What changed in this filing

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Item 1A. Risk Factors

2020-11-09 compared with 2020-08-10 · 45 added, 23 removed, 86 unchanged (44% of the section changed)

Our business faces many risks, a number of which are described under the caption “Risk Factors” in our 2019 Annual Report.

The COVID-19 pandemic may subject us to additional risks that are described below.

The risks described in our 2019 Annual Report and below may not be the only risks we face.

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economy declines, demand for goods moved by trucks declines, and in turn demand for the products and services provided at our travel centers typically declines.

Although TA’s services have been designated “essential services” by many public authorities, there can be no assurance that such a designation will continue and that, if it does, it will enable TA to avoid adverse effects to its operations and business.

Although TA has been recognized as providing services to essential businesses by various governmental authorities, there can be no assurance that such a designation will continue and that, if it does, it will enable TA to avoid adverse effects to its operations and business.

TA has experienced declines in its business activity.

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• reduced economic demand resulting from mass employee layoffs or furloughs in response to governmental action taken to slow the spread of COVID-19, which could impact the continued viability of our managers and tenants and the demand for our hotels, travel centers and retail space.

Further, the extent and strength of any economic recovery after the COVID-19 pandemic abates, including following any “second wave” or other intensifying of the pandemic, are uncertain and subject to various factors and conditions.

Further, the extent and strength of any economic recovery after the COVID-19 ends or otherwise, are uncertain and subject to various factors and conditions.

Our and our hotel managers’ and retail-based tenants’ businesses, operations and financial positions may continue to be negatively impacted after the COVID-19 pandemic abates and may remain at depressed levels as compared to prior to the outbreak of the COVID-19 pandemic and those conditions may continue for an extended period.

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We have taken several actions in an attempt to address the operating and financial impact from the COVID-19 pandemic, including:

we have received a limited waiver of compliance with certain financial covenants under our credit agreement to ensure we have access to undrawn amounts under such credit facility,

• we have received waivers of compliance with the financial covenants under our credit agreement to ensure we have access to undrawn amounts under such credit facility,

• we reduced our quarterly cash distributions on our common shares to $0.01 per share, a savings of $87.2 million per quarter compared to prior distribution levels,

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• we raised $72.8 million in net proceeds from asset sales and have entered agreements to sell additional properties for a sales price of $218.8 million,

• we repaid our $400.0 million term loan using undrawn amounts under our revolving credit facility,

• we have prioritized our projected capital improvement spending to projects in progress, maintenance capital and contractual obligations,

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There can be no assurance that these actions or others that we may take will be successful or that they will enable us to maintain sufficient liquidity and withstand the current economic challenges.

We recently reduced our quarterly rate of distribution on our common shares to $0.01 per share and future distributions may remain at this level for an indefinite period or be eliminated and the form of payment could change.

Beginning in the second quarter of 2020, we reduced our regular quarterly cash distributions rate on our common shares to $0.01 per share and we expect our quarterly distribution to continue at that rate during the Waiver Period and possibly thereafter subject to REIT tax requirements.

We reduced our quarterly rate of distribution on our common shares to $0.01 per share and future distributions may remain at this level for an indefinite period or be eliminated and the form of payment could change.

Beginning in the second quarter of 2020, we reduced our regular quarterly cash distributions rate on our common shares to $0.01 per share and we expect our quarterly distribution to continue at that rate during the New Waiver Period and possibly thereafter subject to REIT tax requirements.

• our ability to make or sustain the rate of distributions may continue to be adversely affected by the negative impact of the COVID-19 pandemic and its aftermath on our business, results of operations and liquidity;

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In order to preserve liquidity, we may elect to pay distributions to our shareholders in part in a form other than cash, such as issuing additional common shares of ours to our shareholders, as permitted by the applicable tax rules.

We have exhausted the security deposits and guarantees that our two largest hotel operators have provided to us, which significantly reduces the security of our minimum returns and rents from our hotels, subjects our operating results to potentially significantly increased variability and potentially fundamentally alters our business arrangements with our hotel operators .

We fully utilized the security deposits and exhausted the guarantees provided by IHG and Marriott, which represent 42.6% of our annual minimum returns and rents as of June 30, 2020.

We have exhausted the security deposits and guarantees that our two largest hotel operators have provided to us, which significantly reduces the security of our minimum returns and rents from our hotels, subjects our operating results to potentially significantly increased variability and has given rise to a fundamental altering of our business arrangements with our hotel operators .

We fully utilized the security deposits and exhausted the guarantees provided by IHG and Marriott, which represented 42.7% of our annual minimum returns and rents as of September 30, 2020.

As a result the security of our minimum returns from our hotels has been significantly reduced and the variability of our operating results has been significantly increased.

If our hotel operators are unwilling or unable to fund our minimum returns and rents, we may have the right to terminate our operating agreements with that operator and change the operator of the hotel.

Our agreements with our hotel operators are pooled and generally provide for cross-defaults and termination rights on a portfolio basis.

Our agreements with our hotel operators are generally pooled and provide for cross-defaults and termination rights on a portfolio basis.

In that case, a default under one operating agreement, and that operator’s unwillingness or inability to fund shortfalls in our minimum returns or rents, may give rise to a termination of the operating arrangements for the entire portfolio of our hotels operated by that operator.

As a result, our business arrangements with our hotel operators could fundamentally change and those changes may harm us, our business, our results of operations and financial condition.

IHG has defaulted on its payment obligations and we provided IHG with a notice to terminate our agreements with IHG.

IHG has defaulted on its payment obligations to us and Marriott has not funded the shortfall between the payments we have received to date and 80% of the cumulative priority returns due to us.

We have provided notices of default and termination of our agreements with IHG and Marriott.

In addition, we do not know how our other hotel operators may address any shortfalls in our minimum returns or rents, particularly under the current economic conditions.

Sonesta’s expected management of a majority of our hotel portfolio may negatively impact the security of our returns and our results of operations.

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.

Larger more well-known brands have historically generated business based on brand loyalty, rewards programs, economies of scale and other differentiators that Sonesta may not have.

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 will operate the hotels rebranded from Wyndham, IHG or 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 agreement.

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.

Our investment activities, other than maintenance and any urgent capital expenditures at our existing properties, have been significantly curtailed and we expect that to continue for an indefinite period.

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We are prioritizing capital spending to conserve cash and liquidity.

In addition, the waiver we obtained from our lenders for relief from compliance with certain financial covenants under our credit facility limits our ability to make acquisitions and capital expenditures through the Waiver Period.

As a result, we will be limited in pursuing investments, which may limit our ability to grow and to act upon opportunities we believe would benefit us.

Further, to the extent we defer capital expenditures, we may be required to make increased capital expenditures in later periods as a result and some of the expenditures may be greater in scope and amount than they may have been if made sooner.

We expect that the sale of hotels that we previously announced an intention to sell will be delayed and could be changed or abandoned, and if we do not sell certain of those hotels by a certain agreed upon date, the manager of those hotels, or our management agreements with them, may change.

We expect that the sales of substantially all of our hotels that we had previously identified for sale will be delayed until later in 2020 or until 2021 as a result of current market conditions.

However, any sales of these hotels may be delayed beyond 2021, they may not occur or, if they do occur, they may be sold at prices less than previously expected and we may realize losses from those hotels.

Our ability to sell these hotels, and the sales prices may continue to be affected by the impact of the COVID-19 pandemic, and we may be unable to execute our strategy.

We expect that the sale of hotels and net lease properties that we previously announced an intention to sell will be delayed and could be changed or abandoned, and if we do not sell certain of those hotels by a certain agreed upon date, the manager of those hotels, or our management agreements with them, may change.

We expect that the sales of substantially all of our hotels and net lease properties that we had previously identified for sale will be delayed until later in 2020 or until 2021 as a result of current market conditions.

However, any sales of these hotels or net lease properties may be delayed beyond 2021, they may not occur or, if they do occur, they may be sold at prices less than previously expected and we may realize losses from those hotels.

Our ability to sell these hotels or net lease properties, and the sales prices may continue to be affected by the impact of the COVID-19 pandemic, and we may be unable to execute our strategy.

In addition, if we do not sell or rebrand certain of these hotels by agreed upon dates, our current managers of those hotels may elect not to continue to manage those hotels or may require changes to our management agreements with them in order to agree to continue managing those hotels.

For example, Wyndham currently manages 20 of our hotels and we and Wyndham have agreed to end our relationship by September 30, 2020.

In addition, we and Marriott have agreed to sell 33 of our hotels that Marriott currently manages for us by December 31, 2020.

Furthermore, we were in the process of launching a marketing effort related to our 39 Sonesta ES hotels.

If we do not resell or rebrand these hotels currently managed by Wyndham, Marriott and Sonesta we do not know whether these managers will continue to manage these hotels and, if so, on what terms.

For example, Wyndham currently manages 15 of our hotels and we and Wyndham have agreed to end our relationship.

In addition, we and Marriott agreed to sell 33 of our hotels that Marriott currently manages for us by December 31, 2020.

We currently have 24 Marriott hotels under agreement to sell.

We expect 9 of the 33 Marriott hotels will not be sold and will be rebranded to Sonesta.

We have 15 Wyndham hotels under agreement to sell.

There can be no assurance we will complete any of these sales.

If we do not sell or rebrand these hotels currently managed by Wyndham and Marriott we do not know whether these managers will continue to manage these hotels and, if so, on what terms.

In addition, we previously announced our intention to sell 39 Sonesta branded hotels.

Based on current market conditions, we expect to retain these 39 hotels for the foreseeable future.

Many of our tenants and certain of our hotel managers have requested relief from their obligations to pay us rent and returns in response to the current economic conditions resulting from the COVID-19 pandemic and we may receive additional similar requests in the future;

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We have entered into rent deferral agreements with 51 net lease retail tenants with leases requiring an aggregate of $53.4 million of annual minimum rents.

Generally these rent deferrals are for one to four months of rent and will be repayable by the tenants over a 12 to 24 month period beginning in September 2020.

As of August 6, 2020 , we have deferred an aggregate of $11.3 million of rent.

Generally these rent deferrals are for one to four months of rent and were payable by the tenants over a 12 to 24 month period beginning in September 2020.

As of November 6, 2020, we have deferred an aggregate of $13.4 million of rent.

We may receive additional similar requests in the future, and we may determine to grant additional relief in the future, which may vary from the type of relief we have granted to date, and could include more substantial relief, if we determine it prudent or appropriate to do so.

In addition, if our tenants and hotel managers are unable to continue as going concerns as a result of the current economic conditions or otherwise, we will experience a reduction in rents and returns received and we may be unable to find suitable replacement tenants and hotel managers for an extended period or at all and the terms of our agreements with those replacement tenants and hotel managers may not be as favorable to us as the terms of our agreements with our existing tenants and hotel managers.

We may need additional waivers from our lenders in order to avoid defaulting under our credit agreement or public debt agreements and the terms of our current waiver under our credit agreement impose restrictions on our ability to pay distributions, make investments and certain capital improvements and any future waiver may impose similar or additional restrictions.

We obtained a waiver in May 2020 from the lenders under our revolving credit facility for certain financial covenant relief for the four quarterly periods ending March 31, 2021.

Our current waiver imposes restrictions on our ability to pay distributions, other than as currently contemplated or to maintain our qualification for taxation as a REIT , make investments and certain capital improvements.

We may need additional waivers from our lenders in order to avoid defaulting under our credit agreement or public debt agreements and the terms of our current waivers under our credit agreement impose restrictions on our ability to pay distributions, make investments and certain capital improvements and any future waiver may impose similar or additional restrictions.

We have obtained waivers from the lenders under our credit agreement from compliance with its existing financial covenants.

These waivers impose restrictions on our ability to pay distributions, other than as currently contemplated or to maintain our qualification for taxation as a REIT, make investments and make capital improvements.

We may need to obtain an extension or additional waivers from our lenders or noteholders in the future in order to avoid failing to satisfy certain financial covenants under our debt agreements, but our lenders or noteholders are not required to grant any such waiver and may determine not to do so.

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Any future waiver we may obtain may impose similar or additional restrictions, which may limit our ability to pay or increase distributions to our shareholders, make investments that we believe we should make and could reduce our ability to pursue business opportunities, grow our business and improve our operating results.

In addition, 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, which could materially and adversely impact our business, operations, financial results and liquidity.

We do not expect to reduce our debt leverage in accordance with our previously contemplated timing and our debt leverage may remain at or above current levels for an indefinite period.

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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 1A. Risk Factors