes of the 75% asset test,
the 5% asset test, and the 10% vote or value test. Although our
mezzanine loans typically do not qualify for that safe harbor, we believe our
mezzanine loans should either be treated as qualifying assets for the 75% asset
test or be excluded from the definition of “securities” for purposes of the 10%
value test. We will continue to make mezzanine loans and non-mortgage
loans only to the extent such loans will not cause us to fail the asset tests
described above.
We intend
to continue monitoring the status of our assets for purposes of the various
asset tests and will manage our portfolio in order to comply at all times with
such tests. If we fail to satisfy the asset tests at the end of a
calendar quarter, we will not lose our REIT qualification if:
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we
satisfied the asset tests at the end of the preceding calendar quarter;
and
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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.
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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 at the
end of any calendar quarter commencing with our 2005 taxable year, we violate
the 5% asset test or the 10% vote or value test described above, we will not
lose our REIT qualification if (1) the failure is de minimis (up to the lesser
of 1% of our assets or $10 million) and (2) we dispose of assets or otherwise
comply with the asset tests within six months after the last day of the quarter
in which we identify such failure. In the event of a failure of any
of the asset tests (other than de minimis failures described in the preceding
sentence), as long as the failure was due to reasonable cause and not to willful
neglect, we will not lose our REIT status if we (1) dispose of assets or
otherwise comply with the asset tests within six months after the last day of
the quarter in which we identify the failure, (2) we file a description of each
asset causing the failure with the IRS, and (3) pay a tax equal to the greater
of $50,000 or 35% 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 shareholders in an
aggregate amount at least equal to:
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90%
of our “REIT taxable income,” computed without regard to the dividends
paid deduction and our net capital gain or loss,
and
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90%
of our after-tax net income, if any, from foreclosure property,
minus
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the
sum of certain items of non-cash
income.
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Generally,
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 the year and pay the distribution on or before
the first regular dividend payment date after such declaration.
We will
pay federal income tax on taxable income, including net capital gain, that we do
not distribute to shareholders. Furthermore, if we fail to distribute
during a calendar year, or by the end of January following the 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:
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85%
of our REIT ordinary income for such
year,
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95%
of our REIT capital gain income for such year,
and
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any
undistributed taxable income from prior
periods,
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we will
incur a 4% nondeductible excise tax on the excess of such required distribution
over the amounts we actually distribute. We may elect to retain and
pay income tax on the net long-term capital gain we receive in a taxable
year. If we so elect, we will be treated as having distributed any
such retained amount for purposes of the 4% nondeductible excise tax described
above. We have made, and we intend to continue to make, timely
distributions sufficient to satisfy the annual distribution requirements and to
avoid corporate income tax and the 4% nondeductible excise tax.
It is
possible that, from time to time, we may experience timing differences between
the actual receipt of income and actual payment of deductible expenses and the
inclusion of that income and deduction of such expenses in arriving at our REIT
taxable income. For example, we may not deduct recognized 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. As a result of the foregoing, we may have
less cash than is necessary to distribute taxable income sufficient to avoid
corporate income tax and the excise tax imposed on certain undistributed income
or even to meet the 90% distribution requirement. In such a
situation, we may need to borrow funds or issue additional common or preferred
shares or, if possible, pay taxable dividends of our shares of beneficial
interest or debt securities.
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
shareholders 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.
Taxable
REIT Subsidiaries
As
described above, we may own up to 100% of the shares of one or more
TRSs. A TRS is a fully taxable corporation that may earn income that
would not be qualifying income if earned directly by us. A TRS may
provide services to our lessees and perform activities unrelated to our lessees,
such as third-party management, development, and other independent business
activities. However, 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, unless such rights
are provided to an “eligible independent contractor” (as described below) to
operate or manage a hotel 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. Beginning with our 2009 taxable
year, 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,
beginning with our 2009 taxable year, a TRS that employs individuals working at
a qualified health care property or qualified lodging facility located outside
of the United States will not be considered to operate or manage such property
or facility, 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.
We and
our corporate subsidiary must elect for the subsidiary to be treated as a
TRS. A corporation of which a qualifying TRS directly or indirectly
owns more than 35% of the voting power or value of the shares will automatically
be treated as a TRS. Overall, no more than 25% (or, prior to our 2009
taxable year, 20%) of the value of our assets may consist of securities of one
or more TRSs, and no more than 25% of the value of our assets may consist of the
securities of TRSs and other taxable subsidiaries and other assets that are not
qualifying assets for purposes of the 75% asset test.
Rent that
we receive from our TRSs will qualify as “rents from real property” as long as
the property is operated on behalf of the TRS by a person who qualifies as an
“independent contractor” 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” includes customary
amenities and facilities operated as part of, or associated with, the lodging
facility as long as such amenities and facilities are customary for other
properties of a comparable size and class owned by other unrelated
owners.
We lease
all of our hotels to TRSs, and all of those TRSs have engaged “eligible
independent contractors” to operate and manage those hotels. We lease
all of our wholly owned hotels to 44 New England, a TRS owned by our operating
partnership. HHMLP, which is an “eligible independent contractor,” or
other management companies that qualify as eligible independent contractors,
operate and manage those hotels. All of our hotels owned by joint
ventures are leased (1) to joint ventures, in which we hold equity interests
through a TRS, or (2) to a TRS wholly owned or substantially owned by the joint
venture and those hotels are operated and managed by HHMLP or other hotel
managers that qualify as “eligible independent contractors.” We have
formed several TRSs in connection with the financing of certain of our
hotels. Those TRSs own a 1% general partnership interest in the
partnerships that own those hotels. We may form new TRSs in the
future, and we have represented that, with respect to properties that we lease
to our TRSs in the future, each such TRS will engage an “eligible independent
contractor” to manage and operate the hotels leased by such TRS.
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 believe that all transactions between us and
each of our existing TRSs have been and will be conducted on an arm’s-length
basis.
Recordkeeping
Requirements
We must
maintain certain records in order to qualify as a REIT. In addition,
to avoid a monetary penalty, we must request on an annual basis information from
our shareholders designed to disclose the actual ownership of our outstanding
shares of beneficial interest. We have complied, and we intend to
continue to comply, with these requirements.
Failure
to Qualify
Commencing
with our 2005 taxable year, 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
fail to qualify as a REIT in any taxable year, and no relief provision applies,
we would be subject to federal income tax and any applicable alternative minimum
tax on our taxable income at regular corporate rates. In calculating
our taxable income in a year in which we fail to qualify as a REIT, we would not
be able to deduct amounts paid out to shareholders. In fact, we would
not be required to distribute any amounts to shareholders in that
year. In such event, to the extent of our current and accumulated
earnings and profits, distributions to most domestic non-corporate shareholders
would generally be taxable at capital gains tax rates (through
2010). Subject to certain limitations of the federal income tax laws,
corporate shareholders might be eligible for the dividends received
deduction. 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. Shareholders
As used
herein, the term “U.S. shareholder” means a holder of our shares of beneficial
interest that for U.S. federal income tax purposes is:
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a
citizen or resident of the United
States;
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a
corporation (including an entity treated as a corporation for 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 federal income taxation regardless of
its source; or
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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.
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If a
partnership, entity or arrangement treated as a partnership for U.S. federal
income tax purposes holds our shares, 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 partner in a
partnership holding our shares, you should consult your tax advisor regarding
the consequences of the ownership and disposition of our shares by the
partnership.
As long
as we qualify as a REIT, a taxable U.S. shareholder must generally take into
account as ordinary income distributions made out of our current or accumulated
earnings and profits that we do not designate as capital gain dividends or
retained long-term capital gain. For purposes of determining whether
a distribution is made out of our current or accumulated earnings and profits,
our earnings and profits will be allocated first to our preferred share
dividends and then to our common share dividends.
Dividends
paid to corporate U.S. shareholders will not qualify for the dividends received
deduction generally available to corporations. In addition, dividends
paid to a U.S. shareholder generally will not qualify for the 15% tax rate for
“qualified dividend income.” The maximum tax rate for qualified
dividend income received by non-corporate taxpayers is 15% through
2010. Qualified dividend income generally includes dividends paid to
U.S. shareholders taxed at individual rates by domestic subchapter C
corporations and certain qualified foreign corporations. Because we
are not generally subject to federal income tax on the portion of our net
taxable income distributed to our shareholders (see “—Taxation of Our Company”),
our dividends generally will not be eligible for the 15% rate on qualified
dividend income. As a result, our ordinary dividends will continue to
be taxed at the higher tax rate applicable to ordinary income, which currently
is a maximum rate of 35%. However, the 15% tax rate for qualified
dividend income will apply to our ordinary dividends to the extent attributable
(i) to dividends received by us from non-REIT corporations, such as a TRS, and
(ii) to income upon which we have paid corporate 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 shareholder
must hold our shares for more than 60 days during the 121-day period beginning
on the date that is 60 days before the date on which our common shares become
ex-dividend.
A U.S.
shareholder generally will take into account as long-term capital gain any
distributions that we designate as capital gain dividends without regard to the
period for which the U.S. shareholder has held our shares. We
generally will designate our capital gain dividends as either 15% or 25% rate
distributions. See “—Capital Gains and Losses.” A
corporate U.S. shareholder, however, may be required to treat up to 20% of
certain capital gain dividends as ordinary income.
We may
elect to retain and pay income tax on the net long-term capital gain that we
receive in a taxable year. In that case, to the extent that we
designate such amount in a timely notice to such shareholder, a U.S. shareholder
would be taxed on its proportionate share of our undistributed long-term capital
gain. The U.S. shareholder would receive a credit for its
proportionate share of the tax we paid. The U.S. shareholder 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.
shareholder to the extent that it does not exceed the adjusted tax basis of the
U.S. shareholder’s shares. Instead, such distribution will reduce the
adjusted tax basis of such shares. To the extent that we make a
distribution in excess of both our current and accumulated earnings and profits
and the U.S. shareholder’s adjusted tax basis in its shares, such shareholder
will recognize long-term capital gain, or short-term capital gain if the shares
have been held for one year or less, assuming the shares are capital assets in
the hands of the U.S. shareholder. In addition, if we declare a
distribution in October, November, or December of any year that is payable to a
U.S. shareholder of record on a specified date in any such month, such
distribution shall be treated as both paid by us and received by the U.S.
shareholder on December 31 of such year, provided that we actually pay the
distribution during January of the following calendar year.
Shareholders
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. Taxable distributions
from us and gain from the disposition of our shares will not be treated as
passive activity income, and therefore, shareholders generally will not be able
to apply any “passive activity losses,” such as losses from certain types of
limited partnerships in which the shareholder is a limited partner to offset the
income they derive from our shares. In addition, taxable
distributions from us and gain from the disposition of our shares generally may
be treated as investment income for purposes of the investment interest
limitations (although any capital gains so treated will not qualify for the
lower 15% tax rate applicable to capital gains of most domestic non-corporate
investors). We will notify shareholders 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.
Taxation
of U.S. Shareholders on the Disposition of our Shares
In
general, a U.S. shareholder who is not a dealer in securities must treat any
gain or loss realized upon a taxable disposition of our shares as long-term
capital gain or loss if the U.S. shareholder has held the shares for more than
one year and otherwise as short-term capital gain or loss. In
general, a U.S. shareholder 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. shareholder’s adjusted
tax basis. A U.S. shareholder’s adjusted tax basis generally will
equal the U.S. shareholder’s acquisition cost, increased by the excess of net
capital gains deemed distributed to the U.S. shareholder less tax deemed paid by
it and reduced by any returns of capital. However, a U.S. shareholder
must treat any loss upon a sale or exchange of shares held by such shareholder
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. shareholder previously has
characterized as long-term capital gain. All or a portion of any loss
that a U.S. shareholder realizes upon a taxable disposition of shares may be
disallowed if the U.S. shareholder purchases other shares within 30 days before
or after the disposition.
Taxation
of U.S. Shareholders on a Redemption of Preferred Shares
A
redemption of our preferred shares will be treated under Section 302 of the Code
as a distribution that is taxable as dividend income (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 of the preferred shares (in which case the redemption will
be treated in the same manner as a sale described above in “—Taxation of U.S.
Shareholders on the Disposition of Our Shares”). The redemption will satisfy
such tests if it (i) is “substantially disproportionate” with respect to the
U.S. shareholder’s interest in our shares, (ii) results in a “complete
termination” of the U.S. shareholder’s interest in all of our classes of shares,
or (iii) is “not essentially equivalent to a dividend” with respect to the
shareholder, 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, generally must be taken into
account. Because the determination as to whether any of the three alternative
tests of Section 302(b) of the Code described above will be satisfied with
respect to any particular U.S. shareholder of the preferred shares depends upon
the facts and circumstances at the time that the determination must be made,
prospective investors are urged to consult their tax advisors to determine such
tax treatment. If a redemption of our preferred shares does not meet
any of the three tests described above, the redemption proceeds will be treated
as a distribution, as described above “—Taxation of Taxable U.S.
Shareholders.” In that case, a U.S. shareholder’s adjusted tax basis
in the redeemed preferred shares will be transferred to such U.S. shareholder’s
remaining share holdings in us. If the U.S. shareholder does not
retain any of our shares, such basis could be transferred to a related person
that holds our shares or it may be lost.
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. The highest marginal individual income tax rate is 35%
(through 2010). However, the maximum tax rate on long-term capital
gain applicable to most U.S. shareholders taxed at individual rates is 15%
through 2010. The maximum tax rate on long-term capital gain from the
sale or exchange of “Section 1250 property,” or depreciable real property, is
25%, computed on the lesser of the total amount of the gain or the accumulated
Section 1250 depreciation. 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 shareholders at a 15% or 25% rate. Thus,
the tax rate differential between capital gain and ordinary income for
non-corporate taxpayers may be significant. 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 tax on its net capital gain at ordinary corporate
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.
Taxation
of Tax-Exempt Shareholders
Tax-exempt
entities, including qualified employee pension and profit sharing trusts and
individual retirement accounts and annuities, generally are exempt from federal
income taxation. However, they are subject to taxation on their
unrelated business taxable income, or UBTI. While many investments in
real estate generate UBTI, the IRS has issued a published ruling that dividend
distributions from a REIT to an exempt employee pension trust do not constitute
UBTI, 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
shareholders generally should not constitute UBTI. However, if a
tax-exempt shareholder were to finance its acquisition of our shares with debt,
a portion of the income that it receives from us would constitute UBTI pursuant
to the “debt-financed property” rules. Furthermore, social clubs,
voluntary employee benefit associations, supplemental unemployment benefit
trusts, and qualified group legal services plans that are exempt from taxation
under special provisions of the federal income tax laws are subject to different
UBTI rules, which generally will require them to characterize distributions that
they receive from us as UBTI. Finally, in certain circumstances, a
qualified employee pension or profit sharing trust that owns more than 10% of
our shares is required to treat a percentage of the dividends that it receives
from us as UBTI. Such 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 only if:
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the
percentage of our dividends that the tax-exempt trust would be required to
treat as UBTI is at least 5%;
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we
qualify as a REIT by reason of the modification of the rule requiring that
no more than 50% of our shares be owned by five or fewer individuals that
allows the beneficiaries of the pension trust to be treated as holding our
shares in proportion to their actuarial interests in the pension trust;
and
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either
(1) one pension trust owns more than 25% of the value of our shares or (2)
a group of pension trusts individually holding more than 10% of the value
of our shares collectively owns more than 50% of the value of our
shares.
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Taxation
of Non-U.S. Shareholders
The term
“non-U.S. shareholder” means a holder of our shares that is not a U.S.
shareholder or a partnership (or entity treated as a partnership for federal
income tax purposes). The rules governing federal income taxation of
non-U.S. shareholders are complex. This section is only a summary of
such rules. WE URGE
NON-U.S. SHAREHOLDERS TO CONSULT THEIR TAX ADVISORS TO DETERMINE THE IMPACT OF
FEDERAL, STATE, LOCAL AND FOREIGN INCOME TAX LAWS ON OWNERSHIP OF OUR SHARES,
INCLUDING ANY REPORTING REQUIREMENTS.
A
non-U.S. shareholder that receives a distribution that is not attributable to
gain from our sale or exchange of a “United States real property interest” (a
“USRPI”) as defined below, and that we do not designate as a capital gain
dividend or retained capital gain will recognize ordinary income to the extent
that we pay such distribution out of our current or accumulated earnings and
profits. A withholding tax equal to 30% of the gross amount of the
distribution ordinarily will apply to such distribution unless an applicable tax
treaty reduces or eliminates the tax. However, if a distribution is
treated as effectively connected with the non-U.S. shareholder’s conduct of a
U.S. trade or business, the non-U.S. shareholder generally will be subject to
federal income tax on the distribution at graduated rates, in the same manner as
U.S. shareholders are taxed with respect to such distribution, and a non-U.S.
shareholder that is a corporation also may be subject to the 30% branch profits
tax with respect to that distribution. We plan to withhold U.S.
income tax at the rate of 30% on the gross amount of any such distribution paid
to a non-U.S. shareholder unless either:
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a
lower treaty rate applies and the non-U.S. shareholder files an IRS Form
W-8BEN evidencing eligibility for that reduced rate with us;
or
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the
non-U.S. shareholder files an IRS Form W-8ECI with us claiming that the
distribution is effectively connected
income.
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A
non-U.S. shareholder 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
shares. Instead, the excess portion of such distribution will reduce
the adjusted basis of such shares. A non-U.S. shareholder will be
subject to tax on a distribution that exceeds both our current and accumulated
earnings and profits and the adjusted basis of its shares, if the non-U.S.
shareholder otherwise would be subject to tax on gain from the sale or
disposition of its shares, as described below. Because we generally
cannot determine at the time we make a distribution whether the distribution
will exceed our current and accumulated earnings and profits, we normally will
withhold tax on the entire amount of any distribution at the same rate as we
would withhold on a dividend. However, a non-U.S. shareholder may
claim a refund of amounts that we withhold if we later determine that a
distribution in fact exceeded our current and accumulated earnings and
profits.
We may be
required to withhold 10% of any distribution that exceeds our current and
accumulated earnings and profits. Consequently, although we intend to
withhold at a rate of 30% on the entire amount of any distribution, to the
extent that we do not do so, we may withhold at a rate of 10% 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. shareholder will incur tax on
distributions that are attributable to gain from our sale or exchange of a USRPI
under the Foreign Investment in Real Property Act of 1980
(“FIRPTA”). A USRPI includes certain interests in real property and
stock in corporations at least 50% of whose assets consist of interests in real
property. Under FIRPTA, a non-U.S. shareholder is taxed on
distributions attributable to gain from sales of USRPIs as if such gain were
effectively connected with a U.S. business of the non-U.S.
shareholder. A non-U.S. shareholder thus would be taxed on such a
distribution at the normal capital gains rates applicable to U.S. shareholders,
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 shareholder not entitled to treaty relief or exemption also may be
subject to the 30% branch profits tax on such a distribution. We must
withhold 35% of any distribution that we could designate as a capital gain
dividend. A non-U.S. shareholder may receive a credit against its tax
liability for the amount we withhold.
Capital
gain distributions to the holders of shares that are attributable to our sale of
real property will be treated as ordinary dividends rather than as gain from the
sale of a USRPI, as long as (1) our shares continue to be treated as being
“regularly traded” on an established securities market in the United States, and
(2) the non-U.S. shareholder did not own more than 5% of the applicable class of
our shares at any time during the one-year period preceding the
distribution. As a result, non-U.S. shareholders owning 5% or less of
the applicable class of our shares 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. If our shares cease to be
regularly traded on an established securities market in the United States or the
non-U.S. shareholder owned more than 5% of the applicable class of our shares at
any time during the one-year period preceding the distribution, capital gain
distributions that are attributable to our sale of real property would be
subject to tax under FIRPTA, as described in the preceding
paragraph. Moreover, if a non-U.S. shareholder disposes of our common
shares during the 30-day period preceding the ex-dividend date of a dividend,
and such non-U.S. shareholder (or a person related to such non-U.S. shareholder)
acquires or enters into a contract or option to acquire our shares within 61
days of the 1st day of the 30-day period described above, and any portion of
such dividend payment would, but for the disposition, be treated as a USRPI
capital gain to such non-U.S. shareholder, then such non-U.S. shareholder shall
be treated as having USRPI capital gain in an amount that, but for the
disposition, would have been treated as USRPI capital gain.
A
non-U.S. shareholder generally will not incur tax under FIRPTA with respect to
gain realized upon a disposition of our shares as long as at all times non-U.S.
persons hold, directly or indirectly, less than 50% in value of our
shares. We cannot assure you that that test will be
met. However, a non-U.S. shareholder that owned, actually or
constructively, 5% or less of the applicable class of our shares at all times
during a specified testing period will not incur tax under FIRPTA if the
applicable class of our shares is “regularly traded” on an established
securities market. Because our shares are regularly traded on an
established securities market, we expect that a non-U.S. shareholder will not
incur tax under FIRPTA with respect to any such gain unless it owns, actually or
constructively, more than 5% of the applicable class of our
shares. If the gain on the sale of the shares were taxed under
FIRPTA, a non-U.S. shareholder would be taxed in the same manner as U.S.
shareholders with respect to such gain, subject to applicable alternative
minimum tax or, a special alternative minimum tax in the case of nonresident
alien individuals. Dispositions subject to FIRPTA may also be subject
to a 30% branch profits tax when received by a non-U.S. shareholder that is a
corporation. Furthermore, a non-U.S. shareholder will incur tax on
gain not subject to FIRPTA if (1) the gain is effectively connected with the
non-U.S. shareholder’s U.S. trade or business, in which case the non-U.S.
shareholder will be subject to the same treatment as U.S. shareholders with
respect to such gain, or (2) the non-U.S. shareholder is a nonresident alien
individual who was present in the United States for 183 days or more during the
taxable year and has a “tax home” in the United States, in which case the
non-U.S. shareholder will incur a 30% tax on his capital gains.
Information
Reporting Requirements and Backup Withholding
We will
report to our shareholders 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 shareholder may be subject
to backup withholding at a rate of 28% with respect to distributions unless the
holder:
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is
a corporation or qualifies for certain other exempt categories and, when
required, demonstrates this fact;
or
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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
shareholder 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 shareholder’s
income tax liability. In addition, we may be required to withhold a
portion of capital gain distributions to any shareholders who fail to certify
their non-foreign status to us.
Backup
withholding will generally not apply to payments of dividends made by us or our
paying agents, in their capacities as such, to a non-U.S. shareholder provided
that the non-U.S. shareholder furnishes to us or our paying agent the required
certification as to its non-U.S. status, such as providing a valid IRS Form
W-8BEN or W-8ECI, or certain other requirements are
met. Notwithstanding the foregoing, backup withholding may apply if
either we or our paying agent has actual knowledge, or reason to know, that the
holder is a U.S. person that is not an exempt recipient. Payments of
the proceeds from a disposition or a redemption effected outside the U.S. by a
non-U.S. shareholder made by or through a foreign office of a broker generally
will not be subject to information reporting or backup
withholding. However, information reporting (but not backup
withholding) generally will apply to such a payment if the broker has certain
connections with the U.S. unless the broker has documentary evidence in its
records that the beneficial owner is a non-U.S. shareholder and specified
conditions are met or an exemption is otherwise established. Payment
of the proceeds from a disposition by a non-U.S. shareholder of shares made by
or through the U.S. office of a broker is generally subject to information
reporting and backup withholding unless the non-U.S. shareholder certifies under
penalties of perjury that it is not a U.S. person and satisfies certain other
requirements, or otherwise establishes an exemption from information reporting
and backup withholding.
Backup
withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the shareholder’s
federal income tax liability if certain required information is furnished to the
IRS. Shareholders should consult their own tax advisors regarding
application of backup withholding to them and the availability of, and procedure
for obtaining an exemption from, backup withholding.
Tax
Aspects of Our Investments in Our Operating Partnership and the Subsidiary
Partnerships
The
following discussion summarizes certain federal income tax considerations
applicable to our direct or indirect investments in our operating partnership
and any subsidiary partnerships or limited liability companies that we form or
acquire (each individually a “Partnership” and, collectively, 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 taxable as a
corporation. An unincorporated entity 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:
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is
treated as a partnership under the Treasury regulations relating to entity
classification (the “check-the-box regulations”);
and
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is
not a “publicly traded”
partnership.
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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 (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. Each Partnership intends to
be classified as a partnership 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, for each
taxable year beginning after December 31, 1987 in which it was classified as a
publicly traded partnership, 90% or more of the partnership’s gross income for
such year consists of certain passive-type income, including real property
rents, gains from the sale or other disposition of real property, interest, and
dividends (the “90% passive income exception”). Treasury 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 of 1933, as amended,
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 a subchapter 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. Each Partnership qualifies for the private placement
exclusion. Additionally, if our operating partnership were a publicly
traded partnership, we believe that our operating partnership would have
sufficient qualifying income to satisfy the 90% passive income exception and
thus would continue to be taxed as a partnership for federal income tax
purposes. We have not requested, and do not intend to request, a
ruling from the IRS that the Partnerships will be classified as partnerships for
federal income tax purposes.
If for
any reason a Partnership were taxable as a corporation, rather than as a
partnership, for federal income tax purposes, we likely would not be able to
qualify as a REIT unless we qualified for certain relief
provisions. See “Requirements for Qualification–Income Tests” and
“Requirements for Qualification–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 “Requirements for Qualification–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 shareholders 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 constitute dividends that would
not be deductible in computing such Partnership’s taxable income.
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.
Partnership
Allocations. Although a partnership agreement generally will
determine the allocation of income and losses among partners, such allocations
will be disregarded for 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, gain, and loss are intended to comply with the requirements of
the federal income tax laws governing partnership allocations.
Tax Allocations With Respect to
Contributed 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 amount of such
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”). Such 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. 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.
Under our
operating partnership’s partnership agreement, depreciation or amortization
deductions of our operating partnership generally 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. In addition, gain or loss on the sale of a property that
has been contributed, in whole or in part, to our operating partnership will be
specially allocated to the contributing partners to the extent of any built-in
gain or loss with respect to such property for federal income tax
purposes.
Basis in Partnership
Interest. Our adjusted tax basis in our partnership interest
in our operating partnership generally is equal to:
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the
amount of cash and the basis of any other property contributed by us to
our operating partnership;
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increased
by our allocable share of our operating partnership’s income and our
allocable share of indebtedness of our operating partnership;
and
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reduced,
but not below zero, by our allocable share of our operating partnership’s
loss and the amount of cash distributed to us, and by constructive
distributions resulting from a reduction in our share of indebtedness of
our operating partnership.
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If the
allocation of our distributive share of our operating partnership’s loss would
reduce the adjusted tax basis of our partnership interest 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 our operating partnership’s distributions, or any decrease in our
share of the indebtedness of our operating 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 acquired 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 depreciates such depreciable hotel property for federal income tax
purposes under the modified accelerated cost recovery system of depreciation
(“MACRS”). Under MACRS, our operating partnership generally
depreciates furnishings and equipment over a seven-year recovery period using a
200% declining balance method and a half-year convention. If,
however, our operating partnership places more than 40% of its furnishings and
equipment in service during the last three months of a taxable year, a
mid-quarter depreciation convention must be used for the furnishings and
equipment placed in service during that year. A first-year “bonus”
depreciation deduction equal to 50% of the adjusted basis of qualified property
is available for qualified property that is acquired after December 31, 2007 and
before January 1, 2010, and that is placed in service before January 1,
2010. “Qualified property” includes qualified leasehold improvement
property (as defined below) and property with a recovery period of less than 20
years such as furnishings and equipment. “Qualified leasehold
improvement property” generally includes improvements made to the interior of
nonresidential real property that are placed in service more than three years
after the date the building was placed in service. In addition,
certain qualified leasehold improvement property placed in service before
January 1, 2006 will be depreciated over a 15-year recovery period using a
straight method and a half-year convention. Under MACRS, our
operating partnership generally depreciates buildings and improvements over a
39-year recovery period using a straight line method and a mid-month
convention. 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 depreciates 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 are 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.
Sale
of a Partnership’s Property
Generally,
any gain realized by a Partnership on the sale of property held by the
Partnership 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 of
the Partnership 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 “—Income Tests.” We do not presently intend,
however, 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.
State
and Local Taxes
We and/or
you may be subject to taxation by various states and localities, including those
in which we or a shareholder transacts business, owns property or
resides. The state and local tax treatment may differ from the
federal income tax treatment described above. Consequently, you
should consult your own tax advisors regarding the effect of state and local tax
laws upon an investment in our shares.
We may
sell the securities being offered hereby in one or more of the following ways
from time to time:
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through
agents to the public or to
investors;
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to
underwriters or dealers for resale to the public or to
investors;
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through
a combination of any of these methods of sale;
or
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in
any manner, as provided in the applicable prospectus
supplement.
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We may
also effect a distribution of the securities offered hereby through the issuance
of derivative securities, including without limitation, warrants, forward
delivery contracts and the writing of options. In addition, the manner in which
we may sell some or all of the securities covered by this prospectus includes,
without limitation, through:
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a
block trade in which a broker-dealer will attempt to sell as agent, but
may position or resell a portion of the block, as principal, in order to
facilitate the transaction;
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purchases
by a broker-dealer, as principal, and resale by the broker-dealer for its
account;
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ordinary
brokerage transactions and transactions in which a broker solicits
purchasers; or
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privately
negotiated transactions.
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We may
also enter into hedging transactions. For example, we may:
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enter
into transactions with a broker-dealer or affiliate thereof in connection
with which such broker-dealer or affiliate will engage in short sales of
securities offered pursuant to this prospectus, in which case such
broker-dealer or affiliate may use securities issued pursuant to this
prospectus close out its short
positions;
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sell
securities short and redeliver such shares to close out our short
positions;
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enter
into option or other types of transactions that require us to deliver
securities to a broker-dealer or an affiliate thereof, who will then
resell or transfer securities under this prospectus;
or
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loan
or pledge securities to a broker-dealer or an affiliate thereof, who may
sell the loaned securities or, in an event of default in the case of a
pledge, sell the pledged securities pursuant to this
prospectus.
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We will
set forth in a prospectus supplement the terms of the offering of securities,
including:
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the
name or names of any agents or
underwriters;
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the
purchase price of the securities being offered and the proceeds we will
receive from the sale;
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the
terms of the securities offered;
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any
over-allotment options under which underwriters or agents may purchase or
place additional securities;
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any
agency fees or underwriting discounts and other items constituting agents’
or underwriters’ compensation;
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any
public offering price;
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any
discounts or concessions allowed or reallowed or paid to dealers;
and
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any
securities exchanges on which such securities may be
listed.
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Agents
We may
designate agents who agree to use their reasonable efforts to solicit purchases
for the period of their appointment or to sell the securities being offered
hereby on a continuing basis, unless otherwise provided in a prospectus
supplement.
We may
from time to time engage a broker-dealer to act as our offering agent for one or
more offerings of our securities. If we reach agreement with an offering agent
with respect to a specific offering, including the number of securities and any
minimum price below which sales may not be made, then the offering agent will
try to sell such common shares on the agreed terms. The offering agent could
make sales in privately negotiated transactions and/or any other method
permitted by law, including sales deemed to be an “at-the-market” offering as
defined in Rule 415 promulgated under the Securities Act, including sales made
directly on the NYSE, or sales made to or through a market maker other than on
an exchange. The offering agent will be deemed to be an “underwriter” within the
meaning of the Securities Act, with respect to any sales effected through an
“at-the-market” offering.
Underwriters
If we use
underwriters for a sale of securities, the underwriters will acquire the
securities, and may resell the securities in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying prices
determined at the time of sale. The obligations of the underwriters to purchase
the securities will be subject to the conditions set forth in the applicable
underwriting agreement. We may change from time to time any public offering
price and any discounts or concessions the underwriters allow or reallow or pay
to dealers. We may use underwriters with whom we have a material relationship.
We will describe in the prospectus supplement naming the underwriter the nature
of any such relationship.
Institutional
Purchasers
We may
authorize underwriters, dealers or agents to solicit certain institutional
investors, approved by us, to purchase our securities on a delayed delivery
basis or pursuant to delayed delivery contracts provided for payment and
delivery on a specified future date. These institutions may include
commercial and savings banks, insurance companies, pension funds, investment
companies and educational and charitable institutions. We will
describe in the prospectus supplement details of any such arrangement, including
the offering price and applicable sales commissions payable on such
solicitations.
Direct
Sales
We may
also sell securities directly to one or more purchasers without using
underwriters or agents. Underwriters, dealers and agents that participate in the
distribution of the securities may be underwriters as defined in the Securities
Act and any discounts or commissions they receive from us and any profit on
their resale of the securities may be treated as underwriting discounts and
commissions under the Securities Act. We will identify in the applicable
prospectus supplement any underwriters, dealers or agents and will describe
their compensation. We may have agreements with the underwriters, dealers and
agents to indemnify them against specified civil liabilities, including
liabilities under the Securities Act. Underwriters, dealers and agents may
engage in transactions with or perform services for us in the ordinary course of
their businesses from time to time.
Trading
Markets and Listing of Securities
Unless
otherwise specified in the applicable prospectus supplement, each class or
series of securities will be a new issue with no established trading market,
other than our common shares or our Series A preferred shares, each of which is
listed on the NYSE. We may elect to list any other class or series of securities
on any exchange, but we are not obligated to do so. It is possible that one or
more underwriters may make a market in a class or series of securities, but the
underwriters will not be obligated to do so and may discontinue any market
making at any time without notice. We cannot give any assurance as to the
liquidity of the trading market for any of the securities.
Stabilization
Activities
In
accordance with Regulation M under the Exchange Act, underwriters may engage in
over-allotment, stabilizing or short covering transactions or penalty bids in
connection with an offering of our securities. Over-allotment transactions
involve sales in excess of the offering size, which create a short position.
Stabilizing transactions permit bids to purchase the underlying security so long
as the stabilizing bids do not exceed a specified maximum price. Short covering
transactions involve purchases of the securities in the open market after the
distribution is completed to cover short positions. Penalty bids permit the
underwriters to reclaim a selling concession from a dealer when the securities
originally sold by the dealer are purchased in a covering transaction to cover
short positions. Those activities may cause the price of the securities to be
higher than they would otherwise be. If commenced, the underwriters may
discontinue any of the activities at any time.
The
validity of the securities covered by this prospectus has been passed upon for
us by Hunton & Williams LLP. In addition, the summary of legal
matters contained in the section of this prospectus under the heading “Federal
Income Tax Consequences of Our Status as a REIT” is based on the opinion of
Hunton & Williams LLP.
The
consolidated financial statements and schedule of Hersha Hospitality Trust as of
December 31, 2008 and 2007 and for each of the years in the three-year
period ended December 31, 2008 and management's assessment of the
effectiveness of internal control over financial reporting as of December 31,
2008 have been incorporated by reference herein in reliance upon the report of
KPMG LLP, independent registered public accounting firm, and, with respect to
the consolidated statements of operations, of changes in members’ (deficiency)
equity and of cash flows of Mystic Partners, LLC as of December 31, 2006 have
been so incorporated in reliance on the report by PricewaterhouseCoopers
LLP, independent registered public accounting firm, given on the
authority of said firms as experts in accounting and auditing. KPMG
LLP’s report dated November 11, 2009 on the consolidated financial statements
refers to an accounting change as the result of the Company’s adoption of new
accounting standards related to noncontrolling
interests.
The
consolidated statements of operations, of changes in members’ (deficiency)
equity and of cash flows of Mystic Partners, LLC and subsidiaries for the year
ended December 31, 2006 incorporated in this prospectus by reference to the
Annual Report on Form 10-K of Hersha Hospitality Trust for the year ended
December 31, 2008 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, an independent registered public accounting firm,
given on the authority of said firm as experts in auditing and
accounting.
The SEC
allows us to “incorporate by reference” into this prospectus the information we
file with the SEC, which means that we can disclose important business,
financial and other information to you by referring you to other documents
separately filed with the SEC. All information incorporated by
reference is part of this prospectus, unless and until that information is
updated and superseded by the information contained in this prospectus or any
information incorporated later. We incorporate by reference the
documents listed below that we have filed, or will file, with the
SEC:
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our
Annual Report on Form 10-K for the year ended December 31,
2008;
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the
information specifically incorporated by reference into our Annual Report
on Form 10-K for the year ended December 31, 2008 from our definitive
proxy statement on Schedule 14A filed with the SEC on April 15,
2009;
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our
Quarterly Reports on Form 10-Q for the quarterly periods ended September
30, 2009, June 30, 2009 and March 31,
2009;
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our
Current Reports on Form 8-K filed with the SEC on January 7, 2009, May 29,
2009 (excluding the information furnished under Item 7.01), June 12, 2009,
August 6, 2009 and November 12,
2009;
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the
description of our common shares contained in our Registration Statement
on Form 8-A filed with the SEC on May 2, 2008 and any amendments or
reports filed for the purpose of updating such
description;
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the
description of our Series A preferred shares contained in our Registration
Statement on Form 8-A filed with the SEC on May 2, 2008 and any amendments
or reports filed for the purpose of updating such description;
and
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all
documents we file with the SEC pursuant to Sections 13(a), 13(c) 14 or
15(d) of the Exchange Act from the date of this prospectus prior to the
date upon which the offering of the securities covered by this prospectus
is terminated.
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You may
obtain copies of these filings (other than exhibits and schedules to such
filings, unless such exhibits or schedules are specifically incorporated by
reference into this prospectus or any applicable prospectus supplement) at no
cost, by requesting them from us by writing or telephoning us
at: Hersha Hospitality Trust, 501 Walnut Street, 9th Floor,
Philadelphia, Pennsylvania 19106, Telephone: (215) 238 1046,
Attention: Ashish R. Parikh, Chief Financial Officer.
WHERE YOU CAN OBTAIN MORE INFORMATION
We file
annual, quarterly and special reports, proxy statements and other information
with the SEC. You may read and copy any reports, statements, or other
information we file with the SEC at its public reference room in Washington,
D.C. (100 F Street, N.E., 20549). Please call the SEC at
1-800-SEC-0330 for further information on the public reference
room. Our filings are also available to the public on the internet,
through a database maintained by the SEC at http://www.sec.gov. In
addition, you can inspect and copy reports, proxy statements and other
information concerning Hersha Hospitality Trust at the offices of the New York
Stock Exchange, Inc., 86 Trinity Place, New York, New York 10006, on which our
common shares (symbol: “HT”) are listed.
We also
make available through out internet website (www.hersha.com) our annual report
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Exchange Act, as soon as reasonably practicable after such
documents are electronically filed with, or furnished to, the
SEC. The information of our website is not, and shall not be deemed
to be, a part of this report or incorporated into any other filings we make with
the SEC.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
14. Other Expenses of Issuance and Distribution.
The
following table sets forth the costs and expense, other than underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the securities being registered. All amounts are
estimates.
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Amount
to
be
Paid
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SEC
registration fee
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$ |
27,900 |
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Printing
and mailing expenses
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Legal
fees and expenses*
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50,000 |
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Accounting
fees and expenses*
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25,000 |
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Transfer
agent and custodian fees*
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― |
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Miscellaneous*
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Total*
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$ |
102,900 |
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* Estimated
Item
15. Indemnification of Officers and Directors.
Our
declaration of trust limits the liability of our trustees and officers for money
damages, except for liability resulting from:
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actual
receipt of an improper benefit or profit in money, property or services;
or
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a
final judgment based upon a finding of active and deliberate dishonesty by
the trustees or others that was material to the cause of action
adjudicated.
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Our
declaration of trust authorizes us, to the maximum extent permitted by Maryland
law, to indemnify, and to pay or reimburse reasonable expenses to, any of our
present or former trustees or officers or any individual who, while a trustee or
officer and at our request, serves or has served another entity, employee
benefit plan or any other enterprise as a trustee, director, officer, partner or
otherwise. The indemnification covers any claim or liability against
the person. Our bylaws and Maryland law require us to indemnify each
trustee 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 to us.
Maryland
law permits a Maryland real estate investment trust to indemnify its present and
former trustees and officers against liabilities and reasonable expenses
actually incurred by them in any proceeding unless:
|
|
·
|
the
act or omission of the trustee 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;
or
|
|
|
·
|
the
trustee or officer actually received an improper personal benefit in
money, property or services; or
|
|
|
·
|
in
a criminal proceeding, the trustee or officer had reasonable cause to
believe that the act or omission was
unlawful.
|
Maryland
law prohibits us from indemnifying our present and former trustees and officers
for an adverse judgment in a derivative action or for a judgment of liability on
the basis that personal benefit was improperly received, unless in either case a
court orders indemnification and then only for expenses. Our bylaws
and Maryland law require us, as a condition to advancing expenses in certain
circumstances, to obtain:
|
|
·
|
a
written affirmation by the trustee or officer of his or her good faith
belief that he or she has met the standard of conduct necessary for
indemnification; and
|
|
|
·
|
a
written undertaking to repay the amount reimbursed if the standard of
conduct is not met.
|
Item
16. Exhibits.
|
4.1
|
Amended
and Restated Declaration of Trust, as amended and supplemented (filed with
the SEC as Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q,
filed on August 7, 2009 and incorporated by reference
herein).
|
|
|
|
|
4.2
|
Bylaws
of the Registrant (filed as Exhibit 3.2 to the Registrant’s Registration
Statement on Form S-11/A filed July 30, 1998 (SEC File No. 333-56087) and
incorporated by reference herein).
|
|
|
|
|
4.3
|
Form
of common share certificate (filed as Exhibit 4.1 to the Registrant’s
Registration Statement on Form S-11/A filed July 30, 1998 (SEC File No.
333-56087) and incorporated by reference herein).
|
|
|
|
|
4.4
|
Form
of Series A preferred share certificate (filed as Exhibit 3.4 to the
Registrant’s Registration Statement on Form 8-A filed August 3, 2005 (SEC
File No. 001-14765) and incorporated by reference
herein).
|
|
|
|
|
4.5
|
Form
of depositary receipt.†
|
|
|
|
|
4.6
|
Form
of depositary agreement for depositary shares.†
|
|
|
|
|
4.7
|
Form
of warrant agreement.†
|
|
|
|
|
4.8
|
Form
of warrant certificate. †
|
|
|
|
|
4.9
|
Form
of unit certificate. †
|
|
|
|
|
5.1
|
Opinion
of Hunton & Williams LLP with respect to the legality of the
securities being registered.*
|
|
|
|
|
8.1
|
Opinion
of Hunton & Williams LLP with respect to tax
matters.*
|
|
|
|
|
12.1
|
Statement
regarding computation of ratios.*
|
|
|
|
|
23.1
|
Consent
of Hunton & Williams LLP (included in Exhibit 5.1 and Exhibit
8.1).*
|
|
23.2
|
Consent
of KPMG LLP.*
|
|
|
|
|
23.3
|
Consent
of PricewaterhouseCoopers LLP.*
|
|
|
|
|
24.1
|
Power
of Attorney (included on the signature page of this Registration
Statement).*
|
____________
|
†
|
To
be filed as an exhibit to a current report on Form 8-K which is
incorporated by reference into this registration statement subsequent to
its effectiveness.
|
Item
17. Undertakings.
(a) The
undersigned registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include
any prospectus required by Section 10(a)(3) of the Securities Act of
1933;
(ii) To reflect in
the prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the “Calculation of Registration Fee” table in the
effective registration statement; and
(iii) To include
any material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in this registration statement;
provided, however, that paragraphs (i),
(ii) and (iii) do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in reports filed with
or furnished to the Commission by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement or is contained in a form of prospectus
filed pursuant to Rule 424(b) that is part of this registration
statement.
(2) That,
for the purpose of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(4) That,
for the purpose of determining liability under the Securities Act of 1933 to any
purchaser:
(i) Each
prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to
be part of the registration statement as of the date the filed prospectus was
deemed part of and included in the registration statement; and
(ii) Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5) or (b)(7) as
part of a registration statement in reliance on Rule 430B for the purpose of
providing the information required by Section 10(a) of the Securities Act of
1933 shall be deemed to be part of and included in the registration statement as
of the earlier of the date such form of prospectus is first used after
effectiveness or the date of the first contract of sale of securities in the
offering described in the prospectus. As provided in Rule 430B, for
liability purposes of the issuer and any person that is at that date an
underwriter, such date shall be deemed to be a new effective date of the
registration statement relating to the securities in the registration statement
to which the prospectus relates, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof;
provided, however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the registration statement
or prospectus that is part of the registration statement will, as to a purchaser
with a time of contract of sale prior to such effective date, supersede or
modify any statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such document
immediately prior to such effective date.
(5) That,
for the purpose of determining liability of the registrant under the Securities
Act of 1933 to any purchaser in the initial distribution of the securities, in a
primary offering of securities of the registrant pursuant to this registration
statement, regardless of the underwriting method used to sell the securities to
the purchaser, if the securities are offered or sold to such purchaser by means
of any of the following communications, the undersigned registrant will be a
seller to the purchaser and will be considered to offer or sell such securities
to such purchaser:
(i) Any
preliminary prospectus or prospectus of the registrant relating to the offering
required to be filed pursuant to Rule 424;
(ii) Any free
writing prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the registrant;
(iii) The portion
of any other free writing prospectus relating to the offering containing
material information about an undersigned registrant or its securities provided
by or on behalf of the undersigned registrant; and
(iv) Any other
communication that is an offer in the offering made by the registrant to the
purchaser.
(b) The
registrant hereby undertakes that, for purposes of determining any liability
under the Securities Act of 1933, each filing of the registrant’s annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan’s annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(d) The
undersigned registrant hereby further undertakes that:
(1) For
purposes of determining any liability under the Securities Act of 1933 the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) under the
Securities Act of 1933 shall be deemed to be part of this registration statement
as of the time it was declared effective.
(2) For
the purpose of determining any liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of the securities at that time shall be deemed to be the initial
bona fide offering
thereof.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant certifies that
it has reasonable grounds to believe that it meets all of the requirements for
filing on Form S-3 and has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Philadelphia, Commonwealth of Pennsylvania, on November 13, 2009.
|
|
HERSHA
HOSPITALITY TRUST
|
|
|
|
|
|
|
By:
|
/s/
Jay H. Shah |
|
|
|
|
Jay
H. Shah, Chief Executive Officer
|
POWER
OF ATTORNEY
Each of
the trustees of Hersha Hospitality Trust whose signature appears below hereby
appoints Ashish R. Parikh as his true and lawful attorney-in-fact and agent to
sign in his name and behalf, in any and all capacities stated below and to file
with the Securities and Exchange Commission, any and all amendments, including
post-effective amendments to this registration statement, making such changes in
the registration statement as appropriate, filing a Rule 462(b) registration
statement and generally to do all such things in their behalf in their
capacities as trustees and/or officers to enable Hersha Hospitality Trust to
comply with the provisions of the Securities Act of 1933, as amended, and all
requirements of the Securities and Exchange Commission.
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities indicated on November
13, 2009.
|
Signature
|
|
Title
|
|
|
|
|
| /s/
Hasu
P. Shah |
|
Chairman
and Trustee
|
|
Hasu
P. Shah
|
|
|
|
|
|
|
| /s/
Jay
H. Shah |
|
Chief
Executive Officer and Trustee
|
|
Jay
H. Shah
|
|
(Principal
Executive Officer)
|
|
|
|
|
| /s/
Neil
H. Shah |
|
President
and Chief Operating Officer
|
|
Neil
H. Shah
|
|
|
|
|
|
|
| /s/
Ashish
R. Parikh |
|
Chief
Financial Officer
|
|
Ashish
R. Parikh
|
|
(Principal
Financial Officer)
|
|
|
|
|
| /s/
Michael
R. Gillespie |
|
Chief
Accounting Officer
|
|
Michael
R. Gillespie
|
|
(Principal
Accounting Officer)
|
|
|
|
|
| /s/
Kiran
P. Patel |
|
Trustee
|
|
Kiran
P. Patel
|
|
|
|
|
|
|
| /s/
John
M. Sabin |
|
Trustee
|
|
John
M. Sabin
|
|
|
|
|
|
|
| |
|
Trustee
|
|
Michael
A. Leven
|
|
|
|
|
|
|
| /s/
Thomas
S. Capello |
|
Trustee
|
|
Thomas
S. Capello
|
|
|
|
|
|
|
| /s/
Donald
J. Landry |
|
Trustee
|
|
Donald
J. Landry
|
|
|
|
|
|
|
| /s/
Thomas
J. Hutchison III |
|
Trustee
|
|
Thomas
J. Hutchison III
|
|
|
|
|
|
|
| |
|
Trustee
|
|
Eduardo
S. Elsztain
|
|
|
EXHIBIT
INDEX
|
4.1
|
Amended
and Restated Declaration of Trust, as amended and supplemented (filed with
the SEC as Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q,
filed on August 7, 2009 and incorporated by reference
herein).
|
|
|
|
|
4.2
|
Bylaws
of the Registrant (filed as Exhibit 3.2 to the Registrant’s Registration
Statement on Form S-11/A filed July 30, 1998 (SEC File No. 333-56087) and
incorporated by reference herein).
|
|
|
|
|
4.3
|
Form
of common share certificate (filed as Exhibit 4.1 to the Registrant’s
Registration Statement on Form S-11/A filed July 30, 1998 (SEC File No.
333-56087) and incorporated by reference herein).
|
|
|
|
|
4.4
|
Form
of Series A preferred share certificate (filed as Exhibit 3.4 to the
Registrant’s Registration Statement on Form 8-A filed August 3, 2005 (SEC
File No. 001-14765) and incorporated by reference
herein).
|
|
|
|
|
4.5
|
Form
of depositary receipt.†
|
|
|
|
|
4.6
|
Form
of depositary agreement for depositary shares.†
|
|
|
|
|
4.7
|
Form
of warrant agreement.†
|
|
|
|
|
4.8
|
Form
of warrant certificate. †
|
|
|
|
|
4.9
|
Form
of unit certificate. †
|
|
|
|
|
|
Opinion
of Hunton & Williams LLP with respect to the legality of the
securities being registered.*
|
|
|
|
|
|
Opinion
of Hunton & Williams LLP with respect to tax
matters.*
|
|
|
|
|
|
Statement
regarding computation of ratios.*
|
|
|
|
|
23.1
|
Consent
of Hunton & Williams LLP (included in Exhibit 5.1 and Exhibit
8.1).*
|
|
|
|
|
|
Consent
of KPMG LLP.*
|
|
|
|
|
|
Consent
of PricewaterhouseCoopers LLP.*
|
|
|
|
|
24.1
|
Power
of Attorney (included on the signature page of this Registration
Statement).*
|
_______________
|
†
|
To
be filed as an exhibit to a current report on Form 8-K which is
incorporated by reference into this registration statement subsequent to
its effectiveness.
|