What changed in this filing

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Item 1A. Risk Factors

2020-11-09 compared with 2020-08-10 · 74 added, 49 removed, 111 unchanged (53% of the section changed)

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The impact of the outbreak has been rapidly evolving and, as cases of COVID-19 have continued to be identified, many countries, including the United States, have reacted by instituting quarantines, restricting and banning travel or transportation, mandating business and school closures, limiting size of gatherings and canceling sporting, business and other events and conferences.

While our company continues to pivot to a digitally-focused strategy, a significant portion of our assets consist of, and our revenues are derived from, real estate investments, including healthcare and hospitality assets.

The COVID-19 pandemic has impacted states and cities where we and our tenants operate our and their respective healthcare, hospitality and other businesses and where our properties are located.

The preventative measures taken to alleviate the public health crisis, including significant restrictions on travel between the United States and specific countries, and “shelter-in-place” or “stay-at-home” orders issued by local, state and federal authorities, has significantly disrupted global travel and supply chains, and has adversely impacted global commercial activity across many industries, including in particular the travel, group meeting and conference, lodging and hospitality industries, and has disrupted, and is anticipated to further disrupt, operations and businesses in the healthcare industries, as discussed further below.

The COVID-19 pandemic has impacted states and cities where we and our tenants operate our and their respective wellness infrastructure, hospitality and other businesses and where our properties are located.

Furthermore, although certain countries and U.S.

states began to ease stay-at-home restrictions towards the end of the second quarter of 2020, resurgences in the numbers of cases of COVID-19 have subsequently led to the reinstatement, or potential for reinstatement, of such restrictions.

states began to ease stay-at-home restrictions during the third quarter of 2020, resurgences in the numbers of cases of COVID-19 have subsequently led to the reinstatement, or potential for reinstatement, of such restrictions.

The occupancy rates of and revenues generated by our hospitality properties depends on the ability and willingness of guests to travel to our hotels.

The spread of COVID-19 has not only decreased guests’ willingness to travel, but also prevented guests from traveling to visit or stay at our hotels as a result of federal travel, social distancing or mandated “shelter-in-place” or “stay-at-home” orders and even as such orders have begun to be lifted in the United States, demand for travel has and is expected to continue to be adversely impacted.

Similarly, some tenants in our medical office buildings within our healthcare portfolio have and may continue to seek concessions from us for paying lease charges as a result of such restrictions.

In addition, COVID-19 has impacted occupancy at our healthcare properties, as inquiries, tours and move-ins have all declined.

Similarly, some tenants in our medical office buildings within our wellness infrastructure portfolio have and may continue to seek flexible payment terms or concessions from us for paying lease charges as a result of such restrictions.

In addition, COVID-19 has impacted occupancy at our wellness infrastructure properties, as inquiries, tours and move-ins have all declined.

In addition, COVID-19 has had an adverse impact on the business and financial condition of publicly-traded mortgage REITs, including CLNC, the Company’s managed mortgage REIT and in which it owns an approximate 36% interest.

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governmental measures, such as quarantines, states of emergencies, restrictions on travel, stay-at-home orders, and other measures taken to curb the spread of the COVID-19 may negatively impact the ability of CLNC’s borrowers or tenants to continue to obtain necessary goods and services or provide adequate staffing, which may also adversely affect CLNC's loan investments and operating results.

Many mortgage REITs have suspended dividends to stockholders.

Many mortgage REITs suspended dividends to stockholders beginning in the second quarter 2020.

In April 2020, CLNC announced that to conserve available liquidity, it would suspend its monthly stock dividend beginning with the monthly period ending April 30, 2020.

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Further, CLNC's stock price fell significantly in March and April 2020 due to the significant volatility in equity markets resulting from COVID-19.

Along with other publicly traded mortgage REITs, CLNC has seen a rebound in its stock price in May and June 2020, but its stock continues to trade below pre-COVID-19 levels.

At June 30, 2020 (prior to any impairment), the carrying value of our CLNC investment was $611 million , or $12.75 per share, which was in excess of its market value of $337 million .

With increasing uncertainty over the extent and duration of the COVID-19 pandemic, and the timeline for a recovery in the U.S economy, the Company believes that it is unlikely that the shortfall in market value relative to carrying value of its investment in CLNC would recover in the near term.

As a result, the Company recognized an $275 million other-than-temporary impairment on its CLNC investment in the second quarter 2020, which was in addition to the $228 million other-than-temporary impairment on its CLNC investment recognized in the second quarter 2019.

Along with other publicly traded mortgage REITs, CLNC experienced a rebound in its stock price in May and June 2020, but its stock continues to experience volatility and trade below pre-COVID-19 levels.

With increasing uncertainty over the extent and duration of the COVID-19 pandemic, and the timeline for a recovery in the U.S economy, in connection with the preparation of its second quarter 2020 financial statements, the Company determined that it was unlikely that the shortfall in market value relative to carrying value of its investment in CLNC would recover in the near term and as a result, the Company recognized an $275 million other-than-temporary impairment on its CLNC investment in the second quarter 2020.

The foregoing impairment was in addition to the $228 million other-than-temporary impairment on its CLNC investment recognized in the second quarter 2019.

At September 30, 2020, the carrying value of our CLNC investment was $365.9 million, or $7.63 per share.

As of November 6, 2020, the trading price of CLNC’s stock was $5.58 per share.

If the trading price of CLNC's class A common stock were to suffer further declines, to levels below our current carrying value for a prolonged period of time, as a result of COVID-19 or otherwise, an additional other-than-temporary impairment may be recognized in the future.

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For example, in May 2020, we announced the suspension of our common stock dividend for the second quarter of 2020 as the Company's board of directors and management believe it is prudent to conserve cash during the current period of uncertainty.

In addition, in connection with the recent amendment to the Company’s corporate credit facility, we are prohibited from, among other things, paying dividends, other than (i) paying dividends to maintain the Company’s REIT status, (ii) reducing the payment of income taxes and (iii) paying dividends on the Company’s preferred stock.

In addition, in connection with the June 2020 amendment to the Company’s corporate credit facility, we are prohibited from, among other things, paying dividends, other than (i) paying dividends to maintain the Company’s REIT status, (ii) reducing the payment of income taxes and (iii) paying dividends on the Company’s preferred stock.

As a result, for the term of the corporate credit facility, the Company is prohibited from paying dividends on its common stock, subject to certain limited exceptions.

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and other factors as our board of directors may deem relevant from time to time.

As a result of these and other factors, we expect our cash flows generated by our real estate investments, particularly in the hospitality and healthcare industries, to be negatively impacted.

Because a substantial portion of our income is derived from these businesses as well as our proceeds from asset monetizations, our business, income, cash flow, results of operations, financial condition, liquidity, prospects and ability to service our debt obligations and our ability to pay dividends and other distributions to our stockholders has been and will continue to be adversely affected if revenues at our hospitality and healthcare properties continue to decline or we are unable to complete certain asset monetizations.

As a result of these and other factors, we expect our cash flows generated by our real estate investments, particularly in the hospitality and wellness infrastructure industries, to continue to be negatively impacted.

Because a substantial portion of our income is derived from these businesses as well as our proceeds from asset monetizations, our business, income, cash flow, results of operations, financial condition, liquidity, prospects and ability to service our debt obligations and our ability to pay dividends and other distributions to our stockholders has been and will continue to be adversely affected if revenues at our hotel and wellness infrastructure properties continue to decline or we are unable to complete certain asset monetizations.

In addition, as COVID-19 has demonstrated the global economy's dependence on digital real estate and infrastructure, the Company has determined to accelerate its shift to a digitally-focused strategy.

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This transition may be inconsistent with the Company's status as a REIT.

For example, in September 2020, the Company entered into a definitive agreement to sell

five of the six hotel portfolios in its Hospitality segment and its 55.6% interest in the THL Hotel Portfolio in the Other segment.

While the Company will remain a REIT through 2020, in light of its strategy to accelerate the digital transformation, the Company will continue to evaluate whether to maintain REIT status beyond 2020.

If the Company ceases to qualify as a REIT, it would become subject to U.S.

federal income tax on its net taxable income and generally would no longer be required to distribute any of the Company’s

net taxable income to Colony stockholders, which may have adverse consequences on the Company’s total return to Colony stockholders.

federal income tax on its net taxable income and generally would no longer be required to distribute any of the Company’s net taxable income to our stockholders, which may have adverse consequences on the Company’s total return to our stockholders.

Furthermore, our corporate credit facility requires us to maintain various financial covenants, including minimum tangible net worth, liquidity levels and financial ratios.

The recent amendment to our corporate credit facility, among other things, modified certain financial covenants and reduced the aggregate amount of revolving commitments available under the corporate credit facility.

Notwithstanding such amendment, based on the decline in performance in our hospitality and healthcare portfolios we are currently experiencing as a result of the COVID-19 pandemic and given the limited visibility to the future recovery of demand in the hospitality industry, there is a range of possible outcomes which may result in a breach of certain financial covenants prior to the initial maturity of January 2021.

Our corporate credit facility also requires us to maintain the Company’s REIT status.

The June 2020 amendment to our corporate credit facility, among other things, modified certain financial covenants and reduced the aggregate amount of revolving commitments available under the corporate credit facility.

Notwithstanding such amendment, based on the decline in performance in our hotel and wellness infrastructure portfolios we are currently experiencing as a result of the COVID-19 pandemic and given the limited visibility to the future recovery of demand in the hospitality industry, there is a range of possible outcomes which may result in a breach of certain financial covenants prior to the initial maturity of January 2021.

In addition, if we determine to exercise our initial extension option on the corporate credit facility, the aggregate amount of revolving commitments available under the corporate credit facility will be reduced to $400 million on March 31, 2021.

To the extent that we are unable to effectuate asset monetizations in our other equity and debt segment as discussed above, we may be forced to allocate capital to repaying any outstanding balance on the corporate credit facility (either at the initial maturity, in connection with an extension on March 31, 2021, or the final maturity) that otherwise may have been used to invest in and grow the Company's digital real estate and infrastructure business.

To the extent that we are unable to effectuate asset monetizations in our Other segment as discussed above, we may be forced to allocate capital to repaying any outstanding balance on the corporate credit facility (either at the initial maturity, in connection with an extension on March 31, 2021, or the final maturity) that otherwise may have been used to invest in and grow the Company's digital real estate and infrastructure business.

In addition, as discussed above, in connection with our accelerated digital transaction, we are continuing to evaluate whether to maintain REIT status beyond 2020.

If we anticipate a potential breach, we expect to seek an amendment or waiver from our lenders.

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The occurrence of any of the foregoing could materially and adversely impact our liquidity and business operations.

Additionally, non-recourse mortgage debt in the hospitality, healthcare and other real estate equity segment with aggregate outstanding principal of $3.28 billion as of the date of this report was either in payment default or was not in compliance with certain debt and/or lease covenants, as discussed further below.

Other than with respect to certain healthcare and hospitality portfolio described below, the Company is in active negotiations with the respective lenders to execute forbearances or debt modifications;

Additionally, non-recourse mortgage debt in the Hospitality, Wellness Infrastructure and Other segments with aggregate outstanding principal of $1.5 billion as of the date of this report was either in payment default or was not in compliance with certain debt and/or lease covenants, as discussed further below.

Other than with respect to certain wellness infrastructure and hospitality portfolios described below, the Company continues to be in active negotiations with certain lenders to execute forbearances or debt modifications;

however, there is no assurance that our efforts to obtain forbearances or debt modifications will be successful.

For example, as of the date of this report and as further described below, we have consensually transferred certain healthcare assets to lenders in exchange for a release of $158 million in borrowings secured by such assets and receivers have started to be appointed at various assets within the Inland Hotel Portfolio.

For example, as of the date of this report and as further described below, we have consensually transferred certain wellness infrastructure assets to lenders in exchange for a release of $158 million in borrowings secured by such assets and the Inland Hotel Portfolio is in receivership.

In addition, we have entered into customary non-recourse carve-out guarantees, which provide for these otherwise non-recourse borrowings to become partially or fully recourse against certain of the Company's affiliates in connection with certain limited trigger or "bad boy" events.

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• difficulty raising capital and attracting investors at our current and any future managed investment vehicles due to the volatility and instability in global financial markets may constrain the success of our managed investment vehicles and consequently our ability to sustain and grow our investment management business;

the financial impact has and could continue to negatively impact our ability to pay dividends to our stockholders or could result in a determination to reduce the size of one or more dividends, such as is the case with (i) our decision to suspend the dividend on our common stock for the second quarter of 2020 and (ii) certain restrictions on our ability to pay dividends on our common stock pursuant to the recent amendment to our corporate credit facility;

• the financial impact has and could continue to negatively impact our ability to pay dividends to our stockholders or could result in a determination to reduce the size of one or more dividends, such as is the case with (i) our decision to suspend the dividend on our common stock beginning the second quarter of 2020 and (ii) certain

restrictions on our ability to pay dividends on our common stock pursuant to the recent amendment to our corporate credit facility;

• the financial impact could negatively impact our future compliance with financial covenants of our corporate credit facility and other debt agreements and could result in a default and potentially an acceleration of indebtedness, which non-compliance could also negatively impact our ability to make additional borrowings under our revolving credit facility or otherwise pay dividends to our stockholders;

the worsening of estimated future cash flows due to a change in our plans, policies, or views of market and economic conditions as it relates to one or more of our adversely impacted properties could result in the recognition of substantial impairment charges imposed on our assets;

• the worsening of estimated future cash flows due to a change in our plans, policies, or views of market and economic conditions as it relates to one or more of our adversely impacted properties could result in fair value decreases and the recognition of substantial impairment charges imposed on our assets;

• the credit quality of our tenants/borrowers could be negatively impacted and we may significantly increase our allowance for doubtful accounts;

• a general decline in business activity and demand for real estate transactions could adversely affect our ability or desire to grow our digital business or dispose of non-core assets as part of our asset monetization and digital pivot strategy;

potential impairments on our real estate assets or ceasing to own real estate assets as a result of foreclosure or otherwise may impact our ability to maintain our REIT qualification or are exemption from the 1940 Act;

• potential impairments on our real estate assets or ceasing to own real estate assets as a result of foreclosure or otherwise may impact our ability to maintain our REIT qualification or our exemption from the 1940 Act;

• CLNC's trading price and the impact on the carrying value of the Company's investment in CLNC, including whether the Company will recognize further other-than-temporary impairments on such CLNC investment in addition to those recognized in the second quarter 2020;

• we have and may continue to implement reductions in our workforce, which could adversely impact our ability to conduct our operations effectively;

unanticipated costs and operating expenses and decreased anticipated revenue related to compliance with regulations, such as inability to litigate non-paying tenants, additional expenses related to staff working remotely, requirements to provide employees with additional mandatory paid time off and increased expenses related to sanitation measures performed at each of our properties, as well as additional expenses incurred to protect the welfare of our employees, such as expanded access to health services;

our level of dependence on the Internet, stemming from employees working remotely, and increases in malware campaigns and phishing attacks preying on the uncertainties surrounding COVID-19, which may increase our vulnerability to cyber attacks;

increased risk of litigation, particularly with respect to our healthcare properties, related to the COVID-19 pandemic;

• unanticipated costs and operating expenses and decreased anticipated revenue related to compliance with regulations, such as inability to litigate non-paying tenants, regulations requiring forbearance of rent payments in certain jurisdictions, additional expenses related to staff working remotely, requirements to provide employees with additional mandatory paid time off and increased expenses related to sanitation measures performed at each of our properties, as well as additional expenses incurred to protect the welfare of our employees, such as expanded access to health services;

• our level of dependence on the Internet, stemming from employees working remotely, and increases in malware campaigns and phishing attacks preying on the uncertainties surrounding COVID-19, which may increase our vulnerability to cyber attacks and cause disruptions to our internal control procedures;

• increased risk of litigation, particularly with respect to our wellness infrastructure properties, related to the COVID-19 pandemic;

• we, and in particular the success of our pivot to a digital real estate and infrastructure focused strategy, depend, to a significant extent, upon the efforts of our senior management team, including DBH’s key personnel.

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Risks Related to Our Hospitality Business.

The effects of the COVID-19 pandemic on the hospitality industry are unprecedented with global demand for lodging drastically reduced and occupancy levels reaching historic lows.

The effects of the COVID-19 pandemic on the hospitality industry are unprecedented with global demand for lodging drastically reduced and occupancy levels reaching historic lows during the second quarter 2020.

Many hotels have had to temporarily suspend operations or operate at reduced levels.

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Such steps and other hotel personnel work schedule changes that may be made in the future to reduce costs for us or our hotel operators or franchisors, may have other consequences such as negatively impacting the reputation and demand for our hotels or operational challenges if our operators are unable to re-hire furloughed personnel, all of which could have an adverse impact on our ability to improve performance and operations at our hotels when the COVID-19 pandemic subsides.

In addition, if we are unable to access capital to make physical improvements to our hotels, the quality of our hotels may suffer, which may negatively impact demand for our hotels.

addition, if we are unable to access capital to make physical improvements to our hotels, the quality of our hotels may suffer, which may negatively impact demand for our hotels.

Our third-party hotel managers may also face demands or requests from labor unions for additional compensation or other terms as a result of COVID-19 that could increase costs, and while we do not directly employ or manage employees at our hotels, we could incur costs in connection with such labor disputes or disruptions as our COVID-19 mitigation plans are implemented.

We cannot predict when business levels will return to normalized levels when the effects of the pandemic subside.

There also can be no guarantee that the demand for lodging, and consumer confidence in travel

generally, will recover as quickly as other industries.

There also can be no guarantee that the demand for lodging, and consumer confidence in travel generally, will recover as quickly as other industries.

As a result, the revenues from our hospitality portfolio have declined significantly and we expect this trend to continue.

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As of the date of this report, $1.3 billion in aggregate principal amount of such borrowings (representing the majority of borrowings on our hospitality properties) is in default as a result of the failure to make interest payments in light of the impact COVID-19 has had on our hospitality properties.

In addition, as of the date of this report, we received notices of acceleration with respect to an aggregate of $1.6 billion of such borrowings (including borrowings on the Inland Portfolio).

Further, we were not successful in our negotiations with the lender of the mortgage debt collateralized by a portfolio of 48 extended stay and select service hotel properties known as the Inland Portfolio, and receivers have been or are expected to be appointed for all of the assets in the Inland Portfolio.

During the period while the receivers are in place, we will no longer be in control of the operations of the Inland Portfolio even while still owning the assets.

We are in active discussions with the lenders on our other non-recourse borrowings in our hospitality portfolio and for certain hospitality properties, we have entered into forbearance agreements permitting us not to make interest payments for a specified period of time.

In addition, we have, and may in the future, receive notices of acceleration with respect to our defaulted borrowings.

Further, we were not successful in our negotiations with the lender of the mortgage debt collateralized by a portfolio of 48 extended stay and select service hotel properties known as the Inland Hotel Portfolio and, during the third quarter 2020, a receiver was appointed at all of the assets in the Inland Hotel Portfolio.

During the period while the receiver is in place, we will no longer be in control of the operations of the Inland Hotel Portfolio even while still owning the assets.

We are in active discussions with the lenders on certain of our non-recourse borrowings that are in default in our hospitality portfolio and for certain hospitality properties, we have entered into forbearance agreements permitting us not to make interest payments for a specified period of time.

However, if we are unable to restructure these borrowings or receive forbearance or other accommodations from our lenders, we may be required to repay outstanding obligations, including penalties, prior to the stated maturity, be subject to cash flow sweeps or potentially have assets foreclosed upon.

Further, for borrowings that have been restructured or modified in connection with COVID-19, or are no longer in default, there can be no assurance that the cash flow generated from our hospitality portfolios will be sufficient to service such borrowings.

While our hospitality properties experienced a rebound in operating performance in the third quarter 2020, there can be no assurance that such performance will improve or even be sustained.

Recently, there has been a resurgence in COVID-19 cases in the United States, which is anticipated to continue or worsen during the upcoming winter season.

This resurgence has, and could continue to result in, the re-implementation or tightening of travel and stay-at-home restrictions.

In addition, as previously disclosed, due to effects of seasonality, our hospitality properties typically generate lower revenues, operating income and cash flows in the first and fourth quarters of each year.

Failure by our hospitality properties to generate sufficient cash flow to service our borrowings, without further forbearance or modifications from lenders, could result in the acceleration of borrowings, cash flow sweeps or the foreclosure of assets, all of which would adversely impact the Company's liquidity and may impact our ability to consummate the pending disposition of our hospitality business.

For the quarter ended June 30, 2020, we incurred $728 million in impairments on hospitality properties (including the THL Hotel Portfolio) primarily related to assets which are anticipated to be divested or sold in the near term and have fair market values below their respective carrying values.

Moreover, depending on, among other factors, the status of ongoing negotiations with lenders, our anticipated holding periods for such assets and cash flow projections, we may take additional impairments on hospitality properties.

In addition, in September 2020, we incurred an additional impairment of $115.8 million attributable to the THL Hotel Portfolio based upon its pending sales price, net of selling costs.

In October 2020, the Company made certain payments totaling $13.9 million to lenders in order to cure certain defaults on the debt associated with a hotel portfolio.

In connection with the pending disposition of our hospitality business, the seller has agreed, subject to the satisfaction of certain conditions, to provide the Company with a purchase price credit for a portion of such funded amount;

however, there can be no assurance that the Company will close the pending transaction or receive the anticipated purchase price credit.

Moreover, depending on, among other factors, the status of ongoing negotiations with lenders, our anticipated holding periods for such assets and cash flow projections, we may make additional payments to lenders or take additional impairments on hospitality properties.

In addition, we have agreed to guarantee or contribute to guaranteed payments of franchise fees and marketing fees to our hotel franchisors.

In certain instances, such guarantee or contribution agreements may also include an obligation to pay liquidated damages to the hotel franchisor on an early termination of the applicable franchise agreement.

In the event that a lender forecloses on our hospitality properties (including in the case of the Inland Portfolio which is currently in or expected to be in receivership), we may not be released from these payment guarantees or liquidated damages obligations and we may not have any control over whether a franchise agreement is terminated.

Risks Related to Our Healthcare Business.

We anticipate that the impact of the COVID-19 pandemic will vary by asset class within our healthcare portfolio.

In the event that a lender forecloses on our hospitality properties (including in the case of the Inland Hotel Portfolio which is currently in receivership), we may not be released from these payment guarantees or liquidated damages obligations and we may not have any control over whether a franchise agreement is terminated.

In the case of the Inland Hotel Portfolio, we have received termination notices with respect to franchise agreements for hotels within the portfolio where the receiver has entered into a new franchise agreement with the applicable franchisor directly.

We have not received any claims for liquidated damages from any such applicable franchisor of the terminated franchise agreement;

however, there can be no assurances that liquidated damages will not be sought in the future.

Risks Related to Our Wellness Infrastructure Business.

We anticipate that the impact of the COVID-19 pandemic will vary by asset class within our wellness infrastructure portfolio.

Many of the tenants in our medical office buildings suspended non-essential activities, and accordingly sought rent relief.

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We may be forced to restructure tenants’ long-term lease obligations or suffer adverse consequences from the bankruptcy, insolvency or financial deterioration of one or more of our tenants, operators, borrowers or managers.

As a result, we expect a significant decline in revenues, net operating income and cash flow generated by operations from our healthcare portfolio.

We have significant non-recourse borrowings outstanding on our healthcare properties.

As a result, we expect a significant decline in revenues, net operating income and cash flow generated by operations from our wellness infrastructure portfolio.

We have significant non-recourse borrowings outstanding on our wellness infrastructure properties.

As of the date of this report, we have conveyed to an affiliate of our lender a portfolio of 36 assets in a consensual transfer to obtain a release on $158 million in aggregate principal amount in borrowings (as discussed above) and have another $45.0 million in aggregate principal amount of such borrowings in default.

As the impact of COVID-19 continues to influence performance at our healthcare properties, we may experience additional defaults and may be subject to cash flow sweeps.

Any such defaults will negatively impact our liquidity and may increase our risk of loss associated with our healthcare properties.

As the impact of COVID-19 continues to influence performance at our wellness infrastructure properties, we may experience additional defaults and may be subject to cash flow sweeps.

Any such defaults will negatively impact our liquidity and may increase our risk of loss associated with our wellness infrastructure properties.

We have entered into forbearance agreements suspending debt service payments for a limited period of time for certain portfolios, subject to satisfaction of certain conditions, and are in active discussions with other lenders, where necessary, regarding deferral of payment obligations and forbearance/waiver of non-payments defaults for failure to satisfy certain financial or other covenants.

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We may also be named as defendants in lawsuits arising out of our alleged actions or the alleged actions of our tenants and operators for which such tenants and operators have agreed to indemnify, defend and hold us harmless.

We may be subject to increased

risk of litigation and liability claims as a result of the COVID-19 pandemic and our operating partners’ response efforts.

We may be subject to increased risk of litigation and liability claims as a result of the COVID-19 pandemic and our operating partners’ response efforts.

Some of these claims may result in large damage awards, which may not be sufficiently covered by insurance or indemnity obligations.

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however, there can be no assurance that the Digital IM Business will satisfy such criteria in order for the additional consideration to be earned by the Company.

In addition, pursuant to the strategic partnership documentation, in the event that certain post-closing regulatory approvals are not received by July 17, 2021 (which period may be extended for up to an additional three months under certain circumstances), we will have the right to redeem the entirety of Wafra's equity investment (in which case, the carried interest participation rights acquired by Wafra will terminate), and we will have the right to cancel the warrants issued to Wafra.

Further, pursuant to the strategic partnership documentation, Wafra has certain redemption rights which, if exercised, would require the Company to repurchase Wafra's equity investment, carried interest participation rights and warrants.

In addition, pursuant to the strategic partnership documentation, Wafra has certain redemption rights which, if exercised, would require the Company to repurchase Wafra's equity investment, carried interest participation rights and warrants.

Wafra's redemption rights are triggered upon the occurrence of certain events including key person or cause events under the governing documentation of certain Digital Colony investment vehicles and, for a limited period, upon Marc Ganzi, the Company's CEO and President, and Ben Jenkins, the Chairman and Chief Investment Officer of the Company's digital segment, ceasing to fulfill certain time and attention commitments to the Digital IM Business.

If such redemption rights are exercised (either by the Company in connection with the failure to obtain post-closing regulatory approvals or by Wafra in connection with a key person or cause event), Wafra will also have a redemption right with respect to any sponsor commitments previously made to the Company's funds and vehicles.

redemption rights are exercised, Wafra will also have a redemption right with respect to any sponsor commitments previously made to the Company's funds and vehicles.

No assurance can be given that such redemption events, if triggered, would arise at a time when the Company will have the cash on hand or other available liquidity (including availability under the Company's corporate credit facility) to satisfy the redemptions, which could result in the Company being forced to allocate capital away from other potential opportunities or uses that we would otherwise consider to be the most effective use of such capital.

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If any or all of the risks described above, including the risk that the redemption obligations are triggered, were to materialize, the Company’s results of operations, financial position and/or liquidity could be materially and adversely affected.

There can be no assurance that the pending disposition of our hospitality business will be completed on the terms contemplated or at all or that we will be able to realize the anticipated benefits of such sale transaction.

In September 2020, we announced that we entered into a definitive agreement to sell our $2.8 billion hospitality business, composed of 197 hotel properties in aggregate, for gross aggregate selling price of $67.5 million, subject to certain adjustments as provided in the sale agreement, as amended.

The sale agreement provides that the closing will occur no earlier than January 15, 2021, which may be extended or accelerated by mutual agreement of the parties, provided that, if certain third party approvals have not been obtained by February 15, 2021, each of the parties has the right to extend the closing date until March 15, 2021.

There can be no assurance that this sale transaction will be completed on the terms contemplated, in accordance with the anticipated timing or at all.

Consummation of the sale is subject to customary closing conditions, including but not limited to, the acquirer’s assumption of the outstanding $2.7 billion mortgage notes encumbering the hotel properties and third party approvals, including any applicable franchisor consent.

There can be no assurance that these conditions to closing will be satisfied.

Furthermore, even if we are able to consummate the sale of this business, there can be no assurance that we will realize the anticipated benefits to us of such transaction, including any amount of net proceeds from the transaction as a result of transaction costs or other transaction related expenses.

Moreover, one of the Company's hospitality portfolios, which is in receivership, is not a part of the sale transaction.

There can be no assurance as to when such hospitality portfolio will be foreclosed upon or sold by the receiver to a third party.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors