What changed in this filing

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Item 4. Controls and Procedures

2022-05-04 compared with 2021-11-04 · 41 added, 45 removed, 73 unchanged (54% of the section changed)

Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, our management carried out an evaluation, under the supervision and with the participation of our President and Chief Executive Officer and our Chief Financial Officer and Treasurer, of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended.

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

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

As of the end of the period covered by this Quarterly Report on Form 10-Q, our management carried out an evaluation, under the supervision and with the participation of our Managing Trustees, our President and Chief Investment Officer and our Chief Financial Officer and Treasurer, of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended.

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

There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Warning Concerning Forward-Looking Statements

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• Our ability to maintain sufficient liquidity during the duration of the COVID-19 pandemic and any resulting economic conditions,

• If and when hotel business will return to historical pre-pandemic levels,

• If and when hotel business will return to historical pre-pandemic levels and whether any improved conditions are sustained,

• Potential defaults on, or non-renewal of, leases by our tenants,

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• Our credit ratings,

• Our expectation that we benefit from our relationships with RMR LLC, Sonesta and TA,

• Our expectation that we benefit from our relationships with RMR, Sonesta and TA,

• Our qualification for taxation as a REIT,

• The impact of increasing labor costs and shortages and commodity and other price inflation due to supply chain challenges or other market conditions,

• Our belief of the competitive advantages that the scale, geographic diversity, strategic locations and the variety of service levels of our hotels gives us,

• Changes in federal or state tax laws, and

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Risks, uncertainties and other factors that could have a material adverse effect on our forward-looking statements and upon our business, results of operations, financial condition, FFO, Normalized FFO, cash flows, liquidity and prospects include, but are not limited to:

• The impact of conditions in the economy, including the COVID-19 pandemic and any resulting economic conditions, and the capital markets on us and our managers and tenants,

• The impact of economic conditions, including the impact of the COVID-19 pandemic, and the capital markets on us and our managers and tenants,

• Competition within the real estate, hotel, transportation and travel center and other industries in which our managers and tenants operate, particularly in those markets in which our properties are located,

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federal income tax purposes,

• Acts of terrorism, outbreaks of pandemics, including the COVID-19 pandemic, or other man-made or natural disasters beyond our control, and

• Actual and potential conflicts of interest with our related parties, including our Managing Trustees, TA, Sonesta, RMR LLC and others affiliated with them.

• Our ability to make future distributions to our shareholders and to make payments of principal and interest on our indebtedness depends upon a number of factors, including our future earnings, the capital costs we incur to acquire and maintain our properties and our working capital requirements.

• Acts of terrorism, pandemics, or other man-made or natural disasters beyond our control, and

• Actual and potential conflicts of interest with our related parties, including our Managing Trustees, TA, Sonesta, RMR and others affiliated with them.

We may be unable to pay our debt obligations or to increase or maintain our current rate of distributions on our common shares and future distributions may be reduced or eliminated,

• Sonesta operated 261 of our 304 hotels as of September 30, 2021, many of which were transitioned to Sonesta over the past year, and we transitioned the branding and management of one additional hotel to Sonesta on November 1, 2021.

Transitioning hotels to another operator is disruptive to the hotels’ operations and requires significant capital investments.

• Sonesta operated 256 of our 298 hotels as of March 31, 2022, many of which were transitioned to Sonesta over the past year.

Transitioning hotels to another operator is disruptive to the hotels’ operations and requires significant capital investment.

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

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

Accordingly, the returns we receive from our hotels managed under our Sonesta agreement 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 Sonesta agreement or we may be requested to fund operating losses for our Sonesta hotels.

Accordingly, the returns we receive from our hotels managed under our Sonesta agreement 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 owner’s priority return stated in our Sonesta agreement or we may be requested to fund operating losses for our Sonesta hotels.

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 and if we do not fund those contributions, our equity interest in Sonesta will be diluted if Sonesta obtains such contributions from other shareholders,

• We cannot be sure of the future financial performance of our properties, or regarding our managers’, tenants’ or guarantors’ future actions or their abilities or willingness to pay contracted amounts owed to us.

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

• Recent improvements in lodging demand may not be sustained, may stall or could decline,

• Recent improvements in lodging demand may not be sustained, may stall or could decline further and lodging demand may fail to return to historic pre-pandemic levels,

• If general economic activity in the country declines, the operating results of certain of our properties may decline, the financial results of our managers and our tenants may suffer and these managers and tenants may be unable to pay our returns or rents.

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• Hotel and other competitive forms of temporary lodging supply have been increasing and may affect our hotel operators’ ability to grow ADR and occupancy, and ADR and occupancy could decline due to increased competition which may cause our hotel operators to become unable to pay our returns or rents,

• If the current level of commercial activity in the country declines, including as a result of the COVID-19 pandemic, if the price of diesel fuel increases significantly, if fuel conservation measures are increased, if freight business is directed away from trucking, if TA is unable to effectively compete or operate its business, if fuel efficiencies, the use of alternative fuels or transportation technologies reduce the demand for products and services TA sells or for various other reasons, TA may become unable to pay current and deferred rents due to us,

• If the current level of commercial activity in the country declines, including as a result of the COVID-19 pandemic, if the price of diesel fuel increases significantly, if fuel conservation measures are increased, if freight business is directed away from trucking, if TA is unable to effectively compete or operate its business, if fuel efficiencies, the use of alternative fuels or energy sources or transportation technologies reduce the demand for products and services TA sells, if TA is unable to make substantial capital investments or for various other reasons, TA may become unable to pay current and deferred rents due to us,

• Our ability to grow our business and increase our distributions depends in large part upon our ability to buy properties that generate returns or can be leased for rents which exceed our operating and capital costs.

We may be unable to identify properties that we want to acquire and we may fail to reach agreement with the sellers and complete the purchases of any properties we do want to acquire.

In addition, any properties we may acquire may not generate returns or rents which exceed our operating and capital costs,

In addition, any properties we may acquire may not generate returns or rents which exceed our operating and capital costs and our debt agreements limit the amount of acquisitions we can make,

• We believe that our portfolio agreements include diverse groups of properties and that this diversity may improve operating results that might be realized from a more concentrated group of properties.

However, our operator concentration with respect to our hotel operations has recently increased as a result of our transitioning of a majority of our hotels to Sonesta management, and our travel center properties continue to be concentrated with TA.

As a result, our operating results may not improve,

• Current market conditions may cause the process of selling properties to continue to take longer than previously expected.

However, our operator concentration with respect to our hotel operations has recently increased as a result of Sonesta managing a majority of our hotels, and our travel center properties continue to be concentrated with TA.

As a result of this concentration, our operating results may face greater risks and may not improve,

• Market conditions may cause the process of selling properties to continue to take longer than previously expected.

We may not complete the sales of any properties we currently plan to sell, and we may determine to sell fewer properties.

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• Contingencies in our pending sale agreements may not be satisfied and any expected sales and any related management or lease arrangements we expect to enter may not occur, may be delayed or the terms of such transactions or arrangements may change,

• As of November 3, 2021, we had approximately $937.0 million of cash or cash equivalents.

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

The amounts we receive from our operators may be insufficient to operate our business profitably.

• As of May 3, 2022, we had approximately $916,106 of cash or cash equivalents.

This statement may imply that we have sufficient working capital and liquidity to meet our obligations and fund our business and investments.

However, the amounts we receive from our operators may be insufficient to operate our business profitably.

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

In addition, our managers and tenants may not be able to fund minimum returns and rents due to us from operating our properties or from other resources.

In addition, our managers and tenants may not be able to fund owner's priority returns and rents due to us from operating our properties or from other resources.

In the past and currently, certain of our tenants and managers have in fact not paid the minimum amounts due to us from their operations of our leased or managed properties and we may be required to fund hotel operating losses and working capital for our hotels.

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

The ratio of income available for debt service to debt service was below the 1.5x requirement under our public debt covenants as of September 30, 2021.

We are not permitted under our debt agreements to incur additional debt while this ratio is below 1.5x.

As a precautionary measure, we have fully drawn our $1.0 billion credit facility to maintain our financial flexibility.

Our ability to incur debt may be limited for an extended period of time.

We cannot be certain how long our ratio of income available for debt service to debt service may remain below 1.5x.

The ratio of income available for debt service to debt service was below the 1.5x requirement under our public debt covenants as of March 31, 2022.

We are currently unable to incur additional debt while this ratio is below 1.5x.

Our ability to incur additional debt may be limited for an extended period of time.

We may not have any immediately available borrowing capacity to meet any funding needs beyond our cash on hand if our operating results and financial condition are significantly and adversely impacted by current economic conditions or otherwise.

If we cannot incur additional debt, we may be forced to raise additional sources of capital or take other measures to maintain adequate liquidity and we may not succeed in raising any capital we may need,

• We expect the borrowings under our revolving credit facility to strengthen our financial position;

however, we may not obtain the financial flexibility we expect due to the ongoing COVID-19 pandemic or for other reasons,

We can provide no assurance regarding the duration and severity of the economic conditions resulting from the COVID-19 pandemic and its impact on us and our operators,

• We may be unable to repay our debt obligations when they become due.

Also, our $1,000,000 revolving credit facility matures on July 15, 2022 and we may not be able to meet the conditions required to exercise the extension option available to us under the agreement or be able to refinance the balance with new debt.

We may need to seek additional waivers or amendments with our lenders and there is no assurance we will be granted such relief,

Also, our revolving credit facility matures on January 15, 2023 and we may not be able to meet the conditions required to exercise the remaining extension option available to us under the agreement or be able to refinance the balance with new debt,

• We intend to conduct our business activities in a manner that will afford us reasonable access to capital for investment and financing activities.

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If challenging market conditions last for a long period or worsen, our managers and tenants may experience liquidity constraints and as a result may be unable or unwilling to pay returns or rents to us and our ability to operate our business effectively may be challenged,

• We currently expect to fund $30 million of capital expenditures during the last three months of 2021.

• Hotels require significant capital investments to remain competitive.

The cost of capital projects may be greater than we anticipate and operating results at our hotels may decline as a result of having rooms out of service to complete such improvements,

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

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

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

• We have the option to extend the maturity date of our revolving credit facility upon payment of a fee and meeting other conditions;

• Actual costs under our revolving credit facility or other floating rate debt will be higher than the stated rates because of fees and expenses associated with such debt,

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

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

• We have the option to further extend the maturity date of our revolving credit facility upon payment of a fee and meeting certain other conditions;

however, the applicable conditions may not be met,

• The business and property management agreements between us and RMR LLC have continuing 20 year terms.

• The business and property management agreements between us and RMR have continuing 20 year terms.

However, those agreements permit early termination in certain circumstances.

Accordingly, we cannot be sure that these agreements will remain in effect for continuing 20 year terms,

• We believe that our relationships with our related parties, including RMR LLC, TA, Sonesta and others affiliated with them may benefit us and provide us with competitive advantages in operating and growing our business.

However, the advantages we believe we may realize from these relationships may not materialize, and

• We are party to arbitration proceedings with Marriott relating to our termination of our management agreements with them.

The results of arbitration proceedings are difficult to predict and we can provide no assurances regarding such results.

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

Currently unexpected results could occur due to many different circumstances, some of which are beyond our control, such as pandemics, including the COVID-19 pandemic, acts of terrorism, natural disasters, climate change, changes in our managers’ or tenants’ revenues or expenses, changes in our managers’ or tenants’ financial conditions, the market demand for hotel rooms or the goods and services provided at our properties or changes in capital markets or the economy generally.

• We expect that we will benefit from RMR’s Environmental, Social and Governance, or ESG, program and initiatives.

However, we may not realize the benefits we expect from such program and initiatives and we or RMR may not succeed in meeting existing or future standards regarding ESG, and

• We believe that our relationships with our related parties, including RMR, TA, Sonesta and others affiliated with them may benefit us and provide us with competitive advantages in operating and growing our business.

However, the advantages we believe we may realize from these relationships may not materialize.

Currently unexpected results could occur due to many different circumstances, some of which are beyond our control, such as pandemics, acts of terrorism, war or other hostilities, pandemics, natural disasters, climate change and climate related events, changes in our tenants’ financial conditions, the market demand for leased space or changes in capital markets or the economy generally, including impacts from inflation.

The information contained elsewhere in this Quarterly Report on Form 10-Q, our 2020 Annual Report or in our other filings with the SEC, including under the caption “Risk Factors,” or incorporated herein or therein, identifies other important factors that could cause differences from our forward-looking statements.

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Part II Other Information

There have been no material changes to risk factors from those we previously disclosed in our 2020 Annual Report.

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

What changed 10-Q

Item 4. Controls and Procedures