| MISSION WEST PROPERTIES INC Item 1A Risk Factors 9 ITEM 1A RISK FACTORS YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS, TOGETHER WITH THE OTHER INFORMATION CONTAINED ELSEWHERE IN THIS FORM 10-K THE FOLLOWING RISKS RELATE PRINCIPALLY TO OUR BUSINESS AND THE INDUSTRY IN WHICH WE OPERATE THE RISKS AND UNCERTAINTIES CLASSIFIED BELOW ARE NOT THE ONLY ONES WE FACE WE ARE DEPENDENT ON CARL E BERG, AND IF WE LOSE HIS SERVICES OUR BUSINESS MAY BE HARMED AND OUR STOCK PRICE COULD FALL We are substantially dependent upon the leadership of Carl E Berg, our Chairman and Chief Executive Officer |
| Bergapstas knowledge and abilities could have a material adverse effect on our business and the value of our common stock |
| Berg manages our day-to-day operations and devotes a significant portion of his time to our affairs, but he has a number of other business interests as well |
| These other activities reduce Mr |
| MR BERG AND HIS AFFILIATES EFFECTIVELY CONTROL OUR CORPORATION AND THE OPERATING PARTNERSHIPS AND MAY ACT IN WAYS THAT ARE DISADVANTAGEOUS TO OTHER STOCKHOLDERS SPECIAL BOARD VOTING PROVISIONS Our governing corporate documents, which are our articles of amendment and restatement, or charter, and our bylaws, provide substantial control rights for the Berg Group |
| The Berg Groupapstas control of our corporation means that the value and returns from an investment in the Companyapstas common stock are subject to the Berg Groupapstas exercise of its rights |
| These rights include a requirement that Mr |
| Berg or his designee as director approve certain fundamental corporate actions, including amendments to our charter and bylaws and any merger, consolidation or sale of all or substantially all of our assets |
| In addition, our bylaws provide that a quorum necessary to hold a valid meeting of the Board of Directors must include Mr |
| The rights described in the two preceding sentences apply only as long as the Berg Group members and their affiliates, other than us and the operating partnerships, beneficially own, in the aggregate, at least 15prca of our outstanding shares of common stock on a Fully Diluted basis |
| Also, directors representing more than 75prca of the entire Board of Directors must approve other significant transactions, such as incurring debt above certain amounts and conducting business other than through the operating partnerships |
| Berg or his designee, the Board of Directors &apos approval that we may need for actions that might result in a sale of your stock at a premium or raising additional capital when needed could be difficult or impossible to obtain |
| BOARD OF DIRECTORS REPRESENTATION The Berg Group members have the right to designate two of the director nominees submitted by our Board of Directors to stockholders for election, as long as the Berg Group members and their affiliates, other than us and the operating partnerships, beneficially own, in the aggregate, at least 15prca of our outstanding shares of common stock calculated on a Fully Diluted basis |
| If the Fully Diluted ownership of the Berg Group members and their affiliates, other than us and the operating partnerships, is less than 15prca but is at least 10prca of the common stock, the Berg Group members have the right to designate one of the director nominees submitted by our Board of Directors to stockholders for election |
| Its right to designate director nominees affords the Berg Group substantial control and influence over the management and direction of our corporation |
| The Berg Groupapstas interests could conflict with the interests of our stockholders and could adversely affect the price of our common stock |
| SUBSTANTIAL OWNERSHIP INTEREST The Berg Group currently owns OP Units representing approximately 74dtta1prca of the equity interests in the operating partnerships and approximately 74dtta1prca of our equity interests on a Fully Diluted basis |
| The OP Units may be converted into shares of common stock, subject to limitations set forth in our charter and other agreements with the Berg Group, and upon conversion would represent voting control of our corporation |
| The Berg Groupapstas ability to exchange its OP Units for common stock permits it to exert substantial influence over the management and direction of our corporation |
| This influence increases our dependence on the Berg Group |
| Berg and other limited partners, including other members of the Berg Group, may restrict our operations and activities through rights provided under the terms of the amended and restated agreement of limited partnership which governs each of the operating partnerships and our legal relationship to each operating partnership as its general partner |
| Matters requiring approval of the holders of a majority of the OP Units, which necessarily would include the Berg Group, include the following: - 9 - - the amendment, modification or termination of any of the operating partnership agreements; - the transfer of any general partnership interest in the operating partnerships, including, with certain exceptions, transfers attendant to any merger, consolidation or liquidation of our corporation; - the admission of any additional or substitute general partners in the operating partnerships; - any other change of control of the operating partnerships; - a general assignment for the benefit of creditors or the appointment of a custodian, receiver or trustee for any of the assets of the operating partnerships; and - the institution of any bankruptcy proceeding for any operating partnership |
| In addition, as long as the Berg Group members and their affiliates, other than us and the operating partnerships, beneficially own, in the aggregate, at least 15prca of the outstanding shares of common stock on a Fully Diluted basis, the consent of the limited partners holding the right to vote a majority of the total number of OP Units outstanding is also required with respect to: - the sale or other transfer of all or substantially all of the assets of the operating partnerships and certain mergers and business combinations resulting in the complete disposition of all OP Units; - the issuance of limited partnership interests senior to the OP Units as to distributions, assets and voting; and - the liquidation of the operating partnerships |
| The liquidity of an investment in the Companyapstas common stock, including our ability to respond to acquisition offers, will be subject to the exercise of these rights |
| OUR CONTRACTUAL BUSINESS RELATIONSHIPS WITH THE BERG GROUP PRESENT ADDITIONAL CONFLICTS OF INTEREST, WHICH MAY RESULT IN THE REALIZATION OF ECONOMIC BENEFITS OR THE DEFERRAL OF TAX LIABILITIES BY THE BERG GROUP WITHOUT EQUIVALENT BENEFITS TO OUR STOCKHOLDERS Our contracts with the Berg Group provide it with interests that could conflict with those of our other stockholders, including the following: - our headquarters are leased from an entity owned by the Berg Group, to whom we pay rent of dlra7cmam520 per month; - the Berg Group is permitted to conduct real estate and business activities other than our business; - if we decline an opportunity that has been offered to us, the Berg Group may pursue it, which would reduce the amount of time that Mr |
| Berg could devote to our affairs and could result in the Berg Groupapstas development of properties that compete with our properties for tenants; - in general, we have agreed to limit the liability of the Berg Group to our corporation and our stockholders arising from the Berg Groupapstas pursuit of these other opportunities; - we acquired most of our properties from the Berg Group on terms that were not negotiated at armapstas length and without many customary representations and warranties that we would have sought in an acquisition from an unrelated party; and - we have assumed liability for debt to the Berg Group and debt for which the Berg Group was liable |
| The Berg Group has agreed that the Independent Directors Committee of our Board of Directors must approve all new transactions between us and any of its members, or between us and any entity in which it directly or indirectly owns 5prca or more of the equity interests, including the operating partnerships for this purpose |
| This committee currently consists of three directors who are independent of the Berg Group |
| - 10 - EXCLUDED PROPERTIES With our prior knowledge, the Berg Group retained two R&D properties in Scotts Valley, Santa Cruz County, California, in which the operating partnerships and we have no ownership interest |
| Efforts of the Berg Group to lease these other properties could interfere with similar efforts on our behalf |
| BERG LAND HOLDINGS The Berg Group owns several parcels of unimproved land in the Silicon Valley that the operating partnerships and we have the right to acquire under the terms of the Berg Land Holdings Option Agreement |
| We have agreed to pay an amount based on pre-negotiated terms for any of the properties that we do acquire |
| We must pay the acquisition price in cash unless the Berg Group elects, in its discretion, to receive OP Units valued at the average market price of a share of common stock during the 30-trading-day period preceding the acquisition date |
| At the time of acquisition, which is subject to the approval of the Independent Directors Committee, these properties may be encumbered by debt that we or the operating partnerships will be required to assume or repay |
| The use of our cash or an increase in our indebtedness to acquire these properties could have a material adverse effect on our financial condition, results of operations and ability to make cash distributions to our stockholders |
| The Independent Directors Committee recently authorized the removal of a 160-acre site from the Berg Land Holdings Option Agreement if the Berg Group is able to obtain residential development zoning for any portion of this land |
| The Independent Directors Committee determined that this site is not likely to be of future development interest to us, and so the Berg Group is now able to pursue its own residential development opportunities for this site |
| Any portions of such site that are rezoned as residential will no longer be subject to the Berg Land Holdings Option Agreement and will not provide any future benefit to us |
| TAX CONSEQUENCES OF SALE OF PROPERTIES Because many of our properties have unrealized taxable gain, a sale of those properties could create adverse income tax consequences for the limited partners of the operating partnerships |
| We have agreed with Carl E Berg, Clyde J Berg and John Kontrabecki, a limited partner in two of the operating partnerships, that prior to December 29, 2008, each of them may prevent us and the operating partnerships from selling or transferring any of the properties that were acquired from them in our July 1998 UPREIT acquisition if the proposed sale or other transfer will be a taxable transaction |
| As a result, our opportunities to sell these properties may be limited |
| If we need to sell any of these properties to raise cash to service our debt, acquire new properties, pay cash distributions to stockholders or for other working capital purposes, we may be unable to do so |
| These restrictions could harm our business and cause our stock price to fall |
| TERMS OF TRANSFERS: ENFORCEMENT OF AGREEMENT OF LIMITED PARTNERSHIP The terms of the Pending Projects Acquisition Agreement, the Berg Land Holdings Option Agreement, the partnership agreement of each operating partnership and other material agreements through which we have acquired our interests in the operating partnerships and the properties formerly controlled by the Berg Group were not determined through armapstas-length negotiations and could be less favorable to us than those obtained from an unrelated party |
| Berg and representatives of the Berg Group sitting on our Board of Directors may be subject to conflicts of interests with respect to their obligations as our directors to enforce the terms of the partnership agreement of each operating partnership when such terms conflict with their personal interests |
| The terms of our charter and bylaws also were not determined through armapstas-length negotiations |
| Some of these terms, including representations and warranties applicable to acquired properties, are not as favorable as those that we would have sought through armapstas-length negotiations with unrelated parties |
| As a result, an investment in our common stock may involve risks not found in businesses in which the terms of material agreements have been negotiated at armapstas length |
| RELATED PARTY DEBT On October 26, 2005, the Independent Directors Committee of the Board of Directors approved the termination of the dlra20 million line of credit agreement between the Company and the Berg Group effective October 31, 2005 |
| The Berg Group line of credit was originally scheduled to mature in March 2006 |
| There are no borrowings currently outstanding under the Berg Group line of credit |
| We did not incur any fees or charges for terminating the Berg Group line of credit |
| We are liable under a mortgage loan of dlra10dtta1 million due June 2010 that we assumed in connection with our acquisition of the 5300-5350 Hellyer Avenue R&D properties that we acquired in May 2000 under the Berg Land Holdings Option Agreement |
| If we are unable to repay our debts to the Berg Group when due, the Berg Group could take action to enforce our payment obligations |
| Potential actions by the Berg Group to enforce these obligations could result in the foreclosure in one or more of our properties and a reduction in the amount of cash distributions to our stockholders |
| In turn, if we fail to meet the minimum distributions test because of a loan default or another reason, we could lose our REIT classification for federal income tax purposes |
| For more information please refer to Item 1A, "e Risk Factors - Failure to satisfy federal income tax requirements for REITs could reduce our distributions, reduce our income and cause our stock price to fall "e |
| - 11 - OUR OPTION TO ACQUIRE R&D PROPERTIES DEVELOPED ON EXISTING LAND AND LAND ACQUIRED IN THE FUTURE BY THE BERG GROUP WILL TERMINATE WHEN THE BERG GROUP &apos S OWNERSHIP INTEREST HAS BEEN REDUCED The Berg Land Holdings Option Agreement, as amended, which provides us with significant benefits and opportunities to acquire additional R&D properties from the Berg Group, will expire when the Berg Group and their affiliates (excluding us and the operating partnerships) own less than 65prca of our common stock on a Fully Diluted basis |
| Termination of the Berg Land Holdings Option Agreement could result in limitation of our growth, which could cause our stock price to fall |
| WE MAY CHANGE OUR INVESTMENT AND FINANCING POLICIES AND INCREASE YOUR RISK WITHOUT STOCKHOLDER APPROVAL Our Board of Directors determines the investment and financing policies of the operating partnerships and our policies with respect to certain other activities, including our business growth, debt capitalization, distribution, and operating policies |
| Our Board of Directors may amend these policies at any time without a vote of the stockholders |
| Changes in these policies could materially adversely affect our financial condition, results of operations and ability to make cash distributions to our stockholders, which could harm our business and cause our stock price to fall |
| For more information please refer to Item 7, "e Managementapstas Discussion and Analysis of Financial Condition and Results of Operations - Policies with Respect to Certain Activities "e |
| ANTI-TAKEOVER PROVISIONS IN OUR CHARTER COULD PREVENT ACQUISITIONS OF OUR STOCK AT A SUBSTANTIAL PREMIUM Provisions of our charter and our bylaws could delay, defer or prevent a transaction or a change in control of our corporation, or a similar transaction, that might involve a premium price for our shares of common stock or otherwise be in the best interests of our stockholders |
| Provisions of the Maryland general corporation law, which would apply to potential business combinations with acquirers other than the Berg Group or stockholders who invested in us in December 1998, also could prevent the acquisition of our stock for a premium, as discussed in "e Certain Provisions of Maryland Law and of our Charter and Bylaws "e |
| AN INVESTMENT IN OUR STOCK INVOLVES RISKS RELATED TO REAL ESTATE INVESTMENTS THAT COULD HARM OUR BUSINESS AND CAUSE OUR STOCK PRICE TO FALL RENTAL INCOME VARIES Real property investments are subject to varying degrees of risk |
| Investment returns available from equity investments in real estate depend in large part on the amount of income earned and capital appreciation, which our properties generate, as well as our related expenses incurred |
| If our properties do not generate revenues sufficient to meet operating expenses, debt service and capital expenditures, our income and ability to make distributions to our stockholders will be adversely affected |
| Income from our properties may also be adversely affected by general economic conditions, local economic conditions such as oversupply of commercial real estate, the attractiveness of our properties to tenants and prospective tenants, competition from other available rental property, our ability to provide adequate maintenance and insurance, the cost of tenant improvements, leasing commissions and tenant inducements and the potential of increased operating costs, including real estate taxes |
| EXPENDITURES FOR PROPERTY OWNERSHIP ARE FIXED Income from properties and real estate values are also affected by a variety of other factors, such as governmental regulations and applicable laws, including real estate, zoning and tax laws, interest rate levels and the availability of financing |
| Various significant expenditures associated with an investment in real estate, such as mortgage payments, real estate taxes and maintenance expenses, generally are not reduced when circumstances cause a reduction in revenue from the investment |
| Thus, our operating results and our cash flow may decline materially if our rental income is reduced |
| ILLIQUIDITY Real estate investments are relatively illiquid, which limits our ability to restructure our portfolio in response to changes in economic or other conditions |
| The Silicon Valley economy has weakened during the past few years, and future increases in values and rents for our properties depend to a significant extent on a strong recovery of this regionapstas economy |
| LOSS OF KEY TENANTS Single tenants, many of whom are large, publicly traded information technology companies, occupy most of our properties |
| We may lose tenants when existing leases expire because it may be difficult to re-lease the same property due to substantial overcapacity of R&D properties in the Silicon Valley at present |
| Losing a key tenant could adversely affect our operating results and our ability to make distributions to stockholders if we are unable to obtain replacement tenants promptly |
| - 12 - Moreover, to retain key tenants upon the expiration of existing leases we may need to reduce rents, which also could adversely affect our operating results and ability to make distributions |
| TENANT BANKRUPTCIES Key tenants could seek the protection of the bankruptcy laws, which could result in the rejection and termination of their leases, thereby causing a reduction in our rental income |
| Under the bankruptcy laws, these tenants may have the right to reject their leases with us and our claim for rent will be limited to the greater of one year or 15prca of the total amount owing under the leases upon default, but not to exceed three years of the remaining term of the lease following the earlier of the petition filing date or the date on which we gained repossession of the property, as well as any rent that was unpaid on the earlier of those dates |
| OUR SUBSTANTIAL INDEBTEDNESS Our properties are subject to substantial indebtedness |
| If we are unable to make required mortgage payments, we could sustain a loss as a result of foreclosure on our properties by the mortgagor |
| For example, under our mortgage loan agreements with Northwestern Mutual Life Insurance Company, the payment of all dlra100 million outstanding could be accelerated upon the sale or certain other transfers of more than 51prca of the total number of OP Units and shares of common stock of the Company held by the members of the Berg Group |
| We have no reason to expect such a sale or transfer in the foreseeable future, but the members of the Berg Group have no obligation to us to refrain from any such sale or other transfer |
| We have adopted a policy of maintaining a consolidated ratio of debt to total market capitalization, which includes for this purpose the market value of all shares of common stock for which outstanding OP Units are exchangeable, of less than 50prca |
| This ratio may not be exceeded without the approval of more than 75prca of our entire Board of Directors |
| Our Board of Directors may vote to change this policy, however, and we could become more highly leveraged, resulting in an increased risk of default on our obligations and an increase in debt service requirements that could adversely affect our financial condition, our operating results and our ability to make distributions to our stockholders |
| ENVIRONMENTAL CLEAN-UP LIABILITIES Our properties may expose us to liabilities under applicable environmental and health and safety laws |
| If these liabilities are material, our financial condition and ability to pay cash distributions may be affected adversely, which would cause our stock price to fall |
| UNINSURED LOSSES We may sustain uninsured losses with respect to some of our properties |
| If these losses are material, our financial condition, our operating results and our ability to make distributions to our stockholders may be affected adversely |
| Our insurance policies do not cover damage caused by seismic activity although they do cover losses from fires after an earthquake |
| We generally do not consider such insurance coverage to be economical |
| If an earthquake occurs and results in substantial damage to our properties, we could lose our investment in those properties, which loss could have a material adverse effect on our financial condition, our operating results and our ability to make distributions to our stockholders |
| OUR REAL ESTATE ASSETS MAY BE SUBJECT TO IMPAIRMENT CHARGES We continually evaluate the recoverability of the carrying value of our real estate assets for impairment indicators |
| Factors considered in evaluating impairment of our existing real estate assets include significant declines in property operating profits, recurring property operating losses and other significant adverse changes in general market conditions that are considered permanent in nature |
| Generally, a real estate asset is not considered impaired if the undiscounted, estimated future cash flows of the asset over its estimated holding period are in excess of the assetapstas net book value at the balance sheet date |
| Assumptions used to estimate annual and residual cash flow, the estimated holding period of such assets, the lease up period when properties are vacant and future rental income require the judgment of management |
| Actual results could be different than our estimates |
| In 2004, we recorded an impairment charge to reflect the decline in value of one of our R&D properties held for sale as of the year end |
| For further discussion of this charge please refer to Part II, Item 8, "e Consolidated Financial Statements and Supplementary Data - Note 16, Real Estate Held for Sale and Discontinued Operations "e |
| There can be no assurance that we will not take additional charges in the future related to the impairment of our assets |
| As of the years ended December 31, 2005 and 2004, management believes it has applied reasonable estimates and judgments in determining the proper classification of its real estate assets |
| However, should external or internal circumstances change requiring the need to shorten the holding periods or adjust the estimated future cash flows of certain of our assets, we could be required to record additional impairment charges |
| If any real estate asset held for sale is considered impaired, a loss is provided to reduce the carrying value of the asset - 13 - to its fair value, less selling costs |
| Any future impairment could have a material adverse affect on the Companyapstas results of operations and funds from operations in the period in which the charge is taken |
| FAILURE TO SATISFY FEDERAL INCOME TAX REQUIREMENTS FOR REITS COULD REDUCE OUR DISTRIBUTIONS, REDUCE OUR INCOME AND CAUSE OUR STOCK PRICE TO FALL FAILURE TO QUALIFY AS A REIT Although we currently operate in a manner designed to enable us to qualify and maintain our REIT status, it is possible that economic, market, legal, tax or other considerations may cause us to fail to qualify as a REIT or may cause our Board of Directors either to refrain from making the REIT election or to revoke that election once made |
| To maintain REIT status, we must meet certain tests for income, assets, distributions to stockholders, ownership interests, and other significant conditions |
| If we fail to qualify as a REIT in any taxable year, we will not be allowed a deduction for distributions to our stockholders in computing our taxable income and would be subject to federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates |
| Moreover, unless we were entitled to relief under certain provisions of the tax laws, we would be disqualified from treatment as a REIT for the four taxable years following the year in which our qualification was lost |
| As a result, funds available for distributions to our stockholders would be reduced for each of the years involved and, in addition, we would no longer be required to make distributions to our stockholders |
| REIT DISTRIBUTION REQUIREMENTS To maintain REIT status, we must distribute as a dividend to our stockholders at least 90prca of our otherwise taxable income, after certain adjustments, with respect to each tax year |
| We also may be subject to a 4prca non-deductible excise tax in the event our distributions to stockholders fail to meet certain other requirements |
| Failure to comply with these requirements could result in our income being subject to tax at regular corporate rates and could cause us to be liable for the excise tax |
| OWNERSHIP LIMIT NECESSARY TO MAINTAIN REIT QUALIFICATION As a REIT, the federal tax laws restrict the percentage of the total value of our stock that may be owned by five or fewer individuals to 50prca or less |
| Our charter generally prohibits the direct or indirect ownership of more than 9prca of our common stock by any stockholder |
| This limit excludes the Berg Group, which has an aggregate ownership limit of 20prca |
| In addition, as permitted by our charter, our Board of Directors has authorized an exception to two other stockholders that permits them to collectively own, directly or indirectly, up to 18dtta5prca of our common stock on an aggregate basis, subject to the terms of an ownership limit exemption agreement |
| In general, our charter prohibits the transfer of shares that result in a loss of our REIT qualification and provides that any such transfer or any other transfer that causes a stockholder to exceed the ownership limit will result in the shares being automatically transferred to a trust for the benefit of a charitable beneficiary |
| Accordingly, in the event that either the Berg Group or the two stockholders increase their stock ownership in our corporation, a stockholder who acquires shares of our common stock, even though his, her or its aggregate ownership may be less than 9prca, may be required to transfer a portion of that stockholderapstas shares to such a trust in order to preserve our status as a REIT STOCKHOLDERS ARE NOT ASSURED OF RECEIVING CASH DISTRIBUTIONS FROM US Our income consists primarily of our share of the income of the operating partnerships, and our cash flow consists primarily of our share of distributions from the operating partnerships |
| Differences in timing between the receipt of income and the payment of expenses in arriving at our taxable income or the taxable income of the operating partnerships and the effect of required debt amortization payments could require us to borrow funds, directly or through the operating partnerships, on a short-term basis to meet our intended distribution policy |
| Our Board of Directors will determine the amount and timing of distributions by the operating partnerships and of distributions to our stockholders |
| Our Board of Directors will consider many factors prior to making any distributions, including the following: - the amount of cash available for distribution; - our financial condition; - whether to reinvest funds rather than to distribute such funds; - our committed and projected capital expenditures; - the amount of cash required for new property acquisitions, including acquisitions under our existing agreements with the Berg Group; - the amount of our annual debt service requirements; - the annual distribution requirements under the REIT provisions of the federal income tax laws; - our projected rental rates and revenues; - prospects of tenant renewals and re-leases of properties subject to expiring leases; - cash required for re-leasing activities; and - 14 - - such other factors s our Board of Directors deems relevant |
| We cannot assure you that we will be able to meet or maintain our cash distribution objectives |
| OUR PROPERTIES COULD BE SUBJECT TO PROPERTY TAX REASSESSMENTS We do not believe that the acquisition of any of our interests in the operating partnerships has resulted in a statutory change in ownership that could give rise to a reassessment of any of our properties for California property tax purposes |
| We cannot assure you, however, that county assessors or other tax administrative agencies in California will not attempt to assert that such a change occurred as a result of these transactions |
| Although we believe that such a challenge would not be successful ultimately, we cannot assure you regarding the outcome of any related dispute or proceeding |
| A reassessment could result in increased real estate taxes on our properties that, as a practical matter, we may be unable to pass through to our tenants in full |
| This could reduce our net income and our funds available for distributions and cause our stock price to fall |
| OUR OBLIGATION TO PURCHASE TENDERED OP UNITS COULD REDUCE OUR CASH DISTRIBUTIONS Each of the limited partners of the operating partnerships, other than Carl E Berg and Clyde J Berg, has the annual right to cause the operating partnerships to purchase the limited partnerapstas OP Units at a purchase price based on the average market value of the common stock for the ten-trading-day period immediately preceding the date of tender |
| Upon a limited partnerapstas exercise of any such right, we will have the option to purchase the tendered OP Units with available cash, borrowed funds or the proceeds of an offering of newly issued shares of common stock |
| These put rights became exercisable on December 29, 1999, and are available once during a 12-month period |
| If the total purchase price of the OP Units tendered by all of the eligible limited partners in one year exceeds dlra1 million, the operating partnerships or we will be entitled, but not required, to reduce proportionately the number of OP Units to be acquired from each tendering limited partner so that the total purchase price does not exceed dlra1 million |
| The exercise of these put rights may reduce the amount of cash that we have available to distribute to our stockholders and could cause our stock price to fall |
| In addition, all OP Unit holders may tender their OP Units to us in exchange for shares of common stock on a one-for-one basis at then-current market value or an equivalent amount in cash, at our election |
| If we elect to pay cash for the OP Units, our liquidity may be reduced and we may lack sufficient funds to continue paying the amount of our anticipated or historical cash distributions |
| SHARES ELIGIBLE FOR FUTURE SALE COULD AFFECT THE MARKET PRICE OF OUR STOCK We cannot predict the effect, if any, that future sales of shares of common stock, or the availability of shares for future sale, could have on the market price of our common stock |
| As of December 31, 2005, all outstanding shares of our common stock, other than shares controlled by affiliates, were eligible for sale in the public market without resale restrictions under the federal securities laws |
| Sales of substantial amounts of common stock, including shares issued in connection with the exercise of the exchange rights held by the limited partners of the operating partnerships, or the perception that such sales could occur, could adversely affect prevailing market prices for the common stock |
| Additional shares of common stock may be issued to limited partners, subject to the applicable REIT qualification ownership limit, if they exchange their OP Units for shares of common stock pursuant to their exchange rights, or may be sold by us to raise funds required to purchase such OP Units if eligible limited partners elect to tender OP Units to us using their put rights |
| Shares of stock controlled by our affiliates may be sold subject to Rule 144, including the limitation under Rule 144(e) on the number of shares that may be sold within a three-month period |
| Additional common stock reserved under our 2004 Equity Incentive Plan, including stock options, may also be sold in the market at some time in the future |
| Future sales of our common stock in the market could adversely affect the price of our common stock |
| MARKET INTEREST RATES MAY REDUCE THE VALUE OF THE COMMON STOCK One of the factors that investors consider important in deciding whether to buy or sell shares of a REIT is the distribution rate on such shares, as a percentage of the price of such shares, relative to market interest rates |
| If market interest rates go up, prospective purchasers of REIT shares may expect a higher distribution rate |
| Higher interest rates would not, however, increase the funds available for us to distribute, and, in fact, would likely increase our borrowing costs and decrease funds available for distributions |
| Thus, higher market interest rates could cause the price of our common stock to fall |