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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 28, 2000
REGISTRATION NO. 333-________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
RFS HOTEL INVESTORS, INC.
(Exact name of registrant as specified in its charter)
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Tennessee 62-1534743
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
RANDALL L. CHURCHEY
PRESIDENT AND CHIEF OPERATING OFFICER
RFS HOTEL INVESTORS, INC.
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<S> <C>
850 Ridge Lake Boulevard, Suite 220 850 Ridge Lake Boulevard, Suite 220
Memphis, Tennessee 38120 Memphis, Tennessee 38120
(901) 767-7005 (901) 767-7005
(Address, including zip code, and (Name, address, including zip code,
telephone number, including area code, and telephone, number, including
of registrant's principal executive offices) area code, of agent for service)
</TABLE>
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COPY TO:
DAVID C. WRIGHT, ESQ.
HUNTON & WILLIAMS
RIVERFRONT PLAZA, EAST TOWER
951 EAST BYRD STREET
RICHMOND, VIRGINIA 23219-4074
(804) 788-8200
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after the effective date of this Registration Statement in light of
market conditions and other factors.
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, 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, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES
ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION
STATEMENT FOR THE SAME OFFERING: [ ]
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE
434 UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING BOX: [ ]
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<CAPTION>
Proposed
Proposed Maximum
Title of Each Class Aggregate Maximum Aggregate Amount of
of Securities Amount To Offering Price Offering Registration
To Be Registered Be Registered Per Unit (1) Price Fee
---------------- ------------- ------------ ----- ---
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 1,200,000 $12.66 $15,192,000 $4,011
</TABLE>
---------------
(1) Calculated pursuant to Rule 457(c) under the Securities Act of 1933, as
amended.
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933, as amended, or until this registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said section 8(a), may determine. Information contained
herein is subject to completion or amendment. A registration statement relating
to these securities has been filed with the
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Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any state.
SUBJECT TO COMPLETION, DATED SEPTEMBER 28, 2000
PRELIMINARY PROSPECTUS
1,200,000 SHARES
RFS HOTEL INVESTORS, INC.
COMMON STOCK
------------------------
This prospectus relates to the sale of up to 1,200,000 shares of our
common stock by RFS, Inc., a subsidiary of Hilton Hotels Corporation. The shares
of common stock are issuable to RFS, Inc. pursuant to the repurchase from RFS,
Inc. of 973,684 shares of our convertible preferred stock, Series A.
Shares resold under this prospectus may be offered and sold by RFS,
Inc. from time to time in open-market or privately-negotiated transactions that
may involve underwriters, brokers or dealers.
We will not receive any of the cash proceeds from the sale of the
shares covered by this prospectus, and the registration of the shares does not
necessarily mean that any of them will be offered or sold by the selling
shareholder.
In part so that we can continue to qualify as a "real estate investment
trust" under the federal income tax laws, our charter generally does not permit
anyone to own more than 9.9% of our outstanding shares of common stock. This
limitation and other limits on who can own our shares of common stock are
described in this prospectus under "Restrictions on Ownership and Transfer."
Our shares of common stock trade on the New York Stock Exchange under
the symbol "RFS".
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE THE RISK FACTORS
DESCRIBED IN OUR FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION WHICH ARE
INCORPORATED BY REFERENCE IN THIS PROSPECTUS.
------------------------
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 _______ ___, 2000
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TABLE OF CONTENTS
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A WARNING ABOUT FORWARD-LOOKING STATEMENTS ............................ 1
RFS HOTEL INVESTORS, INC............................................... 1
SECURITIES TO BE OFFERED............................................... 1
DESCRIPTION OF CAPITAL SHARES.......................................... 1
RESTRICTIONS ON OWNERSHIP AND TRANSFER................................. 2
FEDERAL INCOME TAX CONSEQUENCES OF
OUR STATUS AS A REIT............................................. 3
USE OF PROCEEDS........................................................ 25
SELLING SHAREHOLDER.................................................... 25
PLAN OF DISTRIBUTION................................................... 26
EXPERTS................................................................ 28
LEGAL MATTERS.......................................................... 28
WHERE YOU CAN FIND MORE INFORMATION.................................... 29
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A WARNING ABOUT FORWARD-LOOKING STATEMENTS
This prospectus, and the documents incorporated by reference, may
contain "forward-looking" statements as described in Section 27A of the
Securities Act of 1993 and Section 21E of the Securities Exchange Act of 1934.
These forward-looking statements usually include words like "believes,"
"anticipates" and "expects" and describe our expectations for the future. Of
course, these expectations may not be met in important ways for a variety of
reasons. We have described these reasons in our most recent Annual Report on
Form 10-K and in our report on Form 8-K filed with the SEC on May 12, 1999 and
the other reports we file with the SEC, and you should review them before you
make any investment decision. We are not required to update any forward-looking
statements we make and we may not make any updates.
RFS HOTEL INVESTORS, INC.
We are a self-managed real estate investment trust that owns hotel
properties. We generally do business through our operating partnership, RFS
Partnership, L.P., for which we serve as the sole general partner. We own an
approximate 90.5% interest in our operating partnership as of September 28,
2000. We currently own 62 hotels containing an aggregate of 9,089 rooms and
suites located in 24 states. Our hotels include (i) 15 upscale hotels, (ii) 19
extended-stay hotels and (iii) 28 limited-service hotels.
As of September 28, 2000, we lease 52 hotels to RFS, Inc., and other
wholly-owned subsidiaries of Hilton, six hotels to three other lessees and four
hotels are not leased. Fifty-two hotels are managed by wholly-owned subsidiaries
of Hilton and 10 hotels are managed by five other third-party management
companies.
We are a Tennessee corporation. Our executive offices are located at
850 Ridge Lake Boulevard, Suite 220, Memphis, Tennessee 38120, and our telephone
number is (901) 767-7005. Our shares of common stock are traded on the New York
Stock Exchange under the symbol "RFS". References in this prospectus to "us",
"we" or "our company" means RFS Hotel Investors, Inc., together with our
subsidiaries, unless the context otherwise requires.
SECURITIES TO BE OFFERED
This prospectus relates to the offer and sale from time to time of up
to 1,200,000 shares of our common stock by RFS, Inc., the lessee of 52 of our
hotels. The shares are issuable to RFS, Inc. in connection with the re-purchase
from RFS, Inc. of shares of our Series A preferred stock described below.
DESCRIPTION OF CAPITAL SHARES
We are authorized to issue 100,000,000 shares of common stock, par
value $.01 per share, and 5,000,000 preferred shares, $.01 par value per share.
As of September 28, 2000, we had 24,499,179 shares of common stock and 973,684
shares of convertible preferred stock, Series A outstanding. All of our Series A
preferred shares are currently owned by RFS, Inc. and we have agreed to acquire
those shares from RFS, Inc. in exchange for cash, shares of our common stock or
a combination, at our election. This prospectus relates to the sale by RFS, Inc.
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of up to 1,200,000 shares of our common stock issuable to RFS, Inc. in
connection with the purchase of our Series A preferred stock from RFS, Inc. The
following is only a summary of some of the rights of our shareholders. You
should refer to our charter and bylaws for a complete statement of our
shareholders' rights. Both the charter and the bylaws are exhibits to the
registration statement of which this prospectus is a part.
COMMON STOCK. Holders of our of common stock have one vote per share on
all matters voted on by shareholders, including elections of directors. Our
charter does not provide for cumulative voting in the election of directors or
for preemptive rights to acquire new shares which we issue. Holders of our
common stock receive dividends as declared by our board of directors out of
available funds, after payment of or provision for full cumulative dividends on
and any required redemptions of shares of preferred stock then-outstanding. In
the event of liquidation or dissolution of our company, holders of our common
stock are entitled to share ratably in the distributable assets of our company
remaining after satisfaction of any prior preferential rights of holders of
preferred stock and all other debts and liabilities of our company.
The transfer agent for our common stock is SunTrust Bank, Atlanta,
Georgia.
PREFERRED STOCK. Under our charter, our board of directors is
authorized, without further shareholder action, to issue up to 5,000,000 shares
of preferred stock. Our board may issue preferred shares in series, with
different preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or other provisions. In 1996, we
issued 973,684 shares of Series A preferred stock to RFS, Inc. We have agreed to
acquire all of these shares from RFS, Inc. in exchange for cash, shares of our
common stock or a combination, at our election. Upon such acquisition, we will
retire the Series A preferred stock. While outstanding, each share of Series A
preferred stock may be converted by the holder into one share of common stock,
subject to adjustment for stock splits, stock dividends or similar events, at
any time after February 27, 2003. Additionally, at any time after February 27,
2003, we may redeem the Series A preferred stock for a price of $19.00 per
share, plus all accrued and unpaid dividends to and including the date fixed for
redemption, subject to the rights of the holder of the Series A preferred stock
to convert the Series A preferred stock to shares of our common stock.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
In order for us to maintain our qualification as a REIT, not more than
50% in value of our outstanding shares of stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the federal income tax
laws to include certain entities) during the last half of any taxable year.
Furthermore, if any shareholder or group of shareholders of one of our lessees
owns, actually or constructively, 10% or more of our stock, such lessee could
become a related-party tenant, which likely would result in loss of our REIT
status. Our charter prohibits direct or indirect ownership (taking into account
applicable ownership provisions of the federal income tax laws) of more than
9.9% of the number of our outstanding shares of common stock. Generally, the
shares of common stock owned by related or affiliated owners will be aggregated
for purposes of this ownership limitation. Any transfer of shares of common
stock that would violate the ownership limitation will be void, the intended
transferee of such shares will be deemed never to have had an interest in such
shares, and such shares will be designated "shares-in-trust." Further, we will
be deemed to have been offered shares-in-trust for purchase at the
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lesser of (i) the market price (as defined in our charter) on the date we accept
the offer or (ii) the price per share in the transaction that created such
shares-in-trust (or in certain other cases specified in our charter, such as a
gift, the market price on the date of such event). Therefore, the record holder
of shares of our common stock in excess of the ownership limitation will
experience a financial loss when such shares are redeemed, if the market price
falls between the date of purchase and the date of redemption. Our board of
directors may grant an exemption from the ownership limitation to any person so
requesting, so long as (a) the board has determined that such exemption will not
result in our company being "closely held" within the meaning of the federal
income tax laws, and (b) such person provides to the board such representations
and undertakings as the board may require.
FEDERAL INCOME TAX CONSEQUENCES OF OUR STATUS AS A REIT
This section summarizes the federal income tax issues that our
shareholders may consider relevant. Because this section is a summary, it does
not address all of the tax issues that may be important to shareholders. In
addition, this section does not address the tax issues that may be important to
shareholders that are subject to special treatment under the federal income tax
laws, such as insurance companies, tax-exempt organizations, except to the
extent discussed in "--Taxation of Tax-Exempt Shareholders" below, financial
institutions or broker-dealers, and non-U.S. individuals and foreign
corporations, except to the extent discussed in "--Taxation of Non-U.S.
Shareholders" below.
The statements in this section are based on the current federal income
tax laws governing qualification as a REIT. We cannot assure you that new laws,
interpretations thereof, or court decisions, any of which may take effect
retroactively, will not cause any statement in this section to be inaccurate.
-----------------------------------------------------------
We urge you to consult your own tax advisor regarding the specific tax
consequences to you of owning shares of our common stock and of our election to
be taxed as a REIT. Specifically, you should consult your own tax advisor
regarding the federal, state, local, foreign, and other tax consequences of such
ownership and election, and regarding potential changes in applicable tax laws.
-----------------------------------------------------------
TAXATION OF OUR COMPANY
We elected to be taxed as a REIT under the federal income tax laws
commencing with our short taxable year ended December 31, 1993. We believe that
we have operated in a manner intended to qualify as a REIT since our election to
be a REIT and we intend to continue to so operate. This section discusses the
laws governing the federal income tax treatment of a REIT and its shareholders.
These laws are highly technical and complex.
Our qualification as a REIT depends on our ability to meet on a
continuing basis qualification tests set forth in the federal tax laws. Those
qualification tests involve the
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percentage of income that we earn from specified sources, the percentage of our
assets that falls within specified categories, the diversity of our share
ownership, and the percentage of our earnings that we distribute. We describe
the REIT qualification tests in more detail below. For a discussion of the tax
treatment of our company and our shareholders if we fail to qualify as a REIT,
see "--Failure to Qualify."
If we qualify as a REIT, we will not generally be subject to federal
income tax on the taxable income that we distribute to our shareholders. The
benefit of that tax treatment is that we avoid the "double taxation," or
taxation at both the corporate and shareholder 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 taxable income, including
net capital gain, that we do not distribute to our
shareholders 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 that we do not distribute or allocate
to our shareholders.
- We will pay income tax at the highest corporate rate on (1)
net income from the sale or other disposition of property
acquired through foreclosure that we hold primarily for sale
to customers in the ordinary course of business and (2) other
nonqualifying income from foreclosure property.
- We will pay a 100% tax on net income from sales or other
dispositions of property, other than foreclosure property,
that we hold primarily for sale to customers in the ordinary
course of business.
- If we fail to satisfy the 75% gross income test or the 95%
gross income test, as described below under "--Requirements
for Qualification--Income Tests," and nonetheless continues to
qualify as a REIT because we meet other requirements, we will
pay a 100% tax on (1) the gross income attributable to the
greater of the amounts by which we fail the 75% and 95% gross
income tests, multiplied by (2) a fraction intended to reflect
our profitability.
- If we fail to distribute during a calendar year at least the
sum of (1) 85% of our REIT ordinary income for such year, (2)
95% of our REIT capital gain net income for such year, and (3)
any undistributed taxable income from prior periods, we will
pay a 4% excise tax on the excess of such required
distribution over the amount we actually distributed.
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- We may elect to retain and pay income tax on our net long-term
capital gain.
- If we acquire any asset from a C corporation, or a corporation
generally subject to full corporate-level tax, in a merger or
other transaction in which we acquire a basis in the asset
that is determined by reference to the C corporation's basis
in the asset, or another asset, we will pay tax at the highest
regular corporate rate applicable if we recognize gain on the
sale or disposition of such asset during the 10-year period
after we acquire such asset. The amount of gain on which we
will pay tax is the lesser of (1) the amount of gain that we
recognize at the time of the sale or disposition and (2) the
amount of gain that we would have recognized if we had sold
the asset at the time we acquired the asset. The rule
described in this paragraph will apply assuming that we make
an election for the rule to apply upon our acquisition of an
asset from a C corporation.
REQUIREMENTS FOR REIT QUALIFICATION
A REIT is a corporation, trust, or association that meets the following
requirements:
1. it is managed by one or more trustees or directors;
2. its beneficial ownership is evidenced by transferable shares, or by
transferable certificates of beneficial interest;
3. it would be taxable as a domestic corporation, but for the REIT
provisions of the federal income tax laws;
4. it is neither a financial institution nor an insurance company subject
to special provisions of the federal income tax laws;
5. at least 100 persons are beneficial owners of its shares or ownership
certificates;
6. not more than 50% in value of its outstanding shares or ownership
certificates is owned, directly or indirectly, by five or fewer
individuals, as defined in the federal income tax laws to include
specified 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 Internal Revenue Service
to elect and maintain REIT status;
8. it uses a calendar year for federal income tax purposes and complies
with the recordkeeping requirements of the federal income tax laws; and
9. it meets other qualification tests, described below, regarding the
nature of its income and assets.
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We must meet requirements 1 through 4 during our entire taxable year
and must meet requirement 5 during at least 335 days of a taxable year of 12
months, or during a proportionate part of a taxable year of less than 12 months.
If we comply with all the requirements for ascertaining the ownership of our
outstanding shares in a taxable year and have no reason to know that we violated
requirement 6, we will be deemed to have satisfied requirement 6 for such
taxable year. For purposes of determining share ownership under requirement 6,
an "individual" generally includes a supplemental unemployment compensation
benefits plan, a private foundation, or a portion of a trust permanently set
aside or used exclusively for charitable purposes. An "individual," however,
generally does not include a trust that is a qualified employee pension or
profit sharing trust under the federal income tax laws, and beneficiaries of
such a trust will be treated as holding our shares in proportion to their
actuarial interests in the trust for purposes of requirement 6.
We believe that we have issued sufficient shares of common stock with
sufficient diversity of ownership to satisfy requirements 5 and 6 set forth
above. In addition, our charter restricts the ownership and transfer of our
outstanding shares of stock so that we should continue to satisfy requirements 5
and 6. The provisions of our charter restricting the ownership and transfer of
the common stock are described in "Restrictions on Ownership and Transfer."
We currently have several wholly-owned corporate subsidiaries and may
have additional corporate subsidiaries in the future. 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, all of the capital stock of which is owned by the REIT. Thus, in
applying the requirements described herein, any "qualified REIT subsidiary" of
our company will be ignored, and all assets, liabilities, and items of income,
deduction, and credit of each such subsidiary will be treated as our assets,
liabilities, and items of income, deduction, and credit. Consequently, those
subsidiaries are not subject to federal income taxation, although they may be
subject to state and local taxation. Our current corporate subsidiaries are
"qualified REIT subsidiaries."
In the case of a REIT that is a partner in a partnership, the REIT is
treated as owning its proportionate share of the assets of the partnership and
as earning its allocable share of the gross income of the partnership for
purposes of the applicable REIT qualification tests. Thus, our proportionate
share of the assets, liabilities, and items of income of our operating
partnership, its subsidiary partnerships, and any other partnership in which we
acquire an interest are treated as our assets and gross income for purposes of
applying the various REIT qualification requirements.
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 temporary investment income. Qualifying income for purposes of the
75% gross income test includes:
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- rents from real property;
- interest on debt secured by mortgages on real property or on
interests in real property; and
- dividends or other distributions on and gain from the sale of
shares in other REITs.
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, dividends, other types of interest, gain from the sale or
disposition of stock or securities, or any combination of the foregoing. Gross
income from the sale of property that we hold primarily for sale to customers in
the ordinary course of business is excluded from both income tests. The
following paragraphs discuss the specific application of these tests to our
company.
Rents. Pursuant to percentage leases, our lessees lease the land,
buildings, improvements, furnishings and equipment comprising our hotels for
15-year terms. The percentage leases provide that the lessees are obligated to
pay (1) the greater of a base rent or percentage rent and (2) other additional
charges. The percentage rent is calculated by multiplying fixed percentages by
the gross room revenues (and food and beverage revenues, if applicable) for each
of the hotels. The base rent accrues and is required to be paid monthly.
Percentage rent is due quarterly.
In order for the base rent, the percentage rent, and the additional
charges to constitute "rents from real property," the percentage leases must be
respected as "true leases" for federal income tax purposes and not treated as
service contracts, joint ventures, or some other type of arrangement. The
determination of whether the percentage leases are true leases depends on an
analysis of all the surrounding facts and circumstances. In making such a
determination, courts have considered a variety of factors, including the
following:
- the intent of the parties;
- the form of the agreement;
- the degree of control over the property that is retained by
the property owner, such as whether the lessee has substantial
control over the operation of the property or whether the
lessee is 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, such as whether the lessee
bears the risk of increases in operating expenses or the risk
of damage to the property.
In addition, 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, including whether:
- the service recipient is in physical possession of the
property;
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- the service recipient controls the property;
- the service recipient has a significant economic or possessory
interest in the property - such as whether the property's use
is likely to be dedicated to the service recipient for a
substantial portion of the useful life of the property, the
recipient shares the risk that the property will decline in
value, the recipient shares in any appreciation in the value
of the property, the recipient shares in savings in the
property's operating costs, or the recipient bears the risk of
damage to or loss of the property;
- the service provider does not bear any risk of substantially
diminished receipts or substantially increased expenditures if
there is nonperformance under the contract;
- the service provider does not use the property concurrently to
provide significant services to entities unrelated to the
service recipient; and
- the total contract price does not substantially exceed the
rental value of the property for the contract period.
Since the determination of whether a service contract should be treated
as a lease is inherently factual, the presence or absence of any single factor
may not be dispositive in every case.
We believe that the percentage leases will be treated as true leases
for federal income tax purposes. Such belief is based, in part, on the following
facts:
- We and the lessees intend for our relationship to be that of a
lessor and lessee and such relationship is documented by lease
agreements;
- the lessees have the right to the exclusive possession, use,
and quiet enjoyment of the hotels during the term of the
percentage leases;
- the lessees bear the cost of, and are responsible for,
day-to-day maintenance and repair of the hotels, other than
the cost of maintaining underground utilities and structural
elements and the cost of capital improvements, and dictate how
the hotels are operated, maintained, and improved;
- the lessees bear all of the costs and expenses of operating
the hotels, including the cost of any inventory used in their
operation, during the term of the percentage leases, other
than real property taxes, property insurance premiums, and,
under certain percentage leases, casualty insurance premiums;
- the lessees benefit from any savings in the costs of operating
the hotels during the term of the percentage leases;
- in the event of damage to or destruction of a hotel, generally
the applicable lessee is at economic risk because it is
obligated either (A) to restore the property to its prior
condition, in which event it may be required to bear all costs
of such restoration in
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excess of any insurance proceeds, or (B) to offer to purchase
the hotel for an amount generally equal to the fair market
value of the property, less any insurance proceeds;
- each lessee has indemnified against all liabilities imposed on
us during the term of the percentage leases by reason of (A)
injury to persons or damage to property occurring at the
hotels, (B) its use, management, maintenance, or repair of the
hotels, (C) any environmental liability caused by acts or
grossly negligent failures to act of the lessee, (D) taxes and
assessments in respect of the hotels that are the obligation
of the lessee, or (E) any breach of the percentage leases or
of any sublease of a hotel by the lessee;
- the lessees are obligated to pay substantial fixed rent for
the period of use of the hotels;
- the lessees stand to incur substantial losses or reap
substantial gains depending on how successfully they operate
the hotels;
- we cannot use the hotels concurrently to provide significant
services to entities unrelated to the lessees; and
- the total contract price under the percentage leases does not
substantially exceed the rental value of the hotels for the
term of the percentage leases.
If the percentage leases are characterized as service contracts or
partnership agreements, rather than as true leases, part or all of the payments
that we receive from the lessees may not be considered rent or may not otherwise
satisfy the various requirements for qualification as "rents from real
property." In that case, we likely would not be able to satisfy either the 75%
or 95% gross income test and, as a result, would lose our REIT status.
In order for the base rent, the percentage rent, and the additional
charges to constitute "rents from real property," the following conditions must
be 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.
- Third, all of the rent received under a lease of real property
will not qualify as "rents from real property" unless the rent
attributable to the personal property leased in connection
with such lease is no more than 15% of the total rent received
under the lease.
- Finally, we generally must not operate or manage our real
property or furnish or render services to its tenants, other
than through an "independent contractor" who is adequately
compensated and from whom we do not derive revenue. However,
we need not provide services through an "independent
contractor," but instead may provide services directly, 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 "non-
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customary" services to the tenants of a property, other than
through an independent contractor, as long as our income from
the services does not exceed 1% of our income from the related
property. See "Asset Tests--1999 Tax Bill."
As stated above, the 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, the percentage rent will not qualify as "rents from
real property" if, considering the percentage leases and all the surrounding
circumstances, the arrangement does not conform with normal business practice,
but is in reality used as a means of basing the percentage rent on income or
profits. Because the percentage rent is based on fixed percentages of the gross
room revenues from the hotels that are established in the percentage leases, and
(1) we do not expect that the percentages will be renegotiated during the term
of the percentage leases in a manner that has the effect of basing the
percentage rent on income or profits and (2) we believe the percentage rents
conform with normal business practice, the percentage rent should not be
considered based in whole or in part on the income or profits of any person.
Furthermore, with respect to other hotel properties that we acquire in the
future, we do not expect to charge rent for any property that is based in whole
or in part on the income or profits of any person, except by reason of being
based on a fixed percentage of gross revenues, as described above.
Second, we must not own, actually or constructively, 10% or more of any
lessee (a "related party tenant"). The constructive ownership rules of the
federal income tax laws 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. We do
not own directly any stock in any lessee. Our charter prohibits any shareholder
from transferring shares of our stock if the transfer would cause us to own,
actually or constructively, 10% or more of the ownership interests in a tenant
of our real property. Thus, we should never own, actually or constructively, 10%
or more of any lessee. Furthermore, with respect to hotel properties that we
acquire in the future, we do not expect to lease any such property to a "related
party tenant." However, because the constructive ownership rules are broad and
it is not possible to monitor continually direct and indirect transfers of the
stock, we cannot guarantee that such transfers or other events of which we have
no knowledge will not cause us to own constructively own 10% or more of a lessee
at some future date.
Third, our rent attributable to personal property leased in connection
with a hotel must not exceed 15% of the rent received under the lease. The rent
attributable to the personal property in a hotel is the amount that bears the
same ratio to total rent for the taxable year as:
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- the average of the adjusted bases of the personal property in
the hotel at the beginning and at the end of the taxable year
bears to
- the average of the aggregate adjusted bases of both the real
and personal property comprising the hotel at the beginning
and at the end of such taxable year (the "adjusted basis
ratio").
With respect to each of our hotels, we believe either that the adjusted
basis ratio for the hotel is less than 15% or the income attributable to excess
personal property will not prevent us from qualifying as a REIT or subject it to
any federal income taxation. Further, we anticipate that any additional personal
property that we acquire will not cause us to lose our REIT status or subject us
to any federal income taxation. There can be no assurance, however, that the
Internal Revenue Service will not assert that the personal property that we
acquire has a value in excess of our appraised value, or that a court will not
uphold such assertion.
Finally, we cannot furnish or render non-customary services to the
tenants of the hotels, or manage or operate the hotels, other than through an
independent contractor who is adequately compensated and from whom we do not
derive or receive any income. However, we may provide a minimal amount of
non-customary services to the tenants of a property, other than through an
independent contractor, as long as our income from the services does not exceed
1% of our income from the related property. Provided that the percentage leases
are respected as true leases, we should satisfy that requirement because we do
not perform, nor will we perform, any services other than customary ones for the
lessees. Furthermore, we do not expect to perform non-customary services with
respect to the tenants of hotel properties that we acquire in the future. As
described above, however, if the percentage leases are recharacterized as
service contracts or partnership agreements, the rent likely would be
disqualified as "rents from real property" because we would be considered to
furnish or render services to the occupants of the hotels and to manage or
operate the hotels other than through an independent contractor. See "Asset
Tests--1999 Tax Bill."
Additional Charges. In addition to the rent, the lessees are required
to pay us additional charges. To the extent that the additional charges
represent either (1) reimbursements of amounts that the lessees are obligated to
pay to third parties or (2) penalties for non-payment or late payment of such
amounts, the additional charges should qualify as "rents from real property." To
the extent, however, that the additional charges represent interest accrued on
the late payment of the rent or the additional charges, the additional charges
should not qualify as "rents from real property," but instead should be treated
as interest that qualifies for the 95% gross income test.
Interest. The term "interest" generally does not include any amount
received or accrued if the determination of such amount depends in whole or in
part on the income or profits of any person. However, an amount received or
accrued generally will not be excluded from the term "interest" solely by reason
of being based on a fixed percentage or percentages of receipts or sales.
Prohibited Transactions. We will incur a 100% tax on the net income
derived from any sale or other disposition of property, other than foreclosure
property, that we hold primarily for sale to customers in the ordinary course of
a trade or business. We believe that none of our
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assets are held for sale to customers and that a sale of any such asset would
not be in the ordinary course of 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. Nevertheless, we will attempt to
comply with the terms of safe-harbor provisions in the federal income tax laws
prescribing when an asset sale will not be characterized as a prohibited
transaction. We cannot assure investors, however, that we can comply with such
safe-harbor provisions or that we will avoid owning property that may be
characterized as property that is held "primarily for sale to customers in the
ordinary course of a trade or business."
Hedging Activities. In the future, we may enter into hedging
transactions with respect to one or more of assets or liabilities. Those hedging
activities may include entering into interest rate swaps, caps, and floors,
options to purchase such items, and futures and forward contracts. To the extent
that we enter into an interest rate swap or cap contract, option, futures
contract, forward rate agreement, or any similar financial instrument to hedge
indebtedness incurred to acquire or carry "real estate assets," any periodic
income or gain from the disposition of such contract should be qualifying income
for purposes of the 95% gross income test, but not the 75% gross income test. To
the extent that we hedge with other types of financial instruments, or in other
situations, it is not entirely clear how the income from those transactions will
be treated for purposes of the gross income tests. We intend to structure any
hedging transactions in a manner that does not jeopardize our status as a REIT.
Failure to Satisfy Income Tests. Our investment, through our
subsidiaries in the hotels in major part gives rise to income that is qualifying
income for purposes of both gross income tests. We believe that, other than the
late charges attributable to rent, which are treated as interest that qualifies
for the 95% gross income test but not the 75% gross income test, that income
qualifies as rents from real property for purposes of both gross income tests.
Gains on sales of the hotels or a sale of the our interest in subsidiaries
generally will be qualifying income for purposes of both gross income tests. We
anticipate that income on our other investments will not result in our failing
either gross income test for any year.
If, however, we fail to satisfy one or both of the gross income tests
for any taxable year, we nevertheless may qualify as a REIT for such year if we
qualify for relief under the federal income tax laws. Those relief provisions
generally will be available if:
- our failure to meet such tests is due to reasonable cause and
not due to willful neglect;
- we attach a schedule of the sources of its income to our tax
return; and
- any incorrect information on the schedule was not due to fraud
with intent to evade tax.
We cannot predict, however, whether in all circumstances we would
qualify for the relief provisions. In addition, as discussed above in
"--Taxation of the Company," even if the relief provisions apply, we would incur
a 100% tax on the gross income attributable to the greater of the amounts by
which we fail the 75% and 95% gross income tests, multiplied by a fraction
intended to reflect our profitability.
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ASSET TESTS
To maintain our qualification as a REIT, we also must satisfy two asset
tests at the close of each quarter of each taxable year. First, at least 75% of
the value of our total assets must consist of:
- cash or cash items, including receivables;
- government securities;
- interests in real property, including leaseholds and options
to acquire real property and leaseholds;
- interests in mortgages on real property;
- stock in other REITs; and
- investments in stock or debt instruments during the one-year
period following the receipt of new capital that we raise
through equity offerings or offerings of debt with at least a
five-year term.
The second asset test has two components:
- First, 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; and
- Second, we may not own more than 10% of any one issuer's
outstanding voting securities.
For purposes of both components of the second asset test, the term
"securities" does not include our stock in any qualified REIT subsidiary or our
interest in our property owning partnerships.
If we should fail to satisfy the asset tests at the end of a calendar
quarter, we would not lose our REIT status if (1) we satisfied the asset tests
at the close of the preceding calendar quarter and (2) 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 nonqualifying assets. If we do not satisfy the
condition described in clause (2) of the preceding sentence, we still could
avoid disqualification as a REIT by eliminating any discrepancy within 30 days
after the close of the calendar quarter in which the discrepancy arose.
1999 Tax Bill. Legislation was enacted in 1999 (the "1999 Tax Bill")
that will allow us to own up to 100% of the stock of taxable REIT subsidiaries
("TRSs"), which can perform activities unrelated to our tenants, such as
third-party management, development, and other independent business activities,
as well as provide customary and non-customary services to the our tenants. Our
company and a subsidiary must elect for the subsidiary to be treated as a TRS.
In addition, the 1999 Tax Bill will prevent us from owning more than 10% of the
voting power
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or value of the stock of a taxable subsidiary that is not treated as a TRS.
Current law only prevents us from owning more than 10% of the voting stock of a
taxable subsidiary. Overall, no more than 20% of our assets can consist of
securities of TRSs under the 1999 Tax Bill. The TRS provisions of the 1999 Tax
Bill will apply for taxable years beginning after December 31, 2000.
DISTRIBUTION REQUIREMENTS
Each taxable year, we must distribute dividends, other than capital
gain dividends and deemed distributions of retained capital gain, to our
shareholders in an aggregate amount at least equal to:
- the sum of (1) 95% of our "REIT taxable income," computed
without regard to the dividends paid deduction and our net
capital gain or loss, and (2) 95% of our after-tax net income,
if any, from foreclosure property; minus
- the sum of specified items of noncash income.
We must pay such distributions in the taxable year to which they
relate, or in the following taxable year if we declare the distribution before
we timely file our federal income tax return for such year and pay the
distribution on or before the first regular dividend payment date after such
declaration. Under the 1999 Tax Bill, the 95% distribution requirement discussed
above was reduced to 90% for taxable years beginning after December 31, 2000.
We will pay federal income tax on taxable income, including net capital
gain, that we do not distribute to our shareholders. Furthermore, if we fail to
distribute during a calendar year, or by the end of January following such
calendar year in the case of distributions with declaration and record dates
falling in the last three months of the calendar year, at least the sum of:
- 85% of our REIT ordinary income for such year;
- 95% of our REIT capital gain income for such year; and
- any undistributed taxable income from prior periods,
then we will incur a 4% non-deductible excise tax on the excess of such required
distribution over the amount we actually distributed.
We may elect to retain and pay income tax on the net long-term capital
gain we receive in a taxable year. See "--Taxation of Taxable U.S.
Shareholders." If we so elect, we will be treated as having distributed any such
retained amount for purposes of the 4% excise tax described above. We have made,
and intend to continue to make, timely distributions sufficient to satisfy the
annual distribution requirements.
It is possible that, from time to time, we may experience timing
differences between (1) the actual receipt of income and actual payment of
deductible expenses and (2) the inclusion of that income and deduction of such
expenses in arriving at our REIT taxable income. For example, we may not deduct
recognized capital losses from our "REIT taxable income." Further, it is
possible that, from time to time, we may be allocated a share of net capital
gain attributable
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to the sale of depreciable 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 all of our taxable income and thereby avoid
corporate income tax and the 4% excise tax. In such a situation, we may need to
borrow funds or issue additional shares of common or preferred stock.
We may be able to correct a failure to meet the 95% distribution
requirement for a year by paying "deficiency dividends" to our shareholders in a
later year. We may include such deficiency dividends in our deduction for
dividends paid for the earlier year. Although we may be able to avoid income tax
on amounts distributed as deficiency dividends, we will be required to pay
interest to the Internal Revenue Service based upon the amount of any deduction
we take for deficiency dividends.
RECORDKEEPING REQUIREMENTS
We must maintain records in order to qualify as a REIT. In addition, to
avoid a monetary penalty, we must request on an annual basis information from
our shareholders designed to disclose the actual ownership of our outstanding
stock. We have complied, and intend to continue to comply, with such
requirements.
FAILURE TO QUALIFY
If we fail to qualify as a REIT in any taxable year, and no relief
provision applies, we would be subject to federal income tax and any applicable
alternative minimum tax on our taxable income at regular corporate rates. In
calculating our taxable income in a year in which we fail to qualify as a REIT,
we would not be able to deduct amounts paid out to shareholders. In fact, we
would not be required to distribute any amounts to shareholders in such year. In
such event, to the extent of our current and accumulated earnings and profits,
all distributions to shareholders would be taxable as ordinary income. Subject
to limitations, corporate shareholders might be eligible for the dividends
received deduction. Unless we qualified for relief under specific statutory
provisions, we also would be disqualified from taxation as a REIT for the four
taxable years following the year during which it ceased to qualify as a REIT. We
cannot predict whether in all circumstances we would qualify for such statutory
relief.
TAXATION OF TAXABLE U.S. SHAREHOLDERS
As long as we qualify as a REIT, a taxable "U.S. shareholder" must 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. A U.S. shareholder will not
qualify for the dividends received deduction generally available to
corporations. As used herein, the term "U.S. shareholder" means a holder of
stock that for U.S. federal income tax purposes is:
- a citizen or resident of the United States;
- a corporation, partnership, or other entity created or
organized in or under the laws of the United States or of a
political subdivision thereof;
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- an estate whose income from sources outside the United States
is includible in gross income for U.S. federal income tax
purposes regardless of its connection with the conduct of a
trade or business within the United States; or
- any trust with respect to which (1) a U.S. court is able to
exercise primary supervision over the administration of such
trust and (2) one or more U.S. persons have the authority to
control all substantial decisions of the trust.
A U.S. shareholder generally will recognize distributions that we
designate as capital gain dividends as long-term capital gain without regard to
the period for which the U.S. shareholder has held its shares of common stock.
We generally will designate capital gain dividends as either 20% or 25% rate
distributions. A corporate U.S. shareholder, however, may be required to treat
up to 20% of 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, a U.S. shareholder would
be taxed on its proportionate share of our undistributed long-term capital gain.
The U.S. shareholder would receive a credit or refund for its proportionate
share of the tax we paid. The U.S. shareholder would increase the basis in its
shares of common 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. shareholder will not incur tax on a distribution in excess of
our current and accumulated earnings and profits if such distribution does not
exceed the adjusted basis of the U.S. shareholder's shares of common stock.
Instead, such distribution will reduce the adjusted basis of such shares of
common stock. A U.S. shareholder will recognize a distribution in excess of both
our current and accumulated earnings and profits and the U.S. shareholder's
adjusted basis in its shares of common stock as long-term capital gain, or
short-term capital gain if the shares of common stock have been held for one
year or less, assuming the shares of common stock are a capital asset in the
hands of the U.S. shareholder. In addition, if we declare a distribution in
October, November, or December of any year that is payable to a U.S. shareholder
of record on a specified date in any such month, such distribution shall be
treated as both paid by us and received by the U.S. shareholder on December 31
of such year, provided that we actually pay the distribution during January of
the following calendar year.
Shareholders may not include in their individual income tax returns any
of our net operating losses or capital losses. Instead, we generally would carry
over such losses for potential offset against our future income. Taxable
distributions from us and gain from the disposition of the shares of common
stock will not be treated as passive activity income and, therefore,
shareholders generally will not be able to apply any "passive activity losses,"
such as losses from some types of limited partnerships in which the shareholder
is a limited partner, against such income. In addition, taxable distributions
from us and gain from the disposition of shares of common stock generally will
be treated as investment income for purposes of the investment interest
limitations. We will notify shareholders after the close of our taxable year as
to the portions of the distributions attributable to that year that constitute
ordinary income, return of capital, and capital gain.
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TAXATION OF U.S. SHAREHOLDERS ON DISPOSITION OF COMMON STOCK
In general, a U.S. shareholder who is not a dealer in securities must
treat any gain or loss realized upon a taxable disposition of shares of common
stock as long-term capital gain or loss if the U.S. shareholder has held the
shares of common stock for more than one year and otherwise as short-term
capital gain or loss. However, a U.S. shareholder must treat any loss upon a
sale or exchange of shares of common stock held by such shareholder for six
months or less as a long-term capital loss to the extent of capital gain
dividends and other distributions from us that the U.S. shareholder treats as
long-term capital gain. All or a portion of any loss that a U.S. shareholder
realizes upon a taxable disposition of the shares of common stock may be
disallowed if the U.S. shareholder purchases other shares of common 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 is 39.6%.
The maximum tax rate on long-term capital gain applicable to non-corporate
taxpayers is 20% for sales and exchanges of assets held for more than one year.
The maximum tax rate on long-term capital gain from the sale or exchange of
"section 1250 property," or depreciable real property, is 25% to the extent that
such gain would have been treated as ordinary income if the property were
"section 1245 property." With respect to distributions that we designate as
capital gain dividends and any retained capital gain that it is deemed to
distribute, we generally may designate whether such a distribution is taxable to
our non-corporate shareholders at a 20% or 25% rate. Thus, the tax rate
differential between capital gain and ordinary income for non-corporate
taxpayers may be significant. In addition, the characterization of income as
capital gain or ordinary income may affect the deductibility of capital losses.
A non-corporate taxpayer may deduct capital losses not offset by capital gains
against its ordinary income only up to a maximum annual amount of $3,000. A
non-corporate taxpayer may carry forward unused capital losses indefinitely. A
corporate taxpayer must pay tax on its net capital gain at ordinary corporate
rates. A corporate taxpayer can deduct capital losses only to the extent of
capital gains, with unused losses being carried back three years and forward
five years.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
We will report to our shareholders and to the Internal Revenue Service
the amount of distributions we pay during each calendar year and the amount of
tax we withhold, if any. Under the backup withholding rules, a shareholder may
be subject to backup withholding at the rate of 31% with respect to
distributions unless such holder (1) is a corporation or comes within another
exempt category and, when required, demonstrates this fact or (2) 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 shareholder who does not provide us with its correct
taxpayer identification number also may be subject to penalties imposed by the
Internal Revenue Service. Any amount paid as backup withholding will be
creditable against the shareholder's income tax liability. In addition, we may
be required to withhold a portion of capital gain distributions to any
shareholders who fail to
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certify their non-foreign status to us. The Treasury Department has issued final
regulations regarding the backup withholding rules as applied to non-U.S.
shareholders. Those regulations alter the procedural aspects of backup
withholding compliance and are effective for distributions made after December
31, 2000.
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts and annuities, generally are
exempt from federal income taxation. However, they are subject to tax on their
unrelated business taxable income. While many investments in real estate
generate unrelated business taxable income, the Internal Revenue Service has
issued a published ruling that dividend distributions from a REIT to an exempt
employee pension trust do not constitute unrelated business taxable income,
provided that the exempt employee pension trust does not otherwise use the
shares of the REIT in an unrelated trade or business of the pension trust. Based
on that ruling, amounts that we distribute to tax-exempt shareholders generally
should not constitute unrelated business taxable income.
If, however, a tax-exempt shareholder were to finance its acquisition
of the shares of common stock with debt, a portion of the income that it
receives from us would constitute unrelated business taxable income pursuant to
the "debt-financed property" rules. Furthermore, 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 unrelated
business taxable income rules, which generally will require them to characterize
distributions that they receive from us as unrelated business taxable income.
Finally, a qualified employee pension or profit sharing trust that owns more
than 10% of our stock may be required to treat a percentage of the dividends
that it receives from the Company as unrelated business taxable income. Such
percentage is equal to the gross income that we derive from an unrelated trade
or business, determined as if we were a pension trust, divided by our total
gross income for the year in which we pay the dividends. That rule applies to a
pension trust holding more than 10% of our stock only if:
- the percentage of our dividends that the tax-exempt trust must
treat as unrelated business taxable income is at least 5%;
- we qualify as a REIT by reason of the modification of the rule
requiring that no more than 50% of our stock be owned by five
or fewer individuals, which modification allows the
beneficiaries of the pension trust to be treated as holding
its shares of our stock in proportion to their actuarial
interests in the pension trust; and
- either (1) one pension trust owns more than 25% of the value
of our stock or (2) a group of pension trusts individually
holding more than 10% of the value of our stock collectively
owns more than 50% of the value of our stock.
TAXATION OF NON-U.S. SHAREHOLDERS
The rules governing U.S. federal income taxation of non-resident alien
individuals, foreign corporations, foreign partnerships, and other foreign
shareholders (collectively, "non-
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U.S. shareholders") are complex. This section is only a summary of such rules.
WE URGE NON-U.S. SHAREHOLDERS TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE
IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX LAWS ON OWNERSHIP OF THE SHARES
OF COMMON STOCK, INCLUDING ANY REPORTING REQUIREMENTS.
A non-U.S. shareholder that receives a distribution that is not
attributable to gain from our sale or exchange of U.S. real property interests,
as defined below, and that we do not designate as a capital gain dividend or
retained capital gain will recognize ordinary income to the extent that we pay
such distribution out of our current or accumulated earnings and profits. A
withholding tax equal to 30% of the gross amount of the distribution ordinarily
will apply to such distribution unless an applicable tax treaty reduces or
eliminates the tax. However, if a distribution is treated as effectively
connected with the non-U.S. shareholder's conduct of a U.S. trade or business,
the non-U.S. shareholder generally will be subject to federal income tax on the
distribution at graduated rates, in the same manner as U.S. shareholders are
taxed with respect to such distributions. The non-U.S. shareholder also may be
subject to the 30% branch profits tax if it is a non-U.S. corporation. We plan
to withhold U.S. income tax at the rate of 30% on the gross amount of any such
distribution paid to a non-U.S. shareholder unless either:
- a lower treaty rate applies and the non-U.S. shareholder files
the required form evidencing eligibility for that reduced rate
with us; or
- the non-U.S. shareholder files an IRS Form 4224 with us
claiming that the distribution is effectively connected
income.
The Treasury Department has issued final regulations that modify the
manner in which we will comply with the withholding requirements. Those
regulations are effective for distributions made after December 31, 2000.
A non-U.S. shareholder will not incur tax on a distribution in excess
of our current and accumulated earnings and profits if such distribution does
not exceed the adjusted basis of the shareholder's shares of common stock.
Instead, the distribution will reduce the adjusted basis of the shareholder's
shares of common stock. A non-U.S. shareholder will be subject to tax on a
distribution that exceeds both our current and accumulated earnings and profits
and the adjusted basis of its shares of common stock, if the non-U.S.
shareholder otherwise would be subject to tax on gain from the sale or
disposition of its shares of 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. shareholder may
obtain a refund of amounts that we withhold if it is later determined 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%.
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For any year in which we qualify as a REIT, a non-U.S. shareholder will
incur tax on distributions that are attributable to gain from our sale or
exchange of "U.S. real property interests" under special provisions of the
federal income tax laws ("FIRPTA"). The term "U.S. real property interests"
includes interests in real property and stock in corporations at least 50% of
whose assets consists of interests in real property. Under those rules, a
non-U.S. shareholder is taxed on distributions attributable to gain from sales
of U.S. real property interests as if such gain were effectively connected with
a U.S. business of the non-U.S. shareholder. A non-U.S. shareholder thus would
be taxed on a distribution attributable to gain from sales of U.S. real property
interests at the normal capital gain rates applicable to U.S. shareholders,
subject to applicable alternative minimum tax and a special alternative minimum
tax in the case of a nonresident alien individual. A non-U.S. corporate
shareholder not entitled to treaty relief or exemption also may be subject to
the 30% branch profits tax on such a distribution. We must withhold 35% of any
distribution that we could designate as a capital gain dividend. A non-U.S.
shareholder may receive a credit against its tax liability for the amount
withheld.
A non-U.S. shareholder generally will not incur tax under FIRPTA as
long as at all times non-U.S. persons hold, directly or indirectly, less than
50% in value of our outstanding stock. We cannot assure you that test will be
met. However, a non-U.S. shareholder that owned, actually or constructively, 5%
or less of the shares of common stock at all times during a specified testing
period will not incur tax under FIRPTA if the shares of common stock are
"regularly traded" on an established securities market. If the gain on the sale
of the shares of common stock were taxed under FIRPTA, a non-U.S. shareholder
would be taxed in the same manner as U.S. shareholders with respect to such
gain, subject to applicable alternative minimum tax, a special alternative
minimum tax in the case of non-resident alien individuals, and the possible
application of the 30% branch profits tax in the case of non-U.S. corporations.
Furthermore, a non-U.S. shareholder will incur tax on gain not subject to FIRPTA
if:
- the gain is effectively connected with the non-U.S.
shareholder's U.S. trade or business, in which case the
non-U.S. shareholder will be subject to the same treatment as
U.S. shareholders with respect to such gain; or
- the non-U.S. shareholder is a non-resident 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. shareholder will incur a 30% tax on
his capital gains.
OTHER TAX CONSEQUENCES
State And Local Taxes. We and you may be subject to state and local tax
in various states and localities, including those states and localities in which
we or you transact business, own property, or reside. The state and local tax
treatment in such jurisdictions may differ from the federal income tax treatment
described above. Consequently, you should consult your own tax advisor regarding
the effect of state and local tax laws upon the ownership of the shares of
common stock.
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<PAGE> 25
TAX ASPECTS OF OUR INVESTMENT IN SUBSIDIARY PARTNERSHIPS
The following discussion summarizes the federal income tax
considerations applicable to our direct or indirect investments in the
subsidiary partnerships. The discussion does not cover state or local tax laws
or any federal tax laws other than income tax laws.
Classification As A Partnership.
We are entitled to include in our income our distributive share of a
subsidiary partnership's income and to deduct our distributive share of a hotel
partnership's losses only if the partnership is classified for federal income
tax purposes as a partnership rather than as a corporation or an association
taxable as a corporation. An organization will be classified as a partnership,
rather than as a corporation, for federal income tax purposes if it:
- is treated as a partnership under Treasury regulations,
effective January 1, 1997, 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 members may elect to be classified either as an association taxable as
a corporation or as a partnership. If such an entity fails to make an election,
it generally will be treated as a partnership for federal income tax purposes.
The federal income tax classification of an entity that was in existence prior
to January 1, 1997, such as our operating partnership, will be respected for all
periods prior to January 1, 1997 if:
- the entity had a reasonable basis for its claimed
classification;
- the entity and all members of the entity recognized the
federal tax consequences of any changes in the entity's
classification within the 60 months prior to January 1, 1997;
and
- neither the entity nor any member of the entity was notified
in writing by a taxing authority on or before May 8, 1996 that
the classification of the entity was under examination.
Each of our subsidiary partnerships in existence prior to January 1,
1997 reasonably claimed partnership classification under the Treasury
regulations relating to entity classification in effect prior to January 1,
1997. In addition, each of our subsidiary partnerships intends to continue to be
classified as a partnership for federal income tax purposes and will not elect
to be treated as an association taxable as a corporation under the check-the-box
regulations.
A publicly traded partnership is a partnership whose interests are
traded on an established securities market or are readily tradable on a
secondary market or the substantial equivalent thereof. A publicly traded
partnership will not, however, be treated as a corporation for any taxable year
if 90% or more of the partnership's gross income for such year consists of
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").
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<PAGE> 26
Treasury regulations provide limited safe harbors from the definition
of a publicly traded partnership. Pursuant to one of those safe harbors (the
"private placement exclusion"), interests in a partnership will not be treated
as readily tradable on a secondary market or the substantial equivalent thereof
if:
- all interests in the partnership were issued in a transaction
or transactions that were not required to be registered under
the Securities Act of 1933, as amended; and
- the partnership does not have more than 100 partners at any
time during the partnership's taxable year.
In determining the number of partners in a partnership, a person owning
an interest in a partnership, grantor trust, or S corporation that owns an
interest in the partnership is treated as a partner in the partnership only if:
- substantially all of the value of the owner's interest in the
entity is attributable to the entity's direct or indirect
interest in the partnership; and
- a principal purpose of the use of the entity is to permit the
partnership to satisfy the 100-partner limitation.
Each of our subsidiary partnerships qualifies for the private placement
exclusion.
If a subsidiary partnership is considered a publicly traded partnership
because it is deemed to have more than 100 partners, it should not be treated as
a corporation because it should be eligible for the 90% passive income
exception. If, however, for any reason a subsidiary partnership were taxable as
a corporation, rather than as a partnership, for federal income tax purposes, we
would not be able to qualify as a REIT. See "Federal Income Tax Consequences of
the Company's Status as a REIT -- Requirements for Qualification -- Income
Tests" and "-- Requirements for Qualification -- Asset Tests." In addition, any
change in the subsidiary 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 "Federal Income Tax Consequences of the Company's
Status as a REIT -- Requirements for Qualification -- Distribution
Requirements." Further, items of income and deduction of the of our subsidiary
partnership would not pass through to its partners, and its partners would be
treated as shareholders for tax purposes. Consequently, the of our subsidiary
partnership would be required to pay income tax at corporate tax rates on its
net income, and distributions to its partners would constitute dividends that
would not be deductible in computing the subsidiary partnership's taxable
income.
Income Taxation Of The Subsidiary Partnerships And Their Partners
PARTNERS, NOT PARTNERSHIP, 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 subsidiary partnership's income, gains,
losses, deductions, and credits for any taxable year of such subsidiary
partnership ending within or with its taxable year, without regard to whether we
have received or will receive any distribution from the partnership.
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<PAGE> 27
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 subsidiary partnership's allocations of
taxable income, gain, and loss are intended to comply with the requirements of
the federal income tax laws governing partnership allocations.
TAX ALLOCATIONS WITH RESPECT TO CONTRIBUTED PROPERTIES. Income, gain,
loss, and deduction attributable to appreciated or depreciated property that is
contributed to a partnership in exchange for an interest in the partnership must
be allocated in a manner such that the contributing partner is charged with, or
benefits from, respectively, the unrealized gain or unrealized loss associated
with the property at the time of the contribution. The amount of such unrealized
gain or unrealized loss is generally equal to the difference between the fair
market value of contributed property at the time of contribution and the
adjusted tax basis of such property at the time of contribution. Such
allocations are solely for federal income tax purposes and do not affect the
book capital accounts or other economic or legal arrangements among the
partners.
Our operating partnership was formed by way of contributions of
appreciated property and has received contributions of appreciated property
since our initial public offering. The partnership agreement governing our
operating partnership requires such allocations to be made in a manner
consistent with the federal income tax laws governing partnership allocations.
Under the partnership agreement for our operating partnership,
depreciation or amortization deductions of our operating partnership generally
are allocated among the partners in accordance with their respective interests
in our operating partnership, except to the extent that our operating
partnership is required under the federal income tax laws governing partnership
allocations to use a method for allocating tax depreciation deductions
attributable to contributed properties that results in us receiving a
disproportionate share of such deductions. In addition, gain on the sale of a
contributed hotel will be specially allocated to the contributing partners to
the extent of any "built-in" gain with respect to such hotel for federal income
tax purposes.
BASIS IN PARTNERSHIP INTEREST. Our adjusted tax basis in our operating
partnership generally is equal to the following:
- the amount of cash and the basis of any other property we have
contributed to our operating partnership;
- increased by (1) our allocable share of our operating
partnership's income and (2) our allocable share of our
operating partnership's indebtedness; and
- reduced, but not below zero, by (1) our allocable share of our
operating partnership's loss and (2) the amount of cash
distributed to us, including constructive distributions
resulting from a reduction in its share of our operating
partnership's indebtedness.
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<PAGE> 28
If the allocation of our distributive share of the our operating
partnership's loss would reduce our adjusted tax basis in 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, would reduce our adjusted tax basis
below zero, such distributions would constitute taxable income to us. Such
distributions and constructive distributions normally will be characterized as
capital gain, and, if our partnership interest in our operating partnership has
been held for longer than one year, the distributions and constructive
distributions will constitute long-term capital gain.
DEPRECIATION DEDUCTIONS AVAILABLE TO THE SUBSIDIARY PARTNERSHIPS. To
the extent that a subsidiary partnership has acquired a hotel for cash, its
initial basis in such hotel for federal income tax purposes generally was equal
to the purchase price paid by the subsidiary partnership. The subsidiary
partnerships depreciate such depreciable hotel property under modified
accelerated cost recovery system of depreciation ("MACRS"). The subsidiary
partnerships use MACRS for furnishings and equipment. Under MACRS, the
subsidiary partnerships generally depreciate such furnishings and equipment over
a seven-year recovery period using a 200% declining balance method and a
half-year convention. If, however, a subsidiary partnership places more than 40%
of its furnishings and equipment in service during the last three months of a
taxable year, a mid-quarter depreciation convention must be used for the
furnishings and equipment placed in service during that year. Under MACRS, the
subsidiary partnerships generally depreciate buildings and improvements over a
39-year recovery period using a straight line method and a mid-month convention.
To the extent that the our operating partnership has acquired hotels in
exchange for units of limited partnership interest in the operating partnership,
its initial basis in each hotel for federal income tax purposes should be the
same as the transferor's basis in that hotel on the date of acquisition.
Although the law is not entirely clear, the our operating partnership generally
depreciates such depreciable property for federal income tax purposes over the
same remaining useful lives and under the same methods used by the transferors.
Our operating partnership's tax depreciation deductions are allocated among the
partners in accordance with their respective interests in our operating
partnership, except to the extent that our operating partnership is required
under the federal income tax laws to use a method for allocating depreciation
deductions attributable to the hotels or other contributed properties that
results in us receiving a disproportionately large share of such deductions.
SALE OF PROPERTY. Generally, any gain realized by us or a subsidiary
partnership on the sale of property held for more than one year will be
long-term capital gain, except for any portion of such gain that is treated as
depreciation or cost recovery recapture. Any gain recognized on the disposition
of contributed properties will be allocated first to the contributing partners
to the extent of their "built-in gain" on those properties for federal income
tax purposes. The partners' "built-in gain" on the contributed properties sold
will equal the excess of the partners' proportionate share of the book value of
those properties over the partners' tax basis allocable to those properties at
the time of the sale. Any remaining gain on the disposition of the contributed
properties, and any gain recognized by the subsidiary partnerships on the
disposition of the other
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<PAGE> 29
properties, will be allocated among the partners in accordance with their
respective percentage interests in the partnership.
Our share of any gain realized by a subsidiary 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 "Federal Income Tax Consequences of Our Status as a REIT --
Requirements for Qualification -- Income Tests." However, we do not presently
intend to acquire or hold or to allow any subsidiary 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 trade or business.
USE OF PROCEEDS
We will not receive any proceeds from the sale of common stock by
selling shareholders pursuant to this prospectus.
SELLING SHAREHOLDER
This prospectus relates to the sale by RFS, Inc. of up to 1,200,000
shares of our common stock issuable to RFS, Inc. in connection with the purchase
of 973,684 shares of our Series A preferred stock from RFS, Inc. Because the
formula for determining the number of shares of common stock issuable to RFS,
Inc. as payment for the shares of Series A preferred stock is based upon the
market value of our common stock during the period of time twenty days prior to
the fifth business day prior to the date of purchase and because we may elect to
purchase all or a portion of the Series A preferred stock for cash, the exact
number of shares of common stock which may be offered and sold by RFS, Inc.
pursuant to this prospectus is not currently known. However, we will not issue
in excess of 1,200,000 shares of our common stock to RFS, Inc. and this
prospectus relates to this maximum number of shares. The following table
represents the maximum number of shares of common stock which may be offered and
sold by RFS, Inc. pursuant to this prospectus. The table sets forth as of
September 28, 2000, and as adjusted to reflect the sale of up to 1,200,000
shares of common stock, certain information regarding RFS, Inc.'s beneficial
ownership of shares of our common stock.
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<PAGE> 30
<TABLE>
<CAPTION>
Prior to Offering After Offering
------------------------------------------- -------------------------------------------
Shares of
Percent of Common Stock Percent of
Selling Shares Outstanding Registered Shares Outstanding
Shareholder Owned Shares Hereunder Owned(3) Shares
----------- ----- ------ --------- ------
<S> <C> <C> <C> <C> <C>
RFS, Inc. 1,277,903(1) 5.0% 1,200,000(2) 77,903(1) (4)
</TABLE>
------------------
(1) Includes the shares of common stock covered by this prospectus and
77,903 shares of common stock issuable upon redemption of 77,903 units
of limited partnership interest of RFS Partnership, L.P. held by RFS,
Inc.
(2) This registration statement also shall cover any additional shares of
our common stock which become issuable in connection with the shares
registered for sale hereby by reason of any stock dividend, stock
split, recapitalization or other similar transaction effected without
the receipt of consideration which results in an increase in the number
of outstanding shares of our common stock.
(3) Assumes all shares of common stock registered hereunder are sold.
(4) Represents less than one-percent.
PLAN OF DISTRIBUTION
We are registering all 1,200,000 shares on behalf of RFS, Inc. All of
the shares are issuable to RFS, Inc. in connection with the purchase from RFS,
Inc. of shares of our Series A preferred stock. We will receive no proceeds from
the sale of the shares. RFS, Inc. or pledgees, donees, transferees or other
successors-in-interest selling shares received from RFS, Inc. as a gift,
partnership distribution or other non sale-related transfer after the date of
this prospectus may sell the shares from time to time. RFS, Inc. and these
selling shareholders will act independently of us in making decisions with
respect to the timing, manner and size of each sale. The sales may be made on
one or more exchanges or in the over-the-counter market or otherwise, at prices
and at terms then prevailing or at prices related to the then current market
price, or in negotiated transactions. The selling shareholders may effect such
transactions by selling the shares to or through broker-dealers. Our common
stock may be sold by one or more of, or a combination of, the following:
- a block trade in which the broker-dealer so engaged will
attempt to sell our common stock as agent but may position and
resell a portion of the block as principal to facilitate the
transaction,
- purchases by a broker-dealer as principal and resale by such
broker-dealer for its account pursuant to this prospectus,
- an exchange distribution in accordance with the rules of such
exchange,
- ordinary brokerage transactions and transactions in which the
broker solicits purchasers, and
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<PAGE> 31
- in privately negotiated transactions.
To the extent required, this prospectus may be amended or supplemented
from time to time to describe a specific plan of distribution. In effecting
sales, broker-dealers engaged by the selling shareholders may arrange for other
broker-dealers to participate in the resales.
The selling shareholders may enter into hedging transactions with
broker-dealers in connection with distributions of our common stock or
otherwise. In such transactions, broker-dealers may engage in short sales of the
shares in the course of hedging the positions they assume with selling
shareholders. The selling shareholders also may sell shares short and redeliver
our common stock to close out such short positions. The selling shareholders may
enter into option or other transactions with broker-dealers which require the
delivery to the broker-dealer of our common stock. The broker-dealer may then
resell or otherwise transfer such shares pursuant to this prospectus. The
selling shareholders also may loan or pledge the shares to a broker-dealer. The
broker-dealer may sell our common stock so loaned, or upon a default the
broker-dealer may sell the pledged shares pursuant to this prospectus.
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from selling shareholders. Broker-dealers
or agents may also receive compensation from the purchasers of our common stock
for whom they act as agents or to whom they sell as principals, or both.
Compensation as to a particular broker-dealer might be in excess of customary
commissions and will be in amounts to be negotiated in connection with sales and
purchases of our common stock. Broker-dealers or agents and any other
participating broker-dealers or the selling shareholders may be deemed to be
"underwriters" within the meaning of Section 2 (11) of the Securities Act of
1933 in connection with sales of the shares. Accordingly, any such commission,
discount or concession received by them and any profit on the resale of our
common stock purchased by them may be deemed to be underwriting discounts or
commissions under the Securities Act of 1933. Because selling shareholders may
be deemed to be "underwriters" within the meaning of Section 2 (11) of the
Securities Act of 1933, the selling shareholders will be subject to the
prospectus delivery requirements of the Securities Act of 1933. In addition, any
securities covered by this prospectus which qualify for sale pursuant to Rule
144 promulgated under the Securities Act of 1933 may be sold under Rule 144
rather than pursuant to this prospectus. The selling shareholders have advised
us that they have not entered into any agreements, understandings or
arrangements with any underwriters or broker-dealers regarding the sale of their
securities. There is no underwriter or coordinating broker acting in connection
with the proposed sale of shares by selling shareholders.
Our common stock will be sold only through registered or licensed
brokers or dealers if required under applicable state securities laws. In
addition, in certain states our common stock may not be sold unless registered
or qualified for sale in the applicable state or an exemption from the
registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act of 1934,
any person engaged in the distribution of our common stock may not
simultaneously engage in market making activities with respect to our common
stock for a period of two business days prior to the commencement of such
distribution. In addition, each selling shareholder will be subject to
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<PAGE> 32
applicable provisions of the Securities Exchange Act of 1934 and the associated
rules and regulations under the Securities Exchange Act of 1934, including
Regulation M, which provisions may limit the timing of purchases and sales of
shares of our common stock by the selling shareholders. We will make copies of
this prospectus available to the selling shareholders and have informed them of
the need for delivery of copies of this prospectus to purchasers at or prior to
the time of any sale of our common stock.
We will file a supplement to this prospectus, if required, pursuant to
Rule 424(b) under the Securities Act of 1933 upon being notified by a selling
shareholder that any material arrangement has been entered into with a
broker-dealer for the sale of shares through a block trade, special offering,
exchange distribution or secondary distribution or a purchase by a broker or
dealer. Such supplement will disclose:
- the name of each such selling shareholder and of the
participating broker-dealer(s),
- the number of shares involved,
- the price at which such shares were sold,
- the commissions paid or discounts or concessions allowed to
such broker-dealer(s), where applicable,
- that such broker-dealer(s) did not conduct any investigation
to verify the information set out or incorporated by reference
in this prospectus, and
- other facts material to the transaction.
We will bear all costs, expenses and fees in connection with the
registration of our common stock. The selling shareholders will bear all
commissions and discounts, if any, attributable to the sales of the shares. The
selling shareholders may agree to indemnify any broker-dealer or agent that
participates in transactions involving sales of the shares against certain
liabilities, including liabilities arising under the Securities Act of 1933.
EXPERTS
The consolidated financial statements and related financial statement
schedule of RFS Hotel Investors, Inc., as of December 31, 1999 and 1998, and for
each of the three years in the period ended December 31, 1999 incorporated by
reference in this prospectus have been so incorporated in reliance on the
reports of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered
pursuant to this prospectus will be passed upon for us by Hunton & Williams,
Richmond, Virginia.
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<PAGE> 33
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any document we file at the SEC's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available on the SEC's Website at "http://www.sec.gov."
The SEC allows us to "incorporate by reference" into this prospectus
certain information from other documents that we file with them, which means
that we can disclose important information by referring to those documents. The
information incorporated by reference is considered to be part of this
prospectus, and information that we file later with the SEC will automatically
update and supersede this information. We incorporate by reference the documents
listed below and any future filings we make with the SEC under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 prior to the sale of
all the shares covered by this prospectus:
- Annual Report on Form 10-K for the year ended December 31,
1999;
- Quarterly Reports on Form 10-Q for the three months ended
March 31, 2000 and the six months ended June 30, 2000;
- The description of the shares of common stock contained in our
Registration Statement on Form 8-A, filed with the SEC on
August 1, 1996; and
- Report on Form 8-K dated May 12, 1999.
You may request a copy of these filings, at no cost, by writing or
telephoning:
RFS Hotel Investors, Inc.
850 Ridge Lake Boulevard, Suite 220
Memphis, Tennessee 38120
Telephone: (901) 767-7005
As you read the above documents, you may find some inconsistencies in
information from one document to another. If you find inconsistencies between
the documents, or between a document and this prospectus, you should rely on the
statements made in the most recent document.
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement. We have not authorized anyone
else to provide you with different information. These shares will not be offered
in any state where the offer is not permitted. You should not assume that the
information in this prospectus or any supplement is accurate as of any date
other than the date on the front of those documents.
================================================================
29
<PAGE> 34
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY OUR COMPANY OR THE SELLING SHAREHOLDER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, THE COMMON STOCK, IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF OUR COMPANY SINCE THE
DATE HEREOF.
30
<PAGE> 35
================================================================================
================================================================================
RFS HOTEL INVESTORS, INC.
1,200,000 SHARES
COMMON STOCK
------------------------------------------------------
PROSPECTUS
------------------------------------------------------
___________, 2000
================================================================================
<PAGE> 36
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the offering are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee $ 4,011
Accounting fees and expenses 3,000
Legal fees and expenses 20,000
Miscellaneous 2,500
TOTAL $29,511
</TABLE>
Our company will pay all of the expenses listed above. None of these
expenses will be borne by the selling shareholder named in the accompanying
prospectus.
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Our charter generally limits the liability of our directors and
officers to our company or our shareholders for money damages to the fullest
extent permitted from time to time by the laws of Tennessee. Our charter also
provides, generally, for the indemnification of directors and officers, among
others, against judgments, settlements, penalties, fines and reasonable expense
actually incurred by them in connection with any proceeding to which they may be
made a party by reason of their service in those or other capacities except in
connection with a proceeding by or in the right of our company in which the
director was adjudged liable to our company or in connection with any other
proceeding, whether or not involving action in his official capacity, in which
he was adjudged liable on the basis that personal benefit was improperly
received by him. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to our directors and officers pursuant
to the foregoing provisions or otherwise, we have been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable.
EXHIBIT INDEX
3.1 - Second Restated Charter of the Company (previously filed as Exhibit
3.1 to our Current Report on Form 8-K dated March 6, 1996 and
incorporated by reference herein)
II-1
<PAGE> 37
3.2 - Bylaws of RFS Hotel Investors, Inc. (filed as Exhibit 3.2 to our
Registration Statement on Form S-11 (Registration No. 33-63696) and
incorporated by reference herein)
3.3 - Fourth Amended and Restated Agreement of Limited Partnership of RFS
Partnership, L.P. (filed as Exhibit 3.3(b)) to our Annual Report on
Form 10-K for the year ended December 31, 1996 (Registration No.
0-22164) filed with the Commission on March 31, 1997 and incorporated
by reference herein)
4.1 - Specimen Common Stock Certificate (previously filed as Exhibit 4.1 to
our Registration Statement on Form S-11 (Registration No. 33-63696) and
incorporated by reference herein)
5.1 - Opinion of Hunton & Williams
8.1 - Opinion of Hunton & Williams with respect to certain tax matters
23.1 - Consent of PricewaterhouseCoopers LLP
23.2 - Consent of Hunton & Williams (included in Exhibit 5.1)
24.1 - Power of Attorney (located on the signature page of this Registration
Statement)
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made
of the securities registered hereby, a post-effective amendment to this
registration statement (i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any
facts or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth in
the registration statement; notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective Registration
Statement; and (iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement; provided,
however, that the undertakings set forth in subparagraphs (i)
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<PAGE> 38
and (ii) above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed with or furnished to the Commission by the registrant pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in this registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof; and
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 Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information. The undersigned
registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to
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<PAGE> 39
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
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<PAGE> 40
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 this 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 Memphis, State of Tennessee, on the 28th day of
September, 2000.
RFS Hotel Investors, Inc.,
a Tennessee corporation
(Registrant)
By: /s/ Robert M. Solmson
----------------------------------------
Robert M. Solmson
Chairman of the Board and Chief
Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints Randall L. Churchey and Kevin M. Luebbers, and each or either of them,
his true and lawful attorney-in-fact with full power of substitution and
re-substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and any registration statement that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to cause the same to be filed with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby granting to said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
whatsoever requisite or desirable to be done in and about the premises, as fully
to all intents and purposes as the undersigned might or could do in person,
hereby ratifying and confirming all acts and things that said attorneys-in-fact
and agents, or either of them, whether substitutes or substitute, may lawfully
do or cause to be done by virtue hereof.
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<PAGE> 41
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below on the 28th day of September, 2000
by the following persons in the capacities indicated.
Signature Title
--------- -----
<TABLE>
<S> <C>
/s/ Robert M. Solmson Chairman of the Board and Chief
------------------------------------ Executive Officer (Principal
Robert M. Solmson Executive Officer)
/s/ Bruce E. Campbell Director
------------------------------------
Bruce E. Campbell
/s/ H. Lance Forsdick Director
------------------------------------
H. Lance Forsdick
/s/ R. Lee Jenkins Director
------------------------------------
R. Lee Jenkins
/s/ Harry J. Phillips, Sr. Director
------------------------------------
Harry J. Phillips, Sr.
/s/ Richard Reiss, Jr. Director
------------------------------------
Richard Reiss, Jr.
/s/ Michael S. Starnes Director
------------------------------------
Michael S. Starnes
/s/ John W. Stokes, Jr. Director
------------------------------------
John W. Stokes, Jr.
/s/ Randall L. Churchey Director
---------------------------
Randall L. Churchey
/s/ Kevin M. Luebbers Chief Financial Officer and Treasurer
------------------------------------ (Principal Financial and Accounting
Kevin M. Luebbers Officer)
</TABLE>
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<PAGE> 42
EXHIBIT INDEX
3.1 - Second Restated Charter of the Company (previously filed as Exhibit
3.1 to the Company's Current Report on Form 8-K dated March 6, 1996 and
incorporated by reference herein)
3.2 - Bylaws of RFS Hotel Investors, Inc. (filed as Exhibit 3.2 to the
Company's Registration Statement on Form S-11 (Registration No.
33-63696) and incorporated by reference herein)
3.3 - Fourth Amended and Restated Agreement of Limited Partnership of RFS
Partnership, L.P. (filed as Exhibit 3.3(b)) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 (Registration
No. 0-22164) filed with the Commission on March 31, 1997 and
incorporated by reference herein)
4.1 - Specimen Common Stock Certificate (previously filed as Exhibit 4.1 to
the Company's Registration Statement on Form S-11 (Registration No.
33-63696) and incorporated by reference herein)
5.1 - Opinion of Hunton & Williams
8.1 - Opinion of Hunton & Williams with respect to certain tax matters
23.1 - Consent of PricewaterhouseCoopers LLP
23.3 - Consent of Hunton & Williams (included in Exhibit 5.1)
24.1 - Power of Attorney (located on the signature page of this Registration
Statement)
II-7
