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Current General Economic Recession and Slowdown in the Lodging Industry
The present economic recession and the uncertainty over its depth and duration will continue to have a negative impact on the
lodging industry. There is now general consensus among economists that the economy in the United States is now in a recession and
as a result the Company is experiencing reduced demand for hotel rooms. Accordingly, financial results have been impacted by the
economic slowdown and future financial results and growth will be further harmed while the recession continues.
Hospitality Industry
The success of the Company’s properties will depend largely on the property operators’ ability to adapt to dominant trends in
the hotel industry as well as greater competitive pressures, increased consolidation, industry overbuilding, dependence on consumer
spending patterns and changing demographics, the introduction of new concepts and products, availability of labor, price levels and
general economic conditions. The success of a particular hotel brand, the ability of a hotel brand to fulfill any obligations to operators
of its business, and trends in the hotel industry may affect the Company’s income and the funds it has available to distribute to
shareholders.
The hospitality industry could also experience a significant decline in occupancy and average daily rates due to a reduction in both
business and leisure travel. General economic conditions, increased fuel costs, natural disasters and terrorist attacks are a few factors
that could affect an individual’s willingness to travel. The Company’s property insurance will typically cover losses for property
damage due to terrorist attacks or natural disasters. However, the Company is not insured against the potential negative effect a
terrorist attack or natural disaster would have on the hospitality industry as a whole.
Seasonality
The hotel industry is seasonal in nature. Generally, occupancy rates and hotel revenues are greater in the second and third
quarters than in the first and fourth quarters. As a result, there may be quarterly fluctuations in results of operations. As a result, the
Company may need to enter into short-term borrowing in certain periods in order to offset these fluctuations in revenues and to make
distributions to shareholders.
Franchise Agreements
The Company’s wholly-owned taxable REIT subsidiaries (or subsidiaries thereof), operate all of the properties pursuant to
franchise or license agreements with nationally recognized hotel brands. These franchise agreements contain specific standards for,
and restrictions and limitations on, the operation and maintenance of the Company’s properties in order to maintain uniformity within
the franchisor system. These standards could potentially conflict with the Company’s ability to create specific business plans tailored
to each property and to each market.
Competition
The hotel industry is highly competitive. Each of the Company’s hotels is located in a developed area that includes other hotels
and competes for guests primarily with other hotels in the Company’s immediate vicinity and secondarily with other hotels in the
Company’s geographic market. An increase in the number of competitive hotels in a particular area could have a material adverse
effect on the occupancy, average daily rate and revenue per available room of the Company’s hotels in that area. In addition, increases
in operating costs due to inflation may not be offset by increased room rates.
Transferability of Shares
There will be no public trading market for the common shares and the Series A preferred shares for an indefinite period of time,
if ever. Therefore, the Units will be highly illiquid and very difficult to trade. In addition, there are restrictions on the transfer of the
common shares. In order to qualify as a REIT, the shares must be beneficially owned by 100 or more persons and no more than 50% of
the value of the Company’s issued and outstanding shares may be owned directly or indirectly by five or fewer individuals. Therefore,
the Company’s bylaws provide that no person may own more than 9.8% of the issued and outstanding Units. Any purported transfer of
the Company’s shares that would result in a violation of either of these limits will be declared null and void.
Qualification as a REIT
The rules governing a REIT are highly technical and complex. They require ongoing compliance with a variety of tests that
depend on, among other things, future operations. While the Company expects to satisfy these tests, it cannot ensure it will qualify as a
REIT for any particular year. There is also the risk that the applicable laws governing a REIT could be changed, which could adversely
affect the Company and its shareholders.
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