| FelCor Lodging Trust Inc Item 1A Risk Factors Certain statements and analyses contained in this Annual Report on Form 10-K, in our 2006 Annual Report to Shareholders, or that may in the future be made by, or be attributable to, us, may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, and can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate” or “continue” or the negative thereof or other variations thereon or comparable terminology |
| All of such forward-looking statements are based upon present expectations and assumptions that may or may not actually occur |
| The following factors constitute cautionary statements identifying important factors, including material risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements or in our historical results |
| Each of the following factors, among others, could adversely affect our ability to meet the current expectations of management |
| Future terrorist activities and United States military involvement in the Middle East and elsewhere may result in reducing business and leisure travel, which would reduce our revenues |
| The terrorist attacks of September 11, 2001, caused a significant disruption in travel-related businesses in the United States |
| Consistent with the rest of the lodging industry, we experienced substantial declines in occupancy and ADR, due to a decline in both business and leisure travel in 2001 and the continued decline in business travel in 2002 and 2003 |
| While the lodging industry experienced the beginnings of a recovery in 2004 and strong growth in 2005, another act of terrorism in the United States, protracted or expanded United States military involvement in the War on Terrorism, heightened “Threat Levels,” contractions in the airline industry, or increased security precautions making air travel more difficult could result in decreases in travel and our revenues |
| The factors described above, as well as other political or economic events, may adversely affect the lodging industry, including us, as a result of reduced public travel |
| 10 _________________________________________________________________ [52]Table of Contents Our financial leverage is high |
| At December 31, 2005, our consolidated debt of dlra1dtta7 billion represented 52prca of our total market capitalization |
| The decline in our revenues and cash flow from operations during 2001, 2002 and 2003, have resulted in a reduction of our public debt ratings and may limit our access to additional debt capital |
| Our senior unsecured public notes currently are rated B1 by Moody’s Investors Service, and B by Standard & Poor’s, which are considered below investment grade |
| Historically, we have incurred debt for acquisitions and to fund our renovation, redevelopment and rebranding programs |
| Limitations upon our access to debt financing could adversely affect our ability to fund these activities and programs in the future |
| We had increases in RevPAR in 2004 and 2005, but if RevPAR worsens, it could result in a continuation, or worsening, of our net losses and reduce our ability to pay dividends and service our debt |
| Our financial leverage could have important consequences |
| For example, it could: • limit our ability to obtain additional financing for working capital, renovation, redevelopment and rebranding plans, acquisitions, debt service requirements and other purposes; • require us to agree to additional restrictions and limitations on our business operations and capital structure to obtain additional financing; • increase our vulnerability to adverse economic and industry conditions, as well as to fluctuations in interest rates; • require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing funds available for capital expenditures, future business opportunities, the payment of dividends or other purposes; • limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and • place us at a competitive disadvantage, compared to our competitors that have less debt |
| We may be able to incur substantial debt in the future, which could increase the risk described above |
| The covenants under our dlra125 million line of credit would have allowed us to incur an additional dlra627 million of debt at December 31, 2005 |
| Based upon our calculation of the limitations under our senior notes, described below, assuming additional debt was borrowed at a 7prca annual interest rate and invested in assets generating annual Hotel EBITDA equal to 7prca of their cost, at December 31, 2005, we could have incurred approximately dlra1dtta2 billion of additional indebtedness, all of which could have been secured indebtedness |
| We have restrictive debt covenants that could adversely affect our ability to finance our operations or engage in other business activities |
| The indentures governing our outstanding senior unsecured notes and agreements governing our line of credit contain various restrictive covenants and incurrence tests, including, among others, provisions that can restrict our ability to: • incur any additional indebtedness if, after giving effect thereto, our consolidated indebtedness would exceed 60prca of our adjusted total assets or our interest coverage ratio, as defined in the indentures, would be less than 2dtta0 to 1; • incur any additional secured indebtedness or subsidiary debt if, after giving effect thereto, our consolidated secured indebtedness and subsidiary debt exceeds 40prca of our adjusted total assets; • make common and preferred distributions; • make investments; • engage in transactions with affiliates; • incur liens; • merge or consolidate with another person; 11 _________________________________________________________________ [53]Table of Contents • dispose of all or substantially all of our assets; and • permit limitations on the ability of our subsidiaries to make payments to us |
| These restrictions may adversely affect our ability to finance our operations or engage in other business activities that may be in our best interest |
| Under the terms of the indentures governing one of our outstanding senior notes, we are prohibited from repurchasing any of our capital stock, whether common or preferred, subject to certain exceptions, so long as our debt-to-EBITDA ratio, as defined in the indenture, exceeds 4dtta85 to 1 |
| Although our current debt-to-EBITDA ratio is below that threshold, a decline in our EBITDA, or an increase in our debt could raise our ratio above the 4dtta85 to 1 threshold |
| Accordingly, we may be prohibited from purchasing any of our capital stock, except as permitted under limited exceptions, such as from the proceeds of a substantially concurrent issuance of other capital stock |
| If actual operating results were to be significantly below our current expectations, as reflected in our public guidance, or if interest rates increase significantly more than we expect, we may be unable to continue to satisfy the incurrence test under the indentures governing our senior unsecured notes |
| In such an event, we may be prohibited from incurring additional indebtedness, except to repay or refinance maturing debt with debt of similar priority in the capital structure, and may be prohibited from, among other things, paying distributions on our preferred or common stock, except to the extent necessary to satisfy the REIT qualification requirement that we distribute currently at least 90prca of our taxable income |
| In January 2006, we established a new dlra125 million unsecured line of credit |
| This line of credit has certain restrictive covenants, such as a leverage ratio, fixed charge coverage ratio, an unencumbered leverage ratio and a maximum payout ratio |
| The breach of any of these covenants and limitations under our line of credit could result in acceleration of amounts outstanding under our line of credit |
| Our failure to timely satisfy any judgment or recourse indebtedness, if in the amount of dlra10 million or more, could result in the acceleration of most of our unsecured recourse indebtedness |
| We may not be able to refinance or repay our debt in full under those circumstances |
| Future or existing relationships may result in certain of our directors and officers having interests that conflict with ours |
| Adverse tax consequences to affiliates upon a sale of certain hotels |
| Thomas J Corcoran, Jr, our Chairman of the Board of Directors, and Robert A Mathewson, a director, may incur additional tax liability if we sell our investments in six hotels that we acquired in July 1994 from partnerships in which they were investors |
| Consequently, our interests could differ from Messrs |
| Corcoran’s and Mathewson’s interests in the event that we consider a sale of any of these hotels |
| Decisions regarding a sale of any of these six hotels must be made by a majority of our independent directors |
| Conflicts of interest |
| A director who has a conflict of interest with respect to an issue presented to our board will have no legal obligation to abstain from voting upon that issue |
| We do not have provisions in our bylaws or charter that require an interested director to abstain from voting upon an issue, and we do not expect to add provisions in our charter and bylaws to this effect |
| Although each director has a duty of loyalty to us, there is a risk that, should an interested director vote upon an issue in which he or one of his affiliates has an interest, his vote may reflect a bias that could be contrary to our best interests |
| In addition, even if an interested director abstains from voting, the director’s participation in the meeting and discussion of an issue in which he has, or companies with which he is associated have, an interest could influence the votes of other directors regarding the issue |
| We are subject to the risks inherent in the hospitality industry |
| The economic slowdown that ran from 2001 through 2003 had a significant adverse effect on our RevPAR performance and results of operations |
| A sharp reduction in business travel was the primary cause of the RevPAR decline |
| The decreased occupancies led to declines in room rates, as hotels competed more aggressively for guests |
| Both of 12 _________________________________________________________________ [54]Table of Contents these factors had a significant adverse effect on our RevPAR, Hotel EBITDA margins and results of operations |
| Primarily as a result of the concentration of our hotels in certain markets, the RevPAR performance of our hotels differ from the national average |
| The following table reflects the RevPAR changes experienced by our hotels, as a group on a same-store basis, compared to all US hotels, as a group, for the past three calendar years |
| Change in RevPAR Year Ended December 31, 2005 2004 2003 All FelCor hotels +10dtta8prca +5dtta0prca –3dtta9prca All US hotels +8dtta4prca +7dtta8prca +0dtta4prca If the current economic recovery stalls, or if the lodging industry fails to benefit from the recovery for a protracted period of time, or if the markets in which we have significant concentrations should fail to participate in the continued recovery in the industry, our results of operations and financial condition could deteriorate |
| Investing in hotel assets involves special risks |
| We have invested in hotel-related assets, and our hotels are subject to all of the risks common to the hotel industry |
| These risks could adversely affect hotel occupancy and the rates that can be charged for hotel rooms, and generally include: • competition from other hotels; • construction of more hotel rooms in a particular area than needed to meet demand; • the current high cost of, and any further increases in, fuel costs and other travel expenses, inconveniences and other events that reduce business and leisure travel; • adverse effects of declines in general and local economic activity; • fluctuations in our revenue caused by the seasonal nature of the hotel industry; • an outbreak of a pandemic disease affecting the travel industry; • a downturn in the hotel industry; and • risks generally associated with the ownership of hotels and real estate, as discussed below |
| We could face increased competition |
| A number of additional hotel rooms have been, or may be, built in a number of the geographic areas in which our hotels are located, which could adversely affect both occupancy and rates in the markets in which our hotels are located |
| A significant increase in the supply of Midprice, Upscale and Upper Upscale hotel rooms and suites, if demand fails to increase at least proportionately, could have a severe adverse effect on our business, financial condition and results of operations |
| We face reduced coverages and increased costs of insurance |
| Our property insurance has a dlra100cmam000 all risk deductible, a deductible of 3prca of insured value for named windstorm coverage and a deductible of 5prca of insured value for California earthquake coverage |
| Should uninsured or not fully insured losses be substantial, they could have a material adverse impact on our operating results, cash flows and financial condition |
| Additional catastrophic losses, such as the losses caused by hurricanes Katrina, Rita and Wilma in 2005, could make the cost of insuring against these types of losses prohibitively expensive or difficult to find |
| Our terrorism insurance policies have both per occurrence and aggregate limits of dlra50 million with regard to 65 hotels |
| We have established a self-insured retention of dlra250cmam000 per occurrence for general liability insurance with regard to 71 of our hotels |
| The remainder of our hotels participate in general liability programs sponsored by our managers, with no deductible |
| We have geographic concentrations that may create risks from regional or local economic, seismic or weather conditions |
| At December 31, 2005, approximately 58prca of our hotel rooms were located in, and 53prca of our 2005 Hotel EBITDA was generated from, four states: California, Florida, Georgia and Texas |
| Additionally, at December 31, 2005, we had concentrations in four major metropolitan areas, Atlanta, the Los Angeles area, Dallas and Orlando, which together represented approximately 24prca of our Hotel EBITDA for the year ended December 31, 2005 |
| Therefore, adverse economic, seismic or weather conditions in these states or metropolitan areas will have a greater adverse effect on us than on the industry as a whole |
| 13 _________________________________________________________________ [55]Table of Contents We had 35 hotels at December 31, 2005, substantially all of which we intend to sell in 2006 and 2007 |
| If we are unable to sell these hotels at anticipated prices, we may realize additional losses upon sale |
| Even if we are successful in selling these hotels as contemplated, if we fail to reinvest the net proceeds in a manner that will generate returns equal to, or better than, the hotels sold, our results of operations will be adversely affected |
| We are subject to possible adverse effects of franchise and license agreement requirements |
| Substantially all of our hotels are operated under existing franchise or license agreements with nationally recognized hotel brands |
| Each agreement requires that the licensed hotel be maintained and operated in accordance with specific standards and restrictions in order to maintain uniformity within the franchisor system |
| Compliance with these standards, and changes in these standards, could require us to incur significant expenses or capital expenditures, which could adversely affect our results of operations and ability to pay dividends to our stockholders and service on our indebtedness |
| If a franchise or license agreement terminates due to our failure to make required improvements, we may be liable to the brand manager or franchisor for a termination payment |
| These termination payments vary by agreement and hotel, but are generally measured by a multiple of between two and 8dtta2 times the annual fees received by the franchisor or brand manager |
| The loss of a substantial number of brand licenses could have a material adverse effect on our business because of the loss of associated name recognition, marketing support and centralized reservation systems provided by the brand manager or franchisor |
| Our franchise agreements also expire or terminate, subject to certain specified renewal rights, at various times |
| As a condition of the renewal or extension of the franchise agreements, the brand owner may require the payment of substantial fees and may require substantial capital improvements to be made to the hotels for which we would be responsible |
| During the next five years, the franchise or license agreements applicable in respect of 15 of our hotels are scheduled to expire in accordance with their terms |
| We are subject to the risks of brand concentration |
| We are subject to the potential risks associated with the concentration of our hotels under a limited number of brands |
| A negative public image or other adverse event that becomes associated with the brand could adversely affect hotels operated under that brand |
| The following table reflects the percentage of Hotel EBITDA from our consolidated portfolio of 125 hotels included in continuing operations as of December 31, 2005, generated by hotels operated under each of the indicated brands during the year ended December 31, 2005: % of 2005 Hotel Hotels EBITDA Embassy Suites Hotels 54 51 % Holiday Inn-branded hotels 33 22 Sheraton-branded hotels 10 11 Doubletree-branded hotels 9 6 Crowne Plaza hotels 12 6 Other 7 4 Should any of these brands suffer a significant decline in popularity with the traveling public, it could adversely affect our revenues and profitability |
| We are subject to the risks of hotel operations |
| Through our ownership of the lessees of our hotels, we are subject to the risk of fluctuating hotel operating expenses at our hotels, including, but not limited to: • wage and benefit costs; • repair and maintenance expenses; • gas and electricity costs; • insurance costs, including health, general liability and workers compensation; and • other operating expenses |
| 14 _________________________________________________________________ [56]Table of Contents In addition, we are subject to the risks of a decline in Hotel EBITDA margins, which occurs when hotel operating expenses increase disproportionately to revenues |
| These operating expenses and Hotel EBITDA margins are within the control of our brand-owner managers, over which we have limited control, resulting in an increased risk of volatility in our results of operations |
| Generally, hotel revenues for our hotel portfolio are greater in the second and third calendar quarters than in the first and fourth calendar quarters, although this may not be true for hotels in major tourist destinations |
| Revenues for hotels in tourist areas generally are substantially greater during tourist season than other times of the year |
| Seasonal variations in revenue at our hotels can be expected to cause quarterly fluctuations in our revenues |
| Quarterly earnings also may be adversely affected by events beyond our control, such as extreme weather conditions, economic factors and other considerations affecting travel |
| We lack control over the management and operations of our hotels |
| We are dependent on the ability of independent third party managers to operate and manage our hotels |
| In order to maintain our REIT status, we cannot operate our hotels or any subsequently acquired hotels |
| As a result, we are unable to directly implement strategic business decisions for the operation and marketing of our hotels, such as decisions with respect to the setting of room rates, the salary and benefits provided to hotel employees, the conduct of food and beverage operations and similar matters |
| Our ability to grow or sustain our business may be limited by our ability to attract debt or equity financing, and we may have difficulty accessing capital on attractive terms |
| We may not be able to fund future growth and operations solely from cash provided from operating activities because of our obligation to distribute at least 90prca of our taxable income each year to maintain our status as a REIT and any future decline in cash flow |
| Consequently, we may be forced to rely upon the proceeds of hotel sales or the availability of debt or equity capital to fund hotel acquisitions and necessary capital improvements, and we may be dependent upon our ability to attract debt financing from public or institutional lenders |
| The capital markets have been, and in the future may be, adversely affected by various events beyond our control, such as the United States’ military involvement in the Middle East and elsewhere, the terrorist attacks on September 11, 2001, the ongoing War on Terrorism by the United States and the bankruptcy of major companies |
| Similar events, such as an escalation in the War on Terrorism, new terrorist attacks, or additional bankruptcies in the future, as well as other events beyond our control, could adversely affect the availability and cost of capital for our business |
| We cannot assure you that we will be successful in attracting sufficient debt or equity financing to fund future growth and operations, or to pay or refinance existing debt, at an acceptable cost, or at all |
| We own, and may acquire, interests in hotel joint ventures with third parties that expose us to some risk of additional liabilities or capital requirements |
| We own, through our subsidiaries, interests in several real estate joint ventures with third parties |
| Joint ventures that are not consolidated into our financial statements owned a total of 19 hotels, in which we had an aggregate investment of dlra109 million, at December 31, 2005 |
| The operations of 14 of these hotels are included in our consolidated results of operations due to our majority ownership of the lessees of these hotels |
| None of our directors or officers hold any interest in any of these ventures |
| Our joint venture partners are affiliates of Hilton with respect to 12 hotels, affiliates of Starwood with respect to one hotel, and private entities or individuals with respect to six hotels |
| The ventures and hotels were subject to non-recourse mortgage loans aggregating dlra204 million at December 31, 2005 |
| The personal liability of our subsidiaries under existing non-recourse loans secured by the hotels of our joint ventures is generally limited to the guaranty of the borrowing ventures’ personal obligations to pay for the lender’s losses caused by misconduct, fraud or misappropriation of funds by the ventures and other typical exceptions from the non-recourse covenants in the mortgages, such as those relating to environmental liability |
| We may invest in other ventures in the future that own hotels and have recourse or non-recourse debt financing |
| If a venture defaults under its mortgage loan, the lender may accelerate the loan and demand payment in full before taking action to foreclose on the hotel |
| As a partner or member in any of these ventures, our subsidiary may be exposed to liability for claims asserted against the venture, and the venture may not have sufficient assets or insurance to discharge the liability |
| 15 _________________________________________________________________ [57]Table of Contents Our subsidiaries may not legally be able to control decisions being made regarding these ventures and their hotels |
| In addition, the hotels in a venture may perform at levels below expectations, resulting in the potential for insolvency of the venture unless the partners or members provide additional funds |
| In some ventures, the partners or members may elect to make additional capital contributions |
| We may be faced with the choice of losing our investment in a venture or investing additional capital in it with no guaranty of receiving a return on that investment |
| As a REIT, we are subject to specific tax laws and regulations, the violation of which could subject us to significant tax liabilities |
| The federal income tax laws governing REITs are complex |
| We have operated, and intend to continue to operate, in a manner that is intended to enable us to qualify as a REIT under the federal income tax laws |
| The REIT qualification requirements are extremely complicated, and interpretations of the federal income tax laws governing qualification as a REIT are limited |
| Accordingly, we cannot be certain that we have been, or will continue to be, successful in operating so as to qualify as a REIT At any time, new laws, interpretations or court decisions may change the federal tax laws relating to, or the federal income tax consequences of, qualification as a REIT Failure to make required distributions would subject us to tax |
| Each year, a REIT must pay out to its stockholders at least 90prca of its taxable income, other than any net capital gain |
| To the extent that we satisfy the 90prca distribution requirement, but distribute less than 100prca of our taxable income, we will be subject to federal corporate income tax on our undistributed taxable income |
| In addition, we will be subject to a 4prca nondeductible tax if the actual amount we pay out to our stockholders in a calendar year is less than the minimum amount specified under federal tax laws |
| FelCor’s only source of funds to make such distributions comes from distributions from FelCor LP Accordingly, we may be required to borrow money or sell assets to enable us to pay out enough of our taxable income to satisfy the distribution requirements and to avoid corporate income tax and the 4prca tax in a particular year |
| If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax at regular corporate rates on our taxable income for any such taxable year for which the statute of limitations remains open |
| We might need to borrow money or sell hotels in order to obtain the funds necessary to pay any such tax |
| If we cease to be a REIT, we no longer would be required to distribute most of our taxable income to our stockholders |
| Unless our failure to qualify as a REIT was excused under federal income tax laws, we could not re-elect REIT status until the fifth calendar year following the year in which we failed to qualify |
| A sale of assets acquired from Bristol Hotel Company, or Bristol, within ten years after the merger may result in us incurring corporate income tax |
| If we sell any asset acquired from Bristol within ten years after our 1998 merger with Bristol, and we recognize a taxable gain on the sale, we will be taxed at the highest corporate rate on an amount equal to the lesser of^: • the amount of gain recognized at the time of the sale; or • the amount of gain that we would have recognized if we had sold the asset at the time of the Bristol merger for its then fair market value |
| The sales of Bristol hotels that have been made to date have not resulted in any material amount of tax liability to us |
| If we are successful in selling the hotels that we have designated as sale hotels, the majority of which are Bristol hotels, we could incur corporate income tax with respect to the related built-in gain |
| Departure of key personnel would deprive us of the institutional knowledge, expertise and leadership they provide |
| Our management includes the Chairman of the Board, currently Mr |
| Corcoran, the President and Chief Executive Officer, currently Mr |
| Smith, and four Executive Vice Presidents |
| The persons in these positions generally possess institutional knowledge about our organization and the hospitality or real estate industries, have significant expertise in their fields, and possess leadership skills that are important to our operations |
| The loss of any of our senior executive officers or Chairman of the Board could adversely affect our ability to execute our business strategy |
| 16 _________________________________________________________________ [58]Table of Contents We are subject to the risks of real estate ownership, which could increase our costs of operations |
| General Risks |
| Our investments in hotels are subject to the numerous risks generally associated with owning real estate, including among others: • adverse changes in general or local economic or real estate market conditions; • changes in zoning laws; • increases in supply or competition; • changes in traffic patterns and neighborhood characteristics; • increases in assessed valuation and real estate tax rates; • increases in the cost of property insurance; • recent and future increases in the cost of wood, steel, concrete and other building materials, which increase the cost of renovations, expansions and new construction; • costly governmental regulations and fiscal policies; • the potential for uninsured or underinsured property losses; • the potential that we are unable to meet all requirements under the Americans with Disabilities Act; • the impact of environmental laws and regulations; and • other circumstances beyond our control |
| Moreover, real estate investments are relatively illiquid, and we may not be able to adjust our portfolio in a timely manner to respond to changes in economic and other conditions |
| Compliance with environmental laws may adversely affect our financial condition |
| Owners of real estate are subject to numerous federal, state, local and foreign environmental laws and regulations |
| Under these laws and regulations, a current or former owner of real estate may be liable for the costs of remediating hazardous substances found on its property, whether or not it was responsible for their presence |
| In addition, if an owner of real property arranges for the disposal of hazardous substances at another site, it may also be liable for the costs of remediating the disposal site, even if it did not own or operate the disposal site |
| Such liability may be imposed without regard to fault or the legality of a party’s conduct and may, in certain circumstances, be joint and several |
| A property owner may also be liable to third parties for personal injuries or property damage sustained as a result of its release of hazardous or toxic substances, including asbestos-containing materials, into the environment |
| Environmental laws and regulations may require us to incur substantial expenses and limit the use of our properties |
| We could have substantial liability for a failure to comply with applicable environmental laws and regulations, which may be enforced by the government or, in certain instances, by private parties |
| The existence of hazardous substances on a property can also adversely affect the value of, and the owner’s ability to use, sell or borrow against, the property |
| We cannot provide assurances that future or amended laws or regulations, or more stringent interpretations or enforcement of existing environmental requirements, will not impose any material environmental liability, or that the environmental condition or liability relating to the hotels will not be affected by new information or changed circumstances, by the condition of properties in the vicinity of such hotels, such as the presence of leaking underground storage tanks, or by the actions of unrelated third parties |
| Compliance with the Americans with Disabilities Act may adversely affect our financial condition |
| Under the Americans with Disabilities Act of 1990, all public accommodations, including hotels, are required to meet certain federal requirements for access and use by disabled persons |
| Various state and local jurisdictions have also adopted requirements relating to the accessibility of buildings to disabled persons |
| We believe that our hotels substantially comply with the requirements of the Americans with Disabilities Act and other applicable laws |
| However, a determination that the hotels are not in compliance with these laws could result in liability for both governmental fines and payments to private parties |
| If we were required to make unanticipated major 17 _________________________________________________________________ [59]Table of Contents modifications to our hotels to comply with the requirements of the Americans with Disabilities Act and other similar laws, it could adversely affect our ability to make distributions to our stockholders and to pay our obligations |
| Our charter contains limitations on ownership and transfer of shares of our stock that could adversely affect attempted transfers of our capital stock |
| To maintain our status as a REIT, no more than 50prca in value of our outstanding stock may be owned, actually or constructively, under the applicable tax rules, by five or fewer persons during the last half of any taxable year |
| Our charter prohibits, subject to some exceptions, any person from owning more than 9dtta9prca, as determined in accordance with the Internal Revenue Code and the Exchange Act, of the number of outstanding shares of any class of our stock |
| Our charter also prohibits any transfer of our stock that would result in a violation of the 9dtta9prca ownership limit, reduce the number of stockholders below 100 or otherwise result in our failure to qualify as a REIT Any attempted transfer of shares in violation of the charter prohibitions will be void, and the intended transferee will not acquire any right in those shares |
| We have the right to take any lawful action that we believe is necessary or advisable to ensure compliance with these ownership and transfer restrictions and to preserve our status as a REIT, including refusing to recognize any transfer of stock in violation of our charter |
| Some provisions in our charter and bylaws and Maryland law make a takeover of us more difficult |
| Ownership Limit |
| The ownership and transfer restrictions of our charter may have the effect of discouraging or preventing a third party from attempting to gain control of us without the approval of our board of directors |
| Accordingly, it is less likely that a change in control, even if beneficial to stockholders, could be effected without the approval of our board |
| Staggered Board |
| Our board of directors is divided into three classes |
| Directors in each class are elected for terms of three years |
| As a result, the ability of stockholders to effect a change in control of us through the election of new directors is limited by the inability of stockholders to elect a majority of our board at any particular meeting |
| Authority to Issue Additional Shares |
| Under our charter, our board of directors may issue up to an aggregate of 20 million shares of preferred stock without stockholder action |
| The preferred stock may be issued, in one or more series, with the preferences and other terms designated by our board that may delay or prevent a change in control of us, even if the change is in the best interests of stockholders |
| As of December 31, 2005, we had outstanding 12cmam880cmam475 shares of our Series A preferred stock and 67cmam980 shares, represented by 6cmam798cmam000 depositary shares, of our Series C preferred stock |
| Maryland Takeover Statutes |
| As a Maryland corporation, we are subject to various provisions under the Maryland General Corporation Law, including the Maryland Business Combination Act, that may have the effect of delaying or preventing a transaction or a change in control that might involve a premium price for the stock or otherwise be in the best interests of stockholders |
| Under the Maryland business combination statute, some “business combinations,” including some issuances of equity securities, between a Maryland corporation and an “interested stockholder,” which is any person who beneficially owns 10prca or more of the voting power of the corporation’s shares, or an affiliate of that stockholder, are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder |
| Any of these business combinations must be approved by a stockholder vote meeting two separate super majority requirements, unless, among other conditions, the corporation’s common stockholders receive a minimum price, as defined in the statute, for their shares and the consideration is received in cash or in the same form as previously paid by the interested stockholder for its common shares |
| Our charter currently provides that the Maryland Control Share Acquisition Act will not apply to any of our existing or future stock |
| That statute may deny voting rights to shares involved in an acquisition of one-tenth or more of the voting stock of a Maryland corporation |
| To the extent these or other laws are applicable to us, they may have the effect of delaying or preventing a change in control of us even though beneficial to our stockholders |