1298946--3/13/2006--DiamondRock_Hospitality

related topics

{investment, property, distribution}

{provision, law, control}

{debt, indebtedness, cash}

{operation, international, foreign}

{cost, contract, operation}

{stock, price, operating}

{loan, real, estate}

{cost, operation, labor}

{tax, income, asset}

{acquisition, growth, future}

{operation, natural, condition}

{personnel, key, retain}

{stock, price, share}

{cost, regulation, environmental}

{competitive, industry, competition}

Risks Related to Our Business and Operations We are a relatively young company and are subject to all of the risks associated with being at an early stage of development. Our management has limited experience operating a REIT and a public company and therefore may have difficulty in profitably operating our business. Our business model, especially our concentration in premium full-service hotels, can be highly volatile. Our hotels are subject to significant competition. In the event of natural disasters, terrorist attacks, significant military actions, outbreaks of contagious diseases or other events for which we may not have adequate insurance, our operations may suffer. The hotel industry is capital intensive and we are subject to risks associated with our ongoing need for renovations and capital improvements as well as financing for such expenditures. If we do not complete the acquisition of the Chicago Marriott, we will have incurred substantial expenses without our stockholders realizing the expected benefits. Our hotel portfolio is not diverse by brand or manager and there are risks associated with using Marriott s brands on all of our hotels and having Marriott manage most of our hotels. Our results of operations are highly dependent on the management of our hotel properties by third-party hotel management companies, including Marriott. There are risks associated with the Marriott investment sourcing relationship. Our ownership of properties through ground leases exposes us to the risk that we may have a difficulty financing such properties, may sell such properties for a lower price or may lose such properties upon breach or termination of the ground leases. Our existing indebtedness contains financial covenants that could limit our operations and our ability to make distributions to our stockholders. There is refinancing risk associated with our debt. If we default on our secured debt in the future, the lenders may foreclose on our hotels. Due to restrictions in our hotel management agreements, mortgage agreements and ground leases, we may not be able to sell our hotels at the highest possible price (or at all). We face competition for the acquisition of hotels and we may not be successful in identifying or completing hotel acquisitions that meet our criteria, which may impede our growth. Our success depends on senior executive officers whose continued service is not guaranteed. Noncompliance with governmental regulations could adversely affect our operating results. Our hotel properties may contain or develop harmful mold, which could lead to liability for adverse health effects and costs of remediating the problem. If the hotel market declines, it may adversely affect our ability to execute our business strategies, which, in turn, would adversely affect our ability to make distributions to our stockholders. Future debt service obligations may adversely affect our operating results, require us to liquidate our properties, jeopardize our tax status as a REIT and limit our ability to make distributions to our stockholders. Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties and harm our financial condition. A portion of our revenues may be attributable to operations outside of the United States, which will subject us to different legal, monetary and political risks, as well as currency exchange risks, and may cause unpredictability in a significant source of our cash flows that could adversely affect our ability to make distributions to our stockholders. Any properties we invest in outside of the United States may be subject to foreign taxes. Seasonality of the hotel business can be expected to cause quarterly fluctuations in our earnings. Risks Related to Our Status as a REIT We cannot assure you that we will qualify, or remain qualified, as a REIT. Maintaining our REIT qualification contains certain restrictions and drawbacks. Risks Related to Our Organization and Structure Provisions of our charter may limit the ability of a third party to acquire control of our company. Certain advance notice provisions of our bylaws may limit the ability of a third party to acquire control of our company. Provisions of Maryland law may limit the ability of a third party to acquire control of our company. We have entered into an agreement with each of our senior executive officers that provides each of them benefits in the event his employment is terminated by us without cause, by him for good reason, or under certain circumstances following a change of control of our company. Future offerings of debt securities or preferred stock, which would be senior to our common stock upon liquidation and for the purpose of distributions, may cause the market price of our common stock to decline.

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1298946--3/13/2006--DiamondRock_Hospitality_Co