What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-09 compared with 2020-08-10 · 452 added, 355 removed, 479 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 June 30, 2020 , we owned 1,138 properties in 47 states, the District of Columbia, Canada and Puerto Rico.

As of September 30, 2020, we owned 1,133 properties in 47 states, the District of Columbia, Canada and Puerto Rico.

Impact of COVID-19

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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.

States and municipalities across the United States have generally allowed most businesses to reopen and have generally eased certain restrictions they had previously implemented in response to the COVID-19 pandemic, often in stages that are phased in over time, although some states and municipalities have imposed or reimposed certain restrictions in response to increases in COVID-19 infections experienced since then.

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.

economy has increasingly improved since the lowest periods experienced in March and April 2020, although the U.S.

gross domestic product remains below pre-pandemic levels.

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

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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.

As of November 6, 2020, 17 of these 19 hotels have resumed operations.

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

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% .

Occupancy at our 329 hotels was 43.6% for the third quarter of 2020 (40.3% in July 2020, 43.5% in August 2020 and 45.8% in September 2020).

For the 28 days ended October 31, 2020, occupancy at our hotels was 46.6%.

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.

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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.

During the nine months ended September 30, 2020, we advanced an aggregate of $91,203 of working capital to certain of our hotel operators to cover projected operating losses.

We advanced $37,000 to IHG, $30,000 to Marriott, $14,187 to Sonesta, $6,316 to Wyndham and $3,700 to Hyatt.

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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 .

We sent notices of default and termination to IHG for failure to pay minimum returns and rents due to us of $36,776 for the third quarter of 2020 and that we will transfer the branding and management of 102 of the 103 hotels to Sonesta on December 1, 2020.

We sent notices to Marriott terminating our agreement for its failure to cover the $23,952 cumulative shortfall between the payments we have received to date and 80% of the cumulative priority returns due to us for the nine months ended September 30, 2020.

The effective date of the termination is January 31, 2021 and we currently plan to transfer the branding and management of 98 of these hotels to Sonesta.

Pursuant to our existing agreement with Marriott, we are proceeding with the sale of 24 of the 122 Marriott branded hotels.

For information regarding our agreements with IHG and Marriott and these terminations, 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 November 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, 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.

Although TA’s has been recognized as providing services to essential businesses by various governmental 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 (some of which TA has reopened), and implementing social distancing and other measures at its travel center stores.

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

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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 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.

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

During the three months ended September 30, 2020, we collected 87.2% of the rents due to us for those months from our other net lease tenants.

During October 2020, we collected 87.4% of the rents due to us for the month from our other net lease tenants.

We have entered into rent deferral agreements for an aggregate of $13,437 of rent with 51 net lease retail tenants with leases requiring an aggregate of $53,413 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.

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

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.

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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 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,

As of November 6, 2020, we have:

• $524,355 of availability under our revolving credit facility and we have received waivers of compliance with the existing 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;

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• raised $72,821 in net proceeds from asset sales and have entered agreements to sell additional properties for an aggregate sales price of $218,800,

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

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

• repaid our $400,000 term loan on November 5, 2020, and

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

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• 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.

• the responses of governments, businesses and the general public to any increased level or rates of COVID-19 infections.

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 position.

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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 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 sold 15 net lease properties with an aggregate of 1,148,411 rentable square feet and annual minimum rent of $6,135 for aggregate proceeds of $69,835, excluding closing costs, in ten separate transactions during the nine months ended September 30, 2020.

We have entered agreements to sell 24 Marriott branded hotels with 2,989 rooms in 10 states with a net carrying value of $140,798 for an aggregate sales price of $153,000.

We have entered an agreement to sell 15 Wyndham branded hotels with 1,642 rooms with a net carrying value of $40,519 for an aggregate sales price of $65,000.

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 amount of minimum returns due from Marriott will be reduced by the amount allocated to the Marriott hotels, which was $31,359 as of September 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.

accordingly, we cannot provide any assurance that we will sell any of these 39 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.

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Management agreements and leases .

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

At September 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.

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.

During the three and nine months ended September 30, 2020, we utilized $8,992 and $109,162, respectively, of hotel operator security deposits, and during the three and nine months ended September 30, 2020, we utilized $13,385 and $68,268, respectively, of the guarantees provided by certain of our hotel operators under their respective operating agreements.

As of September 30, 2020, $22,603 of guarantees ($19,487 under the Radisson agreement and $3,116 under the Hyatt agreement) were available to cover shortfalls in hotel cash flows available to pay the minimum returns due to us.

We have fully utilized the security deposits we held under our IHG agreement and Marriott agreement and exhausted the $30,000 limited guarantee under our Marriott agreement.

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

If Radisson or Hyatt are unwilling or unable to fund our minimum returns, 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 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.

For the three months ended September 30, 2020 and 2019, we excluded 15 hotels from our comparable results.

Three of these hotels were not owned for the entire period and 12 suspended operations as a result of the COVID-19 pandemic during part of the periods presented.

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

Three of these hotels were not owned for the entire period, four were closed for major renovations and 18 suspended operations as a result of the COVID-19 pandemic during part of the periods presented.

Hotel operations .

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

During the three and nine months ended September 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.

During the three and nine months ended September 30, 2020, our 314 and 304 comparable hotels that we owned continuously for the periods, respectively, 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 June 30, 2020 compared to the same period in 2019 for our 306 comparable hotels:

For the three months ended September 30, 2020 compared to the same period in 2019 for our 314 comparable hotels:

ADR decreased 26.7% to $89.50;

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and RevPAR decreased 56.6% to $41.17.

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

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

ADR decreased 30.0% to $89.88;

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and RevPAR decreased 60.3% to $39.19.

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

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

ADR decreased 18.4% to $98.15;

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and RevPAR decreased 50.2% to $44.36.

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

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

ADR decreased 20.7% to 103.3;

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Net Lease Portfolio .

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.

As of September 30, 2020, we owned 804 net lease service-oriented retail properties with 13,682,478 square feet and annual minimum rent of $369,803, which represented approximately 38.5% of our total annual minimum returns and rents.

Our net lease portfolio was 98.0% occupied as of September 30, 2020 by 183 tenants with a weighted (by annual minimum rent) lease term of 11.0 years, operating under 129 brands in 22 distinct industries.

TA is our largest tenant.

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.

As of September 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 49 through 52 below.

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

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

For the Three Months Ended June 30,

Three Months Ended September 30, 2020 compared to the Three Months Ended September 30, 2019

For the Three Months Ended September 30,

Increase % Increase

2020 2019 (Decrease) (Decrease)

Hotel operating revenues $ 199,719 $ 525,290 $ (325,571) (62.0) %

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General and administrative 12,295 12,464 (169) (1.4) %

Loss on asset impairment

Loss on asset impairment 10,248 — 10,248 n/m

Other operating income:

Loss on sale of real estate

Gain on insurance settlement

Dividend income

Unrealized gains (losses) on equity securities, net

Gain on sale of real estate 109 — 109 n/m

Unrealized gains (losses) on equity securities, net 5,606 (3,950) 9,556 n/m

Interest income 6 688 (682) (99.1) %

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

Income tax benefit (expense)

Equity in earnings (losses) of an investee

(101,569) 40,458 (142,027) (351.0) %

Income tax benefit (expense) 296 (467) 763 n/m

Equity in earnings (losses) of an investee (1,369) 83 (1,452) n/m

Net income (loss) $ (102,642) $ 40,074 $ (142,716) (356.1) %

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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 June 30, 2020 , compared to the three months ended June 30, 2019 .

$ (0.62) $ 0.24 $ (0.86) (358.3) %

References to changes in the income and expense categories below relate to the comparison of consolidated results for the three months ended September 30, 2020, compared to the three months ended September 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 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 49.

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 ($3,082).

The decrease in rental income – hotels is primarily the result of the conversion of one hotel from a leased to a managed property during 2020 ($2,630), amending the lease terms for 48 vacation units we leased at one hotel during 2020 ($943) and IHG’s default of the lease covering one hotel in San Juan, PR ($1,318).

Rental income - hotels for the 2019 period includes $80 of adjustments to record rent on a straight-line basis.

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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 ($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).

The decrease in hotel operating expenses is a result of a decrease at certain managed hotels as a result of lower occupancies primarily driven by the COVID-19 pandemic ($88,148), a decrease in wage and benefit costs, sales and marketing expenses and other operating costs at certain of our managed hotels ($81,752), an increase in the amount of guaranty and security deposit utilization under certain of our hotel management agreements ($27,311), a decrease in the amount of guaranty and security deposit replenishments under certain of our hotel management agreements ($3,631) and a decrease in real estate taxes at certain of our hotels ($3,186), partially offset by our hotel acquisitions since January 1, 2019 ($605) and the conversion of one hotel from a leased to managed property during the 2020 period ($329).

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.

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 .

Hotel operating expenses were increased by $2,405 for the three months ended September 30, 2019.

There were no such replenishments for the three months ended September 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 $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 .

Hotel operating expenses were decreased by $30,474 and $2,404 for the utilization of our security deposits and guarantees during the three months ended September 30, 2020 and September 30, 2019, respectively.

Other operating expenses.

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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 ($6,020) and our hotel acquisitions since January 1, 2019 ($471), partially offset by certain of our depreciable assets becoming fully depreciated since January 1, 2019 ($5,493).

The decrease 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 ($2,481) and our hotel acquisitions since January 1, 2019 ($381), partially offset by certain of our depreciable assets becoming fully depreciated since January 1, 2019 ($5,274).

Depreciation and amortization - net lease portfolio.

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General and administrative.

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

The decrease in general and administrative costs is primarily due to a decrease in business management fees in the 2020 period partially offset by an increase in professional service expenses.

Loss on asset impairment.

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.

We recorded a $10,248 loss on asset impairment during the three months ended September 30, 2020 to reduce the carrying value of one hotel and two net lease properties to their estimated fair value.

Gain on sale of real estate.

We recorded a $109 net gain on sale of real estate during the three months ended September 30, 2020 in connection with the sales of five net lease properties.

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 .

Unrealized gains and losses on equity securities, net represents the adjustment required to adjust the carrying value of our investment in TA common shares to its fair value as of September 30, 2020 and September 30, 2019.

Interest income.

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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.

Loss on early extinguishment of debt represents costs incurred in the 2019 period resulting from the termination of a term loan commitment we arranged in connection with the SMTA Transaction.

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.

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

Equity in earnings (losses) of an investee.

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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,

Nine Months Ended September 30, 2020 compared to the Nine Months Ended September 30, 2019

For the Nine Months Ended September 30,

Increase % Increase

2020 2019 (Decrease) (Decrease)

Hotel operating revenues $ 700,578 $ 1,521,368 $ (820,790) (54.0) %

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General and administrative 37,621 36,906 715 1.9 %

Loss on asset impairment

Loss on asset impairment 55,502 — 55,502 n/m

Gain (loss) on sale of real estate (9,655) 159,535 (169,190) (106.1) %

Gain on insurance settlement

Gain on insurance settlement 62,386 — 62,386 n/m

Dividend income — 1,752 (1,752) (100.0) %

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Income before income taxes and equity earnings of an investee

(152,630) 275,292 (427,922) (155.4) %

Income tax expense (16,706) (1,266) (15,440) 1,219.6 %

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Weighted average shares outstanding (basic) 164,397 164,294 103 0.1 %

Weighted average shares outstanding (diluted)

Weighted average shares outstanding (diluted) 164,397 164,332 65 n/m

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 .

$ (1.06) $ 1.67 $ (2.73) (163.5) %

References to changes in the income and expense categories below relate to the comparison of consolidated results for the nine months ended September 30, 2020, compared to the nine months ended September 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).

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 ($834,219), partially offset by the conversion of one hotel from a leased to a managed property ($13,429).

Additional operating statistics of our hotels are included in the table on page 49.

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).

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 ($9,336), amending the lease terms for 48 vacation units we leased at one hotel during 2020 ($3,001) and IHG’s default of the lease covering one hotel in San Juan, PR ($1,318).

Rental income - hotels for the 2020 and 2019 periods includes $1,897 and $241, respectively, of adjustments to record rent on a straight-line basis.

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The increase in rental income - net lease portfolio is primarily a result of rents from properties we acquired pursuant to the SMTA Transaction ($96,382).

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.

We increased rental income by $1,599 and reduced rental income by $7,609 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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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).

The decrease in hotel operating expenses is a result of a decrease in occupancy at certain managed hotels primarily driven by the COVID-19 pandemic ($265,896), an increase in the amount of guaranty and security deposit utilization under certain of our hotel management agreements ($204,968), a decrease in wage and benefit costs, sales and marketing expenses and other operating costs at certain of our managed hotels ($119,405), a decrease in real estate taxes at certain of our hotels ($3,708) and a decrease in the amount of guaranty and security deposit replenishments under certain of our hotel management agreements ($3,910), partially offset by our hotel acquisitions since January 1, 2019 ($2,219), and the conversion of one hotel from a leased to managed property during the 2020 period ($12,563).

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 .

As a result, hotel operating expenses were increased by $8,519 for the nine months ended September 30, 2019.

There were no such replenishments for the nine months ended September 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.

Hotel operating expenses were decreased by $222,134 and $21,775 during the nine months ended September 30, 2020 and 2019, respectively, as a result of such utilization.

Other operating expenses.

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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).

The decrease in depreciation and amortization - hotels is a result of certain of our depreciable assets becoming fully depreciated since January 1, 2019 ($16,575), partially offset by depreciation and amortization of improvements acquired with funds from our FF&E reserves or directly funded by us since January 1, 2019 ($14,854) and our hotel acquisitions since January 1, 2019 ($1,143).

Depreciation and amortization - net lease portfolio.

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General and administrative.

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

The increase in general and administrative costs is primarily due to an increase in professional service expenses, partially offset by lower business management fees in the 2020 period .

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.

We recorded a $55,502 loss on asset impairment during the nine months ended September 30, 2020 to reduce the carrying value of 18 hotels and eight 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.

We recorded a $9,655 net loss on sale of real estate in the 2020 period in connection with the sales of 15 net lease properties and a $159,535 gain on sale of real estate during the nine months ended September 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.

We recorded a $62,386 gain on insurance settlement during the nine months ended September 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.

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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.

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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.

We recorded a $6,970 loss on early extinguishment of debt, net of unamortized discounts and deferred financing fees, related to our repurchase of $350,000 principal amount of our $400,000 of 4.25% senior notes due 2021.

We recorded a $8,451 loss on early extinguishment of debt in the three months ended September 30, 2019 related to the termination of a term loan commitment we arranged in connection with the acquisition of a net lease portfolio.

Income tax 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 in the three months ended June 30, 2020 .

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 nine months ended September 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.

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Our Managers and Tenants

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

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

Our 804 net lease properties were leased to 183 tenants as of September 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.

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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.

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 returns and rent and reduce the value of those properties.

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.

During the nine months ended September 30, 2020, we advanced an aggregate of $91,203 of working capital to certain of our hotel operators to cover projected operating losses.

We advanced $37,000 to IHG, $30,000 to Marriott, $14,187 to Sonesta, $6,316 to Wyndham and $3,700 to Hyatt.

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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 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 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.

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 and any additional impact this pandemic will have on our future cash flows.

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 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.

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.

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.

We have exhausted the security deposits held under the IHG agreement covering 103 hotels and IHG has defaulted on its payment obligations.

We have 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.

The effective date of the termination is January 31, 2021 and we currently plan to transfer to Sonesta the branding and management of the 98 hotels, to the extent not sold.

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 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 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;

• we amended and restated our then existing Sonesta agreement, and our pooling agreement with Sonesta, which combines these 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 then managed by Sonesta.

Based on current market conditions, we have decided not pursue the sale of these 39 hotels at this time;

• the annual minimum returns due for the 14 full-service hotels that Sonesta continued to manage were 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;

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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 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.

Wyndham is not entitled to any base management fees for the remainder of the agreement term.

Between September 18, 2020 and October 1, 2020, Sonesta assumed management of four hotels previously managed by Wyndham.

We entered into management agreements with Sonesta with respect to these four hotels on terms substantially consistent with our other applicable management agreements with Sonesta in effect after we restructured our business arrangement with Sonesta on February 27, 2020, except that the management agreements are scheduled to terminate on December 31, 2021, subject to automatic one-year extensions.

The management agreements for these hotels have not been added to our pooling agreement with Sonesta.

As noted above, our management agreements with IHG for 103 of our hotels are scheduled to terminate effective November 30, 2020, and our management agreements with Marriott for 122 of our hotels are scheduled to terminate effective January 31, 2021.

Management of 200 of these hotels, excluding hotels sold prior to the termination date, is expected to be transitioned to Sonesta.

As we transition management of these hotels, we expect that we will enter management agreements with Sonesta on terms similar to those for the four hotels formerly managed by Wyndham that were transitioned to Sonesta management between September 18, 2020 and October 1, 2020, as further described above.

As of September 30, 2020, 17 of our hotels were operated under a management agreement with Wyndham.

In September 2020, we amended the management agreement with Wyndham so that it will continue as the manager of these Wyndham branded hotels for a limited period.

Under the amended terms of this agreement, we will pay Wyndham a management fee of 7% of hotel revenues, subject to certain minimums.

In September 2020, we rebranded three hotels previously managed by Wyndham to Sonesta.

On October 1, 2020, we rebranded one additional Wyndham hotel previously managed by Wyndham to Sonesta.

We expect to sell 15 Wyndham branded hotels in the fourth quarter of 2020.

TA, our largest tenant, is current on all its rent obligations to us as of November 5, 2020.

During the three months ended September 30, 2020, we collected 87.2% of rents from our other net lease tenants.

In October 2020, we collected 87.4% of rents due to us from our other net lease tenants.

We have entered into rent deferral agreements with 51 net lease retail tenants with leases requiring an aggregate of $53,413 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 November 5, 2020, we have deferred an aggregate of $13,437 of rent.

More detail regarding coverage, guarantees and other features of our hotel operating agreements is presented in the tables and related notes on pages 50 through 51.

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.

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 third quarter of 2020 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 September 30, 2020, our net lease properties generated coverage of 2.12x.

Our Operating Liquidity and Capital Resources

Our principal sources of funds to meet operating and capital expenses, debt service obligations and distributions to our shareholders are minimum returns from our managed hotels, minimum rents from our leased hotel and net lease portfolio and borrowings under our revolving credit facility.

Our principal sources of funds to meet operating and capital expenses, debt service obligations and distributions to our shareholders are minimum returns and rents from our hotels and net lease portfolio and borrowings under our revolving credit facility.

We receive minimum returns and rents from our managers and tenants monthly.

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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 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.

Due to the economic uncertainty caused by the COVID-19 pandemic, we reduced our quarterly distribution to our shareholders beginning in the second quarter of 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.

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,

Nine Months Ended September 30,

Cash and cash equivalents and restricted cash at the beginning of the period $ 81,259 $ 76,003

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Cash and cash equivalents and restricted cash at the end of the period $ 85,977 $ 70,509

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 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.

The decrease in cash flows provided by operating activities for the nine months ended September 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 decrease in cash flows used in investing activities in the 2020 period is primarily due to a decrease in real estate acquisition and disposition activity in the 2020 period.

The decrease in cash provided by financing activities for the nine months ended September 30, 2020 as compared to the prior year period is primarily due to a decrease in proceeds from the issuance 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 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.

During the nine months ended September 30, 2020, our hotel managers and tenants deposited $52,541 to these accounts and spent $127,837 from the FF&E reserve escrow accounts to renovate and refurbish our hotels.

As of September 30, 2020, there was $38,130 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 as late as December 31, 2020 as further defined below.

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.

As a result, less cash will be available to us to fund future capital improvements and we may be required to provide additional fundings in excess of amounts that otherwise would have been available in escrowed FF&E reserves.

As a result, less cash will be available to us to fund future capital improvements and we may be required to provide additional fundings that may have otherwise been available in escrowed FF&E reserves.

Our hotel operating agreements generally provide that, if necessary, we may provide our managers and tenants with funding for capital improvements to our hotels in excess of amounts otherwise available in escrowed FF&E reserves or when no FF&E reserves are available.

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 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.

During the nine months ended September 30, 2020, we funded $103,974 for capital improvements in excess of FF&E reserve fundings available from hotel operations to our hotels as follows:

• During the nine months ended September 30, 2020, we funded $50,415 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.

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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.

We currently expect to fund $20,000 for capital improvements under this agreement during the last three 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 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 .

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

We currently do not expect to fund any capital improvements during the last three 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 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.

During the nine months ended September 30, 2020, we funded $48,119 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 $30,000 of capital improvements, including costs related to rebranding hotels, during the last three 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 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 .

• We did not fund any capital improvements under our Hyatt agreement during the nine months ended September 30, 2020.

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

• We did not fund any capital improvements under our Radisson agreement during the nine months ended September 30, 2020.

We currently do not expect to fund any capital improvements under this agreement during the last three 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 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.

During the nine months ended September 30, 2020, we reimbursed $1,540 of capital improvements to certain hotels included in our Wyndham agreement using cash on hand.

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

We funded $4,418 of capital improvements to properties under these lease provisions during the nine months ended September 30, 2020.

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

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.

As of September 30, 2020, we had $4,716 of unspent leasing-related obligations related to certain net lease tenants.

During the nine months ended September 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 nine months ended September 30, 2020, we sold 15 net lease properties with approximately 1,148,411 square feet in 15 states for an aggregate sales price of $69,835, excluding closing costs.

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

In October and November 2020, we sold three net lease properties with 82,623 square feet with a carrying value of $4,518 for an aggregate sales price of $4,900.

We have also entered into an agreement to sell one net lease property with approximately 3,000 square feet with a carrying value of $778 as of September 30, 2020 for a sale price of $800.

We currently expect the sale of the net lease property to be completed in the fourth quarter of 2020.

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

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

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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 have entered into an agreement to sell 24 Marriott branded hotels with 2,989 rooms in 10 states with an aggregate net carrying value of $140,798 for an aggregate purchase price of $153,000.

We have entered agreements to sell 15 Wyndham branded hotels with 1,642 rooms with a net carrying value of $40,519 for an aggregate sales price of $65,000.

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 amount of annual minimum returns due from Marriott will be reduced by the amount allocated to the hotels, which was $31,359 as of September 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 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.

accordingly, we cannot provide any assurance that it will sell any of these 40 hotels.

During the nine months ended September 30, 2020, we declared and paid regular quarterly distributions to common shareholders using cash on hand or borrowings under our revolving credit facility as follows:

Declaration Date Record Date Paid Date Dividend Per Common Share Total Distributions

January 16, 2020 January 27, 2020 February 20, 2020 $ 0.54 $88,863

March 30, 2020 April 21, 2020 May 21, 2020 $ 0.01 $1,646

July 16, 2020 July 27, 2020 August 20, 2020 $ 0.01 $1,646

$ 0.56 $92,155

On October 15, 2020, we declared a regular quarterly distribution to common shareholders of record on October 26, 2020 of $0.01 per share, or $1,646.

We expect to pay this amount on or about November 19, 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, until it was repaid on November 5, 2020, a $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 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 .

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 September 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 September 30, 2020.

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

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 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 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.

On May 8, 2020, we amended the credit agreement governing our $1,000,000 unsecured revolving credit facility and $400,000 unsecured term loan.

The amendment provides for a waiver of certain of the financial covenants under our credit agreement through the Waiver Period during which, subject to certain conditions, we will continue to have access to undrawn amounts under the credit facility.

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 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.

If, following a release of pledges in connection with Qualified Note Issuance, a request for a borrowing under the revolving facility would result in more than $750,000 outstanding under the revolving facility, we are required to deliver new equity pledges such that the Collateral Value Percentage is no more than 50%.

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 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:

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

As of September 30, 2020, we had $80,086 outstanding and $919,914 available to borrow under our revolving credit facility.

As of November 6, 2020, we had $475,645 outstanding and $524,355 available to borrow under our revolving credit facility, subject to the minimum liquidity requirements under our credit agreement described below.

Our term loan, which was scheduled to mature on July 15, 2023, was prepayable without penalty at any time.

We were 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 September 30, 2020.

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

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

We repaid this term loan on November 5, 2020.

We and our lenders amended our credit agreement governing our $1,000,000 revolving credit facility and $400,000 term loan on May 8, 2020 and again on November 5, 2020.

The May 2020 amendment provided a waiver of certain of the financial covenants under our credit agreement through March 31, 2021, or the Waiver Period, during which, subject to certain conditions, we continued to have access to undrawn amounts under the credit facility.

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

• we were 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 rate 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 was 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 $0.01 per common share per quarter;

• we were 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 were 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;

• we pledged equity interests in certain of our property owning subsidiaries to secure our obligations under the credit agreement.

These subsidiaries owned properties with $1,028,155 of undepreciated book value as of September 30, 2020.

As a result of the November 2020 amendment:

• all existing financial covenants have been waived through the New Waiver Period;

• we repaid our $400,000 term loan on November 5, 2020 using undrawn amounts under our revolving credit facility;

• we have pledged certain additional equity interests of subsidiaries owning properties.

Following the closing of the amendment, we will provide first mortgage liens on 74 properties owned by the pledging subsidiaries with an undepreciated book value of $1,837,392 as of September 30, 2020 to secure our obligations under the credit agreement;

• we have the ability to fund up to $250,000 of capital expenditures per year and up to $50,000 of certain other investments per year as defined in the credit agreement;

• the interest rate premium over LIBOR under our revolving credit facility increased by 30 basis points;

• certain covenants and restrictions on distributions to common shareholders, share repurchases, incurring indebtedness, and acquiring real property (in each case subject to various exceptions), and the minimum liquidity requirement of $125,000 will remain in place during the New Waiver Period;

• we are generally required to apply the net cash proceeds from the disposition of assets, capital markets transactions and debt refinancings to the repayment of outstanding loans under the credit agreement, and then to other debt maturities.

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

Year Maturity

2024 1,175,000

2025 1,150,000

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.

Also, as noted above, we are limited in our ability to incur additional debt during the New 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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Off Balance Sheet Arrangements

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.

As of September 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 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 debt obligations at September 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 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.

As of September 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 waivers of certain covenants.

Senior Notes Indenture Covenants

We are in compliance with all of the financial covenants applicable to our senior unsecured notes.

The following table summarizes the results of the financial tests required by the indentures and related supplements for our senior unsecured notes as of September 30, 2020:

Actual Results Covenant Requirement

Total debt / adjusted total assets 50.4% Maximum of 60%

Secured debt / adjusted total assets 3.9% Maximum of 40%

Consolidated income available for debt service / debt service 2.05x Minimum of 1.50x

Total unencumbered assets / unsecured debt 197.2% Minimum 150%

The above consolidated income available for debt service to debt service coverage ratio as of September 30, 2020 is based on results for the fourth quarter of 2019 and first, second and third quarters of 2020.

This ratio was 2.86x as of year-end 2019, 2.87x as of March 31, 2020, 2.85x as of June 30, 2020 and, as noted above, was 2.05x as of September 30, 2020.

We expect this ratio to continue to decline in 2020 as more quarters of historically weak operations resulting from the COVID-19 pandemic are reflected in the calculation.

We expect the ratio could fall below the 1.5x requirement as of the end of the first quarter of 2021 and we will not be able to incur additional debt while the ratio is below this requirement.

Acceleration and Cross-Default

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.

However, under our credit agreement, our highest senior debt rating is used to determine the fees and interest rates we pay.

Accordingly, if that debt rating is downgraded, our interest expense and related costs under our revolving credit facility and term loan would increase.

Accordingly, if that debt rating is downgraded, our interest expense and related costs under our revolving credit facility would increase.

Our public debt indentures and their supplements contain cross default provisions to any other debt of $20,000 or more ($50,000 or more in the case of our indenture entered into in February 2016 and its supplements).

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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 September 30, 2020

As of December 31, 2019

Real estate properties, net (1)

$ 6,794,249 $ 7,200,561

Intercompany balances (2)

613,532 728,918

Other assets, net 829,160 644,768

Total assets $ 8,236,941 $ 8,574,247

Indebtedness, net $ 6,212,174 $ 6,062,547

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Total liabilities $ 6,541,359 $ 6,513,921

Six Months Ended

June 30, 2020

Year Ended December 31, 2019

Nine Months Ended

September 30, 2020 Year Ended December 31, 2019

$ 916,970 $ 2,284,612

1,160,666 2,053,200

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.

(243,696) 231,412

(1) Real estate properties, net as of September 30, 2020 and December 31, 2019, includes $205,240 and $249,620, respectively, of properties owned directly by us and not included in the assets of the subsidiary guarantors.

(2) Intercompany balances represent receivables from non-guarantor subsidiaries.

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

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.

As of September 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 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 .

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

As of September 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 49 summarize significant terms of our hotel lease and management agreements as of September 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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However, this third party reported information is not a direct measure of our financial performance and we have not independently verified the operating data.

Operating Agreement Reference Name

Number of Properties

Number of Rooms or Suites (Hotels)

Investment (1)

Operating Agreement Reference Name Number of Properties Number of Rooms or Suites (Hotels) Investment (1)

Annual Minimum Return/Rent (2)

Rent / Return Coverage (3)

Three Months Ended

Twelve Months Ended

Marriott (4)(6)

Sonesta (4)(7)

Radisson (4)(9)

Wyndham (4)(10)

Total / Average Hotels

Three Months Ended Twelve Months Ended

September 30, September 30,

2020 2019 2020 2019

103 17,154 $ 2,381,721 $ 216,551 0.13x 0.89x 0.31x 0.89x

122 17,085 1,891,334 194,613 0.02x 1.16x 0.24x 1.08x

56 10,297 2,067,982 124,795 (0.30)x 0.55x (0.18)x 0.59x

22 2,724 301,942 22,037 0.01x 0.77x 0.18x 0.90x

9 1,939 289,139 20,442 (0.55)x 1.38x (0.12)x 0.95x

17 2,205 159,497 13,030 (0.30)x 0.70x (0.24)x 0.48x

Total / Average Hotels 329 51,404 $ 7,091,615 $ 591,468 (0.04)x 0.90x 0.14x 0.87x

(1) Represents the historical cost of our hotel properties plus capital improvements funded by us less impairment write-downs, if any, and excludes capital improvements made from FF&E reserves funded from hotel operations which do not result in increases in hotel minimum returns or rents.

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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.

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.

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

(4) 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 taxable REIT subsidiaries, or TRSs.

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The annual minimum return amount presented in the table above includes $7,908 of minimum rent related to the leased Puerto Rico hotel.

The management agreement and the lease expire in 2036;

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

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.

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, if any.

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.

The management agreement and the lease were scheduled to expire in 2036;

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

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

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.

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

(5) 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.

The hotels under the Marriott agreement are managed by subsidiaries of Marriott and require aggregate annual minimum returns of $194,613.

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 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.

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

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 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.

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;

The effective date of the termination is January 31, 2021 and we currently plan to transfer to Sonesta the branding and management of 98 of these hotels to the extent not sold.

(6) We lease our 56 Sonesta branded hotels (seven Royal Sonesta® Hotels, nine Sonesta Hotels & Resorts® and 40 Sonesta ES Suites® hotels) in 26 states to certain of our TRSs.

53 of these hotels are managed by Sonesta under a combination management agreement which expires in 2037;

Sonesta has two renewal options for 15 years each for all, but not less than all, of these 53 hotels.

Three hotels that were rebranded to Sonesta from Wyndham in September 2020 are operating under agreements that expire on December 31, 2021.

On October 1, 2020, we rebranded one additional hotel previously managed by Wyndham to Sonesta.

We have no security deposit or guaranty from Sonesta.

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

As of September 30, 2020, the available Hyatt guaranty was $3,116.

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

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

As of September 30, 2020, the available Radisson guaranty was $19,487.

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

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 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.

Payment by Wyndham is limited to the available cash flows after payment of operating expenses.

Wyndham is not entitled to any base management fees for the remainder of the agreement.

(9) As of September 30, 2020, 17 of our hotels were operated under a management agreement with Wyndham.

In September 2020, we amended the management agreement with Wyndham so that it will continue as the manager of these Wyndham branded hotels for a limited time.

Under the amended terms of this agreement, we will pay Wyndham a management fee of 7% of hotel revenues, subject to certain minimums.

In September 2020, we rebranded three hotels previously managed by Wyndham to Sonesta.

On October 1, 2020, we rebranded one additional Wyndham hotel previously managed by Wyndham to Sonesta.

We expect to sell 15 Wyndham branded hotels in the fourth quarter of 2020.

The following tables summarize the operating statistics, including ADR, occupancy and RevPAR reported to us by our hotel managers or tenant by management agreement or lease for the periods indicated.

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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)

Suites Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 Change 2020 2019 Change

103 17,154 $ 80.80 $ 122.03 (33.8 %) 93.06 123.32 (24.5 %)

Marriott 122 17,085 103.70 136.82 (24.2 %) 120.67 138.67 (13.0 %)

56 10,297 99.04 138.47 (28.5 %) 109.87 143.89 (23.6 %)

Hyatt 22 2,724 86.36 105.76 (18.3 %) 94.43 109.67 (13.9 %)

Radisson 9 1,939 91.17 141.65 (35.6 %) 112.01 136.66 (18.0 %)

Wyndham 17 2,205 57.68 81.14 (28.9 %) 64.63 80.14 (19.4 %)

All Hotels Total / Average 329 51,404 $ 89.88 $ 128.33 (30.0 %) $ 103.30 $ 130.31 (20.7 %)

Sonesta (1) (2) (3)

103 17,154 54.8 % 79.9 % (25.1) pts 51.8 % 77.7 % (25.9) pts

Marriott 122 17,085 34.6 % 75.7 % (41.1) pts 35.7 % 72.4 % (36.7) pts

56 10,297 42.8 % 75.0 % (32.2) pts 41.0 % 70.7 % (29.7) pts

Hyatt 22 2,724 47.1 % 79.4 % (32.3) pts 44.9 % 78.9 % (34.0) pts

Radisson 9 1,939 25.2 % 79.5 % (54.3) pts 30.5 % 72.7 % (42.2) pts

Wyndham 17 2,205 41.8 % 69.7 % (27.9) pts 41.7 % 65.9 % (24.2) pts

All Hotels Total / Average 329 51,404 43.6 % 77.0 % (33.4) pts 42.7 % 73.9 % (31.2) pts

103 17,154 $ 44.28 $ 97.50 (54.6 %) 48.21 95.82 (49.7 %)

Marriott 122 17,085 35.88 103.57 (65.4 %) 43.08 100.40 (57.1 %)

56 10,297 42.39 103.85 (59.2 %) 45.05 101.73 (55.7 %)

Hyatt 22 2,724 40.68 83.97 (51.6 %) 42.40 86.53 (51.0 %)

Radisson 9 1,939 22.97 112.61 (79.6 %) 34.16 99.35 (65.6 %)

Wyndham 17 2,205 24.11 56.55 (57.4 %) 26.95 52.81 (49.0 %)

All Hotels Total / Average 329 51,404 $ 39.19 $ 98.81 (60.3 %) $ 44.11 $ 96.30 (54.2 %)

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.

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

Operating data includes data for two hotels for periods prior to when these were managed by Sonesta.

(2) Operating data includes data for five hotels for periods prior to when these were managed by Sonesta.

Net Lease Portfolio

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

As of September 30, 2020, our 804 net lease properties located in 42 states were leased to 183 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 25.6% 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.

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 September 30, 2020.

As of September 30, 2020, our net lease properties were 98.0% occupied and we had 14 properties available for lease.

During the three months ended September 30, 2020 we entered into lease renewals for 496,756 rentable square feet at weighted (by rentable square feet) average rents that were 11.6% below prior rents for the same space.

The weighted (by rentable square feet) average lease term for these leases was 13.6 years and leasing concessions and capital commitments were $4,897, or $9.86 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.

Also during the quarter ended September 30, 2020, we entered into new leases for an aggregate of 2,535 rentable square feet at weighted (by rentable square feet) average rents that were 34.7% above 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 $189,210, or $74.64 per square foot.

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

During the nine months ended September 30, 2020 we entered into lease renewals for 1,063,320 rentable square feet at weighted (by rentable square feet) average rents that were 20.2% below prior rents for the same space.

The weighted (by rentable square feet) average lease term for these leases was 13.2 years and leasing concessions and capital commitments were $12,398, or $11.66 per square foot.

Also during the nine months ended September 30, 2020, we entered into new leases for an aggregate of 42,427 rentable square feet at weighted (by rentable square feet) average rents that were 1.40% above 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 $346, or $8.15 per square foot.

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

The following table identifies the top ten brands.

Investment (1) (3)

Percent of Total Investment

of Buildings Investment (1) (3)

Percent of Total Investment Annualized

Minimum Rent (2) (3)

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Minimum Rent (2) (3)

TravelCenters of America

Petro Stopping Centers

The Great Escape

Life Time Fitness

Buehler's Fresh Foods

Heartland Dental

Regal Cinemas

Express Oil Change

TravelCenters of America 134 $ 2,281,589 44.0 % $ 168,011 45.4 % 1.94 x

Petro Stopping Centers 45 1,021,226 19.7 % 78,099 21.1 % 1.53 x

AMC Theatres 11 102,580 2.0 % 8,702 2.4 % 0.72 x

The Great Escape 14 98,242 1.9 % 7,140 1.9 % 1.70 x

Life Time Fitness 3 92,617 1.8 % 5,770 1.6 % 1.13 x

Buehler's Fresh Foods 5 76,536 1.5 % 5,143 1.4 % 4.79 x

Heartland Dental 59 61,120 1.2 % 4,493 1.2 % 3.00 x

Pizza Hut 59 59,502 1.1 % 4,310 1.2 % 1.31 x

Express Oil Change 23 49,724 1.0 % 3,379 0.9 % 3.99 x

Flying J Travel Plaza 3 41,681 0.8 % 3,151 0.9 % 3.75 x

448 1,297,122 25.0 % 81,605 22.0 % 3.00 x

Total 804 $ 5,181,939 100.0 % $ 369,803 100.0 % 2.12 x

(1) 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 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.

(3) As of September 30, 2020, we have six net lease properties with a carrying value of $6,735 and annual minimum rent of $536 classified as held for sale.

(4) See page 40 for our definition of coverage.

(5) Other includes 119 distinct brands with an average investment of $10,900 and average annual minimum rent of $686.

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

Brand Affiliation

Investment (1) (2)

Percent of Total Investment

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

Tenant Brand Affiliation No.

of Buildings Investment (1) (2)

Percent of Total Investment Annualized

Minimum Rent (2) (3)

Percent of Total Annualized

TravelCenters of America

TravelCenters and Petro

Minimum Rent Coverage (4)

TravelCenters of America TravelCenters of America/ Petro Shopping Centers 179 $ 3,302,815 63.7 % $ 246,110 66.6 % 1.81x (5) (6)

Universal Pool Co., Inc.

The Great Escape

Healthy Way of Life II, LLC

Life Time Fitness

Styx Acquisition, LLC

Buehler's Fresh Foods

The Great Escape 14 98,242 1.9 % 7,140 1.9 % 1.70x

Healthy Way of Life II, LLC Life Time Fitness 3 92,617 1.8 % 5,770 1.6 % 1.13x (5)

Styx Acquisition, LLC Buehler's Fresh Foods 5 76,536 1.5 % 5,143 1.4 % 4.79x (5)

Professional Resource Development, Inc.

Heartland Dental

Regal Cinemas, Inc.

Regal Cinemas

Heartland Dental 59 61,120 1.2 % 4,493 1.2 % 3.00x

Eastwynn Theatres, Inc.

Express Oil Change, LLC

Express Oil Change

Pilot Travel Centers LLC

Flying J Travel Plaza

B&B Movie Theatres, LLC

Subtotal, top 10

AMC Theatres 5 41,771 0.8 % 3,541 1.0 % 0.32x

Express Oil Change, L.L.C.

Express Oil Change 23 49,724 1.0 % 3,379 0.9 % 3.50x

Pilot Travel Centers LLC Flying J Travel Plaza 3 41,681 0.8 % 3,151 0.9 % 3.50x

Automotive Remarketing Group, Inc.

Automotive Remarketing Group 6 34,314 0.7 % 2,992 0.8 % 4.85x

American Multi-Cinema, Inc.

AMC Theatres 2 35,310 0.7 % 2,866 0.8 % 0.59x

Subtotal, top 10 299 3,834,130 74.1 % 284,585 77.1 % 1.91x

Various 505 1,347,809 25.9 % 85,218 22.9 % 2.83x

Total 804 $ 5,181,939 100.0 % $ 369,803 100.0 % 2.12x

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

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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.

(3) As of September 30, 2020, we have six net lease properties with an aggregate carrying value of $6,735 and annual minimum rent of $536 classified as held for sale.

(4) See page 40 for our definition of coverage.

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(7) Other includes 173 tenants with an average investment of $7,791 and average annual minimum rent of $493.

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)

Percent of Total Investment

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

of Buildings Investment (1) (2)

Percent of Total Investment Annualized

Minimum Rent (2) (3)

Percent of Total Annualized

Travel Centers

Restaurants-Quick Service

Movie Theaters

Restaurants-Casual Dining

Health and Fitness

Miscellaneous Retail

Medical/Dental Office

Automotive Parts and Service

Automotive Dealers

Entertainment

Educational Services

Sporting Goods

Miscellaneous Manufacturing

Building Materials

Drug Stores and Pharmacies

Legal Services

General Merchandise

Home Furnishings

Dollar Stores

Minimum Rent Coverage (4)

Travel Centers 182 $ 3,344,496 64.5% $ 249,261 67.5 % 1.83 x

Restaurants-Quick Service 248 317,833 6.1% 20,986 5.7 % 2.31 x

Restaurants-Casual Dining 55 203,002 3.9% 11,763 3.2 % 1.72 x

Movie Theaters 22 190,725 3.7% 11,783 3.2 % 0.69 x

Health and Fitness 13 184,744 3.6% 11,511 3.1 % 1.13 x

Grocery 19 129,219 2.5% 8,598 2.3 % 4.60 x

Medical/Dental Office 71 118,098 2.3% 9,185 2.5 % 3.18 x

Miscellaneous Retail 19 114,433 2.2% 8,892 2.4 % 1.92 x

Automotive Parts and Service 63 96,496 1.9% 6,583 1.8 % 3.33 x

Automotive Dealers 9 64,756 1.2% 5,118 1.4 % 4.98 x

Entertainment 4 61,436 1.2% 2,435 0.7 % 1.61 x

Educational Services 9 55,647 1.1% 4,135 1.1 % 2.08 x

Sporting Goods 3 52,022 1.0% 3,489 0.9 % 3.06 x

Home Furnishings 5 37,215 0.7% 2,854 0.8 % 0.92 x

Miscellaneous Manufacturing 6 31,824 0.6% 2,245 0.6 % 15.93 x

Building Materials 27 30,036 0.6% 2,523 0.7 % 5.64 x

Car Washes 5 28,658 0.6% 2,086 0.6 % 4.84 x

Drug Stores and Pharmacies 8 23,970 0.5% 1,646 0.4 % 1.41 x

Legal Services 5 11,362 0.2% 1,019 0.3 % 2.08 x

Apparel 1 11,027 0.2% 670 0.2 % 3.14 x

General Merchandise 3 7,492 0.1% 541 0.1 % 3.48 x

Dollar Stores 3 2,971 0.1% 186 0.1 % 3.09 x

Other 10 25,905 0.5% 2,294 0.4 % 4.33 x

Vacant 14 38,572 0.7% — — % —

Total 804 $ 5,181,939 100.0% $ 369,803 100.0 % 2.12 x

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

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.

(2) As of September 30, 2020, we have six net lease properties with an aggregate carrying value of $6,735 and annual minimum rent of $536 classified as held for sale.

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

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(4) See page 40 for our definition of coverage.

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

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

Square Feet Annualized Minimum Rent Expiring (2)

Percent of Total Annualized Minimum Rent Expiring Cumulative % of Total Minimum Rent Expiring

2020 77,720 $ 1,798 0.5% 0.5%

2021 478,322 5,409 1.5% 2.0%

2022 564,526 7,448 2.0% 4.0%

2023 147,678 2,316 0.6% 4.6%

2024 692,937 10,048 2.7% 7.3%

2025 438,433 8,796 2.4% 9.7%

2026 869,520 9,917 2.7% 12.4%

2027 1,064,806 14,379 3.9% 16.3%

2028 555,109 9,597 2.6% 18.9%

2029 1,311,612 47,350 12.8% 31.7%

2030 184,368 3,987 1.1% 32.8%

2031 1,467,658 49,757 13.5% 46.3%

2032 1,233,445 50,689 13.7% 60.0%

2033 1,107,227 53,349 14.4% 74.4%

2034 134,640 4,523 1.2% 75.6%

2035 2,577,853 81,288 22.0% 97.6%

2036 320,792 5,306 1.4% 99.0%

2037 — — 0.0% 99.0%

2038 10,183 416 0.1% 99.1%

2039 185,437 3,278 0.9% 100.0%

2040 1,739 152 0.0% 100.0%

Total 13,424,005 $ 369,803 100%

(1) The year of lease expiration is pursuant to contract terms.

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.

(2) As of September 30, 2020, we have six net lease properties with an annual minimum rent of $536 classified as held for sale.

As of September 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.

Annualized Minimum Rent

Percent of Total Annualized Minimum Rent

State Square Feet Annualized Minimum Rent Percent of Total Annualized Minimum Rent

Texas 1,205,393 $ 32,139 8.7%

Illinois 1,019,885 26,147 7.1%

Ohio 1,302,273 25,303 6.8%

California 399,045 21,758 5.9%

Georgia 597,248 19,230 5.2%

Indiana 637,239 18,035 4.9%

Pennsylvania 639,519 17,773 4.8%

Arizona 476,651 17,002 4.6%

Florida 538,130 16,013 4.3%

New Mexico 246,478 10,994 3.0%

Other 6,620,617 165,409 44.7%

13,682,478 $ 369,803 100.0%

Related Person Transactions

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These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income (loss) as indicators of our operating performance or as measures of our liquidity.

These measures should be considered in conjunction with net income (loss) as presented in our condensed consolidated statements of income (loss).

We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income.

These measures should be considered in conjunction with net income (loss) as presented in our condensed consolidated statements of income.

We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income (loss).

We believe these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization expense, they may facilitate a comparison of our operating performance between periods and with other REITs.

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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 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,

Our calculations of FFO and Normalized FFO for the three and nine months ended September 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 September 30, For the Nine Months Ended September 30,

2020 2019 2020 2019

Net income (loss) $ (102,642) $ 40,074 $ (173,641) $ 274,643

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(Gain) loss on sale of real estate (1)

(109) — 9,655 (159,535)

Loss on asset impairment (2)

10,248 — 55,502 —

Unrealized (gains) and losses on equity securities, net (3)

(5,606) 3,950 (4,409) 43,761

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

(900) — (461) —

FFO 23,195 147,184 264,203 460,590

Loss on early extinguishment of debt (5)

— 8,451 6,970 8,451

Gain on insurance settlement, net of tax (6)

— — (46,736) —

Normalized FFO $ 23,195 $ 155,635 $ 224,437 $ 469,041

1 unchanged sentence

Weighted average shares outstanding (diluted) (7)

164,435 164,348 164,397 164,332

Basic and diluted per common share amounts:

Net income (loss)

$ (0.62) $ 0.24 $ (1.06) $ 1.67

FFO $ 0.14 $ 0.90 $ 1.61 $ 2.80

Normalized FFO

$ 0.14 $ 0.95 $ 1.37 $ 2.85

Distributions declared per share $ 0.01 $ 0.54 $ 0.56 $ 1.61

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.

(1) We recorded a $109 net gain on sale of real estate during the three months ended September 30, 2020 in connection with the sales of five net lease properties and a $9,655 net loss on sale of 15 net lease properties during the nine months ended September 30, 2020.

We recorded 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.

(2) We recorded a $10,248 loss on asset impairment during the three months ended September 30, 2020 to reduce the carrying value of one hotel and two net lease properties to their estimated fair value.

We recorded a $55,502 loss on asset impairment during the nine months ended September 30, 2020 to reduce the carrying value of 18 hotel properties and eight net lease properties to their estimated fair value.

(3) 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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(4) 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.

(5) We recorded a $6,970 loss on early extinguishment of debt during the nine months ended September 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.

(6) We recorded a $62,386 gain on insurance settlement during the nine months ended September 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 .

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

(7) 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