1332896--3/17/2008--Cogdell_Spencer

related topics

{investment, property, distribution}

{tax, income, asset}

{debt, indebtedness, cash}

{loan, real, estate}

{regulation, government, change}

{cost, contract, operation}

{provision, law, control}

{condition, economic, financial}

{acquisition, growth, future}

{loss, insurance, financial}

{cost, operation, labor}

{stock, price, operating}

{regulation, change, law}

{interest, director, officer}

{personnel, key, retain}

{cost, regulation, environmental}

{operation, international, foreign}

MEA may experience reduced profits or, in some cases, losses under its guaranteed maximum price contracts if costs increase above its estimates. The nature of MEA s engineering, architecture, construction and other businesses exposes it to potential liabilities and disputes which may reduce its profits. The Company s ability to invest in taxable REIT subsidiaries ( TRSs ) is limited by its qualification as a REIT, and accordingly may limit its ability to grow the business of MEA. The Company depends on significant tenants. The bankruptcy or insolvency of the Company s tenants under the Company s leases could seriously harm the Company s operating results and financial condition. Adverse economic or other conditions in the markets in which the Company does business could negatively affect the Company s occupancy levels and rental rates and therefore the Company s operating results. The majority of the Company s consolidated wholly-owned and joint venture properties are located in Georgia, North Carolina, and South Carolina, and changes in these markets may materially adversely affect the Company. The Company may not be successful in identifying and consummating suitable acquisitions or investment opportunities, which may impede the Company s growth and negatively affect the Company s results of operations. If the Company is unable to promptly re-let its properties, if the rates upon such re-letting are significantly lower than expected or if the Company is required to undertake significant capital expenditures to attract new tenants, then the Company s business and results of operations would be adversely affected. Certain of the Company s properties may not have efficient alternative uses. The Company faces increasing competition for the acquisition of medical office buildings and healthcare related facilities, which may impede the Company s ability to make future acquisitions or may increase the cost of these acquisitions. The Company may not be successful in integrating and operating acquired properties. The Company s medical office buildings and healthcare related facilities, their associated hospitals and the Company s tenants may be unable to compete successfully. The Company s investments in development and redevelopment projects may not yield anticipated returns, which would harm the Company s operating results and reduce the amount of funds available for distributions. Uninsured losses or losses in excess of the Company insurance coverage could adversely affect the Company s financial condition and the Company s cash flow. The Company s mortgage agreements and ground leases contain certain provisions that may limit the Company s ability to sell certain of the Company s medical office buildings and healthcare related facilities. 24 of the Company s consolidated wholly-owned and joint venture properties are subject to ground leases that expose the Company to the loss of such properties upon breach or termination of the ground leases. Environmental compliance costs and liabilities associated with operating the Company s properties may affect the Company s results of operations. Costs associated with complying with the Americans with Disabilities Act of 1990 may result in unanticipated expenses. Risks Related to the Healthcare Industry Adverse trends in healthcare provider operations may negatively affect the Company s lease revenues and the Company s ability to make distributions to the Company s stockholders. Reductions in reimbursement from third party payors, including Medicare and Medicaid, could adversely affect the profitability of the Company s tenants and hinder their ability to make rent payments to the Company. The healthcare industry is heavily regulated, and new laws or regulations, changes to existing laws or regulations, loss of licensure or failure to obtain licensure could result in the inability of the Company s tenants to make rent payments to the Company. The Company s tenants are subject to fraud and abuse laws, the violation of which by a tenant may jeopardize the tenant s ability to make rent payments to the Company. Risks Related to the Real Estate Industry Illiquidity of real estate investments could significantly impede the Company s ability to respond to adverse changes in the performance of the Company s properties. Any investments in unimproved real property may take significantly longer to yield income-producing returns, if at all, and may result in additional costs to the Company to comply with re-zoning restrictions or environmental regulations. Risks Related to the Company s Debt Financings Required payments of principal and interest on borrowings may leave the Company with insufficient cash to operate the Company s properties or to pay the distributions currently contemplated or necessary to qualify as a REIT and may expose the Company to the risk of default under the Company s debt obligations. The Company s ability to pay distributions is dependent on a number of factors and is not assured. The Company could become highly leveraged in the future because the Company s organizational documents contain no limitations on the amount of debt the Company may incur. Increases in interest rates may increase the Company s interest expense and adversely affect the Company s cash flow and the Company s ability to service the Company s indebtedness and make distributions to the Company s stockholders. Failure to hedge effectively against interest rate changes may adversely affect the Company s results of operations. The Company s Credit Facility contains financial covenants that could limit the Company s operations and the Company s ability to make distributions to the Company s stockholders. Risks Related to the Company s Organization and Structure The Company s management has limited experience operating a REIT or a public Company and therefore may have difficulty in successfully and profitably operating the Company s business, or complying with regulatory requirements, including the Sarbanes-Oxley Act of 2002. Mr. Cogdell, the Company s Chairman, and Mr. Spencer, the Company s Chief Executive Officer, President and a member of the Board of Directors, and their respective affiliates owned 13.6% and 2.9%, respectively, as of December 31, 2007 of the Company s outstanding common stock and OP units on a fully-diluted basis and therefore have the ability to exercise significant influence over the Company and any matter presented to the Company s stockholders. The Company s business could be harmed if key personnel terminate their employment with the Company. Tax indemnification obligations could limit the Company s operating flexibility by limiting the Company s ability to sell specified properties. Tax indemnification obligations may require the Operating Partnership to maintain certain debt levels. The Company may pursue less vigorous enforcement of terms of contribution and other agreements because of conflicts of interest with certain of the Company s officers. Conflicts of interest could arise as a result of the Company UPREIT structure. Certain provisions of the Company s organizational documents, including the stock ownership limit imposed by the Company s charter, could prevent or delay a change in control transaction. Certain provisions of Maryland law may limit the ability of a third party to acquire control of the Company. The Board of Directors has the power to cause the Company to issue additional shares of the Company s stock and the general partner has the power to issue additional OP units without stockholder approval. The Company s rights and the rights of the Company s stockholders to take action to recover money damages from the Company s directors and officers are limited. You will have limited ability as a stockholder to prevent the Company from making any changes to the Company policies that you believe could harm the Company s business, prospects, operating results or share price. To the extent the Company s distributions represent a return of capital for tax purposes you could recognize an increased capital gain upon a subsequent sale by you of the Company s common stock. Risks Related to Qualification and Operation as a REIT The Company s failure to qualify or remain qualified as a REIT would have significant adverse consequences to the Company and the value of the Company s common stock. To maintain the Company REIT qualification, the Company may be forced to borrow funds during unfavorable market conditions. Dividends payable by REITs generally do not qualify for reduced tax rates. Possible legislative or other actions affecting REITs could adversely affect the Company and the Company s stockholders. Complying with REIT requirements may cause the Company to forego otherwise attractive opportunities. The Company will pay some taxes. The ability of the Board of Directors to revoke the Company REIT election without stockholder approval may cause adverse consequences to the Company s stockholders.

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1332896--3/17/2008--Cogdell_Spencer_Inc.