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Item 1A. Risk Factors

2021-02-23 compared with 2020-02-20 · 161 added, 41 removed, 581 unchanged (26% of the section changed)

Risk Factors.

The following discussion concerns some of the risks associated with our business and should be considered carefully.

The following summary and discussion sets forth some of the risks associated with our business and should be considered carefully.

These risks are interrelated and you should treat them as a whole.

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In connection with the forward-looking statements that appear in this Annual Report on Form 10-K, in these risk factors and elsewhere, you should carefully review the section entitled “Forward-Looking Statements.”

Summary of Risk Factors

Risks Related to Our Business and Properties

• Risks related to the potential loss of our executive officers

• Risks related to third-party management companies

• Risks related to our TRS lessee structure

• Risks related to financial performance

• Risks related to highly competitive markets and regional downturns

• Risks related to restrictive covenants

• Risks related to joint ventures and franchise agreements

• Risks related to debt service obligations

• Risks related to investment decisions

• Risks related to the purchase or sale of hotel properties

• Risks related to financing and use of financial institutions

• Risks related to conflicts of interest

Risks Related to Debt and Financing

• Risks related to our existing indebtedness

• Risks related to “cash trap” provisions

• Risks related to refinancing or defaulting on debt

• Risks related to acquiring outstanding debt

• Risks related to LIBOR and potential replacements

Risks Related to the Lodging Industry

• Risks related to COVID-19 and other viruses, diseases, or future pandemics

• Risks related to hotel profitability

• Risks related to operations

• Risks related to competition for acquisitions

• Risks related to the seasonality and cyclical nature of the lodging industry

• Risks related to capital expenditure requirements

• Risks related to hotel and resort development

• Risks related to changing technology and its effects on the lodging industry and cyber-attacks

• Risks related to hotel personnel and unionization

• Risks related to terrorist attacks

• Risks related to underinsurance or lack of insurance

• Risks related to unknown or contingent liabilities

• Risks related to environmental factors and regulations

• Risks related to compliance with federal law and other legislative changes

• Risks related to potential litigation

General Risks Related to the Real Estate Industry

• Risks related to illiquidity of real estate investments

• Risks related to changing tax regimes in states and localities in which we own property

• Risks related to liabilities under environmental laws

Risks Related to Our Organization and Structure

• Risks related to change of control

• Risks related to ownership limitations in our declaration of trust

• Risks related to actions against our trustees and officers

• Risks related to changes of major policies

• Risks related to further issuances of securities

• Risks related to future offerings of debt securities or preferred shares

• Risks related to the rights of holders of common shares or preferred shares

• Risks related to employment agreements with our executive officers

• Risks related to internal controls

Federal Income Tax Risk Factors

• Risks related to potential failures to qualify as a REIT, whether by us or by LaSalle prior to the merger

• Risks related to REIT requirements

• Risks related to distributions of REIT taxable income

• Risks related to our TRS and TRS lessees

• Risks related to our Operating Partnership

• Risks related to taxation on dividends

• Risks related to subsidiary REITs

• Risks related to revocation of our REIT qualification

• Risks related to share ownership restrictions

• Risks related to prohibited transactions tax

• Risks related to legislative or regulatory tax changes

Risks Related to Our Business and Properties

We depend on the efforts and expertise of our executive officers and would be adversely affected by the loss of their services.

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However, if we are unable to reach satisfactory results through discussions and negotiations, we may choose to litigate the dispute or submit the matter to third-party dispute resolution.

We can only seek redress if a management company violates the terms of the applicable management contract with a TRS lessee, and then only to the extent of the remedies provided for under the terms of the management contract.

We can only seek redress if a management company violates the terms of the applicable management contract with a TRS lessee,

and then only to the extent of the remedies provided for under the terms of the management contract.

Additionally, in the event that we need to replace any management company, we may be required by the terms of the management contract to pay substantial termination fees and may experience significant disruptions at the affected hotels.

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Incurring debt subjects us to many risks, including the risks that our cash flow from operations will be insufficient to make required payments of principal and interest, our debt may increase our vulnerability to adverse economic and industry conditions, we may be required to dedicate a substantial portion of our cash flow from operations to payments on our debt, and the terms of any refinancing will not be as favorable as the terms of the debt being refinanced.

We have placed and will continue to place mortgages on certain of our hotel properties to secure debt.

We have placed and may in the future place mortgages on certain of our hotel properties to secure debt.

To the extent we cannot meet any of our debt service obligations, we may be required to sell or we will risk losing to foreclosure some or all of our mortgaged hotel properties.

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Our senior executive officers have broad discretion, within the general investment criteria established by our board of trustees, to invest our capital and to determine the timing of such investments.

In addition, our investment policies may be revised from time to time at the discretion of our board of trustees, without a vote of our shareholders.

In addition, our investment policies may be

revised from time to time at the discretion of our board of trustees, without a vote of our shareholders.

Such discretion could result in investments that may not yield returns consistent with expectations.

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Failure to meet our financial covenants could result from, among other things, changes in our results of operations, the incurrence of additional debt or changes in general economic conditions.

Such failures could cause one or more of our lenders to accelerate the timing of payments and could have a material adverse effect on our business, financial condition, results of operations and our ability to make distributions to our shareholders.

Such failures could cause one or more of our lenders to accelerate the timing of payments and could have a material

adverse effect on our business, financial condition, results of operations and our ability to make distributions to our shareholders.

The terms of our debt may restrict our ability to engage in transactions that we believe would otherwise be in the best interests of our shareholders.

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If we default on our secured debt, the lenders may foreclose on our hotels.

All of our indebtedness for borrowed money, except our senior unsecured revolving credit facility, term loans and senior unsecured notes, is secured by either single property first mortgage liens or leasehold interests under the ground leases on the

applicable hotel.

If we default on any of the secured loans, the applicable lender will be able to foreclose on the property pledged to secure the loan.

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As of December 31, 2020, all of the debt outstanding under our unsecured term loans and our senior unsecured revolving credit facilities was indexed to LIBOR.

In July 2017, the Financial Conduct Authority (“FCA”), which regulates LIBOR, announced its intention to phase out LIBOR rates by the end of 2021.

We cannot predict the further effect of the FCA’s announcement, any changes in the methods by which LIBOR is determined or any other reforms to LIBOR that may be enacted in the United Kingdom, the European Union or elsewhere.

Such developments may cause LIBOR to perform differently than in the past, or cease to exist.

In addition, any other legal or regulatory changes made by the FCA, ICE Benchmark Administration Limited, the European Money Markets Institute, the European Commission or any other successor governance or oversight body, or future changes adopted by such body, in the method by which LIBOR is determined or the transition from LIBOR to a successor benchmark may result in, among other things, a sudden or prolonged increase or decrease in LIBOR, a delay in the publication of LIBOR, and changes in the rules or methodologies in LIBOR, which may discourage market participants from continuing to administer or to participate in LIBOR’s determination, and, in certain situations, could result in LIBOR no longer being determined and published.

If a published U.S.

dollar LIBOR rate is unavailable after 2021, the interest rates on our debt which is indexed to LIBOR will be determined using alternative methods, which may result in interest obligations which are more than or do not otherwise correlate over time with the payments that would have been made on such debt if U.S.

dollar LIBOR was available in its current form.

Further, the same costs and risks that may lead to the unavailability of U.S.

dollar LIBOR may make one or more of the alternative methods impossible or impracticable to determine.

Any of these proposals or consequences could have a material adverse effect on our financing costs, and as a result, our financial condition, operating results and cash flows.

In July 2017, the U.K.

Financial Conduct Authority announced that it would cease to compel banks to participate in setting LIBOR as a benchmark by the end of 2021.

In December 2020, the ICE Benchmark Administration, the administrator of LIBOR ("ICE"), announced a consultation on its plan to cease publishing most settings of USD LIBOR at the end of June 2023.

The consultation results have not yet been published, but it is unlikely that any setting of USD LIBOR will continue beyond June 2023 (the "LIBOR Transition Date").

The Alternative Reference Rates Committee, a steering committee composed of large U.S.

financial institutions and public officials convened by the U.S.

Federal Reserve, has recommended the Secured Overnight Financing Rate (“SOFR”) as an alternative reference rate to U.S.

dollar LIBOR.

calculated based on overnight transactions under repurchase agreements, backed by Treasury securities.

SOFR is observed and backward-looking, which stands in contrast with LIBOR, which is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting panel members.

Given that SOFR is a secured rate backed by government securities, it will be a rate that does not take into account bank credit risk (as is the case with LIBOR).

SOFR is therefore likely to be lower than LIBOR and is less likely to correlate with the funding costs of financial institutions.

Whether or not SOFR attains market traction as a LIBOR replacement tool remains in question.

The future of LIBOR at this time is uncertain.

While we expect LIBOR to be available in substantially its current form until the end of 2021, and likely based on ICE's announced consultation through June 2023, if sufficient banks decline to make submissions to ICE, it is possible that LIBOR will become unavailable prior to that point.

Should that occur, the risks associated with the transition to an alternative reference rate will be accelerated and magnified.

If any of our debt arrangements will be linked to LIBOR, we may need to amend them before the LIBOR Transition Date or earlier.

The transition away from LIBOR may adversely impact our ability to manage and hedge exposures to fluctuations in interest rates using derivative instruments.

There is no guarantee that a transition from LIBOR to an alternative rate will not result in financial market disruptions, significant increases in benchmark rates, or borrowing costs to borrowers, any of which could have an adverse effect on our business, results of operations, or financial condition.

Risks Related to the Lodging Industry

The COVID-19 pandemic has had, and is expected to continue to have, a material adverse impact on our financial condition, results of operations, cash flows, liquidity and prospects.

The current, and uncertain future, impact of the COVID-19 pandemic, including its effect on the ability or desire of people to travel for leisure or for business, is expected to continue to adversely impact our financial condition, results of operations, cash flows, liquidity and prospects.

The COVID-19 pandemic and federal, state and local government responses and restrictions thereto have significantly disrupted, and are expected to continue to significantly disrupt, our business.

As a result of this pandemic and subsequent government mandates and health official recommendations and restrictions, hotel demand was nearly eliminated during the second quarter of 2020 and occupancy levels reached historic lows.

While our operations have improved, they are still well below pre-pandemic levels, and there can be no assurance that our operations will continue to improve or that our operations will not deteriorate again in response to surges in the pandemic.

Certain states and cities, including those where our hotels are located, have reacted to the pandemic by instituting quarantines, restrictions on travel, “shelter in place” rules, restrictions on the types of business that may continue to operate, and/or restrictions on the types of construction projects that may continue.

In response to the COVID-19 pandemic, we temporarily suspended operations at the vast majority of our hotels, and as of December 31, 2020, 37 of our hotels were open and the operations at the remaining 16 hotels remained temporarily suspended.

Our operating hotels are running in a more limited capacity as compared to pre-pandemic levels and on a portfolio wide basis, generally with lower occupancy and lower average daily rates.

We may determine in the future that it is in the best interest of our company, guests and employees to temporarily suspend operations at some or all of our open hotels.

With hotel operations temporarily suspended or reduced, we have been and for the foreseeable future likely will be required to use a substantial portion of our available cash to pay hotel payroll expenses, maintenance expenses, fixed hotel costs, insurance expenses, property taxes and scheduled debt payments.

Use of our cash will reduce the amount of cash available for hotel capital expenditures, future business opportunities and other purposes, including distributions to our shareholders.

To preserve liquidity, we have worked with our operators to significantly reduce staffing and expenses at our hotels that remain operational, reduced the quarterly cash dividend on our common shares to $0.01 per share, reduced planned capital expenditures and reduced the compensation of our executive officers, board of trustees and employees.

While we have taken steps to increase our cash position and preserve our financial flexibility, given the unprecedented impact of COVID-19 on the global market and our hotel operations, we cannot assure you that these steps will prove to be sufficient or that our forecast or the assumptions we used to estimate our liquidity requirements will be correct.

We are unable to predict when any of our hotels with temporarily suspended operations will resume operations.

Moreover, once travel advisories and restrictions (which may be continued or reinstituted, due to the continued outbreak or a resurgent outbreak of COVID-19 (such as is currently occurring in much of the United States)) are lifted, travel demand may remain weak for a significant period of time as individuals or businesses may fear or restrict traveling.

We are unable to predict if and when occupancy and the average daily rates at our hotels will return to pre-pandemic levels.

Additionally, our hotels may be negatively impacted by adverse changes in the economy, including higher unemployment rates, declines in income levels, loss of personal wealth and possibly a national and/or global recession resulting from the impact of COVID-19.

Declines in demand trends, occupancy and the average daily rates at our hotels may indicate that one or more of our hotels is impaired, which would adversely affect our financial condition and results of operations.

We are subject to various financial covenants relating to our credit facilities, term loan facilities and senior notes.

In February 2021, we completed amendments to the agreements governing our credit facilities, term loan facilities and senior notes, which, among other things, waived certain existing financial covenants through the end of 2021 and others through the first quarter of 2022.

Due to COVID-19’s negative impact on our operations throughout 2020 and continuing in 2021, it is

possible that we may not meet the terms of the financial covenants once they become effective in 2022.

Our future liquidity will depend on the gradual return of leisure, business and group business, to our hotels and the stabilization of demand throughout our portfolio.

If we are unable to satisfy the amended financial covenants following the end of the existing waiver period, the lenders of such debt may require us to repay the loans.

Failure to meet any financial covenants of our debt would adversely affect our financial conditions and results from operations, and may raise doubt about our ability to continue as a going concern.

The COVID-19 pandemic may exacerbate many of the risks described in this Annual Report on Form 10-K and expose us to the following risks, among others:

• a complete or partial closure or re-closure of, or other operational issues at, one or more of our hotels, resulting from government, third-party hotel manager or franchisor action, which could materially adversely affect our operations;

• the postponement or cancellation of conferences, conventions, festivals, sporting events, public events and other group business that would have otherwise brought individuals to the areas in which our hotels are located, which has caused, and could continue to cause, a decrease in occupancy rates over a prolonged period of time and exacerbate the seasonal volatility at our hotels;

• a general decline of in-person business meetings and an increase in the use of teleconferencing and video-conferencing technology, which could cause a sustained shift away from business-related travel and have a material adverse effect on the overall demand for hotel rooms;

• a decrease in individuals’ willingness to travel as a result of actual or perceived health risks or a decrease in consumer spending, which could affect the ability of our hotels to generate sufficient revenues to meet operating and other expenses in the short- and long-term;

• reduced economic activity impacting the businesses, financial condition and liquidity of our company or that of our third-party hotel managers or franchisors, which could result in us, the third-party hotel manager or the franchisor being unable to comply with operational and performance conditions under the applicable management and franchise agreements;

• reduced economic activity impacting the businesses, financial condition and liquidity of the retail and restaurant tenants located at certain of our hotels, which could cause one or more of such tenants to be unable to meet their obligations to us in full, or at all, to otherwise seek modifications of such obligations or to declare bankruptcy;

• severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions, which could make it difficult for us to access debt and equity capital on attractive terms, or at all, and adversely impact our ability to fund business activities and repay debt, including the notes, on a timely basis;

• the potential lack of funding, disruptions in the supply of materials or products or the inability of contractors to perform on a timely basis or at all, could cause delays in completing ongoing or future hotel renovations and capital improvements at our hotels;

• difficulties in sourcing and transporting materials or products necessary to operate our hotels, such as linens or cleaning supplies, and a decrease in the availability of adequate staffing at our hotels, which could impact our ability to provide our guests with the customary level of service provided at our hotels;

• our potential inability to renew or enter into new management agreements for our hotels on favorable terms, or at all, which could cause interruptions in the operations at certain hotels;

• a general decline in business activity and demand for real estate transactions, and more specifically, demand for hotel properties, which could adversely affect our ability or desire to make strategic acquisitions or dispositions;

• the potential negative impact on the health of our personnel, particularly if a significant number of our senior executive officers are impacted, which could result in a deterioration in our ability to ensure business continuity during a disruption;

• the limited access to our facilities, management, franchisors, support staff and professional advisors, which could decrease the effectiveness of our disclosure controls and procedures and internal controls over financial reporting, increase our susceptibility to security breaches, or hamper our ability to comply with regulatory obligations and lead to reputational harm and regulatory issues or fines;

• increased operating costs at our hotels due to enhanced cleaning and hygiene protocols required or recommended by major hotel brands, the Centers for Disease Control and Prevention, unions and state and local governments;

• increased labor costs due to demands for higher wages due to health risks associated with working in hotels and requirements for more staff to implement cleaning protocols.

The adverse effects of the COVID-19 pandemic on the lodging industry are unprecedented and have materially adversely affected our operations.

The full extent to which COVID-19 impacts our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence.

These developments include, the scope, severity and duration of the pandemic;

the development, distribution and administration of a successful vaccine or therapy;

the length of time it takes for lodging demand and pricing to return to pre-pandemic levels and for normal economic and operating conditions to resume;

the actions taken to contain the pandemic or mitigate its impact, as well as the effect of any relaxation of current restrictions, all of which could vary among the geographic regions in which our hotels are located;

and the direct and indirect economic effects of the pandemic and containment measures.

The rapid development and fluidity of the COVID-19 pandemic makes it extremely difficult to assess its full adverse economic impact on our business, financial condition, results of operations, liquidity and cash flows.

Economic conditions may reduce demand for hotel properties and adversely affect hotel profitability.

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• competition from other hotel properties and non-hotel properties that provide nightly and short-term rentals in our markets;

over-building of hotels in our markets, which could adversely affect occupancy and revenues at our hotel properties;

• over building of new hotels in our markets, which could adversely affect occupancy and revenues at our hotel properties;

• dependence on business and commercial travelers, conventions and tourism;

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This seasonality can be expected to cause quarterly fluctuations in our revenues.

Our quarterly earnings may be adversely affected by factors outside our control, including weather conditions and

poor economic factors.

Our quarterly earnings may be adversely affected by factors outside our control, including weather conditions and poor economic factors.

As a result, we may have to enter into short-term borrowings in certain quarters in order to offset these fluctuations in revenues and to make distributions to our shareholders.

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We may be adversely affected by increased use of business-related technology which may reduce the need for business-related travel.

The increased use of teleconference and video-conference technology by businesses could result in decreased business travel as companies increase the use of technologies that allow multiple parties from different locations to participate at meetings without traveling to a centralized meeting location.

The increased use of teleconference and video-conference technology by businesses, particularly given its widespread use and increased acceptance during the COVID-19 pandemic, which may lead to continued use after the pandemic, could result in decreased business travel as companies increase the use of technologies that allow multiple parties from different locations to participate at meetings without traveling to a centralized meeting location.

To the extent that such technologies play an increased role in day-to-day business and the necessity for business-related travel decreases, hotel room demand may decrease and our financial condition, results of operations, the market price of our common shares and our ability to make distributions to our shareholders may be adversely affected.

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Security breaches, including physical or electronic break-ins, computer viruses, ransomware, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure of confidential information or theft of corporate funds and expose us to claims by guests whose personal information is accessed.

Any failure to maintain proper function, security and availability of our information systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties and could have a material adverse effect on our business, financial condition and results of operations.

Any failure to maintain proper function, security and availability of our information systems could interrupt our operations, damage our reputation, subject us to liability

claims or regulatory penalties and could have a material adverse effect on our business, financial condition and results of operations.

Many of our hotel managers carry cyber insurance policies to protect and offset a portion of potential costs that may be incurred from a security breach.

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We also may incur increased legal costs and indirect labor costs as a result of contract disputes or other events.

The resolution of labor disputes or new or re-negotiated labor contracts could lead to increased labor costs, either by increases in wages or benefits or by changes

in work rules that raise hotel operating costs.

The resolution of labor disputes or new or re-negotiated labor contracts could lead to increased labor costs, either by increases in wages or benefits or by changes in work rules that raise hotel operating costs.

Furthermore, collective bargaining agreements, negotiated between the hotel managers and labor unions, may limit the ability of the hotel managers to reduce the size of hotel workforces during economic downturns.

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For instance, a person exposed to asbestos while staying in a hotel may seek to recover damages if he or she suffers injury from the asbestos.

Also, some of these environmental laws restrict the use of a property or place conditions

on various activities.

Also, some of these environmental laws restrict the use of a property or place conditions on various activities.

An example would be laws that require a business using chemicals (such as swimming pool chemicals at a hotel property) to manage them carefully and to notify local officials that the chemicals are being used.

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Additionally, we are and will continue to be subject to property taxes in states and localities in which we own property, and our TRS lessees are and will continue to be subject to federal, state and local corporate income tax.

States and localities may seek additional sources of revenue to reduce budget deficits and otherwise improve their financial condition or provide more services, they may, among other steps, raise income and property tax rates and/or amend their tax regimes to eliminate for state income tax purposes the favorable tax treatment REITs enjoy for U.S.

States and localities may seek additional sources of revenue to reduce budget deficits and otherwise improve their financial condition or provide more

services, they may, among other steps, raise income and property tax rates and/or amend their tax regimes to eliminate for state income tax purposes the favorable tax treatment REITs enjoy for U.S.

federal income tax purposes.

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Certain provisions of the Maryland General Corporation Law (the "MGCL") applicable to Maryland real estate investment trusts may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change of control under circumstances that otherwise could provide our common shareholders with the opportunity to realize a premium over the then-prevailing market price of such shares, including:

“business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested shareholder” (defined generally as any person who beneficially owns 10 percent or more of the voting power of our shares) or an affiliate of any interested shareholder for five years after the most recent date on which the

shareholder becomes an interested shareholder, and thereafter imposes special appraisal rights and special shareholder voting requirements on these combinations;

• “business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested shareholder” (defined generally as any person who beneficially owns 10 percent or more of the voting power of our shares) or an affiliate of any interested shareholder for five years after the most recent date on which the shareholder becomes an interested shareholder, and thereafter imposes special appraisal rights and special shareholder voting requirements on these combinations;

• “control share” provisions that provide that our “control shares” (defined as shares which, when aggregated with other shares controlled by the shareholder, entitle the shareholder to exercise one of three increasing ranges of voting power in electing trustees) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to the extent approved by our shareholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.

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Our bylaws require us to indemnify each trustee or officer, to the maximum extent permitted by Maryland law, in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service to us.

In addition, we have entered into indemnification agreements with our officers and

trustees and we may be obligated to fund the defense costs incurred by our trustees and officers.

In addition, we have entered into indemnification agreements with our officers and trustees and we may be obligated to fund the defense costs incurred by our trustees and officers.

As a result, we and our shareholders may have more limited rights against our trustees and officers than might otherwise exist absent the current provisions in our declaration of trust and bylaws or that might exist with other companies.

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Future offerings of debt securities or preferred shares, which would be senior to our common shares upon liquidation and for the purpose of distributions, may cause the market price of our common shares to decline.

We have issued six series of preferred shares, of which we have repurchased two and four remain outstanding, and two series of senior unsecured notes.

We have issued six series of preferred shares, of which we have repurchased two and four remain outstanding, and three series of senior unsecured notes.

In the future, we may increase our capital resources by making additional offerings of debt or equity securities, which may include senior or subordinated notes, series of preferred shares and common shares.

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Our board of trustees has the authority to designate and issue preferred shares with liquidation, dividend and other rights that are senior to those of our common shares.

As of December 31, 2019 , 5,000,000 shares of our 6.50% Series C Cumulative Redeemable Preferred Shares (the “Series C Preferred Shares”), 5,000,000 shares of our 6.375% Series D Cumulative Redeemable Preferred Shares (the “Series D Preferred Shares”) 4,400,000 shares of our 6.375% Series E Cumulative Redeemable Preferred Shares (the “Series E Preferred Shares”) and 6,000,000 shares of our 6.30% Series F Cumulative Redeemable Preferred Shares (the “Series F Preferred Shares”) were issued and outstanding.

As of December 31, 2020, 5,000,000 shares of our 6.50% Series C Cumulative Redeemable Preferred Shares (the “Series C Preferred Shares”), 5,000,000 shares of our 6.375% Series D Cumulative Redeemable Preferred Shares (the “Series D Preferred Shares”), 4,400,000 shares of our 6.375% Series E Cumulative

Redeemable Preferred Shares (the “Series E Preferred Shares”) and 6,000,000 shares of our 6.30% Series F Cumulative Redeemable Preferred Shares (the “Series F Preferred Shares”) were issued and outstanding.

The aggregate liquidation preference with respect to the outstanding preferred shares is approximately $510.0 million, and aggregate annual dividends on our outstanding preferred shares are approximately $32.6 million.

Holders of any of these preferred shares are entitled to cumulative dividends before any dividends may be declared or set aside on our common shares.

Upon our voluntary or involuntary liquidation, dissolution or winding up, before any payment is made to holders of our common shares, holders of these preferred shares are entitled to receive a liquidation preference of $25.00 per share plus any accrued and unpaid

distributions.

This will reduce the remaining amount of our assets, if any, available to distribute to holders of our common shares.

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Even an inadvertent or technical mistake could jeopardize our REIT qualification.

qualification as a REIT depends on our satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other requirements on a continuing basis.

Our qualification as a REIT depends on our satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other requirements on a continuing basis.

Moreover, new tax legislation, administrative guidance or court decisions, in each instance potentially applicable with retroactive effect, could make it more difficult or impossible for us to maintain our qualification as a REIT.

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The Code provides that temporary investments of new capital in stock or debt instruments for the one-year period beginning on the date on which we receive the new capital will be considered qualified real estate assets for purposes of the above requirements.

If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences.

If we fail to comply with these requirements at the end of any calendar

quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences.

As a result, we may be required to liquidate otherwise attractive investments.

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A TRS may hold assets and earn income that would not be qualifying assets or income if held or earned directly by a REIT, including gross operating income from hotel operations pursuant to hotel management contracts.

Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS.

Both the subsidiary and the REIT must jointly elect to treat the subsidiary

A corporation of which a TRS directly or indirectly owns more than 35 percent of the voting power or value of the stock will automatically be treated as a TRS.

Overall, no more than 20 percent of the value of a REIT's assets may consist of stock or securities of one or more TRSs.

In addition, the TRS rules limit the deductibility of interest paid or accrued by a TRS

to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation.

In addition, the TRS rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation.

The rules also impose a 100 percent excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm's-length basis.

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We have made “protective” TRS elections with respect to each of our subsidiary REITs and may implement other protective arrangements intended to avoid such an outcome if our subsidiary REITs were not to qualify as a REIT, but there can be no assurance that such “protective” elections and other arrangements will be effective to avoid the resulting adverse consequences to us.

Moreover, even if the “protective” TRS elections were to be effective in the event of the failure of our subsidiary REITs to maintain their qualifications as REITs, such subsidiary REITs would be subject to federal income tax and we cannot assure you that we would not fail to satisfy the requirement that not more than 20 percent of the value of our total assets may be represented by the securities of one or more TRSs.

federal income tax and we cannot assure you that we would not fail to satisfy the requirement that not more than 20 percent of the value of our total assets may be represented by the securities of one or more TRSs.

In this event, we would fail to qualify as a REIT unless we or such subsidiary REITs could avail ourselves or themselves of certain relief provisions.

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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-K

Item 1A. Risk Factors