Taxable REIT Subsidiaries. Each of the subsidiaries listed on Schedule 6 is, or prior to its sale or dissolution was, a “taxable REIT subsidiary” within the meaning of Section 856(l) of the Code. The Company has had and has no other “taxable REIT subsidiaries” other than wholly-owned subsidiaries of the foregoing.
Taxable REIT Subsidiaries. A REIT is permitted to own, directly or indirectly, up to 100% of the stock of one or more “taxable REIT subsidiaries.” The subsidiary and the REIT generally must jointly elect to treat the subsidiary as a taxable REIT subsidiary. A corporation of which a taxable REIT subsidiary directly or indirectly owns more than 35% of the voting power or value of the securities, however, is automatically treated as a taxable REIT subsidiary without an election. Unlike a “qualified REIT subsidiary,” the separate existence of a taxable REIT subsidiary is not ignored for federal income tax purposes. A taxable REIT subsidiary is a fully taxable corporation that may earn income that would not be qualifying income for purposes of the gross income tests, as described below, if earned directly by the parent REIT. Accordingly, a taxable REIT subsidiary generally is subject to corporate income tax on its earnings, which may reduce the cash flow generated by us and our subsidiaries in the aggregate, and may reduce our ability to make distributions to our stockholders.
Taxable REIT Subsidiaries. NFI Holding Corporation and each of its subsidiaries listed in Exhibit 21.1 to the Company’s Form 10-Q for the quarter ending June 30, 2006 are wholly-owned Subsidiaries of the Company (except for Homeview Lending, Inc. and its subsidiaries, NovaStar Capital Trust I and NovaStar Capital Trust II) and are “taxable REIT subsidiaries” within the meaning of Section 856(l) of the Code (except for NovaStar Capital Trust I, NovaStar Capital Trust II, NovaStar Mortgage SPV I, NovaStar Mortgage Financing Corp. and NovaStar Certificates Financing LLC). The Company has no other “taxable REIT subsidiaries.”
Taxable REIT Subsidiaries. The TRSs of the Company currently include:
Taxable REIT Subsidiaries. To the extent the Company owns any stock, directly or indirectly, in a Taxable REIT Subsidiary, as defined in Section 856(l) of the Code, (A) the Taxable REIT Subsidiary has fully complied with the requirements in Section 856(l)(3) and (4) of the Code, relating to (1) restrictions on operating or managing a lodging facility or healthcare facility, and (2) restrictions on providing to any person rights to a brand name under which any lodging facility or healthcare facility is operated, (B) with respect to any amounts treated by the Company as qualified rents from real property for purposes of Section 856(c) of the Code, and which were received from a Taxable REIT Subsidiary of the Company for the lease of a qualified lodging facility as defined in 856(d)(9)(D) of the Code, such lodging facility has been operated at all times on behalf of the Taxable REIT Subsidiary by a person who qualified as an eligible independent contractor within the meaning of Section 856(d)(8) and 856(d)(9) of the Code, and whose agreements and relations with the Company and the Taxable REIT Subsidiaries have been at all times negotiated and maintained on an arm’s length basis.
