What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2021-03-01 compared with 2020-03-02 · 434 added, 339 removed, 349 unchanged (69% of the section changed)

Summary of Risk Factors

Our business is subject to a number of risks and uncertainties.

Investors and prospective investors should carefully consider the risks described below, together with all of the other information in this Annual Report on Form 10-K.

The summary below provides an overview of many of the risks we face that are described in this section.

Additional risks, beyond those summarized below or discussed under the caption “Risk Factors” or described elsewhere in this Annual Report on Form 10-K, may also materially and adversely impact our business, operations or financial results.

Consistent with the foregoing, the risks we face include, but are not limited to, the following:

• the COVID-19 pandemic and its resulting economic impact has materially adversely affected our business, operations, financial results and liquidity, and although we have taken several actions in an attempt to address the operating and financial impact from the COVID-19 pandemic and we continue to assess and explore other actions, those actions and plans may not be sufficient to avoid continued and potentially increased adverse effects to our business, operations and financial condition;

further the COVID-19 pandemic has had, and may continue to have, significant impacts on business and leisure travel and on consumers’ retail services demands and practices and those impacts could continue to be detrimental to our business;

• we have a high concentration of properties that are operated by Sonesta or TA, and their failure to profitably operate our properties could adversely impact our results of operations, and we could experience significant disruption to our operations if we were required to replace either Sonesta or TA;

• certain of our returns and rents were historically guaranteed by the parent companies of certain of our operators and the adverse impact of the COVID-19 pandemic caused most of these security deposits and guarantees to be exhausted and these security deposits and guarantees were not, and we do not expect them to be, replaced, which we expect to result in more volatility in our earnings;

• during 2020, some of our operators defaulted on their obligations to us or requested, and we granted, certain relief from their obligations to pay us rent in response to the economic conditions resulting from the COVID-19 pandemic and we may experience additional defaults or receive additional requests and grant similar relief in the future;

• we may need additional waivers from our lenders or waivers from our noteholders 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;

• If we default under our credit agreement, we may lose some or all of the equity interests in certain of our subsidiaries that we have pledged or face foreclosure on properties on which we provide first mortgage liens to secure our obligations under the credit agreement;

• we may not be able to reduce our debt leverage and our debt leverage may remain at or above current levels for an indefinite period;

• we have substantial debt and may incur additional debt, and we are subject to the covenants and conditions contained in the agreements governing our debt, which may restrict our operations and ability to make investments and distributions, and we are currently fully drawn on our $1.0 billion revolving credit facility, and if our operating results and financial condition continue to be adversely impacted by current economic conditions for a prolonged period, we may fail to satisfy those covenants and conditions, which would prohibit us from incurring additional indebtedness and we may need to repay outstanding debts from other sources of capital;

• we may not complete the sale of properties that we are in the process of marketing for sale, and we may determine to sell fewer than those we are currently targeting or instead rebrand or repurpose them;

• changes in market interest rates, including changes that may result from the expected phase out of LIBOR, may adversely affect us;

• REIT distribution requirements and any limitations on our ability to access reasonably priced capital may adversely impact our ability to carry out our business plan, and we are subject to risks associated with our qualification for taxation as a REIT;

• we face significant competition and we may be unable to renew leases, lease vacant space or re-lease space as leases expire on favorable terms or at all;

• ownership of real estate is subject to environmental risks and liabilities as well as risks from adverse weather, natural disasters and climate events;

• insurance may not adequately cover our losses, and insurance costs may continue to increase;

• we rely on our operators’ and RMR LLC’s information technology and systems and the failure of the security or functioning of such technology or systems could materially and adversely affect us;

• we depend upon RMR LLC to manage our business and implement our growth strategy and RMR LLC has broad discretion in operating our day to day business;

• our management structure and agreements with RMR LLC and our relationships with our related parties, including TA, Sonesta, our Managing Trustees, RMR LLC and others affiliated with them, may create conflicts of interest;

• we may not realize the benefits we expect from our ownership interest in Sonesta or TA;

• ownership limitations and certain provisions in our declaration of trust, bylaws and agreements, as well as certain provisions of Maryland law, may deter, delay or prevent a change in our control or unsolicited acquisition proposals;

• our rights and the rights of our shareholders to take action against our Trustees and officers are limited, and our bylaws contain provisions that could limit our shareholders’ ability to obtain a judicial forum they deem favorable for certain disputes;

• our distributions to our shareholders may remain at $0.01 per share for an indefinite period or be eliminated and the form of payment could change;

• our public debt is structurally subordinated to the indebtedness and other liabilities of our subsidiaries that do not guarantee the notes and is effectively subordinated to our and such subsidiaries’ existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness.

The risks described below may not be the only risks we face but are risks we believe may be material at this time.

Additional risks that we do not yet know of, or that we currently think are immaterial, also may impair our business operations or financial results.

If any of the events or circumstances described below occurs, our business, financial condition, results of operations or ability to make distributions to our shareholders and the value of our securities could be adversely affected.

Investors and prospective investors should consider the following risks, the information contained under the heading “Warning Concerning Forward-Looking Statements” and the risks described elsewhere in this Annual Report on Form 10-K before deciding whether to invest in our securities.

Other risks of which we are not yet aware, or that we currently believe are not material, may also materially and adversely impact our business operations or financial results.

If any of the events or circumstances described below occurs, our business, financial condition, results of operations or ability to make distributions to our shareholders could be adversely affected and the value of an investment in our securities could decline.

Investors and prospective investors should consider the risks described below and the information contained under the caption “Warning Concerning Forward-Looking Statements” and elsewhere in this Annual Report on Form 10-K before deciding whether to invest in our securities.

Risks Related to Our Business

Our business, operations, financial results and liquidity have been, and we expect will continue to be, materially and adversely impacted by the COVID-19 pandemic.

The strain of coronavirus that causes the viral disease known as COVID-19 has been declared a pandemic by the World Health Organization, and the U.S.

Health and Human Services Secretary has declared a public health emergency in the United States in response to the outbreak.

The COVID-19 pandemic has had a substantial adverse impact on the global economy, including the U.S.

These conditions have materially and adversely impacted our business, operations, financial results and liquidity.

In particular, a variety of factors related to the COVID-19 pandemic have caused, and are expected to continue to cause, a decline in the business and leisure travel and entertainment industries, including, but not limited to, (i) restrictions on travel and public gatherings imposed by governmental entities and employers, (ii) the closure of hotels, restaurants and entertainment venues, (iii) the postponement or cancellation of industry conventions and conferences, music and arts festivals, sporting events and other large public gatherings, (iv) the closure of amusement parks, museums and other tourist attractions, (v) the closure and switch to online classes by colleges and universities, and (vi) negative public perceptions of travel and public gatherings in light of the perceived risks associated with the COVID-19 pandemic.

The reduced economic activity resulting from these factors has severely and negatively impacted our hotel operations and our hotels have experienced a large decline in occupancy and revenues.

In addition, some of our tenants at our net lease retail properties had to close their businesses for certain periods of time, and experienced, and continue to experience, substantial declines in their businesses.

Some of these tenants sought rent relief

from us and these closures, declines and requests may continue or increase in the future.

The travel centers operated by TA primarily provide goods and services to the trucking industry, and demand for trucking services in the United States generally reflects the amount of commercial activity in the U.S.

When the U.S.

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 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 at times during the COVID-19 pandemic.

Although the demand for e-commerce has resulted in increased trucking activity in the United States, if current economic conditions continue for a prolonged period or worsen, TA’s business may be materially and adversely affected by such continued and increasing decline in economic activities and movement of goods across the United States.

In addition, quarantines, temporary closures of businesses, states of emergencies and other measures taken to curb the spread of COVID-19 may negatively impact the ability of our operators to continue to obtain necessary goods and services or provide adequate staffing, which may also adversely affect our operating results.

It is unclear whether the increases in the number of COVID-19 infection outbreaks will continue and/or amplify in the United States or elsewhere or if the availability and distributions of vaccines will curtail infection rates and, if so, what the impact of that would be on human health and safety, the economy, our operators or our business.

We cannot predict the extent and duration of the COVID-19 pandemic or the severity and duration of its economic impact.

Potential consequences of the current unprecedented measures taken in response to the spread of the virus that causes COVID-19, and current market disruptions and volatility affecting us include, but are not limited to:

• possible significant declines in the value of our investments or our inability to accurately or reliably value our portfolio;

• our inability to comply with financial covenants that could result in our defaulting under our debt agreements;

• our failure to pay interest or principal when due under our outstanding debt, which may result in the acceleration of payment for our outstanding debt and our being unable to borrow under our revolving credit facility;

• the rate of distributions on our common shares remaining at a reduced rate for an extended period of time or being suspended entirely;

• our inability to access debt and equity capital on attractive terms, or at all;

• further downgrades of our credit ratings by nationally recognized credit rating agencies;

• our inability to sell properties we may identify for sale at acceptable prices or at all due to a general decline in business activity and demand for real estate transactions and, as a result, our inability to reduce our debt leverage;

• our inability to make improvements to our properties due to a decrease in available construction workers or required inspectors and governmental personnel for permitting and other requirements, and due to our need to maintain our liquidity;

• increased risk of default or bankruptcy of our operators;

• increased risk of our operators being unable to operate successfully through an extended recession and thereby impairing their ability to pay rent or returns to us;

• our operators’ inability to operate at our properties if the health of their respective management personnel and other employees is affected, particularly if a significant number of individuals are negatively impacted;

• reduced economic demand resulting from mass employee layoffs or furloughs in response to governmental action taken to slow the spread of the virus that causes COVID-19, which could impact the continued viability of our operators 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 ends or otherwise are uncertain and subject to various factors and conditions.

Our operators’ businesses, operations and financial positions may continue to be negatively impacted after the COVID-19 pandemic ends and may remain at depressed levels compared to prior to the outbreak of the COVID-19 pandemic and those conditions may continue for an extended period.

We have taken several actions in an attempt to address the operating and financial impact from the COVID-19 pandemic, and we continue to assess and explore other actions, but those actions and plans may not be sufficient to avoid continued and potentially increased substantial harm to our business, operations and financial condition.

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

• we received waivers of compliance with then existing financial covenants under our credit agreement to ensure we had access to undrawn amounts under our revolving credit facility;

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

• we raised $1.2 billion of net proceeds from the issuance of new senior notes;

• we raised $167.5 million in net proceeds from asset sales and have entered agreements to sell additional properties for an aggregate sales price of $24.3 million, excluding closing costs;

• we repaid our $400.0 million of 4.25% senior notes due 2021 and our $400.0 million term loan due 2023;

• we borrowed the remaining $972.8 million of capacity available under our revolving credit facility in January 2021 as a precautionary measure to preserve financial flexibility;

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

• we have been in regular, frequent contact with our hotel managers to implement cost savings measures to minimize losses and preserve liquidity, including agreeing to temporary closures of certain hotels, the reduction of hotel operating staff and certain other measures;

• we have communicated with many of our net lease retail tenants regarding their operation of our properties in the current challenging economic conditions, and we provided rent deferrals to certain tenants that are generally payable in installments beginning in the third quarter of 2020 and, in some cases, we have restructured our tenants’ leases.

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.

Further, we may experience liquidity constraints in the future as we are currently fully drawn on our $1.0 billion revolving credit facility, and would not have any immediately available borrowing capacity to meet any funding needs beyond our cash on hand unless and until we repay amounts thereunder.

If the changes in business and consumer practices as a result of the COVID-19 pandemic continue and become long-term practices, our business would likely be materially and adversely impacted.

Temporary closures of businesses and stay-at-home orders and the resulting remote working arrangements in response to the COVID-19 pandemic may result in long-term changed business practices that could negatively impact us and our business.

For example, the increased adoption of and familiarity with remote work practices could result in decreased demand for in-person meetings.

If that occurred, business travel may decline significantly from levels experienced prior to the outbreak of the COVID-19 pandemic, which could materially and adversely impact our hotels’ operating results and the values of our hotels if we and our hotel managers were not able to offset revenues lost from the decline in business travel.

In addition, certain of our retail tenants’ businesses depend on people gathering in close proximity, including movie theaters, restaurants and fitness centers, among others.

To the extent that social distancing practices that have been adopted in response to the COVID-19 pandemic become sustained practices, those tenants’ businesses are likely to be materially and adversely impacted, which may reduce their ability to pay us rent, increase the likelihood they will default in paying us rent and likely reduce the value of those properties.

Adverse general economic conditions in the United States would likely negatively impact our business.

Many of our properties are operated in two segments of the economy, the hotel industry and the travel center industry.

The hotel and travel center industries have historically been highly sensitive to general economic conditions in the United States and in the geographic areas where our properties are located.

Many of our properties are operated in two segments of the economy, the hotel industry and the service retail industry.

The hotel and service retail industries have historically been highly sensitive to general economic conditions in the United States and in the geographic areas where our properties are located.

The performance of the hotel industry has historically been closely linked to the performance of the general economy both nationally and within local markets in the United States.

The hotel industry is sensitive to business and personal discretionary spending levels.

Declines in corporate travel and consumer demand due to adverse general economic conditions, such as a decline in U.S.

Declines in corporate travel and consumer demand due to adverse general economic conditions, such as due to the impact of the COVID-19 pandemic, a decline in U.S.

gross domestic product or lower consumer confidence or government budgetary constraints may reduce the revenues and profitability of our hotels.

1 unchanged sentence

economy or a new U.S.

recession may lead to a significant decline in demand for the products and services offered at our hotels or increase the cost of offering such products and services.

recession may lead to a significant decline in demand for the products and services offered at our hotels.

We cannot predict the pace or duration of general U.S.

1 unchanged sentence

A period of general economic weakness in the United States would likely reduce the revenues and profitability of our hotels and negatively impact our financial condition and results of operations.

The service retail industry generally has greater resiliency during economic downturns, but it has been severely and negatively impacted by the effects of the COVID-19 pandemic.

Further, our retail tenants’ businesses could be adversely impacted by changes in consumer spending or preferences.

If our tenants for our service retail properties experience declines in their businesses due to competitive pressures, adverse economic conditions due to the COVID-19 pandemic, changes in consumer spending or preferences, or otherwise, they may fail to pay rent owed to us.

Our travel centers primarily provide goods and services to the trucking industry, and demand for trucking services in the United States generally reflects the amount of commercial activity in the U.S.

1 unchanged sentence

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.

Increases in global trade have historically mitigated the adverse impact of economic slowdowns upon the travel center business, but world trade was negatively impacted during the most recent U.S.

In addition, the Trump administration has taken certain actions, and indicated it may take additional actions, that significantly change U.S.

trade policy, including imposing tariffs on certain goods imported into the United States.

Changes in U.S.

trade policy have triggered, and additional changes could further trigger, retaliatory actions by affected countries, resulting in “trade wars,” and in increased costs for goods imported into the United States, which may reduce customer demand for these products if the parties having to pay those tariffs increase their prices, or in trading partners limiting their trade with the United States.

If these consequences are realized, the volume of economic activity in the United States, including trucking freight volume, may materially decline.

Such a reduction may materially and adversely affect TA’s sales and its business and, consequently, its ability to pay us rent.

The businesses operated at the properties we acquired in the SMTA Transaction are generally considered necessity-based retail operations which may experience greater resiliency during economic downturns.

However, any benefit from these properties may not be as expected and may not offset the possible negative impact on our other businesses in an economic downturn.

Furthermore, if our tenants for these properties experience declines in their businesses due to competitive pressures, adverse economic conditions or otherwise, they may fail to pay rent owed to us.

Inherent risks in the hotel industry could affect our business.

These declines, when experienced, may materially and adversely affect TA’s sales and its business and, consequently, its ability to pay us rent.

Our transitioning of a majority of our hotels to Sonesta management may negatively impact our results, and we may need to fund operating losses for these hotels or make capital contributions to Sonesta.

During the fourth quarter of 2020, we transitioned management and branding of 112 hotels previously managed by IHG, Marriott and Wyndham to Sonesta and we have subsequently transitioned 78 additional hotels previously managed by Marriott to Sonesta in February 2021.

We expect to transition the branding and management of 10 additional Marriott hotels to Sonesta in March 2021.

Following this transition and rebranding, we expect Sonesta to operate 256 of the 310 hotels we currently own, which constituted approximately 51.5% of our total historical real estate investments as of December 31, 2020 and a substantial increase in the number of hotels Sonesta manages.

In addition, if our discussions with Hyatt do not result in a mutually acceptable agreement, we expect to transition management of the 22 hotels currently managed by Hyatt to Sonesta in April 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 or be able to realize from other ways.

If Sonesta were to fail to provide quality services and amenities, maintain a quality brand, operate these hotels inefficiently, or generate insufficient revenues from these hotels’ operations, our returns from these properties may be adversely affected.

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

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

Accordingly, the returns we receive from our hotels managed under those agreements are dependent upon the financial results of those hotel operations and we may continue to receive amounts from Sonesta that are less than the contractual minimum returns stated in our agreements with Sonesta or we may need to fund operating losses for our Sonesta hotels.

For the year ended December 31, 2020, we funded $65.3 million of operating losses for hotels then managed by Sonesta.

Further, we own an approximately 34% ownership interest in Sonesta.

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

For more information about our agreements with Sonesta, see Notes 5 and 9 to our consolidated financial statements in Part IV, Item 15 of this Annual Report on Form 10-K.

We have a high concentration of properties that are operated by Sonesta or TA.

As of February 26, 2021, Sonesta operated 246 of our 310 hotels, which constituted 49.0% of our total historical real estate investments.

We lease 179 of our 182 travel centers to TA, which constituted approximately 26.8% of our total historical real estate investments as of December 31, 2020.

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

Further, if we were required to replace Sonesta or TA, 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.

Our investment activities have been significantly curtailed and we expect that to continue for an indefinite period.

Our credit agreement currently limits our ability to make acquisitions and capital expenditures through the end of the agreement term, or July 15, 2022, or the New Waiver Period.

As a result, we are 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 may not be able to sell properties, or our plan to sell may 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.

Current market conditions may cause the process of selling properties to take longer than expected and we may elect to retain properties previously marketed for sale or select additional properties for sale.

Further, these sales may not occur or, if they do occur, they may be sold at prices less than previously expected and we may realize losses.

Our ability to sell properties, and the sales prices may continue to be affected by the impact of the COVID-19 pandemic.

In addition, if we do not sell or rebrand certain 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.

Certain of our returns and rents were historically guaranteed by the parent companies of certain of our operators and the adverse impact of the COVID-19 pandemic caused certain of these security deposits and guarantees to be exhausted and these security deposits and guarantees were not, and we do not expect them to be, replaced, which we expect to result in more volatility in our earnings.

Certain of our returns and rents were historically guaranteed by the parent companies of certain of our operators.

However, most of these guarantees were limited in dollar amount and duration.

Due to the adverse impact of the COVID-19 pandemic, the security features under our IHG, Marriott and Hyatt agreements were exhausted and we expect the remaining guarantee under our Radisson agreement will be exhausted by the second quarter of 2021.

In addition, as noted above, we have no guarantee or security deposit under our agreements with Sonesta to which we transitioned most of these hotels and we do not expect to obtain any guarantee or security deposit from Sonesta in the future.

Also, certain of our net lease tenants, including TA, provide parent company guarantees.

If these tenants do not earn sufficient income from their businesses, they may not have sufficient resources independent of these leaseholds to pay their guarantee obligations to us.

Despite the existence of parent companies’ guarantees of our operators’ obligations to us, we cannot be sure that these obligations will be paid.

Furthermore, our operators may be unwilling to offer security deposits or guarantees in the future.

Guarantees and security deposits historically provided us with generally consistent returns for the hotels they supported.

Without the benefit of these types of security features supporting our returns, we expect our earnings to be more volatile than we have experienced historically.

Some of our operators defaulted on their obligations to pay us minimum returns or requested relief from their obligations to pay us rent and returns in response to the economic conditions resulting from the COVID-19 pandemic and other operators may default on their obligations or we may receive additional similar requests for relief in the future.

The current economic conditions resulting from the COVID-19 pandemic have significantly negatively impacted our operators’ businesses, operations and liquidity.

During 2020, some of our operators defaulted on their obligations to pay minimum returns or requested relief from their obligations to pay rent due to us.

We have rebranded a significant number of hotels as a result of contractual defaults.

We also entered into rent deferral agreements with certain net lease retail tenants with leases requiring an aggregate of $46.4 million of annual minimum rents.

Generally, these rent deferrals were 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 February 26, 2021, we have deferred an aggregate of $12.1 million of rent.

We may receive additional similar requests in the future, and we may determine to grant additional relief, 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 operators 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 operators for an extended period or at all and the terms of our agreements with those replacement operators may not be as favorable to us as the terms of our agreements with our existing operators.

We have a substantial amount of debt, we may incur additional debt and our debt leverage may remain at or above current levels for an indefinite period.

As of December 31, 2020, our consolidated indebtedness was $6.3 billion, our consolidated net debt to total gross assets ratio was 51.8% and we had $921.6 million available for borrowing under our $1.0 billion revolving credit facility.

As of January 19, 2021, we were fully drawn on our $1.0 billion revolving credit facility.

Our credit agreement includes a feature under which the maximum aggregate borrowing availability may be increased to up to $2.3 billion under certain circumstances;

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

We currently do not expect to significantly reduce our debt leverage during 2021 and we may elect to incur additional debt in order to ensure that we have sufficient liquidity to manage our business through the current economic conditions and any extended economic downturn or recession that may result.

We are subject to numerous risks associated with our debt, including the risk that our cash flows could be insufficient for us to make required payments on our debt.

There are no limits in our organizational documents on the amount of debt we may incur, and we may incur substantial debt;

however, our credit agreement and our unsecured senior notes indentures and their supplements contain certain restrictions on our ability to incur debt for so long as certain debt service ratios are not met and we are generally restricted during the New Waiver Period from incurring additional debt.

Our debt obligations could have important consequences to our securityholders.

Our incurring debt may increase our vulnerability to adverse economic, market and industry conditions, limit our flexibility in planning for, or reacting to, changes in our business, and place us at a disadvantage in relation to competitors that have lower debt levels.

Our incurrence of debt could also increase the costs to us of incurring additional debt, increase our exposure to floating interest rates or expose us to potential events of default (if not cured or waived) under covenants contained in debt instruments that could have a material adverse effect on our business, financial condition and operating results.

Excessive debt could reduce the available cash flow to fund, or limit our ability to obtain financing for, working capital, capital expenditures, acquisitions, refinancing, lease obligations or other purposes and hinder our ability to make or sustain distributions to our shareholders.

In August 2020, Standard and Poor’s Financial Services, or S&P, downgraded our issuer credit rating to BB- and the credit ratings on our existing senior notes to BB.

Also in November 2020, Moody’s Investor Services, or Moody’s, downgraded our senior unsecured rating to Ba2.

If we default under any of our debt obligations, we may be in default under the agreements governing other debt obligations of ours which have cross default provisions, including our credit agreement and our existing unsecured senior notes indentures and their supplements.

In such case, our lenders may demand immediate payment of any outstanding indebtedness and could seek payment from the subsidiary guarantors under our credit agreement, seek to sell any pledged equity interests of certain subsidiaries or the mortgaged properties owned by certain pledging subsidiaries, or we could be forced to liquidate our assets for less than the values we would receive in a more orderly process.

We may need additional waivers from our lenders or waivers from our noteholders 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.

During 2020, we obtained waivers from the lenders under our credit agreement from compliance with then existing financial covenants.

To obtain these waivers, we agreed to restrictions on our ability to pay distributions, other than as currently contemplated or to maintain our qualification for taxation as a REIT and to avoid the payment of certain income and excise taxes, investment activity and capital improvement spending.

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.

If we fail to receive any required waiver, we may be in default under our credit agreement and the lenders could terminate our revolving credit facility and require us to pay our then outstanding borrowings under our revolving credit facility.

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 as further described below.

As of February 26, 2021, we were fully drawn on our $1.0 billion revolving credit facility.

We may fail to comply with the terms of our credit agreement and our unsecured senior notes indentures and their supplements, which could adversely affect our business, would limit our ability to incur indebtedness and may prevent our making distributions to our shareholders.

Our credit agreement and our unsecured senior notes indentures and their supplements, include various conditions, covenants and events of default, including certain restrictions on our ability to incur debts or make distributions under certain

circumstances.

We may not be able to satisfy all of these conditions or may default on some of these covenants for various reasons, including for reasons beyond our control.

For example, our credit agreement and our unsecured senior notes indentures and their supplements require us to maintain certain debt service ratios (to the extent not waived).

Our ability to comply with those covenants will depend upon the net rents and returns we receive from our properties.

If our rents or returns decline, we may be unable to borrow under our revolving credit facility.

Complying with these covenants may limit our ability to take actions that may be beneficial to us and our security holders.

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 for debt service to debt service could fall below the 1.5x requirement under our public debt covenants as of the end of 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.

As a precautionary measure, we borrowed the remaining capacity of our revolving credit facility in January 2021 to enhance our liquidity position.

An inability to incur additional indebtedness would require us to meet our capital needs from other sources, such as cash on hand, operating cash flow, equity financing or asset sales, or replacement debt financing, which may not be available to us on attractive terms or at all and we may be unable to meet our obligations or grow our business by acquiring additional properties or otherwise.

Further, if we default under our credit agreement, our lenders may demand immediate payment and may elect not to fund future borrowings.

During the continuance of any event of default under our credit agreement, we may be limited or in some cases prohibited from making distributions to our shareholders.

Any default under our credit agreement that results in acceleration of our obligations to repay outstanding indebtedness or in our no longer being permitted to borrow under our revolving credit facility would likely have serious adverse consequences to us and would likely cause the value of our securities to decline.

In the future, we may obtain additional debt financing, and the covenants and conditions which apply to any such additional debt may be more restrictive than the covenants and conditions that are contained in our credit agreement or our unsecured senior notes indentures and their supplements.

Secured indebtedness exposes us to the possibility of foreclosure, which could result in the loss of our investment in certain of our subsidiaries or in a property or group of properties or other assets that secure that indebtedness.

In connection with our November 2020 amendment to our credit agreement, we pledged certain additional equity interests of subsidiaries owning properties to secure our obligations under our credit agreement.

We also agreed to provide to the lenders first mortgage liens on 74 properties owned by certain pledged subsidiaries with an undepreciated book value of $1.83 billion as of December 31, 2020, to secure our obligations under the credit agreement.

Incurring secured indebtedness increases our risk of asset and property losses because defaults on indebtedness secured by our assets may result in foreclosure actions initiated by lenders and ultimately our loss of the property or other assets securing our obligations under our credit agreement if we default on such obligations.

Any foreclosure on a property or group of properties could have a material adverse effect on the overall value of our portfolio of properties and more generally on us.

For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the indebtedness secured by the mortgage.

If the outstanding balance of the indebtedness secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds, which could materially and adversely affect us.

Inherent risks in the hotel industry could impact Sonesta and our other operators and affect our business.

Approximately 57.4% of our historical real estate investments as of December 31, 2020, are in our hotel properties.

Our hotels are subject to operating risks common to the hotel industry, many of which are beyond our control, including risks associated with:

Our hotels are subject to operating risks common to the hotel industry, many of which are beyond our control and may impact Sonesta and our other operators, including risks associated with:

• competition from other hotels in our markets, or an oversupply of hotels in our markets;

increased operating costs, including wages, benefits, insurance, property taxes and energy, due to inflation, increased minimum wages and other factors, which may not be offset in the future by increased room rates;

• increased operating costs, including wages, benefits, insurance and energy, due to inflation, increased minimum wages and other factors, which may not be offset in the future by increased room rates;

• increased property taxes due to many state and local governments facing budget deficits, including as a result of the COVID-19 pandemic, that have led many of them, and may in the future lead others to, increase assessments and/or taxes;

• changes in marketing and distribution for the industry including the ability of third party internet and other travel intermediaries to attract and retain customers;

• competition from other hotel operators or others to attract and retain qualified employees;

competition from alternative lodging options such as cruise ships, timeshares, vacation rentals or sharing services such as Airbnb, in our markets;

• competition from alternative lodging options such as cruise ships, timeshares, vacation rentals or home sharing services in our markets;

• low unemployment in the U.S.

1 unchanged sentence

• labor strikes, disruptions or lockouts that may impact operating performance;

dependence on demand from business and leisure travelers, which may fluctuate and be seasonal;

• dependence on demand from business and leisure travelers, which may fluctuate and be seasonal and could experience prolonged declines as a result of the COVID-19 pandemic or otherwise and possible long-term changes in business and consumer practices;

• increases in energy costs, airline fares and other expenses related to travel, which may negatively affect traveling;

decreases in demand for business and leisure travel due to terrorism, terrorism alerts and warnings, military actions, pandemics or other medical events;

• decreases in demand for business and leisure travel due to terrorism, terrorism alerts and warnings, military actions, natural disasters, pandemics, including COVID-19, or other medical events;

• decreases in demand for business travel due to use of technologies that enhance interpersonal communication and interaction without the need to travel or meet in person;

1 unchanged sentence

These and other factors could materially and adversely affect our financial condition and results of operations and cause the value of our securities to decline.

Certain of our returns and rents are guaranteed by the parent companies of our managers and tenants, but these guarantees may not ensure that payments due to us will be made and some of these guarantees are limited in dollar amount and duration.

Certain of our returns and rents are guaranteed by the parent companies of our managers and tenants.

However, most of these guarantees are limited in dollar amount and duration.

For example, our guaranty from Marriott for 122 hotels is limited to $30.0 million and expires in 2026;

our guaranty from Hyatt is limited to $50.0 million (of which $19.7 million remained available at December 31, 2019 );

and our guaranty from Radisson is limited to $47.5 million (of which $41.2 million remained available at December 31, 2019 ).

If our Marriott, Hyatt and Radisson properties produce less net operating income than the guaranteed amounts of our minimum returns or rents for extended future periods, these guarantees may be exhausted.

Further, many of our hotel operating costs are fixed or we may be practically limited in our ability to reduce these expenses.

As a result, if we do not receive our minimum returns and we do not have any security deposit or guarantee available, our operating results and our cash flows will be adversely impacted.

Also certain of our net lease tenants, including TA, provide parent company guarantees.

If these tenants do not earn sufficient income from their businesses, they may not have sufficient resources independent of these leaseholds to pay their guaranty obligations to us.

Despite the existence of parent companies’ guarantees of our managers’ and tenants’ obligations to us, we cannot be sure that these obligations will be paid.

Certain of our returns and rents are secured with cash deposits that, if used to cover shortfalls in our minimum returns and rents, will not provide cash flows to us.

As of December 31, 2019, our IHG agreement requires annual minimum returns and rents to us of $216.2 million .

As of December 31, 2019, we have a security deposit balance of $75.7 million to cover future shortfalls.

Our agreement with Marriott for 122 hotels requires annual minimum returns to us of $ 192.8 million.

As of December 31, 2019 , we have a security deposit balance of $33.4 million.

When we reduce the amounts of the security deposits we hold under our management and lease agreements for future payment deficiencies, we record income equal to the amounts applied, but we do not receive additional cash flows.

When and if the IHG security deposit and the Marriott security deposit and guaranty are exhausted, we may not receive the contractually guaranteed amounts or minimum returns due to us from IHG and Marriott, respectively.

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

Accordingly, the returns we receive from our hotels managed under those agreements are dependent upon the financial results of those hotel operations.

For the year ended December 31, 2019 , we had an aggregate of $69.9 million in unfunded shortfalls, which represents the unguaranteed portions of our minimum returns under our Sonesta and Wyndham agreements.

We may not successfully sell or rebrand the hotels that we have identified or agreed to sell or rebrand.

We previously announced our intention to sell approximately $300 million of hotel assets to reduce our financial leverage.

We are currently marketing 20 Wyndham branded hotels with an aggregate carrying value of $111.3 million as of December 31, 2019 for sale and announced our intention to sell or rebrand up to 33 Marriott branded hotels with an aggregate carrying value of $224.9 million as of December 31, 2019 .

In addition, we have identified 39 Sonesta branded hotels with an aggregate carrying value of $480.5 million as of December 31, 2019 that we intend to sell, rebrand or repurpose.

We cannot be sure that we will be able to find attractive sale opportunities for the hotels we have identified for sale or that any sale will be completed in a timely manner, if at all.

Our ability to sell those hotels, and the prices we receive upon a sale, may be affected by many factors, and we may be unable to execute our strategy.

In particular, these factors could arise from weakness in or the lack of an established market for the hotels, changes in the financial condition or prospects of prospective purchasers and those purchasers’ prospective tenants or managers of the hotels, the characteristics, quality and prospects of the hotels, and the availability of financing to potential purchasers on reasonable terms, the number of prospective purchasers, the number of competing hotels in the market, unfavorable local, national or international economic conditions, industry trends, and changes in laws, regulations or fiscal policies of jurisdictions in which the hotels are located.

We may not succeed in selling properties that we have identified, or in the future identify, for sale, the terms of any such sales may not meet our expectations and we may incur losses in connection with these potential sales.

In addition, we may elect to change the amount or mix of assets we may seek to sell or to otherwise change or abandon the plan.

Further, any of these hotels that we elect to rebrand or repurpose rather than sell, may not provide us with our expected or desirable returns.

We have a high concentration of properties with a limited number of operators for our hotels and travel centers.

We lease 179 of our travel centers to TA, which constituted approximately 26.9% of our total historical real estate investments as of December 31, 2019 .

Two of our hotel managers, IHG and Marriott, operate 103 and 122 of our hotels, respectively, which constituted approximately 19.4% and 15.1% , respectively, of our total historical real estate investments as of December 31, 2019 .

If any of these operators were to fail to provide quality services and amenities or to maintain quality brands, our income from these properties may be adversely affected.

Further, if we were required to replace any of our operators, 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.

TA’s business is subject to substantial risks, which could adversely affect us.

20 unchanged sentences

Further, increases in fuel prices may place TA at a cost disadvantage to its competitors that may have larger fuel inventory or forward contracts executed during periods of lower fuel prices;

TA’s labor costs have increased, and may further increase, due to increased demand for labor in the market and for higher skilled personnel, such as technicians, that TA requires.

This increased demand may continue to increase TA’s labor costs and prevent TA from fully staffing its positions.

• TA’s labor costs had increased prior to the onset of the COVID-19 pandemic, and they may further increase, particularly after the pandemic abates and economic conditions improve, due to increased demand for labor in the market and for higher skilled personnel, such as technicians, that TA requires.

Further, legislation that increases the minimum wage may further increase TA’s labor costs.

TA may not be able to successfully pass through its increased labor costs in the prices it charges its customers;

To mitigate the risks arising from fuel price volatility, TA generally maintains limited fuel inventory.

Accordingly, an interruption in TA’s fuel supplies, which may be caused by local conditions, such as a malfunction in a particular pipeline or terminal, by weather related events, such as hurricanes in the areas where petroleum or natural gas is extracted or refined, or by national or international conditions, such as government rationing, acts of terrorism, wars and the like, would materially adversely affect TA’s business.

• TA may experience interruptions in its fuel supplies, which may be caused by local conditions, such as a malfunction in a particular pipeline or terminal, by weather related events, such as hurricanes in the areas where petroleum or natural gas is extracted or refined, or by national or international conditions, such as government rationing, acts of terrorism, wars and the like, that materially adversely affect TA’s business;

• If the trucking industry fails to satisfy market demands for transporting goods or it increases its use of efficient and alternative fuels, the demand for TA’s products and services may decline.

8 unchanged sentences

• TA may incur significant costs and losses as a result of severe weather, both in terms of operating, preparing and repairing the travel centers in anticipation of, during and after a severe weather event and in terms of lost business due to the interruption in operating TA’s travel centers or decreased truck movements.

For these reasons, among others, TA may be unable to pay amounts due to us under the terms of our agreements with TA.

For more information about our agreements with TA, see Notes 4 and 5 to our consolidated financial statements in Part IV, Item 15 of this Annual Report on Form 10-K.

We and Sonesta have restructured our business arrangements, but those arrangements may not result in the benefits we expect.

On February 27, 2020, we restructured our business arrangements with Sonesta, to, among other things, agree to sell, rebrand or repurpose our 39 extended stay hotels currently managed by Sonesta, and, with respect to our 14 full-service hotels that Sonesta will continue to manage, reduce the annual minimum returns due to us from Sonesta, establish an FF&E reserve based on a percentage of revenues (subject to available cash flow after payment of the annual minimum returns due to us), implement a portfolio wide performance termination test, and eliminate the right to require the marketing for sale of non-economic hotels.

Also as part of the restructuring, we received an approximately 34% equity interest in Sonesta, post-issuance.

Historically, we have generally not received in full our annual minimum returns due to us from Sonesta.

We cannot be sure that Sonesta will generate the reduced annual minimum returns due to us with respect to our full-service hotels that Sonesta will continue to manage or for any hotels that Sonesta may manage for us in the future.

In addition, there may not be sufficient cash flow generated by our Sonesta managed hotels to fund FF&E reserves, and the changes to the termination provisions may limit our rights with respect to underperforming hotels in the future.

We have debt and we may incur additional debt.

As of December 31, 2019, our consolidated indebtedness was $6.1 billion, our consolidated total debt to gross book value of real estate ratio was 52.0% and we had $623 million available for borrowing under our $1.0 billion revolving credit facility.

The agreement governing our revolving credit facility and our $400 million term loan, or our credit agreement, includes a feature under which the maximum aggregate borrowing availability may be increased to up to $2.3 billion on a combined basis in certain circumstances.

We are subject to numerous risks associated with our debt, including the risk that our cash flows could be insufficient for us to make required payments on our debt.

There are no limits in our organizational documents on the amount of debt we may incur, and we may incur substantial debt.

Our debt obligations could have important consequences to our securityholders.

In connection with the SMTA Transaction, we incurred significant additional indebtedness.

Our incurring debt could also increase the costs to us of incurring additional debt, increase our exposure to floating interest rates, limit our ability to compete with other companies that are not as highly leveraged, restrict us from making strategic acquisitions, developing properties or exploiting business opportunities, or expose us to potential events of default (if not cured or waived) under covenants contained in debt instruments that could have a material adverse effect on our business, financial condition and operating results.

Excessive debt could reduce the available cash flow to fund, or limit our ability to obtain financing for working capital, capital expenditures, acquisitions, construction projects, refinancing, lease obligations or other purposes, and hinder our ability to maintain investment grade ratings from nationally recognized credit rating agencies or to make or sustain distributions to our shareholders.

If we default under any of our debt obligations, we may be in default under the agreements governing other debt obligations of ours which have cross default provisions, including our credit agreement and our senior unsecured notes indentures and their supplements.

In such case, our lenders may demand immediate payment of any outstanding indebtedness and we could be forced to liquidate our assets for less than the values we would receive in a more orderly process.

Changes in market interest rates, including changes that may result from the expected phase out of LIBOR, may adversely affect us.

Since the last U.S.

recession, the Board of Governors of the U.S.

Federal Reserve System, or the U.S.

Federal Reserve, has taken actions which have resulted in low interest rates prevailing in the marketplace for a historically long period of time.

Federal Reserve steadily increased the targeted federal funds rate over the last several years, but recently took action to decrease its federal funds rate and may continue to make adjustments in the future.

In addition, as noted in Item 7A of this Annual Report on Form 10-K, LIBOR is expected to be phased out in 2021.

The interest rates under our revolving credit facility and term loan are based on LIBOR and future debt we may incur may also be based on LIBOR.

We currently expect that the determination of interest under our revolving credit facility and term loan agreement would be based on the alternative rates provided under the agreement or would be revised to provide for an interest rate that approximates the existing interest rate as calculated in accordance with LIBOR.

Despite our current expectations, we cannot be sure that, if LIBOR is phased out or transitioned, the changes to the determination of interest under our agreement would approximate the current calculation in accordance with LIBOR.

An alternative interest rate index that may replace LIBOR may result in our paying increased interest.

Interest rate increases may materially and negatively affect us in several ways, including:

Investors may consider whether to buy or sell our common shares based upon the distribution rate on our common shares relative to the then prevailing market interest rates.

If market interest rates go up, investors may expect a higher distribution rate than we are able to pay, which may increase our cost of capital, or they may sell our common shares and seek alternative investments that offer higher distribution rates.

Sales of our common shares may cause a decline in the value of our common shares.

Amounts outstanding under our revolving credit facility and term loans require interest to be paid at floating interest rates.

When interest rates increase, our interest costs will increase, which could adversely affect our cash flows, our ability to pay principal and interest on our debt, our cost of refinancing our fixed rate debts when they become due and our ability to make or sustain distributions to our shareholders.

Property values are often determined, in part, based upon a capitalization of rental income formula.

When market interest rates increase, property investors often demand higher capitalization rates and that causes property values to decline.

Increases in interest rates could lower the value of our properties and cause the value of our securities to decline.

Low market interest rates, particularly if they remain over a sustained period, may result in increased use of debt capital to fund property acquisitions, lower capitalization rates for property purchases and increased competition for property purchases which my reduce our ability to acquire new properties.

Our credit ratings have been adversely affected by the SMTA Transaction.

As a result of the SMTA Transaction, Standard & Poor’s Global, or S&P, assigned a negative outlook to our credit ratings and Moody’s Investor Service, or Moody’s downgraded our credit ratings.

These negative actions imply that our debt ratings may be downgraded to below “investment grade.” If our credit ratings are further downgraded, we may have difficulty accessing debt capital markets to meet our obligations or pursue business opportunities and the costs of any debt we do obtain may be increased.

For example, the interest rates we are required to pay on our revolving credit facility, term loan and other floating rate debt obligations will increase if our debt ratings are further downgraded.

We intend to sell assets to reduce leverage and to take other actions which we believe may avoid our credit ratings being downgraded below investment grade, however, we can provide no assurance that these efforts will be successful in avoiding our credit ratings being downgraded below investment grade.

We may be unable to fund capital improvements and renovation costs at our properties and our capital projects may be disruptive to our operations and result in reduced revenues at the affected properties.

For these reasons, among others, TA may be unable to pay amounts due to us under the terms of our leases with TA.

For more information about our leases with TA, see Notes 5 and 9 to our consolidated financial statements in Part IV, Item 15 of this Annual Report on Form 10-K.

We may be unable to fund capital improvements at our properties.

Some of our management agreements and lease arrangements require us to fund capital improvements at certain of our properties;

We currently expect to invest approximately $155.0 million during 2020 for capital improvements and renovation costs under certain of our hotel and net lease agreements.

We may not have the funds necessary to make these investments, and such investments, if made, may not be sufficient to maintain or improve the financial results of our properties.

however, our credit agreement limits our capital expenditures during the New Waiver Period.

We currently expect to invest approximately $192.0 million during 2021 for capital improvements, including costs related to rebranding hotels, and renovation costs under certain of our hotel and net lease agreements.

We may not have the funds necessary to make necessary or desired improvements to our properties and such investments, if made, may not be sufficient to maintain or improve the financial results of our properties.

Certain of our management agreements and lease arrangements require us to maintain the applicable properties in a certain required condition.

If we fail to maintain these properties in the required condition, the manager or tenant may terminate the applicable management or lease agreement and hold us liable for damages.

In addition, renovation projects at our hotel properties may require taking rooms out of service or closing down properties during the renovations, which could reduce revenues at the affected properties.

During 2019, we had 38 comparable hotels under renovation for all or part of the year and these hotels experienced a 9.2% decrease in revenue per available room, or RevPAR, compared to the prior year, compared to a 0.2% decrease in RevPAR compared to the prior year for those of our comparable hotels that were not under renovation during 2019.

Certain of our management agreements and leases limit our ability to sell or finance our properties.

Under the terms of certain of our management agreements and leases, we generally may not sell, lease or otherwise transfer the applicable property unless the transferee is not a competitor of the applicable manager or tenant and the transferee assumes the related management agreement or lease and meets other specified conditions.

Our ability to finance or sell our properties, depending upon the structure of such transactions, may require a manager’s or tenant’s consent under the applicable agreement.

If, in these circumstances, the manager or tenant does not consent, we may be prevented from taking actions which might be beneficial to our shareholders.

We may be unable to grow our business by acquisitions of additional properties.

Our business plans involve the acquisition of additional properties.

If we fail to maintain these properties in the required condition, the operator may terminate the applicable management or lease agreement and hold us liable for damages.

We may be unable to grow our business by acquisitions of additional properties, and we might encounter unanticipated difficulties and expenditures relating to our acquired properties.

Although we are currently not actively pursuing acquisitions and are restricted from making acquisitions during the New Waiver Period, our long-term business plans involve the acquisition of additional properties.

Our ability to make profitable acquisitions is subject to risks, including, but not limited to, risks associated with:

4 unchanged sentences

We might encounter unanticipated difficulties and expenditures relating to our acquired properties.

we do not believe that it is possible to understand fully a property before it is owned and operated for a reasonable period of time, and, notwithstanding pre-acquisition due diligence, we could acquire a property that contains undisclosed defects in design or construction or which was not properly staffed;

• notwithstanding pre-acquisition due diligence, we could acquire a property that contains undisclosed defects in design or construction or which was not properly staffed;

• the market in which an acquired property is located may experience unexpected changes that adversely affect the property’s value;

2 unchanged sentences

• we may acquire properties subject to unknown liabilities and without any recourse, or with limited recourse, such as liability for the cleanup of undisclosed environmental contamination or for claims by tenants, vendors or other persons related to actions taken by former owners of the properties.

acquired properties might require significant management attention that would otherwise be devoted to our other business activities.

For these reasons, among others, we might not realize the anticipated benefits of our acquisitions, and our business plan to acquire additional properties may not succeed or may cause us to experience losses.

We are limited in our ability to operate or manage our properties and are thus dependent on our managers and tenants.

Because federal income tax laws restrict REITs and their subsidiaries from operating or managing businesses at their properties, we do not operate or manage our hotels or net lease properties.

We are limited in our ability to operate our properties and are thus dependent on our operators.

Because federal income tax laws restrict REITs and their subsidiaries from operating or managing businesses at their properties, we do not operate our hotels or net lease properties.

Instead, we lease our hotels to operating companies or to our subsidiaries that qualify as TRSs under the IRC and lease our other properties to operating companies.

We have retained third party managers to operate and manage our hotels that are leased to our subsidiaries.

Our income from our properties may be adversely affected if our managers or tenants fail to provide quality services and amenities to customers.

While we monitor the performance of our managers and tenants and apply asset management strategies and discipline, we have limited recourse under our management agreements and leases if we believe that our managers or tenants are not performing adequately.

Any failure by our managers or tenants to fully perform the duties agreed to in our management agreements and leases could adversely affect our results of operations.

In addition, our managers and tenants operate, and in some cases own or have invested in, properties that compete with our properties, which may result in conflicts of interest and a reduction of our returns.

As a result, our managers and tenants have made, and may in the future make, decisions regarding competing properties or our properties’ operations that may not be in our best interests.

We have retained third party managers to manage our hotels that are leased to our TRSs.

Our income from our properties may be adversely affected if our operators fail to provide quality services and amenities to customers.

While we monitor the performance of our operators and apply asset management strategies and discipline, we have limited recourse under our management agreements and leases if we believe that our operators are not performing adequately.

Any failure by our operators to fully perform the duties agreed to in our management agreements and leases could adversely affect our results of operations.

In addition, our operators operate, and in some cases own or have invested in, properties that compete with our properties, which may result in conflicts of interest.

As a result, our operators have made, and may in the future make, decisions regarding competing properties or our properties’ operations that may not be in our best interests and which may result in a reduction of our returns.

Changes in market interest rates, including changes that may result from the expected phase out of LIBOR, may adversely affect us.

Interest rates have remained at relatively low levels on a historical basis, and the U.S.

Federal Reserve System, or the U.S.

Federal Reserve, has indicated that it does not expect to raise interest rates in response to the COVID-19 pandemic and current market conditions until at least the end of 2023.

There can be no assurance, however, that the U.S.

Federal Reserve will not raise rates prior to that time.

Low market interest rates, particularly if they remain over a sustained period, may increase our use of debt capital to fund property acquisitions, lower capitalization rates for property purchases and increase competition for property purchases, which may reduce our ability to acquire new properties.

In addition, as noted in Part II, Item 7A of this Annual Report on Form 10-K, LIBOR is currently expected to be phased out for new contracts by December 31, 2021 and for pre-existing contracts by June 30, 2023.

Although the outbreak of the COVID-19 pandemic has impacted, and may continue to impact, this phase out, it is unclear if after 2021 LIBOR will cease to exist or if new methods of calculating LIBOR will be established such that it continues to exist after 2021.

The interest rate under our revolving credit facility is based on LIBOR and the interest we may pay on any future debt we may incur may also be based on LIBOR.

We currently expect that the determination of interest under our revolving credit facility would be based on the alternative rates provided under our credit agreement or would be revised to provide for an interest rate that approximates the existing interest rate as calculated in accordance with LIBOR.

Despite our current expectations, we cannot be sure that, if LIBOR is phased out or transitioned, the changes to the determination of interest under our credit agreement would approximate the current calculation in accordance with LIBOR.

An alternative interest rate index

that may replace LIBOR may result in our paying increased interest.

Interest rate increases may materially and negatively affect us in several ways, including:

• Investors may consider whether to buy or sell our common shares based upon the distribution rate on our common shares relative to the then prevailing market interest rates.

Sales of our common shares may cause a decline in the value of our common shares;

• Amounts outstanding under our revolving credit facility require interest to be paid at floating interest rates.

Additionally, if we choose to hedge our interest rate risk, we cannot be sure that the hedge will be effective or that our hedging counterparty will meet its obligations to us;

• Property values are often determined, in part, based upon a capitalization of rental income formula.

When market interest rates increase, property investors often demand higher capitalization rates and that causes property values to decline.

Increases in interest rates could lower the value of our properties and cause the value of our securities to decline.

REIT distribution requirements and limitations on our ability to access reasonably priced capital may adversely impact our ability to carry out our business plan.

To maintain our qualification for taxation as a REIT under the IRC, we are required to satisfy distribution requirements imposed by the IRC.

See “Material United States Federal Income Tax Considerations—REIT Qualification Requirements—Annual Distribution Requirements” included in Part I, Item 1 of this Annual Report on Form 10-K.

Accordingly, we may not be able to retain sufficient cash to fund our operations, repay our debts, invest in our properties or fund our acquisitions or development or redevelopment efforts.

Our business strategies therefore depend, in part, upon our ability to raise additional capital at reasonable costs.

The volatility in the availability of capital to businesses on a global basis in most debt and equity markets generally may limit our ability to raise reasonably priced capital.

We may also be unable to raise reasonably priced capital because of reasons related to our business, market perceptions of our prospects, the terms of our indebtedness, the extent of our leverage or for reasons beyond our control, such as market conditions.

Because the earnings we are permitted to retain are limited by the rules governing REIT qualification and taxation, if we are unable to raise reasonably priced capital, we may not be able to carry out our business plan.

We face significant competition.

The businesses conducted at our properties face significant competition.

For example, our hotels compete with other hotels operated in our markets, and the hotel industry has recently experienced significant growth in supply from construction in certain markets where we own hotels.

For example, our hotels compete with other hotels operated in our markets, and the hotel industry has in the past experienced significant growth in supply from construction in certain markets where we own hotels.

Our travel center properties compete with other large, national operators of travel centers, and certain of their competitors have significantly increased the number of travel centers they operate, including as a result of new construction of travel centers.

Some of our retail tenants compete with online retailers or service providers.

We also compete for tenants at our retail net lease properties.

Our retail net lease properties compete in the multi-billion dollar commercial real estate market with numerous developers and owners of properties, many of which own properties similar to ours and are in the same markets in which our properties are located.

In operating and managing our retail net lease portfolio, we compete for tenants based on a number of factors, including location, rental rates and flexibility.

Certain of our competitors have greater economies of scale, have lower cost of capital, have access to more capital and resources and have greater name recognition than we do.

We face significant competition for acquisition opportunities from other investors, including publicly traded and private REITs, numerous financial institutions, operating companies in the hospitality industry, individuals, foreign investors and other public and private companies.

1 unchanged sentence

Because of competition for acquisitions, we may be unable to acquire desirable properties or we may pay higher prices for, and realize lower net cash flows than we hope to achieve from, acquisitions.

REIT distribution requirements and limitations on our ability to access reasonably priced capital may adversely impact our ability to carry out our business plan.

To maintain our qualification for taxation as a REIT under the IRC, we are required to satisfy distribution requirements under the IRC.

See “Material United States Federal Income Tax Considerations—REIT Qualification Requirements—Annual Distribution Requirements.” Accordingly, we may not be able to retain sufficient cash to fund our operations, repay our debts, invest in our properties or fund our acquisitions or development or redevelopment efforts.

Our business strategies therefore depend, in part, upon our ability to raise additional capital at reasonable costs.

The volatility in the availability of capital to businesses on a global basis in most debt and equity markets generally may limit our ability to raise reasonably priced capital.

Substantially all of our net lease properties are leased to single tenants, which may subject us to greater risks of loss than if each of those properties had multiple tenants.

As of December 31, 2019, 38.3% of our minimum returns and rents were from properties leased to single tenants.

Substantially all of our net lease properties are leased to single tenants.

The value of single tenant properties is materially dependent on the performance of those tenants under their respective leases.

2 unchanged sentences

Because most of our net lease properties are leased to single tenants, the adverse impact of individual tenant defaults or non-renewals is likely to be greater than would be the case if our properties were leased to multiple tenants.

The properties we acquired in the SMTA Transaction have significantly increased our property portfolio and we are now operating in industries that are new to us.

The SMTA Transaction involved the acquisition of 767 properties which expanded our portfolio and operations into industries that are new to us and in which we have limited or no experience.

Our future success will depend, in part, upon our ability to adapt to operating and competing in new industries, attract and retain tenants in these new markets at rents that we expect, integrate new operations into our existing business in an efficient and timely manner, successfully manage our operations and costs, avoid this new operation negatively impacting the performance of our existing business and maintain necessary internal controls.

We cannot be sure that we will be able to increase future cash flows or property level rent coverage, maintain current rents and occupancy at the properties we acquired in the SMTA Transaction, that we will realize any expected benefits from the SMTA Transaction, particularly with respect to the properties in new industries in which we have limited or no experience, or that the SMTA Transaction will not negatively impact the performance of our existing business.

We may be subject to unknown or contingent liabilities related to the properties we acquired in the SMTA Transaction for which we may have no recourse against SMTA.

The properties we acquired in the SMTA Transaction may be subject to unknown or contingent liabilities, including environmental liabilities, for which we may have no recourse against SMTA.

The amount of liabilities associated with the properties we acquired in the SMTA Transaction may exceed our expectations.

We do not believe that it is possible to understand fully a property before it is owned and operated for a reasonable period of time, and, notwithstanding pre-acquisition due diligence, we may have acquired a property that contains undisclosed defects in design or construction or which was not properly operated.

Our tenants may fail to successfully operate their businesses, which could adversely affect us.

Adverse economic conditions such as high unemployment levels, interest rates, tax rates, fuel and energy costs, and changes in customer demand or consumer sentiment may have an impact on the results of operations and financial condition of our tenants and result in their defaulting their obligations under our leases, including failing to pay the rent due to us.

Adverse economic conditions such as high unemployment levels, interest rates, tax rates, fuel and energy costs, and changes in customer demand or consumer sentiment due to COVID-19 or other factors may have an impact on the results of operations and financial condition of our tenants and result in their defaulting their obligations under our leases, including failing to pay the rent due to us.

Such adverse economic conditions may also reduce overall demand for rental space, which could adversely affect our ability to maintain our current tenants and attract new tenants.

10 unchanged sentences

Our results of operations depend, in part, on our ability to lease our retail properties by renewing or re-leasing expiring leases and leasing vacant space and optimizing our tenant mix.

As of December 31, 2019 , leases representing approximately 1.5% of our annualized minimum rent will expire during 2020.

As of December 31, 2020, leases representing approximately 1.1% of our annualized minimum net lease rents will expire during 2021.

As of December 31, 2020, 1.0% of the leasable square footage of our net lease properties was vacant.

Current tenants may decline, or may not have the financial resources available, to renew current leases and we cannot guarantee that leases that are renewed will have terms that are as economically favorable to us as the expiring lease terms.

If tenants do not renew their leases as they expire, we will have to find new tenants to lease our properties and there is no guarantee that we will be able to find new tenants or that our properties will be re-leased at rental rates equal to or above the current average rental rates or that substantial rent abatements, tenant improvement allowances, early termination rights, below-market renewal options or other lease incentive payments will not be offered to attract new tenants.

If tenants do not renew their leases as they expire, or renew for less space, we will have to find new tenants to lease our properties and there is no guarantee that we will be able to find new tenants or that our properties will be re-leased at rental rates equal to or above the current average rental rates or that substantial rent abatements, tenant improvement allowances, early termination rights, below-market renewal options or other lease incentive payments will not be offered to attract new tenants.

The continued existence of the COVID-19 pandemic may increase these risks.

We may experience significant costs in connection with renewing, leasing or re-leasing our properties, which could materially and adversely affect us.

Property vacancies could result in significant capital expenditures and illiquidity.

The loss of a tenant, either through lease expiration or tenant bankruptcy or insolvency, may require us to spend significant amounts of capital to renovate the property before it is suitable for a new tenant.

Vacancies in a property could result in significant capital expenditures and illiquidity and reduce the value of the property.

The loss of a tenant, either through lease expiration or tenant bankruptcy or insolvency, may reduce the value of a property and require us to spend significant amounts of capital to renovate the property before it is suitable for a new tenant.

Many of the leases we enter into or acquire are for properties that are especially suited to the particular business of our tenants.

4 unchanged sentences

Bankruptcy law may adversely impact us.

The occurrence of a bankruptcy of a tenant of our net lease properties could reduce the rent we receive from such tenant’s lease.

If a tenant becomes bankrupt, federal law may prohibit us from evicting such tenant based solely upon its bankruptcy.

The occurrence of a bankruptcy of a tenant of our net lease properties could reduce the rent we receive from that tenant.

In addition, the continued existence of the COVID-19 pandemic may increase the risk of a tenant of our net lease properties filing for bankruptcy.

If a tenant becomes bankrupt, federal law may prohibit us from evicting that tenant based solely upon its bankruptcy.

In addition, a bankrupt tenant may be authorized to reject and terminate its lease with us.

8 unchanged sentences

This may have an adverse effect on our ability to mitigate losses that may result from a default of our leases by a terminated franchisee or licensee.

We may fail to comply with the terms of our credit agreement and our senior unsecured notes indentures and their supplements, which could adversely affect our business and may prevent our making distributions to our shareholders.

Our credit agreement and our senior unsecured notes indentures and their supplements include various conditions, covenants and events of default.

We may not be able to satisfy all of these conditions or may default on some of these covenants for various reasons, including for reasons beyond our control.

For example, our credit agreement and our senior unsecured notes indentures and their supplements require us to maintain certain debt service ratios.

Our ability to comply with such covenants will depend upon the returns and rents we receive from our properties.

If our returns and rents decline, we may be unable to borrow under our revolving credit facility.

Complying with these covenants may limit our ability to take actions that may be beneficial to us and our securityholders.

If we are unable to borrow under our revolving credit facility, we may be unable to meet our obligations or grow our business by acquiring additional properties.

If we default under our credit agreement, our lenders may demand immediate payment and may elect not to fund future borrowings.

During the continuance of any event of default under our credit agreement, we may be limited or in some cases prohibited from making distributions to our shareholders.

In the future, we may obtain additional debt financing, and the covenants and conditions which apply to any such additional debt may be more restrictive than the covenants and conditions that are contained in our credit agreement or our senior unsecured notes indentures and their supplements.

Ownership of real estate is subject to environmental risks and liabilities.

Ownership of real estate is subject to risks associated with environmental hazards.

Under various laws, owners as well as tenants and managers of real estate may be required to investigate and clean up or remove hazardous substances present at or migrating from properties they own, lease or manage and may be held liable for property damage or personal injuries that result from hazardous substances.

Under various laws, owners as well as operators of real estate may be required to investigate and clean up or remove hazardous substances present at or migrating from properties they own, lease or manage and may be held liable for property damage or personal injuries that result from hazardous substances.

These laws also expose us to the possibility that we may become liable to government agencies or third parties for costs and damages they incur in connection with hazardous substances.

9 unchanged sentences

We may incur substantial liabilities and costs for environmental matters.

Ownership of real estate is subject to risks from adverse weather and climate events.

Ownership of real estate is subject to risks from adverse weather, natural disasters and climate events.

Severe weather may have an adverse effect on certain properties we own.

Flooding caused by rising sea levels and severe weather events, including hurricanes, tornadoes and widespread fires, may have an adverse effect on properties we own and result in significant losses to us and interruption of our business.

When major weather or climate-related events, such as hurricanes, floods and wildfires, occur near our properties, our manager or tenant may need to suspend operations of the impacted property until the event has ended and the property is then ready for operation.

We or the operators of our properties may incur significant costs and losses as a result of these activities, both in terms of operating, preparing and repairing our properties in anticipation of, during and after a severe weather or climate-related event and in terms of potential lost business due to the interruption in operating our properties.

Our insurance and our managers’ and tenants’ insurance may not adequately compensate us or them for these costs and losses.

When major weather, natural disaster or climate-related

events, such as hurricanes, floods and wildfires, occur near our properties, our operator may need to suspend operations of the impacted property until the event has ended and the property is then ready for operation.

We or the operators of our properties may incur significant costs and losses as a result of these activities, both in terms of operating, preparing and repairing our properties in anticipation of, during and after a severe weather, natural disaster or climate-related event and in terms of potential lost business due to the interruption in operating our properties.

Our insurance and our operators’ insurance may not adequately compensate us or them for these costs and losses.

Also, concerns about climate change have resulted in various treaties, laws and regulations that are intended to limit carbon emissions and address other environmental concerns.

These and other laws and market reactions may cause energy or other costs at our hotel, travel center and other service-oriented retail properties to increase.

Laws enacted to mitigate climate change may make some of our buildings obsolete or cause us to make material investments in our properties, which could materially and adversely affect our financial condition or the financial condition of our tenants or managers and their ability to pay rent or returns to us and cause the value of our securities to decline.

Laws enacted to mitigate climate change may make some of our buildings obsolete or cause us to make material investments in our properties, which could materially and adversely affect our financial condition or the financial condition of our operators and their ability to pay rent or returns to us and cause the value of our properties to decline.

In addition, concerns about climate change and increasing storm intensities may increase the cost of insurance for our properties or potentially render it unavailable to obtain.

Real estate ownership creates risks and liabilities.

In addition to the risks discussed above, our business is subject to other risks associated with real estate ownership, including:

the illiquid nature of real estate markets, which limits our ability to sell our assets rapidly to respond to changing market conditions;

the subjectivity of real estate valuations and changes in such valuations over time;

costs that may be incurred relating to property maintenance and repair, and the need to make expenditures due to changes in government regulations;

liabilities and litigations arising from injuries on our properties or otherwise incidental to the ownership of our properties.

Real estate construction and redevelopment creates risks.

Our business may involve the development of new properties or the redevelopment of some of our existing properties as the existing management agreements or leases expire, or as our managers’ or tenants’ needs change or to pursue any other opportunities that we believe are desirable.

The development and redevelopment of new and existing buildings involves significant risks in addition to those involved in the ownership and operation of properties, including the risks that construction may not be completed on schedule or within budget, resulting in increased construction costs and delays in such properties generating cash flows.

Development activities are also subject to risks relating to the inability to obtain, or delays in obtaining, all necessary zoning, land use, building, occupancy, and other required government permits and authorizations.

Once completed, any new properties may perform below anticipated financial results.

The occurrence of one or more of these circumstances in connection with our development or redevelopment activities could have an adverse effect on our financial condition, results of operations and the value of our securities.

RMR LLC and our hotel managers rely on information technology and systems in their operations, and any material failure, inadequacy, interruption or security failure of that technology or those systems could materially and adversely affect us.

RMR LLC and our hotel managers rely on information technology and systems, including the Internet and cloud-based infrastructures, commercially available software and their internally developed applications, to process, transmit, store and safeguard information and to manage or support a variety of their business processes (including managing our building systems), including financial transactions and maintenance of records, which may include personal identifying information of employees, guests and tenants and lease data.

If RMR LLC or any of our hotel managers experiences material security or other failures, inadequacies or interruptions of its information technology, it could incur material costs and losses and our operations could be disrupted as a result.

Further, third party vendors could experience similar events with respect to their information technology and systems that impact the products and services they provide to RMR LLC, our hotel managers or us.

RMR LLC and our hotel managers rely on commercially available systems, software, tools and monitoring, as well as their internally developed applications and internal procedures and personnel, to provide security for processing, transmitting, storing and safeguarding confidential guest, tenant, customer and vendor information, such as personally identifiable information related to their employees and others, including in our hotel managers’ case, guests, and information regarding their and our financial accounts.

RMR LLC and each of our hotel managers takes various actions, and incurs significant costs, to maintain and protect the operation and security of its information technology and systems, including the data maintained in those systems.

Some of our managers have in the past been victim to business email compromise fraud, which resulted in payments being made to illegitimate bank accounts.

Although these instances have not resulted in our incurring material losses, if similar instances occur in the future, we may incur such losses.

However, it is possible that these measures will not prevent the systems’ improper functioning or a compromise in security, such as in the event of a cyberattack or the improper disclosure of personally identifiable information.

Security breaches, computer viruses, attacks by hackers, online fraud schemes and similar breaches can create significant system disruptions, shutdowns, fraudulent transfer of assets or unauthorized disclosure of confidential information.

The cybersecurity risks to RMR LLC, our hotel managers and third party vendors are heightened by, among other things, the evolving nature of the threats faced, advances in computer capabilities, new discoveries in the field of cryptography and new and increasingly sophisticated methods used to perpetrate illegal or fraudulent activities against RMR LLC or our hotel managers including cyberattacks, email or wire fraud and other attacks exploiting security vulnerabilities in RMR LLC’s, our hotel managers’ or other third parties’ information technology networks and systems or operations.

Any failure to maintain the security, proper function and availability of RMR LLC’s or our hotel managers’ information technology and systems, or certain third party vendors’ failure to similarly protect their information technology and systems that are relevant to RMR LLC’s, our hotel managers’ or our operations, or to safeguard RMR LLC’s, our hotel managers’ or our business processes, assets and information could result in financial losses, interrupt RMR LLC’s or our hotel managers’ operations, damage RMR LLC’s or our hotel managers’ reputation, cause RMR LLC or our hotel managers to be in default of material contracts and subject RMR LLC or our hotel managers to liability claims or regulatory penalties, any of which could materially and adversely affect our business and the value of our securities.

We currently own some properties located outside the United States and may consider additional investments outside this country in the future, and such investments create risks.

We currently own two hotels in Canada.

If we make other investments in real estate outside the United States, we will face risks arising from those investments, including:

Laws affecting the operations of properties in foreign countries may require us to assume responsibility for payments due to employees working at properties we own or in which we invest.

Foreign laws affecting real estate may restrict the ability of entities organized or controlled by persons outside those countries, like us, to own or make management decisions affecting the properties in which we invest.

In most foreign countries, we will not have the same or similar tax status as we have in the United States, we will be subject to local taxes, and our net earnings may be less than we would realize by making investments in the United States.

Most of the properties located in foreign countries in which we would invest will conduct business in local currencies rather than in U.S.

We may be able to mitigate some of the risk of changing comparative currency valuations by funding our foreign investments in local currencies;

however, it is unlikely we will be able to completely mitigate such foreign currency exchange rate risk.

Some foreign countries do not have judicial dispute resolution processes which are as efficient or impartial as the U.S.

judicial system generally.

We may mitigate this risk by making the resolution of disputes which may arise from our foreign investments subject to arbitration;

however, the enforcement of arbitration awards will remain subject to local judicial processes and there may be no way for us to mitigate the risks of our dealings in a foreign legal system.

Investments by U.S.

entities like us in foreign countries may be particularly subject to terrorism risks as it relates to the ownership of prominently identified properties such as hotels.

The political systems in certain foreign countries are less stable than in the United States, and certain foreign governments have in the past expropriated properties owned by U.S.

entities like us without paying fair compensation.

Although we will attempt to balance the potential rewards of future investments in foreign countries against these and other risks, we may not be successful in doing so and investments we make in real estate located in foreign countries may result in material losses.

Insurance may not adequately cover our losses and the cost of obtaining such insurance may continue to increase.

We or our managers and tenants are responsible for the costs of insurance coverage for our properties, including for casualty, liability, fire, extended coverage and rental or business interruption loss insurance.

Recently, the costs of insurance have increased and these increased costs have had an adverse effect on us and our managers and certain tenants.

Increased insurance costs may adversely affect our managers' ability to operate our properties profitably and provide us with desirable returns and our tenants' ability to pay us rent or result in downward pressure on rents we can charge under new or renewed leases.

Insurance may not adequately cover our losses, and insurance costs may continue to increase.

We or our operators are responsible for the costs of insurance coverage for our properties, including for casualty, liability, fire, extended coverage and rental or business interruption loss insurance.

Recently, the costs of insurance have increased significantly, and these increased costs have had an adverse effect on us and our operators.

Increased insurance costs may adversely affect our managers’ ability to manage our properties profitably and provide us with desirable returns and our tenants’ ability to pay us rent or result in downward pressure on rents we can charge under new or renewed leases.

In the future, we may acquire additional properties for which we are responsible for the costs of insurance.

Losses of a catastrophic nature, such as those caused by hurricanes, flooding, volcanic eruptions and earthquakes, among other things, or losses from terrorism, may be covered by insurance policies with limitations such as large deductibles or co-payments that we, our managers or a responsible tenant may not be able to pay.

Losses of a catastrophic nature, such as those caused by hurricanes, flooding, volcanic eruptions and earthquakes, among other things, losses as a result of outbreaks of pandemics, including the COVID-19 pandemic, or losses from terrorism, may be covered by insurance policies with limitations such as large deductibles or co-payments that we or our operators may not be able to pay.

Insurance proceeds may not be adequate to restore an affected property to its condition prior to a loss or to compensate us for our losses, including the loss of future revenues from an affected property.

1 unchanged sentence

In addition, we do not have any insurance to limit losses that we may incur as a result of known or unknown environmental conditions.

Further, we cannot be sure that certain types of risks that are currently insurable will continue to be insurable on an economically feasible basis, and we may discontinue, or agree to our managers' and tenants' discontinuing, certain insurance coverage on some or all of our properties in the future if the cost of premiums for any of these policies in our judgment exceeds the value of the coverage.

Further, we cannot be sure that certain types of risks that are currently insurable will continue to be insurable on an economically feasible basis, and we may discontinue, or agree to our operators’ discontinuing, certain insurance coverage on some or all of our properties in the future if we determine that the cost of premiums for any of these policies exceeds the value of the coverage.

If an uninsured loss or a loss in excess of insured limits occurs, we may have to incur uninsured costs to mitigate such losses or lose all or a portion of the capital invested in a property, as well as the anticipated future revenue from the property.

1 unchanged sentence

In addition, future changes in the insurance industry’s risk assessment approach and pricing structure could further increase the cost of insuring our properties or decrease the scope of insurance coverage, either of which could have an adverse effect on our financial condition, results of operations, liquidity or ability to pay distributions to our shareholders .

We may incur significant costs complying with the Americans with Disabilities Act and fire, safety and other laws.

Under the Americans with Disabilities Act and certain similar state statutes, many commercial properties must meet specified requirements related to access and use by disabled persons.

In addition, our properties are subject to various laws and regulations relating to fire, safety and other matters.

The tenants of our net lease properties are generally responsible for compliance with these requirements pursuant to our lease agreements.

We fund the expenditures for our managed hotels for complying with these requirements.

In addition, although our tenants may be responsible for complying with these requirements for our net lease properties, we could be held liable as the owner of the properties for our tenants’ failure to comply.

We may be required to make substantial capital expenditures at our properties to comply with these laws.

In addition, non-compliance could result in the imposition of fines or an award of damages and costs to private litigants.

These expenditures may have an adverse impact on our financial results and the value of our securities.

Further, with respect to our net lease properties, we may not be able to recoup these amounts from our tenants if they are unable or unwilling to pay.

We are subject to risks associated with our hotel managers’ employment of personnel.

4 unchanged sentences

The resolution of labor disputes or renegotiated labor contracts could lead to increased labor costs, either by increases in wages or benefits or by changes in work rules.

Unemployment in the United States is currently at historically low levels, and labor costs have been increasing in the United States due to market pressures and regulation in certain jurisdictions, such as increases in minimum wages.

These labor cost pressures have increased labor costs at our hotels and these increased costs may negatively impact the future operating results at our hotels if those hotels do not realize increased revenues or a reduction of other expenses sufficient to offset increased labor costs.

In addition, the current labor cost pressures may intensify in the future, and our hotel operators may be unable to adequately staff our hotels as a result, which may limit the business activity at our hotels.

Consolidation of hotel managers through merger and acquisition transactions may adversely affect our hotel properties.

Consolidation of third party managers could adversely affect our hotel properties due to the undefined and unknown costs associated with the integrations of property-level point of sale and back-of-house computer systems and other technology related processes, the training and other labor costs associated with merging of labor forces, and the impact of hotel reward point program consolidation.

Additionally, the consolidation of third party managers may negatively impact the terms we are able to obtain in future hotel operating agreements.

Our business could be adversely impacted if there are deficiencies in our disclosure controls and procedures or our internal control over financial reporting.

The design and effectiveness of our disclosure controls and procedures and our internal control over financial reporting may not prevent all errors, misstatements or misrepresentations.

While management will continue to review the effectiveness of our disclosure controls and procedures and our internal control over financial reporting, there can be no guarantee that our disclosure controls and procedures and internal control over financial reporting will be effective in accomplishing all control objectives all of the time.

Deficiencies, including any material weaknesses, in our disclosure controls and procedures or internal control over financial reporting could result in misstatements of our results of operations or our financial statements or could otherwise materially and adversely affect our business, reputation, results of operations, financial condition or liquidity.

Risks Related to Our Relationships with RMR Inc., RMR LLC, Sonesta and TA.

Prior to the onset of the COVID-19 pandemic, unemployment in the United States was at historically low levels, and labor costs had been increasing in the United States due to market pressures and regulation in certain jurisdictions, such as increases in minimum wages.

These labor cost pressures had increased labor costs at our hotels and we may experience these increased costs in future periods, particularly if they return or increase following the end of the COVID-19 pandemic.

In addition, our hotel operators may be unable to adequately staff our hotels as a result of these or other reasons, which may limit the business activity at our hotels, decreasing the quality of services provided at our hotels and damaging our and our applicable hotel manager’s reputation in the marketplace.

We are a party to arbitration proceedings, which could adversely affect our financial results and/or distract our management.

As noted below in Item 3 “Legal Proceedings,” two of our subsidiaries initiated arbitration proceedings against Marriott and several of its subsidiaries after Marriott challenged the efficacy of the termination of our agreement with them to ensure that an orderly transfer of branding and management to Sonesta occurred.

Marriott has also challenged the classification of certain payments made to us during 2020 and asserted we need to refund cash advances made to pay our minimum returns of approximately $19.3 million.

We are also seeking repayment of certain working capital advances we made to Marriott under the applicable management agreements.

Our agreement with Marriott provides that such arbitration proceedings be conducted in accordance with the procedures of the Commercial Arbitration Rules of the American Arbitration Association, as modified in the management agreement, which provide materially more limited rights than litigation in a federal or state court.

For example, arbitration in accordance with these procedures does not include the opportunity for a jury trial, document discovery is limited, arbitration hearings generally are not open to the public, there are limited witness depositions in advance of arbitration hearings and arbitrators may have different qualifications or experiences than judges.

The results of litigation and arbitration proceedings are difficult to predict and we can provide no assurance that our legal conclusions or positions will be upheld.

Even if we are successful in such legal proceedings, the pendency and conduct of such proceedings may be protracted, expensive and distracting to our management and could be disruptive to our operations.

Real estate construction and redevelopment creates risks.

We may develop new properties or redevelop some of our existing properties as the existing management agreements or leases expire, as our operators’ needs change or to pursue any other opportunities that we believe are desirable.

Once completed, any new properties may perform below anticipated financial results.

RMR LLC and our hotel managers rely on information technology and systems in their respective operations, and any material failure, inadequacy, interruption or security failure of that technology or those systems could materially and adversely affect us.

If these systems experience material security or other failures, inadequacies or interruptions of its information technology, we could incur material costs and losses and our operations could be disrupted as a result.

Some of our managers have in the past been victim to business email compromise fraud, which resulted in payments being made to illegitimate bank accounts.

Although these instances have not resulted in our incurring material losses, if similar instances occur in the future, we may incur such losses.

Our cybersecurity risks are heightened by, among other things, the evolving nature of the threats faced, advances in computer capabilities, new discoveries in the field of cryptography and new and increasingly sophisticated methods used to perpetrate illegal or fraudulent activities, including cyberattacks, email or wire fraud and other attacks exploiting security vulnerabilities in RMR LLC’s, our hotel managers’ or other third parties’ information technology networks and systems or operations.

business processes, assets and information could result in financial losses, interrupt our operations, damage our reputation, cause us to be in default of material contracts and subject us to liability claims or regulatory penalties, any of which could materially and adversely affect our business and the value of our securities.

Risks Related to Our Relationships with RMR LLC, Sonesta and TA.

We are dependent upon RMR LLC to manage our business and implement our growth strategy.

12 unchanged sentences

Our management structure and agreements and relationships with RMR LLC and RMR LLC’s and its controlling shareholder’s relationships with others may create conflicts of interest, or the perception of such conflicts, and may restrict our investment activities.

RMR LLC is a subsidiary of RMR Inc.

The Chair of our Board and one of our Managing Trustees, Adam D.

Portnoy, is the sole trustee of ABP Trust, is the controlling shareholder of RMR Inc.

RMR LLC is a majority-owned subsidiary of RMR Inc.

The Chair of our Board of Trustees and one of our Managing Trustees, Adam Portnoy, as the sole trustee of ABP Trust, is the controlling shareholder of RMR Inc.

and is a managing director and the president and chief executive officer of RMR Inc.

and an officer and employee of RMR LLC.

Ethan Bornstein, our Senior Vice President, is the brother-in-law of Adam Portnoy.

RMR LLC or its subsidiary also acts as the manager for four other Nasdaq listed REITs:

RMR LLC or its subsidiary also acts as the manager to four other Nasdaq listed REITs:

OPI, which primarily owns office properties leased to single tenants and high credit quality tenants, including government tenants;

ILPT, which owns industrial and logistics properties;

DHC, which primarily owns healthcare, senior living properties and medical office buildings;

and TRMT, which primarily originates and invests in first mortgage loans secured by middle market and transitional commercial real estate.

ILPT, which owns and leases industrial and logistics properties;

DHC, which primarily owns senior living communities, medical office and life science buildings and other healthcare related properties;

and TRMT, which focuses on originating and investing in first mortgage whole loans secured by middle market and transitional commercial real estate.

RMR LLC also provides services to other publicly and privately owned companies, including:

Five Star, which operates senior living communities;

TA, our largest tenant, which operates and franchises travel centers and restaurants;

and Sonesta, which managed 53 of our hotels as of December 31, 2019 and operates, manages and franchises hotels, resorts and cruise boats and of which we own an approximately 34% equity interest as of February 27, 2020.

A subsidiary of RMR LLC is an investment adviser to the RMR Real Estate Income Fund, or RIF, a closed end investment company listed on the NYSE American, which invests in securities of real estate companies that are not managed by RMR LLC.

Portnoy serves as chair of the board of trustees or board of directors, as applicable, of OPI, ILPT, DHC, Five Star and TA and as managing director, managing trustee, director or trustee, as applicable, of the companies managed by RMR LLC or its subsidiaries.

Murray, our other Managing Trustee and our President and Chief Executive Officer, Brian E.

Donley, our Chief Financial Officer and Treasurer, and Ethan Bornstein, our Senior Vice President and Todd Hargreaves, our Vice President, are also officers and employees of RMR LLC.

Murray is also a managing trustee, president and chief executive officer of ILPT and Mr.

Donley is also the chief financial officer and treasurer of RIF.

Murray, Donley, Bornstein and Hargreaves have duties to RMR LLC, and Mr.

Murray has duties to ILPT and Mr.

Donley has duties to RIF, as well as to us, and we do not have their undivided attention.

Five Star, which operates senior living communities and provides rehabilitation and wellness services;

TA, our largest tenant, which operates and franchises travel centers, standalone truck service facilities and restaurants and of which we owned approximately 8.1% of TA’s outstanding shares as of December 31, 2020;

and Sonesta, our largest hotel operator, which operates, manages and franchises hotels, resorts and cruise boats and of which we owned an approximately 34% equity interest as of December 31, 2020.

A subsidiary of RMR LLC is an investment adviser to RMRM, which recently converted from a registered investment company to a publicly traded mortgage REIT.

Portnoy serves as chair of the board of trustees or board of directors, as applicable, of DHC, ILPT, OPI, Five Star and TA and as managing director, managing trustee, director or trustee, as applicable, of the companies managed by RMR LLC or its subsidiaries.

John Murray, our other Managing Trustee and our President and Chief Executive Officer, Brian Donley, our Chief Financial Officer and Treasurer, and Todd Hargreaves, our Vice President and Chief Investment Officer, are also officers and employees of RMR LLC.

Murray is also a managing trustee, president and chief executive officer of ILPT.

Murray, Donley and Hargreaves have duties to RMR LLC, and Mr.

Murray has duties to ILPT, as well as to us, and we do not have their undivided attention.

They and other RMR LLC personnel may have conflicts in allocating their time and resources between us and RMR LLC and other companies to which RMR LLC or its subsidiaries provide services.

2 unchanged sentences

In addition to his investments in RMR Inc.

and RMR LLC, Adam Portnoy holds equity investments in other companies to which RMR LLC or its subsidiaries provide management services and some of these companies have significant cross ownership interests, including, for example:

as of December 31, 2019, Adam Portnoy beneficially owned, in aggregate, 1.1% of our outstanding common shares, 35.3% (6.3% as of January 1, 2020) of Five Star’s outstanding common stock (including through ABP Trust), 1.2% of ILPT’s outstanding common shares, 1.5% of OPI’s outstanding common shares, 1.1% of DHC’s outstanding common shares, 2.3% of RIF’s outstanding common shares, 4.0% of TA’s outstanding common shares (including through RMR LLC) and 19.5% of TRMT’s outstanding common shares (including through Tremont Realty Advisors LLC);

and we owned 8.2% of TA’s outstanding common shares.

Our executive officers also own equity investments in other companies to which RMR LLC or its subsidiaries provide management services.

These multiple responsibilities, relationships and cross ownerships could give rise to conflicts of interest or the perception of such conflicts of interest with respect to matters involving us, RMR Inc., RMR LLC, our Managing Trustees, the other companies to which RMR LLC or its subsidiaries provide management services and their related parties.

and RMR LLC, Adam Portnoy holds equity investments in other

companies to which RMR LLC or its subsidiaries provide management services and some of these companies have significant cross ownership interests, including, for example:

as of December 31, 2020, Mr.

Portnoy beneficially owned, in aggregate, 1.1% of our outstanding common shares, 6.3% of Five Star’s outstanding common stock (including through ABP Trust), 1.2% of ILPT’s outstanding common shares, 1.5% of OPI’s outstanding common shares, 1.1% of DHC’s outstanding common shares, 2.3% of RMRM’s outstanding common shares, 4.5% of TA’s outstanding common shares (including through RMR LLC) and 19.4% of TRMT’s outstanding common shares (including through Tremont Realty Advisors LLC).

Our executive officers may also own equity investments in other companies to which RMR LLC or its subsidiaries provide management services.

These multiple responsibilities, relationships and cross ownerships may give rise to conflicts of interest or the perception of such conflicts of interest with respect to matters involving us, RMR Inc., RMR LLC, our Managing Trustees, the other companies to which RMR LLC or its subsidiaries provide management services and their related parties.

Conflicts of interest or the perception of conflicts of interest could have a material adverse impact on our reputation, business and the market price of our common shares and other securities and we may be subject to increased risk of litigation as a result.

12 unchanged sentences

The termination of our management agreements with RMR LLC may require us to pay a substantial termination fee, including in the case of a termination for unsatisfactory performance, which may limit our ability to end our relationship with RMR LLC.

The terms of our management agreements with RMR LLC automatically extend on December 31st of each year so that such terms thereafter end on the 20th anniversary of the date of the extension.

The terms of our management agreements with RMR LLC automatically extend on December 31 of each year so that such terms thereafter end on the 20th anniversary of the date of the extension.

We have the right to terminate these agreements:

(1) at any time on 60 days’ written notice for convenience, (2) immediately upon written notice for cause, as defined in the agreements, (3) on written notice given within 60 days after the end of any applicable calendar year for a performance reason, as defined in the agreements, and (4) by written notice during the 12 months following a manager change of control, as defined in the agreements.

However, if we terminate a management agreement for convenience, or if RMR LLC terminates a management agreement with us for good reason, as defined in such agreement, we are obligated to pay RMR LLC a termination fee in an amount equal to the sum of the present values of the monthly future fees, as defined in the applicable agreement, payable to RMR LLC for the term that was remaining before such termination, which, depending on the time of termination, would be between 19 and 20 years.

would be between 19 and 20 years.

Additionally, if we terminate a management agreement for a performance reason, as defined in the agreement, we are obligated to pay RMR LLC the termination fee calculated as described above, but assuming a remaining term of 10 years.

5 unchanged sentences

For these reasons, our management agreements with RMR LLC may discourage a change of control of us, including a change of control which might result in payment of a premium for our common shares.

Our business dealings with TA and Sonesta comprise a significant part of our business and operations and they may create conflicts of interest or the perception of such conflicts of interest.

Our business dealings with Sonesta and TA comprise a significant part of our business and operations and they may create conflicts of interest or the perception of such conflicts of interest.

Sonesta managed 246 of our hotels as of February 26, 2021.

Sonesta is controlled by Adam Portnoy.

Murray and Jennifer Clark, our Secretary, are directors of Sonesta.

Sonesta’s chief executive officer and chief financial officer are also officers of RMR LLC, and other officers and employees of Sonesta are former employees of RMR LLC.

We own an approximately 34.0% ownership interest in Sonesta.

TA is our former 100.0% owned subsidiary and our largest tenant, and we are TA’s largest shareholder and landlord.

2 unchanged sentences

Adam Portnoy is the controlling shareholder, managing director and chief executive officer of RMR Inc., the parent of RMR LLC, which provides management services to both us and TA.

We recognized rental income of $262.0 million for the year ended December 31, 2019 under our TA leases.

Sonesta managed 53 of our hotels as of December 31, 2019.

Sonesta is majority owned by Adam Portnoy and his affiliates.

Murray and Jennifer Clark, our Secretary, are directors of Sonesta.

Sonesta’s chief executive officer and chief financial officer are also officers of RMR LLC, and other officers and employees of Sonesta are former employees of RMR LLC.

We realized returns of $67.6 million under our Sonesta agreement and incurred management, system and reservation fees payable to Sonesta of $36.2 million and procurement and construction supervision fees payable to Sonesta of $3.3 million for the year ended December 31, 2019 .

The historical and continuing relationships which we, RMR LLC, Adam Portnoy and certain other officers of RMR LLC have with TA and Sonesta could create, or appear to create, conflicts of interest with respect to matters involving us, the other companies to which RMR LLC or its subsidiaries provide management services and their related parties.

As a result of these relationships, our agreements with TA and Sonesta were not negotiated on an arm’s length basis between unrelated parties, and therefore, while such agreements were negotiated with the use of a special committee and disinterested trustees, may not be as favorable to us as they would have been if they were negotiated on an arm’s length basis between unrelated parties.

The historical and continuing relationships which we, RMR LLC, Adam Portnoy and certain other officers of RMR LLC have with Sonesta and TA could create, or appear to create, conflicts of interest with respect to matters involving us, the other companies to which RMR LLC or its subsidiaries provide management services and their related parties.

As a result of these relationships, our leases with TA and our agreements with Sonesta were not negotiated on an arm’s length basis between unrelated parties, and therefore, while such agreements were negotiated with the use of special committees and disinterested trustees, may not be as favorable to us as they would have been if they were negotiated on an arm’s length basis between unrelated parties.

We may not realize the benefits we expect from our ownership interest in Sonesta.

Pursuant to our agreements with Sonesta, we received an approximately 34% ownership interest in Sonesta.

We own an approximately 34.0% ownership interest in Sonesta.

Risks that we have identified elsewhere in this Risk Factors section, particularly those relating to the hotel industry, are applicable to our ownership of Sonesta shares.

13 unchanged sentences

Companies with business dealings with related persons and entities may more often be the target of dissident shareholder trustee nominations, dissident shareholder proposals and shareholder litigation alleging conflicts of interest in their business dealings.

Our relationships with RMR Inc., RMR LLC, TA, Sonesta, the other companies to which RMR LLC or its subsidiaries provide management services, Adam Portnoy and other related persons of RMR LLC may precipitate such activities.

Our relationships with RMR LLC, TA, Sonesta, the other companies to which RMR LLC or its subsidiaries provide management services, Adam Portnoy and other related persons of RMR LLC may precipitate such activities.

Certain proxy advisory firms which have significant influence over the voting by shareholders of public companies have, in the past, recommended, and in the future may recommend, that shareholders vote against the election of our incumbent Trustees, vote against our say on pay vote or other management proposals or vote for shareholder proposals that we oppose.

7 unchanged sentences

Additionally, provisions contained in our declaration of trust and bylaws or under Maryland law may have a similar impact, including, for example, provisions relating to:

the current division of our Trustees into three classes, with the term of one class expiring each year, which could delay a change of control of us;

• the current division of our Trustees into classes until our 2023 annual meeting of shareholders, with three classes remaining with terms expiring in 2021, 2022 and 2023, respectively (although effective at our 2021 annual meeting of shareholders, Trustees of the class of trustees whose term expires at that meeting or expires at a subsequent annual meeting of shareholders will be elected annually, with all of our Trustees being elected annually as of our 2023 annual meeting of shareholders, and with a majority of our current Trustees having terms expiring at our 2022 annual meeting of shareholders);

• the authority of our Board of Trustees, and not our shareholders, to adopt, amend or repeal our bylaws and to fill vacancies on our Board of Trustees;

shareholder voting standards which require a supermajority for approval of certain actions;

• shareholder voting standards which require a supermajority of shares for approval of certain actions;

• the fact that only our Board of Trustees, or, if there are no Trustees, our officers, may call shareholder meetings and that shareholders are not entitled to act without a meeting;

30 unchanged sentences

The arbitration provisions of our bylaws may discourage our shareholders from bringing, and attorneys from agreeing to represent our shareholders wishing to bring, litigation against us or our Trustees, officers, manager, other agents or employees.

Our agreements with TA, RMR LLC and Sonesta have similar arbitration provisions to those in our bylaws.

Our leases with TA and our agreements with RMR LLC and Sonesta have similar arbitration provisions to those in our bylaws.

We believe that the arbitration provisions in our bylaws are enforceable under both state and federal law, including with respect to federal securities laws claims.

We are a Maryland real estate investment trust and Maryland courts have upheld the enforceability of arbitration bylaws.

We are a Maryland REIT and Maryland courts have upheld the enforceability of arbitration bylaws.

In addition, the United States Supreme Court has repeatedly upheld agreements to arbitrate other federal statutory claims, including those that implicate important federal policies.

2 unchanged sentences

By agreeing to the arbitration provisions of our bylaws, shareholders will not be deemed to have waived compliance by us with federal securities laws and the rules and regulations thereunder.

Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain actions and proceedings that may be initiated by our shareholders, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our Trustees, officers, manager, agents or employees.

Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain actions and proceedings that may be initiated by our shareholders, which could limit our shareholders’ ability to obtain a judicial forum they deem favorable for disputes with us or our Trustees, officers, manager, agents or employees.

Our bylaws currently provide that, unless the dispute has been referred to binding arbitration, the Circuit Court for Baltimore City, Maryland will be the sole and exclusive forum for:

1 unchanged sentence

(2) any action asserting a claim for breach of a fiduciary duty owed by any Trustee, officer, manager, agent or employee of ours to us or our shareholders;

(3) any action asserting a claim against us or any Trustee, officer, manager, agent or employee of ours arising pursuant to Maryland law, our declaration of trust or bylaws brought by or on behalf of a shareholder, either on his, her or its own behalf, on behalf of the Trust or on behalf of any series or class of shares of beneficial interest of the Trust or shareholders against the Trust or any Trustee, officer, manager, agent or employee of the Trust, including any disputes, claims or controversies relating to the meaning, interpretation, effect, validity, performance or enforcement of our declaration of trust or bylaws;

(3) any action asserting a claim against us or any Trustee, officer, manager, agent or employee of ours arising pursuant to Maryland law, our declaration of trust or bylaws brought by or on behalf of a shareholder, either on his, her or its own behalf, on behalf of us or on behalf of any series or class of shares of beneficial interest of us or shareholders against us or any Trustee, officer, manager, agent or employee of ours, including any disputes, claims or controversies relating to the meaning, interpretation, effect, validity, performance or enforcement of our declaration of trust or bylaws;

or (4) any action asserting a claim against us or any Trustee, officer, manager, agent or employee of ours that is governed by the internal affairs doctrine.

5 unchanged sentences

We may change our operational, financing and investment policies without shareholder approval and we may become more highly leveraged, which may increase our risk of default under our debt obligations.

Our Board of Trustees determines our operational, financing and investment policies and may amend or revise our policies, including our policies with respect to our intention to qualify for taxation as a REIT, acquisitions, dispositions, growth, operations, indebtedness, capitalization and distributions, or approve transactions that deviate from these policies, without a vote of, or notice to, our shareholders.

Our Board of Trustees determines our operational, financing and investment policies and may amend or revise our policies, including our policies with respect to our intention to remain qualified for taxation as a REIT, acquisitions, dispositions, growth, operations, indebtedness, capitalization and distributions, or approve transactions that deviate from these policies,

without a vote of, or notice to, our shareholders.

Policy changes could adversely affect the market price of our common shares and our ability to make distributions to our shareholders.

57 unchanged sentences

Changes to the tax laws, with or without retroactive application, could materially and adversely affect us and our shareholders.

We cannot predict how changes in the tax laws might affect us or our shareholders.

We cannot predict how

changes in the tax laws might affect us or our shareholders.

New legislation, Treasury regulations, administrative interpretations or court decisions could significantly and negatively affect our ability to remain qualified for taxation as a REIT or the tax consequences of such qualification to us and our shareholders.

Risks Related to Our Securities

We may not be able to continue paying distributions at or above our current annualized distribution rate.

Our current annualized distribution rate is $2.16 per common share.

We may not be able to sustain our current distribution rate, or pay distributions at all, for various reasons, including that:

our ability to pay distributions may be adversely affected if any of the risks described in this Annual Report on Form 10-K occur;

our declaration and payment of distributions are subject to compliance with restrictions contained in our credit agreement and public debt covenants and may be subject to restrictions governing future debt that we may incur;

we may desire or need to retain cash to obtain, maintain or improve our credit ratings, to reduce leverage, fund capital expenditures or pursue other business opportunities;

we have no obligation to pay distributions;

each distribution is made at the discretion of our Board of Trustees and the payment of a distribution depends on various factors that our Board of Trustees at the time deems relevant, including among other things, requirements to maintain our qualification for taxation as a REIT, limitations in our credit agreement, the availability to us of debt and equity capital, our distribution rate as a percentage of the trading price of our shares, or dividend yield, and the dividend yield of other REITs, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations.

For these reasons, among others, our distribution rate may decline or we may cease making distributions to our shareholders.

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 distribution rate on our common shares to $0.01 per share.

We currently intend to continue to make regular quarterly distributions to our shareholders at this rate at least through the New Waiver Period and possibly thereafter, subject to applicable 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;

• our making of distributions is subject to compliance with restrictions contained in our credit agreement, including being limited to amounts required to maintain our qualification for taxation as a REIT and to avoid the payment of certain income and excise taxes and $0.01 per common share per quarter, and during the continuance of any event of default under our credit agreement, we may be limited or in some cases prohibited from making distributions to our shareholders;

• the timing and amount of any distributions will be determined at the discretion of our Board of Trustees and will depend on various factors that our Board of Trustees deems relevant, including, but not limited to our FFO and Normalized FFO, requirements to satisfy our REIT distribution requirements, limitations in our credit agreement and public debt covenants, the availability to us of debt and equity capital, our dividend yield, and to the dividend yield of other REITs, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations.

For these reasons, among others, our distribution rate may not increase for an indefinite period or we may cease making distributions to our shareholders.

Further, 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.

Further issuances of debt or equity securities may adversely affect our shareholders.

As a REIT, we generally will not be able to retain sufficient cash to fund our operations, repay our debts, invest in our properties and fund acquisitions and development or redevelopment efforts, and therefore, our ability to execute our business strategy depends on our access to an appropriate blend of debt financing, which may include secured and unsecured debt, and equity financing, which may include common and preferred shares.

The interests of our existing shareholders could be diluted if we issue additional equity securities.

In addition, if we decide in the future to issue debt or equity securities that rank senior to our common shares, it is likely that they will be governed by an indenture or other instrument containing covenants restricting our operating flexibility.

Also, any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our common shares and may result in further dilution to our shareholders.

Because our decision to issue debt or equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or even estimate the amount, timing or nature of our future capital offerings.

Thus, our shareholders will bear the risk of our future offerings reducing the market price of our common shares and diluting the value of their common shares.

We may use future debt leverage to pay distributions to our shareholders.

If our earnings are at any time insufficient to fund distributions to our shareholders at the level which may in the future be established by our Board of Trustees, we may pay distributions to our shareholders with the proceeds of borrowings or other leverage or from sales of our assets.

The use of borrowings or sale proceeds for distributions may dilute our shareholders’ ownership interests in us.

In addition, funding distributions to our shareholders from our future borrowings or asset sales may constitute a return of capital to our investors, which would have the effect of reducing our shareholders’ bases in our common shares.

The Notes and the Guarantees are structurally subordinated to the payment of all indebtedness and other liabilities and any preferred equity of our subsidiaries that do not guarantee the 2025 Notes and 2027 Notes.

We are the sole obligor on our outstanding unsecured senior notes and any notes or other debt securities we may issue in the future, or, together with our outstanding unsecured senior notes, the Notes, and our subsidiaries that guarantee the 7.50% senior notes due 2025, or the 2025 Notes, and the 5.50% senior notes due 2027, or the 2027 Notes, are the sole obligors on the guarantees of such notes, or the Guarantees.

The subsidiaries that guarantee the 2025 Notes and the 2027 Notes do not currently guarantee any of our other Notes.

Our non-guarantor subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due on the Notes or the Guarantees, or to make any funds available therefor, whether by dividend, distribution, loan or other payments.

The rights of holders of the Notes to benefit from any of the assets of our non-guarantor subsidiaries are subject to the prior satisfaction of claims of those subsidiaries’ creditors and any preferred equity holders.

As a result, the Notes and the Guarantees are, and, except to the extent that future Notes are guaranteed by our non-guarantor subsidiaries, will be, structurally subordinated to all of the debt and other liabilities and obligations of our subsidiaries that do not guarantee the 2025 Notes or 2027 Notes, including guarantees of or pledges under other indebtedness of ours, payment obligations under lease agreements, trade payables and preferred equity.

As of December 31, 2020, our non-guarantor subsidiaries had total indebtedness and other liabilities of approximately $36.7 million (including guaranties of other indebtedness and trade payables, but excluding liabilities to us or a subsidiary guarantor).

The Notes and the Guarantees are unsecured and effectively subordinated to all of our and the subsidiary guarantors’ existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness.

The outstanding Notes and Guarantees are not secured and any Notes we may issue in the future may not be secured.

Upon any distribution to our creditors in a bankruptcy, liquidation, reorganization or similar proceeding relating to us or our property, the holders of our secured debt, including debt under our credit agreement (to the extent debt under our credit agreement is still then secured), will be entitled to exercise the remedies available to a secured lender under applicable law and pursuant to the instruments governing such debt and to be paid in full, from the assets securing that secured debt before any payment may be made with respect to the Notes that are not secured by those assets.

In that event, because such Notes and the Guarantees will not be secured by any of our assets, it is possible that there will be no assets from which claims of holders of such Notes can be satisfied or, if any assets remain, that the remaining assets will be insufficient to satisfy those claims in full.

If the value of such remaining assets is less than the aggregate outstanding principal amount of such Notes and accrued interest and all future debt ranking equally with such Notes and the Guarantees, we will be unable to fully satisfy our obligations under such Notes.

In addition, if we fail to meet our payment or other obligations under our secured debt, the holders of that secured debt would be entitled to foreclose on our assets securing that secured debt and liquidate those assets.

Accordingly, we may not have sufficient funds to pay amounts due on such Notes.

As a result, noteholders may lose a portion or the entire value of their investment in such Notes.

Further, the terms of the outstanding Notes and the Guarantees permit, and the terms of any Notes we may issue in the future may permit, us to incur additional secured indebtedness subject to compliance with certain debt ratios.

The Notes and the Guarantees will be effectively subordinated to any such additional secured indebtedness.

As of February 26, 2021, our secured debt included outstanding borrowings under our revolving credit facility of $1.0 billion, which is secured by pledges of equity in certain subsidiaries that own properties.

Federal and state statutes allow courts, under specific circumstances, to void guarantees and require holders of notes to return payments received from guarantors.

Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws, a guarantee of the 2025 Notes and 2027 Notes (or any future Notes that are guaranteed by our subsidiaries) could be voided, or claims in respect of a guarantee could be subordinated to all other debts of that guarantor if, among other things, the guarantor, at the time it incurred the debt evidenced by its guarantee:

• received less than reasonably equivalent value or fair consideration for the incurrence of such guarantee;

• was insolvent or rendered insolvent by reason of such incurrence;

• was engaged in a business or transaction for which the guarantor’s remaining assets constituted unreasonably small capital;

• intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature.

In addition, any payment by that guarantor pursuant to its guarantee could be voided and required to be returned to the guarantor, or to a fund for the benefit of our creditors or the creditors of the guarantor.

The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred.

Generally, however, a guarantor would be considered insolvent if:

• the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its assets;

• the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature;

• it could not pay its debts as they become due.

We cannot be sure as to what standard a court would apply in making these determinations.

In addition, each Guarantee contains, and any future guarantees may contain, a provision intended to limit the guarantor’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent transfer.

This provision may not be effective to protect the Guarantees or any future guarantees from being voided under fraudulent transfer laws, or may eliminate the guarantor’s obligations or reduce the guarantor’s obligations to an amount that effectively makes the guarantee worthless.

There is no public market for the Notes, and one may not develop, be maintained or be liquid.

We have not applied for listing of the Notes on any securities exchange or for quotation on any automatic dealer quotation system, and we may not do so for Notes issued in the future.

We can give no assurances concerning the liquidity of any market that may develop for such Notes, the ability of any holder to sell such Notes or the price at which holders would be able to sell such Notes.

If a market for such Notes does not develop, holders may be unable to resell such Notes for an extended period of time, if at all.

If a market for such Notes does develop, it may not continue or it may not be sufficiently liquid to allow holders to resell such Notes.

Consequently, holders of the Notes may not be able to liquidate their investment readily, and lenders may not readily accept such Notes as collateral for loans.

The Notes may trade at a discount from their initial issue price or principal amount, depending upon many factors, including prevailing interest rates, the ratings assigned by rating agencies, the market for similar securities and other factors, including general economic conditions and our financial condition, performance and prospects.

Any decline in market prices, regardless of cause, may adversely affect the liquidity and trading markets for the Notes.

A downgrade in credit ratings could materially adversely affect the market price of the Notes and may increase our cost of capital.

The outstanding Notes are rated by two rating agencies and any Notes we may issue in the future may be rated by one or more rating agencies.

These credit ratings are continually reviewed by rating agencies and may change at any time based upon, among other things, our results of operations and financial condition.

In August 2020, S&P downgraded our issuer credit rating to BB- and the credit ratings on our Notes to BB.

Also in November 2020, Moody’s downgraded our senior unsecured rating to Ba2.

Negative changes in the ratings assigned to our debt securities could have an adverse effect on the market price of the Notes and our cost and availability of capital, which could in turn have a material adverse effect on our results of operations and our ability to satisfy our debt service obligations.

Some or all of the Guarantees may be released automatically.

A subsidiary guarantor may be released from its Guarantee under certain circumstances.

Such release may occur at any time upon a sale, disposition or transfer, in compliance with the provisions of the indenture relating to the 2025 Notes and 2027 Notes, of the capital stock of such subsidiary guarantor or of substantially all of the assets of such subsidiary guarantor, or if such subsidiary guarantor becomes an Excluded Subsidiary or a Foreign Subsidiary, as defined in our credit agreement.

In particular, under certain circumstances, including, if we borrow additional amounts under our credit agreement that would result in the Collateral Coverage Ratio (as defined in our credit agreement) under our credit agreement exceeding 50%, we would be required to pledge the equity of additional subsidiaries under our credit agreement.

If, as a result of such requirement, we pledge the equity of any of our subsidiaries that initially guarantees the 2025 Notes and 2027 Notes, such subsidiary will be an Excluded Subsidiary and the subsidiary Guarantee of such subsidiary guarantor will be automatically terminated and released upon such pledge.

In addition, if the 2025 Notes and 2027 Notes have a rating equal to or higher than Baa2 (or the equivalent) by Moody’s or BBB (or the equivalent) by S&P and at such time no default or event of default under the indenture governing the 2025 Notes and 2027 Notes has occurred and is continuing, the Guarantees and all other obligations of the subsidiary

guarantors under the indenture will automatically terminate and be released.

Accordingly, the 2025 Notes and 2027 Notes may not at all times be guaranteed by some or all of the subsidiaries which will guarantee the 2025 Notes and 2027 Notes on the date they are initially issued.

Redemption may adversely affect noteholders’ return on the Notes.

We have the right to redeem some or all of the outstanding Notes prior to maturity and may have such a right with respect to any Notes we issue in the future.

We may redeem such Notes at times when prevailing interest rates may be relatively low compared to the interest rate of such Notes.

Accordingly, noteholders may not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as that of the Notes.

Changes in market conditions could adversely affect the value of our securities.

8 unchanged sentences

• changes in our credit ratings;

general market conditions;

• general market conditions, including factors unrelated to our operating performance;

• perception of our environmental, social and governance policies relative to other companies.

2 unchanged sentences

There is a general market perception that REIT shares outperform in low interest rate environments and underperform in rising interest rate environments when compared to the broader market.

Federal Reserve has indicated that it does not expect to raise interest rates in response to the COVID-19 pandemic and current market conditions until at least the end of 2023.

There can be no assurance, however, that the U.S.

Federal Reserve will not raise rates prior to that time.

Federal Reserve increases interest rates or if there is a market expectation of such increases, prospective purchasers of REIT equity securities may want to achieve a higher distribution rate.

Thus, higher market interest rates, or the expectation of higher interest rates, could cause the value of our securities to decline.

Further issuances of equity securities may be dilutive to current shareholders.

The interests of our existing shareholders could be diluted if we issue additional equity securities to finance future acquisitions, to repay indebtedness or for other reasons.

Our ability to execute our business strategy depends on our access to an appropriate blend of debt financing, which may include secured and unsecured debt, and equity financing, which may include common and preferred shares.

The Notes are structurally subordinated to the payment of all indebtedness and other liabilities and any preferred equity of our subsidiaries.

We are the sole obligor on our outstanding senior unsecured notes, and our outstanding senior unsecured notes and any notes or other debt securities we may issue in the future, or, together with our outstanding senior unsecured notes, the Notes, and such Notes are not, and any Notes we may issue in the future may not be guaranteed by any of our subsidiaries.

Our subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due on the Notes, or to make any funds available therefor, whether by dividend, distribution, loan or other payments.

The rights of holders of Notes to benefit from any of the assets of our subsidiaries are subject to the prior satisfaction of claims of our subsidiaries’ creditors and any preferred equity holders.

As a result, the Notes are, and, except to the extent that future Notes are guaranteed by our subsidiaries, will be, structurally subordinated to all of the debt and other liabilities and obligations of our subsidiaries, including guarantees of other indebtedness of ours, payment obligations under lease agreements, trade payables and preferred equity.

As of December 31, 2019, our subsidiaries had total indebtedness and other liabilities (excluding security and other deposits and guaranties) of less than $10 million.

The Notes are unsecured and effectively subordinated to all of our existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness.

The outstanding Notes are not secured and any Notes we may issue in the future may not be secured.

Upon any distribution to our creditors in a bankruptcy, liquidation, reorganization or similar proceeding relating to us or our property, the holders of our secured debt will be entitled to exercise the remedies available to a secured lender under applicable law and pursuant to the instruments governing such debt and to be paid in full from the assets securing that secured debt before any payment may be made with respect to Notes that are not secured by those assets.

In that event, because such Notes will not be secured by any of our assets, it is possible that there will be no assets from which claims of holders of such Notes can be satisfied or, if any assets remain, that the remaining assets will be insufficient to satisfy those claims in full.

If the value of such remaining assets is less than the aggregate outstanding principal amount of such Notes and accrued interest and all future debt ranking equally with such Notes, we will be unable to fully satisfy our obligations under such Notes.

Accordingly, we may not have sufficient funds to pay amounts due on such Notes.

As a result, noteholders may lose a portion or the entire value of their investment in such Notes.

Further, the terms of the outstanding Notes permit, and the terms of any Notes we may issue in the future may permit us to incur additional secured indebtedness subject to compliance with certain debt ratios.

The Notes that are not secured will be effectively subordinated to any such additional secured indebtedness.

As of December 31, 2019, we had no secured mortgage debt.

There is no public market for the Notes, and one may not develop, be maintained or be liquid.

We have not applied for listing of the Notes on any securities exchange or for quotation on any automatic dealer quotation system, and we may not do so for Notes issued in the future.

We can give no assurances concerning the liquidity of any market that may develop for the Notes, the ability of any holder to sell the Notes or the price at which holders would be able to sell the Notes.

If a market for the Notes does not develop, holders may be unable to resell the Notes for an extended period of time, if at all.

If a market for the Notes does develop, it may not continue or it may not be sufficiently liquid to allow holders to resell any of the Notes.

Consequently, holders of the Notes may not be able to liquidate their investment readily, and lenders may not readily accept the Notes as collateral for loans.

Any decline in market prices, regardless of cause, may adversely affect the liquidity and trading markets for the Notes.

A downgrade in credit ratings could materially adversely affect the market price of the Notes and may increase our cost of capital.

The outstanding Notes are rated by two rating agencies and any Notes we may issue in the future may be rated by one or more rating agencies.

These credit ratings are continually reviewed by rating agencies and may change at any time based upon, among other things, our results of operations and financial condition.

As a result of the SMTA Transaction, S&P Global assigned a negative outlook to our credit ratings and Moody’s downgraded our credit ratings.

These negative actions imply that our debt ratings may be downgraded further to below “investment grade.”

Redemption may adversely affect noteholders’ return on the Notes.

We have the right to redeem some or all of the outstanding Notes prior to maturity and may have such a right with respect to any Notes we issue in the future.

We may redeem such Notes at times when prevailing interest rates may be relatively low compared to the interest rate of such Notes.

Accordingly, noteholders may not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as that of the Notes.

Unresolved Staff Comments

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