As filed with the Securities and Exchange
Commission on April 1, 2015
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SUMMIT HOTEL
PROPERTIES, INC.
(Exact name of registrant as specified
in its charter)
Maryland |
27-2962512 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
12600 Hill Country Boulevard, Suite R-100
Austin, Texas 78738
(512) 538-2300
(Address, including zip code, and telephone
number, including area code, of registrant’s principal executive offices)
Daniel P. Hansen
President and Chief Executive Officer
12600 Hill Country Boulevard, Suite R-100
Austin, Texas 78738
(512) 538-2300
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Copies to:
David C. Wright, Esq.
David S. Freed, Esq.
Hunton & Williams LLP
Riverfront Plaza, East Tower
951 East 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. x
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. x
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 |
x |
Accelerated filer |
¨ |
Non-accelerated filer |
¨ (Do not check if smaller reporting company) |
Smaller reporting company |
¨ |
CALCULATION
OF REGISTRATION FEE
Title of each class of securities to be registered | |
Amount
to be registered | | |
Proposed maximum aggregate offering price(1) | | |
Amount of registration fee | |
Common Stock, par value $0.01 per share | |
| 412,174 | | |
$ | 5,644,723 | | |
$ | 656 | |
| (1) | Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 of
the Securities Act of 1933, as amended, based on a price of $13.695, the average of the high and low prices of the
registrant’s common stock on the New York Stock Exchange on March 27, 2015. |
PROSPECTUS
412,174
Shares
Common Stock
This prospectus relates to the possible offer
and resale from time to time of up to 412,174 shares of our common stock by the selling stockholders named in this prospectus or
in supplements to this prospectus, or the selling stockholders. See “Selling Stockholders.”
The shares of our common stock covered by this
prospectus may be issued by us in exchange for 412,174 common units of limited partnership, or common units, in Summit Hotel OP,
LP, our operating partnership, tendered for redemption by one or more of the limited partners of our operating partnership. We
are registering the applicable shares of our common stock to provide the selling stockholders with freely tradable securities.
The registration of the shares of our common stock covered by this prospectus does not necessarily mean that any of the holders
of common units will request that our operating partnership redeem their common units, that upon any such redemption we will elect
to exchange some or all of the common units tendered for redemption for shares of common stock, or that any shares of our common
stock requested for resale or received in exchange for common units will be sold by the selling stockholders.
We are not offering for sale any shares of our
common stock pursuant to this prospectus. We will receive no proceeds from any sale of the shares by the selling stockholders,
but we have agreed to pay certain registration expenses.
Our common stock is listed on the New
York Stock Exchange, or the NYSE, under the symbol “INN.” On March 31, 2015, the last reported sale price our
common stock on the NYSE was $14.07 per share.
Investing in our common stock involves risks.
Before making a decision to invest in our common stock, you should carefully consider the risks described in this prospectus and
any accompanying prospectus supplement, as well as the risks described under the section entitled “Risk Factors” included
in our most recent Annual Report on Form 10-K, subsequent Quarterly Reports on Form 10-Q and other documents filed by us with the
Securities and Exchange Commission.
Neither the Securities and Exchange Commission
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 April 1, 2015
table of contents
Except where the context suggests otherwise,
the terms “we,” “our,” “us,” “our company” and the “company” refer
to Summit Hotel Properties, Inc., a Maryland corporation, and its subsidiaries on a consolidated basis; and “our operating
partnership” means Summit Hotel OP, LP, a Delaware limited partnership for which one of our wholly owned subsidiaries serves
as the general partner. Summit Hotel TRS, Inc., a Delaware corporation, which we refer to in this prospectus as “Summit TRS,”
is a taxable REIT subsidiary, or TRS, and we refer to Summit TRS and any other TRSs that we may form in the future as “our
TRSs.” We refer to our TRSs and the wholly owned subsidiaries of our TRSs that lease our hotels from our operating partnership
or subsidiaries of our operating partnership as “our TRS lessees.”
You should rely only on the information
contained or incorporated by reference in this prospectus Neither we nor any selling stockholder have authorized anyone to provide
you with information different from that contained or incorporated by reference in this prospectus. 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 the accompanying prospectus supplement. You must not rely on any unauthorized information or representation. You should assume
that the information in this prospectus 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.
ABOUT
THIS PROSPECTUS
This prospectus is part of a “shelf”
registration statement that we have filed with the Securities and Exchange Commission, or the SEC, to register the resale of up
to 412,174 shares of our common stock by the selling stockholders from time to time. The exhibits to our registration statement
and the documents incorporated by reference contain the full text of certain contracts and other important documents that we have
summarized in this prospectus or that we may summarize in a prospectus supplement. Since these summaries may not contain all the
information that you may find important in deciding whether to invest in our common stock, you should review the full text of these
documents. The registration statement and the exhibits and other documents can be obtained from the SEC as indicated under the
sections entitled “Where You Can Find More Information” and “Incorporation of Certain Information By Reference.”
The selling stockholders may from time to time
offer and sell, transfer or otherwise dispose of any or all of the shares of our common stock covered by this prospectus through
underwriters or dealers, directly to purchasers or through broker-dealers or agents. A prospectus supplement may describe the terms
of the plan of distribution and set forth the names of any underwriters involved in the sale of the shares. See “Plan of
Distribution” for more information.
If there is any inconsistency between the information
in this prospectus and any prospectus supplement, you should rely on the information in the prospectus supplement. You should read
carefully both this prospectus and any prospectus supplement together with the additional information described under the sections
entitled “Where You Can Find More Information” and “Incorporation of Certain Information By Reference.”
CERTAIN
TRADEMARKS
THIS PROSPECTUS, INCLUDING THE DOCUMENTS INCORPORATED
BY REFERENCE HEREIN, CONTAINS REGISTERED TRADEMARKS THAT ARE THE EXCLUSIVE PROPERTY OF THEIR RESPECTIVE OWNERS, WHICH ARE COMPANIES
OTHER THAN US, INCLUDING, BUT NOT LIMITED TO THE FOLLOWING OWNERS: MARRIOTT INTERNATIONAL, INC., OR MARRIOTT; HILTON WORLDWIDE,
INC., OR HILTON; INTERCONTINENTAL HOTELS GROUP, OR IHG; HYATT CORPORATION, OR HYATT; COUNTRY INNS & SUITES
BY CARLSON, INC., OR CARLSON; AND STARWOOD HOTELS AND RESORTS WORLDWIDE, INC., OR STARWOOD. NONE OF THESE TRADEMARK
OWNERS, THEIR PARENTS, SUBSIDIARIES OR AFFILIATES OR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, MEMBERS, MANAGERS, STOCKHOLDERS,
OWNERS, AGENTS OR EMPLOYEES IS AN ISSUER OR UNDERWRITER OF THE SECURITIES COVERED BY THIS PROSPECTUS, PLAYS (OR WILL PLAY) ANY
ROLE IN THE OFFER OR SALE OF OUR SECURITIES OR HAS ANY RESPONSIBILITY FOR THE CREATION OR CONTENTS OF THIS PROSPECTUS, INCLUDING
THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN. IN ADDITION, NONE OF THE TRADEMARK OWNERS HAS OR WILL HAVE ANY LIABILITY OR RESPONSIBILITY
WHATSOEVER ARISING OUT OF OR RELATED TO THE OFFER OR SALE OF THE SECURITIES COVERED BY THIS PROSPECTUS, INCLUDING ANY LIABILITY
OR RESPONSIBILITY FOR ANY FINANCIAL STATEMENTS, PROJECTIONS OR OTHER FINANCIAL INFORMATION OR OTHER INFORMATION INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR OTHERWISE DISSEMINATED IN CONNECTION WITH THE OFFER OR SALE OF THE SECURITIES COVERED BY THIS PROSPECTUS.
YOU MUST UNDERSTAND THAT YOUR SOLE RECOURSE FOR ANY ALLEGED OR ACTUAL IMPROPRIETY RELATING TO THE OFFER AND SALE OF THE SECURITIES
COVERED BY THIS PROSPECTUS AND THE OPERATION OF OUR BUSINESS WILL BE AGAINST US OR THE APPLICABLE SELLING STOCKHOLDER AND IN NO
EVENT MAY YOU SEEK TO IMPOSE LIABILITY ARISING FROM OR RELATED TO SUCH ACTIVITY, DIRECTLY OR INDIRECTLY, UPON ANY OF THE TRADEMARK
OWNERS.
WE ARE PARTY TO A LICENSE AGREEMENTS WITH THE
SHERATON, LLC THAT ENABLES A THIRD-PARTY HOTEL MANAGEMENT COMPANY ENGAGED BY US TO OPERATE HOTELS USING THE SERVICE MARK “ALOFT®”
AND THE TRADEMARK “FOUR POINTS™.” NEITHER THE SHERATON, LLC NOR ANY OF ITS AFFILIATES OWN EITHER HOTEL, IS A
PARTICIPANT IN THIS OFFERING, OR HAS PROVIDED OR REVIEWED, OR IS RESPONSIBLE FOR, ANY DISCLOSURES OR OTHER INFORMATION SET FORTH
IN THIS PROSPECTUS.
FORWARD-LOOKING
STATEMENTS
This prospectus and any accompanying prospectus
supplement, including the information incorporated by reference in this prospectus and any accompanying prospectus supplement,
contain certain forward-looking statements within the meaning of Section 27A of Securities Act of 1933, as amended, or the Securities
Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We intend such forward-looking statements
to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements,
which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by
use of the words “may,” “could,” “expect,” “intend,” “plan,” “seek,”
“anticipate,” “believe,” “estimate,” “predict,” “forecast,” “project,”
“potential,” “continue,” “likely,” “will,” “would” or similar expressions.
You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors that
are, in some cases, beyond our control and which could materially affect actual results, performances or achievements. Factors
that may cause actual results to differ materially from current expectations include, but are not limited to:
| · | 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; |
| · | national, regional and local economic conditions; |
| · | levels of spending in the business, travel and leisure industries, as well as consumer confidence; |
| · | adverse changes in occupancy, average daily rate and revenue per available room and other hotel operating metrics; |
| · | hostilities, including future terrorist attacks, or fear of hostilities that affect travel; |
| · | financial condition of, and our relationships with, third-party property managers and franchisors; |
| · | the degree and nature of our competition; |
| · | increased interest rates and operating costs; |
| · | increased renovation costs, which may cause actual renovation costs to exceed our current estimates; |
| · | changes in zoning laws and increases in real property tax rates; |
| · | 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; |
| · | availability of and our ability to retain qualified personnel; |
| · | our failure to maintain our qualification as a real estate investment trust, or a REIT, under the Internal Revenue Code of
1986, as amended, or the Code; |
| · | changes in our business or investment strategy; |
| · | availability, terms and deployment of capital; |
| · | general volatility of the capital markets and the market price of our shares of common stock; |
| · | environmental uncertainties and risks related to natural disasters; and |
| · | the factors referenced or incorporated by reference in this prospectus and any prospectus supplement, as well as the factors
described under the section entitled “Risk Factors” included in our most recent Annual Report on Form 10-K, subsequent
Quarterly Reports on Form 10-Q and other documents filed by us with the SEC. |
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 and any accompanying prospectus supplement, including the information incorporated
by reference in this prospectus and any accompanying prospectus supplement, 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.
WHERE
YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements
of the Exchange Act, and, in accordance with those requirements, file reports, proxy statements and other information with the
SEC. Such reports, proxy statements and other information, as well as the registration statement and the exhibits and schedules
thereto, can be inspected at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549.
Copies of such materials may be obtained at prescribed rates. Information about the operation of the public reference facilities
may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website that contains reports, proxy statements
and other information regarding registrants, including us, that file such information electronically with the SEC. The address
of the SEC’s website is www.sec.gov. Copies of these documents may be available on our website at www.shpreit.com. Our website
and the information contained therein or connected thereto are not incorporated into this prospectus or any amendment or supplement
to this prospectus.
We have filed with the SEC a registration statement
on Form S-3 under the Securities Act with respect to the shares of our common stock that may be offered by the selling stockholders.
This prospectus, which forms a part of the registration statement, does not contain all of the information set forth in the registration
statement and its exhibits and schedules, certain parts of which are omitted in accordance with the SEC’s rules and regulations.
For further information about us and the securities, we refer you to the registration statement and to such exhibits and schedules.
You may review a copy of the registration statement at the SEC’s public reference room in Washington, D.C., as well as through
the SEC’s website. Please be aware that statements in this prospectus referring to a contract or other document are summaries
and you should refer to the exhibits that are part of the registration statement for a copy of the contract or document.
INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to “incorporate by
reference” into this prospectus the information that we file with it, which means that we can disclose important information
to you by referring you to those documents. The incorporated documents contain significant information about us, our business and
our finances. Any information contained in this prospectus or in any document incorporated or deemed to be incorporated by reference
in this prospectus will be deemed to have been modified or superseded to the extent that a statement contained in this prospectus,
in any other document we subsequently file with the SEC that is also incorporated or deemed to be incorporated by reference in
this prospectus or in the applicable prospectus supplement, modifies or supersedes the original statement. Any statement so modified
or superseded will not be deemed, except as so modified or superseded, to be a part of this prospectus. We incorporate by reference
the following documents we filed with the SEC:
| · | our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on March 2, 2015; |
| · | the information responsive to Part III of our Annual Report on Form 10-K for the year ended December 31, 2014 contained in
our Definitive Proxy Statement on Schedule 14A for the 2014 Annual Meeting of Stockholders filed on April 30, 2014; |
| · | our Current Reports on Form 8-K filed with the SEC on March 2, 2015 (to the extent filed and not furnished) and March 9, 2015; |
| · | the description of our common stock included in our Registration Statement on Form 8-A filed with the SEC on February 7, 2011;
and |
| · | all documents filed (and not furnished) by us with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended, or the Exchange Act, after the date of this prospectus and prior to the termination of the offering
of the underlying securities. |
We will provide without charge to each person,
including any beneficial owner, to whom a prospectus is delivered, on written or oral request of that person, a copy of any or
all of the documents we are incorporating by reference into this prospectus, other than exhibits to those documents unless those
exhibits are specifically incorporated by reference into those documents. A request should be addressed in writing to Summit Hotel
Properties, Inc., 12600 Hill Country Boulevard, Suite R-100, Austin, TX 78738, Attention: Investor Relations.
SUMMIT
HOTEL PROPERTIES, INC.
We are a self-managed hotel investment company
organized to continue and expand the hotel investment business of our predecessor, Summit Hotel Properties, LLC. We focus on acquiring
and owning premium-branded select-service hotel properties in the upper midscale and upscale segments of the
U.S. lodging industry. As of December 31, 2014, we owned 90 hotels with a total of 11,463 rooms located in 21 states.
We were organized as a Maryland corporation
on June 30, 2010. We completed our initial public offering, or IPO, and our formation transactions, including the merger of our
predecessor into our operating partnership, on February 14, 2011. We elected to be taxed as a REIT for federal income tax purposes
commencing with our taxable year ended December 31, 2011. We own our hotels and conduct substantially all of our business through
our operating partnership. We, through a wholly owned subsidiary, are the sole general partner of our operating partnership. As
of December 31, 2014, we owned approximately 99% of the issued and outstanding common units of partnership interest of our operating
partnership, including the sole general partnership interest held by the general partner, all of the issued and outstanding 9.25%
Series A Cumulative Redeemable Preferred Units of our operating partnership, all of the issued and outstanding 7.875% Series B
Cumulative Redeemable Preferred Units of our operating partnership and all of the issued and outstanding 7.125% Series C Cumulative
Redeemable Preferred Units of our operating partnership.
To qualify as a REIT, we cannot operate or
manage our hotels. Instead, other than with respect to one hotel that is owned by a wholly owned subsidiary of Summit TRS, we lease
our hotels to our TRS lessees, which are wholly owned indirect subsidiaries of our operating partnership. Our TRS lessees engage
third-party hotel management companies to operate and manage our hotels.
Our
principal executive offices are located at 12600 Hill Country Boulevard, Suite R-100, Austin, TX 78738, and our telephone number
is (512) 538-2300. Our website is www.shpreit.com. The information contained on, or accessible through, our website is
not incorporated by reference into and should not be considered a part of this prospectus or any applicable prospectus supplement.
RISK
FACTORS
An investment in our common stock involves risks.
Before making an investment decision you should carefully consider the risk factors incorporated by reference in this prospectus
from our most recent Annual Report on Form 10-K, subsequent Quarterly Reports on Form 10-Q and other documents filed by us with
the SEC and incorporated by reference in this prospectus. See “Where You Can Find More Information” and “Incorporation
of Certain Information by Reference.” Additional risks not presently known or that are currently deemed immaterial could
also materially and adversely affect our financial condition, results of operations, business and prospects.
USE
OF PROCEEDS
We
will not receive any proceeds from the issuance of shares of our common stock, if any, to the selling stockholders upon the exchange
of common units in our operating partnership that have been tendered for redemption. We will not receive any proceeds from the
resale of shares of our common stock from time to time by the selling stockholders. The selling stockholders will pay all underwriting
discounts, commissions and transfer taxes, if any, attributable to the sale of the shares of our common stock covered by this prospectus.
SELLING
STOCKHOLDERS
The “selling stockholders” are the
people or entities who may sell shares of our common stock registered pursuant to this registration statement of which this prospectus
is a part. Such selling stockholders may receive shares of our common stock upon exchange of their common units that have been
tendered for redemption pursuant to their contractual rights. Our operating partnership issued an aggregate of 412,174 common units
to the selling stockholders as partial consideration for our acquisition of the Hampton Inn Santa Barbra (Goleta) in January 2014.
The common units were issued in a private placement pursuant to Rule 506 of Regulation D under the Securities Act. The shares of
common stock underlying the common units will be issued, if any are issued and not redeemed for cash, without registration under
the Securities Act in a private placement pursuant to Section 4(a)(2) of the Securities Act or pursuant to Rule 506 of Regulation
D under the Securities Act.
The following table provides the names of the
selling stockholders, the number of shares of our common stock currently held by such selling stockholders prior to any exchange
by them of common units, the maximum number of shares of our common stock currently issuable to such selling stockholders in such
exchange and the aggregate number of shares of our common stock that will be owned by such selling stockholders after the exchange.
Since the selling stockholders may sell all, some or none of their shares, we cannot estimate the aggregate number of shares that
the selling stockholders will offer pursuant to this prospectus or that the selling stockholders will own upon completion of the
offering to which this prospectus relates. The following table does not take into effect any restrictions on ownership or transfer
as described in “Description of Capital Stock ─ Restrictions on Ownership and Transfer.”
During the past three years, none of the selling
stockholders has had any position, office or other material relationship with us or any of our predecessors or affiliates.
The selling stockholders named below and their
permitted transferees, pledgees, orderees or other successors may from time to time offer the shares of our common stock offered
by this prospectus:
Name of Selling | |
Shares Beneficially Owned Prior to the | | |
Units Beneficially Owned Prior to the | | |
Maximum Number of Shares Issuable in the | | |
Shares Beneficially Owned Following the Exchange(1) | |
Maximum Number of Shares to | | |
Shares Beneficially Owned
After Resale(2) | |
Stockholder | |
Exchange | | |
Exchange | | |
Exchange | | |
Number | | |
% | |
be Resold | | |
Number | | |
% | |
| |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| |
Duncan L. Osborne | |
| - | | |
| 55,203 | | |
| 55,203 | | |
| 55,203 | | |
* | |
| 55,203 | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| |
| | | |
| | | |
| | |
Judith L. Osborne | |
| - | | |
| 2,399 | | |
| 2,399 | | |
| 2,399 | | |
* | |
| 2,399 | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| |
| | | |
| | | |
| | |
Giorgi Exclusion Trust | |
| - | | |
| 56,071 | | |
| 56,071 | | |
| 56,071 | | |
* | |
| 56,071 | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| |
| | | |
| | | |
| | |
William M. and Alice Campbell | |
| - | | |
| 27,202 | | |
| 27,202 | | |
| 27,202 | | |
* | |
| 27,202 | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| |
| | | |
| | | |
| | |
The Jay Douglas Jaegar Irrevocable Life Insurance Trust | |
| - | | |
| 20,126 | | |
| 20,126 | | |
| 20,126 | | |
* | |
| 20,126 | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| |
| | | |
| | | |
| | |
John Keating and Teri Keating Trust | |
| - | | |
| 18,504 | | |
| 18,504 | | |
| 18,504 | | |
* | |
| 18,504 | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| |
| | | |
| | | |
| | |
Steven Hughes | |
| - | | |
| 232,669 | | |
| 232,669 | | |
| 232,669 | | |
* | |
| 232,669 | | |
| - | | |
| - | |
| * | Denotes beneficial ownership of less than 1%. |
| (1) | Assumes that we exchange all of the common units beneficially owned by the selling stockholders for shares of our common stock.
The percentage ownership is determined for each selling stockholder by taking into account the issuance and sale of shares of our
common stock of only such selling stockholder and also assumes that no transactions with respect to our common stock or common
units occur other than the exchange. Based on a total of 86,088,265 shares of our common stock outstanding as of February 20, 2015. |
(2) Assumes that the selling stockholders
sell all of their shares of our common stock offered pursuant to this prospectus. The percentage ownership is determined for each
selling stockholder by taking into account the issuance and sale of shares of our common stock of only such selling stockholder.
Based on a total of 86,088,265 shares of our common stock outstanding as of February 20, 2015.
DESCRIPTION
OF CAPITAL STOCK
The following summary of our capital stock
is qualified in its entirety by reference to Maryland law our charter and bylaws, copies of which are filed as exhibits to the
registration statement of which this prospectus is a part. See “Where You Can Find More Information.”
General
Our charter provides that we may issue up to
500,000,000 shares of common stock, $0.01 par value per share, and 100,000,000 shares of preferred stock, $0.01 par value per share,
of which 2,000,000 shares have been classified as 9.25% Series A Cumulative Redeemable Preferred Stock, or Series A Preferred Stock,
3,000,000 shares have been classified as 7.875% Series B Cumulative Redeemable Preferred Stock, or Series B Preferred Stock, and
3,400,000 shares have been classified as 7.125% Series C Cumulative Redeemable Preferred Stock, or Series C Preferred Stock. Our
charter authorizes our board of directors, with the approval of a majority of the entire board of directors and without any action
on the part of our stockholders, to amend our charter to increase or decrease the aggregate number of authorized shares of stock
or the number of authorized shares of stock of any class or series. Under Maryland law, stockholders generally are not liable for
a corporation’s debts or obligations.
As of February 20, 2015, there were 86,088,265
shares of our common stock issued and outstanding, 2,000,000 shares of our Series A Preferred Stock issued and outstanding, 3,000,000
shares of our Series B Preferred Stock issued and outstanding, and 3,400,000 shares of our Series C Preferred Stock issued and
outstanding.
Common Stock
Any shares of our common stock issuable pursuant
to this prospectus will be duly authorized, validly issued, fully paid and non-assessable shares. Subject to the preferential rights
of any other class or series of our stock, including our Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock, and to the provisions of our charter regarding the restrictions on ownership and transfer of our stock, holders of shares
of our common stock are entitled to receive dividends on such stock when, as and if authorized by our board of directors out of
assets legally available therefor and declared by us and to share ratably in the assets of our company legally available for distribution
to our stockholders in the event of our liquidation, dissolution or winding up after payment of or adequate provision for all known
debts and liabilities of our company.
Holders of shares of our common stock have
no redemption, sinking fund, conversion, preemptive or appraisal rights with respect to our common stock. Subject to the provisions
of our charter regarding the restrictions on ownership and transfer of stock, shares of our common stock have equal dividend, liquidation
and other rights.
Subject to the provisions of our charter regarding
the restrictions on ownership and transfer of our stock and except as may otherwise be specified in the terms of any class or series
of stock, each outstanding share of our common stock entitles the holder to one vote on all matters submitted to a vote of stockholders,
including the election of directors and, except as may be provided with respect to any other class or series of stock, the holders
of such shares possess the exclusive voting power. There is no cumulative voting in the election of our directors, and directors
are elected by a plurality of the votes cast in the election of directors. Consequently, at each annual meeting of stockholders,
the holders of a majority of the outstanding shares of our common stock can elect all of the directors then standing for election,
and the holders of the remaining shares will not be able to elect any directors. Our board of directors has adopted a policy where
at any meeting of stockholders at which members of the board of directors are to be elected by the stockholders in an uncontested
election, any nominee for director who receives a greater number of votes “withheld” from his or her election than
votes “for” election will submit to the board of directors a written offer to resign from the board of directors no
later than two weeks after the certification of the voting results.
Our charter authorizes our board of directors
to reclassify any unissued shares of our common stock into other classes or series of stock, to establish the designation and number
of shares of each class or series and to set, subject to the provisions of our charter relating to the restrictions on ownership
and transfer of our stock, the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends
and other distributions, qualifications and terms and conditions of redemption of each such class or series.
Our common stock is traded on the NYSE under
the symbol “INN.” The transfer agent and registrar for our common stock is Wells Fargo Bank, National Association.
Preferred Stock
In addition to any other class or series of
preferred stock that we may offer, issue or in the future, we have previously issued shares of Series A Preferred Stock, Series
B Preferred Stock and Series C Preferred Stock. We may reopen these series and issue additional shares of Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock. Our Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock rank senior to our common stock with respect to distribution rights and rights upon the voluntary or involuntary liquidation,
dissolution or winding up of our company. In addition to other preferential rights, each holder of our Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock is entitled to receive a liquidation preference, which is equal to $25.00
per share of Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock, as applicable, plus any accrued and
unpaid distributions thereon, before the holders of our common stock receive any distributions in the event of any voluntary or
involuntary liquidation, dissolution or winding-up of our company. Furthermore, we are generally restricted from declaring or paying
any distributions, or setting aside any funds for the payment of distributions, on our common stock or, subject to certain exceptions,
redeeming or otherwise acquiring shares of our common stock unless full cumulative distributions on our Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock have been declared and either paid or set aside for payment in full for all
past distribution periods.
Our Series A Preferred Stock is traded on
the NYSE under the symbol “INNPrA,” our Series B Preferred Stock is traded on the NYSE under the symbol
“INNPrB” and our Series C Preferred Stock is traded on the NYSE under the symbol “INNPrC.”
The transfer agent and registrar for our Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock is
Wells Fargo Bank, National Association.
Power to Reclassify and Issue Stock
Our charter authorizes our board of directors
to classify any unissued shares of preferred stock, and reclassify any unissued shares of common stock or any previously classified
but unissued shares of preferred stock into other classes or series of stock, including one or more classes or series of stock
that have priority over our common stock with respect to voting rights or distributions or upon liquidation, and authorize us to
issue the newly classified shares. Prior to the issuance of shares of each class or series of our stock, our board of directors
is required by the Maryland General Corporation Law, or the MGCL, and our charter to set, subject to the provisions of our charter
regarding the restrictions on ownership and transfer of our stock, the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption for each
such class or series of our stock. These actions can be taken without stockholder approval, unless stockholder approval is required
by applicable law, the terms of any other class or series of our stock or the rules of the NYSE or any other stock exchange or
automated quotation system on which our stock may be then listed or quoted.
Power to Increase or Decrease Authorized Stock
and Issue Additional Shares of Our Common and Preferred Stock
Our charter authorizes our board of directors,
with the approval of a majority of the entire board of directors, to amend our charter to increase or decrease the aggregate number
of authorized shares of stock or the number of authorized shares of stock of any class or series without stockholder approval.
We believe that the power of our board of directors to increase or decrease the number of authorized shares of stock and to classify
or reclassify unissued shares of our common stock or preferred stock and thereafter to cause us to issue such shares of stock will
provide us with increased flexibility in structuring possible future financings and acquisitions and in meeting other needs which
might arise. The additional classes or series, as well as the additional shares of stock, will be available for issuance without
further action by our stockholders, unless such action is required by applicable law, the terms of any other class or series of
stock or the rules of any stock exchange or automated quotation system on which our securities may be listed or traded. Our board
of directors could authorize us to issue a class or series that could, depending upon the terms of the particular class or series,
delay, defer or prevent a transaction or a change in control of our company that might involve a premium price for our stockholders
or otherwise be in their best interests.
Restrictions on Ownership and Transfer
In order to qualify as a REIT under the Code,
our shares of stock must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months (other
than the first year for which an election to be a REIT has been made) or during a proportionate part of a shorter taxable year.
Also, not more than 50% of the value of our outstanding shares of capital stock may be owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities) during the last half of a taxable year (other than the first
year for which an election to be a REIT has been made).
Because our board of directors believes it
is at present essential for us to qualify as a REIT, our charter, subject to certain exceptions, contains restrictions on the number
of our shares of stock that a person may own. Our charter provides that, subject to certain exceptions, no person may beneficially
or constructively own more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares
of any class or series of our capital stock, or the stock ownership limit.
Our charter also prohibits any person from:
| · | subject to certain exceptions, beneficially owning shares of our capital stock to the extent that such beneficial ownership
would result in our being “closely held” within the meaning of Section 856(h) of the Code (without regard to whether
the ownership interest is held during the last half of the taxable year); |
| · | subject to certain exceptions, transferring shares of our capital stock to the extent that such transfer would result in our
shares of capital stock being beneficially owned by fewer than 100 persons (determined under the principles of Section 856(a)(5)
of the Code); |
| · | subject to certain exceptions, beneficially or constructively owning shares of our capital stock to the extent such beneficial
or constructive ownership would cause us to constructively own ten percent or more of the ownership interests in a tenant (other
than a TRS) of our real property within the meaning of Section 856(d)(2)(B) of the Code; or |
| · | beneficially or constructively owning or transferring shares of our capital stock if such beneficial or constructive ownership
or transfer would otherwise cause us to fail to qualify as a REIT under the Code, including, but not limited to, as a result of
any hotel management companies failing to qualify as an “eligible independent contractor” under the REIT rules. |
Our board of directors, in its sole discretion,
may prospectively or retroactively exempt a person from certain of the limits described in the paragraph above and may establish
or increase an excepted holder percentage limit for that person. The person seeking an exemption or to have established or increased
an exempted holder limit must provide to our board of directors any representations, covenants and undertakings that our board
of directors may deem appropriate in order to conclude that granting the exemption will not cause us to lose our status as a REIT.
Our board of directors may not grant an exemption to any person or establish or increase an excepted holder limit if taking such
action would result in our failing to qualify as a REIT. Our board of directors may require a ruling from the IRS or an opinion
of counsel, in either case in form and substance satisfactory to our board of directors, in its sole discretion, in order to determine
or ensure our status as a REIT.
In connection with exempting a person from
certain of the limits described above or establishing or increasing an exempted holder percentage limit or at any other time, our
board of directors may from time to time increase or decrease the stock ownership limit for all other persons, unless, after giving
effect to such increase, five or fewer individuals could beneficially own, in the aggregate, more than 49.9% in value of our outstanding
stock. A reduced ownership limit will not apply to any person whose percentage ownership of our stock is, at the effective time
of such reduction, in excess of such decreased ownership limit until such time as such person’s percentage ownership of our
stock equals or falls below the decreased ownership limit, but any further acquisition of shares of our stock will violate the
decreased ownership limit.
Any attempted transfer of shares of our capital
stock which, if effective, would violate any of the restrictions described above will result in the number of shares of our capital
stock causing the violation (rounded up to the nearest whole share) to be automatically transferred to a trust for the exclusive
benefit of one or more charitable beneficiaries, except that any transfer that results in the violation of the restriction relating
to shares of our capital stock being beneficially owned by fewer than 100 persons will be void ab initio. In either case, the proposed
transferee will not acquire any rights in those shares. The automatic transfer will be deemed to be effective as of the close of
business on the business day prior to the date of the purported transfer or other event that results in the transfer to the trust.
Shares held in the trust will be issued and outstanding shares. The proposed transferee will not benefit economically from ownership
of any shares held in the trust, will have no rights to dividends or other distributions and will have no rights to vote or other
rights attributable to the shares held in the trust. The trustee of the trust will have all voting rights and rights to dividends
or other distributions with respect to shares held in the trust. These rights will be exercised for the exclusive benefit of the
charitable beneficiary. Any dividend or other distribution paid prior to our discovery that shares have been transferred to the
trust will be paid by the recipient to the trustee upon demand. Any dividend or other distribution authorized but unpaid will be
paid when due to the trustee. Any dividend or other distribution paid to the trustee will be held in trust for the charitable beneficiary.
Subject to Maryland law, the trustee will have the authority (i) to rescind as void any vote cast by the proposed transferee prior
to our discovery that the shares have been transferred to the trust and (ii) to recast the vote in accordance with the desires
of the trustee acting for the benefit of the charitable beneficiary. However, if we have already taken irreversible corporate action,
then the trustee will not have the authority to rescind and recast the vote.
Within 20 days of receiving notice from us
that shares of our stock have been transferred to the trust, the trustee will sell the shares to a person, designated by the trustee,
whose ownership of the shares will not violate the above ownership and transfer limitations. Upon the sale, the interest of the
charitable beneficiary in the shares sold will terminate and the trustee will distribute the net proceeds of the sale to the proposed
transferee and to the charitable beneficiary as follows. The proposed transferee will receive the lesser of (i) the price paid
by the proposed transferee for the shares or, if the proposed transferee did not give value for the shares in connection with the
event causing the shares to be held in the trust (e.g., a gift, devise or other similar transaction), the market price (as defined
in our charter) of the shares on the day of the event causing the shares to be held in the trust and (ii) the price per share received
by the trustee (net of any commission and other expenses of sale) from the sale or other disposition of the shares. The trustee
may reduce the amount payable to the proposed transferee by the amount of dividends or other distributions paid to the proposed
transferee and owed by the proposed transferee to the trustee. Any net sale proceeds in excess of the amount payable to the proposed
transferee will be paid immediately to the charitable beneficiary. If, prior to our discovery that our shares of our stock have
been transferred to the trust, the shares are sold by the proposed transferee, then (i) the shares shall be deemed to have been
sold on behalf of the trust and (ii) to the extent that the proposed transferee received an amount for the shares that exceeds
the amount he or she was entitled to receive, the excess shall be paid to the trustee upon demand.
Shares of our stock held in the trust will
be deemed to have been offered for sale to us, or our designee, at a price per share equal to the lesser of (i) the price per share
in the transaction that resulted in the transfer to the trust (or, in the case of a devise or gift, the market price at the time
of the devise or gift) and (ii) the market price on the date we, or our designee, accept the offer, which we may reduce by the
amount of dividends and distributions paid to the proposed transferee and owed by the proposed transferee to the trustee. We will
have the right to accept the offer until the trustee has sold the shares. Upon a sale to us, the interest of the charitable beneficiary
in the shares sold will terminate and the trustee will distribute the net proceeds of the sale to the proposed transferee and any
dividends or other distributions held by the trustee will be paid to the charitable beneficiary.
If a transfer to a charitable trust, as described
above, would be ineffective for any reason to prevent a violation of a restriction, the transfer that would have resulted in a
violation will be void ab initio, and the proposed transferee shall acquire no rights in those shares.
Any certificate representing shares of our
capital stock, and any notices delivered in lieu of certificates with respect to the issuance or transfer of uncertificated shares,
will bear a legend referring to the restrictions described above.
Any person who acquires or attempts or intends
to acquire beneficial or constructive ownership of shares of our capital stock that will or may violate any of the foregoing restrictions
on transferability and ownership, or any person who would have owned shares of our capital stock that resulted in a transfer of
shares to a charitable trust, is required to give written notice immediately to us, or in the case of a proposed or attempted transaction,
to give at least 15 days’ prior written notice, and provide us with such other information as we may request in order to
determine the effect of the transfer on our status as a REIT.
The foregoing restrictions on transferability
and ownership will not apply if our board of directors determines that it is no longer in our best interests to attempt to qualify,
or to continue to qualify, as a REIT.
Every owner of more than 5% (or any lower percentage
as required by the Code or the regulations promulgated thereunder) in number or value of the outstanding shares of our capital
stock, within 30 days after the end of each taxable year, is required to give us written notice, stating his or her name and address,
the number of shares of each class and series of shares of our capital stock that he or she beneficially owns and a description
of the manner in which the shares are held. Each of these owners must provide us with additional information that we may request
in order to determine the effect, if any, of his or her beneficial ownership on our status as a REIT and to ensure compliance with
the ownership limits. In addition, each stockholder will upon demand be required to provide us with information that we may request
in good faith in order to determine our status as a REIT and to comply with the requirements of any taxing authority or governmental
authority or to determine our compliance with the stock ownership limit.
These ownership limitations could delay, defer
or prevent a transaction or a change in control that might involve a premium price for our shares of common stock or otherwise
be in the best interest of our stockholders.
CERTAIN
PROVISIONS OF MARYLAND LAW AND OF OUR CHARTER AND BYLAWS
The following summary of certain provisions
of Maryland law and of our charter and bylaws is qualified in its entirety by reference to Maryland law and our charter and bylaws,
copies of which are filed as exhibits to the registration statement of which this prospectus is a part. See “Where You Can
Find More Information.”
Our Board of Directors
Our charter and bylaws provide that the number
of directors of our company may be increased or decreased by a majority of our board of directors, but may not be less than the
minimum number required under the MGCL, which is one, or, unless our bylaws are amended, more than fifteen. We have elected by
a provision of our charter to be subject to a provision of Maryland law requiring that, subject to the rights of holders of one
or more classes or series of preferred stock, any vacancy may be filled only by a majority of the remaining directors, even if
the remaining directors do not constitute a quorum, and any director elected to fill a vacancy will serve for the full term of
the directorship in which such vacancy occurred and until a successor is elected and qualifies.
Each member of our board of directors is elected
by our stockholders to serve until the next annual meeting of stockholders and until his or her successor is duly elected and qualifies.
Holders of shares of our common stock have no right to cumulative voting in the election of directors, and directors are elected
by a plurality of the votes cast in the election of directors. Consequently, at each annual meeting of stockholders, the holders
of a majority of the shares of our common stock may elect all of our directors. Our board of directors has adopted a policy where
at any meeting of stockholders at which members of the board of directors are to be elected by the stockholders in an uncontested
election, any nominee for director who receives a greater number of votes “withheld” from his or her election than
votes “for” election will submit to the board of directors a written offer to resign from the board of directors no
later than two weeks after the certification of the voting results.
Removal of Directors
Our charter provides that, subject to the rights
of holders of one or more classes or series of preferred stock to elect or remove one or more directors, a director may be removed
only for cause (as defined in our charter) and only by the affirmative vote of holders of shares entitled to cast at least two-thirds
of the votes entitled to be cast generally in the election of directors. This provision, when coupled with the exclusive power
of our board of directors to fill vacant directorships, may preclude stockholders from removing incumbent directors except for
cause and by a substantial affirmative vote and filling the vacancies created by such removal with their own nominees.
Business Combinations
Under the MGCL, certain “business combinations”
(including a merger, consolidation, share exchange or, in circumstances specified in the statute, an asset transfer or issuance
or reclassification of equity securities) between a Maryland corporation and an interested stockholder (i.e., any person (other
than the corporation or any subsidiary) who beneficially owns 10% or more of the voting power of the corporation’s outstanding
voting stock after the date on which the corporation had 100 or more beneficial owners of its stock, or an affiliate or associate
of the corporation who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner
of 10% or more of the voting power of the then outstanding stock of the corporation after the date on which the corporation had
100 or more beneficial owners of its stock) or an affiliate of an interested stockholder, are prohibited for five years after the
most recent date on which the interested stockholder becomes an interested stockholder. Thereafter, any such business combination
between the Maryland corporation and an interested stockholder generally must be recommended by the board of directors of such
corporation and approved by the affirmative vote of at least (1) 80% of the votes entitled to be cast by holders of outstanding
shares of voting stock of the corporation and (2) two-thirds of the votes entitled to be cast by holders of voting stock of
the corporation other than shares held by the interested stockholder with whom (or with whose affiliate) the business combination
is to be effected or held by an affiliate or associate of the interested stockholder, unless, among other conditions, the corporation’s
common stockholders receive a minimum price (as defined in the MGCL) for their shares and the consideration is received in cash
or in the same form as previously paid by the interested stockholder for its shares. A person is not an interested stockholder
under the statute if the board of directors approved in advance the transaction by which the person otherwise would have become
an interested stockholder. The board of directors may provide that its approval is subject to compliance, at or after the time
of approval, with any terms and conditions determined by it.
As permitted by the MGCL, our board of directors
has adopted a resolution exempting any business combination between us and any other person from the provisions of this statute,
provided that the business combination is first approved by our board of directors (including a majority of directors who are not
affiliates or associates of such persons). However, our board of directors may repeal or modify this resolution at any time in
the future, in which case the applicable provisions of this statute will become applicable to business combinations between us
and interested stockholders.
Control Share Acquisitions
The MGCL provides that a holder of “control
shares” of a Maryland corporation acquired in a “control share acquisition” has no voting rights with respect
to those shares except to the extent approved by the affirmative vote of at least two-thirds of the votes entitled to be cast by
stockholders entitled to vote generally in the election of directors, excluding votes cast by (1) the person who makes or
proposes to make a control share acquisition, (2) an officer of the corporation or (3) an employee of the corporation
who is also a director of the corporation. “Control shares” are voting shares of stock which, if aggregated with all
other such shares of stock previously acquired by the acquirer or in respect of which the acquirer is able to exercise or direct
the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power
in electing directors within one of the following ranges of voting power: (1) one-tenth or more but less than one-third, (2) one-third
or more but less than a majority or (3) a majority or more of all voting power. Control shares do not include shares the acquiring
person is then entitled to vote as a result of having previously obtained stockholder approval. A “control share acquisition”
means the acquisition of issued and outstanding control shares, subject to certain exceptions.
A person who has made or proposes to make a
control share acquisition, upon satisfaction of certain conditions (including an undertaking to pay expenses), may compel the board
of directors to call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of
the shares. If no request for a meeting is made, the corporation may itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting
or if the acquiring person does not deliver an acquiring person statement as required by the statute, then, subject to certain
conditions and limitations, the corporation may redeem any or all of the control shares (except those for which voting rights have
previously been approved) for fair value determined, without regard to the absence of voting rights for the control shares, as
of the date of the last control share acquisition by the acquirer or of any meeting of stockholders at which the voting rights
of such shares are considered and not approved. If voting rights for control shares are approved at a stockholders meeting and
the acquirer becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal
rights. The fair value of the shares as determined for purposes of such appraisal rights may not be less than the highest price
per share paid by the acquirer in the control share acquisition.
The control share acquisition statute does
not apply to, among other things, (1) shares acquired in a merger, consolidation or share exchange if the corporation is a
party to the transaction or (2) acquisitions approved or exempted by the charter or bylaws of the corporation.
Our bylaws contain a provision exempting from
the control share acquisition statute any acquisition by any person of shares of our stock. There can be no assurance that such
provision will not be amended or eliminated at any time in the future by our board of directors.
Subtitle 8
Subtitle 8 of Title 3 of the MGCL
permits a Maryland corporation with a class of equity securities registered under the Exchange Act and at least three independent
directors to elect to be subject, by provision in its charter or bylaws or a resolution of its board of directors and notwithstanding
any contrary provision in the charter or bylaws, to any or all of five provisions of the MGCL which provide, respectively, that:
| · | the corporation’s board of directors will be divided into three classes; |
| · | the affirmative vote of two-thirds of the votes cast in the election of directors generally is required to remove a director; |
| · | the number of directors may be fixed only by vote of the directors; |
| · | a vacancy on its board of directors be filled only by the remaining directors and that directors elected to fill a vacancy
will serve for the remainder of the full term of the class of directors in which the vacancy occurred; and |
| · | the request of stockholders entitled to cast a majority of all the votes entitled to be cast at the meeting is required for
stockholders to require the calling of a special meeting of stockholders. |
We have elected by a provision in our charter
to be subject to the provisions of Subtitle 8 relating to the filling of vacancies on our board of directors. In addition, without
our having elected to be subject to Subtitle 8, our charter and bylaws already (1) require the affirmative vote of holders
of shares entitled to cast at least two-thirds of all the votes entitled to be cast generally in the election of directors to remove
a director from our board of directors, (2) vest in our board of directors the exclusive power to fix the number of directors,
by vote of a majority of the entire board and (3) require, unless called by our chairman, our president and chief executive
officer or our board of directors, the request of stockholders entitled to cast not less than a majority of all the votes entitled
to be cast at the meeting to call a special meeting. Our board of directors is not currently classified. In the future, our board
of directors may elect, without stockholder approval, to classify our board of directors or elect to be subject to any of the other
provisions of Subtitle 8.
Meetings of Stockholders
Pursuant to our bylaws, an annual meeting of
our stockholders for the purpose of the election of directors and the transaction of any business will be held on a date and at
the time and place set by our board of directors. Each of our directors is elected by our stockholders to serve until the next
annual meeting and until his or her successor is duly elected and qualifies under Maryland law. In addition, our chairman, our
president and chief executive officer or our board of directors may call a special meeting of our stockholders. Subject to the
provisions of our bylaws, a special meeting of our stockholders to act on any matter that may properly be considered by our stockholders
will also be called by our secretary upon the written request of stockholders entitled to cast a majority of all the votes entitled
to be cast at the meeting on such matter, accompanied by the information required by our bylaws. Our secretary will inform the
requesting stockholders of the reasonably estimated cost of preparing and mailing the notice of meeting (including our proxy materials),
and the requesting stockholder must pay such estimated cost before our secretary may prepare and mail the notice of the special
meeting.
Amendments to Our Charter and Bylaws
Except for certain amendments related to the
removal of directors and the restrictions on ownership and transfer of our stock and the vote required to amend those provisions
(which must be declared advisable by our board of directors and approved by the affirmative vote of stockholders entitled to cast
not less than two-thirds of all the votes entitled to be cast on the matter), our charter generally may be amended only if the
amendment is declared advisable by our board of directors and approved by the affirmative vote of stockholders entitled to cast
a majority of all of the votes entitled to be cast on the matter. Certain amendments to our charter, whether by merger or consolidation
or otherwise, that would materially and adversely affect the terms of our Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock must be approved by the holders of the outstanding shares of our Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock, as the case may be, entitled to cast at least two-thirds of the votes entitled to be cast on
the matter, voting as a separate class.
Our board of directors, with the approval of
a majority of the entire board, and without any action by our stockholders, may also amend our charter to increase or decrease
the aggregate number of shares of stock or the number of shares of stock of any class or series we are authorized to issue.
Our board of directors has the exclusive power
to adopt, alter or repeal any provision of our bylaws and to make new bylaws.
Extraordinary Transactions
Under the MGCL, a Maryland corporation generally
cannot dissolve, merge, convert, sell all or substantially all of its assets, engage in a statutory share exchange or engage in
similar transactions outside the ordinary course of business unless approved by the affirmative vote of stockholders entitled to
cast at least two-thirds of the votes entitled to be cast on the matter unless a lesser percentage (but not less than a majority
of all of the votes entitled to be cast on the matter) is set forth in the corporation’s charter. As permitted by the MGCL,
our charter provides that any of these actions may be approved by the affirmative vote of stockholders entitled to cast a majority
of all of the votes entitled to be cast on the matter. Many of our operating assets will be held by our subsidiaries, and these
subsidiaries may be able to merger or sell all or substantially all of their assets without the approval of our stockholders.
Appraisal Rights
Our charter provides that our stockholders
generally will not be entitled to exercise statutory appraisal rights.
Dissolution
Our dissolution must be declared advisable
by a majority of our entire board of directors and approved by the affirmative vote of stockholders entitled to cast a majority
of all of the votes entitled to be cast on the matter.
Advance Notice of Director Nominations and
New Business
Our bylaws provide that, with respect to an
annual meeting of stockholders, nominations of individuals for election to our board of directors and the proposal of other business
to be considered by our stockholders at an annual meeting of stockholders may be made only (1) pursuant to our notice of the
meeting, (2) by or at the direction of our board of directors or (3) by a stockholder who was a stockholder of record
both at the time of giving of notice and at the time of the meeting, who is entitled to vote at the meeting on the election of
the individual so nominated or such other business and who has complied with the advance notice procedures set forth in our bylaws,
including a requirement to provide certain information about the stockholder and its affiliates and the nominee or business proposal,
as applicable.
With respect to special meetings of stockholders,
only the business specified in our notice of meeting may be brought before the meeting. Nominations of individuals for election
to our board of directors may be made at a special meeting of stockholders at which directors are to be elected only (1) by
or at the direction of our board of directors or (2) provided that the special meeting has been properly called in accordance
with our bylaws for the purpose of electing directors, by a stockholder who is a stockholder of record both at the time of giving
of notice and at the time of the meeting, who is entitled to vote at the meeting on the election of each individual so nominated
and who has complied with the advance notice provisions set forth in our bylaws, including a requirement to provide certain information
about the stockholder and its affiliates and the nominee.
Anti-Takeover Effect of Certain Provisions
of Maryland Law and Our Charter and Bylaws
Our charter and bylaws and Maryland law contain
provisions that may delay, defer or prevent a change in control or other transaction that might involve a premium price for our
common stock or otherwise be in the best interests of our stockholders, including:
| · | supermajority vote and cause requirements for removal of directors; |
| · | requirement that stockholders holding at least a majority of our outstanding common stock must act together to make a written
request before our stockholders can require us to call a special meeting of stockholders; |
| · | provisions that vacancies on our board of directors may be filled only by the remaining directors for the full term of the
directorship in which the vacancy occurred; |
| · | the power of our board of directors, without stockholder approval, to increase or decrease the aggregate number of authorized
shares of stock or the number of shares of any class or series of stock; |
| · | the power of our board of directors to cause us to issue additional shares of stock of any class or series and to fix the terms
of one or more classes or series of stock without stockholder approval; |
| · | the restrictions on ownership and transfer of our stock; and |
| · | advance notice requirements for director nominations and stockholder proposals. |
Likewise, if the resolution opting out of the
business combination provisions of the MGCL was repealed or the provision in the bylaws opting out of the control share acquisition
provisions of the MGCL were rescinded, these provisions of the MGCL could have similar anti-takeover effects.
Limitation of Directors’ and Officers’
Liability and Indemnification
Maryland law permits a Maryland corporation
to include in its charter a provision limiting the liability of its directors and officers to the corporation and its stockholders
for money damages, except for liability resulting from actual receipt of an improper benefit or profit in money, property or services
or active and deliberate dishonesty that is established by a final judgment and is material to the cause of action. Our charter
contains a provision that eliminates such liability to the maximum extent permitted by Maryland law.
The MGCL requires a corporation (unless its
charter provides otherwise, which our charter does not) to indemnify a director or officer who has been successful, on the merits
or otherwise, in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or
her service in that capacity. The MGCL permits a corporation to indemnify its present and former directors and officers, among
others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any
proceeding to which they may be made, or threatened to be made, a party by reason of their service in those or other capacities
unless it is established that:
| · | the act or omission of the director or officer was material to the matter giving rise to the proceeding and (1) was committed
in bad faith or (2) was the result of active and deliberate dishonesty; |
| · | the director or officer actually received an improper personal benefit in money, property or services; or |
| · | in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was
unlawful. |
However, under the MGCL, a Maryland corporation
may not indemnify for an adverse judgment in a suit by or in the right of the corporation or for a judgment of liability on the
basis that personal benefit was improperly received, unless in either case a court orders indemnification if it determines that
the director or officer is fairly and reasonably entitled to indemnification, and then only for expenses. In addition, the MGCL
permits a Maryland corporation to advance reasonable expenses to a director or officer upon its receipt of:
| · | a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct
necessary for indemnification by the corporation; and |
| · | a written undertaking by the director or officer or on the director’s or officer’s behalf to repay the amount paid
or reimbursed by the corporation if it is ultimately determined that the director or officer did not meet the standard of conduct. |
Our charter authorizes us, and our bylaws obligate
us, to the maximum extent permitted by Maryland law in effect from time to time, to indemnify and, without requiring a preliminary
determination of the ultimate entitlement to indemnification, pay or reimburse reasonable expenses in advance of final disposition
of such a proceeding to:
| · | any present or former director or officer of our company who is made, or threatened to be made, a party to the proceeding by
reason of his or her service in that capacity; or |
| · | any individual who, while a director or officer of our company and at our request, serves or has served as a director, officer,
partner, trustee, member or manager of another corporation, real estate investment trust, limited liability company, partnership,
joint venture, trust, employee benefit plan or other enterprise and who is made, or threatened to be made, a party to the proceeding
by reason of his or her service in that capacity. |
Our charter and bylaws also permit us to indemnify
and advance expenses to any individual who served our predecessor in any of the capacities described above and to any employee
or agent of our company or our predecessor.
We have entered into indemnification agreements
with each of our directors and executive officers that provide for indemnification to the maximum extent permitted by Maryland
law.
REIT Qualification
Our charter provides that our board of directors
may revoke or otherwise terminate our REIT election, without approval of our stockholders, if it determines that it is no longer
in our best interests to attempt to qualify, or to continue to qualify, as a REIT.
MATERIAL
FEDERAL INCOME TAX CONSIDERATIONS
This section summarizes the material federal
income tax considerations that you, as a holder of our common stock, may consider relevant in connection with the purchase, ownership
and disposition of our common stock. Hunton & Williams LLP has acted as our counsel, has reviewed this summary, and is
of the opinion that the discussion contained herein is accurate in all material respects. Because this section is a summary, it
does not address all aspects of taxation that may be relevant to particular holders of our common stock in light of their personal
investment or tax circumstances, or to certain types of holders of our securities that are subject to special treatment under the
federal income tax laws, such as:
| · | tax-exempt organizations (except to the limited extent discussed in “—Taxation of Tax-Exempt Stockholders”
below); |
| · | financial institutions or broker-dealers; |
| · | non-U.S. individuals, partnerships and foreign corporations (except to the limited extent discussed in “—Taxation
of Non-U.S. Stockholders” below); |
| · | persons who mark-to-market our common stock; |
| · | subchapter S corporations; |
| · | U.S. stockholders (as defined below) whose functional currency is not the U.S. dollar; |
| · | regulated investment companies and REITs; |
| · | holders who receive our common stock through the exercise of employee share options or otherwise as compensation; |
| · | persons holding our common stock as part of a “straddle,” “hedge,” “conversion transaction,”
“synthetic security” or other integrated investment; |
| · | persons subject to the alternative minimum tax provisions of the Code; and |
| · | persons holding our common stock through a partnership or similar pass-through entity. |
This summary assumes that holders of our common
stock hold shares of our common stock as capital assets for federal income tax purposes, which generally means property held for
investment.
The statements in this section are not intended
to be, and should not be construed as, tax advice. The statements in this section are based on the Code, current, temporary and
proposed Treasury regulations, the legislative history of the Code, current administrative interpretations and practices of the
Internal Revenue Service, or IRS, and court decisions. The reference to IRS interpretations and practices includes the IRS practices
and policies endorsed in private letter rulings, which are not binding on the IRS except with respect to the taxpayer that receives
the ruling. In each case, these sources are relied upon as they exist on the date of this discussion. Future legislation, Treasury
regulations, administrative interpretations and court decisions could change current law or adversely affect existing interpretations
of current law on which the information in this section is based. Any such change could apply retroactively. We have not received
any rulings from the IRS concerning our qualification as a REIT. Accordingly, even if there is no change in the applicable law,
no assurance can be provided that the statements made in the following discussion, which do not bind the IRS or the courts, will
not be challenged by the IRS or will be sustained by a court if so challenged.
WE URGE YOU TO CONSULT YOUR TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO YOU OF THE PURCHASE, OWNERSHIP AND SALE OF OUR COMMON STOCK AND OUR ELECTION TO BE TAXED
AS A REIT. SPECIFICALLY, YOU ARE URGED TO CONSULT YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES
OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION, AND REGARDING POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
Taxation of Our Company
We elected to be taxed as a REIT for federal
income tax purposes commencing with our taxable year ended December 31, 2011. We believe that, commencing with such taxable
year, we have been organized and have operated in such a manner as to qualify for taxation as a REIT under the Code, and we intend
to continue to operate in such a manner, but no assurances can be given that we will operate in a manner so as to qualify or remain
qualified as a REIT. This section discusses the laws governing the federal income tax treatment of a REIT and the holders of its
common stock. These laws are highly technical and complex.
In the opinion of Hunton & Williams
LLP, we qualified to be taxed as a REIT for our taxable years ended December 31, 2011 through December 31, 2014, and our current
and proposed method of operations will enable us to continue to satisfy the requirements for qualification and taxation as a REIT
under the federal income tax laws for our taxable year ending December 31, 2015 and subsequent taxable years. Investors should
be aware that Hunton & Williams LLP’s opinion is based upon customary assumptions, will be conditioned upon certain
representations made by us as to factual matters, including representations regarding the nature of our assets and the conduct
of our business, is not binding upon the IRS, or any court, and speaks as of the date issued. In addition, Hunton & Williams
LLP’s opinion will be based on existing federal income tax law governing qualification as a REIT, which is subject to change
either prospectively or retroactively. Moreover, our qualification and taxation as a REIT depend upon our ability to meet on a
continuing basis, through actual annual operating results, certain qualification tests set forth in the federal tax laws. Those
qualification tests involve the percentage of income that we earn from specified sources, the percentage of our assets that falls
within specified categories, the diversity of our stock ownership, and the percentage of our earnings that we distribute. Hunton &
Williams LLP will not review our compliance with those tests on a continuing basis. Accordingly, no assurance can be given that
our actual results of operations for any particular taxable year will satisfy such requirements. Hunton & Williams LLP’s
opinion does not foreclose the possibility that we may have to use one or more of the REIT savings provisions described below,
which would require us to pay an excise or penalty tax (which could be material) in order for us to maintain our REIT qualification.
For a discussion of the tax consequences of our failure to qualify as a REIT, see “—Failure to Qualify.”
If we qualify as a REIT, we generally will
not be subject to federal income tax on the taxable income that we distribute to our stockholders. The benefit of that tax treatment
is that it avoids the “double taxation,” or taxation at both the corporate and stockholder levels, that generally results
from owning stock in a corporation. However, we will be subject to federal tax in the following circumstances:
| · | We will pay federal income tax on any taxable income, including undistributed net capital gain, that we do not distribute to
stockholders during, or within a specified time period after, the calendar year in which the income is earned. |
| · | We may be subject to the “alternative minimum tax” on any items of tax preference including any deductions of net
operating losses. |
| · | We will pay income tax at the highest corporate rate on: |
| · | net income from the sale or other disposition of property acquired through foreclosure or after a default on a lease of the
property (“foreclosure property”) that we hold primarily for sale to customers in the ordinary course of business,
and |
| · | other non-qualifying income from foreclosure property. |
| · | We will pay a 100% tax on net income from sales or other dispositions of property, other than foreclosure property, that we
hold primarily for sale to customers in the ordinary course of business. |
| · | If we fail to satisfy one or both of the 75% gross income test or the 95% gross income test, as described below under “—Gross
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,
in either case, multiplied by a fraction intended to reflect our profitability. |
| · | If we fail to distribute during a calendar year at least the sum of (i) 85% of our REIT ordinary income for the year,
(ii) 95% of our REIT capital gain net income for the year, and (iii) any undistributed taxable income from earlier periods,
we will pay a 4% nondeductible excise tax on the excess of the required distribution over the sum of (A) the amount we actually
distributed plus (B) retained amounts on which corporate-level tax was paid by us. |
| · | We may elect to retain and pay income tax on our net long-term capital gain. In that case, a U.S. stockholder 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 stockholders) and would receive a credit or refund for its proportionate share of the tax we paid. |
| · | We will be subject to a 100% excise tax on transactions with a TRS that are not conducted on an arm’s-length basis. |
| · | If we fail 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 such 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 the highest federal income tax rate then applicable to U.S. corporations (currently 35%) on the net
income from the nonqualifying assets during the period in which we failed to satisfy the asset tests. |
| · | If 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 to willful neglect, we will be required to pay a penalty of $50,000 for each
such failure. |
| · | If we acquire any asset from a C corporation, or a corporation that generally is subject to full corporate-level tax,
in a merger or other transaction in which we acquire a basis in the asset that is determined by reference 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: |
| · | the amount of gain that we recognize at the time of the sale or disposition, and |
| · | the amount of gain that we would have recognized if we had sold the asset at the time we acquired it. |
| · | 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 stockholders, as described
below in “—Recordkeeping Requirements.” |
| · | The earnings of our lower-tier entities that are subchapter C corporations, including TRSs, will be subject to federal
corporate income tax. |
In addition, notwithstanding our qualification
as a REIT, we may also have to pay certain state and local income taxes, because not all states and localities treat REITs in the
same manner that they are treated for federal income tax purposes. Moreover, as further described below, TRSs will be subject to
federal, state and local corporate income tax on their taxable income.
Requirements for Qualification
A REIT is a corporation, trust or association
that meets each of the following requirements:
| 1. | It is managed by one or more directors or trustees. |
| 2. | Its beneficial ownership is evidenced by transferable shares, or by transferable certificates of beneficial interest. |
| 3. | It would be taxable as a domestic corporation, but for the REIT provisions of the federal income tax laws. |
| 4. | It is neither a financial institution nor an insurance company subject to special provisions of the federal income tax laws. |
| 5. | At least 100 persons are beneficial owners of its shares or ownership certificates. |
| 6. | 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. |
| 7. | It elects to be a REIT, or has made such election for a previous taxable year, and satisfies all relevant filing and other
administrative requirements established by the IRS that must be met to elect and maintain REIT status. |
| 8. | It meets certain other qualification tests, described below, regarding the nature of its income and assets and the amount of
its distributions to stockholders. |
| 9. | It uses a calendar year for federal income tax purposes and complies with the recordkeeping requirements of the federal income
tax laws. |
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. Requirements 5 and 6 applied to us beginning with
our 2012 taxable year. If we comply with all the requirements for ascertaining the ownership of our outstanding stock 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
apart 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 Code, and beneficiaries of such a trust will be treated as holding
our stock in proportion to their actuarial interests in the trust for purposes of requirement 6.
Our charter provides restrictions regarding
the transfer and ownership of our stock. See “Description of Capital Stock—Restrictions on Ownership and Transfer.”
We believe that we have issued sufficient stock with sufficient diversity of ownership to allow us to satisfy requirements 5 and
6 above. The restrictions in our charter are intended (among other things) to assist us in continuing to satisfy requirements 5
and 6 described above. These restrictions, however, may not ensure that we will, in all cases, be able to satisfy such stock ownership
requirements. If we fail to satisfy these stock ownership requirements, our qualification as a REIT may terminate.
Qualified REIT Subsidiaries. A corporation
that is a “qualified REIT subsidiary” is not treated as a corporation separate from its parent REIT. All assets, liabilities,
and items of income, deduction, and credit of a “qualified REIT subsidiary” are treated as assets, liabilities, and
items of income, deduction, and credit of the REIT. A “qualified REIT subsidiary” is a corporation, other than a TRS,
all of the stock of which is owned by 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.
Other Disregarded Entities and Partnerships.
An unincorporated domestic entity, such as a partnership or limited liability company that has a single owner, generally is
not treated as an entity separate from its owner 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 proportionate share of the gross income of the partnership for purposes of the applicable REIT qualification tests.
Our proportionate share for purposes of the 10% value test (see “—Asset Tests”) is based on our proportionate
interest in the equity interests and certain debt securities issued by the partnership. For all of the other asset and income tests,
our proportionate share is based on our proportionate interest in the capital interests in the partnership. Our proportionate share
of the assets, liabilities, and items of income of any partnership, joint venture, or limited liability company that is treated
as a partnership for federal income tax purposes in which we acquire an equity interest, directly or indirectly, are treated as
our assets and gross income for purposes of applying the various REIT qualification requirements.
We have control of our operating partnership
and intend to control any subsidiary partnerships and limited liability companies, and we intend to operate them in a manner consistent
with the requirements for our qualification as a REIT. We may from time to time be a limited partner or non-managing member in
some of our partnerships and limited liability companies. If a partnership or limited liability company in which we own an interest
takes or expects to take actions that could jeopardize our status as a REIT or require us to pay tax, we may be forced to dispose
of our interest in such entity. In addition, it is possible that a partnership or limited liability company could take an action
which could cause us to fail a gross income or asset test, and that we would not become aware of such action in time to dispose
of our interest in the partnership or limited liability company or take other corrective action on a timely basis. In that case,
we could fail to qualify as a REIT unless we were entitled to relief, as described below.
Taxable REIT Subsidiaries. A REIT may
own up to 100% of the capital stock 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. The subsidiary and the REIT must jointly elect to treat the subsidiary
as a TRS. A corporation (other than a REIT) of which a TRS directly or indirectly owns more than 35% of the voting power or value
of the outstanding securities will automatically be treated as a TRS. However, an entity will not qualify as a TRS if it directly
or indirectly operates or manages a lodging or health care facility or, generally, provides to another person under a franchise,
license, or otherwise, rights to any brand name under which any lodging facility or health care facility is operated, unless such
rights are provided to an “eligible independent contractor” (as defined below under “—Gross Income Tests—Rents
from Real Property”) to operate or manage a lodging facility or health care facility and such lodging facility or health
care facility is either owned by the TRS or leased to the TRS by its parent REIT. Additionally, a TRS that employs individuals
working at a qualified lodging facility located outside the United States will not be considered to operate or manage a qualified
lodging 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 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 dividend income to the extent of the TRS’s
current and accumulated earnings and profits. This treatment can affect our compliance with the gross income and asset tests. Because
we do not include the assets and income of TRSs in determining our compliance with the REIT requirements, we may use such entities
to undertake indirectly activities that the REIT rules might otherwise preclude us from doing directly or through pass-through
subsidiaries. Overall, no more than 25% of the value of a REIT’s assets may consist of stock or securities of one or more
TRSs.
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 currently, have our TRS, Summit TRS, whose wholly and majority owned subsidiaries are the lessees of our hotel properties,
other than one hotel, which is owned by a wholly owned subsidiary of Summit TRS. To reduce the risk of incurring a prohibited transaction
tax, we may conduct certain selective sales of our properties through one of our TRSs.
Gross Income Tests
We must satisfy two gross income tests annually
to maintain our qualification as a REIT. First, at least 75% of our gross income for each taxable year must consist of defined
types of income that we derive, directly or indirectly, from investments relating to real property or mortgages on real property
or qualified temporary investment income. Qualifying income for purposes of that 75% gross income test generally includes:
| · | rents from real property; |
| · | interest on debt secured by mortgages on real property, or on interests in real property; |
| · | dividends or other distributions on, and gain from the sale of, shares in other REITs; |
| · | gain from the sale of real estate assets; and |
| · | income derived from the temporary investment in stock and debt investments purchased with the proceeds from the issuance of
our stock or a public offering of our debt with a maturity date of at least five years and that we receive during the one-year
period beginning on the date on which we received such new capital. |
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 (except
for income derived from the temporary investment of new capital), other types of interest and dividends, gain from the sale or
disposition of stock 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 gross
income tests. In addition, income and gain from “hedging transactions” that we enter into to hedge indebtedness incurred
or to be incurred to acquire or carry real estate assets and that are clearly and timely identified as such will be excluded from
both the numerator and the denominator for purposes of both of the gross income tests. In addition, certain foreign currency gains
will be excluded from gross income for purposes of one or both of the gross income tests. See “—Foreign Currency Gain”
below. Finally, gross income attributable to cancellation of indebtedness income will be excluded from both the numerator and denominator
for purposes of both of the gross income tests. 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:
| · | 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. |
| · | Second, neither we nor a direct or indirect owner of 10% or more of our stock 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 and the property is a “qualified lodging
facility,” such TRS may not directly or indirectly operate or manage such 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 (such
operator, an “eligible independent contractor”). |
| · | 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. |
| · | Fourth, we generally must not operate or manage our real property or furnish or render services to our tenants, other than
certain customary services provided to tenants through an “independent contractor” who is adequately compensated and
from whom we do not derive revenue. Furthermore, we may own up to 100% of the stock of a TRS which may provide customary and noncustomary
services to our tenants without tainting our rental income from the leased properties. We need not provide services through an
“independent contractor” or a TRS, 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 services not described in the prior sentence
to the tenants of a property, other than through an independent contractor or a TRS, 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. |
Other than with respect to one of our hotel
properties, which is owned by a wholly owned subsidiary of Summit TRS, our TRS lessees lease from our operating partnership and
its subsidiaries the land (or leasehold interest), buildings, improvements, furnishings and equipment comprising our hotel properties.
In order for the rent paid under the leases to constitute “rents from real property,” the 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 our leases are true leases depends on an analysis of all the surrounding facts and circumstances.
In making such a determination, courts have considered a variety of factors, including the following:
| · | the intent of the parties; |
| · | the form of the agreement; |
| · | the degree of control over the property that is retained by the property owner (for example, whether the lessee has substantial
control over the operation of the property or whether the lessee was required simply to use its best efforts to perform its obligations
under the agreement); and |
| · | the extent to which the property owner retains the risk of loss with respect to the property (for example, 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 with
respect to the property. |
In addition, the federal income tax law provides
that a contract that purports to be a service contract or a partnership agreement is treated instead as a lease of property if
the contract is properly treated as such, taking into account all relevant factors. Since the determination of whether a service
contract should be treated as a lease is inherently factual, the presence or absence of any single factor may not be dispositive
in every case.
We believe that our leases are structured so
that they qualify as true leases for federal income tax purposes. Our belief is based on the following with respect to each lease:
| · | our operating partnership and the lessee intend for their relationship to be that of a lessor and lessee, and such relationship
is documented by a lease agreement; |
| · | the lessee has the right to exclusive possession and use and quiet enjoyment of the hotels covered by the lease during the
term of the lease; |
| · | the lessee bears the cost of, and is responsible for, day-to-day maintenance and repair of the hotels other than the cost of
certain capital expenditures, and dictates through hotel managers that are eligible independent contractors, who work for the lessee
during the terms of the lease, how the hotels are operated and maintained; |
| · | the lessee bears all of the costs and expenses of operating the hotels, including the cost of any inventory used in their operation,
during the term of the lease, other than real estate and personal property taxes and the cost of certain furniture, fixtures and
equipment, and certain capital expenditures; |
| · | the lessee benefits from any savings and bears the burdens of any increases in the costs of operating the hotels during the
term of the lease; |
| · | in the event of damage or destruction to a hotel, the lessee is at economic risk because it bears the economic burden of the
loss in income from operation of the hotels subject to the right, in certain circumstances, to terminate the lease if the lessor
does not restore the hotel to its prior condition; |
| · | the lessee generally indemnifies the lessor against all liabilities imposed on the lessor during the term of the lease by reason
of (i) injury to persons or damage to property occurring at the hotels or (ii) the lessee’s use, management, maintenance
or repair of the hotels; |
| · | the lessee is obligated to pay, at a minimum, substantial base rent for the period of use of the hotels under the lease; |
| · | the lessee stands to incur substantial losses or reap substantial gains depending on how successfully it, through the hotel
managers, who work for the lessees during the terms of the leases, operates the hotels; |
| · | each lease that we have entered into, at the time we entered into it (or at any time that any such lease is subsequently renewed
or extended) enables the tenant to derive a meaningful profit, after expenses and taking into account the risks associated with
the lease, from the operation of the hotels during the term of its leases; and |
| · | upon termination of each lease, the applicable hotel is expected to have a substantial remaining useful life and substantial
remaining fair market value. |
We expect that the leases we enter into in
the future with our TRS lessees will have similar features.
Investors should be aware that there are no
controlling Treasury regulations, published rulings or judicial decisions involving leases with terms substantially the same as
our leases that discuss whether such leases constitute true leases for federal income tax purposes. If our leases are characterized
as service contracts or partnership agreements, rather than as true leases, or disregarded altogether for tax purposes, part or
all of the payments that our operating partnership and its subsidiaries receive from the TRS 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 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 percentage rent must not be based in whole or in part on the income or profits of any person. Percentage rent, however,
will qualify as “rents from real property” if it is based on percentages of receipts or sales and the percentages:
| · | are fixed at the time the percentage leases are entered into; |
| · | are not renegotiated during the term of the percentage leases in a manner that has the effect of basing percentage rent on
income or profits; and |
| · | conform with normal business practice. |
More generally, percentage rent will not qualify
as “rents from real property” if, considering the 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.
Second, we must not own, actually or constructively,
10% or more of the stock 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 stock is owned, directly or indirectly, by
or for any person, we are considered as owning the stock owned, directly or indirectly, by or for such person. Other than with
respect to one hotel that is owned by a wholly owned subsidiary of Summit TRS, we anticipate that all of our hotels will be leased
to TRS lessees. In addition, our charter prohibits transfers of our stock that would cause us to own actually or constructively,
10% or more of the ownership interests in any non-TRS lessee. Based on the foregoing, we should never own, actually or constructively,
10% or more of any lessee other than a TRS. However, because the constructive ownership rules are broad and it is not possible
to monitor continually direct and indirect transfers of our stock, no absolute assurance can be given that such transfers or other
events of which we have no knowledge will not cause us to own constructively 10% or more of a lessee (or a subtenant, in which
case only rent attributable to the subtenant is disqualified) other than a TRS at some future date.
As described above, we may own up to 100% of
the capital stock of one or more TRSs. A TRS is a fully taxable corporation that generally may engage in any business, including
the provision of customary or noncustomary services to tenants of its parent REIT, except that a TRS may not directly or indirectly
operate or manage any lodging facilities or health care facilities or provide rights to any brand name under which any lodging
or health care facility is operated, unless such rights are provided to an “eligible independent contractor” to operate
or manage a lodging or health care facility if such rights are held by the TRS as a franchisee, licensee, or in a similar capacity
and such hotel is either owned by the TRS or leased to the TRS by its parent REIT. A TRS will not be considered to operate or manage
a qualified lodging facility solely because the TRS directly or indirectly possesses a license, permit, or similar instrument enabling
it to do so. Additionally, a TRS that employs individuals working at a qualified lodging facility outside the United States will
not be considered to operate or manage a qualified lodging facility located outside of the United States, as long as an “eligible
independent contractor” is responsible for the daily supervision and direction of such individuals on behalf of the TRS pursuant
to a management agreement or similar service contract. However, rent that we receive from a TRS with respect to any property will
qualify as “rents from real property” as long as the property is a “qualified lodging facility” and such
property is operated on behalf of the TRS by a person from whom we derive no income who is adequately compensated, who does not,
directly or through its stockholders, own more than 35% of our stock, 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.
Other than with respect to one hotel property
that is owned by a wholly owned subsidiary of Summit TRS and operated by Courtyard Management Corporation, an eligible independent
contractor, on its behalf, our TRS lessees lease our hotel properties, which we believe constitute qualified lodging facilities.
Our TRS lessees have engaged third-party managers to operate our hotels on behalf of the TRS lessees. We believe that each of those
third-party hotel managers qualifies as an “eligible independent contractor.” Our TRS lessees may engage other hotel
managers in the future. Our TRS lessees will only engage hotel managers that qualify as “eligible independent contractors.”
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”). To comply with this limitation, a TRS lessee may
acquire furnishings, equipment and other personal property. We believe either that the personal property ratio is less than 15%
or that any rent attributable to excess personal property, when taken together with all of our other nonqualifying income, 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 qualification.
Fourth, we generally cannot furnish or render
services to the tenants of our hotels, or manage or operate our properties, other than through an independent contractor who is
adequately compensated and from whom we do not derive or receive any income. Furthermore, our TRSs may provide customary and noncustomary
services to our tenants without tainting our rental income from such properties. However, we need not provide services through
an “independent contractor” or TRS 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 or a TRS, as long as our income from the services does not
exceed 1% of our income from the related property. We will not perform any services other than customary ones for our lessees,
unless such services are provided through independent contractors or TRSs or would not otherwise jeopardize our tax status as a
REIT.
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 (i) the percentage rent is considered based on the income or profits
of the related lessee, (ii) the lessee either is a related party tenant or fails to qualify for the exception to the related
party tenant rule for qualifying TRSs or (iii) 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 might be unable to satisfy
either the 75% or 95% gross income test. In addition to the rent, the lessees will be required to pay certain additional charges.
To the extent that such additional charges represent either (i) 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 (ii) 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 may be treated as interest
that qualifies for the 95% gross income test, but not the 75% gross income test, or they may be treated as nonqualifying income
for purposes of both gross income tests. We believe that we have structured our leases in a manner that will enable us to satisfy
the REIT gross income tests.
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:
| · | an amount that is based on a fixed percentage or percentages of receipts or sales; and |
| · | 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. |
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.
We have selectively invested in mortgage debt,
and may invest in mortgage debt in the future. Interest on debt secured by a mortgage on real property or on interests in real
property, including, for this purpose, discount points, prepayment penalties, loan assumption fees, and late payment charges that
are not compensation for services, generally is qualifying income for purposes of the 75% gross income test. However, if a loan
is secured by real property and other property and the highest principal amount of a loan outstanding during a taxable year exceeds
the fair market value of the real property securing the loan as of the date the REIT agreed to acquire the loan, then a portion
of the interest income from such loan will not be qualifying income for purposes of the 75% gross income test, but will be qualifying
income for purposes of the 95% gross income test. The portion of the interest income that will not be qualifying income for purposes
of the 75% gross income test will be equal to the portion of the principal amount of the loan that is not secured by real property—that
is, the amount by which the loan exceeds the value of the real estate that is security for the loan.
We have also selectively invested in mezzanine
loans, which are loans secured by equity interests in an entity that directly or indirectly owns real property, rather than by
a direct mortgage of the real property. IRS Revenue Procedure 2003-65 provides a safe harbor pursuant to which a mezzanine loan,
if it meets each of the requirements contained in the Revenue Procedure, will be treated by the IRS as a real estate asset for
purposes of the REIT asset tests described below, and interest derived from it will be treated as qualifying mortgage interest
for purposes of the 75% gross income test. 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 will not meet all of the requirements
for reliance on this safe harbor. We have invested, and intend to continue to invest, in mezzanine loans in a manner that will
enable us to continue to satisfy the gross income and asset tests.
Dividends. Our share of any dividends
received from any corporation (including any TRS, but excluding any REIT) in which we own an equity interest will qualify for purposes
of the 95% gross income test but not for purposes of the 75% gross income test. Our share of any dividends received from any other
REIT in which we own an equity interest, if any, will be qualifying income for purposes of both gross income tests.
Prohibited Transactions. A REIT will
incur a 100% tax on the net income (including foreign currency gain) derived from any sale or other disposition of property, other
than foreclosure property, that the REIT holds primarily for sale to customers in the ordinary course of a trade or business. We
believe that none of our assets will be 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:
| · | the REIT has held the property for not less than two years; |
| · | the aggregate expenditures made by the REIT, or any partner of the REIT, during the two-year period preceding the date of the
sale that are includable in the basis of the property do not exceed 30% of the selling price of the property; |
| · | either (i) 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, (ii) 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 (iii) 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; |
| · | in the case of property not acquired through foreclosure or lease termination, the REIT has held the property for at least
two years for the production of rental income; and |
| · | 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. |
We have selectively disposed of certain of
our properties in the past and intend to make additional dispositions in the future. Although 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, certain of our past dispositions have not qualified for that safe-harbor. Moreover, we cannot assure you 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” in the future. 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. To reduce the risk of incurring a prohibited transaction tax, we
may conduct certain selective sales of our properties through one of our TRSs.
Foreclosure Property. We will be subject
to tax at the maximum corporate rate on any net income from foreclosure property, which includes certain foreign currency gains
and related deductions, 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:
| · | 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; |
| · | for which the related loan was acquired by the REIT at a time when the default was not imminent or anticipated; and |
| · | for which the REIT makes a proper election to treat the property as foreclosure property. |
A REIT will not be considered to have foreclosed
on a property where the REIT takes control of the property as a mortgagee-in-possession and cannot receive any profit or sustain
any loss except as a creditor of the mortgagor. Property generally ceases to be foreclosure property 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:
| · | 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; |
| · | 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 |
| · | 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. |
Hedging Transactions. From time to time,
we or our operating partnership have entered and may in the future 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. 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 (i) 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 changes, 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 (ii) 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 or entered into and to satisfy other identification requirements.
We believe we have structured our hedging transactions in a manner that does not jeopardize our qualification as a REIT.
Foreign Currency Gain. Certain foreign
currency gains will be excluded from gross income for purposes of one or both of the gross income tests. “Real estate foreign
exchange gain” will be excluded from gross income for purposes of the 75% and 95% gross income tests. 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 interests 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) obligations. 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. We
may have gross income that fails to constitute qualifying income for purposes of one or both of the gross income tests. Taking
into account our anticipated sources of non-qualifying income, however, we expect that our aggregate gross income will allow us
to continue to satisfy the 75% and 95% gross income tests applicable to REITs. 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. Those relief provisions are available if:
| · | our failure to meet those tests is due to reasonable cause and not to willful neglect; and |
| · | following such failure for any taxable year, we file a schedule of the sources of our income in accordance with regulations
prescribed by the Secretary of the U.S. Treasury. |
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 either case, by a fraction intended to reflect
our profitability.
Asset Tests
To qualify 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:
| · | cash or cash items, including certain receivables and, in certain circumstances, foreign currencies; |
| · | U.S. government securities; |
| · | interests in real property, including leaseholds and options to acquire real property and leaseholds; |
| · | interests in mortgage loans secured by real property; |
| · | stock in other REITs; and |
| · | investments in stock or debt instruments during the one-year period following our receipt of new capital that we raise through
equity offerings or public offerings of debt with at least a five-year term. |
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, or 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, or
the 10% vote or value test.
Fourth, no more than 25% 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, or the 25% securities test.
For purposes of the 5% asset test and the 10%
vote or value test, the term “securities” does not include stock 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:
| · | “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 equity, and (ii) the interest
rate and interest payment dates are not contingent on profits, the borrower’s discretion, or similar factors. “Straight
debt” securities do not include any securities issued by a partnership or a corporation in which we or any controlled TRS
(i.e., a TRS in which we own directly or indirectly more than 50% of the voting power or value of the stock) hold non-“straight
debt” securities that have an aggregate value of more than 1% of the issuer’s outstanding securities. However, “straight
debt” securities include debt subject to the following contingencies: |
| · | a contingency relating to the time of payment of interest or principal, as long as either (i) there is no change to the
effective yield of the debt obligation, other than a change to the annual yield that does not exceed the greater of 0.25% or 5%
of the annual yield, or (ii) neither the aggregate issue price nor the aggregate face amount of the issuer’s debt obligations
held by us exceeds $1.0 million and no more than 12 months of unaccrued interest on the debt obligations can be required
to be prepaid; and |
| · | a contingency relating to the time or amount of payment upon a default or prepayment of a debt obligation, as long as the contingency
is consistent with customary commercial practice; |
| · | Any loan to an individual or an estate; |
| · | Any “section 467 rental agreement,” other than an agreement with a related party tenant; |
| · | Any obligation to pay “rents from real property”; |
| · | Certain securities issued by governmental entities; |
| · | Any security issued by a REIT; |
| · | Any debt instrument 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; and |
| · | 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 “—Gross Income Tests.” |
For purposes of the 10% value test, our proportionate
share of the assets of a partnership is our proportionate interest in any securities issued by the partnership, without regard
to the securities described in the last two bullet points above.
As described above, we have selectively invested,
and may invest from time to time, in mortgage debt and mezzanine loans. Mortgage loans will generally qualify as real estate assets
for purposes of the 75% asset test to the extent that they are secured by real property. However, if a loan is secured by real
property and other property and the highest principal amount of a loan outstanding during a taxable year exceeds the fair market
value of the real property securing the loan as of the date we agreed to acquire the loan, then a portion of such loan likely will
not be a qualifying real estate asset. IRS Revenue Procedure 2014-51 provides a safe harbor under which the IRS has stated that
it will not challenge a REIT’s treatment of a loan as being, in part, a real estate asset for purposes of the 75% asset test
if the REIT treats the loan as being a qualifying real estate asset in an amount equal to the lesser of (i) the fair market value
of the loan on the date of the relevant quarterly REIT asset testing date or (ii) the greater of (a) the fair market value of the
real property securing the loan on the date of the relevant quarterly REIT asset testing date or (b) the fair market value of the
real property securing the loan determined as of the date the REIT committed to acquire the loan. We intend to invest in mortgage
debt in a manner that will enable us to continue to satisfy the asset and gross income test requirements.
Although we expect that our investments in
mezzanine loans will generally be treated as real estate assets, our mezzanine loans typically will not meet all the requirements
of the safe harbor in IRS Revenue Procedure 2003-65. Thus, no assurance can be provided that the IRS will not challenge our treatment
of mezzanine loans as real estate assets. We have invested, and intend to continue to invest, in mezzanine loans in a manner that
will enable us to continue to satisfy the asset and gross income test requirements.
We will monitor 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:
| · | we satisfied the asset tests at the end of the preceding calendar quarter; and |
| · | the discrepancy between the value of our assets and the asset test requirements arose from changes in the market values of
our assets and was not wholly or partly caused by the acquisition of one or more non-qualifying assets. |
If we did not satisfy the condition described
in the second item, above, we still could avoid disqualification by eliminating any discrepancy within 30 days after the close
of the calendar quarter in which it arose.
If we violate the 5% asset test or the 10%
vote or value test described above, we will not lose our REIT qualification if (i) the failure is de minimis (up to the lesser
of 1% of our assets or $10.0 million) and (ii) we dispose of assets or otherwise comply with the asset tests within six
months after the last day of the quarter in which we 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 qualification if we (i) dispose of the assets causing the failure or
otherwise comply with the asset tests within six months after the last day of the quarter in which we identify the failure, (ii) we
file a description of each asset causing the failure with the IRS and (iii) pay a tax equal to the greater of $50,000 or the
highest corporate tax rate multiplied by the net income from the nonqualifying assets during the period in which we failed to satisfy
the asset tests.
We believe that the assets that we hold satisfy
the foregoing asset test requirements. However, we will not obtain independent appraisals to support our conclusions as to the
value of our assets and securities, or the real estate collateral for the mortgage or mezzanine loans that support our investments.
Moreover, the values of some assets may not be susceptible to a precise determination. As a result, there can be no assurance that
the IRS will not contend that our ownership of securities and other assets violates one or more of the asset tests applicable to
REITs.
Distribution Requirements
Each taxable year, we must distribute dividends,
other than capital gain dividends and deemed distributions of retained capital gain, to our stockholders in an aggregate amount
at least equal to:
| · | 90% of our “REIT taxable income,” computed without regard to the dividends paid deduction and our net capital gain
or loss; and |
| · | 90% of our after-tax net income, if any, from foreclosure property, minus |
| · | the excess of the sum of certain items of non-cash income over 5% of our “REIT taxable income.” |
We must pay such distributions in the taxable
year to which they relate, or in the following taxable year if either (i) 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 or (ii) we declare the distribution in October, November or December of the taxable year, payable to stockholders
of record on a specified day in any such month, and we actually pay the dividend before the end of January of the following year.
The distributions under clause (i) are taxable to the stockholders in the year in which paid, and the distributions in clause (ii)
are treated as paid on December 31st of the prior taxable year. In both instances, these distributions relate to our prior
taxable year for purposes of the 90% distribution requirement.
In order to satisfy the REIT distribution requirements,
the dividends we pay must not be “preferential.” A dividend determined to be preferential will not qualify for the
dividends paid deduction. To avoid paying preferential dividends, we must treat every stockholder of a class of stock with respect
to which we make a distribution the same as every other stockholder of that class, and we must not treat any class of stock other
than according to its dividend rights as a class. For example, if certain stockholders receive a distribution that is more or less
than the distributions received by other stockholders of the same class, the distribution will be preferential. If any part of
a distribution is preferential, none of that distribution will be applied towards satisfying our REIT distribution requirements.
We will pay federal income tax on taxable income,
including net capital gain, that we do not distribute to stockholders. 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:
| · | 85% of our REIT ordinary income for such year, |
| · | 95% of our REIT capital gain income for such year, and |
| · | any undistributed taxable income from prior periods, |
we will incur a 4% nondeductible excise tax on
the excess of such required distribution over the amounts we actually 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 intend 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
net capital losses from our “REIT taxable income.” Further, it is possible that, from time to time, we may be allocated
a share of net capital gain attributable to the sale of depreciated property that exceeds our allocable share of cash attributable
to that sale. 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, if possible, pay taxable dividends of our stock or debt securities.
We may satisfy the 90% distribution test with
taxable distributions of our stock or debt securities. The IRS has issued private letter rulings to other REITs treating certain
distributions that are paid partly in cash and partly in stock as dividends that would satisfy the REIT annual distribution requirement
and qualify for the dividends paid deduction for federal income tax purposes. Those rulings may be relied upon only by
taxpayers whom they were issued, but we could request a similar ruling from the IRS. In addition, the IRS previously issued a revenue
procedure authorizing publicly traded REITs to make elective cash/stock dividends, but that revenue procedure no longer applies.
Accordingly, it is unclear whether and to what extent we will be able to make taxable dividends payable in cash and stock. We have
no current intention to make a taxable dividend payable in our stock.
Under certain circumstances, we may be able
to correct a failure to meet the distribution requirement for a year by paying “deficiency dividends” to our stockholders
in a later year. We may include such deficiency dividends in our deduction for dividends paid for the earlier year. Although we
may be able to avoid income tax on amounts distributed as deficiency dividends, we will be required to pay interest to the IRS
based upon the amount of any deduction we take for deficiency dividends.
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 stockholders
designed to disclose the actual ownership of our outstanding stock. We intend to comply with these requirements.
Failure to Qualify
If we fail to satisfy one or more requirements
for REIT qualification, other than the gross income tests and the asset tests (for which the cure provisions are described above),
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 “—Gross 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 stockholders. In fact, we would not be required to distribute any amounts to
stockholders in that year. In such event, to the extent of our current and accumulated earnings and profits, all distributions
to stockholders would be taxable as dividend income. Subject to certain limitations, corporate stockholders might be eligible for
the dividends received deduction and stockholders taxed at individual rates may be eligible for the reduced federal income tax
rate of 20% on “qualified dividend income.” 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. Stockholders
As used herein, the term “U.S. stockholder”
means a beneficial owner of shares of our common stock that for federal income tax purposes is:
| · | a citizen or resident of the United States; |
| · | 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; |
| · | an estate whose income is subject to federal income taxation regardless of its source; or |
| · | any trust if (i) 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 (ii) it has a valid election in
place to be treated as a U.S. person. |
If a partnership, entity or arrangement treated
as a partnership for federal income tax purposes holds shares of our common stock, the federal income tax treatment of a partner
in the partnership will generally depend on the status of the partner and the activities of the partnership. If you are a partner
in a partnership holding shares of our common stock, you are urged to consult your tax advisor regarding the consequences of the
ownership and disposition of our common stock by the partnership.
As long as we qualify as a REIT, a taxable
U.S. stockholder 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 stock dividends and then to our common stock dividends. Our dividends will not qualify for the dividends
received deduction generally available to corporations. In addition, dividends paid to a U.S. stockholder generally will not qualify
for the 20% tax rate for “qualified dividend income.” The maximum tax rate for qualified dividend income received by
U.S. stockholders taxed at individual rates is currently 20%. The maximum tax rate on qualified dividend income is lower than the
maximum tax rate on ordinary income, which is currently 39.6%. Qualified dividend income generally includes dividends paid to U.S.
stockholders taxed at individual rates by domestic C corporations and certain qualified foreign corporations. Because we are
not generally subject to federal income tax on the portion of our REIT taxable income distributed to our stockholders (see “—Taxation
of Our Company” above), our dividends generally will not be eligible for the 20% rate on qualified dividend income. As a
result, our ordinary REIT dividends will be taxed at the higher tax rate applicable to ordinary income. However, the 20% tax rate
for qualified dividend income will apply to our ordinary REIT dividends (i) attributable to dividends received by us from
non-REIT corporations, such as our TRSs and (ii) to the extent attributable 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 U.S. stockholder must hold our stock for more than 60 days during the 121-day period beginning
on the date that is 60 days before the date on which our common stock becomes ex-dividend with respect to the relevant distribution.
Certain individuals, trusts and estates whose income exceeds certain thresholds are also subject to a 3.8% Medicare tax on dividends
received from us.
A U.S. stockholder 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. stockholder has held our stock. We generally will designate our capital gain dividends as either 20% or 25% rate
distributions. See “—Capital Gains and Losses.” A corporate U.S. stockholder, 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 stockholder, a U.S. stockholder would be taxed on its proportionate share of our undistributed long-term
capital gain. The U.S. stockholder would receive a credit for its proportionate share of the tax we paid. The U.S. stockholder
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.
A U.S. stockholder will not incur tax on a
distribution in excess of our current and accumulated earnings and profits if the distribution does not exceed the adjusted basis
of the U.S. stockholder’s stock. Instead, the distribution will reduce the adjusted basis of such shares of stock. A U.S.
stockholder will recognize a distribution in excess of both our current and accumulated earnings and profits and the U.S. stockholder’s
adjusted basis in his or her stock as long-term capital gain, or short-term capital gain if the stock has been held for one year
or less, assuming the stock is a capital asset in the hands of the U.S. stockholder. In addition, if we declare a distribution
in October, November, or December of any year that is payable to a U.S. stockholder 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. stockholder on December 31 of such year, provided
that we actually pay the distribution during January of the following calendar year.
Stockholders may not include in their individual
income tax returns any of our net operating losses or capital losses. Instead, these losses are generally carried over by us for
potential offset against our future income. Taxable distributions from us and gain from the disposition of our stock will not be
treated as passive activity income and, therefore, stockholders generally will not be able to apply any “passive activity
losses,” such as losses from certain types of limited partnerships in which the stockholder is a limited partner, against
such income. In addition, taxable distributions from us and gain from the disposition of our stock generally will be treated as
investment income for purposes of the investment interest limitations. We will notify stockholders after the close of our taxable
year as to the portions of the distributions attributable to that year that constitute ordinary income, return of capital and capital
gain.
Taxation of U.S. Stockholders on the
Disposition of Common Stock
A U.S. stockholder
who is not a dealer in securities must generally treat any gain or loss realized upon a taxable disposition of our stock as long-term
capital gain or loss if the U.S. stockholder has held our stock for more than one year and otherwise as short-term capital gain
or loss. In general, a U.S. stockholder 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. stockholder’s adjusted tax
basis. A stockholder’s adjusted tax basis generally will equal the U.S. stockholder’s acquisition cost, increased by
the excess of net capital gains deemed distributed to the U.S. stockholder (discussed above) less tax deemed paid on such gains
and reduced by any returns of capital. However, a U.S. stockholder must treat any loss upon a sale or exchange of stock held by
such stockholder for six months or less as a long-term capital loss to the extent of capital gain dividends and any other actual
or deemed distributions from us that such U.S. stockholder treats as long-term capital gain. All or a portion of any loss that
a U.S. stockholder realizes upon a taxable disposition of our stock may be disallowed if the U.S. stockholder purchases other stock
within 30 days before or after the disposition.
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 currently is 39.6%. The maximum tax rate on long-term capital gain applicable to taxpayers
taxed at individual rates is 20% for sales and exchanges of assets held for more than one year. The maximum tax rate on long-term
capital gain from the sale or exchange of “Section 1250 property,” or depreciable real property, is 25%, which
applies to the lesser of the total amount of the gain or the accumulated depreciation on the Section 1250 property. Certain
individuals, estates or trusts whose income exceeds certain thresholds will be required to pay a 3.8% Medicare tax on net gains
from the sale or other disposition of property, such as our common stock, subject to certain exceptions.
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 stockholders taxed at individual rates at a 20% or 25% rate. Thus, the tax rate differential between
capital gain and ordinary income for those 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 Stockholders
Tax-exempt entities, including qualified employee
pension and profit sharing trusts and individual retirement accounts, generally are exempt from federal income taxation. However,
they are subject to taxation on their unrelated business taxable income, or UBTI. Although many investments in real estate generate
UBTI, the IRS has issued a ruling that dividend distributions from a REIT to an exempt employee pension trust do not constitute
UBTI. Based on that ruling, amounts that we distribute to tax-exempt stockholders generally should not constitute UBTI. However,
if a tax-exempt stockholder were to finance its acquisition of common stock with debt, a portion of the income that it receives
from us would constitute UBTI pursuant to the “debt-financed property” rules. Moreover, 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 stock must treat a percentage of the dividends that it receives from us
as UBTI. Such percentage is equal to the gross income 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 stock only if:
| · | the percentage of our dividends that the tax-exempt trust must treat as UBTI is at least 5%; |
| · | we qualify as a REIT by reason of the modification of the rule requiring that no more than 50% of our stock be owned by five
or fewer individuals that allows the beneficiaries of the pension trust to be treated as holding our stock in proportion to their
actuarial interests in the pension trust; and |
| · | one pension trust owns more than 25% of the value of our stock; or |
| · | a group of pension trusts individually holding more than 10% of the value of our stock collectively owns more than 50% of the
value of our stock. |
Taxation of Non-U.S. Stockholders
The term “non-U.S. stockholder”
means a beneficial owner of our common stock that is not a U.S. stockholder or a partnership (or entity treated as a partnership
for federal income tax purposes). The rules governing federal income taxation of nonresident alien individuals, foreign corporations,
foreign partnerships, and other foreign stockholders are complex. This section is only a summary of such rules. We urge
non-U.S. stockholders to consult their tax advisors to determine the impact of federal, state, and local income tax laws
on the purchase, ownership and sale of our common stock, including any reporting requirements.
Distributions
A non-U.S. stockholder that receives a distribution
that is not attributable to gain from our sale or exchange of a “United States real property interest,” or 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. stockholder’s conduct
of a U.S. trade or business (conducted through a U.S. permanent establishment, where applicable), the non-U.S. stockholder generally
will be subject to federal income tax on the distribution at graduated rates, in the same manner as U.S. stockholders are taxed
with respect to such distribution, and a non-U.S. stockholder that is a corporation also may be subject to the 30% branch profits
tax with respect to that distribution. Except with respect to certain distributions attributable to the sale of USRPIs described
below, 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. stockholder
unless either:
| · | a lower treaty rate applies and the non-U.S. stockholder files an IRS Form W-8BEN evidencing eligibility for that reduced rate
with us; or |
| · | the non-U.S. stockholder files an IRS Form W-8ECI with us claiming that the distribution is effectively connected income. |
A non-U.S. stockholder 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 capital stock. Instead, the excess portion of such distribution will reduce the adjusted basis
of that stock. A non-U.S. stockholder will be subject to tax on a distribution that exceeds both our current and accumulated earnings
and profits and the adjusted basis of its common stock, if the non-U.S. stockholder otherwise would be subject to tax on gain from
the sale or disposition of its common stock, as described below. Because we generally cannot determine at the time we make a distribution
whether the distribution will exceed our current and accumulated earnings and profits, we normally will withhold tax on the entire
amount of any distribution at the same rate as we would withhold on a dividend. However, a non-U.S. stockholder may 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 must 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
will withhold at a rate of 10% on any portion of a distribution not subject to withholding at a rate of 30%.
Non-U.S. stockholders will be subject to U.S.
withholding tax at a rate of 30% on dividends and, beginning on January 1, 2017, on proceeds of sale in respect of our common stock,
if certain disclosure requirements related to U.S. accounts or ownership are not satisfied. If payment of withholding taxes is
required, non-U.S. stockholders that are otherwise eligible for an exemption from, or reduction of, U.S. withholding taxes with
respect to such dividends and proceeds will be required to seek a refund from the IRS to obtain the benefit or such exemption or
reduction.
For any year in which we qualify as a REIT,
a non-U.S. stockholder 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, or FIRPTA. A USRPI includes certain interests in real property and stock in
certain corporations at least 50% of whose assets consist of USRPIs. Under FIRPTA, a non-U.S. stockholder 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. stockholder.
A non-U.S. stockholder thus would be taxed on such a distribution at the normal capital gains rates applicable to U.S. stockholders,
subject to applicable alternative minimum tax and a special alternative minimum tax in the case of a nonresident alien individual.
A non-U.S. corporate stockholder not entitled to treaty relief or exemption also may be subject to the 30% branch profits tax on
such a distribution. We would be required to withhold 35% of any distribution that we could designate as a capital gain dividend.
A non-U.S. stockholder may receive a credit against its tax liability for the amount we withhold.
However, if our common stock is regularly traded
on an established securities market in the United States, capital gain distributions on our common stock 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 the
non-U.S. stockholder did not own more than 5% of our common stock at any time during the one-year period preceding the distribution.
As a result, non-U.S. stockholders 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. We believe our common stock is regularly traded on an established
securities market in the United States. If our common stock is not regularly traded on an established securities market in the
United States or the non-U.S. stockholder owned more than 5% of our common stock 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. stockholder disposes of shares of our common stock during the
30-day period preceding the ex-dividend date of a dividend, and such non-U.S. stockholder (or a person related to such non-U.S.
stockholder) acquires or enters into a contract or option to acquire our common stock within 61 days of the first day of the
30-day period described above, and any portion of such dividend payment would, but for the disposition, be treated as a USRPI capital
gain to such non-U.S. stockholder, then such non-U.S. stockholder shall be treated as having USRPI capital gain in an amount that,
but for the disposition, would have been treated as USRPI capital gain.
Although the law is not clear on the matter,
it appears that amounts we designate as retained capital gains in respect of our common stock held by U.S. stockholders generally
should be treated with respect to non-U.S. stockholders in the same manner as actual distributions by us of capital gain dividends.
Under this approach, a non-U.S. stockholder would be able to offset as a credit against its federal income tax liability resulting
from its proportionate share of the tax paid by us on such retained capital gains, and to receive from the IRS a refund to the
extent of the non-U.S. stockholder’s proportionate share of such tax paid by us exceeds its actual federal income tax liability,
provided that the non-U.S. stockholder furnishes required information to the IRS on a timely basis.
Dispositions
Non-U.S. stockholders could incur tax under
FIRPTA with respect to gain realized upon a disposition of our common stock if we are a United States real property holding corporation
during a specified testing period. If at least 50% of a REIT’s assets are USRPIs, then the REIT will be a United States real
property holding corporation. We believe that we are and will continue to be a United States real property holding corporation
based on our investment strategy. However, despite our status as a United States real property holding corporation, a non-U.S.
stockholder generally would not incur tax under FIRPTA on gain from the sale of our common stock if we are a “domestically
controlled qualified investment entity.” A domestically controlled qualified investment entity includes a REIT in which,
at all times during a specified testing period, less than 50% in value of its stock is held directly or indirectly by non-U.S.
stockholders. We cannot assure you that this test will be met. If our common stock is regularly traded on an established securities
market, an additional exception to the tax under FIRPTA is available with respect to our common stock, even if we do not qualify
as a domestically controlled qualified investment entity at the time the non-U.S. stockholder sells shares of our common stock.
Under that exception, the gain from such a sale by such a non-U.S. stockholder will not be subject to tax under FIRPTA if:
| · | our common stock is treated as being regularly traded under applicable Treasury regulations on an established securities market;
and |
| · | the non-U.S. stockholder owned, actually or constructively, 5% or less of our common stock at all times during a specified
testing period. |
As noted above, we believe our common stock
is regularly traded on an established securities market.
If the gain on the sale of our shares of common
stock were taxed under FIRPTA, a non-U.S. stockholder would be taxed on that gain in the same manner as U.S. stockholders, subject
to applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals. Furthermore,
a non-U.S. stockholder generally will incur tax on gain not subject to FIRPTA if:
| · | the gain is effectively connected with the non-U.S. stockholder’s U.S. trade or business, in which case the non-U.S.
stockholder will be subject to the same treatment as U.S. stockholders with respect to such gain; or |
| · | the non-U.S. stockholder is a nonresident alien individual who was present in the U.S. for 183 days or more during the
taxable year and has a “tax home” in the United States, in which case the non-U.S. stockholder will incur a 30% tax
on his or her capital gains. |
Information Reporting Requirements and Withholding
We will report to our stockholders and to the
IRS the amount of distributions we pay during each calendar year, and the amount of tax we withhold, if any. Under the backup withholding
rules, a stockholder may be subject to backup withholding at a rate of 28% with respect to distributions unless the holder:
| · | is a corporation or qualifies for certain other exempt categories and, when required, demonstrates this fact; or |
| · | provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding, and otherwise complies
with the applicable requirements of the backup withholding rules. |
A stockholder 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 stockholder’s income tax liability. U.S. stockholders that hold our stock through foreign
accounts or intermediaries will be subject to U.S. withholding tax at a rate of 30% on dividends and, beginning on January 1, 2017,
on proceeds of sale of our stock, if certain disclosure requirements related to U.S. accounts are not satisfied. In addition, we
may be required to withhold a portion of capital gain distributions to any stockholders 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. stockholder provided that
the non-U.S. stockholder furnishes to us or our, W-8BEN-E 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 net proceeds from a disposition or a redemption effected outside the U.S. by a non-U.S. stockholder
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. stockholder and
specified conditions are met or an exemption is otherwise established. Payment of the net proceeds from a disposition by a non-U.S.
stockholder of stock 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. stockholder 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 stockholder’s federal income
tax liability if certain required information is furnished to the IRS. Stockholders are urged consult their tax advisors regarding
application of backup withholding to them and the availability of, and procedure for obtaining an exemption from, backup withholding.
Other Tax Consequences
Tax Aspects of Our Investments in
Our Operating Partnership and Subsidiary Partnerships
Substantially all of our investments are owned
indirectly through our operating partnership, which owns the hotel properties either directly or through certain subsidiaries.
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:
| · | is treated as a partnership under the Treasury regulations relating to entity classification (the “check-the-box regulations”);
and |
| · | is not a “publicly traded” partnership. |
Under the check-the-box regulations, an unincorporated
entity with at least two owners or members may elect to be classified either as an association taxable as a corporation or as a
partnership. If such an entity fails to make an election, it generally will be treated as a partnership (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.
Hunton & Williams LLP is of the opinion
that our operating partnership will be treated as a partnership, and not an association or publicly traded partnership taxable
as a corporation, for federal income tax purposes. Investors should be aware, however, that advice of counsel is not binding upon
the IRS, or any court. Therefore, no assurances can be given that our operating partnership will be treated as a partnership for
federal income tax purposes. 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. There is a risk that the IRS may contend
that the right of a holder of common units in our operating partnership to redeem the units for cash or, at our election, our common
stock could cause the common units to be considered readily tradable on the substantial equivalent of a secondary market. 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 (the “PTP
regulations”) provide limited safe harbors from the definition of a publicly traded partnership. Pursuant to one of those
safe harbors (the “private placement exception”), interests in a partnership will not be treated as readily tradable
on a secondary market or a substantial equivalent thereof if (i) all interests in the partnership were issued in a transaction
or transactions that were not required to be registered under the Securities Act and (ii) the partnership does not have more
than 100 partners at any time during the partnership’s taxable years. Pursuant to another safe harbor (the “limited
trading exception”), interests in a partnership will not be treated as readily traded on a secondary market or a substantial
equivalent thereof if the sum of the percentage interests in the partnership capital or profits transferred during the taxable
year of the partnership does not exceed two percent of the total interests in the partnership capital or profits, excluding certain
“private transfers” and transfers made under certain redemption or repurchase agreements.
For tax purposes, our operating partnership
is treated as a continuation of our predecessor, which merged into our operating partnership in connection with our initial public
offering, or IPO. We believe our predecessor qualified for the limited trading exception in each of its prior taxable years, but
did not qualify for the 90% passive income exception because its income primarily arose from the active business of operating hotels.
For its 2011 taxable year, we believe that our operating partnership qualified for the limited trading exception unless the IRS
successfully contends that the payment of certain accrued and unpaid priority distributions on our predecessor’s Class A
and Class A-1 membership interests in connection with the formation transactions related to our IPO is recharacterized as
a “disguised sale” for federal income tax purposes. Although we have been advised by counsel that the payment of the
accrued and unpaid priority returns in connection with the formation transactions should not be a “disguised sale,”
no assurance can be given that the IRS will not successfully challenge that position, in which case we would not satisfy the limited
trading exceptions. If treated as a publicly traded partnership, our operating partnership will not have qualified for the 90%
passive income exception during its 2011 taxable year because of the active hotel business income our predecessor earned in 2011
prior to the closing of our IPO. However, during our operating partnership’s 2011 taxable year, no common unit holder was
eligible to redeem common units for cash or, at our election, our common stock. Accordingly, even if our operating partnership
did not qualify for the limited trading exception, we believe that our operating partnership was not treated as a publicly traded
partnership during its 2011 taxable year because interests in our operating partnership were not readily tradable on a secondary
market or the substantial equivalent thereof. Because we believe that our predecessor has not been classified as a publicly traded
partnership in prior taxable years and our operating partnership was not classified as a publicly traded partnership during its
2011 taxable year, we believe that the 90% passive income exception will be available, if necessary, to prevent our operating partnership
from being taxed as a corporation should it be classified as a publicly traded partnership in 2012 and future taxable years. For
those taxable years, we believe that our operating partnership has had, and will have sufficient qualifying rental income to satisfy
the 90% passive income exception and may qualify for the limited trading exception in certain years. We expect that any other Partnership
that we form in the future will qualify for the private placement exception.
We have not requested, and do not intend to
request, a ruling from the IRS that our operating partnership will be classified as a partnership for federal income tax purposes.
If for any reason our operating partnership were taxable as a corporation, rather than as a partnership, for federal income tax
purposes, most, if not all, of the tax consequences described herein would be inapplicable. In particular, we would not qualify
as a REIT unless we qualified for certain relief provisions, because the value of our ownership interest in our operating partnership
exceeds 5% of our assets and we would be considered to hold more than 10% of the voting securities (and more than 10% of the value
of the outstanding securities) of another corporation. See “—Gross Income Tests” and “—Asset Tests.”
In addition, any change in our operating 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 “—Distribution Requirements.” Further,
items of income and deduction of our operating partnership would not pass through to its partners, and its partners would be treated
as stockholders for tax purposes. Consequently, our operating 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 our operating
partnership’s taxable income.
Income Taxation of 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 Our 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.
When cash is contributed to a partnership in exchange for a partnership interest, such as our contribution of the proceeds of any
offering to our operating partnership for in exchange for common or preferred units, similar rules apply to ensure that the existing
partners in the partnership are charged with, or benefit from, respectively, the unrealized gain or unrealized loss associated
with the partnership’s existing properties at the time of the cash contribution. In the case of a contribution of property,
the amount of the unrealized gain or unrealized loss (“built-in gain” or “built-in loss”) is generally
equal to the difference between the fair market value of the contributed property at the time of contribution and the adjusted
tax basis of such property at the time of contribution (a “book-tax difference”). In the case of a contribution of
cash, a book-tax difference may be created because the fair market value of the properties of the partnership on the date of the
cash contribution may be higher or lower than the partnership’s adjusted tax basis in those properties. Any property purchased
for cash initially will have an adjusted tax basis equal to its fair market value, resulting in no book-tax difference.
The contribution of the cash proceeds of our
IPO and other stock offerings to our operating partnership created book-tax differences, and our contribution of the proceeds of
any future offering to our operating partnership may also create a book-tax difference. Furthermore, our operating partnership
may admit partners in the future in exchange for a contribution of appreciated or depreciated property, resulting in book-tax differences
and our operating partnership succeeded to the book-tax differences with respect to properties contributed to our predecessor.
Allocations with respect to book-tax differences 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 certain available methods, our operating partnership’s existing
tax basis in our initial properties at the time we contributed the cash proceeds of the IPO and the carryover basis in the hands
of our operating partnership of properties contributed in the future could cause us to be allocated lower amounts of depreciation
deductions for tax purposes than would be allocated to us if all our properties were to have a tax basis equal to their fair market
value at the time of the contribution of cash or property. We have not yet decided what method will be used to account for book-tax
differences caused by the contribution of the cash proceeds of our stock offerings to our operating partnership or the future acquisition
of properties by our operating partnership.
Basis in Partnership Interest. Our adjusted
tax basis in our partnership interest in our operating partnership generally is equal to:
| · | the amount of cash and the basis of any other property contributed by us to our operating partnership; |
| · | increased by our allocable share of our operating partnership’s income and our allocable share of indebtedness of our
operating partnership; and |
| · | 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. |
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. Our operating partnership’s tax basis in our initial properties was generally not affected by
the formation transactions and our IPO. However, if the IRS successfully contends that the payment of certain accrued and unpaid
priority returns on our predecessor’s Class A and Class A-1 membership interests in connection with the formation
transactions is recharacterized as a “disguised sale” for federal income tax purposes, our basis in our operating partnership’s
assets may be adjusted to account for the difference between the deemed purchase price of the interests we are treated as having
acquired in the “disguised sale” and the proportionate share of our operating partnership’s basis in the assets
that is attributable to such interests. Such adjustments will only affect tax allocations made to us. To the extent that our operating
partnership acquires hotels in exchange for cash, its initial basis in such hotels for federal income tax purposes generally will
be equal to the purchase price paid by our operating partnership. Our operating partnership’s initial basis in hotels acquired
in exchange for units in our operating partnership should be the same as the transferor’s basis in such hotels on the date
of acquisition by our operating partnership. Although the law is not entirely clear, our operating partnership generally will depreciate
such depreciable hotel property for federal income tax purposes over the same remaining useful lives and under the same methods
used by the transferors. Our operating partnership’s tax depreciation deductions will be allocated among the partners in
accordance with their respective interests in our operating partnership, except to the extent that our operating partnership is
required under the federal income tax laws governing partnership allocations to use a method for allocating tax depreciation deductions
that are attributable either to (i) properties held by our operating partnership at the time we contributed the cash proceeds
of our stock offerings to our operating partnership in exchange for units (except to the extent of the portion of the properties
attributable to membership interests in our predecessor that we are treated as having acquired with the cash proceeds of our IPO)
or (ii) properties contributed to our operating partnership in the future in exchange for common units. Those special allocations
could result 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, subject to certain
adjustments. 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. Similar allocation rules apply with respect to the built-in
gain attributable to the difference between the fair market value of our hotel properties at the closing of our IPO and our predecessor’s
adjusted tax basis in those properties.
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 “—Gross Income Tests.” We do not presently intend to acquire or hold or to allow any
Partnership to acquire or hold any property that represents inventory or other property held primarily for sale to customers in
the ordinary course of our or such Partnership’s trade or business.
Legislative or Other Actions Affecting
REITs
The present federal income tax treatment of
REITs may be modified, possibly with retroactive effect, by legislative, judicial or administrative action at any time. The REIT
rules are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department
which may result in statutory changes as well as revisions to regulations and interpretations. Additionally, several of the tax
considerations described herein are currently under review and are subject to change. Prospective Investors are urged to consult
with their tax advisors regarding the effect of potential changes to the federal tax laws on an investment in our common stock.
State,
Local and Foreign Taxes
We and/or you may be subject to taxation by
various states, localities and foreign jurisdictions, including those in which we or a stockholder transacts business, owns property
or resides. The state, local and foreign tax treatment may differ from the federal income tax treatment described above. Consequently,
you are urged to consult your tax advisors regarding the effect of state, local and foreign tax laws upon an investment in our
common stock.
PLAN
OF DISTRIBUTION
This prospectus relates to the possible resale,
from time to time, by the selling stockholders of up to 412,174 shares of our common stock if, and to the extent that, the selling
stockholders tender their common units for redemption and we elect, in our sole and absolute discretion, to exchange such common
units for common stock in lieu of a cash redemption by our operating partnership. The registration of these shares of common stock
does not necessarily mean that any of these shares will be offered or sold by the selling stockholders.
As used in this section, the term “selling
stockholders” (unless the context otherwise indicates or requires) includes the selling stockholders’ transferees,
assignees and other successors in interest that receive shares of our common stock from the selling stockholders as a gift, distribution
or other transfer (including a purchase) after the date of this prospectus. To the extent required, this prospectus may be amended
and supplemented from time to time to describe a specific plan of distribution.
We will not receive any proceeds from the sale
of the shares of our common stock covered by this prospectus by the selling stockholders. We have agreed to pay all costs and expenses
incurred in connection with the registration of the shares of our common stock covered by this prospectus under the Securities
Act, including, among others, the following:
| Ÿ | all registration and filing fees; |
| Ÿ | fees and expenses for complying with securities or blue sky laws, including reasonable fees and disbursements of counsel in
connection with blue sky qualifications; |
| Ÿ | the fees and expenses incurred in connection with listing the shares of our common stock covered by this prospectus; and |
| Ÿ | reasonable fees and disbursements of our counsel and customary fees and expenses for independent certified public accountants
retained by us. |
We have no obligation to pay any fees, discounts
or commissions attributable to the sale of the shares of our common stock covered by this prospectus by the selling stockholders,
any out-of-pocket expenses of the selling stockholders or any transfer taxes relating to the registration or sale of our common
stock contemplated hereby.
The selling stockholders may from time to time
offer and sell, transfer or otherwise dispose of any or all of the shares of our common stock covered by this prospectus through
underwriters or dealers, directly to purchasers or through dealers or agents, who may receive compensation in the form of discounts,
concessions or commissions from the selling stockholders or from the purchasers of such shares for whom they may act as agent.
The selling stockholders and any dealers or agents that participate in the distribution of such shares may be deemed to be “underwriters”
within the meaning of the Securities Act and any profit on the sale of the shares of our common stock by them and any commissions
received by any of these dealers or agents might be deemed to be underwriting commissions under the Securities Act.
The shares of our common stock covered by this
prospectus may be sold in one or more transactions at fixed prices, prevailing market prices at the time of sale, prices related
to prevailing market prices, varying prices determined at the time of sale or negotiated prices. These prices will be determined
by the selling stockholders or by agreement between the selling stockholders and underwriters, dealers or agents, if any, who may
receive fees or commissions in connection with any such sale. The selling stockholders may dispose of the shares or interests therein
by a variety of methods, including the following:
| Ÿ | on any national securities exchange on which our common stock may be listed at the time of sale, including the NYSE; |
| Ÿ | in the over-the-counter market; |
| Ÿ | in transactions otherwise than on such exchange or in the over-the-counter market, which may include privately negotiated transactions
and sales directly to one or more purchasers; |
| Ÿ | in transactions otherwise than on these exchanges or systems or in the over-the-counter market; |
| Ÿ | through ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
| Ÿ | through purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
| Ÿ | in privately negotiated transactions; |
| Ÿ | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; |
| Ÿ | in any combination of the above or by any other legally available means; and |
| Ÿ | any other method permitted pursuant to applicable law. |
These transactions may include block transactions
(transactions in which a broker-dealer will attempt to sell a block of securities as agent but may position and resell a portion
of the block as principal to facilitate the transaction) or crosses (in which the same broker-dealer acts as agent on both sides
of the trade). The selling stockholders may also sell the shares of our common stock covered by this prospectus pursuant to Rule
144 under the Securities Act, if available, rather than under this prospectus. Broker-dealers engaged by the selling stockholders
may arrange for other broker-dealers to participate in sales.
In connection with the distribution
of the shares of our common stock covered by this prospectus:
| Ÿ | the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may
in turn engage in short sales of our common stock in the course of hedging the positions they assume with the selling stockholders; |
| Ÿ | the selling stockholders may sell our common stock short and deliver the shares of our common stock covered by this prospectus
to close out these short positions; |
| Ÿ | the selling stockholders may enter into option or other transactions with broker-dealers or other financial institutions that
involve the delivery of the shares of our common stock covered by this prospectus to them, who may then sell or otherwise transfer
those shares; and |
| Ÿ | the selling stockholders may loan or pledge the shares of our common stock covered by this prospectus to a broker-dealer or
other financial institution, which, upon a default by the selling stockholders under the transaction to which such loan or pledge
relates, they may then sell or otherwise transfer those shares. |
In addition, the selling stockholders may sell
all or any portion of the shares of our common stock covered by this prospectus pursuant to Rule 144 under the Securities Act,
as permitted by that rule, or under any other exemption from the registration requirements of the Securities Act, rather than pursuant
to this prospectus.
Persons participating in the distribution of
the shares of our common stock covered by this prospectus may engage in transactions that stabilize the price of our common stock.
The anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of our common stock in the market and to
the activities of the selling stockholders.
We will make copies of this prospectus available
to the selling stockholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The selling
stockholders may indemnify any broker-dealer that participates in transactions involving the sale of shares of our common stock
covered by this prospectus against certain liabilities, including liabilities arising under the Securities Act.
We have agreed to indemnify the selling stockholders
against certain liabilities, including certain liabilities under the Securities Act.
LEGAL
MATTERS
Certain matters of Maryland law, including
the validity of the securities covered by this prospectus, will be passed upon for us by Venable LLP. Certain tax matters will
be passed upon for us by Hunton & Williams LLP.
EXPERTS
The consolidated balance sheet of Summit
Hotel Properties, Inc. as of December 31, 2014, and the related consolidated statements of operations, comprehensive income
(loss), changes in equity, and cash flows for the two years in the period then ended of Summit Hotel Properties, Inc.
and management's assessment of the effectiveness of internal control over financial reporting as of December 31, 2014 have
been incorporated by reference herein, in reliance upon the reports of Ernst & Young LLP, an independent registered
public accounting firm, and upon the authority of said firm as experts in accounting and auditing.
The consolidated statements operations, comprehensive
income (loss), changes in equity and cash flows Summit Hotel Properties, Inc. and subsidiaries (the Company) for the year ended
December 31, 2012 have been incorporated by reference herein, in reliance upon the reports of KPMG LLP, an independent public accounting
firm, and upon the authority of said firm as experts in accounting and auditing.
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 except the SEC registration fee and FINRA filing fee.
| |
Amount to be Paid | |
SEC registration fee | |
$ | 656 | |
Printing fees | |
| 10,000 | |
Legal fees and expenses | |
| 50,000 | |
Accounting fees and expenses | |
| 25,000 | |
Miscellaneous expenses | |
| 25,000 | |
Total | |
$ | 110,656 | |
| * | All amounts in the table above, except the SEC registration fee and FINRA filing fee, are estimated. These amounts do not include
expenses of preparing and printing any accompanying prospectus supplements, listing fees, warrant or unit agent fees and expenses,
transfer agent fees and other expenses related to offerings of particular securities from time to time. Estimated fees and expenses
associated with future offerings will be provided in the applicable prospectus supplement. |
Item 15. Indemnification of Directors and Officers.
Maryland law permits a Maryland corporation
to include in its charter a provision limiting the liability of its directors and officer to the corporation and its stockholders
for money damages, except for liability resulting from (1) actual receipt of an improper benefit or profit in money, property
or services or (2) active and deliberate dishonesty that is established by a final judgment and is material to the cause of
action. Our charter contains a provision that eliminates such liability to the maximum extent permitted by Maryland law.
The MGCL requires a corporation (unless its
charter provides otherwise, which our charter does not) to indemnify a director or officer who has been successful, on the merits
or otherwise, in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or
her service in that capacity. The MGCL permits a corporation to indemnify its present and former directors and officers, among
others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any
proceeding to which they may be made, or threatened to be made, a party by reason of their service in those or other capacities
unless it is established that:
| · | the act or omission of the director or officer was material to the matter giving rise to the proceeding and (1) was committed
in bad faith or (2) was the result of active and deliberate dishonesty; |
| · | the director or officer actually received an improper personal benefit in money, property or services; or |
| · | in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was
unlawful. |
However, under the MGCL, a Maryland corporation
may not indemnify for an adverse judgment in a suit by or in the right of the corporation or for a judgment of liability on the
basis that personal benefit was improperly received, unless in either case a court orders indemnification if it determines that
the director or officer is fairly and reasonably entitled to indemnification, and then only for expenses. In addition, the MGCL
permits a Maryland corporation to advance reasonable expenses to a director or officer upon its receipt of:
| · | a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct
necessary for indemnification by the corporation; and |
| · | a written undertaking by the director or officer or on the director’s or officer’s behalf to repay the amount paid
or reimbursed by the corporation if it is ultimately determined that the director or officer did not meet the standard of conduct. |
Our charter authorizes us and our bylaws obligate
us, to the maximum extent permitted by Maryland law in effect from time to time, to indemnify and, without requiring a preliminary
determination of the ultimate entitlement to indemnification, pay or reimburse reasonable expenses in advance of final disposition
of such a proceeding to:
| · | any present or former director or officer of our company who is made, or threatened to be made, a party to the proceeding by
reason of his or her service in that capacity; or |
| · | any individual who, while a director or officer of our company and at our request, serves or has served as a director, officer,
partner, trustee, member or manager of another corporation, real estate investment trust, limited liability company, partnership,
joint venture, trust, employee benefit plan or other enterprise and who is made, or threatened to be made, a party to the proceeding
by reason of his or her service in that capacity. |
Our charter and bylaws also permit us to indemnify
and advance expenses to any individual who served our predecessor in any of the capacities described above and to any employee
or agent of our company or our predecessor.
We have entered into indemnification agreements
with each of our directors and executive officer that would provide for indemnification to the maximum extent permitted by Maryland
law.
Insofar as the foregoing provisions permit
indemnification of directors, officer or persons controlling us for liability arising under the Securities Act, we have been informed
that in the opinion of the SEC, this indemnification is against public policy as expressed in the Securities Act and is therefore
unenforceable.
Item 16. Exhibits.
The list of exhibits following the signature
page of this Registration Statement is incorporated by reference herein.
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; |
| (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 Exchange Act 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, 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 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 relating to an offering made pursuant to Rule 415(a)(1)(i), (vii) or (x) for the purpose of providing the information
required by Section 10(a) of the Securities Act 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 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) 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 provisions described under Item 15 above, 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 Securities Act of 1933 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 Securities
Act of 1933 and will be governed by final adjudication of such issue.
(c) The registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act, each filing of the registrant’s annual report pursuant to
Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan’s annual report
pursuant to Section 15(d) of the Exchange Act) 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.
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 Austin, State of Texas on April 1, 2015.
|
SUMMIT HOTEL PROPERTIES, INC. |
|
|
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By: |
/s/ Daniel P. Hansen |
|
|
Daniel P. Hansen |
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President and Chief Executive Officer |
Powers of Attorney
KNOW ALL MEN BY THESE PRESENTS, that each person
whose signature appears below hereby constitutes and appoints Daniel P. Hansen, Greg A. Dowell and Christopher R. Eng and each
of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and any additional
related registration statement filed pursuant to Rule 462 under the Securities Act of 1933, as amended, (including post-effective
amendments to the registration statement and any such related registration statements), and to file the same, with all exhibits
thereto, and any other documents in connection therewith, granting unto said attorneys-in-fact and agents full power and authority
to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or
their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities
Act of 1933, this Registration Statement and the above Powers of Attorney have been signed below by the following person in the
capacities and on the dates indicated.
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Kerry W. Boekelheide |
|
Executive Chairman of the Board and Director |
|
April 1, 2015 |
Kerry W. Boekelheide |
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/s/ Daniel P. Hansen |
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President and Chief Executive Officer and Director |
|
April 1, 2015 |
Daniel P. Hansen |
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(Principal Executive Officer) |
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/s/ Greg A. Dowell |
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Executive Vice President, Chief Financial Officer and Treasurer |
|
April 1, 2015 |
Greg A. Dowell |
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(Principal Financial Officer) |
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/s/ Paul Ruiz |
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Vice President and Chief Accounting Officer |
|
April 1, 2015 |
Paul Ruiz |
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(Principal Accounting Officer) |
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/s/ Bjorn R. L. Hanson |
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Director |
|
April 1, 2015 |
Bjorn R. L. Hanson |
|
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|
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/s/ Jeffrey W. Jones |
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Director |
|
April 1, 2015 |
Jeffrey W. Jones |
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/s/ Thomas W. Storey |
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Director |
|
April 1, 2015 |
Thomas W. Storey |
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Director |
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Wayne W. Wielgus |
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/s/ Kenneth J. Kay |
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Director |
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April 1, 2015 |
Kenneth J. Kay |
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Exhibit Index
Exhibit
Number |
|
Description of Exhibit |
|
|
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3.1 |
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Articles of Amendment and Restatement of Summit Hotel Properties, Inc. (incorporated by reference to Exhibit 3.1 to Annual Report on Form 10-K filed by Summit Hotel Properties, Inc. on February 28, 2012) |
|
|
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3.2 |
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Articles Supplementary designating the Company’s 9.25% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed by Summit Hotel Properties, Inc. on October 28, 2011). |
|
|
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3.2 |
|
Articles Supplementary designating the Company’s 7.875% Series B Cumulative Redeemable Preferred Stock, $0.01 par value per share (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed by Summit Hotel Properties, Inc. on December 7, 2012). |
|
|
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3.4 |
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Articles Supplementary designating the Company’s 7.125% Series C Cumulative Redeemable Preferred Stock, $0.01 par value per share (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed by Summit Hotel Properties, Inc. on March 19, 2013). |
|
|
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3.5 |
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Amended and Restated Bylaws of Summit Hotel Properties, Inc. (incorporated by reference to Exhibit 3.2 to Amendment No. 2 to Registration Statement on Form S-11 filed by Summit Hotel Properties, Inc. on November 1, 2010) |
|
|
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3.6 |
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First Amended and Restated Agreement of Limited Partnership of Summit Hotel OP, LP, dated February 14, 2011, as amended (incorporated by reference to Exhibit 3.4 to Annual Report on Form 10-K filed by Summit Hotel Properties, Inc. on February 28, 2012) |
|
|
|
3.7 |
|
First Amendment to the First Amended and Restated Agreement of Limited Partnership of Summit Hotel OP, LP (incorporated by reference to Exhibit 3.2 to Current Report on Form 8-K filed by Summit Hotel Properties, Inc. on October 28, 2011) |
|
|
|
3.8 |
|
Second Amendment to the First Amended and Restated Agreement of Limited Partnership of Summit Hotel OP, LP (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed by Summit Hotel Properties, Inc. on April 16, 2012) |
|
|
|
3.9 |
|
Third Amendment to the First Amended and Restated Agreement of Limited Partnership of Summit Hotel OP, LP (incorporated by reference to Exhibit 3.2 to Current Report on Form 8-K filed by Summit Hotel Properties, Inc. on December 7, 2012) |
|
|
|
3.10 |
|
Fourth Amendment to the First Amended and Restated Agreement of Limited Partnership of Summit Hotel OP, LP (incorporated by reference to Exhibit 3.2 to Current Report on Form 8-K filed by Summit Hotel Properties, Inc. on March 19, 2013) |
|
|
|
4.1 |
|
Specimen certificate of common stock of Summit Hotel Properties, Inc. (incorporated by reference to Exhibit 4.1 to Amendment No. 5 to Registration Statement on Form S-11 filed by Summit Hotel Properties, Inc. on February 7, 2011) |
|
|
|
5.1 |
|
Opinion of Venable LLP regarding legality of the securities being registered |
|
|
|
8.1 |
|
Opinion of Hunton & Williams LLP regarding tax matters |
|
|
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23.1 |
|
Consent of Venable LLP (included in Exhibit 5.1) |
|
|
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23.2 |
|
Consent of Hunton & Williams LLP (included in Exhibit 8.1) |
|
|
|
23.3 |
|
Consent of KPMG LLP |
|
|
|
23.4 |
|
Consent of Ernst & Young LLP |
24.1 |
|
Powers of Attorney (included on the signature page of this registration statement) |
Exhibit 5.1
[LETTERHEAD OF VENABLE LLP]
April 1, 2015
Summit Hotel Properties, Inc.
12600 Hill Country Boulevard
Austin, Texas 78738
| Re: | Registration Statement on Form S-3 |
Ladies and Gentlemen:
We have served as Maryland counsel to Summit
Hotel Properties, Inc., a Maryland corporation (the “Company”), in connection with certain matters of Maryland law
relating to the registration by the Company of the resale from time to time of up to 412,174 shares (the “Shares”)
of common stock, $0.01 par value per share (the “Common Stock”), of the Company by the individuals named under the
caption “Selling Stockholders” in the above-referenced Registration Statement, and all amendments thereto (the “Registration
Statement”), filed by the Company with the United States Securities and Exchange Commission (the “Commission”)
under the Securities Act of 1933, as amended (the “1933 Act”).
In connection with our representation of the
Company, and as a basis for the opinion hereinafter set forth, we have examined originals, or copies certified or otherwise identified
to our satisfaction, of the following documents (hereinafter collectively referred to as the “Documents”):
1.
The Registration Statement and the related form of prospectus included therein in the form in which it was filed with the
Commission under the 1933 Act;
2.
The charter of the Company (the “Charter”), certified by the State Department of Assessments and Taxation of
Maryland (the “SDAT”);
3.
The Bylaws of the Company, certified as of the date hereof by an officer of the Company;
4.
Resolutions adopted by the Board of Directors of the Company relating to, among other matters, the issuance of the Shares,
certified as of the date hereof by an officer of the Company;
5.
A certificate of the SDAT as to the good standing of the Company, dated as of a recent date;
6.
A certificate executed by an officer of the Company, dated as of the date hereof; and
7.
Such other documents and matters as we have deemed necessary or appropriate to express the opinion set forth in this letter,
subject to the assumptions, limitations and qualifications stated herein.
Summit Hotel Properties, Inc.
April 1, 2015
Page 2
In expressing the opinion set forth below,
we have assumed the following:
1.
Each individual executing any of the Documents, whether on behalf of such individual or another person, is legally competent
to do so.
2.
Each individual executing any of the Documents on behalf of a party (other than the Company) is duly authorized to do so.
3.
Each of the parties (other than the Company) executing any of the Documents has duly and validly executed and delivered
each of the Documents to which such party is a signatory, and such party’s obligations set forth therein are legal, valid
and binding and are enforceable in accordance with all stated terms.
4.
All Documents submitted to us as originals are authentic. The form and content of all Documents submitted to us as unexecuted
drafts do not differ in any respect relevant to this opinion from the form and content of such Documents as executed and delivered.
All Documents submitted to us as certified or photostatic copies conform to the original documents. All signatures on all Documents
are genuine. All public records reviewed or relied upon by us or on our behalf are true and complete. All representations, warranties,
statements and information contained in the Documents are true and complete. There has been no oral or written modification of
or amendment to any of the Documents, and there has been no waiver of any provision of any of the Documents, by action or omission
of the parties or otherwise.
5.
None of the Shares have been, or will be, issued or transferred in violation of Article VII of the Charter.
Based upon the foregoing, and subject to the
assumptions, limitations and qualifications stated herein, it is our opinion that:
1.
The Company is a corporation duly incorporated
and validly existing under and by virtue of the laws of the State of Maryland and is in good standing with the SDAT.
2.
The issuance of the Shares has been
duly authorized and the Shares are validly issued, fully paid and nonassessable.
The foregoing opinion is limited to the laws
of the State of Maryland and we do not express any opinion herein concerning any other law. We express no opinion as to the applicability
or effect of any federal or state securities laws, including the securities laws of the State of Maryland, or as to federal or
state laws regarding fraudulent transfers. To the extent that any matter as to which our opinion is expressed herein would be governed
by the laws of any jurisdiction other than the State of Maryland, we do not express any opinion on such matter. The opinion expressed
herein is subject to the effect of judicial decisions which may permit the introduction of parol evidence to modify the terms or
the interpretation of agreements.
Summit Hotel Properties, Inc.
April 1, 2015
Page 3
The opinion expressed herein is limited to
the matters specifically set forth herein and no other opinion shall be inferred beyond the matters expressly stated. We assume
no obligation to supplement this opinion if any applicable law changes after the date hereof or if we become aware of any fact
that might change the opinion expressed herein after the date hereof.
This opinion is being furnished to you for
submission to the Commission as an exhibit to the Registration Statement. We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the use of the name of our firm therein. In giving this consent, we do not admit that
we are within the category of persons whose consent is required by Section 7 of the 1933 Act.
|
Very truly yours,
/s/ Venable LLP
|
121325-309001
Exhibit 8.1
|
Hunton & Williams LLP
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219-4074
Tel 804
• 788 • 8200
Fax 804 • 788 • 8218 |
|
FILE NO: 78081.0000020 |
|
|
April 1, 2015 |
|
Summit Hotel Properties, Inc.
12600 Hill Country Boulevard, Suite R-100
Austin, Texas 78738
Summit Hotel Properties, Inc.
Qualification as Real Estate Investment Trust
Ladies and Gentlemen:
We have acted as counsel to Summit Hotel Properties,
Inc., a Maryland corporation (the “Company”), in connection with the preparation of a registration statement on Form
S-3, filed with the Securities and Exchange Commission on March 31, 2015 (the “Registration Statement”), with respect
to the offer and resale, from time to time, of up to 412,174 shares of common stock, par value $0.01 per share, of the Company
by the selling stockholders named in the prospectus filed as part of the Registration Statement (the “Prospectus”)
or in a supplement to the Prospectus. You have requested our opinion regarding certain U.S. federal income tax matters.
In giving this opinion letter, we have examined
the following:
| 1. | the Registration Statement and the Prospectus; |
| 2. | the Company’s Articles of Incorporation filed on June 30, 2010 with the Maryland Secretary of State, and the Articles
of Amendment and Restatement, as amended and supplemented (the “Amended Articles”); |
| 3. | the First Amended and Restated Agreement of Limited Partnership of Summit Hotel OP, LP (the “OP”) and the First
Amendment, Second Amendment, Third Amendment and Fourth Amendment thereto (as amended, the “Operating Partnership Agreement”); |
| 4. | the Third Amended and Restated Operating Agreement of Summit Hotel Properties, LLC, a South Dakota limited liability company,
dated as of July 25, 2005; |
| 5. | the Agreement and Plan of Merger, dated as of August 5, 2010, by and between the LLC and the OP; and |
ATLANTA AUSTIN
BANGKOK BEIJING BRUSSELS CHARLOTTE DALLAS HOUSTON LONDON LOS ANGELES
McLEAN MIAMI NEW
YORK NORFOLK RALEIGH RICHMOND SAN FRANCISCO TOKYO WASHINGTON
www.hunton.com
Summit Hotel Properties, Inc.
April 1, 2015
Page 2
| 6. | such other documents as we have deemed necessary or appropriate for purposes of this opinion. |
In connection with the opinions rendered below,
we have assumed, with your consent, that:
| 1. | each of the documents referred to above has been duly authorized, executed, and delivered; is authentic, if an original, or
is accurate, if a copy; and has not been amended; |
| 2. | during the Company’s and the OP’s taxable year ending December 31, 2015 and future taxable years, the factual representations
contained (i) in a certificate, dated the date hereof and executed by a duly appointed officer of the Company (the “REIT
Officer’s Certificate”), and (ii) in a certificate, dated the date hereof and executed by a duly appointed officer
of the OP (the “OP Officer’s Certificate” and together with the REIT Officer’s Certificate, the “Officer’s
Certificates”), will be true for such years; |
| 3. | the Company will not make any amendments to its organizational documents or the Operating Partnership Agreement after the date
of this opinion that would affect the Company’s qualification as a real estate investment trust (a “REIT”) for
any taxable year; and |
| 4. | no action will be taken by the Company or the OP after the date hereof that would have the effect of altering the facts upon
which the opinions set forth below are based. |
In connection with the opinions rendered below,
we also have relied upon the correctness of the factual representations contained in the Officer’s Certificates. No facts
have come to our attention that would cause us to question the accuracy and completeness of such factual representations. Furthermore,
where such factual representations involve terms defined in the Internal Revenue Code of 1986, as amended (the “Code”),
the Treasury regulations thereunder (the “Regulations”), published rulings of the Internal Revenue Service (the “Service”),
or other relevant authority, we have reviewed with the individuals making such factual representations the relevant provisions
of the Code, the applicable Regulations and published administrative interpretations thereof.
Based solely on the documents and assumptions
set forth above, the factual representations set forth in the Officer’s Certificates, and the discussion in the Prospectus
under the caption “Material Federal Income Tax Considerations” (which is incorporated herein by reference), we are
of the opinion that:
Summit Hotel Properties, Inc.
April 1, 2015
Page 3
(a) the Company qualified to be
taxed as a REIT pursuant to sections 856 through 860 of the Code for its taxable years ended December 31, 2011 through December
31, 2014, and the Company’s current and proposed method of operation will enable it to continue to satisfy the requirements
for qualification and taxation as a REIT under the Code for its taxable year ending December 31, 2015 and thereafter; and
(b) the descriptions of the law and the legal conclusions
in the Prospectus under the caption “Material Federal Income Tax Considerations” are correct in all material respects.
We will not review on a continuing basis the Company’s
or the OP’s, compliance with the documents or assumptions set forth above, or the factual representations set forth in the
Officer’s Certificates. Accordingly, no assurance can be given that the actual results of the Company’s operations
for any given taxable year will satisfy the requirements for qualification and taxation as a REIT. Although we have made such inquiries
and performed such investigations as we have deemed necessary to fulfill our professional responsibilities as counsel, we have
not undertaken an independent investigation of all of the facts referred to in this letter or the Officer’s Certificates.
The foregoing opinions are based on current provisions
of the Code, the Regulations, published administrative interpretations thereof, and published court decisions. The Service has
not issued Regulations or administrative interpretations with respect to various provisions of the Code relating to REIT qualification.
No assurance can be given that the law will not change in a way that will prevent the Company from qualifying as a REIT.
The foregoing opinions are limited to the U.S.
federal income tax matters addressed herein, and no other opinions are rendered with respect to other U.S. federal tax matters
or to any issues arising under the tax laws of any other country, or any state or locality. Additional issues may exist that could
affect the federal tax treatment of the transaction that is the subject of the opinion, and this opinion letter does not consider
or provide a conclusion with respect to any such additional issues. We undertake no obligation to update the opinions expressed
herein after the date of this letter.
This opinion letter speaks only as of the date
hereof. Except as provided in the next paragraph, this opinion letter may not be distributed, quoted in whole or in part or otherwise
reproduced in any document, or filed with any governmental agency without our express written consent.
Summit Hotel Properties, Inc.
April 1, 2015
Page 4
We hereby consent to the filing of this opinion
as an exhibit to the Registration Statement. We also consent to the references to Hunton & Williams LLP under the captions
“Material Federal Income Tax Considerations” and “Legal Matters” in the Prospectus. In giving consent,
we do not admit that we are in the category of persons whose consent is required by Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations promulgated thereunder by the Securities and Exchange Commission.
|
Very truly yours, |
|
|
|
/s/ Hunton & Williams LLP |
Exhibit 23.3
Consent of Independent Registered Public
Accounting Firm
The Board of Directors
Summit Hotel Properties, Inc.:
We consent to the use of our report dated
February 26, 2013, except as to notes 21 and 22, which are as of March 25, 2014, with respect to
the consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows of Summit Hotel Properties,
Inc. and subsidiaries for the year ended December 31, 2012, incorporated by reference herein and to the reference to our
firm under the heading “Experts” in the prospectus.
(signed) KPMG LLP
Chicago, Illinois
April 1, 2015
Exhibit 23.4
Consent of Independent Registered Public
Accounting Firm
We consent to the reference to our firm
under the caption "Experts" in this Registration Statement (Form S-3) and related Prospectus of Summit Hotel Properties,
Inc. for the registration of common stock and to the incorporation by reference therein of our reports dated March 2, 2015, with
respect to the consolidated financial statements and Schedule III of Summit Hotel Properties, Inc., and the effectiveness of internal
control over financial reporting of Summit Hotel Properties, Inc. included in its Annual Report (Form 10-K) for the year ended
December 31, 2014, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Austin, Texas
April 1, 2015
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