What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-10 compared with 2020-05-11 · 438 added, 234 removed, 396 unchanged (63% of the section changed)

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We are a REIT organized under the laws of the State of Maryland.

As of March 31, 2020 , we owned 1,142 properties in 47 states, the District of Columbia, Canada and Puerto Rico.

As of June 30, 2020 , we owned 1,138 properties in 47 states, the District of Columbia, Canada and Puerto Rico.

Impact of COVID-19

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, and the United States declared a national emergency, and several states and municipalities declared public health emergencies due to this pandemic.

The COVID-19 virus has continued to spread throughout the United States and the world.

The COVID-19 pandemic and various governmental and market responses in an attempt to contain and mitigate the spread of the virus and its detrimental public health impact, have impacted and continue to severely and negatively impact the global economy, including the U.S.

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic and, in response to the outbreak, the U.S.

Health and Human Services Secretary declared a public health emergency in the United States and many states and municipalities declared public health emergencies.

The virus that causes COVID-19 has continued to spread throughout the United States and the world.

Various governmental and market responses attempting to contain and mitigate the spread of the virus that causes COVID-19 have negatively impacted, and continue to negatively impact, the global economy, including the U.S.

As a result, most market observers believe the global economy and the U.S.

economy are in a recession.

States and municipalities across the United States have been allowing certain businesses to reopen and easing certain restrictions they had previously implemented in response to the COVID-19 pandemic, often in stages that are phased in over time.

Recently, economic data have indicated that the U.S.

economy has increasingly improved since the lowest periods experienced in March and April 2020.

However, certain areas of the United States have experienced increased numbers of COVID-19 infections following the reopenings of their economies and easing of restrictions and, in some cases, certain states have imposed or re-imposed closings of certain business activities and other restrictions in response.

It is unclear whether the increases in the number of COVID-19 infection outbreaks will continue and/or amplify or whether any “second wave” of COVID-19 infections will occur in the United States or elsewhere and, if so, what the impact of that would be on human health and safety, the economy, our tenants or our business.

Our business is focused on lodging and service retail properties, which have been some of the industries most severely and negatively impacted by the effects of the pandemic.

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 lodging industry, 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 other venues, and (iii) the postponement or cancellation of industry conventions and conferences, and other demand drivers of our hotels, (iv) the closure of amusement parks, museums and other tourist attractions, (v) the closure of 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 operations.

Our hotels have experienced a significant decline in occupancy and revenues.

During March 2020, we suspended operations at one extended stay hotel as a result of the COVID-19 pandemic.

During April 2020, we suspended operations at 18 additional hotels (17 full-service hotels and one extended stay hotel) as a result of business volume declines.

We suspended operations at 19 hotels as a result of the COVID-19 pandemic and related declines in business activity (17 full-service hotels and two extended stay hotels) during March and April 2020.

In June 2020, five of the closed hotels resumed operations and, as of August 6, 2020 , 9 of these 19 hotels have resumed operations.

Hotel occupancies reached all-time lows during the second quarter of 2020 as a result weak demand resulting from various forms of stay-at-home restrictions being enforced throughout the United States due to the COVID-19 pandemic.

Occupancy at our hotels was 21.0% in April 2020, 26.8% in May 2020 and 35.5% in June 2020.

Hotel performance has gradually improved since the lows seen in April 2020 as travel demand slowly recovered.

For the 28 days ended July 25, 2020 , occupancy at our hotels was 42.4% .

We continue to work with our operators to mitigate the impact on our hotel operations as a result of general economic and industry conditions relating to the COVID-19 pandemic, including efforts to reduce operating expenses such as, but not limited to, staffing reductions and furloughs, utility consumption reductions, purchasing reductions and eliminations, service contract reductions and eliminations, food service and exercise facilities closures, and reduction and elimination of certain marketing expenditures.

We have also agreed to suspend contributions to our FF&E reserves under certain of our agreements.

As a result of the depressed activity at our hotels and near term expected losses, several of our operators have requested working capital advances from us to pay operating expenses for our hotels.

During April 2020, we advanced an aggregate of $70,723 of working capital to certain of our hotel operators to cover projected operating losses.

We advanced $37,000 to IHG, $30,000 to Marriott, $2,423 to Wyndham and $1,300 to Hyatt.

In addition, in May 2020, Sonesta requested $7,408 and Hyatt requested an additional $1,300 of working capital advances.

We expect to fund these advances in May 2020.

These efforts to reduce operating expenses have been partially offset by additional expenses we and our hotel managers have incurred to change the operations and procedures at our hotels in response to the COVID-19 pandemic.

Cleaning protocols, safety standards and other operational considerations have been modified that have resulted in, and which we expect will continue to result in, increased operating expenses and may require additional capital expenditures at our hotels.

As a result of the depressed activity at our hotels and expected losses, several of our operators have requested working capital advances from us to pay operating expenses for our hotels.

During the six months ended June 30, 2020 , we advanced an aggregate of $80,474 of working capital to certain of our hotel operators to cover projected operating losses.

We advanced $37,000 to IHG, $30,000 to Marriott, $7,351 to Sonesta, $2,423 to Wyndham and $3,700 to Hyatt.

Under certain of our hotel agreements, working capital advances are reimbursable to us from a share of future cash flows from the applicable hotel operations in excess of the minimum returns due to us and certain management fees pursuant to the terms of the respective agreements.

We may receive additional requests for working capital advances if lodging activity remains depressed for an extended period.

Our largest tenant, TA, is current on its rent obligations to us as of May 7, 2020.

We may receive additional requests for working capital advances if lodging activity continues to be depressed.

On July 23, 2020, we sent IHG a notice of default and termination of the IHG agreement as a result of non-payment of our minimum returns.

For information regarding this default and termination see Note 6 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Our largest tenant, TA, is current on its rent obligations to us as of August 6, 2020 .

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.

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

Although TA’s services have been designated “essential services” by many public authorities, and as a result, all of our travel centers operated by TA are open and operating, although TA has also experienced negative impacts from the pandemic, including closing most of its full service restaurants, and implementing social distancing and other measures at its travel center stores.

Although TA’s services have been designated “essential services” by many public authorities, and as a result, all of our travel centers operated by TA are open and operating, TA has also experienced negative impacts from the COVID-19 pandemic, including closing most of its full service restaurants, and implementing social distancing and other measures at its travel center stores.

As a result, TA has experienced declines in its business activity.

TA had begun reopening some of its restaurants in May 2020 as certain states allowed restaurants to reopen.

However, as a result of the recent increase in COVID-19 infections in several states, TA is closing or re-closing certain of its restaurants.

In addition, some of our other net lease retail tenants have experienced closures and substantial declines in their businesses as a result of the COVID-19 pandemic.

Some of these tenants have sought rent relief from us and we expect these closures, declines and requests to continue or increase in the future.

During April 2020, we collected 45% of the rents due to us for the month from our other net lease tenants.

We have entered into rent deferral agreements with 84 net lease retail tenants with leases requiring an aggregate of $61,963 of annual minimum rents.

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

As of May 7, 2020 , we have deferred an aggregate of $8,584 of rent.

If the economic downturn continues for a prolonged period, our operators and tenants and their businesses may become increasingly negatively impacted, which may result in our operators and tenants seeking assistance from us regarding their obligations owed to us, their being unable or unwilling to pay us returns or rents, their ceasing to pay us returns or rents and their ceasing to continue as going concerns.

We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business, including:

During the three months ended June 30, 2020 , we collected 58.70% of the rents due to us for those months from our other net lease tenants, including 45.6% in April 2020, 57.6% in May 2020 and 74.6% in June 2020.

We have entered into rent deferral agreements for an aggregate of $11,312 of rent with 80 net lease retail tenants with leases requiring an aggregate of $59,288 of annual minimum rents.

During July 2020, we collected 80.0% of the rents due to us for the month from our other net lease tenants.

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

If the economic downturn continues for a prolonged period, our operators and tenants and their businesses may become increasingly negatively impacted, which may result in our operators and tenants seeking additional assistance from us regarding their obligations owed to us, their being unable or unwilling to pay us returns or rents, their ceasing to pay us returns or rents and their ceasing to continue as going concerns.

For information regarding our net lease tenants and our assessment of collectability of outstanding rent amounts, see Note 6 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

We are continuing to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including:

our operators and tenants and their ability to withstand the current economic conditions and continue to pay us returns and rents;

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• conducting financial modeling and sensitivity analyses;

actively communicating with our operators and tenants and other key constituents and stakeholders in order to help assess market conditions, opportunities, best practices and mitigate risks and potential adverse impacts, and

monitoring, with the assistance of counsel and other specialists, possible government relief funding sources and other programs that may be available to us or our operators and tenants to enable us and them to operate through the current economic conditions and enhance our tenants’ ability to pay us returns and rents.

Despite the circumstances outlined above, we believe that our current financial resources and our expectations as to the future performance of the lodging industry and the industries in which our net lease retail tenants operate will enable us to withstand the COVID-19 pandemic and its aftermath.

As of May 7, 2020 , we have:

$500,000 of availability under our revolving credit facility and we have received a limited waiver of compliance with certain financial covenants under our credit agreement to ensure we have full access to undrawn amounts under such credit facility,

As of August 6, 2020 , we have:

$967,911 of availability under our revolving credit facility and we have received a limited waiver of compliance with certain financial covenants under our credit agreement to ensure we have full access to undrawn amounts under such credit facility, subject to minimum liquidity requirements,

reduced our quarterly cash distributions on our common shares to $0.01 per share;

a savings of $87,220 per quarter compared to prior distribution levels,

no debt maturities during the remainder of 2020 and with the next debt maturity thereafter being $400,000 of our senior notes due in February 2021, and

raised $788,002 of net proceeds from the issuance of our 7.5% senior notes due 2025,

repurchased $350,000 principal amount of our $400,000 of 4.25% senior notes due 2021,

raised $62,858 in net proceeds from asset sales and have entered agreements to sell additional properties for an aggregate sales price of $55,625 ,

no debt maturities during the remainder of 2020 and the next debt maturity being $50,000 of our senior notes due in February 2021, and

prioritized our projected capital improvement spending to projects in progress, maintenance capital and contractual obligations.

We do not have any employees and the personnel and various services we require to operate our business are provided to us by RMR LLC pursuant to our business and property management agreements with RMR LLC.

RMR LLC has implemented enhanced cleaning protocols and social distancing guidelines at its corporate headquarters and its regional offices, as well as business continuity plans to ensure RMR LLC employees remain safe and able to support us and the other companies to which RMR LLC and its subsidiaries provide management services, including providing appropriate information technology such as notebook computers, smart phones, computer applications, information technology security applications and technology support.

There are extensive uncertainties surrounding the COVID-19 pandemic and its aftermath.

RMR LLC has implemented enhanced cleaning protocols and social distancing guidelines at its corporate headquarters and its regional offices, as well as business continuity plans to ensure RMR LLC employees remain safe and able to support us and other companies managed by RMR LLC or its subsidiaries, including providing appropriate information technology such as notebook computers, smart phones, computer applications, information technology security applications and technology support.

There are extensive uncertainties surrounding the COVID-19 pandemic.

These uncertainties include among others:

the duration and severity of the current economic downturn;

the duration and severity of the negative economic impact;

the strength and sustainability of any economic recovery;

the timing and process for how the government and other market participants may oversee and conduct the return of economic activity when the COVID-19 pandemic abates, such as what continuing restrictions and protective measures may remain in place or be added and what restrictions and protective measures may be lifted or reduced in order to foster a return of increased economic activity in the United States;

the timing and process for how federal, state and local governments and other market participants may oversee and conduct the return of economic activity when the COVID-19 pandemic abates, such as what continuing restrictions and protective measures may remain in place or be added and what restrictions and protective measures may be lifted or reduced in order to foster a return of increased economic activity in the United States;

whether, following a recommencing of more normal levels of economic activities, the United States or other countries experience “second waves” of COVID-19 infection outbreaks and, if so, the responses of governments, businesses and the general public to those events.

As a result of these uncertainties, we are unable to determine what the ultimate impact will be on our operations and our operators and other stakeholders’ businesses, operations, financial results and financial positions.

For further information and risks relating to the COVID-19 pandemic and its aftermath on us and our business, see Part II, Item 1A Risk Factors, in this Quarterly Report on Form 10-Q.

For further information and risks relating to the COVID-19 pandemic on us and our business, see Part II, Item 1A Risk Factors, in this Quarterly Report on Form 10-Q.

Acquisitions and Dispositions

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During the three months ended December 31, 2019, we sold 130 net lease properties that we acquired in the SMTA Transaction in 28 states with 2,773,241 square feet and annual minimum rent of $43,180 for $513,012.

We were previously marketing for sale 20 Wyndham branded hotels with an aggregate net carrying value of $110,465 and 33 Marriott hotels with an aggregate net carrying value of $221,129 and were in the process of launching a marketing effort related to our 39 Sonesta ES Suites hotels with an aggregate net carrying value of $461,263 .

We currently expect any transactions related to these hotels will be delayed until later in 2020 or 2021 as a result of current market conditions and these transactions may be delayed further or may not occur.

On February 27, 2020, we entered into a transaction agreement with Sonesta pursuant to which we and Sonesta modified our existing business arrangements.

Additional details regarding this transaction are set forth in Note 6 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, which disclosure is incorporated herein by reference.

We have entered agreements to sell eight Marriott branded hotels with 834 rooms in four states with a net carrying value of $34,956 for an aggregate sales price of $45,250 .

We have entered an agreement to sell one Wyndham branded hotel with 344 rooms with a net carrying value of $3,365 for a sales price of $3,500 .

We expect these sales to be completed in the fourth quarter of 2020.

We expect to use the net sales proceeds from any hotels sold to repay outstanding indebtedness.

The amount of minimum returns due from Marriott will be reduced by the amount allocated to the Marriott hotels, which was $7,935 as of June 30, 2020 .

The sales of these hotels are subject to various contingencies;

accordingly, we cannot provide any assurance that we will sell any of these nine hotels.

On February 27, 2020, we entered into a transaction agreement with Sonesta pursuant to which we and Sonesta modified our then existing business arrangements.

See Note 6 for further information regarding our Sonesta agreement in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Management agreements and leases .

At March 31, 2020 , we owned 329 hotels operated under six agreements.

At June 30, 2020 , we owned 329 hotels operated under six agreements.

We leased 328 of these hotels to our wholly owned TRSs that are managed by hotel operating companies, and the one remaining hotel is leased to a hotel operating company.

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Also, certain of the guarantees that we hold are limited in amount and duration and do not provide for payment of the entire amount of the applicable minimum returns.

As of March 31, 2020 , we had $129,526 of security deposits and guarantees available to cover shortfalls in hotel cash flows available to pay the minimum returns due to us from certain hotel operators.

Based on our current estimates, we project we will exhaust all of the security deposits and most of the guarantees our hotel operators have provided by as early as the second quarter of 2020.

During the three and six months ended June 30, 2020 , we utilized $37,862 and $100,170, respectively, of hotel operator security deposits, and during the three and six months ended June 30, 2020 , we utilized $46,686 and $54,883, respectively, of the guarantees provided by certain of our hotel operators under their respective operating agreements.

As of June 30, 2020 , we had $8,992 of security deposits and $35,988 of guarantees available to cover shortfalls in hotel cash flows available to pay the minimum returns due to us from certain hotel operators.

As of August 6, 2020, we have fully utilized the remaining security deposit we held from IHG and fully utilized the security deposit we held and exhausted the $30,000 limited guarantee under our Marriott agreement.

B ased on our current estimates, we project we will exhaust the guaranty from Hyatt in the fourth quarter of 2020.

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

Hotel Portfolio

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We generally define comparable hotels as those that were owned by us and were open and operating for the entire periods being compared.

For the three months ended March 31, 2020 and 2019 , we excluded eight hotels from our comparable results.

Three of these hotels were not owned for the entire period, four were closed for major renovations and one suspended operations as a result of the COVID-19 pandemic during part of the periods presented.

Based on our current estimates, we project that we will exhaust all of the security deposits and most of the guarantees our hotel operators have provided to us by as early as the end of the second quarter of 2020.

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

For the three months ended June 30, 2020 and 2019 , we excluded 23 hotels from our comparable results.

Two of these hotels were not owned for the entire period, two were closed for major renovations and 19 suspended operations as a result of the COVID-19 pandemic during part of the periods presented.

For the six months ended June 30, 2020 and 2019 , we excluded 25 hotels from our comparable results.

Three of these hotels were not owned for the entire period, three were closed for major renovations and 19 suspended operations as a result of the COVID-19 pandemic during part of the periods presented.

Hotel operations .

During the three months ended March 31, 2020 , the U.S.

hotel industry generally realized decreases in ADR and RevPAR and declines in occupancy compared to the same period in 2019 .

During the three months ended March 31, 2020 , our 321 comparable hotels that we owned continuously since January 1, 2019 produced aggregate year over year decreases in ADR, occupancy and RevPAR.

During the three and six months ended June 30, 2020 , the U.S.

hotel industry generally realized decreases in ADR and RevPAR and declines in occupancy compared to the same periods in 2019 .

During the three and six months ended June 30, 2020 , our 306 comparable hotels that we owned continuously since January 1, 2019 produced aggregate year over year decreases in ADR, occupancy and RevPAR.

We believe these results are primarily due to the market disruption resulting from the COVID-19 pandemic.

For the three months ended March 31, 2020 compared to the same period in 2019 for our 321 comparable hotels:

For the three months ended June 30, 2020 compared to the same period in 2019 for our 306 comparable hotels:

ADR decreased 31.5% to $83.47 ;

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and RevPAR decreased 72.3% to $26.04 .

For the three months ended March 31, 2020 compared to the same period in 2019 for all our 329 hotels:

For the three months ended June 30, 2020 compared to the same period in 2019 for all our 329 hotels:

ADR decreased 36.4% to $84.34 ;

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and RevPAR decreased 77.1% to $23.45 .

For the six months ended June 30, 2020 compared to the same period in 2019 for our 304 comparable hotels:

ADR decreased 14.1% to $103.85 ;

occupancy decreased 27.8 percentage points to 44.4% ;

and RevPAR decreased 47.2% to $46.11 .

For the six months ended June 30, 2020 compared to the same period in 2019 for all our 329 hotels:

ADR decreased 16.1% to $110.24 ;

occupancy decreased 30.4 percentage points to 41.9% ;

and RevPAR decreased 51.4% to $46.19 .

Net Lease Portfolio .

As of March 31, 2020 , we owned 813 net lease service-oriented retail properties with 14.5 million square feet and annual minimum rent of $379,503 , which represented approximately 39% of our total annual minimum returns and rents.

Our net lease portfolio was 98% occupied as of March 31, 2020 , by 187 tenants with a weighted (by annual minimum rent) lease term of 11.1 years, operating under 128 brands in 22 distinct industries.

As of June 30, 2020 , we owned 809 net lease service-oriented retail properties with 13.7 million square feet and annual minimum rent of $369,423 , which represented approximately 38% of our total annual minimum returns and rents.

Our net lease portfolio was 99% occupied as of June 30, 2020 by 180 tenants with a weighted (by annual minimum rent) lease term of 11.1 years, operating under 129 brands in 22 distinct industries.

TA is our largest tenant.

As of March 31, 2020 , we leased 179 travel centers to TA under five master leases that expire between 2029 and 2035 and require annual minimum rents of $246,110 which represents 25.5% of our consolidated annual minimum rents and returns.

As of June 30, 2020 , we leased 179 travel centers to TA under five master leases that expire between 2029 and 2035 and require annual minimum rents of $246,110 which represents 25.6% of our consolidated annual minimum rents and returns.

Additional details of our hotel operating agreements and our net lease agreements are set forth in Notes 6 and 10 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q and in the table and notes thereto on pages 45 through 47 below.

Results of Operations (dollar amounts in thousands, except share amounts)

Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019

For the Three Months Ended March 31,

Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019

For the Three Months Ended June 30,

Hotel operating revenues

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Other operating income:

Gain (loss) on sale of real estate

Loss on sale of real estate

Gain on insurance settlement

Dividend income

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Interest expense

Loss on early extinguishment of debt

Income (loss) before income taxes and equity earnings of an investee

Income tax expense

Income tax benefit (expense)

Equity in earnings (losses) of an investee

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Net income (loss) per common share (basic and diluted)

References to changes in the income and expense categories below relate to the comparison of consolidated results for the three months ended March 31, 2020 , compared to the three months ended March 31, 2019 .

References to changes in the income and expense categories below relate to the comparison of consolidated results for the three months ended June 30, 2020 , compared to the three months ended June 30, 2019 .

Hotel operating revenues.

The decrease in hotel operating revenues is a result of decreased revenues at certain of our managed hotels primarily as a result of lower occupancies ($95,424), partially offset by the conversion of one hotel from a leased to a managed property ($12,787), increased revenues at certain of our managed hotels primarily as a result of higher occupancies ($6,960) and our hotel acquisitions since January 1, 2019 ($4,317).

The decrease in hotel operating revenues is a result of decreased revenues at certain of our managed hotels primarily as a result of lower occupancies principally as a result of the COVID-19 pandemic ($424,171), partially offset by the conversion of one hotel from a leased to a managed property ($312).

Additional operating statistics of our hotels are included in the table on page 47 .

Rental income - hotels.

The decrease in rental income – hotels is primarily the result of the conversion of one hotel from a leased to a managed property during the 2020 period ($2,894) and amending the lease terms for 48 vacation units we leased at one hotel during 2020 ($1,897).

Rental income - hotels for the 2020 and 2019 periods includes $1,897 and $82 , respectively, of adjustments to record rent on a straight-line basis.

The decrease in rental income – hotels is primarily the result of the conversion of one hotel from a leased to a managed property during the 2020 period ($3,082).

Rental income - hotels for the 2019 period includes $81 of adjustments to record rent on a straight-line basis.

There were no such adjustments to rental income - hotels for the 2020 period.

Rental income - net lease portfolio.

The increase in rental income - net lease portfolio is primarily a result of rents from properties we acquired pursuant to the SMTA Transaction ($32,516).

We reduced rental income by $1,646 and $1,214 for the 2020 and 2019 periods, respectively, to record scheduled rent changes under certain leases, the deferred rent obligations payable to us under our TA leases and the estimated future payments to us under our TA leases for the cost of removing underground storage tanks on a straight-line basis.

We increased rental income by $875 and reduced rental income by $3,271 for the 2020 and 2019 periods, respectively, to record scheduled rent changes under certain leases, the deferred rent obligations payable to us under our TA leases and the estimated future payments to us under our TA leases for the cost of removing underground storage tanks on a straight-line basis.

FF&E reserve income.

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We do not report the amounts, if any, which are escrowed as FF&E reserves for our managed hotels as FF&E reserve income.

The decrease in FF&E reserve income is the result of decreased sales at one leased hotel and the conversion of one hotel from a leased hotel to a managed property in the 2020 period.

The decrease in FF&E reserve income is the result of the suspension of FF&E reserve contributions for our one leased hotel and the conversion of one hotel from a leased hotel to a managed property in the 2020 period.

Hotel operating expenses.

The decrease in hotel operating expenses is a result of an increase in the amount of guaranty and security deposit utilization under certain of our hotel management agreements ($53,462) and a decrease at certain managed hotels undergoing renovations during all of part of the three months ended March 31, 2020 resulting primarily from lower occupancies ($13,008), partially offset by the conversion of one hotel from a leased to managed property during the 2020 period ($12,787), our hotel acquisitions since January 1, 2019 ($4,317), an increase in in wage and benefit costs, sales and marketing expenses and other operating costs at certain of our managed hotels ($2,535) and an increase in real estate taxes at certain of our hotels ($294).

The decrease in hotel operating expenses is a result of an increase in the amount of guaranty and security deposit utilization under certain of our hotel management agreements ($128,165), a decrease at certain managed hotels as a result of lower occupancies primarily driven by the COVID-19 pandemic ($107,648), a decrease in wage and benefit costs, sales and marketing expenses and other operating costs at certain of our managed hotels ($89,832), and a decrease in the amount of guaranty and security deposit replenishments under certain of our hotel management agreements ($9,208), partially offset by an increase in real estate taxes at certain of our hotels ($578), our hotel acquisitions since January 1, 2019 ($490), and the conversion of one hotel from a leased to managed property during the 2020 period ($311).

Certain guarantees and security deposits which have been applied to past payment deficits may be replenished from a share of subsequent cash flows from the applicable hotel operations pursuant to the terms of the respective operating agreements.

When our guarantees and our security deposits are replenished by cash flows from hotel operations, we reflect such replenishments in our condensed consolidated statements of comprehensive income as an increase to hotel operating expenses.

There were no such replenishments for either of the three months ended March 31, 2020 or 2019 .

Hotel operating expenses were increased by $9,208 for the three months ended June 30, 2019 .

There were no such replenishments for the three months ended June 30, 2020 .

When our guarantees and security deposits are utilized to cover shortfalls of hotel cash flows from the minimum payments due to us, we reflect such utilizations in our condensed consolidated statements of comprehensive income as a decrease to hotel operating expenses.

Hotel operating expenses were decreased by $75,927 and $22,465 during the three months ended March 31, 2020 and 2019 , respectively, as a result of such utilization.

Hotel operating expenses were decreased by $121,155 for the utilization of our security deposits and guarantees during the three months ended June 30, 2020 .

There were no such utilizations for the three months ended June 30, 2019 .

Other operating expenses.

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General and administrative.

The increase in general and administrative costs is primarily due to increases in business management fees and professional service expenses.

The decrease in general and administrative costs is primarily due to a decrease in business management fees in the 2020 period.

Loss on asset impairment.

We recorded a $16,740 loss on asset impairment during the three months ended March 31, 2020 to reduce the carrying value of two net lease properties to their estimated fair value.

We recorded a $28,514 loss on asset impairment during the three months ended June 30, 2020 to reduce the carrying value of 17 hotel and four net lease properties to their estimated fair value.

Loss on sale of real estate.

We recorded a $2,853 net loss on sale of real estate during the three months ended June 30, 2020 in connection with the sales of four net lease properties.

Gain on insurance settlement.

We recorded a $62,386 gain on insurance settlement during the three months ended June 30, 2020 for insurance proceeds received for our leased hotel in San Juan, PR related to Hurricane Maria.

Under GAAP, we were required to increase the building basis of our San Juan hotel for the amount of the insurance proceeds.

See Note 5 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information regarding this insurance settlement.

Dividend income.

Dividend income represents the dividends we received from our former investment in RMR Inc.

Unrealized gains (losses) on equity securities, net.

Unrealized gains and losses on equity securities, net represents the adjustment required to adjust the carrying value of our former investment in RMR Inc., which we sold in July 2019, and our investment in TA common shares to their fair values as of June 30, 2020 and June 30, 2019 .

Interest income.

The decrease in interest income is due to lower average cash balances and lower interest rates during the 2020 period.

Interest expense.

The increase in interest expense is due to higher average outstanding borrowings and a higher weighted average interest rate in the 2020 period.

Loss on early extinguishment of debt .

Loss on early extinguishment of debt represents costs incurred in the 2020 period for our repurchase of $350,000 principal amount of our $400,000 of 4.25% senior notes due 2021.

Income tax benefit (expense).

We recorded a $15,650 deferred tax liability as a result of the book value to tax basis difference related to the accounting of an insurance settlement during the three months ended June 30, 2020 .

See Note 5 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information regarding this insurance settlement.

Equity in earnings (losses) of an investee.

Equity in earnings (losses) of an investee represents our proportionate share of the earnings (losses) of Sonesta and AIC.

Net income (loss).

Our net income (loss) and net income (loss) per common share (basic and diluted) each decreased in the 2020 period compared to the 2019 period primarily due to the revenue and expense changes discussed above.

Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019

For the Six Months Ended June 30,

Hotel operating revenues

Rental income - hotels

Rental income - net lease portfolio

Total rental income

FF&E reserve income

Hotel operating expenses

Other operating expenses

Depreciation and amortization - hotels

Depreciation and amortization - net lease portfolio

Total depreciation and amortization

General and administrative

Loss on asset impairment

Gain (loss) on sale of real estate

We recorded a $6,911 net loss on sale of real estate during the three months ended March 31, 2020 in connection with the sales of six net lease properties and a $159,535 gain on sale of real estate during the three months ended March 31, 2019 in connection with the sales of 20 travel centers.

Gain on insurance settlement

Dividend income

Unrealized gains (losses) on equity securities, net

Interest income

Interest expense

Loss on early extinguishment of debt

Income before income taxes and equity earnings of an investee

Income tax expense

Equity in earnings (losses) of an investee

Net income (loss)

Weighted average shares outstanding (basic)

Weighted average shares outstanding (diluted)

Net income (loss) per common share (basic and diluted)

References to changes in the income and expense categories below relate to the comparison of consolidated results for the six months ended June 30, 2020 , compared to the six months ended June 30, 2019 .

Hotel operating revenues.

The decrease in hotel operating revenues is a result of decreased revenues at certain of our managed hotels primarily as a result of lower occupancies resulting from the COVID-19 pandemic ($508,318), partially offset by the conversion of one hotel from a leased to a managed property ($13,099).

Additional operating statistics of our hotels are included in the table on page 47 .

Rental income - hotels.

The decrease in rental income - hotels is primarily a result of the conversion of one hotel from a leased to managed property during the 2019 period ($5,879) and amending the lease terms for 48 vacation units we leased at one hotel during 2020 ($1,897).

Rental income - hotels for the 2020 and 2019 periods includes $1,897 and $161 , respectively, of adjustments to record rent on a straight-line basis.

Rental income - net lease portfolio.

The increase in rental income - net lease portfolio is primarily a result of rents from properties we acquired pursuant to the SMTA Transaction ($66,889).

We reduced rental income by $772 and $4,483 for the 2020 and 2019 periods, respectively, to record scheduled rent changes under certain leases, the deferred rent obligations payable to us under our TA leases and the estimated future payments to us under our TA leases for the cost of removing underground storage tanks on a straight-line basis.

FF&E reserve income.

The decrease in FF&E reserve income is the result of decreased sales and the suspension of FF&E reserve contributions for our one leased hotel in the 2020 period and the conversion of one hotel from a leased hotel to a managed property in the 2020 period.

Hotel operating expenses.

The decrease in hotel operating expenses is a result of an increase in the amount of guaranty and security deposit utilization under certain of our hotel management agreements ($187,413), a decrease at certain managed hotels as a result of lower occupancies primarily driven by the COVID-19 pandemic and certain hotels undergoing renovations during all of part of the six months ended June 30, 2020 ($145,402), a decrease in wage and benefit costs, sales and marketing expenses and other operating costs at certain of our managed hotels ($52,762), our hotel acquisitions since January 1, 2019 ($3,592), a decrease in the amount of guaranty and security deposit replenishments under certain of our hotel management agreements ($3,422) and a decrease in real estate taxes at certain of our hotels ($519), partially offset by the conversion of one hotel from a leased to managed property during the 2020 period ($13,099).

As a result, hotel operating expenses were increased by $3,422 for the six months ended June 30, 2019 .

There were no such replenishments for the six months ended June 30, 2020 .

Hotel operating expenses were decreased by $191,660 and $16,679 during the six months ended June 30, 2020 and 2019 , respectively, as a result of such utilization.

Other operating expenses.

The increase in other operating expenses is a result of operating expenses we pay at certain properties we acquired as part of the SMTA Transaction in September 2019.

Depreciation and amortization - hotels.

The increase in depreciation and amortization - hotels is a result of the depreciation and amortization of improvements acquired with funds from our FF&E reserves or directly funded by us since January 1, 2019 ($11,172) and our hotel acquisitions since January 1, 2019 ($2,202), partially offset by certain of our depreciable assets becoming fully depreciated since January 1, 2019 ($11,301).

Depreciation and amortization - net lease portfolio.

The increase in depreciation and amortization - net lease portfolio is a result of the depreciation and amortization of properties we acquired as part of the SMTA Transaction ($53,761) and the depreciation and amortization of net lease improvements we purchased since January 1, 2019 ($8,278), partially offset by certain of our depreciable assets becoming fully depreciated since January 1, 2019 ($7,320).

General and administrative.

The increase in general and administrative costs is primarily due to an increase in professional service expenses.

Loss on asset impairment.

We recorded a $45,254 loss on asset impairment during the six months ended June 30, 2020 to reduce the carrying value of 17 hotels and six net lease properties to their estimated fair value.

Gain (loss) on sale of real estate.

We recorded a $9,764 net loss on sale of real estate in the 2020 period in connection with the sales of ten net lease properties and a $159,535 gain on sale of real estate during the six months ended June 30, 2019 in connection with our sales of 20 travel centers.

Gain on insurance settlement.

We recorded a $62,386 gain on insurance settlement during the six months ended June 30, 2020 as a result of insurance proceeds received for our leased hotel in San Juan, PR related to Hurricane Maria.

Under GAAP, we were required to increase the building basis of our San Juan hotel for the amount of the insurance proceeds.

Dividend income.

Dividend income represents the dividends we received from our former investment in RMR Inc.

Unrealized gains (losses) on equity securities, net.

Unrealized gains (losses) on equity securities, net represent the adjustment required to adjust the carrying value of our former investment in RMR Inc., which we sold in July 2019, and our investment in TA common shares, to their fair values as of June 30, 2020 and June 30, 2019 .

Interest income.

The decrease in interest income is due to lower average cash balances during the 2020 period.

The decrease in interest income is due to lower average cash balances and lower interest rates during the 2020 period.

Interest expense.

The increase in interest expense is due to higher average outstanding borrowings, primarily as a result of our financing of the SMTA Transaction, partially offset by a lower weighted average interest rate in the 2020 period.

The increase in interest expense is due to higher average outstanding borrowings and weighted average interest rates in the 2020 period.

Loss on early extinguishment of debt .

Loss on early extinguishment of debt represents costs incurred in the 2020 period for our purchase of $350,000 principal amount of our $400,000 of 4.25% senior notes due 2021.

Income tax expense.

We recognized lower state taxes during the 2020 period primarily due to a decrease in the amount of state sourced income subject to income taxes.

We recorded a $15,650 deferred tax liability as a result of the book value to tax basis difference related to the accounting of an insurance settlement in the three months ended June 30, 2020 .

See Note 5 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information regarding this insurance settlement.

Equity in earnings (losses) of an investee.

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Our Managers and Tenants

As of March 31, 2020 , 329 of our hotels (including one leased hotel) were included in six combination portfolio agreements ;

As of June 30, 2020 , 329 of our hotels (including one leased hotel) were included in six combination portfolio agreements;

and all 329 hotels were managed by or leased to hotel operating companies.

Our 813 net lease properties were leased to 187 tenants as of March 31, 2020 .

Our 809 net lease properties were leased to 180 tenants as of June 30, 2020 .

The costs of operating and maintaining our properties are generally paid by the hotel operators as agents for us or by our tenants for their own account.

Our hotel managers and tenant derive their funding for property operating expenses and for returns and rents due to us generally from property operating revenues and, to the extent that these parties themselves fund our minimum returns and rents, from their separate resources.

Our hotel managers and tenant include Marriott, IHG, Sonesta, Wyndham, Hyatt and Radisson.

Our hotel operators derive their funding for property operating expenses and for returns and rents due to us generally from property operating revenues and, to the extent that these parties themselves fund our minimum returns and rents, from their separate resources.

Our hotel operators include Marriott, IHG, Sonesta, Wyndham, Hyatt and Radisson.

TA is our largest net lease tenant.

No other net lease tenant represents more than 1% of our total annualized minimum returns or rents.

We are carefully monitoring the developments of the COVID-19 pandemic and its impact on our operators and tenants and our other stakeholders.

As a result of the depressed activity at our hotels and near term expected losses, several of our hotel operators have requested working capital advances from us to pay operating expenses.

During April 2020, we advanced an aggregate of $70,723 of working capital to certain of our hotel operators to cover projected operating losses.

We advanced $37,000 to IHG, $30,000 to Marriott, $2,423 to Wyndham and $1,300 to Hyatt.

The COVID-19 pandemic has had a material and adverse effect on the lodging and service industries and our hotel managers’ and tenant’s businesses.

Certain of our tenants’ businesses have been materially and adversely impacted by the COVID-19 pandemic, which may reduce their ability or willingness to pay us our minimum returns and rents, increase the likelihood they will default in paying us rent and likely reduce the value of those properties.

IHG operates 103 of our hotels under agreements requiring that, as of June 30, 2020 , we are to be paid annual minimum returns and rents of $216,551 .

In July 2020, we applied the remaining $8,992 of security deposit securing the obligations of IHG under its agreement with us.

We did not receive any payments from IHG to cure shortfalls for the balance of the July minimum returns and rents of $8,395 due to us after applying the remaining security deposit or the August 2020 minimum returns and rents of $18,045 due to us.

In July 2020, we sent IHG a notice of default and termination, and in August 2020, we sent IHG an additional notice of default.

We are in discussions with IHG to see if there may be a mutually beneficial resolution.

Absent a cure of these defaults by IHG, or if no agreement is reached, we currently plan to transition management and branding of these 103 hotels to Sonesta.

If any other of our hotel operators or guarantors default in their payment obligations to us, our cash flows will decline further.

We continue to carefully monitor the developments of the COVID-19 pandemic and its impact on our operators and tenants and our other stakeholders.

As a result of the depressed activity at our hotels and expected losses, several of our hotel operators requested working capital advances from us to pay operating expenses.

During the quarter ended June 30, 2020 , we advanced an aggregate of $80,474 of working capital to certain of our hotel operators to cover projected operating losses.

We advanced $37,000 to IHG, $30,000 to Marriott, $7,351 to Sonesta, $2,423 to Wyndham and $3,700 to Hyatt.

Under certain of our hotel agreements, working capital advances are reimbursable to us from a share of future cash flows from the applicable hotel operations in excess of the minimum returns due to us and certain fees to the manager pursuant to the terms of the respective agreements.

The amounts we have advanced to date may be insufficient to cover future losses and we may receive additional requests for working capital in the future.

TA, our largest tenant, is current on all its rent obligations to us as of May 7, 2020 .

During April 2020, we collected 45% of the rents due to us for the month from our other net lease tenants.

We entered into rent deferral agreements with 84 net lease retail tenants with leases requiring an aggregate of $61,963 of annual minimum rents.

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

As of May 7, 2020 , we have deferred an aggregate of $8,584 of rent.

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

TA, our largest tenant, is current on all its rent obligations to us as of August 6, 2020 .

During the three months ended June 30, 2020 , we collected 58.7% of rents from our other net lease tenants, including 45.6% in April 2020, 57.6% in May 2020 and 74.6% in June 2020.

In July 2020, we collected 80.0% of rents due to us from our other net lease tenants.

We have entered into rent deferral agreements with 80 net lease retail tenants with leases requiring an aggregate of $59,288 of annual minimum rents.

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

As of August 6, 2020 , we have deferred an aggregate of $11,312 of rent.

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

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

Further, we do not know whether any of our tenants will qualify for, and receive assistance from, the Coronavirus Aid, Relief and Economic Security Act or other government programs and, if they do, whether that assistance will be sufficient to enable them to pay rent to us.

As a result of these uncertainties surrounding the COVID-19 pandemic and the duration and extent of the resulting economic downturn, we are unable to determine what the ultimate impact will be on our tenants and their ability and willingness to pay us rent.

As a result of the uncertainties, we are unable to currently assess any additional impact this pandemic will have on our future cash flows.

Further, we do not know whether any of our tenants have qualified for, or will receive assistance from, the Coronavirus Aid, Relief and Economic Security Act or other government programs and, if they do, whether that assistance will be sufficient to enable them to pay rent to us.

We define coverage for each of our hotel operating agreements as total hotel property level revenues minus all hotel property level expenses and FF&E reserve escrows that are not subordinated to the hotel minimum returns or rents due to us divided by the hotel minimum returns or rents due to us.

More detail regarding coverage, guarantees and other features of our hotel operating agreements is presented in the tables and related notes on pages 45 through 47 .

For the twelve months ended March 31, 2020 , all six of our hotel operating agreements, representing 60% of our total annual minimum returns and rents, generated coverage of less than 1.0x (with a range from 0.38x to 0.92x).

We define net lease coverage as annual property level adjusted earnings before interest, taxes, depreciation, amortization and rent, or EBITDAR, divided by the annual minimum rent due to us, weighted by the minimum rent of the property to total minimum rents of the net lease portfolio.

The annual property level adjusted EBITDAR is determined based on the most recent operating statements, if any, furnished by the tenant.

For the twelve months ended June 30, 2020 , all six of our hotel operating agreements, representing 62% of our total annual minimum returns and rents, generated coverage of less than 1.0x (with a range from 0.04x to 0.52x).

We define net lease coverage as earnings before interest, taxes, depreciation, amortization and rent, or EBITDAR, divided by the annual minimum rent due to us weighted by the minimum rent of the property to total minimum rents of the net lease portfolio.

EBITDAR amounts used to determine rent coverage are generally for the latest twelve month period reported based on the most recent operating information, if any, furnished by the tenant.

Operating statements furnished by the tenant often are unaudited and, in certain cases, may not have been prepared in accordance with GAAP and are not independently verified by us.

Properties that do not report operating information are excluded from the coverage calculations.

As of March 31, 2020 , our net lease properties generated coverage of 2.28x .

Tenants that do not report operating information are excluded from the coverage calculations.

Coverage amounts include data for certain properties for periods prior to when we acquired them.

In instances where we do not have financial information for the most recent quarter from our tenants, we have calculated an implied EBITDAR for the second quarter using industry benchmark data to more accurately reflect the impact of COVID-19 on our tenants’ operations.

We believe using only financial information from the earlier periods could be misleading as it would not reflect the negative impact those tenants experienced as a result of the COVID-19 pandemic.

As a result, we believe using this industry benchmark data provides a more accurate estimated representation of recent operating results and coverage for those tenants.

As of June 30, 2020 , our net lease properties generated coverage of 2.16x .

Certain of our management arrangements or leases are subject to full or limited guarantees or are secured by a security deposit which we control.

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Accordingly, the effectiveness of our various security features to provide uninterrupted payments to us is not assured.

The COVID-19 pandemic has had a material and adverse effect on the lodging and service industries and our hotel managers’ and tenant’s businesses.

If any of our hotel managers, tenants or guarantors default in their payment obligations to us, our cash flows will decline.

Certain of our tenants’ businesses have been materially and adversely impacted by the COVID-19 pandemic, 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.

Based on our current estimates, we project that we will exhaust all of the security deposits and most of the guarantees our hotel operators have provided to us by as early as the second quarter of 2020.

We have exhausted the security deposits held under the IHG agreement and IHG has defaulted on its payment obligations.

We have also exhausted both the security deposit and the limited guaranty under the Marriott agreement.

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

Year to date through June 30, 2020, we have received payments or utilized the available security deposit for an aggregate of 80% of the minimum returns due to us from Marriott.

Based on our current estimates, we project that we may exhaust the remainder of the guarantee from Hyatt as early as the fourth quarter of 2020.

On February 27, 2020, we entered into a transaction agreement with Sonesta pursuant to which we and Sonesta restructured our existing business arrangements, as follows:

We amended and restated our existing Sonesta agreement, and our existing pooling agreement with Sonesta, which combines our management agreements with Sonesta for purposes of calculating gross revenues, payment of hotel operating expenses, payment of fees and distributions and minimum returns due to us, as further described below;

We and Sonesta agreed to sell, rebrand or repurpose our 39 extended stay hotels currently managed by Sonesta, with an aggregate carrying value of $461,263 and which currently require aggregate minimum returns of $48,239 .

we amended and restated our then existing Sonesta agreement, and our existing pooling agreement with Sonesta, which combines our management agreements with Sonesta for purposes of calculating gross revenues, payment of hotel operating expenses, payment of fees and distributions and minimum returns due to us, as further described below;

we and Sonesta agreed to sell, rebrand or repurpose our 39 extended stay hotels currently managed by Sonesta, which as of June 30, 2020, had an aggregate carrying value of $461,263 and which currently require aggregate minimum returns of $48,239 .

As the hotels are sold, rebranded or repurposed, the management agreement for the applicable hotel(s) will terminate without our being required to pay Sonesta a termination fee and the annual minimum returns due to us under our Sonesta agreement will decrease by the amount allocated to the applicable hotel(s);

Sonesta will continue to manage 14 of our full-service hotels and the aggregate annual minimum returns due for these hotels was reduced from $99,013 to $69,013;

Sonesta continues to manage 14 of our full-service hotels it then managed and the aggregate annual minimum returns due for these hotels was reduced from $99,013 to $69,013;

Sonesta issued to us a number of its shares of common stock representing approximately (but not more than) 34% of its outstanding shares of common stock (post-issuance) and we entered into a stockholders agreement with Sonesta, Adam Portnoy and the other stockholder of Sonesta and a registration rights agreement with Sonesta;

We modified our Sonesta agreement and pooling agreement so that up to 5% of the gross revenues of each of our 14 full-service hotels managed by Sonesta will be escrowed for future capital expenditures as “FF&E reserves,” subject to available cash flow after payment of the annual minimum returns due to us and working capital advances, if any, under our Sonesta agreement;

We modified our Sonesta agreement and pooling agreement so that (1) our termination rights under those agreements for our 14 full-service hotels managed by Sonesta are generally limited to performance and for “cause”, casualty and condemnation events, (2) a portfolio wide performance test now applies for determining whether the management agreement for any of our full service hotels managed by Sonesta may be terminated for performance reasons, and (3) the provisions included in our historical pooling agreement that allowed either us or Sonesta to require the marketing for sale of non-economic hotels were removed;

We extended the initial expiration date of the management agreements for our full-service hotels located in Chicago, IL and Irvine, CA that are managed by Sonesta to expire in January 2037 to align with the initial expiration date for our other full-service hotels managed by Sonesta.

we and Sonesta modified our then existing Sonesta agreement and pooling agreement so that up to 5% of the gross revenues of each of our 14 full-service hotels managed by Sonesta will be escrowed for future capital expenditures as FF&E reserves, subject to available cash flow after payment of the annual minimum returns due to us and working capital advances, if any, under our Sonesta agreement;

we and Sonesta modified our then existing Sonesta agreement and pooling agreement so that (1) our termination rights under those agreements for our 14 full-service hotels managed by Sonesta are generally limited to performance and for “cause”, casualty and condemnation events, (2) a portfolio wide performance test now applies for determining whether the management agreement for any of our full service hotels managed by Sonesta may be terminated for performance reasons, and (3) the provisions included in our historical pooling agreement that allowed either us or Sonesta to require the marketing for sale of non-economic hotels were removed;

we and Sonesta extended the initial expiration date of the then existing management agreements for our full-service hotels located in Chicago, IL and Irvine, CA that are managed by Sonesta to expire in January 2037 to align with the initial expiration date for our other full-service hotels managed by Sonesta.

Except as described above, the economic terms of our amended and restated Sonesta agreement and amended and restated pooling agreement are consistent with the historical Sonesta agreement and pooling agreement.

Additional details of this agreement are set forth in Note 6 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, which disclosure is incorporated herein by reference.

We previously leased 48 vacation units to Wyndham Destinations, Inc.

WYND) at our full-service hotel located in Chicago, IL, which Sonesta began managing in November 2019 and which had previously been managed by Wyndham.

Additional details of this agreement are set forth in Note 6 to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

We previously leased 48 vacation units to Destinations at our full-service hotel located in Chicago, IL, which Sonesta began managing in November 2019 and which had previously been managed by Wyndham.

Effective March 1, 2020, Sonesta commenced managing those units and those units were added to our Sonesta agreement for that Chicago hotel.

Our Wyndham agreement expires on September 30, 2020 unless sooner terminated with respect to any of our Wyndham hotels that are sold or rebranded.

Our Wyndham agreement expires on September 30, 2020 and we expect to transition management and branding of these hotels to Sonesta upon expiration of the agreement unless sooner terminated with respect to any hotels that are sold.

Wyndham is required to pay us all cash flows of the hotels after payment of hotel operating costs.

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We believe that these sources of funds will be sufficient to meet our operating and capital expenses, pay debt service obligations and make distributions to our shareholders for the next twelve months and for the foreseeable future thereafter.

Due to the economic uncertainty caused by the COVID-19 pandemic, we reduced our quarterly distribution to our shareholders for the quarter ended March 31, 2020 to $0.01 per share and we expect our quarterly distribution to continue at that rate.

Due to the economic uncertainty caused by the COVID-19 pandemic, we reduced our quarterly distribution to our shareholders beginning with the quarter ended March 31, 2020 to $0.01 per share and we expect our quarterly distribution to continue at that rate for the foreseeable future, subject to REIT tax requirements.

Further, our managers and tenants may become further or increasingly unable or unwilling to pay minimum returns and rents to us when due as a result of current economic conditions and, as a result, our cash flows and net income could decline.

Changes in our cash flows for the three months ended March 31, 2020 compared to the same period in 2019 were as follows:

(1) cash flows provided by operating activities increased from $43,865 in 2019 to $97,016 in 2020 ;

(2) cash flows from investing activities changed from $102,090 of cash provided by investing activities in 2019 to $69,614 of cash used in investing activities in 2020 ;

and (3) cash flows used in financing activities decreased from $123,154 in 2019 to $8,906 in 2020 .

The increase in cash flows provided by operating activities for the three months ended March 31, 2020 as compared to the prior year period is primarily due to an increase in the minimum returns and rents paid to us in the 2020 period due to our acquisitions and funding of improvements to our hotels since January 1, 2019 , partially offset by higher interest payments in the 2020 period and an increase in security deposit utilization in the 2020 period.

The following is a summary of our sources and uses of cash flows for the periods presented (dollars in thousands):

Six Months Ended June 30,

Cash and cash equivalents and restricted cash at the beginning of the period

Net cash provided by (used in):

Operating activities

Investing activities

Financing activities

Cash and cash equivalents and restricted cash at the end of the period

The decrease in cash flows provided by operating activities for the six months ended June 30, 2020 as compared to the prior year period is primarily due to an increase in security deposit utilization in the 2020 period, lower returns earned from our hotel portfolio and higher interest expense in the 2020 period.

The change from cash flows provided by investing activities in the 2019 period to cash used in investing activities in the 2020 period is primarily due to the proceeds received from our sale of 20 travel centers in the 2019 period, partially offset by a decrease in real estate acquisition activity in the 2020 period.

The decrease in cash used in financing activities for the three months ended March 31, 2020 as compared to the prior year period is primarily due to a higher net borrowings under our revolving credit facility compared to the 2019 period.

The decrease in cash used in financing activities for the six months ended June 30, 2020 as compared to the prior year period is primarily due to the issuance of $800,000 aggregate principal amount of senior unsecured notes, offset by greater net payments under our revolving credit facility, our repurchase of $350,000 aggregate principal amount of senior unsecured notes and lower common share distributions compared to the 2019 period.

We maintain our qualification for taxation as a REIT under the IRC by meeting certain requirements.

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Various percentages of total sales at some of our hotels are escrowed as FF&E reserves to fund future capital improvements.

During the three months ended March 31, 2020 , our hotel managers and tenants deposited $33,806 to these accounts and spent $48,695 from the FF&E reserve escrow accounts to renovate and refurbish our hotels.

As of March 31, 2020 , there was $44,537 on deposit in these escrow accounts, which was held directly by us and is reflected in our condensed consolidated balance sheets as restricted cash.

As a result of the COVID-19 pandemic and the adverse impact on the lodging industry and our properties, we and certain of our hotel operators have agreed to temporarily suspend the required contribution to our FF&E reserves under certain of our agreements through up to December 31, 2020, or earlier.

depending on the agreement as further defined below.

During the six months ended June 30, 2020 , our hotel managers and tenants deposited $33,806 to these accounts and spent $95,744 from the FF&E reserve escrow accounts to renovate and refurbish our hotels.

As of June 30, 2020 , there was $29,652 on deposit in these escrow accounts, which was held directly by us and is reflected in our condensed consolidated balance sheets as restricted cash.

For more information, see Note 6 to our condensed consolidated financial statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q.

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To the extent we make such additional fundings, our annual minimum returns or rents generally increase by a percentage of the amount we fund.

During the three months ended March 31, 2020 , we funded $34,448 for capital improvements in excess of FF&E reserve fundings available from hotel operations to our hotels as follows:

During the three months ended March 31, 2020 , we funded $300 for capital improvements to certain hotels under our Marriott agreement using cash on hand and borrowings under our revolving credit facility.

During the six months ended June 30, 2020 , we funded $74,100 for capital improvements in excess of FF&E reserve fundings available from hotel operations to our hotels as follows:

During the six months ended June 30, 2020 , we funded $28,900 for capital improvements to certain hotels under the Marriott agreement using cash on hand and borrowings under our revolving credit facility.

Under the Marriott agreement, we have previously agreed to fund capital improvements of approximately $400,000 at certain hotels over a four-year period.

We and Marriott have agreed to defer certain capital improvement projects previously scheduled for 2020 based on current market conditions.

Also, we and Marriott agreed to suspend contributions to the FF&E reserve under our Marriott agreement for six months effective March 1, 2020 as a result of current market conditions.

We currently expect to fund $48,000 for capital improvements under this agreement during the last nine months of 2020 using cash on hand or borrowings under our revolving credit facility.

Also, we and Marriott agreed to suspend contributions to the FF&E reserve under the Marriott agreement through the end of 2020 effective March 1, 2020 as a result of current market conditions.

We currently expect to fund $20,000 for capital improvements under this agreement during the last six months of 2020 using cash on hand or borrowings under our revolving credit facility.

As we fund these improvements, the contractual minimum returns payable to us increase.

We funded $3,900 for capital improvements to hotels under our IHG agreement during the three months ended March 31, 2020 .

We currently do not expect to fund any capital improvements during the last nine months of 2020 .

Effective March 1, 2020, we and IHG agreed to suspend contributions to the FF&E reserve under our IHG agreement for the remainder of 2020 as a result of current market conditions.

We funded $3,900 for capital improvements to hotels under the IHG agreement during the six months ended June 30, 2020 .

We currently do not expect to fund any capital improvements during the last six months of 2020 .

Effective March 1, 2020, we and IHG agreed to suspend contributions to the FF&E reserve under the IHG agreement for the remainder of 2020 as a result of current market conditions.

Under our Sonesta agreement, FF&E deposits are required only if there are excess cash flows after our payment of minimum returns and reimbursement of owner or manager advances, if any.

During the three months ended March 31, 2020 , we funded $29,036 for capital improvements to certain hotels included in our Sonesta agreement using cash on hand and borrowings under our revolving credit facility.

We currently expect to fund $22,000 of capital improvements during the remainder of 2020 under this agreement using cash on hand or borrowings under our revolving credit facility.

During the six months ended June 30, 2020 , we funded $40,088 for capital improvements to certain hotels included in our Sonesta agreement using cash on hand and borrowings under our revolving credit facility.

We currently expect to fund $11,000 of capital improvements during the last six months of 2020 under this agreement using cash on hand or borrowings under our revolving credit facility.

As we fund these improvements, the contractual minimum returns payable to us increase.

We did not fund any capital improvements under our Hyatt agreement during the three months ended March 31, 2020 .

We currently do not expect to fund any capital improvements under this agreement during the last nine months of 2020 .

Also, effective March 1, 2020, we and Hyatt agreed to suspend contributions to the FF&E reserve under our Hyatt agreement for the remainder of 2020 as a result of current market conditions.

We did not fund any capital improvements under our Radisson agreement during the three months ended March 31, 2020 .

We currently do not expect to fund any capital improvements under this agreement during the last nine months of 2020 .

We did not fund any capital improvements under our Hyatt agreement during the six months ended June 30, 2020 .

We currently do not expect to fund any capital improvements under this agreement during the last six months of 2020 .

We did not fund any capital improvements under our Radisson agreement during the six months ended June 30, 2020 .

We currently do not expect to fund any capital improvements under this agreement during the last six months of 2020 .

Also, effective April 1, 2020, we and Radisson agreed to suspend contributions to the FF&E reserve under our Radisson agreement through the remainder of 2020 as a result of market conditions.

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We are required to reimburse Wyndham for capital improvements to hotels in our Wyndham agreement.

During the three months ended March 31, 2020 , we reimbursed $1,212 of capital improvements to certain hotels included in our Wyndham agreement using cash on hand.

We currently expect to fund $1,200 capital improvements under this agreement for the remainder of 2020 using cash on hand and borrowings under our revolving credit facility.

During the six months ended June 30, 2020 , we reimbursed $1,212 of capital improvements to certain hotels included in our Wyndham agreement using cash on hand.

We currently expect to fund $800 of capital improvements under this agreement for the last six months of 2020 using cash on hand and borrowings under our revolving credit facility.

Our net lease portfolio leases do not require FF&E escrow deposits.

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Tenants under certain of our net lease portfolio leases, including TA, may request that we purchase qualifying capital improvements to the leased facilities in return for minimum rent increases or we may agree to provide allowances for tenant improvements upon execution of new leases or when renewing our existing leases.

We funded $4,179 of capital improvements to properties under these lease provisions during the three months ended March 31, 2020 .

We funded $4,400 of capital improvements to properties under these lease provisions during the six months ended June 30, 2020 .

Tenants are not obligated to request and we are not obligated to purchase any such improvements.

As of March 31, 2020 , we had $1,270 of unspent leasing-related obligations assumed as a part of the SMTA Transaction.

During the three months ended March 31, 2020 , we acquired three net lease properties with approximately 6,696 square feet in two states for an aggregate purchase price of $7,071 including acquisition related costs of $71 using cash on hand.

During the three months ended March 31, 2020 , we sold six net lease properties with approximately 292,276 square feet in five states for an aggregate sales price of $8,010 excluding closing costs.

We entered into agreements to sell seven net lease properties with approximately 821,068 square feet in six states with leases requiring an aggregate of $5,433 annual minimum rents as of March 31, 2020 for an aggregate sales price of $59,500 , excluding closing costs.

We expect these sales to be completed by the third quarter of 2020.

As of June 30, 2020 , we had $1,199 of unspent leasing-related obligations related to certain net lease tenants.

During the six months ended June 30, 2020 , we acquired three net lease properties with approximately 6,696 square feet in two states for an aggregate purchase price of $7,071 , including acquisition related costs of $71 using cash on hand.

During the six months ended June 30, 2020 , we sold ten net lease properties with approximately 1,101,996 square feet in eight states for an aggregate sales price of $63,960 , excluding closing costs.

We used the net proceeds from these sales to repay amounts outstanding under our revolving credit facility.

In June 2020 , we issued $800,000 aggregate principal amount of our 7.50% unsecured senior notes due 2025 .

The aggregate net proceeds from this offering were $788,002 , after underwriting discounts and other offering expenses and were used to repay amounts outstanding under our revolving credit facility.

In June 2020, we repurchased $350,000 principal amount of our $400,000 of 4.25% senior notes due 2021 for $355,971 , excluding accrued interest, pursuant to a cash tender offer using borrowings under our revolving credit facility.

In July 2020, we participated in an underwritten public equity offering by TA pursuant to which we purchased 500,797 shares of TA common stock at the public offering price of $14 per share for $7,011 using cash on hand.

We have entered into an agreement to sell eight Marriott branded hotels with 834 rooms in four states with an aggregate net carrying value of $34,956 for an aggregate purchase price of $45,250 .

We have entered an agreement to sell one Wyndham branded hotel with 344 rooms with a net carrying value of $3,365 for a sales price of $3,500 .

We expect these sales to be completed in the fourth quarter of 2020.

We expect to use the net sales proceeds from any hotels sold to repay outstanding indebtedness.

The amount of minimum returns due from Marriott will be reduced by the amount allocated to the hotels, which was $7,935 as of June 30, 2020 .

The sales of these hotels are subject to various contingencies;

accordingly, we cannot provide any assurance that it will sell any of these eight hotels.

In July 2020, we sold one net lease property with 2,935 square feet with a carrying value of $657 requiring an annual minimum rent of $49 for a sale price of $700 .We have also entered into agreements to sell seven net lease properties with approximately 68,343 square feet in six states with an aggregate carrying value of $6,282 with leases requiring an aggregate of $332 annual minimum rents as of June 30, 2020 for an aggregate sales price of $6,875 .

The sales of these hotel and retail properties are subject to conditions, may not be completed, may be delayed or terms may change.

We currently expect the sales of these net lease properties to be completed in the third quarter of 2020.

We expect to use the net sales proceeds from any net lease properties sold to repay outstanding indebtedness.

On February 20, 2020 , we paid a regular quarterly distribution to our common shareholders of record on January 27, 2020 of $0.54 per share, or $88,863 .

On March 30, 2020 , we declared our regular quarterly distribution of $0.01 per share, or approximately $1,646 , to shareholders of record on April 21, 2020 .

We expect to pay this amount on May 21, 2020 using cash on hand.

We had previously begun marketing for sale 20 Wyndham branded hotels with an aggregate net carrying value of $110,465 and 33 Marriott hotels with an aggregate net carrying value of $221,129 and were in the process of launching a marketing effort related to our 39 Sonesta ES Suites hotels with an aggregate net carrying value of $461,263 .

We currently expect any transactions related to these hotels will be delayed until later in 2020, or until 2021 as a result of current market conditions and these transactions may be delayed beyond those dates and they may not occur.

On May 21, 2020 , we paid a regular quarterly distribution of $0.01 per share, or approximately $1,646 , to shareholders of record on April 21, 2020 .

On July 16, 2020 , we declared a regular quarterly distribution to common shareholders of record on July 27, 2020 of $0.01 per share, or approximately $1,646 .

We expect to pay this amount on or about August 20, 2020 .

In order to meet cash needs that may result from our desire or need to make distributions or pay operating or capital expenses, we maintain a $1,000,000 revolving credit facility and $400,000 term loan which are governed by a credit agreement with a syndicate of institutional lenders.

The maturity date of our revolving credit facility is July 15, 2022 , and, subject to the payment of an extension fee and meeting certain other conditions, we have an option to extend the maturity date of this facility for two additional six -month periods.

We are required to pay interest at the rate of LIBOR plus a premium, which was 135 basis points per annum at March 31, 2020 , on the amount outstanding under our revolving credit facility.

We also pay a facility fee on the total amount of lending commitments under our revolving credit facility, which was 25 basis points per annum at March 31, 2020 .

We are required to pay interest at the rate of LIBOR plus a premium, which was 205 basis points per annum, subject to a LIBOR floor of 0.50%, at June 30, 2020 , on the amount outstanding under our revolving credit facility.

We also pay a facility fee on the total amount of lending commitments under our revolving credit facility, which was 30 basis points per annum at June 30, 2020 .

Both the interest rate premium and the facility fee are subject to adjustment based upon changes to our credit ratings.

As of March 31, 2020 , the annual interest rate payable on borrowings under our revolving credit facility was 1.85% .

As of March 31, 2020 , we had $457,000 outstanding and $543,000 available to borrow under our revolving credit facility.

As of May 7, 2020 , we had $500,000 amounts outstanding and $500,000 available to borrow under our revolving credit facility.

As of June 30, 2020 , the annual interest rate payable on borrowings under our revolving credit facility was 2.55% .

As of June 30, 2020 , we had $33,127 outstanding and $966,873 available to borrow under our revolving credit facility.

As of August 6, 2020 , we had $32,089 outstanding and $967,911 available to borrow under our revolving credit facility, subject to the minimum liquidity requirements under our credit agreement described below.

Our term loan, which matures on July 15, 2023 , is prepayable without penalty at any time.

We are required to pay interest on the amount outstanding under our term loan at the rate of LIBOR plus a premium, which was 135 basis points per annum at March 31, 2020 .

We are required to pay interest on the amount outstanding under our term loan at the rate of LIBOR plus a premium, which was 225 basis points per annum, subject to a LIBOR floor of 0.50%, at June 30, 2020 .

The interest rate premium is subject to adjustment based upon changes to our credit ratings.

As of March 31, 2020 , the annual interest rate for the amount outstanding under our term loan was 2.93% .

As of June 30, 2020 , the annual interest rate for the amount outstanding under our term loan was 2.75% .

Our credit agreement also includes a feature under which the maximum borrowing availability may be increased to up to $2,300,000 on a combined basis in certain circumstances.

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During the Waiver Period, and continuing thereafter until such time as we have demonstrated compliance with certain of our financial covenants as of June 30, 2021:

we will be required to maintain unrestricted liquidity (unrestricted cash or undrawn availability under our $1,000,000 revolving credit facility) of not less than $125,000 ;

our interest premium over LIBOR under our revolving credit facility and term loan will be increased by 50 basis points;

our ability to pay distributions on our common shares will be 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 to pay a cash dividend of $.01 per common share per quarter;

we will be subject to certain additional covenants, including additional restrictions on our ability to incur indebtedness (with exceptions for borrowings under our revolving credit facility and certain other categories of secured and unsecured indebtedness), and to acquire real property or make other investments (with exceptions for, among other things, certain categories of capital expenditures and costs, and certain share purchases);

we will generally be required to apply the net cash proceeds from the disposition of assets, capital markets transactions, debt refinancings or COVID-19 government stimulus programs to the repayment of outstanding loans under the credit agreement.

We have provided equity pledges of certain of our property owning subsidiaries to secure our obligations under the credit agreement.

We will be required to pledge the equity of additional property owning subsidiaries in the event that the Collateral Value Percentage, exceeds 50%.

we are required to maintain unrestricted liquidity (unrestricted cash or undrawn availability under our $1,000,000 revolving credit facility) of not less than $125,000 ;

our interest premium over LIBOR under our revolving credit facility and term loan was increased by 50 basis points;

our ability to pay distributions on our common shares has been 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 to pay a cash dividend of $.01 per common share per quarter;

we are subject to certain additional covenants, including additional restrictions on our ability to incur indebtedness (with exceptions for borrowings under our revolving credit facility and certain other categories of secured and unsecured indebtedness), and to acquire real property or make other investments (with exceptions for, among other things, certain categories of capital expenditures and costs, and certain share purchases);

we are generally required to apply the net cash proceeds from the disposition of assets, capital markets transactions, debt refinancings or COVID-19 pandemic related government stimulus programs to the repayment of outstanding loans under the credit agreement.

Additionally, the feature pursuant to which our maximum aggregate borrowings under the credit agreement may be increased up to $2,300,000 may not be utilized through March 31, 2021.

We have pledged our equity in certain of our property owning subsidiaries to secure our obligations under the credit agreement.

These subsidiaries owned properties with approximately $876,715 of undepreciated book value as of June 30, 2020.

We will be required to pledge the equity of additional property owning subsidiaries in the event that the Collateral Value Percentage, as defined, exceeds 50%.

These pledges are subject to release in full, (i) subject to the satisfaction of certain conditions, including, among other things, our having complied with the financial covenants under the credit agreement for two fiscal quarters following the end of the Waiver Period or (ii) in connection with Qualified Note Issuance provided that, among other conditions, the outstanding amount of the revolving facility does not exceed $750,000 and the term loan has been paid in full.

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We have the right to substitute collateral and otherwise obtain the release of pledged subsidiaries in certain circumstances.

While the equity pledges remain in effect, we will remain subject to the restrictions our ability to pay distributions on our common shares that are described above.

Our term debt maturities (other than our revolving credit facility and term loan) as of March 31, 2020 were as follows:

While the equity pledges remain in effect, we will remain subject to the restrictions our ability to make investments or pay distributions on our common shares that are described above.

Our term debt maturities (other than our revolving credit facility and term loan) as of June 30, 2020 were as follows:

None of our unsecured debt obligations require principal or sinking fund payments prior to their maturity dates.

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While we believe we will have access to various types of financings, including debt or equity, to fund our future acquisitions and to pay our debts and other obligations, we cannot be sure that we will be able to complete any debt or equity offerings or other types of financings or that our cost of any future public or private financings will not increase.

Also, as noted above, we are limited in our ability to incur additional debt during the Waiver Period pursuant to our credit agreement.

Our ability to complete, and the costs associated with, future debt transactions depends primarily upon credit market conditions and our then creditworthiness.

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

However, as discussed elsewhere in this Quarterly Report on Form 10-Q, the duration and severity of the current economic downturn resulting from the COVID-19 pandemic are uncertain and may have various negative consequences on us and our operations including a decline in financing availability and increased costs for financing.

However, as discussed elsewhere in this Quarterly Report on Form 10-Q, the continued duration and severity of the current economic downturn resulting from the COVID-19 pandemic are uncertain and may have various negative consequences on us and our operations including a decline in financing availability and increased costs for financing.

Further, such conditions could also disrupt the capital markets generally and limit our access to financing from public sources or on favorable terms, particularly if the global financial markets experience significant disruptions.

Off Balance Sheet Arrangements

As of March 31, 2020 , we had no off balance sheet arrangements that have had or that we expect would be reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

As of June 30, 2020 , we had no off balance sheet arrangements that have had or that we expect would be reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Debt Covenants

Our debt obligations at March 31, 2020 consisted of outstanding borrowings under our $1,000,000 revolving credit facility, our $400,000 term loan and $5,350,000 of publicly issued term debt.

Our debt obligations at June 30, 2020 consisted of outstanding borrowings under our $1,000,000 revolving credit facility, our $400,000 term loan and $5,800,000 of publicly issued term debt.

Our publicly issued term debt is governed by our indentures and related supplements.

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Our credit agreement and our unsecured senior notes indentures and their supplements provide for acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includes RMR LLC ceasing to act as our business manager.

As of March 31, 2020 , we believe we were in compliance with all of the covenants under our indentures and their supplements and our credit agreement.

As noted previously, in response to current market conditions we and our lenders amended our credit agreement to provide limited waivers of certain covenants.

As of June 30, 2020 , we believe we were in compliance with all of the covenants under our indentures and their supplements and our credit agreement, subject to the waivers described above.

As noted above, in response to current market conditions we and our lenders amended our credit agreement to provide limited waivers of certain covenants.

Neither our indentures and their supplements nor our credit agreement contain provisions for acceleration which could be triggered by a change in our debt ratings.

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Similarly, our credit agreement has cross default provisions to other indebtedness that is recourse of $25,000 or more and indebtedness that is non-recourse of $75,000 or more.

Supplemental Guarantor Information

In March 2020, the Securities and Exchange Commission, or SEC, approved Release No.

33-10762, Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities, or Release 33-10762.

Release 33-10762 amends the disclosure requirements related to certain registered securities under SEC Regulation S-X, Rules 3-10 and 3-16, permitting registrants to provide certain alternative financial disclosures and non-financial disclosures in lieu of separate consolidating financial statements for subsidiary issuers and guarantors of registered debt securities if certain conditions are met.

The amendments in Release 33-10762 are generally effective for filings on or after January 4, 2021, with early application permitted.

We adopted the new disclosure requirements permitted under Release 33-10762 effective for the quarter ended March 31, 2020.

Our $800,000 7.50% unsecured senior notes due 2025 are fully and unconditionally guaranteed, on a joint and several basis and on a senior unsecured basis, by all of our subsidiaries, except for certain excluded subsidiaries, including our foreign subsidiaries and our subsidiaries pledged under our credit agreement.

The notes and the guarantees will be effectively subordinated to all of our and the subsidiary guarantors' secured indebtedness, respectively, to the extent of the value of the collateral securing such secured indebtedness, and will be structurally subordinated to all indebtedness and other liabilities and any preferred equity of any of our subsidiaries that do not guarantee the notes.

Our remaining $5,000,000 of senior unsecured notes do not have the benefit of any guarantees.

A subsidiary guarantor's guarantee of the $800,000 notes and all other obligations of such subsidiary guarantor under the indenture governing the notes will automatically terminate and such subsidiary guarantor will automatically be released from all of its obligations under such subsidiary guarantee and the indenture under certain circumstances, including on or after the date on which (a) the notes have received a rating equal to or higher than Baa2 (or the equivalent) by Moody’s, or BBB (or the equivalent) by Standard & Poor’s, or if Moody’s or Standard & Poor’s ceases to rate the notes for reasons outside of our control, the equivalent investment grade rating from any other rating agency and (b) no default or event of default has occurred and is continuing under the indenture.

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

The rights of holders of these 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, these notes and the related guarantees will be structurally subordinated to all indebtedness, guarantees and other liabilities of our subsidiaries that do not guarantee these notes, including guarantees of or pledges under other indebtedness of ours, payment obligations under lease agreements, trade payables and preferred equity.

The following table presents summarized financial information for us and the subsidiary guarantors, on a combined basis after elimination of (i) intercompany transactions and balances among us and the subsidiary guarantors and (ii) equity in earnings from, and any investments in, any of our non-guarantor subsidiaries:

As of June 30, 2020

As of December 31, 2019

Real estate properties, net (1)

Intercompany balances (2)

Other assets, net

Indebtedness, net

Other liabilities

Total liabilities

Six Months Ended

June 30, 2020

Year Ended December 31, 2019

Net income (loss)

Real estate properties, net as of June 30, 2020 and December 31, 2019 , includes $222,512 and $249,620, respectively, of properties owned directly by us and not included in the assets of the subsidiary guarantors.

Intercompany balances represent receivables from non-guarantor subsidiaries.

Management Agreements, Leases and Operating Statistics (dollar amounts in thousands)

As of March 31, 2020 , we owned and managed a diverse portfolio of hotels and net lease properties across the United States and in Puerto Rico and Canada with 148 brands across 23 industries.

As of June 30, 2020 , we owned and managed a diverse portfolio of hotels and net lease properties across the United States and in Puerto Rico and Canada with 149 brands across 23 industries.

Hotel Portfolio

As of March 31, 2020 , 329 of our hotels (including one leased hotel) were included in six portfolio agreements.

As of March 31, 2020 , our hotels were managed by or leased to separate affiliates of IHG, Marriott, Sonesta, Hyatt, Radisson and Wyndham under six agreements.

The tables and related notes below through page 36 summarize significant terms of our hotel lease and management agreements as of March 31, 2020 .

As of June 30, 2020 , 329 of our hotels (including one leased hotel) were included in six portfolio agreements.

As of June 30, 2020 , our hotels were managed by or leased to separate affiliates of IHG, Marriott, Sonesta, Hyatt, Radisson and Wyndham under six agreements.

The tables and related notes below through page 47 summarize significant terms of our hotel lease and management agreements as of June 30, 2020 .

These tables also include statistics reported to us or derived from information reported to us by our hotel managers and tenant.

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Twelve Months Ended

Marriott (4)(6)

Sonesta (4)(7)

Radisson (4)(9)

Wyndham (4)(10)

Total / Average Hotels

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We define hotel coverage as combined total hotel property level revenues minus all hotel property level expenses and FF&E reserve escrows that are not subordinated to hotel minimum returns or rents due to us (which data is provided to us by our hotel managers or tenant), divided by the hotel minimum returns or rents due to us.

Coverage amounts for our IHG agreement include data for periods prior to our ownership of certain hotel properties.

Coverage amounts for the IHG agreement include data for periods prior to our ownership of certain hotel properties.

Coverage amounts for our Sonesta agreement include data for two hotels prior to when they were managed by Sonesta.

We lease 102 IHG branded hotels ( 20 Staybridge Suites ® , 61 Candlewood Suites ® , two InterContinental ® , 11 Crowne Plaza ® , three Holiday Inn ® and five Kimpton ® Hotels & Restaurants) in 30 states in the U.S., the District of Columbia and Ontario, Canada to one of our wholly owned TRSs.

During the three months ended June 30, 2020 , ten Sonesta hotels, four IHG hotels, three Radisson hotels, one Marriott hotel and one Wyndham hotel were closed due to impact of COVID-19 pandemic.

These 102 hotels are managed by subsidiaries of IHG under a combination management agreement.

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IHG has two renewal options for 15 years each for all, but not less than all, of the hotels.

As of March 31, 2020 , we held a security deposit of $42,063 under this agreement to cover payment shortfalls of our minimum return.

This security deposit, if utilized, may be replenished and increased up to $100,000 from the hotels' available cash flows in excess of our minimum return, working capital advances and certain management fees.

Under this agreement, IHG is required to maintain a minimum security deposit of $37,000 .

As of June 30, 2020 , we held a security deposit of $8,992 under this agreement to cover shortfalls in hotel cash flows to pay minimum returns and rent due to us during the period.

On June 1, 2020, we entered into a letter agreement with respect to certain matters related to the IHG agreement, including waiving the minimum security deposit requirement through 2021.

In July 2020, we applied the remaining security deposit securing the obligations of IHG under the IHG agreement.

We did not receive any payments from IHG to cure shortfalls for the balance of the July minimum returns and rents of $8,395 due to us, after applying the remaining security deposit, or the August 2020 minimum returns and rents of $18,045 due to us.

In July 2020 we sent IHG a notice of default and termination and in August 2020, we sent IHG an additional notice of default.

We are in discussions with IHG to see if there may be a mutually beneficial resolution.

Absent a cure of these defaults by IHG, or if no agreement is reached, we currently plan to transition management and branding of these 103 hotels to Sonesta.

The IHG agreement requires 5% of gross revenues from hotel operations be placed in escrow for hotel maintenance and periodic renovations, or an FF&E reserve.

As part of the June letter agreement we entered, this requirement to fund FF&E reserves was waived through September 30, 2020.

In addition to our minimum return, this management agreement provides for an annual additional return payment to us of $12,067 from the hotels' available cash flows after payment of hotel operating expenses, funding of the required FF&E reserve payment of our minimum return, working capital advances, payment of certain management fees and replenishment and expansion of the security deposit, if any.

In addition, the agreement provides for payment to us of 50% of the hotels' available cash flows after payment to us of the annual additional return amount.

These additional return amounts are not guaranteed or secured by the security deposit we hold.

Our IHG agreement requires 5% of gross revenues from hotel operations be placed in escrow for hotel maintenance and periodic renovations, or an FF&E reserve.

As a result of current market conditions, effective March 1, 2020, we and IHG have agreed to suspend contributions to the FF&E reserve under our IHG agreement for the remainder of 2020.

These additional return amounts are not guaranteed or secured by the security deposit we held.

We lease our 122 Marriott branded hotels (two full service Marriott ® , 35 Residence Inn by Marriott ® , 71 Courtyard by Marriott ® , 12 TownePlace Suites by Marriott ® and two SpringHill Suites by Marriott ® hotels) in 31 states to certain of our TRSs.

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The Marriott agreement is scheduled to expire in 2035 and Marriott has two renewal options for 10 years each for all, but not less than all, of the hotels.

As of March 31, 2020, we held a security deposit of $4,790 under this agreement to cover payment shortfalls of our minimum return.

This security deposit, if utilized, may be replenished and increased up to $64,700 from a share of the hotels’ available cash flows in excess of our minimum return, certain management fees and working capital advances.

Marriott has also provided us with a $30,000 limited guaranty to cover payment shortfalls up to 85% of our minimum return after the available security deposit balance has been depleted.

This limited guaranty expires in 2026.

As of June 30, 2020 , we fully utilized the remaining security deposit of $4,790 we held under this agreement to cover payment shortfalls of our minimum returns.

This security deposit may be replenished and increased up to $64,700 from a share of the hotels’ available cash flows in excess of our minimum return, certain management fees and working capital advances, if any.

Marriott also provided us with a $30,000 limited guaranty to cover payment shortfalls up to 85% of our minimum return after the available security deposit balance has been depleted.

As of June 30, 2020 , there was no security deposit available to cover future payment shortfalls and the $30,000 guaranty was exhausted.

This limited guaranty expired when it was exhausted.

We have the right to terminate the Marriott agreement after the security deposit and the guaranty have been depleted if Marriott fails to fund up to 80% of the minimum returns due to us.

The Marriott agreement requires 5.5% to 6.5% of gross revenues from hotel operations be placed in an FF&E reserve.

As a result of current market conditions, we and Marriott have agreed to suspend contributions to the FF&E reserve under the Marriott agreement for the remainder of 2020.

In addition to our minimum return, this agreement provides for payment to us of 60% of the hotels' available cash flows after payment of hotel operating expenses, funding of the required FF&E reserve, payment of our minimum return, payment of certain management fees, working capital advances and replenishment of the security deposit.

This additional return amount is not guaranteed or secured by the security deposit.

Our Marriott agreement requires 5.5% to 6.5% of gross revenues from hotel operations be placed in an FF&E reserve.

As a result of current market conditions, we and Marriott have agreed to suspend contributions to the FF&E reserve under our Marriott agreement for six months effective March 1, 2020.

We lease our 53 Sonesta branded hotels ( seven Royal Sonesta® Hotels, seven Sonesta Hotels & Resorts® and 39 Sonesta ES Suites® hotels) in 26 states to one of our TRSs.

We lease our 53 Sonesta branded hotels ( seven Royal Sonesta® Hotels, seven Sonesta Hotels & Resorts® and 39 Sonesta ES Suites® hotels) in 26 states to certain of our TRSs.

The hotels are managed by Sonesta under a combination management agreement which expires in 2037;

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We have a limited guaranty of $50,000 under this agreement to cover payment shortfalls of our minimum return.

As of March 31, 2020 , the available Hyatt guaranty was $16,026 .

As of June 30, 2020 , the available Hyatt guaranty was $8,561 .

The guaranty is limited in amount but does not expire in time and may be replenished from a share of the hotels' available cash flows in excess of our minimum return and our working capital advances.

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This additional return is not guaranteed.

Our Hyatt agreement requires 5% of gross revenues from hotel operations be placed in an FF&E reserve.

As a result of current market conditions, effective March 1, 2020, we and Hyatt have agreed to suspend contributions to the FF&E reserve under our Hyatt agreement for the remainder of 2020.

Our Hyatt agreement requires 5% of gross revenues from hotel operations be placed in an FF&E reserve, subject to available cash flow.

We lease our nine Radisson branded hotels (four Radisson® Hotels & Resorts, four Country Inns & Suites® by Radisson and one Radisson Blu® hotel) in six states to one of our TRSs and these hotels are managed by a subsidiary of Radisson under a combination management agreement which expires in 2035 and Radisson has two 15-year renewal options for all, but not less than all, of the hotels.

We have a limited guaranty of $47,523 under this agreement to cover payment shortfalls of our minimum return.

As of March 31, 2020, the available Radisson guaranty was $36,647 .

As of June 30, 2020 , the available Radisson guaranty was $27,426 .

The guaranty is limited in amount but does not expire in time and may be replenished from a share of the hotels' available cash flows in excess of our minimum return and our working capital advances.

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We lease our 20 Wyndham branded hotels (four Wyndham Hotels and Resorts® and 16 Hawthorn Suites® hotels) in 13 states to one of our TRSs.

The hotels are managed by a subsidiary of Wyndham under a combination management agreement which expires in September 2020.

The hotels are managed by a subsidiary of Wyndham under a combination management agreement which expires in September 2020 and we expect to transition management and branding of these hotels to Sonesta upon expiration of the agreement unless sooner terminated with respect to any hotels that are sold.

We have no guarantee or security deposit from Wyndham.

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All operating data presented are based upon the operating results provided by our hotel managers and tenant for the indicated periods.

We have not independently verified our managers’ or tenant’s operating data.

Three Months Ended March 31,

We have not independently verified our managers’ or tenants’ operating data.

Three Months Ended June 30,

Six Months Ended June 30,

Sonesta (1) (2) (3)

Radisson (1) (2)

All Hotels Total / Average

Sonesta (1) (2) (3)

Radisson (1) (2)

All Hotels Total / Average

Sonesta (1) (2) (3)

Radisson (1) (2)

All Hotels Total / Average

During the three months ended June 30, 2020 , ten Sonesta hotels, four IHG hotels, three Radisson hotels, one Marriott hotel and one Wyndham hotel were closed due to impact of COVID-19 pandemic.

Operating data includes data for certain hotels for periods prior to when we acquired them.

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Net Lease Portfolio

As of March 31, 2020 , our 813 net lease properties located in 44 states were leased to 187 tenants.

As of June 30, 2020 , our 809 net lease properties located in 42 states were leased to 180 tenants.

These tenants operate in 22 distinct industries including travel centers, casual dining and quick service restaurants, movie theaters, health and fitness, automobile service and others.

TA is our largest tenant and leases 179 travel centers under five master lease agreements that expire between 2029 and 2035 and require annual minimum rents of $246,110 , which represents approximately 25.5% of our total minimum returns and rent as of March 31, 2020 .

As of March 31, 2020, our net lease properties were 98% occupied and we had 17 properties available for lease.

During 2020 we entered into lease renewals for 59,694 rentable square feet at weighted (by rentable square feet) average rents that were 14.8% below prior rents for the same space.

The weighted (by rentable square feet) average lease term for these leases was 5.1 years.

There were no leasing concessions or capital commitments for these leases.

As of March 31, 2020 , our net lease tenants operated across more than 128 brands.

TA is our largest tenant and leases 179 travel centers under five master lease agreements that expire between 2029 and 2035 and require annual minimum rents of $246,110 , which represents approximately 25.6% of our total minimum returns and rent as of June 30, 2020 .

As of June 30, 2020 , our net lease properties were 99% occupied and we had 15 properties available for lease.

During 2020 we entered into lease renewals for 506,780 rentable square feet at weighted (by rentable square feet) average rents that were 7.0% above prior rents for the same space.

The weighted (by rentable square feet) average lease term for these leases was 13.7 years and leasing concessions and capital commitments were $7,501 , or $14.80 per square foot.

Also during the quarter ended June 30, 2020 , we entered into new leases for an aggregate of 39,892 rentable square feet at weighted (by rentable square feet) average rents that were 25.9% below prior rents for the same space.

The weighted (by rentable square feet) average lease term for these leases was six years and leasing concessions and capital commitments were $156,629 , or $3.93 per square foot.

As of June 30, 2020 , our net lease tenants operated across more than 129 brands.

The following table identifies the top ten brands.

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Regal Cinemas

Express Oil Change

Represents historical cost of our properties plus capital improvements funded by us less impairment write-downs, if any.

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Annualized minimum rent amounts represent cash rent amounts due to us and exclude adjustments, if any, to record scheduled rent changes under certain of our leases, the deferred rent obligations payable to us under our leases with TA, and the estimated future payments to us under our TA leases for the cost of removing underground storage tanks at our travel centers on a straight-line basis, or any reimbursement of expenses paid by us.

As of March 31, 2020 , we have six net lease properties with a carrying value of $56,688 and annual minimum rent of $5,433 classified as held for sale.

As of June 30, 2020 , we have nine net lease properties with a carrying value of $8,248 and annual minimum rent of $789 classified as held for sale.

See page 36 for our definition of coverage.

Coverage amounts include data for certain properties for periods prior to when we assumed ownership of them.

Other includes 119 distinct brands with an average investment of $10,914 and average annual minimum rent of $677 .

As of March 31, 2020 , our top 10 net lease tenants based on annualized minimum rent are listed below.

As of June 30, 2020 , our top 10 net lease tenants based on annualized minimum rent are listed below.

Brand Affiliation

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TravelCenters of America

TravelCenters

TravelCenters and Petro

Universal Pool Co., Inc.

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Life Time Fitness

Destination XL Group, Inc.

Styx Acquisition, LLC

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Heartland Dental

Carmike Cinemas, LLC

Regal Cinemas, Inc.

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Eastwynn Theatres, Inc.

Express Oil Change, L.L.C.

Express Oil Change, LLC

Express Oil Change

Pilot Travel Centers LLC

Flying J Travel Plaza

B&B Movie Theatres, LLC

Subtotal, top 10

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As of March 31, 2020 , we have six net lease properties with an aggregate carrying value of $56,688 and annual minimum rent of $5,433 classified as held for sale.

As of June 30, 2020 , we have nine net lease properties with an aggregate carrying value of $8,248 and annual minimum rent of $789 classified as held for sale.

See page 36 for our definition of coverage.

Coverage amounts include data for certain properties for periods prior to when we assumed ownership of them.

Leases subject to full or partial corporate guarantee.

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TA's remaining deferred rent obligation of $48,440 is being paid in quarterly installments of $4,404 through January 31, 2023.

This property is held for sale at March 31, 2020 .

Other includes 170 tenants with an average investment of $7,916 and average annual minimum rent of $497 .

As of March 31, 2020 , our net lease tenants operated across 22 distinct industries within the service-oriented retail sector of the U.S.

As of June 30, 2020 , our net lease tenants operated across 22 distinct industries within the service-oriented retail sector of the U.S.

Investment (1) (2)

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Represents historical cost of our net lease properties plus capital improvements funded by us less impairment write-downs, if any.

As of March 31, 2020 , we have six net lease properties with an aggregate carrying value of $56,688 and annual minimum rent of $5,433 classified as held for sale.

As of June 30, 2020 , we have nine net lease properties with an aggregate carrying value of $8,248 and annual minimum rent of $789 classified as held for sale.

Each of our leases provides for payment to us of minimum rent, respectively.

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See page 36 for our definition of coverage.

Coverage amounts include data for certain properties for periods prior to when we assumed ownership of them.

As of March 31, 2020 , lease expirations at our net lease properties by year are as follows.

Percent of Total

Cumulative % of

Annualized Minimum

Total Minimum

Rent Expiring (2)

Rent Expiring

As of June 30, 2020 , lease expirations at our net lease properties by year are as follows.

Annualized Minimum Rent Expiring (2)

Percent of Total Annualized Minimum Rent Expiring

Cumulative % of Total Minimum Rent Expiring

The year of lease expiration is pursuant to contract terms.

As of March 31, 2020 , we have six net lease properties with an annual minimum rent of $5,433 classified as held for sale.

As of March 31, 2020 , shown below is the list of our top ten states where our net lease properties were located.

As of June 30, 2020 , we have nine net lease properties with an annual minimum rent of $789 classified as held for sale.

As of June 30, 2020 , shown below is the list of our top ten states where our net lease properties were located.

No other state represents more than 3% of our net lease annual minimum rents.

Percent of Total

Annualized Minimum

Annualized Minimum Rent

Percent of Total Annualized Minimum Rent

Related Person Transactions

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and some of our Trustees and officers serve as trustees, directors or officers of these companies.

TA, is our former subsidiary and largest tenant and we are its largest shareholder;

and Sonesta, is one of our hotel managers and we own an approximate 34% equity interest in Sonesta.

For further information about these and other such relationships and related person transactions, see Notes 6 , 7 , 9 and 10 to our Notes to condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our 2019 Annual Report, our definitive Proxy Statement for our 2020 Annual Meeting of Shareholders and our other filings with the Securities and Exchange Commission, or SEC.

TA, is our former subsidiary and our largest tenant, and Sonesta, is one of our hotel managers and we own an approximate 34% equity interest in Sonesta.

For further information about these and other such relationships and related person transactions, see Notes 6 , 9 and 10 to our Notes to condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our 2019 Annual Report, our definitive Proxy Statement for our 2020 Annual Meeting of Shareholders and our other filings with the SEC.

In addition, see the section captioned “Risk Factors” of our 2019 Annual Report and in this Quarterly Report on Form 10-Q for a description of risks that may arise as a result of these and other related person transactions and relationships.

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Other real estate companies and REITs may calculate FFO and Normalized FFO differently than we do.

Our calculations of FFO and Normalized FFO for the three months ended March 31, 2020 and 2019 and reconciliations of net income, the most directly comparable financial measure under GAAP reported in our condensed consolidated financial statements, to those amounts appear in the following table (amounts in thousands, except per share amounts).

For the Three Months Ended March 31,

Our calculations of FFO and Normalized FFO for the three and six months ended June 30, 2020 and 2019 and reconciliations of net income, the most directly comparable financial measure under GAAP reported in our condensed consolidated financial statements, to those amounts appear in the following table (amounts in thousands, except per share amounts).

For the Three Months Ended June 30,

For the Six Months Ended June 30,

Net income (loss)

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Adjustments to reflect the entity's share of FFO attributable to an investee (4)

FFO and Normalized FFO

Loss on early extinguishment of debt (5)

Gain on insurance settlement, net of tax (6)

Normalized FFO

Weighted average shares outstanding (basic)

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Net income (loss)

FFO and Normalized FFO

Normalized FFO

Distributions declared per share

We recorded a $6,911 loss on sale of real estate during the three months ended March 31, 2020 connection with the sales of six net lease properties.

We recorded a $2,853 net loss on sale of real estate during the three months ended June 30, 2020 in connection with the sales of four net lease properties, a $9,764 net loss on sale of real estate during the six months ended June 30, 2020 in connection with the sales of six net lease properties and a $159,535 gain on sale of real estate during the three months ended March 31, 2019 in connection with the sales of 20 travel centers.

We recorded a $28,514 loss on asset impairment during the three months ended June 30, 2020 to reduce the carrying value of 17 hotel properties and four net lease properties to their estimated fair value and a $45,254 loss on asset impairment during the six months ended June 30, 2020 to reduce the carrying value of 17 hotel properties and six net lease properties to their estimated fair value.

Unrealized gains and losses on equity securities, net represent the adjustment required to adjust the carrying value of our former investment in RMR Inc.

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on July 1, 2019 .

Represents our proportionate share of our equity investment in Sonesta.

Represents adjustments to reflect our proportionate share of FFO related to our equity investment in Sonesta.

We recorded a $6,970 loss on early extinguishment of debt during the three and six months ended June 30, 2020 related to our repurchase of $350,000 principal amount of our $400,000 of 4.25% senior notes due 2021 for an aggregate purchase price of $355,971 , excluding accrued interest.

We recorded a $62,386 gain on insurance settlement during the three months ended June 30, 2020 for insurance proceeds received for its leased hotel in San Juan, PR related to Hurricane Maria.

Under GAAP, we were required to increase the building basis of our San Juan hotel for the amount of the insurance proceeds.

We also recorded a $15,650 deferred tax liability as a result of the book to tax difference related to this accounting in the three months ended June 30, 2020 .

Represents weighted average common shares adjusted to reflect the potential dilution of unvested share awards.

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 2. Management’s Discussion and Analysis