What changed in this filing

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Item 4. Controls and Procedures

2020-11-09 compared with 2020-08-10 · 25 added, 18 removed, 93 unchanged (32% of the section changed)

2 unchanged sentences

Based upon that evaluation, our President and Chief Executive Officer and our Chief Financial Officer and Treasurer concluded that our disclosure controls and procedures are effective.

There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Warning Concerning Forward-Looking Statements

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• The duration and severity of the economic downturn resulting from the COVID-19 pandemic and its impact on us and our operators and tenants,

The implications of IHG’s payment defaults and the actions we may take if IHG does not cure these defaults or if we do not reach agreement with IHG,

• The implications of our termination of our IHG and Marriott agreements and our expectations about the ability of Sonesta to operate the hotels that may be transferred and rebranded to it from Wyndham, IHG and Marriott,

• Our expectations about our ability and the ability of our operators and tenants to operate throughout the COVID-19 pandemic and withstand the resulting economic downturn,

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• We fully utilized the security deposit we held from IHG and IHG has defaulted on its payments to us.

There is no assurance IHG will cure these defaults or that we will successfully be able to negotiate modifications to our existing agreements on terms we are willing to accept.

Further, if we do not come to an agreement with IHG, we expect to rebrand all 103 hotels under the IHG agreement and the terms of our arrangements with any successor operator may not be as favorable as our existing arrangement with IHG.

Transitioning hotels to another operator is disruptive to their operations and requires significant capital investments,

We fully utilized the security deposit we held and exhausted the $30.0 million limited guarantee to cover shortfalls in hotel cash flows available to pay the minimum returns due to us under the Marriott agreement.

Under the Marriott agreement, if the security deposit and guaranty have been depleted, Marriott is required to fund shortfalls up to 80% of the minimum returns due to us to avoid termination.

There can be no assurance that Marriott will pay any shortfalls,

Marriott has not funded any of the required shortfalls in our minimum returns and we have terminated our Marriott agreement effective January 31, 2021.

We expect to rebrand to Sonesta 102 of the 103 hotels under the IHG agreement and the 98 hotels, to the extent not sold, under the Marriott agreement.

Transitioning hotels to another operator is disruptive to their operations and requires significant capital investments,

• We expect Sonesta to operate 257 of our 329 hotels, which constituted approximately 47.8% of our total historical real estate investments as of September 30, 2020, after we rebrand certain of our Wyndham, Marriott and IHG hotels to Sonesta in the fourth quarter of 2020 and the first quarter of 2021.

Sonesta is a small privately held company with less resources and scale compared to Wyndham, IHG and Marriott.

If Sonesta were to fail to provide quality services and amenities or to maintain a quality brand, our income from these properties may be adversely affected.

There can be no assurance that Sonesta can operate the hotels rebranded from Wyndham, IHG and Marriott as effectively or for returns at levels that could otherwise be achieved by Wyndham, IHG or Marriott.

Further, if we were required to replace Sonesta, we could experience significant disruptions in operations at the applicable properties, which could reduce our income and cash flows from, and the value of, those properties.

We have no guarantee or security deposit under our Sonesta agreements.

Accordingly, we may receive amounts from Sonesta that are less than the contractual minimum returns stated in our agreements with Sonesta or we may be requested to fund losses for our Sonesta hotels.

Further, we own a 34% interest in Sonesta.

If Sonesta experiences losses, or requires additional capital, Sonesta may request we fund our share through the contribution of additional capital.

• We cannot be sure of the future financial performance of our properties and whether such performance will cover our minimum returns and rents, or regarding our managers’, tenants’ or guarantors’ future actions or their abilities or willingness to pay minimum returns and rents owed to us.

If other operators do not honor their obligations, we may seek to terminate our arrangements with them or other actions to enforce our rights,

We have no guarantees or security deposits under our Sonesta or Wyndham agreements.

Accordingly, we may receive amounts from Sonesta that are less than the contractual minimum returns stated in the Sonesta agreement, or we may be requested to fund losses for our Sonesta or Wyndham hotels,

Statements about improving trends experienced during the course of the 2020 second quarter in the level of requests for rent deferments or other relief and improving hotel occupancies may imply that the positive trend may continue.

• Statements about improving trends experienced during the course of the 2020 third quarter in the level of requests for rent deferments or other relief and improving hotel occupancies may imply that the positive trend may continue.

However, COVID-19 infections have recently increased in large parts of the United States and the U.S.

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Our portfolio agreements may not increase the security of our cash flows or increase the likelihood our agreements will be renewed as we expect,

We were in the process of marketing certain hotel assets for sale in order to reduce our leverage.

Current market conditions have forced us to suspend efforts to sell these properties.

We may not complete the sales of any additional hotel assets we plan to sell, and we may determine to sell fewer, additional or other assets than those we may target for sale.

• We were in the process of marketing certain hotels for sale in order to reduce our leverage.

Current market conditions have forced us to suspend efforts to sell certain of these properties.

We may not complete the sales of any additional hotels we plan to sell, and we may determine to sell fewer, additional or other assets than those we may target for sale.

Also, we may sell assets at prices that are less than we expect and less than their carrying values and we may incur losses on these sales or with respect to these assets, or may not ultimately use any proceeds we may receive to reduce debt leverage,

At June 30, 2020 , we had $20,206 of cash and cash equivalents, $966,873 available under our $1,000,000 revolving credit facility and security deposits and guarantees covering some of our minimum returns and rents.

These statements may imply that we have sufficient working capital and liquidity.

• At September 30, 2020, we had $47,847 of cash and cash equivalents, $919,914 available under our $1,000,000 revolving credit facility, guarantees covering some of our minimum returns and rents and executed on $74,735 of property sales and are under agreement to sell additional properties for an aggregate of $218,800.

These statements may imply that we have sufficient working capital and liquidity to meet our obligations for the next twelve months.

We used $400,000 of the availability under our revolving credit facility to repay our outstanding term loan on November 5, 2020.

Certain tenants have requested and we have granted certain rent relief and these requests could increase.

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If challenging market conditions, including due to the COVID-19 pandemic and the resulting economic downturn, last for a long period or worsen, our operators and tenants may experience liquidity constraints and as a result may be unable or unwilling to pay returns or rents to us and our ability to operate our business effectively may be challenged,

Continued availability of borrowings under our revolving credit facility is subject to our satisfying certain financial covenants and other credit facility conditions, which we may be unable to satisfy, despite the receipt of the limited waiver we received.

• Continued availability of borrowings under our revolving credit facility is subject to our satisfying certain financial covenants and other credit facility conditions.

If our operating results and financial condition are significantly negatively impacted by the current economic conditions or otherwise, we may fail to satisfy covenants and conditions under our credit agreement or fail to satisfy our public debt covenants.

We expect the ratio of income available from debt service to debt service coverage could fall below the 1.5x requirement under our public debt covenants in the first quarter of 2021.

We will not be allowed to incur additional debt while this ratio is below 1.5x.

• Actual costs under our revolving credit facility or other floating rate debt will be higher than LIBOR plus a premium because of fees and expenses associated with such debt,

The maximum borrowing availability under our revolving credit facility and term loan may be increased to up to $2,300,000 on a combined basis;

however, the feature pursuant to which such maximum borrowing availability may be increased may not be utilized during the Waiver Period,

The premiums used to determine the interest rate payable on our revolving credit facility and term loan and the facility fee payable on our revolving credit facility are based on our credit ratings.

• The premiums used to determine the interest rate and facility fee payable on our revolving credit facility are based on our credit ratings.

Changes in our credit ratings may cause the interest and fees we pay to increase,

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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-Q

Item 4. Controls and Procedures